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Ferrari N.V. (NYSE:RACE)
Q3 2019 Earnings Call
Nov 4, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Ferrari 2019 Third Quarter Results Conference Call. During the call, all participants will be on a listen-only mode. There'll be a presentation, followed by a question-and-answer session. [Operator Instruction]. I must advise you that the conference is being recorded today, Monday, the 4th of November 2019.

I must now hand over to your first speaker, Nicoletta Russo. Please go ahead.

Nicoletta Russo -- Head of Investor Relations

Thank you, Jordi. 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 2 of today's presentation and the call will be governed by this language.

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

Louis C. Camilleri -- Chief Executive Officer

Thank you very much. Nicoletta. Good afternoon and good morning to everyone. We enjoyed another strong quarter across all financial metrics, which admittedly were flattered in part by currency tailwind. We remain particularly pleased with the strong level of orders we continued to receive and the overall health of our order book.

The quarter was also marked by continued investment in our resources to enhance our capacity to innovate and thus sustain our competitive edge and pricing power for the coming years. As announced in our release earlier today, we have raised our annual guidance across all metrics to reflect the benefit of the strong momentum of our core business.

Beyond the numbers, the third quarter proved to be exciting on many fronts. A particular note was the one month long event, held here in Maranello in September, the Universo Ferrari. This event attracted approximately 14,000 carefully selected customers and prospects, as well as media, fans and our employees.

It was the very first time we showcased all the Ferrari stands for in a holistic manner. And I would characterize the event as quite exceptional in every respect. The highlight of the event was the simultaneous launch of the 812 GTS, our first V12 range model Spider in the last 50 years and the F8 Spider, which complements the highly successful F8 Tributo. Both models garnered an enthusiastic response as evidenced by the firm orders collected at the event itself and during this past month.

As you all know, we had announced the launch of five models this year. The last to be unveiled will be next week at an event to be held in Rome. We're all excited by the prospects of this particular model. As previously pledged, I would now like to provide you with the synopsis of our brand diversification strategy, which has now been finalized and against which execution that has begun in a focused, deliberate and disciplined manner.

It is the fruit of considerable work, customer surveys and research that has been conducted over the last year. At its very essence, the strategies formulation encompasses two consider -- key considerations that will guide everything that we will do going forward. The first is a recognition that while we have a dual identity there exists only one unique brand. The second is that we will only participate in categories that are aligned with our brand values and do not constitute a departure from our legitimate territories and customer appeal, but will enhance the vibrancy and vitality of the brand.

Today, our current offerings are too stretched, are in danger of diluting our very precious brand equity. This business relies too heavily on licensing with too many categories and limited control on the products that bear our brand and their distribution. To assure long-term profitable growth that will simultaneously strengthen our brand, we will restrict our participation to just three strategic business pillars.

A carefully chosen array of apparel products and accessories that will embody the style, creativity and quality that we stand for as a brand that will collectively fall under the brand extension pillar. And entertainment pillar that will reach out to a wider and younger customer base, while leveraging our unique racing routes. And finally a collection of exclusive luxury products and services destined to appeal to the owners of our cars and potential future owners, which fall under the label car adjacencies.

This disciplined focus requires a dramatic purge in our current offerings. We will reduce our current licensing agreements by some 50% and in fact have already terminated or announced the non-renewal of approximately 20% of these agreements. We will also eliminate some 30% of the product categories in which we participate and 50% of the stock keeping units present in our directly managed stores that currently carry our trademark.

We will also be restructuring our franchising network. In terms of brand extension pillar, we are extremely pleased to have entered into a long-term manufacturing agreement with the Giorgio Armani Group. This agreement with such a recognized and prestigious Italian luxury company underscores our ambitions to elevate the standards and quality of all our offerings. Made in Italy will be a key focus and we will exert full control over the design, quality and pricing of these products as well as their distribution, which will include a complete overhaul of our own stores and a revamp of our e-commerce platforms.

The entertainment pillar will provide us with an excellent means to immerse new and younger fans in the racing history, passion and values of Ferrari. Our theme parks in Abu Dhabi and Barcelona, including the museums in Maranello and Modena attract approximately 3 million visitors annually today, and we clearly see the opportunity to further expand these licensing activities. Nevertheless, the predominant immediate focus will revolve around driving simulation centers and the ever-growing popularity of the Esports, which are an obvious and exciting perfect fit.

The car adjacencies pillar will target our most valued customers with very limited additions and one-off artifacts that embody the inherent craftsmanship and innovative spirit that lie behind the creation, design and manufacture of our cars.

We also intend to provide an enhanced experience to the approximate 10,000 customers and prospects who visit our facilities in Maranello each year. To that end, one immediate step that will be taken is the creation of a new restaurant together with the world-famous chef Massimo Bottura. The opening is planned in late 2020.

The current retail value of the products that bear our name is estimated to be approximately EUR800 million. Our clear intention is to ensure that we capture a most significant portion of this value than we currently do. Our ultimate objective is that these activities, which will continue to be margin accretive will ultimately represent some 10% of our overall profitability. It will take time to reach this ambitious but realistic target, which we anticipate to reach within the next seven to 10 years.

To ensure a flawless and consistent execution, we have put in place a devoted and experienced team and will shortly open an office in Milan. I am confident that this strategy, combined with the talented team we have in place will deliver our financial objectives, while enhancing the vigor of our brand equity.

One final word, before I hand over the call to Antonio. As previously announced, given the strength of our cash flow, we have substantially completed the second tranche of our share repurchase program. And we clearly will be announcing a third tranche shortly.

Antonio will now present the details of our third quarter performance.

Antonio Picca Piccon -- Chief Financial Officer

Thank you, Louis. And good morning or afternoon to everyone, who is joining us today. Starting on Page 14, Q3 2019 was a solid quarter on all metrics and as already said, the robust year-to-date performance provides us with the ground to uplift the full year -- full 2019 year guidance that we'll highlight later. Our shipments grew 9.4% or by 212 units, mainly driven by the strong deliveries of the Ferrari Portofino and the 812 Superfast.

