Thank you, everyone, for joining us today. There are 2 topics that we plan to cover today: the group's 4th quarter 12 months 2016 financial results and 2017 outlook. In light of this, the call is expected to last 1 hour. All relevant materials are available in the Investors section of the corporate website. Today's call will be hosted by the Group's Chairman and CEO, Sergio Marchionne and Alessandro Gile, Group's Chief Financial Officer.
At the end of the presentation, they 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. As you can see from the numbers that we released this morning, it's been a good year. I think we're satisfied with the progress that we've made. In terms of both the sort of strategic development of the house, which I'll come back to in a couple of moments. And but equally important, I think, is the performance on the metric side of the business.
We're now in a position to clock about 30% EBITDA numbers. I mean, this is pretty this is a combination of a couple of things. 1, the comments that we have taken to heart from most of the investors that we've spoken to about the pricing power associated with Ferrari. We have made some strides. I don't think we have made all the strides that are necessary to reflect adequate pricing for what we produce, but I think we certainly have moved the agenda forward on that topic.
And equally important, I think we've become a lot more rigorous in terms of costs within the house, and I think this is reflected in the operating margin for the business. A couple of sort of broad comments about what we intend to do. The headline of the press release makes reference to the 70th anniversary of Ferrari. It's a big year. We have a number of celebrations that have now been set in motion with our clients to really celebrate in an effective way our 70 years' worth of history for this brand.
But one of the things that we have learned and that I've learned certainly in the last 12 months is that we have a phenomenal amount of unexplored territory in terms of augmenting the product range, the number of vehicles that we make. And this is without breaking some barriers, without producing an excessive number of cars. I think there are additional models that this house can produce from existing investments. And that effectively cater to particular needs of our customer base. And that's really been the main effort in 2016 to try and get a better understanding of the colorings or the shavings of those customer preferences.
And I think we will see hopefully in the next 2 or 3 years, the presentation of a number of cars that are they start from the basic DNA of Ferrari, but they really reflect adaptations of the DNA to different tastes. And that's something that's important to us. It's important to the network in terms of providing the level of activity that will continue to make them successful and profitable. A lot of time was spent certainly when Alessandro and I were on the road talking about the expansion of Ferrari into the luxury space outside of cars. And we continue to be quite diligent and persistent in looking at these options.
Some things will become available in 2017. But we are being incredibly cautious because I think that we're we need to be careful that we don't do anything which ultimately will turn out to be unsuccessful. But equally important, I think we need to be careful that we don't do anything that will damage the brand. And so you will see some manifestation of that drive in 2017. I think it will take time over the next few years to try and spell out that strategy in a very clear way.
And one of the things that we have done is in terms of our retail store experiences that we have clearly identified these as being expressions of our racing activity through the Scuderia Ferrari nomenclature. And therefore, they will be in a sense divorced from the Ferrari brand, from the GT side of the business, which caters to a different set of clientele. Just to go back to the numbers, 16 are good numbers. We feel comfortable that we are making good progress. 2017 guidance, as is typical of this house, reflects the right level of prudence.
I think we need to be careful not to expose the house to unrealistic targets as we maneuver through our strategic plan. Before any of you beat up Alessandro on the guidance that he's given on EBITDA in excess of $950,000,000 given where 4x adjusted number is now, which is already in excess of target for 2017. Just be kind, I think it's a conservative number. I've been public on this. We've targeted 1,000,000,000 dollars as being sort of the bellwether of performance for this house.
And as I committed to you back in the Q3, we intend to get there at the speed of light. And on that note, I'll get Alessandro to do all the heavy lifting, and we'll be more than glad to take your calls.
Thank you, Mr. Racione. Hello, everyone, and thank you for listening in on the call, and let me start with the deck on Page 3. Our 2016 full year shipments reached 8,014 units, showing an increase of 3 50 units or 4.6% compared to prior year. The increase was led by the solid performance by both the V8 and V12 models, and in detail, the 4.88 GTB, the 4.88 Spider, the F12 TDS posted a strong performance along with a newly launched GTC 4 Lusso and LaFerrari Aberta, which are ramping up.
This was partially offset by LaFerrari that finished its limited series run. Group revenues grew by 9% to €3,100,000,000 Adjusted EBITDA increased 17.7 percent to €880,000,000 with 28.3% margin, 30% without FX hedges. Adjusted EBIT reached €632,000,000 with a margin increase of 380 basis points to 20.4 percent or 22.2 percent without FX hedges. Our adjusted net profit for the group surged 37% to €425,000,000 Finally, at December 31, 2016, our industrial net debt was reduced to €653,000,000 from €797,000,000 of 2015. Subject to the approval of a cash distribution by the Board of Directors and to the adoption of the company's 2016 annual accounts by the Shareholders Annual General Meeting, the company intends to make a cash distribution to the holders of common shares of EUR 0.635 per share corresponding to a total cash distribution to shareholders of approximately EUR 120,000,000.
2016 marked an important milestone for our company. As you are aware, At the beginning of the year, we spun off from FCA and subsequently listed on the Milan Stock Exchange. Throughout the year, we completed the bond issuance and the deconsolidation of the European Financial Services business. The group is expecting the following performance for 2017, assuming FX consistent with current market conditions. Shipments approximately 8,400 units, including supercars, net revenues in excess of $3,300,000,000 adjusted EBITDA in excess of $950,000,000 net industrial debt, approximately €500,000,000 including a cash distribution to the holders of common shares and excluding potential share repurchases.
