CNH Industrial NV (CNHI) 2013 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's CNH Industrial 2013 fourth quarter and full year results conference call.

For your information, today's conference is being recorded.

At this time, I would like to turn the call over to Federico Donati of CNH Industrial Investor Relations.

Mr. Donati, please go ahead, sir.

Thank you, Anne-Marie.

Good afternoon, everyone.

We would like to welcome you to the CNH Industrial fourth quarter and full year 2013 results webcast conference call.

CNH Industrial's Chairman, Sergio Marchionne, with Rich Tobin, Group COO, and Max Chiara, Group CFO, will host today's call.

They will use the material you should have downloaded from our website, www.cnhindustrial.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 statement 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.

This is Rich.

I'll open it up.

Just go to slide 2, please.

So, on the executive summary, as you know, we've completed the merger.

In the fourth quarter, you see the results in terms of revenues up 4.3% at a constant currency, at a trading margin of 7.7% and a net industrial debt of EUR1.6 billion; so, within the guidance, other than what we had talked about earlier in the year, about the headwinds that we had in translation, which we'll go through in detail in the balance of the presentation.

As you can see on the bottom, the Board of Directors is recommending for 2013 a dividend of EUR0.20 per share, totaling approximately EUR270 million.

This is subject to AGM approval, which is going to be held in April.

With that -- those opening -- I'll make a few other opening comments before Max goes through the consolidated figures, before we move on.

Overall, I think that it was a very good year in terms of the agricultural segment -- thinks the -- that every quarter this year, margins were higher than the previous year.

I think that you'll see later in the presentation that not only did we do a reasonably good job in terms of capturing the upside of market opportunity in North America; we had a very, very good performance in Latin America, in terms of capturing the market that grew the most, which we had forecasted at the end of 2012.

So, we've gained share in -- both in the tractor and the combine segments there.

Unfortunately, we're losing some of it in foreign exchange, coming back (inaudible).

But structurally, from the long-term perspective, we're quite pleased with the performance there.

Good performance in North America across the range, and in Europe an especially good performance in combines, which we had commented on in Q3.

On the truck side, as we had said at the end of Q3, we expected to return to profitability in Q4.

We've done so.

There remains a significant amount of work to do there, going forward, but we believe that some of the operational -- this is the majority of the operational issues that we had had with the transition between Euro V and Euro VI, and some of the operational issues that we had had in Brazil in Q1, are behind us.

We're making comments in -- later in the presentation of what we expect to see, going forward, from there.

So, overall -- a good performance overall.

I think that you'll see, in terms of managing our inventory positions, that we've done a reasonable job, which has allowed us to hit the guidance on net industrial debt of EUR1.6 billion.

And then I'll save the balance of the forward-looking comments when we get into the Q&A going forward.

But we've got some color in the presentation, in terms of demand and what we see on a sequential basis moving forward.

So, with that, I'll hand it over to Max Chiara, who will take you through the consolidated results.

Thank you, Rich.

On slide 3, financial highlights for the full year 2013, revenues totaled EUR25.8 billion, in line with last year.

On a constant currency basis, revenue was -- were up 4.3%, as growth for agricultural equipment, truck and CV and powertrain was partially offset by more challenging trading conditions for construction equipment.

Trading profit for the year was EUR1.985 billion, down EUR78 million, largely as a result of negative exchange rate.

On a constant currency basis, trading profit was in line with 2012 as higher volume and positive mix in the ag and CE segment and higher revenues and better capacity utilization for powertrain compensated for the Euro VI transitional cost, and less favorable product mix and pricing environment in the trucks and CV segment.

Trading margin was 7.7% of revenues.

Net profit at EUR917 million -- up 2% versus last year, with EPS for the year at EUR0.63 a share.

Net industrial debt at December end of EUR1.592 billion was EUR50 million lower than the prior year.

Available liquidity of EUR6.3 billion, inclusive of EUR1.6 billion of undrawn committed facilities, was up EUR0.1 billion.

Moving on to slide 4, revenues and profit contributions by operating segment.

I'm focusing now on full-year numbers, as Rich will talk you through Q4 in the business overview later on.

Revenues from agricultural and construction equipment for the full year were in line with the prior year at EUR16 billion.

On a constant currency basis, revenues increased 4.7% as a result of strong demand for agricultural equipment, partially offset by challenges faced by the construction equipment business.

