CNH Industrial Will Split Off-Highway and On-Highway Businesses

04:54PM Sep 03, 2019
AFS Connect Magnum
Agricultural equipment accounts for 75% of revenue for the off-highway segment of CNH
( Case IH )

On September 3, CNH confirmed earlier reports that it will separate its two major business segments: on-highway equipment (commercial vehicles and powertrain segments) and off-highway equipment (agriculture, construction and specialty segments.) 

This is part of a five-year business plan the company calls ‘Transform 2 Win,’ in which the company states it will increase net sales at a compound annual growth rate of 5%. The strategy also aims reduce operating costs and increase efficiency. 

In the decision to split the equipment the company says it did a deep portfolio review and took into account strategic, investor, and synergy considerations, saying “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.”

Agricultural equipment accounts for 75% of revenue for the off-highway segment of CNH, which had 2018 pro-forma industrial activities revenues of $15.6 billion. CNH says the Case IH, New Holland Agriculture and Steyr brands will remain. The construction division accounts for 19% of revenue, and it will feature the CASE Construction, New Holland Construction and ASTRA heavy-duty quarry truck brands. 

The on-highway company is expected to have its spin-off complete by early 2021. This segment had 2018 pro-forma industrial activities revenues of $13.1 billion. The business features the IVECO, IVECO BUS and Heuliez Bus commercial vehicle brands (69% of revenue). Additionally, the FPT Industrial powertrain business is 31% of revenue of the spin-off, and via a long-term supply agreement it remain a key supplier to the off-highway business.

"The bold plan will lead to the creation of two new global leaders in their respective fields," Suzanne Heywood, Chairperson, CNH Industrial said in a recent news release. "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," Hubertus Mühlhäuser, Chief Executive Officer, CNH Industrial said in the news release. "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'."