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    Ferrari NV (RACE)

    Q4 2023 Earnings Summary

    Reported on Jan 14, 2025 (Before Market Open)
    Pre-Earnings Price$345.92Last close (Jan 31, 2024)
    Post-Earnings Price$372.78Open (Feb 1, 2024)
    Price Change
    $26.86(+7.76%)

    What went well

    • Ferrari's demand remains strong, with a solid order book extending into 2025 and beyond, indicating sustained customer interest despite economic headwinds.
    • Personalization is an important vector of growth, with Ferrari increasing personalization prices in the mid-single-digit percentages, enhancing revenue potential.
    • The lifestyle segment is expected to double revenues by 2026, with improved retail performances, successful brand activations, and record museum visitors (around 750,000 visitors), contributing to brand visibility and revenue growth.

    What went wrong

    • Flat EBITDA Margins Expected in 2024: Ferrari anticipates flat EBITDA margins in 2024 despite strong product mix and personalization contributions. This is due to cost inflation affecting input costs, higher cost of labor, and increased Formula 1 expenses resulting from a higher budget cap indexed to inflation.
    • Lower Projected Free Cash Flow Generation: The company expects lower free cash flow generation in 2024, driven by higher tax payments proportional to increased income, elevated capital expenditures of approximately EUR 950 million due to advanced stages of product development, and a negative impact from lower net advances collected from clients.
    • Neutral Country Mix Impact: The positive impact from country mix observed in 2023 is not expected to continue into 2024. The country mix is anticipated to be flat, removing a source of revenue growth and margin expansion for the year.

    Q&A Summary

    1. Flat EBITDA Margin Guidance
      Q: Are core margins flat due to higher costs?
      A: Management confirmed that despite strong product mix and personalization, higher costs—including a 4% increase in labor costs , brand development expenses, and rising Formula 1 expenses due to the budget cap —are expected to flatten EBITDA margins in 2024.

    2. Lower Free Cash Flow Guidance
      Q: Why is free cash flow guidance lower this year?
      A: Free cash flow is expected to be lower due to higher tax payments, increased CapEx of €950 million for upcoming product launches, and a negative impact from the deposit cycle.

    3. Price Increases in Personalization
      Q: Are you raising prices on personalization?
      A: Yes, Ferrari is increasing prices in personalization by mid-single-digit percentages to offset cost increases , aiming to capture more value from this important dimension.

    4. Demand Outlook Amid Economic Environment
      Q: Is the economic picture impacting Ferrari customers?
      A: Management stated that demand remains very strong, with the order book extending well into 2025 and beyond. They see no negative signals affecting their clients.

    5. China Sales Strategy
      Q: Are there issues with demand in China?
      A: Ferrari considers China a young and niche market, intentionally keeping sales around 10% due to lower margins. A slight decrease in shipments is strategic to manage brand growth and avoid market indigestion.

    6. Electrification Strategy and e-Building Progress
      Q: What is the progress on electrification and the e-building?
      A: The e-building is on track to be operational by June, preparing for the launch of Ferrari's electric car in Q4 2025. Partnerships in electrification are progressing positively, including one with Samsung for next-generation cars.

    7. Purosangue Production Ramp-up
      Q: Will Purosangue reach 20% of annual sales?
      A: Purosangue production will ramp up in 2024 to reach 20% of total shipments, up from a few hundred units in 2023. Management confirms they are on track with this target.

    8. Price/Mix Improvements Exceeding Plans
      Q: Is there upside to the original €700 million EBIT improvement target?
      A: While price/mix improvements have been stronger than expected, delivering 65% of the target in 2 years , management notes that higher costs due to inflation may offset these gains.

    9. Impact of Formula 1 Expenses on Margins
      Q: How are F1 expenses affecting margins?
      A: Rising Formula 1 expenses due to the increasing budget cap indexed to inflation are impacting costs, contributing to flat EBITDA margins in 2024.

    10. Personalization Trends and Guidance
      Q: How is personalization trending into 2024?
      A: Personalization reached 19% in 2023 and is expected to maintain similar levels in 2024 , with management increasing prices by mid-single digits to capture more value.

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