Q2 2020 CNH Industrial NV Earnings Call

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Good morning, and often ladies and gentlemen, and a welcome to todays see an h. industrial 2022nd quarter and first call fear results conference call.

For your information today's conference is being recorded after the speaker's remarks, there will be up question answer session to ask a question. During this session you wouldn't need to press star one on your telephone keypad.

At this time I would like to turn the call over to free did he called Donati head of Investor Relations. Please go ahead Sir.

Thank you wanted to ask when morning enough no matter, what we would like to welcome you to the webcast and conference call core CNH industrial second quarter Twentytwenty results for the PEO ending June 30, it's called is being broadcast live on our website and he is copyrighted by CNH industrial any other use recording or does meet <unk> any color.

None of these broadcast without the expressed written consent CNH industrial it's drinking from either.

We are pleased to happen here without today, I want chair and acting Chief Executive Officer says on Hayward than our CFO daunting cheese out well would be all seen today cold. They would you say mckee available for download from the CNH industrial website.

Today's presentation will be all being accurate I Sachin is a final comment. Please note that any forward looking statement, we might be making doing today call.

Subject to the risk and uncertainties main shown in the safe Harbor statement, including the presentation, let either.

You should not information pertaining to factors that could cause actual results could be fair Mckee is contained in the company. Most recent reports went yet but I don't want to report as well as are there any periodic reports and filings with the U.S. Securities Exchange Commission and Oh.

Correct is in the Netherlands and keep.

The company presentation includes certain non-GAAP financial measures additional information, including reconciliations to the most directly comparable GAAP financial measure it including the potential makita white find out of my once again, our team is collecting from different cancers. So please forgive us if there are moments for silence during the call what we manage the country can between speakers.

I will now turn to call that this is on.

Thank you Frederico and good morning, good afternoon, everyone.

I would like to begin today with a short update on how we're responding to the comp pandemic an apology this condition start to improve.

After that I will outline that Q2 results and then she has some of us thinking on how we see the second tosses the playing out assuming of course that the while no clear the unexpected events.

This second quarter has been born in which the end market conditions have changed very rapidly. However, we have navigated. This I believe with some success by May we had walked wallets and depo, he's back up and running with all our new clothes, good health and safety protocols fully implemented.

This meant that we were well positioned to supply products and wind markets as Fred said ahead of expectations, enabling us to deliver business performance that was better than we had expected at the end of the first quarter.

Overall in this quarter, we're reporting consolidated net revenues of $5.6 billion.

Sales of industrial activities were $5.2 billion down 24% on a constant currency basis.

This is a lower decline that we had anticipated at the end of Q1 with some markets coming back relatively strongly including local spot tractors in North America and rest of world combines in North and South America and light commercial vehicles in your towards the end of the quota.

Industrial activities adjusted EBIT was a loss of $58 million.

We didn't Miss a agriculture division showed a prophage a return to an 8% margin on sales and our powertrain Division reported very strong performance in China.

These performances were <unk> offset by losses in the commercial specialty vehicles and construction segments.

All our industrial segments continued to be impacted by industry demand disruptions negative absorption caused by plant shutdowns and actions that we've taken some level of inventory levels.

These were partially offset by reduced SGN expenses, which were down $101 million or 20% compared to last year and by the deferral of $70 million, 26% of R&D expenses.

Unrelated to new product launches.

Net income was 361 billion. This includes the positive fair value Remeasurement domestic Nicola Corporation, which amounted to almost $1.5 billion.

This was how were partially offset by number of other charges that we've taken to reflect the impact to the pandemic on that business, including construction goodwill and other asset impairment an asset optimization charges.

We held the net debt of our industrial activities steady between the first and the second quarter ends at $2.3 billion and we generated positive free cash flow of $97 million. These weapons helped by strengthening end market demand and the actions we've taken to reduce cost.

And preserve cash these costs and cash measures in combination delivered almost $500 million of cash benefit in the first six months and CEO.

Understood and savings almost a third of these savings will remain in the years to come.

These results have all contributed to the strong available liquidity that we are reporting of $11.5 billion as of June Thirtyth Twentytwenty.

This liquidity the highest in our history gives us a solid foundation from which we can continue to navigate this uncertain and challenging period.

As we do this we will continue to par ties the three things that we highlighted at the start of the pandemic.

Keeping you up people safe, ensuring business continuity and supporting ideas and our suppliers.

Alongside this work we all know however, working on a number of all the issues.

First of all we're gradually restarting our preparation for the spin off of our on road business and we'll keep you updated on the progress in the timelines for this as it becomes clear.

We've also already taken some actions to strengthen our construction business, but we're continuing to work on plans to reposition it for profitable growth and again, we will share. These with you as they are completed.

And finally I wanted to highlight the ongoing focus that we're putting on our investments in digital and alternative fuel technologies across all business segments, which we know a critical to customers.

I will share more on all of this later in the presentation, including the significant process progress that we are making in precision farming and how we are using I extend concept to bring the best new technologies to our farmers, but up front I also wanted to say something briefly about jackpot ship with nickel a corporation as I know this has created a fair bit vintage.

Yes.

Oh I partnership with nickel a corporation is an important Naples catalyst becker's future technology Road map.

We therefore very excited that JV will be produced during the first modular battery of fuel cell heavy duty trucks for both Europe and until they look like in nickel his own U.S. site also for North America.

