Stellantis NV (STLA) 2016 Q2 法說會逐字稿

Good afternoon or morning, ladies and gentlemen, and welcome to today's Fiat Chrysler Automobile's 2016 second-quarter and first half-year results webcast and conference call. For your information, today's conference is being recorded.

At this time, I would like to turn the conference over to Joe Veltri, head of FCA Global Investor Relations. Mr. Veltri, please go ahead, sir.

Thank you, Jillian, and thank you to everyone for joining us today. The earnings release that we issued earlier today, along with the presentation material that will be used for this webcast and conference call, can be found on the Investor's section of the FCA website.

Today's call will be hosted by our Group Chief Executive, Sergio Marchionne, and Richard Palmer, the Group's Chief Financial Officer. After their introductory remarks, both of these gentlemen will be available to answer your questions.

As a reminder, I will note 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 today's presentation. As always, the call will be governed by this language.

With that, I would like to turn the call over to Richard Palmer.

Good morning and good afternoon to everybody. Moving to page 4, we have a summary of the second quarter. I would say overall we had a strong operating quarter.

Our adjusted EBIT margin reached 5.8%, up 90 basis points year over year, NAFTA margins reached 7.9%., and EMEA margins more than doubled to 2.5%. Our net industrial debt was reduced by EUR1.1 billion to EUR5.5 billion despite some negative FX translation. So overall, we had a good quarter.

We did take a charge in the quarter for Takata airbag, the May expansion of the population in NAFTA of about EUR400 million, which was excluded from adjusted EBIT. Moving down the page, FCA entered into an important collaboration, the first of its kind for an auto manufacturer, with Google regarding the integration of Google self-driving technology into the Chrysler Pacifica, which is an important move I think for FCA showing our being involved up front in this type of technology application.

Our NAFTA capacity realignment, which we've spoken about before regarding reorganization of some of our manufacturing footprint in the US, is proceeding on schedule and will result in us having increased capacity allocated to Jeep and Ram from the middle of next year. And we proceeded with the commercial launches of the Alfa Romeo Giulia and the Maserati Levante in Europe.

This is an important milestone showing our continued progress in the premium brand strategies. The US launches are planned for the second half of the year. During the quarter Moody's upgraded our corporate credit rating from B1 to Ba3 following S&P's upgrade in March.

So this is also a positive reflection of the progress we're making on the balance sheet. As a result of the first-half results, we are revising upwards our full-year guidance to increase the adjusted EBIT to more than EUR5.5 billion from more than EUR5 billion, increasing net profit to over EUR2 billion from EUR1.9 billion.

And confirming on the industrial debt target, current exchange rates, notwithstanding the fact that compared to our initial guidance their strengthening and the real has contributed to a negative impact on translation of nearly EUR800 million.

So moving on to page 5, we can see some of the important product news in the second quarter. We continue to roll out the Fiat Tipo family, adding the new hatchback version to go along with the sedan and station wagon models already launched, and continuing to increase our presence in the C-segment in the European market, which is the second-largest segment there. Historically not a segment the Fiat brand has been particularly successful in, and we're seeing very good progress with this new product family.

We sold 23,000 units in the first half. And as I say, adding this new version, the hatchback, will continue to grow into the second half of the year.

We also launched the Fiat fullback, which is a one metric ton midsize pickup, which we'll be selling in Europe initially and also in Latin America. That just launched in the quarter, and so we'll look at the volumes increasing through Q3.

And then from Maserati, we started to deliver the model year 2017 Quattroporte, which has restart exterior, some interior refinements, some more safety features and electronic content. So that further improves our product line-up on the Maserati to go with the launch of the Levante, which is ongoing.

Moving to page 6, talking about the quarter in a bit more detail. You can see that our shipments were down year over year by 1%. If we adjust for the change in our shipments in China due to the localization of Jeep through the JV, our combined shipments including the JV shipments would have been up 1% to 1.2 million units driven by an increase in EMEA of 14% offsetting Latin America which was down 19%.

Net revenues were down, but -- reported revenues were down, but they were up 1% [according] to the exchange, with contributions of a positive mix in NAFTA, LATAM, and EMEA. Our adjusted EBIT, as I mentioned, was up 16%, with margins at 5.8% from 4.9% last year. And year to date, adjusted EBIT is just over EUR3 billion, up 43% compared to last year.

Moving to adjusted net profit on the top right hand side, we were up to EUR709 million, nearly double last year's number of EUR372 million. Net financial charges were down as we continue to reduce our overall gross debt and refinance at lower rates.

And taxes were more or less flat at an adjusted net profit level. We already mentioned net industrial debt improvement of EUR1.1 billion, and we'll look at a bit more of the detail on the following pages.

Our liquidity was basically flat at EUR24.7 billion. Our gross industrial debt closed at just over EUR24 billion, sequentially down EUR1.2 billion from March, despite negative FX and due to a repayment of a bond in the quarter. That takes our gross debt reduction compared to June of 2015, with the various actions, including obviously the spin of Ferrari to over EUR6 billion.

Moving to page 7, here you can see the contribution of the various segments to the improvement in our adjusted EBIT of EUR227 million in the quarter. NAFTA margins, as I mentioned before, are up to 7.9%, up from 7.7% last year and from 7.2% in Q1. LATAM achieved a breakeven in the quarter, up EUR79 million compared to last year, and EMEA more than doubled, contributing an improvement of EUR86 million through the second quarter. All segments were up versus the first quarter, except for LATAM where investments in marketing of the launch costs of the new Fiat Toro impacted the EBIT.

Moving on to page 8, show the Group adjusted EBIT improvement again but this time looking at the operational drivers across all the regions. So you can see that the main improvement was basically volume and mix. But clearly as I mentioned, our volumes are pretty flat. So in actual fact principally mix, which was driven by NAFTA and EMEA, but also some positive mix in LATAM as we continue with the launches of the vehicles from Pernambuco. The increase in industrial costs was driven by some product content in NAFTA, the cost of the Pacifica being higher than its predecessor vehicle.

