Stellantis NV (STLA) 2012 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Fiat Group 2012 second quarter and first half-year results conference call. For your information, today's conference is being recorded.

At this time, I'd like to turn the call over to Marco Auriemma, head of Fiat Group IR. Mr. Auriemma, please go ahead, sir.

Thank you, [Sami]. Good afternoon to you all, and welcome to Fiat Group's second quarter 2012 results webcast and conference call. As you know, the press release was issued earlier this afternoon and is available, together with a conference call chart set, on our IR website.

As usual, today's call will be hosted by the Chief Executive, Sergio Marchionne, and by Richard Palmer, the CFO. After introductory remarks, we'll be available to answer all the question 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 materials.

As always, the call will be governed by this language.

With that, I would like to turn the call over to Sergio Marchionne.

Thank you, Marco. Good afternoon. Good quarter for Fiat obviously on the back of some reasonably strong results of Chrysler, which helped the bottom line. Fiat without Chrysler, as you know from the press release and from the analyst deck, would have showed a loss.

Couple of points of reference just to get the conversation started before I pass it on to Richard and then we end up taking questions. The European market continues to show signs of weakness. We're in the process of closing Italy here in a few hours, and I think you will see that the number in July, the market is probably down around 20% year-over-year. My forecast for the Italian market is at 1.4 million, or slightly less than that number, which is a substantial decrease from both 2011. And for those of you who have sufficient memory of historical records, we were about 2.5 million back in 2007, nearly 2.5.

So it's a substantial decrease in volume as Europe continues to show signs of weakness. It is highly unlikely that this market will recover in 2012, and we are -- as we mentioned in the last conference call, we're in the process of revisiting our expectations of the European market. We're doing that now. We'll finalize the analysis on our Q3 call and present our findings and our intentions in terms of volume ambitions at that time. So other than confirming the continuing weakness of Europe, I really have nothing to add.

We're very much encouraged by what has happened in Latin America. As you well know, there were concerns that were lingering in the time that we got together last time about the strength of that market. A number of initiatives have now been put in place by the government, very effective. Richard will take you through some data that will show the efficacy of the measures. We've seen significant ramp-up in daily volumes in Brazil, and it allows us to confirm our guidance vis a vis the region for the whole of 2012 and, in all likelihood, in 2013.

NAFTA continues to perform well, and certainly in line with internal expectations. As I mentioned during the Chrysler call, and you will see this from some of the charts that Richard will talk about, we are now running at excess of 100% technical capacity of the system. In the United States, we're adding on additional shifts. And all indications are the volume for the second half of the year will be more or less equal to what we've been able to produce in the first half of 2012.

APAC is a work in process. I think you will see from the numbers that we continue to make money in the region, I would say, in the fact that we are in a relatively embryonic stage of development. I think the best is yet to come. But I think we've put the structure in place now to drive business, going forward.

I really have no bad news to give you, as I did not have any bad news on the Chrysler call. We have now refinanced all of our 2012 requirements. We're sitting on what I consider to be an inordinate amount of liquidity in the system, and we have done this as a sign of precaution and safety, given the volatility of the markets.

We are confirming guidance for the year. I think the question as to whether we hit the EUR4 billion trading profit number or not is to be seen, and probably we'll have a better view on this by the end of the third quarter. But really, not much else to add, a good quarter in line with expectations.

And as I said earlier, I think whatever nagging doubts we had about the Latin America positions, it was put to bed, and certainly it's reassured us in terms of our investment plans for the year for the region and what we're going to be doing there for the next two or three years.

So on that basis, Richard, why don't you take them through the numbers, then we'll come back and take questions.

Thank you, and good evening, everybody.

If we go to page three on the deck, the results for the quarter. Revenues were EUR21.5 billion, trading profit of EUR1 billion, with all regions contributing positively, with the exception of Europe, where losses were reduced compared to the first quarter of this year. Net profit at EUR358 million, net industrial debt was reduced to EUR5.4 billion, and our total liquidity at the end of the quarter was EUR22.7 billion, including EUR3 billion of credit lines.

Shipments for the quarter were 1.1 million units, and that takes us to over 2.1 million for the year-to-date. During the quarter, we signed an MOU with Mazda for the development and production of a Alfa Romeo Roadster, and we expect to complete that agreement in the second half of this year.

As you're aware, we completed the conversion of the Fiat pref and savings shares into ordinaries. We have notified and exercised the option on the VEBA to purchase a portion of VEBA's interest in the Chrysler Group. We haven't yet settled that transaction. That amount is for 3.3% of the Company, and would add to the 58.5% to get to nearly 62% at closure.

During July, we issued a bond for EUR600 million, which as mentioned completes our coverage of 2012 maturities, and covers also one-third of those of 2013. And our full year guidance is confirmed.

Go to page four, as I said, Group revenues were up to EUR21.5 billion compared to EUR13 billion last year. When Chrysler was consolidated only for the month of June and reflected strong growth in NAFTA and APAC, some softening in LATAM, although the Brazilian market started to rebound strongly in June, and a decline in EMEA due to the continued deterioration in the European marketplace.

Excluding Chrysler, revenues totaled EUR9.2 billion, a 7.5% decrease over Q2 2011, mainly reflecting the volume declines in Europe where the difficult trading continue for both the passenger car and the LTV business, particularly in Italy. Luxury and performance brands increased revenues by nearly 9% to EUR0.8 billion, driven by growth in Asia and North America. And components are down nearly 5% to EUR2 billion, mainly due to the weakness of the European industry.

Group trading profit reached EUR1 billion, with margins at 4.7%, up from 4.3% in the first quarter this year on the back of continued strong performance for the Chrysler brands in NAFTA and APAC, with EMEA reducing the loss by approximately EUR70 million over the first quarter.

For LATAM, the run rate of trading profit was in line with the full year expectations. There was a positive performance from Ferrari and Maserati, up 16% year-over-year. And trading profit for Fiat, excluding Chrysler, was EUR144 million for the quarter compared to EUR375 million last year, reflecting lower volumes in Europe, down 45,000 units, and to a lesser extent Latin America, down 17,000 units.