Group net revenues increased 9.2% to EUR915 million. Adjusted EBITDA increased to EUR311 million, improving by EUR33 million or 11.5%. Adjusted EBITDA margin was 33.9%, up 70 basis points versus prior year. The margin expansion was supported by improved mix as well as exchange rates, more favorable than expected. Such a result also reflects the reversal of a provision and emissions obligations and includes a small impact from the adoption of IFRS 16.

Adjusted diluted EPS was up 16.9% to EUR0.90. Still benefiting from the Patent Box signed last year, which expires in 2019. Industrial free cash flow for the quarter was EUR138 million, representing an increase of EUR43 million versus last year.

Moving to Page 15. Total shipments for the quarter were supported by a 9.5% increase in V8 models and an 8.9% increase in V12 models. This growth mainly reflected the trend of the shipments of the Ferrari Portofino as well as the 812 Superfast. The 488 family recorded slightly lower volumes with the 488 GTB and the 488 Spider, which concluded their life cycles, partially offset by the 488 Pista and the ramp up of the 488 Pista Spider. This also generated the shift from the sport to the special series pillar.

Towards the end of September, we also recorded the very first deliveries of a couple of Ferrari Monza SP1 and SP2. In terms of our geographic performance, EMEA grew 13.7%, America was in line with prior year, rest of APAC was up 23.1%, while mainland China, Hong Kong and Taiwan was down by a few units as part of the decision to concentrate client deliveries in the first part of the year in advance of the early introduction of new emissions regulation. This geographic breakdown reflects judicious allocations driven by the pace of individual model launches and the careful management of our waiting list in each respective regions.

Turning to Page 16, you can see here displays the Group net revenues of Q3 2019, which increased by 7.1% at constant currency. That was a 2018 exchange rate, net of hedges. Cars and spare parts revenues were up 12.5% at constant currency. As explained before, the growth reflects the combined impact of the higher volumes just described as well as the personalization programs.

Engines revenues declined by EUR24 million during the quarter, reflecting lower shipment to Maserati. Revenues from sponsorship, commercial and brand were slightly up, mainly thanks to higher revenues generated by Formula 1 racing activities. Currency, including translation and transaction impact as well as foreign currency hedges, had a positive impact of EUR17 million, mainly reflecting the strength of the US dollar.

Moving to Page 17, which highlights the evolution of the main items of our adjusted EBIT. Adjusted EBIT was up 11.7% at current currency to EUR227 million, with adjusted EBIT margin at 24.8%. At constant currency, adjusted EBIT grew by 3.8%.

Volume was positive by EUR20 million thanks to increase of our shipments. Mix price was positive for EUR23 million. This improvement was mainly attributable to mix, including a significant impact from the personalization programs supported by the growth of the special series pillar and the very first deliveries of the Ferrari Monza SP1 and SP2.

Industrial costs and R&D grew EUR40 million mainly due to spending on innovation for the product range and components, as well as for our Formula 1 racing developments and higher operational start-up expenses in connection with the introduction of new models. SG&A increased by EUR8 million, reflecting new product launches and the Company's organizational development.

Other is the algebra exam [Phonetic] of a number of items, including the reversal of an existing provision mentioned in the slide, which is the main driver. The total net positive impact of currency was EUR15 million for the quarter as the net results of more favorable market rates, partially mitigated by the hedges in place.

Turning to Page 18, industrial free cash flow for the quarter was EUR138 million, driven by the adjusted EBITDA, partially offset by capital expenditure of EUR145 million. I remind you that cash taxes in 2019 benefit from the Patent Box agreement signed last year. As a result, based on our current estimates and the tax payment mechanism in this country, we expect not to pay tax advances in Italy in Q4.

Net industrial debt as of September 30 was EUR369 million versus EUR353 million as of last June 30. The increase also reflected the cash impact of the EUR153 million share repurchases executed in the third quarter of 2019, which more than offset the positive industrial free cash flow.

Lease liabilities as per IFRS 16 were stable at EUR63 million at the end of the quarter. It's worth noting that we would have been cash positive already at the end of Q3, if we added back the impact from the share repurchases executed since November 2018 and from the adoption of IFRS 16

Let then move on to Page 19, As announced, the performance to date and the visibility we have going forward associated with the FX tailwind allow us to refine our 2019 guidance upwards on all metrics. The revised full year 2019 outlook targets are as follows. Revenues at roughly EUR3.7 billion. Adjusted EBITDA at approximately EUR1.27 billion, maintaining unchanged the marginality profile at about 34%. Adjusted EBIT at around all EUR0.92 billion, with an adjusted EBIT margin of approximately 24.5%. Adjusted diluted EPS between EUR3.70 and EUR3.75 based on the average number of share outstanding for this year.

Industrial free cash flow now projected to exceed EUR0.6 billion, supported by the strong collection of the advances of the Ferrari Monza SP1 and SP2, lower tax payment and the phasing on some investment programs between 2019 and 2020.

With that said, 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 very much. [Operator Instructions] Our first question for today is from the line of John Murphy from Bank of America. Please go ahead.

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

Good afternoon and thanks for all the new information. It's incredibly helpful. Louis, as you're going through the discussion and review of the brand extension, just curious if you can give us sort of a baseline off of where you're operating from and your discussion of it representing 10% of the business. I apologize, I may have missed this, I think you meant 10% of EBIT or operating income. Is that correct? And in the interim, as you get there seven to 10 years out, could there be a dip? Or do you think you can manage this relatively smoothly during some of the transition?

Louis C. Camilleri -- Chief Executive Officer

Thank you for your question, John. Yes, I'm referring to EBIT. So it would be 10% of EBIT. Clearly, we initially will take one step back to take two or three steps forward. So clearly by reducing the amount of licensees and the amount of categories in which we operate. We will take a step down, but that's to be able to accelerate our profit growth going forward. But I think it's also very important that this is not just about profit, it's also about enhancing our brand equity and the vitality and vibrancy of the brand.

