Ladies and gentlemen, thank you for standing by and welcome to the Ferrari 2020 Full Year Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] For your information, this conference is being recorded. Now I would like to hand the conference over to your speaker today, Nicoletta Russo. Please go ahead.

Thank you, Andrei, and welcome to everyone who is joining us. There are two topics that we'd like to cover today. First, the group's full year 2020 operating results and then our full year 2021 guidance. In light of this the duration of the call is expected to be around 60 minutes. Today's call will be hosted by the Group Chair and Acting CEO, Mr. John Elkann; and our Group CFO, Mr. Antonio Picca Piccon. All relevant materials are available in the Investors section of the Ferrari corporate website. 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 Mr. John Elkann.

Good afternoon, Nicoletta. Good morning and afternoon to all. I would like to start thanking all of my colleagues in Ferrari for the remarkable results in 2020, a testament to the strength of our business model, and resilience of our core business. In fact, we exceeded full year guidance on all metrics in 2020. These results have been achieved, factoring the impacts of COVID-19 on all of our activities. This environment gave us the opportunity to learn more about our strengths and weaknesses, which allowed us to further fortify our company for the future. 2020 has also been characterized by the successful digital unveiling of the Ferrari Portofino M, SF90 Spider and 488 GT Modificata. Today, we have the most beautiful, most innovative, and widest product range in our history. I would like to highlight some of our achievements that we are particularly proud of. Back on Track, which is Ferrari's program to safeguard the health of our employees in a COVID-19 secured environment, which has become a reference in Italy and around the world? Equal salary certificate; in July, we were the first Italian company awarded in recognition of the same compensation amongst women and men for equivalent roles and jobs, testifying our commitment to create an inclusive and diverse working environment. And social responsibility in helping with different activities during this pandemic crisis. I'll just mention a few which we are particularly proud of. We launch with our clients of fundraising, matching all of their donations to support the medical staff and the health system of our community in Maranello and surroundings. We joined forces with the Italian Institute of Technology to present the open source project SI 5, a revolutionary low cost and lightweight pulmonary ventilator. And lastly, during the seven weeks closure of the factory, we…

Thank you, Mr. Chairman. And good morning or afternoon to everyone who is joining us today. I start from Page 6, where you can see the highlights of 2020 results, which exceeded our latest guidance in this difficult time driven by very strong fourth quarter results. This was achieved on the back of the strength of our core business, improved Formula One revenues. The cost containment actions deployed during the year and a tailwind from foreign exchange compared to our projection. Our shipments in 2020 were 9,119 units, approximately 10% less than prior year in line with our production planning. Group's net revenues were EUR 3,460 million, down 8.1% compared to prior year, driven by lower deliveries as well as lower Formula One and brand revenue. EBITDA came in at EUR1, 143 million down 10% with a margin of 33%. It is worth noting that the EBITDA margin in our core business was better in 2019. EBIT 716 million, down 21.9% embedding higher D&A. Adjusted net profit was EUR 534 million, down 23.5% versus 2019 and resulting in an adjusted diluted EPS of EUR 2.88 versus EUR 3.71 of prior year. The adjusted figures reflected a tax benefit with no cash impact on 2020 as a result of the one-off partials step up of the trademark book value in accordance with Italian Tax Regulations. Industrial free cash flow for the year was EUR 172 million. What you can't see in this chart are the fundamental dynamics underlying our business. We have recorded strong order intakes since summer 2020 fueled by the resumed commercial activities and the new product unveiling. As a result on a yearly basis, we ended up with a net order intake very much in line with 2019 despite a very different environment, and the trend continued in…

Thank you, Antonio. We are now ready to start the Q&A session. As a reminder, you will be managed by Antonia. Thank you, Andrei to you.

[Operator Instructions] Our first question comes from the line of Michael Binetti from Credit Suisse.

Hey, good morning, guys. Thanks for all the detail. I want to ask about the guidance first, I suppose. If we look at the 2022 EBITDA that we talked about at the Capital Markets Day, it had implied incremental margins of about well over 50% relative to the 2019 numbers and then your 2021 guidance implies less than 40% incremental margins versus 2019. I'm wondering what you consider are the components that will leave incremental margins in 2021 below the trajectory that that we knew about.

