CNH Industrial

Good morning and afternoon, ladies and gentlemen, and welcome to today's CNH Industrial 2020 Third Quarter Results Conference call. For your information, today's call is being recorded. After the speaker's remarks, there will be a question and answer session. If you wish to ask a question, you will need to press the star and one on your telephone keypad. At this time, I would like to hand the call over to Federico Donigi, Head of Investor Relations. Please go ahead, sir.

Thank you, Tracy, and good morning and afternoon, everyone. We would like to welcome you to the webcast and conference call for CNH Industrial's third quarter 2020 results for the period ending September 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 CEO, Suzanne Haywood, and our CFO, Odonin Shiza, who will be hosting today's call. They will use the material available for download from the CNH and ASO website. After their presentation, we will be holding a Q&A session. Please note that any forward-looking statements we will be making during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement, including the presentation material. Additional information pertaining to factors that would cause actual results to differ materially is contained in the company's most recent report, 20F, and EU 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. One final remark, 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 transition between the speakers. I will now turn the call over to Suzanne.

Thank you, Federico, and good morning, good afternoon, everyone. CNH Industrial's Q3 2020 results were driven by general improvement in market demand across most of our businesses and countries compared to the first half of the year. with particularly strong improvements in the agriculture sector in North America. They were also helped by our continued cost containment and cost preservation actions. As a result, we have reduced working capital in a quarter that is usually seasonally weak. We have generated substantial positive free cash flow, and we have increased our available liquidity. As you know, at the start of the pandemic, as a leadership team, we set ourselves three priorities. looking after our people, supporting the company, for example, by ensuring sufficient liquidity and reducing cash out, and looking after our customers, dealers, and suppliers. We expect these three priorities to remain during the coming months, given the increasing spread of COVID-19. However, alongside this, we are also investing in new technologies across all our businesses. We're embracing the new ways of working that we have learned through the pandemic, and we're positioning our businesses for strong and profitable growth. Work on the strategy that we outlined at our 2019 Capital Markets Day has also recommenced, including the preparation for the spinoff of our on-highway business. Our board is also continuing its search for our new CEO and has interviewed a number of very high-quality candidates. We will, of course, update you on that process as soon as a decision is made. I'm pleased with the results that we have achieved in this quarter and the fact that through this period we have continued to make substantial investments in R&D, We've started the turnaround of our construction business, and we've continued to be one of the most sustainable companies in our industry. Our company has the clear purpose of powering sustainable transformation across the world, and despite the challenges of this year, we remain focused on doing that, continuing to serve our customers who work in so many critical end markets to the best of our ability. I will now move on to slide three, which summarizes our Q3 results. You will see here that net sales of industrial activities for the quarter were $6.1 billion, up 4% compared to the same quarter last year, mainly driven by an 11% growth, 14% at constant currency in the ag segment, and sales in commercial and specialty vehicles that were similar to those in the previous year. This was partially offset by lower net sales in construction equipment and powertrain. Industrial activities adjusted EBIT of $238 million was down $46 million compared to the same quarter last year. Positive price realization in agriculture and commercial and specialty vehicles and continued cost containment actions of approximately $80 million net of foreign exchange effects for the quarter across all segments more than offset negative volume and mix. As a reminder, last year's result also included a $50 million gain realized from granting Nikola Corporation access to Iveco Technologies. This was an in-kind contribution to our partnership with Nikola. If that gain is excluded, our quarterly adjusted EBIT will be substantially in line year on year, net of positive foreign exchange effects. Industrial activities had positive free cash flow of nearly $1 billion in this quarter. This has resulted from both a $788 million reduction in working capital and the further cash preservation measures that we have implemented. Our net debt of industrial activities of $1.5 billion is now $0.8 billion lower than it was at the end of June this year. Adjusted net income for this quarter was $156 million, and adjusted diluted EPS was a gain of 11 cents. Finally, the company maintained strong available liquidity of $13.2 billion. This is up $1.5 billion compared to our position at the end of June. We are deliberately maintaining this liquidity for now given the continued uncertainty of this period. On slide four, I would now like to share with you some of the Q3 industry volumes as they will help put our business results into context. First, let's look at the ag segment. After some years of quiet ag commodity markets, we have begun to see signs of recovery across the major crops, with soybean, corn, and wheat prices strengthening due to the weather and trade-related events. We have also seen favorable crop conditions and yields as we go through the harvest. While demand from China is not back to historic levels, it has increased significantly over the summer and through Q3. If we combine this with the support that governments have demonstrated that they are willing to give their farmers, we feel