Stellantis NV (STLA) 2003 Q4 法說會逐字稿

Ladies and gentlemen, welcome to Fiat’s 2003 results presentation. Good afternoon to all of you listening from this space and over the conference call, which is happening right now. As you know, the Board today has approved the preliminary results for the year 2003, and the Board will meet again later on to file the results statement, which will be approved by the AGM late in May.

Giuseppe Marchio, our Chief Executive Officer, will present the 2003 results and give you an update on the results plan. Giuseppe Marchio will have plenty of time to answer all of your questions, both from the room and via conference call.

Before passing the microphone to Mr. Marchio, let me just remind you that we will making forward-looking statements, which are covered, as usual, by the safe harbor statement in our 20F filed with the SEC. Before we begin, I would just like to remind you that we will have Q&A after the session, including via conference call. Mr. Marchio.

Good afternoon, everybody. I am very happy to meet you today. Today is February 27, 2004. I remember February 28, 2003, when I joined Fiat. It is exactly one day, my first birthday, if you will, in Fiat Group. So, I am very happy to meet you today in Milano and to be on air with many others who are listening in to our presentation.

I have to tell you that we could manage in the usual way, making the Board and press conference, and then a conference call. But the idea was that this was not enough, because I met you, I remember, on 26 June. We discussed our program, Fiat’s program. I think it is right to be a [big person] to show you what we have done, what we have to do, what went well, what we have to improve.

So we are here to show what the situation is with Fiat. We will accept all of your judgment, and I want to confirm the commitment of Fiat, myself, [Michael] to deliver what we have included in our program, that was the base of your decision for your investment.

Let us go the first picture. In 2003 we are going to show the result, I think a lot of work has to be spent about the environment. We are working on – we have a situation of the economy of the market that is not so positive, nevertheless we are implementing [indiscernible] and every time we see coming from the competitors or from the economy some [indiscernible] we are committed to take action to offset this kind of problem. Before we are working every day on our program, we are adjusting our program to have the commitment fulfilled every year and I hope every quarter.

Now, I am going to show you the picture of the results of 2003. First of all I have to tell you that this comparison is affected by significant change of scope. Every figure really we have to take into account this point.

The full-year 2003 ended with reported revenue of €47.2b with a reduction in sales of €8.3b. The operating income was -€510m with an improvement of €252m. If you see the situation of Q4, in the Q4 the improvement was €139m versus the previous year, and we had a profit of €142m. This is something that we call the acceleration of the speed of improvement in our Group.

If we go down to pre-tax income the result was -€1.3b but 70% lower than the previous year. The level of net income was €1.9b, 50% less than the previous year.

So, this is the total picture of Fiat Group when we are now beginning 2004. Let us go into some more detail to understand what has happened.

On the net revenue side, the net revenue for the full Group we have booked two lines, one is as reported and the other is from continuing operations. You can see that the [form] as reported, you have a drop in sales of 15%. From continuous work operations the drop in sales is 7% on a comparable basis of which at least 5% are foreign exchange impacts.

Then if we check by sector what is happening, the situation of the full year is different from the situation of the last quarter. If you take Auto it has a drop of 8%, in the last quarter it was stable, but stable 2003 Q4 versus 2002 Q4 means that we have to take into account that it doesn’t [indiscernible] in Italy really inflating the market size so much that the [indiscernible] is only in very, very comparable basis would be even better than that.

About CNH, CNH if you read the euro is a reduction of sales of 10%, but if you read in dollars, this is 7% increase and in the last quarter is an 11% increase for CNH.

If we go down and we see Iveco, Iveco for the full-year is -3%, for the last quarter it is +6%. So in the last quarter we see a signal of an acceleration also of the sales and our performance in the market place.

Let us see the operating income. As we said, at the Group level it was -€510m, let us see and check by sector.

Fiat Auto saw an improvement of €364m and the last quarter was €83m not taking into account of course the difference we had for the [consenting] in 2002.

CNH in dollars was $259m an improvement of $100m, $55m of which were in the last quarter. Iveco’s result was €81m in 2003 of which €61m in the last quarter. When you compare the performance of Iveco you have to take into account also for [indiscernible] that is the difference.

The same is for Fiat Auto, you have to take into account the [indiscernible] because in 2002 you had [indiscernible] and both in the last quarter you had [indiscernible]. So you have to go in comparable terms to understand the improvement, but if you go also to another line that we call components, that is Magneti Marelli, Comau, and Teksid altogether, the improvement was €136m [before] the full-year and €100m of this was the last quarter.

Ferrari for the full-year is [-€38m] impacted very much for the currency rate change and because you know very well that we are selling a lot in the United States, California, New England, that are giving this kind of impact and that has currency dollar related.

The items others that are showing a negative difference is because of the reconsolidation of FiatAvio, Toro, Fidis and Fraikin, because these are the figures as reported.

So, we can see that for all the sectors the last quarter was moving quicker than the rest of the year.

Now, here we are, when I say to go on a comparable basis, if you take this picture the right side, that is the total full-year for 2002/2003 and the difference. The improvement was as reported, that is the first line, and you can see also the split by quarter for the two lines as reported and the other lower line from continued operations.

Net debt total, you can see €252m on a comparable basis the improvement was €634m, we cut our loss at operating level year versus year. Of this €634m, €281m were in the last quarter. If you take each quarter in yellow, the lower line that you can see, you have €67m improvement in the first quarter, €148m in the second one, €148m in the third and €181m in the last quarter.

If you take the lower line in real terms in the new [perimeter] you will see that we made a profit of €132m for the first time after eight quarters, because all the rest are below the line and negative.

I don’t want to check 2001, we have no time, but okay it is easy enough to understand that something changed.

Let us go now to the other line of our P&L. Below the line of operating income we can see the net [divestment] income in the year 2002 it was -€690m, now it is -€156m. The difference is very much related to Toro because Toro was impacting even there was a mark to market of Toro impact in a negative way.

The other line, if you go to financial charges you will see €979m, worse than the previous year but in the previous year we had €200m on Toro, dividend [indiscernible] and other things like that, that were really reducing the net financial charging of the total.

Then we made a gain from disposal of [€1.7m] we did it September we finished and this is the result of what we achieved.

Then the other line, restructuring, non-operating income was €1.14b. We are going to comment later on these items.

