Nicoletta Russo – Head of Investor Relations Louis Camilleri – Chairman and Chief Executive Officer Antonio Picca Piccon – Chief Financial Officer.

John Murphy – Bank of America Michael Binetti – Credit Suisse Ryan Brinkman – JPMorgan Monica Bosio – Banca IMI Adam Jonas – Morgan Stanley George Galliers – Evercore James Albertine – Consumer Edge Giulio Pescatore – HSBC Andrea Balloni – Mediobanca Stephen Reitman – Societe Generale Philippe Houchois – Jefferies.

Good day, and welcome to the Ferrari 2018 Third Quarter Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Nicoletta Russo, Head of IR. Please go ahead..

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, I'd like to turn the call over to Mr. Camilleri..

Sorry, I understand that you couldn't hear me. Good morning and good afternoon everyone. It was a pleasure to meet many of you at our Capital Markets Day back in September and I look forward to our forthcoming encounters in the weeks and months ahead.

As specified in our press release, we had a very solid quarter in line with our expectations, and we remain fully on track to meet our annual guidance for 2018 on all key measures.

Our net earnings were favorably impacted by the three year cumulative tax benefit of the Patent Box agreement that was announced at our Capital Markets Day, and as you all know, the cash benefit will be realized in the fourth quarter. We continue to have a strong order book across all regions and models, which all goes well for the future.

Before I hand over the call to Antonio, who will take you through the details of the quarter, I do wish to share with you two important events that were held over the last few days. On Friday, we had our Annual Dealer Meeting, and I would characterize it as being extremely positive.

Attending the meeting were 600 delegates from 60 countries with whom we shared our plans and expectations for the years ahead. They are as excited as we are here about our prospects and opportunities going forward. These include the new product portfolio that is planned and falls under the four pillars we unveiled back in September.

We are clearly privileged to have a focused, determined and enthusiastic network who are willing to invest in the future. This weekend was also the Annual Finale Mondiale, which was clearly an incredibly successful event that was held in Monza.

Many of you met some of our key customers in September, and I believe were impressed with the passion and loyalty that the Ferrari generates. I only wish you would witness the atmosphere of the Finale. The enthusiasm and excitement of our clients and key ambassadors were multiple of what one may have felt at the World Premier of the Monza SP1 and SP2.

To give you a sense of the activities, we had more than 100 488 challenge races, 22 Formula One clients and about 40 XX owners and drivers and a host of customers of long-standing. The event attracted some 30,000 people, celebrating Ferrari and all that the brand represents. On that note, I will now hand over the call to Antonio..

Thank you, Louis, and good afternoon to everyone. Let me begin with Page 4 then. Our shipments increased by 10.6% versus prior year with V8 models growing faster than V12. Group net revenues for Q3 2018 were €838 million, up 0.3% in current currency, but up 2.2% at constant currency, meaning net of translation, transaction and change in hedges.

Our adjusted EBITDA reached €278 million, improving by 4.7% at current currency and by 11.7% at constant currency. EBITDA margin was 33.2%, up 140 basis points versus prior year. Adjusted EPS when excluding the already mentioned Patent Box benefit related to the three years 2015 to 2017 was up 5.4% to €0.78.

Industrial free cash flow for the quarter was €100 million, excluding the benefit of the Patent Box 2015 to 2017 which will be realized in Q4. Net industrial debt at the end of September, after €30 million of share buyback already accomplished during the first quarter, reached €372 million versus €473 million at December 31, 2017.

Before the share repurchase already executed, we are already in line with full year guidance. Moving to shipment on Page 5, total shipments increased by 216 units or plus 10.6% versus prior year, supported by 11.4% increase in V8 and a 7.9% increase in V12.

The performance was led by ramp-up of the Ferrari Portofino as well as strong deliveries of 812 Superfast. The 488 family was in line with prior year with first few deliveries of the special series 488 Pista while LaFerrari Aperta is finishing its limited series run. Growth in shipments happened across all regions.

EMEA grew 11.3%, Americas showed a 4.6% increase and combined deliveries in China, Hong Kong and Taiwan were up 6.6%, while rest of APAC was up 27.5%. Moving to Page 6 on group net revenues, we see how the increase 2.2% at constant currency from €836 million in Q3 2017 to €854 million in Q3 2018.

