Q3 2020 Fiat Chrysler Automobiles NV Earnings Call
[music].
Good afternoon, or good morning, ladies and gentlemen, and welcome to today's Fiat's Chrysler Automobile group results for third quarter 2020 for your information Todays conference is being recorded at this time I would like to turn the call over to Joe Veltri head of Hep C. A.
Nobody Investor Relations Mr. Veltri. Please go ahead Sir.
Thank you Andrea.
Welcome to everyone joining us today for.
Our review of Hep C H 2023rd quarter results there.
The presentation material that we're going to use today was posted under our website earlier and you can find it along with the related earnings press release under the investors section of our group website.
This call is gonna be hosted by Mike Manley, Our group CEO and Mr., Richard Palmer, who is our CFO.
After Mike and Richard do a brief presentation. They will be available for question and answer from the analyst community.
Before we begin I need to point out that any forward looking statements that might be made during today's call are.
Our subject to the risks and uncertainties that are noted in the safe Harbor statement, which is included on page two of today's presentation.
Of course, the call will be governed by that language.
Now with that I'm going to turn the call over to Mike.
Yeah.
Yes. Thank you John Good afternoon, good morning to everybody and welcome to the gold and thank you for joining us today.
That's customary I'm going to take you briefly through our operational highlights for the quarter and then Richard will walk you through the financials in more detail and as John mentioned will then and with a normal Q and a session.
So to begin with I would say I'm pleased with our results as we delivered a record quarter for the group, which I think was.
Well above expectations and I want to stress that these results were achieved whilst maintaining our first priority, which has been and will continue to be to ensure the safety and well being of the FDIC family in our communities.
As I mentioned before all of our plans are now back up and running.
They will have a comprehensive multi layered program with health and safety protocols.
And.
Really most of them now if we turn to what I would call near pre pandemic production levels.
And on the back with industrial machine, which is now fully operational and thanks to our team's tremendous performance in North America, we achieved record growth adjusted EBITDA of 2.3 billion euros, which was up 16% over last year and a margin of 8.8%, which was up 160 basis points.
And as I noted North America continue to be a stand out for their great delivering a record adjusted EBITDA of 2.5 billion euros and a margin of 13.8%.
These results were achieved despite having two plans down for planned re tooling activities related to future product actions and as you know during the quarter. We had 14 weeks of downtime or alone truck plant to retool the upcoming launch of the all new Grand Wagoneer in Q2 next year and a full month about Toluca plant, which was read.
Today for the refreshing of the Jeep compass.
Now in addition operations in Latin America returned to profitability during the quarter. Despite significant challenges as the market continues to be hard hit by code at 19.
Visiting the eyes continued to weaken.
Now as Richard guided your and I lost cool weather strong rewind of working capital during the third quarter.
Which coupled with our robust operating performance resulted in an all time high industrial free cash flows of 6.7 billion year on this.
Strong cash flow was achieved while we continued to make substantial investments in our future products as capex spending for the quarter was 2.2 billion Euro which as you remember is consistent with prior years.
And thanks to the decisive actions we took during the early stages of the pandemic to preserve cash increased liquidity and strengthen our financial flexibility. Our available liquidity was up nearly 10 billion euros from last quarter to just over 27 billion Euro at the end of September and this puts us in a strong position to address future challenges from Kroger at 19.
And as we transition into still Lantus.
In addition to our strong operating results. We also performed very well from a commercial standpoint in our key markets.
In Latin America, we maintained our market leadership in the region guiding 430 basis points of market share year over year to a record 18%.
We also maintained our leadership position in Brazil, with our share increasing by 540 basis points to 23.8% of.
This remarkable performance was driven by the success of the all new fit Strada pickup truck, which became the overall best selling vehicle in Brazil for September as well as share growth from energy products and I see it be setting them hatchbacks.
Hi, This is enabled by the team plans to run a production levels, even higher than before the pandemic.
In the U.S., our Q3 retail share was up 40 basis points year over year to 12.3%, which was primarily driven by strong demand for random Jeep vehicles. In fact, the Jeep Wrangler had its best ever sales month in September and.
In addition, this marks our second consecutive quarter of year over year retail share growth in the U.S.
And in Europe, notwithstanding the general disruption in demand, we were able to deliver positive news during the quarter. Our strong sales performance resulted in a LCV market share increasing 130 basis points year over year, while our share in passenger car market increased by 30 basis points.
I do want to say that I was pleased to finally see progress on margin sales channel data retail that the team has been working so hard on nothing that this bodes well for the fourth quarter.
Now moving onto our future plans based on the tremendous progress we've made that a new Mac plan in Detroit successfully tooling at Warren truck.
Collective work done by product development teams, we confirm that all three major Jeep launches for 2021 remain on track and this includes the only reason why going there the only three rather full size issue they as well as the next generation Grand Cherokee with a full size three rather issue being the first to go into production in late Q1.
Now as you know in mid September we announced an amendment to the terms of our combination agreement with peer side, which I will cover in more detail later.
So let me just say that this represents yet another sign of each company's commitment to finalize in the merger within our planned timeline.
So now turning to the product side, we have an exciting quarter with a number of important introduction to the group that are the result of all the extraordinary work. Our teams continue to carry out this part of the new work and protocols, resulting from Cogs at 19.
The new product showcase our brand diversity as well as the reach of our portfolio and we'll continue the momentum of our electrification strategy.
Now not only are these products moving us into new segments I will also make measurable contributions to our future profitability.
During an impressive and how the model it to be on September 9th we unveiled the when you guys watch M.C. 23, the sports car, which marked the beginning of a new era for the brand and it also represented a tribute to the extraordinary spirit Maserati and his new team.
In early September we also revealed the highly anticipated Grand Wagoneer concept, providing a truly contemporary expression of what is widely acknowledged as the original hole to the premium as she they lack any on Grand Wagoneer, arriving mid next year. She will make his long awaited returns the premium as TV segment, a segment, which it created almost 60 years ago.
Yeah.
We also Brazil deal, New Ram Trx, which began production earlier this month.
The 702 holes past supercharged house engine, the quick as fastest most powerful pickup truck in the world.
On the ground swell of demand for the launch addition, validated the end product as orders were 100% filled and only three hours.
And finally last month, where we build up for plug in hybrid vehicle for the Jeep brand the wrangler full by which joins the already available Grand Commander in China on rent I got to encompass being sold across Europe.
The wrangler plug in hybrid remains true to the iconic wrangler, while providing new levels of efficiency and environmental responsibility performance and capability, both on and off road and this was recently proven as the Wrangler Fulbright successfully completed the legendary Rubicon trial with all events performed in pure electric mode. Therefore with this.
Launch Weve shown the electrification is a natural evolution for the Jeep brand and is nearly 80 year history.
