Earnings Call: Q4 2017

Feb 1, 2018

Thank you, Sarah. 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 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. Marchionne. Thanks very much. Just a couple of remarks to start off the presentation today, and then I'll pass it on to Alessandro. He can take you through the details of 2017. Broadly speaking, it's been a good year. I think we made all the numbers that we had targeted. I think you saw from the headline that we actually overachieved our own ambitions. If you go back to the time of the IPO, we were targeting about EUR 1 billion in EBITDA a couple of years from now. We got there much earlier. We like the shape of the EBIT and EBITDA margins that we've been able to get for 2017. It's an indication of the fact that we keep on improving the quality of the offering, and I think it's reflected in the margin generation of the house. Cash is decent. I think more importantly from my standpoint, which is really what connects us to the second part of what we've announced today, is that the execution of the plan that we've outlined, at least numerically in terms of objectives for 2022 continues to progress well. I think that this is We have entered a very interesting period in the development of Ferrari. I think this, the fact that we have now embraced, pretty openly the relevance of hybrid structures in the way in which we provide motion to our vehicles is something which is gonna really distinguish the Ferrari of today to, of the, from the Ferrari of tomorrow. I think that we've got a phenomenal execution going on in the field. I feel comfortable that we're gonna make. Some of the stuff will be visible in 2019. It's not as if we're talking about projects that are so long dated that they're associated with a long level of uncertainty. I'm overall satisfied. I think that the house is firing on all cylinders. I'm happy. I think that we are in a good place. Couple of comments about the euro/dollar stuff that we've been watching. I made it clear before that I did not think, and I still don't think that Euro, that the Euro or any vagaries of the foreign exchange markets can impact the financial performance of Ferrari. I think the house is unique enough and strong enough to be able to set its own pricing in Euros. I think we will be respectful of commitments that we have made to our customers up to now, but I think that we need to condition our dealers and our customers to accept the fact that the vagaries of Forex cannot be on the account of Ferrari. I don't like charts that show these sausage charts at the end that explain variances on the base of Forex. It makes a lot more sense when you're making 5 million cars. It doesn't make a lot of sense when you're making 9,000. We are a luxury good maker. I think that we're fortunate enough to sit on a waiting list for our products. I think we need to be able to have sort of the certainty of guaranteeing economic performance regardless of where our functional currency sits. We made reference in our opening headlines, and I guess somewhere in the body about the plan for 2022. It's pretty clear that we intend to double EBITDA on or before 2022. I think the important thing is to produce cash. I think we've made a commitment to bring down our debt levels to zero on or before 2021. Obviously, subject to any repurchase activities that we may carry on that may change that objective. As of today, I think that we are targeting 2021 or earlier to go zero. To go zero. You know, it doesn't address the question as to whether it makes sense or not to repurchase shares. I think that issue we've discussed certainly on other calls, and I've discussed it with some investors from time to time. If we are, and we are absolutely convinced that these numbers are doable, we certainly have the full backing of the board in going out there and making sure that we carry out an active buyback program that ensures that we preserve the highest value for the shareholders that intend to stay. What is embedded in that EUR 2 billion number, and you notice that we have stayed away from making any reference to the number of cars that we intend to sell because it's really irrelevant. What is important to us is that the EUR 2 billion reflects the highest EBIT and EBITDA margins that are available in the sector. It's not spelled out in the press release, but the objective is to set standard for the sector with that number, and I think that's what we're striving to get done by 2022. I owe you one more piece of information. This is coming as news to Nicoletta and to Alessandro, so I apologize for doing it. We decided that we're gonna move the capital markets date to the third quarter of this year. I've been agonizing over this thing because bringing investors in to try and discuss models that I cannot show you and margins that I can't talk about is a pretty useless activity. What we've decided to do is that we're gonna bring you in the 3rd quarter of this year, preferably and hopefully in September. There's a number of things that we're planning to do then. I think the whole objective is for you to experience what it's like to be a Ferrari customer and to really being able to see the experience that our customers go through in coming into this house and becoming 1 of our customers. We will have our new style center that's open by then. The atelier will be fully functional. We'll probably be launching a car when you come, and so we'll do that at the same time. I think that you'll be able to experience the full flavor of Ferrari in terms of what we do on a daily basis. I think you need to draw your own conclusions about what the financial horsepower of this house is. I think 2017 is a good indication on how well it fires. Yeah, I think we're gonna see over the next three or four years what the true potential of this house is as we get to the EUR 2 billion mark. On that happy note, I'll pass it on to Alessandro to take you through the 2017 data. Thank you, Mr. Marchionne. Good morning and good afternoon to everyone. Just a few comments on slide 3 to cover a few items. We have highlighted our engineering and design efforts, where we were globally awarded with International Engine of the Year and with the Red Dot: Best of the Best for the 2nd and 3rd year, respectively. As you know, we've been celebrating our 70th anniversary. We