Ferrari NV (RACE) 2016 Q3 法說會逐字稿

Good day, and welcome to the Ferrari NV 2016 third-quarter results conference call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Nicoletta Russo, Head of Investor Relations. Please go ahead.

Thank you, Brid, and thank you everyone for joining us today. There is one topic that we will plan to cover today: the Group third-quarter and nine-month 2016 financial results. In light of this, the call is expected to last around 45 minutes. All relevant materials are available in the investor section of the Ferrari corporate website.

Today's call will be hosted by the Group Chairman and CEO, Sergio Marchionne and Alessandro Gili, 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 Harbour statement included on page 2 of today's presentation, and the call will be governed by this language.

With that, I would 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 will 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 industrial machine here in Europe, for the summer, we were able to post decent results. As you see from the top line, we have 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 we have no bad news to report, at least on the commercial side. The product launches continue. As expected, we were able to launch the 8-cylinder version of the GTC4Lusso in Paris, that was an incredibly successful launch. We have high expectations for the combination of the 12- and 8-cylinder package for the four-seater. Initial reaction from the market has been incredibly positive, although only I think about 4% of reported 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 analyst calls 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, where the cycle of cars that will be launched from that point on will include, by definition, hybridization. I think it's a mandatory requirement.

I think that we will make some unique in the Ferrari world, as an addition to the benefits associated with the environmental impact of using batteries, I think we will be using the combination of combustion and electrification to provide unique powertrain combinations that will yield even additional performance on these vehicles. Things that we've seen already, or at least in an 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 third quarter of this year.

We now have a reconstituted team which is handling the technical side of this and we have really fundamentally two objectives. One is to conclude this less-than-glorious season in 2016 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 am not going to make any comments about 2017, although I think we have a pretty good idea of how that year is going to shape up. We will reserve any indications of guidance to the release of the -- when we release numbers for the fourth quarter of 2016.

I'd just remind everybody on the call that our primary objective here is to try and hit the EUR1 billion EBITDA number as quickly as we can. That remains a fixation of mine. I think it's an indication of the cash generation capability of the staff. And I think the faster we get there -- we will let you know where and how we think we can hit that number the next time we get together for the analyst call.

And on that note, I will pass it on to Alessandro, who will explain to you the quarter. Thanks.

Thank you, Mr. Marchionne. Hello, everyone, and thanks for listening in on the call.

I will start, as usual, with page 3. Our shipments reached 1,978 units, showing an increase of 29 units, or 1.5%, a solid result on top of an outstanding third-quarter 2015, which grew by 21% compared to 2014. The increase was led by a solid performance of the 488 GTB, the 488 Spider, the F12tdf and first deliveries of the newly launched GTC4Lusso and LaFerrari Aperta, partially offset by LaFerrari, that finished its limited series run.

Group net revenues grew by 8.3% to EUR783 million. Adjusted EBITDA now at EUR234 million, with 30% margin. Adjusted EBIT reached EUR172 million, with a margin increase of 260 basis points to 22%. Our net profit for the Group was up 20% to EUR113 million. 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 EUR585 million, better than June 2016.

On September 29, Ferrari presented at the Paris Motor Show LaFerrari Aperta and the 70 style icons cars, together with the unveiling of the new GTC4Lusso Turbo. Today Ferrari and FCA Bank finalized the agreement in the financial services business in Europe for a total purchase price consideration of EUR18.6 million, upon consummation of the share purchase agreement entered into by the parties earlier this year. As a result of the funding being directly provided by FCA Bank, Ferrari NV will receive EUR432 million.

We're revising our 2016 outlook upward as follows. Shipments at approximately 8,000 units, including supercars. Net revenues greater than EUR3 billion. Adjusted EBITDA at approximately EUR850 million, up from greater or equal to EUR800 million. Net industrial debt lower than EUR700 million, down from lower or equal to EUR730 million.

Moving to page 4, we show our operating highlights for the third quarter of 2016. Our shipments reached 1,978 units, up 29 units or 1.5%, driven by a 15% increase in V12 models, thanks to the strong performance of the F12tdf, the first deliveries of the newly launched GTCLusso 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 F12Berlinetta, now at its 5th year of commercialization, which continues to perform better than expected.

