Stellantis NV (STLA) 2005 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to today's Fiat third quarter results 2005 conference call.

At this time I'd like to turn the call over to your host today, Mr. Marcello Ledda, Head of Fiat Group Investor Relations.

Please go ahead sir.

Good morning and good afternoon everyone, Marcello Ledda, Head of Investor Relations at Fiat.

Welcome to Fiat's third quarter conference call.

All material that will be presented today is available at our website or it's been sent to you.

Today's host will be Mr. Sergio Marchionne, our Chief Executive Officer.

As usual for any forward-looking statements you might refer to our Safe Harbor Statement, on our 20-F filed with the SEC.

We understand this is a busy day for most of you as some other competitors are reporting today, so we'll start immediately by giving the microphone to Mr. Marchionne.

Thanks and welcome.

If we just move on to slide two, and I'm not really the person to try and describe virtues, explicit or otherwise, of our new logo.

I hire people to do this on our behalf.

I actually like the logo quite a bit.

I think we've issued a press release to try and explain why or what the logo stands for, going forward.

I think we've had the old one in-house now for over 40 years [indiscernible].

I think it's time to break with the past, and I think it does give a slightly more modern look to our activities going forward.

So I leave to other people to try and describe it.

I think the information is on the website, isn't it, as to why we have - as to why we have changed.

I'd like to spend some -- the bulk of my time talking about Q3 and the rest of 2005.

So if you move on to slide number three.

As you may very well know, Q3 is traditionally not a strong month in terms of volumes, it's plagued with seasonality issues.

But we were able to grow top line by about 2% up to €10.6b.

More importantly our trading profit jumped €262m from a loss of €30m, and auto losses were slashed by almost two-thirds down to €85m gross for the quarter.

And we'll come back to this in terms of full-year guidance [on the issues] going forward.

We have had a relatively decent success with the launch of the new Punto, and we'll talk about the other cars as we go forward.

But we're relatively satisfied that the launch has gone well.

Most of you know it is a large portion of our automobile portfolio as of volumes.

So the success of the car is crucial to our ability to make targets in 2005, and certainly going forward in 2007.

Net income was about €800m for the quarter.

We took some pretty hefty restructuring charges which I want to talk to you about in more details, as we go forward, of over €0.4b.

And we gave, if you were to pro-forma our results, for the quarter on the assumption the conversion of the mandatory convertible happened on July 1 of this year of the Italenergia loan was paid off.

And we did not have any of the one-off items, both in terms of gains and one-off expenses such as restructuring costs and write-offs, on a clean basis industrially.

We ended up making some €14m in net income compared to €35m in Q2 of this year.

It's an important number for us, not because of its size.

But because of the fact that it indicates clearly that, once all the one-off items have been taken off, and recognizing what has effectively already happened in Q3 in terms of the conversion of the mandatory convertible, and the repayment of the Italenergia loan.

Fiat as a group is capable of generating a positive number on the bottom line, and that's really the basis on which we intend to build what is going forward. [Certainly] because of the fact that one-offs gain are not in the current.

I think we've played off all the unresolved financial issues over the last 15, 16 months.

I think we're left now with an industrial reality to be managed.

Net industrial debt was below €5b at €4.7b, now have a debt-to-equity ratio of 0.5:1, which is well in line with our expectations.

And it certainly is, as we will see in a few minutes, it's a substantial improvement over the position at the end of December of '04.

And I think we're confirming guidance for '05.

Those of you who have dealt with me in the past, I'm not in the habit of giving targets mid-year here.

I think we will tend to stick to '05 guidance until the year is concluded, and we will reaffirm or modify '06 targets after the closing of the year, which is expected to be announced on January 26.

Page four, with an operational update on the car side.

We have cleaned up the product cycle planning for the car side.

We have some very clear ideas about what we will make between now and 2008.

We have worked pretty aggressively on what we stated, post-resolution of the GM issue, as being the future for the car business, which is a mix of targeted alliances.

We have signed the MoU with Ford in connection with the production of an 'A segment' car.

Have agreement in terms of CKD assemblies in Serbia for the Punto.

We have an important memorandum of understanding with the Tata Group in India, which we'll be working on over the next few months to try and give it some substance.

Both in terms of our Indian car operation, in terms of other areas of co-operations both to the industrial side -- industrial vehicles side, and perhaps in areas which are more relevant to CNH, not to mention engines.

We have had, as I said or we said, a relatively decent success with the introduction of products.

The Grande Punto was launched in September.

It's being rolled out through Continental Europe in Q4.

Our first indication, post launch of the car in France, relatively good.

Our first day of launch we sold over 1,000 cars of which -- over half was the new Grande Punto and the other half were the old Punto.

So the -- our strategy of maintaining both products in the marketplace meeting with some decent market success. 159 for Alfa was launched in the second quarter of this year, but it's been rolled back commercially at the end of September.

And we -- we're going to have watch the sales of this car as we go forward.

Early indications are that they are reaching the target market as we expected.

We did take a restructuring charge of €120m to deal with the car business, which is intended to remove what I call the remaining portion of the reshaping of the governance cost side of the business.

And hopefully we're done with the business going forward.

On the non-Auto side on page five, as we threatened to do in Q2, at least on the conference call, we have begun to action the performance issues in the other sectors.

We're pretty satisfied with some of the progress that has been made across the other businesses.

I do think that we need to rebase these activities, to try and tackle the 2006 and 2007 targets that we set for ourselves for these businesses.

Which are a distance away from where we are currently running, in terms of operating margin performance.

So, we've taken a charge of roughly €299m against these businesses.

The total number of people impacted by this reshaping is in excess of 7,500 people.

We confirm that we will not be closing any plants in Italy, as we stated publicly both to the unions and in other occasions.

The reshaping of these activities will happen in -- across the global reach of Fiat.

Not only a European issue, it will impact on the U.S. and it will impact in other parts of the environment, and it will impact all the sectors which are under our jurisdiction.

So I'll bring in the component side which has identified areas, trying to both lighten governor structure of the business and to bring about operational improvements.

This is an activity that has been carried out with some intensity in Q3, because of the fact that we need to action these objectives, certainly within the next six months.

And hopefully as much as we can will be done before the end of this year.

Move on to slide number six, it deals with revenues and trading profit.

We've had and we're pretty satisfied with the results, we're up across all businesses.

The -- there's not a single sector, I would say, that we are disappointed with in terms of performance, and we -- and as we go through the description of the business performance we'll make that clear.

But I think at Group we're relatively satisfied that we were able to move performance, from a negative €30m to a positive €232m in the six months -- in the third quarter of this year.

And if you move on to slide number seven, there's a whole pile of detail here about market shares which is probably -- just reinforces a couple of fundamental points.

