Ferrari N.V. (NYSE: RACE) Q4 2019 Earnings Call Transcript

Ferrari N.V. (RACE) Q4 2019 earnings call dated Feb. 04, 2020

Corporate Participants:

Nicoletta Russo — Head of Investor Relations

Louis C. Camilleri — Chief Executive Officer

Antonio Picca Piccon — Chief Financial Officer

Analysts:

Adam Jonas — Morgan Stanley — Analyst

John Murphy — Bank of America Merrill Lynch — Analyst

Martino De Ambroggi — Equita SIM SpA — Analyst

Ryan Brinkman — J.P. Morgan — Analyst

Monica Bosio — Banca IMI — Analyst

Angus Tweedie — Citigroup — Analyst

Massimiliano Vecchio — UBI Banca — Analyst

Giulio Pescatore — HSBC — Analyst

George Galliers — Goldman Sachs — Analyst

Stephen Reitman — Societe Generale — Analyst

Michael Binetti — Credit Suisse — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Ferrari Full Year 2019 Results Conference Call. [Operator Instructions] I must advise you that the call is being recorded today on Tuesday, the 4th of February 2020.

And I shall now hand over to your speaker, Nicoletta Russo. Please go ahead.

Nicoletta Russo — Head of Investor Relations

Thank you, Jordi, and welcome to everyone who is joining us. Today’s call will be hosted by the Group CEO, Louis Camilleri; and Group CFO, Antonio Picca 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 Louis.

Louis C. Camilleri — Chief Executive Officer

Thank you, Nicoletta. Good afternoon and morning everyone. I would characterize our 2019 performance as robust from both a quantitative and qualitative perspective. Our record results met the targets that were upgraded on the release of our third quarter results; and in some instances, we surpassed them.

As we had anticipated, our fourth quarter performance was particularly strong across all metrics. We are very pleased by the advance in our EBITDA margin of 110 basis points to a level of 33.7%, as well as a minor increase in our EBIT margin, despite a year, which as anticipated, witnessed an adverse product mix and a significant increase in depreciation, reflecting our higher capital expenditures in both 2018 and 2019.

The most impressive numerical achievement was our industrial free cash flow, which reached a level of EUR675 million. Whilst this was clearly flattered by the deposits collected on the sold-out Monza; even absent this phenomenon, we exceeded our ambitious expectations.

The numbers that Antonio will shortly review with you also visibly reflect the numerous actions and initiatives taken during the year; to ensure our longer-term growth, to sustain the vibrancy and vitality of our formidable brand, which for the second consecutive year, was determined to be the world’s strongest brand by Brand Finance this past January, as well as to strengthen our organization, to enhance our capacity to innovate, execute flawlessly and retain our competitive edge over the long term.

The highlight of the year was undoubtedly the unveiling of five new models, which all garnered an enthusiastic response from the market and worldwide acclaim for both their design and performance. While all five are exceptional cars, two of them truly stand out as they constitute a departure from our somewhat predictable historical norms.

The SF90 Stradale, beyond its incredible innovative features and performance metrics is our first, top of the range, series production hybrid. Our first flagship mid-engine model in some time, and it is priced at a premium to our 812 offering. And accordingly, opens a new lucrative segment for us.

The Roma, which was fittingly launched in Rome this past November and recently was selected as the most beautiful supercar of 2019 by an international jury, opens a new segment for us with the ambition to attract a significant portion of new and ultimately loyal customers to the family.

Launching five models in one year is a huge undertaking. To do so with such flare and success is quite unique, and is testament to the talent and capabilities that lie within this great company at each and every level. We entered 2020 with considerable momentum, and exceedingly strong portfolio of models, planned to be further enriched with two launches this year, and an order book that is as strong as ever in both absolute and relative terms. And this despite the fact that we are only opening the Roma order book just now.

There exists, however, a number of potential challenges at the macro level that cannot be ignored. While for the moment there seems to be a willingness to constructively address trade issues, a flare-up cannot be discounted. The same goes for consumer sentiment relative to Brexit, the Coronavirus, and as always, potential currency volatility.

In addition, there exists the challenge of increased luxury taxes as is currently threatened in Canada. In addition, Greater China and the Hong Kong in particular, will pose a significant challenge, at least in the first half, resulting from our decision to accelerate client deliveries in 2019.

While we view 2019 as very much a transition year, 2020 will be a year of consolidation. I say this for several reasons. While we unveiled five key models during the course of 2019, actual in-market deliveries for most of those models will occur over the second to third quarter as we ramp up production, while Roma deliveries are slated to reach clients only in the fourth quarter.

As is always the case, given homologation delays, the U.S. market will lag the others in terms of initial deliveries to our customers, and this will significantly impact our geographic mix throughout the year.

On the brand diversification front, we are busy executing against the plan we presented to you back in November. And as anticipated, this will initially entail a clean-up of our current business and hence lower revenues to build a very solid foundation for future growth.

This year will prove to be quite critical in terms of Formula One. Our ambition remains, as always, to seek to win. And thus, we will continue to invest in our infrastructure, resources and technological creativity as we continue to develop our 2020 car as the season unfolds.

