Ferrari NV (RACE) 2016 Q4 法說會逐字稿

Thank you, everyone, for joining us today. There are two topics that we plan to cover today, the Group's fourth-quarter and twelve-month 2016 financial results and 2017 outlook. In light of this, the call is expected to last one hour. All relevant materials are available in the Investor section of the Ferrari corporate website.

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

With that, I'd like to turn the call over to Mr. Marchionne.

Thanks very much. As you can see from the numbers that we release this morning, it's been a good year. I think we're satisfied with the progress that we've made in terms of both the sort of strategic development of the House, which I will come back to in a couple of moments, and equally important, I think, is the performance on the metrics site of the business. We are now in a position to clock about 30% EBITDA numbers.

This is a combination of a couple of things. One, the comments that we have taken to heart from most of the investors that we've spoken to about the pricing power associated with Ferrari. We have made some strides. I don't think we have made all the strides necessary to reflect adequate pricing for all we produce, but I think we have certainly moved the agenda forward on that topic. Equally important, I think we've become a lot more rigorous in terms of costs within the house and I think that this is reflected in the operating margin for the business.

A couple of sort of broad comments about what we intend to do. The headline of the press release makes reference to the 70th anniversary of Ferrari. It's a big year. We have a number of celebrations that have now been set in motion with our clients to celebrate in an effective way our 70 years worth of history for this brand.

But one of the things that we have learned, that I have learned, certainly in the last 12 months, is that we have a phenomenal amount of unexplored territory in terms of augmenting the product range, the number of vehicles that we make. This is without breaking sound barriers, without producing an excessive number of cars. I think there are additional models that this House can produce from existing investments and that effectively cater to particular needs of our customer base. That's really been the main effort in 2016, to try to get a better understanding of the colorings, of the shadings of those customer preferences.

I think that we will see, hopefully in the next two or three years, the presentation of a number of cars that are -- that start from the basic DNA of Ferrari but really they really reflect adaptations of the DNA to different taste. That something that's important to us. It's important to the network in terms of providing the level of activity that will continue to make them successful and profitable.

A lot of time we'll spend -- certainly when Alessandro and I were on the road talking about the expansion of Ferrari into the luxury space outside of cars and we continue to be quite diligent and persistent in looking at these options. Some things will become available in 2017. But we are being incredibly cautious, because I think that we need be careful that we don't do anything which ultimately will turn out to be unsuccessful, but equally important, I think we need to be careful that we don't do anything that will damage the brand.

You will see some manifestation of that drive in 2017. I think it will take time, over the next few years, to try to spell out that strategy in a very clear way. One of the things we have done, is in terms of our retail store experiences that we have clearly identified these as being expressions of our racing activity through the Scuderia Ferrari nomenclature and therefore they will be, in a sense, divorced from the Ferrari brand from the GT side of the business, which caters to a different set of clientele.

Just to go back to the numbers, 2016, are good numbers. We feel very comfortable that we are making good progress. 2017 guidance, as is typical of this House, reflects a right level of prudence. I think we need to be careful not to expose the House to unrealistic targets as we maneuver through our strategic plan.

Before any of you beat up Alessandro on the guidance that he's given on EBITDA in excess of EUR950 million, given where the ForEx adjusted number is now, which is already in excess of target for 2017. Just be kind. I think it's a conservative number. I've been public on this. We've targeted EUR1 billion as being the bellwether of performance for this House and as I committed to you back in the third quarter, we intend to get there at the speed of light.

On that note, I'll get Alessandro to do all the heavy lifting and then we will be more than glad to take your calls.

Thank you, Mr. Marchionne. Hello, everyone, and thank you for listening in on the call. Let me start with the deck on page 3.

Our 2016 full-year achievements reached 8,014 units, showing an increase 350 units, or 4.6% compared to prior year. The increase was led by the solid performance by both the V8 and V12 models. In detail, the 488 GTB, the 488 Spider, the F12tdf posted a strong performance, along with the newly launched GTC4Lusso and LaFerrari Aperta, which are ramping up. This was partially offset by LaFerrari that finished its limited series run.

Group revenues grew by 9% to EUR3.1 billion. Adjusted EBITDA increased to 17.7% to the EUR880 million, with 28.3% margin, 30% without FX hedges. Adjusted EBIT reached EUR632 million, with a margin increase of 380 basis points to 20.4%, or 22.2% without FX hedges. Our adjusted net profit for the group surged 37% to EUR425 million. Finally, at December 31, 2016, or industrial net debt was reduced to EUR653 million from EUR797 million in 2015.

Subject to the approval of the cash distribution by the Board of Directors and to the adoption of the Company's 2016 annual accounts by the shareholders Annual General Meeting, the Company intends to make a cash distribution to the holders of common shares of EUR0.635 per share, corresponding to a total cash distribution to shareholders of approximately EUR120 million.

2016 marked an important milestones for our Company, as you are aware. At the beginning of year, we spun off from FCA and subsequently listed on the Milan stock exchange. Throughout the year, we completed a bond issuance and the deconsolidation of the European Financial Services business. The Group is expecting the following performance for 2017, assuming FX consistent with current market conditions, shipments, approximately 8,400 units, including super cars, net revenues in excess of EUR3.3 billion, adjusted EBITDA in excess of EUR950 million, net industrial debt approximately EUR500 million, including a cash distribution to the holders of common shares and excluding potential share repurchases.

