CNH Industrial N.V. (CNH) Q4 2016 Earnings Report, Transcript and Summary

Good morning, and afternoon, ladies and gentlemen, and welcome to today's CNH Industrial 2016 Fourth Quarter and Full Year Results Conference Call. For your information, today's conference is being recorded. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. At this time, I would like to turn the call over to Federico Donati, Head of Investor Relations. Please go ahead, sir.

Thank you, Trish. Good morning, and afternoon, everyone. We would like to welcome you to the CNH Industrial's fourth quarter and full year 2016 results webcast conference call. CNH Industrial Group CEO, Rich Tobin; and Max Chiara, Group CFO will host today's call. They will use the material you should have downloaded from our website, www.cnhindustrial.com. After introductory remarks, we will be available to answer the questions you may have. Before moving ahead, 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 in the Safe Harbor statement included in the presentation material. I will now turn the call over to Mr. Rich Tobin.

Thank you, Federico, good afternoon and good morning. For the full year our overall results are in line with guidance that were announced one year ago despite certain market demand assumptions being inaccurate, particularly in LATAM commercial vehicle and construction equipment markets and NAFTA and LATAM. Despite this we were able to achieve our goals by pushing hard were markets were more positive and by continuing to deliver operational cost savings, productivity gains and opportunistic pricing strategies across our operating geographies. Our operating leverage potential continues to improve in preparation for the future. As you can see from the bottom of the slide, in addition to the solid operating execution we are able to significantly overachieve on our net industrial debt target for the year by a $0.5 billion with a Q4 cash inflow from change of working capital of $1.3 billion. Furthermore, we were able to reduce our future interest costs through two opportunistic capital market transactions, both of which further our efforts to achieve investment credit grade rating and inherent benefits associated with it. The Board of Directors of CNH Industrial Association intends to recommend to the company's shareholders of the Annual General Meeting of dividend €0.11 per common share totaling approximately €150 million. Before I hand it over to Max for the usual financial overview, in the next slide we have highlighted main products -- product awards during the year. I don't want to go through more each of them individually but to say that these awards are not only a recognition of our technological prowess, they are representation of the skills and dedication of our employees and I'd like to thank them -- we would like to take this moment to thank them for their collective achievement. I'll hand it over to Max who will take you through the financial overview of the presentation.