V8 models were substantially in line with prior year, with the 488 GTB and the 488 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 its 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 EUR234 million 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 EUR172 million, resulting in a margin expansion of 260 basis points or 22%. The adjusted EBIT improvement benefited from a strong adjusted EBITDA, coupled with a lower D&A mainly due to LaFerrari, that 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 EUR37 million one-time cash inflow for the sale of the investment properties to Maserati, while Q4 this year, in 2016, will bear the second 2016 tax advance and full-year 2015 tax balance payments for a total of approximately EUR200 million. Net industrial debt as of September 30, 2016 was reduced to EUR585 million, 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 our shipment carriers. At the end of September, the region Americas increased by approximately 3%. The USA posted shipments in line with prior year notwithstanding timing of the newly launched GTC4Lusso and LaFerrari Aperta, yet to arrive on the market. The 488 family and the F12tdf continued to perform strongly, offsetting the 458 family, the FF phase-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 UK recorded only a few units decrease due to timing of the GTC4Lusso, yet to arrive on the market, partially offset by strong deliveries of the 488 GTB, the 488 Spider and the F12tdf. 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 Spider, the F12tdf and first deliveries of the newly launched GTC4Lusso and LaFerrari Aperta. Other European countries, Africa and Middle East, expanded at 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 GTCLusso and the LaFerrari Aperta have yet to arrive on the market. Hong Kong and Taiwan posted a double-digit increase in shipments supported by the 488 family, the F12tdf and first deliveries of the GTC4Lusso. Also here, LaFerrari Aperta has yet to arrive on the market.

The Rest of 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 F12tdf. As Japan, also other Asia Pacific region experienced logistic delays caused by one of our shipment carriers in the region. Once again, a sound quarter thanks to the 488 family, the F12tdf and the first deliveries of the newly launched GTC4Lusso and LaFerrari Aperta.

Moving to page 6, net revenues reached EUR783 million, 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 EUR537 million. Higher volumes, driven by the 488 family, the F12tdf and first deliveries of the newly launched GTC4Lusso and LaFerrari Aperta, along with increased positive contribution from our personalization programs were offset by LaFerrari, that finished its limited series run, and logistic delays caused by one of our shipment carriers in the Rest of the Asia Pacific region.

Engines net revenues increased by EUR97 million, up EUR46 million, or 92% 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 three teams versus two teams in 2015.

Sponsorship, commercial and brand net revenues reached EUR125 million for Q3 2016, with an increase of EUR15 million 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 EUR15 million thanks to an increase of approximately 90 units, excluding LaFerrari and LaFerrari Aperta, thanks to the 488 family, the F12tdf and first deliveries of the GTC4Lusso, partially offset by the 458 family and the FF phase-out. Our personalization programs continue to positively contribute. Mix was negatively impacted by LaFerrari, that finished its limited series run, partially offset by the newly launched LaFerrari Aperta and higher sales of the V12 versus V8 compared to the previous year mainly thanks to the F12tdf.

Industrial costs and R&D were in line with prior year. SG&A cost increased mostly due to the new model launches and costs incurred in connection with the new directly operated stores. FX, excluding hedges, impacted negatively by transaction exchange rates mainly due to GBP, partially offset by Yen. And Other was up EUR9 million, thanks to the continuous contribution from our supporting activities. As a result of all of the above, Q3 2016 adjusted EBIT was up 23% to EUR172 million, adjusted EBIT margin expanded by 260 basis points reaching 22%, and adjusted EBITDA, notwithstanding a decrease in D&A, reached a 30% margin.

Moving to page 8, net industrial debt at the end of September 2016 was equal to EUR585 million, better than June 30, 2016, due to 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 EUR37 million one-time cash inflow from the sale of investment properties to Maserati, while Q4 2016 will bear the second 2016 tax advance and full-year 2015 tax balance payments for a total of approximately EUR200 million. CapEx was EUR75 million, driven by R&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 GTC4Lusso Turbo, the first full four-seater powered by the latest evolution of the V8 turbo engine that received the International Engine of the Year Award in 2016. Shipments of the GTC4Lusso T will start in 2017.

