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Executives

Marco Auriemma – Head of IR

Sergio Marchionne – CEO

Antonio Pica Piccon – Treasurer

Analysts

Laura Pennino – Banca Leonardo

Thierry Huon – Exane

Martino De Ambroggi – Equita

Massimo Vecchio – Mediobanca

Jochen Gehrke – Deutsche Bank

Ranjit Unnithan – JPMorgan

Fraser Hill – Bank of America

Philippe Houchois – UBS

Stuart Pearson – Morgan Stanley

Eric Hauser – Credit Suisse

Fiat S.p.A. (OTCPK:FIATY) Q1 2011 Earnings Conference Call April 20, 2011 11:00 AM ET

Operator

Good afternoon, ladies and gentlemen, and welcome to today’s Fiat S.p.A. 2011 first quarter results conference call. For your information, today’s conference is being recorded.

At this time I would like to turn the call over to Marco Auriemma, Head of Fiat S.p.A. Investor Relations. Please go ahead, sir.

Marco Auriemma

Thank you, Lori. Good afternoon to you all or good morning as the case may be and welcome to Fiat 2011 first quarter results webcast and conference call.

The Chief Executive, Sergio Marchionne and the Treasurer, Antonio Pica Piccon will host today’s call as usual. They will use the material you should have downloaded from our website at fiatspa.com. And after introductory remarks we’ll be available to answer the question you may have.

Before moving ahead, let me just remind you that any forward-looking statements we might making during today’s call are subject to the risk and uncertainties mentioned in the Safe Harbor statement language containing in the presentation material.

So now I will turn the call over to Mr. Sergio Marchionne.

Sergio Marchionne

Thank you, Marco. Good afternoon. Given the state of the European car market has hindered the results for Fiat for the first quarter of 2011 are more than satisfactory. I think that we have been able to manage the reminisce of the hangover from the eco-incentive system in Western Europe relatively well. I think obviously we were supported by continuing a strong market in Brazil and by the strong performance of our light commercial vehicle operations. But, I think overall the car side has done well.

We are beginning to benefit from the rebound in automotive activity across the component sector as we can see from the results of both Marelli and Powertrain and taxes. I think that the prospects for the year continue to remain strong. We will spend some time dealing with the issues that have risen out of the production disruptions in Japan and what we think the impact will be on the Group going forward.

I think we were quite successful in not only managing our P&L, but I think successfully managing our cash flows during the quarter. I think there is nothing exceptional in the performance that we’ve had in the quarter other than the fact that I think we’ve continued to maintain our high level vigor in the management of our working capital positions. We’ve got inventory levels in our dealers which are at record levels.

I mean they’re not – we’ve maintained a very strong discipline in terms of inventory levels through distribution chain. I think we have been to manage industrial production to match a very unexciting demand especially in the Italian market, where volumes for the first quarter of this year has seen 20-year lows. But, overall, it’s been a good quarter. I think it’s a good basis on which we can approach the remaining nine months of the year and that’s why I think we are in a position of withstanding what is being perceived as being a disruption in the supply chain, we are in a position to confirm the targets for the year.

If we move on to page three, just to highlight a couple of the significant events that have happened in the quarter. We were able to earn our way into the second two performance events that were established in our enrollment with Chrysler. We have introduced the 1.4-liter engine in the United States which is now available this for the first time distribution on the Fiat 500. We were also able to finalize the agreement regarding non-NAFTA distribution for Chrysler products. That has allowed us to go from the 20% that was originally granted to Fiat to 30%. And our expectation is that within 2011, we will be able to have Chrysler homologate a car on a Fiat derived platform together with Fiat Powertrains that will achieve 40 miles per gallon as an EPA highway label. So I think that we’re working towards the achievement of the last hurdle which will get us to 35%.

We also acquired 50% of an operation in Italy called VM Motori, which manufactures diesel engines. We acquired the interest from Penske and we remain as joint venture partners on a 50-50 basis with GM going forward. I think it’s an important addition to the diesel portfolio that Fiat manages today, would have two engines that are coming in from VM Motori, the 2.8-liter diesel and a 3-liter diesel, which are now being used both on the Fiat portfolio and on European bound Chrysler produced vehicles, including the recently launched Jeep franchise. So I think we’ve acquired now the big pieces in terms of completion of the power portfolio and Powertrains to allow us to compete effectively especially here in Europe.

We were able to issue a bond proceeds and the bond were received on April 1st, so they’re not reflected in the cash or debt numbers that you see as of the end of March. For EUR1 billion, we have very good demand for the bond. I think Antonio will explain this as he goes through. But I think we have more than twice the required volumes of EUR1 billion, so we’ve got good institutional support for the issuance. And as I said in my opening remarks, I think we are confirming notwithstanding the recent turmoils, we are confirming guidance both in terms of trading profit and cash and debt balances.

Just one comment on the debt position is we made a clear when we announced the five-year plan on April 21st of last year that the indication on CapEx, both for Fiat and for Fiat Industrial were designed to reflect the highest possible level of expenditures that we will see for the relevant year.

I think when you look at the expenditures to date and the remaining portion to be spent in the remaining nine months becomes relatively evident. And I think our ability to consume our capital over the next three quarters is questionable. And so I think you should take the indication of CapEx as being the highest possible number that could be achieved. I think our objective is to try and bring that number below the target that you’re seeing on page three.

Just in terms of revenues and trading profit by business is on page four. Relatively decent performance out on the car side in terms of volumes, 3.5% up over 2010; substantial growth in Components & Production System as I mentioned on the back of the recovery; automotive market trading profit was slightly down against 2010, but I think that significant contribution of Brazil and the cost containment made at measures that we implemented on the European side has helped tremendously.

The Components trading profit is almost up by 50% compared to 2010, but I think we were fortunate in having an outstanding performance from the luxury brands, both Maserati and Ferrari had very, very good quarters, and I think that they are an indication of the fact that at least for the remainder of this year they will continue along the same path.

Page five and this is what we deal with supply chain issues, and the expectations of the potential impact of the Japanese disruption on the European and Latin American operations. I can go further, there is no impact from the event on Brazil. We do not expect any disruption in the South American activities. I think that when we look at the purchasing trend for the first quarter of 2011, I think we gave an indication of the fact that we were seeing a deterioration and the estimated annual savings for the Group. I think that we are seeing a further deterioration of what we expected as an improvement.