Before you go to the line for tax income [€1.3b] versus [€4.8b] with a reduction in loss of €3.5b. Then you can see also the impact of taxes that was positive in 2002 and negative this year [€12,650m] this substantially is not cash, some cash but not cash, 10% or 15% actually. Then net income is [€1.9b] versus [€4.2b].

Restructuring and other non-operating charges, maybe you will remember that when we met last year in June I said that the program of restructuring was €1.8b for the [four] years. We made €1.4b in one year. Now the new figure we have in mind about the €1.8b is that it could increase of about €300m for the period of the Relaunch Plan, but we have identified actions and substantial and possible capital gains to offset this increase, of which by sure you know you just know, that we got a capital gain on €35m because of the sales of our financial participation, not strategic in [indiscernible]. Then for the sales of Fiat Engineering we had a capital gain of €55m, therefore we have €90m here and the other €200m we know what are and we have actually broadened this progress to the [indiscernible] during this year.

Therefore restructuring is more or less €300m more than we expected in total for the Relaunch Plan, but we have found capital gains not included in the Relaunch Plan that are offsetting absolutely these actions that we believe are necessary to be done.

Then let us go to cash flow. Maybe it is the first time we start with liquidity and we go down to liquidity. I hope you feel comfortable, we have discussed with [indiscernible] to find a way to make our presentation transparent and understandable in total for you. Starting from the liquidity at the beginning of the year €5b including €1b of Toro and going to the end of the period of 2003 to €7b. We have closed the year 2003 with €7b in cash. You will see that the maturity of the €7b is 90% [two weeks] something like that. Mr. [Umberto] is going to explain in detail all the allocation of this liquidity. This was an improvement of €2b in net cash and market growth security.

Let us go by line, we can see that cash flow from operating activity before change in working capital was €0.1b, then there is a line of working capital that I don’t like so much, but it is something very much related to the efforts we made towards the launch of new products, you know. The phasing in of new products, phasing out of old products is costing us some accumulation of stock. I have to say that it is not just [indiscernible] results, but I think some inefficiency of our logistic management, that we are going to recover in the first half of 2004.

This is something that you know very well is an allocation of capital that we are going to get starting from January, because we have announced for the old lines some reduction in the production volume that is going to be realign in the first half this issue. Therefore, I am not happy about that, but it is a different [measure] for all the rest. Because it is a little thing for the Company of €47b that we are going to recover in the period of six months, and this is going to give some help in the cash.

Then we have the free cash flow €1b. Change in debt, you can see the lower line for €7b in changing financial issues where we look for €8b to go through a difference of cash in the position of €2b in total.

Now, I’ll let [Umberto] to comment.

On slide 9 we have strengthened, even in this quarter, the profile of our financial structure. As you can see, as Giuseppe said, liquidity increased to €7b. In the meantime financial liabilities went down from [€26.6m]. This is partially due to the completion of the sale of Fidis and the repayment of bonds.

Medium-term debt has remained over two thirds of the debt of €6.7b, as you can see €4.2b are repayable in kind and short-term debt has once again decreased. In particular, short-term debt with banks has decreased and we are not using lines to any significant extent.

If we look at the maturities, there is nothing new as compared to what you knew before. We have a capital market which we are conservatively assuming to be comprised by €1b maturing in March. We are assuming that the GM exchangeable could be booked in July and then the next bond is in the summer of 2005. The bank debt is absolutely usual. We discuss that every year. We are rolling over the maturities, even Q1 is almost completed. So nothing particular to report, as we discussed €5.4b in 2005, of which €4.2b repayable in kind, bonds in the second part of 2005 is basically it.

Finally liquidity, cash of €7b they were basically in [indiscernible] as you can see they were highly rated. The only unrated stuff was about €100m of Brazilian Treasury Bonds for our subsidiaries in Latin America. The bank [depos] liquidity funds, [indiscernible] bonds are really notes, mostly of some of our – couple of large competitors, short/medium-term notes. As you can see the maturities for 90% is within two weeks. It is expensive to keep it, but we feel very good about it.

Now I would like to approach the Fiat Group in a different way from the past, as far as concerning the gross debt structure. Because, frankly speaking I was surprised entering in Fiat to see how [two] different activities were mixed up, and this presentation for me, let me say, I could be [indiscernible] if you want, but it is not so easy to understand what was the real structure of Fiat in industrial terms or financial terms. Because, in fact with Fiat there are two things, one is an industrial operation and the other is a financial operation like a bank. Therefore, I would like really to make a simple exercise and we will release, make this every quarter, in order to give you the information that is more understandable than in the past. Because we have different allocations and the differing costs of our gross debt structure.

If you can follow me just for a little while, I will try to make as a non-specialist/super-specialist but to understand what is going on in Fiat.

In Fiat you have a gross debt of €22.5b. Let us [indiscernible] industrial activity and financial activity we see that our financial debt for the industrial activity is €11.8b, from financial activity it is €10.6b.

Let me follow the financial activities. We have €10b that are not costing us interest charges, why? Because it is like a bank, we are getting the money and we have a financial receivable for €10.1b and we make a profit in operating margins of more than approximately €350m, if you want to relate this picture.

This is an activity that is very profitable, like Fidis, we did consolidate and we sold Fidis, why? Because we want to have a different financial structure for now, but this was a profitable activity, like the financial activities of Fiat are profitable. Therefore, if you take our interest charge are not related to the €10b of the financial activities, nothing to do with it, because you have debt a receivable and you make the margin of interest, exactly like a bank, okay, very clear.

Then let us take our debt structure in the industrial activity. You have €11.8b, make it round €12b, then you have cash and liquidity for €7b, but real liquidity it was €7b and the balance is net debt of €5b [the liquidity] of the industrial activity, the book value is €7.5b. Then you have some sales of receivable that are common to the industry for €6.7b. If you want to understand where are the interest charges, you have to take €12b gross debt, just industrial activity and to think that we have a cost between €5.5b and €6b. Then you have to take the liquidity, we could make 2% around, because it is very short-term, as I mentioned before. Then you add the sales of receivables €6.7b, and there you have to pay more or less 4% of interest.

If you take this figure you can make the total interest charge we have in our line. I hope this helps you to understand Fiat better. But, for me it was very important to understand, which is the gross debt on which we are paying the interest charge and correlate this to our structure.

