Ferrari Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

There are 17 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Ferrari 2024 Q1 Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nicoletta Russo, Head of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, Sandra, and welcome to everyone who is joining us. Today, we plan to cover the group's Q1 2024 operating results and the duration of call is expected to be around 60 minutes. Today's call will be hosted by the group CEO, Mr. Benedetio Vina and group CFO, Mr. Antonio Picca Piccon.

Speaker 1

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 said, I'd like to turn the call over to Benedetto.

Speaker 2

Good afternoon, Nicoletta, and thank you everyone for joining us today. I just came back from Miami, where I spent 1 week together with our clients, the fans, the sponsors, including HP, our new title sponsor and all brand enthusiasts. You should have been there with me and all Ferrari colleagues. You would have been experiencing the brand power of the branching horse. Indeed, for the first time in our history, the result of our company, racing, sport cars and lifestyle have been working in unison together to provide all the people in Miami a truly unique experience.

Speaker 2

But before sharing with you more detail about this fantastic event, I would like to thank our Ferrari colleagues for their outstanding work and dedication, our clients for their loyalty to our brand and all our partners, suppliers, dealers and sponsors. Without their target's effort and dedication, the strong result we present today would not have been possible. So let's start with the financial results of the Q1. We can say that it is a strong start to the year with double digit growth on key metrics, thanks to an even more robust product mix and a strong trend in personalization. 3 are the key highlights.

Speaker 2

1, total revenues reached approximately €1,600,000,000 with flat deliveries. This once again plays testament to our strategy of value over volume. 2, we enjoyed a strong profitability with EBITDA at €605,000,000 and 3, industrial free cash flow generation reached more than €320,000,000 in the quarter. The order book on our current models continues to be very strong with a normalization in line with our expectation, with almost all models substantially sold out. And in the last week, we opened order book for the Doddy Cilindri, Coupe and Spider.

Speaker 2

For the first time, for our range models, we unveiled the Coupe and the Spider together because we want to leave the freedom of selection to our clients. The first feedback from our 2 new models has been extremely positive. Several clients have said, it's not a matter of either or. We love both. I talked with a client from all over the world, from China, from Korea, from U.

Speaker 2

S, from Europe. They were all astonished by both models. Our new Doddy Ciel Indre are amazingly beautiful in high performance. They are the perfect blend of tradition and innovation, elegance and sportiness. Our clients' opinion are obviously paramount, but I am also proud to say that the Roma Spiders has been recognized with a RoadDot Award, best of the best in the product design category.

Speaker 2

And the Ferrari SF90XX Stradale and one off KC23 have also been awarded Red Dot Awards. All these are truly innovative vehicles enabled by R and D innovation. And in fact, in 2023, just in Italy, we submitted 181 patent applications every 2 days. And always on the subject of innovation, last month, we inaugurated the Ecell Lab in collaboration with University of Bologna and NXP Semiconductors. This laboratory will make a significant contribution to research in electrochemistry and the project reflects the importance of collaboration between the academic and the business worlds.

Speaker 2

But there is much more in it. This lab will foster innovation in our local area and help us to build the skills of the future. Talking of technology collaboration, we have renewed our partnership with SKion, a leader in the field of high performance cell manufacturing with whom we have collaborated for many years, and we will continue to innovate further. As you can see, we are firing on all cylinders in the execution of our business plan and product development. But perhaps, I should instead say we are charging ahead because in 2020 4, we will set another significant milestone in our electrification journey.

Speaker 2

In fact, on the 21st June, exactly 2 years since our last Capital Market Day and as we promised you during all our previous calls and meetings, we will inaugurate our new e building. This state of the art and highly flexible plan will assure us of the flexibility and technical capacity in excess of our needs for years to come. Here, we will end the craft the dedicated electric axles and the batteries that will power future Ferraris, exactly like we promised you 2 years ago. A special thank goes to all the colleagues that have been able to maintain the building schedule despite all the difficulties we experienced in these turbulent times. It has not been easy, believe me, but they made it happen.

Speaker 2

Moving to the next page. The picture show clearly the essence of 1 Ferrari ethos. And believe me, there is no better way to simplify it than our recent activities in United States. As I told you at the beginning, last week, Ferrari hosted an unforgettable series of brand experiences in Miami, which immerses international clients, sponsor, Tifosi, dealers and brand enthusiasts into the Ferrari universe. It began with Cavalcade International, one of our most prestigious driving events, which attracted about 70 Ferraris and their owners from all over the world as they drove together through the scenic landscape of Nashville in Tennessee first and later in Florida.

Speaker 2

The journey culminated in Miami with the world premiere of the Ferrari Dodeci Cilindri and the Ferrari Dodeci Cilindri Spiders, our new 2 seater Berlinetta powered by front mid naturally aspirated V12. These models are the perfect embodiment of the Prancing Horse DNA, offering comparable performance and handling with sophisticated design. You should have seen the emotion of all our clients. My words would never be capable to transmit to you those emotions. These events were accompanied by a privileged view of the latest fashion capsule collection inspired by the story of racing on American trucks and the vibrant energy of Miami.

