Ferrari N.V. Common Shares

Thank you, Maria, and welcome to everyone who is joining us. As you can imagine, today the team is connected from different countries, so please forgive us any moment of silence during this call. Today's call will be hosted by the Group CEO, Lui Camilleri, and Group CFO, Antonio Picca Piccon. All relevant materials are available in the investor 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 Louis. Thank you.

Thank you very much, Nicoletta. Welcome, everyone. I very much trust that you and yours are well and safe and that you are all taking the necessary precautions to protect yourselves and your loved ones. I will focus my introductory remarks on the current situation and provide you with as complete a picture as is possible in these unprecedented and unpredictable times. All in all, I would state up front that we are in relatively good shape, particularly as it relates to our core business, and thus are able to withstand a prolonged downturn. I also believe that we have taken and are taking the appropriate measures to deal with this crisis in a manner that will ultimately make us stronger. We've often claimed that while we are not immune to economic or other brutal shocks, we are significantly more resilient than most. This crisis will serve to hopefully underscore this claim. Our faith rests on the strength of our iconic brand equity, the skills, determination, and fortitude of our organization, our technological innovation and design superiority, Our close and vigorous relationship with our suppliers and the quality of our dealer network, and ultimately the loyalty of our customers, which translates into our strong order book. Before I touch upon our first quarter results and shed more color on our revised guidance for the year, I will address the key actions we have taken to date, the challenges that lie ahead, and the impact that this pandemic is likely to have on our results in 2020. Our first and foremost priority has been and remains the wellbeing and welfare of our employees. While full compliance with national or regional prescriptions to combat the spread of this virulent disease has been a key factor in all decisions taken, we have gone well beyond their spirit to support and protect What is ultimately our greatest asset? In spite of the fact that our facilities have ceased production since March 14, not a single employee has been furloughed or laid off and all have received their full pay during this period. We've provided medical support and assistance to our employees and their families and furnished vital in-kind and monetary assistance to the communities in which they reside. Solidarity and empathy have been our guiding principles. I cannot sufficiently underscore the amount of work that has been accomplished on numerous non-production related activities conducted by so many from the safety of their homes while being ever mindful of the security of our information and data. An incredible amount of planning has been dedicated to the safe and disciplined resumption of our manufacturing activities. The all-encompassing program that has been designed and detailed is called Back on Track, which has gained significant national and international coverage as an example I will not cover the entire plan of action in detail, but suffice it to say that we now have the capacity to perform 800 voluntary blood tests a day to cover both our employees and their families. Should anyone regretfully test positive, they will be provided with separate board and lodging and all the medical assistance required. A specific COVID-related insurance coverage has also been set up for all employees. We're also testing a contact tracing system that we intend to develop further. As of today, the vast majority of employees within our facilities have been voluntarily tested and production ramp-up has begun. and this after an extensive in-situ training conducted last week over a three-day period on the new safety protocols and procedures. We are being deliberately cautious and prudent in the scaling up of our capacity to assure both safety and quality. Furthermore, our ramp-up will by necessity have to be aligned with our supply chain In spite of the flexible buffer we now have, resulting from our conscious decision to increase our inventories of materials and components. We depend on some 400 direct suppliers. More than two-thirds of the total are based in Italy, and many are located in those regions that have been hit the hardest, namely Lombardy and Piedmont. As of last week, 190 suppliers were operating at various stages of capacity, with some reporting relatively high levels of absenteeism given the situation. With very few exceptions, the Balance have planned to start up their production today. We have been very carefully monitoring any supplier that may find itself in a precarious financial condition to determine any actions that we may take to assist them directly or indirectly. We have of course conducted the same analysis relative to our dealer network and in many instances have extended our payment