Stellantis N.V. Q4 FY2021 Earnings Call

Hello, and welcome to Stellantis Full Year 2021 Results. I will now hand over to your host, Andrea Bandinelli, Head of Investor Relations to begin today's conference. Thank you.

Thank you, Susan, and welcome to everyone joining us today as we review Stellantis' full year 2021 results. Earlier today, the presentation material for this call as well as the related press release was posted under the Investors section of Stellantis group website. Today, our call is hosted by Carlos Tavares, the company's Chief Executive Officer; and Richard Palmer, the company's Chief Financial Officer. After both, Mr. Tavares and Mr. Palmer present, they will be available to answer questions. Before we begin, I want to point out that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included in Page 2 of today's presentation. And as customary, the call will be governed by that language. Now I would like to hand over to Carlos Tavares, CEO of Stellantis.

Thank you, Andrea, and good morning, good afternoon and good evening to you all. Welcome to this Stellantis 2021 financial results announcement session. Richard Palmer and I are delighted to host you today. It is our privilege to present to you some highlights and a few comments about this year's results, 2021 results. Please be aware that we genuinely appreciate your time. We know that your time is very valuable and I would like to thank you for your interest in Stellantis. Indeed, 2021 was a busy year, a year where we had to do three different kinds of tasks. First, in January 2021, we created Stellantis. We had to set up a new business governance structure with nine dedicated committees. We established the top leadership team of this company and we created new organizations up to CEO level including more than 2,500 new assignments in the company. So we started a very busy year in setting a brand-new company called Stellantis. That's point number one. Point number two, we had to tackle all the headwinds that you are aware of, primarily the semiconductor supply shortage, the raw material cost inflation and more stringent CO2 regulations. Those were the headwinds that we faced. And point number three, we spent a significant amount of time working with our cross-functional teams on long-term initiatives that I will be presenting to you on March 1, meaning next week, to describe what our long-term strategic plan is and what initiatives we are going to undertake over the next few years. These three layers of activities represented a substantial workload for our teams and our employees, and I would like to take this opportunity to sincerely thank them all for their efforts. I greatly appreciate what they have accomplished, and I congratulate them for the results you already know. As you are aware, the results for 2021 were encouraging, with nearly double the operating income and triple the net income compared to last year. A record operating income margin of 11.8% and also quite rewarding €6.1 billion of positive free cash flow. Those are the results you are familiar with. What I would like to do now is, together with Richard, to comment on some of these results so that you can understand how we, as an organization, were able to achieve these numbers. Beyond the record 11.8% adjusted margin, it’s noteworthy that in the second half of the year, we performed even slightly better with 12.2%, which indicates a lot about the initiatives taken within the company. It is also worth mentioning that we finished this year with a breakeven point that is below 50%, which is an important guideline for how we manage the company. Furthermore, the €6.1 billion of industrial free cash flow was significantly supported by a very high level of cash synergies, no less than €3.2 billion, which is consistent with what we committed to the market: that the merger would generate an annual run rate of €5 billion, representing €25 billion in value creation as a result of this merger. This initial result of €3.2 billion shows that we are on target to fulfill our commitments. I hope this doesn’t come as a surprise; it aligns with our management pattern. We also showed that our low-emission vehicle sales grew significantly by 160% year-over-year, reaching 388,000 units in '21. We are accelerating our LEV sales, which is excellent news as we anticipate future developments in our operating markets. We were again, and I would say even more so, the leaders of the LCV market in Europe and South America, with respective market shares of 33.7% and 30.9%. We are strong leaders with a robust product plan, as you will see later with comprehensive market coverage, not just in our vehicles but also in powertrains. Lastly, as you know, we were pleased to present our Electrification Day in July, highlighting our electrification journey during Capital Day, and in December, we detailed our software plans to illustrate two of the most important pillars framing our long-term strategic plan. Additionally, in 2021, we established several partnerships with highly technological entities to accelerate our transformation from a legacy carmaker to an automotive tech company, which is our current focus. These are just some of the highlights I wanted to share. And once again, I would like to express my gratitude to our employees, our management team, our top leadership team, our investors, the media, and our Board members for all the support we received during this critical first year of Stellantis, which yielded record results. I hope this is what you take away from my presentation. You will also see in this slide that we are going to bring Maserati back to racing. It is a significant opportunity for our company, as this is Stellantis' unique luxury brand. We will electrify this brand and return Maserati to the world e-formula for the e-Championship, emphasizing the strategic direction we are taking for this luxury brand. Let's move to the next item and comment on the regions. We will start with North America, the most profitable region of the company, with a record 16.3% AOI margin. This reflects how our North American team is mastering the business model in this region. They capitalized on market conditions effectively, as demonstrated by our achieving the highest U.S. retail average transaction price among the Detroit 3 OEMs, with a significant improvement of 20% year-over-year, reaching no less than $47,000 per car. This remarkable result highlights the proficiency of our North American teams. We have entered into at least two separate MOUs for battery joint ventures with South Korean partners to bring the appropriate level of battery supply to the North American market, no less than 63 gigawatt hours by 2025. This is strategically important to secure the profitable growth of our electrified vehicles in the near future. We can also show that we have launched very successful products, beginning with two white-space products like the Jeep Grand Cherokee long version and the Wagoneer brand. These are profitable white-space products that we've launched, and we expect them to contribute significantly to our North American operations. Our all-new Jeep Wrangler 4xe is now the number one selling PHEV in U.S. retail, showcasing that the Jeep brand is making the right decisions at the right time, demonstrating our competitiveness in the market with the leading position in PHEV for U.S. retail. It is noteworthy that the Jeep brand is on course to utilize the successful electrified technology of our company. Furthermore, in the highly profitable pickup truck market, we achieved the best-ever U.S. commercial fleet market share at 18.7%, representing an improvement of 340 basis points year-over-year. So as you can see, North America delivered record profitability along with significant sales and achievements. Strong strategic agreements support electrification in the short term, and we've achieved the best average transaction pricing against the Detroit 3 in the marketplace. Moving to the next region, Europe has demonstrated robust profitability with an AOI margin of 9.1% for the full year, reaching 9.4% in the second half as a result of efficiency initiatives we’ve introduced. Stellantis is now fully compliant with CO2 standards, being able to embrace the entire scope of our iconic brand portfolio while delivering good results at 110.6 grams per kilometer. This performance is slightly better than anticipated, showcasing that we are, most likely, among the leaders, if not the front-runner