Stellantis NV (STLA) 2018 Q1 法說會逐字稿

Good afternoon, or good morning, ladies and gentlemen, and welcome to today's Fiat Chrysler Automobiles 2018 First Quarter Results and 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, Rowan, and welcome to everyone, who is joining us today. You'll find today's presentation material along with the earnings release under the Investors section of FCA's group website. Our call today will be hosted by our Chief Executive Officer, Sergio Marchionne and Richard Palmer, the Group's Chief Financial Officer. After their brief presentation, we will be holding our customary question-and-answer session.

Before we begin, I'd like to just point out that any forward-looking statements that might be made during today's call are subject to the risks and uncertainties that are noted in the Safe Harbor statement, which is included on Page 2 of today's presentation and that the call will be governed by that language.

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

Thanks very much, Joe. I am going to keep my remarks relatively brief. I think, the quarter, at least in the context of what we expect for 2018, was certainly in line with our own expectations. We mentioned on a variety of occasions and more in particular when we reported full year earnings that the real issue for us was to -- for 2018 was the execution of this industrial realignment that we've had that we had sort of decisioned and implemented in the United States. And the long phases that we have underway, especially the launch of the pickup trucks with -- and the new plant up at Sterling Heights has been particularly challenging. We have now devoted a number of resources from across our industrial sort of resource team internationally to try and make sure that we deal with a relatively complex set of industrial challenges that we -- in launching this truck.

We're probably running today at 60% of cycle, which is not where we need to be, and certainly it was not -- we expected to do better than that number when we got into production. We certainly allowed enough time in 2017 to get that installation up and ready to take on the challenge. It has proven to be more difficult than we expected. I have asked Richard and I think he's done so in the press release and in the analyst deck to sort of give you an indication as to what we think the dysfunctional cost associated with a less-than-perfect ramp-up for -- out of the U.S. has cost us, the number give or take EUR 2, maybe above EUR 300 million. I think when you look at the actual number of resources that we've had to devote to this, the number is probably in excess of that. So if I make those adjustments, I think the quarter has been in line. The good thing about all this is that it -- these are not permanent lack of efficiencies, I think that we understand -- we understand the issues, I think, we've put a number of remedial plans in place now to try and catch up with our expectations, but -- for the rest of the year, and that gives us the confidence to give it a confirm 2018 targets in all their aspects including the extinguishment of debt as we had originally forecast for the end of the year.

I'm encouraged by what I see in Latin America. We've just concluded a set of meetings down in -- both in Brazil and in Argentina. I think we have been able to preserve the economic value of our plant in Pernambuco. In terms of the original expectation, I think, this is a very positive thing vis-à-vis the 2022 plan. This gives us certainly a runway that extends beyond the closure of that plan well into 2025. Overall, I think the indications are that the business is in good shape. We have not seen areas of concern. We continue to work, I think, diligently at the conclusion of the -- of our work on the next 5-year plan, which will be presented on June 1.

I think, I have nothing else, really that I think should be mentioned. I mean, obviously we're pleased by the debt reduction. I think, Richard was pleasantly surprised by the size of the reduction, I instinctively believed that it was going to happen, simply because I think that we're in a phase now where the large portion of the investment profile that we had originally forecast in the last round of the plan is coming to an end. And we are now embracing the next investment cycle, which I think will take some time to materialize. So I'm encouraged by the size of debt reduction, I think, there are bets going out there now as to whether I would or would not retire on June 1. We're only less than 2 months away from that famous day, so I think, we will hold it and see what happens on June 1. But on that basis, Richard, it's over to you.

Thank you very much. So welcome, everyone, to the call. I'll now take you through the presentation deck, starting on Page 3. We started 2018 with a record quarter 1 set of results. Our adjusted EBIT was posted at EUR 1.6 billion, and our margin was up 50 basis points to 6.0%. And adjusted net profit was up 55% to EUR 1 billion, and was actually up nearly 80% at constant exchange.

We saw continued strong performance in NAFTA despite the launch costs, I mentioned earlier, and a significant improvement in our LATAM margins and volumes, which augurs well for the rest of the year in Latin America.

Cash flows from operating activities were up and we reduced our net industrial debt down to EUR 1.3 billion from EUR 2.4 billion starting point. During the quarter, we repaid EUR 1.3 billion maturing debt out of cash. And on the balance sheet, still we had 2 ratings upgrades in the quarter with S&P raising us to BB+ and Moody's raising us to Ba2.