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

Okay. That's helpful. And then just the second question on mix. It looks like we'll lap the launch of the Portofino early next year. You have a lot of product like the V12, 812 GTS, F8 Spider, the Monza. It just seems like mix once we lap the Portofino next year will be very profitable, yet if we were to look at your prior 2020 guidance, and now what you've just given us for 2019, there are some metrics like EBIT and diluted adjusted EPS, which it seems like you are exceeding this year one year early.

Given what seems to be sort of hands down positive mix as we go into next year, are there any other key factors that would indicate that you might have a downshift in EBIT in earnings year-over-year or we just are waiting some -- maybe some updates to the 2020 guidance that's not being contemplated yet and you're not officially announcing?

Louis C. Camilleri -- Chief Executive Officer

Well, you're correct in pointing out that by the end of this year, we will have essentially matched what we had said for 2020 in our Capital Markets Day. I think it's rather premature for us to address 2020. At this time. But clearly, we do anticipate a strong year for the reasons you outlined mix will be clearly one of the key drivers.

Having said that, there are a number of things that we have to give adequate consideration to and by the time February comes along, we will have a much better sense of those. The first one obviously is the macro factors and the economic uncertainties that currently prevail. I'm referring to trade in particular, but also linked to trade currency movements.

The other things are, which is what we just mentioned earlier, the slide step down in brand. Maserati engines, we continue to project there will be in erosion. Formula 1, it will be an important aspect as well. I think you are aware that this weekend, they announced really the beginning of the Concorde Agreement for 2021. So effectively the Formula 1 team will be working on developing the -- both the 2020 car, as well as the 2021 car, so there will be some expenses that are sort of doubled up in 2021.

And obviously the pace of the models hitting the market at different times as well as the a careful management of our waiting lists inventories and obviously watchful eye on residual values.

I would also add, as you saw in the third quarter, we will continue to invest in our own resources, financial and human to be able to maintain our competitive edge at a time where there is a lot of transformation going on in our industry.

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

Okay. So we'll look toward the update in February. Maybe so we're looking forward to that. So maybe just lastly on Universo Ferrari, you mentioned you had 14,000 owners and prospects. I'm just curious if you could give us an idea of the split of how many folks that visited where prospects and how they were determined because I would imagine, they might be outside of your traditional existing database and obviously mining new customers [Indecipherable] the business. Just curious how those are identified, how many there were and how you verify and followup with those folks?

Louis C. Camilleri -- Chief Executive Officer

Yeah, we had 14,000 visitors not orders.

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

Oh, visitors, I'm sorry. I maybe [Speech Overlap]

Louis C. Camilleri -- Chief Executive Officer

So of that, we had about 6,000 fans and public visitors, and to your specific question, we had about 3,000 customers, existing customers as well as about 2,000 prospects. And our hit rate in terms of the orders was pretty strong, particularly with the new models, the GTS and the F8 Spider, but also the SF90 Stradale.

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

I'm sorry, Louis. The hit rate with -- the hit rate with the prospects was fairly high is that we were saying?

Louis C. Camilleri -- Chief Executive Officer

Yes, yes.

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

Okay. That's incredibly helpful. Thank you very much.

Operator

Thank you very much. Our next question is from the line of Max Warburton with Bernstein. Please go ahead.

Max Warburton -- Bernstein -- Analyst

Yeah. Hello, everybody.

Louis C. Camilleri -- Chief Executive Officer

Hi, Max.

Max Warburton -- Bernstein -- Analyst

Hi, there. I know we're supposed to talk about merchandising, but I'd like to ask questions -- two questions, please on other subjects. Just the first is on F1. Louis you actually referred to that just now I think talking about doing development of two cars at the same time, but could you just give us your thoughts on what the benefit will be beyond 2021 for the Ferrari F1 finances of this budget cap. It seems to me that the budget should lower your costs without lowering your revenues, but in the past you suggested there won't be a meaningful increase in F1 profitability. Can you just talk to that?

And then the second question, I guess really for, Antonio, you were talking about an FX tailwinds in the quarter reminds me of the risks going forward. Could you talk particularly about the UK given the upcoming election potential political uncertainty, are you able to do anything special on Sterling hedging at the moment and for what time period? Thank you.

Louis C. Camilleri -- Chief Executive Officer

Thank you, Max. I think what was announced over the weekend is really beginning, the beginning of the process. It's not even the end of the beginning. So there is still quite a lot of work to do together with Formula 1 and the FIA as well as the teams. We've voted in favor of it and we haven't exercised our retail right. So all in all, was sort of satisfied with the direction it's taking and the principles that have been expanded. But clearly a lot of details still need to be ironed out.

To your specific question, the budget cap relates to only certain elements of the actual car. For all the best examples that the engine is not part of the budget cap. Our sense is that going forward -- our hope is that there will eventually be a budget cap placed on the engine itself. There have been limitations in terms of dyno usage, which is a very expensive part. So post 2021, the budget cap that exists, even including the exclusions to the budget cap, relative to the revenues, and again, a big chunk of our revenues is sponsorship. So to the extent that Formula 1 becomes more entertaining and brings in more fans then clearly, Formula 1 will generate more revenues, which ultimately benefits all the teams, including Ferrari.

So all in all, I see it, Max, as a worst case neutral and maybe with a bit of upside. Although in 2020, we will have to double up some costs. So it's really 2021 and going forward. And as you know, there's consideration of increasing the amount of races. I don't think that's been finalized yet. But clearly, that carries negatives in terms of the organization. But the positives on the revenues because, obviously if you add two or three races, the revenues go up. Does that answer your question?

Max Warburton -- Bernstein -- Analyst

It does, Louis. I just -- I mean, just to clarify, if we exclude the engines and we exclude the cost of the drivers, is the $175 million cap still not a meaningful reduction on what you're spending in those other activities?

