Stellantis NV (STLA) 2006 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Fiat Q4 and full-year 2006 results conference call. For your information, today's conference is being recorded. At this time, I would like to turn the call over to your host, Mr. Marcello Ledda, Head of Investor Relations. Please go ahead, sir.

Good morning, everyone, and welcome to Fiat's fourth quarter and full-year results conference call. As usual, today's call will be hosted by our Chief Executive, Mr. Sergio Marchionne. All material that will be used today has been posted on our website and after introductory remarks, we'll be ready to answer all of your questions. For info on forward-looking statements, please refer to our Safe Harbor statement, which is filed with the SEC on our Form 20-F, and I'll now turn over the microphone to Mr. Marchionne for introductory remarks.

Thanks very much. It's been a great quarter and a great year. I think we're all satisfied with the performance of all the sectors. We've had a couple of issues that we've dealt with, both in terms of the first nine months in 2006, in particular in the last quarter of this year. I think the fundamental issue is that a turnaround that we started some three years ago is now complete. We now have the platform to drive for the 2007-2010 plan.

The key elements of the 2006 performance are on page two of the presentation. We do have revenues are up 11%. All sectors -- all major sectors were up year-over-year on both volume and, more importantly, I think they all displayed substantial improvement in gross margin expansion. Trading profit was roughly twice what it was in 2005, very close to the 2 billion mark, and net income came in at about EUR1.2 billion, which is EUR1.4 billion better than it was last year, if you take off all the one-off or unusual items from 2005.

We'll talk more about the unusual items, which only accounted for roughly EUR100 million in terms of the full-year impact, but they were made up of a number of offsets, starting off with gross gains of roughly about EUR600 million and netted against roughly EUR490 million worth of unusual or one-off expenses. All of these items that we booked in 2006 as one-off costs were necessary to complete the turnaround, and as we go through some of these items in details you'll understand why.

As importantly as the earnings generation was the cash flow generation of the sales, We drove about EUR1.4 billion worth of cash during the year. Debt is probably at a historical low of rough below a EUR1.8 billion. We're sitting on about EUR8 billion worth of liquidity at the end of the year. Some of this is fortuitous in the sense that we closed the Credit Agricole transaction on December the 28th, which gave us about EUR3 billion worth of liquidity.

Mr. Francescatti will explain this when he goes through the cash flow statement, but our intention is to maintain roughly EUR5 billion worth of liquidity at all times, so the EUR8 billion is abnormal and outside the range of total trading practices for us. We will restore this to normal conditions within the first half of 2007.

Another important thing is, obviously, we were able to close the financial joint venture with Credit Agricole. That gave rise to a substantial gain, but I think more importantly has set the framework for the financing activities for the car side in a pretty healthy and reliable environment.

For the first time, we're coming back to dividends since 2000 -- I guess 2001. We paid them in 2002 for 2001, about EUR0.25 billion is being paid. We're cleaning up some cumulative undeclared dividends on our savings shares, after which we should be going back to a normal dividend distribution mode, which is going to reflect a payout of roughly 25% of consolidated group income going forward. These dividend intentions are being confirmed by the board on February the 20th when it meets to approve the statutory accounts of Fiat S.p.A. and it will be subject to shareholders' approval at the AGM on April the 5th.

We move on to page three. This is probably the most visible way in which we could display the completion of the turnaround. We have some 600 basis points in trading margin improvement from 2004 to 2006. And the other important thing is that this has been a steady and disciplined recovery of margins, quarter after quarter. What's clear from the slide is the lumpiness of Q2 in terms of the cyclicality of the business and in terms of profit generation.

But when you look at the chart in detail, you'll see that quarter-over-quarter, we've been able to improve margins by 50% or more. And so I think that we've got now the basis to talk intelligently about 2007 and 2010 in terms of growth plans, growth plans and margin expansion.

Go to page four. Top line and trading profit breakdown. Obviously, the strongest driver of the top-line growth has come out of the car side, with Fiat Auto accounting, just by itself, for a 22% increase year-over-year, although tracks and components have also had a good year. Trading profits, ex Comau and Maserati, are now all of positive, and for both of these businesses, Comau and Maserati, this will be the last year of negative numbers. I think we've done all of the things that were required with Maserati from a business standpoint to put it in a position to compete and generate both earnings and cash.

And the Comau story is a bit different and I'll come back to that a bit later. On the margin side, all the businesses were in line or in excess of targets, and even the components side, if you strip out the Comau piece, is certainly in line with indications that we have given to the markets in the past.

Comau is a restructuring story. The industry is under severe structural stress. We are not the only ones. I don't know of anybody, actually, who has been generating profit in the sector in the last 12 to 18 months. The business model that we've found, that we've analyzed over the last six months, has been determined not to be sound. We are in the business now -- we're in the process now of completing the resizing of the business.

We found that there were aggressive practices in terms of order acquisition, which had to be curtailed, and they've now been brought in line. We have downsized the UK, South African and German operations. We have written off the goodwill that was associated with European acquisitions back in the early 2000s. And the only thing that I can tell you is that the business is on the way to being mended.

I think it's going to be resized, because of the fact that we don't think that there is a potential for a structural recovery of the industry in the medium to long term, so we have resized it to the right level in order to ensure that we can generate both earnings and cash going forward.

If we move on to slide five, which deals with the fourth quarter, there's really not much to be said. I mean, obviously, the trading profit was up more than 50% year-over-year. We had a positive quarter in terms of net income, which is substantially higher than it was in the fourth quarter of last year, although we did have positive earnings on a comparable basis even in the last quarter of 2005. And we did generate a substantial amount of cash, which Mr. Francescatti will explain when he talks about the cash flow statement and mainly driven from operations and a lot of it coming out of working capital reductions. And this was accomplished notwithstanding the fact that we spent about 200 million in cash in terms of cash outlays relating to restructuring incurred both this year and in prior years.

Margins are in line with what we said. Autos had a good quarter in terms of margins. We'll come back to the auto story in a moment and talk about how good the recovery really has been.

If you move on to page six, we sold 1.980 million cars -- 1,980,300, to be exact, which is a touch shy of the 2 million target that we have set for ourselves. All of this and the fact that there are some issues that relate to both market share objectives that we set for ourselves and the absolute number of cars to be sold that were effectively driven by the slowdown in the Italian car market in the last quarter of 2006, all of which was legislation related and which has been cured in the last part of '06 and is now visible in terms of market demand that we're seeing in the marketplace in January of '07.

