Ferrari NV

NYSE:RACE

Earnings Call Analysis

Company Boosts 2023 Guidance on Strong Results

This quarter, the company saw a thriving demand reflected in a 9% year-over-year revenue surge, its fastest growth in two years. Non-GAAP EPS soared by 28%, complementing an adjusted EBITDA margin of 11.5%. The firm's robust operating cash flow at $795 million has prompted an upbeat revision of the full-year guidance, now set above the initial $700 million projection. Consequently, the 2023 financial outlook is optimistic, with revenue forecasted between $15.1 billion and $15.3 billion, adjusted EBITDA margins between 10.5% to 10.7%, non-GAAP diluted EPS ranging from $6.80 to $7.10, and operating cash flow anticipated to be at least $850 million.

Raising the Stakes: Improved Financial Outlook for 2023

Following a robust performance in the third quarter and strong results year-to-date, the company has elevated its financial guidance across all metrics for 2023. Revenues are now expected to fall between $15.1 billion and $15.3 billion, marking an uplift of $150 million at the midpoint compared to previous estimates. The firm's focus on profitability has borne fruit, with a revised adjusted EBITDA projection of 10.5% to 10.7%, rising 40 basis points at the lower end and 20 at the upper end. Furthermore, the non-GAAP diluted earnings per share (EPS) forecast has been improved by $0.40 on the lower spectrum and $0.30 on the higher to settle between $6.80 and $7.10. At the same time, operating cash flow expectations have been boosted by $150 million to a minimum of $850 million for the year, aligning with the year-to-date performance.

Strategic Moves and Supply Chain Advancements

The company remains on track with its key strategic initiatives, including the progress in insourcing activities, a cornerstore of their approach moving forward. Particularly, the Charleston project is slated to come online either late in the first quarter or early in the second quarter of the next year. This advancement, alongside improvements in the supply chain executed over recent quarters, underscores the ongoing focus on bolstering operational efficiencies and laying the foundation for sustained growth.

Innovation at the Forefront to Drive Market Expansion

Despite taking an impairment charge, the management exhibits a bullish stance on the company's long-term growth, fueled by its innovation pipeline. A prime example is their unveiling of two groundbreaking products at a major European trade show, which align with the evolving customer demands for speed and quality in technology. The Pro:Vision 3 people scanner, with advanced wideband AI-based gender-neutral algorithms, ensures enhanced imaging and detection capabilities. In addition, ProSight emerges as a secure and scalable platform that integrates a multitude of screening operations, providing an expansive view of security operations for any airport or lane. These innovations reflect the company's commitment to not only adjust its business propositions for the future but also to aggressively invest in products that promise competitive advantage in both regulated and commercial markets.

Third Quarter Performance and Future Earnings Tendencies

The strong performance in the third quarter reflects a one-time benefit of $14 million in the Health sector, resulting in unusually high margins. After adjusting for this anomaly, the company still showcased robust earnings, supported by the PACT Act's caseload and strong incentive fee performance, although these might experience quarter-to-quarter fluctuations. Conversely, the Defense sector witnessed a slight downturn due to Earned at Completion (EAC) adjustments, which are not expected to recur. Moving into the fourth quarter, the company anticipates a balanced performance similar to the second quarter, with the looming threat of a government shutdown being the wild card that could influence the outcome.

Earnings Call Transcript 2019-Q1

[Operator]

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Ferrari's 2019 First Quarter Results Conference Call. I must advise you, this conference is being recorded today, the 7th of May 2019. I would now like to hand the conference over to your speaker today, Ms. Nicoletta Russo, Head of Investor Relations. Please go ahead.

[Nicoletta Russo, executive]

Thank you, Sarah, and welcome to everyone who's 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 Mr. Camilleri.