in CO2 emission reduction in the European market, which is part of our DNA. In Eurasia, we grew our market share to 1.6%, a 50 basis point year-over-year increase. I am sure some of you will have questions about this, so I will bypass that for now. In the European market, our market share remained stable at 22.1%. Some of our Western competitors lost market share, while some Asian competitors gained; however, Stellantis remained stable with a 22.1% market share, which puts us in the number two position in the European market. We have also made significant improvements and progress in our LEV sales mix in Europe, moving from a 9% sales mix to 18.1% sales mix in one year. This rapid progress indicates that we are stepping up our capabilities to sell LEVs, which is positive, given that the industry is shifting towards LEV technology. Furthermore, we have completely reengineered our distribution model. In fact, we are currently in constructive and encouraging discussions with our dealer network associations to adapt our distribution model to enhance customer experience with our company and brands, while simultaneously reducing distribution costs to facilitate the electrification of our portfolio. That summarizes the European situation. If we shift focus to South America, it is performing excellently, leading Latin America for Stellantis. We are number one in Brazil and Argentina with respective market shares of 22.9%, 32.0%, and 29.1%. We are the clear market leader in Latin American markets, which is excellent because we are also improving profitability significantly, having multiplied our profit fivefold with an AOI margin of 8.3%, far exceeding our previous capabilities in this region. Meanwhile, Fiat maintains its place as the number one selling brand in South America and Brazil, owing largely to the success of the Strada as a top-selling vehicle. South America represents leadership, increased market share, higher profitability, and the top-selling brand as Fiat enjoys big success. Now for the Middle East and Africa, we achieved a rewarding double-digit AOI margin of 10.5%, nearly doubling from the previous year. We recognize potential to grow market share in several major markets, although we faced some headwinds in Egypt and Turkey. Nevertheless, we have seen significant growth in other markets. Currently, we are introducing from Morocco the Opel Rocks-e, an urban mobility solution enjoying success under the Citroën brand and the Citroën Ami series, including the Ami Cargo, which is the LCV variant. Production is growing for these models, and they are proving profitable, showing strong potential to continue thriving in this urban mobility sector. In China and India, as well as the Asia Pacific region, we also see rewarding performance with AOI margins over 11%, alongside net revenue growth of 24%. We have finalized our agreement with GAC to create a Stellantis Jeep joint venture, which we will control in China to complement the profitable Jeep CBU business with some CKD elements from this JV. Despite some communication bumps, the deal is inked and we anticipate approval soon from the Chinese authorities so we can move forward. Lastly, in India, the all-new Citroën C3, designed in India for global markets, is competitively priced with an attractive design. We expect to launch it in H1 2022, significantly enhancing our capability to supply high-value and affordable products to various markets. That's the situational update on the regions. Let us now turn our attention to the various brands, starting with Jeep, our global SUV brand. We have a remarkable list of achievements for this brand. First, it’s essential to remember that Jeep represents freedom. The branding strongly emphasizes our positioning in the marketplace globally. Pricing power remains strong, either exceeding the benchmark or being very close. In 2021, we launched the Compass, the Renegade, and the Wrangler 4xe variations across four regions, marking the electrification of the Jeep brand as a reality. In the European market, the Jeep brand achieved a 25% LEV mix, significantly pulling up Stellantis' overall LEV mix of 18%. This trend demonstrates the increased customer expectations from us, which we aim to reinforce moving forward. We also note that the Grand Cherokee achieved the highest U.S. sales since 2000. Moreover, the Jeep brand led the SUV market in South America with a 14.1% segment share in 2021, and we recorded the highest-ever sales for the Jeep Wrangler in the Middle East in '21. These accomplishments highlight the brand's robust performance in terms of sales, marketing, and electrification. Notably, the Jeep brand is prospering not just in the U.S. but also in China and globally, showcasing its potential for profitable growth within our company. Now, shifting to the American brands, we are preparing for the rebound of Chrysler with exciting new products in the design process. Chrysler has announced that it will transition to a 100% BEV lineup by 2028. The pricing power is strong, with the Pacifica achieving record U.S. sales for this brand due to its PHEV variation. Ram is a considerable success story with the best full-size pickup market share ever in the United States, at an impressive 26.2% share in 2021, reflecting growing share and profits. The products are highly appealing, generating a significant amount of excitement among customers. The Ram 1500 recorded the highest average transaction price in the U.S. at $51,000 per unit in 2021, demonstrating our capability to leverage the market condition effectively. The Dodge brand experienced high customer satisfaction with the Challenger being the number one selling muscle car in the U.S. with 54,000 units sold in 2021, alongside a favorable pricing power, standing seven points ahead of the benchmark. Both the Charger and Challenger achieved the highest-ever market share in the full-size sedan segment, surpassing 50% in 2021. While these figures are impressive, we are equally excited about the electrification of the Dodge brand, which promises to enhance the experiences of its fans through the introduction of the American e-muscle car. Moving to the upper mainstream European brands, our German brand, Opel, saw increased market shares in Europe and Germany, with shares reaching 4.3% and 6.2% respectively. The Mokka-e model received the Golden Steering Wheel in 2021 as the best car under $25,000, recognized for its attractive design and performance. Opel's pricing power remains at benchmark levels. Notably, in their respective segments, Corsa ranked first in sales in Germany and the UK with shares of 16.5% and 15.1%, respectively. The Corsa showcases the high appeal, quality, and performance we offer to customers. Peugeot has also thrived, with the 208 becoming the number one selling vehicle in Europe and the 2008 ranking as the top B-SUV in Europe, demonstrating a superior package in terms of design, appeal, performance, reliability, and quality. Additionally, Peugeot has risen to become the number one brand in France, marking a significant achievement after many years. Globally, Peugeot's sales rose by 5%. Its pricing power stands above the benchmark. The Euro 30 LEV orders are increasing, indicating that Peugeot's total LEV market share soon will surpass its overall brand market share in Europe. This is rewarding as Peugeot moves swiftly into the electrification sector without neglecting the successful launch of the new Peugeot 308 that is attracting many customers due to its appealing and aggressive design. Next, let's discuss our core brands, Citroën and Fiat. Citroën has prospered significantly, with the C4 hatchback emerging as the top-selling vehicle in France and Spain in '21, coupled with its BEV variations experiencing a fourfold increase, particularly the EC4, which holds an 8.7% share in its BEV segment. Citroën is seeing rising shares in South America, with strong pricing power in response to market demands. Fiat has demonstrated leadership with remarkable results, emerging as the market leader in Brazil, Italy, and Turkey, achieving an overall 13.9% market share in South America, claiming the top brand position for 2021. The 500e has become the number one selling BEV in 12 countries in the A segment, solidifying Fiat's electrification journey. The brand's pricing power remains ahead of the benchmark, with a commitment to achieving a 100% BEV portfolio by 2027 in Europe, ensuring we have the necessary EV products to maintain a strong position