Thank you, Rich. I'm on Slide 6 with fourth quarter and full year financial highlights. Net sales of industrial activities at $6.7 billion for the fourth quarter, down almost 3% year-over-year, and $23.7 billion, down 4% for full year. Operating profit of industrial activities at $412 million for Q4 with 6.2% margin and at $1.3 billion or 5.5% margin for the year, both measures are in line with our full year guidance. In the quarter, we reported a $96 million net income while for the year we reported a net loss of $249 million which includes the EC settlement for $551 million, a charge of $60 million related to the repurchase of our 17 notes and non-cash charge of $34 million due to the re-measurement of certain assets in our Venezuelan subsidiary, as well as a one-time non-cash tax charge of $59 million as a result of the corporate reorganization of our Latin American operations which includes changes in valuation allowances recorded against deferred tax asset in the region. For a complete review of our non-GAAP measures please refer to the reconciliation table in the back of today's press release. Adjusted net income was $197 million with earnings per share at $0.14 for the quarter or $482 million for the year with adjusted diluted EPS at $0.35 per share. I would like to highlight that despite a difficult market environment we were able to keep our adjusted net income and adjusted EPS in line with last year due to disciplined pricing, execution on our several cost reduction initiatives and a lower tax rate. Net industrial debt was $1.6 billion at the end of December in line with prior year and significantly better than our guidance inclusive of the EC settlement. Available liquidity was $8.7 billion, down 0.6 compared to December 2015. Next slide; as a precautionary note for the following slides although we have provided figures for both the full year and Q4, we'll primarily focus on the full year results. Moving on, industrial activities net sales breakdown for the full year excluding currency translation impact which accounted for 1% of the sales decline, net sales decreased about 3% in the year with agricultural equipment down 7% on lower NAFTA, low crop sector demand and as small grain sector demand weakness in EMEA, partially offset by LATAM that showed a positive recovering, particularly in the second half of the year as a result of improved trading condition in Brazil with shipment up 30% year-over-year in Q4. Construction equipment net sales were down 8.6% on a constant currency basis, primarily as a result of production realignment to prevailing market conditions and negative pricing in NAFTA. While commercial vehicles net sales were up 2% primarily as a result of increased truck volume driven by a favorable industry trend and market share gains and favorable pricing in EMEA, offset partially by negative volume in LATAM with industry down 30% and lower volume in the specialty vehicle business. Powertrain was up approximately 5% due to higher volumes to surpass this. As far as net sales by region, share of total net sales continue to decrease in NAFTA now with 21% an increase in EMEA at 56%. Next slide number 8 in the year, operating profit of industrial activities was down 10% versus last year with an operating margin of 5.5. Improvements in CV and Powertrain and declines in [indiscernible]. For the quarter, operating profit was down 27 to 412 and a margin at 6.2%. Looking at the adjusted net income walk, for the year adjusted net income was at 482, up to up 2% compared to 2015. Beyond the change in industrial activities operating performance which Rich will walk you through in a minute, they lower half portfolio and less favorable interest spreads drove a financial services operating profit down 7%. Interest expenses were essentially flat versus last year; other net was favorable $80 million on lower cost for FX pension and other miscellaneous costs. JV income improved by $26 million, primarily as a result of the Chinese JV restructuring. Lastly, we had lower taxes as a result of a better adjusted effective tax rate for the year at 39%, an improvement of 7 percentage points from prior year as we were able to generate profit before tax in previously and benefited loss making jurisdiction. Moving on to slide 9, our change in net industrial debt. Net industrial debt was $1.6 billion at the end of December; $1.1 billion lower than September and in line with December 2015 as the $1 billion net industrial cash flow generated during the year offset the impact of the settlement payment, a $200 million dividend and a negative foreign exchange translation impact. Without the EC settlement payment, our net industrial debt would have been $1 billion at 35% improvement from prior year end. This performance has been achieved particularly through a Q4 working capital inflow of $1.3 billion as a result of $900 million reduction in inventory and some favorable payable performance on a comparable basis to year end 2015. Next slide, for the detail on our cash flow performance; CapEx was down 23% versus full year '15. The reduction for the year is primarily coming from lower spending for regulatory related CapEx. Starting with 2017, we expect the regulatory cycle to restart again in preparation of the upcoming stage five for offload applications in EMEA. You can also see the breakdown of the working capital components, the change in working capital resulted in a cash inflow for the year of $300 million plus and the said 1.3 in the quarter mainly due to the inventory reduction and the payable change. On slide 11 now, financial services business; net income for the year was $334 million, down 9% year-over-year, primarily due to reduced interest price [ph], lower average portfolio in Ag and the negative impact of currency translation. For the full year 2016 retail loan originations were at $9 billion, down 0.4 compared to '15. The managed portfolio of $24.8 billion as of the end of December was down $0.1 billion in constant currency to prior year. Credit quality remained strong with delinquencies of 3.1% for Q4 in line with Q4 prior year. Slide 12, illustrates company debt maturity schedule and available liquidity, as of the end of December '16 available liquidity was $8.7 billion, down 0.6 compared to the prior year. The reduction was mainly due to two partial repurchases in 2016 of note during December 2017 for a combined $860 million as we focused our efforts in reduce third-party debt in industrial activities, down one-third from $10 billion to $6.7 billion at the end of '16 over the last three years; and also rebalancing the maturity profile of our debt. Having said that we continue to keep a strongly liquidity position with our liquidity to revenue ratio at more than 35% at the end of the year in support of our goal of reaching an investment grade rating. This liquidity balance officially sufficiently covers debt maturities until the end of 2018. Finally net inter segment balance was at $0.5 billion at the end of the year down $2.8 billion from December 2014 and 50% lower than the same point last year, although we continue to be focused on reducing inter-segment debt, its balance could as likely flow 2018 single quarter based on timing of our capital markets transactions. We did remark -- I've concluded the financial review of the presentation and I turn back to Rich for the business overview section. Thank you.