Trucks and CV revenues decreased 1.9% to EUR8.8 billion.

On a constant currency basis, revenues increased 1.5%, the result of a recovery in demand in Europe, largely due to the Euro V pre-buy effect, mainly happening in Q4 2013, and increased volume in LATAM.

Powertrain revenues were up 13.6% to EUR3.3 billion, up 14.6 on a constant currency basis, driven by higher volume for both internal and external customers.

Trading profit in agricultural and construction equipment increased to EUR1.8 billion, up EUR229 million from last year, with a trading margin of 11.1%.

Trucks and CV closed the year with a trading profit of EUR101 million, margin at 1.2%.

Powertrain closed the year with a trading profit of EUR158 million, up EUR17 million from full-year 2012, with a trading margin of 4.7%.

Our next slide, number 5, deals with revenue growth composition.

As you can see on the top of the slide, revenue growth net of currency impact was 4.2% in the quarter and 4.3% for full year.

Currency impact was negative EUR374 million and EUR1.1 billion for the quarter and full year respectively, mainly related to the US dollar and Brazilian real fluctuations.

Slide 6 is the usual walk from trading to net profit.

Again, on full year, operating profit increased EUR22 million to EUR1.9 billion in 2013, mainly the result of reduced structuring costs from the prior year.

Financial charges were EUR463 million for the full year, slightly better than prior.

Effective tax rate of 39% for the full year was slightly above the Group's expectations, mainly due to one-time merger-related impacts.

As a result, net profit was EUR917 million or EUR0.63 per share.

Moving on to -- slide 7 provides greater detail on financial charges in the year at EUR463 million, with a slight improvement versus prior year.

On slide 8, on the left hand we have [a light] CNH industrial JV net investment income, recognized under equity method, being up EUR21 million to EUR102 million in 2013.

The improvement is mainly coming from our JV in China in the truck and CV segment.

On the right side of the slide, you can see a reference to our financial services JV with BNP Paribas Leasing in Europe, that has been extended to the truck and CV segments.

We currently finance over 40,000 customers in nine countries for a total outstanding portfolio of EUR1.7 billion.

On -- slide 9 shows the components of the change in net industrial debt that leads to the EUR50 million reduction year over year.

Year-end net debt stood at EUR1.6 billion.

Slide 10 provides greater detail regarding tangible and intangible CapEx by spending category and segment.

At year end, CapEx inclusive of capitalized R&D were EUR1.5 billion, 146 million, or 11% above prior-year spending, as we continue to invest in new products and energy compliance.

In terms of composition, investment in new products represented almost 60%, maintenance and running capacity 25%, while capacity expansion and long-term investments represented 16%, mainly in Ag, with new plants coming in Harbin, China and Pune, India, as previously disclosed.

On -- slide 11 shows Group available liquidity as of December 31, 2013 of EUR6.3 billion, inclusive of the EUR1.6 billion of undrawn committed facilities.

During the year, sustained activity on the capital market has continued with two issuance from our captive finance company, CNH Capital LLC, in the US market.

Also, CNH Inc.

repaid at maturity a EUR1 billion note in September with cash on hand.

This concludes my presentation.

I pass over back to Rich.

Okay.

We'll move over to slide 13, agricultural and construction equipment segment for the quarter.

Revenue's up to EUR3.9 billion, up 3% in constant currencies.

Thanks to strong performance particularly in LATAM -- you see the geographical distribution per region -- so, the changes -- LATAM has moved up in terms of the distribution on a quarterly basis, year over year, as a result of the growth rates we had -- we have experienced all year long in the Latin America market, for demands for both tractors and combines and associated equipment.

Agricultural equipment global tractors and combine unit deliveries are up 1%.

Construction equipment unit deliveries were down 9%, with -- meaning, light down 11% and heavy flat year over year.

Trading profit at EUR298 million is up EUR34 million at a margin of 7.6% for the quarter, which is 1.1 percentage points increase.

Agricultural equipment trading profit at EUR240 million is up EUR14 million versus last year, at a margin of 7.9%, approximately 0.5% (sic - see slide 13, 0.6 percentage point) improvement in terms of margin.

Construction equipment essentially is flat to the prior year.

Next slide, please.

In terms of the makeup of the trading profit variance, you can see volume and mix, as I said, in terms of the deliveries are -- is flat.

