Stellantis NV (STLA) 2004 Q1 法說會逐字稿

Welcome to the Fiat first-quarter results conference call.

Today's call is being recorded.

Hosting today's call is Mr. Luigi Gubitosi, Chief Financial Officer and Marcello Ledda, Head of Investor Relations.

Gentlemen, please go ahead.

Ladies and gentlemen welcome to Fiat's first-quarter 2004 results conference call.

Good afternoon to all of you. (indiscernible) made earlier today, and we noted the results for the quarter.

A full quarterly report will be filed tomorrow and made available to all of you through the Fiat Group website.

In addition today the analyst general meeting of Fiat S.p.A. was held here in Turin as well.

This explained why we have organized this call a little later than usual.

Unfortunately Mr. Morchio is still busy with the AGM which is still going on and will not be present at this call.

Mr. Luigi Gubitosi, our Chief Financial Officer will review the first-quarter results.

Before passing the microphone to Mr. Gubitosi, let me just remind you that we will be making forward-looking statements during the call and these are covered by our customary Safe Harbor provisions filed with the SEC on 10K.

I would start right away by passing the microphone to Mr. Gubitosi.

Hello, everybody.

Welcome to this call.

It has been a busy day and as Marcello said the AGM is still going as this meeting seems to last forever.

It has been a busy day but we wanted to talk with you before the day was over.

It has been a good quarter, in line with our long plan targets.

Revenues were up in all business sectors.

On a continuing operation basis, i.e. excluding the companies that were sold this year, revenues were up significantly.

Also looking at continued operations, group operating losses were capped by two-thirds compared with the first quarter last year.

Fiat pre-tax loss was 61 million euros, 600 (ph) million better than last year; almost half of this improvement comes from the termination of the equity swap on GM shares.

The group net financial position is a seasonally high $4.4 billion and last year due to the (indiscernible) tables and lower sale of receivables, we contained a strong cash position after having repaid 1 billion euros of bond maturities and book back and canceled EUR3.4 billion or $540 million of the GM exchangeable bonds.

As we told you at the year-end results, data from continuing operation is the best way to measure Fiat's progress.

Activities at last year’s premier included Fiat Auto, the (indiscernible) insurance company and the retained financing operation of Fiat Auto better known as Fidis.

On this measure, Fiat revenues in the quarter were up by EUR647 million.

Currency did not provide any boost to our top line.

The start-up of operating losses come from higher volume and improved margins on new products in all sectors, as well as adjusted cost coming from the implementation of the loan plan.

If we go to Slide 3, it gives me great pleasure to see plus signs on most of the lines on the bottom table of Slide 3, which compares continuing operations year-on-year.

The improvement is accelerating quarter after quarter and very remarkably Fiat Auto posted a second consecutive quarter of higher revenues reversing a 2.5 year declining trend.

CNH revenues are flat in euro terms but up sharply in dollars, reflecting large volumes increasing agricultural equipment but not insignificant rises in construction equipment volumes.

Iveco revenues are up 6 percent on flat volumes reflecting improved pricing and better mix.

Turning to operating results of Slide 4, we have a lot of positive trends here as well.

On a continuing operations basis, i.e. excluding Fidis, which had generated 40 (ph) million operating income in the first quarter of last year.

Fiat Auto operating loss was cut in two.

In dollar terms CNH operating results improvement in the first quarter alone was higher than the combined improvement in the first three quarters of last year.

The improvement in operating results (indiscernible) and the results should produce the intended effect.

For our operating results was impacted by currency namely the U.S. dollar, and the cost of Masarati new product launches.

On Slide 5 you have the improvement in operating results for the past 4 quarters.

Particularly to take into account seasonal progress, the improvement in Q1 confirms the acceleration of recovery.

On that basis, we are able to confirm our target of reaching operating breakeven at the group level for full year 2004.

Slide 6 shows you the main drivers of the operating results improvement compared to Q1 last year.

Roughly two-thirds of the improvement comes from sale variances, achieved through higher volume, better mix and improved price utilization.

Cost reductions along with the launch of planned targets generated the balance of the improvements.

We told you at the year-end results meetings in 2003 operating income improvements the improvements were mainly generated by cost capital and we would have seen the kicking in of the new products, increased margins at the beginning of 2004 as we believe we're showing now.

R&D was lower in Q1 but that is not a permanent trend obviously.

We continue to prepare the next generation of products.

All of these positive factors were partially offset by unfavorable currency impact, which is purely reporting impact.

So while we are at the operating result level, let's take a closer look at the individual sectors starting with the (indiscernible) on Slide 7.

The success of the products such as the (indiscernible) explains the improved market share.

New products have also brought customers back into showrooms and indirectly benefit other models.

