Good day, everyone, welcome to the Ferrari N.V. 2018 First Quarter Results Conference Call. Today's call is being recorded. Now, your host for today's conference, Ms. Nicoletta Russo. Ms. Russo, please go ahead, ma'am.
Thank you, Rufus, and welcome to everyone who's joining us. Today's call will be hosted by the Group's Chairman and CEO, Sergio Marchionne, and Alessandro Gili, Group's Chief Financial Officer. 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 risk 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. Marchionne.
Thanks very much, Nicoletta. I'm gonna keep my comments to bare minimum. I'm gonna try and avoid the Elon Musk problem from yesterday. Couple of issues. One, obviously we're incredibly pleased with the outcome of the first quarter. I think these were, they were good results, certainly in line with our ambitions, the ones that we'll talk about more when we get together in September for this infamous Capital Markets Day. We have no bad news to give you other than the fact that I think all the work that we've done here to try and improve, sort of the quality of the earnings that I have are beginning to pay off.
If you were to compare Q1 2018 to Q1 2017 and you remove all the impact of sort of the hedges that we've put on, the improvement has been quite substantial, both at the EBIT and EBITDA level. I'm just looking at some numbers here. Removing the impact of hedging in 2017, our EBIT number was about 22.3%. We're now at 28.5%, and 28% without sort of hedging cover. We're at about 35.2% in terms of EBIT, EBITDA. We're moving in the right direction. I think we still have a long way to go. All the efforts that we've put in in terms of improving the pricing equation in the marketplace are beginning to bear fruit. I'm quite pleased.
The order book is in decent shape. I think that certainly for the rest of 2018 and what we can tell about 2019, given what we have launched, we are in a good place. The other part of this thing, which obviously we have been working on diligently, is the recovery of our Formula One activities. We are, as of last Sunday, we are the leader in the constructor series, not by much, but we've been able to reestablish ourselves. I think we were unfortunate. We were unlucky, in terms of what happened with Seb and Kimi in terms of the drivers ranking. We've lost it by a marginal amount. I think the car is in phenomenally good shape.
I think the team has done a huge amount of work during the winter to try and make sure that we can be here and be as competitive as we are today. I have no bad news. On that note, I'll pass it on to Alessandro, who's going to take you through the details of the quarter.
Thank you, Mr. Marchionne. Good afternoon and good morning to everybody, and thanks for listening on the call. I will start with page five of the deck. Our shipments reached 2,128 units, up 125 units or 6.2% versus prior year. Results were driven by a 23.5% increase in V12 models, thanks to the 812 Superfast, mainly offset by the F12berlinetta phase -out, as well as the F12tdf that completed its life cycle in 2017. V8 models were in line with prior year, thanks to the 488 family and the GTC4Lusso T that boasted a solid performance offset by the California T phase out.
LaFerrari Aperta is still contributing and about to finish its limited series run, while the newly launched Ferrari Portofino will commence deliveries in Q2 2018. Group net revenues for Q1 2018 were EUR 831 million, up 1.3%, or 6.3% at constant currencies. Our adjusted EBITDA improved by 12.6%, reaching EUR 272 million and 32.8% margin. Adjusted EBIT for the group showed an 18.5% increase, reaching EUR 210 million, with a margin expansion of 370 basis points to 25.3%.
Industrial free cash flow for Q1 2018 was EUR 95 million. Net industrial debt in March 31st, 2018 was reduced to EUR 413 million, which includes EUR 30 million of shares buyback from EUR 473 million at December 31st, 2017, thanks to the positive industrial free cash flow generation. As a reminder, dividend payment will impact Q2. Moving to shipments on page two, sorry, on page six, all regions positively contributed. Shipments for the group were up 6.2%, where EMEA grew almost 7%, with Italy, U.K., and France growing at double-digit pace. While Germany recorded mid-single digit growth, thanks to the 812 Superfast as well as the 488 family.
Other European countries were up double-digit, while Middle East was down due to the reallocation triggered by tough market conditions. Americas showed a 4.4% increase, rest of Asia Pacific grew 3.8%. Combined deliveries in China, Hong Kong, and Taiwan were up 13.7%, thanks to the GTC4Lusso family as well as the 812 Superfast. Moving to page seven, Q1 2018 net revenues reached EUR 831 million, up 1.3% versus prior year or 6.3% at constant currencies. Cars and spare parts revenues were up 5.2% or EUR 31 million, thanks to higher volumes led by the 812 Superfast, as well as the 488 and the GTC4Lusso families.