We are actually forecasting a saving over 2010, but a substantially reduced [inaudible] of roughly 25% to what we originally expected is being at EUR300 million in purchasing saving for the year. Some of that has already been actualized. Roughly a third of that amount was achieved in the first quarter of 2011. But I think that given what’s happened in terms of raw material prices and our ability to lock-in positions for the remainder of the year, we still feel comfortable we can achieve a positive result for substantially lower than our original forecast of a year-ago.

Just a couple of words on Japan. I mean the situation on the Japanese suppliers is a continuously evolving situation. It changes day by day. We have seen the situation improve drastically. Over the last 2.5 weeks, we have seen our supplier base very effectively search for alternative solutions to production.

I think we are now in a position at least as of today to estimate the maximum potential impact on volumes for Fiat within the range of 50,000 to 100,000 vehicles, of which 25,000 would happen in the first quarter of this year and the remainder in the third. I think it is highly unlikely that this location will continue into the fourth quarter. All our indication suggest that we will be back to normal as of October of 2011. As a result of other Japanese plants coming back on stream, our alternative supply bases having been nailed down and effectively contracted to secured supply to our own Tier 1 suppliers. This has been a tremendous effort that’s been carried out by our purchasing organization which as you all know handles both Fiat and Fiat Industrial.

We have had a similar taskforce working through the issues in Chrysler and we will update the market on the expected impact of Japan for Chrysler on May 2nd, when we release earnings. You know that we have continued and continue to operate our world-class manufacturing systems. We now have 80 plants that have joined the program. One more plant has been added in the first quarter of this year. We continue to achieve our target of savings which were a part of the initiative when we rolled it out in 2006.

Moving on to slide six which deals with trading profit and net result, there is really nothing exceptional other than this almost embarrassingly high tax rate that we have got against our pretax results. There is nothing strange about their number other than the fact that we are not providing a shield on to the European losses, while we are obviously paying cash taxes on our South American activities, and what you see is the blended result of a make it loss in the taxed profit. So this is bound to continue until our European activities are effectively fixed as we’re trying to do to our industrial plant. I think that signs of this will hopefully become invisible in 2012. Having said this, I think we’re still encouraged by the results EUR37 million positive. We are carrying an abnormally high level of liquidity in excess of EUR13 billion. Part of that is designed to deal with maturities which are happening within 2011. But I think and I am sure we will talk about this somewhere in the question period. But I think it’s been designed to allow Fiat the highest level of flexibility in terms of initiatives that maybe required to carryout during 2011.

Slide seven deals with the cash flow statement. I’m going to pass it over to Antonio Pica Piccon, who I welcome as the Fiat S.p.A Treasurer. He was appointed on January the 1st, I think, wasn’t he?

Antonio Pica Piccon

February.

Sergio Marchionne

February, whatever. Antonio walk them so you can explain the cash flow statement.

Antonio Pica Piccon

Thank you, Marchionne. I would comment the net debt pattern as being stable during the quarter. There is more cash generation effectively against Euro second before last line.

If we go through the cash flow with sales, I think it’s worth noting that cash flow from operating activity as net of CapEx has been absorbing EUR73 million which was made basically of CapEx in line with D&A and a good performance in the terms from the working capital which was supported by a level of production which is slightly higher than the end of the year.

Change in funds and dividends made seen in this section. The remainder of the cash flow for the quarter is made of some support from mark-to-market of derivatives and cash settlement of company sold to Fiat Industrial in Q4 last year.

Sergio Marchionne

If we can move on to slide number nine which deals with quarterly industry volumes and outlook, you can see from the pinkish reddish portion, the dark part of the slide, what the impact has been of the removal of the eco incentive program. In Italy, we have seen markets deteriorate to the tune of 23%.

I think we have been – to be honest, I think we have been advocating the removal of this eco incentives in the European system now for a while, because we needed to see a restoration of normal demand and supply conditions in the market. I think we are beginning to see certainly in April a restoration vis-à-vis on a comparative basis with the prior year of what I would call healthier steady state volumes. The market is still expected to be down above 5% in Italy for the year, which is a combination of performance for the nine months, and the first quarter drop of roughly 23%.

Europe is expected to do slightly better and 2% down for the first quarter, 1.5% down for the year. Most of this is driven by healthy demand certainly in Germany where the market has rebounded and where the upper segments of the car portfolio has actually increased substantially year-over-year. But Spain is down, Italy is down. I think that we’re beginning to work our way through the reminisce of the eco-incentives on the French side, which although for the quarter they were up in terms of volumes as opposed to taper-off as the year progresses.

Having said this, the European market overall is expected to be over EUR13.6 million for the year. And that as I said mainly on the back of a recovery in Germany. Our own performance in this market is expected to improve as we launch two significant products in the A and B segment of Fiat Panda and the launch of Ypsilon, which will come in the market respectively within Q4 and Q2 of 2011.

Light commercial vehicles has had a great quarter. The markets are recovering, except for Spain, obviously which continues to be depressed. We do have a leading if not the leading position in light commercial vehicles if you take it as a combination of the vehicle offering and Fiat Professional. There again we continued to perform well on this side, on light commercial vehicles in Brazil, with the shares expected to be quite strong and certainly in line with historical trends. And on the Brazilian side, we see the market continuing to expand in 2011 roughly 3%, up from 2010 levels and Fiat’s market share in their jurisdiction is expected to hold compared to 2010.

If we move on to slide 10, this is a graphical representation of what the market share and data that I gave you earlier. You can see that we’re now a 29% share. Of it, well obviously, we’ve analyzed this in detail when we get to the next slide. I’ll try and explain to you what in fact happened and why we allowed it to happen.

Our European shares is about 7.1%. The real issue is that when you look at the composition of their share in prior years, a lot of it was driven by the ability of Fiat to service eco-incentivize vehicles which use alternative fuel systems such as CNG and LPG. Those incentives were removed as of the end of March of last year and therefore this has caused a dramatic contraction of the volumes in natural propulsion systems that we have. And that has – and in fact when you look at those volumes in terms of percentage of the market covered compared to 2010, we have been able to maintain and hold share withstanding the loss of overall volumes.

I think the important thing is that we continue to emphasize – probably that we have established as a key target for Fiat which is being the lowest CO2 emitter in terms of automotive production in Europe. We’ve been able to record it for the fourth year in a row and this was achieved again in 2010 with an average of a 125.9 grams per kilometer, which is a huge improvement of 5 grams per kilometer against 2009.

As we move on to slide 11, this the light commercial vehicle side. This is really the Cinderella Story of Europe. We’re continuing to do incredibly well. 46.9% in Italy, 12.8% across Europe, which you see has a slight decline against the first quarter of 2010. There is a mix issue, which hopefully over the next nine months should be corrected.

