CNH Industrial NV (CNHI) 2014 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. I would also like to welcome our webcast audience that just joined us.

I will start with Q1 earnings release presentation and then I will present the five-year financial targets. Let me start with the quarter now.

As an introductory note, let me please remind you that as you may have seem in the earnings release issued this morning, this is our first quarter reported under US GAAP and US dollar after the filing of our first annual report on form 20-F occurred on April 25, 2014.

In the appendix, you will also find key figures prepared in accordance with IFRS, always in US dollars as reporting currency, together with detailed reconciliation tables to US GAAP.

Furthermore, as you already know, CNH Industrial has realigned its segment reporting and expanded its reportable segments reflecting the five businesses directly managed by the Company.

I'm on slide 4 now, financial highlights. Consolidated revenues for the quarter were in line with last year at $7.5 billion. Net income was $101 million. Net income before restructuring and other exceptional items was $177 million, down $8 million versus last year. EPS for the quarter was $0.07 per share. EPS before restructuring and other exceptional items was $0.13 per share, in line with prior year.

In Q1 2014 other exceptional items consisted primarily of the re-measurement charge for Venezuelan monetary assets of $64 million following modifications in the exchange rate mechanism. The reconciliation of net income to net income before restructuring and other exceptional items is in the appendix of this document.

Available liquidity at March end was $8.1 billion, inclusive of $2.3 billion in undrawn committed facilities. Industrial activities net sales, and now I'm turning to industrial activities, posted $7.2 billion for the quarter, were up 1.3% on a constant currency basis.

Operating profit of industrial activities was $412 million, with margin at 5.7%, roughly flat versus last year.

Net industrial debt for the quarter was $4 billion, $1.8 billion higher than at year-end. Net industrial cash flow absorption of $1.8 billion reflects the expected seasonal increase in working capital after the Q4 2013 de-stocking, primarily in the agricultural equipment business. And I will further elaborate more on this point later on.

I'm on the next slide number 5 now. This is the walk from operating profit down to net income. Consolidated operating profit for the quarter was $466 million, slightly down versus last year. Interest expense net totaled $141 million for the quarter. It was $112 million last year so a difference of $29 million, primarily due to an increase in average net industrial debt of more than $500 million year over year and reduced inter segment activity.

Other net was a charge of $94 million for the quarter, including the pre-tax charge of $64 million due to the re-measurement in US dollar of the Venezuelan assets mentioned before.

Income taxes total $143 million, representing an effective tax rate of 65% for the quarter. The significant increase over the 52% effective tax rate of Q1 2013 is mainly due to the exceptional pre-tax charge relating to the Venezuelan re-measurement for which now corresponding tax impact has been book benefited.

Excluding this item, the effective tax rate for the first quarter in 2014 was 50.5% due to not book benefiting losses in certain jurisdiction. In fact, the group full-year 2014 tax rate is forecasted to be in the range of 40% to 44%.

Consolidated net income was $101 million for the quarter or $0.07 per share.

On slide 6, we show here the overview of the industrial activities performance for the quarter. As said before, total net sales for industrial activity is at $7.2 billion. Total operating profit of industrial activity was $412 million.

Results by segment were as follows. Agricultural equipment, AG, net sales of $3.7 billion, down 6% reported or down 4% on a constant currency basis, mainly as a result of decreased volume, primarily in LATAM and APAC regions and less favorable product mix.

Operating profit was $464 million, basically flat year over year with margin up 0.6 percentage points to 12.5%. Due to net price realization, notwithstanding the weaknesses in certain segments and geographies, and improving (inaudible) performance, despite we are in the midst of the Tier 4B launches. This positive news were offsetting negative volume and mix.

Construction equipment now. Net sales were almost $800 million, up 3% reported, 8.1% on a constant currency basis positive as industry only demand increased in every region, except LATAM. Operating profit was positive $3 million, compared to a loss of $26 million last year. Favorable volume and mix, mainly in heavy equipment, as well as price discipline maintained during the quarter and positive contribution from containment actions and structural costs, led to breakeven results in Q1 for the segment.

Commercial vehicles net sales were $2.3 billion, down 1% over prior year as positive performance in truck and bus in EMEA and APAC was offset by a significant decline in demand in Brazil, where total industry volume was down 12% and manufacturing activities in Venezuela and also by unfavorable calendarization of activity in parts and specialty vehicles.

The operating loss of $70 million was a result of negative market mix related to the significant slowdown of activity in LATAM affecting volume and manufacturing operations, and transitional costs with the launch of the new Daily where the official launch is slated for June of this year, and Euro VI bus product line-up.

In addition, price realization under-recovered negative foreign exchange impacts in emerging market currencies, mainly in Brazil, Turkey and Russia. After the currency devaluation on average hit for approximately 20%. On a combined basis, the impact of LATAM's slowdown, including exchange rate impact, accounted for approximately $40 million on the variance year over year.

EMEA performance in truck and bus was flat of compared with Q1 2013, notwithstanding a slow Q1 2014 after the strong finish last year due to the pre buy in advance of the introduction of Euro VI. Efficiencies in manufacturing also contributed on a positive note.

While market share was up in LATAM and APAC, EMEA experienced favorable volume, mainly due to industry demand with market share flat. At the same time, the industrial machine was ramping up on the base of a solid Euro VI book building, particularly in heavy, and is getting ready for the launch of the new Daily.

Furthermore, in April 2014 commercial vehicles announced it was temporarily suspending its manufacturing operation in Venezuela due to the continuing currency crises, which has caused difficulties for Venezuelan industry and the importation of key components and materials.

And finally, powertrain net sales were $1.2 billion, an increase of 23% plus over Q1 2013, primarily attributable to higher volumes. Operating profit for powertrain was at -- post at $34 million, was up $20 million with a margin of approximately 3%. Improvement was mainly due to increasing volume and related industrial efficiencies. You will find additional details of quarterly variances in the appendix of the presentation.

Move on to slide 7 now, this slide shows you the foreign exchange impact on both net sales and operating profit for industrial activities. As you can see, net sales on a constant currency basis were up approximately $100 million, but were more than offset by $140 million from negative foreign exchange translation impacts, primarily coming from the Brazilian real. Operating profit net of currency translation impact was positive 3.3% but more than offset by a 5% effects translation negative impact.

On slide 8, the slide shows the change in net industrial debt moving from $2.2 billion as of year-end 2013 to $4 billion at the end of Q1. Operating cash flow before changes in working capital contributed approximately $350 million. Working capital used $2 billion, primarily due to increases in inventory of $1.1 billion, trade payables negative impact of $0.5 billion and a negative impact in other asset liabilities net of approximately $0.4 billion while CapEx used $140 million, representing a low start in the year after the catch-up experience in Q4 2013.

The net industrial cash flow absorption reflected the expected seasonal increase in working capital, which I'm going to explain in the next slide.

On slide 9, you can see here the typical change in the working capital dynamics affecting our businesses. And a focus on the difference between Q1 of this year versus last year.

The change in working capital is a visual driver of quarter to quarter changes in net industrial debt within the yearly cadence in our business. In particular, working capital in the first quarter is affected by agricultural equipment seasonality that typically drives cash absorption on the back of inventory build-up to support spring and summer selling season by the [download] of payables generated in Q4 mainly in CV, and by the replenishment effect after peak concentration in Q4 of CV deliveries.

Another important component of the increase is represented by the impact to Company inventories of the full changeover to Tier 4B, which impacted both 2013 and 2014.

The approximately $400 million higher working capital absorption in Q1 of this year, which was last year, is mainly related to the CapEx timing described before reflected in lower payables and the impact in working capital from the sudden and significant slowdown in demand across all segments in LATAM approximately 50-50.