Moving to the next page, pursuing our DNA to launch at least 1 new model every year. In 2016, not only we introduced the LaFerrari Aperta and the GTC for Lusso, but we also unveiled the GTC for Lusso turbo that will commence shipments during 2017 and the J50 that will be mainly delivered in 2018. We also introduced 350 unique liveries to celebrate our 70th anniversary as well as a new racing car, the 488 Challenge, successor of the 458 Challenge, the most powerful challenge car ever powered by the V8 engine series, which was awarded 2016 International Engineer of the Engine of the Year Award. The 488 Challenge is the 6th model to participate in the 1 make series, which is in 2017 celebrated its 25th anniversary. Moving to Page 5, we show our operating highlights for the full year 2016.
Our shipments reached 8,014 units, up 3 50 units or 4.6% versus prior year. This was driven by a 5% increase in V eight models led by both the 4/88 GTB and the 4/88 Spider, which continue to have robust waiting lists. 12 cylinder models grew by 4%, thanks to the GTC Forlusso and LaFerrari Aperta ramping up as well as the strong performance of the F12 TDF. This was primarily offset by LaFerrari that finished its limited series run. Group net revenues for full year 2016 were up 8.8% or 9.4% at constant currencies to €3,100,000,000 with sound performances of cars and spare parts as well as engines.
In diesel, cars and spare parts growth was driven by higher volumes, personalization and pricing increase, which started from Q4 2016 and partially offset by mix. Our adjusted EBITDA improved by 17.7 percent, reaching €880,000,000 28.3 percent margin. The result was primarily driven by higher volume, positive FX effect, sponsorship, commercial and brand as well as other supporting activities. This was partially offset by mix. Adjusted EBIT for the group showed a 33.6% increase, topping Europe at EUR 632,000,000 resulting in a margin expansion of 3 80 basis points to 20.4%.
The adjusted EBIT improvement benefited from a strong adjusted EBITDA, coupled with lower D and A, mainly due to the 4.58 family phase out and LaFerrari that finished its limited series run. Adjusted EBITDA and adjusted EBITDA excludes charges of €37,000,000 due to Ferrari decision following the amendment and to the coordinated remedy order issued by NHTSA in December 2016 to review its previous estimates in connection with the extension of the Takata airbag inflator recalls worldwide on all vehicles mounting nondesicated Takata passenger airbag inflators. Industrial free cash flow for the 12 months ended December 31, 2016, was €280,000,000 primarily driven by a strong increase in cash flow from operating activities, including an adjusted EBITDA of €880,000,000 and a positive change from advances on the newly launched LaFerrari Aberta. This was partially offset by slight negative change in working capital, CapEx of €340,000,000 and taxes, which included full year 2015 tax balance and 2016 tax advance payments. Let me kindly remind you that 2015 Industrial free cash flow included €160,000,000 onetime cash inflow related to the reimbursement by Maserati of its inventory in China and €37,000,000 onetime cash inflow from the sale of investment properties to Maserati.
Net industrial debt as of December 31, 2016, was reduced to €653,000,000 from €797,000,000 at December 2015, primarily due to the industrial free cash flow generation and partially offset by cash distribution to the holders of common share and dividends paid to non controlling interest. Moving to Page 6. In terms of shipment geographical distribution, all regions positively contributed, thanks to the 488 family, the F12 PDF, the GTC for Lusso and LaFerrari Aperta. EMEA expanded by 8% with Italy, Germany and France growing double digit pace. Rest of Asia Pacific increased 3%.
Americas showed a 2% increase, while deliveries in Greater China were up only 1% due to Ferrari decision to terminate the current distributor in Hong Kong in the Q4 of 2016. Moving to Page 7. Full year net revenues reached €3,100,000,000 up 8.8 percent versus prior year. At constant currencies, net revenues would have increased by 9.4%. Cars and spare parts revenues were up 5% or €100,000,000 led by higher volumes of the 488 family, the F12 TDF, the new model of GTC for Russo and LaFerrari Aperta, the non registered car FXXK and the strictly limited edition F60 America, along with a higher contribution from our personalization programs and pricing increase that started from Q4 2016.
This was partially offset by LaFerrari that finished its limited series run. Engines net revenues surged to €338,000,000 up €119,000,000 or 55 percent versus prior year. The significant growth was mainly attributable to strong sales to Maserati and higher rental revenues from other Formula 1 teams. Please let me remind you that during 2016 Formula 1 season, we rented our engines to 3 teams versus 2 teams in 2015. Sponsorship, commercial and brand net revenues reached €488,000,000 with an increase of €47,000,000 or plus 11% compared to prior year.
This was mainly due to a better 2015 championship ranking compared to 2014 as well as sponsorship revenues and positive contribution from brand related activities. Other revenues decreased by €50,000,000 to €99,000,000 mostly due to lower collateral revenues, including the deconsolidation of the European Financial Services business. On Page 8, you can see the year over year changes in adjusted EBIT main items. Volume was up €69,000,000 thanks to an increase of approximately 540 units due to the 4,488 family, the F12 TDF and the newly launched GTC for Lusso together with positive contribution from personalization. Mix was negatively impacted by lower sales of LaFerrari that finished its limited series run, but partially offset by LaFerrari Aperta, the strictly limited edition F60 America and positive range model mix due to the F12 PDF and the 488 family along with pricing increase, which started from the Q4 of 2016.
