Stellantis NV (STLA) 2003 Q3 法說會逐字稿

Welcome to the Fiat conference call to discus the 2003 third quarter results. For your information, today's call is being recorded. At this time I would like to turn the call over to Marcello Ledda. Mr. Ledda, you may now begin.

Good morning everyone - good afternoon. My name is Marcello Ledda, I'm head of Investor Relations, welcome to Fiat's 2003 third quarter conference call. You should have received by e-mail our press release and a copy of the slides we'll be using for this call. The release and the slides are also available on the Web site at www.fiatgroup.com.

Ferruccio Luppi, Fiat's Chief Financial Officer, will review the results of the operations for this quarter. Giuseppe Morchio, our Chief Executive Officer, and Ferruccio Luppi, as well as other management representatives will also be present around the table to answer all of your questions.

Before passing the line to Mr. Luppi, let me remind you that we'll be making forward-looking statements during these introductory remarks, and our answers to your questions. These are covered by our customary Safe Harbor provisions that you can find in our ((inaudible)) filing with the U.S. Securities and Exchange Commission.

Let me now turn over the microphone to Mr. Luppi to begin the call.

Yes, thank you very much, hello, good afternoon. We want to take this opportunity to review not only the third quarter numbers, but also to give you an update on the relaunch plan. The plan was presented in June and probably many of you attended that show. So we now have four months of ((inaudible)), we have been very busy on a number of fronts.

The execution of the plan is on track. In the past few months we introduced four new important models on Fiat Auto in the segment which are ((inaudible)) to our offering, and that are identified with Fiat (expertly and legitimacy). Only a small portion of this car already on the road, so as suspected the full ((inaudible)) impact is not going to be seen this year in number until the fourth quarter, and more fully in 2004.

((inaudible)) can already tell you that new model being well received. Orders are coming in faster and stronger than expected, by the way new products are also important factor in the improved performance of CNH that reported last week. Senior management with extensive related experience with OEMs as well as supplies, and the ((inaudible)) international background were appointed Fiat ((inaudible)) vehicle. The mission is to ((inaudible)) plan, reshape the character of the ((inaudible)) companies, and above all to prepare the next generation of new products.

The other ((inaudible)) of disposals of non-core businesses we announced it in June. In addition, the Fiat wide ((inaudible)) was fully subscribed. All in all, they represent seven billion euro in cash on our balance sheet at the end of September. Let me just remind you that the Fiat disposal was completed in the month of October with a cash in of 1.5 million more.

Finally I will go through these in more detail later. Fiat's operating performance has continued to improve. These really the headline numbers is even more so if we exclude discontinued businesses. We need to do a lot more by the way of securing the key ingredients for the relaunch plan, so products, people, and cash.

Let me remind you how happy we have been the last past few months. If you'll turn to the slide number three you see a list of some of the most important developments since we last talked to you at the end of the July. They clearly show that the pace of ((inaudible)) has accelerated since announcement of the relaunch plan.

Now we can come back to the operating performance, this is slide number four. The environment has not been ((inaudible)) during the quarter. Why though was some recurring North America demand for ((inaudible)) in ((inaudible)) all over the market were flat at best. Registration ((inaudible)) were up by five percent year-on-year basis, and this is a seasonally slow quarter. Despite this mixed market environment, the operating performance of virtually all our businesses improved markedly compared to the last year.

At the group level, the operating loss was reduced by more than 50 million euro, excluding the profit contribution of disposal businesses, this improvement reaches 110 million. At Fiat Auto, the operating loss were reduced by 86 million euro if we exclude ((inaudible)) impact of ((inaudible)) change.

CNH, as you saw in last week's release, has turned in a positive performance in a quarter which is traditionally difficult. I would like to underscore the operating performance of the other automotive sector. We ((inaudible)) a month of good secured that this company has been able to win new third party contracts and level day technologies, not ((inaudible)) injection as ((inaudible)).

((inaudible)) you will see a summary of the financial of the Fiat Group, this is slide number five. Group revenue were down by more than two billion euro in the quarter. But excluding activities which have been sold, revenues were down by just four percent, and most of this drop is due to exchange rate fluctuation compared to last year.

As I mentioned, the 54 million improving group operating income translates into 110 million on a comparative sector basis, while the 120 million improving in the first nine months doubles. Conversely, EBITDA declined during the quarter nine months. The drop in depreciation and amortization is due in part to (deconsolidation) of disposed units, and in part to a lower congressional translation of CNH dollar denominated DNA into euros. Finally CNH financial position passed below the three billion euro mark at September 30.

As for the ((inaudible)) Fiat Group we can move to the results of the Fiat Auto, so we can turn to the slide number six. The drop in revenue during the quarter is primarily due to the decrease in volume, except for reflecting the phase out of the model we are currently replacing. In addition, the disposal fees reduce revenues in the period. Both operating income and EBITDA improved in the quarter despite lower revenues and volume. And this improvement's even more significant if disposal ((inaudible)) as you will see now in the slide number seven.

So we - to better understand the reduction of this operating loss in Fiat Auto, you can move to the slide number seven that show the different components. ((inaudible)) we have broken down the Fiat Auto operating components into two type of factors, ((inaudible)) improving in underlying controls. Excluding disposal and ((inaudible)) in fluctuations, Fiat Auto operating income improved by 86 million euro in the quarter, from 340 to 254, which are internal factors. And this is largely due to the positive impact of our cost cutting actions partially offset by lower volume and mix prior to the new product launches.

