CNH Industrial NV (CNHI) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to today's CNH 2009 second quarter results conference call.

(Operator Instructions).

At this time I'd like to turn the call over to your host today, Mr.

Al Trefts.

Please go ahead, sir.

Thank you, and welcome everyone to CNH's second quarter and June year-to-date 2009 webcast conference call.

We're pleased to have with us today Mr.

Hal Boyanovsky, our President and Chief Executive Officer, Mr.

Steve Bierman, our Chief Financial Officer and, Mr.

Marco Casalino, our Treasurer.

In recognition of Regulation FD we've provided public guidance in this morning's press release, on which we will elaborate in today's call.

After this call, guidance will not be updated until CNH issues a press release on the subject.

During the course of today's presentation, and in answering your questions, we will be making some forward-looking statements concerning the Company's plans, projections and objectives for the future that are subject to risks and uncertainties.

Please refer to this morning's press release and our annual report on Form 20-F for the year ended December 31, 2008, as filed with the US Securities and Exchange Commission for additional information on the important risk factors and uncertainties in the Company's businesses that are subject to change and could cause actual results to differ materially from our expectations today.

The Company, except as required by law, undertakes no obligation to update or revise its forward-looking information.

As noted in the slides, the Appendix contains reconciliations to generally accepted accounting principles of the United States or US GAAP, and various non-GAAP financial measures we use in analyzing our performance.

Finally, this conference call and live webcast over the Internet are being recorded for future transmission and use by CNH, Thomson Reuters and third parties.

The contents are the property of CNH Global NV, and are not to be re-recorded or re-broadcast without our express written permission.

Participants in the call, including the Q&A session, agree that their likenesses and remarks, and all media, may be stored and used as part of the earnings call.

Now I'll turn the call over to Steve Bierman to make a few remarks on the quarter.

Steve?

Thank you, Al.

First, let me thank all of you for joining us this morning.

As you know, this is my first call with you in my new role at CNH.

I look forward to the call today and to working with all of you in the future.

Let me start with some highlights for the second quarter on page four.

First, it was a solid performance for cash flow generation.

We reduced accounts receivables by $250m and inventories by $668m.

These numbers are in constant currency.

This contributed to a $550m reduction in Equipment operation's net debt.

We will continue to focus on cash flow and expect further working capital reductions in the second half of 2009.

We continue with the restructuring actions announced in the first quarter.

Yesterday, as you probably have seen, we announced the reorganization of our Construction Equipment management structure, which allows us to increase brand support and new product development while reducing our structural cost.

Certainly Agricultural Equipment net sales reflect weaker market conditions in most regions of the world when compared to record levels in 2008.

Yet, despite this overall trend, our sales for large horsepower tractors and combines in North America remained strong, increasing 3% in the quarter and 13% in the first half.

The cost reduction and spending controls we've implemented are bearing fruit, with total SG&A costs down approximately $100m in the second quarter.

We also are seeing improved conditions for funding our Financial Services operation.

We have closed $2.7b of new funding facilities in the first half of 2009, including $1.5b in ABS transactions.

Certainly, the TALF program has helped us.

Turning to slide five, let us review our net sales and operating profit for the quarter.

In total, our net sales were down 33%, including a seven percentage point reduction for changes in exchange rates.

Worldwide agricultural tractor and combine industry retail unit sales were down 11% in the quarter, driving our Agricultural Equipment net sales down 22%, 13% on a constant currency basis.

Worldwide Construction Equipment industry retail unit sales dropped 47% in the quarter, pushing our Construction Equipment net sales down 62% in the quarter, or 58% on a constant currency basis.

In addition, we continued de-stocking our dealers, accounting for an additional 8% sales decline.

These industry volume declines, combined with our de-stocking actions, were the principal cause of our decline in operating profit, as we will see on the next slide.

On page six you will see that our volume mix and de-stocking actions resulted in a $306m negative impact, primarily driven by Construction Equipment.

We have benefited on the pricing side from effective strategies.