[Louis Camilleri, executive]

Good afternoon, and good morning, everyone. As evidenced by our release earlier today, we enjoyed a very strong quarter, which sets us up nicely to achieve our annual guidance that we disclosed earlier this year. Our volume growth was particularly strong, driven primarily by the success of the Ferrari Portofino, consistent with the strong order book we hold. While this quarter reflected a quarterly record in terms of volume, it was somewhat flattered by a previously disclosed acceleration in our shipments to China in anticipation of the new emission regulations that have been implemented in a somewhat inconsistent and uncertain manner by each individual province in China. As we had flagged, our cash flow was exceedingly strong this quarter, reflecting in large part, the EUR 117 million that we received as advance deposits on the orders for the Monza SP1 and SP2. The first deliveries of these cars will take place in the fourth quarter, which will help us to achieve the positive mix we are targeting for the full year. This year, we'll witness the unveiling of 5 new models. The first, the F8 Tributo, was presented at the Geneva Motor Show in March. We are delighted with the reception it has received to date. In fact, orders are very strong and compare favorably to the initial orders we captured on both the 458 and the 488. The second model will be presented at the end of this month, with a world premiere held here in Maranello. As we have stated previously, it will be a top-of-the-line hybrid with supercar performance and a true beauty. We continued to work diligently to refine and finalize our brand diversification strategy. The first step has been to define the categories in which we will participate, conscious of our rather unique dual identity as a racing team and a luxury brand. As part of this step, we've started to exit categories that do not fit with our vision, and it is already visible from our numbers and will continue to be for a while. Our ultimate objective is to grow the business over the long term in a disciplined manner while further enhancing our strong and vigorous brand equity. As I mentioned previously, we will publicly outline our strategy on this specific topic when we present our third quarter results. In terms of Formula 1, the first races clearly did not meet our ambitions, but we remain confident that we have all the necessary assets to be a credible contender to the championship. The season ahead is a long one. We have proven that we have a fast car, and we are actively focused on improving its overall balance and performance. We have the privilege to have 2 great drivers and a great team principal. Very importantly, we have a united, serene, determined and talented team, both on the track and in Maranello, who will give their all to finally fulfill their and our ambitions. On that note, I'll pass it over to Antonio to take you through the details of our results.

[Antonio Piccon, executive]