Louis C. Camilleri -- Chief Executive Officer

It will require a reduction, yes.

Max Warburton -- Bernstein -- Analyst

Okay. Thank you.

Antonio Picca Piccon -- Chief Financial Officer

As to your question on the FX, Max, it's Antonio here, the main driver for the FX impact on our books is US dollar. I think you all know, our exposure to US dollar is in the region of EUR1 billion, meaning net revenues, range net of costs. And what we do is, we hedge on a 12-month rolling basis. And we do it either by forward rate agreement or by using options. So what this hedging procedure does is to provide visibility on the next few months, and to a certain extent, we are not protecting all months at the same level.

With respect to the exposure to the British pound, this is in the region -- the exposure is in the region of 5% to 6% of our revenue. So up to EUR200 million equivalent. And what we do is exactly in line with what I mentioned for the US dollar. In addition, we are protecting by our -- in our dealerships agreement by the fact that in case of a sudden move in the exchange rate, we have the chance to change the pricing and on the basis of the impact that we see on the foreign exchange.

Max Warburton -- Bernstein -- Analyst

Okay. Perfect. Thank you.

Operator

Our next question is from the line of Michael Binetti from Credit Suisse. Please go ahead.

Michael Binetti -- Credit Suisse -- Analyst

Hey, everybody. Good [Technical Issues] congrats on a nice quarter. Louis, can I just ask you, maybe help clarify a little bit on the brand strategy? I know you said 10% of profitability over the longer term. I guess we don't have a lot to anchor our thinking on as we look past this year into 2020. But as I look to the original guidance you gave for EUR1.3 billion in EBITDA next year. I'm assuming we would swing that a little lower on the reset in the products business for next year. Is there any way you could help us try to quantify how much that impacts profitability next year as we think out?

And then, I guess, just bigger picture, what should we think about that's different in 2020 versus the fourth quarter on mix? I think your fourth quarter guidance implies EBITDA margins close to 39%. I know some of the new cars coming next year will be higher margin even than that, but there are obviously some puts and takes around Formula 1, the brand strategy, and I know R&D spiked a little bit this quarter. Maybe you could help us just think through a little bit of those as we try to roll our models forward, obviously, acknowledging that you're not giving us formal 2020 guidance yet.

Louis C. Camilleri -- Chief Executive Officer

Yeah. Although you're pushing me to give you elements for 2020, it's difficult for me to respond. Clearly, as I mentioned earlier, we expect a relatively strong 2020 and mix will be a key driver for the reasons you've said. I think many of you are assuming that a lot of our new models will start selling in January, which is not the case. They'll come later in the year. Some of those cars are pretty sophisticated animals and it takes a while to ramp up production to full industrial scale. So beyond that, I'm not really prepared to say anything other than, yes, mix will be favorable and that clearly will be a key driver of our performance in 2020.

Michael Binetti -- Credit Suisse -- Analyst

Let me ask you, I guess, on the R&D then specifically, that was up quite a bit in the quarter. Could you maybe speak to what drove the increase in third quarter? And is that a new run rate we should think about?

Louis C. Camilleri -- Chief Executive Officer

Well, we flagged for some time that we need to enhance our resources and that's exactly what you're seeing. Now it was also up in part because of the new models and cadence at the new models. But clearly, in terms of the resources to address, be it hybridization, electrification, the human machine interface, ADAS, etc, those are areas that we certainly need to strengthen going forward. And therefore, we're staffing up for that for the longer term.

Michael Binetti -- Credit Suisse -- Analyst

Okay. And I just wanted to go back to it because we did talk -- I did ask you about 2020 a bit higher level. But the -- is there any way to quantify how much we should think about as a headwind just from the brand reset next year? Thanks.

Louis C. Camilleri -- Chief Executive Officer

I don't think it would be really material.

Michael Binetti -- Credit Suisse -- Analyst

Okay. That's helpful. Thanks a lot.

Operator

Your next question for today is from the line of Giulio Pescatore from HSBC. Please go ahead.

Giulio Pescatore -- HSBC -- Analyst

Hi, thank you for taking my question. So first one, on your point about being careful about management of waiting lease and inventories, I mean, I know that you've been really good in the past at pulling supply out of markets that were underperforming, like what you did in the Middle East, I think, in 2016. Are you seeing any pockets of weakness at the moment, anywhere, like -- from markets like UK and Europe seems to be really weak for some of your competitors? Are you seeing anything there?

Louis C. Camilleri -- Chief Executive Officer

Nothing that is sort of pointing to orange or red lights, but things can move quite rapidly. As I said in my opening remarks, the order book is incredibly strong. And continues to strengthen. I just saw this morning, the October orders, and they were very, very encouraging. So we're not seeing anything that's of major concern, I think as Antonio pointed out, the US market was a bit flat in the third quarter, it was probably expected to be flat to down in the fourth quarter and that's essentially due to the pacing of new models. As you know, it usually takes six months for a product that is launched in Europe before it hits the US market for, homologation and other reasons.

Giulio Pescatore -- HSBC -- Analyst

Okay. And you're happy with the residual values that you're seeing in the secondhand markets [indecipherable]?

Louis C. Camilleri -- Chief Executive Officer

There are one or two markets where we have seen a bit of softness. However, relative to others, we still do well. So it remains a bit of a watch out in certain markets. But so far, again, no big orange or red lights.

Giulio Pescatore -- HSBC -- Analyst

Okay. Thank you. And on the one-off on the provision release, should we expect more of that in Q4 or was only related to Q3? And maybe can you give us a little bit more detail on what it was?

Louis C. Camilleri -- Chief Executive Officer

Related to regulation passed on emissions for low volume manufacturers in the US market. So it's completely a one-off. It won't be repeated.

Giulio Pescatore -- HSBC -- Analyst

Okay. That's it. Thank you.

