Q4 2019 Earnings Call

Good adopt can eat all good morning, ladies and gentlemen, and welcome to todays Fiat's Chrysler out somebody else 2019 full year results webcast and conference call.

For your information today's conference.

It's being brickell with it.

At this time I look like now it's time to close friends I like to get about tree, Hi, Doug I see a global Investor Relations.

So that will treat please go ahead sorry.

Thank you Stephanie.

Welcome to everyone who's joining us today as we review ABSSSI.

2019 full year operating results.

The presentation materials for today's call along with the related press release can be found under the Investor section of EPCI age group website.

Our call today will be hosted by the group's Chief Executive Officer, Mike Manley then.

Richard Palmer, the group's Chief Financial Officer.

After their presentations, both Mike and Richard will be available to answer the questions from the sell side analysts.

Well before we begin I just want to point out that any forward looking statements that might be made during today's call are subject to both the risks and uncertainties.

They are laid out in the Safe Harbor statement, which is included on page two of today's presentation.

As is customary to call will be governed by this language.

But that I'm going to turn the call over to Mike.

Thank you John well good morning, good afternoon, everyone and welcome to the goal.

Thank you for joining us today.

Now 2019 was an important here for a company and not only did we delay by what I believe a strong financial results. There was a year during which we took a number of actions designed to position our company for sustainable success in the future.

Therefore today in addition start.

Through the operational highlights for 2009, saying I want to spend some time summarizing a number of other key actions. We took during the year highlighting in some instances a clear progress we have moved in a number there is.

And then others, where we have left today.

And then Richard will take you through the financials in detail.

People going through.

The presentation I'd like to personally thank all of our employees for their own guy contributions during such an important yeah.

The Orlando is hard work dedication is crucial to our continued success.

So I sincerely. Thank you I'm proud to be part of the thing with you.

Now to begin with we're very pleased with affiliate performance as a great delivered strong local.

Actual results in line with our guidance, but adjusted EBIT at 6.7 billion euros, and a margin of 6.2%.

These results were achieved despite the reduction they're not consolidated shipments by approximately 400000 units year over year.

And we took decisive actions to address Steve a stock levels.

Especially in North America, I'm with my Laci, resulting in global dealer stocking levels being reduced by about 100000 units.

North America continues to be a stand out for the group achieving record <unk> results for the fifth consecutive year with adjusted EBIT at 6.7 billion year, rather than a margin of 9.1.

The center.

Ram, which new U.S. I was recorded in 2019 and for the first on became the number two ranks bremse U.S. styles in the highly profitable lots pickup truck segment, reflecting the strength of the Ram brand and consumer passion for our truck line up.

That's right.

The Latin America region, we continue to outpace the industry, leading this is driven by fresh products and industrial disciplines and the team that.

In Brazil, we regained overall market leadership, while retaining a leading position in key segments such as that she these pickups and lcvs.

And despite the continuing challenging market conditions.

In Argentina, we delivered an adjusted EBIT of 500 million euros, and a margin of 5.9%.

[noise] now focusing on Q4 for a moment the group posted record fourth quarter results with adjusted EBIT at 2.1 billion euros and margins at 7.1 person.

No.

America also posted a record adjusted EBIT for the margin of 10% again, reflecting a strong close to the it with the full size truck business.

Now as you know during 2019 degree reinstated the payment ordinary dividends I thought the nearly a decade and based on our strong 2019.

And as previously announced we plan to pay a 1.1 billion euro ordinary dividend to our shareholders. This spring subject to customary approval by our board and shareholders.

[noise]. So now let me give us some context.

That's why I see 2019, it's such a pivotal year for F. CIA and how the actions we have taken any tend to take will ensure a continues position as a leading global OEM.

I clearly the most significant actions taken was in December when we signed a bond in combination agreement with peers I thought 50, 50 merger that will create.

The third largest global alia Bhatt revenues.

Multiple workstreams related to buy close in preparation and integration planning already in place and are being led by senior leadership that both companies and we do not anticipate any significant hurdles to closing the transaction either by the end of this year or early in two.

Twentytwenty warm.

No just to remind you we talk annual synergies of at least 3.7 billion Euro study state with cumulative realized implementation costs of approximately 2.8 billion euro.

And that three major drivers for the synergies the first driver.

Which accounts for 40% relates to platform and powertrain convergence optimizing our investments in R&D and improving manufacturing processes and tooling efficiencies.

The second driver <unk>, 40% is about purchasing savings, where we will leverage our largest go to improve product costs and gain access to new supplies.

Particularly for electric and high Tech components.

Now these actions reinforce our drive towards clean and affordable mother, let's see.

Clean and affordable mobility means that we need to be cost competitive in buying older electrical power train components.

Batteries and that means the volume skyler effect coming from the size of the new car.

We'll be paramount to ensure we deliver the cost competitiveness we made.

And the driver, which accounts for 20% of the total will be we'd like to multiple areas such as marketing lighting systems logistics.

And administration efficiencies.

Now these synergies will be net cash flow positive from year one.

No we expect from a planning to deliver approximately 80% of the total synergies by year full.

[noise] now of course, the great. Other notable actions such as finalizing the style of Magneti Marelli, a night I, which by the way that will be significantly strengthens our balance sheet, but also allowed us to pay a 2 billion euro.

Did it into our shareholders.

In the U.S., we reached a new full year agreement with the like W that builds on our commitment to grow our U.S. manufacturing operations, including a 4.5 billion dollar and investments to expand our production capacity in Michigan and support the production of two new Jeep Whitespace products.

It is there unless you thought versions.

In 2019, we took several other actions the automotive on the page that also strengthened up business are more important setting all future Paul, particularly as we prepare the grade for the changes in mobility needs demanded by regulators and desired by customers.

In Europe.

We launched a new industrial plan centered around electrification, which will optimize platform utilization as well as powertrain applications.

I'm also finalized details for revised product portfolio climbed for out for a bio to improve overall profitability.

I want holiday and be part of the 12, Ralph although different from the original.

Well intentioned now the live at the brand more products.

As far as described segments of the premium market.

On the related note, we also announced it breaks we plan to create new battery Assembly hub inside our historic can be a fairly complex, which will support strategy for the group to be fully equipped to make future demands for an increasing the.

