Question

• Do you agree with the financial forecast in Exhibit 8? If so, why? If not, what specific concerns do you have?

  Exhibit 8
  FERRARI: THE 2015 INITIAL PUBLIC OFFERING
  Ferrari Forecast (Millions of Euro, except as noted)
  Assumptions		2014	2015	2016	2017	2018	2019
  	Growth in Cars Shipped	3.6%	7.0%	5.0%	4.0%	4.0%	3.0%
  	Growth in Revenue/Car		5.0%	5.0%	5.0%	5.0%	5.0%
  	Growth in Engine Revenue		3.0%	3.0%	3.0%	3.0%	3.0%
  	Growth in Other Revenue		3.0%	6.0%	6.0%	6.0%	6.0%
  	Operating Margin - Cars	12.5%	13.0%	13.5%	14.0%	14.0%	14.0%
  	Operating Margin - Engines	9.1%	10.0%	10.0%	10.0%	10.0%	10.0%
  	Operating Margin - All Other Revenue	24.9%	25.0%	27.0%	28.0%	30.0%	30.0%
  	Net Working Capital Turnover	1.9	2.0	2.1	2.2	2.2	2.2
  	Net Fixed Asset Turnover	3.2	3.2	3.3	3.5	3.7	3.8
  	Deprec. & Amort./PP&E	34%	34%	34%	34%	34%	34%
  Financial Forecast
  	Car Shipments (000s)	7.26	7.76	8.15	8.48	8.82	9.08
  	Avg Revenue per Car (Euro 000s)	268	281	295	310	326	342
  	Car Revenue	1,944	2,184	2,408	2,629	2,871	3,105
  	Engine Revenue	311	320	330	340	350	361
  	All Other Revenue	507	523	554	587	623	660
  	Total Revenue	2,762	3,027	3,292	3,556	3,844	4,126
  	Operating Profit - Cars	243	284	325	368	402	435
  	Operating Profit - Engines	28	32	33	34	35	36
  	Operating Profit - All Other Revenue	126	131	150	164	187	198
  	Total Operating Profit	398	447	508	567	624	669
  	Net Working Capital	1,425	1,513	1,568	1,617	1,747	1,875
  	Net PP&E and Int. Assets	851	932	998	1,016	1,039	1,086
  	Deprec. & Amort.	289	317	339	345	353	369
  	Total Revenue Growth	18%	10%	9%	8%	8%	7%
  	EBITDA Margin	25%	25%	26%	26%	25%	25%

Answer 1

Although the financial forecast seems to be prudent and on the conservative side, I have my reservation on the fact that it is shown there is a sales growth and and an expansion in the operating margin at the same time. Usually revenue growth is accomplished by increase in marketing expense, expense in new product development etc which tends to impact operating margins.

Also revenue growth shown above is not correct. For example for year 2 revenue growth is 3027/2762 -1 = 9.5% and not 18% as shown