CNH Industrial NV (CNHI) 2011 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Fiat Industrial 2011 Third Quarter Results Conference Call. For your information, today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Manfred Markevitch, Head of Fiat Industrial Investor Relations. Mr. Markevitch, please go ahead, sir.

Thank you, Casey. Good afternoon, everyone. I would like to welcome you to the Fiat Industrial third quarter 2011 results webcast conference call.

Fiat Industrial Chairman Mr. Sergio Marchionne, with Harold Boyanovsky, president and CEO of CNH, Alfredo Altavilla, CEO of Iveco, Giovanni Bartoli, CEO of FPT Industrial, and Camillo Rossotto, Group Treasurer, will host today's call.

They will use the material you should have downloaded from the website on www.FiatIndustrial.com. After introductory remarks, we will be available to answer the questions you may have.

Before moving ahead, let me just remind you that any forward-looking statements we might be making during today's call are subject to the risk and uncertainties mentioned in the Safe Harbor statement included in the presentation material. I will now turn the call over to Mr. Sergio Marchionne.

Thanks very much, and good afternoon. This is the third of a series of analyst calls that we've had since this afternoon. We dealt with the car side for most of the afternoon. It's time to move on to something which is at least structurally less problematic than making cars.

I'm going to make a couple of general remarks. Then I'll pass it on to my colleagues here who can explain to you what happened by sector, and then have Camillo certainly deal with the financial structure.

Overall, I think it's been a great quarter. We've had the best third quarter for CNH in its history since inception. And it's a good sign I think that we're making significant process in improving the profitability of this business. It's been at the heart of a lot of effort that has started way back in 2005 and beginning to bear fruit. We still have a long way to go.

We've been helped by relatively buoyant markets, certainly on [ex] side, and by a recovering position in construction. But fundamentally, we're pleased with the performance to date. And I think that the rest of the year looks promising and gives us some comfort of the fact that we can get to the trading profit target and that will be exceeded for 2011.

The truck side is also recovering. I think Alfredo has done a great job of trying to deal with some of the industrial inefficiencies with the system. There's a process that's now underway in which [without fold] is the rest of 2011 and 2012 progress, but the indications are good.

I think that the prospects also for 2012 for both of those businesses are good, and certainly in line with guidance that we provided back in 2010 as part of the five-year plan.

The FPT side is also improving. We promised you on the last call that we would give an idiot-proof version of the margin development for this business. Hopefully it will become clear at the end of this call as to how to -- how we intend to move margins up substantially from where we are today.

And the other thing that we've done, which is totally in line with the intent to try and modernize and streamline governance, is to eliminate the three classes of shares that have, as a result of the demerger, we have inherited from Fiat.

It's time to move on from that structure. The proposal that we're making is one that we reflects the proper premium against the historical trading practice of both the savings and the preferred shares.

I threatened Camillo with physical violence if he tries to complicate the description of this process beyond a reasonable limit. I will step in in the event that he goes -- comes off the rails, but it's a relatively simple process that requires the majority vote of a minimum number of attending shareholders of the two separate class of shares.

So it's something that we plan on doing as we hold the EGM next year either in March or of April 2012, but it certainly should simplify life going forward for all concerned.

On that note, I'll pass it on to Camillo and he'll handle at least the first few slides.

Thank you, Mr. Marchionne. Good evening, everybody. So I will start on slide two going through this quarter. For the quarter. Revenues up 12% to EUR5.9 billion. Trading profit up EUR154 million, and trading margin, very importantly, up 200 basis points versus third quarter of last year.

That translates into an improvement in net results. And the net debt increase that we see on this slide from EUR1.7 billion to EUR1.9 billion, I'm going to deal with that in the cash flow section of the presentation.

While on this slide, I think it's worthwhile remarking that the EUR4 billion of cash plus EUR1.6 billion in available liquidity, sort of an unchanged position versus the end of September, slightly improved -- versus the end of June, sorry -- guarantees that we're in a position extremely comfortable vis-a-vis the maturies of our debt.

With this amount of cash on hand we're able to cover all the future maturies through the end of 2014 in the assumption of no rollover of bank debt.

So we -- on that note, I would just move to slide three. The first point is going to be addressed more in detail because it's a point that makes us extremely proud, having been able to become the leader in the Dow Jones Sustainability Indexes for the -- for our industry. So we'll give a little bit of air to that topic later on.

