Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Marco Auriemma – Head-Investor Relations

Sergio Marchionne – Chief Executive Officer

Richard K. Palmer – Chief Financial Officer

Analysts

Martino De Ambroggi – Equita SIM SpA

Philippe J. Houchois – UBS

Alberto Villa – Intermonte Sim SpA

Stephen M. Reitman – Société Générale SA

Charles A. Winston – Redburn Partners LLP

Richard J. Hilgert – Morningstar Inc.

Richard J. Smith – Citigroup Investment Research

Fraser Hill – Bank of America Merrill Lynch

Max Warburton – Sanford C. Bernstein & Co.

Jose Asumendi – JPMorgan

Massimo Vecchio – Mediobanca Securities

Fiat S.p.A. (OTCPK:FIATY) Q4 2012 Earnings Call January 30, 2013 10:00 AM ET

Operator

Good afternoon, ladies and gentlemen, and welcome to today’s Fiat Group 2012 Fourth Quarter and Full Year Results Conference Call. For your information, today’s conference is being recorded.

And at this time, I would like to turn the conference over to your host Mr. Marco Auriemma, Head of Fiat Group Investor Relations. Mr. Auriemma, please go ahead.

Marco Auriemma

Thank you, Ervina. Good afternoon to you all or good morning as the case maybe and welcome to Fiat Group’s Fourth Quarter and Full Year 2012 results webcast and call. The earnings release was issued earlier today is available together with the conference call chart set on our Investor Relations website.

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

Before we begin, let me just remind you that any forward-looking statements we might be making during today’s call are subject to the risks and uncertainties mentioned within the Safe Harbor statement, included in the presentation material. As usual, the call will be governed by this language.

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

Sergio Marchionne

Good afternoon. And before this call started, I was trying to just going towards Richard Palmer, as to what part of the presentation he do and which one I do, I decided, I’m going to do as little as I can.

So I’m on page three, I’m going to give you the things I think are important to me. A couple of points for those of you who have been with Fiat during the last nine years, what we reported today was the record high earnings, and the record high earnings even if I were to into the highest recorded earnings that we had were 2008, which was the year in which we made about €3.3 billion.

And there was a different Fiat; it was a Fiat that included all of Fiat Industrial. Those of you, who have been following, I will give the numbers for Fiat Industrial tomorrow, but this year we ended up making €3.8 billion without the industrial side, which a step another historical record for a 114 years worth of performance.

So I’m looking back what has happened in ’12, I’m incredibly delighted that the operation performed as well as they did. There’s a relevant item on slide three on the top portion of the graph on the right, which probably says more than I could possibly express about the transformation of this group has grown through since 2009.

In 2012, Italy has a car market for the mass market side represented less than 10% to overall turnover. It was roughly 8% of total revenues, and it tells you something about how the group has transformed itself from very much of a European, Italian centric car maker to one that is now looking at the world in a complete different way. We have a significant presence thanks to Chrysler.

To the North American car markets we continue to make significant in roads in terms of maintaining our share in a growing market in Latin America. And I think have laid out now, what I considered to be a very clear strategy of how to eliminate, our losses out of the map, by reappointing our production assets towards a different side of the car business something, which is not impacted as negatively as the mass market has been in the last five years by decline in volumes, and which really give us an opportunity to try and give rejuvenate two of the historical brands that has sat within this group, and that’s gone so far un-exploited.

We shipped 4.2 million vehicles for 2012, which obviously is historical record. We are able to issue at least five bond issuance in 2012 raising about €2.5 billion. You may have seen from the press release this morning that we had authority renewed by our board to go back and issue up to an additional €5 billion authority that expires at the end of 2014.

And I know that a lot of you are interested in what’s happening with VEBA, so just to confirm the fact that VEBA has notified us of their intention to require a registration of the securities, with a view of doing an IPO of Chrysler, we’re obviously complying with our request, and we will work with VEBA to go through the necessary steps to get us ready for an IPO. The answer to the question is what will happen whether effectively we go public or not is very simple, if we cannot find the way to satisfy VEBA, then I think the Company will go public. It is my objective at the end of this process regardless of how we get there of Fiat and Chrysler to effectively end up being one combined corporate entity.

The timing of that as I’m clear to me as is the manner in which it will happen, but the objective is pretty effectively now cooperatively reflect, what’s happened from the leadership standpoint, which has the leadership teams combined and effectively managing a global organization.

The important thing about 2012 is that it’s not a one-off event for confirming our performance for 2013 in line with previously given guidance. Operating profit, trading profit are roughly €4 billion to €4.5 billion for the year, and net income of $1.2 billion to $1.5 billion, and net industrial debt of over $7 billion, which reflects a pretty half of the capital expenditure program in 2013, both on Chrysler side and Fiat side.

We have decided today at the Board this morning not to pay a dividend, not withstanding the earnings generation of the house. That’s purely driven by prudent and the fact to the extent that our cash requirements of, there may be a cash requirement to trying deal with some or all or part of the VEBA’s interest in Chrysler that Fiat may have the wherewithal to execute on that plan.

Richard will tell you more about the available liquidity within the Fiat Chrysler world, but well in excess of €20 billion, and obviously, that’s more than enough try and satisfying the requirements that VEBA may have in the event, that work to be kind of a possibility and something, there is of interest to Fiat in terms of acquiring the remanning site.

Of that note, Richard will take you through the intricacies of 2012.

Richard K. Palmer

Thank you and good afternoon everybody. 2012, as mentioned we closed with a historic high results, revenues are €84 billion, trading profits, €3.8 billion and net profit of €1.4 billion. Net industrial debt was €6.5 billion, and total available liquidity was in excess of €20 billion. In the year, as we mentioned, we successfully access capital market for total €2.5 million in the year of which, €0.7 billion was in Q4, and we have confirmed our guidance for the numbers we showed you in the October call for 2013, with the numbers that Mr. Marchionne just mentioned.

So we can go on to page 4, through 2012, we continue to manage the supply and demand function very carefully, which allowed the group to conclude the year with inventory levels in all of our regions appropriate levels for the market activity. In the Americas, the group continue to lose all of the flexibility instruments available to maximize production output.

And in EMEA production stoppages and together with temporary layoffs, we used to manage the continuous market as well as the reduction of the work force in Poland. Temporary lay-offs in Italy were also applied to the white collar work force where discretionary spending was further cut.

On the industrial side our plants continue to achieve world class manufacturing awards and savings and the program is contributing about €0.5 billion of savings for the full year. We saw some significant product introductions in 2012. In NAFTA, the Dart, the Viper, and the Ram Light Duty pick-up, the Fiat new Panda and 500L were launched in EMEA, and the New Grand Siena and Jeep Compass were launched in LATAM, together with the Dodge Dart. And our partner, Fiat Viaggio was launched in China and 2012 also saw the reintroduction of the Chrysler brand into China.

Moving on to slide five, we touch the started the process outlined in our business plan presentation in October of refurbishment Fiat’s manufacturing footprint in Italy to produce vehicles for the relaunch of premium brands, and for the positioning of Fiat and the internationalization of Jeep. We will continue to use them for that, a lot of flexibility during the industrialization of phase of these new models.

Today, we officially presented a new Maserati plant in Grugliasco where the Group will make total investments in excess of €0.5 billion for plant upgraded and refurbishments in order to produce initially two new models, the new Quattroporte and the new Ghibli for the Maserati brand, which will be launched in the first half of this year.

In Melfi, we recently announced an investment program in excess of €1 billion, which will be evenly split between Chrysler and Fiat. these investments also modified the existing production process as to accommodate the new modular small wide architecture and to produce two new vehicles beginning in 2014.

For worldwide sale, Fiat 500X, the latest addition to the 500 family, and the New Jeep SUV, which will be a brand’s entrance into a new segment. During 2012, the production ramp up, the Panda was concluded at Pomigliano where we invested €800 million, and the plant receives manufacturing quality standards within the Group and was prized with the Automotive Lean Production award already mentioned.

Moving on to page six, we can see the Jeep brand progress. 2012 was a record year also for Jeep with an all-time global sales record. vehicle sales increased about 20% to 702,000 units worldwide, with an increase in all major global regions beating the previous record of 675,000 vehicles in 1999.

