CNH Industrial NV (CNHI) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's Fiat Industrial second-quarter and first-half 2012 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.

Thank you, Marianne. Good afternoon, everyone. We would like to welcome you to the Fiat Industrial second-quarter and first-half 2012 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 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.

Good afternoon. I'm going to limit my remarks to a few highlights that I consider to be relatively important for the quarter. The first one is that notwithstanding the fact that there is a high level of uncertainty in the markets, especially in terms of trucks in Europe and Latin America, we have been able to deliver incredibly strong results. When you look at the margin expansion that this business has gone through certainly since the time that I have been here, which is now almost eight-and-a-half years, it's a substantial improvement from where we've been. It's the highest trading margin quarter for CNH in its history, and I think that it reflects the level of intensity of work that's going on here in terms of addressing the industrial issues that we have faced over the last few years.

A lot of work has been done by Iveco certainly in the last 12 months. It's designed to yield additional benefits going forward. Iveco has been able to hold on to a sizeable margin performance, notwithstanding the decline in volumes across the European market.

Just as an update on where we are with the transaction with CNH, we have -- and you've seen this in the press release that was issued by CNH, the special committee has now been formed, is now functioning. It has hired advisors and it is in the process of examining the offer that had been made by Fiat Industrial. The work continues unabated by the committee. I expect that we will be starting to interface with that committee sometime in the third quarter of this year and hopefully by the time we get together for the next quarterly call, we'll be in a position to give you certainly more detailed information as to how that plan is progressing.

It is still my expectation in some fashion we'll find a resolution of this by the end of 2012, and hopefully get it executed within that timeframe although a lot of it depends on the speed with which the special committee digests the proposal that Fiat Industrial made.

One of the comments that was made at the Board this morning when we met is that, a lot of the comments that we make in this press release and we normally make about operating earnings ignores the amount of research and development work that is going on within the Group. The fact that we -- and when you look on page 3, the fact that the EIB has funded a number of initiatives across Europe, the bulk of which are in Italy, is a reflection of the continuing work that is going on across all three sectors. And especially in terms of the development and betterment of the engine portfolio of FPT, given the emission requirements that are being set as targets going forward by the various regulatory authorities.

So I am -- it's a business that continues to perform well. There is a lot of work that is going on across Fiat Industrial to make sure that we are equipping these businesses with the right product portfolio to compete going forward notwithstanding the weakness of some of the markets in which we operate.

Rich will spend some time addressing, I think, the Construction Equipment business, which we have now identified as sort of being the biggest target of our collective work that we need to bring back the margin performance of this business, it's something that we can explain and that we can live with, it has been a historical underperformer.

I think the current macro saturation of the European plants is negatively impacting margin performance. So I think we need to address this, not necessarily in terms of plant closures, but certainly in terms of repositioning this business to give it an additional boost to move on, as we have done now with both of the ag brands which continue to perform well and have done so for a number of quarters.

The liquidity of the house is incredibly strong. We continue to sit on cash and have available uncommitted lines there that can be used by the house. The main -- they're really designed to provide sort of safety levels given the uncertain economic climate. They're certainly not required to finance the activities of Fiat Industrial, notwithstanding the fact that CNH is probably going to hit this year, the highest level of capital expenditure in its history, given the greenfield operations that it's putting in place, one up in Argentina, the other one in China.

On that note, I think I'll pass it on to Rich, who can explain to you -- or I will pass it on to Camillo, I think, who is going to try and explain the numbers. And if not successful, we'll come to his aid.

Thank you, Mr. Chairman, for the confidence. We'll start on slide 4, which reports the breakdown of revenues --

We're just expressing a collective vote of confidence in your abilities, not just me.

Thank you, guys. So I'm on slide 4, and I would start with commenting the quarter from a revenue breakdown standpoint and a trading profit standpoint. As you can see on the left upper side, the revenues growth of 5.4% is mostly driven by a 14% increase at CNH on the back of our volume mix and pricing, and that more than offset the decline in volumes at Iveco and FPT Industrial, and it blends to EUR6.6 billion in terms of total revenues for the Group in the quarter.

The margin story is quite a good one when you look at how we move from 8.4% trading margin last year to EUR631 million this year, which is 9.5%. Really all of the three sectors or businesses of the Group have contributed favorably to the margin expansion with CNH growing from 10.5% to 11.6% trading margin, Iveco from 5.5% to 5.6% and the term that comes to mind is really the resilience here, in the backdrop of a 7% volume drop and FPT Industrial, two percentage point increase in margin in the quarter.

The slide 5 talks about the usual kind of graphical representation of the trend that we see in terms of input costs, direct materials. You can see that the direction of the curve is a reduction quarter over quarter. Still in average terms, we're slightly above Q2 of last year, which justify a slight input increase on the P&L, in terms of cost.