I will explain later, how the approach that we're taking with Nick is distinctive in particular, because we haven't we imagine how an electric for few sell electric trucks should work from the bottom up rather than simply replacing the internal combustion engine and the truck with batteries will fuel cells.

This approach is going to give us a vehicle with very substantial range of power.

However, while we are excited about and strongly committed to this future. We also delighted by the way in which the market has responded to our newly launched heavy duty trucks. The S. White in its combustion engine configurations. We also remain strongly committed to a LNG truck lineup, which we believe is a critical and lasting transition.

Allergy between diesel electric vehicles, we are one of the leading plays in this market, which has gained further rebel relevance in Europe since the beginning the year.

Finally, I want to let you know that the search for our new CEO is continuing with a number of candidates having now being interviewed I would of course, let you know as soon as we have news on this topic and in the meantime will continue in my goal is acting CEO and Chad.

I also want to take this opportunity to think all my colleagues across CNH industrial as well as our dealers so that a huge assets to keep our people sales during the first half of this very challenging year, while still meeting the needs of our customers who operations. So many essential industries.

Moving on to slide four.

I would like to share with you some of our Q2 in industry volume some of that Q2 industry volumes as the should help put out results into context.

First let's look at the AG segment.

Worldwide agriculture industry involved with somewhat muted during the second quarter with global demand for tractors down 1%, although demand for combines was up by 12% compared to last year.

In North America tractor demand was up 20% for the lower horsepower segment, although high horsepower tractors were down by 22% versus last year.

The recovery that we've been seen in the dairy and livestock end market is not yet visible in will follow me.

If we look at the monthly industry performance figures on the Washington side of the page you can see the progressive ramp up in demand for tractors in May and June which demonstrates the industry's resilience and as a positive indication for the second part of the year.

Meanwhile, combines were up by 3% to North America in the quarter, mainly driven by the strong North American sales in June which were up 31% year on year.

Turning to Europe, the pictures and little different as the market has remained challenged during the entire quarter with the relative performance in each month being down double digits versus the previous year imposed tractors and combines.

In South America, we see a different story again here, we saw a depressed demand for both tractors and combines in April but then saw signs of recovery may and June.

In the rest of the world's demand decreased by 3% for tractors and increased by 21% for combines mainly driven by very strong performance in the first two months at the quarter.

Moving onto the construction segments demand in all sub segments of the construction segment.

Oh, we're showing double digit decline in all geographies, except for in rest of the world What general construction equipment was up by 28% mainly driven by China.

As you can see from the monthly fees as well the recovery is most as steep as we've been seeing attractors. The has still been positive trend during the quarter. So hopefully continue through the remainder of the year.

Lastly, I will turn to the truck and bus markets.

The European truck market was down by 39% year over year in the quarter with light duty trucks down, 29%, a medium and heavy trucks down 57%.

In the light commercial vehicle segment, we've gained seen relative potent positive progression month by month, we do look at performance in Europe actually up 1% compared to last year, while for medium heavy duty the market demand remained depressed for the entire quarter. If we look at South America the market demand remain challenging for the.

Just two months to the quarter, while showing encouraging double digit ramp up in the month of June for both light commercial vehicles and medium and heavy duty trucks.

Turning now to Boston is in Europe, the market decreased by 57% in the quarter, while the South American market decreased by 62%.

With each month of the quarter considerably down compared to last year.

Ill now move on to slide five which shows the data that we have for retail sales deliveries of production in the second quarters. This year compared to the same period last year.

Before going into the detail, it's worth remembering that beginning in the last month of Q on a rolling into Q2, we had a cascading effect of plant closures as the pandemic made its way around the world for all they pull at half of May we essentially had our global production shutdowns.

However, despite these parks closures, we managed to keep most about Paul steep surface facilities and dealerships operational.

Our salespeople also able in many cases to match existing inventory with customer demand, which is both helps our customers and improved our inventory management.

All I plan to now back up and running however, most not operating at full production levels. Since we are still managing our production to reflect end market demand.

This slide ventures that quarterly performance.

In our agriculture different division worldwide tractor and combine underproduction compared to retail sales was 44% of 40% respectively for the second quarter with North American Red Cross under production at 10%. We've also been gaining retail market share in Europe, and South America impose tractors.

Combines.

In our construction division our worldwide underproduction compared to retail sales were 62% with no North America, 74%. This has enabled us to reduce that channel inventory significantly as you will see over the next slide.

For truck business World wide light duty truck production was down 59%, while medium and heavy duty truck production was down 50%, which meant that we had underproduction of 27% compared to retail sales for trucks worldwide.

If we focus on the European portion of the vectors specifically since this accounts for approximately 80% of the sub segments revenues production of light trucks was down 62% and production of medium and heavy trucks was down 52%.

Market share of the European truck market was 9.6% down 80 basis points, although our share of medium and heavy duty market was up by 200 basis points to 8.3% on the back of the positive response as I mentioned earlier to the launch of our new sway truck.

Our market share in heavy semi trucks and you are actually doubled within this pickup from the low level in the prior year.

Book to Bill in Europe was 1.12, while South America ended the quarter 1.5, we can also see from I tell the metric data the truck usage increased through the quarter and this trend just continued in the first week since third quarter.

Finally in boxes, our market share in Europe was up 550 basis points as our product line is key to public transportation and inter city transportation, while our exposure in the coach segment, which is being far more attracted by the crisis is minimal.

