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Ferrari N.V.  (NYSE:RACE)
Q4 2018 Earnings Conference Call
Jan. 31, 2019, 9:30 a.m. ET

Contents:

Prepared Remarks:

Operator

Welcome, everyone, to Ferrari Full Year 2018 Results Conference Call. I would now like to hand the conference over to your first speaker today Ms. Nicoletta Russo, Head of Investor Relations. Thank you, and please go ahead, ma'am.

Nicoletta Russo -- Head of Investor Relations

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

All relevant materials are available in the Investors section of the Ferrari Corporate website. And at the end of the presentation, we will be available to answer your questions.

Before we begin, let me remind you that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the Safe Harbor statement included on page two of today's presentation, and the call will be governed by this language.

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

Louis Camilleri -- Chief Executive Officer

Thank you, Nicoletta. Good afternoon, and good morning, everyone. We are obviously pleased with our 2018 financial performance. We met or exceeded our guidance on each key metric. Of particular note was our free cash flow performance. The Patent Box benefit we've received for prior years was clearly significant and more than offset our increased investments to deliver the meticulously constructed pipeline of product launches that we shared with you back in September. It was a clearly solid year in most respects.

We entered 2019 as the strongest brand in the world, according to Brand Finance, and we're confident in our ability to deliver our targets consistent with the strategies that we reviewed with you during our Capital Markets Day last September. This confidence is despite the backdrop of uncertainty and potential macro threats including, trade tensions, the China slowdown, Brexit, currency volatility, and what the IMF recently euphemistically described as palpitations in financial markets.

While we would never claim to be totally immune to what is going on in the world, we are remarkably resilient. Several factors underscore our resilience. We continue to hold a strong order book and our order intake is firmly in line with our expectations. Furthermore, we are not witnessing any unusual cancellations, residual values remain solid and well within our predictions.

As you focus on our guidance for this year, you should bear in mind several factors that are assumed there in. Our assumptions with regard to our supply of engines to Maserati reflect the orders we have received to-date, which imply a contraction in volumes of the specific engines we supplied to them.

We anticipate lower revenues and earnings from our brand diversification activities as we begin the disciplined exit of several products and license agreements that we do not deem to be in keeping with our brand equity. We need to get the base right before we expand this side of the business and ensure that everything we do going forward will enhance our brand image and grow our earnings.

While our Formula One performance last year was the best one since we won the World Constructors' Championship in 2008. We fell short of our ambition to raise the Winner's Cup. Our objective going forward remains the same as it has always been, to win.

In 2019, we projected an increase in spending which partially reflects this ambition but also includes the development expenditures required to address the new technical regulations that will form part of the envisaged Concorde Agreement that should come into force in 2021. Given these factors, our principal business is actually performing more strongly than the aggregate numbers would reveal at first blush.

We have previously disclosed that we anticipate an unfavorable mix impact in the first half of the year. However, I wish to stress that we project positive mix for the full year as the new launches hit the market, particularly in the fourth quarter when the first shipments of the highly profitable Monza SP1 and SP2 reach our customers. This temporary adverse mix is driven by the higher proportion of Portofino shipments and the difficult comparison to the prior year period, due to the LaFerrari Aperta.

I firmly believe that the success of the Portofino will pay dividends longer term as we view this specific model important in terms of acquiring new clients and retaining them in the Ferrari family. Our data reveals that over the last 10 years, the predecessors of the Portofino attracted approximately 9,000 new clients with 70 -- with close to 70% of them remaining loyal to the brand, while 30% of those have become multi-buyers.

I should also mention that we anticipate a first half model's geographic mix shift in favor of Mainland China to accelerate delivery prior to the much earlier than previously announced implementation of the New Emissions Regulations.

We have an exciting new product pipeline. Indeed, we plan the unveiling of five new models this year, which augurs well for 2020. As we have previously stated, these models do not only allow us to penetrate new attractive segments, but also provide the opportunity to leverage our pricing power.

We've also planned a number of in-market client activities that will allow us to attract new customers and retain existing ones. An important development will be the release this year of its state-of-the-art CRM tool to enhance our ongoing interactions and relationships with our worldwide dealer network and our customers. This tool will further improve our customer's Ferrari experience in a personalized manner.

Finally, as disclosed at our Capital Markets Day, we have commenced our EUR1.5 billion share repurchase program over the 2019 to 2022 period. And subject to board and shareholder approval, we will announce an increase in our dividend in April, reflecting an adjusted net earnings payout ratio of 30%.

On that note, I will now pass the call to Antonio, who will provide you with a detailed review of our full year results for 2018 and our guidance for the current year on our key performance metrics. Antonio?

Antonio Picca Piccon -- Chief Financial Officer

Thank you, Louis, and good afternoon to everyone. Let me begin with page five. As Louis just said, our 2018 earnings were in line with or better than our 2018 guidance with industrial free cash flow generation of EUR405 million, including EUR120 million positive cash impact from the Patent Box benefit for 2015-2017.

Our shipments increased by 853 units versus prior year, mainly supported by the 812 Superfast and the Ferrari Portofino.

Group net revenues for 2018 increased by a few million to EUR3.42 billion, up 0.1% at current currency and up 3.2% at constant currency.

Our adjusted EBITDA was over EUR1.1 billion, improving by 7.5% at current currency and by 16.8% at constant. EBITDA margin was 32.6%, up 230 basis points versus prior year.

