Stellantis NV (STLA) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's Fiat 2010 second quarter and first half year results conference call. For your information, today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr. Marco Auriemma, Head of Fiat's Investor Relations. Mr. Auriemma, please go ahead, sir.

Thank you, Rowena. Good afternoon to you all, or good morning, as the case may be, and welcome to Fiat 2010 second quarter results webcasting conference call.

Mr. Sergio Marchionne, our Chief Executive, will host today's call, as usual. Here with us is also Mr. Camillo Rossotto, the recently appointed Group Treasurer, who I am pleased to introduce to you. They will use the material that you should have downloaded from our website, Fiatgroup.com. And after the introductory remarks, we will be available to answer all the questions you may have.

Before moving ahead, let me just remind you that any forward-looking statements we might be making 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 Mr. Sergio Marchionne.

Thanks very much, and good morning. You've seen the numbers that we released overnight. I think it's been, from an operational standpoint, it's been an outstanding quarter for the Group. I think certainly based on the consensus data that was made available prior to the release of the numbers, the Group has outperformed the -- most, if not all, of the expectations that were sitting in the market.

We had an incredibly strong quarter, both in terms of top line growth, but more importantly, I think that the operating leverage of this house after the cleanup that we've carried out in 2008 and 2009 is beginning to bear fruit.

There were concerns about the performance of the automobile sector in the quarter. We all know that as a result of the non-renewal of the eco-incentives in the European system, especially Italy and Germany, would have been negatively impacted in terms of demand, and that's effectively what's been the case. We have lost a significant portion of the penetration in the A and B segment, mainly related to CNG and LPG powered vehicles, which were particularly incentivized, especially in Italy. That volume has effectively disappeared from the market in the second quarter, and therefore, we're beginning a process of restabilization of demand and a realignment across the various segments of the European market, which by definition, is going to negatively impact Fiat, certainly in the second quarter, and for a portion of the 2010 year.

CNH has a great quarter, strong performance across both ag and construction. We have actually been able to make money since 2008 in construction. The market is on a mend. We've seen significant pickup in volumes. Fundamentally, on a global scale, albeit from very low levels, but the business is in good shape. Phenomenal cash generation. Somebody pointed out already that most of the cash generation did come out of CNH in the second quarter -- we produced over EUR1 billion in working capital reductions. And CNH ended up the quarter on a debt-free basis, which was the first time I think it happened since 2008.

Iveco continues to recover well. The decent volume pickups, although, not totally reflected in terms of operating margins and trading profit, which are -- the market is still very price sensitive, and I think we've intelligently -- we have selectively decided to engage in sort of -- in that game, we have not taken on all the pricing concessions that would be normally required in a market like this, and that's reflected in the fact that the trading profit number is at the low end of expectations.

We do expect that business to continue to perform strongly in the remainder of 2010, especially in Q4, where a large portion of the special vehicle business of Iveco will be able to record finalized earnings for the year.

Components & Production Systems had a good quarter, mainly driven by demand. Volumes were up more than 30% across the businesses, some connected, obviously, to the increase in activity of Fiat, but also to a general pickup in economic activity of the automotive sector.

Trading profit came in at EUR651 million, more than double what we did last year, as I said, driven by volume increases, obviously, the improvement in sales mix, and what we continue to apply, which is very, very rigorous discipline on costs.

The automobile sector was up 19%, versus 2009, and even the FGA side, driven by very strong performance of our Brazilian operations, were up almost 20% versus 2009.

CNH came in at EUR263 million, more than double last year's performance. Iveco, as I said, came in at EUR50 million, and then Components & Production System delivered an additional EUR86 million in creating profit.

So we've got margins now at 4.4%. On a net basis, after taxes and interest, we delivered EUR113 million, which certainly reverses the loss of EUR179 million that we booked last year.

So we're beginning to see substantial signs of economic recovery across the world. We've got some flat spots in terms of demand, but overall, the business is in good shape, and is looking forward to continued strength in the second semester of this year.

If we move on to slide number three, probably one of the most significant achievements in Q2 is the fact that we were able to bring debt levels down to about EUR3.7 billion. We're sitting on EUR13.5 billion worth of liquidity -- this was intentional. We prepared this liquidity buffer to try and deal with all the possible variations associated with the demerger of Fiat from -- Fiat Industrial from Fiat. This gives us all the latitude and the flexibility to try and complete the transaction, as we pointed out on April 21.

We have secured the support of eight banks that provided a EUR4 billion facility, made up of both a term loan and a revolver, which will allow any intercompany debt between Fiat Industrial and Fiat to be extinguished post-execution of the demerger.

