Stellantis NV (STLA) 2003 Q2 法說會逐字稿

Please stand by, this is Premier Conferencing, we are about to begin.

Welcome to the Fiat conference call to discuss the 2003 Second Quarter Results.

For your information this conference is being recorded

Hosting today's call is Marchello Ledda (ph).

Mr. Ledda (ph) you may now begin.

Good morning, good afternoon everyone.

I'm Marchello Ledda (ph), Head of Investor Relations at Fiat.

Welcome to Fiat sirs, 2003 Second Quarter call.

You should have all received by e-mail our press release and copy of Slides we'll be using for this call.

Release and Slides (ph) will be also available on the Website at www.fiatgroup.com.

Mr. Feruccio Luppi, our Chief Financial Officer will review the results, operations for the quarter.

Together with Feruccio other management representatives on the table, who'd be then available to then answer all of our questions.

Before passing the microphone to Mr. Luppi (ph) let me just remind you that we will be making forward-looking statements during the introductory remarks in our question and answer section.

These are covered by the customized state probable regions (ph), which you can find on our PDF (ph) filings with the US16 Gen (ph) Exchange Commission.

I would start right away by passing the mike to Mr. Luppi.

Thank you Mr. Ledda (ph).

Good morning, afternoon to everyone.

So, the Q3 (ph), 2003 is another -- again -- a challenging eventful quarter.

I just remind two main figures -- an operating loss of 25 million and net loss reduced to 38 million and improved net financial position of over 4 billion euros.

We are still preparing the group for the future -- is clear.

We have some positive signs both from operational standpoint and from accelerated disposal program.

But the hard work that we've started last year has started now to pay off, but we have still a lot more to do in the coming months, that should be clear.

The operating loss reduced to 25 million euros are better than the previous quarter and the same quarter last year, is mainly due to the cost cutting on track on Fiat Auto in the quarter more than 300 million and cumulated at the end of six months at 600 million.

The other operation of Fiat Auto is substantial in line with last year despite total market environment (ph).

Well, you see that the net loss has been reduced also for the contributional (ph) sum, capital gain -- mainly the disposal of Toro insurance activities, and also the net financial position is proved mainly by proceeds from disposal of Toro.

Well, let me give more details of good results in Slide number 3 -- Starting from the quarterly result in the net revenue Slide.

You see that the revenue is reduced by 2.2 billion euros is a reduction of around 16 percent.

But we're reminded (ph) to say that if we don't consider the consolidation scope, the reduction is only six percent.

And if we consider this six percent out of the exchange rate impact, the reduction is very lower than that, mainly.

So we have the same scope and the same exchange rate and net revenue that slightly reduced, is compared to the previous year.

The same thing for the first six months, reduction mainly due to scope and exchange rate impacts.

The operating income more or less 25 is reduced by 100 million euros as compared to the previous year.

Again if we consider the disposal, the 102 million becomes 150 million that confirms the impact of the restructuring that planned that we are managing inside the company.

At the ITEDI (ph) arrival, we are the same level of the previous year, around 554 million euros this mainly due to the impact of the disposal again, in revenue of Fraikin and Teksid and also the exchange rate on relations on effects on CNH.

Finally turn you to the net financial position -- you see that we are increasing as compared to the end of the last year, but decreasing as compared to the end of March.

You have to take into account different elements -- some elements are such as like the seasonality, some other elements are linked to specific actions that we are recommend (ph) after.

Mainly the stock creation to support the launch of new models and some other elements are quite exceptional, mainly due to the sale and disposal of Toro .

This net financial position doesn't take into account yet the proceeds from the rights issue (ph) -- 1.8 billion that we cashed in yesterday.

About the RP (ph) picture, you see that the main part of the operating loss has been accounted in the first three months.

Some deadlines of the Q3 as usual Q3 suffers from seasonal impact, let me remind you that in Italy, particularly the August month is really very low month in terms of activities.

But this result will be in line with the first two quarters -- that means, a reduction as compared to the previous year of the same period.

So we will try to confirm this trend also in Q3.

And in any case in this period, not only for the second quarter but also for the third quarter, we're phase in, phase out as new products we still invest in costs, preparing for the new launch of the products.

So it'll be something that we would be to take into account.

Let's now turn to the Fiat Auto performances -- Slide number 4.

The revenues of Fiat Auto declined over around 566 million, that means in absolute value, something (ph) of 9.6 percent.

We consider the change of scope, mainly the field (ph) transactions -- the reduction is 7.5.

In volumes, in terms of units sold -- around 448,000 cars, the reduction is 5.7 percent.

Revenues drops lower than registrations -- is lower that previous (ph) quarter, as dealers and stocks are replaced with new products, this is important.

In any case, we have seen a significant reduction in operating losses of 160 and in the cumulated into six months, this reduction is 250 million.

The improvement in operating income has been substantial reflecting the dedicated AD dealers (ph).

So, we can go to the next Slide where we show the market share trends -- some global comments.

Since the last quarter 2002 we have stabilized around 28 percent market share, its true that it's not yet our final target, that we announced in June representation around Turin (ph).

But US (ph) can see that particularly Q2 of this year, we start the phasing Ferrari(ph) that means that the 28 is something with our new models that we have lined in the next month is something to represent the flow of maybe of the capacity of the group in the current market.

In the rest of the Europe the market share was 3.4 percent less than 3.7, but the month of June showed us some signs of improvement, particularly in U.K. and Spain.

And finally in light commercial vehicles, that is a very profitable segment or activity.

We realize another strong performance, particularly in Italy where there is 45 percent market share, so the demand is sudden (ph).

