CNH Industrial

CNH



(26.89% stake, 41.68% of voting rights on issued capital)



Key consolidated figures of CNH Industrial for the first half 2020 are as follows:

  I Half Change
$ million 2020 2019  
Revenues 11,012 14,011 (2,999)
Revenues in € 9,993 12,401 (2,408)
Adjusted EBIT(1) (87) 1,041 (1,128)
Net (loss) income (1,294) 654 (1,948)
of which attributable to owners of the parent (1,206) 635 (1,841)
Net Industrial Debt(2)(3) (2,713) (1,403) (1,310)
(1) Adjusted EBIT is a non-GAAP financial measure used to measure performance. Adjusted EBIT is defined as profit/(loss) before taxes, financial income (expense) of industrial activities, restructuring costs, and certain non- recurring items. (2) Net Industrial debt is defined as net debt excluding the funded portion of the sell-liquidating financial receivables portfolio. (3) The comparative figure refers to 31 December 2019.

Covid-19

During the first half of 2020, the Covid-19 pandemic continued to negatively impact most of CNH Industrial’s end-markets and operations.

Worldwide agriculture industry demand was muted during the first half of 2020, with global demand for tractors down 1% and combines up 12%. In North America, tractor demand was up 20% in the first half for the lower horsepower segment (under 140 HP), while demand was down 22% for high horsepower tractors (over 140 HP); combines were up 3%. In Europe, tractor and combine markets were down 25% and 23%, respectively. South America tractor markets decreased 10% and combine markets increased 29% compared to the same period in the prior year. In Rest of World, demand decreased 3% for tractors and increased 21% for combines.

In the first half of 2020, demand in all sub-segments of construction end-markets were showing double-digit declines in all geographies, with the exception of Rest of World where general construction equipment was up 28%, while compact and service equipment and road building and site preparation equipment were both flat.

The European truck market was down 39% year-over-year in the first half, with light duty trucks down 29%, and medium and heavy trucks down 57%. The South America truck market was down 39% in light duty trucks and 28% in medium and heavy trucks. For buses, the European market decreased 57% in first half, and the South American market decreased by 62%.

With respect to liquidity, CNH Industrial completed the first half 2020 ended at 30 June 2020 with Cash and cash equivalents of $5.1 billion, Restricted cash of $723 million and undrawn committed facilities of $5.7 billion, for a total of $11.5 billion of liquidity available.

As a consequence of the significant decline in industry demand and other market conditions due to the economic disruption caused by the Covid-19 pandemic during the first half of 2020, CNH Industrial reviewed its current manufacturing footprint and, consequently, has reassessed the recoverability of certain assets. As a result, Agriculture recognized $111 million of impairment charges against tangible assets and $137 million of impairment charges against intangible assets in the first half of 2020. In the same period, Construction recognized impairment charges of $62 million against intangible and other long-lived assets and Commercial and Specialty Vehicles recognized charges of $282 million in connection with new actions identified in order to realize the asset portfolio of vehicles sold under buy-back commitments. These actions were taken as a result of the significant deterioration of the used vehicle markets in which the segment operates and the consequent impact on truck residual values. The segment also recognized other assets impairment charges of $7 million. Lastly, CNH Industrial performed a quantitative interim assessment of impairment for Construction goodwill, previously disclosed as being at risk of impairment. Having reassessed the expected future business performance of the segment and its projected cash flows, which have deteriorated significantly, CNH Industrial recognized a charge of $576 million in the first half, representing the total impairment of Construction goodwill.

On 27 April 2020 CNH Industrial began to resume operations at some of its industrial facilities in Europe, within the constraints of applicable emergency regulations, and continued to restore capacity in all regions, returning to normal operations at all manufacturing sites by the end of May. However, as a consequence of the general decline in certain industries, volumes continue to fluctuate, requiring production level adjustments to reflect the lower demand. Although the large majority of suppliers maintained the required flow of goods to the CNH Industrial’s plants since the restart of its manufacturing operations, localized interruptions might still occur in different parts of the world creating additional constraints to the flow of production.

During the first half of 2020, CNH Industrial continued to work to ensure the safety of its people, to maintain business continuity, to preserve its liquidity and to leverage its continued access to funding. CNH Industrial has implemented many actions to reduce costs and protect its financial position, its liquidity and capital structure, and its ratings. Specifically, these measures included reviewing every possible and prudent opportunity to eliminate discretionary operating expenses, accessing public funding and other measures enacted as a response to the global pandemic, reducing capital expenditures and tightly managing inventories. During the first half, CNH Industrial also benefited from the voluntary temporary reduction of compensation to its senior management, including the Acting Chief Executive Officer, the entire Board of Directors and almost 900 members of the management team. Furthermore, as previously announced, as a precautionary measure, the Board of Directors decided to withdraw the dividend distribution previously proposed for payment.