Okay, I'm on slide 14. In terms of the operating profit performance for the year and the quarter, as you can see that the volume -- the negative volume has been largely offset with positive pricing cost containment actions and alike as we've been guiding all year for the Q to Q and Q4 was going to be weaker, largely as a result of production timing versus last year. But overall, a half a percentage decline in operating margin and a significant headwind on the top line. So another strong performance by Ag for the year protecting margins in a difficult market conditions while it deleverages its dealer inventory. Next slide. Call your attention to the bottom left, NAFTA row crop production in units down full year, almost 30% and total channel inventory almost down 20%. I know the question will come up what if our plans for '17 versus '16. We expect in NAFTA to under produce in line with our forecast which I'll get to in a minute in terms of the decline. But not to the extent the underproduction relative the market will be tighter, meaning that we won't have to under produce as large as we have been in the previous years. I think we mentioned in the last call that in terms of total inventory we're still a little bit long in channel inventory. On high horsepower tractors, we are largely in line [indiscernible] by now until we expect to have in line production year-over-year. You can see on the right side of the slide the performance for the regions, I think that we guided down NAFTA high horsepower and EMEA a little bit at the end of Q3, we didn't see any real deterioration from them as a pretty steady state. Next slide. In construction equipment, the difficult operating environment that we're experiencing largely through Q2 and Q3 continued into Q4. We took the decision to make a significant reduction in production intensity in Q4, to help out the pricing environment largely in NAFTA and EMEA. I think it's easy to see in the next slide. There you see the Q4 retail sales to production, we decided to curtail production significantly and that cost is something in terms of our earnings but we believe that that sets us up for more balance production, even some overproduction potential in 2017 and hopefully contributes to some amount of stabilization into the pricing environment largely in NAFTA. And then you can see the market conditions for the full year. NAFTA has been a little weaker than we had originally prognosticated and LATAM which we thought we would see some green shoots in the second half of the year really never came. So production intensity that we thought we're going to have in Q4 in LATAM never arrived. So we're going to have to wait for 2017. Next slide. Overall in commercial vehicles, very good performance, especially in commercial vehicles in Europe and we'll get to the market share performance in a moment. Despite negative headwinds in LATAM where the Brazilian market remained extremely difficult, we had a bad comp Q4 to Q4 because of the emissions changing regulations in Argentina, so we didn't have that tailwind that we had in Q4 last year and then we've got a contractual decline in specialty vehicles which is really order bank on the military business. Despite all that in commercial vehicles we increased operating profit by over $100 million quarter to quarter as a result of volume leverage, positive pricing, and the benefits of the footprint actions which are largely in the production cost line that you see there in previous periods. Next slide. Production largely in line with retail for the full year, so we really don't need to make any adjustments in terms of what relative to our forecast for 2017; you can see in the bottom right hand slide -- for the slide that order books are relatively stable year-over-year, so no real decline. Going into 2017, we're going to be calling the market flat for European truck demand, maybe slightly down in heavy but we think the good environment and like commercial vehicle we'll continue and as you can see that we gained market share in both, light and medium trucks, we had mentioned in the Q3 call that the heavy market was getting a little bit competitive, especially as it relates to price is likely as a result of the NAFTA market going down. The European market became more competitive but overall, very pleasing results as it relates to market share; I think that we're doing the right thing in terms of product quality and it's being recognized by the market. Next slide. In terms of Powertrain, I think this is the highest margin sense the demerger for the Powertrain segment, that's -- a lot of that is due to as we mentioned before that the third-party business as a percent of total revenue continues to increase; we would expect that trend to continue to 2017 but really firing on all cylinders from an operational point of view to the extent that our internal business on the off road segment begins to get some traction, we get some volume leverage through the balance of this portfolio. So we're quite pleased in terms of the performance or tell you that we benchmark our third-party business versus standalone engine suppliers in terms of profitability and we are closing that margin gap significantly, and then you see the units sold in the right side and we are the beneficiary of some of that change in units largely driven by European truck demand and third-party business. But a very good performance by Powertrain. Moving on, I won't go through this in detail I'm sure that you've been through it. I think that they are relatively in-line with other market participants both in the Ag sector and in construction equipment and trucks; so really no news here. We expect Ag and NAFTA to have another difficult environment. I think as I mentioned before that our requirement to under produce that significantly as we've done over the last two and a half years now is less so unless required in the past. I think that the fact that we did a very good job in terms of reduction of channel inventory gives us some hope that we can get closer to imbalance between wholesale and retail but today we would expect to under produce the market slightly in the numbers that you see here. We've exited Europe, a little bit weak, I don't think it's any news, you've see the data. In terms of France and Germany being a bit weak, Southern Europe has held up quite well, we would expect that trend to continue into next year. I gave you my comments on trucks where we think European heavy -- a lot dependent on what happens with the U.K. but we see Southern Europe continue to grow strongly and construction equipment slightly down, really not making any bold predictions in terms of LATAM, those are also incredibly low market comps for 2016. So the headline figure looks good but it's still not nearly where it was 36 months ago. Next slide. So in terms of the outlook, we've got it down here into some drivers of the financial targets for 2017. Agricultural equipment production to be more balanced to retail activity improving fixed cost absorption, positive impact from LATAM and user demand which is already seen in Q4, construction equipment pricing environment to stabilize, positive impact from new product launches and our excavator family, we've launched our mini-excavator a couple weeks ago, balanced strategy between market share gains and price realization in commercial vehicles, we've got some high hopes for our gas product line up which should improve the mix in the heavy segment and sustained third-party volumes and Powertrain which is a more favorable product mix. As you saw from the press release, back office consolidation projects and restructuring programs continue to be deployed with an estimated 2017 expense of $100 million, we expect to generate approximately $60 million of incremental savings in 2017 at an $80 million annualized run rate. Combined R&D and CapEx spending to increase by 10%, driven by a precision farming and Ag and preparation which we hope to be the return of market demand in the latter half of 2017 if not in 2018 and in preparation for stage five emissions regulations in Europe. Balance sheet deleveraging efforts and opportunistic capital market transactions will positively impact financial cost in 2017 and improvements in pretax profits and changes in corporate structure driving further tax rate reductions for the full year next year leading to net industrial activities of $23 billion to $24 billion in revenue, adjusted diluted EPS between $0.39 and $0.41 a share and net industrial debt at the end of 2017 of $1.4 billion to $1.6 billion. As a note, we run euro-dollar FX at 1.05 to the dollar. And that wraps it up. So we'll go to Q&A.