Slide 10. Moving on to slide 10, this is the last slide of today's Q1 review. It deals with our financial services business performance. Net income for the quarter was up 46% to $86 million on higher average value of the portfolio, which increased $1 billion versus year end and was up nearly $3 billion versus a year ago. Only partially offset by SG&A increases associated with new activities launched in EMEA and LATAM to support commercial vehicles after the creation of the global financial services activities within CNH Industrial.

Retail originations were at $2.3 billion, down $150 million versus Q1 of prior year, mainly due to reduced agricultural equipment volumes. Managed portfolio was at $28 billion, which retailed two-thirds and wholesaled one-third approximately. The quality of the portfolio remains good with delinquencies on book over 30 days at 5%, down 0.6 percentage points versus last year.

This concludes our first quarter financial review presentation. We can now move on with the last part of today's program that deals with our five-year planned financial targets before the Q&A session.

Let's wait until the presentation comes on. So based upon what you have seen today in our various presentations, let me now walk you through the financial targets for CNH Industrial 2014-2018 business plan.

As a precautionary note, let me call your attention to the CNH Industrial Safe Harbor statement on the last page of the presentation. All financial data provided herein are prepared under US GAAP unless otherwise stated and are denominated in US dollars. In the appendix, you will also find a summary of key targets as presented under IFRS, always using US dollar as the reporting currency.

Moving on to slide 2, here we have the key financial highlights of the business plan. The main takeaway messages are the following. We will produce a consistent annual growth in net sales of industrial activities over the plan period, achieving $38 billion in 2018. The earnings improvement outpaced the sales growth by 3 times, with operating margin achieving 9% in 2018.

Operating profit moves from $2.1 billion in 2013 to $3.4 billion in 2018, representing a 10.4% average increase on an annual basis. Earnings across all segments improved through 2018 with AG achieving best in class profitability and CE and CV significantly improving from 2013 levels.

Net income achieves $2.2 billion in 2018 from $0.8 billion in 2013, representing an improvement of nearly 180% or 22% plus annualized, outpacing operating profit growth by 2 times.

Although we have not assumed any benefit from a potential rating upgrade in the plan cycle, net income accretion will also benefit from the following. Reduced interest expense from a corresponding reduction in average net industrial debt slated in the second part of the plan period. And lower income taxes from a targeted normalized tax rate in the mid-30s towards the end of the plan.

We continue to invest in our future by allocating nearly $12 billion to our organic investments, represented by R&D spending and CapEx combined through the plan period, peaking in mid plan cycle and stabilizing towards 5% of net sales by 2018.

Industrial activities become debt free by the end of the plan by achieving a net industrial cash position of $0.5 billion in 2018, while maintaining available liquidity during the plan at approximately $6 billion.

On slide 3, net sales of industrial activities grow to $38 billion by 2018 or a cumulative 17% increase over the plan. The $5.6 billion increase in the net sales from industrial activity comes from double-digit cumulative growth in all segments with our CE and CV segments contributing the largest growth rates.

We will leverage on new product launches across the various product ranges as we saw in the prior presentations, on the realization of the brand and product repositioning strategies as presented by Rich earlier on, on a comprehensive international expansion across all segments and on a ramp-up of powertrain sales.

Ag has been historically the significant contributor to Company sales growth, and we expect it to continue as we are confident in the structural drivers in the agricultural segment and our leading market position.

Slide 4 provides a snapshot of each segment contribution to sales and profit in 2018 as compared to 2013. Sales mix among segments is not changing significantly during the plan as industry dynamics are impacted by many of the same drivers. The headline here is on the improvement of the profit composition across all businesses while continuing to rely on the solid foundation of AG. In fact, by 2018, the turnaround of CV and CE will contribute to a combined 25% of the total profit pool.

On the next slide, operating margin over the plan period increases 2.6 percentage points, reaching a 9% margin as a result of the following. New product launches in CV, such as the new Daily (inaudible) and a positive mix change in AG will be the primary drivers of improved margins. Significantly [natural] efficiencies in CV, CE and powertrain resulting from increased volume leverage due to industry growth and market share gains are the major contributors.

Incremental profit over the life of the plan remains healthy at 20% plus.

Moving on to slide 6, AG sales increased $1.6 billion to $18.4 billion by 2018, representing a nearly 10% increase over the plan. As a result of sustained improvements in mechanization rates, driving emerging market growth, while mature markets are contributing with an improved product mix to our higher productivity equipment.

Resilience on price realization, following a sustained cadence of new product launches, and other content related to new emission standards contribute to the improvement.

Operating margin is up 1.2 percentage points to 2018 to achieve 13.2% despite the fact that the emerging market regions are the fastest growing markets.

Moving on to the next slide, here we have the overview on CE. CE net sales are increasing $1.3 billion or nearly 40% on a cumulative base to achieve $4.6 billion by 2018. CE sales growth is resulting primarily from a shift in regional mix with NAFTA and APAC growing the most. By the contribution of new product launches during the plan period and by price realization.

A portion of the growth is coming from implementation of the APAC expansion strategy where the industry will grow the most as described before by Rich and Stefano. Operating margin increases 8 plus percentage points from a negative 3% to a positive 5.1% by 2018 as a result of improved fixed cost absorption and continued focus on cost containment actions.

Slide 8, CV sales increase $2 billion to achieve $13.3 billion in 2018, representing an increase of nearly 18% on a cumulative base. CV sales growth is primarily coming from the new product launches and market share gains, posted transition to Euro VI in the truck and bus families in EMEA and the recovery from the temporary downturn in the emerging markets, particularly LATAM, in 2014.

Operating margin is up 4.7 percentage points to achieve 5.4% by 2018, representing mid-cycle profitability levels.

Increased profitability is attributable to price realization through new product launches in the light, medium, heavy duty truck and bus segments, by improved fixed cost absorption as a result of volume increases and a continued focus on cost containment actions.

On next slide, number 9, powertrain sales are up 20% or nearly $1 billion over the plan cycle, as a result of increased volume and improved mix due to engines and new emission standards, Euro VI and Tier 4B. Operating margin increases 2 percentage points to achieve 6.3% by 2018 by leveraging the utilization of the current footprint, targeting an average utilization factor of more than 80% of existing capacity by 2018. And continued realization of manufacturing efficiencies and purchasing saving initiatives.

On slide 10 now, consolidated net income increases by $1.4 billion or 175% to achieve $2.2 billion by 2018. Half of the net income accretion is coming from improved operating performance of each segment while the second half from reduced interest expense from a consistent reduction in average net debt and further reduced interest expense on outstanding debt instruments, which is particularly slated towards the end of the plan. And due to an improvement in the effective tax rate moving from 49% in 2014 to a normalized tax rate in the mid 30s by the end of the plan.

Net income margin increases 3.1 percentage points during the plan period to achieve 5.5% of consolidated revenue by 2018, resulting in an EPS accretion to $1.66 per share by 2018.

Moving on, I'm on slide 11 now, the investment pattern is primarily focused on product renewals and lineup additions to increase our products' capacity and productivity, improve quality and reduce cost of manufacturing and reduce final customer total cost of ownership.

We will also continue to maintain a sustained cadence of initiatives geared towards the improvement of our powertrain offering through efficient transmissions and fuel economy on our engine families. Targeting efficiency improvements as previously discussed by Giovanni and Massimo in the powertrain deck and in compliance with the new emission regulations.