terms to them to alleviate the financial burden during these difficult times. As you may imagine, the timing of the closure and opening of our dealerships has varied quite extensively from country to country as total lockdowns were instituted nationally and as restrictions have gradually been lifted. This phenomenon clearly adds further complexity to any projection of a full resumption of activity and ultimately the geographic mix of our deliveries in the months to come. As we speak More than 50% of our dealers are closed. More than that in terms of workshops. The others will eventually open as national, regional, state lockdowns and confinement policies are lifted. I should also mention that the pre-owned market, which we monitor closely, is essentially shut down with very little to no trading at all. Our order book, assuming full production capacity, extends well beyond 12 months on average and clearly varies according to each model and geography. Importantly, those models that generate the highest margins have the longest waiting lists. As of now, we have yet to witness any abnormal or untoward cancellations. Although several have been incurred, primarily in Australia and the United States, but nothing so far that we would deem to be alarming. While history is certainly not this positive, it can inform us. A reading of the level of cancellations during the last financial crisis reveals that the peak of cancellations and postponements took several months to affect the order book, and thus it is still too early to come to any final conclusion. Nevertheless, this crisis is very different. One need only focus on the financial markets and the vast fiscal and monetary stimulus in place to determine the distinction. Possible cancellations are however only part of the equation. The other is the level of orders that are obtained. On the one hand, we have arguably the most wide-ranging and exciting portfolio we have ever had. And on the other, we've had to cease all the activities aimed at collecting further orders, especially for those models presented in 2019, but that have yet to begin to be delivered. As such, the timing of the peak of this crisis has compounded the challenge. The commercial team has conducted an incredibly detailed analysis of our vulnerabilities and opportunities pertaining both to order retention and intake by country, model, and down to the ultimate customer. Our projections for 2020 are largely predicated on this rigorous undertaking consistent with a key ingredient of our business model to retain a very strong order book and thus sustain the exclusivity of our brand as each year unfolds. Formula One is undoubtedly the activity that will adversely affect our results in 2020 in the harshest manner and also the one that is by far the hardest to predict. As you know, the original calendar provided for 22 races. The FIA and the Formula One group now predict a maximum of 18 races, with many without fans. This clearly implies a drastic reduction in the revenues that are generated by the commercial rights holder, as well as sponsorship fees, our two primary sources of revenue. To mitigate this impact at least partially, The entry into force of the new technical regulations that were originally scheduled for 2021 have now been postponed to 2022. Furthermore, there has been significant progress on numerous measures to freeze various components and hence reduce costs going forward, as well as substantial progress on a cost ceiling and its perimeter Thank you very much. While the Formula One hit to revenues and earnings is not an easy matter to digest, the good news is that the significant losses incurred should be short-lived and contained to 2020. We regretfully face a very similar fate regarding our brand diversification activities. We currently anticipate that there will be a significant reduction of our revenues in 2020, reflecting lower royalties, a dramatic reduction in the footfall of our stores, museums, and parks, and a delay in the new activities that we had planned. Antonio will shortly review our first quarter results, but before doing so, I do wish to state that given the circumstances, it was quite a robust performance But it also provides a glimpse of the coming months. While total revenues were essentially flat versus the prior year, they mask a relatively strong performance in our cars and spare parts, which generated a net revenue gain of 7.3% and 5% on a constant currency basis. This growth was completely offset by lower Formula 1 Brand, and Maserati Engine Revenues. The core business drove an EBITDA gain of 5.7%, absent the previously disclosed one-time gain related to the favorable reassessment of a legal dispute that flattered our first quarter 2019 earnings. Having said that, we did fall marginally short Thank you very much. This was a key factor in the decision to disperse our dividend last month of €1.13 per share, reflecting an outflow of €210 million. This is also very tangible evidence of our confidence in the future. Turning to our revised guidance for the year, you will first note that