We had the highest growth rate of any European full liners. We had over 17%. The only company that beat us was Lexus, but I'm not sure that's a comparable. Brazil has continued on the trend that it set for 2005. The important thing, as I promised you, is in the fourth quarter of this year. The ex-Brazil operations were both earnings and cash flow positive in the whole of 2006, but, more importantly, I think we are now generating earnings outside of Brazil, which is crucial to the attainment of the 2007 numbers, all the way up to the 2010 objectives.

We continue to work on the network. We had 170 mandates that were generated during the year. We continue to work on targeted alliances. Nine were done during the year, and this initiative of world-class manufacturing that we launched during 2006 across our auto plants is being rolled out aggressively now.

The biggest beneficiary of the process has been our Polish plant, but we have made significant inroads in terms of the Italian industrial layout, and I think that in 2007 we'll begin to roll out these processes across the rest of the Fiat manufacturing facilities across both tractors and trucks.

We have had good success in terms of managing our purchasing at group level. I think we're probably one of the very few companies that when you look at the presentations by sector who have been able to contain the impact of raw material price hikes by offsetting them with other technical savings or negotiating savings across all the sectors, and if you look at CNH, I will get back to it in a moment, you'll see that it's probably the first time in a while that we have been able to show a positive impact of purchasing for the full year.

Moving on to slide seven, all the brands are up. Obviously, the rate of growth in the fourth quarter of 2006 had to slow down because of the introduction of the Grande Punto in the fourth quarter. But we're still up significantly year-over-year, and just to keep in mind, we have had no significant product introductions in the year, other than in the light commercial vehicle area, where we launched the Ducato in May/June of 2006, and the Doblo Cargo, which was launched in the early part of the second semester. So notwithstanding the fact that we did not have a big launch in one of the big segments in the European car markets, we've been able to grow share and grow volumes.

If you move on to slide number eight, and this is the only slide where I think we've got, at least from a market share positioning standpoint, two disappointments. The first one has to do with the fact that we have targeted 360,000 units of sale of the Grande Punto. We hit 344,000 units sold, 351,000 orders. We did produce 361,000 vehicles in the year, but because of the Italian conditions that I referred to earlier, I think we were short of the mark. More importantly, I think we that we were able to maintain the position in the B segment with the Fiat brand by having the old Punto continue strong in the market. We sold over 102,000 cars in 2006.

The other issue, which was not on the mark, was the fact that we had targeted on a revised basis a market share of roughly 8% in Europe. We finished off the year at about 7.6, and this is, again, due to the Italian slowdown, the fact that we had underestimated the share of the European market overall and the fact that Germany grew as much as it did in the last part of 2006 due to government incentives that were put in place, and that historically is not our strongest market.

But the positive points from the year is that we were over 30% throughout the year in Italy and that has been a very clear objective that we set for ourselves at the beginning of the year, and the fact that we did achieve to do more than 7.2% market share in Western Europe, which was the original target that we set for ourselves in 2006.

Now, in terms of product performance, we continued to do well. As I mentioned earlier, all brands are up. We were able to negotiate a significant increase in the allocation of the Sedici out of Suzuki, which is going to bring us about 38,000 vehicles from 2007.

If we can move on to slide number nine, I know that there have been some concerns post the announcements of the issues of operating leverage and the fact that the increase in volumes -- it just appears to be a recurrent theme from all the conference calls that we've had. I thought I had been relatively clear when we met in Lingotto about the fact that there's an absolutely linear relationship between volumes and profits.

The reason why that's the case is, one, because of prudence in terms of establishing the benefits associated with volume hikes. But, more importantly, I think we've continued with caution in terms of booking warranty and other provisions relating to the sales process. This is an organization that is in the process of being rebuilt. I think I would be incredibly unwise to try and take aggressive positions in terms of what is required to try and deal with warranty and service claims against the vehicles that are currently being sold.

So we have continued our past trend. I think the ultimate benefits of all the efforts that have gone into the quality side of the production of cars for Fiat is going to be visible, probably in the past 12 to 18 months. I think, if necessary, we will adjust our provisioning accordingly.

We did make the operating target that we had in mind. We have now targeted 2.1 to 2.9% for 2007. As you can see from the breakdown of the trading profit chart, we have gone from a loss of 281 to a profit of 291, as forecast, all quarters being positive and with ex-Brazilian operations being positive in Q4.

We continue to over-invest in network development and advertising and marketing for the brands. This is going to continue into 2007 and well into the 2010 plan. I think this is a required commitment by the group in order support the volumes that we have set for objectives for ourselves. We're going to try and sell over 2.2 million cars in 2007 and I think it is absolutely important that we commit resources to continue the development of the network as we've been promising now for a while and that we continue to support both in terms of marketing and advertising the introduction of new vehicles.

Not much to be said about slide number 10. Ferrari is doing well. Volumes are in line with what Ferrari wanted to sell as opposed to market demand, which is a very fortunate event. Margin progression has also occurred at Ferrari, but the favorable nature of the mix, both in terms of pricing and the types of vehicles that are being sold has been offset by prior commitment to R&D, which is not necessarily Formula One related. It's necessary to the production of passenger cars.

Ferrari has had a good year. Maserati is well on its way to full recovery. We've introduced a new Maserati Quattroporte automatic version, after we've spent a considerable amount of resources, time and money to the curing of some of the issues that were around that car, including quality issues, suspension and, more importantly, the availability of automatic transmissions for the American market.

So the car was launched in January. We will be introducing the new coupe at the Geneva Auto Show and there's a full -- 2007 is going to be the first year in which this business I think is going to generate both profits and cash.

Moving to slide number 11, which deals with our ag and construction equipment business, and this is just to remind everybody of where we came from. We have had steady margin progression since 2002 in this business. The thing that has been negative on this business is the fact that we have not been able to grow the top line, as our competitors have. But our commitment in terms of the unbundling of the brands and creating four distinct commercial organizations continues to be on the repositioning of the brands, on the reacquisition of market share, which has been occupied by others.

I think it's important to realize that the business itself in 2006 has had a good year, although I personally had hoped for more, but certainly it's been able to stop the market share erosion in the ag business. I think it's been able to show substantial improvement in gross margin generation. I think it is now poised to try and benefit from gross margin expansion as a result of all the efforts that have gone in on the industrial side of this business, both in terms of engineering and manufacturing. But, more importantly, I think the commercial organization is now ready to reposition these brands, and I think we'll see the impact of these in terms of market share gains, starting in 2007.

As important as all of these things that I've just talked about, one of the things that was questionable within this business was the long-term viability of the construction equipment business, given its size. I think we've seen that the unbundling of the brands that we carried out at the beginning of '06 has given new impetus to these businesses. They had a phenomenal recovery in terms of both gross margin and trading profit during 2006. They were a significant contributor to the improvement in earnings for this business, and therefore we feel that we now have the right elements to try and build these businesses on a global scale.