Slide 6 deals with the below-the-line items from trading profit to net results. A couple of items in the quarter, EUR131 million of unusual items, that's the restructuring cost taken at Iveco on a pre-tax basis that blends down to EUR80 million on a net basis, net of tax, and Alfredo will comment on that when he talks about what he is doing in terms of the fire-fighting footprint and EIB truck footprint in Europe.

Financial charges for the quarter, EUR103 million, that's starting to get in line with the full year EUR200 million target. Still on a cumulative basis, we're behind and I'll talk about a little bit more on the next slide in terms of what are we doing to manage these P&L line items to the level that at least is consistent with our full-year guidance, and then from there we need to improve it based on a series of other additional actions.

And investment income is slightly lower than last year, just on the back of lower profitability from a couple of our unconsolidated subsidiaries. Tax rate 39%, no news there. That's 36% without the Italian employment tax.

Slide 7 is the breakdown. Since we started to put some focus, we tried to be consistent with the sort of analysis that we ran for 2012 versus 2011, and as you can see, we got some favorability, both in terms of the cost of growth, industrial debt coming down quarter to quarter and some improvement in terms of the yield on the cash and inter-segment available for the Company, which represent a reduction in cost of net industrial debt quarter over quarter. Then we always show the FX impact and the IAS 19 just to give you a full reconciliation with the P&L.

Slide 8, I think that's an important slide. In the quarter, we saw some of the commentaries out there in terms of disappointment versus probably a guidance that we had set up in expectation of a positive contribution from change in working capital in the quarter. That's happened at the CNH level on the back of retail activity exceeding production on the ag part of the business, which is still 80% of the CNH volumes.

The contraction, it's really more of a slowdown story in terms of Iveco and FPT Industrial. There's still a moderate consumption in terms of cash from operations at the level of working capital, very strong cash flow from operating activities before change in working capital, the EUR579 million. That was invested again.

Working capital in CapEx, when you look at the CapEx in the quarter, the ratio to D&A, it's something like 1.54 times. It was 1.12 last year. So that's again a testimony to the commitment that the Group is making in terms of investment in new products, expansion activities and the R&D effort targeted to the Tier 4 introduction, which is a compulsory requirement.

EUR232 million is the dividend in the period, so that all nets down to a EUR57 million of absorption, which leaves the net industrial debt at the end of Q2 at EUR1.9 billion -- EUR2 billion, sorry, rounded.

We have reiterated guidance for the full year of a net industrial debt between EUR1 billion and EUR1.2 billion as a function of a CapEx of EUR1.2 billion to EUR1.4 billion. And that's consistent with the second half generation from change in working capital that if you recall last year just in the fourth quarter we originated something like EUR900 million in cash out of working capital. So that's a confirmation of the guidance.

With that, I would pass it to the business and to Rich.

Okay. Thank you, Camillo. I won't go over all the numbers. I think that Camillo addressed the revenue and the trading profit. I'll walk -- I'll just highlight some of the more positive aspects of the quarter. I mean, overall, it was a good quarter for CNH following on from Q1's performance.

In terms of distribution of revenues, the distribution continues to be healthy. You can see the splits there, North America, Europe, Africa, Middle East, and CIS are 35% and then the two smaller regions where conversely we're making investments in greenfield production capacity going forward. So I mean the goal overall would be to have the distribution of revenues on a worldwide scale pretty even overall.

But for the quarter, ag at EUR3.1 billion up, let's call -- round it up to 17%. The demand is good overall. There's really no slackening from what we've seen in Q1. Q2 historically has been the biggest profit margin quarter for CNH now. We did discuss at the end of Q1 about some pull-forward there, but you can see in terms of the margin performance overall, that was a good quarter there.

CE up 8.3% on basically improved demand in North America and Europe, still off of a low bit. And as Sergio alluded to, still in terms of its -- despite the fact that the top line growth continues to show some good signs that we can show in some later slides. Development market share, clearly there's a lot of work to be done here as volumes need to increase significantly for us to move this business into a more profitable position.

Trading profit of EUR481 million is up EUR100 million quarter to quarter. That's largely driven by volume and mix and putting a positive pricing stance, which has continued forward from Q1. There's some negativity on production costs, which is largely driven by inventory valuation. And then as Sergio mentioned on the R&D being up year over year on back of some pretty heavy investment, which we would see continuing through 2015 on the back of the revitalization of the product portfolio and Tier 4 compliance in conjunction with FPT on the engine side, and then you see in other the improved performance on the capital Company of CNH.