Furthermore, as you are aware, the new technical regulations that will come into force in 2021 will entail the development of our very substantially different car, which will obviously require additional resources and expenditures already this year.

You will note that we anticipate an increase in our capital expenditures this year. This reflects in part, a shift in timing from 2019 to 2020; the Formula One infrastructure, I just mentioned, but also the purchase of tracks of land contiguous to our facilities here in Maranello.

This will provide us with the necessary flexibility to retain our competitive advantage over the longer run, as we adopt new technology in-house rather than relying heavily on third-party suppliers. While I believe that our record results and countless achievements were quite exceptional, the most significant, in my opinion, relate to our organizational development.

We have strengthened our organization with the development and acquisition of talent to fill the skill gaps that we will need going forward. While this is reflected in higher costs, I’m confident that this action will ultimately generate substantial returns and ensure our competitive superiority going forward.

I should add that in 2019, we witnessed a heightened Company-wide focus on sustainability, in the broader sense of encompassing all our stakeholders and not limited to those matters solely related to climate change. We are working diligently to secure a much more complete understanding of our carbon footprint.

Much has been accomplished within our facilities in the past, but more mastering will be done. However, an enormous amount of work and actions must be taken upstream and downstream to achieve carbon neutrality over the longer term.

All-in-all, we delivered a rock solid year on virtually all fronts, and both 2019 and our guidance for 2020 are well in line and in fact superior to the growth trajectory that we presented in our Capital Markets Day.

It now gives me great pleasure to hand over the call to Antonio.

Antonio Picca Piccon — Chief Financial Officer

Thank you, Louis; and good morning or afternoon to everyone who is joining us today. Starting on Page 5, as Louis said, full-year 2019 results were strong on all metrics and met our upward revised guidance.

Our shipments grew 9.5% or by 880 units, mainly driven by the robust deliveries of the Ferrari Portofino and the 812 Superfast. Group net revenues increased 10.1% to EUR3.8 billion. Adjusted EBITDA increased to EUR1,269 million, improving by EUR155 million or 14%. This included the EUR17 million full-year impact from the first-time adoption of the IFRS 16.

Adjusted EBITDA margin was 33.7%, up 110 basis points versus prior year, in spite of the product mix available for most of the year and the higher operating expense entailed by the expansion of our activities.

In Q4, the adjusted EBITDA margin reached a record level of 36%; thanks to a much richer mix supported by the Ferrari Monza SP1 and SP2. Adjusted EBIT grew to EUR917 million, improving by EUR92 million or 11.2%. Adjusted diluted EPS was up 9.1% to EUR3.71, benefiting from the Patent Box agreement signed last year, but also reflecting the EUR8 million costs of the cash tender offer on part of the Eurobond outstanding.

The latter was executed in last July as part of the liability management exercise aimed at improving and extending our debt maturities profile at present low interest rate, which was then completed with the issuance of a U.S. private placement of equal size.

When comparing the quarterly figures, we must be mindful that in Q4, 2018, we reported an income tax benefit of EUR4 million, as a result of the final determination of the tax rate for the year. This contrast with an expense of EUR43 million in Q4 2019.

Industrial free cash flow for the year was EUR675 million, representing an increase of EUR300 million, nearly doubling versus last year, boosted by the advances collected on the Ferrari Monza.

Moving to Page 6; total shipments for 2019 were supported by an 11.2% increase in V8 models and a 4.6% increase in V12 models. This growth mainly reflected the much higher deliveries of the Ferrari Portofino and the 812 Superfast, along with the very first deliveries of the F8 Tributo and the Ferrari Monza, which essentially started in the last four months of 2019. The 488 family recorded slightly lower volumes with the 488 GTB and the 488 Spider concluding their lifecycle, partially compensated by the 488 Pista and the 488 Pista Spider.

In terms of geographic performance, Mainland China, Hong Kong and Taiwan was up 20.3%; EMEA grew 15.8%; rest of APAC increased 12.9%; while Americas was down 3.3%. Such changes in the geographical allocation are the results of the decision to privilege deliveries to China and Hong Kong in the first half of the year, but also of our policy to manage the product phase-in, phase-out across geographies, in relation to waiting list.

As Louis anticipated in his introductory remarks, this uneven development will continue in 2020 as the sales of our new models start with different timing in each region and ramp-up mainly in the second half of the year.

Turning to Page 7, you can see here displayed the Group net revenues for 2019, which increased by 8.2% at constant currency, that is the 2018 exchange rates. Cars and spare parts revenues were up 13.4% at constant currency.

As explained before, the growth reflect the combined impact of the higher volumes, the positive contribution from the Ferrari Monza in Q4 and all personalization programs. Personalizations represented approximately 20% of this revenue line as in 2019 they were supported by a significant concentration of shipments of 488 Pista and Pista Spider.

All of the above was partially offset by prior-year shipments of LaFerrari Aperta and the Ferrari J50. Engines revenue declined EUR86 million for the year, reflecting lower shipments to Maserati. Revenues from sponsorship, commercial and brand were up EUR22 million, mainly thanks to the contribution of Formula One racing activities.

Currency, including translation and transaction impacts, as well as foreign currency hedges had a positive contribution of EUR64 million, mainly reflecting the strength of the U.S. dollar.

