Good day, and welcome to the Ferrari NV 20 16 Second Quarter Results 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, Oli, and good day to everyone on the call. There is one topic that we plan to cover today, the group's Q2 and first half twenty sixteen 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 Giri, 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 Q2 2016 results presentation, and the call will be governed by this language. With that, I'd like to turn the call over to Mr. Marciones.
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'd just like to make 3 points before we start the first one, and then 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 a couple of objectives. 1, obviously, is producing getting to about $1,000,000,000 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. And so 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 Q3 how far it will take us. The Q3 is a bit of an anomalous quarter because of the on the fact that we have the summer shutdown, although there'll be obviously a number of products that will be hitting our dealers and they have been shipped out of here during that period of time. But more importantly for us is the trajectory that 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's come up from our discussions in the past has been 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. This is it's ongoing work.
It will be the single largest challenge that we have on the GT side of the house. And it's something that we hopefully will be able to talk about at least in terms of concept within 2017 as we celebrate the 70th anniversary of the house. And we would expect there will be some product that will come out of that process somewhere in between 2018 2019. But I think the important thing is the next phase of development of the house is under development, which and 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 1.
I think it's an issue that has certainly been 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 will 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 on all those good area 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. I am 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 1 teams.
I 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 the 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 transfusion of intelligence, of technical intelligence from the outside is completely overdone. I think we have made a decision to develop our both the 'sixteen and the 'seventeen car based on our own skills and our own talents on the inside.
I think we have sufficient depth to accomplish that task. And I think I look forward to a more successful last portion of the season in 2016 and certainly, a basis on which this 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. Macchione. Good afternoon, everyone, and thank you for listening in on the call. Moving on Page 3. Our shipments grew to 2,214 units, showing an increase of 8% or 155 units, led by the solid performance of new models, the 488 GTB, 4/88 Spyder and the F12 Tour de France, partially offset by LaFerrari that finished its limited series run.
Group net revenues reached €811,000,000 up 5.9% or 6.2% at constant currencies. Adjusted EBIT reached €156,000,000 with a margin increase of 3.10 basis points. Our net profit for the group adjusted for the charges related to the Takata worldwide airbag inflator recalls was up 35% to €104,000,000 This is a record quarter in the history of Ferrari. Finally, at the end of June 2016, our net industrial debt was €763,000,000 better than March 2016. On July 5, 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 July 7, Ferrari with Luxoftica Group announced the signing of a sponsorship agreement for the Raven brand to appear on our Formula 1 cars. And we are confirming our full year guidance as follows: shipments at approximately 8,000 units, including our supercars net revenues greater than $3,000,000,000 adjusted EBITDA greater or equal to $800,000,000 and net industrial debt lower or equal to 7 $30,000,000 Moving on to Page 4, we show our operating highlights for the Q2 of 2016. Our shipments 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 2 newly launched models, the 4.88 GTB and the 4.88 Spider. On the other side, V12 models were down 22% due to the F12 Berlinetta being at its 5th year of commercialization and the phase out of the SF and LaFerrari that finished its limited series run. The V12 decrease was partially offset by the V12 Tour de France now reaching global coverage.
We remind you that the GTC for Lusso will commence distribution in the Q3 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 serious run. Our adjusted EBITDA improved by 12%, topping euro 217,000,000 and 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 156,000,000 resulting in a margin expansion of 3.10 basis points and the adjusted EBIT improvement benefited from the various variables and a more detailed explanation will be given when commenting Page 7.
Both adjusted EBITDA and adjusted EBITDA excludes the charges of the €10,000,000 due to the worldwide SAKA Ter Begijn 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 1st 2016 tax advance. Let me remind you that Q2 2015 industrial free cash flow included EUR 116,000,000 onetime cash inflow related to the final reimbursement by Maserati of its inventory in China. June 30, 2016, was reduced to €763,000,000 at June 30, 2016, was reduced to €763,000,000 primarily due to industrial free cash flow generation, partially offset by €87,000,000 cash distribution to holders of common shares and $13,000,000 dividends paid to RNCI. Moving to Page 5.
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 F12 Tour de France 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 Spyder and the F12 to the funds. As a reminder, we are now phasing out the FF, and we will begin shipments of the GTC for Luce in Q3 2016. In addition to this, the F12 Berlinetta at its 5th year commercialization continues to perform better than expected. At the end of June, the region Americas was up approximately 0.5%.
In the U. S, in particular, the positive performance was driven by the 488 GTB, 4.88 Spyder, California T and the F12 Tour de France, offsetting the F12 early netted its 50 year commercialization and LaFerrari that finished its limited series run. During Q2 2016, we completed the deliveries of the F6 C America, which is a 3clear limited edition. EMEA increased by approximately 14%. The U.
