Ferrari N.V. (RACE) Q4 2022 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Ferrari 2022 Full Year Results Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Nicoletta Russo, Head of IR. Please go ahead.

Thank you, Sharon, and welcome to everyone who is joining us. Today, we plan to cover the group's full year 2022 operating results and 2023 guidance, 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 the Group CFO, Mr. Antonio 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 governed by this language. With that said, I'd like to turn the call over to Benedetto.

Thank you, Nicoletta, and thank you, everyone, for joining us today. In this call, we will discuss in detail 2 things: the result of the full year '22 and priorities and guidance of year '23. It has been a year of celebration, progress and innovation for Ferrari. And for this, I would like to thank all the women and men of Ferrari for their outstanding work, all our partners who have helped us considerably during the past challenging years during which we had the opportunity to strengthen our relations with many of our suppliers, and last but not least, all our clients for their continuous trust in our brand. During our 75th anniversary years, among the many different moments, a milestone that signaled our company's evolution, I would like to highlight the following 3. Firstly, we unveiled 2 exciting models, the 296 GTS in April and the Ferrari Purosangue in September. These models strengthen an already astonishing product range that both meets and exceeds our customer demand for design, performance and driving trials. Secondly, we presented our strategic plan. It was June for '22, '26, setting transparent, concrete and measurable goal. Thirdly, we outlined our journey towards the carbon neutrality within 2030 through a scientific and holistic approach. We are clear on our overall carbon footprint and we have a defined road map moving forward. From a financial perspective, we ended the 2022 with a remarkable set of results, setting a new record across all metrics, with EUR 5.1 billion revenues, strong net profit at EUR 939 million, and more than EUR 750 million of industrial free cash flow generation. I will address, first racing where our origins lie, then sports cars where we have evolved and at the hand, lifestyle, our new ventures will continue to elevate our brand. Let's start with the racing world. 2022 was an important year for Ferrari in the racing activities. We celebrated memorable victories in the Endurance Championship and we unveiled 2 new racing cars. The 296 GT3, the successor of the most winning Ferrari in history, the 488 GT3 and the 499P, our new Le Mans Hypercar signaling our return to the top tier of the FIA WEC in 2023 after 50 years. In Formula 1, we proved that our competitive edge improved during the last season, and it was encouraging for us and the million of funds to see our drivers taking more places on the podium. Clearly, our goal is to achieve the ultimate price and the entire team, together with Fred, who recently joined us, are working relentlessly in that direction. In sport, we are engaged in 3 championship, F1, Endurance and SRO. We continue to lead the way in terms of bridging the real world with the virtual world. How we do it? Well, by having our own Esport headquarters in Maranello, where our Esport drivers, share programs and activities with our Scuderia Ferrari Driver Academy. And this is 1 important way to engage the younger generations. Now after all the racing activities, let's talk about our beautiful high-performance and unique sports cars. And let's focus on our future, our order book. We continue to enjoy strong demand across all regions, with an overall order portfolio continuing to be at an all-time high and covering well into 2024. Our sports car product portfolio continues to have a strong traction on all fronts with the 296 family and Purosangue, driving the net order intake. The Purosangue order intake has been extraordinarily high, well beyond our expectations. But the enthusiasm of our clients is expressed also by their attendance level at all our events. In fact, in 2022, we had an unprecedented number of unrivaled client engagement experiences. On the bread events side, we extended our Casa Ferrari hospitality in several