In the next pages, we are presenting, as usual, the main activities of our customer relationship activities. We're not going into the details for these pages and we can move directly to page 14, where we are revising our Board's guidance for 2016 as follows. We expect shipments at approximately 8,000 units, including supercars. Net revenues greater than EUR3 billion. Adjusted EBITDA at approximately EUR850 million, up from greater or equal to EUR800 million. Net industrial debt lower than EUR700 million, down from lower or equal to EUR730 million.

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&A session. Thank you.

(Operator Instructions)

John Murphy, Bank of America.

Good morning, guys. Just a first question on the 57 units that are delayed in the 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 that, 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 re-distribute 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 unit show up in the fourth quarter if they were lost in the third quarter?

Yes.

Okay. Then just a second question on the LaFerrari Aperta. The decision to keep nine 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 you've seen with the LaFerrari?

No, there was no devious motive to do that.

That's not devious necessarily.

Well, if I do those models purely to increase value at the end, I think it would be improper to anybody else who has bought vehicles from us. But you've got to be very careful with the 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 would 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 can sell more. And so the real issue is where do we draw the line in the sand. It's a difficult discussion. I'm not sure we hit it right all the time. But certainly we error on the side of conservatism to make sure the value is retained for the customer.

And on the other side of it, 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 other vehicles. So we take this relationship pretty seriously.

Okay. Well then, just another question on the electrification or hybridization of the powertrains around the 2019 timeframe. Does that encompass the current projections that you have in-house? Will that result in any step-up in R&D? And is this more a response to the need for linear to work in performance, to compete with other vehicles that are electrifying their powertrains?

Yes, I mean, there's not a single doubt that -- well, two issues. One, 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&D to accomplish that. And electrification is well-known to the house, especially in view of its introduction in LaFerrari, but more importantly, because the fact that F1, Formula 1, has effectively acted as a repository of knowledge, and it's been there for a number of years now.

So I think we are going to be able to leverage that knowledge across the other side. Although it's very peculiar or very specific knowledge on the side of F1, the element for the combination of combustion and electrification of 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 is manufacturing cars going forward would envision a -- even high-end sports cars like we produce -- that they would actually be offering a portfolio of cars, that they don't offer hybridization. I think the unique thing about Ferrari is that it can use that commitment to the environment to effectively, on a combined basis, provide a unique driving experience as we've done with LaFerrari.

I would expect that the performance that you will get from an 8- cylinder, on a hybrid basis, would be significantly better than you would get from a car today and what will make it really interesting is the combination of those two in an everyday car. And I think it will continue to trend of us improving performance of these vehicles as we develop them. We're reaching some relatively stratospheric numbers in terms output per liter of engine. Now it's the combination of our adoption of turbos.

I think the next phase is the combination of that turbo/combustion 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.

Tough one. And then just lastly real quick on F1. Do you think the performance is a result of R&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 tried 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. Thanks very much.

Monica Bosio, Banca IMI.

Good afternoon, everyone. I would ask three questions. The first is on the personalization customization. Can you give us an indication of the level of customization in the third quarter? And as for 2017, with the introduction of the 350 special versions, I can imagine that the level of personalization will increase. Is it reasonable to assume or to think about the level of personalization in the region of 25% already in 2017?

And the last question is on the future program. The Company is now working on the next model cycle. Where do you see the most interesting growth opportunities in terms of customer segments, engines, products? How do you see the potential introduction of a V-6 engine for Ferrari? Thank you very much.

Let me deal with the last part of your question first, and then I will give it to Alessandro to answer the stuff of personalization. By the way, just as a general remark, I think 25% personalization in 2017 -- you are 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 have -- I mean this is as good a time as any 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, two 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. One, because we have total processing control within the fold today, and I think extensions elsewhere would require certainly a start-up phase and would require a different level of intervention on the part of Ferrari than we are historically used to. It is also, by definition, riskier.