Internationally, Jeep is gradually expanding with an annual growth rate higher than 40% over the last two years, the best performing Jeep was the Grand Cherokee; Compass and Wrangler have their best years globally with growth rates of 20% and 16% respectively.

Page seven shows the financial performance with comparisons to 2011 pro forma numbers with Chrysler consolidated from January from comparative purposes. The top line was up 12%, €84 billion or 8% of constant exchange, and reflected volume growth of mass-market brands in NAFTA, LATAM and APAC more than offsetting the declines in EMEA.

Luxury and performance brands were up 7%, with component substantially in line with prior year. Group trading profit was up 18% on a pro forma basis to €3.8 billion or 11%, a constant exchange, with trading margins of 4.5%. Trading profit for luxury and performance brands reach nearly €400 million, with a 13.5% margin while components were to €176 million with a 2.2% margin.

Net profit for the Group was €1.4 billion, compared to €1.7 billion reported in 2011, which include the Chrysler from June 1, excluding unusual net profit was €1.7 billion compared to €0.7 billion in 2011. Profit attributable to owners of the parent were €350 million; for Fiat excluding Chrysler cash flow was a negative €2.6 billion for the year, driven by the net loss, negative change in working capital, and CapEx from new products.

In Q4, there was a positive cash flow of €0.4 billion in line with Q4 2011. Chrysler had a positive cash flow of €1.6 billion in 2012, a slight increase CapEx of €4.3 billion, with a negative cash flow of €0.2 million in Q4 due to the seasonality, and for Q4, no more shutdowns for the holiday period.

Group liquidity was slightly higher than year in the ’11, and totaled €20.8 billion. Fiat ex-Chrysler was at €11.1 billion, and Chrysler was at €9.8 billion.

Moving on to page eight, as I mentioned group revenues were up 12% on a pro forma basis, with the mass-market brands up 13%, reflecting volume growth in NAFTA or 19% at constant exchange and APAC of 50%, LATAM remains strong, while EMEA declined 11% on the back of a continued deterioration in European demand, particularly in Italy. Luxury and performance brands were up 7% mainly driven by growth in North America and Asia Pacific.

Moving on to slide nine, investment income includes a $160 million for EMEA, and is down compared to prior year due to investments in our Chinese JV and non- cash impact from the Fiat stake. Unusual include the write down of the investment in SevelNord that we talked about in the last call as well as provisions for restructuring and for some disputes related to operations terminated in prior years in India.

The net financial expense for the year were €1.6 billion, financial charges for Fiat ex Chrysler were €825 million, which included a €34 million gain on the mark to market of the Fiat stock option related equity swaps. This compares to €796 million in 2011, which however included that a €108 million loss for the same instrument.

Net of the impact from equity swaps the increase in net financial expense of €170 million mainly reflects the higher net debt level.

Income taxes primarily related to taxable income of companies operating outside Italy, and employment related taxes in Italy for Fiat ex Chrysler taxes were €420 million, slightly lower than the prior year.

Page 10, the change in net industrial debt which was negative €1 billion for the year, bringing group net industrial debt to €6.5 billion, down €0.2 billion from September. Industrial EBITDA contributed for €7.6 billion positive, offset by €7.5 billion of CapEx, and €2.4 billion of financial charges and taxes.

Working capital had a positive contribution of €0.7 billion. Chrysler contributed positively to €1.6 billion, despite increased CapEx, producing net industrial debt to €1.5 billion, while Fiat ex Chrysler reported a negative cash flow of €2.6 billion in the year driven by the net loss, negative change in working capital of €0.6 billion, and CapEx on new products for €3.6 billion. As a result net industrial debt of Fiat ex Chrysler closed at €5 billion, improved by €0.4 billion from the September level.

Moving on to the review of the performance by regions. Page 12; the NAFTA region posted a strong financial performance on a pro forma basis. Revenues were up 29%, constant exchange were up 19%. Total vehicle shipments were up 20%, with increases across all markets in the U.S. 20% up, Canada up 9%, and Mexico up 17%.

Trading profits was up 59% year-on-year driven by volume and pricing gains partly offset by industrial costs and advertising costs.

Group vehicle sales were up 18% to nearly 2 million units primarily reflecting a 21% increase in the U.S., in the region of the sales of passenger cars increased approximately 40%, and SUV and trucks by 11%.

And the U.S. and Canada combined all brands were up significantly posting double-digit increases.

The walk on page 13, details of increase of nearly €1 billion in NAFTA EBIT in the year. The improvement was driven by the increase in shipments of 330,000 vehicles, partially offset by some negative mix. The positive net pricing impact grew by €500 million reflects pricing actions taken throughout the year, including due to product content enhancements. Industrial costs were impacted by higher manufacturing costs, related to additional shift principally and increased vehicle content partially offset by purchasing and world class manufacturing efficiencies. The negative change for SG&A mainly relates to higher advertising expenditures and headcount cost to support business growth.

Page 14 shows the U.S industry with up 13% versus last year, with cars up 19% and trucks up 9%. The group sales outpace the industry, posting a 21% increase for the year. With December recordings of 33rd consecutive month of year-over-year sales gains. 2012 market share was up 70 basis points to 11.2%, and fleet mix decreased 200 basis points versus a year ago 26%.

In Canada, the industry was up 6% from prior year, with group sales growing inline with the market. The group posted its best calendar year retail sales since 2000 achieving annual sales records for the Ram truck, Jeep Wrangler, Chrysler 200 and Fiat 500, for a market share of 14.2%.

Moving on to page 15, the LATAM region closed the year with an excellent performance particularly in Brazil, with a market reaching an all time record for the industry of 3.6 million units for the year, thanks to the incentive packages introduced by the government in May last year, and the lowest real interest rate in Brazil history.

Q4 was the best ever fourth quarter for the Brazilian market, which nearly reached 1 million units of sales; on a pro-forma basis the group revenues was substantially in-line with the prior year, up 5% at constant exchange.

Group shipments were up 5% with Brazil up 9% to 845,000 units. Argentina was down 15%, and other LATAM markets were down slightly. The region posted a strong trading profit of €1.1 billion maintaining double-digit margins, despite the decrease in absolute terms of 25% over the prior year or 22% of constant FX attributed primarily to cost inflation, pricing pressures and currency translation.

In the marketplace, Fiat outperformed the strong Brazilian market reaching a 23.3% share up 110 basis points versus 2011, and maintained market leadership the 11th year widening the distance from the number two player by over 30 basis points by 210 basis points.

Our regional labor market share was up 60 basis points to 16.8%, the group ended the year with appropriate inventory levels with day’s supplies reduced by a week compared to year-end 2011.

Slide 16 shows the EBIT walk of LATAM continued price pressure along with inflationary cost increase and higher depreciation due to new vehicle launches contributed to the decrease in EBIT partially offset by about $90 million of positive contribution from higher volume, and increased manufacturing efficiency.

Page 17 moves to the market trend for LATAM. Group sales outpaced and sustained market growth in Brazil bringing the group to end the year with a 23.3% mentioned before, the 2012 margin in Brazil experienced the mix performance with the second half particularly strong, boosted by the introduction of several economic stimulus measures by the government, these measure were in place through end of 2012, and were expected to gradually phase out during the first half of 2013.

At the end of September, the Brazilian government also approved the so called Inovar Auto Program to ensure continued growth for the Brazilian car industry and to support the long-term development of the domestic car industry through subsidized incentive programs, providing local investments in energy efficiency project, R&D and engineering and domestic production.

Given this high level of localization, the group is well positioned to fully benefit from this program.

Slide 18 deals with the market trend and business dynamics in APAC. The region enjoys stable trading conditions in the quarter, with demand increasing in most of the Group key market. The Jeep brand was the key contributor to the growth in revenues which were up 50%, shipments increased to almost 40%.

The trading profit was $260 million, nearly double the prior year benefiting primarily from growth in volumes and some favorable currency translation. Trading margin increased to 8.3%. Retail sales including JVs were up 28% to 115,000 vehicles on the back of a strong performance Jeep, Fiat and Alfa Romeo. In particular, the Jeep sales which account for more than 60% of total APAC sales were almost double last year’s level.