We are expecting that our price increases already announced this year will continue to produce positive pricing gains.

This trend is expected to continue through the year, resulting in full year price recovery of approximately 5%.

For production cost, the increase is driven by higher material economics that we saw as we were building inventories.

As we continue to decrease our inventories, we will see improvements in our margins in the second half of the year.

We saw a significant improvement in our SG&A due to cost-cutting measures implemented earlier this year, which I talked about on the previous slides.

Other factors include, among other things, the impact of hedging and FX transaction cost.

On slide seven we see the trend of the second quarter industry retail unit sales and industry changes detailed for both tractors and combines.

Industry unit sales declined in all markets for combines and higher horsepower tractors -- excuse me, except for combines and higher horsepower tractors in North America, and tractors in the Rest of the World markets.

Our tractor market share was up in Western Europe and Latin America, and stable in North America, and our combine share was up in Rest of World markets and stable in Western Europe and Latin America.

In North America we believe that our share decline in combines as a timing issue and that, by year end, we will have returned to at least our 2008 level.

Of note here is that our four months' supply of tractor company and dealer inventories is down by almost one month from the end of the first quarter, while our combine four months' supply is down by one half month, as our production was 24% less than our retail unit sales.

On slide eight we see the similar picture for Construction Equipment.

As the industry declines, which started in the third quarter last year, continue, the total worldwide industry retail unit sales are down 47%, but Light Equipment industry unit sales, where CNH has a stronger presence, were down 52%, compared with a 40% decline for Heavy Equipment.

Our worldwide market share declined in the quarter primarily due to the heavy impact of Rest of World markets on the overall calculation, as our shares in all other major markets were either stable or up.

On a four months of supply basis, our Construction Equipment inventories also declined in the quarter by about 1.5 months for total Light Equipment, and by over 1.5 months for Heavy Equipment, as further evidence of our de-stocking actions, as our production was 54% less than our retail unit sales.

Turning to slide nine, we have our first half net sales and operating profit results.

The picture is much the same as we have reviewed for the second quarter.

Net sales of Equipment were down 30%, including an 8% decline for currency.

Agricultural Equipment net sales declined 17%, including an 8% reduction for currency, mirroring the global industry retail unit sales decline of 7% for the first half.

Construction Equipment net sales declined 61%, including a 4% reduction for currency.

Turning to page 10, the factors impacting our second quarter results are essentially those that are the same for our year-to-date results.

We will continue the actions we talked about earlier and expect a positive trend for the second half of 2009.

On slide 11 we see the first-half trend of Agricultural Equipment industry retail unit sales.

And in the second quarter the principal pockets of strength were the higher horsepower tractors and combines in North America and tractor sales in the Rest of the World markets.

Again, this is similar to what we saw for the quarter.

For the half, our tractor market share was stable in Western Europe and up in North America over 40 horsepower and Latin American markets.

Our combine market share declined in North America as in the second quarter, again, due to the timing issue which I described earlier.

On slide 12 we show the first-half picture for Construction Equipment and, by market detail, the overall 47% industry decline, which occurred in all markets.

Our worldwide market share was down in total, again, because of the impact of the Rest of World markets.

It was stable in North America and Western Europe, and up in Latin America.

Now, turning to page 13, notwithstanding our stance on cost reductions and other cash saving actions, we continue to invest in our products at CNH.

Our recent product launches include the new Case IH 4000 sugar cane harvester.

This harvester is a new entry aimed at customers in emerging markets with the goal of driving mechanization in the sugar industry.

The sugar segment remains key to Case IH and our significant market position in the industry.

We launched the CR9080 combine in North America and Australia markets.

The New Holland CR9080 is a class nine combine designed for large acreage farmers and contractors.

In the third quarter we plan to launch a new series of New Holland tractors with the CVT transmission.

This tractor uses an advanced design transmission which provides easy user interface and is ideal for large contractors' fleets.

The [7070] completes the New Holland family of tractors from 160 to 240 engine horsepower.