Positive mix led by V12 range models, along with greater contribution from our personalization programs and pricing increases. This was partially offset by negative FX, the California T and the F12berlinetta phase-outs, as well as the F12tdf that completed its life cycle in 2017, and lower sales of LaFerrari Aperta that is about to finish its limited series run. Engines revenues posted a decrease in sales to Maserati due to lower engine volumes and a different production schedule versus prior year. Sponsorship, commercial, and brand were up EUR 2 million- EUR 125 million, thanks to an increase in sponsorship and higher 2017 championship ranking compared to 2016, partially offset by FX. Other revenues were EUR 4 million, higher at EUR 17 million total, thanks to the Ferrari Financial Services.
On page eight, you can see the year-over-year changes in the main items of the adjusted EBIT. Volume was up EUR 24 million due to an increase of approximately 130 units, excluding LaFerrari Aperta, thanks to the 812 Superfast, the 488, and the GTC4Lusso families, together with positive contribution from our personalization programs. This was partially offset by the California T and the F12berlinetta phase-outs, as well as the F12tdf that completed its life cycle in 2017. Mix was positively impacted by strong performance of V12 models and pricing increases. Industrial costs and R&D decreased EUR 1 million, mainly due to lower spending in F1 activities, as well as industrial costs, partially offset by higher R&D expenses to support product range and components innovation for hybrid technology.
SG&A costs were lower than prior year, mainly due to lower charges in connection with the equity incentive plan. Foreign exchange, including positive hedges of EUR 13 million had the total negative impact, mainly due to U.S. dollar and GBP depreciation versus EUR. Other increase, mainly due to higher sponsorship revenues and higher 2017 championship ranking compared to 2016, as well as a favorable pronouncement on a prior year's legal dispute. As a result, Q1 2018 adjusted EBIT was up 18.5% to EUR 210 million. Adjusted EBIT margin expanded by 370 basis points, reaching 25.3%, and adjusted EBITDA reached 32.8% margin. Moving to page nine, industrial free cash flow for the quarter was EUR 95 million, driven by strong adjusted EBITDA.
This was partially offset by CapEx, net of net change in working capital EUR 30 million, primarily related to the inventory driven by the projected volume growth in line with our 2018 outlook. Other included payment of employees' bonuses and interest payments in connection with bond interest maturities. 2018 tax advance payments will impact future quarters, just as a reminder. Net industrial debt in March 31st, 2018, reached EUR 413 million, which includes EUR 30 million of shares buyback. On the next page, Scuderia Ferrari has worked diligently to be prepared for the 2018 season, the initial results are encouraging. five podiums in the first four races, with Sebastian Vettel winning two races so far. On the following page, just a quick glance at our client relationship activities as usual.
In the first quarter, 2018, we have unveiled and presented at Geneva Motor Show the 488 Pista. As a last page, on page 14, we are confirming our 2018 outlook and our midterm outlook. In the first half of September, we'll host our first Capital Markets Day in Maranello. With that, I'd like to turn over the call to Mr. Marchionne.
We can now move to Q&A session. Thank you, everyone.
Thank you. Ladies and gentlemen, if you would like to ask a question, please firmly press the star key followed by the digit one on your telephone keypad. If you're using a speakerphone, please make sure that your mute button is disengaged so that your signal can reach our equipment. Again, press star one to ask a question, and we will pause for just a moment to allow everyone the opportunity to signal for a question. For our first question, we go to John Murphy with Bank of America.
Good afternoon, guys. Just a first question. When we look at page eight, mix in the quarter was positive EUR 15 million, and I think if we think about that in the context of the Aperta being almost finished, it sounds like that's, you know, there's still a few left to go there, and the Portofino launching up through the remainder of the year. How should we think about mix? There's, you know, I think a big concern in the market that mix will be materially negative as we go through the back half of the year, but you just put up a positive EUR 15, so just trying to understand how we should think about it.
Maybe, John, just as a reminder, last year we didn't have the Superfast, so there is a positive contribution in Q1 from the Superfast. Next quarters, you will see still that effect. We might not be as positive as in Q1, but we are overall projecting a positive mix for the year.
Yeah, I mean, the 812 Superfast is in the product range for the whole of 2018. I think that's going to offset whatever fears you may have about the performance of the Portofino, which I, based on our calculations, is still going to be quite decent given the reception that the car has had. I think it's having a market response which is well beyond what the California produced when it was originally launched. I'm hopeful that we'll be able to maintain positive mix throughout the whole of 2018. Obviously, the whole of 2019 will also be in decent shape. I mean, this is obviously dependent on the launches that we'll have of vehicles. You know, there's another car coming.
Certainly, there's gonna be one at the Geneva Motor Show, and there may be one that we will show here at Capital Markets Day. I think the issues about mix are behind us now.
That's great to hear. And then just a second question. You know, there was some talk about laying off the FX risk to the customers in the form of variable pricing. I'm just curious where that stands right now and how you think about that going forward.