Pricing at a positive EUR65 million -- that is -- the majority of which, approximately EUR60 million, is on the agricultural side, where we continue to have pricing power in the market to cover in excess of transition costs to Tier 4B.

The rest is relatively flat, and then you see the FX effect, as Max alluded to before, when you see the translation (inaudible) is at EUR36 million.

So, on a constant currency basis you can calculate where we're going to be in the trading profit point of view.

But the FX headwinds predominantly are coming out of LATAM, and to a certain extent a smaller amount from the US dollar.

Next slide.

This is a slide that we have -- I think that we've -- that we warned on Q3, and have been pretty consistent year over year that we try to tailor production to retail.

So, we underproduced in Ag by 17% in the quarter.

That is reflected in the cash flow for the Group during the quarter.

You can see that we end the year at a relatively healthy level of both Company and dealer inventory, relative to where we expect markets to move next year.

So, it's a good job -- I think we -- that, in terms of the demand at the end of the year in December was quite heavy, and we did a good job in terms of liquidating the amount of dealer and Company inventory that we built up through the year.

On the construction side, the same thing -- fourth quarter underproduction versus retail of 26%.

That is a little bit in excess, I think, of what we have planned, because of -- the amount of retail deliveries at the end of the year was quite good for the Group, which is also reflected in the cash flow statement.

I think that if you look at the inventory levels, that we exit 2013 -- it sets us up for the possibility for increased production performance in 2014, going forward, on the back of improving conditions in the construction equipment segment.

Next slide, please.

The slides, in terms of the year-over-year change in unit volume by segment -- there's really nothing important to put in here.

NAFTA slightly down; EMEA down 5%.

But as you recall, EMEA had been running up the first three quarters of the year, so that's just a little bit of a decline in demands, particularly in France, during the latter half of the year.

LATAM continued to run strong in terms of demand.

You can -- for the -- on a Q4 basis, that is slightly -- or, less than it had been running at the pace, and that has -- and the slowdown in LATAM at the end of the year was largely as the result of this renewal of FINAME financing, where there was a period during the month of late November and early December where it was unclear what the rules would be, just going into 2014.

Those rules have been clarified, and they are at expectation of what we had said before, in terms of the spread difference on the subsidized financing.

We can take you through that during the Q&A.

On the construction equipment side, worldwide, you see the difference, 5% up light -- 5% on light and 15% on heavy.

NAFTA down on heavy.

I think that's just a little bit of an anomaly in terms of the difference between the unit volume in light and heavy.

But overall, you see somewhat of an improvement on the construction equipment side, and that was reflected in our retail deliveries during Q4.

Next slide.

Moving on to trucks and commercial vehicles, revenue at EUR2.7 billion in line with prior year, up 3.3% on a constant currency basis, with slight recovery in Europe on Euro V pre-buy.

Positive impact was offset by negative foreign exchange, primarily due to LATAM.

Overall units sold at 43,000 is down 5.4% versus last year.

In terms of the product launches, I think we've gone through the -- most of these.

But we've completed the transition between Euro V and Euro VI in the heavy line-up, and the off road Trakker vehicles.

Eurocargo in the medium segment is launched in Q4 for all European countries.

In LATAM, main product launches for commercial availability was the Stralis Hi-way Euro V, launched in Brazil at mid-year and available in the market from 2013.

Trading profit of EUR94 million is down EUR73 million versus last year at a margin of 3.5%.

Next slide, please.

You can see the components of trading profit on the trucks and commercial vehicle side.

The fact of the matter is, it's -- you know, it's an improvement of what we've seen sequentially through the year, and we've moved to 3.5% margin.

I think that overall we did a good job in terms of defending our market share, which you'll see on previous slides, but at some cost.

You see, in terms of net pricing, we could have done a -- really, a better job there, I think, on the Europe side.

But we were late in the -- on the launch of the Euro VI vehicles, so we didn't have a lot of pricing power while we defended market share during the heavy demand period in fourth quarter.

I think this is something we can improve on going forward, and as I mentioned before, there was an amount of market uncertainty in LATAM during the fourth quarter, which was negative to pricing.

You see on -- FX, on a constant currency basis, cost us EUR22 million of trading profit due to exchange primarily on the Brazilian reais.

Next slide.

In terms of units sold -- overall units sold -- I think I covered that in an earlier slide.

It says geography -- Europe (sic - see slide 20, EMEA)is up 3.9%, largely as a result of the pre-buy in Euro V in the heavy segment.

LATAM flat year over year.

APAC, which is not in here, was down year over year, but that was as a result of stocking in 2012 for Russia primarily, which has experienced significant weakness year over year, 2012 to 2013.

In terms of the order book, we have a solid order and positive Euro V/Euro VI phase in/phase out increase on all ranges in the -- and all ranges of the order portfolio are up 25% versus last year, heavily dominated by the light segment, in preparation for the transition of Euro V to Euro VI.

On the new daily -- new Euro V, it's got a higher portfolio of orders, of -- up 3% versus last year, which is all Euro VI, as we've completed the buildout of Euro V vehicles in the medium segment, and the bus order portfolio was up 10% as a result of the launch of the new Euro VI line-up.

If you look to the book to bill, I think this is an aggregation of worldwide book to bill.

I think that the biggest driver of the decrease of book to bill, quarter to quarter, or going from Q3 to Q4, was the heavy demand of Euro V vehicles for the pre-buy of Euro VI.

But -- so, that's predominantly the biggest change.

LATAM is down 9%, but that's fundamentally as a result of some of the difficulties in fourth quarter with the transition of FINAME.

We expect that to normalize going forward, and as I mentioned before, the total order portfolio is up 25% in aggregate quarter over quarter.

Next slide.

Same slide on the trucks and commercial vehicles.

You see the ramp-up in production to supply Euro V heavy vehicles and the buildout of the medium range during the fourth quarter.

We -- but at the end, we retailed 5% more than production in Q4.

So, fundamentally, no change in working capital going into 2014.

Next slide.

Industry volumes quarter to quarter -- I don't think there's any surprise here.

You see in Q4 a 25% increase, driven again by the pre-buy effect on Euro V. We'll go through any of the details I mentioned before in terms of market share.

We've defended market share, predominantly -- you can see the increase in market share with the launch of the Stralis Euro V in Brazil, with the increase in market share there of almost a full point; and defended market share in Europe for the quarter.

Next slide.

Max commented on this earlier.

These are the volumes coming out of the joint ventures in China.

You saw the change in equity and income from -- moving from a loss of EUR2 million in a prior period versus a EUR21 million profit of equity and income, somewhat of it volume leverage, but more importantly, I think, it's as a result -- as we continue to work together with our partner in terms of industrial efficiency and the acceptance of the vehicles in the Chinese market.

Next slide.

Powertrain year over year revenues up 19% on a constant currency basis, reflecting business growth for both captive customers and third parties, largely on internal customers.

You see the units sold by business line.

So, increases across the board.

And as a result of these increases, we have a -- we have profit moving from -- at EUR71 million, which is up 11%, at a margin 7.2% over the prior year.

Next slide.

And as you've seen, projected improvements in operating performances in trucks, commercial vehicles and construction equipment business, coupled with continued industrial efficiencies, are expected to offset the decline in what we believe will be a down market in agricultural equipment in 2014, heavily localized in NAFTA on the high-horsepower segment.

And accordingly, we're setting guidance for 2014 with revenues flat to plus 5%, trading margin of 7.8% to 8.2%, and net industrial debt between EUR1.5 billion and EUR1.7 billion.

And that's the last slide.

I'd like to open it up for Q&A.

Thank you, Mr. Tobin.

Now we are ready to start the Q&A session.

Anne-Marie, please take the first question.

(Operator Instructions).

Larry De Maria, William Blair.

As far as the guidance goes, I think we're getting to about 0.80, 0.85 under IFRS.

When we think about the GAAP headwind, are we correct to assume this should be around, I guess, 0.15 or so?

Wow.

You've led right off with the question, Larry.

So, let me address the issue of the transition during the quarter between euro, IFRS, the US dollar GAAP.

I'm not going to go in and try to deconstruct the full accounts now.

What our plan is, as we had mentioned previously, and I think it's in -- and it's in the press release -- that in early May we'll be resetting a new forward-looking plan for the Group.

Prior to that, we'll be hosting some kind of either podcast or conference call, where at the time we'll take you through all of the technicalities of moving from euro IFRS to USD and US GAAP, inclusive of retrospective accounts to 2012, and a change in terms of the segmental data where we'll split out construction equipment from ag and construction.

But, I mean, I'll answer the question for you, Larry -- I mean, it's coming, in terms of doing that.

But we're not going to answer any questions today about what the results would look like under US GAAP dollar at -- presently.