Now we can also have a more dynamic view on this new product, new model ((inaudible)). Moving to the slide number eight. As we mentioned earlier, we introduced a number of new models in the past few months. Most of these have not yet had an impact in Fiat Auto performance. Here on slide eight we want to give you some indication of the expected impact of these models in our performance. The first listed Punto is really a lot more than just a ((inaudible)), because it comes with a range of brand new engines and power trends, particularly in the very successful ((inaudible)) of diesel engine that accounts for more than half of the orders in Italy, and more than one-third in all Western Europe.

The New Panda launch ((inaudible)) the first half of September is doing well. The change over from the old to the New Panda has been smooth. From prior to our targets for each of these motors, we are running about one month ahead of our launch plan schedules for final ((inaudible)) as well as dealer orders. The figures on this graph are cumulative dealer orders since the time of the launches. We have ((inaudible)) by ((inaudible)) reminder that has not officially been launched. We are optimistic that they will do well in an important growing segment.

We are acting on the market influence ((inaudible)) of this production momentum. With our recent product launches, we have new models in the A & B segments, which account for more than half of car demand in Italy, and more than a third in Europe. These segments have also traditionally been the one in which we are the strongest, they represent about 50 percent of ((inaudible)) sales. These are also, as you know, particularly important ((inaudible)) in the Italian market.

And prior to ((inaudible)), our new models have higher margins built in, it is not a sector that we're not making money on the old Panda. In Pandas ((inaudible)) much more content for a marginally higher price. Our new A & B segment models enjoy a unique technology ((inaudible)). Finally they offer diesel ((inaudible)) segment.

The launch of this new model start in a good stock level situation, as you can see in the slide number nine. You have seen ((inaudible)) slide nine, and so you will remember that in the corresponding third quarter of the last year we had carried out a major (destocking) action at the company and dealer inventory levels. We are down to what regularly is the right level of inventory. The inventories also ((inaudible)), we recently announced the new ((inaudible)) accounting for more than the ((inaudible)) of the dealer and company new inventory. As you see on the right, our level of wholesales is in line with the evolution of the market.

Moving to the slide number 10, and summarizing so what happened in this quarter in Fiat Auto. We think that our future performance will benefit from our actions, the top-line costs inventory level. With new models beginning to produce results in amplifying the normal seasonality swing, we are expecting that Fiat Auto will show further improvement in operating results in the fourth quarter of this year.

Now we can see also the other major automotive businesses. Starting with slide number 11 from CNH. CNH reported third quarter results last week in U.S. dollar and U.S. ((inaudible)). Net revenues on a constant euro basis are roughly unchanged from the third quarter 2002 level, but up in cost in U.S. dollars. ((inaudible)) gaining market share in a ((inaudible)) North American and Europe in over 40 ((inaudible)) factors. We're also gaining market share in combine with ((inaudible)) North America. In (concessory keeping), our market share was up in heavy equipment, we decided not to match aggressive pricing action by competitors in ((inaudible)).

CNH results benefit from the error margin of our new ((inaudible)) in product, slightly better passing overall, and ((inaudible)) volumes in the America. These ((inaudible)) are the additional costs related to the launch of the new products at the ((inaudible)) (concessory) ((inaudible)) in volume by mix.

CNH cost reduction initiative on track generate a ((inaudible)) approximately $50 million in the quarter. However, post retirement medical and pension benefit were higher. The quality and bottom line of the financial services ((inaudible)) further continues to improve. Overall CNH bottom line also continued its improvement.

Now we can move to the IVECO results, slide number 12. As you can see, IVECO revenues in the quarter have been affected by the weakness of the Italian market, which was down (five) percent overall. The light and the medium segments in particular were significantly lower than last year when some tax incentives and tax purchases were available in Italy. Excluding Fraikin and the new consolidation measure for Naveco (GV) in China, revenues were down 11 percent in the quarter. Due to this drop in volume revenues and despite continued cost cutting, IVECOs operating results turned slightly negative in Q3.

The other intake on the recently launched (heavy tracks) as well as in light is good. Add it to normal seasonality this should lead to a (three) in profitability in Q4.

And finally, slide number 13, we can see the other sectors. Overall the sectors yield improved results. Particularly encouraging is the performance of a component and other (demolitive) activities. After a period of strategic uncertainty, these businesses have been confirmed as a core part of the group and the winning ((inaudible)) captive businesses. ((inaudible)) in particular is leveraging its ((inaudible)) technology its operating income turnaround this quarter reflects the - and these cost cutting efforts.

Ferrari's revenues were higher due to the ((inaudible)). Ferrari's operating performance was impacted by the currency situation, and the cost of the Maserati relaunch in terms of R&D and market.

We can now give you some details on the lower part of our P&L, so move you from the operating results to the net results. This is on slide number 14. Three hundred thirty four million bottom line improving compared to the last year Q3 is largely due to the capital gain on disposals. The disposal ((inaudible)) means that there is no longer any ((inaudible)) investment income or loss of mark to market of investment failure. While a return on our investment in ((inaudible)) is slightly positive this quarter versus a loss in the last year's quarter.