global venues and in Australia, we had, for the first time, our Universal Ferrari concept. On the dynamic events, we ranged from our cover capes to our engaging track activities. One for all, the Finali Mondiali, we held in Imola in the last quarter, which was definitely a great success and brought more than 40,000 funds altogether. All of these client experiences are designed to continue to fuel the passion and a sense of belonging within the Ferrari family. Among the innovation of 2022, it's worth mentioning, too, the first edition of the Cavalcade icon with the participation of 80 Ferrari Monza, both SP1 and SP2, coming from more than 20 nations. And the first Ferrari GT Tour Women's edition with 26 ferrarista, coming together to take part in an exclusive road trip in Ibiza. And now, after the sports cars, let's talk about lifestyle activities. Here, we are determined to keep on working to extend our heritage and values in the wider luxury industry. Four highlights worth mentioning for 2022. One, we continued our journey in brand elevation through 2 fashion shows with strong and positive reviews from press and clients; two, we grew our assortment on high image items such as the jumpsuit and traffic builders, such as Gallo Modena collection launched at Monza Grand Prix to celebrate the 75th anniversary. Three, we further consolidated our licensing agreements in line with our luxury positioning. And last but not least, we reached a record level of visitor at our museum, welcoming more than 600,000 guests in 2022. As you can see, last year, we made many steps forward in racing, sport cars and lifestyle. And in 2022, we also detailed our commitment to reaching carbon neutrality by end of this decade. And we are also proud to have committed to set science-based targets. The focus is not only on the impact of driving our sports cars, but also in our entire supply chain and production facilities. In years, we are working very closely with all our suppliers. In 2022, we also completed several projects in terms of carbon neutrality. From the new fuel cell plant and photovoltaic system at Maranello to the main innovation identified by our colleague, such as the adoption of new filters in our foundry, saving more than 250 tons of aluminum per year and the dispersion recovery in our engine testing process. All these initiatives implemented in 2022 led to a reduction of approximately 5% of energy consumption per car. This is a remarkable result, and I'm really proud to underline that no CapEx was required, only brain power of all the colleagues. All of these developments as well as the record result of the years have been possible thanks to the passion, to dedication of all the Ferrari people and to reward their achievement in line with the company's strong performance indicators, I'm pleased to announce the yearly competitive award of up to nearly EUR 13,500 for our employees. I'm also proud to share that for the fourth year in a row, Ferrari confirmed itself as 1 of the best place to work, thanks to career opportunities and welfare services we offer to our employees. We live behind a year characterized by global tensions, geopolitical conflict, supply chain issues and cost inflation. With our people, clients and partners, we've been able to weather through these times, thanks to the collaboration, will to progress, continuous learning, focus and confidence that sets us apart. And now we are ready for 2023. It will represent another significant step of our journey, during which we will continue to execute our strategy with the highest determination. Four, four are the priorities for 2023. We will compete at the top in the different racing championship. We will continue to enhance our client experiences both on track and on road and reaching them with 4 new model launches. We will broaden the lifestyle client base with a coherent and integrated offering of personal goods and unique experiences, and we will further accelerate the innovation pace with a strong focus on electrification and HMI as proved by the 4x higher number of patents that we filed in 2022 compared to 2021. We look ahead at 2023 with enthusiast, energy, agility and confident humility required in these challenging times. Now I hand over to Antonio to review the 2022 results and 2023 guidance.

