Ferrari N.V. Common Shares

Thank you, Nadia, and welcome to everyone who is joining us. Today's call will be hosted by the Group CEO, Luis 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 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 two 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 Luis.

Thank you, Nicoletta, and welcome, everyone, and thank you for joining us. As we had anticipated during our May 4th earnings call, our second quarter results were weak across all key metrics, but frankly in line with our expectations. These results clearly reflect the very challenging times that we've all endured in recent months on many levels. I do wish, however, to salute the resilience, commitment, and determination that has been exhibited by all of my colleagues here in Maranello and in our markets. While the headline numbers are clearly not a reflection of what this great company is capable of achieving, one notable metric is that despite everything we had to confront, our core business generated an EBITDA margin of above 30% in the second quarter, and above 40% in the first half. As I previously mentioned, the disruptions caused by the COVID-19 pandemic were in themselves a huge challenge to surmount, but its timing was doubly unfortunate as it engulfed us at a critical time in the delicate industrialization phase of the new models that we presented last year. and in particular, as it relates to the SF90 Stradale, which contains more than 2,000 new components from our supply chain. While we are confident that deliveries to our clients will begin early in the fourth quarter, the ramp-up in production will inevitably be delayed. which is the predominant reason for the adjustment to the midpoint of our guidance for the full year. In terms of the overall dynamics and health of the business, these remain as strong as ever. Demand remains vibrant and our order book is up significantly versus the corresponding prior year period. Allowing for the obvious favorable impact on our order book All the cancellations to date are well within historical norms and actually are lower than what we had feared may well have occurred given our experience during the financial crisis. but we recognize it is still early days. The pre-owned market which was relatively dormant in April and May is quite active again and indications are that residual values have remained stable and in certain instances have actually risen in part due to the absence of the sufficient supply of new cars. Given the strength of our order book We have given serious consideration to shortening the August factory holiday. However, such an action would seriously hamper our critical preventive maintenance program and delay the installation of some new equipment necessary for our paint shop to accommodate capacity needs. As such, we have decided that such an action would be far from wise. In addition, given the very challenging circumstances that all have faced, it is our view that everyone, especially those on the production lines, needs a break. We will nevertheless add a number of working Saturdays to at least very partially make up for the production shortfall. We're also working tirelessly with our suppliers to strive to accelerate the ramp-up in production of the SF90 Stradale and overcome the issues that I just mentioned. But this will be a very tall order given the complexity of this particular model. I will now hand over the call to Antonio who will review our second quarter results and our guidance for the year.

Antonio. Thank you, Louis. And good morning or afternoon to everyone who is joining us today. Starting on page four, as expected, the second quarter of 2020 reflects the consequences of the COVID-19 pandemic, which caused the production and delivery suspension. With seven weeks unavailable to manufacture and deliver, our shipments in the second quarter nearly halved versus prior year to 1,389 units. Group Net Revenues were 571 million euro, posting a 42% decrease compared to prior year. This reflects the just mentioned volume decrease and the anticipated impacts of the pandemic on the Formula One Championship, on our other sports and brand related activities, as well as the reduced demand for engines from Maserati. Adjusted EBIT was 23 million euro, down more than 90% versus the second quarter of 2019, reflecting the actions taken to contain costs while maintaining a level of investment to support our long-term growth. Adjusted EBITDA was 124 million euro, with an adjusted EBITDA margin of 21.9%. Our net result for the quarter was also positive, albeit small, with an adjusted net profit at 9 million euro, resulting in an adjusted diluted EPS of 4 euro cents versus 96 euro cents of prior year. On the other hand, industrial free cash flow for the quarter was negative for 158 million euro, in line with our expectations, essentially due to ongoing investments Inventory Buildup and the actions taken to support our distribution network. Moving to page 5, you can see the details of the second quarter 2020 shipment. During the quarter there was a contraction of volumes as a consequence of the full suspension of our production until May 4. and the only gradual restart of deliveries in conjunction with the sequential dealer network reopening according to local health protocols. Total shipments for the quarter