On slide 14 we highlight the launch of special application models of excavators with long reach capability suitable for river bank, coastal maintenance and demolition activities.

Now, turning to slide 15, at the introduction we mentioned briefly the cash flow and net performance --- excuse me, net debt performance for the quarter.

Here, you can see the improvement in cash flow in the face of the difficult market for revenues.

Although our increase in net cash for the quarter lags last year's performance by approximately 12%, the input of working capital reductions and cash savings actions is very evident.

Receivables and inventories were reduced collectively by over $900m.

Here, you can also see the impact of reducing production on the accounts payables.

The impact of this in the quarter was the use of cash of over $400m, versus the use of cash of only $16m for the quarter in 2008.

Following the changes in net cash for the year, please turn to slide 16.

Here, you also see the impact of cash flow improvements for the first half of the year.

Again, improving the net --- the cash flow and reducing the net debt of equipment operations remains a key goal for CNH for the second half of the year.

On slide 17 we show the impact of de-stocking on inventories both for our dealers and for us.

The bar graph shows combined inventory in units.

The black line represents CNH production, while the red line represents units produced by CNH and retailed to the Ag majors, which includes tractors and combines.

There's little gap between production and units retailed through most of 2008.

In the second quarter of 2009 agricultural production levels are approximately 20% below retail levels.

We expect to continue to produce at levels, again, that are approximately at 20% below forecasted retails.

Turning to the Construction Equipment market, this de-stocking trend obviously started in 2008.

Inventories peaked in the third quarter and production has been significantly curtailed since that point.

Production levels in the second quarter of 2009 are approximately 50% of retail levels.

The de-stocking effect for the first half of this year, you can see, is dramatic.

Let me highlight that, for the full year, we plan to reduce working capital at CNH by $1b.

At the end of the first quarter we announced plans to invest up to $250m in consolidation and reorganization actions.

The objective is to right-size the Group's structure and bring it into line with current economic realities and expectations.

These actions include personnel reductions, a reorganization of the Construction business and the first steps towards the rationalization of our industrial construction footprint.

In terms of headcount, our actions resulted in a 7% cumulative reduction in permanent and temporary salaried positions, and our goal is to achieve reductions in this area between 10% and 12% by year end.

Yesterday in the Construction business we announced a major reorganization that will streamline internal operations and deliver significant reductions in the cost of managing our brand networks in building brand value.

In this new organization CNH will maintain its existing Construction brands, KCE, New Holland Construction and Kobelco, while consolidating internal management structures in a regionally based organization.

We are confident that with this new structure the Construction business will emerge from the current downturn in a position of strength, and ready to compete aggressively when market conditions improve.

In terms of the industrial footprint, CNH has initiated the consultation process for the closing of its plant in Imola, Italy, and to relocate production to other facilities.

We will continue to monitor the situation in the Construction Equipment market and we may take further cost reduction actions in the coming months.

Turning to page 19, let me review the funding activity for Financial Services.

Again, this was an area where we saw improvement in the market in the second quarter.

There's another bit on slide 19.

We've raised $2.7b in new funding lines and facilities from a combination of public ABS and private bank transactions.

The last ABS deal, which is a $1b transaction, was closed in May at pricing spreads that were much more favorable than the ABS transaction closed earlier in the year.

The TALF program is revitalizing the ABS market in the US, and we saw both TALF and non-TALF investors participate in our transaction.

We also closed two retail facilities in Canada with lines of over $400m.

We recently renewed and increased, by $200m, a wholesale facility in The United States.

We also closed two wholesale transactions in Europe.

Also in Europe, we continue our retail joint venture with BPLG and this continues to drive the commercial effectiveness of our brands.

Overall, our funding outlook has certainly improved over the last few months, again, driven in part by the success of the TALF/ABS transaction.

Now, on slide 20, let us turn to our Equipment outlook for 2009.