So we go onto the next page and I'll turn to our commercial performance during the quarter.
The exception to that is an Asia Pacific the industry in each region was down year over year due to the impact to cope with 19.
While our overall market share in North America was flat we gained share in the critical U.S. retail segment of the market as we prioritize production for dealer deliveries to fulfill the strong level of dealer orders also.
Also a U.S. dealer inventories remained low with dealer stock at the end of September just under 390000 units, which was substantially flat from the end of June the down nearly 200000 units from the end of December.
Right right, while the overall industry showed a slight improvement over last year, our sales were down year over year, reflecting lower sales of both locally produced an importer Jeep vehicles.
In EMEA, our performance outpaced industry, which was down 5% year over year.
And as I mentioned earlier, we're able to gain market share in Europe for both passenger cars and lcvs. Thanks to higher sales from the sea it unfair professional brands.
And finally in Latin America as noted we remain the overall market leader in the region on the back of a significant share gain of over 400 basis points, while the industry was down 26% and once again, we continue to have the highest share an important segments such as as you. These are the Jeep brand and pickup trucks with the fit brand.
Now as I said, Richard will take you through the financials in detail. So I'll just give you a quick overview of our results, which as I noted earlier were exceptional and significantly better than expected. Thanks to the solid performance by our teams.
Despite our consolidated shipments being down 6%, we achieve record we've adjusted EBIT and margin, thanks to prioritize and dealer deliveries would dealer stocking levels actually ending the quarter in all regions versus the end of June down.
We also maintain discipline pricing and continued.
Focusing on strict cost containment.
As I noted earlier North America delivered a record adjusted EBIT margin, despite shipments being down 8%.
As anticipated we experienced strong industrial free cash flows, which amounted to 6.7 billion euros for the quarter.
It's not only reflected the positive impact from our strong profitability, but also working capital Rewind, a 5.6 billion euro.
And now as you can imagine I was pleased with this because it represented a very nice turnaround to the cash burn we have had in the first half of the year due to the pandemic.
And lastly, we significantly strengthened our available liquidity from the end of June to more than 27 billion Euro at the end of September.
Overall, our teams around the world I think did a phenomenal job we resume if those got industrial activities across all regions and all functions and above will create an environment in which we can keep everyone safe so with that Richard I'm going to hand over to you. Thank you.
Thanks, Mike and good morning, or good afternoon to everybody.
I'll continue a second on page six as mentioned by my consolidated shipments were down 6% year over year increase nearly two and a half both compared to the prior quarter.
967000 units.
Group revenues reached 25.8 billion euros also down 6% year over year with positive mix and price mainly in North America offsetting negative FX translation.
Adjusted EBIT was 2.3 billion with a record margin for the group of 8.8% and drove adjusted net profit to 1.5 billion up 21% year over year.
Finance charges.
15 million year over year, due principally to auctions to bolster liquidity offset by low interest charges on pension and OPEB.
The adjusted tax expense was 450 million with a 23% effective tax rate compared to 417 million and 25% in Q3 last year, along with our expected effective tax rate around 26% net profit included 325 million of unusual charges related mainly to a 200.
20 million estimate for settlement of U.S. investigations on diesel emissions on 90 million of impairment charges.
Industrial free cash flows are very strong as mentioned with working capital re winding as volumes recover and included 2.2 billion of Capex investments.
As a result, and also due to a further three and a half billion of drawdown of the Intesa Sanpaolo facility.
Liquidity at September was 27.1 billion increased by $9.66 billion from in June.
Moving to page seven.
To review the adjusted EBIT by driver.
Consolidated shipments being down 6% equated to 64000 lower shipments and then approximately 300 million euro negative impact to adjusted EBIT that was offset by positive mix, mainly in North America.
America volumes go down in large part due to the war on truck plant being down for the whole of Q3.
Net price was positive due to North America and demand performance.
Negative industrial costs were driven mainly by increased cost of product in EMEA due to launches of electrified powertrains and cost inflation in Latin America.
And she had a cost reduction continued across all regions, although spending was up compared to Q2 levels as marketing spending with increased to more normal levels as markets recovered.
Next on page eight we show the industrial free cash flow for the quarter, which has commented previously represented a very strong performance as the operations returned to more normal levels compared to the first half.
Adjusted EBITDA was 3.4 billion euros, 13.6% margin up 1.5% from prior year, we continue to invest in key products and technologies and spend 2.2 billion of Capex in the quarter in line with.
Because on some of the products might mentioned earlier.
Well, our Q2 call Q2 call. We had indicated that we expected a substantial part of the first half negative working capital two of us engage too in fact substantially all of that happened in Q3 as production levels were restored generating 5.6 million of cash flow.
Quarter, which is typically seasonally negative due to summer shutdowns and model year changeovers.
Almost all of the decrease in working capital was due to a restoration of accounts payable balances.
Oh shipment levels for the two months of August and September four and 700000 units 50000 below the same period of last year.
We finished the quarter back in an industrial cost position of 1.3 billion euros from the net industrial debt of 5.1 at the end of June.
On page nine we show the adjusted EBIT by segment full segments showing improvements from Q2 levels in North America at a record 13.8% margin.
In profit as one of the mass showing a significant quarter over quarter improvement.
On page 10.
We review North America performance in what was a very strong quarter.
I mentioned, our U.S. retail sales increased and our overall North America market share was flat at an industry that was down 10%.
You as retail sales were down 2% with industry down 5%, while our fleet sales were down 40% compared to industry down 35%, mainly due to us favoring our retail channel to fulfill the demand.
Shipments were 550 foot 54000 units down 8% due to the one truck downtime on the discontinuation of the Grand caravan product.
Oh Youre theater inventories were basically flat compared to June 2020, <unk> 387000 units as mentioned.
Revenues were down 3% with positive mix and price offsetting some of the 8% shipment reduction and negative FX translation due to a weaker dollar.
Adjusted EBIT increased to 2.5 billion euros up 26% versus a strong Q3 and 2019.
The lower shipment volume was more than offset by positive mix from more U.S. retail and yes, you less U.S. fleet.
On better carline mix due to fewer light duty class it classics and ongoing collaborations.
Net price was positive.
Jeep and Ram brands, and SDMA benefited from reduced advertising spend and reduced DNA cool weather for the remainder of the quarter. Although it was due to FX translation as mentioned due to the weaker Euro has gone up.
Next on page 11, we have Asia Pacific's results.
Consolidated shipments were down 12% due to lower Japan, and China volumes.
China JV shipments were down 44% to 10000 units from 18000 units last year. So as a result combine shipments were down 29%.
Revenues were down 17% due to shipment volumes down 12% as well as negative FX.
