Ferrari N.V. (RACE) Earnings Call Transcript & Summary

Ladies and gentlemen, on behalf of the Board of the company, I would like to welcome you to the Ferrari N.V. Annual General Meeting of Shareholders. Thank you for taking the time to attend. For health and safety reasons, the company has taken several measures to minimize the risk of contamination at this meeting. For those attending in person, you are required to follow the rules prescribed by the Dutch government, including the 1.5 meters social distance among persons attending this meeting. Due to travel bans and other local restrictions in connection with the COVID-19 outbreak, all the executive directors are attending this annual general meeting remotely. Mr. John Elkann, Chairman of the company, is present today through videoconference; Mr. Louis C. Camilleri, CEO of the company, is also present through videoconference. The Board has appointed me, Dirk-Jan Smit, Civil Law Notary, as Chairman for this Annual General Meeting. Further, Piero Ferrari, Vice Chairman of the Board, is following this meeting via webcast. Unfortunately, because of prior commitments, all other members of the board are unable to attend this meeting. The external auditors, Mr. Alberto Romeo, Ernst & Young S.p.A, Italy, is following this meeting via webcast; and Mr. Pieter Laan, Ernst & Young Accountants LLP, the Netherlands, is present through video conference. And Mr. Pieter Laan is available to answer any questions relating to their audit report on the company's Annuals Accounts tables under agenda item 2D. Mr. [indiscernible] Freshfields Amsterdam is appointed as Secretary of this Annual General Meeting of shareholders. Mr. Giorgio Fossati, the Secretary of the Board; Mr. Antonio Picca Piccon, the Chief Financial Officer; and Carlo Daneo, General Counsel, are following this meeting via webcast. Notarial minutes will be made at this meeting, and I, Civil Law Notary, Dirk-Jan Smit of Freshfields Amsterdam, am present at this meeting also for this purpose, in addition to my role as Chairman of the meeting. The meeting will be held in English. The convocation for the meeting was published on the company's website on March 4, 2020. I note that the meeting has been convened and in accordance with the legal and statutory requirements. I kindly request the persons physically present to switch off their mobile phones and those attending via conference call to stay at all times on mute mode, except when they're required to speak. The use of audio/video recording devices by shareholders is not allowed. Starting from the day after this meeting, the company will make available on its website a recording of this Annual General Meeting of Shareholders in accordance with the instructions present in the agenda. Any questions received from shareholders prior to this meeting, to the extent not already answered before this meeting, will be answered in this meeting where possible and insofar as those questions relate to the agenda for this meeting or otherwise relate to the business of the company. Voting will take place by a show of hands. Preliminary voting results will be displayed upon the close of the vote. The official results will be published on the company's website after the meeting in compliance with applicable laws and regulations. Agenda items will be discussed in accordance with the order of the agenda of the meeting. Then the subitems will be discussed in sequence. Voting on subitems will be deferred until after I've closed the discussion of the last agenda or subitem or, if any, the last part's question. Furthermore, the company has given the opportunity to people who wish to follow this Annual General Meeting of Shareholders to listen remotely to this meeting by following the indications contained on the website page of the company. I, therefore, on behalf of the company, thank all those who are connected via webcast. I also inform you that some journalists are listening through webcast. I will now pass over to Mr. John Elkann, Chairman of the company, to spend a few moments providing a brief introduction of 2019.