Next slide is the traditional slide where it gives Q2 what the industry growth is and then CNH's performance and then a full year industry outlook for ag. A couple comments, let me -- you can see the industry up 1% year over year and full year industry we think there's been a slack and we can talk about some of the drivers there, but not, I mean, I think we can call it flat overall for both the quarter and what we expect for the full year.

Our performance in tractors and combines is tracking the industry. This is a quarter -- if you remember in Q1 we had some. This is a much better looking chart, because it was green almost across but really no items of a concern here, I mean we're keeping with the market and especially the segments that we find most attractive which is the high horsepower tractor segment and then the combines.

Our full year expectation is flat to down 5% versus 2011. I think that that's going to be largely driven by some, maybe you can see in the distribution there by geographies. Asia predominantly on the back of the drought conditions in India, which is a high volume jurisdiction and then in some slackness in the US, more drought related. We're talking about some comments later on page 13 which are more relevant.

Next slide please. In construction equipment, I talked about, that's an earlier slide. In terms of the industry and the outlook, you can see the figures there, I mean whether it's light, it's up worldwide, heavy is down and the reason the heavy is down is because China is down significantly which is a heavy equipment dominated market.

Our performance from a market share point of view continues to be good so we're either at or above industry in most of the segments. So the good news is the money that we've spent to date on the revitalization on the product portfolio, the acceptance of those products are good as we just need to deal with the fact that in our European position and the size of the European market, it tends to be relatively small on a historic basis. So we are underutilized on our European footprint and then there are some strategic issues that we need to resolve.

I think that we discussed at the end of Q1 which we're working aggressively on in terms of taking a look at our optionality going forward on a portfolio basis, which I think that we will have some probably more news flow later in the year as we flesh out the balance of those plans, but overall at least in terms of unit performance and market share performance, a decent quarter for the construction equipment. Unfortunately it's not manifesting itself in a big bump in profitability.

Slide 13 gives you a graphical representation of inventory and productions inventory. You can see that we're basically in a balanced position on the ag side in Q2 which is reflected in Camillo's comments there on the cash flow side. Worldwide production capacity is going to be relatively stable for H2 relative to H1. So we don't have any -- we think that we're in a pretty good position overall on a global basis of our inventory position versus what we expect demand to be in H2.

On the construction side, you see that there's an over performance in terms of production to retail deliveries. We're going to have to do some moderation of production in H2 like we did in 2011, predominantly in Europe and Brazil just because of some slack market conditions in both those jurisdictions.

But I think before we move on and I think the way -- the relative way to look at this, there's been a lot of commentary and questions about the effects of the drought in the US on the ag, industrial businesses out there. I mean there is no doubt in our minds that I mean there's been some speculation whether it's good or it's bad. I think that what we -- our position right now is that it's clear to us that there's going to be a headwind from the lighter horsepower tractors in the [hand Forward] segment, which is predominantly the smaller farmers, dairy, livestock related industries. We think right now in terms of backlogs on the row crop side things look okay for at least the order boards going the balance of the year.

Our estimate right now is that 80% of our rural crop customers have revenue based insurance for the year, which is expected to be paid out in late October, early November. So in terms of the relative impact of this drought in the US versus I guess the only available comp is the 1980 drought at least in terms of the availability of insurance to offset the negative impact is there and we'll see how that manifests itself going into 2013.

And really now it's purely a question of the negative aspect of the drought and the US has had a huge effect on agricultural commodity prices which should attract a lot of increased planting for 2013, so we're working aggressively as trying to position ourselves to have equipment available in those jurisdictions that we think that are going to take advantage of the current crop prices as relations to their planting expectations for 2013, which I think that we should -- we'll be in position to update at the end of Q3.

Slide 14 is an update of both our two larger strategic investments and then an update on where we are on the product launches, so I'll go with the product launches first. As we discussed at the end of last year in Q1, this is -- from an execution point of view, this is really the critical aspect for CNH in 2012 and arguably for 2013. We've got a significant amount of product launches, both Tier 4 and engine compliance related and revitalization of the portfolio.

I mean right now things are going reasonably well, which is reflected in our performance and market share and consumer acceptance. So what you see here is some of the ones that are in the shorter term of what are being introduced during the quarter.

On the left-hand side, you see just an update of where we are on the two strategic investments that we're undertaking both in Cordoba and Harbin in China, and both of those large greenfield investments are proceeding as planned.

And on the bottom left-hand corner is just a redirection of our chosen solution in conjunction with FPT. I'll let Giovanni address that later in the presentation. At this point, I can hand it over to Alfredo to do Iveco.

Thanks, Rich. Good afternoon and good morning everybody. Overall, a pretty good quarter for Iveco notwithstanding pretty difficult environment with the truck market still weak both in Western Europe as well as in Latin America, although for different reasons.

