Stellantis NV (STLA) 2012 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Fiat Group 2012 first-quarter results conference call. For information, today's conference is being recorded. And at this time, I would like to turn the call over to your host for today, Mr. Marco Auriemma, Head of Fiat Group Investor Relations. Mr. Auriemma, please, go ahead, sir.

Thank you, Sarah. Good afternoon to you all, and welcome to Fiat's first-quarter 2012 results webcasting conference call. As you know the press release was issued earlier today and is available together with the conference call chart set on our Investor Relations website.

As usual, today's call will be hosted by the Chief Executive, Sergio Marchionne, and by Richard Palmer, the Chief Financial Officer. And after the introductory remarks, we will be available to answer all the questions you may have.

Before we begin, 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. As always, the call will be governed by this language. With that, I would like to turn the call over to Sergio Marchionne.

Good afternoon to most of you. I think that we have, as the title of the presentation says, I think we, given the circumstances in Europe, we have had an exceptionally strong quarter. And to tell you that we're satisfied with the performance of the group overall I think would be a bit of a stretch but certainly given the circumstances in Europe, I think we have delivered certainly at the upper range, the upper end of our, of anybody's reasonable expectations. The fact that Chrysler has had a phenomenally strong quarter has undoubtedly come to help. The fact that we are now, and that takes me to slide 3, the fact that we're now representing the performance of our mass market involvement in terms of four geographic areas for the first time I guess because of the size of this group we can look across the world and really identify performance on a geographic basis is a significant step forward.

We are presenting numbers which reflect the way in which we have organized the Fiat-Chrysler world today. The four operating regions that you see are being run by four Chief Operating Officers. I happen to run the North American piece and I have responsibility for the overall performance of the group. But we've now got finally clear identification of performance, performance targets and objectives by geographic area.

The -- and I'll let Richard answer questions in terms of what the comparables look like. Obviously most of them have to be constructed because of the fact that the consolidation of the group did not happen until June 1 of 2011. So we have tried to provide as much comparative data as we can to make the information meaningful to the relative performance 2011 to '12.

Moving onto page 4, we have delivered a top line of EUR20.2 billion, a profit of nearly EUR900 million, and net number of EUR379 million. We were able to maintain net debt levels of EUR5.8 billion which is a sum of I think an overperformance of the NAFTA region compared to -- to be honest an underperformance of Europe, but purely based on what we knew was in fact going to happen as a result of the volume decline.

We continue to hang onto a phenomenal amount of liquidity of EUR21.4 billion which includes about EUR3 billion of undrawn credit line. So financially strong, financially secure. And what we really need, if we're going to talk about anything, we're going to have to talk about what happens to Europe and how we transition onto a better state.

We sold overall more than 1 million cars in the quarter, a large portion of that, 600,000, came out of Chrysler, the rest of it was distributed between NAFTA -- between Latin America and Europe and some cars going into the APAC region. We continue to work diligently on the implementation of both WCM, the world class manufacturing initiatives. In the Chrysler environment, we've had two plants that have now graduated to bronze level. We continue to work to try to get the other plants on the same type of reward chart. But it's having significant, significant benefits in terms of earnings for the year and it's something we will continue and we'll intensify as we work through the planned period until 2014.

We did a couple of bond issuances in Fiat, raised about EUR1.200 billion of cash. We were able to sign a letter of intent with Sberbank to try and finance -- to provide the funding for our operations in Russia which are in the process now of being finalized. And we're confirming the full year guidance that we laid out at the beginning of this year. Notwithstanding the fact that I think the European market has even underperformed by our own external expectation back in January of 2012. So we're watching this very, very carefully and I'll give you some color probably at the end as to where I think the market will probably end up for the year.

On slide 5, this is making some reference to the work that's gone on in the simplification of share capital structure. April 28th is the last day that the withdrawal rights can be officially exercised. We have received no indication from anyone of their intention to withdraw, and so we'll be testing the condition on May the 14th, 2012, and if everything is okay, then I think we can proceed with some publication of the share structure.

I'll pass on the rest of the presentation to my colleague here, Mr. Palmer, who will enlighten us with a description of the financial performance of the business. Then I'll come back and deal with the outlook.

Thank you, Mr. Marchionne, and good afternoon to everybody. Passing to page 6, group revenues came in at EUR20.2 billion for the quarter reflecting generally positive trading conditions across the regions with the exception of EMEA. Excluding Chrysler, revenues were EUR8.7 billion, 5.7% lower than a year ago mainly reflecting volume declines in Europe where trading conditions continue to remain weak, particularly in Italy.

Trading profit reached EUR866 million reflecting the significant contribution from Chrysler. Within the mass market brands, NAFTA trading profit was EUR670 million, Latin America EUR235 million, APAC EUR77 million, while EMEA was negative for EUR207 million. Luxury and performance brands trading profit was up 11% to EUR71 million while components was slightly up to EUR36 million.

Fiat excluding Chrysler trading profit was substantially at breakeven in the quarter compared to EUR250 million a year ago.

EBIT was EUR895 million for the quarter and EBIT for the period excluding Chrysler was EUR12 million, down from EUR291 million a year ago.

Net profit was EUR379 million for the quarter with Fiat excluding Chrysler reporting a loss of EUR273 million compared to EUR37 million in Q1 '11. Net industrial debt at the end of March, 2012 was EUR5.8 billion compared to EUR5.5 billion at the end of December 2011 on increased capital expenditure with cash generation from Chrysler largely offsetting absorption for the remainder of the group.

CapEx totaled EUR1.6 billion, of which EUR0.6 billion related to Fiat excluding Chrysler. Total available liquidity was EUR21.4 billion including approximately EUR3 billion of undrawn committed credit facilities, up from EUR20.7 billion at the end of December due to the issuance of EUR1.2 billion of bonds in the quarter which represent around 80% of Fiat's capital mark in maturities in 2012. For Fiat ex Chrysler, liquidity stood at EUR12 million.

