Ferrari NV (RACE) 2018 Q4 法說會逐字稿

Welcome, everyone, to Ferrari Full Year 2018 Results Conference Call.

I would now like to hand the conference over to your first speaker today, Ms. Nicoletta Russo, Head of Investor Relations.

Thank you, and please go ahead, ma'am.

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

Today's call will be hosted by the group CEO, Louis Camilleri and group CFO, Antonio Picca Piccon.

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. Camilleri.

Thank you, Nicoletta.

Good afternoon, and good morning, everyone.

We are obviously pleased with our 2018 financial performance.

We met or exceeded our guidance on each key metric.

Of particular note was our free cash flow performance.

The Patent Box benefit we received for prior years was clearly significant and more than offset our increased investments to deliver the meticulously constructed pipeline of product launches that we shared with you back in September.

It was a clearly solid year in most respects.

We entered 2019 as the strongest brand in the world, according to Brand Finance, and we're confident in our ability to deliver our targets consistent with the strategies that we reviewed with you during our Capital Markets Day, last September.

This confidence is despite the backdrop of uncertainty and potential macro threats including trade tensions, the China slowdown, Brexit, currency volatility and what the IMF recently euphemistically described as palpitations in financial markets.

While we would never claim to be totally immune to what is going on in the world, we are remarkably resilient.

Several factors underscore our resilience.

We continue to hold a strong order book, and our order intake is firmly in line with our expectations.

Furthermore, we are not witnessing any unusual cancellations.

Residual values remain solid and well within our predictions.

As you focus on our guidance for this year, you should bear in mind several factors that are assumed therein.

Our assumptions with regard to our supply of engines to Maserati reflect the orders we have received to date, which imply contraction in volumes of the specific engines we supply to them.

We anticipate lower revenues and earnings from our brand diversification activities as we begin the disciplined exit of several products and license agreements that we do not deem to be in keeping with our brand equity.

We need to get the base right before we expand the size of the business and ensure that everything we do going forward, will enhance our brand image and grow our earnings.

While our Formula 1 performance last year was the best one since we won the World Constructors' Championship in 2008, we fell short of our ambition to race the winner's cup.

Our objective going forward remains the same as it has always been: to win.

In 2019, we project an increase in spending, which partially reflects this ambition, but also includes the development expenditures required to address the new technical regulations that will form part of the envisaged Concorde Agreement that should come into force into 2021.

Given these factors, our principal business is actually performing more strongly than the aggregate numbers would reveal at first blush.

We have previously disclosed that we anticipate an unfavorable mix impact in the first half of the year.

However, I wish to stress that we project positive mix for the full year as the new launches hit the market, particularly in the fourth quarter when the first shipments of the highly profitable Monza SP1 and SP2 reach our customers.

This temporary adverse mix is driven by the higher proportion of Portofino shipments and the difficult comparison to the prior year period due to the LaFerrari Aperta.

I firmly believe that the success of the Portofino will pay dividends longer term as we view this specific model important in terms of acquiring new clients and retaining them in the Ferrari family.

Our data reveals that over the last 10 years, the predecessors of the Portofino attracted approximately 9,000 new clients, with 70 -- with close to 70% of them remaining loyal to the brand, while 30% of those have become multi-buyers.

I should also mention that we anticipate a first half modest geographic mix shift in favor of Mainland China to accelerate delivery prior to the much earlier than previously announced implementation of the new emissions regulations.

We have an exciting new product pipeline.

Indeed, we plan the unveiling of 5 new models this year, which augurs well for 2020.

As we have previously stated, these models do not only allow us to penetrate new attractive segments but also provide the opportunity to leverage our pricing power.

We've also planned a number of in-market client activities that will allow us to attract new customers and retain existing ones.

An important development will be the release this year of the state-of-the-art CRM tool to enhance our ongoing interactions and relationships with our worldwide dealer network and our customers.

This tool will further improve our customer's Ferrari experience in a personalized manner.

Finally, as disclosed at our Capital Markets Day, we have commenced our EUR 1.5 billion share repurchase program over the 2019 to 2022 period.

And subject to board and shareholder approval, we'll announce an increase in our dividend in April, reflecting an adjusted net earnings payout ratio of 30%.

On that note, I will now pass the call to Antonio, who will provide you with a detailed review of our full year results for 2018, and our guidance for the current year on our key performance metrics.

Antonio.