K, therefore, our 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 F12 to the funds 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 F12 Tour de France. 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 F12 Tour de France 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 key offsetting the 458 family phase out. Same trend was noticed on the V12 models with the F12 2.5 offsetting the FF phase out.
Australia shipments were affected by timing with the 488 Spider and the F12 II.5 having just arrived on the market and 488 GTB only partially offsetting the 4 58 family phase out. And Other Asia Pacific increased double digit driven by the V eight models. Moving to Page 6. Our net revenues reached EUR 811,000,000 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 10,000,000 to EUR €589,000,000 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 Spadder, TF12 Tour de France and the non registered car FXXK as well as the limited edition F6 E America. Engine revenues were generated €71,000,000 up €14,000,000 or 24% versus prior year. The solid growth was mainly due to greater rental revenues from other Formula One teams. And please let me remind you that during 2016 F1, the F1 season, we are renting our engines to 3 teams versus 2 teams in 2015.
Maserati engines revenues were in line with previous year. Sponsorship, commercial and brand revenues reached €117,000,000 for Q2 2016, with an increase of €14,000,000 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 7. You can see the year over year changes in adjusted EBIT main items. Volumes were up $24,000,000 thanks to an increase of approximately 2 30 units, excluding LaFerrari, mainly due to newly launched 4.88 GTB, 4.88 Spider and the F12 Tour de France, 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 FXXK and final shipments of the limited edition F60 America. Industrial costs and R and D costs posted €11,000,000 decrease mainly due to lower D and A for the 458 family and LaFerrari phasing out, coupled with positive contribution from industrial cost savings partially offset by F1 costs. SG and 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 twenty of transaction exchange rate net of hedging is positive on margin due to the U. S.
Dollar strengthening against euro, only partially offset by a weaker GBP. And other was up by €14,000,000 thanks to sponsorship, commercial and brand as well as other supporting activities. As a result of all of the above, with Q2 2016, adjusted EBIT was up 26% to €156,000,000 and adjusted EBIT margin expanded by 3 10 basis points, reaching 19.3 percent. Excluding FX hedges, it would have been 21.5 percent versus 20.5 percent for prior year on a comparative basis. Moving to Page 8.
Net industrial industrial debt at the end of June was equal to EUR 763,000,000 better than March 31, 2016, due to the strong industrial free cash flow generation, which was partially offset by €87,000,000 cash distribution to holder of common shares and 13,000,000 dividends paid to RNCI. 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 1st 2016 tax advance and by CapEx. Packet CapEx was $90,000,000 driven by R and D and product investments in connection with our continuous product ranging renewal. And to close on July 5, 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 its customers. And to close on Page 13, we are confirming our 2016 outlook. We expect shipments at approximately 8 1,000 units, including supercars, net revenues greater than $3,000,000,000 adjusted EBITDA greater or equal to 800,000,000 and net industrial debt lower or equal to $730,000,000 And having said that, I'm handing over to Mr. Marciano for any final remarks.
None. I think we'll just take questions.
Thank you, gentlemen. 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?
1st production, second half of the share completion in 2017.
And volume?
Uh-uh. 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 nonevent. Even the Brexit issue, which we watch very, very carefully has not caused a dent in our numbers. Now, we're going to have to watch until this thing plays out completely. But based on what we know today, there's certainly no significant deterioration.
Actually, 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, we certainly part of our duty here as we update you quarterly on these numbers is to give you indications of softening of conditions. We don't see any.
Okay.
It reflects I hate sounding like an old lady that keeps on repeating myself, 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 2,008 and 2,009 crisis. The fact that 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. So let's see it.
Okay. And then on personalization in the quarter, obviously, that was a positive. I was just curious if you can give us sort of the percentage uptick in price. I mean, I know you guys have talked about that in the past. Just curious what the sort of the penetration uptick on price was for personalization in the quarter and where you see that going?
I don't know whether Alessandro is going to tell you that, but I'm going to leave it there.
Yes. I think we provided in the past. It's higher than 16% in contribution to our top line revenues.
Okay. And then just lastly, Sergio, you mentioned something about 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 going to be seeing in the powertrain sometime in 2018, 2019, in 2020 for the broader product portfolio, the Ferrari?
Absolutely. I don't think it's avoidable. And I think that we're we might as well make it truly Ferrari. And that's the whole objective here is to make it so unique that it cannot be emulated regardless of what you hear from Elon Musk, but whom I love dearly as a friend. But I think Ferrari needs to put its thumbprint on that technology, and that's what it's doing.
So stay tuned.
