Stellantis NV (STLA) 2015 Q4 法說會逐字稿

(Operator Instructions)

Good afternoon or good morning, ladies and gentlemen, and welcome to today's FCA 2015 full-year results conference call.

For your information, today's conference is being recorded.

At this time, I would like to turn the call over to Joe Veltri, Head of FCA Global Investor Relations.

Mr. Veltri, please go ahead, Sir.

Thank you, Rhonda, and good day, to everyone on today's call.

As we have previously noted, in addition to covering the Group's 2015 results, we will also present an update to our five-year business plan, which was originally presented in May 2014.

The presentation for both the earnings release and for the business plan have been posted to our Investor Relations website.

Today's call will be hosted by our group's Chief Executive Officer, Sergio Marchionne, and Richard Palmer, our Chief Financial Officer.

After presenting both the full-year results and the business plan update, they will be available to answer your questions.

Before we begin, let me remind you that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the Safe Harbor Statement included on page 2 of both presentations.

And as always, the call will be governed by this language.

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

Thank you, Joe.

I just want to make an opening remark before I pass it on to Richard, who, as usual, will be doing most of the heavy lifting during this call.

We have made a decision here to conform our guidance to what other industry participants have chosen as an appropriate set of parameters.

And I think contrary to what we've done in the past, where we have provided a phenomenal amount of granularity in the forecast, we have decided to limit ourselves to what we consider to be directional shift in the movements of the key metrics that govern this business.

And I think it's been done in order to provide a very simple set of reference points within which we can manage the business and they can act as a point of reference and measurement in terms of the achievements that we intend to deliver certainly within 2016 and ultimately at the completion of the 2018 plan.

So I apologize for not giving you all the gory details that go into the preparation of these forecasts, but I think it's better for all of us to stick to a set of simple parameters that will guide the business going forward.

On that note, we'll pass it on to Mr. Palmer, who is going to try and explain what I consider to be a phenomenal year for FCA.

Thanks.

Thank you and good morning, good afternoon, to everybody.

Before starting, I would like to remind you that the Group's results presented today include those of Ferrari.

Unless otherwise stated, this is to promote comparability with prior periods, the prior quarters of the year and our previously provided guidance.

Under IFRS, accounting standards for the 2015 financial statements, Ferrari will be accounted for as a discontinued operation for 2015 and for prior periods.

Clearly beginning from Q1 2016, FCA will no longer include Ferrari in its reported results.

Ferrari is planning to have announcement of its results on February 2 and we will comment on its results then.

So we won't be commenting on Ferrari performance during this call.

Looking at the Group results for 2015, we closed well in excess of guidance, worldwide shipments totaled 4.6 million units, with the Jeep brand continuing its strong performance posting an all-time record shipments number of 1.3 million units, up 21% year-over-year.

As a result, Group revenues were up to EUR113 billion, our adjusted EBIT was EUR5.3 billion with 4.7% margins, up from 3.9% last year, and with all segments profitable in Q4.

Adjusted EBIT margin in NAFTA was 6.4% for the full-year and reached 7.1% in Q4 in excess of our previously given guidance.

Adjusted net profit was just over EUR2 billion for the year.

In Q4, we recognized the one-off charge of EUR830 million due to the realignment of our US production portfolio, which we will discuss later in the NAFTA section.

After giving effect to the January 16, Ferrari spin-off, our net industrial debt stood at EUR5 billion and total available liquidity stood at EUR24.6 billion.

The key product launches for the year in 2015, included the commercialization of the Jeep Renegade on a global scale, the start of the local production of Jeep Cherokee in China, of the new Fiat Tipo sedan in EMEA and the new Fiat Toro mid-size pickup truck in Latin America.

In December, we prepaid the FCA US 2021 senior secured notes using cash on hand, and this is another important step towards our plan to remove the refinancing provisions around our debt in the first quarter of 2016.

Our guidance for the full-year 2016, is as follows; net revenue is greater than EUR110 billion, adjusted EBIT in excess of EUR5 billion, adjusted net profit in excess of EUR1.9 billion, and our net industrial debt will improve below the EUR5 billion level that it stands at today.

Moving on to slide 5, this shows the operating highlights for the year.

As I mentioned, Group shipments were in line with last year, with EMEA up 12% and NAFTA up 9%.

These increases offset declines in LATAM, APAC and Maserati.

Group net revenues were up 18% to EUR113 billion, up 6% at constant exchange, driven mainly by the growth in NAFTA and EMEA.

Our adjusted EBIT at EUR5.3 billion is 40% higher than 2014 and our margin was up 80 basis points to 4.7%.

The adjusted net profit number was just over EUR2 billion, up 91% from prior year.

Net industrial debt was reduced to EUR5 billion, post the Ferrari spin-off, from EUR7.7 billion at the end of last year, driven by the EUR1.5 billion from the separation of Ferrari, positive cash flows from operating activities and some favorable FX mainly due to the devaluation of the real.

Total available liquidity, as I said, was EUR24.6 billion, post the Ferrari spin-off, and included EUR2.5 billion of the syndicated RCF, which would increase to EUR5 billion of availability after removal of the refinancing provisions.

Turning to slide 6, you can see the year-over-year changes in adjusted EBIT for the various segments of the Group, of which I will provide details in their respective sections.

Adjusted EBIT increased by EUR1.5 billion in the year and was driven by strong improvements in NAFTA, EMEA, Ferrari and the components businesses, which more than offset the drop in other segments.

Moving to slide 7, we detailed the reduction in net industrial debt from the EUR7.7 billion at December 2014, to the EUR5 billion.

This reduction is comprised of positive cash flows from operating activities driven by improved EBITDA up to EUR10.7 billion and net of capital expenditures, which came in at EUR9.2 billion for the year.

There were positive translation impacts of about EUR0.7 billion and EUR1.5 billion impact of the IPO and spin-off of Ferrari.

We will now move to the performance by region, beginning with NAFTA on page 8. The industry in both the US and Canada remain strong in 2015, reaching record sales levels, while Group sales in NAFTA were up 7% year-over-year.

In the US, the Group sold 2.2 million vehicles, up 7%, with market share up 20 basis points to 12.6%.

The Jeep brand posted its best sales ever, up 25% from the prior year to 865,000 vehicles.

The Jeep Grand Cherokee had its strongest sales in the US since 2005, and all other Jeep models reported all-time record sales in the United States.

Ram sales were up 5% to 494,000 units in the US, making its best year since 2005, and the sixth consecutive year of sales growth for the brand.

The Chrysler brand was also up 5% for the year despite the slowdown at the end of the year for the changeover of the minivan.

Dodge brand was down 10% for the year due to the discontinuance of the Avenger model.

Our fleet mix was substantially in line with prior year at 22%.

US dealer inventory ended the year, 81 days of supply versus 76 at the end of September.

The increase is primarily driven by product changeovers.

In Canada, the Group was the market leader, reaching market share of 15.2% with record vehicle sales of 293,000 units.

The Jeep and Ram brands both posted record annual sales.

In Mexico, we had our best annual sales since 2013 with sales up 13% to 87,000 vehicles.

At the November Los Angeles Auto Show, we presented the all new Fiat Spider, which will support Fiat brand expansion in North America and the Jeep Wrangler Backcountry Special Edition.

Moving to slide 9, NAFTA shipments were up 9% year-over-year to 2.7 million vehicles, with growth in each market.

Net revenue increased to EUR70 billion due to higher shipments, positive net pricing and favorable FX translation.