Currency, including translation and transaction impact as well as the change in hedging impact was €16 million negative bringing Q3 2018 group net revenues at current currency to €838 million, still up, 4.3%.

Car and spare parts revenues totaling €616 million were positive and up 3.8% at constant currency, thanks to higher volumes already commented as well as pricing and deliveries of the strictly limited edition Ferrari J50, partially offset by mix.

Engines revenue were €70 million, which is down 19.9% at constant currency, posting a decrease in sales Maserati due to lower volumes. Sponsorship, commercial and brand were €128 million or plus 6.5% at constant currency, thanks to higher championship ranking as well as stronger revenues from sponsorship.

On Page 7, you can see the year-over-year changes in the main items of the adjusted EBIT. As mentioned, the ladder was up 4.4% to €203 million with adjusted EBIT margin of 24.2% and adjusted EBITDA margin reaching 33.2% and up 140 basis points.

At constant currency, adjusted EBIT grew by 9.9% to €222 million, while adjusted EBITDA increased 11.7% to €297 million. Volume was up €23 million, thanks to the ramp up of the Ferrari Portofino as well as the 812 Superfast.

Mix and price were negatively impacted by strong performance of V8 models and lower sales of LaFerrari Aperta that is finishing its limited series run. This was partially offset by pricing and deliveries of the strictly limited edition Ferrari J50. Industrial costs and R&D decreased €5 million mainly to lower spending in Formula One activities.

SG&A cost were lower than prior year mainly due to lower costs related to the 70th anniversary celebrated in 2017. Currency as well as the – including translation and transaction impact as well as the hedge effect had negative impact mainly due to U.S. dollar depreciations versus euro. Moving to Page 8.

Industrial free cash flow for the quarter was €100 million, driven by strong adjusted EBITDA, and this was partially offset by CapEx to support broadening and hybridization of our product range. In addition, we reminded in Q4 2018 industrial free cash flow will benefit from the Patent Box.

Net industrial debt at the end of September after share buyback reached €372 million. In this respect, as you know, one of our strategy to reward shareholders is through share buyback and would expect to restart once the blackout period ends.

On Page 9, you can see the confirmed 2018 guidance, we announced at the Capital Market Day on September 18, 2018.We increased CapEx to roughly €650 million to capture commercial opportunities on one end and improve net industrial debt target to lower than €350 million on the other one, as a consequence of the Patent Box Agreement.

The last couple of slide show Formula One ranking as well as our client relationship activities. With that said, I'd like to turn the call over to Nicoletta..

Thank you, Antonio. We are now ready to start the Q&A session..

Thank you. [Operator Instructions] We will take our first question from John Murphy, Bank of America. Please go ahead..

Good afternoon guys. Just a first question on FX, I mean given the significant pressure that you saw in the quarter, I'm just curious if there is anything else you think you need to do on hedging.

I know you've kind of backed away from the idea of pushing the FX pressure or risk onto your customers through dynamic pricing, but just curious if there is anything you think you can do there, because that seems to be like the only real sort of negative headwind in the quarter?.

Thank you, John. This is Antonio. I think most of the pressure this quarter comes from comparison with last year. The benefit is significantly from the positive hedges in place at the time. Just we are restarting with the implementation of the policies that we have in place in order to smoothen the impact going forward..

I would add John that it was clearly a tailwind in the quarter, but it's at prevailing rates looking into next year it should be a tailwind right in the headwinds..

Okay, that's helpful. And second question and maybe one of the most important slides I think in the deck is Slide 16, where you looked at product cadence. Just curious if you could give us some commentary around Icona line and the Monzas – the two Monzas.

You're sort of wedged or spaced between the special series and the Hypercar, but given sort of the rumors around pricing, it sounds like they will be more like Hypercar pricing and potentially profitability.

So, just curious if you can comment on that, and then also, if we think about cadence, future Icona models coming out, should we think about those every two to three years, I'm trying to understand sort of the delivery cadence of the Monzas and when we should maybe expect to see another new like a GTO or 250 come out and sort of the math and economics around those products..