Industrial cost and R and D slightly increased, driven by Formula 1 cost, partially offset by lower DNA for the 458 family phase out and the LaFerrari that finished its limited series run as well as industrial cost savings. SG and A costs were lower than prior year, driven by different ranking in Formula 1 racing activity in 2016 and the deconsolidation of the European Financial Services business, partially offset by higher costs related to new directly operated stores. Foreign exchange, excluding hedges, impacted negatively by transaction exchange rate, mainly due to GBP, partially offset by JPY. And other was up €42,000,000 thanks to strong contribution from Racing for sponsorship and commercial engines to Maserati and other Formula 1 teams as well as brand and other supporting activities. As a result of all the above, full year 2016 adjusted EBIT was up 34% to EUR €632,000,000 Adjusted EBIT margin expanded by 3.80 basis points, reaching 20.4% or 22.2% without FX hedges, and adjusted EBITDA reached 28.3% margin or 30% without FX hedges.
Moving to Page 9. Our net industrial debt as of December 31, 2016, was reduced to €653,000,000 from EUR 797,000,000 at December 31, 2015. This was primarily due to strong industrial free cash flow generation of EUR 280,000,000 partially offset by cash distribution to the holders of common shares and dividends paid to our non controlling interests. Industrial free cash flow for the 12 months ended December 31, 2016, was primarily driven by a strong increase in cash flow from operating activities, including adjusted EBITDA for EUR 880,000,000 a positive change from advances on the newly launched LaFerrari Aperta, CapEx of €340,000,000 and taxes, which included full year 2015 tax balance and 2016 tax advance payments. And let me kindly remind you again that during 2015, industrial free cash flow included €160,000,000 onetime cash inflow related to the reinvestment by Maserati of its inventory in China and €37,000,000 of onetime cash inflow from the sale of investment properties to Maserati.
CapEx was €340,000,000 driven by R and D and product investments in connection with our continuous product range renewal. Moving to the next page. On December 13, 2016, during a special celebration held at the National Air Arts Center in Tokyo, Ferrari released the first images of the J50, a strictly limited edition car to commemorate the 50th anniversary in Japan. Already presold, the 10 units will be mainly delivered in 2018. The J50, based on the 4/88 Spider, is powered by specific 6 90 horsepower version of the 3.9 liter V8 that won the overall 2016 International Engine of the Year award.
The following two slides show our brand activities as well as the events Ferrari has organized to engage with its customers. And on Page 13, we are setting out our 2017 outlook as follows. We expect the following performance in 2017 for shipments at approximately 8,400 units, including supercars. This will be achieved thanks to the strong contribution from Range model, including the special liveries and LaFerrari Aperta. Net revenues will be greater than €3,300,000,000 driven by cars and spare parts as well as engine, partially offset by different Formula 1 ranking and the deconsolidation of the European Financial Services business.
Adjusted EBITDA greater than €950,000,000 thanks to a positive contribution from both volume and mix, partially offset by R and D and SG and A, in particular for Formula 1, new stores and 70th anniversary And net industrial debt at approximately €500,000,000 supported by industrial free cash flow generation, thanks to strong adjusted EBITDA, partially offset by CapEx to support continuous product range renewal and R and D for hybridization of our product portfolio models, taxes and lack of advances on limited edition supercars and including an ordinary cash distribution to the holders of common share and excluding potential share repurchases. And with that, I'd like to turn over the call back to Mr. Marchionne for any final remarks.
We can now move on, and thank you. We are now ready to start the Q and A session.
Certainly, thank We're now going to take the first question. It comes from Monica Bossio of Banca IMI. Please go ahead, ma'am.
Yes, thanks. Good morning and good afternoon, everyone. Thanks for taking my question. The first one is on CapEx. Could you please give us a rough indication of the expected CapEx for the current year?
And the second question is on the Patent Box. Have you any idea of the potential impact of the Patent Box for Ferrari? The 3rd and last question, maybe it's not the last, but I'll try. What kind of growth can we project for the sponsorship and commercial brands? Because I was expecting a lower increase.
And now it's time also to deliver also on this side, I'm asking what could be the strategy to expand this revenue line? Thank you very much.
Okay. Monica, Alessandro speaking. So for the your CapEx question, I think we mentioned it will be in line with the most recent historical trends, so north of €350,000,000 €360,000,000 for this year. It could be higher depending on the R and D for hybridization timing. But obviously, we will start spending on that side in order to turn our portfolio into an hybrid portfolio as soon as we can.
On the Patent Box side, we really cannot disclose any number for the moment since we obviously, we have applied for the possibility with the ruling to get the benefit from the Patent Box. We are in line with that, but we don't know the amount yet. And that really depends on the process and the details that we will provide and the tax administration will go through we get into the process. And growth from sponsorship and commercial was your last question. So I think we will try to get as much as we can from that line.
Obviously, you need to consider that there is a change from 2016, and that is taken into consideration in our guidance. And I think you've seen the improvement in 2016 in the actuals already.
Okay. Thank you very much. Just a follow-up. So if I have understood correctly, in term of net debt, if you assume a CapEx here in the region of 3.50, 3.60, The assumption behind the net debt is mainly due to the lack of advances. Is it right?
And partially due to the higher a little bit higher CapEx than the markets consensus is expecting. Is it right?