Adjusted EBIT more than doubled versus 2014 to EUR4.5 billion.

Adjusted EBIT margin for the year was 6.4%, up 220 basis points year-over-year and 7.1% for Q4.

The strong improvement in adjusted EBIT was primarily driven by volume growth, mainly from the Jeep and Ram brands, led by the Jeep Renegade and Cherokee, also by positive net pricing, which more than offset the FX impact of the Canadian dollar and Mexican peso.

This was partially offset by higher industrial costs due to vehicle content enhancements, as well as warranty and recall costs, partially offset by purchasing efficiencies.

NAFTA 2015 adjusted EBIT excludes the charges previously mentioned regarding the realignment of the production capacity to better align with market demand.

And the EUR760 million charge recognized in Q3 related to the change in estimate of recall campaign costs.

Moving to slide 10, LATAM industry was down 21% versus 2014, driven by continued macroeconomic weakness with Brazil down 26%.

Sales for the Group were down 30%.

The decrease was larger than the industry decline, as pricing actions were taken to protect margins.

The Group remained the market leader in Brazil and increased its lead over its nearest competitor to 380 basis points.

However, market share in Brazil declined by 170 basis points to 19.5%, due to strong competition and pricing pressures.

FCA also maintained its leadership in the Brazil A/B segment, with a 22% share.

Fiat Strada and Fiorino confirmed their leadership with segment share of 54% and 70% respectively.

The all new Jeep Renegade continued its growth trend, reaching a 30% segment share in Brazil for the fourth quarter.

In Argentina, market share was 12%, 150 basis points down from 2014, mainly due to continued import restrictions.

Stock levels in the region were at 39 days of supply, in line with the end of September.

The Jeep Renegade was named Brazil's 2016 Car of the Year and in July, the Renegade earned the title of the Safest Brazilian-made Vehicle by Latin NCAP, achieving a five-star safety rating.

Moving to slide 11, shipments in LATAM were down 33%, with Brazil down 35% and Argentina down 18%.

As a result, net revenues were down 25%.

Adjusted EBIT was negative EUR87 million for the year compared to a positive EUR289 million for the prior year, mainly due to the lower volumes.

Positive pricing actions more than offset higher industrial costs related to import cost inflation and the startup costs of the Pernambuco plant, while SG&A increased to support the Jeep Renegade launch costs.

Adjusted EBIT margin was negative 1.4%.

Adjusted EBIT margin in the fourth quarter was positive.

2015 adjusted EBIT excludes charges of EUR219 million, basically both related to devaluations in Venezuela and Argentina.

Moving to APAC on slide 12, industry increased by 5% with growth in all major markets except Japan.

Group sales declined 16% due to the contraction in demand for imported vehicles in China, as competition from local producers continued to intensify, as well as the interruption of supply due to the Tianjin port explosion in August.

Sales in Australia declined 21%, with demand impacted by price increases made to offset the weakness of the Australian dollar.

Jeep continues to represent more than half of the Group sales in the region.

Inventories at the end of December were down to 84,000 units from 99,000 units at the end of Q3.

In November, full production of the Jeep Cherokee began at our joint venture plant in Changsha.

Turning to slide 13, shipments in APAC were down 32%, resulting in a 22% decrease in revenues, mainly due to strong competition from local producers and the Tianjin port issue.

Adjusted EBIT for the year was EUR52 million, driven by the lower volumes, negative net pricing due to higher incentives in China and unfavorable FX impacts, partially offset by reduced SG&A.

Adjusted EBIT margin for the year was 1.1%.

2015 adjusted EBIT excludes charges of EUR200 million, primarily related to the Tianjin port explosion.

For the EMEA region, slide 14, the passenger car industry for EU28 plus EFTA was up 9% to 14 million vehicles with growth in all major markets.

Group sales rose 11% to 988,000 units, with sales in the EU up 14%.

The Jeep brand set an all-time record in Europe with 118,000 units sold, up 56% year-over-year.

Group share was up 30 basis points in the EU, driven by growth in Italy, France and Spain, with Germany and UK flat.

In Europe, Fiat continues its market leadership in mini car and small MPV segments with combined share of 27.7% in the year.

The new Fiat 500X achieved leadership in its segment in Italy with market share at 18.1%.

Inventories at December end were 62 days of supply versus 64 at the end of September.

In Q4, Fiat launched the new Tipo compact sedan in Turkey and Italy.

The Tipo will be available in the rest of Europe from first quarter 2016.

Light commercial vehicle industry in Europe was up 11% to 1.9 million vehicles, driven by continued growth in all major markets.

Fiat professional sales were up in line with the market at 11% with a share of 11.3% and Ducato confirmed its segment leadership with 13% growth.

Looking at EMEA's financial performance on slide 15, shipments were up 12% to 1.1 million units, with passenger cars and LCV shipments up 12% and 10% respectively.

Adjusted EBIT improved by EUR254 million to EUR213 million for the year, driven by higher volumes and mix, positive pricing actions in non-EU markets and some FX in the UK.

Industrial costs were impacted by stronger US dollar for imported vehicles, partially offset by cost efficiencies.

SG&A increase was due to the commercial launches of the 500X and the Renegade.

Turning to slide 16 on Maserati, shipments were down 11% at 32.5 thousand units with China down 28% and North America down 14%.

Net revenues are down 13% to EUR2.4 billion, primarily due to decreased Quattroporte volumes resulting from weaker segment demand in the US and China.

Adjusted EBITDA decreased EUR105 million due to the lower volumes and unfavorable mix.

Adjusted EBIT margin was 4.4% for the year.

Moving to slide 17 on the components businesses, Magneti Marelli had a good year with net revenues up 12% to EUR7.3 billion.

Adjusted EBIT was up 40% to EUR321 million, driven by higher volumes and cost containment actions.

Adjusted EBIT margin improved to 4.4% versus 3.5% in the prior year and reached 5.7% in the fourth quarter.

Comali also had a solid year with net revenues up 26% to EUR2 billion and adjusted EBIT increased 20% from 2014, to EUR72 million.

Teksid net revenues were down slightly to EUR631 million.

Adjusted EBIT was EUR2 million for the year compared to a EUR4 million loss in 2014.

Slide 18 provides an update on some key events as part of the spin-off of Ferrari.

Ferrari common shares also began trading in Milan on January 4. The all-new Chrysler Pacifica was revealed at the North American International Auto Show in January.

It is based on all new platform with class-leading powertrains and later in the year, it will be available as the industry's first hybrid minivan with an expected rating of 80 miles per gallon.

The all-new Fiat 124 Spider will make its European debut at the upcoming Geneva Motor Show and it will be available in dealerships from Q2 in Europe.

We now move to slide 19 to review our expectations for full-year 2016 market demand by region.

For NAFTA, we expect the industry to be flat to slightly higher between 21 million and 21.5 million units.

The LATAM industry is uncertain and we expect it to be flat to down again this year, between 3.6 million to 4.1 million units reflecting the continuation of the challenging trading conditions in Brazil.

In APAC, the passenger car industry for key markets where FCA operates is projected up slightly to approximately 29 million units.

For the EU, the industry is expected to be slightly up between 16.1 million to 16.6 million units.

Finally, turning to Page 20, the Group indicates the following full-year 2016 guidance.

Net revenues, as I said before, EUR110 billion or higher, adjusted EBIT in excess of EUR5 billion, adjusted net profit above EUR1.9 billion, and improvement in net debt below EUR5 billion.

