Thank you, Alison, 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'll be available to answer your questions. Before we begin, let me remind you that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included on page two of today's presentation, and the call will be governed by this language. With that, I'd like to turn the call over to Mr. Marchionne.
Good afternoon. I'm going to restrict my comments to a couple of the slides in the deck that deal with the Formula One stuff at the end of slide 12 and slide 11, which talks about the so-called other activities, which I think in time will become significant. Just a very broad remark on the quarter. I think we're satisfied with what happened in Q2. I think, as most of you know, we've been sort of trying to build a machine that will deliver EUR 1 billion in EBITDA. I think we're halfway there with the second quarter of this year. We continue to make good progress in terms of maintaining the uniqueness from a technological standpoint of what we're producing.
The International Engine of the Year issue, which the award that was given to us by Red Dot, is an indication of the kind of commitment that the house continues to make to technology. We have had the chance to discuss this also in terms of the Q1 call about the fact that the introduction of hybridization is an inevitable piece of the technological development of Ferrari. I think which hopefully we should see the first benefit of that technology in a mass production car within 2019, which is not very far away. Obviously, that's conditioning also the R&D profile of this house for the next 24 months, which I think is bound to pick up in intensity. The launch of the 812 has gone well. The reaction from the marketplace has been superb. We have a waiting list that extends beyond next year.
I don't have any bad news. Last Sunday, I think was a good day. I think we sort of restored the Scuderia back on its rightful track to become a contender for the Constructors' Championship. There are still nine races to go. We've got a car on the track now in Hungary that's being tested for some additional technology developments that we're introducing, hopefully by the time we hit Spa and Monza later on this month. If I told you that there were things that were really bothering me, I'd be lying. If I told you that I was worried about anything else, the answer is probably yes. This notwithstanding the fact that we only make about slightly over 8,000 cars, this is a relatively complex organization because of technology and the ambition that it has to maintain its leading position in the sector.
On that note, I'll pass it on to Alessandro, who's going to try and demystify Q2, and then I'll come back at the end. Thanks.
Thank you. Thank you, Mr. Marchionne. Good afternoon, everyone, and thanks for listening in on the call. Let me start with page four of the deck we provided. Our shipments reached 2,332 units, up 118 units or 5.3% versus prior year. Results were driven by a 36% increase in V12, thanks to the GTC4Lusso and LaFerrari Aperta. The V8 were substantially in line with last year, and in terms of portfolio turnover, the F12berlinetta is phasing out, while the 812 Superfast will soon be arriving on the market. Group net revenues for Q2 2017 were EUR 920 million, up 13.5% or 12.8% at constant currencies. This was driven by sound performance of cars and spare parts, as well as engines, and partially offset by the deconsolidation of the European financial services business since November 2016. Our adjusted EBITDA improved by 24.1%, reaching EUR 270 million and a 29.4% margin.
The result was primarily driven by higher volumes, better mix thanks to V12, positive effects, and engines to Maserati. This was partially offset by higher R&D expenses for innovation, components, and hybrid technology. Adjusted EBIT for the group showed a 29.3% increase, reaching the quarterly record of EUR 202 million and resulting in a margin expansion of 260 basis points to 21.9%. Adjusted EBIT benefited from a strong adjusted EBITDA, partially offset by higher D&A, mainly attributable to the GTC4Lusso family and LaFerrari Aperta. Industrial free cash flow for the three months ended June 30, 2017, was EUR 92 million, driven by strong adjusted EBITDA of EUR 270 million, partially offset by tax payments, 2016 balance and 2017 first advance and CapEx of EUR 82 million. Net industrial debt as of June 30, 2017, was reduced to EUR 627 million from EUR 653 million in December 31st, 2016.
This was primarily due to industrial free cash flow generation and partially offset by the cash distribution of EUR 120 million. Moving to shipments on page five, we had a great performance of the 488 and the GTC4Lusso families, as well as of the LaFerrari Aperta. EMEA expanded by 5% with France and Italy growing double digits. Germany and U.K. were up mid-single digit, and this was partially offset by Middle East, down to the reallocation triggered by tough market conditions. Americas showed a 3% increase. Rest of Asia Pacific grew 20.5%, with Australia being a strong contributor, and combined deliveries in China, Hong Kong, and Taiwan were down 12.5% due to Ferrari's decision to terminate the distributor in Hong Kong in Q4 2016. The new dealership will be fully operational by Q3 2017. As a result, shipments for the group were up 5.3%.
Moving to page six, second quarter net revenues reached EUR 920 million, up 13.5% versus prior year. At constant currency, net revenues would have increased by 12.8%. Cars and spare parts revenues were up 13.7% or EUR 18 million due to higher volume and positive mix led by the 488 and the GTC4Lusso families, as well as LaFerrari Aperta, along with a greater contribution from our personalization programs, pricing increasing, and FX. This was partially offset by the end of LaFerrari life cycle in 2016, as well as the non-road-registered racing car FXX-K and the strictly limited edition F60 America, which completed their limited series run in 2016. Engines net revenue surged to EUR 101 million, up EUR 30 million or 41.9% versus prior year. The significant growth was attributable to strong sales to Maserati, more than offsetting the termination of the rental agreement with the Formula One racing team.
Sponsorship, commercial, and brand net revenues reached EUR 124 million with an increase of EUR 7 million or 5.6% compared to prior year. This was mainly due to higher sponsorship revenues, partially offset by lower 2016 commercial revenues for championship ranking compared to 2015. Other revenues decreased by EUR 8 million to EUR 26 million, mostly due to the deconsolidation of the European financial services business since November 2016. Moving to page seven, you can see the year-over-year changes in the main items of the adjusted EBIT. Volume up EUR 16 million due to an increase of approximately 100 units, excluding LaFerrari and LaFerrari Aperta, thanks to the GTC4Lusso and the 488, together with positive contribution from our personalization programs. This was partially offset by the California T in its fourth year of commercialization and the F12berlinetta, which is fading out.