You can see from the bottom of the slide 11 that we have reached almost record share in Germany and we’ve had the best quarter in France. So the business is in good shape. This is a good margin business for us and it certainly – it has offset what I consider to be unacceptable performance on the automotive car side, on the passenger car side in Europe in Q1 of 2011.

Latin American operations on slide 12, we continue to maintain a leadership in the Brazilian market. We’re expecting the market to come in at above 3.5 million vehicles this year, which is steadily in line with projections to see more than 4 million cars in Brazil in 2014.

The Argentinean market is also on a recovery path. We were able to add on a second shift in Cordoba in our Argentinean plant to supplement the requirements of our Latin American market. For those of you that are interested, we are producing about 20 car every 20 second out of our large Brazilian plant and that’s what has necessitated. We need to expand operations in Brazil and that’s why as of the end of 2010 we announced a relatively large project in the State of Pernambuco, which will become operational in 2013, both in the manufacturer of cars and the manufacturer of passenger vehicle engines.

We continue to work on the portfolio. Recently introduced, Uno, has had tremendous success in Brazil. We do have one in our view a highly competitive product lineup and we do have full coverage of the A and B segment which is really at the heart of the Brazilian market.

The slide number 13 deals with some of the other product introductions that we were able to accomplish in the first quarter of 2011. The first one is the introduction of the Fiat Freemont, which is a vehicle derived from an American-based dodge vehicle. That will be going on sale and it was introduced in Geneva – at the Geneva Car Show. It will be introduced in Europe in the second quarter of this year. It will be available in both gas and diesel engines, and it will also become available in a front-wheel-drive version and eventually an all-wheel-drive version within 2011.

We continued to have success with the introduction of Giulietta, which was the first car of the new architecture that we have established as being the core architecture for both Fiat and Chrysler going forward. We will be introducing the twin-air engine into the Fiat 500 within the second quarter of this year. This is the greenest engine available in the marketplace and it will probably find its way into the US market and some point in time. And we have begun commercializing the Fiat 500 in Canada, the US, and Mexico. The plant started in March. And obviously we’re slowly but surely expanding the dealer coverage in the United States to provide the right cover for the introduction of the brand there.

Page 14 which deals with the Alfa Romeo 4C which was shown in Geneva as a concept, it is in the process now being industrialized. We hopefully will be taking orders for this car in the United States in the fourth quarter of 2012. And we do expect to have some deliveries in the United States within the first quarter of 2013, but it will be available in Europe a touch earlier, probably at the end of ’12 or at the beginning of ’13.

Slide 15 deals with the revamping of the Lancia portfolio. We have now fully integrated the product offerings of Chrysler and Lancia in Europe. What was effectively a two-car vehicle – two-vehicle brand as of the end of last year has now been able to add on some pretty valuable completion elements by introducing finally a luxury sedan which is the Lancia Thema. This is taken off and developed off of the Chrysler 300 platform, which was now launched in the United States.

We are also launching in the second quarter of this year the highest volume Lancia that we sell which is the Ypsilon. That will be available – it was launched in Geneva and it will be available in the market within the second quarter of this year. And we have also shown a couple of concept cars, the Flavia sedan and the Flavia Convertible, both of which are extensions of the Chrysler 200 which was launched in the United States in the February of this year. Convertible will probably find its way into the US marketplace within 2011.

Slide 16 deals with the relaunch of the Jeep brand in Europe. This is something that has been – in which we believe very strongly. I think we had press events at our testing site in Balocco last week with most of the specialized press on the European side. As you can see it from the product offering, this is a full complete offering of SUVs in the marketplace. The Grand Cherokee which was launched in the summer of 2010 has received 21 industry awards and it continues to accumulate recognition for the outstanding work that was done by the Jeep team and engineering work considered to be an absolutely outstanding vehicle.

The Wrangler has now received a 2.8-liter diesel engine which has come out of VM. And we have completely reengineered and really meet substantial modifications in terms of the aesthetic appeal of the Compass which is being relaunched in Europe, both in the 4X4 version in the front-wheel-drive version. The Fiat distribution capabilities in Europe have assumed full responsibility for distribution of the Chrysler brands in Europe. There will be 430 dealers in Europe that will be carrying the Jeep brand and we expect great things from the brand as we continue to improve this offering and modifying and then making sure that we adapt it to the European requirements.

I made reference to what’s happened to the marketplace in terms of shifts and segments. This is indicated on page 17. And if you look at what has happened in the A and B segments, in the mini and the small segments that you see on the chart, there has been a substantial deterioration of the relative share of total cars sold within 2011. In the case of minis they’ve gone from 12% to 10% to the market and in the case of small they’ve gone from 28% to 26% over a two-year period.

And we see a shift and we see the number of SUVs have increased over the same period of time. There has been also a shift in large vehicles. There has been a shift in the mix of products being sold, all of which has been driven by the removal of the eco-incentive systems and especially in Italy which has got a very large emphasize in terms of percentages. And so the collaboration between Fiat and Chrysler is designed to effectively address what are considered to be perhaps a permanent shift in distribution of vehicles which much more being sold in the compact and higher segments. It is crucial, therefore, that we continue to work with Chrysler to try and provide the vehicles that are required to service this market segment.

Couple of words on the luxury brands; Ferrari has done an incredible job. Again sales were up 19% over 2010. I think we’ve had incredible recession for the Ferrari FF which was launched at the Geneva Car Show. I think that the 458 Italia continues to perform incredibly well. There is a long waiting list for this car. And I think the international expansion of Ferrari continues with India now being added as the 58th market for Ferrari, and also becoming a market for Maserati as you can see from the next slide which continues alongside Ferrari in its international expansion.

Maserati itself has had a good quarter. Obviously the product portfolio of the Maserati awaits the renewal of the [inaudible] car has already been – the design of the car has been finalized. We are obviously in discussions now with the industrial system here in Italy to try and find out exactly where to produce it. If in fact, it is Italy, if we can find and reach agreement with the label unions on, we will consider to be the appropriate and absolutely mandatory work rules associated with our new car industrial policy.

Magneti Marelli continues to perform well. As I said, over 55% of this business is volumes now are with third parties that are not with the Fiat Group. I think this is a great sign of diversification. I think we have done well across all our business in the back of a recovery market. The order book continues strong. It almost appears completely booked until 2014. And margins although none exceptional were and a good sign of recovery at 2.3%.

Fiat Powertrain has also had a good quarter. We’re creating profit of EUR23 million. This is obviously on the back of some recovery across the European side and strong activity in Latin America. I made reference to the completion of a product portfolio in terms of diesel engines which have now come from VM Motori and which will continue to play a significant part as we continue to develop our involvement in diesel.