Okay.

And then, maybe secondly, on Iveco margins, should we -- I think we talked about, previously, fourth quarter margins being a relatively good run rate going forward.

At 3.5%, the right way to think about where margins are in a [flash] environment in 2014, and maybe what are the puts and takes to margins this year?

Because I know we had some -- maybe some rollout issues last year, and maybe those reverse?

Well, I mean, I think if you look at what it says in the guidance, we're expecting improved performance in the construction -- excuse me, in the commercial vehicle segment, despite the fact that we're calling the market in -- the EU market flat, and LATAM down slightly.

So, that -- what that implies is that there's an amount of industrial efficiency improvements year over year, and some pricing.

So, we expect to do better.

Now, whether 3.9% is the run rate or not, I think it's hard to say, because that's going to be volume-dependent.

But, on an overall basis, a lot of what the pickup is going to be, even in flat market conditions, is going to be on us in terms of our own performance and execution.

I will say, in terms of the go-forward basis, as a result of the heavy pre-buy on Euro V and the transition to Euro VI, we'd expect Q1 in terms of production to performance to be down, particularly in the heavy segment, but that -- for that to normalize in the following three quarters.

Okay.

Thanks, Rich.

Ann Duignan, JPMorgan.

I guess I should ask the obvious question, and that is, you know, why did we only get 10 minutes' notice of the earnings today, and will we -- should we anticipate a little bit more notice when you do the early May release?

Yes.

Yes, Ann.

You'll get it a lot quicker in May.

We had a little bit of a technical difficulty here.

Apologies.

Technical meaning IT, or technical meaning audit?

IT.

Okay.

That's helpful.

Switching gears, then, can you walk us through your outlook for the agricultural segment by region?

I can tell you that overall our expectation is that we -- that North America should be down in terms of unit deliveries year over year, and probably more on the high-horsepower segment, both on the tractor side and combines.

So -- but the balance of the market's either flat to slightly up.

Okay.

And we're hearing a lot of concern about your major dealer in North America.

You know, what, if anything, are you doing, or would you consider doing, to support your dealer network as they go through perhaps a difficult couple of years on the high-horsepower side?

Yes.

I don't want to comment on, or I can't comment on, what you're hearing.

And you didn't use the name, so I'll just speak around it.

At the end of the day, as I mentioned earlier, they've been -- we're working closely with our dealers all year in terms of managing inventory levels, both new and used, in the transition in North America to -- we expect to be a market where unit demand is down.

I think that we've done quite a good job with that, and you can see that in terms of us underproducing retail significantly in the fourth quarter.

So, I cannot comment on what we would provide in terms of support, especially when I presume the dealer you're referring to is a publicly-traded entity.

And in terms of underproduction, do you anticipate further underproduction in North America early in 2014?

You're going to have a net change in production based on what the market conditions are.

So, if unit volume's down, we're going to tailor -- we'll tailor our production to meet what we believe to be the demand of the marketplace.

So, year over year, unit production will [be] demand at least through the first half of the year.

I think the -- remains to be seen what happens in the second half, because that'll be influenced to what we think 2015 looks like.

And as of right now, just your combine order backlog?

And then I'll move on.

Sorry.

Sure.

Combines -- I think that -- are down approximately 15% year over year.

But that's on the back of a pretty good performance in Q4 in terms of market share performance for us.

So, I'm not -- I mean, I don't -- I wouldn't take that number as a forecast for the full-year combine delivery.

But, I mean, that's where we stand right now.

Okay.

Thank you.

Appreciate it.

David Russell, ISI Group.

One quick clarification, if I missed it.

The tax rate assumption for next year?

Uh-huh.

It's in the press release, David.

I think on page 2.

[Not in the summary].

I apologize.

That's okay.

That's -- it's our problem for not getting it to you quick enough.

But it's in page 2 of the -- 35 to 38.

All right.

So, in the EPS level, I'm not coming up with, you know, the numbers above 0.80.

I'm definitely getting below that.

I'm just trying to understand.

On the trading profit you're basically looking for, you know, up 6% or so on trading profit margins up.

North America, the ag's obviously very profitable.

Iveco, though, is hopefully partial offset, right?

Better margins year over year.

Can you help us understand a little bit the composition of -- even, if you want to do a combined CNH construction plus ag, how are you looking at the margins in CNH year over year?

