Stellantis NV (STLA) 2005 Q1 法說會逐字稿

Welcome to the FIAT 2005 Q1 Results Conference Call.

Gentlemen please go ahead.

Good morning everyone and good afternoon to all of you in Europe.

This is Marcello Ledda speaking, Head of Investor Relations.

Welcome to Fiat S.p.A.

Q1 Conference Call.

Today's call will be hosted by Mr. Marchionne, our Chief Executive and Mr. Gubitos, our CFO.

All material in the press release should be available on our web site for your consultation.

We will start with a short presentation.

We will have a Q&A session and we will have also some other management representatives available to answer your questions.

Before we begin, the usual Safe Harbor statement, and then I will be making the looking forward statement and these are covered by our SEC filing on our 20F.

We will begin immediately.

Thank you.

Good afternoon, this is Sergio Marchionne.

I am going to take you through most of the presentation until we get to the end of the factor deals with the deposition and liquidity requirements of the group.

I guess you have seen from the result this morning that we have had sort of a decent quarter.

Although revenues were down 2.4%, all of it is attributable to the slowdown in car sales in Q1 and all of it has been a Western European problem.

It's been a important quarter for us because we have been able I think for the first time to try and analyze the operating performance of the car division in great detail and I think that we have provided with some information and that fact that we will go through in an attempt at understanding exactly where this breakeven point of the car division sits and what we need in order to provide a permanent fix to the operational issues that have been festering the group now for a while.

I guess we have tried to explain this notion of trading profit in terms of the release of IAS numbers at the end of March.

Fundamentally, trading profit is operating income without one-offs or exceptionals.

We have decided to focus on this number because a large number of items are going to be impacting on the P&L in 2005, all of which for the most part are positive including the GM settlement and the unwinding of the Italenergia position.

So this trading profit notion which is really the closest indicator of operating performance nearly doubled.

It is fundamentally an inconsequential fact because we started off from a very low number in 2004 at 23 million, but we did manage to hit 47 million in the quarter which is a significant achievement especially in view of the underlying top line performance of the car business.

As it says on the slide, Fiat Auto losses were down to 129 from 146 on an equivalent basis in the prior year.

We did manage to post a net profit of 3 billion, all of which is fundamentally attributable to the one-off gain on the GM transaction.

We recorded 0.5 billion net of tax in Q1 and we will be recording an additional 0.3 in the second half as the transaction concludes on May 13.

Cash flow was negative and it was wholly driven by working capital changes, which are seasonal and I think that Mr. Gubitosi will try and explain this in detail as we go forward.

We will manage as we go through and Luigi will speak about this as we go forward to talk about what the impact of the convertendo -- and all the other one-off cash receipts, are going to be on the balance sheet of the group.

We are going to end up having an incredibly strong balance sheet, I mean we are going to be standing at 0.53 to 1 on a debt-to-equity-basis, which given the history of the group probably is an undoubted phenomenal achievement.

We're probably structurally under-leveraged now.

If you look at the earnings potential of the group going forward I think as important as the numbers for the first quarter, I can also confirm that we are sticking to our guidance on the whole 2005 and the numbers that were shown at the end of 2004 effectively confirmed going forward.

If we just move on to slide number 2.

In addition to the underlying operating performance improvement of the group, we have managed to achieve a number of significant operational or strategic objectives.

The first one is the segregation or power train technologies.

It's really been down to try and bring together all of our transmission and engine know-how into one unit to reinforce our commitment to technology development especially on the diesel side and try and drive this organization towards an open market or third party sale environment.

Maserati acquisition to strengthen the Alfa Romeo brand and effectively to build on to this high-end sports market.

The alliance between Iveco and Barclays, which hopefully will be finalized in Q2 was designed to strengthen the financial services to Iveco and effectively strengthen the business itself.

It will also lighten up the balance sheet of our financial services organization.

We did manage to clean up our brand confusion in terms of construction equipment with Case New Holland.

We are also in the position of signing an agreement with our partners in Turkey with Tofas, with Peugeot Citroën to develop a new vehicle, which hopefully will come into the market in 2007.

As important and probably the most important for us is the fact that this notion of the realignment of the cost structure of Fiat Auto is now fully underway.

We managed to accomplish quite a bit in the end of 2004 in terms of identifying areas of value leakage in terms of our foreign operations.

I can tell you that most of those initiatives have worked their way out through Q1 '05, although all the redundancies were not eliminated until probably the end of March of this year.

We have now begun to look at the Italian cost structure, and we have unfortunately have had to target the whole personnel area starting from blue collar to white collar to management ranks.

We have carried out most of the realignment of the white collar and blue collar in the first part of May.

We are now working our way through the management structure and hopefully all of this will be completed by June of this year.

The GM relationship is now history, February 13, 1 billion has been received.

We spent some time with our colleagues last night in the US trying to finalize the last pieces of the settlement which is due to be signed on the 13th.

And hopefully the 550 million will flow as agreed on that date.

The mandatory convertible issue is now off the table and I think we have acknowledged hopefully together with our lending institutions that the mandatory convertible will in fact convert.

That will provide a 3 billion equity boost to the organization.

It's effectively one of the reasons why our debt to equity ratio is going to drop to 0.53 to 1.

Move on to slide number 3, and I don't want spend all the time on this I think it's been a mediocre top line quarter.

Obviously Auto is the one that suffered the most, almost 450 million against 2004, the other businesses have held up relatively well.

Trading profit has been decent at 23 million up on last year.

And the most significant driver of that improvement has come out of the Fiat Auto business for a change.

If you can move on to slide number 4.

The Fiat Auto business was down 8.3% in terms of turnover, 11.8% drop in unit sales.

We have mentioned this now for at least six months the fact that there was going to be a significant change in the commercial policy of the house.

We have favored a different distribution mix of product we favored and we continue to favor private car sales over the more traditional and institutional push through's that have happened here historically.

This has really been designed to do two things, one to protect the value of the brand going forward and secondly perhaps more importantly is to protect margins.

We have operated in a market, which is fundamentally depressed.

The Western European market was down 2.5% during the period.

Offsetting all this has been an incredibly strong performance by our Brazilian operations, which have now achieved market leadership.

In Brazil, if they continue in this trend they will try and achieve market dominance in Latin America, the light commercial vehicle side has been quiet good, we have had good numbers coming out of Q1, and we expect the rest of the year to be quite strong.

Ferrari-Maserati up 6.5%, with Maserati more than offsetting the shortfall in Ferrari.

CNH Industrial revenues were up 6% in dollar terms, but fundamentally they were a disappointing quarter.

We did not manage to hang on to the potential growth that most of our competitors saw in the US markets, a scenario that's under substantial review right now.

And we do expect to come up with some better news by Q3 and Q4 of this year.

New vehicle sales increased by 14.5% in terms of units, the industrial revenue was up 3.9%, I can spend a lot of time trying to explain to you why this is in fact the case.

We have had a change in product mix which has brought unit sales values down.

But the other issues that we have had to change in the accounting treatment associated with one of our joint ventures which is now being effectively consolidated, the sales that were being pushed to that entity used to be accounted for sales prior to the consolidation and now they are being accounted for as operating leases that are just bound to drop from top line.

So it is not a concern going forward, but it was required because of a change in our relationship with a joint venture party.

And the components business is doing relatively well in a market, which is fundamentally depressed.

If you can move on to slide number 5, this sort of highlights some of the issues that I had raised earlier; we are down in terms of unit volumes.

Western European market was down 2.6%.

Punto and Stilo volumes are significantly down, Stilo is unfortunately and structurally a car that will not succeed.

While we are doing a number of things in order to maintain this market presence.

Punto is in its phase out stage as a new product comes on stream Q3 of this year.

Panda continues to do well, the franchise, the brand that has done incredibly well in the quarter.

It is holding up both in terms of volumes and margins.

And Alfa has probably had the worse performance we have ever seen in quite a while with 147 and especially with the 156, which is going to be replaced by the 159 performing rather poorly in the quarter.

A number of initiatives have been undertaken to try and revive the sale of the brand.

But until we see the new styles coming on stream with the 159 and the Brera in the latter part of this year we are not going to see a significant recovery in volumes.

Brazil has been a star performer.

We will talk more about this as we reconcile profits for Q1 '05.