Moving to slide 7, this deals with the group performance according to the new segment reporting and the comparisons are to a pro forma 2011 performance which is constructed on the assumption that the Chrysler operations were consolidated from January 1, 2011 instead of the June 1 date that was the actual date. So the mark to market brands, revenues and profitability reflected generally positive trading conditions as we spoke of before with the exception of EMEA. Revenues for NAFTA increased 22% versus Q1 '11 on a pro forma basis to EUR10.4 billion. For APAC they were up 43%, for EMEA they were down 13%, and revenues for LATAM remained flat. The group posted an 81% increase in EBIT for the mass market brands in NAFTA, a 1.5 times growth in APAC which more than offset the increased losses in EMEA of approximately EUR100 million and reduced earnings in LATAM which were down 23%.

Moving to slide 8, the net financial expenses for the quarter were EUR375 million and included the positive mark to market of Fiat's stock option related equity swaps for EUR38 million. With reference to Fiat ex Chrysler, the increase of financial charges versus 2011 was EUR28 million. Net of the impact of the equity swaps, the net increase was EUR44 million, mostly due to the higher level of net indebtedness which was about EUR2 billion on average during the quarter.

Income taxes were EUR141 million or EUR119 million for Fiat ex Chrysler, in line with the prior year level.

Moving on to page 9, it shows the revenues and trading profit walk by segment. Revenue for the mass market brands were up nearly 9% overall, the EUR1.5 billion compared to the pro forma Q1 2011 driven by the NAFTA region. Luxury and performance brands grew EUR68 million or 12% year over year and there was a 2% increase in the components and production system segment which contributed EUR40 million improvement of the group revenues.

Trading profit from mass market brands increased EUR151 million versus last year on a pro forma basis on the back of strong performance in NAFTA offsetting effective lower volumes in Europe, also due to the car holder strike in Italy in March. And price pressure from imports by other car makers as vehicle stocks imported before the EB tax rate increase in Brazil on December 15th last year were sold down, as well as the launch costs of the new models in Brazil in the quarter.

Luxury and performance brands improved by EUR9 million versus Q1, 2011 while the components business was in line with prior year.

Moving on to page 10, we show the change in next industrial debt compared to yearend 2011. The change was negative EUR243 million in the quarter, increasing net industrial debt from EUR5.5 billion as of the end of December to just below EUR5.8 billion. The negative change in net debt comes from a capital expenditure of EUR1.6 billion, exceeding the EUR1.2 billion positive cash flow from operating activities which was largely due to a significant EUR1.9 billion positive EBITDA contribution. The resulting EUR400 million negative cash flow from operating activities net of CapEx was partially offset by a EUR150 million non-cash improvement from the valuation of derivatives for hedging purposes.

Working capital behavior was a tale of two different markets. Chrysler generated EUR0.8 billion positive on the back of higher trade payables due to increased production levels and Fiat ex Chrysler absorbed about EUR1.1 billion from both payables and inventories as a result of the usual Q1 seasonality and exacerbated by the long-lasting Italian hauler strike and CapEx payments. As a result, consolidated working capital absorption was limited to EUR0.2 billion.

Moving to slide 11, liquidity for the group remained strong at March end, increasing to EUR21.4 billion including the proceeds from the bond issuances mentioned before and EUR3 billion of undrawn committed credit lines. Total liquidity for Fiat ex Chrysler amounted to EUR10.1 billion, in line with levels at the end of the prior quarter while Chrysler recorded EUR1 billion increase in cash.

Fiat capital market and bank debt maturities are spread over the next five years and beyond while Chrysler has the vast majority of its debt maturing beyond 2016.

Moving to page 12, we look at the performance by segment. Starting with NAFTA, comparisons are made to the pro forma numbers that I mentioned before assuming Chrysler being consolidated from January the 1st of '11. NAFTA in the context of a continued favorable market condition outstripped market growth with total sales in the region up 117,000 vehicles or 33% primarily due to a 39% increase in US market sales.

The revenue increase was driven by 16% higher shipments with benefits from operating leverage reflected in a 200 basis points improvement in margins to 6.5%. At the last Detroit and New York auto shows we revealed the 2013 Dodge Dart which will be in the market from the second half of this year and the 2013 Ram light duty truck and SRT Viper.

Page 14 shows the EBIT walk for NAFTA. EBIT for Q1 '12 stood at EUR681 million, almost twice last year's level of EUR377 million on a pro forma basis. The major contributors to the year over year increase was net pricing which was positive in all markets. Higher volumes contributed for EUR86 million to the increase driven by the continued success of the product line and particularly offset by -- partially offset by unfavorable mix.

Industrial efficiencies from purchasing and world class manufacturing were partially offset by new vehicle content enhancements such as the 8-speed transmission and expanded availability of the V-6 Pentastar on the product range. SG&A primarily reflects non-repetitive network costs in 2011.

Moving to slide 15, the group outperformed the US and Canadian markets posting a growth of 39% and 12% respectively versus prior year. In the US, March was the 10th consecutive month for sales gains of at least 20%, driving market share up 200 basis points to 11.2% for the quarter. Fleet mix was flat over prior year. In Q1 the group was the quarterly market leader for the first time in Canada, posting a 30 basis points growth in market share to 15%.

Moving onto slide 16, overall market trading conditions in the LATAM region were stable year over year. The group shipped 215,000 vehicles during the quarter. High shipments in Argentina and other LATAM markets more than offset reduced volumes in Brazil where the industry experienced some credit restrictions from the banking system which we expect to ease as the year proceeds thanks also to reductions in the interbank interest rates which have just been announced.

Revenues were in line with last year's level, consistent with the volume trend. Trading profit came in line with our expectations and our full year target. The reduction in earnings was driven by price pressure n Brazil arising from the aggressive pricing of imports by other carmakers as pre IPI tax rate increased vehicle stocks were sold down. And we had increased costs associated with the product launches of the Grand Sienna and some Chrysler models.

