Good day, welcome to the Ferrari N.V. 2016 Second Quarter Results Conference Call. Today's conference is being recorded. At this time, I would now like to turn the conference over to Ms. Nicoletta Russo, Head of Investor Relations. Please go ahead.
Thank you, Ollie, and good day to everyone on the call. There is one topic that we plan to cover today, the group's second quarter and first half 2016 financial results. In light of this, the call is expected to last around 45 minutes. All relevant materials are available on the Ferrari Investor Relations website. Today's call will be hosted by the group's Chairman and CEO, Sergio Marchionne, and Mr. Alessandro Gili, Group 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 two of today's second quarter 2016 results presentation, and the call will be governed by this language. With that, I'd like to turn the call over to Mr. Marchionne.
Thank you very much. I'm going to be doing the least amount of lifting on this call today. I'll get Alessandro to take you through the numbers. I just like to make three points before we start. The first one, obviously we'll take questions at the end. The first one is, as the headline says, it is a record quarter. I think we're quite satisfied with the progress that we're making with Ferrari. I think we're totally in line with the forecast that we have for this business going forward. We continue to focus on two objectives. One obviously is producing, getting to about EUR 1 billion worth of EBITDA as quickly as we can and obviously to reducing our debt levels as quickly as we can.
I have no negative news to give you about the quarter itself in the sense that I think that the order books are quite strong. They continue to reflect the strength of the brand, but more importantly, I think the strength of the product offering that we have in the marketplace. The indications that we've given for 2016 are minimum conditions that we think we can get to. We'll see at the end of the third quarter how far we'll take us. The third quarter is a bit of an anomalous quarter because of the fact that we have the summer shutdown, although there'll be obviously a number of products that will be hitting our dealers and that have been shipped out of here during that period of time.
More importantly for us is the trajectory that the company is on consistent with all the forecasts that we've given you in the past, and I think that we're looking forward to a phenomenal 2016. The other thing is, and one of the things that has come up from our discussions in the past has been, you know, what happens technically, technologically now for Ferrari going forward. We spent some pretty intense periods of time here over the last 90 days to try and delineate the future of Ferrari from a product standpoint.
I think we have made great progress in terms of getting our thinking straight about both engine development, the impact of hybrid technology on these cars, the way in which we will be presenting them in terms of architectural choices going forward. It's ongoing work. It'll be the single largest challenge that we have on the GT side of the house, and it's something that we'll hopefully be able to talk about at least in terms of concept within 2017 as we celebrate the 70th anniversary of the house. We would expect there will be some product that will come out of that process somewhere in between 2018 and 2019.
I think the important thing is the next phase of development of the house is under development, all indications are that we will continue, we will be able to continue this process of technological innovation, which has been at the heart of our house here since it was founded some 69 years ago. I cannot avoid talking about Formula One. I think it's an issue that has certainly been at from a journalistic standpoint, it's been front and center. It's a matter of phenomenal attention from both our fans, and I guess internally with inside Ferrari.
If I told you that I was happy with the development of the Scuderia over the last few months, and certainly in terms of the 2016 season development, I would be lying. I think there were a number of changes that were made, some relatively senior leadership changes that were made. Last week, we have made some more in terms of the organizational structure of the Scuderia, and over the weekend. I think we're in the process now of reconstituting the technical team to drive both the completion of the 2016 car and to drive the development of the 2017 vehicle, which as you well know, reflects the change in the rules and the regulations that govern the sport.
Regardless of the amount of work that needs to go on now in terms of sort of realigning processes and flattening the organization, which is consistent with the management style that I've sort of embraced for a number of years now. I think I can only give you the comfort of telling you that I think we are, as one would expect, we are the repository of a huge amount of talent inside this house. I found, and I've been speaking to a lot of people, both from the technical side of GT and from the Formula One teams, I have found phenomenal talent inside the house.