EBIT for the quarter was EUR1 billion and EUR102 million, excluding Chrysler. Net profit was EUR350 million, EUR103 million after minorities. Excluding Chrysler, there was a EUR246 million loss as compared to EUR1.4 billion profit for Q2 '11, which included a net unusual income of EUR1.3 billion, driven by the one-off gain on the acquisition of control of Chrysler in 2011. Excluding unusual items, the loss ex-Chrysler was EUR152 million in Q2 '12 compared to a EUR76 million profit in Q2 '11.

Net industrial debt as of 30 June 2012 was EUR5.4 billion, a reduction of more than EUR0.3 billion for the quarter. Excluding Chrysler, net industrial debt was EUR4.1 billion, an increase of EUR0.2 billion for the quarter. Capital expenditure for the Group totaled EUR1.7 billion in the quarter. Liquidity, inclusive of undrawn committed credit lines of EUR3 billion improved to EUR22.7 billion, with liquidity related to Fiat, excluding Chrysler, remaining above EUR12 billion.

Moving on to slide five, we look at the Group performance by operating segment compared to 2011 on a pro forma basis with the Chrysler results included for the whole quarter. In the quarter, the top line grew 12.3% on a pro forma basis, driven by strong performance in NAFTA, up 31%, and APAC up over 80%, which more than offset a 10% decline in LATAM and a double-digit drop in EMEA. On a pro forma basis, the Group posted an EBIT before unusuals in excess of EUR1.1 billion, and an 18% increase driven by NAFTA, up 80%, driven by strong volume growth, and that backed with threefold growth due to the improvements in both volumes and margins.

EBIT in LATAM was down by 32% due to lower volumes, price pressure, and currency translation impact. EMEA reported a EUR184 million loss, down from EUR406 million a year earlier. This year includes EUR91 million unusual charges represented by the write-down of the investment in the SevelNord JV following the agreement with PSA, whereas Q2 2011 included EUR372 million of unusual charges due to product portfolio rationalization following the acquisition of control of Chrysler. Excluding unusuals, the loss for EMEA was EUR93 million in Q2 '12 compared to EUR34 million in Q2 '11.

Moving to page six, the P&L below trading profit shows net financial expenses for EUR463 million for the Group. Excluding Chrysler, the increase of financial charges versus Q2 2011 was EUR96 million, mostly due to the higher level of net indebtedness. Profit before taxes was EUR532 million. Excluding Chrysler, there was a loss of EUR154 million compared to a profit of EUR1.5 billion in Q2, including unusuals. Net of the unusuals, the loss was [in the] EUR60 million compared to a profit of EUR223 million in Q2 '11.

Income taxes totaled EUR174 million. Excluding Chrysler, income taxes were EUR92 million, approximately EUR30 million lower than prior year. These taxes relate primarily to taxable income of companies operating outside of Italy and the employment related taxes in Italy.

Moving to slide seven, revenues for the mass market brands were up 13% compared to Q2 '11 pro forma. As far as luxury and performance brands are concerned, Ferrari posted nearly 11% growth, while Maserati was up 2%. Group trading profit improved 13%, with NAFTA and APAC more than compensating for declines in EMEA and LATAM for the mass market brands. Luxury and performance brands were up 15.6%.

Slide eight deals with our focus on costs and disciplined management of the manufacturing infrastructure, which is ensuring continued alignment between production and market demand. Inventory levels continue to be in balance with demand in all regions, driven by the continuing improved sales performance for the NAFTA region. We are preparing for the introduction of three crew operations at Belvidere and Jefferson North plant. By year-end, these two plants will join the Windsor assembly plant already running on a three-shift basis.

In Brazil, we recently announced the addition of 600 temporary workers to boost production by 150 vehicles a day to 3,150 a day at our Betim plant to respond to increasing market demand. Activities are on track for the start of production of a new Pernambuco plant in 2014.

In EMEA, we stopped production through temporary layoffs, including the central staff for the region operations, due to the falling market demand. Since new collective labor agreements entered into force in Italy, we have been experiencing initial positive signs, such as a sharp reduction in labor incidence and absenteeism, now at normal levels in most plants.

On the purchasing side, the Group achieved 1.5% in gross savings, which drove a net positive performance in the quarter of about EUR50 million, in line with our full year expectations. World-class manufacturing delivered net savings in excess of EUR250 million in the first half of the year, evenly split between Q1 and Q2, and fully on track with the target of EUR400 million for the full year.

On page nine, on July 25, the Fiat plant in Pomigliano D 'Arco, which produces the new Panda, was awarded the prestigious International Automotive Lean Production 2012 Award in the OEM category following an analysis and evaluation process by a committee of experts selected by the German magazine Automobile Production. Since 2006, over 700 production plants in more than 15 different countries, including Germany, Spain, France, Benelux and Italy, have taken part in the selection process to win this sought-after trophy, which is one of the most significant on a European scale.

Page 10 shows the net industrial debt reduction of EUR337 million in Q2 to the EUR5.4 billion. The positive change in net debt came from a EUR2.1 billion positive cash flow from operating activities, which exceeded EUR1.7 billion of capital expenditure. And the cash flow from operating activities is consistent with the size of EBITDA, and with a positive contribution from working capital, which almost offset the financial charges and current taxes. The resulting EUR470 million positive cash flow from operating activities partially offset by EUR137 million negative impact due to foreign exchange effects and noncash items.

Working capital was positive in the quarter, with each of Chrysler and Fiat ex-Chrysler generating about EUR0.3 billion, mainly from payables and inventories as a result of regular seasonality in certain regions and the recovery from the long-lasting Italian car hauler strikes, which impacted Q1.

Moving to slide 11, liquidity for the Group further improved at June-end to EUR22.7 billion, including EUR3 billion of undrawn committed credit lines. Total liquidity for Fiat ex-Chrysler amounted to EUR12.1 billion, slightly above the levels at the end of the prior quarter, while Chrysler recorded a EUR1.2 billion increase, of which EUR0.5 billion was due to FX translation. Fiat capital market and bank debt maturities are spread over the next five years and beyond. Thanks to the latest EUR600 million issuance in July, 100% of bond maturities for 2012 and one-third of those for 2013 are now covered. Chrysler has the majority of its debt maturing beyond 2016.