took time to share these relevant milestones with all of our customers through various events all over the world. The group is proposing a dividend distribution for the holders of common shares of EUR 0.71 per common share, corresponding to a total dividend distribution to shareholders of approximately EUR 134 million. As a reminder, this is subject to the approval at the 2018 shareholders annual general meeting. On page 4, we have highlighted some of the key elements of what will contribute to our performance for 2018. We've launched the 812 Superfast, our latest V12 sports car, and the Ferrari Portofino, our latest V8 GT. In addition, during the Finali Mondiali last year, the Mugello racetrack, we unveiled the non-registered racing car FXX-K Evo, which is a strictly limited edition. From page 5, we are going through the details of our 2017 financials. Our shipments reached the 80,398 units, up 384 units or 4.8% versus prior year. Results were driven by a 25.1% increase in V12 models, thanks to the GTC4Lusso LaFerrari Aperta, yet to finish its limited series run, as well as the 812 Superfast that is approaching a global reach. V8 models were in line with prior year due to the California T phase-out, offset by the 488 family and the GTC4Lusso T that posted a solid performance. In terms of portfolio turnover, the California T and the F12berlinetta are phased out, as well as the F12tdf that finished its limited series run in 2017. The newly launched Ferrari Portofino will commence deliveries in Q2 2018. Group net revenues for 2017 were EUR 3,417 million, up 10% or 11.2% at constant currencies. Our adjusted EBITDA improved by 17.8%, reaching EUR 1,036 million and 30.3% margin, hitting the IPO target of EUR 1 billion adjusted EBITDA two years ahead. Adjusted EBIT for the group showed a 22.7% increase, reaching EUR 775 million, with a margin expansion of 230 basis points to 22.7%. Industrial free cash flow for 2017 was EUR 328 million, driven by strong adjusted EBITDA, partially offset by CapEx, tax payments, and lack of contribution from advances of LaFerrari Aperta. Net industrial debt at December 31st was reduced to EUR 473 million from EUR 653 million on December 31st, 2016, thanks to positive industrial free cash flow generation, partially offset by cash distribution of EUR 120 million. Moving to shipments on page 6, we had a solid performance of the 488 and the GTC4Lusso families as well as LaFerrari Aperta. The 812 Superfast is approaching its global reach. Shipments for the group were up 4.8%, where EMEA grew almost 4%, with Italy, France, and U.K. growing at double-digit pace, while Germany recorded mid-single digit growth, thanks to the 488 and the GTC4Lusso families, as well as the 812 Superfast. Other European countries were up single digit, while Middle East was down due to a reallocation triggered by tough market conditions. Americas showed a 4.6% increase and rest of Asia-Pacific grew 12.3%. Combined deliveries in China, Hong Kong, and Taiwan were flat due to the slowdown in Hong Kong as per Ferrari decisions to terminate the distributor in 2016 and the new dealership becoming fully operational in Q3 2017. Moving on to page seven, 2017 net revenues reached EUR 3.4 billion, up 10% versus prior year or 11.2% at constant currencies. Cars and spare parts revenues were up 12.7% or EUR 276 million, thanks to higher volumes and positive mix led by V12 range models as well as LaFerrari Aperta, along with a greater contribution from our personalization programs and pricing increases. This was partially offset by the end of LaFerrari lifecycle in 2016 as well as the non-registered racing car FXX-K and the strictly limited edition F60 America completed their limited series run in 2016. Engines revenues grew to EUR 373 million, thanks to strong sales to Maserati, more than offsetting the termination of the rental agreement with the Formula One racing team. Sponsorship, commercial, and brand revenues were up EUR 6 million to EUR 494 million, thanks to higher sponsorship and brand-related revenues, partially offset by lower 2016 commercial revenues for championship ranking compared to 2015. Other revenues were down by EUR 5 million to EUR 94 million, mostly due to the deconsolidation of the European financial services business since November 2016. Moving to page 8, you can see the year-over-year changes in the main items of our adjusted EBIT. Volume was up EUR 67 million due to an increase of approximately 360 units, excluding LaFerrari and LaFerrari Aperta, thanks to the GTC4Lusso and the 488 families, as well as the 812 Superfast, together with positive contribution from our personalization programs. This was partially offset by the California T and the F12berlinetta phase-out. Mix was positively impacted by LaFerrari Aperta's strong performance from product range models and pricing increases. This was partially offset by LaFerrari that completed its life cycle in 2016, as well as the non-registered racing car FXX-K and the strictly limited edition F60 completing their limited series run in 2016. Industrial costs and R&D grew EUR 23 million, mainly due to higher R&D expenses to support product range and component innovation for hybrid technology. This was partially offset by lower spending in F1 activities and efficiencies on direct materials. SG&A costs were higher than prior year as they were impacted by charges in connection with the equity incentive plan, expenses related to our seventieth anniversary celebrations, and higher costs related to new directly operated stores. This was partially offset by the deconsolidation of the European financial services business since November 2016. Foreign exchange, including hedges, had a negative impact mainly due to U.S. dollar, Great Britain pound, yen, and Chinese Renminbi depreciation versus the euro. Other decrease, mainly due to lower 2016 championship ranking compared to 2015, the termination of the rental agreement with the Formula One racing team, and the deconsolidation of the European financial services business. This was partially offset by positive contribution from engines to Maserati. As a result of all of the above, full year 2017 adjusted EBIT was up 22.7% to EUR 775 million. Adjusted EBIT margin expanded by 230 basis points, reaching 22.7% or 22.1% without FX hedges. Adjusted EBITDA reached 30.3% margin