We work in extremely aggressive competition scenario, that is true and the competitors tried to take advantage of the period (ph), which we are phasing Ferrari (ph) but we perfectly know it and will react on that.

We are confident in the fact (ph) of the new model, particularly we can confirm that for the new facelifts of Punto, we received a good book of order -- more than 125,000 vehicles, that means more than three months of production.

And another qualitative improvement is the mixed break down between diesel engines that represents 40 percent of this new order.

That means the fact that we have these types of engines could represent the future competitive vantage with our competitors.

It's true that the launch of these new models will require careful management both the marketing action and inventories and so on.

So start going to Slide number 6, you'll see the impact on inventories of that (ph).

At the end of the previous quarter we reduced inventories to prepare the dealer network receiving the new models, now we are rebuilding this level because we have started to produce that and also we are -- let's say -- changing and the lack of production following the engine plant rules (ph).

I remember there was a loss of around 30,000 units by this engine -- lack (ph) of production.

So we consider this increase in new product (ph) inventory quite usual -- normal, as a part of the preparation of the new models.

There is no change in the quality (ph) of inventory -- there are mainly fresh new models, and just information also for the new Ypsilon that will be the second of the Punto face-lifting we stand now to ship the delivery in July -- so this is important.

Slide number 7, you'll see the evolution of the operating loss in Fiat Auto, represented probably, remember the key element of the reduction of the group operating losses.

If compared to the previous quarter, the total difference was around 160 million, and you'll see a continuation, even an acceleration of the trend that we saw in Q1, when the reduction was just 90 million in operating losses.

And all that despite the fact that we're still in phase out mode and we are still in difficult market conditions.

The sharp reduction in Petrol volume at least compared to Q1, very similar due to phase out and aggressive competition.

The key element of the change is Cost Cutting program.

You see that in three months is in excess of 300 million and the cumulative is in excess of 600 million.

That confirms completely the target -- the minimum target that the company announced, more or less six months ago, of one billion on full year basis -- cost cutting target.

So, we confirm this target as for the six months, we've already reached part of this target.

And by this action, we have reduced the break-even point.

Moving to the CNH -- Slide number 8.

As you know, CNH reported last week the results.

On a cost on the currency basis, the total revenues are roughly unchanged from the Q2 of last year; evidently the impact of the exchange rates had huge impact in the accounts of Fiat.

CNH is destocking and making room for new products -- new products the group is not just for the Auto, it is also for all the other automotive activities.

We have services like Tractors (ph) in agriculture; we sell more small machines than medium and big machines.

And in construction equipment we decided not to match with the aggressive pricing action by competitors.

On the reduction (ph) side, the cost reduction is perfectly on track and this is generating significant savings -- approximately $50 million in a quarter.

Net income is unchanged, thanks to the low rate of expense (ph), I remind you that we realized that at the beginning of the year that worked out to around $2 billion.

Globally what we expect in the future -- not us but also competitors -- we start to see a more positive trend, particularly in the States, on the markets -- agriculture and construction that gives us some possibility to expect an improvement in respectable target for CNH.

Moving finally to the track activities -- Slide number 9 -- IVECO.

Well, we have to take into account to explain the drop in net revenues, specific phenomenally in the Italian market, when at the end of 2002, some tax incentives expired.

So we observed in the first half of 2003, a drop of around 24 percent of volumes -- that is specifically.

In the Western Europe market, the share -- market share of 11.2 was down 1.4 points.

And also we have an impact on net revenues and operating incomes due to change in scope, mainly the disposal of Fraikin activities.

So if we consider the changed scope, the drop in revenues is just 2.6 percent.

The other sectors in the Fiat group are quite in line with the expectation and increase in some areas if compared to the previous year.

Let's say, there is a reduction in operating income of Ferrari, mainly due by the bigger product that the Ferrari is doing in R&D and marketing to launch a new Maserati brand.

As you know, the new Maserati model -- the four-door sedan will be presented at the Frankfurt Auto Show in September will represent the first to step of this Maserati re-launch plan.

As the other components and automotive related activities, the revenues are substantially in line, if we exclude the divested operations, for instance taxes.

There is stability in result even in lower basis volume, particularly from Fiat Auto.

These activities are arriving to compensate by other customers or by cost cutting action, the results.

They are able to generate productivity and to compensate worse market conditions.

As Toro and FiatAvio know we yesterday had a final closing for the Toro on the cashing of 2.4 billion, yesterday night.

And for the Fiat Aviation activity we signed a binding agreement on the 1st of July, we are just now waiting for the regulatory approvals, we expect the final close before the end of the year -- maybe in September, but our target is within the end of the year.

Then we move to the next Slide number 10 that is spoken on what happened below the operating -- between the operating income line and the net income line.

The net loss sharply reduced, is closer to break even as compared to the previous year, despite lower contribution from extraordinary income.

Capital gains for instance that are accounting in this quarter for around 340 million for Toro before taxes were practically doubled of the previous year with the Ferrari disposal.

Improvement in net investment income is mainly result of no mark-to-market adjustment to equity held by insurance operations.

The line up of operating income includes mainly the capital gain from Toro -- 390 -- to be compared, as mentioned before, with the Ferrari last year was 714 million, and we have some miscellaneous charges and restructuring costs.

Net income charge (ph) continue to be lower than 02, reflecting lower revenue (ph) interest during that inter period.

The lower financial income from Toro operation was largely compensated by favorite (ph) transactions effect in CNH financial service.

What is important that in the first six months, net interest expenses decreased by approximately 100 million as compared to the previous six months of the last year -- that's important.