Moving on to page 13, we can focus on the regional performance for the mass market brands of the Group, starting with NAFTA. The Group has continued to perform strongly in this market on the back of the continued success of the significantly rejuvenated product lineup. Revenues increased 31%, or 70% in US dollar terms, driven by higher level of shipments, up 19% over the same period of last year. Trading profit was EUR717 million, EUR300 million higher than last year on a pro forma basis, with volume increases and positive pricing only partially offset by industrial costs, including product content enhancements.

Group sales are 20% higher than a year ago at 532,000 vehicles, primarily reflecting a 24% increase in the US, where sales of our cars improved 42%, while trucks increased 16%. In US and Canada, most of our brands recorded a double-digit increase in the quarter.

On slide 14, we take you through the EBIT walk for NAFTA. EBIT for Q2 '12 was EUR744 million, nearly 80% higher than last year's level on a pro forma basis. The EUR284 million improvement for volume and mix was driven by higher shipments for nearly 90,000 units, partially offset by unfavorable car line and market mix. Positive price impacted for EUR77 million reflects pricing actions implemented in late '11 and early '12. Purchasing efficiencies were offset by the impact of vehicle content enhancement, resulting in an increase of EUR136 million in industrial costs. Other primarily reflects the foreign exchange translation impact of about EUR70 million.

Moving to slide 15, the US industry continued its recovery pattern, posting a 16% growth versus the same period of last year. The Group reported the best June since 2007, being the 27th consecutive month of year-over-year vehicle sale gains. Q2 market share of 11.2% was 60 basis points higher than a year ago, with the retail sales increasing 32%. Fleet mix decreased to 27% from 32% in the prior year.

Canadian market recorded a 6% year-over-year growth. The Group sales in this country were up 4%, resulting in a 14.5% share, with retail-over-retail market share at 12.2%. The sales increase was driven by the Chrysler 300 and the Chrysler 200.

Moving to LATAM on slide 16, the region maintained its generally good trading conditions. In Brazil, the passenger car and light commercial vehicles market stood at 860,000 units, in line with the last year, notwithstanding the tough comps, as the industry posted the best Q2 ever in 2011. Progressive improvement was experienced during the quarter thanks to new government measures introduced in late May, which also supported the expansion of credit availability. Total Group shipments were down 7%, with the trend improving through the quarter, the positive trend which continued in July, and we'll see that in a later chart.

Revenues were down 9.8%. On constant exchange, revenues decreased by just under 6%. The reduction in trading profit was EUR139 million, or EUR120 at constant exchange, mainly attributable to lower volumes, pricing pressure, and increased advertising spend for the new product launches. Year-to-date results are in line with a target of more than EUR1 billion of trading profit for the LATAM region for the full year. Company and dealer inventory levels at quarter-end remained at an optimum level of 22 days supply, approximately 25% lower than the estimated industry average.

Moving on to slide 17, the EBIT walk for LATAM shows negative volume impact, as mentioned, while pricing pressure continued in the region. The efficiencies obtained through WCM and purchasing actions were unable to offset the labor cost inflation and increased depreciation due to new product introductions. Higher SG&A was driven by higher advertising spend for the new product launches.

Page 18 shows the passenger car and light commercial vehicle market in Latin America reached 1.38 million units, substantially flat versus a year ago. The industry's on target for about 5.7 million vehicles for the full year, with the outlook for the Brazilian market of mid-single digit growth. Following the introduction of various government measures during the quarter, the Brazilian market reacted very positively. The average daily sales jumped in the latter part of May, posting a record-breaking June, with 17,000 units per day, plus 37% versus prior months.

As of end of last week, July is off to a good start, being up nearly 20% versus same period last year. Additional liquidity, lower interest rates, and the IPI sales tax reduction are expected to continue stimulating Brazilian sales for the remainder of the year.

The Group confirmed its leadership of the Brazilian market with an overall share of 22.1%, down 60 basis points over Q2 2011 and 160 basis points above the nearest competitor. The Group's best-selling products continued to perform well, driven by the continuing success of the Uno and the Palio. Fiat held nearly 30% share of the [A and B] segments combined. In Argentina, where the market was down just over 1%, Fiat's market share was in line with Q2 2011 at 11.2%.

Moving on to APAC on slide 19, generally strong trading conditions in this region with the recovery in Japan and double-digit growth in China and in Australia. Shipments improved 73% to 26,000 units. Revenues increased nearly 90% to EUR760 million, mainly driven by Chrysler Group brands. The trading profit improvement nearly tripled the prior year to EUR64 million, was primarily driven by volume growth, partially offset by increased industrial cost and selling expenses to support our regional expansion in this area. The trading margin was up 250 basis points to 8.4%.

EBIT was three times higher than a year ago, reflecting the growth in trading profit and improvement in the Indian JV performance. Retail sales, including JVs, were up 24% on the back of the strong performance of Alfa and Jeep, with the LATAM more than doubling last year's sales levels.

During the quarter, Chrysler Australia became the sole distributor for Fiat and Alfa Romeo brands in Australia, with the distribution network now expanded by 17 car dealerships and 22 commercial vehicle outlets under the new agreement. In India, the newly formed Indian distribution company will take over commercial and distribution activities of Fiat vehicles in India, which were previously managed by the JV with Tata. That JV remains in place for the manufacturing activities.

On page 20, the EBIT walk for APAC shows the EUR41 million quarter-over-quarter improvement, driven by volume mix, reflecting improved shipments across all countries. Industrial costs were impacted by enhanced vehicle contents, and higher selling expenses supported the continued business growth in the region.

Slide 21 deals with market trends. The Group sales, including JVs, were 24% higher than a year ago in a growing industry where the Group competes, driven by strong performance in China, Australia, and South Korea. In China, Jeep recorded a robust performance, up 150%, driving Group sales up 24%. The Compass and Patriot sales were up 200%, gaining 170 basis points of share in the compact SUV segment. In Australia, the Group posted the industry's best improvement in quarterly sales volume, over 60% over the prior year, driven by a doubling of the Jeep brand in a market which grew 17% in the quarter. Grand Cherokee sales increased more than fivefold, with 560 basis point share gain in the full size SUV segment.

