Ferrari NV (RACE) 2018 Q1 法說會逐字稿

Good day, everyone, and welcome to the Ferrari N.V. 2018 First Quarter Results Conference Call.

Today's call is being recorded.

And now your host for today's conference, Ms. Nicoletta Russo.

Ms. Russo, please go ahead, ma'am.

Thank you, Rufus, and welcome to everyone who's joining us.

Today's call will be hosted by the group's Chairman and CEO, Sergio Marchionne and Alessandro Gili, Group Chief Financial Officer.

All relevant materials are available in the Investors section of the Ferrari corporate website and at the end of the presentation, we will be available to answer your questions.

Before we begin, let me remind you that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included on Page 2 of today's presentation and the call will be governed by this language.

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

Thanks very much, Nicoletta.

I'm going to keep my comments to bare minimum.

I'm going to try and avoid the Elon Musk problem from yesterday.

A couple of issues.

One, obviously, we're incredibly pleased with the outcome of the first quarter.

I think these were -- they were good results, certainly in line with our ambitions, the ones that we'll talk about more when we get together in September for this infamous Capital Markets Day.

But I really have no bad news to give you, other than the fact that I think all the work that we've done here to try and improve the quality of the earnings in the half are beginning to pay off.

If you were to compare Q1 '18 to Q1 '17 and you remove all the impact of sort of the hedges that we've put on, the improvement has been quite substantial, both at the EBIT and EBITDA level.

I'm just looking at some numbers here.

And removing the impact of hedging in 2017, our EBIT number was about 22.3%.

We're now at 28.5% and 28% without sort of hedging cover.

And we're at 35.2% in terms of EBITDA.

So we're moving in the right direction.

I think we still have a long way to go.

All the efforts that we've put in, in terms of improving the pricing equation in the marketplace are beginning to bear fruit.

So I'm quite pleased.

The order book is in decent shape.

I think that certainly for the rest of 2018 and what we can tell about 2019, given what we have launched, we are in a good place.

We -- the other part of this thing, which obviously, we have been working on diligently is the recovery of our Formula 1 activities.

We're -- as of last Sunday, we are the leader in the Constructor series, not by much, but we've been able to reestablish ourselves.

I think we were unfortunate, we were unlucky in terms of what happened with Seb and Kimi in terms of the driver's ranking.

We've lost it by a marginal amount.

But I think the car is in phenomenal good shape.

I think the team has done a huge amount of work during the winter to try and make sure that we could be here and be as competitive as we are today.

So I have no bad news.

And on that note, I'll pass it on to Alessandro, who's going to take you through the details of the quarter.

Thank you, Mr. Marchionne.

And good afternoon, and good morning to everybody, and thanks for listening in on the call.

I will start with Page 5 of the deck.

Our achievements reached 2,128 units, up 125 units or 6.2% versus prior year.

Results were driven by a 23.5% increase in V12 models, thanks to the 812 Superfast, mainly offset by the F12berlinetta phase-out as well as the F12tdf that completed its lifecycle in 2017.

V8 models were in line with prior year, thanks to the 488 family and the GTC4Lusso Turbo, that posted a solid performance, offset by the California T phase-out.

LaFerrari Aperta is still contributing and about to finish its limited-series run, while the newly launched Ferrari Portofino will commence deliveries in Q2 2018.

Group net revenues for Q1 2018 were EUR 831 million, up 1.3% or 6.3% at constant currencies.

Our adjusted EBITDA improved by 12.6%, reaching EUR 272 million and 32.8% margin.

Adjusted EBIT for the group showed a 18.5% increase, reaching EUR 210 million, with a margin expansion of 370 basis points to 25.3%.

Industrial free cash flow for Q1 2018 was EUR 95 million and net industrial debt at March 31, 2018, was reduced to EUR 413 million, which includes EUR 30 million of shares buyback from EUR 473 million at December 31, 2017, thanks to the positive industrial free cash flow generation.

And as a reminder, dividend payment will impact Q2.

Moving to shipments on Page 2 -- sorry, on Page 6. All regions positively contributed.

Shipments for the group were up 6.2%, where EMEA grew almost 7%, with Italy, U.K. and France growing at double-digit pace, while Germany recorded mid single-digit growth thanks to the 812 Superfast as well as the 488 family.

Other European countries were up double-digit with Middle East -- while Middle East was down due to the reallocation triggered by tough market conditions.

America showed a 4.4% increase, and rest of Asia Pacific grew 3.8%.

Combined deliveries in China, Hong Kong and Taiwan were up 13.7% thanks to the GTC4Lusso family as well as the 812 Superfast.

Moving to Page 7. Q1 2018 net revenues reached EUR 831 million, up 1.3% versus prior year or 6.3% at constant currencies.

