CNH Industrial NV (CNHI) 2011 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Fiat Industrial 2011 Fourth Quarter and Full Year Results Conference Call. For your information, today's conference is being recorded.

At this time, I'd like to turn the conference over to Manfred Markevitch, Head of Fiat Industrial Investor Relations. Mr. Markevitch, please go ahead, sir.

Thank you, LeeAnn. Good afternoon, everyone. We would like to welcome you to the Fiat Industrial fourth quarter and full year 2011 results webcast conference call. Fiat Industrial Chairman, Mr. Sergio Marchionne, with Rich Tobin, 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 our website, 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 risks and uncertainties mentioned in the Safe Harbor statements included in the presentation material.

I will now turn the call over to Mr. Sergio Marchionne.

Thanks very much. I'm going to limit my remarks to sort of a few general observations about '11 and about how we see 2012 and our assessment of what I think these businesses are capable of doing in the medium to long term.

I think it's fair to say that the overall performance of industrial has been quite good. I think operationally we have delivered significant operating earnings out of CNH. I think Alfredo has done a good job of at least positioning Iveco for 2012. And I think we continue to make progress on utilization of the asset base and the improvement and expansion of margins in the power train side of the business. But I think we have on the Iveco side, as Alfredo will explain to you we are looking at a less than stellar year in 2012, both Latin America and Europe for different reasons.

I think I am going to go through at least in the initial phases of the year and probably for the duration of the year will suffer an overall decline in volumes. And so we have spent the year and certainly the last semester of 2011 readying for that event and getting our operational cost structure in line with those volume ambitions and refocusing all that's doable. And you will see that there's some -- there is a good degree of confidence that notwithstanding the European and South American slowdowns that will outperform '11 in terms of absolute delivery of earnings and margin.

The CNH story is a two-sided story and unfortunately it's a two-sided story which has been going on for a prolonged period of time. We've got an Ag business on which we have made significant progress both in terms of the repositioning of the brand and in terms of market coverage. They have -- the leadership in those businesses has done everything that we could have asked them to and certainly we are now in a position to look with a much greater degree of confidence than we have ever had to look at the future of the business turning and the forecast period until 2014.

The construction business on the other hand has made a recovery against performance from the past no doubt, but when you look at our competitive performance and you look at what other people have done in this business in the interim we need to recognize up front that we have an industry laggard. It's something that we feel uncomfortable with. It's something that needs to be addressed head on and it remains the single largest strategic issue for industrial going forward because it cannot be adequately -- we can no longer explain the operational differences purely on the basis of a difference in product portfolio, so I think there are some structural issues that need to be addressed.

We have been lucky enough and in a line for a leadership change that happened with Rich on January 1st. I think we're looking forward to renewed emphasis in terms of the restoration of the credibility of construction equipment. And I realize that I'm placing a large onus of responsibility on his shoulders. He has not shied away from that path before in every encounter that I've had with him in my professional life. So I think he's plenty up to the task, but I think we do need to fix it.

I think we need to fix it and we need to find the solution which is a permanent solution in construction and doesn't force us to come back and explain away the differences quarter after quarter and really not providing an answer. So the tasks are clear.

I -- the fact that these businesses are incredibly sound is clearly visible from this cash generation. These are the things that we told you at the time of the demerger. The uniqueness of these assets, the resilience of these assets even against headwinds has been proven by the performance of Fiat Industrial in 2011. We were able to bring debt levels down to EUR1.2 billion. I have seen some less than convincing remarks being floated around about the lack of wisdom in us having declared a dividend.

I find that almost bizarre, but it was a comment because the house itself has proven clearly turning in 2011 and even in terms of the forecast for 2012 that it will continue cash generation cycle, and that the target to bring this business down to a zero net debt industrial level is within reach. So nothing dividends when you've got that kind of performance behind you and when your indication for the future suggests that you are going to be at zero debt level is perhaps the desire to pay dividends is totally understandable.

We have a lot of work to do between now and 2014. I think that the crew that we have at the table now is the right crew. I think we need to keep on pushing. I'm going to pass on the microphone to Mr. -- I'll stop in a few minutes, but take you through at least an overview of the financials and then he'll pass it on to the operators to explain to you what happened with the businesses, but it's been a good year, and I think 2012 promises to be even better.

For those of you who are close enough to the business, and I made this comment during the Fiat conference call a couple of hours ago, the combination of Fiat and Fiat Industrial today has surpassed the highest recorded trading profit that we had in 2008 in the history of Fiat. So both houses have made significant progress. This one is moving in the right direction. I think we need to accelerate the curing of some of the anomalies that we have within the house, but I think the future is a good one. So, Mr. Rossotto, I'll pass it on to you and then we'll step in as required for avoid to getting into trouble with you.

Thank you, Mr. Marchionne. I'll try to stay out of trouble. So I'll start with slide two with the financial highlights. Let me just hit on the highlights on the slide two, revenues of EUR24.3 billion, EUR3 billion higher than last year with those sectors reporting double-digit growth on the back of stronger volumes and pricing. Trading profit is EUR600 million better than last year and better than the upgraded guidance of EUR1.6 billion that we gave you, the debt yields at 150 basis points improvement in trading profit margins with all sectors contributing positively to that achievement.