Japan experienced a continued recovery of the auto industry since the earthquake devastation last year, with Alfa sales up 180% and Jeep sales up 60%. The South Korean industry was basically flat, with the Group sales improving 54%, driven by the growth of Jeep and Chrysler, up 72% and 44% respectively.

Slide 22 deals with the EMEA region. The European market was down for the third consecutive quarter, with prolonged weakness in the Mediterranean countries and a highly competitive environment. Group revenues were down 10%, mainly reflecting lower shipment volumes. The trading loss for Q2 '12 doubled versus prior year but improved by EUR70 million over Q1 2012. Negative volume and price effects were only partially offset by industrial efficiencies and cost containment actions.

EBIT was negative at EUR184 million, including unusual charges of EUR91 million due to the write-down of the investment in SevelNord. The Q2 2011 loss of EUR406 million included unusual charges of EUR370 million due to the rationalization of the product portfolio following the acquisition of control in Chrysler. Excluding these unusuals, the EBIT loss for 2012 increased to EUR93 million compared to EUR34 million in the prior year period.

Results from investments contributed positively for EUR45 million, improved from EUR31 million in the prior year. Total shipments were down 45,000 units in the region, mostly attributable to Italy, 23,000 units, France, and Germany. Q2 shipments improved compared to Q1 by 41,000 units, in part due to restored supply following the car hauler strikes in Q1 and to seasonality. Jeep recorded another strong quarter, with 34% growth in shipments to 17,000 cars.

The EBIT walk on slide 23 shows the efforts which the Group implemented through the WCM program and purchasing actions alongside tight controls over SG&A to cancel the impact of the declining shipments and continued pricing pressure in all market segments. EBIT, excluding unusuals, was down EUR59 million but improved by about EUR80 million compared to Q1 '12, mainly driven by the higher volumes and continued cost control.

Page 24 shows the passenger car industry in Europe, which was down 5.4%. Among major markets, a double-digit slump was experienced in Italy and Spain. France was down 6%, UK was up 5%, and Germany was flat. In this weak environment, the Group sales were down 13% to 237,000 cars, posting a Q2 share of 6.8%, down 60 basis points compared to a year ago, almost entirely attributable to further reduced weight of Italy in the European market.

The share gain of 50 basis points over prior quarter was achieved on the back of the partial recovery of sales losses due to the car hauler strikes in Q1. In Italy, market demand was down 18.6% in the quarter, with June being the seventh consecutive month of double-digit decline. Group share was 31.2%, up 120 basis points, driven by positive performance in the AC and SUV segments.

Page 25, the business environment in Europe for light commercial vehicles was also weak. EU27 and EFTA industry was down 11% in the quarter, with declines in all major markets. Italy and Spain contracted the most, down 33% and 29% respectively. Fiat professional brand sales were 58,000 units, 11,000 lower than a year ago. In the quarter, the Ducato model gained for the first time leadership in its relevant segment. The negative share performance in both domestic and European markets is attributable to the significant fleet [contracts] signed in Italy in 2011.

Fiat Professional gained 10 basis points of share in Europe, excluding Italy. Fiat Professional began accepting orders for the new Doblo XL, whose interior volume, the largest in the range, benefits from the vehicle's long wheel base and high roof.

Moving on to slide 26, the luxury and performance brands continued to perform well. In Q2 '12, Ferrari shipped a total of 1,931 street cars, representing a 4% increase over a year ago. The growth was primarily driven by sales of 12-cylinder models, which were 58% up over the prior year on the back of the contribution from the new FF. North America remained Ferrari's number one market, with shipments up 13.6% over the prior year to 509 vehicles. In EMEA, volumes were substantially in line with Q2 2011, with a total of 966 cars shipped. Performance in the UK, Germany and Switzerland offset the significant decline in Italy.

In Asia-Pacific, shipments were higher in both China and Japan, more than offsetting a reduction registered in Australia. In other markets, performance was substantially in line with Q2 2011. Ferrari reported EUR650 million in revenues, a 10.7% increase over the same period in 2011, and a 14.1% trading margin, with a trading profit of EUR92 million. The 12% increase in trading profit was attributed to volumes, as well as to good results from the personalization program and licensing activities.

Maserati shipped a total of 1,762 cars during the quarter, up approximately 1%, with significant increases in the US, China, and the Middle East, but a 40% decline in Europe. Maserati posted revenues of EUR170 million for the quarter, and the trading profit was EUR11 million, an increase of EUR2 million over Q2 2011.

Page 27 shows the performance of components and production systems. Activities in Europe for Magneti Marelli were influenced by severe weakness in Italy, further accentuated by the LCV segment contraction. Outside Europe, there's a positive trend in NAFTA and China, while volumes in Brazil were down. Most business lines recorded revenue decreases, with the exception of lighting, up 8%, and electronic systems, up 17%. Revenues totaled EUR1.5 billion, a 5% decline over the prior year. Trading profit was EUR37 million compared to EUR50 million for Q2 2011.

Teksid posted revenues of EUR204 million in Q2, an 18% decline over the same period, with lower volumes for both the cast iron and aluminum business units. Trading profit was EUR3 million compared to EUR11 million for the same period in 2011. Revenues for Comau were EUR365 million, a 2.5% increase over prior year, which was mainly attributable to the powertrain systems operations. Order intake for the period was EUR300 million, representing a 4% increase over Q2 2011. At June 2012, the order backlog totaled nearly EUR1 billion, a 17% increase over year-end 2011. Trading profit totaled EUR7 million for the quarter compared to EUR3 million for Q2 2011.

On the right of slide 29, we show [you] the nameplate impact and brand impact, which drove the increased sales of 86,000 units in the US and Canada. All brands contributed to the growth, Chrysler, driven by the 300 and 200 models, and Fiat with the biggest gains, with 66% and 124% growth respectively, followed by 19% increase for Jeep, 13% growth for Ram, Dodge was up 3% awaiting the all-new [2003] Dart, which is now arriving in dealerships. This new model encompasses power and fuel efficiency, together with best-in-class technology and safety, to compete in the single largest retail segment in both the US and Canadian markets.