I think that the issue about the clean-up of the distribution channels and also is probably over.

And I think we have done all we can to try and take out what I call bad practices out of the distribution of commercial practices of the Group.

We may have hit the low point in Q3 in terms of market share presence in Europe.

Our indications coming out of the September month in Italy was encouraging.

We broke the 28% mark which is positive.

We, I think, are bent on making sure that we now re-establish, in a sensible way, our presence in Western Europe.

The light commercial vehicle side is -- continues to perform strongly, with over 40% market share in Italy, over 10% in Western Europe.

And it's really paralleled our position in Brazil which has done well, not only in light commercial vehicles but also on the car side, where we continue to maintain market leadership of three quarters running, the market share of nearly 25%.

So it's -- The chart itself, although it shows some negative deviations against '04, in terms of market share in Western Europe, it does represent the completion of a cycle of market contraction in terms of the Fiat car business.

We do hope that we can build from this position going forward, and certainly we're supported by this by the product launches which we have made reference to, and to the ones that will be coming in in Q4 of this year and Q1 of '06.

Moving on to slide number eight, I think that the biggest drop obviously has happened in terms of our Fiat brand, by brand.

The other ones are clearly understandable, both in terms of the Lancia drop which is not large in terms of absolute number, but in percentage terms it is significant.

I wanted to make sure that we spent a huge amount of time, making sure that this brand was not negatively impacted by unwise distribution practices.

It is probably the brand that has benefited the most from the discipline.

Fiat -- the majority of the drop has happened outside of Western Europe, and understandably so as I made reference to in earlier calls, I think we're done.

The big issue that we face going forward is the management of the Alfa product range.

Although some of the numbers that we've seen come out in the last two or three months are understandable, in view of the launch of the 159 and the Brera.

And the Spider coming in the latter part of this year and early part of '06.

It is clear that we need to be very, very careful about how we manage the phase-out of some of these products.

And how we reposition, certainly what I call the bottom end of the product range, effectively.

We have spent a lot of time with the leadership of the brand for the last seven to 10 days, to review the progress that has been made in this context.

So I think that we will be in a position to come into the market at the early part of November, with a very clear positioning statement for the brand.

And a positioning statement in terms of the brand -- of the products themselves, including our recognition of perhaps the 147, which is the low end of the range, needs to be able to tackle Volkswagen is the main target.

There has been certainly and undue, and perhaps excessive, desire to try and take on BMW as an effective competitor, which I think is a fair game.

But I think it's much -- probably much more relevant for the 159 and the Brera going forward, than it is for anything else in the range.

So the 147 is being repositioned.

We've worked a lot, I think, on the content of the car, the pricing of the car in the marketplace, and I think we will be able to see some benefits of that strategy in the latter part of 2005 and certainly in '06.

Brazil has had a great quarter, up 9.5% in terms of volumes quarter-over-quarter, quarter '03 -- quarter -- the third quarter of '04 against the third quarter of '05.

And that's obviously had a huge impact on our ability to post the €85m loss that we've had.

We'll tell you more about this as we go through the profit and reconciliation in a moment.

We're going to go on to slide number nine.

I think we have been disciplined about production.

We've had the lowest production quarter that we've had in a long time, at 378,000.

That's allowed us to keep inventory levels in check, both at Company level and at dealer levels.

We feel relatively comfortable that we do have a much cleaner inventory position inside the organization.

And I think that makes us comfortable that we can enter the next quarter's product launches, without having to worry about backlog of unwanted inventory.

Probably the slide that interests most of you is the one on slide -- is the one on page 10 which is the profit reconciliation.

Mix has benefited us by about €50m, which has offset most of the impact on negative volume.

Other than obviously the under-absorption of plant level, which together is nearly over €100m, and which obviously is an area of concern.

378,000 vehicles in the quarter is a volume which is going to cause a substantial impact in terms of our absorption capabilities, fixed costs throughout the industrial footprint.

As I mentioned earlier, this is the probably the lowest level I foresee going forward, especially in view of the products that are in the pipeline.

Our discipline in terms of distribution channels is beginning to pay off.

We've been able to command better pricing in our market -- in the marketplace, and we continue to work away at all the other areas which impact our cost structure.

So we've good success in purchasing, continue to take costs out of the SG&A side.

The refocusing of research and development has allowed us to save another €51m.

And altogether we've been able to shift a couple of hundred million bucks in profit from the Q3/Q4 to [Q5].

€50m of this improvement is due to [plus] numbers, and so the rest of it has come about as a result of our management of the Western European operations.

If you go to slide 11, this just summarizes the nine months and the full year '05 target.

I keep on reiterating that the full year '05 target, in terms of the size of the bar charts and the areas in which we've identified them as occurring, are broad indications of intent.

Our objective is to try and deliver the €370m loss.

The target is 1.5% negative margin for the year, and we will -- we do confirm our commitment to deliver that number, with the loss accumulated to date of €302m.

It isn't -- you don't have to be a math genius, to figure out that Q4 of this year is going to have a loss around €20 to €25m, in order to make the number for the full year.

So that's -- our objective remains unmoved, and I think that we'll manage the process pretty aggressively over the net 60 days, as we're already at the end of October.

I think the strategy in terms of product launch, if you look at page 12, in terms of our own internal forecast other than the time of launch or at previous points in time of the history of these products, was to focus at the low end of the products -- of the contents of the products.

We've been able to move most of our customers upscale, and this movement has obviously benefited the organization in terms of margins.

This is certainly true in terms of the Punto and the Croma.

The Croma effectively is selling for the most part in the upper end of the range, and similar experiences are being had with both the Panda and the Punto.

I'll just spend a couple of minutes on CNH.

I know that there was a conference call yesterday by Boyanovski for the public markets, in terms of its Q3 results.

I'm not going to belabor the point.

I think that we -- it's clear that the Ag market has been relatively stable, quarter-over-quarter.

We've had a significant increase in construction demand which was up 13%.

The Ag market has, I think, hit rock bottom in Latin America in Q3.

I think we probably have seen the worst of that, the market retrenchment, and we do expect volumes to move up from here.

The most important thing about this business going forward, is that we've accomplished two things.

One, following the level of dissatisfaction with the progress that we've made in this business, we have unbundled the brands sitting inside CNH.

We have appointed four global heads, who are the probably the best commercial people that we have inside this organization.

Not only inside CNH but probably at Group level.

Trying to really position these brands effectively in the marketplace.

They will have full P&L responsibility, and in all ways this organization does mirror what's gone on in Alfa.

With the people being responsible for P&L but not being responsible for production of the development process of the products.