She thought future.

Strengthened on network of partnerships to develop the mobility solutions for electric vehicles by executing agreements with NLX and energy group in Europe. So by the time charging and public charging network solutions.

Now just as we're investing substantially in our future products and.

Colleges, we also need an engineering and product development organization that can deliver on those investments.

With a focus on improving our efficiency and speed to market. While also increasing architecture powertrain and component standardization. We took action late last year to streamline our global product development team by centralizing.

Yes, I'm, bringing together vehicle and powertrain engineering onto a common and global structure.

Finally at the end of last year, we entered into an agreement to sell our cost on components business operated through Texas, which is another important step in implementation about supply business plan and will allow the.

Business to be further developed together with a leading player and the cost on industry.

So as you can see 2019 are they starting a pivotal year on many fronts.

And with many good.

Great accomplishments.

So let me jump to the commercial performance of the business.

Uhhuh market was down year over year in each of our.

And with the exception of than there was essentially flat in North America ourselves performance was in line with the industry as we maintain the market share of 12% from 2009 to.

As I already mentioned the Ram brands achieved its best year ever with sales up in the U.S., 18%.

Year over year basis to other though.

700000 units.

Volume was down in the particularly in the B and the D.S. you'd be segments.

This was because we decided to focus on margin rather than chase volume.

The choice that help underpin our strong north American margins.

That was still highlights with the Jeep brand.

And then the testament to its enduring popularity the Jeep Grand Cherokee achieved record sales in the U.S.. So 243000 units up 8% from last year.

Now we successfully launched the all new Ram heavy duty at the beginning of 2019, which was awarded mode to trend Twentytwenty.

Truck of the on the back of the ramp 1500, winning the previous years Award.

It's also worth noting that combines with the Jeep wrangler styles of the mild hybrid Vsix ran contributions to make an F.C. I the U.S. sales leader in mild hybrids during 2019.

So the U.S.

Sadly the involved hybrids.

And that was enabled by our new 48 volt powertrain technology.

This is actually launch of the on UGI Gladiator, which was 920 20, North American truck of the marked the brands returns that pickup truck market.

And by the way I hope, you'll have a chance to say all groundhog day spot.

We start the G gladiator, notably while the USA today that later for the best started rule that but at last weekend Super Bowl.

Now in Asia Pacific as you know the market continues to be volatile, particularly in China and each of the markets in which we compete with down year over year.

You will know because of our quarterly pools that we have taken a number of actions in the.

Agents to improve our performance and I think when you look at these results you can see.

Some of that work coming through.

And as you will also see we ended up with a substantial year over year improvement in performance across a number of the key leaders in the business.

Well, that's up due to the entire leadership team.

And Greg cooperation nothing with our partners that has moved swiftly to improve efficiency and remove cost.

I think now with their creating is a phenomenal bodies. The job now that we have to do coulters rebuild our volume until the end. We also spent some time with our partner agreeing a revised product plan, which is now under development.

Now as you know rebuilding our volume will not be in it the tiny as a result, but thanks to the work completed last year I think we have a solid efficient base to build on which we intend to do through 2020. So I think given where we ended 2018 the team in Asia Pacific did a very good job for.

Yes.

Now in EMEA ourselves decrease predominantly as a result of two things firstly, the discontinuance of the Sip on to Alfa Romeo meets our uncertain Julietta models and secondly, we've spoken about this in the past we stopped central there. Okay registrations, we did that because we believe this.

Action will have long term benefit on our margins on our residual values, which we are not customers will benefit from.

Now we've told you on occasion about EMEA, but I would like to the specific about the combinations of actions taken and underway to return the region sustainable profitability.

Now during the year and near team took a number of.

Actions to restructure our business streamlining head count and really moving significant costs from the region. They also exited from unrestricted volume to a number of very low margin channels.

Obviously, it's the volume drop that get the headline not the strategy.

So this headcount cost and channel restructure.

It was necessary.

But as you can see from the results are still work to do and it is frankly very much underway now one key area that we need to address is on the product from.

So what we see as a group we continue to prioritize our capital resources met such over the last few years, we needed to complete key investments in other regions and brands.

As a result is at or near region, not only of the oldest show room in Europe.

So effectively exited the important be segment, where she is traditionally had great success and clearly this is held back our team's ability to generate volume and margin.

This is now being addressed as you know we announced significant.

Again investments in Ontario manufacturing footprint with key new products.

As these new models come on stream over the next few years, we'll see if they're just progressive reduction in the average age of are shown on the consequential improvement in performance.

This process starts this year with the launch of the old U 500, and the plug.

In hybrid versions of Compass and running right.

Clearly the majority of sales has the potential to accelerate.

This European transformation.

A lot a good work done by the team obviously much more to do but I said, it's similar to Asia Pacific, creating a very efficient low cost base.

Is fundamental to be able to build sustainable business.

Now moving on to Latin America, Ariad, another market, leading performance with lifestyles and market share up year over year, primarily driven by strong styles or the Jeep renegade, 20%, 28% year idea welfare taught a slot a pickup trucks were up 12% and.

From seven respectively.

No as I previously mentioned Richard will tell you through the details of the financials.

So I'm just kind of quickly give you another view of our on annual results.

<unk> strong operating results in high margin things, the posted net pricing and mix cost discipline and industrial efficiencies notwithstanding that our consolidated.

Those were down approximately 400000 units.

We also generated strong industrial free cash flows a 2.1 billion euros and includes Capex spending of 8.4 bid in Europe, which was up significantly from the unusually low level in 2000 and I'd say.

Our liquidity remains strong and increased by 2 billion year I would suggest.

So the 23 billion at the end of the.

And lastly in Q4, Moody's improved his outlook unless you guys credit writing some state with a positive and that's an pay plays that she has ratings on credit watch with positive implications.

And with that I want to add over to you that chose to take everyone through the detail.

Thank you.

Okay.

Good afternoon, and good morning to everybody.

I'm going to go to page five.

In terms all.

So we reached 100 million euro four.

2% or 5% or constant exchange with positive mix.

Pricing offsetting for around 3%.

Adjusted EBIT was substantially flat year over year at 6.7 billion with margin upside to 6.2%.

