Stellantis NV (STLA) 2007 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Fiat 2007 first quarter results conference call. For your information, this conference is being recorded. At this time, I would like to turn the call over to your host today, Mr. [Marco Oriema], of Fiat investor relations team. Please go ahead.

Good afternoon and good morning, as the case may be, and welcome to Fiat's first quarter 2007 results conference call. I'm Marco Oriema. I'm here with Marcello Ledda from Fiat investor relations. As usual, today's call will be hosted our Chief Executive, Mr. Sergio Marchionne, and our Group Treasurer, Mr. Maurizio Francescatti.

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. Before moving ahead, I do need to provide you with the traditional warning. For any forward-looking statements we might be making during this presentation or in answering questions, please refer to the Safe Harbor statement on the Form 20-F, which we filed with the SEC. And now I will pass immediately the microphone to Mr. Marchionne.

Thanks very much. Good afternoon. Good morning. The first quarter '07 has been again an outstanding quarter for the group. We've had a nice consecutive year-over-year quarterly improvement in trading profit. We have limited to nine quarters because I think the first quarter of 2004 was the first quarter where we reported numbers under IFRS. For all I know, it may be a longer string, but I think for our purposes it's sufficiently long.

We've had trading profit which has nearly reached EUR600 million, margins are now 4.4, compared to about 2.6% in 2006. We have had an improvement across all sectors. I'm not going to spend much time going through the details on page two, but the improvement has been across all the main businesses. Auto, trucks, construction equipment and tractors have all had a great first quarter. Net income is up 150% to EUR376 million. We've generated about EUR0.5 billion of cash, EUR200 million of which is coming out of divestitures, but we've got liquidity nearly of EUR8 billion at the end of the quarter and net industrial debt is now below EUR1.3 billion.

We're confirming '07 targets at the upper end of the guidance that we provided, and we're now forecasting net industrial debt to be below EUR1 billion by the end of 2007. If we can move on to slide number three, revenue side, as you can see, we've gone up in all sectors. The growth could have been nearly 10% if we exclude the decline in revenues in Comau, which relate to a structural decline in the nature of the business, but of the remaining businesses we were up almost 10%.

If you move on to slide number four, you can see the composition of our profit shift from EUR323 million to nearly EUR600 million. The bulk of this improvement has come for the car side, as expected, but we've also had significant improvement in CNH and Iveco, and we'll talk more about these as we go through the presentation.

Some general remarks about raw material price increases before we move on and discuss the sectors, for the quarter, we saved on a gross basis roughly EUR170 million as a result of interventions on purchasing, and the cost associated with raw material price increases were roughly EUR90 million, so net-net we're talking about a net gain year-over-year of roughly EUR80 million. We're forecasting that number on a net basis to be roughly EUR300 million compared to 2006.

As you can see from slide four, the majority of the profit improvement has come from volume, mix and prices, and this is true of all the businesses. And if we can move on to slide number five, which deals with the car side, this is the main car business, Fiat Group Automobiles. As you can see, volumes have been up about 10.2% on the top line, units are up 11.6%. The bulk of that growth obviously has come from the passenger car side, which is up nearly 9%, although we have had an outstanding quarter in commercial vehicles, which were up 28.5%.

We have now reached 8.5% market share in Western Europe, which is well above the 8% target that we'd set for ourselves. Brazil continues to go strong, both in terms of volumes and market share. We are outperforming a market which in and by itself was up by 17%, but we're up 25% year-over-year. And, as the slide says, continues to provide outstanding profitability, but ex Brazil we're profitable and we're confirming a trend that was established in 2006.

Slide number six shows the composition of the profit improvement from EUR57 million to EUR192 million. As expected, we've got green bars across volumes, price mix. As I mentioned earlier on purchasing, and obviously on the impact of absorption as a result of the increased volume of activity in our plants.

We continue to spend in R&D to try and -- as a result of the amortization of cost incurred with the recently launched models, plus the continuing investments in the development of the product portfolio for the car side, we continue to over-invest compared to prior years in connection with advertising, marketing and the building up of the network, which continues to be one of our key objectives for 2007.

If you can move on to slide number seven, we are steadily gaining market share, as you can see. We have exceeded the 30% mark in Italy, and that's the minimum threshold that we set for ourselves in 2007 and up to now we've kept it. We've done about 31.% as of the end of March of 2007 and 8.5%, as I mentioned earlier, in Western Europe.

The work on the development of the network continues. As I said earlier, we've closed another 21 open points in the first quarter. The expectation is that all of them will be closed by the end of 2007, as presented in the Lingotto presentation back in November. Moving on to slide number six, production is at an all-time high of 556,000, although that has matched both registrations and sales, which really going back to the time series starting in 2005 are today at the highest possible level.

Inventory levels at dealers are probably at historical lows. We've intentionally placed a high level of working capital discipline on both ourselves and the dealer network. And as you can see from slide nine, the introduction of the Bravo continues to go well. It will be completed with the major European markets by June with the introduction of the Bravo in the UK.

