Good morning and afternoon, ladies and gentlemen, and welcome to today's CNH Industrial 2020 First Quarter Results Conference Call. [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, Priscilla, and good morning and afternoon, everyone. So first of all, apologies for this few minutes delay, 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 31. 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 Heywood, and our CFO Oddone Rocchetta who will be hosting today's call. They will use the material available for download from the CNH Industrial website. After their 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 risks and uncertainties mentioned in the safe harbor statement included in 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 20-F and EU or 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 in the 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 this difficult and very unpredictable times. Most importantly, I wanted to say upfront 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 sharing a daily meeting with a 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 is also emerged 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 two Win strategy that we presented at the Capital Markets Day in…

Thank you, Suzanne, and good morning or afternoon to everyone in the call. Before I take you through the quarterly figures, I would like to again thank all of our employees, dealers, customers and other stakeholders who have been so supportive and dedicated during this very difficult period, including the office colleagues who have been now working from home for more than seven weeks. It goes without saying that their passions and support has been critical to our operations. Moving now on the key figures for the first quarter. Net sales in our industrial segments were down 14% in constant currency. Adjusted EBITDA in Industrial activity was a loss of $148 million in the first quarter, of 2020 compared to an adjusted EBIT of $278 million in the first quarter of 2019, mainly due to unfavorable volume and mix, which more than offset positive pricing and cost management actions. Our adjusted effective tax rate for the quarter was 31%, resulting in an income tax benefit of $23 million. For the first quarter, adjusted net loss was $66 million and adjusted diluted earning per share was a loss of $0.06. As mentioned earlier, we finished the quarter with net debt of industrial activities of $2.3 billion, representing an increase of $1.5 billion compared to the beginning of the year, and that available liquidity stands at $9.9 billion at the end of the first quarter. I will go into more detail later in my presentation. On Slide 9 -- So Slide 8, sorry, we focus now on our industrial activity net sales. Foreign exchange translations had a negative impact of 2.8% in Q1. The net sales split by region was almost unchanged versus previous year, with Europe accounting for more than half of our net of our total net sales and almost…

Thank you, Oddone. At this point, I would like to share some more details with you of the emergency actions that we've put in place to keep our people safe during this period and to ensure that we are in full compliance with all the applicable national and state mandates. First of all, as a manufacturer of essential trucks, we know that it is important for us to keep our facilities open, but we are also very concerned to do this in a safe and prudent way. We have therefore decided to apply globally across all our facilities, the protocol mandated in March by the Italian authorities, which outlined safety procedures for returning to work and techniques designed to prevent the spread of COVID-19. In addition, to ensure that we can access a good supply of personal protective equipment for our workforce without depleting the global stocks needed for healthcare workers, we have decided to start our own production of personal protective equipment in facilities in both China and Italy. Although we had to close many of our facilities from mid-March, we continue to support our customers and dealers through our aftermarket network. To protect the health of our business, we've also been working hard during this quarter, as Oddone mentioned, both to reduce our costs and to conserve cash. This has included a wide range of measures, including decreasing our CapEx, reducing our use of consultants and agency staff, renegotiating supply contracts, putting in place a hiring freeze and accelerating work on corporate rightsizing. We are also looking at our footprint globally for offices, R&D centers and production facilities to make sure that we maximize the efficiency and effectiveness of our operations while accelerating the digitalization of our processes. As I mentioned before, most of our dealers have remained…

Thank you very much, Suzanne. This concludes our prepared remarks, and we can now open up for questions. Operator, over to you.

[Operator Instructions] We will now take our first question from Ann Duignan from JPM.

My first question is around Q2. You ended the quarter with 151 days of inventory or $7.3 billion. And with the comments on Q2, can you talk a little bit about how much cash you expect to burn through in Q2. Q2 would normally be a positive working capital quarter with shipments up, but it doesn't seem like that this year. So can you talk a little bit about how much cash you expect to burn versus the inventories at quarter end? And how are you going to reconcile excess inventory in an environment where market demand is going to remain weaker for longer?

