Ferrari
Annual Report 2020

Plain-text annual report

0 2 0 2 T R O P E R L A U N N A . V . N I R A R R E F FERRARI N.V. ANNUAL REPORT 2020 Ferrari N.V. Offi cial Seat: Amsterdam, The Netherlands Dutch Trade Registration Number: 64060977 Administrative Offi ces: Via Abetone Inferiore 4 I-41053, Maranello (MO) Italy FERRARI N.V. ANNUAL REPORT 2020 TABLE OF CONTENTS 5 BOARD REPORT 6 Board of Directors 50 Overview of Our Business and Auditors 90 COVID-19 Pandemic Update 8 Letter from the Chairman and Chief Executive Officer 94 Operating Results 11 Certain Defined Terms 113 Subsequent Events and Note on Presentation and 2021 Outlook 12 Forward-Looking Statements 114 Major Shareholders 14 Selected Financial and Other 116 Corporate Governance Data 16 Creating Value for Our Shareholders 168 Risk Management 137 Non Financial Statement 18 Risk Factors 44 Overview 46 Industry Overview and Internal Control Systems 178 Remuneration of Directors 197 FINANCIAL STATEMENTS 198 Index to Consolidated 264 Index to Company Financial Financial Statements Statements 199 Consolidated Income 265 Income Statement / Statement Statement of Comprehensive Income 200 Consolidated Statement 266 Statement of Financial of Comprehensive Income Position 201 Consolidated Statement 267 Statement of Cash Flows of Financial Position 202 Consolidated Statement in Equity of Cash Flows 203 Consolidated Statement Financial Statements 269 Notes to the Company 268 Statement of Changes of Changes in Equity 204 FERRARI N.V. Notes to the Consolidated Financial Statements 291 OTHER INFORMATION 292 Other Information 294 Independent Auditor’s Report AR 2020 3 4 AR 2020/ TITOLO 2 LIVELLOFERRARI N.V.BOARD REPORT 5 AR 2020 FERRARI N.V. BOARD OF DIRECTORS AND AUDITORS BOARD OF DIRECTORS Executive Chairman and Chief Executive Officer John Elkann Vice Chairman Piero Ferrari Directors Delphine Arnault Francesca Bellettini Eddy Cue Sergio Duca John Galantic Maria Patrizia Grieco Adam Keswick INDEPENDENT AUDITORS Ernst & Young Accountants LLP 6 AR 2020 FERRARI N.V. LETTER FROM THE CHAIRMAN Dear Shareholders, The complex and dramatic nature of our current times is Despite the difficulties caused by COVID-19, which accelerating change and forcing the redefinition of how included a seven-week production suspension, the Group companies are judged, not least their ability to withstand still delivered 9,119 cars in 2020, in line with our second the impact of crises and to anticipate long-term global semester production plans, recorded revenues of 3.46 transformation. billion euro and delivered an EBITDA of 1.143 billion euro. These are important results. Even more important is how Moments such as these become a real testing ground the Company has succeeded this year in protecting the for business resilience. This year in extraordinary health of all of its people as well as those most vulnerable circumstances Ferrari has proved yet again its overall within the community. The effectiveness of the Back on strength. Track protocol has allowed us to work in the safest of 8 AR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements conditions and became an example Another no less ambitious goal now from which we must restart with to follow in Italy and across the lies before us: to become a carbon humility, focusing on our priorities globe. At the same time, we provided neutral company through a series to return to competitive form and to support to the local and national of actions aimed at reducing car winning. healthcare system through our emissions as well as fully offsetting charity initiatives, which in turn were others. generously supported by our clients, Ferrari was, however, one of the protagonists of the GT Racing season our Board of Directors and our This will be a further and decisive benefiting from the introduction of Senior Management Team. step forward in our transition to the 488 GT3 Evo 2020. sustainability and starts with a study Throughout the various phases to measure our carbon footprint. Our triumphs in the GT World of the pandemic, we behaved Challenge Europe’s Endurance Cup with consistent responsibility and Sustainability for Ferrari also and the FIA Endurance Trophy in the transparency towards our business means committing to an inclusive WEC were two of the high points of partners, clients and all stakeholders. working environment that respects the 26 national and international titles differences. added to the Prancing Horse’s tally of We provided timely updates to the victories in 2020. market, offering guidance about our Our efforts in that regard have future without ignoring relative risks been rewarded by the Equal Salary As we enter a new decade, we remain and opportunities as they gradually Foundation, which last July certified focused on our long term future. emerged. I would like to extend my that Ferrari offers equal pay and Today’s successes will never ensure heartfelt thanks not only to the men treatment to men and women alike those of tomorrow. But innovation, and women of Ferrari but also to holding the same qualifications and creativity and our people are what Louis Camilleri for his exemplary positions. The Company became will continue to determine our leadership throughout this extremely the first Italian company to be achievements. I am optimistic that sensitive time. During his tenure awarded this certification at the we will know how to turn arduous Ferrari reached milestones never end of an analysis conducted using challenges into exciting opportunities. before achieved. European Commission-recognised methodologies. I am thinking, for example, of our February 26, 2021 product range, which is now one The safety measures imposed by the of the best, most innovative and pandemic have inevitably hindered John Elkann broadest in our history. In 2020, it our brand diversification activities, Chairman was enriched still further by the resulting in the museums, theme addition of the Ferrari Portofino parks and stores remaining closed M, the SF90 Spider and, lastly, the for a good part of the year. That said, 488 GT Modificata, a limited edition we still launched major initiatives model for Club Competizioni GT such as the online Ferrari Hublot events: three new reference points Esports Series, which clocked up for the automotive sector in terms of over 2.5 million views. design, performance and innovation. In introducing them, we enriched 2020 also brought our 1,000th a portfolio that meets the different Grand Prix: a historic achievement needs of an increasingly diverse we proudly celebrated as the client base whilst retaining Ferrari’s most successful team ever both signature exclusivity through in Formula 1 and motorsport in targeted individual models. Industry general. Nonetheless, past victories recognition has also not been are no guarantee for the future and lacking, in particular the Red Dot: last year was a demonstration of Best of the Best Award for the SF90 that, with results not on a par with Stradale and the Compasso d’Oro our history. This painful reality both for the Ferrari Monza SP1. for ourselves and our fans is that 9 AR 2020 FERRARI N.V. 10 AR 2020/ TITOLO 2 LIVELLOBOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements CERTAIN DEFINED TERMS AND NOTE ON PRESENTATION CERTAIN DEFINED TERMS BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS In this report, unless otherwise specified, the terms The Group’s financial information is presented in Euro. “we”, “our”, “us”, the “Group”, the “Company” and “Ferrari” In some instances, information is presented in U.S. refer to Ferrari N.V., individually or together with its Dollars. All references in this document to “Euro” and subsidiaries, as the context may require. References to “€” refer to the currency introduced at the start of the “Ferrari N.V.” refer to the registrant. third stage of European Economic and Monetary Union pursuant to the Treaty on the Functioning of the European References to “Stellantis” or “Stellantis Group” refer to Union, as amended, and all references to “U.S. Dollars” Stellantis N.V., together with its subsidiaries. “FCA” or “FCA and “$” refer to the currency of the United States of Group” refer to Fiat Chrysler Automobiles N.V., together America (the “United States”). with its subsidiaries, prior to the merger with Peugeot S.A. completed on January 16, 2021, following which FCA The language of this Annual Report is English. Certain was renamed Stellantis N.V. legislative references and technical terms have been NOTE ON PRESENTATION cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law. The financial data in the section “Results of Operations” This Annual Report includes the consolidated financial is presented in millions of Euro, while the percentages statements of Ferrari N.V. as of December 31, 2020 and presented are calculated using the underlying figures in 2019, and for the years ended December 31, 2020, 2019 thousands of Euro. and 2018 prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the Certain totals in the tables included in this document International Accounting Standards Board, as well as IFRS may not add due to rounding. as adopted by the European Union. There is no effect on these consolidated financial statements resulting from differences between IFRS as issued by the IASB and IFRS as adopted by the European Union. The designation IFRS also includes International Accounting Standards (“IAS”) as well as all the interpretations of the International Financial Reporting Interpretations Committee (“IFRIC” and “SIC”). We refer to these consolidated financial statements collectively as the “Consolidated Financial Statements”. 11 AR 2020 FERRARI N.V. FORWARD-LOOKING STATEMENTS Statements contained in this Annual • the success of our Formula 1 operate, and changes in demand Report, particularly those regarding racing team and the expenses we for luxury goods, including high our possible or assumed future incur for our Formula 1 activities, performance luxury cars, which is performance, competitive strengths, the impact of the application of highly volatile; costs, dividends, reserves and the new Formula 1 regulations growth as well as industry growth progressively coming into effect in and other trends and projections, 2021 and 2022, the uncertainty of are “forward-looking statements” the sponsorship and commercial that contain risks and uncertainties. revenues we generate from our In some cases, words such as “may”, participation in the Formula 1 World “will”, “expect”, “could”, “should”, Championship, including as a result “intend”, “estimate”, “anticipate”, of the impact of the COVID-19 “believe”, “remain”, “continue”, pandemic, as well as the popularity • competition in the luxury performance automobile industry; • our ability to successfully carry out our growth strategy and, particularly, our ability to grow our presence in growth and emerging market countries; • our low volume strategy; “on track”, “successful”, “grow”, of Formula 1 more broadly; • global economic conditions, “design”, “target”, “objective”, “goal”, “forecast”, “projection”, “outlook”, “prospects”, “plan”, “guidance” and similar expressions are used to identify forward-looking statements. These forward-looking statements reflect the respective current views of Ferrari with respect to future events and involve significant risks and uncertainties that could cause actual results to differ materially • the effects of the evolution of pandemics and macro events; and response to the COVID-19 • reliance upon a number of key pandemic; • our ability to keep up with advances in high performance car technology and to make appealing members of executive management and employees, and the ability of our current management team to operate and manage effectively; designs for our new models; • the performance of our dealer • our ability to preserve our relationship with the automobile network on which we depend for sales and services; collector and enthusiast • increases in costs, disruptions of from those indicated in the forward- community; looking statements. Such risks • changes in client preferences and and uncertainties include, without automotive trends; supply or shortages of components and raw materials; • disruptions at our manufacturing facilities in Maranello and Modena; • changes in the general economic environment, including changes in • the effects of Brexit on the UK some of the markets in which we market; limitation: • our ability to preserve and enhance the value of the Ferrari brand; 12 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements • the performance of our licensees • our ability to maintain the functional We expressly disclaim and do not for Ferrari-branded products; and efficient operation of our assume any liability in connection • our ability to protect our intellectual property rights and to avoid infringing on the intellectual property rights of others; information technology systems with any inaccuracies in any of the and to defend from the risk of forward-looking statements in this cyberattacks, including on our in- document or in connection with vehicle technology; any use by any third party of such • the ability of Maserati, our engine • our ability to service and refinance customer, to sell its planned volume our debt; of cars; • our continued compliance with customs regulations of various jurisdictions; • our ability to provide or arrange for adequate access to financing for our dealers and clients, and associated risks; • the impact of increasingly stringent fuel economy, emission and safety • labor relations and collective bargaining agreements; forward-looking statements. Actual results could differ materially from those anticipated in such forward- looking statements. We do not undertake an obligation to update or revise publicly any forward-looking statements. Additional factors which could cause standards, including the cost of • exchange rate fluctuations, interest actual results and developments compliance, and any required rate changes, credit risk and other to differ from those expressed changes to our products; market risks; • the challenges and costs of • changes in tax, tariff or fiscal integrating hybrid and electric policies and regulatory, political and technology more broadly into our labor conditions in the jurisdictions car portfolio over time; in which we operate, including • product recalls, liability claims and possible future bans of combustion product warranties; • the adequacy of our insurance coverage to protect us against potential losses; • our ability to ensure that our employees, agents and representatives comply with applicable law and regulations; engine cars in cities and the potential advent of self-driving technology; • potential conflicts of interest due to director and officer overlaps with our largest shareholders; and • other factors discussed elsewhere in this document. or implied by the forward-looking statements are included in the section “Risk Factors” of this Annual Report. These factors may not be exhaustive and should be read in conjunction with the other cautionary statements included in this Annual Report. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties. 13 AR 2020 FERRARI N.V. SELECTED FINANCIAL AND OTHER DATA The following tables set forth selected historical This financial information has been prepared in consolidated financial and other data of Ferrari and have accordance with IFRS. been derived from: The following information should be read in conjunction (i) the audited Consolidated Financial Statements, with “Certain Defined Terms and Note on Presentation included elsewhere in this Annual Report; -Note on Presentation”, “Risk Factors”, “Operating Results” (ii) the audited consolidated income statement of the and the Consolidated Financial Statements included Company for the years ended December 31, 2017 elsewhere in this Annual Report. Historical results for any and 2016 and the audited consolidated statement of period are not necessarily indicative of results for any financial position at December 31, 2018, 2017 and 2016. future period. CONSOLIDATED INCOME STATEMENT DATA (€ million, except per share data) Net revenues EBIT Profit before taxes Net profit Net profit attributable to: Owners of the parent Non-controlling interests Basic earnings per common share (€) (1) Diluted earnings per common share (€) (1) (2) Dividend declared per common share (€) (3) Dividend declared per common share ($) (3) (5) Distribution declared per common share (€) (4) Distribution declared per common share ($) (4) (5) 2020 3,460 716 667 609 608 1 3.29 3.28 1.13 1.23 — — For the years ended December 31, 2019 2018 2017 2016 3,766 3,420 3,417 3,105 917 875 699 696 3 3.73 3.71 1.03 1.16 — — 826 803 787 785 2 4.16 4.14 0.71 0.88 — — 775 746 537 535 2 2.83 2.82 — — 0.635 0.682 595 567 400 399 1 2.11 2.11 — — 0.46 0.52 (1) Basic and diluted earnings per common share in 2020 benefited from the one-off partial step-up of certain trademarks for tax purposes, which resulted in a net tax benefit of €75 million. The increase in the basic and diluted earnings per common share in 2018 compared to 2017 includes the effects of applying the Patent Box tax regime starting in the third quarter of 2018. See Adjusted Basic and Diluted Earnings per Common Share in the section “Non-GAAP Financial Measures” as well as Note 10 to the Consolidated Financial Statements, both included elsewhere in this document, for additional information. (2) In order to calculate the diluted earnings per common share the weighted average number of shares outstanding has been increased to take into consideration the theoretical effect of (i) the potential common shares that would have been issued under the equity incentive plan for the years ended December 31, 2020, 2019, 2018 and 2017 (assuming 100 percent of the related awards vested), and (ii) the potential common shares that would have been issued for the Non-Executive Directors’ compensation agreement for the years ended December 31, 2017 and 2016. See Note 12 to the Consolidated Financial Statements for additional information. (3) Following approval of the annual accounts by the shareholders at the Annual General Meeting of the Shareholders on April 16, 2020, a dividend distribution of €1.13 per outstanding common share was approved, corresponding to a total distribution of €209 million. Following approval of the annual accounts by the shareholders at the Annual General Meeting of the Shareholders on April 12, 2019, a dividend distribution of €1.03 per outstanding common share was approved, corresponding to a total distribution of €193 million. Following approval of the annual accounts by the shareholders at the Annual General Meeting of the Shareholders on April 13, 2018, a dividend distribution of €0.71 per outstanding common share was approved, corresponding to a total distribution of €134 million. Such dividend distributions were made from the retained earnings reserve. (4) Following approval of the annual accounts by the shareholders at the Annual General Meeting of the Shareholders on April 14, 2017, a cash distribution of €0.635 per outstanding common share was approved, corresponding to a total distribution of €120 million. Following approval of the annual accounts by the shareholders at the Annual General Meeting of the Shareholders on April 15, 2016, a cash distribution of €0.46 per outstanding common share was approved, corresponding to a total distribution of €87 million. Such distributions were made from the share premium reserve which is a distributable reserve under Dutch law. (5) Translated into U.S. Dollars at the exchange rates in effect on the dates on which the distribution was declared in U.S. Dollars for common shares that are traded on the New York Stock Exchange. These translations are examples only, and should not be construed as a representation that the Euro amount represents, or has been or could be converted into, U.S. Dollars at that or any other rate. 14 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements CONSOLIDATED STATEMENT OF FINANCIAL POSITION DATA (€ million, except number of shares issued) Cash and cash equivalents Receivables from financing activities Total assets Debt Total equity Equity attributable to owners of the parent Non-controlling interests Share capital Common shares issued and outstanding (in thousands of shares) OTHER STATISTICAL INFORMATION Shipments (number of cars) Average number of employees for the period 2020 1,362 940 6,262 2,725 1,789 1,785 4 3 At December 31, 2019 2018 898 966 5,446 2,090 1,487 1,481 6 3 794 878 4,852 1,927 1,354 1,349 5 3 2017 648 733 4,141 1,806 784 779 5 3 2016 458 790 3,850 1,848 330 325 5 3 184,748 185,283 187,921 188,954 188,923 For the years ended December 31, 2020 9,119 4,428 2019 2018 2017 2016 10,131 4,164 9,251 3,651 8,398 3,336 8,014 3,115 15 AR 2020 FERRARI N.V. CREATING VALUE FOR OUR SHAREHOLDERS FERRARI IS AMONG THE WORLD’S LEADING LUXURY BRANDS WITH UNIQUE, WORLD-CLASS CAPABILITIES, AND A VISION BUILT ON OUR HISTORIC FOUNDATIONS AND STRENGTHS. WE ARE FIERCELY PROTECTIVE OF OUR BRAND, WHICH IS AMONG THE MOST ICONIC AND RECOGNIZABLE IN THE WORLD AND CRITICAL TO OUR VALUE PROPOSITION TO ALL OF OUR STAKEHOLDERS. We strive to maintain and enhance the power of our brand and the passion we inspire in clients and the broader community of automotive enthusiasts by continuing our rigorous production and distribution model, which promotes excellence in innovation, design and exclusivity. WE ALSO SUPPORT OUR BRAND VALUE BY PROMOTING A STRONG CONNECTION TO OUR COMPANY AND OUR BRAND AMONG THE COMMUNITY OF FERRARI ENTHUSIASTS. Ferrari owners and approximately The foundation of a responsible 32% of our clients being owners company rests on being fully of more than one Ferrari, which attentive to the nature and extent reinforces the demand for our cars of this interconnection and our and the image of luxury and exclusivity understanding of both the potential inherent in our brand. effects of our activities and how those effects can be mitigated OUR COMMITMENT TO through responsible management. EXCELLENCE AND OUR PURSUIT OF INNOVATION, STATE-OF- To provide for tangible long-term THE-ART PERFORMANCE value creation, we place particular AND DISTINCTION IN DESIGN emphasis on: AND ENGINEERING IN OUR • a governance model based on LUXURY CARS IS INSEPARABLE transparency and integrity; FROM OUR COMMITMENT TO INTEGRITY, TRANSPARENCY AND RESPONSIBILITY IN THE CONDUCT OF OUR BUSINESS. • a safe and eco-friendly working environment including excellent working conditions and respect for human rights; By fully integrating environmental and social considerations with economic objectives we are able to identify potential risks and capitalize on additional opportunities, • professional development of our employees; • mutually beneficial relationships with business partners and the communities in which we operate; We focus relentlessly on resulting in a process of continuous • mitigation of environmental strengthening this connection by improvement. rewarding our most loyal clients impacts from our production processes and the luxury cars we through a range of initiatives, such as SUSTAINABILITY IS A CORE produce. driving events and client activities in ELEMENT OF OUR GOVERNANCE Maranello and, most importantly, by MODEL AND EXECUTIVE The Non Financial Statement providing our most loyal and active MANAGEMENT PLAYS A DIRECT section of our 2020 Annual Report clients with preferential access to our AND ACTIVE ROLE IN DEVELOPING addresses those aspects of our newest, most exclusive and highest AND ACHIEVING OUR sustainability efforts that we have value cars. As a result, we enjoy a SUSTAINABILITY OBJECTIVES identified as being of greatest strong and loyal client base with most UNDER THE OVERSIGHT OF OUR importance to our internal and of our cars being sold to existing BOARD OF DIRECTORS. external stakeholders. 16 AR 2020 17 AR 2020 FERRARI N.V. RISK FACTORS WE FACE A VARIETY OF RISKS AND UNCERTAINTIES IN OUR BUSINESS. THOSE DESCRIBED BELOW ARE NOT THE ONLY RISKS AND UNCERTAINTIES THAT WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES THAT WE ARE UNAWARE OF, OR THAT WE CURRENTLY BELIEVE TO BE IMMATERIAL, MAY ALSO BECOME IMPORTANT FACTORS THAT AFFECT US. driver experience compared to the combustion engine cars of our models to date. Any failure to preserve and enhance the value of our brand may materially and adversely affect our ability to sell our cars, to maintain premium pricing, and to extend the value of our brand into other activities profitably or at all. We selectively license the Ferrari brand to third parties that produce and sell Ferrari-branded luxury goods and therefore we rely on our licensing partners to preserve and enhance the value of our brand. If our licensees or the manufacturers of these products do not maintain the standards of quality and exclusivity that we believe are consistent with the Ferrari brand, or if such licensees or manufacturers otherwise misuse the Ferrari brand, RISKS RELATED TO OUR BUSINESS, STRATEGY AND OPERATIONS Maintaining the value of our brand our reputation and the integrity and will depend significantly on our value of our brand may be damaged ability to continue to produce luxury and our business, operating results performance cars of the highest and financial condition may be quality. materially and adversely affected. In addition, in 2019 we announced WE MAY NOT SUCCEED IN PRESERVING AND ENHANCING THE VALUE OF THE FERRARI BRAND, WHICH WE DEPEND UPON TO DRIVE DEMAND AND REVENUES. The market for luxury goods a brand diversification strategy generally and for luxury that will significantly increase the automobiles in particular is deployment of our brand in non- intensely competitive, and we may car products and experiences. If not be successful in maintaining this strategy is not successful, our and strengthening the appeal of brand image may be diluted or Our financial performance is our brand. Client preferences, tainted. influenced by the perception particularly among luxury goods, and recognition of the Ferrari can vary over time, sometimes brand, which, in turn, depends on rapidly. We are therefore exposed many factors such as the design, to changing perceptions of our performance, quality and image brand image, particularly as we OUR BRAND IMAGE DEPENDS IN PART ON THE SUCCESS OF OUR FORMULA 1 RACING TEAM. of our cars, the appeal of our seek to attract new generations The prestige, identity, and appeal dealerships and stores, the success of clients and, to that end, we of the Ferrari brand depend in part of our promotional activities continuously renovate and expand on the continued success of the including public relations and the range of our models. Scuderia Ferrari racing team in the marketing, as well as our general Formula 1 World Championship. profile, including our brand’s image For example, the gradual expansion The racing team is a key component of exclusivity. The value of our brand of hybrid engine (already integrated of our marketing strategy and may and our ability to achieve premium in past models such as the be perceived by our clients as a pricing for Ferrari-branded products LaFerrari and the LaFerrari Aperta, demonstration of the technological may decline if we are unable to as well as in the new SF90 Stradale capabilities of our sports, GT, maintain the value and image of the and SF90 Spider) and electric special series and Icona cars, which Ferrari brand, including, in particular, engine technology will introduce also supports the appeal of other its aura of exclusivity. a notable change in the overall Ferrari-branded luxury goods. 18 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements WE ARE FOCUSED ON IMPROVING OUR RACING RESULTS AND RESTORING OUR HISTORICAL POSITION as the premier racing team WE ARE SUBJECT TO RISKS RELATED TO THE COVID-19 PANDEMIC OR SIMILAR PUBLIC HEALTH CRISES THAT MAY MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS. our facilities, while continuing to guarantee the possibility of remote work for those employees whose job activity is compatible with such work arrangements. particularly in Formula 1 as our Public health crises such as In connection with the COVID-19 most recent Drivers’ Championship pandemics or similar outbreaks could pandemic and related government and Constructors’ Championship adversely impact our business. The measures, we have experienced were in 2007 and 2008, respectively. global spread of COVID-19, a virus delays in shipments of cars due to If we are unable to attract and retain causing potentially deadly respiratory restrictions on dealers’ activities the necessary talent to succeed tract infections, which was declared or the inability of customers to take in international competitions or a global pandemic by the World delivery of cars. devote the capital necessary to Health Organization in March 2020, fund successful racing activities, has led to governments around DELIVERIES GRADUALLY the value of the Ferrari brand and the world mandating increasingly RESTARTED DURING the appeal of our cars and other restrictive measures to contain the MAY 2020 AND FROM luxury goods may suffer. Even if pandemic, including social distancing, MAY TO OCTOBER 2020 we are able to attract such talent quarantine, “shelter in place” or SUBSTANTIALLY ALL FERRARI and adequately fund our racing similar orders, travel restrictions DEALERSHIPS REMAINED FULLY activities, there is no assurance that and suspension of non-essential OPERATIONAL; this will lead to competitive success business activities. The impact of for our racing team. COVID-19, including changes in however, new closures have recently consumer behavior, pandemic fears been made necessary as a result THE SUCCESS OF OUR RACING and market downturns, as well as of the resurgence of the pandemic TEAM DEPENDS IN PARTICULAR restrictions on business and individual in certain territories. For further ON OUR ABILITY TO ATTRACT activities, has led to a global economic information on the impact of the AND RETAIN TOP DRIVERS, slowdown and a severe recession in COVID-19 pandemic on our results RACING TEAM MANAGEMENT several of the markets in which we of operations and liquidity, see AND ENGINEERING TALENT. operate, which may persist after the “COVID-19 Pandemic Update and restrictions are lifted. Operating Results”. The resurgence Our primary Formula 1 drivers, team of the pandemic in several European managers and other key employees The above mentioned restrictive countries, including Italy, as well as in of Scuderia Ferrari are critical to the measures, though temporary the United States and elsewhere in the success of our racing team and if we in nature, may continue for an last months of 2020 and beginning were to lose their services, this could extended period of time and intensify of 2021 have led governments have a material adverse effect on depending on developments in to reintroduce social distancing the success of our racing team and the COVID-19 pandemic, including measures, curfews, travel restrictions correspondingly the Ferrari brand. potential subsequent waves of the and lockdowns, and increasingly If we are unable to find adequate outbreak. From mid-March to early stringent measures may be imposed replacements or to attract, retain May 2020, we suspended production in the coming periods. Although and incentivize drivers and team at our plants in Maranello and vaccination plans are being rolled out managers, other key employees or Modena, while implementing remote in several jurisdictions, the pace of new qualified personnel, the success working arrangements for all non- vaccination is unclear and the efficacy of our racing team may suffer. As the manufacturing related activities. We on large populations is untested. We success of our racing team forms generally realize minimal revenue may yet experience a new shutdown a large part of our brand identity, while our facilities are shut down, or slowdown of all or part of our a sustained period without racing but we continue to incur expenses. manufacturing facilities, including success could detract from the Ferrari Moreover, the negative cash impact in the event that our employees are brand and, as a result, from potential is exacerbated by the fact that, diagnosed with COVID-19 or our clients’ enthusiasm for the Ferrari despite not selling cars, we have supply chains are disrupted, or if brand and their perception of our cars, to continue to pay suppliers for additional “waves” of the pandemic which could have an adverse effect on components previously ordered. lead to further government actions. our business, results of operations and We continue to take measures to Management time and resources financial condition. combat the spread of COVID-19 at may need to be spent on COVID-19 19 AR 2020 FERRARI N.V. related matters, distracting them (and we only partially reopened in financial performance and cash from the implementation of our mid-February 2021) and to close flows may be material and adverse. strategy. In addition, the prophylactic our stores in some jurisdictions in measures we will be required to accordance with local regulations. The COVID-19 pandemic may also adopt at our facilities may be costly exacerbate other risks disclosed in and may affect production levels. The Formula 1 2020 World this section, including, but not limited Our suppliers, customers, dealers, Championship was heavily to, our competitiveness, demand franchisees and other contractual disrupted due to the COVID-19 for our products, shifting consumer counterparties may be restricted or pandemic. The Formula 1 calendar preferences, exchange rate prevented from conducting business was rescheduled, with a delayed fluctuations, customers’ and dealers’ activities for indefinite or intermittent start in July 2020 and a total of 17 access to affordable financing, and periods of time, including as a result Grand Prix races (five less than credit market conditions affecting of safety concerns, shutdowns, originally scheduled), most of which the availability of capital and financial slowdowns, illness of such parties’ without public attendance. Such resources. workforce and other actions and disruption to the Formula 1 2020 restrictions requested or mandated World Championship has had an by governmental authorities. adverse effect on our sponsorship Furthermore, the COVID-19 pandemic and commercial revenues from may lead to financial distress for our Formula 1 activities, as well as suppliers or dealers, as a result of revenues from the rental of engines which they may have to permanently to other Formula 1 teams. As of the IF WE ARE UNABLE TO KEEP UP WITH ADVANCES IN HIGH PERFORMANCE CAR TECHNOLOGY, OUR BRAND AND COMPETITIVE POSITION MAY SUFFER. discontinue or substantially reduce date of this report, Formula 1 has Performance cars are characterized their operations. In addition, the announced a provisional schedule by leading-edge technology that is COVID-19 pandemic may lead to for the 2021 World Championship, constantly evolving. In particular, higher working capital needs, reduced with 23 Grand Prix races, starting advances in racing technology often liquidity and certain limitations in the in March 2021. Government lead to improved technology in road supply of credit, which may ultimately measures or decisions of Formula cars. Although we invest heavily in lead to higher costs of capital for 1 may disrupt such provisional research and development, we may Ferrari. Any of the foregoing could calendar for the Formula 1 2021 be unable to maintain our leading limit customer demand or our World Championship, with potential position in high performance car capacity to meet customer demand material adverse effects on our technology and, as a result, our and have a material adverse effect on revenues and profits. competitive position may suffer. our business, results of operations and financial condition. The impact of the COVID-19 AS TECHNOLOGIES CHANGE, pandemic on Ferrari’s results WE PLAN TO UPGRADE Our brand activities across different of operations and financial OR ADAPT OUR CARS AND jurisdictions have also been, and condition will depend on ongoing INTRODUCE NEW MODELS may continue to be, adversely developments in the pandemic, IN ORDER TO CONTINUE TO impacted, due to the temporary including the success of PROVIDE CARS WITH THE closure of the Ferrari stores, containment measures, vaccination LATEST TECHNOLOGY. museums and theme parks to campaigns and other actions taken comply with government orders, by governments around the world, However, our cars may not with an adverse impact on our as well as the overall condition and compete effectively with our revenues originating from such outlook of the global economy. competitors’ cars if we are not able activities. Our stores and museums While we are continuing to monitor to develop, source and integrate were closed from mid-March, and assess the evolution of the the latest technology into our gradually reopening in May, with pandemic and its effects on both cars. For example, in the next in-store traffic and museum visitors the macroeconomic scenario few years luxury performance significantly lower after reopening and our financial position and cars will increasingly transition compared to pre-pandemic levels. results of operations, significant to hybrid and electric technology, Further waves of the pandemic in uncertainty remains around the albeit at a slower pace compared the last months of 2020 and early length and extent of the restrictions to mass market vehicles. See 2021 led to government measures in the markets in which we operate. “The introduction of hybrid and which imposed us to close our However, the effects on our electric technology in our cars is museums from October 25, 2020 business, results of operations, costly and its long term success is 20 / RISKS RELATED TO OUR BUSINESS, STRATEGY AND OPERATIONSAR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements uncertain”. We are also increasingly investing in connectivity, which requires significant investments in research and development; we THE VALUE OF OUR BRAND DEPENDS IN PART ON THE AUTOMOBILE COLLECTOR AND ENTHUSIAST COMMUNITY. promptly to changing consumer demands and automotive trends in the design, styling, technology, production, merchandising and pricing of our expect that the future generation An important factor in the connection products. Our products must appeal of cars will feature a high degree of clients to the Ferrari brand is our to a client base whose preferences of connectivity for purposes of strong relationship with the global cannot be predicted with certainty and infotainment, safety and regulatory community of automotive collectors are subject to rapid change. Evaluating compliance. and enthusiasts, particularly and responding to client preferences collectors and enthusiasts of Ferrari has become even more complex in Developing and applying new automobiles. This is influenced by recent years, due to our expansion automotive technologies is costly, our close ties to the automotive in new geographical markets. The and may become even more costly collectors’ community and our introduction of hybrid and electric in the future as available technology support of related events (such as technology and the associated advances and competition in car shows and driving events) at changes in customer preferences that the industry increases. If our our headquarters in Maranello and may follow are also a challenge we will research and development efforts through our dealers, the Ferrari face in future periods. See also “If we do not lead to improvements in museums and affiliations with are unable to keep up with advances car performance relative to the regional Ferrari clubs. The support in high performance car technology, competition, or if we are required to of this community also depends our brand and competitive position spend more to achieve comparable upon the perception of our cars as may suffer” and “The introduction of results, the sales of our cars or our collectibles, which we also support hybrid and electric technology in our profitability may suffer. through our Ferrari Classiche cars is costly and its long term success IF OUR CAR DESIGNS DO NOT APPEAL TO CLIENTS, OUR BRAND AND COMPETITIVE POSITION MAY SUFFER. services, and the active resale is uncertain”. In addition, there can market for our automobiles which be no assurance that we will be able encourages interest over the long to produce, distribute and market term. The increase in the number new products efficiently or that any of cars we produce relative to the product category that we may expand Design and styling are an integral number of automotive collectors and or introduce will achieve sales levels component of our models purchasers in the secondary market sufficient to generate profits. We and our brand. Our cars have may adversely affect our cars’ will encounter this risk, for example, historically been characterized by value as collectible items and in the as we introduce the Purosangue, distinctive designs combining the secondary market more broadly. a luxury high performance vehicle aerodynamics of a sports car with within the GT range that we are powerful, elegant lines. We believe If there is a change in collector developing and is expected to launch our clients purchase our cars for appetite or damage to the Ferrari in 2022. Furthermore this risk is their appearance as well as their brand, our ties to, and the support we particularly pronounced as we expand performance. However, we will receive from, this community may be in accordance with our strategy into need to renew over time the style diminished. Such a loss of enthusiasm adjacent segments of the luxury of our cars to differentiate the new for our cars from the automotive industry, where we do not have a level models we produce from older collectors’ community could harm of experience and market presence models, and to reflect the broader the perception of the Ferrari brand comparable to the one we have in the evolution of aesthetics in our and adversely impact our sales and automotive industry. Any of these risks markets. We devote great efforts profitability. to the design of our cars and most of our current models are designed by the Ferrari Design Centre, our in-house design team. If the design of our future models fails to meet the evolving tastes and preferences OUR BUSINESS IS SUBJECT TO CHANGES IN CLIENT PREFERENCES AND TRENDS IN THE AUTOMOTIVE AND LUXURY INDUSTRIES. of our clients and prospective Our continued success depends in clients, or the appreciation of the part on our ability to originate and wider public, our brand may suffer define products and trends in the could have a material adverse effect on our business, results of operations and financial condition. DEMAND FOR LUXURY GOODS, INCLUDING LUXURY PERFORMANCE CARS, IS VOLATILE, WHICH MAY ADVERSELY AFFECT OUR OPERATING RESULTS. and our sales may be adversely automotive and luxury industries, Volatility of demand for luxury goods, affected. as well as to anticipate and respond in particular luxury performance 21 AR 2020 FERRARI N.V. cars, may adversely affect our business, operating results and financial condition. The market in which we sell our cars is subject to volatility in demand. Demand for luxury automobiles depends to a large extent on general, economic, political and social conditions in a given market as well as the introduction of new vehicles and technologies. As a luxury performance car manufacturer and low volume producer, we compete with larger automobile manufacturers many of which have greater financial resources in order to withstand changes in the market and disruptions in demand. Demand for our cars may also be affected by factors directly impacting the cost of purchasing and operating automobiles, such as the availability and cost of financing, prices of raw materials and parts and components, fuel costs and governmental regulations, including WE FACE COMPETITION IN THE LUXURY PERFORMANCE CAR INDUSTRY. We face competition in all product categories and markets in which we operate. We compete with other international luxury performance car manufacturers which own and operate well-known brands of high-quality cars, some of which form part of larger automotive groups and may have greater financial resources and bargaining power with suppliers than we do, particularly in light of our policy to maintain low volumes in order to preserve and enhance the exclusivity of our cars. In addition, several other manufacturers have recently entered or are attempting to enter the upper end of the luxury performance car market, including with advanced electric technology, thereby increasing competition. entering and establishing ourselves in these markets, including in establishing new successful dealership networks and facing more significant competition from competitors that are already present in those regions. Our growth depends on the continued success of our existing cars, as well as the successful introduction of new cars. Our ability to create new cars and to sustain existing car models is affected by whether we can successfully anticipate and respond to consumer preferences and car trends. The failure to develop successful new cars or delays in their launch that could result in others bringing new products and leading-edge technologies to the market first, could compromise our competitive position and hinder the growth of our business. As part of our growth strategy, we plan to broaden the tariffs, import regulation and other WE BELIEVE THAT WE range of our models to capture taxes, including taxes on luxury COMPETE PRIMARILY ON THE additional customer demand for goods, resulting in limitations to the BASIS OF OUR BRAND IMAGE, different types of vehicles and use of high performance sports THE PERFORMANCE AND modes of utilization. At our Capital cars or luxury goods more generally. DESIGN OF OUR CARS, OUR Markets Day in September 2018, we Volatility in demand may lead to REPUTATION FOR QUALITY AND announced our plan to introduce 15 lower car unit sales, which may THE DRIVING EXPERIENCE FOR new models in the 2019-2022 period result in downward price pressure OUR CUSTOMERS. (which is unprecedented for Ferrari and adversely affect our business, over a similar time period), including operating results and financial If we are unable to compete the Icona limited editions, a concept condition. The impact of a luxury successfully, our business, results that takes inspiration from our iconic market downturn may be particularly of operations and financial condition cars of the past and interprets them pronounced for the most expensive could be adversely affected. in a modern way with innovative among our car models, which generate a more than proportionate amount of our profits, therefore OUR GROWTH STRATEGY EXPOSES US TO RISKS. technology and materials. In the GT range, we are developing a luxury high performance vehicle, the exacerbating the impact on our Our growth strategy includes Purosangue, and we are developing results. In addition, these effects a controlled expansion of our a new line of cars powered by may have a more pronounced sales and operations, including V6 engines. In addition, we will impact on us given our low volume the launching of new car models gradually but rapidly expand the use strategy and relatively smaller scale and expanding sales, as well as of hybrid and electric technology as compared to large global mass- dealer operations and workshops, in our road cars, consistent with market automobile manufacturers. in targeted growth regions customer preferences and broader Please refer to “COVID-19 Pandemic internationally. In particular, our industry trends. While we will seek Update” and “Results of Operations” growth strategy requires us to to ensure that these changes remain for information relating to how the expand operations in regions fully consistent with the Ferrari COVID-19 pandemic impacted our that we have identified as having car identity, we cannot be certain results of operations and financial relatively high growth potential. that they will prove profitable and condition in 2020. We may encounter difficulties in commercially successful. 22 / RISKS RELATED TO OUR BUSINESS, STRATEGY AND OPERATIONSAR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements Our growth strategy may expose us Consequently, if our international In pursuit of our strategy, we may be to new business risks that we may expansion plans are unsuccessful, unable to maintain the exclusivity of not have the expertise, capability or our business, results of the Ferrari brand. If we are unable the systems to manage. This strategy operations and financial condition to balance brand exclusivity with will also place significant demands could be materially adversely increased production, we may erode on us by requiring us to continuously affected. evolve and improve our operational, financial and internal controls. Continued expansion also increases the challenges involved in maintaining high levels of quality, management and client satisfaction, recruiting, training and retaining sufficiently OUR LOW VOLUME STRATEGY MAY LIMIT POTENTIAL PROFITS, AND IF VOLUMES INCREASE OUR BRAND EXCLUSIVITY MAY BE ERODED. skilled management, technical and A key to the appeal of the Ferrari marketing personnel. brand and our marketing strategy If we are unable to manage these risks is the aura of exclusivity and the or meet these demands, our growth sense of luxury which our brand prospects and our business, results conveys. of operations and financial condition the desirability and ultimately the consumer demand for our cars. As a result, if we are unable to increase car production meaningfully or introduce new car models without eroding the image of exclusivity in our brand we may be unable to significantly increase our revenues. THE SMALL NUMBER OF CAR MODELS WE PRODUCE AND SELL MAY RESULT IN GREATER VOLATILITY IN OUR FINANCIAL RESULTS. could be adversely affected. A CENTRAL FACET TO THIS We depend on the sales of a small We continuously improve our EXCLUSIVITY IS THE LIMITED number of car models to generate international network footprint NUMBER OF MODELS AND our revenues. Our current product and skill set. We also plan to CARS WE PRODUCE AND OUR range consists of eight range models open additional retail stores in STRATEGY OF MAINTAINING (including six sports cars and two international markets. We do not OUR CAR WAITING LISTS GT cars) and two limited edition yet have significant experience TO REACH THE OPTIMAL Icona cars. While we anticipate directly operating in many of these COMBINATION OF EXCLUSIVITY expanding our car offerings as part markets, and in many of them we AND CLIENT SERVICE. of our growth strategy, through face established competitors. Many our previously announced plan of these countries have different Our low volume strategy is also an to introduce 15 new products in operational characteristics, including important factor in the prices that the 2019-2022 period, a limited but not limited to employment and our clients are willing to pay for number of models will continue labor, transportation, logistics, real our cars. This focus on maintaining to account for a large portion of estate, environmental regulations exclusivity limits our potential sales our revenues at any given time in and local reporting or legal growth and profits compared to the foreseeable future, compared requirements. manufacturers less reliant on the to other automakers. Therefore, exclusivity of their products. a single unsuccessful new model Consumer demand and behavior, as would harm us more than it would well as tastes and purchasing trends On the other hand, our current other automakers. There can be no may differ in these markets, and as growth strategy contemplates a assurance that our cars will continue a result, sales of our products may measured but significant increase to be successful in the market, or not be successful, or the margins in car sales above current levels as that we will be able to launch new on those sales may not be in line we target a larger customer base models on a timely basis compared with those we currently anticipate. and modes of use, we increase our to our competitors. It generally takes Furthermore, such markets will have focus on GT cars, and our product several years from the beginning upfront short-term investment costs portfolio evolves with a broader of the development phase to the that may not be accompanied by product range. start of production for a new model sufficient revenues to achieve typical and the car development process or expected operational and financial WE SOLD 9,119 CARS IN 2020 is capital intensive. As a result, we performance and therefore may DESPITE THE EFFECTS OF would likely be unable to replace be dilutive to us in the short-term. THE COVID-19 PANDEMIC, quickly the revenue lost from one In many of these countries, there COMPARED TO 7,255 CARS of our main car models if it does is significant competition to attract IN 2014, AND SALES ARE not achieve market acceptance. and retain experienced and talented EXPECTED TO CONTINUE TO Furthermore, our revenues and employees. INCREASE GRADUALLY. profits may also be affected by our 23 AR 2020 FERRARI N.V. special series and limited edition luxury goods tend to decline during A significant decline in the EU, the cars (including the Icona limited recessionary periods when the level global economy or in the specific editions) that we launch from time to of disposable income tends to be economies of our markets, or in time and which are typically priced lower or when consumer confidence consumers’ confidence, could have higher than our range models. There is low. can be no assurance that we will be a material adverse effect on our business. See also “Developments successful in developing, producing We are also susceptible to risks in China and other growth and and marketing additional new cars relating to epidemics and pandemics emerging markets may adversely (including our special series and of diseases. See “We are subject affect our business”. limited edition models) to sustain to risks related to the COVID-19 sales growth in the future. pandemic that may materially and GLOBAL ECONOMIC CONDITIONS, PANDEMICS AND MACRO EVENTS MAY ADVERSELY AFFECT US. adversely affect our business”. We distribute our products internationally and we may DEVELOPMENTS IN CHINA AND OTHER GROWTH AND EMERGING MARKETS MAY ADVERSELY AFFECT OUR BUSINESS. be affected by downturns in We operate in a number of growth Our sales volumes and revenues general economic conditions or and emerging markets, both directly may be affected by overall general uncertainties regarding future and through our dealers. economic conditions within the economic prospects that may various countries in which we impact the countries in which we sell WE BELIEVE WE HAVE operate. Deteriorating general a significant portion of our products. POTENTIAL FOR FURTHER economic conditions may affect In particular, the majority of our SUCCESS IN NEW disposable incomes and reduce current sales are in the EU and in GEOGRAPHIES, IN PARTICULAR consumer wealth impacting client the United States; if we are unable IN CHINA, BUT ALSO MORE demand, particularly for luxury to expand in emerging markets, GENERALLY IN ASIA, goods, which may negatively impact a downturn in mature economies RECOGNIZING THE INCREASING our profitability and put downward such as the EU and the United States PERSONAL WEALTH IN THESE pressure on our prices and volumes. may negatively affect our financial MARKETS. Furthermore, during recessionary performance. The EU economies periods, social acceptability of in particular suffered a prolonged While demand in these markets luxury purchases may decrease period of slow growth since the has increased in recent years due and higher taxes may be more likely 2008 financial crisis. In addition, to sustained economic growth and to be imposed on certain luxury uncertainties regarding future trade growth in personal income and goods including our cars, which may arrangements and industrial policies wealth, we are unable to foresee the affect our sales. Adverse economic in various countries or regions, such extent to which economic growth conditions may also affect the as in the United Kingdom following in these emerging markets will financial health and performance the exit from the European Union be sustained. For example, rising of our dealers in a manner that will (see further “We may be adversely geopolitical tensions and potential affect sales of our cars or their ability affected by the UK determination to slowdowns in the rate of growth to meet their commitments to us. leave the European Union (Brexit)”) there and in other emerging create additional macroeconomic markets could limit the opportunity Many factors affect the level of risk. In the United States, any policy for us to increase unit sales and consumer spending in the luxury to discourage import into the revenues in those regions in the near performance car industry, including United States of vehicles produced term. the state of the economy as a whole, elsewhere could adversely affect stock market performance, interest our operations. Any new policies Our exposure to growth and and exchange rates, inflation, may have an adverse effect on our emerging countries is likely to political uncertainty, the availability business, financial condition and increase, as we pursue expanded of consumer credit, tax rates, results of operations. Although China sales in such countries. Economic unemployment levels and other only represents approximately 6 and political developments in matters that influence consumer percent of our net revenues and a emerging markets, including confidence. In general, although limited proportion of our growth in economic crises or political our sales have historically been the short term, slowing economic instability, have had and could have in comparatively resilient in periods conditions in China may adversely the future material adverse effects of economic turmoil, sales of affect our revenues in that region. on our results of operations and 24 / RISKS RELATED TO OUR BUSINESS, STRATEGY AND OPERATIONSAR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements financial condition. Further, in certain new bilateral trade and cooperation volatility in exchange rates. In markets in which we or our dealers agreement governing their future 2020, approximately 11 percent operate, required government relationship (the “EU-UK Trade and of our cars and spare parts net approvals may limit our ability to act Cooperation Agreement”) which revenues were generated in the quickly in making decisions on our was formally approved by the UK; therefore, any material adverse operations in those markets. Other European Council on December effect of Brexit on global or regional government actions may also impact 29, 2020 and by the UK parliament economic or market conditions the market for luxury goods in these on December 30, 2020. The EU-UK could adversely affect our business, markets, such as tax changes or the Trade and Cooperation Agreement results of operations and financial active discouragement of luxury became effective on a provisional condition as customers may reduce purchases. basis from January 1, 2021, subject or delay spending decisions on our to ratification by the EU following products. MAINTAINING AND consent by the European Parliament. STRENGTHENING OUR As of the date of this report, the POSITION