We have brought in some outside help to get us to understand much better the profit gap, performance gap between ourselves and our competitors.

I think there are number of things which are becoming clear to us about what needs to be done forward.

We've already booked a relatively substantial restructuring charge in connection with this business in Q3.

Which relates to both a realignment of the governance structure of the business, and a rationalization of our manufacturing footprint.

We reiterate the fact that no Italian plant is impacted by this, but I think it is crucial that we get this done as quickly as we can, in order to allow us to face '06 with [higher] cost structures.

The issue about our inability to manage the purchasing side of this has come back on Q3.

If you look at slide 14, we're negatively impacted by €63m, those are raw material price hikes.

The market has been kind enough to allow us to pass on these price increases, and so overall the quarter has been a decent quarter.

But I think it's a reflection of the benign nature of the market, as opposed to our ability to aggressively face both cost structures and competition.

Iveco has had -- on page 15, has had a great quarter.

They had margins of roughly 5%, they're decent volumes, our backlog is sound.

The introduction of the Stralis at the higher end of the product range has been successful.

And I think we feel relatively comfortable that we can look at the rest of the year confidently, and certainly in '06.

In terms of both volumes and performance look in line with our own internal aspirations.

And this is clearly evident when you look at slide 16, which is the trading profit reconciliation.

There are no big swings year-over-year, other than fact that we've been able to move all the categories, including price, manufacturing efficiencies, a reduction in R&D, and an improvement in SG&A, up.

It has allowed us to take the profits up to €102m for the quarter.

I'm not going to spend a lot of time on slide 17.

This is a pure reconciliation of trading profit down to a net result of €826m.

The unusual items net are €177m - I think there is a chart that explains them which is the next one.

So we'll -- I will fly over the €177m.

But we have had the non-recurring financial income of €858m, which is the required income improvement as a result of the adoption of IAS39 as the common standard.

And the tax line of €210m includes some one-off items which we'll talk about in a moment.

But overall it's been a decent quarter, certainly €1.2b over 2004.

So structurally it's a significant step forward.

Page 18, we try to provide a reconciliation from the €826m reported down to the €14m, which I made reference to as being the industrial carrier of the house without the one-offs.

The gain on the mandatory convertible is €858m.

We've had unusual items before tax of €177m, and that's the net result of the gain on the sale of our energy interest of €881m.

Restructuring charges of €420m which have reduced that number.

Another unusual charge is the €284m which encompass a compendium of other charges, relating to -- some of which relate to the finalization of the product range we have had.

And therefore, the write-off of some assets that have been carried forward, relating to the development of cars that will never be made.

So cleaned up the Fiat Auto business portfolio now, as a result of the announcement of the new product plan on August 3.

And this represents the final phase, I think, of a reshaping of the car side.

The financial charges are relating to the Italenergia and the mandatory convertible loans were roughly €74m for the quarter.

We've had -- made other adjustments, probably the biggest one is the €99m in terms of tax adjustments, resulting from prior period adjustments.

All these items have surfaced in the last quarter, and relate to a variety of items, including transfer pricing matters that go back to 1997/1998.

I think we're relatively comfortable that all of these have gone now.

I think, in terms of identification, we're down to a €14m net for the quarter which is a good start, I think, on which to tackle Q4 of this year.

If you move on to slide 19, it tells you roughly what the breakdown of these charges are. €120m relates to Fiat Auto, and €77m is CNH.

Roughly €100m is Iveco and the other sectors have absorbed over €126m of the €400m of restructuring.

The cash impact of all this is €150m in 2005, with the remainder to be paid out in 2006.

Hopefully most of these cash payments will be made by then, but if we don't I think we'll just be dragging out the pain for an unnecessary period of time.

Unusual charges of €284m, half of them are non-cash.

But we are, I think, we've come to grips with the last issue of Group suppliers problems.

It's only going to require €120m.

As I made reference to earlier, I think we have cleaned up the platform of product [palette] going forward.

So that's going to require a write-off of €140m, not only in Auto but across the businesses.

And we've got €20m of charges that relates to a prior year's disposal, it's a final adjustment.

I'm going to shut up here and pass it on to Mr. Francescatti, who can talk to you about cash and liquidity.

And I'll come back and deal with outlook.

In terms of cash flow, we have here costs relating to change in net industrial debt, which is -- we use in terms of financial exposure.

We have in passing in Q3 from €9.2b to €4.7b.

This, of course, is largely affected also by the Italenergia transaction closure and the mandatory convertible.

As you can see, we have a change in funds another €1.2b.

This includes also a capital gain due to the conversion of the mandatory convertible, for €160m roughly, and the capital gain on Italenergia of €480m.

Both items are taken into consideration in the bottom part of the cash flow.

Therefore, we are accounting for €153m of cash flow from operating activities.

So a positive close in the quarter which is positive.

In fact in the third quarter, which has a seasonal weakness typically in this business.

The remaining fact in change in investment -- in investments from scopes and others, the large chunk is due to Italenergia which accounts for 1.8 -- 1.7 -- €1.750b.

And therefore, we have an overall change of €4.5b in the quarter. [In effect] are you can consider also for the nine month year-to-date, therefore we have a €4.8b overall flows in the quarter, and €1.8b in -- sorry, in the €900m in change of [indiscernible].

So you have many facts that we have been mentioning earlier.

And in the changes in investment and scopes, the largest part is due to Italenergia again.

If we move to slide 21, we see that the net industrial debt which is the key driver we are using, have moved therefore from €9.1 to €4.7b.

This includes, of course, the roughly €4.8b due to mandatory convertible, and the financial transaction.

This is also the effect of €6b of cash in hand and, as you can see in the following chart.

At page 22 we have the usual split down of the gross debt, and where you can see that cash maturities have moved from €15.1 to €14b.

Basically due to a reduction in the capital market exposure, due to repayment of bonds in the quarter.

The banking business is at the same level as at the end of June, and seen that level also for the securitizations and the sale of receivables transactions.

Non-cash items, of course, have -- none relevant any more after the transactions we have been talking about.

So gross debt has reduced to €25.5b.

At slide 23, we can see that in terms of cash maturity, the €14b compares to a €6b of cash in hand, and the same amount is the amount you will end the following 12 months.

And for the rest, I think, the slide is self-explanatory.

Slide 24, what we have performed for a while now becoming -- has now become actuals.

And, as mentioned earlier, net debt -- net industrial debt to equity has moved down to 0.5:1.

You're done?

And just deal with 2005 outlook.

I think we confirm targets you see on slide 25.

Auto being a negative 1.5% of a new CNH 6.5% operating income.

Iveco in excess of 4%, on the back of a very strong quarter in Q3.