Adjusted diluted EPS was too to 74.

9% from 2018 due to an increase in.

From 17% to 24%.

I will repeat of tax planning on pension contributions in 2018.

Increase U.S.P. Beattie offsetting losses, who are no d. so were booked.

So charges were reduced by 50 million to 1 billion for the year.

Adjusted.

EBIT margin for Q4, but at 7.1% up from 6.2% in 2019 totaled 2.1 billion euros.

Adjusted net profit for the year.

Excludes 1.6 million of adjustments relating mainly to the impairment charges taken in Q3 and restructuring charges up from.

The adjustments in 2018 1.4 billion, which included the accrual for the U.S. diesel matter.

As Mike mentioned industrial free cash flow for the reached 2.1 billion euros.

And your variable liquidity of 2 billion from last year to 23.1 billion. This liquidity increase was driven by the five point.

You are proceeds from their body sale lets the opening 4 billion Oh gosh Deconsolidated. That's the dividends of 3.1 billion on 2.7 billion of debt repayments, but positive FX translation of 0.2 billion and then the cash flow.

In Q4 liquidity was.

<unk> point 7 billion due to debt repayments of 1.9 billion offset by the cost below 1.4 1.5 billion.

Just quickly before I leave grateful I wasn't <unk>, Charles or to update you regarding.

The sentiment we reached with the autonomy and revenue agency recall regarding the Italian tax audit issue.

That was reported in the press during December we close the settlement with no cash obligation or penalties do.

Just to make it clear the Italian revenue agency issued an order report, which proposed to increase the it the taxable gain on the trend so probably the U.S. two at the for the purposes.

The merger in 2014 into FC a and B.

We settled that issue under the terms of the taught them when we agreed to increase the taxable gain.

2.5 billion euros.

We will gain will be entirely offset by 400 million of tax losses, which had previously been forfeited.

And 2.1 billion of Italian tax loss carryforwards forwards, which have not been recognized in the financial statements. So as a result, we have no cash impact no financial statement in but apart from the reduction in unrecognized deferred tax assets.

We still have substantially Italian lotto loss tax loss.

Before the remaining after the settlement.

Moving to page six.

When it started the adjusted EBIT development by driver adjust adjusted EBIT was substantially flat that 6.7 billion a margin was up to 6.2.

As we mentioned shipments would.

383000 units that are consolidated level driven by boat sales performance on significant deals start production.

This accounted for a margin loss of about 1.6 billion euros, partly offset by positive mix, mainly in North America, but with all regions contributing.

Industrial costs over all of a slightly.

Got it with North America strongly positive offsetting Amelia and Latin America.

Discipline was evident in S. DNA with all regions, just selling showing significant efficiencies.

The other <unk> the other bar relates principally to positive FX translation offset by lower equity income from our JV.

[noise] moving on to page seven.

Which show the industrial free cash flow for the full year, which reached 2.1 billion down from the prior year due to an increasing capex to 8.4 billion for the year.

Q4 cash flow was 1.5 billion.

And then.

Zero point Seksix billion compared to Q4 18 due to the higher capex offset by seasonal Q4 positive working capital of 1.5 billion due to the reduction in inventory levels in all regions.

Trade payables.

Offsetting negative impacts of the payment of the U.R.W. bonus in the quarter.

For the industrial EBITDA was 11.8 billion slightly down year over year Capex increase back to a more normal level compared to 2018, yeah will impact the working capital and changes in provisions was negative for 0.2 billion with a further reduction in new car inventories on posted payables.

Being partly offset by increased tax receivables in Latin America, and the payment of the way W. bonus as mentioned I was one of the impact it would you still stock levels, mainly in North America, but also in morality under ma'am.

Financial charges on taxes totaled 1 billion down 0.6 billion due to lower cost taxes.

Europe on 5 billion and reduce financial charges will do a point 1 billion.

Net industrial cash and December was positive 4.9 billion euros up for 1.9 billion December 2018, and driven by the free cash flow 2.1 billion them already so proceeds.

Let the dividend payments and also offsetting the impact of offer at six sorry for 16 leaping adoption the 1.4 billion euros.

While we're on the balance sheet I'll comment on our pension plans funded status.

Hi, good pension deficit increased from 4 billion to 4.3 billion a year.

And who they decrease in discount rates in the U.S. of 110 basis points on Canada, 70 basis points, only partially offset by asset returns of 19% in the U.S. and 15% in Canada.

[noise], if we go to page eight we see from us.

Segment perspective, North America had a record with adjusted EBITDA of 6.7 billion and margins at 9.1%. Despite the lower volumes due to continued stock discipline Nothing America confirmed its strong trend of your view improvement despite ongoing economic crisis, Argentina, where the industry drip.

Dropped 43% year over year.

And.

We continue to have operating challenges.

Like increased significantly year over year.

There are the results were impacted by continued efforts to reduce dealer stock.

Moving onto the individual regions on starting with north.

America on page nine.

Shipments for the year were down 9% to 2.4 million units compared to sales down 2% to just on the thought 2.5 million units due to the reduction due to stock already mentioned.

Revenues were up 1% due to positive mix and price on positive FX translation.

And offsetting the shipment reduction.

Adjusted EBIT margin increased from 8.6% last year, the 9.1% this year due to positive mix from the new Ram light duty Gladiator offset partially by high fleet shipments even if the fleet growth was skewed towards commercial fleet for the round light duty.

Classic in particular.

For Q4, adjusted EBIT margin was up from 8.6% last year to 10.0% due to better price performance and cost actions more than offsetting product cost increases.

Net positive positive pricing pricing was driven by the new heavy duty on price actions.

Across the line up offsetting the negative FX, mainly due to the Canadian dollar.

Industrial cost was positive for the year due to reduced logistics on launch costs, plus net purchasing savings offsetting increased product cost again, due mainly to the new Ram heavy duty.

Actually you know any reduction was mainly due to cost.

Actually been DNA and efficiencies.

Advertising spend.

The other category relates mainly to FX translation benefits, but due to the strengthening of the U.S. dollar year over year.

Page time, we see the APAC results.

Combined shipments were down 29.

Present, a 149000 units driven by joint venture shipments down 42% in the joint venture the Grand come onto was flat year over year with Compass, Cherokee and running it all down.

