Business Context and Reporting Period
This Form 20-F is the annual report for Fiat Chrysler Automobiles N.V. (FCA) for the fiscal year ended December 31, 2015. FCA is a global automotive group incorporated in the Netherlands with principal executive offices in the United Kingdom. The company operates through six reportable segments: four regional mass-market segments (NAFTA, LATAM, APAC, EMEA), the Maserati luxury brand, and a global Components segment. A significant corporate event during the period was the classification of the Ferrari segment as a discontinued operation following its initial public offering and subsequent spin-off, which was completed in January 2016.
Key Financial Metrics
| Metric (€ million) | 2015 | 2014 | 2013 |
|---|---|---|---|
| Net Revenues | 110,595 | 93,640 | 84,530 |
| EBIT | 2,625 | 2,834 | 2,638 |
| Profit Before Taxes | 259 | 783 | 649 |
| Net Profit (Continuing Ops) | 93 | 359 | 1,708 |
| Net Profit (Total) | 377 | 632 | 1,951 |
| Adjusted EBIT (Non-GAAP) | 4,794 | 3,362 | 3,181 |
| Debt (Total) | 27,786 | 33,724 | 30,283 |
| Cash and Cash Equivalents | 20,662 | 22,840 | 19,455 |
| Net Industrial Debt (Non-GAAP) | 5,049 | 7,654 | 7,014 |
| Total Available Liquidity | 24,557 | 26,221 | 22,745 |
Operational Metrics: Total vehicle shipments were 4.602 million units in 2015, compared to 4.601 million in 2014. The company employed 238,162 people at period end.
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 18.1% to €110.6 billion, driven primarily by a 9.3% increase in NAFTA shipments, favorable foreign currency translation (strengthening U.S. dollar), and positive net pricing.
- EBIT Decline: Reported EBIT decreased 7.4% to €2.6 billion. This decline was primarily due to significant non-recurring charges and impairments totaling €2.17 billion, largely related to the realignment of manufacturing capacity in NAFTA and increased recall campaign accruals.
- Adjusted EBIT Improvement: Excluding unusual items, Adjusted EBIT increased 42.6% to €4.8 billion, reflecting strong operational performance across all segments, particularly NAFTA and EMEA.
- Segment Performance:
- NAFTA: Adjusted EBIT more than doubled to €4.45 billion, driven by volume growth in Jeep and Ram brands.
- LATAM: Adjusted EBIT turned negative (-€87 million) due to a 33% drop in shipments caused by macroeconomic weakness in Brazil and Argentina.
- APAC: Adjusted EBIT fell significantly to €52 million due to supply interruptions from the Tianjin port explosions in China and competitive pressures.
- EMEA: Returned to profitability with Adjusted EBIT of €213 million, up from a loss in 2014.
- Debt Reduction: Net Industrial Debt decreased by €2.6 billion to €5.0 billion, aided by cash flow from operations, proceeds from the Ferrari IPO, and the prepayment of FCA US secured senior notes.
Guidance, Outlook, and Risks
Management Commentary and Outlook:
- Business Plan Update: Management updated its 2014-2018 Business Plan in January 2016. Key actions include discontinuing production of the Chrysler 200 and Dodge Dart in NAFTA to realign capacity toward pickup trucks and utility vehicles, and slowing investment in the Alfa Romeo brand due to reduced demand in China.
- Financial Targets: The company reiterated its goal to achieve a net industrial cash position by the end of 2018 and expects positive operating cash flows for the remaining years of the plan.
- Capital Expenditures: Expected to be in the range of €8.5 to €9 billion in 2016, funded primarily by operating cash flow.
Key Risks and Contingencies:
- Recall and Regulatory Costs: The company faces significant costs related to product recalls and regulatory penalties. In 2015, FCA US agreed to a Consent Order with NHTSA involving a €63 million penalty and additional spending on outreach, plus a subsequent €63 million penalty for TREAD Act reporting deficiencies.
- Pension Obligations: Defined benefit pension plans were underfunded by approximately €5.1 billion as of December 31, 2015, with €4.9 billion related to FCA US. Future funding obligations depend on investment performance and interest rates.
- Emerging Markets: Continued macroeconomic instability in Brazil, Argentina, and Venezuela poses risks to sales volumes and currency translation. Venezuela recently announced significant changes to its foreign exchange system.
- Supply Chain: The company remains exposed to raw material price fluctuations and supply disruptions, as evidenced by the impact of the Tianjin port explosions on APAC operations.
Investor Verification Checklist
- Ferrari Spin-off Impact: Verify the long-term financial impact of the Ferrari separation, specifically the loss of €2.6 billion in revenue and €444 million in EBIT versus the €1.5 billion improvement in net industrial debt.
- NAFTA Restructuring Charges: Review the €834 million charge related to the realignment of NAFTA manufacturing capacity and the €761 million increase in warranty/recall accruals to understand the one-time nature of the EBIT decline.
- LATAM Market Exposure: Assess the sustainability of the LATAM segment given the 33% drop in shipments and the negative Adjusted EBIT, considering the ongoing economic downturn in Brazil and Argentina.
- Pension Funding: Monitor the €5.1 billion underfunded pension liability and the company's ability to meet future contribution requirements without straining liquidity.
- Regulatory Compliance: Track the status of NHTSA consent orders and potential future penalties related to recall reporting and emissions compliance.
- Debt Covenants: Confirm compliance with debt covenants, particularly those related to FCA US senior credit facilities which restrict dividend distributions and require minimum liquidity thresholds.