Components are on the 3% mark for the year.

We just move on to slide 26 and, yes, add some flavor to the comments on the other side.

I think we're relatively happy that we've reached this level of performance this far, in the reshaping cycle of Auto.

I think €85m, certainly a number which is -- certainly was below market expectations, in line with our own thinking.

But I think that the fact that we've been able to deliver is further proof that turnaround is beginning to bear fruit, are cautiously optimistic about the future.

I think that is way too early to tell whether the car business is -- I think that we feel comfortable the commitments that we've made in terms of the targets for '05, '06, and '07.

But I think it does remain a difficult turnaround.

Especially Q4 is going to be difficult, as we manage transition from the old product range to the new one.

We are, and we need to be really careful in terms of the management, the distribution, and market penetration strategy information to make sure that we don't unwind intentionally any of the results that we've obtained, by the discipline and rigor which we've approached our commercial strategy.

Alfa remains the single largest issue that we face going forward, as a brand.

I think that, although we're benefiting from the history of a great brand, from a market positioning standpoint, learnt from our ability to compete effectively against our relative competitor class, it is the one that poses the greatest challenges.

We are very comfortable that's what coming forward out of the pipeline, and what's coming into the marketplace over the next six months is both of sufficient quality and technical advancement to allow us to place these markets -- place these products effectively against the competition.

But I think it's going to require a huge amount of work and discipline to ensure that we don't waver in terms of the positioning of the brand, and that's going to require quite a bit of work.

I think on the very positive side, is the fact that we have now tackled the other sectors.

I think that the issues found to be dissatisfactory, in terms of performance of those businesses and the achievement of the targets in '06 and '07 has been tabled.

The restructuring charges that we've taken in connection with these businesses are indication of the factor that we're damned serious about getting - about getting in time quickly.

And so these are very short-fuse items, in the sense that the restructuring can happen relatively quickly.

And we should see the benefits of the reshaping pretty quickly in operating margins, certainly within early part of '06.

It's been a great quarter for us.

I think that it does reflect the completion of a number of initiatives that have been undertaken, including the elimination of all pending financial matters in front of the house.

None are left, they are all resolved to our satisfaction.

And I think more importantly, we've accomplished two things.

One, I think we've proved our ability in -- to significantly reduce the exposures in the car side and, secondly, we're now moving on to the other sectors in a pretty aggressively -- pretty aggressive way, to ensure that we can meet '06 and '07 targets.

So that's the message, and I think we'll answer questions but I'll pass it on to Mr. Ledda.

Yes, we can open up for questions now.

Thank you. [OPERATOR INSTRUCTIONS].

We will take our first question from John Lawson of Citigroup.

Please go ahead.

Thank you and good afternoon.

You've obviously used the opportunity of some quite big gains to book also some quite big restructuring charges.

And the focus of these seems to have shifted somewhat from the original expectation.

You're telling us effectively that the non-Auto ones are much larger than originally expected.

By the same token, Fiat Auto looks significantly lower.

Has there been a big change in your thinking here?

A cynic might also say that you have these other unusual charges, which appear to also package you up something which would not be that distant from a restructuring expense.

You're now speaking in philosophical terms, John.

I did not understand the last part of what you said.

What are you -- I'm trying to do what?

Well, has there been a big -- have you found -- you've charged €121m for Auto, and I think originally we were looking for something up to €320m, and that's correct, isn't it?

That was for the year.

For the year.

So you've also told us you're not going to charge any more in the balance of the year, I think.

Perhaps I misunderstood you.

Let me tell you how much we've taken on the other side for the period.

We have taken €162m for the Auto sector for the nine months, and that number pretty well represents the restructuring charges.

And if you include the other unusual expenses that we've had in terms of the Fiat Auto platform rationalization, and the results of the production reallocation, we're talking about an additional €141m.

In total that's roughly €310m which is guidance that we gave.

So that number is not out of what we originally indicated.

It's in the neighborhood of what we said, it's probably about €10m light but it's in line.

If you're concerned about the fact that we -- the size of the restructuring charges in the other sectors.

It is -- we have been pretty clear about this, and we certainly were clear on the conference call on Q2, about the fact that we were not happy about the performance of the other businesses.

That we thought that we had to realign the organizational and cost structure associated with these businesses, to bring about the results in '06 and '07, and we've done that.

I think that we've tackled those issues.

They've been -- now that we've had the capacity, not only from a P&L standpoint, but we had the management capacity to tackle on the issues, the issues have been tackled.

I wouldn't -- I would not read anything more nefarious than this on the timing of these charges, other than the fact that we got them done, we got them done now.

We can't walk into '06 without these issues being resolved.

Okay.

No, that perfectly answers the question.

Your automotive production is a big swing factor here, in terms of what went wrong in -- or the things which were negative in Auto in Q3.

It was all under-absorption.

Do I read you correctly in thinking that you're expecting fourth quarter production to be pretty much in line with last year's fourth quarter production at Fiat Auto?

The answer is -- the answer in broad lines is yes.

We do expect -- we're obviously expecting improvement of production, simply because of the fact that the products are coming forward.

The impact of this absorption on numbers is not -- we've got to keep -- I keep on focusing on the issue of market share.

The fact that we do not want to pollute the distribution channels process.

So we continue to watch market share gains and positioning continuously.

I don't want to walk into this process at the end of the year with a glut in the distribution channels, I just don't.

So -- but we do expect it to be certainly better than Q3, and probably in line with '04.

Perfect, thank you.

We will now take our next question from Martino De Ambroggi from Euromobiliare.

Please go ahead sir.

Hello and good morning to everybody.

I have a question on the results of Fiat Auto.

You mentioned in Q2 results conference call that Brazil contribution this year would have been €150m.

Considering the trend in Q3, considering the revaluation of the currency, are you still confirming this?

It seems to me that is probably too low and it's inevitable.

So I understand you don't want to change the guidance but your target for Fiat Auto, a loss in 2005, is for sure probably now even conservative.

That was for the first question.

The second is on net debt.

Probably for sure you are confirming that target in the region of €4.4b that you gave.

And I'd like to understand what is the working capital effect you expect in Q4, considering that it hadn't any contribution in Q3, or very small?

I'll let Mr. Francescatti answer the question on net debt levels, but let me deal with the issue of Brazil.

It was difficult, and it is difficult, I think, to try and gauge.

I gave you the best estimate in Q2, and if I remember correctly, I gave you an estimate of between €100 to €150m in terms of contribution on the capital.

It's a difficult to say where Q4 will be because we did have a relatively decent quarter last year.

But year-to-date we're about €140m loss year-over-year in Brazil, if we include the first nine months.

I prefer to wait until the year closes to try and make comments on that issue.