Speaker 2

The capsule collection had a warm reception. It was nice to see most of our clients wearing many pieces of our lifestyle collections during the long weekend. And last but not least, a fortunate few clients had the opportunity to leave the Miami Grand Prix to its fullest with exclusive and elegant hospitality of Casa Ferrari right at the heart of the race. I'm also proud to say that the Mageni Grand Prix was the start of a new partnership. HP has become our title sponsor with a multiyear collaboration that encompasses a shared commitment to innovation, trust and excellence as well as commitment to sustainable future from carbon neutrality to the education of the next generation.

Speaker 2

In HP, we have found the same values, which make it an ideal partner. I know them since more than 20 years. And for both our companies, people are the center of whatever we do because it is only people. It is only people who are able to blend together the tradition and innovation. Not all of our clients, Tifosi and brand enthusiasts were able to attend the event in person.

Speaker 2

Thus, we reached them through social media channels to nurture their sense of belonging. Lastly, before moving on, I would like to thank you, our shareholders, for your continued trust. And among you, I'm delighted to welcome around 4,700 new shareholders among our dear colleagues. Indeed, around 98% of our employees have taken advantage of the broad based shareownership plan launched by Ferrari that I described to you a few call ago. This initiative demonstrates our desire to foster the sense of belonging that makes us unique and underlines once more how we continuously strive for excellence.

Speaker 2

And on this note, I hand over to Antonio to review the Q1 2024 financial results. Please, Antonio.

Speaker 3

Thank you, Benedetto, and good morning or afternoon to everyone joining us today. Starting on page 5, we present the highlights of the Q1 results of this year. As you can see from this page, the Q1 saw shipments less than the prior year, while revenues and profitability grew double digits. As Venerto mentioned earlier, the robust mix was the main driver. Let me briefly go through the main highlights.

Speaker 3

Revenues of €1,585,000,000 up 11 percent adjusted EBIT of €442,000,000 up 15% with a 27.9% margin, 100 basis points higher than last year net profit of €352,000,000 leading to an adjusted diluted earnings per share of €1.95 up 20 percent adjusted EBITDA of €605,000,000 up roughly 13% with a solid margin at 38.2%. And finally, strong industrial free cash flow generation of EUR 321,000,000. Moving to Page 6, we can now add more color to the shipment number of the Q1. As usual, the geographic breakdown reflected our choices of both volume and product allocations in the different markets. As a result, deliveries increased in EMEA by 39 units, in Americas by 35 units, rest of APAC was almost flat and allocations to Mainland China, Hong Kong and Taiwan decreased by 79 units.

Speaker 3

Moving to the product portfolio overview. During the Q1, the Roma Spider continued its ramp up phase, while the Purosangue reached global distribution. Deliveries of the 296 family continued, sustaining the 46% hybrid share. The allocations of the Daytona SP3 increased in the quarter, in line with our plans and above the average for the rest of the year. Lastly, some models were approaching the end of their life cycles, namely the SF90 Stradale and the A12 GTS.

Speaker 3

The SF90xx Stradale, the SF90xx Spider and obviously the newly launched Dodi Sicilindrecoup will start contributing at their respective pace this year, while the 12 cylinder spider was from 2025. On Page 7, you can see the net revenues bridge, which shows a 13% growth versus prior year at constant currency. The increase in cars and spare parts was the most relevant contributor, driven by the richer product mix and country mix as well as higher personalizations. In the Q1, personalizations came in strong and in line with our expectations of approximately 19% in proportion to driving on cars and spare parts. The main contributors were the Purosangue and the total cardboard finish for the Daytona ST3.

Speaker 3

Sponsorship commercial and brand increased, thanks to the higher sponsorships for our racing activities, partially offset by the lower Formula 1 ranking achieved in 2023 compared to 2022. With regard to sponsorship, the additional contribution is provided both from new sponsors and different phase in of sponsors signed last year. Other revenues were flat with improved contribution of financial services offset by the decrease of the sales of engines to Maserati whose supply contract expires at the end of 2023. As previously flagged, within the other revenue, we have now reclassified any residual sales of engines to third parties, whether for sport cars or racing. Currency had a negative net impact of approximately €25,000,000 mainly due to the adverse dynamics of the Chinese yuan, Japanese yen and U.

Speaker 3

S. Dollar versus the euros. Moving to Page 8, The change in adjusted EBIT is explained by the following variances: volume slightly negative, mainly reflecting lower range models deliveries. Mix and price, positive for EUR 123,000,000, thanks to the robust product mix sustained by the Daytona ST3. As a reminder, we show in this bag the whole contribution from the Dycona pillar including the volume drives.

Speaker 3

The increased contribution from personalization and a positive country mix, mainly driven by Americas. Industrial and R and D expenses grew €29,000,000 led by innovation expenses, mainly for our sports cars development as well as higher depreciation and amortization. SG and A increased EUR 12,000,000 and mainly reflected the ongoing development of our digital infrastructure and organization. Other positively contributed for €6,000,000 The increased contribution from sponsorship and the release of private car environmental provisions in the USA, the latter worth approximately US10 $1,000,000 were partially offset by the lower Formula 1 ranking achieved in 2023 compared to 2022. Lastly, the total net impact of currency was negative for €23,000,000 Turning to Page 9.

Speaker 3

In the Q1, our industrial free cash flow generation was strong and reached EUR 321,000,000. It reflected the increase in profitability, partially offset by CapEx for €195,000,000 45,000,000 higher than last year and in line with the pace of development of our product and infrastructure. Capital expenditure during 2024 will develop more linearly compared to our usual cadence, particularly as we start spending for the new Spain shop. And second, a moderate increase in net working capital, mainly led by trade receivables. At the end of March, the company was in a net industrial cash position for €38,000,000 notwithstanding €136,000,000 share repurchases occurred in the quarter and the residual impact from currency and IFRS 16.

