Earnings Call Transcript
Ferrari N.V. (RACE)
Earnings Call Transcript - RACE Q4 2022
Operator, Operator
Good day, and thank you for joining us. Welcome to the Ferrari 2022 Full Year Results Conference Call. I would now like to turn it over to our speaker today, Nicoletta Russo, Head of IR. Please proceed.
Nicoletta Russo, Head of IR
Thank you, Sharon, and welcome to everyone who is joining us. Today, we plan to cover the group's full year 2022 operating results and 2023 guidance, and 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 the Group CFO, Mr. Antonio Piccon. All relevant materials are available in the Investors section of the Ferrari corporate website. And at the end of the presentation, we will be available to answer your questions. Before we begin, let me remind you that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included on Page 2 of today's presentation, and the call will be governed by this language. With that said, I'd like to turn the call over to Benedetto.
Benedetto Vigna, CEO
Thank you, Nicoletta, and thank you, everyone, for joining us today. In this call, we will discuss in detail 2 things: the result of the full year '22 and priorities and guidance of year '23. It has been a year of celebration, progress, and innovation for Ferrari. And for this, I would like to thank all the women and men of Ferrari for their outstanding work, all our partners who have helped us considerably during the past challenging years during which we had the opportunity to strengthen our relations with many of our suppliers, and last but not least, all our clients for their continuous trust in our brand. During our 75th anniversary year, among the many different moments, a milestone that signaled our company's evolution, I would like to highlight the following 3. Firstly, we unveiled 2 exciting models, the 296 GTS in April and the Ferrari Purosangue in September. These models strengthen an already astonishing product range that both meets and exceeds our customer demand for design, performance, and driving trials. Secondly, we presented our strategic plan. It was June for '22, '26, setting transparent, concrete, and measurable goals. Thirdly, we outlined our journey towards carbon neutrality within 2030 through a scientific and holistic approach. We are clear on our overall carbon footprint and we have a defined roadmap moving forward. From a financial perspective, we ended the 2022 with a remarkable set of results, setting a new record across all metrics, with EUR 5.1 billion in revenues, strong net profit at EUR 939 million, and more than EUR 750 million of industrial free cash flow generation. I will address, first racing where our origins lie, then sports cars where we have evolved and at the hand, lifestyle, our new ventures will continue to elevate our brand. Let's start with the racing world. 2022 was an important year for Ferrari in racing activities. We celebrated memorable victories in the Endurance Championship and we unveiled 2 new racing cars. The 296 GT3, the successor of the most winning Ferrari in history, the 488 GT3 and the 499P, our new Le Mans Hypercar signaling our return to the top tier of the FIA WEC in 2023 after 50 years. In Formula 1, we proved that our competitive edge improved during the last season, and it was encouraging for us and the million of fans to see our drivers taking more places on the podium. Clearly, our goal is to achieve the ultimate prize and the entire team, together with Fred, who recently joined us, are working relentlessly in that direction. In sports, we are engaged in 3 championships, F1, Endurance, and SRO. We continue to lead the way in terms of bridging the real world with the virtual world. How we do this? Well, by having our own Esport headquarters in Maranello, where our Esport drivers share programs and activities with our Scuderia Ferrari Driver Academy. And this is one important way to engage the younger generations. Now, after all the racing activities, let's talk about our beautiful high-performance and unique sports cars. And let's focus on our future, our order book. We continue to enjoy strong demand across all regions, with an overall order portfolio continuing to be at an all-time high and covering well into 2024. Our sports car product portfolio continues to have strong traction on all fronts with the 296 family and Purosangue driving the net order intake. The Purosangue order intake has been extraordinarily high, well beyond our expectations. But the enthusiasm of our clients is expressed also by their attendance level at all our events. In fact, in 2022, we had an unprecedented number of unrivaled client engagement experiences. On the brand events side, we extended our Casa Ferrari hospitality in several global venues and in Australia, we had, for the first time, our Universal Ferrari concept. On the dynamic events, we ranged from our cover capes to our engaging track activities. One for all, the Finali Mondiali, we held in Imola in the last quarter, which was definitely a great success and brought more than 40,000 fans altogether. All of these client experiences are designed to continue to fuel the passion and a sense of belonging within the Ferrari family. Among the innovations of 2022, it's worth mentioning too, the first edition of the Cavalcade icon with the participation of 