In addition, we get a lot of attraction from our new family of diesel engines.

In Italy we achieved the fourth consecutive quarter of market share gain despite very aggressive competition.

Our marketshare is stabilized in Western Europe with higher (indiscernible) everywhere except France and Germany.

We're working out on reinforcing our position in these two markets with these two managing in place.

The slides on Western Europe includes Italy.

The market share, excluding Italy would have been 3.7 percent.

The 13 percent increase in volume sales to EUR473,000 also benefited from strong showings in Poland and Brazil.

With the recession exceeding wholesales, dealer inventories are decreasing.

Our efforts are paying off at the operating result level with losses capping out.

Further momentum in this activity should remain sustaining in the coming months with launch of four new products.

CNH reported Q1 results a couple weeks ago.

On a comparable currency basis, CNH revenues were up about 7 percent.

Better market condition in both construction and agricultural equipment with the exception of Western Europe were important factors in the gains.

The market success of new generation products combined with better pricing raised a more important element.

The operating results improvement particularly expressed in dollars reflects the same commercial factors.

In addition strong performance of financial services and cost cap throughout the organization explained the swing in operating performance.

On this slide, we're showing the acceleration SG&A reduction, which was slowed down last year after the post merger integration efforts.

On the other side, medical and pension costs continue to impact flexibility.

Iveco, on Slide 9 achieved a 6 percent revenue increase in Q1 on truck volumes to be virtually unchanged from Q1 last year.

Iveco performed in the Western European market where overall distribution were up 10 percent.

This is due to the drop of the Italian truck market, where registration were down 4 percent.

You might remember that last year Italian sales had been boosted by the low incentives.

In note, other Middle Western European markets, the registration were up double digits.

In the heavy and in particularly in the medium segments, Iveco did very well in the quarter, outperforming the market in key countries like France and Germany.

In the light segments the growth of the market was mainly due to sales of smaller trucks.

Below 3.5 pounds where Iveco's presence is limited.

Iveco also had strong sales of engines to third parties.

The sales mix explained the growth in revenues and profitability.

Iveco barely broke even in Q1 last year and generated 45 million in operating income this year.

This is also due to the stringent cost reduction from the launch plan.

Iveco was cash-flow positive in the quarter as opposed to Q1, 2003.

We expect this positive trend at Iveco to continue in the coming quarters based on the particular strong order intake recorded in Q1.

A few words on other businesses here on Slide 10.

The rebound of the automotive component activities is continually helped by higher volume at Mayo (ph) and cost cutting in all units.

Ferrari Masarati continued to shine in the product front as new (indiscernible) in both mark boost volume.

Orders are also at the very high level.

The weakness of the dollar and costs related to the launch of the new Masarati models, notably the Quattroporte, had adverse impact on operating income which is always weaker in Q1 due to the timing of Formula One racing costs.

Now let's move on Slide 11 below the operating result line.

The group pre-tax loss was capped by about EUR600 million reflecting three factors.

The improvement in operating performance, the swing in investment income, due in particular to other equity investments stakes, and the termination of GM equities swap we announced last month.

Excluding the equity swap, and the impact of dollar at (indiscernible) last year, financial charges would have been 257 million this quarter, roughly a 30 million euro improvement from Q1, 2003.

Taxes included 13 million for Fiat (ph), 45 million for current income taxes, 68 million of deferred income taxes.

Cash back charges as we will see later were approximately 80 million.

Net loss was reduced to just over 200 million.

Now let's move to Slide 12 on the cash flow.

As we enter the year end Slide 12 provides a reconciliation of cash flow for the quarter.

Cash flow was reduced by nearly 1.4 billion in the quarter due to repayment of bond maturities for approximately the same amount.

In fact, the actual maturity was 1 billion, with the remaining being a purchase of bonds on the market and the repayment.

Cash in taxes and orders include the positive impact of dividends received, which more than offset cash taxes of approximately EUR80 million.

The appreciation and amortization exceeds CAPEX which is a tradition of seasonal factor in Q1.

For the full year, we expect G&A and CAPEX to be in line.

Receipts from the equity swap on GM shares to dispose of the stake on the ad engineering together with additional short-term borrowings offsetting the factors of seasonally negative free cash flow for EUR1.4 billion in the quarter.

This is entirely due to the EUR1.4 billion increase in net working capital.

Excluding Toro Targa, the change in net working capital is similar to last year, Q1.

Looking at the change in working capital in more detail or here on Slide 13, you see that the increase in working capital is roughly in line with the one in the first quarter of last year.

However, they may cap this increase is different this year.

The $1.5 billion increase in working capital is due to two main factors.