Also the Chrysler doubled its volume with the return of the all new 300C and Grand Voyager. In India, the newly formed Group owned Distribution Company is on track to take over distribution of Fiat Group sales in 2013. In Australia, Chrysler became the sole distributors for Fiat, Alfa Romeo and Abarth brands in the country for May.

Moving to page 19, EBIT in APAC improved from $119 million last year to $255 million for the year reflecting the positive contribution from volume across all APAC countries, improved net pricing and lower incentives and result from JVs, particularly the improved performance in India. On the negative side, industrial costs were impacted by taxes and duties and higher selling expenses to support the continued growth in these markets.

Moving on to page 20, sales were up 28% in the year, driven by the strong performance in all key market where we have performed the industry by 12 - which grew by 12%. In Q4 sales were up 40% in the market, which grew by less than 10%. In China, Group sales were up 45% to 57,000 units for 2012 on the back of a more than 100% improvement by Jeep and the recent launch of the Fiat Viaggio. Q4 sales more than doubled last year with the Fiat Viaggio sales accounting for almost one-third.

The group continue to gain share in Australia, up 55 basis points, 2.1% posted the best full year sales improvement in the market, up 15% against on a 11% increase for the overall market.

Japan sales were up 35% led by Alfa and Jeep; sales improved 23% for the year in South Korea, despite a slightly contracting market driven again by Jeep Chrysler.

Moving to EMEA, on page 21, difficult trading conditions persisted throughout the year, particularly in the Southern European countries and also the German market contracted in the second half. Both passenger car and LCV segments were at historical lows in Europe. The lowest level since 1995 and 1996 respectively.

With the competitive environment characterized by structural overcapacity and persistent pricing pressures particularly in the mass market segments. Revenues for the full year were down 11%, mainly reflecting the volume declines. Overall passenger cars and LCV shipments were down about 14% for the year, mostly attributable to Italy, followed by France and Germany.

In particular EMEA passenger cars were down 14% to 810,000 units and LCVs were down 15%, to 202,000 units. The full year trading loss were in line with our expectations at €700 million with the Q4 loss nearly halved versus the same quarter of last year.

Industrial efficiencies, WCM synergies and disciplined SG&A spending will enable to counter the negative volume and price effects. Although the results show the effect of further cost containment actions taken in the second half.

As a result of disciplined management of the supply and demand function the company and dealer inventory level at year-end were stable at around two months supply. This resulted in an average capacity utilization rate at France and EMEA of slightly lower than 70% under the Harbor definition or 44% under the Technical definition.

Page 22, shows the walk for EBIT for EMEA, as we already mentioned a decline in ‘12 was mainly due to the effect of the lower volumes and continued pressure on pricing. On the positive side, the improvement in costs both in industrial areas and in SG&A recovers some of the loss in volumes.

Page 23, sales of the passenger car segment in Europe, the industry was down nearly 8% with declines in most major markets. A double-digit slump in demand was experienced in Italy, France, and Spain while Germany was also slightly down year-over-year. The only exception was the UK market which counter the trend with 5% year-over-year growth.

Group sales were down nearly 16%, so just short of 800,000 vehicles representing a 60 basis point decrease in group share year-over-year, almost entirely attributable to unfavorable market mix, that the Italian market weight was further pleased by 170 basis points compared to 2011.

In Italy, the market demand was down 20% reaching the lowest levels since 1979 and the worst year-over-year declines since 1993. The Group share gain of 20 basis points reflected positive performance in the A segment and the SUV and small MPV segments.

Looking at the LCVs on slide 24, in 2012 the market was down nearly 12%, with the decline driven mainly by the Italian market even if all major market posted double-digit decline.

Brand sales were down 18% to 185,000 units, with Ducato ranked among the best selling commercial vehicles in its category for the sixth consecutive year, and registered doing its highest ever segment share.

Market share in Europe for the year, was down about 80 basis points, mostly attributable to unfavorable market mix, with share loss in Italy attributable to significant fleet renewal activity in 2011. Share in Q4 was stable year-over-year.

On slide 25, we look at another strong year for the Group’s luxury brands, Ferrari revenues were up 8%, €2.4 billion, driven by volumes and favorable product mix. In the year, Ferrari shipped a total of more than 7,300 street cars representing a 5% increase over the prior year, and an all time record for the brand. 8-cylinder models there was a 3% increase year-over-year, and 12 cylinder models were up 11%, driven primarily by the new FF and the new F12 Berlinetta, which contributes in the fourth quarter.

In terms of markets, North America remained the number one market for Ferrari, where shipments were up 15%. In Europe, the UK recorded the best year-over-year performance, followed by Switzerland, and Germany. Shipments in Italy declined by nearly 50%, reaching 300 units, the lowest level since 1993. China, Hong Kong and Taiwan were all up.

Trading profits was up 12% to €350 million in 2012, on the back of higher volumes, more favorable product mix, and positive contributions from the licensing of financial service. Margins improved by 50 basis points to 14.4% for the year, with the fourth quarter margin improving to 17.5% to 15.5% in the prior year.

Maserati revenue increased 8% to €634 million, benefiting from higher volumes and positive currency impacts. Nearly 6,300 units were shipped in 2012 corresponding to 2% year-over-year increase. The U.S. remains the number one market, it’s about 3,000 units. It’s the best volume shipment performance in the years. With China confirmed as the brands second largest market.

The Middle East grew by 37%, while Europe was down 30% versus a year ago. 2012 trading profit was €42 million inline with last years level thanks for the positive impact of higher volumes and continued improvements in operating cost offset by production start-up cost for the new model that are being launched in 2013.

Components on page 26, Magneti Marelli revenues in 2012, it’s expansion in line with the prior year, with the lighting business up 13%, electronic up 21%, and aftermarket business up 2%, instead there were decreases for the remaining businesses. Overall Magneti Marelli had positive performance in Germany, in NAFTA, in China was difficult trading conditions in other European markets remained.

Performance in Brazil was excellent first half, further improvements in the second-half. The year-over-year decline in trading profit was primarily attributable to lower volumes in EMEA; cost associated, with the significant number of production status in the NAFTA region, and cost inflation in Brazil, which were only partly offset by cost containment and efficiency gains during the year.

The order in-take €1.6 billion for the year was inline with Group’s expectations; Teksid revenues were down 15%, with trading profit almost reflecting the impact thus volume declined.

Revenues for Comau were up 6% with trading profit year totalling €36 million, a €26 million increase year-on-year principally attributable to body welding and power training system activities.

On page 28, we can see NAFTA the recently launched Ram 1500 pick up is the best-in-class for fuel economy, and equipped with leading edge technology of 8-speed transmission. This product was named “Motor Trend Truck of the Year”, along with receiving six other prestigious awards.

In Q3 Dodge Dart, was launched and was named most environmentally progressive car for the year 2013. On the 2013 Detroit Auto Show the Group introduced the 2014 model year Jeep Grand Cherokee, with a new 3.0L EcoDiesel V-6 Engine, with best-in-class 30 miles per gallon, and the new 8-speed automatic transmission.

We also introduced the upscale Summit model and the SRT model with revised sports styling, improved towing, and improved fuel economy, again with the 8-speed transmission. Major contributors to the 18% sales growth in the U.S. and Canada are shown on the right-hand side of this chart.

Moving to slide 29, 2012 was a record year for the Group in Latin America with new all time production record on the sales in Brazil, while the Group posted the best performance in its 36th year operating history in the country. A 11% growth of the Group sales in Brazil are the significant contributions from the A and B segments, where sales are up 18%, and resulted in regaining the segment leadership with 170 basis points of distance versus the nearest competitor. The Fiat Strada was another strong contributor to the year’s performance with over 100,000 units sold in the year.

Moving to slide 30, which deals with APAC, there was a successful launch in September of the all new Fiat Viaggio in China. Its volumes in Q4 accounted to almost one-third of the total Group’s sales in the country. There are two upcoming new versions, and the broader distribution network throughout China will support volume expansion for the Viaggio in 2013.

