Stellantis NV (STLA) 2010 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Fiat Group 2010 Fourth-Quarter and Full-Year 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, Bettina. Good afternoon to you or good morning, as the case may be, and welcome to Fiat Group 2010 Fourth-Quarter and Full-Year Results Webcast and Conference Call, the last quarterly analyst call for the Group.

The Chief Executive, Sergio Marchionne, today with Antonio Picca Piccon and Camillo Rossotto the newly appointed Treasurers, respectively, for Fiat and Fiat Industrial will host today's call. They will use the material you should have downloaded from our websites, fiatspa.com and fiatindustrial.com. Also with us is Manfred Markevitch, the Head of Investor Relations for both Fiat Industrial and CNH. After introductory remarks, we will be available to answer all the questions you may have.

Before moving ahead, let me just remind that you 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 Sergio Marchionne.

Thank you for the introduction. As you well know, today is the last conference call for the automotive conglomerate that we all knew as Fiat S.p.A. I think that I'm looking forward to a slightly lighter load as we move into 2011. I think that the CEOs of the Industrial Group will be able to address most of your concerns going forward, although I think my presence will still be somehow felt through the process.

But the important thing is to try and get an understanding of what was accomplished in 2010 and really get a firm understanding of how we're starting our new lives as Fiat and Fiat Industrial.

I'm going to ignore making any comments about the title page. I'll leave it to you to use your literary interest to find out why we chose the title that we did. And I'm also going to skip the first two slides of the presentation, which are pure propaganda. They relate to the event on January 3rd, when we started trading in the two securities of Fiat.

Page four deals, really, in a very clear way with what I think we were able to accomplish in 2010 for Fiat. I'm not going to make much comment about the revenue side. We're going to deal with this as we go through the sectors, but the important thing is that from a trading standpoint we came in at about EUR2.2 billion, roughly EUR600 million in net income for the year. And probably the most relevant part of this analysis is the fact that we were able to generate a substantial amount of liquidity in the last 12 months.

We're now sitting on a net debt position, which is substantially below what we indicated as guidance as little as three months ago. We're sitting now at EUR2.5 billion worth of net debt, EUR2.4 billion, of which EUR0.5 billion is sitting with Fiat, with the car side, and EUR1.9 billion is starting with -- is the starting position of Fiat Industrial.

Net cash is about EUR16 billion. Most of that cash, over EUR12 billion is now sitting with Fiat. There's a comment that's somewhere in the slides going forward saying that there was an amount of inter-company debt that existed as of January 1, 2011, which has now been extinguished because the -- a number of lines have been drawn down to repay the indebtedness. As a result of that repayment, the actual cash balance of Fiat is about EUR1 billion higher, had we pro-forma'd the transactions of the end of 2010.

So overall, a good year. I think we're satisfied with the trading performance of the business, with all the businesses, and I think we're looking forward to an improvement in 2011 performance for the two organizations.

Slide five, the first part deals clearly with what I just talked about, about the financing of Fiat Industrial. These lines have been drawn. I think that as we mentioned to you as early as April of last year, we have intentions of going back into the capital markets to provide proper financing for Fiat Industrial as we go forward. That's going to be a 2011 event, hopefully within the first half of this year.

Given the performance, the Board has recommended a dividend. It's going to cost us about EUR152 million across the three classes of shares.

And the other significant event, which is one of three events, the other two of which hopefully will materialize in 2011, which has brought the ownership of Fiat into Chrysler from 20% to 25%.

Slide six, standard reconciliation of trading profit down to net income. Obviously, the financial charges are relatively high. This is the price that we're paying for the high levels of liquidity that we've maintained in 2010. The financial charges are also net of a one-time gain of EUR111 million, which relates to the mark to market of the equity swaps that are associated with stock option plans of Fiat. Those options will continue to stay on Fiat S.p.A.'s books and to the extent they don't get exercised or otherwise dealt with, they will continue to impact the performance of Fiat S.p.A.'s results.

Group cash flow, page seven, this is the basis on which we're able to reduce our debt position, substantial cash generation. I think the working capital management has been quite good, especially in the fourth quarter of 2010. We continue to apply pretty rigorous CapEx discipline to the business. This is on a combined basis.

You will these numbers substantially move in 2011 as we resume what I consider to be, at least in part, a catch-up strategy in terms of CapEx, especially as it relates to car. We'll deal with this as we give you 2011 guidance.

But overall a healthy cash generation. It's allowed, effectively, Fiat S.p.A. to start its life almost on a net-debt-free basis, which I think is significant, given all the challenges that I think it needs to face in 2011 and 2012.

