Stellantis NV (STLA) 2008 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Fiat 2008 first quarter results conference call. For your information, today's conference is being recorded. At this time, I would like to turn the call over to Marco Auriemma, Head of Fiat's Investor Relations. Mr. Auriemma, please go ahead, sir.

Thank you, Nina. Good afternoon and good morning to you all. Welcome to Fiat's first quarter 2008 results webcast and conference call. Mr. Sergio Marchionne, our Chief Executive, and Mr. Maurizio Francescatti, the Group Treasurer, will host today's call as usual. They will use the material you should have downloaded from our website, www.fiatgroup.com. After that, we will be available to answer all the questions you will still have.

Before moving ahead, let me just remind you that 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.

Good afternoon. I've been looking over this presentation before we started today and I think probably the title of the presentation is slightly overly dramatic. I think that the question as to whether these markets are indeed tough or not has yet to be seen. I think there's certainly a high level of uncertainty in the marketplace about where the economies are going. I'm going to try and provide you at least with our Group views as to where we think they are going.

It has certainly been an uneven market with the car business, especially in Europe, not being supported by very strong market indications. It is totally untrue of both the truck, the construction and the AG side, which I think is certainly seeing relatively strong market dynamics, with the exception of the North American construction side, but we'll come back to this in detail.

So I think we're relatively pleased with the numerical performance in the quarter. I think we made the numbers that we had in mind and certainly, based on what I saw, we were well in excess of consensus expectations.

There were three areas that I think have left us dissatisfied. The first one obviously has to do with the margin performance of CNH, which I'll come back to in a moment. The second one is probably the amount of cash absorption that we've had in the quarter, which is something that we knew was going to happen, simply because of the structural changes that we were making to the car side and the impact on the lower production levels in Q1.

And the third issue is certainly the fact that on the Iveco side we did not benefit fully in terms of market share gains in terms of performance. Notwithstanding that, I think Iveco, in addition to having the best quarter in its history, I think, in terms of demand in Q1, they delivered a 1.5 times improvement in trading performance. So I think we're relatively satisfied.

Having said this, I think those three issues need to be dealt with, and as we go through the presentation today we'll try and shed some light.

Now, starting on page two of the package, which deals with the financial highlights, you see in the revenue line we're over EUR15b now. We're nearly 10% up on Q1 of '07. It is the highest recorded level in Fiat's history in terms of first quarter numbers and is regardless of perimeter. So I think the records themselves are not significant, other than the fact that I think we keep on slowly collecting a mosaic of these records. I think that we are -- it's an indication of the fact that the Group is structurally changing and that we're breaking some pretty well-established practices within the Group, and I think that there are indications of a betterment of performance.

We have had all the sectors deliver double-digit growth, at least all the major ones, even Fiat Group -- except for Fiat Group Automobiles, which because of the negative impact of the Giambattista Vico plant closure and the issues that we've had on the 1.3 liter diesel have effectively prevented us from delivering the volumes required by the market.

CNH was up a significant amount in dollars, 10% up in euro terms. Iveco was up double digits to nearly EUR3b. And when you look at the capital, those businesses are now almost identical. Their profit is about EUR3b a quarter. And FPT has benefited from the increase on the industrial side of the business and we've got revenues now there about EUR2b or 16% over last year.

Trading profit, I think, made a significant move upward in the quarter. We're up at EUR766m. And as much as I don't like doing this, structurally, in terms of trying to explain away differences quarter over quarter, if I were to adjust these numbers to reflect what I call normal operating performance we'd be talking at above EUR800m for the quarter, which is certainly a record. It's an indication that, given the seasonality of our earnings pattern and given that Q1 is historically the lowest quarter that we have, I think it's a good support for the assertions that we're making at the end of this presentation about making the full year numbers, as previously indicated.

Group net income was up EUR427m -- was up to EUR427m, which is an improvement of EUR51m over last year. We have lost a lot of the benefit from trading profit now because of this mark-to-market adjustment on the equity swaps. We'll explain this as we go forward. But in the absence of that, we would have retained most of the trading profit number on an after-tax basis in the bottom line.

So the issue that I raised earlier about net industrial debt being about EUR1.1b higher, the bulk of that worsening from the cash position at the end of '07 is clearly due to the working capital billed, justifiably so if we understand the payment cycle on the cost side, and we'll try and do that when we get to the charts, and certainly in terms of the fact that we're trying to build inventory to try and deal with Q2 demand in CNH, which is expected to be significant.

We have also bought back about EUR200m in shares in the quarter and we have had a couple of acquisitions. We bought the plant in Brazil and injected some capital in the company, which is ultimately going to be incorporated within the supplier ranks of Fiat. That cost us another couple of hundred million. But having said all this, I think we're still sitting on roughly EUR5b worth of cash, which is certainly in line with the targets that we have set in terms of liquidity for the Group. And the more important thing, I think, is that we're confirming all of the 2008 targets, including the fact that we're going to be sitting on roughly EUR1.5b of cash at the end of this year.

Moving on to page three, I think these are all indications of the level of activity that we have had on the product side. We'll deal with this as we go through in terms of the portfolio. But certainly, the car side, the introductions of the Cinquecento and of the Bravo and the numbers that we're getting out of the marketplace are in line with our original expectations. And Cinquecento, as you'll see in a moment, is doing much better than we even originally thought.

And I think this year we are dealing with 2008 on the car side as really not having a large number of launches. There are fundamentally two products that are coming forward in Q2 and Q3 this year. One is the Alpha Romeo MiTo, which will be commercialized in Q3, and the other one is the Lancia Delta, which will be available in the markets in Q2. And so, there are not sufficient launches. I think we're getting ready for a truly significant product launch year in 2009, with a number of remodellings and new products coming to the marketplace. So it's a transition year, as I mentioned at our 2007 year-end call. I think we need to manage this in a set of market conditions which are not necessarily the most buoyant, but I'm not as negative as some people have made the car market to be. I think it's going to be probably down year over year, but not significant numbers.

CNH continues to perform well, 100 plus product enhancements and rejuvenation. A lot of these have to do with engine compliance updates. Iveco has done a phenomenal job of repositioning the product range. I think that you will see from the order backlog that the weak points of the product portfolio in terms of positioning and market share coverage, which were at the heavy and the medium end of the market, have really been turned around. I think that when you look at the increase in the order book year over year, it is certainly significant at the heavy end.

And FPT continues to develop their product portfolio in line with the expectations of the main internal customers, and it continues its significant efforts to try and position the business towards third party sales. I think the most important one that you can see here is the launch of the 1.6 liter diesel engine which was introduced in the Bravo, and which effectively -- which negatively impacted on the launch of the car last year because it was a necessary ingredient of the portfolio. It certainly is the biggest selling engine offering for that model.

Consistent with what we have said about the effect of Group purchasing, we were able to take about EUR68m in net savings in. We are expecting to deliver over EUR400m year over year in terms of improvement, and this is net of raw material price hikes. The only sector that has not been truly capable of benefiting from the impact of Group purchasing continues to be CNH, which had a negative impact in the quarter.