IN THESE GROWTH European Parliament has not yet AND EMERGING MARKETS IS approved the agreement. The A KEY COMPONENT OF OUR potential consequences if the GLOBAL GROWTH STRATEGY. European Parliament were to fail OUR SUCCESS DEPENDS LARGELY ON THE ABILITY OF OUR CURRENT MANAGEMENT TEAM TO OPERATE AND MANAGE EFFECTIVELY. to approve the EU-UK Trade and Our success depends on the ability However, initiatives from Cooperation Agreement are unclear. of our senior executives and other several global luxury automotive members of management to manufacturers have increased Under the terms of the EU-UK effectively manage our business competitive pressures for luxury Trade and Cooperation Agreement, as a whole and individual areas of cars in several emerging markets. exports of cars between the the business. Most of our senior As these markets continue to European Union and the United executives and employees, including grow, we anticipate that additional Kingdom are exempt from tariffs, many highly skilled engineers, competitors, both international and to the extent the goods contain a technicians and artisans, are required domestic, will seek to enter these certain quantity of EU or UK inputs, to work from our offices and markets and that existing market as applicable. The application of production facilities in and around participants will try to aggressively such rules may result in increased Maranello, Italy. If we were to lose protect or increase their market costs for us or for our suppliers the services of any of these senior share. Increased competition may (which, in turn, they could seek to executives or key employees, this result in pricing pressures, reduced transfer to us), and difficulties in the could have a material adverse effect margins and our inability to gain procurement of parts. In addition, on our business, operating results or hold market share, which could the new customs procedures and financial condition. On December have a material adverse effect set forth in the EU-UK Trade and 10, 2020 our former Chief Executive on our results of operations and Cooperation Agreement may Officer, Mr. Louis Camilleri, resigned financial condition. See also “Global result in increased operational with immediate effect from his role as economic conditions, pandemics complexity. While the EU-UK Trade Chief Executive Officer and member and macro events may adversely and Cooperation Agreement of the Board of Directors for personal affect us”. provides clarity with respect to reasons. Our Executive Chairman, Mr. WE MAY BE ADVERSELY AFFECTED BY THE UK DETERMINATION TO LEAVE THE EUROPEAN UNION (BREXIT). the intended relationship between John Elkann, has been acting as our the European Union and the interim Chief Executive Officer since United Kingdom going forward, then, while the Board of Directors is uncertainty remains around managing the process of identifying the details of such relationship, Mr. Camilleri’s successor. We have In a June 23, 2016 referendum, which remain in progress and developed incentive plans aimed at the United Kingdom voted to could evolve over time, and the retaining and incentivizing our senior terminate the UK’s membership full extent of the consequences of executives and employees, as well in the European Union (“Brexit”). Brexit. Brexit could also negatively as management succession plans The UK ceased to be a member of impact economic conditions in that we believe are appropriate in the the European Union on January Europe more generally, which in circumstances, although it is difficult 31, 2020. On December 24, 2020, turn could adversely impact global to predict with any certainty that we the European Union and the UK economic conditions. In addition, will replace these individuals with announced that they had reached a Brexit may contribute to significant persons of equivalent experience 25 AR 2020 FERRARI N.V. and capabilities. If we are unable to find adequate replacements or to attract, retain and incentivize senior executives, other key employees or new qualified personnel, our business, results of operations and financial condition may suffer. WE RELY ON OUR DEALER NETWORK TO PROVIDE SALES AND SERVICES. We do not own our Ferrari dealers WE DEPEND ON OUR SUPPLIERS, MANY OF WHICH ARE SINGLE SOURCE SUPPLIERS; AND IF THESE SUPPLIERS FAIL TO DELIVER NECESSARY RAW MATERIALS, SYSTEMS, COMPONENTS AND PARTS OF APPROPRIATE QUALITY IN A TIMELY MANNER, OUR OPERATIONS MAY BE DISRUPTED. electric technology gathers pace in the industry. While we obtain components from multiple sources whenever possible, similar to other small volume car manufacturers, most of the key components we use in our cars are purchased by us from single source suppliers. We generally do not qualify alternative sources for most of the single- sourced components we use in our cars and we do not maintain long- and virtually all of our sales are Our business depends on a term agreements with a number of made through our network of significant number of suppliers, our suppliers. Furthermore, we have dealerships located throughout which provide the raw materials, limited ability to monitor the financial the world. If our dealers are components, parts and systems we stability of our suppliers. unable to provide sales or service require to manufacture cars and quality that our clients expect parts and to operate our business. While we believe that we may be or do not otherwise adequately We use a variety of raw materials in able to establish alternate supply project the Ferrari image and its our business, including aluminum, relationships and can obtain or aura of luxury and exclusivity, the and precious metals such as engineer replacement components Ferrari brand may be negatively palladium and rhodium. We source for our single-sourced components, affected. We depend on the quality materials from a limited number of we may be unable to do so in the short of our dealership network and suppliers. We cannot guarantee that term, or at all, at prices or costs that our business, operating results we will be able to maintain access we believe are reasonable. Qualifying and financial condition could be to these raw materials, and in some alternate suppliers or developing adversely affected if our dealers cases this access may be affected by our own replacements for certain suffer financial difficulties or factors outside of our control and the highly customized components of otherwise are unable to perform control of our suppliers. In addition, our cars may be time consuming, to our expectations. Furthermore, prices for these raw materials costly and may force us to make we may experience disagreements fluctuate and while we seek to costly modifications to the designs or disputes in the course of our manage this exposure, we may not be of our cars. For example, defective relationship with our dealers or successful in mitigating these risks. airbags manufactured by Takata upon termination which may lead Corporation (“Takata”), our former to financial costs, disruptions and As with raw materials, we are also principal supplier of airbags, have reputational harm. at risk of supply disruption and led to widespread recalls by several shortages in parts and components automotive manufacturers starting OUR GROWTH STRATEGY ALSO we purchase for use in our cars. We in 2015, including us (see further DEPENDS ON OUR ABILITY source a variety of key components “Car recalls may be costly and TO ATTRACT A SUFFICIENT from third parties, including may harm our reputation”; see also NUMBER OF QUALITY NEW transmissions, brakes, driving- “Overview of Our Business–Regulatory DEALERS TO SELL OUR safety systems, navigation systems, Matters–Vehicle safety”). Following PRODUCTS IN NEW AREAS. mechanical, electrical and electronic the acquisition of Takata by Key parts, plastic components as well Safety Systems (“KSS”) in April 2018, We may face competition from as castings and tires, which makes Joyson Safety Systems, which is other luxury performance car us dependent upon the suppliers the combined company of Takata manufacturers in attracting quality of such components. In coming and KSS following the acquisition, is new dealers, based on, among other years, we will also require a greater our principal supplier of the airbags things, dealer margin, incentives and number of components for hybrid installed in our cars. Failure by Joyson the performance of other dealers and electric engines as we introduce Safety Systems to continue the supply in the region. If we are unable to hybrid and electric technology in of airbags may cause significant attract a sufficient number of new our cars, and we expect producers disruption to our operations. Ferrari dealers in targeted growth of these components will be areas, our prospects could be called upon to increase the levels In the past, we have replaced certain materially adversely affected. of supply as the shift to hybrid or suppliers because they failed to 26 / RISKS RELATED TO OUR BUSINESS, STRATEGY AND OPERATIONSAR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements provide components that met our attempting to redesign certain our ability to produce sufficient quality control standards. The loss parts to make them less expensive cars to meet demand. Moving of any single or limited source to produce. If we are unsuccessful manufacturing to other locations supplier or the disruption in the in our efforts to control and reduce may also affect the perception of supply of components from these supplier costs while maintaining our brand and car quality among suppliers could lead to delays in car a stable source of high quality our clients. Such a transfer would deliveries to our clients, which could supplies, our operating results will materially reduce our revenues and adversely affect our relationships suffer. Additionally, cost reduction could require significant investment, with our clients and also materially efforts may disrupt our normal which as a result could have a and adversely affect our operating production processes, thereby material adverse effect on our results and financial condition. harming the quality or volume of business, results of operations and Supply of raw materials, parts and our production. financial condition. components may also be disrupted or interrupted by natural disasters, Furthermore, if our suppliers fail Maranello and Modena are located as was the case in 2012 following the to provide components in a timely in the Emilia-Romagna region of Italy earthquake in the Emilia Romagna manner or at the level of quality which has the potential for seismic region of Italy, or by unexpected necessary to manufacture our activity. For instance, in 2012 a fluctuations in market demand and cars, our clients may face longer major earthquake struck the region, supply, such as those at the start of waiting periods which could result causing production at our facilities 2021 that are causing an ongoing in negative publicity, harm our to be temporarily suspended for global shortage of semiconductors, reputation and relationship with one day. If major disasters such which is impacting the automotive clients and have a material adverse as earthquakes, fires, floods, industry in particular and may be a effect on our business, operating hurricanes, wars, terrorist attacks, consequence of the wider effects of results and financial condition. pandemics or other events occur, the COVID-19 pandemic on supply chains. If any further major disasters occur, such as earthquakes, fires, floods, hurricanes, wars, terrorist WE DEPEND ON OUR MANUFACTURING FACILITIES IN MARANELLO AND MODENA. our headquarters and production facilities may be seriously damaged, or we may stop or delay production and shipment of our cars. See also attacks, pandemics or other events, We assemble all of the cars that we “We are subject to risks related to our supply chain may be disrupted, sell and manufacture, and all of the the COVID-19 pandemic that may which may stop or delay production engines we use in our cars and sell materially and adversely affect our and shipment of our cars. See to Maserati, at our production facility business” for a discussion of the “We are subject to risks related to in Maranello, Italy, where we also COVID-19 pandemic. Such damage the COVID-19 pandemic that may have our corporate headquarters. from disasters or unpredictable materially and adversely affect our We manufacture all of our car events could have a material business” for a discussion of the chassis in a nearby facility in Modena, adverse impact on our business, COVID-19 pandemic, which may Italy. Our Maranello or Modena results from operations and affect our supply chain directly or plants could become unavailable financial condition. indirectly. either permanently or temporarily for a number of reasons, including Changes in our supply chain have contamination, power shortage or in the past resulted and may in the labor unrest. Alternatively, changes future result in increased costs in law and regulation, including and delays in car production. export, tax and employment laws We have also experienced cost and regulations, or economic increases from certain suppliers conditions, including wage inflation, WE RELY ON OUR LICENSING AND FRANCHISING PARTNERS TO PRESERVE THE VALUE OF OUR LICENSES AND THE FAILURE TO MAINTAIN SUCH PARTNERS COULD HARM OUR BUSINESS. in order to meet our quality targets could make it uneconomic for us to We currently have multi-year and development timelines and continue manufacturing our cars agreements with licensing partners because of design changes that we in Italy. In the event that we were for various Ferrari-branded have made, and we may experience unable to continue production at products in the sports, lifestyle similar cost increases in the future. either of these facilities or it became and luxury retail segments. We We are negotiating with existing uneconomic for us to continue to do also have multi-year agreements suppliers for cost reductions, so, we would need to seek alternative with franchising partners for our seeking new and less expensive manufacturing arrangements Ferrari stores and theme park. suppliers for certain parts, and which would take time and reduce In the future, we may enter into 27 AR 2020 FERRARI N.V. additional licensing or franchising arrangements with licensing arrangements. Many of the partners and decreasing the risks associated with our own volume of our licensing business. products, including risks relating This may adversely affect our to the image of the Ferrari brand results from brand activities, and its aura of exclusivity, as particularly in the short to medium well as to the demand for luxury term while our broader brand goods, also apply to our licensed diversification strategy is carried products and franchised stores. out. In addition, there are problems that our licensing or franchising partners may experience, including risks associated with each licensing partner’s ability to WE DEPEND ON THE STRENGTH OF OUR TRADEMARKS AND OTHER INTELLECTUAL PROPERTY RIGHTS. WE MAY FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL AND INDUSTRIAL PROPERTY RIGHTS AGAINST INFRINGEMENT OR MISAPPROPRIATION BY THIRD PARTIES. Our success and competitive positioning depend on, among other factors, our registered intellectual property rights, as well as other industrial or intellectual property rights, including confidential know- obtain capital, manage its labor Given the importance of our how, trade secrets, database rights relations, maintain relationships brand’s recognition on our financial and copyrights. with its suppliers, manage its performance and strategy, we credit and bankruptcy risks, and believe that our trademarks and TO PROTECT OUR maintain client relationships. While other intellectual property rights INTELLECTUAL PROPERTY, we maintain significant control are fundamental to our success WE RELY ON INTELLECTUAL over the products produced and market position. Therefore, PROPERTY LAWS, for us by our licensing partners our business depends on our AGREEMENTS FOR THE and the franchisees running our ability to protect and promote our PROTECTION OF TRADE Ferrari stores and theme parks, trademarks and other intellectual SECRETS, CONFIDENTIALITY any of the foregoing risks, or the property rights. Accordingly, we AND NON-DISCLOSURE inability of any of our licensing or devote substantial efforts to the AGREEMENTS, AND OTHER franchising partners to execute establishment and protection CONTRACTUAL MEANS. on the expected design and of our trademarks and other quality of the licensed products, intellectual property rights such as Such measures, however, may be Ferrari stores and theme park, or registered designs and patents on a inadequate and our intellectual otherwise exercise operational worldwide basis. We believe that our property rights may be infringed and financial control over its trademarks and other intellectual or challenged by third parties, and business, may result in loss of property rights are adequately our confidential know-how or trade revenue and competitive harm supported by applications for secrets could be misappropriated to our operations in the product registrations, existing registrations or disclosed to the public without categories where we have entered and other legal protections in our our consent. Consultants, into such licensing or franchising principal markets. However, we vendors and current and former arrangements. While we select our cannot exclude the possibility that employees, for example, could licensing and franchising partners our intellectual property rights may violate their confidentiality with care, any negative publicity be challenged by others, or that obligations and restrictions on surrounding such partners could we may be unable to register our the use of Ferrari’s intellectual have a negative effect on licensed trademarks or otherwise adequately property. Ferrari may not be able products, the Ferrari stores and protect them in some jurisdictions, to prevent such infringements, theme parks or the Ferrari brand. especially in those foreign countries misappropriations or disclosures, Further, while we believe that we that do not respect and protect with potential adverse effects on could replace our existing licensing intellectual property rights to the our brand, reputation and business. or franchising partners if required, same extent as do the United States, In particular, our components may our inability to do so for any period Japan and European countries. If be subject to product piracy, where of time could materially adversely a third party were to register our our components are counterfeited, affect our revenues and harm our trademarks, or similar trademarks, which may result in reputational business. in a country where we have not risk for Ferrari. The risks described In connection with our new successfully registered such above arise particularly in our brand diversification strategy trademarks, it could create a barrier Brand activities (see “Overview of announced in November 2019, to our commencing trade under Our Business – Brand activities”). we are streamlining our existing those marks in that country. If we fail to adequately protect our 28 / RISKS RELATED TO OUR BUSINESS, STRATEGY AND OPERATIONSAR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements intellectual property rights, this agreements or if we enter into power units, marketing costs, may adversely affect our results of new or renewed sponsorship drivers’ salaries and the top three operations and financial condition, agreements with less favorable personnel at each team), limits on as other manufacturers may be able terms, our revenues would decline. car upgrades over race weekends, to manufacture similar products at In addition, our share of profits restrictions on the number of times lower cost, with adverse effects on related to Formula 1 activities that certain components can be our competitive position. In addition, may decline if either our team’s replaced during a race and the counterfeited products, or products performance worsens compared standardization of certain parts. illegally branded as “Ferrari”, may to other competing teams, or if the While it was originally planned that damage our brand. In addition, we overall Formula 1 business suffers, the new sporting and technical may incur high costs in reacting to including potentially as a result of regulations would come into effect infringements or misappropriations increasing popularity of the FIA in 2021, in March 2020 Formula 1, of our intellectual property rights. Formula E championship or other FIA and the racing teams agreed THIRD PARTIES MAY CLAIM THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS. racing events. Furthermore, in order to postpone effectiveness of such to compete effectively on track regulations to 2022, due to the we have been investing significant disruption to the 2020 Formula 1 resources in research and season caused by COVID-19. The development and to competitively financial regulations (including the We believe that we hold all the compensate the best available budget cap) came into force on rights required for our business drivers and other racing team January 1, 2021. While the new rules operations (including intellectual members. These expenses also approved by the World Council property rights and third-party vary based on changes in Formula 1 may be subject to further changes, licenses). However, we are exposed regulations that require modification the final set of rules will require to potential claims from third to our racing engines and cars. significant changes to our racing parties alleging that we infringe These expenses are expected to cars, processes and operations. If their intellectual property rights, continue, and may grow further, we are unable to effectively adapt since many competitors and including as a result of any changes our cars to comply with changes suppliers also submit patent in Formula 1 regulations, which in Formula 1 regulations, our applications for their inventions would negatively affect our results of performance at the races may and secure patent protection or operations. other intellectual property rights. If suffer. These changes may result in adverse effects on our revenues we are unsuccessful in defending On October 31, 2019, the World and results of operations. In against any such claim, we may be Council (Formula 1’s legislative particular, the new cap on expenses required to pay damages or comply body) approved new technical, affects the amount of resources with injunctions which may disrupt sporting and financial rules, that we are allowed to allocate to our operations. We may also as following the extensive talks held Formula 1 activities, with potential a result be forced to enter into in the past two years among the adverse effects on our team’s royalty or licensing agreements on owners of the Formula 1 business performance if we are not able to unfavorable terms or to redesign and all teams with regards to optimize such resources. products to comply with third the arrangements relating to parties’ intellectual property rights. the participation of Ferrari and OUR REVENUES FROM FORMULA 1 ACTIVITIES MAY DECLINE AND OUR RELATED EXPENSES MAY GROW. the other teams competing in the championship in the period following the 2020 expiration of the ENGINE PRODUCTION REVENUES ARE DEPENDENT ON MASERATI’S ABILITY TO SELL ITS CARS. previous arrangements between We produce V8 and V6 engines racing teams and the operator of for Maserati. We have a multi- Revenues from our Formula 1 Formula 1. The new rules provide year arrangement with Maserati activities depend principally on for, among other things, a new car to provide V6 engines through the income from our sponsorship design, a cap of $147 million in 2021 2023. While Maserati is required agreements and on our share (assuming 23 grand prix races), to to compensate us for certain of Formula 1 revenues from be further reduced in subsequent production costs, in the event that broadcasting and other sources. years, for all costs and expenses the sales of Maserati cars decline See “Overview of Our Business – covering on-track performance or do not increase at the expected Formula 1 Activities.” If we are unable (excluding, among others, the rate, our revenues from the sale of to renew our existing sponsorship activities to enable the supply of engines may be adversely affected. 29 AR 2020 FERRARI N.V. WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS, INCLUDING UNFAVORABLE REGULATORY, POLITICAL, TAX AND LABOR CONDITIONS AND ESTABLISHING OURSELVES IN NEW MARKETS, ALL OF WHICH COULD HARM OUR BUSINESS. • our ability to enforce our compliance to continue to increase contractual and intellectual significantly in the future. In Europe property rights, especially in those and the United States, for example, foreign countries that do not significant governmental regulation respect and protect intellectual is driven by environmental, fuel property rights to the same extent economy, vehicle safety and noise as do the United States, Japan emission concerns. Evolving and European countries, which regulatory requirements could increases the risk of unauthorized, significantly affect our product and uncompensated, use of our development plans and may limit the We currently have international operations and subsidiaries in various countries and jurisdictions in Europe, North America and Asia that are subject to the legal, political, regulatory, tax and social requirements and economic conditions in these jurisdictions. Additionally, as part of our growth technology; • European Union and foreign government trade restrictions, customs regulations, tariffs and price or exchange controls; • foreign labor laws, regulations and restrictions; • preferences of foreign nations for domestically produced cars; strategy, we will continue to expand • changes in diplomatic and trade our sales, maintenance, and repair relationships; number and types of cars we sell and where we sell them, which may affect our revenue. Governmental regulations may increase the costs we incur to design, develop and produce our cars and may affect our product portfolio. Regulation may also result in a change in the character or performance characteristics of our cars which may render them less appealing to our clients. We anticipate that the number and extent of these regulations, and their effect on our cost structure and product line- up, will increase significantly in the future. • political instability, natural disasters, war or events of terrorism; and • the strength of international economies. require significant management harmed. attention. These risks include: services internationally. However, such expansion requires us to make significant expenditures, including the establishment of local operating entities, hiring of local employees and establishing facilities in advance of generating any revenue. We are subject to a number of risks associated with international business activities that may increase our costs, impact our ability to sell our cars and • conforming our cars to various international regulatory and safety requirements where our cars are sold, or homologated; • difficulty in establishing, staffing and managing foreign operations; • difficulties attracting clients in new jurisdictions; • foreign government taxes, regulations and permit requirements, including foreign taxes that we may not be able to offset against taxes imposed upon us in Italy; If we fail to successfully address Current European legislation these risks, many of which we limits fleet average greenhouse cannot control, our business, gas emissions for new passenger operating results and financial cars. Due to our small volume condition could be materially manufacturer (“SVM”) status we NEW LAWS, REGULATIONS, OR POLICIES OF GOVERNMENTAL ORGANIZATIONS REGARDING INCREASED FUEL ECONOMY REQUIREMENTS, REDUCED GREENHOUSE GAS OR POLLUTANT EMISSIONS, OR VEHICLE SAFETY, OR CHANGES IN EXISTING LAWS, MAY HAVE A SIGNIFICANT EFFECT ON OUR COSTS OF OPERATION AND/OR HOW WE DO BUSINESS. benefit from a derogation from the existing emissions requirement and we are instead required to meet, by 2021, alternative targets for our fleet of EU-registered vehicles. Despite global shipments exceeding 10,000 vehicles in 2019, Ferrari still qualifies as an SVM under EU regulations, since its total number of registered vehicles in the EU per year is less than 10,000 vehicles. In the United States, the U.S. Environmental Protection Agency (“EPA”) and the National Highway We are subject throughout Traffic Safety Administration the world to comprehensive (“NHTSA”) have set the federal • fluctuations in foreign currency and constantly evolving laws, standards for passenger cars exchange rates and interest regulations and policies. We and light trucks to meet certain rates, including risks related to expect the extent of the legal and combined average greenhouse any interest rate swap or other regulatory requirements affecting gas (“GHG”) and fuel economy hedging activities we undertake; our business and our costs of (“CAFE”) levels and more stringent 30 / RISKS RELATED TO OUR BUSINESS, STRATEGY AND OPERATIONSAR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements standards have been prescribed The NHTSA has confirmed that it In the state of California (which for model years 2017 through 2025. will not send a shortfall letter to has been granted special Since Ferrari is considered to be Ferrari requiring payment of CAFE authority under the Clean Air Act an SVM under EPA GHG regulations civil penalties or the application of to set its own vehicle emission (as it produces less than 5,000 CAFE credits with regard to model standards), the California Air vehicles per model year for the year 2020 until the NHTSA has Resources Board (“CARB”) has US market), we expect to benefit ruled on Ferrari’s petitions for an enacted regulations under which from a derogation from currently alternative standard. If our petitions manufacturers of vehicles for applicable standards. We also are rejected, we will not be able to model years 2012 through 2025 petitioned the EPA for alternative benefit from the more favorable which are in compliance with the standards for the model years CAFE standard levels which we have EPA greenhouse gas emissions 2017-2021 and 2022-2025, which petitioned for and this may require regulations are also deemed to are aligned to our technical and us to purchase additional CAFE be in compliance with California’s economic capabilities. On June credits in order to comply with greenhouse gas emission 25, 2020, the EPA Administrator applicable CAFE standards. regulations (the so-called “deemed signed the final determination to comply” option). On December for alternative GHG standards In the United States, considerable 12, 2018 the CARB amended its for SVMs for model years 2017 uncertainty is associated with existing regulations to clarify that through 2021 and issued final emissions regulations in light of the “deemed-to-comply” provision alternative GHG standards for us changing policies under the past would not be available for model and other SVMs. In September and newly appointed administration. years 2021-2025 if the EPA standards 2016 we petitioned the NHTSA for New regulations are in the process for those years were altered via an recognition as an independent of being developed, and many amendment of federal regulations. manufacturer of less than 10,000 existing and potential regulatory On September 19, 2019, the NHTSA vehicles produced globally and initiatives are subject to review by and the EPA established the “One we proposed alternative CAFE federal or state agencies or the National Program” for fuel economy standards for model years 2017, courts. On March, 31, 2020, the regulation, announcing the EPA’s 2018 and 2019. Then, in December, NHTSA and the EPA issued the final decision to withdraw California’s 2017, we amended the petition Safer Affordable Fuel-Efficient waiver of preemption under the by proposing alternative CAFE (SAFE) Vehicles Rule (the “SAFE Clean Air Act, and by affirming the standards for model years 2016, Vehicles Rule”) setting CAFE and NHTSA’s authority to set nationally 2017 and 2018 instead, covering carbon dioxide emissions standards applicable regulatory standards also the 2016 model year. In 2019, for model years 2021-2026 under the preemption provisions of our global production exceeded passenger cars and light trucks. the Energy Policy and Conservation 10,000 vehicles, and therefore we Under the SAFE Vehicles Rule, the Act (EPCA). California and other are no longer considered an SVM by overall stringency of the federal states, along with the cities of Los the NHTSA for the model year 2019. standards is significantly reduced Angeles and New York, initiated We previously purchased the CAFE from the levels previously set: the litigation to challenge this final rule. credits needed to fulfill this deficit. final rule will increase stringency of Several environmental groups have On July 15, 2020, we submitted to the NHTSA a petition for an exemption CAFE and CO2 emissions standards by 1.5 percent each year through also challenged such final rule. Ferrari currently avails itself of the from the CAFE standards for the model year 2026, as compared with “deemed-to-comply” provision to model year 2020. We proceeded the previous standards issued in comply with CARB greenhouse gas with this submission because, 2012, which would have required emissions regulations. Therefore, although Ferrari originally intended annual increases of approximately depending on future developments, to produce more than 10,000 5 percent. The EPA and the NHTSA it may be necessary to also petition vehicles in 2020, actual production did not propose any changes to the the CARB for SVM alternative was lower than 10,000 vehicles as regulations regarding SVM status standards and to increase the a result of the COVID-19 pandemic or alternative standards. However, number of tests to be performed and the related shutdown of our it is uncertain whether, with the in order to follow the CARB specific production facilities. Therefore, new administration which took procedures. since we met the NHTSA definition office earlier this year will reverse of SVM, we have requested an these recently adopted policies In addition, we are subject to alternative fleet average GHG and rule changes, and what further legislation relating to the emission of standard for model year 2020. regulation will be enacted Rule. other air pollutants such as, among 31 AR 2020 FERRARI N.V. others, the EU “Euro 6” standards product development plans. In to sizable civil penalties or have and Real Driving Emissions (RDE) China, for example, Stage IV fuel to restrict or modify product standards, the “Tier 3” Motor Vehicle consumption regulation targeted a offerings drastically to remain in Emission and Fuel Standards issued national average fuel consumption compliance. We may have to incur by the EPA, and the Zero Emission of 5.0L/100km by 2020, and the substantial capital expenditures Vehicle regulation in California, Stage V regulation, issued on and research and development which are subject to similar December 31, 2019, targets a expenditures to upgrade products derogations for SVMs. In March national average fuel consumption and manufacturing facilities, which 2020, the European Commission of 4.0 l/100km by 2025. would have an impact on our cost of launched a public consultation on its production and results of operation. roadmap outlining the policy options In response to severe air quality For a description of the regulation that it could pursue in revising the issues in Beijing and other major referred to in the paragraphs above emission standards for light and Chinese cities, in 2016 the Chinese please see “Overview of Our Business heavy duty vehicles (Euro 7). This government published a more – Regulatory Matters”. initiative is part of the European stringent emissions program Green Deal, advocating the (National 6), providing two different In the future, the advent of self- European automotive industry’s role levels of stringency effective driving technology may result as a leader in the global transition starting from 2020. Moreover in regulatory changes that we to zero-emission vehicles. More several autonomous Chinese cannot predict but may include stringent air pollutant emissions regions and municipalities have limitations or bans on human standards for combustion engine implemented the requirements of driving in specific areas. In 2020 the vehicles are expected to be set the National 6 program even ahead European Commission issued its by 2021. Depending on the future of the mandated deadlines. new digital strategy policies, which regulatory developments, the represent a priority in the European technological solutions required We have lost our status as an SVM Commission’s regulatory agenda. to ensure Euro 7 compliance may for NHSTA in 2019, because our Although no regulations have affect customers’ expectations global production exceeded 10,000 been proposed in this regard, the on performance, sound and vehicles, but we have not lost our European Commission has showed driving experience. The European Commission is also expected to SVM status for EU CO2 regulations or for EPA GHG regulations in the a determination to strengthen Europe’s digital sovereignty and assess and evaluate the current United States. We could lose our role as a standard setter, with a noise emissions limits, with the status as an SVM in the EU, the clear focus on data, technology, and risk of more stringent “Phase 3” United States and other countries if infrastructure. thresholds. we do not continue to meet all of the necessary eligibility criteria under Similarly, driving bans on In relation to the safety legislation applicable regulations as they evolve, combustion engine vehicles framework, in 2016, the NHTSA not only in relation to volumes but could be imposed, particularly in published guidelines for driver also in relation to the conditions metropolitan areas, as a result of distraction, for which rulemaking of operational independence. In progress in electric and hybrid activities have not progressed since order to meet these criteria we may technology. On September 23, 2020, early 2017. The costs of compliance need to modify our growth plans the Governor of California issued associated with these and similar or other operations. Furthermore, an executive order requiring that rulemaking may be substantial. even if we continue to benefit from all in-state sales of new passenger derogations as an SVM, we will be vehicles be zero-emission by 2035. Other governments around the subject to alternative standards that CARB should develop regulations world, such as those in Canada, the regulators deem appropriate to implement such executive order. South Korea, China and certain for our technical and economic In November 2020, the UK Prime Middle Eastern countries are also capabilities and such alternative Minister, the Transport Secretary creating new policies to address standards may be significantly and Business Secretary announced, these issues which could be even more stringent than those currently in the context of the 10-Point Plan more stringent than the U.S. or applicable to us. European requirements. As in the for a Green Industrial Revolution, the end of the sale of new petrol United States and Europe, these Under these existing regulations, and diesel cars in the United government policies if applied to as well as new or stricter rules Kingdom by 2030. This will put the us could significantly affect our or policies, we could be subject United Kingdom on course to be 32 / RISKS RELATED TO OUR BUSINESS, STRATEGY AND OPERATIONSAR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements the first G7 country to decarbonize cars and vans. Any further similar IN ACCORDANCE WITH OUR be fundamental to the Ferrari driver experience, hybrid and pure electric developments in the future may STRATEGY, WE BELIEVE HYBRID cars may become the prevalent adversely affect the demand for our AND ELECTRIC TECHNOLOGY technology for performance sports cars and our business. In September 2017 the Chinese government issued the Administrative Measures on WILL BE KEY TO PROVIDING CONTINUING PERFORMANCE UPGRADES TO OUR SPORTS CAR CUSTOMERS, cars thereby displacing combustion engine models. See also “If we are unable to keep up with advances in high performance car technology, our brand and competitive position CAFC (Corporate Average Fuel and will also help us capture the may suffer.” Consumption) and NEV (New Energy preferences of the urban, affluent Vehicle) Credits. This regulation GT cars purchasers whom we are Because hybrid and electric establishes mandatory CAFC increasingly targeting, while helping technology is a core component requirements, while providing us meet increasingly stricter of our strategy, and we expect additional flexibilities for SVMs emissions requirements. that a significant portion of our (defined as manufacturers with less shipments in the medium term than 2,000 units imported in China Shipments of the SF90 Stradale, will consist of vehicles that feature per year) that achieve a certain the first series production Ferrari hybrid and electric technology, minimum CAFC yearly improvement to feature Plug-in Hybrid Electric if the introduction of hybrid and rate. Following the adoption of the Vehicle (PHEV) architecture, electric cars proves too costly or Stage V fuel consumption regulation, integrating the internal combustion is unsuccessful in the market, our an update to the Administrative engine with three electric motors, business and results of operations Measures on CAFC and NEV credits started in 2020. In addition, in 2020 could be materially adversely was published in June 2020. The we launched the SF90 Spider, the affected. Administrative Measures have been spider version of the SF90 Stradale extended to 2023. Because our CAFC and Ferrari’s first plug-in hybrid is expected to exceed the regulatory spider. Some of our past models, ceiling, we will be required to such as LaFerrari and LaFerrari purchase NEV credits. There is no Aperta, have also included hybrid assurance that an adequate market technology. The integration of hybrid IF OUR CARS DO NOT PERFORM AS EXPECTED OUR ABILITY TO DEVELOP, MARKET AND SELL OUR CARS COULD BE HARMED. for NEV credits will develop in China and electric technology more broadly Our cars may contain defects and if we are not able to secure into our car portfolio over time may in design and manufacture that sufficient NEV credits this may present challenges and costs. We may cause them not to perform adversely affect our business in expect to increase R&D spending as expected or that may require China. in the medium term particularly repair. There can be no assurance To comply with current and future on hybrid and electric technology- that we will be able to detect and environmental rules related to related projects. Although we expect fix any defects in the cars prior to both fuel economy and pollutant to price our hybrid and electric their sale to consumers. Our cars emissions in all markets in which cars appropriately to recoup the may not perform in line with our we sell our cars, we may have to investments and expenditures we clients’ evolving expectations or in incur substantial capital expenditure are making, we cannot be certain a manner that equals or exceeds and research and development that these expenditures will be the performance characteristics expenditure to upgrade products fully recovered. In addition, this of other cars currently available. and manufacturing facilities, which transformation of our car technology For example, our newer cars would have an impact on our cost of creates risks and uncertainties such may not have the durability or production and results of operation. as the impact on driver experience, longevity of current cars, and may THE INTRODUCTION OF HYBRID AND ELECTRIC TECHNOLOGY IN OUR CARS IS COSTLY AND ITS LONG TERM SUCCESS IS UNCERTAIN. and the impact on the cars’ residual not be as easy to repair as other value over time, both of which may cars currently on the market. be met with an unfavorable market Any product defects or any other reaction. Other manufacturers of failure of our performance cars to luxury sports cars may be more perform as expected could harm successful in implementing hybrid our reputation and result in adverse We are gradually but rapidly and electric technology. In the long publicity, lost revenue, delivery introducing hybrid and electric term, although we believe that delays, product recalls, product technology in our cars. combustion engines will continue to liability claims, harm to our brand 33 AR 2020 FERRARI N.V. and reputation, and significant warranty and other expenses, and could have a material adverse impact on our business, operating results and financial condition. CAR RECALLS MAY BE COSTLY AND MAY HARM OUR REPUTATION. WE MAY BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS, WHICH COULD HARM OUR FINANCIAL CONDITION AND LIQUIDITY IF WE ARE NOT ABLE TO SUCCESSFULLY DEFEND OR INSURE AGAINST SUCH CLAIMS. guarantees and warranties granted, the calculated product prices and the provisions for our guarantee and warranty risks have been set or will in the future be set too low. There is also a risk that we will be required to extend the guarantee or warranty We may become subject to product originally granted in certain markets liability claims, which could harm for legal reasons, or provide services We have in the past and we may our business, operating results and as a courtesy or for reasons of from time to time in the future be financial condition. The automobile reputation where we are not legally required to recall our products to industry experiences significant obliged to do so, and for which we will address performance, compliance product liability claims and we have generally not be able to recover from or safety-related issues. We may inherent risk of exposure to claims in suppliers or insurers. incur costs for these recalls, the event our cars do not perform as including replacement parts and expected or malfunction resulting in labor to remove and replace the personal injury or death. A successful defective parts. For example, in product liability claim against us the course of 2015 and 2016, could require us to pay a substantial we issued a series of recalls monetary award. Moreover, a relating to defective air bags product liability claim could generate manufactured by Takata and substantial negative publicity about installed on certain of our models. our cars and business, adversely OUR INSURANCE COVERAGE MAY NOT BE ADEQUATE TO PROTECT US AGAINST ALL POTENTIAL LOSSES TO WHICH WE MAY BE SUBJECT, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. Also in light of uncertainties in affecting our reputation and inhibiting We maintain insurance coverage our ability to recover the recall or preventing commercialization that we believe is adequate to cover costs from Takata (which filed of future cars, which could have normal risks associated with the for bankruptcy in June 2017 and a material adverse effect on our operation of our business. However, was later acquired by Key Safety brand, business, operating results there can be no assurance that Systems in April 2018), we recorded and financial condition. While we any claim under our insurance a provision regarding this matter seek to insure against product liability policies will be honored fully or in the second quarter of 2016 risks, insurance may be insufficient timely, our insurance coverage for an amount of €37 million. This to protect against any monetary will be sufficient in any respect or provision has been used over time claims we may face and will not our insurance premiums will not and amounted to approximately €7 mitigate any reputational harm. Any increase substantially. Accordingly, million as of December 31, 2020. lawsuit seeking significant monetary to the extent that we suffer loss For a description of these and damages may have a material or damage that is not covered by other recent recalls, see “Overview adverse effect on our reputation, insurance or which exceeds our of Our Business – Regulatory business and financial condition. We insurance coverage, or have to pay Matters – Vehicle safety”. In may not be able to secure additional higher insurance premiums, our addition, regulatory oversight of product liability insurance coverage financial condition may be affected. recalls, particularly in the vehicle on commercially acceptable terms safety, has increased recently. or at reasonable costs when needed, Any product recalls can harm our particularly if we face liability for our reputation with clients, particularly products and are forced to make a if consumers call into question the claim under such a policy. safety, reliability or performance of our cars. Any such recalls could harm our reputation and result in adverse publicity, lost revenue, delivery delays, product liability WE ARE EXPOSED TO RISKS IN CONNECTION WITH PRODUCT WARRANTIES AS WELL AS THE PROVISION OF SERVICES. IMPROPER CONDUCT OF EMPLOYEES, AGENTS, OR OTHER REPRESENTATIVES COULD ADVERSELY AFFECT OUR REPUTATION AND OUR BUSINESS, OPERATING RESULTS, AND FINANCIAL CONDITION. Our compliance controls, claims and other expenses, and A number of our contractual and legal policies, and procedures may could have a material adverse requirements oblige us to provide not in every instance protect impact on our business, operating extensive warranties to our clients, us from acts committed by our results and financial condition. dealers and national distributors. employees, agents, contractors, There is a risk that, relative to the or collaborators that would violate 34 / RISKS RELATED TO OUR BUSINESS, STRATEGY AND OPERATIONSAR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements the laws or regulations of the and help us make a variety of day-to- proprietary technology and trade jurisdictions in which we operate, day business decisions as well as to secrets, and to the extent the including employment, foreign track transactions, billings, payments confidentiality of such information corrupt practices, environmental, and inventory. Such systems are is compromised, we may lose our competition, and other laws and susceptible to malfunctions and competitive advantage and our car regulations. Such improper actions interruptions due to equipment sales may suffer. We also collect, could subject us to civil or criminal damage, power outages, and a range retain and use certain personal investigations, and monetary and of other hardware, software and information, including data we injunctive penalties. In particular, our network problems. Those systems gather from clients for product business activities may be subject are also susceptible to cybercrime, development and marketing to anti-corruption laws, regulations or threats of intentional disruption, purposes, and data we obtain or rules of other countries in which which are increasing in terms of from employees. Therefore we we operate. If we fail to comply sophistication and frequency, with are subject to a variety of ever- with any of these regulations, the consequence that such cyber changing data protection and it could adversely impact our incidents may remain undetected privacy laws on a global basis, operating results and our financial for long periods of time. For any of including the EU General Data condition. In addition, actual or these reasons, we may experience Protection Regulation, which came alleged violations could damage our system malfunctions or interruptions. into force on May 25, 2018. To an reputation and our ability to conduct Although our systems are diversified, increasing extent, the functionality business. Furthermore, detecting, including multiple server locations and controls of our cars depend investigating, and resolving and a range of software applications on in-vehicle information any actual or alleged violation for different regions and functions, technology. The increased demand is expensive and can consume and we periodically assess and for a “connected car” has led significant time and attention of our implement actions to ameliorate risks to increased digitization of car executive management. to our systems, a significant or large systems, the wide application A DISRUPTION IN OUR INFORMATION TECHNOLOGY, INCLUDING AS A RESULT OF CYBERCRIMES, COULD COMPROMISE CONFIDENTIAL AND SENSITIVE INFORMATION. scale malfunction or interruption of of software, and the creation of our systems could adversely affect new, fully digital mobility services. our ability to manage and keep our Such technology is capable of operations running efficiently, and transmitting and storing an damage our reputation if we are increasing amount of personal unable to track transactions and information belonging to our deliver products to our dealers and customers. Any unauthorized We depend on our information clients. A malfunction that results in access to in-vehicle IT systems technology and data processing a wider or sustained disruption to may compromise the car security systems to operate our business, our business could have a material or the privacy of our customers’ and a significant malfunction or adverse effect on our business, information and expose us to disruption in the operation of our results of operations and financial claims as well as reputational systems, human error, interruption condition. In addition to supporting damage. Ultimately, any significant to power supply, or a security breach our operations, we use our systems compromise in the integrity of our that compromises the confidential to collect and store confidential and data security could have a material and sensitive information stored in sensitive data, including information adverse effect on our business. those systems, could disrupt our about our business, our clients and business and adversely impact our employees. our ability to compete. Our ability to keep our business operating As our technology continues to effectively depends on the evolve, we anticipate that we will functional and efficient operation collect and store even more data by us and our third party service in the future, and that our systems OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR OPERATIONS AND WE MAY FACE DIFFICULTIES IN SERVICING OR REFINANCING OUR DEBT. providers of our information, data will increasingly use remote As of December 31, 2020, our processing and telecommunications communication features that gross consolidated debt was systems, including our car design, are sensitive to both willful and approximately €2,725 million (which manufacturing, inventory tracking unintentional security breaches. includes our financial services). See and billing and payment systems. Much of our value is derived “Operating Results – Liquidity and We rely on these systems to enable from our confidential business Capital Resources”. Our current a number of business processes information, including car design, and long-term debt requires us to 35 AR 2020 FERRARI N.V. dedicate a portion of our cash flow to service interest and principal payments and, if interest rates rise, this amount may increase. In addition, our existing debt may limit our ability to raise further capital or incur additional indebtedness to execute our growth strategy or otherwise may place us at a competitive disadvantage relative to competitors that have less debt. To the extent we become more leveraged, the risks described above would increase. We may also have difficulty refinancing our existing debt or incurring new debt on terms that we would consider to be commercially reasonable, if at all. CAR SALES DEPEND IN PART ON THE AVAILABILITY OF AFFORDABLE FINANCING. In certain regions, financing for new car sales has been available at relatively low interest rates for several years due to, among other things, expansive government monetary policies. To the extent that interest rates may rise generally based on WE MAY NOT BE ABLE TO PROVIDE ADEQUATE ACCESS TO FINANCING FOR OUR DEALERS AND CLIENTS, AND OUR FINANCIAL SERVICES OPERATIONS MAY BE DISRUPTED. Our dealers enter into wholesale financing arrangements to purchase cars from us to hold in inventory or to use in showrooms and facilitate retail sales, and retail clients use a variety of finance and lease programs to acquire cars. In most markets, we rely either on controlled or associated finance companies or on commercial relationships with third parties, including third party financial institutions, to provide financing to our dealers and retail clients. Finance companies are subject to various risks that could negatively affect their ability to provide financing services at competitive rates, including: • the performance of loans and leases in their portfolio, which could be materially affected by delinquencies or defaults; ability to access the securitization market at advantageous terms or at all, the funding of our controlled or associated finance companies would become more difficult and expensive and our financial condition may therefore be adversely affected. Any financial services provider, including our controlled finance companies, will face other demands on its capital, as well as liquidity issues relating to other investments or to developments in the credit markets. Furthermore, they may be subject to regulatory changes that may increase their costs, which may impair their ability to provide competitive financing products to our dealers and retail clients. To the extent that a financial services provider is unable or unwilling to provide sufficient financing at competitive rates to our dealers and retail clients, such dealers and retail clients may not have sufficient access to financing to purchase or lease our cars. As a result, our car sales and market share may suffer, pronouncements of governments • higher than expected car return which would adversely affect our or central banks, market rates for rates and the residual value results of operations and financial new car financing are expected performance of cars they lease; condition. to rise as well, which may make and our cars less affordable to clients • fluctuations in interest rates and or cause consumers to purchase currency exchange rates. less expensive cars, adversely Our dealer and retail customer financing in Europe are mainly provided through our partnership affecting our results of operations Furthermore, to help fund our with FCA Bank S.p.A. (“FCA Bank”), and financial condition. Additionally, retail and wholesale financing a joint venture between FCA Italy if consumer interest rates business, our financial services S.p.A. and Crédit Agricole Consumer increase substantially or if financial companies in the United States Finance S.A. (“CACF”). If we fail to service providers tighten lending also access forms of funding maintain our partnership with FCA standards or restrict their lending available from the banking system Bank or in the event of a termination to certain classes of credit, our in each market, including sales or of the joint venture or change of clients may choose not to, or may securitization of receivables either control of one of our joint venture not be able to, obtain financing to in negotiated sales or through partners, we may not be able to find purchase our cars. asset-backed financing programs. a suitable alternative partner with At December 31, 2020, an amount similar resources and experience of $934 million was outstanding and continue to offer financing under revolving securitizations services to support the sales carried out by Ferrari Financial of Ferrari cars in key European Services Inc. See “Operating markets, which could adversely Results – Liquidity and Capital affect our results of operations and Resources”. Should we lose the financial condition. 