Slide six summarizes channel inventories by segment I won't go through them, all but I'm pleased to report that across the board. We have had double digit reductions in inventories indeed in some categories like North American workflow, we have reduced overall inventory by 25% and our company.

Specific industry inventory by almost hall.

Our team in conjunction with Adidas has done a fantastic job managing our inventory levels. So that as markets recover we can continue to build to meet retail demand and help I'd those selectively replenish that in countries.

I'll now turn the call over to a don't need to take you through some of the key financial details.

Thanks, Suzanne and good morning locked in until everyone.

The second quarter and for that matter. This the first six months of Twentytwenty have been extremely challenging.

Being say why we have yet to see a full recovery on our end markets that are promising signs that we already know less pronounced sunstone Empire, but you should expect that.

And that we are not facing are already worst case scenarios for click you'd like.

Because pick an exemplary corporation and coordination supplementary news feed us customers and other stakeholders.

I will make the top this season CE marks in April that help us, we'll get more secure position today and for that I will like Perfectible.

Moving now quickly Pcs or sort of second quarter consolidated revenues were 5.6 billion down 23% on a constant currency basis.

Net income was 361 million and include that pregame pre tax gain of 1 billion on from 75 million for the remainder right. That's fair value of the investment even put up corporation. Upon the leasing of Nicole I'll come back after the completion of the business combination with better. Thank you.

When you go on one fabric and going forward.

Conductor, how quickly 5.7 million shares of nickel incorporation.

Corresponding to approximately 70% of nickel I'll stand in Chicago.

As a reminder, what we plan to exclude any for volume measured lack of these investment from the calculation the of non-GAAP adjusted measures and in particular from our adjusted diluted EPS investment would be part of a fair value to profit or loss with any changes in fair value recorded in profit or loss U.S. GAAP cost right at the financial statements going.

For work.

Net income also includes a noncash onetime goodwill impairment charge of 585 million related restructuring.

Order asset spread docs impairment charges of 455 million as well as asset optimization pretax charges of 292 million.

We took this chakras based on our assessment of the two to recover ability of our assets.

So considering the parts of the pandemic in our business businesses are up toward.

To be more specific about the asset optimization on chart, we identify new auctions to dispose of used trucks in the period rates have been market conditions, you took over 90.

We are setting in the last few weeks a higher number to use stock now prevailing lower market prices quickly responding to the quarter et cetera circumstances.

As a consequence, we have assets and the residual value of our portfolio of trucks sold with buyback commitments.

However, given our strict discipline in managing the sales with buyback over the last couple of years. We are now the lowest portfolio to people back since 2000 and cooking.

Looking now at our non-GAAP measures net sales in our industrial segments was down 44% in constant currency.

Adjusted EBITDA of industrial activities was a loss of 58 million in the quarter compared to a on adjusted EBITDA of 527 million last year strongly impacted by industry demand disruptions negative absorption caused by plant shutdowns at cost associated with the fund that Nick.

For the offset by that you'll see us DNA and the for certain R&D expenses not related to new product launches.

Our adjusted income tax expense for the quarter was 30 million compared to one other and 30 million last year adjusted effective tax rate was negative 45%, primarily due to the impact of pretax losses in very good as victims, where tax benefits are not recognized.

Adjusted net loss was 85 million and adjusted diluted EPS was a loss of seven cents.

We finished the quarter would that have industrial activities of 2.3 billion steady with the level. We have at the end of the biggest quarter are the result of positive free cash flow as fiveg adversely impact slipped over 90.

Turning to slide eight we focus now on inductor PV the next phase.

Foreign exchange translation, and a negative impact of 3.3% in Q2.

The net sales split by region was good that's coming in line with last year, but were slightly greater share of rest of the war of the Western Hemisphere was more effective by the pandemic into second quarter.

I'd be cautious net sales totaled 2.5 billion during the second quarter down 14% on a constant currency basis versus last year.

The decrease was driven by lower industry volumes link for the quarter 19 pandemic, primarily in Europe, partially offset by positive price realization.

Construction that sales both for ongoing trend given during the quarter down 41% on a constant currency basis.

Results a weaker market conditions to cover 19 pandemic continue to challenge inventory destocking auctions and negative price realization.

We look at a significant resources in order to support the ranked that'd be the metro critical Murphy incentives is pretty quick inventory and provided payment extensions and product quality upgrades.

Yesterday, we have reduced almost 300 million of kind of inventory mainly in dealer inventory in North America, which is an illustration of the all efforts spent restablishing on health care condition Franco Sarto segment, among unprecedented market headwinds.

Commercial and specialty vehicles net sales totaled 1.7, beginning the quarter down 33% on a constant currency basis, driven by decreased volumes across all geographies also due to the corporate banking Sunday.

Finally, powertrain net sales both at 763 million in the quarter dumped 31% on a cost of course is basis with the volume production, particularly for light and medium engines in Europe coming from lower demand from our internal and external customers.

Facebooks that our customers accounted for 63% the scope of sales year were 48% of total sales in the second quarter 2000 IP.

Strong sales were recorded in China in the quarter of accounts I started to recover earlier from the impacts of the thumb bank.

Turning now to slide nine with a look at the adjusted EBIT by segment and driver.

Closer to get adjusted EBIT, including results of our financial services operations was 15 million for the second quarter with a marketing of 0.3%.

