Good day, and welcome to the Ferrari N. V. 2016 Third Quarter Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms.
Nicoletta Russo, Head of Investor Relations. Please go ahead.
Thank you, Brie, and thank you, everyone, for joining us today. There is one topic that we won't plan to cover today, the group's Q3 9 months 2016 financial results. In light of this, the call is expected to last around 45 minutes. All relevant materials are available in the Investors section on the Ferrari 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, Nicoletta. I'm going to ask Alessandro to do all the heavy lifting on the call. He'll take you through the numbers and through the quarter. I'm just going to make some general remarks. Obviously, we're pleased with the results that we've achieved.
It is a record quarter for Ferrari. And notwithstanding the fact that we've got traditional shutdowns of the decent results. As you've seen from the top line, we've been able to maintain our growth trajectory. We're well on our way to achieve roughly 8,000 vehicles being sold in 2016. Demand continues strong.
So I have we have no bad news to report, at least on the commercial side. Product launches continue as expected. We were able to launch the 8 cylinder version of the GTC4 Lusso in Paris. That was an incredibly successful launch. We have high expectations for the combination of the 12 and 8 cylinder package for the 4 seater.
Initial reaction from the market has been incredibly positive, although only I think about 4% of the quarter's sales were GTC4 simply because of production scheduling. I think the prospects for Q4 and certainly for 2017 based on what we see from the demand side are quite good. We have done a lot of work since we last spoke on the development of the architectural framework for the development of cars going forward. And certainly, for this what I consider to be a fundamental shift in the way in which Ferrari is going to be architecting its cars. I think we have acknowledged in the past, analysts call it, the need for us to embrace the hybrid world.
And I think that most of the if not all of the vehicles that will be sold, certainly beginning with 2019, the cycle of cars will be launched from that point on will include by definition hybridization. I think it's a mandatory requirement. I think that we'll make some unique in the Ferrari world is in addition to the benefits associated with the environmental impact of using batteries. I think we'll be using the combination of combustion and electrification to provide unique power train combinations that will yield even additional performance on these vehicles, things that we have seen already at least in embryonic stage in LaFerrari, which was launched a couple of years ago. I think that I would be remiss if I didn't mention anything about Formula 1.
I think that we are continuing on our path of recovery. Obviously, we're not pleased with the results to date. We have brought about some organizational changes to the Scuderia in the Q3 of this year. We now have a reconstituted team, which is handling the technical side of this, and we have really fundamentally 2 objectives. 1 is to conclude this less than glorious season in 20 16 in as good a shape as we can.
But more importantly, I think it is to set the right parameters for the conclusion of the 2017 car, which I think is crucial to our ambitions to return to competitiveness on the circuits next season. I think I'm not going to make any comments about 2017. I think although I think we have a pretty good idea of how that year is going to shape up. We'll reserve any indications of guidance to the release of the when we release numbers for the Q4 of 2016. I just remind everybody on the call that our primary objective here is to try and hit the $1,000,000,000 EBITDA number as quickly as we can.
There remains a fixation of mine. I think it's an indication of the cash generation capability of the South. And I think the faster we get there, we'll let you know and how we think we can hit that number the next time we get together for the analyst call. And on that note, I'll pass it on to Alessandro, who will explain to you the quarter. Thanks.
[SPEAKER ALEXANDER LARS FRUERGAARD
THANK YOU, MR. MARCHIONE. Hello, everyone, and thanks for listening in on the call. I will start, as usual, with Page 3. Our shipments reached 19 78 units, showing an increase of 29 units or 1.5 percent, a solid result on top of an outstanding Q3 2015, which grew by 21% compared to 2014.
The increase was led by a solid performance of the 4.88 GTB, 4/88 Spider, the F12 TDF and first deliveries of the newly launched GTC 4Lusso and LaFerrari Aperta, partially offset by LaFerrari that finished its limited series on. Group net revenues grew by 8.3% to €783,000,000 Adjusted EBITDA now at EUR 234,000,000 with 30 percent margin. Adjusted EBIT reached EUR 172,000,000 with a margin increase of 2 60 basis points to 22%. Our net profit for the group was up 20% to €113,000,000 This is again a record quarter in the history of Ferrari. Finally, at the end of September 2016, our net industrial debt was reduced to €585,000,000 better than June 2016.
On September 29, Ferrari presented at the Paris Motor Show LaFerrari Aperta and 70 style icons cars together with the unveiling of the new GTC 4 Lusso Turbo. Today, Ferrari and FCA Bank finalized the agreement in the Financial Services business in Europe for a total purchase price consideration of EUR 18,600,000 upon consummation of the share purchase agreement entering into by the parties earlier this year. As a result of the funding being directly provided by SCA Bank, for IMV, we'll receive €432,000,000 We are revising our 2016 outlook upwards as follows: shipments at approximately 8 1,000 units, including supercars net revenues greater than $3,000,000,000 adjusted EBITDA at approximately 8.50,000,000 up from greater or equal to EUR 800,000,000 net industrial debt lower than EUR 700,000,000 down from lower or equal to EUR730,000,000 Moving to Page 4. We show our operating highlights for the Q3 of 2016. Our shipments reached 1978 units, up 29 units or 1.5 percent, driven by a 15% increase in V12 models, thanks to the strong performance of the F12 TDS, the first deliveries of the newly launched GTC Lusso and LaFerrari Aperta, whose shipments started in September.
