Ferrari N.V. — FY2017 Form 20-F
Business context and reporting period. This is Ferrari’s annual report for the fiscal year ended December 31, 2017, not a standalone fourth-quarter report. Financial statements are audited and prepared under IFRS as issued by the IASB; amounts are in euros unless noted. Ferrari designs and manufactures luxury performance cars in Italy and also earns revenue from engines, Formula 1 activities, sponsorship, licensing and financial services.
Key financial metrics
| Metric | FY2017 | FY2016 | Change |
|---|---|---|---|
| Net revenues | €3,417m | €3,105m | +10.0% (+11.2% at constant currency) |
| EBIT | €775m | €595m | +30.3% |
| EBIT margin | 22.7% | 19.2% | +3.5 percentage points |
| Profit before tax | €746m | €567m | +31.5% |
| Net profit | €537m | €400m | +34.4% |
| Net profit margin | 15.8% | 12.9% | +2.9 percentage points |
| EBITDA (non-GAAP) | €1,036m | €843m | +22.9% |
| Shipments | 8,398 cars | 8,014 cars | +4.8% |
| Operating cash flow | €663m | €1,005m | −34.1% |
| Capital expenditure | €392m | €342m | +14.6% |
Cars and spare parts generated €2,456m of revenue (+12.7%); engines €373m (+10.5%); sponsorship, commercial and brand activities €494m (+1.1%). Maserati engine sales contributed approximately €302m. Cost of sales declined to 48.3% of revenue from 50.9%, supporting margin expansion. R&D expense, including amortization, was €657m, or 19.2% of revenue.
Cash and cash equivalents were €648m at year-end, versus €458m. Total debt was €1,806m, down from €1,848m. Net debt was €1,158m; management’s non-GAAP net industrial debt measure, excluding the funded portion of self-liquidating financial receivables, was €473m. Total available liquidity, including an undrawn €500m committed revolving facility, was €1,148m. Free cash flow was €284m, compared with €685m; free cash flow from industrial activities was €328m, compared with €280m.
Total assets were €4,141m and equity €784m, compared with €3,850m and €330m, respectively, at year-end 2016. Basic earnings per share were €2.83, versus €2.11. The company paid a €120m cash distribution from share premium reserves in 2017 (€0.635 per common share).
Material changes versus FY2016
- Revenue growth reflected approximately 360 additional shipments excluding LaFerrari and LaFerrari Aperta, favorable product mix, personalization and pricing. The 812 Superfast and GTC4Lusso supported V12 mix; shipments of V8 range models were broadly level.
- EBIT rose faster than revenue, benefiting from volume, mix and net foreign-exchange effects, including €101m from currency hedging instruments. The filing also cites €57m lower other supporting costs, including the absence of the €37m Takata recall charge recorded in 2016.
- Operating cash flow fell, partly because of higher inventory and income-tax payments and a cash outflow from growth in the U.S. financial-services portfolio. FY2016 cash flow benefited from €432m received in connection with the deconsolidation of FFS GmbH.
- Debt composition changed after Ferrari issued €700m of 0.25% notes due 2021 and used the proceeds primarily to repay the Term Loan. The €500m 1.5% notes due 2023 remained outstanding; the revolving facility was undrawn.
- Equity increased with earnings and share-based compensation, partly offset by the €120m distribution. The Takata recall provision was €35m at year-end 2017.
Outlook, management commentary and risks
- Management’s plan anticipated shipments of more than 9,000 cars annually by 2018. It expected 2018 capital expenditure of approximately €550m, primarily supporting product renewal and the transition toward hybrid technology.
- Ferrari expected R&D spending to continue increasing in 2018, particularly for hybrid-related projects, and amortization of capitalized development costs to rise in future periods. The Ferrari Portofino was expected to begin shipments in the second quarter of 2018.
- Management said cash generation and available liquidity should be sufficient to fund operations and investment. The filing also warns that continued U.S. dollar weakness could adversely affect 2018 revenue and results.
- Key risks include preserving brand exclusivity while growing volumes; volatile luxury demand; model concentration and launch execution; the cost and market acceptance of hybrid technology; emissions and safety regulation; dependence on Maserati engine demand; single-source suppliers and Takata airbag recall costs; production concentration in Maranello and Modena; currency exposure; and the ability to service or refinance debt.
- Ferrari’s Formula 1 team recorded five Grand Prix victories in 2017. Current team agreements cover the 2013–2020 seasons; terms for participation after 2020 were under discussion, creating uncertainty around future F1 economics and brand exposure.
- The filing reports pending legal, tax, safety, emissions, warranty and contractual matters. Ferrari states that outcomes are uncertain; it does not provide a clear aggregate estimate of possible losses beyond recorded provisions.
- Subsequent to year-end, Ferrari announced a share repurchase program of up to €100m and recommended a €0.71-per-share dividend, approximately €134m in total, subject to shareholder approval. These were proposals/announcements after December 31, 2017, not FY2017 distributions.
Important facts for investors to verify
- Reconcile the 2018 shipment and €550m capital-expenditure outlook with subsequent reported results, and assess whether growth maintained pricing and exclusivity.
- Track operating cash conversion and inventory: 2017 operating cash flow fell despite higher profit, while inventory increased to €394m from €324m.
- Review debt maturities, securitization funding and liquidity availability; €556m of year-end debt was securitization-related and tied to financial-services receivables.
- Monitor the €35m Takata provision, recall execution and any additional product-liability or warranty exposure.
- Assess currency sensitivity and hedge coverage, especially U.S. dollar exposure; management noted potential adverse effects from further dollar weakness.
- Confirm approval and completion of the proposed dividend and buyback, and consider dilution from equity awards that vest based on performance and continued service.
- Evaluate related-party dealings, notably Maserati engine sales and director/officer overlaps with FCA and Exor, alongside the company’s stated arm’s-length review process.