I think there is sufficient size in what we have today to try and get that done. And since we have achieved, I think, a high level of clarity in terms of the product portfolio for the brands, it's going to become an easier task as we go forward.

We did carry out hopefully what's going to be the last step in the reshaping of the industrial footprint in the U.S. We shut down one more plant and we have reallocated the load across three plants both in North America and Europe. Hopefully, this is going to be the last plant closure that we need to deal with in terms of this business.

But while that was going on, we have also taken a very hard look at the governance structure of this business. We've realigned it, and I think we've now got the right elements to try and move this business on.

We can move on to slide number 12. I've talked about most of these things. I think that the real issue for us is that the construction equipment business is now in a state that can certainly compete, not necessarily against the Caterpillars of the world, which obviously are relatively large competitors, but certainly against what I consider to be the second-tier boys.

Moving on to slide 13, which deals with the trading profit reconciliation year-over-year and the margin progression, we ended the year with an average of 7% margins. There is a huge shift that's coming on in 2007 to get to 8.9 to 9.7% margins. And of all the things that I made reference to, all of them are certainly designed to ensure that that margin is achieved. A lot of it depends on our ability to acquire some share from the marketplace.

I think we've done as much as we can in terms of cost takeout out of the governance side, but I think a lot of the rest of this battle needs to be fought in the marketplace and I think we need to see quarter after quarter how successful we are.

The trading profit reconciliation '05 to '06, there was a one-time impact, which was roughly EUR60 million, in terms of healthcare benefits associated with the renegotiation of the labor contracts in the U.S., which positively impacted in '05. It is not visible in '06. And I continue to make reference to the pricing power of this business. As you can see from the chart, it was able to pass through substantial price increases into the marketplace.

And as I also made reference to the purchasing side, for the first time, in a long time, is actually positive. All of this has been a result of the aggregation of the CNH and the Iveco purchasing operations, and just for '06 that has amounted to roughly to more than EUR30 million of benefits associated with the integration of the two organizations.

We'll move on to slide number 14, which deals with trucks. Regardless of what -- I've heard some rumblings of the fact that some people may have been expecting more in terms of operating profit out of this business. This business had a 64% increase year-over-year in trading profit.

I think before we start creating unrealistic expectations as to what these businesses can turn, we just need to understand the size of the improvement. It has been a significant shift. We have now hit the 6% number in terms of margins, which was a big target for Iveco. It has never done it historically and I think this is a significant milestone. When you look at slide 14, certainly it's a significant milestone in terms of the industrial performance of the business over time.

We move on to slide number 15, which deals with -- which deals fundamentally with the quarter-over-quarter performance. I mean, the business continues to go strong. Fourth quarter has been a good quarter across all the segments. We have been able to maintain and hold share by 11% in Western Europe, but, more importantly, we came out of the fourth quarter with an incredibly strong order book.

Q1 is nearly done. We're now working on the completion of the second quarter in terms of the order backlog. Our assessment for the year is good. I think there is some uncertainty about where the second half of 2007 will end up, but we have no indications of market deterioration.

If we look at slide 16, which deals with the profit reconciliation, again, this is two things. One, this business is also poised for margin expansion up to about 7.1 to 7.9 in 2007, but, as you can see from the profit reconciliation, we have had positive gains across all the major components of the mix. Volume, price and product cost have all contributed to the profit improvement of the business.

We have looked at what's happened in the last three months and, more particular, in the last quarter of this year, and we have had a significant improvement in both pricing and mix of the portfolio that is being sold. We've held the line in terms of the repositioning of the new heavy end, and I think that the Stralis, the new Stralis that was launched this month and which will go into the marketing at the end of the first quarter is a significant improvement in terms of the product offering into the marketplace, and it is the basis on which Iveco is going to try to reposition the full offering into the marketplace.

I think that we, as you know, historically, we are co-market leaders in Europe in the medium end. We are, together, with Fiat, market leaders on the light end. And our open or weak point has always been the level of penetration we have had on the heavy side. It is not an inconsequential market share. It's in excess of 10. It is a market share in which I think we can build a sizable position against Scania and MAN.

And now that the issue of the consolidation of this industry is off the table, I think we can go back and try to reposition this effectively.

Just to sort of reinforce the viability of the positioning of the Stralis, the Stralis is already a significant market actor in the southern part of Europe, not just in Italy, but in the southern part of Europe. It has had, as one would have expected, a much harder time penetrating the northern part of Europe, and that has become the area in which we have targeted intensively, both through interventions on the dealer side and in terms of the commercial positioning of the product to make inroads in terms of market share in '07.

Turning onto slide 17, which deals with components, we have had -- this is the power train side. I don't want to spend a lot on it. This business has had a good year. As you all know, the biggest customer is the Fiat Group. It continues to be a key ingredient of the strategic development of the group, because it does offer an entry car to transit up strategic alliances with others because of the technology offering that it has. And it needs to continue to grow as third-party business, and that was its original mandate when the sector was created, and it will continue to be the driving force going forward into 2010.

Margins to us are what they are in the sense that I think there is an agreement that it will share manufacturing synergies with its customers inside the Fiat Group and therefore the potential margin expansion is totally in line with the numbers that we presented at Lingotto in November. It is a business that will perform along those lines. It is a strong cash flow generator, but, more importantly, I think it is an absolute necessary ingredient to the continuation of our involvement in the automotive sector across not just cars, but also factors and earth-moving equipment and trucks.

We move on to slide number 18, which deals with the rest of the components business. Ex-Comau, we had a great year. Certainly we met our margin ambitions with Marelli and Teksid. We're quite satisfied. A lot of that growth was driven by the growth in volumes with the other Fiat Group sectors, but it has -- especially in the case of Marelli, it does continue to make great order acquisitions with our competitors. It's a good business that will end up being at the high end of margin expectations for the component sector by the end of 2010.

If we can just move to slide number 19, the only comment I want to make about this -- I've already talked about the sort of unusual items, which are about 110 million for the year. But just to preempt questions on tax, if we exclude the impact of IRAP on the 2006 reported results, the effective tax rate on this business is about 21%, and if you look at it over the plan period, it will naturally gravitate to a 25% rate, on which you must add some IRAP element.

But, fundamentally, we're beginning to measure the tax exposure intelligently, and it's certainly reflected both in the tax rate that was booked in 2006 and the one that we forecast for the period 2007 to 2010. We continue to have unbooked benefits of roughly EUR5 billion, which we intend to utilize over the forecast period to the tune of about 60% of that number. So at the end of the 2010 period, we should have about E"UR2 billion of unbooked assets which is still available to the group.

Since I've been talking too much, I'll pass slide number 20 to my friend, Mr. Francescatti, who will enlighten you about cash flow.

