CNH Industrial NV (CNHI) 2013 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Fiat Industrial first-quarter 2013 conference call. For your information, today's conference call is being recorded.

At this time, I would like to turn the call over to Manfred Markevitch, head of Fiat Industrial Investor Relations. Mr. Markevitch, please go ahead, sir.

Thank you, Diedre. Good afternoon, everyone. We would like to welcome you to the Fiat Industrial first-quarter 2013 results webcast conference call. Fiat Industrial Chairman, Mr. Sergio Marchionne; with Rich Tobin, Group COO; and Pablo Di Si, Group CFO; will host today's call. They will use the material you should have downloaded from our website, 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 risks and uncertainties mentioned in the Safe Harbor statement included in the presentation material.

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

Thank you, Manfred. General comments about the quarter -- I think, overall, we are satisfied with what has been accomplished. Obviously, and I've seen it from the market reaction, there's been some disappointment about the performance of Iveco. I remind everybody who's been following this industry that this is a sector, that at least in Q1 of this year and especially for anybody who's been involved in European operations, has suffered a substantial decline in volumes, and it's impacted on margins across the whole of the competitive range.

Construction equipment, by the way, is -- and we've seen the big guy in town report less than great earnings for Q1 of this year. We are following the trend. And I think to the extent that we have -- it's almost a blessing in disguise that we were able to maintain production levels down in anticipation of what we expected to be a relatively weak market in 2013. And we expect that market to continue in this tone for the rest of the year.

The important thing is that we think that the truck side has bottomed, at least in Q1 of this year. And we need to -- we probably established a base on which we can rebuild volumes, that we feel relatively comfortable that the Latin American operations will have a much better nine months than they've had in the first, as the process of integration continues here and it's in full force now.

We're beginning to tackle a number of industrial issues related to the launch of the new Iveco. And the new management team has had a relatively large task of controlling these issues, including supplier issues that have impacted both the European and the South American operations. They've negatively impacted results for the quarter. We feel relatively comfortable that we'll come out of this in good shape by the end of the year.

The dive rate in our guidance is really driven by a renewed pessimism on the construction equipment side and the impact of the first quarter earnings out of Iveco. But, overall, the business is in good shape. As I said, the integration efforts are proceeding full-blast. We intend now to complete the remainder of the work that needs to be done in order to bring this merger to consummation.

We are in the process now of the filing process with the SEC to try and get our registration statement in line. We expect that to be done hopefully within the month of May, which would then allow us to call the respective extraordinary meeting of the shareholders to approve the transaction. And if everything goes in accordance with plan, I think we should be listed in the US sometime in the third quarter of this year.

Rich is going to take you through the details; and, obviously, we'll be more than glad to take questions at the end. Rich?

Thank you, Sergio. Turning to slide 2 -- briefly, in consolidation, as you've seen from the press release, revenues are flat quarter-to-quarter, with performance of agricultural equipment and powertrain offsetting decline in truck and commercial vehicles and construction equipment. We're going to get into all the segmental data later in the presentation.

Trading profit is down EUR23 million over prior year, and a reduction of trading margin from 7.4% to 7% for the quarter. Net profit before exceptional items is down EUR7 million for the quarter. Net industrial debt is up by EUR900 million, reflecting the seasonal working capital absorption. And then you see that reflected in available liquidity on the bottom right hand of the slide.

Moving to slide 3 -- I won't spend a lot of time here because we're going to go through sector by sector -- but you see the graphical representation in terms of growth rates on the top; and the revenue between the individual segments; and the elimination of that Group consolidation; and then trading profit by sector, which we'll go into more detail.

At this point, I'll handed over to Pablo, who will go through some of the consolidated financial statements, cash flow and the like. And then we'll go back, and I'll come back and do the operational aspects of the business. Pablo?

Thank you, Rich. Good morning, good afternoon, everybody. So we'll take it from slide 4. You can see that trading profit reached EUR408 million, as Rich mentioned before. Below the trading profit line, we had initial items of EUR39 million, which primarily due to the unwinding of joint venture with Barclays within the truck and commercial vehicle business, and other restructuring items.