The initial phase of the NAFTA capacity realignment plan, as we have been talking about now for the last few quarters, is coming to completion with the launch of the All-new Ram 1500 in Sterling Heights. And during the quarter, as you know, the Board authorized the implementation of a plan to eventually spin-off Magneti Marelli in due time following approval from shareholders.

As mentioned, our 2018 guidance is confirmed with net revenues at EUR 125 billion, adjusted EBIT at or above EUR 8.7 billion, and adjusted net profit up EUR 5 billion and net industrial cash of around EUR 4 billion.

Moving to Page 4. I have some product news. As mentioned, we've launched the All-new Ram 1500 in the U.S., and production is now ramping up at Sterling Heights. This is the most technologically advanced pickup now in the market. It's been getting a lot of positive feedback and now in Q2, we will start to see how it's received by consumers.

We also announced in the quarter, the fourth localized Jeep for China, the Grand Commander, which is a 3U SUV-exclusive for the Chinese market and production of that vehicle will commence in the second quarter at our Chinese joint venture plant in Changsha.

We also revealed some limited additions for Maserati and for Alfa, as we continue to work on the brand equity and the awareness of these 2 brands. We revealed a limited-edition Levante Trofeo V8 at the New York Auto Show, it's exclusive for the U.S. and Canada and we revealed for the Stelvio and the Giulia NRING versions at the Geneva International Motor Show, which play on the excellent performance of those vehicles on that famous track.

As we move to Page 5, we have the financial summary. So combined shipments were up 5%, driven by the Jeep brand, up 37%, due to new Compass and new Wrangler. This increase was partly offset by Ram, which was down 17% due to the light-duty transition in the U.S. and also due to some downtime in our heavy-duty plant as we get ready for the mid-cycle action that is planned for the end of the year. Dodge was also down, principally due to the limitation of capacity to produce Dodge Journeys, as our Toluca plant focused on volumes for the new Jeep Compass, which is produced in the same plant.

So overall, as I said, our combined shipments were up 5%, our consolidated shipments were up 7%. That drove net revenues up 9% at constant exchange, but down 2% after FX translation impacts, principally the euro U.S. dollar. Adjusted EBIT, as I mentioned, was above EUR 1.6 billion, up 5%, but up 19% at constant exchange. Our adjusted net profit was EUR 1.04 billion, a record first quarter. Our adjusted tax rate within -- sorry, our financial charges were down again about EUR 120 million due to the continued reduction in our gross average of debt. And our adjusted tax rate for the quarter was down to 20%, as we see the benefit of U.S. tax reform on our overall tax rate.

Net industrial debt, as I mentioned, was reduced to EUR 1.3 billion and available liquidity at the end of the quarter was EUR 19.4 billion, so still very strong, notwithstanding that we repaid the EUR 1.3 billion of capital markets debt at maturity. We also extended the maturity of our EUR 6.25 billion revolving credit facility by 1 year to March 2023. And finally, on the balance sheet, we still have a EUR 600 million bond maturing in July and a term loan, be in the U.S., maturing in Q4, and both of these we will -- we intend to pay down using cash, which will further reduce our leverage and our financial charges going into the second half and into 2019.

Moving to Page 6. We show the adjusted EBIT change year-over-year, firstly by segment. So overall adjusted EBIT was up 5%, as mentioned, notwithstanding the negative impact of translation of about EUR 240 million due to the weakening of the U.S. dollar. NAFTA was impacted by some launch costs as we mentioned and some delay, particularly on the Ram 1500, but still managed to show a slight margin improvement year-over-year. LATAM improved significantly offsetting some of volume reduction in Maserati and Alfa Romeo launch costs in Asia-Pacific.

If we look at the lower part of the chart by operational driver, volume mix and price, positives mainly regarding NAFTA and Latin America due to new product launches that we have been talking about for NAFTA and the ones we mentioned in the end of last year for Cronos and Argo, in particular, in Latin America. The industrial costs increased due to the launch costs for the Wrangler and the Ram 1500 as well as the new Cherokee in NAFTA.

Moving to Page 7, look at the improvement in that industrial debt in the quarter. We had a lower CapEx than prior year due to program timing, as in the first half of last year, we were spending on 3 significant programs that are now being launched in NAFTA. We expect CapEx to increase in the second half of the year compared to current run rate, as we work on the next wave of product launches, particularly for Jeep. But it's probably true to say that total CapEx for the year will be below last year, last year's number was about EUR 8.7 billion and our current estimate is to be around EUR 8 billion for the year.