Hello. Thank you very much, Mr. Dirk. I hope that you and your families are well. In the ordinary scheme of things, this statement might be received as little more than a polite formality. As we unfortunately know in these days and weeks, it has taken on a whole new and very profound meaning. We are experiencing an unprecedented crisis in which the past weeks have also been a time of tribute to many acts of courage and dedication by the medical profession as well as endless demonstrations of support from others, whether they be practical, psychological or financial. My heartfelt condolences go to all those who have experienced loss and grief. Despite everything, we were determined to hold our AGM today as scheduled, and for the first time, virtually. 2019 was an important year for Ferrari. It was the 90th anniversary of Scuderia Ferrari as well as the 50th anniversary of the relationship between Ferrari and Fiat. It was in 1969 that my grandfather signed the agreement with Enzo Ferrari, who was to recall his decision a year later with these words, "I feel reassured that I have found the right destination for the company to which I have given my life and happy to have guaranteed continuity and development for my collaborators." The strong purpose and values which define Ferrari then continue to this day as the single company with 2 distinct identities, racing and luxury has consistently redefined the limits of the possible. Louis will give you an overview of a record year, with extraordinary results made possible by extraordinary people. I would like to remember the SF90 Stradale, our first production hybrid, and the 10,000 cars we produced last year. But also our victory in Monza after 9 long years of waiting as well the triumph at the 24 Hours of Le Mans. The past weeks have been difficult for all of us, and we at Ferrari have been working hard to provide as much support as possible in the COVID-19 emergency, and particularly, in our community. I would like to take today the opportunity to thank for their generosity, the Ferrari Board members, Louis and all the senior management team, who, together with me, have renounced in part or completely their compensation for the rest of this year in order to provide much-needed aid in Modena, Maranello and the surrounding districts. This has included the supply of basic necessities, the provision of computers and digital blackboards to primary and elementary schools, to assist in providing education continuity both during and after the current crisis and the creation of important funds for several local hospitals in our areas. Ferrari has also been there to assist in the delivery of much-needed ventilators and masks at the beginning of the crisis. More recently, it has been instrumental in producing specialist valves at the Maranello factory to be used in the conversion of underwater masks for respiratory purpose, which this week are being delivered to hospitals around the country. As we think ahead to the restart of our operations, our thoughts and actions are, first and foremost, on the need to guarantee the most secure working environment for our people. Back on Track is a detailed process we have developed to test numerous systems and protocols to enable the gradual and safe reopening of the Ferrari workplace. With the patronage of the Emilia Romagna regional government and in cooperation with our union partners, we are piloting an advanced project with leading-edge practices that are the product of our collaboration with a pool of scientists and experts. The results of this project will be made available to others in order to assist and accelerate in a greater understanding of the protection of workers' health both today and in the future. This is what Ferrari is about, consideration of others, innovation and courage. Before I pass to our CEO, Louis Camilleri, I would like to conclude by thanking those directors who will be standing down this year, and at the same time, to welcome our new colleagues to the Board. I look forward to working with you this year. Louis, I leave you to talk us through 2019, whilst I take the opportunity to thank you, the senior management team and all the women and men of Ferrari for all your extraordinary work. Gracias.