It was a very positive quarter and a very positive year in terms of cash flow in the sense of reduction in net industrial debt, as you have heard since the beginning of this presentation. In a sense, we have gone even beyond our forecast. We had indicated that we were thinking to reach a level of around EUR2 billion. We have exceeded that, going down to below 1.8. The drivers of this improvement have been mainly in the profitability of the various businesses and in working capital management, and that's reflected in the performance that you found in both columns.

Therefore, in full-year terms, you see that the overall improvement has been of EUR1.4 billion, 1.4 referring to basically net industrial cash flow, nothing relevant really in total terms due to extraordinaries. If you look to the single items, you'll find the change in funds and other, basically the reduction due to the capital gain made with the sale of the financial services activity of Fiat Auto for an amount of roughly EUR460 million and for the sale of a Swiss bank. And both of them have reverted down in the change in scope. And then you have the net effect of the accrual of funds for restructuring and unusual, net of the uses made during this year.

Performance has been extremely good, also in terms of working capital, for an amount of almost EUR700 million on a full-year basis and EUR1.4 billion for the quarter. This is largely due to Fiat Auto, which has been by far the largest contributor, but the whole sector has performed well in this context.

The only thing that you don't find here expressly, looking to the net debt, is the additional cash in, which is related to the Credit Agricole transaction, because in addition to the price, which is impacting the net industrial debt position, there has been the reimbursement of financing due into financial services and this has caused an additional cash in for the group of in excess of EUR2.5 billion for the total of the transaction, above the 3 that we have mentioned a few times. And this has brought us to the total amount of liquidity available at year end of roughly EUR8 billion.

And slide 21, you have an indication on the net industrial debt to EBIT ratio to the extent that this, as a meaning, I think, is more the progression than the number at the level we've reached at this point is less than 0.2 in terms of ratio among the two.

We can just move to slide number 22, we've got a big year ahead of us. I think that most of you are focusing on the car side. We do have the introduction of the Bravo at the end of this month, beginning of next. The car is already in production and Casino will be, and is being, delivered and will be delivered to the dealers in Italy while the car is being launched.

There will be 2,500 vehicles in showrooms by the end of next week to facilitate the introduction of the car. We have targeted 120,000 vehicles on a full-year basis for this car. This is in replacement of the Stilo, which has had a rather unfortunate history within this group.

Just to remind everybody, this car is being launched in the C segment, which is the biggest segment of the European car market. It accounts for roughly 25% of total sales. And so we think that the 120,000 number is a realistic number to be achieved. The other cars that you've got on there, the Scudo was recently launched and is already in the marketplace. The Linea will be launched out of Turkey in the second quarter of this year, and then obviously the big event, which is the introduction of the Fiat Cinquecento, with a target volume of 120,000 vehicles on the year.

On the truck side, I made reference to the Stralis. That is the most significant product introduction for the truck business. As you can see at the bottom of the right-hand side of the chart, we will be introducing this new concept of an off-road or utility vehicle called the Massif that will be available in Q3 and Q4 of this year that is being done in cooperation with Santana, who uses both our engines and transmissions.

There's a variety of new product refinements and introductions, the most significant of which is the introduction of the T7000 tractor, New Holland, which is a significant step forward in terms of the repositioning of that brand. So it's a big year. It's the beginning of a very intensive period of product rollouts between now and 2010, and we're fully confident that we'll meet the targets that we set for ourselves and our volumes, especially on the car side.

We move on to slide 23, which deals with our trading outlook. We expect the market to be stable in 2007, no significant shift in volumes across the Western European markets. We have targeted 2.2 million vehicles for the year, slightly in excess of that overall, which incorporates the success, I think, of both the Cinquecento and the Bravo. We do need to maintain our leadership in the light commercial vehicle side.

We have about 11% market share in Western Europe and nearly 50% in Italy. Our expectation is that Brazil will continue to be a steady performer in 2007, and obviously we continue to work on our alliances portfolio to ensure that we achieve all of the ends that we continuously refer to, which is a derisking of the capital investment and access to geographies.

Trucks, again, stable demand in Western Europe, certainly on the basis of what we have seen. Our biggest challenge is the repositioning of the Stralis in the marketplace. If we're successful in that venture, I think that the achievement of double digits by 2010 is well in hand.

And on the agriculture and construction equipment side, there's been a variety of views expressed. We do see both of these markets overall up for the year. I mean, these are my personal views. I think that we have seen a significant recovery of commodity prices, which is going to drive demand on the ag side, especially in the U.S., which has had an uneven year.

I think the only uncertainty is the performance of the construction equipment side in North America, which continues to suffer from low housing starts. But I think we need to see -- this is a business that turns very quickly in the U.S. I think we need to see how this business develops throughout 2007, but certainly market conditions for all our sectors continue to be positive. And I think on the basis of all we have done, we expect to reap significant benefits on the industrial side from the repositioning of the brand, which has been going on since 2004.

If we can move on to slide 24, I think we're going to make this a standard practice in terms of how we present year-end numbers -- 2004 to 2006 have all been achieved. These are targets that were set in July of 2004 and have either been accomplished, as presented, or have been upgraded and accomplished since we introduced them in July of '04.

Our task is to make the 2007 numbers, which includes a trading profit of about 2.5 to 2.7 billion, nearly a 5% margin in our businesses, and between 1.6 an 1.8 billion in net income for the year, which is a significant shift from where we are. Just remember that we made about 1.1 billion ex unusuals, so it's a 50% improvement over 2006 levels.

Financial calendar is on page 25. There's really not much to be added here. It's consistent with past practices, to I turn it over to Mr. Ledda to handle the question period.

We can now begin the question and answer section.

Thank you. [OPERATOR INSTRUCTIONS].

Our first question today comes from Thierry Huon from Exane. Please go ahead, sir.

Yes, good afternoon. It's Thierry Huon from Exane. First, congratulations on your good results and the fact of achieving all of the targets you promised to the market, but I have three questions. The first one is about the new production system you mentioned and that will be put in place at Fiat Auto. Could you elaborate a bit on that and to know what would the timeframe to spread this system over the group? Then the second question relates to the confidence -- you mentioned that Magneti and Teksid had a good year, thanks to Fiat, but I guess Magneti has some real assets with flexible systems. And could you tell us what you intend to do with that? Do you see a big future for this system?

And the last point is about the trucks. You said that the consolidation seems to be off the table since MAN dropped its bid on Scania, but apparently there are still talks underway between Volkswagen, MAN and Scania to combine their operations in a different manner than the 2001 plan earlier, but how Iveco could stay away from this consolidation if it's going to take place. Thank you.