Mix was positively impacted by LaFerrari Aperta, strong V12 performance, as well as pricing increases. This was partially offset by LaFerrari, that completed its life cycle in 2016, as well as strictly limited edition F60 America and the non-road-registered racing car FXX-K, which completed their limited series run in 2016. Industrial costs and R&D grew EUR 17 million due to higher D&A and R&D expenses to support product range and component innovation, mainly for hybrid technology, partially offset by efficiencies on direct materials. SG&A costs were slightly higher than prior year, mostly due to the recently approved long-term incentive plan, higher costs related to the new directly operated stores, as well as costs related to the 70th anniversary, partially offset by the deconsolidation of the European financial services business since November 2016. Foreign exchange, excluding hedges, impacted positively, mostly to the U.S. dollar, partially offset by the Great Britain pound.
Other was down by EUR 7 million due to lower 2016 championship ranking compared to 2015 and the termination of the rental agreement with the Formula One racing team, as well as the deconsolidation of the European financial services business since November 2016, partially offset by positive contribution from engines to Maserati. As a result, Q2 2017 adjusted EBIT was up 29.3% to a quarterly new high of EUR 202 million. Adjusted EBIT margin expanded by 260 basis points, reaching 21.9% or 21.5% without FX hedges, and adjusted EBITDA reached a 29.4% margin or 29% without FX hedges. Moving to page eight, industrial free cash flow for the quarter was EUR 92 million, driven by strong adjusted EBITDA of EUR 270 million.
This was partially offset by the 2016 tax balance and 2017 1st tax advance payments, CapEx of EUR 82 million and EUR nine million of net change in working capital due to the inventory increases driven by the projected volume growth in line with our 2017 outlook. Other was impacted by accruals and reserves related to deferred compensation as well as provisions, partially offset by lack of contribution from advances of LaFerrari Aperta. Net industrial debt as of June 30th, 2017, reached EUR 627 million. On slide nine and 10, a quick glance to our customer events. This, as you know, is an opportunity for us to continuously engage with all the Ferrari team, provide them with unique experiences. Slide 11 shows other activities such as the opening of the LaFerrari beginning of April, that is already reaching 160,000 visitors.
On May 25th, the Ferrari Museum in Maranello opened its new expanded and renovated exhibition spaces and inaugurated the Ferrari Under the Skin and Infinite Red exhibitions. I will skip slide 12 it seems Mr. Marchionne already commented on it, and on slide 13, we are providing our confirmed guidance for 2017 for our outlook. And with that, I would like to turn the call back to Mr. Marchionne for any remarks.
Yeah, a couple of things. One, as you well know, we've talked on and off on these calls and certainly in terms of our conversations with investors about The need to provide clarity in terms of the development of the brand beyond cars. I think we have made good progress, certainly during 2017, in getting our ideas very clear about the association of the stores, the so-called Scuderia stores, with the Formula 1 activities. And so you will see a continuing development of that theme in a way in which effectively links very effectively everything that we do on or around the track activities with what we show and sell in our stores. There's a parallel activity which is going on, which is a lot more difficult in nature, because it's the extension of the luxury brand of Ferrari into areas that it currently does not cover.
That's something that's going to require some time. We have made, I think, good progress in terms of initial discussions with people in the space already, people that I think can help us mold the Ferrari brand in a different space and effectively be treated in a similar way as our cars are currently in the market. That's a much more difficult discussion because I think we need to find a way in which we can extract the relevant part to the Ferrari DNA and having that translated into something which is as relevant in the luxury goods space by somebody who already occupies it. Discussions are ongoing.
Hopefully, we'll have a much better view by the time we get together with our investor day, which we're going to hold hopefully in the first part of 2018, hopefully in Q1, where I think we'll give you our view about where this plan will take us until the end of 2022. The last item that I wanted to cover is Formula 1. I think we have not completed the first full year of our Formula 1 activities under the new leadership structure that we put in place in 2016. I'm delighted by what's gone on here. I think that the fact that we've now distanced Mercedes on the driver's side and are within a reasonable range of Mercedes in terms of the constructors is a good indication of the intensity with which Ferrari responded to the challenges that were posed to us at the end of 2016.
I expect a lot more from the Scuderia in the remainder of the year. We got nine races to run. We have also begun, I think, a very constructive dialogue with Liberty now, who's now handling the commercial activities of Formula 1 in terms of developing the sport going forward. I remain convinced that this new structure will yield benefits to both the racing teams and the commercial title holders. The discussions will go on between now and certainly the expiration of the Concorde Agreement, which is slated to terminate at the end of the 2020 racing season. I'm delighted. I'm encouraged by what I've seen. I'm encouraged by the fact that we can actually confirm the 2017 outlook, as Alessandro mentioned on page 13. I know that you guys are always looking for upgrades in forecasts.
You should know that we normally don't do them until we get to Q3. We're going to have to hang on for the next 90 days to find out what we do. For now, the outlook for 2017, I confirm the business is in good shape. On that happy note, we'll take calls.
Thank you, sir. If you would like to ask a question at this time, please press the star or asterisk key, followed by the digit 1 on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find your question has already been answered, you may remove yourself from the queue by pressing star 2. Again, ladies and gentlemen, star 1 to ask a question. We'll take our first question from Adam Jonas from Morgan Stanley. Please go ahead, sir.