Thank you, Mr. Tobin. Now, we are ready to start the Q&A session. Please take the first question.

Thank you. [Operator Instructions] We will take our first question which comes from Ann Duignan of JPMorgan. Please go ahead, your line is open.

Good afternoon are good morning, whichever. Afternoon for you guys, I figured. Can we talk a little bit about your outlook for agriculture, NAFTA; I mean you talked about still under-producing a little bit in 2017. Can you just update us on your dealers used equipment and both on the combined side and the high horsepower tractor side; do you feel like they sold a lot of that into year-end through option and get them cleared out or do we still have a potential for used equipment prices falling?

From what we can see from the data we've got significant -- I mean combined use, combined pricing stabilized early in 2016. We start -- we saw some weakness in 2017, getting used inventory data is a little bit harder because we actually have to do a lot of channel checks for it but we did under produce significantly in Q4 as opposed to last year which is a lot of the earnings difference in Ag year-over-year. So we gave ample room and put some money to work to help the dealers out-doing it. At the end of the day we're probably still long in high horsepower tractors and four wheel drives which is going to take at least a half a year barring a change in commodity prices to get in balance but we're feeling pretty good about total inventories; new, used, off-lease in combines right now in the NAFTA market.

Okay, I appreciate the color. Then can you tell us when you didn't guide for an operating margin range and what's implied in your EPS guidance?

What's implied in our EPS guidance is improvement in all four segments year-over-year.

But is there a reason why you're not guiding to an industrial --

You know, we've finally got to the point where we believe that we've got our tax rate stabilized. I mean up to this point we had not as basically the entire industry does, give EPS targets, we couldn't in the past because of the demerger and everything that we had to do with our statutory structure and you've seen our tax rate in the past, it's been pretty volatile. You see this year that we believe that we've got a pretty good handle on it, we finished a rather large LATAM restructuring, we're making money in Italy which we haven't been in the past which has been an issue in terms of non-benefited losses. So we felt more comfortable to put us in a position to be like everybody else in the industry.

Okay, good, thank you. And just a quick follow-up on the tax situation; are you net importer or net exporter out of the U.S. and what are you thinking about border taxes?

We've run all of the analysis; we're largely in balance, we're a net exporter of finished product in total. A lot of that depends on high horsepower equipment demand including what we export to Europe and Australia for example, the extent that those markets perform as we think they should, then we should be relatively imbalanced but we've run all the traps that we can in terms of the scenario analysis, we are underexposed to production out of our joint venture in Mexico. So there is really no material issue there.

And if you would include raw materials, would you be in that importer?