We had some efficiencies which offset in Latin America due to the non-repeat of launch costs that we had in Pernambuco last year. And the SG&A increase is basically marketing costs as we continue with the launches of the Pacifica, the Tipo family, the fullback, and the Levante as well as others in the quarter.

We move to page 9. You can see the net industrial debt [walk] from March to June. So as you'll remember in Q1 on our net industrial debt increased by EUR1.5 billion due to working capital absorption and negative FX transition. We had mentioned at the time that we expected the working capital to reverse. That is what it did. So the seasonality in Q2 together with production resuming in Toluca for the Journey and the Fiat 500 in May brought our working capital up, a positive contribution to cash of EUR1.2 billion in the quarter. So basically flat through the first six months of the year.

The EBITDA in the quarter was EUR3.1 billion, 11.3% margins, compared to last year, which was under 10%. So some good improvement in margins and EBITDA obviously because we're also covering higher D&A for the new product launches.

You can see also that our adjusted industrial EBITDA was also over EUR1 billion higher than the CapEx number at just over EUR2 billion. We did have a negative translation that gained in the quarter basically because of the real of about EUR0.5 billion, which you can see in the column on the right-hand side. So overall, I think a good quarter in terms of net industrial debt.

Moving to the regions on page 10, you can see the NAFTA performance. The sales metrics here do reflect the new methodology that we described in our press release yesterday. So the industry sales were down 1% in the US, and our NAFTA sales and US sales were up 2% overall, Jeep and Ram driving the increase with double-digit increases year over year.

Our days supply was down compared to Q1. Obviously a lot of that due to the seasonality of the market with building inventory in Q1 to meet demand of the higher seasonality of sales in Q2. So we closed with 75 days supply, very similar to last year's 74 days. Our US fleet mix was up slightly from 21% last year to 24% this year, although positively our rent-a-car volume within the fleet mix was down 5% year over year. Obviously that is something we need to continue to work on to improve our overall channel mix within the fleet business.

In Canada we maintained our market leadership with share at 15.2%. Our shipments in the quarter were down 2%, basically due to reductions in 200 Dart and Journey, as I mentioned, where Toluca was down for the month of April. And those reductions in shipments were partly offset by more shipments of Ram, Jeep, and minivans, but not entirely. Obviously that mix impact was the main driver of the EUR250 million you can see in the EBIT walk on the bottom left. The improved mix is the main driver of the improvement in our profitability.

We did have some positive pricing in the marketplace, but that was offset by negative impacts of exchange mainly on the Canadian dollar. And in terms of industrial cost, as I mentioned earlier, we had purchasing efficiencies in the quarter, but they were offset by higher D&A and higher cost of principally the Pacifica launched with more content than its predecessor vehicle. Overall, 88% margins and continuing the improvement we have been seeing in the last few quarters in our NAFTA performance.

Moving to page 11, Latin America, the industry was down 12%. Our sales were actually down 22%, as we continue to focus very much on profitability here. We shipped 112 units in the quarter, and about one-quarter of that was Pernambuco volume. So about 25,000/26,000 vehicles there, of which half were Renegade and half were the Fiat Toro new launch. Our revenues were down 9% at constant exchange with the lower volumes being partially offset by the better product mix from Pernambuco.

In terms of the adjusted EBIT walk on the left, you can see the main driver of the improvement year over year was the reduction in industrial costs, better efficiencies in the plants, and also non repeat of the launch costs we had in Pernambuco last year in part because of the actual physical industrial launch in the plant. And also because we have now reached our target level of local content in those vehicles, whereas last year we were still shipping in parts as we completed the localization process.

Moving to APAC on page 12, you can see that these numbers continue to reflect the transition to the joint venture of our Jeep production. So our sales were flat at 55,000 units. And of those, you can see that we had 30,000 units sold through the JV, up 200% from the 10,000 we had last year. So that transition continuing.

Our sales in China were up 17%, and in Japan we're up 21%. We were down in Australia as we continue to price to try and cover the exchange impacts that we're having there. Jeep brand represented 73% of the region's sales, and obviously driven strongly by the locally produced Jeep Cherokee in China.

Moving to the adjusted EBIT walk, I think the most important thing here as you can see the volume mix impact, which is basically the move to the JV volumes. So not consolidated and not producing volume mix through our income statement, and then offset with costs industrially and SG&A-wise going into the JV. In the other column we have the improvement in the JV result, and so that is important as we start to see the effects of the Cherokee and the Renegade volumes ramping up in Q2, which will continue through Q3 in the joint venture.

We will also be launching in September the third product in the joint venture, which is the all new Jeep C SUV, which is basically the Compass/Patriot replacement. The first launch of that car is in China, then we will be subsequently launching in other regions.

Moving to EMEA on the next page, you can see that the industry was up 10%, and with Italy being up 17%, our sales in the EU were up 17%. So our market share was up 40 basis points. You can see that was driven by positive performance in all of the major markets on passenger car.

If we move to LCVs, the industry was up 14%, and we were basically up flat with that, just under 13%. Our shipments were up 16% to 75,000 units, a positive performance on LCV. You can see in the bottom left, the adjusted EBIT walk. We had both positive volume and positive mix driven by the 500 family, the Tipo vehicles I mentioned earlier, and LCV. You can see that partially offset with more SG&A to fund the marketing of these new product launches.

Moving to Maserati on page 14, our shipments were down 17%. I think we're getting to the end of the process of cleansing, which we talked about in the last few quarters. Our inventory levels in North America and in Europe were high. I think we're getting to the end of that. That is reflected in the shipments being down in America by 26% and in Europe by 17%. We did have improved shipments in China up 20%.

That together with some higher mix on Quattroporte helped us to improve our margins sequentially. Last quarter in Q 1 we were at 3.1%, this quarter we were at 6.2%. We are starting to see a recovery sequentially in the Maserati margins. I think what is important, what will be important is to see how the Levante continues to perform. We have had a very good reception for that product in the marketplace. Orders are strong, and we will see production and shipments ramping up in Q3.