Moving to the next page, preserving our DNA to launch at least one model every year in 2016. Not only we introduced the LaFerrari Aperta and the GTC4Lusso, but we also unveiled a GTC4Lusso Turbo that will commence shipments during 2017 and the J50 that will be mainly delivered in 2018. We also introduced 350 unique [deliveries] to celebrate our 70th anniversary as well as a new racing car, the 488 Challenge, successor of the 458 Challenge, the most powerful Challenge car ever powered by the V8 engine series, which was awarded 2016 International Engine of the Year Award. The 488 Challenge is the sixth model to participate in the one-make series, which in 2017 celebrates its 25th anniversary.

Moving to page 5, we show our operating highlights for the full year 2016. Our shipments reached 8,014 units, up 350 units, or 4.6% versus prior year. This was driven by a 5% increase in V8 models, led by both the 488 GTB and the 488 Spider, which continue to have robust waiting lists. 12-cylinder models grew by 4% thanks to the GTC4Lusso and LaFerrari Aperta ramping up as well as the strong performance of the of F12tdf. This was primarily offset by LaFerrari that finished its limited series run.

Group net revenues for full-year 2016 were up 8.8%, or 9.4% at constant currencies, to EUR3.1 billion, with sound performances of cars and spare parts as well as engines. In diesel, cars and spare parts growth was driven by higher volumes, personalization and pricing increase which started from Q4 2016 and partially offset by mix.

Our adjusted EBITDA improved 17.7%, reaching EUR880 million and a 28.3% margin. The result was primarily driven by higher volume, positive FX effect, sponsorship, commercial and brand as well as other supporting activities. This was partially offset by mix.

Adjusted EBIT for the group showed a 33.6% increase, toping EUR632 million, resulting in a margin expansion of 380 basis points to 24%. The adjusted EBIT improvement benefited from a strong adjusted EBITDA, coupled with lower D&A, mainly due to the 458 family phase out and LaFerrari that finished its limited series run. Adjusted EBITDA and adjusted EBIT excludes charges of EUR37 million due Ferrari's decision following the amendment to the Coordinated Remedy Order issued by NHTSA in December 2016 to review its previous estimates in connection with the extension of the Takata airbag inflator recalls worldwide on all vehicles mounting non-desiccated Takata messenger airbag inflators.

Industrial free cash flow for the 12 months ended December 31, 2016, was EUR280 million, primarily driven by a strong increase in cash flow from operating activities, including an adjusted EBITDA of EUR880 million and a positive change from advances on the newly launched LaFerrari Aperta. These were partially offset by a slight negative change in working capital, CapEx of EUR340 million and taxes which included full-year 2015 tax balance and 2016 tax advance payments. Let me kindly remind you that 2015 industrial free cash flow included EUR160 million one-time cash inflow related to the reimbursement by Maserati with its inventory in China and EUR37 million one-time cash inflow from the cash sale of the investment properties to Maserati.

Net industrial debt as of December 31, 2016, was reduced to EUR653 million from EUR797 million at December 2015, primarily due to the industrial free cash flow generation and partially offset by cash distribution to the holders of common share and dividends paid to non-controlling interest.

Moving to page 6 in terms of shipment geographical distribution, all regions positively contributed, thanks to the 488 family, the F12tdf, the GTC4Lusso and LaFerrari Aperta. EMEA expanded by 8%, with Italy, Germany, and France growing double-digit pace, rest of Asia-Pacific increased 3%, Americas showed a 2% increase, while deliveries in Greater China were up only 1% due to Ferrari's decision to terminate the current distributor in Hong Kong in the fourth quarter of 2016.

Moving to page 7, full-year net revenues reached EUR3.1 billion, up 8.8% versus prior year. At constant currency net revenues would have increased by 9.4%. Cars and spare parts revenues were up 5%, EUR100 million, led by higher volumes of the 488 family, the F12tdf, the new models GTC4Lusso, and LaFerrari Aperta, the non-registered car FXX K, and the strictly limited edition F60 America, along with the higher contribution from our personalization programs and pricing increase that started from Q4 2016. This was partially offset by LaFerrari that finished its limited series run.

Engine net revenue surged to EUR338 million, up EUR119 million, or 55%, versus prior year. The significant growth was mainly attributable to strong sales for Maserati and higher rental revenues from other Formula 1 teams. Please let me remind you that during 2016 Formula 1 season, we rented our engines to three teams versus two teams in 2015.

Sponsorship, commercial and brand net revenues reached EUR488 million, with an increase of EUR47 million, or plus 11%, compared to prior year. This was mainly due to a better 2015 championship ranking compared to 2014 as well as sponsorship revenues and positive contribution from brand-related activities. Other revenues decreased by EUR15 million to EUR99 million, mostly due to lower collateral revenues, including the deconsolidation of the European Financial Services business.