Thank you very much, dear, John. Let me first also welcome everyone to this annual meeting and echo John's words in regard to your health and safety and that of your loved ones. Ultimately, nothing is more important. It is often said that the true measure of a person is best taken in the time of crisis. On that score, everyone within the Ferrari family, individually and collectively, has been outstanding. I cannot sufficiently underscore the level of commitment, resilience, courage and determination exhibited by all. As John just mentioned, your company and its people have shown an exemplary level of solidarity for those less fortunate in Italy and within our communities. We have and continued to use our expertise, technical ingenuity and global network to alleviate the shortage of medical supplies and devices in Italy and especially within the confines of our broader community in the Emilia Romagna region. Much has been accomplished and more is to come. Of particular note are the incredibly generous contributions from numerous Ferrari owners across the world to assist those in the greatest need within the Province of Modena. We have often referred to Ferrari as a family. The last few months have more than affirmed this in so many ways, and we all need to both salute and applaud the Ferrari family for all that it has undertaken to date to make a real difference. Our production has ceased for the time being. There has been an incredible level of work to prepare for the resumption of all of our activities in a disciplined and progressive manner that will give utmost priority to the well-being and welfare of all our employees while being very conscious of our responsibilities towards our supply chain, our dealers, and ultimately, our clients. These are unprecedented times, and we are well aware of all the uncertainties that lay ahead, the famous known unknowns or even the unknown unknowns. I can assure you, however, that all the actions taken so far embed a significant degree of flexibility to both address the short-term challenges and prepare us to flourish when the time comes. No one knows for sure precisely when this will occur. But as Shakespeare wrote in Hamlet, "If it be not now, yet it will come. The readiness is all." Rest assured that we have are ready. While the year 2019 appears today to be a very long time ago, our record results, which I will cover shortly, have put us in an enviable position to face the future with confidence. This faith rests on the unparalleled strength of our brand, our enduring business model and the strength of our balance sheet, which provides us with ample liquidity. As previously announced, we intend to provide guidance regarding our projections related to 2020 during our first quarter earnings call scheduled for May 4, recognizing that full and precise visibility at that time will still not be completely available to us. Let me now turn to our achievements and results in 2019. As John, it was a significant year for Ferrari from both a financial perspective and our overall strategic positioning. We delivered strong results, meeting or exceeding our already upgraded financial targets for the year as we pursue our long-term vision. The most impressive numerical achievement was our industrial free cash flow, which reached the level of EUR 675 million. 2019 saw the unveiling of 5 new models, a record for Ferrari, that ensures we are able to satisfy the varied requirements of our existing and new clients. Our V8 turbo engine was named International Engine of the Year for the fourth consecutive occasion, whilst the styling of the Ferrari Monza SP1 secured us our fifth consecutive Red Dot Best of the Best award. Ferrari was also awarded the title of the World's Strongest Brand for the second consecutive year by Brand Finance. Our new brand diversification strategy was presented in November of 2019, which we believe will ultimately enhance the vitality of our brand equity and supplement our profitability over the long term. Our 2019 results were strong on all metrics, with industrial free cash flow generation for the year nearly doubling versus last year, boosted by the advances collected on the Ferrari Monza. Our shipments grew by 880 units versus the prior year, mainly driven by the robust deliveries of the Ferrari Portofino and the 812 Superfast. Group net revenues increased by 10.1% to EUR 3.8 billion, generating an adjusted EBITDA of EUR 1.269 billion, improving by EUR 155 million or 14%. Our adjusted EBITDA margin was 33.7%, up a strong 110 basis points versus prior year. And this, in spite of the adverse product mix, incurred for most of the year and the higher operating expenses entailed by the expansion of our activities. Adjusted diluted earnings per share was up 9.1% to EUR 3.71, benefiting from the Patent Box agreement signed in 2018, but also reflecting the EUR 8 million cost of the cash tender offer on part of the eurobonds outstanding. Net industrial debt at the end of December 2019 was EUR 337 million compared to EUR 370 million at the end of December 2018, which includes the initial implementation of our share repurchase program, which entailed an outflow of EUR 387 million and the dividend distribution of last year of EUR 195 million. The highlight of 2019 was undoubtedly the unveiling of 5 new models. Our first production hybrid model, the SF90 Stradale, opened a new chapter in our history, whilst the Ferrari Roma is a Coupé that effortlessly translates the elegance of the Ferrari grand touring cars of the 1950s and '60s into a very modern styling, allowing us to tap into the needs of a new client segment. We also unveiled the F8 Tributo, a 2-seater, V8 mid-rear engined Berlinetta. In addition to its drop-top version, the F8 Spider and the 812 GTS, which hails a return exactly 50 years since the last series Spider sported a front-mounted V12 engine. All the models garnered an enthusiastic response from the market and worldwide acclaim for both their design and performance, thus sustaining our 2020 order book that remains as strong as ever in both absolute and relative terms. During 2019, we continued to invest in our infrastructure, resources, technological creativity and people. We strengthened our organization with the development and acquisition of talents to fill the skill gaps that we will need going forward. Capital expenditures rose to EUR 706 million in 2019, reflecting further investments in innovation and technology, Formula 1 infrastructure and the purchase of tracts of land contiguous to our facilities in Maranello. While this reflected higher cost, we're confident that this action will provide us with the necessary flexibility to retain our competitive advantage over the longer run. Based on these strong results, the Board of Directors has recommended a dividend of EUR 1.13 per outstanding common share, corresponding to a total cash outflow of approximately EUR 210 million, subject to the approval of the company's shareholders at this very meeting. We firmly believe that this payout reflects our confidence in the future and our desire to reward shareholders at this difficult time. The extraordinary results we achieved in 2019, both from a financial and operational standpoint, are a tribute to all those who make up the Ferrari Group. I would like to express my heartfelt gratitude to everyone at Ferrari for their professional and personal contribution and for the very clear passion and sense of responsibility displayed in their work each and every day. I also take this opportunity to thank you, our shareholders, for remaining our trusted partners and supporters in this crucial period of growth and innovation for Ferrari. That concludes my remarks, and I will now pass the meeting back to the Chairman of the Meeting.