Page 22 deals with Chrysler and this is not designed to preempt the discussion and the release of earnings on May 2nd for the first quarter of 2011. These are – this is public information on the basis of sales data that was released at the conclusion of March. As you can see from here, we’ve had an industry which has been benefitting from significant growth. It was up 20% in the US and 2% in Canada, which has always had a much steadier pace than the US, but US side is up 20%, or up a 3.1 million cars.

We do expect the industry SARs for the year to end well above EUR13 million. And I think that we have had good sales and good performance in the US. We were up on the retail side roughly 51% compared to Q1 of 2010, and the overall sales were up 23% against the first quarter of 2010. Canada continues to perform well. As you can see from the chart we have had and we continue to have a number of vehicles which are the top 10 selling brands in Canada. So strong performance there and expected to continue strongly for the remainder of the year.

The outlook for the year on page 23 is something that I’ve already mentioned. We confirm all the targets we have outlined earlier certainly at the conclusion of 2010 with trading profit between EUR900 million and EUR1.2 billion, net income of roughly EUR300 million and capital expenditures of between EUR4 billion and EUR4.5 billion as the total is the most extreme expression of our desire to invest capital. I think that we will perform substantially below that number. And as a consequence, I think our net industrial debt may end up being better than 1.5 to 1.8. I think we are going to wait probably until the end of Q2 and better at the end of Q3, once we see the impact of Japan on volumes.

We think we have enough latitude in our forecast to accommodate the potential decrease in volumes associated with production disruptions caused by Japan. I think it’s incorporated in our trading profit forecast to EUR900 million to EUR1.2 billion, which even includes a potential loss of roughly a 100,000 vehicles in the event of that were to happen. And it also includes what is unfortunate the miss on the purchasing side caused by raw material price hikes.

That fundamentally is the presentation. Other than the fact that we have a calendar on page 24 that says we will be disclosing Q2 results on July the 25th.

Marco Auriemma

Thank you, Mr. Marchionne. Now we are ready to start the Q&A session. Lori, please repeat the first question.

Question-and-Answer Session

Operator

Thank you, gentlemen. (Operator Instructions). We will take our first question from Laura Pennino from Banca Leonardo. Please go ahead.

Laura Pennino – Banca Leonardo

Evening. Hi, I have just a few questions. One is regarding the Fabbrica Italia project and particularly Pomigliano. Can you give an update of how it is working, how much you have invested and how you – or maybe how much you – this investments are of a concern then is Panda will actually start in production by the end of 2011?

And the other question is of Chrysler. You said that – in the past conference call you said that Fiat could act like as an accelerator for Chrysler success to capital markets. Can you give a – what does this mean? Could you consider some intercompany borrowings or not?

And another question also on Chrysler. Would you see Fiat achieving more than 51% after the – if the requirements are fulfilled, and which state would you be happy with?

Sergio Marchionne

Let me try and start backwards. I mean obviously with the extent of restructure a deal that would allow us to get 51%, that defines happiness for Fiat. I think it was intentionally design to allow Fiat to control Chrysler. At some point in time, I think that the mechanics of that control mechanism are relatively clear we are required to earn the 5% chunks as a result of the performance to some events in the United States and outside of NAFTA. We have achieved two of three.

When we achieve the third hopefully within 2011, we’ll get to 35%. And then there is – and there is a call option which is available to Fiat which allows it to effectively purchase 16% of the company from the company on a pre-established formula basis. That option is only exercisable within 2011 if all the loans are repaid to the United States and Canadian governments. So until that happens, there is no possibility of gaining control. And so if ever get to 51%, I think Fiat will be more than delighted.

In terms of the intercompany borrowings, I think it’s possible that there could be some intercompany borrowings. Although to be perfectly honest, I don’t see a necessity or any type of exchange or any type of lending activity between the two entities I think that Chrysler has enough liquidity on hand to manage its business.

Well, we have made very clear, or at least I have made it very clear is that our objective within Chrysler was to refinance its current exposure to the United States Treasury and to the Canadian Government by accessing the capital markets and replacing them with daily instruments in that market and so that remains a key objective. I don’t think that Fiat has to intervene in that financing exercise with Treasury you all know has been on the table and has been studied by Chrysler and the Board now for quite a while.

In terms of Fabbrica Italia, I confirmed the fact that we are in the process. We have started the hiring process. We are beginning to train people. The car will go into production within the fourth quarter of this year. Start of production is between October and November of this year, and we will be placing the market – the car and the market as of January of 2012. I think that the original investment that was expected to be north of EUR750 million and so there is nothing, we are proceeding full blast with that process, and there is no indication today of a delay in the program.

Laura Pennino – Banca Leonardo

Okay, thank you.

Operator

We will take our next question from Thierry Huon from Exane BNP. Please go ahead.

Thierry Huon – Exane

Yes, good afternoon. This is Thierry Huon speaking from Exane. I have got three questions, if I may. First about inventories. Could you give us the entry levels for Fiat in terms of selling days or absolute numbers, because I am a bit confused by the difference between the projection and the sell out you achieved during the first quarter?

Second question regards Brazil and competition there. You have a lot of new comers which – would be probably happy with the margin much below the one you were probably achieving. So do you feel that you have more competition in terms of pricing from this new comers?

And last question about Magneti Marelli. You mentioned that 55% of the business is now down with third parties, but the operating margin remains well below one of the major competitors. So that means that the margin achieved with Fiat is lower than the one you are doing with the third parties and in this case would support the Fiat Group Automotive margin development?

Sergio Marchionne

Just to be clear, there is no cost outside [ph] subsidy of margins from Marelli to Fiat. I think that the depressed margins that you’re making reference to which I concur with you are below par and certainly not align with the competition are reflective of the startup cost with the variety of activities that Fiat – that Marelli is carrying on as part of its expansion program. And if you read the press release and you see all the activities that have been started on a global scale, but Marelli have had a significant dent on profitability in the first quarter of this year and we expect that situation certainly on the margin basis to be rectified within full-year 2011.

As far as Brazil is concerned and increased competition, there is no doubt that the market is sufficiently attractive to bring in additional competitors as you well know because of import regulations and tariffs that exist within Brazil to ensure protection of the local market. I think a lot of these people will be forced over time to try and localize production to remain – to be competitive and that we’ve allowed for that in our plans and that is why I think that when you look at 2014 share in a market which is expected to be in excess of 4 million cars, we feel relatively comfortable that we’re going to keep all of our production sites fully occupied between Argentina and the two operating plants in Brazil.

