Earnings Call Transcript - RACE Q2 2022

Operator, Operator

Good day and thank you for standing by. Welcome to the Ferrari 2022 Q2 Results Call and Webcast. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please remember that today's conference is being recorded. I would now like to hand over to your speaker Nicoletta Russo. Please, go ahead.

Nicoletta Russo, Corporate Communications Manager

Thank you and welcome to everyone who's joining us. Today we plan to cover the group's Q2 2022 operating results. The duration of the call is expected to be around 60 minutes. Today's call will be hosted by the Group CEO, Mr. Benedetto Vigna; and Group CFO, Mr. Antonio Picca Piccon. All relevant materials are available in the Investors section of the Ferrari corporate website. 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 said, I'd like to turn the call over to Benedetto.

Benedetto Vigna, CEO

Thank you, Nicoletta. Thank you, everyone, for joining us today. It was a pleasure to meet many of you in person last June during our Capital Market Day here in Maranello. Before talking about Q2 record results, let's recap the main points of our strategic plan for 2022-2026. We talked about our electrification journey, the product strategy, the industrial strategy, financial targets, and our path to carbon neutrality by 2030. I will address our commitment to preserve and protect our planet later in this speech. Now let's start with our electrification journey. We are very well positioned to tackle the technological transition. Electrification represents a great opportunity to address customer needs and to continue to realize unique Ferraris. We are continuously advancing in our electrification journey. We started in 2009, 13 years ago, with our experience in Formula 1, then we transferred to our first hybrid model LaFerrari, a supercar. More recently, with the launch of full-range hybrid models currently in our product portfolio, we have successfully extended this technology to higher volume cars. Thanks to this expertise, you can feel the passion, dedication, and willingness to push the boundaries further in all our laboratories. We will unveil our first full electric model in 2025, a true Ferrari that will enrich our product range. It will contain several unique features and will be a sports car that offers a true Ferrari driving experience. We have also confirmed our product strategy, based on different Ferraris for different customers and moments. It is built to preserve uniqueness while satisfying the different customer profiles, from more adrenaline-seeking pilots to more versatile sports car drivers. We have committed to unveiling 15 new models from 2023 to 2026 to keep our product range at the level where Ferrari has always been. This will also include the highly awaited new supercar, a masterpiece of innovation, design, and performance. We reiterated our industrial strategy. In doing so, we will continue to progress, staying very focused and disciplined in terms of capital expenditures, adopting a make versus partnership approach. We will focus on the key differentiating factors and invest in the strategic components that we deem relevant to continue to exceed our customers' expectations in terms of performance and driving experiences. In this regard, we will invest in our infrastructure, expanding our factory with a new paint shop and a new building where the most advanced technologies in the electrification field will be designed, developed, and crafted. Regarding partnerships, we continue to tailor existing solutions available in the market and integrate them with our own perspective to ensure our cars continue to be unique and authentic. At Capital Market Day, we also shared with you our financial targets, built on a solid foundation. We target a 9% compounded annual growth rate for our revenues, driven by a strong product pipeline. We also have ambitious goals for our lifestyle activities, aiming to double the 2026 sales compared to pre-pandemic levels, focusing on luxury goods, experiential, and