Hi, everybody. Sergio, I think back in February, maybe it was February of last year, you were asked about whether you consider doing a crossover or SUV. I think your answer was, you'd have to shoot me first or something about that. Something involving shooting and you know.
No, I'll confirm it for you. You'd have to shoot me first.
Okay. That's fair. I think based on the comments in the press, there's a lot of room to maneuver around the semantics. Without beating around the bush here, let's not say SUV crossover, but could you consider a car with a Ferrari brand that could, let's say, have a ground clearance that could drive on sand?
Let's deal with this issue about what I was willing to be shot for, because I think that's important. If somebody decided they want to offer a Ferrari badge vehicle that looked like either a BMW or even a Bentley SUV, I think I would deserve to be shot. I think that if we allow the Ferrari engineers to reinvent the concept of a vehicle which has some utilitarian use in terms of traveling through unchartered territories, snow, otherwise, then I think the answer is it will probably happen, but it will happen Ferrari style. Ferrari has been known historically for being able to redefine and define segments of the auto space. I think we need to let them define that space and see whether they came up with something original. I don't want to call it a UV.
It'll be whatever Ferrari thinks is appropriate for the requirements. Adam, it needs to do something to cover that space that's currently occupied by people who normally make UVs, because the space is too big and it's too inviting. I think that we have a lot of our customers who will be more than willing to drive a Ferrari-branded vehicle that has that kind of utilitarian objective.
I don't disagree. I'm sure that you'd sell thousands of these FUVs. The stock market would love it and all that. I guess, to be blunt, wouldn't you just be selling just a tiny slice of Ferrari's soul here? Because you're certainly not Porsche. I think John Elkann also has said that openly, "We're not Porsche." I know they don't breathe the same air as Ferrari. I guess.
No, Adam, I have the same.
Has the board already decided on this?
I have the same type of hallucinations on this issue that you have. Therefore, I think we have to leave it to Ferrari to define something which does not sell its soul. It can't. I agree with you.
Is this a decision that's been confirmed?
It is not being done to compete with Porsche, I can tell you that now.
Okay.
I think there's a market need which currently is being filled by others. I think that it's being done because of the fact that our customer base require coverage, and we need to give them a vehicle that is worthy of a Ferrari badge in terms of performance, and that does deliver up to expectations. To be perfectly honest, the car doesn't exist today in the market. You haven't seen it, so there's nothing to compare it to.
Got it. Just finally, this is a decision that has been made. The board has decided to move forward on this FUV?
No.
Okay. To be determined then.
That's why we haven't announced it. The press has.
Got it. Thank you.
Why are you worried? You wanted to buy one, or you didn't want to buy one, or?
I am worried. Sergio, I'm really worried. I am. I have to admit. I think that, I've been wrong before on first impressions with vehicles as well. I think that part of the exotic and hyper-exclusive nature of the brand and the people, the reason why the secondhand values for so many of your cars perform the way they do is because of the type of clientele you attract to an uncompromising level of engineering excellence to that where there's heritage of the brand. I worry that there's no heritage in vehicles that can go on rocks.
No, now we're belittling the effort. I'm on the page. Let's just agree that if Ferrari sells a car that can occupy that space, it will not sell them the attribute of being able to climb rocks. That's not its claim to fame. I would just ask you to hold back on judging the value of the proposition until you see it, if you ever see one. Right? One thing is for sure, Adam, is that the biggest challenge for all of us involved in running this business is to find a way to leverage the power of this brand without destroying exclusivity. This has been the single largest objective that any one of us in this place have. When you mention thousands of UVs produced by Ferrari, that's where my skin sort of cringes.
It's still, whatever it is, this vehicle is only meant for the select few.
It would not occupy the same proportion as, say, a Cayenne would, where it would be your highest.
Oh, hell no. Hell no. We couldn't. That would be obscene. You know how much. You and I have discussed this. You know how I'm terrified of just losing the notion of exclusivity. If we become everybody's brand, we ain't worth much. Whatever it is, Adam, it's going to be of the same caliber as everything else we've done.
Thank you, Sergio. I feel a little better, but not a lot better.
Okay, hold your breath then.
Our next question comes from the line of John Murphy from Bank of America Merrill Lynch. Please go ahead.
Good morning, guys. If I could ask a first question on sort of your gentle push upwards on price and volume. I'm just curious, relative to your expectations, where you are, and if you're pleasantly surprised to the upside in your ability to push price and volume maybe a little bit more than expected.
The answer is yes and no. We've always known that this had to be a very careful process. We just finished a long conversation with Adam about exclusivity. Pushing volumes by not expanding the product range to try and cover different market needs is not going to be the right answer. I think there's a natural limit to what the current portfolio can yield, and I'm not sure that I'm actually quite comfortable in telling you that we're very close to that limit. I don't think we can push volumes per nameplate on the current product portfolio beyond sort of a reasonable range around the current volumes. It just can't happen. The real trick here is to use the knowledge and the architecture that's embedded in the house to try and cover market segments that are currently not covered by Ferrari.
To leave sort of what I consider to be the real technology-driven customer base untouched by this expansion. We cannot impact the exclusivity of the brand in that fashion. It has to be done by expanding reach, and that expansion is not obvious. It's going to take time. We've done it before, by the way. If you look at the history of Ferrari and you look at its product development, there were big chunks of its foundation going back to 1947 and probably the 30 years thereafter, that defined Ferrari, not just in terms of technology, but defined it in terms of aesthetic appeal and, for lack of a better term, but certainly a definition of Italian class. We have gone through a transition where we have now rendered Ferrari very much of a racing thing.