Western Europe has gone ahead on this sort of a two-speed path with Southern Europe, down 33% year over year while Northern European markets were down just 2% year over year. In this context, we came up with a turnover of EUR2.3 billion, down 6.7% versus Q2 '11.

Although volumes were down 15% to 35,000 units, I think this quarter showed the resilience of our special vehicle business where we actually were able to exploit very well our wide lineup.

Bus volumes were up 2% versus Q2 '11, fire-fighting 20% up versus Q2 '11 and defense vehicle 250% up versus last year. And this is why we came up with the trading profit for the quarter EUR127 million, 8% -- EUR8 million lower than Q2 '11, but with a slightly better trading margin at 5.6%.

As you can see from the [rock] at the bottom of the chart, cost reduction and manufacturing efficiencies offset most of the decline in volumes and mix that we have experienced. Pricing environment was tough, both in Europe and Latin America, but I think that the negative variance of just EUR4 million indicates that we were able to hold on our pricing in both markets, and especially in Latin America where I think in this quarter, prices have been really challenging for most of our competitors.

Turning to page 2 in terms of the outlook of the year, we confirm our view that Western Europe will close the year with volumes down between 5% and 10%, while we see a slight improvement in Brazil and Latin America in the last quarter of the year. And so from the 17% decline that we experienced in Q2, probably we're going to close the year anywhere between 10% and 15%.

As all the other truck manufacturers in Brazil, we were pleasantly surprised by the relative ineffectiveness of the incentive package that was presented last month, which is working very well on the passenger car side. And through the association of manufacturers, we'll continue to lobby the Brazilian government to improve the support for the industry in this very critical juncture.

When it comes to order intake on the right side of the chart, there's a decrease of 20% year over year, although I think that this is a very positive news in terms of Q2 versus Q1 with order up 5% for Iveco.

Page 3 deals with inventories. We continue to manage our inventories, both a Company level and a dealer level with a very strict discipline. Company inventory, the threshold of two months has been respected also in this quarter, while at dealer network level we were down 5% versus Q4 '11 and still very -- still far below the critical levels of 2008 and 2009.

Of course, this is helping our network to keep a pretty healthy financial and economic situation, and actually we had to deal only with a very limited number of dealers in Italy and Spain, rest of the network being pretty healthy.

The relative low level of Company and dealer stock, of course, will also support a faster pickup of our turnover as soon as the market will reestablish normal trading conditions.

On page 4, market shares, in Western Europe were of course affected by the much weaker volume that we experienced in our two domestic markets, Italy and Spain, where we have traditionally held market leadership.

So in the light-duty segment that we came at 11.3%, also on the back of a very competitive environment primarily driven by the car-derived events. At same market mix versus 2011, the decline in market share would have been just 1%.

Medium segment, we keep on co-leading the market together with Daimler, with a market share of 22.3% at same market mix of '11 basically stable. Good news finally on the heavy duty side, although the market share is 7.2% at same market mix, we would have had an increase of 0.6% with market share improving in all markets but Germany where I believe that we are experiencing a very strong pricing pressure in this last couple of months.

Latin America, where light duty trucks do have a much stronger demand from professional customers, our daily keeps on improving its market share and we closed the quarter with 17%, up 0.8% versus last year. On the medium duty, market share came at 7.1% although the order board is very positive thanks to the introduction of a new tractor and the Euro Vth version of the Vertis.

The heavy segment, we closed the quarter at 11.4%, one point down versus Q2 of '11. As I already told you at the end of Q1, the heavy segment in Brazil is the most challenged segment in the world and the switch from Euro III to Euro V has certainly worsened the pricing pressure in the market, and I believe that this is going to continue also in the next couple of quarters.

Next page, a bit of a propaganda on the introduction of the new Stralis Hi-Way which is a key pillar in our product strategy since it is addressing the heavy truck market where traditionally we have been weaker than the competition.

This product is important, although it has to prove itself in the marketplace but I think that at least in terms of industrial strategy has proved that what we have developed with the FPT industrial in terms of compliance with Euro VI standards, and the choice of the SCR technology that Giovanni will explain in detail a bit later, allowed Iveco not to invest in a complete new cab and therefore we were able to run the entire development of the new Stralis Hi-Way with EUR300 million compared to EUR1 billion plus of some of our competitors.

The key advantage that the Stralis Hi-Way will deliver to our customers as a reduction in total cost of ownership which is the key buying factor in this segment, up to 4% which translates in euro on a traditional leasing term of 48 months, means EUR19,000.