Because, you know, hopefully construction's better within it, but North America ag being down, especially high profit margin high-horsepower.

Just trying to get the understanding of how much pressure is on construction and Iveco to get your total Company margins up for the year.

There's going to -- ag -- it's -- I don't know how to describe, or how you describe pressure.

Our expectation is to improve trading profit in both the construction equipment segment -- you can see where we are on a year-to-date basis, and you can see where we are in Q4.

Our expectation is, is to improve that materially, at least from the starting point that it's in.

And in the commercial vehicles side, we expect the same.

So, I think that we've got a pretty good handle on a full-year basis, that despite we're predicting that -- the high-horsepower segment to decline year over year in terms of unit deliveries in NAFTA, that we can limit that effect to the gross margin on those particular units and not have the decrementals in terms of industrial -- on the industrial side, because of what we've talked about before, that we've never run at -- we've never capacitized ourselves where we're running at 100%.

We've got a significant amount of production, if you will, that sits outside, or that we've touched that first before we get the decrementals, in terms of absorption year over year, at least under the current forecast.

So, I mean, in summary, it sounds like ag standalone may be a little down on margins, but then construction and Iveco up enough to drive the overall improvement.

Is that a --?

I think that's fair.

Okay.

All right.

I appreciate it.

Thank you.

Monica Bosio, Banca IMI.

I would like to know if you can comment a little bit more on your guidance in term of net debt.

I was actually expecting a higher figure for generation.

Can you comment, the driver behind the top of your net debt guidance?

I'm just trying to figure out, is -- if this is because of CapEx, a higher working capital absorption, or whatever?

Thank you very much.

It's mostly because of the change in CapEx year over year.

Okay.

So, can you just give us a guidance in terms of CapEx for 2014, please?

I think that we're -- hold on a second.

I think that we're between EUR1.3 billion and EUR1.6 billion.

Okay.

Thank you very much.

Rob Wertheimer, Vertical Research Partners.

Just a quick question on North America ag again.

Are you able to comment on used -- you know, just trends in used pricing and then inventory dealer levels?

Rob, I mean, we've been talking about it all year.

I think that we've intervened during the year to manage the used at the dealer level.

I think that, because of the heavy retail in Q4, you're going to see a little bit of a bounce-up in terms of the total unit value.

I mean, the good news is, is that if you look at the pricing in both tractors and combines and used, it's holding up very well.

Now, whether that is because -- that the price is moving up because it's -- because those units are becoming more attractive prior to the implementation of Tier 4 Final, or what it is, I think that what we can see right now, when we go and take a look at our own internal data and from public sources, that right now we're pleasantly surprised so far, in terms of the high-horsepower segment of the pricing of used.

That's helpful.

And I apologize if this question is obtuse, but on your order book on the truck side, you know, higher portfolio orders up 3% last year -- does that mean your backlog at December 31st is 3% higher on heavy than it was last year?

I'm just getting the terminology right.

The total backlog, yes.

On the heavy -- okay.

So, that's not too bad.

And -- okay.

And then, on the -- so, the total backlog for all power ranges is up 25% and the heavy is up 3%.

So, the light medium is up much more, obviously, right?

Yes.

Which is heavily influenced by the backlog in light.

Yes.

Okay.

Great.

Thank you very much.

Alberto Villa, Intermonte Securities SIM.

I have a question again on CapEx.

We're trying to understand, what is the normalized level of CapEx going forward.

Because I think EUR1.3 billion, EUR1.6 billion -- especially EUR1.6 billion -- is probably the highest CapEx for the Company.

In the last few years at least, it seems we have a record for CNH.

So, I was trying to understand, where are you deploying this CapEx, and if 2014 will be a sort of peak for CapEx or not?

And secondly, if you confirm the benefits that you are expecting in terms of financial charges for 2014, you have planned with the creation of CNH Industrial.

Thank you.

I think, Alberto, I can tell you that the makeup of the CapEx for 2014 is like the pie that you see in 2013.

So, it's heavily influenced with transition costs associated with either Tier 4 Final or Euro VI.

But if you're looking for projections forward from there, I think that that's what the meeting in May is going to be about, where we can show you the curve on CapEx consumption for the Group.

Financial charges?

Same thing.

Martino De Ambroggi, Equita SIM.

Two follow-ups, one on net working capital.

I understand CapEx are negatively impacting free cash flow this year, but net working capital is -- maybe I missed it during the presentation, but you mentioned that should be stable or -- year over year?