We are using the proceeds of disposal, not only to finance the cash burden during and to breed the restructuring plan, but also to reduce the cost, deduct the (ph) cost.

As anticipated in Q1 comments, the value of GM's stocks almost totally recovered at the end of June, allowing us the reversal of the mark-to-mark adjustment that we have to book in Q1.

We now move to the cash flow for the quarter on Slide 12 -- that is important.

You see that at free operating cash flow levels for quarter is still negative, mainly because of the increase in working capital, because I repeat we are in a period where main factor our rebuilding stocks with the new model to prepare the launch of that.

I say main factor is not only Auto, also the other automotive activities.

The swing in working capital partly is at par when one considering on the opposite side.

Last year in the same period sector, where an action to reduce inventories and this year the opposite, we have built inventories.

So the difference -- huge difference of 270 million, because we are in a different phase of strategy.

Last year reduction of stock, this year increase in stock.

Finally, the freightage flow (ph) was strongly out rated by the appreciation of the euro against the dollar.

When translating then much higher CNH flow (ph) is imitating (ph) the euro, so you see that last year around 378 million has been reduced -- the cash burden in this year was stabilized as the exchange rate is practically zero.

The liquidity has shown improvement by recently concluded transactions as will show in the next Slide, for which I will ask Mr. Gobitori (ph) to help me to explain the Gross (ph) position in liquidity.

In this Slide you see the customary presentation of how we split assets and liabilities, and once again you can see the gross (ph) that degrees (ph) and we maintain a healthy position.

The cash in marketable securities basically now -- almost entirely of industrial side as Toro is not consolidated any more, and we have not included, obviously, the 2.4 billion proceeds for Toro this quarter, which we received yesterday as they are being accounted for as receivables as of June 30th.

In fact in the next Slide we have decided to give you even further disclosure about our debts as we got lots of curiosity around it.

And you can see what a difference a year makes.

As compared to June 2002, there is a significant increase in our component and in the strength of our capital structure as we have already consolidated in the first base (ph) of this (ph) and have continued to reduce our short-term debt component.

In fact if we go line by line, the financial receivables on leasing as compared to March is basically affected by a reduction of 3.5 billion because of the consolidation of the first phase of Fidis (ph), the sale of the first perimeter, and 2.4 billion receivable for the sale of Toro.

And the short-term bank debt is almost 50 percent less than a year ago, we don't have any exposure to short-term capital market and the current portion of medium term is roughly unchanged.

In that other debt, most of the increase is due to the fact that we have -- as inserted the debt that we will incur to buy 49 percent of Fidis in the second perimeter while we will be receiving from the joint venture the same amount as the purchase price.

So it looks higher because of an accounting entry.

And in the income source, medium debt, this is significant reduce also by 3 billion as compared to last year almost 3 billion while it doesn't account yet for the new transaction which is CNH closed a couple of days ago.

So all in all we have 6 billion less of financial liabilities and we expect that will shrink further as we complete number of transaction that we have described early on.

Thank you.

OK, fine I -- just to conclude on this key events of things (INAUDIBLE) tree well, first of all this quarter is a two -- show two digit figure both for operating losses and losses and net losses.

This is important but we -- is it how long as we are still to be done, it is important, but we are confident on the cost side and we perfectly understand on the revenue side that the external on market condition difficulties but we are really to play with that.

During this quarter, the second quarter, it's not on Slide but is a very important issue; we complete the preparation launch plan.

We explained the Launch Plan during the road show on the right (ph) issue, I would adjust to remember that these plan bottom up, as plan has been prepared with hours and hours of meeting with all of other major executive managers of the group and we will follow on a monthly basis the execution of this plan.

For the single events evidently where we are to remember to you the sale bindings sale for FiatAvio this will be the next import on cash in before the end of the year, the issuing of the 750 million in 8-year CNH senior notes, the disposal of Toro and proceeds received and rest of the two were received particularly of 98 percent of the right (ph) issue that we launched and we realize it in one month.

So we believe that again the financial resources to breech the industrial relationship (ph) is in the company.

We have confident repeat on the tough (ph) side, we are prepared to play with a market condition -- and the best way but we will -- we work in this line as we have done in the previous quarter.

I think that now we can start with questions

Thank you sir.

Ladies and gentleman today's question and answer session will be conducted electronically.

If you would like to ask a question please press the '*' or asterisk key followed by the digit one on your telephone keypad.

We will take questions in the order received and will take as many as time permit.

Again ladies and gentlemen please press '*' 1 if you wish to ask a question.

Our first quick question will come from Mr. John Lawson (ph) of Smith Barney.

Please go ahead

Thanks very much.

You have referred already to the first state of the Fidis retail disposal, would you just remind us please about the second phase in terms of its impact on growth and on net debt?

At the same time we have met the net financial position as promised in, in the rights (ph) document; at that time I think we were expecting Toro proceeds to have a 1.4 billion impact on net indebtedness, in fact it was 1.2 billion.

Could you just explain what change was that?

Yes, the first question, the second part received (ph) the transaction we expect to -- just say in the third or fourth quarter, will generate around 1.1 billion cash in of liquidity.

The change in net financial position negative around the 90, 100 million and so at this time when we complete the global disposal of series (ph) that I remind you was expected to reduce gross debt of around 6 billion euro.

For the change in net financial position Toro I agree with you that probably that if we confer the change at the beginning of the year or if we just consider the change in the quarter when we accounted for the disposal of Toro.

Because during the first part of the year the net -- positive net financial position of Toro we reduce 200 million, so when we speak of about the first half results we started with the net financial issue beginning of the year that was higher than when we considered just the second quarter when we start with net financials of Toro in the -- at the end of March.