in various markets. Moving forward, let's address the light commercial vehicle (LCV) business, which is highly profitable, leading Europe with a 33.7% market share, as well as South America with a 30.9% market share. We’ve sold 1.9 million LCVs globally, highlighting the significance of this sector for our operations. We are preparing to launch the all-new ProMaster BEV RAM van in 2023, with Amazon as our first commercial customer. We have demonstrated our ability to create a well-suited van for the logistical needs of our clients, augmented by the implementation of an EV powertrain in the U.S. in 2023. Additionally, we are leading the BEV sales position in Europe for vans, indicative of our thriving position in this segment. Moreover, we celebrated our best-ever pickup sales in 2021, with over 1 million units sold, showcasing our competitiveness across all sizes—compact, midsize, and full-size trucks. The merger has allowed us to launch the new Fiat Scudo and Fiat Ulysse as variations of our other vans, increasing competitiveness and profit for Stellantis. In December 2021, we delivered our first hydrogen fuel cell technology vans to customers, increasing production capacity and orders; more updates will follow in the coming weeks. We are focusing on establishing technological leadership in the LCV sector and I commend our teams for achieving these milestones. Let's move to premium brands. The Alfa Romeo brand CEO committed to a 100% BEV portfolio starting in 2027, and he has successfully brought the brand to profitability in 2021. The pricing remains at the benchmark level and the launch of the Alfa Romeo Tonale will occur in 2022, marking the beginning of the brand's electrification journey, which holds significant potential for profitable growth. Regarding Lancia, we are preparing for its revival with a promise of being 100% electrified by 2024, and by 2026, all launches will be BEV. Pricing power currently sits at -20% against the benchmark, signifying a significant opportunity for improvement in the future. The Lancia brand is set to become a substantial profit driver moving forward. Congratulations to the Lancia teams for the continued success of the Lancia Ypsilon, as it remains the number one selling car in Italy within the B segment, boasting a 6.3% share in 2021. Finally, we conclude with the DS brand, our unique French premium brand, which will adopt a 100% BEV launch strategy from 2024. Pricing power is better than the benchmark, and the brand achieved the second-best LEV sales mix in the premium sector, with a remarkable share of 37% for 2021. To summarize, I would like to focus now on the Maserati brand, Stellantis' luxury brand. Our primary achievement is returning the brand to profitability with a 5% AOI margin in '21. Our goal is to elevate Maserati's profitability to mid-term levels above 15% AOI margin, which indicates substantial potential for enhancement. Notably, the Maserati team raised sales by 41%, expanding the market share in North America and China while simultaneously improving profitability—an excellent showcase of value creation for the company. We are committed to high-quality standards, ensuring that all new models meet strict quality criteria, which is why we decided to delay the launch of the Grecale to ensure perfection. We have extensively tested the model, which will be unveiled in March '22, with deliveries to start by mid-2022. The all-new Grecale marks a pivotal point for Maserati. We plan to integrate Maserati into the world formula E championship in 2023, showcasing our commitment to competition and electrification within this luxury brand space. In 2023, we will also bring the all-new Gran Turismo to the market. Currently, it is on track for completion, and we believe it will amaze customers when we ensure its quality meets our high standards for release. Maserati represents the start of an exciting journey with increased sales, market share, profits, quality enhancements, and competitive spirit. That covers our brand strategy; let us shift now to services. The mobility business continues to expand. The growth is evident and our numbers remain healthy. It's crucial to us that our growth does not come at the expense of financial health, a rarity amongst our competitors in the service industry. Free to move is now experiencing growth of 38%, while maintaining profitability as we continue to expand into more U.S. cities offering this mobility service. Long-term rental originations have grown by 15%; lease growth is even more impressive at 45%, driven primarily by B2C demands. Growth remains strong across both Free to Move and leasing segments, both of which are profitable. Pressure is increasing for electric mobility, with LEV mix growing daily, not just in lease sales, but in short and midterm rentals as well. We've made acquisitions in our mobility ecosystem to accelerate our growth within this space. We've identified a path to maintain profitability while increasing our presence in these areas, allowing us to see a brighter future. I'm very pleased with our direction, and we will continue on this trajectory to achieve better results in our mobility service activities. Now let's address our affiliations, which include three major businesses. First is financial services; we've successfully formed Stellantis U.S. Financial Services from an existing acquisition. This entity will foster our sales, and we anticipate observing benefits from this strategic move starting next year. We are also establishing a dedicated multi-brand leasing company in Europe, which will launch at the beginning of 2023. This presents exceptional potential when compared to our peers, which is something we're very excited to develop as quickly as we can, working in partnership with Crédit Agricole. We are achieving record profitability in this segment, reaching no less than €662 million in '21, a testament to our financial teams' expertise and dedication—congratulations to them. Regarding our pre-owned vehicle business, improvement in the business model is apparent due to favorable market conditions. We accomplished this without just focusing on top-line growth; we also successfully reduced logistics costs by 40% through multiple synergies arising from the merger. Aramis Group experienced a highly successful IPO, resulting in a company valuation of €1.9 billion, given that our initial investment was minimal. We will continue to grow our pre-owned vehicle brand, Spoticar, across various countries, having just launched operations in Turkey, a significant market for us. In parts and service, we experienced double-digit sales growth, notably fueled by the independent aftermarket business, which rose by 25%, and the circular economy, which increased by 40%. As a result of merging three entities we acquired in the past, we created the fourth largest IAM distributor in China, witnessing a growth of 30%, although it is not a large number; it remains in the black as we grow in China. We have designated Mopar as the brand to sell OEM parts as required to partners, which will provide substantial profit for Stellantis. Through this overview, it's clear that our various segments are growing profitably and contributing positively to the solid results you observed earlier. Now, let's delve into electrification, as I understand this is a highly relevant topic for you. Currently, we are selling 34 LEVs across the markets in which we operate, including 19 BEVs. By the end of '23, we plan to add 13 additional BEVs to our existing 19, which would result in a total of 32 BEVs on sale, comprising roughly a third of Stellantis' entire model portfolio—a significant achievement for our engineering, purchasing, and manufacturing teams. I commend them for their efforts. It's important that you remember these facts: Currently, we are selling 19 BEVs, and over the next couple of years, we are set to add many more to our offerings. With our strong lineup of brands, Stellantis possesses the capability to launch new technologies and cover substantial profit pools in the markets we serve. Please bear in mind the anticipated 32 BEVs coming to the market soon, alongside the currently available 19. I want to clarify this information following the feedback we received after the EV Capital Day. Our objective is to provide more transparency and clarity regarding our planned BEV launches. Moving forward, let's talk numbers, focusing on financials. I’ll happily hand over to our CFO, Richard Palmer. Richard?