I -- we're a bit gun-shy about making predictions.

But I think -- certainly our indications are that the success of Brazil will continue unchanged the rest of '05, and certainly there are no indications that '06 will be any less.

But I preserve -- I prefer to tackle that issue after we close off the year, and maybe that will be conservative.

But I know what's in the bag so that's a good number.

Okay.

Now I'll get Mr. Francescatti to give you an answer on your --

In terms of net debt, the target that we gave is probably still valid, eventually slightly more on the positive side if you want.

And the working capital should actually contribute for larger amount than that, and we will have some absorption of the write-downs.

Sorry, I didn't understand.

So you see further absorption of working capital in Q4?

Working capital will be generating in Q4.

A movement in net debt will be largely due to working capital.

Okay.

There was a part of your question which I've been told I avoided, which was unintentional, and it has to do with the fact that we're being overly conservative on Q4 for Auto, and therefore the whole year.

I go back to what I stated originally and that is the fact that I don't move targets mid-year.

I think we need to finish the year.

This is -- if we can get to the number of €320m, it's €0.5b improvement over '04 and that's not inconsequential.

This is a business that most of you did not believe could be turned around five months ago.

I think that we need to live through -- we need to live to the final quarter to prove the fact that some of the things that we've put in place are beginning to pay off in -- I'm not trying to discourage any type of imagination on your part about what Q4 will look like.

But I prefer that it's your imagination and not my commitment.

I think the commitment is €320m as a loss for the year, we'll stick to that number for now.

Okay.

Thank you.

We will now take our next question from Thierry Huon from Exane BNP.

Please go ahead.

Yes, good afternoon.

It's Thierry Huon speaking from Exane BNP.

So I've got two question.

One is about the MoU with Tata.

Could you elaborate a little bit more on that and what you intend to do, especially on the Auto side?

And the other question is about the dealer network outside of Italy.

Don't you think that in some large countries, as France and Germany, you have now a critical mass problem, as your market share is quite thin?

And if you want to be successful in those countries, you have to have a sufficient dealer network to apply your products to the market.

So how could you deal with that?

Thank you.

Well, just to deal with the last issue.

I think that we have not lost dealers or distribution points in any of the European cities, the European countries that we had a year ago.

So if we were able to penetrate the market with the same level of share that we had back then, with some bad distribution practices.

The same dealers are structurally capable of selling products which, I think, are probably much more competitive than we've ever had in the Fiat range.

So I'm not concerned about re-establishing some level of penetration.

I think that the issue about extending the penetration is on the table, and therefore it does, and it is going to require that we close all the open points we have, and in an effective way going forward.

But for the target for '05 and '06 does not -- in our head does not include a significant expansion of our distribution capabilities in Europe.

It's undoubtedly true that for us to try and reach satisfactory levels of sales, that we'll have to invest, go find the resources and build in that network.

But I think we have enough time over the next 18 months to get that done, as the product pipeline fills.

On the Tata side, the agreement with Tata was a very -- was both general and broad in range.

I think that it will have as its primary objective in the immediate future, the resolution of our Auto activities in India.

And in an ideal world would find some ways of effectively co-operating, both on the manufacture and distribution of products, and we'll be down there with our people in November to try and move the discussion on.

I'm encouraged by the early signs that we received from our potential partners in India, for what can be structured.

And hopefully by the end of the year we'll have a very clear idea on how this development strategy will pan out.

The issue about what else is involved in the Tata relationship is something that needs to be filled out.

We have certainly mobilized every other sector inside this organization, ranging from the commercial vehicle side to the engine side.

I'm sure there were ways to deal with any proposal that they may bring forward, and certainly there have been initial indications of the fact that there's scope for co-operation, which extends beyond cars in an effective way.

We do see them as being a viable partner for the Group across all of our activities, and I think we're going to be working on this over the next six to nine months to bring it to fruition.

Okay.

But we -- could we assume that it's going to be a one-way agreement?

I mean by that, that Fiat will have access to the Indian market but the reverse will not be true.

We don't have to expect that Fiat might sell some Tata products in Europe?

I think it is unlikely that that will happen.

Thank you.

Highly unlikely.

We will take our next question from Adam Jonas of Morgan Stanley.

Please go ahead.

Thanks, good evening guys.

First couple of questions are pretty simple, I think.

The timing of the Serbian CKD business.

I believe the full year target was 10,000 units on a full-year basis.

I presuming that you can do that in 2006 but when does that begin?

And if you could just answer that first?

We're checking that out.

I don't know if I [inaudible - over speaking] go on to the second one.

I'll move on to second.

The Ford sub-compact MoU in Poland.

Assuming this goes ahead, what type of -- well, first, will this involve a cash investment or is it just utilizing an asset, your asset?

If it does involve a cash investment, what order of magnitude and/or timing can we anticipate?

And then the finally, just on Alfa, you're clearly trying to get us to think that there's a major realignment that is needed, we understand that.

Perhaps you can shed a bit more light on what has changed in the past couple of months?

Has something changed on the outside in terms of competitive, dynamic in the luxury, near luxury, segment that you're seeing?

Or are you -- or is this really meant to be a pre-emptive measure to maximize the potential of that brand?

What's at base or what's the strategy or are you -- is there anything can you possibly say at this point?

Well, let me deal with the Serbian issue.

We are talking about 2007, and the range is 20,000 to 30,000 cars.

It will have no impact in '06.

The -- or very little impact in '06, so I would ignore it for purposes of our analysis.

The issue on Ford.

I can only tell you broad lines of the agreement, and I don't like going into details.

Because, one, the issue is not -- the MoU is an MoU and we haven't got a definitive agreement.

But fundamentally the objective here is to allow -- is to share the cost of development of the vehicles in question.

So our Fiat Cinquecento and Ford Ka, to the extent that they're -- to the extent that there's an x amount that's required to develop the car, will be shared across ourselves and Ford.

And so it is totally in line with our main objective of minimizing the risk associated with investments, other than in platforms or in particular models.

And it does bring the economics of the investment in the Fiat Cinquecento down, at least from a risk profile, to a much more acceptable level.

It is a model that we intend to develop further.

It is a model which does not entail the co-ownership of any other assets, other than the development of the models themselves.

So I don't read anything into this other than a co-sharing of investments.

I -- it is in that sense dissimilar from the relationship we have Peugeot Citroen in the production of light commercial vehicles and vans.

Because there we do have close on 50% ownership of the respective plants.

That will not happen in the case of Ford.

We have run the economics, we've looked at them again today.

It is something that obviously we want to do.

The case for the Fiat Cinquecento stands on its own grounds.