80 Ferrari Monza, both SP1 and SP2, coming from more than 20 nations. And the first Ferrari GT Tour Women's edition with 26 ferrarista, coming together to take part in an exclusive road trip in Ibiza. And now, after the sports cars, let's talk about lifestyle activities. Here, we are determined to keep on working to extend our heritage and values in the wider luxury industry. Four highlights worth mentioning for 2022. One, we continued our journey in brand elevation through 2 fashion shows with strong and positive reviews from press and clients; two, we grew our assortment on high image items such as the jumpsuit and traffic builders, such as the Gallo Modena collection launched at the Monza Grand Prix to celebrate the 75th anniversary. Three, we further consolidated our licensing agreements in line with our luxury positioning. And last but not least, we reached a record level of visitors at our museum, welcoming more than 600,000 guests in 2022. As you can see, last year, we made many steps forward in racing, sport cars, and lifestyle. And in 2022, we also detailed our commitment to reaching carbon neutrality by the end of this decade. We are also proud to have committed to set science-based targets. The focus is not only on the impact of driving our sports cars, but also in our entire supply chain and production facilities. In years, we are working very closely with all our suppliers. In 2022, we also completed several projects in terms of carbon neutrality. From the new fuel cell plant and photovoltaic system at Maranello to the main innovations identified by our colleagues, such as the adoption of new filters in our foundry, saving more than 250 tons of aluminum per year and the dispersion recovery in our engine testing process. All these initiatives implemented in 2022 led to a reduction of approximately 5% of energy consumption per car. This is a remarkable result, and I'm really proud to underline that no CapEx was required, only the brainpower of all the colleagues. All of these developments, as well as the record result of the years, have been possible thanks to the passion and dedication of all the Ferrari people and to reward their achievement in line with the company's strong performance indicators, I'm pleased to announce the yearly competitive award of up to nearly EUR 13,500 for our employees. I'm also proud to share that for the fourth year in a row, Ferrari confirmed itself as one of the best places to work, thanks to the career opportunities and welfare services we offer to our employees. We live behind a year characterized by global tensions, geopolitical conflict, supply chain issues, and cost inflation. With our people, clients, and partners, we've been able to weather through these times, thanks to the collaboration, will to progress, continuous learning, focus, and confidence that sets us apart. And now we are ready for 2023. It will represent another significant step of our journey, during which we will continue to execute our strategy with the highest determination. Four priorities for 2023. We will compete at the top in the different racing championships. We will continue to enhance our client experiences both on track and on road and reaching them with 4 new model launches. We will broaden the lifestyle client base with a coherent and integrated offering of personal goods and unique experiences, and we will further accelerate the innovation pace with a strong focus on electrification and HMI as proved by the four times higher number of patents that we filed in 2022 compared to 2021. We look ahead at 2023 with enthusiasm, energy, agility, and confident humility required in these challenging times. Now I hand over to Antonio to review the 2022 results and 2023 guidance.
Antonio Piccon, CFO
Thank you, Benedetto, and good morning or afternoon to everyone joining us today. Let's start on Page 5 with the full year 2022 highlights, showing a very strong year with double-digit growth compared to 2021, and representing a solid foundation of the new business plan. These record earnings exceeded our latest guidance, thanks to a better business performance, personalization, and a tailwind from foreign exchange rates also in the last part of the year. Having said that, I would like to highlight our most remarkable achievements. EBITDA of EUR 1.773 billion, and EBIT of EUR 1.227 billion with margins aligned to guidance reflecting product mix and the evolution of our depreciation and amortization. Net profit of EUR 939 million resulting in a diluted EPS of EUR 5.09 and an industrial free cash flow generation of EUR 758 million. Turning to Page 6, you can see the details of the 2022 shipments. The product portfolio over the year included 9 internal combustion engine models and 3 hybrid models representing 78% and 22% of shipments, respectively. The deliveries increase was mainly driven by the Ferrari Portofino M and the SF90 family, as well as the 296 GTB and 812 Competizione, which were in the ramp-up phase. The deliveries of the ICONA pillar were lower compared to the prior year as the Ferrari Monza phased out in Q1 and the first few units of the Daytona SP3 commenced in Q4. All geographic regions grew compared to 2021 as we continue to serve an impressive order book across all models. As customary for Ferrari, the geographical allocation was