Yeah. That needs to happen. I mean, the reason why I made reference to these undisturbed numbers, of FX removed is that the performance of the euro, and we've seen it now break 120 on the way down. For me to be able to call that number for the rest of 2018 is, I mean, it might as well get hit by lightning here. That's not our job. Providing hedges that have got 12-18 months cover doesn't give, certainly for a company of the caliber of Ferrari, doesn't give it the type of earnings predictability that it needs to provide. It's not a question of laying off risk. I think it's a question of how we position ourselves in the marketplace with our product. We've opened the conversation with our dealers.
I think they're aware of the fact that we will be transitioning to a euro-based model, which is the only thing that we truly understand from an industrial standpoint. Within 2018, I think we'll have the framework to be able to run from 2019 on, to be able to run this without having the P&L impacted by foreign exchange shifts. I think, I think it's important. I think it's a bloody important issue because it needs, you know, I can't live in a world where it's saying, you know, we had a, you know, in 2018, we had a great FX cover, and that's why we made the numbers. That's just nonsense. We can't run the business this way. We'll get there.
I think 2019 is going to be the first year that we'll see this system being put in place. We're toying with a variety of alternatives that allow effectively the dealers to try and reset base from time to time. We need to make sure the thing is workable, and that it doesn't impact our relationship with the customer. I think we're going to get there. The dialogue has been healthy so far with the dealers. I think the commercial organization is fully engaged, and Alessandro and his people are onto the piece. Hopefully, by the end of this year, we'll have something that works.
Great. Then just on slide eight, you kinda snuck in this top high-end luxury peer EBITDA margin of 33%-38%. Should we think of that as sort of your long-term, you know, range? Or should we really be thinking about the higher end of that range or potentially even through that 38%, when you get out to this new product intro over the next three years?
Yeah. I think we need to blow through that number. It's not good enough, not for what we produce here.
Great. Just lastly.
Yeah, just take it as, I mean, take it as an indication by Braille of where we're gonna be in the next couple of quarters. Long term, it needs to be better than that.
Okay. That's helpful. Just lastly, I mean, when you look at the Red Bull disaster, you know, in that, in that crash there, just curious what you think that means for your chances, you know, as you go work through the F1, you know, season. I mean, that seems like it was, you know, a major disaster there. I mean, does that mean you're kinda locked for number one or two? Or are you really, I mean, just curious what your thoughts are there and how, what that means for you.
Well, look, it's, you know, I think Red Bull both as a house and in terms of the drivers, both Ricciardo and Verstappen have expressed their views about, you know, what they thought of the incident. I think everybody regrets what happened. At the end of the day, I know two things. The car today is probably the most promising F1 car that Ferrari's had since I've been here, since 2014. It is competitive. I think it is competitive in a variety of circumstances. The thing that I find even more encouraging is the way in which both of our drivers have engaged. Even Kimi has shown phenomenal vigor in engaging in this championship.
I'm hopeful that we'll be able to prove this as we go forward. There are a number of developments that are obviously on the way in the car, which will become visible as we go through the season. The broader question as to our, you know, the level of engagement that we have in F1 and the dialogue that we're having now with Liberty, with the organizers, I think it's an interesting question. It's early days. I think we will bring this issue to conclusion, vis-a-vis Liberty by the end of this year. I'm encouraged by the change in the attitude that we are seeing from Liberty in terms of the extent of the changes that they're forecasting in 2021.
I think probably the biggest indication has been the recognition of the fact that the engine regulations need to reflect so the nature of the sport and we can't really dumb down engine development just to accommodate new entries, right? The stuff that's on the table now is potentially workable as a system. The economics are not, and I think that's something that we need to go back to Liberty with. I think we now have enough of a basis to start having meaningful discussions. I'm hopeful that we'll get it all resolved by the end of this year, one way or the other. The thing that you need to keep in mind is that Ferrari will continue to race. I mean, it's in our blood.
That's what we do for a living. I think we'll find the right way to exhibit our skills on a racetrack.
I'm sorry.
Yeah, hopefully in the current.
Just to follow up on that. Sorry, the phone was breaking up there. The number one or number two position financially, what does that mean for you in FY 2019? Is it materially different? Just trying to understand if that really would matter to our FY 2019 estimates.
The answer is yes, it does matter. I mean, I It matters. I made the point on a call that unfortunately because of the way in which our incentive system works, especially with drivers, with our pilots, I think some of that benefit may be dissipated away in compensation to the Formula One team. What we keep of that excess is not clear to me. I mean, I Regardless, I think it has incredibly positive impacts on the brand. I think, you know, I'll You know, I'll take whatever scraps are left over after I distribute prizes to the team. I think it's important that Ferrari reestablish itself as a winner in Formula One in some fashion. I think that team remains the key objective.
I would not change my 2019 forecast because of what I just said. I think we'll make the numbers regardless. Having said this, I think that this, we do have an obligation to win, and I think, you know, we'll try and deliver.