My point of view on that subject is Fiat structure [there], okay it could be good or not good, but very much the problem is not there, the problem is in the cash generation of the industrial operation. If you generate cash you are a good company. If you [burn] cash you have to fix the company, otherwise you cannot go along, that is the real problem with Fiat.

To fix industrial operations, to relaunch our industrial operations and to generate cash, that is what I mean for you to try to understand our activity. I can tell you that we are going to report to you every quarter in this way. I want to make progressively some company to add a difference and to split also the managerial accountability for that. Financial activity are reporting to [indiscernible]. Industrial activity is reporting to the [indiscernible] this is our plan.

Now, if you are ready, a sharp check point about the Relaunch Plan.

We quoted the line for our action plan, the key drivers. The financial plan was done, the €10b we mentioned, dispose of [indiscernible] CNH Bond. We have focused the need for an organizational change. We have reduced the complexity of the company. We have put in place a cross sector team to work and we have a new management team in place, especially at the first level. We are now working more towards the lower level. This is a good level of accomplishment, because the team is the most important point of our plan.

Cost reduction, we have made a lot of work on this side, you will see the details, to achieve the first stage of our target of cost reduction to €1b. We have the commitment to have 12,300 headcount reduction in four years. We reduced net headcount for 11,100 in one year and excluding 13,000 of deconsolidation of activity.

Then we had a new product introduction target, then we said - sorry the planned closure – we made the closure of four plants, four announced in progress and four to be announced, this is the status. Then we have new production introduction, we will see where we are, and we control totally the target of breakeven operating level 2004 for the Group, 2005 for Fiat Auto and net income breakeven in the Group 2005, Fiat Auto 2006.

What do we mean to reduce the complexity? The legal entity of Fiat Group is a group of more than 160,000 people and [€47b] sales. We have reduced 200 company going down from 950 to 750. We have a plan to further reduce 150 company and to have less complexity and more speed in our decision making process and in all our organization, in the sector [indiscernible].

If we see the reduction in headcount as I mentioned, we were 186,000 at the beginning of the year, we are at 162,000 at the end of the year, 14,000 changes [good], [11,100] net headcount change.

Now how we work. We made a lot of organizational changes that are changing the culture and working of our Group, keeping strong the value of Fiat. We want to keep the value of Fiat.

If you take this chart, you take the box on the right are the related to the sectors of the Fiat Group. The other, on the left are the central functions. For this box, the yellow means the change of Chief [Executive] Officer, of the change of Director. Therefore we made a new appointment in Auto, Chief Executive Officer of Fiat Auto, you know [indiscernible] head of this Business Solution. The new Chief Financial Officer, [indiscernible], new general counsel, new business developer strategy, new corporate initiative, new internal audit, [indiscernible] internal security are the same and their [indiscernible].

Twelve new appointments of 19 top managers. So we made this change, this is a good team, I value this team very much and this is the team that will deliver the plan. I am very confident of this thing.

Then if you see the column of the cross sector teams that we have announced to put in place a structure that was based on the concept of trying to get the synergy in this new Automotive industry group very focalized. Therefore we designed the activity to focus on and this was presented to you June 26, 2003. Now that we are at February 27, 2004, I can tell you that there is in place a system of initiatives for all the lines we discussed. It is this counsel, the sourcing counsel, manufacturing counsel, quality control counsel, cost control counsel and restructuring project that is generating ideas that you see are entering in the portfolio of projects.

We have 700 projects that are generating from this team. Then we have full time staff in each sector to control the implementation of that team, but the most important point, that every action is related to the analogies of variance of operating income that you see there. If we don’t see a connection of the project and our counsel system it doesn’t work. Therefore this is a good [authority] we have a long discussion on which [inaudible] and don’t go back to work in the sector. It is not the labor structure, as I said last year. This is working.

The results of this work is here, and I want to comment about how we achieved the cut in the loss of about 50%. Before we should think the proper change and improvement 2003, versus 2002 was €252m. The change this quarter was €400m, and then you see €651m that we have seen in the previous chart.

This €651m was made by a cost reduction of €1.1b. This was a phasing in cost reduction, [indiscernible] materials, variable costs, production costs, SG&A, all the profit [indiscernible] €1.1b, that was allocated partly to cover [indiscernible] negative of €300m, and also to make more R&D, to spend more in R&D as we have said last year.

Therefore, the final outcome was a total of €651m, but in LNG in the year 2003 was the exception.

That is exactly the copy of the methodology I mentioned before, that is not paper, it is action in place and results related.

If we go to the [indiscernible] cost reduction we had, included in our launch plan, was €2.1b. You see that was [indiscernible] €1b, not €1.1b, because we have just taken the cost reduction allocated to this €3.1b target in a comparable basis, and I can tell you that end of year 2004, we will achieve 50% of the target of €3.1b, before cost reduction and cost efficiency we are on track.

Let us go to the other part of the target. In the year 2003, the [indiscernible] from the [indiscernible] area was not positive, for sure, because the impact of the new model was not there, as we expected, but this year, we will have some benefit from the new models and a positive buyer, and in order to be on track for the target of €1.6b margin coming from new products.

Now, a short comment about market share. You know that in the launch plan we have taken some market share in 2003 as a reference, and then 2006 the target to go, because this process for sure is a process of [indiscernible] the products, therefore making a strong improvement in the network, adding customer byproducts and then growing. It’s not just a matter of a few months, but it takes more time. However, let us see how we think about the market share.

In my opinion, the market share is instrumental to achieve very long secure growth, to make a good result and good bottom line performance. Therefore, take Italy – our launch plan. We have planned a market very negative in our forecast, because we wanted to be conservative. You remember when we met in June, and the market for car buyers in June was 2.7m cars. In fact, in Italy, the market, as you see there, was at the end of the year 2003, 2.25m bigger. Therefore, our 20% of 2m was the same value as 30% of 2.2m, exactly 630,000 cars, 5,000 cars more than the forecast of the launch plan, in absolute value.

I want to mean that for me, the market share is not an obsessive, but it’s a matter of the balance, because we have to take the volumes as margin, and then to see which is the best outcome for you, operating income for your company, because you cannot go to make everybody happy because you have a strong market share in Italy because there is [indiscernible] very much on the point. Oh no. I think the Toyota Fiat is bottom line, that there is an income and better net results, okay?