Consolidated level wrangle volume was up offsetting compared to the down in India.

Net revenues for the year, well up slightly to two point.

8 billion euros due to favorable vehicle mix from wrangler, offsetting lower volumes and the Nonrepeat incented moves in 2018 regarding the China import duties changes.

Despite the commercial challenges adjusted EBIT loss with significant you would use compared to 2018.

From nearly 300 million to.

6 million. This was achieved with improved mix as mentioned better management of distribution to avoid one off price actions necessary in 2018 and reductions in manufacturing costs as well as in local as DNA cost duplications removed from the organization and efficiencies in marketing spend refined.

The other category relates mainly to the reduction in the result of the China JV by 50 million, primarily due to lower volumes mentioned.

On page 11, we have the <unk> results combined shipments for the year were down 8% or 108000 units to 1.3 million.

The main reductions were in the.

Yeah, Brian for 75000, and the Alpha brand for 30000 units, 50% of the reduction was due to discontinued fear punto Alamito and versions of the Alpha Juliet though.

Dealer stock levels go down to 239000 units from 259000 at the end of the prior year.

Full year net revenues 20.

3.6 billion euros were down 10%, primarily driven by lower shipment volumes at consolidated level on negative net price.

Adjusted EBIT was nearly breakeven for the year down 400 million from prior year.

Volume was down 119000 units and accounted for 250 million negative offset by some.

Positive mix for lower kilometer zero channels.

Net prices negative due to the increased discounts to maintain the competitiveness of the portfolio industrial cost were negative due to compliance costs.

Hundred 20 million negative FX impacts not offset by efficiencies.

With some positive warranty provision adjustments in Q4.

As DNA reflects restructuring actions on labor and overhead as well as efficiencies on advertising spend.

Moving to page 12, we review the last time results shipments for the year were 570.

7000 units in line with sales at 580000, and down 1% will increase volumes in Brazil, 49000 units offsetting a 46% reduction in Argentina.

Revenues right in half billion up 4% year over year with positive net pricing and mix, partially offset by negative.

FX impact impacts.

Adjusted EBIT increased to 501 million with margins up from 4.4% to 5.9%.

Net price was positive due mainly to indirect tax credits on positive pricing actions in Brazil more than offsetting negative pricing in Argentina.

Industrial costs were.

Dave with industrial cost efficiencies offset by negative customers duties between Argentina, and Brazil, and foreign exchange impacts on imported goods with a weaker we out on the non repeat a price adjustments Q4 performance was good with margins of 5.9%.

So if you just.

Okay. So.

Moving onto the reality I just want to add a few things because I know you're going to take us.

But lines for him as are already but just a few comments from a obviously 2009 teams a choppy for the brand and we've talked about this I think on previous calls.

But I'd like to so I'm very pleased with the worth of the team has now completed and I feel incredibly.

Positive about the future we just run through a couple of things that we did do Mtwenty 19 that I think.

It may not just cause for optimism, but certainly in terms of away and that should actually I think that business just kind of run.

We now have a completely new leadership team with key talent liquid advice from internal and externally.

And the overhead.

All in terms of leadership is now finished everyone is on board and very very focus on what we need to get done.

I showed you on a previous call that we've revised and launch new product plan.

For me was very very important pop off the work that we needed to get done because it gives the brand a strong manageable cadence and new product.

And as well as around Mesrata, you enter into a key white space and as you know it also provides for the ratification options for every model.

A lot of the work that we did resulted in dealer inventory being reduced by 50% very painful, but necessary and now behind us.

By the way I think it is worth noting my.

You may well, we're going to do this for sure, but I will now to fleet is worth noting that without that dealer inventory destock and the residual value adjustment that we took him 29 team as another roughly would have substantially.

Been breakeven.

Now as I think about 2020 in the second half of this year, we began the relaunch of refreshed.

Several models in the range as well as the when you see the sports car.

And because I think a lot of that work I talked about is now completed and the product plan is set I think it's time to share in detail our plans with all of you on the call and in May the Maserati team will host a massive Rossi, Dave So you will be able to say.

I'm very excited about the future of this Brad.

With that if you want to do the formal final.

Covenant like I don't think or whatever Pete.

The same the same message is obviously the the fourth quarter was very much in line with prior quarter performance.

So you'll see the effects of these.

Stocking.

On the on the topline so as Mike mentioned, the 199 million loss for the year.

Effectively reflects the de stocking actions on the residual value impact than we had in North America and talked about in Q2.

And moving onto.

Page.

Scheme, we have our twentytwenty mark outlook and guidance.

I wonder if the outlook for Twentytwenty shows the U.S. market down 3% for Eutwenty, eight down, 3%, Brazil up 5% and China flat. These forecasts the scene there was no.

Prolong the impact from the Corona virus issue on other demand on the global supply chains ability to avoid any disruptions in supply.

Clearly monitoring the evolution of this situation closely.

In terms of our financial guidance, we confirm the guidance we indicated in November on our last call. We had shown at that time, what we saw.

The headwinds and Tailwinds. So twentytwenty. Since then we have to further headwinds, which we want to acknowledge one as mentioned is the potential covenant of hours in but which as of today is not quantifiable.

There was an unusual spike in commodity prices, specifically for palladium of about 40% and rhodium of nearly 100%, which.

Good since December this unforeseen impact takes our overall raw material inflation year over year forecast for Twentytwenty compared to 2019 to around 700 million euros at current market prices.

All of which is basically due to the PGM metals with some offsets.

In steel and aluminum.

Expect to be able to offset this with incremental actions on direct material purchases and other indirect industrial costs together with improved volume and mix from North America and Maserati.

This compares to the the 700 billion I mentioned, the inflation compared to around 500 million.

Raw material inflation in 2019.

As regards cash flow, we forecast positives compared to 2019 for EBITDA on the non repeat of diesel settlement payments and the U.R.W. bonus, which will offset an increase of around 1 billion in capex.

The around 0.4 billion.

And in taxes.

So therefore, we are able to come from a 2 billion euros of industrial free cash flow for the year.

Not included in India, industrial free cash flow, we do plan to make a discretionary pension contribution in the U.S. during twentytwenty in the order of around $1 billion.