Based on Global Insight's July data, we see that global stock levels in stocks to use ratios of corn and wheat are expected to increase slightly in 2009, although the soy bean ratios are expected to decline.

Prices of corn, wheat and soy beans are expected to decline from their peaks, but will remain at attractive levels compared to other past years.

We are also seeing some reduction in input costs from recent peaks as well, which certainly will help.

Turning to page 21, which you will see is that one group which is not faring as well as the North American cash grain farmers, is the North American dairy farmer, as milk prices are down significantly from their highs of two years ago.

The situation is similar for ranchers, and these two groups are significant purchasers of mid-sized tractors and hay and forage equipment.

That said, US net farm income should remain at historically strong levels, although down from 2008, and it will be unevenly distributed across the market segments.

The US Farmers' balance sheet remains very strong, with debt to total asset ratios under 10%.

In total for North America we expect unit volume declines in small and mid range tractors to out-shadow any strength in higher horsepower tractors in the second half, as we saw in the first half of 2009.

In Western Europe we expect the market to continue on its same trend, as we have seen in the first half of the year.

On page 22 we wanted to highlight for you our view of the Ag market conditions in many of the markets served by International region, which you see is outside of North America and Western Europe.

Financial conditions remain unfavorable in many countries, with the key exceptions here being India, China and Australia.

Again, tightening credit, the difficulty that that has caused has certainly impacted our business and our performance in the first half of 2009.

Turning to page 23, we highlight that getting consolidated construction activity data for the major regions of the world outside of North America is not always easy.

We tend to rely on GDP as a major indicator.

You can see on this slide the world GDP outlook, and the outlook for OECD countries is negative this year.

Based on the market contractions due to the credit crisis in the second half of last year, despite the high GDP growth rates, we have also adopted a very conservative industry volume outlook for the non-OECD countries' industry unit volumes.

Turning to page 24, here, we can see the quantification of the economics and market situation that we have discussed on the last few slides, and we take these into account as we develop our industry unit volume outlook for Q3 and for 2009.

We would highlight that, although agricultural fundamentals continue to look promising, global industry retail unit sales will be impacted by the financial and credit situation.

Overall, we see the industry as slightly weaker than last quarter, although within the same ranges.

There is some improvement in our outlook for North America combines and Rest of the World tractors, but we expect declines in combines in Latin America and for the Rest of the World.

For Construction Equipment we expect continued weakness across all regions, with industry sales down 45% to 50%.

Turning to slide 25, let us summarize our full-year financial outlook.

Market conditions are expected to remain difficult, and translate into a full-year loss.

That said, there are things we can control and things that we will focus on.

We will continue to closely monitor and control cost.

We will continue to monitor and manage our production levels, and reduce [working capital] by $1b.

The reorganization of our CE business will continue.

We will increase our --- we will continue to focus on our brand support, our new product development and the optimization of our efficiency in this segment.

This concludes my comments.

I will now turn it back over to Al to begin the Q&A session.

Thank you, Steve.

For the Q&A session we ask that everyone please limit themselves to one question and one follow-up at a time.

Operator, could you please retrieve the first question?

Certainly, thank you.

(Operator Instructions).

We'll now move to our first question from Ann Duignan of JP Morgan.

Please go ahead.

Hi, guys, good morning.

Good morning, Ann, how are you?

Hi, doing good, thanks.

My question really is around your market outlook, particularly Combines North America, where we saw the industry up 29% in the first half, but you're expecting the industry to be flat to be downside for the full year.

Can you talk about what you're seeing out there and why you would expect such a dramatic fall-off in the back half, particularly given that we have tax incentives out there this year?

Yes, Ann, this is Harold.

Let me take that one.

In the first half of 2008 the market was really strong in areas like the CIS, and we had, not only us, but our competitors' allocated production to that region.

So in the comparable to last year I think we had an artificially low retail industry reported versus the real customer demand, as you know.

That situation has just reversed itself.

The market in CIS countries, Russia, is down 80%, almost non-existent for imported product.