Just to remind us all, this car was put into production 18 months after a design freeze. We have 70,000 units targeted for the whole of 2007, with 120,000 units on a full-year basis. We already have 29,000 orders, of which 11,000 were recorded in Q1 of '07. The car has been received well, and I think it will change the configuration of the Fiat brand in the marketplace because of the fact that we're entering and have entered, a segment which represents 25% of total European car volumes.

The cars that you see on the right are the mainstays of the brands. We confirm targets of 360,000 for the Punto for 2007, which has always been our full-year objective. Panda will continue at about 250,000 and the other cars, as you can see, are doing well. Lancia has had its biggest-selling month in its history in the month of March this year, notwithstanding the fact that it's product portfolio is limited fundamentally to two models, the Ipsilon and the Musa.

On July the 4th, as you can see from slide nine, we'll be reintroducing the Fiat 500 in the marketplace. It has been brought forward by roughly 2.5 months. It will coincide with the 50th anniversary of the launch of the car back on July 4, 1957. We have as a target 58,000 units in '07, 120,000 on a full-year basis. Our expectations are that this car will be completely sold out certainly within 2007 and in all likelihood for 2008.

There's an incredible amount of interest in the vehicle, and it's a vehicle which was developed, at least on a platform basis, together with Ford out of a Polish plant and therefore our original investment costs of this project are nearly 60% of what it would have cost us to do it on a standalone basis.

Slide 11, which deals with the luxury cars, there's not much to be said about Ferrari. It has had a great quarter. Its two main models, the 599 and the 430, are having outstanding success in the marketplaces, is roughly a two-year waiting list for both models. The business had a very good performance, with EUR31 million in trading profit for the quarter, compared to 11%, almost 3 times 2006 levels.

Maserati has promised he is going to deliver at a minimum a breakeven performance in 2007. The volumes for the brand are up significantly, mainly on the back of the introduction of the automatic version of the Quattroporte. We have shown the new GranTurismo, the coupe, in Geneva, and that will hit the markets in the second half of 2007.

If we could move on to slide number 12, this is probably the most significant accomplishment for Fiat Group in 2007. This is an area that we started working on at the beginning of last year in terms of restoring this business to what we consider to be an adequate level of profitability. I think we have achieved a lot in the first quarter. As you can see from the slide, we have stopped the market share erosion of this business and we have reestablished both Case IH and New Holland brands in the marketplace as viable global competitors.

We've gained share in North America and Europe across the relevant product offerings that we have and it's a great basis for us to enter the second quarter, which I think is going to be the strongest quarter that CNH has ever had. The first one, this year, to the best of my knowledge, is the strongest quarter since the merger of Case and New Holland back in 1999.

And all of this work has translated itself into a substantial improvement in performance. Trading profit in local currency terms was up 50% over 2006. We're now at 7% margins, and I think that the expectations for the remainder of the year continue to be strong. We see no weakness in either one of those two markets, with the expectation of the construction equipment market in the United States, which is impacted by a slowdown in housing spend, but that slowdown will be more than compensated by increased level of activities across the rest of our positions across the globe.

When you look at page 13, you see the profit reconciliation of CNH, you can see that the bulk of the improvement has come from an improvement in mix as opposed to volumes, because volumes year-over-year are structurally down in number of units, but the quality of that mix has improved tremendously and has reflected itself in an improvement in trading profit of roughly EUR50 million. Prices also moved. We have been able to contain the impact of raw material price increases also in this business.

On slide 14, you can see two of the main product introductions. We have covered a hole in our product offering in Case IH by introducing a Class 7 combine, which was missing from the lineup, and that has been received well by the dealer network and by our customers. I mean, our production is full out and it's completely sold out certainly until the third quarter of this year.

T6000, 7000, is the new tractor launch for the New Holland brand. That has also had recently launched, but it's had great reception in the marketplace. We've had to increase production levels in order meet dealer demand. We'll see how well that does in the marketplace on the retail side.

More importantly, the business has begun to focus on the retail side of this business and market share gain indications that you see on this slide, on slide 13, really reflect the repositioning of the brand against ultimate customers, and that's really been our initial objectives when we restarted reshaping this business. I think that the organization that we've now put in place is the right organization to try and bring this business to the double-digit margin performance objectives that we set for it back in November for 2010. Truck side, page 15, 20% volume increase across the range, rate increases both in the light and in the heavy end of the product offering.

More importantly, I think we've been able to manage an increase in profitability, which is structurally outstanding, from EUR70 million to EUR150 million. We're now 6% margins. And as you well know, none of these businesses that we've talked about so far have yet had their best quarter. We expect the second quarter of this year and certainly the fourth of this year to show big improvements over Q1 '07, as they have done historically. You can see on page 16 the composition of this trading profit shift. A lot of this has come from volume and mix.