This guidance is based on expected continued improvement in NAFTA and EMEA margins, with LATAM and APAC seeing improved results in the second half as a result of local production of new Jeep products and Maserati also improving in the second half following the launch of the new Levante.

CapEx is expected to be in line with 2015 between EUR8.5 billion and EUR9 billion.

Thank you, and with that, we will proceed with the presentation of the update to our business plan.

Thank you, Rich.

I'm going to start, I'm going to give you the brief introduction to the plan.

We want to start with the slide number 3, which includes the quotation of a statement that was published by Mark Twain a number of years ago.

This was introduced in the pitch in the last couple of days.

And it follows the announcement that was made by Max Warburton that he will be leaving this industry after 16 years, after spending 16 years trying to understand the car business.

And in connection with his departure, he has issued the longest Dear John letter I've ever seen in my life, 422 pages, where he has called for the demise of this industry and a very negative view on the sector going forward.

Apart from the fact that Max has probably outlived most automotive CEOs in this business, I think he is the longest serving non-CEO/CEO that I've ever seen in the sector.

I think over the last few years, we have had heated exchanges and diametrically opposed views about how this business will evolve.

I think it's been done -- it's been done well.

I think we are going to miss Max.

Certainly, out of FCA, he has provided a good sparring partner for the development of our strategy.

We do wish him the best.

But just as a general remark about the type of literature that is now coming out, not only from analysts but also in the press, about the negative side of this industry, we are not inside FCA of the view that this industry is facing an impending demise.

And I think that part of this presentation today is designed to provide you with some comfort that we have appropriate or adequate controls over the strategic development of this business that we do feel that we will be able to navigate through these rough waters and that we will come out of this process as better organizations.

And I make the comment, not just on behalf of FCA, but I think on behalf of the industry, which I think has unfortunately been the subject of some severe criticisms, in some cases justified.

But I think that ultimately trying to move the discussion away from the concept of auto making, trying to repitch our future as being involved in the transportation business in the broadest sense of the term, really doesn't do much service to the needs and objectives of the sector that it faces today.

I think even if I were to assume for a moment that this new world that we're describing, which is a much wider, much more encompassing world of transportation, were to effectively to materialize, we need to be able to cross the desert.

We need to get it to the other side.

I think the purpose of our presentation here is to give you the comfort that you need in understanding how FCA intends to travel through that desert and the fact that at the end of that process, we will be in a much better position than we're in today.

I think the last less than two years since we pitched the plan, and if I can just move for a second to slide number 4, and then I'll give it back to Richard for comments, but we have been able to accomplish a lot in less than two years.

We talked to you again on the plan back in May of 2014.

We took you through a one-day marathon of the development of the brands and the development of our businesses across the four regions.

But in the interim, we have been able to accomplish a lot.

We've unlocked, finally we've unlocked the value of Ferrari out of FCA.

We've been able to move margins in NAFTA to levels that we had effectively pitched for 2018.

We were able to move EMEA to profitability the last quarter of EMEA, which made over EUR100 million as an indication of the intensity with which that organization has reacted to the challenge.

Jeep has had a phenomenal year.

We're well in excess of 1.2 million cars, more than 200,000 more than we sold last year.

As we deploy the architectures globally, we will see this number increase and Richard will explain to you that we've targeted now a number in excess of two million.

The mandatory convertible went a long way in terms of providing comfort on the capital side.

We were able to lock in about EUR3 billion worth of capital as a result of the issuance back in 2014.

And I think the thing that people keep on ignoring is the fact that as of today, we started 2016 with a EUR5 billion number, which is significantly ahead of any internal expectations that we had for where we would be at the end of 2015.

On the negative side, obviously Brazil has come out of left field and left most of us staring at a set of very uncertain market conditions.

Notwithstanding that, we continue to be profitable in the region.

I think we're hitting now levels, and it's very difficult to call the bottom of this market, but I think 2016 will tell a lot about the speed of recovery of that market.

China again has also come out of left field for a variety of reasons, not only the fire in Tianjin, but the significant shift in market conditions as it impacts premium and luxury goods has slowed down by necessity our development of both the Maserati and the Alfa Romeo brand.

And on the Alfa Romeo side, it's required a slowdown of the rollout of the development plans for Alfa and Richard will take you through that.

Fundamentally, we confirmed the direction, we confirmed the development of the architectures of the models that we in the original plan.

It's going to take us longer to get there because our primary area of focus for the development of Alfa is not going to be NAFTA and EMEA.

And I think China will play more of a secondary role in the development of that brand.

The other thing that's obviously happened and was absolutely unforeseen was the development of a much greater degree of consciousness when it comes to emissions and the regulatory environment.

Some of them which were caused by the industry, some of which I think are a result of something which has been brewing within the system, especially in the EMEA side now for a number of years.

With all these things, will require resolution over the next three or four years and they will have costs, which we have incorporated in our plan.

But when I look back at the last two years, I feel comfortable that we have been able to create an organization that has got a much more, much more defensible, much more durable capital structure.

And as you will see when we go through the proposed realignment of our manufacturing footprint in the US, that we've taken some relatively decisive steps in ensuring that we have the right manufacturing framework to deal with, expected permanent changes in demand, which we have now seen developed over the last two years.

So on that note, I'll pass it on to Richard.

Richard will take you through the next set of slides.

Slide number 5, and I'll make one brief comment about the achievement of the 2014 and 2015 plan.

Those things are not inconsequential.

Our travel to 2018 was a relatively well articulated five-year program that had milestones, tangible milestones of achievement of financial results.

Those continue to be the key drivers of this plan and the reformulation of the tide that's going forward.

We've upgraded guidance on all the key metrics.

I know that sooner or later, somewhere on this phone call there's going to be somebody who is going to ask me the question about where is the seven million car number that has been -- that was presented back in 2014.

And the answer is that fundamentally it doesn't matter.

It doesn't matter because the seven million number was a number that was substantiating or supporting a view of markets as we saw them back in May 2014.

We have readjusted all of our plans to reflect current market conditions.

We have seen the Brazilian market, which was expected to perform much, much better, lose over one million cars in less than 18 months to 24 months, which has had pretty significant impacts on our volume ambition.

We have recast all of those.

We're going to stay away going forward from enunciating goals that relate to volumes because the real key issue for us is the achievement of the financial metrics that you see on page 5.

On that note, I'll pass it to Richard.

Thank you.

On the forward-looking part of page 5, we have basically given you a look in the column which says 2018, May 2014 plan ex Ferrari what we look like in terms of our original plan objectives for 2018 excluding Ferrari and the impacts of the capital markets transactions at the end of 2014.

So you can see that compared to that comparable metric restated now for 2018, we are looking at revenues being up at EUR136 billion for the 2018 period.

Adjusted EBIT in a range between EUR8.7 billion to EUR9.8 billion, with margins at the same level as those with the plan ex Ferrari.

Adjusted net profit of EUR4.7 billion to EUR5.5 billion up from the restated number, and a net cash number by the end of the plan period at between EUR4 billion and EUR5 billion.

Clearly, we are ahead of our original plan at the end of 2015.

Our original plan, as you will remember, said that we would be at around EUR9.8 billion to EUR10.3 billion of net industrial debt in the period through 2016.

So we are about EUR5 billion better.

And so that is reflected going forward.

EUR1 billion of that is performance and we are looking at the end of the plan of bringing in another EUR1.5 billion, EUR1 billion to EUR1.5 billion of better performance that to bring us up to a EUR4 billion to EUR5 billion cash number by the end of the plan period.