As far as margin compression is concerned, I think at least for the time being we have not seen unruly behavior from the competitor side. I think everybody is benefiting from a buoyant market. I think there is no indication or threat that this conditions will change at least in the short and medium term.

In terms of your first question, I must have missed. You wanted to know which?

Thierry Huon – Exane

What is the inventory level at the end of the first quarter in terms of selling days?

Sergio Marchionne

We have 1.7 months worth of supply, which is, to take it as an average of the latest three months.

Thierry Huon – Exane

Can you – could you repeat, I didn’t get the number?

Sergio Marchionne

1.7 months.

Thierry Huon – Exane

Okay.

Sergio Marchionne

And that’s between dealer and company stock. And that is not different from the levels at the end of December and it is the lowest point that we’ve had just to be clear since the fourth quarter of – first quarter of 2010, where we effectively were borrowing through a full sell out of the eco-incentivized inventory pool. So we are now at levels that we are not seeing since 2008 to be honest. And we continue to apply some pretty rigorous management to those stuff. As you can see, we have made a number of announcements for up taking production down under European site to match demand. So we are not sitting on any sort of our normally high inventory positions at all.

Thierry Huon – Exane

Okay, thank you.

Sergio Marchionne

Thanks.

Operator

We will take our next question from Martino De Ambroggi from Equita. Please go ahead.

Martino De Ambroggi – Equita

Yes, thank you. Good morning, good afternoon, everybody. I have a question on Ferrari, because we had many different statements concerning the possible listing over the past few weeks or months. Even I remember, Montezemolo statement telling that – mentioning that it will never be listed. So I was wondering if you could clarify the listing of Ferrari is a real option that you will pursue over the next, I don’t know, 12, 18 months, or it is something that will become a sort of never ending story?

And –

Sergio Marchionne

Mr. Ambroggi, let me give you an answer. Yours was an compound answer. You asked me whether it was an option and whether it will happen.

Martino De Ambroggi – Equita

Yes.

Sergio Marchionne

If it’s an option there is no guarantee that it will happen.

Martino De Ambroggi – Equita

Okay.

Sergio Marchionne

I will not give you a guarantee that it will happen, but I will tell you that it will continue to be an option for this Group. So we may exercise at the relevant time.

Martino De Ambroggi – Equita

Okay. And I see two main reasons to list Ferrari. One is the unlocking of [inaudible] and the other one is the cash-in. I don’t see any need for the cash-in and I will ask you another question on the huge liquidity.

So the only thing I see the evaluation that is there. Is it the only reason for such an option to be exercised?

Sergio Marchionne

Look, one of the problems that you have and I will give you a very general answer to your question, and then you can derive whatever conclusions you may derive from what I am saying. But in any situation we have an evaluation of Fiat, in fact that it reflects multiples, they are at a very last of the distribution curve, an indicate evaluation below par against its competitors, and you have an asset like Ferrari within it, which is you all know has intrinsically a value well in excess of anything which is known within the automotive confined, and which would in all likelihood if listed trade at a multiple which much more closely aligns the business with a luxury goods maker. You’re always confronted with the situation of providing and crystallizing value to the highest possible extent with your shareholders. And that’s why it continues and it will remain an option for this Group until we can cure the anomaly and evaluation of the business itself.

We can do one of two ways. I can tell you what it’s worth for, I can prove to you what it’s worth. And if the market needs proof, we will continue to be a viable option. But I agree with you that the Fiat of today does not require the liquidity necessary from a positioning of Ferrari in the marketplace. But I think it’s our right desire to the value of Fiat in all likelihood today barely covers the value of a standalone Ferrari.

And just to correct your statements about Mr. Montezemolo. The last statement that Mr. Montezemolo made is that a EUR5 billion number which was being ticked around the financial circles did not even reflect half the value over referrals worth. I will leave that with you.

Martino De Ambroggi – Equita

Okay. Thank you for the answer. The second question was on the liquidity. And so I understand that you don’t need any additional liquidity, but what’s the normal level of the liquidity and when do you think you can achieve it. I would have expected already not a significant reduction, but a reduction already in Q1. And during your speech you mentioned initiatives to be pursued during the year. I understand that is the Chrysler call option. But is there any other additional cash out – a requiring cash out that should be taken into account just to justify such a huge amount of cash?

Sergio Marchionne

Other than Chrysler I don’t know of any other initiative that may require a normal utilization of our cash pool. I think that we have adopted an incredibly conservative stance vis-à-vis liquidity levels within the Group, following what you guys collectively have managed to accomplish in 2008 and 2009 for the banking sector into the capital markets.

So I see a restoration or what I consider to be a decent capital market conditions we would continue to hold liquidity to provide all the safety cushions that Fiat requires going forward. It is my expectation and I have been publicly listed, I thought that roughly EUR5 billion cash pool was more than enough to try and cover the requirements of Fiat going forward.

In a normalized environment, that remains a target. I think we need to get our – we need to get comfortable with the condition of capital markets and the ability to refinance the organization as we go forward, especially after what we lived through in 2009, the early part of 2009. So I expect that number to go down. It is costing us an incredible amount of money to keep that liquidity in place.

Martino De Ambroggi – Equita

Yes, yes. That was my point.

Sergio Marchionne

No, I know, and we were fully aware of this and we understand the carrying cost of that liquidity, we understand that it’s significantly denting our profitability which you – when you combine it with this unsustainable tax rate which is reflective of fundamentally a very anomalous unsatisfactory industrial performance of our businesses in Italy compared to the rest of the world. Until those two issues correct themselves and do it quickly I think we are – we’re going to be I think unnecessary penalizing the P&L Having said this, we expect to restore it in short order. I think that hopefully within the next 12 months we’ll have a much better view as to where we need to be, but I don’t think it should last longer than this.

Martino De Ambroggi – Equita

Okay, thank you. Bye.

Operator

We will take our next question from Massimo Vecchio from Mediobanca. Please go ahead.

Massimo Vecchio – Mediobanca

Good afternoon. My first question is on Japan. Can this event be market share say mover? In other words, I assume that you versus your competitor, you have a lower share of suppliers coming from Japan or importing from Japan. Can this be an advantage for you in terms of market share gain versus all the Japanese, all the Koreans, or Nissan Group for instance?

Sergio Marchionne

I think I can’t comment on Nissan, which obviously I think has got a very high exposure to Japanese supplier base. But I think that we’re seeing this in terms of the forecast of volumes being impacted across the Japanese – the Japanese carmaker range from Honda to Nissan to Toyota. I think you should not be fooled by our supply position. Unfortunately the problem is not limited to Tier 1 suppliers.