One is the decrease in trade receivables sold of about 500 million; and two, almost $1 billion drop in trade tables.

In the fourth quarter of last year Fiat (indiscernible) auto production of models to meet large needs have resulted in a large increase in production and therefore in trade tables.

This course of production returned to more standard levels with a similar drop in tables.

Inventories increased by 136 million as the drop in Fiat Auto was more than offset by inventory opportunities.

We expect the increase in working capital in the quarter to be reversed throughout the balance of the year.

On Slide 14 we go through financial assets and liabilities.

The decline in financial assets in addition to lower cash position reflect a reconciliation of Fidis.

The increase to short-term bank debt in the quarter underscored the continuing support we are enjoying from the banking system with roughly 100 percent rollover of all maturities.

Gross debt of 21.8 billion is down nearly 7 billion from one year ago.

On Slide 15 you have the usual breakdown of our debt maturities.

With a (indiscernible) 5.6 billion we comfortably will meet upcoming maturities.

This comfort level is strengthened by available back lines and does not include $0.5 billion bonds issued by CNH.

As we started doing last quarter here on Slide 16 you have the breakdown of debt between financial and operation of 5.4 to 5.6 billion liquidity belongs to actual operations.

Compared to December 15, net and actual debt is 800 million while gross in actual debt is down 600 million after repayment of bond maturities.

Slide 17 shows you the compositional decrease investment breakdown is substantially similar to the year-end one, as we have not changed our policies of maintaining liquidity of very short-term and invested in very secure investments.

Three-quarters of the total as you might see is invested in (indiscernible) .

To conclude and leave time for questions, the first quarter was slightly ahead of our expectation and fully in line with our long-term plan targets for the year.

One more thing on the agenda.

You should have all received a few days ago the save the date for the event that we will be organizing on July 1.

On that date you will have access to the full heart including the heads of Fiat Auto, CNH and Iveco and we will be talking a little about our plans and achievements.

We are now ready to take questions.

Thank you, sir. (OPERATOR INSTRUCTIONS) John Lawson of Citigroup.

I wondered if I could ask about restructuring actions which looked to have been pretty low in the first quarter.

Could you confirm what those were in the first quarter and perhaps give us some clue as to how we might expect the phasing of these restructuring actions and what would drive the restructuring actions which have been previewed for the year as a whole, which I think you mentioned at around 0.5 billion.

Secondly I wondered if you could just help us on your policy with the selling of receivables; it is quite a big reduction in the first quarter.

Is this a conscious process at this stage ahead of IFRS (ph) ?

Thank you.

Okay, with regard to the restructuring, John, yes we confirm that the number you said 0.5 billion I believe but if you say effectively 0.5 billion I would like confirm that that is in line with our predictions.

And basically you should see the impact starting from the six-month results.

But I would say that probably you would see about half of that around year end and the rest spreads over the two remaining quarters.

Now I think the second question if I answered your first question completely; your second question was whether we have a liberal policy.

I would like to believe so on the sales and receivables.

Basically at year-end we had a larger percentage of receivables, a larger stock of receivables and we sold a significant amount.

Again, we have a large stock of cash and we are also very careful to interest costs -- I mean to the cost of discounting.

So we have reduced the number to 6.1, which was a large reduction, but also because maybe it is a technicality, but we have implemented a new sale to a different bank which was cheaper.

So you might see that increasing again.

I think your question was probably aimed at asking about how should you predict our sales of receivables the next few quarters, and the answer there is that I think you should see similar level in June and then typically actually in September because in August we ship less to the dealers because of the summer season and then again as we start shipping again in autumn there is a rise again.

So year-over-year.

We would have the objective of maintaining them and change or slightly down.

In the meantime you might see around 6 billion take or leave a couple hundred million in June and slightly lower in September.

I don't know if I've answered your questions.

Yes, thanks.

Would there be any capital gain left in the year to offset any further restructuring charges?

Or have we preempted a bit of that in the first quarter?

Obviously, the GM equity swap gave us some satisfaction and I think Mr. Morchio mentioned that his objective was 300 million overall as compared to 500 million of extraordinary loss.

I think we have exceeded already that target.

But let's be hopeful -- but don't expect anything big.

Understood.

Thanks.

Massimo Vecchio from Intermonte.

Good afternoon.

Two questions.

The first one, can you give us some indications on the improvement in the Fiat Auto operating results?

Can you split it between the volume and cost-cutting?

Because if I look at your volume increase, it looks like it is all volume increase and in this case I wonder why cost-cutting has not been improving.

The second question is on the Melfi (indiscernible) .

You have around 279,000 (indiscernible) in stock and I wonder why 40,000 units of lower production can impact second-quarter?

It is a question of mix in your inventory and if you can also tell us what is the waiting list on these units now?