I would just like to stress two points on the guidance. The improved guidance on the trading profit margins based on where the company sits at the end of third quarter. EUR100 million up versus previously already improved guidance for the year, and the confirmation of the net industrial debt level, EUR1.6 billion.

So now we stand in the seasonal increase in working capital and cash flow absorption. In the third quarter we're still targeting at EUR1.6 billion net industrial debt for the end of 2011.

Slide seven gives you the split of the revenues and profit by sector. All of our businesses have been actually walking the talk of delivering the results that we're committed to in the strategic plan for 2011. We can see a very significant 9.7% trading profit margin for CNH and Iveco at 5.6%. That's 160 basis points better than last year.

FPT Industrial is delivering on its commitment on the -- in the quarter, which leads to an overall improvement in profitability of 46%. That is also in terms of operating leverage pretty satisfactory when you look at it from above CNH, Iveco and the overall group perspective.

When you go then to slide five, please, this picture and the dynamics represented in this picture have been with us all across 2011. It has to do with the headwinds coming from raw materials.

You can see that there's a silver lining to the slide in terms of the curve that's been steepening up in the last quarter, flattening out during the fourth quarter. That's at least the expectation based on the dynamics that we're seeing on the steel and rubber.

Japanese threat to our production and sourcing has been totally resolved, so that's well behind us. And this gives you also other important information, that is that all of these material cost increases have been offset through pricing at all of our businesses during the quarter.

On slide six, I would just like to walk you through the reconciliation between trading profit and net result. The unusual items that you see on this slide, EUR28 million, deal mostly with Iveco and the rationalization of the base footprint in Europe. It's mostly Spain and Italy there.

And the financial charges, as usual, to -- in order to have an intelligent discussion on this number, which is the largest number on this slide, actually the EUR134 million negative for the quarter, you can jump to slide 34 where I provide the usual split between the various components of financial charges.

It breaks up pretty much 50%-50% between net debt and cost of carry-related charges and known net debt type charges. And it's relatively flat versus last year. I think it's wise to expect that for the full year of 2011 it will be significantly low, EUR500 million in terms of full-year financial expenses.

The investment income is positive EUR80 million. It's mostly coming from the CNH and consolidated subsidiaries, Turk Traktor, Al-Ghazi, and the Japanese joint venture being the largest contributor.

Tax rate of 40% should come as no surprise to anybody, and net of Europe that always around 39%. And I think it's a good proxy for the year.

With that, let's go to the cash flow. As I said in the opening statement, we have EUR200 million negative change in net industrial debt in the quarter. It splits pretty much evenly between CNH and Iveco.

And it's, as you can see from the chart, the EUR400 million of change in working capital, the absorption, has to do with a couple of factors for Iveco, and Alfredo will deal with that in his section more in detail.

It has to do with building stock for the Daily launch and some pre-buy in Latin America for the Euro 5, while for CNH it's got to do with reestablishing physiological levels of stock, mostly in the construction equipment part of the business that was coming out of a pretty low inventory situation due to the Japanese tsunami and some other change-over of phase out of production.

So it's reasonable to expect that the fourth quarter will see improvements both at the working capital level and the continued strong performance at the cash flow from operational level to bring the number down to EUR1.6 billion.

On slide eight, I tried to deal in a non-technical way with the transaction that was proposed and resolved upon by the board of directors of Fiat Industrial yesterday, which is the proposal to the shareholder for the conversion of the company's preference saving shares into the Fiat investor ordinary shares.

The proposed exchanged ratio is equal 0.7 ordinary shares for each preference, and 0.725 ordinary shares for each savings share. Such a proposal will be submitted for approval to the shareholder's meeting. The publication notice of call of DGM is expected for late February, and the EGM is expected for some times in April.

Each of the proposed conversion will be conditioned upon an aggregate cash amount the company may be required to pay in case of withdrawal not exceeding EUR100 million. And these are the terms for this transaction. You've heard about a similar structure I think if you were sitting in the Fiat call. And added in the exchange ratio, this mirrors for all intends and purposes that transaction.

So with this said, I would then hand it over to Harold, that will comment on the CNH piece of the business.

Thank you, Camillo. On slide 11, CNH revenues approached EUR3.5 billion, up 16% in the quarter. And all regions contributed to the increase in revenue. On the ag side of the business, revenues were up 18%. And on the construction equipment side, 25%.