In this December 2012, the Chrysler brand made its return to China with the Chrysler Ypsilon, the first small hatchback in the Chrysler brand line up, launched along side the all new Chrysler 300C.

As for as EMEA is concerned on slide 31, the Group launched the 500L in September available across Europe during the last quarter of the year. In Europe, the 500L reached the segment share of 9% in Q4, and ranked number one, and number four respectively in Italy and Europe, in its relevant segment in December. Some model offerings will expand in 2013, with the addition of TwinAir Turbo and the 1.6L MultiJet II and also with CNG and Trekking models along with a 7-seater version.

The New Panda was the most sold city car in Europe, with total shipments of nearly 190,000 units in 2012. Alternative fuel powered model accounted for over 20% of total sales. Since the all-new Panda 4x4 was awarded “SUV of the Year”, for 2012, by TopGear magazine and in Q4, represented 17% of Panda sales in Europe.

Now move to slide 32, for the industry outlook for 2013. The U.S. industry is expected to grow about mid-single digit over the prior year to a projected level of 15.5 million units. The Canadian market in 2013 is projected to remain substantially stable at 1.7 million units. LATAM is expected also to grow by mid-single digit with a Brazilian industry expected to post 5% increase over 2012, and Argentina both were around 2%.

In the APAC region, demand for 2013 is projected up 5% driven by strong growth in China and India, offset by some contractions in Japan and Australia as the industry normalizes after a strong recovery in 2012. In the EMEA region, the passenger car market in Europe is expected to remain substantially stable in 2013 versus prior year. Among the major markets, Italy and Germany are projected to be stable with Spain slightly up, and UK is slightly down. The LCV market is projected to decline further by around 5% in Europe with Italy stabilizing.

On the back of these markets assumptions, turning to page 33, the Group is targeting shipments in 4.3 million to 4.5 million units range for the mass-market brands in 2013, of which half will be in NAFTA. LATAM and EMEA are expected to account for about 1 million units each and APAC is aiming to almost double the last year shipments.

Finally on slide 34, we confirm the targets underpinning the Group’s plans presented on October 2012 with guidance for 2013.

Marco Auriemma

Thank you, sir. Irwina, now we can get started with the Q&A session. Please go ahead.

Question-and-Answer Session

Operator

Thank you (Operator Instructions) I will take our first question from Martino De Ambroggi from Equita.

Martino De Ambroggi – Equita SIM SpA

Yeah. Thank you for taking my questions. I can imagine you cannot share with us your strategy on how you can get Chrysler minorities, but could you elaborate on, what absolutely cannot be done in order to exclude some scenarios , and the second part of the question, are you already planning some potential possible divestiture. The second question is on price pressuring in Europe. I noticed in Q4, the effects were slightly improved, but do you see any change going forward for the current year, and last is on Brazil, if we can expect further improvement for trading profit this year in Brazil. Thank you.

Sergio Marchionne

Let me deal with these answers. The pricing pressures in Europe have not lessened, I just saw this wire coming from telling that Carlos Ghosn is now forecast a gloom and doom scenario for Europe until 2020. I don’t think anybody is going to survive and to last that long until 2020, I think we are talking about science fiction here, but certainly we do not expect the pricing will improve in the first half of 2013. We may see a restoration of some pricing power in the second half, but I think we need to watch it very, very carefully. The market is still encumbered with this whole issue about demand supply balances. I don’t think we are going to see a significant improvement in that situation until some of the capacity. This has been announced to be taken out the Ford reductions and the French reductions effectively are executed. And we get some relief from supply.

The issue on the trading profits in Brazil, we do expect the continuation of double-digit margin performance. I think to the extend we expect the numbers to be up, in volume in 2013, we would also expect an improvement in the absolute numbers. The important thing for us is to maintain the double-digit performance, and remain as close to the leadership position as we’ve been able to do now for I guess for 11 years.

The answer to your first question, I find intriguing, it’s not a question of revealing a strategy, I’m going to tell you the secret to try and deal with the dealer position, it’s called cash. There is no mystery in this. The only thing that’s going to make VEBA back all the way is cash. That’s all fundamentally a question of price. The question is price, it’s a question of timing when the cash get delivered, and we’ll work with VEBA in terms of meeting their expectations. If we cannot resolve, if Fiat cannot help VEBA in the process, let the market help them. The whole purpose in providing a foreign IPO close, starting January 2013 as part of the deal that we signed in 2009 was to give them an exit from Chrysler; hence we all know they are no long term holders of the position. They have to satisfy claims under the trust that VEBA has, and so the faster we do, the better it is, obviously it is up to them to decide when they exit fundamentally it’s the question of money.

And you’re asking about, whether we are planning divestitures to meet that target, you’re seeing the liquidity numbers are sitting within the Fiat Chrysler worlds certainly the Fiat price has an off cash resources to try and deal with this in the event of an opportunity were to arise. No use talking about divestitures today, I think we need to give a speculation about what maybe on the block going forward. There is nothing planned, we will manage our way through the process and we’re pumping to announce, we’ll announce it.

Martino De Ambroggi – Equita SIM SpA

Okay. Thank you. Very clear thank you.

Operator

We’ll take our next question from Philippe Houchois from UBS. Please go ahead sir.

Philippe J. Houchois – UBS

Yes, thank you. Few questions, could you tell us what is the pretax benefit of your capitalized development comps at the group level for the full year? Can you tell us, you’ve answered that a question that before several times, but I just want to ask it again is, have you have to pledge any of your assets to refinance in the past two quarters in the second half, back of Q3.

Sergio Marchionne

The answer to that question is no.

Philippe J. Houchois – UBS

I expected no again, I just have to ask a few (inaudible) quarters. Then I have a question on the, if I look at the Q3 report of Chrysler, there is on page 33, a payable to Fiat of about, of about exactly $533 million, what is that and how is that changed since then how much payment of cash, has there been from passed to Fiat or how should we read that table?

And then lastly, you don’t give us the production clearly anymore on Europe. You’ve given a guidance of net debt, the big moving part on your cash flow for Europe, is the change in production, and the impact on working capital. Could you give us a guidance on what you plan to produce in 2013 in Europe verus last year, percentage will be fine.

Sergio Marchionne

I think Richard can take you on, so…

Richard K. Palmer

Hello, Billy.

Philippe J. Houchois – UBS

Hi.

Richard K. Palmer

So the effect of capitalized R&D is on page 41 on the back up, it’s about €1 billion, in U.S. GAAP and IFRS.

Philippe J. Houchois – UBS

Can you give us impact in aftertax there?

Richard K. Palmer

Sorry.

Philippe J. Houchois – UBS

You give us a Chrysler impact and interesting about the group, the contribution to EBIT capitalization minus amortization.

Richard K. Palmer

Well, on the rest of the group, it should be I need to check, but I think it’s basically a walk on the rest of the group, because R&D number is basically pretty stable. So that the benefit is obviously on the Chrysler side, where we just implemented IFRS and so therefore our capitalization number is bigger than the amortization number.

Philippe J. Houchois – UBS

Okay.

Richard K. Palmer

On the rest of the group is basically a wash because we’ve been doing this IFRS for a long time now.

Philippe J. Houchois – UBS

Okay.

Sergio Marchionne

On the payable of Fiat for Chrysler, Fiat buys vehicles from Chrysler for European distribution that payable relates to.

Philippe J. Houchois – UBS

It’s just on the sales of Fiat 500 in the U.S. and stuff like that. Yeah.

Sergio Marchionne

The sale of Fiat Freemont and Lancia badged vehicles in Europe, north side of the U.S.?

Philippe J. Houchois – UBS

Okay. So there’s no more trading, there’s no additional terms for our cash.

Richard K. Palmer

On the one side, and on the other side, it’s Fiat 500 going into South America from Fiat and the Journey as well.

Philippe J. Houchois – UBS

All right. Okay.

Richard K. Palmer

Nothing is pretty flat. On production in Europe as we said, we said basically, we think the European market is pretty flat. we would hope to be slightly up because of the new product coming in for 2013. And so working capital, we expect to be positive compared to the negative number we had in 2012.