Thank you very much, Mr. Camilleri. The information relating to the attendance list, any information regarding the number of votes that may be cast at this meeting are the following. As of the record date for this Annual General Meeting, the company had a total number of 257,272,611 issued shares and a total number of 248,119,056 voting rights. No vote may be cast on shares held by the company or any of its subsidiaries. According to the attendance list, 206,419,866, equal to 83.9% of all outstanding shares in the capital of the company, are present or represented at this meeting. Total number of voting rights at this meeting amounts to 206,419,866. In total, 206,419,866 votes have been cast by the use of electronic means of communications prior to the meeting. These voting instructions have been processed by entering the voting instructions for each individual agenda item into the electronic voting system. Votes already cast by use of electronic means will be included in the voting results. I now turn to item 2 of the agenda. The annual report for 2019 was made available on the company's website and at the company's office from March 4, 2020, the date on which the convocation for the meeting was published. I will now spend a few moments providing a brief summary and explanation of all 6 agenda subitems to this agenda item two. After I briefly explain these 6 agenda subitems, shareholders who have reserved time on any of these items will be invited to speak, and there will be the opportunity for discussions, questions and observations. The first 2 agenda subitems will not be voted upon. They are discussion items only. In line with new legislation in the Netherlands, you will be asked for an advisory vote on the third agenda subitem. The last 3 agenda subitems of this agenda item 2 are voting rights. The advisory vote and the voting on the last 3 subitems will take place after I will have closed the discussion on this agenda item. The first subitem 2A concerns the report of the Board of Directors for the financial year 2019, which is contained in the company's annual report 2019. This is a discussion item only. Subitem 2b concerns the policy on additions to reserves and on dividends and is a nonvoting item for discussion only. The company has adopted the current dividend policy in 2018. For the coming years, contemplating an annual ordinary dividend to be distributed by the company to the holders of common shares equal to 30% of the annual net profit of the relevant previous financial year. The actual level of dividend to be distributed by the company will be subject to earnings, cash balances, commitments, strategic plans and other factors that the Board of Directors may deem relevant at the time of a dividend distribution, including adjustments for income or cost that are significant in nature but expected to occur infrequently. The details on the dividend policy are described in the company's annual report 2019. Subitem 2C concerns the remuneration report 2019. This agenda subitem will be a discussion and advisory vote item. The Director's remuneration report for 2019 is available on the company's website and is also contained in the company's 2019 annual report. The details on the remuneration of the company's directors are described in both the remuneration report 2019 available on the company's website and the company's 2019 annual report. Pursuant to new legislation, shareholders may render an advisory vote regarding the remuneration report. Shareholders can either vote in favor of or against a positive advice with respect to the remuneration report. Any votes against will qualify as a negative advice. The results of the voting will be regarded as an advisory nonbinding vote with respect to the remuneration report for 2019 and in the remuneration report for 2020, the company will explain how the voting by the shareholders in this Annual General Meeting of Shareholders has been taken into account. Subitem 2D concerns the adoption of the company's 2019 annual account. This is a voting item. The company's 2019 annual accounts have been drawn up by the Board and audited by Ernst & Young Accountants LLP, the Netherlands, who have issued an unqualified opinion. The external auditors, Mr. Alberto Romeo and Mr. Pieter Laan, are available via conference call to answer any questions relating to their report on the fairness of the 2019 annual accounts. The Board proposes to this general meeting of shareholders to adopt the 2019 annual accounts. Voting on this subitem will take place after I will have closed the discussion on all agenda subitems of this agenda item 2. Subitem 2E concerns the determination and distribution of dividend. This is a voting item. Subject to the adoption of the 2019 annual accounts by this meeting, and in accordance with Article 22 Paragraph 8 of the Articles of Association of the company, the Board of Directors proposes to distribute a dividend in cash of EUR 1.13 per outstanding common share, totaling approximately EUR 210 million. Subject to the approval of such dividend distribution by this general meeting of shareholders, the outstanding common shares will be quoted ex dividend on April 20, 2020, and the record date for the dividend will be April 21, 2020, on both MTA and the New York Stock Exchange. And the dividend on the outstanding common shares will be paid on May 5, 2020. Shareholders holding the company's common shares on the record date that are traded on the New York Stock Exchange will receive the dividend in U.S. dollars at the official U.S. dollar-euro exchange rate reported by the European Central Bank on April 17, 2020. The final subitem 2F concerns the granting of discharge from liability of the executive directors in respect of the performance of their management duties in the financial year 2019 and the nonexecutive directors of the Board for the performance of their nonexecutive duties in the financial year 2019. This is a voting item. I now turn to the relevant voting subitems. Firstly, I will put item 2C on the agenda to the advisory vote, remuneration report 2019. And votes abstained will not be calculated as part of the votes cast. And I declare the resolution opened. [Voting]

I now declare the voting on the subitem closed. And I note that the shareholders expressed a positive advisory with respect to the remuneration report 2019. I will now put item 2D on the agenda to the vote. That's the adoption of the 2019 annual accounts. And I declare the resolution opened. [Voting]