Cars and spare parts revenues were up 5.2% or EUR 31 million thanks to higher volumes led by the 812 Superfast as well as the 488 and the GTC4Lusso families, positive mix led by V12 range models along with greater contribution from our personalization programs and pricing increases.

This was partially offset by negative effects, the California T and the F12berlinetta phase-out as well as the F12tdf that completed its life cycle in 2017 and lower sales of LaFerrari Aperta that is about to finish its limited-series run.

Engines revenues posted a decrease in sales to Maserati due to lower engine volumes and a different production schedule versus prior year.

Sponsorship, commercial and brand were up EUR 2 million to EUR 125 million thanks to an increase in sponsorship and a higher 2017 championship ranking compared to 2016, partially offset by FX.

Other revenues were EUR 4 million, higher at EUR 17 million total, thanks to the Ferrari Financial Services.

On Page 8, you can see the year-over-year changes in the main items of the adjusted EBIT.

Volume was up EUR 24 million due to an increase of approximately 130 units, excluding LaFerrari Aperta, thanks to the 812 Superfast, the 488 and the GTC4Lusso families, together with positive contribution from our personalization programs.

This was partially offset by the California T and the F12berlinetta phase-out as well as the F12tdf that completed its life cycle in 2017.

Mix was positively impacted by strong performance of V12 models and pricing increases.

Industrial costs and R&D decreased EUR 1 million mainly due to lower spending in F1 activities as well as industrial costs, partially offset by higher R&D expenses to support product range and components innovation for hybrid technology.

SG&A costs were lower than prior year, mainly due to lower charges in connection with the equity incentive plan.

Foreign exchange, including positive hedges of EUR 13 million, had a total negative impact mainly due to U.S. dollar and GBP depreciation versus euro.

Other increased mainly due to higher sponsorship revenues and higher 2017 championship ranking compared to 2016 as well as a favorable pronouncement on a prior year's legal dispute.

As a result, Q1 2018 adjusted EBIT was up 18.5% to EUR 210 million.

Adjusted EBIT margin expanded by 370 basis points, reaching 25.3%.

And adjusted EBITDA reached 32.8% margin.

Moving to Page 9. Industrial free cash flow for the quarter was EUR 95 million, driven by strong adjusted EBITDA.

This was partially offset by CapEx, net change in working capital EUR 30 million, primarily related to the inventory driven by the projected volume growth in line with our 2018 outlook.

Other include the payment of employees' bonuses and interest payments in connection with bond interests maturities.

2018 tax advance payments will impact future quarters, just as a reminder.

Net industrial debt in March 31, 2018, reached EUR 413 million, which includes EUR 30 million of shares buyback.

On the next page, Scuderia Ferrari has worked diligently to be prepared for the 2018 season and the initial results are encouraging: 5 podiums in the first 4 races, with Sebastian Vettel winning 2 races so far.

On the following page, just a quick glance at our client relationship activities as usual.

In the first quarter 2018, we have unveiled and presented at Geneva motor show the 488 Pista.

And as the last page on Page 14, we are confirming our 2018 outlook and our midterm outlook.

In the first half of September, we'll host our first Capital Market Day in Maranello.

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

We can now move to Q&A session.

Thank you, everyone.

(Operator Instructions) And for our first question, we go to John Murphy with Bank of America.

Just a first question.

When we look at Page 8, mix in the quarter was positive EUR 15 million.

And I think if we think about that in the context of the Aperta being almost finished, it sounds like that's -- there's still a few left to go there, and the Portofino launching up through the remainder of the year.

How should we think about mix?

Because there's, I think, a big concern in the market that mix will be materially negative as we go through the back half of the year.

But you just put up a positive EUR 15 million.

So just trying to understand how we should think about it.

Maybe, John, just as a reminder, last year, we didn't have the Superfast, so there is a positive contribution in Q1 from the Superfast.

And next quarters, you will see still that effect.

We may not be as positive as in Q1, but we are overall projecting a positive mix for the year.

I mean, the 812 Superfast is in the product range for the whole of 2018.

So I think that's going to offset whatever fears you may have about the performance of the Portofino, which based on our calculations, is still going to be quite decent given the reception that the car has had.

I think it's having a market response, which is well beyond what the California produced when it was originally launched.

So I'm hopeful that we'll be able to maintain positive mix throughout the whole of 2018.

And obviously, the whole of 2019 will also be in decent shape.

I mean, this is obviously dependent on the launches that we'll have of vehicles.

There's another car coming.

Certainly, there's going to be one at the Geneva auto show, and there may be one that we will show here at Capital Markets Day.

So I think that issues about mix are behind us now.

That's great to hear.

And then just a second question.

There was some talk about laying off the ForEx risk to the customers in the form of variable pricing.

I'm just curious where that stands right now.

And how you think about that going forward?

Yes.

That needs to happen.

