Strong first year boosts Stellantis as cost challenges loom

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  • Adjusted EBIT margin at 11.8% in 2021 vs. target of around 10%
  • Record margin in North America at 16.3%
  • Company ahead of schedule with synergies, says CFO
  • Shares up 6.5%
  • No plans to separate ICE and EV businesses, says CFO

MILAN, Feb 23 (Reuters) – Stellantis (STLA.MI) has exceeded its profitability target in the first year since it was founded following the merger of Fiat Chrysler and carmaker Peugeot PSA, boosting hopes that the automaker can cope with rising raw material costs and a shortage of semiconductor chips.

Milan-listed shares of the world’s 4th largest automaker rose 6.5% on Wednesday afternoon.

The company, whose brands include Jeep, Ram, Opel and Maserati, reported an adjusted operating margin of 11.8% in 2021, above its target of around 10%. This was due to the strong run-up in synergies from the merger, which generated approximately 3.2 billion euros ($3.6 billion) in net cash benefits.

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In a conference call with analysts, Chief Executive Carlos Tavares said the results showed “we are going to deliver on our commitments.”

The figures come less than a week before Stellantis presents a strategic plan for the next few years, which should, among other things, address its struggling business in China.

Tavares said he expected Chinese authorities to approve Stellantis’ plans to increase its stake in its Chinese joint venture with Guangzhou Automobile Group (GAC) (601238.SS).

The automaker also said it expects to post a double-digit margin again this year. The pro forma figure for 2020 was 6.9%.

The outlook is “very vague, but it leaves room” for Stellantis to beat expectations, Banca Akros analyst Gabriele Gambarova wrote in a client note.

Finance chief Richard Palmer told reporters that rising commodity prices, such as metals, would remain a problem for the industry this year, but shortages of semiconductors, which cost the group about 20% of production expected in 2021, peaked in the third quarter of last year.

“We believe this (Stellantis’) guidance for 2022 is reasonable given the difficulty of assessing volume, price or mix in FY22, and with other headwinds such as commodities” , Morgan Stanley analysts wrote in a client note.

Margins in North America, where Stellantis sells highly profitable Jeep and Ram pickup models, hit a record 16.3% in 2021.

Rival General Motors’ (GM.N) comparable margin for 2021 in North America was 10.2%.

stellantis

Palmer said the cash synergies recorded last year enabled the group to reach 80% of its cost reduction target of 5 billion euros by 2024.

He added that Stellantis had no significant direct exposure to Russia, which faces new international economic sanctions for its actions in Ukraine.

“We have flexibility in production,” Palmer said. “We are confident that we can handle the Russian crisis.”

Tavares has so far mapped out a 30 billion euro electrification strategy and formed alliances with Amazon and iPhone assembler Foxconn (2317.TW) to accelerate development of software and semiconductors for future connected vehicles.

He also drew up plans for five battery factories and reached agreements with unions to continue to streamline European operations, avoiding potential labor disputes and increasing margins. Read more

Palmer said the group has no current plans to create separate entities for electric-powered and combustion-powered cars, as rivals Renault (RENA.PA) and Ford (FN) are considering.

“We’ve just created a new company and that should be enough to get started as long as we manage complexity and diversity,” he said.

In a separate statement, Stellantis said it was paying out 1.9 billion euros in employee benefits based on last year’s results, up 70% from 2020.

($1 = 0.8829 euros)

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Additional reporting by Nick Carey in London Editing by Mark Potter

Our standards: The Thomson Reuters Trust Principles.

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