And declare the voting on the subitem now closed. And I note that the proposal has been approved and that the 2019 annual accounts have been adopted by the meeting. I will now put item 2E on the agenda to the vote. And that's the determination and distribution of dividends. And I declare the resolution opened. [Voting]

And I now declare the voting on the subitem closed. And I note that the proposal has been approved and that the dividend has been approved by the meeting. Lastly, I will put item 2F on the agenda to the vote, and that's the granting of discharge from liability of the executive directors and the nonexecutive directors of the Board. And I declare the resolution opened. [Voting]

I now declare the voting on the subitem closed. And I note that the proposal has been approved that the release from liability of the executive directors and the nonexecutive directors of the Board has been adopted by the meeting. I now move on to the next item on the agenda. Agenda item 3 is a voting item. And I will now spend a few moments providing a brief summary and explanation of the agenda subitems of this agenda item 3. Pursuant to Article 14 Paragraph 3 of the company's Articles of Association, the term of office of each of the executive directors and each of the nonexecutive directors will expire on the day the first Annual General Meeting of Shareholders is held in the following calendar year. The executive directors and the nonexecutive directors may be reappointed at any subsequent general meeting of shareholders. The nominees to executive directors and nonexecutive directors are eligible and have stated their willingness to accept these appointments. The Board believes that the contribution and performance of the executive directors seeking the reappointment at this Annual General Meeting of Shareholders are effective and that they demonstrate commitment to their role in the company. Accordingly, the Board recommends to reappoint John Elkann and Louis Camilleri as executive directors. I refer to the explanatory notes to the agenda and the detailed biographical information concerning the candidates for reappointment available on the company's corporate website. The Board also believes that the contribution and performance of each of the nonexecutive directors seeking reappointment at this Annual General Meeting of Shareholders continue to be effective and that they each demonstrate commitment in their respective roles in the company. Although all nonexecutive directors were eligible for reappointment, Giuseppina Capaldo and Elena Zambon decided not to stand for another election. The Board thanks them for many years of dedicated contribution. Accordingly, upon the recommendation of the Governance and Sustainability Committee, the Board recommends to reappoint Piero Ferrari, Delphine Arnault, Eduardo Cue, Sergio Duca, Maria Patrizia Grieco and Adam Keswick as nonexecutive directors. In addition, the Board of Directors believes that the appointment of Francesca Bellettini, Roberto Cingolani and John Galantic as new nonexecutive directors would further enhance its own skills and experience, also increasing the number of Board members from 10 to 11. Accordingly, upon recommendation of the Governance and Sustainability Committee, the Board of Directors recommends to appoint Francesca Bellettini, Roberto Cingolani and John Galantic as new nonexecutive directors. I refer to the explanatory notes to the agenda and the detailed biographical information concerning each candidate for appointment, available on the company's corporate website. I will now proceed to voting on each of the resolutions under agenda subitems 3A through 3K. Under agenda subitem 3A, I now invite you to vote on the reappointment of John Elkann as executive director. And I declare the resolution opened. [Voting]

And I now declare the voting of the subitem closed. And I establish that the proposal has been approved, and that John Elkann has been reappointed as executive director, his term expiring at the end of the Annual General Meeting of Shareholders to be held in 2021. Congratulations, Mr. Elkann.

Thank you very much.

Under Agenda subitem 3B, I now invite you to vote on the reappointment of Louis Camilleri as executive director. And I declare the resolution opened. [Voting]

And I now declare the voting on the subitem closed. And I establish that the proposal has been approved, and that Louis Camilleri has been reappointed as executive director, his term expiring at the end of the Annual General meeting of Shareholders to be held in 2021. Congratulations, Mr. Camilleri.

Thank you very much.

Under agenda subitem 3C, I now invite you to vote on the reappointment of Piero Ferrari as nonexecutive director. And I declare the resolution opened. [Voting]

I now declare the voting on the subitem closed. And I establish that the proposal has been approved, and that Piero Ferrari has been reappointed as nonexecutive director. Under agenda subitem 3D, I now invite you to vote on the reappointment of Delphine Arnault as nonexecutive director. And I declare the resolution opened. [Voting]

And I now declare the voting on the subitem closed. And I establish that the proposal has been approved, and that Delphine Arnault has been reappointed as nonexecutive director. Under agenda subitem 3E, I now invite you to vote on the reappointment of Eduardo Cue as nonexecutive director. And I declare the resolution opened. [Voting]