Page 30 deals with the recent market introductions in Brazil. Our continuously updated and innovative product offerings have been further rejuvenated with the launch in the quarter of the new Palio Weekend, the new Strata, the highest-selling small pickup for the last 12 consecutive years in the Brazilian market, and the refresh of the entry-level Sienna. Also, Fiat brand recently received five Best Buy awards, ranging from the entry-level models to the upscale minivan with the Fremont.

Page 31 regards APAC. June saw the start of production of the Fiat Viaggio, manufactured by our joint venture with GAC. The Viaggio is the first locally produced vehicle for the competitive Chinese C-medium segment, and is expected to arrive in dealerships in Q3 this year. The Group is continuing to focus on the re-launch of the Chrysler brand in China. The all-new Chrysler 300C will return to Chinese dealerships in July, with the Chrysler Voyager to follow in Q4. In this quarter, the Jeep Grand Cherokee SRT and the Overland Summit edition were launched in the region.

Slide 32, in Europe, Fiat continued prelaunch promotion of the 500L, having debuted it exactly five years after the presentation of the iconic Fiat 500. This car will be available in the market in late Q3 in Italy to then progressively expand to all other markets. During 2013, it will be on sale in more than 100 countries around the world, including the US. In June, the Lancia brand presented the new Flavia, an eye-catching four-seat convertible. And in Q2, Jeep enlarged its offering with the most powerful, best-handling Jeep vehicle ever, the Jeep Grand Cherokee SRT.

Moving on to page 33, we take a more detailed look of how we expect the markets to evolve for the full year. Our prior guidance for the US market for the full year was greater than 13.8 million vehicles, and now, clearly after a good first semester, we've seen improvement for the industry and expect it to exceed the 14 million mark. Canada is confirmed at around 1.6 million vehicles for 2012. For LATAM, we expect that the various stimulus measures implemented will be supportive of a positive market for the rest of 2012, therefore in line with the prior forecast we gave.

APAC continues to be very strong, with the industry where the group is competing slightly revised upwards to about 24 million units. The Group is targeting full year sales increase of around 40%. In EMEA, the adverse impacts from the recession continue to make visibility of the European market progression very difficult. In EU27 plus EFTA, we expect the passenger car industry to drop for the fifth consecutive year to approximately 12.7 million units, with Italy at its lowest level since 1979. For the light commercial vehicle market, demand is expected to decline by about 10%.

Moving on to page 34, Group shipments in the second quarter were in excess of 1.1 million units, as I already mentioned, with growth of 20% in NAFTA, 70% in APAC, compensating for 13% decline in EMEA and a 7% reduction in LATAM. The 2.1 million shipments in the first half are in line with our full year guidance of 4.1 million to 4.4 million units, with EMEA at the low end of guidance.

On page 35 we have the full year guidance, which remains unchanged. Based on our first half performance and despite the continuing uncertainty in the market in Europe, we are confirming full year guidance. Volumes for the first half were 2.1 million units, and we confirm our target between 4.1 to 4.4 million units for the full year. Trading profit for the first half was nearly EUR1.9 billion, and net profit was EUR0.7 billion. And those are also in line with our full year targets. Net industrial debt for full year is confirmed between EUR5.5 billion and EUR6 billion.

This concludes my remarks, and now I'll turn the call back to Mr. Marchionne for any final comments before the Q&A session. Thank you.

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

(Operator instructions.) Charles Winston from Redburn Partners.

Yes, hi, good evening, two questions from me. Just firstly, you commented on the Chrysler call just in terms of your expectations for working cap in the third quarter probably being a negative at the cash level. Would you say that's likely as well in the Fiat cash flow as well, or perhaps you could just sketch out your thoughts to how working capital progress for the rest of the year.

And then, just relating to the net finance cost, I guess, as you say, the increase, particularly in the Fiat, related predominantly to the increase in net debt, therefore this sort of run rate is likely to continue. So it's a more open question, really, which is a lot of the Group's trading profit and value creation is being siphoned off or redirected to debt capital providers because of the liquidity and the cost of carry.

What sort of conditions would you need to see to get that number down such that more of the value within the Group can attribute to equity holders as opposed to the debt capital providers as the business is currently structured? Thank you.

I'll deal with the second question, because that's really a question of -- it's a strategic question. [It] has to do with how much liquidity is held within the system.

Based on what I know today about the way in which European markets are performing from an operating standpoint in terms of car sales, and what we see in terms of sort of the uneven availability of capital market financing to a lot of issuers, we have made the decision to effectively maintain what I consider to be abnormally high level of liquidities for the foreseeable future. I don't think that that objective has changed in view of what I see as the market dynamics to date. I don't expect that to change within 2012.

And I think, to be perfectly honest, I think we would have to see some clarity and some resolution of the much larger issues that are impacting the European trading zones before we made a decision to relinquish the liquidity and bring it back down to what I consider to be normalized levels. Richard has, on various occasions, repeated the group stance that, effectively, we intend to maintain about 20% liquidity as percentage of sales.

That percentage [has now] changed when you compare to the numbers that we're dragging around now. We're well above that number. And I tell you honestly, we look at this on a consistent basis. I don't know of a single event that could possibly happen in the next four or five months that would change our positioning, and I think the level of effort that would be required out of the European environment to provide that comfort is pretty distant.

I'm not criticizing anybody in the process. I just think that, as a corporate, we have an obligation to ensure that we deal with market uncertainty. There's a high level of market uncertainty out there that will continue to prevail, and it's impacting not just volumes on the car side. It's impacting the operation of the capital markets.

Richard and I shared with the Board this morning some information on where corporate default swaps sit today, the way in which the market looks at this country in particular and the fact that we've been anomalous in our ability to finance outside of that bank. But it is clear that, until those issues resolve themselves, we're going to hang onto the liquidity, and I think we'll pay the cost.

