Good morning, and afternoon, ladies and gentlemen, and welcome to today's CNH Industrial 2020 Second Quarter and First Half-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, Andrea. Good morning, and afternoon, everyone. We would like to welcome you to the webcast and conference call for CNH Industrial second quarter of 2020 results for the period ending June 30. 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 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 the 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 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 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 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 strengthen 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 combined 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…

Thank you, Suzanne. And good morning and afternoon to everyone. The second quarter and for the matter of this the first six months of 2020, have been extremely challenging. That being said, while we have yet to see a full recovery on our end markets, there are promising signs that we are in a less pronounced downturn environment, than initially expected. And that we are not facing our original worst-case scenarios for 2020. It has taken exemplary cooperation and coordination from employees, dealers, customers and other stakeholders to make the tough decisions in March and April that helped us to get in a more secure position today. And for that, I would like to thank them all. Moving now to the key figures for the second quarter consolidated revenues were $5.6 billion, down 23% on a constant currency basis. Net income was $361 million and includes a pre-tax gain of $1.475 billion, due to the re-measurement of fair value of the investment in Nikola Corporation, upon the listing of Nikola on NASDAQ, after the completion of the business combination with VectoIQ. When Nikola went public, on June 4, CNH Industrial held 25.7 million shares of Nikola Corporation, corresponding to approximately 7% of Nikola outstanding share capital. As a reminder, while we plan to exclude any fair value re-measurement of this investment from the calculation of non-GAAP adjusted measures. And in particular, from our adjusted diluted EPS the investment will be valued at fair value through profit or loss, with any changes in fair value, recorded in profit or loss in our U.S. GAAP consolidated financial statements going forward. Net income also includes non-cash one-time goodwill impairment charge of $585 million, related to construction. Other assets pre-tax impairment charges of $255 million as well as asset optimization pre-tax charges of $282…

Thank you, Oddone. Before sharing some of our thoughts about the rest of the year, I would like to give you an update on the work that we've been doing in this last quarter to protect our people and our network while also supporting our customers through the pandemic. The safety and well-being of our workforce has been as I noted earlier our priorities throughout the pandemic. We have now implemented our new health and safety protocol across our entire company and have been in regular contact with medical professionals and scientists to update our practices to reflect the evolving understanding of how this virus is transmitted. While the majority of our dealers remained open through the quarter, some were forced to scale back their operations. However, all our dealers are now fully operational. We are, however, continuing to review on a daily basis the situation across our dealers, as well as for our suppliers not only our Tier one suppliers but also our Tier two and our Tier three suppliers, stepping in to provide support and advice where we need to do so to ensure the resilience of our supply network. As a company we've always tried to support the communities, in which we operate. This is why early on in the pandemic we set up a solidarity fund. This fund has now allocated money to 76 initiatives around the globe that are helping people and communities on projects supplying food, supporting education and improving health. This has included for example in South America, providing food to 2,400 families and to 20 food distribution institutions. In Thailand, we have delivered 5,000 kilograms of rice and 120 food packs to 1,500 people, as well as 12,000 units of medical equipment to four hospitals. In Brazil, we have distributed medical equipment…

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

Thank you. [Operator Instructions] We are now taking our first question from the line of Rob Wertheimer from Melius Research. Please ask your question.

Support levels, et cetera. Can you give us any hint or just current order trends and just your general view on sentiment. It seems to us used pricing is holding well and it's not a disaster. And then if I may just the strategic one will be your commitment to 80/20. You've had a lot to manage through in a crisis. Is that remaining unchanged? Is that on hold as you sort of think about what incoming management might think to do? Thank you.

Thank you very much. I'm sorry, I missed the first part of your question, because you only came in on my line just at the end of it. I've got the second one on 80/20. Could you just repeat the first one?

Yes, sure Suzanne. Sorry. Just your view on large farmer sentiment on current order trends. Used pricing seems okay. There's obviously a lot of headwinds. So I just wanted to have that sense in the U.S. and Europe. Thank you.