So let me say something on inventory. And then, Oddone, if I pass over to you, say something on cash. So on inventories, I think hopefully was clear in the prepared remarks, we've actually been very deliberately trying to take action on inventory. We're conscious that, that we were conscious coming into this quarter that, that was something that we needed to do. On ag, we'd actually already started to take actions on inventory, which is one of the reasons why, although we've ended the quarter slightly up on company inventory. We're nowhere near as far up as we would otherwise have been given the slowdown. We are, however, more up as you'll probably kind of see within construction, less so within commercial vehicles. So we actually have made quite a lot of progress in this quarter on inventory, but you're right. We the second quarter will still be tough across all segments, as I said in my prepared remarks. Oddone, do you want to say something on cash in the second quarter?

Yes. I think we say when we talk about the market expectation for the second quarter, that's going to be the toughest for us. And this probably is not going to be a cash generation quarter. But as we've shown on our liquidity, I mean, we are well prepared to withstand whatever cash consumption we may have. And we expect the following quarters then to be definitely better.

But based on the at least qualitative guidance you gave to us for Q2. Do you have any idea of how the magnitude of the cash required or cash burn?

I will say will be in the range that we had for the first quarter.

Okay. That's helpful. And then just a follow-up on FX. Can you talk a little bit about if the real stays where it is today? I think you said in your prepared remarks that was the biggest portion of the FX headwind. Is that the case? And b, if the real stays as it is, should we take kind of Q1 impact as the go forward?

Well, Q1, we also had something coming from in the comparison with last year. I would say we will adapt our pricing in Q2 in South America to respond to the devaluation of the currencies. There will be headwinds, yes, but probably not for the magnitude.

Yes. We had a one-off effect in this quarter, kind of quarter-on-quarter. So I don't think it would be as large, but we would have to adjust pricing if we continue to get the currency weakness there.

Okay. Can you quantify the one-off amount? Just so we know for our modeling.

I think the best way to look at that, Oddone, do you want to kind of give an indication of that? I think it's got reasonably clear in one of our charts. I think the it's in the kind of unallocated in the FX other, you'll see on the adjusted EBIT walk.

I will take in a range of $20 plus million.

Yes.

Yeah. Okay, that's very helpful. Thank you. I'll get back in queue and leave it to others.

Thank you.

Thank you. And we will take now our next question from Rob Wertheimer from Melius Research. Please go ahead.

Thank you, and hello to everyone. I wanted to ask two questions on agriculture. And obviously, I understand all the conflicting data points and signals. The first question though was just can you tease out how much of the 2Q kind of outlook or demand that you're seeing is related to your dealers being more conservative? And destocking versus farmer pull? And the reason I'm asking is one of your competitors yesterday sort of noted that orders are down although up in Europe, Western Europe, and that was a positive surprise. I don't know if you're seeing the same kind of positivity. I don't know if there's a distinction between their dealers loading up or your farmers being more or less conservative or not. The second question is just, do you have an estimate of your livestock exposure in the U.S., given the dislocations in the protein market there? Crops versus livestock? Thank you.

So in North America, on the overall, the dealer inventory went slightly down in this quarter. And that's partly because of the actions that we were taking in support of our dealers. And I think we're kind of relatively well positioned in North America. As you probably know, we're very strong in the high horsepower segment in North America and in 4-wheel drives. So that's all fairly positive. When I first came in, we were modeling a number of different scenarios for the COVID impact. We actually took the most negative, and we've been working to that, which is one of the reasons why, as you will have heard in our prepared in my prepared statement, we've taken quite a lot of actions in this quarter to make sure that we're well prepared for the rest of the year. Actually, against that kind of worst forecast, we've come slightly back up in the second quarter. So it's still going to be a tough quarter, but I think actually, what I'm hearing from the segment is that things are through the dealers, things are looking slightly more positive than they had thought a week or 10 days ago. But it's very, very difficult to give precise numbers of where that's going to go. There's so many moving parts, as you know. As you probably also know, we're very we're strong on the kind of root crop side.

Indeed, yes, I don't know your exposure to livestock in North America. I mean, I didn't expect half the pork production to be shut in two or three weeks ago. It's obviously very variable. I don't expect that's the biggest impact for you, but I don't know if there was any quantification of it.

I don't think we would normally give quantification at that sort of level. But I can say, as I say, that kind of I think we're reasonably well positioned in that market and some of the indications coming out are a little bit more positive than we did have a week or 10 days ago, but it's still going to be a difficult quarter. So I don't want to mislead anybody on that.