Moving to Page 8, which highlights the evolution of the main items of our adjusted EBIT. Adjusted EBIT grew by 5.1% at constant currency with adjusted EBIT margin at 24.4%. Volume was positive by EUR99 million, thanks to the increase of our shipments. Mix price was positive for, say EUR78 million. This performance was primarily attributable to the initial deliveries of the Ferrari Monza and to the penetration of personalization programs.

This was partially offset by a negative range product mix, as well as by prior-year shipments of LaFerrari Aperta and the Ferrari J50. Industrial costs and R&D grew 94% — sorry EUR94 million, mainly due to higher depreciation and amortization, as the production lines for the new models started being operated, operational start-up expenses, also in connection with introduction of these new models, as well as spending on Formula One and product innovation.

As expected, D&A and industrial costs slightly curbed our gross margin compared to 2018. SG&A increased by EUR20 million, reflecting the activity around the new product launches and the Company’s organizational development. Other decreased due to lower engine sales to Maserati and other supporting activities.

Actually, the decrease in other appears to be higher in Q4 and is due to a variety of unfavorable comparison with Q4 last year for our supporting activities and some reallocation from other variances. The total net positive impact of currencies was EUR50 million for the year. This was the net result of more favorable market rates, partially mitigated by the hedges in place.

Turning to Page 9. Industrial free cash flow for the year was EUR675 million, driven up by the industrial EBITDA and the positive impact generated by the collection of advances on the Ferrari Monza, which amounted to more than EUR250 million in the year. This was offset mainly by capital expenditures of EUR706 million.

Our capital expenditures for 2019 were lower than our initial guidance due to the phasing of some investments between 2019 and 2020. And this obviously pushed further up our cash flow. The capitalization ratio was approximately 37% for the year, slightly lower than in 2018.

Net industrial debt as of December 31st of 2019 was EUR337 million compared to EUR370 million as of December 31st of 2018, including two significant accomplishments to our shareholders, such as the initial implementation of our share repurchase program for EUR387 million and the dividend distribution for EUR195 million.

Lease liabilities as per IFRS 16 as of the end of December were EUR60 million. It’s worth noting that it would have been cash positive at the end of the year if we added back the impact from the share repurchases executed during 2019, and the adoption of the new accounting principle for leases.

Let’s move on to Page 10. With the plan presented at the Capital Market Day of September 2018, we suggested a 2020 checkpoint in our journey to 2022. Our current guidance upgrades now that checkpoint across all metrics, following the momentum our brand is enjoying and grounded on the fundamentals of our business.

The upgraded full-year 2020 outlook is as follows. Net revenues above EUR4.1 billion, mainly driven by our new products that will hit the market gradually throughout the year. Adjusted EBITDA between EUR1,380 million and EUR1,430 million with percentage margin equal or greater than 34%.

The superior margins delivered by the new range will be slightly withheld by our R&D efforts including to prepare the F1 developments in progress and by the continuing investments in the organizational development. Adjusted EBIT between EUR950 million and EUR1 billion. We target an EBIT margin of approximately 24%, which also reflects the pace of our D&A.

Adjusted diluted EPS between EUR3.90 and EUR3.95 per share, assuming a tax rate substantially in line with 2019. The assumption here is that we keep on enjoying the benefit of the Patent Box tax break under the new Italian regime, albeit slightly reduced; industrial free cash flow equal or greater than EUR400 million.

As a rationale for this target, you should remind in 2020 the industrial free cash flow will be deprived of a portion of the cash consideration for the Ferrari Monzas to be delivered in the year since already collected in advance in 2019.

In addition, our cash flow will reflect higher capex as already explained by Louis. We expect such expenditure to amount to not less than EUR800 million, so as to recover the EUR50 million postponement from the original 2019 program and to include an initial step of the infrastructural development plan here in Maranello.

We are also assuming higher tax payments in 2020, since we consider that the new cash benefit from the Patent Box could be split in three years as provided by law, while waiting for the renewal of the advance agreement.

Finally, it is worth noting that the guidance for 2020 rests on the assumption that the exchange rate will remain in line with 2019 for our most relevant currencies and encompasses the solid visibility and the full dataset we may count on to steer our business.

With that said, I’d like to turn the call over to Nicoletta.

Nicoletta Russo — Head of Investor Relations

Thank you, Antonio. We’re now ready to start the Q&A session. Please, Jordi, go ahead.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] We’ll take our first question today from the line of Adam Jonas from Morgan Stanley. Please go ahead.

Adam Jonas — Morgan Stanley — Analyst

Thanks, everybody. So, Louis, in the past few months, climate change has seemed to emerge as one of the most important areas of focus for investors in many regions. And at least in our discussions, Louis, with asset managers we’re talking to, they’ve taken a far more aggressive stance on where and how they deploy capital and also where they’re not deploying capital.

Now, I can’t think — given your experience in the tobacco industry, I can’t think of anyone better positioned than you Louis and your team to assess this emerging risk and to help ensure that Ferrari retains its iconic status while creating significant value for shareholders.