I think it is important for us to leverage that know-how, to leverage that talent pool, and that's what we're doing. I think that a lot of aspersions that you see in the press about the quality of our leaders are misplaced. I think the fact that we were in need of a transfusion of intelligence, of technical intelligence from the outside is completely overdone. I think we have made a decision to develop our, both the 2016 and the 2017 car based on our own skills, on our own talents on the inside.
I think we have sufficient depth to accomplish that task. I think I look forward to a more successful last portion of the season in 2016, and certainly, a basis on which the 2017 car can start its life in the early part of next year on a much stronger basis than it has today. On that note, I would like to pass it to Alessandro. He'll take you through the details. Obviously, we'll be able to answer questions as we go.
Thank you, Mr. Marchionne. Good afternoon, everyone, and thank you for listening in on the call. Moving on page three, our shipments grew to 2,214 units, showing an increase of 8% or 155 units, led by the solid performance of the new models, the 488 GTB, 488 Spider, and the F12 Tour de France, partially offset by LaFerrari that finished its limited series run. Group net revenues reached EUR 811 million, up 5.9% or 6.2% at constant currencies. Adjusted EBIT reached EUR 156 million, with a margin increase of 310 basis points. Our net profit for the group, adjusted for the charges related to the Takata worldwide airbag inflator recalls, was up 35% to EUR 104 million.
This is a record quarter in the history of Ferrari. Finally, at the end of June 2016, our net industrial debt was EUR 763 million, better than March 2016. On 5th July Ferrari unveiled the first images of the open-top LaFerrari, the new limited edition special series, whose details will be provided at the Paris International Motor Show later this year. On 7th July Ferrari with Luxottica Group announced the signing of a sponsorship agreement for the Ray-Ban brand to appear on our Formula One cars. We are confirming our full year guidance as follows: shipments at approximately 8,000 units, including our supercars. Net revenues greater than EUR 3 billion, adjusted EBITDA greater or equal to EUR 800 million, and net industrial debt lower or equal to EUR 730 million.
Moving on to page four, we show our operating highlights for the second quarter of 2016. Our shipment reached 2,214 units, showing an increase of 8% or 155 units, mainly led by V8 models, which were up 16%, thanks to the continued strong sales of the two newly launched models, the 488 GTB and the 488 Spider. On the other side, V12 models were down 22% due to the F12berlinetta being at its 5th year of commercialization and the phase out of the FF and LaFerrari that finished its similar limited series run. The V12 decrease was partially offset by the F12tdf now reaching global coverage. We remind you that the GTC4Lusso will commence distribution in the 3rd quarter of this year.
Net revenues were up 5.9%, 6.2 at constant currencies, with all revenue lines positively contributing. In particular, cars and spare parts posted an increase of approximately 2%, mainly driven by volumes, along with positive contribution from our personalization programs, partially offset by mix and by lower sales of LaFerrari that finished its limited series run. Our adjusted EBITDA improved by 12%, topping EUR 217 million. The result was primarily driven by higher volumes, followed by a positive contribution from sponsorship, commercial, and brand, as well as other supporting activities. Adjusted EBIT for the group showed a strong 26% increase, reaching EUR 156 million, resulting in a margin expansion of 310 basis points.
The adjusted EBIT improvement benefited from the various variables, a more detailed explanation will be given when commenting page seven. Both adjusted EBIT and adjusted EBITDA excludes the charges of the EUR 10 million due to the worldwide Takata airbag inflator recalls. Q2 2016 industrial free cash flow generation was primarily driven by a strong increase in cash flow from operating activities, including a positive change in working capital and timing effects of advances on the new open top LaFerrari, partially offset by CapEx and the first 2016 tax advance. Let me remind you that Q2 2015 industrial free cash flow included a EUR 116 million one-time cash inflow related to the final reimbursement by Maserati its inventory in China.