we have widened the range given the lack of full visibility and the current unpredictability of events. Our guidance rests on the numerous factors I've already mentioned. It includes several cost-cutting initiatives across the board and a delay in several planned activities as well as a reduction in capital expenditures of some 75 million euros. We have been extremely judicious in determining which expenditures to cull Following two key principles. The first is to retain total flexibility as each month unfolds, and the second is not to impair our competitiveness going forward while retaining our full responsibilities towards our suppliers, our dealers, our clients, and first and foremost, our employees. Our folio guidance in simple terms reflects a very weak second quarter. In fact, it accounts for the bulk of our erosion versus our previous guidance. Indeed, at the low end of our EBITDA range, it reflects approximately 75% of the erosion versus our prior guidance and the entire erosion versus the prior year. At the higher end of the range, the second quarter will account for the entire shortfall relative to both our previous guidance and the prior year, such that it assumes a V-shaped recovery, with the second half of the year generating an increase in revenues of some 10% and an EBITDA growth of some 15% versus the prior year. and this despite the challenges we face beyond our core business. Before I hand over the call to Antonio, I do wish to spend a minute on the vast number of activities that the company has undertaken to help and assist those less fortunate in Italy and within our community. Much has already been accomplished and more is planned, not only to address the short-term needs but to provide genuine assistance that is longer term in nature. I will not read out the list you see on your screens, but I do wish to highlight two instances that reveal so much about Ferrari. Several weeks ago, numerous participants of previous editions of our cavalcade events that are highly sought after and are reserved for our most loyal clients N.V. Common Shares In March, the senior management team decided to voluntarily forego 25% of their annual salary to fund our donations to the community. Each board member also voluntarily agreed to forego all their remaining fees and cash compensation for the year. This collective show of solidarity is not only heartwarming, but frankly exemplary. On that note, I will now hand the call over to Antonio.

Thank you, Louis, and good morning or afternoon to everyone who is joining us today. Starting on page 9, as Louis said, Q1 2020 results represent a good start of the year for our core business. just partly offset by the performance of all other and particularly of the Formula 1 activities. Our shipments grew 4.9% or by 128 units, mainly driven by the robust deliveries of the 488 Pista and the 488 Pista Spider. Group net revenues were almost in line with prior year to 932 million euro. Adjusted EBITDA increased to 317 million euro, improving by 6 million euro or 1.9%. Adjusted EBITDA margin was 34%, up 90 basis points versus prior year. Adjusted EBIT was down 12 million euro to 220 million euro, embedding higher DNA. Adjusted Diluted EPS was down 5.3% to €0.90. Industrial Free Cash Flow for the quarter was €73 million. As a reminder, prior Free Cash Flow was boosted by the collection of the advances for the Ferrari Monza SP1 and SP2 equal to roughly €170 million, a portion of which is evidently missing against the deliveries of this year. Moving to page 10, you can see the details of Q1 to 2020 shipments. Volumes rose despite deliveries being suspended earlier than expected due to the COVID-19 pandemic. Nevertheless, total shipments for the quarter increased 4.9%, supported by a 5.7% increase in V8 models and a 2.4% increase in V12 models. This growth mainly reflected the robust deliveries for the 488 Pista and the 488 Pista Spider, along with the ramp-up of the F8 Tributo. This more than upset the 488 GTB and the 488 Spider, which concluded their life cycles in 2019. Deliveries of the Ferrari Monza SP1 and SP2 were in line with our expectations. In terms of geographic performance, EMEA grew 25.4%, rest of APAC increased 23.2%, Americas was up 4.2% while Mainline China, Hong Kong and Taiwan posted lower shipments as a consequence of the deliberate anticipation of deliveries in 2019. Four models unveiled in 2019 still have to be introduced in the market and they will mainly ramp up in the second half of the year. The just-ended seven-week production suspension slightly postponed the new model's introduction as follows. The first deliveries of the F8 Spider will commence in Q2 2020. The A12 GTS will follow at the end of Q2. The SF90 Stradale after the summer, while the Ferrari Roma will hit the market at the end of the year. Turning to page 11, You can see here displayed the group net revenues for the first quarter of 2020, which were in line with the prior year, notwithstanding the adverse effect of the reduced Formula One racing activities. Net revenues were down 2.7% at constant currency. Revenues