Stellantis NV (STLA) 2004 Q4 法說會逐字稿

--2004 fourth quarter and year-end results conference call.

Gentlemen, please go ahead.

Thank you.

Welcome to everybody.

This is Marcello Ledda, head of IR at Fiat.

We understand that many of your are either traveling or away from your office, so we appreciate your participation.

Today's call will be hosted by Mr. Sergio Marchionne, our CEO, and Luigi Gubitosi, our CFO.

After the presentation, of course, we will have time for a Q&A session, and we will try to answer all of your questions.

All the material that will be shown today and the press releases are already available at our website, at www.FiatGroup.com.

We might be making forward-looking statements today and these are covered by our safe harbor statement and our 20F filed with the SEC in the United States.

I will start immediately by passing the mike over to Mr. Marchionne.

Thanks very much and welcome to the call.

We're going to split the presentation in two parts.

I'll be dealing with group issues on an overall basis and give you some commentary on divisional performance, and I will pass on the mike to Mr. Gubitosi, who's going to deal with the financial issues surrounding both liquidity and our debt profile, going forward.

I guess you've seen from the press release that we released this morning that we were able to achieve, as promised, break-even at an operating level.

I think we have made a significant dent in the rate of cash burn of the group.

We're down about E2.1 billion year over year.

And I think more importantly that we have a significant shift in the operating stance of each one of our sectors.

We now have, with the exception of auto, all of our businesses well above the break-even point, and we've had some relatively decent results out of our components business, which actually has exceeded our own expectations.

With the issue of the GM put behind us, that was resolved, as we discussed about-- as you saw, in the press, about 10 days ago, I'll deal with the details of that settlement in a couple of seconds.

I think you've also seen, from recent announcements, the fact that we have made organizational changes in our car business.

Mr. [Dem] and Mr. Leach, they were respectively responsible for Fiat Auto and Maserati, have left the group.

We have combined, on the leadership side, of Alpha and Maserati, under Karl Heinz [Gatso], and I've taken on direct operating responsibility for the car business, and we'll talk about this in a moment, as to why we thought it was necessary.

We have completed the process of downsizing, or right-sizing, our corporate structure.

I think that process was completed between the third and fourth quarter of 2004.

We do have a significant amount of one-off charges, or extraordinary items, that we've booked in 2004, and we'll provide you and discuss the details of these items later on in the presentation.

I think more importantly, we are sitting on a pretty solid position, in excess of E5b in cash at the end of '04, and I don't want to underestimate the importance of the last bullet on the first slide -- it deals with the fact that we do expect this to be the last year of losses, of consolidated losses, for the Fiat Group as a whole.

I think that as a result of the settlement of the GM put issues, and in conjunction with a settlement of our position, Italia [AG] will be able to post a profit for the year on a consolidated basis.

We move on to slide number two, which deals with the GM settlement.

We have agreed to receive a cash payment of E1.55.

E1b of that was received the day after the deal was announced.

The remainder will be received no later than the first half of May of 2005.

We are now the proud owners of 100% of Fiat Auto, so there are no more minority shareholders' interest.

We have no longer any obligations towards any party, in terms of considering the implications for anyone else for any other strategic choices that may be available to Fiat Auto going forward, and therefore the fax that we have regained total strategic flexibility on this issue is of paramount important, and in my view, probably important as the cash settlement that was received in settlement of obligation that General Motors had towards Fiat.

We ended up agreeing on two specific property issues.

One is the Polish plant that we have that manufactures the 1.4 liter diesel, and [inaudible] intellectual property -- that is now co-owned between us and General Motors.

We have also agreed to co-own the intellectual property on the 1.9 liter JTD engine.

We've ensured that the exploitation of this technology by GM outside of Europe is limited in such a way that it will not impact on the utilization of our plants on the European side.

And so we feel relatively comfortable that we found an equitable solution that will allow GM to continue to access diesel technology, and it gives us the relative degree of freedom, one to develop the technology going forward, and secondly, it ensures the adequacy of utilization of our plant footprint on the powertrain side.

We have been able to preserve most of the benefits that we had in connection with the association with GM.

We do have long-term supply agreements in connection with supplying transmission contracts that we had with GM in the past.

We will continue to support them on the engineering side, as we have done in the past, especially in diesels.

And more importantly, we have agreed a number of positions with GM that will us to access what they have on a global scale, including access to joint purchasing programs that they have developed with their lines outside of Europe.

So I think that overall that this has been an equitable settlement of the contractual relationship between Fiat and GM.

I think it's done.

I think we should no longer talk about this.

I know there's been some concern raised by some of you in terms of the negative impact of the dismantling of the joint venture in purchasing between us and GM and the fact that it may impact or erode our margins.

We have obviously simulated the impact of this on the organization, and I can reassure you that we do not expect a loss of contribution as a result of the unwinding, for two reasons.

One, because we have worked pretty intensively over the six months, over the last six months, in terms of creating a coordinated purchasing function with Fiat Group as a whole, and therefore effectively replacing, to a large extent, the relevance of GM Europe to our purchasing activities.

And secondly, because I think we have been able to maintain good GM-- a strong industrial alliance relationship that will allow us to continue to utilize and access their purchasing capabilities on a global basis.

You move on to slide three, I think we've had, in terms of top line, it's been a decent-- a decent year, 5% up on comparable terms.

Volume and mix have pushed top line at auto by 5.5%, D&H, obviously, in dollars, had a much better performance than in reported terms.

We had strong sales of construction equipment, up 42%, and 16% in ag.