Next chart deals with the reorganization of our industrial footprint. Last year, we dealt with the bus footprint with the closure of two plants, one in Barcelona, Spain and one in Valle Ufita in Italy. This year, we have tackled the reorganization of the heavy duty footprint, converging the old production of heavy duty trucks in Madrid, shutting down the plant that we have in Germany in Ulm. This would trigger additional savings of EUR55 million in terms of fixed manufacturing costs, but more importantly, will help improving the capacity utilization in Madrid, and just to give you an example, in the second half of this year, the convergence of the production would improve the saturation from 23%, up to 70% of our capacity.

The second part of the project deals with fire-fighting equipment. We are basically shutting down four operations in Chambery, Graz, Weisweil and Gorlitz, creating a center of excellence in Ulm, where we have the headquarter of our Magirus operation, both for engineering and manufacturing capacity.

The agreement with the unions of -- some of you have seen from the press this morning has been reached in Germany yesterday, and so the day after tomorrow will be the last day of production of heavy duty trucks in Germany.

Next page deals with Iveco in China. The Chinese market is also split in two very different segments. The light bus and the light medium truck is still positive year over year, and this is where we play with our Naveco lineup, Yuejin and Daily, while on the heavy duty segment, the market is down 34%.

In terms of our two joint venture sales, we have 1.2% at 38,000 units, with a 5.3% market share. Good performance of the Daily at 11.3% and of our Yuejin trucks at 5%, up 1.7% versus Q2 '11, while on the other hand, the performance of SIH with heavy duty trucks was negative 1.3% versus last year.

The right bottom of the chart deals with the export to Africa and Middle East. This, as some of you might recall, is something that we decided to implement beginning of this year to try and offset the declining volumes in Western Europe, also taking advantage of our Chinese product lineup.

So far, this strategy is working well, with sales up 28% versus last year, and a very strong order board, which we believe at this point of the year should allow us to basically double the sales that we achieved last year.

Now with this, I turn to Giovanni for FPT Industrial.

Thanks Alfredo. Good evening everybody. If we look at page 24, we can see the number of Q2 for FPT Industrial. We can see that we have a small reduction, 7%, in the revenues from EUR838 million to EUR782 million, mainly due to the reduction in the demand for tax application and power generation application.

Notwithstanding that, we had an increase in the trading profit from EUR24 million to EUR38 million this quarter, thanks to the internal efficiency that we have and the closing of the extra cost that we had last year for this troublesome application.

If we look to the volumes, we can see that in the engine, we have a 14% of reduction, but we kept the 14 percentage to non-captive customers.

To the following page, 25, we can see the new product of Q2. We have the startup of the F5C 3.4 liter engines for Perkins application. But it is a non-captive -- very important non-captive customer of Caterpillar Group. Then we have also the startup of the Stage III for a version of the Power Generation European lineup.

In Latin America, specifically in Argentina in Cordoba, our new plant has started the operation, and the first engine production was for Cursor 13 to be delivered to Iveco new Stralis produced there. In the same time, we have also presented the Cursor 13 localized version for Chinese market just to be installed in the new trucks for Iveco joint venture in China.

Page 26, we have very shortly described the new high efficiency SCR technology that we have presented together with Iveco for the new Stralis Hi-Way. This is the technology that is based on the already applied technology for CNH application in Tier 4 interim and the scheme you see below, you can see how we go directly to the Euro VI without any AGL application, utilization, and this solution we can get two main advantage, we use a very small DPF technology, with possible -- recreations instead of the active and we save fuel, and then we avoid to our customer to have additional engine cooling requirement. We can avoid additional technology for the engine. So at the end, we give them more advantage in the cost.

That is final.

Thank you, Giovanni. I think I will take it back on slide 27, full year guidance and change across all the items. So revenues up approximately EUR25 billion, trading profit between EUR1.9 billion to EUR2.1 billion, net income of EUR0.9 billion and net reduction of debt, like I said, between EUR1 billion and EUR1.2 billion depending on where CapEx will end up, between EUR1.2 billion and EUR1.4 billion. Cash and cash equivalents in excess of EUR4 billion plus unused facilities for EUR1.6 billion should keep overall liquidity around the level where it was at the end of June.

With that, I would give it back to Manfred.

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

(Operator Instructions). Fredric Stahl, UBS.

I was wondering maybe to start off with -- we discussed this last quarter, but -- and I think if I remember correctly, you promised us an update. So I was wondering if you could give us an idea what your capitalized R&D will be in 2012 compared to 2011. That's question number one.

Then question number two would be, if you can give us an idea what revenues you generated from your specialty vehicles business in the quarter, that would be great. Then finally, just an update on how July has developed for Iveco in Brazil, and across Europe, that would be great. Thank you.

You asked how much was being capitalized as R&D, it was EUR400 million in 2011, and slightly over EUR500 million in 2012.

July in Latin America was weak, compared to July last year. We had a pretty good performance, taking into account this declining market, with sales at 1,900 units. The special vehicle business, let me find the information and I will come back to you.