Yes. I think it's a combination of 3 things: higher CapEx, the lack of advances, as we've said, in the drivers that we provided as well as taxes on 2017 because, obviously, you need to incorporate a higher PBT basis as well as the fact that tax advances will still be paid based on the corporate tax rate that we have in 2016. Unfortunately, that's the way it works. So we will have to pay taxes based on that amount. So the combination of the 3 element drives the guidance that we provided for net industrial debt.
Okay. Thank you very much. Just a last follow-up. Mr. Marchionne, you told before that Ferrari has a huge amount of an explored territory in term of a number of cars and products.
Can you please give us some example in term of products or customer segment that Ferrari can explore? And is it still too early to ask for the waiting list for the GTC4 Lusso?
Yes. Let me give you the short answer. The GTC4 is pretty well sold out for 2017, so I wouldn't I'm not sure you well, you can probably get one within 17 somewhere, but I think most of it is gone. Just to go back to the question, one of the things that we have not done in this house is that we have never talked about a car and we have never described it until we can actually reveal it to our customers and to or to the markets. And as a matter of fact, today and for the next few days, we have within our facilities here a group of our select customers who are taking a look at the car that we will be unveiling in Geneva at the car show.
And this is the tradition of the house. It's a tradition that I do not want to break. But just a couple of broad comments about what is supporting my view now about the product portfolio. If you look in our the development of the GT section of Ferrari over the last probably decade, we have broken down our world into 8 12 cylinder versions. We have been very disciplined in terms of keeping these 2 worlds apart.
We have defined things such as the sports car being the 8 cylinder family through the 488 and the F12 world on the 12 cylinder side. And then we've developed ancillaries to this to the California and the GTC4 positions. Those were arbitrary distinctions, which I think they've probably done and a huge amount of injustice about the capability of the brand to be declined across a variety of applications that reflect particular customer taste. And I think that we need to explore the full width of the customer requirement and really cater to these needs in a particular way. And there are I think there are opportunities that we're now exploring in terms of launching products that can be sold side by side with a traditional lineup of cars that we have today that would effectively round out the offering of Ferrari and not be offensive And so we keep on getting phenomenal pressures on the outside about doing one because everybody knows that if Ferrari did an SUV, you could sell That may be probably true.
I struggle with trying to picture a car that can be sold by Ferrari that does not have the driving dynamics of 1 of our passenger cars. So I'm it is we have to be sufficiently disciplined not to bastardize the brand and take it to places that it's never been and where the DNA gets effectively obliterated by the technical requirements of the car. So having said this, there's still a phenomenal amount of space that's left over for us to try and complement the range and produce additional car of existing investments and architectures without effectively reinventing the wheel and yet producing a car that's sufficiently different to the customers to be able to attract a different clientele. So leave it with us. You will see this unfold over the next 2 or 3 years.
And I think that's what makes me a lot more comfortable about the financial capability of this house because we understand that from an operating leverage standpoint that this is the single largest opportunity that we have to deliver earnings and cash. It's from the expansion of the existing operating base and effectively flexing out the portfolio to its maximum potential without disrupting the DNA of the brand. And I think we're getting better at this. I think we need more time. You'll see evidence of this, I think, as we work our way through 2017 2018.
Okay. Thank you very much. Thank you.
Thank you. And then we'll turn next question, which comes from John Murphy of BoA.
Good afternoon to you. I've got a follow-up on this statement and that last statement you just made on where you might go with form factors. I mean, just tell me three angles. First, it sounds like you're seriously considering a crossover or SUV. Second, is this how you get to a level above 10,000 units some time down the line?
And 3rd, as you're doing this, do you consider capacity adds or could this be executed through your existing facility?
Let me answer in order of ease. The existing facility can make everything that we need to make the numbers that we talked about. You're not far off in terms of a 10,000 objective of potential expansion of the product range. And I fundamentally disagree that it needs to be done through an SUV. That's the thing that I struggle with.
I don't know what an SUV with the Ferrari driving dynamics will look like, And maybe it's ignorance on my part that I need to be shown. But I find it very, very difficult to try and get track performance out of an SUV Ferrari style.
I 150% agree with you. I mean, that's why I was asking. Okay. Second question, you mentioned that you pushed pricing a little bit this year or 2016, but there was opportunity to potentially push it materially more. What does that mean you executed on in 2016?
And what do you think you really can do going forward?
Without telling you what I touched in 2016 before I make customers nervous, I did intervene and we did it by jurisdiction as we were launching model years. The more important thing for us is that when we launch new vehicles now and one will be launched in Geneva is that we reflect as tense right at the beginning of the launch process We shouldn't be We shouldn't be making a lot of noise about it. I think we should just do it, right, as a matter of practice.
I agree. Okay. And then just lastly, was there any change in the order book that you saw in the U. S. Post election in the U.
S. Either positively or negatively? I mean, I guess you could certainly argue that there might be a lot of folks that are at the high end of the income spectrum that might have a lot more money if these tax cuts go through. So I'm just curious if you're seeing any bump or would expect any going forward?
I think we have seen a strengthening of the order book in general. And December was a weird month because of because we cleaned up distribution. I mean, we had an order book on the 488 that could have choked the horse. And so we forced the distribution channel to cancel anything that we could not deliver in 2017. And so we cleaned it up.