Excluding that one item, the industrial free cash flow in Q2 2015 would have been EUR 173 million. Net industrial debt at June 30, 2016 was reduced to EUR 763 million, primarily due to industrial free cash flow generation, partially offset by EUR 87 million cash distribution to holders of common shares and EUR 13 million dividends paid to our NCI. Moving to page five, in terms of geographical distribution, EMEA and Greater China enjoyed a sound year-over-year growth, with shipments increasing respectively by approximately 14% and more than 25%, mainly driven by the 488 family and the F12tdf shipments.
America posted a slight improvement, whereas rest of Asia Pacific remained in line with prior year due to the late arrival of the 488 Spider and the F12 Tour de France. As a reminder, we are now phasing out the FF, and we will begin shipments of the GTC4Lusso in Q3 2016. In addition to this, the F12berlinetta at its fifth year of commercialization continues to perform better than expected. At the end of June, the region Americas was up approximately 0.5%. In the U.S., as a in particular, the positive performance was driven by the 488 GTB, the 488 Spider, California T, and the F12 Tour de France offsetting the F12berlinetta at its fifth year of commercialization and LaFerrari that finished its limited series run. During Q2 2016, we completed the deliveries of the F60 America, which is a strictly limited edition.
EMEA increased by approximately 14%. The U.K., the Ferrari largest market in EMEA posted the shipments in line with previous year due to the timing of the 488 Spider having just arrived on the market. The region recorded robust deliveries of the 488 GTB and F12tdf more than offsetting the phase out of the 458 family and the FF. Strong performances were recorded in Italy, plus 23%, and in Germany, plus 26%, thanks to the 488 family and the F12tdf. Other European countries, Africa, and Middle East expanded at double digits. Greater China increased by more than 25%. China Mainland, in particular, shipments grew at double-digit rate, thanks to the success of the 488 family and the F12tdf having just arrived on the market.
Hong Kong and Taiwan experienced higher volumes led by both V8 and V12 models more than offsetting the phase out of the 458 family and the FF. Rest of Asia Pacific posted shipments in line with previous year. Japan was unchanged compared to previous year with 488 family and California T offsetting the 458 family phase outs. Same trend was noticed on the V12 models with the F12 Tour de France offsetting the FF phase out. Australia shipments were affected by timing with the 488 Spider and the F12 Tour de France having just arrived on the market and 488 GTB only partially offsetting the 458 family phase outs. Other Asia Pacific increased double digits driven by the V8 models.
Moving to page six, our net revenues reached EUR 811 million, up 5.9% versus Q2 of last year, with all revenue lines positively contributing. At constant currencies, net revenues would have increased by 6.2%. Cars and spare parts revenues posted an increase of EUR 10 million to EUR 589 million, mainly due to higher volumes along with increased positive contribution from our personalization programs. Higher revenues were led by the 488 family, both 488 GTB and 488 Spider, the F12 Tour de France, and the non-registered car FXX-K, as well as the limited edition F60 America. Engine revenues were generated EUR 71 million, up EUR 14 million or 24% versus prior year. The solid growth was mainly due to greater rental revenues from other Formula One teams.
Please let me remind you that during the F1 season 2016, we are renting our engines to three teams versus two teams in 2015. Maserati engines and revenues were in line with previous year. Sponsorship, commercial, and brand right revenues reached EUR 117 million for Q2 2016, with an increase of EUR 14 million or 14% compared to prior year, mainly due to better championship ranking as well as greater sponsorship revenues and positive contribution from brand-related activities. Moving to page seven, you can see the year-over-year changes in adjusted EBIT main items. Volumes were up EUR 24 million, thanks to an increase of approximately 230 units, excluding LaFerrari, mainly due to newly launched 488 GTB, 488 Spider, and the F12tdf, along with a positive contribution from our personalization programs.
Mix was negatively impacted by LaFerrari that finished its limited series run and V8 slightly higher compared to the previous year. This was partially offset by deliveries of the non-registered car FXX-K and final shipments of the limited edition F60 America. Industrial costs and R&D costs posted a EUR 11 million decrease mainly due to lower D&A for the 458 family and LaFerrari phasing out, coupled with positive contribution from industrial cost savings partially offset by F1 costs. SG&A costs are in line with prior year as a result of new stores opening, new model launches, and corporate costs offset by lower bad debt in Q2 2015. Impact of transaction exchange rate net of hedging is positive on margin due to the U.S. dollar strengthening against EUR, only partially offset by a weaker GBP.