In the light commercial vehicles, as I mentioned earlier, we are up 6%, which is a very good sign and they continue do well.

We have now been able to strike an arrangement of joint distribution between Iveco and the Fiat Light Commercial Vehicles, that's going to increase market penetration for these products.

Moving on to slide number six.

I don't want to belabor the point but we have managed to maintain to keep stocks in line and I think there has been a very clear desire here not to proscribe to the pipeline in order to ensure that we do prepare the dealership network for the new car launches that are happening.

Slide number seven, I would like to spend some time going through these issues.

This continues to be the key issue for the Fiat group going forward.

It is the issue, which, if it remains unresolved is going to fester the recovery of the group in terms of profitability and certainly image.

I mentioned at the end of '04 that we were taking a very aggressive look at the governance cost structure of this business and that we have to find a way in which we could balance or match demand with supply in terms of the cost structure of the business.

We are convinced now that I think we have taken all the drastic steps that need to be taken to resize or right size this organization.

We have taken out 30% of the central staff in 2005, all those were mostly executed in the first part of May, that's equal of about 65 million in savings in 2005 and 130 million annualized.

Some of you raised some concerns about the longevity of this move given the fact that we used this notion of "cassa integrazione" to try and accomplish thee layoffs.

I think we want to continue to work with this group to try and find a more permanentorfinal solution to the reductions.

It's early in the game now to tell exactly how many of these positions are going to be permanently eliminated.

But, I think that to the extent that we are willing to work with the structure to accomplish that end, I'm confident that certainly by the end of the year most of these cost reductions will become permanent.

As I mentioned earlier, we have resized the foreign operations, 22% headcount reduction that was identified at the end of '04, which are going to give us roughly 40 million in saving this year because of the tail of this restructuring which was completed at the end of Q1.

On an annualized basis, these savings are worth about 50 million.

We have also rebalanced the advertising spend.

We are taking about 150 million out of the €800 million budget.

We have already brought down 33 million in Q1.

We have rationalized the R&D spend without sacrificing commitment to product.

I think that we have eliminated what I call the peripheral or non-product focused initiatives try and ensure that we can guarantee a return on every dollar or every Euro that's spent in the process.

We have identified sort of a whole market as the market that we need to fight in quite a strong way to try in stabilizing growth share.

It is probably the market that is easiest for us to both understand and penetrate because of our large position in the market and the fact that it is structurally the most profitable market that we operate in.

The Western European markets have been resized, I think they provide a good basis on what we can drive the business going forward.

I think it was absolutely important that we clean up our commercial strategy across the western European markets to ensure that we understood exactly what type of channel mix we are going to elect and the kind of economic benefits that we would be associated with the distribution strategy.

I think we feel comfortable that we got that process under control, and I think we can measure growth from this point going forward.

We have had to use temporary shutdown of plants to match demand of supply.

This would continue throughout 2005 until you can achieve a better market penetration with our products.

I'm confident that the products that are coming off stream both the Croma and the Punto on the Fiat brand and the 159 and the Brera that will off stream in 2005 are going to provide some relief to the plant utilization issue.

But I think the management has absolutely committed to ensure that we do not exceed this commitment to a balance between demand and supply and we will continue to shut down plants until we can find the right demand function on the other side.

New products are coming off stream, as forecast, the 159 is the one that's had some slippage that will be in the marketplace in October with the launch in September.

Moving on to slide number eight, this is a reconciliation of our profit between Q1 '04 and Q1 '05.

All of this has been done on the basis of IAS or IFRS.

I'm not going to spend all the time talking about this, I think the points are relatively clear we have had 56,000 unit drop in sales which obviously is going to impact on margin, end absorption at plant level and this is reflected in terms of the 64 million negative and the 69 million on the volume and mix.

What has also happened as a result of all this is we have been able to hold and improve on pricing.

All the efforts that we have made in terms of maintaining the cost structure of the car business are beginning to play off.

I think if you move on to slide number eight, one of the issues that obviously we have had to grapple with is what is the cause of the improvement?

So we tried in slide number eight to try and give you an understanding of what it is.

We started off with the reported profit in Q1 '05 of 129 million and I tried to remove from the slide all the items that made up an improvement against '04.

So that in fact when you look at the second last bar on the right, it is the Q1 '05 in '04 terms removing what I call the one off events that have happened in the quarter.

Brazil has been a huge contributor to the profit shift in the car business between Q1 '04 and Q1 '05.

So I think to try and allude ourselves that western European business has been structurally improved to that extent is false and so we have also identified a number of other items, which by nature I'm non-referring.

So we compare ourselves on a cleaned up basis between Q1 '04 and the restated Q1 '05 we see that we came pretty close.

We went from 146 million loss in '04 to 155 million loss in '05.

And the reason why we want to present this to make sure that you understood that we are not relying on the Brazilian turnaround stories being a source of recovery of the car division and won't be, and so all the initiatives that I mentioned earlier about the resizing of the business governance cost structure and the benefit associated with the product launches are going to come back and to try and compensate a shift away from the 155 million loss to the achievement of the numbers that we set as targets for 2005, which are 1.5% margin loss on total revenue.

If you move on to slide number 10, this is a new product, the Croma.

It had roughly between R&D and CapEx about 550 million worth of investments.

We expect at the low end of the spectrum to deliver about 21,000 in volumes in this year and on a full basis it should run in excess of 30,000 or 35,000 on a four-year cycle.

This is the first car that's going to come out of the range, it will be introduced at the end of May here in Italy and it will go through a progressive European distribution, hopefully most of it within Q2 of this year.

Slide number 11 is an attempt to providing guidance on the reconciliation between the reported loss under FRS of 822 million in '04, our target of about 300 million or 320 million in '05.

We have clearly recognized the issues that face us.

I think that the issue about volume is a net number there is no doubt that we acknowledge the fact that we are going to have roughly 70,000 unit sales less over 2004.

We are encouraged by the performance of Brazil and I think that when you add up the other elements of the channel mixed strategy and see that pricing is going to be play a significant role in the recovery of the car business.

Raw materials have had a negative impact and we can talk more about this as we go forward, roughly 250 million for the year all of which and an excessive which has been offset by purchasing synergies.

There is a substantial cut in the number of other expenses such as advertising and the manpower number that I made reference to in the earlier part of the presentation, all of which is going to be matched against the fact that we are going to under absorb the plant levels which is going to cost some 170 million.

Moving on to slide number 12, which deals with CNH, you have seen the numbers come in, we are disappointed of our ability to -- our market presence and factors and combined with North America.

We have had our market share reordered I think it's an issue as I mentioned earlier that we need to address.

Having said this I think that we have had a relatively decent quarter in terms of construction equipment.

Financial services continue to do well and probably contrary to most other businesses, this is a business, which has had a huge amount of ability to pass on raw material price increases.

So we have not had a negative impact on operating margins as a result of escalation especially of steel.

The analysis on page 13 deals with the component element, profit shift as you can see a significant price shift has happened roughly equivalent to 126 million, most of which has been chewed up by purchasing of raw material pricing.

Iveco on slide 14 and I won't belabor the point of our top line position I think it is clear had we been able to account for the joint venture on an equivalent basis top line would have been about 50 million or 60 million higher than reported.

So we feel relatively comfortable with it although somewhat behind industry average, we were able to hold up a relatively decent position in activities.

We have had good order intake, all the forecasts in terms of the year-over-year performance are good and we are confirming the targets for 2005 as we announced at the end of February.

Profit variance on slide 15, as you can see it's a relatively stable business.

We are able to recover raw material price increases and I think that the year overall is pointing right, I think our order books are quite full and so that there should be nothing negative impacting on the business going forward.

Components, we don't want to spend all our time on this, this has been a very difficult market for the component business because the customer base itself has been weak, especially on the demand side.

I think that all of these businesses, Marelli, Comau and Teksid, they are taking all other required steps to ensure that the margin objectives are maintained, drop in volume year-over-year.

Move on to slide number 17, just to go from trading profit down to net results as I mentioned we made 47 million trading profit level, the unusual items are made up of the 750 million pre tax settlement GM, coming out of the restructuring of our activities.

Financial charges which Mr Gubitosi want to speak about later, improved by 176 million all of which is or most of which is attributable to the negative impact of the equity swap that was reported in 2004.