At the high level the majority of the keys on year over year basis was again due to negative volume and mix of 600 million, which includes an I got the fixed cost absorption of more than one are there any media.

Higher product costs, maybe think about shut down lower pricing in construction were partially offset by aggressive cost containment actions.

If we take a closer look at each segment adjusted EBITDA for Iraq was 203 million with the comerica margin of approximately 25%.

Positive price realization disciplined cost management and continued very quick peanut butter through duration of research and development spend.

Where more than offset by lower volume and mix a negative fixed cost absorption only partially mitigated by lower per treatment cost.

For construction adjusted EBIT was a loss of 87 million. There also was driven by lower volumes and I get fixed cost absorption due to lower production levels with the stock in auctions on a favorable price realization.

So your cost containment auction only partially offset headwinds of low at the moment.

Pricing was negatively being backed by strong commercial action, mainly in North America, and we expect a normalization of pricing in the second out for you.

Commercial specialty vehicle adjusted EBIT was a loss of 156 million.

Frame, primarily driven by lower volumes and the negative impact on product cost from black shutdowns, partially offset by lower as DNA positive privatization and containment auction in RMBS bank.

Lastly, powertrain second quarter adjusted EBIT was 36 32 million a reduction of 70 million versus last year, mainly due to lower volume, partially offset by purchasing and quite efficiencies.

Cost containment actions and lower spending on regulatory programs, which were higher in the previous year adjusted EBIT margin was 4.2%.

Moving to slide span and our financial service business.

Net income.

Was 53 million down from 91 million last year, primarily due to lower average receivable portfolio in North America, Europe higher lease costs as we expect the deteriorating credit conditions.

And in some segments and geographies, partially offset by higher average portfolio in South America and by lower income taxes.

In the quarter retail originations were 2.4 billion at the match portfolio at the end of the period was 24.6 billion, including the portfolio of local city that the JV.

Delinquencies were slightly off sequentially with an increase of 20 basis points, but they remain below the historical norm for a second quarter.

Delinquency at the end of the quarter do not reflect the payment holidays and more authority. According to some of our customers are theaters will support those most affected by the lockdown measures.

Next on slide 11, I'd like to discuss the net debt free cash flow from performance of our industrial activities.

No Thats something Thats activities was 2.3 billion drum 3200, 20 flat versus March 31st.

As a result of positive free cash flow of 97 million supported by the continued implementation of cash preservation measures.

Positive free cash flow versus our preliminary aspect of cash up sort from was mainly driven by higher inductive profit and lower working capital predominantly coming from the AG segment.

Change your working capital resulted in a cash inflow of 369 million versus a cash outflow 135 billion to second quarter of last year with a cash generation, mainly driven by lower inventories, partially offset by decreasing take payables as a consequence of the lower production.

Turning to the next slide we have consolidated available liquidity and debt maturities. We ended the second quarter Twentytwenty with available liquidity because of 11.5 billion.

Up 1.6 billion bushels marks and Twentytwenty with a solid liquidity to last 12 months revenue ratio of 46%.

In the second quarter, we once again actively work in various additional finding opportunities to support and secure and improve our liquidity a.

As part of these actions in the month of April 2020, the company issue of 600 million British pound of commercial paper to the drunk Crazy and bank of England coating facility.

On dry second CNH industrial capital LSC LMC, you should 600 million I'm not going to get based upon him out of one point, 95% notes due blankets entity.

On June 15 feet ratings after CNH industrial NV CNH industrial capital LLC long term you should the full rating a triple b minus intrinsically outlook to stable from positive.

While we also obviously cannot be happy with the change in outlook, we think that the confirmation of the rating level with a stable outlook is a good recognition of the company resilience in these environment and that continues exports to the fund investment grade with a target to restart the long term rating proven trajectory when the environment will allow for it.

The company long term credit ratings remain unchanged triple B for standards and poor and be double eight pretty for Moody's with stable outlooks.

Looking out for the remainder of Twentytwenty, we remain with a strong liquidity position with limited near term maturities of capital market that to support the company strength, even in case of a southern working independently.

Are the same time the high level of liquidity will provide us with the flexibility to assess all opportunities to keep improving our capital structure.

Including the medium term target to the leveraging dr. side as well as looking at the investment opportunities in case they present.

So I will now for great back over to Suzanne and that would be back, particularly.

Thank you Tony.

Before sharing some of our thoughts about the rest of the year I would like to give you an update on the work we've been doing in this last quarter to protect our people in our network, while also supporting our customers through the pandemic.

The safety wellbeing of our workforce has been as I noted earlier our party throughout the pandemic, we've now implemented our new health and safety protocols Crosslink company and have been in regular contact with medical professionals on scientists to update our practices through even reflect the evolving understanding of how this.

Hi, this is transmitted.

While the majority Vantiv has remained open through the quarter some were forced to scale back their operations. However, all our dealers are now fully operational we all Howard by continuing to review on a daily basis situation across our dealers as well as for our suppliers not only our tier one suppliers, but also our tier two and.

Q3 supplies stepping in to provide support antibodies, where we need to do so to ensure the resilience of our supply network.

As a company, we've always point to support the communities in which we operate this is why early on in the pandemic, we set up a solidarity thought.

This fund just now allocated money to 76 initiatives around the globe set of helping people in communities on projects applying food supporting education and improving health.

This is included for example in South America, providing food to 2400 families and 20 food distribution institutions.