Thank you, Michael. It will not look that much at 2021 for the trajectory to 2022. This pretty much depends on the mix. We assume that the capital product mix to assume that the Capital Market Day, as I said, we'll review. There was an expected significant growth between the two years. 2021 as of now is back on the trajectory we had at the time; we prepared the plan of September 2018.

Well, let me ask you about that. I guess if you -- if I just look at the bridges you just gave us. If I just back out the business losses that you showed us hard numbers for in 2020 EUR 126 million volumes and EUR 211 million of loss revenue from Formula One calendar activities and brand activities, that would have put you at EUR 1.48 billion of EBITDA in 2020, which is the midpoint for that you guided us to for 2021. Obviously, you'll get some car business back. And I know that the general theme of the capital markets day long term plan was to keep growing the business and evolving the profitability. So I'm just -- I'm wondering how much I guess the nexus of the question is how much conservatism you feel like you need to bake into the 2021 margin guidance today.

I think very some, because 2021 is still affected by significant uncertainty. I mentioned some elements in the slide that you see, cannot be more specific in terms of amounts, but clearly, all of our business, including F1 some extent to deal with the uncertainty related to the development of the pandemic.

Then and just one last one I know, John mentioned regarding a path to carbon neutrality, and developing a wide framework. I thought that was a very interesting comment. Would you mind elaborating because it's a subject of much discussion among shareholders? Could you elaborate on what you think are the key high level underpinnings to get there that we should think about as far as how Ferrari thinks about it?

Yes, I think I can speak on a qualitative basis. Despite the fact that we are focused on the car business, we also have other activities in. Our cars business is basically made of the carbon footprint of our products. F1 is very specific, per se. And brand related activities also have their own feature. So first of all, we need to pull all that together, and be able to compute the carbon footprint for the company, company wide, basically. And then given the size of this footprint, we can put together a mix initially at least of actions to take tackle the issue both with various actions and with compensation. As I said, the plan is first to achieve carbon neutrality, sorry, a carbon footprint certification. And then at that point, we'll be probably ready to be more specific as to the actions that we put in place to achieve what our Chairman just mentioned, is the goal to become carbon neutral within the decade.

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

Good afternoon. And because you mentioned Louis was listening, Louis, hope you're doing well and miss you on many levels. Just a first question, and I think Michael's question on 2021 guidance, I think is very important to know, because I think we're all trying to figure out what the basis is to work off of for our 2022 and beyond numbers because it still seems like there's some noise and pressure on 2021. Is that kind of a fair statement to say hey 2021 is still a year that's got a COVID noise, some incremental costs and some other things that might not be the best way to think about building off as a basis year for the trajectory in 2022 and beyond? Is that a fair statement?

I'm not sure I got all the details of your question, because the line is not very good here. I understand you're asking about 2021 may be informative as to the development of the results for 2022. Only partly I would say, 2021 is mostly execution, assuming that COVID-19 allow us to do so to execute well in alignment with our plans. 2022 already encompasses the expectation of introduction to the new model, and there is where we need to be more specific later on.

Okay, and then just a second question, you mentioned personalization was lower in 2020. I'm just curious as you think about 2021 and a recovery, and then beyond do you think that personalization will be significantly additive to results going forward? And it was a little bit depressed in 2020 because of COVID.

Okay, thank you for this question, John. I think we discussed a number of times in previous calls too. We don't do product personalization because it usually, while the average does not move much throughout time, it is actually depending on the mix of our products. We mentioned, I think already in a couple of calls, decide that personalization rate has been influenced by specialty areas. Clearly, the price of the cars is important because it affects the denominator meaning the total revenues. And so I will not be particularly mindful about the fluctuation of this personalization rate. What actually matters in absolute terms are the margins attached to that. So you may imagine that the personalization right for Monza in terms of the share of revenue is lower compared to that of a Portofino or maybe Pista, it depends, is a balance of that but the company's contribution may be very different.

Okay and just lastly on the Concorde Agreement, I just wondering if you could give us any basics on the positive or negative side for economics going forward, and just how we should think about that in a very basic way on the positive negative swing factors.