Finally regarding Q1 performance as mentioned the key driver of our improved performance forecasting quick twentytwenty relates to the Nonrepeat of North America deal de stocking in 2019.

It's actually did not impact Q1, 19 and was concentrated in Q2. Thank you three therefore, we see Q1 performance.

Broadly in line with Q1 2019, as an adjusted EBIT level with improvements in the following quarters.

Q1, industrial free cash flow is expected to be worth in 2019 due to higher levels of capex.

Recovered later in the air with the non repeat of the diesel settlement payments on the way W. bonus.

With that I'll hand, it back to Mike. Thank you.

Things searches.

Because the other next next page I just wanted to make a few points on a subject that obviously has received a lot of attention over the last several months.

No that we'll continue to receive that level of attention going forward and that it's fair to.

Compliance in Europe that was it an update in the markets on our plans in this area for some time.

We know the regulatory hurdles get much tougher this year and as a result. This has caused a heightened concern by some in the financial community about the ability of certain Oems to meet that moves here two targets.

One of the biggest uncertainties regarding market.

Andres A's and the potential for margin erosion in the event that demand does not naturally materialize.

Obviously, only time will tell how the market actually evolves in 2020 with the there is.

However, I tried to show you with this with this war that we believed that our multi pronged approach will not only allow us to achieve this.

The auto targets this year without paying finds but it also allow us to adapt to evolving market demands. So.

So as you can see all the pooling arrangement. We were entered in entered into it has to last year as part of the path to achieve compliance. It is only a complementary case about all the plan, which includes the launch of full of high voltage JV this year, including the new.

500 that as well as plug in hybrid versions GE compares renegade and Wrangler and in addition, we continue to rollout improvements in so called conventional technologies. For example will further expand the application of our New Jersey engine family into the comparison Tito as well as launch mild hybrid versions of the Panda 500 nips.

And when taken altogether, one along with the 5% compliance exemption allowed this year, we fully expect to achieve an average sale to result for our fleet that is below the expected to compliance talking.

Now I realize running one month into the Navy and a lot can change and probably will change, but based on the data we have.

For January we've started the year with a sales mix in line with our full year compliance plan, obviously, we will see how the progressive and clearly update you in quarterly calls.

I think were.

After a reasonable style and with that Jonathan I'll turn it over to fill Kieran I. Thank you.

Thank you, Mike Stephanie I think.

And open up the Q now for questions.

Thanks.

Yes.

Okay.

Good question.

Okay.

On your kind of thing.

Okay.

Question from.

Julien Piscataway from HSBC.

Line is now open.

Hello. Thank you for taking my question first one on this compliance slide so the led lighting and the high efficiency alternative figure in the first buckets.

Part of the innovation credits can you maybe quantify how much of these individual credits.

You think you'll be able to use didnt glennie.

And just to stay on the slide that does not pulling look smaller than a than we initially thought based on the breakdown that you had given us a couple of quarters ago.

Can you maybe explain what what is changing and and if that does appalling.

And then to increase like anything if anyone.

Yes. It's a this is my thanks to the question on the first one Oh line well I take a long time to answer your second question I'll save my colleagues and get your they answer the first question because I don't care that information around in my head, but what I would tell you is when we talk about the test I wanted specifically to show Europe, because obviously.

There's a big focus but.

We have relationships with Tesla in a similar fashion as you know not just in Europe, but also in the U.S. and the pooling agreement that we've talked about as multi year. It takes us through 2020 and 2021.

In Europe, and obviously in 21, we lose the 5% compliant exemption that we enjoy in twentytwenty.

And takes us through from memory to 2023 in the U.S. So this is the part that we have allocated and understand as our climate based upon all of the product traction that I mentioned that were made in in a in twentytwenty. Thanks.

We will take on next question from July.

Okay.

Morgan Stanley. Please go ahead. Your line is now a pen.

Thanks, everybody first.

The words survey day are particularly cheerful almost going outside New York care shipper Foggy, that's sounds that sounds like a lot of alcohol, we get a lot.

Mike and Richard a couple questions [laughter] first on bread.

[noise] honestly, hi, rich right, I mean, calling guys I kinda complicated consumers don't seem to want them Toyota can barely give there that's the way governments like the UK are starting.

And exclude them from credit.

I think that you can't outlawing them by 2035 other cities are likely to fall. They don't make money Mike FCB is my opinion on the cleanest if not be keenest, most experienced management industry, explaining why why is showing harder money. After these powertrain that really have no future I understand that.

Short term project, but I just.

Got to be only a couple of years like getting away from that I, just seems like it sounds like a big waste.

It's not the told you that haven't yes, you will get thank you so they invite.

You will get personally I hope I hope I still do not for sure he will be foolish.

I have no.

And with regard to with regard to your question.

Remember when we start planning fully aside is out in terms of what we think there's going to happen in the marketplace, particularly when you go through such as an industry transformation that being forecasted between now and 2031 beyond I think what's the most important thing you do is trying to protect your capital back to give yourself the flexibility to.

Yes, I'm looking out the window of this at the office that we're doing this cool than I can say down on the streets and literally hundreds of the cool part.

So in front of tile on this after eight with not one charge imposed insight not one I like it works right now.

Thousands of cities and towns around Europe, and see exactly the same thing so what we're talking about the Transitionally phase.

There is no doubt that there is a few.

And a growing percentage as a.

Who buy in public that the luxury of garage is another places that they can.

But the vast majority of people are still waiting for the infrastructure, we put in place so.

Developing a platform that enables us to as cost effectively capital it kept.

Efficiently as possible to be able to flex a mix to meet compliance going forward.

Even if it is I 345 year window I think is absolutely vital as we make this transition you and I completely aligned.

As we get beyond 2025.

Full battery electric partly be driven by them in London banning everything from.

35 will become the norm, but we.

I have to get there and I think our approach.

That I said is multifaceted is.

The right way.

That's helpful and just a follow up any for Richard and.

In addition to your management roles you are both from the board of directors.

So and I do appreciate the comments you made it at the end.

On C O two Mike and I'm going to kind of build on that can can you explain to the investors on this call how much climate change and C. O. Two reduction has taken the focus of your board discussions am I am I wrong in thinking that.