I think we have had a number of reflections, and we'll deal with this when we deal with CNH, about the level of intervention that we must bring in from Group level across the industrial side of CNH. And I think that the undertaking needs to be significant and certainly much deeper and wider than we have had so far. I think that the way in which we are running the rest of Fiat is not properly reflected in the way in which CNH is running on the industrial side, and we need to fix it.

Not much to be said about the expansion strategy. We will continue in terms of targeted alliances and joint ventures. We will deal with the issues of impact, of what is negatively impacting CNH when we get to the CNH slide.

Page four deals with part of that issue. It has to do with the rollout of our world-class manufacturing initiative across our plants. What you see is what has transpired from the closure of the plant in December until the reopening of the plant at the beginning of March. We have had a phenomenal recovery in terms of production levels. We are still suffering from some dislocation on the labor front. Our people now are involved in negotiations with the local unions to try and agree the final piece of the reorganization of the plant, which hopefully will happen in the next couple of days.

The spending program, the CNH plants have not been impacted by this world-class manufacturing. We only had targeted two plants in 2007. We have expanded now. This includes 16 plants during 2008. And I think to the extent that we're suffering from the non-availability of product in some areas, we have targeted three European plants and three North American plants for immediate intervention by the world-class manufacturing staff, and I think we're going to be able to see some significant results from the rollout for the plants there. You saw, at least in terms of pictures, what happened within the Giambattista Vico plant in the first two months of 2008, and I think it indicates the speed with which this program can be rolled out, although I think the ultimate operational benefits will require a longer period of time to be crystallized.

I'm on page five, which deals with the composition of both revenue and trading profit. There's not much to be said on the revenue line. We're above EUR15b, with all sectors up significantly year over year. On the trading profit side, you can see that we have actually been able to -- we have adjusted the opening position to reflect the fact that Q1 '07 has included a EUR40m capital gain in the automobile numbers. We have removed it to provide a comparative basis. As I said earlier, I don't like doing this, I think you can explain a lot by trying to remove things you don't like, but they existed at the time in 2007. And I think it's utterly true that the shutdown of the plant in the first quarter of '08 did cause a lost absorption factor of roughly EUR40m on the car side.

So year over year, as we can see, the improvement from EUR262m is -- for an adjusted number in the car side of EUR262m to EUR766m for the Group. I'm just trying to find out how the slide works here but I think -- yes. Sorry, the adjusted number for the Group is EUR302m, isn't it?

Yes.

I've seen too many of these slides here. If we could move on to slide six, talks about volumes, 564,000 cars, which is the highest Q1 volume since 2001. Just to clear the issue, we have normally either reconfirmed the fact that the ex-Brazil operations of FGA were earnings positive. They were not earnings positive in Q1 of 2008. And all of this is due to what happened in terms of the shutdown of the plant Giambattista Vico and the impact of the Multijet engine, failures in terms of -- and the intervention that we had to carry out on the production lines in order to compensate for that, for the faulty engine.

So, for the first time, we've gone back to a negative number on the car side. I think we understand the cause of the problem, but we also understand the sensitivity of the European business, the volumes, and the fact that we effectively have not stopped the process of reinvesting in network development and in the brand maintenance exercise, which involves selling and marketing costs which have continued unabated, notwithstanding the drop in volume on the European side.

We have done relatively well, given conditions in the marketplace. The Fiat brand especially has been able to gain significant ground in Europe. Lancia has held its own and the Alpha Romeo obviously has been negatively impacted by the non-availability of products. The significant achievement has been the improvement of light commercial vehicles in Q1 of 2008, which had volumes up 10% in a market which is fundamentally declining, although not in a large way. But certainly they were able to grow share in the market. And the Cinderella story of the car side continues to be the performance of our Brazilian operations, which were up 43,000 units quarter over quarter or 35%, compared to 2007.

If you move on to slide seven, which deals with the composition of the trading profit, and that's a slide that I really want to spend some time on, if I can. I tried to provide -- compare the basis of '07 to '08, and so we have removed the EUR40m capital gain inclusion in Q1 of '07. We have also removed the abnormal -- what was lost as absorption in Q1 of '08 as a result of the plant closure. And as a result of those adjustments, the year-over-year improvement has been 53%, and we have been able to move margins from 2.4% to 3.4%. So it's a good set of numbers, given these adjustments. And obviously it doesn't include the potential profit on the sales that were missed from the plant closure, but it does remove the associated cost for the closures, and I think that's important.

We're satisfied with this performance, notwithstanding the fact that I think the marketplace is not in great shape. I think we have seen an Italian market which certainly in March of 2008 suffered a substantial decline compared to Q1 -- to the relevant period in 2007. It's difficult for us to assess whether the change in the Italian market is going to continue at this rate of adjustment compared to '07, but we do expect the European market to be down year over year and it's going to be driven by the decline in the Italian market of Fiat Group Automobile.

So, having said all this, I think from an overall assumption we have targeted to produce 200,000 more vehicles in 2008 compared to 2007. We are confirming that number as a combination, I think, of a recovery in European sales compared to Q1 '08 and because of the continuous strong performance of Brazil.

And you can see this on slide eight, which deals with market share data. We're at 31.1% for Q1 of '08, although I think we were able to grow share in Europe to 8.3%, which I think, for us, given what's happening in the Italian market, is an indication. You can see that the Fiat brand share was up at 6.9%. I think we had significant gains in both France and Germany. And that's a good indication, I think, of the pull of the brand, driven especially by the introduction of the Cinquecento in these markets. Lancia, as I mentioned earlier, is maintaining share. And Alfa Romeo's now on a recovery path, which is going to be driven in large part by the introduction of the MiTo in Q2 and Q3 of this year.

We're particularly satisfied with the performance of light commercial vehicles. I think that we have now got a complete product range, which is fully rejuvenated. It's been accomplished over a period of 24 months. But I think we're pleased with what we've been able to do and certainly with the performance in a sector -- in a market which is not growing at a rapid rate. But I think the brand itself is getting a very, very good grip in terms of market share, even in the non-traditional markets of Europe. So significant growth outside of EU15s, and I think it's -- there's no indication today that would suggest that that type of market share gain and maintenance is impacted in the next three quarters.

Page nine deals with the network development. I don't want to spend a lot of time on this. I think we keep on telling you about the fact that we're reinvesting in the distribution network for the brands. These are the pictures that you can see of the last three. These are company-owned branches or dealers. One is in Berlin, the other one in London, which for those of you who live there I would invite you to see. I think it's probably a significant step forward in the right direction in terms of the positioning of the brand itself. And the other one is the newly opened plant in Lisbon.

Turning on to page nine (sic), this is the first car that will be introduced for the Lancia brand, actually for FGA in 2008, and especially for the Lancia brand. We are expecting to sell about 20,000 cars within this year, maybe more. We do have, I think, production capacity to deal with additional volumes at launch. The car is designed to be sold at 80,000 level, 80,000 cars a year. What you can see is the rollout plan for the launch. The car has received significant appreciation, certainly from the specialist press. Certainly, our indications are that it's going to be a successful car. And it will complete, I think, the rejuvenation of the brand after the intervention and the [move that] was accomplished last year in anticipation of the new Ipsilon, which will be coming into the market in September of 2009.

