CNH Industrial

Good morning and afternoon ladies and gentlemen and welcome to today's CNA industrial 2020 first quarter resource conference call. For your information today's conference call is being recorded. After the speaker remarks there will be a question and answer session. To ask a question during the session you will need to press stand 1 on your telephone and wait for your name to be announced. At this time I would like to to turn the call over to Federico Donati, Head of Industrial Relations. Please go ahead, sir.

Thank you, Priscilla, and good morning and afternoon, everyone. So, first of all, apologies for this few-minute delay. It was just to permit everybody to be connected. So, we would like to welcome you to the webcast and conference call for CNH Industrial First Quarter 2020 results for the period ending March 31st. This call is being broadcast live on our website and is copyrighted by CNH Industrial. Any other use, recording, or transmission of any portion of this broadcast without the express written concept of CNH Industrial is strictly forbidden. We are pleased to have here with us today our chair and acting CEO, Suzanne Haywood, and our CFO, Odonin Cisa, who will be hosting today's call. They will use the material available for download from the CNH Industrial website. After the presentation, we will be holding a Q&A session. As a final comment, please note that any forward-looking statements we might be making during today's call are subject to the risk and uncertainties mentioned in the safe harbor statement included in the presentation material. Additional information pertaining to factors that could cause actual results to be found materially It's contained in the company's most recent report to NTF and EU annual report, as well as other periodic reports and filing with the U.S. Securities and Exchange Commission and the equivalent authorities in the Netherlands and Italy. The company's presentation may include certain non-GAAP financial measures. Additional information including reconciliation to the most directly comparable GAAP financial measures is included in the presentation material. One final remark, as you can imagine, our team is connecting from different countries, So please forgive us if there are moments of silence during the call while we manage the transition between the speakers. I will now turn the call over to Suzanne.