Thank you very much, Carlos. To remind everyone, due to the merger, the numbers we will focus on today represent the pro forma data for 2021 and 2020. Effectively, this means they’re prepared as if the merger had occurred on January 1, 2020, which includes FCA's numbers in the 2020 comparatives and the initial 16 days of 2021 for FCA in the 2021 numbers, adjusted for PPA (Purchase Price Accounting). Now, moving to the main financial metrics: consolidated shipments increased by 4% to 5.9 million units, with the impact of unfilled semiconductor orders largely offsetting the reduced implications of COVID-19 compared to 2020. Our North American and extended European regions were down 2% and 3%, respectively, while we saw strong growth in South America, China, and the Asia Pacific, along with Maserati and the Middle East and Africa. All brands experienced growth except for Dodge, which was affected by the discontinued Grand Caravan and Journey, as well as Alfa due to brand repositioning alongside discontinued models and Opel Vauxhall. Revenues rose by 14% to €152 billion, primarily due to robust commercial performance driven by pricing and product mix. This strong outcome propelled AOI to nearly double year-over-year, amounting to €18 billion, with margins reaching record levels compared to prior PSA or FCA performance of 11.8%. Industrial free cash flows climbed to €6.1 billion, an increase of 85% year-over-year, largely attributed to strong AOI margins and synergies. Consequently, our industrial net financial position improved to €19.1 billion of net cash, with industrial liquidity at year-end close to €63 billion, of which €12.7 billion relates to the undrawn RCF and committed credit lines. On Page 20, we detail additional aspects of the P&L. The first half of 2021 recorded unusual charges of €1.1 billion arising from inventory fair value adjustments for PPA of €0.5 billion, restructuring charges of €0.7 billion, and gains from the resolution of tax matters in South America of €0.2 billion. For the full year, total unusual charges amounted to €2.7 billion, which include an extra €1.6 billion in H2 due to further restructuring, accounting changes for certain warranties, and asset impairments. Financial charges for the year reached €746 million, reflecting an 11% increase versus 2020, primarily due to lower levels of interest capitalization on investments in progress and reduced yields on cash balances. Full-year tax expense was €1.9 billion with an effective tax rate of 13%, including deferred tax assets acknowledged for tax loss carryforwards of around €1.4 billion. Excluding this one-off DTA and some smaller tax adjustments, the normalized ETR would have been around 23%. Consequently, the net profit for the year, as Carlos mentioned, nearly tripled to €13.4 billion. In Page 21, we explore the revenue growth drivers for the year, resulting in a 14% increase, or 16% when excluding negative FX effects, mostly attributable to the U.S. dollar against the euro, the real versus the euro, and the Turkish lira. Full-year volumes climbed by 207,000 units, significantly benefitting from South America, China, India, Asia Pacific, MEA, and Maserati, offsetting declines in North America and extended Europe. Net pricing remained robust throughout the year, with all segments performing positively, especially in North America, South America, and EMEA. Vehicle line mix was strong, led by North America at 65% and extended Europe at 30%. Moving to Page 22, we focus on AOI development, stating that volumes increased by around 200,000 units, or 4%, despite facing significant production losses due to chip shortages. In this context, we prioritized margin maximization, with commercial teams achieving a net price increase of around 6.5% group-wide, with positive results in all regions. Vehicle line mix was particularly strong in North America, where we focused on key new products like the Grand Cherokee and Grand Wagoneer while managing production to prioritize higher-margin vehicles, notably Ram. These top-line strategies mitigated the effects of raw material inflation—around €2.25 billion—for the year, alongside industrial inefficiencies stemming from the stop-go nature of 2021 caused by chip shortages and other pressures. SG&A remained flat due to synergies from indirect purchasing and media buying, while R&D expenses surged mainly due to new product launches, which elevated depreciation and amortization and increased spending. The resulting AOI margin of 11.8% represents a 70% increase year-over-year. Turning to regional performance on Page 23, North America had a record performance for the year, attaining margins of 16.3%, with H2 at 16.4%. Industry volumes reached 18 million vehicles, reflecting a 4% increase, while our sales dipped by 3% at 2 million units, primarily due to a 13% decline in the U.S. fleet market and a 40% decrease in the Canadian fleet, influenced by supply constraints and the discontinuation of the Dodge Journey and Grand Caravan. Our North American market share fell from 11.8% to 11.1%. Shipments decreased to 1.8 million units, down 2% year-over-year, with Dodge down by 30%, Jeep down by 5%, and Ram up by 16%. Revenues surged 15% to nearly €70 billion, bolstered by a net price increase and strong product mix from Ram and increased volumes from the Grand Cherokee and Grand Wagoneer. However, industrial costs were negatively affected by raw material inflation, logistics challenges, and additional efficiencies linked to chip shortages, while R&D increases stemmed from the amortization of program costs for new model launches. Page 24 highlights our South American performance, where we reached 812,000 vehicle sales against an industry increase of 14%, leading to a 3.8 percentage point share gain to 22.9%. In Brazil, our share reached 32%, while in Argentina, it hit 29%. Our overall sales jumped 37%, with Fiat brand up 34%, Jeep at 35%, Peugeot increasing by 56%, and Citroën by 40%. Shipments surged by 48% to 830,000 units, resulting in revenues rising 71% to over €10 billion, boosted by positive net pricing offsetting inflation in industrial costs. This strong performance translated to a fivefold increase in AOI to €882 million, with margins at 8.3% for the year. In extended Europe, the figures presented on Page 25 showed a stable Stellantis EU share at 22.1% in a flat 2021 industry. However, H2 market share declined compared to H1 due to ongoing focus on improving price/mix and an approximate 40% reduction in total stock levels across the year. H2 AOI increased by 76% to €5.4 billion, with margins at 9.7%, up from 2.4% in the prior year. Shipments decreased by 3% as semiconductor availability affected high-volume brands, but newly launched models such as the Opel Mokka, Citroën C4, and Fiat 500 achieved favorable performance. Even with declining shipments, revenues rose by 5%, primarily due to improved pricing and mix driven by higher lead volumes, more than doubling throughout the year. Costs were well managed, with raw material inflation offset by purchasing savings, leading to improved margins in parts and service and used car profitability. Page 26 examines the Middle East and Africa, where we achieved double-digit AOI margins, with profit increasing by over 80% to €545 million. The region witnessed a 19% industry growth, with all major markets performing well except Turkey, which declined by 5%. Our regional market share dropped to 11.9% from 13.6% in the previous year, though sales still rose by 4% to 412,000 units. Consolidated shipments increased by 6%, while positive pricing counteracted significant negative FX impacts from the Turkish lira, causing revenues to increase by 9%. On Page 27, our focus shifts to China, India, and the Asia Pacific, where consolidated shipments grew by 26%. In China, they increased by 17%, while India and Asia Pacific saw a 28% rise. The Jeep brand's performance improved by 30%, constituting approximately 50% of the 120,000 shipments, while Peugeot also rose by 30% to 30,000 units. Revenues reflected shipment growth, nearing €4 billion for the year, with enhanced mix strategies and pricing alleviating negative FX impacts to improve margins to 11.1% and nearly double AOI, which reached €442 million. Regarding Maserati, as highlighted, sales rose by 41%, totaling 24,000 units, marked by a 20% sales increase in Europe and over 40% in China and the U.S. Improved pricing and residual values contributed positively alongside improved volumes, yielding Maserati AOI at €103 million with margins of 5.1%. Page 28 shows that industrial free cash flow reached €6.1 billion for the year, despite a slow start in H1 due to net working capital and provisions, which concluded the year at negative €2.9 billion, though showing a €2.8 billion improvement from H1 results. H2 industrial free cash flow hit €7.2 billion. Analyzing the cash flow elements, AOI before D&A rose to an impressive margin of 15.7%, enhancing from a strong H1 of 15.3%. CapEx and R&D capitalization totaled €10.2 billion out of the €10.9 billion in investments, which included the acquisition of the U.S. Finco and other equity injections into joint ventures. Total CapEx and R&D expenses represented €13 billion, or 8.6% of revenues. Negative working capital arose from lower year-on-year payables. By November and December, production reached 1.04 million cars, down over 100,000 units year-over-year, a situation exacerbated by underperforming inventory levels. Changes in provisions stemmed from reductions in dealer inventories. Page 29 captures our continued operation at historically low inventory levels, reflecting a total inventory drop of 37% over the year. Dealer inventory mirrored this reduction, enabling sustained sales performance via increased turn rates despite chip shortages. The last slide showcases our industry outlook, projecting moderate growth in key regions, heavily reliant on supply disruptions. Regarding AOI margins, we expect to sustain double-digit margins while mitigating headwinds in 2022, including ongoing semiconductor scarcity, supply chain constraints linked to labor costs and absenteeism—especially in North America—and raw material inflation of around €4 billion year-over-year, up from €2.25 billion in 2021. Industrial free cash flow is projected to be positive, allowing us to continue investing 8% to 9% of revenues in CapEx and R&D, enabling numerous LEV and BEV launches mentioned earlier. Thank you for your attention, and I will now turn the call back to Carlos.