And so a lot of the equipment that was short in the first two quarters of 2008 has been diverted back, and we're filling retail customer orders earlier than we did a year ago.

So we think that this will normalize as we go through.

I agree with you, the commodity pricing is reasonably good, particularly for the corn and bean growers.

But we think what you're seeing here is something abnormal versus normal demand.

So, Harold, just so I get this straight, what we really saw in the first half of this year, then, was just fulfilling orders that might have been filled later in the year just because there were production slots available?

Is that how we should interpret it?

Yes.

Yes, we were actually short of demand of combines and even big four-wheel drive tractors in the first half in North America last year because of the strong demand in the CIS countries.

Okay, I appreciate that.

That's good color.

Just my follow-up question is on your headcount reductions.

To look at where your revenues have fallen down this quarter, on the Equipment side down about 33%, yet your cumulative headcount reductions are only down 7%.

Can you talk a little bit about the pace of restructuring and what we should look forward to, or look for in the back half, not to look forward to; I shouldn't say it that way.

Can you talk a little bit about just pace of restructuring and what might happen going forward?

Let me touch on the headcount, Ann.

The full-year estimation, as Steve indicated, was an improvement of 10% to 12%.

Most of the early reductions have been associated in North America.

There's a great deal of additional reductions coming outside in North America where we have to negotiate social plans, and it takes a lot longer to work through the process than it does, say, in the US market.

Just as a comparison with the organizational announcement that we just released on the Construction Equipment operation, that will be reduced by 20% to 22% by year end.

So we should see a pretty big pickup in restructuring charges in the next couple of quarters, is that the way we should think about it?

Yes, yes.

Okay, thank you, I --

But the European operations will be effective in third and fourth quarter.

We won't get it all done in the third quarter.

Okay, and then you spill over into next year, or do you expect it will be done by year end?

The 10% to 12% is our objective to have complete by year end.

Okay, thanks, Harold.

I'll get back in queue.

Thank you.

We'll now move to our next question from Jerry Revich from Goldman Sachs.

Please go ahead.

Good morning.

Harold, can you please tell us about what proportion of your Construction Equipment restructuring plan will be completed by the end of '09?

Yes, I'd prefer not to go into the details.

Steve talked about discussions ongoing at our Imola plant in Italy.

That full effect -- we won't see the full effect of it until the latter part of 2010, early 2011.

Okay, and in terms of the $250m restructuring actions you're targeting this year, what proportion of that is related to the specific Construction Equipment restructuring plan?

Well over half.

Okay.

And, Harold, I realize you're still in negotiations over how the Construction Equipment restructuring will shake out.

But I'm wondering if, in broad strokes, you can talk about where you're investing the $250m, what portion of it is personnel reduction, facilities rationalization, just looking for the major pieces there, please.

Yes, I'd prefer not to comment on the details.

You are correct, the organizational announcement clearly is our first step to streamline and refocus the business on our brands and distribution.

We're also investing on significant product upgrades for the Construction Equipment business.

But until we get through our analysis and conclude the total details, I'd prefer not to break out the $250m.

Okay.

And in terms of the restructuring charge you took this quarter, can you talk about where that was directed?

Yes.

I'm sorry.

Hold on.

The bulk of it was -- that we took in this quarter was related to headcount reductions.

Most of that, again, was in North America.

As Harold pointed out -- highlighted, we're further along in North America and it's a longer, more drawn out process in other parts of the world.

Thanks, Steve.

And the type of payback that you're looking for out of the North America headcount, is it half a year to a year?

Is that the right ballpark to think about?

I think at this point we'd prefer not to comment on that.

Okay.

And, lastly, you've reduced your inventories and receivables by $800m year to date, as you pointed out on your slide, Steve.

I'm wondering can you reconcile that with the $1b target for the year?

Are you only expecting an incremental $200m] of working capital cuts, or is that apples and oranges?

No, I think -- well -- don't -- make sure when you're looking at this -- we've looked at the $900m reduction in receivables and inventory for the year, but we'll -- excuse me, for the first half of the year.