Yes.

I don't want to start deconstructing the net debt calculation by component here.

I mean, we've -- we highlighted what we think is going to be the increase year over year in terms of CapEx, so obviously that is going to have to be offset, net working capital being one of the components.

But, I mean, I don't want to get into deconstructing the individual components going forward.

Okay.

On R&D capitalization, I remember 350 was the net effect estimated for the curve, 2013.

Is it right at your end, this value?

And what the assumption in -- implicit in your guidance for the current year?

I'm going to have to look up what it is for 2013.

In 2014, our assumptions take into account the roll-forward on an IFRS basis of R&D.

Same number.

Okay.

[On the 350].

350 is okay.

Okay.

And on construction, last time you mentioned we will stay as we are today.

Stand-alone, we're [going to] wait.

Nothing changed.

Nothing's changed.

Okay.

Thank you.

Alexander Virgo, Berenberg Bank.

Just wondering if you can comment a little bit about Italy in particular, with respect to Iveco.

Obviously, registrations in Europe in terms of heavy truck were very strong, apart from Italy.

And it -- just wondering if you can shed any light on what was causing that, and why that might have deteriorated so significantly into December.

And then the second one just on Latin America and ag, I suppose in particular, but I guess with respect to both truck and ag.

Have you seen any change in demand with respect to the clarification of FINAME financing, just as an indication of, you know, the disruption that it had in Q4, or December I suppose, moving forward into this year?

Thank you.

Okay.

In terms of Italy, the TIV of Italy for the year was down 13%.

We gained 1.1 percentage points on market share.

Why is it down 13%, I think is just a reflection of the economic conditions in Italy itself, and the lack of any incentive in the system.

So, it is what it is.

We've -- it's -- we've performed better than the market, but clearly, out of the European markets, Italy suffered the most for the year.

And --

I was just wondering, Rich -- sorry.

I was just wondering why you didn't see any real pre-buy in Italy.

Is that, just not seeing the same amount of marketing, or --?

You probably did see some, but the market's just so down, so dramatically for the full year, it's just not offsetting it.

Okay.

On the FINAME, on the ag side, barring the period of time that we had at the early -- at late November, early December, where there was really nothing out there -- no, I think that our order books year over year in Brazil are relatively stable across both segments.

So, I think that it's recovered, this small period of time, and I think that it's clear that in terms of the rates in the FINAME, that FINAME has posted, that the lowest change in terms of the rate is in the agricultural sector, which is good news.

Okay.

Thank you.

Adam Fleck, Morningstar.

You know, I appreciate the commentary on the market share gains across the segments.

But, just curious, when you're looking at 2014, what are you assuming -- for your share gains, are you assuming more of a flat performance?

Flat.

Okay.

And is that up in one area and down in another, or generally flat across the entire area?

I think generally flat's a good one to use.

Okay.

And then one to follow up on, on some of the discussion around pricing in ag.

You know, I appreciate some of the discussion around the used pricing; but, just curious, as you think about a down market next year, and NAFTA maybe some up around the rest of the world.

Is that a market where you should continue to increase pricing or is that going to be more challenging, do you think?

Our objective is at minimum to price to recover any change from Tier 4 Interim to Tier 4 Final.

Okay.

Great.

That's helpful.

Thanks.

Massimo Vecchio, Mediobanca.

Two questions from my side.

I was wondering if you can help understanding the truck market in the first quarter of this year.

How do you expect the market, and [new vehicle] registrations, and how do you see then the quotas throughout the year?

That's the first one.

Second question is on the gross value on your balance sheet, in terms of gross debt and gross cash.

I was wondering if you, in light of the double listing on the recent transactions you did, and what you see on the capital market, if we could expect a reduction on your balance sheet of gross debt and gross cash, and therefore an improvement in financial charges.

I'll take the truck one first.

I think I commented earlier that our expectation is, is that demand in Q1 for heavy, on the back of the heavy demand that we saw for the Euro V pre-buys, our expectations for demand to be lower in Q1 and then recover sequentially through the year.

So, production -- we'll tailor production performance for that.

I'm not going to give you quarter by quarter, in terms of going -- I think that that, down in Q1; sequential improvement over the balance of the year.

And I think you're going to have to wait till May.

As part of what we'll put together, we'll give you some color in terms of capital structure going forward, which takes into account some of these other questions about CapEx and cash flow.