deliberate and followed the pace of introduction of new models, particularly Mainland China, Hong Kong, and Taiwan continued to post high double-digit growth versus the prior year. I'll just remind you that the greater weight of the region is supportive in absolute value while dilutive in terms of percentage margins. And this is more visible in the gross profit of Q4 when Mainland China, Hong Kong, and Taiwan reached 14% of total shipments. On Page 7, you can see the walk of our group net revenues growing 16% at constant currency. As explained throughout the year, changes in cars and spare parts were driven by higher volumes and personalization. Personalizations were at around 18% in proportion to revenues from cars and spare parts. Engines were negative, in line with the reduction of supplies to Maserati, which will stop in 2023. Sponsorship, commercial, and brand reflected the better prior year Formula 1 ranking and the contribution from lifestyle activities, led by retail sales and museums visitors despite lower sponsorship. Currency had a positive impact mostly related to the U.S. dollar and the Chinese yuan. Let's move on to Page 8 and review the change in our EBIT year-over-year, explained by the following variances. Volume positive for EUR 261 million reflecting the shipment increase of approximately 2,000 units versus the prior year. Mix and price variance, negative for EUR 16 million mainly impacted by lower deliveries of the Ferrari Monza SP1 and SP2, partially offset by the increased contribution from personalizations, country, and range model mix. Industrial and R&D expenses grew EUR 116 million during the year due to higher depreciation and amortization as well as direct and indirect cost inflation mainly from energy and aluminum. The latter became particularly visible in Q4 as we supported our supply chain. SG&A were negative by EUR 47 million, reflecting communication and marketing activities, lifestyle, and corporate events as well as our organizational development. Finally, Other was negative EUR 49 million, mainly explained by the variance in contribution from racing activities and nonrecurring items as well as the reduced engine shipments to Maserati. This was partially offset by better contribution from lifestyle activities. The total net impact of currency was positive for EUR million. Turning to Page 9, our industrial free cash flow generation for the year reflects the strong profitability and a positive contribution from working capital and other, mainly related to the collection of Daytona SP3 and 812 Competizione on advances. This was partially offset by EUR 806 million of capital expenditure in line with guidance. In the year, the capitalization ratio of our development expenses was 45% increase versus the prior year as we enter the development phase on a number of future models and per effect of the budget cap in Formula 1. Net industrial debt as of the end of December 22 was EUR 207 million, decreased by EUR 90 million compared to December '21, reflecting the solid industrial free cash flow generation, net of the share repurchase program and dividend payment. To conclude on Page 10, we outlined the guidance for 2023, which targets solid growth and consistent progress in profitability. The main drivers are as follows: mix will be extremely strong, thanks to a very rich product portfolio, full year contribution of Ferrari Daytona SP3 and continuous positive effect from personalization. Price will positively contribute throughout the year, in line with the mid-single-digit price increase communicated in Q3 to counterbalance the impact of the current cost inflation. Depreciation and amortization will increase in line with the start of production of new models. Revenues from racing and lifestyle activities will show a limited improvement. And industrial free cash flow generation will be sustained by our profitability, partially offset by capital expenditures, slightly higher than EUR 800 million, and negative working capital in its broader meaning, mainly due to lower deposits on limited series models along with the reversal of those already collected in the previous 18 months. The tax rate for the year is expected to be around 22%, that is higher than in 2022, mainly because of the introduction of new rules on the patent box regime. The underlying assumption on the exchange rate of the U.S. dollar to euro is that it will fluctuate around 1.10, implying an overall neutral foreign exchange effect compared to 2022. This foreign exemption, together with the net impact of price actions taken to offset energy and raw material cost increases, explains most of the improvement in absolute terms between the 2023 guidance versus the previous EBITDA target of EUR 1.8 billion to EUR 2 billion. Percentage profitability will be growing over the course of the year, with Q1 currently expected to be the softest quarter driven by the planned development of our product and country mix. This is also linked to the allocation of deliveries to Mainland China, Hong Kong, and Taiwan designed to be front-loaded. Lastly, cost inflation remains largely unknown. In this context, we are relentlessly executing the strategy we outlined at the Capital Market Day as committed and focused as ever. The 2023 guidance represents another solid step on the trajectory to 2026.
