Stellantis N.V. annual report, Q4 FY2019

Business context and reporting period

This is Fiat Chrysler Automobiles N.V.’s (FCA) Form 20-F annual report for the fiscal year ended December 31, 2019—not a standalone 2019 fourth-quarter filing. The filing reports under IFRS in euros. Although the request identifies Stellantis, the filing concerns FCA, before its proposed merger with Peugeot S.A. (PSA).

FCA designs, manufactures and sells mass-market vehicles under brands including Jeep, Ram, Fiat and Chrysler, as well as Maserati luxury vehicles. It also operates in components, industrial automation and automotive financing. In 2019, FCA completed the sale of Magneti Marelli and signed a binding agreement for a 50/50 merger with PSA.

Key financial metrics

Cost of revenues was €93.2bn, or 86.1% of revenue in both years. The filing reports operating cash flow of €10.5bn including discontinued operations; continuing-operations operating cash flow was €10.8bn. Industrial capital expenditures were €8.4bn. Available liquidity includes €7.6bn of undrawn committed credit lines. Total equity was €28.7bn, up from €24.9bn.

Material changes versus the prior year

• Revenue declined 2%, while combined vehicle shipments fell 9% to 4.4 million, including joint ventures. Lower shipments in North America and EMEA and a sharp decline in Maserati were partly offset by favorable North American mix and pricing.
• Continuing-operations profit fell 19%. FCA recorded €1.376bn of impairment charges tied mainly to revised European A-segment and Alfa Romeo product plans; the charges were largely excluded from Adjusted EBIT.
• Adjusted EBIT was nearly flat overall, but performance varied substantially: North America increased to €6.7bn, LATAM to €0.5bn, and APAC’s loss narrowed to €36m. EMEA moved from €406m of Adjusted EBIT to a €6m loss; Maserati moved from €151m of Adjusted EBIT to a €199m loss.
• Net profit included €3.93bn from discontinued operations, principally the €3.77bn gain on the Magneti Marelli sale. The resulting headline net-profit increase does not reflect a comparable improvement in continuing operations.
• Industrial free cash flow decreased from €4.4bn to €2.1bn, primarily because industrial capital expenditures rose from €5.4bn to €8.4bn. The sale of Magneti Marelli generated €5.35bn of net investing cash proceeds.
• FCA paid an ordinary dividend of €0.65 per share and an extraordinary €1.30 per share in 2019. The Board intended to recommend a €0.70 ordinary dividend per common share from 2019 profits, subject to shareholder approval.

Outlook, commentary and risks

• The SEC-filed 20-F states that the separate “2020 Guidance” section was omitted from this filing; it therefore does not provide a clear full-year 2020 earnings outlook. Management expected 2020 capital expenditures of approximately €9.5bn.
• The proposed FCA-PSA merger was subject to shareholder, regulatory and other closing conditions. The agreement provided for PSA shareholders to receive 1.742 shares in the combined company per PSA share. FCA also planned to separate or otherwise restructure its Comau holding after merger completion.
• Management emphasized product renewal, electrification, cost efficiencies and partnerships. FCA expected more than 30 nameplates with electrified powertrains by 2022. It also warned that changes to product plans, regulation or electrification costs could lead to further asset impairment or shorter useful lives.
• Major risks include vehicle-market cyclicality and reliance on profitable North American pickups and SUVs; increasingly stringent emissions and fuel-economy rules; tariffs, raw-material costs and supply disruptions; product recalls and warranty obligations; and execution and integration risks related to the proposed merger.
• FCA continued to face diesel-emissions investigations and litigation in the U.S., Europe and other jurisdictions. The 2018 U.S. diesel settlement accrual was €748m; the company stated that it could not reliably estimate potential losses from certain unresolved investigations and claims. A Dutch authority indicated possible recall action concerning certain diesel vehicles, which FCA was contesting.
• As of the report date, FCA cited coronavirus-related uncertainty, including a temporary production halt at a European plant because of critical-supply disruption and reduced demand in China. The ultimate effects were not yet clear.
• The company reported €4.3bn of underfunding in defined-benefit pension plans in its risk discussion. The auditor issued unqualified opinions on the financial statements and internal controls; management also concluded internal controls were effective.

Important facts for investors to verify

• Separate the €3.77bn Magneti Marelli disposal gain from recurring continuing-operations earnings and cash generation.
• Track merger approvals, final terms, anticipated synergies, transaction costs and any conditions imposed by regulators.
• Review the development and potential financial impact of diesel-emissions matters, product recalls and other legal contingencies.
• Assess whether planned investment—including the stated 2020 capital expenditure—can be funded while maintaining liquidity and improving industrial free cash flow.
• Monitor EMEA and Maserati performance, APAC joint-venture results, and the assumptions supporting asset valuations and deferred tax assets.
• Confirm shareholder approval and payment of the proposed €0.70-per-share ordinary dividend; it was not yet approved at the report date.