Eveco had an outstanding year, both in terms of top line, in terms of operating margin performance. [inaudible] Maserati Group had really good volumes, especially on the Maserati side, with the interaction of the [inaudible], and the component side of the business has also done very, very well, and we expect that performance to continue in 2005.

If I can spend a couple of minutes on the extraordinaries for a second, which appear to be the item that probably was the one that was most out of sort of consensus range.

We spent about billion in extraordinary charges for the year, about E700m of this number relates to auto, and I can take you through it in a moment.

Redundancies accounted for about E100m in cost, our commitment to the compensation of restructuring plans, both in terms of asset write-offs and people reductions [inaudible] cost us about E140m.

We wrote off about E70m in over-invested production lines in two of our plants in Italy.

We've closed our North African assembly facilities, which, I guess probably most of you did not know existed, but we had to exit the position.

I think it was the result of an unwise expansion hysteria back in the years gone by.

And we've got a charge of about E240m, or a quarter of billion Euros, in relation to the Fiat auto supplier base rationalization.

This number is a combination of a settlement of a number of exposures the group had towards a supplier base, several of which had to do with take-or-pay contracts, which had to be settled because of our inability to fulfill volume commitments.

The fact that we had some financial exposure to some of these suppliers in terms of providing some level of financial support for them, which in view the current volume expectations, are not going to be settled, going forward.

So I think we have taken a very hard look at our exposure in terms of suppliers.

I think we feel comfortable that we've settled the issue for once and all, certainly based on the information that we've- that is available to us today.

The issue should be recurring, going forward, and I think that we've got, as result of the coordination of our purchasing activities for the group, at group level, a very clear idea of the supplier strategy to be followed, with a very clear understanding that these exposures are not to be repeated, going forward.

Components had E50m in restructurings, most of which is related to redundancies, and we had about E50m in holding and other restructuring costs, some of which we did for the competition downsizing we went through in the second half of 2004.

This whole restructuring plan has a cash impact of about E800m.

Half of it was paid in 2004, and the remainder, most of it, will be settled in 2005.

We've had volume increases across all brands, with the exception of Alpha.

Alpha has had a bit of a disappointing year.

I was asked today at the press conference as to whether Alpha made money in 2004, and the answer is no.

As a matter of fact, it did not make money in 2003, either, as a brand, and it certainly did not do so in 2004.

So we do have a significant amount of work to do in terms of re-establishing the credibility of our brand in the marketplace, and while that's one of the reasons why I think we actively pursued the acquisition of Karl Heinz Gatso as the head of that business, to try and move it forward from where it is.

Offsetting all this, I think we've had a very good performance on the commercial vehicle side, with volume significantly up over last year.

Brazil has posted a significant turnaround, both in terms of top line growth and operating income performance.

So overall, at least in terms of top line, we've done relatively well.

One of the other objectives that we set for ourselves for the year was to effectively try and match demand and production.

I think we've been able to achieve this.

We have reduced spots, both at company and dealer levels, and at the same time, I think we have carried out a very aggressive plan to reduce distribution through some other non-profitable channels of distribution, which have become sort of a rather bad habit inside the organization, in terms of achieving market quotas.

I think that that process has slowed down substantially, especially in Q4 of last year, and we've redimensioned production to deal with that drop in demand.

On the operating income side, slide eight, you can see that we have achieved a lot in terms of bringing down cost of product manufactured.

It was E160m in product cost reductions.

We've been able to improve both volume mix and price across the range of operations.

And a lot of this, to be frank, has come out of our turnaround in Brazil.

When you look at our European operations, they are not the beneficiaries of the largest part of this turnaround, but notwithstanding I think the sector as a whole has done relatively well.

And we have-- we continue to commit to R&D.

We spent E51m more than we did last year, and the net amount of all of this is when you adjust for the reduction of scope, which is the elimination of [Fidi] from the consolidation, we've had a substantial improvement, from about E1.1b to about E840m loss in operating performance for the sector.

We will just give you some indications of 2005 expectations.

The bullet says that we do not expect any help from the market, and what I mean by this is that I think that in terms of building our operating plans for the year, we have not budgeted for this essential volume increase over ’04.

That is a question of studying up the right operational stance to fine deal with this market and fine deal with Auto and its recovery.

I think, in the past, this business unfortunately, has been rather gullible in establishing growth projections that ultimately have not been achieved or they are least to be enforced in terms of unduly using certain channels of distribution.

I think we have reduced our internal expectations that we were trying to re-size our business governance cost to deal with that reduced penetration on the markets, and although our own internal objectives are to maintain and increase our market share positions wherever we are active.

The operating plans have been built in such a way that the cost structure will be downsized to reflect lower expectations.

I think we have done a lot of work in terms of creating distinctiveness in the brands.

I think the Euro-transitional structure that was put in place in Q3 of last year has done a lot of work in terms of really separating these brands in the marketplace, and that obviously has a huge impact in the way in which we carry on commercial activities in the field.

So, the benefits of all this and the conclusion of this work are going to be visible in 2005.

I know that you have heard this from me in the past and certainly from my predecessors is the fact that we continue to commit to the improvement of our distribution network.

It appears to show up on every slide that I have ever seen here, probably for the last 4 or 5 years.

I think that this year we are putting some money behind this exercise.

I think we are probably spending more than 50% over 2003 levels on network development.

I think we do have some very clear ideas about what we want this network to look like, and I think we need to work through the process of 2004 to get there.

The key issue now also is that we are going to spend a large amount of time now that the GM issue is behind us on the cost structure associated with governance, and this term, which apparently our Italian press friends had a bit of a problem understanding this morning when I talked about it.

It has do with the fact that, when you look at our P&L and you look at how much money we spend below the gross profit line in terms of maintaining the structure.