The trading profit of EUR336 million was up 56% quarter-over-quarter, and improvements were driven both from the ag and the construction equipment side of the business, with the ag trading profit reaching 10.1%. Clearly we were helped by higher volumes, improved mix of combines, large tractors, better utilization of our industrial system.

Net pricing in the quarter was positive by EUR66 million. It was about 2%. The R&D increase that you see here was attributed to the continued investment in Tier 4 emissions compliance and new product launch.

Turning to page 12, looking at the global ag industry, it was up 12% in the quarter, as well as the tractor TIVs. The combine market was up 16%, driven by strong growth in Europe, Africa, Middle East, as well as CIS, which was up 85%.

CNH tractor market performance was positive in Europe. And despite an overall decline in Latin America, the market share was up. The same with the over-40 sector in North America, where in one of the our most profitable product lines, the over 100 -- the 140 plus and four-wheel-drive categories, share was up in each category.

Combine market share was up in all regions in the quarter. We continue to see strong demand as we move through to finish the year in the fourth quarter with the ag being up 10%, tractors also 10%, and combines 15% to 20%.

We turn to page 13. The overall construction equipment industry was up 15%. And again, all regions contributed with the exception of APAC to growth, and that was driven by the Chinese market being down about 19% during the quarter. On a global basis, our shares were line with the market growth.

We had a significant improvement on the supply side from our Japanese sources of heavy excavators, and so we've been able to refill the pipeline in the distribution in the third quarter and going into the fourth quarter. Full year, we expect the light equipment to be up 25% to 30% and the heavy equipment demand to be up 15% to 20%.

Turning to page 14, this slide reflects inventory production in retail sales. And on the agricultural side of the business, we overproduced to retail 3% during the quarter, but because of the strong retail demand actually reduced our forward-month supply by 3%.

On the construction equipment side, I'd like to draw your attention to Q4 of 2010 and Q1 of 2011, in which our inventory levels at the dealer and company were extremely low due to the shortage of product coming out of Japan, and also some phase in, phase out of new products such as skid-steer loaders.

As we conclude the third quarter and going into the fourth quarter, the inventory levels are more appropriate to meet the retail demand.

Turning to page 15, it highlights three new agreements that we have signed during the quarter. The first is a vendor financing agreement with De Lage Landen in which we're able to provide through our CNH capital lease financing to customers of all of our brands in Russia. We will start effectively the first of the year.

The second is a alliance with [Semiauto] in Brazil, which gives us the ability to fill a product load for plate planters in our brands. And that will leverage up and be moving forward also in 2012.

The third agreement is with [Cavernlin], in which we have signed a supply agreement for cutting and crop preparation equipment for our hay and forage business for the New Holland brand in North America, again filling a product voice that our distribution and customers require.

Also in the quarter, with our joint venture in Turkey with Turk Traktor we celebrated the 600,000th tractor being produced by that operation. Turk Traktor leads the industry in both tractor sales of supporting New Holland and also Case IH brands in the market.

On the right-hand side, it gives you a snapshot of new product launches in the quarter. And I think the point here is we continue to roll out Tier 4-compliant vehicles, and also product enhancements as we move forward. So in this case we launched sprayers, combines, and a couple of models of heavy excavators to support the dealer network.

With that, I'll turn it over to Alfredo.

Thanks, Harold. Good morning. Good afternoon, everybody. Revenues for the quarter at Iveco were up 12% versus Q3 2010 to EUR2.2 billion thanks to the improvement in demand in Western Europe and still high demand in Latin America.

Overall volumes were up 15.3% to 35,000 units. Pretty much the growth was shared across all different geographies. 10% in Western Europe, 20% in Eastern Europe and 22% in Latin America.

And growth was experienced also across all the different segments, light, medium and heavies. Heavies in particular were up 32% versus Q3 of last year thanks to the full roll-out of the new Ecostralis in all markets.

Trading profit came in under EUR23 million or 5.6%, up 1.6% versus last year, primarily thanks to higher volumes, pricing and product cost optimization, as you can see. The EUR5 million deterioration in SG&A were basically advertising and commercial actions to support the introduction of new vehicles in the different markets.

Turning to page 17, industry outlook. The growth in Western Europe in Q3 was 10%, a bit softer than we experienced in the first half of the year. And our forecast is that we'll close the year pretty much in line with 10% over 2010.

Latin America was 20% higher than last year. And also in Latin America, thanks also to the pre-buying effect. We believe the year is going to close with between 15% and 20% higher than 2010.