All right.

Thank you.

Michael Tyndall, Barclays Capital.

Really, I wonder if we could talk a bit more about Iveco.

You've talked about the problems you had with Euro VI.

I wondered if you could just give us a bit more detail as to what exactly those problems were, and are they completely resolved now?

And then, if I think about the EBIT walkdown for Iveco, where is that problem turning up?

Is it in the other line, or is it in the production cost?

I guess I'm wondering, going forward, where will we see the benefits of you fixing that, coming through?

Thanks.

Sure.

I think it -- to be clear, when we were talking about launch-related issues, that there were no issues in terms of with the selection of the powertrain solution.

It was all around the launch of the vehicle [itself] at the industrial level, whether that is supplier constraints or a variety of things.

So, make no mistake -- in terms of the solution on the powertrain side, we're confident in what we put in there, and I think that that is demonstrating itself now that the vehicles are in place.

I think that what you're going to see, going forward, is in the production cost line, net of any changes of features, upgrades and changing between Euro V and Euro VI and the other line, is where you'd see it.

Okay.

Can I just delve into one other topic?

Just thinking about Q1 soft production, and Italy specifically, do you have an advantage in terms of Cassa Integrazione versus your European peers?

I mean, is it much easier for you to cut production by a meaningful amount in Italy?

No.

Okay.

Thanks.

Ross Gilardi, BofA Merrill Lynch.

Just a couple of questions.

First of all, on the dividend, could you just comment a little bit more on your dividend policy?

And obviously you've put a dividend on the board; but if I look at, you know, what you're proposing to pay out, which is, you know, EUR0.20 on a trailing basis, it's a little bit over 30% of trailing earnings, which I think is a higher payout ratio than the other ag players.

So, should we think of it as a payout of earnings, or free cash flow, or what, going forward?

And if the downturn turns out to be more severe than you expect in ag out of the gate, do you run the risk of having to take the dividend down, you know, in the next couple of years, just as you're putting one on the board initially?

Yes, I got it.

I mean, I think that the -- in terms of the ratio, that's the holdover from the old payout ratio from Fiat Industrial.

And then in May -- again, I don't want to be -- that's going to be part of what we do.

We're going to give you an idea in terms of the performance, and from an operating point of view, how that rolls through to capital structure and cash flow.

And then at that point we'll set a definitive dividend policy for CNHI.

Okay.

Got it.

And then, on construction equipment, I mean, can you just talk a little bit more about really what's going on in that business?

I mean, obviously there've been demand headwinds, and some of the other players have been struggling.

But, I mean, you guys are having a tough time, clearly, there.

And what are some of the Company's specific issues, and what's really the road to much improved performance?

It would seem like it can only get better from here.

But, you know, that segment has been struggling for a while now, so aside from the external environment, what are we counting on?

I don't think that we're counting on any return to the demand that we had seen in 2007.

The reality is, is that we're going to take a modest view in terms of the return, and that's going to entail us making some changes to, you know, our own cost base.

We are -- we have been going through the transition from two partners to one partner on the excavator business, that has taken some cost.

But overall, I think that when we go forward, that these are the problems that we believe that we can return to this business being profitable under a -- you know, not something that's going to be wholly dependent on the return of unit volume.

I think that it's operational improvements [predominantly].

Within North America, Rich, what's going on in the rental chain?

Because obviously, the rental chain has been very strong.

Yet, you haven't mentioned anything about rental, I don't think, in a few quarters.

But if I remember correctly, a few quarters ago it sounded like rental was more of a headwind for you guys.

So, could you describe what's going on with your business in the rental chain?

Yes.

I mean, we're still, you know, a material presence in the rental chains.

I think that we haven't seen some of the volume demand into rental that we had seen in 2012 -- the beginning of 2012.

I mean, there was a lot of pre-buy before the transition from Tier 3 to Tier 4.

So, our expectation is, is that we've got a year under the belt, where demand at our rental's been relatively benign.

And I think that that's one of the things that would -- we'd point to in 2014, other than just overall growth in the segment, is that there should be some return in terms of demand out of the rental chain.

Okay.

Thanks very much.

Thanks.

That will conclude the question-and-answer session.

I would now like to turn the call back over to Federico Donati for any additional or closing remarks.

Thank you, Anne-Marie.

We would like to thank you -- everyone for attending today's call with us.

Have a good evening.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.