Moving up a slide, number 11, which deals with the Fiat brand. The Cinquecento continues to perform well, 182,000 orders to the end of March, 195,000 as of to date. We are in the process of breaking the 200,000 barrier with the vehicle. We have intervened in the plant, and picking up to provide capacity we'll be producing a rate of 190,000 vehicles by Q2 of this year.

The rest of the cars in the portfolio are performing well. The Panda, notwithstanding its age and the fact that there's going to be a new version of the Panda coming out next year, it continues to perform well. And I think that we -- that the Punto continues on its steady path. It's still meeting objectives, as we introduced them in 2006 when the car was launched. We expect to sell about 360,000 cars within 2008. The Bravo, with the addition of the 1.6 liter engine, is now performing well, and certainly in line with our expectations of a minimum of 120,000 vehicles during the year.

The Croma is the remnant platform from our GM relationship. We were left alone on this platform from General Motors after we had agreed a joint development program. It continues to perform well. This is not going to be the mainstay of the Fiat brand going forward, but we're going to continue to work with this vehicle. I think it's having relatively decent success in Italy and moderate success outside of it. But it's a car that reflects an approach to the product portfolio that pre-dates the current management structure of this Group, and I think we need to live with this product as it works its way through its own lifecycle, but I don't think it's an indication of what we will be doing with this brand going forward.

The slide number 12, which deals with the two luxury or premium brands. Ferrari has had a phenomenal quarter. A significant improvement in trading performance, reflecting certainly an improvement in mix of the products being sold, but also significant reduction of Formula 1 costs, which were expected in line with the changes in regulations.

Maserati has had its first positive quarter in its history, certainly since its inclusion in the Fiat Group portfolio. The newly launched GranTurismo is having a phenomenal success, especially in the U.S., and we expect it to continue to have similar quarters throughout the year. And I think that the questions about profitability of the business going forward have finally been put to rest. I think the real issue for us today is to try and work on the right technology solutions to try and deliver the next generations of the Quattroporte and the GranTurismo for 2011 and '12.

I'll turn now on slide 13, to one of the issues that I complained about as being an area which I don't think we adequately dealt with. The revenues for this business, almost at EUR3b on the CNH side, we went up in terms of operating performance from EUR189m to EUR198m. I think we can read all these wonderful things. Fundamentally, in a snapshot, both the construction and the AG markets on a global scale were up, tractors much less so than combines. Combines had a phenomenal growth rate in Q1 of '08 of roughly 40%. And certainly the 100 plus horsepower tractor portfolio across the globe saw a very, very strong demand compared to Q1 of '07, much less so on the 40 horsepower and below especially in North America.

The construction market had positive numbers across the world, with the exception of the U.S., where the market was down 25% year over year. And to give you an indication of the degree of decline of demand, I think it was down something like 35% just alone in March of 2008 compared to the March of 2007. It is a market which is looking for a bottom. I think we're getting pretty close to what we consider to be minimum market levels of activity in the U.S. I think we have seen most of the negative impact of the subprime crisis and its impact to construction, working its way through the system. The U.S. market has got this phenomenal ability to respond, I think, to these market declines in a significant and very efficient way, but we believe that we're probably seeing the bottom of the market. It's very difficult to say when we'll see demand pick up again but I think, in terms of ongoing volumes, we may have seen the worst.

When you turn on to slide 14, I think you can see -- and the only number that I really care about on this slide is the EUR43m number, which reflects the level of industrial inefficiencies that we experienced in Q2 of -- in Q1 of this year. This -- these inefficiencies are a combination of things due to, I think, a lack of preparedness on the part of the industrial organization to deal with the kind of demand that we saw in the marketplace. We had forecast, when we were working on 2008, for roughly a 20% increase in volumes year over year. I think the stress of that type of volume of the organization was sorely underestimated, and I think that we probably underestimated the ability of our suppliers to follow suit.

So, in order to ensure that we had proper coverage of the demand in the marketplace, after all the efforts that we have made to regain share, and you will see that we have been successful, we incurred a large number of costs, including some extraordinary airfreight costs to fly in components to complete units for delivery to customers.

I really don't have a very good explanation, other than the fact that we understand the root cause of the problem. It totally sits within the industrial side of the business. It relates to manufacturing and procurement, and these are areas in which I think we have to unleash the expertise of the rest of the organization to try and fix, because it's not coming from within the CNH organization, which I think is probably stretched to its limits in terms of its ability to try and deal with this demand.

When you look at these numbers, and you look at what we expect for the rest of the year, this is a business that's starting to look like a $20b, and the organization, industrially, has not been able -- is not capable of responding to this pressure. I think that the world-class manufacturing initiative would release a lot of capacity out of the system, and it certainly would provide the level of tranquility in production that's required to deal with these demand functions. But I think we are forced now to roll them out at the speed of light, in order to try and accommodate what we consider to be some significant quarters coming forward in terms of demand.

The other issues are more or less explainable. We would have had a significant quarter, although certainly not in line with our full year expectations in terms of margins, had we not had these industrial inefficiencies.

And when you move on to slide 15, you can see the success of the commercial brands in the marketplace. We have been able to gain share on the AG side in these markets. And as you can see from the line that deals with combines, the type of growth that we've experienced, 84% in Latin America, 55% in the rest of the world, 16% in Europe and 12% in North America. And I don't recall, having been in this business now for four years, I don't ever remember a quarter where all parts of the world suffered or benefited from this type of demand. And so the organization, to some extent it is understandable they would have some issues in terms of dealing with the demand pressures. But at least we were able to maintain share and growth it, where relevant, in most of the marketplaces.

It's true also of tractors, with the exception of lower than 40 horsepower tractors, where we have allowed share to go in North America but it's not a significant portion of the business, and certainly not where the profit portfolio sits today.

The construction equipment side, as you can see, it's been a very uneven performance, up in Latin America and rest of the world, and very negative in North America, nearly flat in Western Europe. But we've been able to hold share, or grow share, in all the markets. The 2008 markets continues to look favorable, as I said. Certainly, quite strong performance on the AG side and relatively decent performance in construction, if we remove the impact of the North American economic slowdown.

Slide 16 talks about some of the launches that we've had in Q1. I don't want to bore you with these issues, but I'll give you an example. The equipment on the left probably represents one of the flagship products of Case IH and reflects the type of technology that sits within Case IH and which is unique to the business. So our planter strategy has been significantly reinforced over the last 24 months. And some of these product launches that you see are totally in line with the complete rejuvenation of the product portfolio and the introduction of a number of elements in this portfolio that reflect the technology that certainly sits in-house.

I'm going to skip through slide 17, which deals with EPS. It is the ninth consecutive quarter of improvement in earnings per share. I think we should have done much better than we did and I think the organization is fully aware of the shortfall.

The Cinderella story, as I mentioned earlier, is really Iveco. On slide 18, we have significant volume growth, 18%, to nearly EUR3b. Volumes were up 21% to 58,000 units. It's a record number for Iveco growth across all of our regions. And trading profit was up nearly 1.5% -- 1.5 times on 2007 level.