Thank you, Louis, and good afternoon to everyone. On Page 5, as Louis just said, Q1 '19 saw a solid set of results. Our shipments increased by 482 units versus prior year, strongly supported by the Ferrari Portofino. Group net revenues increased to EUR 940 million, that is by approximately EUR 110 million or above 13%. Adjusted EBITDA reached EUR 311 million, improving by EUR 39 million or more than 14%. EBITDA margin was 33.1%, up 30 basis points versus prior year and fully consistent with our 2019 guidance. Such a result includes a EUR 4 million uplift from the first-time adoption of IFRS 16, the accounting principle on leasing. Adjusted diluted EPS was up 21.8% to EUR 0.95, still benefiting from the Patent Box agreement signed last year. Industrial free cash flow reached EUR 282 million, positively impacted by the collection of the advances on the Monza SP1 and SP2. This led net industrial debt to EUR 192 million as of the end of March, which also reflects the cash impact of the share repurchases executed in Q1 and the one-off increase related to the first-time adoption of IFRS 16. Let's turn to shipments on Page 6. Total shipments for the quarter increased by 22.7% versus prior year, supported by a 30.6% increase in V8 and a 4.1% increase in V12. The V8 performance was led by robust deliveries for the Ferrari Portofino, partially offset by lower volume from the 488 family, with the 488 GTB and Spider approaching the end of their life cycles and the 488 Pista ramping up and the 488 Pista Spider expected to commence shipments in Q2. The 812 Superfast supported V12 deliveries. Growth in shipments occurred across all regions. EMEA grew 9.6%. Americas enjoyed a 26.5% increase. Rest of APAC was up 29.3%, while Mainland China, Hong Kong and Taiwan increased 79.2%. The geographic mix shifted in favor of Mainland China, where deliveries were accelerated in advance of the early implementation of new emission regulation, as we commented. Such an acceleration will imply comparatively lower volumes in H2. Moving to Page 7 on group net revenues. We see how they increased by 11.1% at constant currency. That is a 2018 exchange rate net of hedges. Cars and spare parts revenues were up 18.3% at constant currency, as discussed. The growth reflected higher volumes of the Ferrari Portofino, the 812 Superfast, as well as the ramp-up of the 488 Pista, partially offset by lower sales of LaFerrari Aperta and the 488 GTB as well as the 488 Spider both in phase out. Personalization programs also positively contributed along with delivery of the FXX K EVO. The erosion of the engines revenues was EUR 19 million, down by 23.4% at constant currency in the quarter, reflecting lower shipment to Maserati. Revenues from sponsorship, commercial and brand were decreasing by 1.2% at constant currency due to lower revenues generated by other brand-related activities. Currency, including translation and transaction impact as well as foreign currency hedges, had a positive impact of EUR 17 million, mainly U.S. dollar. On Page 8, you can see the evolution in the main items of the adjusted EBIT. Adjusted EBIT was up 10.7% at current currency to EUR 232 million, with adjusted EBIT margin of 24.7%. At constant currency, adjusted EBIT grew by 4.9%. Volume was positive by EUR 60 million, thanks to shipment increase. Mix and price was negative driven by mix due to the combined impact of lower sales of LaFerrari Aperta that finished its limited series run in 2018, and the strong increase of the Ferrari Portofino. This was partially offset by deliveries of the FXX K EVO, along with personalizations programs. Just as a reminder, as we anticipated during our full year '18 call, we have moved the contribution from personalizations from volume into price/mix due to their intrinsic enrichment nature. Industrial costs and R&D increased mainly due to higher depreciation and amortization of fixed assets while future quarters will face increasing operational start-up costs as we introduce new additional models in our fleet. Other decreased due to lower engine sales to Maserati as well as lower revenues from other brand-related activities. One-timers were in line with prior year. The total net positive impact of currency was EUR 12 million for the quarter, clearly as a net result of more favorable market rate mitigated by the hedges in place. The change in adjusted EBITDA reflect the same considerations in addition to the positive contribution from the adoption of IFRS 16. By the way, a similar impact from new accounting principle can be expected for next quarter, and these have been fully encompassed in our guidance. Moving to Page 9. Industrial free cash flow for the quarter was EUR 282 million, driven by the strong adjusted EBITDA and the positive cash impact from the collection of the advances on the Ferrari Monza SP1 and SP2, EUR 170 million, in Q1 2019. This was partially offset by CapEx spending of EUR 135 million expected to accelerate in the second part of the year to support the pipeline of new projects we are working on. Net industrial debt at the end of March 2019, after EUR 51 million of share repurchases in the first quarter and including EUR 63 million of lease liabilities as per IFRS 16 first-time adoption, reached EUR 192 million. The recently approved dividend distribution is not yet included and will impact Q2 2019 for approximately EUR 193 million. Please note that from this quarter on, the definition of both net industrial debt and industrial free cash flow have been refined to simplify the reading of the company's industrial performance. On Page 10, we confirm the group's guidance for 2019, with net revenues above EUR 3.5 billion with total shipments around 10,000 units. Adjusted EBITDA between EUR 1.2 billion and EUR 1.25 billion driven by positive volume as well as mix. Adjusted EBITDA providing the guidance already includes the impact of IFRS 16 first-time adoption. Adjusted EBIT between EUR 0.85 billion and EUR 0.9 billion. Adjusted diluted EPS between EUR 3.5 and EUR 3.7, including the Patent Box benefit. Roughly EUR 450 million of industrial free cash flow generation and change with the new definition. And as a reminder, the Patent Box will also benefit the cash generation by lowering tax cash out. We did not consider any adjustment for the strengthening of the U.S. dollar. First, because experience tells us not to bet on current strength. Second, because an active hedging policy now in place would anyway mitigate the impact by providing better visibility longer term. However, given the strength of the quarter, should the exchange rate stays at the currently prevailing rate, we should be set up well to approach the high end of the range for both our adjusted EBITDA and adjusted EBIT. With that, I'd like to turn the call over to Nicoletta.

[Nicoletta Russo, executive]

Thank you, Antonio. And we are now ready to start the Q&A session. Please, Sarah.

[Operator]

[Operator Instructions] The first question is from the line of John Murphy from Bank of America.