Slide number eight, just two basic points. We've rolled out this world-class manufacturing sometime in 2005. It was rolled out across the Group and over the last five years, we've been able to accumulate roughly EUR1.1 billion worth of savings in terms of transformation costs. We have applied the same philosophy to Chrysler, which has now begun the same path that was started some five years ago at Fiat.

We're quite pleased with what has happened here on the manufacturing side and it's something which is going to continue to remain part of the manufacturing fabric of Fiat going forward.

Group purchasing has done well. We've delivered almost EUR400 million in savings year-over-year. Fourth quarter has slowed down as a result of raw material price hikes that we have begun to see across some commodities. We're still confident that we can deliver the savings that we outlined to you on April 21st as part of the investors presentation for 2011.

Skipping slide nine, getting to page number 10, the current Fiat, the Fiat that we understand today to be trading, had good top-line growth, mainly as a result of performance, other than the Western European automotive sector, which is -- continues to have performed poorly.

The luxury brands have done well, both Ferrari and Maserati, on the back of the economic recovery, but I think they had good years, both in terms of revenue and in terms of trading profit. And Components and Production Systems are following, I think, the global recovery in automotive demand and, therefore, their numbers have significantly improved year-over-year.

Slide number 11, you can see what the impact has been of the decline in market demand in 2010. Europe has been down almost 5%. Italy has been severely hit as a result of the non-renewal of eco incentives, down almost 10%, year-over-year. Brazil, on the other hand, has gone exactly the opposite direction. It's helped us tremendously. We're up nearly 7% over 2009. And the light commercial vehicle business is recovering from incredibly low levels that we saw in 2009, up across Europe, up also in Italy, but not by as much, and certainly a very strong performance out of the Brazilian market.

We expect most of these markets to recover in 2011, with the exception of Italy and, I guess, a continued negative view of where European demand is going to be this year. We're not encouraged by the signs that we see in terms of European economic activity and, therefore, we have taken, I think, a very prudent approach to estimating demand for the current year.

We do expect Brazil to continue to grow. I think that we see numbers being anywhere between 2% to 5% higher in 2011 and certainly it is one of the bases on which we forecast profits for Fiat in 2011. We do expect our strong economic performance that we've had last year in 2010 to continue unabated in 2011.

Slide 12 deals with sort of a layout of where we've had gains and losses. It is clear that the incentive systems that were put together by European governments, namely in Italy and in Germany, that the non-renewal of these eco incentives had a pretty significant impact on the demand for Fiat products in those markets. The fact that the demand for CNG and LPG powered vehicles was as high as it was in 2010, played, obviously, in Fiat's favor, because it is the leader in these segments. And the non-renewal of the incentives caused a substantial drop in demand, which we saw beginning in Q2 of 2011.

Good recovery of Alfa Romeo as we launched the Giuletta in the -- at the end of the first half of last year. We're seeing significant inroads being made in terms of the positioning of that car. And certainly it's a good basis on which to try and develop Alfa as we strengthen the relationship on a manufacturing and development basis with Chrysler.

The last -- the second half of the slides deals with residual values, significant improvements that we've made year-over-year and I think it's a reflection of the commitment to quality and the discipline that we've had in distribution on the European side.

Slide number 13 called the two Cinderella stories, these are really the strong points of FGA. They have been historically and they continue to be the main profit generators for Fiat, for Fiat Group Automobiles. The light commercial vehicle side, which we continue to manage well, roughly 13% market share in Europe, and if we take the Iveco side of the light commercial vehicle business, we are still the main force in light commercial vehicles in Europe.

Strong performance, also, in Brazil, not only on the light commercial vehicle side, as you saw from the previous slide, but also in terms of car. We are now running our plant in Belo Horizonte at capacity. We are running an additional 100,000 cars from the facility that we have in Argentina, in Cordoba.

We recently announced, as you can see from the bottom picture, between Christmas and New Year's, the establishment of a new manufacturing location in Pernambuco in the northeast of Brazil. I was there with President Lula for the inauguration of the construction, investment in excess of BRL3 billion, and as part of a much wider commitment that Fiat, across all of its businesses, Fiat and Fiat Industrial, has made to Latin America for the period 2011 to 2014.

Initial production of that plant is going to be roughly 200,000. It is expandable to over 400,000. We're now finalizing all the necessary arrangements to determine exactly the type of power trains that need to be localized near Pernambuco to support the introduction of these vehicles, which will be, hopefully, visible in the marketplace in 2013.

Slide 14 deals with this ongoing saga of the underutilization of the European plant infrastructure and the fact that that is at the heart of the lack of profitability of our Italian operations. We've showed this slide before. We've updated it to reflect actual data for 2010 in terms of the utilization of the passenger car plants. You can see a very clear difference and probably one that has gone, which has made the difference here more visible in 2010 between the technical utilization rate of our Italian plants compared to what we have been able to do in the rest of Europe.

