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Edited Transcript of RACE earnings conference call or presentation 2-Aug-19 1:00pm GMT

Q2 2019 Ferrari NV Earnings Call

Sep 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Ferrari NV earnings conference call or presentation Friday, August 2, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Antonio Picca Piccon

Ferrari N.V. - CFO

* Louis C. Camilleri

Ferrari N.V. - CEO & Executive Director

* Nicoletta Russo

Ferrari N.V. - Head of IR

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Conference Call Participants

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* Adam Michael Jonas

Morgan Stanley, Research Division - MD

* George Anthony Galliers-Pratt

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Giulio Arualdo Pescatore

HSBC, Research Division - Analyst

* John Joseph Murphy

BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst

* Martino De Ambroggi

Equita SIM S.p.A., Research Division - Analyst

* Michael Charles Binetti

Crédit Suisse AG, Research Division - Research Analyst

* Philippe Jean Houchois

Jefferies LLC, Research Division - Equity Analyst

* Ryan J. Brinkman

JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst

* Stephen Michael Reitman

Societe Generale Cross Asset Research - Equity Analyst

* Susy Tibaldi

UBS Investment Bank, Research Division - Associate Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Ferrari 2019 Second Quarter Results Conference Call. I must advise you that this conference is being recorded today, Friday, the 2nd of August 2019.

And now, I would like to hand the conference over to your speaker today, Ms. Nicoletta Russo, Head of Investor Relations. Please go ahead.

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Nicoletta Russo, Ferrari N.V. - Head of IR [2]

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Thank you, Priscilla, and welcome to everyone who is joining us. Today's call will be hosted by the group CEO, Louis Camilleri and group CFO, Antonio 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.

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [3]

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Thank you, Nicoletta. Good afternoon and morning, everyone. We delivered strong results in the second quarter, confirming our sustained growth momentum across all metrics. Indeed, our core car revenue growth was up 14.3%, generating an increase in our earnings per share of 13.9%. Our free cash flow was again remarkable following the robust first quarter performance. As highlighted in our release earlier today, we are now sufficiently confident to confirm our guidance at current exchange rates to the top of our range on all metrics, and furthermore are increasing our cash flow target to more than EUR 550 million. This confidence rests on the momentum that we enjoy and our order book that has reached record levels in both absolute and relative terms.

As you are all aware, we unveiled 2 new models so far this year: the F8 Tributo, which celebrates our multiple award-winning V8 turbo engine and the SF90 Stradale, our first top-of-the-range series production hybrid, which in turn salutes the 90th anniversary of the foundation of the Scuderia Ferrari. Both models have garnered worldwide acclaim for their design and performance.

Orders for the F8 Tributo are exceeding our expectations and, as mentioned during our last earnings call, are ahead of both the 458 and 488 for the respective corresponding period since their launch.

The SF90 Stradale opens a new era for us on multiple fronts. I could wax lyrical on all its features and engineering complexity for a while, but in the interest of time, I will focus on the essentials. Its performance metrics are truly remarkable. It contains a multitude of world premiere engineering marvels, 15 to be precise. It reflects a leap forward in our HMI offerings. And on that point, it alone contains more than 100 million lines of coding, more software than an Airbus A350. It proves that a hybrid Ferrari retains the DNA of a true Ferrari, and very importantly, especially for those on this call, generates a margin that is above that of the 812 Superfast.

Not surprisingly, its order book is being filled at a very fast clip, and we are optimistic that orders will accelerate in the months to come. Next month, we will host a 2-week event here at the Fiorano Track, the Universo Ferrari. We plan to unveil 2 new models as we have flagged at our Capital Markets Day last September. Several thousand existing clients and key prospects have been invited to attend this exciting event that will showcase all that Ferrari stands for. And a further new model will be launched before the end of the year.

One final word before I hand over the call to Antonio. The second quarter was also marked by an increase in our dividend of 45%, the finalization of the first tranche of our share repurchase program and the announcement of a second tranche to be executed within the July to December period in keeping with our strategy to reward shareholders and enhance shareholder value.

We also just finalized 2 transactions that together improve and extend our debt maturity profile at attractive rates. Finally, we continue to enhance our infrastructure and resources with judicious investments and expenditures to retain our competitive edge for the longer term.