We have left guidance for the year unchanged. As you well know, we left, I think the last discussion at the end of the Q1 with a view that we would be posting between EUR1.1 billion and EUR1.2 billion in trading profit for the year. We have recorded EUR1.003 billion for the first six months, and it really doesn't take a lot of effort to understand that probably that number for the year, the guidance for the year, is severely understated.

We're going to wait until conclusion of Q3 before we provide an updated guidance, but certainly it will be significantly north of the number that we have left in the market for the time being.

If you move on to slide number four, there's really nothing to add. I've mentioned most of the items on the slide. The important thing is that all the businesses within the Group are now in positive territory. All the ones that had booked losses in Q2 as a result of the downturn in demand have now rectified their course. We're benefiting from all the cost reduction initiatives that were put in place, and from the rationalization exercises. Effectively, even at the heart of the recovery on the construction equipment side of CNH, is in part due to the recovery in demand, but I think more fundamentally, due to the realignment of the cost structure of the business that we finished.

If we go on to slide number six, which deals with the reconciliation of trading profit down to net result, very little to be said about unusual items. There were EUR23 million -- most of these are relating to restructuring costs. Financial charges were EUR301 million.

I think we need to mention that the decision that we made here to maintain such a high liquidity buffer is costing the Group probably about -- in excess of EUR100 million a quarter, in terms of just pure spreads between cash and indebtedness. Hopefully after the demerger, and after the activities stabilize, we'll be in a position to bring liquidity levels to normal levels.

That will happen during 2011, and I think we'll be reflecting proper financing charges on our P&Ls for the two separate companies by the end of 2011, probably by the fourth quarter of next year.

Taxes are EUR261 million. It is a relatively large number. I just finished trying to explain this to the Board last night. The European system, and especially -- more importantly, the Italian side of our Industrial activities, are actually in negative territory, in terms of trading profit. And therefore, to the extent we're not booking the benefits associated with those losses, the EUR261 million is the result of cash taxes that are payable in jurisdictions where we do earn money, such as Brazil and the US. And the pretax result is offset by the losses that we're booking on the Italian side.

So it's a bizarre rate. It also refers -- it includes some charges for employment related taxes under the Italian system, which are worsening the number in and by itself.

But it is a big issue. It is an issue that I'll come back to as I discuss our initiative in Fabbrica Italia, and what our intentions are for that plan going forward.

Moving on to slide number six, which deals with cash flow, there's not much to be said. We have seen a pickup in cash flow generation, almost EUR1 billion. EUR100 million came out of changes in working capital. We spent about EUR1.5 billion in capital, which is -- in CapEx, which is in line with the depreciation and amortization that was booked for the first six months.

We do expect a pickup in investment activity in the second half, but it would not be at the levels that we have seen in 2008 and 2007. I think we're gradually going to reposition the Group towards those levels, hopefully within 2011. The important thing is that we brought debt levels down by EUR1 billion, and we're now sitting on EUR3.7 billion.

Page -- I guess, slide number eight, which deals with the Car side. We are taking this opportunity to provide upward revisions in terms of markets in Europe. We had originally forecasted a much more draconian decline in volumes across Western Europe, and specifically in Italy. Those numbers have been revised upward. We expect the markets in Europe to be down about 10%, 12% down in Italy, and that number was close to 16% or 18%, I think from the last time that we had talked.

Light Commercial Vehicles are on a rebound, both here and in Latin America, and the Brazilian market is expected to be up against 2009, too. These are all good signs. As you well know, both the Brazilian market and the Light Commercial Vehicle activities of Fiat Group Automobile are the most significant contributors to profits, and therefore, directionally, these are good movements.

We move on to slide number nine. It shows what's happened in terms of market share. The green slots are the places where we have increased share, albeit from relatively small penetration levels. The ones that have really negatively impacted on us are the German and the Italian markets, where as a result of the non-renewal of incentives, we've seen significant declines in volumes.

On slide number 10, you can see the last two introductions -- the Giulietta, which was launched in Q2. This is the most significant product introduction, from a technology standpoint, that Fiat has carried out probably in the last six years. I think it represents the best, in terms of architectural developments of platforms for the Group. It is the platform which has been made available to Chrysler here for the production of the C and D segments in the United States. It is also the basis on which we are going to be developing the extension and the expansion of the Jeep line of products, in terms of SUVs. And therefore, it will become a significant pillar in terms of the development of the businesses going forward.

The one on the right is the Novo Uno, which is the newest introduction in Brazil. Resounding success -- 46,000 orders taken, over 20,000 cars sold since introduction, which was in May of this year. Good introduction of engines -- I think that that car is well positioned to take a significant portion of the relevant market segment in Brazil. All indications so far are positive.