John, you are right in terms of the Icona, the margins are significant and that's why it's become a fourth pillar and an important one. In terms of the Monza SP1 and SP2, and in terms of the cadence, it is really towards the end of next year is predominantly in the fourth quarter.

We're seeing whether we can accelerate that, but at this stage its fourth quarter 2019 impact. And as to the future Iconas, we haven't really disclosed that, but you can assure yourselves the series will continue. I'm not quite prepared to give you precise timing at this stage..

But to push on that just a little bit more, I mean thinking about those as sort of two to three year runs, is that reasonable fair characterization or pretty off, just I'm trying to understand sort of the rough cadence first?.

That's fairly reasonable characterization..

And then just lastly, given sort of all the global volatility or at least the capital markets are indicating that there is global volatility in economies.

What is your flexibility to shift shipments or deliveries maybe away from China and towards the Americas or Europe or vice versa? And really just trying to understand, geographically if you have the flexibility on wait-list to potentially offset weaknesses in especially far countries?.

Yes, as I mentioned our order book is significant, and we do have considerable flexibility. Again depending on the geographic specifications, our regulatory constraints, as well as left-hand drives versus right-hand drives, other than those constraints, we do have considerable flexibility..

And have you seen any changes in wait-list, anywhere in your major regions at this point?.

No, not at all. Our order book has actually expanded across all regions..

And then last, just real quick Antonio, how much cash will come in from the Patent Box in the fourth quarter?.

I think you should look at the guidance there, and probably we should not exceed the level of CapEx that we have given as a guidance and the cash flow coming from the – well it is coming from the adjusted EBITDA, less that with this positive impact also adding up from the Patent Box, that will basically nil, reduce to nil the tax outcome in the quarter..

Okay, those should all balance out then. Good. Thank you very much..

We will take our next question from Michael Binetti from Credit Suisse. Please go ahead..

Hey guys, good afternoon and thanks for taking our questions here. You mentioned share buybacks and we can see down a little bit in the quarter here, but I think you are planning on doing quite a bit more by the end of the year, but you did mention that there is a lock-up there.

Could you just help us thinking about, and then with the Patent Box inflows, cash coming in fourth quarter, can you help us think about how to model out share count for the rest of the year or even just directionally, if you think it will be much more opportunity on share repurchase in the fourth quarter and in the prior quarter given the lock-up period? I think you went form a lock-up period in second quarter quiet period right into the Capital Markets Day and then right into lock-up on third quarter sequentially..

Michael, that's correct, we both sum back in the first quarter and we haven't since then, and clearly since the Capital Markets Day, we've been in a blackout period. As Antonio said, we will initiate our repurchase program as soon as the blackout period is over.

I'm reluctant to give you the cadence of our share repurchases, but as you know, under Milan Stock Exchange rules, you will know essentially what we're buying every week. So, you will have a very good sense of what we're doing on a weekly basis..

Okay, let me ask you about, I just want to ask about innovation, because as we look in this quarter, there is obviously a very meaningful mix headwind as you roll off Aperta and into the quarter modifying by cars like Portofino and I think that should start to diminish the mix headwind – should start to diminish in fourth quarter since you started slowing down compared to last year and fourth quarter if I'm not wrong.

But – and I know you guys are very focused on Monza and that can drive a lot of the financial model here, it sounds like, really you are saying closer to fourth quarter next year.

But I guess my question is how complete of a picture do we have from the Analyst Day to what we know today about the innovation coming from Ferrari between now and fourth quarter next year? I guess said differently, your plans for 2022 is about 15 cars or about 3 cars per year, how many of those do we know about today? It seems unusual that we wouldn't have some kind of a special car between now and fourth quarter next year.

It seems like a pretty long period..

Well, first of all let's talk about mix. You are right, mix was unfavorable in this quarter and it's likely to be unfavorable in the fourth quarter. You can look at mix in – in different ways, it's often a timing issue, but the positive of it is that, mix is – negative mix is driven in great part by the success of the Portofino.

And the way I look at that is the Portofino is attracting many new customers, and those new customers generally tend to become loyal to the brand, and go up the range and eventually buy the special series or limited editions.

So, yes, at times the short-term impact is negative in terms of pure mix, but I think if you take a longer-term view, it is a positive, because most of these customers do go up in the range. So I did want to mention that.