Okay, great. Thank you very much.

Monica Bosio, Banca IMI.

I would ask some questions on Iveco. The first one, if you could comment on future footprint of the organization, what's next? And if you can just tell us, what level do you expect in term of restructuring cost for 2012?

And on top of that these, what kind of cost reduction should we expect quarter by quarter? Should we assume a similar cost reduction rate every quarter for the next two quarters?

And the second question is on the pricing scenario in Europe for Iveco, I was wondering if the second half of the year is getting worse than the first one?

Okay. Let me start from the pricing in Europe. The first half of the year was already bad in terms of pricing environment. There is no indication it's going to get worse than that. I think it will be good to stay as it is already.

In terms of restructuring, I think that we have already a lot to go through with the five plant closures this year. So I think that for the time being this restructuring process is done.

In terms of cost savings, as I said, there would be EUR55 million run rate of savings generated by the closure of these five plants which sum up to the EUR32 million of efficiencies that we got last year from the shutdown of Barcelona and Valle Ufita.

Okay.

And the restructuring costs, the restructuring costs of this process are the EUR131 million that you saw in the chart.

And were pretty well there is some tail -- there are some tail costs that are coming through, but they are not significant.

Okay, thank you very much.

Ashish Gupta, Credit Agricole.

I'm just wondering if you guys have any update on thinking for name of the NewCo headquarters sort of branding as you look forward to 2013?

Not yet simply because of the fact that we are -- I mean other than the fact that the legally NewCo will be domiciled in Holland. There have been no other decisions either on name or on headquarters. We are busy sort of making sure that the special committee of CNH has all the information required to make the determination. That's the first and foremost objective.

Frederic, I was owing you an answer on the turnover of bus and special vehicles in the quarter has been slightly less than EUR400 million.

Great. And just a quick follow-up, any thoughts since you've had a little bit more time now to think about sort of opportunities or -- for the NewCo as when you get to that point relative to the last call?

We keep on thinking, I'll let you know whether I have anything else to tell you. I mean we're not -- yes, thank you.

Martino De Ambroggi, Equita.

The first question was on Iveco, I was wondering why the stimulus package in Brazil is not working? And what could change and when? Between your remarks, you mentioned that you expect a recovery in Q4. Is it linked to the stimulus package or something similar? Thank you.

The second question is on the cost savings for Iveco. You mentioned the EUR55 million for fixed cost, but is there any other additional advantage because the EUR55 million is just for the heavy plant in Madrid while fire-fighting center in Germany was not quantified?

And the last question is on net working capital. Camillo during your speech you mentioned EUR900 million last year in Q4. Is that a similar dimension you expect also for the current year? And the restructuring costs for Iveco have also a cash impact which was already included in your initial guidance?

Yes. So yes on the last question and let me work my way backwards into the working capital and pass it on to Alfredo. You see on a cumulative basis through the end of June we have absorbed EUR950 million in terms of change in working capital this year and the EUR1 billion to EUR1.2 billion net debt guidance is consistent with the full year, roughly flat that brought change in working capital. So between the third and the fourth quarter mostly we will have to generate that kind of money. So long story short, approximately a similar amount of origination for a change in working capital.

On the cost savings, the EUR55 million were referred to all the five plants including the fire-fighting ones. On top of them of course there is a labor cost differential which will sum up to additional EUR25 million of positive variation for -- on a run rate. So EUR80 million in total.

When it comes to Brazil, the stimulus package didn't work basically because the change in the IPI for passenger car was already in place on the truck side. So there was no additional advantage for truck customers and that's exactly the reason why we went back to the Brazilian government to try and develop alternative measures to incentivize the sector.

And is this the reason why you expect recovery in Q4?

Partially. We believe that the market has been overacting to the shift from Euro III to Euro V because in the first part of the year. The good quality fuel was not available throughout the country while now Petrobras has informed all of us that every single fuel station in Brazil has been provided with the good quality fuel. That's the reason why we believe that in the last quarter of the year sales should be slightly better.

Okay, thank you.

Laura Lembke, Morgan Stanley.

I actually have three questions please. The first one is on your capacity utilization, just wondering if you could share with us what the number was for Europe and Latin America in Q2 and where you expect production to move in the third quarter.

And the second one is on your volume and mix effects in Iveco, I think you had a negative 21 -- EUR29 million for the quarter which I think on a revenue basis would be something like minus 1% to 2%, but your volumes are down more than 15%. So I am just wondering if you can please split out what the volume effect was and what the positive mix effect was that just have offset this?

And then lastly, on your military truck business, I think there's been two big defense fairs quite recently. So I'm just wondering if you had secured any big orders that we should be aware of and also likewise if there has been any big orders or contracts in the past that are about to run out? Thank you very much.