It's very difficult to read the month of December because we forced the dealer network to clean it up. But the feedback that we're getting and not just through Ferrari, we can also we've also noticed it from Maserati and the rest of the premium car brands that I'm connected with, the market is quite strong. And so there has been no disruption nor do I see that interest waning in 2017. I think we're going to see a strengthening of the commitment to the brands.
Great. Thank you very much.
Thank you. We'll now move to our next question, which comes from Martino De Ambroggi of Equita. Please go ahead.
Yes. Good afternoon, everybody. The first question is on ForEx effect because last year was positive and should be positive also in the current year. So I was wondering what's the underlying assumption for ForEx for this year. And the second question connected to the first one is regards the guidance you gave at the time of the IPO €1,000,000,000 EBITDA target in 2019.
So you are very close this year. So I understand the ForEx had a better contribution than what you expected at the beginning. But now, first, what else was better than expected? And second, you should update the target now, but I assume you will not do it today. But in any case, you are in a chart, you are presenting the range of luxury companies with an EBITDA margin between 33% 37%.
Can we take this as a sort of long term target for you?
Yes. I think the day I will feel really comfortable is when we define the segment as top end. So whenever I get there, you know we stopped and we're doing something else. But right now, we've got a long way to go. So we have a couple of years before.
Yes, 4x, we target, yes, we may be there a couple of years before. Yes, 4x may have helped. Other things have gone the other direction. But we have been able to perform well across all of the issues that we face, both pricing, cost containment, distribution, everything else is running better than it has historically. I think I'm encouraged by the quality of the team that runs this business.
I think that we have a bunch of good kids here who are doing a phenomenal job of moving the agenda forward. The only thing I can tell you is that the minute I hit the $1,000,000,000 you'll be the 1st guy to know what the next target is. But until I get there, it's no use to be threatening you with something that I haven't got.
Okay. Thank you. For ForEx, last year, you mentioned at the beginning of the year $50,000,000 Is it possible to have a rough indication for the current year?
Yes. I think it would be basically consistent. Just to clarify, the FX hedges impact foreseen for this year and so for the current year is close to be 0. Obviously, in terms of variance compared to last year, since we had we were penalized, especially in the 1st 6 months of the year, you will see the benefit just coming from a variance analysis standpoint. Yes.
Historical to historical. But if you remove the impact of hedges, you should not notice the difference.
Okay. Thank you. And just if possible, any statement on the Formula 1 stake potential investment?
Look, we started exploring that opportunity now. We're in discussions with Liberty. I just recently had a meeting with TRACE. The issue is not just a question of the financial investment. This is something that we do for a living in a very serious way.
The Concorde agreement expires in 2020. So becoming a nonvoting shareholder and an entity which effectively keeps us trapped in without knowledge of what the 2021 and later world will look like is something that I consider unwise. And so one of the things that we've tabled with Chase, and I think we're not the only ones that are tabling these concerns, but one of the things that I've tabled with TRACE is clarity on what the post-twenty 20 world looks like and what VerAI may be able to get from its involvement in Formula 1 activities. Once we make once we have clarity, then I think it becomes a lot easier to decide whether we want to participate in this venture. I think that there's a huge amount of upside we can deliver rewards to everybody who is an investor in this business.
But we need clarity and we're not there yet.
Okay. Thank you.
Thank you. We'll now move to our next question, which comes from Thomas Besson of Kepler Cheuvreux. Please go ahead.
Thank you very much. It's Thomas Besson of Kepler Cheuvreux. I'd like to follow-up on this F1 topic, please. The change in ownership is potentially bringing new routes already. Is there any negative impacts or positive impact to expect from that in the 2017 accounts, knowing as well that I think the ranking in the year will that will impact 2017 has been a bit lower than the previous year.
Yes. I mean, obviously, has an impact. We have not performed well, and we know it. What I do expect, to be honest, is the sport itself to do better in 2017. And I think that will be a great basis for us to continue and to continue our commitment to Formula 1 and to really set the basis for a post-twenty 20 world.
And I would expect that Liberty and Chase, in particular, would have a very clear understanding of the fact that this that the entertainment side of this needs to come back to play. I mean, we cannot keep on committing to a sport that has sort of decreasing audiences for a variety of reasons. And so we need to repopularize I apologize for the expression, but we need to repopularize the sport and we need to make it more accessible. And so there's a lot of work that needs to be done. We will do our part as a Scuderia in making sure that that happens.
But that work needs to get underway in earnest now. But in terms of economic impact, I would not I wouldn't suggest there's going to be any earth shattering events in 2017 that will change performance. And as you well know, if we do end up winning, unfortunately, there are a number of people that will claim ownership to the excess spoil. So as Alessandro keeps on telling me that financially, it may not be a good idea to win, but we'll see.
I'm sure you'd like it though. Could you make a comment please on the mix for 2017 and give us an idea of how many Aberta have been sold already in 2016, please?
We are not disclosing the exact number. Just for I think you've seen from the disclosure, the combination of LaFerrari and LaFerrari Aperto in 2016 was close to 100 units.
Okay. And can you comment on the mix 2017, please?
In 2017, the mix should be improving on the V12 side, most likely because we have full power of the GTC for Lusso now, and then something will come out.
And there may be other cars that will be launched in the 12 cylinders section. I mean, the oldest car of the lineup today is the F12.
Okay. Last question for me, please. Your engine business has roofed in the second half with Levante and the F1 related business. Can you give us any vague idea about the relative profitability of that business against the car business, please?