Page 17 shows the EBIT walk. The impact of negative net pricing together with increased advertising expenses during the quarter drove the EBIT down to EUR235 million for the quarter. Mix also came in negative, principally due to lower sales volumes of the Sienna due to the model changeover. Industrial cap costs were flat with some depreciation on new products offset by purchasing and WCM efficiencies.

Moving to slide 18, group market share in LATAM was 40 basis points higher than a year ago at 16.2% in a growing market. Share improved in Brazil to 22.7% supported by the strong performance of recently launched products, in particular the two models that won the last two years' Carro do Ano awards, the New Uno and the New Palio, and the Fiat 500 and Freemont along with the Chrysler minivan and the Jeep SUVs. It's also worthy of note that the Uno model was the most sold car in Brazil during the quarter.

In Argentina, the market grew 9.4% and the group recorded a share gain of 110 basis points to 12.1%. The success of the New Uno which accounts for about 40% of group volumes in the A/B segment was also key to the commercial performance in this market.

Moving onto page 19, APAC during the quarter consolidated group shipments improved by 8,000 units to 25,000 units. Including JVs, retail sales were up 29% on the back of strong performance by Jeep, Fiat and the Alfa brand.

Revenues increased 43% mainly driven by Chrysler group brands representing more than 80% of total revenue. Trading profit was nearly double to EUR77 million, benefitting primarily from volume growth and favorable net pricing partially offset by negative mix and industrial costs.

EBIT was EUR85 million or 2.5 times last year's levels reflecting growth in trading profit and improvement in the results from the Indian JV.

On page 20, the EBIT walk for APAC shows a EUR37 million quarter over quarter improvement with positive volume across all APAC countries and positive net pricing covering an increase in industrial costs due mainly to increased taxes and import duties and enhanced vehicle content. Selling expenses also increased to support growth in the region.

Slide 21, though admittedly from a small base, the group outperformed the industry, and APAC with sales growth driven by increased presence in China, Australia and Japan. In particular, group sales increased by about one-third driven by twofold growth of the Jeep brand. In Australia, the industry was up 5% with the group posting industry's best improvement in Q1 sales on the back of the Jeep brand up around 120%.

The market in Japan continued recovery with group sales slightly better than market driven by Jeep, +90%, Alfa and Fiat.

Slide 22 deals with the EMEA region where trading conditions continue to be depressed, particularly in Italy and in France. Group's total shipments were down 60,000 units due to lower market demand in Europe, 27+EFTA, with performance varying significantly by market. The overall trend for the quarter was substantially attributable to the decline in demand in the French market, minus 22%, in comparison to Q1 '11 which still benefitted from the tail of Eco incentives, and in Italy, minus 21% where sales dropped to the lowest March level since 1980.

In Italy in particular, adverse impacts from the economic recession and increased fuel prices were further aggravated by the effects of the car hauler strike which caused a loss of around 20,000 units to the group.

Good performance outside Europe where shipments were up 37% with Chrysler products more than double 2011 levels. Revenues were down 13% due to lower shipments partially compensated for by success of the rejuvenated Jeep brand range and the Fiat Freemont.

Trading loss was about EUR100 million worse than a year ago, up EUR207 million. Results from investments mainly related to FGA Capital and the JV in Turkey contributed positively by EUR36 million to the EBIT result.

Moving to slide 23, the EBIT walk for EMEA shows the tight control on SG&A costs and the benefits from purchasing in WCM efficiencies, while unable to offset the significant impact due to the volume declines. The group performance in the quarter was also impacted by continued pricing pressure in the market.

Market trends and dynamics in the European environment are described on slide 24. Group sales were down 20% to 216,000 units. Q1 market share was 100 basis points lower than the prior year and flat versus Q4, 2011. The negative performance is attributable to continued unfavorable country mix accounting for about 50 basis points of share loss with this further reducing its weight in the European market. The car hauler strike caused an additional share loss of about 30 basis points.

In Italy, the market dropped 21% in the quarter with the group achieving a market share of 27.9%, 140 basis points decline, largely due to the truck drivers strike.

In terms of light commercial vehicles, we can see on slide 25 that demand was also weak. Market demand was down 9% in Q1 with only Germany posting an increase among the major markets, while the Mediterranean countries experienced a steep decline. Professional brand sales were 47,000 units, 12,000 units lower than the year ago with the decline mainly attributable to 36.4% drop in the Italian market.

A 10 basis point share gain in Europe excluding Italy was unable to counter the share decrease in the domestic market year over year where significant fleet contracts were signed last year. The new Estrada, the second most popular Fiat professional model worldwide after Ducato in 2011 was launched in the quarter further strengthening the most up to date and complete product offering of any European LTV producer.

Moving from the mass market brands to the worldwide operating segments, let's now go to slide 26 which deals with the luxury and performance brands, Ferrari and Maserati. Ferrari revenues were up 13% to EUR556 million during the quarter. 1,700 vehicles were shipped, up 11.5% over last year driven primarily by a 74% increase of 12-cylinder models on the back of the strongly performing new FF. Shipments for 8-cylinder models were in line with the prior year.

North America remains Ferrari's number one market with a 14% increase year over year. Europe recorded a 16% increases thanks to strong performance in all markets with the exception of Italy. Of the remaining markets, China was up 3% and the Middle East was up 23%.

Trading profit and EBIT stood at EUR60 million, up 13% over prior year thanks to higher sales volumes and a good result from the personalization program. Trading margin was 10.8%, flat versus prior year.

For the same period, Maserati's top line increased 13% to EUR153 million with shipments up 6% to 1,560 units. The decline in Europe was more than offset by the incremental volume in the other countries, in particular the US, China and Japan. Trading profit and EBIT were up about 33% to EUR12 million on the back of higher volumes and industrial efficiencies. Trading margin was 7.8%, 110 basis points higher than a year ago.

Slide 27 deals with the components and production system segment. Magneti Marelli businesses reflected the general trend in their respective markets in the quarter. Top line was EUR1.5 billion, a 2.4% decline over the same period in 2011 despite 14% growth for lighting and an increase for electronic systems. Trading profit totaled EUR29 million, compared to EUR34 million a year ago.

