Fiat's CEO Discusses Q1 2013 Results - Earnings Call Transcript

Fiat SpA ADS (FIATY.PK) Q1 2013 Earnings Conference Call April 29, 2013 12:00 PM ET

Executive

Marco Auriemma – Head-IR
Sergio Marchionne - CEO
Richard Palmer - CFO

Analysts

Martino De Ambroggi - Equita
Fraser Hill - Bank of America
Eric Hauser - Credit Suisse
Stephen Reitman - Société Générale
Richard Hilgert - Morningstar Inc.
Charles A. Winston - Redburn Partners LLP
Jochen Gehrke - Deutsche Bank
Philippe Houchois - UBS

Operator

Good afternoon, ladies and gentlemen, and welcome to today’s Fiat Group 2013 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 Marco Auriemma, Head of Fiat Group Investor Relations. Mr. Auriemma, please go ahead sir.

Marco Auriemma

Thank you, Sara. Good afternoon to you all and welcome to Fiat Group’s First Quarter 2013 results webcast and conference call. The earnings release 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 always the call will be governed by this language.

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

Sergio Marchionne

Thank you, Marco.

I was just deciding – discussing with Richard that he is going to go through the whole presentation all by himself, I'll be more than glad to take questions at the end. I'm just going to give you a couple of comments to cover the quarter at least from sales standpoint. We went through a rather lengthy discussion with – on the conference call with Chrysler about two hours ago. But I’m going to fill in the rest of the picture with our global operations.

Obviously, let's deal with the easy stuff. Obviously, we continued to make progress in Asia Pacific. I think the results are indicative of the substantial effort that's going on in that region. I think the success of the joint venture that we've established for the production of the Viaggio was beginning to show some fruit and obviously equally important is that – more important is the attention that we're placing on the G-brand and the potential introduction as a locally produced vehicle in China in the relevant time.

The indications that we're getting back both in terms of profitability and market success and access are quite good. Latin America volumes are coming back in. I think we're working to the last pieces of the old version before the restrictions in imported cars came into play which Richard can explain this in more detail. But I think we're encouraged by the volumes that we're seeing in Brazil. We're encouraged by the market share gains that we've been able to achieve and I think it's a confirmation of that fact this that our renewed commitment to Brazil through the opening up of a greenfield plant up in the state of Pernambuco by the end of next year. That confidence is well justified in view of volumes and the results that we're getting.

I'm also encouraged by EMEA. I think strangely enough on the European side, notwithstanding the fact that the market continues to show slow decline year-over-year. As for all I know, we probably have not seen the bottom of this market. We'll probably see it sometime in the second quarter, on the assumption that the European political leadership gets its act together and starts moving an agenda. It's just promoting growth now the key objective as opposed to austerity.

I'm encouraged by those numbers. We've been able to reduce losses. We are in relative terms compared to our competitors. I think that we were wise in not committing capitals to that region in the absence of some very clear direction as to what the market will be moving and going forward. And so we have stayed away from continued massive investment in the mass-market and our work to ship the focus of our industrial operations away from that market and more focused on the production of – in the premium end is something which we continue to believe and there is a phenomenal amount of work is going on now inside the house. To redefine the architectural framework for the development of both Alfa and Maserati debt process will continue unabated for the rest of 2013. And I think we have certainly a better view by the end of this year, as to what we can spell out. There is a product portfolio in terms of ambitions in volumes coverage and the cadence for the product introduction of that portfolio.

And we know how Chrysler performed. We released the numbers earlier this morning. We know that because of the product launches and the impact on the industrial structure here, we fell short to the market that we establish in 2012. Having settled this, we understand what needs to be done over the next five months. I think we have confirmed guidance for both Chrysler and Fiat Group overall in the absence of earthshaking revelations in the next little while, but we believe we can still get to the number that we laid out at the end of 2012 was being our target for the year.

The rest of the year is going to be challenging. I think that we are fully aware that these are several markets we have comforted for the fact that there is strength in the NAFTA markets and that we have a product offering that is having a good degree of success. The commercial organization here has done a great job on the NAFTA side to keep the momentum going.

We are going to see numbers being released Wednesday morning in terms of volumes and market share. I think we will do well. I think it is a good introduction for the second quarter, which remains a big quarter for us both in terms of volumes and in terms of the testing the success of the relaunches that we accomplished in the first quarter of this year.

A number of questions came up during the conference call on the VEBA stuff, I will leave that till the end. And if there are any questions – well, we continue to work with VEBA on the IPO alternative. I think that we remain ready to take this thing public subject to the filing requirements and all the other regulatory needs associated with an IPO of the size.

At the same time, I think Fiat, as it works with VEBA on the IPO, it is making itself available to discuss further options with VEBA. I remain as I have always been of the view that these two companies need to brought together. We had to find a reason or way to get that done. If that can be accomplished then, I think we will be a great step forward, if not we will take it to IPO and we will be ready to assist you by monetizing their interest.

On that basis, I will pass it on to Richard, where I’m sure he is going to razzle-dazzle you with details on the quarter.