We broke ((inaudible)) significant tax charge on the gains of the Fiat Auto disposal, would not have a cash impact. It was not offered by the tax credit when we ((inaudible)). In reported terms, net interest expense is flat. However, keep in mind that the comparable figure for the last quarter - the last year would be more than 50 million euro higher as we have recalled the financial income from total. The underlying decrease is affecting the reduction in our investments.

And finally now to complete our review of the third quarter results, we will see our cash flow in this quarter. Slide number 15. You see ((inaudible)) cash flow statement. The key item requiring explanation here is the increase of nearly 600 million euro in working capital. As indicated in a few slides back, in Q3 last year we carried out a substantial inventory reduction at Fiat Auto. You know that ((inaudible)) contrary to a typical seasonality partners, typically in the third quarter ((inaudible)) stable inventory, but last year we cleaned up the inventories. So last year we ((inaudible)) in account for about half of the increased net working capital this year.

The other half is due to the decrease in trades payable following the reduced production activity and reduced factoring. But on top of the new products ((inaudible)) the traditional results of ((inaudible)) in Q3 this year.

Now we can move to the gross debt and liquidity situation, slide number 16. As you know, this is our traditional graphical representation of gross debt and liquidity. I want just to outline the solidity of our liquidity position at 7.2 billion, which does include the 1.5 billion that we're receiving in October with the completion of the second part of the Fiat disposal. Short term asset continued to largely ((inaudible)) short-term debt, while our solid liquidity position make us uncomfortable looking ahead, I repeat 7.2 billion cash at end.

And finally to complete the review on ((inaudible)) financial position, slide number 17, you can see that at the end of September where the gross debt of 26.5 billion down 3.1 billion from December end, and now our ((inaudible)) were just below three billion euros. This number consistent with the quarterly requirements for the mandatory convertible. We expect to end the year with net financial position somewhere between 2.5 and two billion euros. The ((inaudible)) of final ((inaudible)) will determine the volume discount receivable in the quarter ((inaudible)) charges, and of course the most well impacted will be the group operating performance.

Q4 is ((inaudible)) a better quarter than Q3 in terms of operating profit. And this year we will benefit from the ramp up of our products at Fiat Auto, the continuing ((inaudible)) and age. All in all, for the full year we continue to expect a reduction in group operating losses.

((inaudible)) charges and tax and capital gain will have an impact on full year net results.

I thank you for your attention, I think that we are now ready to take your questions.

Thank you. The question-and-answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit one on your touch-tone telephone. If you're using a phone with a mute function, please make sure your mute function is turned off to allow your signal to reach our equipment. We will proceed in the order you signal us, and take as many questions as time permits.

Once again please press star one on your touch-tone phone to ask a question. We will take our first question from (George Dian) of (Deksia) Securities. Please go ahead, sir.

As a reminder, please press star one to ask a question.

Mr. (Dian), please go ahead, sir.

Yes, hello, good afternoon. Can you hear me?

Yes.

Okay, yes, good afternoon. I have three questions if I may. You just referred to your liquidity position at the end of September, and the outlook for the year end. And I was wondering whether you could comment on what you expect in terms of cash out for the restructuring, what has been the cash outlay for ((inaudible)) in Q3? What do you expect for the full year? And is the range that you've given for the net financial position dependent on how much will be cash out by year end?

The second question is on the - on the (Fetis) situation, it seems that the operation has been completed, so could you maybe review the (deconsolidation) process and maybe remind us the - both the P&L and balance sheet impact? And last point, it's more operational on Brazil, if you could maybe give us some indication of the current operating performance and the outlook in terms of both capacity, utilization, and maybe the planned adjustment going forward.

Okay, so I can start with the first two questions on liquidity and the (Fetis) ((inaudible)). We confirmed our target net financial position between (293) billion. As for the cost of ((inaudible)) you show that usually we have between 200 million a quarter, maybe at the end of the year we'll have a more deeply analysis debt and will account for more than that.

On the (Fetis) transaction, sir, you already show in the Fiat Auto results (commentor) that we start short of the market impacts of the Fiat disposal in terms of P&L. So we will find next year a completely without (Fetis spot) on the operating level, but - results. But I remind you that we still at 49 percent of these (Fetis) activities, and we account as equity in earning of the investment income level, so we didn't sell the 100 percent, but just 51 percent.

In terms of balance sheet, you ((inaudible)) we received cash, and we (deconsolidated) that. That was important. Over around six billion with three billion cash and three billion of the consolidation of debt.

In the ((inaudible)) I think that Mr. Morchio should give you some (respectives).

Hello.

Yes, hello.

Relating to the situation in Brazil, we are not satisfied about what is happening in Brazil by sure. You know that there is a strong competition in Brazil that is impacting the results of all the competitors, including Fiat. Therefore we are suffering in the first nine months a loss in Brazil that is around 50 million euro. And this is very disappointing because I think we can do far better in that country. And therefore we have taken action in order to improve our performance. We think that our market position is quite strong, and therefore we are putting action in place in order to overcome this difficulty, and to enter in the year with a different level of performance.

Can I just ask a follow-up question? If you could maybe just elaborate on whether these actions have already been result for? And what does it mean in terms of capacity adjustments by the year end?

Relating to the capacity utilization today is around 70 percent. As you know the demand in Brazil dropped this year consistently related to the previous year. And relating to the action are included in our situation, and would be included end of the year in our accounts.

Okay. Thank you.

We now move to (Joe Mossman) from Smith Barney.