[John Murphy, analyst]

I'd just like a first question on the timing of product unveils as we go through the course of the year. It sounds like we'll have a new product in the end of the month in addition to the Tributo. It sounds like there's 3 more coming. Just wondering what the timing of those other 3 unveils will be. And then also if we should think about the Tributo and the new product coming at the end of May as combined the replacement for the 488? Or will we see something else -- a replacement of 488? I'm just trying to understand there what that actual replacement will be and when we'll see it.

[Louis Camilleri, executive]

John, the Tributo sort of is a successor of the 488. The model that's coming in 3 weeks' time will be at the high end, and it will have a supercar performance. When I say it's a high end, it will be above the 812 Superfast. So it's not a 488 replacement per se. With regard to the other 3 models, 2 will probably be presented in September, and the last one towards the end of the year. Does that answer your question?

[John Murphy, analyst]

Okay. Yes. If I could kind of follow up on this product that's coming out at the end of this month. It sounds like you're saying it's above the 812 Superfast. But given the performance and maybe the price point, and I'd kind of like to triangulate into that, it sounds like it will be a very attractive product for maybe consumers to trade up into maybe out of the Tributo or whatever the -- or the 488 they previously owned. So I mean how much of that do you think will happen? Because it sounds like this is a sort of maybe one of the first products with a step function improvement in sort of a regular Ferrari, not the supercar or the hyper car. I'm just trying to understand that product position because it sounds like it's pretty important.

[Louis Camilleri, executive]

Well, I would ask you to be patient for 3 weeks and you'll find out a lot more. What I would add is that it will be very consistent with the strategy we outlined back in September, where we won a privilege revenue over volume. So just wait and see what this thing is all about.

[John Murphy, analyst]

Okay. We're looking forward to that. Then just quickly on the cash on the Monza deposits. There's EUR 170 million in the first quarter, but it sounds like there's more to come. How much more is there to come? And how should we think about the timing of that? Because that was a big number.

[Louis Camilleri, executive]

Well, it depends on the precise deliveries we will have in the fourth quarter, but there is a bit more to come. It's not huge. As you know, they're all sold. So the bulk, the real bulk of the deposits we've already received. So that model has performed very well. In fact, we have a lot of orders that can't be matched. The interesting thing is that actually we had a number, quite a few customers, who wanted to buy both. And we actually refused.

[John Murphy, analyst]

Can you translate any of those people into the next Icona vehicle? Can you put them into the wait list for that?

[Louis Camilleri, executive]

We will see.

[John Murphy, analyst]

Okay. Then just lastly on engine, which sounds like it's under pressure just because Maserati volumes are flagging. What is the agreement there with Maserati? And at what point and what capacity utilization would you consider sort of cutting date on that agreement? And can you? And what's sort of the term of that agreement?

[Louis Camilleri, executive]

Well, as you know, we have a contract. And as you know, Maserati has announced that at the end of that contract they will not renew it. So eventually, we will no longer supply engines to Maserati, which, actually, from our perspective, is actually a good thing both from a margin perspective, but also the fact that we can transfer a lot of the labor that's been focused on the engines to the car side of the business.

[Operator]

The next question is from the line of Michael Binetti from Credit Suisse.

[Michael Binetti, analyst]

Just a little bit of housekeeping to kind of understanding the year. I think as we talked about how to look at 2019, you originally told us that first quarter was planned to be the biggest mix headwind quarter of the year, lapping up La Aperta and then also the slowest growth quarter of the year. Is that still the case and just to help us think about the cadence of the year for 2019?

[Louis Camilleri, executive]

Yes. As you know -- as you saw, the first quarter, the mix was negative. Actually, I thought the average price was pretty good given the lapping of the LaFerrari. But as we've said before, the mix will improve as the year unfolds, particularly in the fourth quarter, driven by the Monza. So overall, in the full year, we expect a positive mix.

[Michael Binetti, analyst]

Okay. It seems like the fourth quarter is going to have a pretty -- I mean, will mix be positive by third quarter yet? Or just because of what's falling out the baseline? Or it seems like fourth quarter is going to have a relatively huge mix impact on the year.