36 / RISKS RELATED TO OUR BUSINESS, STRATEGY AND OPERATIONSAR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements LABOR LAWS AND COLLECTIVE BARGAINING AGREEMENTS WITH OUR LABOR UNIONS COULD IMPACT OUR ABILITY TO OPERATE EFFICIENTLY. All of our production employees are represented by trade unions, are covered by collective bargaining agreements and/or are protected by applicable labor relations regulations that may restrict our ability to modify operations and reduce costs quickly in response to changes in market conditions. These regulations and the provisions in our collective bargaining agreements may impede our ability to restructure our business successfully to compete more efficiently and effectively, especially with those automakers whose employees are not represented by trade unions or are subject to less stringent regulations, which could have a material adverse effect on our results of operations and financial condition. WE ARE SUBJECT TO RISKS ASSOCIATED WITH EXCHANGE RATE FLUCTUATIONS, INTEREST RATE CHANGES, CREDIT RISK AND OTHER MARKET RISKS. For example, we incur a large portion dealers and retail clients, there can of our capital and operating expenses be no assurances that we will be in Euro while we receive the majority able to successfully mitigate such of our revenues in currencies risks, particularly with respect other than Euro. In addition, foreign to a general change in economic exchange movements might conditions. also negatively affect the relative purchasing power of our clients which could also have an adverse effect on our results of operations. For example, the U.S. Dollar CHANGES IN TAX, TARIFF OR FISCAL POLICIES COULD ADVERSELY AFFECT DEMAND FOR OUR PRODUCTS. depreciated significantly against the Imposition of any additional Euro during the second half of 2020, taxes and levies designed to limit while the pound sterling remained the use of automobiles could subject to volatility against the Euro, adversely affect the demand for mainly in the first half of 2020. If the our vehicles and our results of U.S. Dollar or some other currencies operations. Changes in corporate were to further depreciate against and other taxation policies as the Euro, we expect that it would well as changes in export and adversely impact our revenues and other incentives given by various results of operations. No significant governments, or import or tariff adverse movements in foreign policies, could also adversely exchange rates have occurred in affect our results of operations. early 2021. The extent of adverse Considerable uncertainty impacts from exchange rate surrounds the introduction and fluctuations could increase if the scope of tariffs by the United portion of our business in countries States or other countries, as well outside of Eurozone increases. as the potential for additional trade actions by the United States or We seek to manage risks other countries. The impact of any associated with fluctuations in such tariffs on our operations and currency through financial hedging results is uncertain and could be instruments. Although we seek to significant, and we can provide no manage our foreign currency risk assurance that any strategies we in order to minimize any negative implement to mitigate the impact We operate in numerous markets effects caused by rate fluctuations, of such tariffs or other trade worldwide and are exposed to including through hedging activities, actions will be successful. While market risks stemming from there can be no assurance that we we are managing our product fluctuations in currency and interest will be able to do so successfully, development and production rates. In particular, changes in and our business, results of operations on a global basis to exchange rates between the Euro operations and financial condition reduce costs and lead times, unique and the main foreign currencies could nevertheless be adversely national or regional standards in which we operate affect our affected by fluctuations in market can result in additional costs for revenues and results of operations. rates, particularly if these conditions product development, testing and The exposure to currency risk is persist. mainly linked to the differences manufacturing. Governments often require the implementation in geographic distribution of our Our financial services activities are of new requirements during sourcing and manufacturing also subject to the risk of insolvency the middle of a product cycle, activities from those in our of dealers and retail clients, as well which can be substantially more commercial activities, as a result of as unfavorable economic conditions expensive than accommodating which our cash flows from sales are in markets where these activities these requirements during the denominated in currencies different are carried out. Despite our efforts design phase of a new product. The from those connected to purchases to mitigate such risks through the imposition of any additional taxes or production activities. credit approval policies applied to and levies or change in government 37 AR 2020 FERRARI N.V. / RISKS RELATED TO OUR BUSINESS, STRATEGY AND OPERATIONS policy designed to limit the use of high performance sports cars or automobiles more generally, or any decisions by policymakers to implement taxes on luxury automobiles, could also adversely affect the demand for our cars. The occurrence of the above may have a material adverse effect on our business, results of operations and financial condition. IF WE WERE TO LOSE OUR AUTHORIZED ECONOMIC OPERATOR CERTIFICATE, WE MAY BE REQUIRED TO MODIFY OUR CURRENT BUSINESS PRACTICES AND TO INCUR INCREASED COSTS, AS WELL AS EXPERIENCE SHIPMENT DELAYS. Because we ship and sell our cars in numerous countries, the customs regulations of various jurisdictions are important to our business and operations. To expedite customs procedure, we obtained the European Union’s Authorized Economic Operator (AEO) certificate. The AEO certificate is granted to operators that meet certain requirements regarding supply chain security and the safety and compliance with law of the operator’s customs controls and procedures. Operators are audited periodically for continued compliance with the requirements. The AEO certificate allows us to benefit from special expedited customs treatment, which significantly facilitates the shipment of our cars in the various markets where we operate. If we were to lose the AEO status, including for failure to meet one of the certification’s requirements, we would be required to change our RISKS RELATED TO OUR COMMON SHARES THE MARKET PRICE AND TRADING VOLUME OF OUR COMMON SHARES MAY BE VOLATILE, WHICH COULD RESULT IN RAPID AND SUBSTANTIAL LOSSES FOR OUR SHAREHOLDERS. The market price of our common shares may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume of our common shares may fluctuate and cause significant price variations to occur. If the market price of our common shares declines significantly, a shareholder may be unable to sell their common shares at or above their purchase price, if at all. The market price of our common shares may fluctuate or decline significantly in the future. Some of the factors that could negatively affect the price of our common shares, or result in fluctuations in the price or trading volume of our common shares, include: • variations in our operating results, or failure to meet the market’s earnings expectations; • publication of research reports about us, the automotive industry or the luxury industry, or the failure of securities analysts to cover our common shares; • departures of any members of our management team or additions or departures of other key personnel; • adverse market reaction to any indebtedness we may incur or securities we may issue in the future; • actions by shareholders; announcements relating to these matters; • adverse publicity about the automotive industry or the luxury industry generally, or particularly scandals relating to those industries, specifically; • litigation and governmental investigations; and • general market and economic conditions. THE LOYALTY VOTING PROGRAM MAY AFFECT THE LIQUIDITY OF OUR COMMON SHARES AND REDUCE OUR COMMON SHARE PRICE. The implementation of our loyalty voting program could reduce the trading liquidity and adversely affect the trading prices of our common shares. The loyalty voting program is intended to reward our shareholders for maintaining long-term share ownership by granting initial shareholders and persons holding our common shares continuously for at least three years the option to elect to receive special voting shares. Special voting shares cannot be traded and, if common shares participating in the loyalty voting program are sold they must be deregistered from the loyalty register and any corresponding special voting shares transferred to us for no consideration (om niet). This loyalty voting program is designed to encourage a stable shareholder base and, conversely, it may deter trading by shareholders that may be interested in participating in our loyalty voting program. Therefore, the loyalty voting program may reduce liquidity in our common shares and adversely affect their trading price. business practices and to adopt • changes in market valuations of standard customs procedures similar companies; for the shipment of our cars. This • changes or proposed changes in could result in increased costs and laws or regulations, or differing shipment delays, which, in turn, interpretations thereof, affecting THE INTERESTS OF OUR LARGEST SHAREHOLDERS MAY DIFFER FROM THE INTERESTS OF OTHER SHAREHOLDERS. could negatively affect our results of our business, or enforcement of Exor N.V. (“Exor”) is our largest operations. these laws and regulations, or shareholder, holding approximately 38 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements 24.05 percent of our outstanding our former largest shareholder, common shares and approximately renamed Stellantis N.V., in a number 35.82 percent of our voting power of areas relating to common (as of February 15, 2021). Therefore, shareholdings and management, Exor has a significant influence over as well as our past and ongoing these matters submitted to a vote of relationships. There are certain our shareholders, including matters overlaps among the directors such as adoption of the annual and officers of us and Stellantis. financial statements, declarations For example, Mr. John Elkann, our of annual dividends, the election Executive Chairman and interim and removal of the members of Chief Executive Officer, is the our board of directors (the “Board Chairman and an executive director OUR LOYALTY VOTING PROGRAM MAY MAKE IT MORE DIFFICULT FOR SHAREHOLDERS TO ACQUIRE A CONTROLLING INTEREST IN FERRARI, CHANGE OUR MANAGEMENT OR STRATEGY OR OTHERWISE EXERCISE INFLUENCE OVER US, WHICH MAY AFFECT THE MARKET PRICE OF OUR COMMON SHARES. of Directors”), capital increases of Stellantis and Chairman and The provisions of our articles and amendments to our articles Chief Executive Officer of Exor. of association which establish of association. In addition, as of Certain of our other directors and the loyalty voting program may February 15, 2021, Piero Ferrari, officers may also be directors or make it more difficult for a third the Vice Chairman of Ferrari, holds officers of Stellantis or Exor, our party to acquire, or attempt to approximately 10.23 percent of our and Stellantis’s largest shareholder. acquire, control of our company, outstanding common shares and These individuals owe duties both even if a change of control approximately 15.23 percent of to us and to the other companies were considered favorably by voting interest in us (as of February that they serve as officers and/ shareholders holding a majority 15, 2021). The percentages of or directors, which may create of our common shares. As a result ownership and voting power above conflicts as, for example, these of the loyalty voting program, a are calculated based on the number individuals review opportunities that relatively large proportion of the of outstanding shares net of treasury may be appropriate or suitable for voting power of Ferrari could shares. As a result, he also has both us and such other companies, be concentrated in a relatively influence in matters submitted to a or we pursue business transactions small number of shareholders vote of our shareholders. Exor and in which both we and such other who would have significant Piero Ferrari informed us that they companies have an interest, such influence over us. As of February have entered into a shareholder as our arrangement to supply 15, 2021, Exor had approximately agreement pursuant to which they engines for Maserati cars. Exor 24.05 percent of our outstanding have undertaken to consult for holds approximately 24.05 percent common shares and a voting the purpose of forming, where of our outstanding common shares interest in Ferrari of approximately possible, a common view on the and approximately 35.82 percent 35.82 percent. As of February items on the agenda of shareholders of the voting power in us (as of 15, 2021, Piero Ferrari held meetings. See “Major Shareholders February 15, 2021), while it holds approximately 10.23 percent of – Shareholders’ Agreement”. The approximately 14.4 percent of the our outstanding common shares interests of Exor and Piero Ferrari outstanding common shares in and, as a result of the loyalty voting may in certain cases differ from Stellantis (based on SEC filings). mechanism, had approximately those of other shareholders. In The percentages of ownership and 15.23 percent of the voting power addition, the sale of substantial voting power above are calculated in our shares. The percentages amounts of our common shares in based on the number of outstanding of ownership and voting power the public market by Piero Ferrari shares net of treasury shares. Exor above are calculated based on or the perception that such a sale also owns a controlling interest in the number of outstanding shares could occur could adversely affect CNH Industrial N.V., which was part net of treasury shares. In addition, the prevailing market price of the of the former FCA Group before its Exor and Piero Ferrari informed common shares. spin-off several years ago. These us that they have entered into WE MAY HAVE POTENTIAL CONFLICTS OF INTEREST WITH STELLANTIS AND EXOR AND ITS RELATED COMPANIES. ownership interests could create a shareholder agreement, actual, perceived or potential summarized under “Major conflicts of interest when these Shareholders – Shareholders’ parties or our common directors Agreement”. As a result, Exor and officers are faced with and Piero Ferrari may exercise Questions relating to conflicts of decisions that could have different significant influence on matters interest may arise between us and implications for us and Stellantis or involving our shareholders. Exor Fiat Chrysler Automobiles N.V., Exor, as applicable. and Piero Ferrari and other 39 AR 2020 FERRARI N.V. shareholders participating in the loyalty voting program may have the power effectively to prevent or delay change of control or other transactions that may otherwise benefit our shareholders. The loyalty voting program may also prevent or discourage shareholder initiatives aimed at changing Ferrari’s management or strategy or otherwise exerting influence over Ferrari. See “Corporate Governance – Loyalty Voting Structure”. WE ARE A DUTCH PUBLIC COMPANY WITH LIMITED LIABILITY, AND OUR SHAREHOLDERS MAY HAVE RIGHTS DIFFERENT TO THOSE OF SHAREHOLDERS OF COMPANIES ORGANIZED IN THE UNITED STATES. WE EXPECT TO MAINTAIN OUR STATUS AS A “FOREIGN PRIVATE ISSUER” UNDER THE RULES AND REGULATIONS OF THE SEC AND, THUS, ARE EXEMPT FROM A NUMBER OF RULES UNDER THE EXCHANGE ACT OF 1934 AND ARE PERMITTED TO FILE LESS INFORMATION WITH THE SEC THAN A COMPANY INCORPORATED IN THE UNITED STATES. Board of Directors may deem relevant at the time it recommends approval of the dividend. Our dividend policy is subject to change in the future based on changes in statutory requirements, market trends, strategic developments, capital requirements and a number of other factors. In addition, under our articles of association and Dutch law, dividends may be declared on our common shares only if the amount of equity exceeds the paid up and called up capital plus the As a “foreign private issuer,” we reserves that have to be maintained are exempt from rules under the pursuant to Dutch law or the articles Securities Exchange Act of 1934, of association. Further, even if we as amended (the “Exchange Act”) are permitted under our articles of that impose certain disclosure and association and Dutch law to pay procedural requirements for proxy cash dividends on our common solicitations under Section 14 of shares, we may not have sufficient the Exchange Act. In addition, our cash to pay dividends in cash on our officers, directors and principal common shares. We are a holding The rights of our shareholders shareholders are exempt from the company and our operations are may be different from the rights of reporting and “short-swing” profit conducted through our subsidiaries. shareholders governed by the laws recovery provisions of Section 16 As a result, our ability to pay of U.S. jurisdictions. We are a Dutch of the Exchange Act and the rules dividends primarily depends on the public company with limited liability under the Exchange Act with respect ability of our subsidiaries, particularly (naamloze vennootschap). Our to their purchases and sales of our Ferrari S.p.A., to generate earnings corporate affairs are governed common shares. Moreover, we are and to provide us with the necessary by our articles of association and not required to file periodic reports financial resources. by the laws governing companies and financial statements with the incorporated in the Netherlands. SEC as frequently or as promptly The rights of our shareholders as U.S. companies whose securities and the responsibilities of are registered under the Exchange members of our Board of Act, nor are we required to comply Directors may be different from with Regulation FD, which restricts the rights of shareholders and the the selective disclosure of material responsibilities of members of information. Accordingly, there may board of directors in companies be less publicly available information governed by the laws of other concerning us than there is for U.S. OUR MAINTENANCE OF TWO EXCHANGE LISTINGS MAY ADVERSELY AFFECT LIQUIDITY IN THE MARKET FOR OUR COMMON SHARES AND COULD RESULT IN PRICING DIFFERENTIALS OF OUR COMMON SHARES BETWEEN THE TWO EXCHANGES. jurisdictions including the United public companies. Our shares are listed on both the New States. In the performance of its duties, our Board of Directors is required by Dutch law to consider our interests and the interests of our shareholders, our employees and other stakeholders, in all cases with due observation of OUR ABILITY TO PAY DIVIDENDS ON OUR COMMON SHARES MAY BE LIMITED AND THE LEVEL OF FUTURE DIVIDENDS IS SUBJECT TO CHANGE. York Stock Exchange (“NYSE”) and the Mercato Telematico Azionario (“MTA”). The dual listing of our common shares may split trading between the NYSE and the MTA, adversely affect the liquidity of the shares and the development of an active trading the principles of reasonableness Our payment of dividends on our market for our common shares in and fairness. It is possible that common shares in the future will one or both markets and may result some of these parties will have be subject to business conditions, in price differentials between the interests that are different from, financial conditions, earnings, cash exchanges. Differences in the trading or in addition to, your interests as a balances, commitments, strategic schedules, as well as volatility in the shareholder. plans and other factors that our exchange rate of the two trading 40 / RISKS RELATED TO OUR COMMON SHARESAR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements currencies, among other factors, on other actions taken as part of the authorities on significant matters. may result in different trading prices Separation, we do not believe we In particular we filed a ruling for our common shares on the two retain any liability for obligations of application for advance pricing exchanges. FCA, now Stellantis, existing at the agreement (APA) on transfer pricing. IT MAY BE DIFFICULT TO ENFORCE U.S. JUDGMENTS AGAINST US. time of the Separation. Nevertheless, in the event that Stellantis fails to In addition, tax laws are complex satisfy obligations to its creditors and subject to subjective valuations existing at the time of the demerger, and interpretive decisions, and We are organized under the laws of it is possible that those creditors may we will periodically be subject to the Netherlands, and a substantial seek to recover from us, claiming tax audits aimed at assessing our portion of our assets are outside that we remain liable to satisfy such compliance with direct and indirect of the United States. Most of our obligations. While we believe we taxes. The tax authorities may not directors and senior management would prevail against any such claim, agree with our interpretations of, and our independent auditors are litigation is inherently costly and or the positions we have taken or resident outside the United States, uncertain and could have an adverse intend to take on, tax laws applicable and all or a substantial portion of their effect. See “Overview – History of the to our ordinary activities and respective assets may be located Company”. outside the United States. As a result, it may be difficult for U.S. investors to effect service of process within the United States upon these persons. It may also be difficult for U.S. investors to enforce within the United States judgments against us predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. In addition, there is uncertainty as to whether the courts outside the United States would recognize or enforce judgments of RISKS RELATED TO TAXATION CHANGES TO TAXATION OR THE INTERPRETATION OR APPLICATION OF TAX LAWS COULD HAVE AN ADVERSE IMPACT ON OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION. U.S. courts obtained against us or our Our business is subject to various directors and officers predicated taxes in different jurisdictions (mainly upon the civil liability provisions of the Italy), which include, among others, the extraordinary transactions. In case of challenges by the tax authorities to our interpretations, we could face long tax proceedings that could result in the payment of penalties and have a material adverse effect on our operating results, business and financial condition. AS A RESULT OF THE DEMERGERS AND THE MERGER IN CONNECTION WITH THE SEPARATION, WE MIGHT BE JOINTLY AND SEVERALLY LIABLE WITH FCA FOR CERTAIN TAX LIABILITIES ARISEN IN THE HANDS OF FCA. securities laws of the United States Italian corporate income tax (“IRES”), Although the Italian tax authorities or any state thereof. Therefore, it may regional trade tax (“IRAP”), value added confirmed in a positive advance tax be difficult to enforce U.S. judgments tax (“VAT”), excise duty, registration ruling issued on October 9, 2015 against us, our directors and officers tax and other indirect taxes. We are that the demergers and the Merger and our independent auditors. exposed to the risk that our overall tax that was carried out in connection STELLANTIS CREDITORS MAY SEEK TO HOLD US LIABLE FOR CERTAIN STELLANTIS OBLIGATIONS. burden may increase in the future. with the Separation would be respected as tax-free, neutral Changes in tax laws or regulations or transactions from an Italian income in the position of the relevant Italian tax perspective, under Italian tax and non-Italian authorities regarding law we may still be held jointly One step of our Separation (see the application, administration or and severally liable, as a result of “Overview – History of the Company” interpretation of these laws or the combined application of the from FCA included a demerger regulations, particularly if applied rules governing the allocation of from FCA of our common shares retrospectively, could have negative tax liabilities in case of demergers previously held by it. In connection effects on our current business and mergers, with FCA for taxes, with a demerger under Dutch law, the model and have a material adverse penalties, interest and any other demerged company may continue to effect on our business, operating tax liability arising in the actions of be liable for certain obligations of the results and financial condition. FCA because of violations of its tax demerging company that exist at the obligations related to tax years prior time of the demerger, but only to the In order to reduce future potential to the two Demergers described in extent that the demerging company disputes with tax authorities, we the section “Overview – History of fails to satisfy such liabilities. Based seek advance agreements with tax the Company”. 41 AR 2020 FERRARI N.V. THERE MAY BE POTENTIAL “PASSIVE FOREIGN INVESTMENT COMPANY” TAX CONSIDERATIONS FOR U.S. HOLDERS. THE CONSEQUENCES OF THE LOYALTY VOTING PROGRAM ARE UNCERTAIN. to, inter alia, the use of intellectual property assets. Business income derived from the use of each No statutory, judicial or qualified intangible asset is partially administrative authority directly exempted from taxation for both Shares of our stock would be stock discusses how the receipt, IRES and IRAP purposes. We are of a “passive foreign investment ownership, or disposition of special currently applying the Patent Box company,” or a PFIC, for U.S. federal voting shares should be treated for tax regime for the period from income tax purposes with respect to Italian or U.S. tax purposes and as 2020 to 2024, in line with applicable a U.S. holder if for any taxable year in a result, the tax consequences in tax regulations in Italy. The amount which such U.S. holder held shares those jurisdictions are uncertain. of the related tax benefits (if any) of our stock, after the application that the Group may receive from of applicable “look-through rules” The fair market value of the special the tax regime remains subject to (i) 75 percent or more of our gross voting shares, which may be uncertainty. income for the taxable year consists relevant to the tax consequences, We currently calculate taxes due of “passive income” (including is a factual determination and is in Italy based, among other things, dividends, interest, gains from the not governed by any guidance that on certain tax breaks recognized sale or exchange of investment directly addresses such a situation. by Italian tax regulations for R&D property and rents and royalties Because, among other things, expenses and for the investments other than rents and royalties which our special voting shares are not on manufacturing equipment, are received from unrelated parties transferable (other than, in very which result in a tax saving. Law in connection with the active conduct limited circumstances, together no. 178/2021 or “Budget Law 2021”, of a trade or business, as defined in with the associated common increased incentives introduced applicable Treasury Regulations), or shares) and a shareholder will by Law no. 160/2019 relating (ii) at least 50 percent of our assets receive amounts in respect of the to tax breaks. The Budget Law for the taxable year (averaged over special voting shares only if we are 2021 extended for two years the year and determined based upon liquidated, we believe and intend to the application of the tax credit value) produce or are held for the take the position that the fair market for research and development, production of “passive income”. U.S. value of each special voting share technological innovation, persons who own shares of a PFIC is minimal. However, the relevant ecological transition and other are subject to a disadvantageous tax authorities could assert that the innovative activities, making eligible U.S. federal income tax regime with value of the special voting shares as investments made up to the tax respect to the income derived by determined by us is incorrect. period ending on December 31, the PFIC, the dividends they receive 2022. from the PFIC, and the gain, if any, The tax treatment of the loyalty they derive from the sale or other voting program is unclear and In addition, we benefit from the disposition of their shares in the PFIC. shareholders are urged to consult measures introduced in Italy by art. their tax advisors in respect of the 110 of Law Decree no. 104/2020, While we believe that shares consequences of acquiring, owning converted into Law no.126/2020, of our stock are not stock of a and disposing of special voting which re-opened the voluntary step PFIC for U.S. federal income tax shares. up of tangible and intangible assets, purposes, this conclusion is based on a factual determination made annually and thus is subject to change. Moreover, our common shares may become stock of a PFIC in future taxable years if there WE CURRENTLY BENEFIT OR SEEK TO BENEFIT FROM CERTAIN SPECIAL TAX REGIMES, WHICH MAY NOT BE AVAILABLE IN THE FUTURE. with the application of a three- percent substitutive tax rate. These measures continue to mitigate the tax burden in Italy. Significant changes in regulations were to be changes in our assets, Italian Law no. 190/2014, as or interpretation might adversely income or operations. subsequently amended and affect the availability of such supplemented, introduced an exemptions and result in higher tax optional Patent Box regime in the charges. Italian tax system. The Patent Box regime is a tax exemption related 42 / RISKS RELATED TO TAXATIONAR 2020Index to Consolidated Financial Statements Index to Company Financial Statements 43 AR 2020 FERRARI N.V. OVERVIEW FERRARI IS AMONG THE WORLD’S LEADING LUXURY BRANDS, FOCUSED ON THE DESIGN, ENGINEERING, PRODUCTION AND SALE OF THE WORLD’S MOST RECOGNIZABLE LUXURY PERFORMANCE SPORTS CARS. OUR BRAND SYMBOLIZES EXCLUSIVITY, INNOVATION, STATE-OF-THE-ART SPORTING PERFORMANCE AND ITALIAN DESIGN AND ENGINEERING HERITAGE. 70th Anniversary and finished its limited series run in 2018. We followed up our record of 5 model launches in 2019 with the unveiling in 2020 of the Ferrari Portofino M and the SF90 Spider, with shipments of both models expected to commence in 2021. In 2020, we shipped 9,119 cars and recorded net revenues of €3,460 million, EBIT of €716 million, net profit of €609 million and earnings before interest, taxes, depreciation, and amortization (EBITDA) of €1,143 million. For additional information regarding EBITDA, including a reconciliation of EBITDA to net profit, as well as other non-GAAP measures we present, Our name and history and the image enjoyed by our cars are closely associated with our Formula 1 racing team, Scuderia Ferrari, the most successful team in Formula 1 history. From the inaugural year of Formula 1 in 1950 through the present, Scuderia Ferrari has won 238 Grand Prix races, 16 Constructor World titles and 15 Drivers’ World titles. We are the only team which has taken part in more than 1,000 Formula 1 races. WE BELIEVE OUR CARS ARE THE see “Operating Results – Non-GAAP EPITOME OF PERFORMANCE, Financial Measures”. LUXURY AND STYLING. Whilst broadening our product Our product offering comprises four portfolio to target a larger customer main pillars: the sports range, the GT base, we continue to pursue a low range, special series and Icona, a line volume production strategy in order of modern cars inspired by our iconic to maintain a reputation for exclusivity cars of the past. Our current product and scarcity among purchasers of range (including cars presented our cars and we carefully manage in 2020, for which shipments will our production volumes and delivery commence in 2021) is comprised of waiting lists to promote this reputation. six sports cars (SF90 Stradale, SF90 We divide our regional markets into (i) Spider, Ferrari F8 Tributo, Ferrari F8 EMEA, (ii) Americas, (iii) Mainland China, WE BELIEVE OUR HISTORY OF Spider, 812 Superfast and 812 GTS), Hong Kong and Taiwan, and (iv) Rest of EXCELLENCE, TECHNOLOGICAL two GT cars (Ferrari Roma and Ferrari APAC, which represented respectively INNOVATION AND DEFINING Portofino M) as well as two versions of 52.8 percent, 25.5 percent, 5.0 percent STYLE TRANSCENDS THE our first Icona car, the Ferrari Monza and 16.7 percent of units shipped in AUTOMOTIVE INDUSTRY, AND SP1 and the Ferrari Monza SP2. In 2020. The geographical distribution of IS THE FOUNDATION OF THE 2020 we completed shipments of shipments in 2020 reflects deliberate FERRARI BRAND AND IMAGE. the GTC4Lusso and the GTC4Lusso allocations driven by the phase-in pace T, as well as our most recent special of individual models. Shipments in 2020 We design, engineer and produce series models, the Ferrari 488 Pista decreased as a result of the seven- our cars in Maranello, Italy, and and the Ferrari 488 Pista Spider, which week production suspension in the first sell them in over 60 markets completed their respective lifecycles in half of 2020 and the temporary closure worldwide through a network of 2020. We also produce limited edition of certain dealerships caused by the 168 authorized dealers operating hypercars and one-off cars. Our most COVID-19 pandemic, with a partial 188 points of sale as of the end recent hypercar, the LaFerrari Aperta, recovery of production and shipments of 2020. was launched in 2016 to celebrate our in the second half of the year. 44 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements HISTORY OF THE COMPANY produced. Styling quickly became its separation from FCA (renamed an integral part of the Ferrari brand. Stellantis in January 2021, following the merger of Peugeot S.A. Ferrari was incorporated as a IN 1950, WE BEGAN OUR with and into FCA), which was public limited liability company PARTICIPATION IN THE FORMULA completed on January 3, 2016 (the (naamloze vennootschap) under 1 WORLD CHAMPIONSHIP, “Separation”) and occurred through the laws of the Netherlands RACING IN THE WORLD’S SECOND a series of transactions including on September 4, 2015 with an GRAND PRIX IN MONACO, WHICH (i) an intragroup restructuring indefinite duration. Our official seat MAKES SCUDERIA FERRARI THE which resulted in the Company’s (statutaire zetel) is in Amsterdam, LONGEST RUNNING FORMULA 1 acquisition of the assets and the Netherlands, and our corporate TEAM. address and principal place of business of Ferrari North Europe Limited and the transfer by FCA business are located at Via Abetone We won our first Constructor World of its 90 percent shareholding in Inferiore n. 4, I-41053 Maranello Title in 1952. Our success on the Ferrari S.p.A. to the Company, (ii) (MO), Italy. Ferrari is registered world’s tracks and roads extends the transfer of Piero Ferrari’s 10 with the Dutch Trade Register of beyond Formula 1, including victories percent shareholding in Ferrari the Chamber of Commerce under in some of the most important car S.p.A. to the Company, (iii) the initial number 64060977. Its telephone races such as the 24 Hours of Le public offering of common shares number is +39-0536-949111. Mans, the world’s oldest endurance of the Company on the New York The name and address of the automobile race, and the 24 Hours of Stock Exchange in October 2015 Company’s agent in the United Daytona. States is: Ferrari North America, under the ticker symbol RACE, and (iv) the distribution, following Inc., 250 Sylvan Avenue, Englewood The Fiat group acquired a 50 percent the initial public offering, of FCA’s Cliffs, NJ 07632. Its telephone stake in Ferrari S.p.A. in 1969 and remaining interest in the Company number is +1 (201) 816 2600. increased its stake to 90 percent to FCA’s shareholders. On January 4, OUR COMPANY IS NAMED Ferrari, with the remaining 10 the listing of its common shares on AFTER OUR FOUNDER ENZO percent held by Enzo Ferrari’s son, the Mercato Telematico Azionario, FERRARI. Piero Ferrari. the stock exchange managed by in 1988 following the death of Enzo 2016 the Company also completed Ferrari became an independent, Borsa Italiana, under the ticker An Alfa Romeo driver since 1924, publicly traded company following symbol RACE. Enzo Ferrari founded his own racing team, Scuderia Ferrari, in Modena in 1929 initially to race Alfa Romeo cars. In 1939 he set up his own company, initially called Auto Avio Costruzioni. In late 1943, Enzo Ferrari moved his headquarters from Modena to Maranello, which remains our headquarters to this day. In 1947, we produced our first racing car, the 125 S. The 125 S’s powerful 12 cylinder engine would go on to become synonymous with the Ferrari brand. In 1948, the first road car, the Ferrari 166 Inter, was Foto Enzo Ferrari 45 AR 2020 FERRARI N.V. INDUSTRY OVERVIEW Within the luxury goods market, we define our target shock presents a sudden collapse on both the demand market for luxury performance cars as two-door cars and supply side, caused by the shutdown of production powered by engines producing more than 500 hp and plants as a necessary measure to contain the spread selling at a retail price in excess of Euro 150,000 (including of the COVID-19 first-wave. These extreme measures, VAT). The luxury performance car market historically has which were enacted worldwide, led to a global decline followed relatively closely growth patterns in the broader in sales volumes. Nevertheless, Ferrari and most of its luxury market. The luxury performance car market is main competitors have launched key new products, generally affected by global macroeconomic conditions demonstrating their resilient commitment to face this and, although we and certain other manufacturers have period of uncertainty. proven relatively resilient, general downturns can have a disproportionate impact on sales of luxury goods in light Unlike in other segments of the broader luxury market, of the discretionary nature of consumer spending in this however, in the luxury performance car market, a market. Furthermore, because of the emotional nature significant portion of demand is driven by new product of the purchasing decision, economic confidence and launches. The market share of individual producers factors such as expectations regarding future income fluctuates over time reflecting the timing of product streams as well as the social acceptability of luxury goods launches. New launches tend to drive sales volumes even may impact sales. in difficult market environments because the novelty, exclusivity and excitement of a new product is capable of Following the sharp recession of 2008-2009, the luxury creating and capturing its own demand from clients. performance car market has been resilient to further economic downturns and stagnation in the broader Growing environmental concerns are leading to the economy, also a result of the increase of new product implementation of increasingly stringent emissions launches. A sustained period of wealth creation in several regulations and an increase in demand for both Asian countries and, to a lesser extent, in the Americas, has hybrid and electric vehicles. Cost and limited charging led to an expanding population of potential consumers of infrastructure are currently limiting factors in the luxury goods. Developing consumer preferences in the demand for electric vehicles, but advancements in Asian markets, where the newly affluent are increasingly battery technology in coming years are expected to embracing western brands of luxury products, have also boost sales of hybrid and electric high performance led to higher demand for cars in our segment, which are luxury vehicles, although not necessarily at the same all produced by established European manufacturers. pace compared to mass market vehicles. The ability to In turn, the changing demographic of customers and combine driving experience with hybrid and electric potential customers is driving an evolution towards luxury technology will be key for the commercial success of performance cars more suited to an urban, daily use. high performance luxury vehicles. Additionally, the growing appetite of younger affluent As shown in the chart below, which presents the change purchasers for luxury performance cars has led to new in Ferrari volumes compared to the change in volumes entrants, which in turn has resulted in higher sales overall of the luxury performance car industry over the period in the market. from 2004 to 2020 (starting from a base case of 100 in 2004), our volumes in recent years have proven less In 2020, the luxury performance car market has been volatile than our competitors’. We believe this is due to dealt with a new challenge arising from the COVID-19 our strategy of maintaining low volumes compared pandemic. Compared to the 2008-2009 recession, to demand, as well as the higher number of models in characterized by the collapse of the financial markets and our range and our more frequent product launches the drop in global demand for luxury vehicles, the 2020 compared to our competitors. 46 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements FERRARI VS. LUXURY PERFORMANCE CAR INDUSTRY 250 230 210 190 170 150 130 110 90 70 Dec 31, 2004 Dec 31, 2005 Dec 31, 2006 Dec 31, 2007 Dec 31, 2008 Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012 Dec 31, 2013 Dec 31, 2014 Dec 31, 2015 Dec 31, 2016 Dec 31, 2017 Dec 31, 2018 Dec 31, 2019 Dec 31, 2020 FERRARI LUXURY PERFORMANCE CAR INDUSTRY • Ferrari and Luxury Performance Car Industry data are updated to December 31, 2020. • Data for the Luxury Performance Car Industry include all two door GT and sports cars with power above 500hp, and retail price above Euro 150,000 (including VAT) sold by Aston Martin, Audi, Bentley, BMW, Ferrari, Ford, Honda/Acura, Lamborghini, McLaren, Mercedes Benz, Polestar, Porsche and Rolls-Royce. • Ferrari data based on internal information for the 22 top countries (excluding Middle East countries) for Ferrari annual registrations and sales (which accounted for approximately 87 percent of the total Ferrari shipments in 2020). Annual registrations and sales for the top 22 countries (excluding Middle East countries) for Ferrari increased from 3,454 in 2004 to 7,601 in 2020, representing cumulative growth of approximately 120 percent or a compound annual growth rate of 5.1 percent. • Data for the Luxury Performance Car Industry based on units registered (in Brazil, Japan, Taiwan, United Kingdom, Germany, France, Switzerland, Italy, Poland, Spain, Sweden, Netherlands, Belgium and Austria) or sold (in USA, South Korea, Mainland China, Russia, Australia, New Zealand, Singapore and Indonesia). Source: USA: US Maker Data Club, Brazil-JATO; Austria-OSZ; Belgium-FEBIAC; France-SIV; Germany- KBA; UK-SMMT; Italy-UNRAE; Netherlands-VWE; Poland-CEPiK; Spain-TRAFICO; Sweden-BranschData; Switzerland-ASTRA; Mainland China-China Automobile Industry Association-DataClub; Russia-AEBRUS; Taiwan-Ministry of Transportation and Communications; Australia- VFACTS-S; Japan-JAIA; Indonesia-GAIKINDO; New Zealand-VFACTS; Singapore-LTA, MTA (Land Transport Authority, Motor Trader Associations); South Korea-KAIDA. Units registered for the Luxury Performance Car Industry increased from 22,903 in 2004 to 30,236 in 2020, representing cumulative growth of approximately 32 percent or a compound annual growth rate of 1.8 percent. In 2020, Ferrari volumes in the largest 22 markets decreased compared to 2019, primarily due to the production suspension resulting from the COVID-19 pandemic. In 2020, we increased our market share in the luxury performance car market to 25 percent (compared to 23 percent in 2019), with 31 percent of market share in the sports car segment (compared to 25 percent in 2019) and 17 percent of market share in the GT segment (compared to 19 percent in 2019). 47 AR 2020 FERRARI N.V. The chart below sets forth our market shares in 2020 based on volumes in our largest 22 markets by geographical area. TOP 22 Markets EMEA Americas Mainland China, Hong Kong and Taiwan Rest of APAC 25% 26% 20% 19% 36% 75% 74% 80% 81% 64% Ferrari Market Share Luxury Perfomance Car Industry • Ferrari and Luxury Performance Car Industry data updated to December 31, 2020. • Data for the Luxury Performance Car Industry include all two door GT and sports cars with power above 500hp, and retail price above Euro 150,000 (including VAT) sold by Aston Martin, Audi, Bentley, BMW, Ferrari, Ford, Lamborghini, McLaren, Mercedes Benz, Polestar, Porsche and Rolls-Royce. • Ferrari data based on internal information for the 22 top countries (excluding Middle East countries) for Ferrari annual registrations and sales (which accounted for approximately 87 percent of the total Ferrari shipments in 2020). • Data for the Luxury Performance Car Industry based on units registered (Brazil, Japan, Taiwan, United Kingdom, Germany, France, Switzerland, Italy, Poland, Spain, Sweden, Netherlands, Belgium and Austria) or sold (in USA, South Korea, Mainland China, Russia, Australia, New Zealand, Singapore and Indonesia). Source: USA: US Maker Data Club, Brazil-JATO; Austria-OSZ; Belgium-FEBIAC; France- SIV; Germany-KBA; UK-SMMT; Italy-UNRAE; Netherlands-VWE; Poland-CEPiK; Spain-TRAFICO; Sweden-BranschData; Switzerland-ASTRA; Mainland China-China Automobile Industry Association-DataClub; Russia-AEBRUS; Taiwan-Ministry of Transportation and Communications; Australia-VFACTS-S; Japan-JAIA; Indonesia-GAIKINDO; New Zealand-VFACTS; Singapore-LTA, MTA (Land Transport Authority, Motor Trader Associations); South Korea-KAIDA. • Ferrari is the market leader in several countries, including France, Italy, Switzerland, United Kingdom, USA, Australia, Japan and South Korea, among others. While we monitor our market share as an indicator of our brand appeal, we do not regard market share in the luxury performance market as particularly relevant as compared to other segments of the automotive industry. We are not focused on market share as a performance metric. Instead, we deliberately manage our supply relative to demand, to defend and promote our brand exclusivity and premium pricing. COMPETITION Competition in the luxury performance car market is lower priced range of the sports car market, with larger concentrated in a fairly small number of producers, automotive groups expanding their offering of premium including both large automotive companies that own cars to enter the luxury performance car market. luxury brands as well as small producers exclusively focused on luxury cars, like us. The luxury performance Competition in the luxury performance car market is car market includes sports cars and GT cars. driven by the strength of the brand and the appeal of the products in terms of performance, styling, novelty Our sports car models are the Ferrari F8 Tributo, the and innovation as well as on the manufacturers’ ability to Ferrari F8 Spider, the 812 Superfast, the 812 GTS and our renew its product offerings regularly in order to continue first series production Plug-in Hybrid Electric Vehicle to stimulate customer demand. (PHEV) models, the SF90 Stradale and the SF90 Spider. Our principal competitors are Lamborghini, McLaren, Competition among similarly positioned luxury Ford, Honda, Porsche, Mercedes, Aston Martin and Audi. performance cars is also driven by price and total cost Our GT range models encompass the Ferrari Roma and of ownership. Resilience of the car value after a period of the most-recent Ferrari Portofino M, while our main ownership is an important competitive dimension among competitors are Rolls-Royce, Bentley, Aston Martin and similarly positioned luxury cars, as a higher resilience Mercedes. decreases the total cost of ownership and promotes In recent years, the market has shifted somewhat with repeat purchases: we believe this is a strong competitive an increased focus on the GT cars segment and the advantage of Ferrari cars. 48 AR 2020 Index to Consolidated Financial Statements Index to Company Financial Statements FERRARI N.V. OVERVIEW OF OUR BUSINESS FERRARI IS AMONG THE WORLD’S LEADING LUXURY BRANDS, FOCUSED ON THE DESIGN, ENGINEERING, PRODUCTION AND SALE OF THE WORLD’S MOST RECOGNIZABLE LUXURY PERFORMANCE SPORTS CARS. €3,460 million, EBIT of €716 million, net profit of €609 million and earnings before interest, taxes, depreciation, and amortization (EBITDA) of €1,143 million. For additional information regarding EBITDA, including a reconciliation of EBITDA to net profit, as well as other non-GAAP measures we present, see “Operating Results – Non-GAAP Financial Measures”. WHILST BROADENING OUR PRODUCT PORTFOLIO TO TARGET A LARGER CUSTOMER BASE, WE CONTINUE TO PURSUE A LOW VOLUME PRODUCTION STRATEGY IN ORDER TO MAINTAIN A REPUTATION FOR EXCLUSIVITY Our brand symbolizes exclusivity, range, special series and Icona, a line AND SCARCITY AMONG innovation, state-of-the-art sporting of modern cars inspired by our iconic PURCHASERS OF OUR CARS performance and Italian design and cars of the past. Our current product AND WE CAREFULLY MANAGE engineering heritage. Our name and range (including cars presented OUR PRODUCTION VOLUMES history and the image enjoyed by in 2020, for which shipments will AND DELIVERY WAITING LISTS our cars are closely associated with commence in 2021) is comprised of TO PROMOTE THIS REPUTATION. our Formula 1 racing team, Scuderia six sports cars (SF90 Stradale, SF90 Ferrari, the most successful team Spider, Ferrari F8 Tributo, Ferrari We divide our regional markets in Formula 1 history. From the F8 Spider, 812 Superfast and 812 into (i) EMEA, (ii) Americas, (iii) inaugural year of Formula 1 in 1950 GTS), two GT cars (Ferrari Roma and Mainland China, Hong Kong and through the present, Scuderia Ferrari Portofino M) as well as two Taiwan, and (iv) Rest of APAC, which Ferrari has won 238 Grand Prix versions of our first Icona car, the represented respectively 52.8 races, 16 Constructor World titles Ferrari Monza SP1 and the Ferrari percent, 25.5 percent, 5.0 percent and 15 Drivers’ World titles. We are Monza SP2. In 2020 we completed and 16.7 percent of units shipped in the only team which has taken part in shipments of the GTC4Lusso and 2020. The geographical distribution more than 1,000 Formula 1 races. the GTC4Lusso T, as well as our most of shipments in 2020 reflects recent special series models, the deliberate allocations driven by the We believe our history of excellence, Ferrari 488 Pista and the Ferrari 488 phase-in pace of individual models. technological innovation and defining Pista Spider, which completed their Shipments in 2020 decreased as a style transcends the automotive respective lifecycles in 2020. We also result of the seven-week production industry, and is the foundation of the produce limited edition hypercars suspension in the first half of 2020 Ferrari brand and image. and one-off cars. Our most recent and the temporary closure of certain hypercar, the LaFerrari Aperta, dealerships caused by the COVID-19 We design, engineer and produce was launched in 2016 to celebrate pandemic, with a partial recovery our cars in Maranello, Italy, and sell our 70th Anniversary and finished of production and shipments in the them in over 60 markets worldwide its limited series run in 2018. We second half of the year. through a network of 168 authorized followed up our record of 5 model dealers operating 188 points of sale launches in 2019 with the unveiling in WE FOCUS OUR MARKETING as of the end of 2020. 2020 of the Ferrari Portofino M and AND PROMOTION EFFORTS IN the SF90 Spider, with shipments of THE INVESTMENTS WE MAKE WE BELIEVE OUR CARS ARE THE both models expected to commence IN OUR RACING ACTIVITIES EPITOME OF PERFORMANCE, in 2021. LUXURY AND STYLING. AND IN PARTICULAR, SCUDERIA FERRARI’S PARTICIPATION Our product offering comprises four In 2020, we shipped 9,119 cars IN THE FORMULA 1 WORLD main pillars: the sports range, the GT and recorded net revenues of CHAMPIONSHIP 50 AR 2020which is the pinnacle of motorsport and is one of the most watched annual sports series in the world, with approximately 433 million unique viewers in 2020 and an average total audience for a Grand Prix weekend of 87.4 million. (Source: Formula 1 Press Office). Although our most recent Formula 1 world title was in 2008, we continuously enhance our focus on Formula 1 activities with the goal of improving racing results and restoring our historical position as the premier racing team in Formula 1. We believe that these activities support the strength and awareness of our brand among motor enthusiasts, clients and the general public. WE LICENSE THE FERRARI BRAND TO A SELECTED NUMBER OF PRODUCERS AND RETAILERS OF LUXURY AND LIFESTYLE GOODS. In addition, we design, source and sell Ferrari-branded products through a network of 18 Ferrari- owned stores and 18 franchised stores (including 14 Ferrari Store Junior), as well as on our website. As one of the world’s most recognized premium luxury brands, we believe we are well positioned to selectively expand the presence of the Ferrari brand in attractive and growing lifestyle categories consistent with our image, including sportswear, watches, accessories, consumer electronics and theme parks which, we believe, enhance the brand experience of our loyal clients and Ferrari enthusiasts. We will continue focusing our efforts on protecting and enhancing the value of our brand to preserve our strong financial profile and participate in the growth of the premium luxury market. We intend to selectively pursue controlled and profitable growth in existing and emerging markets while expanding the Ferrari brand to carefully selected lifestyle categories. Index to Consolidated Financial Statements Index to Company Financial Statements 238 WON GRAND PRIX RACES 168 AUTHORIZED DEALERS 5 REGIONAL MARKETS 433 Mn GRAN PRIX VIEWERS IN 2020 87.4 Mn FOR GRAND PRIX WEEKEND FERRARI N.V. SPORTS AND GT RANGE, SPECIAL SERIES AND ICONA: FERRARI LINE-UP STRATEGIC PILLARS “DIFFERENT FERRARI FOR DIFFERENT FERRARISTI, DIFFERENT FERRARI FOR DIFFERENT MOMENTS” Our product offering as of the date WE TARGET END CLIENTS that can meet the varying needs of of this report comprises four main SEEKING HIGH PERFORMANCE new customer segments (in terms strategic pillars: the sports range, the CARS WITH DISTINCTIVE of sportiness, comfort, on-board GT range, special series and Icona. Our DESIGN AND STATE-OF-THE- space, design) and that can allow current product range includes six ART TECHNOLOGY. our existing clients to use a Ferrari sports cars, two GT cars as well as our in every moment of their lives. Icona cars, introduced in September Our broad model range is designed Our diversified product offering 2018 with the Ferrari Monza SP1 and to fulfill the strategy of “Different includes different architectures SP2. In 2020 we completed shipments Ferrari for different Ferraristi, (such as front-engine and mid-rear of the GTC4Lusso and the GTC4Lusso different Ferrari for different engine), engine sizes (V8 and V12), T, as well as our most recent special moments”, which means being technologies (atmospheric, turbo- series models, the Ferrari 488 Pista able to offer a highly differentiated charged, hybrid, electric), body and the Ferrari 488 Pista Spider. product line-up styles (such as coupes and spiders), SPORT GT SPECIAL SERIES ICONA and seats (2 seaters, 2+2 seaters and 4 seaters). WE ARE ALSO ACTIVELY ENGAGED IN AFTER SALES ACTIVITIES DRIVEN, AMONG OTHER THINGS, BY THE OBJECTIVE OF PRESERVING AND EXTENDING THE MARKET VALUE OF THE CARS WE SELL. We believe our cars’ performance in terms of value preservation after a period of ownership significantly exceeds that of any other brand in the luxury car segment. High residual value is important to the primary market because clients, when purchasing our cars, take into account the expected resale value of the car in assessing the overall cost of ownership. Furthermore, a higher residual value potentially lowers the cost for the owner to switch to a new model thereby supporting client loyalty and promoting repeat purchases. 52 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements RANGE MODELS SPORTS V8 Hybrid - SF90 Stradale V8 Hybrid - SF90 Spider V8 - F8 Tributo V8 - F8 Spider V12 - 812 Superfast V12 - 812 GTS GRAN TURISMO V8 - Portofino M V8 - Roma V8 - GTC4Lusso T V12 - GTC4Lusso SPECIAL SERIES MODELS ICONA ONE-OFF V8 - 488 Pista V8 - 488 Pista Spider V12 - Monza SP1/ SP2 V12 - Ferrari Omologata TRACK CARS FERRARI CHALLENGE THE XX PROGRAMME RACING CARS V8 - 488 Challenge EVO V12 - FXX K EVO V8 - 488 GTE/ GT3 EVO V8 - 488 GT Modificata The charts below set forth the percentage of our unit shipments (excluding the XX Programme, racing cars, one-off and pre-owned cars) for the years ended December 31, 2020, 2019 and 2018 by pillar: 2% 24% <1% 36% 32% 2020 2019 2018 74% 64% 68% Sport and Special series (*) GT Icona (**) * Includes shipments of the LaFerrari and LaFerrari Aperta. ** Shipments of Icona cars commenced in 2019, and contributed to less than 1 percent of our shipments for that year. 53 AR 2020 FERRARI N.V. / SPORTS AND GT RANGE, SPECIAL SERIES AND ICONA: FERRARI LINE-UP STRATEGIC PILLARS The table and charts below set forth our unit shipments(1) for the years ended December 31, 2020, 2019 and 2018, by geographic market: (Number of cars and % of total cars) For the years ended December 31, 2020 % 2019 % 2018 % EMEA Germany UK Italy Switzerland France Middle East (2) Other EMEA (3) Total EMEA Americas (4) 995 971 574 456 463 304 10.9% 967 9.5% 10.6% 1,120 11.1% 6.3% 5.0% 5.1% 3.3% 559 454 452 309 5.5% 4.5% 4.5% 3.1% 1,055 11.6% 1,034 10.1% 803 981 479 380 399 326 859 8.7% 10.6% 5.2% 4.1% 4.3% 3.5% 9.3% 4,818 52.8% 4,895 48.3% 4,227 45.7% 2,325 25.5% 2,900 28.6% 3,000 32.4% Mainland China, Hong Kong and Taiwan 456 5.0% 836 8.3% 695 7.5% Rest of APAC (5) Total 1,520 16.7% 1,500 14.8% 1,329 14.4% 9,119 100.0% 10,131 100.0% 9,251 100.0% (1) Excluding the XX Programme, racing cars,, one-off and pre-owned cars. (2) Middle East mainly includes the United Arab Emirates, Saudi Arabia, Bahrain, Lebanon, Qatar, Oman and Kuwait. (3) Other EMEA includes Africa and the other European markets not separately identified. (4) Americas includes the United States of America, Canada, Mexico, the Caribbean and Central and South America. (5) Rest of APAC mainly includes Japan, Australia, Singapore, Indonesia, South Korea, Thailand and Malaysia. 