Capacity utilization at Iveco for the quarter and the first half of the year has been around 40% Europe plus Latin America compared with 49% last year, technical capacity, yes.

When it comes to the defense, I mean we're not going to provide you with the split of volume and mix. I can just restate the fact that of course the special vehicle business, bus, fire-fighting and defense, has got of course a much more resilient demand and that the very positive changes that we have in this year in terms of turnover because all of these vehicles have a pretty high pricing of course given their technical contents and that's the reason why you see a 6.7% reduction in turnover with a 15% reduction in volumes.

Defense vehicles, there are two big projects that we already discussed with you over the last few quarters, delivery of LMVs in Russia out of the joint venture that we set up last year with the Russian Minister of Defense. And going forward in October, we will start the delivery of the amphibious vehicle built in Brazil in Sete Lagoas on the back of a $2 billion order that we got from the Brazilian government.

Okay. And just one follow-up question. Over which timeframe does this $2 billion order stretch out?

10 years.

10 years, thank you.

Alberto Villa, Intermonte.

Just a couple of questions on Iveco. Again, the special vehicle's volumes we have seen in second quarter is something that we can expect similarly to develop throughout the next quarters, or it was particularly high for any specific reason this quarter?

Second question, if you can make some comments on previous indications that you were looking at opportunities to grow in North America for your truck business, if you have anything else to add on what we have seen in the past as a commentary? Thank you.

I have -- we have no other comments on expansion in the US. It's an issue that we continue to look at, but we have nothing to announce.

When it comes to special vehicle, bus, fire-fighting and defense vehicle have an higher seasonality in the last quarter of the year. So, we continue to see a very strong order board for defense vehicle throughout the balance of the year and similar for fire-fighting and bus.

Thank you.

Jochen Gehrke, Deutsche Bank.

Three quick questions, if I may. First of all, coming back to the North America situation, obviously you must follow the situation at Navistar. Can you just one -- well, obviously you can't announce anything, but can you just share us your thoughts? Do you think Fiat Industrial has the capacity as a NewCo to take on a situation as complex as Navistar, or would it have to get as bad as the Chrysler situation on the other side of Fiat for Fiat Industrial to potentially get involved -- get concessions such as on the pension side in order to be more involved?

And then secondly, Mr. Marchionne, one question on the European truck environment. Obviously, they're close to decently profitable here but are you concerned that with a look at the full cycle, we've seen a very short one. And on similar revenue levels and in past cycles, the industry in aggregate appears at least on my end to be less profitable than what it used to be. Are you concerned about aggregated industry capacity utilization levels in the truck industry, or is this just too farfetched?

And then lastly on CNH, you obviously alluded to CE. Am I right to understand that you're looking at this business from a turnaround standpoint more from new product and revenue while the cost opportunity in the European arena might be overestimated on our side? Thank you.

Do you have any easier questions? Just working my way back into your list, I'm not sure how to take your last question about the fact that you're maybe overestimating the impact on the capacity utilization in the European arena. There's not a single doubt that the debt situation has certainly improved year over year from where we were 12 months ago.

Now I don't think that the capacity utilization scheme that we've got in place in Europe is stellar by any stretch of the imagination, and I think -- I agree with you that I think that we look at it as a turnaround case. We have devoted new dealership to this business.

Now Rich is actively involved now in reshaping that business. We have a variety of things that need to be done over the next set of quarters. This is not a project that can go on forever, but we need to have much clearer ideas. When we started dealing with those businesses back in 2004, it was dragging a number of issues that were negatively impacting performance, including a commit to the quality and the level of rigor and the development of the portfolio, which has -- certainly in the last 8.5 years has been cured.

The weakness of the markets, certainly following the crisis in 2008 and 2009 has thrown everybody into a tailspin, and whenever I have doubts about this business, the only thing I have to do is look at the performance of Caliper to get encouraged. Then also there is a day after the financial crisis.

So, we know we can do a lot better than we're doing today. It remains the main operational issue that we face, because a lot of the nagging problems that we were dragging, in terms of the two brands with ag are gone and certainly they're reflected in the margin performance that we've seen certainly for the first semester of this year and what we expect for the full year of 2012.

So it remains a high priority item, it is the issue that's in front of the management committee at all times, and that needs to be resolved in short order, including a rather complex life that we have with excavator partners that need to see the light of day at some point in time. So we continue to work on all those issues. Hopefully, we'll be in a position to give you a better update at the end of Q4.

In terms of this question about the structural overcapacity in the European truck side, when Alfredo mentioned the number of 40%, which is a technical capacity number, which nobody ever talks about because it's a full blown out utilization on three shifts across -- the maximum number of working days within -- both within Europe or the US, whichever definition you may use. When the number that you hear is 40%, I mean, most people that come from the automotive side, will go hiding under the table because at 40% you will bleed profusely.