Thank you, Richard, for this detailed presentation. To summarize this initial segment before transitioning into Q&A, I want to highlight a few crucial points. First, in 2021, we were fortunate that our company enjoyed significant diversity, built from various auto companies with different brands and home bases. This diversity serves as a distinct advantage for Stellantis. More importantly, this diversity provides an exciting journey for the entire team. We see this through the overwhelming number of resumes we receive from individuals eager to join us. Surprisingly, many applicants come from tech companies, motivated by the prospect of change, building new products, and embarking on an exciting team journey. The diversity we have has greatly contributed to our success in 2021. Secondly, our dedicated employees understand the rationale behind our merger. They resonate with how Stellantis represents genuine value from a scale and diversity perspective, reflected in the €3.2 billion worth of synergies we accomplished in 2021. The level of bottom-up support is evident, showing that our workforce comprehensively understands the mission of this merger. This accelerated rate of synergies indicates strong intuition from our teams and a robust trajectory for profitability in 2021. Lastly, as we navigate the transition towards becoming a tech company, the pivotal strategic partnerships established with tech firms will expedite our transformation in electrification and software. I look forward to detailing these strategies during our long-term plans presentation next week, scheduled for March 1. Thank you for your attention and let’s now proceed to your questions.

The first question comes from José Asumendi from JPMorgan.