Adjusted diluted EPS, when excluding the EUR141 million of profit and loss benefit from the Patent Box related to the three-year, 2015-2017, and other minor adjustments, was up 20.6% to a record level of EUR3.40.

Net industrial debt at the end of December, after EUR100 million share repurchases, reached EUR340 million versus EUR473 million at December 31, 2017.

Let's turn to shipments on page six. Total shipments increased by 10.2% versus prior year, supported by a 19.6% increase in V12 and a 7.3% increase V8. The performance was led by the 812 Superfast as well as the ramp up of the Ferrari Portofino and the 488 Pista. On the other end, the 488 Pista Spider is yet to arrive on the market and LaFerrari Aperta finished its limited series run.

Growth in shipments occurred across all the regions. EMEA grew 13.1%, Americas showed a 6.7% increase. China, Hong Kong and Taiwan were up 12.6%. Rest of APAC was up 7.8%.

Moving to page seven on Group net revenues, we see how they increased by 3.2% at constant currency from EUR3,390 million in 2017 to EUR3,498 million in 2018 at 2017 exchange rate, net of hedges.

Car and spare parts revenues totaling EUR2.6 billion, were up 6.9% at constant currency, thanks to higher volumes already commented. Pricing and personalization programs positively contributed along with deliveries of the Ferrari J50 and the FXX K EVO, partially offset by lower sales of LaFerrari Aperta. The erosion of the engines revenues was EUR89 at constant currency, reflecting lower shipments to Maserati.

Revenues from sponsorship, commercial and brand were EUR516 million and grew by a 5.3% at constant currency, thanks to the stronger contribution from sponsorships as well as higher Championship Ranking, partially offset by lower sales generated by other brand related activities.

Currency, including translation and transactions impact as well as foreign currency hedges, has a negative impact of EUR105 million, bringing 2018 Group net revenues at current currency to EUR3,420 million, still a few million up.

On page eight, you can see the year-over-year changes in the main items of the adjusted EBIT. As mentioned, the latter was up 6.4% to EUR825 million with adjusted EBIT margin of 24.1% and adjusted EBITDA margin reaching 32.6%, up 230 basis points. At constant currency, adjusted EBIT grew by 19% to EUR890 million, while adjusted EBITDA increased 16.8% to EUR1.179 billion. Volume was up EUR118 million, thanks to the 812 Superfast, the ramp up of the Ferrari Portofino, as well as the 488 Pista along with positive contribution from personalization programs.

Mix and price was negative due to the combined impact of lower sales of LaFerrari Aperta and the strong increase of the Ferrari Portofino. This was partially offset by the solid performance of the 812 Superfast, pricing and deliveries of the Ferrari J50 as well as the FXX K EVO. As we move the contribution from personalization programs from volume to mix and price, the latter would have been positive. This is a change where we will adopt, starting from Q1 2019, due to the intrinsic enrichment nature of personalizations.

Industrial costs and R&D slightly decreased, mainly due to lower spending in Formula One activities.

SG&A costs were mostly in line with prior year. Other increased by EUR36 million, thanks to stronger and already commented revenues from sponsorship, higher 2017 Championship Ranking compared to 2016, as well as the final favorable ruling on a prior year's legal dispute as announced in Q1 2018. This was partially offset by a lower contribution from other brand-related activities and engines supplied to Maserati.

Moving to page nine, industrial free cash flow for the year was EUR405 million, essentially driven by the strong EBITDA, just partially offset by CapEx spending of EUR637 million to support the evolution and the hybridization of our product range and EUR88 million of taxes. Just as a reminder, tax paid include the already commented positive cash impact from the Patent Box benefit for 2015-2017 equal to EUR120 million out of a total EUR141 million benefit to the P&L.

Net industrial debt at the end of December 2018 after EUR100 million share purchases reached EUR340 million.

On page nine (sic-10), you can finally read the Group's targets for 2019. We aim to continue our trajectory of growth with net revenues above EUR3.5 billion, with a growth rate in excess of 3%. As Louis just said, growth will be mostly driven by cars and spare parts, thanks to the ramp up of the newly launched products. GT Sports and special series are expected to account for approximately one-third of the total volumes each. The Ferrari Monza will only marginally contribute, starting from Q4 2019. Total shipments will approach 10,000 units in 2019.

Adjusted EBITDA growing approximately 10% and reaching between EUR1.2 billion and EUR1.25 billion. The high quality, profitability growth is expected to be driven by volume as well as overall positive mix accruing in the second half. This will be partially offset by SG&A to support business development. Adjusted EBIT between EUR0.85 billion and EUR0.9 billion, which means approximately 6% growth versus 2018 as a result of growing DNA.

Adjusted diluted EPS between EUR3.5 and EUR3.7. As a reminder, 2019 net result includes the Patent Box benefits for its last year. Roughly EUR450 million of industrial free cash flow generation will be supported by a robust adjusted EBITDA, as well as the advances from the Ferrari Monza, partially offset by CapEx increased to approximately EUR750 million, mainly to fuel the evolution and the hybridization of our product range.

Again, as a reminder, the Patent Box will benefit the cash generation by lowering tax cash out.

Just as a final remark, please note that the above guidance assumes foreign exchange scenario broadly in line with the average for 2018.