In terms of the visibility regarding our new products, clearly we've only talked about two models; one was the Monza that was the World Premiere at the Capital Markets Day and the Purosangue, which we said was in 2022. For obvious competitive reasons, we're reluctant to tell you exactly what we're going to launch.

But there will be launches, two launches in the first half of next year and you have to understand that there is a timing difference between the actual presentation and launch and the actual production and sale..

With that said, is there – are there examples like in the past where you've been able to announce something and start production more quickly, or I guess another way to ask is, mix headwind seem to be the key defining metric in the second half of this year for the Company.

Do, you think that the mix of the portfolio will be as much as of a headwind for you in the first half of 2019 before we start talking about Monza as it is in the second half of this year?.

I think that's a fair characterization. But again, I think that's a positive if you take a longer-term view..

Understood. Okay thank you for your help..

Thank you..

We will take our next question from Ryan Brinkman, JPMorgan. Please go ahead..

Great. Thanks for taking my questions. Relative to the potential for Section 232 tariffs in United States to be extended from steel and aluminum, to include auto, it's not a part, I think it's been studied by the Commerce Department.

I think the risk for Europe-based manufacturers is less now than before, but just curious if you've looked at this potential impact and whether you think you might be able to apply for an exemption, should it come to pass similar to – relative to emissions regulation given your small manufacturers status.

And then just perhaps more broadly perhaps you could comments on the trade and tariff environment? I would assume while other automakers have complained a lot about tariffs this quarter that maybe you should not really been seen any impact given in the way you manufacture and source your components perhaps even a tailwind given China's lowering its global tariff on autos.

Any color there would be helpful? Thanks..

I would say it doesn't have a real material impact. Clearly we studied it carefully. As you suggested, I think the concerns particularly regarding trade between Europe and the U.S. have declined considerably since the heat of the summer.

As we said at the time, we believe as a luxury manufacture that should – I mean it's unlikely, but should there be tariffs in the U.S., we would pass that on to our customers and we don't feel that they would have a material impact.

As opposed to most luxury product manufacturers, China per se single-digits for us, and you have many luxury products and impact some car manufacturers as China is obviously a huge. It's not for us today, but our hope is over time that China will be one of our growth platforms..

Okay, great. And then just lastly on the guidance for capital expenditures this year of €65 million, which was increased at the Investor Day, it now implies a bit of a step up in 4Q.

I'm just curious if you think you are still on track for spending that much? And if you could remind the driver of the increased need for investing in cash flows I think at Investor Day was called up the cadence of new launchers and hybridization technology et cetera, and maybe speak to where you are on sort of accelerating some of those efforts?.

Thank you, Ryan. Yes, we're still on track with the guidance on that..

Okay. Thank you..

We will take our next question from Monica Bosio at Banca IMI. Please go ahead..

Good afternoon and thanks for taking my question. It's a follow-up on the price/mix. I understood that at least for the first half of 2019, the price/mix would remain broadly negative. I am just trying to figure out the trend.

Can you just give us an indication on when the Portofino will reach a peak in term of volumes and fees, and the same question is for this 488 Pista? And the second question is, if you can give us an indication of that personalization rate in the quarter? We had an improvement or it remains almost flat? Thank you very much..

Let me try to answer that question. In terms of the Portofino, we see it's climbing significantly next quarter and staying at that level in the sort of first half as it's ramped up. The 488 family is actually increasing because of the Pista and the Pista Spider, so that is actually increasing towards the second half.

So I don't know if that addresses your questions. In the meantime, the 812 Superfast will be pretty well rather stable across the quarters..

Okay. Thanks very much, very clear. I am sorry, for that the personalization rate..

Yes. Monica, Antonio is speaking. Personalization, there is nothing material to report. We're in line with the usual heritage..

Okay. Thank you..

We will take our next question from Adam Jonas at Morgan Stanley. Please go ahead..

Thanks everybody. First question, any update around negotiations with Liberty Media about the Concorde agreement that you wanted to highlight? And specifically and perhaps separate for any negotiations that are ongoing. Can a budget cap of any kind work in your view as you think about these the agreements? Thanks..