And because of the way in which components manufacturer has developed there are a number of people who are now inextricably linked one to the other. And so some people will appear to be whole European effectively rely on a supplier base which is Japan origin. And so I don’t think that we are in any different position either here or at Chrysler from the rest of the crew. And so the volume loss that we’re forecasting potentially I think is a reflective of what I think on the average traditional automaker are to experience.

I think we’ll be updating the market on May 2nd on Japan. We’ll have 10 more days of interfacing with the suppliers to help us clear unresolved issues going forward. And by the way I keep on reiterating this, I think the position keeps on improving daily as we go forward. I think that we have had all the disclosure or at least most of the disclosure that we needed from both Tier 1 and Tier 2 suppliers. And so we’re dealing with those issues and addressing them in a pretty effective way.

Obviously some of the solutions that we’re deriving are not elegant because of the fact that we have perhaps downgrade some of the offerings to reflect a non-availability of particular components. But overall this is the situation that can – it should not last more than six months and we should be back fully active in a marketplace with a full offering by October of this year.

Massimo Vecchio – Mediobanca

And the 50,000-100,000 units that you expect to lose, you – could you not use the current inventory level that you have? Is there an issue of mix inventory versus the mix of demand or you are already – you have the net effect?

Sergio Marchionne

I’m giving you the net effect of the full utilization of stuff that’s available within the systems, stuff that’s an inventory. And given the utilization of spare parts that’s available within the parts and service business if you had. So I think all of us have gone back and looked hard and long at our supply chain and made sure that we have accessed the available pool of components so we can get our hands on, and that’s our best estimate all we can deliver by the end of 2011.

Massimo Vecchio – Mediobanca

Okay, and last question. And this is mostly a clarification. Tax rate for the full-year 2011, if I understand correctly what you said at the beginning of the call, there is nothing – I mean, Q1 tax rate to be a good indication of the full-year tax rate. Is it correctly or –?

Sergio Marchionne

Yes, you might see some improvement going forward. I think we do expect to see a restoration of still abnormally high rates, but certainly to something much is slightly more sensible.

Massimo Vecchio – Mediobanca

Okay, thank you very much.

Sergio Marchionne

What we will see an improvement I think is the performance of the Components business improves and if FPT improves in the remainder of 2011.

Massimo Vecchio – Mediobanca

All right, thank you very much.

Operator

We will take our next question from Jochen Gehrke of Deutsche Bank. Please go ahead.

Jochen Gehrke – Deutsche Bank

Yes, good afternoon. Two questions, if I may. First of all on Chrysler, Mr. Marchionne you stated obviously a gain and again the ambition to step off above 51%. Could you talk about what that to your best knowledge would mean for your credit rating? Obviously Chrysler is not rated today and carry still significant leverage. Would that be any concern to you and trigger any preemptive move such as – as a disposals prior to a full consolidation or is that something that we can put – put aside and you would be happy even to live with a potential rating downgrade for Fiat S.p.A.?

And then secondly with regards to the Italian market development, in your appendix, you’re showing a negative price mix move in the quarter. I suspect that price was essentially larger negative than the overall EUR90 million that you’re displaying. Could you talk a little bit about the Italian market development that we’ve seen in the first quarter and particular given that Volkswagen seems to be gaining market share at a very significant pace and what your view is triggering that as this product offering is equally price aggressiveness? Thank you.

Sergio Marchionne

Just to answer your – to give you an answer, I’m looking at my colleagues here to give you an answer, but I don’t think that EUR90 million is a net of a bigger number with a smaller number. I think that the price erosion has contained within the EUR90 million.

I don’t mean [inaudible] derogatory remark about any competitor including Volkswagen, but I think that there has been undoubtedly price deterioration in the marketplace in Q1 of 2011. I think there is an attempted – there has been an attempt because of the poor condition on the Italian side to try and get share on the basis of price. This is a pretty widespread phenomenon. I don’t think anybody in Europe that I – we all take lessons from people who have another view or other sort of facts. I think none of us are in phenomenally great shape on the European side, because of pricing conditions.

And so until we sort of readjust the industrial machines to try and deal with this new environment and until – certainly in the case of Fiat we start supplementing the product offering to try and occupy spaces which are a bit – in segments which are normally and traditionally outside of the traditional area of Fiat’s coverage, most of which are going to come as a result of the collaboration with Chrysler, I keep on repeating, as a result of the expansion of the Giulietta platform. I think that we will be – we will continue to be victims of what are considered to be poor pricing conditions.

The attempt that was done and the initiative that we’ve undertaken with Fabbrica Italia was to effectively cure at least the industrial under absorption problem associated with running an industrial framework within this country. And this is what has caused I think all the perhaps repercussions with the unions about the working conditions that are now required to try and accomplish that end. But it is absolutely clear that in the absence of a commitment by the industrial network in this country to direct this production effort outside of Europe that the viability of the industrial structure long-term is in doubt. And so if we cannot address the problem by setting up proper industrial practices in the plant we will have no option but effectively curtail production here in a substantial and perhaps a radical way.

Vis-à-vis your Chrysler comments and the injection by Fiat of cash in Chrysler and its impact on its debt ratings; I think two things. Those comments – and the evaluations that were done by both Moody’s and Standard & Poor’s were done in the absence of an interface between Chrysler and the rating agencies. And I think that a lot of work has already been done by Chrysler to try and get itself ready for a potential reentry into the capital markets in whatever fashion they may take. And so, I think that both rating agencies now are certainly in better knowledge of what the Chrysler situation is and I think that they – that will hopefully positively impact the evaluation of an intervention by Fiat on the capital side of Chrysler. But even if they were not to happen, if you’re relatively comfortable where they were not subject to a downgrade, I think that the organization certainly with the liquidity levels that we carry today it’s sufficiently strong to manage the business going forward. So I don’t expect any negative repercussions from capital injection into Chrysler.

Jochen Gehrke – Deutsche Bank

Okay, thank you.

Operator

We will take our next question from Ranjit Unnithan from JPMorgan. Please go ahead.

Ranjit Unnithan – JPMorgan

Hi, there. Thanks for taking my question. I wanted to spend some time on the EBIT for Fiat Group Auto which you have on slide 29. So first, in terms of the production cost absorption, I was looking at the data and production is actually very similar to the levels it was as a year-ago, at about 549,000 units, and yet the production cost absorption was up over the positive EUR22 million in the quarter, so – which was a pretty decent number if you annualize it. So if you can explain why that number is so positive that will be very helpful.