Yes, well as you know -- in Powertrain, we're an importer but we think -- it depends how the legislation is written, whether you need to be in balance or is it just on pure imports and also the impact depends on your euro-dollar as you know. So you know in terms of a weaker euro it's positive to us in terms of input costs because we're loan euro on the drive train.

Yes, perfect point. Okay, I'll leave it there. I appreciate it, thank you.

We'll now take our next question from [indiscernible]. Please go ahead.

Thank you. Good morning and good afternoon everybody. My first question is on the free cash flow and particularly for next year what euro CapEx assumption for us for next year considering EU was extremely low last year and what is the normalized level in normal market conditions going forward?

So in the last slide of the presentation we mentioned a 10% increase for R&D and CapEx combined, so that's our target for now for next year. And largely our CapEx number at that point is basically on a steady state and you need to just consider the cycles on the regulatory capital which may go up and down depending of the timing of implementation of the new regulation.

Okay, and for raw materials, you mentioned in the press release, tailwind. Could you expand on next deep cut into your expectations for raw materials contribution to the improvement in the four divisions you mentioned in the previous answer? And if you could quantify last year impact overall for raw materials?

It was a tailwind for the full year, you can see the raw material tailwind by segment in the production cost line, it's a portion of that; I'm not going to break it out into the individual segmental pieces but overall it was a year-over-year tailwind in terms of raw materials. We think it is a slight headwind going into 2017 but our expectations to offset that headwind with reduced costs and productivity gains and in LATAM because of the inflationary environment we expect to offset that with price.

Okay, very last question on M&A potential. It's a question nobody is asking you for quite a long time. So for the vehicle [ph], the sanction is to stay as it is today for the next future even if profitability -- maybe it's not the best level it can get but in any case it's improving; so let's say steady state going forward.

Yes, I mean our expectations to improve the profitability of that goal. And I think that we have over the past 24 months we've been able to gain market share which is an indication that from a product acceptance point of view, we're gaining some traction so it's steady state of improving the performance of that segment.

Okay, thank you.

Thank you. We'll now move to our next question from Mike Shlisky of Seaport Global. Please go ahead.

Hi guys, I'm having some phone calls this morning so these are -- if you have answered in the opening statements feel free to come with you refer to that. My first question is you've had some pretty good looking parts on your gross industrial -- just the last few months, can you kind of give us any kind of thoughts on your outlook for your interest cost '17 after reaching about $200 million in 2016. Is there any kind of savings we've got beyond which we've already booked here or other interest cost upside for the coming year?

I think that you can take a look in the presentation of the duration table, you can calculate within some margin of error what our interest costs are going to be in 2017. And the two open market transactions have a positive impact of approximately $60 million into 2017.

Okay, great. Also a few years back, you guys guided to being a net cash position by the end of 2018. And a lot of things have changed obviously since 2014 when you first gave that outlook but quite frankly, you have pretty much more or less met your 2016 goals, if not exceeded them on an adjusted basis. So could tell that would it be able to make any further steps towards going to maybe zero net debt by the end of next year. Do you have anything else in your back pocket you possibly do here?

Yes, a return of the Ag market would go a long way of settling that issue. No, I mean I think they would -- you can look in the guidance, we've done a significant amount of deleveraging in the balance sheet which you expect in the face of a market downturn that we have run into. So the balance sheet is self-liquidating to the extent that we've drawn down our inventories and you can see that in the cash flow. We would hope in a certain way that that doesn't continue to accelerate because that would indicate that we have even more headwind in the demand. Cycle, so what will you see there in terms of our forecasts for net industrial debt is a reflection of what we think the demand and production intensity is going to be. Having said all that, clearly we are not -- I would say best-in-class the networking capital performance, I think that we're proud of the cash generation that we've been able to do over the past 24 months but clearly, you know, it's our intention to become more efficient in working capital performance and to get to a zero and net industrial debt as quickly as we possibly can. I don't believe that that's possible in 2017.

Okay, just one quick detail -- if you plan to under produce in Ag and NAFTA this year, further it would be left and it has been in previous years but is it a nine figured number you plan to introduce by or is that something very, very small?

I think the spread is in single digits to the market demands. So the market is going to be down 10, depending on the product category it would under-produce by somewhere in the order of 13 to 15.

Okay, that's where we're with that. Thank you, Rich.

[Indiscernible].

Got it, perfect, thank you.