And as you can see on slide 19, most of the volume benefit was retained, in terms of trading profit. We continue to overspend in terms of the international efforts. A significant amount of resources have been devoted to the development of our China position, and also to revive the -- our presence in Latin America. We are seeing some significant improvement in both market share and numbers coming out of Brazil. Then ultimately, out of Latin America, we expect 2008 to be a significant year in terms of proving the turnaround of our Latin American operations.

If you move on to slide 20, there's not much to be said here. In terms of product launches, the most significant piece of this is the introduction of the Eurocargo, which will happen within 2008. And it represents the last part of a rejuvenation exercise of the product line, in anticipation of the full product launches coming through after 2010 within Iveco. So a lot of the work has been done.

We continue to improve quality within the organization, which certainly has -- they're now totally in line with what we consider to be the main competition. And all the efforts that have gone in, to try and globalize Iveco, are beginning to bear some fruit. I mentioned earlier our position in Brazil, Central and Eastern Europe. But I think the most important work is still underway in China, as we work our way through the joint venture with SAIC in terms of the development of our truck businesses.

Slide 21 should provide everybody with a level -- with a sufficient level of comfort in terms of what we see as the demand coming forward in -- for the remainder of 2008. The order backlog as of March 31, 2007 is significantly higher, especially the medium and the heavy end of the spectrum, than it was at the end of Q1 '07.

So we have not seen a drop in activity. We have seen softness, as we mentioned in our press release this morning, in some geographic areas, notably Spain and Europe, which has begun a corrective action in terms of economic activity. It is not going to significantly impact our forecast and we do expect a complete year totally in line with expectations on the truck side. But volumes are -- the business is going incredibly well, so there's not much else to be said.

And if we move on to slide 22, which deals with Powertrain, with FPT, significant increase in the volume (technical difficulty) engines. Most of this is connected to the increased activity in Iveco.

In Case New Holland, you can see from the bottom part of the chart, notwithstanding this problem that we've had with the 1.3 liter diesel engine, for which we have borne all the costs, that we have imputed no supplier recovery in connection with that event, that we are -- we did achieve to improve performance 2007 to 2008. We're at EUR47m for the quarter, about 2.4% margins, and I think that it's an indication of the strength of the business.

I think that we have been able, as you can see from the chart, the impact of volumes and the savings associated with the ramp-up in capacity of this business has really been proving to be totally in line with the expectations, and certainly what we had in mind at the time we set the business together in 2005.

Components -- pretty well an uneventful quarter, certainly in line with expectations. Marelli continues to perform well. Teksid has been negatively impacted by the inclusion of the aluminum business which was acquired last year. We expect that negative number on the aluminum side to be rectified during 2008, and therefore for Teksid to return to normal operating performance within the year.

Going from -- on slide 24, going from trading profit to net result, I think that the only item really of relevance here is the fundamental difference in financial charges, EUR210m negative in Q1 '08 compared to the EUR57m in 2007. That difference is fundamentally the equity swap, which I think has been outlined.

When you look at page 25, the details of the year-over-year change of financial charges is clearly indicated. And you can see the EUR154m on the column on the right, which deals with the equity swap accounts for all of the difference year over year. So we understand the issue. It is something which is required by accounting. There's nothing that we can do. It's associated with the movement in the share price and its design. We needed our equity swaps that were structured to back up stock option plans for executives, and the accounting rules required that we mark them to market on a quarterly basis and there's nothing that can be done.

Page 26 deals with cash flow. I think that maybe I can -- if Maurizio wants to talk about this, in terms of what happened during the quarter, and try and deal with the issue of the working capital bill for the quarter.

Yes. In the first quarter overall, the assumption was EUR1.5b. That's explained, of course, to the largest extent, by the working capital, which explains EUR1.3b, and then by the shares buyback for an additional EUR180m round numbers and for some additional equity investments that have already been mentioned during the call.

As far as the EUR1.3b absorption in working capital is concerned, this largely relates to the monetary cycle of the business at FGA, where we basically, in the first quarter, collected the sales of this -- of the same quarter, while we pay the production of the previous one. We had a very high level of production in Q4, therefore -- which is indicated in the slides in the appendix. We produced almost -- around 590,000 units and we collected 564,000. This means a negative balance of 28,000 (sic) units.

On the sales side, if Pomigliano would have worked at full speed and we wouldn't have a reduction in sales because of the Multijet problems, we would have had probably 20,000 -- at least 20,000 units in terms of Alfa, so [more] collect for around something more than EUR400m, and more sales would have been prevented by the Multijet problems, EUR450m overall, an absorption of roughly EUR600m in terms of working capital. This explains half of the absorption. The other half is due, to a large extent, for the largest part to CNH buildup in stocks for the expected sales of the next few months, because of the seasonal path of the sales of CNH.

Thank you, Maurizio. I hope that was clear. I think the -- but it does show the sensitivity of the working capital position. And I mentioned this, when I tried to outline the doomsday scenario in terms of our forecast in -- when we presented a four-year plan up to 2010. We did suggest, to the extent that we would suffer a 20% decline in volumes under hypothetical scenarios, that there would be a working capital adjustment that would require the use of cash to try and equalize.

But this business and especially the FGA side is incredibly sensitive to volumes on the working capital side, because we do run a negative working capital cycle in FGA. So to the extent that we have any type of slowdown year over year on these volumes, we will see a reversal of the cash positions. Having said this, we are confirming the 2.4m units for 2008. I think that the loss in Q1 is going to be fully recovered within the next nine months, and certainly the position of our Brazilian operations will compensate for any potential shortfall that we may have against that number.

If we move on to slide 27, which deals with the 2008 targets, we confirm them. I mentioned earlier the areas of weakness that we saw, Spain on the truck side, the passenger car demand in Western Europe and the weakness of the construction equipment market in North America. We confirm our net purchasing savings of roughly EUR400m. We still have a very good financial structure with over EUR5b worth of liquidity on hand.

And if you move on to slide 28, we're reconfirming all of our targets for the year, EUR60b in revenue, EUR3.4b to EUR3.6b in trading profit, and EUR2.4b to EUR2.6b in net income. We do expect to be debt free at the end of the year, with roughly EUR1.5b of net cash on hand, and we're already absorbing in that number the EUR200m in share repurchases that we've made in the first quarter. So notwithstanding that buyback, we're going to be reconfirming the 1-point-billion (sic) in net cash at the end of this year. We will continue the share buyback program in 2008. And as the slide says, we're going to continue to implement our strategy on targeted alliances.

Now, let me go back to this issue about revised guidance for the Group going forward. We have thought about this long and hard. And I think we need to go through a very simple arithmetical process here and then I'll tell you what I'm willing to and not willing to do.

We have made -- if I adjust the numbers for Q1, we will have made -- we would have made in excess of EUR800m for Q1. And if you follow the simple -- idiotically simple arithmetic and you multiply it by four, you end up with a number like EUR3.2b for the year. Q1 is the weakest quarter of Fiat Group, historically. And it does reflect the fact that we're going to see phenomenal performance of the AG business in Q2, and certainly a very strong Q4, as a result of the activities of both the -- of all the capital goods businesses and the sales.