Despite some improvement from the Q2 loss of $59 million. The adjusted EBIT was still a loss of 32 million.
22 million versus last year due both to reduce volumes on consolidated business, partly offset by cost actions under 10 million deterioration in the F.C. Asia have they got JV result.
Turning to page 12, we can review emas numbers combine shipments were up 10% primarily due to a strong performance of the joint venture in Turkey consolidated shipments were down 5% consistent with the Eutwenty seven Bcf Tia industry sales for Q3 240000 units.
We're below consolidated sales of 261000 units.
Therefore dealer inventory was further reduced compared to in Q2 to 159000 units and is down from 250000 units a year ago.
Net revenues were flat at 4.6 billion with lower volumes offset by positive channel mix and pricing.
Later to shipments of newly launched the GP Tvs and BSG units.
Industrial costs were negative due to product cost increases for technology for emissions compliance on emissions credit scores.
With that I would use that DNA spending.
On page 13, we look at Latin America, as Mike mentioned, our team in Latin America had a very strong commercial performance with improved allowing sales to be down just 2% to 147000 units. Despite the industry being down 26% due to the strong performance in the nucleus rather pick up in particular.
As a result shipments were down just 3% revenues were down 30% due to FX translation as the Brazilian real weakened significantly year over year.
Adjusted EBIT was 46 million euros, with 3% margins negative industrial costs, driven by FX and inflation will set off by aggressive price recovery actions in the quarter.
However, the adjusted EBIT was negatively impacted by the Nonrepeat over 2019 indirect tax credit of 60 million euros.
On page 14, we turn to Maserati.
Sales were down, 17%, which with China down, 13% on North America down 20%.
For total sales of 5000 unit shipments were at the same level and up 7% versus last year revenues were flat year over year. Adjusted EBIT was a loss of 70 million down 19 million from last year due to increased incentive spend to complete model year 20 set out prior to the empty launches in Q4 with model.
21.
Global Network stock was 5500 units compared to 5700 unit at the end of June and 9500, a year ago.
On page 15, we review our outlook for the rest of the year.
It is important to note that in these uncertain times.
Look assumes no further significant disruptions from Koby 19.
That caveat aside following a strong Q3 performance and with two months of the year to go we feel the business is performing well and works we expect a strong Q4.
In terms of the group's main markets, we expect North America, and the Eutwenty seven plus UK, but after that to be down around 5% with Brazil down 10% in Q4 based.
Based on these forecasts, we see our full year adjusted EBIT to reach three to three and a half billion euros imply in Q4 of 1.6 to 2.1 billion euros with the top end of the range in line with a strong Q4 of last year.
In terms of industrial free cash flow recall, we forecast the full year to be between minus 1 billion on zero, we substantially all the negative 10 billion half of H one were covered in age too.
That means that Q4 industrial free cash flow of between 2.2, and 3.2 billion euros compared to 1.5 billion last year.
And with that I will hand, the call back to Mike.
Yes. Thank you Richard So I'd, just like to talk a little bit about Maserati.
As I mentioned earlier after we initially delighted because of.
<unk> virus outbreak, we hosted the much anticipated Maserati brand event at the beginning of September in Montana.
And our total openly in the past on the calls about the challenges Mezardere cited and the things we needed to fix.
So in addition to our plans to expand as early as portfolio with the reserves are the only ones see 20 C. the sports car.
And of course, the team that we show that the all new good colleague asked you. They we laid out our plans to bring Maserati into his new era and provided ambitious yet I think achievable targets for the brand the key elements and expectations for our plan for Maserati include targeting at least one major launch.
Starting next year electrifying over half the brands portfolio within the next 18 months and equipping Ormat draughty nameplates with a better offering by Twentytwenty four when we expected completed the renewal of the entire lineup and.
And from a financial perspective target in Maserati returned to profitability next year and achieved an adjusted EBIT margin of approximately 15% by 2023.
More than Compton than ever that matter are these new course with a regular cadence of new product launches cutting edge technology genuine innovation and a new strategy for electrification will restore the brand to its rightful position in the global luxury segment and.
I believe that these elements coupled with Maserati is new management team will successfully execute this plan and just as important we will have laid the foundation to ensure.
The continued success of this iconic luxury brand.
Lastly, before we move onto Q and I'd just like to provide you an update on the status of the still answers merger, including some comments on the important agreement, we announced in mid September with peer side, which amended certain terms of our combination agreement as well as our announcement made earlier today regarding changes in the distribution appear say stake information.
I believe these changes which were approved by the boards of both companies and with the support their reference shareholders. Other smart and responsible solution to address their liquidity impact to cope with 19 that both companies have experienced and to ensure that still enter theres not acquire controller for a share consistent with the terms of the original combination agreement, which.
The changes we are specifically designed to ensure that still answers has a strong balance sheet, while preserving the original balance value equation definitely set out in the original agreement.
Now as you know one of the key provisions of the amendment relates to a change in the special dividend to be distributed FCX shareholders.
Special dividends will now be 2.9 billion euros versus a previously announced 5.5 billion you're right and as a result, the Lantus, we'll have 2.6 billion euro more cash on its balance sheet inception to create additional value for all stakeholders.
However, the balance in provision to the special dividend reduction is that pay us I will now distribute is current 46% stake in Croatia tools, the lantus shareholders after closing.
And that distribution will be in two forms the first will be the proceeds from peers say selling the equivalent of up to 7% a fractious total shares outstanding prior to the merger closing on the second will be the distribution of the unsold portion appear face current 46% stake information.
In addition, the revised annual run rate synergies are now estimated to be over 5 billion Euro up significantly from the 3.7 billion. Originally estimated which is a clear indication of the excellent progress already made by the various merger work streams over the past several months.
There is also potential for additional shareholder upside if the boards of both companies agree that the conditions permit for the distribution of the 500 million.
Euro dividends to each company's respective shareholders prior to the closing or distribution of 1 billion euros dividend to all still anticipate shareholders after closing.
Now that we're at the threshold to finalizing this merger I believe this solution provides additional important clarity and momentum and is a strong indicator or the focus both companies have on moving forward and completing this deal.
In spite of everything that's happened in the white wells since our original announcement.
Now there's been a lot written regarding the anti Trust review currently underway in Europe, and as you know the phase two competition review by the European Commission is ongoing and I'm pleased to say that the exchanges so far been very constructive.
As previously announced Fcr MPS I have offered commitments to address questions raised by the commission. These commitments are currently being evaluated by the commission and we expect to reach a satisfactory outcome.
With the commission well within our merger closing time table.
So let me end by reaffirming that preparations for the merger with peer sales advancing well and our shared objective to close the transaction by the end of the first quarter of 2021 remains intact and most importantly, we're equally committed to put into the lantus in the best possible position to create long term value for all of its stakeholders.