Moving to components on page 15, our revenues were up, reflecting an improvement in revenues in Marelli, and also margins were up from 3.8% to 4.6%, driven basically entirely by a 90-basis points improvement in our Magneti Marelli margins. Order intake in Marelli was also good, up flat year over year with EUR603 million of orders with cap/non-captive at nearly 60%. And the Comau order backlog was also up from March by EUR82 million.

Moving to page 16, our outlook for the year, no real changes in terms of our views on the industries. NAFTA continues to be strong. USR was still at EUR17.5 million in the second quarter, consistent with the first quarter trend. We are still positive around the outlook for the NAFTA markets.

Asia Pacific continues unchanged in our forecasted numbers. LATAM is clearly still struggling. We are hoping that the political uncertainty will resolve in Q3 and maybe we will start to see some improvement in confidence going into Q4.

But we're looking at a number of the bottom end of the range at EUR3.6 million, for the year. And then EMEA, our forecast is unchanged, but we believe we will be at the high end of this range. Some of the noise around Brexit seems to be diminishing and the European market continues to perform well.

Moving to the last page in the presentation pack, guidance again, we raised revenues slightly on the back of good performance in EMEA and NAFTA. Our EBIT is up to over EUR5.5 billion, and net profit up to above EUR2 billion. And as I mentioned before, net industrial debt, we are holding at less than EUR5 billion, with the improved performance on the economic side, offsetting the negative translation we have seen in the first half.

So with that, I will hand it back to Joe. Thank you.

Thank you, Richard. Jillian, I'm going to now turn the call over to you to please begin the question-and-answer session.

(Operator Instructions)

John Murphy, Bank of America.

Good morning. Just a first question on North American margins. Obviously there was a little bit of an improvement here, but when you look at what was just printed by one of your large cross-town rivals, 12.1%, you are still significantly behind here.

I'm just curious what you ultimately think your margins can get to -- if they can get to that range -- and if this changeover of Sterling Heights to the Ram might help. The idea of getting to those levels from where you are right now, is that possible and how do you get there?

We announced the reindustrialization of the US manufacturing footprint probably a couple of quarters ago. I think the last announcement that was made in connection with Sterling Heights was out a couple of days ago.

By the time we finish with this, hopefully all of our production assets in the United States, if you exclude Canada and Mexico from the fold, all those US plants will be producing other Jeeps or Rams. There will be no passenger cars that will be produced in the US. Therefore, our expectation is that that concentration will give us a possibility to get to very close to those numbers that you mentioned earlier.

They were exceptional results. I think they should be complimented for an outstanding delivery in Q2. And I think that we have every expectation that after this realignment we should be getting very close, if not dead on, to those numbers.

Okay. And then, just a follow-on to that -- have you made any progress in finding a car manufacturing partner? And is that required to get to these levels, or is that something where you think you can produce in Mexico and go it alone on car production?

I think we have made progress. We're not in a position to announce anything, although I think that any progress on that front would be actually margin-dilutive. It may not be in absolute terms, but it will be margin-dilutive.

Okay. And then if we think about the guidance range you are talking about, EUR5.5 billion plus for the full year, you've done EUR3 billion year to date in the first half. Is this an indication that we might see a fade in EBIT through the second half of the year? Or is this a level of conservatism, and there's a big range around that plus sign after EUR5.5 billion?

My view is that I think there is a big plus sign. But Richard has historically been conservative. I'm not going to change him now. He is too old. We will leave him be as it is. We will wait for Q3, and we'll take stock on how far we have gone.

Got it. Last question for me -- on CapEx, it's running just over EUR2 billion year to date. If you could just remind us of your full-year guidance on CapEx, or expectation there? And why is it so back-half loaded, or it appears to be so back-half loaded?

Our full-year number, as we have already indicated at the beginning of the year, is EUR8.5 billion to EUR9 billion. As we go through Q3, we'll get a bit more precise around where we think that's ending up.

But a number of the projects we have been talking about are coming online in the second half. So we think that is still a good estimate.

Although at the upper end of what's likely to be spent. There is a physical limitation on the ability to cut checks between now and December 31.

It seems a little bit tight. Will that impact your net debt guidance? It just seems like if you hit those numbers, it is going to be hard to hit your net debt guidance as well.

It is going to be hard to -- you mean we're going to be much lower than the EUR5 billion or much higher?

If you hit the EUR9 billion, EUR8.5 billion to EUR9 billion, on CapEx, it seems like it is going to be hard to achieve your target on net debt of EUR5 billion or lower. I mean, it seems like it would be tough to produce enough cash to get to that level.

I think in the second half, John, I think we're going to see some positive working capital as well in the second half. We are in the process of launching the Giulia. We are in the process of launching the Levante. We're in the process of ramping up the Pacifica. I think, in the second half, within that range of CapEx, we can make the less than EUR5 billion of net industrial debt.

Great, thank you very much.

Adam Jonas, Morgan Stanley.

First question is -- can you give us a little color on your discussions with your financial partners, the Italian bank sponsors, et cetera, following Brexit, just to give us a tone for how your discussions have been for the strength there.

I think our exposure in the UK is fairly limited -- on the balance sheet, very limited. In terms of volumes, we sell about 100,000 cars and LCVs in the UK. Obviously, the 8% I think weakening, something like that, that stabilize that.

Sterling to euro will have an impact if it sits there through next year. This year we do have some hedges in place, et cetera.

So I think that the impact for this year is going to be minimal. So in terms of the localized impact related to the UK, not that significant.

In terms of the wider relationship with our Italian banks, it is very good. We don't have any issues with the financial community, as you have seen that our ratings have improved. And I think going forward we continue to execute on our plan to deleverage the Group through 2018.

I'm not sure I understood the question about the relationship with the Italian banks.

I just think some investors here are not familiar with the strong history between Fiat Chrysler and your banking relationships -- may underestimate how durable these relationships are, how important they are.