This is a situation which cannot continue. I think we have made two significant inroads in 2010 by signing two labor agreements, one in connection with our Pomigliano plant, the other one, which relates to the recently agreed deal with the labor unions in Mirafiori, here in Torino.

The agreement that we signed with Pomigliano will allow start-up production for the Panda in 2011. That should produce about 250,000 cars that will give -- significantly change the utilization rate of our Italian assets. And the other one is Mirafiori, which the labor deal passed with a vote of 54%, but it will allow us to -- it will allow both Chrysler and Fiat to jointly commit and produce a Jeep SUV and an Alfa Romeo SUV in the C segment.

We've also announced -- this was more than two years ago we've announced -- but that by the end of this year production will cease at our Termini Imerese plant in Sicily and this is totally consistent with the industrial plan that we laid out for our Italian manufacturing infrastructure.

Slide 15, which deals with the luxury brands, Ferrari had a phenomenal year again, margins nearly 16%, over EUR300 million in trading profit, continues to have success in its international expansion. It is now focused on China as being the next significant area for growth. It sold over 300 units in 2010, more than double what it was in 2009. And we continue to develop the distribution network in China to deal with what we consider to be a significant demand curve developing in that area of the world.

Maserati continues to do well, on slide 16. Made EUR24 million, more than twice what it made in 2009. It continues to perform well in terms of demand, sold 25% more cars than it sold the year before, with the US remaining its strongest market. There's a lot of work that continues within Maserati to develop the successor to the Maserati Quattroporte and hopefully we'll be in a position to present this sometime by the end of 2012, the early part of 2013. But I think we remain focused on next year as being the critical year for Maserati as it renews its -- as it renews the architecture.

Not much to be said about Fiat Powertrain, other than it had a significant recovery in performance, up to EUR140 million in trading profit for the year. It has -- it continues to maintain its leadership in terms of CO2 emissions. It is the lowest emitter of any other European mass manufacturer.

We see the number of awards, both in connection with the TwinAir, the two cylinder engine that was recently launched by Fiat and then the recognition of the value of MultiAir as a technology to be applied across all of Fiat's engine families.

Slide 18, just the top part of the slide is just a confirmation of what was laid out to you for the investors on April 21st. I've heard that there's some rumblings about the fact that we have sort of lowered guidance for 2011. That is just nonsense. We have just repeated the information that was given to you on April 21st.

It's a confirmation of our belief in the durability of the industrial plan, as far out as 2014. It is, obviously, our view that we're going to be at the top end of the trading profit forecast. The number is not expected to be lower than it was this year. We're seeing significant recovery in the components business, going forward, and certainly the luxury brands will continue to do well. Brazil is expected to continue its profitable performance in 2011 at levels at least equal to what we were able to accomplish in 2010.

Of significance is the amount of capital that will be used by Fiat in 2011. This is -- relates to the number of initiatives that we've put in place, including the industrialization of the Panda, as I've outlined earlier in connection with Pomigliano and the beginning of the expenditures of the SUV that will be built here in Mirafiori.

Calendar for Fiat. This is pretty well standard stuff. We'll have the first quarter results on April the 20th in our shareholders meeting, which will be held on March 30th.

I think we have managed to run the calendar so that Fiat Industrial reports one day later than Fiat, am I right? I think that at least we're going to try and organize our chaotic life with advance warning.

Slide 21, we start getting into the Industrial business. Outstanding performance out of CNH. I think the fourth quarter has been, really, the icing on the cake. We have done really, really well from a variety of reasons. I think we've had great market traction, both in the ags and the CE side. I think that we were successful in sort of depleting the inventory levels of CNH. We have under produced to demand by a significant amount. It's given rise to some significant cash generation in the fourth quarter of 2010.

Iveco continues its recovery. Fourth quarter has been exceptionally strong in terms of trading performance. And FPT Industrial, the engine business that is run for -- at least for CNH and Iveco, plus third-party customers, has had a significant rebound in performance. Revenues were 50% higher than they were the year prior, but more importantly I think we had a nearly EUR200 million swing in trading profit, 2009 to 2010.

Slide 22 deals with our performance across the various segmentations of tractors and the various geographic areas for combines. I think the tractor performance in under-40 horsepower tractors was expected. It was quite intentional on our part. We are busy reconfiguring our offering in that market segment. We have had a series of cost uncompetitive units in the marketplace there for a number of years. Those are in the process of being completely rejuvenated and hopefully we'll be able to see a reversal of that position in 2011.