No real update, Adam. I think there is being progress on the technical specifications, but in terms of the economics that really hasn't been any progress, and obviously the economics are also linked to the budget cap. I think that the budget cap eventually make sense, but the devil's in the details.

And I think it would eventually be in everybody's interest, but we are not there yet..

Thanks, Louis, and just a follow-up perhaps for you, Antonio. It is too soon to talk a bit more holistically about 2019 the high level without quantifying of course and we've touched on some of these in this call now in terms of like mix in the first half perhaps volumes.

But without quantifying again, what are the key puts and takes in terms of pricing mix, R&D and depreciation creep, FX other items, we could begin to think about exploration of the forward year. Thanks..

Thanks for the question, Adam. I think it's worth postponing the answer to the end of this year, when we'll be clear as to 2019 as we see it..

Understood..

We will take our next question from George Galliers, Evercore. Please go ahead..

Thank you for taking my question. First, just some housekeeping on the limited edition models. On the LaFerrari Aperta, you mentioned in the press release that it was finishing its limited series.

Can you confirm whether the last Aperta was shipped in Q3 and give any insight into the number in the quarter?.

I think we'll have just few units still to be sold, but for sure it's very, very limited number, less than 10 being the next – less than five, sorry during the next quarter..

Okay, great.

And then on the J50, is it correct that 10 is the number that you've publicly disclosed you will produce, and were all 10 delivered in the quarter or will that be on staggered shipment?.

I think little bit is spread over the year and they are 10 in total, right, with the bulk of that in Q3..

Okay, great. And then just the final question was – just since the Ferrari IPO, the only part of the business which is arguably fallen short is Formula One.

What steps do you need to take to climb the final step of the podium next year? And is winning the championship a pressing priority or actually is competing towards the front of the grid sufficient for the company?.

Clearly winning for us is a priority. It's part of our heritage. We were very close in the Constructors' Championship is still open, mathematically anyways there is still two races left. Winning for Ferrari is very important. What do we need to win? We need a great car and two great drivers. This year it was somewhat unfortunate.

We came very, very close and hopefully next year we can get there too. There is not much I can add other than it's very important and we are doing everything we can to win. But I would say that in 2018 just based on the numbers, it was probably our best seasons since 2008, you know probably it was our best season since 2008. So we are making progress.

We're not quite where we wanted to be and we'll see how we go next year..

Okay. Thank very much..

You're welcome..

We will take our next question from James Albertine from Consumer Edge. Please go ahead..

Great. Thanks for taking the question. I want to ask on the Engine segment of the business, there is some pressure obviously in the last few quarters. We are starting to get to a point where compares are somewhat easier in the fourth quarter.

So how do we think about sort of that business? Is it nearing a stabilization point or should we expect more weakness there perhaps given some decelerating data coming out of China and the like? Thanks..

Well, as you know FCA announced its results on Maserati last week. And they reduced production because of their stock levels and the issues they faced primarily in China. I think those are being addressed with vigor and we'll see what their orders will be for the next quarter..

Understood. Thank you..

We would take our next question from Giulio Pescatore, HSBC. Please go ahead..

Hello. Thank you for taking my question.

First one on the Monza, when do we expect to see the first deposits coming in because it doesn't seem like in the quarter you were already taking deposit for that car? And would that be material for this year? Can you give us an idea of how much of the percentage of the base price is taken as a deposit?.

Hi, Giulio. I think in terms of advancing for customers, nothing has been yet received in Q3. We expect this to coming since the beginning of 2019..

Okay. Thank you. And the second one on margin, I mean if we adjust the quarter for the FX impact, it looks like your margin was – your adjusted EBITDA margin was very close to 35%. I mean if they are at an underlying level at which you think you can remain especially looking at next year or they're factored in this quarter that inflated the margin.

And also the quarter had a negative mix, so it looks like a very strong result for this quarter..

It sort of is linked to the prior question. Clearly, despite all the previous questions on mix, EBITDA on a constant currency basis, the EBITDA margin was up, but it was flattered by the fact that Engines were down significantly. What we said in the Capital Markets Day is that over the next four years, we'd like to get to a margin of in excess of 38%.

So, that's our target. I think to put into your model, 35% is being the base, today is too high, and as I said it's in this quarter, it's rather flattered..