decreased 48% with 8-cylinder models down 49.4% and 12-cylinder also down 42.9%. The first few deliveries of the F8 Spider and the A12 GTS commence in the quarter, while the 488 Pista family approaches the end of its life cycle. In terms of geographic performance, EMEA was down 40.9%, Americas declined by 52.6%, Shipments to mainland China, Hong Kong and Taiwan were reduced to a few tens, mostly as a consequence of the deliberate anticipation of deliveries in 2019, while deliveries to rest of APAC decreased by 27.9%. As discussed by Louis, the SF90 Stradale will hit the markets at the inception of the fourth quarter as a result of the delays experienced in its industrialization phase due to the shutdown. The Ferrari Roma will follow immediately thereafter. Finally, we are happy to confirm our two unveilings in the second half of 2020. Turning to page 6, You can see here displayed the walk of our group net revenues for the second quarter of 2020, severely impacted by the pandemic. Revenues from cars and spare parts were down 42% at constant currency as a result of the lockdown period that led to lower deliveries, which consequently also generated a lower contribution from personalizations, only partially offset by the deliveries of the Ferrari Monza SP1 and SP2. Despite this, the weight of personalizations grew to almost 22% of cars and spare parts revenues thanks to the favorable mix of cars sold, namely the 488 Pista family and the Ferrari Monza SP1 and SP2. Engines revenues declined 33 million euro in the quarter, reflecting lower shipments to Maserati. Revenues from sponsorship, commercial and brand were down 48 million euro, impacted by the spread of the COVID-19 pandemic, which resulted in fewer Formula One races related revenues accrued in the quarter, as well as reduced in-store traffic and museum visitors. For the purpose of accruing revenues from Formula One in the quarter, Our assumptions in respect of the calendar and our sponsorship were essentially unchanged compared to the previous quarter. Other revenues decreased 16 million euro, mostly affected by the cancellation of the MotoGP at the Mugello racetrack and reduced other sports-related activities. Currency, including translation and transaction impact, as well as foreign currency edges, had a positive contribution of €8 million, mainly reflecting the strength of the US dollar. Moving to page 7, let me review the change in our adjusted EBIT. As anticipated, it fell to €23 million from €239 million in the second quarter of 2019. with volume which drove an unfavorable variance of €152 million due to deliveries being halved versus prior year as a result of the production and delivery suspension. Mixed price variance decreased €7 million primarily as a consequence of the lower total dollar value of personalization programs following the decrease in shipments Partially offset by the deliveries of the Ferrari Monza SP1 and SP2. Please note that the mixed price variance in the EBIT bridge reflects the total decrease of the contribution from personalizations, mostly due to volume reduction. This explains why such variance does not reflect the otherwise visible increase in our average selling price, which is entirely due to the weight of the Ferrari Monzas. Industrial costs, research and development costs increased 15 million euro, mainly reflecting higher depreciation and amortization of fixed assets as the production lines for the new model started being operated, partially offset by the effects of technology incentives recognized in the quarter. SG&A decreased 9 million euro, mainly driven by fewer marketing initiatives in the quarter. Other was down 58 million euro due to the already mentioned COVID-19 impact on the Formula One racing calendar, lower traffic for brand related activities, cancellation of the MotoGP at the Mugello racetrack, as well as lower engine sales to Maserati. The total net positive impact of currency was €7 million year over year. This was the net result of more favorable market rates, partially mitigated by the edges in place. As Louis already mentioned, it is worth noting that even in this challenging quarter, the EBITDA margin of our core business, including F1, rent-related activities, and engines for Maserati, remains solidly above 30%. Turning to page 8, industrial free cash flow for the quarter was negative for 158 million euro, driven by a change in working capital, provisions and other, essentially due to higher inventories and the supportive actions in favor of our dealers, among which temporary extensions of their permanent terms and early payout of commercial incentives. We continued to fool our long-term product development, Investing 133 million euro. As a reminder, to better interpret the comparison, prior industrial free cash flow was supported by the collection of the Ferrari Monza's advances. Net industrial debt as of the end of June was €776 million, compared to €401 million as of March 2020, also reflecting the €209 million dividend payout. At the end of the second quarter 2020, total available liquidity, including undrawn committed credit line, For 700 million euro was 1 billion and 812 million euro, which compares with approximately 1 billion and 250 million euro as at last December 31st and slightly less than 1 billion 400 million euro one year before. Our solid liquidity