It doesn't mean -- the answer doesn't need the Ford investment or co-sharing of the investment to make it a viable product.

We prefer to do it obviously because I think it's for the benefit to both ourselves and them.

The Alfa issue is a more complicated issue.

It has to do with the fact that I think we have been very, very focused on the movement of this brand to the upper, what you call the luxury end of the market.

I call it the upwards support vehicle range of the market.

And it's almost been a single-focus event which has recognized BMW as being the most significant competitor.

I think the reality of this is that, at least at one end of the spectrum in terms of the 147, the competitor class is wider-ranging than BMW.

And it does encompass, for example, the Golf out of VW.

And I think that we have forgotten about them, and we have not paid attention to them in terms of what they've done in the marketplace.

And I think we need to be conscious of that issue, and I think we need to respond effectively to the competitive pressures that have been placed on the marketplace by Volkswagen's behavior.

So I think it's important, and that's what I meant by the repositioning of the product itself.

It is something which -- and I think we've learned the lesson about the fact that ambition, in terms of product placement, is important.

I think the reality about which marketplace we fight in daily is equally important.

It's a much lesser issue, I think, for the products that are coming on, the 159 and the Brera, which certainly have the right to select a cleaner marketplace within which to fight.

I think the 147 isn't -- is fighting with a legacy which is different than the product ranges of Alfa going forward.

So I think we need to be careful, and I think that's the issue that's really impacting on the way in which we look at the spend, and the way in which we're going to position it going forward.

I think we need to be a lot more cautious and a lot more humble about aspirations.

I think we need to go fight where we need to go fight.

Thanks.

Is this --?

So the work of -- sorry, let me finish.

The work that's gone on over the last three or four weeks, has really been one that's geared in understanding what the competitive landscape for these products are.

And what will be announced, hopefully over the next four or five weeks with the dealer network, is an effective response to the threat that we see.

Can I just ask a follow-up?

Does this involve a de-contenting of the 147, or new variance of the product?

Or is it adding a technology or something on a feature or an innovation, or something that can better position itself versus the Volkswagen benchmark?

Let me deal with the technical side of this.

There's no doubt that we're working on the technical improvements to the vehicle.

I think that one of the issues that we've dealt with is the issue of front wheel drive in the car.

There is technology that's being placed on the vehicles [in fix], which are going to make the front wheel drive issue a much relevant -- a much less relevant issue in terms of the car going forward.

But that's not the answer, and I'm not sure that it's an issue of de-contenting the vehicle.

I think it's a question of recognizing which particular versions of their car are required to fight in a relevant marketplace.

I think we need to understand where the entry point for this vehicle is, in terms of the product range, and I think we need to position the relevant models in the marketplace to try and fight.

I think that to the extent that we tried to move the 147 up-scale, results in about the bottom end of the lower ranges is unfortunate.

Because I think if it's the last space for the competitors to occupy.

We need to go back and reclaim it, so I -- that's the work that's gone on.

I don't think it's a question of de-contenting in a traditional sense.

I think it's a question of recognizing that we needed an entry level or an attack position on the 147, which we haven't got.

Okay.

Thank you for elaborating.

Thanks.

[OPERATOR INSTRUCTIONS].

We will now take our next question from Paul Griffith of Blue Mountain Capital Markets.

Please go ahead.

Okay, good afternoon.

Just a follow-up on an earlier question.

Does it make sense in your mind to expend management time and effort, to be in markets where you have less than 2% share?

Germany and the U.K. specifically, where I think you've got 1.6% and 1.9% share.

And just secondly --

Yes, fine.

And secondly, can you provide color on how you're going to deal with the €2.9b of bank debt coming due, and the €2.7b of capital market debt coming due in the next 12 months?

That is, what is the maturity schedule going to look like, say, at year end or six months from now?

And then lastly, just a point of clarification.

On -- your '06 free cash flow target is for positive Group operating cash flow.

Which item is that, which line is that on the cash flow statement?

Is it cash flow from operating activities or is it cash flow operating activities net of CapEx, where you expect to be positive?

Let me deal with the issue of the 2% markets, and I'll pass you on to Mr. Francescatti who'll deal with the capital -- with the [clarifications].

The answer to your question is that in the -- in the absent -- the absence of a view of the fact that one can improve on, what I call minimal penetration of a market.

The ability to stay in a particular market is a -- the motives for staying are the least suspect.

But we have looked at both the U.K. and Germany with a great deal of attention.

These are structurally different markets.

I can tell you that in '05, notwithstanding the relatively poor market share that we have in Germany, for the very first time in a long time Fiat will actually make some money selling new cars.

Which it has not done in a long, long time.

And so the question about what is the right level of market share that is required to justify a presence in a market, really depends on the quality of those sales and the jurisdiction, and the size of the market itself.

The position in the U.K. is very dissimilar from our experience in Germany.

I think that -- and there are a whole pile of historical reasons as to why we are dissatisfied with U.K. performance.

Here's a market, which especially for some of our brands, such as Alfa, has got a great deal of potential.

But it's one that requires a disciplined approach to penetration, and -- which we have not had.

So we have just moved some human resources back into the jurisdiction, people who are much more familiar, I think, with both the U.K. market and the Alfa brand to try and cope with this issue.

And our expectation is that all of our foreign operations within '06 will be profitable selling new cars.

We do know that on an overall basis, including after-sales, that all these jurisdictions are positive.

The issue that we have is to what extent do we keep on investing and maintaining a new car sales structure, and how long are we willing to wait.

Germany, I think, in our view is relatively clear, the U.K.

I think, is going to pan out in '06, especially on the back of an offer on their investment.

The issue about the liquidity matters I give it back to Mr. Francescatti, if he doesn't find the answer I will try and step in and give you a hand.

I will wait until he tries it.

In terms of maturities over the next 12 months, honestly we are still sitting on €6b cash.

So in all honesty we don't feel under pressure I would say.

In terms of paying debt I think we have constantly shown at a new or lower existing exposure.

And relations with the banking system I would say that are rather improving rather than worsening.

If you follow our path of improvement on the industrial side we don't expect a major [the figures] is on their side.

So the way to interpret that is you will try to roll -- will you roll your bank debt, pay down your bonds with cash?

Oh yes, capital market, of course, we will go on to the market continues we are -- in the future we will.

Let me help Mr. Francescatti.

We will re-enter the bond market.

I think both the timing and the size of the re-entry is going to be totally within our discretion.

And as I mentioned on other calls we are never going to disclose the timing or the size of that intervention.

I think that we need to leave it for discussion to decide when this gets done.

I have seen enough volatility in this market, over the last six months, to make us realize that the choice of that timing is crucial.

And a lot of it does not depend on us, it really does depend effectively on market reactions to other significant players in this industry.