16.7% 5.0% 14.8% 8.3% 14.4% 7.5% 52.8% 48.3% 45.7% 2020 2019 2018 25.5% 28.6% 32.4% EMEA Americas Mainland China, Hong Kong and Taiwan Rest of APAC 54 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements SPORTS RANGE GT RANGE Our sports cars are characterized models: the SF90 Stradale and SF90 Our GT cars, while maintaining the by compact bodies, a design Spider, our first series production performance expected of a Ferrari, guided by performance and cars which feature PHEV technology are characterized by more refined aerodynamics, and often benefit that combines a V8 engine (780 hp) interiors with a higher focus on from technologies initially with three electric motors allowing comfort and on-board life quality. In developed for our Formula 1 single- the car to reach 1,000 hp; the Ferrari our GT class, we offer two models seaters. They favor performance F8 Tributo and the Ferrari F8 Spider, equipped with our V8 engine, the over comfort, seeking to provide a equipped with a mid-rear V8 engine Ferrari Roma (620 hp) and the driver with an immediate response (720 hp), 4 time winner of the engine Ferrari Portofino M (620 hp). and superior handling, leveraging of the year award; the 812 Superfast state-of-the-art vehicle dynamics and the 812 GTS, equipped with a components and controls. In our front V12 engine (800 hp). sports car class, we offer six The following picture depicts the four dimensions of our customer value proposition for our sports and GT range models: SPORTINESS F8 Tributo F8 Spider SF90 Spider SF90 Stradale Portofino M 812 Superfast 812 GTS COMFORT & VERSATILITY PERFORMANCE Roma ELEGANCE SPECIAL SERIES From time to time, we also design, significant modifications designed to to new range models. Special engineer and produce special series enhance performance and driving series cars whose shipments were cars which can be limited in time emotions. Our special series cars are completed at the end of 2020 were or volume and are usually based particularly targeted to collectors the Ferrari 488 Pista, powered by a on our range sports models but and, from a commercial and product 720 hp V8 engine, and its retractable introduce novel product concepts. development standpoint, they hard top version, the Ferrari 488 These cars are characterized by facilitate the transition from existing Pista Spider (720 hp). 55 AR 2020 FERRARI N.V. / SPORTS AND GT RANGE, SPECIAL SERIES AND ICONA: FERRARI LINE-UP STRATEGIC PILLARS ICONA LIMITED EDITION HYPERCARS AND ONE-OFFS In September 2018, we introduced In line with our tradition of hypercars exact exterior and interior design a new pillar of our product portfolio: starting with the GTO (288 GTO) in specifications requested by the the Icona, a unique concept that 1984 up to the Enzo in 2002 and the clients, and are produced as a takes inspiration from the iconic LaFerrari Aperta, our latest hypercar single, unique car. Some of the cars of our history and reinterprets launched in 2016, we also produce most iconic models emerged from them in a modern fashion, pairing limited edition hypercars. our One-Off program include the timeless design with state-of-the-art These are the highest expression of SP12 EC (inspired by the 512 BB materials and technology. The first Ferrari road car performance at the and created in 2011), the F12 TRS (a examples of this strictly limited- time and are often the forerunners radical two-seat roadster created on edition product line-up are the of technological innovations for the platform of the F12berlinetta in Ferrari Monza SP1 and SP2, which future range models, with innovative 2014), the Ferrari SP38 (a superlative are inspired by the classic collectible features and futuristic design. mid-rear V8 turbo taking inspiration barchetta cars, the 750 Monza and from the legendary Ferrari F40), the 860 Monza. In order to meet the varying needs of 458MM Speciale (the last mid rear our most loyal and discerning clients, model with a V8 natural aspirated we also produce a very limited engine in 2016), the Ferrari P80/C, number of one-off models. a real track car taking inspiration While based on the chassis and from past Ferrari Sport Prototipo equipped with engines of one models, and the Ferrari Omologata, of the current range models for based on the 812 Superfast V12 homologation and registration platform. purposes, these cars reflect the 56 AR 2020PERSONALIZATION OFFER 1 One-off 2 Tailor Made 3 Special Equipment 4 Personalization Program “Carrozzeria Scaglietti” BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements Where (Sales Channel) How (Initiatives) Maranello TM Center @Maranello @Shanghai @New York Atelier @Maranello @New York Dealership with Special Equipment Dealership New sales toolbox New Special Equipment Process Continuous enrichment of OPT list All of our models feature highly Our specialists are able to guide To assist our clients’ choice we also customizable interior and exterior clients in creating a very customized offer three collections inspired by options, which are included in our car through a wide catalog of special Ferrari’s own tradition: Scuderia personalization catalog. Some of items such as different types of rare (taking its lead from our sporting these options include performance leathers, custom stitching, special history), Classica (bringing a modern contents like carbon fibre parts, paints, special carbon fiber, and twist to the styling cues of our carbon fibre wheels, titanium personalized luggage sets designed signature GT models) and Inedita exhaust systems, alternative brake to match the car’s interior. (showcasing more experimental and caliper colors, parking cameras, innovation-led personalization). MagnaRide dual mode suspension, THE “TAILOR MADE” PROGRAM various door panel configurations, PROVIDES AN ADDITIONAL THE “ONE-OFF” PROGRAM steering wheel inserts and state- LEVEL OF PERSONALIZATION IS THE MAXIMUM LEVEL OF of-the-art custom high fidelity IN ACCORDANCE WITH THE PERSONALIZATION AND sound systems. Commencing with EXPECTATIONS OF OUR EXCLUSIVITY. the SF90 Stradale and the SF90 CLIENTS. Spider, we have also introduced See “–Limited Edition Hypercars and the “Assetto Fiorano” configuration, A dedicated Ferrari designer assists One-Offs” above for more details. which provides numerous exclusive clients in selecting and applying features for those who seek radical virtually any specific design element performance and design. chosen by the client. Our clients WITH OUR “SPECIAL finishes and accessories in an array EQUIPMENT” PROGRAM, WE of different materials (ranging from OFFER CLIENTS ADDITIONAL cashmere to denim), treatments benefit from a large selection of CUSTOMIZATION CHOICES FOR and hues. THEIR CARS. 57 AR 2020 FERRARI N.V. DESIGN Design is a fundamental and distinctive aspect of our brand’s design vision, developing new concepts and products and our brand. Our designers, modelers formal languages through so far unexplored methods and engineers work together to create car bodies that and tools, and trying to achieve simplification and formal incorporate the most innovative aerodynamic solutions purity while staying true to the Ferrari DNA which has in the sleek and powerful lines typical of our cars. The characterized its history. interiors of our cars seek to balance functionality, aesthetics and comfort. Cockpits are designed to Ferrari Design is organized as an integrated automotive maximize the driving experience, tending towards design studio, employing a total workforce of more sporty or more comfortable, depending on approximately 110 people (full-time workers as well as the model. The interiors of our vehicles boast elegant external contractors) including designers, 3D surfacing and sophisticated trims and details that enhance the operators, physical modelers and graphic artists. It ergonomic layout of all main controls, many of which operates a modeling studio fully equipped with 5-axis are clustered on the steering wheel. A guiding principle milling machines with the capacity to develop various full- of our design is that each new model represents a scale models (interior and exterior) in parallel. clear departure from prior models and introduces new and distinctive aesthetic elements, delivering constant In September 2018 we opened a new building for the innovation within the furrow of tradition. Ferrari Design Centre, which is our first facility fully dedicated to the Ferrari Design. The new building hosts For the design of our cars we have relied historically two Ateliers and the Tailor Made department to engage on Italian coachbuilders such as Carrozzeria Touring, clients with Ferrari’s rich personalization services. The Vignale, Scaglietti and Pininfarina. These partnerships Ferrari Design Centre entirely designed our most recent helped Ferrari in defining its design language at the cars, including the Ferrari Roma, the SF90 Stradale, the forefront of design advance. Throughout the years this Ferrari F8 Tributo and Ferrari F8 Spider, the 812 GTS, the area of excellence has been recognized repeatedly by a Ferrari Monza SP1 and SP2, the Ferrari Portofino M and long series of awards being bestowed upon Ferrari cars. the SF90 Spider. In 2010 we established the Ferrari Design Centre, our During its 11 year history, the Ferrari Design Centre has in-house design department, with the objective of received many prestigious design awards for the cars it improving control over the entire design process and has designed, including the following in the last 2 years: ensuring long-term continuity of the Ferrari style. The mission of the Ferrari Design Centre is to define and evolve the stylistic direction of the marque, imprinting all new products with a modern stamp, according to a futuristic, uncompromised vision. The name and logo “Ferrari Design” denotes all concepts and works from Ferrari Design Centre (see “–Intellectual Property”). Ferrari Design handles all aspects of automotive styling for the Ferrari road cars product range, encompassing the styling of all bodywork, external components and • Ferrari Roma: The Most Beautiful Supercar of the Year - Festival Automobile International, Paris (2020); Red Dot Design Award (2020); Car Design Award (2020); • Ferrari SF90 Stradale: iF Gold Design Award (2020); Red Dot Best of The Best (2020); • Ferrari F8 Tributo: iF Design Award (2020); Red Dot Design Award (2020); • Ferrari One Off P80/C: iF Design Award (2020); • Ferrari Monza SP1: XXVI PREMIO COMPASSO D’ORO interior trim, applied to series production models for the • Ferrari Monza SP2: The Most Beautiful Supercar of the GT and sports car range special editions, limited editions, Year - Festival Automobile International, Paris (2019); Iconas, one-off models, concept cars and some track- • Ferrari 488 Pista: iF Design Award (2019); only models. Ferrari Design also includes a Color & Trim unit which manages the choice of materials and finishes for both exterior and interior trim and, in addition, is responsible for the Tailor Made program in conjunction with the Product Marketing department. Ferrari Design is also involved in the styling and conceptual definition • Ferrari SP38: iF Design Award - Ferrari (2019); • Ferrari Portofino: iF Design Award (2019); UIGA - Auto Europa Sportiva (2019); • Ferrari Monza SP1: iF Gold Design Award (2019); Red Dot Best of The Best (2019); Good Design Award (2019); of Ferrari branded products produced by our licensees • Ferrari 488 Pista: Red Dot Design Award (2019); (see “–Brand Activities”). In 2019, we created the Advanced • Ferrari SP38: Red Dot Design Award (2019); Design team, a laboratory that aims at defining the • SF90 Stradale: 2019 Good Design Award (2019). 58 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements PRODUCT DEVELOPMENT PRODUCT DEVELOPMENT AND TECHNOLOGICAL INNOVATION Our development efforts take into account the three defining dimensions of Ferrari cars; performance; versatility and comfort; and driving emotions. Performance reflects features such as weight, horsepower, torque, aerodynamic efficiency, acceleration, and maximum speed, which all contribute to determine the lap time on track. We strive to ensure that every Ferrari is the best performing car in its segment. PERFORMANCE Versatility derives from spaciousness, accessibility and mode of traction, including rear-wheel-drive or all-wheel-drive and, in future, electric-powered driving. Comfort results from the ease of the riding experience and onboard interface. Regulation will affect development in this area; for example, a prescribed electric range may be required in future to access city centers. VERSATILITY Driving emotions is a key differentiator of Ferrari cars. There are three elements to driving emotions: sound, perceived acceleration and responsiveness of the car. Sound is an important part of the experience and very involving for the driver. Perceived acceleration is the driver’s subjective impression of the car acceleration beyond the actual 0-100 or 0-200 km/h performance measured in the car technical specifications. Responsiveness requires that every driver command (steering, gear shifting and braking) leads to a direct and controllable reaction of the car. DRIVING EMOTIONS These three dimensions variably SPORTS interact in our sports and GT cars. As we work on the future product range, we strive to improve on each of those dimensions, focusing for sports cars on performance and driving emotions, and for GT cars on versatility and comfort on board and fun to drive - driving emotions. Driving Emotions GRAN TURISMO Perfomance Versatility & Comfort 59 AR 2020 FERRARI N.V. / PRODUCT DEVELOPMENT INNOVATION PRINCIPLES Going forward, Ferrari will have three which will be mounted on an We believe there are five key engine families: we will maintain and increasingly larger proportion of guidelines to innovation at Ferrari: develop the V12 naturally-aspirated our car models; this is intended focus on the three key defining engine family, long the pinnacle to improve performance and dimensions described above; of Ferrari engines; we have driving experience while also leveraging on Formula 1 know- implemented further technological satisfying customer preferences how; first mover positioning in step ups for the V8 family; and we and regulatory requirements core areas such as powertrain and are developing a completely new regarding emissions. With the SF90 aerodynamics; customization of V6 family based on a specific and Stradale we developed the first technologies available on the market innovative architecture. series production car in our range (such as the turbo technology); and with PHEV technology, which is also pursuit of synergies (arising from The industry effort to combine featured in the SF90 Spider. common architectures within our greater power outputs with lower range). In addition to these internally emissions and consumption often ARCHITECTURE driven factors, regulation is key leads to a higher turbo lag. Through a In addition to engines, the other in determining the direction of technological breakthrough, Ferrari principal technical area we are innovation. has engineered a turbo engine with focusing on is the architecture. COMBUSTION ENGINES turbo engine performance but with Our architecture covers all principal the response of a naturally-aspirated technical specifications of future engine. For example, compared to Ferrari models. Ferrari’s previous line of V8 turbo We expect that innovation WE BELIEVE INTERNAL engines, the specific power output of requirements will arise principally COMBUSTION ENGINES the Ferrari 488 Pista was increased from: the evolution of engine WILL REMAIN IMPORTANT IN to 184 horsepower per litre without families; the level of hybridization and FERRARI’S POWERTRAIN MIX meaningful turbo lag. electrification; modes of traction; the AND THEREFORE WE CONTINUE number of seats up to a real four- TO INVEST IN NEW COMBUSTION IN THE FUTURE, WE INTEND seater; and the body style, which will ENGINE TECHNOLOGIES AND THE TO USE HYBRID AND ELECTRIC vary much more significantly than in DEVELOPMENT OR USE OF BIO- TECHNOLOGY, AS WELL AS the past in light of the introduction of FUELS. FORMULA 1 TECHNOLOGY, TO the Purosangue. INCREASE SPECIFIC POWER In 2018 we won the “Engine of the OUTPUT WITHOUT TURBO LAG. We expect that our core Year” award for the newest edition architectures will be the of our V8 turbocharged engine We are deploying considerable rear-mid-engine architecture and mounted on the Ferrari 488 Pista. resources for the development of the front-mid-engine architecture, hybrid and electric powertrains, each comprising several variants. Product Specification Engine V12 vs. V8 vs. V6 Hybridization Yes vs. No Traction 2WD vs. 4WD Seating 2 vs. 2+ vs. 2+2 vs. 4 Body style Coupè vs. Spider vs. “Purosangue” Clearance Low vs. High 60 Architecture NEW FERRARI PRODUCT RANGE Power unit Gearbox Rear-mid-engine Power unit Front-mid-engine Gearbox AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements REAR-MID-ENGINE ARCHITECTURE is optimal for our GT cars in terms AUTONOMOUS DRIVING The rear-mid-engine architecture of dimensions. This architecture While we do not intend to develop is optimal for sports cars thanks is able to accommodate an self-driving cars, we will adopt to its compact dimensions, low all-wheel-drive powertrain, will certain features of autonomous gravity center and favorable allow for hybridization, and will driving technology in response mass repartitions. It is designed have a flexible wheelbase suited to to regulatory developments and to integrate multiple power units a variety of engines as well as seat customer preferences, especially in with a higher specific power output configurations including two-seaters the GT segment. For example, in 2018 than the Ferrari 488 Pista. In this and four-seaters. It will be accessible, we launched initial functionalities for architecture, combustion engines spacious and comfortable. Key to Advanced Driving Assistant Systems can be combined with an electric this architecture will be the new (ADAS) such as predictive breaking motor to realize hybridization, active suspension systems we and automatic cruise control including a battery to enable electric are developing, with a high range on current models, and further range. This architecture also allows between comfort and sportiness. innovations will be introduced in to install an E-Axle on the front to increase overall power and to have an all-wheel drive powertrain. The NEW-GENERATION HUMAN- MACHINE INTERFACE future models. Ferrari is carefully monitoring the first application of this architecture Particularly driven by growth evolution of autonomous driving is the SF90 Stradale. In combination, in the GT segment, Ferrari has technologies, including sensors, new we have developed a new and highly developed the next generation of chips and artificial intelligence, and innovative 8-shift double-clutch human-machine interface (HMI) we will select and customize those transmission gearbox. Hybridization technologies. Using state-of-the-art innovations compatible with the will impact the weight of engines technologies we will be guided by Ferrari experience. and therefore we will deploy the Formula 1 derived concept of These technologies combined with new lightweight technologies to “eyes on the street, hands on the the hybridization and the incoming compensate this impact. Package steering wheel”, for a focused, safe cybersecurity requirements will also efficiency will also be key to achieve and enjoyable drive. The new HMI have an important impact on the a compact car that reduces includes several new technologies, electronic architecture of our cars weight and inertia. In order to including a new head-up display, and we are presently developing apply the architecture to different a new innovative cluster, a new our future electrical and electronic powertrains, the wheelbase may steering wheel that features new architecture to take into account vary. The first example of this new commands and a new infotainment these requirements. architecture is the SF90 Stradale. system, as well as tools aimed at FRONT-MID-ENGINE ARCHITECTURE experience. The first cars using all The front-mid-engine architecture, or part of these technologies are the also a transaxle powertrain concept, SF90 Stradale and the Ferrari Roma. positively enhancing the passengers’ 61 AR 2020 FERRARI N.V. PRODUCTION AND PROCUREMENT PRODUCTION PROCESS Our production facilities are located in Maranello and in Modena, Italy (see “Properties”). Our production processes include supply chain management, production and distribution logistics of cars in our range models and special series, as well as assembly of prototypes and avanseries. in demand. Production could be increased even further with the introduction of a second shift on car assembly lines in addition to the single shift currently operated on the V8 assembly line. We constantly work to increase the utilization rate and reduce the internal scrap rate and we closely monitor an index of our production efficiency. We are also committed to continually improving the reliability Notwithstanding the low volumes of cars produced, of our cars, reducing defects, and optimize finishing. our production process requires a great variety of inputs - over 40,000 product identifier codes sourced Unlike most low volume car producers, we operate our from approximately 800 total suppliers - entailing own foundry and machining department producing complex supply chain management to ensure continuity several of the main components of our engines, such of production. Our stock of supplies is warehoused as engine blocks, cylinder heads and crankshafts. We in Ubersetto, near Maranello, and its management is believe this accelerates product development and results outsourced to a third party logistics company. in components that meet our specifications more closely. Most of the manufacturing process takes place in ENGINE PRODUCTION Maranello, including aluminum alloy casting in our Our engines are produced according to a vertical foundry, engine construction, mechanical machining, structure, from the casting of aluminum in our foundry painting, car assembly, and bench testing; at our second up to the final assembly and testing of the engine. plant in Modena (Carrozzeria Scaglietti) we manufacture Several of the main components of our engines, such the aluminum bodyworks of our cars. All parts and as blocks and cylinder heads are produced at our components not produced in house at Ferrari are foundry in Maranello. For this purpose, we use a special sourced from our panel of suppliers (see “Procurement”). aluminum alloy that includes seven percent silicon and a trace of iron, which improves mechanical integrity, Between 2002 and 2012 the plants housing our as well as our own shell and sand casting molds. Once production processes were entirely renovated or all components are ready, engines are assembled on rebuilt and in recent years, we have continued to make different lines for our V8 engines, V12 engines and significant investments in our manufacturing facilities. for the V6 engines we manufacture for Maserati. The Equipment may require substantial investment with assembly process is a combination of automatic and the introduction of new models or to maintain state-of- manual operations. At the start of the assembly process, the-art technology, particularly in the case of shell tools each engine is identified with a barcode and operations for the foundry, tools for machining, feature tools for are recorded electronically. Every engine goes to body welding and special mounting equipment for the the test benches to ensure it delivers the expected assembly. performance; 10-20 percent of engines are also hot tested and measured for power and torque. In 2020 we As at December 31, 2020, our production processes produced an average of approximately 113 engines per employed over 1,550 engineers, technicians and other day, including approximately 12 V12 engines and 42 V8 personnel (approximately 180 white collar employees and engines (including 4 V8 turbo for Maserati), as well as 59 approximately 1,370 workers, of which approximately V6 engines for Maserati (see “–Manufacturing of Engines 250 temporary production employees). We have a flexible for Maserati”). production organization, which allows us to adjust production capacity to accommodate our expected BODY ASSEMBLY production requirements. This is primarily due to the low In parallel with the assembly of our engines, we prepare volume of cars we produce per year and to our highly our body-shells at our body shop Carrozzeria Scaglietti skilled and flexible employee base that can be deployed in Modena. The main components of body-shells are across various production areas. In addition, we can not manufactured internally but are sourced from adjust our make-or-buy strategies to address fluctuations manufacturers for chassis, bodies and carbon fiber in the level of demand on our internal production parts. At Carrozzeria Scaglietti we have two different resources. Our facilities can accommodate a meaningful production lines dedicated to the assembly of our increase in production compared to current output with V8 and V12 aluminum bodies. We carefully check the the increase of weekend shifts to address special peaks alignment of the various parts - most importantly the 62 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements engine cover and the wings - with electronic templates FINISHING AND CLEANING and gauges. Our highly trained specialists also perform After the road test all cars go to the finishing department. surface controls on the aluminum panels and eliminate There, we thoroughly clean interior and exterior, perform any imperfections by either filing or panel beating. In a comprehensive review of the whole car, and polish and our Scaglietti plant we also have a dedicated line for the finish the bodies to give them their final appearance. assembly of a special carbon fiber body for the Ferrari Monza SP1 and SP2. PAINTING MANUFACTURING OF ENGINES FOR MASERATI We have been producing engines for Maserati since 2003. The V8 engines that we historically produced and When transferred to our paint shop, the bodies are continue to produce for Maserati are variants of Ferrari mounted on a loading bay, immersed in the cataphoresis families of engines and are mounted on Maserati’s tanks and subsequently transferred to a fixing gas fired highest performing models, such as the Quattroporte oven at 140 degrees. Primers are then applied and fixed and Levante (turbo engines), and the GranTurismo and at 190 degrees until the completely grey body-shell the GranCabrio (aspirated engines). All of the V8 engines is ready for painting. All body-shells are cleaned with that we sell to Maserati are manufactured and assembled automatic pressure blowers (to avoid the electrostatic according to the same production processes we adopt effect) and carefully brushed with emu feathers (because for the V8s equipped on our cars (see “–Production of their natural electrostatic properties) to clean off Process”). In 2020, we sold approximately 800 V8 turbo any dirt particles or impurities before painting. The engines to Maserati. painting process is automated for the larger surfaces, while it is done by hand for some other localized areas. In 2011 we began producing a family of engines In the summer of 2019, we replaced the robot which exclusively for Maserati, in much larger production performs the application of the base coat. The whole volumes to be installed on the Quattroporte and Ghibli car is painted at the same time to ensure color harmony. (mainly the F160 3.0-liter V6 Turbo engines), and in 2016 The bodies are finally polished with lacquer to fix the we started the production of F161 engines to be installed paint and give the bodies their final finish. In 2018 we on the Levante, Maserati’s SUV. We have extended the substituted our clear coat with a new generation 2K (bi- term of our supply agreement with Maserati for the component) transparent coat that allows us to decrease production of V6 and V8 engines until 2023. Under the temperature of the oven from 140°C to 90°C; this is the framework agreement, Maserati is required to a very innovative and unique process that allows us to compensate us for certain costs we may incur from simultaneously paint aluminum and carbon fiber parts. our suppliers if there is a shortfall in the annual volume ASSEMBLY LINE AND FINAL CHECKS In 2020, we sold approximately 10,900 V6 engines to The final assembly of our cars takes place in Maranello. Maserati in five different versions, ranging from 330 hp of engines actually purchased by Maserati in that year. We have three different lines placed at ground level to 450 hp. and the first floor of the building. For each model, the initial assembly operations take place simultaneously In order to meet the V6 volume and specifications on different lines and sections to maximize efficiency requirements, in 2012 we built a dedicated assembly so while the body is assembled on the main line, the facility in Maranello with a much higher level of powertrain, as well as the cockpit and the doors, are industrialization compared to production of our prepared on a specific sub-line. In 2018, the line on the V12 engines. Due to the larger volumes and product first floor moved from one shift to two shifts. On the first specifications, our make-or-buy strategy for the floor there is also the assembly line of the Ferrari Monza production of F160 V6 and F161 V6 engines also differs SP1 and SP2. from the strategy applicable to the production of Ferrari engines. The vast majority of the engine components PERSONALIZATION AND ROAD TESTS are sourced externally from our panel of suppliers (see During the assembly process of our cars we manage the “–Procurement”) and in 2020 we started sourcing all fitting of all bespoke interiors, components and special casting and machining of the cylinder heads externally, equipment options that our clients choose as part of our while the V6 assembly line and testing continued to be personalization program (see “–Sports and GT, Special managed by us in Maranello. Series and Icona: Ferrari Line up Strategic Pillars – Personalization Offer”). After the assembly phase, every car completes a 40-kilometer road test-drive. 63 AR 2020 FERRARI N.V. / PRODUCTION AND PROCUREMENT PROCUREMENT markets: (i) EMEA, (ii) Americas, (iii) representation at each point of sale, We source a variety of components, Mainland China, Hong Kong and where most of the client interface raw materials, supplies, utilities, Taiwan, and (iv) Rest of APAC. and retail experience is exclusive to logistics and other services from Ferrari. Our network and business numerous suppliers. We recognize DEALER NETWORK development team works with all the contribution of our suppliers to We sell our cars exclusively through dealers to ensure our operating our success in pursuing excellence a network of authorized dealers standards are met. Our rigorous in terms of luxury and performance, (with the exception of one-offs and design, layout and corporate identity therefore we carefully select track cars which we sell directly to guidelines guarantee uniformity of suppliers that are able to meet our end clients). In our larger markets we the Ferrari image and client interface. high standards. act as importer either through wholly owned subsidiaries or, in China, In 2020 and through the date of For the sourcing of certain key through a subsidiary partly owned by this report, our dealers network components with highly technological a local partner, and we sell the cars has faced new and unforeseen specifications, we have developed to dealers for resale to end clients. challenges resulting from the strongly synergic relationships with In smaller markets we generally sell COVID-19 pandemic. Deliveries some of our suppliers, which we the cars to a single importer/dealer. to our distribution network were consider “key strategic innovation We regularly assess the composition temporarily suspended in late March partners”. We currently rely on of our dealer network in order to 2020 due to restrictions on dealer selected key strategic innovation maintain the highest level of quality. activities or the inability of customers partners, including for the supply At December 31, 2020, our network to collect their cars, and deliveries of transmissions and brakes. comprised 168 dealers operating gradually recommenced during the We have also developed strong 188 points of sale. month of May 2020. However, we relationships with other industrial have been able to manage resiliently partners for bodyworks and chassis We do not presently own dealerships those unpredictable circumstances. manufacturing and for powertrain and, while our strategy does not In particular, we supported our and transmissions, among other contemplate owning dealerships, we dealers network and promoted our things. Pursuant to our make-or- retain flexibility to adapt to evolving “Back on Track” program, which buy strategy, we generally retain market requirements over time. allowed them to welcome again our production in-house whenever we clients in their showrooms safely. have an interest in preserving or WE BELIEVE THAT OUR developing technological know-how CAREFUL AND STRICT Through our in-house Ferrari or when we believe that outsourcing SELECTION OF THE DEALERS Academy we provide training to would impair the efficiency and THAT SELL OUR CARS IS A KEY dealers for sales, after-sales and flexibility of our production process. FACTOR FOR PROMOTING THE technical activities. This ensures Therefore, we continue to invest in INTEGRITY AND SUCCESS OF that our dealer network delivers a the skills and processes required OUR BRAND. for low-volume production of consistent level of market leading standards across diverse cultural components that we believe improve Our selection criteria are based on environments. We train and monitor product quality. the candidates’ reputation, financial dealers intensively. During 2020 stability and proven track records. our training strategy was promptly For the year ended December 31, We are also intent on selecting adapted by introducing and boosting 2020, the purchases from our ten dealers who are able to provide a virtual-training solutions to cope with largest suppliers by value accounted purchase and after-sales experience travel restrictions while continuing to for approximately 20 percent of total aimed at exceeding our clients’ high foster expertise in the network at the procurement costs, and no supplier expectations. Furthermore, our highest level. accounted for more than 10 percent dealers are committed to promote of our total procurement costs. and market our cars in a manner We collect and observe data SALES AND AFTER-SALES intended to preserve the Ferrari relating to dealer profitability brand integrity and to ensure the and financial health in order to Our commercial team, which highest level of client satisfaction. prevent or mitigate any adverse includes approximately 330 experience for clients arising from employees at December 31, 2020, is While dealers may hold multiple a dealer ceasing to do business or organized in four geographic areas franchises, we enjoy a high experiencing financial difficulties. covering our principal regional end degree of prominence and level of Our regional representatives visit 64 AR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements dealerships regularly to monitor orderly renewal over time and to leasing services to retail clients and and measure performance and stimulate the network’s health and to dealers. (See “–Financial Services”). compliance with our operating performance. standards. We have the right to The total number of our dealers as well as their geographical terminate dealer relationships in a We provide a suggested retail price distribution tends to closely reflect variety of circumstances, including or a maximum retail price for all the development or expected failure to meet performance or of our cars, but each dealer is free development of sales volumes to financial standards, or failure to to negotiate different prices with end clients in our various markets comply with our guidelines. Dealer clients and to provide financing. over time. The chart below sets turnover is relatively low, reflecting Although many of our clients in forth the geographic distribution of the strength of the franchise certain markets purchase our cars our 188 points of sale at December and our selection processes, from dealers without financing, we 31, 2020: but is sufficient to guarantee an offer direct or indirect finance and HQ HUBS REGIONS 52 POS U.S.A. 40 POS Canada 5 POS FERRARI - MARANELLO Americas EMEA Mainland China, Hong Kong, Taiwan 91 POS 21 POS Rest of APAC 24 POS North Europe Mailand China North East Asia 13 POS Central Europe 13 POS Latin America West Europe 7 POS 21 POS South Europe 18 POS East Europe 15 POS Middle East 11 POS POS= Point of Sales. 17 POS Taiwan 3 POS Hong Kong 1 POS OVER 60 MARKETS 188 POS 9 POS South East Asia 7 POS Australasia 8 POS 168 DEALERS 230 SERVICES Our sales are diversified across developments in the relevant our dealer network, with the largest market, the number of cars sold dealer representing approximately historically by the various dealers, 2.5 percent of our shipments, and current order book of dealers and our 15 largest dealers representing the average waiting time of the end approximately 24 percent of our client in the relevant market. Our shipments in 2020. order reporting system allows us to collect and monitor information As part of our supply and demand regarding end client orders and management, we determine is able to assist us in production allocations based on various planning, allocation and dealer metrics including expected management. 2.5% OF OUR SHIPMENTS WITH THE LARGEST DEALER 24% OF OUR SHIPMENTS WITH ONLY 15 LARGEST DEALERS 65 AR 2020 FERRARI N.V. / PRODUCTION AND PROCUREMENT PARTS AFTER-SALES We supply parts for current and Dealers provide after-sales services Our 7 Year Maintenance Program (free older models of Ferrari to our to clients, either at facilities adjacent of charge for customers since 2011 authorized dealer network. to showrooms, or in stand-alone on any new cars) is offered to further In addition to substitution of spare service points across 230 facilities strengthen customer retention in parts during the life of the car, worldwide. After-sales activities are the official network and has been sales are driven by clients’ demand very important for our business coupled with the possibility to extend for parts to customize their cars to ensure the client’s continued the statutory warranty term of our and maximize performance, enjoyment of the car and the standard warranty terms through the particularly after a change in experience. Therefore, we enforce a Power warranty coverage program ownership and to compete in strict quality control on our dealers’ up to the 15th year of life of the car. the Ferrari Challenge and other services activities and we provide client races. We also supply parts continued training and support to After the 7th year of life, a car (if in to Ferrari models currently out the dealers’ service personnel. This perfect maintenance condition) can be of production, with stocks dating includes our team of “flying doctors,” included in the Main Power warranty back to 1995. The stock of parts Ferrari engineers who regularly travel coverage program (Maintenance and for even older models is currently to service centers to address difficult Power) through to the car’s 15th year owned and managed by a third technical issues for our clients. of life. Between the 10th year of life and party which in some cases also the Classiche eligibility (20 year old manufactures out-of-stock parts We sell cars together with car) Ferrari provides its customers, based on our design. The sale of a scheduled program of in addition to standard maintenance parts is a profitable component of recommended maintenance services items, also certain specific our product mix and it is expected in order to ensure that these cars are maintenance kits (Ferrari Premium) to to benefit from the increase in maintained to the highest standards preserve car performance and safety the number of Ferrari cars in to meet our strict requirements for systems. When a car follows the full circulation. performance and safety. maintenance program up to the 20th year of life, it automatically obtains the Ferrari Classiche certification. While we do not have any direct involvement in pre-owned car sales, we seek to support a healthy secondary market in order to promote the value of our brand, benefit our clients and facilitate sales of new cars. Our dealers provide an inspection service for clients seeking to sell their car which involves detailed checks on the car and a certification on which the client can rely, covering, among other things, the authenticity of the car, the conformity to original technical specifications, and the state of repair. Furthermore, we offer owners of classic Ferrari cars maintenance and restoration services through the 73 “Officina Ferrari Classiche” workshops, part of our service network. In addition, owners of our classic cars can seek assistance in car and engine restorations at our Ferrari Classiche department in Maranello. 66 AR 2020FINANCIAL SERVICES We offer retail client financing for the purchase of our cars and dealer financing through the operations of Ferrari Financial Services (“FFS”). We offer retail client financing: • directly in the United States through our fully owned subsidiary Ferrari Financial Services Inc. (“FFS Inc”); • through our associate Ferrari Financial Services GmbH in certain markets in EMEA (primarily the UK, Germany and Switzerland); and • through various partnerships in other European countries and other major international markets, such as Japan. FFS Inc has also remaining dealer financing services in the United States. Through FFS, we offer a range of flexible, bespoke financial and ancillary services to clients (both current and new) interested in purchasing a wide range of cars, from our current product range of sports, GT and special series cars, to older pre-owned and classic models. FFS also provides special financing arrangements to a selected group of our most valuable and loyal customers. Starting in 2016, FFS Inc has pursued a strategy of autonomous financing for our financial services activities in the United States, further reducing dependency on intercompany funding and increasing the portion of self- liquidating debt with various securitization transactions. At December 31, 2020, the consolidated financial services portfolio was €940 million and originated in the United States. BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements 67 AR 2020 FERRARI N.V. CLIENT RELATIONS OUR CLIENTS ARE THE BACKBONE OF OUR BUSINESS TOGETHER WITH OUR BRAND AND OUR TECHNOLOGY. WE DO NOT PROMOTE OUR BRAND OR OUR CARS THROUGH GENERAL ADVERTISING. OUR MAIN BRAND MARKETING AND PROMOTIONAL ACTIVITIES HAVE TWO PRINCIPAL TARGETS. FIRSTLY, WE TARGET THE GENERAL PUBLIC. Our most significant effort in this SECONDLY, WE TARGET EXISTING AND PROSPECTIVE CLIENTS respect is centered on our racing seeking to promote clients’ activities and the resonance of knowledge of our products, and Scuderia Ferrari (see “–Formula their enjoyment of our cars both 1 Activities”). We also engage in on road and on track, and to foster other brand-promotional activities, long-term relationships with our including our participation in certain clients, which is key to our success. public events. In light of the Covid-19 In 2020, approximately 65 percent THE MYFERRARI APP IS AVAILABLE EXCLUSIVELY FOR FERRARI CLIENTS TO ENHANCE THEIR CONNECTION TO THE FERRARI WORLD THROUGH THE DIRECT DISTRIBUTION OF TAILORED CONTENT, INCLUDING THE DIGITAL EDITIONS OF OUR 2020 MODEL LAUNCHES. pandemic, in 2020 our brand- of our new cars were sold to Ferrari With large client gatherings promotional activities were carried owners. out mainly through digital platforms restricted in 2020, clients were able to stay informed on Ferrari’s latest such as eSports, and our official By purchasing our cars, clients product offerings via the app where social media channels. become part of a select community the fully digital launches of the Ferrari 65% sharing a primary association with Portofino M, the SF90 Spider and the the Ferrari image and we foster 488 GT Modificata track car were this sense of fellowship with a displayed. This new channel enables number of initiatives. We strive to clients to directly access features maximize the experience of our and services, strengthening their clients throughout their period relationship with the brand and their of interaction with Ferrari - from preferred official Ferrari dealer. OF OUR NEW CARS first contact, through purchasing WERE SOLD TO FERRARI OWNERS decision process, to waiting-time management and ownership. 68 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements CLIENT EVENTS WITH CLIENT GATHERINGS the world we live in with new imposed by technical and sporting HIGHLY RESTRICTED IN 2020, perspective. regulations to exploit its full potential. WE HELD THE PRESENTATION OF OUR LATEST PRODUCT In November 2020, the SF90 Spider Following the digital launches OFFERINGS USING DIGITAL launch “Beyond Imagination” was of our new product offerings, FORMATS. an immersive look into the extreme clients were engaged locally by performance, technology and their preferred Ferrari dealers for In September 2020, the event to innovations behind the SF90 Spider, conducting car configurations, launch the Ferrari Portofino M, “A which features an open top to static previews of the model, and New Journey Begins”, took clients further enhance driving emotions. eventually dynamic test drives when on a virtual journey of rediscovery. the dealer demonstrations became The Ferrari Portofino M was the first Also in November 2020, the 488 GT available. Ferrari also added new Ferrari to be presented after the Modificata was launched through services in 2020, allowing clients temporary closure caused by the an exclusive digital presentation to participate in remote Atelier and Covid-19 pandemic and the event to clients of our Attività Sportive Tailor Made sessions directly with took place entirely online. The global GT racing activities. The 488 GT our team of designers in Maranello. digital launch aimed to rediscover Modificata is a limited edition car In addition, clients can send their the Ferrari Portofino with a new that incorporates the technology creations in the configurator tool of “M” version, in which “M” stands developed for the 488 GT3 and the MyFerrari app directly to their for “modified”, and to rediscover 488 GTE, transcending the limits official dealers. DRIVING EVENTS DRIVING EVENTS SERVE THE of driving sessions with a team of of the Covid-19 pandemic, all DUAL OBJECTIVE OF ALLOWING highly qualified and skilled Ferrari driving events managed directly CLIENTS TO ENJOY THE BEST instructors and technicians. In by Ferrari, such as the Ferrari EMOTIONS OF DRIVING A addition we also offer to our Cavalcade and the Cavalcade FERRARI, AND TO FOSTER clients on-track driving courses Classiche were postponed to 2021, CLIENT LOYALTY AND REPEAT (Corso Pilota), catering to different while those managed by third- PURCHASES BY CREATING levels of skill and experience and party event organizers, such as ENHANCED OPPORTUNITIES teaching essential driving skills the Ferrari Tribute to Mille Miglia TO EXPERIENCE NEW FERRARI for high performance cars. In our and the Ferrari Tribute to Targa CARS. newer markets, such as China, we Florio proceeded in accordance also offer complimentary driving with local government health and The Ferrari community is a courses on-track to any new car safety regulations. passionate group supported by a buyer. wide array of experiences tailored Another exclusive driving to the dreams of modern car In addition to on-track racing, we experience led by experts of the owners, classic car connoisseurs, organize various on-the-road driving Ferrari Classiche Academy, and and racetrack enthusiasts. events, both under proprietary aimed at classic car enthusiasts formats (Ferrari Cavalcade, and clients interested in learning We see nurturing our clients’ including the Cavalcade Classiche) more about Ferrari’s Classiche passion for driving as a key asset and with our own branded presence certification program and the for our future commercial success, within established driving events. storied archives at our Officine particularly in markets where racing For example, in the Ferrari Tribute Classiche restoration department. traditions are less pronounced. to Mille Miglia and the Ferrari The initiative also offers the We offer to our prospective and Tribute to Targa Florio modern opportunity to experience on- existing clients interested in new Ferrari cars take part in their own track driving of these celebrated Ferrari models our Esperienza dedicated competition before the models on our own Fiorano race Ferrari program, which consists start of the main racing As a result circuit. 69 AR 2020 FERRARI N.V. ATTIVITÀ SPORTIVE GT the car took part), starting from schedule after its inaugural round THE ATTIVITÀ SPORTIVE GT the debut race on March 17, 2016 in Bahrain. Due to a resurgence of DEPARTMENT OVERSEES and the number of titles to 91, since the virus, the decision was taken THE ACTIVITIES OF THE 2016, thanks to the contribution to postpone the Finali Mondiali, the COMPETIZIONI GT AND CORSE of professional and gentlemen event that concludes the Attività CLIENTI DEPARTMENTS, WHOSE drivers. The Club Competizioni GT Sportive GT season, until March 2021. MAIN PURPOSE IS TO ORGANIZE continued to grow in 2020, offering After the events held at the start of OR SUPPORT CLIENT ACTIVITIES clients the chance to bring some 2020, the resumption of activities in ON THE TRACK, WHETHER THEY of the most beautiful Ferraris from July 2020 transformed the calendar ARE INDIVIDUALS OR TEAMS. the last 30 years back on track. In of XX Programmes and F1 Clienti into response to the requests received an interesting progression of Ferrari The department’s performance from some participants and to make Racing Days, where cars and single- remained positive in 2020, despite the initiatives for 2021 even more seaters took turns on the track with the difficulties caused by travel interesting, the 488 GT Modificata, a Ferrari Challenge cars. Once again restrictions and quarantines in place limited series car dedicated to sports in 2020, the most exclusive cars in between countries, which have clients, which can be used at the Club Ferrari’s programs and some of the reduced the number of participants Competizioni GT events, was unveiled most successful single-seaters in the at events and made it more in November 2020. Prancing Horse’s history took to the complicated to service or manage track on legendary circuits, assisted the cars involved in the main GT IN 2020, ALL ACTIVITIES by the Corse Clienti team, as well as championships. ORGANIZED ON THE TRACK BY exceptional tutors which included CORSE CLIENTI WERE CARRIED professional racing drivers Marc IN 2020, THE COMPETIZIONI OUT IN FULL COMPLIANCE Gené and Olivier Beretta. GT DEPARTMENT SUPPORTED WITH THE COMPANY’S “BACK THE TEAMS AND CARS THAT ON TRACK” PROTOCOL, TOOK PART IN THE MAJOR WHICH WAS EXTENDED TO NATIONAL AND INTERNATIONAL ALL AREAS AND ALL CIRCUITS, CHAMPIONSHIPS. REINFORCING EXISTING MEASURES SET BY LOCAL AND The 488 GTEs continued to NATIONAL AUTHORITIES. demonstrate their competitiveness in the FIA World Endurance With the exception of the events held Championship, as reflected in their prior to March 2020, all events were second place finish in the 24 Hours held behind closed doors and the of Le Mans 24 and their victories in number of staff involved was kept the FIA Endurance Trophy and in the to a minimum. This year’s Ferrari European Le Mans Series. The 488 Challenge saw the 488 Challenge Evo GT3 was either joined or replaced make its debut on the track (with the by the 488 GT3 Evo 2020, which exception of the UK championship, immediately followed in the winning which will feature the car starting footsteps of its predecessor. The in 2021). The car was received with success in the GT World Challenge enthusiasm and interest by drivers. Europe Endurance Cup, the most The three international series important championship for GT3 (Europe, North America and Asia cars, the return to winning in the Pacific) and the national series (UK) IMSA series, the triumph in the GTD had schedules that included stops class of the Petit Le Mans and the on some of the most spectacular other victories obtained all over the circuits in the world. However, due world, have increased the number of to logistical difficulties caused by the wins for the Prancing Horse’s GT3’s Covid-19 pandemic, the Asia Pacific to 354 (55.8% of the races in which series was forced to halt its 2020 70 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements FERRARI CLASSICHE The Ferrari Classiche department aims to provide Ferrari service network with 73 “Officina Ferrari Classiche” customers with a point of reference for managing their workshops to date, primarily for vehicle repairs and historic Ferrari vehicles with the objective of keeping the certifications’ inspections or revalidation, and the as many of these classic cars on the road as possible. network is expected to expand in future periods. Services include the certification of the authenticity of classic Ferrari cars and vehicles of particular historical The originality of the car with respect to the initial relevance, the management of Ferrari restoration and specifications is checked via a technical inspection, repair activities, as well as the management of Ferrari performed either at the Ferrari Classiche facility in spare parts, including when these are no longer available Maranello or at an authorized Officina Ferrari Classiche, on the market. The department also provides advice on and benefits from a comprehensive archive containing repair operations carried out on Ferrari Classiche cars drawings of each of the individual chassis and details of within its network. historical components. Based on the evidence gathered during this inspection, the car is then presented to an Ferrari Classiche aims to create a platform of information expert committee, chaired by the founder’s son, Piero and technical expertise to preserve and enhance over Ferrari, for the certification. time the awareness and value of Ferrari’s heritage and brand. We view the surviving Ferrari vehicles of historical At the Maranello workshop, Ferrari Classiche carries out value as the tangible legacy and incarnation of our brand. full restorations using either original components and The Ferrari Classiche department also supports and spare parts or replicas manufactured in accordance encourages the direct participation of clients in strategic with the original specifications. Our service offers our historical events. clients the opportunity to restore any classic Ferrari to its original pristine conditions. The Ferrari Classiche department in Maranello consists of an office of specialists and a workshop in which The Ferrari Classiche department also provides basic historic cars are restored and repaired. In addition, in technical and instructional support to the Ferrari order to provide an enhanced service to owners away Classiche Academy, a new driving school project that from the proximity of the main workshop in Maranello, launched in 2019 for vintage Ferrari cars, including the starting in 2017 Ferrari Classiche authorized a new Ferrari 308 and 550 Maranello. 71 AR 2020 FERRARI N.V. FORMULA 1 ACTIVITIES Participation in the Formula 1 changes in the calendar caused by The COVID-19 pandemic had a World Championship with Scuderia the COVID-19 pandemic, a number significant impact on the 2020 Ferrari is a core element of our of historical and new venues hosted season and is expected to continue marketing effort and promotional events in 2020. to impact the 2021 season. After activities, as well as an important a series of postponements, source of technological innovation SCUDERIA FERRARI HAS BEEN cancellations and changes to the for the engineering, development RACING IN THE FORMULA 1 race schedule and race formats, and production of our sports, GT, WORLD CHAMPIONSHIP SINCE the Formula 1 World Championship special series and Icona cars. The THE SERIES WAS LAUNCHED included 17 races in 2020, five Formula 1 World Championship is IN 1950, AND WON ITS FIRST fewer than the 22 originally planned. the pinnacle of motorsports with 433 GRAND PRIX IN 1951. Additionally, due to the adverse million unique viewers and a total financial effects experienced in cumulative global television audience We are the only team that has 2020 as a result of the COVID-19 of 1.5 billion in 2020. (Source: Formula competed in each season pandemic, the Fédération 1 Press Office) since launch and the oldest and Internationale de l’Automobile most successful in the history (“FIA”) and Formula One World ONCE AGAIN IN 2020, FORMULA of Formula 1, with 238 Grand Championship Ltd. (“Formula One”) 1’S SOCIAL MEDIA PLATFORMS Prix wins. Throughout our established, with the unanimous GREW SIGNIFICANTLY, WITH THE racing history, we have won 15 support of the teams participating in TOTAL NUMBER OF FOLLOWERS Drivers’ Championships and 16 the Formula 1 World Championship, UP 36 PERCENT TO 35 MILLION, Constructors’ Championships, a series of regulatory changes VIDEO VIEWS INCREASED BY 47 more than any other team. Many aimed at significantly reducing the PERCENT TO 4.9 BILLION. of the best known drivers in the operating costs for the 2021 season. sport’s history have raced in In particular, the introduction of In 2020, Formula 1’s social media Scuderia Ferrari’s distinctive red the new sporting and technical channels were the second fastest cars including Alberto Ascari, Juan- regulations originally planned for growing major sports league in the Manuel Fangio, Mike Hawthorn, 2021 has been postponed to 2022, world across the four major social Phil Hill, John Surtees, Niki Lauda, although significant restrictions platforms and registered the fastest Jody Scheckter, Gilles Villeneuve, on the frequency of developments growth in engagement compared to Michael Schumacher and Kimi to both the chassis and the power other major sports. (Source: Formula Raikkonen. Our drivers’ line-up in unit have been introduced for the 1 Press Office) 2020 comprised four-time World 2021 season. Moreover, the budget Champion Sebastian Vettel, who cap introduced under the financial Formula 1 cars rely on advanced joined Ferrari at the beginning regulations in effect starting in 2021, technology, powerful hybrid engines of 2015, and Charles Leclerc, the which limits the amount of certain and cutting edge aerodynamics. first graduate of the Ferrari Driver types of costs that may be incurred While Europe is the sport’s traditional Academy training scheme to race by the F1 teams, has been further base, longstanding non-European for our Formula 1 race team. reduced from a cap of $175 million venues such as Australia, Brazil, per year originally envisioned to Canada, Japan, Mexico and the United 2020 WAS ONE OF THE a cap of $147 million for the 2021 States have recently been joined MOST DIFFICULT SEASONS season (assuming 23 grand prix by racing venues in China, Bahrain, IN THE RECENT HISTORY OF races in 2021). Furthermore, the United Arab Emirates, Singapore, SCUDERIA FERRARI, BOTH budget cap will be reduced to $142 Russia and Azerbaijan. This provides FOR THE SPORTING RESULTS million and €137 million for the 2022 participants in the Formula 1 World AND FOR THE EVENTS THAT and 2023 seasons, respectively Championship exceptional visibility CHARACTERIZED THE YEAR. (assuming 23 grand prix races in on the world stage. As a result of the both years). 