The financial charges reached EUR113 million, an improvement of EUR4 million versus last year. Within these EUR113 million, we have a one-time effect of Venezuela devaluation of EUR15 million. So without these effects, the positive variance would have been EUR19 million. And then we have an effective tax rate of 38%, in line with our expectations.

Moving on to page 5, we have a summary of the financial charges breakdown. You can see the reduction in the short-term debt from 6.1% on Q1 of last year to 4.1% of this year; and also the reduction in interest costs and pensions quarter-over-quarter. And I already mentioned about the one-time devaluation effect on foreign exchange in Venezuela.

Moving onto page number six, cash flow. Net industrial debt about EUR2.5 billion, with EUR58 million of additional working capital versus last year, primarily due to the truck commercial vehicle businesses. CapEx reached EUR247 million, mainly related to higher trucks and commercial vehicles capital spending; and some investment expansions in the [Rick Oso] business in China, Brazil, India and Argentina; as well as some engine emissions compliance programs in Fiat Industrial.

Finally, the change in investments, scope, and other is primarily due to the result of a prior-year positive one-time effect of this position of financial receivables.

With that, I will turn it over to Rich.

Thanks again, Pablo. We have got a significant amount of material here by sector, and I'll just hit the highlights. Overall, agricultural and construction equipment, as you can see, revenues up 1%, with a very healthy distribution on a global scale. And you can see that reflected in the top right of the slide. More importantly, from a trading profit point of view, we've got a 12% increase of EUR43 million despite having a challenging market in construction equipment. So record profit margins on a Q1 basis for the agriculture and the construction equipment segment.

Overall positive volume, positive pricing; really, nothing to report. I think very good industrial execution for the quarter. I think that we called the market appropriately and we're going [big] deal with that in some follow-on slides. So, overall, a very good quarter. We don't see any degradation in terms of what our expected performance was when we last met at the beginning of February, from where we stand right now. So, good execution so far.

Moving to slide 9. Really, nothing to report on the agricultural side. You can see that the liquidation of inventory as we always do in Q4 of 2012, where we underproduce retail to balance going into this year, so that was accomplished. You'll see the reacceleration of production in Q1 to prepare for the Q2 and Q3 seasonality of wholesale and retail deliveries. So we're in good shape going into the seasons in all of the markets that we participate in. We really have not lost any wholesale or retail deliveries of any quantum during the quarter because of lack of availability of products on the agricultural side.

On the construction equipment side, it's a little bit of a different story. Sergio mentioned earlier, in difficult market conditions we have been very disciplined. We have not overproduced versus retail sales. And we expect to remain in this posture for the balance of the year.

Moving to slide 10, you see some comparators between the Q1 industrial demand on a TIV basis versus what we're calling for the marketplace on a full-year basis. This is segmented both geographically and between tractors and combines. I'll just make some comments. I saw some feedback on the CNH call earlier that somehow we were calling the market down in terms of TIV. The only place that there's been any change in both -- on the ag and construction equipment side -- is in the Asia-Pac region, which you have to be very careful about because you're talking about a significant amount of unit volume in areas that CNH is not a large market participant.

So in terms of what our expectations are for 2013 today, versus what they were at the beginning, it's unchanged. We think that the market is going to be solid and that we are going to participate and gain our share as expected. So, really, nothing of any consequence in these, with the exception of -- you take a look at the combine Q1 industry change at 51%, and then recalling the market on a full-year basis in NAFTA of 0% to 5%. That's somewhat of an anomaly, which is caused by prior-year launch schedules in the industry.

So, overall, a good, robust performance; Q1 was good. I think that we took advantage of a very healthy mix between our performance in combines and high-horsepower tractors. The markets are developing nicely. And in terms of the agricultural prices that are out there, while they seem to be a little bit more volatile this year, they're holding up. And we expect net farm income on a global scale to be quite healthy, driving performance.