I think it is probably a fair assessment that we have oversized cost structure for the volume of business that we are carrying through.

So, we started the process of rationalization of our structure.

We started, probably in the last 3 or 4 days.

We intend to go full blast on this issue over the next 60 days to try to bring about a downsizing of what I consider to be non-value our other functions in the business.

Having said this, I commitment to R&D continues, our commitment to the improvement of distribution network continues, so what I consider to be the key essential elements of the future of the [Salsibe] preserved.

But, we are really stripping out everything which is not essential to those objectives.

We do have a couple of new products coming on stream.

The Croma which will be shown tomorrow in Geneva, and then, probably more importantly, the Punto which is coming out in Q4 of 2005, and that is a big-volume item and it is crucial.

I think that the development of the business going forward.

I made reference to the fact that we have made leadership changes.

I do not think it adds much to try and comment on the need for that change, other than the fact that we think that the speed of change and the speed of recovery that we were witnessing in Auto was insufficient to meet our objectives.

And, so I think that we are now devoting full resources to this group for this turnaround that does remain the key objective of the [Saus].

We do need to put this issue to bed.

We think we are going to go a long way in 2005 by bringing operating margin losses down to about 1.5% from the 4% that we accomplished this year.

The objective of turning this business into a profitable business by 2006 is confirmed and the plan changed.

But adding Maserati on site, it has been a relatively good year.

We have had substantial revenue growth both in Ferrari and Maserati.

Maserati boasting a 68% increase in top-line growth, obviously driven in the main by the fact that the new Maserati Quattroporte was launched, and it is having a substantial amount of success in the marketplace.

Moving on to slide #12, [Video] CNH.

As I mentioned earlier, I think we have been the beneficiaries of an incredibly good year in the marketplace.

I think our most significant competitor, on the axe side has had a great year.

I think we have paralleled this in some fashion, although not to the same expenditures of operating performance.

Though we are spending all of this, I think we can look back at 2004 as being a year of closure under reorganization and the integration of face into (indiscernible).

All of those issues are now behind us.

I think we have rationalized the manufacturing footprint.

There has been a substantial amount of effort devoted to the renewal of the product portfolio, and I think that ultimately now we have all the elements of trying and effectively establish our presence in the marketplace as a viable competitor to both Caterpillar and to John Deere.

Good increase in operating income across the business capital had a good year, as did construction equipment.

If you look at the variance analysis on slide #13, you can see the elements of all this.

We have been able to pass on most of the production cost increases which are referred to here as steel cost increases and other economics.

Most of those were passed on in terms of pricing.

We expect that we will be able to preserve the stability in 2005 if, in fact, some of our expectations in terms of continuing steel price increases were to materialize.

As you can see from the slide on segments, the majority of the improvement has happened in both in construction equipment and capital, and we have not been able, I think, to benefit from the substantial demand growth that we have seen in Ags.

So, I think that we need to devote a large amount of management resources in 2005 to ensure that we have captured as much as we can of that market growth.

The outlook for 2005 on 14 is that we will get to 4½% to 5% pre-goodwill operation margins.

I think we feel comfortable that we are not going to be side-swiped by any unforeseen movements in raw material prices.

I think we feel comfortable that our product portfolio will hold and will hold well in 2005.

So, this is not a big area of concern for the group going forward.

I know from having read some of the preliminary comments after the press release that some of you were disappointed with the performance of CNH.

I share your disappoint to some extent.

I think we have a long way to go before we close the gap between ourselves and “Best in Class” performance.

I think we need to address that issue and start that process of closure within 2005.

Ivaco as I mentioned, slide 16, had a great year.

With very strong fundamentals we have been able to reap the benefits of market pull.

To a large extent, we have been able to reposition the brand in a very effective way in the relevant markets.

I think this has resulted in the ability to get better pricing for our products, and we continue to fund the completion of our prior portfolio revamping, which is going to happen within 2005 and the early part of 2006.

Operating income highlights on slide 17, as you can see, we have been able to contrary the CNH picture which had an increase in terms of product cost, the net impact of all of these have actually been positive.

On the Ivaco side, where because of volume and efficiency, we have been able to offset most of the -- not most of -- in excess of all the costs of raw material price hikes that we have seen.

It has been a great year.

Operating income is up 340% over the previous year, and our indications by looking at the assessment of the business in the first 2 quarters of this year, the demand looks solid.

So, we expect that 2005’s performance will mirror 2004 in that we’ll get to operating income margins of roughly 4%.

Components in slide 20, a great year.

I think morality and all the elements of this group of activity has had a very good year.

They have all had positive operating income performance for the year.

Our area of specialty has been able to really boast a significant increase over 2003, and we do expect that 2005, for all of these businesses, will mirror what has been accomplished in 2004.

Moving on to slide 21, we confirmed 2005 targets.

We have now been able to quantify, I think with relatively -- some comfort, the size of the small operating loss on Auto, which we think will come in at about 1½% of sales.

We do, as I mentioned earlier, expect group net income to be positive as a result of exceptionals and (indiscernible) earlier on the cash flow side, 2006 is going to be the first year, I think, in quite awhile that this group is boasted positive net income in the absence of exceptionals.

We will make sure that all matters that relates to the IFR S3 statements to comply with international accounting standards will be completed and available by March 31st of this year.

We confirm financial targets on the slide 22 these are the same 2007 targets that we announced back in July of last year.

We're not making any changes to them.

In terms of slide 23 we are-- again, we are renewing our commitments to rebuilding a rather focused automotive group.

I think that this whole issue of leadership and accountability is slowly becoming ingrained in the culture of the organization.