Great. Thank you very much.
For our next question, we go to Thomas Besson with Kepler Cheuvreux.
Thank you very much. I have two questions, please. Firstly, on element that you want to remove ideally. You had the biggest swing on a quarterly basis in both FX and other. Can you give us any idea of what we should expect in coming quarters for both? Because it's fairly challenging for us to predict. The second question, clearly, I think our understanding as a group of analysts was that profitability in 2018 would only go up marginally versus the big gains you had achieved in the previous couple of years. You show a massive improvement in Q1.
Should we read the first quarter as something indicative of the full year, or should we think that coming quarters will be, closer in terms of profitability from their previous quarter, in 2017? Thank you.
I'll give you an answer to the second question. I don't think Q1 is anomalous. I think it's an indication of the pace that we've established for the house. You may have interquarter variability, but overall for the year, I don't think we're gonna be materially off. On the first question, I feel sorry for Alessandro trying to answer. I just went through this long diatribe about the unpredictability of, or the inability to predict foreign exchange rates, and now you want us to tell you what we think we'll do for 2018. I don't believe in the fact that we can rely on hedging. Hedging is not gonna save this business at the end of the day.
It just won't, because it's a time-limited engagement. You know, this business is a long-dated thing. I mean, we got order books that run, you know, a couple of years out. We need to find a better way to run this business commercially. Having said this, I think that we expect that 2018 is more or less preserved because of what we can tell now in terms of the market.
If we assume the same average performance of the FX, especially on the euro, on the euro-dollar and the euro GBP we had in Q1, the total impact for the year might be in a range between EUR 80 million and EUR 100 million. We previously provided you a lower number, but because that was based on a lower projection. That explains why it's difficult to predict foreign exchange in general. Next quarter, just in terms of geography, first half will be worse than second half, just as a comparison to prior year.
As, just as a reminder, second half of last year was impacted already by a depreciation of the dollar, which means that the second half of this year compared to the first half, so the second half of last year will be slightly better. While the first half of this year will be obviously worse than last year.
Just to add a sort of, We do need to find a solution to this FX issue long term, so that we can actually make statements that make sense about the rest of the year. I just, you know, we gotta be able to tell you with some The great thing about Ferrari is that as difficult as a business model as we run, it ought to be predictable in terms of the things that I tell you. If I tell you we're gonna make EUR 2, we're gonna make EUR 2. I don't wanna have this I don't wanna start arguing that, you know, if [starting a gun] this other way, I would have made EUR 4. This is nonsense. Right? We need to bring it back within the fold, and I think we will.
The year's gonna be all right.
Yeah, it looks like it. Can I just follow up on the other point? I mean, you had a boost, I think, from the sponsorship revenues and a few one-offs. What should we expect for the year? Something positive, not too different from the quarter or something significantly ahead that would offset part of the FX?
Lower than Q1, but certainly positive as a result, primarily of the ranking effect on Formula One. Just as a reminder, since we are benefiting from the fact that last year we had the better ranking, that's impacting positively on the other businesses.
Great. Thank you very much.
For our next question, we go to Michael Binetti with Credit Suisse.
Hey, good morning, guys. Thanks for all the detail here. Congrats on a nice quarter, and thanks for taking my questions. Sergio, I wanna zero in on the comments you made to the earlier question about the strong demand for the Portofino. I think, you know, last year when we talked about it around the launch, you thought it was a good step forward for your opening price point line, but not exactly, you know, cracking the code, in air quotes. What do you think has been such a strong driver forward on this iteration of the opening price point line?
You know, we are learning, and I don't mind admitting, I think we're learning how to price. I'm, and I don't mind admitting sort of ignorance on this issue because I think if I told you that we cracked the code on pricing, I'd be lying. I still don't know. I mean, the question that was asked earlier, even in terms of the, about EBITDA margins and where this business can go, I think a lot of it depends, obviously, on the product portfolio and the positioning of what we offer.
The way in which we end up ultimately pricing in the marketplace is something that we are quickly learning how to do. I don't think we have explored the edges of the possible. I, you know, bear with us as we learn. I think the worst thing that could happen to us is that we end up mispricing and overpricing, and then it's not really an easily recoverable position because you don't do this elegantly. I mean, you know, overpriced products that need to be redimensioned have a very negative impact on brand. I think we've been careful not to go beyond what we think we can do. I still think that there's room to be explored. I, the commercial guys know this, so I think we have now started.
It will become a lot easier, I think, as we keep on rejuvenating the product portfolio. I think a lot of it is already visible with the launch of the Pista, the 488 Pista, which was shown in Geneva. I think the demand, that car is completely sold out. I mean, it is, you know, I've got people now that sort of are begging to get put on the list, like. The car is completely sold out. It shows what happens when you end up finding the right set of stylistic and technical attributes and you price properly in the marketplace, right? I think we did a decent job of positioning it at the opening. We'll see what happens as new products launch here.