So it's just a matter of period we made reference.

I see.

I am sorry, I missed what the change in the net financial position on Fidis was -- on the second stage ...

Yes the second stage around 90 -- between 90 and 100 million.

That's it.

Thanks very much.

From J.P.

Morgan, we will take our next question from Hanan Ali Bal (ph).

Please go ahead.

Hi, it's actually John Sod (ph).

On the cash and marketable securities Slide what's Toro conversant action and you have proceeds from the rights (ph) issue.

Is it right to assume that that will then turn out to somewhere near 7 billion?

Well yes, you should have to add that 4.2 billion, 1.800 or for the capital increase and 2.4 for Toro.

So that's 4.2 if you add to 2.6 you get almost a 7 billion.

Ok, the cash related Toro is already gone off the balance sheet then?

As of today, June 30 -- yes.

The balance sheet at the end of June was accounted in financial receivable and then we translate it.

Toro at the end of June has been accounted with the consolidated.

Ok.

Thank you.

In fact that occurred in retrospective occur on May 2nd as the contract was already binding and once the approval was received, we accounted for retrospectively.

Thank you.

As a reminder ladies and gentlemen, if you wish to ask a question, please press the '*' or the asterisk key followed by the digit 1 on you telephone keypad.

From Euro Mobilarzim (ph) we will now turn to Martina de Mooraje (ph).

Please go ahead.

Good afternoon to everybody.

First question, concerns Fidis -- probably I didn't find it in your press release, but I'd like to understand if Fidis was consolidated also on the profit and loss.

(INAUDIBLE).

Thank you.

The first batch of companies which have been sold which as we say is approximately 50 to 55 percent of it have been deconsolidated (ph) or they have been sold.

The others will be the deconsolidated as they get sold and we estimate that to occur as again on September.

OK, if I can change my question, just understand which was the impact of Fidis in second quarter professional loss as result of Fiat Alto (ph).

The operational results were around 30 million loss ...

As it compared to ...

... 30 million less as compared to this year.

OK.

And my second question is related to what a colleague of mine asked before so, you said that net debt was 6.2 billion already disclosing which was your net debt as of June.

Minus 1.2 of Toro there is a difference of 0.2.

I don't know what could be the difference

In giving you the 6.2 estimate, obviously, we wanted to be as prudent as we could be without mislead (ph).

So if you get minus 1.2 you get to 2, 5 it turns out better operationally.

The part of the newer tradition the rule (ph) confer with the future when people ask -- like -- to say something to do better.

OK.

Thank you.

And last question if I may.

You gave our rough guide on Q3.

You said we'll be better than Q3, 2002 when you lost the 340 million euros.

It is possible to discuss on that a contribution of Fiat Alto (ph) to these results, if it's better then Q3 2002 and probably if it's possible a range.

At least not a range fairly because of Fiat Alto (ph) is following phase in, phase out these results so really on the cost side we believe that we can control but we have to see -- wait and see the results on the launch and the products.

In any case as you saw in the first two quarter the main driver of the recovery and reduction and losses was Fiat Alto (ph).

So when we say that in the third quarter the group should confirm this positive trend is again mainly for the impact on the Alto (ph).

OK, thank you very much.

From West LB (ph) we are going to now turn to Mr. Ines Anninghead (ph).

Please go ahead.

Thank you and good afternoon.

A question on Brazil.

The Brazilian market is quite difficult currently.

Down something like in the 10 or 12, 15 percent this year you are also losing market share in Brazil and I would like to get a feeling if you being a market leader in the Brazilian market how you see the situation and we have heard from one of your competitors last week that they are going to restructure their business.

Are you also going to restructure some of your Brazilian operations and also may be on pricing in Brazil.

We learned from Reno (ph) that they are offering zero percent financing in Brazil and -- in the market with interest rates, something like 25 percent.

Could you may be give us a feeling about what's going on there?

yes, it's true that the Brazilian market is going down around 20 percent.

So we had to pay the entire major compared to this impacts.

We also lost a part from our share but because we decide not to participate to this strong competition trying to buy I guess shares with a lower price and so and so I think that partially due to the decision of the company to stay to lose some market shares but to not to enter in this dangerous situation.

Now evidently, if we consider this reduction to market, this tax reduction to market reduction, will you stop to act with a cost cutting action as you know we started to discuss globally with GM people about sharing cost about trying to making together purchasing.

So it will be if like a industrial normal plan of reaction in this worst market condition have in mind that we have to find inside a company with the market is not giving us and we have not to participate or to start a price war just to defend a market share.

And could you give us a feeling about your result in Brazil, how much losses did you make in the first half there?

We don't give general information about the result by countries and we feel it is still too early to say because we have to observe the Brazilian market is a volatile market so we can observe at the end also some improvement so to say.

Our target is to have profitability at the end I am not sure that during 2003 considering these market condition we'll reach then but we will work at trying to compensate to repeat the slack of volume.

But we should not expect any restructuring started in the second half on Brazil.

No, I don't think so, no.

If in the globe (ph) the restructuring charges at the launch (ph) plan we -- the Brazil area is not the key.

OK.

Thank you.

We will now turn to Derek Ferguson (ph) with Morgan Stanley.

Please go ahead.

Thank you.

Two questions please, associated with Slide 14.

The first one is of the 2.7 billion short-term bank debt.

Can you give us an idea of how much of that you did anticipate being rolled into the following year and the second one is -- of the financial receivables and leasing right at the top of the page, could you give us a feel for how much of that can be considered short term and how much long term, an equivalent split to the short term and medium term debt maturity that you have given.

Vito (ph) will be answering.

OK.

