Ferrari N.V. (NYSE:RACE) Q1 2024 Earnings Call Transcript

Ferrari N.V. (NYSE:RACE) Q1 2024 Earnings Call Transcript May 7, 2024

Ferrari N.V. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

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 session. [Operator Instructions]. 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. Please go ahead.

Nicoletta Russo: 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 the call is expected to be around 60 minutes. Today’s call will be hosted by the Group CEO, Mr. Benedetto Vigna; and Group CFO, Mr. 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 covered by this language. With that said, I’d like to turn the call over to Benedetto.

Benedetto Vigna: Gracious, Nicoletta, and thank you everyone for joining us today. I just came back from Miami, where I spent one 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 prancing horse. Indeed, for the first time in our history, [Technical Difficulty] company racing, sport cars, and lifestyles have been working in unison together to provide all the people in Miami a truly unique experience. 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 tireless effort and dedication, the strong results we present today would not have been possible. So let’s start with the financial results of the first quarter. We can say that 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. Three are the key highlights. One, total revenues reached approximately Euro 1.6 billion with flat deliveries. This once again pays testament to our strategy of value-over-volume. Two, we enjoyed strong profitability with EBITDA at Euro 605 million and three, industrial free-cash flow generation reached more than Euro 320 million 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 the order book for Dodici Cilindri Coupe and Spider. For the first time for our range models, we unveiled the Coupe and Spider together because we want to leave the freedom of selection to our clients. The first feedback from our two new models has been extremely positive. Several clients have said, it’s not a matter of either or, we love both. I talked with clients from all over the world, from China, from Korea, from U.S., from Europe, they were all astonished by both models. Our new Dodici Cilindri are amazingly beautiful and high performance. They are the perfect blend of tradition and innovation, elegance and sportiness. Our client opinions are obviously paramount, but I am also proud to say that the Roma Spider has been recognized with the Red Dot Award, best of the best in the product design category.

And the Ferrari SF90 XX Stradale and one-off KC23 have also been awarded Red Dot Awards. All these are truly innovative vehicles enabled by R&D innovation. And in fact, in 2023, just in Italy, we submitted 181 patent application once every two days. And always on the subject of innovation, last month, we inaugurated the E-Cells 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 academic and the business worlds. 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 SK On, 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 2024, we will set another significant milestone in our electrification journey. In fact, on the 21 of June, exactly two years since our last Capital Market Day, and as we promised you during all our previous calls and meetings, we will inaugurate our new 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 handcraft the dedicated electric axles and batteries that will power future Ferraris, exactly like we promised you two years ago. A special thanks 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. Moving to the next page, the picture shows clearly the essence of one Ferrari Ethos. And believe me, there is no better way to exemplify 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 immersed international clients, sponsor, 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. The journey culminated in Miami with the world premier of the Ferrari Dodici Cilindri and the Ferrari Dodici Cilindri Spider.

Our new two-seater Berlinetta powered by front mid naturally-aspirated V12. These models are the perfect embodiment of the prancing horse DNA offering a comparable performance and entering 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 history of racing on American tracks and the vibrant energy of Miami. 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 live 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 Miami Grand Prix was the start of a new partnership. HP has become our title sponsor with a multi-year 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. 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 at the center of whatever we do because it is only people who are able to blend together the tradition and innovation. Not all of our clients foresee and brand enthusiasts were able to attend the event in person. 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 share ownership plan launched by Ferrari that I described with you a few calls 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. And on this note, I hand over to Antonio to review the Q1 2024 financial results. Please, Antonio.

Antonio Picca Piccon: Thank you, Benedetto, and good morning or afternoon to everyone joining us today. Starting on Page 5, we present the highlights of the first quarter results of this year. As you can see from this page, the first quarter saw shipments flat to the prior year, while revenues and profitability grew double-digits. As Benedetto mentioned earlier, the robust mix was the main driver. Let me briefly go through the main highlights. Revenues of Euro 1,585 million, up 11%; adjusted EBITDA of Euro 442 million, up 15% with a 27.9% margin, 100 basis points higher than last year. Net profit of Euro 352 million, leading to an adjusted diluted earnings per share of Euro 1.95, up 20% and adjusted EBITDA of Euro 605 million, up roughly 13% with a solid margin at 38.2%.