Speaker 3

Following the Annual General Meeting approval in April, the dividend distribution of approximately EUR 440,000,000 was paid on the 3rd May, thus impacting the balance sheet of the Q2. Finally, let's move to page 10, which confirms the guidance for 2024. We are really pleased by the solid Q1 performance, the continued strength of the order book and the positive business strength, also emphasized by the enthusiastic reception of the Dolicia Silindri and the great partnership started with HP. On this basis, we do look with great confidence at the next steps in the execution of our plan for the current year and beyond. I thank you for your attention and I'll now turn the call over to Nicoletta.

Speaker 1

Thank you, Antonio. We are now ready to open the Q and A

Operator

We will now take the first question coming from the line of George Galliers from Goldman Sachs. Please go ahead.

Speaker 4

Good afternoon and thank you for taking my questions. The first question I wanted to ask was just to help provide some clarification about the order book. You talked about some normalization, but you also, in the opening remarks, referenced the order book being very strong. Could you just help us understand what normalization means? Is this just the fact you have more slots available now going into 2026 and with the Duodice Chilindre?

Speaker 4

Or is there another element to it? And could you just confirm you haven't seen any pickup or abnormal behavior with respect to cancellations? The second question I had was around innovation. And Benedetto, obviously, you referenced the large number of patents that you continue to file. Just with respect to the patents and the innovation, is there any one area where you are particularly active today such as aero or chassis dynamics, software or electric powertrain?

Speaker 4

Or is the innovation really across the board and all of the different technologies obviously in play at Ferrari? Thank you.

Speaker 2

Thank you, George. Thank you for your question. I would start with the first one. Sabrina, there's a normalization, what does it mean? And so let me say in this way.

Speaker 2

It's a simple math, okay? Because we are in a situation where a lot of our model are sold out. And we have the 2 new model that were announced at the last week. And thanks for the effort to pronounce well in Italian. Thank you.

Speaker 2

The Doddy Gile Indre, where this the order of these 2 cars are not yet in our portfolio. So normalization for us meant that, as we said also at the beginning of the year in February, we were expecting the product portfolio to go a little bit down because there was not too much for the client to order. And this question, I would like to take this opportunity to clarify something important. The order book that we have goes well into 2026. This is very important.

Speaker 2

I want to clarify this because we have models that are, let me say, for which we have a longer waiting list. The second point, no abnormality of cancellation. We saw less order coming from China. That's true. But we don't see an abnormality of cancellation.

Speaker 2

We don't see any pattern either in terms of country or in terms of models. We see some clients that want to have some more model, they have to wait longer because there is a long wait time, like for example, the BurroSangue. The other point was about the IP. The IP is the innovation, let me say, that we are running and we are patenting, it goes across the board. There are some areas that are, let me say, more a little bit more present.

Speaker 2

What is related to the driving trails? So if you can, let me say, in our patent portfolio, we'll not find many patents about things that are not strategic for us like autonomous driving. But when it comes to anything related to the driving trails or clarity and this interacting with the car, well, over there, that one is an area of attention and focus for our patenting activity.

Speaker 4

Great. Thank you very much.

Operator

Thank you. We will now take the next question from the line of John Murphy from Bank of America. Please go ahead.

Speaker 5

Hello everybody. I just had 2 questions. The quarter was a very Ferrari like quarter with volumes flat, very significant revenue growth from price and mix and personalization. So it was really proved out the model. But I think if we look at the 2 walks, I was just wondering if you could give us some information on or color on the EBIT change versus the revenue change, because it was a very clean quarter with volumes almost flat year over year, but EBIT up $123,000,000 versus revenue up $166,000,000 which would give you a 74% contribution margin, which I think is not being appreciated necessarily in the stock at the moment.

Speaker 5

So I don't know if you can talk about that on a relative basis, but if you could give us sort of color of how we should think about contribution margin ex volume because it was very strong in the quarter about 74% as far as I can tell.

Speaker 2

It's a nice question. I would like to add to that.

Speaker 3

Yes. There are 3 main elements that contribute to the increasing contribution margin. The first one is the product mix, whereby it's important to flag the role of the Icona. Actually, I I said in my comments on the bridge that the Daytona contributed higher than they would do over the course of the rest of the year in the Q1. Secondly, personalization.

Speaker 3

Personalization is very strong. So it's above the 19% that we had for the rest of the year, slightly above. The third is country mix. Obviously, with China down, that has in terms of even of the marginality. I don't know whether it is a sufficient color.

Speaker 3

There are a couple of other elements that also contribute to the 499P also and a couple of models sold in the quarter, but that's what explains the strength of this contribution of mix and price.

Speaker 5

Okay. Maybe just one follow-up to that. I mean, basically what you're saying is the 74% contribution margin ex volume is the kind of number we should think about in the future? And then just one follow-up on Porrasangua.

Speaker 3

There is one element if you take into consideration. The Daytona is higher this quarter than the rest of the year. Okay.

Speaker 5

And then just on the Persango success, I mean that form factor obviously is somewhat unique. But Benedetto, you're having incredible success there. Could we see a successor to that in the next couple of years? And what would that mean for the business?

