CNH Industrial NV (CNHI) 2015 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Welcome to today's CNH Industrial's fourth-quarter and full-year results conference call.

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

At this time, I would like to turn the call over to Federico Donati, head of investor relations.

Please go ahead, sir.

Thank you, Maria, and good afternoon, good morning.

We would like to welcome you to the CNH Industrial fourth-quarter and full-year 2015 results webcast conference call.

CNH Industrial group CEO Rich Tobin, 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 statements we might be making during today's call are subject to the risk and uncertainties mentioned in the Safe Harbor statement, including in the presentation material.

I will now turn the call over to Mr. Rich Tobin.

Thank you, Federico.

Good morning.

Good afternoon, everybody.

Overall, it was a good quarter for CNH Industrial.

I'll start by providing some highlights of our operational performance.

Industrial operations improved operating margin by 3.5 percentage points versus Q4 2014.

All four of our operating segments posted profit margin improvements, with the agricultural equipment segment posting an 11.7% margin for the quarter.

Our efforts in world-class manufacturing and footprint optimization programs reduced manufacturing and quality cost.

In Europe, Iveco gained market share in commercial vehicles in both the light and heavy segments in Q4 and posted market share gains in all three of vehicle classes for the year.

We generated $1.6 billion in working capital cash flow in the quarter, and exit 2015 with a net industrial debt of $1.6 billion, a reduction of $1 billion for the year.

Demand conditions remain challenging in some of our business and operating geographies during the quarter, but we did a good job of navigating them.

We increased profits while reducing inventory, adopted our cost structure to prevailing demand conditions, demonstrated the strength of our product portfolio by gaining share and positioned ourselves to compete in 2016.

In light of this performance, we have announced a dividend recommendation of EUR0.13 a share and announced to initiate a share repurchase program of up to $300 million.

I'll hand over the presentation to Max, who will take you through the financial results, and I will go through the operating segments further in the presentation.

Max?

Thank you, Rich.

Good morning, good afternoon.

I'm on page 5, and let me walk you through the financial highlights for the quarter and the full year.

Net industrial activities level, net sales were $6.9 billion for the quarter, down 3.6%, compared to the comparable period of prior year on a constant currency basis.

For full year, net sales stood at $24.7 billion, down 9.6% in constant currency.

The Company achieved an operating profit of industrial activities for the fourth quarter of $563 million, up 63% versus Q4 of 2014, with operating margin at 8.2% for the quarter.

Operating profit for full year was $1.4 billion, with a margin of 5.8%.

Net income before restructuring and other exceptional items was $262 million, or $0.19 per share, up 57% year on year for the quarter, and was $474 million, or $0.35 per share, for the year.

Net industrial debt at December 31 was $1.6 billion versus $3.8 billion at the end of December and $2.7 billion at the end of September -- and $2.7 billion at the end of December 2014.

Available liquidity was $9.3 billion at the end of December, inclusive of $3 billion in undrawn committed facilities versus a comparable figure of $8.9 billion at the end of last year.

Moving on to slide 6, industrial activities net sales composition and by segment.

Excluding negative impact from currency translation, net sales decreased 3.6% in the quarter.

As you can see on the net sales by currency pie chart, Q4 continued to be negatively affected by the strengthening of the US dollar versus our major trading currencies that make up approximately 70% of our revenue.

We expect this to continue into 2016 but at a lower rate.

On slide 7, in the quarter operating profit was up $236 million, or 63%, versus last year at constant currency basis, with all segments up year over year.

Margin improvements across the segments led to an industrial activity margin of 8.2%, up 3.5 percentage points versus last year.

Moving on to slide 8. With financial services posting operating profit at $118 million, down $29 million year on year, primarily due to FX, consolidated operating profit stood at $596 million, up $161 million versus last year.

Restructuring expenses totaled $32 million in the quarter, $54 million lower than Q4 2014.

The expenses were mainly as a result of actions in construction equipment and commercial vehicles as part of the Company's efficiency program launched in 2014.

Interest expense, net, totaled $138 million for the quarter, a decrease of $26 million, or 16%, compared to Q4 2014 as a result of lower average debt and a reduction in our average cost of funding.