In Thailand, we've delivered 5000 kilograms of Rice, and 120 823 packs to 1500 people as well as 12000 units of medical equipment to four hospitals.

In Brazil, we've distribution medical equipment to 10000 truck drivers and in Italy, We have donated $100000 to research activities and supported technician training. We will continue to do what we can just for local communities as they start to recover from the pandemic.

Turning to the company I'm pleased to report that we are on track to realize the benefits of the cash cost containment actions that we announced last quarter.

Whenever we can we will make these savings permanent structural changes in the business.

This includes for example of maintaining remote working where it makes sense and reviewing the whole about corporate footprint to see where we can consolidate and reduce cost. The pandemic has forced us to change our working practices and we're determined to capture the best of that innovation, even when we return to more normal working environment, particularly worried.

Trees working practices and reduces costs.

We've also been in spite of the company to put new emphasis this quarter and just something that just long being one of our priorities, creating a more diverse workforce I strongly believes that workforce diversity is important but it's more mobile point of view and from a business point of view as there is considerable evidence that most of his team's produced.

And implement better ideas, we think about diversity across multiple dimensions, including ethnicity of course, but also things like gender and educational background.

This quarter, we have re committed as a leadership team to our diversity program, which looks at how we can best to recruit train and promote a diverse workforce.

We have said we will look for diverse candidates for all senior appointments that we recognize that it will take time to develop the talent base that we need.

And one delivery not commitment to diversity, we have for the first time included diversity and inclusion objectives in the annual performance targets for all our senior leaders.

Next on slide 15, I would like to tell you about the work that we've been doing on digitalization and precision farming.

As I said earlier this is a major priority for the company and we're proud to offer solutions that cover each element of the crop cycle.

Field fleet and farm together with our Ike extend concept, let me take you through each of things.

Keeled risk refers to solutions that can enhance fields productivity.

Taken together, they can have an impact of almost 20%, but increasing yield and reducing input cost.

We now shipping our next generation case by H. Magnum connection New Holland, T. eight which include a re imagined in Cabot customer experience and in Twentytwenty, We're seeing combine aplenty automation solutions becomes the new normal for customers buying both fees and other vehicles with the most king for them to be.

Included during production.

Fleet. The second part refers to solutions that can enhance the productivity of machines within the fall.

The number of machines that we have connected continues to increase.

Means that we can now measure up to a 30% reduction in downtime for those machines that have implemented fleet solutions with those solutions often enabling us for example to determine when a machine needs at park, replacing the full that Paul actually sales.

In Brazil, where until last year conductivity was available in less than 10% to farming areas, we're driving something coolconnect agro, which is an initiative focused on expanding open fourg to remote areas.

This initiative is the results of collaboration between eight to major players and is extended coverage to a for the 5.1 million hectoliters or 30 million acres since its launch in May 2019, despite the challenges pays by 'cause. It we plan to expand this initiative to cover a total 13 million held hectors or 32 million.

Because by the end of this year.

Thirdly, we have foam fall refers to software that farms can use to harness I couldn't I could not make financial data in real time wildly evolving as well as data both before and after the season to support them in their decision making.

This data is very important to many of our customers given the increasing sophistication of many farm operations.

In April we launched a new farms solution based on the AG DNA acquisition that we completed in September 2019, we've seen very positive customer feedback from this and we have been significantly increasing the number I think aged acres.

Because we can fit to many of these steel to fleet and foam products in both our factories onshore aftermarket network and because we can put them on both our own and all mixed fleets I customers have a very wide range of options. The customizing their equipment to meet the precise needs of their businesses.

Finally, I also wanted to mention a AG extent incubator the fulfillment tissue like your digital precision falling off.

Under the spread and we work in a very openway with a wide range of innovative startups agricultural technology companies, a leading edge technology companies from other industries.

I can extend portfolio now for example provides a wide range of syncing control solutions that enable farmers to diminish often very dramatically the amount of chemicals that they use on their fields.

Dispose increases the sustainability of that foams and reduces their costs.

Among the new products due to be launching twentytwenty.

Within the AG extend network is a next generation of X power, a completely chemical free weed control solution.

We're very proud of what we've been doing on digital and precision farming.

This is contributed at least in part to the continuing recognition that we receive for our work on SG.

Earlier this week for the seventh consecutive year, the MSC I gave us an a rating the Pos hi, as possible rating for our work on SG. However, we also conscious that this is an area where there is far more that we can boast do and that we should do and we will continue to prioritize it in the future.

Turning now to slide 16.

As we've previously announced the neglect Trey will be assembled by the recently established European 50, 50, JV between if vecchio, Nicola INAP plant in Germany.

The backbone of the Nicola tray, both the battery pack version and the coming fuel cell version will be the Vetco S. way.

We have however completely redesigned from the ground up how the inside of this truck will work basing it around the needs of an electric powertrain.

We charged which is substantially more than the range that we understand is currently envisage for many of our competitive vehicles.

Our partnership with Nicola However, if those far more than just the production of zero emission trucks, because our intention is to create a complete turnkey offering for any customer wanting to eliminate their emissions all to generate credits offset their manufacturing emissions.

While we're all of course pleased with the success of Nichols IPO back in June we therefore far more focused on the value that we can create together through this joint venture by Twentytwenty, while we will be producing electric vehicles with the joint venture and by Twentytwenty, three we will be producing fuel cell electric vehicles.