there are considerable reasons to believe that replacement demand for ag equipment will continue to recover. If we now turn to the details, you can see that the worldwide agriculture industry demand was up by 29% for tractors and 12% for combines. In North America, demand for under 140 horsepower tractors continued to be strong, and was up by 24%, while demand for over 140 horsepower tractors showed growth for the first time this year and was up 8%. Combines were meanwhile up 16%. Moving to Europe, you can see that tractor and combine markets were up by 5% and 14% respectively. In South America, demand for combines was depressed and it was broadly flattish in tractors. In rest of world, we saw strong demand for both tractors and combines. If we now move down the page to the construction segment, you can see that while the end markets in which we participate have been more impacted than our agriculture markets, there is a slow although somewhat unpredictable recovery taking place, especially in residential construction in North America. In addition, because dealer inventories have largely been depleted across key end markets, we are well positioned to replenish stocks when demand returns. Some key end market indicators have improved, while others have been more negative, so we will continue to watch these markets closely. Across the quarter, worldwide construction demand was up 10% for compact and service equipment. It was up 12% for general construction, and it was down 7% for road building and site preparation. Demand was particularly strong in the rest of the world, especially in compact equipment and general construction, mainly driven by China. Compact equipment demand was also up 14% in North America. However, demand was still depressed in all construction segments in Europe. Against this market backdrop, our retail performance was also solid and up double digit year on year for the first time in 2020. Lastly, but not leastly, I want to turn to the truck and bus markets. The European truck market was up 7% year over year, with signs of improvement after the strongly depressed market that we saw in the first half of the year. Within this, however, we saw very different stories for light, medium, and heavy trucks, with light trucks up 13% for the quarter. The majority of this improvement came from the car-derived subsegment, while the truck-derived subsegment, in which we compete with our daily, continues to lag the recovery. Medium and heavy-duty trucks were meanwhile still down by 5% in Europe, although this reduction is less pronounced than it was in the first half of the year. We see a similar pattern in South America, where the market was up 9% in light-duty trucks and down 8% in medium and heavy trucks. Finally, as you can see here, the bus market was still down compared to last year across all regions, with Europe down 17% and South America down 34%. We are, however, expecting to see a lower decrease in the last quarter for this segment in Europe. I will now move on to slide 5, which shows our data for our retail sales, the red bars, our wholesales, our deliveries to dealers, the black bars, and our production across our different divisions, the grey bars, for the third quarter of this year compared to the same period last year. Before getting into the details, let me say that in this quarter, all of our parts have been back up and running and we've been managing production to reflect end market demand. As already anticipated at the end of last quarter, our intention is to continue to manage our production in line with or just below retail demand. We will continue to manage inventory levels carefully as we approach the end of the year. In this quarter, we have underproduced retail in ag by 7% for tractors worldwide and by 25% for combines. However, in line with normal seasonality, we have overproduced North American row crop equipment by 13%. As you can see, our retail sales are up, and this has been reflected in market share gains in South America for tractors and in all regions for combines. Our ag order book is now up mid-double digits across all regions compared to last year for both tractors and combines, and is particularly strong in South America. For construction as a whole, while we have underproduced retail worldwide by 26%, with North America underproducing retail by 19%. This has allowed us to reduce channel inventory significantly, as we anticipated earlier in the year. Order books are now up year over year in construction, driven in particular by increases in demand in our compact equipment segment. For our truck business, we underproduced retail worldwide by 20%. In Europe, we underproduced retail in light-duty trucks by 16%, while in medium and heavy trucks, we underproduced by 22% in the third quarter. Truck book-to-bill, the ratio of orders we've received to the orders we've shipped and billed in the quarter in the EU, was 1.37, and South America ended the quarter at 1.04, indicating the strengthening demands. Order intake in Europe was up 39% compared to the third quarter of 2019, with light-duty trucks up 41% and medium and heavy-duty trucks up 35%. In summary, the combination of this truck retail performance in the quarter and solid order books across segments makes us cautiously optimistic for the fourth quarter. Moving now to slide six. Here we summarize the channel inventories by segment. I won't go through them all, but as I indicated on the previous slide, we have been able to reduce inventories by double-digit percentages and across all categories. All subsegments have reduced their channel inventory by over 30%. This positions us well as we exit this quarter, particularly since we've been able to clear out a large amount of quite aged inventory, although we are continuing to monitor our production levels closely, mindful of the potential supply challenges that might occur in the coming weeks and months. The reduction of between 40% and 60% that we have achieved in our company inventory levels has also, of course, contributed to our improved working capital and free cash flow, which Adoni will describe later. I will now turn the call over to Adoni, who will take you through some of the key financial details.