Moving to slide 11, a little bit of a difficult picture here. You can see Q1 industry in both light and heavy is down Q-to-Q. Overall, this is something that we had called at the end of 2012, especially on two bases -- one being that we believe that the market was going to be down for the quarter and the full year. And it's significantly, from the CNH point of view, that we had called your attention that we have made significant deliveries into the rental sector in Q1 of 2012 that we did not expect to repeat in 2013, and they have not. So overall, as we mentioned earlier in the call, we're not holding out a lot of hope for any kind of demonstrable market recovery in construction equipment. And we're just going to have to manage our industrial base and our cost base for the balance of the year.

Slide 12 is just a re-look at all the launches. We don't want to spend a lot of time there. I think that we can move onto trucks and commercial vehicles.

So, moving to slide 14, revenues down 4% to EUR1.8 billion on the back of volume declines, reflecting the market trends and market demands. I'm not going to go through all of it, but virtually every market is down. You can see that, the impact of that reduction in volume reflected in the trading profit variance on the lower left-hand side. The more concerning aspect is that pricing has not recovered from H2 2012 levels. You see the EUR30 million negative variance which is predominantly or almost exclusively in Europe, reflected in the trading profit variance from a quarter-to-quarter basis.

That's really going to be -- and we'll talk about the full-year guidance -- the swing factor of we're expecting that declines, the first-quarter declines that we've seen, will moderate. And in certain areas, we're also going to be calling it up in terms of unit volume. I think the swing factor for us is going to be how the industry responds in terms of price discipline going forward, which may be an ability to outperform in terms of what we see right now.

Slide 15, I think that you can read it for yourself. Book-to-bill has improved quarter-by-quarter. It's improved from Q4. So as Sergio mentioned earlier, I think that we are really reaching the bottom in terms of where we are in the industrial demand. And as I mentioned, we're calling the market up in terms of unit volume in virtually all categories and regions going forward.

Slide 16, we're going to go through a variety of different slides between Europe, Latin America, and Asia. I won't go through all of the details here, but I think the general comment is largely we have held share of across the individual sectors. We've performed with the market. As Sergio mentioned, I think that we've had a few operational issues, largely around the launch of the Stralis in Europe during Q1, which we expect to recover progressively over the balance of the year; and with some industrial supply issues in Brazil, which we think that we should have rectified by the end of Q1.

So, overall, we're expecting and improvement in the TIV on a global scale in almost all categories. And our expectation is to hold share from where we are and improve share in those areas, especially in the heavy segment in Europe, to improve shares as we launch the new vehicles.

So, with that, I think that we can move to slide 21, which is powertrain. You see revenues up EUR62 million, to EUR740 million for the quarter. Trading profit slightly down, which is really just a reflection of the mix between third-party engine revenues versus intercompany. And then that impact on profit, I think that we've got it, also, a little bit of timing difference in R&D costs and the spending on the back of the preparation for Euro 6 and for Tier 4 Final on off-road applications. But overall we expect to have, as we had guided for the full year, an improved year on the powertrain business.

I think we can move, at this point, to slide 24. As Sergio mentioned earlier, we find we've retuned the guidance on the full year. We were calling for a market recovery in unit sales by region in the truck and commercial vehicles business. That will be heavily influenced by the timing between Euro 5 and whether there's going to be a buy on the 05 segment prior to the launch of Euro 6, and what the incentives coming for Euro 6. I think we'll have a better feel for that in the second quarter. And, as I mentioned earlier in the presentation, I think that one of the big swing factors in terms of profitability in the trucks and the commercial vehicles sectors is going to be how the pricing environment develops over the balance of the year.

So we're calling revenues for the Group up between 3% and 4% for the full year; trading margin at 7.5% to 8.3%; and a net industrial debt of EUR1.4 billion to EUR1.6 billion.

Manfred, that concludes the presentation. And I think we can hand it over to Q&A.

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

(Operator Instructions). Martino De Ambroggi, Equita.

Yes, good afternoon; good morning, everybody. My first question is on your vehicle pricing. Since this is the third quarter in a row with a negative price effect, even showing an acceleration in the negative trend, I was trying to figure out what could be the trend going forward, and particularly in Europe. And on the full-year guidance, just to have an indication of what could be the R&D capitalization effect on full-year 2013. And from another point of view, if you could give us an indication of what could be the guidance under US GAAP for the whole Group. I don't know if it's possible to have also split -- in this case, under IFRS -- between CNH (inaudible] Iveco and CNH, on a full-year basis. Thank you.