Thank you, Benedetto, and good morning or afternoon to everyone joining us today. Let's start on Page 5 with the full year 2022 highlights, showing a very strong year with double-digit growth compared to 2021 and representing a solid foundation of the new business plan. These record earnings exceeded our latest guidance, thanks to a better business performance, personalization and a tailwind from foreign exchange rates also in the last part of the year. Having said that, I would like to highlight our most remarkable achievements. EBITDA of EUR 1.773 billion, and EBIT of EUR 1.227 billion with margins aligned to guidance reflecting product mix and the evolution of our D&A. Net profit of EUR 939 million resulting in a diluted EPS of EUR 5.09 and an industrial free cash flow generation of EUR 758 million. Turning to Page 6, you can see the details of the 2022 shipments. The product portfolio over the year included 9 internal combustion engine models and 3 hybrid models representing 78% and 22% of shipments, respectively. The deliveries increase was mainly driven by the Ferrari Portofino M and the SF90 family as well as the 296 GTB and 812 Competizione, which were in the ramp-up phase. The deliveries of the ICONA pillar were lower compared to the prior year as the Ferrari Monza phase out in Q1 and first few units of the Daytona SP3 commenced in Q4. All geographic regions grew compared to 2021 as we continue to serve an impressive order book across all models. As customary for Ferrari, the geographical allocation was deliberate and followed the pace of introduction of new models, particularly Mainland China, Hong Kong and Taiwan continued to post high double-digit growth versus the prior year. I'll just remind you that the greater weight of the region is supportive in absolute value, while dilutive in terms of percentage margins. And this is more visible in the gross profit of Q4 when Mainland China, Hong Kong and Taiwan reached 14% of total shipments. On Page 7, you can see the walk of our group net revenues growing 16% at constant currency. As explained throughout the year, change in cars and spare parts was driven by higher volumes and personalization. Personalizations were at around 18% in proportion to revenues from cars and spare parts. Engines was negative, in line with the reduction of supplies to Maserati, which will stop in 2023. Sponsorship, commercial and brand reflected the better prior year Formula 1 ranking and the contribution from lifestyle activities, led by retail sales and museums visitors despite lower sponsorship. Currency had a positive impact mostly related to the U.S. dollar and the Chinese yuan. Let's move on to Page 8 and review the change in our EBIT year-over-year, explained by the following variances. Volume positive for EUR 261 million reflecting the shipment increase of approximately 2,000 units versus the prior year. Mix and price variance, negative for EUR 16 million mainly impacted by lower deliveries of the Ferrari Monza SP1 and SP2, partially offset by the increased contribution from personalizations, country and range model mix. Industrial and R&D expenses grew EUR 116 million during the year due to higher depreciation and amortization as well as direct and indirect cost inflation mainly from energy and aluminum. The latter became particularly visible in Q4 as we supported our supply chain. SG&A were negative by EUR 47 million, reflecting communication and marketing activities, lifestyle and corporate events as well as our organizational development. Finally, Other was negative EUR 49 million, mainly explained by the variance in contribution from racing activities and nonrecurring items as well as the reduced engine shipments to Maserati. This was partially offset by better contribution from lifestyle activities. The total net impact of currency was positive for EUR million. Turning to Page 19 -- 9 apologies. Our industrial free cash flow generation for the year reflects the strong profitability and a positive contribution from working capital and other, mainly related to the collection of Daytona SP3 and 812 Competizione on advances. This was partially offset by EUR 806 million of capital expenditure in line with guidance. In the year, the capitalization ratio of our development expenses was 45% increase versus the prior year as we enter the development phase on a number of future models and per effect of the budget cap in Formula 1. Net industrial debt as of the end of December 22 was EUR 207 million, decreased by EUR 90 million compared to December '21, reflecting the solid industrial free cash flow generation, net of the share repurchase program and dividend payment. To conclude on Page 10, we outlined the guidance for 2023, which targets solid growth and consistent progress in profitability. The main drivers are as following: mix will be extremely strong, thanks to a very rich product portfolio, full year contribution of Ferrari Daytona SP3 and continuous positive effect from personalization. Price will positively contribute throughout the year, in line with the mid-single-digit price increase communicated in Q3 to counterbalance the impact of the current cost inflation. D&A will increase in line with the start of production of new models. Revenues from racing and lifestyle activities will show a limited improvement. And industrial free cash flow generation will be sustained by our profitability, partially offset by capital expenditures, slightly higher than EUR 800 million, and negative working capital in its broader meaning, mainly due to lower deposits on limited series models along with the reversal of those already collected in the previous 18 months. The tax rate for the year is expected to be around 22%, that is higher than in 2022, mainly because of the introduction of new rules on the patent box regime. The underlying assumption on the exchange rate of the U.S. dollar to euro is that it will fluctuate around 1.10, implying an overall neutral foreign exchange effect compared to 2022. This foreign exemption, together with the net impact of price actions taken to offset energy and raw material cost increases, explains most of the improvement in absolute terms between the 2023 guidance versus the previous EBITDA target of EUR 1.8 billion to EUR 2 billion. Percentage profitability will be growing over the course of the year, with Q1 currently expected to be the softest quarter driven by the planned development of our product and country mix. This is also linked to the allocation of deliveries to Mainland China, Hong Kong and Taiwan designed to be front-loaded. Lastly, cost inflation remains largely unknown. In this context, we are relentlessly executing the strategy we outlined at the Capital Market Day as committed and focused as ever. The 2023 guidance represents another solid step on the trajectory to 2026. With that said, I turn the call over to Nicoletta.