Total new orders stood at EUR371 million mainly related to lighting and power train. Teksid revenues were EUR223 million with the drop primarily driven by a decline in the aluminum business as well as lower volumes in Europe and the Americas for cast iron. Trading profit was flat versus Q1 '11.

Comau posted an increase in revenues of 29% with trading profit increasing to EUR4 million. Improvements were mainly driven by the power train system operations. Total order backlog for Comau stood at EUR950 million, 13% better than in 2011.

Moving onto page 29, you can look at the overview of the markets for the full year. NAFTA clearly had a good start for the first quarter 2012. Our guidance for the market for the full year was 13.8 million vehicles for the US and we still stand by that number although clearly there could be upside to that. Canada around 1.6 million vehicles for the year. Latin America, we expect to have an improvement in consumer confidence through the rest of the year driven by stimulation of the economy and interest rate deductions. The EP tax that was introduced on 15th of December should have a bigger impact on pricing from Q2 onwards and therefore we expect our LATAM market forecast to be in line with the prior forecast we gave.

APAC is regionally very strong, demand is expected up 10%. Group sales continued to improve through the year and we're focusing very strongly on implementing a new organization structure to execute very efficiently in this marketplace, and it is particularly in China and in India with existing JVs.

EMEA, the adverse impacts from the recession continue to make visibility of the market progression very difficult and we expect Italy to post the lowest market level since 1983 for the year.

Moving onto page 30 you can see the group shipments of 1,019,000 units split by region with NAFTA at 519,000 units, up 15.8%, EMEA at 260,000 units, down 19%, LATAM slightly up at 215,000, and APAC up 47% at 25,000 units. The 1,019,000 units shipments is in line with our full year guidance of 4.1 million to 4.4 million units.

Page 31 shows the nameplate impact and brand impact driving the increased shipments in the NAFTA region. As you can see, all brands are contributing to the growth. Particularly Jeep continues to show very positive [V] percents compared to last year, but also Chrysler, Dodge and Ram showing significant increases. Fiat, with their new marketing campaign, is also showing much higher volumes than it was in the second half of last year.

Page 32 shows the product lineup in LATAM. As I said before we're launching the Grand Sienna in this quarter, at the end of March, which has been very well received by the market and we expect that to have a full impact in -- end of Q2, beginning of Q3. The Novo Palio is performing very well and the Novo Uno was the most sold car in Brazil in the first quarter with 59,000 units sold.

Page 33 regards APAC. We gave a world premier of the new Viaggio model at Beijing last week, this week actually. This is -- we consider it to be a benchmark for the mid-class segment in the Chinese market and we will be launching this through our JV with GAC in the coming months. On the other side, we also are launching the Chrysler 300 into the Asia Pacific market as we establish the Chrysler brand in China.

Page 34 regarding EMEA, focus on Fiat, clearly we have the Panda family with the new Panda launch which is performing well and we had combined sales of 49,000 units in the quarter between new Panda and Panda classic, maintaining leading position in the A segment in the market. We will be launching the 500L with production starting in July at our Serbia factory to compliment the Fiat 500 position in the marketplace. And Jeep is clearly an important brand for us also in the EMEA region where we've seen Q1 sales up 58% in the market and we will continue to have strong growth also looking at Russia and South Africa within the EMEA region.

Moving onto page 35, the guidance for the year, as I mentioned before, we are, as Mr. Marchionne mentioned before, we are confirming guidance as given the last call with revenues in excess of EUR77 billion, trading profit from EUR3.8 billion to EUR4.5 billion, net profit from EUR1.2 billion to EUR1.5 billion, and net industrial debt between EUR5.5 billion and EUR6 billion.

Thank you and I'll hand the call over to Mr. Marchionne.

I just want to make a couple of comments on the guidance that we've given for 2012. It is clear from the performance that we recorded for Q1 of 2012, especially in EMEA, that market conditions are in a state of flux. It's not just a volume issue. There's a lot of pricing activity that's going into the marketplace which is not the most rational in nature that I've ever seen and so the competition is intensifying. But I think it is not being done on the basis of realistic economic expectations.

And so I think our decision to effectively refrain from a large capital investment program in EMEA, the decision that we made back in 2009, was a wise decision. I think the execution in a very paced manner of the capital investment program in Europe with the introduction of the Panda and the commitment in the Mirafiori plant to produce both Fiats and Jeeps. And limiting our investment to that cycle, including the investment that we're making in our Kragujevac plant for the introduction of the Maserati brand from fundamentally a niche player to a more sizable, more complete premium luxury maker.

With the exception of those investments, everything else has been put on the back burner. We've continue to watch the developments of the market very, very carefully. I think that we will know more certainly at the end of the third quarter as to what shape the market will take. We're relatively confident that a forecast that we've put into place and that Richard made reference to for the Italian market, of having the lowest levels since 1983, will in fact materialize.

So there is a lot of uncertainty in the European market. I think we need to be careful in maintaining our resources and safeguarding the organization until we get better clarity on the development of the market. And certainly in terms of some of the initiatives that have been put in place by ourselves and some of our competitors in terms of the rationalization of the manufacturing infrastructure.

Notwithstanding all this, when we gave you guidance at the beginning of this year, we were careful in providing a range of outcomes which included even a pessimistic view of EMEA which unfortunately is materializing. And that pessimism is being offset to a large extent by the over performance of the NAFTA market. In totality, we feel comfortable that the number of EUR3.8 billion to EUR4.5 billion in operating profit is effectively doable and achievable.

We'll come back to you I think as the next six months unfold with a better view. But the group has got sufficient liquidity and is financially strong to try and deal with a continuation of the European downturn and we continue to devote resources to the development of the other geographic areas which undoubtedly have shown, both in terms of current trading performance and forecast, a better environment and a better trading environment for Fiat in its totality.