Okay, this is Rich. I'll handle the issue of the pricing. You're correct; this is the third quarter, and as I tried to articulate, so right now the comp on pricing -- it's been negative through the second half of 2012, and now through the first quarter of 2013. It would re-accelerate because you're basically just carrying forward what we've seen in pricing from the second half of 2012 into the first quarter of 2013.

Our expectation is in the second half of the year that would flatline, and in a non-movement in the pricing environment, and that's what I was referring to. And to the extent that unit volume increases in the second half of the year, and there is some discipline in the industry, we would expect to try to claw back that pricing, which is going to be heavily dependent on the mix between Euro 5 and Euro 6.

Just to -- I don't know if this is going to clarify it or not. I think you've seen in H2 of 2012, and the first quarter of this year, you've seen consistent pricing degradation. When you start comparing HQ 2013 to H2 2012, you should not see a difference, in the worst case. So there's only potentially upside from here. As Rich said, we need to see how much the pricing discipline continues in the marketplace.

The other question that you asked was about the capitalization of R&D, which was, what? How much? You'd better use the microphone, Mr. Di Si.

To answer your question, it's EUR50 million for the quarter on capitalization.

And what is included in your full-year guidance?

Full-year guidance is EUR350 million.

Not at EUR300 million?

EUR350 million.

Okay. And if I add the question concerning under US GAAP guidance?

No, I think we're going to stay away from that question. I think the question about reporting standards and so on will be addressed later on. I think that we are, and FI is today, an IFRS reporter. And I think that those are the numbers you should focus on going forward. We'll let you know when the house is ready to switch over. It's no use speculating.

Yes, yes. I know. Thank you.

Monica Bosio, Banca IMI.

Thanks. Good afternoon, everyone. I would have two questions. The first one is on the trading margin guidance range. It's larger than before. And I was wondering if you can give us the assumptions behind the bottom of the guidance range and guidance, and the assumptions behind the top of the range.

And the second question is on Iveco. I understood that the pricing should mitigate, is expected to mitigate over the second half of the year. But I am wondering if Iveco still has room to get cost, if there is room for savings, or if there is room for something better from the mix side.

Let's deal with the trading margin question first. Yes, the range is in fact wider. And your question was -- well, what's in there, and why the volatility of the range? As I mentioned earlier, we're basically calling markets to arrest the level of decline and/or accelerate in terms of unit demand over the balance of the year. And we're doing this in a variety of different markets. This is one of the drivers -- just pure, unadulterated unit volume.

We've gone over the whole issue of the pricing, so you can take a look at that. We did not expect, in a worst-case scenario, to have the degradation of pricing that you see in Q1 in the second half of 2013. And then, we're making an assumption on foreign exchange and leaving the euro, because we have no choice right now in terms of where we stand right now. So, potentially, there is some volatility in terms of translation when you're dealing with a company that's with global operations.

So, right now that euro is stronger than we would have thought it would be when we put the original guidance together. And then in translation, we are bearing the brunt of that. I'm not going to make any speculation in terms of what we believe the euro will do going forward. But a strengthening euro scenario is kind of difficult to imagine right now.

Okay. Thank you very much.

David Raso, ISI.

Yes, my question is about the orders at Iveco for the quarter. They're noted as up 7%; book-to-bill is now nicely above 1. Looking at the way you describe the orders for the quarter, obviously the growth seems to be Asia-Pac and LatAm. Can you help us a bit with the pricing in that backlog? Maybe a little education, exactly, on where the orders are strong in LatAm and Asia-Pac, even within the country, when it comes to mix? Just trying to get some comfort with how much pain can we take in Europe pricing, having it mitigated by some of these other geographies.

You're talking about comparative pricing region-by-region. And, David, I think that that is --

Is the pricing improving in those geographies, Rich? I'm just trying to think the pricing (multiple speakers).

I understand your question, David. At the end of the day, when the markets -- when book-to-bill is improving, and market demand is improving, our expectation is that that's when pricing discipline is a lot better. So the pricing environment in totality is better versus what we've seen in Europe over the last three quarters, where book-to-bill has gone the wrong way; and then you've got pricing pressure.