or 29.8% without FX hedges. On page 9, you can see the industrial free cash flow for the year that was EUR 328 million, driven by strong adjusted EBITDA of EUR 1 billion. This was partially offset by net change in working capital of EUR 661 million as a result of inventory and trade payables increase, driven by the projected volume growth in line with our 2018 production outlook. Tax payments include the 2016 tax balance as well as the 2017 tax advance payments and CapEx of EUR 387 million. Other was impacted by lack of contribution from advances of LaFerrari Aperta, partially offset by advances from the Ferrari J50. Net industrial debt at December 31st reached EUR 473 million, thanks to the strong industrial free cash flow generation, partially offset by cash distributions and dividend to our NCI for a total of EUR 121 million. On page 10, just a quick glance at our client relationship activities to provide you how we organize various events all over the world to celebrate our 70th anniversary with our customers. On pages 11 and 12, we are providing an update for our other activities. Moving to page 13, we show our 2018 outlook as follows: shipments at over 9,000 units with a strong contribution from range models and new model launches. Net revenues at over EUR 3.4 billion, driven by strong volume, higher sponsorship, and better F1 ranking revenues, partially offset by lower LaFerrari Aperta finishing its limited series run and negative FX. Adjusted EBITDA greater or equal to EUR 1.1 billion, thanks to positive contribution from range models, volume, sponsorship, better F1 ranking, lower industrial costs, and R&D, partially offset by lower LaFerrari Aperta and negative FX. Net industrial debt lower than EUR 400 million, supported by positive industrial free cash flow generation, thanks to strong adjusted EBITDA, partially offset by CapEx taxes and dividend distributions to holders of common shares. Please note that we haven't included any patent box effect and opportunity for 2018. Capital expenditures at roughly EUR 550 million. The increase is due to support the broadening and hybridization of our product range in line with the expected volume growth over the 2019, 2022 period. Lastly, on the following page, after thorough re-reviewing its current portfolio and all of its product redevelopment initiatives, the group is targeting an adjusted EBITDA performance of EUR 2 billion and EUR 1.2 billion in industrial free cash flow no later than 2022, and to be net industrial debt-free after dividend and capital distribution and including, excluding share repurchases, no later than 2021. With that, I'd like to turn over the call to Mr. Marchionne for any final remarks. No, we can go ahead to the Q&A session. Please go ahead. Thank you. Thank you. Ladies and gentlemen, if you have a question at this time, please press star one on your telephone keypad. We will now move to our first question today from Monica Bosio of Banca IMI. Please go ahead. Good afternoon, and thanks for taking the questions. I was wondering if you can give us some indications about the pricing effect that we can assume for 2018. If you can also update us on the personalization rate in 2017, and what we can expect going forward. Also, on the back of the midterm guidance, should we expect an increase in personalization or a flat trend in comparison with the current State of the art of the company. Thank you very much. I'm gonna try and help Alessandro with this. I can't answer your question in detail. I'm gonna give you some broad line suggestions as to how we got to the EUR 2 billion. We're not doubling volumes, so we must be improving other mix of the industrialization of the plant. It is established policy of the sales that we're trying to enrich the offering to the marketplace, and therefore, we're trying to improve our ability to extract margin from the businesses that we're currently carrying out. That's something that continues into the plan, and therefore, I would have expected, I would have expected rationally and logically, as a consequence of what I said, that personalization and pricing are both expected to improve over the midterm period. That's just the way I look at it. You can draw your own conclusion. The EUR 2 billion is unmovable. Okay. Thank you. Thank you. We'll now move to our next question from John Murphy of Bank of America. Please go ahead. Good morning. Good afternoon, guys. Just a first question that I apologize to follow up on this midterm outlook, you know, and but, I mean, as we think about this, I mean, doubling the volume between, you know, now and 2022 seems, you know, somewhat unrealistic just given the way that you run the business. I'd imagine there would be some acceleration to growth, but not an extreme acceleration. I just wanna make sure that's true. Second also, are all these vehicles going to be- I agree, John. Then? Okay. Also, I mean, are all these vehicles going to be produced within the footprint of Maranello because it'll really take advantage of capacity utilization at that point? Absolutely. Staying right here. By the way, just to be clear. Okay. We have a body shop which has historically been outside, but it belongs to us. It's about 15 kilometers away from here, but it belongs to us. There's no adjustment to the manufacturing footprint as such. There's improvements that we're making on the production lines to debottleneck some parts of the operations. Fundamentally, we're adding shifts and just running the machine that we have today. If I look at the EBITDA and the free cash flow and assume some level of taxes in the, you know, in the 25% range plus or minus, we'll see how the patent box ends up. That kind of would indicate a CapEx number that's around about this EUR 500 million-EUR 600 million that you're talking about for 2018. Would it be a fair assessment to think that we are, at this point, reaching sort of a peaky level in CapEx and R&D investment for the development of the product range as we go forward? I think you're looking at a couple of years of this kind of CapEx. I think we need to get over the hump until 2020. I think that's the number that we're fighting with. I think, you know, Alessandro and I have these discussions all the time about whether it's physically possible for us to spend that kind of money given the fact that we never