I think we have better opportunity to try and determine the depth of the profit potential of Ferrari as we rejuvenate the whole product portfolio, which, by the way, will happen by 2021, 2022, I mean, just by natural course.
Let me change gears for a second. On the, on the mix increase that you were asked about earlier, the EUR 15 million contribution to EBIT, would you mind giving us some more of the puts and takes that landed at EUR 15 million on the net? I know, you know, we can make some assumptions. The Aperta was a big drag. Sounds like Superfast is probably stronger than we thought. Maybe Portofino positively offsets California. I can't remember if the negative growth of the engines business is in the number you quote as mix, and maybe how much was from like-for-like pricing or personalization.
Just to deal with the engine side, that's not in the numbers. I think Alessandro made reference to the fact that Maserati is realigning its demand. I think they're working very closely with us, and we're gonna make sure that we can provide engines for the remainder of the year as they see demand pick up. The first quarter has been negatively impacted just in terms of volumes. I don't think we've had any significant shifts in personalization and so on.
No, personalization is in volume, by the way, so it's not in the mix component. As we've said, the Portofino is not there yet, so it's mainly V12 mix impacting Q1 compared to prior year.
It's the V8 Superfast.
Okay. Sounds pretty encouraging. Just one last one, if I could, on capital allocation. If I model out the rough touch points you've given us through the 2022 plan early on, you start to build net cash pretty significantly, not too distant future here. I know the idea of a more significant stock buyback moves back and forth in your priorities, but it strikes me as the kind of company that shareholders would like to see taking out some of the equity to slingshot with the earnings behind the plan you have. Can you just talk to us about where that sits in priority now and what would keep you from or make you hesitant to do a more material buyback earlier on?
The problem with these things, as much as I think we need to do these things strategically, I despise discussing them publicly because it's almost I mean, if we end up being predictable in the terms that we intervene in the marketplace, people will read this as a share price support. I hate doing this stuff. I mean, let the market call it. We've intervened where we thought, and we have done this, I mean, the transactions are actually visible because all we post now on the exchange. I mean, you can see every one of the transactions that have been carried out.
We do this whenever we see sort of the market acting in a bizarre way for whatever reason, and we step in and we're gonna continue to do this. I think I don't have a doubt in my mind that given the cash generation capability of the sales, that we need to go back up and sop up equity in the marketplace. This is. Between now and 2022, this will happen in a significant fashion. The problem that we've got, and I think it's an indication in the forecast that Alessandro put together, you know, we're in a heavy capital expenditure here. We're gonna spend over a EUR 500 billion in 2018. I think we're just being cautious until we get over this capital outlay.
I think the direction we were there.
Okay. Thanks a lot, guys, and congrats again on a nice quarter.
For our next question, we go to Helen Brand with UBS.
Hi, good afternoon, from Europe, at least. Just coming back firstly on the personalization question. Can you give the weight of personalization in the quarter? How should we think about this for the balance of the year and perhaps your plans, a little bit further out than that as well? Secondly, obviously good news on the Portofino, can you give us an update more broadly on waiting list times currently, across the different models? Finally, just any update at all on Patent Box as well. Thanks.
I'll let Alessandro deal with the Patent Box in a second. I'll just give it to you by model. I think on the GTC4, that's probably the shortest waiting list that we have, and mainly in the non-all-wheel drive version, which was the second model that was launched in the GTC4, but that's relatively readily available. The Portofino, from what we can tell, is completely sold out for 2018. The 488 and the Spider are gone for the remainder of 2018, well into 2019. Is the Portofino. The 812 is out. The Pista is completely sold out. With the exception of the GTC4, everything else is pretty well gone for the rest of 2018 and a big chunk of 2019.
It's as good an order book as I've seen here. It's in decent shape. I'll let Alessandro give you a view on the.
On the personalization side, we are basically in line with last year, and that's an additional 17%, which is provided on our car revenues compared to the base price of the car. That's the contribution that we have from personalization. On the Patent Box side, I think the easiest way to say is that we started the process officially and formally, and we are in touch with the tax authorities, and we believe we might be able to close the process by Q3 or at the latest in Q4 this year.
Great. Thanks so much.
For our next question, we go to Martino De Ambroggi with Equita.
Good afternoon, everybody. Two questions on the EBIT bridge. If I look at the volume, it was one of the best performance, the quarterly performance, since you provide this figure. If I calculate as an incremental margin was in excess of 70%, EUR 24 million of volumes at that, divided by EUR 31 million of higher sales. I suppose this cannot be a recurring figure. You also mentioned personalization was in line with last year. Could you just provide us some additional information on this high level of volume effect and what could be for the rest of the year?