As promised, we have made significant inroads in the repositioning of the heavy end of the brand's offering in the marketplace. We've introduced the Stratus, as you can see on page 17, which has gone quite well, and we've received 6,000 orders already for something that was intended to take about 25,000 across the whole of 2007. We have I think the association with the All-Blacks, which was started in January of this year, is beginning to pay off and I think the organization has taken on a different tone from a positioning standpoint, and I think we will see really the market share gains throughout the rest of this year.

If we can move on to slide number 18, which deals with the power train technologies, this is the very first time that we've dealt with the issue of profit retention. At powertrain, as you know, roughly two-thirds of the sales of this business are to Fiat Group companies. As part of the arrangements between us and this business, Fiat Powertrain Technologies is obliged to transfer part of the savings from the manufacturing efficiency side and purchasing gains across back to its customers, and you can see this is a result of -- and you can see that in terms of the impact on profit, roughly EUR19 million of the profit of Fiat Powertrain had to be passed back to its customers in terms of price reductions. Against that the business has managed to produce about EUR30 million in terms of product improvements, product cost improvements, and therefore net-net it's been able to retain about EUR11 million of this profit generation.

It's had a good quarter. Volumes are up, drawn not only by the activities by Fiat Group Automobiles, but also by an increase of activities across our trucks and CNH.

Moving on to slide number 19, which deals with our components side, good performance across all the businesses, Comau excepted, which has suffered a decline in volumes from EUR306 million to about EUR229 million. This is expected to be the last quarter in which Comau will book a trading loss.

We expect the rest of the year to be at breakeven or slightly above. I think we have finished with the cleanup of the engagement portfolio that Comau had and I think we have now brought about all the structural changes that needed to be brought to that business to ensure at least that it will not continue to impact negatively on group trading performance and it will begin to generate cash, starting in '08.

Page 20, which deals with the reconciliation from trading profit to net results, just a couple of comments, we'll deal more in detail with the interest line, but in terms of taxes we are on a pre-ARAP basis at about 27% and ARAP included we're about 34%, which is in line with our own internal expectations. We expect to improve on both of these rates by roughly 3 percentage points by the end of this year.

Slide 21 is a slide that we've put into trying to shed some light on the relatively low interest charges that we've had on the financing charges. Total number for the quarter was EUR57 million, and against what we considered to be normal financial charges, we had a EUR91 million gain which relates to the mark to market of two equity swaps that are designed to support our stock option plans. These are required under IFRS to be included in income, and we have shown in this part of our financial charges, and therefore the structure in nonrecurring, the equivalent number back in 2006 was EUR33 million.

The other items are items that we deal with and we need to spend some time on this because I think it will impact on the way in which our financial charges line will look even when we get to zero industrial debt position. Net industrial debt at current levels, which is about EUR1.8 billion at 6% cost us roughly EUR27 million for the quarter.

The cost of carry, the cost of carrying the liquidity of roughly EUR6 billion for the quarter is roughly EUR30 million. These are numbers that we can manage in the sense that the liquidity issue was a choice that we've made in terms of maintaining these levels. I think we need to work very hard in ensuring that we can manage this liquidity properly across our geographic jurisdictions because the movement of this cash and the recapitalization of some of our subsidiaries across the world will have fiscal implications and therefore this is something that cannot be done just by moving cash around, so this is something that is being worked on in terms of the capital structure of the group.

It's probably going to take us between 12 and 24 months to try and optimize a structure that we find both financially and from a tax standpoint to be efficient, but we've got this item under a watch and we'll continue to work our way through it. The other items that make up financial charges, the first one relates to IS-19, which is fundamental pension interest-related costs of roughly EUR43 million. We do have indirect taxes on some banking transactions, mainly out of Brazil, which are canceling out at EUR3 million, and other [subs] which are roughly 35.

Those numbers are going to be recurring anyway, so when you add them all up, you're talking about a number which will be in excess of EUR300 million and will continue to impact on our financial charges line, even in the absence of debt exposure.

Moving on to slide 22, I mean, I'll deal with this and Mr. Francescatti can come back and answer questions, but I think we have had a good quarter in terms of cash flow generation, about EUR300 million coming out of industrial operations and EUR200 million coming out of our disposals. And if we can move on to slide number 23, which I think is the last slide, as I said, we're confirming the upper end of the guidance that we had earlier provided with group trading profit closer to EUR2.7 billion, net income closer to EUR1.8 billion and EPS at the upper end of the range of roughly EUR1.40.

Net industrial debt will be below EUR1 billion in the absence of share repurchases. We continue to work on a strategy of targeted alliances. We'll announce them as soon as they're completed. We continue to confirm our commitment to deliver all 2007 through 2010 targets.

Okay, thank you, we are ready to take your questions now.

Thank you. [OPERATOR INSTRUCTIONS]

Our first question today comes from Paolo Mosole from Intermonte. Please go ahead.