Richard Palmer

Thank you. Good morning, afternoon to everybody.

I’m going to start on page 4. Group revenues were €19.8 billion for the quarter down 3% year-over-year flat at constant exchange and increases for Latin America. APAC and LATAM performance brand almost fully offset NAFTA and EMEA reductions. Please note that in the financial comparisons here the Q1 2012 numbers have been restated the adoption of IAS 19 revised which resulted in a reduction in reported trading profit for the quarter €60 million and a reduction in net profit of €117 million compared to the prior reported numbers.

For the quarter trading profit was down €188 million versus last year attributable to a lower contribution by NAFTA which posted a €397 million profit. LATAM performed expectations with a trading profit of €186 million down from €235 million in the prior quarter. Net of currency translation impact for trading profit was down 10% due principally to lower volumes for Chrysler products in Mexico affected by import quotas introduced during 2012 by both Argentina and Brazil.

APAC contributed a €100 million an improvement of €23 million over the prior year posting 10% margin. EMEA reduced losses by €50 million over the prior year, so €157 million loss with discipline in SG&A spending and a better product mix more than offsetting the impact of the continued deterioration in trading conditions in the market.

Luxury and performance brands trading profit reached €76 million essentially inline with Q1 2012 with Ferrari posting 43% improvement and the result from the Maserati affected by the ramp up of the new Quattroporte. For Components, Q1 trading profit was €33 million, also in line with a year ago.

Group net profit was €31 million for the quarter down from €262 million in Q1 2012 driven principally by the reduction in trading profit. There was a loss of $83 million attributable to owners of the parent compared with the €35 million for Q1 2012.

For Fiat excluding Chrysler, the net loss was reduced by €41 million over Q1 2012 to €235 million. Net industrial debt of March 31, 2013 was €7.1 billion up from €6.5 billion at year end 2012 and total available liquidity increased €21.3 billion mainly due to positive exchange rate impact on the U.S. dollar. Of total liquidity €11 billion related to Fiat excluding Chrysler and €10.3 billion to Chrysler.

Moving on to page 5, revenue in EBIT by segment is shown here the top-line decreased 3% to €10 billion for NAFTA and 4% to €4.4 billion for EMEA. LATAM reported revenues of €2.5 billion, a 5% decrease in normal terms but up 6% at constant exchange rate. And APAC increased more than 35% to €1 billion.

Luxury and performance brands were up 4% driven by Ferrari, components revenues were down to 4% to €1.9 billion. In the quarter Group EBIT was €603 million, €232 million decrease mainly reflected lower trading profit in NAFTA and LATAM with earnings from mass-market decreasing 36% and NAFTA to €400 million and 46% in LATAM or 21% excluding the effect of €59 million unusual charge related to currency devaluation in Venezuela.

For APAC EBIT increased 15% to €98 million while EMEA reduced losses by €59 million to €111 million. For luxury cars and components EBIT was €76 million and €35 million respectively inline with the prior year.

Page 6 shows the P&L license the below trading profit line investment income includes a €38 million income from EMEA brought in line with the prior year while other investments contributed positively mainly driven by the reduced loss on the Fiat stock.

Q1 2013 unusual includes the impact of the currency devaluation in Venezuela for €59 million while Q1 2012 included the reversal of some research and provisions for €11 million.

Net financial charges were €443 million inline with €432 million in prior year. For Fiat ex-Chrysler financial charges were €200 million and included a €15 million gain in the mark-to-market of the Fiat stock option related equity swaps. This compares to €165 million in 2012 which included a €38 million gain from the same instrument. Net the impact from the equity swaps the €12 million increase in net financial charges for Fiat ex-Chrysler reflects the higher net debt level.

Chrysler had financial charges about €243 million slightly lower than the prior year. To €129 million in income taxes primarily related to taxable income of companies operating outside Italy and employment related taxes in Italy. For Fiat ex-Chrysler taxes were €100 million lower than prior year.

Moving to page 7, net industrial debt at quarter end was €7.1 billion, €0.6 billion higher than December end. Consolidated EBITDA contributed positively for €1.6 billion fully offset by capital expenditure for the quarter of €1.6 billion. Average near €0.7 billion for Fiat ex-Chrysler and €0.9 billion for Chrysler both valued in line with prior year.

Financial charges and current tax should explain the bulk of the net industrial debt change in the period, while the net effective positive change in working capital reserves and other operational items netted to a material number. The €0.6 billion increase in a consolidated net industrial debt at quarter end is entirely attributable to Fiat ex-Chrysler where the increase in net debt for the quarter was reduced by €0.7 billion compared to Q1 2012 mainly due to reduced negative working capital impacts. Chrysler contributed positively with €0.1 billion.

Moving on to page 9, we review the performance by region, page nine deals with NAFTA. As said earlier, the quarter would be impacted by ongoing launches of the new 2014 Jeep Grand Cherokee and the 2013 Ram Heavy Duty Pickup Line and by no production of Jeep Liberty at Toledo North, as the plant prepares for the start of production in Q2 2013 of the all new 2014 Jeep Cherokee.