We have acquired—required (indiscernible) to develop the Auto business as we see fit and we are going to take a very, very hard and very rapid look at the cost structure of Autos we move effectively and efficiently, all non-value added functions in the organization.

I think we have spent a large amount of money, which in prior development regardless of what people say, we do spend an excess of a 1 billion 3 and up to 4 [casts] for 2005 and we will spend in excess of 1 billion 3 in R&D and on the other side this is also true for CNH and for Ivaco and for the other businesses.

Having more importantly we do have the financial resources and the human resource skills to try and complete the turnaround that we started in 2004.

I would like to pass it on to Mr. Gubitosi, I am probably taking too much time so I can (indiscernible) slide, but I will pass it on to Luigi and then we'll pick it up for questions when he finishes.

Thank you Sergio.

If you look to slide 26 to what we've been getting from operating results from that you will notice that the investment income for the year has been positive as compared to last year.

We got the main positive contributor as being (indiscernible) repaid, [larger joint ventures] with the four Italian banks with our share of profit being 42 million.

This has been partially offset by the former negative performance of other joint ventures and including the joint venture of (indiscernible) with – with it's Chinese partner and Global (indiscernible) joint venture we had with IBM.

I think financial charges benefited from the winding of the equities from GM shares that generated in the first half of the year, a positive impact of 275 million.

This has been partly offset by year-end adjustments to net realizable proceeds of certain receivables, which we expect to be sold in the course of 2005, impact some of them have.

And in terms of taxes with the group has recorded an overall taxes benefit of 29 million in CRSPA as booked and approximately 280 million of the current tax assets, which has offset Europe and current taxes recorded elsewhere in the world.

As you move to slide 26 on the cash flow highlights we had, as expected, a significant improvement in the Q4 '04 versus Q4 '03, that's about 1 billion and then full-year versus full-year '03 improvement is about 2 billion.

In fact, the year-end net financial position is about 5 billion consider—including already the having sold 500 million less receivables and having expenses about 700 billion in exceptional charges.

Cash position remains 5.3 billion of that (indiscernible) about 3.4 billion on maturing debt.

On slide 27 you get our customary disclosure of the cash flow, as you will notice, the cash flow comprising activities before change in working capitol has declined to 635 million as when compared to the 2 billion, over 2 billion in 2003.

The changed net working capitol is almost entirely offset and explained by a reduction to save the receivables and this is remarkable progress considering the fact that we had an increase in sales especially in business slide CNH we think to have a significant working capitalization.

Exceptional cash outflows have been 672 million, which about 370 loss relating to 2004 and the rights to previous year commitments and this leads us to about 1.9 change in net financial position.

Cash and marketable securities remain high, as I said before, about 5.3 billion.

Please turn to page 28, I'll show you the evolution of working capitol, as you can see we are respected seasonality but as compared to last period there has been a debt over [ph] 4 months of inventories.

Finally, on page 29 we present you a distinction between industrial and financial services and here I would like to point your attention to the decreasing financial receivables on the industrial side whereas I said we have been aggressively cashing in receivables.

Slide 30 will show you our gross debt position and its maturity schedule.

As you can see, our gross debt has declined at year-end to 19.2, it was 22.6 at the beginning—at the end of last year.

In terms of cash maturities a total 5.3 billion, which is equal to the amount of the cash we had at the year—end of the year obviously the—GM's proceeds are not included.

Of this 5.3 billion, about 1.9 billion is maturing bonds, mostly over December and the fall, 100 million is short-term capitol market; the remainder is mostly bank debt and other debts with a number of considerances.

In conclusion, on our financial situation, we can conclude that we have a solid cash position, once again enhanced by the GM settlement.

We continue to have an ongoing full support from banking systems both in Italy and abroad and even this year the roll over season is going fine.

We still see potential for additional joint venture financial services that may contribute to our equity position and once again the mandatory convertible (indiscernible) load we required no cash outlay.

So the financial resources that we have are definitely adequate and sufficient to support the turn around.

Thank you.

We are now ready to take your questions.

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from John Lawson from Smith Barney, please go ahead.

I guess that the extraordinary gain and losses were the big surprise of '04, so I wonder whether you could help us on '05, you're going to have a gain on GM and the Italian [ph] this year –transaction when that's done, but it sounds as though you've also got cooking a few additional extraordinary charges to do with the ongoing change of costs structure and I wondered whether you could help us with those first of all please?

Yes, hi John, Luigi speaking.

In terms of the gain on General Motors, which obviously will be recorded on 2005, we expect that to be that well in excess of a billion, we are calculating an exact amount well in excess of a billion.

On (indiscernible) the amount is about 0.6 so as I said GM is going to be over a billion if (indiscernible) is about 600 million.

Then with the cost of additional restructuring (indiscernible)

I think it may be helpful, I think the—the number is going to be –it's hard to tell, to be perfectly honest, what the size of the hit will be in 2005.

My expectation is it will be at the upper end of the scheme it will probably be about a quarter of a billion euros.

That depends how deep we go into the --into the restructuring exercises also and that's really the main target of the --of the exercise.

We certainly have, as a result of what Luigi said, enough on a pre-tax gain basis to compensate for --- for the restructuring charges a lot, though it's kind of hard for us to try and estimate that number today.

I think 250 is probably the upper end.

And would you be able to tell us how much loss debt concurred with –with Maserati as it comes back into the group, on a fully consolidated basis and perhaps give us an indication of how much debt comes in as we unwind the joint ventures please.

The joint venture that should bring us about 400 to 450 million and your second question was John?

I was just wondering with Maserati coming back in -- on a –how much debt really comes—I'm sorry how much loss is associated with –with Maserati that we might think about for the automotive operating line?