If you move on to slide number 11, it talks about the Powertrain side. We have launched the TwinAir, the two-cylinder engine that we have been working on for the last two and a half, three years, and we implemented that program in about 24 months, which was an incredible -- incredibly fast implementation. I don't have to sell you the engine on the call here, but it is the most ecological engine that's available today, just in terms of CO2 emissions and consumption. And it is going to be installed in a large portion of the A and B segment applications that FGA, at least in Western Europe, is contemplating.

The MultiAir 1.4 liter engine won Engine of the Year in 2010. This is the same engine that's being industrialized here in our plant in Dundee at Chrysler. It is part of the transfer of technology that we had agreed to at the time of the transaction with Chrysler. It will also be installed on the Fiat 500 here in Chrysler, which will be commercialized at the end of this year, beginning of 2011.

We have also expanded a facility, and we call it an opening of a new industrial facility in Brazil. It's effectively an expansion of existing infrastructure. This was recently opened, and it will be producing these engines that we acquired as part of a transaction with Chrysler back about two and a half years ago, before our connection on the strategic basis was established. And we're not going to be producing 1.6 liter and 1.8 liter engines out of Brazil, which will have wide applications both in the Latin America markets and potentially back into the North American side.

Moving onto slide number 12, which deals with CNH. We do see good market conditions in ag. On a worldwide basis, tractors are relatively flat, but I think we do expect to see a pickup in the rest of the world, and I think in the large horsepower tractors, we expect market demand to strengthen in the second half of 2010, and therefore, be reflective of an uptick in activity for the whole year.

Combines continue to do well, with the exception of Western Europe, which both in tractors and combines, continues to show significant signs of weakness, and probably not recoverable until 2011.

Moving on to slide number 12, which deals with Construction, as I mentioned, this is a business that is now on the mend. We are seeing significant improvements in demand across all the regions, Western Europe excepted, which continues to be a laggard. But we do expect demand, on a worldwide basis, to be up anywhere between 25% and 30% across both the Light and the Heavy segments.

Slide number 14, which deals with two other business development areas of CNH. We recently reopened a plant that had been closed about ten years ago by CNH, probably just before the acquisition of -- by Fiat, of the business. It's a plant in Sorocaba in the state of Sao Paulo, which was recently reopened, and which we will be producing over 8,000 units, and it will be involved in the production of both combines and tractors. We have recently approved another round of investments, of about USD$200 million, to expand capacity in Latin America. This is an area that we expect to continue to grow substantially in the next few years, and therefore, we have to put in the necessary manufacturing infrastructure to serve the market.

The other part of the expansion happened in Russia. We have finalized the joint venture with Kamaz, and the joint venture will be producing both tractors and combines for Russia and the CIS states. And that's a significant move for us in a market which otherwise would have been -- would have remained closed to CNH because of import tariffs.

Iveco, as I mentioned, had a good quarter. Demand is back up. We have seen increased activity in Europe. Again, off the -- significantly off the highs that we saw in 2007 and 2008, but we are beginning to see a recovery in the market. And we expect this to continue for the whole of 2010.

Purchasing side, slide number 16. We've had a significant improvement in purchasing in the first half, over EUR300 million in savings against the prior year. We do expect some headwinds in the second half, and therefore, our performance was going to be flat year-over-year, [due to] H2 2010 to H1 2009. All of this is driven by increases in raw material prices that we're experiencing, especially on the steel side, where we're in the process of finalizing contracts to try and minimize the impact on our cost structure.

But I think that we've done significant progress in 2010 already, and I think that if we can hang onto the EUR310 million that we made in H1, it will be a good achievement.

In terms of cost structure, on page 17, our headcount has gone up by roughly 1,900 people. Most of them have happened in Latin America, and as a result of the consolidation of the Bielsko-Biala plant that we have in Poland, that manufactures the 1.3 liter diesel engine, and the TwinAir engine in Poland, which fundamentally are now almost exclusively for the use of Fiat, where we have signed a reduction for the reductions -- permanent reduction of headcount in Italy, in agreement with the unions. And we continue to rely on the temporary layoff system to try and balance demand and supply.

Now, most of you have been following the press in connection with the Fabbrica Italia initiative that we launched on April the 21st. I think a lot has been written. A lot of what has been written has been unnecessary. I think that we have probably polluted the discussions in connection with both our intentions and our objectives in presenting Fabbrica Italia as a project to Italy.

This has picked up tinges and shades of -- and political overtones, which are totally foreign to Fiat, and to the initiative that was introduced. The objective was a way to fundamentally cure the underutilization of the manufacturing structure in Italy, to provide it with products that would have made the Italian network competitive, certainly on a Western European basis.

We have run into what I consider to be unnecessary flak in terms of trying to get this initiative approved, at least in terms of the first investment that was envisioned by the plan, which is the production of the Panda vehicle in our Pomigliano plant or the Giambattista Vico plant.