And I think the unfortunate consequence, as you correctly pointed out, is that it is a value attribution away from equity holders into debt financers. But contrary to what we had back in 2008 and 2009 when the debt markets were unavailable for a variety of purposes, we continue to have access that's not consistent access to the debt markets. The fundamental thing in evaluating the risk profile of Fiat, regardless of whether Fiat has access to the cash that is being generated inside Chrysler or not, is that, in the process of managing Chrysler and the process of delivering on the targets that we had set for ourselves back in 2009, even for this year we are creating substantial, tangible value which is monetizable for Fiat at any one point in time.

And it goes beyond the question of whether to have access to the cash resources that are being held within Chrysler. And so, the effort is worth it. It's worth it from a value creation standpoint, which ultimately will benefit the equity holders, but it is also essential to try and provide the type of operating convergence that we've talked about from time to time and which is necessary to create one global car company.

I think it's fair to say that, when I look at the European situation, or I look at today's times, and I'm looking at incredibly hopefully nonrecurring sets of events that are biasing our capital market formation for our purposes, they're going to continue to bias those choices for a reasonable period of time, going forward, and the important thing is to ensure that we can continue to provide all the liquidity required to maintain an adequate level of operating efficiency.

I don't see those conditions in the market today. And as I said earlier, I doubt it very much that we'll see them before the end of '12.

Very clear. Thank you.

And on the working cap, in terms of working capital, expect it to be positive in the second half based on Brazilian market continuing to improve, as we mentioned earlier, and the European launches of the versions of the Panda and of the 500L also helping volumes. So we expect it to be flat to positive in the second half for Fiat ex-Chrysler.

Great. Thanks.

Richard Hilgert from Morningstar.

Thanks. Good evening. Taking a look at the operating leverage in North America, you went from -- you had a 19% increase in volume, you had about a 30% increase in revenue, and about an 80% increase in EBIT. If you add a third shift to bring on additional volume, aren't you paying a third shift premium for wages?

And would we expect -- or should we expect less operating leverage to come out of the North American operations, going forward, or are you doing something to keep that operating leverage and contribution margins up as volume ramps higher in North America?

Under normal circumstances, the increased variable costs associated with running a third shift is a very small percentage of the increased absorption of the fixed cost structure of the installation. So net-net, you're well ahead of where you would have been if effectively you can maintain pricing around third shifts of any standard operation.

Okay. And in Brazil--.

--So just to complete the story, if you can run these things at 100% technical capacity, you should be able to [mint] money in the absence of pricing distortion.

Okay. In the Brazilian market, you lost a point or two a share. With the tariffs that they've implemented down there, I might have thought that you might have maintained share in that market. I'm curious. Are your competitors ramping up more production capacity inside of Brazil, and that's the dynamic that's going on there?

I think that the -- to begin with, we haven't given enough time to the incentives to work through the system. Richard made reference to the fact that these things were introduced at the end of May. We have begun to see a phenomenal increase in the daily rate of sales across the Brazilian market within June. It's certainly a trend that has continued in July.

And so, to be perfectly honest, I'm not sure that we have seen the benefit of these measures. I think you need to see Q3 before you can make that determination, issue number one.

Issue number two, one of the things that we have done is that we have maintained a high level of pricing discipline in the marketplace to avoid a deterioration of the brand equity associated with the Fiat brand in Latin America, which is uniquely high. And I think it would have been disastrous if we had followed what I considered to be mercenary activities in pricing. So we have cut back where required, and it's a strategy that has paid off in view of what's happened now in terms of the incentives coming on.

There are a number of car companies that have announced capacity installations in Brazil. To be honest with you, we keep on monitoring this pretty carefully. I'm not sure how many of these are just pure threats of installations as opposed to real shovels being applied to the ground. I know we're proceeding certainly following the review that we've had in Latin America in the last three weeks, and the last review that we had last weekend with our investment up in the state of Pernambuco. I think it's crucial in view of what we consider to be the development of both the product portfolio and the size of the market in Brazil, going forward. I think we'll be in-market by sometime within 2014.

I'm aware of a few installations that will be up at around a similar time, but I don't see any disastrous dislocation of capacity coming on, at least none of which would be unrelated to expected market increase.

Okay, thank you. On the WCM having made EUR250 million cost savings in the first half, EUR400 million still being the full year target, is most of that in the North American segment since you've been implementing that, say, over the last 12 to 18 months?

Yes.

Okay, great. Thank you.

Martino De Ambroggi from Equita.

Yes, thank you. Good afternoon, good morning, everybody. The first is a strategic question on the new alliances you are working on. Should we expect merely industrial collaboration like (inaudible) already saw in the recent past, or you are also exploring, or maybe not now but you believe it could be possible, to find stricter alliances, including share swap, why not maybe including also Chrysler in these kind of deals? This was my first question.

The other two are concerning pricing evolution in Latin America, just to have, and I -- what's your view on it. And on the EMEA mass market losses, what should we expect in the second half as a trend for the second half of this year? Thank you.

Yes. Let me deal with the first two, and then I'll pass it on to Richard to deal with the expectation on EMEA.

I mean, the Mazda relationship is a technical collaboration. There've been no other discussions that have gone on. I don't see much value in share swaps, to be honest, other than for symbolic value. I think all the ones that I've seen have not worked out well, and I certainly don't want to sort of jinx what appears to be a pretty promising collaboration on a technical scale into something that could have sort of a negative appearance, going forward. We're happy working with Mazda on the basis that we've announced I think that that collaboration will stay, certainly based on what I know today, on a pure technical basis.

Pricing in Latin America is restoring to 2008 levels. The early part of 2011, I think they were seeing a restoration of margins to reasonable levels, and it's a basis on which we're able to confirm performance for 2011 in line with the target that we set, which is in excess of EUR1 billion. So overall, I think we're going back to a state of normality after this dislocation of certainly the second semester of 2011 and the first half of 2012, so steady-state and fundamentally a return to what we've been experiencing in Latin America for the last two or three years.

On the third question, I'll pass it on to Richard.

So our first half loss was about EUR350 million at trading profit in EMEA. And obviously, from Q1 to Q2, you saw an improvement there from over EUR207 million to EUR138 million, so we improved it by EUR70 million in the quarter. I think the second half, our target would be to improve the loss compared to EUR350 million. How far we'll get, we'll see. But clearly we have some product launches, and we continue to manage the cost base very aggressively. And you can see the results of that in Q2.