Great. Thank you very much.
Thank you. Our next telephone question today comes from Martino D'Ambrogi from Acreta. Please go ahead. Your line is open.
Yes, good afternoon. Thank you. Two questions on the guidance. First, actually on the adjusted EBIT bridge for the Q2. There is a variable defined as other, representing €40,000,000 of improvement in the quarter.
You are specifying the composition of this variable. But should we expect similar trend going forward for this item? And if it's possible to elaborate a little bit more, 1st. 2nd, R and D capitalization, the balance is a portion of the €11,000,000 of improvement in industrial cost and R and D. And the third is on the full year guidance because assuming the floor of your EBITDA guidance, Basically, the improvement is €50,000,000 If I remember correctly, €50,000,000 is also the ForEx effect that you have for full year, which is essentially recorded in the second half.
Am I right?
Let's start from the last one. Yes, you are let's start from the last one. You are correct on the EUR 50,000,000 we provided in the past. So it's included in the guidance.
But it's mainly 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. On other, I think we are including all the other businesses technically. So sponsorship, commercial and brands, 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. And this obviously excludes for the quarter the new sponsorship agreement with Ray Ban, which is going to be in Q3 and Q4, obviously. And the other positive impact is obviously related to our engines that are rented to the other Formula 1 teams and partially to Maserati, but it's very small this quarter. And as well, we have some contribution from Ferrari Financial Services activities. So it's the all contribution from all the other activities of the quarter.
And just to finish off the discussion on the engine rental business. After months of diatribe and discussions within the F1 Strategy Commission. We've sort of now agreed that the 3 major houses, perhaps 4 of Honda joins the group, will be the main providers of engine solutions to the grid. And so the future of that business is relatively guaranteed. Quantums have come down in terms of rental charges for the engines.
But so I think it will stabilize this sort of pretty opportunistic approach that people have taken in terms of providing engine solutions. So it's going to 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.
And on your last question, Martin, on the D and A, actually, industrial cost and R and D are improving because of the D and A impact, which is lower this quarter than last year. I think we've commented multiple times that with the full 4, 5, 8 phase out and LaFerrara in particular phasing out, now we are facing a D and A which is lower than Q2 in Q2 in 2015.
So this is not strictly related to R and D capitalized?
No, no, technically not.
Okay. Thank you.
Thank you. Our next IMI. Please go ahead. Your line is open.
Yes. Good afternoon, everyone. I would have a few questions. The first one is, if you can, 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 Americas or maybe there's something else?
Because I was quite surprised about the American performance on one side, and I was particularly positively surprised about the Greater China. So 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 higher wealth from Asia Pacific than America? It's the first time that I've seen this figure since the last 10 years? And 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? And 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? And last the last question is on the recall on Takata Air Bags. Do you just to check, do you have accounted all the expected recall costs in the Q2?
Thank you very much.
Let me try and deal with some of your questions and I'll leave on a standard of buoyancy the more technical thing about whatever you are talking about CapEx and R and D stuff. The recall issue, obviously, we have bought 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 and they booked a provision today.
SCA booked 1 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. And I think we'll take it from here. But 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 on to APAC. I think it was an expected transition. I just remind you that the wider population of people that are out there, we only sell 8,000 cars a year. And so our ability our penetration rate into that population is minuscule compared to the size of 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 is really a question of product flow. And as Sandro talked about the fact that the FF has come out, we're going to produce the GTC4 Lusso. Beginning in the second semester, you will see numbers restore. There was certainly an expectation that DFF would come out of service within 2016, and that's impacted numbers.
DFF-twelve, as Alessandro mentioned, is in its 5th year of its life. So these are not surprising developments. I would read nothing into it. And 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. So I and you've seen American numbers come out of the U.
S. This morning. Although 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 2nd quarter was only €32,000,000 versus approximately €61,000,000 for depreciation. Is that correct?
You're talking about the gross CapEx for the quarter was actually €90,000,000
Okay.
Can I check with you as well that the long term goal is still 9000 to 10000 vehicles? Or 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 market. That's not aspired to be something that we have never been. We just won't.
But 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. And it is global, and I think that we have the global footprint in terms of distribution to service that customer base. And 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 treat these products to relevant market conditions. And I think that we have done a number of things here, and 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.
Yes. The first one
is Before somebody asked me the question on this thing, And the consistent question is what are we doing on pricing? And I think the right the short answer is that we're doing everything we can. And 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 advanced warning to our customers. So it will take some time to work its way through.