Thanks very much, good afternoon. I don't fully understand the cash flow that you're showing us, and wonder whether you'd just help me a little bit. The cash in from disposals number perhaps you could give us. On this trade receivables change, are you actually aiming for any particular target here? Or is this just something which this quarter was affected by activity? And I'm not sure I really understood the answer to (George's) question about restructuring costs. Is there an actual restructuring cost in the third quarter cash out?

Yes, well starting from the first question about the cash flow and the non-operating cash flow is mainly due from the disposal of the (viation) activities.

Yes.

In term of receivable, as you probably saw in the quarter report, was reduced from around seven billion at the beginning of the year to six billion the total of factoring discount. We can see that we can have in the next month some just slightly volatility in that, but this is represent - should present a natural level of user resources. On the restructuring, I confirm you, as you probably remember in the - in the - in the global relaunch plan was accounted for in the full year as 1.8 billion, so we start - we start this already in this quarter to account for a part of that, and we expect always between 200, 300 million a quarter of cash out from restructuring costs.

Okay, thank you.

Thank you.

And from (Inter Amante) we have a question from (Masima Reckio).

Yes, good afternoon. I have three questions. The first one is on the financial expenses. I understand your point, but summing up your ((inaudible)) receivables and also your ((inaudible)) debt, it looks like your financial expenses slightly are around eight percent, 8.2 percent on debt. Is there a particular reason for that, and either in Brazil or some other issue I'm missing? And that's the first question.

The second one is on the production - sorry - yes, the production capacity. Given that you are just hiding lines so we don't know how many plants you are closing, you are not even closing plants. Can you give us an update on all production capacities going with respect to the relaunch plan? Are you in line with it - with the plan? Are you above or below?

And the last question is 2004 launches, I know you're just under four new models, and maybe it's not the focus at the moment. But the launches of 2004, can you say when you are going to launch it? Is it the second quarter, third quarter, fourth quarter? I guess should we just be the launch aside of the data and some (restylings)?

Okay, I will start with the first question, and I will ask Ferruccio for the other one. About the net income expense you see this quarter, we largely reduced it for ((inaudible)) 12 million. But I will remind you before that in reality last year the 418 ((inaudible)) we included 52 million euro of ((inaudible)) that was linked to the total. ((inaudible)) so some products have increased - or decreased that income expense quarter-to-quarter is more than 60 million.

About ((inaudible)) between the total financial expenses to the total debt, I will ((inaudible)) the 8.2 percent is just the virtual ((inaudible)) because it's not the cost of the money ((inaudible)) that we have is lower than six percent. It ((inaudible)) that we in interest expense also for the ((inaudible)) factory ((inaudible)), and some other financial expenses related to different ((inaudible)). So the question was what is the real cost of the money beyond the ((inaudible)) six percent? So the results ((inaudible)).

Okay.

((inaudible)) so I can't ((inaudible)) production capacity level you more than launch 2000.

Inclusion of ((inaudible)) capacity utilization largely related to the different sector ((inaudible)). We are improving the capacity utilization ((inaudible)) because as you know the situation of the market is going well and we are really ((inaudible)) our market share that are very ((inaudible)) worldwide for CNH. But for our ((inaudible)) side probably ((inaudible)) presented in the relaunch plan for our ((inaudible)) equipment are ((inaudible)) 68 percent, and we feel that next year will be ((inaudible)) equipment about 80 percent. Okay?

Then if you go to ((inaudible)) launch brands, of course you can see that we are in the first nine months a little bit short relating to ((inaudible)) during 2003 because we leverage enough to take into account that the first nine months was no possibility to have new models in the Fiat ((inaudible)) our volume of ((inaudible)). What is known to be different in the last quarter. Therefore it ((inaudible)) 2003 I think that the figure ((inaudible)) of 75 - around 75 percent in capacity utilization, but the launch is very close to what we'll make.

Back to the ((inaudible)) because we will have the level around about 50 percent. And this is the situation. In the truck business, that is ((inaudible)) suffering ((inaudible)) in the Italian market what Mr. Luppi mentioned at the beginning of the year, I believe that we will be in the right ((inaudible)) in line with our relaunch plan that was in the region of 95 percent ((inaudible)) in the region of 65 percent for the truck.

This ((inaudible)) figure ((inaudible)).

Is the new orders for Panda, Ypsilon and so on making you a little bit more optimistic on production capacity to ((inaudible)) for 2004 given that it looks like you're above target?

Look, we are ((inaudible)) in this assumption, as you know. Now all the ((inaudible)) of our relaunch plan has been careful evaluated, and we expect it to be better in ((inaudible)) figures. ((inaudible)) can tell you that ((inaudible)) for the new model for Panda and Ypsilon, but ((inaudible)) are so small are really very, very good and better than our ((inaudible)). For instance if you pick Panda ((inaudible)) 75,000 models ((inaudible)) that we brought 30,000 orders in ((inaudible)) for a final customer that ((inaudible)) different measurement of that decision of ((inaudible)). And if you take the Ypsilon, we are about 45,000 for the dealers, and we ((inaudible)) for the final customer. ((inaudible)) I think ((inaudible)) very good news for us, but you know, it's better to see and to the development of this action in the marketplace ((inaudible)) probably this quarter, but ((inaudible)) first quarter and second quarter in 2004.

Yes. And on the new models?