We'll talk a little bit about that in the next few pages.

Page 6 basically talks about how we have clearly been focused on the deleveraging of our balance sheet.

We have undertaken a series of transactions since May 2014, the impact of which have been just under EUR4 billion on our net industrial debt number.

In addition, this has also allowed us to act quickly regarding the repayment of the FCA US senior secured notes in April and December of last year.

And so, clearly, we are moving forward with speed to remove the ring-fencing provisions in our current debt agreements in the FCA US area so that we can move towards a unified financing platform from the second half of 2016.

Moving on to slide 7, and this following slide we're going to talk a little bit about the status of each region and our margin, our market and margin expectations.

Sales have been stronger in NAFTA than our original plan and we are forecasting industry volume levels in 2015 and 2016 to remain at what we consider a peak level.

But we do see the industry remaining strong throughout the plan period for NAFTA at around 20 million units, with US market sales remaining above 16 million through 2018.

We've seen a trend of low fuel prices that we expect to continue and this is part of the reason that we are seeing also a shift in market demand away from passenger cars towards trucks and UVs.

This has obviously been a part of our ability to achieve margin expansion faster than we had envisioned our original plan.

And so in order to continue to capitalize on this market shift, we have made some plans to shift some of our production capacity to be able to address more fully the demand of truck and the UV going forward.

So in terms of that, our impact, that impacting our margins, our original plan had adjusted EBIT margin range of 6% to 7% by 2018.

We've already hit 6.4% in 2015 and we are increasing our margin expectations for the NAFTA region to be around 9% by 2018.

If we move to slide 8 on LATAM, we expect the market uncertainties to continue in Brazil and the industry in the region to reach around 4.5 million units in 2018 with Brazil recovering, but not to the levels we had expected in our original plan, to around three million units.

Despite the challenges in the market, we have been profitable in last two quarters of 2015, and have been taking pricing actions to offset inflation.

Going forward, the key to our strategy remains the Pernambuco plant and our ability to capitalize on the Jeep brand introduction into Latin America.

By the end of this year, we will introduce the third vehicle into Pernambuco to add to the very successful launch of the Jeep Renegade and the current launch of the Fiat Toro pickup from that production plant.

We have decided to moderate our margin expectations given the market performance in LATAM.

Instead of more than a 10% target, we're looking at margins greater than 7% by the end of the planned period, very much sustained by the Pernambuco products and the shift in mix and profitability that the new products from that plant provides.

Moving to slide 9, Asia-Pacific, we have clearly been impacted significantly given our import structure at present by the contraction in the import segments in the Chinese market.

This has significantly slowed down our volumes and we've also been hit by competitive pressures, obviously, from local Chinese brands.

Outside of China, also Australia has been impacted by a much weaker Aussie dollar for which we have priced, but has also impacted negatively our volumes.

So obviously, the key for us in Asia-Pacific is to quickly localize the Jeep brand, which we have been working on.

We have started production of the Jeep Cherokee and we are working towards two more Jeeps during 2016.

And ultimately, we will also be launching the Alfa Romeo brand, but we look to recadence that launch based on the pressures in the premium segment and the import segment of the Chinese market to refocus it principally on EMEA and North America in the short-term.

But given all of that, localization is the key to Asia-Pacific and Jeep is the focus.

We expect to become a 500,000 unit brand by 2018 from our local production sites and we consider a 10% plus margin target is still a reasonable target to set for the Jeep brand and to localized footprint.

Moving to slide 10, EMEA, the recovery in the region that we have been seeing slowly but surely, we forecast to continue through 2018, with a market in the EU to reach around 17 million units by the end of the plan period.

From a performance standpoint, our margin improvement is ahead of schedule thanks to the strong performance of new products like the Jeep Renegade, the Fiat 500X.

And so our guidance for EMEA in terms of margins has been revised upwards from a 2% to 3% in our original plan to in excess of 4% by 2018.

And obviously, we are very focused in on the continuing to increase the volume of Jeep brand and also to maintain the very tight control on the cost profile of the EMEA business.

Moving to slide 11, Maserati, the key really for the next, the short-term on Maserati is the launch of the new crossover, the Levante.

So that is coming in the second quarter of this year.

That vehicle will allow us to address the largest luxury segment worldwide, an important segment in China and in the US.

We have the opportunity as we work towards also the Alfa brand launches to strengthen our network presence in these key markets.

And so we expect to bring Maserati to 15% margins by the end of the plan as was our original target in May 2014.

As regards the components businesses, I think driven primarily by the improvement we're seeing in Marelli margins, we've revised our expectations from a 4% to 5% margin, to in excess of 6%, driven by continued success of some of the more profitable businesses within Marelli.

Moving to slide 12, we talked a lot about Jeep, and clearly Jeep is the bedrock of this business plan.

We originally had a target to produce and sell more than 1.9 million units in the May 2014 plan.

We are revising that upwards to be in excess of two million by 2018.

This is on the back of a strong performance since 2009 across all the products we've launched under the Jeep brand and in all regions.

Brand sales have grown over 250% to 1.2 million units, significantly outpacing the global UV industry, which grew by over 150%, but obviously is a growth segment.

So this is a very important focus for us.

Sales in Jeep's main NAFTA market group grew by nearly 250% between 2009 and 2015, and sales in EMEA and APAC both reached over 100,000 units in 2015.

On a product line basis, each model from Wrangler to Compass has more than doubled volume since 2009, and global Cherokee sales reached 233,000 units in 2015.

So I'll move on to page 13, Alfa Romeo.

The commitment to the overall brand remains in place, as does the product strategy.

We're looking at, as I mentioned before, a different cadence to our launches given the tough situation of the Chinese premium and import market and also because of some of the restrictions around imports.

We are shifting our focus initially to be primarily on EMEA and NAFTA and retiming some of the product introductions, which will also allow us to reduce the CapEx outlay through 2018.

And obviously, the first launch of this brand is coming shortly with the Giulia.

I'll hand it over back over to Mr. Marchionne.

Thank you.

I'll maybe try and deal with the next couple of slides.

The first one, which deals with the assembly plant loading from NAFTA, this is very much a US-centric view.

We've seen a significant shift in the product mix of cars being sold in the United States.

Part of this has been driven, as Richard has said, by continuing low prices, which certainly in terms of our forecast period, we do not expect to see fundamentally change directionally.

I said this before and I continue to repeat it here, that I have always viewed the development of our portfolio in the United States as being really driven by the regulatory environment and by this -- by the need for all of us in the market to achieve the 2025 standards to achieve the greenhouse gas emission targets that we've all signed up to.

And so one of the things that we've seen, although the actual absolute numbers, obviously from 2009 and 2015 have gone up.

There has been, in our view, a permanent shift towards UVs and pickup trucks.

And we've seen certainly in terms of our ability to meet market demand, some severe restriction in terms of the dexterity of our manufacturing system to accomplish that end.

And so one of the things that we've decided to do is to effectively defocus from a manufacturing standpoint in the US to defocus the passenger car market.

There are two cars in particular, the Dodge Dart and the Chrysler 200, which will run their course.

But without creating additional capacity in the United States, we need to reutilize those plant infrastructures to try and deal with the development of both Jeep and the Ram brand.

So there will be a number of things that will be put in place in the next 18 months, things that have been agreed and detailed that will effectively withdraw the current Chrysler 200 and the Dodge Dart from the marketplace over a prolonged period of time, during which we will be continuing discussions with potential partners that will be able to allow us to access that architecture and effectively provide us the product from their facilities that will allow us to continue to cover the market.