The -- it's worthwhile mentioning that the Latin America is not only -- is not only Brazil. Argentina grew 50% over last year, and Venezuela 41%. And this is important for us because we do have manufacturing operations in both -- in both countries where we manufacture light, medium and heavies.

In terms of the expectation for the full year, as I said, we expect Western Europe to keep on recovering versus 2010, especially once again fortunately in Central and Northern Europe, while Italy and Spain will probably be weaker than they were in Q4 in 2010.

In terms of -- and this is reflected also in the order intake. We are 10% higher than we were in Q3 of 2010. So still positive, although less than in the first two quarters of this year.

Turning to page 18, we deal with the inventories at both the company level and dealer level. And as you can see, they are perfectly aligned with the growth in revenues and the increase in order intake. We are still handling less than three months activity in terms of inventory.

Turning to page 19, we'll deal with the Western Europe. Market share growing for -- in light segment 13.8%, 0.6% higher than 2010, and medium where we are at 25.8%, 2.5% higher than 2010.

On the heavy side, we are at 7.8%, which means 0.5% less than 2010. But the good news is that, as I said, the full roll-out of the Ecostralis has allowed a recovery in market share with the first two quarters of the -- of the year.

On the right side, there's a brief outline of the New Daily, which is very important product in our lineup. We introduced this vehicle 40 days ago. This is not just the Euro 5 version of the old Daily, but is accomplishing a number of new features which we believe make this vehicle still the best in class in its segment.

The two key features that make this vehicle very important, very good in the segment are the introduction of the new F1C diesel engine, which is the most powerful engine in the segment, more than 200 horsepower, and the fact that across all the powertrain lineup, this vehicle is capable of delivering fuel consumption reduction up to 10% compared with the -- with the old vehicle.

Moving to page 20, we'll deal with Brazil. Market share growing in the light segment to 20.1%, 1.6% higher than last year, and to 5% in the medium segment, where are now playing with the full lineup of the Vertis.

On the heavy side, market share is 12.3%, 1.9% lower than it was last year. But this was expected since we have just introduced four days ago at the (inaudible) the most important tractor in Brazil, the new version of the Daily. So there was a phase out of the old model, and we were expecting some of our most important to wait for the new truck to come out.

The -- when it comes to the Vertis, as I said, we have completed the roll-out of the -- of all the different versions. This is the only medium-duty truck in Brazil ranging from 8 all the way up to 16 tons and delivering lowest fuel consumption of the market, ranging between minus 2% and minus 7% compared with the previous -- with the current segment leader.

And also the Vertis is capable of delivering a very low -- a very competitive maintenance cost, 20% lower than the current market leader. Of course, that the fact that the Vertis is a Chinese-based product makes it extremely competitive when it comes to product cost.

Turning to page 21, we'll deal with China. The overall market is down compared with 2010 6.3%, although the -- as far as we are concerned, the segment where the Daily is playing is up 6.1% and the part of the segment where we play with the [Uagen] brand is down 5%.

The heavy segment is down almost 14%. And this is primarily due to the fact that the paper segment is down due to the slowdown of the housing market. Our market share overall is at 4.4%, down 0.2% versus Q3 of last year. Overall volumes were at 29,300 units in the third quarter, compared with the 32,000 of last year.

And this concludes Iveco, and I'll turn it over to Giovanni for FPT Industrial.

Thanks, Alfredo. We are at page 22. In the quarter three 2011, FPT reached revenues of EUR742 million, 33% more than the last year, mainly due to the increased volume of CNH, Iveco, but also external sales 10% more than the last year.

The big increase of the captive volumes reduced the percentage of the third parties that now reached 29% versus the 55% of last year, but we will recover in the last quarter and next year for sure.

Looking at the volumes, the most important for us are the engines. The engines raise up 52% versus last year. Fifty-three percent sold to Iveco, 50% to CNH and 57% to external customers. Also for the gearbox, we had it raise up 50%, up to 8,000 units. And axles, 55% more than last year, up to 40,000 units.

The final phase of the ramp up of the new products this year finally allow us to reach a trading profit of EUR30 million this quarter. That's much bigger than the first two quarters of this year. The margin is 4%. In this quarter, we raise up the capital utilization up to 33% versus last year.

Going to page 23, we can see the new product and launches. Alfredo already told about the engine of the New Daily. Very, very interesting is the 3.0-liter engine F1C with the twin-turbo version 205 HP. That is the best in class.