And auto companies C. O two strategy is that an existential nature I either.

Got your progress on reducing C. O two will directionally impact your cost for all your share price performance ultimately your company survival I mean, Sergio once told me to analysts I think very famously a few years ago take a pill a lie down.

Anything that's all here like my or is there enough.

Well it depends on who you took before.

Nicole.

[laughter] Navona honestly, it's not one let me.

Yeah, what so.

Let's just stepping back from this constant question about compliance one other things that we were very very hard on with our board and with our team is this whole question about Sci sustainability.

Okay, and our sustainability targets, we just finishing the rounded out our sustainability targets for us for our company our company will not be driven by compliance targets. It will be driven by what we believe that the right at appropriate corporate sustainability corporate.

Governance targets and I think that's very important statement to make it easy.

Inevitable that.

Got it constantly refer to this as as compliant supply, but ultimately the language is going to change pretty dramatically in pretty quickly to this is in line with the corporate compliance corporate sustainability targets, we would have any like going out through 2032 2050. So.

Of course, it's very very important we see the effect in the marketplace. We hear people who comments in terms of it we are going to be part of that the solution, but we'll do it in our normal way and that's the most cost effective wasn't supposed to be Ken.

Thanks, Mike.

We will take on next.

Yeah from J.C. I see Matt from JP Morgan. Please go ahead. Your line is now a 10.

Thanks, very much closer.

JP Morgan Mike a couple of course, the streets on on China, and Brazil, and China, what are the key leveraged lease to improve profitability and can you talk a bit about Uh huh.

Well if specially in the region.

Also in Brasil, maybe can you comment a bit about the you know they sort of like after selling for non vocal how how you think respond the plant.

Any additional follow as you can bring them on the Jeep side to improve that already very strong momentum in the region.

Richard for you at least Capex 2021.

What are your thoughts on Capex place and maybe by region can you give some color.

Well the incremental Capex is going.

Each in face like it.

Yeah, because I like all answer they I'll answer. The first question you know I think sometimes it's easy.

Because.

Obviously ended up the.

In a very slight loss. It's you know it's still a lot. So we're not satisfied with it but to pull back.

The amount of lost from prior year to where they are thing.

I don't want to get washed away in terms of the cold in terms of the F. The people that put in there because fundamentally it was a dramatic change both in our cost factor.

SGN I as well as the cost.

Factor the cost factor, there, who isn't that well because that discipline. I think is now that will put us in good stead, where we have got to do as I mentioned before is rebuild our volumes. Some of that's gonna come because we've done a lot of work on the brand and marketing side, but it will also comfortable with them with our joint venture partner in terms of looking to our portfolio.

They are more flexible with that portfolio and finding ways to be able to build it more effectively so that's not going to be down in January February March April. This year that work is very much underway and I think the taminco good base to build from it.

In terms of Brazil, absolutely, we have opportunity and we are bringing more gi product to.

We haven't made the announcement yet.

Team and let them have been very active in terms of that request for product, which has been supported by the GE Brandon in the near future you will see.

Further Jay product coming down to the plot that because clearly the brand is left in the country and in the region and that was.

We obviously want to build on that and I'll give which at the guys question.

The Capex is up about a billion year over year.

And it's basically a relates to.

North America as we close the the spending on some key projects.

Such as the new Grand Cherokee and the largest series.

I'm also spending is up slightly in a manner as we spend on.

Completing the E.V. the P.T.V.'s.

And lastly, we're starting.

Some more.

Moving on Maserati as Mike mentioned, we got some clarity around the future product on the knowledge driving some increase in spending that sort of domain three areas, where the capex is is up year over year.

Thank you take as much.

We will now take our next question from the line.

Right.

From Citi occasion.

Please go ahead. Your line is now we've had.

Yes, good afternoon.

Question on North America overseas was equal to global business.

Fourth quarter margin, 10% was very impressive, particularly compared to Detroit peers.

General Motors adjusted one office.

Since the strike local superset of income reported in for 2.8%.

So what extent destroying interconnect you in terms of course citizens is limited she's getting sales or was it still very much you see loyalty is running close to those things move around.

And.

Secondly, looking at so Twentytwenty, what how do you see the competitors some INBONE sources in the U.S. obviously these.

Figures, which obviously is pretty much it's the needs it doesn't need a fairly flattish in the market you comment.

Yeah. This is Mike and then if it I'm fully on service you come back.

Two.

Jeremy.

Hey.

I.

When I look at the performance of Iran. Brian It would be very difficult when they decide that the strike had any impact on it at all if you look at residual level of inventory that was in the market overlays through that period to the end of the year.

It's still saying that there was a healthy level of inventory.

And our competitors as well I think when you've got trucks that went in back to back awards that we have with Archrocks multiple awards that they remain incredibly competitive so I'd like to believe its or the skill of our dealers and the quality of our products that got us into that number two position and I found they do believe that because if I also look at.

What happened in terms of average transaction processing on centers on the them side by the moved in the light direction and create the margin that you talked at all.

When I think about 2020, I always imagine that there's going to be increased competition. The truck business never stops. It is one launch after another launch whether it's a full launch.

She is an increasing capability that has been the way that it has been full years ever since I've been involved in it which is now well into 10 years and it will not stop as we get into next year one of the things that we've done with the brand though is build what I think is an enviable conquest defection ratio and though our loyalty by shows as well.

And that's been done on product and hard work can withstand this in good stead for that competitive nature in 2020, they say in a lot more competition on the assay V. So I frankly, you know I mentioned that brought my opening that.

We dropped volume and particularly in the segment and that de segment.

When we did that no one likes.

Ladies and volume, but clearly what we've been looking at is a better balance really between volume and margin and that some of that business now being done it what I would consider to be very low margin enhancing the sales team did the right thing because obviously the headline was you know GE business is done something's wrong until you see the margin at the North American, saying, we're able to produce.

We'll see how it develops in.

Turning but I think competition is part of cost environment, we listened.

Thank you.

We will take our next question comes the line of John Murphy from Bank of America. Please go ahead. Your line is now I pad.

Good afternoon, guys and maybe just to follow.