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

Nicoletta Russo -- Head of Investor Relations

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

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Michael Binetti from Credit Suisse. Please ask your question.

Michael Binetti -- Credit Suisse -- Analyst

Hi. Thanks for taking our question. Good afternoon, everybody. Congrats on a nice year, Louis, to start off your time at Ferrari. Would you mind helping orient us back to the framework you gave us at the Capital Markets Day on EPS and free cash flow, so that I think the 2019 EPS guidance you laid out today EUR3.50, EUR3.70 is above the 2020 EPS that you gave of EUR3.40 and EUR3.50 and then free cash guide this year I think is about EUR450 million, but you originally said I think EUR400 million for 2020. So I know there is moving parts and I know maybe you're getting a lot of deposits today on things like Monza, but I would assume the pace of launches you just laid out today, you will still be collecting deposits next year. So I don't understand why the margins would be flat or free cash flow conversion would slow next year, maybe you could help just kind of reorient us between the '19 guidance, we now have clarity on what you gave for 2020?

Louis Camilleri -- Chief Executive Officer

Well, thank you for your question, Michael. I think the easiest way to explain that is that, we will certainly focused on our 2022 targets in the Capital Markets Day and we felt that we should give you a sort of midpoint in 2020 to guide the speed at which we would reach those targets. I mean clearly given our 2019 guidance and clearly to the sense that we have is we're very bullish on the business, I would say that 2020 is probably on the low side of the range, but that is something we clearly would give you next year when we finalize our 2020 guidance. But as I say, we felt that it was important to give you a sort of midpoint between '18, '20 and '22, but we will firmly -- the slope of growth may obviously accelerate. I hope that's helpful.

Michael Binetti -- Credit Suisse -- Analyst

Very helpful. Thank you. And then if I could just follow that quickly. It's really helpful to see that the presentation of five new cars coming this year, how do we orient back to that also to the 15 new cars that you mentioned at the Capital Markets Day? How many of the four cars you laid out in the slide deck from 2018 count toward that 15 and how many of the, I guess, of the five new models -- they would all be counting toward that 15 cars that you're going to be launching by 2022? And with a little bit of time gone by, any color you might offer on the models, the five new models, which is a very fast pace coming this year, between V8, V12, Speciale's, any kind of color you might want to add at this point as we're getting closer?

Louis Camilleri -- Chief Executive Officer

As you know, we'd like to surprise everyone with our new models. What we said, if you recall, at the Capital Markets Day was that, we would launch at least four a year. So the five for this year is essentially in line with that. So you can expect going forward, basically, for a year, one year, there will be three, because we're doing five this year. So really was models from '19 going forward to 2022.

Michael Binetti -- Credit Suisse -- Analyst

Okay. Thank you very much.

Louis Camilleri -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Adam Jonas from Morgan Stanley. Thank you, and please go ahead.

Adam Jonas -- Morgan Stanley -- Analyst

Thanks, everybody; and thanks, Louis. Two questions. First, Ferrari is an exclusive, ultra-exclusive luxury products, that does at some level contribute to climate change. When do you expect to launch the first all-electric Ferrari?

Louis Camilleri -- Chief Executive Officer

Good question, Adam. First of all, I would argue with the premise of your question in the sense that, first of all, yes, I agree that we are a hyper-luxury products and company. You should see the emissions per mileage, because the mileage of Ferrari usage is actually pretty low and that's something that one should give consideration to. I think the data I looked was the average kilometers used was only about 4,000 kilometers a year. In terms of moving toward hybridization, as we said at the Capital Markets Day, we expect that 60% of our portfolio will be hybrid and I think we also said that beyond the plan period, i.e. beyond 2022, you will see a fully electric Ferrari's. I won't give you a date yet, but you can expect one in the period following 2022.

Adam Jonas -- Morgan Stanley -- Analyst

Thanks, Louis, and I might imagine, I think, that some of the costs for that product might be have been accounted for in the 2022 plan, correct me if I'm wrong.

Louis Camilleri -- Chief Executive Officer

You are correct.

Adam Jonas -- Morgan Stanley -- Analyst

Okay. And just a follow-up. According to Google Maps, Louis, the drive from Maranello to Modena is 16.5 kilometers, is there any logic and a potential combination between Ferrari and Maserati? Thank you.

Louis Camilleri -- Chief Executive Officer

I don't think so. As you know, historically, they were combined at one point. My own sense is that Ferrari benefits from total focus and adding another brand would be a distraction and frankly we are very focused on implementing the plan that we divulge to you at the Capital Markets Day. So focus is something that's critical and our plate is pretty full.

Adam Jonas -- Morgan Stanley -- Analyst

Thanks, Louis.

Louis Camilleri -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Max Warburton from Bernstein. Thank you, and please ask your questions.

Max Warburton -- Bernstein -- Analyst

Yeah, hi. It's Max Warburton from Bernstein. Two questions, please. The first on product; the second, a financial question. On products, at the Capital Markets event last year, Mr. Galliera was talking about a new mid-engined supercar, but I think he was suggesting it will be unveiled this year. My question is, does that go into production this year? Should we think about a mix enhancing car above and beyond the 812 Monza during this calendar year? I'll come back for the financial question, please.