The important thing is that as we transition to these new vehicles, the new Wrangler that's coming out in 2017, the continuation of the Cherokee, which as you well know is essential to development of the brand, especially in NAFTA, that these things happen with us, without us losing any volume in the Jeep or the Ram brand.

These are things which are fundamental and I think they have obviously had some costs in terms of the achievement of the objective, but it is a cost that is managed and certainly justified in terms of the margin generation associated with the shifts.

So we continue to work with our partners.

Hopefully, in the relatively short period of time we'll be able to detail the cooperation plan going forward.

I think the important thing for us to reinforce is the fact that the Wrangler in its new home in Toledo, will have additional production capacity available to try and meet demand on a global scale.

And I think it's important for us to have found a home for the Grand Wagoneer family, both the Grand Wagoneer and the Wagoneer in whatever shape they come, and that we find that space without creating additional production capacity.

I think we've been able to accomplish that as a result of the realignment decisions that we've made.

I think we have taken a one-off charge in 2015 to account for some of the costs associated with that realignment.

We think that the costs are well justified in view of the significant expansion of margins that we'll be able to obtain from the US.

Now, I'm not going to spend a lot of time on page 15, which deals with the regulatory compliance plan in terms of greenhouse gas on a global scale.

I think we all know that there is directionally a desire to bring down CO2 emissions.

I think as I read some of the reports that have been issued in connection with FCA, there appears to be some concern that we do not have adequate technologies to try and deal with this.

So, I'm going to spend a couple of slides trying to reassure you that all the things that are required to try and make the numbers are in fact in place and available.

I won't take you through all these items that are listed on slide 15, but the introduction of electrification in our world is not avoidable.

I think we are going to be seeing applications in a mild hybrid for the first time in 2018 with the introduction of the Ram pickup truck.

You will see in addition to hybrid vehicles, which were already launched by Chrysler back in 2008 prior to the bankruptcy, a continuation of the development of both hybrid and plug-in hybrids throughout the plant.

I think the objective obviously, is to optimize and leverage the know-how of the group across its regions to ensure that we achieve the least costly compliance scheme that we can.

If you look at page 16, there was unfortunately a rather misinformed article that came out a few days ago that dealt with our greenhouse gas compliance.

I think one of the things you can see from the chart is that as a result of a combination of what I consider to be economically sound acquisitions or credits and the rollout of technologies, that we're well ahead of the curve in terms of achieving the targets that we have throughout the plan.

And I'll make the point here, there appears to be a negative view that we have accessed purchase credits as a means of making the targets.

The reality is that we always run numbers internally about the possibility of avoiding the rollout of technology if we can purchase the credits at a more reasonable price.

And I think that analysis will continue going forward.

I think it's essential the economically based decisions I made in terms of the rollout of technology in the marketplace, especially when margins are being threatened.

If you look at page 17, this is only designed to give you an idea of how at least three of the significant vehicles that we have in our plan will make the numbers.

And you can see this from the chart that these vehicles really have to make certain targets based on the footprint of the vehicle.

And therefore, the larger the vehicle, which is one of the reasons why people keep on favoring these in terms of development is because there's more latitude involved in terms of achieving the target.

But as you can see, both the current Ram 1500, which today is compliant with 2015 standards, will in its next incarnation, when the truck gets launched in 2018, meet both the 2018 and the 2022 targets.

That same is true of the Wrangler, it's true of the Town & Country.

I think it's important to keep this in mind.

The house has been busy and continues to be busy on optimized methods to achieve the targets.

It will continue to do so and it will do this in the most cost effective way.

One word on the European side.

I think that after the event of diesel gate, for a lack of a better term, FCA has undertaken a pretty thorough review and a thorough audit of its compliance schemes.

I think we feel comfortable in making the statement that there are no defeat mechanisms or devices present in our vehicles.

I think the car has performed in the same way on the road as they do in the lab under the same operating conditions.

This is an area of heightened concern.

We have put in -- we have established now as part of our compliance mechanism, training for all emission calibration engineers.

We do have a best practice program to ensure that we calibrate and certify properly.

And I think that we will -- just to make sure that the system is not going off the reservation, we will carry out random checks of our fleet and ensure that we achieve compliance.

And on that note, I'll give it to Richard, who is still punching away numbers to try to reconcile his targets for page 19.

Go ahead, Richard.

Thanks for the transparency.

So the key takeaways on page 19, we have basically confirmed that our key initiatives, as per our plan, remain intact.

There are no significant changes in the strategy.

I think we've made some important progress towards deleveraging and strengthening our balance sheet, both through operating performance and through the transactions we have completed regarding the AMG Convertible and Ferrari.

As a result, I think we feel that our plan is somewhat derisked in that regard.

The targets, despite the exit of Ferrari, have been revised upwards.

And in particular, I think we feel confident that going forward, we can generate positive cash flow in each of the remaining three years of the plan to get us to the EUR4 billion to EUR5 billion net cash target that is obviously front and center for us by the end of 2018.

Thanks, Richard.

Before we turn it over to the question and answer, I just want to point out that as Ferrari is now a publicly traded company, as Richard mentioned before, they are going to publish and release their results here around February 2. And therefore, we would appreciate if you would hold any questions you have on Ferrari on this call in order to allow them to publish their results.

With that, I want to turn it back to Rhonda and we will begin the Q&A session.

(Operator Instructions)

And we'll take the first question from Rod Lache of Deutsche Bank.

Please go ahead.

Hello, everybody.

Thanks for taking my question.

I had a couple of things I wanted to ask.

One is just at a very high level, there's a lot of discussion in the industry about spending and preparation for new mobility paradigms and it's expected by a lot of people to require autonomous driving and investments in transportation platforms.

And I think you alluded to some of these comments in your prepared remarks.

Ford actually mentioned that their investments are one of the reasons why their North American margins will be down in 2016.

So if you can just maybe give us your sense of what the house view is on mobility, how that's going to change, whether you need to invest in it, and whether that's contemplated in this plan?

Well, the answer is that it is contemplated in this plan.

And I think that -- I think we need to be very, very careful about describing mobility paradigms that have an unclear economic context and an unclear economic outcome.

I am absolutely convinced that all the things that have been talked about by other industry participants will effectively materialize over a period of time.

And I'm absolutely convinced that the relevance of the automaker in that process is not going to be as key as it has been historically in terms of our development of the automotive sector.

We're going to have to rely by necessity an efficient supplier base, and there is one, which continues to break barriers and continues to provide solutions which are going to be available to us and to others.

One of things and I raise this issue just -- and I'm not sure that it can be debated.

One of the questions that we all have to ask ourselves is what is the value of a brand in the presence of autonomous driving if effectively at the end of the day it is not the driver that effectively exercises control?

And the way in which that reflects itself in margins and positioning and the relevance of the brand in the marketplace, is an unknown issue.

So we need to be very, very careful that we don't start spending.

By the way, this industry has done a tremendous amount -- if you look at even its recent past, it has always looked for ways to defocus its primary function of making cars and making them relevant in the marketplace by looking for ancillary side solutions that somehow will change the paradigm.

We've done this with rental cars.

We have all owned rental car companies.

We've all owned finance companies.

We've all owned a variety of things historically that have tended to defocus the actual objective of making a car and making it relevant in the marketplace.

So I accept the challenge.