And Joe I think with that we can move on to keep an eye.
Thank you Mike.
Gary I think you can now proceed to the Q and a.
Well start the Q and a session.
Thank you ladies.
Ladies and gentlemen, today's question and answer session will be conducted electronically.
To ask a question during the session you wouldn't need to press star one on your telephone.
We are now taking our first question from the line of horse Schneider from Bank of America. Please go ahead.
Yes. Good morning, good afternoon, everybody and thanks for taking my questions.
Yeah impressive results.
I've got to say and that of course, we are looking at sea and your guidance that you provided.
For the full year and I don't want to be greedy, but of course, it implies that Q4 could be a little bit weaker than Q.
Q3, so could you maybe explain what could be the driving factors and in the fourth quarter.
Why there was that it could be the guy I know youre off what the range. So maybe Q4 won't be that difference, but I just want to understand what they would be the drivers in Q4 and to what extent, both Q3, and then really exceptional it until they check which extended the business a normalize and in that context as well.
Maybe you can update us on the cost savings I think your targeted for the full year something like 2 billion.
Hi, Alex.
To be checked and that has been achieved now what that neither of those are in Q4 and you stick to the assumptions that you made in Q2 regarding cost are those in Twentytwenty one. Thank you.
Hi, Alex This is Mike Richard will I'll speak a little bit and then Richard will obviously correct everything that I say.
Just a.
The Q4 last year was a strong quarter for us. So when you look at the end of the year and the guidance that that's been given.
I think the range suggests that enriches concerns us in his commentary that if conditions remain as they are today and I think.
That's obviously the thing that we're watching on a day by day basis in Q4 metrics.
We're expecting to be a strong this year as well.
Obviously, even though there's only two months really left to that yeah. Obviously the conditions make people I think understandably cautious in terms of any guidance to that given which is why it's always cabot's. It in a way that is cabotage.
But it is true to say that the momentum that we had in Q3 continues at least through the.
The opening part of Q4, so I'm expecting.
The quarter to be at the quarter to be a good one as well.
With regard to the cost actions, we are on track with the numbers that we talked about before.
Very close to 2 billion with.
Somewhere between six to 800 million at this current moment flowing through into a 2021, what is true though is that the cadence of those cost savings.
Is very different between the quarters, because as we see much more commercial activity.
In Q4, some of the savings that we were able to deliver in Q2 and Q3 will be released back into the market to make sure that we remain competitive, particularly with regard to the promotion of our brands and the maintenance of our retail position, which we feel has been what's been one of the strong parts of outperformance.
Across the regions in particular, North America, all the time and as you saw some what I thought was really good progress in EMEA.
Hopefully that's that's kind of my commentary Richard you want to add anything with regard to guidance and moderate anything that I've said.
No I think you hit the high points.
We clearly need to try and.
Maintain the cost benefits as much as possible going into Q4, and then into 21.
And.
Clearly a.
A key factor in Q4, potentially being a little bit weaker than Q3.
And when you look at North America's margin of 13 point <unk> and.
The CFO of this company for the last six years.
Little bit prudent about per.
Projecting 13.8 forward holes. So you know I think 13.8 number.
Obviously benefit some from a number of actions on cost some of which will not.
The long term, mainly due to sales and marketing spend coming back up in Q4.
And also some fixed costs is a.
Continue to increase.
But it's also true that we have a long track back up in Q4, which will help us going around but so we don't get a full quarter of volume.
And then obviously the 13.8 is also benefiting from a very strong mix as I mentioned, which is.
Very much bias towards U.S. retail and fleet is down from sort of 23, 24% volume in the U.S. to 14% so.
As long as the law suit over the ALP on margins, but we'll start to normalize I assume is the cobot situation.
Improves we will hope.
And then our pricing has been very strong as well and we need to obviously maintain.
The strong pricing and trying to tell how much of that is because of the market conditions and how much is also because we reduce.
This dog significantly and so you.
You know, there's a a much more efficient distribution process I think we'll see as we go forward. So I think the guidance on the adjusted EBIT, So little bit prudent maybe if we can do a good job in Q4 and conditions allow us to.
But I still think we're pointing towards on the high end, a very strong quarter 2.1 billion on the cost side.
So on the cost side, you know if what we're trying to get to basically.
The cash burn we had in the first half.
And that would mean that in the in Q4, we ought to have a pretty strong cash flow generation. So I I wouldn't underestimate the 2.2 to 3.2 billion of cash flow with our working capital position were pretty much already reversed in Q3.
Is is basically something that we're pushing very hard for but it's not a walk in the park.
That's great and very helpful. Just quick follow up on this working capital and on international it's not done we should not affect I expect another positive effect in the fourth quarter right. So.
One thing I think we will get a bit because there is a seasonality in Europe.
Which is normal seasonality. So in August production was who is very low compared to what it will be like in November. So we will get positive working capital from EMEA will also get some positive working capital from North America with Warren truck Bakken Toluca back. So we expect positive working capital also.
We're still pushing very hard on continuing to reduce our own.
On balance sheet inventory.
And also the seasonality of shutdowns in in the end of the year normally you give us some positive working capital in work in progress et cetera. So.
We still expect a strong contribution from working capital.
But not obviously anything like the side, we saw in Q3.
That's very helpful and meeting thank you.
We are now taking our next question from the line of Chas coli count from Redburn. Please go ahead.
Yeah, Good afternoon, guys and congratulations on a great result.
I had just a couple of questions on on X and she had to actually.
So on electric vehicles.
Only sold a small amounts of Cfive hundred electrics and plug in hybrid cheap so far so I'm just wondering.
If you could give us some sort of expectations on the volume for those models once production is fully ramped up.
And particularly in Europe, I guess, and then and then on the C. O. Two side. So for 2021 can you just clarify you locked into paying test left for the benefit of the European Seo to pool, which I think you previously said would be sort of 400 to 500 million euros.
Euro cash payment next year or is it or is it conceptually possible that you could pull with Joe and therefore comply with the regulations is just the lantus and therefore not require the test level.
Thank you.
Sorry, Charles as Mike.
Obviously with it.
Ill close the launches you're right in terms of the actual styles of about plug in hybrids, but what I would tell you is that if we look at all of our electrified vehicles, including mild electrification, obviously, our share as you're seeing across Europe has increased.
Fairly significantly and electrified vehicles in the quarter, something like 12 or 13% of our total sales that focus ban on on the on the very mild hybrid debt.
Dealer orders however on advanced orders for say, a 500 well in line with our expectations and what we were hoping for particularly with the 500 bed.
As you know is really just making it commercially.
Commercial with market.
That view with progressive launches across Europe. So.