[Louis Camilleri, executive]

It's driven predominantly by the fourth quarter, but I think mix improves as the year unfolds.

[Michael Binetti, analyst]

Okay. Could you help us understand a little bit better the shift in China? Is that -- I think you made some comment about 2Q related to China, but can you give back some of that volume in China in the second quarter that reversed? And then I guess, could you help us figure out the size of that impact in the first quarter on revenues and EBITDA and maybe how that -- how the China mix of business impacts corporate margins? Is China still higher than corporate on margin?

[Louis Camilleri, executive]

I think it's important to note that whilst we accelerated shipments, we're not increasing inventories, those deliveries to customers. And in fact, those customers have to register the cars before the implementation of the emissions regulations. They vary by province. In fact, we anticipate that our inventories at the dealer network will be at a record low. Beyond that, I'm not sure I need to say anything on China.

[Operator]

The next question is from the line of Adam Jonas from Morgan Stanley.

[Adam Jonas, analyst]

Louis, so just one, continuing on China. China got up to 13% of unit volume in the quarter. Can you remind us maybe a bit more steady-state, what you think the optimal or perhaps maximum proportion of mix should be derived from China for your company?

[Louis Camilleri, executive]

Well, as we've said, we believe that China is one of our great opportunities for growth. It will take some time. I think with the advent of our hybrid models and with the advent of the Purosangue, we will clearly be in a better position to exploit the opportunities that there are there in China. We're working diligently to strengthen our dealer network with a singular focus on Ferrari. And whilst they will take some time, we are confident that we will do well in China over time.

[Adam Jonas, analyst]

Okay. And since you mentioned the Purosangue, it seems to me at least that your 2022 targets should be achievable without any help from the Purosangue. I say that because I know that in the details of the presentation that there was this -- the launch or ramp could be at the very end of the 2022 horizon. But I just want to make sure the messaging is right that to achieve your 2022 targets, it's -- the Purosangue can help, but it doesn't appear to be make or break based on that model. That models benefits are more beyond 2022. Have I thought about that right, Louis?

[Louis Camilleri, executive]

Well, it's clearly in the numbers. So it, obviously, more than helps. I think it's part of the whole mix in terms of meeting those targets. So I wouldn't venture to say that without it we would absolutely certainly make the target, but I think we're confident that we can make the target, and we can make it with the Purosangue.

[Adam Jonas, analyst]

Okay. And then just finally, Louis, on EVs. Can you tell us how you and the management team are looking at make-or-buy decisions with respect to key battery components, cells, software, pack, in terms of your room to collaborate with partners that have huge scale and a part of the product that maybe the consumer doesn't see? Or does this have to be done within the house of Ferrari as you leverage your Formula 1 expertise in design and thermal and everything else? I just -- I know I'm throwing a lot at you there, but just -- can you give us a sense of what you buy in versus do in-house on those critical components going forward?

[Louis Camilleri, executive]

Well, clearly, we work with our privileged suppliers, but -- and it's something we'll study. But ultimately, I think we're leaning towards make rather than buy to assure a competitive advantage in terms of the battery, the cells, et cetera.

[Operator]

The next question is from the line of Thomas Besson from Kepler Cheuvreux.

[Thomas Besson, analyst]

I have just 2 quick questions, please. Can you talk about the evolution of your industrial organization as you ramp up volumes substantially with the increase of the Portofino? I think 10 years ago, there was a decline in other volumes when the California was ramped up this time around. Everything else is still going fine. So it looks like you're going to cross 10,000 units this year. Can you explain how you manage that within the plant? Are you moving to the 2-shift organization already? Or are you managing to do that with the existing pattern? And then the second question, I would just like you to remind us of the potential consequence for the company if you cross 10,000 units this year in terms of various -- due to constraints or potential cost constraints?

[Louis Camilleri, executive]

Thank you. As we've said, in terms of the assets, whilst we had a few investments that we already disclosed, the main focus has been on the labor force and training it. And as I mentioned earlier, the reduction in the Maserati volumes, the engine volumes, has allowed us to shift some talented employees to the car side. So net-net, we haven't increased dramatically. And clearly, because of the assets we have, we will eventually move to full second shift. With regard to the implications of crossing the 10,000 barrier, initially, the costs associated with that are really frankly not material.