Louis Camilleri -- Chief Executive Officer

You're right. Enrico mentioned a car in the range that was -- had super car performance that will be unveiled this year. The sales, the actual sales hitting the market will be in early 2020, so they do not affect the '19 numbers but clearly will have a big impact on the 2020 numbers as we anticipate the margin on that model will be considerably superior to the one on the 812.

Max Warburton -- Bernstein -- Analyst

Got it. And Louis just to confirm...

Louis Camilleri -- Chief Executive Officer

Does that answer your question?

Max Warburton -- Bernstein -- Analyst

It does. It cannot be great to have a follow-on on the product question. Is it a series production car, it will have a full normal production lifecycle?

Louis Camilleri -- Chief Executive Officer

Yes.

Max Warburton -- Bernstein -- Analyst

Okay, thank you. And then just on the financials. I guess a question for Antonio, could I be reminded of what this item is in the net industrial debt calculation. I'm looking at slide 17, this funded self-liquidating financial receivables portfolio, bit of a mouthful. Can you just remind us what it is exactly? And is there any way to (technical difficulty) forecast it?

Antonio Picca Piccon -- Chief Financial Officer

Well, it's just the inter-segment, if you wish, financing to the financial services item that we own in the United States.

Max Warburton -- Bernstein -- Analyst

Okay. And can you just explain, how does it square with the net debt walk that you show on page nine? Is it relevant to that? Is there an interaction I need to understand?

Antonio Picca Piccon -- Chief Financial Officer

Yeah. In the net debt walk you see it deducted in the other column, in the FX and other.

Max Warburton -- Bernstein -- Analyst

Okay, so... Okay.

Antonio Picca Piccon -- Chief Financial Officer

The number we show, Max, is the net industrial debt...

Louis Camilleri -- Chief Executive Officer

Yes.

Antonio Picca Piccon -- Chief Financial Officer

...including the financials...

Louis Camilleri -- Chief Executive Officer

Correct.

Antonio Picca Piccon -- Chief Financial Officer

...because most of it is securitized. And part of that are financed by the industrial companies. Yes. You may imagine.

Max Warburton -- Bernstein -- Analyst

Okay. Thank you.

Antonio Picca Piccon -- Chief Financial Officer

Does that clarify the point?

Max Warburton -- Bernstein -- Analyst

It does, yeah. Thank you.

Louis Camilleri -- Chief Executive Officer

Thank you, Max.

Operator

Your next question comes from the line of John Murphy from Bank of America. Please ask your question.

John Murphy -- Bank of America Merrill Lynch -- Analyst

All right. Good afternoon, guys. Just to stay on the product discussion here and the five new models are going to be launched this year. I mean, triangulating what you just answered to Max and some of the stuff you said at the Capital Markets Day, I mean, it appears we're going to get sort of a lot of information about the launches that are coming over the next few years through 2022. I'm just curious as we think about this, I mean -- and we all get a little bit twisted between mix and price, but it sounds like we're going to see mix and price improvements that maybe a little bit better than expected, particularly given your last answer about that product would have a much higher margin than normal. I mean, are these going to be much more impactful products than we've seen in the past?

I mean, and as you think, Louis, about the opportunity on price, I mean, is it much more on putting out a better product and taking price that goes along with that, rewarding the customer with better product but rewarding yourself with better pricing and margin? And is that how we should more think about things going forward and there might be a real step up that's coming?

Louis Camilleri -- Chief Executive Officer

That clearly is our ambition. And I think we will have the products that enable us to do that. As I said in my opening remarks, new models allow us to penetrate new segments and also allow us to really use the pricing leverage that we have. So we have various arrows to use and we intend to do so. But price mix over time as we always said that we would privilege revenue over volume and we would privilege mix over volume. Having said that, we do intend to enter the GT segment as we said at the Capital Markets Day. So it will be a mixture of the two, but we are very, very focused on our margins.

John Murphy -- Bank of America Merrill Lynch -- Analyst

Okay. But it would be fair to say that sort of the standard thought processes of maybe 3% to 5% price increases is a little bit too conservative and these products are being replaced with new better powertrain products and more exciting products that it could be significantly better than that on product replacements. Is that a fair statement?

Louis Camilleri -- Chief Executive Officer

I think that's a relatively fair statement in the sense that the lifecycle of some of our models is reaching their end and they'll be replaced and the replacements, which what we're very excited about, will allow us to increase prices on those specific models.

John Murphy -- Bank of America Merrill Lynch -- Analyst

Okay. That's very helpful. Then just one last question. We think about the Maserati engine business sounding like it's going to underperform a little bit in 2019 and going forward, it's tough to call that kind of stuff. Is there any way that you could repurpose some of that capacity for some of your future product and obviously it wouldn't be like-for-like, but I'm just thinking about sort of thrifting and being sort of capital disciplined here. Is there an opportunity to kind of shift some of that in the other direction to your core products?

Louis Camilleri -- Chief Executive Officer

Well, as we anticipate the growth, clearly the main impact is that, should the Maserati engines continue to decline or actually stay flat longer term. We are able to move people, trained employees from the Maserati engine business to the car manufacturing business. So in fact total headcount can remain essentially flat as we increase our production volume. But, again, it's somewhat dependent on the orders we will receive going forward from Maserati.

John Murphy -- Bank of America Merrill Lynch -- Analyst

Great. Thank you very much.

Louis Camilleri -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Philippe Houchois from Jefferies. Thank you. Please ask your question.