Other was up by EUR 14 million, thanks to sponsorship, commercial, and brand, as well as other supporting activities. As a result of all of the above, Q2 2016 adjusted EBIT was up 26% to EUR 156 million, and adjusted EBIT margin expanded by 310 basis points, reaching 19.3%, excluding FX hedges, it would have been 21.5% versus 20.5% for prior year on a comparative basis. Moving to page eight, net industrial debt at the end of June was equal to EUR 763 million, better than 31 March 2016 due to the strong industrial free cash flow generation, which was partially offset by EUR 87 million cash distribution to holder of common shares and EUR 13 million dividends paid to NCI.
The positive industrial free cash flow generation was primarily attributable to the strong adjusted EBITDA, positive change in net working capital, and timing effect of advances on the new open-top LaFerrari. All of that was partially offset by the first 2016 tax advance and by CapEx. CapEx was EUR 90 million, driven by R&D and product investments in connection with our continuous product range renewal. To close, on 5 July we unveiled the first images of the new limited edition special series open top LaFerrari, already fully pre-sold. Details will be provided at the Paris International Motor Show later this year.
From page 12, we are providing, as usual, certain slides on our brand activities as well as the events that Ferrari has organized to engage it, its customers. To close, on page 13, we are confirming our 2016 outlook. We expect shipments at approximately 8,000 units, including supercars. Net revenue is greater than EUR 3 billion, adjusted EBITDA greater or equal to EUR 800 million, and net industrial debt lower or equal to EUR 730 million. Having said that, I'm handing over to Mr. Marchionne for any final remarks.
None. I think we'll just take questions.
Thank you, gentlemen. If you would like to ask a question over the telephone, please press star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. Once again, please do press star one if you would like to ask question. Our first telephone question comes today from John Murphy of Bank of America Merrill Lynch. Please go ahead, your line is open.
Good morning, guys. Just a first question on the LaFerrari open topper Spider. I'm just curious if you can give us a gauge on timing of launch and possibly the volume targets or limits, if you will.
First production second half of this year, completion in 2017.
volume?
I ain't saying.
Okay. Okay. Can't blame me for trying. I'm just also curious on the order backlog, given all the unrest and volatility we've seen in the world, in Europe and some of the stuff that's actually now happening here, in the U.S. If anything has changed in your order backlog as far as units or mix?
Absolutely nothing. It's been a non-event. Even the Brexit issue, which we watched very carefully, has not caused a dent in our numbers. Now, you know, we're gonna have to watch until this thing plays out completely, but based on what we know today, there's certainly no significant deterioration. Naturally, there is no deterioration in the order book and there's been no increase in cancellation of orders. There's been no distortion in demand. Look, I, you know, we, well, certainly it is part of our duty here as we update you quarterly on these numbers, just to give you indications of softening of conditions. We don't see any.
Okay.
It reflects, you know, I hate sounding like an old lady that keeps on repeating herself, but it reflects the strength of the brand. I mean, it's just not. It hasn't been In fact that we saw this back in the 2008 and 2009 crisis, the fact the volumes were not really severely damaged even though there was the rest of the so-called auto industry had gone through upheavals. This business had weathered the storm quite well. Let's see it.
Okay. Then on personalization in the quarter, obviously that was a positive. I was just curious if you can give us sort of the % uptake in price. I mean, I know you guys have talked about that in the past. Just curious what the sort of the penetration and uptake on price was for personalization in the quarter and where you see that going.
I don't know whether Alessandro's gonna tell you that. I'm gonna leave it to him.
Yeah, I think we provided in the past, it's higher than 16% in contribution to our top line revenues.