72 AR 2020In terms of results, the season ended with sixth place for the Scuderia Ferrari in the Constructors’ Championship, with 131 points and three podiums, and with eighth and thirteenth place finishes in the Drivers’ Championship, respectively, for Charles Leclerc and Sebastian Vettel. Furthermore, it was decided that Sebastian Vettel will be replaced by Carlos Sainz from 2021. ON AUGUST 18, 2020, IT WAS ANNOUNCED THAT FERRARI SIGNED THE TWO AGREEMENTS THAT WILL GOVERN THE SCUDERIA FERRARI’S CONTINUING PARTICIPATION IN THE FIA FORMULA 1 WORLD CHAMPIONSHIP OVER THE FIVE YEAR PERIOD FROM 2021 TO 2025. The first agreement, which was signed between Ferrari, the FIA and Formula One World Championship Ltd. (“Formula One”), defines the regulatory and governance aspects of the Formula 1 World Championship. The second agreement, which was signed between Ferrari and Formula One, defines the commercial aspects (the so-called “New Concorde Agreement”). The New Concorde Agreement recognized again the historical role of Ferrari, the only team that has participated in all Formula 1 World Championship editions since its inception. In exchange for their participation in Formula 1 races, the participating teams receive a share of a prize fund based on the profits earned from Formula 1-related commercial activities managed by Formula 1, including in particular, promoters’ Index to Consolidated Financial Statements Index to Company Financial Statements 433 Mn UNIQUE VIEWERS 1.5 Bn GLOBAL TELEVISION AUDIENCE IN 2020 +36 % TOTAL NUMBER OF FOLLOWERS 1951 FIRST GRAN PRIX WON 238 GRAN PRIX WON 17 RACES IN 2020 FERRARI N.V. / FORMULA 1 ACTIVITIES fees, television broadcasting royalties, partnership agreements and other sources. Shares in the prize fund are paid to the teams, largely based on the relative ranking of each team in the championship. We use our share of these payments to offset a portion of the costs associated with Scuderia Ferrari, including the costs of designing and producing the race cars each year and the costs associated with managing a racing team, including the salaries of the drivers, who are typically among the most highly paid athletes in the world. As mentioned above, the introduction of the new set of sporting and technical regulations approved by the Formula 1 World Council on October 31, 2019, has been postponed to 2022, while the new financial regulations have come into force as of January 1, 2021. Please see “Risk Factors – Our revenues from Formula 1 activities may decline and our related expenses may grow”. Improvements in technology and, from time to time, changes in regulations typically require the design and production of a new racing car every year. Therefore, in addition to our long- term research and development efforts, we begin designing our cars each year in the Spring, in anticipation of the start of the FORMULA 1 RACING ALLOWS US TO PROMOTE AND MARKET OUR BRAND AND TECHNOLOGY TO A GLOBAL AUDIENCE WITHOUT RESORTING TO TRADITIONAL ADVERTISING ACTIVITIES racing season the following March. limited number of changes allowed, While the chassis we build each in order to reduce the overall cost to year are designed to be used participating teams. PLAYS A KEY ROLE IN THE DEVELOPMENT OF OUR ROAD CARS AND THEIR ENGINES. throughout the racing season, the majority of other components TO MAXIMIZE THE We often transfer technologies fitted on our cars are adjusted PERFORMANCE, EFFICIENCY initially developed for racing to our from race to race depending on AND SAFETY OF OUR FORMULA road cars. Examples include steering the characteristics of the circuits. 1 CARS, WHILE COMPLYING wheel paddles for gear-shifting, the During 2020 it was agreed by the RULES AND RESTRICTIONS SET materials, which make cars lighter FIA and the teams to carry over the OUT BY THE FIA, OUR RESEARCH and faster, and technology related to same chassis in 2021, with a very AND DEVELOPMENT TEAM hybrid propulsion. WITH THE STRICT TECHNICAL use and development of composite 74 AR 2020Index to Consolidated Financial Statements Index to Company Financial Statements Our road cars (especially our sports car models) have benefited from the know-how acquired in the wind tunnel by our racing car development teams, enjoying greater stability as they reach high speeds on and off the track.Our research and development team focus on combining minimal lap times with maximum efficiency, THE GREAT VISIBILITY, BOTH ON TRADITIONAL MEDIA AND ON DIGITAL PLATFORMS, THAT SCUDERIA FERRARI OBTAINS THANKS TO ITS PARTICIPATION IN THE FIA FORMULA 1 WORLD CHAMPIONSHIP GUARANTEES THE CONTINUITY OF SIGNIFICANT SPONSORSHIPS. We use the platform provided by Formula 1 for a number of associated marketing initiatives, such as the hosting of clients and other key partners in Ferrari Formula 1 Club Hospitality to watch and experience the Grand Prix races with Scuderia Ferrari, and our Formula 1 drivers’ participation in various leading to advances in kinetic Philip Morris International has been promotional activities for our road energy recovery systems, or ERS, a partner of Scuderia Ferrari for cars. We often sell older Formula technology. Current advanced over 40 years and, since 1996, has 1 cars to customers for use in ERS features two electric motor/ also been its Title Partner. Shell, amateur racing or collection. generator units in every car, which official sponsor and Technical allow the car to recover, store and Partner of Scuderia Ferrari from More generally, Formula 1 racing deploy energy generated both by 1996, is the other leading sponsor allows us to promote and market the vehicle during braking and by of the Scuderia Ferrari team. our brand and technology to a the exhaust gases through Other official partners, sponsors global audience without resorting a turbocharger. or suppliers include Hublot, to traditional advertising activities, Kaspersky, OMR, Ray Ban and UPS, therefore preserving the aura of among others. The visibility and exclusivity around our brand and placement of partner logos on the limiting the marketing costs that we, car and team uniforms reflect their as a company operating in the luxury respective level of sponsorship. industry, would otherwise incur. 75 AR 2020 FERRARI N.V. / FORMULA 1 ACTIVITIES THE MUGELLO CIRCUIT The Mugello Circuit, which is located in Scarperia, near Florence, was acquired in 1988. Ferrari has renovated its 5.2 km race track as well as its buildings and testing and racing facilities, making it one of the world’s finest circuits of its type, with FIA Grade 1 and FIM Grade A certifications, the highest levels of homologation for a race track. Ferrari promotes the Mugello Circuit to event organizers and host motorsport events, including the MotoGP World Championship since 1992. In 2020, despite the lockdown caused by the COVID-19 pandemic, the circuit hosted 160 days of track activities and 12 race weekends. THE MOST IMPORTANT WAS THE 2020 FORMULA 1 GRAND PRIX OF TUSCANY FERRARI 1000, THE FIRST FORMULA 1 WORLD CHAMPIONSHIP EVENT ORGANIZED BY FERRARI DURING THE 30 YEAR HISTORY OF THE MUGELLO CIRCUIT AND THE 1,000TH GRAND PRIX IN THE HISTORY OF SCUDERIA FERRARI. Moreover, in 2020 Mugello Circuit S.p.A. obtained the ISO 20121 certification, the international standard for the sustainable event management. To date Mugello Circuit is the first circuit in the world to obtain this certification. This standard applies to the activities related to the events hosted and is evidence of the commitment of Mugello Circuit to implement a responsible and sustainable management system. THE MUGELLO CIRCUIT IS THE ONLY RACETRACK TO HAVE RECEIVED THE “BEST GRAND PRIX” AWARD ON FIVE OCCASIONS, THE HIGHEST HONOR GIVEN TO MOTOGP PROMOTERS. 76 1988 THE MUGELLO CIRCUIT WAS ACQUIRED BY FERRARI 160 DAYS OF TRACK ACTIVITIES 12 RACE WEEKENDS AR 2020Index to Consolidated Financial Statements Index to Company Financial Statements AR 2020 77 FERRARI N.V. BRAND DIVERSIFICATION STRATEGY Ferrari is one of the world’s leading and accessories sold exclusively in in relation to our F1 fan communities. luxury brands. We engage in our monobrand stores and on our To ensure long term profitable brand development and protection website www.store.ferrari.com. growth, Ferrari intends to focus its activities through licensing offering on product categories that contracts with selected partners, In November 2019, management enhance the vibrancy and vitality retail activities through a chain of presented the principles of its brand of the brand through the following franchised or directly managed diversification strategy, recognizing pillars: stores, licensed theme parks and Ferrari as a unique brand with a dual the development of a line of apparel identity: exclusive, but also inclusive, BRAND EXTENSION A REFINED COLLECTION OF PRODUCTS THAT WILL EMBODY FERRARI’S DNA ENTERTAINMENT TO REACH OUT TO A WIDER AND YOUNGER CUSTOMER BASE WHILE LEVERAGING FERRARI’S UNIQUE RACING ROOTS CAR ADJACENCIES A COLLECTION OF EXCLUSIVE LUXURY PRODUCTS AND SERVICES TO COMPLEMENT THE FERRARI EXPERIENCE. In 2020, due to government restrictions on travel and certain business activities imposed as a result of the COVID-19 pandemic, the number of visitors in our museums, our franchised and directly managed stores, and our licensed theme parks (further described below) was significantly lower than pre-pandemic levels. 78 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements RETAIL Through our network of stores ROME, MACAU, MIAMI, LOS We use multiple criteria to select our (franchised or directly managed), ANGELES AND ABU DHABI, OF franchisees, including know-how, we offer a wide range of Scuderia WHICH 18 STORES ARE DIRECTLY financial condition, sales network and Ferrari branded products, including OWNED AND OPERATED BY market access. Generally, we require a line of apparel and accessories US AND 18 ARE FRANCHISED that applicants meet certain minimum exclusively sold in our stores and STORES (INCLUDING 14 FERRARI working capital requirements and on our website. All products sold in STORE JUNIOR). have the requisite business facilities our stores and on our website are and resources. We typically enter into either directly sourced from our We require all franchisees to a standard franchising agreement selected network of suppliers or operate our monobrand stores with our franchisees. Pursuant to manufactured by our licensees. according to our standards. this agreement, the franchisee is Stores are designed, decorated, authorized to sell our products at a AT DECEMBER 31, 2020, THERE furnished and stocked according to suggested retail price. In exchange, we WERE A TOTAL OF 36 RETAIL our directions and specifications. provide them with our products, the FERRARI STORES, INCLUDING THOSE IN MARANELLO, MILAN, benefit of our marketing platform and association with our corporate identity. 36 14 RETAIL FERRARI STORES FERRARI STORE JUNIOR MUSEUMS, LICENSING, ENTERTAINMENT AND THEME PARKS Ferrari owns and manages two toys, video games, watches and other Ferrari World’s iconic sleek red roof museums, one in Maranello and one accessories, as well as theme parks. is directly inspired by the classic in Modena. double curve side profile of the IN 2020, WE ENHANCED OUR Ferrari GT body, spanning 200,000 We enter into license agreements PARTICIPATION IN ESPORTS (I.E., square meters and carrying the with a number of licensees for the ELECTRONIC SPORTS) WITH largest Ferrari logo ever created. design, development and production THE LAUNCH OF THE FERRARI Ferrari World Abu Dhabi offers an of Ferrari branded products. ESPORTS SERIES WITH MORE all-around Ferrari experience to We carefully select our licensees THAN 20,000 PARTICIPANTS. children and adults alike. through a rigorous process and we contractually seek to ensure A significant portion of our revenues Our second theme park, Ferrari that our brand and intellectual from licensing activities consists of Land Portaventura, opened in April property are protected and that the royalties we receive in connection 2017 near Barcelona, and includes products which will eventually bear with Ferrari World, our theme park Red Force, the tallest and fastest our brand are of adequate quality, in Abu Dhabi. roller-coaster in Europe. In the long- appearance and market positioning. Ferrari World opened on Yas Island, term we aim to open one theme park Ferrari branded products include on the North East side of Abu Dhabi’s in each of the main geographic areas consumer electronics, sportswear, mainland, in 2010. where we operate, including North America and Asia. 20,000 PARTICIPANTS OF FERRARI ESPORT SERIES 79 AR 2020 FERRARI N.V. INTELLECTUAL PROPERTY We own a number of registered designs and utility The names of our sports, GT, special patents. We expect the number to grow as we continue series and Icona car models and to pursue technological innovations and to develop our Formula 1 single-seater models are design and brand activities. also registered as trademarks (and logotypes) and we also register their We file patent applications in Europe, and around domain names and the cars’ design. the world (including in the United States) to protect technology and improvements considered important to The protection of intellectual our business. No single patent is material to our business property is also increasingly as a whole. important in connection with our design and brand activities. We also own a number of registered trademarks, Therefore, we adopt and follow designs and patents, including approximately 500 internal processes and procedures trademarks (word or figurative), registered in several to ensure both that all necessary countries and across a number classes. In particular, protection is given to our intellectual we ensure that the maximum level of protection is property rights and that no third given to the following iconic trademarks, for which we party rights are infringed by us. In own approximately 4,000 applications/registrations in addition, we are particularly active approximately 140 countries, in most of the main classes in seeking to limit any counterfeiting activities regarding our Ferrari branded products around the world. To reach this goal we closely monitor trademark applications and domain names worldwide, actively interact with national and local authorities and customs and avail ourselves of a network of experienced outside counsels. for goods and services: • “Ferrari” (word) • “Ferrari” logotype: • The “Prancing Horse” (figurative): • The trademark (figurative): • The racing shield (figurative): • Scuderia Ferrari (word and figurative): 80 AR 2020Index to Consolidated Financial Statements Index to Company Financial Statements ~500 TRADEMARKS ~4,000 APPLICATIONS/ REGISTRATIONS OWNED FERRARI N.V. PROPERTIES Our principal manufacturing facility is located in Maranello of approximately 16 thousand square meters in line with (Modena), Italy. It has an aggregate covered area of our expansion plans. approximately 754 thousand square meters. Our Maranello plant hosts our corporate offices and most of the facilities In 2020, we continued on the construction of the new we operate for the design, development and production of building related to new GT sport activities, which will be our road and track cars, as well as of our Formula 1 single- completed in 2021. We also purchased land in Maranello of seaters. (See “Production and Procurement – Production approximately 64 thousand square meters to be used for Process”). Except for some leased technical equipment, we future developments. own all of our facilities and equipment in Maranello. Since 2002 we have either rebuilt or renovated most 3 thousand meters, built in 1972 and remodeled in 1996. of the buildings in Maranello, including the paint shop The track also houses the Formula 1 logistics offices. building and the production building. In 2015 we completed Additional facilities in Maranello include a product construction of the new building entirely dedicated to our development center, a hospitality area and the Ferrari Adjacent to the plant is our Fiorano track, of approximately Formula 1 team and racing activities, as well as the new museum. wind tunnel 4WD. In 2018 we completed the new Ferrari Design Centre, a Florence, which we rent to racing events organizers (see building that covers more than 7 thousand square meters. “Formula 1 Activities – The Mugello Circuit”). We also own the Mugello racing circuit in Scarperia, near In 2019 we completed the office area and workshop We own a second plant in Modena, named Carrozzeria area of the New Technical Center for the development Scaglietti. At this approximately 26 thousand square meter of engines and hybrid systems. The entire building and plant we manufacture aluminum bodyworks for our the engine and hybrid test benches cover an area of regular range, special series and prototype cars. approximately 20 thousand square meters and are The total carrying value of our property, plant and expected to be completed in 2021. We also purchased land equipment at December 31, 2020 was €1,227 million. 82 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements EMPLOYEES Human capital is a crucial factor in our success, building on our position as a global leader in the luxury performance car sector and creating long-term, sustainable value. To recognize excellence, encourage professional development and create equal opportunities, we adopt a number of initiatives, including our appraisal system to assess our middle- managers and white collar employees through performance management metrics; our talent management and succession planning; training and skill-building initiatives; employee satisfaction and engagement surveys, including our so-called “Pit Stop” and “Pole Position” programs; and flexible work arrangements, commuting programs and a dedicated welfare program, Formula Benessere, which includes, among other programs, Formula Benessere Donna and Formula Benessere Junior (offering medical assistance to employees and their families) and Formula Estate Junior (offering Summer Campus to the children of employees). At December 31, 2020, we had a total of 4,556 employees, including 137 managers and senior managers. Of these, 4,296 were based at our Maranello facility, and 260 in offices around the world (including 26 managers and senior managers), mostly in North America and China. White-collar employees and middle-managers Italy Rest of the world Workers Italy Rest of the world Managers and senior managers Total At December 31, 2019 2018 1,983 1,772 211 2,179 2,170 9 123 1,691 1,517 174 2,050 2,047 3 110 2020 2,186 1,961 225 2,233 2,224 9 137 4,556 4,285 3,851 Approximately 11 percent of the employees were trade union members in 2020. Our employees’ principal trade unions are Federazione Italiana Metalmeccanici (FIM-CISL), Unione Italiana Lavoratori Metalmeccanici (UILM-UIL), Federazione Italiana Sindacati Metalmeccanici e Industrie Collegate (FISMIC)and Federazione Impiegati Operai Metallurgici (FIOM-CGIL). All of our employees are covered by collective bargaining agreements. Our managers are represented by the Italian trade union, Federmanager, and are subject to a collective bargaining agreement, which will expire on December 31, 2022. Our other employees are covered by two agreements: the first one entered into by FCA, CNH Industrial and Ferrari with FIM-CISL, UILM-IUL, FISMIC, UGL and AQCF signed on March 11, 2019 which will expire on December 31, 2022, and the second one named “Accordo Premio di Competitività Ferrari” signed on September 25, 2019 which will expire on December 31, 2023. This collective bargaining contract provides, among other things, for the payment of bonuses linked to performance up to a maximum of approximately €13,000 gross per year and payable in four installments: three advances and a final balance. In addition to the collective agreements, we have individually negotiated agreements with several of our managers and other key employees providing for long-term incentives, exclusivity and non-compete provisions. 83 AR 2020 FERRARI N.V. REGULATORY MATTERS We manufacture and sell our cars around the world and our operations are therefore subject to a variety of laws and regulations relating to environmental, health and safety and other matters. These laws regulate our cars, including their emissions, fuel consumption and safety, as well as our manufacturing facilities and operations, setting strict requirements on emissions, treatment and disposal of waste, water and hazardous materials and prohibitions on environmental contamination. Our vehicles, together with the engines that power them, must comply with extensive regional, national and local laws and regulations, and industry self-regulations (including those that regulate vehicle safety). However, GREENHOUSE GAS/CO2/FUEL ECONOMY LEGISLATION Current European legislation limits fleet average greenhouse gas emissions for new passenger cars to 130 grams of CO2 per kilometer. Due to our SVM status under EU regulations we benefit from a derogation from the 130 grams per kilometer emissions requirement available to small volume and niche manufacturers. Pursuant to that derogation, we were instead required to meet yearly CO2 emissions targets, beginning in 2012, reaching a target level of 290 grams per kilometer in 2016 for our fleet of EU-registered vehicles that year. Despite global shipments exceeding 10,000 vehicles in 2019, Ferrari continues to qualify as an SVM under EU regulations, because its total number of registered vehicles in the EU per year is less than 10,000 vehicles. we currently benefit from certain regulatory exemptions, In 2014, the European Union set new 2020 emissions because we qualify as an SVM or similar designation targets, calling for 95 percent of a manufacturer’s full in certain jurisdictions where we sell cars. As outlined fleet of new passenger cars registered in the EU in 2020 below, these exemptions provide a range of benefits, from less stringent emissions caps and compliance date to average 95 grams of CO2 per kilometer, rising to 100 percent of the fleet in 2021. The 2014 regulation extends extensions, to exemptions from zero emission vehicle the small volume and niche manufacturers derogation. production requirements. Pursuant to the derogation approved by the European Commission following our petition, we are required to We are in substantial compliance with the relevant regulatory requirements affecting our facilities and meet certain CO2 emissions target levels in the 2017-2021 period, reaching a target of 277 grams per kilometer in products around the world. We constantly monitor such 2021 for our fleet of EU-registered cars that year. requirements and adjust our operations as necessary to remain in compliance. APPROVAL AND MARKET SURVEILLANCE In 2019, the European Union set new 2025 and 2030 emissions targets, calling for respectively a 15 percent and 37.5 percent reduction of the target in 2021. An In May 2018 the European Parliament and European incentive mechanism for zero and low emission vehicles Council issued Regulation 2018/858, establishing the new was also introduced. This new regulation (EU 2019/631) framework for the approval and market surveillance of continues to state that it is not appropriate to use the same motor vehicles (repealing Directive 2007/46/EC). While the method to determine the emissions reduction targets previous regulatory framework of Directive 2007/46/EC for large volume manufacturers as for small volume was focused on technical standards, the new regulation manufacturers that are considered as independent. has a broader scope by including market surveillance Therefore, SVMs have the possibility to continue to apply requirements in order to ensure the enforcement of for alternative emissions reduction and are required to applicable standards. The key objectives of Regulation submit the application at the latest by 31 October of the 2018/858 are: enhancing the independence of technical first year in which the derogation shall apply. services (i.e. the approved testing laboratories) as well as improving the quality of the testing of vehicles and setting The regulation 2019/631 sets out new EU rules on stricter requirements for technical services; introducing monitoring and reporting of average emissions: market surveillance in order to verify the conformity of the Commission will have to ensure the real-world vehicles on the market to the applicable standards, and requiring corrective measures in case of non-compliance representativeness of the CO2 emission values based on data from the fuel consumption meters installed in new or where a vehicle poses a safety risk or a risk to the cars and will be obliged to publish the performance of environment; strengthening the type approval system each manufacturer. In addition, the Commission will have with more stringent oversight by the EU. The Commission to evaluate the possibility of a common methodology for has the power to suspend, restrict or withdraw the the assessment and the consistent data reporting of full designation of technical services, to order recalls, and to life-cycle emissions from cars. The regulation provides impose financial penalties. also specific provisions on in-service conformity testing 84 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements and on detecting strategies which may artificially On March, 31, 2020 the EPA and the NHTSA issued the improve the CO2 performance. final SAFE Vehicles Rule (Part Two) setting CAFE and carbon dioxide emissions standards for model years The European Green Deal, adopted by the European 2021-2026 passenger cars and light trucks. Under the Commission in December 2019, has at its core combating SAFE Vehicles Rule, the overall stringency of the federal climate change and reaching the objectives of the Paris standards is significantly reduced from the levels Agreement and other environmental goals (including previously set as the final rule will increase stringency of addressing air pollution). One of its central elements is the 2050 climate neutrality objective. The European CAFE and CO2 emissions standards by 1.5 percent each year through model year 2026, as compared with the Commission has proposed to enshrine the 2050 climate standards issued in 2012, which would have required neutrality objective into EU law. In order to set the EU on a annual increases of approximately 5 percent. sustainable path to achieve climate neutrality by 2050, the European Commission has also presented a net EU-wide, Under current regulation, for model years 2017-2026, economy-wide plan to reduce greenhouse gas emissions the EPA allows a SVM, defined as an operationally by at least 55 percent by 2030, compared to 1990 levels. independent manufacturer with less than 5,000 yearly unit sales in the United States, to petition for a less Building on the existing legislation and the EU’s 2030 stringent standard. The EPA has granted us SVM status. climate ambitions, the European Commission will review, We therefore petitioned the EPA for alternative standards by June 2021, the regulation 2019/631. for the model years 2017-2021 and 2022-2025, which are aligned to our technical and economic capabilities. In the United States, both Corporate Average Fuel On July 31, 2019 the EPA published a Notice in the U.S. Economy (“CAFE”) standards and greenhouse Federal Register (Federal Register /Vol. 84, No. 147) that gas emissions (“GHG”) standards are imposed on in part proposed that Ferrari be permitted an alternative manufacturers of passenger cars. Because the control standard substantially in line with the alternative standard of fuel economy is closely correlated with the control that Ferrari proposed to the EPA for model years 2017- of GHG emissions, the United States Environmental 2021. The EPA approved Ferrari proposed standards Protection Agency (“EPA”) and the National Highway for model years 2017-2020, whereas it requires a Traffic Safety Administration (“NHTSA”) have sought to small reduction of the model year 2021 standard. On harmonize fuel economy regulations with the regulation June 25, 2020, the EPA Administrator signed the final of GHG vehicle emissions (primarily CO2). These agencies have set the federal standards for passenger cars and light trucks to meet an estimated combined average fuel determination for alternative GHG standards for SVMs for model years 2017 through 2021. economy (CAFE) level that is equivalent to 35.5 miles per In September 2016, we petitioned the NHTSA for U.S. gallon for 2016 model year vehicles (250 grams CO2 per mile). In August 2012, these agencies extended this recognition as an independent manufacturer of less than 10,000 vehicles produced globally, and we proposed program to cars and light trucks for model years 2017 alternative CAFE standards, for model years 2017, 2018 through 2025, targeting an estimated combined average and 2019. Then, in December, 2017, we amended the emissions level of 163 grams per mile in 2025, which is petition by proposing alternative CAFE standards for equivalent to 54.5 miles per gallon. model years 2016, 2017 and 2018 instead, covering also the 2016 model year. In 2019, our global production On September 27, 2019 the EPA and the NHTSA issued exceeded 10,000 vehicles, and therefore we are not the “Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule considered a SVM by the NHTSA for model year 2019. We Part One: One National Program”. These rules would exert previously purchased the CAFE credits needed to fulfill federal preemption authority under the CAFE statute this deficit. On July 15, 2020, we submitted to the NHTSA over California’s ability to regulate greenhouse gases and a petition for an exemption from the CAFE standards for would revoke the current EPA waiver under the Clean the model year 2020. We proceeded with this submission Air Act which had authorized California to regulate GHG because, although Ferrari originally intended to produce from motor vehicles. The state of California along with more than 10,000 vehicles in 2020, actual production was other states and certain NGOs filed challenges to these lower than 10,000 vehicles as a result of the COVID-19 rules in both US District Court for the District of Columbia pandemic and the related shutdown of our production and the United States Court of Appeals D.C. Circuit. The facilities. Therefore since we met the NHTSA definition litigation is pending and the impact on Ferrari of the of a SVM, we have requested an alternative fleet average rule and the challenges cannot be determined until the GHG standards for model year 2020 standard. The conclusion of the litigation. NHTSA has confirmed that it will not send a shortfall letter 85 AR 2020 FERRARI N.V. / REGULATORY MATTERS to Ferrari requiring payment of CAFE civil penalties or the for SVMs (defined as a manufacturer with less than 2,000 application of CAFE credits with regards to model year units imported in China per year) that achieve a certain 2020 until the NHTSA has ruled on Ferrari’s petitions for minimum CAFC yearly improvement rate. Manufactures an alternative standard. that exceed the CAFC regulatory ceiling are required to purchase NEV credits. The state of California has been granted special authority under the Clean Air Act to set its own vehicle The Stage V regulation, issued on December 31, 2019, emission standards. In February 2010, the California Air sets the fuel consumption fleet average targets for Resources Board (“CARB”) enacted regulations under the period 2021-2025, targeting a national average fuel which manufacturers of vehicles for model years 2012- consumption of 4.0 l/100km by 2025. Following the 2016 which are in compliance with the EPA greenhouse adoption of the Stage V fuel consumption regulation, an gas emissions regulations are also deemed to be in update to the Administrative Measures on CAFC and NEV compliance with California’s greenhouse gas emission credits was published in June 2020, keeping the additional regulations (the so-called “deemed to comply” provision). flexibility for SVMs and relaxing the minimum CAFC yearly In November 2012, the CARB extended these rules to improvement rate required. include model years 2017-2025. In 2017 CARB performed a technical assessment regarding greenhouse gas In the future, driving bans on combustion engine vehicles standards for model years 2022 through 2025, in parallel could be imposed, particularly in metropolitan areas, as with the EPA and the NHTSA, and confirmed in March a result of progress in electric and hybrid technology. On 2017 that the standards defined in 2012 may be still September 23, 2020, the Governor of California issued considered appropriate. On December 12, 2018 the an executive order requiring that all in-state sales of new CARB amended its existing regulations to clarify that the passenger vehicles be zero-emission by 2035. CARB “deemed to comply” provision would not be available should develop regulations to implement such executive for model years 2021-2025 if the EPA standards for order. In November 2020, the UK Prime Minister, those years were altered via an amendment of federal Transport Secretary and Business Secretary announced, regulations. On September 19, 2019, the NHTSA and in the context of the 10-Point Plan for a Green Industrial the EPA established the “One National Program” for Revolution, the end of the sale of new petrol and diesel fuel economy regulation, taking the first step towards cars in the United Kingdom by 2030. This will put the finalizing the agencies’ August 2018 proposal by United Kingdom on course to be the first G7 country to announcing the EPA’s decision to withdraw California’s decarbonize cars and vans. waiver of preemption under the Clean Air Act, and by affirming the NHTSA’s authority to set nationally applicable regulatory standards under the preemption EXHAUST AND EVAPORATIVE EMISSIONS REQUIREMENTS provisions of the Energy Policy and Conservation Act In 2007, the European Union adopted a series of updated (EPCA). The two agencies indicated that they anticipate standards for emissions of other air pollutants from issuing a final rule on standards in the near future. passenger and light commercial vehicles, such as Ferrari currently avails itself of the “deemed-to-comply” nitrogen oxides, carbon monoxide, hydrocarbons provision to comply with CARB greenhouse gas and particulates. These standards were phased in emissions regulations. Therefore, depending on future from September 2009 (Euro 5) and September 2014 developments, it may be necessary to also petition the (Euro 6) for passenger cars. In 2016, the European CARB for SVM alternative standards and to increase the Union established that Euro 6 limits shall be evaluated number of tests to be performed in order to follow the through Real Driving Emissions (RDE) measurement CARB specific procedures. procedure and a new test-cycle more representative of normal conditions of use (Worldwide Light Vehicles While Europe and the United States lead the Test Procedure). SVMs (vehicle manufacturers with a implementation of these fuel consumption/CO2 emissions programs, other jurisdictions typically follow on with worldwide annual production lower than 10,000 units in the year prior to the grant of the type-approval) are adoption of similar regulations within a few years required to be compliant with RDE standards starting thereafter. In China, for example, Stage IV targeted from 2020 while non-SVMs have been required to comply a national average fuel consumption of 5.0L/100km with RDE standards starting from 2017. We believe by 2020. In September 2017 the Chinese government all new Ferrari models are fully compliant with RDE issued the Administrative Measures on CAFC (Corporate requirements. In 2018, the European Commission issued Average Fuel Consumption) and NEV (New Energy Regulation 2018/1832 for the purpose of improving the Vehicle) Credits. This regulation establishes mandatory emission type approval tests and procedures for light CAFC requirements, while providing additional flexibility passenger and commercial vehicles, including those 86 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements for in-service conformity and RDE and introducing In the United States, the “Tier 3” Motor Vehicle Emission devices for monitoring the consumption of fuel and and Fuel Standards issued by the EPA were finalized in electric energy. Under the EU Regulation, which became April 2014. With Tier 3, the EPA has established more applicable in January 2019, among other things, stringent vehicle emission standards, requiring significant the extended documentation package provided by reductions in both tailpipe and evaporative emissions, manufacturers to type approval authorities to describe including nitrogen oxides, volatile organic compounds, Auxiliary Emission Strategies (AES) is no longer required carbon monoxide and particulate matter. The new to be kept confidential, and the decision whether to allow standards are intended to harmonize with California’s access to such documentation package is left to national standards for 2015-2025 model years (so called “LEV3”) authorities. In addition, the Regulation introduced a new and will be implemented over the same timeframe as methodology for checking In-Service Conformity (ISC) the U.S. federal CAFE and GHG standards for cars and which includes RDE tests. Compliance is tested based light trucks described above. Because of our status as on ISC checks performed by the manufacturer, the an operationally independent SVM, Ferrari obtained a granting type approval authority (GTAA), and accredited longer, more flexible schedule for compliance with these laboratories or technical services. Test results will be standards under both the EPA and California Program. publicly available; in addition, the GTAA will publish annual reports on the ISC checks performed, in order to In addition, California is moving forward with other improve transparency. stringent emission regulations for vehicles, including the Zero Emission Vehicle regulation (ZEV). The ZEV regulation On December 13, 2018, the General Court of the requires manufacturers to increase their sales of zero European Union issued a ruling on the action started in emissions vehicles year on year, up to an industry average mid-2016 by the cities of Madrid, Brussels and Paris on of approximately 15 percent of vehicles sold in the state by the legality of the Commission introducing in the second 2025. Because we currently sell fewer than 4,500 units in RDE Regulation (2016/646) RDE conformity factors California, we are exempt from these requirements. (CF) which had the effect of increasing the emission limits. This led to the appeal proceedings during 2019 Additional stringency of evaporative emissions also against the General Court’s judgment that annulled the requires more advanced materials and technical conformity factors in the RDE legislation. The appeal is solutions to eliminate fuel evaporative losses, all for currently pending. much longer warranty periods (up to 150,000 miles in During 2019, the European Commission announced the United States). that it will propose more stringent air pollutant In response to severe air quality issues in Beijing and other emissions standards for combustion-engine vehicles major Chinese cities, in 2016 the Chinese government and indicated 2021 as a target timeline. The European published a more stringent emissions program (National Commission created an Advisory Group on Vehicle 6), providing two different level of stringency (6a and 6b) Emission Standards (AGVES), by joining all the relevant effective starting from 2020. In July 2018 China’s central expert groups working on emission legislation, in order government launched a three-year plan to reduce air to provide technical advice for the development of the pollution, extending targets for reducing lung-damaging post-EURO 6/VI emission standards for motor vehicles. airborne particulate pollution to the country’s 338 largest In March 2020, the European Commission launched a cities. This plan includes reductions in steel and other public consultation on its roadmap outlining the policy industrial capacity, reducing reliance on coal, promoting options that it could pursue in revising the emission electric vehicles and cleaner transport, enhancing air- standards for light and heavy duty vehicles (Euro 7). This pollution warning systems, and increasing inspections initiative is part of the European Green Deal, advocating of businesses for air pollution infractions. Several the European automotive industry’s role as a leader in the autonomous regions and municipalities have implemented global transition to zero-emission vehicles. More stringent the requirements of the National 6 program even ahead of air pollutant emissions standards for combustion engine the mandated deadlines. vehicles are expected to be set by 2021. Depending on the future regulatory developments, the technological To comply with current and future environmental rules solutions required to ensure compliance with Euro related to both fuel economy and pollutant emissions, 7 standards may affect customers’ expectations on we may have to incur substantial capital expenditure performance, sound and driving experience. The and research and development expenditure to upgrade European Commission is also expected to assess and products and manufacturing facilities, which would evaluate the current noise emissions limits, with the risk have an impact on our cost of production and results of of more stringent “Phase 3” thresholds. operation. 87 AR 2020 FERRARI N.V. / REGULATORY MATTERS VEHICLE SAFETY (AVAS), and from July 1, 2021 for all new vehicles of Vehicles sold in Europe are subject to vehicle safety such types, in order to alert pedestrians that a vehicle regulations established by the EU or by individual is moving at low speeds. Starting from 2022, European Member States. In 2009, the EU established a simplified authorities and United Nation’s Contracting Parties will framework for vehicle safety, repealing more than 50 enforce Regulations on cyber security and over the directives and replacing them with a single regulation air updates. Starting from 2024, European authorities (the “General Safety Regulation”) aimed at incorporating and United Nation’s Contracting Parties will enforce relevant United Nations standards. This incorporation amendments for the existing Regulation on pedestrian process began in 2012. With respect to regulations on protection, modifying the current test procedures and advanced safety systems, the EU now requires new enhancing the measurement methods on extended model cars from 2011 onwards to have electronic vehicle areas such as the windscreen. In 2020 the stability control systems and tire pressure monitoring European Commission issued its new digital strategy systems. Regulations on low-rolling resistance tires policies, which represent a priority in its regulatory have also been introduced. The framework is reviewed agenda. Although no regulations have been proposed periodically, and a revised version of the General Safety in this regard, the European Commission has showed a Regulation is currently under discussion. In May 2018, determination to strengthen Europe’s digital sovereignty the European Commission adopted a proposal for a and role as a standard setter, with a clear focus on data, regulation to make certain vehicle safety measures technology, and infrastructure. mandatory. On March 25, 2019, the European Parliament, Council and Commission reached a provisional political Under U.S. federal law, all vehicles sold in the United agreement on the revised General Safety Regulation. As States must comply with Federal Motor Vehicle Safety of 2022, new safety technologies will become mandatory Standards (“FMVSS”) promulgated by the NHTSA. in European vehicles, such as Advanced Emergency Manufacturers need to provide certification that all Braking, Emergency Lane Keeping systems, crash-test vehicles are in compliance with those standards. In improved safety belts, intelligent speed assistance and addition, if a vehicle contains a defect that is related warning of driver drowsiness or distraction. In 2017 the to motor vehicle safety or does not comply with an EU published technical requirements for the Emergency applicable FMVSS, the manufacturer must notify vehicle Call (eCall) system, mandatory for new model cars owners and provide a remedy at no cost to the owner. starting from 2018. Starting from July 1, 2019, new Moreover, the Transportation Recall Enhancement, types of pure electric vehicle and new types of hybrid Accountability, and Documentation Act (“TREAD”) requires electric vehicle capable of operating without propulsion manufacturers to report certain information related to from a combustion engine operating are required to claims and lawsuits involving fatalities and injuries in the be equipped with an Acoustic Vehicle Alerting System United States if alleged to be caused by their vehicles, and 88 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements other information related to client complaints, warranty the costs from Takata. At December 31, 2020 the provision claims, and field reports in the United States, as well as amounted to approximately €7 million, reflecting the information about fatalities and recalls outside the United current best estimate for future costs related to the entire States. Several new or amended FMVSSs have taken recall campaign to be carried out by the Group. or will take effect during the next few years in certain instances under phase-in schedules that require only a In 2016 the NHTSA published Phase II draft guidelines for portion of a manufacturer’s fleet to comply in the early driver distraction, for portable and aftermarket devices, years of the phase-in. These include an amendment to and the associated compliance costs may be substantial. the side impact protection requirements that added These guidelines, together with previously published several new tests and performance requirements Phase I provisions focus, among other things, on the (FMVSS No. 214), an amendment to roof crush resistance need to modify the design of car devices and other driver requirements (FMVSS No. 216), and a rule for ejection interfaces to minimize driver distraction. Compliance mitigation requirements (FMVSS No. 226). U.S. federal law with these new requirements, as well as other possible also sets forth minimum sound requirements for hybrid future NHTSA requirements, may be difficult and/ and electric vehicles (FMVSS No. 141). Because of our or costly. We are in the process of evaluating these status as SVM, Ferrari is required to be compliant at the guidelines and their potential impact on our results of end of the phase-in period. operations and financial position and determining what steps and/or countermeasures, if any, we will need to On May 4, 2016, the NHTSA published a Consent make. However, NHTSA rulemaking on driver distraction Order Amendment to the November 3, 2015 Takata guidelines has not progressed since early 2017, and the Consent Order regarding a defect which may arise in announced Phase III draft on voice-activated controls has the non-desiccated Takata passenger airbag inflators not yet been published. manufactured using phase stabilized ammonium nitrate and mounted on certain vehicles, including Ferrari cars. As In 2017 Chinese authorities published an updated version a result of this order and subsequent orders by the NHTSA of the current local general safety standard which allows relating to the non-desiccated Takata passenger airbag China to become the driver market for the Event Data inflators, in 2016 Ferrari initiated a global recall campaign Recorder mandatory installation starting from 2021. to include all Ferrari cars produced in all model years Technical requirements were defined in mid-2019, through mounting such airbag inflators. The global recall campaign the formal adoption of the local standard. Among the was implemented based on priority groups and the United Nations Contracting Parties, China has been the timeline set by the NHTSA. Ferrari recognized provisions of first country to propose an early adoption of updated €37 million in 2016 for the estimated costs of the worldwide test procedures on high-voltage batteries for hybrid and global Takata recall due to uncertainty of recoverability of electric vehicles, which has been enforced starting in 2020. 89 AR 2020 FERRARI N.V. COVID-19 PANDEMIC UPDATE The global spread of COVID-19 (“COVID-19”), a virus consisted of a total of 17 Grand Prix Events, five less causing potentially deadly respiratory tract infections, than those originally scheduled. Most of the races were which was declared a global pandemic by the World held without public attendance, including Paddock Club Health Organization in March 2020, has led governments and paddock guests. These circumstances adversely around the world to mandate certain restrictive impacted our financial results due to a reduction of measures to contain the pandemic, including social sponsorships and consequent reduced commercial distancing, quarantine, “shelter in place” or similar orders, revenues from partners and the holder of Formula 1’s travel restrictions and suspension of non-essential commercial rights (Formula One Management). business activities. The main impacts on Ferrari during 2020 include the following: • Brand activities were also adversely impacted as a result of the temporary closures of Ferrari stores and • Deliveries to the distribution network were temporarily museums. Our stores and museums gradually started suspended near the end of March 2020 due to to reopen in May, with appropriate safety measures restrictions on dealer activities or the inability of in place to protect our staff and customers. To date, customers to collect their cars, and deliveries gradually in-store traffic remains significantly lower than pre- recommenced during the month of May 2020. The pandemic levels, while museums only partially reopened closure and reopening of Ferrari dealerships worldwide in February 2021 following their closure on October 25, as a result of lockdowns and other restrictions, and the 2020 in accordance with local government measures. gradual easing of those measures, were implemented This has been only partially offset by an increase in to varying degrees from country to country. From May online sales of our merchandise. to October 2020, substantially all Ferrari dealerships • Although production and certain other activities remained fully operational and order collections resumed. Although new closures have been made necessary towards the end of the fourth quarter of (i.e. Formula 1, stores, museums) were temporarily suspended, the Group has been able to continue many other key business activities and functions through 2020 as a result of the resurgence of the pandemic in remote working arrangements. certain territories, order collections have continued and the Group remains focused on maintaining a robust order book going forward and on the careful management of our waiting list to reach the optimal combination of exclusivity and client service. • Ferrari continues to take measures to combat the spread of COVID-19 at its facilities, and in line with the laws and regulations enacted in Italy and other countries where the Company operates, Ferrari is continuing to guarantee the possibility of remote work for those • With the safety and well-being of Ferrari employees in employees whose job activity is compatible with such mind, production was suspended from March 14 and work arrangements. gradually restarted from May 4, with full production resuming on May 8 thanks in large part to the successful implementation of our “Back on Track” program, as further described below. Ferrari continued to pay all employees throughout the suspension period and did not accede to any government aid programs. Ferrari experienced limited supply chain constraints in 2020, which were actively managed to mitigate any impacts on our production, and we have consciously increased our inventories of raw materials and components in an effort to mitigate possible supply disruptions. • There were no significant effects on the valuation of assets or liabilities and no significant increases in allowances for credit losses in 2020. Moreover, no material impairment indicators were identified and there were no changes in accounting judgments or other significant accounting impacts relating to COVID-19. • No significant changes occurred in controls that materially affect internal control over financial reporting. • The start of the 2020 Formula 1 World Championship Ferrari has been gradually recovering from the effects of was postponed to July 5, when the Austrian Grand Prix the COVID-19-related suspension of production and other was held without spectators on site. The calendar for the business activities that occurred primarily in the first half season has evolved throughout the year and ultimately of 2020. 90 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements For further information on the impact of the COVID-19 actions to contain SG&A, R&D and capital expenditures in pandemic on our results of operations and liquidity, 2020, while ensuring that all projects that are considered see “Results of Operations” and “–Liquidity and Capital important for the continuing success of Ferrari and Resources”. its future development are maintained. Ferrari has continued to manage financial risks generated by interest The future impacts of COVID-19 on Ferrari’s results of rates or foreign exchange fluctuations throughout operations and financial condition will depend on ongoing the pandemic in line with Ferrari’s hedging policy. developments in relation to the pandemic, including Management is continuously monitoring the evolution of the success of global containment measures and other COVID-19 as information becomes available as well as the actions taken by governments around the world, as related effects on the results of operations and financial well as the overall condition and outlook of the global position of the Group. economy. As further described under “–Risk Factors”, “We are subject to risks related to the COVID-19 pandemic To protect the health and well-being of its workforce and or similar public health crises that may materially and customers as Ferrari returned to business operations, adversely affect our business” Ferrari’s performance is the Company successfully implemented its “Back on expected to continue to be negatively affected in 2021. Track” program, which facilitated our return to full A so called “second wave” of the COVID-19 pandemic production by May 8, 2020. The program was developed is being experienced in several European countries, in partnership with several virologists and other including Italy, as well as in the United States and medical experts to ensure the highest level of safety elsewhere, leading to a return of restrictive measures for Ferrari employees, their families, Ferrari customers which may intensify over the coming periods. Significant and suppliers and the greater community at large. The uncertainty remains, especially in relation to Ferrari’s program included the following measures: Formula 1 and brand activities, as well as our supply chain, and the situation is evolving continuously. At this time it is not possible to predict how many Formula 1 races will be held for the 2021 season and the Group expects that brand activities will recover slowly towards pre-pandemic levels. In addition to the cash generated from our operating activities, in order to prudently manage potential liquidity or refinancing risks in the foreseeable future, throughout the year the Group has increased its available liquidity, which amounted to €2,062 million at December 31, 2020 (compared to €1,248 million at December 31, 2019), primarily as a result of: • increasing new undrawn committed credit lines to €700 million in April 2020 (€350 million at December 31, 2019); • full implementation of the Italian Government’s ‘Protocol for the regulation of measures to combat and contain the spread of the COVID-19 virus in the workplace’, with additional measures to strengthen and customize the protocol with the support of specialists who have expert knowledge of Ferrari’s work environment; • voluntary serological testing of Ferrari employees, their family members, and suppliers; this testing takes place at the Fiorano Circuit, in a specially created facility of approximately 1,000m2, by doctors and health workers; • providing health and psychological assistance service to staff and special support to any employee who tests positive for COVID-19 (including free insurance coverage, accommodation for self-isolation, medical and nursing services and supply of required medical equipment such as medicines, oximeters and, in case of • the issuance of a €650 million bond in May 2020 and due emergency, oxygen); in 2025. • the launch of an “Installation Lap” phase, including several days of safety training (primarily for employees Additionally, the Group exercised the option for a one- involved in the resumption of production from May 4) year extension of the unsecured €350 million multi- and the provision of personal protective equipment for lender committed revolving credit facility and elected employees, as well as the implementation of checks at to temporarily suspend its share repurchase program workstation entrances and rules for sharing common effective from March 30, 2020. Furthermore, we took areas. 91 AR 2020 FERRARI N.V. To date, the costs incurred to implement the Back on • the purchase of computer equipment for schools, Track program have not had a significant impact on our including notebooks, tablets and portable modems. All results of operations or financial position. of the IT equipment will remain with the schools; • the purchase and distribution of food in Maranello. Ferrari continues to systematically implement actions aimed at containing the spread of the virus among These initiatives were partially funded thanks to the Ferrari employees, their families and Ferrari suppliers. Chairman, the former CEO and Board of Directors In addition to the COVID-19 screening activities offered pledging their full cash compensation from April to the by Ferrari on a voluntary basis to its employees, their end of the year, with the remaining members of the cohabiting family members and on-site employees of Senior Management Team donating 25 percent of their suppliers, a flu vaccination campaign has been added, salaries for the same period, raising approximately €2 which, again on a voluntary basis, will be extended not million. only to its employees but also to their family members and employees of suppliers who frequent our Ferrari also launched a collaborative fundraising initiative manufacturing facilities. together with its Cavalcade clients to support the medical staff and health system of Ferrari’s surrounding In addition, since November 2020 Ferrari has replaced communities, with Ferrari matching every donation the screening previously carried out with serological made. tests by introducing rapid swabs testing. This initiative is available to employees, their family members and Additionally, Ferrari has implemented a series of resident suppliers on a voluntary basis, and aims to initiatives that seek to guarantee adequate support and increase the effectiveness of the Group’s actions against care to its employees and their families, as well as local the COVID-19 emergency. communities, including: the Company’s Formula Estate summer camp, which was offered to the children of In response to the healthcare crisis caused by the Ferrari employees and was carried out in collaboration COVID-19 pandemic and to support the communities with local authorities; a program dedicated to the in which Ferrari operates, Ferrari produced respirator recovery of school education called “Back to School”, valves and fittings for protective masks, and also agreed created by the Agnelli Foundation together with Ferrari to fund various initiatives in the region to help those in and the non-profit organization Save The Children for need during the COVID-19 emergency, with the first the benefit of children in situations of fragility in the activities concentrating on Ferrari’s local communities municipality of Maranello and surrounding area; the in the province of Modena. Aid to the different towns resumption of the Formula Benessere medical-sports was coordinated directly with the local authorities and prevention program carried out with check-ups and included the following, among others: specialist visits available for all employees performed in • the purchase and distribution of ventilators, respiratory equipment, medically certified masks and other medical supplies, including from various overseas suppliers; • the purchase of COVID-19 test kits and equipment for the Policlinico di Modena and the hospitals of Baggiovara and Sassuolo; • the donation of emergency medical service vehicles for the local health service; full compliance with safety protocols; and the resumption of the company concierge service open to all employees for the handling of personal files and errands, useful to relieve the burden of having to manage various duties at public offices, which are now even more complex due to pandemic safety procedures. 