Speaker 2

Okay. Jose, another interesting question. I can tell you that, yes, Prosanco is having a lot of traction and the order book is very strong. It goes well ahead. But I don't want to comment of I cannot.

Speaker 2

I would like, but I cannot because secrecy is a way to fit the scalability of what we do. Clearly, clearly, there is we are learning a lot from this model. And usually, let's put it this way, we like to use what we learned. But I don't want to say if there will be a success or whatever.

Speaker 5

That's very helpful. Thank you very much.

Speaker 2

Sorry about this, Josh.

Speaker 5

No, understand, but thank you very much. That's good color. Thank you.

Operator

Thank you. We will now take the next question from the line of Tom Narayan from RBC Capital Markets. Please go ahead.

Speaker 6

Hi, yes. Thanks for taking the question. The first one I have is on China. You mentioned it was down a little. Just curious maybe if there's something driving that.

Speaker 6

I know that there are some just inherent reasons to not be as aggressive there with CO2 restrictions there and tariffs and such. Just would love to hear maybe a little more on what's happening in China, if there's anything any commentary there first?

Speaker 2

Thank you, Tom. I would like to share with you some color about China. That is pretty interesting. So we did some analysis. It's funny to see that if you go in China and if you compare what was happening 1 year ago and this year, basically, there are two numbers that are swapped in terms of car that we shipped to Mainland China, okay?

Speaker 2

We are talking about Mainland China. Clearly, if I see versus 1 year ago, there is a stronger traction of hybrid model. 1 year ago, we were shipping more IC than hybrid. This year, we are shipping more hybrid than ICE. And this brings also since the hybrid model are basically sold out, a little bit is left to be solved.

Speaker 2

This is an impact and is also, let me say, gives you more color about the meaning of normalization in that country. So I wanted to share a little bit more color because this China has a different meaning for us versus the other brand, the luxury brands acting in that region. It's a different meaning because for us since the beginning, since the Capital Market Day, as Antonio said, clearly, we want to keep Mainland sorry, Greater China, so ABC, Mainland China, Taiwan, Hong Kong, below 10%, because we want this market to get more acquainted with our brand. To be in the family of Ferrari, you need some time. And to and you needed to give time to the client in a country to understand what does it mean to be our client.

Speaker 2

So having said that, it's clear that, let me say, in China, we had this kind of normalization. That was also our, if you want, deliberate choice because the number of model we can sell there are not so many. And we wanted to keep always below 10%.

Speaker 6

Thank you for that. And a quick follow-up on personalization. The guidance is to stay at that 19%. That was the same amount in 2023, so effectively flat. Pure Song Wave is coming in.

Speaker 6

I think you also said Daytona above that level. So I guess the question would be, is there upside potential to that 19% to your guidance in 2024? Or maybe it's because the initial folks who are getting the Pure Sunway are more likely to personalize because they are maybe more VIP, etcetera. So I'd just love to hear more on your thoughts

Speaker 7

on No,

Speaker 2

I think, let's say, the trend of personalization is not specific of a model. What I can tell you is, let me say, another lesson learned, we like to register to report at least to us what are the lesson learned and to share with you is that this year, we increased the price of personalization. You may remember last call we said we increased the price of the new model and we increased the price of personalization. Well, what we saw that, yes, there was an increase on the price of the price of personalization, but there has not been any impact on the ratio of personalization. So this is a lesson learned.

Speaker 2

We increase the price and the personalization, but if the client want to personalize, they keep personalizing. And this is also the reason why when the previous colleague asked the contribution year over year to the EBIT, Antonio was telling contribution from personalization, product mix, account remix.

Speaker 3

Also, if I may add, the higher the average price of car, the lower the percentage. It's just a mathematical formula. So the more we sell by 2.

Speaker 6

Yes. Understood. Thank you.

Operator

Welcome. Thank you. We will now take the next question from the line of Monica Pozzio from Intesa Sanpaolo. Please go ahead.

Speaker 8

Afternoon, everyone. I hope you can hear me and thanks for taking my questions. The first one is on the 30 gs Cilindri. I was wondering if the DoDIGI Cylindri might carry a higher ratio of personalization? Or if there are any particular features that might carry a higher personalization content, not only on the price side?

Speaker 8

Any color is appreciated on this side. And my second question is on the country mix, which was favorable in the Q1. Should we expect a similar impact also in the coming quarters? Thank you very much.

Speaker 2

Thank you, Monica. I'll take the first one. The second, I'll leave it to Antonio. Let's say 2 things for the Doddy Cielinri, okay, Coop and Spider. Actually, 3 things.

Speaker 2

1, as I said, that the client like love, sorry, love both of them. 2, I've been talking maybe around 60, 70 clients, spending time with them in the 2 evening we had in Miami. I saw a strong interest of the client for new colors. So Arctic White as well as Verde Doscana. So there was a strong many clients telling, I will take I will order these colors.

Speaker 2

Some clients asking for 2 different color on 2 different cars, the coop and spiders. What I can tell you that the last important point is that we agreed that we I mean, we increased the price. As you have seen, the price is €3.95 for the coupe and €4.35 for the spiders. The number of the personalization, let me say, what will be the trend, we'll discover together. But I think there are enough personalization option for the client.

Speaker 2

And as I said, there is a lot of interest for the new colors that, let's say, let them get in love even more. There are many dimensions we can explore over there, Monica. But we wanted to start from a price that is higher than the predecessor of this car. The second one, I would like to Antonio, if you can elaborate.