Cash taxes were up in the quarter, but they were offset by lower cash financial charges, and we had some improvement in changes in provisions due to increased volumes in NAFTA, some dividends received and some supply recoveries.

Moving to Page 8. We review the NAFTA region performance. The industry remained strong and FCA sales were flat year-over-year, with U.S. retail share up 30 basis points, offset by lower U.S. fleet sales. Jeep sales were up 22% due to new Wrangler and new Compass. Ram was down 13% due to lower fleet sales as production was directed to retail as we transitioned some key products.

Chrysler and Dodge were down due to the discontinued 200 and Dart in prior period and less availability of Journey, as I mentioned earlier, as Toluca focuses on Compass production. U.S. dealer inventories were slightly down in terms of days to 81 days from 83 last year and down from year-end where -- end of '17 where we were at 86 days. Our shipments for the quarter were up 6%, driven by the new products and revenues were up 10% at constant exchange, but down 4% due to negative FX translation. Adjusted EBIT margin was up to 7.4% and 7.3% despite the impact of the EUR 300 million of launch costs mentioned earlier and some delays in the ramp-up of the new products.

We look at the walk-across below, you can see those impacts with the volume up nearly 40,000 units and also mix very strong due to large part of the volume increase being driven by Wrangler and Compass and lower Journey volumes offsetting that. Industrial costs were offsetting some of that improvement in volume mix price due to the launch costs mentioned, the increased cost of the products that have been launched and some fixed costs items relating to those new products.

We move on to Page 9, the LATAM region. So the positive market trend continued in Q1 with the market up 15% in Brazil and 19% in Argentina. Our group sales were up 12% to 127,000 units. Our market share was slightly down, in particular in Brazil due to the product transition to the new B hatch product, the Argo and the B Sedan of the Cronos, which is still being launched. Importantly, as regards to profitability, the Jeep brand maintained leadership in the SUV segments and pickup volumes are also improved.

Our inventories were stable at 35 days, the same level as prior period. Shipments were up 31% and revenues were up 35% at constant exchange, 13% reported due to translation impacts. Our stronger margin performance is shown here with 3.9% margins compared to a 1.2% loss last year, and that was driven by the 30,000-unit volume increase and positive mix price, mainly from the Pernambuco Jeep and pickup-built vehicles.

Moving to Asia-Pacific, on Page 10. The markets where I say sales were up, our combined sales in the region were flat at 62,000 units with Jeep up to 56,000 versus 51,000 last year. Our inventories were up to 91 days as we support the launch of the Alfa Romeo, Giulia and Stelvio in China and also the Jeep Compass being built in India. Consolidated shipments were up slightly to 3,000 -- by 3,000 units, driven by the India-produced Compass, in particular. Net revenues were up 3% at constant exchange, but down reported due to exchange. And our adjusted margins were down to 1.6% due to higher investments in the Alfa Romeo brand launch, in particular the Stelvio, which is basically started to get delivered in Q4 of last year, we're now in the launch phase.

Moving to EMEA, on Page 11. Sales were slightly down from 399,000 units to 390,000 this time. Our passenger car share was down due to the Fiat brand in the A and B segments, but positive performance from Jeep, which was up 42% due to Compass and Alfa, which was up 15% due to Stelvio. The LCV share was also up to 11.3%, with nearly all nameplates showing a year-over-year improvement.

Inventories are flat at 62 days and down 71 -- from 71 days at the end of the year. Our shipments were up slightly due to the new launching products I mentioned earlier. Revenues basically flat at EUR 5.6 billion and margins also flat at EUR 3.2 billion with cost actions and FX benefit on imported vehicles offsetting some negative pricing and GBP, which is pound on favorability.

Moving to Page 12, where we talk about the Maserati brand. Sales were down and shipments were also down about 20%. Revenues were down 15% at constant exchange due to some positive mix effects, but down 20% after exchange. Our adjusted margins were slightly up at 11.4%, with the impact of the volume decrease on EBIT being mitigated by positive price actions as we cover exchange impacts and cost improvements on the product as well as some SG&A actions.

Components on Page 13. Reported results were basically flat, although EBIT was up 8% at constant exchange, driven by improvements in Marelli, and margins were up to 4.8% for the quarter.