And finally, strong industrial free-cash flow generation of Euro 321 million. Moving to Page 6, we can now add more color to the shipments number of the first quarter. 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. Moving to the product portfolio overview, during the first quarter, 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 rise cycles, namely the SF90 Stradale and the 812 GTS. The SF90 XX Stradale, the SF90XX Spider and obviously the newly-launched Dodici Cilindri Coupe with start contributing at their respective pace this year, while the 12Cilindri 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 first quarter, personalizations came in strong and in-line with our expectations of approximately 19% in proportion to revenue on cars and spare parts. The main contributors were the Purosangue and the total carbon finish for the Daytona SP3.

Sponsorship, commercial and brand increased thanks to the higher sponsorships for our rating 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 phasing 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 revenues, we have now reclassified any receivable sales of engines to third-parties whether for sport cars or racing. Currency had a negative net impact of approximately Euro 25 million, mainly due to the adverse dynamics of the Chinese Yuan, Japanese Yen and U.S. dollar versus the Euro.

Moving to Page 8, the change in adjusted EBIT is explained by the following variances. Volume was slightly negative, mainly reflecting lower range models deliveries. Mix and price positive for Euro 123 million, thanks to the robust product mix sustained by Daytona SP3. As a reminder, we show in this bar the whole contribution from the Daytona pillar, including the volume variance, the increased contribution from personalization and a positive country mix mainly driven by Americas. Industrial and R&D expenses grew Euro 29 million, led by innovation expenses mainly for our sports cars development as well as higher depreciation and amortization. SG&A increased Euro 12 million and mainly reflected the ongoing development of our digital infrastructure and organization.

Other positively contributed for Euro 6 million. The increased contribution for sponsorship and the release of prior year car environmental provisions in the USA, the latter worth approximately $10 million 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 Euro 23 million. Now turning to Page 9. In the first quarter, our industrial free-cash flow generation was strong and reached Euro 321 million. It reflected the increase in profitability, partially offset by CapEx for Euro 195 million, Euro 45 million higher than last year and in line with the pace of development of our products and infrastructure. Capital expenditure during 2024 will develop more linearly compared to our usual guidance, 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 Euro 38 million, not-withstanding Euro 136 million of share repurchases occurred in the quarter and residual impact from currency and IFRS 16. Following the Annual General Meeting approval in April, the dividend distribution of approximately Euro 440 million was paid on the 3rd of May, thus impacting the balance sheet of the second quarter. 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 trends also emphasized by the enthusiastic reception of the Dodici Cilindri 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.

Nicoletta Russo: Thank you, Antonio. We are now ready to open the Q&A session. Please, Sandra, go-ahead.

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Q&A Session

Operator: Thank you. [Operator Instructions]. We will now take the first question coming from the line of George Galliers from Goldman Sachs. Please go-ahead.

George Galliers: 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 Dodici Cilindri, 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?

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

Benedetto Vigna: Thank you, George. Thank you for your question. I will start with the first one. Normalization, what does it mean? And so let me say in this way, it’s a simple — it’s a simple math, okay, because we are in a situation where a lot of our models are sold-out and we have the two new models, that were announced last week and thanks for the effort to pronounce well in Italian. Thank you. The Dodici Cilindri, well, this — the order of these two cars are not yet in our portfolio. So normalization for us meant that, as we said also at the beginning of the — 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. I want to clarify this because we have models that are, let me say, for which we have a, a long, a long waiting list. The second point is no abnormality of cancellation. We saw less order coming from China, that’s true, but we don’t see an abnormality of cancellation. 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, a long wait, wait time, like for example, the Purosangue. The other point was about the IP. The IP is the innovation, let me say that we are running and we are patenting goes across-the-board. There are some areas that are, let me say, more — a little bit more present what is related to the driving trails.

So if you come, let me say in our patent portfolio will 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 [Technical Difficulty] interacting with the car, well, over there, that one is an area of attention and focus for our patenting activity.

George Galliers: 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.

John Murphy: Hello, everybody. I just had — had two — two 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 two 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 — almost flat year-over-year, but EBIT up Euro 123 million versus revenue up Euro 166 million, which would give you a 74% contribution margin, which I think is — is not being appreciated necessarily in the stock at the moment. 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?

Benedetto Vigna: It is a nice question. I would like Antonio to –.

