Welcome everyone to Ferrari full year 2018 results conference call. I would now like to hand the conference over to our first speaker today, Ms. Nicoletta Russo, Head of Investor Relations. Thank you, and please go ahead, ma'am.
Thank you, Maria, and welcome to everyone who is joining us. Today's call will be hosted by the Group CEO, Louis Camilleri, and Group CFO, Antonio Picca Piccon. All relevant materials are available in the investor section of the Ferrari corporate website. At the end of the presentation, we will be available to answer your questions. Before we begin, let me remind you that any forward-looking statements 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, and the call will be governed by this language. With that, I'd like to turn the call over to Mr. Camilleri.
Thank you, Nicoletta. Good afternoon and good morning, everyone. We are obviously pleased with our 2018 financial performance. We met or exceeded our guidance on each key metric. Of particular note was our free cash flow performance. The patent box benefit we received for prior years was clearly significant and more than offset our increased investments to deliver the meticulously constructed pipeline of product launches that we shared with you back in September. It was a clearly solid year in most respects. We entered 2019 as the strongest brand in the world, according to Brand Finance, and confident in our ability to deliver our targets consistent with the strategies that we reviewed with you during our Capital Markets Day last September.
This confidence is despite a backdrop of uncertainty and potential macro threats, including trade tensions, the China slowdown, Brexit, currency volatility, and what the IMF recently euphemistically described as palpitations in financial markets. While we would never claim to be totally immune to what is going on in the world, we are remarkably resilient. Several factors underscore our resilience. We continue to hold a strong order book, and our order intake is firmly in line with our expectations. Furthermore, we are not witnessing any unusual cancellations. Residual values remain solid and well within our predictions. As you focus on our guidance for this year, you should bear in mind several factors that are assumed therein. Our assumptions with regard to our supply of engines to Maserati reflect the orders we have received to date, which imply a contraction in volumes of the specific engines we supply to them.
We anticipate lower revenues and earnings from our brand diversification activities as we begin the disciplined exit of several products and license agreements that we do not deem to be in keeping with our brand equity. We need to get the base right before we expand this side of the business and ensure that everything we do going forward will enhance our brand image and grow our earnings. While our Formula One performance last year was the best one since we won the World Constructors' Championship in 2008, we fell short of our ambition to raise the Constructors' Cup. Our objective going forward remains the same as it has always been: to win.
In 2019, we project an increase in spending, which partially reflects this ambition, but also includes the development expenditures required to address the new technical regulations that will form part of the envisaged Concorde Agreement that should come into force in 2021. Given these factors, our principal business is actually performing more strongly than the aggregate numbers would reveal at first blush. We have previously disclosed that we anticipate an unfavorable mix impact in the first half of the year. However, I wish to stress that we project positive mix for the full year as the new launches hit the market, particularly in the fourth quarter, when the first shipments of the highly profitable Monza SP1 and SP2 reach our customers. This temporary adverse mix is driven by the higher proportion of Portofino shipments and the difficult comparison to the prior year period due to the LaFerrari Aperta.
I firmly believe that the success of the Portofino will pay dividends longer term, as we view this specific model important in terms of acquiring new clients and retaining them in the Ferrari family. Our data reveals that over the last 10 years, the predecessors of the Portofino attracted approximately 9,000 new clients, with close to 70% of them remaining loyal to the brand, while 30% of those have become multi buyers. I should also mention that we anticipate a first-half modest geographic mix shift in favor of mainland China to accelerate delivery prior to the much earlier than previously announced implementation of the new emissions regulations. We have an exciting new product pipeline. Indeed, we plan the unveiling of five new models this year, which augurs well for 2020.
As we have previously stated, these models do not only allow us to penetrate new attractive segments, but also provide the opportunity to leverage our pricing power. We've also planned a number of in-market client activities that will allow us to attract new customers and retain existing ones. An important development will be the release this year of a state-of-the-art CRM tool to enhance our ongoing interactions and relationships with our worldwide dealer network and our customers. This tool will further improve our customers' Ferrari experience in a personalized manner. Finally, as disclosed at our Capital Markets Day, we have commenced our EUR 1.5 billion share repurchase program over the 2019 to 2022 period. And subject to board and shareholder approval, we'll announce an increase in our dividend in April, reflecting an adjusted net earnings payout ratio of 30%.