Yes, I prefer to comment saying that the net impact of the introduction of the new Concorde Agreement and the budget cap is kind of neutral for us. That is the expectation that we will be monitored throughout time.

Our next question comes from the line of Giulio Pescatore from Exane.

Hi, everyone. First of all, I also wanted to take this opportunity to wish Louis all the best. Now coming to the questions, I want to come back to the 2021 guidance and in particular to the free cash flow one. I really struggle to understand how to reconcile this EUR 350 million guidance also because you've given us EUR 800 million CapEx number. So what are the other assumptions behind this number in terms of working capital and then how do we think about bridging this result with the 2022 target given that it would imply a growth of three times in cash flow generation.

Thank you, Giulio. As you know, our free cash flow is basically the result of how much we take out from EBITDA due to capital expenditures. Working capital in a wider sense meaning we take into account also the impact of the advances that we receive on the Monza and we have drag, significant drag and still in 2021 basically, we catch some significant part of the price of the Monza already in 2019 and we want to have them in 2021. And besides the usual dynamics of the rest of working capital, that does not count much usually. We have the tax and financial charges payment. As far as taxes concerned and you should take into account the fact the new Patent Box scheme basically provides for the cash benefit to be split in three years. So there will be a slight reduction in 2021 compared to what we witnessed in 2019 and 2020. Does it help?

Yes, a lot. Thank you very much. And if we look at the 2022 number again, does it include any impact from new deposits for a potential new limited edition car? Or is or should we say it's a clean number?

Yes. That's a fair assumption.

Okay. Thank you very much. Then I also wanted to come back on the decision to postpone the CMD. Is that only driven by the fact that there isn't a permanent CEO at the moment or if there is anything else behind the decision to --

I don't think we have communicated that date for the CMD, Giulio. If there is anything, we speak about that.

Okay. And then also looking at your shipments for Q4. I mean you were indicating shipments down around 9% for the full year in 2020. You closed the year down 10. Is there any maybe conservativeness in deliveries in the last few weeks of the year? Have you taken maybe -- have you halt the deliveries to kind of --?

No, It is just rounding, Giulio, just rounding.

Our next question comes from the line of Susy Tibaldi from UBS.

Hi, thanks for taking my question. First of all, I would like to talk a little bit about the mix evolution to expect in 2021. Clearly, your mix is becoming stronger and stronger at the same time we do have the generalization of the Monza and also the Pista's being phased out. So net-net what should we expect in terms of contribution from the mix in 2021?

We expect mix to be positive and this due to the fact that we will keep on delivering the Monza as per our plan, and we should have significant growth in terms of the delivery of the SF90. So that the main driver of what we expect.

Okay, and then -- and when it comes to the percentage of volumes that you expect to be hybrid and because you had a target of the CMD to have 60% by next year, which I mean, at the moment you have two models. So how should we think about the step up? And do you have -- can you give us an indication of what percentage of 2021 volume could be hybrid?

No, as you know, we prefer not to go into that. We prefer to look adjusted revenue. Those are much more relevant than volumes per se.

Okay. And on this CEO search, I mean, I can imagine that you cannot give details in terms of names that you might be considering. But can you perhaps discuss a little bit what are the key criteria and qualities that you are looking for in the next CEO?

I am sorry. The question is about what I didn't -- I didn't catch you.

Yes, the search for the new CEO, if you can describe the key criteria and characteristics that you're looking at?

Yes, I'm sure the board is considering all of the criteria that are necessary to run a company like ours, right, yes.

Okay. And maybe just one last one as a clarification, can you just remind us what plans have been affected? And what initiatives have been postponed as a result of COVID?

No. Once again, I think we mentioned a couple of times this year. The basics and the main drivers of our growth plan remain unchanged. It's just a question of timing for most of that. But we are not specific in advance the models we will launch we cannot be even more I would say on the initiatives that will come in a couple of years or longer.

Our next question comes from the line of Monica Bosio from Intesa SanPaolo.

Good afternoon, everyone, and thanks for taking my question. The first one is on China. Can you give us a flavor on what are we doing to expect in terms of shipments from Mainland China, Hong Kong and Taiwan in 2021 and if you see some major flow of shipments in the coming year from these regions? And second is on the timing for the new models. Can you give us a rough timing for the announcement of the three new models in 2021? And the very last is on the quarterly trend. I know it's difficult, but the outlook is still uncertain. So do you see some differences between the quarter by quarter if you can just give us a flavor about the first quarter and going forward? Thank you very much.