I mean, the reason why I made reference to these undisturbed numbers ForEx removed is that the performance of the euro, we've seen it now break $1.20 on the way down.

For me to be able to call that number for the rest of 2018 is, I mean, we might as well get hit by lightning here.

It's not our job.

And providing hedges that have got 12 to 18 months covered doesn't give, certainly for a company of the caliber of Ferrari, doesn't give it the type of earnings predictability that it needs to provide.

So I think we need -- it's not a question of laying off risk.

I think it's a question of how we position ourselves in the marketplace with our product.

We've opened the conversation with our dealers.

I think they're aware of the fact that we will be transitioning to a euro-based model, which is the only thing that we truly understand from an industrial standpoint.

And so within 2018, I think we'll have the framework to be able to run -- from '19 on to be able to run this without having the P&L impacted by foreign exchange shifts.

I think it's important.

I think it's a bloody important issue because it needs -- I can't live in a world where you say, we had a -- in 2018, we had a great ForEx cover, and that's why we made the numbers.

That's just nonsense.

We can't run the business this way.

So we'll get there.

I think 2019 is going to be the first year, I think, that we'll see this system being put in place.

We're toying with a variety of alternatives that allow effectively the dealers to try and reset base from time to time.

We need to make sure that the thing is workable and that it doesn't impact our relationship with the customer.

But I think we're going to get there.

So the dialogue has been healthy so far with the dealers.

I think the commercial organization is fully engaged.

Alessandro and his people are onto the piece.

Hopefully, by the end of this year, we'll have something that works.

Great.

And then just on Slide 8, you kind of snuck in the top high-end luxury peer EBITDA margin of 33% to 38%.

Should we think about that as sort of your long-term range?

Or should we really be thinking about the higher end of that range or potentially even through that 38% when you get out this new product intro over the next 3 years?

I think, yes, you will need to blow through that number.

It's not good enough, not for what we produce here.

I mean, take it as an indication by braille where we're going to be in the next couple of quarters.

But long term, it needs to be better than that.

Okay.

That's helpful.

And then just lastly, I mean, when you look at the Red Bull disaster and that crash there, just curious what you think that means for your chances as you go -- work through the F1 season.

I mean, that seems like it was a major disaster there.

I mean, does that mean you're kind of locked for #1 or 2?

Or are you really -- I mean, just curious what your thoughts are there.

And how -- what that means for you?

Well, look, it's -- I think Red Bull both as a house and in terms of sort of the drivers, both Ricciardo and Verstappen have expressed their views about what they thought of the incident.

I think everybody really regrets what happened.

At the end of the day, I know 2 things: That the car today is probably the most promising F1 car that Ferrari has had since I've been here since 2014.

It is competitive -- I think it is competitive in a variety of circumstances.

The thing that I find even more encouraging is the way in which both of our drivers have engaged.

Seb and Kimi have shown phenomenal vigor, and so they're engaging in this championship.

I'm hopeful that they will be able to prove this as we go forward.

And there are a number of developments that are obviously underway in the car, which will become visible as we go through the season.

The broader question is to our -- the level of engagement that we have in F1 and the dialogue that we're having now with Liberty, with the organizers.

I think it's an interesting question.

It's early days.

I think we will bring this issue to conclusion vis-à-vis with Liberty by the end of this year.

What I'm encouraged by the change in the attitude that we are seeing from Liberty in terms of the extent of the changes that they're forecasting in 2021.

I think -- and probably the biggest indication has been the recognition of the fact that the engine regulations need to reflect sort of the nature of the sport.

And we can't really dumb down engine development just to accommodate new entries, right.

So the stuff that's on the table now is potentially workable as a system.

The economics are not, and I think that's something that we need to go back to Liberty with.

But I think we now have enough of a basis to try and have -- -- just having meaningful discussions.

I'm hopeful we'll get it all resolved by the end of this year, one way or the other.

The thing they need to keep in mind is that Ferrari will continue to race.

I mean, it's in our blood.

That's what we do for a living.

I think we'll find the right way to exhibit our skills on a racetrack.

Hopefully, in...

I'm sorry, just to follow up on that.

#1 or -- sorry, the phone was breaking up there.

The #1 or #2 position financially, what does that mean for you in FY '19?

Is it materially different?

I'm just trying to understand if that really would matter as to our FY '19 estimates.

The answer is yes, it does matter.

I mean, it matters.

I made the point on a call that, unfortunately, because of the way in which our incentive system works, especially with the drivers, with our pilots, that I think some of that benefit may be dissipated away in compensation to the Formula 1 team.

So what we will keep of the excess is not clear to me.

Regardless, I think it has incredibly positive impacts on the brand.

I think I'll take whatever scraps are left over after I distribute prizes to the team.

But I think it's important that Ferrari reestablish itself as a winner in Formula 1 in some fashion.

I think remains a key objective.

So I would not change my '19 forecast because of what I just said.