What we're looking at for the full year, though, is a $1b reduction in the working capital.

So the [surplus] there is net of payables?

Year to date, the working capital impact of the payables is a variable there in the analysis.

Got it.

Thank you.

You're welcome.

Thank you.

We'll now move to our next question from Henry Kirn of UBS.

Please go ahead.

Hi, good morning, guys.

Wondering if you --

Morning.

-- could discuss a little about how -- any changes you've seen in your Ag and Construction customers' ability to finance equipment purchases.

This is Steve.

I presume your question is primarily driven in North America?

Globally as well.

Let me -- okay.

Let me start by saying, first of all, at CNH Capital, our Financial Service operation, we have more than adequate capacity in our retail funding facilities to get us through 2009 and beyond.

The impact of the ABS transactions and the other transactions that we have closed in the first half of the year give us significant liquidity and funding capacity.

In addition to CNH Capital, the North American farmer has other options.

In the US that primarily is farm credit, but there are other players there as well.

We also see other players in the Construction Equipment sector that are active in financing retail equipment, primarily in the US, at Wells Fargo.

What I would say to you, particularly on the Agricultural side, is our customer has very little difficulty in obtaining credit, obviously based on his creditworthiness or her creditworthiness, so we don't see this as an issue in North America.

In Europe we continue to see our joint venture with BPLG be very effective.

Our penetration rates there are good and increasing.

Our partner has been a great resource for us and we look forward to continuing to work with them.

In Australia, which is another market which is doing well this year, the banks are pretty flush with cash and CNH Capital has been effective in raising capital.

I think the -- again, the real challenge for customers are those customers in what we call the International region or the Rest of the World, where clearly the tightening of credit insurance, the difficulty in either obtaining, renewing or confirming a letter of credit, continues.

For those customers we see a continued difficult retail financing scenario.

And we don't see much improvement in that.

We have not seen improvement in that in the first half of 2009 and I'm not sure when that trend will reverse itself.

Let me not forget Brazil.

In Brazil there is more than adequate liquidity in the system for both Agricultural and Construction Equipment.

There's focus on those units which qualify for the FINAME programs.

The '09/'10 program that was just announced includes a significant reduction in the interest rate to 4.5%.

I think the challenge in Brazil will be for those farmers who have taken advantage of the ongoing deferral situation and have not kept their selves current.

But I think for those customers in Brazil who have paid, have kept themselves current, it will be a big improvement for them to have capital at the rate that I just mentioned.

That's a very attractive rate and, for Brazil, an unbelievably low rate.

Thanks, that's helpful.

And for my follow-up I'm wondering if you could chat a little about the -- any overhang from used equipment and used -- how used equipment is trending over the last couple of quarters.

I will say to you, focusing on North America and using that just as a barometer, there's no question that we've seen a declination in the used equipment values.

In our re-marketing operation in North America, which is fairly significant, we have seen used equipment values drop in the neighborhood of 20% or so year over year.

This is obviously a CE comment.

I'm sorry, I should have prefaced it with that.

For the Agricultural sector, we have not seen much decline.

Quite frankly, we don't get many units back, either off lease or otherwise.

Great, that's helpful.

Thank you.

Thanks a lot.

Thank you.

We'll now move to --

You're welcome.

-- our next question from Mark Koznarek from Cleveland Research Company.

Please go ahead.

Hi.

Good morning.

The first question I had was a clarification.

In answer to an earlier question, you mentioned Construction Equipment staffing to be down 20% to 22% by the end of the year.

Is that across the entire organization, or is that just in the certain parts of the Group that is being affected by the change in the organization?

That's reflective of the global organization.

Okay.

Okay, good.

The questions I had were just, actually, some details here.

Is there a tax rate that you could give us some help on, given the unusual tax situation that appeared here in the quarter?

I'm very fortunate today to have with me [Michael Wall], who is our Director of Taxes for CNH.