Revenue go down 3.5% primarily due to lower shipment volume partially offset by favorable pricing. Trading profit was down 35% where trading margin down to 4%. Due to lower volumes and to industrial costs related to the launch of new products partially offset by continued pricing. Overall vehicle shipments were down 2% in the region with a slight decline in the year ahead but more significant in Canada and Mexico due to some product shortages.

During the quarter, the group recorded strong vehicle sales, which were up 7% from Q1 2012 to 508,000 units despite some stock issues in Jeep under our own brand. Sales in U.S. were up 8% mainly driven by the 12% increase in retail sales, our sales outpaced the industry also in Canada posting a 4% growth in the quarter. Sales for combined U.S. and Canada were up for all brands with the exception of Jeep whose sales decreased 10% primarily due to the reduction of Jeep Liberty sales as we await the all new Jeep Cherokee to be launched in Q2.

To walk on page 10, details the reduction of €225 million in NAFTA EBIT. The launch of key products mentioned before namely the Jeep Grand Cherokee and the Ram Heavy Duty that impacts on both volumes and industrial cost. The decline in volumes of 9000 vehicles which would be 23,000 vehicles adjusted before JDP shipments accounted for nearly €100 million reduction.

The adverse impact of nearly €280 million in industrial cost was due to the start-up cost were related to the new Jeep Grand Cherokee and Ram Heavy Duty and the vehicle content enhancements on the newly launched products and on the Ram like Heavy Duty Truck. Industrial outsourcing through this 30 million of higher R&D amortization. The positive impact from that pricing reflected pricing action is primarily driven by the same vehicle contain enhancement.

Moving to page 11, we look at the industry trends and our performance during the quarter, the U.S. vehicle market closed the quarter up 6%, 3.7 million vehicles with cars up 3% and Trucks up 9%. The group sales were up 8% versus the year ago with March being the best month since December 2007 and the 36 consecutive months of year-over-year sales gains.

The Group’s several market share was up 20 basis points over the prior year to 11.4%. Retail and retail market share was up 40 basis points to 10.4%. Jeep vehicle sales totaled 101,000 for the quarter, down 12% year-over-year, primarily due to the phase-out of the Jeep Liberty, pending launch of the all-new Jeep Cherokee and a 12% decline for the Grand Cherokee attributable to changeover to the new 2014 model.

Dodge, the Group’s number one selling brand in the region, posted vehicle sales of 159,000 units during Q1, up 26% from the prior year mainly driven by sales of the new Dart, the Avenger, the Challenger, the Journey, and the Durango. The Ram truck brand posted a sales increase of 14% to 79,000 vehicles, reflecting sales increases for light-duty and heavy-duty, up 19% and 18%, respectively. Chrysler brand sales totaled 80,000 vehicles during the quarter, up slightly from the same period last year. Fleet mix reduced to 28% from 31% in Q1 2012.

The Canadian vehicle market declined 2% year-over-year to 363,000 vehicles with cost down 5% in Trucks flat similar to Q1 2012, the Group as the market leader in Canada. The Group’s total market share was up 100 basis points year-over-year to 16%, mainly driven by strong performance for the Ram Truck, Jeep Compass and new sales of the Dodge Dart. Retail of retail market share was 14.1%, up 90 basis points. With mass sales Group posted the 40 consecutive months of year-over-year sales growing gains with the best March sales in 2000 and also the best month ever for Ram Truck sales.

Slide 12 deals with the LATAM region a key market in the region held up well in the quarter with trading conditions particularly good in Brazil, driving the market to an old time record. In Argentina, the market was in line with the prior year. Instead of LATAM countries with a 3% mainly due to the political uncertainty in Venezuela.

Revenue was down 5% due to negative currency translation but were up 6% at constant exchange reflecting overall shipment volumes improvement. Trading profit came into the €196 million euros compared to €235 million last year with the trading margin of approximately 8%. The result through operation in Brazil in line with the prior year.

Net of unfavorable currency transaction impacts, trading profit was down 10%. Total Group’s shipments were up 7% with the Brazil up 8% and Argentina up 14% compensating of other LATAM market which declined 24%. The Group outpace the industry in both Brazil and Argentina reaching the best Q1 share in Brazil since 2010. At the end of the quarter, with solid levels of company and due to inventory of about 30 days supply, the sustained industry trend supported by the recent expansion of the IPI tax reduction.

Moving on to page 13, EBIT walk for LATAM shows the positive impact of volume growth which was more than offset by higher industrial cost resulting from a less favorable production mix due to shift of annual shutdown of Brazilian plants in December to February 2013 and level of volume of Chrysler products due to effective import quotas were introduced during 2012. In addition to the costs of some advertising campaigns in Brazil.

During the quarter, we started reporting some benefits from the Inovar Auto Program incentive scheme. The other columns were mainly related to currency transaction effects of €59 million unusual impact related to the February currency devaluation in Venezuela.