On Page 14, we show our industry outlook, which is basically unchanged for the year. LATAM in Q1 showed a positive trend with Brazil up 15% above the full year 10% we have built into our outlook. China was also strong in Q1. The U.S. was up 1%, also slightly better than our full year outlook while EMEA was basically in line. So all markets remain broadly positive to support our 2018 guidance.

And moving to the guidance on Page 15. We are confirming guidance. Importantly, in the first quarter, we have now started shipping all 3 of the key launches in the NAFTA region and we'll see the volumes ramp-up now in Q2. We confirm that we are working towards the net cash position for the June 1 event. And lastly, as you're all aware, we will be holding a Capital Markets Day in Balocco, on June 1. So thanks for your time and now I'll hand back to Joe, and we'll take questions.

Thanks, Richard. Rowan, I think, we're ready to start the Q&A, so please open the lines.

(Operator Instructions) We will now take our first question from George Galliers of Evercore ISI.

First question just relates to the North American earnings bridge and the EUR 1.1 billion step-up in industrial costs. Could you just give us some insight into how much of that related to the launches of the new products, and therefore likely dissipate in the second quarter in the rest of the year?

So George, the EUR 1.1 billion is basically about EUR 300 million, as we mentioned earlier, relates to pure launch costs, so we expect those to come down significantly in Q2 and then to become basically versus 0 in the second half of the year. And then the rest of the cost, some of it is related to the product cost obviously, we shipped about 120,000 of the new vehicles between the Wrangler, the Cherokee and the Ram 1500 and so that accounts for about 1/3 of this number. And then we also had higher D&A, higher fixed costs and R&D as well as some negative FX impact in the quarter, which we will see repeated in the second quarter, but then that will dissipate in the second half of the year as the comparative in terms of exchange gets easier. So about 1/3 of the costs really is launch cost that we obviously need to work to reduce significantly in Q2 and then to 0 in the second half.

Okay. Great. And then just on commodities, I think, Q4, you expect about around EUR 850 million headwind for this year. Can you just clarify how much of that you saw during Q1 and whether there's any update to that number?

Yes, the number remains substantially the same in terms of the full year forecast. And we had about EUR 200 million in Q1, which is about 1.2% impact.

Okay. And then just one final one quickly. Clearly, a decent step-down in CapEx to Q1. I think, again, looking back to Q4, you suggested a run rate of about EUR 8 billion to EUR 8.5 billion for the full year. Do you still stick to that guidance given the Q1 number or could CapEx actually come in a bit lower than EUR 8 billion?

We're going to stick to the guidance we gave you. You understand that there is no capital that has been committed now, which is going to have any impact on '18 numbers. These are all forward capital commitments. They're effectively pre-spending on the '22 plan. So it's not as if for slowing the machine down, it's just as part of this articulation of our view about what we're going to be doing between now and 2022. We have re-dimensioned and -- there have been some changes even in our own thinking about where capital is going to get deployed. And we will see hopefully, sort of the complexity of the choices that we've had to deal with on June 1 when we take you through the process. But there is nothing nefarious about the slowdown in Q1, I think it reflects a relevant pause in anticipation of the full deployment of the capital expenditure profile going out to 2022. The number is not in the maturity change from what Richard gave you in Q4 last year.

We will now take our next question from Brian Johnson of Barclays.

I just have a couple of questions. First, just continuing the NAFTA drill-down and second on China. Following up on the last question, I think, the underlying premise was with the additional product cost yet higher volume and mix, can we get comfortable that the new product launch is actually expand margin, because we have seen other players in Detroit launch, great new products only later to learn.

The answer is yes.

Okay. And the launch costs, I won't ask Mr. Marchionni, if you're sleeping on the floor, but do these dissipate -- how quickly can these dissipate as a things like premium freight? Is it showing up in weekly production volumes? And just how do we kind of track during 2Q, where you are going to be on those?

Yes. I think you are going to -- it won't take -- let me give you -- to begin with, I'm not sleeping on the floor, you need to be [E Long's] age to do that. I'm too old for that crap. I have done it by the way historically, but I think I'm beyond it now. Hopefully, my successor will learn how to sleep in a sleeping bag on the floor, but the -- I think the best way to gauge progress here is to watch the monthly sales that is as the new truck goes out and those Wrangler numbers start populating the monthly reporting stuff. I can't give you a better gauge than that till we report again at the end of June, but I think, it will be visible. I think you got to be careful with the Wrangler as they were phasing out -- we are phasing out the new Wrangler in Q2 and -- the old Wrangler in Q2 to make room for the pickup truck, which is going to get industrialized in 2019, at least there would be a market in 2019. We're making changes to the plant now to accommodate the vehicle issue going to production. The start-up of production should be sometime at the end of 2018. We will not see full industrial production until 2019. So we are going to -- the old Wrangler plant was cycling at about 240,000 vehicles a year, that's going to tone down as the new plant comes back up. And we should be gaining net-net to about 100,000 vehicles a year, when you compare the old with the new. That will not happen at cycle until the end of Q2. So you need to watch sales reporting numbers.