position was further strengthened by the proceeds from the recent issuance of 650 million euro notes due in May 2025 as a result of the decision to early refinance part of the upcoming debt maturities and keep on securing longer-term financing. Moving to page 9, as anticipated by Louis, we narrowed our guidance to reflect the visibility we have now and some necessary refinements of the assumptions we outlined at the beginning of May. We are currently programming our manufacturing capacity for the second half of the year according to a trajectory that will ultimately bring us to catch up around 500 cars out of the approximately 2,000 units lost during the seven weeks of suspension. This corresponds to an intermediate scenario versus what we presented in May that implied a recovery of about 1,000 cars for the high range and close to none for the low range. To do so, we plan to add a number of walking Saturdays in H2 while leaving untouched our plant maintenance program during the summer holiday and the activities to prepare our new layout for the paint shop. Since our order book remains very strong and as of now is actually further improved versus last year, we all suspect that such a decision to contain our manufacturing cadence may provide us with a certain edge in case the pace of the net order intake is dampened again in fall due to the long pain of the pandemic. Our product mix is now softer and reflects the delay in the operational startup process of the SF90 Stradale, determined by the shutdown period. We kept unchanged our assumptions in respect to the format of the Formula One Championship and the number of races at the low end of the target range, as the calendar remains uncertain, with only 13 races confirmed so far. Projections for our brand activities continue to suffer the substantial reduction of turnover from directly operated and franchised stores, museums and licensing, only very partially offset by positive development of the online channel. Delivery of engines to Maserati reflects their current annual targets. It remains true that we'll contain our SG&A spending in light of the postponement of our most impactful in-person events together with an effective shift towards digital marketing activities to anyway maintain strong and vital relationships with our dealers and customers through the pandemic. Our R&D spending, both CAPEX and OPEX, including for competing in the new Formula 1 environment remain unchanged versus what we said in our first quarter earnings call with a view to protect all the investment that we deem necessary for the continuing success and future development of Ferrari. As a consequence, capital expenditures are confirmed to be around 750 million euro. We reaffirm the consideration that this narrow guidance does not take into account the risk that the global spread of the pandemic leads to new lockdowns and production suspension periods. However, as we are facing unprecedented times, at Ferrari we will never stop caring about our people, dealers, suppliers, business partners and customers. Such a chance should occur. With that said, our guidance for the year has been narrowed as shown on page 10. Net revenues greater than 3.4 billion euro to reflect a drop in deliveries of nearly 9% versus 2019 and conservative assumptions in respect of the calendar of the Formula One Championship, the pace of restart of our brand activities and demand from engines from Maserati. Adjusted EBITDA between 1 billion and 75 million euro and 1 billion and 125 million euro with percentage margin between 31 and 32.5%. The reduction in margins reflect the softer mix due to the delay in the standardization phase of DSM-90 Stradale. Adjusted EBIT between 650 and 700 million euro with target and EBIT margin between 18.5 and 20%, which reflect the inevitably higher pace of our DNA following the capex increase of most recent years. Adjusted diluted EPS between 2.6 and 2.8 euro per share, assuming a tax rate substantially in line with 2019 at around 20%. As a reminder, the assumption here is that we keep on enjoying the benefit of patent box tax breaks under the new Italian regime, albeit slightly reduced. Industrial free cash flow between 100 and 150 million euro, with a heavier burden from some extended payment terms on trade receivable and capex of around 750 million euro, as mentioned. Please note that such figures reflect an assumption that foreign exchange rates stay on average where they've been predominantly during the last months. Current volatility is obviously an element to watch out for in the next months. Finally, on page 11, it shows that while the first half was heavily affected by the spread of the COVID-19, particularly in Q2, With an adjusted EVDA for the whole six-month period, almost 30% lower than last year, our narrow guidance now implies a second us in line or better than in 2019, even if skewed on Q4, with a mid-range full-year target just 13% lower. As we said in May, however, while the overall global environment remains delicate, to say the least, Flexibility and adaptability will be the name of the game to serve these exceptional times with a single objective driving our actions, which is nurturing our clients and protecting our business partners so as to come back as strong as ever before. With that said, I'd like to turn the call over to Nicoletta.