And second –

Sergio Marchionne

It’s all Latin America in commercial vehicles.

Ranjit Unnithan – JPMorgan

So it’s mix is it?

Sergio Marchionne

It’s purely mix.

Ranjit Unnithan – JPMorgan

So – and that shows off in the production cost absorption not in the price mix section?

Sergio Marchionne

Correct.

Ranjit Unnithan – JPMorgan

Okay. In terms of the price mix element which is down EUR90 million, did you say earlier that the price element of that was actually not – was less than EUR90 million, in other words fairly marginal?

Sergio Marchionne

Yes, I think the overall – not marginal. I said it was included in the 90 million.

Ranjit Unnithan – JPMorgan

Yes, I guess what I’m trying to understand is was the mix a positive number and was the pricing a negative number?

Sergio Marchionne

I mean they’re working out the numbers. We’ll give you an answer in a moment.

Ranjit Unnithan – JPMorgan

Okay. And then the other element was the SG&A which was EUR22 million negative. Just trying to understand if that’s a number that will stay at that level to the remaining four quarters?

Sergio Marchionne

Sorry, let me deal with the mix. The mix issue is positive marginally, the rest is all price.

Ranjit Unnithan – JPMorgan

Okay. So mix is more or less neutral and price is negative.

Sergio Marchionne

That’s right.

Ranjit Unnithan – JPMorgan

And SG&A, I was wondering it’s a EUR22 million negative number, we should expect I guess an increase in selling and admin expenses for the remaining quarters as well?

Sergio Marchionne

You will.

Ranjit Unnithan – JPMorgan

And in terms of the production cost absorption, as long as you have LCVs in Latin America, that should also be positive for the remaining quarters.

Sergio Marchionne

It’s expected to be in line with these numbers in the next three quarters.

Ranjit Unnithan – JPMorgan

Okay.

Sergio Marchionne

It can only improve as we launch vehicles.

Ranjit Unnithan – JPMorgan

Okay, okay. And then in terms of your CapEx, you have been very clear that you’re probably not going to get anywhere near the EUR4 billion, EUR4.5 billion. Is there sort of a level that you’re comfortable with like either EUR3 billion, is that a number where you’re prepared to give us what you think is acceptable for your product overhaul that you’re doing at Fiat?

Sergio Marchionne

I think below EUR4 billion for 2011 will be an acceptable number.

Ranjit Unnithan – JPMorgan

And that level can continue into 2012 as well?

Sergio Marchionne

I’m not – I can’t tell you to be perfectly honest. It depends on – I don’t know. I think that we have forecast and I have to go back to the original plan, but I think we have forecast similar investment cycles for 2011 and 2012. I think we’ll give you an update on that as we go forward. I think the best time to call their numbers is at the end of Q3, after we’ve got nine months of this year under our belt and then we’ll able to make a call as to what the next 15 months will look like.

Ranjit Unnithan – JPMorgan

Okay. And the last question is on Japan. You quantified this impact. You seem to think that the majority of the impact will happen in Q3, so if you can explain why that would be? That’s helpful. And then, in terms of an trading profit impact, if I take the midpoint 75,000 units, should I view roughly EUR150 million trading profit impact on you which you are effectively overcoming through I guess other aspects which is why your outlook is unchanged?

Sergio Marchionne

Your estimate is about a third high. The number at the upper end is roughly EUR100 million if you take it all in for a variety of reasons, because it’s impacted by mix and everything else. So you got to be careful how you extrapolate the number. For ops, it’s worth about a EUR100 million, but it’s built into our creating profit forecast of EUR900 million to EUR1.2 billion too so we can absorb without causing a revision of our forecast.

Now I – the EUR900 million to EUR1.2 billion is still a doable number within 2011 notwithstanding Japanese impact is I think to the 100,000 vehicles is the extremely – I think we’ll do better than that. And the reason why most of this is being post to Q3 is because we’re working off our stocks. We have obviously – there is a number of – there are a number of components that were in transit that we have found within suppliers they are fueling production within April, May and June.

We will not see really the impact of all these things except for probably the first time in June of this year. And it will obviously be accelerating within Q3, because that’s the time when the machines – the industrial machines in Japan or elsewhere around the world will not be able to deal with demand. All of this is supposed to come back on stream within October, so we should be resuming normal supply cycles within the fourth quarter of this year. But it’s purely a question of what we have on hand and what is in the pipeline in terms of distribution.

Ranjit Unnithan – JPMorgan

Okay, thank you very much.

Operator

We will take our next question from Fraser Hill of Bank of America. Please go ahead.

Fraser Hill – Bank of America

Hi, good afternoon. Just two questions left from my side. Raw materials, just wanted to check that your expectations haven’t checked for the year. I think on the last call you were talking about a EUR2 billion expected headwinds for the year. Is that broadly where you see things today?

And I was going to ask a similar question on Japan and the likely effect on your profits from those lost units. If you just ignore that effect for the time being, would you still be happy to say that you expect to be towards the top end of that profit guidance range, because again that was a comment that you gave with the full-year results that you expected to be closer to the 1.2. Is that still the case today?

Sergio Marchionne

The answer is probably yes on to the last question. I think we’ll have a better view on this at the end of Q2 once we see the impact of Japan. But let me give you some indication of the raw material impact. We had forecast negative headwinds of over EUR200 million – north of EUR200 million for the year. That number has now gone up from about EUR200 million to almost EUR400 million, roughly north of EUR350 million.

And so net-net we’re still positive for the year and we’re still expecting to do we’re supposed to do. But we’re expecting to do about 25% of what we set for ourselves is the target, which is roughly EUR300 million. There was events back on the April 2010 plan. That number is coming in at about EUR80 million net for the year and that’s purely as a result of the impact of the increased raw material prices that we’re seeing in the – and effectively our inability to lock in better pricing. But it’s not – we’re not the only ones that are suffering through this now.

Well, to the extent of this is – these reflect permanent conditions. I think with the exception of Europe, you’re going to see a very clear attempted pushing these raw material price increases are in place. But Europe as I mentioned earlier, because of the pricing dynamics of the market I think is worrying through the margin line.

Fraser Hill – Bank of America

When you think about your purchasing for the year and your visibility on that, I mean how much of your skill for example have you –?

Sergio Marchionne

We’re done. We have locked in all of ’11.

Fraser Hill – Bank of America

Okay, thank you.

Sergio Marchionne

You’re welcome.

Operator

We will take our next question from Philippe Houchois from UBS. Please go ahead.