Antonio will now take you through the details of our second quarter performance. Antonio?

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Antonio Picca Piccon, Ferrari N.V. - CFO [4]

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Thank you, Louis, and good morning or afternoon to everyone. Starting on Page 5, as Louis highlighted, Q2 2019 posted a solid set of results with revenues and operating profitability up more than 8%. EBITDA and EBIT margins showed marginal improvement in Q2. And as previously announced, we'll see a significant step up in Q4 with the first deliveries of the Monza. I should point out that in Q3, we will continue to grow in absolute values versus 2018, but margins will suffer slightly in comparison with the high-level achieved in Q3 last year.

Our shipments increased by 208 units versus prior year, supported by the Ferrari Portofino and the 812 Superfast. Group net revenues grew 8.6% to EUR 984 million. Adjusted EBITDA increased to EUR 314 million, improving by EUR 24 million or 8.7%. EBITDA margin was 32%, up 10 basis points versus prior year. Such a result includes a EUR 5 million uplift from the adoption of IFRS 16. Adjusted diluted EPS was up 13.9% to EUR 0.96, still benefiting from the Patent Box agreement signed last year. Industrial free cash flow reached EUR 139 million, positively impacted by the Patent Box benefit as well as by the receivable collection of initial advances on the Monza SP1 and SP2.

The industrial free cash flow for the quarter, together with the EUR 150 million cash impact of the share repurchases executed in the first half of 2019 and the dividend distribution of EUR 195 million, led net industrial debt to EUR 353 million as of the end of June.

Turning to Page 6. Total shipments for the quarter increased by 8.4% versus prior year, supported by a 12.3% increase in V8, while V12 models decreased by a few units. The performance was mainly led by robust deliveries of the Ferrari Portofino as well as the 812 Superfast. This was partially offset by lower volume from the 488 family, with the 488 GTB and the 488 Spider approaching the end of their life cycles, while the 488 Pista was ramping up and we commenced delivering the 488 Pista Spider during the quarter.

We had the following performance by region: EMEA grew 11.4%, rest of APAC was up 5.8%, while Mainland China, Hong Kong and Taiwan increased by 63.3%. Americas was down 5.5%. The geographic mix shifted in favor of Mainland China as a result of the decision to accelerate client deliveries in advance of the early introduction of new emissions regulation as was the case in Q1. On the other hand, the U.S. saw lower shipments reflecting the previously mentioned model phase-in/phase-out within the 488 family.

Moving to Page 7, on group net revenues, we see how they increased by 6.8% at constant currency, that is at 2018 exchange rates net of hedges. Cars and spare parts revenues were up 12.4% at constant currency. As discussed, the growth reflected the already commented higher volumes for the 488 Pista and the 488 Pista Spider, the Ferrari Portofino and the 812 Superfast, partially offset by the prior year shipments of LaFerrari Aperta as well as lower sales of the 488 GTB and the 488 Spider. Revenues growth was also supported by a strong positive contribution from personalization programs along with deliveries of the FXX K EVO. Engines revenues decreased by EUR 27 million, down by 34.8% at constant currency in the quarter, reflecting significantly lower shipment to Maserati.

Revenues from sponsorship, commercial and brand were up EUR 2 million or up 2.1% at constant currency. Thanks to higher revenues generated by Formula 1 racing activities.

Currency, including translation and transactions 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 10.1% at current currency to EUR 239 million with adjusted EBIT margin of 24.3%. At constant currency, adjusted EBIT grew by 4.1%.

Volume was positive by EUR 27 million, thanks to shipment increase.

Mix/price was rather neutral in the quarter consistent with our initial expectation for a negative to neutral contribution year-to-date until the end of Q3. And this was attributable to the combined impact of the already mentioned improved personalization rate and deliveries of the FXX K EVO, which offset the otherwise negative product mix.

Industrial costs and R&D increased by EUR 16 million, mainly due to higher operational start-up costs due to the introduction of new models in our fleet as well as higher spending in Formula 1 racing activities.

SG&A increased by EUR 6 million to support the Company's growth.