[Operator]

The next question is from the line of Stephen Reitman from Societe Generale.

[Stephen Reitman, analyst]

I have 2 questions, please. The first is on R&D capitalization. The second is on personalization. On R&D capitalization, it was quite notable that you've had a substantial reduction sequentially in your R&D capitalization rate from the sort of 44% level we've seen in the third and the fourth quarters, down to 30%. So I'd say that the quality of your EBIT result was better measured that way. Can we expect a seasonal pattern that there'll be any increase as we go in the -- towards the -- or further into this year that we could see this capitalization ratio increase again?

My second question is about personalization. And the question, to what extent does the personalization rate so align with your product launch cadence? I would suspect that as with your newer products, your ability to demand a higher degree of personalization has a way of securing -- your place in the queue is greater. Is that a factor?

[Louis Camilleri, executive]

Your assumption regarding R&D capitalization is correct. It will increase as the year unfolds. With regard to personalization, we're at about 18% in the first quarter, and we assume that the 18% will probably be the number for the full year. We don't actually give people a higher slot because they've got higher personalization. That's not the way it works.

[Stephen Reitman, analyst]

My understanding was that rather the dealers are quite adept to doing that. And the personalization, you were saying -- you said that, that's now in the way you classify it, you switched it now a little bit. So if you hadn't made that switch, would there be a substantially greater decline in the mix figure that you reported, the mix element?

[Louis Camilleri, executive]

Not really. Because the personalization, in percentage terms, actually was pretty well flat quarter-to-quarter.

[Operator]

The next question is from the line of Philippe Houchois from Jefferies.

[Philippe Houchois, analyst]

I have a few questions. The first one I have is on -- you disclosed this time the share of specials in your total volume. I don't think you did that last year. What was the comparable number for Q1 '18, please? The 18% that you're showing.

[Louis Camilleri, executive]

Good question because we're looking at the number. It was quite high because of the LaFerrari.

[Philippe Houchois, analyst]

Yes. But as an outsider, for me, the measure of mix really is the average revenue per unit, and it's barely down in the first quarter. And I was just wondering, the positive surprise compared to what I was looking for, is it because your transaction price on average on the Portofino was higher than I -- high because of optional equipment? Or was it mostly because of the very high value of the FXX, for example, making up for the lower transaction prices on the Portofino?

[Louis Camilleri, executive]

I think the FXX K certainly helped as well as the 812 Superfast. And I would add to that country mix as well was favorable.

[Antonio Piccon, executive]

Philippe on your first question -- sorry, on your first question. It's Antonio speaking. If you can hear, you can consider about 2% of the total in Q1 '18 special.

[Philippe Houchois, analyst]

2%. Right. Okay. I get the difference there. Right. And then I have one last question, it's kind of a -- just a novice question on Ferrari, but I'm looking at historically, it took Ferrari about 3 years, if I remember, to deliver all the Apertas that were ordered. And I'm just wondering if you sold about 500 Monzas right away, but some of the deliveries will only happen in 4 years or so. And I'm just wondering, how do you choose the sequence of deliveries to customers? And is basically the customer getting a car in year 4 is getting the same car? Or are you constantly improving the Monza? Or will you constantly be improving the Monza? So that is -- I wouldn't say -- it's kind of a bad choice of word, but a fresh product as opposed to a rather old product? I'm just wondering how you manage that. If you can help me understand.

[Louis Camilleri, executive]

I think the premise of your question is it would take 4 years. In fact, it won't take 4 years. By the end of 2021, the Monza SP1 and SP2 will have been delivered.

[Philippe Houchois, analyst]

Right. But will it be technically the same car? Or will it be improved?

[Louis Camilleri, executive]

Yes.

[Philippe Houchois, analyst]

Or it will be technically the same car?

[Louis Camilleri, executive]

Exactly the same car.