In Slide 13 maybe you will get an answer to one of you questions that we are basically described the financial aspects by maturity.

So if you can compare with the debt.

With regards to the 2.7 billion I would -- potentially we could roll over all of it I mean we don't have any indication that we shouldn't be able to roll it over.

And in fact this has been consistently the case for the last 12 months.

OK.

Thank you.

Pierre Luigifolini (ph) from Goldman Sachs has the next question.

Yes hi, a question on working capital please.

In -- usually the second half of the year and particularly the fourth quarter generates significant amount of liquidity from working capital for seasonal reasons.

Now probably this year this liquidity was, in addition, was greater than just for seasonal effect because as you said you were moving out of older models and this year presumably generation of working capital will be less than the seasonal effect will suggest because you are adding new models.

So could you give us some guidance as to what impact do you expect working capitals to have on your liquidity in the second half of the year and also on working capital, could you mention if you have a specific target in terms of rec -- What do you think you can achieve slipping out of -- slipping out of -- no effect but slipping out of the impact of -- for the introduction of the new model, do you have a specific target in mind in terms of trade working capital versus sales versus where you stand now.

Well it's again, difficult to give you guide right now during this very strong phase in phase out period -- remind you that the within the end of the year we are launching the other (ph) activity for new models so something important.

What we can say.

If we can confirm that the last quarter generally is more positive in terms of working capital, what we can say considering all the elements, not just the working capital are also the operating results and the impact of the disposal then you get after the next disposal to be completed that is Fiat Aviation activity.

The next financial position at the end of the year is estimated negative around 2.5 billion, so that means that having taken account the Right Issue (ph) proceed and the FiatAvio disposal fees (ph) and the cash flow for the period and the power of restructuring costs that we'd be using during the year.

We will arrive at the end of the year, our net financial position -- negative 2.5.

And one more question on Fidis please.

So Fidis is supposed to have the second and final part of Fidis.

Would how much a gross debt will it reduce?

And I think you mentioned this before, but I didn't quite hear it.

How much cash is it also supposed to bring in?

We already told the answer in ...

OK it's going to be -- the debt consolidation is going to be roughly 2 billion and we should be -- we should receive about 1.2 billion in terms of cash.

Thank you.

From Inter Montreal we'll now turn Massy Movakio (ph), please go ahead.

Good afternoon to everybody.

I have couple of questions.

This one, can you give then flavor of what was being cast generation by business if EVECO's in each generated cash or not and out of course is out of course.

The second question is on others motive businesses may have come back to profitability.

Can you say how much of debt was due to cost cutting and how much of debt was due to whether mix with pricing new products and of course what do you expect going forward for work for automated -- other automated business and also for the cash generation by business.

Thank you very much.

Yes, firstlywe don't give information about cash generated during the current year.

Just as indication, positive or negative or I don't know ...

At least in a -- well as indication we have to consider that EVECO has completed its main part of investment the previous years so now he has an advantage of it because of the fact that depreciation is higher than investments.

In the Auto (ph) we are in full period of investments and launched new product of or you can consider this that the ratio would be on the opposite.

P&A should have seen we're just imbalanced because they have also completed a large part of the restructuring investments.

It would depend also the cash generation, by revolution of the net working capital evidently.

The FiatAuto is paying 22 billion year of sales and so and with the phase in phase out period very very strong so before the end of the year ....

2 billion a year of the sales and so and with the phasing fast (ph) is actually very very strong so before the end of the year and the last days of December could change that.

So that's the reason why we prefer say that we are in line with this and at the end coming back to the net financials as far as the group we will see what is impact all.

The other activity, the profitability has been increased in short time by cost cutting that is the main action.

Particularly in Marilee (ph) and in Kummel (ph).

But till now, they're now investing to find to sell and follow through other competitors.

So second step for the launch plan of this activity (ph) will be to go have and to find new markets and new customer for the technology that they are -- we believe that they have a huge accessing technology that they can send to other people and that will be the policy for this automotive related activities.

So you think this trend will probably continue in the next quarters for the automotive sectors?

We think so, yes.

All right.

Thank you very much.

We will now turn to Roberto Condolmari (ph) with Cairos (ph).

Please go ahead.

Hello.

Yes good afternoon.

I have a question regarding the cash flow statement that you show on the Slide 12 and there is an item called "Change in funds and Others."

I wonder if you could provide some more details on how it sums up to negative 391 is represented by and whether this is something that, I mean I think that it's already it's -- it's a big number and it was the same, more or less in Q2.

So should one multiply these by four?

How does it work for the full year, roughly?

Thank you.

Well, for the first question, "Change in funds and Other," this is partially a separation of the net income in the sense that in this line we account for the capital gain impacts just to show a fund preparation that really link it to the user operation, business user.

So it's mainly due to reduction and then you will find again on the line disposal, lateral acquisition.

So the account functional (ph) slot.

So this is mainly taxes on capital gains.

Yes.

OK.

Just to correct the first line at net income and to move from a global net income to a fund cash flow from use of operations.

OK.

So basically the answer to the second question is it is connected to the amount of capital gain you book (ph) some up.

Yes.

Exactly.

OK.

Thanks.

Thank you.

From Commercial Bank Securities (ph) we will now turn to Michelle Yana (ph).

Please go ahead.

Hi, just a couple of questions, I am studying with the Slide 14.

Can you please verify the advance (ph) that number includes CNH (ph) credit facilities where you do have a guarantee arrangement and on the other CAPEX from the cash flow on Slide 12, I recall at the re-launch plan presentation I guess you were referring to about nine billion in a new product investment, I am not really seeing that much of an increase.