So the launch costs, I think, are they in the Wrangler plant or are they in the Ram plant?

The main costs are sitting in the Ram plant in Sterling Heights.

Okay. That's what I thought. And the next question on China and it's probably prelude to June, which is -- it's no secret you're not going to be at 500k Jeeps in China. We saw Cherokee, Renegade sales slip. What directionally are you going to be telling us about changing the China strategy?

I think you need to wait till June 1. I think it's a complex structure, especially in view of what's happening now with the changes on regulations. I know some of these are forward data, the 2022 changes on JV position. I think, fundamentally, we're not changing our strategy in terms of brand presence, it is still going to be Jeep, but I think, you need to wait till June 1 to see how that Jeep story gets deployed in Asia-Pacific, and in particularly in China.

We will now take our next question from Adam Jonas of Morgan Stanley.

I got just 2 questions. The first is kind of economic and policy, related about our crumbling U.S. infrastructure. Sergio, would you support an increase in the U.S. federal gasoline tax, which we haven't seen increase in about a quarter-century, if the proceeds went to rebuilding our roads and bridges and tunnels and -- is there a transport infrastructure?

Yes.

Next question. Sergio, when you joined Fiat, I remember saying, this is like the worst auto job in the world. Right? 14 years later, it might the best auto job in the world. Isn't this a terrible -- I know you're not going to -- we got to move on at some point and I don't think anyone expects you are going to be there in 2022. But isn't this a terrible time for you to leave the company? And no disrespect to the talented team around you, but when the chief architect of the company and its strategy launching a big plan June 1 and kind of doing a big transaction in Marelli, leaves right out of the gate, it just doesn't make any sense, Sergio. I mean, you can't leave this company so early, you just can't. And don't make me beg, but is there at least some possibility that the architect of the house could stick around just a bit longer into 2019 to see this thing through or at least get it off to a good start.

I think the likelihood of my staying on beyond what we have announced is between 0 and nothing. I hopefully -- hopefully, I'll convince you on June 1 that what we're going to present here -- we're going to present to the markets is not only a very solid plan, I think, we're leaving -- and then Richard and I have talked about this, or something like that . I think we both feel very comfortable that the '18 numbers will be delivered. I think the starting point from my successor is going to be good and I think there will be absolute clarity on the strategic direction of the group going forward. I don't think you'll need me to get that done. I think, there's -- the house is knee-deep in talent. I think, we should give them space and as you well know there's a time for everything, I think the time has come for this too. So we'll just move it on, but trust me, Adam, we'll do the right thing.

Our next question comes from Martino De Ambroggi of Equita SIM.

In any case, following the last answer, I believe, you will stay as the supervisor in extra role outside the company looking at the story very closely, that's my personal idea. The question is on networking capital, the first one. Because if I remember correctly, in the bridge you presented last year, you had a contribution of EUR 3 billion in networking capital in the 3-year period '17 and '18. This year, okay, you started as it typically happens for seasonal reasons with a negative change, but in order to match your guidance, what is expectation you have for networking capital this year?

So we expect networking capital to be positive for the full year at around EUR 2 billion and obviously, that will start to come through as you see these launches stabilize and volumes increase through the year. There's also a piece of it, which needs to be worked on regarding inventory in general. We have, I think, some opportunity as the launches come through also to reduce the level of inventory we have because of process as we launch these new cars. So the answer is EUR 2 billion.

Okay. And the second question is on Alfa Romeo. You mentioned the starting point for your successor will be good for the group, but what would be the starting point for Alfa Romeo stand-alone?