So not a great quarter for EMEA, a good quarter overall for Fiat-Chrysler. And I think we will continue to execute well in every other trading region while we continue to see the development and manage very, very carefully our position in EMEA.

So that closes the official comments if you want to call them that, and we'll turn it over to you, Mario.

Thank you, Sirs. Sarah, now we are ready to start a Q&A session. Please go ahead.

(Operator Instructions). Massimo Vecchio, Mediobanca.

Yes, good afternoon. My first question in on CapEx. If you can give us the full year indication. If I'm not wrong, last time you were looking at EUR7.5 billion. Looking at Q1 spending and then the current market conditions, this is probably too high. So if you can elaborate on that.

And the second question is on the profit of EUR681 million in North America. Is there an element related to the Fiat brand or it is entirely Chrysler? In other words, is there an element of the loss of Fiat probably in the Mexican operation on the Fiat 500?

No, I'll give you an answer on the Fiat now. The Fiat is contributing to the results.

It is contributing or is not?

It's not great shape because the volumes are not large, but it's not negative.

Okay, all right, thanks.

And Massimo, as regards your CapEx question, our guidance of EUR7.5 billion for the year stands. Historically there is a seasonality to the CapEx coming through. First quarter tends to be low. In reality, a lot of our spending relates to the NAFTA region. The product renewal process in Chrysler, so in NAFTA, and also for other markets such as Outback. And we'll obviously be spending money on the Fiat side, on the European side, but limited to the 500L and not a lot of other programs. Because as you said, the market is what it is. But the EUR7.5 billion guidance stands.

Okay. Thank you very much.

Martino DeAmbroggi, Equita.

Hello, can you hear me? Sorry. Thank you and good afternoon, everybody. I have a question on Latin America. You mentioned in your slide number 16 that trading profit in Q1 is consistent with your full year target. Maybe I missed it, but I was wondering what's your target for LATAM in terms of trading profit?

And also related to the decline in rate of long sales in Latin America, can we say that Q1 is the bottom in terms of profitability? Because in the next few quarters there will be lower pressure from imports and this will change a bit the market environment.

The second part of the question is a strategic question. I presume you would like to handle the issue of Chrysler minorities in one shot, that's my strapping assumption. But do you see any room to arrange a deal in such a way -- I mean in just one shot sooner or later? I don't know? I'm not asking you which is the technicality or the right receipt, but just if you see there is room for a one shot solution?

So regarding LATAM, our target for the year is to make more than EUR1 billion in the Latin America region for the year. And as regards the IPI tax, etc., our read of the market is that the market should improve through the year as that IPI increase in tax, which was 30% compared to the prior rate which was introduced on the 15th of December last year, but announced in September of last year, so it gave those manufacturers who were importing units a chance to stock up heavily pre in position of that 30% increase. That stock should be sold down substantially by now. We expect the second quarter -- let's say in the second half of the next quarter to see an improvement in pricing conditions.

In terms of credit availability, there's been some reduction in interest rates and we haven't yet seen that come through into the marketplace, but we expect that to happen as well to stimulate demand and keep a low level of growth through the rest of the year in Brazil.

Okay, so am I right in estimating roughly 10% (inaudible) for the full year?

Yeah, something like that, yeah.

Jochen Gehrke, Deutsche Bank.

Yes, good afternoon. Two questions if I may. First of all, Mr. Marchionne, could you remind us what obstacles you're facing to tap Chrysler's cash flow? And whether you feel that the non-Chrysler entity is currently on track to build organically that funding capacity to finally make then that step or whether you feel that some of the disposal arguments that you actually came up with in the past might be a necessity in here?

And then secondly, to the new Panda, we've seen in some markets that when you started the product, at least for the entry version, you started quite aggressively below MSRP right from the beginning. Could you just tell us whether you're happy not just in the Italian markets but also in markets which are flat from a total volumes standpoint such as Germany? Are you happy with the performance in that space and do you feel with the competitor action heating up that this space of the market which used to be yours is getting structurally more challenging? Thank you.

Let's start with your second question first. I don't think that our positioning of the Panda and the dominant position that Fiat had in the A segment in the major European markets is under threat. I think that it's clear that the general trading conditions in Europe with exception of the premium brands is having -- the current trading conditions are putting pressure on pricing across the range. And I think if I told you I was happy with the pricing that A segment cars are getting in the marketplace today, regardless of whether it's the Panda or otherwise, I would be lying. I made reference to this into -- I guess in my opening and in my sort of closing remarks as part of the formal presentation about the fact that we have seen some pretty aggressive pricing actions from competitors.

My suspicion is that especially for cars that have been recently launched and which would have embedded a level of content which is well in excess of what they may have had in the past, that the question is to whether some people have crossed the variable cost curve is on the table. I think we have made a rule, which I think we have faithfully respected here for a long period of time, certainly since I've been here, that we will not engage in what I consider to be idiotic pricing strategies.

We have seen the impact of uncontrolled, unreasoned pricing behavior in chase of volumes before. We certainly have seen it in the United States here in 2007, '08, and part of 2009. And we've seen those kind of practices seed the destruction of the car business in the US. And so we have zero intention of participating in that demise. It is a lot better for us to stand on the sidelines and watch this go on because ultimately somebody is going to have to pay the piper here and it's not going to resolve itself. Unfortunately people that believe that by doing this they're acquiring customer loyalty in the mass market business may be wrong. But certainly it's my view they are not acquiring much.

So the short answer to your question is that I'm not happy with Panda pricing as I'm not happy with pricing in general in Europe across the mass market ranges. I think it's an unfortunate circumstance, I think it's the consequence of an unwillingness to deal with capacity issues and effectively create an industrial framework in Europe which is capable of adjusting demand to supply in times like this.

And so having said all this, we have been -- I have been incredibly vocal on this issue in terms of advocating European Union intervention to try to get some order in the zoo and effectively at least organize a rational, equitable distribution of capacity reduction across the European arena. I can tell you right now that my pitch has not had a great amount of success. It still remains to be very much of a regional approach to this and some countries and some companies in some countries that do not favor European Union integration for a variety of other reasons. But we'll continue to work on this. I think certainly the Club Med producers are the ones that are much more exposed because of their involvement in the A and B and C segments and to really the absence of viable competition to the Germany producers of the premium end.