So my question is, could you use this opportunity — the first question on the call and I’m sorry if it’s out of step with the quarter, but I think it’s really important and I think you would agree. Can you just address some of the key tenants of your strategy to reduce CO2 emissions?

And am I overstepping it if I were to suggest that or would like your opinion on considering whether you could — whether Ferrari could tie some management compensation to CO2 reduction targets as I believe; A; I believe I think you can do a great job doing that, that it’s well within your wheelhouse. And also it’s the right thing to do and is in alignment with Ferrari — with the Ferrari brand and I think your Ferrari owner-community. Thank you.

Louis C. Camilleri — Chief Executive Officer

Thank you, Adam. You’re certainly not overstepping your bounds. It’s clearly a very important issue. As I mentioned in my opening remarks, we are very focused across the organization, and ultimately, we do want to reach carbon neutrality. I think our advantage is that we only make 10,000 cars. And so therefore that should be possible. As you know, we’re going hybrid. We’re looking at alternative technologies and fuels as well.

But more importantly, I think whilst we’ve made great strides within our own facilities, I think it’s very important to look at the full carbon footprint and that’s exactly what we’re doing in terms of going upstream to our suppliers as well as all the way downstream. But you’re right, it requires a significant focus and resources. I can assure you that the Board is focused on it.

As to whether compensation should be directly linked to that. That’s clearly a matter for the Compensation Committee. I think given our plans; a big part of our compensation is linked to innovation. And I think getting to carbon-neutrality will require innovation. So effectively, it’s already part of management compensation. I hope I addressed your question.

Adam Jonas — Morgan Stanley — Analyst

Thank you, Louis. You nailed it.

Louis C. Camilleri — Chief Executive Officer

Thank you.

Operator

We will now take our next question from John Murphy from Bank of America. Please go ahead.

John Murphy — Bank of America Merrill Lynch — Analyst

Good morning, guys. Maybe a slightly more mundane question on the near-term. I’m just curious, as we look at the 2020 outlook, it seems like second and third quarters when the bulk of your new models will hit and fourth quarter is when the Roma hits.

So it seems like as we look through the course of the year, you know that will be more back half loaded. Just curious if you can kind of talk about the cadence of earnings through the year. What your unit growth estimates are?

And Louis, as you’ve mentioned, there’s a lot of swing factors out there that are sort of tough to call right now. But if you were to think about the major swing factors positively and negatively, what would you highlight as something that could be — the ones that could be material?

Louis C. Camilleri — Chief Executive Officer

Well, first of all, good morning, John. Looking at 2020, clearly the one big positive will be nine months of Monza, given that we had one quarter back in 2019. And then there are gives and takes as certain models reach their phase out, including the Pista and the new models come in, as I said, initially in the second quarter and then in the third quarter.

Obviously the Stradale is very important, given its margins and that really hits in the second half. So yes, you’re right. The second half should be quite strong, especially the fourth quarter. However, we don’t anticipate major shifts in profitability over the year from quarter to quarter.

There may be geographic mix changes as we — both Antonio and I mentioned, but that’s more in terms of deliberate management of our waiting lists, as well as what we mentioned in terms of the U.S. homologation process that always takes a bit more time for the new products.

John Murphy — Bank of America Merrill Lynch — Analyst

Okay, that’s helpful. Then just a second question on China, I mean, obviously there is a lot of concern around what’s going on with the Coronavirus. I’m just curious, as you think about a market that maybe shut down or maybe not for a couple of months, we’ll see how this goes. When you think about your order backlog and your exposure to China, do you have an order book in your other regions that could absorb potentially down demand in China for a period of time?

Louis C. Camilleri — Chief Executive Officer

Well, that’s the beauty of this Company. We can offset it geographically. I have to say, I’m more worried about Hong Kong than I am about China, because Hong Kong clearly is a bit of an issue and business there is very soft. I think in terms of the business in China, once Stradale hits the market, because you do get a tax benefit, because it’s a hybrid product, that we believe should be doing quite well and the orders are quite strong.

So, to answer your question, yes, I think we can offset weaknesses in China if it’s for a few months. Hong Kong will be more of a problem. But in any event, the first-half for Greater China will be a bit weak because of the difficulty in terms of comparing to ’19 where we deliberately pushed our volumes to clients, given the situation there.

John Murphy — Bank of America Merrill Lynch — Analyst

Okay. And then just lastly, as far as capacity, I mean, we’ve kind of always had this idea through 2022, the existing capacity in Maranello is sufficient to support volume growth. But it sounds like there is more land and capital being put in play in Maranello.

Is this sort of an indication that you might need more lines for final assembly or is this an indication that you’re getting deeper and deeper into powertrain and other maybe the electrical architecture of the vehicle and potentially in-sourcing more and more the technology, you think you’ll need overtime? Just trying to understand the incremental capital commitments.

Louis C. Camilleri — Chief Executive Officer

The latter. I don’t think we need further production lines within the foreseeable future. It’s more to ensure our technological superiority as the world is changing. So to give us the space to be able to bring in-house certain things that otherwise would be done by our suppliers. So you were right.

John Murphy — Bank of America Merrill Lynch — Analyst

Would that benefit be neutral or be negative to margins as we think about it over time, because you could sort of swing that in a number of different directions.

