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Ferrari N.V. (NYSE:RACE) Q4 2022 Earnings Call Transcript

Ferrari N.V. (NYSE:RACE) Q4 2022 Earnings Call Transcript February 2, 2023

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

Nicoletta Russo: 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.

Benedetto Vigna: 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.

Ferrari, Automotive, Industry

Ferrari, Automotive, Industry

Photo by Brandon Atchison on Unsplash

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.

Antonio Piccon: 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.

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

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