Net results are up 85% to EUR700 million for the year. Net debt is a straight beat to the EUR1.6 billion guidance that we gave on the back of stronger rate in cash flow and change in working capital which we will comment in detail when we talk about cash flow. Better net debt reflected powerfully on cash which was up EUR1.6 billion versus Q3. This amount of cash is sufficient to cover upcoming debt cash maturities into 2014 and including undrawn committed lines the total available liquidity closed at EUR7.3 billion, the highest level ever for the Company at the end of 2011.

Moving to slide three just a reminder at top of the page in terms of the timing of the share capital simplification that this may result and announced by the board of SI of Fiat Industrial on October 27 of last year. The board of SI additionally after reviewing 2011 performance and the outlook for 2012 is recommending a dividend for all three classes of shares totaling EUR240 million, which yields a dividend per share of EUR0.8185 per share per ordinary and preps and EUR0.2315 for saving share.

The board has also reviewed and established as a general guideline a recommended dividend policy going forward in the range of 25% to 35% of consolidated net income with a minimum of EUR150 million per annum.

In terms of the outlook for 2012 at the bottom of the slide consolidated group revenues of EUR25 billion approximately, trading profit that's a confirmation of the 2010/2014 plan target guidance for 2012 between EUR1.9 and EUR2.1 billion. And we'll talk extensively later about below-the-line items that bridge from the EUR2 billion middle point of the range, trading profit for 2012 to the EUR0.9 billion of net income target.

The net debt is -- the range is a direct fraction of the CapEx amount that we'll end up spending in 2012 which can range between EUR1.2 billion and EUR1.4 billion where you're probably aware by now, the upper range of EUR1.4 billion represents a ceiling and not a target for the full year of 2012.

If I move to slide four while all sectors recorded significant improvements for the year I would just like to point out from the upper right-hand box the Q4 trading profit performance the nice pickup in operating performance at FPT Industrial in the quarter. Margins in the quarter, which were almost equal to 50% of the full year FPT results for 2011; that's a reflection of higher volumes, better industrial performance as the ramp-up issues and the Excel logistic costs that were mentioned in the first quarter of 2011 and are fully resolved. And additionally, as the promise we'll address the revision of the pricing rule applied to captive customers that are starting to kick in in the quarter with respect to FPT Industrial.

Next slide, five, I think just a quick comment here, while the overall geographic split of revenues has been relatively stable, in terms of macro region, it is interesting to point out how the relative weight of Italy is a proxy for starting European exposure. It has declined by 1.5 percentage points in power of Central, Northern Europe of '11 versus '10.

On slide six reports a trend in direct material purchasing performance for the group. 2011 increases versus 2010 have subsided in the fourth quarter as indicated by the flattening of the curve.

The negative purchasing performance; that is a total, yet the Industrial group level has impacted the P&L for roughly EUR150 million in the year has been particularly felt at the level of CNH because of the relative purchase volume as a percent of the total, and because of the dynamics in rubber and steel. As you have been used to reading our quarterly reports, in line with -- both for CNH and Iveco, input cost increases have all been recovered through pricing.

Slide seven there is not much to say about the quarter in terms of unusual items and in terms of the investment income. The effective tax rate for the year closes at 40% in line with expectations. We are still targeting a slight reduction going into 2012 something around 39%. And I think I'll just defer the discussion on financial charges to the next slide, which is slide eight.

We're talking about financial charges. This has clearly been an area of concern in terms of the absolute amount of expenses hitting the P&L and their relation to the net industrial debt evolution.

The goal of slide eight, the goal of this slide is to provide you with a clear and detailed explanation of the drivers behind financial charges and give an indication of what to expect directionally for 2012.

To make for a more consistent comparison we're presenting pro forma figures for 2010 when financial expenses would have been EUR163 million higher had the incremental EUR2.5 billion of net debt deriving from the demerger been allocated to FI effective December 31, 2009 instead of December 31, 2010 as occurred and reported.

For each year presented, average growth industrial indebtedness level includes some EUR0.4 billion of inter-quarter swings determined by the partners of collection and payments during the month. And to facilitate the analysis of financial charges we have opened up gross debt into two broad categories, i.e. capital market debt, fixed rate medium term and short-term debt floating rate.

As you can see from the chart as a result of FI promptly tapping the capital markets early in 2011, the proportion of drawn debt moved away from banks in favor of bonds from an average of 27% in 2010 to 54%. Given the lower coupons that FI was able to lock in through this exercise, direct component of the capital market debt shows a 150 basis points year-on-year saving from 8.4% pre demerger to 6.9%.

The short-term debt piece has decreased significantly while from a rate standpoint it increased by 50 basis points per annum, mainly as a consequence of base rate hikes in Europe and Brazil. These charges include also the cost of discounting receivable which is effectively a way of raising liquidity versus spread or increase in 2011. And please notice that we historically included these costs under others in our disclosure on financial charges.

Compared with 2010 performance the P&L charge decreased by EUR144 million, EUR446 million in 2011 versus EUR590 million in 2010, mainly reflecting lower average debt as well as a favorable debt mix effect with an increased capital market portion, a significantly reduced average rate. Additionally, 2011 financial charges included EUR72 million one-time broken funding charge negotiated post de-merger for market-based calculation and paid for Fiat Industrial to Fiat treasury upon early termination of fixed rate medium-term debt, which as a consequence of the de-merger was replaced with new third-party funding.