First of all the equity swap that was reported in 2004.

Really not much else to say, obviously we have made money for the quarter which is a significant step and as we mentioned in our conference call for the full year results, 2004 was the last year of losses and the fact that we have been able to post a profit as an indication of the fact and certainly because of unusual in 2005 and because of strong underlying industrial performance in 2006, we should be able to post positive earnings.

Cash flow statement I am going to skip, and I am going to let Luigi deal with this as he comes on comes on.

Certainly the issues, the change in networking capital which is the only reason why the numbers have moved, why industrial debt is moved up to roughly 10 billion for the quarter.

I am going to pass it back to Luigi, he will do some chatting on the numbers on the grid (ph) and cash burn and I'll come back and deal with the forecast.

Thank you Sergio.

Let me start then with the working capital and most of you that are familiar with Fiat know that working capital traditionally increases in the first quarter.

In fact at the end of March is traditionally a low point for the year in terms of working capital management for us.

So, for those of you who are not that familiar with us the main reason is basically the payable cycle for us because in the fall we do pay what has been produced in the summer, in July and August where factories are almost are completely shut in Europe.

Then to this one should add the fact that in this quarter obviously activity has decreased and thus amounts to negative working capital that impacts negatively.

And finally we have in this quarter the fact that CNH has traditionally a seasonality, which basically means that over the winter stocks are built up with dealers that then are shipped in the strongest amounts in terms of sales typically from May to July.

So that explains most of the changing working capital.

We do expect these two as I say to reverse throughout the year and at the end of the year, year-over-year do not expect working capital to have any meaningful affect.

With regards to the other components, obviously net income is self-explanatory.

The change in funds and others is strongly influenced by the fact that most of the taxes that we have booked in our income statements are non-tax cash or rather use of previous losses.

And the CapEx is as typically for this quarter lower than depreciation amortization but again is traditional and our activity will pick up throughout the year.

FX translation, I said, relatively minor effect over this quarter.

If we then move on slide 20 and I will bring to our gross debt explanation or rather reason into it and the gross debt of industrial operation has basically declined because of less sales of receivables as you know because of IAS we basically bring back books and most of the receivables we traditionally sell.

So then cash was utilized basically to pay for working capital and for the investments.

On the financial services, we have a decline of the debt and on the net debt, the reason why gross debt and cash goes up is the effect of an ABS (ph) sold in the States with that refunding activity.

All in all the portfolio of the financial services basically went down and mostly because of 300 million decline in dealer financing at Fiat Auto.

So basically the effect of the reduced sales on to the network was about 300 million in terms of working capital for industrial side and then decline in portfolio for the dealer financing.

And then our book, our Swiss bank portfolio declined by 100 million roughly.

This was almost all compensated by the translation from dollars into Euros of the CNH portfolio, which again stops adding in period of the year in the first quarter.

We then move to slide 21, bring you to our gross debt in IAS version so to speak.

And basically we are divided into four items; basically the cash maturities and I'll explain what I mean by cash maturity, and the rest.

The rest basically it's book, Banco Unicredito, I will not spend much time on that or in fact I will just skip it as the banks basically is managed completely independently from the Fiat group and we just require to consolidate that.

Then the securitization and sale of receivable and basically obviously this is funds that we have already received on receivables sold therefore does not impact in terms of debt management.

And then there are what we traditionally call non-cash maturities, all of which were basically exception of the adjustment for hedge accounting will basically disappear around the year.

Real estate transaction is expected to close in Q2 as in Q3.

So looking at the cash maturities basically and moving on slide 22.

Basically as the debt that we actively managed and basically if you look at the next twelve months we have about 2.9 billion of bank debt, again this is a familiar number.

As it's really close it's not identical to the one we had under Italian GAAP and effectively what basically showed that we continue to roll over but matures over time and we did not have any issue over in the first quarter.

Capital market are about 2.4 billion of which about 2.1 mature in the rest of 2005 and the rest is accruals Banco Unicredito so we ignore that, and the rest is ABS related.

This basically has to do with the fact that when we consolidate bank certain securitization vehicles they do have cash on it.

The amount is relatively high because as I say at the end of March, we did have an ABS with prefunding in o, either where funds in the vehicle specifically with specific purpose of buying receivables, how they are generated.

That brings us to possibly the most interesting slide, at least from my point of view of the presentation.

And I would like to think that 2005 will pass to history as the year of very strong leveraging into Fiat.

Now to the year with net industrial debt at the end of December almost double our group equity.

The issue was almost closer too and over time as we had the convertendo, which is more than 3 billion from debt to equity.

Italenergia, which eliminates 1.8 billion of debt and basically has an almost 50% capital gain.

Then we have GM, which has net an effect of 1 billion on the debt and about 700 million of equity gains effectively reduced our debt loss.

So effectively it looks like the columns are -- and with now our net industrial debt tends to be almost half or just above for our group equity profile.

Now, we did not put any ratio on that but the other effect of this transaction will be to reduce dramatically also our interest charge.

I think as Sergio showed you before that we had in the quarter about 199 million of financial charges.

This is including the service cost of the pension fund for about 33 million.

So if we take the 166 million and multiply by four that basically means that we are earning about 650 million of interest cost.

Now the Convertendo Italenergia, our real estate and the rest of the transaction will reduce our burden of interest charges by almost 300 million, between 270 million and 300 million.

So effectively from an annualized rate of 800 million including the interest cost or the pension funds almost towards the 500 million interest charges.

So effectively, you combine capital structure impact and then you have the interest coverage ratio, within the financial structure the group is dramatically changed, to that we expect them have also a significant effect of the --

So now, concluding on the debt and liquidity I think we have mentioned a few times -- convertible and this is in a context of continued and ongoing support from a banking system.

As it was mentioned that we expect the remainder growth 0.55 billion GM cash settlement Friday.

Italenergia has been on the newspapers quiet a bit over the last weekend, so I don't need to comment on that.

And in our equity numbers they were not the effect of the joint ventures is about 2 billion of additional resources coming on and there is 500 million plus of receivables, which obviously will not be anymore so biased by the joint venture and we expect as I said before that working capital will be draining and we expect a positive cash-flow from the rest of the year in excess of 500 million.

And finally, gross debt is expected to be below 25 billion at year-end as Italenergia Convertendo and Iveco Barclays -- I am finished.

I will pass it back to Sergio.

Just move on to slide 25, and I think, we'll deal with this issue quickly and then we'll move on to the Q&A session.

We confirm our commitment to the financial targets that we announced in February of this year.

We will have positive net income, 2005 due to unusual items.

Cashflow will be positive or roughly 2 billion, this is even not including the convertible impact, but Italenergia transaction which is now, more or less short in terms of unwinding after the announcement at the end of last week, and the settlement or the real estate transactions and GM settlement net of the acquisition of the power train debt of roughly 1 billion.

All these items will add up roughly to after an operating cash-flow drain of roughly of 1 billion, provide us with roughly 2 billion worth of cash-flow for the year.

The commitment in terms of margins remain unchanged if we are sticking to the 1.5% on auto, and you can see from the slide the other operating margin commitments that you are confirming.

I think it's important in terms of the car business itself, which is really the biggest job that we are making in terms of year-over-year performance.

We need to clearly understand that the operating cost structure of this organization now I think probably for the first time in a long time under control.

I think we understand the component elements of the value drainage in the organization.

I think we have taken all the significant steps that we need to take in terms of ensuring that all the brands maintain the relevant commercial value and the distribution strategy is absolutely coherent across all of Western Europe and we are quite confident that the target of 1.5% by the end of the year will be in fact accomplished.

I think that in terms of, cost elimination, or re-sizing of the organization, I think we have gone as far as we can without denting operating capability going forward, while cost in the R&D has been no significant cut backs of the organization which are going to impair the ability of the organization to compete on effectively large products going forward.

So, good quarter in '05 although not stellar, but I think more importantly we have achieved two things.

One is a significant stabilization of our financial structure, which is a permanent issue.

And secondly, I think a commitment to finally tackle the operating issues impacting on Auto.

We issued a press release this morning, which has now finalized the date of the annual shareholders' meeting on 23 June.

In connection with that, we will be increasing the board to 14 board members.

