2018 ANNUAL REPORT 2018 ANNUAL REPORT AND FORM 20-F 2 2018 | ANNUAL REPORT 2018 | ANNUAL REPORT 3 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer Emerging growth company If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP International Financial Reporting Standards as issued by the International Accounting Standards Board Other If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow: Item 17 or Item 18 . If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No 2018 | ANNUAL REPORT 5 Table of contents Table of contents Board of Directors and Auditor ....................... 7 Consolidated Financial Statements at December 31, 2018 .................................. 165 Message from the Chairman and the CEO ..... 9 Consolidated Income Statement .......................... 167 Consolidated Statement of Comprehensive Income ................................... 168 Board Report ................................................. 13 Consolidated Statement of Financial Position ....... 169 Introduction ........................................................... 13 Consolidated Statement of Cash Flows ............... 170 Management Report ............................................. 16 Consolidated Statement of Changes in Equity ..... 171 Selected Financial Data ...................................... 16 Notes to the Consolidated Financial Statements .. 172 Group Overview ................................................. 18 Our Business Plan .............................................. 20 Company Financial Statements at December 31, 2018 .................................. 273 Overview of Our Business .................................. 21 Income Statement ............................................... 274 Sales Overview .................................................. 29 Statement of Financial Position ............................ 275 Environmental and Other Regulatory Matters ...... 36 Notes to the Company Financial Statements ....... 276 Financial Overview ............................................. 43 Results of Operations ......................................... 50 Other Information ........................................ 289 Liquidity and Capital Resources ......................... 67 Additional information for Netherlands Risk Management .............................................. 77 Corporate Governance ........................................ 290 Risk Factors ....................................................... 81 Additional Information for U.S. Listing Purposes ... 293 Corporate Governance .......................................... 96 Independent Auditor’s Report ..................... 307 Remuneration Report ....................................... 132 Non-Financial Information .................................... 144 Form 20-F Cross Reference ........................ 319 Controls and Procedures ..................................... 159 2019 Guidance ................................................... 163 Signatures .................................................... 323 2018 | ANNUAL REPORT 7 Board of Directors and Auditor Board of Directors and Auditor BOARD OF DIRECTORS Chairman John Elkann(3) Chief Executive Officer Michael Manley Directors John Abbott Andrea Agnelli Tiberto Brandolini d’Adda Glenn Earle(1) Valerie A. Mars(1),(2) Ruth J. Simmons(3) Ronald L. Thompson(1) Michelangelo A. Volpi(2) Patience Wheatcroft(1),(3) Ermenegildo Zegna(2) INDEPENDENT AUDITOR Ernst & Young Accountants LLP (EU Annual Report filing) Ernst & Young S.p.A (SEC 20-F filing) (1) Member of the Audit Committee (2) Member of the Compensation Committee (3) Member of the Governance and Sustainability Committee 8 2018 | ANNUAL REPORT 2018 | ANNUAL REPORT 9 Message from the Chairman and the CEO Message from the Chairman and the CEO We want to thank everyone in the FCA organization for their professional and personal contributions, during what was an extraordinary year. Thanks to them, we finished 2018 in the strongest financial position since FCA was created. We achieved record results and a number of significant milestones, which have paved the way for our next phase of growth and profits. The year was also marked by a sudden and unexpected change in leadership following the untimely passing of Sergio Marchionne. That was a tough moment for all of us, including on a personal level, but our organization was well prepared to manage this unexpected transition because, from the very beginning, Sergio had the humility and wisdom to see that the ultimate fulfillment of his role as a leader was to teach those around him also to be leaders. Notwithstanding the difficult circumstances, we were able to move rapidly, ensuring stability in leadership and steadiness of vision. Keeping in mind where we came from and the journey that has brought us thus far, we will carry this organization forward with a very clear vision of what it takes to achieve our ambitions. We firmly believe that we have the depth and breadth of talent and skills we need to shape the future of this organization exactly as we envision it: a company with a global horizon and unlimited possibilities, working to become one of the most profitable automakers in the world. This vision draws its strength from the collective spirit of our people - united by the same strong commitment to the values that drive our business and our lives: integrity and discipline, openness to feedback and constructive debate, and full acceptance that we are each accountable. In 2018, we reached a net cash position for the very first time. Industrial free cash flows more than doubled to €4.3 billion(1), leading to a net industrial cash position of €1.9 billion(1) at year-end. On that basis, the Board of Directors is recommending, for the first time in nearly ten years, to reward our shareholders with the reinstatement of ordinary dividends. The agreement to sell Magneti Marelli, a transaction which is expected to close in the second quarter of 2019, will create one of the world’s leading independent automotive component suppliers, recognizing the full strategic value of our components business. Not only will it provide a secure and exciting future for Magneti Marelli and its employees but it will also allow us to further strengthen our balance sheet and reward our shareholders with an extraordinary dividend. Our consistently strong performance has resulted in ratings upgrades from each of the three major credit rating agencies. Adjusted EBIT for the year came in at a record €7.3 billion(1). Adjusted net profit climbed 34 percent to a record level of €5.0 billion(1) and net profit was up 3 percent to €3.6 billion(1). Worldwide combined shipments totaled 4.8 million units and net revenues were up 4 percent to €115.4 billion(1). Looking at our mass-market operations by region, NAFTA posted a strong performance, attaining a record high in Adjusted EBIT, up 19 percent at €6.2 billion, with a margin of 8.6 percent. In the United States, we reported the highest retail sales in 17 years, with both Jeep and Ram brands hitting new records. We also completed the most complex and intensive phase of the realignment of our manufacturing footprint in the Region, in response to a continued shift in demand towards trucks and SUVs. (1) Including Magneti Marelli, which is classified as a discontinued operation for the year ended December 31, 2018. 10 2018 | ANNUAL REPORT Message from the Chairman and the CEO LATAM posted robust growth with Adjusted EBIT more than doubling from the previous year to €359 million and margin increasing by 250 basis points to 4.4 percent. In Brazil, we finished the year in a leading position in three of