Philippe J. Houchois – UBS

All right. Okay. Great, thank you very much.

Operator

And we’ll take our next question from Alberto Villa from Intermonte. Please go ahead.

Alberto Villa – Intermonte Sim SpA

Yes, good afternoon. Two questions if I may, the first one is on the target of net profit you’ve given for 2013, $1.2 billion to $1.5 billion. Does that include the impact you’re showing in slide 43 regarding the new IFRS 19 impact?

Richard K. Palmer

Yeah.

Alberto Villa – Intermonte Sim SpA

Okay. The second question is on the bond program, if you can elaborate a little bit on what you’re expecting, you could issue this year regarding the €5 billion program you have been renewing during this day, board of directors today.

Sergio Marchionne

The $5 billion is only the authority that we have and it’s the maximum amount that we could issue under the board authority that was granted. We normally don’t indicate the timing of our bond issuance, there’s noting that has been planned for today or tomorrow.

Alberto Villa – Intermonte Sim SpA

All right.

Sergio Marchionne

But obviously, our ability to refinance, you saw the activity in 2012, they were five bond issuances, they raised €2.5 billion. So we do rollover to debt, I think we want to have the opportunity to step on to the market, whenever the market is adequately conducive through capital raising, and I think we needed the authority behind us. We have done this big enough for us to deal with the variety of things whatever they maybe, but I think that the important thing is that there’s nothing planned right now, but there will be used to rollover debt and maintain the level of liquidity that we have in the system, I think it continues to be a key objective, that we understand that it’s a pretty expensive carry, just being from the interest expense line, it is really creating a big dent in our P&L.

So it’s the price that we have to pay given the uncertainty that would be in the market and given a possibility of having to move strategically on issuance they will be facing.

Alberto Villa – Intermonte Sim SpA

Okay. but just markets now look better for this kind of corporate debt. So it might be the case that you’re being issuing more than (inaudible) finance bond in the next…

Sergio Marchionne

When you mean this corporate debt, you mean junk?

Alberto Villa – Intermonte Sim SpA

No, I mean any kind of corporate debt.

Sergio Marchionne

Thank you very much. I didn’t want you to single me out of being distinct here in the room, but I understand the credit market was sufficiently liquid to allow us raise funds.

Alberto Villa – Intermonte Sim SpA

Okay, thank you.

Sergio Marchionne

Thank you very much.

Operator

(Operator Instructions) And we’ll take our next question from Stephen Reitman from Société Générale. Please go ahead.

Stephen M. Reitman – Société Générale SA

Yes, good afternoon. could you comment a little bit about utilization rates in the Italian and the Polish plant impact of over the move of the Panda or the new Panda release to from Italy, and also on the ramp of the 500L in Serbia, please.

Richard K. Palmer

Clearly, the move of the Panda as the means that we have Pomigliano working more than zero, because that many vehicles left. So we have positive effect on the Italian plants and obviously Poland has because of the 500 is still there, and old car is still there, we have a good utilization rate, but it’s not as high there has been historically, because we have one less vehicle there.

Sergio Marchionne

Just to reinforce on Richard. It was not an economically driven decision. I think there is an negative impact as a result as we move the car out of Poland into Pomigliano. I’m not going to tell you what their number is, but it was part of our commitment to revitalize the Italian industrial infrastructure. I think when you add up the positive benefit of all these things including the commitment that we made to Pomigliano. I think we are better off in the medium to long term. Even though on the short term I think we are paying the price for the disclocation of activity out of Poland. It was a very different choice, that we have to make. We find it very unpleasant to reduce that kind of 1,600 people on Poland, which is what has happened. I think the work force has undoubtedly delivered historically well beyond our expectations, and we need to find a way, and we’ll work intelligently now to find another car that can replace the Panda that was displaced that you utilize the architecture that’s installed in Tiki. It has to be down to try and balance the demand and supply, they paid the price because of the reallocation in the medium to long-term, I think on an EBIT basis, there’ll be positive for the house.

Stephen M. Reitman – Société Générale SA

All right, and on the 500L

Richard K. Palmer

Ramping up, I think you made about 25,000 500L in the fourth quarter. So, we are ramping up production.

Sergio Marchionne

And obviously one of the biggest outlets of the car is going to be the U.S. market. We showed the car, the dealers, we had a dealer meeting in September the car is going to do well. I think in the Unites States, we got to make sure that we don’t end-up repeating the same mistake that we made on the powertrain side for the launch of (inaudible). We need to be very, very careful about how we launch it.

We’ll work intelligently, and have to make sure that it has the right power grid at some point in time during its launch base but I’m hopeful that car will do well on the U.S. and it certainly has the right cost structure, and it’s significant addition to the 500 offering that present in U.S.

Stephen M. Reitman – Société Générale SA

Thank you, and also just briefly with the weight for the new products that you have lined, we’re lined basically in your product line from the end of October. Can you give a bit more detail on what impact, what help you’d be getting from the governments, Italian government to tie you over in terms of covering work force cost in the like, while your plants in Italy I think of un-utilized.

Sergio Marchionne

There are two measures that are available on the Italian sytem; the first one is sort of classic employment assurance, which is funded by the state, and contribution that are made by the company. And then there is an extraordinary unemployment insurance plan, which is used for restructuring exercises, and all plants they go through this conversion in anticipation of a product launch to utilize the extraordinary type of unemployment assurance and it is funded by the State. So there is a residual cost led for the company, but the bulk of the carrying cost are on the back of the government.

Stephen M. Reitman – Société Générale SA

Thank you.

Sergio Marchionne

At that period of time, as we convert over, we’ve announced that plan now for the monthly plans as we converted to produce the two SUVs that was one that was utilized in connection with Grugliasco, and Grugliasco has been using that extraordinary, unemployment assurance scheme, it was using it from 2006, which is one of the C’s production. but now these people are coming back one of the times, we’ve got over 500 people of that. Now we’re going to bring the reminder of the Grugliasco people and hopefully by the end of this year as the second car launches.

Stephen M. Reitman – Société Générale SA

Thank you.

Operator

And we’ll take our next question from Charles Winston from Redburn. Please go ahead.

Charles A. Winston – Redburn Partners LLP

Yeah. Hi, thanks for taking my question. It’s just a focus on your net debt target if possible to €7 billion, which I’m slightly struggling with, but I guess a couple of questions. First, relating to that…

Sergio Marchionne

You’re not the only one to struggling with that, I trust it. I struggle with that everyday.

Charles A. Winston – Redburn Partners LLP

And a couple of things, does it include cash outs the two times, 3.3%, in other words, by assuming that you’ve exercised on the options, and is there assumption of any pension contribution. but then if I can ask just to get a little bit more detail. Let’s assume €7.5 billion of CapEx, cash tax in finance costs going to be at least 2.5 billion. So you got €10 billion out the door. Your EBITDA based on your own guidance for the combined density is going to be a bit over €8 billion. And you’re talking about €400 million, €500 million in debt. That implies that you’re expecting to get well over €1 billion out of working cap, despite the fact that you’ve said that working cap out of Chrysler will be reduced, you said that on the Chrysler call. So therefore, are we really talking about getting on to the €100 million coming out of working cap on the Fiat side. and obviously, my math that it just excluded any further payoffs to pension and that’s the buyout of 3.3%. So anything will help here.

Sergio Marchionne

Yeah. I think Richard Palmer said that working capital will decrease in Chrysler in 2012.

Charles Winston – Redburn Partners

Yeah. The cash out would decrease absolutely. So in which case, I’m still struggling with the math, given your minimum, even if we use the minimum €7.5 billion.

Richard K. Palmer

The working capital for Fiat in 2010 – Fiat ex Chrysler.

Charles Winston – Redburn Partners

Yeah.

Richard K. Palmer

Including Chrysler was negative for 2012.

Charles Winston – Redburn Partners

Yeah.

Richard K. Palmer

And we expect the number to be positive for 2013.

Richard K. Palmer

Yes. The change in working capital, we’ll get generation of cash from working capital in 2013 as in 2012, we had a negative cash effect to working capital of over €600 million.