With reference to the second component of net industrial debt we report here the interest income accrued on the group industrial cash and net inter-segment financial receivables, effectively short-term funding provided financial services by Fiat Industrial group (inaudible) vehicles. As cash investments are short-term and floating rate base by nature, the upward trend in base rates across various geographies could explain the positive rate effect year-over-year.

Moving farther down the slide under IAS 19 the financial charges reflect the interest cost on pension and other post-retirement obligations, EUR68 million in 2011. And under FX they include net foreign exchange losses representative of the interest rate financial status, cost of aging for the Group, FX exposure via forward contacts EUR44 million.

Now taking a look at 2012 and based on analysis discussed so far we have projected on the one hand lower average debt levels which translate into a further projected reduction of gross short-term debt, while the capital market debt projection is based on investor bonds outstanding at the yearend 2011 minus the modest maturities of 2012, a couple hundred million.

Rates are fixed for the bonds and assumed to climb another 20 basis points per annum versus 2011 average on the floating debt piece. A slightly reduced amount of average cash, a minimum of EUR4 billion, which including undrawn committed lack a response to an overall liquidity of EUR5.6 billion is ideally sized to cover the 2012 cash maturities under worst case scenario assumption on no bank debt rollover, plus 10% of projected consolidated Group revenues.

In this respect it is a clear policy of the agreement that we reached with Barclays concerning the early resolution and refinancing of the Iveco-Barclays joint venture which we'll illustrate in a couple of slides, resulting in the removal from the Group's radar screen of a potentially large funding made in May 2012. All of the above support and need support to a full year 2012 guidance for financial charges of approximately EUR400 million with a plus or minus 10% range potentially deriving from variation in the actual cash flow and exposures of the Group.

On that note I would turn then to slide nine, the cash flow. And just to echo the commentary from Mr. Marchionne at the beginning I think if we just having the benefit of the full year in retrospect plus one year of carve out the financials when I look at the cumulative -- on a cumulative basis, since January 1, 2010 Fiat Industrial has generated EUR2.6 billion of cumulative cash in the period and this is after cumulative CapEx of EUR1.9 billion in the same period.

So I think this speaks to the cash generative nature of these assets. Now we have allocated EUR2.5 billion of debt at the end of 2010 and then we started our life in 2011 from EUR1.9 billion of debt which net of the cash flow of 2011, bring us to the EUR1.2 billion of net industrial debt at the end of the period.

I think a commentary on the fourth quarter centers around the change in working capital, EUR928 million. I think you might remember at the beginning of the year we have given you guidance of a couple of hundred million of cash from a change in working capital. And actually we have exceeded that target on the base on the higher revenue levels.

Most of the generation has occurred in the fourth quarter given the pattern of payment and collection of the Group, but the good news is that a good chunk of this change in the working capital comes evenly split between accounts receivable reduction, inventory reduction and accounts payable increase. So I think all of the three major components of working capital have been working in terms of generating cash in the quarter. And that not only has reduced the debt, but has also created a very clean slate position to start 2012 from an inventory standpoint that will be reflected in the discussion about the operating sectors.

With that my final slide is slide ten and it is something that we had promised you during our last conference call that we would give you an update of where we would be in terms of our reshaping of the Iveco capital, financial services, activities in Europe and here is the update. As mentioned in the press release we have reached an agreement and formalized the procedure for the early termination of the Iveco financial joint venture with Barclays.

This takes care of two major transactions on the dealer financing side and on the retail financing side. We reached an agreement for the calculation in a runoff mode of the financing of the increasing portfolio with Barclays that as I mentioned before has removed the need to have a funding in May of 2012 for the EUR2.8 billion of the portfolio. In exchange for that, we will be purchasing the 51% interest by Barclays in this joint venture for a couple hundred million, EUR120 million as soon as we get clearance from antitrust and regulatory approval. And we will underwrite a piece of the funding of these runoffs.

As far as the new business is concerned we have entered into new agreements with BNP Paribas and Intesa respectively in Germany, and France and in Italy for the continuation of the business. So that concludes my update on the financial part of the business and on that note I will pass it to Rich for the CNH section.

Thank you, Camillo. Turning to slide 12, CNH revenues for the year at EUR13.9 billion, up 16.7% with a healthy distribution from a geographical perspective, agricultural goods at EUR10.2 billion, up 17% and construction equipment at EUR2.8 billion up 25% for the year-over-year, trading profit of EUR1.2 billion for the year and up EUR399 million, or increase of 53% at a margin of -- or an operating -- or a trading profit margin of 8.3% for the period.

We call your attention to the bottom left-hand of the slide. You see the components of the trading profit variance year-over-year, volume and mix contributing EUR446 million, pricing net, so pricing net of the headwinds that Camillo mentioned earlier with commodity cost headwinds of EUR195 million for the period, EUR75 million of increased production costs, which is largely a make buy analysis or outsourcing cost, SG&A up EUR102 million, R&D up EUR81 million for the period, largely driven by product revitalization costs and tier four compliance. Next slide please?

In terms of the performance on sales volume and industry outlook on the agricultural side what you see in the three columns is split between tractors and combines. So the industry growth rate CNH's relative performance relative to that industry growth rate both from a geographic, and from a product line perspective and the full-year industry outlook for 2012, so across the board -- at par or better performance across the different segments of both tractors and combines. The one negative you see there in EAME and CIS was largely driven by tariff restrictions into the Russian market in 2011, which are being addressed with the further investments into KAMAZ scheduled for 2012.