Therefore I wanted to tell you this because for instance, now we have some positive seasonal in January, we made in Italy 30.9m without zero kilometer, so towards absolutely a group signal, but I don’t want to add an exception of the market share, and I think that’s the right approach. For me, it’s more important that we have a standard [indiscernible], we launch the product in the market place, we keep our price steady, we make more orders than expected in tandem, and that is a good plan working. This is very much the point.

Now, very quickly, the new Fiat Panda order intake from the dealers, 140,000, of which 50% in Italy, but the other 50% outside Italy. Fiat [indiscernible] started in late December with a few quantities, was then in January and February now is picking up 29,000, 48% in Italy.

Now, if you take Lancia Ypsilon, 55,000, 82% in Italy. We know the Lancia brand is very well known in Italy. Alfa GT, 9,500 units, 32% in Italy in a very short time. This was a very good surprise for the Alfa team, and for ourselves. I don’t comment on Ferrari and Maserati because I can’t look at that.

A tractor, beautiful tractor, and you know, you don’t like tractors? No, you are only excited about cars, I know! Then there is [indiscernible] we got an award for Panda, [indiscernible] and also tractor [indiscernible] won tractor of the year.

So, to go back to our target growth plan, the [indiscernible] portfolio is strong and we will have in 2004 51% of [indiscernible] new products, Iveco 70%, and CNH 80%.

Now, a flavor, just a flavor about the Geneva. You will be there, [indiscernible], that is the new MPV Lancia, okay? This will be on the market September 2004, Fiat Multipla, I hope you will like it, and it will be October 2004. Alfa Romeo’s [indiscernible] 4X4 will be June, and new Panda 4X4 will be September or October 2004.

This is the last track you will know, related to our micro-car. I think the style is quite nice, and will be in Geneva.

So, I don’t want to enter in this chart because it’s too crowded, but the totals were just listed to show you that it is very crowded, because other new products.

Our outlook for 2004 is that our re-launch plan commitment confirmed. Costs targets are confirmed, safe margins confirmed. We will see a significant reduction in operating loss of Fiat Auto, and further, operating income in CNH Iveco a component. 2004, Fiat Group are achieving its operating level. New management is in place to deliver. The last line is the most important. Thank you very much for your attention.

We’re now ready to take your questions. Let me just establish a few housekeeping rules. We will take a first couple of questions from the room, then we’ll move over to the conference. For those who are here in Milan, please wait until you get the microphone so everybody can listen, and finally, if you could limit yourself to one question and a follow-up, so that we can have many more people participating to this session. Thank you.

Could you please give us the present change in projection in the last quarter of 2003, compared to the last quarter for 2002 for Fiat Auto, as well as the present change in sales to dealers, please?

I think it was about €40,000 cash produced more, quarter on quarter. Sales to dealer were about the same. I cannot be getting the exact figure. That was 443,000 cars.

My name is [indiscernible] from UBN Milan. I have two questions. The first one is related to the liquidity figure. In September 2003, the cash was €7.2b and in December 2003, cash is €7b. My question is, why did liquidity decrease €200m only, if Fiat in the last quarter of the previous year paid back bonds maturing in October for an amount around €1.1b, and posted a net loss of €1.1b?

My second question – but okay, first of all, my first question.

Finish, and then we’ll answer.

The second question is about the ability of Fiat to afford its short-term [indiscernible] requirements, because short-term debt in 2004 is €7.1b, and cash position is €7b. So my question is, maybe you need to raise further cash to afford all your short-term family requirements, and so, do you plan to tap the market, I mean the capital market in 2004 again by a corporate, a [indiscernible] or by securitization of your financial receivables?

Just a general comment about the liquidity, and our [indiscernible] for the future. We have pondered our plans, and don’t need additional reserves to execute the plan. I think you cannot believe that a group will go zero in gross debt, I hope, but we will reimburse all the bonds, because we have planned that, but by sure, we have to take into account that we have to let the bank to work with us, otherwise it would be a disaster for bank! No, I mean that, we cannot go into a [indiscernible] and to say €29b was the gross debt. We went down to €22b, then we go down to €12b, and then to zero. I mean, we have a plan that is for the use of our liquidity to reimburse the bonds, we will have, as you know, that maturity this year will be for €3b, and €1b is at the end of March, €1.8b is at the end of July. We feel very comfortable that we can do this easily, and I can tell you that we have some cash that we can get from extraordinary capital gains we plan to have, and some cash coming out, also from networking capital from the stock that we are reducing and cutting to [indiscernible].

I feel comfortable for this plan, and then, you know, we really are going on to generate cash in all the other sectors, as in Fiat Auto, using cash because we said that Fiat Auto needs improving cash-flow in 2006, and we see a balance in all that. But I believe that this is not a point of concern.

To answer your specific question about the fourth quarter, you may recall that in the fourth quarter we completed the sale of [indiscernible] and therefore we see the significant inflow of cash. We repaid the bond of roughly the same amount, so that was the main effect. With regards to short-term funding, you may also notice from the slides on cash-flow that we have reduced the level of financial receivables well above the previous transactions, and in the meantime also from the press release, you will notice that we have reduced securitization, basically of financial receivables. Basically, that means that we can reduce the level of financial receivables by reducing the amount of credit spread even and transform receivables in cash. That gives us a lot of latitude in that respect.

We’re going to move now to the conference.

If you would like to ask a question in today’s question and answer session, please press *1 now, thank you. We will now take our first question, from John Lawson from Smith Barney. Please go ahead.

Thanks very much. Obviously the businesses outside Fiat Auto have put in a better performance, and it’s been a particularly long time since you strung together a few good quarters in the Components business. Would you care just to give us a little bit of color on that one, and say which sector is really starting to work well for you?

[Indiscernible] Components [indiscernible] was a surprise to me, to see that, for instance, [indiscernible] was the first one to move the [indiscernible] in the Fiat Group. When I joined Fiat, and we have decided not to sell the assets of Magneti Marelli, the motivation in the company started to move at a very high level, then I put in place a lot of action plans, and I can tell that Magneti Marelli is now towards the target of making a net profit, a net level and in 2004, which is very much a stronger target, but we have in place a very strong team, Team Magneti Marelli, and a very good [indiscernible], that is one of the persons that I didn’t change, because he is a very good manager, doing a very good job.

Also, the other two [indiscernible] is in the line of recovery and we received some strong improvement in operating levels, and also [indiscernible]. Therefore we have made restructuring also, and in these sectors very deep restructuring that has provided now a better performance and so, I am confident that they will give us some good surprise to all of you in 2004.