Under Italian corporate rules it is the shareholders who appoint directors, so it will be up to the shareholders to appoint the additional three.

So we leave it to others to comment on who they may be.

I think we have strengthened, we have taken very hard look at our corporate governance regime including institutionalizing of the Collegio Sindacale as being the audit committee for US purposes and I think they will, as we move throughout the year, we are going to keep on looking at committee composition and scope of activities to ensure that we provide the highest level of corporate governance to the organization going forward.

So, on that note I shut off my microphone and wait for calls.

Thank you. [Operator Instructions].

Our first question comes from Thierry Huon from Exane.

Please go ahead.

Good afternoon, it's Thierry Huon speaking from Exane.

Sir, I have got a couple of questions, the first one is about the cash burn.

You said that you expected a cash burn of roughly 1 billion.

Could you give us splits of this cash burn by divisions?

This is the first question.

Then, what kind of margin do you need to achieve that's set out to reach a balance cash situation for Fiat Auto?

And the last question is to be sure that I have correctly understood, you said that you have got 1 billion from GM from the deal, but in one slide we saw that the impact in the cash flow was 700 million.

So I want to be sure that you get 1 million and to have an explanation of this difference between the two figures.

Thank you.

Hello, could you repeat the second question, excuse me, Thierry?

Yes.

The second question is about the margin that is needed at Fiat Auto level to reach a balance situation in term of cash at Fiat Auto?

Your second question, the answer is about 1.5% EBIT.

And with regards to which division creates the cash burn, it's as you might expect mostly Fiat Auto.

Yes, but my question was to know if the cash burn above 1 billion at Fiat Auto or in this case, it means that there is no positive cash flow from the other divisions or do we have some positive cash flow from the other divisions in a worse situation from Fiat Auto?

It's slightly positive from the other division.

Okay.

Not a very large number, but it's in the hundreds but low hundreds.

Okay.

And for the last question?

Last question, I think 1.5% EBIT would have basically.

No, this is for the second one.

But the last one is to be sure that you have got 1 billion from GM and in this case, why do we have 700 million impact on the cash flow statement?

The reason why we have broken up the settlement into two portions because the delivery of the intellectual property and the Polish plant is going to have a closing on May 13.

So what we have done effectively is we have taken the whole transaction in pieces and we have identified the first portion as being the item which has been technically paid for and which relates of a gain that accrued in Q1 and we all recognize the second portion of the gain as the cash comes in on May 13.

Okay.

So in the cash flow during Q1, you took -- 700 million?

Yes, it's roughly two thirds.

If you look at the whole transaction, it's worth 1.55 billion.

Yes.

We've got 1 billion of it in the first quarter.

So we recognize 1 over 1.55 of a gain in Q1, and we'll recognize the remainder in Q2.

Okay.

Thank you.

Thank you.

Our next question comes from John Lawson from City Group.

Please go ahead.

Well, good afternoon.

And thanks very much for the very detailed way in which you take us through your forecast for Fiat Auto on slide 11.

I don't think I have seen such a detailed forecast for quite a while.

I just wanted to ask three things pertinent to that please.

Firstly, are you prepared to say where Brazil profits for Fiat Auto stood in the first quarter at its absolute low?

Secondly, the big number on your walk down in slide 11 is purchasing reductions, could you tell us just how confident you are -- I mean are you contractually -- do you have a contractual agreements covering those purchasing reductions at the moment or do you still have work to do.

And I am not quite sure that I followed the manpower cost reduction, which is 150 million.

I think elsewhere in the presentation, I can find reference to around 105 million of reductions in the year as whole; perhaps you could just explain the balance?

Thank you.

If we can deal with the first issue, the actual profit number at operating level for Brazil was in the neighborhood of 40 million in the quarter in absolute terms, so when you see the 41 million number --

Yes.

-- chart, it tells you that fundamentally in Q1 of '04 -- was slightly negative.

And that we were able to recover most of which has been based on a different pricing strategy by the current management.

So think, in hindsight it was a good choice.

In terms of the purchasing reductions it is difficult to tell, there is no doubt that most of these are the contractor on the process of being contracted.

I think, that there were targets that were set in terms of technical and commercial savings for the component side a primary factor, there is a large chunk of these that already are on hand year-over-year and I don't think there is a doubt in our mind that the rest of them will be achieved by the end of '05.

But a significant portion of them had been anchored.

The third question, it deals with the manpower and as you are talking I am actually trying to look at the number that deals with the manpower savings and -- I may have to come back to you because it's made up of numbers off this slide.

So give me two seconds, I'll revert.

Okay.

Thanks.

If you don't minds, but it's in the slide that we gave you on slide 7.

So give me a second.

Thank you.

Thank you.

The next question comes from Martino Brugnoli from Banca Euromobiliare.

Please go ahead.

Yes, good afternoon to everybody.

My first question is on Fiat Auto it was on slide 11.

There is a price positive effect on a full-year basis of 265 million while it was only in the region of 39 million in Q1.

And the same for volume mix, which is seen negative by 30 million on a full-year basis while it was a 69 in Q1, negative.

So if it possible to have some more color on this performance, this improvement in the rest of the year, and probably could be helpful some indication on the new Punto on these results and both in terms of volumes and probably splitting it in mixed price positive effect.

And my second question is on net debt, the industrial net debt on a consolidated basis if it's possible to have an indication even rough on the split between the main divisions?

Thank you.

You were traveling at 100 miles an hour here, so I did not get your last question, could you just briefly mention that again?

Yes.

The split up industrial net debt between the divisions?

I'll pass it on to Luigi; he can give you an answer.

But let me give you the answer for the questions about what's happening in terms of a full-year forecast.

We have been clear on the fact that there are two things that apply here.

The first one is that we've got four product launches coming on stream in 2005.

The first one as I mentioned earlier is scheduled for the end of May and then there is the Punto, which is a significant product in our range which is coming out in the end of Q3, so a lot of both the volume and the mix issues are going to be addressed by the product launches.

And the second part of that improvement is obviously due to the performance of Brazil, which is expected to continue to perform well for the rest of the year.

There was another question that you asked in connection with -- is it raw materials or?

No, but in any case raw materials is more or less in line with what you already said in the previous conference call.

So it's 250, is more or less the same you are not changing your view on this.

Now, the second question was on industrial net debt.

Yes I'll pass it to Luigi; just to finish the issue on mix.

It is undoubtedly clear in our heads that to the extent that we are successful in having a rigorous approach to distribution and then we avoid falling back into some rather nasty habits of the past, that we should be able to achieve a significant improvement in pricing power in the marketplace.

That has obviously been done in Q1 at the expense of volume and it has been paid for by the hit that we've taken on under absorption at plant level.

To the extent that we are successful in the introduction of these products, and we -- by definition end up dealing with some of the absorption issues at plant level, and by the discipline on the pricing side we should be able to see a significant recovery in margins.

But I'll pass it to Luigi on the issue of the industrial debt.

Thank you.

Hi Martino.

I would rather not give you specific numbers as this may change over time as we try to optimize tax and other aspects, but suffice to say that of the 10 billion of the industrial debt, most of it is at Fiat Auto and then CNH and Iveco.

And while the holding system is virtually debt free and absolutely is getting even more cash with Convertendo Italenergia and the likes.

So we have the debt at the operating level again most at Fiat Auto, CNH and Iveco.

With regards to the financial debt, most of it in CNH, about 1 billion plus its in book and the rest is Iveco is about 3.5 and the rest is Fiat Auto.

Is that helpful?

Yes, if I may just for my -- some of -- is it possible just to have an indication rough for CNH, for the industrial debt?

Yes, and by the way, CNH has it's own financials established.

So you might get precise number -- purpose about a billion -- just about 1 billion.

Yes, this is Q1?

Yes.

Okay.

Thank you.

Just go back to the question that was asked by John Lawson, the question of the savings on the manpower side.

The numbers that you see here are -- that you see on slide 7 amount to roughly 105.

What they do not deal with is one, some of the management savings that have not been identified which I think referenced to the central headcount reduction of 30%, and the drag-along cost for those people.

The numbers are 150, including associated cost of maintenance of the labor force and so -- you know, it's a relatively safe number.

We've looked at sort of historical drag-along costs associated with staff.

That's a reasonable number based on raw payroll cost savings.

I don't know whether that answers your question, John.