[Philippe Houchois, analyst]

And so -- and how do you manage disappointment when your customers to be -- getting a car in year 3 as opposed to getting a car in year 1?

[Louis Camilleri, executive]

Well, that's been somewhat the issue that Ferrari has lived with for years. It's something we're very mindful of in terms of balancing the order book, which I have to admit is incredibly strong at the moment and drives some of the volume that you see. Because we want to ensure that the waiting lists are not too long. The biggest complaint we get come from customers is that the waiting list is too long on certain specific models. And that's a very delicate balance that we try to achieve. So we certainly don't want to increase the waiting list, but we have to retain the exclusivity of our brand as well. And that's the balance we are very mindful of and that we try to ensure that we have right all along as the year unfolds.

[Operator]

The next question is from the line of Martino Ambroggi from Equita.

[Martino De Ambroggi, analyst]

The first question is on the bridge for the EBIT. If I remember correctly, in your full year guidance, you assumed a ForEx neutral for the full year. It was positive EUR 18 million, EUR 17 million in Q1. And presumably, the dollar with help going forward. So am I right in assuming that the guidance could be revised upwards updating the ForEx? The first question. And the second, on the guidance is still -- is on the R&D capitalization. You mentioned that it will grow in the next quarter. But what is the balance between R&D capitalized and amortized for the full year assumed in your guidance?

[Louis Camilleri, executive]

Okay. I mean I don't want to come across as being overly cautious or prudent, but one quarter does not make a year. We're still early in the year. There's still a number of uncertainties on the macro front. Currency is one of them. Trade and tariff disputes appear to have returned to the fore. And Brexit -- the Brexit episode remains unresolved. So as Antonio said, we feel pretty confident we'll approach the high end of our range, and I think I would rather wait till the second quarter to have half a year behind us to give us an opportunity to reassess where we stand for the entire year. But obviously, given the strength of this quarter, we feel pretty good about the year. With regard to the R&D capitalization, I'll pass it on to Antonio.

[Antonio Piccon, executive]

Yes. You should assume not materially different in terms of capitalization rate compared to last year.

[Martino De Ambroggi, analyst]

In terms of balance between capitalized and the amortized? Okay. If I may, one more question on -- more general question on the buyback. In the press release, you mentioned that you continue to buy back shares also in Q2. The EUR 1.5 billion buyback you presented in the business plan, will it go ahead regardless of the market price? So the EUR 1.5 billion is written in stone whatever will happen?

[Louis Camilleri, executive]

That's a safe assumption.

[Operator]

The next question is from the line of Ryan Brinkman from JP Morgan.

[Ryan Brinkman, analyst]

I just wanted to check in. You mentioned the tariffs briefly, but if you could comment on the regulatory environment, how you think that's going to unfold and the potential ability for Ferrari to obtain any exceptions from any tariffs that are imposed?

[Louis Camilleri, executive]

I'm not sure we can get exemptions on tariffs. But clearly, as we move to hybridization relative to combustible engines in certain markets, we do get tax benefits. So we intend to clearly use those opportunities.

[Ryan Brinkman, analyst]

Okay. Great. And then with Ferrari being recognized as the world's strongest brand, it mentions in the slide deck. What is your latest thought with regards to sponsorship, commercial and brand opportunity? In some of the past calls, you've talked about wanting to move slowly and deliberately in order to get that right. Are there any examples during the quarter of opportunities that were right for you or something that you're leaning toward?

[Louis Camilleri, executive]

As I think I mentioned in my earlier remarks, we're in the process of really cleaning up the portfolio. So we're exiting some categories. We've selected some categories that we want to exit but we have contracts and license agreements. So we have to wait for those to expire. And we have selected the categories that we wish to exploit going forward. But I'll tell you a lot more about that when we announce our third quarter, if that's fair.

[Ryan Brinkman, analyst]

Sure thing. And then just lastly, are there any other brands, automobiles or otherwise beyond Maserati that Ferrari would be potentially interested in selling engines to?

[Louis Camilleri, executive]

The answer is a categoric no.

[Operator]

The next question is from the line of Adam Hull from MainFirst.