Okay, thank you.

Fraser Hill from Bank of America.

Hi, good afternoon, Fraser Hill from Bank of America. Just got two questions here -- sorry, in fact three. First, on the financing line, we've seen a lot of variability there, and that jumped quite substantially in Q2 versus Q1. Could you just kind of run us through the delta between the EUR375 million in Q1 and EUR468 million in Q2, and provide us with some guidance as to what you expect going into the quarters in H2?

Secondly, again some housekeeping here, but on tax as well, that's jumped from EUR27 million to EUR33 million. I just wondered what your expectations were there, going forward, and what you would guide that might be sustainable for us to model, going forward.

And then, finally, just looking at the EMEA bridge, and obviously stripping out this restructuring for Q2, are there any other restructuring elements that you think could come into the numbers in Q3 or Q4? And I guess, on the flip side of that, you had quite a decent improvement, or rather reduction, in your fixed costs. I just wondered what we should expect for that, going forward, as well. I mean, you saw a EUR64 million benefit there in your cost reduction efforts. How are you thinking about that for the second half of the year? Thank you.

In terms of interest charges, yes, the full group number of EUR460 for the quarter is probably a reasonable run rate for the year. The increase over last year is clearly basically due to our higher level of net debt, in part because of the operating performance. We've burned cash obviously in the first half of this year on the Fiat side, and in part because of the investments in Chrysler that were made last year halfway through.

And the other part of the question related to taxes, we have some increase in taxes as we make more money on the Chrysler side, slightly offset by a reduction on the Fiat side because of the lower Latin America operations. In the second half of the year, we think Latin America's going to improve, but I don't think there's going to be a substantial difference in taxes from the first half to the second half.

Oh, I missed your third question. I apologize.

Yes, I was just trying to get a sense of any potential for further restructuring costs to come into the numbers in the second half, just thinking about that EUR93 million we saw in Q2--.

--Yes. Well, that was a -- sorry, go on.

Yes, I can see that was a one-off. I just wondered if there are any other sort of actions that you think are going to be taken that could lead to charges. And then, on the flip side, looking at the gains that you've made or the improvements in the industrial cost, the EUR64 million, I just wondered how incremental that line could be going forward from this point. Are there further gains to come through in the second half?

Well, we continue to push very hard on the efficiencies on the NAFTA side as we ran those plants at full to capacity on a two-shift basis. And we also will have strong performance in the second half in Brazil. So we expect to continue to generate efficiencies on the industrial side.

On restructuring, we're going to get back to you at the end of Q3 with our revised plan. Whether that will or will not include some of the restructuring, we're working on it.

Thanks.

Thank you.

Jochen Gehrke from Deutsche Bank.

Yes, good afternoon. Two quick questions, if I may. Firstly, on LATAM, obviously you highlighted many times today that you're quite comfortable for the second half. As far as I understand, the tax changes, at least on the EP tax, are set to expire by August. Why are not more concerned about what we've seen now in the last couple of months has created a bit of pull-forward demand and that, actually in the second half of the year post- the expiry of the tax change, we could see a [going] backward, or temporarily even worse trend than what we had prior to that?

And then, secondly, Mr. Marchionne, in the last call I think you talked a lot about capacity reduction needs in Europe and the point of first mover disadvantage. I wonder if you could just update us. We obviously have seen some of your competitors announcing plant closures. The political backlash was huge. Do you feel that this first mover disadvantage is gone now and that we're moving faster?

And on that point, what do you think really the players with the weaker utilization rates in Europe can do to convince the ones with the high utilization rates to contribute to the needed capacity reduction in the European arena? Thank you.

I'm going to try and give you an answer to the second question. Your question is incredibly complex in nature, and I wish I had an easy answer for you.

And I'm not sure that in my suggestions that I ever suggested that people who have high utilization rates should be offering up plants for closure when fundamentally you've got proper utilization of those assets. That has never been the case. The issue is a jurisdictional allocation, and it really has nothing to do with particular players in the marketplace doing anything.

The issue with the first mover disadvantage, and we have seen, as you correctly pointed out, reactions which have been pretty clear and, in some cases, pretty vocal from a variety of social actors in jurisdictions where these closures have been announced, which really reflect a level of concern which ought to be shared across a European-wide basis.

And the only comment that I ever made in connection with this is that, in an environment where you've got multiple countries that are effectively -- that actually are the repository of excess capacity, it would be wise to avoid penalizing any one player, and therefore putting that player in that geographical jurisdiction at a phenomenal disadvantage against the others. And if this was coordinated, then I would assume, having seen the distribution of production plants across Europe, there will be a number of countries that will be participating in the reduction and, ultimately, the allocation which reflected some principles of equity and fairness in terms of distribution would benefit the collective good.

The thing that I find disturbing in this environment is that people see this as being somewhat unnecessary in sort of the face of blatant evidence to the contrary. It's an issue which has been plaguing us for a long period of time. We've made reference to the fact that -- and Richard has, as I have done on previous occasions, about the fact that the European market is now heading for a fifth straight year of declines, year-over-year declines, and we're now seeing levels in the Italian market which have not been seen since 1979.

So we're all staring at what I consider to be refutable evidence of market decay. I mean, the numbers are the numbers. The question that you've got to ask yourself, is this a permanent decay, or is it a temporary, transient sort of decline in volumes because of natural fluctuations in GDP? If you firmly believe that this is part of a short-lived economic cycle, then I think that anybody can step back and just use the social mechanisms that are available in various jurisdictions to try and deal with that lack of demand and adjust capacity accordingly.

If, on the other hand, as I do, and a number of other players believe, that there is a structural over-capacity in the system which is causing really distorted results in terms of operating performance, we have seen this -- and by the way, you can read a number of studies that have been done on this, about the fact that the automotive industry has historically not been able to earn its cost of capital over extended periods of time. This is not due to the inability of car markers to run businesses properly. It's a reflection of the cost associated with the investment, the cost associated with the production of the products and the selling price in the marketplace.

You don't have to get a PhD in economics to figure out fundamental supply-demand economics. And what you've got here is the retention of margins across a wide brand -- a wide portion of the mass market in Europe, which is not allowing for the recovery of the capital costs associated with the investment, which is also a reason why the capital markets have been incredibly reluctant to continue to finance these operations, because they do not understand how the circle is going to close.