This thing went to a referendum, as most of you know. It did receive two-thirds support, in terms of the initiative. There was one third of the people who voted on the initiative that were not supportive of the plan that had been agreed with the majority of the unions.

I won't take you through the detailed analysis of the industrial relations quandary that has been created as a result of this.

We have agreed to go ahead, and we have decided to go ahead with the investment by working with the people that have supported -- there's a number of unions, the majority of the unions that have supported the initiatives. And we intend to bring this project to success or completion, with a very clear commitment on both our part and the supporting unions that we need to ensure the governability of the plant. In other words, we must be able to run cars without industrial disruption, and certainly, in accordance with the terms of the agreement that we've reached.

It is every intention of Fiat to ensure that those terms, as agreed, are effectively implemented, and that we deliver the commitment of investing EUR700 million to make industrial reality happen.

If -- given the difficulty that we've encountered in connection with Pomigliano, the Fabbrica Italia initiative needs to be implemented at a much slower rate than initially envisioned, and so we have had to make -- in the interim, we've had to make product allocations in order to continue the development of the product portfolio of Fiat, and therefore, we are announcing this morning that we have allocated the L0 vehicle, which is a replacement for the Multipla and the Idea for the Fiat brand, and for the Musa brand for Lancia, to our Serbian plant in Kragujevac, and that investment is now going to start. It will be, and deliver products, hopefully by the end of 2011, the first part of 2012.

That plant -- that project was initially slated for introduction in one of our Italian plants. I think that given the uncertainty associated with the implementation of these labor agreements, it would be incredibly unwise, on our part, to try and stop the development of our product portfolio, and not industrialize the vehicle.

So we are doing this -- we are doing that first vehicle in Serbia. We continue to work with the Italian unions who have been supportive of the initiative so far to make sure that we can bring the Fabbrica Italia project to conclusion, to successful conclusion.

But Fiat cannot assume unnecessary risks in connection with that project. We're talking about substantial amounts of money, in excess of EUR20 billion, that will be invested over a number of years, and which requires the certainty of execution after implementation.

And so, a lot of the noises that we've been watching and listening to, which I think are fundamentally unfounded reactions to unfounded suspicions of what the true intentions are going forward, need to find resolution, and need to find resolution quickly. If we find that resolution, then I think that we will resume our commitment and start the implementation of Fabbrica Italia and the rest of the Italian manufacturing infrastructure.

Until that happens, we will continue to look at alternative sites to complete the product portfolio that we announced to you in April of this year.

World class manufacturing continues to be implemented through the system. We have again achieved a 6% reduction in conversion costs. We've got 131 plants there now involved, of which eight have been granted a silver level, and 18 now are bronze. So we -- by the way, that same WCM program now is rolled out, is being rolled out intensively --intensely, I think is the term. Intensely.

In the Chrysler network, the Board of Directors was here to approve the second quarter results in the demerger. They had an opportunity to visit the Jefferson North plant, where the Grand Cherokee is being produced, and which has got the first visible signs of the application of WCM in the American context.

On slide 18, we deal with the outlook, and as I mentioned earlier, I think we are seeing 2010 as a year of transition, of stabilization in demand. We are beginning to see some firm grip in uptick in demand, which is important for our business going forward.

We do expect to improve performance over the prior year in the second semester of this year across all the businesses. We continue to be rigorous in terms of cost containment. And until we get to Q3, I think we see more clearly what the first nine months' performance looks like, we're not going to revise guidance, although, as I said, I think it's highly probable that we will revise guidance upward across all the main elements of the guidance that we gave in terms of 2010 performance.

A quick update on the demerger -- this is on slide, I guess, 19. These are the volumes for Chrysler. We're up significantly Q1 to Q2. As you well know, we made an operating profit in Q1 at Chrysler. We're going to make another operating profit in Q2. We have a conference call scheduled with Richard Palmer to speak to the analysts, I think it's on August 9th. And we will give a much greater detail on the performance of Chrysler Group then.

An update on the demerger. Approved yesterday, special shareholders' meeting called for September 16th to approve the demerger. We have secured all the financing required, as I mentioned earlier, to ensure the repayment of the intercompany indebtedness between Fiat and Fiat Industrial immediately after the demerger. Every shareholder of Fiat will, effectively, be a shareholder of both entities after the demerger, and all the classes of shares will be exactly duplicated both in Fiat, and Industrial. So you end up having an identical capital structure with a nominal value of the shares being reduced from EUR5, in the case of Fiat, down to EUR3.50, and EUR1.50 being transferred across to Fiat Industrial.