Moving to page 14, our sales in Brazil notwithstanding longer downtime at Betim for the yearly shutdown increased 30% versus a year ago, driving the Group to achieve the best Q1 ever. The Group strength and this leadership of the Brazilian market with overall share of 22.9%, the best Q1 share since 2010, an increase of 20 basis points over Q1 2012 and 300 basis points ahead of the nearest competitor.

Group products continue to perform well, take a combined 27% share of A and B segments driven by the continued success of the Novo Palio. In addition, the Siena and Grand Siena posted a 115% year-over-year increase and the Strata sales were up 6% to close the quarter with a 49% segment share.

In Argentina, where the market was in line with the prior year Group sales totaled approximately 29,000 units with share up 10 basis points to 12.2%. In the A and B segment, share was 15%, with the Palio recording significant year-over-year growth. In May 2012, the Brazilian government had reduced it IPI tax by up to 7% to reduce vehicle demand. The reduced rate for originally set be phase out during the first half of 2013 with progressive quarterly rate increases starting in January. In March 2013, the government expanded the scheme to the year-end of 2013, another results were partially increased has been applied only in January.

Moving to page 15, we see how the APAC region continue to show good demand conditions with double-digit growth in China offsetting weaker demand in India and Japan. Group revenues were up 36% with a similar growth of constant exchange rate on the back with 28% increase in shipments primarily driven by Jeep, Chrysler and Dodge which together represent 90% of total revenues.

Trading profit was €100 million with a double-digit margin the 30% increase was mainly driven by volume growth partially offset by increased industrial cost in the SG&A to support business expansion plan. Retail sales including JVs were 45% with continued share gain for Jeep which posted a 26% growth versus prior year.

Fiat the region’s second-best selling brands for the Group was up 71% driven by the recent launch of the Fiat Viaggio. During the quarter, the Group increased focus on development of Fiat, Alfa Romeo and Fiat Professional brands in the region targeting significant growth in the Australian market. In South Korea, the Fiat brand was reintroduced with the launch of the Fiat 500, 500C and the Freemont.

Moving to page 16, EBIT in APAC increased from €85 million to €98 million thanks to the nearly €50 million improvement from higher volumes industrial cost impacted mostly due to higher R&D related to new product launches and fixed manufacturing cost. There were higher selling expenses in support of volume growth and continued regional expansion including the introduction of the brand mentioned before in several key markets.

In APAC page 17 the Group sales including JV is about 45% outperforming the industry plus 6% driven by some performance in China and Australia. In China Group sales were two fold last year’s level driven primarily by jeep and Fiat brands representing best sales improvement in the market growing 18%, Jeep Compass and Fiat Viaggio were the top selling name plates. In Australia group sales were up 65% outperforming the industry up 5% and positing a share gain of almost 110 basis points. First quarter represented another good quarter for Jeep which recorded strong growth with a share 580 basis points in full-size SUV for the Grand Cherokee.

Group sales in Japan continued to be driven by the Jeep Grand which grew 3% despite the normalizing industry after strong recovery in 2012. In South Korea demand was slightly down with Group sales backing the trend with growth of 20% driven by the Jeep Brand and the launch of Fiat in February.

Moving to page 18 the EMEA region where the persisting difficult trading condition led to the 18^th consecutive month of market decline. The LCV segment was almost was also weak mostly reflecting the sharp decline in Italy. Revenues for the group were down 3.5% mainly reflecting volume declines in the highly competitive market. The trading performance improved €50 million or nearly 25% over the prior year with a reported trading loss of €157 million for the quarter. That was all achieved in the back of disciplined SG&A spending and some better mix mostly related to the Fiat 500 which more than offset lower volumes and continued price pressure.

The reduced EBIT loss reflected also an improvement investment income with JVs contributing €38 million in the quarter. The 6% decline in shipments for the quarter was mainly attributable to Italy our shipments in the passenger car segment was 8% to 195,000 units while LCVs grew 5% to 50,000 units with increases in Europe excluding and more than compensating for the decline in the domestic market. Company and dealer inventory remain around two month supply at the end of March the utilization rate our plants EMEA including JV remain stable at 65% under the harbor definition.

Moving to page 19 shows the nearly €60 million improvement in EBIT for the region the impact of the volume decline reflecting lower passenger car shipments was more than compensated by some better mix mainly due to the 500 L and LTV. The continued pricing pressure impacted approximately €50 million when industrial cost was slightly positive thanks to efficiencies from the WCM program. The disciplined SG&A spending backed up by actions undertaken the later part of 2012 contributed positively for nearly €90 million.

Going to page 20 look at the industry for passenger car in Europe which registered a significant year-over-year decline of 10% with sales down in all major market except the UK where there was a 7% increase. In Italy the market was down 13% reaching the lowest level since 1980 despite improved demand for LPG and CMG powered vehicles. There were double-digit decrease also in France, Germany and Spain. Q1 Group sales were down 9% to 197,000 cars with the Fiat brand flat versus a year ago. The 110 basis point share gain in Italy driven by performance in A and small MPV segments was largely offset by the further reduction in the waiting of the Italian market now representing 11.5% of the total European market leading therefore -- the Group to a small gain in share of 10 basis points in Europe. In the quarter good results were achieved in the European city car segment the Fiat Panda and 500 being ranked number one and number two respectively. And the Fiat 500L just a few months after launch was right in number two in this segment for the quarter.