The total net positive impact of Currency was EUR 14 million for the quarter, as the net result of more favorable market rates, partially mitigated by the hedges in place.

Moving to Page 9. Industrial free cash flow for the quarter was EUR 139 million, driven by the adjusted EBITDA growth, the positive cash impact generated by the Patent Box benefit and the residual collection of initial advances on the Ferrari Monza SP1 and SP2, which more than offset a slightly negative change in working capital.

We are accelerating our investment through the year in line with our guidance, with capital expenditure for the quarter reaching EUR 173 million.

Net industrial debt as of the end of June was EUR 353 million versus EUR 192 million as of the end of March. The increase was due to the cash impact of the EUR 195 million dividend distribution and of the EUR 99 million of share repurchases executed in the second quarter of 2019, which more than offset the positive industrial free cash flow. Lease liability as per IFRS 16 were little changed totaling EUR 63 million as of the end of the quarter.

Turning to page 10. As Louis highlighted before, we confirm our 2019 guidance approaching the high end of the range on all metrics and at currently prevailing exchange rates. Thanks to the accelerated pace of collection of the initial advances of the Ferrari Monza SP1 and SP2, the industrial free cash flow generation for 2019 is now expected to exceed EUR 550 million with an unchanged capital expenditure profile of approximately EUR 750 million skewed to the last part of the year.

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

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Nicoletta Russo, Ferrari N.V. - Head of IR [5]

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from the line of John Murphy from Bank of America.

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John Joseph Murphy, BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst [2]

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The first question that I have is, as we think about mix, Louis, it seems like that nadir on that is sometimes right towards the end of the third quarter and the beginning of the fourth quarter as the Monza starts to hit as far as shipments. But then as we think about a little bit beyond that and think about 2020, you're also going to be getting the benefit of the F8 and SF90 orders coming through as far as shipments kind of as you highlighted, those are record numbers relative to past vehicles. So as we think about this nadir at the end of the third quarter being your fourth quarter for mix, we're also going to get sort of the benefit from volume next year. So I am just curious if there's anything wrong in sort of that thought process? And if we think about a 12-month run on the Monza being about 200 Monzas, it seems like we're going to get volume growth plus those 200 Monzas next year. So you should get at that nadir a really good pick up in mix. Is that -- is there anything wrong with that logic?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [3]

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Nothing. It's a perfect logic. That's exactly what we are shooting for in 2020. I mean, clearly you get the Monzas and you get the SF90 kicking in for a big chunk of the year. So obviously that will have a significant impact on margins. So we do foresee an increase in margins in 2020, driven by essentially those 2 models.

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John Joseph Murphy, BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst [4]

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And if we were to think about the Monzas, they would be worth in the ballpark on economics about 3 to 4 of your "average vehicles." Is that a fair way to think about the economics or is there something on the cost side there where the margins might be slightly lower?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [5]

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I don't want to get into that, John. Again, it depends what you are comparing it to, if you're comparing it to the SF90 or the Portofino. But clearly, it is a very lucrative product with very high margins.

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John Joseph Murphy, BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst [6]

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And then a second question. If we think about mix and personalization -- sorry, the FXX K, I should say and personalization in the quarter, there were 2 levers that you seem to pull or maybe push to offset what was negative mix, and mix and price ended up being positive 5. I am just curious, how much if you could sort of delineate those 2 relative to what was an underlying negative mix, absent those? And what kind of other levers that you have to pull over time with maybe more FXX Ks or maybe other specials because it seems like you have this unique ability with products in a very rational way to offset these periods of slight negative mix, which is pretty impressive. If you can maybe delineate the numbers there? And what are the levers you may have to pull?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [7]

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Well, clearly, that's the beauty of this company of having several levers to play with. In the second quarter, personalization played a key role. We had anticipated an adverse mix and a turnaround positive because of that. I think going forward, it's model mix, it's the impact of personalization. It's what happens with regard to Maserati as well because clearly Maserati has lower margins. And obviously, pricing, as we've done with the SF90, which clearly has attractive price from our perspective, and in terms of personalization, as you know, the launch we did offer up the Assetto Fiorano, which is a version, a faster version of the SF90. And so far in terms of the orders, the magnitude of that mix is quite favorable. So that all goes also well for the future. The issue will be our ability to keep up with the amount in terms of the complexity of the manufacturing.