I mean, I would love the 70% to be factual, unfortunately, you need to put together the FX component. The EUR 31 million of increased revenues for Q1 are clearly net of the FX impact, which is highly negative. You should measure it on a constant currencies basis, probably that would provide you with a different number. The real effect on volume is really the fact that we had 125 additional units, including the mix on V12, as I mentioned before, which is also in absolute terms, providing a positive effect for volume itself. It's just 125 cars, including certain LaFerrari Aperta and the 812 Superfast and 488 Spider and GTB in total, providing that level, including the personalization effect.
Okay. Still on the bridge on the other line, you're also mentioning a legal dispute. Could you quantify it if it's material or not?
It is lightly higher than mid-single digit.
Okay, the last question is on the 488 Pista. You mentioned it's already sold out. Could you provide what is the potential in terms of volumes, delivery period, and obviously whatever could be helpful?
Yeah. The delivery period will span into 2019. We give no indication on volumes on these cars.
Okay. Even if it's similar to the Tour de France or LaFerrari Aperta in terms of volumes and.
No, I think they will sell more than tdf. It's a different caliber of car, right? I mean, there's a tradition of this vehicle being in the range. The car will be out there for a while, for 2018 and 2019. It's completely sold out. The best way to find out is to contact the dealer, right? Try and order one, and you'll be told that you can't get one. It is completely sold out.
Okay. Thank you.
For our next question, we go to Giulio Pescatore with HSBC.
Hello. Thank you for taking my question. Just a follow-up on the Pista. I'm trying to get a sense of what is the firing power of this car. I mean, if I benchmark it to the Tour de France, I mean, that car was based on the F12 for which you sold about 1,500 units. You sell about 5,000 units of the 488. I mean, is that the right way to look at it? I mean, could you sell four times more of that model? I mean, I know you may, you might give the number going forward, but I think it's material, especially given that on those cars you will have historically made your highest growth margins. I mean, can you confirm that, please?
The second question would be more thematic. I mean, it seems to me that you're still not struggling, but the, I mean, the performance in, on the GT side is not as good as on the sports side, but that's why you plan to expand. I'm sure you give more, more color on the Capital Markets Day, but is that a matter of concern for you, like seeing that on the GT you don't do as well as on the sports side?
I don't think so, but that's. I'm not worried. I mean, if you consider the Portofino to be, to be a GT, I think that the indications are that whatever problem we had, we've rectified. I think that the issue that if you're raising concerns about whether the GTC4 is an area of concern, that caliber of car, because of the very nature of the vehicle itself has always been something that Ferrari has not struggled with, but I think it's had probably more difficulty in terms of placing large volumes of vehicles in the marketplace than it has across the other, the other ones. But the broad answer to your question is that I think that we will be answering that query on Capital Markets Day in September.
I think that's really, you know, a part of the pitch is to try and show you what we can do in that segment of the market. It's an area that has been historically neglected by Ferrari because of its success on the sports car side. I still think that it is an incredibly underdeveloped and underutilized segment of the market, which I think we need to address in a very aggressive fashion. We started doing this, but I think it will become more visible when we get to September. I'm not sure that I can help you in terms of your arithmetic on the, on the Pista to try and reconcile to the tdf and trying to find out what portion of this.
The only thing I can tell you is that whatever number we had out there has been, and the allocations that have been made to the dealers has been completely exhausted. I have no more capacity left in the system to produce Pistas. It's done.
Okay.
We'll give you numbers as we book them.
Okay. Thank you.
For our next question, we go to George Galliers with Evercore.
Hi. Thank you for taking my question. First question I just had was actually around GT cars and pricing. If I look at the crossovers from Lamborghini, Bentley, Porsche, they all seem to be priced at the low end of their range offering and below the performance-oriented cars. Do you think that's the right strategy for GT cars, and is that something which Ferrari might consider in the future?
No.
Okay. Secondly, maybe equally brief answer, but when it comes to capital allocation, would Ferrari ever consider an acquisition? Not saying it's for sale, but for example, a sports car brand like Lotus potentially could offer an entry point for the company.
This is gonna require more than a yes or no. I'll give you the answer first, I can try and give you some reasoning. It's doubtful that we would buy another car brand. We've agonized over this thing now for a long period of time. You understand that before the spin from FCA, Ferrari had access to brands like Alfa and Maserati, they could have always taken these brands sort of as it did. For a period of time, Ferrari did own Maserati outright, they tried to run it. It wasn't until 2007 or 2008 that I took it off the hands of Ferrari and brought it back into the fold at FCA.