I think we're on the page and I think the capital program that Richard talked about, encompasses an adequate amount of spending to explore and make that technology available and relevant in the cars that we sell.

I do not think that between now and 2018, that technology is going to fundamentally change the paradigm.

I do think that the capital that's required to make us relevant post-2018 is in the plan and I think it will defend the business going forward.

Okay.

Thank you.

And just in terms of the now through 2018 plan, could you give us a little bit more insight into the magnitude of this capacity change?

How much additional capacity do you think you can come up with for Jeep and pickups -- you're still selling 22% of your business in cars.

Does that get diminished significantly?

And do you subscribe to the view that just generally, margins are going to come under increased pressure within NAFTA?

Because it sounds like you do subscribe to the view that volumes are peaking.

No, I do subscribe to the notion that we are looking at toppish volumes today.

The rate of adjustment is unknown.

I also know that there's a phenomenal amount of allowed amplitude in the oscillation of volumes.

If we went down to 16 million, it's not going to be the end of the world in terms of size.

I think that we will all adjust to reflect those market conditions.

It has been my experience, at least in the last six years, that in the majority of cases, there is adequate price discipline in the marketplace and then nobody has done anything which I consider to be irrational and out of bounds in terms of managing their pricing expectations.

But to answer your question, Rod, I think it would be improper for us to try and talk about how much more volume we will get out of Ram and how much more we will get out of Jeep as a result of the realignment.

Because we have -- we are structurally constrained in both pickup trucks and Wranglers and those are the single largest drivers of the shift in the manufacturing footprint in the US.

For purposes of this analysis, the partnered vehicles that we'll replace over time, that will replace the passenger cars that are currently in production in the US, we have assumed to have negligible margin contribution to the overall plan.

So even in the absence of those vehicles, we're not going to drastically change our forecast.

And I think we can contain any adjustment associated with that within the numbers that we've published.

So I don't -- I wouldn't -- I would defocus, if I can make a suggestion, I would defocus everybody from focusing on absolute numbers of cars being sold.

I'm not trying to -- I'm not trying to set up a system to acquire an abnormal amount of share.

I just think we need to be physically present and active with proper supply in the key segments that are relevant to FCA, which is our pickup trucks and UVs through Jeep.

Great, thank you.

Thank you.

We will take the next question from John Murphy of Bank of America.

Please go ahead.

Good morning.

Can you hear me?

Yes.

If I could follow up first on Rod's question, because this mix shift in North America seems like it's such a critical swing factor in your plans going forward.

If you could tell us what your current capacity utilization is on pickups, Wranglers and Utes in North America?

And also, I know you're not going to give an exact number on what percent of your total mix will be trucks and Utes going forward, but is there any sort of asymptotic limit or is this the kind of thing that could potentially even just go to 100%?

Well, the answer -- nothing could ever go to 100%.

I understand the suggestion.

Let me, let me -- in terms of capacity utilization, we have debottlenecked our pickup truck plants to the extent that we can.

And one of the unfortunate consequences of the prior -- of prior management arrangements is that unfortunately, our Warren truck plant, who had not been kept up to the relevant manufacturing standard.

And I think it requires as a result of its current state, would require a substantial amount of investment.

I'll give you a couple of data points which I think make our life somewhat uncomfortable.

We're running flat out today out of Toledo.

We're running effectively nearly seven days a week with almost no shutdown of the Wrangler plant to try and satisfy demand.

And we got nearly a similar arrangement in our Warren truck plant.

So that is unsustainable.

Even if I use a harbor definition, we've blown through the 100% mark consistently now for probably the last five or six years.

And I think that needs to be adjusted.

So the capacity that's coming on stream to deal with the new Wrangler and with the new pickup truck will avoid the excessive utilization of that capacity.

It's unhealthy.

And I think it's causing some substantial manufacturing inefficiency because of the speed at which we're driving that bus.

Without giving you numbers, I think that whatever we put in place will deal with demand and unmet demand as we see it today.

Okay.

And then just as a follow-up, as we think about the midterm review on CAFE and emissions standards in the US in 2017, are you expecting any changes there?

When those were initially put in place, gas was around $4.

We're now sub-$2.

Seems like there's a lot of discussion around potentially easing those standards.

Could you get a lot of help from that?

And also, as you think about that and implementing hybridization, whether it be regular hybrid or plug-in in your fleet going forward, what percentage of your fleet do you think it ultimately be hybridized or electrified?

Well, look.

In the medium-term, I'll tell you more than half of our fleet in the United States is going to be in some form of hybrid.

Calling the right time for the conversion is difficult to tell.

If you include 48-volt systems belt start generators as a solution, that's going to occupy the majority of the pickup production in the United States anyway.

So we're going to be marrying our hybridization as a way of life relatively quickly.

In terms of the midterm review of the standards, I think it will be improper for me to express our views on this call.

There is not a single doubt that a relaxation of the standards would be helpful.

But I think that we're talking about a relaxation of the standards only in terms of timing and not necessarily of directional quantum.

So if it does come, I think it will alleviate some of the concerns that we have in terms of capital, but it will not make the issue go away.

I think those fixes are structural and they are needed over time.

Interventions in terms of time are more than welcome, but I don't think we can change the direction.

Okay.

And then just lastly, as we look at the plan out for 2018 or maybe even beyond, would you contemplate any other asset sales, or are there any other actions of parts of the business that you think you could monetize going forward?

Well, the answer is, yes.

There are things that I can think that I can monetize, including my office chair.

The question is do I need to do that?

The plan is calling for a EUR5 billion cash holding by the end of 2018.

I think you guys should be asking for distributions at that point in time as opposed to worrying about monetizing assets.

Okay.

We hope you at least hold on to your seat.

Thank you very much.

Thank you.

We'll move to the next question from Charles Winston of Redburn Partners.

Please go ahead.

Hi.

Good afternoon.

Charles from Redburn.

A couple of quick questions if you don't mind?

Firstly, I guess in terms of the revision to the 2018 targets, would you have made the revisions were you reporting in dollars?

In other words, when you set the targets in 2014, I think the dollar was about $1.36 to the euro.

It's now about $1.09.

You've seen about EUR718 million or roughly EUR700 million of FX gain on translation in 2015, which is actually bigger than the upgrade you've made in your EBIT.

In other words, is this basically an FX move, or is there something more fundamental than that?

And I guess second question is --

God, you're devious.

The second question is just in terms of the CO2 strategy.

Purchasing credits is surely a risky strategy, because as others potentially need to start buying credits as well, GM springs to mind, particularly when the flex fuel credit system disappears, the danger is the price of credits goes up.

So, you are going to have to comply in some shape or form.

Just sort of thinking about the business risk here.

Could you comment on that at all?

And in particular, for instance in model year 2014, your tailpipe emissions actually went up slightly from 344 gram to 346 gram miles.

Just really think about the business risk here in terms of that strategy.

Thank you.

Yes.

By the way, I read the same article you read on the tailpipe emissions.

And I agree with the numbers as reported.

What it doesn't do is it doesn't tell you the percentage by which the numbers have been coming down over the last three or four years and our starting point.

But just as a general remark about your fear about the pricing of credits and the fact that we -- it may become prohibitive in terms -- to acquire them in terms of compliance.

I made the comment in my remarks that as long as we find an economically justifiable model that justifies the price that we pay, we will take it over the rollout of technology in the vehicles.

But it's subject to an economic model supporting the acquisition.

And we have walked away from, at least in the past, not recently, but we walked away from potential offers where we thought that a request was outside of the boundaries of our economic model.