Okay. Lastly, Sergio, you mentioned something about, you know, hybrid technology a little bit more clearly than you have in the past, being a little bit more mainstream in your product lineup. Is that the kind of technology you believe we're gonna be seeing in the powertrain sometime in 2018, 2019, in 2020 for the broader product portfolio at Ferrari?
Yes. Absolutely. I don't think it's avoidable. I think that we might as well make it truly Ferrari. That's the whole objective here, is to make it so unique that it cannot be, it cannot be emulated, regardless of what you hear from Elon Musk, but, whom I love dearly as a friend. I think Ferrari needs to put its thumbprint on that technology, and that's what it's doing. Stay tuned.
Great. Thank you very much.
Thank you. Our next telephone question today comes from Martino De Ambroggi from Equita. Please go ahead, your line is open.
Yeah, good afternoon. Thank you. Two questions on on the guidance. First, actually on the adjusted EBIT bridge for the second quarter. There is a variable defined as other, representing EUR 14 million of improvement in the quarter. You are specifying the composition of this variable. Should we expect similar trend going forward for this item? If it's possible to elaborate a little bit more, first. Second, R&D capitalization, the balance is a portion of the EUR 11 million of improvement in industrial cost and R&D. The third is on the full year guidance, because assuming the floor of your EBITDA guidance, basically the improvement is EUR 50 million. If I remember correctly, EUR 50 million is also the Forex effect you have for the full year, which is essentially recorded in the second half. Am I right?
Okay. Let's start from the last one. Yes, you're Let's start from the last one. You're correct on the EUR 50 million we provided in the past, so it's included in the guidance.
Sorry, Alessandro. It's mainly or totally in the second half?
It's basically totally in the second half. You've seen that the combination of Q1 and Q2 is a flat number.
Okay.
On other, I think we are including all the other businesses technically. So sponsorship, commercial and brand, just to give you some flavor, obviously. Brand revenues are growing, and obviously there's contribution there in terms of profitability since we are operating with some new stores. Sponsorship is growing higher than last year. We have some new sponsors. This always exclude for the quarter the new sponsorship agreement with Ray-Ban, which is gonna be in Q3 and Q4 obviously. The other positive impact obviously, is obviously related to our engines that are rented to the other Formula One teams and partially to Maserati that is very small this quarter. As well, we have some contribution from Ferrari Financial Services activities. It's the all contribution from all the other activities of the quarter.
Just to finish off the discussion on the engine rental business. After months of diatribe and discussions within the F1 Strategy Group, we sort of now agreed that the three major houses, perhaps four if Honda joins the group, will be the main providers of engine solutions to the grid. The future of that business is relatively guaranteed. Quantums have come down in terms of rental charges for the engines. I think it will stabilize this sort of pretty opportunistic approach that people have taken in terms of providing engine solutions. It's gonna become a stable part of the business going forward because the commitment to provide engines to the rest of the grid is actually equally shared amongst the engine manufacturers.
On your last question, Martino, the D&A, actually industrial cost and R&D are improving because of the D&A impact, which is lower this quarter than last year. I think we've commented multiple times that with the full F 458 phase out and LaFerrari in particular phasing out, now we are facing a D&A which is lower than Q2 2015.
This is not strictly related to R&D capitalized?
No, no, technically not.
Okay. Thank you.
Thank you.
Thank you. Our next question today comes from Monica Bosio of Banca IMI. Please go ahead, your line is open.
Yes. Good afternoon, everyone. I would have a few questions. The first one is, can you comment a little bit more on the American performance, which was flat? Is it because of the phase out of the limited edition F60 America or maybe there's something else? I was quite surprised about the American performance on one side, and I was particularly positively surprised about the Greater China. I was wondering if you can comment a little bit more. Also on the back of the new annual wealth report from Capgemini, which reported a higher wealth from Asia Pacific than America. It's the first time that I've seen this figure since then, since the last 10 years. Second question is on customization.