On page 8 you can see the year-over-year changes in adjusted EBIT main items. Volume was up EUR69 million, thanks to an increase of approximately 540 units due to the 488 family, the F12tdf and the newly launched GTC4Lusso, together with positive contribution from personalization. Mix was negatively impacted by lower sales of LaFerrari that finished its limited series run but partially offset by LaFerrari Aperta, the strictly limited-edition F60 America and positive range model mix, due to the F12tdf and the 488 family, along with pricing increase which started from the fourth-quarter of 2016.

Industrial costs and R&D slightly increased, driven by Formula 1 cost, partially offset by lower D&A for the 458 family phase out and the LaFerrari that finished its limited series run as well as industrial cost savings. SG&A costs were lower than prior year, driven by different ranking in Formula 1 racing activity in 2016 and the deconsolidation of the European Financial Services business, partially offset by higher costs related to new directly operated stores. Foreign exchange, excluding hedges, impacted negatively by transaction exchange rate, mainly due to GBP, partially offset by JPY.

Other was up EUR42 million thanks to strong contribution from racing for sponsorship and commercial engines to Maserati and other Formula 1 teams as well as brand and other supporting activities. As result of all the above, full-year 2016 adjusted EBIT was up 34% to EUR632 million, adjusted EBIT margin expanded by 380 basis points, reaching 20.4%, or 22.2% without FX hedges, and adjusted EBITDA reach 28.3% margin, or 30% without FX hedges.

Moving to page 9, our net industrial debt as of December 31, 2016, was reduced to EUR653 million from EUR797 million at December 31, 2015. This was primarily due to strong industrial free cash flow generation of EUR280 million, partially offset by cash distribution to the holders of common shares and dividends paid to our non-controlling interests. Industrial free cash flow for the 12 months ended December 31, 2016, was primarily driven by a strong increase in cash flow from operating activities, including adjusted EBITDA EUR880 million, a positive change from advances on the newly launched LaFerrari Aperta, CapEx of EUR340 million and taxes which included full-year 2015 tax balance and 2016 tax advance payments.

Let me kindly remind you again the during 2015 industrial free cash flow included EUR160 million one-time cash inflow related to the reimbursement by Maserati for its inventory in China and EUR37 million one-time cash inflow from the sale of investment properties to Maserati. CapEx was EUR340 million, driven by R&D and product investments in connection with our continued product range renewal.

Moving to the next page, on December 13, 2016, during a special celebration held at the National Art Center in Tokyo, Ferrari released the first images of the J50 strictly limited-edition car to commemorate the 50th anniversary in Japan. Already pre-sold, the 10 units will be mainly delivered in 2018. The J50, based on the 488 Spider, is powered by a specific 690-horsepower version of the 3.9-liter V8 that won the overall 2016 International Engine of the Year Award.

The following two slides show our brand activities as well as the events Ferrari has organized to engage with its customers.

On page 13, we are setting out our 2017 outlook as follows. We expect the following performance in 2017 for shipments at approximately 8,400 units, including super cars. This will be achieved thanks to the strong contribution from range model, including the special deliveries and LaFerrari Aperta. Net revenues will be greater than EUR3.3 billion, driven by cars and spare parts as well as engines, partially offset by different Formula 1 ranking and the deconsolidation of the European Financial Services business.

Adjusted EBITDA greater than EUR950 million, thanks to the positive contribution from both volume and mix, partially offset by R&D and SG&A, in particular for Formula 1, new stores and 70th anniversary. Net industrial debt at approximately EUR500 million, supported by industrial free cash flow generation, thanks to strong adjusted EBITDA, partially offset by CapEx to support continuous product range renewal and R&D for hybridization of our product portfolio models, taxes and lack of advances on limited edition super cars and including [an alternate] cash distribution to the holders of common share and excluding potential share repurchases.

With that, I'd like to turn over the call back to Mr. Marchionne for any final remarks.

We can now move on and thank you. We are now ready to start the Q&A session.

(Operator Instructions)

Monica Bosio of Banca IMI.

The first one is on CapEx. Could you please give us any (inaudible) indication of the expected CapEx for the current year? The second question is on the Patent Box. Have you any idea of the potential impact of the Patent Box for Ferrari?

The third and last question, maybe it's not the last, but I'll try. What kind of growth can we project for the sponsorship and commercial brand? Because I was expecting a lower increase and now (inaudible) I'm asking what could be the strategy to extend this revenue line. Thank you very much.

Monica, Alessandro speaking. For your CapEx question, I think we mentioned it will be in line with the most recent historical trend, so north of EUR350 million, EUR360 million for this year. It could be higher depending on the R&D for hybridization timing. Obviously we will start spending on that side in order to turn our portfolio into a hybrid portfolio as soon as we can.

On the Patent Box side, we really can't disclose any number for the moment since we obviously applied for the possibility with the ruling to get the benefit from the Patent Box. We are in line with that but we don't know the amount, yet. That really depends on the process and the details that we will provide and the tax administration will go for as we're getting to the process.

Growth from sponsorship and commercial with (inaudible) was your last question. I think we will try to get as much as we can from that line. Obviously, you need to consider that there is a change from 2016 and that is taken into consideration in our guidance. I think you've seen the improvement in 2016 in the actuals already.

Okay. Thank you very much. Just to follow up, so if I have understood it correctly, in term of net debt, if you assume CapEx being in the region of EUR350 million, EUR360 million, the assumption behind the net debt is mainly due to the lack of advances, is that right? And partially to the little bit higher CapEx spend the market can (inaudible) is expecting, is it right?

