CNH Industrial announces ‘Transform 2 Win’ Business Strategy at New York Investor Day

CNH Industrial N.V. announced its new five-year 2020 – 2024 business plan ‘Transform 2 Win,’ at its Capital Markets Day event in New York, U.S.A. wherein the company presented a detailed strategy to transform its structure and performance to empower its five operating segments and achieve their full potential.

The company plans to invest about USD 13 billion globally for product development in all segments; separating ‘On-Highway and ‘Off-Highway’ assets by early 2021; creating two focused world leading businesses; acquisition of AgDNA will enable its customers and third party agricultural machinery to benefit from AgDNA’s single point data integration, mapping and analytical tools.

The plan is based on robust and specific segment and functional strategies to be implemented through a combination of value enhancing strategic initiatives, including sales growth opportunities, performance and business simplification initiatives, asset optimization efficiencies, and talent engagement and development programs. CNH Industrial decided to split in two and list its truck, bus and engine division to boost asset values and streamline its businesses. The company aims to complete the revamp by early 2021.

CNH Industrial Capital Markets

Transform 2 Win strategy
CNH Industrial Capital Markets
The plan, dubbed ‘Transform 2 Win’ strategy, will reduce operating costs and increase the efficiency of its asset base through targeted restructuring actions and other charges condensed into an efficiency program and certain other initiatives including the 80/20 simplification process, initiated in Q4 2018. Full implementation is expected by the end of 2022. Pre-tax charges associated with this efficiency program in the remainder of 2019 and through 2022 are expected to be between $450 and $500 million, of which $250 million is expected to be in cash.

The ‘Transform 2 Win’ plan will see the company separate its ‘On-Highway’ and ‘Off- Highway’ businesses, a decision that follows the completion of a portfolio review process, taking into account, among other things, strategic, investor, and synergy considerations. This review highlighted that the ‘On-Highway’ and ‘Off-Highway’ businesses have diverging regulatory and customer requirements and are impacted differently by the accelerating industry megatrends of digitalization, automation, low-/zero-emission propulsion and servitization.

The spin-off of the ‘On-Highway’ assets will maximize management focus and flexibility, align investment priorities and incentives, better meet respective business needs and optimize the cost and capital structure of each company to drive profitable growth. It will further strengthen the leadership positions of both the ‘On-Highway’ and the ‘Off-Highway’ businesses, better position them to achieve their ambitious plan targets as well as optimize their shareholder value creation potential. As the process of separating the two businesses progresses, the financial plan highlights, as well as restructuring actions, will be disaggregated into separate pro-forma plans for each company.

The ‘Off-Highway’ company, with 2018 pro-forma industrial activities revenues of $15.6 billion, will be predominantly an agriculture company (75% of revenue) supported by the construction business (19% of revenue). Specialty vehicles (6% of revenue) will remain within the ‘Off-Highway’ company. Case IH, New Holland Agriculture and STEYR will build on their market positions, further strengthened product line-ups and improved distribution, and accelerated investment in automation and digitalization activities. CASE Construction Equipment and New Holland Construction, as well as ASTRA heavy duty quarry trucks, will focus on improving profitability, product range simplification and growing share in application specific segments. Defense vehicles and Magirus firefighting will further develop their industry leading offerings for their specialized customer base.
Highlights of the five-year plan
  • Net sales projected to grow at a CAGR of 5%
  • Significant growth planned in annual product development investment for all segments, totaling $13 billion over the course of the plan up to 2024
  • Adjusted EBIT Margin of Industrial Activities to reach 8% by 2022 and 10% by 2024, with adjusted EBIT more than doubling from current levels
  • ROIC of Industrial Activities is projected to achieve 20% (a 600bps increase from 2018) and adjusted diluted EPS to grow from $0.86 (mid-point of 2019 guidance) to $2.00 by 2024
  • Separation of ‘On-Highway’ (commercial vehicles and powertrain segments) and ‘Off-Highway’ assets (agriculture, construction and specialty segments) will result in the creation of two listed entities, each a world leader in its area of business
The newly listed ‘On-Highway’ company, with 2018 pro-forma industrial activities revenues of $13.1 billion, will comprise the IVECO, IVECO BUS and Heuliez Bus commercial vehicle brands (69% of revenue), together with the FPT Industrial powertrain business (31% of revenue). IVECO brands’ market position and product line-up will be further strengthened with investments in product and technology upgrades. FPT Industrial will continue to offer industry-leading powertrain solutions and accelerate the development of alternative propulsion solutions. FPT Industrial will remain a key supplier to the ‘Off-Highway’ business through a long-term supply agreement.