Sure, in operating income, a strong improvement, and let’s see if we can make a good achievement also in the net result.

Back to the room now, that’s enough.

The first question is on net debt. For 2004, in your re-launch plan, you had net debt almost stable, year on year, there’s an assumption. I understand that this means also including some divestitures, as you mentioned before, but very limited. I was asking you if it’s possible to elaborate a little bit more in terms of assumptions, obviously, if it’s still correct to consider net debt stable for 2004, which are the assumptions on divestitures, on cyclitized receivables, which were much higher than expected at the year end?

My second question is on if it’s possible to have any guidance on EBIT for Fiat Auto, also, and Iveco. Thank you.

Okay, let us take the net financial position. It went down from €3.8b at the end of 2002 to €3b at the end of 2003. When we say it will be stable, we think that we will be stable in that range. Please take into account that for me, stability is the same range, because we are a company. I am not so happy to go down from €3.8b to €3b. Okay, it’s a good point, but I felt there’s more in the cash-flow from operation, and other factors, but okay, it is good.

What we have planned as an extraordinary income, capital gain and the best ruling factors of the cash, are going to affect some [indiscernible] we make before I think the balance will be a [indiscernible] and we can’t afford for the target to be in that range of this financial position.

I think you were about sale of receivables, is that your question? I think you can assume the same trend that we had last year, typically big at the year end, and then a slight decrease, low in September and then back up. Obviously this will depend also on the evolution of volumes of sales, so we try to keep a certain percentage, but I think that’s a safe assumption. We’ll give you guidance quarter by quarter. I think for the first part of the year, assume the same trend.

As far as Iveco, the question is a very difficult one! We have committed to make a sound improvement also in Fiat Auto, and all the sectors have a very aggressive target, because you know, to achieve at the group level, this is because we take into account the sound performance in other sectors, and a strong improvement in Fiat Auto.

Look – I think this is a commitment, and maybe, when we met in 2003, it was something that was not satisfactory to have a split of everything and so on, but I think the most important point is to build up our credibility and to deliver every quarter. It is difficult to have surprises in this situation, but I think that to commit ourselves to achieving [indiscernible] group we should think to last year, 28 February, when nobody could bet on that.

Back to the calls now.

Thank you, sir. Our next question will come from Adam Jonas, from Morgan Stanley. Please go ahead, sir.

Thanks, Adam Jonas from Morgan Stanley, good afternoon. I have a couple of brief questions. First, can you give a bit of feedback on the €2b convertible preferred that you have from CNH? I believe that the terms are that if CNH trades at $24 a share for 30 days anywhere between now and the end of 2006, that it would be exchangeable and the CNH shares at $20 a share. Is this an automatic conversion, or is it at your discretion? Obviously this would require a further upside of CNH, but if you could comment on that mechanic.

The second question is, on your restructuring charges you said you had got an extra €300m. Can you just elaborate on where you found the extra savings, or extra restructuring needed, and how the cash payments would unfold in 2004? Thanks.

Hi, Adam, I hope you can hear us better than we can hear you. Your question about the €2b of reserves convertible CNH. It’s automatic in the sense that the stock has to be at $24 for a period of one month, and then it automatically converts into ordinary shares at a price of $20, so I hope that answers your question.

Okay, so that would be automatic, okay.

The second question I think Mr. Marchio will answer.

I just want to make clear that we made a restructuring cost of €1.4b in 2003, and that was excluding our forecast for 2003, because we had anticipated, and I had to explain to you that this €1.4b was related to €1.3b for the full period, but we had to add additional restructuring. Before, what went in 2003, is something additional to what we had forecast. All the rest is in line with the plan. Therefore, in this year, we will have extraordinary income and capital gains offsetting what we had in 2003. Is that clear?

That is clear. So the surprise really has already occurred, in terms of more restructuring?

Absolutely.

So what about in 2004? What would be the cash restructuring payments? You mentioned the €600m or €700m in 2003. What would the magnitude be in 2004?

In cash restructuring, the top €1.8b is a matter of €2.1b. We had €1.4b, the rest is €700m, okay? Therefore, what we will add in 2004, I could say that will be of the restructuring in cash, will be affected by two points – first the carry over of what we had decided in 2003, and you remember that the restructuring there, in cash, was €250m on a total of €650m. Therefore, we have a carry over.

I can also say that we could offset more than 60% of our restructuring in cash by the capital gain. Therefore, we will reduce the impact in cash of the restructuring to a region of more or less €200m. This would be a reasonable figure.

Okay, so you’re saying after the capital gain, you’d be left with a €200m outflow?

Yes, €200m or €300m, because we are defining now all these kind of things, because we have worked on action plans to offset this additional cost we have.

Okay, thanks Mr. Marchio, very clear.

Good afternoon, [indiscernible]. I have two questions. The first one is on mandatory convertibles. It’s your option to decide to pay cash on new shares. Can you share with us what will be the driver for your decision on this point?

The second point is on international accounting standards. Have you done any kind of simulation to see what the impact would be from 2005, and will you decide to capitalize part of your R&D? Put it another way, your 2006 targets are [indiscernible]. Thank you very much.

Okay. The first question about the convertible [indiscernible]. As you know very well, the system is mandatory for the bank. We have a possibility we may shortly reverse that.

I think this is a matter of 2005, September 2005. I think Fiat has enough issues to focus on, and we had a long discussion today about this issue, and we are very much focused on customer, market network, re-launch, and other things like that. Both together this general motor discussion if you want! Therefore, I think really it is a very long time to think September 2005.

With regards to the IAS, as everybody in the industry, we obviously are examining the impact of IAS, and we have a big group that is studying the impact. Obviously while we are studying, we are not in a position to report. The effect, I assume, however, will be in the same line as most of our competitors, so we’ll keep you posted as we make progress. But [indiscernible] was down without considering IAS, so as things were last summer, so IAS is not included in the plan.

One more in the room?

Good afternoon. May I ask, please, a few details on the utilization of [indiscernible] capacity in the last quarter, in particular related to the new models, Panda, in particular? Thank you.

Okay. This is a very good question, I like the most, because product utilization is an issue. I think that we have to make clear this point. First of all, you have equipment and production line utilization, then you have employees and worker utilization – two different factors.

You can be sure that we use the human resource, restricting the need to make our production volumes. We have no idle workers in our factory. Therefore, we have a full utilization of manpower, if you want, okay? This is very clear.