I think that this essence of racing is something that needs to be accompanied by a return to the more traditional, classical styling of Ferrari, which we have somehow dissipated over the last 10 or 15 years. That's really the big trick for us, is to get there and to get customers to come back, to come into the brand, who are not necessarily as enamored by the technology as they are by the combination of style and technology. These are the real issues for us going forward. When we get together for the Investors Day, that's the world we want to talk to you about because it's a comprehensive world.
It's a world that talks about the extension of the product range, about accessing a different customer base, and ultimately connecting that customer base with the development of Ferrari as a luxury brand in other areas. That's really the closed loop argument, and that's going to take time. It doesn't happen overnight, and you cannot do it in an awkward fashion. You can't rush it. I think the risk is that you're going to break China in the store, and that's not helpful.
At the risk of annoying you and maybe just to follow up on this. There's always this concern that some of your customers are aging out and some of the younger customers might not be as enamored by Ferrari as much as some people believe. Although, I find that hard to believe. Is there the possibility of starting with a slightly more entry-level vehicle that would be sort of a V6 turbo with a KERS system in it, that would be at a slightly lower price point to maybe broaden the base of customers to then upsell them over time once you've brought them into the family?
Yeah. It's an interesting proposal. Actually, John, I do not think that it's a question of price. It just happens, by the way, that people who unfortunately, wealth and age a lot of times go together. People have mistakenly assumed that because our customers are not necessarily 20-year-olds, that we're attracting the different end of the buying population. I think it's just a question of where wealth sits. We have a number of very young people who are coming to the brand. If you look at the Asian component of our customer base, it is phenomenally young. I'm not worried about the age profile of our customer base. I'm not sure that doing a V6, forget about whether we put KERS, not KERS, on a basis of price, would be the basis on which we can load up the succession plan for the brand.
I think the real issue is to expand the reach to try and get people in here that would have not normally bought an 812 Superfast because of its extreme driving characteristics, who wouldn't actually buy a Ferrari of that size as long as it displayed a phenomenal level of style and the typical engine sound and performance of a Ferrari, whether it was V12 or V10 or V8 or V6 or turbos, it didn't really matter. People who go back to those basic principles that were at the heart of Ferrari when it was launched in 1947. I think we need to go back and explore that space before we start downgrading the entry level on a price basis for the brand. It's dangerous. We've kicked around this notion of the Dino. There are split views on this inside the management team.
I don't think anybody is 100% convinced that bringing back the Dino is the right answer for Ferrari. We need to be careful. Look, let's get together in the first part of 2018, we'll see. We'll kick it around, and we'll give you a reasoned view. The great thing about us is that we move at the speed of light, not just on the track, but also in terms of product development. I think that we'll be able to adjust very quickly to what's happening.
Okay, maybe just two quick ones. What's the max capacity if you went to two shifts in Maranello? As you work through this issue with the Hong Kong distributor, how long is that hickey on your sales in China, and when does that kind of really recover?
Yeah, it recovers in 2018 on the Hong Kong issue. The best way to look at this is we can probably double current volumes out of Maranello. That's not without making some additional infrastructure investment, but raw basic capacity is in place to take it beyond. We'll have to tool it up, obviously, but the structure is in place to double up.
Great. Thank you very much.
You're welcome.
Our next question comes from Michael Binetti from UBS. Please go ahead, sir.
Hey, good afternoon, guys. Congrats on a nice quarter. Sergio, you mentioned on the last call that you do indeed think this brand can deliver to shareholders margins that would approach some of the luxury names that you like to compare the brand to, like Hermès, which is north of 36%. That's a long way from where you're at today, but if feeling our way around the math, you've got very good margins and incremental margins on the cars today. It doesn't sound like you're convinced that you're in a situation where the low-hanging fruit has already been harvested. Can you just help us think at a high level about some of the things that you think about when you think about driving this brand to those margin levels today?
If I told you that we can get there. If we keep volumes where they are, either we drastically change the product mix in the sense of coming up with much higher priced vehicles, or I think the likelihood of us getting to a 36% margin on our own. We're pushing like damn crazy. Just don't forget that we have a large building very close to our activities here that appears to have developed an incredibly voracious appetite for cash. Yes, it does win on the track from time to time, but it does need to be fed. That's something that Hermès does not have. I remind you of one thing. This thing about EBITDA margin is a very interesting story.
I don't want to take you back to my bloody pitch on capital consumption I made a couple of years ago. From a capital consumption standpoint, this is a better business. This is a better business than Hermès. A buck invested here has got better returns than a buck invested on Hermès. I love Hermès. Not because I'm a big customer of theirs, but I think as a brand. I've got a couple of people in the room that are smirking now because I made a comment about my becoming a customer of Hermès, which is a pretty unlikely event. We have better returns on capital than anybody in the space, and that's because of the fact that distribution is financed by others. As long as we keep that uniqueness, I think we'll be fine. I'm on the page.
If we doubled volumes from where we are today or got close to that, we could blow the hell out of the EBITDA margins of Hermès. That's not the issue. We can get there. We need to build the portfolio to get it there without destroying exclusivity, and that's really the trick. Look, I go back to what I said. I think we need to wait until the plan gets launched here in 2018, then we'll give you a pretty thorough roadmap where we'll be in the next five years. That's really the exciting part of the journey. Oh, shit, that sounds horrible. I think we've done the easy stuff up to now. The tough stuff is coming on now.
As you mentioned that, we're obviously quickly approaching the EUR 1 billion in EBITDA that you pointed out at the IPO as your long-term target. Between now and the Analyst Day, we might be in a little vacuum of what to think about as you guys get ready to tell us about the next cycle through 2022. You've mentioned hybrid and informally between quarters mentioned that as a big opportunity. Give us a little bit more to think about over the next six months as far as the portfolio today and the big opportunity up next to attack for you for the next leg of this very successful story beyond just hybrid.