Louis C. Camilleri -- Chief Executive Officer

You're welcome.

Operator

[Operator Instructions] The next is from Ryan Brinkman from JP Morgan. Please go ahead.

Ryan Brinkman -- JP Morgan -- Analyst

Hi, thanks for taking my question. I see on Slide 12, you've mentioned relative to the brand strategy that it is accretive to Ferrari's margin. I just wanted to check to see whether it's the case that non-automotive Ferrari branded goods are accretive to margin because of their intrinsically higher margin nature or because of the fact that royalty revenue comes in at a higher margin than when something is in house?

I ask to because the chart on Slide 12 seems to imply that maybe you'll have more of this in-house in the future. And I was wondering, the margin implications of -- with more vertical integration? And then just finally, what are the capital -- like the return on capital implications of this strategy. Are financial returns higher at a given level of margin for the non-automotive business, given less capital requirements, for example? Thanks.

Louis C. Camilleri -- Chief Executive Officer

Yes, on all counts. So, yes, it will be marginally accretive, including the non-licensed products, clearly, licensee is pure royalty. So the margins are very high. And the investments are not necessarily that high. So from a return of investment, it's also accretive.

Ryan Brinkman -- JP Morgan -- Analyst

Okay, very good. Thanks. And then how do you expect the level of Icona series that you plan to deliver in the fourth quarter to track in that quarter relative to throughout 2020? I'm just asking because if investors see the margin number that you print in the fourth quarter, is that relatively indicative of the go forward? Or is the fourth quarter going to be somehow very heavy in Icona series deliveries because it's the first real quarter out of the gate? Or will it be a smoother delivery as we progress?

Louis C. Camilleri -- Chief Executive Officer

Well, clearly, in the fourth quarter, the Monza will be a much higher weighting than in 2020 per quarter relative to the other models. So the fourth quarter margin, EBITDA margin will not necessarily, I know where you're driving at, be the base on which you can project 2020.

Ryan Brinkman -- JP Morgan -- Analyst

Okay. I appreciate it. Thank you very much.

Louis C. Camilleri -- Chief Executive Officer

You're welcome.

Operator

Our next question is from Monica Bosio from Banca IMI. Please go ahead.

Monica Bosio -- Banca IMI -- Analyst

Yes, good afternoon and thanks for taking my questions. The first one is on the personalization. Every quarter, you mentioned that the higher weight of the personalization, which impacted positively both on the top line, but especially on the EBITDA margins. Can you give us just -- give us an update on the level of personalization? And what do you expect going forward?

And the second question is on the financial items and financial charges. Can you give us just some highlights on the EUR16 million of financial charges? Thank you very much.

Antonio Picca Piccon -- Chief Financial Officer

Sure, Monica. It's Antonio speaking. On personalization, this quarter has seen an improvement compared to usual. So the total impact of personalization to revenue is higher. It is in the region of 20%, and this is due to the fact that we had this concentration of special series -- deliveries of special series car that command a higher level of personalization.

The second one, in terms of financial charges, you should take into consideration that we have the full impact of the repurchase of the bonds in the market during the month of July. And this accounts for EUR8 million in total in the quarter.

Monica Bosio -- Banca IMI -- Analyst

Thank you very much. Thank you.

Antonio Picca Piccon -- Chief Financial Officer

Welcome.

Operator

Our next question for today is from Susy Tibaldi from UBS. Please go ahead.

Susy Tibaldi -- UBS -- Analyst

Hi, thank you for taking my question. And I have a question on volumes. So I think this 9% year-over-year that we saw in Q3 was maybe a little bit stronger than some had expected. Do you have any comment on this?

I guess that's one thing that stands out is the fact that if we think about deliveries into China, there were a lot of early deliveries in the first half. But the number this quarter was just down marginally just 2%. So was there any further deliveries? Because to be honest, I guess that we had expected first half to be very strong and then second half being negative for China, but we haven't really seen this yet. So is this something that we're going to see in Q4? And I suppose that also related to Q4 because you're going to have the Monza's, you don't really need big volume contribution because you have strong mix contribution. So is there a possibility that Q4 volumes could be negative.

Louis C. Camilleri -- Chief Executive Officer

In terms of China, your expectations were correct. I mean the fact is that China volume was down in the third quarter, considerably down, but that was offset by the increase in Hong Kong, where we effectively had a very similar phenomenon to what we had in China in the first half. So there were a lot of deliveries to customers in Hong Kong. With regard to the fourth quarter, we essentially anticipated this stage, that volume will be essentially flat relative to the prior year quarter.

Susy Tibaldi -- UBS -- Analyst

Okay.

Louis C. Camilleri -- Chief Executive Officer

Does that answer your questions?

Susy Tibaldi -- UBS -- Analyst

Yes, it makes sense.

Louis C. Camilleri -- Chief Executive Officer

Thank you.

Susy Tibaldi -- UBS -- Analyst

If I can ask one more thing, please. I was wondering if you could talk a little bit about the reception from customers with regards to the new models and especially, do you think that people -- have you had any pushbacks in the sense of people are seeing so many new launches, maybe much more than in the past. And maybe some people are not so happy about it. I don't know. I'm just asking if you have any comment to share? I think it's very clear from an investor perspective why you're doing this? Because you have to refresh your lineup. But I was just wondering if this is clear from a customer perspective.

Louis C. Camilleri -- Chief Executive Officer

I think the response has been excellent to all of them, actually, and customers are very happy with the array of products that are available. They understand it. As you said, we needed to renew our product portfolio, which hadn't been done for some time and a lot of our models are reaching the end of their lifecycle. I haven't heard much negative.

Certain dealers, obviously, are concerned because they need to invest a bit more. But from a pure customer perspective, but also very importantly, from new customers and prospects, we are witnessing a lot of interest from them based on these new products. So all in all, I think it's very positive. I haven't really heard any negatives from customers or prospects, and I think the order book is testament to that. These order books are not just interest. It's a specific order with the down payment to the dealer.