collectibles. The business plan also includes an 11% compounded annual growth rate of EBITDA and strong industrial free cash flow generation, expecting to double it compared to what we generated over the past five years. This solid financial profile allows us to keep investing for our future growth while increasing shareholders' remuneration through dividends and share buybacks. Dividend payout will increase to 35% of adjusted net income, and a €2 billion share repurchase program has already started. How will we achieve this? As highlighted at Capital Market Day, all of these will be possible thanks to the relentless work of all the women and men at Ferrari, the loyalty of our customers, and the teamwork with our industrial, academic, and commercial partners. Moving now to today's agenda, let me review the second quarter – another quarter of records, whose strength led us to upgrade our 2022 guidance on all metrics. Record revenues at €1.3 billion, up 25% versus the prior year; record EBITDA at approximately €450 million; record EBIT at approximately €325 million; and net order intake reached a record level in Q2, which is astonishing considering that the books were open only for three models of Ferraris from 296 GTB and 296 GTS, the ones we announced last April. This strong trend is visible worldwide with no specific geographical pattern. Additionally, we have three more records to highlight. We have achieved a Guinness World Records title for the largest LED-illuminated racetrack, awarded for the lighting show at our Fiorano race track, consisting of more than one million LED points covering over 110,000 square meters, all powered by green energy. Secondly, the lighting show concluded the first edition of the Cavalcade Icona with the participation of 80 Ferrari Monza models, both SP1 and SP2, coming from over 20 nations celebrating the 75th anniversary of our company. Lastly, I had the pleasure of attending the Cavalcade Riviera in Monaco, which involved 144 Ferraris from over 30 nationalities, a record in the Cavalcade's history. Such overwhelming attendance is a testament to the unforgettable experiences that our customers are willing to pursue along with the pleasure and fun of driving that carry the prancing horse name around the globe. Regarding our racing activities, we continue to compete at the top in the Formula 1 and FIA World Endurance Championship, with the team working hard for our return in 2023 to the top class with our hyper car. There has been some news over the last weekend. We unveiled the Ferrari 296 GT3, our latest V6, which represents the future of the prancing horse in GT racing. We also won the 24 hours of Spa-Francorchamps Gold Cup with a team of four women. We presented our journey towards carbon neutrality by 2030 a few weeks ago, and we are now moving from purpose to action. Here are the four actions we have already implemented: first, we have committed to set science-based targets in line with the 1.5 degrees Celsius pathway; second, we have installed a new 1-megawatt solid oxide fuel cell plant at our Maranello facilities, which provides 5% of the energy required for Ferrari's production activities in Maranello, while reducing fuel consumption and emissions; third, we have begun the installation of a new photovoltaic system on the roofs of our Maranello factory buildings, expanding our independent energy production and reducing CO2 emissions. Once fully operational, the new solar installation will allow us to self-produce 1.7 gigawatt-hours per year; fourth, we have started a partnership with ClimateSeed, an impact-driven company that is helping us to support high-quality innovative projects focused on positive climate and social contributions. As a final remark and looking at what lies ahead, September will be a key month for us with three important events: the Monte Grand Prix, where we will fight again at our home; the world premiere of the Purosangue; and the third fashion show at Milan Fashion Week. I will now hand over to Antonio, who will review the Q2 2022 results.