Said Suzanne Heywood, Chairperson, CNH Industrial, “The bold plan will lead to the creation of two new global leaders in their respective fields. The Board of Directors strongly supports this ambitious strategy and its confidence is underpinned by the rigorous work undertaken to formulate it.”

“With our ‘Transform 2 Win’ strategy, we are setting an exciting new direction for our company. By developing ambitious yet achievable targets for each segment and reorganizing our structure to create two global leaders, all of our great businesses will be better able to realize their full potential in terms of financial performance, shareholder and broader stakeholder value generation and sustainability commitments,” said Hubertus Mühlhäuser, CEO, CNH Industrial.

“Our clear assessment of the key megatrends, that are rapidly changing the business landscape, has led us to embrace this challenge and transform the company. Benefitting from greater management focus, the two companies will accelerate their innovation, be nimbler in their strategic thinking, and actively participate in industry consolidation. This is all thoroughly consistent with our strategic purpose of ‘powering sustainable transformation,” he added.

The new ‘On-Highway’ company will have a legal structure based on that of CNH Industrial N.V., with the spin-off expected to be completed in early 2021, subject to approval at an EGM of shareholders, which is anticipated to be held in H2 2020. CNH Industrial has retained external advisors to support the planned spin-off.

India is a key market for CNH Industrial

India, being an important strategic market for CNH Industrial will see investments in lower horsepower products in the next five years; it also plans to launch crawler excavators in the country.

CNH Industrial Capital Markets

For the CNH Industrial construction segment, the strategic thrust is to develop a focused leadership position. The key priorities driving the strategy are continued delivery of the turnaround, earning the right to grow in products and markets, and to better leverage channel synergies with its agricultural business.

According to Mühlhäuser, “Once the CE business begins to show a sustainable track record of margin improvement, we intend to pursue opportunistic M&A. With our new strategic plan, we will achieve a 7% CAGR of net sales, arguably from a low base today, and with tailwind from our high growth markets in India and South America. We also see a 570 bps margin improvement to 9%, while our return on assts will improve to 24%.”

He informed that the company will invest a total of 1.2 billion in the construction segment, excluding the investment made by its supply partners. “India is a very important market for us and we’re planning more investment here, especially in the lower horsepower products. Despite the current slow economic growth, our focus is on the Indian market as we see more potential in sub 100 horsepower products there. We are planning to make India our manufacturing hub for Asia and African markets. Next year, we will be launching a new product - the ‘Crawler Excavator’ in the country and will begin local production during the second quarter of 2020,” said Mühlhäuser.

CNH Industrial has three manufacturing units in India, one for its construction equipment brand ‘CASE’ and the two for its ‘New Holland’ brand of tractors and CASE IH harvesters. In the Indian market, the company is number one in terms of sales in the ‘Compactor’ segment and number two in the ‘Backhoe loader’ segment.

CNH Industrial’s powertrain segment is a leader in alternative propulsion, and the company plans to increase its portfolio with focused investment in the revolutionary diesel technology, electrification, and in fuel cell technologies, allowing it to continue to drive non-captive sales growth. All of this will result in a 5% net sales CAGR, adjusted EBIT growth of 110 bps, and better RoI on assets to 32% with an overall investment of US$1.9 billion. Moreover, the company will provide customer-centric financial solutions to support all its business segments. These will include launching new products, entering new markets, and taking full advantage of the digitalization of its industries, all of which will lead to a portfolio of 4% and a net income CAGR of 3%.

For its agriculture segment, the company aims to double its market share in India by 2024, with increased mechanization. It has one tractor manufacturing plant in Greater Noida, and a plant for manufacturing harvesters in Pune.

On global trade war, the CEO said, “Global growth is going to stop if trade war continues. We are expecting to find the solution soon for this, which will help to improve our growth significantly in the global markets”.
Hubertus Mühlhäuser, CEO - CNH Industrial
“India is a very important market for us and we’re planning more investment here, especially in the lower horsepower products. We are also planning to make India our manufacturing hub for the Asian and African markets. In 2020, we will launch the ‘Crawler Excavator’ in the country and will begin local production in the second quarter.”

Hubertus Mühlhäuser, CEO - CNH Industrial

NBM&CW October 2019

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