Page 21 deals with the European LCV market which posted a 10% decrease over Q1 2012 to 376,000 units with overall demand again reflecting a sharp decline in Italy of 24%. Fiat professional close the quarter with an estimated 11.6% share in the market of 40 basis points increase over Q1 2012 driven by positive performance in all major European markets excluding Italy the group’s European share was 9.4% for the quarter representing an 80 basis points year-over-year improvement. Group share of the Italian market was 43.5% representing an increase of a 120 basis points over last year.

With 25,000 units sold, the Fiat Ducato was one of the most popular models in its segment with nearly 20% share or 180 basis points segment share gain compared to the last year.

Moving to page 22, luxury and performance brands. We can review with performance in the quarter of Ferrari which posted revenues of €151 million and 8% increase over the same period in 2012. The brand shipped a total of 1,798 street cars, representing a 4% increase over the prior year driven primarily by 8-cylinder models and in particular, the contribution of the 458 Spider. For 12-cylinder models, sales were in line with the prior year with positive performance for the new F12 Berlinetta.

The US remained Ferrari's no. 1 market with 492 street cars shipped during the quarter up 14%. Volumes were also higher in the Asia-Pacific region, with a total of 336 cars shipped up 18% on the back of double-digit growth in Japan and continued positive performance in Australia. In China, shipments were in line with the prior year. In Europe, there was a decrease in shipments over Q1 2012, with positive performance in Switzerland only partially offsetting declines in other major markets, particularly Italy, where the downward trend registered in 2012 continued. In the Middle East, volumes grew up 74% and in South Africa up 45%. Trading profit totaled €80 million compared to €56 million for Q1, 12. The increase reflected the higher sales levels, as well as the contributions from licensing and personalization program.

During the first quarter, Maserati shipped 1,304 vehicles, a decrease of 5% over the prior year. Volumes for the Quattroporte, they were down year-over-year as a result of the changeover to the new model. As a consequence, shipments for the quarter were down in China, Japan and in the Middle East. By contrast, shipments in Latin America were up 56% and in Europe up 42%.

Maserati posted revenues of €157 million for the quarter, down 4% over the prior year. The trading loss of €4 million, compared with a €16 million profit for Q1, 2012, reflected lower volumes and higher selling costs associated with the launch of the new Quattroporte.

Moving to page 23, we can review the quarter for our components and production systems operations.

Magneti Marelli reported a revenue increase of 1% or €1,469 million over the same period in 2012. Positive performances in NAFTA, China and Brazil were partially offset by continue contractions in Europe.

The Lighting business posted higher revenues of 7%, as well as NAFTA where several new products were launched during the second half of 2012. Revenues for the Powertrain business were also higher. The remaining business lines reported decreases.

Trading profit for the quarter was €30 million in line with Q1 2012. Teksid posted revenues of €173 million, a 22% decline over the same period in 2012 with lower volumes for the Cast Iron business unit in both Europe and Latin America. Teksid closed the quarter with a trading loss of €6 million compared to a profit of €3 million in Q1 2012.

Comau revenues were €307 million for the quarter, a decrease of 14% over the prior year attributable primarily to Powertrain Systems and Service activities in Latin America. Trading profit was €9 million compared to €3 million for the prior year. The increase was mainly attributable to Body Welding operations profitability.

Moving to page 25, take a closer look at the business environment by region starting with NAFTA. Since we have been discussing the launch of the Jeep Grand Cherokee and the Ram pickup, page 25 gives some key features on the new vehicles and Powertrain with 2014 Jeep Grand Cherokee completely redefining the premium SUV segment. Production and shipments of these vehicles have been ramping up throughout the first quarter.

These vehicles have many best-in-class capabilities including MPG and towing on the Grand Cherokee and towing and trailer weight and the new Ram. The slide also shows the all-new Jeep Cherokee, which is revealed at the New York Auto Show a month ago. This brand new vehicle will compete in the largest SUV segment in the United States. The vehicle has an all new design, which will have trailer weighted capabilities and best-in-class towing.

Additional features include the first application of the state-of-the-art 9-speed automatic transmission, and which with the 2.4 liter Tigershark MultiAir engine has improved fuel efficiency of 45% compared to the predecessor vehicle.

On the right-hand side of the page are showing the major contributors in the quarter are the 7% growth in the U.S. and Canada sales versus a year ago. The Dodge Dart is a significant contributor, Ram pickup, Dodge Avenger more than compensating for the Jeep Liberty phase out.

Page 26, talks about some of the fundamentals of our position in the Brazilian market, where we have produced more than 13 million vehicles since 1976. Thanks to the Chrysler Group’s branded products, we are expanding towards higher segments, also leveraging on the most extensive distribution network in the country with more than 600 dealers.

On the industrial side, we produce a vehicle every 20 seconds out of our Betim plant and starting late next year, we will count on additional production capacity of 200,000 to 250,000 vehicles a year in Pernambuco to expand product offerings in higher segments of the market.