Yes. I think it's a combination of three things, higher CapEx, the lack of advances, as we've said in the drivers that we provided, as well as taxes on 2017, because you need to incorporate the higher PVT bases as well as the fact that tax advances will still be paid based on the corporate tax rate that we have in 2016. Unfortunately, that's the way it works, so we will have to pay taxes based on that amount. The combination of the three elements drives the guidance that we provided for net industrial debt.

Okay. Thank you very much. Just a last follow-up. Mr. Marchionne, you told before that Ferrari has a huge amount of unexplored territory, (inaudible) a number of paths and products. Can you please give us some example in term of products or of customer segment that Ferrari can explore? Is it still too early to ask for the way to lease for the GTC4Lusso?

Let me give you the short answer. The GTC4 is pretty well sold out for 2017, so I wouldn't -- well, you can probably get one within 2017 somewhere but I think most of it is gone. Just to go back to the -- one of the things that we've not done in this house is that we have never talked about a car and we've never described it until we can actually reveal to our customers or to the markets.

As a matter of fact, today and for the next few days, we have within our facilities here a group of our select customers who are taking a look at a car that we will be unveiling in Geneva at the car show. This is the tradition of the house. It's a tradition that I do not want to break.

But just couple of broad comments about what is supporting my view, now, about the product portfolio. If you look at our development of the GT section of Ferrari over the last, probably decade, we have broken down our world into 8- and 12-cylinder versions. We have been very disciplined in terms of keeping these two worlds apart.

We have defined things, such as the sports car being the 8-cylinder family through the 488 and the F12 world, on the 12-cylinder side, and then we've developed ancillaries to this to the California and the GTC4 positions. Those were arbitrary distinctions, which I think have probably done a huge amount of injustice about the capability of the brand to be declined across a variety of applications that reflect particular customer taste. I think that we need to explore the full width of the customer requirement and really cater to these needs in a particular way.

I think there are opportunities that we are not exploring in terms of launching the products that can be sold side by side with the traditional lineup of cars that we have today that would effectively round out the offering of Ferrari and not be offensive, in terms of contravening some historical routes, one of which is the fact that we have never produced an SUV in our life. We keep on getting phenomenal pressure, pressures from the outside, about doing one, because everybody knows that if Ferrari did an SUV, you could sell it.

That may be probably true. I struggle with trying to picture a car that can be sold by Ferrari that does not have the driving dynamics of one of our passenger cars. We have to be sufficiently disciplined not to bastardize the brand and take it to places that it's never been and where the DNA gets effectively obliterated by the technical requirements of the car.

Having said this, there is still a phenomenal amount of space that's left over for us to try and complement the range and produce additional car off existing investments and architectures without effectively reinventing the wheel and yet producing a car that sufficiently is different to the customers to be able to attract a different clientele. Leave it with us. You will see this unfold over the next two or three years and I think that's what makes me a lot more comfortable about the financial capability of this house, because we understand that from an operating leverage standpoint, that it is the single largest opportunity that we have to deliver earnings and cash.

It's from the expansion of the existing operating base and effectively flexing out the portfolio to its maximum potential without disrupting the DNA of the brand. I think we're getting better at this. I think we need more time. You'll see evidence of this, I think, as we work our way through 2017 and 2018.

Okay. Thank you very much. Thank you.

John Murphy of BoA.

I've got a follow-up of this statement and that last statement you just made on where you might go with form factors. Just [give me] three angles. First, it sounds like you are seriously considering a crossover or SUV. Second, is this how you get to a level above 10,000 units some time down the line? Third, as you are doing this, do you consider capacity adds or could this be executed through your existing facility?

Let me answer in order of ease. The existing facility can make everything that we need to make the numbers that we talked about. You're not far off in terms of a 10,000 objective of potential expansion of the product range and I fundamentally disagree that it needs to be done through an SUV.

That's the theme that I struggle with. I don't know that an SUV with the Ferrari driving dynamics would look like. Maybe it's ignorance on my part and I need to be shown, but I find it very, very difficult to try to get track performance out of an SUV Ferrari style.

I 150% agree with you. That's why I was asking. Okay. Second question, you mentioned that you had pushed pricing a little bit this year, or 2016, but there was opportunity, potentially, pushing materially more. What does that mean you executed on in 2016 and what do you think you really can do going forward?

Without telling you what I touched in 2016, before I make customers nervous, I did intervene and we did it by jurisdiction as we were launching model years. The more important thing for us is that when we launch new vehicles, now, and one will be launched in Geneva, is we reflect a stance right at the beginning of the launch process and don't go back in and correct it later on. The car that you'll see in Geneva will reflect this pricing view.

Okay. Then just last -- I'm sorry.

We shouldn't be making a lot of noise about it. I think we should just do it as a matter of practice.

I agree. Okay. Lastly, was there any change in the order book that you saw in the US post election in the US, either positively or negatively? I guess you could certainly argue that there might be a lot of folks that are at the high end of the income spectrum that might have a lot more money if these tax cuts go through. I'm just curious if you are seeing any bump or would expect any going forward?