Up on the North American truck market, just curious if you could give us a split on fleet versus retail for Ram and also how much benefit you think you got from the change in the tax Act year, just on each I read a depreciation or essentially first year expansion of Eagle summit, GBW 6000 pounds or higher on.

The fleet side.

John This is Mike I can give you will follow up with you I can give you our overall split which was 21% fleet and the balance in retail business I don't have that number at my fingertips, Joe could you follow up with with John and also done as you know well.

When you look at that.

Truck business in the ran business in particular that category, a small business, which which when you look into those numbers may help answer the question in terms of what benefit we got with some with some taxes and in fact job is just showing me our efficiencies by.

Japanese computer on my lab, which says.

In fact truck follows on national patent that 22% slate so very much in line with a very much in line with or without good fleet numbers Uh huh.

Hey, Michael just part just on the dealers I mean, not sure if you're hearing from from that usually it sounded like it was a big benefit if somebody goes away right. So adjusting anniversaries itself.

So it's not like it's going to drop off a cliff I'm just curious if you've heard from the viewership that was a.

A big driver as some of the search on the Ram side.

To be honest I don't think I haven't heard that from the dealers I believe.

That is something I would have to prop and probably four to get that specific answer.

I think.

When you look at that wouldn't specifically surge ran it would be an industry effect I think the surge we saw wrong Ram was purely to do with the quality of our products and our marketing approach.

Right.

Interesting second question on the pulling with catalyst Kessler, specifically I know it gets into the P.S.J.

Especially when you're not talking about too much.

But I'm just curious if you think forward when you get executed you know will you be able to get rid of there's tesla pulling.

In Europe and not by credits in the U.S. I mean, how fast do you think that will get washed away and intrinsically between the two companies you get you can handle the stuff on your own flaps and the planning that we add who is put.

In place before the merger so what I'm going to tallied is the planning for that product things are working towards.

Out of credits in Europe and 2021.

Rely on all of the investment that we've made intends on electrification, which is now coming through strong allowed you will see in Geneva.

505.

But.

And you've already seen the campus and the Patriot and the wrangler plug in hybrid but I think then followed heavily in 2021. So from my perspective, I would say under 2021 in Europe in in the U.S. I think twentytwenty three.

Okay and 2023 with a.

The time find that I would give you for the U.S. period.

Again in line with the product cadence that we have set in a running against in terms of electrification hybridization.

And there was just one quick housekeeping what was decidedly w. bonus in the fourth quarter.

400.

Earlier in Europe.

Great. Thank you very much.

We will now take our next question from the line as Mike.

Oh Geez from Equita. Please go ahead. Your line is now then.

Thank you.

Good morning, good afternoon, everybody.

First question is on the Twentytwenty guidance, if I remember correctly, you previously assumed flat market in North America Europe in Brazil.

And now you are confirming the whole the guidance Weve fan more North America, and the media Dell.

3%.

I would say only partially offset by Brazil.

The center so apart from our idle noise raw materials that you've mentioned a your assumption that's changed their compared to last October when you provided the guidance or what piece of shifting got did like.

We know well.

Volumes due to the border between the marketing environment.

Well, obviously, the raw materials as Richard mentioned, where new news since.

Since we gave our guidance, but we've lived in the environment I think that's why it was referencing the fact that we had.

Similar headwinds as we came into 2019 and I guess, if it up in 2018 they'll be similar headwinds. We got team of people that are used to being challenged some targeted to find offsets I tunes and that's what they've been challenge and targeted to fund I'm up with that because we got a mine in Lisbon on some industry to.

Change our guidance at this stage it's a.

Loss that we live and now obviously something changes that says we are unable to do it.

We are fortunate the ability to talk to each other quarterly we'll let you know but its in my mind I think that go very solid relative what they need to deliver I think they go very solid plans.

It's everything I'm upset at this moment in time.

Now all of the new news in terms of raw materials.

But Mr affirming our guidance for this year.

Okay. Thank you and the other one isn't networking copycode because last year, a heads up very huge contribution.

Presumably.

Mainly through even by the stocking up.

So just to have an idea what is the underlying assumptions you had for networking capital for this year.

And just a confirmation if this document is that can we say user finalized or almost everywhere.

And if.

And they also to Fedex assumption for your guidance. Thank you.

For the sometimes a current right basically.

The.

The working capital going into next year between working capital provisions as you said we had.

Them some big with.

But overall it was it was basically thought you negative for 200 million for the year last year because of the de stocking offsetting the working capital.

I think going into Twentytwenty, we expect.

Working capital in provisions to be positive between half a billion to a billion.

In large part because of the non.

Oh I'm the diesel settlement payments.

The are you a w. bonus that we paid.

In Q4.

And I'll pick up a de stocking question, that's largely complete I do I still want to say, our north American chain.

I'm just motor right some of their inventory in that in that region and I want to make sure that.

And there as we go through this year and we learn month by month have a very very tight handles a possible to SAP, it's absolutely 100% complete but the magnitude of last year I don't envisage a tool will be repeated this year.

Yes.

Okay. Thank you.

We will take our next question.

Your line of Sealy swap from Jefferies. Please go ahead. Your line is now it then.

Good morning, Thank you very much but a couple of questions. The first one I also look forward to the metrology day and relaunch.

My question is on the at the departing deficiency that we've seen some.

HM East coming out from the very repeatable competitors.

They have been slightly disappointing in terms of range or energy efficiency or for the year updates and I'm just trying to understand.

Have you been working on the relaunch of Maserati err on the on.

We'll have you line.

Heavily on on outside help and partnerships and if that's the case.

Coming to businesses.

Because I'm I'm asking also disappointing range for you.

No it's more of that.

Like if I compare with test I can do today and what we've seen come out each year for sure it seemed like 22.

25%.

Hi efficiency shortfall compared to what pester has been able to achieve.

And I appreciate from that's right you'd be able to do no drive faster for assisting care to time.

And so that will cutting to range, but I'm just trying to.

There are signs for how you feel about.

Your competitiveness against.

What is still a benchmark Tesla and what we've seen coming out of some of your German competitors.

We what we do as a not just for a battery electric vehicles, but for all of our vehicles is where we clearly, particularly with the band like Maserati, where powertrain is an absolute.

The embedded de.