So that's not the issue.

But -- and so we won't buy them, which means we just roll out technology instead and that's life.

And I think it will impact all of us across the whole industry as the pricing equation adjusts on credits.

That's the first issue.

The second one, which I think it is a devious question.

I think that we would still be revising -- we would have still been revising our targets going forward, regardless of what our reporting currency was.

Okay.

Even, forgive me, even though you've got about EUR700 million of gains so far just looking at the translation effect in 2015?

Even, even with those in.

Okay.

Thank you.

We'll take the next question from Massimo Vecchio of Mediobanca.

Please go ahead.

Yes, good afternoon.

Couple of questions from my side.

I'm trying to understand what your 2016 EBIT margin could be in NAFTA.

Now, a number of differences with 2015, a new label contract and recall provisions on the negative side.

Meanwhile, retooling in dealer discount on the positive side.

All of those factors were already in play in Q4 2015, and you had a 7.1% margin.

So is the 7.1% a good indication of what could happen in NAFTA in 2016, or are there any other forces?

The number is greater than it was for 2015.

Okay.

But still below the 8%, 9% target for 2017 -- sorry, for 2018?

So this should be a kind of progression going there?

It's a transition year to our 2018 target, yes.

Okay.

Second question, if I may, what is your capacity utilization in Italy or in Europe right now?

I'm going off the top of my head, but on our basis, it's about 72%, 73% on a combined basis across all plants.

Okay.

Last question, there were unions in Italy saying that the Giulia production could start in March.

Can you give some indication on when we could expect this car to hit the road?

Q1.

It will be starting to get produced in Q1.

Okay.

All right.

Thank you very much.

Thank you.

We'll take the next question from George Galliers of Evercore.

Please go ahead.

Thank you for taking my questions.

First one, you make great strides on net debt and for 2015 you came in significantly ahead of guidance.

You now forecast net debt less than EUR5 billion this year, improving to net cash of EUR5 billion in 2018.

Can you give some indication on the cadence of the improvement in net debt and how much improvement we will see in 2016 versus 2017 and 2018?

Yes, George.

Well, basically as we've guided, we're going to generate cash in 2016.

I think it's a bit early to give you any more precision than that, given obviously there are some uncertainty about our Latin America position in particular.

But I think we're confident there's going to be a positive number.

The cadence of cash is biased toward 2017 and 2018, though, because especially as we go through this realignment of the production capacity in NAFTA.

That is going to help us obviously to get a further increase in our NAFTA margins and improve cash flow as a subsequent to that.

So I don't want to get into giving you into overly precise numbers that would be falsely precise, but I think most important, is that we'll be cash positive each year.

This year, we're going to be cash positive, which is a continuation of a very positive performance also in 2015.

And this is reducing the level of risk that we had in our original plan, where obviously a lot more of our cash flow was bunched into 2018.

Thank you.

And then secondly, just on NAFTA, where you've made similarly big progress on the NAFTA margin, the plan in place a further 2.6% margin expansion.

Given the comment that 2015, 2016, are seen as industry peak years, could you maybe shed some light on what you assume for pricing at a market level and also for FCA in NAFTA between today and 2018?

Well, I think the key for us is we are not depending -- our results don't depend on price increases across the market.

We expect the pricing to remain relatively benign and disciplined as it has been.

And we think that the SAR is going to be strong.

We've been prudent about our expectations around 2018, I think to be as realistic as possible in terms of SAR.

We don't expect any significant degradation in pricing.

I think our pricing specifically, obviously we have some important vehicle launches in the next three years.

The minivan being the first coming now, the new Wrangler, which we mentioned earlier, the new pickup and those will give us I think some pricing opportunity.

But we aren't basing our performance through 2018 on unrealistic pricing expectations.

One correction to a question that was asked on capacity utilization in EMEA.

It's 85% of 2015 using harbor.

Great.

Thank you very much.

Thank you.

Thank you.

We'll now move to Martino De Ambroggi of EQUITA.

Please go ahead.

Thank you.

Good afternoon.

Good morning, everybody.

The first question is on 2018 targets and wondering what are the CapEx implied in the guidance for 2017 and 2018?

And what these are rough indication of the R&D net capitalization effect, if possible so forth 2015?

So I think the positive thing is that we, as I said, we're going to be generating cash through the plan period.

And we don't expect any significant spikes in CapEx going forward.

I think therefore we have some benefit of the changing cadence of the launches in Alfa, which will help us.

And so I think there's going to be some changes, some increase in CapEx maybe in 2017, 2018, compared to current run rate.

But nothing overly significant.

I think a number up to EUR9.5 billion compared to the EUR8.5 billion to EUR9 billion, EUR9.5 billion to EUR10 billion will be the maximum level on an annual basis.

But we are -- we'll be working through this as we complete the plan.

And we don't expect to exceed significantly the level of CapEx we're guiding to for 2016.

In terms of R&D capitalization, there's nothing significantly different going forward to what we've seen in the past.

Okay.

If I may shorten my question regarding LATAM, you stated to expect a positive EBIT this year and you are guiding for a market between flat and minus 12%.

So just to understand the resilience of your business, are you able to confirm the positive EBIT, maybe slightly positive, even in the worst case scenario of a market down double digit and you performing more or less in line?

Martin, the key to our performance in Latin America, obviously, is the Brazil and the Pernambuco plant.

We've launched commercially the Renegade.

It's performing extremely well, as we mentioned, with top of the segment after five months of activity.

I think we are now launching the Toro, the Fiat pickup, out of Pernambuco.

And then at the end of the year, in Q3, we'll be launching the second Jeep.

So we'll have three vehicles in that plant by Q3 and really the key to our ability to make money in a market that could still be down is the success of the Pernambuco installation.

The mix effect of those units both because of their position in the market, their branding and the incentives package we have out of Pernambuco help those be very positive compared to our production out of Betim.

So that is our focus and it gives us a reasonable basis for a targeting positive EBIT for the year.

Okay.

Thank you.

And just one more question.

Am I right in stating that the EMEA improvement in terms of (inaudible) 4% is essentially driven by mix effect?

Because I remember in Detroit when you presented the business plan, the 1%, 2% rate on (inaudible) was already considered a very, very difficult target to be achieved.

When we talked about this in Detroit EMEA 2014, we had a much more negative view of Europe and (inaudible) than we're currently seeing.

It's a combination of mix and volume, but volume does play a part.

I think we're also encouraged by the results of our utilization of our Melfi plant in terms of production of the Renegade and the 500X and its export functions.

And the combination of this gives us a much better feel for the absorption rate of fixed costs within the region.

Okay.

Despite the Alfa Romeo?

Yes.

Notwithstanding the delay in Alfa Romeo.

It doesn't matter.

Look, it was much more important for us to launch a perfect product than to launch a product early and incomplete.

And the project is a complicated project.

You'll see it when people start driving the car.

Okay.

Thank you.

Thank you.

We'll take the next question from Jose Asumendi of JPMorgan.

Please go ahead.

Thanks very much.

I just wanted to come back again to this North America market in 2016 and just confirm.

So Richard, I'm sorry, you're guiding for margin expansion in 2016 versus 2015 in North America?

Is that how we are reading it?

Yes.

And Richard, can you just help me bridge a little bit.

So volume obviously, positive contribution, mix also positive meaningful contribution for 2016?

Yes, marginally.

Marginally.

There's also a positive impact on materials, commodities, particularly in NAFTA.

And obviously the carryover of our pricing actions and the dealer discount actions we took in 2015 also.