This was partially offset by LaFerrari that finished its limited series run, the FF phase out and the F12 Berlinetta now with its 50 year commercialization, which continues to perform better than expected. V8 models were V8 models were substantially
in line with prior year
with the 4.88 GTB and the 4.88 Spider recording growing waiting lists. Net revenues were up 8.3% or 6.9% at constant currencies. Cars and spare parts were in line with prior year, mainly driven by volumes along with positive contribution from our personalization programs, offset by mix due to lower sales of LaFerrari that finished limited series run and by logistic delays caused by one of our shipment carriers in the rest of Asia Pacific region. Our adjusted EBITDA improved by 10%, topping euro to €234,000,000 and a 30% margin. The result was driven primarily by higher volumes and positive FX, primarily driven by FX hedges, partially offset by mix.
Adjusted EBIT for the group showed a 23% increase reaching €172,000,000 resulting in a margin expansion of 2 60 basis points to 22%. The adjusted EBIT improvement benefited from a strong adjusted EBITDA, coupled with a lower D and A mainly due to LaFerrari finished its limited series run. Q3 2016 industrial free cash flow generation was primarily driven by a strong adjusted EBITDA, including a positive change in other, driven by advances of the new LaFerrari Aperta and increased tax liabilities, partially offset by CapEx and negative working capital due to seasonality. Let me kindly remind you that Q3 2015 included a $37,000,000 onetime cash inflow for the sale of investment properties to Maserati, while Q4 this year in 2016 will bear the 2nd 2016 tax advance and full year 2015 tax balance payments
for a total of approximately €200,000,000
Net industrial debt as of September 30, 2016 was reduced to $585,000,000 primarily due to industrial free cash flow generation. Moving to Page 5. In terms of shipments, geographical distribution. EMEA, America and Greater China enjoyed a sound year over year growth, being Rest of Asia Pacific the only exception due to logistics delays caused by one of the shipment carriers. At the end of September, the region Americas increased by approximately 3%.
The U. S. A. Posted shipments in line with prior year, notwithstanding timing of the newly launched GTC for Lusso and LaFerrari Aperta yet to arrive on the market. The 488 family and the F12 TDF continue to perform strongly offsetting the 458 family, the FFA stays out and LaFerrari that finished its limited series run.
EMEA increased by more than 5%, notwithstanding a tough comparison with the prior year, which posted a 51% increase. The U. K. Recorded only a few units decrease due to timing of the GTC for Lusso yet to arrive on the market, partially offset by stronger deliveries of the 4.88 GTB, the 4.88 Spider and the F12 TDS, first deliveries of LaFerrari Aperta in the quarter. Strong performances were also recorded both in Italy at double digit growth and Germany, thanks to the 488 Spyder, the F12 TDF and first deliveries of the newly launched GTC for Lusso and LaFerrari Aperta.
Other European countries, Africa and Middle East expanded a double digit growth rate. Greater China grew by approximately 15%. In China, mainland shipments grew at double digit rate, thanks to the success of the 488 family, the newly launched GTC Lusso and LaFerrari Aperta Aviator to arrive on the market. Hong Kong and Taiwan posted a double digit increase in shipments supported by the 488 family, the F12 TDF and first deliveries of the GTC for Lusso. Also here, LaFerrari Aperto is yet to arrive on the market.
Restless Asia Pacific posted a decrease of 57 units. Shipments to Japan, in particular, were negatively affected by logistic delays caused by one of our shipment carriers. Australia, on the other side, posted a strong double digit growth, thanks to the 488 family and the F12 TDF. As Japan also, other Asia Pacific region experienced logistic delays caused by 1 of our shipment carriers in the region. Once again, a sound quarter, thanks to the 488 family, the F12 TDF and the first deliveries of the newly launched GTC for Lusso and LaFerrari Aperta.
Moving to Page 6. Net revenues reached €783,000,000 up 8.3% versus Q3 of last year. At constant currencies, net revenues would have increased by 7.9%. Cars and spare parts revenues were in line with prior year at euro €537,000,000 higher volumes driven by the 488 family, the FLTDF and first deliveries of the newly launched GTC for Lusso and La Ferreri Aperta along with increased positive contribution from our personalization programs, were offset by LaFerrari that finished its limited series and logistic delays caused by one of our shipment carriers in the rest of the Asia Pacific region. Engines net revenues increased by €97,000,000 up €46,000,000 or 92 percent versus prior year.
