On Sept. 3, CNH Industrial N.V., announced its new 5-year 2020-2024 business plan ‘Transform 2 Win’ at its Capital Markets Day event in New York, presenting a detailed strategy to transform the Company’s structure and performance to empower its five operating segments to achieve their full potential.
Highlights of the 5 year plan include:
- Net sales projected to grow at a compound annual growth rate of 5%
- Significant growth planned in annual product development investment for all segments, totaling $13 billion over the course of the plan 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 business
- 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.
Under the ‘Transform 2 Win’ strategy, CNH Industrial 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.
The ‘Transform 2 Win’ plan will see CNH Industrial separate its ‘On-Highway’ and ‘Off-Highway’ businesses, a decision that follows the completion of a deep 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 mega trends of digitalization, automation, low-/zero-emission propulsion and servitization.
“In their world, I suppose this is a big deal. In our world, we see a few top management people from our main supplier may shuffle around a little and have slightly different job descriptions. It all comes down to product innovation at a cost that our customers can see a return on. If this all happens from this restructuring, then I’m all for it. I was hoping to hear a bolder, more industry changing move. I’m not seeing that here…”
– Leo Johnson, dealer-principal, Johnson Tractor
Leading up to the Capital Markets Day event, there had been a lot of speculation over what the company would be announcing, including:
- That CIH Dealer Advisory Board Council was told last week that there was big news coming out of NYC and that the ag dealers would all be pleased with the announcement, but that nothing more could be said until afterward.
- “Racine is buzzing throughout the building over this but all is quiet on New Holland front.”
- Likely global in nature due to timing over a holiday weekend in the U.S.
- The potential of acquisitions, joint venture, including the connection to Claas and Hubertus Mühlhäuser, chief executive officer, CNH Industrial who is Claas Chairwoman Caathrina Claas-Mühlhäuser's father in law, New Holland, potential structural changes in ownership FIAT, etc.
Leo Johnson, dealer-principal of Johnson Tractor, a 4-store Case IH dealership based in Janesville, Wis., was hoping for a more significant announcement.
"In their world, I suppose this is a big deal. In our world, we see a few top management people from our main supplier may shuffle around a little and have slightly different job descriptions.," Johnson says. "It all comes down to product innovation at a cost that our customers can see a return on. If this all happens from this restructuring, then I’m all for it. I was hoping to hear a bolder, more industry changing move. I’m not seeing that here."
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.
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.
“The bold plan will lead to the creation of two new global leaders in their respective fields,” said Suzanne Heywood, Chairperson, CNH Industrial. “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, chief executive officer, CNH Industrial. “Our clear assessment of the key mega trends, 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’.”
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 Extraordinary General Meeting of shareholders, which is anticipated to be held in H2 2020.
CNH Industrial has retained external advisors to support the planned spin-off.
CNH Industrial Acquires AgDNA
CNH Industrial N.V., also announced its agreement to acquire AgDNA, a leader in Farm Management Information Systems (FMIS). This acquisition will enable CNH Industrial’s customers, and those of third party agricultural machinery, to benefit from AgDNA’s single point data integration, mapping and analytical tools. Paired with CNH Industrial’s agricultural brands’ fleet management telematics, the combined solution will empower farmers and agribusinesses to consolidate a wide range of agronomic data streams, arising from a range of inputs such as machine, agronomic and third party data — including crop prices and weather information — into a single platform, to facilitate expedited decision making. As this open platform works across data sources and brands, it effectively standardizes all data inputs, making it possible for mixed fleet owners to view all data in a uniform manner in one place.
In line with CNH Industrial’s longstanding approach to data control, farmers will continue to control all data utilized by the system as well as maintaining the ability to use the variety of in-house and third-party applications that best suit their farming operation.
“CNH Industrial is committed to further digitalizing modern agriculture, with the clear ambition to develop a comprehensive suite of digital and connectivity services to help our customers run their farming operations in a seamless and productive way,” said Hubertus Mühlhäuser, chief executive officer, CNH Industrial. “The acquisition of AgDNA, is further evidence of our continuing investment in digital farming.”