have. I think some of the things that we've taken on as part of the product portfolio, some of which hopefully will be visible when you come and visit in September and when you see the products being launched in 2019, make you realize that we are really extending the technology bench and the reach of the sales beyond anything which it is traditionally done. I think it's feasible, and that we can end up spending a number of that caliber over the next 2 years. I think it's required for us to meet the EUR 2 billion. I mean, there's not a single doubt in my mind that in the absence of the capital commitment, we would never, ever be able to extract that kind of margin, both in terms of percentage and absolute quantum, that we have targeted for 2022. Okay. Also on the back of that, I mean, the E supercar that you guys have kind of alluded to or talked about, I mean, what is the timeframe for a potential launch on that? Does that sort of coincide with this EUR 2 billion target on EBITDA around 2021, 2022? By the way, it's in the number. The target is, I think we're expecting a vehicle sometime in the end of 2020, beginning of 2021. It is material to the EUR 2 billion, but if it isn't that, it'll be another. I'm not sure that I don't think there's a single product which is solely responsible for the EUR 2 billion shift. I mean, it's a collection. I think we'll talk about this when you come in September because that's really I think you need to live to the Ferrari experience. I mean, I'm describing this to you over the phone or telling you on a piece of paper is not gonna do it. You need to see it. I think you need to see it in the context of a product launch. I think you need to see the impact that it has on our customers, the pricing power as exhibited by these launches. You need to see it. It is a unique environment. I think our objective in this plan going forward till 2022 is to protect that base and enhance it. I think the marketplace will allow us to do it because I think the customer base, at least our relevant customer base, is actually much wider than we have historically thought, and certainly is growing at a pretty rapid clip. It's not a volume issue for us. I think we need to execute well on what I think we have done well up to now, but I think we need to move it up 2 notches in terms of intensity and reach. Yeah. I wholeheartedly agree the experience of going to Maranello is definitely. It was sort of a homage or a, you know, to, you know, to the past and the present. It actually is a great experience. Maybe just one last, you know, quick, one last sort of mundane question. How many Apertas are left in 2018? I think there's a lot of concern out there in the market that mix is gonna go incredibly negative in 2018. You know, with a few more Apertas and some of the specials that you guys or limited editions you guys are doing, it might not be as big a headwind as I think some are fearing. you know, how many Apertas are there, and what about mix in the 18 guidance? John, why are you worried about mix? No, I mean, I understand the question. I'm not worried about mix. I mean, I think there's, you know, I think there's an opportunity, but I think there's a little bit of a concern in the market that with the Aperta being, you know, largely delivered, but it doesn't sound like that's the case. I'm just trying to figure out how many Apertas are left to go? Okay. By the way, there's a limited number of Aperta left, which in and by themselves would not significantly change the physiognomy of the P&L on the margin. It's an interesting question that you're raising about the fact that when you've got supercars of the caliber of the Ferrari or the Aperta, you will end up getting twisted numbers in a period of time. What happens is that you end up getting, what I call, an abnormal or anomalous margin generation coming out from that series. The strength of this house is that it can actually modulate the introduction of those vehicles, and it can balance it against the reduction on base load. It doesn't really effectively go through these spikes where it performs sort of strangely because of these supercars. The plan that we have put in place now that will be actioned over the next 3 or 4 years, is really designed to try and smooth out those anomalies by making sure that we've got a steady flow of things that have got similar pricing power. We'll never be able to emulate the Aperta and LaFerrari as a steady state condition because of the fact that otherwise we're gonna end up losing the uniqueness of the product on a, on a cycle basis. There's got to be enough, and we experienced this with the TDF for the Tour de France when it came out. We experienced this every time we've done a special version, also the 458 and the 488. The fact that if we can modulate and arrange the deck in such a way as to have a steady flow of these, we will not end up having this worrisome mix deterioration that you've made reference to. I think it'll be all right. It's gonna be different because the underlying mix of products will be different. It has to be, right? Not enough to not enough for us to change, to change directionally, our progress on EBIT and EBITDA generation. It's just a different way of getting it done. Okay. Very helpful. Yeah, go ahead. I would just mention on slide 17, I know the Enzo wasn't launched in this timeframe, but it might be just helpful to show people that there was another supercar from I think it was 2002 to 2004, the Enzo. Just one product that's kinda missing from that chart that I think will be helpful so people can understand there's bigger cars in the past. The Enzo Ferrari was a 2003 vehicle. We launched LaFerrari in 2013. It is sitting on a decade cycle. That's the past. I think that we need to adapt to a new world. I don't know. Actually, this is almost blasphemous. I think that the technology shifts between the Enzo Ferrari and LaFerrari and the next car that's coming, they are so wide that this whole notion of referring to them as supercars. They really have to be put in a time context because this stuff is moving too quickly. I mean, the performance, I think we should, you know, we should probably have this conversation in Geneva after we launch the next car. I think when you start seeing the statistics of what's get revealed and what gets revealed in Geneva, you'll