The new production system, we had a presentation by Stefan Ketter at the Lingotto presentation on our world-class manufacturing system. It is a system which is an extension of the Toyota production system. It's much more comprehensive in nature. It targets waste in the production side. It has been rolled out effectively probably in the most extensive way in our Tychy plant in Poland.

It operates functionally now in our Casino plant, where the Bravo is being launched. It has been introduced in connection with the launch of the new Ipsilon in September of '06 in our Termini Imerese plant, and it's really been a significant driver of the operational improvements of the production of the Grande Punto in Melfi..

We have now begun to introduce people inside the other sectors who are linked to the world-class manufacturing organization that has been put together in auto. And so we're going to begin to roll out this program in the other sectors during 2007.

The introduction of the system in and by itself is not the final application of the system in the sense that it will require a period of three or four years to be fully deployed. And we will not see the full benefits of this until 2010, at least in the full form.

As is true of all these systems, the benefits associated with this introduction is sloped, so we'll get most of the benefits within the first 24 months, and then we will get the remainder over the remainder of the period. But to give you an idea of the benefit of this process, we've been able to reduce assembly time for a Grande Punto by roughly 18% in a matter of 12 months as a result of the introduction of this.

And I think we need to continue to work aggressively on the introduction of the system as these new cars get launched. We've got 23 new cars and 23 facelifts coming out of the house over the next four years.

All of them need to be attached to a sound and operating world-class manufacturing system. I think we intend to leverage the know-how that we're accumulating inside the Fiat Auto business to try and spread this across because, to be blunt, I think especially on the CNH side, the level of knowledge of these technical skills is relatively limited. And so I think we do have upside, certainly in terms of product cost and we need to see the benefit of this coming through in 2007. And it was certainly one of the ambitions that had set for ourselves, at a time in which we had benchmarked ourselves against John Deere on the ag side and we'd identified areas of value leakage in terms of P&L performance.

The group is fully sponsoring this. It's not an auto initiative. It has, and it will take on, the role of a group-wide process. You asked a question about Magneti Marelli and its technology and so on as to whether it becomes available to others.

To give you an example of the flex fuel that you made reference to, flex fuel is going to be available on [Cerri] cars made in India, so the thing is being aggressively marketed. We're also going to make it available in our Chinese cars, but it is also being made available to competitors across the range, and this extends also to the diesel technology know-how that sits within both FPT and Magneti Marelli.

So we do intend to leverage this know-how, as long as we do not create a competitive disadvantage to Fiat Group. And, to be honest, I've not found a single thing that sits within the technology arsenal of both of these sectors that would endanger the ongoing viability of these businesses. So I'm happy with what they've done. I think they're well on their way of getting to the 7% margin that we set for ourselves in 2010.

The issue that you raised about a consolidation, there may be talks underway regardless, and I think that in all the industries, there is always a level of communication amongst industry players, which is designed to try and achieve a particular objective.

I've shown a level of skepticism about the intended benefits of an MAN-Scania combination, because I don't see the benefit associated with the merge. But, having said this, I don't think that Iveco, especially given Fiat Group's financial position today, is going to shy away from an opportunity that could arise that would significantly strengthen, both operationally and strategically the positioning of Iveco.

It is not a question of selling the business to others, but I think it is a question of finding other avenues for expansion of Iveco which may not be contained within its current operating envelope. I've been clear on the fact that the U.S. market remains a market of interest to us.

The moves that we have made in China to set the platform for an Iveco are clear in intent and we will see the benefits of this operation by 2010. And so we continue to be an industry player and we continue to watch with interest. I just don't think that we need to be caught up in merger discussions with people that are ultimately and potentially going to lead to market share attrition. So I remain skeptical of that process, but I think we will be players.

Okay, thanks.

Thank you. Our next question today comes from Serge Escude of UBM. Please go ahead, sir.

Yes good day, Unicredit. I have two questions. The first one is about the marketing expenses you are planning for 2007 overall for the group. And if you can just split also that expenses by the three main divisions of the group, Fiat Auto, Iveco and CNH?

My second question is about the tax shield. You were mentioning the tax you were planning to pay in the next year and the following years. And the tax shield that is potential with Fiat Auto losses, could you explain to us how it will be split and what is the total amount of that tax shield? Thank you.

I'm not sure that I can tell you, and I'm not sure that I should tell you how much we're committing in terms of marketing expense at the group level. What I can tell you is just the car side is spending close to 1 billion a year, and that includes also our commitment to our network overall, but I think the number is substantial. And it's a number, especially on what I consider to be consumer products is going to continue to be a significant element of the P&L.

It cannot be avoided. It is not the type of stuff that needs to be curtailed. I think that one of the reasons why we have been able to reposition the brands and why we have been successful in gaining share, not only in Italy, but outside of Italy, is because the communication exercise that has gone on here has been incredibly effective.

I think we continue to work on innovative ways to get that message across. It is probably a strong distinguishing trait of the brands of the car business that Fiat owns today against others, and I think we need to continue to leverage them. But, as a general comment, the marketing expense of both CNH and Iveco paled to comparison to what the Fiat Group Automobiles business spends.

These are not heavy spenders on that end. I'm not sure that it's totally justified in the case of Iveco, but certainly I see no reason why it ought to be a significant element of the expenditure profile of CNH. It's not a marketplace that will benefit from the exercise in a very aggressive way.

There are other ways in which I think we need to develop the uniqueness and the positioning of the CNH brands, and we're working on these, but I don't think they involve a huge amount of cash outlays.

And I was including the dealer network in that expenses, too. That's the reason I was including that CNH and Iveco.

Yes, the issue of network development for CNH and Iveco is relatively small. I can tell you right now that if I were to look at the network coverage for both Iveco and CNH, it is not a sore point of that development. They have an adequate network in Western Europe on the Iveco side and there is sufficient coverage, with perhaps the exception of the construction equipment brands in Europe. But, otherwise, they do have adequate coverage. It is a system that requires a different type of financial equipment than the car business does.

And so they don't constitute a large element of the P&L going forward. This is really a question of operating through the infrastructure and the network that has been set, and it is not going to be a noticeable number in terms of the profit reconciliation going forward for other sectors.

In terms of your tax loss discussions, I think that I can give you -- I can give you the numbers that I have, but we probably have -- as of the end of 2006, what we have is, roughly, and this is going to turn into a pretty boring technical discussion, but we have on book about EUR1.6 billion worth of assets, which over the plan period is going to work its way down to roughly EUR800 million.

And then we have roughly EUR5 billion worth of losses, of which roughly 65% relates to Italy and roughly half of which relates to the car business, which is expected to utilized, put on book and be brought down to about EUR2 billion by the end of the period. Is that helpful?