The only engine that are near higher, but below are 6-cylinder engine, and so they are much more expensive with much high weight and also fuel consumption. So we can reach very interesting performance in Iveco. The other version that we launched was the 2.3 liters, specifically optimized for fuel economy.

Always about the engine, we have some interesting application for CNH about the Tier 4A -- the first application of Tier 4A -- the first application (inaudible) version in agriculture for the medium and heavy application.

For the gearbox, we have launched the 6-speed specific transmission for the New Daily. We call it 2835. Other important achievement was the homologation of EPA Tier 4A reaching in August on the 4.0 cylinder, 3.4 liters for agriculture and construction application.

Page 24. In this page, we have set the simple and quick explanation about the way we want to reach most -- or more interest in turning profit in the [next future] for FPT Industrial. If we look at the yellow line, we see that the powertrain business is strongly connected to the volumes.

We have a capital-intensive business. We have already a big capacity installed. We can reach 800,00 engines. That is the end of the industrial plan, without significant improvement in investment, so it is a direct line.

But in addition to this performance, we have started very, very important operation to increase efficiency. We have started with the work-class manufacturing. We will see a mix change in our business, so we will ramp to the blue line of this picture.

In addition to that, we will change also the business model for external sales. The new contract that we are signing with the external customer, we will include engineering service, spare parts, and other service that you know can bring us a bigger margin of the business.

Looking at the bottom of the chart, we can see that in 2014 our forecast is to reach 47% of external sales. I can confirm for you that the -- that this increase from 33% to 47%, the volume for this improve more than 85% are already secured by contracts already signed with current customers and some new additional customers that in the future we can explain better.

On slide 25, as I mentioned in the beginning, you listen a lot of people calling themselves the leader. In this case, we are the leader. We've got the highest core on all three dimensions combined, both in economic, environmental, and social terms. Although we're a young company, we are very proud to have been able to achieve so much in 10 months of activity as Fiat Industrial.

Then on a similar note, in -- last month we opened an Industrial Village, which is a flagship retail store. It's a Fiat Industrial experience built around products, services and maintenance. And it covers a pretty significant square footage here in Torino. So first time we have an event dealing with investors, I think that would be the appropriate house to host such an event.

And on that note, I would just pass it back to -- before I pass it back to -- before I pass it back to Manfred, on slide 27 is to just wrap up, I think we covered most of these points. Again, added in for an improved profit outlook for 2011 and a confirmation of the other items of the guidance.

We are I think now ready to take questions.

Thank you, Camillo. Now we are ready to start the Q&A session. Casey, please start with the first question.

Certainly, sir. (Operator Instructions). We take our first question from Martino De Ambroggi of Equita. Please go ahead. Your line is now open.

Yes. Thank you very much for taking my question. Good morning, good afternoon, everybody. My first question is on the implicit Q4 guidance, which appears to be significantly lower than the usual seasonality.

If I look at the long-term trend of CNH, usually Q4 is higher and for sure it is higher for Iveco. So I was wondering if you expand a little bit more on the implicit guidance, because in my view it is (inaudible) quite higher figure. And obviously this means also better performance in terms of net debt.

And the second question is on Iveco in China. Also in this case I was wondering if it's possible to have some additional figures in terms of economics for the activity in Q3 and year-to-date. Thank you.

If I can just deal with the issue of guidance. We gave you our best indication what we think 2011 will close at. I know that you've looked, as we have, looked at historical trends. And one would suggest that if the seasonal pattern were to repeat in the fourth quarter of 2011 that we will be significantly higher than the number that you see.

We've indicated this as a minimum operating performance target for 2011. We're not going to change it on this call. So we're going to have to wait with the uncertainty of perhaps better performance between now and December of 2011.

I understand your concern. I think you're totally free to make whatever assumptions you want about the fourth quarter of this year. We feel comfortable that we can deliver as a minimum the number that we gave you as guidance. We have never failed in that target so far. We're not going to start it today.

It does have obviously some implications in terms of the net deposition, which we'll have to carry through. One of the things that CNH is -- currently has to deal with is how does it deal with the potential demand in the first quarter of 2012 to ensure that we have adequate supply in the distribution channels.

And so the question is to exactly how much money is going to be required to try and deal with the demand function, and how that impacts cash generation in 2011. It's a big issue that management is dealing with.

So before we draw conclusions about where cash will be, where net debt will be, I think we have to wait until the rest of the year unfolds. The numbers that we gave you are numbers that are safe, so you can count on them.