Okay, thank you.

Thank you. We will now take our next question from Steven Fisher from UBS. Please go ahead.

Thanks, good afternoon. Just really wanted to pick up on that last comment there. You've talked about starting up some of the plants, but really curious what the extent of where you're starting to see any stabilization in any elements of your business operationally. And from the demand side, it sounds like there's some elements of ag, like you were just saying. But curious, more broadly, any areas of stabilization?

So I think it's worth saying that on the manufacturing side, as we announced yesterday, we've been making significant amounts of progress with the kind of huge thanks to the team, which has been putting in a massive work, as you can imagine, to get the plants up and running, and up and running in a safe way so that everybody feels secure kind of coming to work. We now have over 70% of our plants open globally. And over 80% of our plants open in the EU. I think we're aiming to get pretty much all bar one or two open on the ag side in North America by next week. We are prioritizing, as I think I said in the prepared remarks, we're prioritizing ag, partly because it's such a critical industry, partly because the end market there is stronger. And as I was indicating, if anything, slightly stronger than we had been predicting a week or 10 days ago because we've been conservatively working to a relatively pessimistic set of scenarios, which I think is a wise thing to do, given the kind of nature of the crisis that we're working our way through. I think in other markets, again, the kind of indications on the ag side is that it is beginning to strengthen a little bit, certainly above our worst-case scenario. And as I indicated in my prepared remarks, we are expecting to see it start to recover in the second half of the year, although it's very, very difficult to give predictions. And as you understand, one of the variables that we need to manage through is what happens with our supply chain, which we're working very, very closely with. Talking very regularly to our suppliers so that we can make sure that if we're bringing our plants back up, we're bringing them back up with adequate supplies coming in. So I think, actually, overall, I would say we're seeing a fair amount of stabilization, but we are working in very, very uncertain times.

Fair enough. And then did I hear you say in your prepared remarks that the spin-off as part of the transformation to win could be extended beyond 2021? And I guess, even if not even if it's still somewhere around the middle of 2021, as you were saying a few weeks ago, what would be the process for determining that timing? And what would be the hurdles that would need to be overcome?

Yes, you're correct. In my prepared statement, what I said was that we've recommitted to the spin, which we absolutely have. I think all of the rationale that we had at our Capital Markets Day for why it makes sense to do the spin still hold. None of that has changed. However, I'm sure you all appreciate, given what's happened in the market and obviously, the impact on our business, we want to make sure that we do that at a point where we can spend two strong companies. We want the ag side of the company to be investment grade. We want the spun side of the company also to be very strong. So frankly, it depends on the performance of the businesses and the state of the markets. I deliberately said in the prepared statement that it would be next year or beyond. We're obviously interested in doing it as soon as it makes sense in the market, but we don't want to do it at a point where we're not going to be able to spend two strong companies.

Thank you. And our next question comes from the line of Martino De Ambroggi from Equita. Please go ahead.

The first question is on the prices because in the press release, you report price pressure on both new and used vehicles could be among the risks. So what do you expect in such a difficult environment? And is agricultural contract equipment at risk for the first time after many years in a row of positive price effect.

So as I think, hopefully, we'll be

Probably if I take this, Suzanne, should probably read that comment more on the construction and on the truck side of the business. And more in Europe for the truck side of the business for new and used equipment. We have been launching, as you know, a new heavy truck, the S-WAY. And we've been positive in pricing there, and we've been gaining market share as well. So I mean, our own performance is positive, but we need to see how the market would react with this drop in demand.

Okay. Why agricultural is able to achieve a positive price effect?

Correct.

That's right. And I think you'll see that in the document, if you look on the document with the EBIT walk, you'll see that we've been able to maintain pricing in agriculture and commercial and specialty vehicles. In construction, we've had weaker pricing as we've helped our dealers destocking.

Okay. And the second question is on the cost-cutting initiatives. Maybe I'm wrong, but you didn't quantify the sum of your actions, knowing that the plan had 600 million savings, what should we expect in terms of push in cost-cutting actions due to the crisis this year?