They are important. I think one of the things that we have done the last 13 years, and I think your institution has been a beneficiary of that, too, is that we have internationalized our banking relationships beyond the Italian boundaries. And I think that we have been able to establish a sound rapport with a number of large global international firms, which have provided a lot of support to the financing transactions that FCA has carried out in the last 13 years.

Certainly they have been very, very active in the disintermediation of some of the assets out of Fiat Chrysler, the creation of CNH Industrial and Ferrari. All those things have been accomplished with the help and assistance of large international financial houses. So I don't think that the issue for us is one of resilience or credibility with the financial community at all.

To go back to the question that was made earlier, I think our biggest task now is to close the operating margin gap with our competitors. It remains a permanent fixation that we have inside the house that we need to get off our butts and get that done.

Thank you. One more question on financing -- Richard, could you give us an update on the factored trade receivable activity, maybe a total balance or any deltas in the quarter? I couldn't tease that out of the result.

I don't have the exact number. There is no significant change quarter over quarter in that level of the activity.

Okay. That is fine.

And then last one for Sergio -- you mentioned no passenger -- you are getting to a position where you're not producing any passenger cars in the US. It is Jeep and Ram only when this is done. At what point do you think you're at that level? Is that at 18 months, 24 months?

I think we will be de-carred in the US by probably the end of Q1 of 2017.

Okay. And I'm curious --

And the problem is that we got, as you well know, Adam, as we move through transition, we will have to go through down times in some of our plants in order to allow for conversion. Having said this, I think that we phase this in such a way as to not impact our profit forecast and the maintenance of the 2018 objective, which is still EUR9 billion in operating profit. That number has not been moved. I think the question is how much over EUR9 billion do we get to, and how quickly can we get there?

Okay. Thank you, sir.

Just a final on that, to extend on that last point, last question is -- could you share with us perhaps the tenor of what you are hearing, the tone from the UAW? And, Dennis, how supportive are they of this transition? Can you explain to the audience the level of awareness at the UAW, and the UAW leadership of the challenges that face this industry on a secular basis, and the need to really utilize those North American assets, those higher cost assets to their fullest extent with as little risk as possible? I'm curious if you were able to share a bit?

I don't want to speak on behalf of Dennis. I think Dennis can be probably even more articulate than I would be on the topic.

I can only give you my understanding of discussions that I've had with Dennis now over the last couple of years about the manufacturing asset base in the US and it was a relevant issue when we were discussing the renewal of the contract. And I fully understand -- I think the pressures that you have to deal with from within the UAW to try and accomplish as favorable a compensation package for the membership as he copped in September of last year.

I think the real issue for us is that when you look at the economics of car manufacturing, I'm talking about traditional car as opposed to SUVs or pickups, the margins that we were getting from our experience with both the Dart and the Chrysler 200, as well intentioned as those programs were, and as technologically relevant as they were for the marketplace, yielded returns that would not on a comparative basis match even anything close or remotely close to what we could derive from utilization of those assets in the Jeep or Ram world.

So we have made that shift; I think it was a painful shift. It took us a long time to analyze and reanalyze the cost and the alternatives. I think we feel comfortable now that we have positioned the US assets in the right place. And that it will guarantee fuller levels of employment and a higher opportunity for the UAW membership to benefit from that growth.

The residual issue, which has to do, how does the UAW and the membership deal with their relevance and the participation in cars, is unresolved. Because it is not just a question of wages, although that is important. But it will certainly require different operating environment that we currently have with UAW, which extends beyond wages. And so we would have to rethink the model completely.

I've opened the discussion with Dennis; I think we need to sit down and have a heart to heart on this, and see whether we can find a solution going forward. But as it stands today, economically, it will be very, very difficult for us to justify an investment in car on the US manufacturing basis. It's just not there.

That's clear, Sergio, thank you. Thanks, team.

Massimo Vecchio, Mediobanca.

My first question is on the agreement with Google. Clearly, you are following a different strategy from your industry peers, which are developing every single one of them, their own solution. I know your view on the industry's tendency to overspend in CapEx.

But strategically, what is your strategy with this agreement? And where do you differ with your competitors? What are you seeing that the others are not seeing?

I will plead ignorance and I will tell you that I am monothematic in my vision, and not blame anybody else for seeing something else. I can only give you my views, and then I think it is up to you and the markets to judge as to what is the wiser course.

I have stated this publicly and I will repeat it here again. I think that this is a world that is rapidly changing, and where preferences which are being expressed by existing or potential intruders into the auto space, keep on changing at the speed of light.

And I think that one of the worst things we could do is to commit capital in a very certain unequivocal fashion to a particular technology choice or a particular strategic platform. Without exploring potentials for development with a variety of actors, and I think we remain open as we have been -- as we stated in private discussions with some of these so-called intruders and even in public assertions that the Group has made about the fact that we are willing to explore alternatives without expending a phenomenal amount of capital for us to try and understand what the ultimate economic model looks like.

Because it is not just a question of exploration and capital commitment; it is a question of understanding what the economics look like after we finish. We are, and have been historically, manufacturers of cars out of a very traditional industry. This is a completely different way in which the market is going to be potentially developing, and I think we need to be open and not prejudicial in making choices.

And so, the Google experience hopefully will not be the last experience with a so-called intruder. We have open discussions with others. Hopefully it will give us a chance to learn; and on the base of that knowledge, I think we'll make a final determination as to what the strategic stance is.

I think it is way too early to call today. It is way too early to make large capital commitments for something which we have limited knowledge of and we understand little of in terms of future development.

Okay, so you haven't take already the decision if you want to be a supplier of your partners or if you want to develop your own solution. You are exploring and trying to understand.

Yes. The transition, whatever that is, is not going to be a painless transition. I think that we all need to understand this. It looks quite rosy sitting behind the desk.

I think the transition is not going to be that obvious. And it is not going to be that easy. We need to be ready to handle this to make sure that we reap the highest possible economic benefit to FCA as the transition happens.

One will happen, of some caliber. I think we need to remain open on choices.