Page 27 looks at our Chinese operations. We are still a small player, but our sales on increase more than doubling in Q1 2013 last year’s volumes. While Fiat Viaggio sales continued to gain momentum since the launch in September 2012, in February the Dodge Journey returned to the Chinese market.

The JV expense for the Fiat brand dealer network during the quarter now having a coverage in more than 80 cities with 120 points of sale across the country. The Jeep brand continues to perform well over in China while sales grew 25% in the quarter. The product line that will soon be further enhanced by the all-new Jeep Cherokee presented at the Shanghai Auto Show alongside the new 2014 Jeep Grand Cherokee and the Jeep Wrangler Rubicon 10^th Anniversary special-edition. Jeep dealer network continue to expand it’s presence in new and existing cities across China except in Q1 with more than 150 points of sale in 90 cities.

Page 28 deals with some key products of Fiat in EMEA as well as the World Premiere of a halo-car for Alfa Romeo. The Fiat 500L launched in Q4 last year throughout Europe was well received by the market and achieved good results during the quarter with the segment share of 17% in Europe and reaching the leadership in this segment in the month of March. During the quarter the Fiat brand presented 1.6L MultiJet II diesel and 0.9L TwinAir Turbo gas engine versions of the 500L as well as unveiling the Trekking model at the Geneva Motor Show which will be available in market from Q2.

Later this year the 7-seater version will enhance further the offerings with the model in Europe while the global reach of the 500L will expand with export from NAFTA of the 5-seater version at the end of the first half. In the quarter Panda was again the most sold city-car in Europe maintaining leadership in the A-Segment. Alfa Romeo unveiled a 4C sport coupé in Geneva to be released in the exclusive Launch Edition following a few months later by the standard production version.

Page 29 shows the supercars of our Luxury and Performance brand which will soon be in the market. During the quarter Ferrari presented a new limited edition LaFerrari at the Geneva Motor Show. Only 499 units will be made and orders for more than double that amount have already been received. The Maserati plant in Grugluasco started work on a two shift basis to support increasing volumes for new Quattroporte and the preparation for the start of the launch of the Ghibli. The new Quattroporte production was launched in January and is expected to reach run rate from Q2.

Page 30 shows our industry broadcast for 2013 by region. Based on the analyzed trend in Q1 the full-year outlook for both U.S. and Canada remains unchanged with about 15.5 million units for the U.S. and 1.7 million for Canada. The market development in LATAM experienced during the quarter is supported – of an unchanged full-year industry outlook, implying a mid-single double-digit, mid-single digit growth for the region. In APAC the overall industry is expected to grow about 5% with the improvement driven by strong growth in China and Australia. After weakening we expected the start of the year we have revised down with the projections for the European market, the Passenger Car segment in EU27 looks set for a further contraction up to 5% down. We’ve also reduced the market outlook for LCV which is now projected at 1.3 million units for the year. The market outlook for the LCV segment remains unchanged with a 5% year-over-year decline.

Moving to page 31, the first quarter as said earlier shouldered the impact of an aggressive product launch schedule for the Chrysler Group namely the new Jeep Grand Cherokee and the Heavy Duty truck line and the preparation for the launch of the all-new 2014 Jeep Cherokee. Therefore Q1 revenues were down 6% attributable to the new vehicle launches as well as reduced shipments in Europe and Latin America. The trading profit for Chrysler under IFRS was €593 million which represents a decline of 27% when compared to Q1, 2012. The decrease was attributable to industrial cost and lower shipment volumes. For the second quarter we expect to increase shipments compared to Q1 now that the Jeep Grand Cherokee and Ram Heavy duty pickups are at full production rates. Also we will not have the excess launch cost incurred in Q1. With the new launches complete in the first half of the year we will be positioned for a strong second half performance.

Moving to page 32, the Group is targeting for 2013 shipments of 4.3 million units to 4.5 million units of which nearly 2.2 million vehicles in NAFTA. LATAM and EMEA are expected to occurring for about 1 million units each and APAC is aiming to almost double last year’s shipments.

On page 33 we confirm our 2013 guidance with revenues expected to be in the €88 billion to €92 billion range, trading profit from €4 billion to €4.5 billion, net profit in the €1.2 billion to €1.5 billion range and net industrial debt of around €7 billion.

Marco Auriemma

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We will now take the first question from Martino De Ambroggi of Equita. Please go ahead.

Martino De Ambroggi - Equita

The first question is on the business in Europe because we clearly understood in Chrysler Conference Call Q1 is affected by mainly non-recurring events, items. That – could you help us in understanding how much of your European performance improving the year-on-year despite lower volume has to be considered as recurring and specifically on SG&A which improved significantly in Q1 and related to the mix effect if it’s sustainable, it’s positive and able to offset negative volumes for the rest of the year?

And the second question is always on the business side so I step aside these questions, networking capital was likely positive in Q1, while last year absorbed more than €200 million. So trying to understand what are the dynamics in Q1 and what should we expect in the second quarter and for the full-year for the working capital that I wouldn’t - expected to see absorbing cash due to declining volumes? Thank you.