José from JPMorgan. A couple of questions, please. I'm trying to understand the opportunity to maintain the margins in North America at the current elevated levels. Carlos, can you comment a little bit around the opportunity to maybe sell another 50,000 vans in North America and continue to take market share there? And Richard, could you split the industrial costs in North America between raw material, depreciation, and stop and go? Roughly how much was that across the three buckets? The second question: Carlos, I’d love to get some insight, please. As you think about the business in Europe, clearly, there are two big opportunities. One is to reduce the R&D expenditure of the Fiat brand, and second, to capitalize on the launch of the Doblo on Peugeot platform. Can you comment on those two opportunities? And how can that basically help your earnings development in 2022?

Thank you, José. Thank you for your insightful questions, as always. Let me first address the U.S. situation. What we've observed in 2021 is that we are operating in the U.S. market under what we refer to as a pull model, as a result of the semiconductor supply shortages you understand. Therefore, we have leveraged this situation effectively regarding pricing power, while simultaneously contending with inflations on costs, mainly raw materials. We're in a situation that has moved our operating point upwards, reflecting better transaction pricing as I mentioned in comparison to our Detroit competitors, combined with a concerted effort to mitigate the increase in costs through various strategies. Ultimately, we could deliver record profitability due to efficient pricing and judicious cost management. This specific market condition allows us to master the pull model effectively. Our competitors similarly benefit from this environment, allowing for comparative market analysis through metrics and margins observed. Overall, our North American team has demonstrated exemplary performance. Regarding your last question on LCV, we fully intend to maintain our leadership in LCVs in Europe while boosting performance in the U.S. The deal with Amazon is an excellent representation of our focus on satisfying major customers and providing relevant features. Our ambitions extend beyond merely expanding LCVs to leverage connectivity and features that enhance efficiency in logistics. By introducing zero-emission mobility to fleets and focused strategic launches such as the ProMaster EV—which builds on a successfully electrified model in Europe—we can progress swiftly towards our goals. In summary, we will continue our commitment to enhancing our LCV business while positioning ourselves competitively across trucks and vans globally. Richard?

Thanks, Carlos. Regarding industrial costs, José, I'd identify three significant effects contributing to the €1.7 billion impact in the North American sector. The first one was inflation, approximately €1.1 billion; the second was inefficiencies stemming from stop-go operations, accounting for about €0.4 billion; and lastly, an increase in depreciation and amortization of around €0.2 billion. Therefore, there remains an opportunity for us to further optimize the industrial cost base in North America. It’s noteworthy that the team is very concentrated on improving net performance in North America. The second point regarding profitability stems from our launch of the new Grand Cherokee in H2, as well as the Grand Wagoneer, and with a full cycle planned for 2022, we’re looking at strong product developments that encourage our margins and overall mix in 2022.

The next question comes from the line of Michael Foundoukidis from ODDO.