Other net was a charge of $100 million for the quarter, an increase of $43 million compared to the same period in 2014 due to higher foreign exchange losses, primarily in Argentina.

Income taxes were $101 million for the fourth quarter of 2015, representing an effective tax rate of 31% versus an effective tax rate of 47% in Q4 of prior year.

For the full year, the effective tax rate closed at 63%, or 37% when we exclude the impact of the Venezuelan devaluation and inability to record deferred tax assets on losses in certain jurisdictions, primarily Brazil.

The long-term effective tax rate target of between 34% and 36% range remained unchanged.

Net income before restructuring and other exceptional items was $262 million, or $0.90 per share in the quarter, up $95 million, and $474 million for the full year, or $0.35 per share.

Moving on to slide 9, representing the change in net industrial debt for the quarter and the full year.

The positive net industrial cash flow of $1.8 billion was primarily driven by inventory reduction, which I will cover in detail on the following slide.

For the full year, the change in net debt shows a reduction of $1.1 billion, primarily driven by the full-year effect of our inventory reduction actions and a favorable FX translation on our non-US dollar denominated debt.

Next slide, number 10.

As you can see in the chart, the primary component of our cash generation was a significant reduction of Company inventory during the quarter for $1.1 billion and $0.5 billion for the full year.

This mainly was generated in the agricultural business.

As far as the total channel inventory reduction at December end in 2015, worldwide Company inventory was down roughly 30% and total channel inventory down 60% in constant currency, primarily due to our efforts to reduce or recoup inventory in NAFTA.

The effort to reduce inventory in ag whole goods will continue into 2016, as Rich will explain later.

Next slide, number 11, provides detail on capital expenditures by spending category and segment.

CapEx was $279 million in the quarter, with full year down 35% versus prior year, partially due to FX.

The reduction for the quarter is mainly coming from lower spending for engine emission compliance programs and the 2014 investment in the new daily program.

IT spending also contributed to the reduction year on year.

Moving on to slide 12, our financial services business.

Net income for the quarter at $91 million, down $7 million compared to last year, mainly due to reduced net interest margin and the negative impact of currency translation, partially offset by lower income taxes.

In the full-year 2015, net income was $368 million compared to $364 million in 2014.

Lower provisions for credit losses and SG&A expenses, coupled with reduced income taxes, were partially offset by the impact of currency translation.

Retail loan originations in the full year were $9.4 billion, down $1.4 billion compared to 2014 due to reduced agricultural equipment sales in NAFTA and the negative impact of currency translation in EMEA and LatAm.

The managed portfolio including unconsolidated JVs of $24.7 billion was flat versus 2014 if we exclude the impact of foreign exchange translation.

The average quality of the portfolio continues to improve, with delinquencies on book over 30 days down 0.3 percentage points versus 2014 now at 3.2%.

Slide number 13 shows the Company's debt maturity schedule and the available liquidity.

Available liquidity in the quarter increased to $9.3 billion at December end.

That includes $3 billion of undrawn under our medium-term committed unsecured credit lines.

That compares to $7.4 billion in the end of September 2015.

The liquidity is mainly attributable to the cash generation from operating activities.

Our liquidity-to-revenue ratio increased to 35% versus 27% at September [2015] and December [2014] respectively.

The reduction of the inter-segment balance continued during the fourth quarter for $0.4 billion, with a net balance at the end of the year now at $1 billion, down about 70% from one year ago as we continue to strengthen the independence of our financial services funding sources from the industrial activities.

This concludes the financial review portion of our presentation.

Let me turn back to Rich now for the business overview section.

Thanks, Max.

Starting with agriculture on slide 15.

Agricultural equipment's net sales were $3 billion for the quarter, down 3.8% compared to 2014 on a constant currency basis.

The decrease was driven mainly by industry volumes in the row crop sector, primarily in NAFTA and LatAm, offset by favorable net price realization.

Operating profit was $348 million for the quarter, up 54% on a constant currency basis, with margin at 11.7%, up 4.6 percentage points.

Positive price realization, manufacturing and purchasing efficiencies and a reduction in structural costs were able to offset the reduced shipment volume and negative effects of fixed-cost absorption in the quarter.

In our main ag products during the quarter, global combines undeproduction versus retail at 30%, with production levels down 35% versus Q4 of 2014.