Louis C. Camilleri — Chief Executive Officer

Well, to the extent that we meet our objectives of technological superiority, it won’t be a net positive.

John Murphy — Bank of America Merrill Lynch — Analyst

Okay, great. Thank you very much.

Louis C. Camilleri — Chief Executive Officer

Thank you.

Operator

Our next question is from Martino De Ambroggi from Equita. Please go ahead.

Martino De Ambroggi — Equita SIM SpA — Analyst

Yeah, thank you. Good afternoon, good morning, everybody. The first question is on the free cash flow. Just if you can summarize all the main variables? I understand Monza’s down-payments will be softer, maybe disappear this year. But if you can split capex, you already commented during the speech, taxes, outflows taking into account Patent Box and net working capital expansion?

Louis C. Camilleri — Chief Executive Officer

Sure. Thank you, Martino. I think as you said, I already commented adjusted EBITDA and capex. With respect to the advances from the Monza, this will be — I already commented a while ago that the bulk of that was collected in 2019. And this is actually reducing the amount of cash in on the Monzas that we’ll sell in 2020. So the cash that we get when selling these cars will be reduced because partly collected in advance.

In terms of taxes, we’ll pay higher taxes compared to 2019, which benefited also from the Patent Box achievement for the years from 2015 to 2017. And working capital, we expected more or less in line with the previous year. So, not a major change.

Martino De Ambroggi — Equita SIM SpA — Analyst

Okay. So net working capital flattish. And the Formula 1 additional effort this year, because we are investing more, how much could we assume in terms of impact for the current year? And just a follow-up on the EBIT bridge for 2020. Since the mix effect in Q4 was quite impressive, I don’t know if we should multiply it by, let’s say, not maybe by four, but this could be a reasonable amount for the next few quarters, taking into account the Monza, I suppose, was the major contributor, the main contributor for this performance and just started.

Louis C. Camilleri — Chief Executive Officer

Good morning. I would say that, no, it would definitely be a mistake to multiply the fourth quarter and consider it as a base going forward. There are various factors involved, which I think I addressed in my earlier answer. I think, however, there is something that’s very important that everybody needs to bear in mind. We are very steadfast in our focus on the long term and nurturing the strength of our brand.

With us — we’ll be very deliberate in guiding the mix and cadence of our deliveries with a particular focus on our waiting list, as well as, as I mentioned, the individual market characteristics. I think just to chase a specific short-term number can certainly be counterproductive and not in the best interest of the sustained vibrancy of our brand. And that’s something that we think is very, very important.

Ultimately, we are ahead of the projections we provided in our long-term plan that we presented at the Capital Markets Day and we very much look forward to the full and carefully managed deployment of our portfolio and its enrichment going forward. So, I would be very careful to continually try to push the number up, because it’s potentially counterproductive to what we are trying to achieve.

Martino De Ambroggi — Equita SIM SpA — Analyst

Okay. And then the Formula 1 impact?

Louis C. Camilleri — Chief Executive Officer

Well, we won’t disclose. Clearly, the infrastructure part of it is in the capital expenditure number. As to the actual operating expenses, there is a significant increase because of the reasons I mentioned, but we won’t disclose the number.

Martino De Ambroggi — Equita SIM SpA — Analyst

Okay. Thank you.

Louis C. Camilleri — Chief Executive Officer

Thank you.

Operator

Our next question comes from Ryan Brinkman from J.P. Morgan. Please go ahead.

Ryan Brinkman — J.P. Morgan — Analyst

Hi, great, thanks for taking my question and thanks for the comments earlier on capital expenditures in 2020. It sounds like they may track above normal, including the one-time land purchase, Formula 1 investment, etc. 2019 makes a tough compare with customer deposits, Patent Box, etc. But just kind of looking beyond this sort of 2019 to 2020 FCF walk, how should investors think about free cash flow as a percent of EBITDA or net income going forward? Does it maybe tick lower in 2020, but then normalize higher thereafter? Is there a conversion ratio of either that you target? Thanks.

Louis C. Camilleri — Chief Executive Officer

We gave a number in the Capital Markets Day in terms of our target in 2022. And we firmly believe that we can meet that number, so that should give you a sense.

Ryan Brinkman — J.P. Morgan — Analyst

Okay, thanks. And just relative to the full-year margin outlook, are you able to share what level of ICONA or limited edition models are assumed as a percentage of the mix in that margin outlook? Color on the cadence of margin in 2020, sorry?

Antonio Picca Piccon — Chief Financial Officer

So, is it — do your question is the contribution of the ICONA add to that margin?

Ryan Brinkman — J.P. Morgan — Analyst

And just color on — yes, yes, and the overall cadence of margin as well as influenced by that or other factors?

Antonio Picca Piccon — Chief Financial Officer

So it’s clearly a positive contributor that one, take into account that the number of ICONA that were sold in the last quarter was relatively limited. And in terms of the mix is not just the ICONAs, of course. It’s the full range of cars that we sell in the quarter that makes the difference. And so the other two that you should take into consideration that I mentioned when commenting on personalization is the concentration of Pista and Pista Spider that also add. And when looking at 2020, these two will fade down and the mix will evolve.