The new models - the new models ((inaudible)) we want to put into account that ((inaudible)) represented a total ((inaudible)) that is a ((inaudible)) very aggressively by the customer. But we as a group ((inaudible)) significant growth will be in January because we want to ((inaudible)) action of this model very ((inaudible)) than as it in our ((inaudible)). But for ((inaudible)) the Idea ((inaudible)) entering the market ((inaudible)) beginning of 2004, and ((inaudible)) 2004 we will have some important ((inaudible)) that is related to our plan that we showed to you and the relaunch plan discussion that is ((inaudible)) for ((inaudible)) and something for ((inaudible)), and the answer to seven, and also the launch ((inaudible)). This - the new models ((inaudible)) that we will have for Alfa Romeo and ((inaudible)) Panda eventually, but we are ((inaudible)) that are going to open a new segment let me say of sales.

((inaudible)) launch is (ing) second out for the year, right?

Oh I think it will be June, July. I hope that - but Okay, let me say June, July is Okay.

Okay, thank you very much.

Thank you.

And we move now to Morgan Stanley and a question from (Adam Jona).

Thanks very much. Can you hear me?

Yes.

Okay. I just have two questions, and the first one is brief. Can you tell us what the impact of foreign exchange was on your net debt position - on your net financial position during the quarter? And my second question is, given your guidance for the fourth quarter that the product and seasonality improve sequentially, it appears as if your auto business could approach - could come very close to a break even level in the fourth quarter. And that's even without, as you just eluded to, you know, having the full benefit of your - of your model availability such as the new Idea from January.

Now some I'd assume that if you can do breakeven in the fourth quarter when you're not fully benefiting from the restructuring on a run rate, and when you're not fully benefiting from your new product that you could do - that you could perhaps extrapolate and say you could break even for 2004. Which would be about a - which would be a year ahead of your plan. I guess now is your chance to get expectations up or down when people might be tempted to make that extrapolation. Can you do that? Thank you.

Well we started the last question about the expectation, we confirm what we said during the launch plan. So we expect in 2004 breakeven ((inaudible)) for all the groups. And we say that the Fiat Auto would be probably break even in 2005, not before, even - I will ((inaudible)) that usually the fourth quarter is better than the third quarter if you see the last results of the quarter of last year was at the group level near breakeven. So we expect - we hope that with the cost cutting action we will do better in the last quarter of this year.

About the impact, the foreign exchange and that, I will ask probably to Mr. ((inaudible)) of the group to give even more detailed answer.

Wasn't very significant in the quarter because the debt at CNH is now relatively low, and the dollar overall was basically stable in the quarter. You know, if you can call the dollar stable. It's 114 at the end of June, it was 116 at the end of September, so wasn't a big deal frankly.

Okay. Thanks. If I could just refine then the - like my question - my second question and the first answer. If you're sticking by your target for the auto business to achieve breakeven in 2005, maybe you could - are we just assuming that your level of launch costs and development costs of new products in 2004 would be at a materially higher level in '04 versus 2003?

Again I come back to the relaunch plan announced in June. And when you say that we forecast in the next year a slight increase in R&D costs and so we maintain we will receive ((inaudible)) R&D expenses to sustain the launch of this new motor.

Okay, thanks very much.

Thanks.

And a question asked from (Mantino Gambuzi) of (Almero Beloit).

Yes, good afternoon to everybody. First question concerns net debt. Which are the reason why you are changing your guidance from 2.5 at year end to 2.53 billion range now. And always on net debt which is the contribution you expect from working capital in Q4. And looking at cap ex, I see probably a lower amount of cap ex than in your three industrial business plan. Is it correct, or I'm wrong? And I have a follow-up question later.

So we - about net debt we continue our ((inaudible)) relaunch plan announced in June to ((inaudible)) because we have to play with ((inaudible)) of the factoring the ((inaudible)) models, or we prefer to give range as ((inaudible)) amount.

About the cap ex level, we think that are in line with what we announced in the ((inaudible)) plans or you will see in the nine months that are in line of debt. For 2004 we don't have any specific forecast, remind us again about the relaunch plan, we prefer this ((inaudible)) to what result - to wait for results.

Okay, and working capital contribution in Q4 you said there is an improvement - there will be an improvement.

No, I said - we were ((inaudible)) absorption of the working capital by the new models. We ((inaudible)) that we observed in the last year, month-by-month.

Okay. My - if I may, I have a follow-up question on Fiat Auto. Which is if you could elaborate a little bit more on R&D and advertising costs. You mentioned in Q3, you know, they go up.

These costs are exactly in line with what we are planning in our relaunch plan. We are supporting the future project of Fiat Auto, not just capturing costs ((inaudible)) that are strategic.

Can we have an idea of which is the percentage on sales or something similar?

Not ((inaudible)) because we are planned to have in our R&D 7.9 billion euro in the Fiat Auto of the plan. And in advertising in total ((inaudible)). Group level ((inaudible)).

Group levels ((inaudible)).

Yes, we have ((inaudible)).

Yes, if it's possible if I may, are you going - have an idea for the advertising costs in the - in the short term or just to understand that which is the ((inaudible)) the new models?

So just to give you an idea, the advertising costs are around one billion, yes.

This is for ((inaudible)), I'm sorry?

((inaudible))

((inaudible)) Okay. Thank you.

Operator, could we have the next question please.