And he is the expert on this complex topic, and I'll let Mike address your question.

Thank you.

Thanks, Steve.

With respect to the rate going forward, we would anticipate a normalized effective tax rate in the range of 33%.

We don't anticipate that rate, though, until 2010 at the earliest.

I do think there'll be significant variability throughout this year due, principally, to not book-benefiting losses in certain jurisdictions, so that's what's causing a little bit of variability.

Okay.

So for the remainder of 2009 we might have -- we might continue to have this sort of extraordinarily high percentage tax rate?

That's correct.

Okay.

Then, the other question I had is could we get a breakdown of the pricing by the two segments?

And I just want to make sure, because price realization seemed to be so much higher than the first quarter, just to make sure those are both stated on a consistent basis.

Because in the first quarter we had net pricing up only $21m and, here, you've got $155m.

Yes, Mark, the pricing is primarily coming from the Ag side.

That's about 90% of it.

Basically, Ag pricing is about 4% and CE pricing is about 1% year over year, for a combined percentage of two -- sorry, three.

Okay.

And that is on the same basis as the first quarter --

Yes.

-- where we had just $21m?

So something really accelerated here.

Yes, that's correct.

We've seen substantially higher Ag pricing take effect.

This is Harold.

Let me see if I can help on that question.

As an example on the Agricultural side, the brands do a lot of pre-selling for the upcoming season.

So as they entered the market in fourth quarter last year, they were booking orders with customers for combines, large tractors, hay forage equipment, etc.

And to entice the customers to book the retail order early, so we can build to a customer order, the brands tend to provide some extra incentive.

So what you saw in the first quarter with the lower utilization was the impact of us delivering those units on the pre-sell program.

And once we get into more normal out-of-season sales you'll get the full effect of the pricing increase.

Okay, great.

Thanks for the clarification.

That's all I had.

Thank you.

Thank you.

We'll now move to our next question from Massimo Vecchio from Mediobanca.

Please go ahead.

Good morning.

Just a clarification.

In the press release you speak about an additional $1b reduction in working capital.

Are you referring to the second half?

And which kind of assumptions are embedded there in terms of securitization and the TALF program?

Thank you very much.

Yes, Massimo, the June year-to-date reduction in working capital, as you can see from the slides, totals about $40m.

So the balance of the $1b will be coming in the second half of the year and it will be driven by reductions in inventories and receivables.

And that's why we gave the focus on the production versus retail slide in the slide package, to try and give you a better feel for how that under-production expected in the second half of the year is going to drive down the inventories.

Okay.

So this figure doesn't include any kind of securitization assumption.

And, in this case, do you think you're going to have access to the TALF program again in the second half of the year?

Yes, we do.

We do believe we will have access to the program.

All right.

Thank you.

Thank you.

We'll now move to our next question from Neal Goldman of Brigade.

Please go ahead.

Hi.

Can you walk us through your current liquidity?

I'm having trouble understanding slide 31.

I just was hoping you could clarify exactly how much cash, how much availability the Company has.

Okay.

I can try to drive you through that slide.

I understand it's quite rich.

So it's actually something that we publish in our 20-F, so you may have seen a previous version of that in our Q1 conference last quarter.

We outline the various facilities, inter-company and with third parties, what is being utilized by either Industrial companies or Financial Services companies, and what is available.

If you look at the first one, it's sizeable, so it was worth spending some time on that.

It's a warehouse facility in North America where we sell our receivables on a monthly basis.

And it tells you at the very end that we have additional capacity for selling our retail receivable from now to year end, from June to year end, of about $700m.

We have some additional capacity on either factoring lines or smaller warehouse facilities but, again, the bulk of our available liquidity is with Fiat.

And these are the last few lines where you can see credit lines with Fiat, either uncommitted for about $3b or the committed revolving credit facility for $1b, again with Fiat or, more precisely, various Fiat entities or treasury vehicles.

So out of $4.2b, $4.3b combined on committed and uncommitted inter-company facilities, $2.1b is available for CNH.