As far as China is concerned for Iveco, as you know, both joint ventures are not consolidated line by line. But in terms of equity cap, Naveco is doing -- is doing okay. And it's currently 10% higher than it was last year, and at EUR3.8 million compared with EUR3.4 million same quarter of last year.

While SIH, the heavy-duty truck joint venture, is worse in terms of economics than last year, because as I told you the strong reduction of the -- in the (inaudible) segment is affecting very much our performance. So from a EUR0.4 million positive of last year, we are now negative in the quarter of EUR3.1 million.

We are expecting to recover on SIH because of the recent introduction of the new heavy truck. You probably have seen the news coming out two days ago, and we expect to sell at least 2,000 trucks before the end of the year.

Okay. Thank you. And if I may, a last question, it's inevitable a question regarding the European trend for Iveco because we saw many signs of slowdown, also already confirmed by some competitors. So what's your view going forward?

Look, I think that it is premature to express a view for the whole of 2012. From our standpoint, we see a weaker market than in 2011 on the light and medium-duty segment, ranging anywhere between minus 5% and minus 10% in the first six months. But we believe we're going to be flat on the heavy side.

The second part of the year is more difficult at this stage. Best case is that we're going to go back to the same level we experienced in Q3 of this year.

Okay. Thank you.

For our next question, we go to Jochen Gehrke of Deutsche Bank. Please go ahead, sir. Your line is open.

Yes. Good afternoon. Mr. Marchionne, just very briefly. Obviously also the decision to harmonize the share class structure at Fiat Industrial today, just on a strategic basis, could you just tell us how and where this helps Fiat Industrial to achieve maybe some of the strategic elements we talked -- talked about when we met a year ago about -- in Turin?

I think at that time the general belief was there are still structural deficiencies within this company that might be solved with some outside strategic actions. Do you still feel a need for that [looking] that all businesses are performing sizably better than at the time? And if so, how does that structure help you achieving it? Thank you.

I think I would disconnect the simplification of the share structure from potential strategic moves. I think that simplification of the three classes into one was [all to the] capital markets as a means of providing clarity, and certainly a better governance system going forward.

It has an additional benefit, the ability to use effectively only one currency in a potential transaction going forward if one were to be required. But we're not in a position today to comment on what, if any, transaction may be can or should be envisioned vis-a-vis Fiat Industrial.

I'm comfortable that the geographic distribution of the assets for CNH is more than adequate to try and deal with its future. I know there have been issues that have been raised about some of the geographic deficiencies that Iveco may have, at least in terms of inadequate coverage in North America.

That is an issue, which by the way doesn't -- I don't think it immediately requires any type of M&A transaction -- M&A transaction. I've also been public with the discussion that we've had. Their North America truck market is fundamentally different and it runs on parameters which are not common to other what we do in Europe or we do in Latin America. And so one has to be very careful.

And by the way, we can see this from the performance of our competitors -- of our European competitors, who have established -- or have acquired or established positions in North America who are not fairing as well against the traditional competitors in the North American context because the market itself is governed by a different set of rules. And so we need to be very careful and we need to understand that market a lot better before we start drawing conclusions about the currency of Fiat Industrial to accomplish anything.

Having said this, I don't -- there's not a single doubt that a simplification of the class structure is going to make our life a lot easier if and when those issues get presented. We will remain open to examine them all as they become available. But certainly the move itself should not be viewed as a preamble to anything. It should be viewed as a simplification process, which as a result has the additional benefit of implying our life in the event that that offer were to become available.

Thanks. That's great. Thanks.

And we take our next question today from Mr. Alberto Villa of Intermonte.

Good evening. I have a couple of questions. One relates to the CapEx guidance of EUR1 billion. Given that you spent around EUR550 million in the first nine months, is that going to be probably overstating your needs of CapEx in the fourth quarter? Or if not, can you elaborate a little bit on where are you planning to spend this more than EUR400 million?

It's at the upper end -- it's at the upper end of estimates.

All right. Okay. Second quarter -- the second question relates to the net pricing of 2% minus net policy pricing of 2% you mentioned at CNH. Given the trend you showed in the slide in terms of raw material cost, can you give us an idea of on average what has been the increase in pricing across the major businesses for agri and construction?

Well, the -- relative to the material cost, we'd anticipate on similar volumes that we'd see the same inflation in material that we -- that you saw in third quarter in the fourth quarter. Relative to pricing going forward, our intent is to recover incremental cost that the Tier 4 emissions engines drive in our product line plus inflation.