Ryan Brinkman — J.P. Morgan — Analyst

Thank you.

Operator

Thank you. Our next question is from Monica Bosio from Banca IMI. Please go ahead.

Monica Bosio — Banca IMI — Analyst

Yes, good afternoon. Can you hear me?

Louis C. Camilleri — Chief Executive Officer

Yes, we can hear you.

Monica Bosio — Banca IMI — Analyst

Hello, good afternoon, everyone. I have three questions. The first one is on the personalization. The rate came at 20%. Usually, the rate is higher on the sports car, if I’m not wrong, and the concentration of sports car will keep high in the 2020. Should we expect this rate will stabilize or maybe we can assume it further increase? And the second question is on the revenues for Maserati. Obviously, in 2019, the Maserati engines were down. Do you still expect a further slowdown for 2020? And the very last is on the Ferrari Roma. It’s — let’s say, that it’s the successor of Portofino. Can you give us some more flavor on the Roma? I know, in term of volumes, you will not tell me, but the consequence of the introduction of the Roma in term of addressable market and in term of repeat customers maybe with the customer, which handles for the first time in the Ferrari world and then after this, if he can repeat further purchases on a more value-added products. So, just some more flavor. Thank you very much.

Louis C. Camilleri — Chief Executive Officer

Thank you, Monica. So regarding personalization, as Antonio mentioned in his remarks, you’re right, it was around 20%, but that was somewhat flattered by the Pista. Our experience has been on the Special Series such as the Pista personalization goes up, and as we just mentioned, the Pista phases out in 2020. Also, because of the significant price of Monza, the actual personalization percentage is likely to come down. So, it’s a mathematical thing. So more in line with what we’ve had historically than the 20% base that we had in 2019.

In terms of the revenues from Maserati, we anticipate in 2020 essentially a flat based on the orders received to-date. So, we don’t anticipate a big change there for 2020.

With regard to Roma, as I mentioned, we just opened the order book now. You’re right in saying that the model is destined to bring in new customers to the family, which we hope will become loyal customers. You’re wrong to assume that it’s the successor to the Portofino. It’s a different segment and that’s I think very important. I think the feedback we have received so far is that there is really strong and vivid interest in the model from existing customers, from new customers and also very interestingly from customers who were ex-Ferrari ones and who haven’t bought a Ferrari for some time and suddenly very interested in this specific model. Anyway, as the months evolve, we will be having test drives and presentations in various markets, but the interest is very, very high. But as I said, deliveries only really start in the fourth quarter. So it’s more of a factor that’s going to in fact affect 2021 than 2020. I hope I addressed your questions.

Monica Bosio — Banca IMI — Analyst

Yes, very clear. Thank you.

Operator

Our next question is from Angus Tweedie from Citigroup. Please go ahead.

Angus Tweedie — Citigroup — Analyst

Yeah, good afternoon. Just two questions from me. Firstly, I wonder if you could talk a bit about cash returns given the perhaps slightly lower free cash flow that we’re expecting in 2020 and how you’re thinking about that. And then secondly just on the strong European volumes, can you talk a bit about the competitive dynamics that you’ve seen in the fourth quarter there? Thank you.

Louis C. Camilleri — Chief Executive Officer

I’ll let Antonio hit cash returns. I’ll give you a sense of the competitive dynamics.

Antonio Picca Piccon — Chief Financial Officer

Yeah. By cash return, you mean the cash flow expectation for 2020. I already commented that there would be too element that helps quite a bit in 2019 that will not be repeated. One is the collection of the advances of the Monza and the other one is the impact of the Patent Box that will be lower in 2020.

Angus Tweedie — Citigroup — Analyst

I’m sorry. Just on that, how do you think about dividends and buybacks in relation to the lower free cash flow? That was my question.

Antonio Picca Piccon — Chief Financial Officer

On dividends, I think the Board will take a decision based on the results of this year. And on the buyback, we’ll keep on applying the policy that we followed so far to proportionate the size of the share repurchases to the size of our cash flow, so from six months to six months, I would say, going forward.

Louis C. Camilleri — Chief Executive Officer

I would add though, we were very conscious of the deposits. So effectively share repurchases didn’t follow the free cash flow we had, despite we gave EUR0.5 billion to shareholders over the year. The dividend policy is clear, it’s 30% payout ratio and the buybacks, we’ll see as we go along.

In terms of the dynamics in the European market, first of all, our business is extremely strong. The order book is actually quite phenomenal. So we’re seeing very strong business. In terms of the actual dynamics in the luxury segment, we see that some of our competitors are discounting in certain specific markets, but nothing too worrying. Residual values in Europe with the potential exception of the UK remain strong. So, in terms of the dynamics, Europe is very strong and we continue to project great business there in 2020 and beyond across pretty well every market and particularly strong in U.K., in Germany and Italy as well as Switzerland.

Angus Tweedie — Citigroup — Analyst

Very clear, thank you.

Louis C. Camilleri — Chief Executive Officer

Thank you.

Operator

Our next question is from Massimiliano Vecchio from UBI. Please go ahead.