So we feel relatively comfortable confirming EUR3.4b to EUR3.6b. We're going to leave the revision of the targets to a confirmation of performance at the end of Q2. I think there's -- we're going to gain nothing by moving the expectations up, but I think that there's enough positive momentum within our businesses today to make us relatively comfortable that the number that we've pitched as a target for 2008 should be easily achievable.

So on the basis of that, I'll open the microphone to questions and I'll pass it on to Mr. Auriemma.

Thank you. Now we're ready to start the Q&A session. Nina, please retrieve the first question.

Thank you. (OPERATOR INSTRUCTIONS). And we will now take our first question from Paolo Mosole with Intermonte. Please go ahead.

Good afternoon, everybody, and congratulations for the good results. I have three questions for you. The first one is on the loss of productions in the Fiat auto division. There are 36,000 lower production -- 36,000 units less that you are producing in the first quarter. Will that be recovered completely in the second quarter and therefore have a positive impact on working capital?

I can answer that one. It will be recovered within the next three quarters, so by the end of the year the impact will be gone.

Okay. So there will be not a significant jump in the second quarter on that?

It's difficult to say, because the Giambattista Vico plant has started a ramp-up process at the beginning of March and some -- it is still not running at its expected speed. I think we'll see this within the month of May. And that's why I mentioned earlier that I think we will have to wait until the end of the year to see the full benefit of the recovery.

Okay. And second -- the second question is on the Italian car market and European car market. Could you give us an update? You said that you are more cautious on those two markets. Could you be more specific on that?

I'm going to be careful about giving a forecast of where the Italian market is. To be perfectly honest, I do not know what the impact has been of the political uncertainty on the Italian side on car demand. I think we are beginning to see some encouraging signs in April. I don't think it's a great market still. But I think we need to see probably the end of Q2 before we make any final determinations as to where the car business will be in Italy. I think we're probably going to see a European market which year over year is down a couple of percentage points compared to 2007, but I'd prefer to see Q2 numbers before we make a final call.

I don't think it's going to impact, by the way, on our ambitions for the year. I think in terms of the 2.4m (sic) number that we've set for ourselves, I think we feel that the number is comfortably achievable. So I don't think it's going to be dependent on market performance.

Okay. And one more question on CNH. The issue -- the main issue, from my point of view, is on the construction side, margins which have been quite -- equal to zero under the IFRS standards. So should we expect that to be -- remain very low compared to last year for that division and compensated by the AG division, or should we expect a recovery in that division margins starting from Q2?

I think we're expecting a recovery in margins in both the AG and the CE side. I don't think you should be underestimating the impact of the industrial dysfunctionalities on the AG side. It's been a major cause of concern. I think when you look at the competitive landscape, the performance of Caterpillar, as recently reported, reflects the weakness of pricing, even of big players such as Caterpillars, and not just in North America but across the piece. I think that we are aware of what's going on. I think we've adjusted production schedule and the cost structures going forward in CE, to reflect certainly a more contained demand, even outside of the U.S.

But the big issue for us has been the dysfunctionality associated with the AG side, and that's an issue which there's not a Q2 cure for. I think we need to work on this issue throughout 2008. It is my expectation that by relying on the resources of the Group, on a Group-wide basis, that we're going to make a significant impact on these inefficiencies, that we'll be able to see the restoration of margins certainly within Q3 of this year, with a significant improvement in Q4 of 2008.

But it's a difficult issue and it's an issue which really, fundamentally, has to do with -- when you look at Fiat today, if you'd ask me, as a Group, I think, what have we been able to do really well in the last four years, I think we've been able to reposition these brands in the marketplace in a very effective way. I think brand recognition, penetration, market share, geographical coverage has probably been one of the strongest points that we can claim.

Where I think we may have fallen somewhat short is in the ability of the industrial organization, ex-FGA, ex -- outside of the car business, to respond to volume peaks. And I think we need to work on this very diligently. I don't expect the AG market, notwithstanding all these noises that we hear in the marketplace about the non-desirability of biologically produced fuels, that this market is going to go through a decline in '08 or '09. I think that we're looking at a permanent shift in demand. I think there are significant parts of the world that continue -- that are going to require high horsepower equipment and I think that CNH is in an ideal position to cater to that demand. I think we need to learn how to deal with the figures. I think we're going to see this again in 2009.

Okay. Thank you very much.

We will now move to our next question from Massimo Vecchio with Mediobanca. Please go ahead.

Good afternoon to everybody. I have a question on asset-backed securities, if you can specify what's the expiry of those asset-backed securities because probably the market is currently going down at the moment, the way to refinance it and the extra cost that you can incur in refinancing your ABSs. Thanks.

In terms of the ABS, the amount that is maturing across the entire year is in the range of EUR2b counter value across all regions. That's a maturity in the sense that there is a natural collection by the SPV and that go to reimburse the notes. For the time being, what we have done is, not in the first quarter but in April, we have done a transaction for $500m. There is a market for our paper, for our class of assets. The matter is the price, also an appropriate choice of timing, I would say. For the time being, there are conditions for accessing the market. I'd say that would be the fair assessment at this point in time. Having said that, the market is definitely much expensive than it was one year ago.

(Multiple speakers).

Can I just make a general comment on this, on the issues of securitization. I probably know more about this than I want to know, because of my involvement at UBS, but the capital goods side of the ABS market, which has effectively been a source of financing for companies such as CNH, John Deere, Caterpillar historically, and which has really been at the heart of the financing structure of these houses, is a market which has been dragged by this -- by the negative side of the subprime crisis and the fact that securitization on mortgage-backed securities has gone the way it's gone.

I think that this sort of uniform brushing of the ABS market is going to stop. I think that we're going to see, probably in the next six months, a separation of MBSs from the wider ABS side. I think we're going to see a restoration of decent margin performance, because the market continues to be accessible, which is untrue on the MBS side. But the ABS side for capital goods companies continues to be there. It is just reflecting a level of risk which I think is unrealistic in the marketplace and which is probably reflective of the pessimism associated with ABS in general. Because of the liquidity issues associated with the mortgage side, it has spilled over to ABS and it's negatively impacting it.

But I believe this to be a temporary situation. I think we should be seeing a restoration of normal trading conditions, probably not to the same level of pricing that we saw in early 2007 but the market is still there. We just did a transaction for $0.5b in April of this year. The market was there and it was successfully done. So I think it's a pricing issue and not a depth of availability or market issue.

Okay. Thank you very much.

And we will now take our next question from Arndt Ellinghorst with Credit Suisse. Please go ahead.

Yes. Thank you and good afternoon, everybody. I have a question on slide 14 of your presentation, on CNH and the earnings swing and the target. Firstly, could you explain a bit on the pricing effect? I'm a bit surprised that pricing is not more positive in there than the EUR12m you're reporting. And also, could you explain to us why the EUR43m should be regarded as non-operational? Everything you've explained so far sounds pretty operational to me.

I never said that it was non-operational.