Thank you, Monica. I will start from the launch, that is a nice try, but as you know, we do not go into that sort of details. And with respect to the quarterly development of the year, we have some seasonality; something has changed in 2020 due to the impacts of the pandemic. So the comparison will not be an easy one, is not just the development of volumes, but it's also the mix of changes and also in terms of revenue recognition for the F1 activity. So it's a bit difficult without entering into the detail of modeling and I prefer not to do. The last one is on China. What we currently witness is a nice comeback of orders from there, and you should not ever look at our deliveries in 2019 and 2020. Because these were affected by our decision to anticipate the introduction of a new emission regulation that was unexpected in 2019 as a result 2020 suffered in the comparison. 2021 what we currently see is a significant growth of order particularly and nicely, that’s maybe an interesting one on the Monza -- sorry, on the Roma and with a significant share of orders from women there. So that means something in terms of the facilities a car may have, even if with a thermic engine.

Our next question comes from the line of George Galliers from Goldman Sachs.

Good afternoon and thank you for taking my questions. The first question I had, and apologies if you did allude to this in the comments, but just for this year, what are your assumptions around raw materials and FX? And have you already taken action to price through the appreciation in the Euro against the US dollar, which we saw last year?

Thank you, George. In terms of our policy on FX, as you know, we have a policy that provides for hedging on a rolling basis with some target percentages. So a significant chunk of 2021 is already been hedged throughout 2020. Still we do not go under percent and there is room for changes and impact -- from changes in effect on our results, which is minimized but may go one side or another. As far as raw material, for those who really matter we have a similar policy.

Understood, thank you. And then the second question I had was just with respect to the order book, you're obviously extremely clear that the order book is very strong and extends well into next year. Can I just ask you; is a much variation by modern line or more importantly by market in terms of what you see with respect to the order book? Or is it pretty robust across the board at this point in time?

I will describe it as a pretty robust across the board across geographies. Across the board meaning across product and geography nicely enough.

Great. And then the final question, just to clarify, and I think both Michael and John, have already touched on this, but I just wanted to clarify. At this point in time, you still are aiming to deliver the 2022 targets that were presented. Is that a fair statement?

I think that will come with at Capital Market Day. At that point we may describe the strategy we are pursuing and if and by our match any results expected -- for any target expected for 2020 is to be changed. Sorry 2022.

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

Thank you very much. And have a couple of questions. A couple of questions left, please. First, on the EBIT Bridge in 2020 because of COVID, you had an enormous [ojas] line but who is V negative. Should we expect part of that to reverse positively in 2021? Or is it just something that's gone?

Not sure I got, which is the part of the EBIT Bridge that you're talking about.

The one called --

Sorry, well, that there are other includes the impact of F1, which in principle may come back to the extent the calendar, the F1 calendar is not affected the same way it was in 2020. That obviously includes the revenues from the commercial right holder and revenues from the sponsorship, but also include the impact on EBIT from the delays on our -- delays and closure of our brand related activities. Once again, there we are very much dependent on the evolution of the pandemic. And finally, we are also partly dependent on Maserati in terms of volumes and margin attached to that.

Okay, thank you. Actually you gave me a connection to the next question. Can you just clarify the potential financial consequences of stopping the delivery of Maserati engines? We are not fully aware of obviously of the contract you had with them. Is there you need to write off any of your asset or --

The agreement with Maserati is expected to end in 2023. That business is diluted for us in terms of margin. And furthermore, I think we outline since the time of the Capital Market Day that we expect to have some capacity to be freed up from top of their activities that may be used for the development of our model and of our power thing forward.

Okay, thank you. I have a last question that may be beyond the scope, but I trade. Could you give us any hints about the 2022 CapEx plan and the timeline for the Purosangue launch whether it's still within the frame of the initial plan or whether it's now pushed into 2023?

No, I would prefer not to go into that. Once again, we said there are some developments ongoing. It is better talk when everything is clear.

Our next question comes from the line of Massimo Vecchio from UBI Banca.