I think we'll make the numbers regardless.

But having said this, I think that this -- we do have that an obligation to win.

And I think we'll try and deliver.

And for our next question, we go to Thomas Besson with Kepler Cheuvreux.

I have 2 questions, please.

Firstly, on element that you want to remove ideally.

You have the biggest swing on a costly basis in both FX and other.

Can you give us any idea of what we should expect in coming quarters for both?

Because it's fairly challenging for us to predict.

And the second question, clearly, I think our understanding as a group of analysts was that profitability in 2018 would only go up marginally versus the big gains you had achieved in the previous couple of years.

You show a massive improvement in Q1.

Should we read the first quarter as something indicative of the full year?

Or should we think that coming quarters will be closer in terms of profitability from the previous quarter in 2017?

I'll give you an answer to the second question.

I don't think Q1 is anomalous.

I think having it is an indication of the pace that we've established for the house.

You may have inter-quarter variability.

But overall for the year, I don't think we're going to be materially off.

On the first question, I feel sorry for Alessandro trying to answer.

I just went through this long diatribe about the unpredictability of -- the inability to predict foreign exchange rates, and now you want us to tell you what we think we'll do for 2018.

I don't believe in the fact that we're going to rely on hedging.

Hedging is not going to save this business at the end of the day.

It just won't because it's a time-limited engagement.

This business is a long-dated thing.

I mean, we got order books that run a couple of years out.

We need to find a better way to run this business commercially.

Having said this, I think that we expect that 2018 is more or less preserved because of what we can sell now, because of the market.

I don't want to have...

If we assume the same average performance of the FX, especially on the euro, on the euro-dollar and the euro-GBP we had in Q1, the total impact for the year might be in the range between EUR 80 million and EUR 100 million.

We previously provided you a lower number, but because that was based on a lower projection.

So that explains why it's difficult to predict foreign exchange in general.

So next quarter, just in terms of the geography, first half will be worse than second half, just as a comparison to prior year.

Just as a reminder, second half of last year was impacted already by a depreciation of the dollar, which means that the second half of this year compared to first half -- to the second half of last year would be slightly better, while the first half of this year will be obviously worse than last year.

And just to add, we do need to find a solution to this ForEx issue long term, so that we can actually make statements that makes sense about the rest of the year.

I think, I just -- we got to be able to tell you with some certainty.

The great thing about Ferrari is that as difficult as a business model as we run, it ought to be predictable in terms of the things that I tell you.

If I tell you, we're going to make $2, we're going to make $2.

I don't want to have to -- I don't want to start arguing that if -- starting a gun this other way, I would've made 4. This is nonsense, right.

So we need to bring it back within the fold, and I think we will, so -- but the year is going to be all right.

Yes.

It looks like -- can I just follow up on the other point?

I mean, you had a boost, I think, from the sponsorship revenues and a few one-offs.

What should we expect for the year, something positive -- not too different from the quarter or something significantly ahead that offset part of the FX?

A lower than Q1, but certainly, positive as a result, primarily on the ranking effect on Formula 1. Just as a reminder, since we are benefiting from the fact that last year, we had a better ranking, that's impacting positively on the other businesses.

And for our next question, we go to Michael Binetti with Crédit Suisse.

Sergio, I want to zero in on the comments you made to the earlier question about the strong demand for the Portofino.

I think last year, when we talked about it around the launch, you thought it was a good step forward for your opening price point line, but not exactly "cracking the code." What do you think has been such a strong driver forward on this iteration of the opening price point line?

We are learning -- and I don't mind admitting, we are learning -- I think we're learning how to price.

I -- and I don't mind admitting sort of ignorance on this issue because I think if I told you that we cracked the code on pricing, I'd be lying.

I still don't know.

I mean, the question that was asked earlier in terms of -- about EBITDA margins and where this business can go.

I think a lot of it depends on -- a lot of it depends, obviously, on the product portfolio and the positioning of what we offer.

But the way in which we end up ultimately pricing in the marketplace is something that we are -- we're quickly learning how to do.

And I don't think we have explored the edges of the possible.

So I -- bear with us as we learn.

I think the worst thing that could happen to us is that we end up mispricing and overpricing.

And then it's not really an easily recoverable position because if -- you don't do this elegantly.

I mean, overpriced products that need to be re-dimensioned have a very negative impact on brand, and I think we've been careful not to go beyond what we think we can do.

I still think that there's room to be explored, and the commercial guys know this.

So I think we have now started.

It will become a lot easier, I think, as we keep on rejuvenating the product portfolio.

I think a lot of it has already been -- some of it is already visible with the launch of the Pista -- of the 488 Pista, which was shown in Geneva.

I think the demand -- that car is completely sold out.

I mean, I've got people now that sort of are begging to get put on the list.

The car is completely sold out.