from cars and spare parts grew by 5% at constant currency. The increase was supported by higher volumes, the positive contribution of the Ferrari Monza SP1 and SP2 and the personalizations programs. Personalizations in the quarter represented approximately 20% of this revenue line in line with 2019 thanks to the significant concentration of shipments of the 488 Pista and the 488 Pista Spider. All of the above was partially offset by lower sales of the 488 GTB and the 488 Spyder, which concluded their life cycles in 2019, along with lower shipments of the FX-XK Evo. Engines revenue declined €25 million in the quarter, reflecting lower shipments to Maserati. Revenues from sponsorship, commercial and brand were down 40 million euro, impacted by the spread of the COVID-19 pandemic, which resulted in fewer Formula One races accrued in the quarter, as well as reduced in-store traffic and museum visitors. Currency, including translation and transaction impact, as well as foreign currency edges, and a positive contribution of 18 million euro, mainly reflecting the strength of the US dollar. Moving to page 12, which highlights the evolution of the main items of our adjusted EBIT. Adjusted EBIT was down 5.2% or 11.9% at cost and currency, with adjusted EBIT margin at 23.6%. The variance is mostly due to the COVID-19 impact on Formula 1, partially offset by higher volumes and a positive mixed price. More precisely, volume was positive by 12 million euro thanks to the increase of our shipment. Mixed price was positive for 37 million euro This performance was primarily attributable to the deliveries of the Ferrari Monza SP1 and SP2 and to the impact of the personalization programs, while it was partially offset by lower shipments of the FXX-K Evo. Industrial costs and R&D increased by 15 million euro, mainly due to higher depreciation and amortization of fixed assets as the production lines for the new model started being operated. The full cost of employees paid days of absence during the Covid-19 suspended productions, investments in Formula 1 racing activities. As expected, DNA curbed our EBIT margin compared to Q1 2019. As DNA increased by 11 million euro due to the annualization of the increase in staffing throughout 2019 and marketing initiatives in the early part of the first quarter of 2020. Other was down 52 million euro due to the already mentioned COVID-19 impact on the Formula 1 racing calendar, lower engine sales to Maserati, as well as lower traffic for brand-related activities. Other in Q1 2019 included the positive impact of a legal dispute of approximately 10 million euro. The total net positive impact of currency was 9 million euro for the quarter. This was the net result of more favorable market trades, partially mitigated by the edges in place. Turning to page 13, industrial free cash flow for the quarter was 73 million euro, driven up by the industrial EBITDA, Partially upset by capital expenditure of 174 million euro including the purchase of tracts of land contiguous to our facilities in Maranello and negative change in working capital due to the seasonal pattern of trade payables. Please remind that the prior year was boosted by the collection of the Ferrari Monza SP1 and SP2 advances. Net industrial debt as of March 31st was 401 million euro compared to 337 million euro as of December 31st 2019. As of March end, total available liquidity was 1 billion 230 million euro. In the month of April, we further strengthened our liquidity position with additional committed credit lines of €350 million available between the following 18 and 24 months. Moving to page 14, as discussed by Louis, our revised guidance range necessarily depends on assumptions In respect of developments that are largely unknown and unpredictable, as the progression of the pandemic and the constraints it entails cannot be easily anticipated. First of all, we have decided not to take into account the risk of a severe second wave of infections after the present one. It would have been simply impossible to model the impact of such a new and major disruption. Secondly, we have simulated the evolution of our order book based on the analysis of the resilience we observed during the crisis of 2009 and considering all detected differences in terms of product range and potential customers' vulnerability and opportunity. Thirdly, we have considered two alternative scenarios for our core business. with different speed of recovery of the production lost during these seven weeks of suspension of about 2,000 cars. One which assumes the full utilization of all available flexibility working Saturdays and shorter summer holidays from now to the end of the year so as to enable us to recover approximately 50% of volumes lost. A second one, which assumes that the order intake will take time to build up over the coming few months as the restrictions are lifted more slowly. Other things being equal, both alternative scenarios would determine not just our performance in 2020, but would enable us to enter 2021 with a strong order book consistent with our business