It's margin dilutive.
Okay. Thank you very much.
Thank you. We'll now take our next question, which comes from Richard Hilgert of Morningstar. Please go ahead.
Good afternoon and good morning. Thanks for taking my questions. 2 from my side, please. With respect to
the
discussion that we've seen in media lately about Formula E, and given the cap that Ferrari may run up against at some point for being considered a small manufacturer, Is there any potential for electric at some point? Or is electric something that Ferrari would view as similar to crossover and SUV since electrics don't have the sound that you would equate with a Ferrari V12? Or is the performance something that, given some of the performance vehicles that we've seen in electrics, is this something that is enticing at all to Ferrari? And then to tag on to the earlier question about the new ownership in F1, I've seen some media reports lately about a change in the structure of payments made in annual winnings from F1. Wonder if you could comment any on potential changes in the future coming down the line on the contractual agreements that Ferrari has?
To put your mind the rest, there are going to be no changes to the contractual agreements until 2020 with F1 and Ferrari. The topic has not even been broached, and I think it will be incredibly unwise to raise it as a discussion topic. But the first issue, which has to do with our attachment to electrics, I think we do consider combustion to be an integral part of what we do. I made I think I tried and I'm not sure when I did it. It may have been on the Q3 call, where I've highlighted the need for Ferrari to effectively embrace electrification as an integral part of its powertrain offering.
And there's a huge amount and Alessandro made reference to this in his remarks about the capital side and the fact that there is a portion of our R and D and capital which now needs to be devoted to the hybrid effort in Ferrari. And without being disrespectful of people who are into emissions and so on, but really to accomplish 2 things. 1 is to make it relevant technologically and technically in today's world, but equally important is to augment the driving experience that one would get from driving a Ferrari by having a combination of both electric and combustion engines available to the driver. You made reference to the fact that the performance is now you made there may be equivalent availabilities cars in terms of performance. I hate to disagree with you.
I think that the real problem with electric is that they will never give you the driving dynamics that a Ferrari does. And it's a combination of the weight of the car and the way in which the powertrain is located. I think a number of cars can especially electric cars can produce a huge amount of torque, which is instantly available on the wheels and which can deliver exhilarating acceleration. The problem is not going straight. The problem is driving a track.
And that's where most electric cars, I think, would fall short of Ferrari standards. And we need to continue to work on hybridization as a way in which we can bridge the distance between that reality and where Ferrari is today. And I think you will see, hopefully, by 2019 that as difficult as that task is in terms of delivering a phenomenal driving experience, Ferrari is going to get very close. So leave it with us. I mean we will provide something which is technologically relevant by 2019 in terms of electrics, but it will have to be reflective of Ferrari's DNA.
Is that part of or would Formula E have to be a part of participation there for Ferrari and Formula E? Would that have to be a part of the development into the electric side for Ferrari to generate the enthusiasm for potential electrics just as it's done with Formula 1?
No, I think those two things are distinct. The Formula E arrangement now is as much as I think it's a valiant effort to make technology relevant on the track, it's still substantially short of what I would expect to have. I mean, the fact that you have to change cars during the race is unhelpful simply because of the duration of the battery charges. I mean, there are things that I think really maim the sport. I think we need to find a better way of expressing the interest in electrification and through Formula E.
Having said this, we continue to look at it. And I think I have not given up on the idea of potentially one day entering if the parameters are such that the Ferrari can effectively make a difference. If it cannot make a difference, then it should not play.
Very good. Thanks again for taking my question.
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. Just a follow-up on one of the recent questions about electrification, but maybe probably more from a financial perspective. I think, Sergio, you were quoted in November saying that Ferrari would embrace the hybrid world. What magnitude of upward pressure might there be on RD and E or CapEx ahead of these expected launches in 2019?
And then when the vehicles do launch, would it be the case also for your range cars like with the LaFerrari that the primary motivation would be really to enhance the performance and appeal and so maybe pricing rather than to comply with regulations like a mainstream car company. And so therefore the impact to profits from hybridization could actually be positive as opposed to neutral or negative? I mean, how should investors think about the financial implication?
I think that the commitment on the capital side is a number which is manageable within the confines of Ferrari. There's additional capital coming on. We have started looking at this now. And it's especially an issue in terms of the assembly lines as opposed to anything else because they do require a particular type of space to allow these powertrains to be installed. And so we are working ahead of this now to make sure that when we get there in 2019, the facilities will be there to handle it.
The question which is really relevant to me is the question is what is the impact of that technology, the cost of that technology on the placement of the cars and the pricing that one would get. And I'll give you a very simple answer. I think that the price of the car will move up to reflect the technology and it will be done with a way of retaining margin in that process, not just absolute margins, but percentage margins. It is and this is not I mean, the offering itself will be so unique in the marketplace, and I say this with all due respect to my competitors. But I think it will be so unique that it would actually be able to garner the price that it deserves and more than enough to offset the cost of technology because what you're getting in exchange is a unique driving experience that is not available anywhere else.
And I would assume, I think, that our customer base will adapt to that changing world, and I think they will accept the fact that the technology has a price and that needs to be paid. Certainly, all indications of the interfaces that I've had with the customer base over the last 2 years suggest that they're willing to do that.