Thank you, Louis, and good afternoon to everyone.

Let me begin with Page 5. As Louis just said, our 2018 earnings were in line with or better than our 2018 guidance with industrial free cash flow generation of EUR 405 million, including EUR 120 million positive cash impact from the Patent Box benefit for 2015-2017.

Our shipments increased by 853 units versus prior year, mainly supported by the 812 Superfast and the Ferrari Portofino.

Group net revenues for 2018 increased by a few million to EUR 3.42 billion, up -- 0.1% at current currency and up 3.2% at constant currency.

Our adjusted EBITDA was over EUR 1.1 billion, improving by 7.5% at current currency and by 16.8% at constant.

EBITDA margin was 32.6%, up 230 basis points versus prior year.

Adjusted diluted EPS, when excluding the EUR 141 million profit and loss benefit from the Patent Box related to the 3 years 2015-2017 and other minor adjustments, was up 20.6% to a record level of EUR 3.4.

Net industrial debt at the end of December, after EUR 100 million of share repurchases, reached EUR 340 million versus EUR 473 million at December 31, 2017.

Let's turn to shipments on Page 6. Total shipments increased by 10.2% versus prior year, supported by a 19.6% increase in V12 and a 7.3% increase in V8.

The performance was led by the 812 Superfast, as well as the ramp-up of the Ferrari Portofino and the 488 Pista.

On the other hand, the 488 Pista Spider is yet to arrive on the market and LaFerrari Aperta finished its limited series run.

Growth in shipments occurred across all regions.

EMEA grew 13.1%, Americas showed a 6.7% increase, China, Hong Kong and Taiwan were up 12.6%, rest of APAC was up 7.8%.

Moving to Page 7, on group net revenues.

We see how they increased by 3.2% at constant currency from EUR 3,390 million in 2017 to EUR 3,498 million in 2018 at 2017 exchange rates, net of hedges.

Car and spare parts revenues totaling EUR 2.6 billion were up 6.9% at constant currency, thanks to higher volumes already commented.

Pricing and personalization programs positively contributed along with deliveries of the Ferrari J50 and the FXX K Evo, partially offset by lower sales of LaFerrari Aperta.

The erosion of the engines revenues was EUR 89 million at constant currency, reflecting lower shipments to Maserati.

Revenues from sponsorship, commercial and brand were EUR 516 million, and view by a 5.3% at constant currency, thanks to the stronger contribution from sponsorships as well as higher championship ranking, partially offset by lower sales generated by other brand-related activities.

Currency, including translation and transactions impact as well as foreign currency hedges, had a negative impact of EUR 105 million, bringing 2018 group net revenues at current currency to EUR 3,420 million, still a few million up.

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

As mentioned, the latter was up 6.4% to EUR 825 million, with adjusted EBIT margin of 24.1%, and adjusted EBITDA margin reaching 32.6%, up 230 basis points.

At constant currency, adjusted EBIT grew by 19% to EUR 890 million, while adjusted EBITDA increased 16.8% to EUR 1,179 million.

Volume was up EUR 118 million, thanks to the 812 Superfast, the ramp-up of the Ferrari Portofino, as well as the 488 Pista, along with positive contributions from personalization programs.

Mix and price was negative due to the combining impact of lower sales of LaFerrari Aperta and the strong increase of the Ferrari Portofino.

This was partially offset by the solid performance of the 812 Superfast, pricing and deliveries of the Ferrari J50 as well as the FXX K Evo.

Had we moved the contribution from personalization programs from volume to mix and price, the latter would have been positive.

This is the change, we will adopt that from Q1 2019 due to the intrinsic enrichment nature of personalizations.

Industrial cost and R&D slightly decreased, mainly due to lower spending in Formula 1 activities.

SG&A cost were mostly in line with prior year.

Other increased by EUR 36 million, thanks to stronger and already commented revenues from sponsorship, higher 2017 championship ranking compared to 2016, as well as the final favorable ruling on the prior year's legal dispute as announced in Q1 2018.

This was partially offset by a lower contribution from other brand-related activities and engines supplied to Maserati.

Moving to Page 9. Industrial free cash flow for the year was EUR 405 million, essentially driven by the strong EBITDA, just partially offset by CapEx spending of EUR 637 million to support the evolution and the hybridization of our product range and EUR 88 million of taxes.