Organic investment, defined as CapEx plus R&D spending, accumulates throughout the plan to nearly $12 billion and stabilizes to $2 billion by 2018, representing an exit ratio of 5.3 of industrial sales. R&D spending remains around 2013 levels through the plan.

Leveraging on revenue growth, R&D in percent of sales will decrease to 3% realigning to industry averages by the end of the plan. CapEx over DNA ratio, moving off a high of 1.8 times in 2013 and stabilizing in maintenance ratio by the end of the planning cycle, mainly as a result of Greenfield and strategic investment focused on new capacity expansion in the emerging markets, primarily China and India, being completed.

Product investment continues to maintain largest share of spending to approximately 50% of total. The investments, both R&D spending and CapEx, are based on market projections on our current pipeline of further launches, and in commitment capital included in the plan. Depending how the market performed, especially in the out years of the plan, the investments will flex up or down across the portfolio.

Slide 12 shows capital expenditure now by segment. We will spend $1.2 billion per year for the next few years, then entering more into maintenance mode by 2018 as described before. Allocation of capital, we continue to focus on sustaining our foundation AG business while spending in CE, CV and PT reflects both sustaining projects and some growth initiatives.

In particular, among the key initiatives we have the following. AG, in AG the continued expansion in APAC together with the combined family productivity enhancements. In CV, we have the new product launches across the various ranges that were mentioned earlier on today. On CE, a key project is represented by the new full size excavator family.

Regulatory and compliance investment for the completion of the transition to Tier 4B and Euro VI will continue to be focused on fuel economy packages, total cost of ownership improvements and safety and connectivity.

Slide 13 is highlighting the main balance sheet management assumptions. Key highlights here, the focus will continue to be on rebalancing funding by gradually shifting away from bank debt to increases in capital markets and from secure lending to unsecured funding.

Financial services funding will be further influenced by reducing intercompany borrowing from the industrial activities while continuing to opportunistically utilize the public ABS market to benefit from its competitive cost structure. And we continue to maintain healthy available liquidity balances around 15% of net sales by the end of the plan to guarantee adequate coverage in case of market downturns. Dividends to shareholders are assumed flat at 30% of net income throughout the plan.

I'm on slide 14 now. Net industrial debt improves gradually in the first part of the plan through 2016, achieving a $700 million reduction to $1.5 billion. Then in the second part of the plan, debt reduction accelerates to the point industrial activities reach a net cash balance of $500 million by 2018.

On slide 15, you've got a detail of the sources and uses of cash through the plan. Wherein the first period is characterized by profitable operations with solid cash generation coming primarily from AG, supporting the funding of investments to complete our product line-up renewals and the international expansion as we have highlighted throughout the day.

This first investment cycle is the foundation and catalyst for engaging CE and CV into group margins and cash generations in the second part of the plan. Net industrial cash flow over the whole planning cycle generates $4.8 billion of cash, of which net cash from operations before changes in working capital contributes $12.4 billion over the plan. Change in working capital in other is an absorption of over $2.3 billion to support sales growth. CapEx uses cash for $5.3 billion.

Projected dividend payout of 30% of net income through the plan is distributing an estimated $2.2 billion of cash to shareholders. Total change in net industrial debt of $2.7 billion, resulting in the final net cash position of $500 million by 2018.

On slide 16, the capitalization table at year end 2018 as compared to year end 2013 actual. Main highlights here are as follows. We achieved 10 percentage points of mixed rebalancing and funding sources towards capital market. We reduced dependency of financial services from industrial activities funding with the intersegment balances halved to an average of $2 billion for the year in 2018.

And finally, we halved the average gross industrial debt to $5 billion by 2018 whereby year end 2018 is at $3 billion. This altogether leads to a 40% plus reduction in interest expense in calendar year 2018 versus 2013 actual.

On slide 17 now, the next slide highlights the capital allocation guidelines, summarizing the pillars of our value generation cycle. With continued investments in our business growth weighted towards the high margin generating business and a focused capital structure aimed at achieving investment grade, we are capable of returning capital to our investors through consistent dividend payments.

Subject to achieving investment grade and ensuring Company earnings are accretive, we retain the option to execute a share buyback program thus maintaining enough resources to reinvest in the business. Therefore, from a capital allocation point of view, our priorities continue to be biased toward the following four pillars.

Pillar number 1, investing in our future by dedicating significant resources to complete AG and CE international expansion into emerging markets. Improving productivity and connectivity of our product families across all segments. Completing product renewals in CV, leveraging on product evolution and range extension. Completing our footprint rationalization and the transition to Tier 4B final and maintaining focus on fuel efficiency improvements.

With more than 150 launches, several other product upgrades and engine repowering, by the end of the plan we will have achieved a complete renewal of our product lineup in the different segments.

Pillar number 2, strengthening our balance sheet, ensuring a sound level of liquidity to support our business needs. Increasing the tenor of our debt by maintaining an active access to the capital markets with a clear separation of funding between industrial activities and financial services.

The pillar number 3, leveraging on market opportunities to reduce cost of funding and returning capital to our shareholders through consistent dividend payments on generating earnings.

And lastly, pillar number 4, maintaining the portfolio optionality leverage of inorganic growth as a value enhancement tool.

We are now on slide 18. Let's wrap up the financial targets of our plan. Industrial net sales achieving $38 billion by 2018. Operating profit growing to $3.4 billion in 2018 with operating margin to accrete 2.6 percentage points to 9% by 2018.

CapEx to remain stable at $1.2 billion through the plan, dropping to $0.8 billion in maintenance mode by 2018. Net industrial debt to gradually reduce in the early part of the plan with cash flow accelerating in second part to achieve a net cash position of up to $500 million by 2018. Net income to grow an annual average rate of 22.4%, reaching $2.2 billion by 2018.

This concludes my presentation. Thank you for your attention.

Good job, Max. Okay, we had a scheduled break but in order to move the program along I'm just going to have the presenters come up here and prepare for the Q&A and we can get started right away.

Joel Tiss from Bank of Montreal. I just wondered if you could talk a little bit about the nuances in the agricultural equipment market. You just kind of give us a flat line from here to 2018, but there's obviously a lot that's going to happen in between here and there and a little geographic color and more like delineation in between the different years. Or maybe like first half of the plan, second half of the plan. Whatever you can give us there.

Yes, that's -- look, let me answer the question this way. I think that we tried to give you an idea in terms of expectation, in terms of total unit demand through the plan cycle and split by geography. Those are management estimates and then a variety of public data going forward. So there'll be some volatility in the plan no doubt over the next five years.

I think that the important aspect of the plan and what's embedded in the aspirations of the plan is that we believe in the structural change that we've seen in -- use North America as a proxy, of what's gone on in the North American market, that the value of the individual products continues to go up. It goes up for a variety of reasons, largely as a result of the competitiveness of the agricultural industry that you're competing on a global scale in dollar terms.

So in any given year, any geographical market, despite harvest conditions is going to have to continue to chase the productivity curve and an enabler to do that is bigger, more productive machines. So individual markets, and that we've seen it over the last four to five years, where the market TIV, or let's just take tractors. Tractors decline year over year but the value of the equipment that's sold into the marketplace actually increases because of the richness of the product.

What we tried to cover today was the various different conditions that exist within the market. So we think that the NAFTA market, which is heavily mechanized, will continue to be mechanized but at a slower rate because of where it is on the curve. We believe that the Brazilian market that is compressed the -- what -- Brazilians did what it took North America to do 20 years the Brazilians have done in the last seven. And we expect that kind of trend to continue. And as Stefano addressed today, there are a variety of emerging markets that we believe are going to embark upon that same kind of trend.