Antonio Picca Piccon, CFO

Thank you, Benedetto, and good morning or afternoon to everyone joining us today. Let's start on page seven with the highlights of the second quarter. Another very strong quarter with double-digit growth and record levels for shipments, revenues, EBITDA, and EBIT. Percentage margins were also in line with our expectations, reflecting the development of product mix during the course of the year. Shipments were 3,455 units, up 28.7% compared to the prior year. Group net revenues were €1.291 billion, up 24.9%. EBITDA reached €446 million, up 15.5% year-over-year, with an EBITDA margin of 34.6%, which is lower than last year since those extraordinary highs were supported by the strong contribution of the Ferrari Monza. EBIT was €323 million, up 17.8%. Net profit came in at €251 million, up 21.6% versus the prior year, resulting in a diluted EPS of €1.36 compared to €1.11 in Q2 2021. The industrial free cash flow generation for the quarter was €79 million. As already anticipated and in line with the seasonal cadence, the strong operating cash flow of the quarter was partially flattened by tax payments, which were much higher than in Q2 2021 due to the significantly improved income of 2021 compared to 2020. Turning to page eight, you can see the details of the Q2 shipments. The product portfolio in the quarter included seven internal combustion engine models and three hybrid models, including one ICE truck car, representing 83% and 17% of shipments, respectively. In the quarter, we continued to serve an impressive order book across all our current range, with delivery increases mainly driven by the Portofino M and the F8 family, in line with our programs. We also commenced the first deliveries of the 296 GTB, while the 812 Competizione was in a ramp-up phase. As previously mentioned, the Ferrari Monza SP1 and SP2 reached the end of their limited series run in Q1. All geographic regions positively contributed in the quarter, with Mainland China, Hong Kong, and Taiwan standing out with double deliveries compared to the prior year, reflecting strong demand. On page nine, you can see the walk of our group net revenues growing by 21% at constant currency. Revenues from cars and spare parts were up 21% at constant currency, driven by higher volumes along with the contribution from personalization. Revenues from personalizations increased, accounting for around 18% of revenues from cars and spare parts. However, engine revenues decreased by 8%, due to lower shipments to Maserati, whose contract is approaching expiration in 2023. The increase in commercial and lifestyle sponsorship was over 23% at constant currency, mainly attributed to better prior year Formula One rankings and increased contributions from lifestyle activities, partially offset by lower sponsorship. The other revenues increase was mainly related to other supporting activities. Currency impacts in translation and transaction had a total positive contribution of €41 million, mostly related to the US dollar and the Chinese yuan. As we move to page 10, let's review the change in our EBIT bridge, explained by the following variances: volume was positive for €90 million, reflecting the shipment increase; mix price variance linked to product current was negative for €16 million, mainly due to the softer product mix related to the phase-out of the Ferrari Monza and a greater contribution from the Portofino M, partially offset by the positive contribution from personalizations. Industrial and R&D expenses grew by €27 million in the quarter, mainly due to higher depreciation and amortization, cost inflation, and other one-off operating expenses. SG&A were negative by €18 million, mainly reflecting communication and marketing activities and corporate events, as well as support for the company's organizational development. Other was negative for €9 million, reflecting the improved prior year Formula One ranking and higher contributions from lifestyle activities that were more than offset by lower sponsorship, reduced engine shipments to Maserati, and other miscellaneous expenses. The total net impact of currency was positive for €29 million. As a result of what I just mentioned, EBIT reached a record level of €323 million, increasing approximately 18% versus the prior year, with an EBIT margin of 25%. Moving to page 11, our industrial free cash flow generation reflects the strong profitability, which was partially impacted by €166 million of capital expenditure progressing in line with full-year guidance. Cash interest and taxes totalled €162 million, mainly reflecting the tax balance payment linked to strong 2021 results and the first 2022 tax installment. There was also a small adverse impact from working capital, primarily related to higher inventories in line with projected volume growth for the year, partially offset by the collection of Daytona SP3 advances. In the quarter, the capitalization ratio of our development expenses was approximately 46%, slightly increasing versus the prior year. Net industrial debt as of the end of June 2022 was €387 million. The increase from €136 million as of March 2022 is explained by the €250 million dividend distribution and approximately €80 million of share repurchases, more than offsetting the positive industrial free cash flow generation in the quarter. However, overall strong net cash generation over the last 12 months improved the net investor debt position by almost €150 million compared to June 2021. On page 12, we revised our 2022 guidance upward across all metrics based on three main factors contributing to our initial assumptions for the year. First, stronger business performance regarding personalization, second, a tailwind from foreign exchanges net of hedges, mainly due to the recent strengthening of the US dollar relative to the euro, and third, despite rising inflation in our cost base linked to the current environment, which has slightly softened our percentage margins. I would remind you that our guidance still relies on the assumption that trading conditions are not significantly affected by the current complex environment. To conclude, we are very pleased with this quarter of records, which results from the unwavering passion of everyone at Ferrari, demonstrating the robustness of our business model and the success of our product portfolio, allowing us to look with great confidence into the rest of the year and the challenges ahead.

Nicoletta Russo, Corporate Communications Manager

We are now ready to open the Q&A session. Thank you.

Operator, Operator

Thank you. The first question comes from Adam Jonas at Morgan Stanley. Please ask your question.