Just as a reminder, tax paid include the already commented positive cash impact from the Patent Box benefit for 2015 to 2017, equal to EUR 120 million out of a total EUR 141 million benefit to the P&L.

Net industrial debt at the end of December 2018, after EUR 100 million of share repurchases, reached EUR 340 million.

On Page 9, you can finally read the group's targets for 2019.

We aim to continue our trajectory of growth, with net revenues above EUR 3.5 billion with a growth rate in excess of 3%.

As Louis just said, growth will be mostly driven by car and spare parts, thanks to the ramp-up of the newly launched products.

GT, sport and special series are expected to account for approximately 1/3 of total volumes each.

The Ferrari Monza will only marginally contribute starting from Q4 2019.

Total shipments will approach 10,000 units in 2019.

Adjusted EBITDA growing approximately 10%, and reaching between EUR 1.2 billion and EUR 1.25 billion.

The high-quality profitability growth is expected to be driven by volume as well as overall positive mix accruing in the second half.

This will be partially offset by SG&A to support business development.

Adjusted EBIT between EUR 0.85 billion and EUR 0.9 billion, which means approximately 6% growth versus 2018 as a result of growing D&A.

Adjusted diluted EPS between EUR 3.5 and EUR 3.7.

As a reminder, 2019 net results include the Patent Box benefit for its last year.

Roughly EUR 450 million of industrial free cash flow generation will be supported by a robust adjusted EBITDA, as well as the advances from the Ferrari Monza, partially offset by CapEx increased to approximately EUR 750 million, mainly to fuel the evolution and the hybridization of our product range.

Again, as a reminder, the Patent Box will benefit the cash generation by lowering tax cash out.

Just as a final remark, please note that the above guidance assumes foreign exchange scenario broadly in line with the average for 2018.

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

Thank you, Antonio.

We are now ready to start the Q&A session.

(Operator Instructions) Our first question comes from the line of Michael Binetti from Crédit Suisse.

Hi.

Thanks for taking our question.

Good afternoon, everybody.

Congrats on a nice year, Louis, to start off your

time at Ferrari.

Could you -- would you mind helping orient us back to the framework you gave us with the Capital Markets Day on EPS and free cash flow?

So I think the 2019 EPS guidance you've laid out today, EUR 3.50, EUR 3.70 is above the 2020 EPS that you gave of 3.40 and EUR 3.50, and then free cash at this year I think was about EUR 450 million, but you originally said, I think EUR 400 million for 2020.

So I know there's moving parts and I know, maybe, you're getting a lot of deposits today on things like Monza.

But I would assume the pace of launch as you just laid out today, you'll still be collecting deposits next year.

So I don't understand why margins would be flat or free cash flow conversion would slow next year.

Maybe you could help just kind of reorient us between the 2019 guidance we now have clarity on and then what you gave for 2020.

Well, thank you for your question, Michael.

I think the easiest way to explain that is that we were firmly focused on our 2022 targets in the Capital Markets Day.

And we felt that we should give you a sort of midpoint in 2020 to guide the speed at which we would reach those targets.

I mean, clearly, given our 2019 guidance, and clearly, the sense that we have is we're very bullish on the business, I would say that 2020 is probably on the low side of the range.

But that is something we clearly would give you next year when we finalize our 2020 guidance.

But as I say, we felt that it was important to give you sort of a midpoint between '18, '20 and '22, but we will firmly -- the slope of growth may obviously accelerate.

I hope that's helpful.

Very helpful.

And then, if I could just follow that quickly.

The -- it's really helpful to see the presentation of 5 new cars coming this year.

How do we orient back to that also to the 15 new cars that you mentioned at the Capital Markets Day, how many of the 4 cars you laid out in slide deck from 2018 count towards that 15, and how many, I guess, of the 5 new models they would all be counting towards that 15 cars that you're going to be launching by 2022?

And then with a little bit of time gone by, any color you might offer on the models, the 5 new models, which is a very fast pace coming this year between V8, V12, specials, any kind of color you might want to add at this point as we're getting closer?

Well, as you know, we like to surprise everyone with our new models.

What we said, if you recall at the Capital Markets Day was that we would launch at least 4 a year.

So the 5 for this year is essentially in line with that.

So you can expect going forward, basically, 4 a year.

One year, there will be 3 because we're doing 5 this year.

So really was modeled this from '19 going forward to 2022.

Your next question comes from the line of Adam Jonas from Morgan Stanley.