And I for that brand is to make sure that we have stretching targets in terms of the performance of the vehicle and obviously when you got a battery electric that's going to be a combination of range as well as I'm. The dynamic performance, who we have significant internal experience in terms of electrification.

And you may he may.

Because on the fact that we're number one mild hybrid southern United States, we have the number for plug in hybrid in the United States off we launched the say a 500 that in the United States I think from memory three years ago. It was that a seller.

So we have a lot of internal resource, but we do work in partnership we have to work in partnership with your battery producers because it is a much much more complicated.

Controls and integration system, but you.

Any OEM has to have large degree <unk> co. skills within their organization and I'm pleased.

Is that within our engineers, we do as well.

And on a different notes. Another question. The you don't use agreement that you signed I'm just trying to saying to you is significant the closing the gap that you enjoy.

The way the cost by competitors Ford and GM and he views on how you're going to.

Compensate score or not I know you you still have some mix opportunities, we're getting to full size issue.

But it is still significant wage inflation, but you have to accommodate the next three yards that important you have.

And any thoughts on or how you.

Compensate for that.

Live compensated I think for wage inflation.

In different forms across different regions.

Basically every every single year, sometimes and more significant than others.

What we always try and do is to Tasco teams to live cat or whether there are cost offsets to that or whether there is pricing and margin on makes all sides and I think if you look.

Here are the results through a combination of things when we did have wage inflation as well and they did have a although labor inflation as we strengthened some of our internal change I think we were able to offset and I'll just view it as part of a part of the job or the leadership team will continue to do it right.

And then I squeeze last one I know you rather than coming but.

So you saw us.

Slide noticed this around that you will be comprised 2020 around the like nine grams.

I'm just trying to understand your case of as Jos compare to see you targets were set a number of years ago enriched massively equals you've been selling in Europe has increased significantly.

Has your.

That being adjusted for that or you're still kind of good enough that they can you know your school selling on average much like the cars so much extending today.

Well one of the one of the interesting things in terms of the target it's actually adjusted based upon the final makeup of your fleet.

So the mix management.

If you will fully in Europe becomes incredibly important because it will affect where you sit on the curve.

We believed that the numbers that we have written down. This we now have significant amount of resource directed at this as you can imagine.

It's where we're going to end up and as I said from the mix.

That we saw in January we are in track on track with the full cost that we had coming into the year. So you know every month, we're going to be tracking and making sure that we stay on track and if we don't for whatever reason will for sure and make sure that we we talk about it in the quarters to come but right now that's a reflection of the position that we think.

Yeah, and the targets. So you readjusted basement out the average must about stuff. It sounds okay. Thank you.

We will take on that question from the line and George Galliers from Goldman Sachs. Please go ahead. Your line is now.

Joe do they.

Final question comes from the line of Hewitt <unk> said.

Exane BNP Paribas. Please go ahead. Your line is now a pen.

Yeah, Yeah. Thank you and good afternoon, guys I'm, sorry, I just said so three questions left just on a year and electrification.

You mentioned that Q3 that Youve encouraged it's very early signs of encouraged on on pricing will be they eat and that was.

Certainly comments made by some of your page is that still the case I know, it's still early days, but just wondering what your what you're seeing on the pricing side in the market now for those in and let you flat cars in the market overall.

Equally other any bad actors you're.

In past calls so a pretty registered a in Q4 high high share two calls on seating dumped into the market now should we seeing any unintended consequences. We just we come into this new emissions here I mean, how should we think about the the range of outcomes for it may have profitability as result of that and Twentytwenty, giving you roughly breakeven last year.

Then quickly enough.

Maybe you could just raise shows could you just want to help with the U.S. markets. You didn't see you see as recently given I guess the downside in some of your plans will be at some some aging product some of which a loan delinquencies pitching some pretty high rate. So yeah can you just reassure us on the outlets or are you hearing anything.

More pressure there from your lending partner I event in the U.

Thank you.

Sure I'm going to try and cover off all of those things in terms of in terms of pricing looks a mile teams not me personally look to how we saw.

As best we couldn't that transaction prices evolve in January given it was really the first month of makes it seems.

To me from the data that I've seen that prices are still reasonably positive what's not I'm clear, obviously is as more and more penetration is required whether there is a broad enough customer base for that but I have to say it is much better than I thought it was going today on a personal.

Level.

Let's now every single time, you change in emission standard whether you'd go a euro 60 tab Eursixty final when you move into a different way of measuring your fleet you always get attacking a pretty registered zero. Okay that goes in Europe always bikes as every manufacturer manages their inventory.

Yeah, we see every single time, there is a hangover we've seen in January January was largely down in many many markets in Europe I suspect it was because of the do okay vehicles registered in December they'll watch themselves out of the system pretty quickly I think side of the length of the.

Well the will be relatively small.

In terms of the U.S.

As we just said we're confirming our guidance I think that's the best reinsurance that you know I can give you.

For a for that market I'm not hearing anything from our lenders that would at this stage.

I think so nervous or other reflected the any guidance.

Okay. Thank you.

Thank you.

So with that I think we finished off all of our questions.

If I might just a few closing comments again, thank you very much for joining us.

As I said and I think I tried to make this clear.

In my opening comments I think 2019 was a stark here for the company and you know we did achieve strong operating results in the face of several challenges.

At the same time, what I think taken decisive measurements that the measures and actions to set the company out for what I think there's a very bright and sustainable future and I think the work that was done.

In there on a cost base enough fishing season, our head count in the night pack and you've seen that you've seen leaders and how they've improved does weigh Maserati has been set up.

Well I think bodes well for the future and then.

We and the team is fully focused.

To try and deliver more more opportunities to give our shareholders value.

And that's a as I said, what we focus for in 2020, we're obviously going to continue to move diligently forward in terms of completing our merger with peers I am as we've said, we'll keep you pose a a keep you posted in terms of a progress during our calls.

You know again. Thank you for your time, then I want to win began by.

Look into a paper my people. Thank you for 2019 as I mentioned at the beginning I think we have a phenomenal team.

Lies and goes come in every day and deliver the results for us and I'm proud to be part of the thing that is so with that thank you very much and goodbye.

Ill conclude today's conference call. Thank you for participation, ladies and gentlemen, you may now disconnect.

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