If I have understood well, customization and personalization are now above 16%, the top line. Is it the target for the full year, or maybe for the full year it could be higher? In the long term, my estimates account 20%, but as things are, I believe that maybe there is room for a 25%. Am I right? Last, very last question is on the recall on Takata airbags. Just to check, do you have accounted all the expected recall costs in the second quarter? Thank you very much.
Let me try and deal with the, with the, with some of your questions, I'll leave Alessandro to answer the more technical thing about whatever you are talking about CapEx and R&D stuff. The recall issue, obviously, we have booked everything we know that needs to be recalled. I think that the notes have been relatively clear about the purpose for the recall. This is a relatively large issue for the wider auto industry. You saw the BMW numbers come out. They've booked a provision today. FCA booked one last week. It is a process which is unfolding.
I think the provision that we have taken reflects what we know needs to be repaired. I think we'll take it from here. I'm not aware of any additional charges that need to be taken at this point in time. In terms of your comments about this high net worth population shifting from the rest of the world or the Americas onto APAC, I think it was an expected transition. I just remind you that of the wider population of people that are out there, we only sell 8,000 cars a year.
Our ability, our penetration rate into that population is minuscule compared to the size of the population itself. It's only encouraging to us in terms of the potential reach of this brand and how quickly it could grow to try and cover this growing population of people who have the means to be able to afford our products. Your comments about North America, I'm not surprised that North America has flatlined or not moved substantially year-over-year. It's really a question of product flow.
Alessandro talked about the fact that the FF has come out. We're going to produce the GTC4Lusso. Beginning in the second semester, you will see numbers restore. There was certainly an expectation that the FF would come out of service within 2016, and that's impacted numbers. The F12, as Alessandro mentioned, is in its 5th year of its life. These are not surprising developments. I would read nothing into it. As a matter of fact, I can only confirm the strength of the order book in the Americas, simply based on the value of the 488, both the convertible and the hardtop. I, you know, you've seen American numbers come out of the U.S. this morning.
Most of the majors were down, the market continues to show significant strength. I'm not worried at all.
Okay. Thank you very much.
Thank you. We'll move to our next question today. This comes from Thomas Besson of Kepler. Please go ahead. Your line is open.
Thank you very much. It's Thomas Besson with Kepler Cheuvreux. I have three quick questions, please. The first one, I'd like to check with you that the CapEx figure for the second quarter was only EUR 32 million versus approximately EUR 61 million for depreciation. Is that correct?
You're talking about the gross CapEx? For the quarter, it was actually EUR 90 million.
Okay. Thank you. Can I check with you as well that the long-term goal is still 9,000-10,000 vehicles? Do you think that there is potentially room at one point to go beyond that?
I think we'll stick to the forecast that we've given you in the past. There's no momentous change here. I think we need to grow this brand in total consistent parallel fashion with the growth of the market. Let's not aspire to be something that we have never been. We just won't. I think I go back to what Monica mentioned earlier in her remarks. The potentially available population of customers to Ferrari is a growing population. It is global. I think that we have the global footprint in terms of distribution to service that customer base.
I think that's important for us to go forward. I think it's a key element in the development of our portfolio. I think we need to be able to tweak these products to relevant market conditions, and I think that we have done a number of things here. You will see, hopefully, as we keep on revealing these products, that we have understood that requirement, and I think you'll see numbers growing accordingly.
Yeah, the last one.
Before somebody asks me the question on this thing, in the consistent question is what are we doing on pricing? I think the right, the short answer is that we're doing everything we can, we have started moving price on some of our vehicles now. We have done it in an intelligent way to make sure that we give advance warning to our customers, so it'll take some time to work its way through. The pricing actions are in place, we'll continue to take them as we see opportunity arise.
Okay, thank you very much.
Thank you. We'll now take our next question today. This comes from Ryan Brinkman of JPMorgan. Please go ahead. Your line is open.
Thank you. Good morning. I'm looking at SG&A. In 2Q it was flat, you discussed some moving pieces in the footnotes there on page seven, store openings, model launches, corporate costs this year, bad debt last year. How would you say SG&A is tracking on an underlying basis? Just generally, when you strip away some of these more, you know, one-time items, do you expect SG&A leverage on higher shipments going forward, or should it move more in conjunction with volume?