Yes, the next question is from (Zalia Gwinner) of UBS.

Hello, can you hear me?

Yes.

Great. Just really as a mop up question. Firstly, you - we have these discounted receivables which have come down from seven billion to the 5.8.

(Zalia), can you - your line is very bad, can you ...

Okay.

... please articulate? Thanks.

Can you - can you hear me any better now?

Yes.

Okay, let's try again. Your discounted receivables have come down from seven billion to 5.8 if memory serves correct. Now if we look at what's happened on volumes, volumes have also come down. Given that you've got a lot of new models coming through, you're expecting volumes to pick up again on the back of your new product launches. Why won't we see the discounted receivables go back up again given that it's ((inaudible)) the factoring of these levels? That's question - I mean that there, that's the core question number one.

((inaudible)) answer.

You might notice that we are 7.2 billion of cash in regard to another 1.5 in October, I'm trying to save a little money here and there. Thanks.

So you're going to basically fund that yourself?

No, it's just that we are - we're less - we are less keen of doing it when we have so much liquidity.

No, no, no, sure, but I mean at the end of the day, you know, you're either paying someone else to do it or you're doing it yourself. So ...

You might - you might speculate there's a spread on what we get on our liquidity and what we pay on discounting.

Okay, fair enough. And then just the other one's another mop up question. Your - this impact of (Fetis) and - forgive me because I think I'm probably misunderstood - but of the 314 loss in the third quarter, was (Fetis) actually - did (Fetis) contribute into that figure? Or had it been stripped down at that stage? Because your slide doesn't make it entirely clear.

In the - sorry, in the quarter - fourth quarter we announced ((inaudible)) the impact of (Fetis) was around 20 million euro operating profit.

Okay, so ((inaudible)) 20 million in ...

Yes.

I thought it was 334.

No.

So adjusting for that ((inaudible)) - but what I'm getting at is you talk about things getting better, and I just see the operating margin ((inaudible)) 7.6 percent, which I think is the worst you've had so far. I mean is that - is that correct? Or am I misinterpreting my numbers here?

((inaudible))

((inaudible))

((inaudible)) information ((inaudible)). Can you say that again please so we'll ...

Yes, it's just that - I mean it's just that - the point is that your slide talks about improvements everywhere, and I see the margin having fallen to 7.6 percent - negative 7.6 percent. And it's worse than that is you strip out the (Fetis) obviously. But - so, you know, am I - am I getting my numbers wrong here? Or is this in fact the worst margin you've had so far?

Sorry, I continue to try - you say you have the operating margin of the auto in the quarter.

Yes, I mean I look at (Monis) 314 as of 4155 ...

Yes.

... and I get - I think it's 7.6 percent, unless my calculator's lying.

((inaudible)) yes.

And I look at where you've been over the last few years on a quarter-by-quarter basis, and I think the 7.6 pretty much is the low point.

Yes.

And I'm just - I just wanted to check I've got my numbers right, because you talk about things actually having improved, and yet I see the margin having deteriorated, and that was - I just wanted to ((inaudible)) I got my numbers wrong.

Well ((inaudible)) used to ((inaudible)) detailed questions ((inaudible)) try to give you ((inaudible)) on that.

Okay, I mean we can follow that up off ...

Okay. Well I haven't done the math, but ((inaudible)) really improving in a situation where revenues are declining. So I don't see how you can get that.

Right, Okay.

Why don't we go through the numbers, you know, maybe later ...

... off line. But certainly, you know, your margin in the third quarter of last year was negative 7.3 percent, and your margin in the third quarter of this year is minus 7.6 percent, which is, you know, a deterioration.

Well certainly - I mean - we've got to look at the ((inaudible)) like to like basis. And keep in mind that also Brazil is not performing very well.

Sure, Okay.

((inaudible)) has lower volumes.

Yes, I mean ((inaudible)). Okay, well I guess we'll talk about this one off line. All right, no further questions from me then.

Thank you.

Thanks.

And we now move to (Bancor IMI) and (Sebina Bluma).

Hello, good afternoon. Hello?

Yes.

Yes. You talked on various points to your recent model introductions better than expected order status. So when can you actually expect to see an improvement in market share in both in Italy and in Western Europe? Is it fair to assume rated improvement in the October figures? And when can we actually really expect to see in - decisive improvement in operating margins? From your comments today rather than the first quarter next year, then this - and of this year.

Okay, we'll have to be ((inaudible)) to answer to these two questions.

The point of market share situation in Europe is very, very competitive. And there are a lot of action that are relating very much to look for market share volumes on. We want to get market share, but we want also to have a good profitability and a good pride positioning for ((inaudible)) product.

Therefore, look, during the first nine months, you know very well that we are below 30 percent that was our target in ((inaudible)) perspective for Italy, and also in Europe we are lower than the previous year in the first nine months because of the ((inaudible)). Starting from the ninth of October in the last quarter, I am sure that we will see improvement in market share in Italy and the rest of Europe. Because in the other I mentioned - the other ((inaudible)) I mentioned before, there is one point that is good from my point of view that is related - that the other ((inaudible)) is more ((inaudible)) is coming out from the rest of Europe, not just Italy. Therefore let me fill the position of our model of ((inaudible)) let me say even higher than in Italy itself.

Therefore the operating margin and the margin for the models were - give us an - the advantages in term of mix. And the ((inaudible)) last line of question?