As far as related to the equipment we have in the factory, if, we had, for instance a [indiscernible] production line that was designed to make a volume of 100, but we make today a volume of 50, then sure, there is a number utilization, but you see that means repetition because the cash was out some years ago. If you [indiscernible] by cash, you have no impact. If you want to see the impact in P&L in depreciation, our repetition is 5% [indiscernible], better for production line with the competition, okay?

Let us take the real situation of capacity. I think here, very much so, is the fresh money we put in the new investment for Panda, for instance. Panda is doing well or not, the price position yes, the volume, better than expected, about 20%, okay? Therefore, we were extremely offset at Panda, and we are working six days, three shifts, in [indiscernible] and using our capacity and very much happy about that.

The thing is, the idea now is a start-up, we are seeing, it started in January, but I can say [indiscernible] now is running at the speed we have planned. Therefore, the answer is, yes, the new models are performing well in the price position, and both in volume.

We are taking a question now from the call, if there is one.

Yes, sir. Our next question will come from Alessandro Rollo from K Capital. Please go ahead.

Good afternoon, Mr. Marchio. CNH has accounted for the $2b of preferred securities that Fiat subscribed for in 2003 as part of their shareholders’ equity. How did you account for the same $2b of preferred securities in the Fiat [indiscernible] accounts and the consolidated accounts of the Fiat Group?

Also, it’s a conversion of the CNH plas that what [indiscernible] was referring to was accelerated, you would end up with only 91% of CNH capital, worth about $4b at that point. Do you envisage reducing your stake in CNH to improve the free-flow of the stock at that point?

We’re trying to collect our thoughts because the connection was very bad. Alessandro, the question was how do we treat the $2b in our accounts? It’s a senior company, therefore there’s an allegiance, so either that is an inter-company debt or the stock, you don’t see it in the account, I mean, CNH is fully consolidated line by line.

So from the consolidated accounts point of view it’s part of shareholders’ equity for the Fiat Group as a whole?

Otherwise, it’s an equity investment of preferred shares.

Okay, so the FSDA account is an equity [indiscernible].

Right, but in the group accounts, you won’t see it, because there is an allegiance so it’s consolidated line by line.

And if you were to be a seller, if the conversion were to be accelerated, at that point it becomes a very valuable investment...

It would be in the financial holdings line at that point.

And with 91% of CNH [indiscernible] at that point...

It would be about almost 92%, your calculation is correct.

And it probably makes sense to reduce the stake?

The second part of your question was what are we going to do with the 92%? I don’t see much difference from 85% to 92%.

Would it make sense to place a portion of that in order to increase the free-flow?

Look, you know there is a figure now for the conversion, that is a very good level of top price. Let us go there and then we will see.

Thank you.

We now have a question from Mr. Xavier Gunner from UBS. Please go ahead, sir.

Just to clarify, you’ve given an indication of your net debt position to be broadly in the range of €3b, and I think I’ve understood it right, and I might have heard it wrong, between €3b and €3.8b. Now, the question I guess I’ve got is that we’ve got working capital which hurt you last year to the tune of somewhere in the region of €900m, and we’re hoping that that’s going to reverse back out. What is your assessment of the underlying cash burn likely to be, if you exclude the working capital, and if you exclude any acquisition disposal? So in other words, what’s the underlying true cash burn, for instance, from operations likely to be, do you think, in 2004?

Sorry, if we interpret correctly, your question was, assuming that we reverse back some of the working capital, what is our assumption on cash-flow. Is that what you’re saying?

Well, I guess you can give us either answer. I mean, in that case, how much do you think you can reverse out of the €900m, which is the first question, and really, a bit more clarity of your expected net debt position, because the range of €3b to €3.8b is quite a wide range.

Excuse me, we have a defined operating income target. We have discussed about its structure, you have to make some work also! We do everything! I think you can really make some simulation about the figures, you have interest charge and taxes and everything.

It looks like I can give you some more information about working capital. I think that basically we should talk about inventories. Of the €800m plus that you saw in the net working capital requirement, basically about €230m or so is due to change in scope, because we had [indiscernible] with required cash and Fiat Auto that was a negative working capital, so €200m is due to that.

Further, about €500m is additional inventories in Fiat Auto, the rest was basically additional VAT credit and attainment of €250m of collateral that is a sort of one-off because it was collateral for the high-speed train. If you want the entire story, it’s on page 158 of the annual report. So, I think the stock of Fiat Auto is €500m. I think we would want to get back.

Also, CNH are higher inventories, which you don’t see in our annual report because in euros, the dollar is being brought down, but there it’s because the sales in the States are picking up, in CNH, so in dollars, there’s an increase in stocks. I hope that is clear. The financial chart will be somewhat lower than this year, but still in that range, €800m to €900m. I think converting income will give you a target. The cash taxes are not going to be ready from this year, and I think Mr. Marchio gave you a hint about restructuring taxes. I think you can work out the rest.

Absolutely fine. I just wanted to make sure my maths is in line with yours. So basically, can we assume that we could expect a flow-back on the Auto division somewhere in the region of €400m to €500m, so, in other words, reversing the Fiat Auto inventory uplift in 2003?

The line is better, yes. We expect the Fiat Auto excess inventory, or additional inventories, to be rolled back in the first half of the year.

Fantastic. Thank you very much.

We’re back in the room, I think.

Good afternoon, my name is [indiscernible] from [indiscernible] bank. I have three questions, all about Fiat Auto. The first is regarding models. When the three doors version of the new Panda, the next generation of Panda was only three doors, and I think that the basic version three doors should be mandatory to be on sale, the weakest. What about the totally new Fiat Punto? The last July 2003 restyling was very important because the car was fitted with the new 1.3 liter multi-jet turbo diesel engine, but from an exterior point of view, there was no major renovation, with the exception of the front wheel and headlight.

What about the future of the new models that [indiscernible] Fiat Cinquecento, this could be a very crucial model niche, perhaps a niche market?

The second question is regarding the market. I wonder what is happening in France and Germany? Commercial results are very poor in those markets, both in the last few months where Fiat Auto’s launched new models that [indiscernible] should have been better welcomed by those markets too. What direction you have taken, and what has already been put in place in terms of renewal of those initiatives?

Also on the same matter of new markets, what about India, Russia, China – there seems to be from a motor car industry point of view the fast growing markets maybe be focused on the lower segments of the market.