I'm not sure I understand the question about stand-alone Alfa, I don't think I ever made a comment about the brand standing alone. I think the starting point for my successor in running the group is a much better starting point that I've seen since I've been here the last 14, 15 years. I just think that -- and hopefully we'll be able to delineate the development that we expect out of Alfa and Maserati going forward as we get together on June 1, but I think the future for both of those premium brands is pretty clear. I go back to what I say -- I'm not -- the minute you start repeating yourself, you should be careful, but I think those brands today represent a pretty visible assertion of the technical skill level that FCA has been able to develop in the last few years. And I think we have spent -- if I told you how many hours we have spent internally analyzing all the architectural choices that we have had to make in connection with the launch of the new Grand Cherokee, which is coming on in 2020. And if we were to explain to you the interconnectedness of that architecture with the work that's going on with Alfa in the last 4 years, you will be incredibly surprised as to how the depth of knowledge that we acquired since 2012 in developing Alfa has actually weaved itself into the development of the Grand Cherokee. And I think we can't ignore those facts, I think they just -- they keep on reinforcing the fact that all these things are ultimately connected and that it's up to us in managing these processes just to make sure that we extract the highest level of -- I hate using that term synergy, but we extract the highest level of utilization from these investments, which have been pretty massive and large over time in fact to benefit the whole portfolio of FCA. That's something, hopefully, will become visible on June 1 as we point out the far-reaching changes that are going on not just in terms of architectures, but also in terms of engines, powertrains and the intrusion of electrification into the portfolio. So I think -- we're less than 2 months away from that day, June 1 is pretty close, so just hang on to your seat.

Okay, I hang on. And the last question on capitalization of R&D costs for Richard. In Q1, we're dramatically down because of lower CapEx. What's the amount of net balance effect you see for the full year?

I think our -- I don't think our capitalization rate for the full year will change significantly compared to prior year, Martino.

So at the end you will have a much lower positive effect compared to the EUR 1.1 billion of last year?

No, I said it'd be similar to last year.

Okay, similar, so that is a recovery.

We will now take our next question from John Murphy of Bank of America Merrill Lynch.

Just a question on the Commander in China, Sergio, just to push you a little bit on this. I mean, is sort of the problem with Jeep in China that you didn't have a significant 3-row vehicle and that's kind of where now the market is and do you see that as potential solution of maybe just extending wheel bases and that will help the sales dramatically?

You're partially right. I also think it's a question of brand positioning and it's something that -- I think it's something that needs work. And I think we've embraced the objective now. I think we underestimated -- or we overestimated the American -- the value of the American DNA of Jeep onto the Chinese market. And I think that we need to retune that DNA to make sure that it becomes absolutely relevant to the Chinese market. We started that process about 6 months ago, it needs to be completed. And I think the K8 that this new vehicle, the 3-row, the Commander, has been launched, which by the way the internal name is K8, but -- which has nothing to do with the movie. But the K8 is the first embodiment of the realignment of the portfolio to the Chinese market. There will be others, and I think that we started well, I think the car was launched, I think, today in Beijing and I think it will be in market in Q2. I think that will be really the litmus test as to whether we've made a transition well into China or not will be visible as soon as we start seeing sales numbers for the Commander.

And then just a second question on the magnetic capitalization when it spun. Should we sort of just simplistically be assuming, sort of, 1 to 2 turns of net leverage on the $1 billion of EBITDA?

Yes. Broadly speaking, yes.

Okay. And then just lastly, I mean, you guys had sort of first mover in the strategy of largely dumping your car portfolio and really pushing aggressively into crossovers and trucks. Everybody else is, kind of, piling into the cars here and, no pun intended, but piling into this strategy. What do you think this means for the crossover segment's profitability 3 to 5 years down the line? Do you think this is going to emerge or sort of trend into what the pas-car or midsize pas-car segment was as competition really ramps up and that you're going to be looking for another form factor in 5 years to kind of get ahead of the curve again?

I think the broad -- pure economic theory would suggest that you would -- you'd -- if what you suggested is in fact going to happen, and I agree that it will, that you're going to see a downward pressure on margins. The difference, at least, to us is in the uniqueness of the Jeep brand, because these brands do matter. And we've seen this on the premium side where people have been able to extract above mass market margins from vehicles that may not even have exhibited the full premium nature of the -- that the brand stands for. In the case of Jeep, it's such a unique set of attributes that I think 5 years from now we will continue to be able to preserve, certainly, a special position for the brand and I think a set of margin generations, which are reflective of the uniqueness of the brand. The Ram side is another -- is an interesting story. There is a very limited -- that is not going to be open to everybody, it is very much of a North American play, we've seen -- we see foreign car makers try and come in and play in that area unsuccessfully because I don't think they have other heritage or the grounding that the American brands have. I'm a lot more hopeful that as we continue to develop and -- the quality of these vehicles in terms of the comp and the capabilities, that the margin generation of Ram, as I would expect the other American competitors have done so far, that we will be able to maintain that sort of the margin capability of the business. I don't -- and we have been incredibly disciplined in terms of expanding capacity. We have not -- we have really sort of measured our pace to reflect market developments, we have flooded -- we haven't flooded anything, we have not over exercised ourselves in terms of creating a large buffer, which by the way has been historically the case in the car side where people have ended up overpopulating the segment and effectively driving prices where they did not have the economics -- the basic economic, including ourselves in the case of the Chrysler 200 and the Dodge Dart. So I -- 5 years from now, I think we will see little change in margin generation, subject to volume fluctuations, which I think are market dependent. But margins, I think, will be protected.