Susy Tibaldi -- UBS -- Analyst

Very clear. Thank you very much.

Louis C. Camilleri -- Chief Executive Officer

Your welcome.

Operator

Our next question for today is from the line of Philippe Houchois from Jefferies. Please go ahead.

Philippe Houchois -- Jefferies -- Analyst

Yes, good afternoon and thank you. I have a few questions. The first one is, the low growth that we see in the US, I would have thought there might be an acceleration of deliveries people trying to beat any concern about import duties. Can you comment on the mix of what you sell in the US, maybe less appeal for the products? Just give us some context there.

Louis C. Camilleri -- Chief Executive Officer

I think there's so much uncertainty on the trade and the tariffs wars. My own sense is that most people in the US and certainly, this week, feel that there won't be a trade war, certainly not affecting cars. So I'm not sure that it's a relevant piece of the US market per se today.

Philippe Houchois -- Jefferies -- Analyst

Right. But I would have thought consumers who might have purchased early as opposed to run the risk of the higher import duty. And you haven't seen evidence of that. Is that correct?

Louis C. Camilleri -- Chief Executive Officer

That's correct.

Philippe Houchois -- Jefferies -- Analyst

Yeah. And I'm just wondering, longer term, when you speak to your customers, compared to maybe 12 months ago, had you sense a bigger or an acceleration of interest customers to have Ferrari produce an all-electric car.

Louis C. Camilleri -- Chief Executive Officer

I would say that, certainly, in terms of hybrid, there's been huge interest, especially since the launch of the SF90. I think there's still a bit of skepticism out there regarding a fully electric Ferrari and what it will be able to do, which is why we're taking our time to ensure that it will be a true Ferrari DNA car.

So in all fairness, I think a lot of our customers have difficulty imagining a real Ferrari, which is fully electric. But they had the same skepticism for hybrid. And when they sold the SF90, I think it blew them away. So I'm quite hopeful that we'll be able to do the same with the fully electric car.

Philippe Houchois -- Jefferies -- Analyst

All right. Excellent. Thank you. If I can squeeze the last one is, was there any evidence in your research that -- what you're doing on accessories, etc, it makes a lot of sense. I'm just wondering, was there any evidence that what you were doing before, actually had a negative impact on your brand value?

Louis C. Camilleri -- Chief Executive Officer

There were a few things that -- what I would call imperfect.

Philippe Houchois -- Jefferies -- Analyst

Yeah. Any particular comment on this, I'm just wondering, because, I mean I can understand that was not optimized, but it was...

Louis C. Camilleri -- Chief Executive Officer

I don't want to necessarily revisit the past or complain about some of our existing licensees. I hope you appreciate that.

Philippe Houchois -- Jefferies -- Analyst

Understood. Thank you very much.

Louis C. Camilleri -- Chief Executive Officer

You're welcome.

Operator

[Operator Instructions] Our next question for today is from Martino de Ambroggi from Equita. Please go ahead.

Martino De Ambroggi -- Equita -- Analyst

Good afternoon, everybody. Martino De Ambroggi. The first is on the brand extension. So I imagine in 2022 targets, the brand expression is factored with basically zero contribution? Or was it already included?

Louis C. Camilleri -- Chief Executive Officer

I think what we said at the Capital Markets Day that by 2022, the brand business would be essentially flat with what it was in 2018. My hope is that by 2022, we should have a bit of upside.

Martino De Ambroggi -- Equita -- Analyst

Okay. And looking at your Slide 12, you are presenting value for the reference market. That I imagine it's not included in the slide, so you will not provide it. But if I ask you what is the potential sales, order of magnitude, roughly for this kind of activities you mentioned, what is the range?

Louis C. Camilleri -- Chief Executive Officer

I'm sorry, I'm not going to be able to give you a number at this stage. I think we'll be able to do that going forward, but not today.

Martino De Ambroggi -- Equita -- Analyst

Okay. And very last, a confirmation on the capex for the full year or was EUR750 million included in your guidance?

Louis C. Camilleri -- Chief Executive Officer

Yeah, this is the number.

Martino De Ambroggi -- Equita -- Analyst

While volumes are slightly higher than what you indicated at the beginning of the year in the region of 10,000. So is it due to something -- anything in particular? Or is just because of the order flows and the waiting list, I don't know?

Louis C. Camilleri -- Chief Executive Officer

Our volumes will be in that region. We said that we would be in the 10,000 region and that's where it will be.

Martino De Ambroggi -- Equita -- Analyst

Okay. Thank you.

Louis C. Camilleri -- Chief Executive Officer

Thank you.

Operator

Okay. Our next question today is from George Galliers from Goldman Sachs. Please go ahead.

George Galliers -- Goldman Sachs -- Analyst

Thank you for taking my question. The first one is on the brand extension and the target of 10% of profitability. Clearly, there aren't many luxury items outside of the steel sports watches and certain handbags that have the same kind of wait list as your cars. Do you have any concerns about this increasing the cyclicality of your business?

Louis C. Camilleri -- Chief Executive Officer

No, I don't. We've been very careful to ensure that we're in the appropriate categories. So I'm not overly concerned by the cyclicality of that business.

George Galliers -- Goldman Sachs -- Analyst

Thank you. And then as a second question, with the introduction of the 812 GTS and the SF90 clearly, your sports car range has expanded from sort of traditionally being around three vehicles to five. And I think with the new products that you're going to unveil in November will also see an incremental unit in the GT class. So really, you're going from sort of six series models to closer to nine, which is about a 30% increase. Does this lead to any incremental extra manufacturing cost or complexity that it's a challenge to handle? Or is there enough commonality between these vehicles, but ultimately, it doesn't have a huge impact from a R&D and manufacturing complexity perspective?

Louis C. Camilleri -- Chief Executive Officer

Well, I think we're sort of working hard in defining the actual segments. And I personally don't think that you can put the SF90 and the 812 Superfast or 812 GTS in the same segment. But I think that will become more apparent as the years unfold because we're looking at it very much from a consumer perspective as opposed to just from a technical perspective.