So I -- it's a difficult situation. It's a situation that requires that we manage our -- Fiat's position very, very carefully and that we do not make investment decisions in the European area which we're going to end up regretting because of the fact that volumes will not materialize, but more importantly that we will not obtain pricing required to recover other variable costs in the extreme or at least provide an adequate return on capital invested.

So you need to stay tuned on this. The only guarantee that I can tell you is that we're not doing anything that's stupid. So we're certainly going to minimize any losses associated with the management of these trading conditions, but the next two quarters I think are crucial in terms of seeing the color of the air and probably to get a better indication as to how 2013 will perform.

The first question that you asked about the divestitures, as you saw from the slide we have a large amount of liquidity. You're absolutely correct in saying that because of the firewalling that we've carried out on the financial resources that Chrysler has, the ability to transfer cash across is severely limited. And so we would be -- that doesn't mean much in the sense that at the end of the day we're interested in building value in an asset in which we have nearly today a 60% interest. So we need to do that, it's being done on internally generated resources of Chrysler so by definition of all the stuff that we're doing and the success of Chrysler is incredibly value accretive to the whole of Fiat and it's certainly an instrumental piece of the ultimate coordination of each organization as they go forward.

As far as your question you asked about our willingness or ability to dispose of assets in connection with the strengthening of the relationship with Chrysler. That option remains always, always an option. And I think as you well know, I have some very clear views about the fact that there are assets within the group that if monetized will provide more than enough resources to try and strengthen our direct involvement in Chrysler. Having said this, we have no immediate plans today to try and action those divestitures because we don't deem them necessary at this stage of the game. Plus, the amount of liquidity available to the group in its totality is certainly extraordinarily large. And it's probably mismatched given the requirements -- the cash requirements that the group has. We have intentionally played it incredibly safe and we have accessed capital markets all at relevant times to ensure that we had enough liquidity to satisfy rollover requirements

We're going to continue to do that as we navigate through the next two or three quarters. I don't see any immediate need to deal with this and I think that it's an issue that will be dealt with in time. We have a call option which is occurring to us the middle of 2012 and it's a call that is on the mechanics of -- the valuation of the call is potentially value accretive to Fiat. I think we need to take a very hard look at that call. I think there is a better than 50% chance that Fiat will in fact exercise that call when the time comes.

And we have a series of calls that are accreting over time until 2016 as I understand. And so undoubtedly those are a good repository of value accretion over a period of time to Fiat. It doesn't resolve the ultimate issue about the 100% ownership or the 100% integration of the two businesses, but it gets us through in a very reasonable way the next period of time which I think will provide clarity vis-à-vis resolution of the European issue. Europe requires better clarity before I think we expose ourselves to anything else.

So just on that capacity reduction issue which I think many people understand and agree with what you say, but can you just give us any sort of feeling on where you think we stand there timeline wise? We're obviously facing in many countries crucial political elections. And secondly on that same issue, why is it that you're calling for an European wide intervention and you think that a regional issue is not really doable?

The regional solution in an uncoordinated way is not doable for exactly the same reasons that you just pointed out. There are political elections going on across most European countries in the next 12 to 24 months. The likelihood of anybody embracing this in a very open way in the midst of intense political activity is very small. And so unless you find, unless you determine an equitable allocation of the reduction across the European Union, the national effort will fail. And we're very far away from getting resolution on this issue. So we started the process, we need to continue to work at it.

All right, thank you.

Alberto Villa, Intermonte.

Hi, good afternoon to everybody. I have a couple of questions. First of all on the new reporting, we appreciate, but it would be useful if possible to have it also pro forma for the quarters of this year in order -- of 2011, in order to work out our estimates in a better way.

The second one is back on LATAM. As I understand you are targeting EUR1 billion or more of operating profit contribution. Is that fair to assume it will be flat or slightly down compared to last year?

And on LATAM, again, have you got any plan to launch the Dart car into the market in the next future? And the last question is on net debt target of EUR5.5 billion to EUR6 billion. We are now at the middle of the range at the end of the first quarter with cash generation from Chrysler which was already exceeding the full year target. Is that fair to assume that the target at Chrysler would be largely exceeded to be within the range or that you are expecting European and LATAM operations to perform much better going forward in order to get to this range at the end of the year?

I'll let Richard answer the last question. The first one is that the answer is yes, you're right, it's about the same range or slightly down. On the second issue, we have no immediate plans to launch the Dart in Latin America now simply because of size. It's not ideally suited for that market. And the third question, Richard will tell you that we're going to try to contain.

So further reductions, significant reductions in the European market aside, we would expect to improve the cash flow for the European operation and the Brazilian operations in the rest of the year. Given that obviously we've had a significant working capital impact in the first quarter partly because of volumes, partly because of the strike regarding the boat haulage companies in Italy, which we should expect to recover some of that, and partly because of the CapEx timing from the large Q4 CapEx number which is a normal seasonal effect for us.

On the Chrysler side, we have clearly had a very strong first quarter. There are some payments through the rest of the year which didn't hit the first quarter just because of the timing of those payments. Interest payments for the VEBA, interest payments for the notes, and also CapEx which we expect to increase through the year. So whilst our guidance would appear to be rather prudent, I think it is prudent, but for the moment it is what it is.

Okay, thank you.

Stuart Pearson, Morgan Stanley.

Good afternoon. Just three questions. Normally you quite helpfully provide a chart showing your production registrations and just giving some feel for the inventory moves in the quarter. And I guess the change in the structure of the reporting maybe has made that less easy to provide. So I was wondering if you could just give us some indication of where the inventory moved during Q1, where that was and how you expect that to go in the second quarter.

Just a tiny bit of housekeeping, I wonder if you could just tell us what the Fiat powertrain kind of profit as it was in the old format was as well, just for reference.