Okay, thank you very much.

Thank you. Our next question comes from Max Warbuton of UBS. Please go ahead, sir.

Yes, good afternoon, Max Warbuton. Just got two questions, broadly, on corporate activity.

Mr. Marchionne, I'd just like to come back to the comment you make on trucks. You make it clear that Iveco is a buyer, not a seller, and that North America is probably the most attractive market. If we look at what's available in North America, the kind of minimum size of a deal is probably 6, $7 billion. Does Fiat have the financial capability to do a deal like that during the plan period? During 2007 to 2010? That's question one.

And then second question, just on auto, you put out a statement earlier this week which talks about renaming Fiat Auto into I think Fiat Group Automobiles S.p.A. and some subdivisions. Could you just explain what this means? Is this just literally a change of letterhead on the corporate stationary, or is there something more substantial, more complex and more legal to this change in name? Thank you.

Well, I appreciate your attempt to summarize what I said about the truck business, but I don't think that I ever said that Iveco would only be a buyer and not a seller, and I don't think -- and so what I did say is that Iveco will be a player, and I've been doing this long enough now to know that I cannot forecast the way in which these businesses end up if a process of consolidation is required. I have some fundamental doubts, and I go back to what I said in terms of the MAN-Scania transaction.

I have some fundamental doubts as to whether aggregations of these businesses can yield sufficient synergies to justify the pain and suffering associated with a merger. In the case of Iveco, I think our strengthening of the heavy end of the product with the Stralis is going to give us the tool to effectively position the brand and the associated offering in the heavy end properly.

When people keep on talking about the fact that Iveco does not have a significant market share on the heavy end, I would just like to remind everybody that the biggest player in this industry has less than 20% market share on the European side. And so that when we talk about being of size, being of the size of Iveco is neither critical nor lethal to its development. So I think we need to nurture what we have and we need to move it on.

The second point that you raised, the second part of this question, which had to do with the fact that we're interested in the U.S., the reason why we're interested in the U.S. is because it is an area where we're not active with trucks. We're present with CNH. We have an extensive distribution network and manufacturing facility infrastructure through the Case New Holland business, but we don't sell trucks in the U.S., nor do we sell vehicles, with the exception of Maserati and Ferrari.

I am not sure that if you were advertising for the investment banking skills of UBS, your suggestion that 6 to $7 billion is the right entry price, that that was really helpful, because I am not sure what you're referring to being that expensive. I'm not sure that you need to spend that much money to be a player in the U.S.

But, having said this, I think there is an issue. If you look at the 2007 to 2010 plan, cash generation, the group is going to be sitting on top of more than EUR3 billion cash at the end of the plan period. And so the answer to your question is that, technically, it will have more than enough financial resources to get to that end, more than enough.

At the speed at which we're generating crash today, the ability for us to transact a deal, even if the size that you indicated is right, is certainly accomplishable within the four-year period.

And the last question you asked, which has to do with the change in name, this is a continuation of the brand disaggregation exercise that we started in 2004. We do need to create commercial organizations that are fully representative of the value of the brand and the product offering associated with the brand. And so I think it is much more than purely a legal issue of creating four legal entities and changing the name of the holding company on top of it.

It is really a question of creating organizations underneath that do represent the full offering of the brand value to a marketplace and creates the type of leadership between dealer, distribution and customer that is absolutely required to achieve our margin numbers and our market share numbers.

I think one of the biggest problems that we found when we got here in 2004 is this whole issue of brand aggregation inside of Fiat Auto. I think we spend a lot of time, and I think we have been successful in so doing, in terms of disaggregating the brands and presenting the attributes of these brands in the marketplace distinctly, one from the other, and I think it's beginning to work. I think it is probably at the heart of the resurrection of the Fiat brand as a brand.

I think it's at the heart of the volume gains that we've made, both at Alfa Romeo and Lancia. And I think we need to continue to reinforce that exercise and the creation of these separate legal entities is designed to reinforce it.

Can I just come back with a follow-on on that?

Sure.

I mean, just briefly on the U.S. target, referring to Navistar and looking at its debt and its pension, et cetera, that's where that number comes from. But the follow-on question on auto, you yourself have used repeatedly the term technically possible when talking about the deconsolidation of auto. Is there anything that's happened in this renaming that is legal that moves us a step closer to that deconsolidation being technically possible, or are we reading too much into this announcement this week?

I think all the constituent elements for the potential disaggregation of Fiat Auto from Fiat Group existed before the name change.

Thanks.

So the name change is in the creation of these four brand companies has neither worsened nor made it easier. It was always doable from the beginning. The legal structure to accomplish that end is in place. The technically possible argument that I made reference to had to do with the ability to generate earnings and cash on a standalone basis from the sector, which it is now doing.

Thanks.

Thank you. Our next question today comes from Sabine Blumel of Banca IMI. Please go ahead.

Hello, good afternoon. Could you please give us some indication what the earnings contribution -- Fiat Auto trading contribution of the operations in Brazil were in 2006 and where you actually see the profitability in Brazil going, assuming that demand stays positive? And could you give us targets, profit targets, for Maserati, both in 2007, and where do you see a common effect like Maserati to be in 2010 in terms of margins? Thank you.

Let me answer your questions backwards. I think we gave indications of the aggregate profitability numbers of Ferrari, Maserati, representing a premium group. There were in the numbers that I gave out in the auto presentation, and I prefer not to split them any further.

Okay, but I would be interested in a split. That was the reason of my asking.

I know, but you're also interested in the split of the profitability of Brazil ex operations, and I've always refused to answer that question and I will continue to do so. The only thing I can tell you is that the impact on Q4 of Brazil is less than it was last year by a long stretch.

Sorry, it was the same?

It was a lot less, and that is the reason I made the comment that ex Brazil operations were both positive in cash and earnings.

So the profitability in Brazil has gone down in the fourth quarter?

No, the profitability in Brazil -- this much I'll tell you. Let me look at the numbers.

No, the profitability number in Brazil is marginally higher in '06 as it was compared to 2005.

Okay, thank you.

Is that helpful?

Marginally.

Okay.

Thank you. Our next question today comes from Adam Jonas with Morgan Stanley. Please go ahead.

Sorry, hi, can you hear me?

Yes.

Great. I just have three questions, the first one for Mr. Francescatti on the net debt target of 2 billion at the end of 2007. It seems to many of us that you've overachieved on the net debt target for the year that's just passed, and I understand that some of your cash out commitments are going to be increasing, such as the dividend, the catch-up of the savings and perhaps -- and whatnot -- and that working capital perhaps won't be as positive this year as last year. But does that around 2 billion net debt target appear to conservative right now? Or maybe you can give us a walk of why it shouldn't be far less than 2 billion, given the favorable starting point?