If I can just add a general comment to this issue. I don't know whether your question was directed at the past or at the future, but if you look -- I think if you look at every presentation that we've made here at CNH, I don't think there has been on in the quarter where we've indicated that we suffered on a net basis the pricing erosion as a result of raw material price hikes.

We've been able to pass it on to market. We're not the only ones that do this obviously, but the market has been able to absorb as part of a normal pricing cycle. So we don't expect that position to change going forward.

Good. Thanks. The last question on dividend policy. Given the simplification, can you just give an idea of what we can expect in 2011 in terms of a dividend policy?

I think that we were clear on the dividend policy, weren't we? I'm looking at Mr. Rossotto, who's been sort of chomping at the bit here to step in. Go ahead.

We've been clear on the 25% of net income and minimum payment of the EUR100 million that was derived from the EUR150 million split between us and Fiat. And that as far as the results of 2011 to be distributed in 2012 a concern. Then we made an offer to statement in terms of the evolution of the policy going forward that's going to be.

I think you can consider it to be as a viable policy for dividend distribution for '11.

Okay. Thank you very much.

You're very welcome.

And we take our next question today from Yann Benhamou of Exane. Please go ahead, sir.

This is Yann Benhamou from Exane. If I come back to Iveco, given the kind of order pay that you're seeing in Q3, would you consider any (inaudible), and if yes, to which magnitude and which timing?

Second question. On the Iveco inventories, could you give us the kind of selling days for inventories in Q3 compared to Q2, please? And maybe a last question. With CNH, would you -- where are you in your thinking about potentially dealing with the minorities? Thank you.

I'm nowhere with thinking of minorities of Chrysler -- of -- sorry, of CNH. I've got so many minorities and I'm just surrounded. But I'm really, no way, I'm no different than I was on the issue of the minority shareholders of CNH as I've always been. I think that it's something that we inherited. I would not have designed it this way way back then. It is what it is, right?

And the question is whether it's detrimental to Fiat Industrial today. And the answer is no. There are some additional costs that we're bearing as a result of the separate corporate governance system. They're limited in nature. They're not significantly impacting the performance of CNH. They would not move guidance in the event that they were to be removed.

And so at the end of the day it may be inefficient, but it's -- the cost benefits associated with that maneuver is not visible to me as we speak. So my position has not changed. If it does change, obviously we'll move accordingly.

But you have to go back to the first question that was asked, which has to do with the simplification of the share structure and whatever may be available. Who knows what the future will hold? Let's stay tuned.

Okay. For Iveco in terms of production reduction, the answer is as I said at the beginning. We believe that Q4 is going to be pretty much in line with Q4 of last year. So we are prepared to cut production if that is required exactly as we did last year.

Probably below the level for the very simple fact that we are managing the phase in of the New Daily, so we do have all the backlog for that (inaudible). When it comes to inventories, I thought I told you in the presentation that we are running less than three months of inventories both at the company level and the dealer level.

Thank you.

If I can just add one comment to what Alfredo said. The great thing about Iveco is that it can shut the machine -- it can shut the machine down pretty quickly. And so there's on drag-on effect from a desire to reduce capacity. It may be unpleasant from an industrial standpoint, but it can be done. And I think we're watching this like a hawk.

As a general comment, I'm not negative as some of our competitors are. I think everybody I speak to now outside the circles on the truck side appears to be convinced that the economic cycle has not stopped out of here or anywhere else.

And there may be a slowdown and it's temporary in nature, but I think the trend is untouched. We are seeing a recovery of the markets. I think we need to be patient as we work our way through it.

Thank you. And last one on Brazil. Do you have any take on 2012 and what do you see in the long run for margins given the CapEx position and new entrants? Thank you.

2012 at the beginning will be of course slower than 2011 because of the introduction of Euro 5. All the pre-buy we are experiencing right now will be of course discounted from next year (inaudible). But I do see a second half of the year which will go back to a pretty high level of sales in Brazil.

In terms of pricing, the light and medium segments are still pretty stable. In the heavy segment, we have seen the introduction of many other players. In the last couple of months we have experienced some price competition, but I'm not sure whether it's a permanent trend or it's related to the fact that people -- competition is trying to sell as many Euro 3 vehicles as possible.

Thank you.