Good afternoon to everybody. I'm Paolo Mosole from Intermonte, and first of all, congratulations for the outstanding results. I wanted a clarification first of all on the trading profit of the [out] division. The EUR192 million does include EUR44 million of extraordinary items and in case could you specify what kind of items are these? And the second question concerns Iveco, which had a strong quarter. It seems that you are indicating that 2007 will grow again, versus the previous guidance of a flat year.

Is this is a correct interpretation? And the third question, on the equity swap impact, in case the share price continues to rise, should we expect a stronger impact on the net results and therefore what is this higher impact of the equity swap excluded from your guidance at net profit level?

Let me start to the answers. I think that we're excluding any additional equity swap impacts on the P&L in terms of the guidance that we've given, so whatever has been included in Q1 is considered to be the terminal number. I think there's a high degree of comfort in confirming guidance at the upper end, so I'm not sure that a EUR91 million is going to be a significant factor in the achievement of the objectives that we set.

On the Iveco side, I think we are confirming a stronger year that we'd announced earlier in terms of guidance for 2007. I think that we're seeing much stronger markets and I think we're seeing much better traction of the brand, both at the heavy and the light end of the spectrum. I think our order books are full, as you can see from the slide that we presented, and so our view is that both top line and margin performance will be -- certainly in terms of top line it will be stronger than previous indications and I think we're confirming our margin expectations for the business in 2007.

The question about the car side, this is a bit of a bizarre thing. The number, to begin are non-exceptional, these are normal operations that one would carry out anyway. This relates to the partial recognition of a sale on a piece of land that we have inside the car business that was planned to have been done for quite a while. There will be a second portion of this gain which will filter its way through the P&L in the second quarter of this year. Against that, there are one-off costs that in order to be absolutely pristine clear about this we have netted to yield roughly about EUR40 million.

They're non-exceptional, they are recurring in nature. We have highlighted them because of the significance in terms of the EUR192 million. The more important portion of this discussion relates to page six of the presentation, where you see the other column of roughly EUR19 million. That EUR40 million has found its way, is effectively reflected in the EUR19 million number. Year-over-year, the net impact of this one-off gain is really about 20 million bucks and it's not 40, and that's how we look at it. But I think we've had to be absolutely clear about what came into the calculation of the profit for the car business.

There will be again -- had the number been EUR10 million, it would not have been mentioned, it's simply its size. So that's why we've highlighted it, but the net impact on the profit reconciliation, '06 to '07, is the EUR19 million on page six.

Okay, thank you.

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

Hello, good afternoon, excellent result. Congratulations. Just some very quick questions on Brazil, again. I'm sure you waited for that, whether you could give us some sort of indication whether you see actually a margin improvement in line with your volume improvement in what must be surely your most profitable market.

The answer is yes, and I won't tell you what that is, but it was a good try, Sabine, again.

I keep trying. And just a technical question, despite the Fidis transacting, there's still a financial services aspect or portion in Fiat Auto's trading results. What businesses does this refer to?

Basically, the largest part of this refers to the Brazilian operation, which have not entered the joint venture with Credit Agricole.

Okay, but this will continue to stay on the consolidated results.

Yes, of course.

Okay, thank you.

Okay, thank you. We'll now move to our next question, from Monica Bosio from Caboto. Please go ahead.

Yes, good afternoon. Could you please give us a flavor on the different operating profitability of the new models versus the old ones, or in other words, could you also give the weight of the new models versus the old ones in comparison with the first quarter 2006. And the second question is this. How do you see the Italian market [inaudible] incentives will aspire?

To begin with, I think the Italian market has been helped at least for the first part of 2007 by incentives. I think that by the time we continue -- by the time we complete the repositioning of the brands in the whole of Europe and especially Italy, I think that we will be able to weather whatever potential decline is going to be in the marketplace as a result of the removal of the incentives. I think there is going to be enough urgency and I don't want to be sort of a forecaster of happy times going forward, here.

Simply in terms of the impact that regulations is having on the management of the car pool and the European car market as a result of the introduction of the new standard Euro 5 and Euro 6, I think that the industry is going to be looking at relatively stable, healthy levels, certainly for the remainder of the forecasts period up to 2010, in the absence of an external shock to the economic system which I cannot forecast now.

In terms of the profitability of current models against Q1 '06, there really has not been a raft of introductions of products in Q1 '07. The impact of the Bravo on the numbers is relatively small, is only 11,000 units sold out of 541,000, and the Punto was there Q1 '06, and it's here in Q1 '07, so year-over-year there's not been a huge impact as a result of the introduction of models. I think that's going to e a much more relative question.

As we worked our way through the rest of 2007 with the introduction of the 500 and certainly in 2008 as Alfa Romeo begins the rejuvenation of its product portfolio with the introduction of the B segment car. So for now we have -- certainly our gross margin performance in terms cars is improved. It's reflected in the value of unit sales across the pool of cars being sold and I think that we expect that to continue. It's a result of a variety of things, including the fact that we stopped the discounting practices that were present back in 2004.

Okay, thank you.

Thank you. Our next question today comes from Martino De Ambroggi from Euromobiliare. Please go ahead.