Okay. Thank you..

We would take our next question from Andrea Balloni, Mediobanca. Please go ahead..

Hi. Good afternoon, everybody. Thanks for taking my question. First of all about ForEx again, I was wondering if you can break down the €19 million EBITDA between cost of hedging and negative ForEx impact.

We understood the largest part is about debt compared cost of hedging Q3 last year, but if you can provide us more detail about that? My second question is a follow-up about Monza advance payment.

Is it fair to assume, level of advance payments to the tune of 30% to 40%? If I am not wrong, which is you will have taken the level of LaFerrari in the past. And my latest question is about free cash flow generation in Q4. I lost your previous explanation. If you can repeat a bridge of free cash flow in Q4 that would be great. Thank you..

Thanks Andrea. In terms of the change in hedges impact on the total currency impact, you're seeing the vast majority of that is practically explained by hedges. Translation and transaction presenting a minimal addition to that, and most of it comes from the negative comparison with last year.

With respect to the cash flow for our 4Q, I think it will be relatively simple, be as I said, we expect to have the cash flow represented by the EBITDA necessary to get to the guidance level and the same applies for the CapEx. And we do not expect to have taxes paid as a result of the use of the Patent Box benefits for 2015 to 2017.

Then all the rest working capital and other should not be material..

And about advance payment for the Monza?.

As I said, the advanced payment for Monza will come starting from the beginning of 2019..

Thank you.

Is it fair to assume around 30% to 40% of the pricing?.

We are currently refining the policy there..

Okay. Thank you..

We will take our next question from Stephen Reitman, Societe Generale. Please go ahead..

Good afternoon. You mentioned that the Portofino is bringing in new customers to Ferrari. Would you say the conquest rate of new customer is higher on the Portofino than you were seeing on the California particularly when – obviously when it was a new vehicle launched in 2008. Thank you..

I think that's a fair characterization from what I've been told, we don't have 100% accurate numbers yet because it's early days, but clearly anecdotally the direction is the way you said it better than California..

And is the option take up greater when you're seeing on the run outs of the California T?.

In terms of the order book..

What you're saying the option take up on the Portofino, are they taking higher specification on the cars?.

I would say yes..

Thank you very much..

We will take our next question from Philippe Houchois, Jefferies. Please go ahead..

Thank you, and good afternoon. A couple of questions at my end. The first one is, about two years ago, Ferrari sold it exporter Financial Services in Europe if I remember and kept the U.S. one. It wasn't clear at the time why that was the case.

And I am just wondering from a balance sheet perspective, would it be beneficial to Ferrari's ability to buy back shares to pay dividends? If that's with exposure to Financial Services was disposed of, would that create any more flexibility from a – a more strategic standpoint?.

Thanks Philippe, for the question. Actually we have not looked at that as a priority. I think the Financial Services that we maintained in the U.S. is actually functional to the development of our sales there due to market habit.

At the same time, I think it's self-fund, meaning that the portfolio we have may be easily securitized and that is what we are doing currently. At the same time while managing the P&L and the risk there with the usual care Financial Service company has to apply, so separately and independently from the commercial lines.

So it's difficult to give you a simple answer simply is something we have there for the time being is not negatively affecting in any way our performance and it's not great decision..

Okay. And if I can follow-up with you Antonio, on a couple of more housekeeping, will you be able to announce the 2018 Patent Box effect when your report full year numbers, I am assuming February or March next year..

Yes. That's correct..

Last point, I know you give us those numbers later in the 10-Q, but would you be able to tell us right now, how much R&D was capitalized in Q3 and how much of it was amortized to try to work it, kind of U.S.

GAAP type of earnings for Ferrari in Q3?.

Value, what the percentage of the CapEx is related to R&D and this is about half the amount. And intangible and R&D amount to close to €90 million, so more than as compared to €65 in PP&E..

Okay and amortization should be not much different from Q2, because it's kind of linear progression?.

More or less. Yeah..

Okay. Great. Thank you very much..

It appears there are no further questions at this time. I would like to turn the conference back to Ms. Nicoletta Russo for any additional remarks..

Thank you very much for following us today. As always, the IR team will be down soon available to answer all your follow-up questions. Thank you. Bye-bye..