I'm not sure I understood the question, Michael.
Well, I would say getting to your EBITDA target of EUR 1 billion-
Yeah
two years early sets the bar very high and leaves people thinking, how do we top that story? Obviously, the press put out these fairly large numbers, so.
The way we top that story is by building the plan between now and 2022. To be perfectly honest, I haven't worked through the numbers, but I think if the plan at the end of 2022 does not target the highest EBITDA number of anybody in the sector, then we probably got the wrong plan.
Is there any way you can help us with why you think that?
I do because I go back to what I said in my earlier remarks when I started answering calls. The question is, we need to be able to expand the product offering here without impacting exclusivity. The only way we can understand this is by seeing a fully articulated product portfolio that really highlights how this is going to happen and why we think that by introducing additional models on existing technology is not going to hamper the exclusivity of a particular lineup. This is really the key. Let me put it this way. There are more people that would buy non-extreme versions of Ferrari than there are people that would buy extreme versions of Ferrari. This I can tell you for a fact.
We, by definition, excluded a large portion of the buying population, people who are even close to the brand, people who have the financial means to access the brand, because our product offering was so uniquely pushed towards the performance and would actually lost interest. They also, I think in a lot of ways, became intimidated by the offering. That's something that cannot happen. Ferrari should not be an intimidating brand unless you choose it to be. We got to leave that choice to the consumer, not to us.
Okay. Thanks very much.
Our next question comes from Thomas Besson from Kepler Cheuvreux. Please go ahead.
Thank you very much. Thomas Besson, Kepler Cheuvreux. I have two questions, please. First, can you update us on Ferrari's hedging policy, please? We are getting apparently in a phase of a stronger euro. If I remember correctly, you've moved your hedging from 24 months to 12 months. Can you tell us what you've been doing in the last months and whether we should expect potentially prices to have to go up in some markets like the United States to compensate?
Let me give you a broad answer to the question about hedging, because this is a discussion that Gili and I have had now ad nauseam, and I'm tired. I'm old enough to have had every hedging discussion with every CFO I've ever had. Whatever hedging strategy one puts on, it's at best a 12 to 24-month wonder, because it covers you for the foreseeable future, and it doesn't answer the question about what happens if that change is structural. It may be a blanket that you've bought yourself to try and keep you warm for the next 12 months, but it doesn't address the structural issues. The problem is that even the question you just asked is just a question about what happens to 2018 earnings.
The reality is that we have covered little of nothing of 2018, and we need to get into a position where we, together with the commercial organization of the south, start reacting in a very effective way to this changing world that says we are euro-based in terms of production, and we're going to be exposed to the world at large in terms of what we sell. The answer to your question, in a very short, brief period of time, is yes, we need to go back and adjust prices in the market. There's nothing we can do about this. It is what it is. I think it should only reinforce the view about the fact that this brand is exclusive, and that there's really nothing that we need to compare it to.
I know there are alternatives to buying a sports car, but there's nothing like Ferrari. I think we need to reflect that in the pricing mechanism that we use in the different markets. We need to protect margins of Mother Goose. It's the only thing that allows us to continue to invest in the products that we're launching. It's the only thing. Nothing else matters.
Very clear. Second question, I'd like to come back to the new view on the, whatever you want to call that, utility vehicle. Would you likely stick with the two-door super sports car view that has been so far the kind of common element of any car the brand has produced, or would you go to something that would be not exactly, but in the direction of what Lamborghini is going to do with the Urus?
I can tell you we're not going to do anything that Lamborghini does. Whatever the answer is. I have a lot of time for Stefano Domenicali. He's a good friend, and I like him very much. I think we're going to go our own way on this. I think we need to wait until we show you, if we do the car, for you to judge. We never talk about products that we're going to be launching in the future until we launch them. I think we're going to start picking up a very bad habit here of discussing cars that are not visible. Let's wait.
Okay, thank you.
Our next question comes from Martino de Ambroggi from Equita. Please go ahead.
Yeah, Martino de Ambroggi from Equita. Good morning, good afternoon, everybody. The first question is on the exclusivity. I remember we already discussed it several times in the past calls. Mentioning 16,000 units at your installed capacity in Maranello, should we take this level as a sort of level in order to avoid to jeopardize the brand exclusivity? Must it be lower? Could it be higher? What's your view on this?
Yeah. By the way, 16,000 was a number that had to do with what was the maximum capacity of the system. I told you that we could double it if we ran double shifts. I didn't tell you that we would be producing 16,000. Don't go out there and think that we're going to launch 16,000 cars now. Slow down. Just everybody lie down and wait until the feeling passes here. That's not what I said.
Yeah, I was just wondering what's the level that you consider reasonable in order to preserve the brand exclusivity?
Mr. de Ambroggi, I think you're going to have to wait until we do a presentation on the markets in 2018. Let me give you some advice. I go back to what I said. In terms of the current lineup, we are now approaching, unless there's a draconian change in the size of the customer base, I think we're already within sort of reasonable limits of the size of the production for the current portfolio, maybe with the exception of two cars, which are the California and the GTC4. The rest of the cars, the eight cylinders and the 12 cylinders, the 812 and the 488, those cars and their successors are effectively playing in a space which is almost defining its maximum size. It cannot go beyond that.
The only way we're going to grow this business is by occupying adjacent space in product offering, which we're currently not connected to. The answer to your question is that we will never, ever bargain away the exclusivity of the product range that we got today, because we will never overproduce and try and overcover in those segments, ever. It's just not worth it.