I have to say that I am pleased with the volumes. They are in some instances ahead of where we thought they would be which is why we think that the combined strategy. We put in place will be successful for this year.
In terms.
In terms of volume so in terms of volumes for next year I don't want to forecast those at this moment in time, but.
It does lead into your second question, which is are we locked with Tesla. Yes. We are we put in a multi year strategy, which enabled us to as I've spoken to in the past.
Transition.
Fully comply with regard to our product plan, because we've worked very hard to address.
European product plan.
Plan in particular because of the investments that were originally directed towards North America and to some extent Latin America left EMEA behind that rapidly catching up now with the launches that you've seen an upcoming launches that will happen over the next 12 months, but we are effectively locked with a with Tesla and we look to continue the growth.
Electrified vehicles to make sure that were compliant 21 as well.
Great. Thanks.
When taking our next question from the line of Martino de Ambroggi from Equita. Please go ahead.
Thank you.
Good morning, good afternoon, everybody.
The first question is a follow up on the what somebody can add two more sales I understand it is difficult but.
Precise indication of all the exceptional valuables.
Oh thank.
In Q3 that we.
So in a normal market environment.
But being able to achieve double digit Clinton on sales in Q3.
And in your guidance is.
Is it just.
Double digit.
Q4.
Yes.
Yes.
No go.
Yeah I was just having a question related to me Richard because I couldn't clearly here I think the question was in a normal environment.
Can we continue to achieve double digit margins in North America, and yes that one is yes thats correct.
For sure we can in my opinion, and I think we got the product portfolio and the momentum to prove that.
And you know when I think about our performance in Q3, which has always been one of the stronger months, obviously with malaria changeovers.
I think that and all that.
The question about guidance on how Q4 looks I think.
As we said we've come into Q4 with with some good momentum. So we'll see how we end up.
You can handle the second part of the question Richard.
Yeah, I mean, you were expecting double digit margins, we have nothing you know in Q4.
Uh huh.
The other thing is that mix.
Exciting is.
The fact that the product Mike talked about the beginning of the presentation.
South America next year and should allow.
As to continue to.
Operator, with a strong double digit margins, but 2020 one so.
The margin story has been very positive over the last.
A couple of years with with North America and it should continue.
Okay. Thank you. The second question is on the networking capital you mentioned Q4 should be once again positive Eva.
A number of the biggest Goldie mentioned this 5 billion in the second also so if I ask you what could be done.
Or what is the underlying assumption in your guidance in terms of working capital in Q4, and as you can see from a capex or maybe they are confirmed in the presentation I missed it probably.
Eight eight to know how smoothly.
Yeah, Capex is confirmed eight and a half from working capital.
Provisions should be around 2 billion positive.
Okay, and then lastly on the financial structure in the right place.
The Cold War, you are guiding for zero minus 1 billion.
Cash flow your sales guidance for positive a successful.
It's just an upset tool since about the second portion of the facility had a dividend or instead of water condition that to be achievable I suppose the visibility on the asset side.
I think the Mike I'll take this on Richard.
Obviously, we're in a much better position with regard to the potential for the boards to pay that additional dividend than we were a quarter ago. We said in the second quarter that we expected.
A positive rebound in terms of in terms of cash.
Cash and we've seen that what we what we will obviously is going to be along two months to close out the year, but I think it gives the board more options than they had before they make the decision, but the same prudent said that make decisions in the past and that is to make sure that the lantus has all of the resources that it needs to get off to a good start.
Based successful so I want to preempt what the boards do we just given the more optionality and if we're able to maintain outperformance, which I expect us to we'll continue to build on the position that we're in today.
Yes.
Okay. Thank you.
Were now taking our next question from the line of Stephen Reitman from Societe Generale. Please go ahead.
Good afternoon.
Question about North America, again, and industrial costs. So obviously very strong performance. Despite downtime at word answer Luca what was the impact of those downtimes roughly quantify the cost.
And also could you just repeat again the net financial position at the end of September It went very quickly.
You can do this on Richard.
Yep so the.
The net financial position into September was 1.3 billion I believe.
And.
The impact of.
Obviously, we don't volumes, Steven but aside from the impact to volumes I think the actual impact of costs as we as we work on both plants was about 50 million.
Right.
And can you give some idea as well next year about the wrap up cadence on Grand Wagoneer and on the re work Cherokee as well.
Yeah, sorry, Mike some issues with my some issues with mine.
Microphone.
As much as I mentioned before we will launch the trade route full size actually for us, which will which will happen in the Q1 into Q2 and Grand Wagoneer will effectively come on stream in the first half and ramp through the various models through that through the back half of 'em through the back half of next year obviously.
Obviously, I don't want to give you indications or expectation for volume, but both of those both of those products out white space for us. So we're pretty excited about that and then as we get towards the end of the year Grand Cherokee will be the new Grand Cherokee will be added to a added to our fleet.
Thank you.
We're now taking our next question from the line of horses, So mainly from JP Morgan. Please go ahead.
That's very much also JP Morgan.
Can you just a few items. Please can you speak a bit about where do you see well was production in Q3.
Across Europe, and North America, and where do you see it in Q4 in terms of output.
Second can you speak a bit about the industrial costs in Europe, a richer. Please could you maybe just give us some.
You know some color I still we know what happened there in Q3, and how do you see those industrial costs a building in the fourth quarter, and then Mike or strategy or can you speak about a little bit about F.C. away more where they stand on the collaboration what have you achieved it let's say in the last 12 months and as we think goes about hydrogen.
Allocations here on the passenger car and light commercial vehicles.
Can you speak about a little bit how do you see this segment and do you think you have the right tool kit to closer to approach this discipline going forward. Thank you.
And so they are talking about production and Richard you can take the second one and then I'll come back in and pick up the third one as we've talked about our plans really up if not approaching posts a pretty coated production levels, particularly with regard to shift patents all the way across the.
Well so.
They are expectation if conditions remain as they are and as we have to caveat every forward looking statements, particularly with regard to the plans with that why that we will reach the.
Pre Kobe production levels and efficiency levels that are very very similar to recovered as well because we have constantly and continued to refine the things that we're doing in our plans to ensure the safety of our people, but also like the working conditions as efficient as possible for everybody.
So the actual annual impact in terms of a production really is related to that end of the first quarter through the second quarter, which will be about a 25 cent impact for example for the full year and our North American ponds.
And a similar number I think for our EMEA plans, but we're expecting as I say if current conditions continue to to reach production levels that we've seen before.
I bet you Richard.
Yeah.
Okay. Thanks.
Yes, so regarding our industrial costs in EMEA and in Q3, the as I mentioned the main drivers all of the costs to.
Compliance costs about half of them related to shipments of vehicles.
Between.
And P. Tvs in the quarter.
