Paolo Monferino, CEO€¦ · Backhoe Loaders Skid Steer Loaders. CNH Presentation – Fiat Analyst...

Paolo Monferino, CEO

Fiat Analyst & Investor Day Balocco - July 26, 2004

CNH Presentation – Fiat Analyst & Investor Day – Balocco - July 26, 2004 – Slide 1

Forward Looking Statements & Non-U.S. GAAP Accounting Principles

This presentation includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements otherthan statements of historical fact contained or incorporated by reference in this presentation, including statements regarding our competitive strengths,business strategy, future financial position, budgets, projected costs and plans and objectives of management, are forward-looking statements. Thesestatements may include terminology such as "may," "will," "expect," "should," "intend," "estimate," "anticipate," "believe," "continue," “on track”, orsimilar terminology.

Our outlook is predominantly based on our interpretation of what we consider key economic assumptions and involves risks and uncertainties thatcould cause actual results to differ. Crop production and commodity prices are strongly affected by weather and can fluctuate significantly. Housingstarts and other construction activity are sensitive to interest rates and government spending. Some of the other significant factors for us includegeneral economic and capital market conditions, the cyclical nature of our business, customer buying patterns and preferences, foreign currencyexchange rate movements, our hedging practices, our and our customers’ access to credit, actions by rating agencies, political uncertainty and civilunrest or war in various areas of the world, pricing, product initiatives and other actions taken by competitors, disruptions in production capacity, excessinventory levels, the effect of changes in laws and regulations (including government subsidies and international trade regulations), results of legalproceedings, technological difficulties, results of our research and development activities, changes in environmental laws, employee and labor relations,pension and health care costs, raw material costs and availability, energy prices, real estate values, animal diseases, crop pests, harvest yields,government farm programs and consumer confidence, housing starts and construction activity, concerns related to modified organisms, and fertilizercosts. Additionally, our achievement of the anticipated benefits of our profit improvement initiative, depends upon, among other things, industryvolumes as well as our ability to effectively rationalize operations, and to execute our multiple brand strategy. Further information concerning factorsthat could significantly affect expected results is included in our Form 20-F for the year ended December 31, 2003. We can give no assurance that theexpectations reflected in our forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated inthese forward-looking statements. All written and oral forward looking statements attributable to us are expressly qualified in their entirety by the factorswe disclose that could cause our actual results to differ materially from our expectations. We undertake no obligation to update or revise publicly anyforward-looking statements.

Non-U.S. GAAP Accounting Principles: The financial information in this presentation is based on financial information prepared in accordance with therequirements of Italian Legislative Decree 127/91, as interpreted and supplemented by Italian accounting principles issued by the National Board ofDottori Commercialisti and of Ragioneri (Chartered Accountants) and, to the extent such requirements are silent on particular issues and not atvariance, by those standards laid down by the International Accounting Standards Board (I.A.S.B) (such requirements, as so interpreted andsupplemented, “Italian GAAP”). Italian GAAP differs in certain respects from generally accepted accounting principles in the United States (“U.S.GAAP”). We have provided a reconciliation of the Italian GAAP financial data to U.S. GAAP in the Appendix to this presentation.


Agricultural EquipmentTractors,

Combines &Hay & Forage

A World Market Leader in Agricultural and Construction Equipment

CrawlerExcavators

FinancialServices

Backhoe Loaders

Skid Steer Loaders


28%

67%5%

A Global Market Leader

2003 consolidated revenues of $10.7 billion and operating income of $259 million

World class player

Significant integration exercise behind us

Platform for

• Margin improvement

• Increased cash flow

Global presence

over 12,000 dealers in 160 countries

41 manufacturing facilities on five continents

2003 Revenues by Business

2003 Sales by Region

Financial Services

Agricultural Equipment

Construction Equipment

7%

14%

42%

37%

North America

W. Europe

LatinAmerica

Rest ofWorld


North America(1)

Position(4)

Tractors(2) 2Combines 2Backhoes(3) 2Skid Steers 2Heavy CE 4

Western Europe(1)

Position(4)

Tractors 1Combines 2Backhoes(3) 2Skid Steers 2Heavy CE 2

Rest of World(1)(5)

Position(4)


Latin America(1)

Position(4)


____________________(1) Includes Kobelco.(2) N.A. Tractors only include >40 HP segment (excludes recreational and hobby applications).(3) Tractor Loaders and Tractor Loader Backhoes.(4) Based on Units Sold(5) Excludes Indian and Chinese markets.