Charles Winston – Redburn Partners

I understand that, but to get me, you’re talking your own guidance about the EMEA side of Fiat being reasonably flat, a bit of growth in Brazil, but not huge in other words, the sort of increase in revenue you’re talking about. You’re just not going to be able to pull a billion or hundreds of millions out of Fiat that I can see unless you start paying people even later than you do currently, it just seems impossible.

Richard K. Palmer

Well, if you look at, on the one side, on the Chrysler’s side, we’re going to generate we say $1 billion, yeah. We said that probably not…

Charles Winston – Redburn Partners

Yeah.

Richard K. Palmer

It’s quite conservative number, if we hit the volume numbers we looked at, but a phase of €1 billion. So on the Chrysler side, we generate about €800 million. So, we’re saying we’re going to have a net debt impact negative of €0.5 billion, so basically, on the Fiat side, we’re looking at potentially utilizing, having negative cash flow about €1.3 billion.

Charles Winston – Redburn Partners

Yeah.

Richard K. Palmer

And basically the €1.3 billion year-on-year, we’re going to have slightly higher CapEx. So we’re going to higher EBITDA and higher working capital take us down from the two fixed number we have this year to 1.5 number for 2013. EBITDA will be up.

Charles Winston – Redburn Partners

Right, okay. So it’s based on the assumption that EBITDA was instead and you’ve then got a sort of getting on for €4 billion swing on the working capital.

Richard K. Palmer

Yes. Okay.

Charles Winston – Redburn Partners

Okay and so that for your guidance by definition excludes any further payments for the two times 3.3% and exclude then you have the pension contributions. Is that correct?

Richard K. Palmer

Excludes any potential purchase of equity from VEBA. Our pension contributions on the Fiat ex Chrysler, there are no pension contributions, but on the Chrysler side, there are pension contributions in the number.

Charles Winston – Redburn Partners

Okay, clear, thank you.

Sergio Marchionne

Then are not required.

Operator

We’ll now take our next question from (inaudible) from Bank of America. Please go ahead.

Unidentified Analyst

Thank you, and good afternoon. Just a question regarding your holdings in Chrysler and you’ve talked about some of the caller there, but in terms of the potential refinancing the Chrysler debt, the question is what to give as a shareholder in Chrysler, and also as a debt holder as a creditor to Chrysler to the north. But would they have any say in terms of financing the Chrysler bonds and loans or is absolutely down to the economics of it.

Richard K. Palmer

Down to the board of Chrysler, I would day.

Sergio Marchionne

I don’t know how to answer your question. Obviously, there are contractual terms that govern the borrowings, and we have to respect those terms and that’s the way in which the holders of the instrument would express the viewers to (inaudible) and not act on the Board. I’m not sure I understand the question.

Unidentified Analyst

From the point of view of dealer as a creditor they say, in terms of the whether the Chrysler debt is refinanced or not.

Richard K. Palmer

No, no. If you’re talking about VEBA, VEBA is not right.

Unidentified Analyst

Okay, thank you.

Sergio Marchionne

Yeah, there’s no term, there’s no term associated with, no terms or conditions. Other than repayments.

Operator

And we’ll take our next question from Richard Hilgert from Morningstar. Please go ahead.

Richard J. Hilgert – Morningstar Inc.

Thanks. Good afternoon to everyone. In Brazil, the amount of decline in the profitability over there was somewhat concerning. Were some of that associated with product launches at all, and can you be a little bit more detailed about how much of that came from the cost pressures down there and the pricing?

Richard K. Palmer

Let’s say in the first half of the year, there was an increase in importing to the Brazilian market, which did affect pricing to a large extent, with the new incentive measures made from July, and then the Inovar Auto Program from 2013. We don’t expect those types of price pressure to continue in the next few years, because basically there has been moves by the government to incentive and affect the local industry. Clearly we are the biggest localized producer in Brazil. We invest a lot of money down there. We have heavily localized products and suppliers, so from that point of view, we don’t expect that trend to continue. So there was a price impact for sure, the second there was some impact of cost as we launched a few products in 2012, but I mean that normal business, we launch product every year in Brazil.

Richard J. Hilgert – Morningstar Inc.

How many launchers were there?

Richard K. Palmer

There were three I think new Siena, Palio. There were three, I can’t remember the third, those three.

Richard J. Hilgert – Morningstar Inc.

Okay and your assumptions for Italy and considering the progress that you’ve made there along with the comments that were made earlier about the extra-ordinary insurance for the employees. If volume in Italy were down another say 10% in 2013, from 2012 would the losses still be reduced year-over-year?

Sergio Marchionne

The answer to your question is no we will be losing about, probably about 45,000 cars. And so on that drop we will lose all the contribution from 45,000 vehicle, so by definition we would not be able to meet that target, but you are talking about numbers that or just to remind you, we are a 2.5 million cars.

Richard J. Hilgert – Morningstar Inc.

Okay.

Sergio Marchionne

So I mean 140,000 vehicles below the 1.4 million that we got with I guess 1.260 million. To be appropriate analysis, I don’t have a series that goes back to that bar, and you’ll have to go back to prehistoric banks. Let me give you an answer on this thing, I’m not sure the Richard tried to get your answer on the Brazilian side. It was clear from the way in which we reported first half earnings that Brazil was under pressure and we were clear. In the first six months of the year, we made about 470 million in trading profit for the – in Latin America, then number went up to 590,000 in the second half of the year, and this reflects the market conditions that Richard described, value to factor in the first half of the year, the industry have been left exposed to a non-barriered environment and all the measures that were put in place in the second half of, were effective in the second half of 2012.

We effectively started restoring the profitability of the business, and the product launches that impacted operation, eroded the operating performance were fundamentally the business is on its way back, I mean pricing is beginning to recover in Latin America and that’s really the big issue from my standpoint, it’s not just volumes, I know that we sold more cars in Brazil that we ever sold in our history, but we’re not running a grocery store. so volume to us is important to a point. so margin retention is key, all the indications are that for 2013, we will not be restoration of margins throughout that used to be back in 2010 and 2011, but certainly, they’re going to be maintained at adequate levels, that’s certainly sufficient to maintain double-digit performance in the area.

Richard J. Hilgert – Morningstar Inc.

Okay. One last question, and then on the Chrysler bond and dentures, I believe there’s a $500 million carve-out for cash bucket for any transfers from Chrysler to the Fiat. With the refinancing coming up in May, would you anticipate then having access to that $500 million bucket or would the credit agreement still cause you to not have access to that bucket? And obviously, if you did, would this mean better allocation of capital for you, give of the capital expenditures that you’re expecting on both sides of the Atlantic?

Richard K. Palmer

$500 million restricted payment basket is on the term loan, just be to clear on the bonds. But obviously, as you said, the term loan has on May 24, second anniversary the change in terms of the early payment penalty, that’s the only thing that changes on from that date. So that restricted payment basket is therefore total dividends, and obviously as we discussed in the last quarter, if you paid any dividends are Chrysler, they get it to the two equity shareholders proportion. Nothing else changes on that day. and so this restricted payment basket remains, I don’t think we have any intention of utilizing.

Richard J. Hilgert – Morningstar Inc.

Okay, all right. Thank you.

Unidentified Company Representative

Thank you.

Operator

We’ll take our next question from Richard Smith from Citi. Please go ahead, sir.

Richard J. Smith – Citigroup Investment Research

Hi guys. Just a very quick question, you mentioned your aim ultimately is for Fiat and phosphorus sulphate is one sort of single unit and assuming you can come to an agreement with LeBron on sort of by evaluation, what other steps do you see is the necessary to picking up the plant.

Sergio Marchionne

Sure, that we have the proper adequate structure to be able to take out.

Richard J. Smith – Citigroup Investment Research

Okay. Does that involve changing the financing structure, price level or what’s the kind of the distribution around that that would be required?