Thank you, Antonio. Sharon, we are now ready to take questions.

[Operator Instructions]. We will now take the first question. And your first question comes from the line of Stephen Reitman from Societe Generale.

I apologize for the background noise. Two questions, please. You commented that the order intake has been much higher than you had anticipated on the Purosangue. Could you comment on if there are any regional differences and particularly interested in the reaction in China to that product? And secondly, also on China itself, we saw that China took up a larger share of total sales, quite a strong acceleration there. Accord of the numbers I'm looking at, it seems that the growth was driven particularly by the V8, the by the F8 Tributo and I guess, 296 GTB. Do you think this already indicates an increasing desire of Chinese customers also to accept the sort of the 2 super sports car concepts as well which has obviously been maybe an issue in the past.

Apologies, we had some problem with the audio. Can you kindly repeat your second question? We got the 1 on Purosangue.

Yes. After Purosangue, yes. On the -- sorry, on China, again, looking at the growth of your sales in China in 2022, according to the data I'm seeing, it looks like it was driven primarily by the F8 and 296 GTB rather than the Roma. I was just wondering, do you think this indicates a growing acceptance of Chinese customers for the 2-door -- 2-seater sports car concept, which has obviously been something that's held Ferrari back in the past, maybe in China.

The first 1 was the acceptance of the traction of Purosangue all over the region. And I have to say 2 things. It has been the acceptance, it has been higher than what we were thinking, and this is true across all the regions, okay? This is 1 important message. The second one, coming to the China let's say, the preference of Chinese clients toward our cars forecast. I have to say that we don't see a special pattern because we see clients interested in our ICE as well as in our hybrid. Consider also that we manage deliberately, the delivery of the cars for that region. But we don't see a clear pattern of selection of car.

We will And your next question comes from the line of Susy Tibaldi from UBS.

I have 3, please. So on 2023, on the guidance, I was wondering, should we see it as sort of a one-off super strong year, a bit like 2022 was a weaker transition year? And basically, because I look at the 2026 guidance. And I'm trying to understand if we should expect the growth forward -- going forward to be somewhat linear? Or we could find a subsequent scenario where, again, we could have another transition year, where we could see some pressure on the margin. So are you going to be able to comp this year super strong price mix. I personally would say yes, but I will be keen to hear your view. Secondly, on pricing, can you talk us through the philosophy on how you decide price models? I'm asking because in the past, I remember there was this rule of thumb that each car was a bit more expensive than the predecessor and with a higher margin contribution. And these increases were usually a mid-single digit. But when we look at -- if you think about the laws of supply and demand, given this extremely strong demand that you're seeing, it feels that maybe a new approach is needed. So I was interested to hear how you think about of setting prices for a new product? And lastly, a shorter 1 on the Daytona, sort of staging that we should expect over the next few years. Is it going to be quite evenly distributed over its life cycle? Or is it -- 2023 going to be like a heavier year for Daytona?

Thank you, Susy. I'll take the third 1 and then the first and the second 1 will be with Antonio. So the third one, the Daytona, we are starting as planned. And you can, yes, assume that it's more or less evenly distributed. The first and the second, Antonio will comment more.

Yes. 2023 guidance compared to 2026. I think there are 2 elements that should be taken into consideration. The first 1 is that we already mentioned at the Capital Market Day that the plan is front loaded, which means basically, you cannot assume a linear development, but it's rather a jump at the beginning and then a smoother growth. Secondly, some of the assumptions that were outlined at the Capital Market Day, obviously need to be updated once we get closer and closer. And 1 of the first is obviously the impact of pricing compared to where we were at the Capital Market Day, we had an adjustment in Q3 that we, I think, were public about. Another 1 is the impact of foreign exchange rates. I think we said at the Capital Market Day, we had assumed 1.15 as the average U.S. dollar to euro exchange rate. And this 1 is based on 1.10. So this set of assumptions, of course, will be revised from time to time depending on how and where we go. The second question is on pricing strategy. I think on this we have been quite careful in defining it, depending on the model and its distribution over time. And obviously, we are -- we take care about the demand and the order book that we have for the various models. So the price increases that have been applied in Q3, have been applying differently to selected markets and models.

If I may, to the next questions, I kindly ask to state clearly your questions since we are having some audio problems.

[Operator Instructions]. And your next question comes from the line of Giulio Pescatore from BNP Exane.