Can you talk about your outlook for Brazil in the near term and also in the longer term, both on the AG side and on the truck side? Just with the World Cup and the Olympics, et cetera, but offsetting that, the delays in (inaudible), et cetera. Could it get a lot worse before it gets better?

Yes, I mean I'll give you my answer, Ann, and then I'll let Vilmar, if he's got anything to add, he can add onto it. I think that you have your finger on it. I mean I think that the market that we see today is challenged across all of the segments. We do not expect that those market conditions to change until post World Cup.

In talking to dealers and customers, there's a latent demand across all three segments, but there's -- because of a variety of different either political or soccer related issues to a certain extent, the market is stuck right now. And we don't foresee that improving at least until the World Cup is completed and then we'll see. But there is a latent demand that's sitting in the marketplace, it's just going to be challenged at least through the next quarter. I mean would you like to add any to that, Vilmar or is that --?

No, nothing more than that. I think that there are a lot of uncertainties in the field and that's it. I think that before August we're going to see exactly this situation we are seeing today.

(inaudible - microphone inaccessible)

This is --

I'll get it for you. The quantum of the rebound. I mean if we look at the volatility of the Brazilian market, at least in the industrial space that we've seen, I mean we grew close to 20% last year. Right? That one we could see coming a little bit, but the fact of the matter is the Brazilian market swings more heavily because of BNDS financing and all the different aspects of how the market operates.

I would think that if we go through this World Cup portion through the summertime and everything goes well that it could rebound. But what the quantum of that is hard to tell. I think at the end of the day, structurally in the Brazilian market, it's what I said before. I mean the Brazilians are going to be global competitors in the agricultural space, which it has a significant impact on the truck side of the business. They need to continue on the path and are really following what we see in NAFTA and Europe. So we feel good about it.

This is Alan Fleming from Barclays. Can you talk about the inventory build this quarter and how that compares to your order books? Do you have the order books to support that inventory?

And then my second question is can you talk about the used equipment markets, particularly in North America? How have you factored in the used equipment markets into your forecast, particularly over the first half of your business plan?

Sure. I think that Max deconstructed the working capital number in some detail. In terms of inventory build, the only area that we've built in excess a little bit in the first quarter would be in the Latin American market just because the market has come to a pretty steep decline. And we'll be taking action to deal with that over the balance of the year depending on what happens and what we see building up in terms of demand for the second half of the year.

In terms of used equipment, I mean that's something that we, I think it's the favorite subject to a certain extent. I mean we monitor it as closely as anybody in the industry. We work with our dealers in terms of helping them liquidate used inventory, even what we talked about last year in the fourth quarter where we actually held back supply of new equipment to kind of force some of that change into the marketplace.

Depending on who you ask whether it's the, what's his name, Machinery Pete, if you will, right now the prices of the equipment are relatively stable. I mean we don't see any rapid decline. We know that there's inventory out there and we're beginning to deal with it. But the good news about at least some of those goods is that its cost point is lower than the Tier 4 compliant machines that are coming.

So there's a latent demand there. It's having an impact on the Tier 4 machines now because of the price difference and that's part of the reason that we see some of the decline. But I think that we don't feel, at least from our dealer perspective, that we're out of sync in some way where there's a significant amount of used equipment in the dealer network. But it's going to have to be managed depending how the market moves for the balance of the year.

Ross Gilardi from Bank of America. So I had two questions. One just on the 2014 outlook. I'm trying to understand if you've actually lowered your outlook for 2014 given the change in the accounting standard. So it looks like now you're saying sales down 2% instead of 0% to 5%. And then the margin outlook I think was 7.8% to 8.2%, but that was an IFRS number I think. So is that apples to apples with the 6.5% to 6.9% or have you taken it down?

I got it. There is an impact obviously of going from an outlook in IFRS to US GAAP, but I mean the fundamental of the business, we're within the band with the exception on the revenue side, which is the negative currency. All right?

So on a constant currency growth, as Max showed you today, we're up close to 2%, so we're within the band right now. The reason that we're showing the negative is all on translation of the revenue into dollar terms. And that's the same comment for the margin.

And then just more strategically longer term, I mean it sounds like you're taking more of an approach of investing more heavily in Naveco and the construction equipment business to try to turn them around as opposed to taking more of a cost cutting focus. Would you agree with that? And if so, how much are you planning incrementally to invest in the businesses to get them moving in the directions that you like? And can you be more specific about quantifying how you're going to improve the margins over the next several years?

The last one probably no. On the first one in terms of capital allocation, yes. We're investing across the Naveco product line because of what Lorenzo went through today in terms of the launch schedule that by the time we get through the, which will be more or less in the summertime this year with the launch of the Daily and the bus range and the Euro VI range, that's consuming some kind of capital there. And then we'll see in terms of how the market develops, but we've outlined a launch plan in terms of our aspiration of renewing the lineup as we go forward.

I think that the same comment applies to the construction equipment business. The capital that's allocated in construction equipment is not capacity expansion. As I mentioned in my presentation, we've got standing capacity to meet all of the requirements in terms of units through 2018. So any capital that's deployed into construction equipment will be into the revitalization of the lineup and that will be predicated upon how market conditions and how successful we are going forward. I think that we're going to make the investment for sure in the excavator line because that's fundamental to the strategy of the business.

Ashik Kurian, Goldman Sachs. Just a question on the North American AG site. You previously highlighted that in the eventuality of a drop in production you still have production that sits outside your system that you could address first. Could you give us a color on as to what rate of drop could you possibly address with your flexibility? And is that the reason why you're still forecasting flat margins in AG despite what could be a drop in production? Or is it the mix that's offsetting?

Again, I think Max again covered it, but at the end of the day the mix in AG continues to improve. I mean I think that the guys did a pretty good job, I hope, of clarifying what our market share positions in terms are in combines and the quad track that you saw and some of the real high value items. So despite the fact that revenue went down in Q1, our margin actually went up. So we're remaining flexible.

I think the North American team has done a good job in the quarter of managing this issue of how much capacity that we have outside versus in the plant. And then we'll collapse back into the plant as the market goes up and down. But right now the mix is still good and as Derek presented, I'm going to think that at the end of the day we're working very hard that any headwinds that we have in terms of unit volume that we're going to have to extract those kinds of costs out of the industrial base.

And just a question on the trucks. You're still targeting to improve margins in 2014 compared to 2013. Could you give us some comfort on whether you still have enough room of improvements from your side to offset the weakness and to -- and markets you're likely to see?

Yes, I mean that's a very detailed question on an inter-year 2014 margin. I mean at the end of the day I think that part of putting the plan together was to show that we expect to have accretive margins going forward in the AG business, subject to some volatility demand over the lifecycle of the plan that we intend to manage vigorously, but at the end of the day we expect margins to improve in the AG segment over the next cycle of the plan.

Massimo Vecchio, Mediobanca. Can you detail a little bit more the capacity utilization assumed in the 2018 numbers for construction equipment and trucks?

Do I want to comment more on capacity utilization? I mean that's difficult because those two businesses run differently in terms of how capacity utilization is measured. I think that if you look at the margin targets that we have for both those businesses in 2014, there's significant slack in terms of capacity. And that we're addressing through unit volume and a variety of different cost measures that we see going forward.

But right now part of the problem in the construction business and what's been the problem over the last several years is underutilization of the industrial footprint. So I mean that's -- we have the space to make what we need, we just need to begin to aggressively fill up that volume.

And from what we can see in the construction equipment market, at least through Q1, that it looks like that market is turning up somewhat, and that's only positive in terms of margin development going forward.