Nicoletta Russo, Head of IR
Thank you, Antonio. Sharon, we are now ready to take questions.
Operator, Operator
We will now take the first question. Your first question comes from the line of Stephen Reitman from Societe Generale.
Stephen Reitman, Analyst
I apologize for the background noise. Two questions, please. You commented that the order intake has been much higher than you had anticipated on the Purosangue. Could you comment on if there are any regional differences, and particularly interested in the reaction in China to that product? And secondly, also on China itself, we saw that China took up a larger share of total sales, quite a strong acceleration there. According to the numbers I'm looking at, it seems that the growth was driven particularly by the V8, the by the F8 Tributo and, I guess, 296 GTB. Do you think this already indicates an increasing desire from Chinese customers to accept the sort of the 2 super sports car concepts as well which has obviously been maybe an issue in the past?
Nicoletta Russo, Head of IR
Apologies, we had some problem with the audio. Can you kindly repeat your second question? We got the one on Purosangue.
Stephen Reitman, Analyst
Yes. Following the Purosangue, regarding China, it appears that your sales growth in China in 2022 was mainly driven by the F8 and 296 GTB, rather than the Roma. Do you believe this suggests that Chinese customers are becoming more accepting of the 2-door, 2-seater sports car concept, which has historically been a challenge for Ferrari in China?
Benedetto Vigna, CEO
The first one was the acceptance of the traction of Purosangue all over the region. And I have to say two things. It has been the acceptance, and it has been higher than what we were thinking, and this is true across all the regions, okay? This is one important message. The second one, coming to China, let's say, the preference of Chinese clients toward our cars forecast. I have to say that we don't see a special pattern because we see clients interested in our ICE as well as in our hybrid. Consider also that we manage deliberately, the delivery of the cars for that region. But we don't see a clear pattern of selection of cars.
Operator, Operator
We will And your next question comes from the line of Susy Tibaldi from UBS.
Susy Tibaldi, Analyst
I have three questions, please. First, regarding the guidance for 2023, should we consider this year as an exceptional strong year, similar to how 2022 was a weaker transition year? I'm looking at the guidance for 2026 and trying to determine if we should expect growth to be somewhat linear moving forward, or if there could be another transition year with potential margin pressure. Will you be able to compare this year with the strong price mix? Personally, I think so, but I would like to hear your perspective. Secondly, could you explain your pricing philosophy? In the past, I recall a guideline where each new car was slightly more expensive than its predecessor and contributed a higher margin, typically with mid-single digit increases. However, given the extremely strong demand you are currently experiencing, it seems a new approach might be necessary. I'm interested in hearing how you approach pricing for new products. Lastly, regarding the Daytona, can you provide insight into the staging we should expect over the next few years? Will it be distributed evenly throughout its lifecycle, or will 2023 be a particularly strong year for the Daytona?
Benedetto Vigna, CEO
Thank you, Susy. I'll take the third one and then the first and the second one will be with Antonio. So the third one, the Daytona, we are starting as planned. And you can, yes, assume that it's more or less evenly distributed. The first and the second, Antonio will comment more.
Antonio Piccon, CFO
Yes. 2023 guidance compared to 2026. I think there are 2 elements that should be taken into consideration. The first one is that we already mentioned at the Capital Market Day that the plan is front-loaded, which means basically, you cannot assume a linear development, but it's rather a jump at the beginning and then a smoother growth. Secondly, some of the assumptions that were outlined at the Capital Market Day, obviously need to be updated once we get closer and closer. And one of the first is obviously the impact of pricing compared to where we were at the Capital Market Day, we had an adjustment in Q3 that we, I think, were public about. Another one is the impact of foreign exchange rates. I think we said at the Capital Market Day, we had assumed 1.15 as the average U.S. dollar to euro exchange rate. And this one is based on 1.10. So this set of assumptions, of course, will be revised from time to time depending on how and where we go. The second question is on pricing strategy. I think on this we have been quite careful in defining it, depending on the model and its distribution over time. And obviously, we take care about the demand and the order book that we have for the various models. So the price increases that have been applied in Q3 have been applied differently to selected markets and models.
Nicoletta Russo, Head of IR
If I may, to the next question, I kindly ask to state clearly your questions since we are having some audio problems.
Operator, Operator
Your next question comes from Giulio Pescatore from BNP Exane.