Speaker 3

Sure. Thank you very much. So Monica, I think as far as the country mix is concerned over the course of the year, I would expect a modest positive impact.

Operator

No, because you're not a measure. Sorry,

Speaker 8

Got it. Thank you. Thank you, Antonio.

Operator

Thank you. We will now take the next question from the line of Adam Jonas from Morgan Stanley. Please go ahead.

Speaker 9

Ciao, everybody. A couple of questions. First, can you remind us of your sales today by unit volume, what percentage of your volume are delivered to clients that already own a Ferrari and how that changed in recent quarters? And I have a follow-up.

Speaker 2

We were waiting for only this question.

Speaker 10

I have a follow-up if I

Speaker 9

can ask you now or wait.

Speaker 2

No, no. We were taking note on a piece of paper. So maybe you can go. So one is the percentage of repeaters. The second?

Speaker 9

Yes. So again, the first question to be clear is what percentage of your volume are delivered to clients that already own a Ferrari or were existing owners replacing a Ferrari, if that makes sense?

Speaker 2

Yes, very clear.

Speaker 9

And The second question, Benedetto, is you have been making efforts downstream with your dealers and franchise dealers on trying to capture more of the recurring revenue and establish a more intimate relationship, if I can say so, with your clients, including things like increasing your hit rate on repurchasing a secondhand vehicle. I know there's other efforts that you're doing, but if you could give us an update on how that's going since you kind of reemphasize the efforts there, that would be appreciated. Thank you.

Speaker 2

Hello. The first question is very the first answer is very simple, Adam. Let's say, the repeaters, what we call the repeater, the people that are already client, it depends a little bit on the model. So you have models where the repeater is in the range of 10%, let's say 30%, 30%, 35% to a situation where the repeaters are going to around 80%, 85%. So it is in average, in the year 2023, 74% of our new cars were sold to existing clients, okay?

Speaker 9

Thank you.

Speaker 2

So this is the answer. The second, the dealers. What we are doing together with the dealers is to push our own to make the relation more intimate, as you said. We are working on 2 dimensions. Number 1 is the personalization, the personalization so that we can enrich the we can personalize more the cash.

Speaker 2

And the second is the Ferrari approved. In these days, I mean, last week actually, we launched in USA the Ferrari approved program that is something that allows we want to link more and more the we want to nurture more and more the pre owned market. And to this, we launched the Ferrari approved initiative that is intended to link, to bring more in the family the client to avoid them going, let me say, to use gray works body shop or gray dealers. And for this, we agreed with our dealers some activities, so that there is an incentive for our client to go back and to stay in the family. So these are the 2 things we are doing.

Speaker 2

Adam?

Speaker 3

Correct. Thank

Operator

you. We will now take the next question from the line of Michel Binetti from Evercore ISI. Please go ahead.

Speaker 10

Hey, thanks guys. And Benedetto, first, I want to say congrats on the 98% of the employees participating in the stock program. I know that's something that's been important to you since very early on in your time here.

Speaker 2

Thank you. I

Speaker 10

guess a question on the margin cadence through the year as we think about the puts and takes, particularly in Q2. I think you said there'll be less DAYTONA after the Q1, but I think here we are in May, I think the SF90XX models start to shift in the Q2 with the Coupe and then the Spyder later in Q4. I know those are high price point cars and it sounds like they're very heavily personalized. Is there as we look at that mix bridge, does that slow because there's less Daytonas through the rest of the year? And does the margin lift from Daytona slow through the year?

Speaker 10

Or does the XX pick it up and that can be more linear through the year? And then I guess secondly,

Speaker 2

maybe just on some

Speaker 10

of the new items, how does the HP sponsorship flow into the P and L, which lines and what is the timing around when you start to record that, if that's a new addition to 2024 guidance? And then I guess my last one is, Benedetto, on the E building, I know that that's an important input to the EV that you've announced for next year. Will we see the output from that building start to show up in your commercial activities before the EV? And maybe what would that would look like?

Speaker 2

So I think thank you, Mike. I'll take the third one and Antonio will elaborate on the first two. So the e building, as I said, is it will be let's say, the electric cars will be done in the E building. But in these buildings, because we always give a priority to flexibility, we will also have other car assembled over there, the hybrid. So yes, we will have some hybrid cars that will get out, will be manufactured, assembled, let me say, in this e building.

Speaker 2

But the electric cars, the plan for electric car stays as we committed 2 years ago and the e building will be inaugurated 21st June, as I said before. So don't expect, let me say, any electric cars to get delivered before what we told you. I mean, we stick to our plan. We are in line with that. For the other 2, the HP sponsorship flowing in the P and L and the margin cadence yes, Antonio?

Speaker 3

Hi, Mike. The first one, in terms of the cadence, the cadence is partly the margin cadence is partly dictated by that of the deliveries of Zaitona, which we expect to be higher in the first half compared to the second, even if in the second half, at some point, we've got also the SF90xx Stradale for delivery. And the but we expect anyway the overall mix and price impact to remain above 10% compared to last year in terms of growth. And as far as the HPE sponsorship flowing into the P and L, will start from the Q2. Do not disregard the fact that this is just a portion of the year.

Speaker 3

So it's not a full year sponsorship this one. And as these things do not happen overnight, as you may imagine, we encompass that already largely in our guidance for the year at the beginning.