So one just quick follow-up on the Wrangler. Can you give us a rough cut at the average ATP on the old truck versus the new truck? Because it sounds like there's some pretty good increases and that would be a pretty good example of the strength of the Jeep brand?

I think we'll give you that information when we get together on June 1. I think that's going to be visible enough by then that we will have enough vehicles where we can give you some reliable data. But I think what you said is correct, and I think it's -- the new vehicle does have additional costs, I mean the vehicle is a lot better than the old one simply because of the fact that it is structurally a very different vehicle. And we've been able to maintain and preserve margins notwithstanding the transition to a higher price level.

We will now take our next question from Patrick Hummel of UBS.

Two questions, please. My first one is regarding the Ram 1500 truck. In light of the ramp up of the new truck that's a bit behind schedule, what does that mean for the production of the old truck? Can you just give us an update for how long you expect to run the old truck in parallel?

Well, given the ramp-up curve, we'll certainly run for the rest of 2018. And I think we're watching this market very carefully. We have preserved in this transition, we have preserved the ability to continue to sell the truck well into 2019, even though there may be some regulatory changes that are required to make the truck compliant. One of the benefits of having the old truck in the market is that it will allow us to play in a portion of the market, which is price-sensitive and I -- we've certainly not been able to do. So I think we're going to play this by ear as we go through. I think '18 is relatively guaranteed. I think the fact that we have the old truck running has made up for some of the inefficiencies in the launch of the new. But eventually, the new truck needs to come on full stream. And when it does, we'll be able to buffer the other to make sure that we don't effectively create unnecessary supply in the marketplace. But we have never done this, so I think we're learning in the process. I think we need to be -- to really get a much better gauge of the depth of the demand of the old to find out whether it can stay in market well into 2019.

Okay. My second question is on Maserati. You managed to protect, obviously, the margin and pricing, but volume-wise, it looks like the Levante is already softening quite a bit. Is there any reason why there was a particularly weak Q1 and we should see this recovery in the next few quarters? Or is that more structural question for the brand function first.

Very poor execution. I think -- to be perfectly honest, I think we sucked at the launch of the Levante. I think it's a phenomenally -- I think it's potentially a phenomenally successful product that I think was poorly handled on launch. I think we -- the launch of the Trofeo, which we handled -- which we did in New York about 4, 5 weeks ago was a reset for the U.S. market. I think I expect a lot more of the U.S. market for 2018 and 2019. It'll be part of the plan that we pitch on June 1, so you'll able to see it.

Okay. But irrespective of the more strategic plan then, you would expect a recovery of Maserati sales in the coming quarters? Is that what you're saying?

Yes.

We will now take our next question from Thomas Besson of Kepler Cheuvreux.

I have two, please. First on LATAM, you lifted your profitability quite substantially and that's where you surprised positively versus expectations? Can you say a few words about the potential for profitability in the region in 2018 and beyond, given the additional capacity that have been added to the region? Maybe you want to keep that for June 12, but I still (inaudible).

I can give you an indication on numbers. I think it's going to get back to double digits by '22.

Okay. So you think we could return to $1 billion plus of EBIT from LATAM?

Yes.

Great. Second question, can you say a few words about the evolution of FCS' NAFTA margin versus GM and Ford? We have -- we're seeing a relative convergence already even if it's not the exact, some accounting metallurgy. Do you believe we could have in '18, '19 or maybe '19, '20 higher FCS margins on GM and Ford? Or do you think that the industry overall is focusing on more profitable products and you're all going to go down 10%?

I made the comment that it was my sincere hope that it would happen on my watch. If it doesn't happen on my watch, in '18, I don't have a single doubt that my successor will be able whack the crap out of both of them. The machine is ready to do it. Just let them engage, all right? We'll see.