The JV will sell finished vehicles to a record for distribution into the European market and nickel up for distribution in the North American market.

It is echo and its dealers across Europe will also service provider parts for the Nicola tray trucks.

However, as I mentioned earlier, while our partnership with nickel is providing plan for the future and a very important plan. We're also delighted about the more immediate success of the S way that we launched in the fourth quarter of last year.

With this new heavy duty truck is accurate started to regain market share in the EU and of course of Echo also remains very well positioned with its LNG trucks, which we still see as a very important emerging technologies through to electric vehicles.

Moving to slide 17, you can see our preliminary view of the industry end markets by segments for the full year.

I wanted to share. These with you to give you an idea of what we are anticipating internally, although I do want to emphasize that there is still considerable uncertainty in the market and these are based on an assumption of a continued recovery from the position today. They do not for example build in the potential impact of a significant second wave at the virus. Despite this I hope youre.

Helpful.

I'll pick out a few of the numbers here that I find interesting if we look at the AG industry. For example, wall tractors and combines have come back from very low levels. You can see that we believe these trends will slow in the second half of the year with tractors flattening out versus the previous year on a global basis.

This means that we expect the years a whole to be relatively flat to slightly down for both combines and tractors compared to where we concluded last year.

For construction equipment, we think the second half of the year, we'll continue to be challenging with double digit industry decreases in almost all regions, except for rest of the world where the full year market decline is expected to be less steep.

For trucks and buses, we think we've seen the worse during the first half of the year lease we hope we have and anticipate markets to rebound in the second half that still be significantly down from the peak industry levels at the end Gtwenty 19.

Well some of this downturn was expected the speed with which the markets have come off since March Mrs is likely to take time for them to recover to more normalized levels.

Looking now at slide 18.

Well uncertainties regarding the evolution of the papered 19 pandemic remain.

We will continue to focus our efforts on managing the very rapidly evolving end markets.

However, we are also completely committed to thriving and driving profitable growth as we emerge from this crisis and assuming as I said before no further widespread activations lockdown policies or other major unforeseen events in our main jurisdictions, we wanted to share with you the following outlook for the year.

First of all we expect net sales of industrial activities to be down between 15, and 20%, including currency translation effects due to covert 19 impact on market conditions across all regions and segments.

We also expect free cash flow of industrial activities to remain negative for the full year. Despite an expected cash generation in the second half of the year resulted from continued cash preservation measures on a normalized seasonality of sales.

And finally, we expect our solid available liquidity level to be maintained throughout the year with opportunities just opportunistic allocation of resources to respond to the current evolving scenario.

We will of course continues to communicate with financial markets and with other stakeholders. It changes in the business environment change sunlight likelihood of our performance, which of course will again depend on the duration and extend to the pandemic.

In conclusion, my remarks, I'd like to thank each and every member of our workforce for the huge efforts that they have made together with our dealers our customers as suppliers and the communities in which we work to help us all get through this process together.

This concludes our prepared remarks, and I will now hand back to federica.

Thank you very much results. This concludes our prepared remarks, and we can now open up for questions or graphical over to you.

Thank you ladies and gentlemen, today's question and answer session will be conducted electronically. We are now taking our first question from the line of Rob where my year from Melisa Research. Please ask your question.

On support levels et cetera can you give us any handle just current order trends and just your general view on sentiment seems to us use pricing is holding well it solves.

And then if I may have just the strategic one I'll be your commitment to 80 20, you've had a lot commands through a crisis is that remaining unchanged is that on hold as you sort of think about what.

Incoming management.

Perfect. Thank you.

Thanks, very much Im sorry, I missed the first part of your question because you only came in on my line just at the Antolik could I got second one on on its 20 could you just repeat the first one.

Sure. So I am sorry, thanks to your view on large farmer sentiment on current order trends used pricing seems okay. There's obviously a lot of headwinds. So just wanted to absent from the western Europe. Thank you.

Thank you so much.

So yes, so as you've probably seen in the numbers were seeing the.

The kind of smaller smaller vehicles, particularly North America coming back a little bit parts of the larger vehicles are partly we think because we know dairy farmers and others are recovering a little bit faster than others.

But but we are seeing.

Across the piece improvement in App going to Agriculture order book, particularly actually looking July where they've come up there are actually up year on year in July.

Across the piece apart from like a kind of top end.

So this quite encouraging news on the kind of AG side.

On the Eightytwenty point, we remain absolutely committed to reach 20.

And I think it's been important role our segments.

We have actually made quite a lot progress on each 20 already because we started work on a 20 following the capital markets day last year.

That work, we suspended to some extent during the during the crisis and where as we're now kind of ramping back up again on that you'll continue to see us making progress on edge and I think it's very important for our business.

Okay perfect. Thank you and then I'm, sorry, you said, except on the very top and on tractors, you've seen strong order trends developing in July just clarify cannot stop yeah. We said we've seen no I mean, I'm looking particularly North America, where as you probably know kind of if I look at tractors. For example, they have come back very strongly.

Particularly in July we're seeing quite a big uplift that tends to be stronger on the smaller side and it's a little bit weaker at the kind of top end, we just think thats reflective sort of almost a quarter kind about buying but actually we are seeing kind of a rule.

Kind of July orders up.

Year on year across tractors, as I say more oriented towards the smaller tractors onto larger ones.

Great. Thank you.