Philippe Houchois – UBS

Yes, good afternoon. Just – lot of questions have been asked already. But can you explain to me why – I mean the way you continue reporting or trading differently from Fiat or FGA, what’s different in the organization compared to Peugeot who don’t report there engine operations separately? If you can clarify that.

The other question I had was more on – there is a bit of a guessing game in the purchasing about when Alfa return to the US. Could you give us some clarification about where you are in replacing in models? And if you are indeed have a bit of a hold in your product cycle if you’re just still on track to launch Giulietta?

Sergio Marchionne

We’re still on track to launch the Giulietta. I don’t like the Giulietta that we have developed as a design, so we continue to work on solutions today. But I don’t think there is going to be a material deterioration of the time schedule. I mean I – we expect it to be back in the US at the end of 2012 with [inaudible] move by quarter almost four months, but I think they will be there.

In terms of the reasons why we segregated Powertrain is because when we created the Powertrain division we wanted it to be actively engaged in selling engines to third parties. We believe that that was a viable business. We continue to believe the fact that it can provide viable partnering solutions to third parties. And as long as we maintained the view of the aggregation with the car side, it is probably improper. I think it would certain benefit margins if we added them back together.

Philippe Houchois – UBS

Yes, so you are in fact in some form understating the TFJ margin by doing that?

Sergio Marchionne

Yes, I am. I mean on a comparative basis, I am.

Philippe Houchois – UBS

Yes, okay. Can you take one last question if I may? If you think about besides the difficulty short term with getting an agreement on Fabbrica Italia, if you think about your plan, you told us last year your capacity utilization was around 50%. What you think it will be end of ’11, end of ’12 using a 50% of the base?

Sergio Marchionne

It will be marginally up within 2011 as Pormigliano comes on. I think the substantial improvement will be visible in 2012 as the C SUV comes on stream in our Mirafiori plant. So I would expect – I mean I don’t have an exact number here, but I think Marco will provide it to you.

Philippe Houchois – UBS

Yes.

Sergio Marchionne

But we can give you our indications on the next earnings call. Certainly by half year is to where we think capacity utilization will be.

Philippe Houchois – UBS

Okay, thank you very much.

Sergio Marchionne

You’re welcome.

Operator

We will take our next question from Stuart Pearson of Morgan Stanley. Please go ahead.

Stuart Pearson – Morgan Stanley

Hi, good afternoon. Just one more general question. I guess there has been a lot of talk and speculation on Chrysler from a financial perspective, but maybe you could just update us from an operational perspective on the integration between Fiat and Chrysler respect to the synergies both in regards to purchasing R&D cost production. I mean are you happy with the way these two organizations are starting to function together and do you think we can see the synergies you planned come either sooner or rather than planned or even be greater or smaller than originally planned. So just an update on how the two organizations are progressing and where we might start to see the full impact of those synergies in the earnings numbers.

Sergio Marchionne

I think in the case of – in the case of – to be perfectly honest, I think that the first evidence of the interface between Chrysler and Fiat is being seen through the leverage that we now have on the purchasing side which effectively combines Fiat, Fiat Industrial and Chrysler as one entity, we are talking about annual purchase volumes which are well in access of EUR30 billion. So I mean these are substantially substantial numbers which have allowed us to effectively deal with the supplier base in a more constructive – and I think ultimately cost efficient manner.

I think the benefit of the interface is something which is taking shape as we go through – as we go through the development of the architectures. I mean the convergence of the architectures between Fiat and Chrysler is something it does take time. And I think that we will see the first product – other than the Fiat 500 which has been launched in the US market out of purely a Fiat platform, everything else that you will see, more than half of the volumes that Chrysler will be producing by 2014 will be based on Fiat derived architecture which are shared with Fiat totally.

And so the benefit of that convergence and the ability to effectively continue to top that vehicle’s of established platforms is really the benefit of the alliance, not to mention the joint distribution capabilities which have made – these are organizations that have contiguous distribution abilities. Chrysler was not very strong in Europe. In Latin America we were non-existent in NAFTA. And so the ability to bring these organizations together and effectively start providing distribution power one to the other is going to make – is really at the heart of the alliance.

In terms of your question as to whether I am happy with the speed of the progress that has been made so far, the answer is absolutely yes. I am – we are running this organization as if we were one. We are keeping obviously the right mechanisms in place to ensure proper arm’s length treatment of the transactions between the two organizations where fundamentally these two businesses are now running as one.

I mean I don’t distinguish between Chrysler and Fiat. I make sure and one of the main objective is to avoid any duplication of effort across the two organizations and to ensure the highest level of collaboration and cooperation on development going forward. So I am having – I shouldn’t be saying this too loudly, but given the fact that less than two years have pass by when Chrysler came out of bankruptcy in June of 2009, I think we have made significant progress, and I’m happy what’s happened here. I don’t regret any of it.

Stuart Pearson – Morgan Stanley

Okay, thank you.

Operator

We will take our final question from Eric Hauser of Credit Suisse. Please go ahead.

Eric Hauser – Credit Suisse

Good afternoon, everybody. Thanks for taking the question. Being mindful of the time two very quick ones. First one is I was just wondering why your provisions for employee benefit went up by 30% of the cost in the quarter, if you could just tell us what is behind it?

And secondly, while everybody keeps on talking about raw material price inflation, based on [inaudible] it’s got significant exposure to Brazil, actually more worried about [inaudible] cost inflation in that market. I was wondering if you could just give us an idea how you think the Brazilian business can deal with inflation in that market and how that’s going to impact your operations? Thank you.

Stuart Pearson – Morgan Stanley

I think that inflation picture in Brazil is totally in control in terms of wage rates. I think we have been able to achieve phenomenal productivity improvements out of our industrial operations in Brazil to deal with inflationary wage pressures. We have not seen a deterioration in margins or an increase in convergent cost as a result of what has been a relatively peaceful labor environment where these – there has been sort of broad line agreement on wage rates.

So I – as long as we continue to operate the machine at the level of efficiency that we have been able to accomplish, I think that we are in good shape. I don’t see any impact on margins as a result of wage increases. And my colleagues here are looking at this employee benefit stuff. Maybe Marco can get back to you. I have no idea of what the answer to your answer is. I just don’t have that level of detail, but Marco will come back to you.

Eric Hauser – Credit Suisse

Sure, thank you.

Operator

That will conclude today’s question-and-answer session. I would now like to turn you back to your host, Mr. Marco Auriemma for any concluding remarks.

Marco Auriemma

Thank you, Lori. We will like to thank everyone for attending the call with us. We look forward to follow on any questions, and have a good evening. Bye-bye.

Operator

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

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