We will now take our next question from Lello Della Ragione of Intermonte.

I have two left, actually. Just on CapEx clarification. The guidance you gave in your stated points to a range of 8% to 8.5% in the first quarter they were substantially below what we were expecting compared to last year. I was wondering if that correct suiting for the reminder of the year, the CapEx expenses are going to be at least in line with this math -- in line with what you spent last year in the last 3 quarters. And then if you can just clarify a bit toward what is the main driver of the change in provision and other in your net debt reach?

In terms of the CapEx profile, we'll be at similar levels in Q2 and Q3 as last year and then essentially higher in Q4 as we start spending on the programs we'll be discussing on June 1 when we meet. In terms of the provisions that I already mentioned, we had positive because the improvement in our volumes in the U.S. and that we had increases in warranty provisions and incentive provisions. We received some dividends from JV partners, from JV companies. We had a supplier recovery in the quarter, and there was also -- and so those are the main items hitting the EUR 300 million positive you see in the bridge.

Okay. Just if I may add, on the working capital, you said still on the EBIT bridge, should we expect the seasonality effects? So meaning that the third quarter more on the negative side despite the launches or that, that trend should be somehow offset by your current top launches?

I don't really understand the question. I mean, like I said, we're going to have positive working capital for the year.

Yes, yes. On total, yes. I was just looking at -- this is an early quarter-by-quarter as the usual one should be affected significantly going forward...

(inaudible) it'll be positive in Q2, negative

(technical difficulty)

that's the seasonality. I don't see it being significantly different from that.

Our final question comes from José Asumendi of JPMorgan.

José, JPMorgan. I just want to come back to Europe where there is clearly some progress in terms of yield margins, but I think you're lagging peers. Looks to me like you've got ton of assets dedicated to the region and just hitting excess of 1.3 million units. So what is the plan going forward over the next quarter? Is there anything you can do short term to improve the product mix in the region? Or outsource production to other car manufacturers? Yes, any comments on that, please.

Outsourcing production to other manufacturers is not a short-term measure. If you're running a pizza joint, you can do it quickly. I can't do it on the car side. But -- look, I think we need to wait until June 1. I think -- by the way, you were very nice and generous when you said that we have -- we are underperforming our peers. And the answer is yes, at least not all of them. There's at least one guy who's doing a tremendous job and we're envious of what he's done at (inaudible). I think we're -- we carried out some pretty extensive analysis internally about where our shortcomings are, and I think the objective in the plan that we're going to launch for '22 is we effectively we make out that difference and move this business into a different place. We've done I think a decent job of moving it this far. I don't think we did enough to get it in the right place. Hopefully, it'll become evident on June 1 that the final step in the repositioning of EMEA is crucial. There were a couple of comments that were made by a couple of you guys in connection with the '22 plan, I think in particular vis-à-vis EMEA. Of all -- and this I will tackle head on when we get together on June 1. Of all the issues that we need to deal with strategically, as geographic areas, EMEA is the one that presents the highest level of complexity and certainly the biggest challenge because of the regulatory framework within which we're operating. And I think anything that we do, vis-à-vis 2022, has to take that issue into account and that needs to be the single largest driver of the repositioning of the business. Because ignoring that issue, apart from the financial consequences of fines, penalties, noncompliance, et cetera, which are very onerous and which are -- I mean it needs to be avoided to like the black plague. There's -- there are some fundamental consequences associated with product and positioning of the brand that we need to address. And a large portion of the time that we spent crafting the '22 plan has been devoted to that issue. And by the way, when I look at the economics, I look at return on invested time, forget about invested capital, return on invested time and the effort that's required to make EMEA reasonably profitable, not excessively profitable but reasonably profitable, one would have to wonder why one is doing it, because it is fraught with difficulty. It is an incredibly complex jigsaw puzzle. And I think we need to -- we are -- I think we've got a pretty good idea of what we want to get done. It'll become much clearer when we get together on June 1, as to why the choices that we made are what they are, because I think the consequences of taking anything else would really be a huge disturbance in terms of the 2022 objective. So bear with us. We'll talk about this on June 1.

This will conclude the question-and-answer session. I would now like to turn the call back to Joe Veltri for any additional or closing remarks.

Thank you, Rowan. I think with that we will close today's call. I'd like to once again thank everyone for joining us, and have a pleasant day.

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