Maserati will transfer about 100 million operating loss from Ferrari to get out.

John, I am just worried about the question that we asked—you asked how much are we carrying forward in terms of tax losses, the Maserati inclusions and that number is 100 million.

We're not transferring 100 million worth of operating losses out of Maserati this year.

That's on an annual basis.

It's a smaller loss than that I hope.

Much smaller loss.

Thank you.

Our next question comes from Martino DeAmbroggi of Euromibiliare FMI.

Please go ahead.

First questions is on the Fiat Auto guidelines.

Could you give us some more details on assumption and volumes particularly on Punto sales and which are your assumptions on raw materials and South America plan to give you –to give us some color on this guidance?

The Punto sales are gonna start in the last quarter of the year and expected—expecting annual sales at approximately 360 thousand a year so you would expect—how much is going to be in 2005 still will depend on the track launch date but I would probably quantify in about 100 thousand.

(indiscernible)

Normalized once we at full speed.

On Fiat Auto as a whole which [ph] is your guidance as a hole?

About flat effects slightly lower than this year.

OK.(indiscernible) region South America which is positive?

Yes, South America is the newest region to considerable [to be resolved].

In fact, probably more than half the improvement that you saw in a lot of mix and price, derived from South America and we have no indication that anything would be changing in Latin America as we expect business to be positively solid position.

And my second question is on net debt.

Do you think it possible to have a guidance in terms of net debt including the problems [ph] at (indiscernible) '05 and is it possible to direct net of cash flow that might be allowed for 2005?

The guidance would be on the split with a positive cash flow given the very significant exception of – and we expect a certain improvement over 2004 in 2005 in terms of operating cash burn.

So you would expect the cash burn as a group.

(indiscernible)

On operating, which could be more than compensated by the extraordinary items that would be left.

OK.

Did that answer your question?

Yeah.

Thank you.

If I may, on a –one more question on the Fiat launch of brand and also on Maserati.

For sure you have a different plan for this and could you share this plan with us?

I think that one of the things that we stated in –we certainly stated as soon as the GM, the GM issue was resolved as I think a large amount of effort needs to create and recreate the distinctiveness in the brands—of the brands in the marketplace.

I think that we are going to devote –to devote a large amount of effort to create a commercial organization that reflects the traits of these brands in the marketplace.

Having said all this I think all the technical support, both in terms of manufacturing R&D for the other group as a whole will be coordinated across all brands.

I think it's—I would much prefer to wait so the brand guys who are going to be in Geneva to try and enunciate what these brand visions look like and what kind of expectations they have in the marketplace.

I think it is crucial that we give the maximum amount of freedom to these brand people to try and assert the relevance of these brands on the market.

There is no quick fix to all of these and we are fully aware of the issues that have impacted on the quality of these brands in the marketplace, I think the fact that we have been as unsuccessful as we have been in 2004 in maintaining all 3 levels for Alfa is an indication of the fact that a huge amount of work needs to be done to try and reposition this brand in the marketplace.

I think Karl Heinz Kalbfell has got a huge job to do in terms of moving this brand forward and effectively allowing for the distinctiveness of Maserati to continue, though we continue to look for ways to extract energies from both R&D and commercial development.

The Fiat brand – the Fiat brand is a more problematic brand because of the fact that I think that historically it has really unfortunately been developed as a collection of models as opposed to unified brands, so I think that Mr. [Demel] had started this work back last year, I think that the introduction of the Croma and of the Punto later this year will begin to create the level of cohesiveness in that brand that will allow us to approach the marketplace in an intelligent way.

Lancia as you see from the volumes is actually up year-over-year.

We have a very good success with both (indiscernible) and (indiscernible) I think as the older product line dies off the chance for us remains to continue to supplement the existing 2 car portfolio with the technical development out of the Fiat platform base and that is something that will not be visible in 2005 and we will only see indication of this in 2006 as the issues of the Stilo on the Fiat side get resolved.

I can tell you right now that we have really holstered the development of the new Stilo simply due to the fact that we believe that a lot more work that needs to be –needs to be done to assure that we adequately cover this rather significant segment in the market.

It is—it is because of volume trends the biggest—it's not one of the biggest segments and because of our rather poor experience with Stilo in the past we need to make sure that we get it right.

That's going to have implications on the Lancia side and that will not be visible until the latter part of this year.

Thank you.

Our next question come from James [Prinecart] from JP Morgan, please go ahead.

Actually, Jonathan [Topp] here from JP Morgan.

I just wondered if you talk me through what happened with the debt in Q4 because I see that the financial debt, or the gross financial debt, decreased by about 1.5 billion, I wondered if that was just you choosing to pay some of the debt down because I know there weren't a lot of bond maturities during that period or whether the banks decided to not roll certain facilities?

No the bank did not say that there was a problem with roll.

Actually going through my notes to tell you exactly what we did that, just off the top of my head, basically what we have done is that we have just repaid some short term lines and some debt that was maturing and there was some on the capitol market maturing So the bottom line is the debt has been reduced because of the positives quarter in terms of cash flow that we got.

Could you comment to me that amounts of undrawn commit to bank (indiscernible) you have outstanding at the moment?

This is going to complete my answer to you that in this (indiscernible) That we also completed the biggest transaction by transferring the UK operation while we still had some –some procedure of matters to complete and that accounted for about 600 million in debt transfer.

Then you were asking about the credit lines?

Was your next question?

Yes, please.

The credit lines have not materially changed, as you might know, the big change that would be left would be the maturing of our large—our singularly largest facility which matures in July 2005 and we'll be working to roll over that as well.

