Stellantis N.V. Q4 FY2022 Earnings Call

Hello and welcome to the Stellantis Full Year 2022 Results. I will now hand over to our host, Ed Ditmire, Head of Investor Relations, to begin today's conference. Thank you.

Hello, everyone, joining us today as we review Stellantis' full year 2022 results. Earlier today, the presentation material for this call as well as the related press release were posted under the Investor Relations section of the 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 that we might make during today's call are subject to the risks and uncertainties mentioned in the Safe Harbor statement included on page two of today's presentation. As customary, the call will be governed by that language. Now, I would like to hand the call over to Carlos Tavares, CEO of Stellantis.

Thank you, Ed, and welcome to all of you. We really value your time and I would like to thank you for your interest in Stellantis. Let's get started. It's an understatement to say that 2022 has been a challenging year. It has been a year where we saw rising geopolitical tensions, regulatory chaos, supply chain disruptions, strong inflation, and despite all of those headwinds, our company has demonstrated once again that we are resilient, that we are an all-weather company, and that we deliver results. This is a very high-level summary of 2022. I would like to express to each and every Stellantis employee my sincere and very warm consideration, my deep thanks for what they have done for the company. They have demonstrated that they are a great team, they are resilient, they are focused, they have a great business sense, and here we are to celebrate the results they have achieved. I would also like to express my sincere appreciation to our union partners. They have been highly mature, having a perfect understanding of what's going on in the world, understanding that the challenges that are in front of the company right now are external challenges, and because those challenges are external, it's best to align internally to get things done and to execute our strategic plan. I would like to also express to our union partners my sincere appreciation. Last but not least, the Stellantis Board has demonstrated very strong support to management and to the employees, always with demanding questions, yet helping the company to move forward. We are in the second year of Stellantis. It's important that the Board is fully supporting what we are doing, and it is perfectly the case. I would like to thank the Board for their trust and for the autonomy and support that they have given us. Our net revenues were up 18%, our adjusted operating income up 29%, our AOI margin was at a record high with 13%, our net profit was up 26%, our industrial free cash flow up 78%, and our BEV sales growth rate at 41%. These simple numbers demonstrate that we are executing the transformation of Stellantis. We are now in the course of executing the transformation of the company. The results we are achieving today for the second year of Stellantis are an encouragement to accelerate and to go even deeper and faster in the transformation of the company. We had a very strong free cash flow with more than €10 billion, at €10.8 billion, and we are on track to deliver by 2030 the €20 billion that we have committed to in the strategic plan. Our net cash synergies now stand at 7.1%, more than the commitment of 5%, which means that we are ahead of the plan. This merger is a success, not because of us, but because of our employees. They understand that we are better together than on a standalone position. They understand that we have moved from second league car companies to first league mobility tech companies. They are supporting the move, which is, of course, very reassuring for the future. We continue to execute towards 2030, just taking electrification as an example, we currently have 23 electric vehicles on sale, and by the end of this year, we'll have 32. By the end of next year, 2024, we will double what we have today, reaching 47 pure BEVs. Our 41% BEV sales growth rate in Europe represents a significant opportunity as we didn't even start the BEV offensive in the US market, but we are going to begin this year with the Ram ProMaster EV. In Europe, we are the leaders in the LCV market with over 42.7% market share in the LCV BEV market. This demonstrates that the technology of Stellantis in terms of electrification is well appreciated by consumers. The Jeep Avenger, the first-ever pure Jeep EV, has been awarded Car of the Year, which is a strong recognition of our capability and encourages the team to move fast and strongly in this transformation. Looking at North America, we achieved a record margin on the full year at 16.4% AOI margin, a very impressive result, considering supply constraints. The pricing power of our models matches the appeal of what we create, and our creative teams are doing an excellent job to ensure customers are willing to pay for the value we provide. We are the number one in US PHEV sales, particularly with the Wrangler 4xe, and we are benefitting from an environment that supports our positions in the market. In Europe, we achieved a record AOI margin at 9.9%, a significant improvement against last year, making us the number two in BEV sales in the European market. In the next couple of months, we will address some operational issues that have slightly hurt our market share in Europe. We are on track to execute our new retailer distribution model effectively, reinforcing our connections with dealer network associations. As part of our electric vehicle strategy, we are also now producing electric motors in our Trémery plant in France, with the first gigafactory in Europe expected to operate by the second half of 2023. Middle East and Africa is now the most profitable region of our business with a 16.7% margin, having nearly doubled our profit against 2021. We're committed to increasing local sourcing in Africa from 30% to 70% within the course of our plan. In South America, we continue to reinforce our leadership with a significant profit increase of 132%, exceeding €2 billion. Adding to this, our operations in Asia are performing better than company expectations with an AOI improvement from 11% to 14.5%, and we have successfully introduced successful sales models for the Chinese market. Our Jeep brand is performing exceptionally, with the Jeep Avenger gaining the Car of the Year award and with sales expected to ramp up significantly across various markets. For North America, we will also focus on growing the Ram brand internationally and our new product introductions which will enhance our margins and profitability further. We have made strategic decisions to diversify our profit drivers. Currently, 83% of group AOI comes from North America and enlarged Europe but we see growth in South America, Middle East and Africa, as well as Asia and Maserati. The premium brands have also shown impressive performance and profitability increases, which contributes to the overall strength of Stellantis. In terms of our software strategy, we are expanding our software engineering capabilities significantly and have great partnerships with companies like Amazon and Qualcomm. Our commitment is to have a fully electric lineup starting from 2027. We see great opportunities on the horizon, and our significant investments in technology, manufacturing, and partnerships will ensure we continue to grow and evolve. As we look at the financial performance and operational plans, I want to emphasize that while challenges may arise, Stellantis remains committed to our trajectory of innovation and transformation. We will continue to work hard to provide value to our shareholders and build a sustainable, profitable future.

Thank you, Carlos. Now moving to the financial metrics. Our consolidated shipments were down 2% to 5.8 million units, with lower shipments in Europe down 8% year-over-year. In contrast, North America showed improvements. Our combined sales decreased by 11%, with most brands showing lower sales year-over-year. Despite the decrease, our net revenues increased by 18% at €180 billion due to strong pricing discipline, vehicle mix, and positive foreign exchange translation. Adjusted operating income was €23.3 billion, up 29% with a margin of 13%. Our industrial free cash flow reached €10.8 billion, a 78% increase, exceeding our merger target two years in advance, which has further strengthened our balance sheet. We will be paying a total of €4.2 billion in dividends, which is €1.34 per share following shareholder approval. Lastly, we initiated a share buyback program of up to €1.5 billion to be executed in 2023. In terms of capital returns to shareholders, we see this as a reflection of strong cash flow performance. Our focus is on maintaining a robust balance sheet while reminding shareholders of our confidence in the business moving forward. Regarding the guidance, we aim to operate with double-digit AOI margins in 2023 while continuing our plans for capital expenditure and the development of joint ventures for electrification, especially in the US Finco. The total capital and R&D ratio is expected to be around 10%, factoring in the joint venture equity injections as well.

To wrap this up, I believe we are well-positioned to continue our transformation journey. It's vital that we respect our workforce, as they are the core of our company. We have overcome many challenges and are committed to delivering clean, safe, and affordable mobility solutions. I want to assure everyone that despite any current concerns, we are a unified company moving towards a collective goal – achieving our strategic vision. Thank you for your continued support, and we look forward to another strong year ahead.

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