The last question about pricing. One year ago you underlined that one of the main goals to be achieved was the increase of the average for revenues per unit, and the new model engine on the Fiat Punto, the new Panda, towards the old one, and those are the new launch [indiscernible] should have provided good results on this [indiscernible].

Thank you, we have a lot to do now! Okay, short answer – look, I think we have to follow the life cycle of the product very, very sharply, and to give excitement to our customers every year or so. Therefore, in 2004, you have Fiat Panda Four Wheel Drives, a nice product. I think we will excite our customer and I hope they will buy more cars.

Let us see the three door as a thought for the future, okay? We have to be careful that every euro that we took in one place, we have returned on this investment. It is not the time to make crazy things in the automobile industry. You have the least mistakes made by the automotive maker, also the best player in this game, therefore we have to be very focused on what we make and the average return of our investments.

Fiat Punto restyling – okay, restyling was a strong restyling, but you are right that 1.3 multi-jet was the real excitement for that car, and we got the gain, the order intake for Punto, and we are happy about that, because you know, this style and engine are working together and this was a good job and next year, we will have the new Punto, the [indiscernible] you have seen some pictures, therefore I know what I mean. I think this will be okay.

About [indiscernible], this is a project for 2008, and the Fiat Uno is a signal of the style we are looking for, but I add, too, that we have to achieve also the value through functionality of the products because our target is to sell value cars, not cheap cars, okay?

If you take, for instance, the pricing you mentioned, a good example is Panda. A new Panda is €9,000. You buy a new Panda, and you feel happy because you have a lot of value for that €9,000, and if you compare other offer, you choose Panda, okay. But the old Panda was €5,500, but was a different product, nothing to do. It’s just the name and the brand that is something that has a value for our customers, but in fact, the new product is related to a new price position. It’s the same with Ypsilon. If you take the new Ypsilon, and in January we sold a lot of Ypsilon and a lot of registration, and this is performing well, but the price positioning was simply higher than the past, but for a different one, therefore, this is what we are looking for also, for the micro-car. Don’t think this will be a micro-car for a cheap price, because we want to be something different.

Lastly, Russia, China, India – okay, India and Russia and China are three different things, okay? In China there is a very strong market, 2.4m going 40%, 50%, very competitive. We are there with CNH, Iveco and Fiat Auto. With Fiat Auto we are not so big, but we are moving ahead, making money, but taking into account it is a competitive market, therefore, the picture you had for the past is not the picture for the future, okay? But we are committed to China, you know. If you take Fiat Auto, Europe is the gain. We have to turn around Fiat Auto in Europe, then to fix Brazil, to make money in Brazil and China. These are the three core businesses for Fiat Auto.

If you take India, there’s no difference, but if you take Russia, please, you know the market. You know Russia is less than 1m, and then a lot of imported cars, so in real terms, now we have clear ideas about our priorities. First, re-launch Fiat Auto and generate cash. This means Europe, Brazil and some parts of China. That is our strategy.

I know there’s many questions queued up on the line, so let’s move on to the calls.

Next we will take a question from Jonathan Todd from JP Morgan. Please go ahead, sir.

Good afternoon. Could you tell me the level of committed undrawn [indiscernible] you had at the year end, please?

Could you say that again, because we couldn’t get it, I’m sorry.

Sure. Could you tell me the level of undrawn committed bank facilities that you had at the year end?

Yes, it was somewhere north of €2b, it’s basically the same amount of [indiscernible] as before, just translated from dollars to euros, the amount looks smaller.

And your experience, year to date, is that you’re being able to roll bank facilities as they are due to come to maturity, are you?

I’m sorry, the line is extremely bad. Could you repeat, please?

Sure. Are you able to renew bank facilities as they mature?

Yes, we’ve been doing so.

Okay, thank you very much.

Our next question will come from Derek Ferguson from Morgan Stanley. Please go ahead, sir.

Thank you, I have two questions, actually. The first one is on slide number ten. I just want a bit more color about what exactly are other financial liabilities. The second question is in relation to the financial receivables that you have. What are the intentions about increasing or decreasing the level of those? Are you looking to maintain the size of the finance company, or reduce or increase that?

Okay, with other financial liabilities, you have to divide into two basic parts, about 50% of it is accruals, and market to market of derivatives, the second half is a vast [indiscernible] made by public entities, for example, some Italian ministries or the governmental [indiscernible], you know, certain companies and consolidated companies. It’s really all that is non-bank financial institution or non capital market, so it’s about €600m if you go back the last couple of years or even more so, it’s been pretty stable as the accruals keep on being renewed.

Then the second question about our finance company – let’s say that we are becoming more choosy in giving out credit, but I would say that we’ll keep it in general. We like the activity, especially the CNH one as it’s very well organized and profitable. We will decide as we proceed. As Mr. Marchio told you, we are organizing the company along separate lines, financial services and industrial. That will also make it much easier for you to understand how they are developing and going forward.

Okay, thank you.

We now have a question from Michael Dean from Merrill Lynch. Please go ahead, sir.

Hi, it’s Michael Dean here from Merrill Lynch. I have a question on your Italian car sales for January. You reached your target of a 30% market share. Could you just break down the mix between retail fleets and zero kilometer sales, and how this compares to, say, the first half of 2003? Thank you.

As I mentioned, we had in January, zero, zero kilometers, and about the fleet, we’re in line or better with the previous year, absolutely, I can tell you that we have not forced the situation.

Do you have a percentage breakdown at all?

We don’t have to breakdown, or provide you with it. In this respect, if you look at the models that were sold in January, you will see that most of the increase has been done by Panda, Ypsilon and other new models, from which it would have been foolish to do any zero kilometers because the mix is very rich, as a matter of fact.

Okay, thank you very much.

Our next question comes from George Dean from [indiscernible] Securities. Please go ahead.

Yes, hello, good afternoon. I have two questions. First of all, you just referred to the Brazilian operation, saying that Fiat Auto had fixed Brazil, so my first question is, could you give us some cover from the contribution from [indiscernible] were for Fiat Auto and maybe for the other industrial divisions, and what’s the outlook for Latin America overall?

The second point is related to the alliance, the industrial alliance with General Motors. Seen from now, could you assess, let’s say, the potential for incremental cost savings and synergies, and could you elaborate on the progress made with respect to platform sharing? Thank you.