The first 1 is a bit broad in general. I mean we rally we don't often think about the macro issues, because you create your own demand in a way. But if you think about the creation of -- and concentration of wealth in the last few years, that clearly has been a driver of demand for you. I think you're uniquely placed to have a view on this topic. So I was wondering if you could share your thoughts on what we should expect in terms of concentration as well in demand for the next year? And what are you assuming in your target? The second one, I would like to go back on pricing. You mentioned that the '26 targets have some assumption on pricing and you have taken pricing to offset cost, but am I right in assuming that even if costs have to go down, I mean, you're not going to be lowering your prices, right? So pricing should be sticky for you. Just a comment on that, please. And then last one for Antonio, please, on the R&D expenses. What happened in Q4 because the number was very, very low. And how should we think about this cost for 2023, please? I hope I was clear.

Maybe, Giulio, I'll start with the second and the third one, from the last one, R&D expenses. You're right. There are 2 reasons. One is that as we go more and more -- we enter more and more into the development phase of new models, we switch from pure innovation expenses to development expenses is obviously a different accounting treatment. So this may explain changes in the allocation of the hours and time by our engineers. And obviously, the fact that we are capped in terms of development costs on the chassis in 2022 has also an impact because obviously, you spend more at the very beginning of the year and rather less at the end. The second before last, I think, was on pricing. You are perfectly right, and thanks for adding to my answer before because I spoke about pricing without obvious obviously mentioning that pricing also has to take into account where costs are going. I simply said inflation is unknown and known. Meaning, obviously, we make assumptions in that respect. And on that basis whether right or wrong, obviously, we try and be careful, but we cannot predict where it will go. And this is another element to be taken into account. And that's why we do not add anything more in respect of 2026.

Coming to the first question, Giulio. As you said, our view on the concentration of wealth in the world. Well, this is a trend that everyone can read on any newspapers. What I can tell you is that for us, what is important is that we keep always unique and we keep always exclusivity for our cash. I think that what our founder said, we want to sell always 1 car less than the market demand was true, is true and will be true. So concentration is happening. Yes, it's up to us what we are doing to manage properly the demand to keep it always exclusive.

And your next question comes from the line of Michael Binetti from Credit Suisse.

Wonderful end of the year. I love the guidance of '23, obviously. Just a couple of quick ones on the model. How should we think about personalization versus 18% in 2022 as we look out this year and you think about the mix of cars. And I'm wondering, does this guidance include getting the Keystone sponsor back in Formula 1 that exited last year? And then I guess a bigger picture question as we think through the numbers. So the guidance is for EBITDA margins around 38% this year. I think the long-term plan is 38% to 40%, obviously, this is the kind of year that has many, many tailwinds for profitability. Most importantly, the supercar mix is always helpful. Can you speak to what would be the upside case that would take margins from the level you just guided us to this year at 38% to the high end of that range at 40%. What are some of the things that are incremental to the P&L this year that would support that higher margin range from here?

So Michael, Antonio will take this question. And...

Yes. On personalization, the way we model it is basically we assume that as a rather constant proportion to revenues. You have seen over the last few years, we have been flat between 17% and 19%, depending on the models. So the assumption we are making -- and I think I mentioned the same at the Capital Market Day. And this is obviously mostly related to the development of the mix. The higher the price point, the lower the proportion of personalization to the overall revenues. So it depends on the mix, basically, but that is the assumption. With respect to the development of margins, the big jump was already there in the original guidance and then development over time, once again, absent any consideration, any further consideration on additional price changes and cost changes is that this will drive our trajectory to what we mentioned and gave the guidance to 2026. So the mix is really the driver there.

Okay. The marketing sponsor for Formula 1? Is that getting the Keystone sponsor back in Formula 1 that was missing last year. Is that included in this guidance at this time?

We included, Michael, sorry, because we had some troubles, too, here, actually. The electronic is always a problem. Unfortunately, sometimes electronics, you cannot rely on it. No. The sponsorship, we keep enlarging our sponsor base. We keep diversifying our sponsor base. And you have seen that in the last week, we announced new sponsors. And all the plan and the guidance that Antonio showed you is all coherent with also what we see on the evolution of sponsorship. So all the picture, the picture is considering all the elements, including the sponsorship evolution.

And your next question comes from the line of Thomas Besson from Kepler.