So, is that improvement in those markets able to offset Europe? No, only because of the size and scale of the European operations. But having said that, I think that we have been pretty clear in terms of what we are -- expectation is for pricing in Europe based on our TIV forecast going forward. So, that's some pretty big mental mathematics there. But I'm going to think that when markets are growing, our expectation is that the pricing discipline is better than what we've seen in a declining market.

And if we get pre-buy, or not pre-buy, in Europe -- given the new SCR-only engine you're coming out with, which I assume you still feel good about and it's -- do you feel a competitive edge where you may be able to get some pricing. If we find out there is some pre-buy or not, what's better for mix? Essentially, selling the current Euro 5, is that a positive for mix? Or would you rather get (multiple speakers).

I think we would prefer to have to sell more Euro 5 trucks, is the preferred stance for us. Because there is a headwind in terms of the Euro 6 in terms of the retail price. So, we prefer to see a larger Euro 5 pre-buy to Euro 6 introduction.

All right, that's helpful. I appreciate it, Rich. Thanks.

Alexander Virgo, Berenberg Bank.

Thanks. Good afternoon. I just wondered if you could touch on the issues you mentioned in terms of supply chain production issues in Q1. And I think you mentioned that you thought they would be fixed by Q1, or they have been fixed by Q1, so that's the first question. And then the second one, just on the commentary around renewed pessimism in construction equipment, which was cited as a reason for the guidance cut. And yet you're also saying that you called it down anyway; or you are saying that it was going to be bad anyway; but then you actually changed and made your guidance worse, obviously.

So I'm just trying to understand what exactly it is that's changed, given the biggest swing has obviously been in Asia, where you're not really present. So, just trying to understand that, and why that has such a big impact on your guidance ranges. Thank you.

I think, to be clear -- I think what Rich said is that we called it right by not overbuilding in Q4 of 2012. And I think we kept our powder dry for 2013 in anticipation of market developments. And I think nowhere in our -- we did expect construction; when we did the guidance for 2013, we did expect construction to perform better than we see now in the marketplace, given what we've seen on the Q1.

And we've seen competitors, by the way, react in a much more violent way to this decline in markets than we have. The real issue, and the thing that Rich has mentioned a couple of times, is that the decline in our guidance is guided by two things -- one, a confirmation of Q1 performance in construction, which we expect to continue for the rest of the year. And that is a difference from the guidance -- from the numbers that were embedded in the guidance for 2013.

But more importantly is the uncertainty related to the performance of European trucks. And that's something that we need to be able to see as the market develops during the rest of the year. We have seen some relatively unpleasant numbers coming out of some large competitors in Europe. And we've seen a margin squeeze going on across the piece. The question is, have we bottomed out on pricing? And if we have, then there's upside to the guidance. And if not, then I think that we've covered it in the range that we gave you.

Okay. Thank you.

Alberto Villa, Intermonte.

Yes, good afternoon. I was trying to understand what is driving the guidance on the that up by around EUR300 million. Partly it is coming from lower contribution from operating profit. I was wondering if there is also a component coming from expectations about the net working capital cycle or the CapEx, and if you can give us an indication of the CapEx expectations for this year.

And, secondly, when you mentioned that you've changed the guidance for the full year, expecting construction equipment to be weaker, but then you didn't change really the guidance for CNH. So it's very much probably coming from Iveco, as I presume that they're changing the guidance for Fiat Industrial forecast for this year.

And thirdly, if we have to do expect any further restructuring or unusual items for this year, apart from what you've booked in the first quarter of 2013. Thank you.

Let's see where to start here. I think what we said -- it's true, we have not changed the CNH guidance. And what the answer to the last question was is that the swing factor was going to be European trucks. So you've got that correct. So, CNH hasn't changed. So we'll see how European trend is going to do that in terms of defining what the issues are there.

I think in terms of net debt, you do have a change in terms of the profitability. I think that you've got a change in mix of on-book receivables in certain regions. But, other than that, that's really it. And some amount of working capital change, if we end up having an acceleration in revenues in the second half of the year, primarily on the truck side; that would back-end load the net working capital to a certain extent.