Full-year expectations global ag is demand flat up to 5% in units versus 2011 with both tractors and combines remaining equal. Next slide please?

The same slide in construction equipment with the industry outlook, CNH's relative performance on a full-year industry outlook in terms of units year-over-year. Overall the construction industry grew by 13%, see the regional splits in the top hand right of the slide. The relative performance by CNH is more mixed as Sergio alluded to earlier in the opening commentary. Of note at least in North America on the light side, despite posting negative market share performance, CNH was able to narrow that gap significantly in the second half after the successful product launches in both the skid steer and backhoe segments in the second half of the year.

On the heavy side a little bit of more mixed performance the Latin America down largely as a result of constraints in production capacity, which will be addressed during the 2012 year. Full year expectations for light equipment demand up to 10% and heavy equipment demand up 20% to 25% relative to 2011 industrial units.

The next slide Camillo spent a bunch of time on this in terms of the cash flow benefit and the underproduction in ag fourth quarter to retail sales, so significant retail conversion during the fourth quarter. So we go into 2012 with a very healthy profile of both company and dealer inventory. They had a significant amount of work on used equipment, predominantly in North America off of the back of two consecutive years of some heavy demand in terms of units. So we go into 2012 with a preservation of by reducing inventory or having a healthy profile of inventory which will allow us to preserve pricing and preserve production performance going into 2012.

On the construction equipment side a little bit of a different story, fourth quarter under production versus retail of 1%, a 26 increase in forward month supply. That's a trailing figure to a certain extent so we go into again in rising markets proportionately on the construction equipment side again with a healthy profile. But in Q4 2011 we did curtail production to level load inventories, which was a bit of a headwind in Q4 in terms of operating income particularly in Brazil as a result of reduced financing available through FINAME and BNDES which we believe is temporary and will be rectified in 2012.

Slide 16 is a bit of a busy slide, so on the left-hand side it shows the main and new equipment launches upcoming on both the ag and construction segments and some of the product awards that we received through the launches in 2011.

I think the easiest way to address this is that the bar continues to be raised in terms of CNH's ability to introduce new products both as part of tier four compliance in both the ag and CE sides and the revitalization of the portfolios, as Sergio mentioned earlier in the year, so a significant increase. But I think we highlighted quite a bit in the call yesterday in terms of the amount of new launches that are coming throughout the year. So that's something we're going to have to execute on during the year. Next slide please?

And the final slide for CNH as we have announced during the quarter CNH will be starting two strategic investments, one in China with a new manufacturing plant for high horsepower tractors and combine harvesters in Harbin, China. This facility will be scheduled to be operational in late 2013 and the new industrial project that I think that we covered significantly during our half-year call out of Brazil in terms of the industrial investment that we will be making in the Fiat Industrial complex in Cordoba for harvesting equipment and tractors in the ag segment. With that I'll hand it over to Alfredo to handle Iveco.

Thanks, Rich. Good afternoon, good evening, everybody. Thanks to EUR2.8 billion revenue in Q4 of '11 we finished the year with EUR9.6 billion overall or 15.1% up versus 2011.

The growth was experienced in all the geographies in which we operate ranging from 2% in Western Europe all the way up 27% in Latin America. And it happened in the light, medium and the heavy segments. So overall we sold 153,000 units, 18% up versus last year, primarily driven by commercial vehicles while we had a slowdown in buses by 1% and special vehicles minus 12%.

Trading profit came at EUR490 million with trading operating margin at 5.1%, up 1.8 versus 2010. If you look at the bottom left of the chart you will see that the main drivers have been of course volume and mix, strict discipline on pricing for EUR74 million and cost efficiencies achieved throughout the year.

Next chart deals with the industry outlook. The 2011 closed with a 17% higher market than Western Europe and 15% higher in Latin America. In terms of 2012 following up what Sergio said we see market decline both in Western Europe and in Latin America. I'll try to give you the best possible granularity on this, but of course it's -- sitting in January, it's like looking into a crystal ball to make a reasonable forecast throughout the year.

But probably the light duty segment in Western Europe will be impacted more severely, probably a 10% in the segment from 3.5 ton upwards. Medium and heavy probably we see a 5% decrease versus 2011. The bus segment is forecasted to be down 3% versus 2011.

In Latin America the slowdown of course will be bigger because of the phase in of the Euro 5 regulation. I just want to remind you that the slowdown will probably impact more Q2 than Q1 because of the possibility in Brazil to still register Euro 3 vehicles until March 31st. And also in Brazil the slowdown will primarily impact the light duty segment.

In terms of the order intake, right side of the chart, in 2011 we had a 15% increase versus 2010, but the last quarter was already showing a slowdown of 2% compared with the same quarter over 2010.

Next chart deals with our market share by region. We closed the year with 13% market share in Western Europe in the light duty segment, 0.8% down versus previous year, 23.6% on the medium, same as it was in 2010, and 7.3% or 1.1 lower than 2010.

Most of this decline is due to the unfavorable market mix because of our leadership position in Italy and Spain and the fact that those two markets have been the ones which have been hit more significantly in the second part of 2011. So this will probably continue at least in the first quarter of 2011, of 2012.