It's Thomas Besson from Kepler Cheuvreux. I have 2 simple questions, please. Could you help us understand the pace of ramp-up for SP3 and Purosangue. You've highlighted that mix would be the -- by far, the biggest driver for '23, it's totally clear. But I mean can you give us some direction on the number of units planned per quarter? Is your indication that Q1 is a softer quarter largely linked with the fact that you'll have a lower share of SP3 and Purosangue, for instance? And the second question, you've mentioned ForEx as neutral in '23 versus a fairly disinvesting '22. Is it too early already to make an assumption for '24 ForEx impact? Or can we already assume that it should be a small negative?

I'll take the first 1 and -- so the Purosangue, this is the year we are ramping up the production. We had an important milestone end of last year that we met successfully. So we are ramping up as -- clearly, this is the ramp-up year, so we will be lower than 20% of the total volume production, but we will -- and we will ramp up along the 4 quarters so that to reach the right production volume by end of this year. So everything is on track, and we are moving according to the plan. Antonio, you take the second.

Yes. On your second question, Thomas, I think it's too early to say, honestly. Visibility is already a complex element when looking at 1 year for the foreign exchange rate. Obviously, if you compare to the average assumption that we made on -- on the plan to 2026, in principle, mathematically, yes, but reality will be a different thing, and it's too early to say now.

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

The first 2 questions, I just wanted to clarify a couple of points from earlier on the call. So earlier, you did mention that the Daytona would be relatively evenly distributed. Can you just confirm, is that over 2023 and 2024? Or does that also include 2025? The second question was just on the specials, at 3% of 2022 volumes that equates to around 400 units. Is that the right kind of level to think about for this year as well? Or as you ramp the Competizione Aperta,should we expect that number to be higher? And then the last question I had was just with respect to the other line in 2022 Obviously, it was a negative, and you did mention some nonrecurring items. Could you perhaps just quantify how large the nonrecurring items were there, and any detail on what they relate to would be much appreciated?

George, I will leave the last one, the nonrecurring items to Antonio. I will manage the other 2 related to the product. Well, just is important clarification. When we are talking about any new model going production, clearly, there is a ramp-up phase. And then there is a stabilization. This is true for all the products we do. So in these years, we will ramp up these new cars, and we will have an increase and then a stabilization over the course of years. When I talk about every distribution, I talk about every distribution in quarters when the production is stabilized. This is the year where we run the Daytona and also the same applies to Purosangue as your colleague asked before. For the nonrecurring items, Antonio, you can take it.

The nature of that -- first, do not forget this is a variance. So it means the difference between the nonrecurring of this year and the nonrecurring of the previous one. Last year, we had some positive nonrecurring mainly related, if I remember all of them correctly to the release on some provisions in respect of previous recall campaigns or excess provisions on that. Release of provisions in respect of bad debt that were previously accrued. And this year, particularly in the last quarter, has been our nonrecurring costs in respect of the organization of the company. So that is it. All in all, throughout the year, I think it amounts to -- in terms of the difference is a negative of EUR 30 million year-over-year.

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

This is Matthias on for Adam. But within your industrial free cash flow outlook, you highlighted some negative working capital and rising CapEx impact. Can you dimension out each of these for us? So in terms of like how much CapEx and what's the order of magnitude on the working capital outflow?

Sure. I mentioned earlier on that capital expenditure for 2023 is targeted to be above EUR 800 million, slightly above that number, so slightly higher compared to 2022. Working capital is expected in its broader meaning, that is including the -- I mean the lower cash-in coming from the fact that we had collected deposit in advance in 2022 is in the region of EUR 100 million or so.

Great. And then as a follow-up, for the Purosangue, you lost some cost inefficiencies in the prior year, but there will also be some ramp-related costs this year, I presume. So it's not really clear whether the year-over-year impact on adjusted operating margins is going to be positive, negative or neutral. So how should we think about the Purosangue impact on margins for this year?

I take this question about the Purosangue. What I would like to underline is that here in Ferrari, the product development process is very robust. So thanks to our -- the way we qualify, we validate the cars, any new car we have. I mean when we go in production, the product is very well tested and is mature. So we do not expect any surprise in this direction. I think this is 1 of the key assets of our company, is the maturity and the stability of the product development process.

And your next question comes from the line of Martino De Ambroggi from Equita.