Antonio Picca Piccon: Yes. There are three main elements that contribute to the — to the increase in contribution margin. The first one is the — is the product mix whereby it’s important to flag the role of Daytona. Actually, I think I said in my comments on the — on the bridge that the Daytona contributed higher than they would do over the course of the rest of the year in the first quarter. Secondly, personalization. Personalization is very strong. So it’s above the 19% that we had for the rest of the year, it is slightly above. The third is country mix. Obviously, with China down and that helps in terms of even of the marginality. I don’t know whether it is a sufficient color. There are a couple of other elements that also contributed, 499P also had a couple of — of models sold in the quarter, but that’s what explains the strength of this contribution of mix and price.

John Murphy: 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 Purosangue.

Antonio Picca Piccon: There is one element if you take into consideration, the Daytona is higher this quarter than the rest of the year.

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

Benedetto Vigna: Look, also another interesting question. I can tell you that, yes, Purosangue is having a lot of traction and the — the order book is very strong, goes well-ahead. But I don’t want to comment on — I cannot, I would like, but I cannot because secrecy is a way to fit desirability 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 successor or whatever.

John Murphy: That’s very helpful. Thank you very much.

Benedetto Vigna: Sorry about this, John.

John Murphy: 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.

Tom Narayan: 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. I know that there was 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 — on what’s happening in — in China if there’s anything — any commentary there first? Thanks.

Benedetto Vigna: 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 one year ago and this year, basically, there are two numbers that are swapped in terms of a car that we shipped to Mainland, China, okay, we are talking about Mainland China. Clearly, if I see versus one year ago, there is a stronger traction of hybrid model. One year ago, we were shipping more ICE than hybrid. This year, we are shipping more hybrid than — than ICE. And this brings also since — since the hybrid model are basically sold out, a little bit is left to be sold because this is an impact and is also, let me say, gives you more color about the — the meaning of normalization in — in that — in that country.

So I wanted to share a little bit more — more color because this China has a different meaning for us versus the other brand — 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 very clearly, we want to keep Mainland — sorry, Greater China, so ABC, Mainland China, Taiwan and 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 sometime and to — and you need to give time to the client in a country to understand, what does it mean to be our client. So having said that, it’s clear that, let me say in — in China, we had this kind of normalization, that was also our, if you want, deliberate choice because the number of models we can sell there are not so many.

And we wanted to keep always below — below 10%.

Tom Narayan: 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. Purosangue is coming in, 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 Purosangue are more likely to personalize because they are maybe more VIP, et cetera. So just love to hear more on your thoughts on that?

Benedetto Vigna: No, I think the trend of — the trend of personalization is not specific of a model. What I can tell you, 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 you know this — this year, we increased the price of personalization. And you may remember last call, we said that 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. We increased the price of personalization but if the client wants to personalize, they keep personalizing. And this is also the reason why when the previous colleague asked the contribution year-over-year to the — to the EBIT, Antonio was telling, contribution from personalization, product mix, a country mix.

Antonio Picca Piccon: Yes. Also, if I may add, the higher the average price of car, the lower the percentage is, just a mathematical formula. So the more we sell Daytona–.

Tom Narayan: Yes. Understood. Thank you.

Antonio Picca Piccon: Welcome.

Operator: Thank you. We will now take the next question from the line of Monica Bosio from Intesa SanPaolo. Please go ahead.

Monica Bosio: Good afternoon, everyone. I hope you can hear me, and thanks for taking — taking my questions. The first one is on the Dodici Cilindri. I was wondering if the Dodici Cilindri might carry a higher ratio of personalization or if — if there are any particular features that might carry a higher personalization context, not only on the price side, any color is appreciated on this side? And my second question is on the country mix, which was favorable in the first quarter. Should we expect a similar impact also in the coming quarters? Thank you very much.

Benedetto Vigna: Thank you, Monica. I’ll take the first one, the second, I leave it to Antonio. Let’s say two things for the Dodici Cilindri, okay, Coupe and Spider, actually three things. One, as I said, that the clients like love — sorry, love both of them. True, I’ve been talking maybe around 60, 70 clients, spending time with them in the two evenings we had in Miami. I saw a strong interest of the client for new color. So, Arctic White as well as Verde Toscana. So there was a strong, let’s say a many client telling I will take, I will order this color, some client asking for two different color on two different color on two different cars, the Coupe and Spider. What I can tell you that the last important point is that we agreed, we — I mean, we increased the price.

As you have seen, the price is Euro 395,000 for the Coupe and Euro 435,000 for the Spider. The number of the personalization, let me say, what will see — what will be the trend, we will discover together, but I think there are enough personalization options for the client. 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 — there is a lot of — 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 these cars. The second one, I would like to — Antonio, if you can elaborate.