So your question is appropriate, because I think that the easiest way for us to try and increase performance -- at least financially, for this house, 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 when you look at our range, there is a phenomenal emphasis that exists within Ferrari in what I consider to be performance. And yet there is a piece of Ferrari which has historically relied on elegance and other traditional traits of Ferrari which have not grown to the extreme and have not been embodied in the latest round of technology -- as we have done with 8- 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, 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 -- but without removing or without impacting on the core elements of the performance piece of the brand. But to expand the product portfolio to encompass additional cars, it is very doubtful -- now, in order to do that, I don't have to re-invest in architectures, as they 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 profit 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% measured on cars and parts revenues and as Mr. Marchionne mentioned, 25% is well-above what we expect for next year.

Okay. Sorry, just to follow up, maybe I forgot to ask you one thing about the wait list. Maybe I lost the detail, but did you give any kind of indication for the wait list in the GTC4?

It's a multi-month waiting list now.

Okay.

We have only shipped -- how many cars was it?

82.

82 cars in the quarter. We are in ramp-up phase now, so the orders are coming in.

Okay, thank you very much.

Thomas Besson, Kepler Cheuvreux.

Thank you very much. I have three questions, please. First, you have been discussing for a long time about the 9,000 units and the EUR1 billion of EBITDA. And you're getting there much closer than I thought to be, and with you, and, I think, a lot of my peers. Can you discuss what you view as the -- not the ceiling, but the prospects in terms of volumes for Ferrari without distorting the brand, as you say? So is there a ceiling around 10,000 units, or can you imagine Ferrari being somewhere between by 12,000 and 15,000 units by 2025-2030? 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 car, is it reasonable to expect a single-digit million EUR negative for FX -- for mix, sorry? And lastly, there has 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?

Yes, I'm going to deal with the first and the third question. I will leave it up to Alessandro to give you an answer on 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 10,000 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 emissions 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 have made this point even as we were on the road trying to explain Ferrari to investors -- is that there is 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, although I neither commit to this nor do I give it any 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 -- it is unclear as to whether the first condition has been met or not. So I think we will have to wait. But there is 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 third question, which has 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 its success in the marketplace is augmenting and is providing substance behind the commitments that they are 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 comfortable. 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 engines solutions to Maserati. And as 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 is true, then 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 will leave it to Alessandro to answer the other question on mix.

On the mix side, 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 have encountered over the different quarters. The base product portfolio has been positive in all the different quarters. The main effect on the mix for both Q2 and Q3 was really driven by the limited series run-off of the LaFerrari. So you will see that also in Q4 because that's obviously the all-picture in 2016 compared to prior year. And I think on the engine side, Mr. Marchionne covered your question.

Absolutely. Thank you much.

Ryan Brinkman, JPMorgan.

Hi, this is Samik Chatterjee on behalf of Ryan Brinkman. The first question I had was more in relation to 4Q. Your guidance said 8,000 deliveries for the year, which will imply that your 4Q deliveries will be slightly down year on year, even as we sort of learned maybe you benefit from some of these logistic issues in APAC going away and also the ramp up of the GTC4. So I was just trying to understand if there is some level of conservatism there or is there some cadence that we should keep in mind in terms of vehicles that is driving the number lower year over year?

Yes, this is Sergio Marchionne 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. I think there is a tilde on the guidance number, which indicates approximately 8,000. So it will be about 8,000. If it's 8,050, I would not be shocked; if it's 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 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 levers that you can pull in terms of pricing or more personalization over this time period to get that growth higher over the next three-year timeframe?

I'm not sure how to answer your question. I think the number that you raise as a volume is a doable number over the next three years. I think that -- I keep on reiterating our commitment to produce EUR1 billion 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 EUR1 billion in EBITDA will be one huge step for us. It continues to be the primary objective in our growth pattern here. The question is how quickly do we get there. It's an issue 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.

Massimo Vecchio, Mediobanca.

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 it was talking about between 12 and 24 months. And as a consequence, you may be thinking about raising list prices. Can you expand on that point?