Thanks, everybody, and thanks, Louis.

Two questions.

First, Ferrari is an exclusive -- ultra exclusive luxury product that does, at some level, contribute to climate change.

When do you expect to launch the first all-electric Ferrari?

Good question, Adam.

First of all, I would argue with the premise of your question in the sense that, first of all, yes, I agree that we are a hyper luxury product and company.

You should see the emissions per mileage because the mileage of Ferrari usage is actually pretty low, and that's something that one should give consideration to.

I think the data I looked at was the average kilometers used was only about 4,000 kilometers a year.

In terms of moving towards hybridization, as we said at the Capital Markets Day, we expect that 60% of our portfolio will be hybrid.

And I think we also said that beyond the time period, beyond 2022, you will see fully electric Ferraris.

I won't give you a date yet, but you can expect one in the periods following 2022.

Thanks, Louis.

And I might imagine, I think that some of the costs for that product might have been accounted for in the 2022 plan.

Correct me if I'm wrong.

No.

You are correct.

Okay, okay.

And just a follow-up.

According to Google Maps, Louis, the drive from Maranello to Modena is 16.5 kilometers.

Is there any logic in a potential combination between Ferrari and Maserati?

Thank you.

I don't think so.

As you know, historically, they were combined at one point.

My own sense is that Ferrari benefits from total focus and adding another brand would be a distraction.

And frankly, we're very focused on implementing the plan that we divulged to you at the Capital Markets Day.

So focus is something that's critical and our plate is pretty full.

Your next question comes from the line of Max Warburton from Bernstein.

It's Max Warburton from Bernstein.

Two questions, please.

The first on product, the second, a financial question.

On product, at the Capital Markets event last year, Mr. Galliera was talking about a new mid-engine supercar that I think he was suggesting will be unveiled this year.

My question is does that go into production this year?

Should we think about a mix-enhancing car above and beyond the 812 Monza during this calendar year?

I'll come back with the financial question, please.

You're right.

Enrico mentioned a car in the range that had supercar performance.

That will be unveiled this year.

The sales -- actual sales hitting the market will be in early 2020, so they do not affect the '19 numbers.

But clearly, will have a big impact on the 2020 numbers.

We anticipate that the margin on that model will be considerably superior to the one on the 812.

Got it.

And Louis, just to confirm...

Does that answer your question?

It does.

Can I be greedy and have a follow-on on the product question.

Is it a series production guide?

Will have a full normal production lifecycle?

Yes.

Okay.

And then, just on the financials.

Really, I guess, the question for Antonio, could I be reminded of what this item is in the net industrial debt calculation?

I'm looking at slide 17, this funded self-liquidating financial receivables portfolio, bit of a mouthful.

Can you just remind us what is it exactly?

And is there any way that can be forecasted?

Well, it's just the inter-segment, and, if you wish, the financing to the financial services arm that we own in United States.

Okay.

And can you just explain, how does it square with the net debt walk that you show on Page 9?

Is it relevant to that?

Is there an interaction?

I need to understand.

Yes.

In the net debt walk you see the interaction deducted in the "Other" column, in the "FX and Other".

Okay.

So -- okay.

The number we show, Max, is the net industrial debt.

Yeah.

net of the financial services.

correct.

Because most of it is securitized.

And part of that are financed by the industrial companies as you may imagine..

Okay.

Thank you

Does that clarify the point?

It does, yes.

Thank you.

Your next question comes from the line of John Murphy from Bank of America.

Hi.

Good afternoon, guys.

Just to stay on the product discussion here and the 5 new models going to be launched this year.

I mean, triangulating what you just answered to Max, and some of the stuff you said at the Capital Markets Day, I mean, it appears we're going to get sort of a lot of information about the launches that are coming over the next few years through 2022.

I'm just curious as we think about this, I mean, and we all get a little bit twisted between mix and price, but it sounds like we're going to see mix and price improvements that may be a little bit better than expected, particularly given your last answer about that product would have a much higher margin than normal.

I mean, are these going to be much more impactful products than we've seen in the past?

I mean, and as you think, Louis, really about the opportunity on price, I mean, is it much more on putting out a better product and taking price that goes along with that -- rewarding the customer with better product but rewarding yourself with better pricing and margin?

And is that how we should more think about things going forward, and there might be real step-up that's coming?

That, clearly, is our ambition.