Thank you so much. So, yes. So as you've probably seen in the numbers, we're seeing the kind of smaller vehicles, particularly in North America coming back a little bit faster than the larger vehicles. Partly we think because dairy farmers and others are recovering a little bit faster than others. But we are seeing across the piece improvement in our kind of agricultural order book, particularly actually looking in July, where they'd come up. They're actually up year-on-year in July across the piece apart from right at the kind of top end. So there's quite encouraging news on the kind of Ag side. On the 80/20 point, we remain absolutely committed to 80/20. And I think it's been important in all our segments. We have actually made quite a lot of progress on 80/20 already because we started the work on 80/20 following the Capital Markets Day last year. That work we suspended to some extent during the crisis. And as we're now kind of ramping back up again on that you'll continue to see us making progress on it. And I think it's very important for our business.

Okay. Perfect. Thank you. And then I'm sorry you said except on the very top end on tractors you've seen strong order trends given up in July just to clarify? And I'll stop.

Yes. We've seen – I mean I'm looking particularly in North America, where as you probably know kind of – if I look at tractors for example they've come back very strongly particularly in July. We're seeing quite a big uplift. That tends to be stronger on the smaller side and it's a little bit weaker at the kind of top end. We just think that's reflecting the sorts of farmers that are currently kind of out buying. But actually we're seeing kind of overall kind of July orders up year-on-year across tractors, as I say more oriented towards the smaller tractors than to the larger ones.

Great. Thank you.

Thank you. We are now taking our next question from the line of Martino de Ambroggi from Equita. Please ask your question.

Thank you. Good morning. Good afternoon, everybody. The first is on the cost-cutting measures. If I remember correctly in your last call you mentioned $1 billion of savings. And during the speech today, Oddone talked about $500 million. So if you could elaborate a bit more in order to understand, what measures are structural cuts and the time frame to finalize the intervention? And after these cost-cutting measures, you provided a guidance for the top line. I don't know if it's possible to have just a very wide range of the profitability, if you achieved a minus 15%, 20% top line for the second – for full year. Thank you.

Thank you very much. So on the kind of cash savings the $1 billion number was for the full year. So as we look at the first half, we've reduced expenses and cash outlays by about $500 million. And that's really a combination as we said as kind of cash measures and cost measures. What we're now looking to do is to convert as much of that as we can into kind of permanent savings although you'll appreciate that some of those are kind of one-off savings things like reduction in travel and some of the benefits for example from the furlough scheme. However, we think more than a third of what we've reduced in the first half we'll be able to kind of carry over into 2021. And a good chunk of that we've actually taken our divesture there. And then the rest of the reduction in the cash savings, we're looking to achieve in the second half of the year. So I hope that gives a little bit of clarification on that. On the guidance, we're not really kind of comfortable with giving any kind of further guidance over what we've given. We are conscious that we're operating in very uncertain circumstances. We wanted to try and give the market a sense of where we see things at the moment despite the uncertainty. But you'll appreciate that kind of given the -- how rapidly things are changing we're kind of cautious about going too far.

Yeah. Thank you. If I may, the second question is on the cash burn that you projected during the last call. It was a radically different outcome. I understand better volumes than initially expected. Is there any change in net working capital, payment terms or anything else which could be also in this case structural?

Oddone, do you want to pick this one up?

Oddone, here. No there's no change in any payment terms or anything. Actually the better working capital came from lower inventory at the end of the period better results and frankly higher speed of sales recovery in the last part of the quarter.

Okay. Thank you.

Thank you. We now take our next question from the line of Joe O'Dea from Vertical Research. Please ask your question.

Hi. Good morning, everyone. Thanks very much for all the end market and operational details, it's very helpful. I wanted to ask on channel inventory. If you think about that at a segment level what your comfort level is with current channel inventory relative to end market demand expectations if you think you're now sort of fully passed any kind of destock you had to do?