And by the way, for anybody who's looking for a practical application of that system, the only thing I suggest people do is look at the American example, which is live through this -- in its raw form, back in 2008 and 2009, where all the inefficiencies of the system, overcapacity, dysfunctional pricing, all those issues came to the table all at once when the market collapsed. And what we're beginning to see now is the frailty of the system, because we never adequately moved on this.

And so the only thing I -- if Europe is to exist as a common market, then I think it is in the interest of the European Union to act as a coordinator of the rational, equitable allocation of the reduction, because it is the only way in which national interest will not be hurt by the process. If we do not do this, we will leave it to particular companies and particular member-states to carry this out. And this whole question of animosity in a European context, which is already finding it very difficult to find cohesion, is going to be almost impossible.

And so, the request to the European Union is to take that on as opposed to take on free trade discussions with Japan, which in a market which is declining and has declined for the last five years, is the most inappropriate move to possibly make. This is not the time to start entertaining free trade agreements. It is a European context that could never, ever withstand the attack of the removal of trade barriers from a country like Japan, which is already long capacity.

And so, these things need to be -- we need to coordinate the efforts here. Otherwise, somebody's going to pay a huge price for this. And the last thing we want is a structural, technical failure of one of the players, because the ramifications are relatively large.

And so, I keep on raising this issue as being an important element of intervention. I've read even the Anglo-Saxon press that suggests that member countries should be left to their own means to try and deal with this. I think, as much as I believe in free markets, I also believe that there's value in the European Union carrying out a particular act of market coordination in events like this. If it doesn't happen, then I think we're going to leave the car companies in particular states in an incredibly vulnerable position, and that's not the role of the European Union, not if we believe in the European Union or in a single market. It just cannot happen.

So I reiterate the call for that to happen. Regardless of what -- I understand that there's not a unanimous view across auto builders across Europe. But certainly, for the majority of people who are involved in what I consider to be a very difficult market in 2012, as a continuation of 2011 and 2010, I think it's an incredibly wise suggestion.

On the first question, I'll pass it on to Richard.

So as you mentioned, the two elements I think to the stimulus measures, one is the reduction in IPI, and the other is an improvement in credit approval levels and availability together with obviously reduction in interest rates that occurred.

In terms of the reduction in IPI, you're right, the law initially will expire in August. Based on our experience when a similar program was put into place in 2009, (inaudible), it's not going to fall off a cliff from one month to the next, as that law actually was reduced by 50% before it was further reduced. So we would expect a gradual reduction in the IPI measure, not a truncation in the end of August. Based on past experience, we will see. But even that aside, clearly another big piece of the stimulus was the increase in credit availability and approval rates from the banking system, which would continue, in our opinion, for the rest of the year.

As regard to the fact that it's pulling forward demand, this isn't a developed market. So to some extent, I think not being a replacement market, these types of measures obviously stimulate demand, but I'm not sure that it has the same effects on the demand curve as those sorts of measures have in the more developed economies such as Europe or the US.

Thank you.

Thanks.

Massimo Vecchio from Mediobanca Securities.

Yes, good evening. My first question is on CapEx. You indicated that the amount spent in the first half is like 45% of the full year, so clearly indicating EUR7 billion for the full year, which still will imply EUR4 billion in the second half, which seems a very high number. Do we have to consider this EUR7 billion as the maximum amount in your spending CapEx, or it's a (inaudible) precise indication? That's the first question.

Second question is actually a follow-up on the previous question on over-capacity. You stated to the press that, with the current market conditions in Europe, you may be thinking about closing a plant in Italy. I'm just wondering if you can expand on that, and if you have a deadline in terms of timing on this issue.

Third and last question is the new Punto. Have you [mined] the timing on the replacement? Do you have any -- many thousand that is -- do this project be profitable with the current pricing environment, or not? Thanks.

I can tell you right now, just to deal with the questions [asked] backwards, the Punto today, any investment that we would make in the Punto will never, ever return capital, so we're going to sit on the sidelines until we can find better conditions. And there's been a huge amount of work that's gone on since we last spoke on a conference call about architecture development and the ability to share these across geographies. I think we feel relatively comfortable now that we have found, for a variety of related and unrelated reasons, a technical solution that will be able to support a much higher volume extraction out of the architecture investment.

Having said this, we're going to reserve the right to come back in and deal with all these issues in the third quarter, including your second question, which has to do with capacity utilization and plants and so on. I think all these questions need to wait until we have a better read of the European market development, until we get a better read of Europe as a whole, because I think a lot of it is a lot of confidence is going to come from a proper resolution of European-wide matters which really have nothing to do with car-making. And I don't think we should look at these as being independent of the larger macroeconomic issues that we're all facing in this trading block. So I think we'll have to wait until the end of October to come back in when we get together on October 30.

And on the first question, I'll pass it on to Rick.

So, as precise as I can be in a forecast, I think the EUR7.5 billion is a good number, and also in large part because we're spending significant money in NAFTA on the product actions we discussed on the Chrysler call and I think which you're aware of. And also, we're starting to spend money in Latin America on the Pernambuco project.

Thank you very much.

Thank you.

Philippe Houchois from UBS.

Yes, good evening. Two questions. One is, Mr. Marchionne, I've asked you the question before, and you've been [fairly] clear. I'm pretty impressed by your ability to refinance constantly. And has something changed in your relationship with your financing, in a sense? Have you had to pledge assets or provide collateral to a point beyond what you've done in the past?

No.

No? Okay. And the second question is, is it fair to assume that the cost of buying the 3.3% of Chrysler would be around $400 million?

No.

Higher or lower?

No.

Okay.

I mean, we're not going to establish the size of the breadbox. We're in negotiation with VEBA. I mean, if we put them on the call, we could have a three-way, but I guess we have a two-way first, and then let you know. What do you think?

That's fine. Okay. So we'll know by the end of the quarter, though? It's not going to take forever.

Hopefully not, no.

Yes. Okay, great. Thank you.

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, Sami. 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.

You enjoy the call.