It shows what happens when you end up finding the right set of stylistic and technical attributes and you price properly in the marketplace.

So I think we did a decent job of positioning it in the opening.

We'll see what happens as new products launch here.

I think we have better opportunity to try and determine the depth of the profit potential of Ferrari as we rejuvenate the whole product portfolio, which by the way, will happen by 2021, '22.

I mean, just by natural course.

Change gears for a second.

On the mix increase that you asked about earlier, the EUR 15 million contribution that you -- would you mind giving us some more of the puts and takes that landed at EUR 15 million on the net.

I know -- we can make some assumptions.

Aperta was a big drag.

Sounds like Superfast is probably stronger than we thought.

Maybe Portofino positively offsets California.

I can't remember if the negative growth of the engines business is in the number you quote as mix and maybe how much was from like-for-like pricing or personalization.

Just to deal with the engine side, that's not in the numbers.

And I think Alessandro made reference to the fact that Maserati is realigning its demand.

I think they're working very closely with us, and we got to make sure that we can provide engines for the remainder of the year as they see demand pick up.

But the first quarter has been negatively impacted, just in terms of volumes.

But I don't think we've had any significant shifts in personalization and so on.

I think that's been...

No.

And then personalization is in volume, by the way, so it's not in the mix component.

As we've said, the Portofino is not there yet.

So it's mainly V12 mix impacting Q1 compared to prior year.

And the 812 Superfast.

Okay.

Sounds pretty encouraging.

And then just one last one, if I could, on capital allocation.

If I model out the rough touch points you've given us through the 2022 plan early on, you start to build net cash pretty significantly in the not-too-distant future here.

I know the idea of a more significant stock buyback moves back and forth in your priorities, but strikes me as the kind of company that shareholders would like to see taking out some of the equity to slingshot with the earnings behind the plan you have.

Can you just talk to us about where that sits in priority now?

And what would keep you from -- make you hesitant to do a more material buyback earlier on?

Again, the problem with these things, as much as I think we need to do these things strategically, I despise discussing them publicly because it's almost -- I mean, if we end up being predictable on the terms that we intervene in the marketplace, people will read it as a share price support.

And I hate doing the stuff.

I mean, let the market caught -- we've intervened where we thought, and we have done this -- I mean, the transactions are actually visible because all we post now on the exchange.

I mean, you can see every one of the transactions that have been carried out.

We do this whenever we see sort of the market acting in a bizarre way for whatever reason.

And we step in, and we're going to continue to do this.

So I think -- I don't have a doubt in my mind that given the cash-generation capability of this house, that we need to go back up -- back us up equity in the marketplace.

This is -- and between now and '22, this will happen in a significant fashion.

The problem that we've got, and I think it's an indication in the forecast that Alessandro put together.

We're in a heavy capital expenditure.

We're going to spend over EUR 0.5 billion in 2018.

I think we're just being cautious until we get over this capital outlay.

But directionally, we're there.

And for our next question, we go to Helen Brand with UBS.

At least just coming back firstly on the personalization question.

Can you give the weight of personalization in the quarter?

And how should we think about this for the balance of the year and perhaps your plans a little bit further out than that as well?

Secondly, obviously, good news on the Portofino.

But can you give us an update more broadly on waiting list times currently across the different models?

And then finally, just any update at all on Patent Box as well.

I'll let Alessandro deal with the Patent Box in a second.

I'll just give it to you by model.

I think on the GTC4, that's probably the shortest waiting list that we have, and mainly in the non-all-wheel drive version, the -- which was the second model that was launched in the GTC4.

But that's relatively readily available.

The Portofino, from what we can tell, is completely sold out for 2018.

The 488 and the Spider are gone for remainder of '18, well into '19.

So is the Portofino.

The 812 is out.

The Pista is completely sold out.

With the exception of the GTC4, everything else is pretty well gone for the rest of 2018 and a big chunk in 2019.

So it's as good an order book as I've seen here.

It's in decent shape.

I'll let Alessandro give you a view on the...

So on the personalization side, we are basically in line with the -- with last year.

That's an additional 17%, which is provided on our car revenues compared to the base price of the car.

That's the contribution that we have from personalization.

On the Patent Box side, I think the easiest way to say is that we started the process officially and formally.

We are in touch with the tax authorities, and we believe we might be able to close the process by Q3, or at the latest, in Q4 this year.

And for our next question, we go to Martino De Ambroggi with Equita.

Two questions on the EBIT bridge.

If I look at the volume, it was one of the best performance, the quarterly performance since you provide this figure.

If I calculate as an incremental margin, was in excess of 70%, EUR 24 million of volumes that divided by EUR 31 million of higher sales.

But I suppose this cannot be a recurring figure.

You also mentioned personalization was in line with last year.

So could you just provide us some additional information on this high level of volume effect?

And what could be for the rest of the year?