All right.

So enrollments and price action offsets the incremental labor costs.

Is that an original way of looking at it maybe?

Yes, we are offsetting those labor costs basically with our material performance.

And then are there any positivity gains, so you have planned last year that was not properly running?

You have the ramp-up of the Pacifica.

How meaningful is that in terms of earnings contribution in 2016?

Well, I think really it's the volume impact on the minivan because obviously, we're going to have the plant up for the full-year and obviously, it depends on the success of the Pacifica.

But the initial reactions have been extremely positive to the unveiling at the Auto Show.

Okay, and then so what I'm trying to still understand is how pricing is going to be meaningful post contribution 2016?

Are we not in the latest stage of the cycle?

Would you not need to increase incentives to sell additional light trucks and SUVs?

What am I getting wrong in terms of the cycle?

Like I said before, I don't think we're looking at any meaningful pricing impact being necessary for us to continue to improve our margins in NAFTA.

We need to work on the mix impact, as you said.

We need to renew our product portfolio, which we are doing.

We need to work on the cost function and the efficiency and the manufacturing footprint, as we mentioned earlier, which is also helped by this realignment of our capacity.

So all of those aspects will allow us to continue to expand margins.

And this is all based on IFRS and when are you moving to US cap?

This is based on IFRS because that's what we are showing you today.

So I'm not going to make it more complicated and try and tell you what it would look like in a different accounting system.

And when are you moving to US GAAP, finally, please?

We have -- we've looked at that.

At the moment, we are not going -- I'm not going to give you exact date for moving to US GAAP because we are still considering the timing of that implementation.

We're going to look at this at the end of 2016 and then we'll make the call.

Okay.

Thank you very much.

Thank you.

We'll take the next question from Brian Jacoby of Goldman Sachs.

Please go ahead.

Hi.

Thanks for taking my question.

Just a quick one regarding the ring-fencing.

Is it accurate to assume that you have to refinance all the first link term loans at FCA US in order to get complete removal of the ring-fencing?

And should we interpret it that the aim is to unify and bring all the debt up to the FCA parent company level and do it through that means?

If you could clarify that, that would be helpful.

Thank you.

We don't have to repay all the debt.

I think we can get there without it and I think it would be economically not advantageous to repay the debt today and refi.

Would you need to get some type of concession related to the covenants?

That's right.

Okay.

All right.

Thank you very much.

Appreciate it.

You're welcome.

Thanks, Brian.

Thank you.

We'll now move to Richard Hilgert of Morningstar.

Please go ahead.

Hi.

Thanks for taking my question this morning.

Wanted to get a little bit more color around some of the guidance.

If I take a look at the markets, what you're calling for in your updated 2018 plan, I look around, I see relatively peakish NAFTA, maybe another slight decline in LATAM, possibly a trough APAC, or peak depending on which markets you're looking at.

EMEA, a nascent recovery, a richer product mix.

I'm a little bit confused on why the base guidance for net revenue would be EUR110 billion versus EUR111 billion excluding Ferrari in 2015.

Richard, it's greater than EUR111 billion.

It's, it's a type of -- if it said EUR110 billion, the only thing we'd try to tell you is that it's more than last year.

Okay, and then is the adjusted EBIT and adjusted net profit guidance there being greater than those numbers that you've got, is that a base off of EUR111 billion in revenue, or is that based on a higher amount of revenue greater than the EUR111 billion?

It's whatever makes the number work and the revenues are in excess of EUR111 billion.

The EBIT is going to be in excess of EUR5 billion.

Those are the only kind of -- and I made this comment when we opened the conference today.

About the fact that it is better for us to give you directional views on the movement of the key metrics that impact this business as opposed to giving you granular targets that we're going to be chasing for the rest of the year.

We're going to do better than EUR111 billion.

We're going to do better than EUR5 billion in operating profit in EBIT.

Okay.

Congratulations on the third year in a row of having the diesel from the Ram in the Ward's Top-10 Best Engines list.

Thank you.

Your plan for achieving the CO2 and the CAFE standards, you have talked mostly about electrification of the portfolio to get there.

Given that you have this quality of an engine in the portfolio, would it be unreasonable to see more diesel in the portfolio, especially in North America?

Or do you think Volkswagen has pretty much poisoned the well for that type of power train in the United States?

No, actually I don't think the well has been poisoned by anybody.

I do think there is just the way in which the regulations work, there's a point in time in which diesel in its present configuration becomes offensive to the fleet.

Let's not discuss the timing of that inversion.

Right now, diesels are positive to the fleet.

I think between now and sometime in the next five years, it will become offensive and because of the changes in regulation.

So at that point in time, I think we need to take a very hard look at diesel and find out what it's worth keeping it in the structure.

Great.

Thanks again for taking my questions.

Thank you.

We'll take the next question from Christophe Boulanger of Barclays.

Please go ahead.

Yes, hi.

Good afternoon.

I will ask a question on balance sheet management and specifically on your target of liquidity of EUR15 billion to EUR20 billion by the end of the plan.

First, I want to know is are you confident of this target?

Secondly, will you be using the excess liquidity to repay existing debt?

And if so, under what timing?

We confirm the target, Christophe, and yes, we will obviously, as we move forward here, be using some of the cash as we deem it's appropriate to reduce our gross debt levels.

So basically just to be clear, if we include the EUR2.5 billion of additional liquidity, you will get possibly all of the ring-financing.

You are standing at EUR27 billion of liquidity, is that correct?

Correct.

And your target's EUR15 billion to EUR20 billion?

Yes, so we have more than enough cash to significantly reduce our debt levels in the next couple of years.

Okay.

Thank you.

Thank you.

Thank you.

We'll take the next question from Monica Bosio of Banca IMI.

Please go ahead.

Good afternoon, everyone.

I would have a question on the pricing outlook in APAC.

As you mentioned, you told us that APAC will have a two-speed year in 2016.

I'm just wondering if you are still expecting a positive adjusted EBIT for the APAC contract countries.

We're targeting to make money in APAC in 2016.

But as I said, there could be a ramp-up as we go through the localization process being completed in the first half.

Okay.

So basically, do you expect a positive adjusted EBIT?

By the end of the year, yes.

Okay.

At the end of the year.

Okay.

Thank you.

And second question is I'm just trying to figure out what could be the extrapolating of the figures for 2016.

Do you expect for the realignment in capacity production or for the --

Hope, hopefully not.

Okay.

So we shouldn't project similar numbers?

I don't have any notion today of booking any one-offs, any --

Okay.

Thank you very much.

Thank you.

Thank you.

We'll take the last question from Rodolphe Ranouil of RBS.

Please go ahead.

Yes.

Good morning to you, and thank you for that clear presentation.

I just have one question regarding the planned delivery chain, liquidity, cash flow generation.

All of that is trending up very significantly in the next two to three years.

Have you shared all of this with the rating agencies or have you basically given up?

Rodophe, we share with you first and then we go hit them.

What do you think?

I think that's probably a better call.

We work, joking apart, consistently with the rating agencies and we expect these, as we execute these numbers, our rating to improve going forward.

That's clearly a big focus for us.

Okay.

Thank you very much.

Thank you.

Thank you.

That will conclude the question and answer session.

I would now like to turn the call back over to Joe Veltri for any additional or closing remarks.

Thank you, Rhonda.

And we would like to thank everybody for joining the call today.

If you have follow-up questions, you can please contact me or others on the IR team.

Thank you, and have a great day.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.