Great. Thanks. And then just my last question is, I see that the vehicle shipments to Greater China, they were up 1% in all of 2016, but 36% lower in 4Q on termination of a distributor in Hong Kong. So I realize that you have wait list globally, so selling fewer cars in one region doesn't really mean your overall numbers have to be impacted because you can reallocate. But are there plans in place or are you working on plans to secure a new distributor in Hong Kong?
And when should we think about you returning to growth in the greater China market?
Okay. The answer is 2017. The answer to your second question, we're already working on the replacement now. And one of the things that is not in the Asia Pacific number is the introduction of the 8 cylinder GTC, which was redesigned for a variety of reasons, including the fact that the 4 wheel drive was not required in the region. But also from a pricing and duty and taxation standpoint, it was a better car for the market.
So that market is not that car has not been made available to that market. It will be in 2017. So I would expect numbers to follow.
Okay. Thank you. Thank you.
Thank you. We'll now move to our next question, which comes from Michael Binetti of UBS. Please go ahead.
Hey, good afternoon, guys. Congrats on a great year. Just for very simplistic sake for our models, as we look out to 2018, for the EBITDA numbers, should we expect that to grow with as the just in very simple terms, the tailwind from FX rolls off, the Aperitra rolls off, we get a lot of about that. Considering how much supercars contribute to EBITDA for the company, 2018 is a growth EBITDA year, correct?
Yes.
Okay.
And then at the time of the IPO, we talked a lot about the pace of the supercars and it was as long as every 10 years depending on technologies that you guys are ready to launch, but things have changed since then. How do you think about the frequency that the market and your very best customers can absorb for supercars today?
You're going to be careful about defining supercars. I think the problem that we have and we've seen this now, we've seen the incarnation of the problem through and I'll give you two examples that have happened in the last 24 months. We launched LaFerrari in 2013 as a car. We launched the Enzo in 2003 and there was a decade cadence that was assigned to the introduction of the supercars. And they were really these were cars that set a technology tone that effectively guided the house for the following 10 years.
And I would suggest that that cadence is not going to be impacted by anything that we might do in the interim. It may very well be that in 2023 that we would relaunch a car that sets the cadence for the next technology shift. The real issue to me is what happens in between. And we have seen now certainly in 2015 2016 with the introduction of the F60, the America version of the car that was launched, the J50 now in Japan, the Tour de France, which was effectively the last version of the F12 in its extreme form, a reincarnation of the supercar concept as long as we stay faithful to the notion of limited editions and restricted distribution. There are things that don't have to be a supercar which are sufficiently supercarish to make them more frequent and available in the marketplace throughout this decade split between the Enzo's and LaFerrari and the LaFerrari successor.
And this is something that we are learning how to do. We need to do more of this, But we do it in to do it in such a way that does not minimize the relevance of the shift that we get on a decade basis. Those are real clean breaks in technology. I mean, I happen to have both cars, both the Enzo and LaFerrari. And I tell you, to drive the Enzo today and then get into LaFerrari, you're talking about shifts in centuries in terms of technology.
That will continue to happen within Ferrari. But in the interim, we continue to play and derive from those technology breaks sufficiently unique and sufficiently limited cars that will make our customer base interested in participating in the development of the brand. And by the way, as a general remark, I think that the real issue to us is not the it is the current customer base, it's a customer base above which I care a lot. It has been at the heart of the success of Ferrari for the last certainly for the last 20 years and we need to continue to nurture it and stay very close to it and develop a level of intimacy with that customer, which is probably unparalleled in the industry. But the real issue to me is how do I make the customer base larger?
Not by inviting every Tom Dick and Harry in it, but by making the offering sufficiently pliable to a different set of expectations in the marketplace that allows for that family to grow and really not grow into a huge tribe, but a manageable tribe of customers that we can get to the 10,000 number without disrupting the DNA of the brand.
Okay. Thanks, Sergio. If I could get one last quick model question. Could you help us think about the implied free cash flow in 2017 excluding some of the abnormal items that are a little tougher to model off of the taxes and the advances, etcetera?
The implied number is between €280,000,000 €300,000,000 pre dividend.
Okay. Thank you.
Thank you. We'll now take our next question, which comes from Lello Della Agioni of Intermonte. Please go ahead.
Hi. One left from my side. It relates actually on taxes. In your press release, at one point you stated that 29.5% of this year is due both to the effect of the reduction in the ERS plus some deduction from R and D investment. Does it mean that you had already accounted for some of the effect this year?
Or we should wait for the final agreement with the tax authorities to understand the impact of the so called Patent Box? Until the final agreement.
Thank you. We'll now take our next question, which comes from George Gales of Evercore. Please go ahead.
Hi. Good day. I had a quick question just around the Maserati engine agreement. I mean, clearly, Maserati is seeing great shipment growth right now. When the agreement was put in place, you were both part of the same group.
Can you give any indication whether the commercial terms of the agreement were as commercially beneficial to Ferrari as they might have been had you not been part of the same group at the time? And if they weren't, at what point might you be able to renegotiate the terms in order for them to be more favorable to yourselves? There any opportunity there in the near to medium term?
Terribly conflicted on this because I'm the CEO of the buyer of the engine. So I can only give you an account of what happened on the inside of this house when this transpired. The price was negotiated. And because of the fact that it was a related party transaction, because there was a minority shareholder even in Ferrari at the time, It actually went through scrubbing, cleansing, carwash and every type of analysis that you can think of at other committee of both FCA and now of Ferrari to make sure that there was nothing that was offensive in the agreement and that it reflected arm's length conditions. I don't know of a situation other than the four corners of the agreement today that would suggest that on this engine, there would be room for renegotiation.