Massimiliano Vecchio — UBI Banca — Analyst

Good afternoon, everybody. Mr. Camilleri, you spoke about two launches in 2020. Now, I know you’re obviously very strict when giving details on new models, but to help us in modeling, what could you tell on that point? I mean, will be models that will have an accretive impact on mix, they will increase your GT percentage, they will increase your — let’s say, reduce your CO2 emissions. Can you give some more info on those two models?

Louis C. Camilleri — Chief Executive Officer

Massimiliano, as you know, we don’t like to talk about new models until they are presented. All I can say is that it’s not going to affect 2020. They will only reach customers in 2021. So effectively they have zero impact on the 2020 numbers except for the launch expenses.

Massimiliano Vecchio — UBI Banca — Analyst

Okay. I imagined that, so I have a reserved question. Can you give some more granularity on the homologation issue discussed in the U.S.? I mean, is this something new that is delaying some — because usually you launch a product in Europe and then the quarter after you launch it in U.S. elsewhere. Is it going to change or was it unexpected from your side?

Louis C. Camilleri — Chief Executive Officer

No, not at all. It’s within historical norms. But as you said, it’s usually three to four months later. So that’s all I said. And if a product is going to hit in the third quarter in Europe, it will only be in the fourth quarter in the U.S., so that affects the geographic mix, but it’s within historical norms, we don’t see any change to that. Is that clear, Massimiliano?

Massimiliano Vecchio — UBI Banca — Analyst

Absolutely clear. Thank you very much.

Louis C. Camilleri — Chief Executive Officer

I’m sorry to disappoint you on your first question.

Massimiliano Vecchio — UBI Banca — Analyst

I’ll give it for sure.

Louis C. Camilleri — Chief Executive Officer

But a good try.

Massimiliano Vecchio — UBI Banca — Analyst

I tried.

Operator

Our next question for today is from Giulio Pescatore from HSBC. Please go ahead.

Giulio Pescatore — HSBC — Analyst

Hi. Thank you for taking my question. The first one on the 15 cars you plan to launch until 2022. I mean, we have seven left, I believe. Are all of those expected to contribute to the 2022 margins or some will have a contribution beyond — that will only start beyond 2022?

Louis C. Camilleri — Chief Executive Officer

It will all contribute to 2022. Clearly, there are some models beyond 2022, for which we are already investing now. So some of the costs, you see relate to those models, but also models that we’re already working now for beyond 2022. Does that answer your question?

Giulio Pescatore — HSBC — Analyst

Yeah, sure.

Louis C. Camilleri — Chief Executive Officer

Thanks.

Giulio Pescatore — HSBC — Analyst

And then the second one on the, again, on the model pipeline, so of all the things we discussed back at the Capital Markets Day, I think, the main innovations were the hybrid powertrain, then the Purosangue in the new GT family, and then there was the introduction of our V6 engine. Could we see that this year, what is the timeline in the process of investing in that technology?

Louis C. Camilleri — Chief Executive Officer

Good try, Giulio. You’re going to have to wait and see.

Giulio Pescatore — HSBC — Analyst

Okay. Then maybe one last one, just on China, you are rebuilding the order book, right? And given the situation there, I mean, if you — how long do you think it’s going to take to rebuild and get back to a normal level of business operations? And do you think you’re going to have to support your dealers in the process, I mean, financially?

Louis C. Camilleri — Chief Executive Officer

Listen, I don’t have a glass ball to tell you when the issue will be resolved. I’m not sure anybody can answer that question. Our dealers are actually in pretty good shape. So if necessary, we will help them, but at this point, we don’t see a need whatsoever.

Giulio Pescatore — HSBC — Analyst

Okay. Thank you.

Operator

Thank you. Our next question is from the line of George Galliers from Goldman Sachs. Please go ahead.

George Galliers — Goldman Sachs — Analyst

Hi and thank you for taking my question. The first question I had was just on the other line in Q4. You obviously articulated that the — in the EBIT bridge, lower sales of Maserati engines played a part, but you also referenced other supporting activities. Could you perhaps just elaborate on what specifically that was and whether that carry forward to 2020?

Antonio Picca Piccon — Chief Financial Officer

Sure. I commented that the performance under the other variance in Q4 is not related to a single item, but is more to a miscellaneous or unfavorable comparison. And what we call the supporting business are the ones that we consider not necessarily core and this includes also some different allocations from other variances, so things that cannot be allocated under any of the other histograms. When we look at the full year picture though, what emerges is the significance of the impact of Maserati. And this is what we commented in the full-year bridge.

George Galliers — Goldman Sachs — Analyst

Great. Thank you. And then secondly just on Formula 1, as we think about the 2020 season and obviously the big change in rules for 2021, will you take a different approach to your expenditure around Formula 1 as the year progresses, if on balance of probability, you think you either can’t be caught midway through the year or it’s unlikely you will catch whoever may be in front of you, or will you basically treat the season the same as any other season and keep spending up until the point where mathematically you’re out of the race or you have won the championship?

Louis C. Camilleri — Chief Executive Officer

We never give up. Our ambition is to win and therefore, I don’t think we’ll put our foot off the pedal in terms of Formula 1 in 2020 or beyond. Does that answer your question, George?