realize that we're closing the gap between the supercar and the street cars pretty quickly. It's a complicated issue. I think the important thing for us is to keep on making a mix of cars that keeps on improving on EBIT and EBITDA generation, generates cash, and keeps the trend of growth towards EUR 2 billion unabated. That, to me, it's not the maneuvering stuff. It's just about making sure that the portfolio retains that quality and never wavers from the objective. I mean, I can't have a bad year. I'm not like a bank, right? I mean, I can always blame it on the central banks. I can't have a bad year. I very much appreciate the color. Thank you very much. Thank you. We'll now move to our next question from Martino De Ambrogio from Equita. Please go ahead. Yeah. Thank you. Good morning. Good afternoon, everybody. I know you stated you are not doubling volumes. Anyway, focusing on volumes. This year, you are increasing volumes by 8%, which is an acceleration compared with the usual 4%, 5%. Am I right in thinking is it is just a matter to offset the mix in Forex, which will be negative this year and the normal trend is the mid-single digit, or this could be taken as a reference point going forward? Mr. De Ambrogio, let me just repeat what I think I was maybe too articulate in what I said earlier, and I was gonna try and give you the straight version of what I said. We're never gonna produce a car and sell a car for which we don't have demand. The objective is to keep the growth in EBIT and EBITDA margins untouched and unwavering. We will continue to mix the portfolio in such a way as to achieve the EUR 2 billion target on or before 2022. It's that simple. Yeah, the message is very clear. Mr. Ambrogio, the only question you gotta ask yourself is whether Alessandro and I are gonna get confused with the order of priorities. I guarantee you that we've handled more complex issues than this one. Okay. Looking at this picture in another way, you discussed in previous calls, the target is 35%-36% EBITDA margin. If you are not doubling volumes, and you sign EUR 2 billion EBITDA, it seems to me you will exceed this level. Okay. I agree. Okay. By the way, Mr. Ambrogio, what I tried to say, and by the way, I will take all the responsibility for this if we fail. What I did say initially is that the objective of Ferrari was to become standard setter in EBIT and EBITDA margin generation. We're not today. We know this. Okay. We need to get it done. Okay. Just to more follow-ups, one on Formula One, I suppose your assumption is a steady state as the rules are today. I'm sorry, I missed the question, Mr. Ambrogio. Yeah, the Formula One, the revenue sharing agreement, I suppose, in your 2022 targets are assumed as a steady state as they are today. I'm assuming that our position will not worsen. Okay. For Forex, when do you believe clients and dealers will get your point on the sharing of the Forex risk? Look, I'm willing to suffer a slight cold in 2018. I think in 2019 it becomes everybody else's pneumonia. Okay. Thank you. Thank you. We'll now move to our next question, which comes from Ryan Brinkman of JPMorgan. Please go ahead. Great. Thanks for taking my question. You know, just relative to that, 2022 type outlook, can you provide maybe a bit of a framework in terms of what would need to occur to generate that type of a strong result? For example, even a big picture subdivision between maybe the, you know, the volume contribution, the margin contribution would be helpful. In the past, I think you've alluded to an aspirational margin target of perhaps as much as 36%. Would be correct to presume that generating, you know, EUR 2 billion of EBITDA would require hitting that type of a margin? What are the biggest areas of opportunity to get to that kind of margin? No, there's no doubt that in order for us to get to EUR 2 billion, we have to get to EBITDA margins at or in excess of 36%. The real issue, and we've been sort of vocal on this, even on previous calls. I think one of the things that we've realized in running this business is that there's a section of the luxury sports market that we have not addressed, and we haven't addressed it because our emphasis has been very much on pushing the limits of the performance curve. We have played very hard in both the 8-cylinder and the 12-cylinder space by chasing performance. There's a big portion of the market which has been unaccessible or where people have been unwilling to enter because of the demands associating with performance vehicles. Some people feel uncomfortable driving 800 horsepower machines. There's something which is part of our DNA, which I think we need to be reopen or rekindle, which has to do with the combination of Italian style, not just in terms of design, but in terms of interior finish and presentation and detail, which can live quite easily with high performance engines which are not living an extreme life. There's nothing wrong with a 600 horsepower engine because it certainly gives you enough performance to try and enjoy the driving experience. That part of that equation of the customer base has been neglected. It's been neglected because we had a whole pile of growth to go chase on the performance side. We need to rekindle this, and I think that the hopefully you will see when you come and see us in September, is that we've been active not only in maintaining the leading edge on performance, but also developing this other part of the portfolio, which although it uses the existing physical and architectural infrastructure of Ferrari, is capable of declining itself in a way which doesn't scare people. The new Portofino that you've seen is a first indication, a first incarnation of that product portfolio, and first indications are good. The car is sold out for 2018 in broad terms. The GTC4Lusso was a first, was another attempt at curing what was perhaps not so successful of a presentation as the FF was. We're making progress. The next phase needs to be a lot more intense, and I think it needs to be a lot more targeted at bringing in customers that have historically not been ours, and certainly not in the last 10, 15 years. The ability to present ourselves in that market, which is a lot larger, where buyers are more numerous, where I think the ability to distinguish yourself on style, pricing, content, and so on, is