Yes, then I probably struggled a bit stripping it out on the margin.

The question is whether the issue is repeatable in nature, given market conditions. (Multiple speakers).

Well, you said that it's coming back this year.

No, no. Look, the number is permanent and it's in the number. So the reported number is EUR198m. The only reason why I carved it out, and it's different from the issue of FGA, is to highlight its relevance in terms of margin performance. Had this not happened, we would have had margins of roughly 8% in the quarter.

Yes, but this is due to very high volumes, so probably you wouldn't have the positive volume effect then.

No, what I'm saying is --

It's just the nature of the business, when you're running at more than full capacity. Right?

No, trust me, we're not run -- this is not an issue of running at full capacity, because obviously we were in a position to make the units that were requested. It was the manner in which it was done and the way in which the supplier pace responded to the spike in demand. These numbers have caused stress on an industrial system that was unable to cope with the volume coming through the plants, not because of purely supplier issues, but also because of the way in which it was organized and the way in which it dealt with that spike. I never tried to call it a non-operational variance. It exists. And it's not recoverable because it's permanent, it happened.

All right. Then, just quickly on this slide, one more thing. The 9% plus margin target, you previously were going for a 10% to 10.8% margin. This is a downward revision, isn't it?

It's a what? (Multiple speakers).

Did you revise the target down from 10% to 10.8%, to a bit more than 9%?

No. I think the full year target of 9% is what we mentioned as being the target for 2008, isn't it? I'm looking at my colleagues.

Well, I've got to look up -- I have 10% to 10.8% in my memory, but I --

I'm just trying to make sure that the information that you just raised was corrected on the year-end call. When we talked about forecast numbers for 2008 at the end of 2007, we had revised guidance on CNH to over 9% margins for the year.

All right.

It's a confirmation of what we had said.

All right. Thanks a lot.

All right. And the pricing question that you asked earlier, as to whether you expected our number to be higher, this is net of pricing on construction, which has gone the other way.

So you have negative pricing in construction, obviously, and (multiple speakers).

Absolutely.

All right, that's it. Thanks a lot.

Thank you.

From West LB, we will now take a question from Adam Hull. Please go ahead.

Hi. Good afternoon. Three questions, if I may. Firstly, could you talk a little bit about the Brazilian car market? And particularly, actually, to what degree do you have spare capacity if the market continues to grow?

And then secondly, on Ferrari and Maserati, I think it was 9% of operating profit in the first quarter. Could you tell us if you have any FX hedging against the U.S. dollar and sterling, and also whether you booked any hedging benefits in your trading profit numbers in Q1?

And then finally, again on Ferrari and -- sorry, on Ferrari, you mentioned the lower costs on the Formula One side, and if you'd give us some indication whether that's a step change just in Q1 or will continue for the rest of the year?

We're going to try -- we'll give you the number. The issue is that most of the 2008 revenues in U.S. dollar terms are hedged. So we'll give you the impact. And obviously, there's an inclusion in Q1 of the effectiveness of the hedge. We don't talk about Formula One costs outside of trading profit. It's just that we have had an improvement in the cost structure of F1 and it was simply a result of the changes in regulations, 2007 and 2008.

And the other question that you asked, about Brazil. The reopening of the Cordoba plant that we announced last year was designed to try and give breathing room to our Brazilian operations, in anticipation of a more permanent solution to the demand function in Brazil. We do expect that the current operation in Bella Horizonte will not adequately deal with demand, as we see it coming. I think we will need additional production capacity within Latin America.

Where that capacity will come from is not yet decided. I think that it may be part -- certainly in terms of the analysis that we're currently carrying out, it may be part of a North American solution, especially in terms of the introduction of the Alfa brand. But I think the analysis is not complete and I think I prefer to wait until we complete the -- we complete that process. But I think you're right, given where we are today. The Brazilian operation of Bella Horizonte, including Cordoba, will be -- will not have enough capacity to try and deal with demand. I think we're -- you have a number on FX?

Yes, we do make -- we do hedge. According to IFRS, we record the gains or losses in the trading profit. We've recorded some gains for Ferrari in Q1. The amount is EUR13m. This is an improvement compared to the spot price during the quarter, not necessarily against last year.

And if I could just (multiple speakers).

(Inaudible) there?

That's great. Just a follow-up, just on the Brazil. So you're saying you could still increase the rate of production from where you are now in the short term, or not really?

I think we can deal with demand for 2008.

And then, just on the Ferrari and Maserati side, clearly the U.S. and the U.K. are significant markets for you. I don't know if you can give a particular comment on pricing, potential pricing adjustments in the current FX environment that you're in.

I don't want to spook the dealers -- the Ferrari, the Maserati dealers that are sitting in the U.S. trying to sell these products, but I believe that both of these brands have got capacity in terms of some price increases that would offset any negative impact of the decline of the dollar. I think we have taken a very prudent approach in the past, in terms of covering our forward positions for Ferrari. 75%, I think, of the 2008 exposure is covered. I'm looking at --

Yes. For 2008, as of now, we have more than that and we are going through part of 2009.

So I think the rest of the year is going to be -- is okay and it's covered. And as Maurizio mentioned, the income inclusion for the quarter was EUR13m. But I think that the important thing is I think the product portfolio is capable of carrying a price increase. I don't think pricing or fair value is really necessarily a big issue, to be honest, given the client base that I've seen in the brand.

Sorry, just a final one. Do you have any hedging on sterling? I'm thinking of the other businesses as well, not just Ferrari.

Yes, we do.

What sort of level in '08 or --?

What level of coverage do we have in '08?

Similar to the one we indicated for the dollar. It's close to 70%, 75%.

Okay. Thanks very much.

We will now take our next question from Adam Jonas with Morgan Stanley. Please go ahead.

Hi. Thanks, gentlemen, and good evening. Just three questions. First, on Belgrade, can you give us an update on the discussions with Zastava? Anything you want to share in terms of the interest there?

We're just looking. We're just looking.

Okay.

It's a site and a business that's of interest to us strategically. I think we need to see what we can do with that site, but our people are on-site today. And we've had ongoing discussions with the government over the last few days. We'll see where it takes us.

Okay, just looking there. The second question is on Cinderella, your Brazilian market.

Yes.

You kind of gave us some clues, at least mathematically, as to the profit of this business in the first quarter by saying that, firstly, over 100% of the profit was -- just in this particular quarter was from Brazil. So doing your idiot math on that number, multiplying it by four, we get to EUR772m of profit, at least. Is this math too idiotic or is the ballpark right? Just to kind of -- I guess, could you dispute that math, basically?

You are not materially off.

Okay. Final question, then, on CNH. In order to do the 9% guidance -- and I know when you lowered it at the time I believe your language was something like you're going to try to do it and you were acknowledging that it was taking a little longer than, obviously, you had anticipated. But of course, you appreciate that the market does hang on your guidance because you've delivered, in almost every case, what you've said, and you're not afraid to change the guidance when it isn't going your way for factors that are outside of your control. In this instance, to do 9% for the year, roughly, you've got to do a 10% margin for the rest of the year, which would be at least a 100 basis point improvement over the remaining nine months of last year. Am I crazy to think that maybe this is a bit of a stretch? And now is your chance to kind of tell us, "Look, guys, take a pill, lie down." in terms of that margin outlook. Thanks.