I think that bringing another car brand into the fold of Ferrari would actually be a huge distraction, and I think there's a lot of work that needs to be done in terms of maintaining, in terms of developing and maintaining the uniqueness of Ferrari going forward, including [volumism] and margin generation and the expansion of profits. There's a bigger underlying question that I think is built into this question as to whether we associate ourselves with another car brand. There is a model out there that says that we become a fully-fledged luxury goods maker, in which case, Ferrari could potentially own something other than cars, and they could do something else in the luxury goods space.
Given the amount of work that we need to do today, in building car, and we'll talk about this on Capital Markets Day, everything else that we do here is fundamentally a distraction, not just in terms of the effort. But in terms of the potential returns associated with the effort. Every time we run these models and we've looked at, and so the potential benefit associated with that expansion, we end up running short against the internal alternative of trying to do this and build the rest of Ferrari up.
We're not at the point now where we have excess capacity, both in terms of skills and capital to try and take it outside of our current framework and deliver a set of returns which are commensurate with the quality of the Ferrari brand and consistent with what we think we can get out of the existing business. The time might come. I don't think it's here today.
Great. Very helpful. Thank you.
For our next question, we go to Lello Della Ragione with Intermonte.
Hi. Two questions left from my side. One is a clarification on FX. I just wanted to be sure. You haven't started yet on pricing cars in Europe or in euro or acting in some other way in order to offset this element, correct?
Correct.
Okay, very nice. The other question is just on the other bucket of the bridge. You explained that the mid-single digit is related to the legal dispute. I was just trying to reconcile that part of the bridge with the revenues, because we saw the effect of on the revenue bridge is actually negative. I know there might be some mix effect because some of these elements are royalties only. How should we read this remaining, let's say EUR 15 million remaining on the bridge side and connect it back to the revenue bridge? Because I'm still struggling on that side. Thank you.
You just need to consider that on the revenue bridge, you have the FX item again, once again, unfortunately. You read in the other, the performance excluding the FX, which is taken out as a separate column in EBIT bridge. The other element is just that SG&A and some other costs of the other businesses are included in the specific line. There you see the pure gross margin of the other businesses.
Okay. Yeah. Just on that point, connecting all the comments that you made on the other line evolution going forward to in 2018. If we consider it without the legal dispute, that mid-single digit might be a reasonable run rate for this year, given the higher revenues from the F1 and sponsorship that you might have this year.
I mean, difficult to predict the run rates on the other side, but as I said, it's gonna be lower than Q1 for sure. Cleaning out or taking out the effect of the legal disputes and some of the other elements we discussed about FX and so on.
Okay. Thank you. Very helpful.
We go next to Stephen Reitman with Societe Generale.
Yes, good afternoon. I have two questions, please. First of all, on the volume mix and the bridge relating to the V12. Secondly, on Maserati. My first question on the volume. You sold 125 extra cars, and in your bridge, you talk about the 130 cars excluding LaFerrari Aperta, which suggests that LaFerrari Aperta sales were down, the deliveries were down about five units. I would guess that the, can you give some indication of how many Apertas still are to be delivered for the remainder of this year? That would suggest, looking at that Q1 figure, that there was still a relatively high figure compared to Q1 of 2017, delivered in Q1 2018.
Secondly, on Maserati, obviously, with the Maserati reducing its production and you reducing your shipments of engines to Maserati, are there any compensatory elements in place there to protect Ferrari from lower than anticipated volumes from off takes from Maserati? Thank you.
On the Aperta, the units are really few in Q2 and maybe really some ultimate ones in Q3, but overall, much lower than what you see in Q1. On the Maserati side, we might have covered that in prior years or quarters. We have a sort of take or pay mechanism implied in the contract today, as well as the fact that we are purely operating with variable cost, which means that we are reducing our efforts in terms of production in connection with the reduction of volumes that Maserati is providing us. There's no impact on the EBIT line as a final effect, as a combination of the two elements.
Thank you.
Thanks.
We go next to Fei Teng with Berenberg.
Hi. Thanks. Just have a couple of questions. The first one is on hybrid technology. You've got a lot of investments going in now. After technology launches, could you give any more detail whether margins on hybrid cars might be meaningfully different compared to the equivalent conventional models? Like, is there a meaningful incremental pricing opportunity from this technology, for example? Is it right to assume that this will be introduced as standard content?
I think our view is that we'll be able to price for the hybrid. I think the question as to whether they constitute part of the standard offering of Ferrari is something that the market will have to call. I'm of the view that this issue is inescapable. I think forgetting about sort of the very loud comments, coming here, coming out of some of the mass marketers, I think that technology is now, in some fashion
Going to become mandatory across the whole product range. Certainly by 2022, the completion of this plan, I would expect that nearly all of the offerings that Ferrari will make will embed some level of hybrid structure and powertrains. I think we need to be careful. There are still some customers of ours and some products that I think will require pure combustion. I think it's a limited portion of the portfolio. I think we need to be cognizant of the fact that some of our customers might prefer that option, especially on the 12-cylinder side. The ability to manage 12 cylinders with a hybrid just because of the power output from the system is not easy.