I think we've seen a strengthening of the order books in general. December was a weird month because we cleaned up -- we had an order book on the 488 that could have choked a horse and so we forced the distribution channel to cancel anything that we could not deliver in 2017. So, we cleaned it up. It's very difficult to read the month of December because we forced the dealer network to clean it up.

But the feedback that we are getting, and not just through Ferrari, we've also noticed it from Maserati and the rest of the premium car brands I'm connected with. The market is quite strong. There's been no disruption nor do I see that interest waning in 2017. I think we're going to see a strengthening of the commitment to the brands.

Great. Thank you very much.

Martino de Ambroggi of Equita.

Good afternoon, everybody. The first question is on the ForEx effect, because last year was positive and should be positive also in the current year. I was wondering what's the underlying assumption for the ForEx for this year.

The second question connected to the first one is in regards to the guidance you gave at the time of the IPO, EUR1 billion EBITDA targeting 2019. You are very close this year. I understand the products had a better contribution than what you expected at the beginning. First, what else was better than expected and second, you should update the target, now but I assume you will not do it today. In any case, you are in a chart, you are presenting the range of luxury companies with an EBITDA margin between 33% and 37%. Can we take this as sort of a long-term target for you?

Yes. I think the day I will feel really comfortable is when we define the segment as top end. Whenever I get there, you will know we stopped and we are doing something else. Right now, we've got a long way to go so we have a long distance from us to claiming ownership of the EBITDA margins [generation] world.

Look, the easy answer to your target, yes, we may be there a couple of years before. Yes, ForEx may have helped. Other things have gone the other direction. We have been able to perform well across all of the issues that we faced, both pricing, cost-containment, distribution, everything else is running better faster than it has historically.

I'm encouraged by the quality of the team that runs this business. I think we have a bunch of good kids here who are doing a phenomenal job of moving the agenda forward. The only thing I can tell you is the minute that I hit EUR1 billion, you will be the first guy to know what the next target is. But until I get there, it's no use me threatening you with something that I haven't got.

Okay. Thank you. ForEx, last year you mentioned at the beginning of the year, EUR50 million. Is it possible to have a rough indication for the current year?

Yes, I think it will be basically consistent. Just to clarify, the FX hedges impact foreseen for this year, so for the current year, is close to being zero. Obviously, in terms of variance compared to last year we were penalized especially in the first six months of the year, you will see the benefit just coming from a variance on our existing point.

Historical to historical. But if you remove the impact of hedges, you should not notice the difference.

Okay. Thank you. Just, if possible, any statement on the Formula 1 stake potential investment?

We started exploring that opportunity now. We are in discussions with Liberty. I just recently had a meeting with [Trace]. The issue is not just a question of financial investment. This is something that we do for living in a very serious way.

The Concorde agreement expires in 2020, so becoming a non-voting shareholder in an entity which effectively keeps us trapped in without knowledge of what the 2021 and later world will look like, is something I considered unwise. One of the things that we've tabled with Trace, and I think we are not the only ones that are tabling this concerns, but one of the things that I tabled with Trace is clarity on what the post-2020 world looks like and what Ferrari may be able to get from its involvement in Formula 1 activities.

Once we have clarity, then I think it becomes a lot easier to decide whether we want to participate in this venture. I think that there is a huge amount of upside left in F1 which, if properly managed, can deliver rewards to everybody who is an investor in this business. But we need clarity and we are not there yet.

Okay. Thank you.

Thomas Besson of Kepler Cheuvreux.

I'd like to follow-up on the F1 topic. The change in ownership is potentially bringing new rules, already. Are there any negative impacts or positive impacts to expect from that in the 2017 accounts, knowing as well that ranking in the year that will impact [2017] has been a bit lower than the previous year?

Yes. Obviously it has an impact. We have not performed well and we know it. What I do expect, to be honest, is the sport, itself, to do better in 2017. I think that will be a great basis for us to continue our commit for the Formula 1 to really set the basis for post-2020 world.

I would expect that Liberty, and Trace in particular, will have a very clear understanding of the fact that this -- that the entertainment side of this needs come back to play. We cannot keep on committing to a sport that has a decreasing audiences for a variety of reasons. We need to repopularize -- I apologize for the expression, but we need to repopularize the sport and we need to make it more accessible.

There's a lot of work that needs to be done. We will do our part, as a Scuderia, in making sure that, that happens, but that work needs to get under way in earnest, now. In terms of economic impact, I wouldn't suggest there's going to be any earth shattering events in 2017 that will change performance. As you well know, if we do end up winning, unfortunately, there are number of people that will claim ownership to the excess spoils. Alessandro keeps on telling me that financially it might not be a good idea to win, but we will see.

I'm sure you'd like it. Could you make a comment, please, on the mix for 2017 and give us an idea of how many Aperta have been sold already in 2016, please?

We are not disclosing the exact number. Just for -- I think you see from the disclosure, the combination of LaFerrari and LaFerrari Aperta in 2016 was close to 100 units.

Okay. Can you comment on the mix, 2017, please?

2017, the mix should be improving on the V12 side, most likely because we have full power over the GTC4Lusso now and then something will come.

There may be other cars that will be launched on the 12-cylinder section. The oldest car of the lineup, today, is the F12.