Richard Palmer

So, hello, in terms of the EMEA income statement the SG&A improvement is the result of actions that we started to take through 2012 particularly in the second half of the year. So the comparison year-on-year with Q1 and to some extent with Q2 will continue to show an improvement year-over-year. Then the level of improvement will be lower in the second half of the year as we’ve already taken some significant actions on the cost side in the second half of 2012. Having said that in absolute terms this is a sustainable level of SG&A given the level of the market demand today.

In terms of volume and mix the mix improvement is related to 500L and high LCV mix and some level of sales of cars which perhaps have very low margin. Going forward I think we’re going to have significant mix improvements until we continue to renew our product line in line with the strategy we had in the second half of last year. But I think the important thing is the cost performance is a sustainable SG&A level.

Martino De Ambroggi - Equita

If I may Richard, on mix, so you expect for the rest of the year mix will be enough to offset the volume negative FX?

Richard Palmer

No, I think if volume continues to go down we will offset some of it that we will offset all of the volume issues that may occur because of the market reduction.

Martino De Ambroggi - Equita

And if I may one more a follow-up on this. Is there any new action that you are lending in order to reduce cost because you are projecting lower volumes for the whole market, lower volumes than initially expected?

Richard Palmer

We can reduce cost up until a certain point and then obviously you can’t just manage the business with no cost. So I think you have a lean operation in EMEA we can continue to take some cost out going forward but we are not going to see the same level of improvement we saw this quarter.

Operator

Thank you. We will now take the next question from Fraser Hill of Bank of America. Please go ahead.

Fraser Hill - Bank of America

I just got three questions please. First you got a provision release of about 166 million you can see that for the cash flow. So what that was and where that benefit came through the regional operating profit disclosure when you look at it on a P&L basis, where was that benefit seen?

Second question on the especially the one-off cost that you’ve been flagging in NAFTA in Brazil and the product changeover cost and I guess the production issue in Brazil. But – if you could quantify that in terms of an absolute euro amount of headwind specifically NAFTA how much of that actually just depressed NAFTA profitability by in the first quarter?

Third question on cash flow both CapEx and working capital I guess CapEx was totally flat in the quarter but you’ve got a guidance range that goes from €7.5 billion to €8.5 billion. Is this an indication that we’re going to be closer to €7.5 billion or should we still expect that to increase later in the year and with working capital I mean that’s positive at €4.8 billion now which is looks like quite an extreme, is it possible to improve that any further or should we start to see some of that with some headwinds now in working capital particularly with the payables which look quite stretched up towards I think 82 days now in the first quarter, how should we think about that going forward? Thanks.

Richard Palmer

So the question on the cash flow those are just changes in deferred revenues and deferred taxes, there aren’t any significant throwbacks of reserves to the income statement, that is seasonal changes in those levels because of fleet business and tax, tax impact on the first. In terms of working capital performance I think the important thing is that in the quarter particularly for Fiat ex Chrysler the year-on-year performance was significantly better than last year. So we had a net – negative impact on working capital on the Fiat side but it was 800 million less than last year. So in terms of performance for the rest of the year I think the working capital is clearly not going to be anything like the drain of cash than it was in 2012.

And on the Chrysler side we had a lesser positive impact on working capital of last year because of the volume impact that we discussed I think require some lends, but as we are launching vehicles in Q2 and in Q3 we expect to build volumes through the year which was not the case in 2012, they are more flat through the year we will get some positive impact from working capital in the second, in the rest of the year for Chrysler. And then we had the cost on the industrial side of changeovers and we have some in Brazil and significant ones in NAFTA which we mentioned on the Chrysler call. So NAFTA was $60 million and Brazil was a much smaller number most of the cost increases in Brazil largely related to inflation on the cost side, but it is probably 10 million of cost in Brazil.

Operator

Thank you. We will now take the next question from Eric Hauser of Credit Suisse. Please go ahead.

Eric Hauser - Credit Suisse

Quite quickly from my side three very quick questions. Firstly looking at your presentation it looks as if inventories for you – in Europe were flat they are down somewhat in NAFTA and up a little bit in Latin America, yet on your balance sheet has 774 million swing in inventories which I think is probably about 40,000 units. I was just wondering if you could explain what is behind this swing and where these inventories were sitting. Then secondly we have heard recently from that the Italian government is willing to redistribute about €40 billion to Italian enterprises basically pay unpaid bills into the private sector and I was just wondering if this is something that Fiat would also benefit from and if so to what extent?

And Mr. Marchionne, I noted you mentioned on the Chrysler call that you are very confident if you will make your full-year target but I’m still trying my luck to find that how comfortable you are particularly in light of a weakening yen and we’ve heard from Ford only last weekend they released their numbers that they are starting to see first signs of the Japanese – of Japanese competitors being helped by a weaker currency. So I wonder if your planning does sort of make contingencies for what could be a deteriorating pricing situation in the U.S.? Thank you very much.