Global tractor production was 9% below retail, with production levels flat versus Q4 2014.

Worldwide total channel inventory was reduced in both categories, with current inventory showing a significant change in mix to lower horsepower tractors as a result of the reduced demand in the row crop category.

Worldwide market share performance was good considering the positive net price realization to margins for the period.

Market share performance for the year was satisfactory in tractors, where we held share on a worldwide basis.

The LatAm share is measured in wholesale shipments, and our performance is a reflection of our channel inventory reduction efforts.

In combines, our performance was good, and despite the large cuts in production we were able to increase share in NAFTA during the quarter.

As you can see from the chart on the bottom right, we did not get a lot of help from commodity prices during the year and its knock-on effect on net farm income in the United States.

We're dealing with that effect on machinery demand, which I'll cover in a moment.

It should be an interesting year for farming profits in many geographies as the market digests the changes in dollarized commodities and the depreciation of many producer currencies versus the US dollar.

We have seen that the machinery demand in Europe has held up reasonably well in 2015, and we would expect emerging markets to follow suit as the cycle turns.

In consequence of the decline in commodity prices, our NAFTA row crop production was down 50% versus last year and 27% in -- versus the last quarter, both in excess of the market decline.

NAFTA row crop channel inventory is down 24% versus last year, with both Company and dealer inventories down year over year 12% and 26%, respectively, in units.

SG&A expenses were down 27% for the quarter in the agricultural segment.

In construction equipment, net sales were $609 million for the quarter, down 18.7% compared to Q4 2014 on a constant currency basis.

Reduced deliveries of whole goods and parts in NAFTA as a result, and the increased 2014 comparable shipments into dealer rental channels on forecasted 2015 demand and Brazilian macro market weakness being offset by increased shipments into APAC.

Construction equipment reported an operating profit of $18 million for the fourth quarter, compared to $9 million for Q4 2014, a result of favorable net price realization in NAFTA, efficiency program, structural cost reductions, lower material costs and cost containment actions more than offsetting reduced volumes and negative fixed-cost absorption, particularly in Brazil where the group has held a historically strong market share position.

As a result, operating margin in the quarter increased 1.9 percentage points to 3%.

Construction equipment world -- construction equipment's worldwide 31% undeproduction versus retail in the quarter, with total production down 22% versus Q4 2014 as a result of production-level changes in LatAm and NAFTA.

In 2015, construction equipment industry unit sales for heavy and light products were down 18% and 4%, respectively, compared to 2014.

Decreased industry volumes in LatAm and APAC were partially offset by moderate growth in NAFTA.

Demand for heavy and light construction equipment was flat in EMEA for the period.

Market share performance for the quarter was disappointing in NAFTA light equipment as a result of reduced shipments into the rental channel.

Overall market share performance was held for the quarter without heavy discounting.

Moving on to slide 20, here you can see a recap of management actions implemented in the course of the year coupled with the efficiency program rollout.

All announced projects are in line and ahead of schedule.

The start-up of manufacturing operations in the excavator segment are targeted to increase manufacturing capacity utilization, resulting in increased fixed-cost absorption in 2016, primarily in Europe.

Our brand repositioning efforts in EMEA have made significant progress in 2015, and we expect to complete the transition by the end of 2016.

In 2016, construction equipment will be introducing a new livery for the Case brand and announcing expansions to its light equipment product offering.

Moving on to commercial vehicles, net sales were $2.8 billion for the quarter, slightly down compared to Q4 2014 on a constant currency basis.

Excluding the negative impact of currency translation, EMEA net sales increased, driven by higher industry volumes and market share increases for light and heavy trucks and for buses.

In LatAm, net sales decreased mainly due to the significant decline of the Brazilian market, partially offset by increased deliveries in Argentina in anticipation of the introduction of the 2016 of EURO V emission transition.

Operating profit was $155 million for the fourth quarter of 2015, up $80 million on a constant currency basis, with an operating margin of 5.4%, a 2.4 percentage point over the same period in 2014.

Positive net pricing in all regions as a result of significant rejuvenation of the product portfolio, manufacturing efficiencies, structural cost reductions, improved product quality and material cost savings all contributed to the increase in profitability.