Okay. Last question for me, please. Your engine business has (inaudible) in the second half with the (inaudible) F1-rated business. Can you give us any vague idea about the relative profitability of that business against the car business, please?

It's margin dilutive.

Okay. Thank you very much.

Richard Hilgert of Morningstar.

Two from my side, please. With respect to the discussion that we've seen in media lately about Formula E and given the cap that Ferrari may run up against at some point for being considered a small manufacturer, is there any potential for electric, at some point, or is electric something that Ferrari would view as similar to crossover and SUV, since electrics don't have the sound that you would equate with a Ferrari V12? Or is the performance something that given some of the performance vehicles that we've seen in electrics, is this something that is enticing at all to Ferrari?

Then to tag on to the earlier question about the new ownership in F1, I've seen some media reports lately about a change in the structure of payments made in annual winnings from F1. Wonder if you could comment any on potential changes in the future coming down the line on the contractual agreements that Ferrari has?

To put your mind at rest, there are going to be no changes to the contractual agreements until 2020 with F1 and Ferrari. The topic has not even been broached and I think it would be incredibly unwise to raise it as a discussion topic.

For the first issue, which has to do with our attachment to electrics, I think we do consider combustion to be an integral part of what we do. I think I've tried -- and I'm not sure when I did it. It may have been on the third-quarter call where I've highlighted the need for Ferrari to effectively embrace electrification as an integral part of its powertrain offering. There's a huge amount, and Alessandro made reference to this in his remarks about the capital side and the fact that there is a portion of our R&D and capital which now needs to be devoted to the hybrid effort of Ferrari and without being disrespectful of people who are into emissions and so on, but really, to accomplish two things. One is to make it relevant technologically and technically in today's world, but equally important is to augment the driving experience one would get from driving a Ferrari by having a combination of both electric and combustion engines available to the driver.

You made reference to the fact that performance is now -- there may be equivalent availabilities in the electric cars in terms of performance. I hate to disagree with you. I think that with the real problem with electric is it will never give you the driving dynamics that a Ferrari does. It's a combination of the weight of the car and the way in which the powertrain is located.

I think a number of cars, especially electric cars, can produce a huge amount of torque which is instantly available on the wheels and which can deliver exhilarating acceleration. The problem is not going straight. The problem is driving a track and that's where most electric cars, I think, would fall short of Ferrari standards and we need to continue to work on hybridization as a way in which we can bridge the distance between that reality and where Ferrari is today.

I think you will see, hopefully by 2019, that is difficult as that task is in terms of delivering a phenomenal driving experience, Ferrari is going to get very close. So leave it with us. We will provide something which is technologically relevant by 2019 in terms of electrics, but it will have to be reflective of Ferrari's DNA.

Is that part of -- or would Formula E have to be a part of participation there for Ferrari in Formula E, would that have to be a part of the development into the electric side for Ferrari to generate the enthusiasm for potential electrics, just as it's done with Formula 1?

No. I think those two things are distinct. The Formula E arrangement now, as much as I think it's a valiant effort to make technology relevant on the track, is still substantially short of what I would expect to have. The fact that you have to change cars during the race is unhelpful, simply because of the duration of the battery charge. There are things that I think really maim the sport. I think we to find a better way of expressing the interest in electrification than through Formula E.

Having said this, we continue to look at it. I think I have not given up on the idea of potentially, one day, entering if the parameters are such that the Ferrari can effectively make a difference. If it cannot make a difference, then it should not play.

Very good. Thanks again for taking my questions.

Ryan Brinkman of JPMorgan.

Just to follow up on one of the recent questions about electrification, but maybe a little bit more from a financial perspective. I think, Sergio, you were quoted in November saying that Ferrari would embrace the hybrid world. What magnitude of upward pressure might there be on RD&E or CapEx ahead of these expected launches in 2019?

When the vehicles do launch, would it be the case also for your range cars like with the LaFerrari that the primary motivation would be really to enhance the performance and appeal and so maybe pricing rather than to comply with regulations like a mainstream car company, and so therefore, the impact to profits from hybridization could actually be positive as opposed to neutral and negative? How should investors think about the financial implication?

I think that the commitment on the capital side is a number which is manageable within the confines of Ferrari. There is additional capital coming off. We have started looking at this now. It's especially an issue in terms of the assembly line as opposed to anything else because they do require a particular type of space to allow these powertrains to be installed. So we are working ahead of this, now, to make sure that when we get there in 2019, the facilities will be there to handle it.

The question which is really relevant to me is, the question is, what is the impact of that technology, the cost of that technology in the placement of other cars and the pricing that one would get. I'll give you a very simple answer. I think that the price of the car will move up to reflect the technology and it will be done with the way of retaining margin in that process. Not just absolute margins, but percentage margins.

This is not -- the offering, itself, will be so unique in the marketplace and I say this with all due respect to my competitors. I think it will be so unique that it would actually be able to garner the price that it deserves and more than enough to offset the cost of technology, because what you are getting in exchange is a unique driving experience that is not available anywhere else. I would assume, and I think, that our customer base will adapt to the changing world and they will accept the fact that the technology has a price and it needs to be paid. Certainly, all indications with the interfaces that I have had with the customer base over the last two years suggest that they're willing to do that.