With regard to your questions, yes, these are complex cars and it will add complexity, but I think as we've proven with the Monza, which is a very, very complex car, we were ahead of schedule, which is why, despite the fact that we had to actually construct a new production line just for that model, we were able to deliver a couple of cars ahead of schedule. So that gives me confidence in the organization and its excellence in meeting deadlines. So yes, it's more complex. Two, can we handle it? Yes.

George Galliers -- Goldman Sachs -- Analyst

Great. And if I could just slip in a final one. Obviously, without saying too much ahead of the products unveiled. Will the new vehicle that you unveil, later this month, reduce the entry point for people eager to get their hands on a new set of Ferrari keys?

Louis C. Camilleri -- Chief Executive Officer

You'll have to wait and see. It's not that long a wait. It's next Wednesday.

George Galliers -- Goldman Sachs -- Analyst

Okay. We will wait for them. Thank you.

Louis C. Camilleri -- Chief Executive Officer

Thank you.

Operator

Our next question for today is from the line of Thomas Besson from Kepler. Please go ahead.

Thomas Besson -- Kepler Cheuvreux -- Analyst

Thank you very much. I have a first question on the brand extension. You have mentioned EUR800 million for 2019 and talk about the share of profitability in about seven to 10-year plan. Where do you think you're going to be in terms of that equivalent retail, where you offer branded goods in seven to 10 years? Should we think it's going to be a bit higher or do you believe it's going to stay around that level?

Louis C. Camilleri -- Chief Executive Officer

I won't give you a precise number, but it is our intention to increase the size of the cake and our share of the cake.

Thomas Besson -- Kepler Cheuvreux -- Analyst

Yes, that's what I had in mind as well. Great. I have two very quick questions in terms of just the quarter and the year. Could you give us the amount of the provision release in the quarter, the one on US small car manufacturer. And if I may, could you give us all, what you expect now for FX for the full year, knowing that I think we've been positively surprised both in Q2 and Q3? Thank you very much.

Antonio Picca Piccon -- Chief Financial Officer

Yeah, the release of provision, it is in the region of EUR10 million. And the expectation for the rest of the year is that it remains more or less flat at the customer level.

Thomas Besson -- Kepler Cheuvreux -- Analyst

Great. Thank you very much.

Operator

Our next question for today is from the line of Adam Jonas from Morgan Stanley. Please go ahead.

Adam Jonas -- Morgan Stanley -- Analyst

So I hope no Ferrari branded baby shoes, socks and underwear, down the pipe. Louis, I had a question for you. I mean it's a good idea. So Louis, on complexity. I just want to kind of follow that thread from the earlier question. Maybe starting with the Monza engine, super exquisite kind of a Swiss watch on steroids kind of thing entirely designed and manufactured in-house. As you do eventually move toward an all EV, BEV, electric, Monza have the future, these vehicles have been described as the super, non-complex.

Now maybe Ferrari will have a different take on it. But compared to a V12 engine, very, very super, non-complex. How does that change your make or buy decisions at Ferrari as you eventually do move toward EVs? Will you want to continue to make things in-house, even if they aren't complex and exquisite? Or would you search for best-of-breed, of course, to your specifications supplied from the outside?

Louis C. Camilleri -- Chief Executive Officer

It's clearly something we're studying. Adam, I think we're leaning toward make rather than buy, but that will require investments in infrastructure and resources. And we're leaning toward make because, ultimately, we feel that, that's where we can get a competitive advantage and really differentiate our products from those that are offered by others. So that is where we are leaning.

Adam Jonas -- Morgan Stanley -- Analyst

Thanks, Louis. And just one quick follow-up. On the Purosangue. Have you decided on a powertrain architecture for that vehicle yet? Is it hybrid or a pure BEV? I'm assuming it's not a pure ICE. But I'm curious if you finalize that?

Louis C. Camilleri -- Chief Executive Officer

We have finalized it. As it leads for the first one, and I'm not in a position to share with you. That one you're going to have to wait.

Adam Jonas -- Morgan Stanley -- Analyst

We'll do it. Thank you.

Louis C. Camilleri -- Chief Executive Officer

Okay.

Operator

Thank you very much. Our next question is from Andrea Balloni from Mediobanca. Please go ahead.

Andrea Balloni -- Mediobanca -- Analyst

Thanks, good afternoon to everybody and thanks for taking my question. Only one left, it's about DNA. How should we model the impact of DNA for the remaining part of the year? I'm asking about that because I would have expected a larger impact in Q3, following the launch of introduction of a new Monza. So all in all, should we expect in Q4 something in line within Q3 or even an acceleration?

Louis C. Camilleri -- Chief Executive Officer

You may expect a slight acceleration there.

Andrea Balloni -- Mediobanca -- Analyst

Okay. And my second question is very quick one, it's about forex. I lost your answer before about Q4. What should we expect in terms of impact on EBITDA?

Antonio Picca Piccon -- Chief Financial Officer

We said we expect the exchange rate to remain in line with what they've been in Q3 present level.

Andrea Balloni -- Mediobanca -- Analyst

Okay. Okay. Thanks a lot. Thank you.

Operator

[Operator Instructions] Our next is from Stephen Reitman from Societe Generale. Please go ahead.

Stephen Reitman -- Societe Generale -- Analyst

Yes, good afternoon. I have two questions. For a few months since you launched the SF90 Stradale, which obviously explored a pricing point significantly higher than you've had with the previous -- with the 812 Superfast. I was wondering what you've been observing in terms of the clients coming in for this? Because, obviously, you've been very careful in the past when you replace a model with price increase being relatively modest over its predecessor. But obviously, in this case, you brought out a new series car at a significantly higher price. So I'm just interested in what the reaction has been and how is that aim from the traditional level Superfast customers and the like?