The question as to whether our customers will be able to drive a V12 hybrid is a big question. We're debating this on the inside all the time, so we'll certainly have a better view by the time we talk to you in the first half of September. My gut tells me that most of our products will have it and we'll price for it.
Thanks. My second question is just following up on Formula One and the new engine rules. I mean, one of the things that Liberty Media is focused on is trying to reduce engine development costs. How real is the likelihood that something like that can materialize from your discussions and to what degree?
I think the discussion that we're having with Liberty and with FIA is to introduce budget caps, which are more encompassing in nature than just dealing with engine development. I think there's value in that proposition. I think that there is an opportunity, I think, for us to remove some of the excessive R&D costs associated with obtaining what I consider to be marginal benefits from aero development. That can be cured if you agree a set of limits on how much you'll spend on developing the car.
The important thing for us, for our standpoint is that we don't touch to the nature of the technical development of the powertrain, because that is at the heart of what Ferrari does for a living. I, you know, I made references to this NASCAR lookalike process, which if we start smelling and looking like NASCAR, then I think Ferrari is out. It has no interest in playing. I don't think we're there. I think we need to continue to work with Liberty, with the commercial rights holders and with the FIA to try and bring about a sensible equilibrium. If we can't, as I said before, we'll just pull out. We're not there. We're not there today.
I think we owe the sport a phenomenal effort to try and bring about closure of these items. We'll try and get that done before the end of this year.
Do you think given the increasing popularity of Formula E, is there a risk that that could overtake Formula One at some point? Could that be a threat to Ferrari's marketing power, especially given the.
You know what? I.
You won't be able to have any real historical presence.
I wasn't at the Rome event of the Formula E. I watched it on television. I, with all due respect to Formula E, I think we have a long, long way to go before that becomes a potential substitute for Formula One. I understand it directionally. I just don't think we're there. I think it's lacking a lot of things, and I think we need to find a way to remedy that, those shortcomings. I don't think in its present form it is a threat to Formula One.
Thank you.
For our next question, we go to Philippe Houchois with Jefferies.
Yes, good afternoon. Thank you for taking my question. I'm just wondering about at some point later this year or early next year, you're going to move to a second shift for assembly. I'm just wondering how complicated it is in two ways. one, first, I mean, you have a pretty skilled workforce that needs to be trained to a high level of competence. How difficult is it to actually get that second shift going in terms of human resources? two, to make that second shift economically profitable, do you need to have kind of a step up in the volume to keep that second shift reasonably occupied, I would say? Does it not matter, and you can just slowly improve?
I'm just looking, are we going as smooth, or are we looking at that step up to make that second shift viable, and what would potentially be an impact in terms of profitability?
I think these shifts will be gradual, Philippe, as we roll out these cars. I don't think we have to staff. I think just a broader, and the answer to your broader question about how difficult it is to staff, I think we can manage it. I think that the area that we operate in offers some great human resources. I think that the house is well-trained in sort of in passing on the tradition, the Ferrari tradition onto new recruits. I think we've done, we've proven this in the past, and I think it will work again, as we try and expand production capacity.
I don't think we're gonna have to bring in massive amounts of second shift people. To try and prove the point, I think there will be a gradual increase in the staffing on the second shift as products come on. I think we'll be able to limit the damage to the P&L and certainly make it contribute fairly to the development of the house as we bulk up. You know, there is a technical issue about training the staff. I think we'll be able to use people on the current shift to try and cover the more technically demanding roles on the second shift as we train people. I'm not worried about that issue impacting profits or the P&L going forward.
If I can take the risk of ending with a boring question, is on Patent Box, you seem to be taking much longer than other Italian companies to get to resolution. I'm just kind of trying to guess, is it good news? Is it bad news? I know there are rules. At the same time, it is very much a negotiation. I'm just kind of curious why it's taking so long and if that's, you know, positive or a negative.
I don't think it's negative. I think it's the way in which we ended up on the roster. I don't think it's a reflection of the unwillingness of the system to try and deal with Ferrari. I think we are now dealing with the authorities on this. It's, you know, our number has come up. We're off the waiting list. I, as Alessandro mentioned, hopefully we'll resolve it within 2018, hopefully within Q3, we'll see.
Okay. Great. Thank you very much.
Thank you.
Ladies and gentlemen, that will conclude our question and answer session. Ms. Russo, I will turn the conference back over to you for any closing remarks.
Thank you everyone for joining us today. For any follow-up question you may have, you can contact the investor relation department in few minutes. Thank you.
Ladies and gentlemen, this will conclude today's conference. Thank you for your participation. You may now disconnect.