Dividend rights will be allocated accordingly. I think there's a chart that deals with this somewhere here, which is slide number 21. And so, effectively, people will have the opportunity on January 2nd to dispose of either one or the other pieces of paper as they see fit, or to continue to hold both, and effectively continue ownership of the old Fiat.

We have done, as slide 22 indicates, we have done everything that's required. We have created the Treasury platform to manage the financing of Fiat Industrial that's been put in place. We do have highly confident letters from a group of eight banks that will finance this bridging of the transaction. As I said earlier, I think, the Board has approved the partial and proportional demerger of this proposal on April the 21st.

After the shareholders' meeting, obviously, we'll be working on the completion of the demerger, which is expected to be final by December 31st of this year, so that these two companies can have a separate existence as of January 1st of 2011.

And I think my final slide, I hope -- yes, it is -- it's on page 23, and that's really to give you an indication of the operating performance of the two entities. It is a pro forma of Q2 and H1 results of both Fiat, i.e., the Car side, and then the Fiat Industrial side on the other. And one of the things that's striking about this is the fundamental difference in both capital intensity and EBITDA generation of these two businesses. I mean, it does reflect the wisdom of the rationale behind the demerger, which finally create a clarity in terms of the agglomeration of different cycles and different spending patterns for these businesses.

So, we're delighted that we've been able to bring it this far. We're thankful, I think, to a number of people inside this organization, including some of the people in this room, who have been very helpful in terms of making sure that we can execute as planned. I think the support of the banks that have been involved in this has been fundamental.

But I think we're looking forward to a rapid execution of the demerger, and the beginning of a new life on January 1st as independent companies. And I think that fundamentally closes my remarks, and we'll open it up to questions, I guess.

Thank you, Mr. Marchionne. Now we are ready to start a Q&A session. Rowena, please retrieve the first question.

Our first question comes from Christina Church from Barclays Capital. Please go ahead.

Your line is open.

Hello, can you hear me? Sorry. It's Christina Church from Barclays Capital. I've got three questions, please.

Firstly, a question on pricing. I was just wondering how pricing has been holding up, and what your thoughts are for the auto sector going into the second half of the year. Secondly, just a little bit more detail on the labor agreement. Just wondering where you think you need to go to get further agreement on the Fabbrica Italia, and also, how you -- the possibility, you think, of expanding that agreement into your other plants.

And then a final question on the structure, the demerger, I'm afraid. I know you've now made it clear that the net debt will be split 50/50. I was just wanting to get a bit more clarity on how the structure would be split in a [grace] debt level, a cash debt level, and whether you would need any additional financing, in addition to the EUR4 billion that you've secured already, to allow for that 50/50 split between Auto and Industrial.

I'm going to give you the answer backwards to your questions, and I'm going to preempt Mr. Rossotto from answering. If I utter any obscenities, you can just (inaudible) with me.

Thank you.

But fundamentally, the amount of cash that will be sitting on the two pieces of the demerger, the Fiat piece will hold in excess of EUR10 billion of cash, and roughly EUR3 billion will be held by the Industrial side. And that purely reflects a couple of things -- one, the fact that the bond structure that was used to finance the old Fiat, the one that we are still currently running, needs to be repaid over time, and therefore, we need the financing -- we need the cash on hand to try and deal with the maturity schedule. We have enough cash on our balance sheet to pay all maturities past 2012, so that gives us the comfort that we'll be able to certainly provide adequate financing support for the Car side going forward, well beyond 2012. I mean, liquidity will be there, and it's more than sufficient to try and deal with our operating needs.

The Industrial side needs, by definition, are a lot less. You've seen it from the chart earlier, in terms in EBIT, EBITDA and CapEx requirements. I think that these are not very capital-hungry businesses. They require certainly a lot less capital than the Car side does. And by having over EUR3 billion of cash available, they'll be more than adequately prepared to try and deal with their cycles going forward.

In terms of the labor agreement, I -- we have to be very careful about trying to use words that imply that we're trying to duplicate the Giambattista Vico agreement elsewhere. There is not a single doubt in our minds, looking at the industrial reality of the manufacturing structure in Italy, that we need to modernize these agreements, that we need to make them current and absolutely competitive in a global environment.

The solution that may be required plant by plant may be different from the one that we're applying in Pomigliano, although I think the tendency and directionally, the changes that we're making are going to be the same across the whole infrastructure.

It needs to reflect a modernization of the terms under which we engage in the production of vehicles, whether it be trucks, or cars, or engines, for that matter. And I think we need to have the strength of character, and certainly Fiat has it today, to try and -- to convince the unions involved in this, of the absolute necessity to modernize the arrangements which have been governing industrial relations of Fiat here for a number of years.