Philippe Houchois -- Jefferies -- Analyst

Thank you. Good afternoon. Question may be for Antonio. Back in September, you showed us that CapEx plan and guided to EUR650 million CapEx in '18, you came in slightly below that. The chart suggested the significant step up in '19, but if I look at your earnings versus your cash flow guidance, it looks like that's maybe a bit aggressive, so I'm just wondering, would you be kind enough to give us a euro amount for that '19 CapEx?

Louis Camilleri -- Chief Executive Officer

Well, I think in terms of the size of this CapEx is substantially in line with what we had in mind, what we presented to you at the Capital Market Day. The cash flow guidance is based substantially on this following region, that is EBITDA less CapEx is more or less in line with the free cash flow for the year having all the rest offsetting each other, meaning change in working capital, taxes that please remind -- benefiting from the Patent Box once more in 2019 and financial charges are offset by the advances we get on the Monza. And Philippe, I think you have missed, Antonio in his remarks actually gave you a number, which was EUR750 million. Is that what you're looking for?

Philippe Houchois -- Jefferies -- Analyst

That's what we're looking for. It make sense.

Louis Camilleri -- Chief Executive Officer

I'm sorry, I didn't get your. I apologize, Philippe. Yes.

Philippe Houchois -- Jefferies -- Analyst

That's fine.

Louis Camilleri -- Chief Executive Officer

It's EUR750 million.

Philippe Houchois -- Jefferies -- Analyst

If I can squeeze another one more on the Purosangue, the SUV that may not be an SUV, we will find out in a few years, but with six months after the Capital Market Day, almost you've seen bit more activity, the Urus at Lamborghini, the market in general, do you feel more confident, less confident toward moving Ferrari into that kind of product direction based on what we've seen in the market?

Louis Camilleri -- Chief Executive Officer

Well, with all due respect to Lamborghini, what we have in mind is something that's clearly rather superior to what's on the market today and we're still on track for what we said at the Capital Markets Day.

Philippe Houchois -- Jefferies -- Analyst

Thank you very much.

Louis Camilleri -- Chief Executive Officer

Thank you, Philippe.

Operator

Thank you. Your next question comes from the line of Giulio Pescatore from HSBC. Thank you. Please ask your question.

Giulio Pescatore -- HSBC -- Analyst

Hi. Thank you for taking my question. So two, if I may. The first one on the Pista and the phase out on the 488. How should we think about the impact of the two replacing each other on volumes, revenue and, perhaps, also margins? The second one, more financial related, I'm still a bit surprised on the free cash flow guidance, maybe I expected it to be a little bit higher given the deposits you're going to get from the Monza. So maybe can you clarify what will be the phasing of the deposits? What is the proportion that you will get into this year?

Louis Camilleri -- Chief Executive Officer

Well, clearly, as I said earlier, the 488 is reaching the end of its lifecycle and the Pista is incredibly successful, it's sold out. The Spider will start selling in the second quarter, but orders are essentially all done. On the cash flow, I'll let Antonio address that.

Giulio Pescatore -- HSBC -- Analyst

Sure.

Antonio Picca Piccon -- Chief Financial Officer

Hi, Giulio. I think the answer I already gave to the previous question is probably the guideline for our free cash flow in 2019. I think the way we see it is basically that -- the EBITDA less CapEx provides for the balance of the free cash flow and we expect the advancing on the Monza to be offset by the new working capital and the rest. I think the point here, which you ask is, which is the proportion of the advance that we are going to have in 2019. Actually we won't give you a specific number on that, we are finalizing the contract and as I said, as a rule of thumb, we assume that formula that I just told you.

Giulio Pescatore -- HSBC -- Analyst

Okay. Thank you.

Louis Camilleri -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Martino de Ambroggi from Equita. Thank you. Please ask your question.

Martino de Ambroggi -- Equita -- Analyst

Thank you. Good morning, good afternoon, everybody. The first question is on volumes, because in '18, they were up 10%, for the current year you gave an indication of an additional 8% growth. This is a significant jump compared to the historical growth trend, so should we assume -- assuming on the underlying trend going forward?

Louis Camilleri -- Chief Executive Officer

Well, as Antonio said, we should be approaching 10,000, we may actually cross that line this year. But going forward, I think, as we said earlier, we will very much focus on revenues and margins rather than volumes. So I wouldn't anticipate that the volume growth would continue at (technical difficulty) item at that sort of pace.

Martino de Ambroggi -- Equita -- Analyst

Okay. Because I was wondering...

Louis Camilleri -- Chief Executive Officer

Does that answer your question?

Martino de Ambroggi -- Equita -- Analyst

Yeah. Yeah, absolutely. I was wondering if these jumping volume growth could have affected waiting lists in the medium term by continuing with such a trend.

Louis Camilleri -- Chief Executive Officer

Sorry, I couldn't really hear your question. You're concerned about?

Martino de Ambroggi -- Equita -- Analyst

Well, I was concerned in case of cost and close to double-digit growth that the waiting lists could have been avoided instead of being the usual 18 to 24 months, but these shouldn't be the case. So, could you remind us what are the implications in terms of penalties and so on, but you have to pay for the threshold, the 10,000 threshold when you pass this threshold.