Thank you.

Let me answer your first question.

You are asking what is the effect of price versus the cost.

Well, the price and volume obviously is having an effect because of the international new models.

In the meantime we are continuing, and that is probably the biggest difference in this quarter.

You might expect that we maintain the running rate of previous savings as well as we did have some further savings which have also helped offsetting the impact of some negative effects like the steel price for example that played a negative role in this quarter.

But in general, I would say that you should -- we still maintain the numbers that we gave you at year end for what we expect for the year, i.e., a continued improvement on the cost capacity but a that is a big difference with last year, we see an improvement also in the sales mix and volume.

On your second question what was the impact on Melfi, it is a little early to say.

Let me explain here.

In the sense I will start thinking aloud with you.

The point is the following.

We had as you say 279,000 cash which incidentally is worldwide; so nevertheless you do have an impact when you stop producing Fiats for restocking or whatever because you start producing the amortization of your fixed costs on the lower base and at the same time the big problem you might say is with a lack of stock is if you ran out of stock on certain products or if you delay and lose some of the final sales.

Now on this part it is too early to assess because we tried to make up for some of the lost production and we tried to make sure we don't lose final phase, but I think on July 1st we will be able to give you a better assessment of the impact.

In the meantime, obviously, we were funding incidentally the stocking as they told you at year-end and in fact we also were doing some already.

However you typically prefer to listings in a more orderly fashion and trying to plan single models.

So we do have some lower stocks on some products like (indiscernible) but we are hopeful that we can make up for most of that as we have restarted production on a regular basis. (multiple speakers) We will try to give more detail on July 1st on these matters.

Okay, thank you very much.

George Deyang (ph) from (indiscernible) .

Can you hear me?

I have three questions.

First of all on Fiat Auto could you give some indication of what you expect in terms of volume growth and maybe market share in Europe in 2004?

Secondly, could you make any comment on the current operating conditions in the emerging markets?

I mean Latin America, Turkey, and Central Europe and what kind of contribution did you get from these regions and what is the outlook there?

And finally, you referred to the R&D trends saying that the low levels seen in Q1 may not be sustainable, so could you give some sort of guidance for 2004?

I guess the last question is probably to be addressed on July 1st, but in the last conference call you referred to the restructuring of network in Europe and I was wondering where you stand in terms of this restructuring; if you could help us understand what's going on there.

Thank you.

So your first question was what we expect about European market share?

Yes, because obviously --

Yes, well basically we expect an improvement as we have been restructuring our management in two of these countries, in France and Germany and we are putting significant more effort in the big four markets.

In fact in Spain we are starting to see some progress, sad to say.

And we're quite comfortable if you see an improvement in all these countries as we continue to build up the new products.

So our objective is obviously to have a four as the first number on market share in Europe and then trying to have hopefully an ever-increasing digit after the zero.

With regards to your second question was about -- make sure that I always stress the fact that any way our biggest effort is on profitability.

We are not going after market share, but that should be no excuse.

We're trying to build up also our market share and we're quite comfortable with the fact that a year from now we should be discussing a higher market share.

With regards to your second question about the emerging markets.

In Brazil I think we have some good news to report where the market is improving significantly and we are improving along and possibly better than the market as well.

So we are comparing with 2003, which was pretty poor in Brazil for everybody including ourselves, but I am definitely convinced that we will see a much better year in Brazil.

Also in Turkey conditions are pretty good.

Again, the market itself I think its booming we could say.

I wouldn’t want to stress too much the concept, but it's doing extremely well.

I think it's some 40 percent up this year and again we are improving along with the market.

In fact, we have possibly almost a production capacity issue there.

And we're going at full speed and I think good news from Turkey as well.

And to continue the good news I wouldn't want a sound over-optimistic but also in Poland I think we can report that the market is doing fine.

In the first quarter, the market was almost 100,000 cars versus 80,000 the previous quarter and market share is up in Poland too, from 18 to 21.4 or .5 or so.

So emerging markets I would say are much better than last year, and you had a third question?

The third question was on the dealer network in Europe.

Yes, well obviously one of the ways that we're trying to increase market share is by strengthening the network and taking advantage of the block exemption regulation going forward.

So as I said, the strengthening of the network is one of the key points and I know that Fiat Auto management will be very keen to discuss in detail that with you as we meet in July.

And finally the R&D trends.

I don't think I said the word sustainable.

I just said that in Q1 we had the lower level and that you should expect to see it reverse in the quarter.

What I basically wanted to tell you on R&D as well as other trends is that everything that we told you at our year-end result presentation in February holds and basically all you see is temporary that is a tradition from the trends that will come back as I said on the restructuring charges even if they have been relatively low in the first part of the year.