Yes. Good afternoon to everybody. I have a follow up question on the topics indication. EUR 800 million is a really a big number is probably the highest in the industry. I was wondering if you can give us some details on what are the number ones or two projects that you are investing in. Or at least by categories if it's R&D for new proportions, or any color would be helpful?

Sure, Massimo. By the way this was the same target we gave better expectation that we gave beginning of last year when we started 2020 and before being informed by about the impact of COVID. And there is some catch up in that number from the slower days of our investment in the last part of 2020. Mostly, this is mostly product or product development, which all work is attached to that in terms of the consideration that we are not in more only some thermic engine. We also have as you will know hybrid and we are working on other infrastructure is a small part of that, but we cannot disregard the development in our factory here. As we did by the way by purchasing some tracks on land contiguous to our headquarter here. So as I said multi product. And this by the way full in line with what we said at the Capital Market Day back in 2018. So we’re adjusting and executing with that.

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

Thanks everybody. And I have a question for John Elkann but I just wanted to say at the outset that I mean, all the talk around 2022 guidance, I totally understand it. But just think about how much the world has changed in terms of C02 and climate change and EV economics since the 2018 CMD. It's almost renders toward the 2022 guide irrelevant in my opinion, but just my opinion, but John, question for you. Ferrari vehicles, I know management in the past on tailpipe emissions, have the comment that because Ferrari vehicles are such a miniscule part of the park, that it's really tiny, and that you could kind of talk to regulators and somehow convince them, we're not a big deal. And you could kind of purchase credits and very easily at current carbon prices. Or even more than that, kind of make it neutralize it. But what's happening, of course, as you know, John, and the team now cities are getting involved. London, Los Angeles, Hong Kong, and big Ferrari cities are kind of saying no, we're not going to allow the operation of ICE vehicles in the coming years. And so it just means you run the risk of having the regulatory environment move outside of your control. So with that in mind, I'd love to hear maybe a direct question, John, can you see a day within the next decade where the majority of Ferraris products are 100% electric, not just hybrid because that's still considered tailpipe climate changing cars in the eyes of these mayors and cities that we're talking to and you're talking to. Could you see and I'm not asking you to say it's going to happen. But is that too radical for Ferrari while protecting the sanctity of the brand? Thanks, John.

Hi, Adam. Good to hear your voice. I think that the best way to answer is really an open invitation for next year in Maranello to talk to you and all your colleagues who are going to join us on the exciting journey that we have over this decade. And 2030 will still be a year where we will have hybrid cars. So within this decade, we will be seeing a Ferrari, fully electric. Well, we will see within this decade is an electric Ferrari, and I hope you will buy one, Adam.

Our next question comes from the line of Stephen Reitman from Société Générale.

Yes, good afternoon and thank you. Question on you mentioned very impressively that your cancellation level in 2020 was lower than in 2019. Can you comment a little bit about where were the cancellations either by geography and by product ready to get an idea about that? And secondly, you alluded on the new customers that you had a very strong interest from women in China for the Roma. Can you talk more generally about the level of interest globally further on the Roma? And also the level of interest for SF90 Stradale the other extreme, and particularly the amount of the proportion of people who are specifying the Assetto Fiorano additional uptake? Thank you.

Yes. Thank you, Steven. In terms of the cancellation fee we were public in the second quarter. That's the fact that we had some cancellation in North America and in Australia. They were pretty much concentrated there. From then on we haven't seen anything specific. So the ones that we had were usually evenly distributed to other various geographies nothing special to report. With respect to the color on the order intake from -- for the various models. I think it is confirmed that the Roma attracts more than any other Ferrari before new to Ferrari's customers, which is interesting and nice. It happens also that the SF90 attract younger customers more probably than we were expected. And the order book for that car is very, very long. And it may become preorder already some months ago. And that probably the two most interesting element that you should take into account.

In terms of sort of the model cancellations were they concentrated at the lower end or the higher end of the model lineup?

I don't think there is any specific concentration on either the low or the high end of our range. There wasn’t any across the board

Thank you. There are no further questions on the line. Please go ahead.

Thank you, all. Bye - bye.

That concludes the call for today. Thank you for participating. You may all disconnect.