much greater than it is on performance, is at the heart of the EUR 2 billion, at the heart of the EUR 2 billion target. I think you will see this piecemeal. You will see it in 2018 as we roll out, certainly not a full year of the Portofino, but it, you know, certainly three quarters of a year where the Portofino will be active. I think you'll see it with the GTC4, which has now got both the Lusso and the 4x2 versions available for distribution. You will see it with a new car, hopefully, that will launch in September when you come and see us, and you will see this implementation of the strategy a piece at a time because we'll be launching products to match the ambition. It'll be visible in 2019. It'll become even more visible in 2020 and 2021 as we approach the sort of the final phase of the plan. It's been incredibly well articulated on the inside because I think the marriage of technology and market presence needs to be understood, and it needs to be action. We are started to work with our dealers, who have to learn how to deal with higher volumes than they've had, not excessively high volumes, but excessive volumes. With a customer base which has historically not been in their milieu in the last 10 years. I think We have done all the sort of preparatory work to get us there. We're now in execution phase. You start seeing these products being peeled off and coming off the factory floor. You'll see these turn, hopefully, themselves into EBIT and EBITDA. The progress from where we are today to where we hope to be in 2022 is a combination of improved pricing and improved utilization of the asset base. It's a combination of all the efforts that we're carrying out, both on the sports car side and on this new and expanding area that we need to build on. I can't, and I don't want to give you any more details because It's like decomposing the P&L for you, which I think we need to see, we need to see actualized as we go through 2018 to 2022 year by year. That's fair. Thank you. My last question is just on your recent comment that Ferrari could offer its customers a battery electric vehicle. Just like I think you have cleared up some misconceptions about what a Ferrari utility vehicle might be like, how many doors it might have, et cetera, and understanding that it's early days, but is there anything that you can say now to clarify how Ferrari might approach an electric vehicle? For example, we know that EVs can generate Ferrari-like acceleration, but how might you approach it from a sound perspective or a ride and handling perspective? If it's too early or not appropriate to comment, then maybe you could just talk about what attributes you think make a Ferrari a Ferrari. Thanks. Well, you know, you mentioned enough for me not to be repetitive. This whole question of sound and fun to drive, the actual handling of the car, are things which are absolutely crucial to a Ferrari. One of the things that you will notice, I mean, I've read some interesting analyst reports that suggest that now that Tesla had done a car that does 0 to 60 miles an hour in 2.7 seconds, that there's no room for supercars. Well, I would challenge anybody who's driven an electric car to try and drive it the same way we drive a Ferrari, you'd recognize immediately that the handling characteristics of the car are totally different. Whenever Ferrari will express itself in a fully electric vehicle, it will do so by making sure that both sound and handling are reflective of Ferrari's heritage. The offering that's available in the marketplace falls substantially short of that target. The only thing I did say, by the way, so we're clear. I did say that if there is an electric supercar, it's gonna be Ferrari that makes it. Got it. Thank you. We will now move to our next question from Adam Jonas of Morgan Stanley. Please go ahead. Hi, this is Carmen Huntley on for Adam. Just to follow up on that, if the decision were made to do a pure EV, how would that impact your, either your 2018 CapEx guidance and/or your 2022 guidance? It would not. Okay. Thank you. We'll now move to our next question from George Galliers of Evercore. Please go ahead. Hi, and thank you for taking my question. Just following on from some of the comments you made about appealing more to the luxury space, the GTC4Lusso T was an interesting launch for many Ferrari followers last year. Can you give any insight into how shipments and orders of that car have performed versus expectations? Are you attracting a new or different customer to Ferrari with this vehicle? The answer is we are attracting customers that have traditionally not been our customers. Yes, we're making the numbers that we've built into the case. Am I happy with that? Stop. The answer is not. The reason why we're not is because we knew when we launched the car that that is not our area of expertise, our area of strength. I mean, although I can make the comment with a straight face that the Portofino is completely sold out, I think if you order a GTC4Lusso now, you'll get one in 2018, I guarantee you. I can't tell you which month, but you'll get it within the year. I'm not sure you're gonna get a Portofino if you order it today. I think that we've had varying degrees of success with our cars, we're spoiled by the fact that in the majority of cases, we tell you that the next 12 months are completely sold out. We're not completely sold out of all the non-sports cars that we make, we need to work at this really hard. There are obviously, we're not whacking it properly. We need to get that right. Hopefully, when you come and see us this September, we'll be able to convince you that we're on the right path to get that fixed. Great. A slightly cheeky one regarding Formula 1. Clearly you continue to have the engine agreement with Sauber, who are now wearing the Alfa livery. As the boss of both Ferrari and FCA, can you shed any insight into whether there's anything in the supply contract which suggests that Alfa should help Ferrari out where requested, for example, by holding up one of your competitors? Is there anything in the F1 regulations which would make such an agreement illegal or not in the spirit of the rules? The second question that you asked is a legal question, although I when I was young and foolish, I was trained in law, I don't think I'm in a position to answer it. I think