Thanks.

Xavier Gunner of UBS.

I have just a couple of quick follow-up questions.

What is the absolute level of the discounted receivables at the end of the first quarter?

You probably told us but I just need that clarified.

And the second question is on the cash balance, if you can help me understand the receivables to start with.

Very quick and difficult to hear, but I think you asked what was the level was 6.2 billion.

Okay, that's good.

I will try to speak a bit louder this time and slower.

The cash flow, on the working capital was negative in the first quarter.

It was also negative in the second half of last year.

If I remember right -- we (multiple speakers)

No, sorry to interrupt.

It was not negative.

It was not as positive as we expected or as the market expected.

I'm talking about the working capital.

In the last quarter of last year?

Overall in the second half of last year, it was still negative.

Granted fourth quarter was highly positive but not as much as you might have wanted.

What I'm interested to observe is that we've had another negative in the first quarter of this year whereas we might have expected overall things to improve.

When do you think that we turn the corner on the working capital and actually we get ourselves back to -- or you get yourselves back to getting the working capital back to normal levels?

It seems in the first quarter -- sure, there some improvements coming from somewhere, and then D&H (ph) is, of course, a few problems here and there.

And it just seems that if there's not one thing going wrong, it's something -- well, not going wrong but (indiscernible) a negative impact -- it's something else.

So does everything reverse back out in the second quarter?

Okay, I think you have to distinguish seasonality from things that last year did not work out as we wanted.

The seasonality of the payables has to do with the Italian market.

In December, we pay August.

In January, we tend to pay the status of production in September.

And as I said -- so typical in the fourth quarter we have a positive impact, and then we tend to have a negative impact in the first quarter of the year.

The production was particularly strong in the last quarter, and that explains the high level of payables this year.

With regards to -- so that, I think, will reverse back in the next few quarters, but obviously the very strong impact (indiscernible) again in the fourth quarter of this year.

With regards to inventories, I think we told you that they were higher than we wanted and that they were higher at the end of last year than they were in the previous year and where we want them to be, and that we would have brought them down by the middle of the year.

I think probably Melfi is helping to do that in that respect even more than we wanted, so you will see lower inventories and, therefore, lower working capital in the respect already by the next reporting quarters.

But very simple, as we are not producing now, we will see the effect on the payment of August and September; we will be lower than the previous year.

If I stop the factory today, I'm not paying in four months.

I don't know if you can follow me.

No, I've got the message.

What I'm interested in is --.

Yes, I am trying to sum it up and not to hold you too much on a single issue.

We believe that we should be able to reverse that by year-end and that we should -- and like last year, we will keep inventories down once they're turned.

With CNH it is much easier, and for those you follow the (indiscernible), it's quite obvious; i.e., you have the buildup in these varied amounts until May when the trend reverses and they're selling much more than they produce.

Agriculture is very finished and very seasonal.

I hope I answered your question.

That was great.

Thank you very much.

Adam Jonas from Morgan Stanley.

Good evening, this is (indiscernible) Marcello (ph).

Just three questions.

The first is on the inventory to follow up.

On the footnote on page 8 of your release, you footnote your inventory where you say it is net of advances received for contract work in progress.

And in the quarter, those advances declined by EUR372 million.

If I look at how that footnote progressed in the prior year, it actually increased by 114 million, so it didn't really seem to follow at least a repeatable seasonal pattern.

Can you give any outlook on what that is and how we can expect movements on those net advances to affect the inventory on your balance sheet?

That is my first question.

And the second question was on the cost savings, $129 million that you achieved in the first quarter, I think you said this earlier in the call, was that a run rate?

I just want to clarify.

Did you say that was a run rate we could use quarterly for the rest of the year?

And the third question is just on taxes.

Can you give us any help for the rest of the year on how we can forecast either the tax credits or payments that you had in the first quarter for the remaining quarters, or at least some indication of what you have in store that would spring further payments or credits?

Thank you.

Let's start with the facts; that's probably the quickest.

The amount that you saw that is higher than what you would expect is because we are using deferred tax credit to offset the capital gain on the GM equity swap.

So most of that is not cash.

I think depending on which companies might or might not make capital gains, you might see higher or lower taxes.

It depends if we use deferred tax assets, which are on our balance sheet that we stopped accruing this year, or if we use just NOLs because the Italian tax system has changed and allows now group tax consolidation.

So with your question how much taxes should be in the year, I think Europe should be around, I would say, between EUR120 million and EUR150 million, and then we would expect another 50 million to $80 million on other taxes.

So let's say cash taxes would be around EUR200 million.

Then on your second question, I think that you are talking about the net advances.