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John Joseph Murphy, BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst [8]

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Okay. Then maybe lastly just on the product side. Can you confirm that as the Monza runs out sometime in mid-2022, there will be another Icona that backfills reasonably quickly? And then also maybe just give us an idea of these 2 new products that are going to be introed at your 2-week event? How they will be positioned in the portfolio? Will they be V8, V12, how will they be positioned in the portfolio?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [9]

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Well, clearly, in terms of the Icona, that's the plan that there would be one following the Monza. So you're correct in that assumption. With regard to the 2 new models that will be presented in a month or so, I would ask you to be patient.

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Operator [10]

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And the next question comes from the line of Giulio Pescatore from HSBC.

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Giulio Arualdo Pescatore, HSBC, Research Division - Analyst [11]

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The first one, on the guidance for 2019, can you share with us what's the thought process behind the decision not to raise the guidance, also given both, a very strong demand that you are currently experiencing for your products and the positive FX that helped you in the first half of the year and should help you in the second half as well?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [12]

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I can certainly try, Giulio. First of all, I think you have to understand that in the second half, there is the end of the lifecycle of certain models, particularly the 488 GTB and the 488 Spider, and clearly we're seeing towards the end of the GTC4Lusso and GTC4Lusso T. So that's something you need to take account of. In terms of currency, as things stand today, we are probably going to get less of a favorable impact than we did in the first half. I think also one should recognize, as we had flagged in the first quarter and you saw in the second quarter, that the first half was somewhat flatted by volumes in China in anticipation of the regulatory issues and, I would say, even the trade issues and it would seem to me that it was a prudent move on our path.

Finally, we are in the second half increasing our investments for the future as well as the expenditures related to the 3 new models. We have 3 new models in the second half. We had 2 in the first half. And we are increasing our expenditures in Formula 1. Again, that was flagged at the beginning of the year because you can appreciate that with the new regulatory and technical features of the 2021 car, which is completely different to the '19 and '20 cars, we're going to have to start investing there. But ultimately, despite all those, I think, valid points, the most important of them all is that we are managing our waiting lists in a very judicious and very careful manner to ensure that we will retain our pricing power for the long term and that's very, very important.

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Giulio Arualdo Pescatore, HSBC, Research Division - Analyst [13]

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That's super helpful. Second one, a bit of a different kind. Can you share with us maybe the first reactions of customers sitting behind the wheel of a car that doesn't make any noise first time in history for Ferrari? And what those reactions give you as a feedback in terms of launching a full electric Ferrari EV?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [14]

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Well, the very, very few that have tried it, because not many have, actually were very impressed and the quote is that, I mean, somewhat farcical, but essentially the feedback was, "Ah! Finally, I don't have to wake up the neighborhood when I leave in the morning, and I can just gently drive away and then put the blasts on." So I think from a neighborly love perspective, it's viewed as a positive. I think driving within the city is also viewed as a positive. So, so far the reaction has been very positive. But as I say, it's really a handful of people.

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Giulio Arualdo Pescatore, HSBC, Research Division - Analyst [15]

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Okay. And last one maybe on Patent Box. It looks like there is a very high likelihood that the Patent Box regime in Italy will be extended beyond 2019. Can you maybe share some color on that? And how much do you think you can benefit from that from an EPS and free cash flow perspective?

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Antonio Picca Piccon, Ferrari N.V. - CFO [16]

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Yes, thanks, Giulio. Antonio Speaking. Yes, we filed our request for starting our discussion with tax administration and it is where we are basically.

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Operator [17]

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And the next question comes from the line of Adam Jonas from Morgan Stanley.

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Adam Michael Jonas, Morgan Stanley, Research Division - MD [18]

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Louis, kind of a high-level strategic one for you. It's been a sensational run for Ferrari since the IPO both fundamentally and for the stock. Your market value is, on my math, bigger than Ford's if you strip out the finco, substantially bigger. Some companies when they see their currency and their fortunes rise so much can be tempted into a big M&A deal or do something with that currency for a transformational acquisition. I just want to confirm that, I want you to confirm to shareholders today that you do not see that type of thing on the agenda for Ferrari and that you remain maniacally focused on exploiting exciting new products and brand extension opportunities organically?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [19]

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You are totally correct. Maniacally focused, I like that. That's exactly what we are. And it would make no sense to acquire anything. I hope that answers your question?