Then a question on the provisioning levels, and Mr. Marchionne, you mentioned how as you're transforming the business in the early stages and you want to be cautious and you provision and, if anything, you'd want to provision on the -- if you wanted to err in any direction, it would be in excess, which is understandable. And that as you mature, and especially in the auto side and grow into the footprint, that there will be scope to -- I think you said to revisit that.

But does that mean that the provisioning levels in terms of network or advertising or quality, should we assume then still a stable level of provisioning in '07 versus '06 within Fiat Auto, or are we now at a point where we can start to get some tailwinds? It's still provisioning, just perhaps not as much as the prior year, and therefore delta tailwinds.

Those are the only questions I have. Thank you.

I'll answer the second question. The answer is yes. You're going to see some tailwinds at the end of '07 as we get more comfortable with the provisioning procedures that we're putting in place at auto. But I want to live through the introduction of the Bravo and I want to see the introduction of the Cinquecento and then we'll see.

But in terms of -- I'm going to answer this question on behalf of Mr. Francescatti, since we just agreed the answer while the microphone was on mute. I think there is a reasonable basis for your assertions in terms of the unambitious level of debt targets by the end of '07. I think we'll revisit that number by the end of Q1. We'll give you a revised target for the end of the year.

And can you tell us within that expectation or revised target, working capital, should we assume that working capital can yet be another source of funds given the production growth that you're anticipating for auto this year?

Yes.

Okay, thanks very much.

You're welcome.

Thank you. Our next question today comes from [Jean-Marc Mueller] of [Banc Benevu]. Please go ahead, sir.

First, congratulations on that, and just two a bit boring questions, actually, following up on the other question we just heard. On the cash flows, obviously, you're going to revise that, maybe after Q1. But, still, in your plan you have a net working capital outflow of EUR100 million and a CapEx of EUR3.7 billion. That is the 2007 plan, or the 2007-2010 plan, and can just give us maybe on these two issues -- I mean, I understand working capital very much depends on the growth of Fiat Auto, but on the EUR3.7 billion CapEx number, I mean, is there any specific reason why CapEx should be 30% higher than in 2006? And that would be my first question.

Then, my second question, again technical, somewhat boring. You're targeting an EBIT of EUR2.6 billion and a net profit of roughly EUR1.7 billion, so there's basically a 900 million gap between EBIT and net profit and that is made up of financial result, equity investment income, taxes and minorities, I mean, that number seems a bit aggressive to me, so maybe if you could give me a rough split of these four in items for 2007, as you see it as of today, that would be great.

Well, I'm glad you called them boring questions, Jean-Marc. I think the number that we laid out on the plan in terms of CapEx was at the upper end of what we consider to be the reasonable range of capital commitments for this group over the 12-month period.

I think there is room, certainly based on what we've seen in terms of achievement for 2006 where the number came in under EUR2.9 billion. Probably the 3.7 is the upper end. Having said this, I think we need to see what rates we're accumulating costs with the introduction of the 23 models and the 23 facelifts that we've got. So I much prefer to take a harder look at this at the end of Q1 and give you an update on that number.

The difference between net income and the improvement in operating profit of the group in '07, there is a large chunk of financial charges which have nothing to do with the amount of debt level that we carry. They're relating to IAS-19 charges, which are pension related. They account for roughly EUR200 million of the EUR500 million that we've got. Is it 200 million? I'm looking at Mr. Francescatti? Is it 200 million, IAS-19?

IAS-19, it's 165.

Plus the other charges related --

Other charges unrelated to debt, basically, we have roughly more than 40 million related to taxes on financial flows and then another roughly EUR5 million related to fees, commission expenses.

So we're talking about roughly a EUR200 million fixed charge. The rest of it is purely debt related, and some of it will carry the cost of arbitrage because of us holding liquidity and having debt exposure.

So that number is going to come down in 2007. The tax rate, I have given you some pretty clear indications, although I think we'll be in excess of 21% pre IRAP on the tax rate, roughly 23 to 24% in 2007. And as we go through this, I think that, given the change in the debt positioning that we have experienced at the end of 2006, I think we will take a look at this at the end Q1 and come back with a view as to what will happen between those lines. But, otherwise, we're going to hold on and confirm target of 1.6 to 1.8 for the time being.

Is it fair to assume that equity investment income should also grow quite substantially, given that you have now this collaboration with Credit Agricole on the dealer financing and also on the rental financing, which originally was booked in Fiat Auto, if I understand correctly and now will move down into equity investments?

I think that the only comment that we have made publicly, and this is a result of the expansion of the business of Fiat Auto and the degree of penetration that we're having in the sector, that we do expect financial services, the joint venture itself, to have a good performance and therefore our equity pickup as a result of that association is going to be at least equivalent to what Fiat Auto was booking on its own.

Sure. Congratulations again. Thanks.

Thanks.

Thank you. Our next question now will come from Virginie Mair from Bear Stearns. Please go ahead.

Yes, good afternoon, it's Virginie Mair from Bear Stearns in London. I would have two questions, please. One is about the components division, excluding FPT. I'm not sure I understood what your short to medium-term commitment is to owning these various businesses and whether you would consider the disposal of any of those at the right price? My second question is actually similar to the discussion we had earlier on about the truck division, and it's about CNH. One could argue that CNH is sound enough to engage in external growth.

What are your thoughts on this? Are you considering any acquisitions in CNH's sectors, and if so, would you accept a dilution of your stake in CNH.

I want to start answering your questions backwards, but I think strategically we are willing to suffer dilution in positions if at the end of the day we end up owning a percentage of a business which is strategically much stronger than it was pre-dilution.

That is a general statement. It applies to things outside of CNH in general. The bigger problem with your question is that if it's CNH specific, then I'm not sure that it's got much application.

When we carried out the acquisition of Case back in 1999, we lived through a period of hell between '99 and 2001, going through a pretty significant process of divestiture that was imposed by antitrust authorities in the U.S. and Europe. And it's reflective of the size of the business in terms of the industry coverage. These are industries which are fundamentally oligopolies, and to the extent that one tries to aggregate businesses in this sector, one is going to run afoul of most antitrust legislations.

I think the remaining portion of coverage, which is not yet accessible to CNH, does not sit within its main training areas, and therefore will be outside of the U.S. or North America. It will be outside of Latin America, outside of Europe.

And so all of our efforts on the corporate development side of this business have been targeted towards Southeast Asia, which is an area where we do have coverage, but where antitrust considerations would not apply. And in terms of our commitment to the Marelli business, I confirm our commitment in the short to medium term to maintaining these businesses.