On that note, I will now pass the call to Antonio, who will provide you with a detailed review of our full year results for 2018 and our guidance for the current year on our key performance metrics. Antonio.
Thank you, Louis. Good afternoon to everyone. Let me begin with page five. As Louis just said, our 2018 earnings were in line with or better than our 2018 guidance, with industrial free cash flow generation of EUR 405 million, including EUR 120 million positive cash impact from the patent box benefit for 2015-2017. Our shipments increased by 853 units versus prior year, mainly supported by the 812 Superfast and the Ferrari Portofino. Group net revenues for 2018 increased by a few million to EUR 3.42 billion, up 0.1% at current currency, and up 3.2% at constant currency. Our adjusted EBITDA was over EUR 1.1 billion, improving by 7.5% at current currency and by 16.8% at constant. EBITDA margin was 32.6%, up 230 basis points versus prior year.
Adjusted diluted EPS when excluding the EUR 141 million profit and loss benefit from the patent box related to the three year 2015-2017 and other minor adjustment, was up 20.6% to a record level of EUR 3.4. Net industrial debt at the end of December, after EUR 100 million of share repurchases, reached EUR 340 million versus EUR 473 million at December 31st, 2017. Let's turn to shipments on page six. Total shipments increased by 10.2% versus prior year, supported by a 19.6% increase in V12 and a 7.3% increase in V8. The performance was led by the 812 Superfast, as well as the ramp-up of the Ferrari Portofino and the 488 Pista. On the other end, the 488 Pista Spider is yet to arrive on the market, and LaFerrari Aperta finished its limited series run. Growth in shipments occurred across all regions. EMEA grew 13.1%. Americas showed a 6.7% increase.
China, Hong Kong, and Taiwan were up 12.6%. Rest of APAC was up 7.8%. Moving to page seven on group net revenues, we see how they increased by 3.2% at constant currency from EUR 3,390 million in 2017 to EUR 3,498 million in 2018 at 2017 exchange rate, net of hedges. Car and spare part revenues totaling EUR 2.6 billion were up 6.9% at constant currency, thanks to higher volumes already commented. Pricing and personalization programs positively contributed, along with deliveries of the Ferrari J50 and the FXX-K Evo, partially offset by lower sales of LaFerrari Aperta. The erosion of the engines revenues was EUR 89 million at constant currency, reflecting lower shipments to Maserati.
Revenues from sponsorship, commercial, and brand were EUR 516 million and grew by 5.3% at constant currency, thanks to the stronger contribution from sponsorships, as well as a higher championship ranking, partially offset by lower sales generated by other brand-related activities. Currency, including translation and transactions impacts, as well as foreign currency hedges, had a negative impact of EUR 105 million, bringing 2018 group net revenues at current currency to EUR 3,420 million, still a few million up. On page eight, you can see the year-over-year changes in the main items of the adjusted EBIT. As mentioned, the latter was up 6.4% to EUR 825 million, with adjusted EBIT margin of 24.1% and adjusted EBITDA margin reaching 32.6%, up 230 basis points. At constant currency, adjusted EBIT grew by 19% to EUR 890 million, while adjusted EBITDA increased 16.8% to a EUR 1,079 million.
Volume was up EUR 118 million, thanks to the 812 Superfast, the ramp-up of the Ferrari Portofino, as well as the 488 Pista, along with positive contribution from personalization programs. Mix and price was negative due to the combining impact of lower sales of LaFerrari Aperta and the strong increase of the Ferrari Portofino. This was partially offset by the solid performance of the 812 Superfast, pricing and deliveries of the Ferrari J50, as well as the FXX-K Evo. Had we moved the contribution from personalization programs from volume to mix and price, the latter would've been positive. This is a change we will adopt starting from Q1 2019, due to the intrinsic enrichment nature of personalizations. Industrial costs and R&D slightly decreased, mainly due to lower spending in Formula One activities. SG&A costs were mostly in line with prior year.
Other increased by EUR 36 million, thanks to stronger and already commented revenues from sponsorship, higher 2017 championship ranking compared to 2016, as well as a final favorable ruling on a prior year's legal dispute, as announced in Q1 2018. This was partially offset by a lower contribution from other brand-related activities and engines supplied to Maserati. Moving to page nine, industrial free cash flow for the year was EUR 405 million, essentially driven by the strong EBITDA, just partially offset by CapEx spending of EUR 637 million to support the evolution and the hybridization of our product range, and EUR 88 million of taxes. Just as a reminder, tax paid includes the already commented positive cash impact from the patent box benefit for 2015 to 2017, equal to EUR 120 million out of a total EUR 141 million benefit to the P&L.