Is there something that we should be expecting in the latter half of this year and my third question is as for the other Auto Q3 outlook I guess somewhere in the press release you've mentioned that it's going to be better than or expected better than before.

Is it better relative to Q3 last year or relative to first half please?

This question to be told you by Dalton (ph) and come back.

You do speak fast but I think you asked whether the CNH (ph) debt is included where it's guaranteed.

That's what I understood.

Yes.

Well CNH (ph) is fully consolidated so all of CNH (ph) debt it's in our consolidated statements be that guaranteed or not guaranteed.

Is that enough?

Yes.

About the CAPEX I concur from you that the strength of CAPEX is in the Q2 2003 is in line with the 9 million global plan of investment that was four years so we are on track on that.

About the Q3 2003 Auto Operating losses I think we expect that will be lower than the same quarter the previous year, because of the cost cutting action on track and so because we showed that this cost cutting plan is running well.

So lower meaning lower merited (ph) numbers.

Yes.

Thank you.

We will turn now to Bruno Le Pierry (ph) with XN now, please go ahead.

Yes I have a question on the inventory level.

You increased the inventory levels by half, into quarter -- to prepare for the new product.

What would be an idea or a targeted level of inventory in the days after the launch period?

Is it two months safe or below this level?

Well.

You see in the Slide number 6 for the Fiat Auto.

You see that we have a month of sale of stock that is now two months of sale -- was 2.5 lets say one year ago, then we reduced stock, we could see that these will be -- 1.6 and seven in the last quarter were too low, because of the phase in phase out.

We going to say that something around two, 2.2 it could be a target for the stock having launched the new product.

What is important is also to note also in the Slides is that we maintain a very low level of -- the use of stock was 88,000 units (ph) last year in June and it is now 48.

That is the result of the quality sales.

It is important.

In general market share in Italy could you give us a flavor of what we can expect in July compared with the level you have in the second quarter which was low because of the phasing out of the old Punto?

Will we see any improvements in July or do we have to expect in August or maybe ...

...

Well no it's difficult.

As I told you in July the first (ph) is not yet finished.

As you know in the auto Italian market, we have a -- the last day is always an important day because they need a network that the (INAUDIBLE) does not with sums like that.

I think that we considered 28 like a floor during this period of phase in, phase out.

So we believe that we can maintain at this level but really we have to wait as usual last day before taking account of the final results which will be in the next two, three days, so we are confident that we stay at least the minimal level that was reached in the previous quarter.

Thank You.

As a reminder ladies and gentle men, if you wish to ask a question please press the star or asterisk key, followed by the digit one, on your telephone keypad.

From Morgan Staley we will now turn to Adam Jonas (ph).

Thanks and good evening.

Three questions -- First with the net deposition you ended the quarter with 4.8.

You said that you were targeting two and a half at the end of the year.

You start with the 4.8 then bring in the 1.8 billion of proceeds and the capital increase and then 1.4 from the sale of Avio (ph), you're basically factoring -- I think you had said there was going to be one billion of cash restructuring costs in the second half.

First can you confirm though that you're still going to stick one billion of cash restructuring costs, or maybe that timing has changed -- because if it is going to be a billion, then you're essentially targeting operational cash break-even for the second half.

That's the first convoluted the question.

The second is, what was the F EX (ph) impact on the net debts in movement in the second quarter.

I'm referring merely to your -- the U.S dollar denominated debt at CNH (ph).

And then finally when you're moving the Jingo (ph) -- when you're producing the Jingo (ph) in Poland ...

...

You mean the Panda.

Sorry, yes.

The Panda.

The Panda, sorry.

The Panda, yes.

I forgot -- not the Jingo (ph).

What -- where do you see your total production as a -- outside of Italy going over the next two or three years?

Thank you.

Well, well starting on the last question about the Panda, well our targets are really at least to sell the same volume of the previous old Panda but with a totally different marketing position in terms of pricing, in terms of perception.

Our preliminary target is around 200,000 cars a year, must be sold.

So this would be principle of the production in Poland.

Then I come back to the first question about the cash flow from operations till the second half of the year.

It's true that we start negative for 0.8 (ph) -- if we can see the 1.8 right issue, and 1.43 of the Fiat Aviation (ph), we should have at the end a better net financial position.

But as you mentioned we have to pay in the next month the restructuring cost.

This will be partially the cash restructuring cost of the previous provision that we've done last year.

I remind you that at the end of 2002 mainly for this year total restructuring plan, we encountered a huge amount of restructuring costs.

And now we are paying from there.

And mainly for -- another problem would be cost paid for the restructuring plan linked to this recent announced plan that we announced (ph).

So again I come back to the comments about the net working capital.

The cash flow of operation is really linked to the P and L and we can confirm that we are working to reduce the operating losses.

And during the full year 2003 the group authorizing (ph) losses should be substantially lower than the previous one that was 750 million -- more or less.

But it's also linked to the net working capital movement.

And again, at the end of October, November, December with these huge amount of new models arrive into the market, we can have some swing positive -- negative if you like, that will affect the published (ph) cash flow of operations.

So we prefer not to say exactly today because we cannot really manage entirely the flow of products between us, the dealer, and the market, considering they are totally new products.

So then you can confirm that roughly the billion end of cash restructuring between last year's charges in the new plan?

Well, this is in our plan.

What we'll see implementing the restructuring actions, how many of this money we spend before the end of the year or what part would be translated to the next year.

Evidently (ph) we for one side would like to accelerate the actions but from the other side like to wait the good condition and eventually to pay later.

And then just finally the F EX (ph).

Sorry?

And the F EX (ph) impacts in the quarter (ph).

