2016 Annual Report

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2016 Annual Report 2016 ANNUAL REPORT 2016 | ANNUAL REPORT 3 Table of contents Table of contents Board of Directors and Auditor .................... 5 Consolidated Financial Statements at December 31, 2016 ............................... 135 Letter from the Chairman and the CEO ....... 7 Consolidated Income Statement ....................... 136 Board Report .............................................. 11 Consolidated Statement of Comprehensive Income/(Loss) ..................... 137 Certain Defined Terms ........................................ 12 Consolidated Statement of Financial Position .... 138 Selected Financial Data ...................................... 13 Consolidated Statement of Cash Flows ............ 139 Sustainable Value for Our Shareholders .............. 16 Consolidated Statement of Changes in Equity .. 140 Risk Factors ....................................................... 17 Notes to the Consolidated Financial Statements .... 141 Overview ............................................................ 34 Our Business Plan .............................................. 36 Company Financial Statements ............... 245 Industry Overview ............................................... 37 Income Statement ............................................ 246 Overview of Our Business ................................... 39 Statement of Financial Position ......................... 247 Operating Results ............................................... 53 Notes to the Company Financial Statements .... 248 Subsequent Events and 2017 Guidance ............. 84 Other Information ............................................. 260 Major Shareholders ............................................ 86 Appendix - FCA Companies Corporate Governance ....................................... 87 at December 31, 2016 ............................... 265 A Responsible Company .................................. 110 Remuneration of Directors ................................ 120 Independent Auditor’s Report .................. 283 2016 | ANNUAL REPORT 5 Board of Directors and Auditor Board of Directors and Auditor BOARD OF DIRECTORS Chairman John Elkann(3) Chief Executive Officer Sergio Marchionne Directors Andrea Agnelli Tiberto Brandolini d’Adda Glenn Earle(1) Valerie A. Mars(1) (2) Ruth J. Simmons(3) Ronald L. Thompson(1) Patience Wheatcroft(1) (3) Stephen M. Wolf(2) Ermenegildo Zegna(2) INDEPENDENT AUDITOR Ernst & Young Accountants LLP (1) Member of the Audit Committee. (2) Member of the Compensation Committee. (3) Member of the Governance and Sustainability Committee. 6 2016 | ANNUAL REPORT 2016 | ANNUAL REPORT 7 Letter from the Chairman and the CEO Letter from the Chairman and the CEO FCA closed 2016 with another record financial performance while continuing to be recognized for its sustainable operating model. We exceeded our full-year guidance in all key metrics, made all the more significant by the fact that our targets were revised upward twice during the year. In addition, all of our segments were profitable and showed improvement over the prior year. Adjusted EBIT for the year climbed 26 percent to €6.1 billion. We posted a Net profit of €1.8 billion, significantly improving from €93 million the prior year, and our Adjusted net profit was up 47 percent to €2.5 billion. We also reduced Net industrial debt further to €4.6 billion, which represents almost a half billion euro improvement from year-end 2015. With these results, we have achieved or exceeded all the key targets in the first three years of our 5-year business plan. Worldwide combined shipments in 2016 were in line with the prior year at 4.7 million units, with Jeep brand combined shipments up 9 percent to more than 1.4 million units, representing the fifth straight annual record. Net revenues came in at €111 billion, in line with 2015. Looking at our mass-market operations by region, NAFTA posted a strong performance with a 15 percent increase in Adjusted EBIT and margins improving from 6.4 percent to 7.4 percent. The 5 percent decrease in shipments was primarily due to the planned phase-out of the Chrysler 200 and Dodge Dart models as part of our NAFTA capacity realignment. Our manufacturing footprint in NAFTA is being retooled to increase production of Jeep and Ram vehicles and capitalize on the strength of those brands as demand continues to shift towards their core product segments. In LATAM, we posted an Adjusted EBIT of €5 million, reversing the prior year’s loss of €87 million. This improvement was despite the continued poor market conditions in Brazil, where we have held the position of market leader for 15 years. The launch of the all-new Jeep Compass in September marked the final piece of our industrialization plan at our new plant in Pernambuco which is also producing the Jeep Renegade and Fiat Toro pickup truck. In APAC, Adjusted EBIT doubled to €105 million and margin rose to 2.9 percent from 1.1 percent on the strength of favorable product mix and improved results from our Chinese joint venture. That joint venture is now fully operational with the production of three Jeep brand SUVs. During the year, there was a significant improvement in the contribution from EMEA, which grew sales, market share, revenues and margin. Adjusted EBIT rose 154 percent to €540 million with the margin more than double the previous year at 2.5 percent. Maserati posted a record Adjusted EBIT of €339 million, more than three times the prior year’s level, reflecting significantly higher revenues following the successful launch of the all-new Levante SUV. Full year Adjusted EBIT margin more than doubled to 9.7 percent, while reaching 12 percent in the second half of the year. Our Components segment came in with a 13 percent increase in Adjusted EBIT for the year, to €445 million, with margin rising to 4.6 percent from 4.0 percent largely as a result of a strong performance by Magneti Marelli, which continues to improve both volumes and margins. On the product side, we launched nine all-new products worldwide, six of which were white-space additions to our portfolio. They include the Maserati Levante, Alfa Romeo Giulia and the Fiat Tipo, Toro, Fullback and 124 Spider. At the Los Angeles Auto Show in November, we unveiled the Stelvio, Alfa Romeo’s first-ever SUV, and the all-new Jeep Compass made its North American debut, following up on its successful launch in Latin America. FCA also made several key moves to stay at the forefront of the rapid technological changes that are transforming the industry. The Windsor Assembly Plant in Canada began producing the all-new Chrysler Pacifica Hybrid, the industry’s first electrified minivan and the most fuel-efficient ever with a U.S. EPA rating of 84 miles-per-gallon equivalent. 8 2016 | ANNUAL REPORT Letter from the Chairman and the CEO In 2016, we also announced a collaboration with Waymo (formerly the Google Self-Driving Car Project) and the completion of 100 Chrysler Pacifica Hybrid vehicles purpose built for fully self-driving operations. This marked the first time that Google has worked directly with an automaker to integrate its self-driving system, including sensors and software, into a passenger vehicle. To begin 2017, at the CES in Las Vegas, we revealed the Chrysler Portal concept, a semi-autonomous electric vehicle that is engineered to be upgradeable as advances in technology enable higher levels of autonomy and designed to grow with millennials through their life stages. We have made significant progress since unveiling our five-year strategic plan in 2014, and for 2017 we have issued guidance that confirms our conviction in achieving the key targets we have set for 2018. For full-year 2017, we expect Net revenues of between €115 billion and €120 billion, Adjusted EBIT in excess of €7 billion, Adjusted net profit of more than €3 billion and Net industrial debt to be further reduced to below €2.5 billion by year-end. Our approach to achieving profitable growth includes expanding our business globally while always remaining mindful of how our actions affect the world in which we operate. This commitment to playing a positive role is fundamental to the character of our Group. It reflects our core belief that achieving sustainable economic results requires a balanced approach that also contributes to the environment and society as a whole. We are convinced that the objectives we have set for the future, together with the significant steps we have already taken, are clear evidence that our approach to sustainability is not only pragmatic, but it is deeply rooted in our culture and central to our mission. In fact, our efforts have been recognized by the world’s leading sustainability rating agencies. In addition, our targets are aligned with the inspirational principles that drive the United Nations Sustainable Development Goals (SDGs) initiative, which addresses the global challenge of sustainable development. And, our global sustainable best practices are aligned with the European Union Commission’s efforts to stimulate the transition towards a circular economy that maximizes the value and use of materials, products and waste. To cite just a few examples, during 2016 we implemented more than 4,400 new environmental projects at our plants worldwide, leading to a reduction of the carbon footprint and about €70 million in savings. Projects targeted at reducing water consumption at our facilities resulted in 2.2 billion m3 of water being saved and €4.5 million in cost savings, with the recycling index reaching 98.9 percent. Our plants also achieved a 5.5
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