In terms of your first question, on pricing, there's no doubt that the market is sticky. When you've got volumes that are coming down by 10%, especially in a market which is as competitive as Auto is, you're bound to pay for this in some fashion, on pricing.

We have been relatively disciplined so far. I mean us, and our competitors, may have done a couple of what I call outlier movements, but fundamentally, there has been no wholesale drive to drop prices down. But we need to be very careful going forward, we don't engage stupid activities to try and maintain volume.

So, Fiat has made the decision to adjust demand and supply in order to maintain -- sort of adequate profitability levels, in terms of margin generation, notwithstanding the underabsorption that may be associated with not running the plants. We do consider this to be, as I said, a temporary problem until markets restabilize, and we should be seeing a decent pickup in demand and a restoration of 2009 levels by 2011.

Thank you, that was very clear. Could I just make just a point of clarity? On slide eight, where you say that you expect the European market to be down 10% in H2, you do mean down 10% in 2010, isn't it? Is that --

Yes, I do. It's a 2010 picture, I'm sorry.

Great. Thank you.

I'm sorry. Does it say H2? Yes, I know, it's the whole year that's down 10%.

Great, thank you.

Thanks.

And we'll take our next question from Thierry Huon from Exane. Please go ahead.

Yes, good afternoon. It's Thierry speaking from Exane. So, a few clarifications, please. About LCV, you said that LCV's business was up 30% during the second quarter. When I looked at the registrations, I'm far from having this number. So, could you share with us the inventory situation for LCVs at the end of the second quarter?

And a similar question, about the Panda, the new Panda. There were some rumors in the press that because of this late agreement you've got with the unions of Pomigliano, the new Panda could hit the market with a six months' delay. Could you clarify this point as well, please?

No, the delay that we have in mind is about two months, and we do have, for your information -- let me deal with the Panda issue, first. The (inaudible) infrastructure is capable of producing the current Panda until mid-2012 anyway, and so, even within regulation. So we do have space, the car will be introduced in the early part of 2012 now as a result of the implementation of the plan. It's only a couple of months late.

On the LCV side, I'm going to have to beg -- I don't have the details, but Mr. Auriemma is looking at this.

So, Thierry, the marketing then, the second quarter, was up 11.7%, as on page eight, and for the year to date period in Eastern Europe, extended Europe, is 8.6% up. So that should answer your question?

So does that mean that this discrepancy, has a gap between the [split 30] you put in the slide, and the figures you just gave us, came from inventories?

No. This is a (inaudible) market. Those are registration.

Yes, but if registrations were up, let's say, 10% or 12% in the second quarter, and your deliveries were up 30%, the gap should be somewhere.

Which gap are you referring to? Sorry.

In the slide, you said that LCV deliveries were up 30% -- 3-0, during the second quarter. Okay?

What page are you on, Thierry?

Where is that? It's -- there is a slide where you said, LCVs at 99K. I'm sorry, it's page 25.

Page 25?

Yes, LCVs up around 30% to 99,000 units.

Yes, but Thierry, this is quarter over quarter. This is the variance analysis, and this -- those -- the Q2 2010, compared to Q2 2009 volumes, where LCVs were up roughly 30%.

Yes, but when I look at the registrations numbers --

No, but this also includes Brazil. This is an overall calculation of LCVs on a global scale. You should read the charts, Thierry.

Okay, I read the chart, but when you look at the registration, I think including Brazil, for this (inaudible) quarter, okay, we didn't get yet the numbers for June. But at the end of May, if you had the -- what we've got for April and May, we are roughly at half of this plus 30%, which is like more -- it's more like 15%.

But compared to what? To Q1, or Q2 last year?

No, Q2 last year.

That's not our numbers. But look, let's take this issue offline, because obviously, your numbers and ours are not reconciling.

Oh, okay, but --

The answer to your question is that we're not building inventories in LCVs. I mean, this is a very specialized business, as you well know. So there's nothing to be gained by inventory builds.

Okay. This is the only thing I want to hear.

Yes, yes, you should take it offline with Marco. Marco will answer your question.

Okay, and --

And we'll rely on a reconciliation of the numbers.

Okay, last point. About this EUR[80] million you've got in terms of selling and purchasing, you mentioned that it reflects the beginning of the synergies with Chrysler. Could you --

No, no. It's the beginning of the Chrysler -- I would not put a large portion of those savings as being attributable to the Chrysler piece.

Okay.

I mean, most of it has got to do with Group purchasing doing what it does best, across the Fiat organization. We're beginning to see some benefits of Chrysler, but I think it's way too early to claim victory here. But we are beginning to make some gains.

Okay.

We need another 12 months -- you need a lot of things, including the dedication in terms of standardization of components, the sharing of architectures, before you start pulling some significant numbers down. So, give it some time.