92 AR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements 93 AR 2020 FERRARI N.V. OPERATING RESULTS RESULTS OF OPERATIONS CONSOLIDATED RESULTS OF OPERATIONS – 2020 COMPARED TO 2019 AND 2019 COMPARED TO 2018 the 2020 Formula 1 World Championship caused by The following is a discussion of the results of operations the COVID-19 pandemic. Furthermore, a portion of for the year ended December 31, 2020 as compared our costs are fixed in nature and we decided to pay all to the year ended December 31, 2019, and for the year employees throughout the whole suspension period ended December 31, 2019 as compared to the year ended and not accede to any government aid programs; December 31, 2018. The presentation includes line items therefore management actions to reduce costs only as a percentage of net revenues for the respective periods partially compensated the decrease in net revenues. As presented to facilitate year-over-year comparisons. a consequence, costs as a percentage of net revenues increased during the year ended December 31, 2020 Revenues were negatively impacted in 2020 by the compared to the year ended December 31, 2019 and temporary suspension of production and shipments, our EBIT and EBIT margin decreased in 2020 compared as well as the changes to the calendar and format of to 2019. For the years ended December 31, 2020 Percentage of net revenues 2019 Percentage of net revenues 2018 Percentage of net revenues 3,460 100.0 % 3,766 100.0 % 3,420 100.0 % 1,686 48.7 % 1,805 47.9 % 1,623 47.4 % 336 707 19 4 716 49 667 58 609 9.7 % 20.4 % 0.6 % 0.1 % 20.7 % 1.4 % 19.3 % 1.7 % 343 699 5 3 917 42 875 176 9.1 % 18.6 % 0.1 % 0.1 % 327 643 4 3 9.6 % 18.8 % 0.1 % 0.1 % 24.4 % 826 24.2 % 1.2 % 23 0.7 % 23.2 % 803 23.5 % 4.6 % 16 787 0.5 % 23.0 % 17.6 % 699 18.6 % (€ million, except percentages) Net revenues Cost of sales Selling, general and administrative costs Research and development costs Other expenses, net Result from investments EBIT Net financial expenses Profit before taxes Income tax expense Net profit 94 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements NET REVENUES The following table sets forth an analysis of our net revenues for the periods indicated: (€ million, except percentages) For the years ended December 31, Increase/(Decrease) 2020 Percentage of net revenues 2019 Percentage of net revenues 2018 Percentage of net revenues 2020 vs. 2019 2019 vs. 2018 Cars and spare parts (1) 2,835 81.9 % 2,926 77.7 % 2,535 74.1 % (91) (3.1) % 391 15.4 % Engines (2) 151 4.4 % 198 5.3 % 284 8.3 % (47) (24.0) % (86) (30.3) % Sponsorship, commercial and brand (3) Other (4) 390 11.3 % 538 14.3 % 506 14.8 % (148) (27.5) % 32 6.4 % 84 2.4 % 104 2.7 % 95 2.8 % (20) (19.5) % 9 10.0 % Total net revenues 3,460 100.0 % 3,766 100.0 % 3,420 100.0 % (306) (8.1) % 346 10.1 % (1) Includes net revenues generated from shipments of our cars, any personalization generated on these cars, as well as sales of spare parts. (2) Includes net revenues generated from the sale of engines to Maserati for use in their cars, and the net revenues generated from the rental of engines to other Formula 1 racing teams. (3) Includes net revenues earned by our Formula 1 racing team through sponsorship agreements and our share of the Formula 1 World Championship commercial revenues, as well as net revenues generated through the Ferrari brand, including merchandising, licensing and royalty income. (4) Primarily relates to financial services activities, management of the Mugello racetrack and other sports-related activities. 2020 COMPARED TO 2019 Net revenues for 2020 were €3,460 million, a decrease production and shipments in the second half of the of €306 million, or 8.1 percent (a decrease of 8.9 percent year. Shipments of our V8 models decreased by 10.3 on a constant currency basis), from €3,766 million for percent while our V12 models decreased by 9.0. The 2019. decrease in shipments also reflects the phase-out of the Ferrari Portofino as well as the Ferrari 488 Pista The change in net revenues was attributable to the and Ferrari 488 Pista Spider gradually approaching the combination of (i) a €91 million decrease in cars and spare end of their lifecycles, partially offset by the ramp up parts, (ii) a €47 million decrease in engines, (iii) a €148 of the Ferrari F8 Tributo, the Ferrari F8 Spider, and the million decrease in sponsorship, commercial and brand, 812 GTS which reached global distribution, as well as and (iv) a €20 million decrease in other revenues. the Ferrari Monza SP1 and SP2, which were delivered CARS AND SPARE PARTS SF90 Stradale started in the fourth quarter of 2020 Net revenues generated from cars and spare parts were following the industrialization delays experienced and €2,835 million for 2020, a decrease of €91 million, or 3.1 subsequently resolved. Deliveries of the Ferrari Roma percent, from €2,926 million for 2019. also commenced in the fourth quarter. as originally scheduled in 2020. The deliveries of the The decrease in net revenues was primarily attributable to The €91 million decrease in net revenues was lower volumes as well as their personalizations, mainly due composed of (i) a €170 million increase in EMEA, (ii) a to the seven-week production suspension in the first half €143 million decrease in Americas (including positive of 2020 and the temporary closure of certain dealerships foreign currency translation impact driven by the caused by the COVID-19 pandemic, partially offset by strengthening of the U.S. Dollar compared to the Euro), positive mix driven by deliveries of the Ferrari Monza SP1 (iii) a €146 million decrease in Mainland China, Hong and SP2. Kong and Taiwan, and (iv) a €28 million increase in the Rest of APAC. Net revenues by geography were Overall, shipments decreased by 1,012 cars, or 10.0 impacted by the deliberate geographic allocations percent, compared to the prior year, driven by the driven by the phase-in/phase-out pace of individual COVID-19 pandemic, with a gradual recovery of models, which primarily favored EMEA in 2020. 95 AR 2020 FERRARI N.V. ENGINES The €391 million increase in net revenues was composed Net revenues generated from engines were €151 million of increases in all four of our main geographical regions, for 2020, a decrease of €47 million, or 24.0 percent, from including: (i) a €209 million increase in EMEA, (ii) a €76 €198 million for 2019. The decrease was attributable million increase in Americas (including positive foreign to lower shipments of engines to Maserati and lower currency translation impact driven by the strengthening revenues from the rental of engines to other Formula 1 of the U.S. Dollar compared to the Euro), (iii) a €77 million racing teams driven by the reduced number of races in increase in Mainland China, Hong Kong and Taiwan and (iv) 2020 as a result of the COVID-19 pandemic. a €29 million increase in the Rest of APAC. The increase SPONSORSHIP, COMMERCIAL AND BRAND the decision to accelerate client deliveries in the first half Net revenues generated from sponsorship, commercial of 2019 in advance of the early implementation of new in Mainland China, Hong Kong and Taiwan was driven by agreements and brand management activities were emissions regulations. €390 million for 2020, a decrease of €148 million, or 27.5 percent, from €538 million for 2019. The decrease The increase in net revenues was primarily attributable was primarily attributable to impacts of the COVID-19 to positive volume impact, positive contribution from pandemic, which resulted in a reduced number of our personalization programs and positive foreign Formula 1 races in 2020 and a decrease in-store traffic currency impact. In particular, total shipments and museum visitors. increased by 880 cars, or 9.5 percent, compared to OTHER the prior year, primarily attributable to an 11.2 percent increase in V8 models and a 4.6 percent increase in V12 Other net revenues were €84 million for 2020 a decrease models. The increase in shipments was mainly driven by of €20 million, or 19.5 percent, from €104 million for deliveries of the Ferrari Portofino, the 812 Superfast, the 2019. The decrease was primarily attributable to reduced Ferrari 488 Pista and Ferrari 488 Pista Spider, and the sports-related activities and the cancellation of the Moto initial deliveries of the Ferrari F8 Tributo, as well as the GP event at the Mugello racetrack, the effects of which initial deliveries of our Ferrari Monza SP1 and SP2 in the were only partially offset by the first ever Formula 1 Grand last four months of 2019. These effects were partially Prix held at the Mugello racetrack. offset by lower shipments of the Ferrari 488 GTB and 2019 COMPARED TO 2018 in 2019, as well as deliveries in 2018 of the LaFerrari Net revenues for 2019 were €3,766 million, an increase Aperta and the strictly limited edition Ferrari J50. Ferrari 488 Spider, which concluded their lifecycle of €346 million, or 10.1 percent (an increase of 8.2 percent on a constant currency basis), from €3,420 ENGINES million for 2018. Net revenues generated from engines were €198 million for 2019, a decrease of €86 million, or 30.3 The increase in net revenues was attributable to the percent, from €284 million for 2018. The €86 million combination of (i) a €391 million increase in cars and decrease was attributable to a decrease in net revenues spare parts, (ii) a €32 million increase in sponsorship, generated from the sale of engines to Maserati. commercial and brand and (iii) a €9 million increase in other net revenues, partially offset by (iv) an €86 million SPONSORSHIP, COMMERCIAL AND BRAND decrease in engines. Net revenues generated from sponsorship, commercial CARS AND SPARE PARTS €538 million for 2019, an increase of €32 million, or 6.4 Cars and spare parts net revenues were €2,926 million percent, from €506 million for 2018. The increase was for 2019, an increase of €391 million, or 15.4 percent, from primarily attributable to higher revenues from Formula €2,535 million for 2018. 1 racing activities and positive foreign currency agreements and brand management activities were exchange impact. 96 / RESULTS OF OPERATIONSAR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements COST OF SALES (€ million, except percentages) For the years ended December 31, Increase/(Decrease) 2020 Percentage of net revenues 2019 Percentage of net revenues 2018 Percentage of net revenues 2020 vs. 2019 2019 vs. 2018 Cost of sales 1,686 48.7 % 1,805 47.9 % 1,623 47.4 % (119) (6.6) % 182 11.2 % 2020 COMPARED TO 2019 2019 COMPARED TO 2018 Cost of sales for 2020 was €1,686 million, a decrease of Cost of sales for 2019 was €1,805 million, an increase of €119 million, or 6.6 percent, from €1,805 million for 2019. €182 million, or 11.2 percent, from €1,623 million for 2018. As a percentage of net revenues, cost of sales increased As a percentage of net revenues, cost of sales increased from 47.9 percent in 2019 to 48.7 percent in 2020. from 47.4 percent in 2018 to 47.9 percent in 2019. The decrease in cost of sales was primarily attributable The increase in cost of sales was primarily attributable to to a decrease in car volumes due to COVID-19 an increase in volumes, a change in product mix, higher pandemic and lower engine volumes produced for industrial costs and, to a lesser extent, higher depreciation Maserati, partially offset by higher depreciation. Cost and negative foreign currency exchange impact, partially of sales in 2020 includes the full cost of employees’ offset by a decrease in costs related to lower Maserati paid days of absence during the COVID-19-related engine volumes and a release of provisions related to production suspension. favorable developments in emissions regulations that occurred in the third quarter of 2019. SELLING, GENERAL AND ADMINISTRATIVE COSTS (€ million, except percentages) Selling, general and administrative costs For the years ended December 31, Increase/(Decrease) 2020 Percentage of net revenues 2019 Percentage of net revenues 2018 Percentage of net revenues 2020 vs. 2019 2019 vs. 2018 336 9.7 % 343 9.1 % 327 9.6 % (7) (2.1) % 16 4.8 % 2020 COMPARED TO 2019 2019 COMPARED TO 2018 Selling, general and administrative costs for 2020 were Selling, general and administrative costs for 2019 were €336 million, a decrease of €7 million, or 2.1 percent, €343 million, an increase of €16 million, or 4.8 percent, from €343 million for 2019. As a percentage of net from €327 million for 2018. As a percentage of net revenues, selling, general and administrative costs were revenues, selling, general and administrative costs 9.7 percent in 2020 compared to 9.1 percent in 2019. decreased from 9.6 percent in 2018 to 9.1 percent in 2019. The decrease in selling, general and administrative The increase in selling, general and administrative costs costs was primarily attributable to the deployment of was primarily attributable to product launches for new significant cost containment actions, partially offset by cars in our product offering as well as costs incurred to Formula 1 racing activities. support the organic growth of the business. 97 AR 2020 FERRARI N.V. RESEARCH AND DEVELOPMENT COSTS (€ million, except percentages) Research and development costs expensed during the year Amortization of capitalized development costs Research and development costs For the years ended December 31, Increase/(Decrease) 2020 Percentage of net revenues 2019 Percentage of net revenues 2018 Percentage of net revenues 2020 vs. 2019 2019 vs. 2018 527 15.2 % 559 14.9 % 528 15.4 % (32) (5.9) % 31 6.0 % 180 5.2 % 140 3.7 % 115 3.4 % 40 29.3 % 25 21.2 % 707 20.4 % 699 18.6 % 643 18.8 % 8 1.2 % 56 8.7 % 2020 COMPARED TO 2019 We continue to invest in research and development Research and development costs for 2020 were €707 projects that are considered important for the continuing million, an increase of €8 million, or 1.2 percent, from success of Ferrari and its future development, despite €699 million for 2019. As a percentage of net revenues, certain actions taken to contain costs as a result of the research and development costs were 20.4 percent in COVID-19 pandemic. 2020 compared to 18.6 percent in 2019. 2019 COMPARED TO 2018 The increase of €8 million in research and development Research and development costs for 2019 were €699 costs during the period was primarily attributable to million, an increase of €56 million, or 8.7 percent, from an increase in amortization of capitalized development €643 million for 2018. As a percentage of net revenues, costs of €40 million driven by a general increase in research and development costs were 18.6 percent in capitalized development costs in recent years in line 2019 compared to 18.8 percent in 2018. with our strategy to update and broaden our product range and significantly increase our efforts relating to The increase in research and development costs was hybrid and other advanced technologies, partially offset primarily to support innovation activities on our product by lower research and development costs expensed range and components, as well as expenses incurred during the period of €32 million, including as a result of in relation to Formula 1 racing activities. Additionally, technology-related government incentives recognized amortization of capitalized development costs increased in 2020. by 21.2 percent as a result of an increase in capitalized development costs in prior years. OTHER EXPENSES, NET (€ million, except percentages) Other expenses, net 19 5 4 14 270.2 % 1 56.2 % For the years ended December 31, Increase/(Decrease) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018 Generally, other expenses, net consist of other expenses that primarily include indirect taxes, provisions and other miscellaneous expenses, as well as other income that primarily includes rental income, gains on the disposal of property, plant and equipment and other miscellaneous income, including the release of provisions previously recognized. Other expenses, net in 2020 is composed of other expenses of €25 million, partially offset by €6 million of other income. Other expenses, net in 2019 is composed of other expenses of €14 million, partially offset by €9 million of other income, and includes the positive effects of a change in estimate of the risk and related provision associated with a legal dispute based on developments that occurred in the first quarter of 2019. Other expenses, net in 2018 is composed of other expenses of €19 million, partially offset by other income of €15 million, and includes the effects of a favorable ruling on a prior year’s legal dispute. 98 / RESULTS OF OPERATIONSAR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements EBIT (€ million, except percentages) For the years ended December 31, Increase/(Decrease) 2020 Percentage of net revenues 2019 Percentage of net revenues 2018 Percentage of net revenues 2020 vs. 2019 2019 vs. 2018 EBIT 716 20.7 % 917 24.4 % 826 24.2 % (201) (21.9) % 91 11.0 % 2020 COMPARED TO 2019 2019 COMPARED TO 2018 EBIT for 2020 was €716 million, a decrease of €201 EBIT for 2019 was €917 million, an increase of €91 million, or 21.9 percent, from €917 million for 2019. As a million, or 11.0 percent, from €826 million for 2018. As percentage of net revenues, EBIT decreased from 24.4 a percentage of net revenues, EBIT increased from 24.2 percent in 2019 to 20.7 percent in 2020. percent in 2018 to 24.4 percent in 2019. The decrease in EBIT was attributable to the combined The increase in EBIT was primarily attributable to the effects of (i) negative volume impact of €126 million, combined effects of (i) positive volume impact of €99 (ii) positive product mix and price impact of €130 million, (ii) positive product mix and price impact of €78 million, (iii) an increase in industrial costs of €58 million, (iii) an increase in research and development million, including higher depreciation, (iv) an increase costs of €56 million, (iv) an increase in selling, general in research and development costs of €8 million (net and administrative costs of €16 million, (v) an increase of of the benefit from technology-related government industrial costs of €31 million mainly due to the operational incentives), (v) a decrease in selling, general and startup costs in connection with the introduction of new administrative costs of €7 million, (vi) negative models, including higher depreciation of fixed assets contribution of €184 million due to the impacts of and other variable costs, (vi) negative contribution of €33 COVID-19 on the Formula 1 racing calendar, lower million due to lower engine sales to Maserati and other traffic for brand related activities and lower engine supporting activities, and (vii) positive foreign currency sales to Maserati, and (vii) positive foreign currency exchange impact of €50 million (including foreign exchange impact of €38 million (including foreign currency hedging instruments) primarily driven by the currency hedging instruments) primarily driven by strengthening of the U.S. Dollar compared to the Euro. the strengthening of the U.S. Dollar and Japanese Yen compared to the Euro. The positive volume impact was attributable to an increase in total shipments, driven by the Ferrari 488 Pista The negative volume impact was primarily attributable family, the Ferrari Portofino and the 812 Superfast, as well to the temporary suspension of shipments for seven as the initial deliveries of the Ferrari F8 Tributo, partially weeks during the first half of 2020 as a result of offset by lower shipments of the Ferrari 488 GTB and the the COVID-19 pandemic, the effects of which were Ferrari 488 Spider, which concluded their lifecycle in 2019. partially recovered in the second half of the year. The The positive product mix and price impact was primarily positive product mix and price impact was primarily attributable to the combined positive effects of the attributable to deliveries of the Ferrari Monza SP1 and Ferrari Monza SP1 and SP2 in the fourth quarter of 2019, SP2 as well as an otherwise richer product mix, partially our personalization program and deliveries of the FXX K offset by fewer shipments of the FXX-K EVO and lower EVO, partially offset by negative product mix from range contributions from our personalization programs, models as well as prior year shipments of the LaFerrari which are correlated to the decrease in volumes. Aperta and the strictly limited edition Ferrari J50. NET FINANCIAL EXPENSES (€ million, except percentages) Net financial expenses 49 42 23 7 16.7 % 19 78.6 % For the years ended December 31, Increase/(Decrease) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018 99 AR 2020 FERRARI N.V. 2020 COMPARED TO 2019 2019 COMPARED TO 2018 Net financial expenses for 2020 increased to €49 million Net financial expenses for 2019 were €42 million compared to €42 million for 2019. compared to €23 million for 2018, representing an increase of €19 million. The increase in net financial The increase in net financial expenses was primarily expenses was primarily attributable to the net costs of attributable to (i) a decrease in the fair value of hedging and foreign exchange losses of €11 million and investments held by the Group (compared to an increase €8 million of costs incurred in connection with the partial in the fair value of investments held by the Group 2019), repurchase of bonds following a cash tender offer in July and (ii) an increase in net foreign exchange losses, 2019, as well as the recognition of unamortized issuance including the net costs of hedging. costs. INCOME TAX EXPENSE (€ million, except percentages) Income tax expense 58 176 16 (118) (67.1) % 160 n.m. For the years ended December 31, Increase/(Decrease) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018 2020 COMPARED TO 2019 The effective tax rate net of IRAP was 5.3 percent for Income tax expense for 2020 was €58 million, a decrease 2020 compared to 17.0 percent for 2019 (total effective of €118 million, or 67.1 percent, compared to €176 million tax rate of 8.7 percent and 20.2 percent for 2020 and for 2019. 2019, respectively). The decrease in the effective tax rate net of IRAP is primarily attributable to the net tax benefit The decrease in income tax expense was primarily from the trademark step-up as described above, and attributable to the combined effects of (i) a tax benefit to a lesser extent, the effects of deductions for eligible from the partial step up of trademarks for tax purposes research and development costs. amounting to €75 million, as further described below, (ii) a decrease in profit before taxes, and (iii) the effects 2019 COMPARED TO 2018 of deductions for eligible research and development Income tax expense for 2019 was €176 million, an increase costs. Income taxes for both years benefited from the of €160 million, compared to €16 million for 2018. application of the Patent Box regime. In September 2018, the Group signed an agreement with In the fourth quarter of 2020, Ferrari benefited from the the Italian Revenue Agency in relation to the Patent Box measures introduced in Italy by the art. 110 of the Law tax regime, which provides a tax benefit for companies Decree n. 104/2020, converted in the Law n. 126/2020, that generate income through the use, both direct and enacting “Urgent measures to support and relaunch indirect, of copyrights, patents, trademarks, designs and the economy”, which re-opened the voluntary step up know-how. Income taxes for 2018 included the positive of tangible and intangible assets, with the application of impact of the Patent Box benefit relating to the years 2015 a substitutive tax rate (3%). In particular, Ferrari S.p.A. to 2017 of €141 million. benefited from the partial step-up of its trademark for tax purposes, which resulted in the recognition in 2020 The effective tax rate net of IRAP was 17.0 percent for of deferred tax assets for €84 million and a substitute 2019 compared to (1.1) percent for 2018 (total effective tax liability for €9 million, resulting in a net tax benefit of tax rate of 20.2 percent and 2.0 percent for 2019 and €75 million. The deferred tax asset will be utilized over a 2018, respectively). The effective tax rate net of IRAP in 20-year period and the substitute tax will be paid in three 2018 was significantly impacted by the application of equal annual installments starting in 2021. There was no the Patent Box tax regime and, in particular, due to the cash effect in 2020. The net benefit has been treated as positive impact of the Patent Box benefit relating to the an adjusting item in the calculation of Adjusted Net Profit years 2015 to 2017, which , as described above, was and Adjusted Basic and Diluted Earnings per Common recognized in 2018. Share for 2020. RECENT DEVELOPMENTS See “Subsequent Events and 2021 Outlook” 100 / RESULTS OF OPERATIONSAR 2020 Index to Consolidated Financial Statements Index to Company Financial Statements 101 AR 2020 FERRARI N.V. LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY OVERVIEW after we receive the raw materials, components or other materials. Additionally, we also receive advance payments from our customers, mainly for our limited edition cars (and starting in the first quarter of 2019, our Icona cars). We maintain sufficient inventory of raw materials and We require liquidity in order to fund our operations and components to ensure continuity of our production lines, meet our obligations. Short-term liquidity is required to however delivery of most raw materials and components purchase raw materials, parts and components for car takes place monthly or more frequently in order to production, as well as to fund the costs of labor, selling, minimize inventories. The manufacture of one of our cars general, and administrative activities, research and typically takes between 30 and 45 days, depending on the development expenditures, and other expenses. In addition level of automation of the relevant production line, and the to our general working capital and operational needs, we car is generally shipped to our dealers three to six days require cash for capital investments to support continuous following the completion of production, although we may product range renewal and expansion and, more recently, warehouse cars in local markets for longer periods of for research and development activities to transition our time to ensure prompt deliveries in certain regions. As a product portfolio to hybrid and electric technology. We also result of the above, including the advances received from make investments for initiatives to enhance manufacturing customers for certain car models, we tend to receive efficiency, improve capacity, ensure environmental payment for cars shipped before we are required to make compliance and carry out maintenance activities. We fund payment for the raw materials, components or other our capital expenditures primarily with cash generated materials used in manufacturing the cars. In 2020, given from our operating activities. the exceptional circumstances of the COVID-19 pandemic, We centrally manage our operating cash management, payment extensions to the dealer network and other liquidity and cash flow requirements with the objective of partners during the lockdown period, as well as early ensuring efficient and effective management of our funds. payments for commercial incentives due in the first half We believe that our cash generation together with our of 2020; however, our standard payment terms remain we granted certain temporary, short-term support and available liquidity, including committed credit lines granted unchanged. from primary financial institutions, will be sufficient to meet our obligations and fund our business and capital Our investments for capital expenditure and research expenditures. and development are, among other factors, influenced by the timing and number of new models launches. Our See the “Net Debt and Net Industrial Debt” section below development costs, as well as our other investments for additional details relating to our liquidity. in capital expenditure, generally peak in periods when CYCLICAL NATURE OF OUR CASH FLOWS we develop a significant number of new models to renew or expand our product range. Our research and Our working capital is subject to month to month development costs are also influenced by the timing of fluctuations due to, among other things, production and research costs for our Formula 1 activities, for which sales volumes, our financial services activities, the timing expenditure in a normal season is generally higher in of capital expenditures and tax payments. In particular, the first and last quarters of the year, and otherwise our inventory levels increase in the periods leading up to depends on the evolution of the applicable Formula 1 launches of new models, during the phase out of existing technical regulations, as well as the number and cadence models when we build up spare parts, and at the end of races during the course of the racing season. We of the second quarter when our inventory levels are significantly increased our capital expenditure in 2019 to generally higher to support the summer plant shutdown. support the growth of our product range and to expand The impacts of the COVID-19 pandemic on our working our production facilities in Maranello. Despite certain capital in 2020 were greater in the first half of the year (and actions taken in 2020 to contain costs as a result of the in particular, during the second quarter) due to the seven- COVID-19 pandemic, we continued to make significant week suspension of our production and shipments until capital investments and increase our capital expenditure early May 2020, whilst they were only limited in the second in 2020 by prioritizing capital projects that are considered half of the year. important for the continuing success of Ferrari and its future development, including investments in hybrid and We generally receive payment for cars between 30 and other advanced technologies and our acquisition of tracts 40 days after the car is shipped (or earlier when financing of land adjacent to our facilities in Maranello as part of our schemes are utilized by us or our dealers) while we expansion plans. Certain other projects were delayed by 3 generally pay most suppliers between 60 and 90 days to 9 months. 102 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The payment of income taxes also affects our cash flows. regulations in Italy. In 2020 we paid the first advance Our tax expense and tax payments were significantly payment in the second quarter of the year and the reduced in 2019 and this continued in 2020 as the Group remaining portion in the third and fourth quarters of 2020. is applying the Patent Box tax regime for the period See Note 10 “Income Taxes” to the Consolidated Financial from 2020 to 2024, in line with currently applicable tax Statements for additional details related to the Patent Box. CASH FLOWS The following table summarizes the cash flows from/(used in) operating, investing and financing activities for each of the years ended December 31, 2020, 2019 and 2018. For additional details of our cash flows, see our Consolidated Financial Statements included elsewhere in this document. (€ million) Cash flows from operating activities Cash flows used in investing activities Cash flows from/(used in) financing activities Translation exchange differences Total change in cash and cash equivalents For the years ended December 31, 2020 838 (708) 340 (6) 464 2019 2018 1,306 934 (701) (502) 1 104 (637) (152) 1 146 2020 COMPARED TO 2019 2019 COMPARED TO 2018 For the year ended December 31, 2020 the total change For the year ended December 31, 2019 the total change in cash and cash equivalents was €464 million compared in cash and cash equivalents was €104 million compared to €104 million for year ended December 31, 2019. The to €146 million for the year ended December 31, 2018. increase in cash generation of €360 million in 2020 The decrease in cash generation of €42 million in 2019 compared to 2019 was primarily attributable to: compared to 2018 was primarily attributable to: (i) net cash proceeds of €640 million from the (i) higher share repurchases of €287 million (€387 issuance of a bond in May 2020, and million in 2019 compared to €100 million in 2018); (ii) lower share repurchases of €257 million (€130 (ii) an increase of €60 million in dividends paid to million in 2020 compared to €387 million in 2019) owners of the parent, and driven by our decision to temporarily suspend the (iii) and an increase in capital expenditures; share repurchase program in March 2020 as a result of the COVID-19 pandemic; partially offset by: partially offset by: (i) (ii) an increase in Adjusted EBITDA; a positive change in cash generated from other (i) a decrease in advances received for the Ferrari operating assets and liabilities driven by advances Monza SP1 and SP2 (which were primarily received received for the Ferrari Monza SP1 and SP2, and in 2019 ahead of shipments, including for cars (iii) a decrease in income taxes paid. actually delivered in 2020); (ii) the adverse impacts on our cash flows from A summary of the cash flows from or used in operating, operating activities as a result of the COVID-19 investing and financing activities for each year is pandemic, including the temporary suspension of provided below. production and deliveries for seven weeks during the first half of 2020, as well as higher inventories OPERATING ACTIVITIES – YEAR ENDED DECEMBER 31, reflecting efforts to mitigate potential supply chain 2020 issues; For the year ended December 31, 2020, our cash flows from (iii) an increase in income taxes paid, and operating activities were €838 million, primarily the result of: (iv) lower net proceeds from our securitization (i) profit before tax of €667 million, adjusted for €427 programs. million for depreciation and amortization expense, 103 AR 2020 FERRARI N.V. €49 million of net finance costs, €33 million of net (ii) €9 million of cash related to the net change in other non-cash expenses and income (including inventories, trade payables and trade receivables. In net gains on disposals of property, plant and particular, the movement was attributable to (a) cash equipment and intangible assets as well as the absorbed by inventory of €41 million and (b) cash non-cash result from investments) and €26 million absorbed by trade receivables of €22 million, which of provisions accrued. Other non-cash expenses were both primarily driven by higher volumes, partially include share-based compensation expense offset by (c) cash generated from trade payables of recognized in relation to the equity incentive plans. €54 million driven by higher capital expenditures and These cash inflows were partially offset by: (iii) €39 million of net finance costs paid; and (i) €15 million of cash absorbed from the net change (iv) €33 million of income tax paid. in inventories, trade receivables and trade payables. an increase in volumes; In particular, the movement was attributable to: OPERATING ACTIVITIES – YEAR ENDED DECEMBER 31, (a) cash absorbed by inventories of €68 million 2018 driven by higher finished goods and raw materials, For the year ended December 31, 2018, our cash flows from including the effects of efforts to protect the supply operating activities were €934 million, primarily the result of: chain from potential COVID-19-related disruptions, (i) profit before tax of €803 million, adjusted to add partially offset by (b) cash generated from trade back €289 million of depreciation and amortization receivables of €44 million and (c) cash generated expense, €30 million of other non-cash expenses and from trade payables of €9 million; income (including net gains on disposals of property, (ii) €137 million of cash absorbed related to the net plant and equipment and intangible assets as well as change in other operating assets and liabilities, non-cash result from investments), €23 million of net primarily attributable to reversals of advances finance costs and €16 million in provisions accrued. received for the Ferrari Monza SP1 and SP2; Other non-cash expenses were primarily attributable (iii) €69 million related to cash absorbed from to share-based compensation expense under the receivables from financing activities, driven by an equity incentive plan; and increase in the financial receivables portfolio; (ii) €62 million related to cash absorbed by the (iv) 52 million of net finance costs paid; and net change in inventories, trade payables and (v) €91 million of income tax paid. trade receivables. In particular, the movement was attributable to (a) cash generated from trade payables OPERATING ACTIVITIES – YEAR ENDED DECEMBER 31, of €40 million driven by higher capital expenditures 2019 and an increase in volumes, (b) cash generated by For the year ended December 31, 2019, our cash flows trade receivables of €27 million, partially offset by (c) from operating activities were €1,306 million, primarily cash absorbed by inventory of €5 million. the result of: (i) profit before tax of €875 million, adjusted to add These cash inflows were partially offset by: back €352 million of depreciation and amortization (i) €107 million related to cash absorbed from expense, €42 million of net finance costs, €35 receivables from financing activities driven by an million of net other non-cash expenses and income increase in the financial services portfolio in the U.S.; (including net gains on disposals of property, plant (ii) €83 million related to cash absorbed by the and equipment and intangible assets as well as the change in other operating assets and liabilities, non-cash result from investments) and €14 million in primarily attributable to a decrease in advances for the provisions accrued. Other non-cash expenses include LaFerrari Aperta and the Ferrari J50; share-based compensation expense recognized in (iii) €11 million of net finance costs paid; and relation to the equity incentive plans; and (iv) income tax paid of €88 million, primarily related to (ii) €146 million of cash generated by the change the payment of the remaining balance of 2017 taxes as in other operating assets and liabilities, primarily well as the first advance in relation to 2018 taxes. attributable to advances received for the Ferrari Monza SP1 and SP2. INVESTING ACTIVITIES – YEAR ENDED DECEMBER 31, 2020 These cash inflows were partially offset by: For the year ended December 31, 2020, our net cash (i) €77 million of cash absorbed from receivables from used in investing activities was €708 million, primarily the financing activities driven by an increase in the result of: financial services portfolio; (i) €352 million for additions to intangible assets, mainly related to externally acquired and internally 104 / LIQUIDITY AND CAPITAL RESOURCESAR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements generated development costs and, (ii) €357 million of (iii) €18 million related to the net change in other debt. capital expenditures additions to property, plant and equipment, mainly related to plant and machinery These cash inflows were partially offset by: for new models as well as our acquisition of tracts of (i) €211 million of dividends paid, of which €3 million land adjacent to our facilities in Maranello as part of was to non-controlling interests; our expansion plans. These cash flows were partially (ii) €130 million paid to repurchase common shares offset by proceeds of €1 million from the disposal of under the Company’s share repurchase program in property, plant and equipment. For a detailed analysis the first quarter of 2020; of additions to property, plant and equipment and (iii) €20 million in repayments of lease liabilities; and intangible assets see “–Capital Expenditures” below. (iv) €1 million related to the net change in bank borrowings. INVESTING ACTIVITIES – YEAR ENDED DECEMBER 31, 2019 FINANCING ACTIVITIES – YEAR ENDED DECEMBER 31, 2019 For the year ended December 31, 2019, our net cash For the year ended December 31, 2019, our net cash used in used in investing activities was €701 million, primarily the financing activities was €502 million, primarily the result of: result of: (i) €387 million paid to repurchase common shares (i) €354 million for additions to intangible assets, mainly under the Company’s share repurchase program; related to externally acquired and internally (ii) €315 million related to the cash tender offer to generated development costs and, (ii) €352 million of repurchase an aggregate nominal amount of €200 capital expenditures additions to property, plant and million of the 2021 Bond and an aggregate nominal equipment, mainly related to plant and machinery amount of €115 million of the 2023 Bond; for new models as well as our acquisition of tracts of (iii) €195 million of dividends paid, of which €2 million land adjacent to our facilities in Maranello as part of was to non-controlling interests; and our expansion plans. These cash flows were partially (iv) €7 million related to the net change in bank offset by proceeds from the disposal of property, borrowings and lease liabilities. plant and equipment. For a detailed analysis of additions to property, plant and equipment and These cash outflows were partially offset by: intangible assets see “–Capital Expenditures” below. (i) €298 million of net proceeds from the Company’s INVESTING ACTIVITIES – YEAR ENDED DECEMBER 31, and 1.27 percent senior notes due August 2031, each 2018 having a principal amount of €150 million; For the year ended December 31, 2018, our net cash (ii) €92 million of proceeds net of repayments related used in investing activities was €637 million, primarily the to our revolving securitization programs in the result of: United States; and (i) €338 million for additions to intangible assets, mainly (iii) €12 million related to the net change in other debt; issuance of 1.12 percent senior notes due August 2029 related to externally acquired and internally generated development costs and, (ii) €301 million of FINANCING ACTIVITIES – YEAR ENDED DECEMBER 31, capital expenditures additions to property, plant and 2018 equipment, mainly related to plant and machinery For the year ended December 31, 2018, net cash for new models. These cash flows were partially used in financing activities was €152 million, offset by proceeds from the sale of property, plant primarily the result of: and equipment. For a detailed analysis of additions to (i) €133 million of dividends paid to owners of the property, plant and equipment and intangible assets parent; see “–Capital Expenditures” below. (ii) €100 million paid to repurchase common shares under the Company’s share repurchase program; FINANCING ACTIVITIES – YEAR ENDED DECEMBER 31, (iii) €8 million related to the net change in other debt; 2020 (iv) €4 million related to the net change in bank For the year ended December 31, 2020, our net cash borrowings; and from financing activities was €340 million, primarily the (v) €2 million of dividends paid to non-controlling result of: interests in our Chinese distributor, Ferrari (i) €640 million of net proceeds from the issuance of a International Cars Trading (Shanghai) Co. Ltd. bond in May 2020; (ii) €44 million of proceeds net of repayments related These cash outflows were partially offset by: to our revolving securitization programs in the United (i) €95 million of proceeds net of repayments related States; and to our revolving securitization programs in the United States. 105 AR 2020 FERRARI N.V. NET DEBT AND NET INDUSTRIAL DEBT Due to different sources of cash flows used for the repayment of debt between industrial activities and financial services activities, and the different business structure and leverage implications, Net Industrial Debt, together with Net Debt, are the primary measures used by us to analyze our capital structure and financial leverage. We believe the presentation of Net Industrial Debt aids management and investors in their analysis of the Group’s financial position and financial performance and to compare the Group’s financial position and financial performance with that of other companies. Net Industrial Debt is defined as total debt less cash and cash equivalents (Net Debt), further adjusted to exclude the debt and cash and cash equivalents related to our financial services activities (Net Debt of Financial Services Activities). The following table sets forth a reconciliation of Net Debt and Net Industrial Debt at December 31, 2020 and 2019. (€ million) Cash and cash equivalents Total liquidity Bonds and notes Asset-backed financing (Securitizations) Lease liabilities Borrowings from banks Other debt Total debt Net Debt (A) Net Debt of Financial Services Activities (B) Net Industrial Debt (A-B) At December 31, 2020 2019 1,362 1,362 898 898 (1,835) (1,186) (761) (788) (62) (29) (38) (60) (33) (23) (2,725) (2,090) (1,363) (1,192) (820) (543) (855) (337) In May 2020 the Company issued 1.5 percent coupon CASH AND CASH EQUIVALENTS notes due May 2025 (“2025 Bond”), having a principal of Cash and cash equivalents amounted to €1,362 million at €650 million. The notes were issued at a discount for an December 31, 2020 compared to €898 million at December issue price of 98.898 percent, resulting in net proceeds 31, 2019. See “Cash Flows” above for further details. of €640 million after related expenses and a yield to maturity of 1.732 percent. The bond was admitted to Approximately 88 percent of our cash and cash trading on the regulated market of Euronext Dublin. equivalents were denominated in Euro at December 31, 2020 (approximately 77 percent at December 31, Through a cash tender offer, on July 16, 2019 the 2019). Our cash and cash equivalents denominated in Company executed a partial repurchase of the 2023 Bond currencies other than the Euro are available mostly to and 2021 Bond for aggregate nominal amounts of €115 Ferrari S.p.A. and certain subsidiaries which operate in million and €200 million respectively. On July 31, 2019, the areas other than Europe. Cash held in such countries Company issued 1.12 percent senior notes due August may be subject to transfer restrictions depending on 2029 (“2029 Notes”) and 1.27 percent senior notes due the jurisdictions in which these subsidiaries operate. August 2031 (“2031 Notes”) through a private placement In particular, cash held in China (including in foreign to certain US institutional investors, each having a currencies), which amounted to €56 million at December principal of €150 million. The net proceeds from the 31, 2020 (€115 million at December 31, 2019), is subject issuances amounted to €298 million. to certain repatriation restrictions and may only be repatriated as a repayment of payables, debt, dividends For further details on total debt, see Note 24 “Debt” to the or capital distributions. We do not currently believe that Consolidated Financial Statements included elsewhere in such transfer restrictions have an adverse impact on our this document. ability to meet our liquidity requirements. 106 / LIQUIDITY AND CAPITAL RESOURCESAR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The following table sets forth an analysis of the currencies in which our cash and cash equivalents were denominated at the dates presented: (€ million) Euro U.S. Dollar Chinese Yuan Japanese Yen Other currencies Total At December 31, 2020 2019 1,203 76 51 13 19 690 63 110 12 23 1,362 898 Cash collected from the settlement of receivables under securitization programs is subject to certain restrictions regarding its use and is primarily applied to repay principal and interest of the related funding. Such cash amounted to €37 million at December 31, 2020 (€28 million at December 31, 2019). TOTAL AVAILABLE LIQUIDITY Total available liquidity (defined as cash and cash equivalents plus undrawn committed credit lines) at December 31, 2020 increased to €2,062 million compared to €1,248 million at December 31, 2019. The following table summarizes our total available liquidity: (€ million) Cash and cash equivalents Undrawn committed credit lines Total available liquidity At December 31, 2020 2019 1,362 700 898 350 2,062 1,248 In April 2020, additional committed credit lines of €350 million were secured, with tenors ranging from 18 to 24 months, therefore doubling our total committed credit lines available and undrawn. For further details see Note 24 “Debt” to the Consolidated Financial Statements included elsewhere in this document. 107 AR 2020 FERRARI N.V. FREE CASH FLOW AND FREE CASH FLOW FROM INDUSTRIAL ACTIVITIES Free Cash Flow for the year ended December 31, 2020 was €129 million compared to €600 million for the year Free Cash Flow and Free Cash Flow from Industrial ended December 31, 2019 and €295 million for the year Activities are two of our primary key performance ended December 31, 2018. For an explanation of the indicators to measure the Group’s performance. drivers in Free Cash Flow see “Cash Flows” above. These measures are presented by management to aid investors in their analysis of the Group’s financial Free Cash Flow from Industrial Activities for the year performance and to compare the Group’s financial ended December 31, 2020 was positive €171 million, a performance with that of other companies. Free Cash decrease of €504 million compared to €675 million for Flow is defined as cash flows from operating activities the year ended December 31, 2019. The decrease in Free less investments in property, plant and equipment Cash Flow from Industrial Activities was primarily driven (excluding right-of-use assets recognized during by a decrease in advances received for the Ferrari Monza the period in accordance with IFRS 16 – Leases) and SP1 and SP2 (which were primarily received in 2019 intangible assets. Free Cash Flow from Industrial ahead of shipments, including for cars actually delivered Activities is defined as Free Cash Flow adjusted to in 2020), the adverse impacts on our EBITDA as a result exclude the operating cash flow from our financial of the COVID-19 pandemic and higher inventories at year services activities (Free Cash Flow from Financial end reflecting efforts to mitigate potential supply chain Services Activities). Prior to 2020, we defined Free Cash issues, as well as an increase in income taxes paid. Free Flow and Free Cash Flow from Industrial Activities Cash Flow from Industrial Activities in 2019 benefited without excluding from investments in property, plant from advances collected ahead of shipments of the and equipment the right-of-use assets recognized Ferrari Monza SP1 and SP2, including for cars actually during the period in accordance with IFRS 16 – Leases. delivered in 2020. Applying the current definition of Free Cash Flow and Free Cash Flow from Industrial Activities to 2019 Free Cash Flow from Industrial Activities for the year would result in an immaterial difference compared to ended December 31, 2019 was €675 million compared the figures presented below. See “Non-GAAP Financial to €375 million for the year ended December 31, 2018. Measures” above for further information. The increase was primarily attributable to an increase The following table sets forth our Free Cash Flow and from other operating assets and liabilities, driven by Free Cash Flow from Industrial Activities for the years advances received for the Ferrari Monza SP1 and SP2, as ended December 31, 2020, 2019 and 2018. well as a decrease in income taxes paid, partially offset by in Adjusted EBITDA, a positive change in cash generated an increase in capital expenditures. (€ million) Cash flows from operating activities Investments in property, plant and equipment and intangible assets Free Cash Flow Free Cash Flow from Financial Services Activities Free Cash Flow from Industrial Activities For the years ended December 31, 2020 838 (709) 129 (42) 171 2019 2018 1,306 934 (706) (639) 600 (75) 675 295 (80) 375 108 / LIQUIDITY AND CAPITAL RESOURCESAR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements NON-GAAP FINANCIAL MEASURES We monitor and evaluate our operating and financial EBITDA AND ADJUSTED EBITDA performance using several non-GAAP financial measures EBITDA is defined as net profit before income tax including: EBITDA, Adjusted EBITDA, Adjusted EBIT, expense, net financial expenses and amortization and Adjusted Net Profit, Adjusted Basic and Diluted Earnings depreciation. Adjusted EBITDA is defined as EBITDA per Common Share, Net Debt, Net Industrial Debt, Free as adjusted for certain income and costs, which are Cash Flow and Free Cash Flow from Industrial Activities, significant in nature, expected to occur infrequently, as well as a number of financial metrics measured on and that management considers not reflective of a constant currency basis. We believe that these non- ongoing operational activities. EBITDA is presented GAAP financial measures provide useful and relevant to aid management and investors in their analysis of information regarding our performance and improve our the performance of the Group and to assist in the ability to assess our financial performance and financial comparison of the Group’s performance with that of position. They also provide us with comparable measures other companies. Adjusted EBITDA is provided in order that facilitate management’s ability to identify operational to present how the underlying business has performed trends, as well as make decisions regarding future prior to the impact of the adjusting items, which may spending, resource allocations and other operational obscure the underlying performance and impair decisions. While similar measures are widely used in the comparability of results between periods. industry in which we operate, the financial measures we use may not be comparable to other similarly titled The following table sets forth the calculation of EBITDA measures used by other companies nor are they intended and Adjusted EBITDA for the years ended December 31, to be substitutes for measures of financial performance 2020, 2019 and 2018, and provides a reconciliation of or financial position as prepared in accordance with IFRS. these non-GAAP measures to net profit. (€ million) Net profit Income tax expense Net financial expenses EBIT Amortization and depreciation EBITDA For the years ended December 31, 2020 609 58 49 716 427 2019 2018 699 176 42 917 352 787 16 23 826 289 1,143 1,269 1,115 Release of charges for Takata airbag inflator recalls(1) — — (1) Adjusted EBITDA 1,143 1,269 1,114 (1) Reflects the partial release of a provision previously recognized in relation to estimated costs for a global recall campaign initiated by the Group on all of our cars produced that included certain Takata airbag inflators following an industry-wide recall over questions that the airbag inflators were not performing as designed. 109 AR 2020 FERRARI N.V. ADJUSTED EBIT Adjusted EBIT represents EBIT as adjusted for certain income and costs which are significant in nature, expected to occur infrequently, and that management considers not reflective of ongoing operational activities. Adjusted EBIT is provided in order to present how the underlying business has performed prior to the impact of the adjusting items, which may obscure the underlying performance and impair comparability of results between the periods. The following table sets forth the calculation of Adjusted EBIT for the years ended December 31, 2020, 2019 and 2018. (€ million) EBIT Release of charges for Takata airbag inflator recalls(1) Adjusted EBIT For the years ended December 31, 2020 2019 2018 716 — 716 917 — 917 826 (1) 825 (1) Reflects the partial release of a provision previously recognized in relation to estimated costs for a global recall campaign initiated by the Group on all of our cars produced that included certain Takata airbag inflators following an industry-wide recall over questions that the airbag inflators were not performing as designed. ADJUSTED NET PROFIT Adjusted Net Profit represents net profit as adjusted for certain income and costs (net of tax effect) which are significant in nature, expected to occur infrequently, and that management considers not reflective of ongoing operational activities. The tax effect is calculated by applying the corporate tax rate in Italy, which was 24.0 percent for all years presented, and the Italian Regional Income Tax (“IRAP”), which was 3.9 percent for all years presented. Adjusted Net Profit is provided in order to present how the underlying business has performed prior to the impact of the adjusting items, which may obscure the underlying performance and impair comparability of results between the periods. The following table sets forth the calculation of Adjusted Net Profit for the years ended December 31, 2020, 2019 and 2018. (€ million) Net profit Trademark step-up(1) Patent box benefit for the period 2015-2017(2) Release of charges for Takata airbag inflator recalls (net of tax effect)(3) For the years ended December 31, 2020 2019 2018 609 (75) — — 699 — — — 787 — (141) (1) 645 Adjusted Net Profit 534 699 (1) Reflects the application of the measures introduced in Italy by the art. 110 of the Law Decree n. 104/2020, converted in the Law n.126/2020, enacting “Urgent measures to support and relaunch the economy” which reopened the voluntary step up of tangible and intangible assets, with the application of a substitutive tax rate (3%). In particular, Ferrari S.p.A. benefited from the one-off partial step-up of its trademark for tax purposes, which resulted in the recognition in 2020 of deferred tax assets for €83.7 million and a substitute tax liability for €9.0 million, resulting in a net tax benefit of €74.7 million.. There was no cash effect in 2020. (2) Reflects the benefit related to the years from 2015 to 2017 resulting from the Group’s application of the Patent Box tax regime starting in the third quarter of 2018, which provided tax benefits for companies that generate income through the use, both direct and indirect, of copyrights, patents, trademarks, designs and know-how. (3) Reflects the partial release of a provision previously recognized in relation to estimated costs for a global recall campaign initiated by the Group on all of our cars produced that included certain Takata airbag inflators following an industry-wide recall over questions that the airbag inflators were not performing as designed. ADJUSTED BASIC AND DILUTED EARNINGS PER COMMON SHARE Adjusted Basic and Diluted Earnings per Common Share represents earnings per share, as adjusted for certain income and costs (net of tax effect) which are significant in nature, expected to occur infrequently, and that management considers not reflective of ongoing operational activities. We provide such information in order to present how the underlying business has performed prior to the impact of the adjusting items, which may obscure the underlying performance and impair comparability of results between the periods. 