Adam Jonas, Analyst

Thanks. Hello, everybody. Just a couple of questions. First on FX, which is going to be more important over the next couple of quarters given the continued weakness of the euro versus the foreign currency baskets. I was surprised with the conversion of the FX benefit to EBIT versus how it helped revenues. So it helped revenue €49 million, helped operating profit €37 million for about 75% conversion. I was a little surprised given what we seem to know about your hedging strategy where you would hedge a pretty clear majority 12 months out and then tailing off from there. So is that normal? Is that kind of impact on top line then following through to EBIT something that's continuing, or was it unusually high conversion this quarter?

Antonio Picca Piccon, CFO

Hi, Adam. Antonio speaking. Nothing unusual, actually. You should take into consideration that our foreign currency exposure is on revenues and net of costs. When you look at the impact of foreign exchanges, you should consider the combined impact of what we have from foreign exchange hedges at the beginning of our revenues or EBIT bridge and the change in foreign exchange and FX hedges in the last quarter, which is the second before the last column. The impact on net revenue is €41 million, while the impact on the EBIT is €28 million, so €10 million. I'm not sure whether it's always of that size the difference, but there is always that difference because of what I mentioned earlier meaning we are not just hedging revenues but revenues net of costs. Nothing has changed in terms of our hedging policy. We continue to operate on a rolling basis. The impact seen in our quarter is the result of the spot rate during the month, net of the hedges put in place in the previous 12 months, basically accumulated and stratified. Hope that answers your question.

Adam Jonas, Analyst

Okay. I appreciate it. Thank you. It does. And just one follow-up, please. Ahead of the Purosangue launch confirming that your first deliveries will be in this calendar year, this fiscal year. Anything you want to call out that could get noisy with the launches or other costs related to the launch? Any order of magnitude you wanted to point out that you've embedded in your guidance for margin of safety? Thanks.

Benedetto Vigna, CEO

Adam, it's Benedetto speaking. The Purosangue program is proceeding as planned. The deliveries will start next year, as we said earlier. From both a business and technical standpoint, the program is well on track. Nothing outside of what we are planning for. We are very excited to finally show this at the world premiere in September.

Operator, Operator

We are going to proceed with the next question. The next question comes from the line of Susy Tibaldi from UBS. Please ask your question.

Susy Tibaldi, Analyst

Hi. Good afternoon. I have three questions, please. My first one would be on the volume growth. Again, you reached a new record, up 29%. Of course, you already explained earlier in the year that it's because you have very long waiting lists; you don’t want people to have to wait for years. But each quarter you keep telling us there is a new record order intake. So this pace of production that we have seen so far this year, is it something that may persist for the rest of the year? So how should we think about volume growth? That's my first question. My second question was on pricing because last year, if I remember correctly, around July, you took a small 2% price increase to offset some of the inflation in the cost base. And, of course, this year, the inflation is higher. So I was wondering if you have done any similar action year-to-date. And thirdly, on profitability, previously you were guiding to a year where we were going to see a stronger H1 and then getting progressively weaker due to mix. But now if we look at performance in H1, your EBITDA margin was 35.1% and your new updated guide is for over 35%. So it implies that perhaps Q2 was actually the low point of the year and margins could improve in the second half. Any comments on this would be very helpful. Thank you.

Benedetto Vigna, CEO

I will take the first two, Susy, and for the last, Antonio will respond. Regarding volume growth in H2, the volume will be lower than H1, which is a regular pattern. Nothing strange and again, in line with our original plan. Secondly, yes, we have implemented some price increases, which will be visible starting Q1 next year. For the profitability comment, Antonio, feel free to explain the pattern we are seeing.

Antonio Picca Piccon, CFO

Yes, Susy. For the second half, we are looking at further improvements regarding margins from personalization, which are stronger than expected. Additionally, we already benefitted from foreign exchange rates in the first half of the year, but the hedges were at a less favorable currency level compared to what we are heading towards for the second half. Moreover, Q2 was impacted by one-off operating expenses that we do not expect to recur in the second half. So net-net, that is the reason we are looking at improved guidance.