Yeah. Okay. Two quick questions on the other activities. If you can provide us a rough indication of what is the weight today inside Ferrari, and the personalization was 17% in the past few quarters. If there is an update on this figure and the 36%, 37% EBITDA margin I suppose it implies the 20% target of personalization.
Yeah, probably. I have not worked through the numbers, Sandro will give you the percentage.
The other impact of all the different activities is not that material thing. We have never disclosed the number on its own in terms of EBIT contribution, but it is not the most important one. In terms of personalization component, we are still at 17%.
Okay, thank you.
Our next question comes from George Galliers from Evercore. Please go ahead.
Hi, thank you for taking my question. The first question was really on other activities, and maybe we'll have to wait until next year to get more detail, but is there anything you see from other brands which looks interesting? For example, Aston Martin is perhaps the more prominent in men's clothes. Bugatti has the EV line. There's Porsche Design, not sure of the exact ownership. Do you see anything that other brands associated with the auto industry are doing that could be interesting for Ferrari?
No. Sorry, I hate to be this arrogant and this blunt, which is the reason why we have been walking very softly on this topic, because this is the area where I think you could easily make a mistake, and certainly would be unproductive. Whenever we are seeing things stretch out into areas which are outside their D&A, we are seeing people come up with mediocre results, both in terms of economics and otherwise. I think that Ferrari needs to find its own way of dealing with this issue. Hopefully, when we deal with the plan in the first part of 2018, then I think we'll be able to show you some real-life examples of things that we can do. They will build on a variety of offerings that will ultimately complete the product ranges. It needs to be of the same exclusive nature as our cars.
With that in mind, are you happy with the development of the Ferrari store? I understand, I think a lot of this product is aimed at the tifosi and your followers, but it does seem to, I guess, be a quite mixed assortment of products you sell there, and it also seems to be on sale a large % of the time.
Yeah, obviously not, because that store, in our view now, that's the transition that we're working our way through now, is a reflection of our racing activities. It is a reflection of the Scuderia as a racing team, and its wares. Whatever the goods that are sold in that environment ultimately end up being ought to be a reflection of that world and not of the luxury goods that we sell through the Ferrari brand. These are two separate worlds. We have been, to be perfectly honest, it's been the single largest struggle that I've had here to try and drive discipline between these two worlds. I think we've made good progress. I think we need to continue to refine this because the two concepts are not mixable. They're just not at all mixable. They have nothing to do, one with the other.
I think we need to come back in, and we need to restrict the reach of the Scuderia stores. We need to make sure they're much more closely aligned with our racing world, then build the luxury brand outside of this in connection with our cars, that's it. That's a different trip altogether.
Got it. Finally, not to beat a dead horse because it's been discussed a lot on the call, just looking at your history, isn't the 250 a great example of how essentially with the same engine, you were able in the past to extend the product offering from race cars to sports cars to GT cars?
Look, our history is littered, I hate using the term littered, but littered with examples where that worked and worked well. I think we need to learn from that past. More importantly, I think we need to rebuild the skills inside this house to design those cars, to build them, to speak to that audience and that customer base, which is fundamentally different than the one that we currently have. Look, there are some cars that we're working on now, at least on paper, that I think when launched, will make people's heads turn, right? Ours do today, for different reasons. These are examples of what I consider to be probably the best examples of Italian style that we can come up with. We know that technically, we can make them unique to the point where nobody else can match us.
I think we need to go back to those days. It's a lot of fun. It's a lot of fun if you're in the business like ours to try and do those things because they really fully leverage every EUR that we put into this technology pool, everything. So, look, at the end of the day, the core skills of this house, which have to do with the eight and the 12 cylinders, need to mature. They need to move into in a hybrid world. They need to link up to F1 so that people can start feeling the association with racing and have an experience which is unforgettable in terms of driving dynamics. There are some people who just want to look good, listen to a Ferrari engine, and have the ultimate luxury in their environment. That is Ferrari Space. We need to reoccupy it.
We let it go to some others who have done a lousy job of occupying it, I think we want it back.
Great. Thank you very much.
Our next question comes from Stephen Reitman from Societe Generale.
Yes. Good afternoon. Thank you for taking my call. I have two questions. The first, on the mix in the second quarter, you highlighted that you had positive impacts from Aperta offset to an extent by obviously not having LaFerrari in there anymore, which finished in 2016. Could you give some kind of idea of where we are through the Aperta in terms of deliveries of the 200 odd units that you're planning for that series? My second question is, again, about the growth of the brand and the volumes. Going beyond 10,000 units of a small vehicle manufacturer cap. I think there is no doubt that there wouldn't be an issue among your customers if it was about, let's say, the ability to pay any fines or any kind of penalties or maluses that were imposed on the vehicles, and there's some already on your cars today.
Obviously you will mitigate that to some extent with hybridization. What do you think, actually, of the whole idea that you could expand and your customers just pay, maybe extra, because I know that obviously the image of Ferrari is technical, cutting edge and the like. Is there a disconnect then maybe with also being seen as being more polluting, just in the kind of environment that we're moving into? That's my question.
Let me try and deal with the second part of the question, then I'll move back onto the other. The first one, the reason why we have engaged as actively as we've engaged in the hybridization is because that is the world to come. By the way, that world to come is the world that's here. It is having an incredibly difficult time taking shape in real form. I'm talking about a non-luxury side of this. If you look at the number of electric or hybrid cars that were sold in the U.S. in the month of July, you'd be appalled. It's not a very large number. I think there's a lot incredible amount of hype. I go back to what I said about Elon Musk and Tesla. I think Elon and I are good friends.