When it comes to Brazil, Brazil we had a 20.3% market share in the light duty segment, up 2.2% versus 2010. We gained market share in the medium duty segment up to 5% and we were stable in the heavy segment at 11.8%.

The result in the heavy segment is particularly meaningful because of the fact that Brazil has become probably the most congested market in heavy duty segment in the world because all of the Chinese players have decided to enter this market primarily through direct sales which do not require a dealer network, but only service network.

Next chart deals with our inventory. As you can see from the chart, we have managed to continue disciplined management of our inventory, both at Company level and at dealer level. We closed the year at Company level at 0.9 months and at dealer level at 3.1 months in line with our standard.

The following chart deals with the most important product introductions of 2011, the most important one being the Daily, which was launched in September last year in Italy and in October in the rest of Europe. And the reaction of the market has been very good and so this is one of the key drivers of our performance in the light segment in 2012.

The Magelys Pro is the new bus that we have launched in the intercity segment, which is the most important one for our bus range. And on the right side of the chart the two products that have been launched in Latin America the Vertis, which is the Chinese-based medium duty truck, and the Stralis NR. NR stands for new rating, which is the first proof of the convergence in terms of architectures between Europe, Latin America, which is going to drive significant synergies going forward.

The following chart deals with China. Notwithstanding a market decline of 7% versus 2010 we have managed to increase our market share to 4.6% or 0.4% higher versus 2010. The growth was primarily experienced in the segment of the Iveco Daily while we struggled a bit with the Yuejin branded vehicles because that segment was particularly hit by the slowdown and the credit crunch that happened in starting Q2 of 2011.

Sales of our joint ventures were up 1.4% at 143,000 units with Daily up 22% at 40,000 units. And in terms of equity pickup we ended up with a 50% increase over 2010 at EUR22 million.

2012 following up what Sergio said we spent during the second part of 2011 positioning ourselves for 2012 when we start seeing the headwinds coming from the macroeconomic environment. The new organization we discussed this during the last call. The new organization is bringing significant synergies in terms of savings. We now have one single engineering house, one single finance organization and platforms which oversee development, product developments throughout the world.

Then in 2012 we will get the full benefit of the industrial footprint optimization in the bus division, the closure of the two plants, Barcelona and Valle Ufita will give us full effect in this year. And certainly the new product, the Daily and the Stralis in Brazil will give us full contribution in 2012. Furthermore, there will be additional important product launches in 2012, particularly in the heavy duty segment in Western Europe.

Very good news on defense vehicles -- we have a strong order board which gives us full visibility throughout 2012 on both light duty equipment as well as on armored vehicles. We continue to leverage on world-class manufacturing. We have action plans identified in all our plants which will deliver an 8% transformation cost saving targeted for the year versus the 5% that was assumed in the original plan back in 2010.

And likewise we will have the full deployment of all the cost reduction initiatives that have been investigated in what we call the war room project throughout the three ranges, light, medium and heavy. And this concludes my presentation. I will now turn it over to Giovanni for FPT Industrial.

Thanks, Alfredo. Good afternoon to everybody. As we can see in the first chart of our presentation thanks to the very strong Q4 results we have reached total revenues for 2011 of EUR3.2 billion, 33% more than the previous year.

The 38% of increasing volumes for captive customer and the 24% in the non-captive customer allow us to reach 560 engines sold in 2011. That is the higher number that we have never seen the story of FPT Industrial.

60% of these volumes were for captive and 40% were engines for third party customers. For the gearbox and transmission we have a smaller increase, but interesting; it is about 12%, up to 22% for the axels.

Thanks to dealers increasing volumes, our trading profit rose up to EUR107 million, 65% more than the last year. And the margin, the average margin of 2011 was 3.3% with for a very interesting Q4 of 5.5% of margin.

The capacity utilization in 2011 was 16% more than the previous year. If we look to the following chart we can see the volume increase that we have in 2011 brought the total capacity utilization in the engine side to 70% and the Q4 was also up to 80, 82%.

Also for the axel and transmission, even if the volumes increase was not so high we have made some reorganization of all our assembly and machining lines that we reached a 75% of capacity utilization also in this year.

In the following chart we can see the major events over 2011. From the point of view of products and technology, on the on road, we have fully completed the development of the Euro 5, or Euro fifth level emission engine for captive and non-captive. And we are in the final stage of the Euro VI SCR-only technology.

We have launched the F1C family 3 liters in the highest power for the Iveco, the new Iveco Daily and we got also the approval of EPA '10 and CARB for the NAFTA market for the supply to the Daimler-Fuso application. We have launched also a new six-speed transmission for the Daily of Iveco.

For the off-road side we have completed all the developments for Tier 4A and we are in the -- we have started the development of the Tier 4B using always the same technology SCR-only. We have launched the Common Rail Cursor 9 Tier4A that have very good application in the US market for the dealer consumption and the Cursor 13 twin turbo for the fire power that we got for CNH tractors.

Other relevant fact was the presentation of the Cursor 13 Common Rail Euro 5 in China. And we have completed the first phase for the facility of the new plant in Cordoba in Argentina. We supported also our Trakker Iveco to win a very important prize for a green version of the Iveco Tractor in Latin America and we supported Iveco in the win in the Dakar race.

Thank you, Giovanni. I'll just over to slide 30. This is just a reminder of our leadership in the Dow Jones Sustainability Index in the Carbon Disclosure Project as the leading industrial group in these rankings. And with that I will move to slide 31.