It partially happened and the rest of it will happen.

Okay. If I am correct, you used to raise list price 1% to 2% per year and obviously this is going to be higher than that. Is it a good estimate?

It's more than likely higher than the number you suggested, yes.

Okay, all right. Thank you very much.

Adam Jonas, Morgan Stanley.

Sergio, I am here.

Hallelujah. You finally showed up.

I'm alive. (laughter) So just a couple quick ones because 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?

I have begun the dialogue with our customers because they are 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 worth trying them. Whether we're getting all the possible increases on 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, a connection with a particular model. And as we keep on rolling out modifications to existing vehicles, or as we launch new cars, we will be looking for pricing opportunities across the range and we have.

My view about pricing has changed somewhat, because I think I am encouraged by what I see as a result of the interventions that we just made. I have not seen a drop in the customer waiting list. I still think that we are too long on the 8 cylinders. We're 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, whether effectively we should 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 will be able to give you, I think, more intelligent guidance at the end of 2016 when we complete our plan.

It is possible that we would tack on two additional cars to the current portfolio over the next three or four years, to try and effectively get a broader reach for the brand than we are currently getting without impacting on the core, the 488s and the F12s, because I think those remain the core elements of the technology side of Ferrari. I think there's other places where we can play. We can play a better game than we have played now.

Okay, thanks. And just final one then on the dividend payout corridors. Sergio, you previously discussed a dividend payout range of between 25% and 40% of net income. And it looks like in 2016, the dividend may be towards the lower end of this range, right around 30%. Could you reiterate the payout range? It's obviously subject to shareholder approval, but do you see a reasonable scope for an increase of that dividend? And I'm thinking into 2017 as your cash tax rate starts falling as well, your free cash flow should still be pretty strong.

Look, I mean, the reality of this is, there are two things that have happened. One 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 two elements that were not necessarily present at the 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 is a limit to -- you know, dividend policy and share buybacks are going to become an integral part of the landscape going forward because the investments required even to try and expand upon the portfolio -- I'm not going to choke the animal. It's based on current architectures and established powertrains.

So we will be able to benefit from the expansion in volumes pretty quickly. And so we need to get ready for a time when I think it may be just judicious for us to intervene on the market at any type of aberration in share price performance. You know, all these things are back on the table.

Thanks, Sergio.

George Galliers, Evercore.

Hey, good afternoon. 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 guided to 100 more units. But what have been the other big pieces that have come in better than you had anticipated?

Well, I think there been three things. One, as you said, I think there is 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 are not a tremendous contributor, but I think they are moving in the right direction and I would expect that number to continue to improve as we work through the 2017 and 2018 season.

And is it fair also to say that the revenues from the LaFerrari Aperta weren't considered in the original guidance, but are considered today?

I'm not sure. I mean, I think that when we gave you guidance, we knew LaFerrari existed. I mean, it's 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 it has served 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 is starting to attract other OEMs? Is this something you would discuss or consider at all?

The answer is, yes. I have agonized over with this with my colleagues here in Ferrari for quite a while. I'm going to give you two answers to the problem. If Formula E today, as it's 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 the electrification, that Ferrari would develop a unique set of skills that would make that car uniquely Ferrari in an environment like that. But one, I know we are 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 GTC4Lusso T? Was it that your customers wanted something lighter, that they prefer two-wheel drive, something easier to drive maybe in cities? And could that logic also be applied to the replacement for the F12Berlinetta? I.e., could you put an 8 cylinder engine into that car's replacement?

The technical answer to your question -- yes, we can put an 8 cylinder in an F12. 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 have listed, on the one side. But it also -- a GTC4Lusso V12 four-wheel-drive, four-wheel-steer, is one complex animal of a car. And it is -- in a lot of ways, it embodies a set of technologies which cost.

I think the 8-cylinder is an easier entry point into a four-seater environment for Ferrari and I think that was really the primary objective, was to allow people to enter that range. The GTC4Lusso 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 we thought that the 8-cylinder would play that role.

Great, makes sense. Thank you very much.

Stephen Reitman, Societe Generale.