At the bottom of the slide we have highlighted the commercial vehicles margin trajectory that shows year-over-year improvement in each quarter of the year.

Exclusively driven by trucks and bus volume growth in EMEA, coupled with market share gains in light and heavy segments that have more than offset reduced shipments in LatAm and APAC and reduced volumes in the profitable specialty vehicle segment.

Fourth-quarter undeproduction versus retail was 11%.

In 2015, the European truck market grew 16% compared to 2014.

The light vehicles market increased by 16%, while the medium and heavy vehicles market grew by 5% and 19%.

And LatAm new truck registrations declined 40% compared to 2014, with a decrease of 47% in Brazil and 42% in Venezuela, while Argentina increased 5% for the period.

In the quarter, total deliveries were 41,500 vehicles, representing an 8% increase compared to Q4 2014.

Commercial vehicle deliveries increased 18% in EMEA but decreased in APAC and LatAm, down 9% and 33% respectively.

Total orders worldwide were up 9% versus Q4 2014, with EMEA trucks up 27%.

Commercial vehicles Q4 book to bill at 0.87 is flat versus Q4 of last year.

European market share was up 0.5 percentage point to 11.6%, with all segments up for the full year.

The introduction of the Daily Hi-Matic and the increasing market acceptance of the group's FCR-only technology across the portfolio have allowed the business to drive improved performance in both the commercial vehicles and bus segments.

The group's efficiency program is on schedule to be completed by 2016, with the last step being the completion of the changes in industrial footprint.

By the end of the year, we will have our light, medium and heavy products being produced in dedicated single-purpose facilities.

This optimization program will increase our production capacity and further allow for the implementation of our world-class manufacturing programs designed to increase efficiency and improve product quality.

With the launch of the new Eurocargo, awarded with the International Truck of the Year in 2016, Iveco has completely revamped its core product line in both commercial vehicles and bus segments.

The portfolio now includes an award winner in each vehicle class.

In 2016, we'll be launching new products in the heavy commercial vehicle segment and further expanding our gas and hybrid product offerings with launches of new models of both the Eurocargo and Stralis platforms.

Moving on to power train, net sales of $900 million for the quarter, an increase of 5.6% of the same year of 2014 on a constant currency basis due to improved mix on engine sales and increased volume in transmissions and axles to commercial vehicle segment.

Sales to external customers accounted for 49% of total net sales, an increase of 5 percentage points.

Operating profit was $62 million for the fourth quarter at an operating margin of 6.8% compared to Q4 of 2014.

Net of impact of currency translation, operating profit improved $5 million from a favorable product mix and from a reduction of SG&A expense.

During the quarter, power train sold approximately 131,000 engines, a decrease of 1.4% compared to Q4 2014.

By major customer, 40% of engine units were supplied to captive customers, and the remaining 60% to external customers.

Additionally, power train delivered approximately 16,500 transmissions and 45,000 axles an increase of 14% and 29% respectively compared to Q4 2014.

Research and development spending for the quarter was flat to prior year despite the significant completion of the portfolio to EURO VI and tier 4 final production as the business has begun to look to the future in meeting the demands of the next generation of engines and alternative combustion technologies.

In 2016, FPT will be launching new upgrades to its light commercial vehicle, heavy commercial vehicle engine lineups aimed at increasing fuel economy and launching a new CNG/LNG power trains in support of the commercial vehicle business.

Moving on to the industry outlook of 2016, the agricultural equipment industry in NAFTA has forecasted the decline in 2016, with the row crop sector down 15% to 20% as compared to 2015.

EMEA demand is to be mostly stable and LatAm to be down 10% to 15% in tractors and 0% to 5% in combines, with a significant portion of the decline in the NAFTA and LatAm markets to occur in the first half of the year on a wholesale shipment basis.

In construction equipment, markets are expected to be slightly down, with demand in NAFTA and LatAm to be back-end loaded.

In commercial vehicles, we expect EMEA to be up 5% and LatAm to be down 10% to 15%, and the balance of the world unchanged.

Based on estimated 2015 profit and retained earnings available for distribution by CNH Industrial NV and subject to the formal Board approval of the Company's 2015 financial statements anticipated to occur on or before beginning of March 2016, the Board of Directors of CNH Industrial intends to recommend to the Company shareholders at the annual general meeting a dividend of EUR0.13 per common share, equivalent to approximately $200 million at today's exchange rates.