My second question is on the Maserati. It seems from your wording that the reason for the fall in volumes here is related mostly to the Ghibli. So first question is, if it is correct -- ?

No, I think the reduction in volumes is due to the fact that we have gone through a destocking exercise of a overstuffed distribution channel that happened in 2015, and which has taken a while to digest through the system. And I think that we're seeing the benefits now of a reestablished supply/demand condition. I think that the introduction of the Levante will effectively reinvigorate the relevance of that portfolio going forward. I think we need to see.

I don't think there is anything that the numbers say about Ghibli as being particularly wounded. It has been an incredibly successful car. We were fully aware that, given its price positioning, that it would be eroding some of the values that are associated with the Quattroporte, and that was built into the case at the time in which we originally approved the investment.

I think as we keep on rejuvenating both the QP and the Ghibli, you will see -- and together with the Levante -- I think you will see Maserati play a more significant role in the markets, and volumes and margins should follow. So I think we need to give it the rest of the year to see what the impact of the Levante is on the marketplace, and certainly the whole is 2017 to see the full benefits of this range of products, including stuff that is now being worked on.

One of the things that we decided in the last three or four days is a series of relatively small investments that will keep the GranTurismo and the GranCabrio alive until the end of 2017, possibly going into 2018. So I think the portfolio is sound; I think we just need to execute. I think Reid in his new function now has been commissioned with the task; I expect much better results going forward in the remainder of 2016 and the next couple of years.

Thank you very much.

Jillian, are you there?

Go ahead, Monica.

Hello, everyone. I would have some questions. The first one is -- how do you -- okay, it's fine, 2016 is fine. But I was wondering, what about 2017, also on the back of the BREXIT?

I'm just trying to figure out what could happen for Maserati and Giulia in case of a slowdown of the demand in UK for a high top of the range car. And also, what do you expect for the European car market in 2017?

My second question is on the target for 2016. Could you please better explain to me the upside revision in revenues? Is it because of the price mix? Is it because of mix?

And the last question is on the adjustments between adjusted EBIT and the reported EBIT. My estimates accounted for the full year roughly EUR500 million. And now we are at more than EUR600 million. So I'm just trying to figure out if you can give us some roughly indication about the final number for this year. Thank you very much.

If I can just give you an answer on Maserati. I think Maserati -- one of the values of Maserati is the fact that it is a global brand.

And I think that -- I just asked our guys here to give me the exact numbers on Maserati sales in 2015. I think there were 1,500 cars that were sold in the UK.

I can also tell you from my experience on the Ferrari side, we have not seen a decrease in the level of interest in these premium brands. I think they will continue and they will occupy a particular space in the spectrum of cars. These are not volume cars.

Richard made reference to the fact that we have sold about 100,000 cars in the UK. A large portion of those are also commercial vehicles, which have been at the heart of our presence in the UK now, at least until the introduction of the new portfolio.

I don't think that Brexit, as painful as it has been from a political standpoint, is going to have a very negative implications on volumes or on our profitability in Europe going forward. What is unclear to me, to be honest, is what happens to UK-produced asset -- UK-produced cars that will eventually find their way into the rest of Europe. And how stable is this euro -- this euro starting a relationship going forward?

These are things that we will only be able to assess going forward. Having said all this, whatever the possible outcomes of all those factors, I don't think we're going to be negatively impacted by Brexit.

The second question, while we were looking for those number, Monica, I think we unfortunately lost track of your question. I'm looking at Richard who looks as puzzled as I am. Can you give us a short version of your second question?

My second question is about -- if you can give us more color on the revision of the revenues -- the vision of the revenues. Because I believe it could be the mix. Just if you can confirm this.

Because if I look at the number for the first half and if I compare to my estimates, I'm fine with the upside in the guidance with the adjusted EBITDA. But it seems to me that the revision in revenues might be a bit aggressive, but maybe I'm wrong.

And if I may, another follow-up on the political situation. Okay, Brexit might not have an impact on the European car market. But, what do you think about Turkey? Is it a temporary situation or it could be something that, in the long term, might impact?

I actually think that whatever the duration of Brexit is, and I would expect it to be permanent in nature, whatever the ramifications are, I think ultimately it will not impact either portfolio choices or economic performance of the Group going forward, unless this Brexit situation deteriorates and another set of conditions that I am not aware of. But based on what I know today, our views on profitability of the Group and earnings generation is unimpacted by the consequences of Brexit.

Vis a vis your question on revenue, you may be right. I don't think you are; but I think you may be right. If you are, I don't think it's going to change materially our view of the world going forward, if we don't hit the EUR112 billion.

Our best estimate is that it is in excess of EUR112 billion. We will see as the numbers come in for the third quarter as to whether we have to revise those numbers and tell you that you're right. I don't think so, but we will see.

Okay. The last was about the adjustment between the adjusted EBIT and the EBIT. If you can give us an indication for the full year. Thank you very much.

Monica, given these charges we take on an unusual basis, to be frank, the best estimate really is the year-to-date number. We don't anticipate having any -- sat here today -- any unusual charges in the second half of the year.

If we knew them, we would have booked them.

Okay. Thank you very much.

Martino De Ambroggi, Equita.

Good afternoon, everybody. Three questions -- the first is on EMEA region. [2.5% rate to loan] sales is the peak over quite a long period. I suppose it was impacted by launch costs, because SG&A was the only negative variable in the quarter.

Could you elaborate on what is the operating leverage, considering the environment? We can discuss a long time on Brexit, but volumes growing like they are growing today -- we have never seen this kind of trend in the recent past. So 2.5% can be considered a cap for Europe?

I would say, no, it is not a cap. Obviously, we just saw one of our competitors reporting significantly higher margins.

As we mentioned earlier, our goal is to improve our profitability to the top end of where the car -- our car competitors compete with -- in NAFTA and EMEA. I think we have seen some good traction in the last six months from EMEA.

There are a number of products which are still being launched, in particular, the Tipo family of vehicles. We just launched a Spider. We are pushing very hard to improve the brand position of Fiat with that vehicle. I think going into the second half, we will continue to work to improve our margin performance in the European market. So it is not a cap.