So the work that we've been doing. So first of all, as I said in my prepared remarks, we are continuing with the Transform two Win program, and we've been prioritizing the performance simplify elements of that, which obviously have a lot of cost reduction initiatives within those but we've actually doubled down on that effort in this quarter, as I described. Looking really at all of the elements of costs out of the business and challenging them and using this as an opportunity to make sure that we really minimize the costs going out of the business. At the moment, we're targeting reduced costs based on that work that we've done this quarter. We're looking at reducing cost out by about $1 billion. But we are prepared to go further if required. One of the things that we've been doing very actively as you might imagine, and others are doing is we're modeling multiple different versions of how the year could evolve, and we have kind of further actions that we will take if we need to. Hopefully, that won't be required. And we are prioritizing, as I also kind of mentioned during my prepared remarks, things like our investment into new products, which we believe are very, very important if we're going to emerge from this crisis strongly.

And the next question comes from the line of Ross Gilardi from Bank of America.

Suzanne, you obviously, you guys are delaying the spend and you're very candid on that. It's clear that CNH is going to have to make some pretty difficult decisions in the next several years. And I wanted to ask you specifically about construction and the heavy-duty truck business. And whether or not any thoughts being given to just simply exiting the businesses? I mean, these losses in the first quarter are pretty steep and are going to get worse in the second quarter. The multiyear outlook seems very challenging, whether COVID goes away in the next couple of month or two or not. And aside from the interesting relationship you have with Nikola, why not just exit these businesses rather than devoting significant time and financial resources to turn them around when the company has been trying to do that for years and really what are the barriers to exit in those markets rather than focusing on turning everything around and splitting the company up.

So I think the answer to that is a little bit different in the two segments, actually. I think in construction, you correctly identify, and I am very conscious of it is my leadership team that the performance in construction has not been adequate. As you know, we have changed over the leadership in construction. And as you can imagine, we now have a very thorough process going on to look at that business pretty much from the kind of ground-up to work out where we're positioned and what we want to do with that business in the future. And we won't hesitate to make decisions to kind of bring that business back to profitable growth, and that will be one of my priorities in the kind of coming weeks and because we need to take action. That business, and we're very, very determined to do so. I think the situation on the commercial vehicles is a little bit different. As I mentioned in my remarks, first of all, we have the relationship, as you said, with Nikola, which is very much based on the S-WAY. And actually, since the launch of the S-WAY, which was a very successful launch. We have gained market share across all of the European markets on the heavy side. So I think we actually feel very. Positively about that. You're right. We are coming from a difficult position on the heavies, but I think we see a kind of clear path forward on that, and we remain excited about the joint venture that we have with Nikola, which is based on the S-WAY frame as well.

Well, or I was asking specifically about heavy, not the whole commercial vehicle segment because I know you have a very interesting position too in the light and medium-duty side. But given what you just said is there a time frame you have in mind where the companies just got to make a decision on whether they want to be in these businesses or not? I mean it just seems like the easiest way back to profitability is to exit some of these positions that never make money.

Well, as I just said, I think on construction, I'm very conscious that we do need to have a thorough look at that business and not delay making decisions. I think on commercial vehicles at a very different situation where we are gaining market share, and I think we're very, very pleased with the launch of the SWA and how that's been welcomed by the market, which is on the heavy side. And of course, as I said, that kind of plays into our joint venture with Nikola because it's the S-WAY, which will be the frame for the Nikola's joint venture, which will take us into electric and into the whole fuel cell space as well. So I think we feel quite differently about the two, but we will keep all of our situations under review. But the Construction Equipment segment under its new leadership is very actively reviewing the business and looking at how to take it back to profitable growth.

Got it. Thank you. And I realize that the company has got a lot on its plate. I just wanted to get your general view on that.

No, no. Absolutely.

Thank you very much.

Thank you.

Thank you. And the next question comes from the line of David Raso from Evercore. Please go ahead.

Hi, thank you for the time. Just to clarify on the spin decision, we used to speak to both businesses being investment-grade ideally to be spun. Is that still a prerequisite for the spin to take place?

Yes. So I think it is one of the key considerations for us as we look at the as we look at circumstances for the spin. What we don't want to do, as I said before, is to be in a situation where we spin companies, which are not going to be strong as they go into the market. So one of the things that we will be looking at and will be kind of actively thinking about is the investment-grade that both companies get. And that is one of the reasons why we're reconsidering that why we have said that we will be delaying the timetable for it.