Sergio Marchionne

Certainly there is leverage capability within Chrysler, obviously we have to look at all the born structures of Chrysler, but overall we would have to be satisfied that the combined entity has the right order withhold to operate given its cash requirement and its expenditure profile. It is highly unlikely, before you go off the deep end of the board here, that we’re going to, that Fiat is going to raise capital and trying to deal with that issue, it’s a (inaudible) of that. There is enough monetizable aspect within the floor that it’s first take the charge. We would get to them first before we’ve been anything that was their value destructive in this environment. And so we have a variety of levers available. we are looking at all these things in the absence of a solution internally to Fiat, and I think that we will be more than glad to accompany rebound an IPO and deal with the issue of the subsequent date. It’s that simple.

Richard J. Smith – Citigroup Investment Research

Okay.

Sergio Marchionne

It’s not a matter of life or death, still that I do it now that I allow, we got to go float and then deal with the overhang rider. I mean it is what it is, not to execute it in 2013 as to, if I can’t find the resources within Seattle or we can’t come to terms like, can’t find the structure that works that will just accompany rebound, one of the elements to other market will bear.

Richard J. Smith – Citigroup Investment Research

Okay, thank you.

Sergio Marchionne

Thanks very much.

Operator

We’ll take our next question from Paul Hartley from Bank of America. Please go ahead.

Fraser Hill – Bank of America Merrill Lynch

Hi, it’s actually Fraser Hill from Bank of America. Just one final question on the pension side, on the disclosure side and I ask 19, I think you’ve shown roughly a LCV towards 470 million sell through in the P&L year-on-year in 2013. What in fact, gives the cash delta year-on-year quite an aggregate, and then I guess between the two parts within this, CNH and Chrysler?

Sergio Marchionne

The cash there is not a significant number, because of service costs are higher, quite even not significant. So basically, that is all amortization of, it’s all what I did as the interest charge on the deficit, okay.

Fraser Hill – Bank of America Merrill Lynch

Okay, thanks.

Operator

We’ll take our next question from Max Warburton from Bernstein. Please go ahead.

Sergio Marchionne

Hello Max. where are you?

Max Warburton – Sanford C. Bernstein & Co.

I’m in Singapore, but want to talk in the morning. so if I messed up this question, please excuse me.

Sergio Marchionne

Well, you messed that up when you were in the same time zones also was mostly strong.

Max Warburton – Sanford C. Bernstein & Co.

Okay. Will it be business as usual? Can we just spend a couple of minutes talking about Maserati and actually Alfa? Obviously, the topic of today with a new plant, this new product, the Quattroporte, I know Mr. Investor gets very upset when people say has Chrysler 300C element in it. Is it safe to assume that the cost structure of this car is vastly different to its predecessor, and when we start into that contribution margin, it’s a bit of a game changer. And when it comes to the Ghibli, is that the same platform and/or are there any differences in the cost of that, and when we think about what the total project could generate, or we about to looking at the same base cost of the two cars and very different pricing points. So first question Maserati, and secondly on the SUV, how about this question, when you think about the Maserati plant, which is going to be a bigger contributor? The two Sedan or the SUV, I am just trying to think about the sizing of the profit growth. Thanks.

Sergio Marchionne

All right, let me help Mr. Investor because, I have worked together on this project now for a number of months. There are parts of that car, which have their origins structurally from an architecture standpoint from the Chrysler 300. Having said that everything else in that car is Maserati specific, going from transmission to the engine, to the body which is unique, Maserati not just in shape, but the fact that there are – 80% of the car on the outside is aluminum, it’s a completely different (inaudible). The only thing we took was some very basic structure, out of 300 in which we could develop the next generation Quattroporte.

As far as your question about costing is concerned although two vehicles this car by definition because of the way in which the car has been designed and the industrial size of the project, industrialization level associated on a per unit cost is cheaper. What is not cheaper is the cost of having done the R&D investment and having done the industrialization phase of this because the original quarter above that was done and designed as part of our process, which is very similar to some added production processes which is limited by volume, I mean you can only get to above 6,000 – 6,000 vehicles out of the assembly plan, but yeah the other restrictions in terms of the volumes the you could drive through that process itself.

So CapEx higher, engineering and development about the same, the unique cost is lower, because of the industrialization level associated with the project. The Ghibli is off the – the same market structure has been modified, obviously it’s the different wheel base, and the engine applications are different.

So it will have very little to do with the large car other than the fact that it shares some basic underpinnings and the transmission, but the engine itself is different and stores everything else on the inside, obviously the body is completely different.

Does that answer your question? The other question you asked me is, who is going to generate more profit that these two cars compared to SUV by far?

Max Warburton – Sanford C. Bernstein & Co.

Sure. And to the opposite the two cars generate profit than the SUV I think.

Unidentified Company Representative

Good, correct.

Max Warburton – Sanford C. Bernstein & Co.

Okay.

Unidentified Company Representative

Also because of runnings are different.

Max Warburton – Sanford C. Bernstein & Co.

Okay, and if we think about the whole project, you’re talking about 50,000 units for the whole thing when it’s in full fly, and I guess as there’s number of people in this call who remember Porsche (inaudible) when it was entry time, I mean do you remember how much Porsche could make on 50,000 units basically. How much was…

Unidentified Company Representative

That we’re making €600 million, €700 million into 1.4 times.

Unidentified Company Representative

That’s not a bad number.

Max Warburton – Sanford C. Bernstein & Co.

Okay, interesting…

Unidentified Company Representative

It’s not a bad number.

Max Warburton – Sanford C. Bernstein & Co.

Okay, okay. That’s helpful. Okay. Moving on to Alfa, obviously it’s at a very different stage; I mean Maserati is done and they’re coming. Yaris is coming probably in the space couple of weeks ago about the 4C being delayed, and then more positively systemic size based car coming with lot of sports cars coming, but when it comes to proper product, SUVs, sedans et cetera, how many products have you actually got, that have got like an engineering number attached to them, that got like a staff development program that are actually going through the system? How many cars are actually coming?

Unidentified Company Representative

There are three cars that are going through the process in addition to the 4C. And that’s in addition to the two cars that already exists, the Mito and the Juliet which represent the European marketplace.

Max Warburton – Sanford C. Bernstein & Co.

In a broader sense, are you happy with those products, because I mean you’ve been pretty hopeful about the delaying stuff? Have you basically got a program that in your point of view if something goes wrong; it’s going to arrive in the market?

Unidentified Company Representative

The answer is yes, subject to reservation on the adequacy of the Powertrain that we’re offering, which I’m still not clear on. But we’re working the final details of those issues, because I told you just before, and I mentioned this when I met with journalists in Detroit.

One of the things that we need to make sure that – when we would relaunch Alfa is that the Powertrains match the badge. And so we’ve been working now on a project and hopefully will be in a position to announce it within the next 30 days, where Ferrari is going to act as – it’s going to take a much more significant role in our Powertrain development in the premium end. They already work with Maserati to make all the engines that work their way into the Ghibli and to the Quattroporte, and they will also provide the Powertrain for the SUV.

We need to find, and we are finding a way to make Ferrari relevant with the Alfa Romeo Powertrain world. Because that’s an enhanced strength of the house, and I think if we did not exploit it, we will be depriving Alfa of a huge attribute in terms of coming back into the (inaudible) space as a viable premium sports car brand. So that’s the answer to your question is, I am happy with everything that was done subject to this domestic process, hopefully going to clear in 30 days.

Max Warburton – Sanford C. Bernstein & Co.

Okay. Thanks from my side.

Operator

We’ll take our next question from Jose Asumendi from JPMorgan. Please go ahead?

Jose Asumendi – JPMorgan

Many thanks. Couple of questions, please? I guess for Richard. If you go to slide 22, and looking at the growth for EMEA, I’m just wondering within your budget planning for ‘13, where is your planning for higher net pricing effect in comparison to what we think to consider in ’12.

And also if you could please share any thoughts in terms of the tailwind we can see from industrial cost and SG&A? And I guess the last one would be on – I was hoping to get some details from last year, and I was just wondering if you could just share some thoughts as to what’s (inaudible). Just any thoughts you can share with us.