I think he has done a phenomenal job of building Tesla. He occupies more space with the 3 Series of his car now than most of the 98% of the car makers. We take up the rest with diesel issues. He takes up the space with a very limited number of cars. I think there's a heightened and perhaps unjustified level of interest in electrification and hybrid cars today, given the relevance in today's marketplace. They are an indication of the fact that these are things to come. Ferrari needs to embrace that technology. It needs to make it. It has already, because we run it in Formula One and we have made it available in LaFerrari and Aperta. We need to make this as a structural element of our product offering. It cannot be denied. The time has come.
Hopefully by 2019, you'll see the first embodiment of that car. Because strangely enough, in the case of Ferrari, it enables that brand to express itself even more powerfully than it would do otherwise, because the combination of combustion and electrical motor will produce pretty high levels of power that will be very helpful to anybody who's trying to experience the Ferrari way of driving. I don't feel bad about this. What we've built in our models now has shown that as we keep on rolling out this hybrid world throughout the portfolio, that we will continue to lower our CO2 emissions in a very substantial way. When we run the numbers on this 10,000 barrier, which everybody talks about as if we all know what we're talking about, the reality is that we really don't know what we're talking about.
The 10,000 rule has got. It undoubtedly defines small volume manufacturers. If you look at the U.S., for example, on greenhouse gas emissions, the 10,000 rule is irrelevant because it's 5,000 cars per year. In order for you not to be a small volume manufacturer, you must have been in excess of 5,000 for three years running. Then there are implications which in the scheme of our economics are really not that consequential. I would never, ever impose. If the current taxation system stay in place in terms of greenhouse gas, I would never impose or levy a tax on a customer of ours that reflects this greenhouse gas taxation. It would be part of the offering, and I think it would go on. It would be part of the price that's being asked by us of the customer in general. It is not a humongous price.
It would not distort the economics of the sales, even if, I hate to say this, but even if I had to absorb them in our world. We will not be distorting our P&L. We need to be very careful. I know that there's this view that once you cross 10,000, that all hell breaks loose. It depends on the jurisdiction, and there are some consequences which are worse than others. They need to be looked at in terms of the rollout of hybrids throughout the portfolio and the jurisdiction. The combination of these two things do not make them unmanageable. They are manageable. We will show you. When we get together in the first half of 2018, we'll actually show you what ifs, if we change portfolios, and we'll show you what happens in terms of the impact on economics. It's not that large.
It's obviously negative on the accounts, but it's not that large. We need to be careful. Don't think that 10,000 cars a year is the end of the world. It isn't.
On your question on the Aperta, at the end of Q2, we were slightly higher than 50% of the total volumes, and we will be close to 90% by the end of the year. There is a tail in 2018, as we already mentioned last time.
Thank you.
Our next question comes from Lello Della Ragione from Intermonte. Please go ahead.
Hi. Thank you for taking my question. I'll start with just one with the short-term before going back to the 10,000 threshold. You were quite clear that you will not upgrade guidance till the third quarter, but still, at this point in time, what's the reason to not do it? Because if I run through the number that you're guiding at, especially at the EBITDA level, we see a slowdown in terms of margin, which might imply some additional investment in terms of R&D or some other effect coming on the top line, which might be flattish year-over-year. I was wondering if is it just conservativism or are you already expecting some headwind in the second half of the year? The second question instead refers to the 10,000 threshold that Mr. Marchionne was just talking about.
Do you think it's feasible to include in a five-year business plan, so looking forward, to accept fine? You're already planning to go above this level, whatever you're going to do with the fine, pay by yourself or charge to the customer worldwide. Do you think that on the other side, the regulator will just stand by and accept your strategy like that? Do you think there is a risk that this might not be a feasible strategy? Thank you.
Look, Mr. Della Ragione, just to be absolutely clear, exceeding the 10,000 limit has one very simple consequence. I lose my small manufacturer status, and I become like the other guys, and none of the other guys are going to die. It's not as if we're going from purgatory into stratospheric hell. We're just going into everybody else's world, and that's got implications. We understand them, and we will adapt. The economic cost of that compliance is not large, and I keep on repeating this. Do not build yourself a level of anxiety that is unrequired. That's the first issue and the answer to your question. The answer to your question, I'm not sure how to give you this answer better than I gave it to you already. We're not going to have great guidance, if at all, until Q3.
That does not prevent you from running your own model saying these people are being incredibly conservative and the real number is Y. I would encourage to do that. I'm sure that you have enough talent, skills, knowledge and imagination to imagine a number other than the incredibly measly, poor, pedantic, boring, conservative forecast that we put in front of you. By all means, let it go.
Thank you for that. Just a follow-up on the NHTSA and the SME definition. The thing is that concerns me the most is that last year they just doubled the dollar amount of fines that they used to compute the fine. The point is, you're an Italian company at the end of the day, and I don't know if they can actually double again or multiply by 10 the current amount, and if that will change the economics. At that point, what will you do?
You're talking about an Italian company being victimized because it's Italian by-
No, the point is they don't need to defend your strategy. It's your point. They can do whatever they want. As they did last year, doubling the dollar amount of fine, they can do it again and again and again in the next five years. Do you think they will do that?
I think they could, I think they would impact a whole auto industry if they did. I think the consequences for the auto industry would be so drastic that it makes what you suggested unlikely.
Okay. Thank you.
You're welcome.
Our next question comes from Philippe Houchois from Jefferies. Please go ahead.
Yes, good afternoon. Thank you. Two questions. The first one is, I think you mentioned that the order book on the Superfast extends beyond the end of 2018. Is this kind of success of this car ahead of expectations in the sense that some people expect this might be the last V12 naturally aspirated car? Or am I reading too much into this? Is one question.