And then finally, a more general question I guess on the PSA and GM alliance. I wondered if you could just share your thoughts on how that may or may not change the European environment at all for Fiat going forward, whether that's an alliance that might have made sense in your view for Fiat to be a part of, and how important it is for you to find another third party to join the Fiat-Chrysler alliance going forward? Thank you.

I'll deal with the third question and then I'll get Richard to try and answer questions on days inventories and on the other stuff you asked.

Look, and I'm not criticizing at all, I think what the deal that has been signed by GM and Peugeot, because I'm not -- I wasn't there and I can only read what I think has been sort of disclosed as part of the broad agreement between the two organizations.

Two things I know for a fact is that this was done in connection with a capital call by Peugeot Citroen, and secondly that the alliance is designed at delivering synergies in the medium to long term. Given that, I think the alliance satisfied both objectives. I have a lot of understanding for attempting to find solutions that will ultimately provide architectural convergence and a reduction of the capital costs associated with development programs for both organizations. And by definition, those are good things to achieve.

I'm jaundiced in giving you an answer because of our own experience that we've had in the past with similar arrangements. I would be lying to you if I told you that that thing was a marriage made in heaven and effectively somebody paid us to go away. I mean we actually received a divorce settlement in 2005 to pack up our bags and go home. So our own experience has not been great. I sincerely hope that it's not a replication of what we lived through and that there are better opportunities that will unfold for the two of them.

As far as the implications of that alliance for us, I see very little -- very little implications of that arrangement on Fiat's operation in Europe. And the second part of the answer is that it is not a secret that we have had conversations with both Opal and Peugeot Citroen in the past about finding ways in which we could align our interests. Certainly in the case of Opal on the European basis and in the case of Peugeot on a wider basis, which has not materialized, so in that sense we failed in our attempt at sort of providing convincing arguments to support further discussions. And so in that sense I'm disappointed, but it's not the end of the world and life goes on.

Given what's going on in Europe today, in the absence of a joint determination to deal with the capacity issue, whether it be done through the alliance or whether it be done through an European coordination, in the absence of that commitment, any other tie up is going to by definition, it's not going to yield much of a potential benefit to either one of the participants because of the fact that the underlying problem in the European market is one of matching demand and supply and the resultant impact on pricing. So I don't regret not having been called if the only thing that was going to be accomplished was sort of unification of architectural platforms and potentially power trains going forward. There would have had to be a much deeper commitment I think on the part of both organizations to take a look at their respective capacity and bring about some order.

As far as the other questions you have asked as to whether I think Chrysler-Fiat needs another partner, when you look at it, we have shown numbers now for the first time across the geographies. And you see very clearly that our position in APAC, although satisfactory from an economic standpoint, is marginal. And so any opportunity that would give us an opportunity to strengthen, any potential alliance that would give us an opportunity to strengthen our Asian involvement would be beneficial. But I'll leave it at this. These things take time. I don't have an answer for you, I don't have discussions going on with anybody of particular other than general discussions about collaborations. But we continue to work on this issue. I think it's important, I keep on reiterating the fact that it is an industry that ultimately requires mass because of the huge commitment of capital that is required to try and develop these things.

And so that objective in our mind has not gone away. It remains a constant, consistent item on the agenda that we have strategically every day. So we will continue to work at it, but I don't have any immediate answer for you other than to confirm our interest in exploring other opportunities to try and find ways to improve this business. Richard?

In terms of stocks, Stuart, NAFTA's inventories were up, this is seasonal. As we talked about on the call or prior to the call, stocks are up around 40,000 units split 50/50 between Canada and the US. Canada, because of its very seasonal market, Q2 is by far the biggest sales market and we need the stock in there to drive sales growth in Q2. The US, similarly, Q2 is a big sales market and our days sales, based on Q1 sales, were actually down from 64 days to 59 days at month end. So you can see that while stock was up, it's absolutely in line with our sales and it's slightly lower in terms of days. Latin America, stock was basically flat compared to Q4. APAC also and EMEA was basically flat at a total level, but because of the road haulage strike in March, actually we had less stock in the network and a higher level of stock on our own books because of the slowdown in transportation at the end of the quarter. So that should help us out a little bit in the second quarter.

Okay, so if I could just follow up quickly, so if you think about the total inventory in Q2 in EMEA, I guess would you expect that number to come down if it was flat versus Q4 and the selling rates coming down presumable that still needs to come down. But your group level as you see it, that will be slightly cushioned by the fact that you'll ship more of the inventory out to the dealers. Is that correct?

Yes, basically.

Thank you. And same at power train?

Power train, I can't say I study that number very closely anymore because we're looking at the business in a slightly different way. But I would say the numbers are similar to they were last year but we're not tracking profitability for power train as such. It's a supplier to the car business and as such we're looking at the cost and the efficiencies on the cost side at this stage.

Okay. Thank you.

(Operator Instructions). Peter Testa, One Investments.

Hi, and thanks very much. Just a follow on from a previous question on the EUR1.1 billion increase in working capital ex Chrysler. You're essentially saying the vast majority of that is a swing in payables in a very low number on relatively on swing of inventory. And the second question is, when you're talking about transitioning the European business to a better state, can you give us some sort of sense as to how you've evolved the process to make those decisions internally and maybe give some view of the range of options considering beyond alliances? Thank you.