That is not true of trucks because of the way in which capital is deployed. It's got a complete different set of economics than it does on the cost side, which by the way is one of the reasons why we brought about the (inaudible) back in 2010, because of the fact that we couldn't make sense of the consequences of down cycles on the different businesses and try to explain them in a coherent way across the spectrum.

I am not as concerned about the structural problem, because I don't think across the piece, with the exception of internally created things like the ones that we had in splitting capacity between Ulm and Madrid on the heavy side. But there are very many centers out there that suffer from structural overcapacity in trucks.

The bigger issue is whether any of us in this business are operating in cost efficient economies. And so if I had to look at the spectrum today, I think certainly the Northern players will be a lot more suspect in terms of having a high cost base than the people that played in the [Club Med] zone.

So I think Iveco today is properly positioned, having shifted all of its emphasis in heavy trucks in Madrid. That plant now is on its way becoming a world-class facility as a result of a variety of things that have happened in the past, and because of the transfer of all the volumes from Ulm across. So it will become fully loaded, and we're going to start seeing the benefits of proper plant utilization from there.

In terms of the -- the question that you've asked about Navistar and whether things need to get worse before we get involved, I'm not even sure how to answer your question because the question opened up by asking whether we had the capability of dealing with the Navistar situation, and I think that the answer is yes. From a leadership standpoint and from a technical standpoint, I think we can address -- we can adequately address the issues that Navistar is confronting. Whether Fiat Industrial will take that base and then engage is a different calculation because that is based on a variety of analysis, some of which have to do with the ability of that business to effectively recover and recover quickly, given its cost structure and some of the issues that it faces.

That analysis has gone on in the past with us. It continues to go on. I have nothing to announce today that will suggest that we're ready to move.

All right, thank you very much.

Erich Hauser, Credit Suisse.

Two very simple questions from me, you'll be pleased to know. The first one is related to Euro VI. You mentioned it has only cost you EUR300 million to develop your Euro VI solution. I was wondering if there are any further launch costs that you would expect associated with the introduction of Euro VI in the market, or whether it really is EUR300 million and that's it?

And the second point also related to your Euro VI solution, is obviously your competition is, I would guess, slightly envious of what you have found. I mean, you've managed to find a technical solution to a massive problem for the industry overall at a fraction of what they have spent and it seems to work. And on top of this fuel thing, you get fuel efficiency savings versus your competitors as well.

I was just wondering, I mean you mentioned fuel efficiency savings. I would assume that your solution needs more AdBlue than the solution of our competitors. Could you just give me an idea how much AdBlue your engine would consume?

Yes, just to deal with the question about whether we consume any more -- any more or any less than our competitors. To the extent that anybody uses EGR, they don't need any. So by definition, we're going to use more. But obviously I'll leave it over to Giovanni to give you a more technical answer.

We've run the economics of this, and given the costs of urea today and the usage of urea against diesel, it's still a huge advantageous solution compared to what the competition is.

It depends on -- the mix of the consumption of fuel or urea, it depends a lot on the emission profile of the vehicles, if a truck -- if it is a bus or something like that.

But in any case, specifically for truck application, we are seeing that the total costs of fuel and AdBlue is the same as the Euro V that we have before. So we have increased to 3% of costs for the AdBlue but we have decreased to 3% of the fuel consumption.

In addition, we need to remember that we don't have the active recovery of the DPF. So we have a maintenance cost very lower because our DPF is for life. And we have also a reduction in the maintenance of the oil, because our passive recreation with the DPF doesn't create problems to the lubricant of the engine. So it is the total costs that must be managed.

All right. Thank you.

The EUR300 million I was making reference to is the total engineering costs and the CapEx for the all new Stralis Hi-Way project, as I said only in engine compliance vehicle and the plant structure.

In terms of additional launch cost, there will be additional EUR30 million to EUR40 million in 2013 to just complete the range of the Stralis and the Trakker which is the off-road version of the Stralis Hi-Way.

One of the things that you should not be ignoring in your question, and it was hinted at by Giovanni when he addressed the -- in a very cursory manner the advantages of our solution is the fact that we've gone this way has not required any structural changes to the architecture of these vehicles, because any other solution would require an amplification of the cooling system and that would have caused a whole pile of cost increases to the development of the vehicle itself.

We have seen this on the agricultural side of CNH and we're seeing a similar event in trucks. So it's not just limited to the operating costs, it's also reflected in the structural costs of the vehicle and the development of that vehicle before it goes into production. So I -- it was a wise choice that's paid off big time. I think we need to leverage it effectively in the marketplace then.

Thank you very much.

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

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

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