On the guidance, I know very well, you do not provide any volume guidance. But am I right in assuming volumes ex Purosangue roughly similar to last year in '23 or slightly up, plus the Purosangue, considering Daytona will offset Monza. And on the free cash flow, you already answered, Antonio, on the net working capital. Could you split the impact of down payments that you have underlining your guidance? And if this kind of down payments will become mainly recurring going forward? Or should we see a decline at a certain point. And if I may, very last on the single-digit price increase, offsetting inflation. So roughly EUR 200 million inflation, but you also mentioned during the call, that the cost inflation is unknown. So I was wondering if you were referring to next years or also the current year, and specifically, I ask you if you have any comment on the cost of labor because we know -- the negotiation is ongoing in Italy. So it takes probably time and you cannot talk about, but just to understand what you can comment about it.

Martino, I leave the second 1 is the most difficult 1 to Antonio. Now the first one, I understand your curiosity to understand what we will do exactly. And I would do the same thing in your shoes. Also, you cannot -- we cannot disclose exactly what we want to do by each specific model. So we have to wait still 12 months to see what we will do in 2023 in this direction. The free cash flow and the other question, I will leave to Antonio.

I'll be disappointing, Martino, for a number of reasons. No, first. In terms of your question on working capital, I can't give you the exact size of the negative outlook on the deposits. And going forward, our assumption obviously depends on the mix that we are assuming year after year because as you know, we collect deposits on strictly limited series. So it very much depends on how many we will have for sale in each single year and we'll start collecting in advance. I said at the Capital Market Day that I remember very clearly that I mentioned the fact that over the planned period, this is going to be a wash. So there are years when we collect more and others where we have relative outflows, meaning less collections than it could have been otherwise. The second question, I think, was in respect of inflation. I said it's a known unknown. Obviously, when we make price adjustment, we look at the future -- we try and look at the future and make our best guess based on the data points that we obviously have, I mean, so we have assumptions. Then reality will be different by definition. In respect of labor cost, obviously, even there, we mad an assumption, but the negotiation around the new labor agreement is still ongoing. So we'll see what the final outcome is, we made assumptions around the number, which is what we currently think is more probable. But I cannot be more specific on this.

And your next question comes from the line of Tom Narayan from RBC.

Tom Narayan, RBC. My first 1 has to do with electrification. I was curious if there was any updates post the June Capital Markets Day especially related to the new e-building development. And with electrification, we get this question a lot, but just wondering how you would respond to what is Ferrari's kind of method of distinguishing itself with electrification. And obviously, you can enhance the product, but just love some color on that. we've heard that it ultimately has to do with exclusivity, too, as a luxury retailer. If Hermès was forced to not sell leather bags and then other substrate people would still buy Hermès bags regardless. But I'd just love to hear more on how Ferrari can use electrification to enhance its product offering. And then the second question is just a quick one. Capital return. How do you think about capital return specifically as it relates to share buybacks?

Okay. Thank you, Tom. I'll take the first 2 and the last one, Antonio will comment. So the electrification, you may remember that in June last year, we said that we will unveil our electric -- Ferrari electric cars in 2025. And what I can tell you that we are fully on track with our -- with the project. The team did a lot of progress in the second half of the year. And we work a lot here on many dimensions when it comes to efficiency and the supportiveness of the car that are going to use this, let's say, engine and axle. We also said that we will do internally, manufacturing internally, strategic component. What does it mean? We will do internally in our e-building. By the way, if you come here, you will see it growing pretty fast. I was there this morning with the responsible of the infrastructure, and it's growing like a mushroom. This you can see, in this building, we will do the axle, will do the inverter. And we will also assemble the cell to make our own battery. So the building as the product is proceeding as planned. And I have to say that this is, let's say, the result, as I said also in my part of all the work of all the team that is fully dedicated to this important project. Now, when you talk about any technology, what is important is not the technology, but the way you use the technology. And here, in Ferrari, when we've developed the cars, we always make them unique, distinctive looking at 3 dimension, the design, the performance and the driving trails. What we are doing constantly, when we develop these electric cars, we keep in mind that we have to start from the client, the client is the center, and we have to start from the driving trails. So when it comes to acceleration, braking, gearbox, sound, all these are dimensions that we are developing. And keep in mind during the -- for electric car. So the product strategy as well as the use of technology as well as all the infrastructure that we need to produce. Well, this is according to the plan, and there is no surprise. And we are, to say, satisfied where we are and we keep pushing. Antonio?