No, I'm not good at taking pills and lying down. I understand your level of concern about the margin. I think it's something that -- I think that we need to do a lot of work between now and December on this issue. And I think before we give up on the 9%, I'd like to see what happens in Q2 in terms of margin performance, given what we've done on the portfolio with combines and high horsepower tractors, which obviously are the most rewarding part of the portfolio.

When you look at the historical numbers, you can see that in Q2 of last year -- I'm going on memory now, but I think in Q2 of last year CNH had in excess of 10% margins, and they got close to 11% margins in Q2. And I think that it tells you what the house is capable of doing, when the product portfolio is correct. And so how much we'll deliver in Q2 to offset the shortfall in Q1, to allow us to deliver 9% on the average for the year, is to be seen and I prefer to see the full second quarter before we touch that number. But I understand your concern.

The important thing for us is that the number that we've been sort of bandying around is $1b -- roughly $1.6b worth of profits in dollars. The trading profit line under IFRS is a number which is not moveable, which gives us the comfort to confirm the EUR3.4b to EUR3.6b for the year. And I -- to be perfectly honest, using your -- since you brought up this issue about -- you reconfirmed your interest in my idiot mathematical approach to numbers, you've got to see that this number in Q1 is an indication of a potential upward revision in trading profit.

It's impossible for us to confirm the strength of the market, especially in Q2 in CNH, and to rely on the strength of the backlog in Iveco and expect the numbers not to be in excess of guidance. I think we're going to be very careful when we go through this because, as you said, there's sufficient issues out here to try and drive a level of conservatism. But the number -- the 9% number is ambitious. The absolute number for CNH is not.

Got it. So I'll take from that. I'll take a pill but I won't lie down yet. We'll talk after the second quarter.

Yes, don't. Just wait. Give me 90 days and you can rest for the summer.

Thanks very much.

And we will now take our next question from John Buckland with MF Global. Please go ahead, sir.

Hello, good afternoon. Thanks. Just to carry on with this issue with CNH, because obviously it is a number one focus, and especially given the share price, reaction to the first quarter results, which seems to be a bit overdone from my mind. But anyway, one of the issues, when you look -- when you compare the performance of the agricultural equipment division and the construction equipment, obviously there's a big diversity, understandably, due to the demand for equipment. But again, coming back to these inefficiencies and the disruption, the agricultural equipment division had a massive improvement in profit, at least looking at IFRS. But you don't seem to say that much about the construction equipment side, which had a big drop in profit. So I wondered if you can contrast the two. And I understand from the CNH call, when I listened to it, that half of the disruption was within the construction equipment as well, so it's not just an AG equipment issue.

I think we need to be careful. I don't know what was said on the CNH call. I can only tell you what I know about what happened in CNH and then we'll see whether we can reconcile it. I think that -- I've just been passed a piece of paper. I don't want to contradict the CFO of CNH, but he said that half and half -- apparently what he said during the analyst call is that 50% of the EUR43m was due to AG and 50% was due to CE.

I think that -- I want to be tactful on this. Let's assume that Mr. McDougal is right, for a moment. I think that the real issue on CE -- my understanding is otherwise. And so I say this with all due respect to McDougal and the independence of CNH management in addressing these issues. My understanding is that the majority of these inefficiencies were felt by the AG side and they were driven by the demand pressure on the industrial organization.

I think that the issue on CE has been a pricing issue, and has been mainly driven by the devastation in the U.S. market side, which has dropped prices and which has cause a realignment of the pricing structure across the product range and which is reflective of what Caterpillar has done. And you've seen -- when you go back and you look at what Caterpillar said in terms of their own earnings call, there's been a margin grind and the margin grind is associated with relatively poor pricing conditions in North America.

But I will take up this issue with Mr. McDougal. And I'm going to confirm what he said and I'll come back to you with a view later. But on this one, he rules today. I'll rectify the matter.

Okay. And just on this whole management of the industrial system, and obviously your previous views that it's not being managed as well as it could be -- could have been, what -- are there future management changes that need to take place? Are you putting in more people from within Fiat Group? Have you got the necessary management availability to fix this within the timescale that has been set?

The answer is yes, we have. We have people from the Fiat -- from Fiat Group that have been unleashed on this organization. We've made a change to the Head of Purchasing. We're in the process now of fully incorporating the procurement function within the Fiat Group purchasing initiative. And Stefan Ketter, the Chief Manufacturing Officer for Fiat Group, is now heavily involved with people on the ground to try and deal with this issue. So we'll begin to see some results relatively quickly on this.

Okay.

It's not a resource issue and I'll make no comments on leadership. I think that we need to work our way through the issues.

Right. Okay, thank you.

From ABN AMRO, we will now take our next question from Andrew Lobbenberg. Please go ahead.

Hi. It's Andrew from ABN. Can I ask just a couple of questions? On the Alfa plant, where there's been the labor -- some labor instability now, can you give us a bit more color on that? You give people a lot of time off, give them lots of training and it's still creating problems, so can you talk about that?

And the second question, a simple one, an old chestnut really, the spin-off of Fiat Auto, you talk about looking -- to look at that, if the Group's undervalued. What would you define by that?

Just to deal with the labor issues, I tend to agree with you that the current response by a very limited portion of the workforce in the Giambattista Vico plant to the intervention by Fiat, the commitment of over EUR100m, both in training and in capital, to that plant to bring it to world-class standards, the response of the labor force, I think only some part of the labor force stretches the limits of credulity.

I think we have now made our point very clear with our colleagues on the labor side that this type of activity from the -- from a limited portion of the workforce is putting at risk the future viability of this house. I think that we are -- we have undertaken this exercise in Giambattista Vico with the best of intentions and with a very clear objective of improving the quality of work life for the 5,000 people involved in this organization, with a commitment to give them a product portfolio that would allow for the continued existence of that plant, going forward.

I think that if we continue to receive confirmation from the labor force of their unwillingness to accept the need for change, I do raise today, I mean officially, the fact that I would have to reconsider the ongoing viability of the organization that's on that site. I think I could not have done more, and especially in an environment such as Italy, to finance this exercise out of Fiat Group's pockets without asking for any support from the government or from local institutions.

And I think that I take the response very seriously and I think that we have been monitoring events down in Giambattista Vico carefully. I think that we're going to wait until the resolution -- hopeful resolution of these issues on Monday. I know that the discussions that have gone on have been unsuccessful up to now and that we do not have full buy-in. I still think that the dissident view is associated with a very limited group of people in the plant. I sincerely hope they don't put at risk the future of over 5,000 people in the organization.

And in terms of the spin-off issue, I think that the valuations, as we see them in the marketplace today, have got little reliability. I think we do need to see, as I said in my comments on other occasions, we do need to see permanent evidence of value leakage in the current aggregation of businesses. If that happens, I think that we will deal with the issue of the separate existence of the car business.