Yes, good afternoon, good morning to everybody. I have a couple of questions on net debt target, because it doesn't seem really ambitious. I'd like to understand --

I agree.

I'd like to understand the impact of divestitures you are including in your guidance. Are you referring in particular to Mediobanca that probably that will be sold by year end?

Mediobanca is in the forecast. It will be out by year end.

Okay, so we are already close to the guidance. One more element, is there any other divestitures to be included?

No, but we're going to pay a dividend of EUR276 million between now and the time that we close the year.

Okay, but there is also a net working capital contribution expected, considering that --

I hope so.

And I'd like to understand what could be the impact of 200,000 additional units projected sold for Fiat Auto if we can split the impact only due to these volumes projections for Fiat Auto impact in terms of net working capital.

I'm going to give you general guidance and I'll pass it off to Mr. Francescatti to find out whether he's willing to answer your question. I know you're desperately trying to get me to tell you that I'm going to be down to zero by the end of 2007, and I think that I can construct an economic model that will deliver that number, and it's a model that will be absolutely consistent with the trading practices of the [sort] that we've established since 2004. Having said all this, I think that we need to be incredibly cautious about the way in which we're managing our objectives. I think I would like to see the end of Q2 come.

I'd like to see the performance of these businesses in Q2. We have had good cash flow generation from across all of the businesses, consistent with both top line growth and the trading profit performance. I think we will provide clarity on the -- we're going to keep on revisiting our net debt objective as we go through the reporting cycle, but for the time being the only thing that we feel comfortable doing is confirming a number which is below a billion.

Okay, and then net working capital for car business?

It will continue to be negative.

Yes, but could you quantify what could be the impact of 200,000 units of additional sales?

Mr. Francescatti is shaking his head. I think he is unwilling to commit to the number, and I think not because of the fact that we don't know it, because I think it's going to deliver an economic model that will confirm zero debt levels by the end of the year, and I just told you that I think it's economically possible.

It is clear that a 200,000 increase in volumes year-over-year is going to have a positive impact on working capital positions by the end of the year, which is not reflected, by the way, in the absolute volume of cars being sold, but simply by the production levels in the last four or five months of the year. So our expectation is that we're going to be running our plants flat out in the last half of 2007. I'll leave it at this.

We'll crunch some numbers here to find out whether we can give you a harmless answer to the question. Give us a couple of minutes. And we'll take another question in the interim.

Okay, thank you.

Thank you, we'll now move to our next question, from Tom Aney from Dresdner. Please go ahead.

Yes, good afternoon. I'd like to switch to Case New Holland ,and I have three questions there. I was wondering if you could detail more the positioning that you've done in the U.S. in Case and New Holland and update us a little more on the price development there and, last but not least, not only for Case New Holland, but also Iveco, could you update us on or enlighten us on your thoughts towards acquisitions.

I think what we started back in 2006, when we dismantled the ag construction equipment division inside CNH and we effectively broke up the businesses into four parts, two which related to ag brands, two that related to the construction equipment side, we ended up forcing these brands to focus on their historical positioning in the marketplace and forcing the organization to provide a product lineup that effectively matched sort of the historical basis of the brand.

Case IH, especially in the United States, and to a much lesser extent in Europe, has always been known as being a premium brand, and therefore as opposed to New Holland, which has been known to be a less sophisticated value-for-money ag equipment producer. This goes back to its original roots, which have to do with Fiat Trattori and the acquisition of Ford Tractors, which happened a number of years ago.

All the efforts that have gone in in the last 14, 15 months have forced these brands to refocus on these roots and to effectively reposition themselves accordingly. The product lineup has been cleaned up. The emphasis on the product offering has been designed to match this brand DNA. And so when you look at the market coverage for these brands, we have now covered 100% of the available market in the U.S. without providing competing product offerings, but effectively taking the premium side of the market and covering it with Case IH and taking the remainder of the market and covering this with New Holland.

New Holland is a bigger brand by definition. It's probably about roughly twice the size of Case IH, just in terms of its coverage, but it's also geographically division tin terms of its positioning. It's much, much stronger ex-U.S. than Case IH is, with Case IH being predominantly a U.S. marketer. What you have seen in terms of the impact on pricing is really a reflection of the pricing power of these brands, given what I have just told you in terms of what they represent to the ultimate customer.

And so we have been able to extract decent pricing for the relevant product offering for Case IH because it is a premium producer with premium products and therefore will extract that kind of margin from the marketplace. On the other side, a similar argument has been made on New Holland, which is fundamentally much more a European brand and therefore the pricing impact of all these actions has been the result of the removal of the pollution associated with market positioning of the brands.

And when you look at the available market today, there is no portion of the ag business which we cannot cover with one or the other brand, so we've got 100% coverage and the intent is to continue the development of these brands and the development of the product portfolio associated with these brands to ensure that we do provide 100% cover, with all the segmentation of the market to reflect the premium nature of Case IH.