Just to—how much of undrawn committed facilities do you have at the moment?

Of committed (indiscernible) I think was around 1.7 billion and the decline is mostly attributable to the reduction of the US dollar value in terms of euros.

From UBS we now move to Xavier Gunner with USB, please go ahead.

I've just got a quick question, your CapEx on R&D, I know it's not explicitly –(indiscernible) I know (indiscernible) you've told us the figure but I am guessing it is in the region of 10% of total CapEx of R&D, first question is, is that in the right ballpark?

I apologize you'll have to repeat your question.

CapEx and R&D in the automotive division, I am guessing because I haven't—I can't see any specific numbers, I am guessing it's less or around 10%.

First question, is that the right sort of ballpark figure?

A little bit higher than that.

Yes.

OK, the question I think spinning off from that is that-the global outreach is 11%, you have less scale than the average, is that figure that you've got of 10 or 11% or whatever really sustainable against the fact—the fact that everyone else is spending at least that if not more.

The question is whether we're spending a sufficient amount to support the system and the answer in our view is yes.

I think we are gonna be doing a lot more work to try and understand –I mean the whole issue about what's improving the number and what is not and which accounting principals we are using to represent it is a big issue.

I think that once we have a very clear view of what the number is under the IRFS I think we’ll be able to have a much more intelligent discussion on the issue.

But having said this, we have looked at the commitment of the group on a case-by-case basis in terms of what we need to drive the business and there is sufficient capitol to drive the business forward in terms of our own objectives and I am not concerned.

I realize that this is a recurring theme inside this organization, I think we have spent probably a large amount of time trying to explain that over the past few years, the allocation of that capitol, the usage may not have been the wisest.

Certainly in terms of commitment to particular platforms.

Once the platform conversion is exercise takes hold as it has now I think the issue of the size of the capitol spent is going to be a lot better.

I can tell you that when you look at past investment decisions that have been made and their supportive capitol, capitol allocations inside auto a lot of them would not pass muster today, simply because of the fact that a lot of them are expectations that would materialize with the connection of those commitments have not happened.

So I—we will come back to you on this issue, I think it's almost impossible to have this debate because it appears to be a consistent sort of recurring concern about auto, I can only tell that having looked at a cap ex profile for 2004 and 2005 of auto there's not a single thing that this car business should be that it is not doing.

I don't particularly care to be honest as to what others do.

I mean I do in the sense that of assessing the viability of the economic system but we're not materially different than the average, we may not be the top end of the scale but we are not materially different than the average.

Thank you.

Our next question comes from [Sabine Demez] from Banca IMI please go ahead.

Could you quantify the impact of steel and commodity prices A) For the past year and your expectation for 2005 and going forward, A) for Fiat Auto division and also for the rest because I think it has become clear that events of the CNH becomes more difficult to pass on higher field prices to customers and what would you expect the impact of EU4regulations for 2005 and also, more importantly for 2006.

OK, re. commodity prices, I think as a group we could probably quantify the impact in about 500 million and that –that I think you have seen at the CNH at about 150,then in the case of CNH frankly we do expect that we should be able to pass it on to customers as this is a general trend in the industry and so far, there is a number of things that will occur in terms of pricing and some that should allow us as competitors to pass on to customers.

A slightly lower amount for Ivaco and is probably going to be in excess of 200 million for the Auto business.

Actually the impact on your profit line?

In terms of Fiat Auto?

I think it's going to be the pressure on the cost side.

We expect that some of that will be passed on, some of that will be differently recovered and then our ability to pricing will show how much we are able to consume.

In terms of the year '04, this as you obviously know, we've become compulsory at year-end has been everybody else in the industry.

We have been planning for that and we expect to be fully compliant well before then both in terms of Fiat Auto and Inveco and we don't expect any major impact.

Let me try and deal with the issue of raw material price hikes.

You made the comment I think, better in your question about the fact you that you thought it would be difficult for CNH to turn some of our raw material price hikes, I beg to differ.

I think both CNH and Ivaco do actually face a pretty elastic demand curve right and I think that with their ability to achieve—recovery in the marketplace, although difficult is not only possible but quite doable.

In terms of the impact of year '04 in terms of the cost structure, I know that some of our competitors have pointed to this as being an issue for their operating performance, our operating expectations is on the range of additional costs to –Fiat Auto ranges between €25 to 150 depending on the model.

It's actually—quite—for cars like the Punto the cost is really not relevant.

But we do think---in the scheme of things this is not going to materially mark—impact our margin expectations for the year.

But last time your Fiat Auto had problems with introduction of EU3 there were inventory problems so you're confident not have a repetition of this situation?

You had (indiscernible)

No.

I can tell you that I have reviewed—I reviewed a transition program for year '04 over the weekend and I feel absolutely comfortable that one, the process is under control and that we are going meet all the timing –time lines that we have put forward for ourselves including the cost expectation.

Could you just—concerning one issue of what was actually the operating loss contribution of the Maserati brand to the Ferrari operation that was resolved? (indiscernible) You mentioned half a billion but...

In 2004, was almost €100 million.

OK.

So you expect improvement going forward, on what basis on the new models basically?

It's not just the new models, I think it's the fact that we were living through our ramp back year and the Maserati was bought as 2005 a full production year for the house.

Obviously it's going to have a completely different implication in terms of company performance.

Thank you, our next question comes from Serge [Souza] from UPN, please go ahead.

My questions were answered but I have another one.

On your assumption on price (indiscernible) in 2005, you were giving some hints about the volumes, you said that the volumes are expected to be lower this year, do you have an assumption about pricing that you are assuming in your voucher toward?