110 / NON-GAAP FINANCIAL MEASURESAR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The following table sets forth the calculation of Adjusted Basic and Diluted Earnings per Common Share for the years ended December 31, 2020, 2019 and 2018. For the years ended December 31, 2020 2019 2018 Net profit attributable to owners of the Company Trademark step-up(1) Patent box benefit for the period 2015-2017(2) € million € million € million Release of charges for Takata airbag inflator recalls (net of tax effect)(3) € million 608 (75) — — 696 — — — Adjusted profit attributable to owners of the Company € million 533 696 785 — (141) (1) 643 Weighted average number of common shares for basic earnings per share thousand 184,806 186,767 188,606 Adjusted Basic Earnings per Common Share € 2.88 3.73 3.41 Weighted average number of common shares for diluted earnings per share(4) thousand 185,379 187,535 189,394 Adjusted Diluted Earnings per Common Share € 2.88 3.71 3.40 (1) Reflects the application of the measures introduced in Italy by the art. 110 of the Law Decree n. 104/2020, converted in the Law n.126/2020, enacting “Urgent measures to support and relaunch the economy” which reopened the voluntary step up of tangible and intangible assets, with the application of a substitutive tax rate (3%). In particular, Ferrari S.p.A. benefited from the one-off partial step-up of its trademark for tax purposes, which resulted in the recognition in 2020 of deferred tax assets for €83.7 million and a substitute tax liability for €9.0 million, resulting in a net tax benefit of €74.7 million. There was no cash effect in 2020. (2) Reflects the benefit related to the years from 2015 to 2017 resulting from the Group’s application of the Patent Box tax regime starting in the third quarter of 2018, which provided tax benefits for companies that generate income through the use, both direct and indirect, of copyrights, patents, trademarks, designs and know-how. (3) Reflects the partial release of a provision previously recognized in relation to estimated costs for a global recall campaign initiated by the Group on all of our cars produced that included certain Takata airbag inflators following an industry-wide recall over questions that the airbag inflators were not performing as designed. (4) The weighted average number of common shares for diluted earnings per share was increased to take into consideration the theoretical effect of the potential common shares that would be issued under the Group’s equity incentive plans (assuming 100 percent of the related awards vested). See Note 12 “Earnings per Share” to the Consolidated Financial Statements, included elsewhere in this document, for the calculation of the basic and diluted earnings per common share. NET DEBT AND NET INDUSTRIAL DEBT Due to different sources of cash flows used for the repayment of debt between industrial activities and financial services activities, and the different business structure and leverage implications, Net Industrial Debt, together with Net Debt, are the primary measures used by us to analyze our capital structure and financial leverage. We believe the presentation of Net Industrial Debt aids management and investors in their analysis of the Group’s financial position and financial performance as well as to compare the Group’s financial position and financial performance with that of other companies. Net Industrial Debt is defined as total debt less total cash and cash equivalents (Net Debt), further adjusted to exclude the debt and cash and cash equivalents related to our financial services activities (Net Debt of Financial Services Activities). The following table sets forth a reconciliation of Net Debt and Net Industrial Debt at December 31, 2020, and 2019. (€ million) Cash and cash equivalents Debt Net Debt (A) Net Debt of Financial Services Activities (B) Net Industrial Debt (A-B) At December 31, 2020 1,362 2019 898 (2,725) (2,090) (1,363) (1,192) (820) (543) (855) (337) For further information on Net Debt and Net Industrial Debt, see “Liquidity and Capital Resources – Net Debt and Net Industrial Debt” below. 111 AR 2020 FERRARI N.V. FREE CASH FLOW AND FREE CASH FLOW FROM INDUSTRIAL ACTIVITIES without excluding from investments in property, plant and equipment the right-of-use assets recognized Free Cash Flow and Free Cash Flow from Industrial during the period in accordance with IFRS 16 – Leases. Activities are two of our primary key performance Applying the current definition of Free Cash Flow and indicators to measure the Group’s performance. These Free Cash Flow from Industrial Activities to the year measures are presented by management to aid investors ended December 31, 2019 would result in an immaterial in their analysis of the Group’s financial performance difference compared to the figures presented below. and to compare the Group’s financial performance with Note that IFRS 16 was applicable starting in 2019 and that of other companies. Free Cash Flow is defined as therefore did not apply to the year 2018. cash flows from operating activities less investments in property, plant and equipment (excluding right-of- The following table sets forth our Free Cash Flow and use assets recognized during the period in accordance Free Cash Flow from Industrial Activities for the years with IFRS 16 – Leases) and intangible assets. Free Cash ended December 31, 2020, 2019 and 2018. Flow from Industrial Activities is defined as Free Cash Flow adjusted to exclude the operating cash flow from For further information on Free Cash Flow and Free Cash our financial services activities (Free Cash Flow from Flow from Industrial Activities, see “Liquidity and Capital Financial Services Activities). In 2019, we defined Free Resources – Free Cash Flow and Free Cash Flow from Cash Flow and Free Cash Flow from Industrial Activities Industrial Activities” below. (€ million) Cash flows from operating activities Investments in property, plant and equipment and intangible assets Free Cash Flow Free Cash Flow from Financial Services Activities Free Cash Flow from Industrial Activities For the years ended December 31, 2020 838 (709) 129 (42) 171 2019 2018 1,306 934 (706) (639) 600 (75) 675 295 (80) 375 CONSTANT CURRENCY INFORMATION in local functional currency other than Euro, (ii) applying The “Results of Operations” discussion below includes the prior-period average foreign currency exchange information about our net revenues on a constant rates to current period revenues originated in a currency currency basis, which excludes the effects of foreign other than the functional currency of the applicable entity, currency translation from our subsidiaries with functional and (iii) eliminating the variances of any foreign currency currencies other than Euro, as well as the effects of hedging (see Note 2 “Significant Accounting Policies” to the foreign currency transaction impact and foreign currency Consolidated Financial Statements, included elsewhere hedging. We use this information to assess how the in this document, for information on the foreign currency underlying revenues changed independent of fluctuations exchange rates applied). Although we do not believe that in foreign currency exchange rates and hedging. We these measures are a substitute for GAAP measures, we calculate constant currency by (i) applying the prior-period do believe that revenues excluding the impact of currency average foreign currency exchange rates to translate fluctuations and the impact of hedging provide additional current period revenues of foreign subsidiaries expressed useful information to investors regarding the operating performance on a local currency basis. 112 / NON-GAAP FINANCIAL MEASURESAR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements SUBSEQUENT EVENTS AND 2021 OUTLOOK SUBSEQUENT EVENTS 2021 OUTLOOK Mr. Roberto Cingolani resigned from his role as non- The following 2021 outlook is subject to trading conditions executive Director and member of the Governance and unaffected by further COVID-19 pandemic restrictions Sustainability Committee of the Board of Directors with and assuming: effect from February 13, 2021, following his appointment as a Minister of the Italian Government. • Core business sustained by volume and mix On February 22, 2021 Ferrari and Richard Mille signed a multi-year partnership agreement, which will see the Haute Horlogerie brand become sponsor and licensee for the Prancing Horse. • Revenues from Formula 1 racing activities assuming announced calendar and reflecting lower 2020 ranking • Brand-related activities dealing with Covid-19 challenges • Operational and marketing costs gradually resuming On February 26, 2021, the Board of Directors of Ferrari Net revenues: ~Euro 4.3 billion N.V. recommended to the Company’s shareholders that Adj. EBITDA: Euro 1.45-1.50 billion (33.7%-34.9%) the Company declare a dividend of €0.867 per common Adj. EBIT: Euro 0.97-1.02 billion (22.6%-23.7%) share, totaling approximately €160 million. The proposal is Adj. Diluted EPS: Euro 4.00-4.20 per share(*) subject to the approval of the Company’s shareholders at Industrial Free Cash Flow: ~Euro 0.35 billion the Annual General Meeting to be held on April 15, 2021. (*) Calculated using the weighted average diluted number of common shares as of December 31, 2020 (185,379 thousand) 113 AR 2020 FERRARI N.V. MAJOR SHAREHOLDERS Exor is the largest shareholder of Ferrari through its holds 52.99 percent of its share capital, based on approximately 24.05 percent shareholding interest in our regulatory filings with the Netherlands Authority for outstanding common shares (as of February 15, 2021). the Financial Markets (stichting Autoriteit Financiële See “Overview – History of the Company.” As a result of Markten, the “AFM”). G.A. is a Dutch private company the loyalty voting mechanism, Exor’s voting power is with limited liability (besloten vennootschap met beperkte approximately 35.82 percent (as of February 15, 2021). aansprakelijkheid) with interests represented by shares, In addition, as of February 15, 2021, Mr. Piero Ferrari founded by Giovanni Agnelli and currently held by holds approximately 10.23 percent of our outstanding members of the Agnelli and Nasi families, descendants common shares and, as a result of the loyalty voting of Giovanni Agnelli, founder of Fiat. Its present principal mechanism, his voting power is approximately 15.23 business activity is to purchase, administer and dispose percent. The percentages of ownership and voting of equity interests in public and private entities and, in power above are calculated based on the number of particular, to ensure the cohesion and continuity of the outstanding shares net of treasury shares. administration of its controlling equity interests. The Exor and Mr. Piero Ferrari informed us that they have were John Elkann, Jeroen Preller, Florence Hinnen, entered into a shareholder agreement, summarized Tiberto Brandolini d’Adda, Alessandro Nasi, Andrea below under “–Shareholders’ Agreement”. Agnelli, Luca Ferrero de’ Gubernatis Ventimiglia and managing directors of G.A., as of February 15, 2021, Benedetto Della Chiesa. Exor resulted from a cross-border merger of its predecessor entity, Exor S.p.A. with and into Exor Based on the information in Ferrari’s shareholder N.V. As a result of that merger, which was completed register, regulatory filings with the AFM and the SEC and on December 11, 2016, all activities of Exor S.p.A. other sources available to us, the following shareholders are continued by Exor under universal succession, owned, directly or indirectly, in excess of three percent including with respect to the holding of our shares. of the common shares holding voting rights of Ferrari, Exor is controlled by Giovanni Agnelli B.V. (“G.A.”), which as of February 15, 2021: Shareholder Exor N.V. (2) Piero Ferrari (2) T. Rowe Price Associates, Inc (3) BlackRock, Inc. (4) Other public shareholders Number of common shares Percentage owned (1) 44,435,280 18,894,295 7,996,362 7,105,004 106,316,949 24.05 % 10.23 % 4.33 % 3.85 % 57.54 % (1) The percentages of share capital set out in this table are calculated as the ratio of (i) the aggregate number of outstanding common shares beneficially owned by the shareholder to (ii) the total number of outstanding common shares (net of treasury shares) of Ferrari. These percentages may slightly differ from the percentages of share capital included in the public register held by the AFM of all notifications made pursuant to the disclosure obligations under chapter 5.3 of the Dutch Act on financial supervision (Wet op het financieel toezicht; the “AFS”), inter alia, because any shares held in treasury by Ferrari are included in the relevant denominators for purposes of the AFS disclosure obligations. (2) Each of Exor and Piero Ferrari participate in the loyalty voting program of Ferrari. As of February 15, 2021 Exor owned 44,435,280 special voting shares and Mr. Ferrari owned 18,892,160 special voting shares. Therefore, as discussed above in this section, their voting power in Ferrari is higher than the percentage of common shares beneficially held as presented in this table. (3) Based on filings with the SEC (Amendment No. 1 to Schedule 13G filed on February 14, 2018, File No. 005-89223), T. Rowe Price Associates, Inc. is an investment adviser registered under Section 203 of the U.S. Investment Advisers Act of 1940. Based on subsequent filings with the SEC, out of the common shares beneficially owned as set forth in the table, T. Rowe Price associates, Inc. has sole voting power over 4,296,760 common shares. (4) Holdings as of February 11, 2021 based on latest filings with the AFM. Based on filings with the SEC (schedule 13G filed by BlackRock, Inc. on February 2, 2021, File No. 005-89223), BlackRock, Inc. is a parent holding company or control person in accordance with Rule 13d-1(b)(1)(ii)(G). 114 AR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements Based on the information in Ferrari’s shareholder binding, unconditional and irrevocable all cash offer for register and other sources available to us, as of February the purchase of such common shares. 15, 2021, approximately 59.7 million Ferrari common shares, or 30.8 percent of the outstanding Ferrari The foregoing will not apply in the case of transfers common shares, were held in the United States. As of of Ferrari common shares: (i) by any party to the the same date, approximately 1,948 record holders had Shareholders’ Agreement, to a party that qualifies as a registered addresses in the United States. “Loyalty Transferee” (as defined in the Ferrari Articles of Association) of such party, (ii) by Exor, to any affiliate of G.A., to a successor in business of G.A. and to any affiliate of a successor in business of G.A., and (iii) by SHAREHOLDERS’ AGREEMENT any party to the Shareholders’ Agreement that is an individual, to an entity wholly owned and controlled by On December 23, 2015, Exor and Piero Ferrari entered into that same party. In addition, the provisions regarding a Shareholders’ Agreement, which became effective at the pre-emption right in favor of Exor and right of first the completion of the Separation on January 3, 2016 (the offer of Piero Ferrari shall not apply in relation to, and “Shareholders’ Agreement”) and prior to the admission to Piero Ferrari shall be free and allowed to carry out, listing and trading of the common shares of Ferrari on the market sales to third parties of his Ferrari common MTA. Ferrari is not a party to the Shareholders’ Agreement shares which in the aggregate do not exceed, during and does not have any rights or obligations thereunder. the whole period of validity of the Shareholders’ Below is a summary of the principal provisions of the Agreement, 0.5 percent of the number of common Shareholders’ Agreement based on regulatory filings shares owned by Piero Ferrari upon completion of the made by Exor and Piero Ferrari. CONSULTATION Separation. TERM For the purposes of forming and exercising, to the extent The Shareholders’ Agreement entered into force possible, a common view on the items on the agenda of upon completion of the Separation on January 3, any General Meeting of shareholders of Ferrari, Exor and 2016 and provides that it shall remain in force until Piero Ferrari will consult with each other prior to each the fifth anniversary of the effective date of the General Meeting. For the purposes of this consultation Separation, provided that if neither of the parties to the right and duties, representatives of each of Exor and Piero Shareholders’ Agreement terminates the Shareholders’ Ferrari shall meet in order to discuss in good faith whether Agreement within six months before the end of the they have or can find a common view as to the matters on initial term, then the Shareholders’ Agreement shall be the agenda of the immediately following General Meeting. renewed automatically for another five year term. Since This consultation right does not include an obligation to neither of the parties to the Shareholders’ Agreement vote in any certain way nor does it constitute a veto right in terminated it within six months before January 3, favor of Piero Ferrari. 2021, the Shareholders’ Agreement was automatically renewed for another five year term and, therefore, until PRE-EMPTION RIGHT IN FAVOR OF EXOR AND RIGHT OF FIRST OFFER OF PIERO FERRARI January 3, 2026. In the event that Piero Ferrari intends to transfer (in whole The Shareholders’ Agreement shall terminate and or in part) his Ferrari common shares or receives a third cease to have any effect as a result of the transfer of party offer for the acquisition of all or part of his Ferrari all the common shares owned by either Exor or Piero common shares, Exor will have the right to purchase all Ferrari to a third party. (but not less than all) of the common shares Piero Ferrari intends to transfer on the terms of the original proposed GOVERNING LAW AND JURISDICTION transfer by Piero Ferrari or, in case the original proposed The Shareholders’ Agreement is governed by transfer was for no consideration, at market prices and must be interpreted according to the laws of determined pursuant to the Shareholders’ Agreement. the Netherlands. Any disputes arising out of or in connection with the Shareholders’ Agreement are In the event Exor intends to transfer (in whole or in part) subject to the exclusive jurisdiction of the competent its common shares to a third party, either solicited or court in Amsterdam, the Netherlands, without prejudice unsolicited, Piero Ferrari will have the right to make a to the right of appeal and appeal to the Supreme Court. 115 AR 2020 FERRARI N.V. CORPORATE GOVERNANCE INTRODUCTION BOARD OF DIRECTORS Ferrari is a public limited liability company, incorporated Pursuant to the Company’s articles of association (the under the laws of the Netherlands. The Company is “Articles of Association”), its board of directors (the the holding company of the Ferrari group following “Board of Directors”) may have three or more directors the separation of the Ferrari business from FCA, now (the “Directors”). At the annual general meeting of renamed Stellantis. In this section, the “Company” also shareholders held on April 16, 2020, the number of refers to Ferrari N.V. predecessor, formerly known the Directors was set at eleven and the current slate as New Business Netherlands N.V., as the context of Directors was appointed. The term of office of the may require. Such predecessor of Ferrari N.V. was current Directors will expire on the day the Company’s the holding company of the Ferrari group following 2021 annual general meeting of shareholders is held. completion of the restructuring intended to facilitate Each Director may be reappointed at any subsequent Ferrari’s IPO. When in this section reference is made annual general meeting of shareholders; the next annual to Ferrari N.V., it solely relates to the current Ferrari general meeting of shareholders is currently expected N.V. (previously known as FE New N.V.), which acquired to be held on 15, 2021. On December 10, 2020, Mr. Louis Ferrari N.V. predecessor under universal title through Camilleri communicated to the Company his decision, a merger under Dutch law. The Company qualifies for personal reasons, to retire with immediate effect as a foreign private issuer under the New York Stock from his role as the Company’s Chief Executive Officer Exchange (“NYSE”) listing standards and its common and as member of the Board of Directors. As a result, shares are listed on the NYSE and on the Mercato Mr. John Elkann, the Company’s Executive Chairman, Telematico Azionario managed by Borsa Italiana S.p.A. acts as interim Chief Executive Officer pursuant to his (“MTA”). appointment by the Board of Directors at the meeting of the Board of Directors held on December 15, 2020, In accordance with the NYSE rules, the Company while the Company’s Board of Directors manages the is permitted to follow its so called “home country ongoing process of identifying Mr. Camilleri’s successor. practice” with regard to certain corporate governance On February 16, 2021, the Company announced that Mr. standards. Therefore, the Company has adopted, Roberto Cingolani tendered his resignation from his role except as discussed below under “Compliance with as Company’s non-executive Director and member of the Dutch Corporate Governance Code”, the best practice Governance and Sustainability Committee of the Board provisions of the revised Dutch corporate governance of Directors effective as of February 13, 2021 when he code issued by the Corporate Governance Code was appointed Minister of the new Italian Government. As Monitoring Committee, which entered into force on a result, the Board of Directors is currently composed of January 1, 2018 (the “Dutch Corporate Governance nine Directors. Mrs. Delphine Arnault was appointed as a Code”) and is applicable as from financial year 2017. The member of the Governance and Sustainability Committee Dutch Corporate Governance Code contains principles on February 26, 2021, filling the vacancy left by the and best practice provisions that regulate relations inter resignation of Mr. Roberto Cingolani. alia between the board of directors of a company and its committees and the relationship with the general The Board of Directors as a whole is responsible for meeting of shareholders. the strategy of the Company. The Board of Directors is composed of one executive Director (i.e., Mr. John Elkann, In this report the Company addresses its overall Executive Chairman and interim Chief Executive Officer) corporate governance structure. The Company and nine non-executive Directors, who do not have day- discloses, and intends to disclose any material departure to-day responsibility within the Company or the Group. from the best practice provisions of the Dutch Pursuant to Article 17 of the Articles of Association, the Corporate Governance Code in this and in its future general authority to represent the Company shall be vested annual reports. in the Board of Directors and the Chief Executive Officer. 116 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The Board of Directors appointed the following internal Board of Directors and the day-to-day management committees: (i) an Audit Committee, (ii) a Governance of the Company, primarily to the extent it relates to the and Sustainability Committee, and (iii) a Compensation operational management. Committee. On certain key operational matters, the CEO is supported by the Senior Management Team (the Set forth below is the name, year of birth and position “SMT”), which is responsible for reviewing the operating of each of the persons currently serving as Directors performance of the businesses, collaborating on certain of Ferrari N.V. Unless otherwise indicated, the business operational matters, supporting the Chief Executive address of each person listed below will be c/o Ferrari, Officer with his tasks and executing decisions of the Via Abetone Inferiore n. 4, I-41053 Maranello (MO), Italy. Name John Elkann Piero Ferrari Sergio Duca Delphine Arnault Francesca Bellettini Eddy Cue John Galantic Maria Patrizia Grieco Adam Keswick Year of Birth Position 1976 Chairman, interim Chief Executive Officer and Executive Director 1945 1947 1975 1970 1964 1961 1952 1973 Vice Chairman and Non-Executive Director Senior Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Eight Directors currently qualify as independent The following members are independent within the (representing a majority) for purposes of NYSE rules meaning of the Dutch Corporate Governance Code and and Rule 10A-3 of the Securities Exchange Act of 1934, NYSE rules: as amended (the “Exchange Act”) and seven Directors qualify as independent (representing a majority) for • Delphine Arnault; purposes of the Dutch Corporate Governance Code. • Francesca Bellettini; • Eddy Cue; The non-executive Directors of the Company met to • Sergio Duca; discuss the functioning of the Board and its committees, • John Galantic; the functioning of the executive Directors as a corporate • Maria Patrizia Grieco; and body of the company, or the corporate strategy and the • Adam Keswick. main risks of the business, pursuant to best practice provisions 2.2.6, 2.2.7 and 1.1.2 of the Dutch Corporate In addition, Piero Ferrari is considered independent Governance Code. within the meaning of the NYSE rules. The Board of Directors has resolved to grant the Directors are expected to prepare themselves for and following titles: to attend all Board of Directors meetings, the annual general meeting of shareholders and the meetings of the • John Elkann: Chairman of the Company and interim committees on which they serve, with the understanding Chief Executive Officer; that, on occasion, a Director may be unable to attend a • Piero Ferrari: Vice-Chairman; and meeting. • Sergio Duca: Senior Non-Executive Director. The Board of Directors has also resolved to appoint meetings of the Board of Directors. The attendance rate Sergio Duca as chairman of the Board, as referred to in at these meetings was 97.73 percent. From January 1, 2020 to the year-end there were four the Dutch Civil Code, who will in such capacity have the title Chair (Voorzitter). 117 AR 2020 FERRARI N.V. / BOARD OF DIRECTORS The current composition of the Board of Directors is the audit committee of the board of directors of Tofaş Türk following: Otomobil Fabrikasi Anonim Şirketi. He also serves as member of the board of Nedcommunity association since John Elkann (Chairman of the Company, interim Chief May 2019 and Chairman of the board of auditors of the Executive Officer and Executive Director) – Mr. John Fondazione per la Scuola of Compagnia di San Paolo and Elkann is Chairman and Chief Executive Officer of Exor and ISPI (Institute for the Study of International Politics), as well Chairman of Stellantis N.V. Mr. Elkann obtained a scientific as a member of the board of auditors of the Intesa San baccalaureate from the Lycée Victor Duruy in Paris and Paolo Foundation Onlus. Mr. Duca has previously served graduated in Engineering from Politecnico, the Engineering as Chairman of the Board of Statutory Auditors of Enel University of Turin. While at university, he gained work S.p.A. from April 2010 until May 2019, Chairman of the experience in various companies of the Fiat Group in the UK Board of Directors of Orizzonte SGR S.p.A. from 2008 and Poland (manufacturing) as well as in France (sales and until 2016, Chairman of the Board of Statutory Auditors marketing). He started his professional career in 2001 at of Exor S.p.A. until May 2015, Chairman of the Board of General Electric as a member of the Corporate Audit Staff, Statutory Auditors and effective auditor of GTech until April with assignments in Asia, the USA and Europe. John Elkann 2015, member of the Board of ASTM S.p.A. and Chairman is Chairman of Giovanni Agnelli B.V. He is Chairman of GEDI of the Audit Committee of ASTM S.p.A. from 2010 until Gruppo Editoriale S.p.A. and board member of PartnerRe 2013, Chairman of the Board of Statutory Auditors of Ltd. Mr. Elkann is a trustee of MoMA. He also serves as Tosetti Value SIM and an independent director of Sella Chairman of the Giovanni Agnelli Foundation. Gestione SGR until April 2010. From 1997 until July 2007, Mr. Duca was the Chairman of PricewaterhouseCoopers Born in 1976, Italian citizenship. S.p.A. In addition, he has previously served as Chairman of the board of auditors of the Silvio Tronchetti Provera Piero Ferrari (Vice Chairman and non-executive Director) Foundation, Chairman of the board of auditors of – Mr. Piero Ferrari has been Vice Chairman of Ferrari S.p.A. Compagnia di San Paolo until May 2016, member of the since 1988. He also serves as Chairman of HPE-COXA, is Edison Foundation’s advisory board and the University board member and Vice President of Ferretti Group and a Bocconi in Milan’s development committee, as well as board member and Vice President of CRN Ancona (Ferretti Chairman of the Bocconi’s Alumni Association’s board of Group). He was President of Piaggio Aero Industries S.p.A. auditors and a member of the board of auditors of the from 1998 to 2014 and served as Chairman of the Italian ANDAF (Italian Association of Chief Financial Officers). As Motor Sport Commission (CSAI) from 1998 to 2001 and BA a certified chartered accountant and auditor, he acquired SERVICE from 2000 to 2015. He was also a board member broad experience through the PricewaterhouseCoopers and Vice President of Banca Popolare dell’Emilia Romagna network as the external auditor of a number of significant in Modena from 2002 to 2011 and from 2011 to 2014 Italian listed companies. Mr. Duca graduated with honors in respectively. The son of Ferrari’s founder Enzo Ferrari, Mr. Economics and Business from University Bocconi in Milan. Piero Ferrari covered a variety of management positions in the motor sport division of Ferrari from 1970 to 1988 with Born in 1947, Italian citizenship. increasing responsibilities. His first position with Ferrari dates back to 1965 working on the production of the Dino Delphine Arnault (non-executive Director) – Mrs. 206 Competizione racing car. Mr. Piero Ferrari received Delphine Arnault graduated from the EDHEC Business an honorary degree in Aerospace Engineering from the School and the London School of Economics. She University of Naples Federico II in 2004 and an Honorary began her career at McKinsey & Company, the global Degree in Mechanical Engineering from the University of management consultancy firm, where she was a Modena and Reggio Emilia in 2005. In 2004, Mr. Piero Ferrari Consultant for two years. In 2001, she joined the Executive was awarded the title of Cavaliere del Lavoro. Committee of Christian Dior Couture where she directed several product lines. She was appointed Deputy Born in 1945, Italian citizenship. General Manager of Christian Dior Couture in 2008 and in September 2013 Deputy General Manager of Louis Sergio Duca (Chairman of the Board of Directors and Vuitton Malletier. She has been a board director of LVMH Senior Non-Executive Director) – Mr. Sergio Duca is a Moët Hennessy Louis Vuitton SE since 2003. Delphine was member of the Statutory Auditors of BasicNet S.p.A. since appointed to the board of Château Cheval Blanc, the Saint- 2017, independent director of OSAI Automation System Emilion premier grand cru classé in 2008. In 2002 she S.p.A. since November 2020 and a director of Tofaş Türk joined the board of Loewe, the celebrated Spanish leather Otomobil Fabrikasi Anonim Şirketi, as well as Chairperson goods company, and was appointed to Pucci’s board of of the corporate governance committee, member of directors in 2007. She was appointed to the boards of the risk management committee and member of the Céline in December 2011 and Christian Dior SE in April 118 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements 2012. Delphine Arnault previously served as a director of and Gamble and worked in various Marketing and Sales both Havas and 21st Century Fox from 2013 to 2019. roles in Italy, the UK and US. After stints at GlaxoSmithKline Born in 1975, French citizenship. Americas, he joined Chanel in 2006. He joined the board of Chanel in 2018. Galantic has also been on the board of Francesca Bellettini (non-executive Director) – Mrs. Bacardi Limited since 2011. Since 2017, he has been on the Francesca Bellettini is President and Chief Executive Officer board of the Chanel Fondation, a philanthropic organization in global Marketing and at Coty Beauty, as President of Coty of Yves Saint Laurent (part of the Kering Group), based in focused on women and girls. France, since September 2013. Mrs. Bellettini is a member of the Kering Group Executive Committee and a non-voting Born in 1961, American citizenship. member of Kering’s Board of Directors, France, since 2013. She is President of the Chambre Syndicale de la Mode Maria Patrizia Grieco (non-executive Director) – Mrs. Maria Feminine in Paris since 2019. Mrs. Bellettini joined the Kering Patrizia Grieco has been the Chairperson of the board of Group in 2003, serving in several executive roles. From directors of Banca Monte dei Paschi di Siena since May 2003 until 2008 she worked at Gucci, Italy, first as Assistant 2020, after having gained experience in the financial sector to the President and Managing Director and, from 2005, during the six years spent on the board of directors of as Strategic Planning Director and Associate Worldwide Anima Holding. From May 2014 to May 2020 she was the Merchandising Director. In 2008, she joined Bottega Veneta, Chairperson of the board of directors of Enel, the Italian Italy, as Worldwide Merchandising Director and from 2010 company with the highest market cap, world leader in she became Worldwide Merchandising-Communication the utilities sector and controlling shareholder of 15 listed Director based in Switzerland. From 1999 until 2002, companies worldwide. After graduating in law from the Mrs. Bellettini worked in the Prada Group, Italy, first in University of Milan, she started her career in 1977 at Italtel, the Planning and New Business Development Division of where in 1994 she became chief of the Legal and General Prada and, in 2002, as Operations Manager of Helmut Lang. Affairs directorate. In 1999, she was appointed General Previously, she worked in Compass Partners International, Manager with the task of reorganizing and repositioning UK from 1998 to 1999, in Deutsche Morgan Grenfell, UK the company, and in 2002 she became Chief Executive from 1996 to 1998 and in Goldman Sachs International, Officer. Subsequently, she held the positions of Chief UK from 1994 to 1996. While graduating, she interned at Executive Officer of Siemens Informatica, Partner of Value Citibank, Italy in 1994. Mrs. Bellettini graduated in Business Partners and Chief Executive Officer of the Group Value Administration with a major in Finance from Bocconi Team (today NTT Data). From 2008 to 2013 she was Chief University, Italy. Executive Officer of Olivetti, where she also held the role of Chairperson from 2011. She has been a member of the Born in 1970, Italian citizenship. boards of directors of Fiat Industrial and CIR and currently serves on the boards of Ferrari, Amplifon and Endesa Eddy Cue (non-executive Director) – Mr. Eddy Cue S.A. Mrs. Grieco is also Deputy Chair and a member of the currently serves as Apple Inc.’s Senior Vice President of steering committee of Assonime and is a member of the Internet Software and Services. He joined Apple in 1989 and board of directors of Bocconi University. Maria Patrizia oversees Apple’s industry-leading content stores including Grieco was appointed Chairperson of the Italian Corporate the iTunes Store, the App Store and the iBooks Store, as Governance Committee in 2017. The Committee’s purpose is well as Apple Pay, Siri, Maps, iAd, the iCloud services, and to promote good corporate governance practices of Italian Apple’s productivity and creativity apps. Mr. Cue earned a listed companies. bachelor’s degree in Computer Science and Economics from Duke University. He was recognized by renowned Born in 1952, Italian citizenship. cancer research center City of Hope with their 2014 Spirit of Life Award, honoring an individual whose work has Adam Keswick (non-executive Director) – Mr. Adam fundamentally impacted the music, film and entertainment Keswick first joined the Jardine Matheson Group in 2001 and industry. was appointed to the Board of Jardine Matheson in 2007. He was Deputy Managing Director of Jardine Matheson from Born in 1964, American citizenship. 2012 to 2016, and became chairman of Matheson & Co. in 2016. Mr. Keswick is a director of Dairy Farm, Hongkong John Galantic (non-executive Director) – John Galantic Land, Jardine Strategic and Mandarin Oriental. He is also is President and Chief Operating Officer of Chanel Inc. Vice-Chairman of the Supervisory Board of Rothschild & Co. Galantic obtained a Bachelor’s degree from Tufts University and is a Director of Yabuli China Entrepreneurs Forum. and Master’s degree in Business Administration from Harvard Business School. He began his career at Procter Born in 1973, British citizenship. 119 AR 2020 FERRARI N.V. BOARD REGULATIONS The current regulations of the Board of Directors deal auditors, (xii) risk management guidelines and policies, with matters that concern the Board of Directors and its and (xiii) the implementation and effectiveness of the committees internally. Company’s ethics and compliance program. the Company’s internal auditors and of the independent The regulations contain provisions concerning the The Audit Committee currently consists of Mr. Duca manner in which meetings of the Board of Directors are (Chairperson), Mrs. Bellettini and Mrs. Grieco, each of called and held, including the decision-making process. whom is independent within the meaning of the Dutch The regulations provide that meetings may be held by Corporate Governance Code. The Audit Committee is telephone conference or video-conference, provided elected by the Board of Directors and is comprised of that all participating Directors can follow the proceedings at least three non-executive Directors. Audit Committee and participate in real time discussion of the items on the members are also required (i) not to have any material agenda. relationship with the Company or to serve as auditors or accountants for the Company, (ii) to be “independent”, for The Board of Directors can only adopt valid resolutions purposes of NYSE rules, Rule 10A-3 of the Exchange Act when the majority of the Directors in office shall be present and the Dutch Corporate Governance Code, and (iii) to at the meeting or be represented thereat. be “financially literate” and have “accounting or selected financial management expertise” (as determined by the A Director may only be represented by another Director Board of Directors). At least one member of the Audit authorized in writing. A Director may not act as a proxy for Committee shall be a “financial expert” as defined by the more than one other Director. Sarbanes-Oxley Act and the rules of the U.S. Securities All resolutions shall be adopted by the favorable vote of Decree on the Establishment of an audit committee. No the majority of the Directors present or represented at the Audit Committee member may serve on more than four meeting, provided that the regulations may contain specific audit committees for other public companies, absent provisions in this respect. Each Director shall have one vote. a waiver from the Board of Directors, which must be and Exchange Commission and section 2(3) of the Dutch The Board of Directors shall be authorized to adopt otherwise by the Audit Committee, the independent resolutions without convening a meeting if all Directors auditors of the Company, the Chief Financial Officer and the shall have expressed their opinions in writing, unless one or Head of Internal Audit are required to attend its meetings, more Directors shall object in writing against the resolution while the Chief Executive Officer is free, but not required, being adopted in this way prior to the adoption of the to attend the meetings of the Audit Committee, unless the disclosed in the Company’s annual report. Unless decided resolution. THE AUDIT COMMITTEE Audit Committee determines otherwise, and shall attend the meetings of the Audit Committee if the Audit Committee so requires. The Audit Committee shall meet with the independent auditor at least once per year outside the presence of the executive Directors and management. The Audit Committee is responsible, inter alia, for assisting and advising the Board of Directors, and acting under In 2020 the Audit Committee met nine times and the average authority delegated by the Board of Directors, with respect attendance rate was 100 percent. At these meetings several to: (i) the integrity of the Company’s financial statements, matters were discussed, including the audit committee role (ii) the Company’s policy on tax planning, (iii) the Company’s and responsibilities, the Company’s financial control and risk financing, (iv) the Company’s application of information framework, risk assessment, internal control over financial and communication technology, (v) the systems of internal reporting pursuant to the applicable rules, and a financial controls that management and the Board of Directors overview of operating results. have established, (vi) the Company’s compliance with legal and regulatory requirements, (vii) the Company’s compliance with recommendations and observations THE COMPENSATION COMMITTEE of internal and independent auditors, (viii) the Company’s policies and procedures for addressing certain actual or The Compensation Committee is responsible for, perceived conflicts of interest, (ix) the review and approval among other things, assisting and advising the Board of related party transactions, (x) the independent auditors’ of Directors, and acting under authority delegated by qualifications, independence, remuneration and any non- the Board of Directors ,with respect to: (i) determining audit services for the Company, (xi) the functioning of executive compensation consistent with the Company’s 120 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements remuneration policy, (ii) reviewing and approving the The Governance and Sustainability Committee consists remuneration structure for the executive Directors, of Mr. Elkann (Chairperson), Mrs. Arnault and Mr. Cue. (iii) administering equity incentive plans and deferred The Governance and Sustainability Committee is elected compensation benefit plans, (iv) discussing with by the Board of Directors and is comprised of at least management the Company’s policies and practices three Directors. More than half of the members shall be related to compensation and issuing recommendations independent under the Dutch Corporate Governance Code, thereon, and (v) to prepare the remuneration report. and at most one of the members may be an executive Director. Mrs. Delphine Arnault was appointed as a member The Compensation Committee currently consists of of the Governance and Sustainability Committee on Mr. Galantic (Chairperson), Mr. Cue and Mr. Ferrari. The February 26, 2021, filling the vacancy left by Mr. Roberto Compensation Committee is elected by the Board of Cingolani, who resigned from his role as non-executive Directors and is comprised of at least three non-executive Director and member of the Governance and Sustainability Directors, at most one of whom may not be independent Committee with effect from February 13, 2021. under Dutch Corporate Governance Code. Unless decided otherwise by the Compensation Committee, the Head of In 2020 the Governance and Sustainability Committee Human Resources of the Company attends its meetings. met twice with 100 percent attendance of its members In 2020 the Compensation Committee met once with 100 Directors’ and Committee’s assessments, the Sustainability percent attendance of its members at such meeting. The achievement and objectives, and the recommendations for at such meeting. The Committee reviewed the Board of Compensation Committee reviewed the remuneration Directors’ election. report and the implementation of the Remuneration Policy. The amended Shareholders’ Rights Directive (2017/828/ In addition, as described above, the charters of the Audit EU) has been incorporated in Dutch law effective per Committee, Compensation Committee and Governance December 1, 2019. The Compensation Committee and Sustainability Committee set forth independence considered the impact thereof on the Company’s requirements for their members for purposes of the Dutch Remuneration Policy and the Company’s Remuneration Corporate Governance Code. Audit Committee members Report. On the basis of this assessment, the Compensation are also required to qualify as independent for purposes of Committee proposed to the Board of Directors to amend NYSE rules and Rule 10A-3 of the Exchange Act. the Remuneration Policy in 2020. Further information on the activities of the Compensation Committee are included in the remuneration report. INDEMNIFICATION OF DIRECTORS THE GOVERNANCE AND SUSTAINABILITY COMMITTEE Under Dutch law, indemnification provisions may be included in a company’s articles of association. Under the Articles of Association, the Company is required to indemnify any and all of its Directors, officers, former The Governance and Sustainability Committee is Directors, former officers and any person who may have responsible for, among other things, assisting and advising served at its request as a director or officer of another the Board of Directors, and acting under authority company in which it owns shares or of which it is a delegated by the Board of Directors, with respect to: (i) creditor, who were or are made a party or are threatened the identification of the criteria, professional and personal to be made a party to or are involved in, any threatened, qualifications for candidates to serve as Directors, (ii) pending or completed action, suit or proceeding, whether periodic assessment of the size and composition of civil, criminal, administrative, arbitrative or investigative the Board of Directors, (iii) periodic assessment of the (each a “Proceeding”), or any appeal in such a Proceeding functioning of individual Directors and reporting on this or any inquiry or investigation that could lead to such to the Board of Directors, (iv) proposals for appointment a Proceeding, against any and all liabilities, damages, of executive and non-executive Directors, (v) supervision reasonable and documented expenses (including of the selection criteria and appointment procedure for reasonably incurred and substantiated attorneys’ fees), senior management, (vi) monitoring and evaluating reports financial effects of judgments, fines, penalties (including on the Group’s sustainable development policies and excise and similar taxes and punitive damages) and practices, management standards, strategy, performance amounts paid in settlement in connection with such and governance globally, and (vii) reviewing, assessing Proceeding by any of them. Such indemnification shall not and making recommendations as to strategic guidelines be deemed exclusive of any other rights to which those for sustainability-related issues, and reviewing the annual indemnified may be entitled otherwise. Notwithstanding Sustainability Report. the above, no indemnification shall be made in respect of 121 AR 2020 FERRARI N.V. / INDEMNIFICATION OF DIRECTORS any claim, issue or matter as to which any of the above- Based on each Director’s assessment described above, mentioned indemnified persons shall be adjudged to be the Board of Directors shall make a determination at liable for gross negligence or willful misconduct in the least annually regarding such Director’s independence performance of such person’s duty to Ferrari. Ferrari and such Director’s Related-Party Conflict. These has purchased directors’ and officers’ liability insurance annual determinations shall be conclusive, absent a for the members of the Board of Directors and certain change in circumstances from those disclosed to the other officers, substantially in line with that purchased by Board of Directors, that necessitates a change in such similarly situated companies. determination. CONFLICT OF INTEREST Mr. Elkann is Chief Executive Officer of Exor, our and Stellantis’s largest shareholder, and an executive director of Stellantis. Stellantis, Exor and a number of companies A Director shall not participate in discussions and in the Stellantis and Exor groups are related parties decision making of the Board of Directors with respect to Ferrari. See “Risk Factors – We may have potential to a matter in relation to which he or she has a direct conflicts of interest with Stellantis and Exor and its related or indirect personal interest that is in conflict with the companies” and Note 29 “Related Party Transactions” to interests of the Company and the business associated our Consolidated Financial Statements. Finally, Mr. Ferrari with the Company (“Conflict of Interest”), which shall controls COXA S.p.A, from which Ferrari purchases be determined outside the presence of the director components for Formula 1 racing cars, and HPE S.r.l., concerned. All transactions, where there is a Conflict of which provides consultancy engineering services Interest, must be concluded on terms that are customary to Ferrari, see Note 29 to our Consolidated Financial in the branch concerned and approved by the Board Statements. of Directors. In addition, the Board of Directors as a whole may, on an ad hoc basis, resolve that there is such a strong appearance of a Conflict of Interest of an LOYALTY VOTING STRUCTURE individual Director in relation to a specific matter, that it is deemed in the best interest of a proper decision making In connection with the separation from Fiat Chrysler process that such individual Director be excused from Automobiles N.V., Ferrari issued special voting shares participation in the decision making process with respect with a nominal value of one Euro cent (€0.01) per share to such matter even though such Director may not have to FCA, Piero Ferrari and FCA shareholders holding FCA an actual Conflict of Interest. special voting shares prior to the separation including Exor, in addition to Ferrari common shares. At least annually, each Director shall assess in good faith whether (i) he or she is independent under (A) As of February 15, 2021, Exor held approximately best practice provision 2.1.8 of the Dutch Corporate 24.05 percent of our outstanding common shares and Governance Code, (B) the requirements of Rule 10A-3 approximately 35.82 percent of the voting power in under the Exchange Act, and (C) Section 303A of the NYSE us, Piero Ferrari held approximately 10.23 percent of Listed Company Manual; and (ii) he or she would have a our outstanding common shares and approximately Conflict of Interest in connection with any transactions 15.23 percent of the voting power in us and public between the Company and a significant shareholder or shareholders hold approximately 48.95 percent of related party of the Company, including affiliates of a the voting power in us. The percentages of voting significant shareholder (such conflict, a “Related-Party power above are calculated based on the number of Conflict”), it being understood that currently Exor N.V. outstanding shares net of treasury shares. (“Exor”) would be considered a significant shareholder. Subject to meeting certain conditions, our common The Directors shall inform the Board of Directors through shares can be registered in our loyalty register (the the Senior Non-executive Director or the Secretary of “Loyalty Register”) and all such common shares may the Board of Directors as to all material information qualify as qualifying common shares (“Qualifying regarding any circumstances or relationships that Common Shares”). The holder of Qualifying Common may impact their characterization as “independent,” or Shares is entitled to receive without consideration one impact the assessment of their interests, including by special voting share in respect of each such Qualifying responding promptly to the annual D&O questionnaires Common Share. Pursuant to the Terms and Conditions of circulated by or on behalf of the Secretary that are the Special Voting Shares (“Terms and Conditions”), and designed to elicit relevant information regarding for so long as the Ferrari common shares remain in the business and other relationships. Loyalty Register, such Ferrari common shares shall not 122 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements be sold, disposed of, transferred, except in very limited Section 10 of the Terms and Conditions include liquidated circumstances (i.e., transfers to affiliates or to relatives damages provisions intended to deter any attempt by through succession, donation or other transfers (defined holders to circumvent the terms of the special voting in the Terms and Conditions as “Loyalty Transferee”)), but shares. Such liquidated damages provisions may be a shareholder may create or permit to exist any pledge, enforced by Ferrari by means of a legal action brought lien, fixed or floating charge or other encumbrance over by Ferrari before competent courts of Amsterdam, the such Ferrari common shares, provided that the voting Netherlands. In particular, a violation of the provisions rights in respect of such Ferrari common shares and of the Terms and Conditions concerning the transfer of any corresponding special voting shares remain with special voting shares, Electing Common Shares (common such shareholder at all times. Ferrari’s shareholders shares registered in the Loyalty Register for the purpose of who want to directly or indirectly sell, dispose of, trade becoming Qualifying Common Shares in accordance with or transfer such Ferrari common shares or otherwise the Ferrari Articles of Association) and Qualifying Common grant any right or interest therein, or create or permit Shares may lead to the imposition of liquidated damages. to exist any pledge, lien, fixed or floating charge or other Because we expect the restrictions on transfers of the encumbrance over such Ferrari common shares with special voting shares to be effective in practice we do not a potential transfer of voting rights relating to such expect the liquidated damages provisions to be used. encumbrances will need to submit a de-registration request as referred to in the Terms and Conditions, Pursuant to Section 12 of the Terms and Conditions, any in order to transfer the relevant Ferrari common amendment to the Terms and Conditions (other than shares to the regular trading system (the “Regular merely technical, non-material amendments and unless Trading System”) except that a Ferrari shareholder may such amendment is required to ensure compliance with transfer Ferrari common shares included in the Loyalty applicable law or regulations or the listing rules of any Register to a Loyalty Transferee (as defined in the Terms securities exchange on which the Ferrari common shares and Conditions) of such Ferrari shareholder without are listed) may only be made with the approval of the transferring such shares from the Loyalty Register to the general meeting of shareholders of Ferrari. Regular Trading System. At any time, a holder of Qualifying Common Shares or Ferrari’s shareholders who seek to qualify to receive Electing Common Shares may request the de-registration special voting shares can also request to have their of such shares from the Loyalty Register to enable free Ferrari common shares registered in the Loyalty trading thereof in the Regular Trading System. Upon the Register. Upon registration in the Loyalty Register such de-registration from the Loyalty Register, such shares shares will be eligible to be treated as Qualifying Common will cease to be Electing Common Shares or Qualifying Shares, provided they meet the conditions. Common Shares as the case may be and will be freely tradable and voting rights attached to the corresponding Notwithstanding the fact that Article 13 of the Ferrari special voting shares will be suspended with immediate Articles of Association permits the Board of Directors effect and such special voting shares shall be transferred of Ferrari to approve transfers of special voting shares, to Ferrari for no consideration (om niet). the special voting shares cannot be traded and are transferable only in very limited circumstances (i.e., to a A shareholder who is a holder of Qualifying Common Loyalty Transferee described above, or to Ferrari for no Shares or Electing Common Shares must promptly notify consideration (om niet)). the Agent and Ferrari upon the occurrence of a “change of control” as defined in the Ferrari Articles of Association, Pursuant to Article 23 of the Ferrari Articles of as described below. The change of control will trigger the Association, Ferrari shall maintain a special capital de-registration of the relevant Electing Common Shares reserve to be credited against the share premium or Qualifying Common Shares or the relevant Ferrari exclusively for the purpose of facilitating any issuance or common shares in the Loyalty Register. The voting rights cancellation of special voting shares. The special voting attached to the special voting shares issued and allocated shares shall be issued and paid up against this special in respect of the relevant Qualified Common Shares will be capital reserve. suspended upon a direct or indirect change of control in respect of the relevant holder of such Qualifying Common The special voting shares have immaterial economic Shares that are registered in the Loyalty Register. entitlements. Such economic entitlements are designed to comply with Dutch law but are immaterial for investors. For the purposes of this section a “change of control” shall The special voting shares carry the same voting rights as mean, in respect of any Ferrari shareholder that is not an Ferrari common shares. individual (natuurlijk persoon), any direct or indirect transfer 123 AR 2020 FERRARI N.V. / LOYALTY VOTING STRUCTURE in one or a series of related transactions as a result of which (i) a majority of the voting rights of such shareholder, (ii) the de facto ability to direct the casting of a majority of the votes exercisable at general meetings of shareholders of such shareholder and/or (iii) the ability to appoint or remove DISCLOSURES PURSUANT TO DECREE ARTICLE 10 EU-DIRECTIVE ON TAKEOVERS a majority of the directors, executive directors or board In accordance with the Dutch Besluit artikel 10 members or executive officers of such shareholder or overnamerichtlijn (the “Decree”), the Company makes the to direct the casting of a majority or more of the voting following disclosures: rights at meetings of the board of directors, governing body or executive committee of such shareholder has a. For information on the capital structure of the been transferred to a new owner, provided that no change Company, the composition of the issued share capital of control shall be deemed to have occurred if (a) the and the existence of the two classes of shares, please transfer of ownership and/or control is an intra-group refer to Note 14 to the Company Financial Statements transfer under the same parent company, (b) the transfer of in this Annual Report. For information on the rights ownership and /or control is the result of the succession or attached to the common shares, please refer to the the liquidation of assets between spouses or the inheritance, Articles of Association which can be found on the inter vivos donation or other transfer to a spouse or a Company’s website. To summarize, the rights attached relative up to and including the fourth degree or (c) the fair to common shares comprise pre-emptive rights market value of the Qualifying Common Shares held by upon issuance of common shares, the entitlement to such shareholder represents less than twenty percent (20 attend to the general meeting of Shareholders and to percent) of the total assets of the Transferred Group at the speak and vote at that meeting and the entitlement to time of the transfer and the Qualifying Common Shares held distributions of such amount of the Company’s profit as by such shareholder, in the sole judgment of the Company, remains after allocation to reserves. For information on are not otherwise material to the Transferred Group or the the rights attached to the special voting shares, please change of control transaction. “Transferred Group” shall refer to the Articles of Association and the Terms and mean the relevant shareholder together with its affiliates, if Conditions for the Special Voting Shares which can any, over which control was transferred as part of the same both be found on the Company’s website and more in change of control transaction within the meaning of the particular to the paragraph “Loyalty Voting Structure” definition of change of control. of this Annual Report in the chapter “Corporate Governance”. As at December 31, 2020, the issued If Ferrari is dissolved and liquidated, whatever remains of share capital of the Company consisted of 193,923,499 Ferrari’s equity after all its debts have been discharged common shares, representing approximately 75.38 shall first be applied to distribute the aggregate balance percent of the aggregate issued share capital, and of share premium reserves and other reserves (other 63,349,112 special voting shares, representing than the special dividend reserve), to holders of Ferrari approximately 24.62 percent of the aggregate issued common shares in proportion to the aggregate nominal share capital. value of the Ferrari common shares held by each holder; b. The Company has imposed no limitations on the secondly, from any balance remaining, an amount equal transfer of common shares. The Articles of Association to the aggregate amount of the nominal value of the provide in Article 13 for transfer restrictions for special Ferrari common shares will be distributed to the holders voting shares. of Ferrari common shares in proportion to the aggregate c. For information on participations in the Company’s nominal value of Ferrari common shares held by each capital in respect of which pursuant to Sections of them; thirdly, from any balance remaining, an amount 5:34, 5:35 and 5:43 of the Dutch Financial Supervision equal to the aggregate amount of the special voting Act (Wet op het financieel toezicht) notification shares dividend reserve will be distributed to the holders requirements apply, please refer to the chapter “Major of special voting shares in proportion to the aggregate Shareholders” of this Annual Report. There you will find nominal value of the special voting shares held by each of a list of Shareholders who are known to the Company to them; fourthly, from any balance remaining, the aggregate have holdings of 3 percent or more at the stated date. amount of the nominal value of the special voting shares d. No special control rights or other rights accrue to will be distributed to the holders of special voting shares shares in the capital of the Company. in proportion to the aggregate nominal value of the special e. A mechanism for verifying compliance with a scheme voting shares held by each of them; and, lastly, any balance allowing employees to subscribe for or to acquire remaining will be distributed to the holders of Ferrari shares in the capital of the company or a subsidiary common shares in proportion to the aggregate nominal if the employees do not arrange for such verification value of Ferrari common shares held by each of them. directly is not applicable to the Company. 