The solid growth was mainly due to strong sales to Maserati with the number of engines shipped more than doubling compared to the prior year and higher rental revenues from other Formula 1 teams. Please let me remind you that during 2016 F1 season, we are renting our engines to 3 teams versus 2 teams in 2015. Sponsorship, Commercial and Brand net revenues reached €125,000,000 for Q3 2016, with an increase of €15,000,000 or 14% compared to prior year, mainly due to better 2015 championship ranking compared to 2014 as well as greater sponsorship revenues and positive contribution from brand related activities. On Page 7, you can see the year over year changes in adjusted EBIT main items. Volume was up €15,000,000 to an increase of approximately 90 units, excluding LaFerrari and LaFerrari Aperta, thanks to the 488 family, the F12 TDF and first deliveries of the GTC for Lusso, partially offset by the 4 58 family and the DFF phase out.
Our personalization programs continue to positively contribute. Mix was negatively impacted by LaFerrari that finished limited series run, partially offset by the newly launched LaFerrari Aperta and higher sales of V12 versus V8 compared to the previous year, mainly thanks to the F12 TDS. Industrial cost and R and D were in line with prior year. SG and A costs increased mostly due to the new model launches and costs incurred in connection with the new directly operated stores. ForEx excluding hedges impacted negatively by transaction exchange rate, mainly due to GBP, partially offset by yen.
And other was up €9,000,000 thanks to the contribution continuous contribution from our supporting activities. As a result of all of the above, Q3 2016 adjusted EBIT was up 23% to €172,000,000 Adjusted EBIT margin expanded by 2 60 basis points, reaching 22%. And adjusted EBITDA notwithstanding a decrease in D and A reached a 30% margin. Moving to Page 8. Net industrial debt at the end of September 2016 was equal to €585,000,000 better than June 30, 2016, due to an industrial free cash flow generation.
The positive industrial free cash flow generation was primarily attributable to the strong adjusted EBITDA, positive change in other driven by advances of the newly launched LaFerrari Aperta and increased tax liabilities partially offset by CapEx and negative working capital due to seasonality. Let me kindly remind you that Q3 2015 included €37,000,000 onetime cash inflow from the sale of investment properties to Maserati, while Q4 2016 will bear the 2nd 2016 tax advance and full year 2015 tax balance payments for a total of approximately €200,000,000 CapEx was €75,000,000 driven by R and D and product investments in connection with our continuous product range renewal. On September 29, Ferrari unveiled at the Paris International Motor Show the new GTC 4 Lusso Turbo, the first full seater powered by the latest evolution of the V eight Turbo engine that received the International Engine of the Year Award 2016. Shipments of the GTC for Lusso T will start in 2017. In the next pages, we are presenting, as usual, the main activities of our customer relationship activities.
We are not going into the details for those pages, and we can move directly to Page 14, where we are revising upwards our guidance for 2016 as follows. We expect shipments at approximately 8,000 units, including supercars, net revenues greater than 3,000,000,000 adjusted EBITDA is approximately EUR 850,000,000 up from greater or equal to EUR 800,000,000 net industrial debt lower than EUR 7 €100,000,000 down from lower or equal to €730,000,000 And with that, I'd like to turn the call over to Nicoletta Russo.
Thank you, Alessandro. We are now ready to open the Q and A session. Thank you.
Thank you.
Just a first question on the 57 units that are delayed in APAC as a result of logistics. Obviously, the revenue was not recognized, but just curious if the cost was recognized? I'm just trying to understand there because it seems like it could have been even better in the quarter if you had those 57 units recognized on the revenue side.
Yes. It's partially true. Obviously, we've been able somehow to offset the delays in the quarter and redistribute a portion of those units to some of the other regions. Not completely, but a portion of that you can see, especially for Australia, that was a double digit growth, primarily because of that.
Okay. But should we expect to see those 57 units show up in the 4th quarter if they were lost in the 3rd quarter?
Yes.
Okay. Then just a second question on the LaFerrari Acurta. The decision to keep 9 vehicles makes sense from a marketing standpoint, but I'm curious if there were any other motivations that you might think you might realize greater revenue on those vehicles in the aftermarket post sale kind of like what you've seen with the LaFerrari?
No. No. There was no devious motive to do that.
That's not devious necessarily?
Well, I mean, if I do those models purely to increase value at the end, I think it would be improper to anybody else who's bought vehicles from us. So we got to be very careful with pulling off gimmicks here to try and especially on limited edition cars. I mean, this is something we need to take very seriously. People invest in these cars and they invest a substantial amount of money with the comfort of knowing that the house is respecting its limits on production. It'd be very easy to produce 10 more and make more money.
So I think we have to we need to be very careful here. By the way, when we size these limited edition vehicles, it is a very painful discussion on the inside of the house because we know we could sell more. And so the real issue is where do we draw the line in the sand is a difficult discussion. I'm not sure we hit it right all the time. But certainly we on the side of conservatism to make sure the value is retained for the customer.
And on the other side of it, I mean, you realize that we also asked them for a commitment not to flip the car. And if they flip the car outside of a reasonable period of time, then I think they come off our list and they will be precluded from buying another vehicle. So we take this relationship pretty
Okay. And then just another question on the electrification or the hybridization of the powertrains around the 2019 timeframe. I mean, is that encompassed in the current projections that you have in house? Will that result in any step up in R and D? And is this more a response to sort of the need for linear torque and performance to compete with other vehicles that are electrifying their powertrains?