With respect to the strategy and capital return. For that, we should get back to what I explained at the Capital Market Day, meaning over the planned period, we thought our cash generation has been largely deployed for return to shareholders, 50% in the form of larger dividends and 50% approximately in terms of share buyback. We also mentioned that depending on the evolution of the plan, we could have adjusted or confirmed the plan, but this is what we outlined in terms of target for the next 4 years. .

And your next question comes from the line of Anthony Dick from ODDO BHF. Apologies, Anthony, your line is very quiet. Can you please speak up?

Yes, can you hear me?

Your line is still very quiet.

Is it better now?

Perfect.

Okay. Sorry about that. My first question was a clarification on the Daytona SP3. At the time of the release, your commercial team was quoted...

Apologies to stop you. We really have some problems. Can you talk a bit slower and make sure that you split all the words.

I guess on the Daytona SP3, at the time of the release, your commercial team was quoted in the press saying that you targeted in 2024 for the deliveries of the Daytona SP3. I was just wondering if that was a time line that you still had in mind. And the second question was on the Formula 1 business. I was just wondering if you could provide more color on the outlook, both on the top line and the bottom line for that business? Because, well, the sponsorship revenue is obviously a bit hard to predict, but I don't know if you were expecting to sign or sponsorships in 2023. And then with the increased revenues coming from the commercial rights owner and also reduced costs from the engine freeze. I'm just wondering what kind of incremental EBIT contribution we can expect over the coming years from that line of business.

Antonio will start from the second.

Maybe I'll start from the second. If I get your question right. With respect to the evolution of the revenues, we said we expect 2023 to be very much in line with 2022. So no major changes there. With respect to the development of the cost base on the chassis in the budget cap on the chassis, there have been some adjustment for the inflation. So you may expect that it is going to lead to higher expenses there. While what is frozen in terms of development of the power unit is just the development cost, not the running cost, okay? So I wouldn't mention more than that, but I think I'll give you the -- some data points.

Question, if I understand well, Anthony, was about the life cycle of Daytona. Well, we do not disclose this kind of detail. But I mean, you can try to make a model based on the previous ICONA, but as you can understand, these are very important information that we like to keep here a little bit protected.

We will now go to our last question. And your last question comes from the line of Daniel Roeska from Bernstein.

I've got a strategic 1 more on the brand extension. Could you comment on how you think that the target groups for the luxury sports cars on 1 end and then for the extension of luxury lifestyle products and events on the other hand, how do they kind of overlap? Or how do they not overlap and kind of enhance each other?

Thank you for this question, Daniel. I think that I mean during the Capital Market Day, we said that we are operating with our luxury car. We are operating in a small part. There is a much bigger part in the luxury space that is untapped by us. We are talking about a part that is remarkable. The estimation we exchange, we view at the time was around the $300 billion, and we see also according to the latest result that is growing. So it's important for us that since we believe Ferrari is a way of living that goes beyond the sport cars. Well, we believe that for our -- for the elevation of our brand to also enlarge the client that we are addressing. This is very, very important. And that's the reason why, let's say, we are very determined and committed for this year to a larger customer base and also to enhance and to offer new experience and also a new product. So this is very, very important, and this is 1 of the important priority of 2023.

In that context, maybe, what are you expecting from your dealers? Do you envision kind of format changes? Do they need to move more to city centers kind of what's the relationship of that lifestyle extension and kind of your traditional retail outlet, how do you bring that together?

I think, look, the dealer and let's say, we put together the sports car and the lifestyle when it makes sense to put them together in events and experience that are going across all the brands. This does not imply that we have always to put together the 2 dimensions in every space where we operate, okay? So clearly, we aim to make the experience of our clients in our dealership more and more luxury. This is 1 fact. This does not mean that we will sell hats in the dealership.

I will now hand back the conference to Benedetto Vigna for final remarks.

Thank you. Thanks to all of you for your time today and for your questions. 2022 has been a year rich of events and achievements and sets a robust foundation for this year, for 2023. And we look at it with even greater enthusiasts, energy and confident humility. I wish you all a good afternoon. Thanks a lot for your attention. Thank you so much.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.