Operator, Operator

We’re going to proceed with the next question. The next question comes from Giulio Pescatore from Exane BNP Paribas. Please ask your question.

Giulio Pescatore, Analyst

Hi. Thanks for taking my question. The first one on China. I was very impressed with your level of deliveries in the market. Can you elaborate on what drove the increase in the region? The second question on the new GT car. Those models are usually difficult to track, but anything you could share on pricing, timing of launch, and the contribution to profit implied by the sale of this model would be super useful. Lastly, regarding energy risk, it's clearly on everyone's mind in the automotive sector. Do you have any way of quantifying the risk of potential energy rationing in Europe, given your concentration of production? Are you taking measures to offset any potential impact as you approach the winter? Thank you.

Benedetto Vigna, CEO

Okay, Giulio, this is Benedetto. Regarding China, we had a strong net order intake there. Today, if you remember the chart Antonio presented, shipments were 10% of overall versus 6% the previous year. The growth was significant, though it has been quite uniform across all regions. For the GT3 pricing, it's important to note that it is a car meant for the track, not a road car, so it enhances the customer experience and is part of providing full experiences. The GT3 will come from the 296, which will replace the existing model used on the racetrack. Regarding energy risk, Antonio can provide more details.

Antonio Picca Piccon, CFO

Sure, Giulio. Energy cost inflation has clearly impacted us, and we try to be opportunistic in purchasing what we need for future months. While we have not seen specific concerns about supply energy rationing so far, we keep monitoring the situation closely.

Operator, Operator

We are going to proceed with the next question. The next question comes from Michael Binetti from Credit Suisse. Please ask your question.

Michael Binetti, Analyst

Hey, guys. Congrats on a great quarter. Thanks for taking our questions. As we look at the performance in this quarter, the level of cars you’re producing looks like you're on a run rate to produce 13,000 to 14,000 cars this year. You've been clear this year would be high unit volumes alongside some mix headwinds, which we’ve seen in the numbers. But transitioning from high-volume years into supercar years is not unusual, and it makes sense. As we look at next year, if you're producing at this rate and the mix of cars shifts positively, as we roll out Daytona and even Purosangue, do we expect lower volumes next year? Your guidance this year at the high end is €1.73 billion, which is only 4% below the €1.8 billion to €2 billion target of EBITDA for next year. Given your current production levels, it’s hard to understand how this dramatic EBITDA growth rate is baked into next year's guidance.

Benedetto Vigna, CEO

Michael, the key word I used at Capital Market Day was always uniqueness and distinctive cost. The increase in volume you see from 2022 over 2021 isn’t expected to replicate the same year-over-year growth for next year. This doesn't imply that we will lower volumes; it simply means that year-over-year growth will be less than this year.

Michael Binetti, Analyst

It is. I guess the question is, if we take some of this capacity you have to produce 3,450 units in a quarter and if some of those weren't Portofinos but instead Daytona at 10x the price, it makes it challenging to understand the low end of your guidance next year given what we have this year.

Benedetto Vigna, CEO

That's true, but you also have to consider that the cars are not all the same. The time needed to produce different objects varies significantly. Thus, there is dependency based on whether we’re working on different Ferraris. So it’s not simply a matter of a single variable adjustment.

Michael Binetti, Analyst

Okay. You raised your year; I suspect much of it was on FX. You raised your EBIT guidance, but the majority of your costs are in euros and your revenues are coming from a basket of currencies favorable to your guidance. Can you help us with your thoughts on this? Did you tweak anything lower on profitability for the underlying business excluding currency for the year? I know you have a disciplined financial process and good visibility into your targets but have you taken any actions to push any profit margins out to next year for a margin of safety given favorable FX?

Benedetto Vigna, CEO

Antonio, can you take it?

Antonio Picca Piccon, CFO

Yes, of course. We base our activities on planning which depends on our order book and our production capacity. We have planned carefully given the current order book coverage lasts more than a year. The guidance we provide is based on what we planned and the quality of the mix we aim to produce.

Michael Binetti, Analyst

Okay, thanks again.