We continue to perform well. When you see the negative sign in the 40-horsepower-plus range, that category is incredibly wide. It goes up to 400 horsepower tractors. We have done incredibly well in the large equipment area in four-wheel drives and large horsepower equipment and the other issues have really been the result of capacity constraints across some of our industrial sites, which hopefully will be corrected in 2011.

We're quite encouraged by the performance in combines. I think that, overall, 2011 forecasts to be a better year than 2010. And so we're certainly gearing up our industrial machines to a significant increase in volumes in 2011. I think CNH had their conference call earlier today and they may have indicated that we do expect to have a top-line growth across all the businesses of roughly 10% or thereabouts.

So good indications about where the market will end up in 2011 and the same is visible on page 23, which relates to the construction equipment side. So a significant increase in demand in both light equipment and heavy for 2011.

Page 24 deals with the -- this is sort of a snapshot of some of the things that we've gone -- that have gone in 2010 in connection with international operations. This is only some. One of the most striking things about CNH is effectively its international reach.

We have completed the joint venture with Kamaz in Russia for the local manufacture of tractors and combines. We continue to expand our operations in China in the northern part of the country in connection with our wholly owned facility up in Harbin. And we continue to perform well in Turkey, which has had a phenomenal year, a good recovery from the 2009 slump. And we continue to increase our involvement in India, which, both in terms of manufacturing and in terms of local distribution.

Iveco also had a good year. I think that market demand is showing at least healthy signs of recovery and this was visible in the fourth quarter of this year. It was not a widespread phenomenon across the whole of 2010, but certainly in the fourth quarter, we were encouraged by what we saw.

Latin America continues to perform well. The order intake for the business has improved significantly and I think we are now managing a healthy level of both dealer and company inventories. We ended up the year with, roughly, I think a 25% reduction in overall inventory levels compared to 2009.

Slide 26 deals with China and Brazil. We continue to make -- I keep on repeating this. Eventually, hopefully, it will become a well-known fact. But we are the largest foreign truck maker in China through Iveco and volumes have gone up significantly in 2010.

Brazil continues to perform incredibly well. We focused on that business going back in 2006. We sort of neglected it in terms of strategic development, but I think all the initiatives that we've put in place and certainly the local leadership in Brazil have done a tremendous job of bringing Iveco back. We're now at roughly 9% market share and we do expect that both on the basis of increased volumes and repositioning in terms of market share of Iveco that these numbers will continue to improve in the years to come.

Fiat Industrial, FPT Industrial, again, is another success story. We were at significant volume ramp-up on the engine side, more than half -- more than a 50% improvement over 2009. Improvement also in gear boxes. One-third of our sales, now, are to third parties, which is a significant achievement, given the fact that we started these businesses as stand-alones back in 2005 and we were able to diversify our order book and our customer base.

A significant recovery in earnings, nearly EUR200 million in recovery, year-over-year. And I don't have to take you to the bottom part of the slide. It deals with what we consider to be a significant technological know-how that sits within FPT, which I think will endow FPT engines with a significant cost advantage against the relevant competitor class.

Slide 28 deals with the forecast. Again, this is a photocopy of what we told you on April 21st in terms of performance. It is, again, a confirmation of the 2011 and 2014 plan. And, as you can see, the fundamentally different financial performance of this business is not clearly visible.

We'll generate roughly between EUR1.2 billion and EUR1.4 billion, probably at the upper end of that guidance. And significant cash generation allows us to see a decrease in net indebtedness by about EUR0.5 billion in the end of 2011.

I think, then, you've got a gazillion slides as appendices, which we'll be more than happy to answer questions on, but I think we're done.

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

Ladies and gentlemen, today's question-and-answer session will be conducted electronically. We will take our first question from Martino De Ambroggi from Equita. Please go ahead.

Yes, good morning, good afternoon, everybody. If I may, on the last point you mention for debt reduction for the current year for Fiat Industrial, because the official guidance EUR1.8 billion, it was unavailable before, but you mention upper end operating profit means EUR500 million of debt reduction for the current year. And I was also asking this because I was trying to match the guidance for this year with the debt-free position you expect in 2013 that you mentioned during the last meeting in December. That was the first question, on Fiat Industrial.

The second one, if it's possible to have a rough indication on what you have in your guidance in terms of raw materials impact for both entities and the restructuring and unusual items? And very last consideration on cost synergies you mentioned in slide eight for Chrysler, what was the amount for 2010 and what is the expectation for 2011 if something is changing versus the previous business plan, how things are going with Chrysler? Thank you.

I got distracted. We're trying to collect some information on your raw material question. I'm going to try and answer them backwards, then I'm going to have to come back -- you're going to have to come back and just fill in at least one of the questions that you've asked.