Thank you.

Our next question comes from Paul Griffith from BlueMountain Capital Management.

Please go ahead.

Thanks, good afternoon.

On slide 22, it looks like the clearest and most immediate demand on your cash is going to be that 2.4 billion of capital market's debt.

So, my question is does the Iveco joint venture actually free up cash for you to use against that capital market's debt?

Or will you be simply paying that down through the cash that you already have on your balance sheet?

It's about 2 billion debt that -- free up Iveco.

Basically -- you probably would recall the previous transaction is very similar on closing date, or as the -- gets approved by the various regulators.

Barclays will refund the group treasury and we'll buy the portfolio basically.

Okay.

So, they'll buy the portfolio you'll get 2 billion and then you can apply that against --

Well --.

-- you have outstanding?

Yes.

And we obviously have enough cash to pay those 2.4 any way.

But, this will just improve additional liquidity.

Okay -- okay.

And then -- and the second question is, a number of rumors about joint ventures to be announced.

Can you give us any color on that?

Are you working on joint ventures in China or in India and if so, would you expect those to be sources of cash initially?

The answer is that China already is a joint venture.

Probably we will not announce amendment to the joint venture itself.

In India, we are standalones.

We are looking at ways to improve what is unfortunately a rather abysmal operating performance for the business.

But in no case do we see at least, in the very short term i.e., 2005, a transaction that would give rise to cash-flow proceeds in to Fiat.

Okay.

And than lastly back on slide 22, you've got the 5.7 billion in cash and marketable securities but should we consider that 1.2 billion, the 200 million in buck (ph) and the 1 billion related to ABS Should we assume that's restricted, so we should really look at your free cash and marketable securities as 4.5 billion?

Yes, in the sense that I would look at that, that's why we're giving you the components separately.

I mean the book theoretically in order to use it we would have to give it and that there will be a limitation because of -- I mean because of the regulations.

So, I think it's -- it's probably more appropriate if you can see that -- that excluding those data and we'll continue to give data separate.

Right, thank you.

From Dexia Securities we now move to George Ding(ph).

Yes, hello good afternoon.

I have three questions if I may.

First of all could you illustrate what you said in terms of the you know selective approach to -- to sales at Fiat Auto.

Could you give us a flavor of your sales by channel mix, i.e., retail versus free to rentals in Europe and outside the key markets such as Italy, France and the UK just to illustrate what you said in terms of the selectivity of your sales in the first quarter.

Secondly, regarding the commercial performance in Europe obviously there is a sharp or big discrepancy between performance in Italy and in the rest of European and I was wondering if you think that the performance outside Europe is very sustainable.

Going forward once you have really cleaned your sales channels, what share of this market can you reasonably target?

And the final question has to do with the realignment of Fiat Auto cost structure, you mention the savings but I was wondering in the short term what kind of short-term charges should we expect that could be associated with this alignment and to be taken by the year-end?

Well, let me try and deal with your questions in order backwards.

The charges that we said that we estimate is a maximum for the restructuring of Fiat Auto about 250 million for the year.

It is -- I find it pretty hard to believe that we are actually going to even get -- going to get close to that number because of the speed at which you have been able to execute on the restructuring so I think the number will come in substantially below that number although 250 has been identified as being the upper limit of the exercise.

So, I can just deal with the issue and I can probably deal with this in terms of examples as opposed to, I'm having somebody here work out numbers in terms of percentage of sales through mixed.

We have lost during the first quarter of 2005 a significant portion of our market share in Germany and the reason why that's been done is because we were unfortunately in a position have to cut back in a number of unprofitable sales practices which had become almost habitual and the environment which is well known within the industry.

So we've paid a significant price for that reduction.

But I can also tell you that on the basis of Q1, '05 numbers it is the first time certainly in living memory of anybody sitting around this table that Germany has actually made money selling Fiat cars which is a refreshing notion for our organization that has been historically based at losing money as a result of distribution on the assumption that we were filling up plants and therefore recovering for absorption, the numbers that we have in 2000 -- I only 2005 numbers.

So I apologize for not having the 2004 reference.

But I can tell you that in terms of distribution we're selling roughly 72% of our volume through retail roughly 20 through fleets and racks, and the other one through the company on corporate sells distribution.

So, that's roughly the make up it is not unusual to have this kind of configuration.

The problem that you have is the quality, it's rather than in volume, its the quality of the distribution that matters and so if we go back to the German example I think it is a clear indication of the fact that we can accomplish a recovery on the lower base as long as you are willing I think to sacrifice and restructure the related overhead.

One of the issues that remains unsolved for us for example is the UK where I think that we still have a long way to go in terms of establishing what I consider to be base level of activities to effectively build an organization around it, we already knocked off roughly 40% of the overhead structure Q1 '05.

I'm not sure we've done enough and certainly we may have to go down both in terms of share and cost structure to try and get that to a sustainable level going forward.

Having said all this I think that the objective was to try and create a base on which a sustainable market development strategy could be implemented and it was not driven by sheer volume but it was driven by quality of volume through the network.

And so with to the extent that the volumes that we've seen in Q1 05 are reflective of this clean up strategy.

I think that we need to be both able and willing to bring down the cost of execution, effective level to match the demand function.

We are not going to shy away as we have shown now, I think in taking as drastic a set of measures as we need to take to bring it down.

As long as we do not impact on the operational medium to long term viability of the organization.

I'm sorry, there must had been one question that you have asked relates to --?

Yes, the final question was in fact regarding the performance of outside Italy basically when you look at Europe and the performance there I think, it was down 21% in the 1st quarter and obviously it's an increase in the smaller proportion of the overall sales.

So, I was wondering -- I understand what you said in terms of focusing on Italy but I wondering what's the target there in terms of even market share or et cetera I mean?

Sergio Marchionne I think it's a difficult question to answer because I think that what you are asking is whether we're going to as part of strategy, whether we are going to retreat from the Western European arena because of the fact they were sub-optimal?

The answer is no.

I think we recognize that we are starting operations at a reduced level as opposed to '04.

But certainly with a much clear understanding on what the pricing and profitability profile of these activities looks like and so we have resized down to a level that we can support.

And I think on the back of these new product launches that are coming off stream in 2005, we can be a lot more aggressive in terms of the penetration of these s markets.

A lot of the legacy issues, some of which are probably hearsay but some of which may be in fact true which deal with historical quality problems associated with the car business issues that are vanishing.

I think we can be absolutely clear about the fact that some of our products, if you take the Panda today it is at or above Toyota quality levels.

The Croma will come out certainly at above European peer levels and the 159 and the Brera will be at German competitor levels in terms of qualities.

And I think that to the extent that these products come into the market place and demonstrate their ability to compete on quality and value for money on this basis than I think that whatever market we gain as a result of their introduction is going to be a lot healthier than it's been in the past.

Okay, thank you.

Thank you.

Our next question comes from Adam Jonas from Morgan Stanley.

Please go ahead, sir.

Hi, thanks good evening.

I have three questions; the first is on slide 8, the walk down for the quarter.

Can you tell us within that break-up of factors where you had the 40 million Euro raw material headwind?

That's my first question, and my second question would be regarding the Casse Integrazione, can you identify just isolating the temporary layoffs or the cost and what you share with the Italian government.

How much did that help in the first quarter I'm trying to just identify the what you alluded Mr. Marchionne in your introduction remarks that are there is some debate as to how sustainable these are and you said you expected that through negotiations -- I think you said a substantial portion or most of it could be sustainable but that would -- I would assume require upfront payments or restructuring costs which you had just played down would be below the 250 maximum.

So, I'm just trying to identify that amount of savings that could either be permanent or not depending on how your subsequent negotiations go.

And my final questions is on Brazil, the 41 million improvement year-on-year in the quarter is that something that I'm assuming that level of the improvement in the quarter is not -- should not be annualized.

So would it be fair to assume maybe 100 million or a 120 million of full year tailwind from Brazil and would those tailwinds be enough to offset the headwinds from India and Poland?

Thank you.

A loaded question.

You've done your homework well.

Let me try and deal with the issue of what you call that the raw materials headwind.

It says on slide 8 that the 40 million of purchasing of raw material price hikes has been totally offset but purchasing synergies or purchasing efficiencies in Q1, that's why there is no bar on the chart.