George Galliers — Goldman Sachs — Analyst

I think that does. And the final one was simply just around Maranello and the expansion. I think, you were very clear in your answer earlier. But could I just ask what is the present capacity of Maranello? I think, previously, Mr. Marchionne said that you could potentially do double the 2016 volume, which would suggest something in the region of 16,000 units with two shifts. Is that the right way for us to think about it or would that require significant incremental capex?

Louis C. Camilleri — Chief Executive Officer

I think the number that’s floated around is 15,000 not 16,000; and that’s a number we’re comfortable with.

George Galliers — Goldman Sachs — Analyst

Great. Thank you very much.

Louis C. Camilleri — Chief Executive Officer

Thank you.

Operator

[Operator Instructions] Our next question is from Stephen Reitman from Societe Generale. Please go ahead.

Stephen Reitman — Societe Generale — Analyst

Yes, good afternoon. I have a question about positioning. You mentioned the very good reception you’ve had for the SF90 Stradale, which obviously has created a new price point for the product, EUR130,000 or so, above that of the 812 Superfast. What do you think — what lessons does that give you or what confidence that give you about pricing on your Series cars and do you think you can actually make further increases as you replace the Series cars against the normal traditional 3% to 5% increases you’ve been doing up until now?

Louis C. Camilleri — Chief Executive Officer

Well, clearly, it was a very good signal. However, the complexity of that model certainly warranted that price. Our key going forward is to ensure that we will privilege revenue over volume and that should answer your question in terms of pricing. Going back to what I said, it’s critical for us to really control our volume and the mix of models to ensure that we continue to have the pricing power that we have today, and that’s a critical component of our plans going forward. So yes, price is key.

Stephen Reitman — Societe Generale — Analyst

And you’ve mentioned, you’ve referred to your order book as phenomenal. Can you give some idea about the visibility you have in terms of waiting times that are now on models, particularly SF90 Stradale?

Louis C. Camilleri — Chief Executive Officer

I don’t think we generally give numbers. Clearly, they vary by market and by model. All I can tell you, particularly on the SF90 Stradale, is that the order book is very strong and the waiting list is quite a long and getting longer.

Stephen Reitman — Societe Generale — Analyst

Thank you.

Louis C. Camilleri — Chief Executive Officer

Thank you.

Operator

And our next question is from Michael Binetti from Credit Suisse. Please go ahead.

Michael Binetti — Credit Suisse — Analyst

Louis, I might have missed a little bit of context earlier, but I was hoping you could give us a little context to think through our model a little bit. You just grew your EBITDA 9% ex-currency in what we talked about as a transition year this year. Guidance for 2020 looks like it’s about 11% to 12%. To get to your EUR2 billion, the high end of your range by 2022, you’d need an 18% CAGR for the next two years. And I would have thought coming into the 2020 would be the bigger year in that trajectory, just given the high level of new car innovation versus last year. Could you help us think about that dynamic that implies a little bit lower of an acceleration this year off the transition year last year? And then the bigger growth rates that follow on.

And I guess, in a related question, I guess, you’ve been asked a little bit about Formula 1 in 2020. I’m guessing that’s the biggest cost headwind. I mean, I guess, in fourth quarter you had an incremental EBITDA margin at about 74%, which is truly amazing. If I triangulate that, you had a big mix lift in fourth quarter and it looks like the profit growth, however, heading into 2020 is very high, but the guidance for next year implies incremental EBITDA margins of about 35%. I’m guessing you’d tell me that one of the biggest costs on a year-over-year basis is Formula 1. I’m just wondering is that cost that rolls off as we get into 2021 past 2020 and that’s potentially drives that acceleration that seems to be baked in there. Any color you can help to just connect what we’re hearing today to the longer term model from the Capital Markets Day would be helpful.

Louis C. Camilleri — Chief Executive Officer

Okay. Let me try. So the starting point is ’19 is well ahead of — hello? Sorry, there was clash back there. To start with, in 2019, we were ahead of plan and we’ll be ahead of plan in 2020. I said, in 2020, it would be a year of consolidation because of the cadence of deliveries of the models that we presented in 2019. You’re right mathematically, we should increase by 17.5% CAGR over the next two years. And as I think I said earlier, I think that’s clearly doable given the deployment of the models that we have presented, as well as those that are in the pipeline and the prices and margins associated with those products and the mix that we forecast.

In terms of Formula 1, you’re right to point out that in 2021, as we mentioned, was sort of doubling up because we have to work on a totally brand new car as opposed to developing one further. So, you should assume that in 2021 and thereafter, the Formula 1 costs should come down, least of which, because there is a bunch of cap for a big portion of the car itself. So, really it comes down to the full deployment of our product portfolio and the mix of that portfolio that we forecast. So I hope that answered your question, Michael.

Michael Binetti — Credit Suisse — Analyst

It does very well. Thank you so much for the help.

Louis C. Camilleri — Chief Executive Officer

Thank you.

Operator

And there were no further questions waiting, I’ll hand the call back to Nicoletta now.

Nicoletta Russo — Head of Investor Relations

Thank you, Jordi and thank you, everyone for joining us today. As always, the IR team will be soon available to answer all your follow-up questions. Thank you.

Operator

[Operator Closing Remarks]