But I think that we've put in enough safety room in there that we think that we're comfortable with the number, under a variety of different market condition scenarios.

Right, okay. So, CapEx didn't really change?

No. Right now, CapEx is -- which is driven largely by greenfield infrastructure in CNH, which we've talked about quite a bit. And then the rest of it, or the balance of it, is largely tied to engine compliance programs, which are mandatory.

Thank you.

Massimo Vecchio, Mediobanca.

Good afternoon. I was wondering if you can give more color on the EUR39 million cost for winding the financial services JV; and, in particular, what those costs refers to. If you expect to book some more of them in the second and third quarter, given that -- if I remember correctly -- you were already unwinding the JVs in the fourth quarter of last year. And if, outside of these exceptional items, you expect this move of managing your own finco to improve the underlying results of the business? Thanks.

I will take the first part of the question, which is primarily due to breakage costs with Barclays and unwinding of the JV last year. And the second part of your question is no, we do not expect any additional bookings related to this item. I will revert to Rich on the second part of the question.

I think one of the benefits that we have highlighted as part of the merger process is the ability to utilize the capabilities that have been developed within CNH capital to effectively provide funding for equipment sales for both could trucks and construction in and ag, which are the traditional businesses of CNH.

We have appointed somebody now on the leadership team whose sole responsibility is to effectively provide for a seamless integration of our global operations and capital equipment financing. And we're beginning to tackle now the European side, which has been neglected now for a number of years, and has never been brought fully in.

The likelihood of us carrying out uncensored bookings of equipment sales in Europe is relatively small. I think that one of the things that we have on the table -- and we'll provide better clarity as our plans develop here in the remainder of the year -- but obviously the intent is not to use our balance sheet to get this done, other than through the capital equipment operation business, which has its own separate life and its own separate terms of financing.

So, don't expect industrial debt to explode as a result of us carrying on financing operations. We'll do this in a way which has (technical difficulty) and CNH capital have done historically.

Okay. Thank you very much.

Laura Lembke, Morgan Stanley.

Yes, good afternoon, and also good morning. I actually have two questions, please. The first one is on Iveco. I'm struggling to understand a little bit the volume and mix impacts that you're citing here. Because when I look at your previous results -- obviously, especially last year -- you had to absorb significantly bigger topline and volume decreases, yet were basically reporting a similar type of volume mix impact -- around EUR30 million -- both in Q1 and Q2 last year.

Now this quarter, actually, you're only down 4% in your top line and also in your volumes. So I'm just wondering, is it really all mix driven here? And, in that respect, also, maybe you could share with us what percentage of revenues the military business was in Q1 last year compared to this year. So that's my first question.

The second one is on Russia and ag. You've been the only OEM with a local producer status. So given that we've had the introduction of the Russian recycling tax, I'm just wondering how you are using this to your advantage and if you've already seen some benefits in terms of market share gains. Thank you.

Yes, I'm going to try and tackle the mix one. I think it's volume and it's mix and pricing. And we're not really going to disclose, in terms of proportionality, of specialty vehicles sales in the consolidated number. But that's part of mix when we do it. I can't comment in the past other than to say that the impact of price mix, or our leased mix gets larger as the total volume of the industrial gets lower. So the earlier in the process you can deal with it better. But as your capacity utilization drops, the comparison gets harder and harder. So you've got a market that's now been declining substantially for three quarters. So the impact of volume demand is higher, as you get closer to under-absorbing it in a variety of different ways. So, that's going to be the answer there.

On the Russia side, we're --

Just to clarify the issue, we're not the only ones that are relying on the exemption. I wish it were true, but we're not the only ones.

Right. And, really, it's still a market that is not fulfilling its potential. I think that we've had some issues with import duties, despite WTO ascension and the like. We have improved our Russian sales. But it's not anything that's overly impacting our earnings in the quarter or what we expect for the full year.

Deidre?

Fredric Stahl, UBS.