It's because of fact that the net impact of all this is zero on the quarter although we think it is going to be positive going forward between purchasing synergies on raw material price hikes.

In terms of Q1, there is no benefit in Q1 of this or because the headcount reductions were announced at the beginning of April and they were executed in the first part of May which is effectively the legal requirements here in the country.

You have to give 30 days' notice before you implement.

So there is no impact in Q1, we do expect some of it in Q2 and the rest of it in the remainder of the year.

The issue about making these reductions permanent really has to do with the fact of individual negotiations with people and the objective obviously is we've targeted the number as being the permanent number that we need to reduce by and we are going to be working very openly with our people to ensure that we achieve it.

In terms of the Brazilian issue the number that you've raised between 100 million and 120 million is not far off range.

We do expect that to be the year-over-year change.

Therefore the 40 million on an annualized basis is not 40 by 4 it's probably going to be in the neighborhood 100 million.

In the quarter for Poland, was that -- obviously that was a tough comp, was that why you lost in Poland offset by the 41?

Yes, I mean we can't exaggerate the position in Poland I think that Poland and Brazil are just by sheer size absolutely incomparable.

The Brazilian -- the -- the Polish operation that we make reference to are effectively the distribution activity of Fiat vehicles in Poland, it has nothing to do with the manufacturing base of cars.

And as a matter of fact that Polish plant as a manufacturing asset is quite a profitable asset.

So let's no confuse them because the Polish production is distributed -- most of it is distributed outside of Poland.

So when we make reference to Polish numbers, they are not production numbers.

They are distribution of Fiat cars and as I mentioned earlier decline in volume is solely attributable to the pricing pressure that we've experienced.

We are changing the commercial strategy in Poland I think a lot of it has had to do with the language transport pricing was dealt with between our Polish manufacturing operations and our sales and distribution network.

And I'm relatively confident that we'll see a recovery in the second half of the year.

Okay.

Thank you.

Thank you.

From Intermonte we now move to Massimo Vecchio. please go ahead.

Good afternoon to everybody.

I have a question on the change in working capital.

So I think to Mr. Gubitosi, the €1.1 billion you are talking about if we see your production figures for Fiat Auto you basically produce 1000 cars less than the fourth quarter of 2004 and you sold 15,000 cars less.

So I'm not really able to reconcile this €1.1 billion, also looking at CNH and see what was the impact for CNH in the first quarter.

So that's my first question.

The second question is also again on the working capital and on this 1.1 if I take your balance sheet and I try to see the change in inventories, the change in trade receivables and trade payables, I'm not able to reconcile to this 1.1, I get to 1.6.

I want to know if I'm missing something on that.

Thank you.

Okay.

Let me try to -- what we come up with the same.

Why not we start from the slide where we have given you in Fiat Auto in terms of production, okay, slide number 6.

Yes.

Okay.

So you can see there that in the first quarter we are basically from 80,000 we go -- and looking at the right hand part of the slide we go from 80,000 to 89,000 of owned cars.

So we did reduce the stock but the stock were mostly reduce with dealers.

They went down from 199 to 168.

So you see that we have increased owned stock of cars that's basically 9000 cars you see the average price that you want to put that's --

€10,000.

Then -- excuse me?

€10,000 I guess so it's a --

I mean that's --

Yes.

Then I think we -- we told you that the dealer's receivable portfolio went down by 300 million.

So effectively they are if you would have shipped the amount of cars it would have been about 300 million more receivable.

So -- I mean if you look at 199,000 and 268,000 it is basically about 30,000 cars?

Yes.

So effectively if we would have sold the same cars to the dealers, I mean if we would have the same amount of Fiat cars with the dealers, we would have more papers to sell --

Yes.

-- to that financial services company.

This would have basically add the same amount of receivables and the industrial side would have benefited by 300 million.

Do you follow me?

Yes.

So effectively with regards to -- let me get the numbers that you've got, I suppose you make -- you are making reference to the press release?

Yes, if I go to the press release it's page 15, it's your balance sheet and I see that inventories were €700 million higher, receivables €200 million higher.

Yes.

With inventories basically you have CNH build up --

Yes.

-- about 100 plus million will be Fiat Auto then you also have the fact that in the various taxis and so on and so forth these are taxis and the likes are basically having higher stocks of raw materials because their price is higher.

So that's -- that's creating the inventories increases.

Okay.

Yes.

Can you help me also to reconcile this inventory we said it's €700 million, then trade receivables were €200 million higher and that makes €900 million and payables were €700 million lower so the net change in working capital should have been 1.6 instead of the 1.1 I see on the group cash flow?

Why -- why don't you believe that the numbers are actually right and then we will discus later I'll try to reconcile it for you because I don't see how you are coming up with that, I think probably what you are missing is that the fact that we had the increased debt.

Okay.

Okay, fine we'll speak about that later then.

Thank you.

Thank you.

Our next question comes from Xavier Gunner from UBS.

Please go ahead.

Yes, I have got a couple questions.

First one is if I remember right in your conference call at end of March you mentioned that although the bulk of your discounted receivables would go on balance sheet and still be a portion which would be off balance sheet and would still be making an impact on your financial line.

The question is how much is that at the end of the first quarter.

And then the second question really has to do with your CapEx and R&D, now I think we all understand that CapEx and R&D are seasonally low in the first quarter, but CapEx at 4% and R&D at 3.2% it does seem very low, and the question is what is your budget for the full year and perhaps in for '06, and how sustainable -- what do you think is sort of a normalize CapEx figure that you need to be having to maintain your operations going forward?

Let me give you the numbers on the CapEx number for the group.

I'll pass it on to Luigi to deal with the soft balance sheet issue.

We are talking about -- these are our expectations in terms of '05, which are actually up on '04.

We expect to spend about 1.850 billion in fixed assets and roughly 700 million in R&D slightly below that number.

So it's a number that in total is in line slightly above 2004 levels and by about 400 million I mean the total number is about 2.7 billion including the acquisition of some other intangibles.

So we expect amortization run at about 2.2, that's basically the composition of the profile.

Now I'll pass it on to Luigi.

On page 22 on the lower left side you see that the amount was 1.5.

I think it was actually 1.487 trade receivables which are IFRS compliant and has not been brought back.

Is that answering your question Xavier?

Yes, that's fine.

I just -- the CapEx budget I wouldn't mind to quickly return to, because that's still pretty low and I guess the question I understand '05 isn't necessary a normal year, what you think normal CapEx as a percent of sales would be running at just for you to be able to sort of maintain -- just to carry on as you are, without any sort of further erosion of market position or whatever?

To be perfectly honest I am not sure that there is connection between -- I don't think there is any body here who is making a trade off between market erosion and capital commitment.

Actually the number that I given you of roughly 2.7 billion is phenomenally off, it does include a pretty focused investment program and also which should be close to about 1.5 billion on volumes which are relatively slightly below last year.

So I am not as negative on that number, nor do I expect that number to significantly jump.

I mean also is the biggest consumer of capital as you all know, but I don't expect that number to go above the 1.6 or 1.7 billion number going forward.

When I came here last year the initial number that I saw kept on kicking around numbers in excess of 2 billion for the car business and I very honestly am bit helpless to find how you could possibly spend it unless we had -- we change the minds and decide to have a complete different product configuration for the brands.

I don't see that going forward.

And then I would actually I mean, just to add one more issue I do expect that notwithstanding the fact that we are not going to be announcing an answer to the question that was raised earlier.

Capital infusion as result of joint venture alliances either in China and Indian I do expect that the type of arrangements that we have come up with between Tofas and Peugeot Citroën and to continue as being a way of life for Fiat Auto to effectively share the cost of development with some of the other European partners with whom we compete.

I think it's essential for the group going forward that it be able to bring down the cost of development to the point where it can make sense of it in terms of the numbers that its envisioning.

I think that one of the biggest problems that Fiat has made, one of the biggest errors I think it has made is a total over estimation of its ability to penetrate the market and therefore commit capital commensurate with that aspiration and I think to the extent that the aspiration fails, you're destroying huge amounts of capital.

So I think we're a lot more stringent on the process and nor do I feel squeamish about having pitched a number that you may consider to be low, I just think we need to be prudent.

That's right, thanks --

Thank you.