Richard Palmer

So, in terms of inventory, be careful when we’re looking at the statistics on the NAFTA side, we had - we have basically - we had improvement in dealer inventory from 73 days to 66 days, but we actually had a negative impact on our own balance sheet with inventory growing because of the product launches we mentioned both because of industrial increase for the production and also because we are holding some products and quality hold as we contain them prior to putting them through and into the retail channel. So, basically the increase in inventory is obviously related to the launches in NAFTA, whereas the retail side was down for the same reason. As you said rightly, in LATAM, in Europe, in LATAM and which is the slide, you have but basically some seasonality because of the sub-sales increase going into the second quarter nothing untoward I mean in Europe, inventories were basically flat.

Sergio Marchionne

Yeah. And your question on how comfortable I feel with the forecast I let just agree that, that we’re overviewed of the numbers that we’ve laid out at the end of 2012 are eminently achievable within the structure and subject to what I said earlier, which is the execution risk on the U.S., which is nothing consequential. I mean, I think everybody understand the significance and the importance of the execution plan and the fact that we cannot fall - fall off so well I mean the number of cars that need to be shipped between now and December is relatively large.

Just in terms of the comments on the Ford commentary the first evidence of Yen weakening and the U.S. market. We’ve not experienced any thought of it maybe due to the fact that, that Ford probably has a much larger exposure to the passenger cars than we do. I’m not suggesting that the comments are not reflective of our experience. It just doesn’t but we haven’t seen it. As you have certainly as of the last couple of days, when we check the market conditions and as of this morning, I haven’t seen - I haven’t seen undue pressure on prices.

As far as your question as to whether our forecast includes a reversal of pricing power on the U.S. market the answer is no. And so, if that were to happen obviously it would put pressure on performance but I to be perfectly honest, I don’t think given our portfolio of products today that we would - that we would even if it were to happen that we would necessarily be negatively impacted as much as some of the other guys would be. That maybe untrue in 2014 as we launched Chrysler 200, which may make us a lot more exposed to that sector than we are today in terms of portfolio of sales. The number is ambitious and I reiterate what I saw in the - on the Chrysler call. There is lot of work to be done and but I don’t think that the current - the current exchange rate situation is going to impact the corporate.

Operator

Thank you. We’ll now take the next question from Stephen Reitman of Société Générale. Please go ahead.

Stephen Reitman - Société Générale

Again returning to EMEA and the improvement in SG&A could you give a little bit of granularity on that and to what extent that was improvement in selling costs or G&A expenses? Thank you.

Richard Palmer

It’s both Stephen. And we won’t get into details of how much is rich but we’ve been making efficiency across the board in the distribution process and also in the sales and marketing area given the receptivity of the market to that level of – that level of spending so normally spending in fact we launched the 500L in the process.

Sergio Marchionne

If I can just add some color to this issue but I’m happy I think, we need to be very careful, we’re not only try and skin this cat in 14 million pieces to find out how much I’m spending on both the – I’m doing the right thing. I can tell you that organization now is being from at least - from a cost stand point has been realigned to the point, where I think it’s rightly sized to deal with market conditions as we see them. You can’t project. This is just part of the cost structure, which is directly or indirectly associated with the development of our premium brand strategy, which we think there is on Alfa Romeo and now to a lesser extent on Maserati given that it is in the process now of finalizing the launch of the second car.

The Maserati Ghibli, which is - was again shown in Shanghai in China about two weeks ago. I think, we need to be - we need to be careful that we don’t start eroding the technical capabilities of the house. We do have a lot of work and that needs to be done with our industrial base in Europe, which impacts both the architectural development of the architectures and the part frames associated with it and that is going to have a lumpy cost as we go forward.

I mean, we’re not thinking about adding additional resources but part of the – part of that resource pool needs to be redirected and it’s in the process now of being reconstituted in such a way and very properly – it properly, it probably – properly supports the development of Alfa. This is not an inconsequential task. It is something that we need to handle very, very carefully because the Alfa Romeo brand has had a number of starts in the past some of which had been on [my watch ]to be powerfully blunt. I think we’re tolerating a number of things with Alfa that I cannot tolerate for the reintroduction of Alfa in a real way going forward.

So, I don’t expect miracle out of EMEA going forward. We’re going to try and keep it as clean as we can without eroding the technical capabilities of the house and that’s important and one more comment about the EMEA profitability we still expect to improve on 2012 performance in terms of reported trading months. And the other the thing is obviously that the EMEA experience is not - is not being handled by EMEA by itself. I mean, those are market - those are strong organization here in the U.S. which is going to assist from a resource standpoint is going to assist EMEA as it works it’s way for this.

Stephen Reitman - Société Générale

Thank you. And on the 500L, could you give some idea on what the prices you are realizing, average prices on this car in Europe?

Sergio Marchionne

To be perfectly honest I don’t know. If I give you a number, I’ll be close but I’ll be wrong and I much prefer ratcheting you back you with the real answer on this one.

Operator

Thank you. We’ll now take the next question from Richard Hilgert of Morningstar Inc. Please go ahead.