Giulio Pescatore, Analyst
The first question is quite broad. We don't usually focus on macro issues since we tend to create our own demand. However, the creation and concentration of wealth in recent years has clearly driven demand for you. You're in a unique position to discuss this. Could you share your expectations regarding concentration and demand for the coming year? Also, what are you factoring into your targets? The second question is about pricing. You mentioned that the targets for '26 include assumptions on pricing and that you've raised prices to offset costs. Am I correct in assuming that, even if costs decrease, you won't be lowering your prices? It seems pricing will remain stable for you. A comment on that would be appreciated. Lastly, I'd like to ask Antonio about the R&D expenses. The number in Q4 was unusually low. How should we consider these costs for 2023? I hope I was clear.
Antonio Piccon, CFO
I'll address the second and third points first. Regarding R&D expenses, there are two main reasons for the changes. As we progress further into the development phase for new models, we shift from spending purely on innovation to focusing on development, which has a different accounting approach. This explains the changes in how our engineers allocate their hours. Additionally, since we have a cap on the development costs for the chassis in 2022, this also affects our spending patterns; we tend to spend more at the start of the year and less towards the end. On pricing, you're absolutely correct to point out that I neglected to mention the relationship between pricing and costs. I mentioned that inflation is uncertain but also known to some extent, and we make assumptions accordingly. However, regardless of whether our assumptions are accurate, we must proceed with caution, as we cannot predict future costs. This uncertainty is a significant factor, which is why we are not providing further details regarding 2026.
Benedetto Vigna, CEO
Coming to the first question, Giulio. As you said, our view on the concentration of wealth in the world. Well, this is a trend that everyone can read in any newspapers. What I can tell you is that for us, what is important is that we keep always unique and we keep always exclusive for our cache. I think that what our founder said, we want to sell always 1 car less than the market demand was true, is true, and will be true. So concentration is happening. Yes, it's up to us what we are doing to manage properly the demand to keep it always exclusive.
Operator, Operator
And your next question comes from the line of Michael Binetti from Credit Suisse.
Michael Binetti, Analyst
Wonderful end of the year. I love the guidance of '23, obviously. Just a couple of quick ones on the model. How should we think about personalization versus 18% in 2022 as we look out this year, and you think about the mix of cars? And I'm wondering, does this guidance include getting the Keystone sponsor back in Formula 1 that exited last year? And then I guess a bigger picture question as we think through the numbers. So the guidance is for EBITDA margins around 38% this year. I think the long-term plan is 38% to 40%, obviously, this is the kind of year that has many, many tailwinds for profitability. Most importantly, the supercar mix is always helpful. Can you speak to what would be the upside case that would take margins from the level you just guided us to this year at 38% to the high end of that range at 40%? What are some of the things that are incremental to the P&L this year that would support that higher margin range from here?
Benedetto Vigna, CEO
So Michael, Antonio will take this question. And...
Antonio Piccon, CFO
Yes. In terms of personalization, we consider it to be a relatively constant percentage of our revenues. Over the past few years, this has remained between 17% and 19%, depending on our models. The assumption here is related to our product mix; as the price point increases, the proportion of personalization in relation to overall revenues decreases. Ultimately, it comes down to the mix we have. Regarding margin development, the significant increase was already reflected in our initial guidance, and over time, absent any further price or cost adjustments, this will influence our trajectory towards the guidance we provided for 2026. The mix is essentially the key factor driving this.
Michael Binetti, Analyst
Okay. The marketing sponsor for Formula 1? Is that getting the Keystone sponsor back in Formula 1 that was missing last year? Is that included in this guidance at this time?
Benedetto Vigna, CEO
We included, Michael, sorry, because we had some troubles, too, here, actually. The electronic is always a problem. Unfortunately, sometimes electronics, you cannot rely on it. No. The sponsorship, we keep enlarging our sponsor base. We keep diversifying our sponsor base. And you have seen that in the last week, we announced new sponsors. And all the plan and the guidance that Antonio showed you is all coherent with also what we see on the evolution of sponsorship. So the whole picture is considering all the elements, including the sponsorship evolution.
Operator, Operator
And your next question comes from the line of Thomas Besson from Kepler.