Operator, Operator

The next question comes from the line of Monica Bosio from Intesa Sanpaolo. Please ask your question.

Monica Bosio, Analyst

Good afternoon. Actually, most of my questions have been already answered, but just one left. Two months passed from the Capital Market Day and we had the chance to have a glimpse of the Purosangue. I was wondering if you can tell us if there is any country where Purosangue is receiving a higher-than-average interest? Any flavor on this would be appreciated. Thank you.

Benedetto Vigna, CEO

Thanks for your question, Monica. We see strong interest in Purosangue from owners globally. As I mentioned before, the net order intake shows no particular geographical pattern, indicating broad appeal.

Monica Bosio, Analyst

Okay. Is there any difference in terms of gender, age, or demographics?

Benedetto Vigna, CEO

We looked at the age distribution, and it closely mirrors that of our average car buyers, showing no distinct signals or trends. Perhaps we will have more precise data to share in future calls.

Operator, Operator

We are going to proceed with the next question. The next question comes from the line of George Galliers from Goldman Sachs. Please ask your question.

George Galliers, Analyst

Hi. Thank you everyone for taking my question. My first question is on the Daytona and its production ramp. It seems that there are at least two cars currently being used by the press and appearing in social media. Can you confirm if these are pre-production cars or part of the 599 total? When do the first customer shipments start? Secondly, following up on Giulio's questions regarding gas, can you remind us what percentage of your energy supply in Maranello comes from gas? Are there any activities like paint shops that depend entirely on gas? Finally, regarding Formula 1, I understand championship points still impact revenues, and you described the Hungarian performance as disappointing in your press release. Several races have now shown a failure to convert qualifying performance into race results. Are there management steps you can take to address this?

Benedetto Vigna, CEO

Let's start with Daytona. Shipments will commence in Q1, and what you're seeing on social media are pre-production models. Some of these may later be sold—that's a usual process—but shipment for Daytona will begin next year. Regarding your second question about energy supply, most of our energy comes from gas, given we have three generators utilizing gas to generate the electricity we need. This year, we have slightly reduced our gas usage in favor of electricity. We are proud that, due to our team's innovation across industrial operations, we have managed to reduce the energy needed per car by 3%, aiming to reach a 5% reduction by year-end. Regarding Formula 1, we value every detail and remain dedicated to learning and fighting for the championship.

Operator, Operator

We are going to proceed with the next question. The next question comes from Stephen Reitman from SGCIB. Please ask your question.

Stephen Reitman, Analyst

Yeah, Stephen, Societe Generale. I have three questions. First of all, you mentioned the record order book—congratulations on that. Could you comment on whether you're seeing any cancellations and where they might be geographically concerning customer confidence? Secondly, while residual values are the responsibility of dealers, you track that closely. Could you provide insights into what's happening regionally with Ferraris' residual values? Lastly, regarding sponsorship, could you update us on securing a main sponsor for the Formula 1 team, aside from Mission Winnow taking on more junior status?

Benedetto Vigna, CEO

Yes, Stephen. Cancellation rates are very low, and we don't see any geographical patterns indicating significant concerns. We analyze this data closely and are monitoring it attentively, but nothing unusual has come to our attention. Regarding residual values, if a customer wishes to buy a Ferrari, the options are limited to three models. This scarcity helps to maintain residual values, and we see positive trends across various models. Lastly, this year we've diversified our sponsorship base significantly, as you've noticed in our Formula 1 cars. This year has seen many new sponsors, and we see strong interest from various partners.

Operator, Operator

We are going to proceed with the next question. The next question comes from the line of Charles Coldicott from Redburn. Please ask your question.

Charles Coldicott, Analyst

Hi. Thanks for taking my questions. My first question on the stronger impact from personalization: are there significant models driving that? Are you doing anything new to encourage customers to spec up their vehicles? Also, can you provide the percentage of revenues that personalization makes up? I believe it was 17% in Q1 if I remember correctly. Secondly, on order intake, despite only having the order book open for three models this quarter, I was wondering how many models you typically have the books open for in a typical year. Lastly, Benedetto, about the BEV in 2025, any expectations for it being a limited edition hypercar or part of the core sports car range?