Thank you we are now taking our next question from the line of Martino de Ambroggi from Equita. Please ask your question.

Thank you good morning, and good afternoon everybody.

First is on the cost cutting measures if I remember correctly in your last call you mentioned, a 1 billion over savings there.

And.

During the speech to be.

I don't I talked about 500 million. So if you could elaborate a bit more in order to understand.

What measures are structural.

And.

The timeframe to finalize the finalized intervention and.

After these cost cutting measures.

You provided that guidance for the topline I don't know if it's possible to address very wide range of profitability.

We achieved at minus 15, 20% playing for the second there.

And for the full year. Thank you.

Thank you very much so on the on the kind of cash savings. The 1 billion number was for the full year.

So as we.

As we look at them first half, we've reduced expenses and cash outlays by about 500 million.

Thats or a combination.

As we said as kind of cash measures and caution cost measures. What we're now looking to do is to convert as much of that we can it's got a permanent savings. Although you'll appreciate that some of those are kind of was one of savings things like club reduction in travel.

Some of that some of the benefits for examples in the sellers scheme.

However, we think more than a third of what weve reduced in the first off we'll be able to can carry over into twentytwenty warm.

And a good chunk of that we've actually taken out to best year day, and then the rest of the reduction in the cash savings are willing to achieve on second half of the year to hit that gives gives a little bit of clarification on that.

On the.

On the guide, but we're not really kind of comfortable with giving any kind of further guidance as what we've given we are conscious that were operating very uncertain circumstances, we wanted to try and give them or get a sense of where we see things at the moment despite the uncertainty.

But you will appreciate that kind of given the given the.

How rapidly things are changing where we're kind of cautious about going to fall.

Yes. Thank you if I may the second question is on the cash burn that you projected during last call.

It goes out radically different.

Outcome.

I understand better volumes than initially expected.

Is there any change in networking capital payment terms or anything else, which could be.

So in this case structural.

I don't know you expect the swap.

Although not yet no there's no change in a payment terms or anything actually the better working capital came from lower inventory at the angle of the of the period better results and frankly higher speed of sales recovery in the last part of the core.

Okay. Thank you.

Yes.

Thank you.

We now take our next question from the line of Joe Odea from vertical research. Please ask your question.

Hi, good morning, everyone and thanks very much for all the end market and operational details it's very helpful.

I wanted to ask on channel inventory on if you think about that segment level.

Sure what's your comfort level is.

Current channel inventory relative to.

End market demand expectations. If you think you're now sort of fully AD spending any kind of destock yet to do.

Yes. Thank you. Thank you for that question.

Yes, so as I mentioned in the prepared notes, we've actually reduce channel inventory across all of our different business lines in this quarter, which is something that we very much aim to do it.

As I also mentioned as we've kind of ramped up production, we've done so cautiously quite carefully to try and make sure that we work.

Producing appropriately into end market demand. So the the kind of overall impact that as we reduced coal company inventory this quarter by about 600 million, which is quite considerable.

However, you know and in terms of kind of broader coverage.

At the moment, where well covered for Q3 and pop into Q4, but we also think where we're well positioned to.

Supply into the end markets given the recovery that we're expecting becomes so cost that we shared with you. We think we're well positioned to a supply into that.

And that we will actually kind of come after this period given what we've done on the of the inventory side much stronger because we as I think I set a date the last quarter results. We could go into the first quarter. This year with quite a lot of inventory and so we have used this is an opportunity to take that out but is it kind of company level, but also.

A dealer level.

And and so does that mean that in the in the back half of the year you expect to produce two retail demand is there any need to actually produce beyond retail to try to refill some of the channel inventory, but just kind of how how your production aligns with end market demand.

Okay here.

Based on current kind of understanding.

Yes, so our expectation as we go through as we will not where we can will produce to retail demand. We think thats, a very kind of healthy way to operate. However, we do expect the will be some need for dealers restocking.

As we go into the last quarter, but or be quite selective where they need that but we think that there will be some of that going on as well given that we've had this opportunity to rubdown inventories at work, we're kind of building that into our plans, but we don't tend to go back to the same sorts of inventory levels that we've had certainly in the kind of recent past.

And then a clarification on on the cost and cash measures you've taken.

One third plus that you're talking about.

Can you talk about how much of that is on the expense.

Right and how that compares to.

2019 capital markets day, and what you talked about in terms of cost out is that all incremental or does it include some of those plans.

Okay.

So some of that includes some of those plans or what we did was we sat down at the start of the Chris crisis, and we look set all those things that we had announced in the capital markets day, and we accelerated all of the elements of the plan, which we're going to reduce costs.

Because that would both can help us to deliver at the time, which we remain very much committed to and help us to kind of global pandemic. So some of those were in that time.

However, we also in addition to the plan.

Initiated a whole bunch of other things. So as you can imagine we were very vigorous around what we have initiated work of red as Gionee some of which was additional we've undertaken quite a thorough footprint review abaxis, our entire footprint not kind of just.

Our industrial footprint, but more broadly we wouldnt allocate opportunity is about working we did a very thorough up kind of bottoms up review of our R&D spend.

Archiving, everything which was important for new products and the customers, but when you do look at these things you do find opportunities.

To prioritize your R&D spend some of which of course will come back in.

So as I say, all the the kind of cost and cost cash containment actions that we took in the first half some of that will come back in its postponed costs that we thought was with sensible to do during the pandemic.