I mean, I would love the 70% to be factual, but unfortunately, you need to put together the FX component.

So the EUR 31 million of increased revenues for Q1 are clearly net of the FX impact, which is highly negative.

You should measure it on a constant currency basis, so probably that would be -- we will provide you with a different number.

But the real effect on volume is really the fact that we had 125 additional units, including the mix on V12, as I mentioned before, which is also, in absolute terms, providing a positive effect for volume itself.

So it's just 125 cars, including certain LaFerrari Aperta and the 812 Superfast and 488 Spider and GTB in total providing that level, including the personalization effect.

Okay.

And still on the bridge on the other line, you're also mentioning a legal dispute.

Could you quantify it if it's material or not?

It's slightly higher than mid-single digit.

Okay.

And the last question is on the 488 Pista.

You mentioned it's already sold out.

Could you provide what is the potential in terms of volumes, delivery period, and obviously, whatever could be helpful?

The delivery period will span into 2019.

We give no indication on volumes on these cars.

Okay.

So even if it's similar to the Tour de France or LaFerrari Aperta in terms of volumes.

No, I think it will sell more than tdfs.

It's a different caliber of car, right?

I mean, there's a tradition of this vehicle being in the range.

So the car will be out there for a while for '18 and '19.

But it's completely sold out, so -- and the best way to find out is to contact the dealer, right.

Try and order one.

You'll be told that you can't get one.

The unit is completely sold out.

And for our next question, we go to Giulio Pescatore with HSBC.

Just a follow-up on the Pista.

I'm trying to get a sense of what is the buying power of Pista.

I mean, if my benchmark it to the Tour de France, I mean, that car was based on F12, for which you sold about 1,500 units.

You sell about 5,000 units of the 488.

I mean, is that the right way to look at it?

I mean, could you sell 4 times more of that model?

I mean, you might give the number going forward, but I think it's material, especially given that on those cars, you have historically made your highest gross margin.

I mean, can you confirm that, please?

And the second question would be more mathematic.

I mean, it seems to me that you're still struggling -- not struggling, but the -- I mean, the performance on the GT side is not as good as on the sports side.

But that's why you plan to expand.

I'm sure you'll give more color on the Capital Markets Day.

But is that a matter of concern for you, like you're seeing that on the GT, you don't do as well as on the sports side?

I don't think so.

But that's -- one, I'm not worried.

I mean, if you consider the Portofino to be a GT, I think that the indications are that whatever problem we had, we have rectified.

I think that the issue that -- if you're raising concerns about whether the GTC4 is an area of concern, that caliber of car, because of the very nature of the vehicle itself, has always been something that Ferrari has not struggled with.

But I think it's had probably more difficulty in terms of placing large volumes of vehicles in the marketplace than it has across the other ones.

But the broad answer to your question is that I think that we will be answering that query on Capital Markets Day in September.

I think that's a part of the pitch just to try and show you what we can do in that segment of the market.

It's an area that has been historically neglected by Ferrari because of its success on the sports car side.

I think -- I still think that it is an incredibly underdeveloped and underutilized segment of the market, which I think we need to address in a very aggressive fashion.

And we will start -- we started doing this, but I think it will become more visible when we get to September.

I'm not sure that I can help you in terms of your arithmetic on the Pista to try and reconcile to the tdf and trying to find out what portion of this.

The only thing I can tell you is that whatever number we had out there has been -- and the allocations that I've made to the dealers has been completely exhausted.

I have no more capacity left in the system to produce Pistas.

It's done.

And we'll give you numbers as we book.

And for our next question, we go to George Galliers with Evercore.

First question I just had was actually around GT cars and pricing.

If I look at the crossovers from Lamborghini, Bentley, Porsche, they all seem to be priced at the low end of the range offering and below the performance-orientated cars.

Do you think that's the right strategy for GT cars?

And is that something, which Ferrari might consider in the future?

No.

Okay.

And then secondly, maybe equally brief answer.

But when it comes to capital allocation, would Ferrari ever consider an acquisition?

Not saying it's for sale, but for example, a sports car brand like Lotus potentially could offer an entry point for the company.

And this is going to require more than a yes or no.

And I'll give you the answer first and then try to give you some reasoning.

It's doubtful that we would buy another car brand.

We've agonized over this thing now for a long period of time.

You understand that before the spin from FCA, Ferrari had access to brands like Alfa and Maserati.

And it could have always taken these brands so that as -- and for a period of time, Ferrari did own Maserati outright, and we tried to run it.

And it wasn't until 2007 or 2008 that I took it off the hands of Ferrari and brought it back into the fold of FCA.

I think that bringing another car brand into the fold of Ferrari will actually be a huge distraction.

And I think there's a lot of work that needs to be done in terms of maintaining -- in terms of developing and maintaining the uniqueness of Ferrari going forward, including volumes and margin generation and the expansion of profit.