As an absolute number, you won't see the leverage. As a percentage of total revenue, you will. It'll take some time as we grow the base. Look, I mean, this is not a high-spending environment, to be honest. I'm still using chairs from 1952 in my office. It's not as if we're, you know. We're treating our customers much better than we're treating ourselves, to be honest.
Great. Thank you. Just a last question on cadence of engine volume. How might that progress throughout the year as the Levante is launching? Thanks.
Well, look, we've had to put on an additional shift to try and deal with the demand. The indications from the Levante are quite good. When I spoke to the other side of myself, and I checked the order book on Levante, the Levante order book was quite strong. I think we're waiting for U.S. introduction to happen in the third quarter this year, so I think it'll be fine.
Thank you.
I think to the extent that we've added on the third shift here, it's because of the fact that we see this as being a permanent condition.
Thanks.
Thank you. We'll now move to our next question. This comes from Massimo Vecchio of Mediobanca. Please go ahead. Your line is open.
Good afternoon, everybody. My first question is a follow-up on Brexit. The fact that Aston Martin and McLaren are U.K.-based, do you see it as an issue in terms of pricing for your, for your segment or the elasticity of your customer base is such that it's not a problem for you?
No.
Okay. Second question is on the guidance. Can you share with us a little bit of generality? How much of conservatism is in the guidance and how much is probably, I don't know, global risk raising worldwide or any other factor which we are not seeing?
Mr. Vecchio, I've already gone beyond my normal level of conservatism. I told you that we consider this to be minimum points. If I had a better view, I would've given it to you.
Right.
Just wait till the year unfolds.
Okay, got it. Last question, tax cash out, how can we expect the total number in 2016 and the timing of that? Because this is a little confusing.
You need to consider that in second half, I think we've commented it in the past, we will have the second advance on taxes as well as the payment of the balance of 2015 taxes. Therefore, the free cash flow generation is going to be in line with the guidance that we provided of the net industrial debt.
Yeah.
Will have positive contribution on free cash.
Yeah. Alessandro has beaten this horse dead into the ground over and over again over the calls. 16 is an anomalous year. It's a catch-up of 15 and a clean out of 16. Once we go through this year, then I think we're getting into regular cycle, and you won't have a problem understanding our cash flow. It is a transition year.
All right. All right. I see. It's clear. It'll be entirely in the third quarter, or you're able to split in some way also in the fourth?
Well, the payment of taxes will be mostly fourth quarter.
Fourth quarter. All right. Thank you very much.
Thank you. We'll now move to our next question. This comes from George Galliers of Evercore. Please go ahead. Your line is open.
Hi, good afternoon. My question was with regards to special models. Clearly in the wake of the LaFerrari open, and I think also in Venice, those attending were shown a plan for another 350 special models around the 70th anniversary. Do you see any saturation point with regards to special models, or do you think the strength of the Ferrari brand is so much that, for example, you could produce and sell 1,000 every year without any kind of saturation of the market?
I think a thousand every year is an absolute exaggeration. I think it actually is contrary to the notion of a special series. I can only tell you that, if I had to sort of appease all the customers who have written to me on both the LaFerrari and on the open edition of LaFerrari, the one that's going to be unveiled in the fall auto show, then I think you would be we will be well above any of the numbers that we've talked about as being a limited edition. I have noticed, certainly in terms of the approach that we've taken, we have noticed no level of saturation or discomfort with the numbers that we've pointed out.
I'm still, we're still and the cars are completely sold out, and they were sold out on a unseen basis by the customers. I mean, I don't know how to describe this to you. These are cars that are selling just on the inkling of the fact that they exist. I certainly do not want to change that dynamic to the extent that I'm making Monica famous here. The extent that we go back to this high net worth individual discussion, I mean, obviously that's, you know, we will tailor and cater that population to reflect the population. One of the things we cannot do is change the uniqueness of those products and the scarcity associated with them.