Total World(1)(5)

Position(4)

Tractors(2) 1Combines 1Backhoes(3) 1Skid Steers 2Heavy CE 3

Leading positions in key product areas worldwide in 2003

Market Strength Around the Globe


6,1 5,9 6,4 7,1

3,5

3,83,5 3,0 2,9

2,9

0,6

0,70,7 0,6 0,6

0,7

7,76,1

$0

$3

$6

$9

$12

$15

1998PF 1999PF 2000 2001 2002 2003

AG Net Sales CE Net Sales Capital

$11.9

$10.7$10.0 $9.7 $9.9

$10.7

5

Consolidated RevenuesUS $ Billion

Financial Highlights

Operating Income (before Goodwill Amortization)US $ Million

$265

$154

$319 $313

$419

$611

-$100

$0

$100

$200

$300

$400

$500

$600

$700

1998 PF 1999 PF 2000 2001 2002 2003

Consolidated CE Capital AGShaded area shows North American 12 month rolling total industryvolumes for Over 40 HP AG tractors plus combines


$265$419

-$600

-$400

-$200

$0

$200

$400

$600

1999 ProForma

Divestitures,Volume & Mix

Pension &Medical

Other Synergies New Products 2003 Actual

Financial Evolution – 1999-2003


($398)

($230)($40)

$694

$128


First Half Performance

4.223

281 271

274

3.5553.330

1.712

1.491 1.477

$0

$1.000

$2.000

$3.000

$4.000

$5.000

$6.000

$7.000

1H02 1H03 1H04

AG Net Sales CE Net Sales Capital

$ 5,102 $5,303

$6,209

$223$195

$361

($100)

$0

$100

$200

$300

$400

1H02 1H03 1H04

Consolidated AG CE Capital

Consolidated RevenuesUS $ Million



H1 04 compared with H1 03

$361

$196

$0

$50

$100

$150

$200$250

$300

$350

$400

$450

1H03

Volume & M

ixNet

Pricing

Cost Red

uctions

Financial

Service

s

Other

1H04

Operating Income (before Goodwill)US $ Million

$196

$361

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

1H03 AG CE Capital 1H04

Variance by Cause Variance by Segment


Looking Forward


Dual brand strategy

Common platforms

Manufacturing footprint rationalization

Systems, process integration

Refocus Financial Services

Merger Integration Substantially Complete by End of 2004

Established

Renewed Product Range

Light Industrial System

Lean Structure

Profitability Recovering


Business Assessment

Strengths Improvement opportunities

Global Presence

Balanced Market Share Across Major Markets

Renewed Product Range

Light, Flexible Industrial System

Lean Corporate Structure

Growing Financial Services Platform

NEF Engine Technology & Scale

Strong Global Construction Equipment Alliances

Strengthen customer & dealer support

Achieve best-in-class product reliability

Reduce product costs

Capture global sourcing opportunities

Reduce capital employed in the business

Continue developing Financial Services

Achieve best-in-class performance by 2007


Revenue Enhancements

Customer / Dealer Support Dedicate additional sales and marketing resources Provide additional technical support, training and enhanced service levelsImprove lead times and parts availability



Customer / Dealer Support

Product ImprovementRenew focus on innovation as rationalization and integration program nears completionComplete roll-out of new common platforms with enhanced differentiationAchieve Best-in-Class quality, reliability with concentration on margins

• R&D focused at six strategic locations to maintain 3% of sales spending level• Highest margin products receive highest priority spending to stimulate

development of new technologiesCombine innovations with product redesigns for new engines to meet requirements


New in 2004:Axial-Flow Combine Harvester


New “Utility High” AG Tractors

TS-A SeriesAll Purpose

80 to 115 HPTractor


New Wheel Loaders




Product Improvement

Pricing Strategy Reposition brands in each marketCapitalize on market leadership positions




Product Improvement

Pricing Strategy

Financial Services ExpansionExpand product offering and volume targeting core customer base

• operating leases, rental, credit cards, etc.Through dedicated AG and CE front-end organizations, working with brand sales forces and dealer’s representatives to capture larger “share of wallet”Continue to grow in Europe and Latin America


Actions to Reduce Capital Employed

Continue to invest in new supply chain tools to achieve:Reduction in work-in-progress and finished inventory levels

Shortened delivery lead times

Overall objective: to achieve increased company and dealer inventory turns, mainly in North America, from 2.0x to 2.5x

Improve parts service levels in order to contribute to customer support and satisfaction


Cost Reduction Targets 2005 - 2007

$0

$300

$600

$900

2003 2004 2005 2006 2007

$850

Target is $500

million

$710

$530

$350

$224

Prior Goal Totaled $650 Million by 2006

Cumulative SavingsUS $ Million


Cost Reduction Initiatives 2005 - 2007

$0

$100

$200

$300

$400

$500

$600

Product ManufacturingEfficiencies

Purchasing Logistics &Other

Total

AG CE

$180

$125

$125

$70 $500

Cumulative SavingsUS $ Million

$125

$375


Cost Reduction Initiatives 2005 - 2007

New ProductsLeverage completion of product range renewal

Optimize cost basis of recently launched products

Design cost savings: Value oriented product design (options, specs); Standard components; New technologies