Yes. I mean, there's not a single doubt that well, 2 issues. 1, I think in terms of the forecast that you've had and which may be built into your models, which are based on historical trends, I would not expect a material shift in R and D to accomplish that. And the electrification is well known to the house, especially in view of its introduction in La Ferreira, but more importantly because of the fact that Formula 1 has effectively acted repository of knowledge and it's been there for a number of years now. So I think we're going to be able to leverage that knowledge across the other side.
Although it's very peculiar, very specific knowledge on the side of F1, the elements for the combination of combustion and electrification as a power unit exists there. In terms of the reason to do this, I think it would be it's inconceivable to me today that anybody who's manufacturing cars going forward would envision it. Even high end sports cars like we produce, that they would actually be offering a portfolio of cars that don't offer hybridization. I think the unique thing about Ferrari is that it can use the commitment to the environment to effectively on a combined basis provide a unique driving experience as we've done with our Ferrari. I would expect that the performance that you will get from an 8 cylinder on a hybrid basis will be significantly better than you will get from a car today.
And what will make it really interesting is the combination of those 2 in an everyday car. And I think that I think it will continue the trend of us improving performance of these vehicles as we develop them. We're reaching some relatively stratospheric numbers in terms of output per liter of engine. Now it's a combination of our adoption of turbos. I think the next phase is the combination of that turbocombustion environment with electricity.
And I think it's an exciting development path and I think it's going to become mandatory for all of us who are serious about this business.
That's helpful. And then just lastly real quick on F1, do you think these performances are a result of R and D dollars and investment or is this a question more of team and management? I'm just trying to understand if you think you need to throw more money at F1 to get better results.
I'm going to tell you something honestly. I think I've thrown all the money that I'd like to throw at that thing. And we've done this in the past, and I think money has never been an object in terms of the development of F1 inside Ferrari. I think we need to use that funding better. I think a lot of it, if not most of it, was due to the way in which we were organized.
I think that structure has now changed. I think we need to wait and I think we need to be modest in our expectations. But when the car starts racing in March of 2017, whatever it is that this team has been able to do as a result of the new configuration will be visible. And I think we can criticize the effort then. I don't want to make any projections about how well we will do in 2017.
I think I paid it on the nose when I try to rely on internal estimations and the improvement of the car 2015 to 2016. I'm not going to repeat that error on the 2017 car. I think we'll just have to see the car on the track.
Great. Thank you very much.
Thank you. We can now take our next question from Monica Buscio from Bank of IMI. Pardon me. Please go ahead.
Good afternoon, everyone. I would have 3 questions. The first is on the personalization customization. Can you give us an indication of the level of customization in the Q3? And as for 2,007, with the introduction of 350 special versions, I can imagine that the level of personalization will increase.
Is it reasonable to assume or to think about a level of personalization in the region of 25% already in 2017? And the last question is on future program. The company is now working on the next model cycle. What do you see the most interesting growth opportunities in term of customer segments, engines, products? How do you see the potential introduction of V6 engines for Ferrari?
Thank you very much.
Yes. And let me deal with the last part of your question first, and then I'll give it to Alessandro to answer the stuff on personalization. By the way, just as a general market, I think 25% personalization in 2017, you're smoking illegal material. Nothing moves at that speed. But the second issue, which has to do with what we see as the most exciting part of the product portfolio other than hybridization.
I think that one of the things that we've I mean this is as good a time as any for us for me to deal with the issue of the luxury nature of the brand and its extension into areas that it presently does not cover. When you look at the portfolio of cars that we manufacture today, I think that one of the unexplored areas for us I mean, 2 things ought to be obvious. It is easier for us to extract value from selling a car than it is for us to enter into the extension of the brand into luxury spaces that we currently don't occupy for a couple of reasons. 1, because we have the total process and control within the fold today, and I think extensions elsewhere would require certainly a startup phase and would require a different level of intervention on the part of Ferrari than we're historically used to. It's also by definition riskier.
But and so your question is appropriate because I think that the easiest way for us to try and increase performance, at least financially, for the South is to explore areas that we currently don't cover in the transportation space. And this is by definition excluding SUVs and other sort of traditional offerings to car buyers. I think that there's when you look at our range there, there is a phenomenal emphasis that exists within Ferrari and what I consider to be performance. And yet there is a piece of Ferrari which has historically relied on elegance and traditional other traditional traits of Ferrari, which have not grown to the extreme and have not sort of been embodied in the latest round of technology as we have done with all the eights and the 12 cylinders. So one of the things that we're looking at right now is whether we can expand the product offering without distorting the nature of Ferrari and really going back to some of the key elements.
And when you look at the product portfolio that Ferrari has had over the years to try and bring back into the market and effectively thereby increasing volumes without removing or without impacting on the core elements of the performance piece of the brand, right, to expand the product portfolio to encompass additional cars. It is very doubtful. Now in order to do that, I don't have to reinvest in architectures that exist. It is really a question of being able to shape a vehicle on the basis of current architectures that are available within the house, including powertrains. And so it's a difficult effort, but I think it's somewhat easier in terms of our ability to generate profits and cash if we stick to the knitting and stick to cars, while at the same time continuing to look at the extension into luxury at a more reasonable pace.