Speaker 10

Okay. Thank you very much.

Speaker 3

Welcome.

Operator

Thank you. We will now take the next question from the line of Steven Reitman from Bernstein SG. Please go ahead.

Speaker 11

Thank you very much. I have some questions about the purusangue and about the 12 cylinder. First of all, on the Purisongue, you say it has reached global distribution. So that means that it's also reached the production cadence that's equivalent to the 20% target you would normally have for the vehicle over the lifetime of the product. Secondly, on the 12 cylinder, could you comment first of all on your thought process and how you came about the pricing on this vehicle, obviously, which is a 30% uplift on the A12 Superfast and I believe, a 27% uplift on the A12 GTS, obviously big increases.

Speaker 11

And secondly, also on the 12 cylinder, the fact that you're launching the 2 vehicles together, although as you mentioned, there is a delay before the spider comes out is released to customers. Does that indicate a high degree of flexibility you now have within your production system that you can actually develop these vehicles in tandem and have them out in a very short space of time compared to in the past when there was a quite long gap between these kind of vehicles? Thank you.

Speaker 2

Thank you, Stephen, for your question. So coming to the first one, the Porrasangue, where we can say that in Q1, the deliveries of Porrasangue were below 16% of the volume we shipped. So we are not yet at the 20%. You can assume for the year that will be around 18% overall. Coming back to the 12 cylinders or DoDIGI Cilindre, like we like, where the DoDIGI Cilindre, the price, let's say, we agreed to have an higher price, substantially higher price than the previous version, because we believe there is a lot of innovation, a lot of activities have been done by the company, by all the team to put together traditional innovation and also, let me say, when you try it, because we tried several times with Antonio and all other colleagues on the track and on the road.

Speaker 2

There is the right mix between driving trips, elegance and sportiness. So let me say, I think this price is what the cars, the service have have also for the let's say all the work has been done. I have to say that also during 2 nights, let's say, the world premieres, we have been talking about the feature of the cash, okay? We're about some clients were telling, I do not believe you have been able to reach such high performances in a car that was already high performance. We think about 4 steering wheel that is really unique and break by wires.

Speaker 2

A lot of innovation have been done on this car, mainly on the aerodynamic, on the power control, on the power unit. So also on the interior side, the display, the central display, yes, one thing that the client appreciated a lot is that we listen. We have the comment. We have a central display that is very high end and very easy to be used. You said well, I mean, the reason why we launched the 2 models together, the Coupe and Spiders, is the first time that we launched this for our range cars is because we want to give more freedom to client.

Speaker 2

It means that we have higher flexibility in house. So we prepared ourselves to have this higher flexibility in house because it's something that is also I mean, we met several times. We have to learn to know more our client. And this is a way also to learn from our clients how they react when they see the 2 models together. We are ready because we have a flexible manufacturing line.

Speaker 11

Thank you. If I go back to again about the pricing on the dodigy cylindri, I apologize Italian. If the price increase does that give us any idea of the future direction of when you launch also replacements for the next series of vehicles? We're expecting this kind of degree of price uplift on these vehicles? Obviously, with the 296GTB, it was about a 14% increase.

Speaker 11

And I think on the Roma Spider versus the Porto Pinto M, it was about 16%.

Speaker 2

This is the other interesting question. I think that it's clear that there are 2 things that we have to balance. 1 is the old innovation that we are offering to our client and number 2, the willingness they have to pay an aggregate price. What I can tell is that, yes, there is, as we said also in several meetings, there is an upward, a lift upward of our prices, as you have noticed well, for the 2.96 for the Roma Spiders and for the ODEGI Lindray. I think this is important.

Speaker 2

I mean, we always said, we want to grow. We want to give priority to value over volume. If you see also the deliveries of this quarter, basically they've been flat versus 1 year ago.

Speaker 11

Very well clear. Thank you very much.

Speaker 2

Thank you, Steven.

Operator

Thank you. We will now take the next question from the line of Anthony DiCke from ODDO BHF. Please go ahead.

Speaker 12

Yes. Thank you. Just a follow-up question on the HP title sponsorship. So quite a significant partnership you signed there. So I was just wondering how that affects the profitability profile of the F1 business.

Speaker 12

Is this something that could actually improve the profitability of the business? Or is it just made largely to cover any cost increases that we might expect in the coming years, maybe especially in 2025, with likely some higher wage expenses? And then the second question on the paint shop. Just wondering if you could update us on the development of the paint shop and what kind of investments and ramp up could we expect for that new building? Thank you.

Speaker 2

Okay. The first question, yes, it improves, very simple answer. The second, the paint shop, yes, we laid down the foundation in the last quarter in Q1. And let's say, the total investment is in the is a part of the investment plan we declared to you 2 years ago. You remember, we said €4,400,000,000 to total Maybe 2022, 2026.

Speaker 2

Yes, over 5 years. Out of which, let me say, €1,100,000,000 was for infrastructures and the paint shop, SV building are part of this €1,100,000,000 over the 5 year cycle. So nothing new, Anthony. It's we are moving according to the plan. The building will be announced next month as per plan and the paint shop started in Q1 as per plan.

Speaker 2

And all is part of this basket of €1,100,000,000

Speaker 13

Thank you.

Operator

Thank you. We will now take the next question from the line of Martino De Ambroggi from Equita. Please go ahead.