Our next question comes from Sabine Bluemel from Banca IMI, London.

Please go ahead madam.

Hello good afternoon.

I'd like to go back to your staff reductions in slide 7, when you referred to central staff headcount reduction by 30%.

Do I understand this correctly that for doing that you actually have relied heavily on Cassa Integrazione and if you have, I understand that actually there is a limit of 36 months of using this sort of measure within five years and haven't you actually already sort of taken full advantage of that, for taking your slot.

And when you are talking about CapEx and R&D could you also give us some sort of guideline how capitalization ratio of development cost has evolved between the first quarter last year and first quarter this year.

And last both impact has far been from the strike of the heavy truckers who actually deliver cars or move cars from the plants in Italy.

I see that there is actually a national level of talks announced for Thursday but how far -- how much has actually been the impact on your operation?

Thank you.

Just to deal with the first and the third question -- I think is looking for an answer to the second one.

In terms there is a question that has not been addressed, obviously we do have -- we have been impacted in the last ten days by this strike -- by truckers we deliver cars.

And one of the announcements that we made last night is that we are in the process, we are quite willing to shut our plants, certainty Melfi is one plant that would be impacted if by Friday the issue has not been resolved, it is totally due to the fact that we just have no physical capacity to try and deal with the car production and what we put and it's obviously also going to impact on our ability to service the customer.

It is an issue, which is predominantly an Italian issue because we have made alternative arrangements to try and deliver cars out of the factories by sea or by train, to try and deal with the European markets.

I think it's also important to realize that every other car manufacturer or rather one of the competitors is struck by the same issue because they just not delivering any cars whether it's ours or somebody else.

The first cost estimate that I saw of this exercise which I reviewed on Monday was that just the first week of this issue has cost us in excess of €350,000, because we have to make alternative arrangements at prices which may not have been the most competitive and certainly outside our price range.

I think that this is not the Fiat issue and I don't mean -- I am not acknowledging the fact that it is going to have an economic impact on us.

I think it is incredibly unwise for Fiat to enter into the midst of these negotiations between parties who ultimately have to resolve this issue.

It does involve government we have made our views clear in Rome about the fact that we do see -- do require a governmental intervention of this issue in terms of removing the logjam in negotiations.

It is fundamentally a tariff issue.

And it is a rather complicated issue, which I think we are taking all the necessary steps to try and move on.

I think that I don't expect this to have a significant impact on Q2 results although obviously to the extent that the strike continues on a week after week basis.

It will impact on our ability to produce and more importantly to deliver cars.

So I am hopeful that this issue will itself get resolved hopefully within the next seven days.

On the other issue that you've raised about the custody -- Fiat has historically not taken -- measure against office workers or white collars.

So your reference to the fact that it has a five-year cycle is true but it's clock zero for the people that it would be impacted on this one.

So technically as I understand the rules it could be 13 weeks off 13 weeks on and this could go until we exhaust the 52-week limit.

This central staff are white collar basically?

This is white collar because --

Yes, okay.

-- because under blue-collar staff the this stuff has been going on a rotating basis now for a quite a while we taking two weeks here and two weeks there.

Yes, no -- no that clarifies it thank you.

The other issue I think Luigi will answer.

Yes I think Sabine; you asking what was the percentage of R&D capitalize?

Exactly, whether you kept it stable first quarter '05 versus first quarter '04, which is unlikely, but how the development was actually?

In the first quarter it was -- what's going to happen in terms of capitalized R&D?

The impact is going to be much lower for the year than it was in Q --.

I didn't hear because you were cut off momentarily.

Say that again?

I didn't hear your answer, because I mean something wrong in the line, could you please repeat it?

Yes, and basically you are asking how much we capitalized in term of R&D?

Yes, please?

He is looking for the number in case --

Oh, Yes.

He is still here.

Its roughly in line with last year, there were no major differences -- 170 million --

Okay.

-- expense we were capitalized.

Okay, thank you.

Welcome.

Thank you.

Pierluigi Volini from Lehman Brothers has our next question.

Thank you, in terms of new product launches even though they are crucial to the turnaround of the auto business, Mr. Marchionne can you tell us why in your opinion the Stilo didn't work, and why it's going to be different for the Croma?

Second, for Mr. Gubitosi, given that new products are out, wouldn't it be reasonable to expect a working capital build up and so networking capital to be an absorber of cash flow on a net basis throughout the year and can you also outline what your medium term refinancing strategy is?

In other words as you face maturity of the bond market and after GM and Ford it is safe -- it is probably reasonable to assume that the bond market would not be there for you in that type of size.

Where else are you looking to raise liquidity?

On my estimates you have pro-forma for the vehicle, you probably have 8 billion of financial receivable not set the side against programs, how much of these would be potential of social liquidity by either a whole loan sales or further IBS type transactions?

Thanks.

I am going to deal with the difficult question, and I will pass it on to Luigi.

But the question about why the Stilo didn't work is a difficult question.

I -- I can only give you my assessment of what I have heard and that really has to do with the fact that the car stylistically was not good as being pleasant vehicle.

I think technically and mechanically it is a car that is quiet at par with the competitions.

Having said all this, I liked the car, but obviously it is not receiving the type of market acceptance that it deserves.

I think that the reason why I am more confident the Croma is for two reasons.

One, is because I think that we have -- actually three, I think that the extent that we have been introducing this car now with European dealers, we have received, it's only a much different reaction from the distribution network, that we -- that I understand we received when the Stilo was launched.

They like the car and they think it's quite salable, and they think it's quite comparative in terms of value for money.

The second thing is that, I think from a market standpoint, before the final design choices were made, I think it there was sufficient work done to ensure that it would receive the right level of market acceptance, so it was not the shot in the dark, it was not a mad scientist in one room trying to find out whether this car would ultimately sell, which I understand may have happened here in the past.

So I am relatively comfortable that we had significant collective will from the market place to suggest the market is going to be accepted properly.

In terms of the -- the other significant issues that in terms of quality, this car is a significant step forward for Fiat, I don't think the assessment from our people and from people who have driven the car on a test basis suggest that at least in terms of Fiat history, it is unequal in terms of performance and in terms of quality, so I -- I am confident that it will -- I am confident that it will perform well.

And in terms of your other questions, and I do not think that the working capital will be a drag, as I say to any significant level over the year, we do have that, I think that we -- we should, we have planed for the Punto and the likes and I am comfortable in telling you that we don't expect any significant impact from working capital, I didn't see -- impact, I mean 100-200 as a way.

On the other question, we do not have a strategy and before Sergio kills me, I mean we don't have a single strategy, in the sense that if you do the type of job as treasurer or CFO that looked like this year to think in terms of contingencies and multiple strategy, the other single idea like you know, I go to the bond market, and bond market is not there, you are done.

So yes --

By the way, I don't want to contradict my CFO, but the bond market is always there, it's only a matter of price.

Yes, but yes, although I think the present prices are fairly high, even what's happening over the plant.

Having said that we have multiple alternatives and as we are done in the past, we will try to make sure that you know, we optimize not only the amount of resources, but also the cost.

Because as I said, as we are looking to -- we are looking financial charges this is quite an important task for us.

I didn't say that your 8 million is not particularly wrong and --

And of those how many you know, because of quality of -- or location of the borrower, or whatever, how many of these would actually in your estimate be used as a source of liquidity?

I think this will be too specific, but frankly if there is one problem, we did not have and I don't we'll have, its the quality of our receivables.

So, I think you can consider that they all of appropriate quality and if need be they could be sold.

And you are not concern that, if you had to do so, you would be in the market for a similar type of product as at the same time GM and Ford will presumably look to do the same in massive sizes, that's not a concern to you?

I like to think we have a head start at this game, I mean they're just starting with some investment, I am sure we'll find out if need be.

Thank you.

Thank you.

Derek Ferguson from Morgan Stanley has our next question.

Thank you, just -- I am still struggling to kind of reconcile the sale or receivables within the -- specifically within the industrial division, so before IFRS at the end of last year, we had roughly 6.3 billion of off-balance sheets receivable sold, now I know that those that had recourse were then bought on to balance sheet, but I am struggling to see specifically on slide 21, which part of the 10.4 plus the 1.5 on slide 22 would in some way reconcile with the 6.3 that we had at the end of 2004?