Okay. Got it. Thank you very much.
So going back to your first question. So the percentage for the quarter in terms of personalization is consistent with the prior quarter. So slightly in excess of 16 percent measured on cars and parts revenues. And as Mr. Marchetto mentioned, 25% is well above what we expect for next year.
Okay. Sorry, just a follow-up. Maybe I forgot to ask you one thing about the waitlist. Maybe I lost the detail. But did you give any kind of indication for the waitlist in the GTC4?
It's a multi month waiting list now. We've only shipped how many cars was it? 82. 82 cars in the quarter. We're in ramp up phase now.
So the orders are coming in.
Okay. Thank you very much.
Thank you. We can now take our next question from Thomas Besson from Kepler Cheuvreux. Please go ahead. Your line is open.
Thank you very much. I have three questions, please. First, you've been discussing for a long time about the 9,000 units €1,000,000,000 EBITDA and you're getting there much closer than I thought to be honest with you and I think a lot of my peers. Can you discuss what you view as not the ceiling, but the prospects in terms of volumes for Ferrari without distorting the brand, as you said. So is there a ceiling around 10,000 units?
Or can you imagine Ferrari being somewhere between 12,000 and 15,000 units by 2025, 2,030? That's the first question. The second is around the development we should expect for mix, please. It has already improved a bit sequentially Q2, Q3. And when we look at the coming quarters with higher volumes for the Aperta and the 70th anniversary EBITA, is it reasonable to expect a single digit €1,000,000 negative for FX for mix, sorry?
And lastly, there's been a big jump in engine revenues. Can you give us any qualitative indication of the impact of this engine boost to revenues on the operating performance of the quarter, please?
[SPEAKER JEAN FRANCOIS VAN BOXMEER:] Yes. I'm going to deal with the first and the third question. I'll leave it to Alessandro to give you an answer in the second. It is nearly impossible for me to try and talk to you about 2025 and talk to you about volumes. As you well know, the 10 1,000 limit is a limit that is imposed as a result of a variety of constraints, one of which has to do with homologation in various jurisdictions and the impact on emission standards and so on.
What is difficult for me to tell honestly is what hybridization will do in terms of the compliance requirements at that point in time and whether effectively it allows us to play a different game. What I do know for sure, and we've made this point even as we were on the road trying to explain Ferrari to investors is that there's an expansion in the customer base that is relevant to Ferrari, which is a result of wealth creation across all continents. And I think our customer base by definition is growing and it has
grown considerably in the last 10 years.
It is possible certification as being our objective. It is possible, although I neither commit to this nor do I give it any sort of certification as being our objective. It is possible that the numbers could well be in excess of 10,000 cars in 2025. If all the economic conditions that have led to the expansion of the customer base are in place and if we have found a proper way of dealing with the homologation issues connected to CO2. And I think hybridization will go a long way in answering that question.
The second question is unclear to me as to whether the first condition has been met or not. So I think we'll have to wait. But there's nothing that technically prevents this house from selling from a manufacturing standpoint from selling 15,000 cars. We have the capability in house to get to that number because of the way in which the plant infrastructure has been set. The other the third question, which had to do with engine development, I mean, obviously, Ferrari is delighted that Maserati continues to grow.
And I think that the introduction of the Levante and success in the marketplace is augmenting and is providing substance behind the commitments that they're making in terms of engine demand. The operation between Ferrari and Maserati is obviously earnings accretive. It is not as earnings accretive as selling cars, but it actually does absorb plant overhead and therefore it's a good thing to do. I think we are comforted. The last time I spoke to the CEO of FCA, he told me that he was quite comforted by the demand function that he sees inside Levante.
And I think as a brand, Ferrari is a perfect partner to provide engine solutions to Maserati. And if Maserati continues on its trend today and it completes its product portfolio, that demand could reach as much as 75,000 or 80,000 cars at completion of the product expansion. If that's true, then our Ferrari will continue to play a significant role and I think it will be a positive thing for the house. We do have the capacity to continue to produce these engines. So I think we will play along.
But I'll leave it to Alessandro to answer the other question on mix.
So on the mix side, I think you've seen from the starting of this year in terms of progression, volumes have been growing and have been able to cover most of the negative mix that we've encountered over the different quarters. The base product portfolio has been positive in all the different quarters. The main effect from the mix for both Q2 and Q3 was really driven by the limited sales runoff of the LaFerrari. So you will see that also in Q4 because that's obviously the old picture in 2016 compared to prior year. And I think on the engine side, Mr.
Marcona covered your question.
Yes, absolutely. Thank you very much.
Thank you. We can now take our next question from Ryan Brinkman from JPMorgan. Please go ahead. Your line is open.
Hi. This is Samik Chatterjee on behalf of Ryan Brinkman. The first question I had was more in relation to 4Q. You're guiding still to 8,000 deliveries for the year, which would imply that your 4Q deliveries will be slightly down year on year, even as we sort of learned that maybe you benefit from some of these logistic issues in APAC going away and also the ramp up of the GTC4. So I'm just trying to understand if there's some level of conservatism in there or is there some cadence that we should keep in mind in terms of vehicles that's driving that number lower year over year?