Monica Bosio: Thank you, Benedetto.

Antonio Picca Piccon: Sure Monica. I think as far as the country mix is concerned over the course of the year, would expect a modest positive impact.

Monica Bosio: Sorry, can you [indiscernible] Antonio? Sorry, the line is now breaking.

Antonio Picca Piccon: A modest positive impact.

Monica Bosio: Okay. Okay. Thank you very much.

Antonio Picca Piccon: Yes.

Antonio Picca Piccon: Welcome.

Monica Bosio: 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.

Adam Jonas: Sure, 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 has that changed in recent quarters? And I have a follow-up.

Benedetto Vigna: We were waiting for it, only this question?

Adam Jonas: I have a follow-up. I can ask it now or will wait.

Benedetto Vigna: No, no, we were taking a note on a piece of paper. So maybe you can go. So one is the percentage of repeated, the second?

Adam Jonas: 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.

Benedetto Vigna: Sure. Very clear.

Adam Jonas: 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 reemphasized the efforts there, that would be appreciated? Thank you.

Benedetto Vigna: The first question is very — the first answer is very simple, Adam. Let’s say the repeater, 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% — sorry, 30%, 35% to a situation where the repeater are going to around 80%, 85%. So it is in average, in the year in 2023, 74% of our new cars were sold to existing clients, okay?

Adam Jonas: Thank you.

Benedetto Vigna: So, this is the answer. The second, the dealers, what we are doing together with the dealers is to push more on to make the relation more intimate. As you said, we are working on two dimensions. Number one is the personalization. The personalization so that we can enrich the — we can personalize more of the cars. 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 markets. 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 two things we are doing, Adam.

Adam Jonas: Got you.

Operator: Thank you. We will now take the next question from the line of Michael Binetti from Evercore ISI. Please go ahead.

Michael Binetti: 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.

Benedetto Vigna: Thank you.

Michael Binetti: I — just I guess a question on the margin cadence through the year as we think about the puts and takes, particularly in second quarter. I think you said there’ll be less Daytona after the first quarter, but I think here we are in May. I think the SF90 XX models start to ship in the second quarter with the Coupe and then the Spider later in the fourth quarter. 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 Daytona’s through the rest of the year and does the margin lift from Daytona slow through the year or does the XX pick it up and that can be more linear through the year? And then I guess secondly, maybe just on some of the new items.

How does the HP sponsorship flow into the P&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?

Benedetto Vigna: 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 this building, because we always give a priority to flexibility. We will also have other cars 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. But the electric cars, the plan for electric car stays as we committed two years ago and the E-building will be inaugurated 21st of 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. It’s — we are in line with that. For the other two, the HP sponsorship flowing in the P&L and the margin cadence, Antonio?

Antonio Picca Piccon: Yes, I go. Hi, Mike. The first one in terms of the cadence, the currency is partly the current — the margin cadence is partly dictated by that of the deliveries of Daytona, 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 SF90 XX 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 HP sponsorship flow into the P&L, we will start from the second quarter. Do not disregard the fact that this is just a portion of the year. So, it’s not a full-year sponsorship is 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.

Michael Binetti: Okay. Thank you very much.

Antonio Picca Piccon: Welcome.

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

Stephen Reitman: Thank you very much. I have some questions about the Purosangue and about the 12Cilindri. First of all, on the Purosangue, you say it has reached global distribution. Does that mean 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? And secondly, on the 12Cilindri, could you comment first of all on your thought process and how you came about the price setting on this vehicle? Obviously, which is a 30% uplift on the 812 superfast, and I believe a 27% uplift on the 812 GTS, obviously, big increases. And secondly also on the 12Cilindri, the fact that you’re launching the two vehicles together, although, as you mentioned, there is a delay before the Spider comes out, is release to customers.

Does that indicate a higher 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 segment space of time compared to in the past, when there was a quite long gap between these kind of vehicles? Thank you.

Benedetto Vigna: Thank you, Stephen, for your question. So coming to the first one, the Purosangue, where we can say that in Q1, the deliveries of Purosangue 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. The — coming back to the 12Cilindri or Dodici Cilindri like we, we like. Well, the Dodici Cilindri, the price — let’s say, we agreed to have a higher price, a 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 it several times with Antonio and all other colleagues on the track and on the road.