Additionally, we announced today a buyback program to repurchase up to $300 million in common shares from time to time subject to market and business conditions and other factors, as previously authorized at the shareholders meeting held on April 15, 2015.

The program will be funded by the Company's liquidity.

CNH Industrial is setting its 2016 guidance as follows.

Net sales of industrial activities between $23 billion and $24 billion, with an operating margin of industrial activities between 5.2% and 5.6%.

Excuse me?

5.8%.

Excuse me, 5.8%.

Net industrial debt at the end of 2016 between $1.5 billion and $1.8 billion.

The US dollar is forecasted to continue strengthening moderately against most of the Company's other trading currencies during the year.

That is the end of the -- my portion of the presentation.

I'll hand it back to Federico, and we can open it up for Q&A.

Thank you.

Thank you, Mr. Tobin.

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

Maria, please take the first question.

(Operator Instructions) Joe O'Dea, Vertical Research Partners.

Could you just talk about the way channel inventory and large NAFTA ag wound up for the end of the year, what that sets up in terms of underproduction plans in 2016?

And Rich, I think you commented on kind of a first-half, second-half split, so then how those plans might kind of consider what your first-half underproduction is versus your second half.

Yes, sure.

Our estimate right now is that NAFTA row crop production will be somewhere in the range of 15% to 20% below retail in 2016; so, in line with the decline of the market.

So, just a steady run-off of the ending position of 2015.

Based on order books right now, and based on an amount of uncertainty in the marketplace, we would expect to come out of Q1 at very low levels of production because we think that the market will build into 2016 rather than to be steady over the year.

So we would expect significant portion of the production cuts to be made in Q1 of this year.

So, detrimental to earnings and the like.

But we think that if we get this right we can still deliver the margins as we did it this past cycle by timing the demand cycle with what we did at the industrial side to still protect margins as much as we can.

Okay.

And then just a pricing question.

Last quarter you had commented that on the ag side, pricing was holding up.

But maybe you were seeing some indications of a little bit more competitive pressure there.

Again, it looks like in 4Q pricing was positive.

So maybe just how things unfolded over the course of the year.

And as you look at more underproduction, do you think pricing is still positive in 2016?

Yes, I think that we got a little bit scared of Q4 2014, where the market really turned down in that quarter and then it became a little bit difficult because everybody was trying to liquidate inventory simultaneously.

I think that from an industry point of view production has been cut pretty heavily.

And so pricing was -- wasn't prohibitive during the second half of the year and especially in Q4.

Going into 2016, on the row crop side, I think from what we can see and what we can see our own numbers, I think that we are in pretty good shape on combines.

So, the amount of cuts that we need to make in combines relative to 2015 should be marginal.

I think that most of what we are taking out of row crop going into next year will be in mid-horsepower segment because that's what's been built up because that's where the demand was in 2015.

So we'll see.

I think that if we look at what we think the demand is going to be versus the industry's position in terms of standing inventory, if there's going to be any price pressure it's going to be into the mid-low horsepower segment as everybody has been chasing the dairy livestock.

On the upper end of the segment, if there's been a significant clearance, look, we'd like it to be more.

We're going to run again lower, and our expectation is to bring down dealer inventory by another 30% in NAFTA in 2016.

And hopefully, if we get it right again, that pricing should hold up.

That's really helpful.

Thank you.

Henry Kirn, Societe Generale.

Could you talk about the capital and R&D spending projects and needs for 2016, and maybe specifically an update on the digital initiatives that you have going on right now?

Both CapEx -- you are referring to ag, I guess.

But both CapEx and R&D will both go up relative to 2015 in ag.

Largely driven by, let's just call it, the whole precision farming ecosystem.

There's not a lot to be done on tier 4 anymore.

We've got a variety of different launches across the portfolio.

We are launching a new high-speed planter.

But what's driving the year-over-year increase in R&D that's baked into our outlook is largely driven by precision farming.

That's helpful.

And then with the new product introductions in power train, can you talk a little bit about your view on the uptake of CNG and LNG engines over the next few years and what that could mean to the Company has a whole?