And I think we will have the products that enable us to do that.

As I said my opening remarks, new models allow us to penetrate new segments and also allow us to really use the pricing leverage that we have.

So we have various arrows to use and we intend to do so.

But price/mix over time, as we always said that we would privilege revenue over volume, and we would privilege mix over volume.

Having said that, we do intend to enter the GT segment as we said at the Capital Markets Day, so it will be a mixture of the two.

But we are very, very focused on our margins.

Okay.

But would it be fair to say that sort of the standard thought process of maybe 3% to 5% price increases is a little bit too conservative and as products are being replaced with new better powertrain products and more exciting products that it could be significantly better that on the product replacement?

Is that a fair statement?

I think that's a relatively fair statement in the sense that the lifecycle of some of our models is reaching their end and that they will be replaced and the replacements, which we are very excited about, will allow us to increase prices on those specific models.

Okay.

That's very helpful.

Then just one last question.

When we think about the Maserati engine business, sounding like it's going to underperform a little bit in 2019 and going forward, it's tough to call that kind of stuff.

Is there any way that you could repurpose some of that capacity for some of your future product?

And obviously, it wouldn't be like-for-like.

But I'm just thinking about sort of drifting and being sort of capital-disciplined here.

Is there an opportunity to kind of shift some of that in the other direction to your core products?

Well, as we anticipate the growth, clearly, the main impact is that should the Maserati engines continue to decline or actually stay flat longer term, we're able to move people, trained employees from the Maserati engine business to the car manufacturing business.

So in fact, total headcount can remain essentially flat as we increase our production volume.

But again, it is somewhat dependent on the orders we will receive going forward from Maserati.

Great.

Thank you very much

Your next question comes from the line of Philippe Houchois from Jefferies.

Thank you.

Good afternoon.

Question maybe for Antonio.

Back in September, you showed us that CapEx plan guided to EUR 650 million CapEx in '18.

You came in slightly below that.

The chart suggested the significant step-up in '19.

But if I look at your earnings or your cash flow guidance, it looks like that's maybe a bit aggressive.

So I'm just wondering, would you be kind enough to give us a euro amount for that '19 CapEx?

Well, you put it in the -- I think in the terms of the size of this CapEx, It's substantially in line with what we had in mind, what we presented you at the Capital Market Day.

The cash flow guidance is based substantially on this following reasoning, that is: EBITDA less CapEx is more or less in line with the free cash flow for the year, having all the rest offsetting each other.

Meaning: change in working capital, taxes - that, please remind, are benefiting from the Patent Box once more in 2019 and financial charges are offset by the advances we get on the Monza.

Philippe, I think you may have missed Antonio in his remarks, actually gave you a number, which was EUR 750 million, is that what you're looking for?

Right.

That's what I was looking for, it makes sense and...

I'm sorry, I didn't get you.

My apologies Philippe.

No.

That's fine.

It's EUR 750 million.

Correct.

Right.

If I can squeeze another one, more on the Purosangue, the SUV that may not be an SUV, we will find out in a few years.

But we are 6 months after the Capital Market Day almost, you've seen bit more activity, the Urus at Lamborghini, the market in general.

Do you feel more confident, less confident towards moving Ferrari into that kind of product direction based on what we've seen in the market?

Well, with all due respect to Lamborghini, what we have in mind is something that's clearly rather superior than what's on the market today and we're still on track for what we said at the Capital Markets Day.

Your next question comes from the line of Giulio Pescatore from HSBC.

Hi.

Thank you for taking my question.

So two, if I may.

The first one, on the Pista and the phase-out on the 488.

How should we think about the impact of the 2 replacing each other on volumes, revenue and perhaps also margins?

The second one, more financial-related.

I'm still a bit surprised on the free cash flow guidance.

Maybe I expected it to be a little bit higher given the deposits you are going to get on the Monza.

So maybe can you clarify what will be the phasing of the deposits?

What it is the proportion that you will get into this year?

Well, clearly, as I said earlier, the 488 is reaching the end of its lifecycle and the Pista is incredibly successful and It's sold out.

the Spider will start selling in the second quarter, but orders are essentially all done.

On the cash flow, I'll let Antonio address that.

Sure.

Hi, Giulio.

I think the answer I already gave to the previous question is probably the guideline for our free cash flow in 2019.

I think the way we see it is basically that, as I said, the EBITDA less CapEx provide for the bulk of the free cash flow.