[Adam Hull, analyst]

Two questions on the free cash flow side. The first question is on Patent Box. Do you expect any benefit on the cash flow in 2020? And do you confirm, is it -- I think EUR 100 million benefit this year and I think you had EUR 120 million last year? And then secondly on the CapEx. Are you saying headwind skewed to H2? I think it was EUR 135 million or so in Q1. Just -- could you give us as a guidance for the full year and a little bit of a feel for what the split there between R&D and the cash PPA is? And then finally, actually, a third question, if I could. Just on the Maserati, on the engine, when does that physically end? When will that be a sort of a 0 for the sales of engines to Maserati?

[Antonio Piccon, executive]

Yes. On your first question, I think, the Patent Box assumption, as of now, we assume the Patent Box benefit according to the low of 5 years ago will land in 2019. So the cash benefit will be this year and the following one as a result. The second question in respect of CapEx, I think, when we had the full year call, we said the guidance for the year is a total CapEx of EUR 750 million. And in terms of ratio of R&D to total CapEx, you should see an increase compared to the previous year.

[Adam Hull, analyst]

Just within that, sorry, and the EUR 750 million just -- the R&D out of that EUR 750 million, and how much will be cash PP&E -- CapEx PP&E, CapEx?

[Antonio Piccon, executive]

Correct. Out of EUR 750 million, we are assuming close to $400 million of R&D and the rest be PP&E.

[Adam Hull, analyst]

Okay. Great. And just on that Patent Box. Sorry. Is there no cash flow benefit in 2020? Sorry. It just wasn't clear. Because at the end you said that cash flow is...

[Antonio Piccon, executive]

No. No, I'm sorry. Yes. The cash -- the last year of application of the Patent Box is 2019, according to the current legislation. And before the cash benefit, last year of cash flow benefit is 2020.

[Adam Hull, analyst]

So you said, I think, EUR 100 million cash benefit this year. So what would you think, as it stands, the cash benefit running rough to 2020 might be...

[Antonio Piccon, executive]

No. No, I'm not commenting on the size of the benefit. I'm just telling you, the last year when we record the benefit according to the current legislation is in 2020. I think in terms of the dimension of this benefit, we haven't been public yet.

[Louis Camilleri, executive]

But it's not close to EUR 100 million.

[Antonio Piccon, executive]

Yes.

[Adam Hull, analyst]

And then the Maserati, the timing of when that engine's health go to 0?

[Louis Camilleri, executive]

Well, we supply various engines, so it's very difficult to answer that question as to when it's actually going to 0. But certainly, I would say by 2021, 2022.

[Operator]

The next question is from the line of Giulio Pescatore from HSBC.

[Giulio Pescatore, analyst]

The first one is on market mix. You mentioned you had a positive impact in the first quarter. I was wondering if you could give us some help in understanding the magnitude of this positive impact?

[Louis Camilleri, executive]

Well, predominantly, the U.S. and China are driving the market mix.

[Giulio Pescatore, analyst]

But in terms of help on the actual mix number in the bridge, could you give us a sense of how big the benefit is?

[Louis Camilleri, executive]

No. I wouldn't want to go there.

[Giulio Pescatore, analyst]

Okay. Just a second question on volume. Could we see volume growth turning negative by the end of the year as you ramp up models such as the Monza, which have a strong impact on mix.

[Louis Camilleri, executive]

No. I don't think the volume is going to turn negative. In fact, I know it won't turn negative.

[Giulio Pescatore, analyst]

Okay. Just maybe one last one. You mentioned that in the Capital Markets Day, that you started investing in a new HMI system. When will we see the first fruit of this investment? Will we have to wait until the Purosangue gets unveiled or can we see something earlier on?

[Louis Camilleri, executive]

You will see something in 3 weeks' time.

[Operator]

Thank you. I'd now like to hand the conference back to Nicoletta.

[Nicoletta Russo, executive]

Thank you, everyone, for joining us today. For any follow-up question you may have, a few minutes the IR team will be available. Have a lovely day. Bye-bye.

[Operator]

Thank you. That does conclude the conference for today. Thank you for participating, and you may now disconnect.