In terms of the net debt reduction, if you look at slide number 28, I mean, it's almost self-evident by 2013 this thing is going to be debt-free. If you take the difference between EBITDA and CapEx just on 2013 will be enough to extinguish any indebtedness that we have within the system. So I think we were sufficiently cautious on calling the date. We'll see how well we do. It may be earlier, but we're going to stick to our guidance of 2013 as being D-Day.

I'm looking at Mr. Rossotto here, who appears to be shaking his head violently in agreement. You're doing so? So 2013 or earlier.

In terms of the -- what we expect on raw material in 2011, I think we're looking at a EUR200 million number compared to EUR380 million that we were able to achieve this year, so we have built in some significant headwinds in terms of raw material price hikes and it's reflected in the guidance that we've given you.

The update on Chrysler is going to be given to you officially on January 31st, which is next Monday, when I'm back -- I'll be back in Detroit. I think the business has gone well, certainly in line with guidance that we gave on the last conference call. I think we'll have to wait for Monday to get additional details.

Now you've asked something else, which I've ignored. Can you repeat it?

Probably restructuring and unusual items included in the guidance?

There's nothing of significance in 2011 or later years. I think that, you know, we continue to clean up residual matters that's reflected in the 2010 numbers, but there's nothing of significance that we have going forward.

Okay. Thank you and if I may, a very last follow up on the M&A side, because during the meeting in December you mentioned the only very unlikely deal is the sale of the entire stake in Ferrari. I understand it's difficult to answer to a question on the M&A, but we saw Elkann stating that (inaudible) is not for sale. Today Wester is repeating the same for Alfa. Is it possible to restrict, I'll say, the perimeter of the potential M&A deals?

That's a really good question and the answer is I won't restrict the -- I can't restrict the scope of M&A deals. I think we need to be very, very careful.

One of the things that has distinguished this Group from others, certainly -- and I don't want to take ownership for this, but certainly in the last few years, is the fact that I think we have been able to move at the speed of light to try and occupy spaces that have been made available by a market that, for whatever reason, had become inefficient for a period of time.

I think it would be incredibly unwise for us to try and predict as to whether occasions like this will recur. The only thing I can tell you is that Fiat is going to be there. I think our presence in Chrysler could not have been forecast and certainly in hindsight it was probably one of the best things that could have happened to Fiat. I think it's one of the best things that could have happened to Chrysler, too, but I think it would be unwise to try and restrict the scope of what we do.

I think what John Elkann made reference to and I think he echoed -- and I echo his comments, is that we're not actively pursuing deals. This is not -- we haven't-- we are not engaged in sort of disposal activities here. But I think it would be incredibly foolish to come up with categorical statements over the fact that nothing will happen.

We have seen what has happened here in the last seven years. I think we need to remain open and to give these businesses the freedom to execute on strategic alternatives that become available to them.

I think it's -- I can tell you that I don't have any intention today of dealing with particular assets. The Ferrari story, I think has been built out of proportion. The only comment that I've made is we think that there's -- we do believe and I continue to believe this and I think the numbers indicate it clearly, that Ferrari is a significant repository of value. It is a value which we see undisturbed and unhampered by competitors' behavior in the marketplace. It is a unique brand. It is a unique set of activities that has, really, no counterpart in terms of the marketplace.

They're unique and I think that the fact that they do represent a value for Fiat is comforting to us, but we make no commitment about executing a partial divestiture strategy or retaining our current shareholding in Ferrari. It is what it is.

And I can tell you -- and John, I think, was clear on this. We have -- we're not shopping the assets, but on the other hand, I think we need to remain absolutely open about what possibly could benefit the business, going forward.

Okay, thank you.

Our next question comes from Alexis Albert from Nomura. Please go ahead.

Hi, good afternoon. This is Alexis Albert from Nomura. I have just one question. It's regarding Fiat Industrial. I don't quite understand why you are not changing the outlook for 2014, especially 2011, because if I look at CNH and if I look at Iveco, it looks to me like the top line is already pretty much reached at the end of 2010. The same applies to Iveco and it looks to me like the guidance that has been given by CNH is above the one you are giving us in the 2010-2014 business plan for 2011.

So I'm really surprised why you're so reluctant to change this guidance, especially since I believe the world is a bit better right now than it was at the end of February 2010. This is my only question.

Mr. Alexis, I think you've got a great future as a CEO. You still there or are you dropped off the line?

Yes, yes, I'm still there. Yes.

I think -- look, we are in the habit here of raising guidance at the appropriate time. We have never, to this date, at least since I've been here, missed guidance that we've given the market.

I think we recognize that we've had a very good year in 2010 and all indications are that 2011 is going to be stronger than 2010 has been. I want to see confirmation of the trading performance in the first quarter of this year before we up guidance. It's been in the tradition of the house and we're not going to move it today.

Okay, thank you.

Thank you.