I was trying to understand the 5% margin you targeted in 2018. (Multiple speakers)

Yes, I know. You want me to deconstruct it in terms of volume leverage and pricing and everything else and I'm not going to do it. It's a component of it.

Right, thank you.

Two questions if I may. Can you comment on the initial introduction to the HI-eSCR on highway and Europe? How's that going? Are customers feeling like they want to trial it out because it's a slightly different technology than some of the others? Or are they just going full bore into it and do you expect trial periods as you roll it into other products in AG and construction?

And along with that, is there any margin accretion from doing HI-eSCR versus the other technology?

I'm going to probably give you a biased answer and allow Giovanni to answer or Lorenzo. Who wants to take the question? Why not Giovanni from a technical point of view or Massimo, answer the question in terms of what we're hearing back from the marketplace in terms of HI-eSCR.

We started to study about SCR many, many years ago. And we added the application on SCR through the Euro V and now we are reaching the high efficiency SCR for the Euro VI and Tier 4B.

High efficiency SCR means that we have approximately more than 95% efficiency in our after treatment system. It's important because with this high efficiency we can allow to have a special combustion, taking at the lowest possible level the particulate matter so we can avoid to have an active DPF for the on road and we can avoid to have the DPF in the off road.

This means that it is a very interesting advantage for the vehicle builder, because here not to change nothing in the cooling system. They have to change nothing in the installation with the engine. And so it's a very interesting solution. And also for the maintenance point of view, we have no re-generation active so we have not to change the DPF during the life. We have a longer terms of oil substitution interval, so it's a real advantage for everyone.

So I think that answer was we're confident right now in terms of the technical solution that's been put in the vehicles themselves. At the end of the day that will be proven on the road as those vehicles are out and on the road. So I mean I think right now in terms of fuel economy, as Lorenzo added in his presentation, they are very competitive powertrains.

And customers are willing to dive into it or are they sort of buying it at a test basis and then coming back? I don't know whether you're seeing hesitation.

I don't know how to answer that question. I think that the marketplace will determine it and our unit volumes will determine that. I mean I think it's an interesting solution because of the efficiency benefits that are there, but like I said, the proof will be when in terms of market demand and how successful we are. Technically, I think that we're quite confident.

Rich, how do we think about the financial impact of the Climate Corp announcement? How do we think about modeling that? Can your distribution network handle it now? I'm just curious about that because that's a pretty significant announcement I think.

Yes, I mean I wouldn't get into the financial aspects of it. I mean I think that it was important for a couple of reasons. We've actually been working on that project for almost two years now. So what's important is that the next generation of planters that we'll release have been designed in conjunction with some of the componentry that we have access to with precision planting. So it's not a retrofit kind of agreement. I mean we have retrofit opportunities, but it's a fundamental agreement in terms of the design of the piece of equipment itself.

The issue with Climate Corp, probably think it's an exciting product that's out there. I think that Dave did a pretty good job of explaining to you what CNH Industrial's stance is as it relates to precision farming, the whole thing. That we are not trying to install a closed system. And the feedback from our customers is that the data that is generated from running that equipment is theirs. And we leave it up to them to determine what they'd like to do with the data.

I think that the facts that they have access to Climate Corp through this cooperation agreement, I think is positive because it looks like it's going to be one of the industry leading solutions. So I think it's a good opportunity for us in terms of planter design, in terms of the productivity of the next generation planter that we were going to bring out in terms of planting speed, which is really how the market's moving right now. And I think it's also a demonstration of a commitment on the back -- on behalf of CNHI that we are an open system Company. That we are not attempting to monetize the data. Our interest in that data is to increase the productivity of the equipment in the field.

Jeff Kauffman from Buckingham. As I watch your presentation, I just wonder North American truck and bus, is this something in the long term that makes sense for the Company? If so, is it something you would look to do organically or maybe use natural gas to enter the market in a small way? How do you think about it as you look out over the next four years strategically?

We don't think it's a prerequisite to our success of what the aspirations that we presented today. There's little commonality in terms of powertrain; the vehicle itself. I mean the synergy value of having a North American position, it's volume at the end of the day, so we don't believe that it's a prerequisite of us delivering the numbers that we've delivered today.

Just a quick follow-up on the SCR only engine. If that is successful I'm sure all other OEMs are going to pursue the same technology. How long of a time advantage do you think you can have with that engine and that proprietary technology?

Ann's looking right at you two, so she knows I can't answer it, so go ahead.

The advantage of the SCR only is mainly related to deferred consumption. I think that this is what we can have as a really value added for our engine. It's clear that all the competitors now are going to try to do something similar and I think that, as I explained during the presentation, there are some additional things to do in order to improve again the -- with the new generation HI-eSCR more [compact] than the other things. But anyway, all are working on that and I think that it will be very soon they have a similar solution.

I believe that we have a small advantage in this period if we want to keep it. And we are working now to reduce the dimension and so the cost of the after treatment system with a good advantage for our customer.

And just a quick follow-up for the agricultural team. I think you said in your presentation North America AG volume's flat through the cycle. That would imply that agricultural equipment volumes in North America stay at peak or peak-ish levels. I'm not sure that anyone here would agree with that hypothesis, so.

I think that I'll answer for both of those since they have got two different brands and have two different aspirations in terms of what they want to do. I think what they would have said there is that the 2014 base, not the 2013 base, the 2014 base would remain largely flat through the planning period. Is it going to go up and down in year to year? Sure, it's going to move up and down. It's not -- but we've just taken a median saying 2014 is down relative to 2013 and on average through the next five years that that's a fair number.

Kathleen Gailliot, Natixis. I also have a question on the FPT. In your previous plan you had a target of increasing (inaudible) your non captive sales to 47%, if I'm not mistaken. I just wanted to know if you could give us an update on that and is it still an objective. Or what could you target if you can leverage your SCR new technology?

The basis of the question was a target for what, an FPT, correct?

For the non-captive sales.

The non-captive sales target.

(Multiple speakers)

Okay. I don't think we did -- did we have a number out of the FTP presentation that was non-captive?

We didn't specifically --

Max will answer.

We didn't specifically add a number on the page, but third party sales are expected to grow in absolute terms and in percentage of total. Actually the accretion on the revenue is coming primarily from third party. And most of the businesses on the book today already so. It's a part of the ramp-up of the volume that is happening right now.

Martino De Ambroggi, Equita. The business plan is clearly [custom parameter], but I remember in two, three quarters ago in some conference call, [Maggioni] talked about a possibility of construction equipment, trying to fix the profitability problems with some M&A. I don't know if this is totally abandoned because of lack of opportunities or because the market is improving so you want to go ahead standalone. So just to -- what else on this issue.

I guess there's nothing that's inorganic that's in this plan. I think that we are opportunistic across the portfolio. We don't have a specific concentration on any particular sector, but obviously we'd be weighted towards whether towards whether the returns on capital are the highest. But there's nothing in here. This is an organic plan only.

We believe that we are capacitized to meet the market share gains. We believe that we've revitalized the product. I think that most importantly we've settled this issue on the excavator strategy, which has been somewhat problematic and over the life of construction equipment for some time. So right now I think that we're going to be focused almost exclusively on organic growth and performance improvement.

But it is not abandoned, the option eventually.

Anything's possible within the portfolio.

And the second question is on net cash position. I remember at the beginning when you spun off the entity, the target was for 2014. Okay, we know many reasons for the known achievement of the zero debt. Actually, if you I want to summarize the reason why now it is postponed to 2018, I understand clearly it seems to me just with a brief overview higher CapEx and what are the other bullet points for this bridge?

I think, I mean the two basic components are the pattern of recovery of profitability through the cycle for CV and CE, which will accelerate cash generation in the second part of the plan, while we continue to invest heavily in the first part of the plan to complete the product renewals in the businesses.

In a couple of your segments you talked about taking market share over the next few years. You talked about increasing the size of the dealer distribution and increasing density. You talked about improving aftermarket. Can you walk through just strategically what will be the most important elements actually capturing that market share? And I think it was both in AG and CE.

Well, I mean at the end of the day it's the product performance. Right? It's purely a question -- we've done a rigorous exercise to benchmark the product vis-a-vis the competition in the marketplace. We think that we have at par products in the CE and the CE industry right now, so we have nothing to apologize for and our aspirations in terms of market share and gaining space there are really historical market shares that we've carried in the past. So I don't think that there's any incredible market share gains in the CE side.

On the AG side, it's a bit more complicated, but at the end of the day we are one of the leaders in the industry on the AG side, so we think because of size, scale and the quality of our product portfolio that we can win share.

So maybe on the CE side, can you talk about benchmarking your aftermarket service versus your peers? Can you walk through where you think you are, where you were a couple of years ago and where you can get? And what it'll take to get there?

I mean I think that what we can point to is the transition that we started in 2010 with having Case be the full liner brand and New Holland accessing the distribution network and the size and capillarity of the distribution network in New Holland. That's been proven to be successful and that's really why we're looking at using that same type of model; not exactly the same, but the same type of model in Europe, which we've begun already.

So I think that we've got a demonstrated track record that says that there's a meaningful TIV that is consumed by the rural space, or I won't call it the agricultural space, that drives that volume. And that volume comes at a lower cost of not running two completely full liner networks within a geography.

And then the last thing I was hoping to ask is in Latin America, could you just walk through how you think market share dynamics play out through 2018? The outline you have number 1 share in construction in light and heavy. Clearly the Chinese were getting larger there, more aggressive. How do you think that competitive dynamic plays out?

I think that there's a certain element of truth in terms of we have a very strong position in Brazil in terms of market share itself. We do believe that market's going to become more competitive because there is capacity that it's been announced to be installed there, but by the way, there's a lot of announcements of installed capacity, but a lot of it doesn't really turn up.

I think that the bigger issue with the Brazilian market, taking aside the recent volatility of it, is that the mining sectors come under a lot of pressure in Brazil. So mining focused competitors that have the full gambit of product have begun to compete a little bit more aggressively than they had been in the past when the mining sector was really driving the revenue.

So our expectation in terms of market share is to hold what we have, but at the other end we think that the market's going to grow, so if there was some shared dilution, it's not going to impact in terms of our numbers that are baked into the plan.

Monica Bosio, Banca IMI. I had a question on the commercial vehicles segment. Looking at the operating margin targets, it's between 5% and 5.4%, which is well below -- I mean the historical level. I know that the world has changed, but what does really prevent the commercial vehicles to achieve a little bit of (inaudible). Is it --?

Hopefully nothing.

-- volumes? Is it pricing? Counter mix?

It would be volume and price and a market acceptance of the product. I think that we've taken a realistic view in terms of our market share aspirations and the total volume within the market itself, and a realistic view of the competitive position of the vehicles.

Our commitment is what you see here. If we can outperform that commitment, any incremental volume that we have not assumed in the plan is going to have an accretive effect on the margins.

But what's your view on the pricing in Europe? And do you believe that CNH commercial vehicles activities can compete on a standalone basis within Europe against the other? Just a general flavor here.

Yes is the answer.

Just two quick things. For Dino, those were awesome charts on the parts -- lifetime cycle of the parts. It was very informative; it was good to see. Are you able to say how much of that improved 10% is organic with what the parts you've got or whether you're branching out? I'm not sure if it matters; maybe you make the same margin on either one.

And then have you been able to benchmark how you're doing on parts versus competition to know if that 10% goal is relatively easy? If it's your entitlement or whether you have to do best in class to get there?

No, I think the competition there is independent of the market players. We want to get additional share getting from them this portion of the business. We have a lot of initiatives, the initiatives that I showed earlier this morning. Basically all the competitors are trying to move the competitors' OEMs. Competitors are trying to use the same weapons to get more market share. This space is big. We have a share that is in line with our competitors, but the room for improvement is quite huge. So we are -- I think the 10% is absolutely realistic.

Then it is true that in the age between three to eight years of age of the vehicle, the margins are different, but we have still very positive opportunities there. And the service level improvement will help. It's one of the accelerators of this.

Larry De Maria, William Blair. Maybe it's not a perfect comparison, Rich, but in the last down cycle we saw revenue margins market share decline for trucks and construction. How do you think about protecting the North America AG franchise if the -- obviously the down cycle were to materially worsen?

I think that we emphasize in scale to compete on the AG side. I think that we've -- and if you go back and look historically, that we've done a pretty good job in terms of price discipline. I think that every year over the last four years that we've had price realization.

So we've got, I think the horsepower to compete in a down cycle. And look, at the end of the day it's not just the two big players, there's a variety of other market participants that if the market weakens that are going to be in arguably a weaker position than we are. So I think that we're quite confident that we have different strategies, depending on when the market is moving up in terms of price and when the market's moving down.

Do you think you learned more in the previous cycles for construction and truck that you'd maybe draw a line in the sand sooner on market share or --?

I can is that we've got positive pricing in Q1 in construction, so it's not as if we're charging out there and trying to buy share. We know who we are in the construction equipment business; we're going to compete on the strength of our dealers and the quality of the product, not on price.

Steve Fisher, UBS. You talked about tightening up your AG dealer network. Can you just talk a little bit more about how long you think it will take to get it to be at the point where you are targeting it to be?

And then the second question is I'm not sure if I missed this, but can you talk about your AG equipment order boards and where they stand now?

In terms of the dealer network, I think that's a multi-year process. I mean it's not something that we are going to willfully intervene in monetarily, I guess is the best way to put it. I mean I think it's a managed process. We know the size and scale of our dealers, the age of the owners of those dealers.

I mean the fact of the matter is that the technical component of what we're selling in the AG space has gone up quite significantly. So that is going to force, to a certain extent, the dealers to either move up with being able to service that technical component or not. So I think this will be somewhat of a natural process and that we'll manage it between the brands themselves.

In terms of order board specifically, do you want a tour de force or is there one that you're --?

(Inaudible)

You want a global view. They're about where they were in Q4. I mean I think there's pockets of weakness I think in AG on the large four-wheel drive wheeled units. There's a little bit of weakness there. We've seen on the combines that the market has dropped approximately 10% or so. So I mean but we've been managing our production in line with that.

Hay and forage is actually doing quite well right now. I think we probably need, to be fair, I think we needed, if we're talking about Europe, more NAFTA than Europe. I think we need another quarter because Q1, and this goes back to some of the inventory question before, Q1 the off take out of the dealer network because of the fact that the entire Midwest was -- no one's going to take delivery of a round baler when there's three feet of snow on the ground. So we really -- we've seen some momentum there on the hay and forage side, so that's a positive side. So it's depending on if the markets are performing; our order boards are kind of flexing right with that.

(inaudible - microphone inaccessible)

Yes, I think it was just more on the AG side than anything else. So Europe is doing quite well, I mean but I don't want to spend all my time. Carlo, why don't you talk about what you see in terms of demand in Europe?

Europe we still a stronger order intake from the combine, that is very good. I'm sure that you have seen on the quarter one clearly in the combine Europe is still high. And you know as I explained, I mean with the combination of the two brands, we are the leading position in Europe and is getting very good order intake.