I say, can you repeat that question?

Are you talking about foreign exchange rates in the quarter?

Yes just basically that ...

...

Yes ...

... this is from the translation of your debt balances in Dollars and I'm assuming that benefits your net financial position in the period.

Well, I just saw it n the slide, we are talking about the 60 million in the quarter.

60 million?

Yes.

Yes.

OK, thanks very much.

And there is also -- yes, OK.

Betafix Favar (ph) with Credit Lyonnais (ph) Securities has the next question.

Yes, good afternoon, I have three very quick questions.

The first one is on investments income.

The second quarter was a positive 31 million euros.

Could you tell us if it is a sustainable level?

My understanding was that with item excluding Toro (INAUDIBLE) was mainly driven by Italian merger goodwill amortization -- so negative item.

My second question is -- could you be more precise on the nature of miscellaneous and the provision that you presented in the second quarter, something like 160 million euros.

Are these provisions linked with the new turnaround plan?

And the third question is -- so we have to turn on that point from the C.F. (ph) outflow in the third quarter.

Maybe another way to put the question -- when do you think that the phase in will be stronger than the phase out -- at least in terms of whole (ph) phase, if not in terms of registrations?

Thank you.

Well, about the investment income, the differences compared to previous year, is mainly due to the fact that last year Toro had to account for strong mark to market depreciation for the financial assets.

That has been not the case this year fortunately, because the financial -- the value of the financial investments has not dropped, but in some cases increased.

So we didn't account for this mark to market because of external market conditions.

On the miscellaneous -- yes, energy (ph) is improving -- the results, I think they will announce that the results in the second quarter in the next days -- but we think that -- but this is not the most important reason why of this change.

And of miscellaneous, well, I ask to Mister Ledda (ph) to help me.

Jacques (ph) -- Marchello (ph) speaking.

What are you referring to -- you're talking about the ...

When you consider the extraordinary -- the typical (ph) gain on Toro and the -- you strip out from the -- of the non-operating income, you remain with a line which is 160 million of difference.

So I cannot explain this difference.

The other non-operating income is 226, when the growth gets to a gain of Toro of 390.

Yes, OK, so they are some of the structuring charges of approximately 100 million.

And then there is the usual miscellaneous charges here and there that account for the difference.

OK, these restructuring charges are for the old plan or the new one?

From a -- it's from all sectors (ph).

OK.

About the phase in, phase out were, the real change we start in September with the new Punto face lifting.

And we will follow with the Ypsilon and with the Panda and at the end with a newer Premier Sprint (ph).

So we think that really the -- you will start to see in the first quarter of this year -- the end of this phase in, phase out action (ph).

But as Mister Morque (ph) said, during the road show (ph) really, we will fully see the results in the first quarter 2004.

But this time we will have a clear check about the success of this new model, the market shares and the impacts on the costs and revenues.

So all -- to say, which wait till the end of the year for signing the fourth quarter by really final test, first quarter 2004.

OK, thank you.

Thank you.

From I.N.G.

B.H.S Bank, we will now turn to Daniel Schwartz (ph).

Yes, hello, one question.

Did I understand that right -- 100 million restructuring charges were booked in the first and the second quarter related to the new restructuring plan?

It's just a limited part of this new restructuring plan.

OK and what amount can one expect for the second half of the year -- restructuring charges related to the new plan?

Sorry, what amount in the -- last part?

What amount of restructuring charges -- extraordinary costs can one expect for the second half of the year?

Well, we have a global restructuring costs to be accounted.

It's linked to the four-year range plan of around 1.8 billion, OK?

We think that considering the speedness (ph) of realization, within the end of the year, we will account for --let's say somewhere between (ph) 801 billion.

That will be covered from the other side for import and by the capital gain on the disposal mainly of Fiat Aviation.

That would generate a huge amount of capital gain because I have a book value very low.

OK.

To give you an idea, the disposal of Fiat Aviation should generate around 700 million of capital gains.

So big part 1.8 (INAUDIBLE) is here, but fortunately balanced by the capital gains of Fiat Aviation disposal.

OK, thank you.

Thank you.

We will now turn to Xavier Gunner (ph) with U.B.S (ph).

Hi, there, can you hear me?

Yes, please.

So, just to sort of clarify going back to Adam's -- Adam Ulysses' (ph) question.

This cash restructuring cost -- I'd take what you said in the last question, was between a 101 billion in the second half.

Is that the correct thing to do?

Is that the number you've used in giving your net debt assumption of 2.5 billion for the end of the year.

Is that the correct set of assumptions?

Yes, it's an assumption, I repeat (ph), because we have to play with implementation also ...

Yes, absolutely, but that is your ...

...

Yes ...

... so that's what your assumption is based on.

Is a line (ph) we know upfront, yes.

OK, and then -- so moving on to a different area.

I mean, you clearly you got a new product coming through -- you know, you said that's coming through next year -- if you just look at your current portfolio, there's actually nothing mechanically wrong with the physicals (ph) that you make.

What I'm interested in is, how do you think you are going to get people to buy these cars?

You know, what is the, sort killer -- it's a term, I said killer -- but what is the thing that you're going to make people suddenly want to start buying Fiat cars again -- because your market share's obviously been on the slide.

You know, it wasn't that long ago you had 60 percent market share in Italy.

What is going to turn things around?

What is going to make people actually want to buy these cars now?

But listen (ph) -- first of all the target that we fixed for our launch plan are not too very -- in terms of -- to be cautious -- very ambitious.

Because at the end we expect at the end of plan to reach 32 percent market share starting from the 28th of today.

But in next two years we expect us to run around 30 percent -- I speak about the Italian market share.