My second question is about the brand extension. You talked about, obviously, reducing a lot of the products that are not really helping the brand. So are we talking about, really, sort of, like, a cull in the way you saw at Gucci, when Invesco bought the business and then reduced the number of product lines from 20,000 to about 7,000 or 8,000? If you can, give us maybe -- I'm not clear about that. Thank you.

Operator

We will now take our next question is from the line of Massimo Vecchio from UBI. Please go ahead.

Nicoletta Russo -- Head of Investor Relations

Sorry, Massimo, just to interrupt you. We still need to answer the previous question. Apology on our side, we had a problem with the line.

Louis C. Camilleri -- Chief Executive Officer

Sorry, we had an issue. With regard to the SF90, what I was saying, Stephen, was that the reception has been very strong among existing customers as well as some new prospects and they come both from V12 and V8. The order book is extremely strong at least 18 months and that's only within the last six weeks. So we feel very good about, as you described it, a new model in the series range at a higher price. So that is very encouraging for the future.

With regard to the brand extension, I think I've mentioned in my remarks that we are culling some 50% of our license agreement and some 30% of the categories in which we participate. And in our own stores, which is a reflection of what will happen elsewhere, we are reducing the amount of SKUs by about 50%. So yes, there is a significant surge of culling, as you call it.

Nicoletta Russo -- Head of Investor Relations

Massimo, please go ahead with your next question. Thank you.

Massimo Vecchio -- UBI -- Analyst

Thanks. A lot of my questions have already been answered. I only have follow-up on the SF90 Stradale. If you can share with us the -- if you had any pushback from clients on the price or pushback or even, positive reaction there, it would be interesting.

Louis C. Camilleri -- Chief Executive Officer

No pushback that I'm aware of on price. A lot of push to be on the list.

Massimo Vecchio -- UBI -- Analyst

All right. Very clear. Thank you very much.

Operator

Thank you very much. Our last question for today is from the line of Adam Hull from MainFirst. Please go ahead.

Adam Hull -- MainFirst -- Analyst

Hi. Good afternoon. Thank you for taking my questions. I just wanted to go back a little bit to FX. Just remind us what the positive for the full year will be this year, obviously, it was EUR13 million in Q3? And as you sit here now at spot rates where they are, should we be expecting a positive year-on-year on FX into next year?

And then the second question, if I look at your Q3 and I strip out the EUR10 million provision and I strip out FX, your margins are actually sort of down year-on-year. And that's with a headwind on the depreciation amortizing into next year, are you comfortable with consensus approaching EUR1,060 million [Phonetic] on the EBIT side or... Thank you.

Antonio Picca Piccon -- Chief Financial Officer

Maybe in terms of the full year impact of the exchange rate, where we are projecting it is basically on the basis of a market exchange rate in line with what you have seen in Q3. Okay. So we'll be -- all in all, the positive tailwind from the FX for the full year will be just marginally higher compared to what it has been for the first nine months.

Adam Hull -- MainFirst -- Analyst

And just remind us what that number is for the nine months?

Antonio Picca Piccon -- Chief Financial Officer

I think it's EUR40 million, net of hedges. Okay.

Adam Hull -- MainFirst -- Analyst

And for next year in terms of 2020, how do you stand -- I mean, obviously we don't know...

Antonio Picca Piccon -- Chief Financial Officer

We are not -- we are not going to comment yet on 2020.

Adam Hull -- MainFirst -- Analyst

Well, maybe then I could ask, as you stand with regard to depreciation amortized, I guess, you've got a pretty good feel for the accounting numbers that will come through, what would be the headwind on depreciation amortizing into 2020, roughly versus 2019 [Speech Overlap]

Antonio Picca Piccon -- Chief Financial Officer

Once again, as you may imagine, we have been growing in terms of capital expenditures. And this is going to flow through the P&L as the models are introduced. So you may expect and predict on the net basis.

Adam Hull -- MainFirst -- Analyst

And then a final question, just on the US, I mean, it's quite a big change in Q3 shipments flattish versus sort of roughly 5% growth over the whole nine months, I mean, what really happened in Q3? And which sort of models? I mean, is it GT? Or If you can help us a little bit as to where the change either in shipments, but also maybe in orders as well? Is there a new change there? Is there a residual question mark? Thanks.

Louis C. Camilleri -- Chief Executive Officer

It's really a reflection of the pacing of the new models, nothing else than that. And as I said earlier, you're also going to see that same phenomenon in the fourth quarter.

Adam Hull -- MainFirst -- Analyst

Okay. Thank you very much.

Operator

Thank you very much. There are no further questions at this time. I'll hand the call back to Nicoletta for closing comments. Thank you.

Nicoletta Russo -- Head of Investor Relations

Thank you, everyone, for joining us today. As always, the IR team will be soon available for any follow-up you may have. Thank you very much. Bye-bye.

Operator

[Operator Closing Remarks]

Duration: 70 minutes

Call participants:

Nicoletta Russo -- Head of Investor Relations

Louis C. Camilleri -- Chief Executive Officer

Antonio Picca Piccon -- Chief Financial Officer

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

Max Warburton -- Bernstein -- Analyst

Michael Binetti -- Credit Suisse -- Analyst

Giulio Pescatore -- HSBC -- Analyst

Ryan Brinkman -- JP Morgan -- Analyst

Monica Bosio -- Banca IMI -- Analyst

Susy Tibaldi -- UBS -- Analyst

Philippe Houchois -- Jefferies -- Analyst

Martino De Ambroggi -- Equita -- Analyst

George Galliers -- Goldman Sachs -- Analyst

Thomas Besson -- Kepler Cheuvreux -- Analyst

Adam Jonas -- Morgan Stanley -- Analyst

Andrea Balloni -- Mediobanca -- Analyst

Stephen Reitman -- Societe Generale -- Analyst

Massimo Vecchio -- UBI -- Analyst

Adam Hull -- MainFirst -- Analyst

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