That is typical of companies like (indiscernible) Engineering that is gone now, so I guess that's probably part of the explanation, or of a company like (indiscernible) Italio or the high-speed train that we still have.

It is not related to our quote/unquote core inventories.

It is more related obviously with the Fiat Auto CNH and Iveco.

And then your third question was about cost savings and yes, you can consider run rate.

So lower than the full year 1.1 billion that you achieved last year?

Yes, but we have more ambitious targets which you should see throughout the year.

Thank you very much.

Martino De Ambroggi from Euromobiliare SIM.

Good afternoon to everybody.

I have a follow-up question on working capital.

So you see our version in this trend by year-end.

Could you give us an idea which is roughly -- which is the range of working capital absorption by year-end?

And on net debt in your last presentation Mr. Morchio gave a guidance of decreased net debt in the region of up to 3.8 billion.

Could you give us an idea what is the sales of receivables consistent with this target and also the working capital absorption consistent with this target?

Thank you.

I think that we will -- as an object we did indicate that we would like not to have any absorption by working capital this year and that we will work in order to make sure that that's the seasonal first quarter is reversed and therefore we point to have a new absorption and that should be with consistent with an unchanged level of receivable (indiscernible).

So I mean 6 billion of assets?

It was 6.7 at year-end.

Frankly I don't recall what Mr. Morchio indicated on the official target for debt at year-end, but I would mention that anyway it was considering an unchanged level of receivables.

From December '03?

Yes.

One more question on Iveco -- if it is possible to have an idea what was the target for the full year EBIT?

Just to understand which is the trend of recovery.

Yes, I think that we typically don't give targets for divisions but we only give it for a group.

But I would say that you can expect that Iveco trend continues to improve.

I think we will want as we see in auto we also want to spend more time with you on the strategy and Mr. (indiscernible) will have time to elaborate but we believe that the progress Iveco has made so far are sustainable and in fact further being improved.

In fact, I would add that we are seeing the market for trucks in Europe being more reasonable in terms of prices and pricing.

It is a better market environment.

Okay, thank you.

From Morgan Stanley, Derek Ferguson (ph) .

Actually I have a couple but first of all just clarification on the working capital -- I'm sorry you have to go over it again but I understood from the last conference call that you were hoping to reduce working capital across the year by 500 million because that was inventory buildup in 2003, so am I correct to assume that across 2004 you should hopefully generate 500 million of working capital?

Or generate cash from working capital of 500 million?

We wanted to be flat and we wanted to reduce inventories.

I think inventories were higher.

I think you should differentiate working capital and the composition of the same.

The working capital that we are striving for is zero and within the working capital we want to have a lower level of inventories.

Oh, okay.

The second question is that --

I promised all of you that we will have a full session when we meet on seasonal partners and working capital because it seems to be attracting most questions.

Go ahead, I'm sorry.

Okay, the second one really is concerning the strikes at Melfi.

You mentioned about the help on the reduction of inventory that gave you, but what about a potential impact to operating profit in the second quarter?

Could you give us some idea of what impact that would have?

I hope I didn't paint the strike as a positive.

In a sense it obviously does help reduce inventory but it probably not as I say the right way to do it.

But in general, the impact on the cost of labor is fairly limited.

I think in millions of euros it would be single digit this year.

Just have one very quick last one as well.

I noticed from the maturing debt that you have or from Slide 14 that you have 2 billion of medium term bank debt maturing in the next 12 months.

That longer-term debt, are you still confident of being able to roll that the way you've rolled the shorter term bank debt?

So far, so good.

Again this is a question that we typically have and I think you ought to continue making -- I mean you or somebody else every quarter and again even this quarter we didn't have any specific issue.

This obviously should not warrant for the future but we are quite comfortable with our bank relationship.

Okay, thank you.

Zian Tabet (ph) of Holder Capital (ph) .

I just was wondering if you could shed some light on the mandatory converts.

One of the banks said that they are going to take appropriate reserves and converts and the other two or three said not likely at all.

I was wondering if you could shed a bit of light on that?

Obviously I cannot shed light about the banks comments or policies.

This question should be addressed to the banks.

I think that the conversion, the maturity of the mandatory convertibles is set for September 2005 and I think it is more appropriate that we should discuss as we get closer to that date with other priorities mostly operational which we are focusing right now.

That's fine.

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This is (indiscernible) .

I've debt two questions.

The first is about Masarati.

We had heavy losses during the first quarter.

You mentioned that it's mainly due to the loss issue and the Masarati cost launch.

Do we have to expect the same magnitude of losses for the full year, or do you anticipate any improvement in terms of profitability?

I think this was definitely the worst quarter for Ferrari.

