CNH Industrial

Good morning and afternoon, ladies and gentlemen, and welcome to today's C&H Industrial 2020 second quarter and first half year results conference call. For your information, today's conference is being recorded. After the speaker remarks, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone keypad. At this time, I would like to turn the call over to Federico Donati, Head of Investor Relations. Please go ahead, sir.

Thank you, Andrea. Good morning and afternoon, everyone. We would like to welcome you to the webcast and conference call for CNH Industrial's second quarter 2020 results for the period ending June 30th. 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 consent of CNH Industrial is strictly forbidden. We are pleased to have here with us today our chair and acting chief executive officer, Suzanne Haywood, and our CFO, Don Inchisa, who will be hosting today's call. They will use the material available for download from the CNH Industrial website. After their presentation, we'll 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, including the presentation material. Additional information pertaining to factors that could cause actual results to differ materially is contained in the company's most recent report to NPF, an annual report, as well as other periodic reports and filings with the U.S. Securities and Exchange Commission and the equivalent authorities in the Netherlands and Italy. The company 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. While final remarks, once again, our team is connecting from different countries. So please forgive us if there are moments of silence during the call while we manage the condition between speakers. I will now turn the call over to Suzanne.

Thank you, Federico, and good morning, good afternoon, everyone. I would like to begin today with a short update on how we're responding to the current pandemic and our priorities as conditions start to improve. After that, I will outline our Q2 results and then share some of our thinking on how we see the second half of the year playing out. assuming, of course, that there are no further unexpected events. This second quarter has been one in which the end market conditions have changed very rapidly. However, we have navigated this, I believe, with some success. By May, we had all our plants and depots back up and running, with all our new COVID health and safety protocols fully implemented. This meant that we were well positioned to supply products into end markets that strengthened ahead of expectations, enabling us to deliver business performance that was better than we had expected at the end of the first quarter. Overall, in this quarter, we are reporting consolidated net revenues of $5.6 billion. Net sales of industrial activities were $5.2 billion, down 24% on a constant currency basis. This is a lower decline than we had anticipated at the end of Q1, with some markets coming back relatively strongly. including low horsepower tractors in North America and rest of world, combines in North and South America, and light commercial vehicles in Europe towards the end of the quarter. Industrial activities adjusted EBIT was a loss of $58 million. Within this, our agriculture division showed a profit and returned to an 8% margin on sales, and our powertrain division reported very strong performance in China. These performances were, however, offset by losses in the commercial and specialty vehicles and construction segments. All our industrial segments continued to be impacted by industry demand disruptions, negative absorption caused by plant shutdowns, and actions that we have taken to lower our inventory levels. These were partially upset by reduced SG&A expenses, which were down $101 million, or 20% compared to last year. and by the deferral of $70 million, or 26% of our R&D expenses, that were unrelated to new product launches. Net income was $361 million. This includes the positive fair value remeasurement of our stake in Nikola Corporation, which amounted to almost $1.5 billion. This was, however, partially offset by a number of other charges that we have taken to reflect the impact of the pandemic on our business, including construction goodwill and other asset impairment and asset optimization charges. We held the net debt of our industrial activities steady between the first and the second quarter ends at $2.3 billion, and we generated positive free cash flow of $97 million. These were both helped by strengthening end market demand and the actions we have taken to reduce cost and preserve cash. These costs and cash measures in combination delivered almost $500 million of cash benefit in the first six months of the year. And a third of these savings, almost a third of these savings will remain in the years to come. These results have all contributed to the strong available liquidity that we are reporting of $11.5 billion as of June 30th, 2020. This liquidity, the highest in our history, gives us a solid foundation for which we can continue to navigate this uncertain and challenging period. As we do this, we will continue to prioritize the three things that we highlighted at the start of the pandemic. Keeping our people safe, ensuring business continuity, and supporting our dealers and our suppliers. Alongside this work, we are now, however, working on a number of other issues. First of all, we are gradually restarting our preparation for the spin-off of our on-road business, and we will keep you updated on the progress in the timeline for this as it becomes clearer. We have also already taken some actions to strengthen our construction business, but we are continuing to work on plans to reposition it for profitable growth. And again, we will share these with you as they are completed. And finally, I wanted to highlight the ongoing focus that we are putting on our investments in digital and alternative fuel technologies across all our business segments, which we know are critical to customers. I will share more on all of this later in the presentation, including the significant progress that we are making in precision farming and how we're using our AgExtend concept to bring the best new technologies to our farmers. But up front, I also wanted to say something briefly about our partnership with Nicola Corporation as I know this has created a fair bit of interest. For us, our partnership with Nikola Corporation is an important enabler and catalyst of IVECO's future technology roadmap. We are therefore very excited that our JV will be producing the first modular battery and fuel cell heavy-duty trucks for both Europe and, until they are localised in Nikola's own US site, also for North America. I will explain later how the approach that we are taking with Nikola is distinctive, in particular because we have reimagined how an electric or a fuel cell electric truck should work from the bottom up, rather than simply replacing the internal combustion engine in a truck with batteries or fuel cells. This approach is going to give us a vehicle with very substantial range and power. However, while we are excited about and strongly committed to this future, We are also delighted by the way in which the market has responded to our newly launched heavy-duty truck, the S-Way, in its combustion engine configurations. We also remain strongly committed to our LNG truck lineup, which we believe