But to be perfectly honest, in this marketplace, given the response that we have seen by the equity markets to a variety of factors which are totally independent of the economic performance of Fiat Group, I would be very hard-pressed to rely on -- to use that as a basis for the valuation of the [Auto group]. But having said this, I think the issue is acknowledged. I think we need to understand it. We need to firm up a view, as time goes on, when we restore some level of sense in the valuation process of these equity markets.

Thanks. Can I just come back on the Alfa plant, because I can see the clear message you're seeking to send to them. But in the event that you don't get agreement, where do you go with the whole Alfa project?

I think that the Alfa project has -- you made reference to the Giambattista Vico plant as being the Alfa plant. It is an issue which we have publicly stated as not being the case, because Fiat Group Automobiles has always reserved the right to allocate particular platforms of particular productions to sites as it sees fit, meaning on the basis of the combinance of platforms, components and production systems.

The new MiTo, which is going to be launched in Q2 of this year, is based on a platform which is being used by both Melfi and by the Mirafiori plant, and effectively will come out of the Mirafiori plant in 2008. And the successor to the 147 will be produced by the Cassino plant. And so the future of the Alfa brand does not depend on the Giambattista Vico organization. I sincerely hope, and I tell you, we've approached this restructuring exercise with the best of intentions. And I would -- it is truly my sincere hope that the parties will find a solution going forward. I think it's going to benefit no one from a continued reluctance to embrace the necessary change in Giambattista Vico. I think it will not serve anybody any purpose. I think that -- and I would actually be shocked, I think, if we did not find a way out.

But the answer to your question is that I think that the Alfa brand will continue elsewhere. If people decide not to work in Giambattista Vico, then I think Fiat Group Automobiles will manufacture the cars in its other facilities. It's that simple. But I tell you, I keep reiterating you, that I sincerely hope that that's not going to happen.

Okay, thanks. That is clear.

We will now take our next question from Gregor Claussen with Commerzbank. Please go ahead.

Yes, hello. This is Gregor. Unfortunately, I didn't get everything regarding the cash flow statement, due to some problems on the line. Could you please repeat, what do you plan to achieve a reversal of your cash position to make those EUR1.5b net cash at the end of the year? Is it just by reducing the negative impact of the working capital? Thank you.

I think it's a combination of making trading profit, which I think is a fundamental driver of capital -- of cash generation, and secondly a restoration of working capital levels to normal, or working capital levels to normal levels in the absence of plant shutdowns on the car side, which reverse -- I think Maurizio or I made reference to the fact that the FGA business runs on negative working capital, which means that the minute we have a drop in production we end up reversing the benefit of the negative working capital. We actually require cash -- to the extent that that issue goes away, and it will go away because we're going back to normal levels of production in Q2, then the issue will disappear. We'll just recover the cash. We will go back to a negative working capital position, which by definition generates cash. Was that clear?

Yes. Thank you very much.

And we will now take our next question from Martino De Ambroggi with Euromobiliare. Please go ahead.

Yes. Good afternoon, good morning, everybody. My question is on purchasing efficiencies. If I'm not wrong, in Q1 you said we saved EUR68m. I remembered, in your original business plan presentation, the projected net savings were in the region of 580. That obviously was made in a totally different market environment, so I was wondering what your current updated estimates or what's your view on raw material cost increases.

If I can give you a jolt to your memory, the position that was taken was on gross savings, and the gross savings is the number that you make reference to. But we always -- our objective is to deliver net. And on a net basis, we're above expectations. If the presentation in 2006 made reference to EUR850m gross and raw materials savings of EUR270m, we're confirming EUR420m.

Okay. So what's your view for -- in any case, for the current environment scenario with raw material, steel and so on?

Our expectations for the year, for 2008, is that we're going to see a jump of about EUR360m in terms of raw material costs. And that's what's causing -- that's well above what we expected at the time at which the 2006 numbers were put together. And our ability to recover all of that has been reduced. So the number is roughly EUR420m on a net basis.

Okay. Okay. And the second question is on Iveco, because you mentioned some slowdown in order intake, only in some geographies. But I was wondering what's your expectation after plus 18% in Q1 and a good order backlog in the second Q. So is it something that would dramatically change, in your view, in the second half, this trend, with your current visibility?

Well, the numbers that we gave you is the backlog position at the end of March. I've indicated a softness in the March numbers in terms of some markets, especially Spain being an indication of softness. I think we need to see where that backlog is going to be at the end of Q2. But the evidence that we have today is that the whole of 2008 performance is not in question. I think we're -- our ability to deliver on the number for the full year is pretty well in the bag. These are -- the position is strong and so is the order book. So 2008, itself, is not in question. I think we need to see progress on the order book, as we work our way through the year, to see whether there has been a fundamental shift in demand going forward in 2009, but our indications are otherwise today.

Okay. And very last question, on the release of provision. I see you mention them in -- mention it in your press release, but it's not quantified. Is it material or something very small?

Let me check. Oh, you're talking about the EUR17m?

Yes, which is a sum of different elements, if I'm not wrong.

Yes. It's made up of a variety of issues. These were items that were booked as one-off items in the past, which are no longer required and I think we're reversing them in the same line, just to separate it from trading profit.

Okay.

The [cost came] on that line in the past have been reversed on the same line in the period.

So we can say it's not material?

It is not material and it doesn't impact on anything, because it has to do with the previously taken position.

Okay, perfect. Thank you.

And we will now take our final question from Albrecht Denninghoff with BHF. Please go ahead.

Yes, hello. Actually, two questions. One is the development in China. You sold a plant. Could you tell us what are your future intentions on the expansion in China in the passenger car business?

And second question is, in the Italian newspaper there was an open invitation for cooperation talks from the head of the PSA Supervisory Board. Does Fiat Auto feel inclined to take this invitation or is it just a (inaudible)?

Just the deal with Peugeot Citroen, I think that the open invitation may have been exaggerated in terms of scope. We have a strong relationship with Peugeot Citroen already. And we do share the production of commercial vehicles with them through a French plant and through an Italian plant, which are jointly owned. And so our level of cooperation is significantly high and they probably do already represent the most significant automotive partner to Fiat Group Automobiles. So I don't read any more in that statement than an invitation to continue the path that we've undertaken with Peugeot Citroen.

The position in China is a more difficult issue. We've unwound the relationship with Nanjing Auto. We have set up now one with Cherry, which we're working our way through. I think it's important that we allow that -- the conclusion of those discussions and that we properly position the introduction of the Alfa brand through Cherry, going forward. I think we fully recognize the difficulties associated with the penetration of the Chinese market. I think we've put a number of people on the case now. I sincerely hope that within 2008 we'll come up with a view which gives us the means to assess market potential and significant manufacturing capabilities on-site within the year.

Thank you.

Ladies and gentlemen, that will conclude the question and answer session. I would now like to turn the conference back over to Marco Auriemma for any additional or closing remarks.

Thank you, Nina. We would like to thank everyone for attending. And as always, if you have any additional questions, please don't hesitate to give me a call. Have a good evening. Bye.

Ladies and gentlemen, that will conclude today's conference call. Thank you for your time.