With the Delta cost and then you know you can see also.
I'm in the walk some of the price recovery, we're getting on those technologies in the marketplace.
And.
And the rest of it is basically credit purchases under the Oh pooling agreement with Tesla.
I'm going into Q4, we expect the industrial costs.
To be actually more negative because we're going to have more shipments or pay TV.
And ABS in Q4.
Mike can you come back based to the two away more collaboration place Oh hydrogen strategically how do you see this true there's two elements.
Sure absolutely I'm also going to comment on the.
Some of the industrial cost because its come up on a couple of occasions, albeit likely for next year because of our levels of electrified vehicles continue to grow when we launch more electrified vehicles. Our view in terms of the use of credits dropped year over year sequentially and I've I've talked about this before but obviously this year update you next year dropping as we as we incur.
Great and ramp up our level of.
Electrified vehicles that are sold so I'm, while I've got to say that since our announcement in terms of the extent expanded partnership will continue to work very well with them.
They remain and and Ah Ah if.
If you like a level four plus solution going forward and the work has started albeit very early stages with regard to the commercial vehicle project that we announced in terms of testing level for autonomous technology for for deliveries, particularly utilizing our prime minister.
Fleets. So the relationship that we've had over a long period of time I think just continues to get deeper and as you saw Wyman also expanded their autonomous operations, which I think really clearly indicates that they not only maintained their leadership in this area that are also accelerating that deployment as well so.
Very pleased when we were able to expand the partnership and I'm pleased with the early development that we've had and frankly I continue to put a lot of pressure on the on the teams because.
I think even though it is not clear when this.
This will be the poor deployed our math I think increasingly where they use the geo fencing, particularly around commercial vehicles. There is an opportunity that will come maybe sooner than people expect.
And in terms of our tool kit for the future.
People have often looked at our strategy and compared and contrasted that with a number of other.
Our Oems strategies and plans what I've tried to communicate is that the the end. We all have in mind is very very similar in terms of electrification the technology that you're going to need.
For that area. The only difference really has been a difference of opinion in terms of how fast we can get that so what we stand in the fact that we are now in the process of ramping up and launching our electrified vehicles given the range of the hoops that we successfully.
Build and sell today includes very heavy duty pickup trucks. For example, our tool box has to envisage different technologies that will also continue to make that a consumer demand in those segments whilst provide.
Walls provide either significant or complete reduction in C O two and ultimately ultimately.
That brings you onto hydrogen.
Again, we could spend much time debating about when that when that will be.
But we obviously have technical skills.
In F.C. I as we sit today and partnerships as well so I'm comfortable that we have all the tools I am hopeful that we have forecasted predicted the transition in the right way and I'm pleased with the work that's happened and the ramp up that we are now saying with regard to electrified vehicles.
It's Mike Thank you.
We're now taking our next question from the line of George Galliers from Goldman Sachs. Please go ahead.
Thank you and thank you for taking my two if I may I really want to revisit North America and focus on this mix effect. So Q3 was obviously a record result, and record margin, but even backing out the SGN a gain on the positive pricing you would've been that's an 11% plus margin and fairly close to four key line.
Seems record EBIT, despite the negative FX translation effects. So mix must have played a huge role here.
Historically, you've talked about the opportunity to increase fleet shaft. However has three Q and the strong mix effect made you rethink this strategy and whether you might actually want to pull back on fleet going forward and if we look out for the last decade, a change in strategy led to an adjustment to make switch played a big part in that.
<unk> North American margins growing from 4% to 6%, so kind of 8% to 10% range I mean based on what we learned today could a shift in strategy not see your North America margins.
Gray from eight to 10 to 10 to 12, and maybe even mid single teen in the future.
So George is my I'll pick up the second half of the question, which you can pick up the first off the question I.
I think.
We have all done a huge amount during this year and being forced into doing things in a different way and I think that your observation is a very interesting one.
What we've always tried to change our mix of our fleet being less reliant on the reach outside of the rental side of the business and performing better in commercial and government.
And that that will not change I think some of our product changes for example, the losses there.
The loss of the Dodge minivan, which was very heavily in rental forces a mix change on often times, it's not just Oh, just our fleet business, but also our ability to.
Our ability to fulfill.
That business I think what we have learned is that if we balance dealer inventory well in the market remains reasonably buoyant than it is clear our best channel is through the through the dealers and that is at that has led us to be valuable.
To as you've mentioned improve not just on a transaction.
Price.
But it has also helped us get lot more stability in terms of our supply chain, which obviously helps us with houses without cost price as well.
So.
I think.
Continued focus on the right fleet business will be part of our strategy going forward, but we got in there obviously trying to maintain the discipline that we've put in place in the business in North America to to drive our margins up and then finally in terms of what's the potential for margin. The two white spaces that we will enter into next year.
Have historically been very high margin segments, we have not played in in them and we expect them to remain strong.
Strong margin segments, when we when we entered them. So I think that that's a that's clearly upside potential for us.
In North America going forward in to the latter half of 2021 as well.
We should just one off the answer the specifics on the mix question.
Yep.
Well yeah. The mix you can see on the on page 10, we have 100 million of volume and mix.
Volume was down about 300 and mix was up about 400, and the mix being up about 400 half of that was related to.
Lower shipments of Grand caravan, which as a discontinued products and the classic.
D.S. switch, which was it makes very good margins is still lower than our average.
Average margins because of the child historically is going into.
And then.
The retail piece, which is the other half is that is the 10% shift from fleet in Canada in the U.S. retail. So those are the mechanical reasons why we had the positive mix in the quarter.
Great detail. Thank you very much.
Thank you.
We are now taking our next question from the line of Monica Bosio from I guess be peace ask your question.
Monetary there added.
Good that sounds sorry, I was on mute.
Good afternoon, Thanks for taking my question.
Most of the questions that's already out of the Bakken I looked like last Q.
Our view on the roadmap for Navihealth in fact start this year and what do you have a view for to cause any transplant.
And the second question on that is that our net not their lab. He can you give us an update on the INBONE Thirtyth, Nevada.
The dealer and the de levering rental lease that up and that what do you expect for their fourth quarter off the r.. Thank you very much.
Yeah, sorry, I was on me as well.
This is Mike in terms of purchasing obviously with we've had a very significant.
Headwinds with regard to PJM I think that purchasing team has done a good job and continue to good job trying to offset that with our other technical teams to to obviously been minimized the impact a knife that performed as I said I.
I think well in regard to that but I do see continued pressure as we get into 2021 in that area.
From everybody's perspective their inventory ended Q3.
Around 5500 units, which is very much contained that's about.
I guess full fornoff thousand something lower than it was Q3 last year and broadly in line.
With the end of Q2 this year. So one of the things that matter RT and we talked about in the past is the discipline of.