I'm going to give you an answer to the first question, but it is payables on the working capital side for the most part. When I made the comment in the opening slide abut the fact that this is a business that's in transition on the European side, this mismatch of demand and supply is not a permanent state. You don't have to go to get a PhD in economics to understand that when you've got the structural mismatch, something is going to give. And so the important thing from our standpoint is to make sure that we are fully equipped to withstand whatever period of time is required to get this adjustment in place. We are willing to play whatever role we need to play in bringing about a resolution of the mismatch. And but the problem that we have is that it cannot -- there is a first mover disadvantage in all this which has to do with the fact that if you are the guy that rationalizes in the absence of agreement from others, your action will actually benefit all others. And somebody is playing chicken with the train here because everybody is standing there watching for the other guy to move first so effectively he benefits from the act. And I don't see a great willingness on the part of anybody t offer on behalf of the aggregate of production capacity in Europe the first token towards a rationalization of demand and supply. And so the problem that I'm running into, which is the reason I keep on advocating European Union intervention, is that to the extent that you've got political overtones that are going to color that process, one because of the national interest in the car industry in the various European countries. And two, if you combine that with this problem of having a first mover disadvantage because of the fact that you're going to benefit all others, the only way you're going to resolve that deadlock is by coming up with a coordinated equitable distribution of rationalization.

It is my sincere hope that my continuing to bark on this issue and to push the banter, that we will get somebody to listen and to effectively action a plan in a socially responsible way that deals with this matter. And to combine, to add insult to injury, we're having this conversation at a time when most European countries have embraced fiscal authority regimes which have been caused by something other than the car business. So you have now a confluence of factors, all of which are loading up the gun for bear. Because the austerity programs are by definition going to even worsen the demand function and tighten up volumes. And on the other hand you've got a desire to try and keep capacity untouched.

As I was sitting here there was a communication made by one of our least favorite trade unions in Italy that made reference to the fact that one of our plants has got a capacity of half a million cars and that we only produced 50,000 in the first quarter. To begin with the half a million number is absolute nonsense, but it's typical of them. [brief audio drop]. But secondly, the argument about making more cars out of a site in a market that doesn't have any buying power, is absolutely ludicrous. And until somebody snaps them to the grid and recognizes the economic imbalances that exist in the market today, we're not going to resolve the issue.

If there is any value at all in the European Union existing as a functioning body to try and coordinate activities across an European Union, this is the time to show its capabilities. Because of the fact that these are things that impact across a variety of countries and it needs to be coordinated n a way which ultimately satisfies the equitable distribution of the burden. That continues to be my primary objective and I think it would be unfair to expect a single country to wear the burden of all this.

So we need to continue to work with assistance to try and advocate the policy. My sincere hope is that we find a way to get this done in the absence of which there's a potential that the system, that one of the participants will fail. One or more. I know it's not Fiat. And so --

You're describing a process which is unlikely to be a two quarter process for resolution since priorities in Europe are what they are. Yet you feel you're going to be in a better position post say Q3 to be able to comment on how you can transition that. And that's why I was wondering what other range of steps are considered. Because one, outside of alliances, because the other one is not in your control and there's clearly a long campaign, not a short campaign.

It is a long campaign, but I think that there is also willingness of some of the other participants to take action in the near term. And I think we need to allow them to be able to action those plans. We have already done I think a lot by shutting down our southern Italian plant, it was shut down as of December, 2011. To be perfectly honest, other than shutdown of the Antwerp facility by Opal, nobody else has taken an ounce of capacity out of the system. So I think somebody needs to stand up to the bar and get it done.

Okay, thanks very much for the answer.

Vishal Senga, Nomura.

Thanks for taking my question. My question on basically again a follow up on the strategy for EMEA segment. As we know, like you have deferred a couple of model launches and the additional investment in EU has been halted by you, or reduced by you. The point is, given what you just said in terms of the macro picture over there, how do you act for next say one or two years in terms of one, the model launches that have been deferred. So whether you would continue to lose market share, then you would have further more launches which can take care of your market share over there as well as some other strategy which can help you to probably improve your performance in the EMEA segment. And another question is in terms of your strategy in due diligence which is Russia and India, how do you see those two markets developing and what are your strategies going forward fort hose markets? Thanks.

I'll have Mr. Palmer address your Russia questions. There's no such thing as market share loss if the market share retention is unprofitable. And I think we all need to be disciplined about this. The question we may be losing market share in a mass market where as a result of economic conditions, even brand appeal becomes questionable, that we need to be absolutely honest with ourselves about what it means to try and preserve market share in that environment.

And so given the breadth of Fiat-Chrysler today and the fact that we continue our investment program unabated in the United States and in Latin America in view of much more stable market conditions, it's not as if anybody is starving the Fiat-Chrysler world of capital. We're just allocating it a different place And the allocations that are being made are preserving the integrity of our platform development and can be transferred back to the European market at any time to try and deal with a more reasonable, more rational car market which would allow us to make a return on the investment that would then be made.

Don't assume that because of the fact that we're not investing into European context, that the house is not investing. We are and we continue to develop architectures. I'm not industrializing the projects in the region. That's a completely different story. And there's a very short fuse between the decision to invest and the decision to produce which is probably less than 24 months once we see clarity going forward. I don't have that clarity and I will refuse to engage in value destroying strategies that will ultimately actually undermine the viability of Fiat. I just won't.

So I have zero patience for people that talk to me about market share. I've seen this market share fight. I've seen it in the United States and I've seen people fall off the cliff trying to hang onto notional market share objectives which ultimately never deliver value. So let's be disciplined and let's be rationale and we'll move it on from here. Richard?

As regards Russia, as we mentioned on the summary upfront, we have entered an intent signed with Sberbank, the Russian bank to create a manufacturing presence in Russia and we are working on formalizing that agreement which will involve loans from Sberbank to in part cover the investment cost of the venture. And we expect to move forward with that in the near future.

In terms of India, we have a JV in India as you are aware with Caffe. It's performing well although we're looking at the overall strategy to be more incisive in the India marketplace given that we now have a wider product range with Fiat-Chrysler which we can bring to bear in that marketplace.

Just one follow up on this. Can -- since there is no date on the presentations, can you tell us like what is your product lineup for EMEA for say next -- or more specifically in Europe, for next say one, one and a half years?

We said we were going to update our integrated plan in Q3, so I think, Vishal, we'll have to come back to you on that one when we do those announcements regarding the full plan.

Okay, thank you.

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

Thank you, Sarah. We would like to thank everyone for joining the call today. We'll be communicating shortly. Bye.

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