Speaker 14

Thank you. Good afternoon, everybody. Sorry to bother you on the profitability in Q1 and customizations, but you mentioned that customization was higher in Q1 than the 19% projected for the full year. Am I right in assuming 21% first? And second, you also mentioned the higher is the price, the lower is the customization?

Speaker 3

Martino, can I just stop you on this one just to avoid any misunderstanding? We guided the market to 19% for the full year. And I just said in Q1, we're slightly above 19. So

Speaker 14

that is not significantly different, okay? Okay. Okay. And the second part always on this question is, you mentioned that the higher is the price, the lower is the customization as a percentage of sales. But you also mentioned that the simple math fact.

Speaker 7

Yes, yes, yes, yes.

Speaker 14

But you also mentioned that the Purosangue is ramping up and the Daytona had a higher contribution in Q1 than the rest of the year. I remember you mentioned in the previous call, Daytona was expected to deliver 60 units in this quarter, so maybe it was higher. So and the two things together show that probably it is not in this quarter that the relationship the higher is the price is the customization for the overall picture. So I don't know if

Speaker 3

Maybe I answer. You're right in the sense that the Q1 we had higher deliveries of the Daytona and the Purosangue is ramping up in our global distribution, but it's not yet at 20%. When we said at the beginning, we are guiding to 19% average, obviously, take into account that we do not have full visibility of personalization over the rest of the year, because the decision on personalization is taken by the clients towards the end of this waiting time, a few months before delivery. So it's actually an assumption, the one we are not in a position to project on a precise map for the following quarter, particularly as we go towards the end of the year. I think 19% on average is a fair assumption.

Speaker 14

Okay. Thank you. And the second question is on costs. Probably referring to the previous question on HP sponsorship, am I right in assuming it is offsetting the Hamilton contract and just to have an idea of the Formula 1 contribution going ahead regardless of the ranking you will have this year, which is probably higher than last year?

Speaker 2

We said before, Martin, it improves. This was the same question that we got, no?

Speaker 14

No, but the Hamilton contract in the middle, I know you do not disclose the precise figures and so on. But I suppose this it helps to cover the Hamilton contracts that will come next year.

Speaker 2

No, Nana, but your answer your question is very clear. And our answer, yes, it improves. We don't discuss detail A or B, the plus and the minus or the equal, but it improves. Okay.

Speaker 6

Thank you.

Speaker 2

Thank you, Martino.

Operator

Thank you. We will now take the next question from the line of Gianluca Bertuzzo from Intermountain. Please go ahead.

Speaker 15

Hi, everybody and thank you for taking my question. I'm sorry to bother you on the partnership with HP. Are we talking about triple digit sponsorship here such as the previous long standing title sponsor? And second and third question are about volumes. Can we expect an acceleration of volumes deliveries throughout the year?

Speaker 15

Or can we assume a stable evolution? And on cost inflation, what are did you change expectation? Or the development is line with your thinking at the beginning of the year? Thank you.

Speaker 2

I think the first two and the cost is Antonio will help us to go through. So HP, we never disclose the numbers also because in the contract, if you see the contract we signed with all our sponsors, we cannot this information confidential. So we cannot needlessly weigh the number if it is 1, 2, 3, 4, 5 digits, whatever, whatever measurement unit you are thinking to. The second is the volume. We said since ever that we value we give a priority to value.

Speaker 2

Over the last year. Volume. So let me say, you know how many car we did the last years. We also said that the growing volume will be very limited. You see that Q1 basically we did, to be precise, 7 units less than last year.

Speaker 2

So let's say, we do not expect at all any acceleration of volume. This is not, I mean, what a brand like us should do. And that's also the reason why, if you remember the previous question of Stephen, Stephen was saying why you have been what is the rationale behind this strong price increase because we want to give always priority to value over volume. For the cost inflation, Anton, you can Yes.

Speaker 3

It's very simple. We haven't changed our assumptions for the rest of the year actually.

Speaker 15

Okay. Thank you very much.

Speaker 2

Welcome. Gracias.

Operator

Thank you. We will now take the next question from the line of Thomas Besson from Kepler Cheuvreux. Please go ahead.

Speaker 7

Thank you very much. I'd like to come back to the seasonality of earnings and talk as well about the the seasonality of CapEx and free cash flow, just to make sure I understood correctly. What I understood is that earnings would likely follow the shape of your deliveries for the Icona. So you likely have a better first half than the second half. I just want to confirm that.

Speaker 7

And I think you said as well that CapEx would be more linear this year than in previous years where it would have been more back ended. Is that correct?

Speaker 3

Maybe just clarify on the first one. I commented the development of the gross margin, the contribution margin, if you wish, which is dictated by the cadence of the Daytona. When you look at the entire P and L, obviously, there are other seasonalities that crossover the top part of the profit and loss. Overall, I would not expect significant differences over time, but for probably Q3, that could be a little bit normally happens a bit lower. With respect to CapEx, you're right.

Speaker 3

I said usually we experience an exponential growth of capital expenditure over the course of the year. In 2024, we expect the growth to be more linear because several projects are already well advanced. We are basically finishing up on the development of the e building and we have the ramp up of the expenditure on the new paint shop.

Speaker 7

Thank you. My second question, I know you want to keep some surprise. I look forward to visiting it. This E building, when we come there, are you already making something in it? Are we going to see something?