Yes. I was trying to -- I'm not talking about a target, but something more specific in terms of potential. Because high-single digit is quite difficult to imagine, at least in the short term.

I agree. I don't want to give you a target because we have given you a plan out through 2018, and we're starting to get to those levels already. I think we need to continue to improve the margins in EMEA. To be frank, the 2.5% is not good enough, given where some of our competition is performing.

Okay. And the second question is on the free cash flow, net debt. Richard, if you could help us in understanding what are the non-recurring items impacting on your guidance for debt? I'm referring to cash out for known recurring costs that you booked, and the ForEx effect or any other impact in order to have a better understanding of the clean free cash flow.

In the first half, the biggest impact is exchange. So we have, as I mentioned, over EUR1 billion negative exchange impact in the first half, principally because of the Brazilian real, and the debt we have there with the strengthening of the real. That's the biggest change. So if exchange had not moved as much as it did there, we would have been EUR1 billion better at this stage.

Okay. And what is the underlying assumption in your full-year guidance?

We're basically assuming that rates stay substantially where they are today.

Okay. In terms of cash out referring to non-recurring items?

There is nothing else significant apart from exchange. Everything else is -- for example, the campaign costs I mentioned before on Takata are going to be spread out over time.

So they are not significant enough in this year, and also because, in large part, the campaign process is delayed as the industry works through the parts availability, as you are aware, with the supplier. So those sorts of liabilities have fairly long tails on them, so they're not going to impact this year significantly.

Okay. Last on net pricing, which was negative in the NAFTA region for the first time since Q1 2014. What should we expect going forward on this item?

The biggest impact really is that last year we had the hedges in position on the Canadian dollar. Now you are seeing a delta on exchange, which is not reflective of the actual exchange rate difference spot to spot because we had a hedge position last year. Those aren't on anymore, so I would expect now as we get comps, normalized rates, having reflected the weakening in the Canadian dollar in the last 12 months, we should start to see positive pricing in NAFTA. Or not negative pricing anyway; that's our target, especially as we launch Pacifica.

You will see positive pricing going forward.

Continue to work on that.

Perfect, thank you.

Thomas Besson, Kepler Cheuvreux.

Thank you very much. I had just a few follow-up questions, please. Can you give us some qualitative or quantitative elements on the Giulia and Levante receptions so far in Europe? I understand it has not been launched globally. And give us an idea for what you would anticipate to be the approximate volumes of the vehicle in 2017?

Yes. In 2013, it is kind of late because the year has passed. But if you're asking about (multiple speakers) --

I said 2017, sir.

Don't worry about it, let's skip four years already in my head.

We don't give volume -- we have not given volume indications for that vehicle either at launch or now. I think we will have to wait until the end of the year to give you better guidance on volumes on global distribution of the Giulia, as opposed to European numbers.

I can only tell you, and I was talking to our operating people in Europe, we are producing over 100 Levantes a day now. I think we're at about 130, 140 a day. The car is picking up steam. We've begun now production of the model for the US, which was a huge portion of the market to be covered by the Levante.

So the reception initially from both dealers and from their customer base has been quite good. We remain confident of the fact that both of these cars will perform well, and effectively our forecast expects, at least today, that we would have a significant improvement in margins out of Maserati in the second half of this year, based on Levante traction, and the introduction of the models, as Richard mentioned -- the facelifts on the cars that we introduced for 2017 model year.

We will give you a better update on Giulia as the car gets fully operational and we start shipping into the US, which hopefully will happen in Q4 of this year.

Okay. Second question, please, on your debt. You've mentioned the big currency impact; can you give us a rough idea of the exposure by currency or at least of the real of your current gross debt, please?

Our exposure to the real is about BRL17 billion.

BRL17 billion. Okay, thank you very much.

And last quick question for me, could you give us an indication of the net pension deficit at the end of Q2? Is it still up around EUR10.5 billion, or has it moved significantly?

It would have moved a bit, but I don't have a precise recalc. We don't do that on a quarterly basis, but obviously discount rates are down a bit. So I would anticipate that the net liability is up. We will see how discount rates perform in the second half.

Great. Thank you very much.

Stephen Reitman, Societe Generale.

Good day. Some questions on North America -- specifically on slide 10.

First question, you mentioned that the fleet mix, the 24%, there have been some improvement within the channels. I historically understand that rental has been roughly about 75% of the fleet mix. Has that changed? Has that declined in the second quarter?

My second question is about the -- is the adjusted EBIT walkdown. You say obviously that the EBIT excludes EUR519 million relating to Takata and incremental cost of the NAFTA capacity realignment plan. Could you give some indication of how much of that relates to the NAFTA capacity realignment plan? And are such change of plans normally also, or at least is this the standard way of accounting also for your US peers?

And third question, in terms of R&D capitalization, traditionally I think the impact on the Chrysler result was about the equivalent of about 90 basis points if you were bringing to a US GAAP equivalent figure. Does that still hold for the second quarter? Thank you.

In terms of the Takata impact and the NAFTA capacity, the NAFTA capacity was about EUR100 million of the EUR519 million. And given it's related to a restructuring plan of the footprint, I think it would be normal for that to be classified as it is. I don't think we're unusual at all compared to our peers in that regard.

In terms of R&D capitalization, I need to get you the precise number, to be frank. I don't want to give you an incorrect number. It's not material on NAFTA, but it is definitely lower than the number you're saying because we have been investing over the last five years. And so the impact between amortization and capitalization is negligible.

Sorry, the first question, I missed it. (Multiple speakers) We were down about 5% in terms of rent-a-car mix year over year.

So that means that the proportion of the 24% would have been -- ?

I think we were at about 80% last year; we're at 75% this year, quarter over quarter.

Thank you very much.

And we continue obviously to work on that because it is an important driver of overall mix and the profitability in fleet.

Understood, thank you.

Michael Tyndall, Citi.