Yes, very much when we can expect for you to see that the new models actually have an impact also on the operating profit line, operating loss line.

Sure. In the - in the last quarter of the year for Fiat Auto the new model will have an impact in the operating margin, and very significant. And the rest - the first quarter of next year will be a very important quarter to see, because as I said before, we will ((inaudible)) also the new Idea working because as I said, the Idea few units will be sold before end of the year, but the full speed will be generally 2004.

I see. Just as a follow-up, what are your expectations for the markets in Italy and Western Europe in 2004? Do you expect a recovery or at least stabilization in Italy? And when do you expect the Western European market really to recover?

Look a scenario of stability I think is something that is - let me say a little bit conservative, but is what we have to take into account.

But you don't expect the Italian market to continue to fall next year?

No.

Okay, thank you.

We move now to (Dania Schwartz) of (ING) Bank.

Yes, hello, (Dania Schwartz), (ING BHF) Bank. First question is would you expect an increase competition in the fourth quarter and in the beginning of '04 with new models coming to the market from competitors like ((inaudible)) and (C2)? And second question, why did Fiat agree to the shift of the exercise period of the put option to General Motors? And last question, as you said, auto income for the New Panda would be above expectations and would you increase your sales target for the New Panda?

((inaudible)) three question of our ((inaudible)) office.

((inaudible)) is a very competitive environment, this one of automotive. Maybe you know something about Tokyo ((inaudible)) showing something. So there are a lot of new models also from the competitors.

What I can say that is part of all this, the precision of our (numereldo) and the Fiat Identity, and (Style), and let me say also the very, very unique engine we have because today the 1.3, 1.9 ((inaudible)) is becoming really an item of differentiation of our product that is very well associated by our customer. Therefore this is making something important, something new and I think also the original style, if you take Panda, is something that is appreciated by our customer. Therefore look, we will see the ((inaudible)) and confident.

General Motor ((inaudible)). Okay, we made an extension that postponed for the foot option, and let me say the exercise of the foot option ((inaudible)) that ((inaudible)) beginning of the period, and one year for the end of the period that is going to last until 2010 and not only 2009. You know, when two partner agree about something, they sign and they are interested to sign, therefore we did it because was our interest to give the priority to our industrial plant, and we have mentioned this intention since the beginning I joined Fiat Group, and we are doing so because the most important point is create value through the new models, and new products of Fiat in the marketplace. This is what is - there is an ((inaudible)) extension, and I believe that during that period that is more than 12 months, and not just a few months, really are time enough to look for alternative solution that could satisfy both partners.

On target, Panda target. Look, the maximum we can sell - no, I could say something, but is something that was to explore, believe me. Because we are - we have plans that as you know my approach is a very conservative, therefore we are putting our plan in conservative figure. But I am sure my colleagues will surprise me very positively, and also you.

Okay, thank you.

And our next question is from (Pret Luigi Valini) of Goldman Sachs.

Yes, hi, just a follow-up question on the book. I mean barring - I understand you don't - you don't want to comment on potential outcome of, you know, other agreement. But can I just ask you a very safe question? Have you tried to get GM to buy three out of the ((inaudible)) you know, in exchange for - in exchange for cash? As things stand it seems to me that the Porsche is really something that would work if you don't need it, and wouldn't work if you needed it. So if you turn - so Fiat Auto turns around as in the plan, then GM will probably be willing to buy Fiat Auto, but probably you wouldn't want to sell it. If you ((inaudible)) doesn't turn around, then you might want to pull it, and GM wouldn't want to buy it. So I don't really see, you know, the point of the Porsche as it stands, and I would like to know if you have tried to convince GM to buy three out of it?

And the second question for Mr. ((inaudible)) is if you can broadly talk about refinancing strategy for the next 12 months, clearly you are sitting on a lot of cash, you have a lot of liquidity. At the same time you have a significant amount of medium term debt coming due. So what's the idea, use most of your cash to pay it down? Or what are the other sources that you would - you would be considering to top? Thank you.

Thanks, you know, we can start ((inaudible)) to Mr. ((inaudible)) either the last question's a very ((inaudible)) and even to Mr. ((inaudible)) the most important question, the first one.

Okay, I think if you - and you have in fact been following us for a number of years, even though that we tend to be opportunistic. So if you - your question is are you probably going to do bonds or loans or ((inaudible))? We'll you do all of the above depending on market condition. I think the difference as compared to ((inaudible)) is that the amount of cash that we have allow us to pick out the best - the best timing on the market. But we do what, you know, our companies regularly do to refinance. And at the moment I have to say that we've been very successful in doing so far in the last few months. Thanks.

Okay. And ((inaudible)). Related to the quarter, this is something very nice to discuss about, now and that is the reason I have tried not to put on the table the total because otherwise we invest too much time on the quarter. But nevertheless I want to tell you that ((inaudible)) the quarter has a value, is a value. But you are to take into account that we have also value in our industrial alliance, value for Fiat, but a lot of value also for General Motors, no. I ((inaudible)) business technology that we put in our alliance for instance, no. In ((inaudible)) that Fiat is the leader worldwide in this type of engine, and has a strong position since the beginning of the diesel activity.

Therefore, you know, the ((inaudible)) has a value, we are open to discuss alternative solution to the master agreement. But respecting the interest of our partner, but my duty is to respect the interest of my shareholder. Okay?