There is the right mix between driving trips, elegance, and sportiness. So let me say, I think this price is what the cars deserved to have, also for the — all the work has been done. I have to say that also during the two nights, let’s say the world premieres, we have been talking about the feature of the cars, okay? But some client were telling I do not believe you’ve been able to reach such high performances in a car that was already high performance. Now we’re thinking about four steering wheel that is really unique and break by wires, a lot of innovation has been done and discussed, many, many. On the aerodynamic, on the power control, on the power units, 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 heard their comment, we have a central display that is very high-end and very easy to be use. And you said well, I mean, the reason why we launched the two models together, the Coupe and Spider is the first time that we launched this for our range cars is because we want to give more freedom to clients, it means that we have got good 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 two models together. We are ready because we have a flexible manufacturing line.

Stephen Reitman: Thank you. If I go back again about the pricing on the Dodici Cilindri, I apologize if I didn’t, 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, could we be expecting this kind of degree of price uplift on these vehicles. Obviously, with the 296 GTB was about a 14% increase. And I think on the Roma Spider versus the Portofino M, it was about 16%?

Benedetto Vigna: It is another interesting question. I think that it’s clear that there are two things that we have to balance. One is old innovation that we are offering to our clients and number two, the willingness they have to pay an higher 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 it well for the 296, for the Roma Spider, and for the Dodici Cilindri. I think this is important. I mean, we always said, you know 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 one year ago.

Stephen Reitman: Very clear. Thank you very much.

Benedetto Vigna: Thank you, Stephen.

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

Anthony Dick: Yes. Thank you. Just a follow-up question on the HP title sponsorship. And so quite a significant partnership you’ve signed there. And so I was just wondering how that affects the profitability profile of the F1 business. Is this something that could actually improve the profitability of the business or is it just made largely to cover any cost increases that you might expect in the coming years, maybe especially in 2025 with likely some higher wage expenses? And then a 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 after that new building? Thank you.

Benedetto Vigna: 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 two years ago. You remember, we said Euro 4.4 billion.

Antonio Picca Piccon: 2022 to 2026.

Benedetto Vigna: Yes, over five years, out of which, let me say, Euro 1.1 billion was for infrastructure and the paint shop as E-building are part of this Euro 1.1 billion over the five year cycle. So, nothing new, Anthony. It’s — we are moving according to the plan. The E-building will be announced next month as per plan and the paint shop started in Q1 as per plan. And the whole is part of this basket of Euro 1.1 billion.

Anthony Dick: Thank you.

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

Martino de Ambroggi: 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?

Benedetto Vigna: 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 are slightly above 19%. So that it’s not significantly different, okay?

Martino de Ambroggi: 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 –?

Benedetto Vigna: It’s a simple math fact.

Martino de Ambroggi: Yes, yes. 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 prices, the customization for the overall picture. So I don’t know if –?

Antonio Picca Piccon: Benedetto, maybe I can…

Benedetto Vigna: Yes, you take it, you’re right.

Antonio Picca Piccon: You’re right in the sense that the first quarter we had higher deliveries of the Daytona and the Purosangue is ramping up now global distribution, but it’s not yet at 20%. But well, 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 math for the following quarter, particularly as we go towards the end of the year. I think 19% an average is a fair assumption.

Martino de Ambroggi: Okay. Thank you. And the second question is on costs. I’m 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?

Benedetto Vigna: We said before, Martin, it improves. This was the same question that we got, know, so…

Martino de Ambroggi: 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 contract that will come next year?

Benedetto Vigna: No, no, but your answer — your question is very clear. And our answer, yes, it improves. We don’t disclose detailed [indiscernible], the plus and the minus or the equal, but it improves.

Martino de Ambroggi: Okay. Thank you.

Benedetto Vigna: Thank you, Martino.

Operator: Thank you. We will now take the next question from the line of Gianluca Bertuzzo from Intermonte SIM. Please go ahead.

Gianluca Bertuzzo: 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 longstanding title sponsor? And second and third question are about the about volumes. Can we expect an acceleration of volumes deliveries throughout the year or can we assume a stable evolution? And on cost inflation, did you change expectation or the development is in line with your thinking at the beginning of the year? Thank you.

Benedetto Vigna: I will take 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 disclose the way the number if it is one, two, three, four, five 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 value to certain volume. So, let me say, you know how many cars we did last year. We also said that the growing volume will be very limited. You see that Q1 basically we did to be precise, seven units less than last year. So, let’s say, we do not expect at all any acceleration of volume.