And we expect the advances on the Monza to be offset by change in working capital and the rest.

I think the point here that you ask is, which is the proportion of the advances that we are going to have in 2019.

Actually, we won't give you a specific number on that.

We are finalizing the contract.

But as I said, as a rule of thumb, we assume that formula that I just told you.

Your next question comes from the line of Martino Ambroggi from Equita.

Yeah.

Thank you.

Good morning, good afternoon, everybody.

The first question is on volumes because in '18, they were up 10%, for the current year, you gave an indication of an additional 8% growth.

This is a significant jump compared to the historical growth trend.

So should we assume a similar underlying trend going forward?

Well, as Antonio said, we should be approaching 10,000.

We may actually cross that line this year.

But going forward, I think as we've said earlier, we will very much focus on revenues and margins rather than volumes.

So I wouldn't anticipate that the volume growth would continue ad infinitum at that sort of pace.

Okay, because I was wondering...

Did I answer your question?

Yes, yes, absolutely.

I was wondering if this jump in volume growth could have affected the waiting list in the medium term and continuing with such a trend.

Sorry, I couldn't really hear your question.

You're concerned about?

No.

I was concerned, in case of constant close to double-digit growth, that the waiting lists could have been eroded instead of being the usual 18, 24 months, but this shouldn't be the case.

So could you remind us what are the implications in terms of penalties and some that you have to pay for the 10,000 threshold when you pass this threshold?

It's not significant.

It's sort of high single-digit millions.

But I mean, the more important point is volumes relative to the order book and the exclusivity.

Rest assured that we are very, very focused on that and as you'll see the new models coming out and the pricing associated with those models and the technology and innovation and design features, you'll understand better how focused we are on brand image and exclusivity.

Okay.

And very last on the R&D capitalization, if you can provide us what is the balance for '18?

And what is implied in your guidance for '19 in terms of balance between capitalization and amortization?

Sure.

Out of the EUR 637 million capital expenditure for 2018, capitalized R&D is broadly 50% of total.

So it's EUR 318 million.

And in 2019 budget, we expect more or less the same proportion.

And the net balance between the amortization and capitalization?

Is PP&E.

Sorry, should be 0?

No, the net balance -- maybe I didn't get your question.

Could you please repeat?

Yes.

Just you mentioned what is the amount of the capitalized R&D.

But taking into account the amortization of the capitalized R&D of the previous years, you -- in the past third quarter, (inaudible)

The amortization of the R&D is approximately EUR 120 million, slightly less than that.

This is for '18?

For '18, yes.

And is it growing, I suppose, in 2019?

Yes, with the pace of the capital expenditure.

Your next question comes from the line of Thomas Besson from Kepler Cheuvreux.

Thank you very much.

I have 2 quick questions on your EBIT bridge, please.

Can you say a few words about the evolution of industrial costs and R&D in the context of about 20% increase in your volumes between '18 and '19?

Both SG&A and industrial costs and R&D had been almost maintained?

Can you explain how you do that and what we should expect for 2019?

That's the first question.

What we expect in terms of the development for SG&A for 2019 is an increase, as I mentioned in my comments.

While we expect our R&D expenses to be more or less in line with 2018.

Okay.

Can you talk about the FX impact we should anticipate for 2019?

It's been more negative than what I had in mind for '18.

Is it going to be more neutral in '19, or again, a headwind?

As I said in my comments, the targets we have discussed and disclosed today are based on the assumption that overall, throughout the year, the foreign exchange scenario is more or less in-line with the one we have seen in 2018.

Which would mean the full neutral effect on your bridge?

Correct.

Yes, neutral.

Your next question comes from the line of Raghav Gupta from Citi.

thank you.

Good afternoon.

I just wanted to shift the conversation a bit to the non-car revenue side.

You gave very few details at the CMD because the strategy was not finalized and you were still developing a framework, I think were your words.

Have you had sufficient time to think about this?

And how you might you leverage the brand to generate additional profit for Ferrari?

That's the first one.

Well, thank you for that question.

Clearly, it's still work in progress.

We are finalizing the strategy.

There's been a lot of work done, and the first step is cleaning up what we have, as I mentioned in my opening remarks.

So in fact, we are sort of cleaning up the portfolio, taking out various products that have our brand on it and also terminating some license agreements.

And off that base, we will then grow.