Our next question comes from Kristina Church of Barclays Capital. Please go ahead.

Oh, hi, yes. It's Kristina Church from Barclays Capital. I've got a couple of questions. Firstly, I was just wondering if you could elaborate a little bit more on the net debt split. I notice that it's an 80/20 split between the auto business and the industrial business. I was just wondering if you could sort of talk about -- I know you're talking about CapEx going up substantially in the auto business and whether -- obviously, you'd already given the guidance for the CapEx, which remains unchanged. So whether the outlook has got more negative for the auto industry and hence why you're leaving less net debt in that group?

And then possibly, maybe, whether you could talk a little bit whether -- how you see the potential to move for a further 16% of Chrysler, what sort of cash implication that might have and whether that could explain some of the difference in the debt split?

And then the second question is more related to the Fabbrica Italia. I'm just wondering what the next steps are there, following the two plants that you have reached concessions with, where will the next steps be taken in the Fabbrica Italia plan? Thank you.

Yes, I'm going to deal with the last two questions, then I'll pass it off to Camillo to deal with the net debt split.

I think that we need to take a breather here on Fabbrica Italia. I think we've gotten two significant projects, which, in total, will cost about EUR2 billion that have been committed to this, at least on the Fiat side. They have been made. I think that we're going to see the implementation of the first one within 2011. And we're certainly going to have spent, started spending money in connection with the Mirafiori plant and we'll see it fully operational, hopefully, within the next 24 months.

I think what we're going to be doing with Fabbrica Italia is taking these projects one at a time as they go forward and I think we will tackle them one at a time. I think we've seen the difficulty that we've encountered into getting sort of wholesale agreement across a pretty broadly defined plan of investments in this country. I think we need to go back and modestly approach this on a case-by-case basis as we move forward.

I don't -- the amount of money that's involved here is substantial. I want to have all the certainty that's required -- which is something that I've repeated ad nauseum now -- about the ability to govern these plants using these rules that we've now agreed. I think we want tangible evidence of the fact that that can be achieved and I think we'll tackle investments as they come on a case-by-case basis.

The second question that you've asked, about the 16% in Chrysler, I think that -- and I mentioned this during the road show, pre the merger -- our objective and I think it's a wise objective, is to, if at all possible, is effectively be in a position to exercise that 16% call option.

You can see from the financial liquidity that Fiat S.p.A. has maintained that it can execute on a proposal, if one were to come. That proposal, obviously, and the acceleration of that call option entails an agreement amongst multiple parties. I don't -- to the best of my knowledge, that agreement is not in place today.

I think it would be, certainly, premature on my part to claim that this is a near event. I think that the parties need to go through and discuss this matter at length. I remain as convinced as I was during the various -- even at the time that I was at the Detroit Auto Show about 10 days ago, that I think that the opening up of the capital markets window in the US is real and I think it would be, perhaps, unwise, for Chrysler not to take advantage of that opening.

I think Fiat is ready to do what it can do to facilitate that process, but it must do it on terms that Fiat finds acceptable and that they're concerning the undertaking associated with the investment.

So, I'm on -- I can't tell you -- I can't give you an indication of timing. I can only confirm what I've always said and that is that I hope all these things will happen within 2011. We need to get everybody else to agree to a plan and we're not there.

And I'll leave it to Camillo to explain the net debt.

Kristina, if you want to look at slide 32 as a support for my sort of explanation, I think it's fair to recognize that our guidance on net debt split has moved from a 50/50 original to a 60/40 type of range and there we kind of moved to more absolute values type of guidance. And you will recognize that the EUR1.9 billion at Fiat Industrial exceeds the EUR2 billion to EUR2.4 billion by a bit, while on the Fiat side, we were also very clear in stating at a certain point, after allocating a similar amount of debt, it would have been, essentially, the final split would have been driven by actual operating cash flow performance.

And so, as typically occurs in the fourth quarter, we had a positive generation from working capital at Fiat Auto that has reduced the absolute amount of debt on Fiat Auto from the originally guided EUR1.5 billion to EUR0.5 billion.

That's also on the back, as you can see in this plate, of CapEx and working capital and all that on slide 32. It's on the back of a reduced CapEx at Fiat Auto versus the original sort of budget guidance for 2010, which has, obviously, determined a lower amount of debt on Fiat.

So, I don't know if that answers your question, but I think we moved from a percentage to an absolute amount and then we executed on that EUR2.5 billion of debt repositioning from Fiat to Fiat Industrial and then it ended up to be the final number that you see now in the counts.

Okay, thank you.

We will take now our next question from Jose Asumendi of RBS. Please go ahead.

Yes, thank you very much. Three questions, please. First one, I just wondered if the negotiations on Cassino and Melfi, do you expect them to close in mid-2011 or is this sort of end of the year or 2012?