Thomas Besson, Analyst
I have two simple questions, please. Could you help us understand the pace of ramp-up for SP3 and Purosangue? You've mentioned that the mix will be the biggest driver for 2023, which is clear. However, can you provide some guidance on the number of units planned per quarter? Is your indication that the first quarter will be softer mainly due to a lower share of SP3 and Purosangue, for example? My second question is about foreign exchange; you've stated it will be neutral for 2023 compared to a challenging 2022. Is it too soon to make assumptions about the foreign exchange impact for 2024, or can we already expect it to be a small negative?
Benedetto Vigna, CEO
I'll take the first question about the Purosangue. This year, we are increasing production. We reached an important milestone at the end of last year successfully. This is indeed the year for ramping up, so we will be producing less than 20% of our total volume. However, we will gradually increase production throughout the four quarters to achieve the right volume by the end of this year. Everything is on track, and we are following our plan. Antonio, you can address the second question.
Antonio Piccon, CFO
Yes. On your second question, Thomas, I think it's too early to say, honestly. Visibility is already a complex element when looking at 1 year for the foreign exchange rate. Obviously, if you compare to the average assumption that we made on the plan to 2026, in principle, mathematically, yes, but reality will be a different thing, and it's too early to say now.
Operator, Operator
And your next question comes from the line of George Galliers from Goldman Sachs.
George Galliers, Analyst
The first two questions, I just wanted to clarify a couple of points from earlier on the call. So earlier, you did mention that the Daytona would be relatively evenly distributed. Can you just confirm, is that over 2023 and 2024? Or does that also include 2025? The second question was just on the specials, at 3% of 2022 volumes that equates to around 400 units. Is that the right kind of level to think about for this year as well? Or as you ramp the Competizione Aperta, should we expect that number to be higher? And then the last question I had was just with respect to the other line in 2022. Obviously, it was a negative, and you did mention some nonrecurring items. Could you perhaps just quantify how large the nonrecurring items were there, and any detail on what they relate to would be much appreciated.
Benedetto Vigna, CEO
George, I will leave the last one, the nonrecurring items to Antonio. I will manage the other two related to the product. Well, just it's an important clarification. When we are talking about any new model going into production, clearly, there is a ramp-up phase. And then there is a stabilization. This is true for all the products we do. So in these years, we will ramp up these new cars, and we will have an increase and then a stabilization over the course of the years. When I talk about every distribution, I talk about every distribution in quarters when the production is stabilized. This is the year where we run the Daytona and also the same applies to Purosangue as your colleague asked before. For the nonrecurring items, Antonio, you can take it.
Antonio Piccon, CFO
The first thing to note is that this is a variance, meaning it reflects the difference between the nonrecurring items of this year and those of the previous year. Last year, we experienced some positive nonrecurring items, primarily related to the release of certain provisions tied to past recall campaigns or excess provisions. This included the release of provisions for bad debts that had been previously accrued. In contrast, this year, particularly in the last quarter, we faced nonrecurring costs associated with the organization of the company. Overall, the difference amounts to a negative EUR 30 million year-over-year.
Operator, Operator
And your next question comes from the line of Adam Jonas from Morgan Stanley.
Unidentified Analyst, Analyst
This is Matthias on for Adam. But within your industrial free cash flow outlook, you highlighted some negative working capital and rising CapEx impact. Can you dimension out each of these for us? So in terms of how much CapEx and what's the order of magnitude on the working capital outflow?
Antonio Piccon, CFO
Sure. I mentioned earlier on that capital expenditure for 2023 is targeted to be above EUR 800 million, slightly above that number, so slightly higher compared to 2022. Working capital is expected in its broader meaning, that is including the lower cash-in coming from the fact that we had collected deposits in advance in 2022 is in the region of EUR 100 million or so.
Unidentified Analyst, Analyst
Great. And then as a follow-up, for the Purosangue, you lost some cost inefficiencies in the prior year, but there will also be some ramp-related costs this year, I presume. So it's not really clear whether the year-over-year impact on adjusted operating margins is going to be positive, negative, or neutral. So how should we think about the Purosangue impact on margins for this year?
Benedetto Vigna, CEO
I will address the question about the Purosangue. It's important to emphasize that at Ferrari, our product development process is very strong. Due to our thorough qualification and validation processes for new cars, when we start production, the product is thoroughly tested and fully developed. Therefore, we do not anticipate any surprises in this area. I believe that the maturity and stability of our product development process is one of our company's key strengths.