I think that we are bullish over the longer term.

With the downward pressure on diesel right now, the economics of LNG, CNG are getting a little tighter.

But I think from a medium-term, not even a long-term, perspective, we think that once the infrastructure is built out -- and they are well on their way in Europe.

NAFTA hasn't started at all.

But in Europe, once the refueling infrastructure is built out -- and with the pressure on emissions, forget just the input costs on diesel, that we are pretty bullish in terms of the uptake on the conversion for long-haulage applications.

That's very helpful.

Thank you very much.

Ann Duignan, JPMorgan.

Well done in Q4.

That was a good margin.

Can you just talk a little bit about if I look at your managed portfolio in the financed subs, wholesale finance went from about $8.3 billion in Q3 to about $8.66 billion in Q4.

Should we be concerned at all that there was some channel stuffing -- I mean, Deere's CEO was very uncharacteristically very adamant that Case IH has been stuffing the channel on the at least high-horsepower tractor side.

They are worried about what we have in dealer inventory.

But I don't know.

Look, the only thing I can say about that is we've given more stats than anybody in the industry in terms of channel inventory and the movement.

We gave out all the stats in terms of production to retail, and we posited -- and then we posted some very good gains from pricing.

So, if we are stuffing, it's hard to say where that's being reflected in the marketplace.

But how do you explain that retail notes were down and wholesale notes were up quarter over quarter?

I think that you've got to be very careful.

There's mix in there, there's currency and there is a variety of different things.

I mean I can get you a more detailed answer on that.

I don't operationally and particularly look at it that way.

That's more on the FinCo side.

But I'm not -- our -- we were below -- wholesale was below retail.

We've given you the stats.

So whether there is a mix effect in terms -- and there's a portion of the pricing that's baked into what's been sold into the -- part of that $120 million is in the gross receipts.

Okay.

Maybe we can take it off-line and go through it in more detail.

But can you just talk then a little bit about your 2016 outlook?

If I do the mathematics, decrementals come in at about 14%.

Can you just talk about the difference between the different groups?

And where would you expect decrementals to be worse and where would you expect them to be better?

Okay.

We look at it from a group perspective.

The margin loss in ag, about 50% of that is recovered by additional profits in the other three segments year over year.

Without getting into decremental, incremental margins by particular sector, that's the way you can look at it.

I mean, we are calling the market down by 15%, 20%.

That would equate to roughly $400 million.

But that's not what's baked in there, so that's got to be made up from the balance of the portfolio.

Okay.

That's helpful.

I appreciate it.

Monica Bosio, Banca IMI.

I would have a few questions.

The first one is on the total CapEx 2016.

I understood that in ag -- agriculture, the CapEx and the R&D will be higher.

But I was wondering what about the total of the group, especially in the commercial vehicles?

And my second question is still on the commercial vehicles.

Do you feel that a still-sound trend in commercial vehicles in EMEA might continue to affect the weakness condition in the LatAm market?

And the third question is on the agricultural segment.

Can you give us labor quarter by quarter?

I'm just trying to figure out what could be the trend in the first quarter in terms of profitability given that most of the production cuts will be made in the first quarter of 2016.

Thank you very much.

Okay.

I'll do questions two and three first, and I'm going to have to come back to question one.

Our expectation that EMEA volume will offset further declines in the LatAm.

I think that that's our expectation of full year in terms of profits.

Our weak -- on the ag side, our weakest quarter in terms of margin will be Q1 of 2016 because of the fact that we are going to be delaying the restart of the industrial machine.

So, it would be Q1 and likely Q3 as a result of more maintenance-related shutdown periods.

And what was your first question again?

Sorry.

It was on the total CapEx expected for 2016.

It's going to be up somewhere around 10%.

Okay.

Thank you very much.

Alberto Villa, Intermonte.

Just a couple of questions.

One is on the -- what I've read on the Financial Times today that Brazil is planning to introduce some sort of incentive this year to revive investments.

I was wondering if you think this kind of initiative can allow you to see a little bit less negative outlook for Brazil, or you think that the demand there is going to be very weak this year.

The second one is on the guidance on net debt.

I was wondering if it included the buyback realization of $300 million or not.