Great. Thanks. My last question is I see that the vehicle shipments to Greater China, they were up 1% in all of 2016 but 36% lower in 4Q on termination of a distributor in Hong Kong. I realize that you have wait list globally, so selling fewer cars in one region doesn't really -- I mean, your overall numbers have to be impacted because you can reallocate. But are there plans in place or are you working on plans to secure a new distributor in Hong Kong? When should we think about you returning to growth in the Greater China market?

The answer is 2017, the answer to your second question. We are already working on the replacement now. One of the things that's not in the Asia-Pacific number is the introduction of 8-cylinder GTC, which was really designed for a variety of reasons, including the fact that the four-wheel drive was not required in the region but also from a pricing and duty and taxation standpoint, it was a better car for the market. That market has not -- that car has not been made available to that market. It will be in 2017 so I would expect numbers to follow.

Okay. Thank you.

Michael Binetti of UBS.

Congrats on a great year. Just for very simplistic sakes for our models, as we look out to 2018, for the EBITDA numbers, should we expect that to grow with as the -- just in very simple terms, the tailwind from FX rolls off, the Aperta rolls off, we get a lot of questions about that. Considering how much supercars contribute to the EBITDA for the Company, 2018 is a growth EBITDA year, correct?

Yes.

Okay. At the time of the IPO, we talked a lot about the pace of the supercars and it was as long as every 10 years depending on technology that you guys were ready to launch, but things have changed since then. How do you think about the frequency that the market and your very best customers can absorb for supercars today?

You've got to be careful about defining supercars. The problem that we have, and we've seen this now, we've seen the incarnation of the problem through -- and I will give you two examples that have happened in the last 24 months. We launched LaFerrari in 2013, as a car. We launched the Enzo in 2003 and there was a decade cadence, there was a (inaudible) introduction of the supercars.

These were cars that set a technology tone that effectively guided the house for the following 10 years. I would suggest that cadence is not going to be impacted by anything that we might do in the interim. It may very well be in the next -- in 2023 that we would relaunch a car to assess the cadence for the next technology shift.

The real issue to me is what happens in between and we have seen, now, certainly in 2015 and 2016, with the introduction of the F60, the America version of the car that was launched, the J50 now in Japan, the Tour de France, which was effectively the last version of the F12 in its extreme form, a reincarnation of the supercar concept. As long as we stay faithful to the notion of limited editions and restricted distribution, there are things that don't have to be a supercar which are sufficiently supercar-ish to make them more frequent and available on the marketplace throughout this decade split between the Enzo and LaFerrari and the LaFerrari successor.

This is something we are learning how to do. We need to do more of this but to do it in such a way that it does not minimize the relevance of the shift that we get on a decade basis. Those are real clean breaks in technology.

I happen to have both cars, both the Enzo and LaFerrari and I tell you, to drive the Enzo today and then get into LaFerrari, you are talking about shifts in centuries in terms of technology. That will continue to happen within Ferrari. In the interim, we continue to play and derive from those technology breaks sufficiently unique and sufficiently limited cars that will make our customer base interested in participating in the development of the brand.

As a general remark, I think that the real issue to us is not the -- it is the current customer base and its a customer base about which I care a lot. It has been at the heart of the success of Ferrari for the last -- certainly for the last 20 years and we need to continue to nurture it and stay very close to it and develop a level of intimacy with that customer which is probably unparalleled in the industry.

The real issue to me is how do I make the customer base larger? Not by inviting every Tom, Dick and Harry in it, but by making the offering sufficiently pliable to a different set of expectations in the marketplace and allows for that family to grow and really not grow into a huge tribe, but a manageable tribe of customers that we can get to the 10,000 number without disrupting the DNA of the brand.

Okay. Thanks, Sergio. If I could get one last quick model question in. Could you help us think about the implied free cash flow in 2017, excluding some of the abnormal items that are a little tougher to model off of the taxes and the advances, et cetera?

The implied number is between EUR280 million and EUR300 million, pre-dividend.

Okay. Thank you.

Lello Della Ragione, Intermonte.

One left from my side. Really, it's actually on taxes. In your press release, at one point you state that 29.5% of this year is due both to the effect of the reduction in the years plus some reduction from R&D investment. Does it mean that you had already accounted for some of the effect this year, or we should wait for that final agreement with the tax authorities to understand the impact of the so-called Patent Box?

The final agreement.

George Galliers of Evercore.

I had a quick question, just around the Maserati engine agreement. Clearly, Maserati has seeing great shipment growth right now. When the agreement was put in place you were both part of the same group.

Can you give any indication whether the commercial terms of the agreement were as commercially beneficial to Ferrari as they might have been had you not been part of the same group at the time? If they weren't, at what point might you be able to renegotiate the terms in order for them to be more favorable to yourselves? Is there any opportunity there in the near to medium term?

I'm terribly conflicted on this because I'm the CEO of the buyer of the engine. I can only give you an account of what happened on the inside of this house when this transpired. The price was negotiated and because of the fact that it was a third-party transaction, because there was a minority shareholder even at Ferrari at the time, it actually went through a scrubbing, cleansing, car wash and every type of analysis that you can think of, and audit committee of both FCA and now of Ferrari, to make sure that there was nothing that was offensive in the agreement and reflected on (inaudible) conditions.