Operator, Operator
And your next question comes from the line of Martino De Ambroggi from Equita.
Martino De Ambroggi, Analyst
Regarding guidance, I understand that you do not provide volume forecasts. However, am I correct in assuming that volumes excluding Purosangue will be roughly similar to last year or slightly higher in 2023, plus the addition of Purosangue, considering that Daytona will balance out Monza? Additionally, you addressed free cash flow and net working capital earlier, so could you clarify the impact of down payments on your guidance? Will these down payments become mainly recurring in the future, or should we expect a decline at some point? Lastly, concerning the single-digit price increase to counteract inflation, you mentioned around EUR 200 million in inflation but also indicated that the costs are uncertain. Are you referring to future years or this current year? Specifically, can you provide any insights about labor costs in light of the ongoing negotiations in Italy?
Benedetto Vigna, CEO
Martino, I'll hand over the more challenging question to Antonio. Regarding the first question, I appreciate your interest in knowing our specific plans. I would feel the same in your situation. However, we cannot reveal our exact intentions for each particular model at this time. We will need to wait another 12 months to determine our direction for 2023. I'll leave the inquiries about free cash flow and the other question to Antonio.
Antonio Piccon, CFO
I will be disappointing, Martino, for a number of reasons. First, regarding your question about working capital, I can't provide the exact size of the negative outlook on the deposits. Moving forward, our assumptions will depend on the mix we expect year after year because, as you know, we collect deposits on strictly limited series. Therefore, it heavily relies on how many we will have for sale each year and when we start collecting in advance. I clearly mentioned at the Capital Market Day that over the planned period, this will balance out. There will be years when we collect more and others when we experience relative outflows, meaning fewer collections than might have been possible. The second question was about inflation. I described it as a known unknown. When we adjust prices, we try to look ahead and make our best guess based on the data we have, so we formulate assumptions. However, reality will invariably differ. In terms of labor costs, we also made an assumption, but negotiations regarding the new labor agreement are still in progress. We will see the final outcome; we based our assumptions on what we currently believe is most likely. However, I cannot provide more specifics on this.
Operator, Operator
And your next question comes from the line of Tom Narayan from RBC.
Gautam Narayan, Analyst
Tom Narayan, RBC. My first one has to do with electrification. I was curious if there was any updates post the June Capital Markets Day, especially related to the new e-building development. And with electrification, we get this question a lot, but just wondering how you would respond to what is Ferrari's kind of method of distinguishing itself with electrification. And obviously, you can enhance the product, but just love some color on that. We've heard that it ultimately has to do with exclusivity as a luxury retailer. If Hermès was forced to not sell leather bags and then other substrate people would still buy Hermès bags regardless. But I'd just love to hear more on how Ferrari can use electrification to enhance its product offering. And then the second question is just a quick one. Capital return. How do you think about capital return specifically as it relates to share buybacks?
Benedetto Vigna, CEO
Thank you, Tom. I'll address the first two questions, and Antonio will handle the last one. Regarding electrification, you may recall that last June we announced our plan to introduce electric Ferrari cars in 2025. I'm pleased to share that we are fully on schedule with this project. Our team made significant progress in the latter half of the year, focusing on various aspects of efficiency and the functionality of the cars that will utilize this new engine and axle. We also indicated that we would strategically manufacture important components in-house. This means we will produce them within our electric building, which is rapidly growing. I visited the site this morning with the infrastructure manager, and it is advancing quickly. In this facility, we will manufacture the axle, produce the inverter, and assemble the components for our own battery. Both the building and the product are developing as planned, reflecting the dedication of our entire team to this significant project. When discussing technology, the key aspect is not the technology itself but how we implement it. At Ferrari, we ensure our cars are unique and distinct by focusing on three key areas: design, performance, and driving experience. As we develop these electric vehicles, we prioritize our customers and the driving experience, considering factors like acceleration, braking, gearbox, and sound throughout the development process. Our product strategy, technology usage, and necessary infrastructure development are all on track, and we are satisfied with our progress as we continue to advance. Antonio?