Net industrial debt at the end of December 2018, after EUR 100 million share repurchases, reached EUR 340 million. On page nine, you can finally read the group targets for 2019. We aim to continue our trajectory of growth with net revenues above EUR 3.5 billion, with a growth rate in excess of 3%. As Louis just said, growth will be mostly driven by cars and spare parts, thanks to the ramp-up of the newly launched products. GT, sports, and special series are expected to account for approximately one-third of total volumes each. The Ferrari Monza will only marginally contribute, starting from Q4 2019. Total shipments will approach 10,000 units in 2019. Adjusted EBITDA growing approximately 10% and reaching between EUR 1.2 billion and EUR 1.25 billion. The high-quality profitability growth is expected to be driven by volume as well as overall positive mix accruing in the second half.
This will be partially offset by SG&A to support business development. Adjusted EBIT between an EUR 0.85 billion and EUR 0.9 billion, which means approximately 6% growth versus 2018 as a result of growing D&A. Adjusted diluted EPS between EUR 3.5 and EUR 3.7. As a reminder, 2019 net results include the patent box benefit for its last year. Roughly EUR 450 million of industrial free cash flow generation will be supported by a robust adjusted EBITDA, as well as the advances from the Ferrari Monza, partially offset by CapEx increase to approximately EUR 750 million, mainly to fuel the evolution and the hybridization of our product range. Again, as a reminder, the patent box will benefit the cash generation by lowering tax cash out. Just as a final remark, please note that the above guidance assumes a foreign exchange scenario broadly in line with the average for 2018.
With that, I'd like to turn the call over to Nicoletta.
Thank you, Antonio. We are now ready to start the Q&A session.
Thank you, ladies and gentlemen. If you have a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, star one if you wish to ask a question. Our first question comes from the line of Michael Binetti from Credit Suisse. Please ask your question.
Hi. Thanks for taking our question. Good afternoon, everybody. Congrats on a nice year, Louis, to start off, your time at Ferrari. Would you mind helping orient us back to the framework you gave us at the Capital Markets Day on EPS and free cash flow? I think the 2019 EPS guidance you laid out today, EUR 3.50, EUR 3.70, is above the 2020 EPS that you gave of EUR 3.40 to EUR 3.50. Free cash guide this year, I think, is about EUR 450, but you originally said, I think, EUR 400 for 2020. I know there's moving parts, and I know maybe you're getting a lot of deposits today on things like Monza, but I would assume the pace of launches you just laid out today, you'll still be collecting deposits next year.
I don't understand why margins would be flat or free cash flow conversion would slow next year. Maybe you could help just kind of reorient us between the 2019 guidance we now have clarity on and what you gave for 2020.
Well, thank you for your question, Michael. I think the easiest way to explain that is that we were firmly focused on our 2022 targets in the Capital Markets Day, and we felt that we should give you a sort of midpoint in 2020 to guide the speed at which we would reach those targets. Clearly, given our 2019 guidance, and clearly the sense that we have is we're very bullish on the business. I would say that 2020 is probably on the low side of the range, but that is something we clearly would give you next year when we finalize our 2020 guidance. As I say, we felt that it was important to give you a sort of midpoint between 2018, 2020, and 2022, but we were firmly, the slope of growth may obviously accelerate. I hope that's helpful.
Very helpful. Thank you. If I could just follow that quickly. It was really helpful to see the presentation of five new cars coming this year. How do we orient back also to the 15 new cars that you mentioned at the Capital Markets Day? How many of the four cars you laid out in the slide deck from 2018 count towards that 15, and how many of the five new models, they would all be counting towards that 15 cars that you're going to be launching by 2022? With a little bit of time gone by, any color you might offer on the five new models, which is a very fast pace coming this year between V8s, V12s, specials. Any kind of color you might want to add at this point as we're getting closer.
Well, as you know, we like to surprise everyone with our new models. What we said, if you recall at the Capital Markets Day, was that we would launch at least four a year. The five for this year is essentially in line with that. You can expect going forward, basically four a year. At one year, there will be three because we are doing five this year. It really was models from 2019 going forward to 2022.
Okay. Thank you very much.
Thank you.
Your next question comes from the line of Adam Jonas from Morgan Stanley. Thank you, and please go ahead.
Thanks, everybody, and thanks, Louis. Two questions. First, Ferrari is an ultra-exclusive luxury product that does, at some level, contribute to climate change. When do you expect to launch the first all-electric Ferrari?
Good question, Adam. First of all, I would argue with the premise of your question in the sense that, first of all, yes, I agree that we are a hyper-luxury product and company. You should see the emissions per mileage because the mileage of Ferrari usage is actually pretty low, and that's something that one should give consideration to. I think the data I looked at was the average kilometers used was only about 4,000 kilometers a year. In terms of moving towards hybridization, as we said at the Capital Markets Day, we expect that 60% of our portfolio will be hybrid. I think we also said that beyond the planned period, i.e. beyond 2022, you will see fully electric Ferraris. I won't give you a date yet, but you can expect one in the period following 2022.
Thanks, Louis. I might imagine, I think that some of the costs for that product might have been accounted for in the 2022 plan. Correct me if I'm wrong.
No, you are correct.
Okay. Just a follow-up
According to Google Maps, Louis, the drive from Maranello to Modena is 16.5 kilometers. Is there any logic in a potential combination between Ferrari and Maserati? Thank you.
I don't think so. As you know, historically, they were combined at one point. My own sense is that Ferrari benefits from total focus.
Yes.
Adding another brand would be a distraction, and frankly, we're very focused on implementing the plan that we divulged to you at the Capital Markets Day. Focus is something that's critical, and our plate is pretty full.
Thanks, Louis.
Thank you.
Your next question comes from the line of Max Warburton from Bernstein. Thank you. Please ask your question.
Yeah. Hi, it's Max Warburton from Bernstein. Two questions, please. The first on product, the second a financial question. On product, at the Capital Markets Day last year, Mr. Galliera was talking about a new mid-engined supercar that I think he was suggesting will be unveiled this year. My question is, does that go into production this year? Should we think about a mix-enhancing car above and beyond the 812 Monza, during this calendar year? I'll come back with the financial question, please.
You're right. Enrico mentioned a car in the range that had supercar performance that will be unveiled this year. The actual sales hitting the market will be in early 2020, so they do not affect the 2019 numbers, but clearly will have a big impact on the 2020 numbers, as we anticipate that the margin on that model will be considerably superior to the one on the 812.
Got it. Louis, just to confirm.
Does that answer your question?
It does. Can I be greedy and have a follow-on on the product question? Is it a series production car? It'll have a full normal production life cycle?
Yes.
Okay. Thank you. Just on the financials, really, I guess a question for Antonio. Could I be reminded of what this item is in the net industrial debt calculation? I'm looking at slide 17. This funded self-liquidating financial receivables portfolio, bit of a mouthful. Can you just remind us what it is exactly, and is there any way we as analysts can forecast it?
Well, it is just the intersegment, if you wish, financing to the financial services arm that we own in the U.S.
Okay. Can you just explain, how does it square with the net debt walk that you show on page nine? Is it relevant to that? Is there an interaction I need to understand?
Yeah. In the net debt walk, you see it deducted in the other column. In the search of an other.
Okay.
The number we show, Max, is the net industrial debt.
Yeah.
excluding the financials.
Correct.
Because most of it is securitized.
Part of that are financed by the industrial companies, yes, as you may imagine.
Okay. Thank you.
Does that clarify the point?
It does, yeah. Thank you.
Thank you, Max.
Your next question comes from the line of John Murphy from Bank of America. Please ask your question.
All right. Good afternoon, guys. Just to stay on the product discussion here, the five new models that are gonna be launched this year. Triangulating what you just answered to Max, some of the stuff you said at the Capital Markets Day, it appears we're gonna get sort of a lot of information about the launches that are coming over the next few years through 2022. I'm just curious, as we think about this, we all get a little bit twisted between mix and price, it sounds like we're gonna see mix and price improvements that may be a little bit better than had expected, particularly given your last answer about that product would have a much higher margin than normal. Are these gonna be much more impactful products than we've seen in the past?
As you think, Louis, about the opportunity on price, is it much more on putting out a better product and taking price that goes along with that, rewarding the customer with better product, rewarding yourself with better pricing and margin? Is that how we should more think about things going forward, there might be a real step up that's coming?
That clearly is our ambition. I think we will have the products that enable us to do that, as I said in my opening remarks. New models allow us to penetrate new segments, also allow us to really use the pricing leverage that we have. We have various arrows to use, we intend to do so. Price makes over time, as we always said, that we would privilege revenue over volume, we would privilege mix over volume. Having said that, we do intend to enter the GT segment, as we said at the Capital Markets Day. It'll be a mixture of the two, we are very focused on our margins.
Okay. Would it be fair to say that sort of the standard thought process of maybe 3%-5% price increases is a little bit too conservative and as products are being replaced with new, better powertrain products and more exciting products, they could be significantly better than that on product replacements. Is that a fair statement?
I think that's a relatively fair statement in the sense that the life cycle of some of our models is reaching their end, and they'll be replaced. The replacements, which we're very excited about, will allow us to increase prices on those specific models.
Okay. That's very helpful. Just one last question. When you think about the Maserati engine business, sounding like it's going to underperform a little bit in 2019, and going forward, it's tough to call that kind of stuff. Is there any way that you could repurpose some of that capacity for some of your future product? Obviously, it wouldn't be like for like, but I'm just thinking about sort of thrifting and being sort of capital disciplined here. Is there an opportunity to kind of shift some of that in the other direction to your core products?
Well, as we anticipate the growth, clearly the main impact is that should the Maserati engines continue to decline or actually stay flat longer term, we're able to move people, trained employees from the Maserati engine business to the car manufacturing business. In fact, total headcount can remain essentially flat as we increase our production volume. Again, it's somewhat dependent on the orders we will receive going forward from Maserati.
Great. Thank you very much.
Thank you.
Your next question comes from the line of Philippe Houchois from Jefferies. Thank you. Please ask your question.
Thank you. Good afternoon. Question maybe for Antonio. Back in September, you showed us that CapEx plan and got it to EUR 650 million CapEx in 2018. You came in slightly below that. If I look at your earnings versus your cash flow guidance, it looks like that's maybe a bit aggressive. I'm just wondering, would you be kind enough to give us a EUR amount for that 2019 CapEx?
Well, you put that in. I think in terms of the size of this CapEx, it's essentially in line with what we had in mind, what we presented you at the Capital Markets Day. The cash flow guidance is based substantially on the following reason. That is, EBITDA less CapEx is more or less in line with the free cash flow for the year, having all the rest offsetting each other, meaning change in working capital, taxes, that please remind, are benefiting from the patent box once more in 2019, and financial charges are offset by the advances we get on the Monza.
Yeah.
Philippe, I think you may have missed Antonio in his remarks, actually gave you a number, which was EUR 750 million.
Right.
Is that what you're looking for?
That's what we're looking for, which makes sense and that's consistent with what you gave us, the number.
I'm sorry, I didn't get you. I apologize, Philippe. Yes.
No, that's fine.
It's 750. Correct.
Right. If I can squeeze another one more on the Purosangue, the SUV that may not be an SUV, we will find out in a few years. We're six months after the Capital Markets Day almost, you've seen a bit more activity, the Urus, at Lamborghini, the market in general. Do you feel more confident, less confident towards moving Ferrari into that kind of product direction based on what we've seen in the market?
Well, with all due respect to Lamborghini, what we have in mind is something that's clearly rather superior to what's on the market today. We're still on track for what we said at the Capital Markets Day.
Thank you very much.
Thank you, Philippe.
Thank you. Your next question comes from the line of Giulio Pescatore from HSBC. Thank you. Please ask your question.
Hi. Thank you for taking my question. Two, if I may. The first one on the Pista and the phase out on the 488, how should we think about the impact of the two replacing each other on volumes, revenue, and perhaps also margins? The second one, more financial related. I'm still a bit surprised on the free cash flow guidance. Maybe I expected to be a little bit higher, given the deposits you're going to get on the Monza. Maybe can you clarify what will be the phasing of the deposits? What is the proportion that you will get into this year?
Well, clearly, as I said earlier, the 488 is reaching the end of its life cycle, and the Pista is incredibly successful. It's sold out. The Spider will start selling in the second quarter, but orders are essentially all done. On the cash flow, I'll let Antonio address that.
Sure. Hi, Giulio. I think the answer I already gave to the previous question is probably the guideline for our free cash flow in 2019. I think the way we see it is basically that, as I said, EBITDA less CapEx provides for the bulk of the free cash flow. We expect the advances on the Monza to be offset by change in working capital and the rest. I think the point here that you ask is, which is the proportion of the advances that we are going to have in 2019. Actually, we won't give you a specific number on that. We are finalizing the contract. As I said, as a rule of thumb, we assume that formula that I just told you.
Okay. Thank you.
Thank you.
Your next question comes from the line of Martino De Ambroggi from Equita. Thank you. Please ask your question.
Thank you. Good morning, good afternoon, everybody. The first question is on volumes, because in 2018, they were up 10%. For the current year, you gave an indication of an additional 8% growth. This is a significant jump compared to the historical growth trend. Should we assume a similar underlying trend going forward?
As Antonio said, we should be approaching 10,000. We may actually cross that line this year. Going forward, I think as we said earlier, we will very much focus on revenues and margins rather than volumes. I wouldn't anticipate that the volume growth would continue ad infinitum at that sort of pace.
Okay, because I was wondering.
Can you repeat the question?
Yeah, absolutely. I was wondering if this jump in volume growth could have affected the waiting lists in the medium term, continuing with such a trend.
Sorry, I couldn't really hear your question. You're concerned about?
I was concerned in case of a constant close to double-digit growth, that the waiting lists could have been eroded instead of being the usual 18, 24 months, but this shouldn't be the case. Could you remind us, what are the implications in terms of penalties and so on that you have to pay for the threshold, the 10,000 threshold, when you pass this threshold?
It's not significant. It's sort of EUR high single-digit millions. The more important point is volumes relative to the order book and the exclusivity. Rest assured that we are very focused on that, and as you'll see the new models coming out and the pricing associated with those models and the technology and innovation and design features, you'll understand better how focused we are on brand image and exclusivity.
Okay. Very last on the R&D capitalization, if you could provide us what is the balance for 2018 and what is implied in your guidance for 2019 in terms of balance between capitalization and amortization?
Sure. Out of the EUR 637 million capital expenditure for 2018, capitalized R&D is broadly 50% of total. It's EUR 380 million. In 2019 budget, we expect more or less the same proportion.
The net balance between the amortization and capitalization?
PP&E.
Sorry, should be zero?
No. The net balance. Sorry, maybe I didn't get your question. Can you please repeat?
Yeah. Just, you mentioned what is the amount of the capitalized R&D.
Yeah.
Taking into account the amortization of the capitalized R&D of the previous years.
Yeah
In the past quarter, you had.
The amortization of the R&D is approximately EUR 120 million. Slightly less than that.
This is for 2018?
For 2018, yes.
Is it growing, I suppose, in 2019?
Yeah. With the pace of the CapEx.
Okay, thank you.
Welcome.
Thank you. Your next question comes from the line of Thomas Besson from Kepler Cheuvreux. Thank you. Please ask your question.
Thank you very much. I have two quick questions on your EBIT bridge, please. Can you say a few words about the evolution of industrial cost and R&D, in the context of about 20% increase in your volumes between 2018 and 2019? Both SG&A and industrial cost and R&D have been almost maintained. Can you explain how you do that and what we should expect for 2019? Is that the first question?
What we expect in terms of the development of SG&A for 2019 is an increase, as I mentioned in my comments. While we expect R&D expenses to be more or less in line with 2018.
Okay. Can you talk about the effects that impact you, await you, we should anticipate for 2019? It has been more negative than what I had in mind for 2018. Is it going to be more neutral in 2019, or again, a headwind?
As I said in my comments, the targets we have discussed, disclosed today, are based on the assumption that overall, throughout the year, the foreign exchange scenario is more or less in line with the one we have seen in 2018.
Would mean, therefore, neutral effect on your bridge.
Correct. Yeah. Neutral.
Thank you.
Your next question comes from the line of Raghav Gupta-Chaudhary from Citi. Please ask your question.
Thank you. Good afternoon. I just wanted to shift the conversation a bit to the non-car revenue side. You gave very few details at the CMD because the strategy was not finalized, you were still developing a framework, I think were your words. Have you had sufficient time to think about this? How might you leverage the brand to generate additional profit for Ferrari? That's the first one. Thank you.
Well, thank you for that question. Clearly, it's still work in progress. We are finalizing the strategy. There's been a lot of work done. The first step is cleaning up what we have, as I mentioned, in my opening remarks. In fact, we are sort of cleaning up the portfolio. Taking out various products that have our brand on it. Also, terminating some license agreements. Off that base, we will then grow. My sense is that by this summer, we will have a very clear strategy, and we will be focused on execution.
Okay. We can expect perhaps something on that in Q3 in terms of an announcement of the strategy. Is that fair in terms of timing?
Yes, that's fair.
Okay, great. Mr. Camilleri, I heard what you said in your opening remarks about residual values remaining solid and kind of within your predictions. I was just really hoping to press a little bit more on this. When I look at classic car pricing, it seems to have come under a bit of pressure. What impact is this having, if at all, kind of on your interactions with customers?
None. Residuals that we look at across the globe are essentially in line with our expectations. I don't know what you're looking at in terms of classics, but the results I've seen in recent auctions in terms of classics, the prices have held up pretty well. Some prices have actually, for certain models, hit record levels.
Okay. All right. On the patent box, can I just have a quick kind of clarification in terms of what impact you're expecting for 2019, please? On the P&L. Sorry.
Yeah. Sure. You may assume in the region of EUR 50 million, more or less in line with the impact on 2018 P&L. Okay?
Perfect. Thank you very much.
Thank you.
Thank you. Your next question comes from the line of Steven Reitman from Societe Generale. Please ask your question.
Yes. Thank you. Good afternoon. I have some questions still on accounting. Obviously, we don't yet have the full accounts, but I guess it's going to come out about three weeks' time. If we just dig a bit deeper into some of those numbers again, please. Going back to the question about cash R&D, could you confirm what the figure was for cash R&D? I think the figure you gave was for capital expenditure, the EUR 637. How much was actually the cash R&D spending in 2018? Then if you could then confirm how much was capitalized R&D against that figure. That would be the first question. My second question is, what are the determinants of the launch of the Monza? You've mentioned that it's a Q4 this year.
Is there any technical reason or limitation that might prevent you from bringing that forward into earlier quarters? Finally, could you confirm now that the last LaFerrari Aperta has now been sold, as appears to be indicated by the presentation? Thank you.
Sorry, what was the last question?
About the Aperta. If the last Aperta have now been sold-
Oh, okay.
As appears to be indicated by the presentation.
Yes. Let me start with three, two, and then Antonio hear one. Yeah, La Aperta is finished, done. History. In terms of the Monza SP1 and SP2, it's the fourth quarter, essentially because as you knew, we said at the Capital Markets Day, we're building a new production line for that pillar, and Monza SP1 and 2 are the first ones. I would say that we're focused on Q4 in terms of production and sales because it's actually a very complex car to manufacture in terms of craftsmanship. There's a lot of new things and a lot of handmade carbon fiber pieces that require a lot of training to get them precise to meet our specifications. That's really the main reason why we see that sales will commence in Q4 rather than earlier.
Okay.
Antonio Picca Piccon will hit your question on R&D.
Capitalized R&D, as I already said before, is EUR 318 million in 2018. R&D costs, hitting the P&L, is EUR 528 million. Total cash R&D is the sum of the two.
Can you repeat the figure again? You said 528?
EUR 318 capitalized R&D.
EUR 528 R&D cost.
Amortization was EUR 120.
The amortization, the precise number is EUR 115.
EUR 115. Thank you very much.
You're welcome. Thank you.
Thank you. Your next question comes from the line of Adam Hull from MainFirst. Please ask your question.
Hi. Good afternoon. Thanks for taking my questions, too. Digging a little bit deeper on the free cash flow in the midterm. Firstly, on patent box, what is the cash tax benefit you're assuming in your 2019 cash flow guidance of EUR 450? If any, is there more coming in 2020? Could you just repeat that tax benefit for the P&L in 2019? I may have misheard that. Question two, really looking to your free cash flow. If I look at 2018, I look at the EUR 405 million, take out EUR 120 patent box, it's EUR 285 million, 8% free cash flow margin. That's very different from what you're guiding in a sense in 2022, when you're EUR 1.1 billion-EUR 1.25 billion free cash flow. That seems to be out of 22%-25% free cash flow margin. Kind of triple, in a sense, what you did in 2018.
Is there something odd particularly about 2022, or are you thinking that you can be doing more than EUR 1 billion free cash flow into the early 2020s or so? It just seems a very big difference between sort of 8%, and into the sort of 22%-25%. Thanks.
Okay. Maybe I start from the last one, so that you may remind me your previous ones. I think the difference between 2018 and 2022 is that 2018 starts reflecting the impact of the CapEx. If you remind me, even if we didn't give a specific guidance on CapEx, if you look at the chart we've shown the time, you'll see the cap is going down slightly towards the end of 2022. On top of that, there is the impact of the introduction of some of the core ones that we described as becoming a more relevant pillar. The overall impact is that one. As far as 2018, if I recall correctly, I said already what the benefit from the patent box is, EUR 120 million.
We anticipate the cash benefit of the patent box in 2019 to be in the region of EUR 100 million. This amount to be reduced in 2020. To remind you that as of now, we are expecting the patent box benefit to be a benefit terminated in 2019. We saw, therefore, cash-wise, should be a positive for 2020. I don't know whether I missed something among your questions.
Yeah. If I could just follow up. You gave us those two numbers for cash R&D, which we can add up. As we look at cash R&D, how's that looking in terms of 2019 and 2020? Just maybe help us a little bit on the P&L impact in terms of what the capitalizing rate will be. What the cash R&D spending will be, so I guess it was roughly EUR 850 million last year. How does that look in the next two years in the cash R&D, and also what the sort of rate of capitalizing of that overall cash R&D number would be? Thank you.
Maybe I can try and answer this way. I already said that we expect the R&D charge of the P&L to be more or less in line in 2018. There will be some more spending on the new cars coming in for the Formula One activities, maybe offset by some other on the road, you can say the cars manufacturing activity. In terms of the rate of capitalization, probably is not the way we describe it. Certainly, in 2019, there is still an amount of R&D spending within the CapEx that is significant, because we have a lot of the preparation for the advertisement and introduction of new vehicles that explains that. The average ratio you may imagine is 80/20, in terms of product being 80%, and most of that is R&D. 20% being infrastructure and anything related to the manufacturing tools.
Okay. Thanks for that. Thank you.
Your last question comes from the line of Ryan Brinkman from J.P. Morgan. Please ask your question.
Hi, thanks for squeezing me in. I'd like to follow up on your comments regarding the brand licensing arrangements. It sounds like you want to be more selective in terms of the arrangements. At the same time, this has been identified as a potential growth area for Ferrari in the future. Can you sort of talk a little bit about these brand related activities you are pruning, and then which activities you're maybe looking to increase in coming years? What are the attributes that make a licensing arrangement attractive to you, profit-wise, or from the perspective of brand value in comparison to some of the ones you're letting roll off? How should we think about the financial impact of your strategy with regard to sponsorship, commercial, and brand initiatives?
Well, as I said earlier, that strategy is being finalized, Ryan. I would say that walk into a Ferrari store today, and it's obvious that some of the products do not fit our brand image and our luxury positioning. Going forward, you can expect things that fit much more in terms of our customers, in terms of the premium products that they would enjoy. We gave you actually a couple of examples at the Capital Markets Day. We have a new license agreement with Berluti in terms of leather shoes, which is doing extremely well, and Berluti is very pleased with that. We also had the agreement with Loro Piana, in terms of the racing suits and the helmet. There are things that we want to offer our customers, which appeals to them, and there's clearly demand for that kind of product.
Essentially, if you look at it from a client perspective, there's the Tifosi who will always want Ferrari branded materials, and that we will retain, but we will enhance their quality. There's obviously our customers and clients around the cars, and there's a whole field of entertainment, which we feel is something that we can be part of. Really those are the three essential segments from a customer point of view.
I see. Thanks. That's helpful. Then just finally, another question on the Purosangue. I'm curious what has been the customer reaction to the announcement. Of course the vehicle is still in development, not set to launch for some time. It's probably quite early, but can you share since the time of your Investor Day, the degree to which your existing customer base has maybe approached you indicating potential interest in this type of a vehicle?
I would say that the reactions have been very positive from both the dealer network and the clients. Clearly, they want to see the product, but they trust us. It is a segment that clearly is growing, and a lot of clients would love to have a Purosangue to use on a daily basis. The reaction has been very positive and actually nobody seems to be sort of concerned that it would somehow dilute the Ferrari brand image. On the contrary, it would complement it.
Much appreciated. Thank you.
Thank you, Ryan.
Thank you. There are no further question at this time. Please continue, Ms. Nicoletta.
Thank you everyone for joining us today. If you have any further question, the IR team will be soon available. Thank you.
Thank you. That does conclude our conference for today. Thank you all for participating. You may all disconnect. Speakers, please stand by.