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Adam Michael Jonas, Morgan Stanley, Research Division - MD [20]

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That's not surprised -- it does, and it's not a surprise, but I just try to nip in the bud even the slightest tail risk of something that we've seen some other companies do over when confronted with such great success. Thank you, Louis.

And just a follow-up, back to the longer-term BEV journey, when do we start to hear more about Ferrari's pure electric strategy? At what point, obviously we're not going to give details, you're not going to give details today, otherwise you would have done so, we're not holding our breath. But I was wondering if that's something that we need to wait until the end of the 2022 plan or rather perhaps your upcoming capital markets engagements or Capital Markets Day, which I don't believe you gave a date for, whether that would be too early to discuss the no-tailpipe Ferrari?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [21]

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I would say it's beyond the '22 year. We're obviously looking at it very, very carefully. The key in terms of fully electric models is to ensure that we're going to retain our competitive edge and be able to differentiate ourselves just the way we have with the combustible engine. So let me assure you that there is a lot of resources behind that. We feel that some of the predictions on the advent of electric cars are somewhat ambitious. I think it will take longer in terms of ensuring appropriate autonomy, appropriate speed of recharging as well as to ensure that the appropriate infrastructure is in place to be able to do all that. So our sense is actually it's going to take longer than most people think. But we are focused and very much focused on what can we add to make an electric car a true Ferrari and have the elements that are important to us, which is not just straight-line performance, but fun to drive, lateral performance and all those things. I don't know if I answered your question.

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Adam Michael Jonas, Morgan Stanley, Research Division - MD [22]

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You did. And I love the comment you made about spreading neighborhood love. That's a very beautiful statement. It's going to stay with me all weekend.

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Operator [23]

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And the next question comes from the line of Martino Ambroggi with Equita.

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Martino De Ambroggi, Equita SIM S.p.A., Research Division - Analyst [24]

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The first question is on volumes. For the current year, you should achieve 10,000 units, so meaning the second half is flat. I just look for a confirmation of that?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [25]

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Yes. We said at the beginning of the year that the volume would be around 10,000 and nothing has changed in that regard.

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Martino De Ambroggi, Equita SIM S.p.A., Research Division - Analyst [26]

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Okay. And looking at next year, should we expect that since, as you mentioned, the mix would be stronger next year, you can eventually project flattish or even declining volumes in order to avoid to pay the penalties because passing the threshold of the 10,000 units, okay, maybe it's not a big issue for you, but you will pay some penalties losing the small vehicle producer status. And also putting together your diligent way of managing the volumes that you reminded before.

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [27]

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I am not going to give you a volume number for 2020. You'll have to wait for next year. But clearly, as you said, we are very careful as to what that volume number will be. Mix will clearly be very favorable. I would say that I wouldn't make a big deal out of losing the 10,000 small manufacturer exemptions. Honestly, it's not a number that you should be concerned about.

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Martino De Ambroggi, Equita SIM S.p.A., Research Division - Analyst [28]

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Okay. And on the free cash flow that you moved up, just to understand the bridge because the Patent Box was already expected, and also the downpayment for the Monza was already expected, so what's the bridge leading to the EUR 550-plus million? And on the downpayment, maybe a follow-up later.

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [29]

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Yes. I mean, I have to admit, when we first put our cash flow together, we were somewhat conservative both with regard to the amount and speed at which we would receive the deposits on the Monza, which has been sold out, and we were just a bit too conservative and it sold out much faster than we had anticipated. And therefore, the deposits came in faster than anticipated. It's as simple as that.

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Martino De Ambroggi, Equita SIM S.p.A., Research Division - Analyst [30]

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Okay. And rough number is EUR 220 million, EUR 250 million, the total amount of the downpayment for the current year?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [31]

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It's higher than that. It's higher.