Second question, on working capital on the auto side, the strong inflow there, is it inventories, payables or receivables? It's just -- give some data behind that number.

And then, on Brazil, I mean, you're not over-optimistic on the guidance. I believe it's something like flat to 6% growth, but you do mention that you want to make the same money in '11 as in 2010. So I'm just wondering what's going to be sort of the incremental positive coming for this market if you have, probably, pricing being a little bit negative and raw materials rising? Thanks.

Yes, just to deal with the question about Brazil, look, we've assumed a market that will be, as a minimum, flat, in all likelihood up single digits over 2010. We've forecast that given -- and certainly some of the concerns that I've had voiced -- that I've heard voiced from some of you guys about the competitive nature in Brazil, we have put into our numbers sort of an implicit assumption, which hopefully will not materialize, that we will have to give up some market share to allow for the competition to occupy some space, given the fact that it is a growing market.

The forecast that we put in place sees a continuation or repetition of earnings in 2011. I don't think that the raw material story in Brazil is going to significantly impact earnings, certainly based on the agreements that have been reached with suppliers to date. And so I remain confident we'll be able to, at least, duplicate 2010 performance in Brazil.

The question that you've asked about Cassino and Melfi, I don't know whether this going to be a 2011 set of events. I know that we are, certainly in the case of Melfi, what we have on the table now is a renewal of the Punto architecture and a recommitment to the next phase of the B-segment in Fiat. This event may happen in 2011, but I think the timing, as of now, is uncertain.

I think we have done a lot of work on the engineering side and also in terms of style to make choices about what that next vehicle will look like. It is unclear to me as to whether we will be asking for a similar agreement in Melfi in 2011.

I think one thing you need to understand is that the work practices at Melfi today already involve a three-shift operation and it's been going on at this rate now for a number of years. And, therefore, I think that the obstacles associated with getting these changes in labor practices is going to be significantly lower.

I think Mr. Rossotto is ready to give you an answer on working capital.

Is it the same case on Cassino as on Melfi?

I think Cassino, also from an environmental standpoint, in terms of labor relations or where I think the labor force is today, I would expect that it may be a somewhat easier task to try and convey the necessity to update working practices to reflect what I think is required in an internationally competitive market.

This may not be a 2011 event. I think that we have enough volume coming through that plant for the remainder of the year, they may not require us to go back, although we will not know this until probably the conclusion of the first half of this year.

Sorry, may I follow up? I think you plan to be breakeven in Europe by 2013. Is that still built in having got all four plants already negotiated with the unions? Is that how we should be looking at this?

Yes. I think the objective is to be breakeven, at least, by 2013.

Okay, Jose, the working capital change for the full year, the EUR1.9 billion is almost evenly split between inventory reduction across the sectors, a payable increase due to the higher level of productions at CNH and Iveco, mostly, and the collection of the famous EUR500 million of scrap and receivable from the previous year.

While for the first quarter -- for the fourth quarter, it was a combination of almost evenly split between inventory reduction, so kind of permanent, and payable increase due to the fact that we pay a lower monthly production in the fourth quarter than we accumulate on the books, in terms of payables. So that will eventually reverse in the fourth quarter of 2011.

Okay. Can I just -- may I have one last one? On financial expenses, how should we think about this on the auto side for 2011? Sort of deterioration or improvement?

Look, we have provided the split, on an actual basis, for 2010 and that would be net of the -- Sorry, on page 36, on slide 36, you have sort of the breakdown by the drivers of financial expenses for the Group and then we have provided in the press release the split between Fiat and Fiat Industrial. That would be EUR400 million for Fiat and EUR505 million for Fiat Industrial. Now, net of the one-off EUR111 million for Fiat on the equity swap that fully attributed to Fiat.

So I think the way you should think about it, going to 2011, is pretty much the same level, with some reduction as we will reduce the cost of carry there. But I think you can use that as a proxy for next year.

Okay. Thanks. Thank you very much.

Our final question comes from Brian Johnson from Barclays Capital. Please go ahead.

Yes. Good afternoon there. Could you comment a bit -- and I've asked this before -- but just how you see pricing shaping up in your three core markets in Fiat Group Auto, Western European Auto, LCVs in Western Europe and then Brazil, especially if you're right that growth will slow a bit?

Could you repeat the question?

The question is, how do you see pricing developing in 2011 in the three core FGA markets, European Auto, European LCV and Brazil?

I think European LCVs are not an issue. I think it's a disciplined market. I think we've been able to maintain pricing in 2010, given in 2009 when markets were significantly down.