This is not — 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 being — what is the rationale behind this strong price increase because we want to give always priority to value over volume. For the cost inflation, Antonio can add?

Antonio Picca Piccon: Oh, yes, it’s very simple. We haven’t changed our assumptions for the rest of the year actually.

Gianluca Bertuzzo: Okay. Thank you very much.

Antonio Picca Piccon: Welcome.

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

Thomas Besson: Thank you very much. I’d like to come back to the seasonality of earnings and talk as well about 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. 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-end loaded. Is that correct?

Antonio Picca Piccon: 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&L, obviously, there are other seasonality’s that cross over the top part of the profit and loss. Overall, I would not expect significant differences over time, but for probably Q3, it could be — but as it normally happens, a bit lower. With respect to CapEx, you’re right. 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.

Thomas Besson: Very clear. Thank you. My second question, I know you want to keep some surprises. 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 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 cars or are you already manufacturing something in the building?

Benedetto Vigna: No, no, we told you maybe we were not clear in the past. In September, we started to get the first equipment. In December, we started already to assemble some component for our cars. So now we’ll see how to manage it the best to the lease it, but it’s not an empty shell. We don’t do this inauguration with empty shell, Thomas. We, I mean, there is — there are people working over there are components made already over there.

Thomas Besson: I would have been prepared to come for a religious visit as well if I need to. 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?

Antonio Picca Piccon: Well, we have said we expect the dollar to stay in the area of Euro 110. Then let’s see what happens. It is 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 hedged our currency exposure on a 12-month rolling basis. So this smoothened a bit the impact, but overall, I would expect this to be negative for the rest of the year.

Thomas Besson: Okay. Thank you very much.

Benedetto Vigna: Welcome.

Antonio Picca Piccon: Thank you, Thomas.

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

Gabriele Gambarova: Yes, thanks for taking my questions. Just a couple left for me. Is it possible to know the precise number of SP3 Daytona delivered in Q1?

Benedetto Vigna: Yeah. Approximately 80.

Gabriele Gambarova: 80, wow.

Benedetto Vigna: Yes.

Gabriele Gambarova: And another question again on price and mix, very strong in Q1. The balance between this 80 and 123, am I right assuming that is made of, let’s say, bigger deliveries of Purosangue?

Benedetto Vigna: Can you please repeat the question?

Gabriele Gambarova: Yes. Just wondering — was wondering if the Purosangue had, let’s say, an important role in the improvement of price in mix in Q1 of [indiscernible] SP3?

Benedetto Vigna: Okay, sorry. 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. And the third one is country mix.

Gabriele Gambarova: Okay. Thank you very much. The last question, just to check Antonio, if I understood well?

Antonio Picca Piccon: Just for the sake of clarity, Purosangue, in terms of contribution is average compared to the rest of the range percentage wise.

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

Antonio Picca Piccon: I said that the contributor — 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.

Gabriele Gambarova: Okay, perfect. Thank you very much.

Benedetto Vigna: Welcome.

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

Henning Cosman: 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 Daytona’s, I think very strong personalization mix on the first Purosangue to be delivered, perhaps only a 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. But then again, you know, 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 struggling to reconcile that, how that would be consistent with the full-year margin of below 28%.

I mean, perhaps you can help us one more time to reconcile that? And then on another topic that hasn’t come up, 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.

Benedetto Vigna: Well, I think the first one, maybe Antonio can add some more color and I will comment about the second. So, I start from the second also for business of this question. The residual value, there are, let me say, the residual value keep pretty well. There is — there has been one country that has been suffering a little bit for specific — for one specific model, but the situation is coming basically to is recovering. So, we don’t see any, any strange pattern over there. Coming to the first question, Antonio will elaborate more, but what I would like to underline is that we are not changing the guidance.

Antonio Picca Piccon: Absolutely. Absolutely. I mean, we are asked about color for the development of product — of 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. This has been supported by the number of deliveries of the Daytona, which is higher compared to the average for the rest of the year. And it — 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. So this means that over the course of the quarter is in terms of contribution margin, depending on the cadence, the actual cadence of Daytona will probably be slightly lower compared to the first part of the — first quarter of the year. Does it help?

Henning Cosman: I might follow-up with the team afterwards, but thank you.

Antonio Picca Piccon: Okay. Thank you.

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

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

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.