Good afternoon, gentlemen. It's Fredric here from UBS. I was just wondering if you could update us on your tax situation. What's the latest there? At least from my perspective, you're still an outlier when it comes to tax rate, so an update there would be welcome. And then maybe, is it possible for you to quantify the costs relating to the supplier issues and the ramp up in Brazil? Thank you.

If I could just help you with the tax rate for a moment, because I think this needs to be killed once and for all. This is not mind-boggling astrophysics. We have losses on the European side, which are not sheltered, and we're paying taxes in places where we make money. The combination of those two things gives you an unpleasant rate. It's that simple. We're not booking debits in connection with the European losses.

And until Europe comes back and starts booking some profits, then when that happens -- we're not the only ones in that situation today -- but when that happens, we'll be able to flow the operating profit right down to the bottom line. It would be a great quarter for us to start discussing tax rates, because we'll be the outliers at the other end of the spectrum.

I get you.

And in terms of the quantification of the supply chain issues during the quarter, it's somewhere in the order of EUR15 million to EUR20 million.

Thank you very much.

Peter Reilly, Deutsche Bank.

Good afternoon. I've got two questions, please. Sorry to come back to the issue of pricing, but it's the worst pricing number you've disclosed on Iveco since you started giving us the number, on a relatively modest volume decline. Can you talk about whether you think you're doing better or worse than the industry in terms of pricing? Is it an overall issue? Or do you think you have some particular issues, either because of your geographical exposure or because of your product strengths or weaknesses, which is causing you to do better or worse?

And then, secondly, you said last summer that the Iveco restructuring was going to deliver a EUR55 million ongoing savings. Can you just tell us where you are with that -- whether you've actually seen any savings in Q1, and what you expect to achieve for 2013, please.

Let me help, Rich, on the question of pricing. One of the things that it's clear when you look at the Iveco position in European marketplaces, it has its areas of strength in the areas which have been most affected by the downturn in Europe. So, all of the Club Med countries in which Iveco has been historically strong are the ones that are having the worst economic conditions. And they're the ones that are suffering from the worst pricing decline of anybody. And so the answer to your question is, comparatively to the rest of the people in this industry, on a pricing basis, we're probably doing worse than they are, simply because of the fact that we operate -- our strong markets are the weakest European markets today.

In the other question is --

And the other question is, at current volumes we're at a run rate of EUR40 million of reduced cost on a full-year basis. Some of that -- so, we've had EUR10 million during the quarter, some of which has been offset by the inefficiency that I just monetized before.

Having said this, it was the right restructuring to carry out.

Thank you.

Michael Tyndall, Barclays.

Yes, hi there. It's Mike Tyndall from Barclays. Just a couple of quick ones, if I may. Firstly, just on pre-buy -- I know it might be a little bit early to talk about it -- but some of your competitors have suggested that, at least in the UK, we are starting to see pre-buy. So I'm wondering whether or not perhaps you can verify whether that's the case for you.

And then the second one, I guess I need a bit of a lesson in industrial relations in Italy; but can you just talk a little bit about cassa integrazione and whether or not that's something that's always available for you, or whether or not there is a limit to how much you can use it? Thanks.

Let me try and help, Rich, with the intricacies of cassa integrazione. It is available to provide for temporary layoffs of a period of 24 months in a 60-month period. And it's done on a rolling basis. It is available also, in exceptional circumstances, in the cases of a restructuring where you go outside the rules on the basis of an investment plans that are designed to effectively reestablish the industrial integrity of the business. So, there are a variety of ways in which cassa integrazione works.

We have not exploited all the benefits associated with cassa integrazione in the Italian framework today. So, we continue to have all the required flexibility of demands, downturns and momentum.

And on the other question that --

And on the other question, there is -- the UK is one of the few markets that is up, Q-to-Q, in light and heavy vehicles. So there is some activity there in terms of pre-buy.

And by the way, if I can help, Rich -- on the car side, we are seeing exactly the same thing. The UK appears to be the only market that appears to be defying economic gravity. So, how long that will last is unclear to me, but I think it is a peculiar market. I would not take it and extrapolate that in terms of the rest of European operations.

All right. Brilliant. Thank you very much.

As we have no further questions, I would like to hand back to our host for any additional or closing remarks.

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

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