it would be morally offensive whether it's illegal or not. Just to go back, what makes it interesting is that there's absolutely no ownership connection between Ferrari and FCA other than through a common shareholder they have up on top through Exor. I'm not sure that that's enough to try and connect the two things. I happen to be involved in both. I'm gonna stop at the end of 2018. It will be my last year at FCA, this problem will vanish since I will no longer be responsible for the FCA side. I'll tell you honestly, one of the things that the best thing that I think that could happen in 2018 is for Ferrari to perform up to its true potential and to take on the competition, and especially Mercedes, with whom it has a love-hate relationship which is now going back about 4 or 5 years. I think it would be great if we could see a proper fight between Mercedes and Ferrari. I think the important thing for Sauber is, I mean, they ranked last year, so nobody has any illusions over the fact that they're gonna win the championship in 2018, and if they do, it's genial. I think any significant recovery from the last position they've had would be helpful. I think it's our hope that with the engine that we've provided them for 2018, they'll be in a much better position to run. I think the drivers are great drivers. I think I'm looking forward to a great season. I don't expect any collaboration beyond technical arguments between Ferrari and Sauber. None of them will happen, and I will not be involved at all in the management of the Alfa Romeo Sauber team at all. I have nothing to do with them. Got it. Very clear. Well, look, good luck to Ferrari, and thank you. Thank you. We'll now move to our next question from Giulio Pescatore of the HSBC. Please go ahead. Thank you for taking my question. First one would be, if you could quantify the negative effects impact that is currently reflected in your guidance for 2018. And the second one would be, your move to GT opens up to the Chinese market because those products are better fit for that market. I was wondering, what are your ambitions for growth in China and in Greater China in particular? Thank you. Let me deal with the Chinese issue first. I think that we're we have been careful about the Chinese market because I think you're right that I am the extreme version, the extreme incarnation of Ferrari may not be the right product to have in China. I think we're more hopeful that the development of the GT side will become more relevant in the Chinese market. I have no specific number in the EUR 2 billion that says that this is purely attributable to China. I think that the geographic distribution of Ferrari on its own will be able to guarantee us that we get EUR 2 billion if we get the product right, and that, to me, is the more important question. On the Forex side, I don't know whether Alessandro wants to add anything. It's something between EUR 50 million and EUR 70 million. Okay. Thank you. Thank you. Now to our next question from Lello Della Ragione from Intermonte. Please go ahead. Hi, thank you for taking my question. Just a quick follow-up on Forex. I didn't get if you started to implement the new strategy in terms of pricing with the final customer already or you're approaching it. We're beginning. We started the dialogue. We've had interesting discussions with our dealers as a couple of weeks ago. It's not built into the numbers, and I think that, you know, EUR 50 million to EUR 70 million is embedded in the number. We're gonna try and recover if any shortfall on Forex as early as we can in 2018, but I think it's a 2019 or later phenomenon. Okay. The other question instead is related more to the 2020 ambition that you had. I was just wondering, since we've seen this with the utility vehicle first and now with the electric vehicle, if you have some kind of, let's say, taboo that Ferrari cannot make. Let's say you open, you paved the way for an utility vehicle. Now we are hearing about an electric version. There is something might be with something with 6 cylinder rather than 8 or 12. There is something that you will not produce and you can state it right now and not change your mind on it? No. We're producing everything we sell. I don't know whether that was your question. Are you asking me whether we're gonna joint venture something with somebody? No, no, no. I'm just asking if you at this point in time, you can exclude, for instance, the production of a car with a smaller engine or you stated clearly about the electric one. I was wondering if you are willing to, as long as you maintain the Ferrari uniqueness, to explore even other parts that you stated in the past that you will never produce. No, I think it's possible that we will downsize engines. It is quite possible. Okay. Brilliant. Without losing anything that relates to Ferrari. Sure about it. Thank you so much for the answer. Thank you. We'll now move to our next question from Thomas Besson from Kepler Cheuvreux. Please go ahead. Hi. I have a couple of questions, please. First, I'd like to ask, and sorry if it's, if it's candid, if it was always planned to dissociate the 2022 target from the CMD, first. Second, whether it's fair to assume that 2018, 2019 should show a slightly slower rate of progress than the rate of progress you plan towards 2022, as it has been the case, for instance, in 2013, 2014, during the previous 5 years plan. I'm sorry. I'm trying to give you a proper answer to the first part of your question. If it was always my intention to. I was surprised that you dissociated the targets for 2022 from a CMD that was initially planned from Q2 and then postponed to September. If I had missed something, that it was always planned? That's really a candid question. No. Just let me put your mind at rest. I'm not trying to disassociate anything from anything. If you're gonna show up here at Q2 or Q1 of 2018, and you're gonna ask me, you know, "How are you gonna get to 2022 and make EUR 2 billion?" I can't tell you about the cars. I cannot tell you about when I'm gonna launch them. I can't tell you about volume, and I cannot tell you about the pricing of those vehicles because I can't tell you anything about a product that's not yet here. Even though I know it, I can't tell you. The real issue to me is that how do I make you, how do I make you privy to this Ferrari