Okay. Thank you very much (inaudible).

And we'll take our next question from Massimo Vecchio from Mediobanca. Please go ahead.

Yes, good morning. I was referring to one of your comments on the market share loss in Italy and in Europe, which was apparently related also to the CNG and LPG segments. I was wondering if --

It wasn't also related. It was totally attributable to our loss in CNG and LPG.

Okay.

If you take those types of vehicles out, share was actually up, quarter over quarter.

Okay. Do you think you could have done something to be stronger in CNG and LPG that you didn't do in the quarter, or it's just a (inaudible)?

No, we could have sold some stuff at a loss.

Okay.

I could have maintained share, and I think we refused to engage. I mean, I think that the introduction of that technology in cars is more expensive, and I think as well, the incentives were available. It made these attractive buys for consumers. The minute the full costs associated with that technology was introduced in price, it made them inaccessible to most people.

It's -- by the way, this is always the case, and we're going to see the same phenomenon in terms of electric vehicles coming to market. I mean, they require a substantial support mechanism to make them economically viable, because of the cost structure.

All right. Thank you very much.

You're welcome.

And we'll take our next question from Martino De Ambroggi from Equita. Please go ahead.

Yes, good morning, good afternoon, everybody. First question, on the cash generation, for two pieces of the cash generation. First are CapEx. Your guidance is in the region of EUR4.7 billion for the full year, after --

We won't -- we can't spend that money. I don't know how to do it, but that would imply that we're going to be spending over EUR3 billion in the next six months, and I don't know how to do it.

Okay.

That's why I think we're waiting until Q3 to give you updated guidance on both profit performance and cash flow generation. We need to see how much we are really going to be able to push through in the second half of the year. So the number is substantially below the EUR4 billion mark that you talked about.

Okay. And is this also dependent on the delay on the negotiation with trade unions in Italy, with the start up of the new investments in the Pomigliano plant?

Not really. I think that now that the investment has started, I think the cash associated with that expenditure will be -- is already built into the numbers. And the fact that we've decided to activate our Serbia plant in the production of the L0 is an indication of the continuing investments, the cycles that we're carrying through.

So, we're not slowing it down. I think that we have seen -- we were clear on this, that as we were working our way through the crisis in 2008 and 2009, that we have made some postponements in terms of capital commitments. That decision has been reversed, and we have begun the investment cycle again going forward, because these markets will recover, certainly based on the basis of what we see today.

Okay. The second question is still on pricing environment, but for a vehicle that I saw, it was a negative in Q2. So if you can elaborate a bit more on --

Yes, prices are sticky. I mean, everybody is chasing volume, especially at the heavy end. And I think that some people are being unnecessarily aggressive to maintain share.

You know, we have had to play, in order to remain competitive, but certainly, the market is sticky. Until you see an improvement in overall demand, you're going to see the stickiness in pricing to continue.

Is it worse than expected, or in line with your expectation for the (multiple speakers)?

No, stickiness in price is never expected, and it's never wanted. But I think fundamentally, I don't find it abnormal today. Right? The question is, how long is it going to last. Certainly, based on the indications that we're seeing in terms of demand, the situation should improve, and we should see some unclogging of pricing in the second half of 2010.

But we're going to watch this very, very carefully. I mean, I think everybody -- and the good thing about this market is that notwithstanding its competitiveness, it is still very disciplined. And I think there are large players at the table here who understand how to make money. And so, I expect that -- I rely on their wisdom to make sure that we don't create damage onto a marketplace that is not required.

So I think we'll be fine.

Okay, and the last is a follow-up on the Chrysler savings. So can we say EUR100 million for the current year are still to come in this (multiple speakers) --

Yes.

Okay, perfect. Thank you.

We'll take our next question from Stuart Pearson from Morgan Stanley. Please go ahead.

Yes, good afternoon. It's Stuart Pearson at Morgan Stanley. Just wanted to come back to the cash flows quickly, more from the working capital perspective to start with. I mean, I notice your production was [583], I think, in the quarter, and normally, you do a pretty good job of matching that to sales and registrations. This time, not a million miles away, but around 30,000 to 40,000 difference.

I wonder if you could just help us to quantify what impact that would have had on the Auto working capital, and what you expect in the second half of the year.

And then just following on, the second question is really just coming back to that CapEx point made earlier. I mean, three months ago, I think you were outlining EUR4.7 billion for the year, and then today, you tell us you're not sure how you'd spend that.

I just wonder how the business plan is changing, versus what you outlined in April, just specifically, and is there anything else changing in the business plan that we should be aware of? Thank you.

Well, let me deal with the second question. There has been no fundamental change in the business plan. I think that we have become -- I think, prudent, in terms of the commitment of capital, especially on the Car side, which as you well know, is the biggest user of capital in this house.