Michael Foundoukidis from ODDO. Two questions on my side. First one on synergies. Could you give us possibly more color on what you achieved in 2021 and what the primary contributors were? It was an excellent start. In this context, what should we expect for synergies this year before new platforms come online? That’s my first question. And a second question regarding Europe’s profitability: it was strong, and much better than anticipated. This strength can be partially attributed to price mix but also efficiency gains. Could you help us understand the contributing efficiency gains, possibly distributing them across Opel—which likely still presents some synergy gains—FCA portfolio cleanup, and the cost measures were implemented at FCA level?

Two excellent questions, thank you. First, concerning synergies, I would like to maintain transparency both with our investors and ourselves. It is fair to state that the €3.2 billion we achieved is an impressive figure for our first-year assessment. Yet, simultaneously, these results predominantly come from the low-hanging fruits that can be captured rapidly. I anticipate that our pace of progress will moderate moving forward, primarily because executing synergies forms the foundational aspect of Stellantis. We aim to ensure bottom-up synergies that reflect the understanding and commitment of our workforce towards the rationale behind the merger. This ethos underpins my expectations for continued success in this area. We'll see some positive progress, yet it’s prudent to expect a slowdown as we reinforce the foundation of our company. Is there more potential? Absolutely. More information will be shared next week. I’d emphasize that the benefits we reaped this year were a direct result of well-established teamwork, having formed strong human relationships prior to the merger. The diversity we embrace succeeded as a rewarding experience for working with individuals from varied backgrounds. As for your second inquiry regarding improvements in Europe, certainly, there's considerable opportunity for better efficiency, especially within the G&A sector. We noted a strong performance in pricing power, where most brands conducted thorough preparation—resulting in many exceeding or hitting the new market benchmarks. However, within our organization, we have historically accumulated layers from various companies and brands. Discussions with top executives reveal that we are eager to reduce complexity while enhancing speed to market and focusing efforts on quality and marketing. Thus, we see intrinsic opportunities for optimization within G&A dimensions, as well as speed enhancement in product development and execution.

The next question comes from the line of George Galliers from Goldman Sachs.

The first question was really just on 2021. It obviously was an extraordinary performance, and I think people would have struggled to imagine five years ago that you could reach a scenario with a 16% margin in North America and 9% in Europe, especially against some of the historical backdrops. However, some investors feel 2021 was as good as it gets from an industry perspective due to the price mix evolution amid a shortage of vehicles, despite notably low industry volume. Would you classify 2021 as the peak in market conditions? My second question relates to your end-market forecast for 2022. You mentioned seeing most of your main markets growing at around 3%. This estimate appears conservative; could you provide insight into why you project only 3%? Do you anticipate better growth targets internally for your wholesale forecasts?

Those are fantastic questions; let me address those. On North America, I’d like to clarify that we’re not shy about areas we need to improve, whether that be marketing, quality, or costs; we’ve identified various improvements with our North American leadership team. Observing the open framework within our organization allows us to benchmark internal performances effectively. It’s refreshing to see the eagerness to optimize within local teams as we focus on delivering better profitability. While current margins are favorable owing to structural challenges in the offer and demand imbalance, this context can diminish the overall market balance. Hence, it is fair to recognize that conditions are favorable at present. However, it’s essential to note this market is actively cultivated by numerous competitors as well, creating an environment ripe for comparisons. On your second question regarding growth projections, we need to approach our forecasts with humility; we’ve historically not excelled at approximations and have often seen varied results. The size of markets will primarily reflect semiconductor supply dynamics. This situation highlights our belief that market adjustments will gradually improve, albeit slowly; thus, 2022 is unlikely to reflect a return to standard operational levels. In addition to semiconductor challenges, raw material inflation will pose additional hurdles. While we maintain an optimistic outlook for our operational effectiveness, we acknowledge the difficulties and limitations posed by these factors, leading us to a cautious stance regarding market forecasting.

The next question comes from Thomas Besson from Kepler Cheuvreux.

It's Thomas Besson from Kepler Cheuvreux. I have two questions, please. The first is about cash returns. You've generated a significantly stronger amount of cash than initially anticipated in '21. You are proposing to return €3.3 billion via dividends, a bit less than 25% of your earnings. Is it reasonable to think that a buyback may eventually complement dividends in the coming months, especially if your share price remains undervalued? Or would you prefer to discuss this next week? My second question relates to the extraordinary results achieved in 2021. Given your decision to amend your distribution agreements in Europe and to pursue new agreements with suppliers in North America, could you update us on whether you are still pursuing margin improvements while significantly above competition? I understand performance push is a core value, but perhaps you could illuminate what enabled Stellantis to perform better in H2 against direct competitors facing declines, particularly in North America or markets with significant Chinese exposure.

Thank you, Thomas, for your insightful queries. On cash returns, Richard will address the intricacies regarding free cash flow and its implications on capital allocation. As it relates to dividends, we regard cash as belonging to our shareholders. We have solid projects in the pipeline, as you will see next week; provided we maintain a strong liquidity position, there is a basis for returning capital to our shareholders. That's a fair expectation. Now, regarding your second question, we adopt a continuously proactive approach. My decades in the automotive industry have taught me that stopping a push toward improvement translates into regression, and this industry thrives on competitiveness. If we ease our drive, competition will inevitably catch up. The significant challenge remains the electrification cost. It’s forecasted that electrification could increase our total production costs by 40% to 50% compared to conventional vehicles. Transferring that added cost entirely to consumers isn't feasible; doing so would alienate our middle-class customer base. Consequently, we must maintain pricing without sacrificing profitability. To address this, we need to offset this cost increase through efficiency improvements, thus requiring about 10% productivity yearly over the next five years. This is a considerable target compared to the traditional industry performance of 2% to 3%. Our discussions around reductions in distribution costs are aimed at enhancing customer experiences while ensuring profitability for Stellantis in the EV landscape. I appreciate your questions; they're invaluable, and I look forward to providing further context next week. Richard, over to you.