The thing is accretive. The more engines we make, the better the margin car margins because of the difference in price car margins because of the difference in pricing, but it gets better the more engines they take. There are additional ancillary benefits from that arrangement, including utilization of the assets and the training of the workforce that make us has additional operational benefits. I wouldn't there's nothing to write home to mom about, but it is overall a good package for Ferrari. The question is, will Ferrari do a similar deal with another OEM?
And the answer is probably yes. We would do it even if FCA was not FDA and then another OEM showed up and asked for the assistance. The problem that you've got right now, to be honest, is that when you look at the size of the supply and given the success that Levante is having in the marketplace, the volumes that we're now pitching for 20 17 are probably in excess of 30,000 engines a year. And at that kind of rhythm, you start reaching numbers where the production of that engine effectively becomes even viable for SCA on its own terms. So we got to be very careful that and I'm not giving any idea to the FCA CEO here who just left the room.
But there's a point in time in which this thing could be internalized within FCA, perhaps on better terms because of their work cycles and established infrastructure. So I don't want to touch this engine for the time being nor do I want to see the arrangement disturbed. I think any future development going forward is going to reflect development of the Ferrari engineering skills on a wider basis than our relationship with SCA. And I think the Ferrari, as it matures through its technical development, will be able to do that for more than one entity and probably beyond FCA. But it's way too early to start talking about that now.
Great insight. Thank you. And then just one quick question on FX. In the EBIT bridge, you did flag sterling as a driver of negative transaction prices. Can you just give us an idea of what actions you have taken to mitigate the fall in Sterling or what actions you are looking to take?
I mean, given you are Ferrari and not a mass market OEM, can you not push through prices when there's a sort of structural change in FX very quickly?
The answer is yes and we will. I mean, we'll just have to adjust that I cannot there's nothing that I can do to compensate for Sterling, not a thing. And so to make the car viable and present in the end market, it needs to be offered to reflect my cost structure, nor can I jeopardize margins in order to accommodate the drop? I actually think we can have long discussions here as to whether this is a permanent drop in sterling or whether it's a temporary one. Reality is that we will there's enough substance in the realignment in sterling rates that it makes our pricing decisions unavoidable.
We have to adjust them and we have.
Great. Thank you.
Thank you. We'll now take our final question from Massimo Vecchio of Mediobanca. Please go ahead. Your line is open.
Good afternoon, everybody. Mr. Marchionne, earlier in the call, you said that the EBITDA guidance is concerned.
Your line is open.
Good afternoon, everybody. Mr. Marchionne, earlier in the call, you said that the EBITDA guidance is conservative. Now I was hearing about industrial free cash flow for 2017 clean of all the unusual being almost equal to the 2016 1, so €300,000,000 Can we say that also this indication is conservative?
There you are. Yes. Yes, you can. Good. I mean You can accuse Alessandro of a lot of things.
Not being consistent is not one of them.
Thank you.
No, no. I don't accuse Alessandro of anything. I mean, second question, if I may. Again, earlier in the call, you said that this year we may see some manifestation of expansion beyond cars. Could it be in thing at bikes or motorbikes?
Or is it probably too ambitious for 2,002 ambitious for the
The motorbike story. Motorbikes will not be available in 2017. But I think that there are ways in which we can express the brand through the luxury side that we're experimenting with. And to be honest with you, if you have to me whether I was 100% certain that all these things are viable and whether we should make them a core business or not, I'm not sure. That's why I think we need to experiment and experiment carefully.
One of the things we cannot do is do something which will bring ill repute to the brand. That's something that I will not allow to happen. And so regardless of our opinion maybe, from a financial standpoint, we will not let it disrupt the DNA Ferrari. We just won't. We spent the last 2 years just making sure that all our retail exposures reflect the Scuderia Ferrari and not the Ferrari brand by itself.
Because those are 2 different worlds. We're dealing with fans and we're dealing with people who follow the racing activity. The Ferrari brand is reserved for our customers. And those customers, the people that buy GT cars have unique set of requirements and expectations, which fundamentally cannot be accomplished through the retail side of the business. So we need to go back and rethink it.
We have. And I think our introduction into that luxury space needs to be cautious and it needs to be paced. So give us some time. We'll get it right. But the important thing from our standpoint is that none of the targets that we set as we were talking to people about what we expected from this business in the next 5 years are at all impacted or minimized by the care and the that we're now taking on the launch of the luxury side of the business.
Because the car itself the car business itself is offering a greater number of possibilities for expansion at a much more certain margin rate than anything else would. So we need to get really good at this, while at the same time exploring things that we're not that familiar with and which have, at least from a risk standpoint, a lesser opportunity for margin generation that we have today. So, look, the business is in great shape. I think it knows where it's going. And I think it's going to play with these areas because I think if we get those right, they could be as significant long term as KAR is.
But it needs time and it needs maturity and things which we don't have going for us right now. So you tell me at the end of 20 17 as to whether you think that we've done anything of value. You'll be able to see it.
Okay. Thank you very much.
You're welcome.
Thank you. That will conclude today's question and answer session. I would now like to turn the call back to Ms. Russo for any additional or closing remarks.
Thank you, everyone, for joining us today. The IR team will be soon available for any follow-up question you may have. Thank you, everyone.