Yes, good afternoon. I have a question, first of all, on the third quarter. I know you don't like to give too much information about the individual models, but obviously you did mention that you would had a slug of tdf sales in the -- and the first LaFerrari Aperta sales -- in the quarter.

Could you at least give us some indication of how long will you be selling the tdf? Or have they already been sold in that third-quarter period or will they be finished by the end of this year? And also on the Aperta, just roughly how long you expect to be selling before you've sold or delivered those 200 cars?

Second 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 the distinction that it doesn't need the pure performance that is delivered by the V8s and V12s. So does that suggest that you are actively exploring the V6 option -- which, of course, as you mentioned, you do have those architectures within the house? Thank you.

By the way, the only thing that I meant by suggesting that we were exploring the extension of the brand is that all the powertrains 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 rendering 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 horses per liter of displacement that we have on these engines, we are the leading edge of -- and continue to be there, by the way. The next phase of development of the architecture will push it even further. So we are getting better and better at this.

I think that there is 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 line-up. 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 am 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 I think that the way in which that card gets played out, in the end, is yet to be defined. What I can tell you is, all the knowledge that's required to enter those spaces is within the house, including the architecture to support it.

And then do you think you need -- can you get to the promised emissions reductions with the existing architecture, with the existing V8 and V12 architectures, with hybridization, by 2020?

Yes.

And just on the --

Just to be clear, Stephen, we can get there without hybridization, on 2020 here. 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 and, I mean, hopefully I will be a shareholder beyond 2020. I mean, this is not a four-year plan.

By the way, you're asking about the tdf as to whether we've exhausted it. I think most of it will be done by the end of this year, won't it?

Most of it. But we are still continuing a portion in 2017.

Yes, there you are.

And the Aperta?

Sorry?

I'm sorry. And also the sales of Aperta. Will those also be sold -- how long in 2017? Delivered?

We will complete the tdf in 2017.

Thank you.

The Aperta will be 2017, sorry.

Lello Della Ragione, Intermonte.

Hi, Lello della Ragione from Intermonte. A couple of questions. The first one is on down payments that you showed on your bridge. You actually mixed it 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 fourth quarter as well?

On the other -- another question is related to FX on your bridge. At the start of the year, you guided for some 40 million positive impact, and now, your bridge -- I mean, it's changed a bit in the way that you showed the FX effect you collect from the hedges. And I was wondering how to reconcile the actual bridge that you posted with the initial guidance that you gave to us at the start of the year?

And finally, on the last question, that we are actually discuss a lot about V6, hybridization and exploring a 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 are developing and producing the engine. So explore and grow in that area, not for using obviously the Ferrari brand, and so using your engine development to explore that area and grow your revenues? Thank you.

Good question. Then Alessandro can take you through the intricacies of the hedging and what happens. You are talking about selling engines, or you are talking about entering Maserati's space?

No, it's like applying the Maserati strategy to some other brand, for instance, or models, just moving into the V6 versus hybrid V6, as you were probably referring to in your previous statement?

I didn't make any reference to any V6 hybrid, 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 does not impact on the core skills of this house, which is the 488 and the F12. We've got to be very careful that we protect the uniqueness of the technological advancements that we are 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 out the edges. On that basis -- and I won't say more until we're ready, but I will pass it to Alessandro.

So on the bridge side, for the other -- as we've said, it's a combination of the advances which are less than 60% of the total number in other. The rest is the accrued component of the tax liability of the quarter. There are still some to come in Q4 in terms 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 components, so the other combined (inaudible) EUR22 million, if you sum the three elements. We 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 want to reconcile that with the guidance that we provided, we made almost EUR22 million in Q3. On a year-to-date basis, it is almost EUR30 million. On an annual basis, it is close to EUR50 million, or a little bit in excess of EUR50 million.

Okay, thank you.

Thank you. That will conclude today's Q&A session. I will now turn the call back over to Ms. Russo for any additional comments.

Thank you, everyone, for joining us today. The IR team will be available in a few minutes for any follow-ups you may have. Thank you.

Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.