Making sure that our shipments.
Our sales up are in line. So we don't build weve reached the level of inventory that I think.
There are pockets that we need to slightly rebuild but it's in line with where we wanted it to be at this point and absent of building some inventory levels as we now ramped up the launch of the refreshed models and new models.
Carryover models I my expectation is inventory levels will will remain as I say in line with inline with our sales.
Okay. Thank you very much.
Our next question comes from the line of Patrick a comment from you BS. Please go ahead.
Yes. Thank you good afternoon everybody.
Congrats on the great quarter, a couple of questions remaining on my side regarding the clearance of the deal there were some headlines in the last few days.
[noise] play.
Clearance could be just around the corner. So if you were to receive clearance.
Really quickly would that change anything regarding your Q1 2021 deadline is there any chance to bring that closing date.
Date forward MISO.
My second question relates to.
The cost of electrification, how long will it take to see any meaningful contribution from using P.S.A. platforms and powertrain is that more a 2021 theme sorry, 2022 theme or we we already see some.
Some think next year as far as technology transfer is concerned.
And very lastly regarding Maserati, Mike you touched on it and I'm happy to take your private you because you're not going to be a executing on it but do you think maserati should be part of the lantus in the long term was that sort of the pitch in September for being a Standalone company.
Yeah, Patrick as Mike.
Obviously Europe is just one of the jurisdictions that were going through.
Various filings and anti Angie anti trust. The reviews are I think we're making.
Expected progress in all areas.
So I would say that that's why not just we but also appears I are expressing income.
Confidence of our full cost to close in the first quarter of <unk> in the first quarter of Q1, we still have we still have a number of things to go through everything at this moment in time is on track with that so I.
I think I'll leave it.
I'll leave it at that.
The what was the second question.
Being regarding cost of electrification and the contribution from PS a powertrain platforms when that would come again.
Yeah, I mean, assuming that that really will begin to kick in some towards the end of 2021, but obviously right rapidly accelerating as you get into 22 and 23.
Thank you and with the right there.
That's right yeah.
[laughter].
From my perspective, we've got we've got all the building blocks in place that we talked about for Maserati I think the onus is on us to demonstrate to the market to our shareholders that we have the right formula not a not just for short term profitability for that brand, but for long term profitable.
Already and I think that that's the most important thing for us to demonstrate and that will be demonstrated in the lantus.
What that means in terms of options into the future lets that's accomplished the first thing and that's that's strong 15% plus margins sustainable levels of profitability and and as I said, we turn in Maserati to where were absolutely should be as one of the premier luxury brands in the world.
Okay. Thanks, Mike.
We are taking our next question from the line of really push why from Jefferies. Please go ahead.
Yes, good morning, Thank you and congratulations.
Couple of questions from me one is if we think about the north American situation and the pace at which the industry is rebuilding normal production.
Well, what do you think that inventory levels will actually normalize.
I'll, let you go the caveats I read the picture for.
For a moment, but.
No it's possible that we could be tight in terms of dealer inventories through the summer of 2021.
Or are you considering or revisiting be start with level inventory do they want to carry less inventory and it did in the past what do they want to go back to the levels of 90 days or so that we've seen historically in U.S. is my first question then.
The second one is so hopefully we're close to get you approval for the merger I think the situation in Brazil is still pending.
You have a strong position there who has a decent position their renewal going back for this pullback both again not clear what they're doing in Brazil.
Is there an issue for an approval standpoint that you are potentially assailants is quite large I wouldn't say dominant quite a large player in the Brazilian market and would that be an issue in terms of securing a cool. Thank you.
I believe this is Mike.
Imagery, let me address the imagery questions first I don't think they want to go back to historic inventory levels. There's always been a distinct difference between the what I would call the domestic U.S. players and the and the historical imports in terms of their approach to inventory and I think that was driven by two key things. The first one was differences in segments that they play in.
Truck segments and other body on frame segments, often have a higher degree of complexity and therefore, many many more commercial combinations than other segments. For example, I think what we've seen from all of the domestic.
Oh he ends in the U.S. is a big focus on reducing that level of complexity in commercial combinations and with that means you can increase your turn right as you know and reduce your inventory. So what I think we see now is somewhat closer to the new normal of inventory levels I sincerely hope. It is there is no doubt there is pockets of.
Inventory that does need to be increased because if you look across the country. We.
We are all their or their various trims. All models that we are shown in the various geographies that that.
That was shorter than other geographies. So we certainly have to continue to work hard to rebuild certain portions of the country. So I would say if conditions continue as they are lower levels of dealer inventory for sure into the first half of next year and if.
If we see retail continuing for a prolonged period beyond that and I think we get more and more used to turning the inventory quicker as we put more and more efficiencies into our supply chain to get our vehicles to our dealers.
Yes.
So that for me is and it's a good change and I think that the without benefiting from it.
With regard to.
In Brazil, we are still in the middle of that process. We are working through I don't see any particular issues with regard to getting I'm getting the approvals that we are seeking but we obviously are working very closely with the authorities and that older. The jurisdictions are factored into our full cost of a of a close and in Q1.
Next year.
Right, maybe squeeze a last one.
On the Q2 call I ask you a question about electric pickups, and I got a bit of the cryptic I'm sorry and.
I'm just wondering is that if you have more to share about how you see Ram electrified Burton Abram now since we last spoke we had the presentation of the hummer as well as see.
Lots down and so have you are you are you wait you share a bit more about how you see around me looks like.
I didn't mean my answer to be cryptic apologies, Rob I do see that there will be a luxury fired ram pickup in the market place and I would ask you just to stay tuned for a little while and we'll tell you exactly when that will be yeah. All right. Thank you very much.
Welcome.
Were taking our next question from the line of Pierre Eve Kamineni from Mainfirst. Please go ahead.
Yes. Good morning, good afternoon choose to yours. Thanks for taking my question Chevies Mainfirst first.
First a general but that's the crucial question for both of you.
What's the view.
That's true so it's turning around if CA.
So we don't have a clear picture of what would be or could be a future world. We didn't start until the only thing we noted that.
We could have expected Mike to give pointed at the board.
The board of tenant some of this this is not the case. So first question would be what's going to be your future roles and positions within 76, you have some more color to share today. The other two question I would say are on the rich relates it.
I understand your comments exploration.
On the EMEA breach, which has been burdened by electrification costs and also purchase subset of of credits from from Tesla going forward into Twentytwenty one.
Do that or I, just want to circle prevent the region to be profitable before and after.
When you want or before 2022, because I think that.
The more the higher the share of it acts like vehicle the higher there and then just on the industrial cost and the lower potentially the create your purchase from from slow, but I think that could.
Continued to be a significant headwind.