Yes. This is Sergio Marchion on behalf of Alessandro. I think I like this notion of using other people's names to register on the call. So I'm going to be answering on behalf of everybody else now. But I think that the number is going to be in excess of 8,000.
There's I think there's a tilde on the guidance number, which indicates 7,950, I wouldn't be shocked either. But I don't see any reason as to why the number ought to be compressed. I think we will deliver all cars that are required by the market.
Great. And just a follow-up. On the 2019 guidance, when the high end of the initial guide that was given during the IPO process was around 9,000 units and that would imply roughly 4% to 5% growth in vehicle sales volumes on an annual basis. So, just wondering if there are other levels that you can pull in terms of pricing or more personalization over this time period to have like get that growth higher over the next 3 years 3 year timeframe?
I'm not sure how to answer your question. I think the number that you raised as a volume is a doable number over the next 3 years. I think that I keep on reiterating our commitment to produce $1,000,000,000 in EBITDA. I keep on saying that this is really probably the best indication given the reduced exposure that this business has to capital consumption. The production of $1,000,000,000 in EBITDA would be one huge step for us.
It continues to be the primary growth the primary objective in our growth pattern here. The question is how quickly do we get there is an issue that we're going to have to leave unanswered until I give you formal guidance at the end of 2016.
Okay, great. Thank you. Thanks for taking our questions.
Thank you. We can now take our next question from Massimo Vittio from Mediobanca. Please go ahead.
Good afternoon. A question on the list price. During the Paris show, I think it was Mr. Galliera saying that the waiting list was growing massively. I think I was talking about between 12 24 months.
And as a consequence, you may be thinking about raising list prices. Can you expand on that point? Can you add some
It's partially happened and the rest of it will
happen. Okay. If I'm correct, you used to raise lease price 1%, 2% per year and probably obviously this is going to be higher than that. Is it a good estimate?
It's possible it is more than likely higher than the number you suggested, yes.
Okay. All right. Thank you very much.
Thank you. We can now take our next question from Adam Jonas from Morgan Stanley. Please go ahead. Your line is open.
There, Joe, I'm
here. Hallelujah. Hallelujah. You finally showed up.
I'm alive. So quick question, I know we're coming up on the end. Does the incredibly strong demand for the higher priced models like the Aperta and the 70th anniversary special models change your thinking of price inelasticity for your higher volume cars I. E. Is there how do you see the room potentially to raise prices slightly year to year without sacrificing the waiting list that you still obviously want to preserve?
[SPEAKER JOSE RAFAEL
FERNANDEZ:] I've begun the dialogue with our customers because they're probably the best indication
of
how the market will respond to pricing action. I think that there is a willingness on the part of the customer base to pay higher prices as long as we keep on guaranteeing the exclusivity of the brand, which only reinforces the commitment that we have made to restrict volumes, especially on a particular model basis by not flooding the market with cars. And so the best I can tell you, Adam, is that we continue to push the edges on the envelope on pricing. And I think it's a we're trying them. Whether we're getting all the possible increases out of the market that we could possibly get, I don't know.
We have to find the appropriate moment to do this because it has to be connected with something of significance in connection with a particular model. And as we keep on rolling out modifications to existing vehicle loans, we launch new cars, we will be looking for pricing opportunities across the range, and we have. My view about pricing has not has changed somewhat because I think I'm encouraged by what I see as a result of the intervention that we just made. I have not seen a drop in the customer waiting list. I still think that we're too long on the 8 cylinders.
We're not talking about deliveries in 2018 for the 488, which is a very long period of time to ask a customer to wait for a car. That worries me. And so it goes back to the answer that I gave to one of the previous callers about the product portfolio and whether effectively we shouldn't be looking for ways to expand the portfolio without impacting on the core elements of the sports side of the house. And this is a discussion that's ongoing. It will assume some semblance of a plan,
hopefully, by the end of this year. And we'll
be able to give you, I think, complete our plan. It is possible that we would tack on 2 additional cars to the current portfolio over the next 3 or 4 years to try and effectively get a broader reach for the brand that we're currently getting without impacting on the core, the 488s and the F12s. Besides, I think those remain the core elements of the technology side of Ferrari. I think there's other places where we can play and we can play a better game than we played now.
Okay. Thanks. And just a final one then on the dividend payout corridors, Sergio, you previously discussed a dividend payout range of between 25% 40% of net income. And it looks like in 2016, the dividend may be toward the lower end of this range, right around 30%. Yes.
Can you reiterate, this is a payout range, obviously stepping to shareholder approval.
But do you see
a reasonable scope for an increase of that dividend? And I'm thinking in the 2017, as your cash tax rate starts falling as well, free cash flow should still be pretty strong.
[SPEAKER JOSE RAFAEL FERNANDEZ:] Yes.