Richard K. Palmer

All right. Let me deal with the second question. We’re not going to make any comments on (inaudible) that’s probably that we would refuse to do, but we’re ready to announce the program. And so we have a meeting with the union, they will be asking the same question, and the answer I gave is the same I’ll give them. Well I’ve answered it already.

Jose Asumendi – JPMorgan

Okay.

Sergio Marchionne

And I’ll pass it on to Richard for details on the EMEA profit reconciliation.

Richard K. Palmer

Hello, Jose. I think the easiest way to look at it mainly is, in the second half of 2012, we concede the cost actions, and is not like you said, four in Q4, we lost about €120 million of trading profit level, half of we lost in the year before. So we’ve taken significant cost down, and we expect to continue to take cost out through 2013. And the run rate coming out of 2012 at is much better than the run rate we gave out.

In terms of pricing, I don’t think we expect pricing to get better in 2013. So our assumption is through the first half, that we’ll continue to have similar pricing levels, and then hopefully as we come out into the second half of the year in terms of slight recovery in the European market place.

Jose Asumendi – JPMorgan

Okay, thank you.

Sergio Marchionne

By the way, one of the things that nobody asked and I forgot to say both on the Chrysler call and on this call is (inaudible) gave you the heads up there. I mentioned and you saw it from the Chrysler slide on the product launch, that we will probably be under producing compared to Q1 2012 in Chrysler, and so the performance of Chrysler in first quarter of 2013 is expected to be lower than it was in 2012, and it’s purely because of product launches.

We have one plant that’s been completely down compared to Q1 of 2012, that’s a Liberty producer. We’ve produced 31,000 cars, which are not there this year. We’ve got the Jeep van share, which is coming up, and we need to see whether we can match production of 2012, I’m not so sure. As a result of the ramp up, and we’ve got the launch of the heavy duty truck which is also going on as we speak.

So overall volumes will be down compared to 2012, that’s our best piece of it today, which means that will have a – it will have an impact on margins as on gross margins and overall performance, but it’s a Q1 event, and I want to make sure that we don’t surprise anybody, when we release numbers for the end of the quarter.

Jose Asumendi – JPMorgan

Just one thing, on the industrial costs on EMEA bridge, do you expect – I mean this is a category where (inaudible) is struggling to forecast what have been – is this should we expect a significant wind in ‘13 or is that (inaudible).

Unidentified Company Representative

We continue to work on the industrial cost so I would expect to see – continue to get some efficiency out of system.

Jose Asumendi – JPMorgan

Okay.

Operator

I’m going to take our next question from Massimo Vecchio, from Mediobanca. Please go ahead, sir.

Massimo Vecchio – Mediobanca Securities

Good afternoon. I was wondering if you can share with us the assumptions behind the trading profit range for 2013, what is stopping to get the $4 billion and what is the upside, what is the best case scenario for the $4.5 million.

And then a second question on your strategy to export form the Italian plants, mostly based on Maserati and Alfa Romeo. At that the time, the third quarter results, there were discussions, I mean if you stay there if there was anything official that you may receive kind of incentives for exports. Are these incentives embedded in your plan, and basically, do you expect to receive it also after the general elections? Thanks.

Sergio Marchionne

Well, let me deal with the easy questions first, which is the last one you’ve asked. we were diligently involved with discussions with the government about a project that was intended not just for Fiat, but to make the conditions for export for anybody who is interested in export, and operating industrial assets of this country to make their lives somewhat easier, and there were things that were asked, that was purely facilitating measures, they would have allowed for the export of product adequately into other parts of the world, to be done more efficiently for the producer. we asked for no incentives. we asked no for no funding. we just wanted somebody to make our life easier and so doing.

The project I think had a glorious start and I think it just fits the way as the elections were called. So whoever wins the election in February, I sincerely hope resurrect this plan, because it is important not just for Fiat, but anybody who is operating assets from this jurisdiction. The answer your question about why we put a range of €4 billion to €4.5 billion as an overall target, fundamentally, we could outperform the U.S., we could outperform out of Latin America.

So we’ve made some prudent assumptions about how these businesses will perform. If we do better than that, the number will be higher than the €4 billion. If not we’ll be within the range. So what we have usually guided the market within or we considered to be a minimum acceptable level of performance of $4 billion is that level for 2013.

Massimo Vecchio – Mediobanca Securities

So the upside lies in the U.S. and Brazil business?

Sergio Marchionne

The upside lies in the Americas in general.

Massimo Vecchio – Mediobanca Securities

Okay, all right. Thank you very much.

Sergio Marchionne

You’re back, Philippe.

Operator

Our final question and a follow-up question comes from Philippe Houchois from UBS. Please go ahead.

Philippe J. Houchois – UBS

Thank you. A couple of follow-ups, did the €4.8 billion write-down straight to equity, does it matter anyway, I looked at quickly even the Fiat SpA parent has 9 million equity or so. So I’m just wondering should I worry about this or back in the wrong tree?

Sergio Marchionne

Don’t worry about it, find another tree.

Philippe J. Houchois – UBS

Yeah, right. And the EMEA walk, it was interesting because, you have €253 million benefit from industrial cost, €196 million from SG&A, I’m guessing a lot of that is (inaudible) benefits like that. So how sustainable is that, should we see those costs come back on your P&L next year, at what point does Chrysler run out of money. Could you give some clarification on what that?

Sergio Marchionne

I sincerely hope that the Chrysler doesn’t run out of money, otherwise, it’s good indication of the non-solvency of the country. But beyond that issue, could you spend that we’re not utilizing (inaudible) that we’re utilizing these people in active production processes. So I mean from a P&L standpoint, the resumption of activities is going to be beneficial with the P&L. I hope that answers your question.

Philippe J. Houchois – UBS

Well one thing I’m trying to, you put money back into Chrysler as you work and you pick money out. You draw a net negative for Chrysler for sometime I guess. So one point, do you not – I mean the system may not go out of business, but you may run on credit?

Sergio Marchionne

There is no limit to the utilization by a user. You need to understand that when the system was setup, and it was originally structured. It was designed to allow for ups and downs of the economic cycles.

Philippe J. Houchois – UBS

Sure.

Sergio Marchionne

What we have lived through in the last five years is the very unusual consistent decline in activity, and it was never foreseen as part of original plan that we will go after this long. Now in other jurisdiction as you all know this thing had continued in that as far as this length of time, you would have had permanent reductions in headcount. The system would have just – we would have reduced at, which is something that we have awarded to do in this jurisdiction for a variety of reason. And therefore the problem persist, but given the plans that we have in place everybody is going to come back on payroll within the next 30 to 36 months.

Philippe J. Houchois – UBS

All right.

Unidentified Company Representative

During a different type of activity, I understand this. They don’t want to come back and produce mass production, they are being re-shifted into other areas and we opened the plant at Grugliasco today, that level of complexity in the manufacture of that vehicle is substantially higher than it is to produce the Panda while the utilization of headcount is disproportional to the number of units being produced if the benchmark is against mass produced car.

Philippe J. Houchois – UBS

Excellent. If I can squeeze one, this one is, can you say a word about the credit quality of your dealer network in Italy? And if you get there a week now, at what point can you not take part in a recovery if there is one, because of your dealer network?

Sergio Marchionne

The only thing that dealer network is being spread and we have known this for a while, but it’s not just the Italian dealer network, I think its all European side for this buffering. I think they have been able to meander through. I don’t think there are any, I think we’ve adjusted the cost structure now. I think they are living through this period of restricted volumes. They have handled it relatively well given the toughness of the environment.

I don’t think that if activity were to resume that we’re going to tougher as a result of inability to distribute. I think the system is still in place, it can be reactivated anyway. That’s not my problem to be honest. I got bigger problems, not aim that one.

Philippe J. Houchois – UBS

Okay. Well, thank you for all those answers.

Sergio Marchionne

Thanks.

Operator

That will conclude the question-and-answer session. I would now like to turn the call back over to Marco Auriemma for any additional or closing remarks.

Marco Auriemma

Thank you Irvina. We would like to thank everyone for joining the call today. My team and I look forward to following up any further questions. The release of the group earnings results for the first quarter 2013 is scheduled on April 29. Bye.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Fiat's CEO Discusses Q4 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts