Good day, and welcome to the Ferrari NV 2018 Second Quarter Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Nicoletta Rousseau, Head of IR. Please go ahead.
Thank you, Tony, and welcome to everyone who is joining us. Today's call will be hosted by the Group CEO, Luis Camilleri and Antonio Picca Piccon, Group CFO. All relevant materials are available in the Investors section of the Ferrari corporate website. And 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 2 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 very much, Nicoletta. Good afternoon or good morning to everyone joining, Antonio and me, on our inaugural earnings call in what can only be described as difficult emotional circumstances. We're all deeply saddened by the loss of Sergio Marchionne. He was a man of immense talent, blessed with a razor sharp brain, an unparalleled level of energy and a generous heart. Clearly, an inspirational and formidable leader for all those who had the privilege to work with and alongside him.
On a personal note, Sergio was a dear friend. Beyond our friendship, he sat on the Philip Morris International Board, where he served as an exemplary director for the last 10 years. And I sat on the Ferrari board since its ever so successful spin off from the FCA Group. This allowed us to be in frequent contact and gave us ample opportunity to discuss and debate our respective business strategies in a fast moving world. I can very humbly claim that we shared a deep mutual respect for each other and I will pursue with vigor and discipline the ambitions the Board, he and the entire team here had for this legendary and great company.
I've had the privilege of interacting with its management for close to 2 decades as a lead sponsor and customer and more recently board member. I can tell you that all I have seen to date has confirmed to me that we are blessed with a fabulously talented, committed and determined senior leadership team and organization at every level. All proud to be part of this company and all excited to bring it to ever greater heights with integrity and passion. We have a product portfolio in place for the next few years that is quite frankly stunning from every perspective, one that truly gives me confidence in our future growth and expansion. It is a true privilege to serve as Chief Executive of this jewel of a company.
And I take this opportunity to thank our new Chairman, John Elkan and the entire Ferrari Board for entrusting me with this responsibility to lead our company to the next level while mindful of the opportunities and risks that we will confront going forward. Rest assured that I will give my all in the best interest of all our stakeholders, our clients, colleagues, business partners and of course our shareholders. I look forward to meeting you at our forthcoming Capital Market Days when we will review the plans and initiatives we have in place to deliver our aspirations. For now, we are pleased to report a very solid quarter and to confirm our previously disclosed projections for the year, underpinned by a very strong order book that takes us well into next year. It is my pleasure to now hand over the call to Antonio, our Chief Financial Officer, with whom I have already established a great relationship and who will undoubtedly make an invaluable contribution to this great company as we move forward in the coming months years.
Antonio?
Thank you, Louis, for this kind introduction. Good afternoon to everyone and thank you for listening in the call. I'm also among the ones who owe to Sergio Marchionne for all that he taught us both as a CEO and as a man during the incredible days of Fiat and FCA. The simple fact of being here today adds to the number of reasons why I'm grateful. This loss makes me feel even stronger, the personal determination and commitment to contribute to the further development of Ferrari at the level this company, all of its stakeholders, how our colleagues and you, Louis deserve.
With that said, let me begin with Page 4. Our shipment reached approximately 2.5 ks units, which is plus 5.6% versus prior year. Results were driven by a 22.6% increase in V12 models, while the V81 grew 1%. 12 cylinders model's strong performance was led by the 812 Superfast, partially offset by the F12 Berlinetta phase out as well the F12 TDF that completed its life cycle in 2017. LaFerrari Aperta is also finishing its limited series run.
8 cylinders models were up versus prior year, mostly thanks to the 488 family, along with the first deliveries of the newly launched Ferrari Portofino expected to ramp up over the next quarters. This was partially offset by the California ticket phase out. Group net revenues for Q2 were EUR 906,000,000 down a few million but up 1.4% at constant currencies. Our adjusted EBITDA improved by 7%, reaching €290,000,000 31.9% margin. Adjusted EBIT for the group showed a 7.5% increase, reaching EUR 217,000,000 quarterly record with a margin expansion of 200 basis points to 23.9%.
Industrial free cash flow for the quarter came in at EUR 93,000,000. Net industrial debt at the end of June after EUR 30,000,000 share buyback and EUR 136,000,000 dividend distribution reached EUR 472,000,000 substantially in line with the level of December 2017. Moving to shipments on Page 5, DAVID 12 Superfast as well as the 488 and GTC4 Lusso families performed solidly. Shipments for the group were up 5.6%. EMEA grew 7.2% with Middle East rebounding.
Americas showed a 6.6% increase and combined deliveries in China, Hong Kong and Taiwan were up 26.4%. Rest of APAC decreased a few units due to timing of the newly launched Ferrari Portofino yet to arrive on the market. Moving to Page 6 on group net revenues. We see how they decreased from EUR 920,000,000 in Q2 to EUR 906 sorry, in Q2 2017 to EUR 906,000,000 in Q2 2018, therefore down EUR 14,000,000 but up 1.4% in constant currencies. Current spare parts revenues totaling €670,000,000 were slightly positive, thanks to higher volumes already commented as well as mix and price.
This was partially offset by negative effects. Engines revenues were €80,000,000 posting a decrease in sales to Maserati due to lower engine volumes. Sponsorship, commercial and brand were €126,000,000 thanks to an increase in sponsorship and higher championship ranking, partially offset by lower sales generated by brand related activities and by FX. On Page 7, you can see the year over year changes in the main items of the adjusted EBIT. As mentioned, the latter was up 7.5% to EUR 217,000,000 with adjusted EBIT margin up 200 basis points and adjusted EBITDA reaching 32.9 percent margin.
Volume was up €12,000,000 thanks to the 812 Superfast, the 488 and the GTC4 Lusso family as well as first deliveries of the Ferrari Portofino. Mix and price were positively impacted by strong performance of V12 models, pricing increases together with the first deliveries of the strictly limited edition Ferrari J50. This was partially offset by lower sales of LaFerrari Aperta that is finishing its limited series run. Industrial costs and R and D decreased EUR 2,000,000 mainly due to lower spending in F1 activities. SG and A costs were almost in line with prior year.
And foreign exchange, including hedges, had a negative impact mainly due to the U. S. Dollar, the yen and the British pound depreciation versus euro. Other increased mainly due to higher sponsorship revenues and higher championship ranking, partially offset by lower sales to Maserati and brand related activities. Moving to Page 8.
Industrial free cash flow for the quarter was €93,000,000 compared to €92,000,000 in Q2 2017, driven by strong adjusted EBITDA. This was partially offset by CapEx to support broadening and hybridization of our products in line with the expected volume growth over the 2019 2022 period. In addition, during the Q2, we paid taxes, which were lowered by the effect of increased cut for deductions related to eligible research and development. Net industrial debt at the end of June, after you already mentioned share buyback and dividend, raised EUR 472,000,000 substantially in line with year end. The last couple of slides finally show Formula 1 ranking as well as our client relationship activities.
With that, I'd like to turn the call over to Nicoletta.
Thank you, Antonio. We are now ready to start the Q and A session. Please note that in consideration of our Capital Markets Day, today we'll focus on Q2 2018 and full year 2018 question only. Thank you.
Thank you. You. We'll take our first question now from John Murphy of Bank of America. Please go ahead.
Good afternoon, guys, and welcome to the call and the company. We're very sorry to hear about Sergio and his passing, but it's also very good to hear about your determination being much higher now that he is gone and that's a driving force. So that's a very good thing to hear for investors. Maybe the first question I have, and I apologize, I'm going a little bit out of bounds here. But when we think about the targets for 2022 and when they were set and thought of, there are some people that believe that it was really something was written on the back of a napkin or an envelope by Sergio.
But my understanding is these plans were formed at least a year ago, if not sort of hatched even further back. Is that a correct characterization? Or were they really just sort of Chairman's goals? But it seems like there are a lot more than that, and there's a lot more that is planned. Is that correct?
I would say this is Louie. I would say that clearly those targets were reviewed with the Board. They were aspirational. And clearly, there were plans behind them. Now in the Capital Markets Day, we'll cross the T's and dot the I's and tell you how we think we will get there.
But we will also have to disclose potential risks to that, but also significant opportunities that we see going forward.
Okay. I appreciate that. And then just a second question on the Superfast. It sounds like demand is obviously far outstripping expectations and wait times for the superfast are very high. We've heard rumors of 3 to 4 years in the U.
K. Is that correct? And is there any way that you would ameliorate sort of that risk of losing customers in any way?
Clearly, the waiting lists are long. That's a good thing in a way. And we're stepping up production. We'll see. But clearly, I think having a very strong order book should give everyone confidence in our growth going forward.
Okay. And then just lastly, Antonio, as you look at the second half of the year, there is some risk as the Portofino ramps up that mix might turn a little bit negative, but then there's also another swing factor being FX that might actually turn positive in your favor. How do you think those two forces will balance out in the second half of the year? And are there other big swing factors we should be thinking about as we march through the second half?
Well, I'll pass it on to Antonio. But I would say that while one can focus on currency and mix, the important thing is to look at the margin, and we anticipate continued increase in the margin versus prior year.
Thank you, Louis. John, I think the way we look at the guidance for the year is that mix should be substantially neutral compared to 2017. And that means that the last quarter may suffer a bit the comparison with the last quarter of 2017. In terms of the effects, we encompass the impact of what we have seen so far up to the end of June. The second half of the year should bring us to a range of negative impacts of the FX for the full year in the range of EUR 80,000,000 to EUR 100,000,000 that I think has been already communicated in the past.
And based on the visibility we have so far, there is no significant reason to change that view.
I'm sorry, just one last follow-up. The if we adjust the revenue and the EBITDA for the swings in ForEx or the headwinds in the second quarter, it appears that the EBITDA margin would be closer to 34.5%. And then I'm just looking at Slide 67 and literally just backing out the year over year headwind from ForEx. Is that an incorrect calculation? It seems like the margins may have been a lot better than they are printed.
The sense that we have is that margin would not be significantly different because we have there are a number of items that are contributing to the average margin of this quarter and the previous one, including, of course, the positive mix and the and that is partly compensated by the FX impact. I have not expect that at constant currencies, this should bring to a significantly better margin. This is not to a level that may allow you to project much better for the rest of the year.
Okay. Thank you very much, guys.
Thank you, John.
Our next question comes from Michael Binetti of Credit Suisse. Please go ahead.
Hey, guys. Good morning. Let me add my condolences on the loss of Sergio, he will be missed. And Louie, we're happy to see you taking the reins. Can I just ask you, since you've already violated Nicoletta's request to stay away from the 2022, I think, Lulu, it won't be lost on you that quite a bit of the stock move lately has been related to some uncertainty related to the changeover after Sergio has left?
We've talked a lot about what is a target of $2,000,000,000 in EBITDA. Is that still where you think this brand can go at a high level through 2022? And I know we'll go through a lot of the details at the Analyst Day, but I did think it was important to ask that.
I understand your question, and I understand that there's been some pressure on the stock given that everybody was shocked by Sergio's sudden and very unexpected disappearance. Don't want to skirt your question, but I do want to sort of reiterate that the targets are set. We will cover those in considerable detail in September. They're aspirational targets. We are looking at the plans in great detail now, and I'll be able to tell you with much more confidence in September.
But I think I believe, although there are some risks out there, there are also opportunities. So that number is certainly an aspirational target, and we will do everything we can in terms of our plans to get there. Beyond that, honestly, I can't tell you much.
Okay. And I guess maybe any initial observations you've had? I know you haven't been in headquarters for long, but I know you know the brand well. Any initial observations on some of the things that the company has talked about more in the near term as far as investment levels related to some of the changes coming on over the next few years on the drivetrain. I know we had spoken recently about a plan to convert to selling cars in euros globally to take FX risk off.
Do you feel confident in what you see early on that those kinds of strategies can still go forward in the more near term?
In terms of the product portfolio, I feel very confident. We have a great lineup coming up. In terms of euro pricing, this is a subject that's been sort of analyzed by virtually every angle for the last 12 months. And I have to tell you we've come to the conclusion that such an action, I. E.
Pricing in euros worldwide, would have adverse consequences on our clients, on our dealers and generally on market dynamics. So ultimately, it would be a negative adverse consequence on us. Having said that, I do recognize that currency affects our results and clearly affects the predictability of our results. All I can assure you is that we'll do everything we can going forward to offset or to mitigate the volatility of this component of our P and L. And I believe this house has considerable levers to try to achieve that.
Thank you very much.
Thank you.
Our next question is from Adam Jonas of Morgan Stanley. Please go ahead.
Louie, Antonio and team, again, I wanted to echo my condolences and extremely sorry for your loss. And I want to thank you for your very kind words, Louie, at the beginning. And you, Antonio, as well for this great man, great human being we lost. Thank you. A couple of questions.
I do look forward to meeting you in next month or in September I should say. Louie, just a couple for you and then one for Antonio. Sergio was, again, an incredible, incredible enigmatic leader and had the great, great qualities as you highlighted. But with total respect for that, I'm wondering, everyone does bring their own unique strengths and experiences to a CEO leadership role, and just high level not violating the September CMD covenant. What high level things do you envision doing differently or otherwise executing in a different way you could share?
Listen, everyone is different. I can tell you that Sergio and I shared the same ambitions for the company. I have a different style, but that's natural. That's none of us are the same. I think by record as CEO sort of speaks for itself in terms of my ability to manage complex and highly regulated industries.
I think I'm a team builder. And Sergio had a lot of other things on his plate. I have a singular focus on Ferrari, and I will be here permanently. And I would hope that, that would make a difference.
Okay. That's great. Thank you for that answer and compassionate answer. Louis, another one for you. The and sorry if this comes across as strange, but some cities, very important, very wealthy cities where there are many Ferrari owners and repeat owners and multi Ferrari owners, cities like London or communities like Hong Kong, those kinds of places, right, are according to our local governments, let's say, talking about an eventual potential elimination of license plates for cars that have tailpipes.
Now there's also without politicizing that or getting caught up in time horizons and things. Just that contemplation is something that's interesting and by our reckoning been taking seriously at some point. Do you think a Ferrari that makes no internal combustion engine noise or would have say, no tailpipe can be a Ferrari?
That's a very valid question. That's why I asked it. Yes. Listen, I'm steeped in the history of Ferrari. I think I understand Ferrari's DNA, and I'm surrounded by a senior management team that certainly importance of this brand equity.
So Ferrari will always remain a Ferrari. And if I can quote our founder, the next car will be better than the previous one. I think we have the technological skills and the know how within the company that can respond to any regulatory issues that will arise. The one you mentioned, I think, is a longer term one. And we can do it whilst it will remain a Ferrari, a unique exclusive car, one that's at the pinnacle of the automotive industry.
So I'm pretty confident we can get there if necessary. But I think your question is a much longer term one. I think there would be total chaos.
Understood, understood, Louis. Antonio, just one final one for you on the kind of remainder of the year horizon. The change in the sponsorship revenue and the championship ranking on the EBITDA bridge was significant. It strikes me as something that you should have a very good visibility and do in some part because there's a lagging nature to it and a bit more predictable nature. So with that in mind, could you provide a bit of either rest of year and sense of what that delta could be in the remaining quarters?
Thank you, Adam. I think you are addressing the point of the other contributing to the EBIT change positively for the quarter. The way we look at the rest of the year is that deposits that are coming from the 1st and the second quarter would be absorbed in the 3rd and the 4th. So we think of others being rather neutral at year end on a full year basis. And in terms of the ranking, do not forget that for the time being, we assume to be ranked number 1 in the championship.
So that assumption I gave is based on that presumption.
And just to be clear, that we really want to win this championship. And if we do because of the way the incentive programs are set up, that's a negative on the year, but clearly a positive into next year.
Got it. Thanks very much.
We will now take our next question from Martino De Ambroggi of Equita. Please go ahead.
Thank you. Good morning, good afternoon, everybody. I echo the condolence, obviously, and I agree with all what you commented on Sergio. The first question, as Nicoletta suggested, is on the quarterly results on the EBIT bridge. Looking at the pricemix, €8,000,000 positive contribution, I suppose, I assume this is entirely price, if not even more considering the mix probably was negative in this quarter.
Am I right in taking this assumption?
Certainly, price is contributing. In terms of the overall impact of mix is rather if I take everything else out, it's rather neutral, I should say. And so price is basically amounting to close to the full amount of the positive price and mix.
Okay. And this is the value we should expect for the rest of the year also for the second half?
As we said, on mix and price, we expect to be rather neutral as of year end on a full year basis.
Okay. Including prices. The second and
third Then quarter by quarter, when you look at that, particularly in 2018, you'll see the Ferrari Aperta contributing negatively. And instead, depending on the quarter, we might have the V12 models that are contributing positive on the mix initially. And then this trend to be slightly reduced with entering the Portofino.
Okay. And the other two questions are more long term related issues for Luis. What's your personal view on the rule to retain the exclusivity of the brand going forward? First question. And the second, what's your personal view on the Formula 1 ongoing negotiation?
I know there is still a long time before the expiry of the existing contract, but Sergio had a clear view showed in the past. I don't know if you have a different view. Thank you.
Could you repeat your first question? I'm not sure I understood.
Yes. What are the basic rules to retain the exclusivity? So it means, obviously, a small or single digit growth going forward. I don't know if there is a threshold that you consider something that cannot be exceeded. What could happen after exceeding the 10,000 cars losing the small vehicle producer status, and you will be obliged to pay some penalties in some regions.
So just overview on the exclusivity.
Okay. I think it has been said before, we're very focused on revenues less so on volumes. We will surpass the 10,000 threshold at some point. But I don't think that will adversely affect our brand equity and the exclusivity of the brand. That's something we're all very, very focused on.
I view my job in part as being the guardian of that brand equity. And I can assure you that Ferrari will remain Ferrari. As to crossing the 10,000 threshold, I think, again, that's been debated at length and discussed in the past. And given the hybridization of the powertrains, we do not believe that that's an issue. And hybrids are going to come and going to stay longer term.
So that's what I would say. In terms of the Formula 1, yes, there have been a number of discussions in terms of the next Concorde agreement. I believe there's been some progress on the technical side. There's less progress on the budget caps and economics and the governance aspects. So I think Sergio and I saw eye to eye on Formula 1 going forward.
Okay. Thank you.
We will now take our next question from Thomas Besson of Kepler. Please go ahead.
Thank you very much. It's Thomas Vesserat, Kepler Cheuvreux. I have a few questions as well. I'll start with the impact you may see on the Chinese business from the tax change and what your view is on the potential impact of overall tariffs on your business outside Europe?
Well, as you know, the tariffs were reduced. And I think the commercial team should be complemented as to how they handle that because others have suffered and we did actually very well within those conditions and prepared ourselves well for that decline in the tariff. Obviously, the price has come down as it has across the board, but we see a pretty bright future in China, and we expect our business there to continue to grow. Thank
you. Second question, you talked about a very large order book and how good that is. Can you tell us what you view as the optimal level of order book? Don't you think that 3, 4 years is too much that maybe 12, 18 months is the maximum you should have?
Well, I think I mentioned 3 or 4 years is long, but I don't think that that's across the board. It's for maybe 1 or 2 specific models in 1 or 2 specific geographies. So the way I look at it is that some of our models have about a 2 year waiting period between 18 months 2 years. That's the general thing. And some of them are slightly less than 12 months.
So I wouldn't look at the extreme of just 3 or 4 years. Those are rather exceptional, I think.
Great. Thank you. I have a last one, please, for you, Luis. You've said, I think, 3 or 4 times in your initial comments that the 2022 targets were aspirational. Can you say whether that is the general expectation of Mr.
Marcune having aspirational targets for FTO or FRE, meaning that their ambitions more than necessarily pure targets that are there to motivate employees as much as investors or whether you meant that this aspiration is probably something which is too ambitious to be achieved?
No, I didn't say that. I think I said that both Sergio and I had the same ambitions. And I would rather defer to the Capital Markets Day to give you the plans and initiatives we have in place and that are being developed to ensure that we meet and deliver those targets.
Perfect. I just wanted to clarify that point because your share price has, I think, reacted very negatively to these comments. Thank you very much.
Thank you.
Our next question comes from Monika Bossier of Banka IMI. Please go ahead.
Good afternoon, everyone. And before starting with the questions, let me express my deep sadness for the loss of Serto. I join the company sentiment in this moment. Welcome. And coming back to the questions, I would like to know I will limit to housekeeping question as we will meet in September.
But the first one is on the level of personalization. If you can just indicate us the current level of personalization on cars. The second question is on the ForEx effect. Sorry to come back to this issue once again, but I've seen that the impact on the first half has been in the range of 70, of which 32, if I remember well, in the second quarter. I remember that the previous guidance was a total impact on the EBITDA between €80,000,000 €100,000,000 I was just wondering if you can confirm this target because I lost the previous answer.
And the third question is on Maserati. I know it's maybe it's not the right moment to speak about this, but Maserati is going down. I'm just wondering if we should expect the same slowdown for the next quarters. And if you have a comment on Maserati as for the future also on the back of the 2nd quarter results of FCA? Thank you very much.
Monica, in terms of the FX, I think I already answered before, meaning we confirm the guidance EUR 80,000,000 to EUR 100,000,000 for the full year. Okay. With respect to Maserati, I think the volumes that we have seen so far reflected the I think the volume reduction that they've reported. In terms of the rest of the year, we are talking about a change with respect to 2017. We're waiting to see what the final number they will require to us to produce.
In terms of the impact on EBIT in any event, given the take or pay nature of the agreement in place, we should not expect a material impact there.
Okay. Sorry. Another follow-up. Any news from the Patent Box?
Let me say, discussions are progressing, and we expect to be in a position to give a better indication during the next quarters.
Thank you very much. Thank you. I'm sorry, and the personalization?
The question is, what do you mean by the level of personalization?
Yes. It's the way that it's
Year over year, in Q2, they are rather neutral. Okay. There's no significant impact.
Okay. Thank you.
Our next question comes from Steven Reitman of Societe Generale. Please go ahead.
Yes, good afternoon. Steve Raimond, Societe Generale. I have two questions. You partially answered about La Ferreri La Aperta, which has been on its finishing its limited series run for quite some time. I just wanted to get an idea of sort of volume impact in the Q2 and the first half.
And I mean is this over now or will there still be some cars sold in the second half of this year? And also if you could comment maybe on the impact of the J-fifty, how many of the limited run, I think, 10 cars were actually delivered in the second quarter? And my second question is about the sort of the role of special hypercars, the limited edition vehicles. Do you feel there is scope to increase the number of those vehicles that form parts of your model range against your series cars? Because obviously, these have a very big impact on your overall margins.
Thank you.
Okay.
First of all, in terms of the those model, we normally do not communicate in terms of units. We expect the La Cerro Re Aperta basically to come to conclusion of its life cycle by the end of the year. And in terms of the J50, we expect to have some few units to be sold for the rest of the year and a few units were sold even in Q1 and Q2. So the impact of the phase out of the Villaserrari Aperta is partly compensating the positive on that we have during the quarter on the mix. And it is why I answered before saying that mix is rather neutral.
In terms of what we expect going forward is that this is going to impact the phase out of LaFerrari Aberta is going to impact negatively Q3 and Q4. And the ramp up of the Portofino in under that respect is not compensating fully. And that reinforce the our expectation to have mix on a full year basis neutral.
I would say, speaking, that we're very focused on the importance of hypercars. It's been a sort of 10 year cycle and whether we can shorten that cycle is something clearly that we have to look at carefully.
Our next question comes from Giulio Pescatore of HSBC. Please go ahead.
Hello. Thank you for taking my question. The first one will be on the Pista. Can you give us an update on when the Pista will start shipping this year or perhaps next year? And what sort of volumes are expecting for 2018 2019?
And could the shipments of the Pista offset, to a certain extent, the negative mix into the perhaps the last quarter when this model ramps up? So that's the first question.
The pizza is expected to be first introduced in Q3 and growing in Q4, ramping up. That is one of the positive contributor to the mix for the second half of the year. I don't think we have communicated ever any volume target for the aircraft.
Okay. Second question would be on the engine segments. Could you perhaps elaborate a little bit more on how the stake or pay contract works? So where in the bridge would you see the payments coming from Maserati to compensate for lower sales? Is that in the other line?
Is that contributing to the strong other performance that we have seen in the 1st 2 quarters?
Yes. The sorry, the take or pay acts as a compensation for reduced fixed cost absorption, and the impact of that is going to be in the other.
Okay. And perhaps one last one. You mentioned that you don't expect to go ahead with moving the prices to euro. But in the past, it was said quite clearly that there was no reason why that should not happen given the strength of the brand. So maybe can you elaborate a little bit more on why you're taking this step back?
Why you're taking this decision to keep things as they are at the moment?
Because after considerable study, we came to the conclusion that it would adversely affect market dynamics. And I can confirm to you that Sergio, in the very recent past, had strong reservations about it too.
Is it a measure to protect dealers or it's more like customer concern?
It's market dynamics that includes everybody.
Okay. Thank you.
We will now take our next question from Fei Teng of Berenberg. Please go ahead.
Hi, thanks. Firstly, just want to echo everyone's comments on Mr. Marconi. My thoughts, of course, go to his family, friends and all of you guys after the sad news. My first question would be to Louis.
I'm happy to see you joining. Just going back to the topic of pricing. I mean, given that you've previously been in an industry that's also been driven to a large degree by pricing, I just wanted to get your thoughts on whether you think there are parallels that can be brought from tobacco into the luxury car industry in terms of things like managing prices and demand. And I guess if there's anything that you would tweak and what Ferrari does on pricing at the moment outside of offsetting currency?
Well, clearly, where I come from, we had quite a lot of pricing power, but it sort of pales in comparison to the pricing power that this house has. I would say that my experience has been in terms of pricing is a close razor focus on price structures from the ex factory price all the way down to the retail price. Tax structures per se, duty structures are things that can be changed to our advantage. And that's something that I think I can bring to the table in terms of pricing going forward. I think that we will always have this delicate balance between price and mix and volume to achieve our margin and income objectives.
And my next question would be on the Formula 1 business. I guess, first of all, would you be looking to stay as involved as Mr. Marchionne was in the governance of the sport? And I guess more broadly, would there be ideas that you would like to bring to discussion that maybe haven't been in focus so far?
Well, in all humility, yes, I will be involved. I'm not sure that I can bring new ideas. I think that the focus has been on very much on slicing up the cake as it exists today. And I don't think enough focus has been given to increasing the size of the cake. So that's one aspect that I think I can bring value to.
And again, in terms of the relationship with Philip Morris, are you happy with the existing relationship as it is in terms of sponsorship? Could there be scope for any changes that could benefit either side?
Well, we have a contract in place till 2020. And we've been Ferrari has had an agreement with Philip Morris for, I believe, it's now 45 years. It's a long term relationship that I believe has been mutually beneficial and will continue to be.
And is there any update on finding a replacement for Santander as the second sponsor?
I think that we've taken that over. When I say we, tell it Morris. So Santander has the impact of Santander has been more than offset by the Philip Morris sponsorship.
Okay. Thank you.
We'll now take our next question from Georges Gaglier of Evercore. Please go ahead.
Thank you. And as others have said, our thoughts are with you. Just following up on the Formula 1 question, and I think you made it clear that we need to be more focused on increasing the size of the pie rather than how it's split. But in light of Force India being placed into administration last week, does it matter from Ferrari's perspective how many teams are competing in Formula 1? Or would you be comfortable if it was just yourself, the 2 other works team and Red Bull Racing each weekend?
No. I think that we want a number of teams out there. That's what makes Formula 1 what it is. It's unfortunate, of course, India fell into administration, as you say. And we'll see going forward.
But clearly, there are other examples of teams that are doing extremely well, who don't necessarily have the kind of budgets that others may have. I think in principle, budget caps are probably a good thing, but the devil is in the details as to how those caps are determined and calculated.
Okay. Thank you. And then next question was just as we think about ramp of the Portofino. Just kind of looking at the California and then the orders you're seeing for Portofino, are you seeing a step up in personalization with the new vehicle versus what you saw historically with the California? And how does personalization on Portofino compare, for example, with the 488 or other vehicles in your model line arm?
I think for the time being, we are projecting to have that in line. No major differences in terms of the amount of personalization or the size and the value of the personalization for such car compared to California as of now.
Great. Thank you.
Thank you.
That concludes today's question and answer session. At this time, I will turn the conference back over to Nicolas deRusso for any additional or closing remarks.
Thank you, Tony. Thank you, everyone, for joining us today. The Investor Relations team will be soon