world? How do I make you understand how this machine runs? The only way I can do this is by putting you through by making the customer experience in connection with the launch of a new vehicle as visible as I can. Now you've seen it all, right? You've seen what a customer sees when he sees the vehicle when it's first launched. You see how the house handles their relationship, how we nurture their relationship through the ordering process. You know, what it looks like to carry it through, why pricing sits, how we price for personalization. All that stuff that we do, it's designed to help you build a business model that allows you to understand how it is that we're gonna end up exceeding a 36% EBITDA number. We're trying to be that clear. Otherwise, it becomes a very futile effort on your side to come here and listen for me to show you four slides that tell you where all the sausage parts of my EUR 2 billion come from, and you have no way of determining whether there's any substance to those sausage parts or not. I'm just trying to be helpful. If you have a better idea, I'm more than willing to listen. No, I'm very happy to come back to Maranello, which I think is a great experience. Can I ask a second question, please? Sure. I was wondering what is your thinking today on the risk of losing a small car manufacturer status if you go beyond the 10,000 limits, which you are likely to do, probably in 2020 or 2021? I'm not because of the way in which the portfolio is developing with hybrids. Great. Thank you very much. Thank you. We'll now move to our next question from Philippe Houchois from Jefferies. Please go ahead. Yes. Good afternoon. Thank you. I just have a more kind of general question. You continue to have a target of net cash. If I think about the valuation upside in your business, it's very much about the growth, margin, return on invested capital, and cash returns. As you know from your auto experience or other industries, you know, the market doesn't pay for net cash position. You know, why don't you get rid of the net cash target and engage more the market in terms of more steady cash return to shareholders, which I think will be more attractive, unless I'm missing something and net cash position means something to you or to the business. Okay. One, it means nothing to me. Let's take that issue off the table. Philippe, then the fault is mine. I think that we've indicated, I think the note was very clear, I think the footnote was, that it excluded any type of capital re- Yeah. capital reprocurement. The reason why we carved that out, and I've always had this view, by the way, that I think we should never announce our buyback programs and trade against the market because we're trading against ourselves. We have authority in place now to buy back shares. We have a phenomenal amount of support from the board to carry out those executions and effectively buy back capital, and I guarantee you that we will not misuse that right. We will intervene, and we will do the right thing from a capital standpoint because I wholeheartedly agree with you that the value of cash on this balance sheet is zero. I mean, it's just It's nonsensical. We'll get rid of it properly, but we'll get rid of it. Okay. Makes sense. Now move to our next question from Michael Tyndall from Citi. Please go ahead. Yeah. Thanks for taking my questions. Just a couple from me. Mr. Marchionne, in the past, you spoke quite enthusiastically about the non-car business, and it would seem that the ambitions on that front have taken a bit of a back seat over the last couple of years. Just wondering, when you look to that 2022 target, has it been resurrected at all, or is it still very much we're gonna focus on cars and leave everything else to one side? The second question is- Yeah. Sorry, yeah. No, go ahead. The second question is just, I guess it's a follow on from Philippe's question. The dividend payout ratio went down in 2017, presumably that because you've got some serious investing to do. As we look out to 2022 and that EUR 1.2 billion of free cash flow, do you have a stated ambition in terms of dividend payout as we roll through the plan? I'm looking at Alessandro. I think our public policy is 25% to a third, isn't it? 25 to 40. 25% to 40%. There's no wavering in that commitment. We went to the lower end of the spectrum because exactly for the reason that you mentioned, because we got a heavy CapEx year, and I got cheap. We sat around the table. I think we're gonna convince the board when we meet, that we should only be paying this level of dividends. Hopefully, the shareholders will approve when it comes. The commitment is to pay out 25% to 40%. If we go back to Philippe's remarks earlier, even on capital, we need to start using the cash balance. Having no debt in a house that has got this type of steady cash generation is nonsense. From a capital structure standpoint, we're just, we're ill-structured. We need to work on this and buying back shares is a good way of doing it. Dividend helps, I think we need to sop up some capital from the marketplace and make everybody feel more comfortable with the capital structure. The first question that you asked I think is interesting because I did make a big point of this, and I continue to make a big point of this because if it is true that this is a true luxury good, I think it needs to be able to find a way to express itself beyond cars. We have been very careful. We have not. On this, I mean, John Elkann has helped a lot. We spend quite a bit of time, interfacing with other people who play in this area. Hopefully, when we get together in September, you'll start seeing the beginning of a business which in its full articulated form could be as, could be relevant, and I think should be relevant. It is not in the numbers for 2022, which are very much car driven. The efforts have not stopped, and I think that you will, hopefully you'll see the incarnation of Ferrari in non-car in a real way when you come and see us in September. We'll have to wait till then. Looking forward to it. Thanks. Thank you. As we have no further questions, I'd like to turn the call back to Ms. Nicoletta Russo for any additional or closing remarks. Thank you. Thank you, everyone, for joining us today. The IR team will be soon available for any follow-up question you may have. Thank you.