I mean, look, the reality of this is there are 2 things that have happened. 1 is I can tell you with some level of comfort that I think the 2016 dividend for 2015 will be higher than 2015 was on 2014, just in terms of the percentage takeout. But the other thing that's become important to us now is that we've been watching one of the things that we were and I think to some degree the criticism was correct that we did not intervene when the market went sideways with the share price. I think that we now have authority for the buybacks and we have authorization by the board to effectively execute, which are 2 elements that were not necessarily present at this last time that we could take an opportunity. I think we need to look at this real hard because this is a cash generation machine.
And so there's a limit to the dividend policy and share buybacks are going to become an integral part the landscape going forward, because the investments required even to try and expand the product portfolio are not going to choke the animal. I mean, it's just it's based on current architectures and established powertrain. So we'll be able to benefit from the expansion in volumes pretty quickly. And so we need to get ready for a time where I think it may be judicious for us to intervene in the market in any type of aberration in share price performance. All these things are back on the table.
Thanks, Sergio. Thank you.
We can now take our next question from Georges Galier from Evercore.
First question I had is just your guidance now stands around 10% ahead of your original guidance at the start of the year. Could you perhaps elaborate a bit on what has delivered the better results versus your original expectations? Obviously, you've guided to 100 more units in there. But what have been the other big pieces that have come in better than you had anticipated?
Well, I think there have been 3 things. 1, as you said, I think there's an increased volume. Secondly, I think we've been able, in some part of the portfolio to increase prices, and I think we've seen the benefit of this coming through. I think personalization continues to play a significant role. The other part of it, which I think was not accidental, was the fact that we were able to bring down to some level the F1 costs.
They're not a tremendous contributor, but I think they're moving in the right direction. I would expect that number to continue to improve as we work through the 2017 2018 season.
And is it fair also to say that the revenues from the LaFerrari Aperto weren't considered in the original guidance, but are considered today? [SPEAKER JOSE RAFAEL
FERNANDEZ:] I'm not sure. I mean, I think when we gave you guidance, we knew that LaFerrari existed. I mean, it's kind of hard to ignore it. It didn't grow under a tree at Christmas.
Fair enough. Okay. Secondly, just on motorsport, it's clearly something that Ferrari has been at the forefront of forever pretty much and from a brand and marketing perspective to serve you well. Given your comments around electrification, does it make sense for Ferrari to be involved at all in some of the pure play electric series such as Formula E that's starting to attract other OEMs? Is this something you discuss or consider at all?
The answer is I've agonized over this with my colleagues here in Ferrari for quite a while. Let me I'm going to give you 2 answers to the problem. If Formula E today is currently structured, requires people to change cars during a race, because we exhaust the power available within a given car. That is not something that Ferrari would naturally gravitate to. Secondly, the standardization associated with that electric car is something which runs against the grain of Ferrari because otherwise it will prevent it from playing whatever it is that it does technically on a vehicle.
But I think it is possible that at some level of maturity of electrification that Ferrari would develop a unique set of skills that will make that car uniquely Ferrari in an environment like that. But I'm not one, I don't I know we're not there today. And secondly, if it were to happen, it would happen a few years from now. But it's possible.
Thank you. And then one final question also somewhat strategic is could you perhaps share a little bit on what the motivation was behind the GTC4 Lusso T? Was it that your customers wanted something lighter that they prefer 2 wheel drive, something easier to drive maybe in cities? And could that logic also be applied to the replacement for the F12 Berlinetta, I. E.
Could you put an 8 cylinder engine into that car's replacement?
[SPEAKER STEPHEN ROBERT BINNIE:] The technical answer to your question, yes, we can put an 8 cylinder in an F-twelve. I'm not sure that we would do that, because I think that the benefit associated with putting an 8 cylinder on the GTC4 goes to all the reasons that you've listed on the one side. But it also I mean the GTC4 Lusso V 12 4 wheel drive, 4 wheel steer is one complex animal of a car. And it is in a lot of ways, it embodies that set of technologies which cost. I think the 8 cylinder is an easier entry point into a 4 seater environment for Ferrari.
And I think that was really the primary objective was to allow people to enter that range. The GTC4 Lusso fully loaded is not a cheap car even by Ferrari standards. And so we had to allow for an easier entry point into the class. And I thought we thought that the 8 cylinder will play that role.
Great. Makes sense. Thank you very much.
Thank you. We can now take our next question from Stephen Reitman from Societe Generale. Please go ahead.
Yes, good afternoon. I have a question. First of all, on the Q3, I know you don't like to give too much information about the individual models, but obviously, you did mention that you had a slug of TDF sales in there and the First Love Ferrari, a PETA sales in there as well. Could you at least give us some indication of have you how long will you be selling the TDF or have already been sold in that Q3 period or will they be finished by the end of this year? And also on the AppEssentials, roughly how long you expect to be selling that vehicle before you've sold it delivered those 200 cars?