Okay. So it's not a set in stone parameter for the spin, but it's obviously a key consideration?

It certainly is, yes.

And did I hear correctly, the second quarter the cash flow comment, we said similar to 1Q. The industrial company in the first quarter had negative operating cash flow of over $1.3 billion, $1.4 billion. And while I appreciate it's not going to be a profitable quarter, you would think the working capital can do a little better selling out of inventory for whatever retail activity, wholesale activity you have. Did I hear correctly that you expect the operating cash flow to be as negative in 2Q as 1Q? If you can just clarify?

I think we said in the range. I think we say that we are very cautious on our planning or on the scenarios we're looking at. A lot will also depend on how much production we will set up in the second quarter. As Suzanne said, we are starting our plans now or as recently as last week, so a lot will depend on how much we will also accumulate there in terms of production and also payables for our working capital.

That sort of dovetails into my question about you had mentioned and I think you said you expect a recovery in ag in the second half. I think there was some tempering of a comment, but at least the way I interpret it, you expect some improvement in the back half in ag. And I think the magnitude of working capital later this quarter to get ready for the second half is an interesting question. Do you expect enough of recovery in the second half that you won't be selling in a way materially out of inventory for a little while? I'm just trying to cooperate. Is it the cash flows negative in the second quarter that much? In part, do you expect to be ramping into the third quarter that strongly, which I guess is a positive demand statement, but I'm surprised you're taking that strong a view or is it just the cash flows that challenge in the second quarter because I'm not reading it properly that I mean you should be selling out of inventory a little bit more than producing in 2Q. So I'm just trying to square up the outlook for the second half in ag? And how do I interpret the second quarter cash flow in relation to it?

I think we were talking about the entire company numbers and not just the ag segment. So if you take all together, and you consider the number that we have highlighted as possible scenarios for the Q2 then probably you can reconcile a negative cash flow number for the second quarter.

Yes. No compress negative, it's just that magnitude. And related, I apologize, last question. The book-to-bill or how should we think about where ag stands going into the quarter? Or even if you have kind of through the end of April, just so we have some sense of the factories can open up, but what kind of order book do you already have in place? And thus, we can apply what kind of incremental orders you need to justify the level of ramp. So any sense of book-to-bill on orders or however you want to describe it for agriculture? That's it for me.

So Oddone, do you want me to kind of pick this one up? I mean, to just give you a sense of how we see the year kind of playing out. And obviously, we don't have a crystal ball either. What we're trying what we're doing is we are as I mentioned before, we're kind of playing with a number of different scenes and we're being kind of cautious of making sure that we have full liquidity and a full set of actions that we can take, depending on how it plays out. But the way at which is looking at the moment is that we have a small buildup of company inventory in the first quarter. As we ramp up our production coming into the second quarter, will mainly be building to kind of retail need. And we think that we have a kind of a reasonable order book. So that's going to be that should be relatively clear. I don't think we'll be building up inventory in the second quarter. In fact, I don't think we'll be building up inventory through most of the rest of the year. I think we'll be kind of building to kind of customer need. And as I said in the prepared remarks, I think we see in the second quarter, we do see a degree of recovery on the ag side, less so on the commercial vehicle side and on construction vehicles. That's one of the reasons why we've been prioritizing bringing up the plants on the ag side first. Also, because it's a critical industry.

So a positive but not to push, but any quantification of the order book at all, just some order of magnitude where it stands year-over-year? Just give us some baseline of what's already on the books that when the factory start off, you already have some set backlog to service?

I think we'd be very cautious kind of giving that sort of data at this point, to be honest, I think it's very hard to interpret that data as well because it's impacted by multiple things, as you can imagine. You end up with a given the kind of downturn that we've gone through.

Thank you. And now we will take our last question from Tim Thein from Citi Group. Tim, can you check if your line is on mute. Tim, please go ahead. And there are no further questions at the moment. So please go ahead. That does conclude the question-and-answer session. I will now like to turn back the call over to Federico Donati for any additional or closing remarks.

Thank you, Priscilla. I would like to thank everybody to participate today call. Thank you, and have a good afternoon. Bye.

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