Thank you.

On the first one, we don't know yet.

I read the same article this morning, but nothing has been publicly announced.

So, we don't have anything baked into our forecast for credit availability in Brazil or an improvement of where we are today or what our forecasts are today.

In terms of net debt, the answer to your question is, yes, it's baked in.

Thank you.

Richard Smith, Citigroup.

Just bearing in mind the significant recovery in margins in Q4, and particularly in the agribusiness and then also, I guess, in commercial vehicles, why are we still seeing 2016 guidance down?

Is any of that margin improvement momentum expected to carry through into 2016, or is it more of a one-off?

And then I guess secondly, with the $300 million share buyback program announced, are you still targeting an investment-grade rating for your credit?

And how do you see share buybacks being consistent with this?

The answer to your first question is it's volume related.

We are calling the market in ag down, and ag is the most profitable segment within the group, so by its nature it's going to come down some.

In terms of our target to remain investment-grade, we still have that target.

The aggregate amount of the return on capital is the change, the over-performance of net industrial debt.

So we end up right where we expected to be, and then return and make a return to shareholders.

Okay.

Thank you.

And the fact that the value of what we would consider our shares undervalued on top of that.

Christoph Belanger, Barclays.

I will have a question on balance sheet.

I'm looking at your intercompany loans standing at $1 billion at the end of 2015.

Could you share with us what will be the target for 2016?

And the second question is on your pension; if you could share with us the size of your pension deficit at the end of 2015.

Thanks.

We expect the balance of our inter segment to be below 2014 -- 2015 in 2016.

And the pension balance is just above $2 billion.

$2 billion.

That's on an OPEB altogether.

No, what's the underfunded portion (multiple speakers).

This is pension and OPEB, you said?

Yes.

Okay.

And just (multiple speakers).

Pension is $200 million.

Thank you.

Pension only.

Just to come back on the intercompany loan, do you plan to fully cancel the intercompany loan at some point?

Are you saying do you cancel the intercompany loan between industrial and (multiple speakers)?

Well, to basically suppress (multiple speakers) -- to basically suppress the intercompany loan between the industrial arm and the FinCo.

There is a level of funding that is physiological between the two pieces of the business.

But, again, we expect to be below 2015 in 2016.

Okay.

All right.

Thank you.

Ross Gilardi, BoAML.

Rich, could you just talk about European truck order trends?

Did they accelerate or decelerate, do you think, as the year -- as we came into year-end?

I mean, obviously the March performance was a very good.

But just curious more on directional movement and order trends in European truck.

Well, I think that on a percentage base, Ross, it's come down because it's starting from a lower base.

But our backlog is flat year over year.

So, it's steady.

So, once, the percentage decline was just a function of the market moving up.

But what we have in backlog is flat to where we exited Q3.

And then you said you got pricing in EMEA truck and you still took market share.

So could you talk a little bit more about that?

What parts of the truck market did you actually take share?

Was that more of a light- and medium-duty comment versus a heavy-duty comment?

Any color geographically?

We actually gained share in all three segments for the year.

Look, at the end of the day I think that the price is more a reflection of the fact that the product line has been rejuvenated.

I mean, the Daily is brand-new.

We've made significant improvements to the quality to both the medium and the heavy segments, and we are pricing for it.

We just think we have a more competitive product.

Got it.

Thanks, guys.

Massimo Vecchio, Mediobanca.

My first question is on the operating profit work for ag.

If I understand correctly from previous question, the big positive pricing is a comparison with Q4.

Is it correct?

With Q4 last year?

That's correct.

And can you also detail what was the benefit of lower raw material in this bridge?

It's probably included in the production costs.

There's a piece of it is in production, and a piece of it ends up in pricing because of inventory turn.

It is approximately 10%.

Okay, so, very small.

Second question is on the tax rate.

You said the long-term sustainable is 34%, 36%.

When do you think you will get there and what can we expect for 2016?

I think that we can expect a steady walk-down from where we are today.

I think that 2017, depending on market conditions or demand conditions in the market, would be where we get into the range -- our long-term range.

All right.

Thank you very much.

That will conclude the question-and-answer session.

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

Thank you, Maria.

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

Have a good afternoon and evening.

Bye.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.