Yes, thank you. Thank you for that question. Yes, so as I've mentioned in the prepared notes, we've actually reduced channel inventory across all of our different business lines in this quarter, which was something that we very much aimed to do. And as I also mentioned as we've kind of ramped up production, we've done so cautiously and quite kind of carefully to try and make sure that we were producing appropriately into end market demand. So the kind of overall impact of that is we've reduced company inventory this quarter by about $600 million which is quite considerable. However and in terms of kind of order coverage at the moment, we're well covered for Q3 and partly into Q4. But we also think that we're kind of well-positioned to supply into the end markets given the recovery that we're expecting the kind of forecast that we shared with you. We think we're well-positioned to supply into that. And that we will actually kind of come out of this period given what we've done on the inventory side much stronger because we as I think I've said in the last quarter results, we did go into the first quarter this year with quite a lot of inventory. And so we have used this as an opportunity to take that out both at kind of company level, but also at dealer level.

And so does that mean that in the back half of the year you expect to produce to retail demand? Is there any need to actually produce beyond retail to try to refill some of the channel inventory, but just kind of how your production aligns with end market demand in the back half of the year based on current kind of understanding?

Yes. So our expectation as we go through is we will -- where we can we'll produce to retail demand. We think that's a very kind of healthy way to operate. However, we do expect there will be some need for dealer restocking, as we go into the last quarter, but it'd be quite selective where they need that. But we think that there will be some of that going on as well given that we've had this opportunity to run down inventories. And we're kind of building that into our plans. But we don't intend to go back to the same, sort of, inventory levels that we've had certainly in the kind of recent past.

And then a clarification on the cost and cash measures you've taken of the one-third plus that you're talking about. Can you talk about how much of that is on the expense side and how that compares to the 2019 Capital Markets Day and what you've talked about in terms of cost out? Is that all incremental or does it include some of those plans?

So some of that includes some of those plans. So what we did was we sat down at the start of the crisis and we looked at all the things that we had announced in the Capital Markets Day. And we accelerated all of the elements of the plan which we're going to reduce our costs because that would both help us to deliver the plan, which we remain very much committed to and help us to kind of weather the pandemic. So some of those were in that plan. However, we also in addition to the plan initiated a whole bunch of other things. So as you can imagine we were very rigorous around what we have initiated work around SG&A some of which was additional. We've undertaken quite a thorough footprint review and that's our entire footprint not kind of just our industrial footprint. But more broadly, we're now looking at opportunities around home working. We did a very thorough kind of bottoms-up review of our R&D spend prioritizing everything which was important for new products and for customers. But when you do look at these things you do find opportunities to prioritize your R&D spend some of which of course will come back in. So as I say of the kind of, cost and cost -- cash containment actions that we took in the first half, some of that will come back in. It's postponed costs that we thought was sensible to do during the pandemic. But a good chunk of it at least one-third of it we're aiming to keep out.

And one-third of the $1 billion or one-third of the $500 million that you think stays out?

I was referring to one-third of the $500 million, but we will take exactly the same attitude to the cash and cash containment actions that we're taking in the second half of the year. We will aim to keep as much of them kind of permanent as we can.

Perfect. Thank you very much.

Thank you.

Thank you. We take our next question from the line of Alexandre Raverdy from Kepler. Please ask your question.

Yeah, thank you very much for taking my question. I have a question on incremental margins. So I understand you don't want to give us any guidance on profitability. But is it fair to assume the same level of the incremental margins for the second half as it was in the first half so around in the 30s?

Well, I think, we're still seeing the market evolving in the second half as I was outlining at the kind of end of the prepared statements. But I think if we assume recovery conditions to remain broadly in place, we think we see -- I think Ag will have a slight incremental margin in the second half of the year. And I think construction equipment and commercial vehicles will probably improve for the first half but still have a decremental margin given their lower volumes. So that will give you a little bit of a sense of what we're seeing although we don't really want to put our precise numbers against that.

Okay, and that’s helpful. Thank you very much.