is a critical and lasting transition technology between diesel and electric vehicles. We are one of the leading players in this market, which has gained further relevance in Europe since the beginning of the year. Finally, I wanted to let you know that the search for our new CEO is continuing with a number of candidates having now been interviewed. I will of course let you know as soon as we have news on this topic and in the meantime, we'll continue in my role as Acting CEO and Chair. I also want to take this opportunity to thank all my colleagues across C&H Industrial as well as our dealers for their huge efforts to keep our people safe during the first half of this very challenging year. while still meeting the needs of our customers who operate in so many essential industries. Moving on to slide four, I would like to share with you some of our Q2 industry volumes, some of the Q2 industry volumes, as these should help put our results into context. First, let's look at the ag segment. Worldwide agriculture industry demand was somewhat muted during the second quarter, with global demand for tractors down 1%, although demand for combines was up by 12% compared to last year. In North America, tractor demand was up 20% for the lower horsepower segment, although high horsepower tractors were down by 22% versus last year. The recovery that we've been seeing in the dairy and livestock end markets is not yet visible in row crop farming. If we look at the monthly industry performance figures on the right-hand side of the page, you can see the progressive ramp up in demand for tractors in May and June, which demonstrates the industry's resilience and is a positive indication for the second part of the year. Meanwhile, combines were up by 3% in North America in the quarter, mainly driven by the strong North American sales in June, which were up 31% year on year. Turning to Europe, the picture is a little different, as the market has remained challenged during the entire quarter, with the relative performance in each month being down double digits versus the previous year in both tractors and combines. In South America, we see a different story again. Here we saw depressed demand for both tractors and combines in April, but then saw signs of recovery in May and June. In the rest of the world, demand decreased by 3% for tractors and increased by 21% for combines, mainly driven by very strong performance in the first two months of the quarter. Moving on to the construction segment, demand in all sub-segments of the construction segment was showing double-digit decline in all geographies, except for in rest of the world, where general construction equipment was up by 28%, mainly driven by China. As you can see from the monthly figures, while the recovery is not as steep as we've been seeing in tractors, there has still been a clear positive trend during the quarter that will hopefully continue through the remainder of the year. Lastly, I want to turn to the truck and bus markets. The European truck market was down by 39% year over year in the quarter, with light duty trucks down 29% and medium and heavy trucks down 57%. In the light commercial vehicle segment, we have again seen relative positive progression month by month, with due market performance in Europe actually up 1% compared to last year, while for medium and heavy-duty, the market demand remained depressed for the entire quarter. If we look at South America, the market demand remained challenging for the first two months of the quarter, while showing an encouraging double-digit ramp-up in the month of June for both light commercial vehicles and medium and heavy-duty trucks. Turning now to buses, in Europe, the market decreased by 57% in the quarter, while the South American market decreased by 62%. with each month of the quarter considerably down compared to last year. I will now move on to slide five, which shows the data that we have for retail sales, deliveries, and production in the second quarter of this year compared to the same period last year. Before going into the detail, it's worth remembering that beginning in the last month of Q1 and rolling into Q2, we had a cascading effect of plant closures as the pandemic made its way around the world. For all of April and half of May, we essentially had our global productions shut down. However, despite these part closures, we managed to keep most of our parts depots, service facilities, and dealerships operational. Our salespeople were also able, in many cases, to match existing inventory with customer demand, which has both helped our customers and improved our inventory management. All our plants are now back up and running. However, most are not operating at full production levels since we are still managing our production to reflect end market demand. This slide then shows our quarterly performance. In our agriculture division, worldwide tractor and combine underproduction compared to retail sales was 44% and 40% respectively for the second quarter, with North American row crop underproduction at 10%. We've also been gaining retail market share in Europe and South America in both tractors and combines. In our construction division, our worldwide underproduction compared to retail sales was 62%, with North America at 74%. This has enabled us to reduce that channel inventory significantly, as you will see on the next slide. For our truck business, worldwide light-duty truck production was down 59%, while medium and heavy-duty truck production was down 50%, which meant that we had underproduction of 27% compared to retail sales for trucks worldwide. If we focus on the European portion of IVECO specifically, since this accounts for approximately 80% of the sub-segment's revenues, production of light trucks was down 62%, and production of medium and heavy trucks was down 52%. Our market share of the European truck market was 9.6%, down 80 basis points, although our share of medium and heavy-duty market was up by 200 basis points to 8.3%, on the back of the positive response that I mentioned earlier to the launch of our new S-Way truck. Our market share in heavy semi-trucks in Europe actually doubled within this figure from the low level in the prior year. Truck book-to-bill in Europe was 1.12%, while South America ended the quarter at 1.05. We can also see from our telemetric data that truck usage increased through the quarter, and this trend has continued in the first weeks of the third quarter. Finally, in buses, our market share in Europe was up 550 basis points, as our product line is geared to public transportation and intercity transportation, while our exposure in the coach segment, which has been far more impacted by the crisis, minimal slide six summarizes channel inventories by segment I won't go through them all but I'm pleased to report that across the board we have had double-digit reductions in inventories indeed in some categories like North American row crop we have reduced overall inventory by 25% and our company specific industry inventory by almost half our team is in conjunction with our dealers, has done a fantastic job of managing our inventory levels so that as markets recover, we can continue to build to meet retail demand and help our dealers selectively replenish their inventories. I will now turn the call over to Adoni to take you through some of the key financial details.