We still expect Ferrari not to have a very good second quarter or go to a reduced level from the this, and then to improve our sentiments of the Quattroporte start hitting the road.

So over the full year we should have an improvement compared with what we had for first Q?

Not necessarily.

On a relative basis, this was the worst quarter but in order -- you basically are implying that in order to have an improvement you're going to hold the other three quarters profitable and that is not necessarily going to be the case.

We will review and there should be a declining level of losses but there should be still some let's say still a negative second quarter.

Okay and the second question is about steel.

You've mentioned earlier that you have been hit by steel prices.

Does that mean that you don't have multi-year contracts with steel producers?

We do, but obviously as for all mutli-years they are spread along the maturities and they tend to mature as well.

I think I checked with the relevant colleague because I was expecting this question I was told that the impact on the group has been so far about 35 million, so that means that Auto and CNH which is the main utilizer.

And is that more true for CNH than for Fiat Auto or is it will spread over the three main activities?

I think you are right that CNH is probably the biggest effect and then it's Iveco and Fiat Auto is probably the one which is less important, also because the relative weight of the cost of steel is probably higher for CNH and then again for Iveco and for Fiat Auto.

Okay, thank you very much.

Keith Hayes of Goldman Sachs.

Good afternoon.

I wonder if you could just help me understand the sequential movement at Fiat Auto.

On a 4 percent increase in revenues in Q1 over Q4, the losses appear to have doubled.

What is causing that?

And has it got anything to do with the launch of new products?

Or I'm wondering if the cost structure of the new diesel range is higher than the outgoing engine because its a brand-new engine obviously a lot more complex than the previous one.

I wonder if that's got anything to do with it.

I wonder if you could just help us understand why losses are going up at Fiat Auto sequentially?

You say losses are going up?

In the first quarter you lost 192 million and in Q4 you lost 97, so I think that's gone up.

Q4, 2003 on a 4 percent increase in revenue with brand-new models, I'm just wondering why the losses have gone up.

Okay, sorry have to compared to the Q1 of last year.

But the cost-cutting presumably that was instigated in the middle of the year is gathering pace.

Well, I would mention that -- and your question say presumably that was?

You started the cost cuts in the middle of last year.

I am assuming that that has been gathering pace as you started the implementation.

You've had a lot of new models launched during the end of Q4, particularly into Q1.

You've got the new diesel range.

And yet losses compared to the last period have risen.

An I'm just on an increase in revenues sequentially around 4 percent.

I am just wondering rising revenues in a leverage business, rising volumes usually mean set of performance.

I'm just trying to understand what it was that caused Fiat Auto losses to rise sequentially.

Just comparing it with the first quarter last year.

I understand your question.

Basically we have somewhat different spread of expenses.

For example, the advertising tend to be much stronger in this quarter, as well as certain costs related with the launch of new models.

And that should explain most of that, and you will see over the next few quarters is our losses are not rising but in fact on the other end they will be reducing, continue to reduce in consistent with what we announced.

It seems 100 million change for advertising seems rather a lot of money to be spent on advertising.

I'll give you an example.

It will take a moment.

Are there possibly some other comments in this respect?

I'm trying to convey to you that the concept that we did have some higher level of expenses the first quarter which had to do with as I said to the launch of the new products and advertising, and including other R&D costs which were not -- just one second -- they are pointing out to me.

The fourth quarter revenues were higher than the first quarter revenues.

You say there is 400 million rise in the first quarter?

I think it was about 4 percent 5265 by 5082 I forget what --?

In the first and last quarter of last year we had a 5.7 billion revenues in Fiat Auto.

In the first quarter we had 5.2 billion.

I think you might have got the sign wrong.

It seems the revenues are positive, not negative.

But 5.2 (multiple speakers)

Basically the losses went up because of increased expenses -- (multiple speakers) despite the new diesel mix and all those things.

They didn't have any impact?

It did impact -- a positive one as we said.

Okay, thanks.

Phillipe Houchois of J.P. Morgan.

Good afternoon.

My question is on Fidis.

You have deconsolidated Fidis and we see the impact in the quarter.

I think you retained a 49 percent interest in that business.

Can we assume that we will see in the associate line half of the tax of what you have deconsolidated or are you planning on including a share of operating income?

You are right.

It should be in quarter-by-quarter you will see it in the investment income.

So it will be recorded below the operating line?

Yes.

That's clear, thank you very much.

Paul Grisham (ph) of Goldman Sachs.

Just to go back to Slide 15, you're implying that in the maturities that you have coming due in the next 12 months that you'll be able to roll all of that 3.7 billion of bank debt due?

So I guess that's the first question, is that a correct assumption?

Secondly can you just walk us through in detail your plans for financing the rest of the debt?