Depending on the duration and extent of the Covid-19 pandemic, CNH Industrial’s results of operations, financial condition and cash flows in 2020 may also be significantly negatively impacted by, among other things, further restructuring actions and other non-cash asset impairments, price pressure on new and used vehicles, which may give rise to further reserve requirements, excess inventory, difficulties in collecting financial receivables and subsequent increased allowances for credit losses.

Revenues

Revenues for the first half of 2020 were $11,012 million, a decrease of 21.4% compared to the first half of 2019 (-17.1% on a constant currency basis). Net revenues of Industrial Activities were $10,140 million in the first half of 2019, a decrease of 22.6% compared to the first half of 2019 (-18.4% on a constant currency basis), due to the severe adverse Covid-19 impacts on supply chain and market conditions across all regions and segments, coupled with actions to reduce dealer inventory levels.

Net revenues for Agriculture were $4,780 million, down 14.6% compared to the first half of 2019 (-9.6% on a constant currency basis). The decrease was driven by lower industry volumes across all geographies linked to Covid-19 pandemic partially offset by positive price realization performance across all regions.

For the first half of 2020, worldwide industry unit sales for tractors were down 5% compared to the first half of 2019, while worldwide industry sales for combines were up 3%. In North America, industry volumes in the over 140 hp tractor market sector were down 14% and combines were down 9%. Industry volumes for under 140 hp tractors in North America were up 10%. European markets were down 16% and 23% for tractors and combines, respectively. In South America, the tractor market decreased 10% and the combine market decreased 7%. Rest of World markets decreased 7% for tractors and increased 14% for combines.

Net revenues for Construction were $842 million, down 39.7% compared to the first half of 2019 (-36.6% on a constant currency basis), as a result of deteriorating market conditions across all regions due to Covid-19 pandemic, combined with actions to reduce dealer inventory levels and negative price realization. During the first half of 2020, Construction’s worldwide general equipment industry sales were down 1% compared to the first half of 2019, while worldwide compact and worldwide road building and site equipment industry sales were down 12% and 14%, respectively.

In the first half of 2020 Commercial and Specialty Vehicles’ net revenues were $3,759 million, down 26.6% compared to the first half of 2019 (-22.6% on a constant currency basis), driven by decreased volumes across all geographies due to the Covid-19 pandemic.

Powertrain's net revenues were $1,516 million in the first half of 2020, down 30.2% compared to the first half of 2019 (-26.9% on a constant currency basis), due to lower sales volume mainly in Europe as a consequence of Covid-19 pandemic. Sales to external customers accounted for 53% of total net revenues (49% in the first half of 2019). Financial Services' net revenues totaled $925 million in the first half of 2020, a decrease of 6.6% compared to the first half of 2019 (-0.8% on a constant currency basis), primarily due to pricing and lower average portfolios in North America and Europe, partially offset by a higher average portfolio in South America.

  I Half  
$ million 2020 2019 % change
Agriculture 4,780 5,595 (14.6)
Construction 842 1,397 (39.7)
Commercial and Specialty Vehicles 3,759 5,118 (26.6)
Powertrain 1,516 2,173 (30.2)
Elimination and other (757) (1,188) -
Total Industrial Activities 10,140 13,095 (22.6)
Financial Services 925 990 (6.6)
Eliminations and other (53) (74) -
Revenues 11,012 14,011 (21.4)

Adjusted EBIT

Adjusted EBIT of Industrial Activities was a loss of $283 million in the first half of 2020, compared to adjusted EBIT of $791 million compared to the first half of 2019, strongly impacted by industry demand disruption, negative absorption caused by plant shutdowns and actions to lower inventory levels, only partially compensated by reduced selling, general and administrative costs.

Adjusted EBIT of Agriculture was $229 million in the first half of 2020, a $261 million decrease compared to the first half of 2019. Positive price realization, disciplined cost management, favorable purchasing performance and lower research and development costs were more than offset by lower wholesale volume and market and product mix, negative fixed cost absorption (primarily in Europe) due to manufacturing facility shutdowns, higher product costs, and costs associated with product quality actions. Adjusted EBIT margin was 4.8% (8.8% in the first half of 2019).

Adjusted EBIT of Construction was a loss $169 million, a $200 million decrease compared to the first 2019 profit. The decrease was driven by lower volumes, negative fixed cost absorption due to plant shutdowns, destocking actions, and unfavorable price realization impacted by retail program enhancements in response to Covid-19 impacted market conditions. These were partially offset by cost-cutting actions.

Adjusted EBIT of Commercial and Specialty Vehicles was a loss of $242 million in the first half of 2020 ($184 million profit in the first half of 2019), primarily driven by lower volumes and higher product costs due to plant shutdown, partially offset by positive price realization and lower selling, general and administrative costs.