Yes, sure.

This two percent means something on the global market share -- of the global volumes around 200,000 cars a month -- something like 4,000 cars -- now, that is not a huge amount.

Well all we can see is the reachable -- this minimum target, but because we start with the very old product portfolio and never adjust more than six years, so it seems to us that just managing in a reasonable way, the huge amount of new products in the Auto (ph), 16 new products -- 11 new and 5 face lifting in the next 24 months.

Even in worse market conditions something should happen.

And in any case our target for today and to reach the famous target of four percent operating profit on sales in 2006 is to increase of 2 - 3 point market share -- our historical domestic markets -- just doing what the other main concerns (ph) are doing their own market.

One third of the market generally only buy the local produce.

So I repeat, we have to do a hard work -- nothing in guarantee.

Market is very aggressive -- competitive or aggressive.

But we have in the pipeline different models -- good models and we strive for a -- let's say, a condition that gives us some trust in the fact that well, minimum target will be reached.

I mean ...

So you will see in the next month, the results of that.

And we play with the new products mainly in the A, B (ph) segments, in which historically Fiat was a good player and the perception by the client is in line with the quality and the price of the product we would like to launch.

There is no miracle model on that -- there is just simply the real taking account of the niche of the market in offering products designed in line with our brand.

John (ph), I mean, did you guys sort of think that there has been some sort of brand-erosion for you over the last couple of years?

Yes, we had a brand-erosion.

But at the end, if you see ...

... market share ...

... the Alfa Romeo (ph) brand -- when you start again to say, good products, the brand would be, let's say, hazard (ph) by their (INAUDIBLE) lets say Alfred Romeo (ph) what they came out with some years ago was completely unknown brand.

Then we start with the good product line and now it's a good brand in which we can build something.

So the brand would be really linked to the success of the models at the beginning.

OK, fair enough, thank you very much.

Thank you to you.

I think we're going to take just two more questions, I believe.

Thank you.

We will take a follow up question from P.R Louis Gefollini (ph) with Goldman Sachs.

Yes, hi, just a follow up question.

On CNH (ph) there was, I believe there was a large ABS (ph) transaction that took place in the second quarter.

Could you remind us how much that was for and what did they securitize?

Was it financial receivables -- was it something else?

If ...

Yes?

...About twice a year, CNH securitizes roughly one billion of financial receivables i.e. loans to final customers.

And typically one transaction occurred in spring and another one occurred in the fall.

OK, so basically this transaction in the second quarter did not generate any additional liquidity versus what would have been the case last year, right?

No, basically what happens that we finance that to a warehouse facilities that we have in the States that we -- once we got to four billion, we sell it to the market.

OK.

OK.

In the -- for as far as the bond is concerned -- the 750 million bond they just launched -- is any of that cash flowing back to Fiat by repaying intra company?

Yes, in the prospectus they are saying that 200 million of that will be utilized to repay the company debt.

200 million, OK.

And finally you mentioned that the second part of Fidis -- the second transaction would be consolidated 2 billion of gross debt and bring cash of 1.2.

That implies at the consolidation of something like 3.2 billion financial receivables, which means that given that the original target for Fidis was around seven, it means that you would have already done, the consolidation of 3.8.

And I don't see your financial receivables line going down by more than one billion since last fall.

Can you help me on this thing?

Yes.

Now I mentioned before that the line was decreased by 3.5 billion because of Fidis approximately and was increased by 2.4 billion because we booked 2.4 billion receivables for Toro, which was being cashed today.

OK.

I missed out, thank you.

Thank you.

Just a general comment before ending -- well, we are very happy to answer to you about these all financial questions because we understand that you need to read in our results.

I hope that in the future, more and more we'll speak together about industrial, about marketing issues because really we can see that debt financial result of the Fiat Reliance plan has been practically done.

And now the key issues for the group would be new product launches, it would be cost cutting and so on and so forth...

...

Sure, I have the same hope.

Thank you.

And last question, I think?

The final question today will come from Philippe Houchois (ph) with Kazanov (ph).

Yes, good afternoon.

The question I have is on the factor receivables.

That could have about made about 95 million this quarter.

Do you have any guidance as to what level you intend to have at the end of the year?

And the second question I have is -- I'm trying to rework, broadly speaking the depreciation and amortization in you P and O. And I see that that line has come down quite significantly at CNH by 22 percent in a quarter.

And EVECO is 32 percent in a quarter, which helps your cost base.

But I don't see a similar decline, at the share output (ph) level -- I'm just wondering if there's any kind of benefit of restructuring which will transfer, I mean, translate into lower depreciation later on that will help your P and O?

Thanks.

That was the last question before leaving -- because well, the reduction in depreciation EVECO is due to the disposal of Fraikin.

The reductions in CNH is mainly due to the exchange rate impacts.

OK, yes.

So that's the reason -- partially business reason, partially accounting reason exchange rate.

OK, OK.

Then to Mr. Gorbito (ph).

With regards to sales receivables, we basically -- there was some change with the quarter versus quarter.

The first quarter of the rest of the year, I reiterate roughly the guidance we gave you last quarter, which was around 6 billion -- maybe a little less as we have -- now we have some significant cash.

We are tempted to securitize a little less.

Yes, OK.

Although I think if you keep using six billion -- maybe a little less in September, and six billion in December, it should be all right.

OK, all right, thank you very much.

So if you'll hear (ph) we'd like to just end this conference call.

I would like to thank all the people mainly because I saw on the screen that we have today around 64 million share traded in the market, that I think the best way to close this conference call together.

And we'll see again in the autumn.

Thank you very much.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

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