Speaker 7

Or is it just going to be for us to present us your projects in more details when it comes to both the one to every component you're going to make there and carve? Or are you already manufacturing something in the building?

Speaker 2

No, no. We told you maybe we were not clear in the past. In September, we start to get the first equipment. In December, we started already to assemble some components for our car. So now we'll see how to manage at the best of the leases, but it's not an empty shell.

Speaker 2

We don't do this in operation with empty shell, Thomas. We I mean, there are people working over there that are a components made already over there.

Speaker 7

I would have been prepared to come for a religious visit as well, Benito. Last question on ForEx, please. The headwind was a bit larger than I thought in Q1. Can you give us an indication of what we should expect for the full year?

Speaker 3

Well, we have said we expect the dollar to stay in the area of 110. Dollars Then let's see what happens. It's rather unpredictable. For example, the impact of Chinese yuan and the Japanese yen both last year and the current year is negative and larger than we would have bet on. As you know, we hedge our currency exposure on a 12 month rolling basis.

Speaker 3

So this smoothen a bit the impact. But overall, I would expect this to be negative for the rest of the year.

Speaker 7

Okay. Thank you very much.

Speaker 2

Welcome. Thank you, Dorian.

Operator

Thank you. We will now take the next question from the line of Gabriele Gambarova from Banca Akros. Please go ahead.

Speaker 13

Yes. Thanks for taking my questions. Just a couple left for me. Is it possible to know the size number of SP3 Daytona delivered in Q1?

Speaker 3

Yes. Approximately 80.

Speaker 13

80. Wow. Yes. And another question again on price and mix, very strong in Q1. The balance between this $80,000,000 the $123,000,000 am I right assuming that is made of, let's say, bigger deliveries of Purosangue?

Speaker 3

Can you please repeat the question? Yes, I

Speaker 13

was wondering if the Porosangue had, let's say, an important role in the improvement of price in mix in Q1, putting it in

Speaker 3

the ESP3. Okay. We do not give the details of the overall product mix impact. I told you that overall, the product mix impact is positive and this is because of the Daytona. The other significant contributor remains personalization.

Speaker 3

And the third one is country mix.

Speaker 13

Okay. Okay. Thank you very much. And very last question, just to check, Antonio, if I understood well.

Speaker 16

Just for the sake

Speaker 3

of clarity, Purosangue in terms of contribution is average compared to the rest of the range percentage wise.

Speaker 13

Very last question. I understood right. You said you expect price and mix to give a higher than 10% contribution across the rest of the year?

Speaker 3

I said that the increase of price and mix, as you can measure it, as the ratio of the average selling price compared to last year is expected to be above 10% on the full year basis. Okay, perfect. Thank you very much. Welcome.

Operator

Thank you. We will now take the next question from the line of Henning Cosman from Barclays. Please go ahead.

Speaker 16

Yes. Thank you so much for squeezing me in. I have also one more clarification, I'm afraid. But I'm still trying to reconcile your comments with respect to high number of Daytonas, I think very strong personalization mix on the first Purosangus to be delivered, perhaps on your modest geographical mix effect in the course of the year, perhaps a little bit less in Q1. So I would have thought these comments all sort of add to thinking that the Q1 margin is more towards the top end of the range that we can perhaps expect across the quarters for 2024.

Speaker 16

But then again, similar to the previous point that the colleague made, if the revenue per unit stays at above 10% or price mix stays above 10%, I'm the And then on another topic that hasn't come up, the second question is residual values. If I'm not mistaken, you had made comments around the degree of residual value normalization in the context of better availability of new cars. I don't know if you wanted to share anything there. I just wanted to give you an opportunity if you wanted to share something on residual values. Thank you very much.

Speaker 2

So I think the first one maybe Anton you can add some more color, and I will comment about the second. So I start from the second also for business or discussion. So residual value, there are let me say, the residual value keep pretty well. There has been one country that has been suffering a little bit for one specific model, but the situation is coming basically to is recovering. We don't see any strange pattern over there.

Speaker 2

Coming to the first question, Antonio will elaborate more. But what I would like to underline is that we are not changing the guidance. Absolutely. Absolutely.

Speaker 3

I mean, we are asked about color for the development of product as well price and mix over the rest of the year. And I try and simplify what I said before, meaning price and mix has been particularly strong in Q1. These have been supported by the number of deliveries of the Daytona, which is higher compared to the average for the rest of the year. And the other element that contributed positively was personalizations. And obviously, as I said, the other information that I put is that we expect on average price and mix to be growing 10% or above that in the course of 2024 compared to last year.

Speaker 3

This means that over the course of the quarter, in terms of contribution margin, depending on the cadence, the actual cadence of the DAYTONA will probably be slightly lower compared to the Q1 of the year. This is it. Does it

Speaker 16

help? I might follow-up with the team afterwards, but thank you.

Speaker 3

Okay.

Speaker 2

Okay. Thank you.

Operator

Thank you. I would now like to turn the conference back to Benedetto Vigne for closing remarks.

Speaker 2

Thank you. Thanks for your time. Thanks also for all your questions. The strong Q1 results and also the strong brand desirability are fueling our confidence for the development of the year and also forward. This is the key message that we wanted to pass to you.

Speaker 2

And I wish you a good afternoon and thank you again for your attention.

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Earnings Conference Call
Ferrari Q1 2024
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