Manufacturing EfficienciesBenefit fully from 2004 manufacturing footprint rationalization actions (East Moline, Crepy, Racine Foundry, Bundaberg, Neustadt)

Realize full efficiencies from new product learning curve


Cost Reduction Initiatives (Continued)

PurchasingGlobally re-source up to $800 million of components by 2007:

• Develop supplier base in low-cost countries• Leverage our global presence

Capitalize on volume consolidation and long term contracts

LogisticsComplete depot footprint rationalization

Reduce inbound and outbound freight costs


AG Industry Perspective for 2005 - 2007

Key Drivers for AG Equipment: N. America Europe L. America

Commodity Prices + + -

Commodity Stocks + + -

Farm Income + ~ ~

Government Subsidies + ~ +

Favorable Tax Treatment + ~ ~

Summary + ~ ~/- + = Positive ~ = Neutral - = Negative


CE Industry Perspective for 2005 - 2007

Key Drivers for CE Equipment: N. America Europe R.O.W.

Housing Starts + ~ ~

Construction Spending + + +

GDP Growth + ~ +

Favorable Tax Treatment + ~ ~

Summary + ~ ~/+ + = Positive ~ = Neutral - = Negative


Full Year 2004 Expectations

Key Objectives:

Capitalize on successful new product launches to increase gross margin, especially in Construction Equipment

Complete merger integration plan in 2004

Continue Construction Equipment turnaround

Continue performance improvements at CNH Capital

Key Financial Goals:

Consolidated Revenues: Over $12 billion

Operating Income: Improvement of over $200 million from 2003

Operating Cash Flow: [Operating Income + D & A – CAPEX] = > $600 million


Consolidated Revenues

Operating Income (excluding Goodwill)

Memo: at trough

Operating Cash Flow

>$13 billion

~ 10% sales

~ 6 % sales

~ 10% sales

2007 Plan - Financial Targets


Appendix


Reconciliation to U.S. GAAP7/23/2004 11:53 Full Year Full Year Full Year Full Year First Half First Half First Half

2000 2001 2002 2003 2002 2003 2004U.S. $ in Millions Actual Actual Actual Actual Actual Actual Actual

Net Income (loss) per U.S. GAAP Statements (381)$ (332)$ (426)$ (157)$ (335)$ (10)$ 74$ Adjustments to convert from U.S. GAAP to accounting principles followed by Fiat: Cumulative effect of change in accounting principle, net of tax - - 325 - 325 - - Amortization of goodwill and other intangibles (40) (45) (165) (166) (82) (83) (84) Restructuring charge (165) 34 34 111 12 11 9 Other, net (18) 78 24 (12) (5) (4) 4

Net income (loss) per accounting principles followed by Fiat (604)$ (265)$ (208)$ (224)$ (85)$ (86)$ 3$

Reconciliation of net income (loss) per accounting principles followed by Fiat to Fiat's results of operations (operating income):Net income (loss) per accounting principles followed by Fiat (604)$ (265)$ (208)$ (224)$ (85)$ (86)$ 3$ Minority interest 5 5 8 7 4 4 8 Income tax provision (benefit) (250) (105) (35) (25) 10 14 34 Restructuring charge 451 70 17 160 6 24 49 Net financial expense 446 474 390 354 203 164 196 Equity in (income) loss of unconsolidated subsidiaries and affiliates (7) 9 (16) (13) 6 (4) (9) Other non operating (income) expense 1 - (2) - - - -

Results of operations per accounting principles followed by Fiat 42$ 188$ 154$ 259$ 144$ 116$ 281$

Memo: Goodwill amortization included above 112 131 159 160 79 80 80

Results of operations per accounting principles followed by Fiat before goodwill amortization 154$ 319$ 313$ 419$ 223$ 196$ 361$

Results of operations per accounting principles followed by Fiat by business segment Agricultural Equipment (43)$ 105$ 201$ 181$ 151$ 101$ 189$ Construction Equipment 127$ 13$ (159)$ (78)$ (46)$ (46)$ 7$ Subtotal Equipment Operations 84$ 118$ 42$ 103$ 105$ 55$ 196$ Financial Services 27$ 93$ 122$ 163$ 42$ 65$ 88$ Eliminations (70)$ (24)$ (11)$ (7)$ (2)$ (4)$ (3)$ Total 42$ 188$ 154$ 259$ 144$ 116$ 281$

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Paolo Monferino, CEO€¦ · Backhoe Loaders Skid Steer Loaders. CNH Presentation – Fiat Analyst...

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