I, you know, for those of you who are interested, there was an interesting article, I'm, again, I'm the wrong guy to talk about this, but I was fascinated by the Hermès Birkin bag. There was an interesting article that showed up, I think it was in The Economist a couple of weeks ago, on the economics of the bag. Fundamentally, once those things happen, one, they're very difficult to replicate. Secondly, you have to be very faithful to the principles that govern distribution. You just cannot fall in love with the notion of making more money off a limited run. It'll kill you in the long term, we're not gonna change that dynamic.
Related to this, I guess, given the huge excess demand, when you come to price these cars, how do you think about that? Do you look to maximize profit? Do you look to respect your customers at what you think is an appropriate level? Or do you have internal gross margin targets that you apply versus the actual cost to build them?
A combination of all those things.
Okay. Finally, with regards to the quarter, in the revenue bridge, you reported EUR 14 million improvement, you mention, specifically with regards to championship ranking in Formula One. Can you just clarify which season that relates to? In terms of from a cash perspective, what is the seasonality with respect to payments from Formula One, which you receive both television and also for a championship position?
There's no television, it's 2015. The revenue that was recorded in 2016, I have to rely on Alessandro to tell you the timing. I don't know what the timing is.
Yeah, the timing is pretty straightforward, distributed over the quarters.
It's-
There's no particular timing, seasonality.
It's quarterly distribution, evenly split over the quarters?
Yep.
Create some more angst in your life, we need to rank second, not to cause a dislocation in the revenue stream for 2017. We're working our butts off to make sure that that happens. As soon as we hang up, I can go fix that problem.
Great. Well, good luck with that. Thanks.
Thank you. We'll now move to our next question. This is from Adam Jonas of Morgan Stanley. Please go ahead, your line is open.
Good afternoon, this is Neel Mehta on for Adam Jonas. Can you explain to us the historical rationale behind the typical five-year product cycle for your non-limited edition models? Sergio, Alessandro, both of you have noted on the last couple of calls that certain models, namely the F12berlinetta, have had a harder time competing in the marketplace late in their cycle, in their fifth year of commercialization. Aside from just introducing special edition versions like the F12tdf, how feasible or unfeasible is it to accelerate a model's product cycle when there are signs out there that the order book may be thinning out? Thanks.
By the way, are you parading as Adam?
I am. He's actually in Spain right now, so filling in for him.
Well, just send Adam my compliments on his travel schedule.
I definitely will, yep.
Just to answer your question, I don't think the F12 I think you need to be very careful about why the order book is thinning out. There's a tradition in this house to rejuvenate the product portfolio over a cycle, and if people know there's a new F12 coming in some form, they will obviously wait, and that's why the book thins out. It's not something endemic to the car. As a matter of fact, we have seen, over the last 90 days, we have seen an improvement in the order intake on F12s, notwithstanding the fact that over some period of time, we were replacing that car, and that's not far off the replacement cycle.
The market knows, and our customer base and people that deal with our products know that eventually these products will be rejuvenated. When that happens, they'll buy the new one. And by the way, in terms of coming up with the tdf, the Tour de France is indicative of the expression of the highest level of technology at the end of a series. We've done this with the 599 GTO. We've done it now with the F12tdf. Get used to this. We will continue to do this because it allows us to experiment with technology in limited series. A lot of the technology ended up being mainstay in the GTC4Lusso. That's how we run this business, so get used to it.
All right. Thank you.
You'll see it again with the 488 when it comes and at the end of its cycle.
Thank you very much.
Anything else I can do for you? Whoever you are.
No, thank you. It's good.
Thank you. As there are now no further questions in the queue, I would like to hand the call back to Ms. Nicoletta Russo for any additional or closing remarks. Thank you.
Thank you, everyone, for joining us in today's conference call. The IR team is now available for any follow-up you may have, and I wish you a lovely day. Bye-bye.
That will now conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.