Benedetto Vigna, CEO

I'll start with the last question, and then I'll leave the first part to Antonio. As for the BEV, I understand your curiosity, but it’s a bit premature to elaborate, as we are still three years out. I'm working with the team on some unique features for the car. The net order intake being a record this quarter owes itself to diverse factors, particularly our enriched customer experience. The strong experiences we provide play a crucial role in this demand. Now, for personalization, I'll hand it to Antonio.

Antonio Picca Piccon, CFO

Yes, Charles, personalization represented approximately 18% of total revenues from cars and spare parts. This quarter is particularly strong as we've seen a high contribution from V8 models, and we are extrapolating this trend based on ongoing orders.

Operator, Operator

We’re going to proceed with the next question. The next question comes from Tom Narayan from RBC. Please ask your question.

Tom Narayan, Analyst

Hi. Tom Narayan of RBC. I have three follow-ups. First on the nat gas rationing topic, can you discuss supply chain vulnerability? In the event of less availability of plastics, do you maintain inventory of components that could absorb this event, or are you purchasing in advance? Next, there seems to be a growing interest in Formula 1 in the US, partly due to a Netflix show. While the US is already a significant market for you, could you discuss any secondary benefits this might have on your business beyond car sales? Lastly, regarding the prepared commentary on preferring building versus buying software: with other OEMs facing challenges, could you comment on your willingness to partner with software providers instead of trying to grow that capacity internally?

Benedetto Vigna, CEO

Thank you, Tom. I'll start with the last point: build versus buy. We do not intend to create a Ferrari Operating System in-house. We prefer to allocate resources to partners who can assist in creating something unique and authentic. We have competencies in performance software that enhance our cars' effectiveness. On the other hand, for user interface software, we would leverage partnerships to ensure distinctiveness. Regarding interest in Formula 1 in the US, we’ve seen more than 30% shipment growth in Q2, and we can't pinpoint if it's correlation or causation, but both metrics are positive. As for supply chain management, we have faced only minor adjustments but have largely followed our initial plans to account for potential bottlenecks while working with our partners effectively.

Operator, Operator

We are going to proceed with the next question. The next question comes from John Murphy from Bank of America. Please ask your question.

John Murphy, Analyst

Good afternoon. I just have two follow-up questions at this point. First on the record order book: could you provide a length of time you expect this order book to last? It seems significantly longer than the traditional 18 months, potentially around 24 months. How are you managing this order book? Secondly, regarding foreign exchange, while you often hedge in capital markets and with banks, is there an opportunity to pass through some of these FX swings directly to customers during the order process to mitigate your banking costs and add fluidity to the pricing?

Benedetto Vigna, CEO

John, I can tell you that our order book is well beyond 2023. Regarding your inquiry about FX hedging, Antonio, please provide further commentary.

Antonio Picca Piccon, CFO

Yes, John. We’ve explored opportunities to pass on foreign exchange risk to our dealers and partners in the past. However, we ultimately determined that our current approach is the most efficient and cleanest from our perspective.

John Murphy, Analyst

Antonio, could you tell us about the direct cost of hedging?

Antonio Picca Piccon, CFO

You can read about it in the financial charges line; it depends on interest rate differentials at any given time.

Operator, Operator

Thank you very much for today's call. Please note that due to time constraints, we must now conclude the question-and-answer session. I would now like to hand back the call to Mr. Benedetto Vigna for final remarks.

Benedetto Vigna, CEO

Thank you. Thank you all for your time today and for your insightful questions. The second quarter of 2022 clearly marks another set of strong results with double-digit growth and record levels for revenues and profitability. This strong financial profile allows us to look at 2022 and beyond with great confidence. Good afternoon, everyone. Thank you for your attention.

Operator, Operator

Thank you for participating. You may now disconnect your lines.