Yes.
So part of my question sites I would be Latin America could you come back on the 70 or 77 and the circle head no so cost headwind in the quarter, how should we think of.
These industrial costs going forward once again, nothing to Q4, but two 2020 one so two other flavor.
The profitably she trends of the region. Thank you.
Thanks, Yes, Mike.
They are with regard to the.
Mr. Lantus I've worked very hard with my colleagues on a pulling this together I intend to be part of the Oh The group I've been very clear with regard to that.
There will be a moment in time not yet when roles are announced and you will have to wait for that time to understand what my role will be within the organization, but as I said, there's many of US have been working hard on this we believe that's for sure the absolute right thing to do I want to make sure that I'm part of this transition so.
With regard to <unk>.
The industrial cost War I don't know Richard do you want to handle that want to pick up a lot time on as well so.
So.
Yeah, obviously in terms of the E V challenge and the pricing for the product so.
So things through the industry and so we'll.
We see.
In <unk>.
A increase in the level of electrification.
That will continue going into next year, and we will continue to put a great products that we can market and recover price to cover the cost increases and that is obviously the challenge for everybody. So I think stay tuned on that and clearly as we get.
More product into the marketplace I think we'll we'll be very focused on the market pricing as a result since over the last time.
You know not time historically has always had.
Inflation on the cost base that we have always the team in Latam has always been very effective.
Managing through price and mix and this quarter was.
It was no different but actually also very negatively affected by the devaluation of the of the.
Through the year, you know, 30% devaluation of the realized gains.
Against the Euro.
The the cost base very hard for those imported components for Latam. So.
I think the team did a really good job offsetting a lot of that with price you don't see that in his walk because last year, we had a positive good guy for for credit tax credit that we didn't have a repeat all but if that had been the case you would have seen 90% of the industrial costs actually being offset by price.
Using actions so I think the 3% margin for the for the quarter was a good one and I think North America Latin America team is very focused on continuing to.
Improve our profitability.
Im going into next year with the launches of the of the new pickup that we talked about the strada and the continued.
Focus on Jeep.
And obviously hopefully the FX headwind will abate.
I think I think the lead time team has done a tremendous job.
Just imagine the conditions that they work on that not just in terms of FX, but.
They effects are they pandemic in that in that region and I think for them to turned that business around in the quarter and produce a profitable result, just talks to the quality of the people that we've got there and and my congratulations to all of them and one thing I would tell you about that those guys and girls in the time is.
They're determined to to continue to grow their profitability, regardless of the conditions as presented to them. So we have a very strong team.
Okay. Thanks, just one last I would like to squeeze on the EMEA is.
Is it reasonable to assume that you will still be on an ongoing basis, most making in EMEA next year, that's what you're talking about your thought you up now Morgan receivable don't assume that.
No, it's not reasonable to assume that.
Thank you.
Our final questions come from the line of Cosmos pending from HSBC. Please go ahead.
Yes, Hi, Mike and Richard ascending from HSBC I, just had a follow up on I'm on a cell phone Richard maybe about the reversal of provisions as far as I remember you a comment saying that the H one stage to reverse the 1.8 billion or so of provisions from the first quarter is why don't I think Richard you said in an earlier answer that.
We're expecting 2 billion for working capital and and provisions combined I just wanted to clarify if that was a segment for Q4 alone and if that doesn't make the full year free cash flow guidance appeared that load and I just wanted to come to you to be able to reconcile that that's my first question and then maybe one for Mike on the on the synergy.
Jeez I think in your opening remarks, Mike you said.
The team says obviously made great progress in the work streams around the synergies I was just wondering is that also.
Enables you to see what you give us a bit of a cadence about when those synergies would materialize and holiday would say through the first few years of the of the combined company. Thank you.
Yeah.
Yes.
Got a question yeah.
Yeah, so in terms of the.
The 1.7 on provisions 'cause then obviously are mostly.
Ticket related to incentive accruals and warranty accruals related to a dealer stores. So a prison as Mike mentioned, we don't expect dealer stock to to increase significantly through Q4, so really the level of impact from provisions in Q4 was relatively minimal most of the 2 billion I talked about it.
Related to working capital payables because of a man.
And inventories because of continued reduction in inventories and that 2 billion will be hit in Q4.
So no longer a reversal of the provisions of H, one that I don't know if I misunderstood that at the H, one stage, but that.
Was that the indication at the time and this is no longer true or did I misunderstand. It at the time no I mean, I think we've talked about sometimes we talk about working capital in provisions as an aggregate because this is sort of about the balance sheet in general. So we had 5.6 the working capital of 1.7 to provisions we've always talked about.
Large proportion of the working capital of a thing, but I think we've been specific about the provisions because frankly the.
The dealer stock levels have never looked like we're turning to anything like the levels that they were at the end of last year also because as Mike mentioned, Oh, we don't necessarily want them to in most of the regions.
Understood. Thank you thanks.
And then with regard to your question I think we said before that.
We anticipate that 80% of the synergies to be realized in the group by year for the improvement in the synergies that weve identified the cadence hasn't really changed materially. So we're expecting a similar delivery over those first four years in terms of the synergies to the just Atlantis.
Thank you.
Thank you very much.
That will conclude the question and answer session I would now like to turn the call back over to Mr., Mike mainly for closing remarks.
So thank you everybody for your time and your questions and I'm, just going to wrap up by saying that from our perspective. This was a a remarkable quarter for our growth. Despite the lingering effects of Cove at 19.
And I talked about blood time, and how pleased I was with their work, but frankly, it deliver a quarter like this with everybody working I'm exceptionally hard and I'd like to thank each of our employees for their contribution to achieving these record results and their continued dedication resilience and creativity and I think Richard I have tried to communicate.
We remain committed to building an even stronger future that provides additional value for our shareholders and as demonstrated by our introduction of several key new products laying out the new starting from Maserati as well as effectively amending our combination agreement with peer cyan as you've seen our maintenance of our investment in terms of Capex Mike.
Making sure that we continue to invest in the future.
So I think we continue to navigate through this crisis by taking decisive actions and as always been the case in the style. These actions are taken while always keeping the safety and well being of our employees and communities at the forefront and so will this remain committed to executing yes, Yang pay say merger by the end of the first quarter 2021, a lot of questions on that topic as we can completely understand.
But where obviously clearly excited about the future prospects have been passed the lantus and were even more convinced that have the potential of this landmark merger will give us and finally, while the last quarter. The year will have its own set of challenges.
We believe we're going to have a strong finish to the year successfully position that asked as we embark on this new era as a combined entity and so once again I'd just like to thank you for your time attention and questions and wish you. A good reminder, your day. Thank you everybody.
Yeah.
That will conclude today's conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.
[music].