The reallocation of some of these investments, and the fact that the Fabbrica Italia initiative effectively required us to be cautious going forward, has slowed the process down somewhat, and I think that's in part due to -- that's what -- partly attributable, I think, to the reluctance of Fiat to try and continue to commit capital to the Italian manufacturing side until we see absolute -- with absolute clarity, the governance mechanism that will allow us to run these plants.

And so, there is a lag now. I think that the L0 investment, in an ideal world, would have been made within the Italian context much earlier, and certainly, we would have been spending cash in 2010 that is not currently being spent, because of the investment cycle being now implemented in Serbia.

I think that in revising the numbers, in the comments that I made earlier about the revised guidance on CapEx, there is undoubtedly a slowdown of the CapEx cycle in Cars, because as efficiently as we tried to work with the unions that have supported us in this, I still think that it's going to require some time to achieve the level of clarity that's required to implement the plan. And so, some of this stuff is going to get pushed into '11, by definition.

Okay, but I think you -- sorry, are you --

But it does not -- yes, it does not negatively impact on the development of any of the other sectors.

Okay, but you're already targeting, I thought, EUR6 billion CapEx for 2011. Does that number go up again from there, then?

No, because there's a -- it's the capacity to consume, right? Everything gets pushed.

Okay.

So --

And on the working capital side, sorry?

Mr. Rossotto is chomping at the bit here.

Yes, hi. Look, on the working capital, the inventory levels have been substantially flat during the quarter, so the delta between production and sales and retail has generated just a little bit of restocking at the Car sector, but starting from very low levels. We're still at very healthy turns, in terms of [date of] sales.

On the other side, all three sectors -- so, Auto, Iveco, and CNH, have contributed on the payables side, because of the pickup in production levels. And obviously, because of the mechanism, they've collected those receivables during the quarter, so you should expect that some of these will revert in the third quarter, as we will be [paying] those productions.

And on top of that, we have had some positive contribution from collection of receivables, and into the [scrappage[bonds] in Italy, and that has overall helped in the cash generation for the quarter.

Okay, and can you give us any guide to your production schedule for the second half of the year in the Auto business?

No, I don't think -- I think we're going to wait until Q3.

Okay, thank you.

You need to have some patience.

Fair enough.

And we'll take our final question from [Eric Hauser] from Credit Suisse. Please go ahead.

Two from me, to be able to get my head around what was going on in Autos in the second quarter. Could you please quantify the FX impact, the positive FX impact it had in Auto EBIT in Q2, and then the other point --

EUR50 million.

Sorry?

EUR50 million.

EUR50 million, okay.

That was 5-0.

So you basically went from [155] in Q2 last year to [185], but this includes a EUR50 million positive contribution from --

There you are.

Okay. So the underlying EBIT, ex-FX, has actually gone down, despite the top line going up to EUR400 million?

Well, the top line went up as a result of the ForEx impact on trading profit. It works on both lines. I (multiple speakers).

No, no, of course. Yes.

Yes, good.

The other thing I just wanted --

The important thing is margins, right?

Yes.

Right. Look at the margins, and that's a dead giveaway.

Okay. The other thing that I was wondering about is, I've -- when I look at what CNH reported, CNH showed a USD$1 billion improvement, so, a USD$1 billion improvement in their net debt -- sorry, their net cash position, actually.

Yes.

And the total improvement for the group is about EUR1 billion, which sort of tells me, EUR800 million of that EUR1 billion would have come from CNH, which only leaves about EUR200 million for all the other divisions.

Now, once you've split off the Industrial unit from the Auto unit, I'm just wondering, are you confident that the Auto unit can actually support the demand of debt, given that it doesn't really seem to generate too much cash at this point in the cycle, with these levels of profitability?

The answer is yes.

So you're not concerned about the Auto business not generating sufficient levels of cash?

No. Absolutely not. It's sort of the combination of the Western Europe operation and (inaudible), of sufficient -- to provide the required cash flow to support the business. And don't forget the cash generation of Ferrari, and also Maserati, up to now. So they're not inconsequential.

Okay. And really, finally, you've mentioned a potential slowing down of the CapEx cycle in the Autos business. Does this impact your vehicle launch schedule for 2011 and 2012 it all?

It may, but if it is, it's marginal. I mean, you're talking about postponement of a couple of months here and there. But I don't think that you're talking about huge shifts in product launch schedules.

Okay. Thank you very much.

You're welcome.

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

Thank you, Rowena. We would like to thank everyone for attending. If you have any additional questions, please don't hesitate to call us, and Thierry, let's talk later. Thanks.

Have a good evening. Bye, bye.

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