Again it's the wrap up with the outlook. Just to summarize it, revenues of EUR25 billion approximately up from the EUR24.3 billion of 2011, trading profit between EUR1.9 and EUR2.1 up versus the EUR1.7 billion of 2011, and net income of EUR900 million versus EUR700 million in 2011. Net industrial debt in a range between EUR1 billion and EUR1.2 billion starting from EUR1.2 billion at the end of 2011, is a function of CapEx being between EUR1.2 billion and EUR1.4 billion. With that I would just on slide 31, 32 remind you of the calendar with the next coming events, and with that I would just pass it to Manfred for Q&A.

Thank you, Camillo. Now we're ready to start the Q&A session. LeeAnn, please retrieve the first question.

Thank you. (Operator Instructions). We take our first question from Jochen Gehrke with Deutsche Bank. Please go ahead.

Yes. Good afternoon, just a couple of questions. First of all on Iveco with regards to the Latin American market could you help us understand how you expect the year to progress? I understand it's inherently difficult given the emission standard change. By when do you expect the market to tick up and on the same note do you already see some slight demand for Euro 5 trucks, or is it just too early for that?

Then secondly with regards to CNH we are now in the third year of recovery post the big crisis, yet the CE business is still hovering around the breakeven in and out for most of the quarters. Are you happy with the footprint that you have and especially when you look at the -- when you strip out the LatAm contribution, how should we think about this European how should we think about this European, North American footprint? And is this something that you now after having talked about it at least somewhat in the past think about more in a strategic context throughout the current year, also noticing that M&A activity is picking up a bit? That's it for my side.

Before Alfredo gives you an answer on Latin America, I'm going to try and preempt Rich from answering the question on construction. I don't -- I really fundamentally do not think that it's the question of European footprint. I know for a fact that both Latin America and NAFTA are in decent shape in terms of manufacturing footprint.

We've already carried out some restructuring of the European footprint by dealing with at least two of the sites that were involved. The first one was in Berlin and the other one was, which happened a number of years ago and the more recent one and [the name of it]. The bigger problem to us is in construction. It appears to be a very clear lack of definition of what our core skills are in this business and what we need to acquire in order to play -- in order to be a respective player.

There's an issue which is yet unresolved on who our ultimate excavator technology partner is going to be going forward. That's an issue that we've been dragging along. I've certainly been dealing with it a lot longer than Rich has since he's only been here for a year and a half, but you've been here for almost two years. Time flies when you're having a good time, but it -- we need to put that issue to bed.

And we have done a number of things within 2011 to get ready for the decision making process to be brought to a conclusion. Hopefully we'll see clarity, but within 2012 and we'll be able to action that decision over the next 24 months.

And I also think that, and I make this as a general comment. I think that there has been perhaps what I consider to be wishful thinking outsourcing of core component skills in most of our business is in CNH, and probably impacting much more so on construction than on ag. And this is an issue that needs to be looked at in terms of what it is that we do as builders of this equipment.

I don't have all the answers because the process has started and I think Rich is going to be leading a team of people to try and get to a reasonable answer to this. We are fortunate enough that when you look at the overall Fiat Industrial footprint, Italy is not a bleeder, which for anybody who was on the Fiat call you'll find some encouragement that you have given the state of overall the European affairs. But within that neutrality, CNH is the one that effectively is not in the best of shape. So -- but it's not a footprint issue I don't think. I think it is undoubtedly an underutilization of the asset base which is not driven.

There are things that happen within the European framework that could not happen anywhere else, so it's not as if we just we can come up with a brilliant idea in the next three weeks to completely realign the footprint and end up minting money at the other end. I think the problem is deeper and I think it's wider. And it's going to require some very thoughtful solutions that Rich and his team will have to bring forward.

And I -- it's too early for me to tell you what the answer is, but I don't think that we're talking about surgical interventions here. The M&A side has relative value because when you look at John Deere and the benchmark solution to this business we are structured right now very different from the way they are.

And we have the added advantage of being present in construction in Europe which they don't, which they are not. So in some fashion we should be probably better balanced than anybody and we haven't been able to hit the ball out of the park. So I'll take the blame. Rich hasn't been here long enough to wear this one, but we need the help of staying up and moving on.

Latin America side, Jochen, as you said it's too early to see concrete sign of demand for a Euro 5 vehicle, so the expectation is that Q1 is going to be pretty much stable versus last year. Q2 is going to be the problem in Latin America and I don't see any rebound of the market before Q4 of this year.

All right. Thank you very much for that, just maybe one follow-on, sorry, on a different note. Obviously you guided quite cautiously on the net debt for this year after quite a solid achievement in 2011. What is standing really behind that? Should we think completely different on working capital for 2012 or is this just the usual start-of-year conservativeness given that operating profit is rising by about to EUR400 million?

Jochen, it's only attributable to one of two things, other built in that we are conservatism or a lack of trust of Mr. Rossotto's capabilities. You pick.

Okay. I leave it there. Thank you.

Thank you.

Thank you. And our next question comes from Monica Bosio with Banca IMI. Please go ahead.

Yes. Good evening, everyone. Can you hear me?

Yes, we can.