Louis Camilleri -- Chief Executive Officer

It's not significant. It's sort of high single-digit millions, but I mean the more important point is volumes relative to the order book and the exclusivity, rest assured that we are very, very focused on that. And as you'll see, the new models coming out and the pricing associated with those models and the technology and innovation and design features you will understand better how focused we are on brand image and exclusivity.

Martino de Ambroggi -- Equita -- Analyst

Okay. And very lastly on the R&D capitalization, if you could provide us with (technical difficulty) balance for '18 and what is implied in your guidance for '19 in terms of balance between the capitalization and amortization?

Louis Camilleri -- Chief Executive Officer

Sure. Out of the EUR637 million capital expenditures for 2018, capitalized R&D is probably 50% of total, so it's EUR318 million. In 2019 budget, we expect more or less the same proportion.

Martino de Ambroggi -- Equita -- Analyst

And the net balance between the amortization and capitalization?

Louis Camilleri -- Chief Executive Officer

PP&E.

Martino de Ambroggi -- Equita -- Analyst

Sorry, should be zero?

Louis Camilleri -- Chief Executive Officer

No, I mean the net balance -- sorry, maybe I didn't get your question, can you please repeat?

Martino de Ambroggi -- Equita -- Analyst

Yeah. Just you mentioned what is the amount of the capitalized R&D...

Louis Camilleri -- Chief Executive Officer

Yeah.

Martino de Ambroggi -- Equita -- Analyst

...but taking into account the amortization of the capitalized R&D of the previous years, in the past four quarters you've had...

Louis Camilleri -- Chief Executive Officer

The amortization of the R&D is approximately EUR120 million, slightly less than that.

Martino de Ambroggi -- Equita -- Analyst

Which is for '18?

Louis Camilleri -- Chief Executive Officer

For '18, yes.

Martino de Ambroggi -- Equita -- Analyst

And is it growing, I suppose, in ' 19?

Louis Camilleri -- Chief Executive Officer

Yeah. With the pace of the capital expenditure.

Martino de Ambroggi -- Equita -- Analyst

Okay, Thank you.

Louis Camilleri -- Chief Executive Officer

You're welcome.

Operator

Thank you. Your next question comes from the line of Thomas Besson from Kepler Cheuvreux. Thank you. Please ask your question.

Thomas Besson -- Kepler Cheuvreux -- Analyst

Thank you very much. I have two quick questions on your EBIT bridge, please. Can you say a few words about the evolution of industrial costs and R&D in the context of about 20% increase in your volumes between '18 and '19, both SG&A and industrial costs and R&D have been almost maintained, can you who actually explain how you do that, and what we should expect for 2019? This is the first question.

Louis Camilleri -- Chief Executive Officer

What we expect in terms of the development of SG&A for 2019 is an increase, as I mentioned in my comments, while we expect R&D expenses to be more or less in line with 2018.

Thomas Besson -- Kepler Cheuvreux -- Analyst

Okay. Can you talk about the FX impact you await -- you -- we should anticipate for 2019? It will be more negative than I would had in mind for '18. Is it going to be more neutral in '19 or again a headwind?

Louis Camilleri -- Chief Executive Officer

As I said in my comments, the targets we have discussed -- disclosed today are based on the assumption that overall throughout the year the foreign exchange scenario is more or less in line with the one we have seen in 2018.

Thomas Besson -- Kepler Cheuvreux -- Analyst

Which would mean therefore neutral effect on your bridge?

Antonio Picca Piccon -- Chief Financial Officer

Correct.

Louis Camilleri -- Chief Executive Officer

Yeah, neutral.

Thomas Besson -- Kepler Cheuvreux -- Analyst

Thank you.

Operator

Your next question comes from the line of Raghav Gupta from Citi. Please ask your question.

Raghav Gupta -- Citi -- Analyst

Thank you. Good afternoon. I just wanted to shift the conversation a bit to the non-core revenue side. You gave very few details at the CMD, because the strategy was not finalized and you was still developing a framework, I think, what you would? Have you had sufficient time to think about this? And how might you leverage the brand to generate additional profit for Ferrari? That's the first one. Thank you.

Louis Camilleri -- Chief Executive Officer

Well, thank you for that question. Clearly, it's still work in progress. We are finalizing the strategy. There's been a lot of work done and the first step is clean up of what we have, as I mentioned in my opening remarks. So in fact we are sort of cleaning up the portfolio, taking out various products that have our brand on it and also terminating some license agreements and all staff base, we will then grow. My sense is that, by this summer, we will have a very clear strategy and we will be focused on execution.

Raghav Gupta -- Citi -- Analyst

Okay. So we can expect perhaps something on that in Q3 in terms of an announcement of the strategy that confer in terms of timing?

Louis Camilleri -- Chief Executive Officer

Yes, that's fair.

Raghav Gupta -- Citi -- Analyst

Okay, great. And then Mr. Camilleri, I heard what you said in your opening remarks about residual values remaining solid and then kind of within your predictions, I was just really hoping to press a little bit more on this, when I look at classic car pricing it seems to have come under a pressure, and what impact is this having if at all on your interactions with costumers?

Louis Camilleri -- Chief Executive Officer

None. Residuals of -- that we look at across the globe are essentially in line with our expectations. I don't know what you're looking at in terms of classics, but the results I've seen in auctions of -- recent auctions in terms of classics, the prices have held up pretty well. Some prices have actually, for certain models, hit record levels.