There's a bigger underlying question that I think is built into this question as to whether we associate ourselves with another car brand.

There is a model out there that says that we become a fully fledged luxury goods maker, in which case, Ferrari could potentially own something other than cars, and it could do something else in the luxury goods space.

Given the amount of work that we need to do today in building car -- and we'll talk about this on Capital Markets Day.

Everything else that we do here is fundamentally a distraction, not just in terms of the effort, but in terms of the potential returns associated with the effort.

Every time we run these models and we've looked at -- and saw the potential benefit associated with that expansion, we end up running short against the internal alternative of trying to do this and build the rest of Ferrari out.

We're not at the point now where we have excess capacity, both in terms of skills and capital, to try and take it outside of our current framework and deliver a set of returns, which are commensurate with the quality of the Ferrari brand and consistent what we think we can get out of the existing business.

And the time might come.

I don't think it's here today.

For our next question, we go to Lello Della Ragione with Intermonte.

Two questions left from my side.

One is a clarification on ForEx.

I just wanted to be sure.

You haven't started yet on pricing cars in euro?

Or do mean acting some other way in order to offset this element, correct?

Correct.

Okay.

Brilliant.

The other question is just on the other, if I could talk the bridge.

You explained that the mid-single digit is related to the legal dispute.

I was just trying to reconcile that part of the bridge with the revenues, because we saw the effect on the revenue bridge is actually negative.

I know there might be some mix effect because some of these elements are royalties only.

But how should we read these remaining, let's say, EUR 15-ish million remaining on the bridge side and connect it back to the revenue bridge?

Because I'm still struggling on that side.

You just need to consider that on the revenue bridge, you have the FX item again, once again, unfortunately.

So you read in the other the performance, and excluding the FX, which is taken out as a separate column in the EBIT bridge.

And the other element is just that SG&A and some other cost of the other business are included in the specific lines.

So there, you see the pure gross margin of the other businesses.

Okay.

And just on that point, while connecting all the comments that you made on the other line evolution going forward through in '18.

So if we consider it without the legal dispute, so that mid-single digit might be a reasonable run rate for this year, given the higher revenues from the F1 and sponsorship that you might have this year?

I think it's difficult to predict the run rates on the other side.

But as I said, it's going to be lower than Q1 for sure, cleaning out or taking out the effect of the legal disputes and some of the other elements we discussed about FX and so on.

And we go next to Stephen Reitman with Societe Generale.

I have 2 questions, please.

First of all, on the volume mix and the bridge relating to V12, and secondly on Maserati.

My first question on the volume.

You sold 125 extra cars.

And in your bridge, you talk about 130 cars, excluding LaFerrari Aperta, which suggest that LaFerrari Aperta sales were down about 5 units.

I would guess that the -- can you give some indication of the -- of how many Apertas still are to be delivered for the remainder of this year?

Because that would suggest, looking like Q1 figure, that the notoriously high figure compared to Q1 of 2017 delivered in Q1 2018.

And secondly, on Maserati.

Obviously, with the Maserati reducing its production and you reducing your shipments of engines to Maserati, are there any compensatory elements in place there to protect Ferrari from lower-than-anticipated volumes from offtakes from Maserati?

So on the Aperta, the units are really few in Q2 and maybe really some ultimate ones in Q3.

But overall, much lower than what you see in Q1.

On the Maserati side, I think the -- we might have covered that in prior years or quarters.

We have a sort of take-or-pay mechanism implied in the contract today as well as the fact that we are purely operating with variable cost, which means that we are reducing our efforts in terms of production in connection with the reduction of volumes that Maserati is providing us.

So there's no impact on the EBIT line as a final effect as a combination of the 2 elements.

And we go next to Fei Teng with Berenberg.

Just have a couple of questions.

The first one is on hybrid technology.

So you've got a lot of investments going in now.

But after technology launches, could you give any more detail whether margins on hybrid cars might be meaningfully different compared to the equivalent conventional models?

Like is there a meaningful incremental pricing opportunity from this technology, for example?

And is right to assume that this will be introduced as standard content?

I think our view is that we'll be able to price for the hybrid, and I think the question as to whether they constitute part of the standard offering of Ferrari is something the market will have to call.

I'm of the view that this issue is inescapable.

I think, forgetting about sort of the very loud comments that are coming out of some of the mass marketers, I think that technology is now in some fashion going to become mandatory across the whole product range.

And so certainly by 2022, the completion of this plan, I would expect that nearly all of the offerings that Ferrari will make will embed some level of hybrid structure and powertrains.

But I think we need to be careful.

There are still some customers of ours and some products that I think will require pure combustion.

I think it's a limited portion of the portfolio, but I think we need to be cognizant of the fact that some of our customers might prefer that option, especially on the 12-cylinder side.