We're assuming that we are going to be able to maintain margin performance by the model in 2005 in which I think makes it right only--I think makes it relatively in the clear that we need to attack the governments cost structure and perhaps deal with the problem because, with the extent of our pricing power in the marketplace and the impact on margins is what it is, given the competitiveness of the product, we could only assure closure in terms of the P&L by attacking the governments cost structure.

I didn't get really the—the answer.

If you're –if you're assuming that you are going pass [ph] on some of the increase of the raw material, if I understood well, and you assuming lower volumes, most of the new model will come in the end of this year, there would be price pressures, so you—you're not assuming any--any price pressure at all or are you assuming some of it?

Well, we are assuming price pressure.

The only thing we talked about was margin delivery.

Right, and the margin delivery is a net result between product cost and selling price and there is a huge amount of effort that has gone on here both on the purchasing side to bring about cost of acquisition of raw materials into the process, also [some] issue about bringing about technical savings in the manufacturing process as well, and that impact of all of these is adjusted off in the margin performance of Auto in 2005 as nothing would be materially different than it was in '04.

By the way of pricing pressure, the pricing pressure we talked to—we talked about in 2005 has been experienced in a real live way in 2004 so nothing is going to change in this year.

Thank you.

From the Lehman Brothers we now move to Pierre [Luigi-Paulini], please go ahead.

Good afternoon gentleman.

On the same account I was wondering if you could give us a bit more detail on your sudden turn of your total.

You were talking about targeted manufacturing cost savings of 200 million and others I guess which after time and by [compensation] that would be –they would add to the additional 300 million up to half a billion improvement that is implied in your forecast.

Am I reading this correctly?

And so €200 million in manufacturing, €300 million of non-manufacturing and could you give us some granularity as to in particular what would be the relevant contribution that were this goal of advertising versus back office.

And finally, if you want to share with us, with—with hindsight, what is it, if anything, what problems did you underestimate if anything at the time you took the job, focusing again on Fiat Auto?

I am going to try and give you the numbers on advertising, sorry, one moment, it I can.

Just the size of the reduction year-over-year is less than 20% in advertising between '04 to '05 and this was probably over 1.5—a 150 million, there's been—before we talk about actually chopping advertising budgets, we really have refocused the advertising approach that we've taken, especially outside of Italy.

I think in Italy we have made the commitment to spend as much as we have in the past, but I think the ad accounting Western European markets have probably been well elusive in which this advertising money has been spent so we have [weaned] it in.

If you want to talk about the issues relating to –relating to what we have under—what I underestimated when I took on the job and I think we need to focus on Auto, because Auto does remain –does remain the issue for Fiat.

I think that the –the main—the largest issue has been the unwillingness of the organization to recognize the need to compete and I'm—I don't want to be overly philosophical on this because I am not sure that adds much to your numerical exercise, but I think that one of –one of the main issues that faces most organizations is to recognize the place that they're in in the marketplace and I think that Fiat Auto has been unwilling to recognize that fact and secondly, I think you'd almost became contritely accustomed to losing.

And, when you get that level, I think the ability and the willingness to clean yourself up diminishes drastically.

So, the changes in leadership that we—that were bought about last year and more importantly the ones we bought on this year are clearly designed to snap this organization back into reality and I think the next 60-days are going to be relatively painful because I think that we're gonna have to do some rather radical surgery in terms of what I call the government structure of the house.

I can't avoid it, unfortunately, I have had to do it before in my career.

I think we've allowed a system, and I take full blame for this, but I think we've allowed the system over the last 9-months to effectively engage in that process on its own and it hasn't.

It must be led and it must be completed as quickly as it can.

I –I think we can only look at the true operating capabilities of this house once that exercise has been carried out and that's why I think we need to comment to the first half of the year '05 is going to be difficult.

We are transitioning into a series of new products, but not withstanding all of this.

I think we've got an organizational structure that needs to be snapped out of it's stupor, and it is in stupor.

I think that there is –a house that counts on recovery based on volume increase expectations is bound to fail.

And one of the reasons why we have set our targets in 2004, at least internally, in terms of sort of guiding—guiding our governance cost structure on lower level of expectations than 2004, is to force that convergence once.

And, so we will do it—we will do it as quickly as we can, highly unlikely that will be completed in Q1 but hopefully by the end of the first semester it should be behind us.

OK, and if I may ask, just one question on the manufacturing –on the manufacturing savings, what are the biggest contributors here and what type of labor strife, if anything, do you expect to meet?

I think we have been very successful in maintaining a very open dialogue with our colleagues from the labor union side.

I think we have been clear on what the issue—on what our assessment of the issues facing Fiat Auto are and I think we have been relatively clear on what we think we need to get from the system in order to accomplish the turnaround.

I feel confident that the unions will support this process of transition and I realize that part of this turnaround—and it is going to have a significant impact at least on a short term –on the client utilization levels that we have across this group.

I can't avoid it.

I think that we have taken some hard decisions in '04 as you can see it in inventory levels for Auto has certainly been realized by much demand.

We will continue to do this until we can find the right level of demand support for the –for the manufacturing side of this business.

I feel comfortable that the initiatives that we put in place commercially will eventually allow us to look at a much stronger demand function than we've looked at today.

But until that happens the system will be utilized to provide the right buffer on employment levels until we complete it.

There's nothing I can do about this.

I think we have been clear with the unions on this matter, it is not coming as an unexpected matter to them, it has been flagged up to them since last summer.

I think what's important is that we've done this in a very open way where our colleagues completely understand what the issues are and we continue to be willing to—willing and committed to invest in the system as long as we can find the right level of support on the demand side.