Raghav Gupta -- Citi -- Analyst

Okay. All right. And then on the Patent Box, can I just have a quick clarification in terms of what impact you're expecting for 2019, please?

Louis Camilleri -- Chief Executive Officer

You may assume in the region of EUR50 million, more or less, in line with the impact of 2018 P&L, OK?

Raghav Gupta -- Citi -- Analyst

Perfect. Thank you very much.

Louis Camilleri -- Chief Executive Officer

Thank you.

Operator

Thank you. Your next question comes from the line of Stephen Reitman from Societe Generale. Please ask your question.

Stephen Reitman -- Societe Generale -- Analyst

Yes. Thank you. Good afternoon. I have questions still on the accounting. And, obviously, we haven't -- don't yet have a full accounts, it will basically come out about three weeks time. So if we just dig a bit deeper into some of those numbers again, please. And going back to the question about cash R&D, could you confirm what the figure was for cash R&D, because I think the figure you gave was for capital expenditure, the EUR637 million, so how much was actually the cash R&D spending in 2018? And then if you could then confirm how much was capitalized R&D against that figure? That would be the first question.

My second question is, is there anything -- is -- what is -- what are the determinants of the launch of the Monza? You've mentioned that as of Q4 this year, is there any technical reason or limitation that might prevent you from making -- bring that forward into earlier quarters?

And, finally, could you confirm now that Aperta, the last few Apertas were now being sold as it appears to be indicated by the presentation? Thank you.

Louis Camilleri -- Chief Executive Officer

Sorry, what was the last question?

Stephen Reitman -- Societe Generale -- Analyst

About the Apertas. If the last Apertas have now being sold as appears to be indicated by the presentation.

Louis Camilleri -- Chief Executive Officer

Yes. So let me start with three, two and then Antonio will hit one. So, yeah, La Aperta is finished, done. History. In terms of the Monza SP1 and SP2, it's the fourth quarter essentially because of, as you knew and we said at the Capital Markets Day, we're building a new production line for that pillar and Monza SP1 and SP2 are the first ones. I would say that we're focused on Q4 in terms of production and sales, because it's actually a very complex car to manufacture in terms of craftsmanship. So there's a lot of new things and a lot of handmade carbon fiber pieces. They will require a lot of training to get them precise to meet our specifications. So that's really the main reason why we see that sales will commence in Q4 rather than earlier. And Antonio will hit your question on R&D.

Antonio Picca Piccon -- Chief Financial Officer

Yeah. Capitalized R&D, as I already said before, is EUR318 million in 2018 and R&D costs are hitting the P&L, it's EUR528 million, so total cash R&D is the sum of the two.

Stephen Reitman -- Societe Generale -- Analyst

Can you repeat the figure? And you said, EUR528 million.

Antonio Picca Piccon -- Chief Financial Officer

Yeah. EUR318 million, capitalized R&D; EUR528 million, R&D costs.

Stephen Reitman -- Societe Generale -- Analyst

And the amortization was EUR120 million.

Antonio Picca Piccon -- Chief Financial Officer

And the amortization in the precise number is EUR115 million.

Stephen Reitman -- Societe Generale -- Analyst

EUR115 million. Thank you very much.

Antonio Picca Piccon -- Chief Financial Officer

You're welcome.

Louis Camilleri -- Chief Executive Officer

Thank you.

Operator

Thank you. Your next question comes from the line of Adam Hull from MainFirst. Please ask your question.

Adam Hull -- MainFirst -- Analyst

Hi, good afternoon. Thanks for taking my questions. Two. Digging a little bit deeper on the free cash flow in the midterm, and firstly on Patent Box, what is the cash tax benefit you're assuming in your 2019 cash flow guidance of EUR450 million? And, if any, is there more coming in 2020? And could you just repeat that net -- the tax benefit for the P&L in '19, I may have misheard that?

And then question two. Looking to your free cash flow, if I look at '18, I look at the EUR405 million, takeout EUR120 million, Patent Box is EUR285 million, 8% free cash flow margin, that's very different from what you're guiding in a sense in 2022, when you are EUR1.1 billion to EUR1.25 billion free cash flow, that seems to be out of 22%, 25% free cash flow margins that kind of tripled in a sense what you did in 2018. Is this something odd particularly about 2022 or are you thinking that you can be doing more than EUR1 billion free cash flow into the kind of early '20s or so. It just seems a very big difference between sort of 8 and into sort of 22% to 25%? Thanks.

Louis Camilleri -- Chief Executive Officer

Okay. In terms of the -- mainly I start from the last one, so maybe you may remind me the -- your previous ones. I think the difference between 2018 and 2022 is that 2018 start reflecting the impact of the capital expenditure. If you remind our -- even if we didn't give a specific guidance on CapEx, if you look at the charts we shown at the time, you'll see the CapEx is going down slightly and toward the end of 2022. And on top of that there is the impact of the introduction of some of the corners that we described as becoming more relevant filler, so the overall impact is that one.

Then as far as 2018, if I recall correctly, the -- I said already what the benefit from the Patent Box is, EUR120 million, we anticipate the cash benefit of the Patent Box in 2019 to be in the region of EUR100 million. And then this amount to be reduced in 2020. Remind you that as of now, we are expecting the Patent Box benefit to be an event terminated in -- sorry not an event, but a benefit terminated in 2019. We saw -- therefore, cash-wise it should be a positive for 2020. I don't know whether I missed something among your questions?