Thank you, Carlos. Addressing your question regarding capital allocations and adjustments, as previously mentioned, we will expand on this during our meeting on March 1. We're pleased to propose a payout in dividends of €3.3 billion, which is congruent with our commitment to shareholders and represents an approximate 25% distribution. We need to round off numbers to pinpoint precise percentages, but this payout should demonstrate our strong fiscal position. As we assess overall capital allocation, we’ll provide comprehensive insights next week.

The next question comes from Philippe Houchois from Jefferies.

I have two questions, please. One for Richard: I noted that your adjustments in 2021 were €1.7 billion in 2020, rising to €2.7 billion last year. I’d like to understand where these adjustments are heading. Some of these adjustments seem difficult to evaluate regarding recurrence, such as warranty valuations. It would be helpful to gain insights into future trends regarding adjustments and visibility on this. The second question, Carlos, you’ve expressed concerns about affordability; you're facing rising electrification costs while the upcoming year might see increases in raw material costs, which logically would push nominal prices upward if margins are to be sustained. With interest rates potentially rising, real values may not improve significantly. Given multiple headwinds constraining affordability, could you elaborate on whether you're taking risks by being firm in your negotiations with suppliers regarding productivity gains?

Philippe, your understanding is spot on for the second topic. Let me tackle that first. The breakdown of production costs today indicates that around 85% of the total cost associated with an automobile consists of suppliers’ parts. This structure reflects decades of business arrangements. Given that we are facing an influx of 40% to 50% additional costs from electrification, our suppliers must significantly contribute to realizing productivity improvements. This expectation is fair since they have benefited from such arrangements for several years. While some suppliers have stepped up and responded positively, others might not, revealing a natural competition in that space. We share a journey with our suppliers during this period of transition, which is essential for both parties. Managing the costs effectively, especially with such a pronounced electrical emphasis, necessitates a concentrated approach to reduce overall expenditure. Our approach to ensuring sustainable profitability during this cost absorption phase includes maintaining a low breakeven point. A low breakeven enables protection against adverse market shifts, and we’re currently positioned favorably with a 30% efficiency advantage relative to peers during our R&D and CapEx expenses. This efficiency combined with strong pricing generally enables us to handle the volatility seen in this competitive marketplace. 2021 serves as a clear reflection of our robust strategies, having reached 6 million vehicles with an untapped potential of exceeding 8 million. We achieved an 11.8% AOI margin; moreover, the €6 billion free cash flow is a testament to fiscal responsibility amidst challenges. With this steady performance, our stature as an all-weather company remains intact, driven largely by our determination to evolve with the market dynamics. I appreciate your pointing out these concerns—ensuring the customer base retains access to affordable products is a priority I recognize as fundamentally important for the social structures within our target markets. Richard, please address the question on adjustments.

Philippe, thank you for your question. We navigated two extraordinary years; summarizing the adjustments: the €1.7 billion from 2020 largely stemmed from COVID-related impacts, whereas the €2.7 billion noted in 2021 saw an increase of noncash items linked to the merger—including PPA noncash items totaling approximately €1.5 billion and additional charges around warranty policy realignment. The traditional restructuring components reflected approximately €0.8 to €0.9 billion last year, alongside improvements expected yielding a decline in noncash charges—a forward-looking estimate could see a continuation of restructuring costs around €0.5 to €1 billion as a transitional measure. However, we do not anticipate future charges would reach levels seen previously.

Thank you, Richard. We have time for one last question, please.

The last question comes from Horst Schneider from Bank of America.

The most important question I have relates to your market cap. I checked again this morning; in 2021, you likely generated an adjusted EBIT similar to that of the Volkswagen Group. Yet your market cap is just 40% of theirs. I note that Volkswagen is likely to engage in financial engineering and asset disposals. How do you assess Stellantis' valuation, and would you consider financial engineering measures to elevate your company valuation? My second question relates to potential market impacts; if transaction prices worsen in the U.S. due to rising incentives, would you be inclined to cut back on volumes or maintain market share despite lower margins? What is your preference?

Those are compelling queries, and I'll respond to them. You might be right in observing that Stellantis currently seems undervalued. I personally believe this presents a good opportunity for investors because I am convinced of the exciting prospects we have ahead, which will be evidenced through our upcoming strategy announcements next week. Currently, Stellantis represents a bargain considering our capabilities and plans; nonetheless, the onus falls on us to communicate effectively about our strategic initiatives. We endeavor to show our long-term plans, spanning electrification and new technologies, hoping to galvanize reinvestments from the market. Addressing your second point regarding operational strategies, while I will refrain from definitive forecasts, our decision matrix will always lean towards safeguarding profitability through smart maneuvering within marketplaces. In scenarios where transaction rates become less favorable, we assess maintaining volumes, but we will also weigh our strategic objectives to ensure long-term sustainability. Each decision pivots around balancing short-term market realities with our larger vision for growth. As we continue to capitalize on the strong operational foundation we've built, I firmly believe Stellantis has everything it requires to navigate both favorable and challenging conditions successfully. Thank you for your questions. As CEO, I am perpetually optimistic about our potential, driven by fundamental realities within the company. Thank you once again for your engaging questions and for the trust you’ve placed in us. I would like to extend my gratitude to every member of our team for the remarkable accomplishments we've achieved in Stellantis’ inaugural year. Thank you all, and I look forward to our next meeting. Goodbye.

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