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Martino De Ambroggi, Equita SIM S.p.A., Research Division - Analyst [32]

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Okay. Okay. And next year, the amount of downpayment will be down or similar? Or you already have the downpayment for the new Icona product that you mentioned to be presented next year?

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Antonio Picca Piccon, Ferrari N.V. - CFO [33]

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It's Antonio speaking, Martino. Next year we'll have the benefit. We keep on having the benefit of only the Monza, so not yet of the future model. And as I already said during the call for Q1, the cash in from the scheme of payment will be in the region of some few tens per quarter .

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Operator [34]

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And the next question comes from the line of Michael Binetti from Crédit Suisse.

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Michael Charles Binetti, Crédit Suisse AG, Research Division - Research Analyst [35]

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Louis, I just want to ask the guidance question quickly, a little bit differently. But I think, as I was looking back last call, you said you're confident in high end of the range tunes. You said like, "Let's wait until we get half the year behind us to address the guidance." You didn't move it up today. You pointed to a few things on FX. But I was also a little confused on what you're saying with increasing some of the investments around the other cars in the second half of the year, makes it sound like you increased the investment, but you haven't yet addressed increasing the revenues, which it seems a little counterintuitive to me because you've spoken so positively about the orders of indication -- or the indications of orders, sorry, for the Stradale and Tributo. Would you might help me clarify that a little bit?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [36]

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Yes. I am not quite sure where you're going. Let me just add one more thing. Brexit is coming up and nobody quite knows whether it will be a hard Brexit or some sort of deal will come up. Personally, I am less worried about the tariffs because of various things that can be done on that front. But I am more worried about what's happening to sterling. So that remains a bit of a watch out. But having said that, I am not quite sure I fully understood your question.

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Michael Charles Binetti, Crédit Suisse AG, Research Division - Research Analyst [37]

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The way that you characterized the investments for the 3 cars coming up in the back half sounded like you added some incremental investment to drive those cars, but you didn't take the revenue outlook for the year. So I was just curious was that truly incremental or was it always in the plan, I just wanted to clarify that?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [38]

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Okay. No, it was always in the plan. I was just trying to compare the first half to the second half because clearly everybody is pushing us to increase the number, and that means increasing the second half. And I am worried to do that at this stage.

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Michael Charles Binetti, Crédit Suisse AG, Research Division - Research Analyst [39]

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Okay. And let me ask you a little bit -- go ahead, do you have something else or. Can I ask you about the new cars as we look into the second half, a little bit differently? Again you've spoken to us a lot about the early indications being very strong on the sportscars you've launched this year. I know you don't want to get into a lot of detail ahead of the event in few weeks, but as you look at the back half, a little more color on what you're focused on within the portfolio with these launches? I think there's -- I think you've been talking about pulling forward the GT side of the house a little bit in the back half. Maybe what gives you confidence or concerns about the new cars as you look at the ones that we don't know about yet without giving us too much detail on what they will be?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [40]

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Well, I think you should take confidence on what we said at the Capital Markets Day, and we're executing against that, which is we will privilege revenue over volume. So that should give you a sense of what we're going to do with these new models going forward. And I think the SF90 is a perfect example of that, which is really opening up a new price segment within our range cars.

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Operator [41]

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And the next question comes from the line of Susy Tibaldi from UBS.

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Susy Tibaldi, UBS Investment Bank, Research Division - Associate Analyst [42]

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So first one, I wanted to ask, given the weight of the Monza on the revenues and profitability, I was wondering if you could give some indication on the number of Monzas that you plan to deliver in Q4? Is it correct to assume that it would be just few units, let's say, maybe 40, 50? Then secondly, on the personalization, as you already mentioned, it had a very strong contribution in this quarter. So I was wondering if it's higher than it was in Q1 at 18% of cars and spare parts or if it was higher than that or if you can quantify, it would be great. And then just quickly on the engines, can we assume that the Q2 performance is sort of representative also for the rest of the year, so probably we'll not see an improvement?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [43]

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In terms of the Monza in the fourth quarter, I'm not going to give you a number, but you weren't far off with your projection. In terms of personalization, yes, we had a strong second quarter, but essentially the percentage was about the same. It's just that there's mix within personalization, so it's a bit complex, but that's what made it positive. And in terms of the engines, I fear that, yes, they will continue to decrease as we've witnessed in the first half. That's certainly the impression we get from the orders currently received from Maserati.