Brazil – you know that we mentioned that we are importing our management team. I made the point about the first line, but also the second line is in the way to be [indiscernible]. We made the change – this is partially answering also to a question about Germany you made, and France, and the United Kingdom. We made the managerial change. The head of the market in Germany is a new person. The head of the market in France is a new person, and also the new Chief Executive Officer in Brazil is a new one.

We made this change because we thought that we could have a better allocation of our managers. As far as this is related to the situation in Brazil, 2003 was painful, we lost money, important money, less than the competitors but we were very unhappy because there was a trading station, other competitors losing big money. Therefore, we have action in place, the first one was related to the Chief Executive Officer, but we have an action plan in costs, and we see that is going to change also the market environment and we are confident we could make a better result in 2003, and Brazil providing a positive variance versus the previous year.

As far as the related synergy with General Motors, you can relate to the figure I gave in the launch plan that was synergy for us. The same will be for them, but for Fiat a saving of €600m, that was achieved in 2003, and we have a target for 2006 of €1b.

I think we have enough time for one more question from the call, and then we’ll end up with one question here in the room.

We have one further question from Pierre [indiscernible] from Goldman Sachs. Please go ahead, sir.

Yes, hi, a question for Mr. [indiscernible]. If I look at your capital structure, out of your 22m of debt, around half is bonds, of which around 10m or so is Fiat. Now, given that you have no plans to cap the bond market for the time being, and that in any event, presumably, the bond market will be available for Fiat for a lower amount than those that are due to mature in the next few years, if you look at your capital structure from a medium-term perspective, how do you want to replace this 10m or so of bonds? What’s going to take that place? Tactically, you mentioned that you have a lot of room to increase securitization of financial receivables, which is fine from the [indiscernible] point, but inevitably that implies giving up some margin, so just in general terms, and forgetting about issues of short-term liquidity, which are not an issue, how do you look at your capital structure going forward?

I think your question was, how do you renew your debt if it is excess to capital market? Is that your question?

Yes, but not from a point of view of liquidity. I wouldn’t want to get stuck about the discussion about short-term liquidity, which we all agree is fine, but from a medium-term perspective.

I think we have a tradition of being opportunist in the sense that we see what’s the best market or otherwise, and we approach it. I mean, that’s been, for example, this summer, CNH in the States and so on, so we always work in terms of various alternative plans, contingencies and we see what’s the best market, so while I think we have ruled out in the short-term an approach to market, you know, we’ll see over time how that develops and incidentally, we also expect that as we see the improvement in the company in that performance, also the financial markets will appreciate. So short-term, we have given some indication. Longer-term, we’ll see how the market develops. We’ll go where the best market opportunity is for investment. The important thing is to have flexibility in the approach with the financial markets.

I agree, and I understand your opportunistic bias, but at the same time, we are not talking about the part of that which accounts for 20% or 30% of your structure, we’re talking of something accountable to half, so you can be opportunistic, but only around a long-term strategy, that more or less would remain in place.

The long-term strategy has been that so far, what we have had in the last few years. You know, we stand in difficult market conditions, and difficult company conditions. We have, I think, a very balanced mix, and you know, this is what I’d like to do also for the future, as a long-term strategy. Short-term, we will be very opportunistic.

Thanks.

Good afternoon, I’m Gabriele Gambarova from Rasbank. I have just two questions, one about your figures for Q4. I see a sharp increase in other operating expenses, as well as for investment expenses. Is it possible to have some more details about these figures? I see they increased quite sharply.

My second question is about your bill of network in Europe. I saw from the transparencies that it is only at the beginning. Is it possible to have a time deadline for this restructuring? That’s all.

You said a sharp increase in non-operating expenses? That’s what in other situations would have been called extraordinary, but in our accounting jargon has been called non-operating. So it’s basically the restructuring charges, and we basically posted them in the fourth quarter.

Okay, and for investment expenses? I thought it was linked to the dollar or insurance of [indiscernible].

Yes, in the year I think we had three main items, and then the last two, I think, were grouped in the fourth quarter. It’s basically [indiscernible] with the divesting of – I mean, that used to be a joint venture between us, [indiscernible] and Telefonica Spain, and we have written off the receivable stake in it. We have put aside the money for the future payment for the license for the company, and also we have effectively written to zero all our adventure in the telephones, and that was, as we say, a controlled company now, because we own all of it. It’s going to that account.

The same is true for leases and joint ventures that we have with NL, we have brought down the goodwill of the company, so we have brought down the levels, so you’re seeing that in that account.

In the previous year instead, it was basically dollar [indiscernible] as Mr. Marchio said before.

Okay, the last question was on the network in Europe. The network in Europe is an issue. Mr. [indiscernible] has a priority that gives [indiscernible] of the network in Europe. Therefore, I can tell you that you are back, you made a question about Germany and France, and I said before that we made a change, and the number one in the country now is a new person, taking care of a program of [indiscernible] of our dealer network in this country. Therefore, look, I think you will see this in sales volumes in that country, increasing market share, and we can organize in that next meeting some further discussion about this item, and hopefully we will have a meeting in the middle of the year with also a representative of the sector. I know you met in [indiscernible] sometime. This could be a good idea to make some meeting and to go in the place about these kind of things with further responsible of other sectors.

[Indiscernible] this is going to be the last one, thank you.

Thank you very much, just a very quick question. Could you give us more color about your expectations in terms of volume for Fiat Auto in 2004, please?

The volume in Fiat Auto will be the result of the success of the new projects and our actions. We have really to increase our market share in Europe, to be a European maker, okay? Therefore, you can imagine that we have a volume increase in our budget 2004, very aggressive, but we also have a very aggressive plan in costs to go ahead, but don’t think that we are thinking about Fiat Group in the future only by costs. The company has to sell the products and to stay in the market, and if you don’t go ahead in the market, you cannot overcome the situation, and you cannot be viable, therefore the market today – we have the products all in the market, all in the dealer network [indiscernible], and the priority and the focus and the mission on Mr. [indiscernible] today is to do this job, and I think we have the right person to do it.

I think this ends our meeting today, and thank you very much for coming to listen to us.

Thank you everybody, it’s Friday, sorry about that, but we are to [indiscernible] on Friday. I wish you a very good weekend, everybody, and also the others that are on the phone. Thank you very much, everybody.

That completes today’s conference. Thank you for your participation.