You're reading too much into it. It is not the last naturally aspirated 12. It doesn't mean it'll be. There's not accompanied by somebody else, but it's not the last.
Right.
Secondly, I think it's gone probably better than I expected, yes, just in terms of the order book firming up well into the end of 2018 and into 2019.
Yeah. I wouldn't expect you to say it's the last one anyway. That's maybe chatter in the market that might explain a good performance of that vehicle. At least you confirm it's slightly ahead of your expectations. That's interesting. The other question is, I wanted to go back to a comment you made to me on the Q&A of FCA a few days ago. You talked about Ferrari and customer intimacy. What I'm getting there is It's almost like there's a lot of angst about what kind of car you're going to come up with. Is it going to be SUV, whatever. For me, my understanding of customer intimacy is that you know your customer base probably better than any other business I can think of.
When you put a car on the market, or you have an idea, it's not like you come from an idea, and you put it in the market, and hopefully it sticks. It's a kind of symbiosis of development ideas that you have with your customers because you know them extremely well. In which case, it doesn't matter if I like the car or if Adam Jonas likes the car, you will have validated that concept with your customers, and therefore, the risk of error is fairly low. Am I thinking in the right direction there?
No, you are, Phil. The only area where I think I'm cautious. I agree with you that the level of intimacy that we have with the customer base is unparalleled, and I think it's unique in the space. I think we've done a great job and continue to do a great job. I wasn't the one that started it. It's been going on in this house for quite a while. Very strong ties and an incredible level of sense of belonging by our customer base to the Scuderia. The real issue to me is, as we expand the product offering beyond what we have currently covered, we're going to end up into some green space. Space that is not yet, at least not recently, it has not been the object or the basis of sort of empirical exchanges of views with the customer base.
We're learning how to bring them in now because we need to make them part of the solution. That's going to take some time, and that's why I'm hesitant. I think, if we ever, and these are all hypotheticals, if we ever come up with something that smells and looks like a UV and is not a UV, the very first people that would have a chance to examine it and evaluate it are the people who are sitting in our customer base because they are the ones that will have a better understanding as to whether they feel offended, as Ferrari customers, about what we're doing. Expect it to continue, but it's much more difficult as the product portfolio enlarges.
Makes sense. Thank you.
Our next question comes from Max Warburton from Bernstein. Please go ahead, Max.
Yeah. Hi there. We've spent a lot of time on this call talking about road cars. I'm wondering if I could just ask a few questions on Formula 1. I know it's quite a small part of the business, but it seems to be taking quite a lot of management time, which makes me wonder how you're thinking about it at the present time. I think we all understand it's a marketing tool, but is there any way you can see to make it profitable? The reason I ask this is I think you said at the beginning of the call that you've been having constructive discussions with Liberty Media recently. Is something going to emerge here that actually could change the economics of F1 for Ferrari?
Yes. I'm going to put it in very crass terms. I think Liberty wants to make as much money as it can, having made the investment that it made in Formula 1. I think we want to make as much money as we can running Formula 1. If we can expand the revenue base, I think there's a willingness on the part of Liberty to share it, after they take their due piece out of this. I think the last thing that they want is a poor team. How it turns out, we'll see. To be honest, Max, we've been losing money. We've been losing money running F1. I'm looking at Alessandro, but it's got to be a good decade. It's about nine, 10 years. It's been negative on the bottom line.
Okay.
It was profitable once.
When was it last profitable, out of interest?
When Jean Todt was here.
All right. Okay. Just the timing of this. For the business to be, for the sport of Formula 1, for Ferrari to be profitable, does that have to involve a new Concorde Agreement? Or is there anything in the nearer term with the championship with Sauber, et cetera, that could reduce losses before 2021?
No, we will make it profitable before Concorde expires. This is for sure. The question is, how much more profitable can it be if a proper Concorde is structured? As you well know, Ferrari, because it's the only racing team that has been present in every year of Formula 1. It has value, and by the way, it's asserted that value against the organizers for quite a while. It does take a larger piece of the pie than every other team does in terms of distribution. I've always had the fear, Max, that if we had not started winning, that we would somehow lose that right going forward because we would have no right to establish this right to take first dibs at distribution.
I think as we keep on improving our performance on the track, I feel better that we can sort of advance that case with Liberty. I think it's way too early in the process, it's 2017. Who knows what will happen. The discussions will start. They will start probably at the end of this year, beginning of next. We'll have a couple of years to hammer out an agreement that makes sense to everybody who's involved. I'm not sure it's going to move. I don't think it's going to move, if the number is EUR 1 billion, a bit down, I don't think we're going to move it by a large amount, but it certainly will not be a drain on our financial resources going forward.
Okay. Last question on this, just to understand the near term. The engine deal extension with Sauber, is that a profitable agreement or is it a strategic agreement?
I'll give you my view, Max, I don't know what Mercedes would tell you or Renault would tell you when they sell engines. It is difficult. We would have to build the engine anyway for our racing purposes. If we can sell it at a price that recovers the variable cost and the fixed cost of manufacturing of that engine, plus some reasonable amount that we see as a contribution to R&D expenditure, we will be happy. The answer is, it's P&L accretive. Would I get into this business on a standalone basis? The answer is bloody no.
Okay. Thank you. Thanks for the answers.
You're welcome.
Ladies and gentlemen, that concludes today's question and answer session. Ms. Russo, at this time, I'll turn the conference back to you for any additional or closing remarks.
Thank you very much, everyone, for joining us today. The AR team will be soon available for any follow-up questions you may have. Thank you.