But the pricing actions are in place and 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. Looking at SG and A in 2Q, it was flat, but you discussed some moving pieces in the footnotes there on Page 7, store openings, model launches, corporate cost this year, bad debt last year. How would you say SG and A is tracking on an underlying basis? And then just generally, when you strip away some of these more one time items, do you expect SG and 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 will take some time as we grow the base. But 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 we're treating our customers much better than we're treating ourselves to be honest.
Great. Thank you. And then just last question, 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. So 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 Q3 this year, so I think it'll be fine. And I think to the extent that we've added on the 3rd shift here, it's because of the fact that we see this as being a permanent condition.
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 segment? Or the elasticity of your customer base is such that it's not a problem for you?
Okay. Second question is on the guidance. Can you share with us a little bit of granularity? 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 have given it to you.
Just wait until the year unfolds.
Okay, got it. Last question, tax cash out, how can we expect the total number in 20 16 and the timing of that because this is a little bit confusing?
You need to consider that in the 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 20 15 taxes. Therefore, the free cash flow generation is going to be in line with the guidance that we provided of the net industrial debt. And the second half, obviously, will have positive contribution on the weak cash.
Alessandro has beaten the source dead into the ground over and over again over the calls. 'sixteen is an anomalous year. It's a catch up of 'fifteen and a clean out of 'sixteen. Once we go through this year, then I think we'll get into regular cycle and you won't have a problem understanding our cash flow. But it is a transition year.
All right. It will be entirely in the Q3 or you are able to split in some way also on the 4th?
The payment of taxes will be mostly 4th quarter.
4th quarter. All
right. Thank you very much.
Thank you. We'll now move to our next question. This comes from George Galliards of Evercore.
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 shut in a plan for another 3 50 special models around 70th anniversary. Do you see any saturation point with regard to special models or do you think 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 1,000 every year is an absolute exaggeration. I think it actually is contrary to either a 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 the open edition of LaFerrari, the one that's going to be unveiled in the fall auto show, then I think you will 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 an unseen basis by the customers.
I don't know how to describe this to you. These are cars that are selling just on the inkling that the fact that they exist. And so I certainly do not want to change that dynamic. To the extent that the I keep on going back to I'm making Monica famous here, but the extent that we go back to this high net worth individual discussion, I mean obviously that's we will tailor and cater that population to reflect the population. But one of the things we cannot do is change the uniqueness of those products and the scarcity associated with them.
And I for those of you who are interested, it was but I was fascinated by the Hermes Barkin bag. And there was an interesting article that showed up, I think it was in The Economist a a couple of weeks ago on the economics of the bag. And fundamentally, once those things happen, one, they're very difficult to replicate. And secondly, you have to be very, very faithful to the principles that govern distribution. So you cannot fall you just cannot fall in love with the notion of making more money off a limited run.
It will give you in the long term and we're not going to change that dynamic.
And 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 profits? 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. And then finally, with regards to the quarter, in the revenue bridge, you reported €14,000,000 improvement and you mentioned specifically with regards to championship ranking in Formula 1. Can you just clarify which season that relates to? And in terms of from a cash perspective, what is the seasonality with respect to payments from Formula 1, which you receive both television and also for championship position?
Well, there's no television. So it's 2015, the revenue deal was recorded in 2016. I have to rely on Alessandro to tell you the timing. I don't know what the timing is.
The timing is pretty straightforward, distributed over the quarters. There's no particular timing seasonality.
So it's quarterly distribution evenly split over the quarters? Yes. So just to make your life even more and create some more honest in your life, we need to rank second not to cause dislocation in the revenue stream for 2017. So we're working our butts off to make sure that, that happens. So 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 Neil Mehta on for Adam Jonas. Can you explain to us the historical rationale behind the typical 5 year product cycle for your non limited edition models? Sergio, Alessandra, both of you have noted on the last couple of calls that certain models, namely the F12 Berlinetta have had a harder time competing in the marketplace late in their cycle in their 5th year of commercialization. So aside from just introducing special edition versions like the F12 TDF, how feasible or unfeasible is it to accelerate a model's product cycle when the 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, fill in
for him. Just send Adam my compliments on his travel schedule.
I definitely will. Yes.
Just to answer your question, I don't think the F-twelve I think you need to be very careful about why the order book is sitting at. The only reason why there's a tradition in the South 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 sends out. It's not something endemic to the car.
And 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. But the market knows and our customer base and people that deal with our products know that eventually these products will be rejuvenated. And 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 the series.
We've done this with 599 GTO. We're done in line with the F12 TDF. So 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 GTC for Lusso.
So that's how we run this business. So get used to it.
Thank you.
And you'll see it again
with the 488 when it comes and at the end of the cycle. Thank you. Anything else I can do for you, whoever you are?
No, thank you.
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, 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