So the total of inter-company warehouse facility and other minor facilities gives you about $3.1b, which is our availability on the market.

$3.1b, and that's --

Yes, right now.

-- $3,067m, is that right?

Gives (multiple speakers).

(Multiple speakers) that number.

I see --

(Multiple speakers) other items on the page.

Okay.

And so, of the $3b of liquidity, you're saying $1.5b of it is from Fiat, right?

Are we still on page 31?

Yes.

I'm just asking you a question (inaudible).

Of the $3b of liquidity you're referring to, is $1.5b of that from Fiat?

Yes.

Yes.

And the rest of it --

The answer is yes.

Okay.

And then, I just can't break out where the rest of it is.

It's this receive -- you're saying it's $696m of a receivables facility --

Yes.

-- and then these other small miscellaneous.

Hi, this is Steve.

Why don't we have you contact Al and we'd be very happy to work with you offline to walk you through the schedule.

But I do not see liquidity for the Company or capacity at CNH Capital being an issue going forward.

We're very comfortable with where we are.

No, I'm not saying it is.

I'm just trying to ask you what it is.

No, I understand.

And we'll be very happy to work with you offline, if that would be okay.

Okay.

And then my follow-up question is there's been some news in the press about Fiat splitting off parts of CNH or doing transactions.

What's the current status of that?

That's a question that is best addressed by Fiat.

But, I can assure you, from my position at CNH we're not working on any plans that would entail that.

But if they were to spin you off, how would that affect liquidity, if Fiat is funding half of your liquidity?

I think that's a question -- first, it's not probable.

And, so, if you have questions relative to that, I'd suggest you raise those with Fiat directly.

Okay, thanks.

Thank you.

We'll now move to our final question from Anna Kaminskaya from Merrill Lynch.

Please go ahead.

Hi, it's actually Andrew Obin.

Hello.

Hi, Andrew.

Hi, how are you?

I was just wondering -- and I apologize if I missed it.

I just want to get a little bit more color on South American outlook and, once again, I apologize if I missed it, particularly on --- it is unchanged on tractors, a decline on combines.

And I know you've addressed some of it.

I was under the impression that things were getting somewhat better and that we were going to have a decent planting season in the fall.

And I'm just trying to understand what's going on.

And, once again, I apologize if you've addressed that already.

So I think in general -- I think everyone is aware of the Argentinean situation, which is pretty weak at the moment.

But in Brazil, although the tractor market is soft, there's a big mix between the over 100 and under 100.

If I can just give you an idea, our sales on 40 to 100 horsepower product through the first half are up 21%, while the over 100 horsepower tractor segments are down over 50%.

And I think this is a direct correlation to the government incentives that they have to add upgraded power to the small farmers versus the people that were in the cash crop business or sugar cane business.

So --

Andrew, as we've reported the industry volumes, we've seen a decline in total Combine and Tractor volumes that went from 17% in the first quarter to 29% in the second quarter.

So I'm not sure who you're exactly talking to, but what we're seeing is that things are declining more.

So you are not particularly optimistic about some form of recovery in Latin America in the second half of the year, and particularly Brazil I'm speaking about.

I think we should have some optimism, just because of the extra low rate funding that Steve indicated that was being made available by the Brazilian government.

4.5% APR money is a pretty good rate.

But, as Steve indicated, there are groups of farmers in Brazil that have rolled their debt over several times and it will be more difficult for them to get credit unless they become current with their current indebtedness.

I guess all I'm trying to figure out if you are making a statement about lack of recovery in Brazil in the second half of the year, or are you just being conservative because there's limited visibility?

That's our best estimate of what the industry is going to do, Andrew.

We're not trying to apply any special conservatism to it.

Thank you very much.

I appreciate it.

Okay.

We'd like to thank everyone for attending the call with us this morning.

If you have any further questions, please don't hesitate to give me a call and we'll try and get back to you as soon as we can.

Thank you.

Thank you very much.

Thank you.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.