But you know a good chunk of it at least a third of it we are able to key pounds.

Yes.

And a third of the of the billion or a third of the 500 that you think stays out.

I was referring to a third of the 500, but we will take the exactly the same massachusetts to the cash and cash can mean, a cash containment actions that we're taking the second half of the yet we will aim to keep as much as a kind of permanent says we can.

Perfect. Thank you very much thank you.

Thank you we take our next questions from the line of Alexandra Hauber de from Kepler. Please ask your question.

Yes. Thank you are not for taking my question I have of course.

A question recurring for margin. So I understand you don't want to give us any guidance on profitability.

Is it fair to assume.

Similar goals of decremental margins for the second house as it was in the first helps all numbers in the Philippines.

Well I think if we were still seeing the market evolving second half as I was about lining.

He kind of end of prepared statements, but that's I think if we assume recovery commit conditions to remain broadly in place.

We think we see I think AG will have a slight incremental margin in second half the year and I think.

Construction equipment to commercial vehicles will probably trees for the first half, but still have a decremental margin given their loan volumes. So I'll give you a little bit of a sense of what we're seeing although we don't really wants put a precise numbers against that.

Okay, and look for potential or not.

Thank you.

Thank you we are now.

Now for next question from the line of Steven Fisher from New BS.

Okay, great. Thanks, good morning, good afternoon.

Can you talk about what the order book looks like for the WRECO Electric truck in Europe, and I know, there's obviously a plan for 2021 delivery of.

Truck and just wondering when we could start to see that JV, making a material contribution to earnings.

Yes.

So as you say you know our plan is to start producing the electric vehicles from 20 to 21 and they feel server concentrates 23.

Tool earnings.

We're not yet kind of produced.

Leasing projections on on kind of what that will look like over time, we haven't actually opening order books on those as you probably know although given the amount of interest that arrays and I think the excitement, but there's going to be available vehicles, where we're kind of.

Reasonably confident with the wheels, Winchester bump, but we're not yet projecting how those figures will will kind of play out over the following years.

Okay Fair enough and then in terms of the spin off maybe I'm reading into the comments too much but do I sense that there's a little less uncertainty now in your view of the timing compared to last quarter when kind of raise the possibility there could be beyond 2021.

No that's not changed so I think what we said last quarter was that it would be twentytwenty worn out beyond and that that remains our position as you can imagine it depends very much on the.

Conditions in the end market and we want to be shore that up a point at which we do the spin we are spinning to strong companies and we said we continue to watch the market very very closely.

We'll obviously update you as soon as we have a have a conservative on timing in the meantime, as I said in the the kind of prepared notes we are gradually restarting all with the work, which as you can imagine we need to do to get ready to go separate those different elements, but we haven't yet taken decision on timing and the our view remains at this kind of Twentytwenty war or beyond that.

Anyone on how the markets come back.

Okay. Thank you.

Thank you.

Thank you.

Our final question come from the line of Greenberg. Please ask your question.

Hi, good afternoon, congratulations on great sell design I have few questions actually.

One is in precision farming and can you remind.

Well designed shares.

Oh precision farming in overall AG and ideally located advisors out with increased penetration.

Why do you expect the TV.

David the bag the R&D profile has already taking a large encore because uptrend all would require.

Will you be required to step up.

There are on track in.

Actually I understand it's quite challenging today, you have all along with them, but we think about side I remember from one the value we performed by asking for market that nobody side.

Taking costs out so can you give up.

One.

Normalized margin profile in.

Thanks, so much in local or barbecued wisely.

So just on the precision farming type, we don't really separate some separate data on the kind of precision farming cycle, what I, what I can say is across all the elements, which I talked about in the prepared remarks, the kind of fleet side. The farm side the field side, what we're seeing is.

If it can take up in demand.

Form from farmers, who I think at kind of genuinely excited about what we're able to offer more we're trying to do is to put together a sensitive.

Set of.

Initiatives and products, which are very open so as I think I mentioned, yet farmers can fit these into kind of there there could have fleets, which olapic or second set of equipment mixed fleets.

And we can see that there is a significantly a significant impact on things like fleet downtime and field productivity and the improved farm economics.

We are in terms of the investment into this we see it is being very continuous we have been investing in this now for several years, we will continue to invest in it it will occasionally be lumpy as you saw last year we.

We made our acquisition of AG DNA, which is quanta, an important acquisition for us because it quite significantly took us forward in terms of what we can put onto the vehicles. So we will see some chunkier parts. But this is this is now something which is just a fundamental part of business as usual.

For a company like ours, because it's so important for.

For our farmers to make sure that we are in.

Helping one of one of the leaders in terms of digital precision farming and we will continue to talk about this and that will be a very big deal. What is certainly something that as a leadership team we spend a lot of time on.

In terms of normalized margins, we're not we're not really leasing.

Details of kind of where wed without will be but you know I hope that over time, we will return to margins that we've we've certainly seen in the past hopefully improving in some areas.

But we're not really releasing kind of detailed as kind of margins of about beyond what we.

What we said before.

But thank you very much for your question.

I think here and have a nice summer thank you too.

Thank you.

This week, we conclude the question and answer session. Our now I'd like to turn the call back over to Federico Donati for any additional closing remarks.

Thank you very much everybody and Evan I say bye bye.

This concludes the conference for today. Thank you for participating you may all disconnect.

Yes.