And I think that -- now it would be very nice if it went by one week without there being some type of negative or catastrophic announcement from one of our competitors, which has shifted [CBS's] significantly from one week to the other.

So we need to watch this because our re-entry into this market is not to reinforce Mr. Francescatti's view, but the fact that we do have capacity to deal with renewals because of the cash position that we sit on.

But because of the fact that it is a signal of the fact that we are re-entering the bond market as a long-term investor player.

And so we are not going to screw this up, we are going to do this properly and we are going to do it in a way which allows us to re-access the market as we see fit in the future.

The other questions that you asked about targets for '06 it is after CapEx.

Great.

Thank you.

We will now take our next question from Jean-Marc Muller from Bellevue.

Please go ahead.

Thank you.

Hi Sergio, hi Maurizio, couple of questions.

First sorry for coming back on Q4 but I am a bit puzzled.

Maybe first you were close to one a month or two ago when Bloomberg said Q4 will be the turn around quarter for Fiat Auto.

And that Q4 should actually show the full earnings potential of Fiat Auto.

And in the local you said that in a good year Fiat Auto would achieve a margin of roughly 4% and in a bad year roughly 2%.

So full earnings potential in a seasonally strong quarter I would assume would be around 4% margin.

And this hasn't [yet] and obviously I would get to a trading profit in Q4 closer to €200 or even €250m than to a flat zero.

That's one way to look at it.

Jean-Marc do me a favor, take a pill and lie down.

No but it's not the only way to look at it.

Jean-Marc take a pill and lie down because €200m only happens unless -- if you win the lottery and Christmas comes about four or five times between now and December 31.

Okay, so I look at it slightly differently.

So to understand maybe somewhat better.

And in Q4 last year you had a trading loss of roughly €150m at Fiat Auto.

And in Q3, now this year year-over-year you had an improvement of roughly €200m, most of that is coming from costing savings.

So if I look at the impact in Q4 from mix, volume, price and construction etc., I would actually assume a positive impact coming from those items, because the registration should be around 460,000 cars.

And given that inventories at dealers and at Fiat Group are quite low.

And that the fall in production would also have to be at those levels.

Jean-Marc I like your story a lot really, I actually have been following it all along I've been writing it all down.

The reality of all this is that, is that, one, the issue about plant utilization, under-production has to be looked at in terms of what the final demand will be, because of our objective is not to fill out the distribution channels, that's the first issue.

The second one is we work our way through these product launches, we continue to invest in R&D in a product development, which is by definition non-capital in nature because the product is in the marketplace.

So you need to countenance all this with the level of expenditures that have been put in place to try and maintain these products.

I -- we need to be really careful about what we do going forward.

As I said earlier I am not going to move targets for '05.

Sure, I understand [inaudible].

And that's why I invited you actively to use every imaginative instinct you have in your body to try and come up with a number.

But Fiat will not move the target.

Just maybe one final question we should ask, and that is our [dealers] expect inventories at dealers in Fiat to come down even more?

Or would you expect them to stay at Q3 levels?

Or would you expect inventories to be somewhat higher at year end?

I think that the best estimate is they will stay at current levels and we will not see a significant shift.

Okay, that helps.

I am looking at the financial guide from [also] Mr. [Pistorio] was looking at me shaking his head.

Are you saying that it will go up?

What are you saying?

Just a moment.

He -- let's agree that it will stay at current levels, we will prove it at the end of the year.

Okay.

And then C&H, obviously quite a shake up at C&H given the improvement we have seen at Fiat Auto year-to-date, and probably on-going also in the fourth quarter, but I will not push the attack further.

Should we expect a single program for C&H?

Have you analyzed the cost structure accordingly?

The answer is yes.

And will it be more or do you also believe that there is some right sizing opportunities very tough taking costs out?

Or is it more of a make positioning top-line driven approach?

I think it's a combination of both.

I think we need to understand, I think we need to clearly understand our cost structure, and where we are deficient in terms of the competition.

But I think one of the main intents in unbundling the brands is to effectively, our niche here in the market place is effective competitors against the big guys here in [indiscernible].

I think that this new structure will allow the commercial organizations to be much more effective in tackling and responding to competitive pressures.

The rest of the organization has got one mandate and bring down the cost of production, and achieve the highest level of efficiency in terms of both development and manufacturing.

But my biggest thought out of all this, to be honest, in addition to the things which I think are relatively easy to get and I made the comment, with a great degree of caution, but I think they are clearly much more identifiable in terms of where we can go and get cost reductions, is in our ability to keep up with market share and effectively gain on the competition.

I think that's really the big issue for C&H.

They are in a completely different position than Fiat Auto has been, they have not been marginalized by the competition like the other business has historically.

So their ability to respond in terms of market share gains and penetration I think is structurally much better, the car side.

Having said this, the targets for '06 and '07 for C&H are clear, the objective is to hit about 10% margins in '07.

We have a long way to go.

Those -- that spread of roughly 4% between '06, between '05 and '07 are big percentage points.

But I feel relatively comfortable that we are going to get there, and we are going to get there quickly.

Okay.

Maybe not a question, that you are, it's something I asked before but the cash flow, just under working capital at the beginning of the year, you said that the change in working capital year-over-year should be roughly zero.

That would mean that we would see some cash inflow from working capital in the amount of roughly €1.2b in the fourth quarter.

Would you still support that case?

I have learnt a couple of things about, I follow these questions I give to Mr. Francescatti.

We said before we were expecting improvement in working capital.

Of course, you have to take into consideration a certain level of caution, and then not necessary be €1.2b it could be slightly lower than that, in any case there will be a positive inflow at [indiscernible] capital in the fourth quarter.

Okay.

And then maybe the last one, one of my favorite topics is the tax loss carried forward.

Can you say something about that maybe how you found out, found out something new on that, or how will that impact '06, '07 etc, thank you?

Well, one we know a lot about it because we understand where they are and how they happened.

And I think you either commit [or on] our part not to try and repeat the creation effort.

Having said this I think that we have an issue -- we do need to bring talent on board to try and master this.

This is relatively complicated because of the global nature of the linkages of our operations and the way in which we can access the poles.

The biggest portion of these losses, as you can well imagine, certainly because they've got a long history out of the car side.

So how we use these effectively is going -- is a big topic.

I would much prefer to postpone the conversation to 10/'06 as we go forward.

But obviously we are working on ways to access them.

Okay.

Thank you.

We will now take our next question from Albrect Denninghoff of HVB.

Please go ahead.

What I am wondering about is why there is a strong increase year-over-year in the first quarter compared to last year on the trading profit.

But on the pre-tax level the increase was rather low, sorry just for the one-off items.