On the tractor we are almost flat. There is a mix change or we call the southern part, so Italy, Spain is a little bit recovering and we have a strong position there. But overall, we can say on tractor we are flat, on combined we are up.

LATAM doesn't really run on an order board base. This is a far more fast cycle because of the whole way that the financing works down there. So it's not like you can build up a lot of presold retails like we usually talk about.

David Raso. The plan period walk, getting back to -- or getting to pre net cash positive, I'm just trying to understand, maybe just a clarification. But the gross cash flow over the next three years is 6.2, but then you're saying you're going to do 6.2 in just the next two years after that. At the same time, the net income over the next three years has grown $1 billion, but those next two years only $400 million. How are you getting gross cash flow on a two-year period that'll take you the next three years, especially with lower net income growth?

Do you want me to start or --?

(Inaudible) because CapEx coming up in the early cycle, rolling on the books with the larger DNA that is contributing positively as well.

(Multiple speakers) You have an unwinding of the CapEx, the Greenfield investments that are loaded, are front loaded in the plan because of the finishing out of the India and China positions. I think at the end of the day, forecasting in the outer years, I mean we have an idea of what we're going to do in terms of the earnings growth and what our capital consumption is. But that capital consumption, as Max put in the presentation, is going to flex somewhat, depending on what we see in terms of the marketplace.

So I mean if you're trying to do the math to a certain extent, I think that the way to do it is just do the trend line in terms of we go through a cycle where we're recovering earnings in commercial vehicles and construction equipment. We're spending out what should be all of the capacitation that we need in the AG cycle in the early years and then you see the earnings ramp in the second half of the year and that unwind on the CapEx side.

I appreciate it, but the gross cash flow, the earnings ramp is 2014, 2015, 2016. The EPS growth, the net income growth is slower in the backend.

The improvement -- the 50% improvement on the earnings below operating profit, is back loaded in the second part of the year. So you've got that portion of the accretion to the earnings that is cumulating in the second part on interest and taxes.

So interest is basically flat to slightly down in the first part of the plan, dropping significantly towards the end of the plan in 2018. As I said, 40% below 2013 numbers. While the tax is gradually reducing from the high 44%, 49% in 2013 to the mid 30s at the end of the plan. But all that accretion comes in in the second part of the year.

But that's incorporated in the net income guidance. You see the net income goes up $1 billion the next three years, then $400 million after that the next two years. So there's $600 million less net income growth in the back two years than the first three years, but the gross cash flow is going to be the same in two years versus three years. The math doesn't -- I mean the T&A is not ramping that fast. It doesn't make sense, unless I'm missing -- because the definition here is gross cash flow is net income plus D&A plus change in funds. Maybe I need an education on what's the change in funds.

Change in the funding profile of the group itself.

A change in funds is non-working capital --

Maybe that's the answer?

-- non-working capital items.

Yes, okay.

But the key to the guidance here is if you can get the net cash positive in 2018, I mean the cash flow history hasn't been that dynamic. It'd be impressive to do it, but it just seems so back half loaded in the guidance. That's what I'm just trying to understand. How do you get two years of cash flow if the two years before --?

We're repeating the question, but at the end of the day, I mean we're not giving you year over year over year of the movement and we're trying to triangulate down into it. All right? I mean I think that you just have to look at the basic elements of it, and as Max said before, the fact that the tax rate and the capital consumption goes back into the -- goes down in the second half of the plan. We could be here all day trying to do the math on it.

Sean Wondrack, Deutsche Bank. So clearly given the growth plan in front of us, your expectations for deleveraging and your interest cost savings, you should be approaching full investment grade pretty soon. Have you been speaking with the rating agencies and have they given you any kind of an idea of what they're expecting for you guys to reach that level?

We speak to them all the time. I think that we've done some things at least. One of the things that we've addressed is the funding of the financial services group. And you've seen that we've taken some measures there. Look, I think as Max put it in the presentation, we work with them all the time, we'd like to see an upgrade, but we have not embedded that benefit into the plan itself. We hope it comes.

And just as a quick follow-up, you have some high coupon debt out there whereas the rest of your bonds are trading 1%, 2%, 3%. Would you consider calling some of these notes earlier?

We've run a variety of scenarios in terms of what the cost would be and what that means to the net income. I think that we'd leave our options open in terms of the capital structure, it'd be opportunistic.

And based upon where the bonds are trading today, I mean potential take out options are NPV diluted, so at this point. But definitely there will be a significant improvement in the net interest account due to the replacement of the facilities enrolled during the plan. Just by turning off the high coupon and turning on the current coupon rate, without assuming any rating improvement.

Rob Taylor, Harris Associates. Just in the past when you had the previous outlook for Naveco, you gave more indications of utilization change and also cost savings to get to the normal margin of 10%. Just wondering, can you give that kind of detail for the new plan so we can understand how you go from breakeven to 5.5%?

I think that we can do that on a quarterly basis going forward, but to try to give that level of granularity on a five-year plan I think is optimistic. So I think that what we'll do as we go through the sequential quarters as we deliver on the plan that we'll give updates in terms of what we're doing in terms of reaching that margin accretion. But to try to put individual building blocks in a five-year plan is -- it's quite a bit of information as it is right now.

In broad strokes though, how much of the margin improvement is going to come from cost saves?

In broad strokes, a portion of it. (laughter) You asked for broad strokes.

Rich or Max, looking at the individual kind of 2013 to 2018 margin forecasts, could you just walk through where you have the greatest confidence in reaching those targets? Best line of visibility versus where you've got the most wood to chop to kind of get there.

I think that the -- in the short term or over the entire life of the plan?

Both.

Okay. I mean I think that we've given you the plan, so we're confident in all of the components that sit within the plan. And we're not -- there's no favorite child. I think that the ones that are underperforming now are the ones that we know that we're going to have to put a significant effort upon. So on that to loan, that -- I mean the management attention alone gives us more confidence in terms of doing that.

I mean the AG side, look, I think that we feel quite good about because of the structural dynamics in our market position in that portion of the business. The other two are just going to take a lot of hard sweat to do it. I'm not more confident in one or the other because the dynamics of what is going to improve both of those businesses are virtually the same.

The other important piece to keep in mind on the AG side to really appreciate also the resilience of the business, is the geographical diversification, which allows us to obviously remain less affected by the slowdown in North America.

I know you've been avoiding me. I'll make it easy.

No, I haven't. I gave you the first question. (laughter)

I know. I just wondered, Max, if you could talk about some of the components on the tax rate. It still seems 34 -- mid-30s is a little bit relatively high as we get to the end of the planning period. I just wondered if there's other things -- a couple of the components you could share with us that might be able to get that lower?

I mean at the end of the story the mid-30s is a normalized tax rate for an (inaudible) Company like us based upon where the profit is geographically distributed. From a legal jurisdiction standpoint.

The point of getting there obviously as soon as the jurisdiction that today are making losses where we don't book benefit those losses today will basically breakeven and start making profit will allow us to accelerate the improvement on the rate significantly.

And just one follow-up. It seems like the sort of -- the excess capacity that's in the Company now, is that kind of a cushion? Like not addressing that quicker, is that a cushion that if some parts of the -- other parts of the plan don't get to where you want to get to by 2018 you can push on that farther? A little harder? Because even by 2018 a lot of the operating margins you guys are proposing are sort of half to 70% of kind of best in class across a lot of the different end markets.

On the truck and the commercial vehicles and construction equipment, there's standing capacity. Forget the inside of the kit, but on the physical plants there's standing capacity to do far more than what we've put in this plan.