Yes Derek hi.

Actually 6.3 you are referring to are the trade receivable, then we sold financial receivables, also which were the AVS that CNH sold and that you see now under the heading AVS, if you look at our annual report it's basically the amount was, I can't remember -- it was 11 billion last, which was about 6.3 of trade receivables and 5.2 or so of -- 5.29, if I am -- if I remember correctly of financial receivables.

So you got the traditional dealer receivables and the like that we use to call trade receivable and then the AVS, most -- which are mostly CNH launch in the US.

Have I answered your question?

If not Marcello will send you reconciliation and we will tell you the page on the annual report where we described it.

Yes, Derek we can (inaudible) on that, we've got all the numbers.

Sure, okay.

Thanks Luigi.

Welcome.

Thank you our next question comes from Alistair Ling (ph) from Deutsche Bank, please go ahead.

Hi, just have two financial questions, the first was I was wondering if you could just provide more detail about the estimated 2 billion of additional liquidity that will be provided between Iveco and Barclays that was the first question, and I will -- I will ask the second question, once you're done answering the first question.

Okay, basically what happens is that our financial services company are typically finance through treasury, for example we issue a bond and then with the deposit to Iveco.

The day in which we will have the closing or whenever that company gets the -- company get the authorization by the regulator and the joint venture, the new company formed by Barclays 51% and 49% -- the Central Treasury of the funding that was provided to fund activity.

So that's how the 2 billion or so would be received.

Does that answer your question, and you want to give me the second one?

Yes, it does.

And the second question just had to do with the sort of the last presentation that you did in the -- sort of -- that you did in March of this year, when you sort of gave your financial assets.

In addition to giving your cash, you also mentioned your 8.3 billion of financial receivables in leasing which is something you admitted to do this year, although you did discuss it with one of the -- you know, with one of the earlier questions, is the reason why you dropped this from your presentation, the 8 billion of financial receivables in leasing?

I am not sure if we dropped it, we just changed the format to accommodate better the IAS, but the receivables are still there and --

Okay, great, no further questions, and thank you.

Thank you.

And we now move to Sandra Chow(ph) from Credit Suisse First Boston.

Please go ahead.

How much did you have in available bank lines at the end of the quarter?

And my second question is on the Italenergia loan, it's 1.8 billion in this presentation, but I think in the annual report it says 1.3 billion, so, if you could just explain that please?

Yes, the reason is why its 1.8 rather 1.2 is because of IAS, we had to take back and book 0.6 that we sold to Italian Banks in September 2002.

Okay.

And, you were asking how much credit lines is unchanged from the annual report about 1.8 billion, if I recall correctly?

Thank you.

Thank you.

Our next question comes from Ricardo Ricciardelli(ph) from Banco Portfolio (ph).

Please go ahead.

Yes, good afternoon, it's Ricardo Ricciardelli from Banco Profi (ph) actually.One simple question, is there any guidance in terms of net profit you could release (inaudible) shareholders, and secondly, sorry if I came back to the difference, between the 1 billion, that you proportionately cashed in, in the first quarter and the 750 million I see in your P&L.

It looks like the 1.55 billion you get from General Motors should actually correspond to 1.1 billion, so there is obviously something;

I miss, could you help me to get it straight?

Thanks.

The transaction is scheduled to deliver 1.55 billion in cash to Fiat, for which we are giving up some assets.

We are giving up half of the planted bond; we are giving up the intellectual property rights to our JTD Engine.

From 1.9 the net gain is going to come out to Fiat as a result of this is 1.2 billion.

Okay, thanks.

Which is a pre-tax number, the cash is still coming in but the pre-tax number is 1.2 billion, what we accumulated was roughly two-third's of that number on a post-tax basis, whereas actually it is roughly 25%.

Uh-huh.

Okay.

And I will pass you on to -- to Mr. Gubitosi for the other questions.

Sorry, the question was actually for the CEO in terms of guidance of '05 net profit, I think, but if Mr. Gubitosi prefers to answer there is no problem to me.

We never give guidance on net profit, I think -- and I don't want to change the rules now.

I think we were very clear on operating margins, I think Mr. Gubitosi was very clear also about the expected interest charges coming out as a result of the conversion of the convertendo and I -- I am not trying to be pedantic but probably one could reconstruct the number if one had to.

But to the extent that I have not given guidance on net profit before, I don't want to do it today, but its relatively easy numbers to reconstruct especially since we know all the one-offs.

Thanks.

We will take the last two questions, please.

Thank you.

The next question comes from Sergei Escude(ph) from UBM.

Yes, good afternoon.

My question is about the pricing you are giving on slide 11.

You are giving that recovery on the pricing of €265 million.

Its a net between the old and new models, can you please give us a split between what you think to recover on the new models and on the other hand, what you think to be a net loss on pricing on the old models if its possible?

I don't have that information available, and I think it will be incredibly unwise if we gave it out.

I can only tell you that I think our pricing power in terms of the old models, especially on the run-off items is significantly hampered.

I think that the real issue and I think we are experiencing this now; we are experiencing this especially in terms of the 156, with the 159 and Alfa side coming off stream and so forth.

The pricing usually here is also not as a large number.

The Brazilian impact of the -- as you can see on the right hand side, that we do try and indicate that the size -- the origin of the elements.

When you add up the numbers on the right, you should end up with 265 on the second bullet.

What it does say is that because of the change in distribution strategy, we should be able to improve our used-car performance significantly.

I can tell you that as a result of all this, we have been able to achieve roughly 20% or 25% of that number already in the first quarter of this year.

So we are relatively comfortable that the pricing issue is going to -- the pricing aspirations are going to be met, I don't think it involves a significant shift in pricing of the older range, and I think hat the new ones are going to be priced and are being priced in a competitive framework.

So in margin, retention against the original CapEx investment is being maintained and in some cases being improved.

So, I don't think that -- that there is anything significant in terms of the pricing strategy for Auto that we are carrying on.

Yes.

If I may, on the old Punto, that is going to be on the phase out for the next month, they should be normally as an old model, there should be a significant impact on prices.

Are you not expecting that to be negative on the -- at least until the new one would arrive, there will be no offset to the end of this -- this year on that?

I think that -- the prior strategy on what you call the old Punto and the new Punto has been -- has been about assembling.

The old Punto is going to continue to run till the end of 2006 or will continue well beyond the introduction of the new Punto, because the two cars are structurally different.

The new Punto is a much larger vehicle and in terms of contents and performance it is significantly different than the old one.

The old one is -- it has started already going through a very thorough process of versions rationalization.

It will ultimately and hopefully by June will be stripped down to one single version which will be called the Punto Classic which is going to be carried out through the rest of 2005 and all of 2006, there will be no other versions of that car being available other than a very restricted number of options on one basic car.

And the whole objective here is to ensure that the cost of the vehicle itself.

What price?

I am sorry?

What price, this classic would be?

I have no idea I am the wrong guy.

But it is significantly lower than the new Punto coming on stream, and I think that Mr. Ledda can provide you with the information, because at the Geneva Auto Conference, he did indicate the pricing differentials between the two.

So I will make sure that he sends it on to you.

Okay.

Thank you very much.

Thank you, that concludes today's question and answer session.

Gentlemen, I would like to turn the call back over to you for any additional or closing remarks.

Well, thank you, very much.

I just want to deal with the GM issue for once, which I wasn't able to clear effectively.

I know there has been some speculation in the press about - on the likelihood of the willingness of this transaction to close on the 13.

I can tell you that I have reviewed the issue as recent as last night and we have now agreed all final documentation and we are in the process now of compiling all the necessary schedules to get it done.

I think that it was a significant feat for Fiat and GM to get this done in 90 days.

I think it's reflective of a willingness of both parties to continue this commercial relationship on a subtle basis.

The Head of GM Europe, Fred Anderson, and I have been together with our team and we have been working over the issues and I do not foresee any stumbling blocks in terms of this deals closing on Friday as expected.

So, if that's any comfort to any of you, rest assured that I don't see impediments to the conclusion of the GM saga.

Well, thank you very much to everybody for following this call.

If you have any additional questions, you know where to find us, we will be available to answer all of your questions, thank you very much.

Ladies and gentlemen, that concludes today's conference call, thank you for your participation.

You may now disconnect.