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Operator [44]

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And the next question comes from the line of George Galliers from Goldman Sachs.

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George Anthony Galliers-Pratt, Goldman Sachs Group Inc., Research Division - Equity Analyst [45]

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Just firstly, looking at the percentage of specials that you sold in the quarter, it looks like Pista is at a run rate around sort of 750 to 800 units during the quarter, if my math is correct, which when I look back historically would equate to around sort of 60% of the number of V8 sports cars you have sold in prior years. Are we at sort of a peak run rate for Pista or could you actually produce more? That would be the first question.

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [46]

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I would say that, as we said in the U.S., it's still ramp up. So we haven't reached the peak yet because the U.S. is being ramped up. But we're close to the peak, I would say.

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George Anthony Galliers-Pratt, Goldman Sachs Group Inc., Research Division - Equity Analyst [47]

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Okay. And then as a second question, just when you look at sell-side estimates, they're clearly somewhere ahead of your target. And as we saw with the initial reaction of the share price today, despite the fact you put up a very strong quarter, you reiterated your guidance, actually, you said you'd be up at the top end and up the free cash flow guidance. As the stock price reaction was surprising, are you comfortable with where sort of sell side expectations are, would you not really pay too much attention to them?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [48]

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I would not want to upset anybody. I think we're very focused on doing the right thing for the business for the longer term. This is not about making a specific number in any given quarter or any given year. It's to ensure that we manage this in a very judicious manner that will never hurt our pricing power or our ability to attract the right kind of clients. I think there are examples out there of people who have wandered away from that strategy and it hasn't worked.

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George Anthony Galliers-Pratt, Goldman Sachs Group Inc., Research Division - Equity Analyst [49]

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Well, look, I hope everyone has a good summer, and I look forward to seeing a few more Ferrari podiums in F1.

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Operator [50]

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And the next question comes from the line of Ryan Brinkman from JPMorgan.

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Ryan J. Brinkman, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [51]

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Maybe first on contribution margin from higher volume. So if I divide that EUR 27 million year-over-year improvement in EBIT due to volume by that EUR 83 million year-over-year improvement in revenue from cars and spare parts, that 32.5% contribution margin seems a little bit less than in some prior periods, such as 55% in 1Q, for example. Can you talk about the reason for that different conversion level? And maybe provide any color on how investors should think about the conversion of revenue from volume into EBIT in the remaining quarters of the year, particularly perhaps in 4Q as the Monza launches?

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Antonio Picca Piccon, Ferrari N.V. - CFO [52]

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I think it basically depends on the units we sell. It's just that. Nothing more. I think we described what kind of vehicles we sold during the quarter and the volume impact comes out, out of that. As simple as that.

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Ryan J. Brinkman, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [53]

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Okay. And then just finally from me, I thought to ask on China, I mean, clearly, you've had a very big increase in sales there this year, including on timing ahead of China 6. There's no evidence from what we can see of any slowing demand for your vehicles in the market. I know that tracks very differently than the mainstream vehicles. But just curious what you are seeing there in terms of your order book? What you can disclose in terms of consumer confidence, et cetera, given a lot of the headlines that we see?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [54]

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Well, the business is quite strong. I mean, in terms of our shipments to China, they've been somewhat flatted because we have decreased the waiting list for the reasons I explained earlier. So my sense is coming into the second half, there will be a slowdown. The key to China will be the Purosangue, which we're working on actively. And I think the advent of the Purosangue will finally give us a product that we can really penetrate China in a much better way. Having said that, the SF90, I think, will be an attractive model for China next year because of its hybrid feature, we will get a significant tax benefit. So we will have a bit more pricing flexibility in terms of the SF90, and I am hoping that it will be a successful entry into China.

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Operator [55]

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And the next question comes from the line of Philippe Houchois from Jefferies.