The car side in Europe is more difficult to predict. I think that we have seen, certainly as the incentives came off, some erratic pricing behavior which has certainly prevented us from playing and we have not engaged in what I consider to be unnecessary de-pricing of our products.

I think it's very, very difficult to call. As long as the market continues to be down year-over-year, I think that the pricing picture is going to remain incredibly competitive. I think we will respond where we can, but I think it is unhealthy.

It goes back to what I said earlier about the fact that this business and the least -- at least on the European side, needs some take-out of capacity. I think as a result of the actions that we've taken in connection with the Termini Imerese plant and certainly the recent actions that have been with GM -- by GM in connection with the Antwerp plant, I think we're beginning to see the implementation of our reduction strategy in capacity and hopefully that will benefit pricing. But I think it's too early to tell as to what that -- I can give you an update as we go through quarter by quarter.

On the Brazilian side, we're not concerned. I think that we have intelligently allowed adjustments in both our market share and presence of our competitors. I think that the market is growing. I think there is enough demand to justify the current pricing mechanism and we don't see this being negatively impacted in 2011.

If I can just go back to the previous question that asked about the interest split, I know that Camillo was valiantly trying to answer the question. Just to give you some indication as to where the numbers will be, we're looking at roughly EUR400 million for each one of these businesses in 2011 in terms of interest charges.

Okay. And just one last question, on the international theme, when should we think about in the 2014 plan that you might turn your attention to Asia and China, now that we seem to at least see the game plan for North America and we see the game plan for Europe and South America? Is that even on the mid-term strategic agenda?

We started our involvement in China for real in the last 24 months. I think we signed up a significant joint venture with GAC, with Guangzhou Automotive. The plant will be fully up and running in 2012 and we'll be introducing a C-segment car under the Fiat badge, based off an architecture which is being used today by Chrysler to launch a C-segment sedan in the United States. We're going to be in the marketplace with the Fiat 500 with products coming out of Mexico into China by the third quarter of this year.

I think we're showing up late at the party, but I think we're coming in properly. I think that, certainly in terms of the manufacturing facilities that we're putting in place, these are significant investments that we're making with our joint venture partner.

It is a build story from here. We've had a number of unfortunate wrong starts in China up to now, but I think we have found the right partner to build this business on, going forward, and so the numbers in 2014 do reflect the presence in terms of worldwide volumes. I don't have the exact data here, but I think investor Relations can tell you what we've built into the 2014.

I can tell you that in terms of equity pickup or, i.e., the apportionment of profits to Fiat as a result of that joint venture, there was nothing that was put into the plan that will be sufficiently material to change the forecast.

Obviously, we expect to have these businesses be both cash and earnings generative in the future, but, given the fact that we are in the early phase of development, it's impossible for us to make that call.

But I agree with you that this seems to be and has been our weak point. I think most of our competitors have made significant inroads for a number of years in China and we are late.

I think the fact that we are now approaching Asia with our friends at Chrysler is only going to strengthen, I think the penetration of these markets. I mean, we're relying, especially, on the Jeep brand, as being, together with Alfa and Fiat, being sort of the drivers of that growth.

I had a chance to review the Asia-Pacific plan for Chrysler last weekend. We see a minimum of half a million cars being distributed through that region by 2014 for Chrysler. And I think you need to add this to the type of volumes that we're going to be driving out of the joint venture in China.

So I'm hopeful. I think we need to see this thing take form as time progresses, but it is not an area that has been neglected.

Okay, thank you.

Our final question comes from [Lora Lemka] from Morgan Stanley. Please go ahead.

Yes, good afternoon. I've got a question on Iveco. I was wondering if you could, maybe, talk a little bit about the pricing dynamics you're seeing in the European truck market right now, both in terms of Western and Eastern Europe, because I saw in your profit bridge that you actually had a negative net pricing impact, although it was quite small.

So I'm just wondering how that actually developed, in Q4, in particular? And also if that negative pricing impact actually includes raw materials? Thank you.

The answer is that it doesn't include raw materials. The number that you saw on the slide is reflective of 12-month performance. It is untrue of Q4 of 2010, where pricing conditions have recovered, both in Western and Eastern Europe.

Okay. Could you maybe give a bit more detail on that?

Preferably not, because I don't think any of our competitors are giving you that information and we -- this has been a cause of concern for us as we worked our way through the slump in 2008 and 2009. Margins have been impacted by aggressive pricing by our competitors.

The only thing I can tell you is that market conditions are recovering and we're seeing a restoration of normal trading conditions, a gradual restoration of trading conditions in the market.

Okay, thank you.

If you can get information from other competitors, by all means pass them on to us. We'll be delighted to take it into account.

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

Thank you, Bettina. We would like to thank everyone for attending the call with us. We look forward to following up any questions. Have a good evening. 'Bye.

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