Thank you. We'll now take our next question which comes from Monica Bosio of Banca IMI. Please go ahead.

Good morning, everyone and thanks for taking my questions. The first question is on the Obamacare cost, could you please quantify if it's possible the Obamacare cost for CNH, are they relevant and are you expecting some benefit from the new administration in the USA? And then the second question is, if it's possible to give us an highlight of the year [indiscernible] of the agricultural equipment machineries for real crops in the NAFTA because my feeling is that for sure volumes might be down but maybe there could be start of replacement cycles. Am I wrong?

So Monica, this is Max speaking, I'll take the first question. Without knowing the specifics of the new legislation on healthcare in the U.S., it's basically impossible to determine any input to our P&L. So we will wait and see how that all materialize and we'll be able to do an assessment later on.

Okay but do you know how much the Obamacare cost weighted on your accounts? If you don't have the figures right now, could you --

I need to follow-up with you on this as I don't have the figure with me.

Okay, thank you.

Monica in terms of the age of the inventory, if you look at the time -- have you look at the time cycle of where the peak in the industry was which was in 2013 and then we're moving into 2017, acreage has not changed at all during that time period so hours of usage on the machines has actually been relatively constant. If we look at used inventory ageing on the dealer loss, approximately 40% of it is what we would consider late model used, one to four years old and the balance is older than that. So just to give you an idea of what's out there in terms of ageing but anybody trying to give you an accurate description of the age of the existing operating fleet -- you would be guessing at this point.

Okay, thank you very much.

Thank you. We'll take our next question which comes from Massimo Vecchio of Mediobanca Banca. Please go ahead.

Good afternoon, everybody. My first question is on the drivers that you name in the outlook statement. You speak to him about improved fixed cost absorption; it doesn't mean that you expect volumes to be year-on-year in Ag in 2017?

No, in total Ag, I will be very slightly down year-over-year.

Okay, clear. Second question on the outlook, I was surprised by the positive stance on Brazil for trucks; can you elaborate a little bit more about what's the drivers beyond this plus 15%?

As I mentioned during the presentation, I think that when you look at the percentage basis it looks like it's a drastic improvement in the operating environment but you're looking at an industry that's down in excess of 70%. So I think that before we get excited about some improvement in demand, it's coming off an incredibly low base.

Okay. Last question, tax rate for 2017 what kind of P&L number we should expect; I mean in terms of percentage?

Massimo, we expect the tax rate to be lower than what we have provided for in '16.

Okay, lower than '16. Massively lower or marginally lower?

Marginally.

Okay, thank you very much.

Thank you. We will now take our final question which comes from Ross Gilardi of Bank of America. Please go ahead, your line is open.

Good afternoon guys, thanks for taking my question. Just a few -- on the finco, did you think earnings has stabilized yet and can we use the Q4 earnings number -- do you think it is an appropriate run rate for 2017? Is that what you're baking in?

No, I think that we would take the full year number of net income for the finco and have it slightly down for 2017.

Okay, I got it, thanks. And Richard, I just wanted to clarify -- and Ann asked you earlier about -- I think about directional guidance on the segments and you -- I think you said everything up and you've just said Ag slightly down. So I just wanted to clarify what you were referring to; you're talking about sales, EBIT or margins; your earlier response on everything being up?

Margins I was talking about.

Margins, okay, that's what I -- that's what I figured. And then just on -- the dividends, I mean you've got the dividend slightly lower, I mean it's kind of a big deal but you did guide it slightly lower, so why is that because it gives you -- you seem to feel reasonably confident on the outlook that things are stabilizing?

Look, I mean -- I think that we went back to what our payout ratio was announced to be, so payout ratio was 35% of net or minimum €150 million. I mean, we -- you know, with all of the charges we've had a net loss this year so we just came back and said that the minimum payout and what we had announced at the AGM some time ago was 35% of net, so we thought that that was the prudent thing to do and the benefit of continuing to deleverage this business and net income is significant, so we think that shareholders should recognize that. We've made significant progress in terms of deleveraging the business and we feel good -- that we're on a trajectory to get to investment grade within a realistic time horizon.

Got it, thanks very much.

Thank you. That will conclude the question-and-answer session. I would now like to turn the call back to Federico Donati for any additional or closing remarks.

Thank you, Trish. We would like to thank everyone for attending today's call with us. Have a good evening.

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