Two questions, if I may. The first relates to the US again. Just around recalls, in Q3 of last year you added quite a significant amount to your forward assumption on recalls. I'm wondering how we're looking in terms of the cadence?

Let's put Takata to one side; are you seeing recalls pretty much in line with where you were expecting, or are you seeing potentially it pick up? Because if we look at some of the numbers for your recalls, it does feel like the cadence is perhaps a little bit higher than it is for your industry peers.

The second question relates to the EBIT walk for Europe, specifically, the contribution from other. If I'm not wrong, that includes financial services and Tofas and presumably the Spider. So at plus 4%, I'm wondering is it just simply too early to see the benefits of those coming through? Or is there something else that is driving that where we are not seeing the benefit of those JVs coming through in terms of what you are seeing in growth in Europe? Thanks.

I'll give you an answer to both. The question that you've asked about the recalls, I don't have a better view today than what has already been booked as the potential recall obligations that FCA has in the United States. I think we have booked and are booking everything that we think requires intervention.

I did mention, and it started probably a couple of years ago, that as a result of the heightened level of concern, that we, together with the regulators, have now developed vis a vis the safety of our cars, that we would see an adjustment process, that it really reflects past practices in which -- reflects a zero acceptance of risk in relation to products that we sell, or at least to the best of our abilities.

I think we're done with that adjustment process. We will continue to look at these populations for early signs of deterioration in performance in the event that some things were missed. But I have no better information today. The numbers that are reflected in the numbers here today to still what the recall population is.

I just know that our efforts, the ones that are going on inside the house today, are such that we've heightened the level of scrutiny of our activities. We have devoted significant resources both in manpower and skills to this task. I think it is the best that we know of today, and I don't really have a way of judging as to whether future activities will yield additional recall requirements. I can only tell you that if we knew them, we would have booked them.

But I think this is as good as it gets for now. The whole house is tuned to a different level now, not just in terms of products that are currently in the marketplace, but also products in development. So hopefully this activity should diminish, and I think it will be a return to normalization for the industry, which I think is long overdue.

Okay. Thank you. And the European contribution?

Too early to tell. We will know more by December.

Thank you very much.

Alberto Villa, Intermonte.

A couple of questions -- the first one is on the liquidity level that remained stable during the period. I wonder if we can expect a reduction in the liquidity, available liquidity in the future, and how you think it will be phased in the next quarter?

The second one is related to the noise about emission and Germany, and so on and so forth. We have heard about it in the last few months; now it is a quiet period in terms of news on that side. Can you update us on what are your expectations in terms of this issue, which remains pretty difficult to understand from the outside?

You are -- we probably have slightly better knowledge than you do. But let me deal with -- Richard will come back to you on the first issue.

I will give you my views on this emission story. I think that we have -- I think that the reason why most of us, including the general public, is somewhat either confused or not sufficiently knowledgeable on this is because the way in which the European structure works is the rule or the rules which impact this matter are effectively established at European level, and delegation is given to the member states to apply them.

Lack of clarity at European level has left a variety of possible interpretations available to the homologating jurisdictions of cars. And therefore, a view that is expressed from country X does not necessarily have to coincide with the view that is expressed from country Y.

Historically, FCA has homologated nearly all of its cars through the Italian homologation system, which is reflective of its history in the country. And I think that the reason why this issue acquired as much prominence as it did is because a non-homologating authority in Germany decided to express an opinion on the homologation process, which was outside of its jurisdiction.

I think the assumption or responsibility by the Italian authorities on this I think is reflective of the way in which the European structure was designed to work. And I think we will continue to work with the entity to which we are responsible for our homologation activities to ensure compliance with the rules.

There is a broader question that underlies all this, which has to do with the level of specificity of the European rule and the way in which it is being applied across the country. I think it is up to Brussels to be able to provide the specificity. It is not up to us as car makers to try and interpret what that is.

I think it is only reasonable that car makers interpret that rule in the absence of specific indications about content and the manner which produces the optimal results for the house. I think we have done so, and a number of automakers have interpreted European rules in such a way.

I think it is absolutely improper for some people to express a moral opinion about compliance when the thing does meet the requirements of the legal system in Europe. I think it is an issue that Brussels needs to wrestle to the ground, with the help of the member states. I think we have done all we can, and I would expect that this issue, at least for the time being, will stop until Europe and the member countries try and find a resolution going forward which meets the requirements of all member countries.

Thank you.

On liquidity, I would expect us to be around EUR23 billion, compared to the EUR24.7 billion we have at June. Basically, we will be repaying some maturities from now until year end.

We have a EUR1 billion bond in October; we have a CHF400 million bond in November. We have some maturities in Brazil. So we will be taking it down to about EUR23 billion, and taking down the gross debt accordingly.

Okay, but in the mid-term, what is the liquidity we can expect as a target range?

We have been talking about holding a cash balance compared to today of around EUR15 billion. So we are working through that.

Obviously we have maturities in 2017 and 2018. We need to continue to improve our EBITDA performance and generate cash flow. But obviously our target is to get our total liquidity to between EUR15 billion, EUR20 billion.

Okay, thank you.

The EUR20 billion was a slip. He really meant EUR15 billion.

Right, okay.

Patrick Hummel, UBS.

Good afternoon. Three questions left, please. First, as far as the EMEA performance is concerned, the 2.5%, you indicated you are still not happy with that, and talked about the product side, and volume and mix effects coming from that. I was just curious as far as the cost side and efficiency side of things is concerned, is there any acceleration of your efforts to be expected? Because I guess the 2.5% is not what you can remotely be happy about, given the peer results we see in the region.

Should I just ask all three questions in a row? And then you can answer all three of them right away?

I can give you the answer to the acceleration question. The answer is yes.

Obviously, whenever these numbers come out -- as much as I'm appreciative of the performance of others and I'm respectful of our competitors' earnings generation, the simple question that we asked ourselves is why can't we not do that or be better than them? And I think that message has now been driven through the Organization. We have seen this happen both in NAFTA and we've seen it happen in EMEA.

EMEA has come a long way, given its earnings profile over the last three or four years. I think it needs to go the next yard, and really try and claim best-in-class margins in EMEA.

I think it's a process that's ongoing. I think we will see some improvement as the casino plan comes to full fruition with the introduction of the cars for Alfa Romeo, and I think the benefit of the full ramp-up of Levante will go a long way in terms of absorbing part of the industrial cost structure. I think we understand the task, and I think we are working on it, on both sides.

Okay, great. My second question -- in the US pickup segment we saw one of your competitors being quite aggressive with incentives as of late, namely the Chevy Silverado. I was just wondering if you could give us an updated view on how you see the Ram family doing in that environment, and what your expectations are for the next couple of quarters?

I will not give you an opinion as to what you suggested from our competitors as being the case. We did see this activity in the marketplace. It was a relatively short-lived flash; it lasted less than two weeks.

I can only tell you that we did not follow our competitor down that path. We have maintained our pricing discipline.

I'm not taking that as an indication of things going forward. I think that the sector continues to provide opportunity for all market players to try and achieve decent results, and I do not see any deterioration in the underlying economics of this business.

Okay, thank you. The last question, regarding the car production -- I appreciate you are still in progress in terms of looking for a partner. For the case that this partner is not going to be found, is it an option to actually discontinue some of the models? And could that imply further financial charges, not just writedowns, but also cash out?

No. I think that we have made -- even in that event, which is in my view unlikely, I think we have taken all relevant charges to the best of our knowledge on the discontinuation of our involvement in car manufacturing in the continental United States. So there will be no additional charges.

I don't see this as having a negative impact on our activities in the US, although I think it may impact on the marginal relevance of some of our brands not being present. Even though it is a decreasing market for passenger cars, it continues to be large. So the ability to play is important to us. I think we are making every effort to replace both the Dodge Dart and the Chrysler 200 with equivalent products on a basis which is much more economical to us than it is today.

I don't expect any drastic or draconian charges to happen in the event that a partner were not to be found. There aren't any.

Very good. Thank you very much.

Gabriele Gambarova, Banca Akros.

Good afternoon to everybody. I was wondering if you could give me some more color on the Jeep market acceptance in China? Richard Palmer said that you are going to introduce the new C-SUV already in September. It seems to me --

I think Mr. Palmer was carried away by enthusiasm. He was actually thinking of Latin America. So, as hard working as we are, I think it would have been almost impossible for us to launch the C-SUV in China by September, since we just launched the Renegade in March.

Having said that and putting that issue aside, the Jeep C-SUV will come to China. It's coming to China in 2017. The first launch of the SUV is out of Pernambuco in Brazil. It will be launched in September, which will be followed by the launch of the vehicle in Toluca for North American use. And then it will go to China immediately thereafter.

But the reaction -- a broader answer to your question, I think the acceptance of both the Cherokee and the Renegade in China so far has been quite good. I think it is confirming our expectations that the Jeep brand has phenomenal traction in that country. Now, having achieved local production, I think we are in a position to be fully competitive with -- in the Chinese market.

I think we need to wait. I think that our ambitions to sell 500,000 Jeeps in China by 2018 remains unchanged. And so that is the target.

And if I can, just a brief follow-up on Brazil. The local association said that 2017 may be a flat year in terms of registrations. Do you share this view? What you can see there?

I think a lot of it depends on the resolution of the political impasse in Brazil in the next two or three months. There is a view which I think we at least partially subscribe to that says that the second half of 2016 will indicate a beginning -- the beginning of a recovery in the Brazilian market. I think we are comforted by the fact that the Argentinian market continues to perform well, which has been a historical problem for us because of uncertainty associated with the governance in that jurisdiction.

I think if the issue in Brazil clears from a government standpoint, I think that we are much more hopeful than the forecast that you mentioned about recovery in 2017. It will not be stellar. But we are now sitting at volumes that I don't think I have seen since I have been involved in FCA. I have to go back and look at 2004 levels.

But we expect the numbers to be between 1.8 and 1.9 million cars in 2016. And that is a number that is about half of what the original forecast was for that market in 2016. So, a 50% reduction in volumes is as bad as it gets.

I think it is highly unlikely that we will continue to see a deterioration in that number, at least a flattening out of that number for a prolonged period of time. There has to be a bounce. When that bounce happens is unclear to me, but I'm hopeful that it will happen in 2017.

Okay, crystal clear, many thanks.

Jose Asumendi, JPMorgan.

Thank you. Just one item, please. You are running CapEx about EUR0.5 billion lower in the first half, year on year. I was hoping you could revisit the theme of hitting the net cash position in 2018, and give us an update on two items.

Number one, your CapEx target for 2017, possibly declining year on year. And second, what is going to be the net impact of producing less sedans in the US versus increasing the CapEx a bit on SUVs and pickup trucks? Thank you.

Jose, to be frank, I think we'll give you guidance on 2017 CapEx when we get there. I don't think it is going to be substantially different from the sorts of numbers we have been running at.

We do have some significant investments going through in the US as we renew the light-duty truck in shop and the Wrangler. We will work through it and give you a better idea of that as we get towards 2017.

Just in the gap of higher CapEx 2017 versus 2016?

That is unlikely. But let's finish 2016; let's see where we are.

And I think we'll give you -- I think the interesting thing is that vis a vis the 2018 plan, at the end of 2016 we will have an incredibly granular view of what we intend to spend in the next 24 months. And that is going to make life a lot easier in terms of guiding you towards the number for the end of 2018.

The only thing I know is that as of now, based on the numbers that we have seen and the expected performance from the launches that we have planned between now and 2018, I can give you confirmation of the fact that this leadership team believes that the numbers for 2018 are achievable. The level of comfort with those targets has increased substantially from when we launched the plan back in 2014.

So just bare with us as we work our way through the details. But I think we will give you a better view at the beginning of 2017 as we launch into the second and last year of this plan, and see whether we can bring her home.

Okay. Thank you.

Thanks.

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, Jillian. And once again, thanks, everyone, for joining us today. Have a pleasant day.

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