Antonio Piccon, CFO
With respect to the strategy and capital return. For that, we should get back to what I explained at the Capital Market Day, meaning over the planned period, we thought our cash generation has been largely deployed for return to shareholders, 50% in the form of larger dividends and 50% approximately in terms of share buyback. We also mentioned that depending on the evolution of the plan, we could have adjusted or confirmed the plan, but this is what we outlined in terms of target for the next 4 years.
Operator, Operator
And your next question comes from the line of Anthony Dick from ODDO BHF. Apologies, Anthony, your line is very quiet. Can you please speak up?
Anthony Dick, Analyst
Yes, can you hear me?
Operator, Operator
Your line is still very quiet.
Anthony Dick, Analyst
Is it better now?
Operator, Operator
Perfect.
Anthony Dick, Analyst
Okay. Sorry about that. My first question was a clarification on the Daytona SP3. At the time of the release, your commercial team was quoted...
Operator, Operator
Apologies to stop you. We really have some problems. Can you talk a bit slower and make sure that you split all the words.
Anthony Dick, Analyst
I guess on the Daytona SP3, at the time of the release, your commercial team was quoted in the press saying that you targeted in 2024 for the deliveries of the Daytona SP3. I was just wondering if that was a timeline that you still had in mind. And the second question was on the Formula 1 business. I was just wondering if you could provide more color on the outlook, both on the top line and the bottom line for that business? Because, well, the sponsorship revenue is obviously a bit hard to predict, but I don't know if you were expecting to sign or sponsorships in 2023. And then with the increased revenues coming from the commercial rights owner and also reduced costs from the engine freeze. I'm just wondering what kind of incremental EBIT contribution we can expect over the coming years from that line of business.
Antonio Piccon, CFO
Maybe I'll start from the second. If I get your question right. With respect to the evolution of the revenues, we said we expect 2023 to be very much in line with 2022. So no major changes there. With respect to the development of the cost base on the chassis in the budget cap on the chassis, there have been some adjustments for inflation. So you may expect that it is going to lead to higher expenses there, while what is frozen in terms of development of the power unit is just the development cost, not the running cost, okay? So I wouldn't mention more than that, but I think I'll give you some data points.
Benedetto Vigna, CEO
Question, if I understand well, Anthony, was about the life cycle of Daytona. Well, we do not disclose this kind of detail. But, I mean, you can try to make a model based on the previous ICONA, but as you can understand, these are very important information that we like to keep here a little bit protected.
Operator, Operator
We will now go to our last question. And your last question comes from the line of Daniel Roeska from Bernstein.
Daniel Roeska, Analyst
I've got a strategic one more on the brand extension. Could you comment on how you think that the target groups for the luxury sports cars on one end and then for the extension of luxury lifestyle products and events on the other hand, how do they kind of overlap? Or how do they not overlap and kind of enhance each other?
Benedetto Vigna, CEO
Thank you for your question, Daniel. During the Capital Market Day, we mentioned that we are currently operating in a small segment of the luxury car market. There is a much larger portion within the luxury space that we have not yet tapped into. We believe this segment is significant, estimated at around $300 billion, and based on the latest results, it is continuing to grow. For us, Ferrari represents a lifestyle that extends beyond just sports cars. We believe it is essential to elevate our brand and expand our customer base. This is a key focus for us this year, as we aim to reach a larger audience and provide new experiences and products. This is a major priority for 2023.
Daniel Roeska, Analyst
In that context, maybe, what are you expecting from your dealers? Do you envision kind of format changes? Do they need to move more to city centers, kind of what's the relationship of that lifestyle extension and your traditional retail outlet? How do you bring that together?
Benedetto Vigna, CEO
I think, look, the dealer and let's say, we put together the sports car and the lifestyle when it makes sense to put them together in events and experiences that are going across all the brands. This does not imply that we have always to put together the two dimensions in every space where we operate, okay? So clearly, we aim to make the experience of our clients in our dealership more and more luxurious. This is one fact. This does not mean that we will sell hats in the dealership.
Operator, Operator
I will now hand back the conference to Benedetto Vigna for final remarks.
Benedetto Vigna, CEO
Thank you. Thanks to all of you for your time today and for your questions. 2022 has been a year rich in events and achievements and sets a robust foundation for this year, for 2023. And we look at it with even greater enthusiasm, energy, and confident humility. I wish you all a good afternoon. Thanks a lot for your attention. Thank you so much.
Operator, Operator
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.