Okay, perfect. I would have a couple of questions. The first one is on Iveco. You gave the number, the figure, the guidance for CNH and the guidance for the Group. We can implicitly deduct an operating, a trading profit figure for Iveco above EUR600 million for 2012. It seems challenging if we take into account the scenario ahead in Europe. So maybe you are too conservative on CNH, but in any case I was wondering if you can give us some more flavor on the expected savings for Iveco. Maybe you have a plan of some further savings on the transformation costs or what else.

Well I'll step in before Alfredo gives you any more definite numbers. I think that you're directionally correct. You're numerically wrong, but you're directionally correct. Both Alfredo and I made it very clear that there were a number of things that were put in place in 2011 to ensure that we could weather this downturn in 2012, certainly starting with the second quarter of this year.

That part we're going to tell you and I don't think we're in a position today to start providing sectorial guidance within Fiat Industrial. We may do this as we grow up and we feel more comfortable with what we're doing, but for the time being I think you need to take guidance within the conservative range that we've pitched for 2012 and leave it there.

Okay. Thank you very much.

Thank you. And our next question comes from Massimo Vecchio with Mediobanca. Please go ahead.

Good afternoon. My first question is on Iveco Capital. You would consolidate this business in line by line in 2012. Can you give us an indication of what kind of operating profit could it have?

And second question is on the working capital. It has been very strong in terms of cash generation in Q4. Was there any extraordinary item in there? Can we expect any reversal in Q1 or it's basically okay? Thanks.

Massimo, let me start with the last one. No, there is nothing extraordinary in nature in the change in working capital in the fourth quarter. It's really a function of like I said I tried to break it down into the three major components. And the inventory and the receivable piece they have all come down as a function of the good retail transformation that occurred in the quarter. So it's essentially retail greater than wholesale. It's purely a business dynamic there and that's why we made the comment on the fact that the inventories in absolute values and in terms are at the very healthy levels allowing for a good start in 2012.

On the payable side it's just the fourth quarter phenomenon of that you observe with the Italian production mostly because of the August break. So there's nothing really different than I think when I said at the beginning of the year there was going to be a cash generative performance in terms of change in working capital on a full year basis that was what we had baked in in the fourth quarter.

As for your first question on the Iveco Capital, yes, in fact we have started the consolidating on a line-by-line basis the whole lot of the asset and the liabilities. And if you look at the breakdown of the net financial services debt it's gone up quite substantially in the quarter because of that effect.

As far as your question on specific guidance on the profitability of this business I can just tell you that it's an above the line item at this point. And it's a combination of the wholesale business and the retail business. And the numbers are baked into the overall guidance for the full year. It's margin accretive to the results of the Group.

Okay. I think it has a profitability in line with the other financial services activities that you have I guess.

Yes.

Thank you.

Thank you. And we take our next question from Yann Benhamou with Exane. Please go ahead.

Good evening, Yann Benhamou from Exane. First question is related to Iveco. You have reported another heavy loss in the financial services. And if I understood well in Q3 you were pointing to kind of a normalization, so what should we expect going forward and to what should we attribute this negative number?

Second question on the CapEx side you suggest something like 20% increase in CapEx year-on-year versus the line up only three. Do we have to understand that the CapEx guidance is relatively cautious or is there any particular reason behind this significant increase?

And last point -- do you have any guidance about the share of third-party sales in FPT for 2012? Thank you.

Just to deal with the issue on the Iveco issue that you raised earlier the issue that we dealt with in 2011 is non-repetitive in nature. It was a one off. I think that we've hunkered down the controls that gave rise to the problem and the problem was effectively dealt with.

Yann, an answer on what you are expecting on 2012 third-party sales, CapEx numbers just we always pitch it at the upper end of the reasonable range. They're by definition cautious, so it's highly unlikely in my view to give you a reasonable estimate as to whether we will meet that number. It's very large and I don't think we've ever spent that money in CNH and Iveco on a combined basis. It would be very tough to emulate.

Looking at 2012 for the non-captive customer we will have for sure an increase because we are growing with the volumes for the new customers that we have started this year. For instance with parking, we will start in March with the start of production. We will increase the volumes for Daimler-Fuso and for class. And overall we will have a span just in (inaudible) of increasing all this items.

I don't think he's ready to give you the numbers though. There we are.

Okay. Well thank you.

It's an increase. It's part of the strategy of FPT which we have had in mind since we started this business back in 2005. It's the creation of a third-party customer base which would balance the requirements of internal use.

We have a starting already this summer interesting agreement with some customers that we cannot disclose at the moment. We can say that the guidance that we gave in the business plan to reach EUR1.7 billion in 2014. Now we have already concluded about 90% of the volumes.

Okay. Thank you very much.

Thank you. And our next question comes from Nico Dil with JPMorgan. Please go ahead, sir.

Good afternoon, gentlemen. I'd like to ask three questions please. First of all I was hoping you could give us a little bit of flavor on the December/January orders for Iveco and Western Europe. Have they sort of started to stabilize already, and at what level?

Secondly, yesterday CNH guided for a US GAAP margin of over 8.6%. What does this translate into for IFRS?

And, third, I'm just looking at the stockpiling cost that CNH highlighted yesterday. Was that the only thing that pushed the margin down from 10% to 5% sequentially in Q4 '11?

On the Iveco side the order intake in January in Western Europe was down 14% and was up 4% in Latin America compared with last year.