My sense is that by this summer, we will have a very clear strategy and we will be focused on execution.

Okay, so we can expect, perhaps something on that in Q3 in terms of an announcement of strategy.

Is that fair in terms of timing?

Yes, that's fair.

Okay, great.

And then, Mr. Camilleri, I heard what you said in your opening remarks about residual values remaining solid and then kind of within your prediction.

I was just really hoping to press a little bit more on this.

When I look at classic car pricing, it seems to have come under a bit of pressure.

And what impact is this having, if at all, on your interactions with customers?

None.

Residuals that we look at across the globe are essentially in-line with our expectations.

I don't know what you're looking at in terms of classics, but the results I've seen in auctions, of recent auctions in terms of classics, the prices have held up pretty well and some prices have actually, for certain models, hit record levels.

Okay.

All right and on the Patent Box, can I just have a quick clarification in terms of what impact you're expecting for 2019, please?

Sorry, on the P&L.

Yes.

You may assume in the region of EUR 50 million, more or less in-line with the impact on 2018 P&L.

Your next question comes from the line of Stephen Reitman from Societe General.

Yes, thank you.

Good afternoon.

I have 2 questions on accounting.

Obviously, we don't have yet a full account which I guess is going to come out in about 3 weeks time so if we just dig a bit deeper into some of those numbers again, please.

I'm going back to the question about cash R&D, could you confirm what the figure was for cash R&D?

Because I think the figure you gave was for capital expenditure, the 637.

So how much was actually the cash R&D spending in 2018?

And then if you could then confirm how much was the capitalized R&D against that figure, that will be my first question.

The second question is there anything , what are the determinants of the launch of the Monza?

You've mentioned that it's in Q4 this year.

Is there any technical reason or limitation that might prevent you from making -- bringing that forward into earlier quarters?

And finally, could you confirm now that the Aperta, the last Aperta has now been sold as appears to be indicated by the presentation.

Sorry, what was the last question?

About the Aperta, if the last Aperta has now been sold as appears to be indicated by the presentation.

So let me start with 3, 2, and then Antonio with 1. So yes, LaAperta is finished, done.

It's finished, history.

In terms of the Monza SP1 and SP2, it's the fourth quarter essentially because, as you knew and we said at the Capital Markets Day, we're building a new production line for that pillar, and Monza SP1 and SP2 are the first ones.

I would say that we're focused on Q4 in terms of production and sales because it's actually a very complex car to manufacture in terms of craftsmanship.

So there's a lot of new things and a lot of handmade carbon fiber pieces that require a lot of training to get them precise to meet our specifications.

So that's really the main reason why we see that sales will commence in Q4 rather than earlier.

And Antonio will hit your question on R&D.

Yes.

Capitalized R&D, as I already said before, is EUR 318 million in 2018.

And R&D costs, so within the P&L, is EUR 528 million.

So total cash R&D is the sum of the two.

Sorry, can you repeat the figure, you said 528?

Yes.

EUR 318 million capitalized R&D, EUR 528 million R&D costs.

And then amortization was EUR 120 million?

Amortization, the precise number is EUR 115 million.

Your next question comes from the line of Adam Hull from MaineFirst.

Hi good afternoon, thanks for taking my questions.

Digging a little bit deeper on the free cash flow in the midterm.

Firstly, on Patent Box, what is the cash tax benefit you're assuming in your 2019 cash flow guidance of EUR 450 million?

And, if any, is there more coming in 2020?

And can you just repeat that net -- the tax benefit for the P&L in '19?

I may have misheard that.

And then question 2, really looking to your free cash flow, if I look at '18, I look at the EUR 405 million, take out EUR 120 million Patent Box is EUR 285 million, 8% free cash flow margin, that's very different from what you're guiding in a sense in 2022 when your EUR 1.1 billion to EUR 1.25 billion free cash flow, that seems to be at 22%, 25% free cash flow margin.

So kind of triple in the sense of what you did in 2018.

Is there something odd particularly about 2022 or are you thinking that you can be doing more than EUR 1 billion free cash flow into the kind of early '20s or so.

It just seems a very big difference between sort of 8% and interest of the 22% to 25%.

Okay.

In terms of the -- maybe we'll start from the last one, so you may remind me of your previous ones.

The difference between 2018 and 2022 is that 2018 start reflecting the impact of the capital expenditure.