Are you going to pay out of bank lines or are there other items you can roll?

Presumably you have already applied the proceeds of the CNH bond issue to some of that.

And then on the other financial liabilities, you don't have any of those in the nine months to 2005.

Are there going to be other financial liabilities that disappear or redevelop over the course of time there?

Lastly can you just review for us the details of your bank facilities?

Size, undrawn amount, and when they mature?

Okay, on bank facilities you say the 3.7 billion mature in the next 12 months.

I did not say that we should assume we are able to roll over everything.

I said that so far as we have shown quarter after quarter as we didn't have any issue in rolling it over.

So I would say that most of that will be rolled over.

At the same time that has been true so far also for other financial liabilities; over half of which I'd would like to remind you has basically accruals that tend to reiterate themselves.

And with regards to the bank lines, I think the largest facility is about 2 billion facility which matures at the end of July, 2005.

And then we have about 2 or 300 million additional facilities that also are being rolled over as they amateur.

Thanks, on the other financial liabilities, are there going to be more of those that simply appear, more accruals in 2005?

Well, no, I don't think so.

The tender accruals will keep on becoming higher as that basically should be at about half of that basically does not -- the commission paid at the end so they accrue but are not paid so you'll see that higher.

We typically bring accruals as maturing next year, but they actually go through September, 2005.

Thank you.

Operator, I think we have time for two more and then we will end this session.

Gaetan Toulemonde from Deutsche Bank.

Three very quick questions.

The first one regarding the CAPEX which has been only 3 percent in the first quarter, can you give us idea on sales an idea about the full year CAPEX?

One second.

I'm receiving the data.

Why don't you go ahead with the other questions in the meantime.

The second question regarding Melfi, you answered previously that for the full year is going to be limited negative impact, single digit.

Could it be significant in the second quarter?

I think the question was about labor cost effect, so we settled the labor cost and that's going to be single digit, i.e., less than $10 million.

With regards to the impact, I said that that is going to be for the year lower -- in the region of very much an estimate that 40 to 50 million.

That is the estimate we're having at the moment and how much is the second quarters versus other quarters?

It will depend on how quickly we can ship cars over to customers.

But this is very much a first estimate which I would probably call guess-timate rather than an estimate.

And then the third question before you come back to this CAPEX level, when you show us the Slide number 13 in terms of Fiat Auto inventory, there has been first quarter to first quarter an increase at the company level about 17,000 units and there has been an increase at the dealers about 22,000 units, so roughly 40,000 units in the first quarter.

Do you expect to reduce inventory by this magnitude in the second quarter and therefore is there risk that the sales growth in the first quarter at Fiat Auto will totally disappear in the second quarter?

Have you tried to reduce this excessive inventory?

Well I guess the reduction of excessive inventory is not so much a choice but we have loss production so inventories are going down on their own.

Again, you say there has been an increase in shipment in the first quarter?

If you look at the Slide 13, you have the breakdown of Fiat Auto inventory first quarter '03 compared to first quarter '04.

And you have an increase at the company level 17,000 units from 68,000 to 85,000 and you have an increase at the dealership network level.

So overall it is about 40,000 units.

Do you expect to reduce inventory by this amount magnitude in the second quarter?

Okay, I've got your question.

We expect that it should be reduced by about 20,000 units, but that is again as I said is the first estimate.

You know that its basically finished, the strike has been settled a couple of days ago but let's say that we expect about 20,000 units or so.

Okay, and regarding the CAPEX?

Regarding the CAPEX, I think the amount should be in the region of about 2.5 billion.

So the first quarter has been extremely low in that respect?

Correct.

Thank you.

Ludovic Fava of Credit Lyonnais Securities.

Good evening.

Just two quick questions.

First of all, you look satisfied by the improvement at Fiat Auto, which is still EUR10 million while volumes increased by 13 percent.

On top of that a sharp swing of profitability per unit on the Panda and the Epsilon.

So what is the next step to break even in 2005 at Fiat Auto?

My second question is on Comau?

Is there a precise reason why Comau would turn negative in the first quarter?

Thank you.

Okay, two things.

One we expect the effective new volumes which was still relatively lower in the rest of Europe as the launches have been previously in Italy first.

To continue to have a positive impact and to increase impact as positive impact and having a further effect in the following quarters.

At the same time, our cost capping exercise will continue to be implemented and should bring further effect in the next few quarters.

Then with regards to Comau, Comau seems to have a more difficult first quarter.

The reason is that customers tend to accelerate spending towards year end but we do expect that should reverse and Comau will have a positive year.

Thank you.

Thank you very much for participating in the call.

We will see you on July 1st.

That concludes today's conference call.

Thank you for your participation.

You may now disconnect.