I don't know of a situation other than the four corners of the agreement today that would suggest that on this engine, there would be room for renegotiation. The thing is accretive. The more engines we make, the better the margin performance gets, because it assumes it works off an existing fixed cost base and therefore it will never match car margins because of the difference in pricing, but it gets better the more engines they take.

There are additional ancillary benefits from that arrangement including utilization of the assets and the training of the workforce that make us -- has additional operational benefits. There's nothing to write home to mom about, but it is overall a good package for Ferrari. The question is, would Ferrari do a similar deal with another OEM and the answer is probably yes. We would do it even if FCA was not FCA and then another OEM showed up and asked for the assistance.

The problem that you've got right now, to be honest, is that when you look at the size of the supply and given the success that Levante is having in the marketplace, the volumes that we are now pitching for 2017 are probably in excess of 30,000 engines a year. At that kind of rhythm, you start reaching numbers where the production of that engine effectively becomes even viable for FCA on its own terms. We've got to be very careful -- and I'm not giving any idea to the FCA CEO here, who just left the room. But there's a point in time at which this thing could be internalized with an FCA, perhaps on better terms because of their work cycles and established infrastructure.

I don't want I touch this engine for the time being nor do I want to see the arrangement disturbed. I think any future development going forward, is going to reflect a development of the Ferrari engineering skill on a wider basis and the relationship with FCA. I think Ferrari, as it matures through its technical development, will be able to do that for more than one entity and probably beyond FCA, but it's way too early to start talking about that now.

Great insight. Thank you. Just one quick question on FX. In the EBIT bridge, you did flag sterling as a driver of negative transaction prices. Can you just give us an idea of what actions you have taken to mitigate the fall in sterling or what actions you are looking to take? Given you are Ferrari and not a mass-market OEM, can you not push through prices when there's sort of a structural change in FX very quickly?

The answer is yes, and we will. I mean, we will just have to adjust it. I cannot -- there's nothing that I can do to compensate for sterling. Not a thing.

So to make the car viable and present in that market, there needs to be an offer to reflect my cost structure. Nor can I jeopardize margins in order to accommodate the drop. I actually think we could have long discussions here as to whether this is a permanent drop in sterling or whether it's a temporary one. The reality is that if there is enough substance in the realignment in sterling rates that makes our pricing decisions unavoidable, we have to adjust them, and we have.

Great. Thank you.

Massimo Vecchio, Mediobanca.

Earlier in the call, you said that the EBITDA guidance is conservative. Now, I was hearing about industrial free cash flow for 2017 clean of all the unusual being almost equal to the 2016 one, so EUR300 million. Can we say that also this is indication is conservative?

There you are, yes. Yes, you can. (laughter) You can accuse Alessandro of a lot of things. Not being consistent is not one of them. (laughter)

I don't accuse Alessandro of anything. Second question, earlier in the call you said that this year we may see some manifestation of expansion beyond cars. Could it be hinting at buying some motor-bikes or is it probably too ambitious for 2017?

The motor-bike story. Motor-bikes will not be available in 2017. But I think that there are ways in which we can express the brand to the luxury side that we are experimenting with. To be honest with you, if you had to asked me whether I was 100% certain that all these things are viable and whether we should make them a core business or not, I'm not sure. That's why think we need to experiment and experiment carefully.

One of the things we cannot do is do something which will bring ill repute to the brand. That's something that I will not allow to happen. Regardless of how appealing it may be from a financial standpoint, we will not let it disrupt the DNA of Ferrari. We just won't.

We spent the last two years just making sure that all our retail exposures reflect the Scuderia Ferrari and not the Ferrari brand by itself, because those are two different worlds. We are dealing with fans and we're dealing with people who follow the racing activity. The Ferrari brand is reserved for our customers and those customers, the people that buy GT cars have a unique set of requirements and expectations which fundamentally cannot be accomplished on the retail side of the business.

So we need to go back in and rethink it. We have and I think our introduction into the luxury space needs to be cautious and it needs to be paced. So give us some time. We will get it right.

The important thing from our standpoint is that none of the targets that we set as we were talking to people about what we expected from this business in the next five years are at all impacted or minimized by the care and the -- that we are now taking on the launch of the luxury side of the business. Because the car, itself, the car business, itself, is offering a greater number of possibilities for expansion at a much more certain margin rate than anything else would. So we need to get really good at this while at the same time exploring things that we are not that familiar with and which have, at least from a risk standpoint, a lesser opportunity for margin generation than we have today.

The business is in great shape. I think it knows where it's going and I think it's going to play with these areas. I think if we get those right, they could be as significant long term as car is, but it needs time and it needs maturity and things which we don't have going for us right now. So you tell me at the end of 2017 as to whether you think that we've done anything of value. You'll be able to see it.

Okay. Thank you very much.

Thank you. That will concludes today's question-and-answer session. I would now like to turn the call back to Ms. Russo for any additional or closing remarks.

Thank you, everyone, for joining us today. The IR team will be soon available for any further questions you may have. Thank you, everyone.

Thank you. That concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.