On the AG side, it really depends on the jurisdiction, but we've spent over this last cycle -- we come into this plan with having revitalized significantly the agricultural manufacturing footprint. I mean just in terms of the modernization and the build out. So we're quite confident there.

I mean we've retooled, what, two out of three plants in Brazil, which was a significant exercise. We took the Curatiba plant and retooled it for low horsepower tractors to high horsepower tractors over the last two years. And then retooled Soracaba at the same time for far larger combines. So if the market goes in terms of its direction, at least in the components of the mix, we're tooled for it now.

Alberto Villa, Intermonte. I have a question back on the commercial vehicles side and your guidance. I wonder if you can give us some more color on what will be the contribution coming from the special vehicles in terms of profitability to the target and the geographical evolution. So if (inaudible) will be a much greater contributor to results at which extent and what is your outlook on Europe on trucks in the coming four, five years?

That was a multi-part question. I'll start way back at the beginning I think. Special vehicles are forecasted to improve in terms of their contribution to the profitability during the plan cycle, but in terms of its quantum we don't disclose inter segmental data. So I'm not at liberty to say. But it will improve and it's a component. It's not overly significant and what is in the commercial vehicles' profit improvement is not overly relying on special vehicles, it's a sequential improvement in terms of what our aspirations are in both the military and the firefighting segment.

The balance of the business, it's not a wide -- and it's not like we're saying we're going to do -- we're a European truck manufacturer on the commercial vehicle side and the bus. I mean we've taken you through where our physical plants are and what those plants are able to serve. So it's highly dependent upon greater Europe, if you will, so EU27 performance.

It's not as if we're pointing to APAC and saying, you know what, we're going to fix this by going into APAC. I think that we can do some things in APAC for sure, as Stefano laid out during his presentation, but it's not as if this is some kind of change in course and we're throwing in the towel in Europe and we're going to go and look for our opportunities in APAC. We're going to look for our opportunities in APAC, but the fact of the matter is the performance improvement over the plan is highly dependent upon our performance in Europe.

Mike Shlisky, Hunter. Quick question for you about your new Daily that's going to be launching in June. Have customers been holding off buying that in the first half of the year with the new product coming? And is there a possible for a sales back half of the year?

And then sort of secondly, is there any kind of impact to margins from that?

We do see some slowdown for the trend going through it. Everybody knows now because we've had all the launch activities and everything else that the new vehicle's coming. We've been selling as many as the old vehicle, but I think logic would say that now there's going to be -- if you were interested in that particular class of vehicle, you're going to wait for the new Daily, which arrives in June. But we'll see.

I mean I think when we get to the end of the -- when we do Q2 we'll give you a lot of information on where we stand with the new Daily in terms of backlogs and market acceptance and everything else.

Just a quick clarification on it. The tax rate for the industrial company this year, what would the guidance be for the industrial company? Is it different than the consolidated figure you put out?

The tax rate is consolidated.

Yes, I think you said 40% to 44%.

The tax rate is for consolidated. The guidance in the press release for 2014 US GAAP is 40% to 44%.

Well, that's my question. Do you have a guidance for the industrial company? The tax rate.

No.

Could you give us some higher or lower than the consolidated?

Not without --

(multiple speakers)

Not without like opening up a new set of accounts, no.

When it comes to the valuation allowance that you took with the conversion, how much above these targets will we need to get to maybe be able to release some of the valuation allowance to get the tax rate even lower? I'm just curious, how much cushion is there because it seems like a lot of this work -- I think people thought the tax rate could come down more significantly than mid 30s in 2018. And I thought the valuation allowance was rather sizeable on the conversion. So hopefully that's the bit of a cookie jar to get the tax rate even lower and that's a pleasant surprise. Which of the segments are the upside? I can maybe see that.

I would respond saying that, I mean the improvement on the rate is intrinsic with the turnaround of the businesses. Based upon the -- particularly in respect to commercial vehicles based upon the business model in which commercial vehicle is run. As the segment gains profitability then the main component of the (inaudible) start generating money and then can absorb the un-booked VTA.

Well, that's what I'm trying to figure out. If I can -- say you model commercial vehicle above the target, it's not just a benefit to commercial vehicle margins. The tax rate should begin to come down.

Yes.

How sensitive is it? I assume there's no valuation allowance release baked into that tax rate guidance to 2018?

I would say the improvement on the rates is pretty substantial, that we are playing in the business plan (multiple speakers). It could flex earlier or later, depending on the acceleration on the recovery.

Is there any release of the valuation allowance baked into the 2018 targets?

No.

Rob Wertheimer, Vertical. Is there any impact in the sales from the work you're doing to restructure the two brands and sort of slide one segment over? Do you lose any sales? Has that already happened? Do you have any baked into (multiple speakers) material?

Yes, I mean during the transition periods that we do lose sales. But at the end of the day, we're absolutely convinced that the benefit of opening up the capillarity on the New Holland side is over a five year period, or hopefully a lot shorter than that, is significant. And what we see in NAFTA says that it can be executed, but during the transition period it does have a short-term impact on sales.

A couple percent? I mean not a huge --?

I can't really quantify it in terms of percent, but --

You didn't have the little circles around the high horsepower in New Holland. You're still doing high horsepower tractors globally in New Holland or not?

Oh yes, absolutely. We just tried to --

-- emphasize.

-- emphasize the different D&As or -- and that's why in the presentations we only made -- and we concentrated on select parts of the portfolio. If we went through, did a tour de force of the portfolio, the two of them would still be up here speaking. So we're not de-emphasizing anything, but we're respecting the differences between the D&As of the two different brands.

I think that was the last question. All right. And I guess you stay here. I'll make two very short comments I think.

We've gone through a significant transition with the merger related activities in the second half of last year and with the transition to US GAAP reporting and the new segmental data that we've presented today. So it's a new day for us because of the fact that now there's some clarity in terms of our strategic intent of the business, the accounts are now compliant with the main listing of the group, so I think in terms of capital markets we're now prepared to engage with the capital markets a lot more than you've seen in the past.

And when we've had these discussions one on one before, but you can understand that we've gone through a lengthy transition in terms of being able to really spend a lot of time with you all and the investors. But now with -- by releasing a plan of this size and scale and with all the work that was done in terms of transforming the accounts, I think that we're ready to reengage. So I think that that's something that we're committed to do now going forward in the plan.

The plan itself, I hope you enjoyed it today. I mean it's -- we've tried to benchmark the industry in terms of who releases what and what kind of information is given out to interested investors. And I think that we would argue that it is significantly more in terms of calling out aspirations in terms of performance of the segments of the business. Both on the segments of the business and the geographies that we operate in.

And we do this because we do not fear the fact that we're making those aspirations public because as a group we're committed to delivering upon them. So the fact that they're out there is a healthy process for the group. And I think that overall I think it is a demonstration of the shared commitment of the group itself.

So for the audience here and the audience that's watching today, the two messages are those two. That we're now prepared to reengage now that we've gone through this transition period with the capital markets, and you'll be hearing a lot more from us. And number two, again that we've laid out, what we'd argue to be a detailed plan in terms of our performance aspirations for the group. And we're unafraid of the fact that we've made them for public consumption.

The second part of my speech -- my closing comments are for all the employees at CNHI. There's been a significant amount of work that's been done here and I speak on behalf of the group executive council. We thank them all for the work that's been done to date and we thank them in advance for all the work that's going to be done to execute this plan. We're humbled to represent the 70,000 employees within the CNH group. We take that responsibility seriously and we understand that fundamentally this plan cannot be delivered without the contributions of all of our employees around the world. Thank you very much.