So the alternative solutions could include, you know, a liquidation for cash - a settlement for cash?

Nothing - I don't want to comment in discussion in that as to start and to go to the end of this discussion because I think it would be unfair relating to the partners on. But you can understand that there is a value there in the ((inaudible)) the master agreement, and the ((inaudible)) there in the industrial alliance. We are both to take into account each side of the partnership.

Okay, thank you.

Yes.

I think we're running out of time ((inaudible)) two more questions. Thank you.

Our next question comes from (Nuda Vixava) of Credit (Lione).

Yes, good afternoon. Actually I have two questions. First I didn't understand exactly why sales to dealers are down in the ((inaudible)) year-over-year in the third quarter despite the ((inaudible)) and also another (book) that is ((inaudible)). And my second question, can you - could you update us on the Fiat Auto ((inaudible)) equity net position at the end of the third quarter? And with the loss for the full year that you can expect ((inaudible)) in new capital increase should be ((inaudible)) for Fiat Auto S.p.A. still by internal loan consolation? Thank you.

Yes, I will give the microphone to Mr. ((inaudible)).

Okay. If you ((inaudible)) is exactly this way. Since the ((inaudible)) down four percent in the quarter, and ((inaudible)) is improving in the new model. Why? Because if you ((inaudible)). Before we would see the impact of ((inaudible)).

Okay, this is the first question. Second question, Fiat Auto ((inaudible)). You know that on April 23rd, 2002 we had a ((inaudible)) a capital ((inaudible)) for five billion euro. On which three billion ((inaudible)) and the ((inaudible)) two billion, one for General Motor, and one for Fiat. Because you know that 80 percent ((inaudible)) and 20 percent is gross General Motors.

Before we could ((inaudible)) Fiat Auto relating to the approval of April 23rd for an additional one billion without taking consideration a possible decision of General Motors. And if this will be required, we will be ready to do it.

A follow-up question on my first question. ((inaudible)) that ((inaudible)) costs between the ((inaudible)) the order and the ((inaudible)) are filling the cars, that some of these cars own the market since September, I would imagine that you were filling in the inventories of your dealers previously. So I was expecting an increase of the ((inaudible)) to dealers already in the third quarter.

No, in the third quarter was not possible to have ((inaudible)) consistently. Because the impact of production, you know. At the beginning of the launch you have a curve, and ((inaudible)) production I can tell you that now that our own production volume are very close to the level of the year 2004, Okay. But you knew that ((inaudible)) very, very sharp for this action. Therefore what I'm telling you that the impact in September was not ((inaudible)). And you will see in the ((inaudible)) in November and December what I mean ((inaudible)).

Okay, thank you.

Thank you.

((inaudible)) the last question, thank you.

The last question is from (BNP Party Bart), and (Mark Kugae).

Yes hello, good afternoon. I've got two short question related to IVECO. First question, is the Italian market the only reason to expand the ((inaudible)) of IVECO profitability?

Again Mr. ((inaudible)) will answer.

Okay, first of all the ((inaudible)) level for IVECO for the first nine months is not related to the performance of the full year because we expect in the last quarter a far better performance, Okay? Therefore it's not significant the performance in the first nine months, and the target ((inaudible)) for the full year. Therefore we will see something of a strong improvement in the last quarter.

Then taking into account the situation we have in the Italian market is not justifying the performance of the vehicle. And that is the reason why we are enforcing the management, we have different leadership, and I am sure that we will ((inaudible)) completely the commitment that we have taken with the launch plan specifically for IVECO. Because we have the products, as you know, we ((inaudible)) strategies, and the new engine, and ((inaudible)) more in the marketplace, and to have a strong direction in the market.

But I repeat, the first nine months for IVECO was not a very ((inaudible)) performance, and we will have better for the full year, but consistently. Oh I know exactly the figures ((inaudible)) but I can not ((inaudible)) but little improvement - very little improvement in the last quarter.

But have you been affected by the R&D cost increase due to euro four and euro five for instance? Or should you be affected in 2004?

Again I will ask to Mr. ((inaudible)).

((inaudible)) in IVECO the performance was related to some weakness in the first half of the year because of the Italian market, no, after the incentive that were in 2002. And - but I ((inaudible)) is some weakness and some commercial action for the introduction of the new model, we have been a little bit slow in the reduction to the new model and in (Salice). And you know, when you want a change of mix, you have some disconnection like that.

Relating to the cost - R&D costs and investment, luckily IVECO has been - has been down in the past. Therefore if you remember our launch plan IVECO will have a proper portfolio of new products close to 100 percent. Let me say that the investment has been made in the last years.

((inaudible)) last open question ((inaudible)). Do you think that IVECO has a critical side today on ((inaudible)) if ((inaudible)) get closer in the future?

Absolutely yes. I think IVECO has a good side to make a lot of money. IVECO can perform a lot better ((inaudible)) cost reduction of the ((inaudible)) plan in our relaunch plan involving a better performance in term of ((inaudible)). And ((inaudible)) and stronger people in the sales area. That is our ((inaudible)) the situation, and - but I think IVECO will make a strong improvement in 2004.

((inaudible)) thank you.

I want - I want to thank you very much everyone for participating. This is our last question. I will hope to see you around at our next conference call, thank you very much for the ((inaudible)). Thank you, bye-bye.

That now concludes today's call, thank you for your participation.