Adjusted EBIT of Powertrain was $41 million for the first half of 2020, a $143 million decrease compared to the first half of 2019, mainly due to unfavorable volume and mix, partially offset by positive price realization, purchasing and quality efficiencies, cost-containment actions, and lower costs for regulatory programs. Adjusted EBIT margin was 2.7% (8.5% in the first half of 2019).

  I Half Change 2020 adjusted EBIT margin 2019 adjusted EBIT margin
$ million 2020   2019   amount      
Agriculture 229   490   (261)   4.8% 8.8%
Construction (169)   31   (200)   (20.1)% 2.2%
Commercial and Specialty Vehicles (242)   184   (426)   (6.4)% 3.6%
Powertrain 41   184   (143)   2.7% 8.5%
Unallocated items, elimination and other (142)   (98)   (44)   - -
Total Industrial Activities (283)   791   (1,074)   (2.8)% 6.0%
Financial Services 196   250   (54)   21.2% 25.3%
Eliminations and other -   -   -   - -
Adjusted EBIT (87)   1,041   (1,128)   (0.8)% 7.4%

The following table is the reconciliation of Net income to Adjusted EBIT (non-GAAP measure).

  I Half
$ million 2020 2019
Net (loss) profit (1,294) 654
Add back:    
Financial expenses 129 135
Income tax expenses (116) 216
Adjustments:    
Goodwill impairment loss 576 -
Restructuring costs 12 36
Other discrete items(1) 606 -
Adjusted EBIT (87) 1,041
(1) Primarily includes impairment of intangibles and other long-lived assets, as well as asset optimization charges.

Net Industrial debt

The increase in Net Debt at 30 June 2020 compared to 31 December 2019 mainly reflects exchange rate differences for €0.8 billion; excluding this effect Net Debt increased by $0.1 billion, reflecting Free Cash Flow of Industrial Activities usage of $1.3 billion in the first half of 2020, mainly due to the adverse Covid-19 impact, partially offset by a reduction in third party debt of Financial Services (in line with the portfolio reduction).

$ million 30/06/202020 31/12/2019 Change
Third party debt (1) (24,959) (25,413) 454
Cash and cash equivalents 5,868 5,773 95
Other/financial asset/(liabilities)(2) (173) 10 (163)
(Net debt)/Cash(3) (18,918) (19,630) 712
Industrial Activities (2,713) (1,403) (1,310)
Financial Services (16,205) (18,227) (2,022)
(1) As a result of the role played by the central treasury, debt for Industrial Activities also includes funding raised by the central treasury on behalf of Financial Services. (2) Including fair value of derivative financial instruments. (3) The net intersegment (receivable)/payable balance owed by Financial Services to Industrial Activities was -$120 million and -$194 million as of 30 June 2020 and 31 December 2019, respectively.

2020 Outlook (US GAAP)

CNH Industrial manages its operations, assesses its performance and makes decisions about allocation of resources based on financial results prepared only in accordance with U.S. GAAP, and, accordingly, its full year guidance presented below had been prepared under U.S. GAAP.

While uncertainties regarding the evolution of the Covid-19 pandemic remain, CNH Industrial will continue to look at the evolution of the current extraordinary circumstances and to work on its priorities, focusing its efforts on selecting the optimal response strategies to a still evolving scenario.

CNH Industrial is committed to thrive and deliver profitable growth in the new normal, and assuming no further widespread activation of lockdown policies in its main jurisdictions, is providing the following outlook for the year:

  • Net sales of Industrial Activities (reflecting the exchange rate of 1.11 EUR/USD) expected to be down between 15% and 20% including currency-translation effects, due to Covid-19 impact on market conditions across all regions and segments;
  • 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 as a result of continued cash preservation measures and a normalized seasonality of sales;
  • Solid available liquidity level to be maintained throughout the year, with opportunistic resource allocations to respond to the current evolving scenario.

CNH Industrial will continue to communicate with financial markets and with all other stakeholders as the implications of the evolving business environment for its operations and performance could change depending on the duration and extent of the pandemic. In particular, the CNH Industrial’s results of operations, financial condition and cash flows in 2020 may also be significantly negatively impacted by, among other things, further restructuring actions and other non-cash asset impairments, price pressure on new and used vehicles, which may give rise to further reserve requirements, excess inventory, difficulties in collecting financial receivables and subsequent increased allowances for credit losses. The quarterly fair value remeasurement of CNH Industrial investment in Nikola Corporation might also significantly impact the CNH Industrial reported results in future quarters given the recent volatility of the Nikola share price. However, this noncash impact will be consistently excluded from the calculation of CNH Industrial Non-GAAP “Adjusted” measures, and, in particular, from the Adjusted diluted EPS.

Commercial Register No.64236277 Note legali | Credits