We're going to come back at the beginning of the year and give you a better read of Brazil as we work our way through the last quarter.

Thanks.

And for our last question today, we go to Mr. Max Warburton of Bernstein. Please go ahead, sir.

Yes, hi. Two questions on my side, please. The first is on Iveco financial services. I know you've been asked about this before, but could you just give us the latest?

The latest? Max? The latest on Iveco financial services? Yes. We are working proactively to look for a continuation of provision of financial services in Europe once Barclays will depart the existing venture in May of 2012.

And we think in the next call we'll be in a position to give you a better update on this, but we're definitely looking at alternatives there in order to continue to provide written financing and wholesale financing across the European perimeter.

Yes. Just to give you some color, I think that, Max, one of the things that we need to do here is we need to look at the European market in a segmented way because of the perceived risk associated across the geographies.

And I think that we have enough options out there now to try and carve out a composition or a mosaic of solutions on the capital side that will address -- that will address Iveco's market needs. But we're working our way through the details. I think by first quarter of 2012 we'll be able to give you the financial picture.

Meanwhile, the losses that it reports in its current structure, can you just remind us why that's the case?

I'm sorry. I didn't get the question.

Page 29, the way it reports it looks like -

Those losses deal with portfolios that are fully consolidated by Iveco outside of the scope of the joint venture. And they (inaudible) with non-European activities. And they have to do with a revision and assessment that we did on those portfolios in terms of severity and frequency of losses.

Okay. And just the second question -- each in Europe. Okay. Second question (inaudible).

Yes. Max, just for clarity, this is a very singular position in a particular geography which is being addressed which is reflected in the financials. Do not think this is an indication of performance of services across Iveco.

Okay. And the second question, just on the broader company, on Fiat Industrial, it's capital structure. As an analyst, I get asked all the time about the cost to carry and the amount of cash you guys are holding, and I have to try and explain it from my side.

Could you just give an absolutely clear explanation of how long you're going to have to sit on this cash and what the rating agencies are asking you guys to do, and if there are any opportunities near to medium term to tidy up this balance sheet from a debt and a cash point of view?

Maybe that's a dumb question in this environment, but can you restructure, refinance it, and get this huge cost of interest down?

I would distinguish the two parts of your question. What the agencies are asking us, that they look essentially at the next one year of maturies and they want to be satisfied that we can in that case to pay those maturies and those situations. So that only deals with a minor part of our carrying of our liquidity.

I think what we did in 2011 was to get very quickly geared up and ready to hit the capital markets because of the choppiness of the capital markets themselves in 2011. And so by doing that, obviously when you issue bonds you end up sitting on significant balances of cash. And obviously that drives very high cost to carry.

In terms of the things that we can do and we're trying to do to get that issue to become less painful for the P&L is increasing the amount of undrawn facilities and look at ways of asset liability management in terms of interest rate exposure.

If I can just give you the short answer that I very incredibly tedious, long answer to what I thought was a very simple question. The answer is we're carrying excess cash today and we've made a strategic decision to carry it because of the uncertainty in the debt markets. It's that simple.

We've done this in Fiat Industrial. We've done it at Fiat. We've done it at Chrysler. And if you look at the composite amount of cash available across the three organizations, it is a number that at least historically is enough to choke a horse.

We've never carried this kind of cash in our lives. It is reflective I think of a very serious concern on our part as to how stable the debt markets are and how supportive they will be of transactions going forward.

You raised the issue on the financial services side of Iveco as to what our intentions are. All these things need to be viewed in terms of the availability of resources to try and deal with events going forward, whether it be for Iveco or CNH.

I remind everybody that back in a time in which the US market went dry on the ABS side, Fiat funded CNH capital to the tune of over EUR6 billion to try and get the machine continue to run and provide liquidity to a system that had come to an absolute standstill.

So maybe we're being excessively paranoid at least in the short term. My view is that in the medium term we need to restore this to a relatively healthy level. And we do have other ways in which that cash can be used, and used effectively, especially within the wider context of the CNH capital utilization.

So I feel -- I feel relatively comfortable that we can make the problems disappear in the medium term. But in the short term, as long as this nonsense continues to plague the debt markets, we're going to continue to play it safe.

Okay. Thanks for the answer.

That concludes the question-and-answer session. I would now like to turn the call back to Mr. Manfred Markevitch for any additional or closing remarks.

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

That concludes our conference call today, ladies and gentlemen. Thank you for your participation. You may disconnect your lines.