model. Finally, we have been cautious with respect to the format of the F1 Championship for this year, predicting both commercial revenues and sponsorship fees based on the low end of the range of races currently under discussion, of which many without fans. Projections? for our brand diversification activities encompass a substantial reduction of turnover from directly operated and franchised stores and museums and to a lower extent from licensing. Engines are aligned to the reduced volume targets we receive from Maserati. Louis already mentioned that we carefully reviewed all spending items for the rest of the year. We cut SG&A by more than 10%, keeping them flat versus the prior year, essentially through postponing or shifting towards digital, a significant part of our marketing activity to anyway maintain strong and vital relationships with our dealers and customers while continuing to protect our people. Both launches planned for 2020 are confirmed at present. We prioritize our R&D spending, both CAPEX and OPEX, including for competing in the new F1 environment. However, all investments that we deem important for the continuing success of Ferrari and to lay the ground for its future development have been maintained. As a consequence, capital expenditures are projected to be around 750 million euro. With that said, our guidance for the year has been revised as follows. Net revenues between 3.4 and 3.6 billion euro. to reflect a drop in deliveries which could range from minus 4% to almost minus 15% versus 2019 and conservative assumptions in respect of the calendar of the F1 Championship, the pace of restart of our brand activities and demand for engines from Maserati. The actual decision on the size of the volume reduction to be applied will depend on our assessment of the robustness of the new order flow in the next few months, since there is no intention to dilute the positioning of our product based on an order book shorter than usual. Adjusted EBITDA between 105 and 1.2 billion euro, with percentage margin between 31 and 33%, in line with our previous results respectively of 2017 and 2018. Such reduction in margins also reflect the consideration that the postponement of deliveries compared to our plans will be more relevant for the new models yet to be introduced in the market. Adjusted EBIT between 600 million euro and 800 million euro We target an EBIT margin between 18 and 22%, which reflects the inevitably higher pace of our DNA following the higher capex of most recent years. Adjusted diluted EPS between 2.4 and 3.1 euro per share, assuming a tax rate substantially in line with 2019 at around 20%. The assumption here is that we keep on enjoying the benefit of the patent box tax break under the new Italian regime, albeit slightly reduced. Industrial free cash flow between 100 and 200 million euro, with a possibly heavier burden from some extended payment terms on trade receivables and capex of around 750 million euro, albeit curbed compared to our original plans. I remind you that in 2020, the industrial free cash flow is deprived of a portion of the cash consideration for the Ferrari Monzas to be delivered in the year, since already collected in advance in 2019. And with respect to tax payments, we are cautiously assuming unchanged conditions from our original guidance, including the new cash benefit from the patent box, split in three years, as provided by law. Please note that such figures are predicated upon the assumption that foreign exchange rates stay where they've been predominantly during the last month, that is, with US dollar not weaker than 1.1 against the euro, considering the impact of all edges in place. This implies a small positive gain versus prior guidance. Moving to page 16, when looking at the yearly results, It's worth reminding ourselves of what Louis already mentioned in his speech, that is that we currently expect that between 75% and 100% of the shortfall versus our EBDA target is concentrated in Q2, as illustrated on page 16, and that this will entail a visible rebound in H2, following the partial production catch-up of the about 2,000 cars lost during the seventh week suspension. The unsurprisingly weak performance of the second quarter for our core business is mostly the result of the inevitable constraints imposed by most countries and at various levels to react to the damage of the pandemic, but also reflects the consideration that our other businesses are equally or even more impacted since their overall drop in terms of EBITDA compared to our objectives or compared to Q1 2019 is about six or seven times larger than their contribution as targeted or as actually recorded one year ago. The second half of the year is therefore where we currently pace our ambitions to come back. In this respect, it rest assures that we are taking all the appropriate measures and remain flexible enough to adapt ourselves to unexpected changes. We are focused more than ever to execute on our recovery plan and keep on nurturing this phenomenal company. With that said, I'd like to turn the call over to Nicoletta.