If you really remind our -- even if we didn't give the specific guidance on CapEx and if you look at the chart we've shown at that time, you see the CapEx going down slightly towards the end of '22.

And on top of that, there's the impact of the introduction of some -- of the Iconas that we described as becoming a more relevant pillar.

So the overall impact is that one.

Then as far as 2018, if I recall correctly, the -- I said already what the benefit of the Patent Box is EUR 120 million, we anticipate the cash benefit of the Patent Box in 2019 to be in the region of EUR 100 million and then this amount to be reduced in 2020.

Remind you that as of now we are expecting the Patent Box benefit to be an event terminated in -- sorry, not an event, but a benefit terminated in 2019 while cash wise should be a positive for 2020.

I don't know whether I missed something among your questions.

Just, if I could just follow-up, you gave us those 2 numbers for cash R&D, which we can add up.

So as we look at cash R&D, how is that looking in terms of 2019 and '20?

And just maybe just help us a little bit on the P&L impact in terms of what the capitalizing rate will be, so what the cash R&D spending will be, so I guess if it was roughly EUR 850 million last year, how does that look into next 2 years and a cash R&D and also what sort of a rate of capitalizing of that overall cash R&D number would be.

Maybe I can try and answer it this way.

I already said that we expect the R&D charge the P&L to be more or less in line with 2018.

There will be some more spending on the, I'd say, on the new cars coming in for the Formula 1 activities, maybe offset by something else -- some other on the more standard -- let's say the cars manufacturing activity.

In terms of the rate of capitalization, probably is not the way we described it.

Certainly, there is -- going in 2019, there is still an amount of R&D spending within the CapEx that is significant because we have a lot of the preparation for the hybridization and introduction of new vehicles that explains that.

The average ratio within the capex you may imagine is 80-20, in terms of product being 80% and most of that is R&D, 20% being the structure and anything related to manufacturing tools.

And your last question comes from the line of Ryan Brinkman from JP Morgan.

Hi, thanks for squeezing me in.

I'd like to follow up on your comments regarding that brand licensing arrangements.

It sounds like you want to be more selective in terms of the arrangements, at the same time, this has been identified as potential growth area for Ferrari in the future.

So can you sort of talk a little bit about these brand-related activities you are pruning and then which activities you may be looking to increase in coming years?

What are the attributes that make a licensing arrangement attractive to you profit-wise or from the perspective of brand value in comparison to some of the ones you're letting roll off?

And how should we think about the financial impact of your strategy with regard to sponsorship, commercial and brand initiatives?

Well, as I said earlier, that strategy is being finalized, Ryan.

I would say that, walk into Ferrari store today and it's obvious that some of the products do not fit our brand image and our luxury positioning.

So going forward, you can expect things that fit much more in terms of our customers, in terms of the premium products that they would enjoy.

We gave you actually a couple of examples at the Capital Markets Day.

We have a new license agreement with Berluti in terms of leather shoes, which is doing extremely well.

Berluti is very pleased with that.

And we also had the agreement with Loro Piana in terms of the racing suits and the helmet.

So there are things that we want to offer our customers, which appeals to them and there's clearly demand for that kind of products.

And essentially, if you look at it from a client perspective, there's the tifosi who will always want Ferrari-branded materials, and that we will retain, but we will enhance their quality.

There's obviously our customers and clients around the cars, and there's a whole field of entertainment, which we feel our -- is something that we can be part of.

So really, those are the 3 essential segments from a customer point of view.

Okay, and just finally, another question on the Purosangue, I'm curious what has been the customer reaction to the announcement.

Of course, the vehicle is still in development, not to be launched for some time.

It's probably quite early.

But can you share since the time of your Investor Day, the degree to which your existing customer base has maybe approached you indicating potential interest in this type of a vehicle?

I would say that the reactions have been very positive from both the dealer network and the clients.

Clearly, they want to see the product, but they trust us.

But it is a segment that clearly is growing and a lot of clients would love to have a Purosangue to use on a daily basis.

So the reaction has been very positive.

And actually, nobody seems to be sort of concerned that it would somehow dilute the Ferrari brand image, on the contrary it would complement it.

Thank you.

There are no further question at this time.

Please continue, Miss Nicoletta.

Thank you, everyone, for joining us today.

If you have any further question, the IR team will be soon available.

Thank you.

Thank you.

That does conclude our conference for today.

Thank you all for participating.

You may all disconnect.

Speakers, please stand-by.