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Philippe Jean Houchois, Jefferies LLC, Research Division - Equity Analyst [56]

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I have a few questions. The first one is on F1. I think you mentioned that Q3 margins might be a bit weaker compared to last year. But Q3 is the period normally when you reverse some of the provisions that you've taken on F1 and unfortunately, you might be able to take some of those provisions back. So unless you have answered that already, and I didn't quite catch that, is that going to be part of Q3 movement in provision?

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Antonio Picca Piccon, Ferrari N.V. - CFO [57]

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Philippe, the comment was just about the spending for that. And year-over-year, if it happened that we will reverse because of how Formula 1 championship goes, would not be a material difference.

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Philippe Jean Houchois, Jefferies LLC, Research Division - Equity Analyst [58]

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Not be. Okay. Now a different topic. In a recent release Porsche, the car business, not the holding, mentioned that they are seeing an improvement in the demand for 2-door sportscars in China, which has always been kind of the weak part of the sports car market that the Chinese consumers weren't too keen on those cars. Is that something you see as well or is it just an isolated comment from Porsche?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [59]

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Well, I think we're seeing it too, probably not to the extent that Porsche does because they're in a different price segment. But certainly, we have big hopes for the SF90. So yes, clearly, whilst the whole Chinese market is down quite significantly, the luxury segment appears not to have been really hurt.

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Philippe Jean Houchois, Jefferies LLC, Research Division - Equity Analyst [60]

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Okay. And then my last question, if I can, is, I remember discussions with your predecessor years ago about external growth, other brands, et cetera, and a comment that stayed with me was the fact he thought that Ferrari had looked at other brands in luxury or sports arena, which Ferrari was convinced they could do a much better job of running. So I don't want to use any name specifically, but would you be really averse to looking at being involved in another brand externally or internally and not necessarily having control of the brand, but something that you could do so much instead of in the past something you could be better at running. Any views on this?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [61]

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Yes. I have a strong view, which is no. We have sufficient stuff on our plate, and I think focus is the name of the game here. And I think from a shareholder value perspective, focusing on our own business and growing it is the best option.

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Philippe Jean Houchois, Jefferies LLC, Research Division - Equity Analyst [62]

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Okay. If I can squeeze a last one. Having said that, if I look at your product portfolio, you outperformed quite a lot in the sports cars. You underperformed if you allow me to say that, on the GT road cars. And I know you're going to address that in the next few years. But I'm just wondering is it fundamentally different to sell a GT compared to a sports car, maybe sports car is priced with horsepower and the GT has a different way of pricing it. Is there a different value proposition? Is there a particular challenge that I am not aware of to actually rebalance the portfolio towards maybe a bigger share, relative share of GT versus sports cars?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [63]

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I think they obviously need to have different features, and we're working on that. You're right, sportscars is clearly our strength. But I have every confidence that we can come out with Ferrari GT, you said, are more versatile, more comfortable, less intimidating, which will enhance our ability to sell to new prospects.

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Operator [64]

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And the last question comes from the line of Stephen Reitman from Societe Generale.

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Stephen Michael Reitman, Societe Generale Cross Asset Research - Equity Analyst [65]

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I have 2 questions. The improvement, the help you got in the second quarter from the FXX K EVO, is this an ongoing in the next quarter as well? I mean, how many have you still got to deliver over this program? And the second question, going back to your comment about the technical complexity of the SF90 Stradale, it is a range model, can you give some indications of what you think volume can be on this vehicle? You've said the demand has been very, very good, but are there any technical limitations that means that you can't build that at same volume, let's say, of the 812 Superfast or something like that?

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Louis C. Camilleri, Ferrari N.V. - CEO & Executive Director [66]

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In terms of FXX K, there are hardly any volumes left. And in terms of the SF90, I am not going to give you a number in terms of volume. But clearly, we are gearing up to manufacture to ensure that the waiting list doesn't go berserk. That's as far as I am willing to go.

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Operator [67]

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Thank you. There are no further questions at the moment. So Ms. Russo, please go ahead.

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Nicoletta Russo, Ferrari N.V. - Head of IR [68]

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Thank you, everyone, on the line. Please note the IR team will be soon available for any follow-up question you might have. And we wish you a lovely day. Bye-bye.

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Operator [69]

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Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.