On the Iveco side, and certainly in terms of acquisitions, we continue to be interested in finding a way for Iveco to play in the U.S., which remains probably its last unexploited market. That doesn't mean that we don't have a huge amount of work in terms of developing our position in Northern Europe and in other emerging countries, but the U.S. is a big market, which is of interest to us, and so we will continue to look at ways in which we can introduce Iveco into that marketplace, over the next few months. I cannot tell you how that will happen.

I think we're totally open in terms of the potential ways to enter the marketplace.

So, would I read that correctly, the acquisition emphasis is more on Iveco than Case New Holland?

I think it is highly unlikely that significant acquisitions will be carried out in CNH, simply because of the fact that I think we've got probably the best possible geographical cover of any competitor in this industry, and we certainly have all the product offering that's required in the major lines to provide market coverage.

There may be acquisitions which are related to particular fill-ins on geographies and particular fill-in in product offering, but it is highly questionable anything of significance will happen on the M&A side of CNH.

Thank you very much, and congratulations again.

Thank you. Adam Jonas from Morgan Stanley has our next question today.

Hi, thanks. Good evening. Adam Jonas, Morgan Stanley. Two questions. First, on the balance sheet going forward, as you continue to improve the net debt position and eventually move into net cash, clearly rather soon, can you tell us your views on how much dry powder you'd like to have, how much of a net cash position you'd like to have around for financial flexibility, for your credit rating, for potential M&A if you believe that that is something that can help your businesses. Just tell us if you have a formula or some algorithm, how you like to think of a net cash position going forward.

My second question is on the industry and the auto industry and the regulatory environment, and from your perspective, having seen what's happened to the heavy truck side, where CO2 and diesel particulate regulations have been a big driver of consolidation, from your perspective, Mr. Marchionne, of your leadership at the ACEA, do you see similar type of consolidation from regulatory actions adding hundreds or even thousands per engine of cost? Do you see this as a major driver for consolidation in the passenger car segment, too. If you could explain your thoughts on that, we'd appreciate it. Thank you.

I'll answer your questions in reverse order, and I'll come back to the truck parallel that you've provided. I think that the car business is a lot more efficient in terms of making its engines and components available across the competitor class. I don't think that any of us -- and I'll speak for Fiat and I'll make some general comments about sort of European car producers. I don't think any of us in the car business in Europe are going to be forced into an overall alliance with a competitor as a result of the impact of regulations on the engine side because, as we have done with FPT, with our powertrain business, we have made that technology available to competitors.

And so all of our engines, which are obviously going to meet regulations in terms of Euro 5 and Euro 6 limits, are potentially available and have been made available to our competitors. We buy some engines from General Motors. We have bought some from Peugeot Citroen in connection with our light commercial vehicles, and we do provide diesel engines to both and so one of the reasons why FPT was created back in 2005 was to turn this business toward third-party opportunities.

We have made some progress in the development of this business in that direction. Hopefully within 2007 we will be able to point to a couple of transactions that have effectively expanded the scope of this operation and that have found customers of significance for some of the engine ranges that we produce. And therefore I don't think that issue in and by itself is going to provoke a consolidation drive inside Europe. Having said all this, and I take the opportunity to repeat the position that I've had publicly on this in terms of CO2 emissions, I think that what has been drafted by Brussels in connection with the CO2 emissions the industry believes to be unrealistic targets within an unrealistic timeframe.

And I'm not here to convince you of that fact. I think it's going to put a huge amount of strain on the automotive industry, and I don't think that that strain can be cured by agglomeration, and so I think it's an issue that needs to be dealt with at a European Union level and I think we continue to lobby the institutions in Brussels to ensure that we make our point clear and that they understand the potentially disastrous impact on this industry in the absence of a more rational approach to CO2 and CO2 legislation implementation.

Just to finish off the discussion on engines, what has become clear is that one of our biggest points of leverage in terms of setting up strategic alliances is the availability of our engines. It's been one of the reasons why we were able to nail down our agreement with Ford in terms of the production of cars in Poland. It is one of the bases why we leveraged our position in India both with Suzuki in terms of making our 1.3 liter diesel available to them and in terms of the development of the joint production facilities between ourselves and Tata in India for the production of small diesel engines. So this continues to be a big card that we continue to leverage across not just the car side, which obviously is efficient in terms of the availability of engines, but, more importantly, on the industrial engines side, and I think your comments that they may have been at the heart of the consolidation effort a few years ago, because of the additional costs associated with compliance, with emission regulations, is undoubtedly true.

I think it is becoming even less relevant even in that industry today because of the fact that we do make these engines available to others. And I think that there are third-party suppliers which are standalone engine providers that can provide or fill in the gap for anybody who may not have the standalone technical abilities to comply with the emission regulations.

In terms of the other question that you've asked in terms of liquidity, it's a difficult question to answer. In a normalized, steady-state environment EUR 4 billion to EUR5 billion would be more than enough liquidity for us to manage the business.

I think that once this business starts cycling properly, even cash levels which are as low as EUR3 billion will suffice, but I think for the purposes of your analysis you should count on a number hovering around the EUR4 billion to EUR5 billion mark.

Okay, thank you very much.

Thank you. We now have a question from Philippe Houchois from JPMorgan. Please go ahead.

Yes, good afternoon. My question was on the share buyback. If you could quantify a little bit, you've set aside EUR1.4 billion. You have a more positive view of the free cash than at the beginning of the year. Could you talk about maybe some constraints you may have about spending the EUR1.4 billion, which you have agreed with the rating agencies in terms of your timeframe to get back to investment grade? And also if you can comment about the request from the savings shareholders to ask for conversion of the shares into ordinaries, if you're still -- I think you made a comment in the past you were in favor of simplifying the share class structure. Is that still the case? Is that still a priority for you?

I think I stated publicly at the shareholders' meeting that -- and I'll answer your questions backwards again, but I think I stated publicly that this issue about the simplification of our share structure was something which I have found to be sort of beneficial in the medium to long term. I don't think there's any level of urgency on our side that would suggest that we push for conversion of either the savings or the preferred shares back into common.

I think we will do this when the timing is appropriate and therefore it is highly unlikely that we will react -- actually, I can confirm it. It is unlikely that we will react to any requests to conversions of savings shares as a result of the class of shareholders requesting us to do so. Those shares were issued at the time under well-known conditions. I think that all the conditions and the terms relating to those shares are implicit in the structure of the instrument themselves. I don't think that we should be worrying about the fact that people may want to convert them.

There's always a possibility for them to sell those shares and effectively acquire common shares and accomplish the same end. I'm not sure that it's up to Fiat to provide the vehicle to get that done. Having said this, it is something that is potentially doable in the medium to long term, but we're not going to kill ourselves to try and get it done in a short timeframe.

The other question, which has to do with the commitment that we made to rating agencies as a factor limiting our ability to buy back shares, we have had no indications back from the rating agency that would suggest that this activity is subject to a cap. I think it is fair to say that collectively they have expressed a concern about accelerated increases in debt levels in the absence of the establishment of a sound industrial story. We continue to work with them to try and find an agreement on what that looks like. I think that given the amounts that we're talking as being potentially actionable in the short to medium term, I don't think that the item is going to be of concern to the rating agencies, especially in view of the cash flow generation of this business that we forecast over the next 24 months.

Okay, thank you very much.

Thank you. Massimo Vecchio from Mediobanca has our next question.

Good afternoon to everybody. I have two questions on the new models you're going to launch with the Fiat brand. On Bravo, can you give us some flavor of the content mix you had with this, or this you have already on hand. Was it high end, low end, was it in line with your expectations? And on the 500 side, looking at the launch date, you must be already in your production ramp up. Can you share with us what the situation is and if it's going with your plan and also because we heard some rumors from suppliers about some production issues on the 500, so if you can clarify on that, thank you.

Before I answer your question, can you tell me what some of those production issues were, just out of curiosity?

It was on the suspensions, on the stabilizer bar.

Suggesting that they were having problems meeting our request?

No, that you were adding some suspension because the car was not balancing very well. It was just strange at three months at the launch of the car, there was the rumor.

Well, I hate to tell you this, but it is not true. It may have been true at a point in time as the product was being tested. I think the car, as you correctly pointed out, is going to production. There will be 3,000 vehicles at our dealers on July the 4th. The fact that we've accelerated the launch date by 2.5 months has put an incredible amount of stress on the supplier ranks to meet the production schedule and therefore I'm not surprised that you're hearing some bellyaching back from the supplier base suggesting that they're going through hell in order to meet our requirements.

Having said all this, the car will not be launched -- if in fact that you say is true, it will never be launched, and I have no information to date to suggest there are any technical issues with this car that would require that level of intervention on our side.

In terms of the Bravo, I'm going to give you some basic indications, but I think that it is highly unlikely that the numbers I'm going to give you are going be meaningful, simply because of their size. As I mentioned earlier, there's -- I think it's 29,000 orders that have been placed for the car, but roughly half of them are in the upper end of the offering, with roughly half in the second-highest level of mix, so the lowest level of mix has got about a 5% to 7% portion of the orders. But I think it's way too early to tell. I would much prefer to give you a full update after Q2, after we've had sufficient market penetration with the car to make the call.

Thank you very much.

Thank you. John Buckland from Man Securities has our next question today.

Good afternoon, thank you very much. Just going back to the CO2 comment and all those comments about the unrealistic time scale and what have you, the first sort of hurdle I think the industry had is to agree how you're going tackle the politicians. I mean, I wonder if you could just give us where you are on that at ACEA. That's the first question.

Well, I'm not going to give you an answer as the Chairman of ACEA. I think it is important on this issue the industry stay united in terms of providing a common set of solutions back to Brussels that will allow us to intelligently deal with the CO2 emission regulations. I am fully cognizant of the fact that the composition of ACEA in terms of car producers offers a variety of structural differences in the ability of each one of us to comply with the 130 gram limit that has been requested by Brussels. And so there is a tendency on the part of producers of smaller cars to try and deviate from a common position simply because of the fact that they may find it easier to try and deal with emission regulations.

Structurally, Fiat is in that category, in the sense that I think because of the way its pool of cars is composed it is probably in an easier position to try and get to 130. It doesn't mean that it can easily, but it's easier than some others.

I think it would be incredibly unwise on the part of any European producer to deviate from the common objective of ACEA of ensuring that we get an intelligent response out of Brussels that complies with the long-term objective that Brussels has to guarantee the medium to long-term viability and competitive nature of the car business in Europe. It is not in Fiat's interest in the medium to long term, nor is it in anybody else's interest, to force one of our competitors in a position where it cannot comply with the CO2 emission regulations required by Brussels.

So I think Fiat's view on this, and I will do this as Chairman of ACEA, I will try and ensure that this industry does approach this issue in a very united and coherent way.

And when will you be telling us your approach, your arguments? Is it the end of April, or do we have to wait longer?

I think there are discussions that are underway now among the car producers that hopefully will allow us to develop a position by Q2 of '07.

Okay, great. The other question is you said that by the end of the fourth quarter, you expect all of your plants to be running at full speed. I think that's sort of what you implied. What does that mean for capacity utilization now and in the second half, and what does it mean for future investment? I think generally there's a thought that your targets for 500 and Bravo are quite conservative and that perhaps you can produce a lot more in existing plants, but I wondered if you could just clarify the position.

Two comments. In none of our projections, including the 2010 numbers that we've pitched with volumes of 2.8 million, have we ever envisioned brick and mortar investments on the car manufacturing side.

So I didn't hear that?

There is no commitment on our part to invest brick and mortar money in the expansion of the production capacity of the car side. The only exception to this issue is our Indian plant, which effectively is being jointly built between ourselves and Tata in India, which replaces an old plant which was not used by Fiat in India. But when I talk about our plants running flat out, they relate to the ability to fully utilize the existing manpower in those structures. It does not relate to the industrial capacity at those plants by additional de-bottlenecking investments to increase volume output. This is true both in the case of the Bravo and it's also true in the case of the 500.

And so we are aware and have planned for the possibility of intervention in terms of de-bottlenecking investments in both of the sites, the Cassino and in Poland to ensure that we can increase volumes of both of those cares in the event that demand were to require it.

The only implication of that call in addition to what I consider to be marginal de-bottlenecking investments is the impact on headcounts being employed. But both in the case of the 500 and the case of the Bravo, the investments were targeted at 120,000 a year. There is capacity in the system by additional marginal investments to increase the capacity and I prefer not to tell you what that increase is until we achieve it, but it's there.

And now the projections that we put in front of you include an increase in the volume outputs of both of those models, so when they happen they will be in addition to whatever ambitions we've laid out in front of you.

So how do you measure your capacity utilization and how do you measure that you're getting close to that point of needing the additional marginal de-bottlenecking, as you put it.

Well, we assess demand and the capacity of the market to absorb volumes. The 120,000 Bravos in the C segment, which represents 25% of the European market, looks like sort of a marginal aspiration. I think that from our standpoint you need to look at this in terms of the other cars that we're launching in the C and D segments. The Delta HPE will be available in Q2 2008 for Lancia. There's going to be a new version of the 147, which will come into the marketplace hopefully by the end of '08, beginning of '09.

All of these are going to occupy space, so we're being cautious. I think that we have the skills to assess the permanence of the demand before we commit additional capital. The reason why we have changed the way in which we size these investments is that they need to be able to provide us a return at the levels that we indicate. At 120,000 vehicles a year, both the Bravo and the 500 provide adequate returns on invested capital. And in how well those models do in the marketplace is -- I mean, the 120,000 is in a sense a minimum that we expect out of the model on the marketplace, and then from an engineering standpoint we work on a series of de-bottlenecking investments that will provide additional capacity if and when required. And I think that we make those calls as market demand materializes, but I think it's too early to tell whether we'll turn on the taps on the Bravo. I think we need to see its introduction in the UK, and so it's way too early to tell.

So let's launch the 500, and then we'll make the call.

Okay, thank you very much.

Thank you. Our final question today comes from Thierry Huon from Exane BNP. Please go ahead.

Yes, good afternoon, it's Thierry Huon speaking from Exane BNP. First, congratulations for these excellent results. Then I have two questions, one related to Fiat Auto. I would like to know if the passenger cars are now profitable in Europe or still in the red. And the second question is about the IH brand for trucks. Do you own this brand, or it is owned by someone else in the industry?

The brand is owned by Navistar in the United States on the truck side. They used to be part of the same organization going back a number of years. And the answer to your question is this. We are not in the red. We're in the black.

Okay, thank you.

Thank you. As we have no further questions, I'd now like to turn the conference back over to you for any additional or closing remarks.

Okay, 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.

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