Thank you, Federico, and good morning, good afternoon to everyone. I want to begin today with a short update on how we're responding to the current pandemic and our focus as we prepare to emerge from it. After that, I'll go into the Q1 results, where I'll give you as complete a picture as I possibly can in these difficult and very unpredictable times. Most importantly, I wanted to say up front that our business is in relatively good shape to navigate this crisis. With adequate liquidity to withstand the most pessimistic scenarios for our business that we have modeled, this financial resilience is important in enabling us to weather this crisis. But so will be our ability to respond quickly to the changing market, government, and social conditions in each of the countries in which we operate. To do this, I have been chairing a daily meeting with the Global Executive Committee members of CNHI, in which we've been focusing on four issues. First, and most importantly, the health and well-being of all our employees, particularly as we now begin to open back up our production facilities. Secondly, the continuity of our business from a liquidity, cost management and market presence perspective. Thirdly, ensuring the strength of our dealer network and our supplier base. And lastly, making sure that our customers and the communities in which we operate also emerge strongly from this crisis. In doing all of this work, we've been very conscious of the role that CNHI plays in providing equipment that is essential to industries like transportation and agriculture on which our society depends. In addition to responding to the crisis in this way, we've also been continuing to work on the Transform to Win strategy that we presented at the Capital Markets Day in September 2019. We've accelerated our work in particular on the Perform and Simplify initiatives that we described then, as it is now more important than ever for us to have a flexible and lean cost structure for our organisation. We have also reconfirmed our commitment to spinning off our on-highway activities. However, we are extending the timetable for that due to the market conditions into next year or beyond, and will confirm the revised timetable when we have more clarity. Before going into our results, I would like to just take a moment to thank all our employees for their work so far in getting us through this crisis, with many of them continuing to work throughout the pandemic. I'm incredibly proud of our global team, and I know how committed they are to making sure we effectively support our customers, dealers, and our wider communities as we navigate our way through this very difficult period. I will now move on to slide four, which summarizes our Q1 results. Net sales of industrial activities for the period were $5 billion, down $0.8 billion, or 14%, on a constant currency basis due to the COVID-19 impact on the many markets in which our customers operate, coupled with previously announced actions to reduce the inventory levels. Industrial activities adjusted EBIT was a loss of $148 million, sharply impacted by demand disruptions in March. negative absorption caused by plant shutdowns, and actions to reduce inventory levels that we started in the previous quarter. Industrial activities net debt at March 31, 2020, was $2.3 billion. This was an increase of $1.5 billion from December 31, 2019, as a result of seasonal working capital absorption and the adverse impact of COVID-19, partially offset by actions to reduce company inventory, and by other cash preservation measures. Adjusted diluted EPS was a loss of $0.06, primarily driven by the adjusted EBIT loss of $38 million. Our available liquidity position was $9.9 billion at March 31, 2020. This is the second highest level in our company's history at the end of the first quarter. On February 28, before the COVID-19 outbreak affected the global financial markets, we extended our €4 billion committed revolving credit facility for one year with all lenders by exercising the first one-year extension option. The facility will now mature in March 2025. Adoni will provide more details on our action to maintain strong liquidity later in this presentation. Turning to slide five, I would like to share with you some of the Q1 industry volumes as they will help put these results into context. First, let's look at the ag segment. Worldwide demand for tractors was down 15% during the first quarter of 2020, as you can see on this slide, and demand for combines was down by 11%. The impact of the COVID virus was, however, particularly acute in March, and you'll see that we have a separate column for March on the far right-hand side of this page. As shown in this column, the demand slowdown for tractors in March alone was 36%. In North America, tractor demand was down by 9% in the quarter, primarily in the lower horsepower segment, under 140 horsepower, while combines were down 22%. In Europe, tractor and combine markets were down by 10% and 20%, respectively, with tractors down 24% in March alone, again looking at that column. In South America, the tractor and combine markets decreased by 6% and 30%, respectively, And in rest of the world, demand decreased by 17% for tractors and 2% for combines, with the tractor market slowing down by 43% again in March alone. So you can see across those different segments how much the pandemic affected us, particularly in March at the end of the segment. Moving to the construction segment, all sub-segments experienced double-digit declines in all geographies. The one exception was South America, where compact and service equipment was down by only 1%. while general construction equipment and road building and site preparation equipment were up by 12% and 13% respectively. However, as you can see again in the right-hand column, this downturn was severe in March, with construction activity stopping or significantly slowing down in most geographies. Lastly, I want to turn to the truck and bus markets. The European truck market was down by 19%. year over year in the first quarter with light duty trucks down 14% and medium and heavy trucks down 27%. Again, if we focus in on March, industry sales of light duty trucks and medium and heavy duty trucks in Europe declined by 34% and 38% respectively. The South American truck market was down by 17% in light duty trucks and 6% in medium and heavy trucks in the first quarter and with the light duty truck market down by 26% in March alone. For buses, the European market decreased 9% in the quarter, with a 30% decrease in March alone. The South American market for buses decreased by 14% in this quarter, with a 34% decrease in March. While the heightened industry uncertainty means that we cannot give precise forecasts, I would like to share with you, for each of our major segments, our sense of how the industry might play out this year. As I've just described, the COVID crisis has impacted all of our end markets in this quarter, particularly at the end of the quarter. However, across all of our segments, we expect the most severe impact will be seen in the second quarter of this year. For agriculture, we expect the industry in North America, South America and Europe to be down in the second quarter by a minimum of 20%, with some regions and product lines reaching 40%. Europe will be the most heavily impacted region, we believe. with demand for both tractors and combines down 30%. In North America, we expect demand for high horsepower tractors and combines, where, as you know, we are well positioned to be less impacted, with the cash crop segments down less than the livestock and dairy segments. Although we, of course, have even less visibility on the second half of the year, we can't expect the ag industry to begin to recover through the third and fourth quarters. I'll now do the same in construction. where we expect the market to be down at least 50% across all regions and sub-segments in the second quarter of this year, with the exception of the rest of the world, where it looks like demand will be slightly up year over year in the second quarter, but of course our presence is more limited. We again expect some recovery in construction in the second half of the year, although we expect this to be less marked than it will be for agriculture. The second quarter will also be tough for commercial vehicles, with demand expected to be down by almost 60% in Europe and around 70% in South America. In the second half, we again expect some recovery in commercial vehicles, although, like for construction, our expectation is that this will be more muted than it will be for agriculture. I will now move on to slide six. which shows CNH industrial specific unit statistics for retail delivery and production datasets in the first quarter of this year, compared with the same period last year, and also shows channel inventory levels. Before going into these details, let me remind you that beginning on March 11th, we closed our Italian production facilities to protect our workforce, and from March 20th, we suspended the majority of our European assembly operations. In North and South America, where production was already slowed down before the pandemic, we suspended the majority of our manufacturing operations from March 30th. We closed our plants in India on March 23rd. Despite these closures, we have managed to keep most of our parts depots, service facilities and dealerships operational through the whole of this quarter, so that we could help our customers keep their machinery running through the crisis. In doing this, we fully complied with all the safety measures mandated by law in each country, together with many additional measures agreed with our workforce. As we announced yesterday, we are now bringing our manufacturing operations gradually back online, while ensuring that we remain in full compliance with all emergency regulations. In doing this, we have agreed and implemented a wide range of new safety protocols with our workforce to reduce the risk of virus transmission. you'll be glad to know that now more than 70% of our 67 plants around the world are operational, although most are not operating at full capacity. On a regional basis, more than 80% of production sites in Europe and some 60% of sites in North America, in South America and the rest of the world are already operational. In the case of the rest of the world, this proportion approaches 90% if you include joint ventures. In bringing our plants back online, We have deliberately prioritised agriculture and powertrain manufacturing as they both serve essential industries in which the market demand for our products is greatest. These have been followed by commercial and specialty vehicle manufacturing given the importance of transportation and civil protection sectors and afterwards by construction equipment manufacturing plants. We plan to return to full operation at most sites by the end of the month but will modify this if local or regional situations deteriorate or if we need to respond to changes in end-market conditions or to changes in our supply chain. As I noted before, end customers, together with our dealer network, have been fully supported through this quarter by C&H Industrial aftermarket solutions, and today almost all of our 45 logistics hubs are operational, the majority of which are running at full capacity. Today, we also have 24,000 of our employees able to work from home, and about half of them are doing so. In agreement with our trade unions, we've also accessed government-backed employee salary support measures where they are available. I now want to move to the quarterly performances that are shown on this slide, slide 6. For ag, worldwide tractor and combine production was down 40% and 26%, respectively, for the month of March. and North American row crop production was down 16% in the full quarter. Our worldwide channel inventory for tractors was up 3%, predominantly low-horsepower tractors, but down 3% for combines versus Q1 2019. North American row crop channel inventory was down 11% versus last year. The slight increase in inventory... would have been greater had we not already put in place plans to reduce inventory in this quarter in anticipation of weakening market demand. There is also an increase in retail deliveries of combines in the quarter. For construction as a whole, the company's worldwide production was down 23% and channel inventory was up 1%. If we focus on the EU proportion of EVECO trucks specifically, since it accounts for approximately 80% of the sub-segment's revenues, Production for light trucks was down 28%, and medium and heavy trucks was down 21%, and EU channel inventory for trucks was down 9%. Our share of the EU truck market is 10.8%, up 40 basis points, with medium and heavy up 250 basis points, to 8.5%, on the back of strong retail deliveries of our newly launched S-Way heavy-duty truck. Truck book to bill in the EU was 1.44%, and South America ended the quarter at 1.04. I will now turn the call over to a donor to take you through some of the key financial details.