I don't think that we're at the stage of the development of this house to talk about divestitures of any business. I think we're happy with what we've got. I think we need to continue to work on the operating improvement plans of these business. I think we need to get Marelli to a 7% margin performance by 2010, and that remains our commitment.

All right, thank you very much.

Thank you. Monica Bosio of Intesa Sanpaolo Caboto has our next question. Please go ahead.

Good afternoon. Could you please elaborate more on the alliance with Tata and on the production of the low-cost car. My question is are we going to revise the volumes target on the long-term run?

And my second question is could you please give us some indication on the evolution of the trading profit margin for the car division, taking into account that the incentives in Italy, the impact of the incentives. Thank you.

Okay, I'm going to answer them backwards again. I think it's too early to tell about the impact of the incentives on the car division. These incentives are available to everybody in the marketplace. It's not just a Fiat-driven incentive. But people will benefit from the introduction of these incentives, as they have done in Germany with the introduction of the VAT issue back in 2006 as opposed to 2007.

I'm not trying to duck your question. I think that we need to see the benefit of this process into the marketplace. I think that it will be in a much better position to estimate how it's working through the marketplace by the end of Q1 and I think we'll come back to this if effectively there is room for optimism in terms of volumes in the Italian car side.

In terms of the -- I'm not sure that I understood the question about whether we're going to --

My question was how do you see your evolution quarter by quarter on the trading profit margin of the sector, given the impact of the incentives in the first quarter versus the rest of the year?

Yes, to be perfectly honest, I don't know. Instinctively, one would suggest that the impact is going to be beneficial not just for Fiat, but for everybody, but I cannot tell you what the impact on volumes is going to be.

We have not seen -- we have had a decent month in January. The first two weeks were exceptionally good. The overall month is going to end up being in good shape, but I don't think I've seen anything in these numbers that would suggest that there's going to be such an abnormal performance of the market to justify a revision of volumes based on what I know. But I think we need to give this some time and we need to see the incentives in place for at least 90 days, and then we'll come back and give you a better view as to where we think volumes will be for the whole 2007.

In terms of the Tata connection, I go back to what I said publicly about our connections with Tata. We consider Tata to be a strategic partner of Fiat in its development going forward, and therefore we will collaborate with them in a variety of areas, including the low-cost car. The low-cost car is a Tata project, and we're simply acting as -- we're providing assistance to what we can on the technical side.

We're exploring ways in which the group Fiat could potentially benefit from the production of that car and from the marketing of that car in areas that yet need to be decided between ourselves and Tata. I'm not sure that I understood the second question, which had to do with volumes, as to whether we were going to revise them up or down.

If the question was in connection with our association with Tata, the answer is no.

Okay.

Okay.

Thank you very much.

Thank you.

Thank you. Paolo Mosole of Intermonte has our next question. Please go ahead, sir.

Good afternoon to everybody. I have a couple of questions on the auto division. The first one is on the evolution of the trading profit in fourth quarter. I'm looking at the implicit fourth quarter from slide nine. I have the feeling that the impact of volume and absorption has been good, but not very excellent, and the impact of the product and mix has been basically zero. And could you confirm it is, and explain to me why -- which are the trends behind this?

And the second question, on the target that you gave for Grande Punto in 2007, which is, again, 360,000, which was the same for 2006, why it is considering that in 2006 Grande Punto wasn't launch in all the European markets since the beginning of the year?

And the second kind of question on Comau, is the restructuring charge enough, or should we expect other charges in 2007? And what should be the loss we should assume in 2007 for Comau? Thank you.

Backwards answer, no loss in 2007 for Comau. There will be no additional charges in addition with Comau 2007. I think we booked all we need to book. In terms of the launch of the Grande Punto, I think you're probably underestimating the effectiveness of the launch of the Punto in the European markets. I think we were well on the way in the beginning of 2006 in terms of market penetration.

I think, as usual, we are taking a degree of caution on volume assumptions we want to see in the marketplace. We have been able to run about 465,000 cars, roughly 460,000 cars out of the Fiat brand in the B segment, as a result of the maintenance of the old and of the new Punto.

And so I think we need to be careful about how much of this market we can technically grab. If you add on the Ipsilon, the three-door version, which is the biggest-selling car in the B segment, the three-door version, in Italy, I think we're achieving pretty sizable positions in the B segment, and I think that we need to continue to be cautious in terms of what we think we can achieve in terms of market penetration.

I'm not sure that I agree with your suggestion about what the fourth quarter -- as to whether we have not had adequate absorption in our plants. I think you need to realize that to begin with we've got startup functions in terms of our launch of the Bravo, which have been going on since probably the beginning of October in terms of our Casino plant.

But I'm quite satisfied with the impact of these volumes on the absorption levels of our plants and the business did make 95 million in the fourth quarter of 2006, so it's not an inconsequential number. It is the number that was targeted as being the whole trading profit for the year at the beginning of '06, and it was done in Q4. So I appreciate the suggestion that we should do more, and I will take it to heart, but I think you need -- the business is capable of producing what it's capable of producing.

And I go back to what I also said about the conservative way in which I think we're dealing with some of the provisioning issues inside the sector, given our history. So give the business some time to come out of the woods.

Okay, and if I can, just one follow-up.

Yes.

On the old Punto, if you can call it this way, as it has been a surprising 2006. Can you assume that it will be on production beyond 2007?

It may be in production for a period of time in '07, but I think that we've got some strategic development that will suggest there is a replacement car for that car coming. It's coming out of our global platform development, which may become relevant in Europe in 2008.

Okay, thank you.

Thanks.

Thank you. Our final question today will come from Philippe Houchois of JPMorgan. Please go ahead.

Good afternoon. I'm sorry to come back to that question of provisioning and I appreciate your caution in adjusting downward any kind of warranty costs, et cetera. But in your business there are probably auditors that look at those numbers and check assumptions of such reality.

Could you tell us clearly whether your warranty expenses, your actual cost of warranty, or serving the warranty to your customers is actually coming down, or is it remaining at the high levels?

It's coming down.

Coming down, okay. And so at what time do we expect the auditors to come in and tell you that you over-provisioned?

Well, I think that we'll see when we finish the cycle of the introduction of these products. We've got a big product launch for the Grande Punto that was done in September of 2005. We need to work our way through the warranty period of that car. There's a Bravo coming. We'll see it sometime.

As I mentioned in my answer to one of the questions that I was asked, somebody asked me whether we're going to see the tailwinds of this process at the end of '07, and the answer is yes.

Okay, thank you very much.

Thank you. That will conclude today's question and answer section. I would now like to turn the call over to Mr. Sergio Marchionne.

Thank you very much, operator. Thank you all for participating to the call and please feel free to call us for any follow-up questions. Bye.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen.