Stellantis NV (STLA) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Fiat 2007 Fourth Quarter and Full Year Results Conference Call. For your information, today's conference is being recorded.

At this time, I'd like to turn the call over to Marco Oriema of Fiat Investor Relations. Mr. Oriema, please go ahead.

Thank you, Sarah. Good afternoon and good morning to you all. Welcome to Fiat 2007 Fourth Quarter and Full Year Results Webcasting Conference Call. Sergio Marchionne, our Chief Executive, and Maurizio Francescatti, the Group Treasurer, will review the Group's performance last year. They will use the material you should have downloaded from our Website, www.fiatgroup.com. And, after that, we will be available to answer all the questions you will still have.

Before moving ahead, let me just take care of the usual housekeeping chores. Any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included in the presentation material.

So, now, I will turn the call over to Sergio Marchionne.

Ladies and gentlemen, good afternoon.

We spent last Monday in the United States - problems with our plane coming back from a day meeting. And it happened to be Martin Luther King's day, U.S. And so, while we were sitting there, we were trying to find a title for the presentation today, and we stole a few lines from the speech of Martin Luther King offered to the American people on August 23, 1963. And we used that as the title of the presentation. It's not meant in a sign of disrespect. But it is a recognition of the fact that, for us, 2007 is a fundamental, cardinal year in the development of our Group.

We started this process back in 2004, as most of you remember, and we presented some rather ambitious targets back in July of that year. And we conclude 2007, the cycle of the forecast that we presented at the time. And we can look back at this forecast, and we've hit each and every one of the targets that we set. And, in the majority of cases, we've exceeded them. And so we're proud. I think we're happy with the fact that we were able to grow our top line double digits this year. All the sectors inside Fiat Group contributed to the improvement in that we were able to get operating margins well above the 5% mark. So I think the thing that we're most proud of is the fact that we closed the year with a net cash on hand position. And it's been a long, long time since we've seen that on Fiat's balance sheet.

If you look at page 2 of the presentation, I think it's probably the best summary of what we've been able to do over the last three and a half years. We started off with nearly EUR10 billion worth of debt. We were able to monetize a number of positions, including the mandatory convertible of EUR3 billion, the sale of our interest in Edison, in Banca Unione di Credito, and Mediobanca. All of that gave us about EUR7.5 billion worth of funds. We used EUR1.7 billion to buy back a previously monetized position in Ferrari, to pay dividends, to buy back shares in excess of EUR400 million. But I think, more importantly, we generated over EUR13 billion worth of cash in three years, and we committed over EUR9 billion during the same period of time to growth initiatives which are at the heart of the 2008 to 2010 plan.

We did all this. I think we were able to restore Fiat to financial health. But I think the main objective in this whole exercise was to lay the foundation for the next three-year plan. And so, regardless of how the markets behave today or behaved yesterday, I think, from an industrial standpoint, I think we need to look back at 2007 as being the conclusion of a very intense period of activity, but it is a conclusion. I think we are done with all the major issues that negatively impacted on the performance of this house. And I think that we can look to 2008 to 2010 with a completely different set of eyes, knowing that we're beginning the year with a solid financial foundation but, more importantly, with some very clear ideas of how to build this Group into an international house and to significantly increase volumes.

So, if we can just move on to page 3, I think the issue of the performance of the businesses in 2007 are relatively clear. We were able to grow top line 13% for the Group, and this was achieved across all the sectors. Iveco especially had an outstanding year, most of which resulted from the repositioning of its medium- and heavy-end offering to the marketplace. As a result of these increases in volumes, we were able to push our trading profit up by nearly two-thirds to EUR3.2 billion, which is EUR1.3 billion higher than 2006 and, perhaps more importantly, well ahead of guidance that was raised at least twice during 2007. We've got margins now which are at 5.5%, and this has been the twelfth consecutive quarter of year-over-year quarterly improvements in earnings. So we have not missed one. And, obviously, the commitment in 2008 is to continue to produce performance.

Excluding unusuals, Group net income was EUR2.1 billion, which is more than double the level of last year. We are proposing an aggregate dividend distribution of in excess of EUR0.5 billion.

And, as I said earlier, I think the important thing is that we've extinguished our debt position. We now have roughly EUR400 million of cash on the balance sheet, and that's after we spent over EUR400 million in share buybacks in '07. And we've got a liquidity position which is around EUR7 billion and, therefore, more than enough to try and deal with any maturities that may be coming up in the next two or three years.

Operational highlights on page 4. Obviously, volume has been at the heart of our results. We have been able to achieve volumes in the Automobile business which are the highest since 2000 - 2.234 million units. Iveco has successfully repositioned its business. It's had a one-third jump - 33% jump - in its heavy truck offering. We continue to rejuvenate the product portfolio of CNH. We've had 20 new products, 100-plus upgrades, and re-powerings of the equipment is currently in the product offering of CNH. 3.1 million engines, 2.2 million transmissions-- All of these are at record levels for the business.

As we indicated to you back in the fall of 2006, our objective was to create a Group-wide purchasing organization that could leverage the muscle of this house. We were able to close 2007 having achieved a EUR300 million objective in cost savings, all of which has been documented in the profit reconciliation by sector. We continued to work on those world-class manufacturing process. It's become increasingly clear to us that we need to close this gap between ourselves and the competition at the speed of light. This will become evident as we talk about CNH and especially the impact that we've had as a result of manufacturing and logistical inefficiencies in the fourth quarter of '07 with CNH, which has negatively impacted on both margins and reported earnings.

Very little activity in Q4 in terms of partnerships. I think the most significant part of all this is that, finally, we were able to resolve our relationship with NAC in China, and, therefore, we're starting 2008 with a very clear commitment to two large automotive players in China - (inaudible) being one for the heavy end-- for the truck business-- post-acquisition of NAC and in terms of production of engines, and with Chery for the production of automobiles.

Slide 5 only reinforces what I've said in my opening remarks. This is the completion of the cycle that we outlined in Balocco. And, as I said earlier, we have not missed one quarter in terms of yearly quarter-over-quarter improvements in both margins and in trading profits.

If you'd like to, skip over slide 6, which deals with the fourth quarter in [detail], with slide 7, which represents the composition of both sales and trading profit by sector. We've had double-digit top line growth for all the major businesses in the Group. And, obviously, Cars has been the most significant driver of the improvement in trading profit, but all others have improved by more than 30% year over year. So it's been a consistent performance by all the sectors of the house.

And, when you look at slide 8 and you look at Fiat Group Automobiles, we have hit the 2.2 million number and gone over it, which was our target for the year. Revenues were up 13%. Volumes were up 13%, made up of the 5% increase in western Europe, a 32% increase in volumes in Brazil, and 16.7% increase in volumes in the rest of the world. And I think that what's clear from the slide is that we are rebuilding volumes from the lows of 2005. I think that we continue on our pretty rigorous process of rebuilding volumes in this business. We have an additional 200,000 volume increase targeted for 2008, which we're confirming as part of our 2008 prognosis.

If you look at slide number 9 and you look at the composition of our shift in trading profit from '06 to '07, the first thing is that you need to realize, as the subtitle says, we did improve trading profit in this business by EUR1.6 billion over a period of three years. And it's been a result of our continuous work on volume increases and the repositioning of the products in terms of pricing and mix. The purchasing initiative that we made reference to obviously helped to a large extent. Obviously, the absorption has been significant. The absorption benefit of fixed costs in our plant has been a significant contributor to the improvement. But, consistent with our view to rebuild volumes, we've had to, and we continue to, overspend traditional year over year in selling expenses, which relate mainly to the development of network and to the support from an advertising and marketing standpoint for the products that are being launched. Margins are now 3%, and they're well above, in our heads, the low end of the margin that we indicated as being 2.1%.

And, if you move on to slide number 10, you can see the relevant market share data. I think we were able by a smidgeon to replace Renault as the fifth western European supplier of automobiles. We're now at 8% market share, slightly below around 31.3% market share in Italy. And the Fiat brand, which has been the biggest recipient of the product portfolio rejuvenation, is the one that has outperformed all other competitors in major markets. Lancia has done well. Alfa is waiting for product rejuvenation. We are in the process of retraining our people in Pomigliano, and, therefore, the main producer of the Alfa Romeo vehicles will not be in production for January and February of this year, which is going to impact on Q1 volumes. We do expect, just as an aside, that we'll be able to make up the shortfall during the remainder of the year. But light commercial vehicles, the Fiat Professional brand, has had an outstanding year, with registrations up 13.4% in western Europe. And market share is now at 11.7%. Brazil continues to do well, as I mentioned earlier. We continue to be market leaders with 26%, both in passenger cars and light commercial vehicles. And, on the dealer network process, which has been one of our key objectives when we started this rejuvenation process back in 2004, we're almost a year ahead of plan. We've had 310 dealer appointments in 2007. And new partners now account for 15% of the network, ex-Italy. So it's been a significant improvement, and it's something that we expect to continue in 2008.

Moving on to slide number 11, we're confirming volume targets for the Bravo at 120,000 units. We just introduced a 1.6-liter engine in this vehicle over the last few days here in Turin through our European dealer network. The Croma was relaunched in the fall with a facelift. The Musa continues to be the undisputed leader in the MPV segment in the Italian market. And, as part of our brand strengthening exercise, we are working outside of Italy in combining both the Lancia and the Alfa Romeo brand in terms of the repositioning of both of them in the European marketplace. Fiorino was launched in 2007 with an effective market introduction in Italy in December and the rest of Europe in 2008, with a 40,000 unit target.

The year has been a good year in terms of awards, as you can see on page 12. I won't go through them all. But I think it is important to recognize that the brands are getting traction.

And, as you can see on page 13, the launch of the Fiat 500 that was done in July of last year has probably been the biggest commercial success that we've had in the last three and a half years of management. We have over 140,000 orders on hand. You can see that it was launched in the UK on Monday. It's now sitting in the London Eye. It's now traveling on the Berlin subway. But I think that the important thing is that it's given a completely new image to the Fiat brand. And our expectation is that we'll probably top the 190,000 unit a year. Volume will be coming out of 2008 at that yearly volume, although, on the average, it may be less than that for the year.

Our luxury auto brands on page 14 have had-- Both have had an outstanding year. We'll deal with Maserati first. Maserati was a chronic loser. It never made any money prior to the acquisition by Fiat in 1993, and it never made money under the management of Fiat since 1993. This is the first year in which it's been positive. It had great commercial success with both the Quattroporte and the Granturismo. Volumes were up nearly a third over 2006, and we expect the success to continue well into 2008. I think we have found the product range which is crucial to Maserati and the basis on which we can build the brand.

Ferrari-- there's not much to be added. I think we all know that it won both the constructor's and driver's title in Formula 1. But, commercially, they've had an outstanding year - nearly 6,500 units sold, and full-year trading profit is up nearly 50% on 2006.

We'll move on to slide 15 and deal with CNH, which I think yesterday was unnecessarily and unjustly punished by the U.S. markets in terms of share price. CNH has had a phenomenal year in 2007. I think they were able to grow the top line 13%. It was up 23% in U.S. dollar terms. We had strong performances in the AG business on a worldwide basis, and we've had a very strong performance in construction equipment, ex-U.S., which I think is totally attributable to the weakness in the housing market and the related construction spending, which has been in a downward spiral now through 2007 and will probably continue for the first two or three quarters of 2008. Trading profit was up 34%, 47% in U.S. dollar terms. And I think that we continue to develop the international base of CNH. We have now in the last nine months created an international division for CNH, which is designed to deal with markets outside of our traditional trading regions. And so we expect the year to benefit from that increased penetration in nontraditional markets.

What has plagued this business in a negative sense, in the fourth quarter especially and throughout 2007, and you can see this from page 16, is the inefficiencies associated with the volume ramp ups which were-- certainly came in at levels which were well beyond our expectations. I think all of our AG plants and, in some cases, some construction equipment plants were pushed beyond the traditional limits of what they consider to be industrially efficient levels. I think we've had some issues in terms of getting some key suppliers to follow us in that volume ramp up, and that has caused manufacturing inefficiencies which, just in the fourth quarter, totaled nearly EUR60 million. And so, if you were to adjust for the impact of those inefficiencies and estimated some portion of that inefficiency worked its way through the first nine months of this year, the business was very close to the 9% target - 8.9% target - that it set at the low end of its expectations.

On page 17, which shows market share positioning of the various parts of CNH, we have gained market share in all the relevant markets on the AG side. We have been able to hold positions in North America, notwithstanding the decline of the construction equipment market. And we have grown construction equipment elsewhere; and, where we have not grown it, it's been because of the fact that we were capacity constrained. So we're walking into 2008 with a very strong order book. I think that we've gotten the organization now ready to deal with the volume ramp up that we expect for 2008. We do expect volumes to be up over 10% over 2007. And, therefore, we're confirming, with some delay, the achievement of a trading margin of about 9% for the year.

CNH also had a number of awards. Those are slated on page 18. Most of these you would not recognize. But they are significant achievements for CNH. They've won a number of awards, both in the construction and the AG side.

And I'll skip over slide 18, 19, and 20, which indicate the type of activity that's going within CNH. These are not popular awards in the sense that they're only visible and understandable to people that are related to the trade. But, for us and CNH, they're an indication of the quality of work that's gone on by the management team and that has effectively restored this business to a healthy level of profitability.

If you look at slide 21, for example, you can see that 2007 has been the highest full-year earnings per share since the merger in 1999 and, therefore-- And these numbers have been done on the basis of U.S. GAAP. But they're indicative of the shift in performance that we've seen in this business, and I think that they are at the heart of the forecast that we've laid out in front of the markets yesterday of $3.30 to $3.60 earnings per share under U.S. GAAP for 2008.

On slide 22, which deals with our Trucks business, this has been the other part of the Cinderella story. I think that we had a lot of skeptical people when we presented our plans on Iveco about our ability to penetrate the heavy end of the market against some pretty strong competition from German and other Nordic producers. I think the fact is, as you will see in a moment, we have had a significant improvement in the positioning of the heavy end of the offering. Volumes were up 23% over 2006, with a very good penetration in most European countries. We've had an outstanding performance in terms of trading margins coming in at 7.3%, well within the range that we have set between 7.1% and 7.9%.

And, if you move on to slide 23, you can see the benefit associated with the volume ramp up - EUR216 million was due to volume and mix. And the mix portion of this is important because it relates to the positioning of the Stralis and the pricing piece, which obviously came along with this in terms of improvement over 2006. The R&D piece shows an increase in spending of EUR57 million. This is the beginning of an investment cycle that will complete at the end of 2011, which will entail an expenditure of over EUR1.2 billion for the complete redesign of the medium- and heavy-end offering in the marketplace, including the costs associated with the introduction of Euro 6 engines, which are going to be extremely costly for the industry. But I think we're getting ready for the introduction going forward, and I think we're doing all the right things to try and achieve the highest level of industrial efficiency as part of the capital expenditure program.

If you can look at page 24, as you can see, these are the things that have been at the heart of the revival of Iveco in Europe and the achievement of the volumes that we've seen. We continue to work our way to rationalization of the dealer network. And I think, as part of the globalization efforts of Iveco, we have now devoted significant resources, both financially and in terms of people, to the reestablishment of Iveco as a significant player in Latin America. And so market share in Latin America was up 3.1% year over year and 5.7%, specifically, in Brazil.

If you turn over to slide 25, this graphically tells you in a very summary form what the accomplishments have been. At the heavy end of the offering, we're up 45%, '07 over '06. And the order backlog is up by 120% over the prior year. And market share has followed. I think we were able to grow market share at the heavy end by 0.5 a percentage point. We gave up some share on the light end intentionally, in order to maintain pricing. That loss of share has been more than compensated by the market share gains that we've had at the Fiat Professional in terms of its own offering with the Ducato and the Scudo. And, therefore, overall, the Group has maintained leadership in this segment in Europe, and we have gained share over our competitors.

If you move on to slide number 26, this is more of a commercial plug. But we're launching this car in 2008. This is the equivalent of the old Campagnolo that used to be sold by Fiat in its hay days. It's coming into the market, I think, at the end of Q1 of 2008 and will use a chassis and a body that's been worked on by Iveco together with Santana in Spain. But it will use a transmission and an engine which is made by FPT. And it will come into the marketplace within 2008, and we do expect full-year sales targets to be about 3,500. I mean, we're giving you this not because of the fact that it's going to materially change earnings, but I think it is designed to indicate the level of commitment that is being made to the rebuilding of the brand.

If you look at page 27, which deals with the Powertrain business, significant volume uplift, as you saw earlier. Revenues were up 13% - 12% up on engines and 24% up in transmissions. I think that, when you look at the trading profit reconciliation, the sector is doing exactly what we've asked them to do to keep on driving down costs as a result of-- which came about as a result of the aggregation of all of our Powertrain activities under one head. We were able to significantly reduce unit costs, which, in part, were passed on to our sectors. And, as you can see, that represents an EUR82 million pricing concession that was done to the Group sectors as a result of the efficiencies achieved. But we were up EUR103 million over 2006 in trading profit, and it's a significant improvement. And margins are well in excess of the margins that we had set for the business back in '06.

Components, on page 28, have also had a decent year. On an equivalent basis, Teksid did have an improvement in trading profit year over year. Marelli continues to do well on strong volume growth. And Comau now has had the second quarter, fourth quarter of 2007 and the third quarter of 2007, with positive earnings, indicating that the reshaping efforts that we carried out in the second half of 2006 have begun to pay off.

If we could move on to slide number 29, which reconciles trading profit to net result, there's really nothing exceptional about this, other than maybe we explain this part of the financial charges. This is not just debt-related financial charges; there's roughly EUR160 million of IS19. These are pension interest costs which are in that number. There is roughly EUR43 million of the costs associated with an early redemption of a CNH bond. And, because of the fact that we are carrying as much liquidity as we are, which I think is strategically important and necessary, the cost of carry of that liquidity is roughly EUR100 million. So, although we may have ended up the year with a positive net cash number, we do expect to incur financing charges as we go forward which are not necessarily in relation to any debt that we may carry.

And, if we can move on to slide 30, really, there's not much to add, unless Maurizio wants to add something on the cash flow generation. I think it's important that we have gone from EUR1.4 billion worth of debt to about EUR400 million worth of cash in a 12-month period.

If you turn to slide 31, which deals with our forecast for the year, I've read some of the early comments that have come back in after the release of the earnings. And I think a lot of you have focused on the cautionary statement that we've made at the back end of the press release in relation to the 2008 outlook. What I can tell you is that, based on what we see today, there's absolutely no indication that any of the issues which are currently impacting the financial markets have had any overspill or contingent impact on the demand function of the products that we manufacture and that we sell. And this is as of today. It is very difficult, I think, for anybody to sit here and try to estimate as to whether that in fact will be true. There is a large concern in the marketplace about the fact that U.S. consumer demand will diminish during 2008 as a result of this financial crisis and that, therefore, that will impact on earnings. Our exposure to U.S. consumer demand is negligible. And so, based on what we know today, we do not expect that any of our sectors will be impacted by the current turmoil.

And, therefore, we're reconfirming all of our 2008 targets, obviously moving revenues up over EUR60 billion. We are confirming our trading profit margins. Our trading profit numbers are roughly EUR3.4 billion to EUR3.6 billion. We're confirming a net income of EUR2.4 billion to EUR2.6 billion. And we're expecting to be sitting on a minimum of EUR1.5 billion of cash at the end of '08, barring any additional share repurchases, which we do intend to take back to the shareholders for renewal at this next AGM.

I think it would be-- The other comment that I've read that's come across the wires in the last two or three hours is that some people are concerned about the fact that we have not raised guidance for 2008. This appears to be a perennial concern on the part of the analysts. I think that we're going to need to wait until the conclusion of Q1 to find out what the ultimate impact is and how this financial crisis will shake out in the marketplace. We remain convinced that our business will not be impacted by this process, but I think we will not touch the forecast until Q1 is completed. And so we'll wait until then.

But I think that does the presentation. I think that slide 33 tells you what we're going to do over the next year in terms of meetings. But I'm pretty well done.

Thank you, Mr. Marchionne. Now we are ready to start the question and answer session. Sarah, please retrieve the first question.

Certainly. Thank you. (OPERATOR INSTRUCTIONS). We shall take our first question from Monica Bosio of (inaudible). Please go ahead.

I would have two questions. The first one is related to the indication on Brazil. You gave indication of a 10% growth in Brazil for 2008. I was wondering if this indication includes also the light commercial vehicles, because I remember that during your last interview, Mr. Marchionne, to the "Automotive News," you indicated the Brazilian market, which includes light commercial vehicles, up by 15%.

And the second question is related to the renewal of the labor contract. I was wondering if you can give us some indication on the impact in terms of additional costs from the renewal of the labor contract in Italy. Thanks.

By the way, if I did make the reference to 15%, it may have been an estimate as to where we think the market will be in 2008 for both passenger cars and light commercial vehicles in Brazil. The number that we're forecasting in terms of our own growth and maintaining our current positioning is roughly 10% year over year. I mean, you may be right that it's 15%, but it is a market which is on the way up. And so we will see an improvement in performance 2007 to 2008.

In terms of the renewal of the labor contract, our full-cost estimate for the impact on our accounts by 2010 is roughly EUR200 million. This includes all the elements of the agreement that was reached at the beginning of this week with the unions. It is clear that, as part of that commitment, which obviously brings with it an additional cost to Fiat, that we're going to find ways in order to offset and compensate that increase in order to maintain our operating performance. So I think we do need-- And there's ample room, I can tell you, within our manufacturing environment to try and find ways to offset that increase by driving efficiencies, some of which are already incorporated in our world-class manufacturing objectives.

Okay. Thanks.

Thank you. We'll take our next question from Avaneesh Acquilla of UBS. Please go ahead.

I've got three questions, please, the first one on the Alfa plant closure in Q1. Is it safe to assume Alfa losses actually get worse in 2008? And can you just quantify the negative financial impact that we might see at Fiat also in Q1 because of that closure?

The second question I've got is just on the Italian car market this year. What level of demand is Fiat also planning 2008 in Italy - from the market, that is?

And, then, just a final question on Case New Holland. You mentioned 200 basis points of lost margin from manufacturing inefficiencies. Just given that the guidance for CNH in 2008 requires over 200 basis points of margin improvement from the Q4 level, are you confident that these manufacturing inefficiencies can be solved very quickly? Is that right to assume that, given the guidance for 2008? Thank you.

All right. The impact on Q1-- Let me try and deal with these issues in order. The Q1 impact of the reshaping of the Pomigliano plant is, on a net basis, roughly EUR70 million. We've already booked about EUR40 million of that as part of the unusual-- on the Unusual line in the 2007 accounts. The objective is to make up that shortfall loss-- the Q1 shortfall within the rest of the quarters of 2008.

In terms of the Italian car market, we're expecting to be absolutely flat over 2007. So, I mean, whatever the volume was, which was roughly about 2.4 million cars, will be maintained for 2008.

And, in terms of the CNH questions that you've asked in terms of margin, the answer is slightly more complicated than this. I think we've identified the issues which have been at the root cause of the problem in Q4 in terms of the snag in production and logistics issues that have negatively impacted on margins. And the bulk of this has been booked in Q4 as roughly a EUR60 million cost. The issue with CNH is more complicated because I think that the level of attention that we need to pay to the industrial backbone of CNH is much greater than we have in any other sector in this Group. And, therefore, it is going to be a pretty intensive process of rejuvenation of these plants. And the CapEx associated with this is not a large amount. But we do need to work a lot more on workflows and the optimization of many manufacturing processes in these plants. We will see the benefit of the Q4 fixes within the early part of 2008, but I think it will take, as I said earlier-- As I said on the conference call with a CNH analyst yesterday, it will take the whole of 2008 and the whole of 2009 to try and achieve-- to try and remedy what I call the industrial inefficiency problem and bring CNH to a level where it can actually deliver the double-digit margins that we want to deliver. It's not a short process. But the main issues will be dealt with within the early part of 2008.

Okay. Thank you. Just to go back to that point, then, I mean, should we be expecting CNH to be delivering an IFRS margin of something above 9% rather than something above 10% in 2008, then? Is that the target, given the revenues are higher?

The answer is yes.

Okay. Great. Thank you.

Thank you. We'll take our next question from Luca Orsini of One Investments. Please go ahead.

I have a question related to the last paragraph of your statement and also related to something that was said yesterday at the conference call of CNH and is related to the financial service operation, which has acquired a 100% full ownership of the special purpose trust. And that is increasing the debt of EUR1 billion. And, also, you are saying-- You were also saying that there are difficulties, obviously, in the wholesale ABS market. My question mark is what kind of-- how much you need to rely on the securitization market for your financial service division. Or, alternatively, how much are you planning to raise your debt in order to carry on financing your customers?

Maurizio Francescatti answering to the first part of your question dealing with the (inaudible) CNH financial services. The point is relatively simple, I would say. That was a transaction which was already on book for IFRS purposes but was treated off book under U.S. GAAP treatment. That transaction has basically been a securitization and basically has been dismantled. And everything has been brought back on book, even under U.S. GAAP. And that has happened. Basically, we have financed through our own resources what was previously financed through a securitization.

The broader question that you've asked in terms of access to the ABS market-- I made the comment earlier about the fact that we've seen two things in the ABS market, especially in Q4 2007 and certainly at some time during Q3. The market has become tighter in terms of the availability of funds to finance ABS transactions, and the cost associated with those financings has gone up and has gone up substantially over the period. This is-- It's the contagion impact of this MBS problem with the subprime issue in the U.S. It is an issue which I think will go back to some level of normality within 2008. We do not intend to replace-- Fiat has got special strength in that today to try and deal with the financing of those contracts independently of the ABS markets, but we have no intention of replacing ourselves as providers of capital in substitution for the ABS transactions. It is a market which has been historically quite efficient in the U.S. and, in my view, will continue to be an efficient way of raising capital for capital goods companies. We are not the only issuers in this business. Most of our competitors have access-- Actually, all of our competitors have access to that financing source, and I think we will go back to normality, hopefully, within Q2 of 2008.

Other question. Do you expect to buy out another time, or do you expect to buy out some of these [vehicles] in the course of, say, 2008, for a reason or another?

No. Our expectation is that we will not.

Okay. Thank you very much.

I think the only exception has been the Canadian market, where the ABS market, I think, has structurally disappeared. But I think it's a function of the number of people living in cold weather. But I think the market is not there, and I think that we've financed Canadian operations that have internally available resources. But the U.S. market, which is the heart of the market, is going to continue. And we've done two issuances in 2007, I think to prove to ourselves that we do-- Two issues in the second two quarters, right, in the second half?

(Inaudible).

Three over the years and two in the last half of 2007-- to prove to ourselves that, effectively, the market still existed and that we had capital-raising capabilities. Obviously, it came at a cost. We knew what that cost was. But I think our continued presence as an issuer in that market was important.

Are you able to transfer the cost to the customer, or are you just keeping it for yourself?

Could you rephrase the question?

The question is-- Refinancing and getting external finances for capital goods is possible but is becoming more expensive. The natural follow-up question is - Who's going to bear the expenses? Is that going to be on CNH, or is that going to be spread with the customer? Or what's the capability of passing on that cost to the final customer?

I will ask you to come to the next management meeting on CNH and witness the debate between the brand and commercial people and the providers of capital of CNH. But it is a thorny issue. I think that, obviously, CNH capital is trying to pass it off to the commercial organization to recover it from the customer. I think it is highly unlikely that that will be accomplished. I think that the market is sufficiently efficient to push back these costs onto the financing arm, and I think we'll wear the cost until we reach stability again.

Okay. Thank you very much.

But that's going to materially change earnings.

No. I can see. It was just more to get the color of what's going on.

Thank you. We'll take our next question from Paolo Mosole of Intermonte. Please go ahead.

The first question I have is on the Fiat Auto margins. You're not giving anymore the guidance for the division. So, the old one was for a margin of 3.6% to 4.4%. Could you give us an indication of where you would see that margin for 2008?

And the second question. I think you have a good order backlog for Iveca. Could you give us a better feeling of where you see revenues for Iveca in 2008, roughly at least?

And the third one. As you're raising the sales target and improving the depth target for 2008, do you expect--? Do you see more chances to revise your full-year guidances up or more chances to revise them downward during the year?

Well, let me deal with the first question. I'm 55 years old. I've been doing this business for 13 years. I've never revised guidance downwards in my life. So you may talk to another CEO if that happens. That's the first answer.

The other one is on the Fiat Auto margin. I mean, we'll confirm 3.6% to 4%. I think we need to finish the year. I have no better information today as to where margins will sit for 2008.

And I will not hazard a guess on the order backlog and the strength. The real issue with Iveca is not the order backlog, but it's really our ability to produce, especially at the heavy end, which has got a variety of issues surrounding it, including the availability of engines on the large equipment. But I would expect the top line growth will be in excess of 5%. But we'll leave it at that. We'll update it at Q1.

Okay. Thank you.

Thank you. We'll take our next question from Adam Jonas of Morgan Stanley. Please go ahead.

Three questions, please - first, on Brazil. I don't know if you saw Ford's numbers that just came out a little while ago, but they threw off about a 15% margin for the full year in the region. Now, I know, in the past, this time of year, you tend to give a bit more visibility on how well you're doing - maybe round numbers, but you give us a bit of visibility. If you assume anything near a Ford level of profitability for Fiat Auto in Brazil, then you're doing pretty much near an order of magnitude about your full-- around EUR700 million, or about what Fiat Auto made worldwide. And I know, in the past, you told us that-- You confirmed you're definitely profitable in western Europe. But am I wrong to assume that the profitability ain't much at all? And maybe, just to be more direct, can you specify in round terms, at least, how big the improvement in profit was in Brazil, now that we got the full year under our belt?

The next question is-- You mentioned that you weren't going to change guidance until you kind of had Q1 under the belt. I think we all understand that, given these market conditions. But we do have almost a month behind us now. So I guess the simple question is - How is it going? We see the orders for some of your products are outstanding, but how do you think that's translating? Just where is your bias here in terms of just what you've got so far?

And, finally, on use of cash, first, I definitely commend you for not buying back the stock that last conference call when some analyst gave you a hard time. I think we now see that, in hindsight, that was a very wise move. What's the priority now between credit rating and optimizing the capital structure, because that cash position now-- it seems like you don't have to do a hell of a lot to get your investment grade. But I just kind of wanted you to share some thoughts on that. Thanks.

The Brazilian question. I will not give you the operating margins for our Brazilian operation. We do make money in Europe. And I will not comment on the size of the profit puzzle.

We're not in the same box as Ford, and Ford's organization in Brazil is slightly more complex than ours in on the car side. It involves activities that are not incorporated in our [Fiat] activity. Therefore, I will be reluctant to try and make any comparison between our own Brazilian operations and Ford's view. Having said this, I think it is clear that Brazil continues to perform well, both in terms of margins and cash generation. It's reflected in our commitment to grow volumes by 10%, '08 over '07. But I think the important thing for us is that we have stuck to our commitment to turn European businesses into both earnings and cash flow positive positions, which was accomplished a few quarters ago. And that commitment and that type of performance has continued in 2007.

In terms of guidance, and you asked me how's it going, given the fact that today is January 24, the best indications that I've had, and I've met with the management team yesterday and the day before, is that everything is going well. And, therefore, we are seeing, and that's why we were able to confirm guidance for 2008-- Today, I think we've seen all indication of a slowdown. And the order books continue to be strong, and sales are going well. So, subject to traditional manufacturing issues that we're experiencing everywhere, I think the business is doing well and, I think, in line with the guidance that we've given for the full year.

The third question you've asked in terms of the use of cash-- To be blunt, I was somewhat disappointed by Moody's reaffirmation of the rating this afternoon. I think we're now stretching the limits of credulity in terms of what it takes to get rating agencies-- to try and change their mind. I mean, I've threatened the world at large with the fact that, at one point in time, we will not need the rating, once we're sitting on cash. We're at that stage now.

Having said this, I think, from an ethical standpoint, I think it would be a great thing if Fiat was given back the investment-grade rating that it lost in 2003. I think, based on what we've seen today, we've earned the right to be investment-grade. And, certainly, when I look at some of our competitors, I would dare to say they're probably in better shape than some.

Having said all this, I think that we are going to-- and, given the fact that we do have available cash resources, we are going to continue our buyback program. We're going to do this, as I mentioned in my previous call, on terms, conditions, and strategic parameters that are totally within the control of Fiat. We will intervene as required. I think we will make the best use of that acquisition both in terms of the financing needs of Fiat Group going forward-- I don't have to tell you that I think that the stock at current levels is severely undervalued, and I think it's been punished unnecessarily to what I consider to be global turmoils that have absolutely nothing to do with the fundamentals of this business. So we will be active, and we will do so even after the AGM, after the authority has been renewed.

Great. Thanks for the answers, and good luck this year.

Thank you. We'll take our next question from John Buckland of MF Global. Please go ahead.

Just on that-- [You cast] the strategic parameters that determines the buyback. Just going back to Iveca, I guess we'll see-- You mentioned that Euro 6 engine will be very expensive. Obviously, Iveca does sort of suffer versus its competitors with a lack of scale.

I'm sorry. In what way do we suffer from a lack of scale? I hate to stop you in midstream. We have almost 12% western European market share in heavies. The biggest guy has got 20%.

Yes, but on a global scale.

Our engine business is of equal size, if not bigger, than the engine business of our competitors on the truck side. And that's why we've created Powertrain as a separate, standalone division to develop engines for internal and external use. It produces similar engines for the application in tractors and in construction equipment. And, therefore, the base on which these engines are being developed is a much greater base than it would be for any other truck manufacturer in Europe.

Okay. So the answer is, then, you don't need to make any acquisitions, or you can carry on developing the business in an organic basis, because I think you sort of alluded to that you were going to think about reentering the U.S. market earlier on this year.

I agree, but that's a separate discussion. The issue as to whether we want to be in the United States is not driven by desire on our part to try and find volumes for a 13- or a 16-liter engine to put in a truck. It has to do with the expansion of the brand outside of its traditional trading areas. And, therefore, I've been clear about the fact that Iveco as a truck business has all the capabilities from a manufacturing and design standpoint to be present in the U.S. as a viable market. It is a market that we like. We understand it to be a lot more cyclical than western European markets because of the environmental registration, which is incredibly cyclical and predictable in terms of engine replacements. And, therefore, we're approaching it with a high degree of caution. I've been clear about the fact that there are very few targets available in terms of acquisitions in the business. And I've also made the commitment on a prior call that we will make a determination within the first quarter of 2008 as to whether we would enter this market organically or whether we would do it through acquisition. My gut today tells me that we will do it organically and that we will use the CNH network in the U.S. to try and expedite the entry.

Okay. Great. Just to be clear, when we talked about CNH yesterday and the apparent inconsistency between the two levels of targets, basically, you said you're going to do around 9% margin under IFRS. I guess the revenue figure will be quite strong. Aren't you--? Although you're not increasing your guidance, if you-- Implicit in the lower CNH margin guidance-- Isn't it implicit that you are actually quite looking more positively at the businesses and, particularly those-- the noncore-- It's not the noncore, but the smaller divisions. Perhaps you could talk a little bit about the profitability expectations for Comau, for Teksid, for Magneti Marelli.

Let's deal with the first two of the last three that you mentioned. I'm not expecting Earth-shattering performances either at Teksid or Comau. I think that you're going to get performances which are in line with history. I think Comau will be profitable, but it will not be a significant contributor to the overall trading performance of the Group. Teksid is limited because of the fact that it really has limited capacity. And, therefore, what it does do in terms of volumes is physically limited. And, therefore, I think its margin aspirations are somewhat limited.

I think it's a completely different story in terms of Marelli. Marelli has been nurtured over the last few years to be a significant player in the components business. I think it's made some incredibly wise choices about the type of technologies that it is going to focus on. I think that is has a lighting business which is world class. We have engine control unit technologies which are world class. I think there are parts of that business that will continue to grow at double-digit rates, part of which are associated with the volume growth of Fiat but the majority of which has been driven by the penetration of Marelli of third-party supply agreements. And so our expectations that this business will do around 5% in the medium term-- There's part of that business which is now very earnings-enriching, which has to do with suspensions and with exhaust systems, but the bulk of the business is quite healthy. And I think that we need to take it in 2008 at around a 5% margin.

The other questions that you've asked me about, given-- And I believe that you're asking me whether I was in a position to sort of uplift earnings on the basis of our expectations on CNH. There's not a single doubt that we're expecting CNH to have an outstanding year in '08. I think all indications are that the volumes will be there. And, if we continue to work diligently on the industrial issues facing the business, I think we will be able to move margins on and move then off significantly. But I think I'd like until the end of Q1 to try and make that call for the year.

Thank you. We'll take our next question from Thierry Huon of Exane BNP Paribas. Please go ahead.

I would like to talk some clarification on the possible spinoff of the Auto division, Mr. Marchionne. You said several times that's something you might consider. But I would like to know if, when you are saying that, you are considering selling a stake to an auto maker or just to do a real spinoff, meaning to distribute part of the Fiat Auto capital to your current shareholders. If you could clarify this point, it would be useful.

Then, I have a question about Formula 1-- if the fact that you win the championship has anything to do with the performance-- percentage of performance of Ferrari. Did you receive higher TV rights since you won this championship?

And the last question about Iveco. You said several times that you are about to make your mind about this comeback-- about your introduction in the U.S. Could you give us some clues on the time schedule for this? Thank you.

Just to be clear, I've never changed the date on the time that I would make up my mind on the Iveco position in the U.S. I always thought it was going to be a Q1 2008 call - always. And so, by the end of this quarter, we'll tell you which way we're going to go. I've mentioned earlier, Thierry, that I think we're going to go there by-- My gut tells me today that it will be an organic introduction or organic growth and a positioning from scratch with the Iveco brand by leveraging the CNH network and industrial activities in the U.S.

In terms of Formula 1, yes, there was an additional income that was received by Ferrari, but it was not material to change the reported earnings of the house. And the other issue, which is appears to be a recurring theme of the spinoff of the current business-- I'm going to go back, and I'm going to try and rephrase or recast the answer one more time, so there's no confusion. What I said was that, if the continued presence of the capital goods businesses, such as Iveco and CNH, together with the current business, had a negative impact on the valuation of this Group because it dropped or reduced the valuation parameters associated with the component parts of Fiat, then we will seriously consider looking at ways to unleash that value. I find it hard to believe, based on the alternatives that you've asked, as to whether a partial sale of a block of Fiat Auto to a third buyer-- to a buyer-- would accomplish that end, because it will still retain the comingling of assets, which will be the cause of the value depreciation of the stock. Is that helpful?

Yes. Totally. If I may have a last question, it's about the share buyback. What is the rationale behind the share buyback? I mean, when we are listening to you, we understand that Fiat is full of opportunity that could be Iveco in the U.S. or could be CNH development or could be even the Auto development. So, what is the rationale behind this share buyback? Would it not make more sense to keep the cash and to try to develop more your own business instead of returning the cash to shareholders? Isn't that kind of a weakness signal you gave to the market?

I've come to the conclusion at my age that I can never win this game. If we don't buy the shares back, we're considered to be idiots because we're leaving undervalued assets on the table. And, if we buy them, we're being accused of the fact that we have no investing opportunities and, therefore, we're doing the stupid thing. I showed you on slide 2 of the presentation the amount of industrial cash generation that's come from this business in three years. We've produced over EUR13 billion worth of cash, all of which was more than enough to finance all the growth ambitions of Fiat Group worldwide. And I've never, ever lamented in any of the phone calls that I've been on about capital rationing, inability to access capital sources, inability to obtain funding, inability to issue bonds or do anything like this. The problem is that, when you see share prices at this level, which, in our view, are not reflective of the current earnings performance and the future earnings capabilities of this house, then, on an investment basis, I think it would be criminal if Fiat Group did not invest and take this weakness out of the market and take it for the benefit of the remaining shareholders. I think it would be ludicrous. And so the answer to your question is that we can do both. The minute that we get into a box, and we have to make choices between growing the business and buying back shares, I'll grow the business. But we're not in that box today.

Okay. That's really clear. Thank you very much.

Thank you. We'll take our next question from Andrew Lobbenberg of ABN AMRO. Please go ahead.

Three questions, if I may - the first one on dividends. Given that the dividend that you're proposing for this year looks rather higher than I think what was slated for next year, what are we meant to think about dividend progression from here - I guess, interesting following on from the discussion of share buybacks.

25% of consolidated Group net income.

Okay. Back on the luxury brands, on Ferrari and Maserati, they're making grand progress, but they're still a long ways short of those Germans in Stuttgart. Just how far conceivably could the margins go for Ferrari and Maserati?

I think you're obviously not talking about performance either on the track or in terms of the performance of the vehicles when you make reference to Stuttgart. You're talking about margins, right?

Yes.

Okay. Well, given the fact that you're talking about margins, we're getting relatively close to Porsche's margins, which are roughly 18%. So they're within sight. Give us some time; we'll get there.

And you think Maserati could get there too?

Sorry?

And you think [Maserati] could get there too - both Maserati and Ferrari?

I think, in time, Maserati can get there. It has the potential.

Okay. And then, just finally, on the trucks, in western Europe, your market outlook towards a positive outlook but weighted to the first half-- Do you have any visibility of a slowdown in the second half, or are you just being cautious?

Cautious only. No indication of a slowdown.

Okay. Cool. Thanks very much.

Thank you. We'll take our next question from Philippe Houchois of JP Morgan. Please go ahead.

Two questions, please. One is-- I was looking at your CapEx for '07. It was up about 30% from the year-ago level. Can you tell us what drives that increase - which divisions - and if we should be looking at that level of CapEx going forward or higher or lower?

And the other question that I had was more on-- was on your tax credit. We haven't talked about it for some time. Are you dipping into your tax credit in terms of not paying penal taxes to cash, or is it not--? What's the status there, and should we expect that to still become tax-free earnings?

Just in terms of the numbers-- the tax question, we've begun to access the pool of unbooked, unutilized tax loss carry forwards. And we've used about EUR400 million-- slightly north of EUR400 million in 2007. And so the earnings generation that we're experiencing is giving us an opportunity to try and use them. And so we do expect that to continue. And, at some point in time, I think I need to go back and look. The amount of tax allowances that we had at the end of 2006, which these relate to unbooked tax debits-- It was roughly about EUR5.4 billion-- We're now down to about EUR3.9 billion. Obviously, some of these have been changed because of changes in tax rates, which accounts roughly for EUR800 million of the decrease. But we have used about EUR440 million of the debit in calculating the tax provision for 2007 and, in part, justifies the reason why it is lower than it was in 2006.

In terms of the capital investment program, we're expecting the 2008 number to average at about EUR4 billion to slightly north of EUR4 billion. I think that there has been a commitment across all the sectors to a number of growth initiatives. Some of this relates to the current business, which still accounts for roughly half of the capital commitments of the house. But we are seeing significant capital calls being made by the engine business, which is trying to expand its range both in terms of products and geographical presence. Then we have seen an uplift in the CNH commitment, which, in 2007, was close to EUR300 million-- almost EUR400 million over-- which was almost a 50% increase over 2006 levels. So it's a general increase across all the businesses, most of which are designed to deal with geographical expansion of the businesses, other than the Car side, which obviously is working on product rejuvenation.

Okay. Thank you very much.

Thank you. Our final question comes from Martino De Ambroggi of Euromobiliare. Please go ahead.

Three questions. In your October '06 presentation, you presented a nice slide with a simulation of down cycle. Could you give us an update on what the sensitivity of your trading profits to, I can say, 5% reduction in sales across all the sectors. Just understand-- What's the sensitivity, considering that you are starting from significantly better trading profit at the beginning of the year based on '07 figures?

I have no clue.

Oh, okay.

The answer to your question-- 5% decrease in volumes-- I've done 20%, and, at 20%, I make money.

Yes. But you are confirming the same figures, even if '07 was better than expected, or it can be improved in this [crash test]?

20% off '07 levels would give us better profit generation than 20% off '05.

Okay. Well, skipping to the second question, if you could quantify the impact at industrial net financial position attributable to the change in sale of receivables, just to understand what was the impact on the net financial position due to change in sale of receivables?

I'll give it to Mr. Francescatti. I have no clue.

You have in the appendix of the presentation the specific numbers on sales of receivables at the Group level. That, of course-- The level has increased compared to last year that reflects, of course, the increased level of activity and, especially, in the last quarter.

Yes. Well, if I may, just because I saw these figures is more than EUR1 billion impact. So, just to understand if it's all to be attributable-- to be attributed to the industrial net debt, or it can be split with financial industrial?

Mostly to industrial. If you look to the increasing revenue, comparing Q3 and Q4, you will verify that the increase that you have between September and December is (inaudible).

Okay. So, if I split it 60/40, it could be reasonable?

I'm not sure about we are-- about which kind of split you are talking about.

(Inaudible). You were mentioning it's mainly industrial. Just to understand if these changes--

The increase was due to industrial. Yes.

Okay. And the last question is your assumption on net working capital in your '08 guidance for industrial net cash.

We're trying to give you an exact number. I don't want to give you an approximation.

Thank you.

It will be about EUR1 billion positive.

Thank you. That will conclude the question and answer session. I would now like to turn the call back over to Marco Oriema for any additional or closing remarks.

Thank you all for participating to the call. Please feel free to call us for any follow-up questions. Have a good day.

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