And it depends on if there is a €250,000m of these unusual charges are really unusually or not.

Or whether they needed to be flat and, therefore, really the cash flow side if one takes out working capital and qualifies provisions for deferred tax items then obviously you also have working capital components, then the operating cash flow performance falls rather flat.

Is this only due to the Fiat Auto low production point or is there any other side outside Fiat Auto, why there has not been further progress on the pre-tax level, or on the operating cash flow level?

Yours is a really complicated question, I am going try and give you what I think is an answer.

We will see whether it satisfies.

It -- the reconciliation from our trading profit down to pre-tax is relatively clear.

You look at page, sorry page, let me find, page 18 of our presentation.

One of the reasons why we've done this is to try and identify where these lines have hit.

Effectively, if one were to reconstruct the P&L with all these items off you'd be able to see it.

There are a couple of things.

The gain on the mandatory convertible structure is not taxable.

The unusual items, some of which do have a related tax yield, the gain on the sale the Italenergia, has a very small tax impact of roughly €34m.

The tax charges, sorry the charges that we've taken are roughly €700m being the restructuring and other unusual charges of a tax benefit of roughly €41m and that visible from page 18.

So the numbers are structurally reconcilable.

I don't know whether that helps you.

And in terms of the cash flow items, there is no doubt that the dent in production in Auto has caused the negative working capital impact, simply because of the fact that Auto works on a negative working capital cycle.

So the extent that volumes dropped could actually hitch it up a [indiscernible] to the extent -- that's why it's important in addition to making money, I think it's important that Auto be fully utilized.

It does have a significant cash impact.

Does that answer your question?

Partially yes.

I was wondering if that we are not quite ready for the [analyst] report, and then I worked on the third quarter comparison that you have a huge program from the trading profit line.

And the operating profit I took out around with the Italenergia of the loan conversion.

And the other ones then had €1.3b pre-tax improvement but also a positive €1.3b of exceptionals.

If I take these €284m or net €244m increase in unusual expenses out.

So then you have only [on the face] unusual then you have only this €244m on a pre-tax level of improvement while the trading profit has had a much higher improvement in the year-on-year comparison.

So I was wondering where it was lost somewhere down to the pre-tax level and the same was true for the cash flow, the operating cash flow.

Right, let's deal with the P&L first and then try and recompose it.

We have €856m which was -- €858m which was the gain on the mandatory convertible, and that's showing up as an unusual financial income.

Then we've had €881m in terms of the Italenergia gain.

The total of these numbers is €1,737m.

But that's the one-off items which are positive.

Against that number we got €420m worth of restructuring, €284m which is dealt with a variety of issues, including the rationalization of the platforms and product portfolio.

We've had €99m worth of one-off or catch-up adjustments for prior periods and tax.

And we've had adjustments for the [carrying] value of some of our joint ventures of roughly €57m.

These are all the negative items.

Okay.

That's helped I didn't have the [maximum].

When you add them all up you end up with, effectively chewing up all of your reported net income, because all of it is due to a net effect of these items.

Okay thanks.

And by the way Mr. Ledda has offered to take you through -- painfully to take you through the P&L personally.

So feel free to abuse him.

Okay thanks.

We will now take our final question from Serge Escude from UBM.

Please go ahead.

Good afternoon.

A very simple question on Fiat Auto.

How do you explain the good performances of Fiat Auto in France?

What's the change versus the last quarters?

Is that distribution pricing management, if that can be an example for the other markets?

This is my first question.

The second question is can you give us some color on the Croma.

How is it doing on Europe in terms of orders?

How many Croma did you sell from the [lounge] today?

And the last question I have is the success of the Punto seems to be such that your current target seems to be conservative.

Do you feel that, or do you prefer to be cautious?

My question is, don't you think they are a bit too conservative after the first results?

Let me give you the information on the Croma. 20,213 orders, that's from the end of May, so June, July, August, September, four months roughly 20,213 orders as of October 20.

And so the car is certainly factoring at an expected speed for 2005 target.

Target is about 60,000 to 65,000 vehicles in 2006.

It does imply obviously that we are going to be able to execute flawlessly on market share retention in the [D] segment, which is a big issue because the market, if the product was designed, that market itself, the D segment has actually shrunk in size in Europe.

So we need to be very careful about that number.

But we have no indication on the fact that we will not achieve the 60,000 target in '06.

In terms of the France issues, I tend to agree that we probably have one of the best management teams inside the organization on the French side, who have done a number of things to try and reposition the brands.

And we have good success across the three brands in France, it's not just been a Fiat issue, it's been also an Alfa Romeo success in terms of market penetration.

I would -- if I thought that sheer replication of a French experience in the other jurisdictions would suffice I would do it.

I think these brands have got their own history in these marketplaces, and I think we need to be absolutely careful that we don't try, and we certainly don't assume that the success that's been had in France can be replicated flawlessly in other jurisdictions.

I think the German experience is a particular one, and certainly the U.K. has got its own history.

So I think that in terms of methodology and process, there are things we can and have learnt that we are applying elsewhere.

I think the speed of recovery, of penetration in these other markets is going to be different, simply because of the baggage of history that we carry.

So I understand clearly it's a question of management, is that the point?

It is undoubtedly a very large issue.

And I think that it's fair to say that the quality of management we've had in the French market, certainly since I've been here, has been one step above the rest.

So we -- I made this comment back last July when we talked about our plans for Fiat going forward.

The quality of the leadership is crucial, and we have made significant improvements both in the German market, and we are beginning to make some significant improvement in the U.K. with the transfer of some personnel out of other jurisdictions.

So we are fully prognisant of the problem but I think the speed at which these people will be able to effective markets is really dependent on the history that we have.

I -- the issue on the Punto I can give you a short answer and tell you we continue to be conservative on expectations.

The house is capable of doing more than 360,000 units that we've targeted.

The duel tracking of the investment both in Mirafiori and [Merfi] in terms of the production of the Punto will give us the flexibility that we need to be able to deal with increased demand.

Based on what we've seen today the 360,000 number appears to be a decent achievable number in '06.

I would like to get a much better breed of market penetration going forward.

Fiat has got a very bad history of extrapolating from early market successes and building capacity on the basis of that success.

Staying power in our view is much more important.

So I will stick to the number until I see otherwise.

Okay.

Thank you very much.

It appears there are no further questions at this time.

I would now like to turn the call back over to Sergio Marchionne for any additional or closing remarks.

Thank you very much for listening to the call.

And I believe we are going to be talking to each other pretty soon.

Thank you, bye bye.

Ladies and gentlemen that will conclude today's conference call.

Thank you for your participation you may now disconnect.