Adam Hull -- MainFirst -- Analyst

Just a follow up. I mean you gave us these two numbers for cash R&D, which you're going to add up. So as we look at cash R&D, how is that looking in terms of 2019 and 2020? And just maybe help us a little bit on the P&L impact in terms of what the capitalizing rate will be? So what the cash R&D spending will be, so I guess it was roughly EUR50 million last year, how does that look in the next two years in the cash R&D and also what was sort of rate of capitalizing of that overall cash R&D number would be? Thank you.

Louis Camilleri -- Chief Executive Officer

Maybe I can try and answer this way. I already said that we expect the R&D in charge of the P&L to be more or less in line with 2018. There will be some more spending on the -- I'd say, on the new cars coming in for the Formula One activities, maybe offset by something else, some other on the cars manufacturing activity. In terms of the rate of capitalization, probably it's not the way we describe it, certainly there is -- going in 2019, there is still an amount of R&D spending within the CapEx, that is significant, because we have a lot of the preparation of -- for the hybridization introduction on new vehicles that explains that. The average duration you may imagine is 80:20 in terms of product being 80% and most of that is R&D, 20% the infrastructure and anything related to the manufacturing tools.

Adam Hull -- MainFirst -- Analyst

Okay. Thanks for that. Thank you.

Operator

And your last question comes from the line of Ryan Brinkman from JP Morgan. Please ask your question.

Ryan Brinkman -- JP Morgan -- Analyst

Hi. Thanks for squeezing me in. I'd like to follow up on your comments regarding the brand licensing arrangements. It sounds like you want to be more selective in terms of the arrangements. At the same time, this has been identified as potential growth area for Ferrari in the future. So can you sort of talk a little bit about these brand-related activities you are pruning and then which activities you're maybe looking to increase in coming years. What are the attributes that make our licensing arrangement attractive to you, profit-wise or from the perspective of brand value in comparison to some of the ones you're letting roll off? And then how should we think about the financial impact of your strategy with regard to our sponsorship commercial and brand initiatives?

Louis Camilleri -- Chief Executive Officer

Well, as I said earlier, that strategy is being finalized, Ryan. I would say that walk into a Ferrari store today and it's obvious that some of the products do not fit our brand image and our luxury positioning. So, going forward, you can expect things that fit much more in terms of our customers in terms of the premium products that they would enjoy. We gave you actually a couple of examples at the Capital Markets Day. We have a new license agreement with Berluti in terms of leather shoes, which is doing extremely well. And Berluti is very pleased with that. And we also have the agreement with Loro Piana in terms of the racing suits and the helmet.

So there are things that we want to offer our customers, which appeals to them and there's clearly demand for that kind of product. And, essentially, if you look at it from a client perspective, the DeFosse (ph), who will always want Ferrari branded materials and that we will retain, but we will announce that quality. There is obviously our customers and clients around the cars and as a whole field of entertainment, which we feel is something that we can be part off. So really those are the three essential segments from a customer point of view.

Ryan Brinkman -- JP Morgan -- Analyst

I see. Thanks. That's helpful. Then just, finally, another question on the Purosangue. I'm curious what has been the customer reaction to the announcement? So, of course, the vehicle is still in development, not for launch for some time. It's probably quite early, but can you share since the time of your Investor Day, the degree to which your existing customer base has maybe approached you indicating potential interest in this type of a vehicle?

Louis Camilleri -- Chief Executive Officer

I would say that the reactions have been very positive from both the dealer network and the clients. Clearly they want to see a product, but they trust us. But it is a segment that's clearly is growing and a lot of clients would love to have a Purosangue to use on a daily basis. So the reaction has been very positive and actually nobody seems to be sort of concerned, it would somehow dilute the Ferrari brand image on the contrary would complement it.

Ryan Brinkman -- JP Morgan -- Analyst

Much appreciated. Thank you.

Louis Camilleri -- Chief Executive Officer

Thank you, Ryan.

Operator

Thank you. There are no further question at this time. Please continue, Ms. Nicoletta.

Nicoletta Russo -- Head of Investor Relations

Thank you, everyone, for joining us today. If you have any further question, the IR team will be soon available. Thank you.

Operator

Thank you. That does conclude our conference for today. Thank you all for participating. You may all disconnect. Speakers, please standby.

Duration: 59 minutes

Call participants:

Nicoletta Russo -- Head of Investor Relations

Louis Camilleri -- Chief Executive Officer

Antonio Picca Piccon -- Chief Financial Officer

Michael Binetti -- Credit Suisse -- Analyst

Adam Jonas -- Morgan Stanley -- Analyst

Max Warburton -- Bernstein -- Analyst

John Murphy -- Bank of America Merrill Lynch -- Analyst

Philippe Houchois -- Jefferies -- Analyst

Giulio Pescatore -- HSBC -- Analyst

Martino de Ambroggi -- Equita -- Analyst

Thomas Besson -- Kepler Cheuvreux -- Analyst

Raghav Gupta -- Citi -- Analyst

Stephen Reitman -- Societe Generale -- Analyst

Adam Hull -- MainFirst -- Analyst

Ryan Brinkman -- JP Morgan -- Analyst

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