Thank you.

Thank you. We are now taking our next question from the line of Steven Fisher from UBS.

Hi, thanks. Good morning, good afternoon. Can you just talk about what the order book looks like for the IVECO electric truck in Europe? And I know there's obviously a plan for 2021 delivery of that truck. I'm just wondering when we could start to see that JV making a material contribution to earnings?

So as you say, our plan is to start producing the electric vehicles from 2021 and the fuel cell vehicles from 2023. Material earnings, we're not yet kind of releasing projections on kind of what that will look like over time. We haven't actually opened the order books on those as you probably know although given the amount of interest that there is and I think the excitement was going to be about those vehicles we're kind of reasonably confident that there'll be a lot of interest in them. But we're not yet projecting how those figures will kind of play out over the following years.

Okay. Fair enough. And then in terms of the spin-off maybe I'm reading into the comments too much. But do I sense that there's a little less uncertainty now in your view of the timing compared to last quarter when kind of raised the possibility they could be beyond 2021?

No, that's not changed. So I think what we said last quarter was that it would be 2021 or beyond and that remains our position. As you can imagine it depends very much on the conditions in the end market. And we want to be sure that at the point at which we do the spin we are spinning two strong companies and we -- so we continue to watch the market very, very closely. And we'll obviously update you as soon as we have a kind of firm view on timing. In the meantime as I said, in the kind of prepared notes we are gradually restarting all of the work which as you can imagine we need to do to get ready to kind of separate those different elements. But we haven't yet taken a decision on timing. And our view remains that this kind of 2021 or beyond depending on how the markets come back.

Okay. Thank you.

Thank you.

Thank you. Our final question comes from the line of Gungun Verma. Please proceed with your question.

Hi, good afternoon. Congratulations on great set of results. I have two questions left please. One is on precision farming. Can you remind us what the current share is of precision farming in overall Ag? And as you look three to five years out with increased penetration where do you expect this to be? And associated with that, the R&D profile have you already taken a large chunk of the cost upfront, or would you be required to step up the investment there? And second question is, I understand it's quite challenging today to have a longer-term view. But if we think about your cycle, I remember you did some CMD targets in September. I think the market evolution has been weak -- but you're taking costs out. So can you give us any idea on normalized margin profile in Ag in commercial vehicles or broader business level please? Thank you.

So just on the precision farming side, we don't release separate data on the kind of precision farming side. But what I can say is, across all the elements which I talked about in the prepared remarks the kind of fleet side the farm side the field side. What we're seeing is a significant take-up in demand from farmers who I think are kind of genuinely excited about what we're able to offer. And what we're trying to do is, to put together a set of initiatives and products which are very open. So as I think I mentioned farmers can fit these into kind of their kind of own fleets which are all our vehicles they can fit them into mixed fleets. And we can see that there is a significantly -- a significant impact on things like fleet downtime and field productivity and the improved farm economics. We've -- in terms of the investment into this, we see it as being very continuous. We have been investing in this now for several years. We will continue to invest in it. It will occasionally be lumpy. As you saw last year, we made an acquisition of AgDNA which was quite an important acquisition for us because it's quite significantly took us forward in terms of what we can put on to the vehicles. So we will see some chunkier parts, but this is now something which is just a fundamental part of business as usual for a company like ours because it's so important for our farmers to make sure that we are helping -- one of the leaders in terms of digital and precision farming. And we will continue to talk about this and it will be a very big deal. And it's certainly something that as a leadership team we spend a lot of time on. In terms of normalized margins, we're not really releasing kind of details of kind of where that will be. But I hope that over time we will return to margins that we've certainly seen in the past hopefully improving in some areas. But we're not really releasing kind of details of kind of margins at the moment beyond what we've said before. But thank you very much for your question.

Thank you and have a nice summer.

Thank you. You too.

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

Thank you very much everybody and have a nice day. Bye-bye.

This concludes the conference for today. Thank you for participating. You may all disconnect.