2nd question, just if I could understand a bit better your comments about new potential areas for Ferrari to explore in terms of elegance and the like. And you made this distinction that it doesn't need the pure performance that's delivered by the V8s and V12s. So, does that suggest that you are actively exploring the sort of the V6 auction, which, of course, as you mentioned, you do have those architectures within the house? Thank you. [SPEAKER
JOSE RAFAEL FERNANDEZ:]
It's simple by the way, the only thing I meant by suggesting that we were exploring sort of the extension of the brand is that all the power trains that we offer and their configuration are capable of offering a more manageable power output than we currently offer in the extreme vehicles. There are things that we do to these engines that effectively bring out extreme performance for them. I don't have to offer that level of extreme performance once I have the powertrain on hand. And I think that we can tone down and remove costs on the engine by effectively render it slightly more human than it currently is. I mean, we're talking about phenomenal performance out of these engines.
If you look at the number of forces per liter of displacement that we have on these engines, we are at the leading edge of and we continue to be there, by the way. The next phase of development of the architecture will push it even further. So we're getting better and better at this. I think that there's a more human side to Ferrari, which relies on elegance and a combination of our powertrains not taken to the extreme, which will fill a big hole in our lineup. We need to make sure that we hit that hole right and that we effectively do not debase the Ferrari brand that we do not do anything.
I'm maniacal about doing anything that will hurt the brand. The brand to us is the most important thing that we own and everything that we do here is going to be additive to the creation of a more desirable brand. And pieces of What I can tell you is all the knowledge that's required to enter those spaces is within the house, including the architecture that's supported.
And then do you think you need can you get to the promised emissions reductions with the existing architectures, with the existing V8 and V12 architectures with hybridization by 2020?
Yes.
And just on the lockdown?
Just to be clear, Stephen, we can get there without hybridization on 2020, yes. I mean, we wouldn't be playing this game unless we were in compliance. This issue is beyond 2020 game. And that's why we need to get this ready now to make sure that we can play the next phase. I mean, hopefully, you'll be a shareholder beyond 2020.
I mean, this is not a 4 year play. By the way, you're asking about the TDF as to whether we've exhausted. I think most of it will be done by the end of the share.
Most of it, but we are still continuing a portion in 2017. Yes, there you are.
And Laperta?
Sorry?
I'm sorry, yield and also the sales of Liberta, will those also be sold? And how long in 2017 delivered? Yes.
We will complete the TDF in 2017.
Thank you.
Yes, Bert. It will be 2017, sorry.
We can now take our final question from Leila Della Ruggone from Intermunde. It's Leila Della Ruggone from Intermunde.
It's a Leo Della Vallecione from Intermodal. A couple of questions. The first one is on down payments that you showed on your bridge. You actually mixed with the tax with some other liabilities there. And I would like to know if you can give us an idea of the size of this in the quarter and if we should expect something else in the Q4 as well?
On the other another question is already ForEx on your bridge. At the start of the year, you guided for some €40,000,000 positive impact. Now your bridge is I mean, it's changed a bit in the way you showed the ForEx effect you correct for the hedges. And I was wondering how to reconcile these the actual bridge that you posted with the of the initial guidance that you gave to us at the start of the year. And finally, on the last question that we actually discussed a lot about V six hybridization and exploring new segment more related to the luxury.
I was wondering if this might include as you are doing with Maserati, I mean, it's benefiting from the fact that you're developing and producing the engine. So explore and grow in that area, not for not using obviously in the Ferrari brand and so using your engine development to explore that area and grow your revenues? Thank you.
[SPEAKER JOSE RAFAEL FERNANDEZ:] Good question. Then Alessandro can take you through the intricacies of the hedging and what happens. You were talking about selling engines or you're talking about entering Maserati space?
No, it's like applying the Maserati strategy to some other brand, for instance, or models, just moving into the V6 for instance hybrid V6 as you were probably referring to in your previous statements?
[SPEAKER JOSE HUMBERTO ACOSTA MARTIN:] I didn't make any reference to any V six hybrids, you did. But what I'm saying to you is that I think we're open to explore areas that will complement the current portfolio that does not and in a way that does not impact on the core skills of the SaaS, which is the 4 88s and the F12s. We got to be very careful that we protect the uniqueness of the technological advancements that we're making in those two vehicles. Those need to continue to be the big driver of technology inside the house. We're just talking about rounding at the edges.
So on that basis, and I won't say more until we're ready, but I'll pass it to Alessandro.
So on the bridge side for the other, as we said, it's a combination
of the advances,
which are less than of the advances, which are less than 50% of the total number in other. The rest is the accrued component of the tax liabilities of the quarter. There are still some to come in Q4 in terms of advances, so we haven't completed the full cycle of advances. We will still get something in Q4. On your second question in terms of the FX component, so the overall combined is €22,000,000 if you sum the 3 elements.
We've just separated the effect of the hedges of both last year and this year just to make it clear how the walk from a transactional standpoint in terms of FX is impacted. If you take if you want to reconcile that with the guidance that we the guidance that we provided, we made almost $22,000,000 in Q3. On a year to date basis, it's almost $30,000,000 On an annual basis, it's close to EUR 50,000,000 or a little bit in excess of EUR 50,000,000.
Okay. Thank you.
Thank you. That will conclude today's sorry, that will conclude today's Q and A session. I'll now turn the call back over to Ms. Russel for any additional comments.
Thank you, everyone, for joining us today. The AR team will then be available in a few minutes for any follow-up you may have. Thank you.
Thank you. And that will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.