The ability to manage 12 cylinders with a hybrid, just because of the power output from the system, is not easy.

And so the question as to whether our customers will be able to drive a 12 hybrid is a big question.

We're debating this on the inside all the time.

So we'll certainly hopefully -- we'll certainly have a better view by the time we talk to you in the first half of September.

But my gut feel will be that most of our products will have it, and we'll price for it.

And my second question is just following up on Formula 1 and the new engine rules.

I mean, one of the things that Liberty Media is focused on is trying to reduce engine development costs.

So how real is the likelihood that something like that can materialize from your discussions?

And to what degree?

I think some -- I think the discussion that we're having with Liberty and with FIA is to introduce budget caps, which are more encompassing in nature than just dealing with engine development.

I think there's value in that proposition.

And I think that there is -- there's an opportunity, I think, for us to remove some of the excessive R&D costs associated with obtaining what I consider to be marginal benefits from aero development.

That -- and that's a -- and that can be cured if you agree a set of limits on how much you'll spend on developing the car.

The important thing for us -- for our standpoint is that we don't touch, so the nature of the technical development of the powertrain.

Because that is at the heart of what Ferrari does for a living.

And I made references to this NASCAR look-alike process, which if we start smelling and looking like NASCAR, then I think Ferrari is out.

It has no interest in playing.

So I don't think we're there.

I think we need to continue to work with Liberty, with the commercial rights holders and with FIA to try and bring about a sensible equilibrium.

If we can't, as I said before, we'll just pull out.

But we're not there.

We're not there today.

I think we owe the sport a phenomenal effort to try and bring about closure of these items.

We'll try and get that done before the end of this year.

And do you think given the increasing popularity of Formula E, is there a risk that, that could overtake Formula 1 at some point?

Could that be a threat to Ferrari's marketing power, especially given the (inaudible) of your historical presence?

I wasn't at the Rome event of the Formula E. I watched it on television.

With all due respect to Formula E, I think we have a long, long way to go before that becomes a potential substitute for Formula 1. I understand it directionally.

I just don't think we're there.

I think it's lacking a lot of things, and I think we need to find a way to remedy those shortcomings.

I don't think in its present form it is a threat to Formula 1.

And for our next question, we go to Philippe Houchois with Jefferies.

I'm just wondering about, at some point later this year or early next year, you're going to move to a second shift for assembly.

And I'm just wondering how complicated it is in 2 ways: One, first, finding -- you have pretty skilled workforce that needs to be trained to a high level of competence.

How difficult is it to actually get that second shift going in terms of human resources?

And two, to make that second shift economically profitable, do you need to have kind of the step-up in the volume to keep that second shift reasonably occupied, I would say?

Or does it not matter, and you can just slowly improve?

I'm just looking are we getting smooth?

Are we looking at that step-up to make that second shift viable?

And what would potentially be an impact in terms of profitability?

I think these shifts will be gradual for the -- as we roll out these cars.

I don't think we have to staff.

I think just a broader -- the answer to your broader question about how difficult it is to staff, I think we can manage it.

We think that the area that we operate in offers some great human resources.

I think that the house is well trained in sort of -- in passing on the tradition, the Ferrari tradition up to new recruits.

I think we've done -- we've proven this in the past, and I think it will work.

Again, as we try expand production capacity, I don't think we're going to have to bring in massive amounts of second shift -- set second-shift people to try and prove the point.

I think there will be a gradual increase in the staffing and the second shift as products come on.

So I think we'll be able to limit the damage to the P&L and certainly make it contribute fairly to the development of the house as we bulk up.

But that's -- there is a technical issue about training the staff.

I think we'll be able to use people in the current shift to try and cover the more are technically demanding roles on the second shift as we train people.

But I'm not worried about that issue impacting profit or the P&L going forward.

Okay.

And the second, take the risk of ending with a boring question, is on Patent Box.

You seem to be taking much longer than other Italian companies to get to resolution.

And I'm just going to try and guess, is it good news?

Is it bad news?

I know there are rules.

At the same time, it is very much a negotiation.

And so I'm just kind of curious why it's taking so long.

And if that's positive or negative.

I don't think it's negative.

I think it's the way in which we ended up on the roster.

I don't think it's a reflection of the unwillingness of the system to try and deal with Ferrari.

But I think we are now dealing with the authorities on this.

It's -- our number has come up.

We're off the waiting list.

So as Alessandro mentioned, hopefully, we'll resolve it within 2018, hopefully within Q3.

But we'll see.

And ladies and gentlemen, that will conclude our question-and-answer session.

Ms. Russo, I will turn the conference back over to you for any closing remarks.

Thank you, everyone, for joining us today.

For any follow-up question you may have, you can contact the Investor Relations Department in a few minutes.

Thank you.

And ladies and gentlemen, this will conclude today's conference.

Thank you for your participation.

You may now disconnect.