And it terms of the manufacturing side I think that's a result of a couple things, I think the fact that we are streamlining production on locations and the amount of technical savings that are coming out of production are sufficient to justify the 200 million they made reference to earlier.

Just a—what is the stream lining, so what particularly (indiscernible).

To give you an example, when the Punto was originally launched there was a site of 3 different production sites.

That manufacturing philosophy has been streamlined into one plant.

And given the fact that this location costs associated with multiple locations is just not supportable.

While a lot of that work is going on I think that we've got some very good production support.

As a matter of fact, the house plan as a result of the changes that we made in –in September and as a matter of fact when you look – and (indiscernible) an indication of what happened in January we've –whatever margin in fact may have happened as a result of other lower volume—lower volume delivery or pricing in the month of January has been more than offset by efficiency gains on the manufacturing side.

The system is learning how to adjust in terms of both absorption and variable costs side to fluctuations in demand and that is a big issue for us.

Thank you.

Our next question comes from Derrick Ferguson from Morgan Stanley, please go ahead.

Thank you.

Two questions please, Mr. Gubitosi you said that you've aggressively cashed in on financial receivables in the quarter, I was wondering firstly if that's something you are going to continue doing or maybe in another way if you have an idea of the size of the finance business in the mind that you would like to have, if that's more that it is today and I – the second one as well would be, the exceptional items, just purely from a cash basis through 2005, obviously we have the GM exceptionals but should we anticipate any other exceptionals on top of that?

OK, with regards with receivables, yes we will continue to cash in on industrial side you might notice that year-over-year that that declined to about 1.2 billion.

Those have been basically cashed in so we continue to do that.

Then I think I would limit my comments on the side of the financial services area to the fact that as I said—as we said before, we would not rule out joint ventures or other –or other activities that without recognizing our ability to service the business without less funding would be competitive.

Then in terms of extraordinary cash items in 2005, obviously we have on the positive by GM and Italia (indiscernible) on the negative side we would expect to have about 300 million related to 2004 about 100 million of previous years, so 400 million overall.

OK and the operator we will take another question.

Thank you.

Our next question comes from Massimo Vecchio from Intermonte, please go ahead.

I have two questions.

The first one is on the investment in the net (indiscernible) Mr. Marchionne do you think it's a money issue, or cash issue, or you think there are some other problems, other malfunctions there and if you feel it is an investment issue can you try to quantify the investment you expect in 2005 on the dealer network?

The second question is on Maserati, I think it would be very interesting for minority shareholders to know how much is being valued, Maserati, because basically, Fiat S.p.A. owns 66% of Maserati and now 100% of Maserati and so the movement in minorities equity?

I will answer the first question and then I will pass it on to Luigi on the Masarati side.

Do you understand the question, or he can ask it again, but let me deal with the network issue.

I think that the issue is only partially mine, I think that there is no doubt this has been an area that has been under invested and I think it's probably visible when you visit the network.

The amount of money that we are spending this year is probably in excess of about 130 million, close to 140 million across the Auto piece.

The biggest shortcoming is not the financial commitment that we've made on this issue.

It has to due with the quality of people on the work line in the field on the commercial side and the way in which leadership has been exerted.

So we—we need to—we have hired somebody to undertake this issue.

We've got a large number of people that have been devoted to this task.

We will insure that the quality of these people in the field is adequate to meet the challenge, I—my assessment today based on what I have seen is I think there are a lot of (indiscernible) that maybe should be right, I think we've got substantial shortcomings in the ranks below and so we have started—the process of assessment of the quality of this –of the functions and I think we will probably be making substantial changes to that area over the next 90-days.

If I got where your question—you were asking how did we value Maserati?

Yes (indiscernible)

I am not sure that we have disclosed the specifics of value, but let me just say in the respect that we did value the business plan and the potential that we have for synergies and I think at some stage we will be more specific about the entire plan, but suffice to say that we look very carefully at the value, it's relatively low value, pick up is quite a small number and if there is an upside there, probably (indiscernible) I would participate with.

All this has been down and verified with advisor we got over-development (indiscernible) opinion.

(indiscernible) But Mr. Marchionne how do you think you will, let's see, influence the leadership of other people that work in your (indiscernible) –in your organization [ph] because definitely (indiscernible) their own business so it must be very difficult to address the issue?

Well, it may be difficult but I think that it's one of the harsh realities of dealing with the car business, we are dealing—we are dealing with a group of people who are fundamentally interested in making money.

I think one of the problems that we have had is that we have not been able to convey across and effectively delivering a constructive viable model where guarantees an adequate level of financial performance.

I know that when I look at the dealer profitability profile of our pool, for example on the Italian side where we have in excess of 300 dealers and we're actually talking on the average, about—dealer profitability profile which is probably 1/5th of what it is for the average of the competition.

That is—there is something wrong with this picture, if we have been unable to assist them in terms of rectifying dealer operations and bring about the required level of contribution from the selling side, so I am not sure to be honest, of the full knowledge is inside the Fiat organization today, these are the same people that have nurtured and maintained the mind set that (indiscernible) has offered for a number of years and I don't think we are going to find the answer from them.

But we do need to find an injection of new blood into the structure, that's absolutely crucial - I don't think it's optional.

We started that with the introduction of (indiscernible) who came from one of our many competitors but we need to strengthen that exercise by brining some more people from the outside to help us.

If I can just answer the question about Maserati, just a part to put your mind at rest, there has not been a significant amount of cash outlay out of Fiat into (indiscernible) for the acquisition of Maserati.

Ladies and gentleman that completes today's conference call, on behalf of Fiat thank you for your participation.

You may now disconnect.