In terms of the fourth quarter headwinds we talked about the stockpiling costs yesterday in the call. Out of that, and then Camillo mentioned earlier about some changes that we made in terms of rectifying the inter-company pricing between CNH and FPT. And what I can tell you is there is approximately EUR25 million of nonrecurring costs of stockpiling that was incurred in Q4 that will not reoccur in 2012.

In terms of additional headwinds on top of the stockpiling costs incurred in Q4 I think what we highlighted yesterday was largely on the curtailment of production in Brazil and the construction equipment segment, the level load inventories going into 2012 and because of some headwinds on demand in Q4 due to some lack of financing availability in FINAME and BNDES. And then there's just the seasonal curtailment of production across the board in late December which you should see year-over-year in Q4 earnings versus Q2 and Q3, which tends to be the peak earnings for the year on CNH.

And, Nico, the delta between US GAAP and IFRS is some 20 basis points, so the 8.6 translated into an 8.8% IFRS trading profit margin guidance.

All right. Thank you.

Thank you. And we take our next question from Martino De Ambroggi with Equita. Please go ahead.

Yes, thank you. Good morning, good afternoon, everybody. First question is a clarification on the financial results of Iveco, ex Iveco finance in 2012. Can we say there are no more provisions for Eastern European clients and this performance like-for-like could be in the region of the zero as it was over the past few years?

Yes, zero provision.

So okay. So that means that Iveco has a big buffer making possible to improve the performance this year, but looking at slide 25 presented by Mr. Altavilla could you try to translate some of these actions in figures, try to fill in the additional margin that could be generated by these actions?

I go back to Mr. Marchionne said before.

No. We won't give you that information. We're not trying to peel the chicken, right? It's not in [theater].

Okay.

The chicken is what it is.

Well if I may just I remember for the two plant closures there was an annual savings in the region of EUR30 million if I'm not wrong was given during the previous conference.

EUR35 million.

EUR35 million. So that would be fully generated in 2012.

That's correct.

Okay. And last question on the liquidity because you are reducing it from EUR5.7 billion at the end of last year to EUR4 billion at the end of this year. Can we say this is the normalized level of liquidity needed to run the business? Just to have an idea of the cost of carry, how much can be improved?

I think on the cost of carry I think the old analysis that I gave you that EUR400 million is an all-in financial expense number that reflects the lower cost of carry on the EUR4 billion. So that's I think we went through that in greater detail this cash. In terms of the EUR4 billion, it's -- sorry -- the EUR4 billion when you add to that the EUR1.6 billion of undrawn facilities it's already in excess cash versus what is actually needed by the operation. And that's why I preface that number by saying that it covers a 10% of EUR25 billion in revenues kind of drop down.

And happily, Mr. Rossotto, in numbers you're EUR2 billion long.

Okay.

And I picked up on that. We got EUR2 billion of excess cash built in into this sort of excess cash of EUR4 billion plus EUR1.6 of undrawn facilities. So --

Which has got a cost of --

Of 100 -- at 7%, sorry 5% in terms of cost of carry the math is simply done in EUR100 million of cost over the excess fewer --excess liquidity.

Yes. And since we're having this debate, this discussion in public you might as well tell them where -- you are going to take it to that level by the end of the plan, right?

I hope that it was pretty clear what I said about the fact that -- and we removed the issue with the refinancing of the JV with Barclays. That is taken out, a funding event that would have been there otherwise. So that has changed the posture that we have vis-à-vis keeping cash on the balance sheet.

The other thing is clearly as the performance of the operation improves and Italy proves to be cash generative to the tune of the last two years that is another reason to get even more relaxed about it. And the third one is that with the change in net debt we will start to look at for the first time at changes also in gross debt which will drive liquidity down. So I think --

It's clear that --

It all goes into the same direction.

Yes, yes. It's clear the trend for this year. I was trying to figure out what could be the additional upside on this issue going forward.

EUR2 billion, that's the answer, and EUR100 million in terms of the P&L.

Yes, yes, yes, yes, okay. Thank you.

Thank you. And our final question for today comes from Larry De Maria with William Blair. Please go ahead.

Hi. Good morning. Thank you. You answered my main question about the EUR25 million stockpiling cost. So does that get fully reversed in the first quarter or is it spread out?

And then, secondly, as far as construction goes you are committed to obviously understanding the structural issues and fixing it, but does that mean you are fundamentally opposed to selling the business in its entirety? And could that be separated from the agriculture business or is it too intertwined to do so? Thank you.

Technically the business can be surgically removed. It's a very unwise surgical remover and the business is not for sale.

Okay, very clear. Thank you. And --

And the EUR25 million is a nonrecurring cost incurred in Q4 of 2011. It's done.

Okay. And okay, I got you. And then finally as far as CNH and Fiat Industrial both being two separate companies my understanding is that you have been waiting for the investment grade for both companies before you formally consider potentially putting the two together. Is that still the way we should think about that, or is that off the radar or just any clarify on that would be helpful. Thank you.

No. I think you can look at it as being on a future event list as you did before, right?

Right.

Our view has not changed.

Okay. So we don't have to wait for say for the investment grade.

No. If you think that's a condition precedent to doing anything the answer is no.

Got you. Thank you.

Thanks.

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

Thank you, LeeAnn. We would like to thank everyone for attending to this call with us. Have a good evening Thank you.

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