124 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements f. No restrictions apply to voting rights attached to shares authorized body to limit or exclude the rights of pre- in the capital of the Company, nor are there any deadlines emption of shareholders in connection with the authority for exercising voting rights. The Articles of Association of the Board of Directors to issue common shares and allow the Company to cooperate in the issuance of grant rights to subscribe for common shares as referred registered depositary receipts for common shares, but to above. Pursuant to the resolution of the Annual General only pursuant to a resolution to that effect of the Board of Meeting held on April 16, 2020, the Board of Directors Directors. The Company is not aware of any depository has been authorized to issue shares in the capital of the receipts having been issued for shares in its capital. Company and to grant rights to subscribe for shares in g. The Company is not aware of the existence of any the capital of the Company. This authorization is limited in agreements with Shareholders which may result in respect of common shares to (i) 10 percent of the issued restrictions on the transfer of shares or limitation of common shares for general corporate purposes as of voting rights except for the shareholders’ agreement, the date of the 2020 Annual General Meeting (i.e. April 16, dated December 23, 2015 between Exor (formerly Exor 2020), which can be used for any and all purposes, plus S.p.A.) and Piero Ferrari, which became effective upon (ii) an additional 10 percent of the issued common shares the completion of the Separation on January 3, 2016 as of such date if the issuance occurs on the occasion (the “Shareholders’ Agreement”). The Shareholders’ of the acquisition of an enterprise or a corporation, or, if Agreement includes certain preemption rights of such issuance and/or the granting of rights to subscribe Exor in the event of a proposed transfer of common for common shares is otherwise necessary in the shares by Piero Ferrari, and certain rights of first offer opinion of the Board of Directors. This authorization is of Piero Ferrari in the event of a proposed transfer of limited in respect of special voting shares to a maximum common shares by Exor, in each case subject to the aggregate amount of special voting shares as provided exceptions set forth in the Shareholders’ Agreement. for in the Company’s authorized share capital as set out in The Shareholders’ Agreement will remain in force the Company’s Articles of Association. The authorization until the fifth anniversary of the Separation provided has been granted for a period starting from the date that if neither of the parties to the Shareholders’ on which the prior authorization expires and therefore Agreement terminates the Shareholders’ Agreement from January 2, 2021 up to and including October 15, within six months before the end of the initial term, 2021. The Board of Directors has also been designated then the Shareholders’ Agreement shall be renewed for the same period as the authorized body to limit or automatically for another five year term. exclude the rights of pre-emption of shareholders in h. The rules governing the appointment and dismissal of connection with the authority of the Board of Directors members of the Board of Directors are stated in the to issue common shares and grant rights to subscribe Articles of Association of the Company. All members for common shares as referred to above. In the event of the Board of Directors are appointed by the general of an issuance of special voting shares, shareholders meeting of Shareholders. The term of office of all have no right of pre-emption. The Company has the members of the Board of Directors is for a period of authority to acquire fully paid-up shares in its own share approximately one year after appointment, such period capital, provided that such acquisition is made for no expiring on the day the first Annual General Meeting consideration. Further rules governing the acquisition of of Shareholders is held in the following calendar shares by the Company in its own share capital are set year. The general meeting of Shareholders has the out in article 8 of the Articles of Association. power to suspend or dismiss any member of the j. The Company is not a party to any significant Board of Directors at any time. The rules governing an agreements which will take effect, will be altered or amendment of the Articles of Association are stated in will be terminated upon a change of control of the the Articles of Association and require a resolution of Company as a result of a public offer within the meaning the general meeting of Shareholders which can only of Section 5:70 of the Dutch Financial Supervision Act be passed pursuant to a prior proposal of the Board of (Wet op het financieel toezicht), provided that certain Directors. of the loan agreements entered into by the Company i. The general powers of the Board of Directors are stated contain clauses that, as is customary for financing in the Articles of Association of the Company. For a agreements of similar type, may require early repayment period of five (5) years from January 2, 2016, the Board or termination in the event of a change of control of the of Directors has been irrevocably authorized to issue Company. shares up to the maximum aggregate amount of shares k. The Company did not enter into any agreement with a as provided for in the Company’s authorized share capital director or employee of the Company providing for a as set out in Article 4.1 of the Articles of Association, payment / distribution upon termination of employment as amended from time to time. The Board of Directors as a result of a public offer within the meaning of article has also been designated for the same period as the 5:70 of the Dutch Financial Supervision Act. 125 AR 2020 FERRARI N.V. GENERAL MEETING OF SHAREHOLDERS Convocations of general meetings of shareholders may be sent to Shareholders through the use of an electronic means of communication to the address provided by At least one general meeting of shareholders shall be such Shareholders to the Company for this purpose. held every year, which meeting shall be held within six months after the close of the financial year. The notice shall state the place, date and hour of the meeting and the agenda of the meeting as well as the Furthermore, general meetings of shareholders shall other data required by law. be held in the case referred to in Section 2:108a of the Dutch Civil Code as often as the Board of Directors, An item proposed in writing by such number of the Chairman or the Chief Executive Officer deems it Shareholders who, by Dutch law, are entitled to make necessary to hold them or as otherwise required by such proposal, shall be included in the notice or shall be Dutch law, without prejudice to what has been provided announced in a manner similar to the announcement of in the next paragraph hereof. the notice, provided that the Company has received the relevant request, including the reasons for putting the Shareholders solely or jointly representing at least relevant item on the agenda, no later than the sixtieth day ten percent (10 percent) of the issued share capital before the day of the meeting. may request the Board of Directors, in writing, to call a general meeting of shareholders, stating the matters to The agenda of the annual general meeting of be dealt with. shareholders shall contain, inter alia, the following items: If the Board of Directors fails to call a meeting, then a. adoption of the annual report; such shareholders may, on their application, be b. the remuneration report; authorized by the interim provisions judge of the court c. at least every four years after adoption of the (voorzieningenrechter van de rechtbank) to convene a remuneration policy, the remuneration policy; general meeting of shareholders. The interim provisions d. the policy of the Company on additions to reserves and judge (voorzieningenrechter van de rechtbank) shall on dividends, if any; reject the application if he is not satisfied that the e. granting of discharge to the Directors in respect of the applicants have previously requested the Board performance of their duties in the relevant financial of Directors in writing, stating the exact subjects year; to be discussed, to convene a general meeting of f. the appointment of Directors; shareholders. g. if applicable, the proposal to pay a dividend; h. if applicable, discussion of any substantial change in the General meetings of shareholders shall be held in corporate governance structure of the Company; and Amsterdam or Haarlemmermeer (Schiphol Airport), i. any matters decided upon by the person(s) convening the Netherlands, and shall be called by the Board of the meeting and any matters placed on the agenda with Directors, the Chairman or the Chief Executive Officer, in due observance of applicable Dutch law. such manner as is required to comply with the law and the applicable stock exchange regulations, not later than The Board of Directors shall provide the general meeting on the forty-second day prior to the day of the meeting. of shareholders with all requested information, unless this would be contrary to an overriding interest of the All convocations of general meetings of shareholders Company. If the Board of Directors invokes an overriding and all announcements, notifications and interest, it must give reasons. communications to shareholders shall be made by means of an announcement on the Company’s When convening a general meeting of shareholders, the corporate website and such announcement shall Board of Directors shall determine that, for the purpose remain accessible until the relevant general meeting of of Article 19 and Article 20 of the Articles of Association, shareholders. Any communication to be addressed to persons with the right to vote or attend meetings shall the general meeting of shareholders by virtue of Dutch be considered those persons who have these rights at law or the Articles of Association, may be either included the twenty-eighth day prior to the day of the meeting (the in the notice, referred to in the preceding sentence or, to “Record Date”) and are registered as such in a register the extent provided for in such notice, on the Company’s to be designated by the Board of Directors for such corporate website and/or in a document made available purpose, irrespective whether they will have these rights for inspection at the office of the Company and such at the date of the meeting. In addition to the Record Date, other place(s) as the Board of Directors shall determine. the notice of the meeting shall further state the manner 126 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements in which shareholders and other parties with meeting For each general meeting of shareholders, the Board of rights may have themselves registered and the manner Directors may decide that shareholders shall be entitled to in which those rights can be exercised. attend, address and exercise voting rights at such meeting through the use of electronic means of communication, The general meeting of shareholders shall be presided provided that shareholders who participate in the meeting over by the Chairman or, in his absence, by the person are capable of being identified through the electronic chosen by the Board of Directors to act as chairman for means of communication and have direct cognizance such meeting. of the discussions at the meeting and the exercising of voting rights (if applicable). The Board of Directors may One of the persons present designated for that purpose set requirements for the use of electronic means of by the chairman of the meeting shall act as secretary and communication and state these in the convening notice. take minutes of the business transacted. The minutes Furthermore, the Board of Directors may for each general shall be confirmed by the chairman of the meeting and meeting of shareholders decide that votes cast by the the secretary and signed by them in witness thereof. use of electronic means of communication prior to the meeting and received by the Board of Directors shall be The minutes of the general meeting of shareholders considered to be votes cast at the meeting. Such votes may shall be made available, on request, to the shareholders not be cast prior to the Record Date. Whether the provision no later than three months after the end of the meeting, of the foregoing sentence applies and the procedure for after which the shareholders shall have the opportunity exercising the rights referred to in that sentence shall be to react to the minutes in the following three months. stated in the notice. The minutes shall then be adopted in the manner as described in the preceding paragraph. Prior to being allowed admittance to a meeting, a shareholder and each person entitled to attend the If an official notarial record is made of the business meeting, or its attorney, shall sign an attendance list, while transacted at the meeting then minutes need not be stating his name and, to the extent applicable, the number drawn up and it shall suffice that the official notarial of votes to which he is entitled. Each shareholder and other record be signed by the notary. person attending a meeting by the use of electronic means of communication and identified in accordance with the As a prerequisite to attending the meeting and, to above shall be registered on the attendance list by the the extent applicable, exercising voting rights, the Board of Directors. In the event that it concerns an attorney shareholders entitled to attend the meeting shall be of a shareholder or another person entitled to attend the obliged to inform the Board of Directors in writing within meeting, the name(s) of the person(s) on whose behalf the the time frame mentioned in the convening notice. At attorney is acting, shall also be stated. The chairman of the the latest this notice must be received by the Board of meeting may decide that the attendance list must also be Directors on the day mentioned in the convening notice. signed by other persons present at the meeting. Shareholders and those permitted by Dutch law to The chairman of the meeting may determine the time attend the general meetings of shareholders may cause for which shareholders and others entitled to attend the themselves to be represented at any meeting by a proxy general meeting of shareholders may speak if he considers duly authorized in writing, provided they shall notify the this desirable with a view to the orderly conduct of the Company in writing of their wish to be represented at meeting as well as other procedures that the chairman such time and place as shall be stated in the notice of considers desirable for the efficient and orderly conduct of the meetings. For the avoidance of doubt, such attorney the business of the meeting. is also authorized in writing if the proxy is documented electronically. The Board of Directors may determine Every share (whether common or special voting) shall further rules concerning the deposit of the powers of confer the right to cast one vote. attorney; these shall be mentioned in the notice of the meeting. Shares in respect of which Dutch law determines that no votes may be cast shall be disregarded for the purposes of The Company is exempt from the proxy rules under the determining the proportion of shareholders voting, present Exchange Act. or represented or the proportion of the share capital The chairman of the meeting shall decide on the admittance to the meeting of persons other than those All resolutions shall be passed with an absolute majority who are entitled to attend. of the votes validly cast unless otherwise specified in the present or represented. 127 AR 2020 FERRARI N.V. / GENERAL MEETING OF SHAREHOLDERS Articles of Association. Blank votes shall not be counted The general meeting of shareholders or the Board as votes cast. of Directors if so designated in accordance with the Articles of Association, shall decide on the price and All votes shall be cast in writing or electronically. The the further terms and conditions of issuance, with chairman of the meeting may, however, determine that due observance of what has been provided in relation voting by raising hands or in another manner shall be thereto in Dutch law and the Articles of Association. permitted. If the Board of Directors is designated to have authority Voting by acclamation shall be permitted if none of the to decide on the issuance of shares or rights to shareholders present or represented objects. subscribe for shares, such designation shall specify the class of shares and the maximum number of shares or No voting rights shall be exercised in the general rights to subscribe for shares that can be issued under meeting of shareholders for shares owned by the such designation. When making such designation the Company or by a subsidiary of the Company. Pledgees duration thereof, which shall not be for more than five and usufructuaries of shares owned by the Company years, shall be resolved upon at the same time. The and its subsidiaries shall however not be excluded from designation may be extended from time to time for exercising their voting rights, if the right of pledge or periods not exceeding five years. The designation may usufruct was created before the shares were owned not be withdrawn unless otherwise provided in the by the Company or a subsidiary. Neither the Company resolution in which the designation is made. nor any of its subsidiaries may exercise voting rights for shares in respect of which it holds a right of pledge or Pursuant to the resolution of the Annual General usufruct. Meeting held on April 16, 2020, the Board of Directors has been authorized to issue shares in the capital of the Without prejudice to the Articles of Association, the Company and to grant rights to subscribe for shares in Company shall determine for each resolution passed: the capital of the Company. This authorization is limited in respect of common shares to (i) 10 percent of the a. the number of shares on which valid votes have been issued common shares for general corporate purposes cast; as of the date of the 2020 Annual General Meeting b. the percentage that the number of shares as referred (i.e. April 16, 2020), which can be used for any and all to under a. represents in the issued share capital; purposes, plus (ii) an additional 10 percent of the issued c. the aggregate number of votes validly cast; and common shares as of such date if the issuance occurs d. the aggregate number of votes cast in favor of on the occasion of the acquisition of an enterprise or and against a resolution, as well as the number of a corporation, or, if such issuance and/or the granting abstentions. of rights to subscribe for common shares is otherwise ISSUANCE OF SHARES necessary in the opinion of the Board of Directors. This authorization is limited in respect of special voting shares to a maximum aggregate amount of special voting shares as provided for in the Company’s The general meeting of shareholders or alternatively authorized share capital as set out in the Company’s the Board of Directors, if it has been designated to do Articles of Association. The authorization has been so by the general meeting of shareholders, shall have granted for a period starting from the date on which the authority to resolve on any issuance of shares and prior authorization expires and therefore from January rights to subscribe for shares. The general meeting of 2, 2021 up to and including October 15, 2021. shareholders shall, for as long as any such designation of the Board of Directors for this purpose is in force, Payment for shares shall be made in cash unless no longer have authority to decide on the issuance of another form of consideration has been agreed. shares and rights to subscribe for shares. Payment in a currency other than euro may only be made with the consent of the Company. For a period of five years from January 2, 2016 the Board of Directors has been irrevocably authorized to The Board of Directors has also been designated as issue shares and rights to subscribe for shares up to the authorized body to limit or exclude the rights of the maximum aggregate amount of shares as provided pre-emption of shareholders in connection with the for in the company’s authorized share capital as set out authority of the Board of Directors to issue common in Article 4.1 of the Articles of Association, as amended shares and grant rights to subscribe for common from time to time. shares as referred to above. 128 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements In the event of an issuance of common shares every holder at identifying, measuring, managing and monitoring of common shares shall have a right of pre-emption with the principal risks to which the Company is exposed. regard to the common shares or rights to subscribe The System is integrated within the organizational for common shares to be issued in proportion to the and corporate governance framework adopted by aggregate nominal value of his common shares, provided the Company and contributes to the protection of however that no such right of pre-emption shall exist in corporate assets, as well as to ensuring the efficiency and respect of shares or rights to subscribe for common effectiveness of business processes, reliability of financial shares to be issued to employees of the Company or information and compliance with laws, regulations, the of a group company pursuant to any option plan of the Articles of Association and internal procedures. Company. A shareholder shall have no right of pre-emption for shares international best practices, consists of the following three that are issued against a non-cash contribution. levels of control: In the event of an issuance of special voting shares to and establish specific actions for management of such qualifying shareholders, shareholders shall not have any risk; • Level 1: operating areas, which identify and assess risk The System, which has been developed on the basis of right of pre-emption. • Level 2: departments responsible for risk control, which define methodologies and instruments for managing risk The general meeting of shareholders or the Board of and monitoring such risk; Directors, as the case may be, shall decide when passing the resolution to issue shares or rights to subscribe for shares in which manner the shares shall be issued and, to the extent that rights of pre-emption apply, within what period those rights may be exercised. CORPORATE OFFICES • Level 3: Internal Audit department, which conducts independent evaluations of the System in its entirety. PRINCIPAL CHARACTERISTICS OF THE INTERNAL CONTROL SYSTEM AND INTERNAL CONTROL OVER FINANCIAL REPORTING The Company is incorporated under the laws of the The Company has in place a system of risk management Netherlands. It has its official seat in Amsterdam, the and internal control over financial reporting based on Netherlands, and the place of effective management of the the model provided by the COSO Framework, according Company is Via Abetone Inferiore n. 4 I-41053 Maranello to which the internal control system is defined as a (MO) Italy. set of rules, procedures and tools designed to provide reasonable assurance of the achievement of corporate The business address of the Board of Directors and the objectives. senior managers is Via Abetone Inferiore n. 4 I-41053 Maranello (MO) Italy. In relation to the financial reporting process, reliability, accuracy, completeness and timeliness of the information The Company is registered at the Dutch trade register contribute to the achievement of such corporate under number 64060977. objectives. Risk management is an integral part of the The Netherlands is the Company’s home member state for of internal control over financial reporting is designed to the purposes of the EU Transparency Directive (Directive ensure the overall effectiveness of the components of the 2004/109/EC, as amended). COSO Framework (control environment, risk assessment, internal control system. A periodic evaluation of the system INTERNAL CONTROL SYSTEM control activities, information and communication, and monitoring) in achieving those objectives. The Company has a system of administrative and The Company has in place an internal control system (the accounting procedures in place that ensure a high degree “System”), based on the model provided by the COSO of reliability in the system of internal control over financial Framework (Committee of Sponsoring Organizations reporting. of the Treadway Commission Report – Enterprise Risk The approach adopted by the Company for the Management model) and the principles of the Dutch evaluation, monitoring and continuous updating of the Corporate Governance Code, which consists of a set of system of internal control over financial reporting, is policies, procedures and organizational structures aimed based on a ‘top-down, risk-based’ process consistent 129 AR 2020 FERRARI N.V. / PRINCIPAL CHARACTERISTICS OF THE INTERNAL CONTROL SYSTEM AND INTERNAL CONTROL OVER FINANCIAL REPORTING with the COSO Framework. This enables focus on characteristics and configuration of IT systems areas of higher risk and/or materiality, where there is supporting business activities. risk of significant errors, including those attributable to fraud, in the elements of the financial statements An assessment of the design and operating and related documents. The key components of the effectiveness of key controls is carried out process are: through tests performed by the Internal Audit • identification and evaluation of the source and department, both at group and subsidiary level, using probability of material errors in elements of financial sampling techniques recognized as best practices reporting; internationally. • assessment of the adequacy of key controls in enabling ex-ante or ex-post identification of potential The assessment of the controls may require the misstatements in elements of financial reporting; and definition of compensating controls and plans • verification of the operating effectiveness of controls based on the assessment of the risk of misstatement in financial reporting, with testing focused on areas of higher risk. for remediation and improvement. The results of monitoring are subject to periodic review by the manager responsible for the Company’s financial reporting and communicated by him to senior management and to the Audit Committee (which in turn Identification and evaluation of the risk of reports to the Board of Directors). misstatements which could have material effects on financial reporting is carried out through a risk assessment process that uses a top-down approach CODE OF CONDUCT to identify the organizational entities, processes and the related accounts, in addition to specific activities, We have adopted a Code of Conduct which applies to which could potentially generate significant errors. all of our employees, including our principal executive, Under the methodology adopted by the Company, principal financial and principal accounting officers. risks and related controls are associated with the Our Code of Conduct is posted on our website at accounting and business processes upon which http://corporate.ferrari.com/sites/ferrari15ipo/files/ accounting information is based. codice_condotta_ferrari_eng_def.pdf. If the provisions of our Code of Conduct that apply to our principal Significant risks identified through the assessment executive officer, principal financial officer or principal process require definition and evaluation of key accounting officer are amended, or if a waiver is controls that address those risks, thereby mitigating granted, we will disclose such amendment or waiver. the possibility that financial reporting will contain any material misstatements. The Code of Conduct represents a set of values recognized, adhered to and promoted by the Company In accordance with international best practices, the which understands that conduct based on the Group has two principal types of control in place: principles of diligence, integrity and fairness is an • controls that operate at Group or subsidiary level, important driver of social and economic development. such as delegation of authorities and responsibilities, separation of duties, and assignment of access rights The Code of Conduct is a pillar of the governance to IT systems; and • controls that operate at process level, such as authorizations, reconciliations, verification of system which regulates the decision-making processes and operating approach of the Company and its employees in the interests of stakeholders. The consistencies, etc. This category includes controls for Code of Conduct amplifies aspects of conduct related operating processes, controls for financial closing to the economic, social and environmental dimensions, processes and cross-sector controls carried out by captive service providers. These controls can be preventive (i.e., designed to prevent errors or underscoring the importance of dialog with stakeholders. Explicit reference is made to the UN’s Universal Declaration on Human Rights, the principal fraud that could result in misstatements in financial Conventions of the International Labor Organization reporting) or detective (i.e., designed to reveal errors (ILO), the OECD Guidelines for Multinational Enterprises or fraud that have already occurred). They may also be classified as manual or automatic, such as application-based controls relating to the technical and the U.S. Foreign Corrupt Practices Act (FCPA). The Code of Conduct was amended to include specific guidelines relating to: the Environment, Health and 130 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements Safety, Business Ethics and Anti-corruption, Suppliers, DIVERSITY POLICY Human Resource Management, Respect of Human Rights, Conflicts of Interest, Community Investment, The Board of Directors adopted a diversity policy for the Data Privacy, Use of IT and Communications Equipment, Board of Directors (the “Diversity Policy”) effective as Antitrust and Export Controls. of 31 December 2017, since the Company believes that diversity in the composition of the Board of Directors in The Code of Conduct applies to the Directors and all terms of age, gender, expertise, professional background employees of the Company and its subsidiaries and and nationality is an important mean of promoting other individuals or companies that act in the name and debate, balanced decision making and independent on behalf of the Company or its subsidiaries. actions of the Board of Directors. The Company promotes adoption of the Code of The Diversity Policy gives weight to the following diversity Conduct as a best practice standard of business factors in Board of Directors composition: age, gender, conduct by partners, suppliers, consultants, agents, expertise, work and personal background and nationality. dealers and others with whom it has a long-term The Company considers each of these aspects key relationship. In fact, the Company’s contracts drivers to support the above mentioned goals and to worldwide include specific clauses relating to achieve sufficient diversity of views and the expertise recognition and adherence to the principles underlying needed for a proper understanding of current affairs the Code of Conduct and related guidelines, as well as and longer-term risks and opportunities related to the compliance with local regulations, particularly those Company’s business. The Board of Directors and its related to corruption, money-laundering, terrorism and Governance and Sustainability Committee consider such other crimes constituting liability for legal persons. factors when evaluating nominees for election to the Board of Directors and during the annual performance The Company closely monitors the effectiveness of assessment process. and compliance with the Code of Conduct. Violations of the Code of Conduct are usually determined through, The Company has achieved all the following concrete among other things: periodic activities carried out by targets: (a) at least 30 percent of the seats of the Board of the Internal Audit department of the Group; reports Directors are occupied by women and at least 30 percent received in accordance with the whistleblowing by men; (b) diversity in the age of the members of the management procedures; and checks forming part Board of Directors by having one or more members of of the standard operating procedures. The Internal the Board of Directors aged under 50 at the day of their Audit department investigates violations of the Code of nomination; provided that, in the candidate selection Conduct during standard periodic or specific audits. process, rules and generally accepted principles of Periodic reporting is provided to the Chairman and non-discrimination (on grounds such as ethnic origin, CEO as well as to the Audit Committee. For all Code of race, disability or sexual orientation) will be taken into Conduct violations, the disciplinary measures taken are account; and (c) the nationality of the members of the commensurate with the seriousness of the case and Board of Directors shall be reasonably consistent with comply with local legislation. The relevant corporate the geographic presence of the Company’s business, and departments are notified of violations, irrespective of that no nationality should count for more than 60 percent whether criminal action is taken by the authorities. of the members of the Board of Directors. INSIDER TRADING POLICY To ensure its correct implementation, the Diversity Policy will be taken into account in the nomination of executive Directors, and in the adoption of a profile for As of January 3, 2016 the Company’s Board of non-executive Directors as well as in nominating and Directors adopted an insider trading policy setting recommending non-executive Directors. Since the forth guidelines and recommendations to all Directors, financial year 2017, the targets relating to gender and age officers and employees of the Group with respect to have been realized. Since 2019 also the target relating to transactions in the Company’s securities. This policy, nationality has been achieved. which also applies to immediate family members and members of the households of persons covered by the policy, is designed to prevent insider trading or allegations of insider trading, and to protect the Company for integrity and ethical conduct. 131 AR 2020 FERRARI N.V. COMPLIANCE WITH DUTCH CORPORATE GOVERNANCE CODE the Company is held in the following calendar year, all members of the Board of Directors are nominated for (re)appointment each year. By publishing the relevant The Company endorses the principles and best practice biographical details and curriculum vitae of each provisions of the Dutch Corporate Governance Code, nominee for (re)appointment, the Company ensures that except for the following best practice provisions which the Company’s general meeting of shareholders is well are explained below: informed in respect of the nominees for (re)appointment • Best practice provision 2.2.4 of the Dutch Corporate Officer and the Vice-Chairman will therefore be present and in practice only the Chairman, the Chief Executive Governance Code: The supervisory board should also at the general meeting. draw up a retirement schedule in order to avoid, as much as possible, supervisory board members retiring • Best practice provision 5.1.4 of the Dutch Corporate simultaneously. The retirement schedule should be Governance Code: Neither the audit committee nor published on the company’s website. the remuneration committee can be chaired by the chairman of the management board or by a former The Company does not have a retirement schedule as executive director of the company. referred to in best practice provision 2.2.4 of the Dutch Corporate Governance Code, because the Company’s Our Senior Non-Executive Director and Chair of the Articles of Association provide for a term of office Board of Directors, Mr. Duca, is also the Chairperson of member of the Board of Directors for a period of of the Audit Committee, which is not in line with best approximately one year after appointment, such period practice provision 5.1.4 of the Dutch Corporate expiring on the day the first annual general meeting of Governance Code. The Company believes that Mr. Duca, shareholders is held in the following calendar year. Short in light of his extensive experience with audits and his terms of office for board members are customary knowledge in this respect, brings a valuable contribution for companies listed in the U.S. As the Company is to the Audit Committee and therefore believes it is in listed on the NYSE, the Company also follows certain Ferrari’s best interest and appropriate for Mr. Duca to common U.S. governance practices, one of which is the chair the Audit Committee. reappointment of our Directors at each annual general meeting of shareholders. In light of this term of office, • Best practice provision 5.1.4 of the Dutch Corporate the Company does not have a retirement schedule in Governance Code: The committees referred to in best place. practice 2.3.2 should be comprised exclusively of non- executive directors. • Best practice provision 4.1.8 of the Dutch Corporate Governance Code: Management board and supervisory Mr. Elkann, our Executive Chairman, interim Chief board members nominated for appointment should Executive Officer and Executive Director, has a attend the general meeting at which votes will be cast position on the Governance and Sustainability on their nomination. Committee, to which best practice provision 5.1.4 of the Dutch Corporate Governance Code applies. The Pursuant to best practice provision 4.1.8 of the Dutch position of Mr. Elkann as executive Director in this Corporate Governance Code, every executive and non- committee follows inter alia from the duties of the executive Director nominated for appointment should Governance and Sustainability Committee, which attend the general meeting at which votes will be cast are more extensive than the duties of a selection on its nomination. Since, pursuant to Article 14.3 of the and appointment committee and include duties that Articles of Association, the term of office of Directors warrant participation of an executive Director in the is approximately one year, such period expiring on the view of the Company. day the first annual general meeting of shareholders of 132 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements REPORT OF THE NON-EXECUTIVE DIRECTORS INTRODUCTION SUPERVISION BY THE NON-EXECUTIVE DIRECTORS The non-executive Directors supervise the policies carried out by the executive Director and the general This is the report of the non-executive Directors of the affairs of the Company and its affiliated enterprise. In Company over the financial year 2020, as referred to so doing, the non-executive Directors have also focused in best practice provision 5.1.5 of the Dutch Corporate on the effectiveness of the Company’s internal risk Governance Code. management and control systems, the integrity and quality of the financial reporting and Ferrari’s long-term It is the responsibility of the non-executive Directors business plans, the implementation of such plans and to supervise the policies carried out by the executive the risks associated. Director and the general affairs of the Company and its affiliated enterprise, including the implementation of The non-executive Directors also determine the strategy of the Company regarding long-term value the remuneration of the executive Director and creation. In so doing, the non-executive Directors act solely nominate candidates for the Director appointments. in the interest of the Company. With a view of maintaining Furthermore, the Board of Directors may allocate supervision on the Company, the non-executive Directors certain specific responsibilities to one or more regularly discuss Ferrari’s long-term business plans, the individual Directors or to a committee comprised of implementation of such plans and the risks associated eligible Directors of the Company and subsidiaries of with such plans with the executive Director. the Company. In this respect, the Board of Directors has allocated certain specific responsibilities to the According to the Articles of Association, the Board of Audit Committee, the Compensation Committee and Directors is a single board and consists of three or more the Governance and Sustainability Committee. Further members, comprising both members having responsibility details on the manner in which these committees have for the day-to-day management of Ferrari (executive carried out their duties, are set forth in the sections Directors) and members not having such day-to-day “The Audit Committee”, “The Compensation Committee” responsibility (non-executive Directors). The tasks of and “The Governance and Sustainability Committee”. the executive and non-executive Directors in a one-tier board such as the Company’s Board of Directors may be The non-executive Directors supervised the adoption allocated under or pursuant to the Articles of Association, and implementation of the strategies and policies provided that the general meeting of shareholders by the Group, reviewed this annual report, including has stipulated whether such Director is appointed as the Remuneration Report and the Group’s financial executive or as non-executive Director and furthermore results, received updates on legal and compliance provided that the task to supervise the performance by the matters and they have been regularly involved in the Directors of their duties can only be performed by the non- review and approval of transactions entered into with executive Directors. Regardless of an allocation of tasks, related parties. The non-executive Directors have all Directors remain collectively responsible for the proper also reviewed the reports of the Board of Directors management and strategy of the Company (including and its committees and the recommendations for the supervision thereof in case of non-executive Directors). appointment of Directors. Details of the current composition of the Board of Directors, including the non-executive Directors, and its committees are set forth in the section “Board of Directors”. 133 AR 2020 FERRARI N.V. / REPORT OF THE NON-EXECUTIVE DIRECTORS During 2020, there were four meetings of the Board of Directors. Portions of these meetings took place without the executive Directors being present. The average attendance at those meetings was 97.73 percent. An overview of the attendance of the individual Directors per meeting of the Board of Directors and its committees set out against the total number of such meetings is set out below: Name John Elkann Louis C. Camilleri(1) Piero Ferrari Sergio Duca Delphine Arnault Francesca Bellettini Giuseppina Capaldo(2) Roberto Cingolani(4) Eddy Cue(3) John Galantic Maria Patrizia Grieco Adam Keswick Elena Zambon(2) Meeting Board of Directors Audit Committee Governance and Sustainability Committee Compensation Committee 4/4 3/3 4/4 4/4 4/4 3/3 1/1 3/3 3/4 3/3 4/4 4/4 1/1 0 0 0 9/9 0 6/6 3/3 0 0 0 9/9 0 0 2/2 0 0 0 0 0 1/1 1/1 2/2 0 0 0 0 0 0 1/1 0 0 0 1/1 0 1/1 0 0 0 0 (1) On December 10, 2020, Mr. Louis Camilleri retired with immediate effect from his role as the Company’s Chief Executive Officer and as member of the Board of Directors. (2) Mrs. Giuseppina Capaldo and Mrs. Elena Zambon were not re-appointed by the AGM held on April 16, 2020. (3) On February 16, 2021, the Company announced that Mr. Roberto Cingolani tendered his resignation from his role as Company’s non- executive Director and member of the Governance and Sustainability Committee of the Board of Directors effective as of February 13, 2021. (4) Mr. Cue was absent in one Board meeting due to personal reasons. During these meetings, key topics discussed were, amongst others: the Group’s strategy, the Group’s financial results and reporting, sustainability, acquisitions and divestments, executive compensation, technological developments, risk management, updates on legal and compliance, risk management, human resources with the Head of Human Resources, implementation of the Remuneration Policy and the Remuneration Report. INDEPENDENCE OF THE NON-EXECUTIVE DIRECTORS Corporate Governance Code. Mr. Piero Ferrari is considered not to be independent under the The non-executive Directors are required by Dutch law Dutch Corporate Governance Code, since he holds to act solely in the interest of the Company. The Dutch approximately 10 percent of our outstanding common Corporate Governance Code stipulates the corporate shares. Mr. Sergio Duca, the Senior Non-Executive governance rules relating to the independence of Director of the Board of Directors, is independent non-executive Directors and requires under most under the Dutch Corporate Governance Code in circumstances that a majority of the non-executive accordance with best practice provision 2.1.9 of the Directors be “independent.” Dutch Corporate Governance Code. Currently, eight out of eight non-executive Directors Ferrari is of the opinion that the independency are considered to be independent under the NYSE requirements as referred to in best practice provision definition while seven non-executive Directors are 2.1.10 of the Dutch Corporate Governance Code are met considered to be independent under the Dutch by the Company. 134 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements EVALUATION BY THE NON-EXECUTIVE DIRECTORS The non-executive Directors were able to review and evaluate the performance of the Audit Committee, The non-executive Directors are responsible for the Governance and Sustainability Committee and the supervising the Board of Directors and its committees, Compensation Committee based on the assessments as well as the individual executive and non-executive made by the Governance and Sustainability Committee. Directors, and are assisted by the Governance and The self-assessment of the Committees were also Sustainability Committee in this respect. discussed by the Board of Directors. The outcome of the evaluations is that there is no need to amend the size or In accordance with the Governance and Sustainability composition of the Audit Committee, the Governance Committee Charter, the Governance and Sustainability and Sustainability Committee and the Compensation Committee assists and advises the Board of Committee, nor is there any reason to amend their Directors with respect to periodic assessment of the charters on this basis. Further details on the manner in performance of individual Directors. In this respect, which these committees have carried out their duties, the Governance and Sustainability Committee has, are set forth in sections “The Audit Committee”, “The amongst others, the duties and responsibilities to Compensation Committee” and “The Governance and review annually the Board of Directors’ performance Sustainability Committee”. and the performance of its committees and to review each Director’s continuation on the Board of Directors On the basis of the preparations by the Governance at appropriate regular intervals as determined by the and Sustainability Committee, the non-executive Governance and Sustainability Committee. Directors were able to review the Board of Director’s In 2020, the Governance and Sustainability Committee’s the recommendation for Directors’ election. The Board of periodic assessments took place during the meeting Directors concluded that each of the Directors continues held on February 17. During that meeting, the to demonstrate commitment to its respective role in the assessments, the individual Directors’ assessments and Governance and Sustainability Committee focused Company. on the results of the periodic assessments and the performance of the Board of Directors, its committees Also, pursuant to the Compensation Committee and the individual Directors, keeping also into account Charter, the Compensation Committee implements and the self-assessment prepared by each Director. During oversees the remuneration policy as it applies to non- such meeting the Governance and Sustainability executive Directors, executive Directors and senior Committee dealt also with the directors’ nomination officers reporting directly to the executive Directors. process, the assessment of Directors’ qualifications, the The Compensation Committee administers all the equity size and composition of the Board of Directors and the incentive plans and the deferred compensation benefits committees, and the recommendations for Directors’ plans. On the basis of the assessments performed, the election. non-executive Directors determine the remuneration of the executive director and nominate candidates for the The non-executive Directors have been regularly Director appointments. informed by each committee as referred to in best practice provision 2.3.5 of the Dutch Corporate The non-executive Directors have supervised the Governance Code and the conclusions of those performance of the Audit Committee, the Compensation committee were taken into account when drafting this Committee and the Governance and Sustainability report of the non-executive Directors. Committee. 135 AR 2020 FERRARI N.V. STATEMENT BY THE BOARD OF DIRECTORS Based on the assessment performed, the Board of Directors believes that, as of December 31, 2020, the Group’s and the Company’s Internal Control over Financial Reporting is considered effective and that (i) the Board Report provides sufficient insights into any material weaknesses in the effectiveness of the internal risk management and control systems (please refer to section “Principal Characteristics of the Internal Control System and Internal Control over Financial Reporting” of this Annual Report), (ii) the internal risk management and control systems are designed to provide reasonable assurance that the financial reporting does not contain any material inaccuracies (please refer to section “Principal Characteristics of the Internal Control System and Internal Control over Financial Reporting” of this Annual Report), (iii) based on the current state of affairs, it is justified that the Group’s and the Company’s financial reporting is prepared on a going concern basis (please refer to Note 2 to the Consolidated Financial Statements of this Annual Report and Note 2 to the Company Financial Statements of this Annual Report for additional information on the basis of preparation), and (iv) the Board Report states those material risks and uncertainties that are, in the Board of Director’s judgment, relevant to the expectation of the Company’s continuity for the period of twelve months after the preparation of the Board Report (please refer to the chapter “Risk Factors” of this Annual Report). February 26, 2021 John Elkann Executive Chairman and Chief Executive Officer RESPONSIBILITIES IN RESPECT TO THE ANNUAL REPORT The Board of Directors is responsible for preparing the Annual Report, inclusive of the Consolidated and Company Financial Statements and Board Report, in accordance with Dutch law and International Financial Reporting Standards as issued by the International Accounting Standards Board and as adopted by the European Union (IFRS). In accordance with Section 5:25c, paragraph 2 of the Dutch Financial Supervision Act, the Board of Directors states that, to the best of its knowledge, the Consolidated and Company Financial Statements prepared in accordance with IFRS as adopted by the European Union provide a true and fair view of the assets, liabilities, financial position and profit or loss for the year of the Company and its subsidiaries and that the Board Report provides a true and a fair view of the performance of the business during the financial year and the position at balance sheet date of the Company and its subsidiaries, together with a description of the principal risks and uncertainties that the Company and the Group face. February 26, 2021 Board of Directors John Elkann Piero Ferrari Sergio Duca Delphine Arnault Francesca Bellettini Eddy Cue John Galantic Maria Patrizia Grieco Adam Keswick 136 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements NON FINANCIAL STATEMENT FERRARI GROUP ABOUT FERRARI Ferrari is among the world’s leading luxury brands, focused on the design, engineering, production and sale of the world’s most recognizable luxury performance sports cars. Our brand symbolizes exclusivity, innovation, state-of-the- art sporting performance and Italian design and engineering heritage. Our name and history and the image enjoyed by our cars are closely associated with our Formula 1 racing team, Scuderia Ferrari, the most successful team in Formula 1 history. From the inaugural year of Formula 1 in 1950 through the present, Scuderia Ferrari has won 238 Grand Prix races, 16 Constructor World titles and 15 Drivers’ World titles. We are the only team which has taken part in more than 1,000 Formula 1 races. We believe our history of excellence, technological innovation and defining style transcends the automotive industry, and is the foundation of the Ferrari brand and image. We design, engineer and produce our cars in Maranello, Italy, and sell them in over 60 markets worldwide through a network of 168 authorized dealers operating 188 points of sale as of the end of 2020. OUR STRATEGY Our strategy focuses on maintaining our leading position in the luxury performance sports car market, while enhancing and protecting the value and exclusivity of the Ferrari brand. We focus on cost-efficiencies and aim to achieve profitable growth by pursuing the following strategies. Controlled growth Regular new model introductions and enhancements Pursue excellence in racing Controlled growth in adjacent luxury and lifestyle categories 137 AR 2020 FERRARI N.V. MATERIALITY MATRIX AND STAKEHOLDER ENGAGEMENT THE MATERIALITY MATRIX HIGHLIGHTS THE ASSESSED TOPICS THAT ARE MOST RELEVANT FOR THE GROUP AND OUR STAKEHOLDERS AND THEREFORE REPRESENT OUR STRATEGIC SUSTAINABILITY PRIORITIES. In 2020, we updated the analysis environmental footprint; being the in order to collect valuable of the most relevant sustainability employer of choice; creating and information on their perspectives topics(1) (materiality analysis) for sharing value with the community concerning sustainability trends the Group and our stakeholders and; proactively fostering best and their potential impacts on to better reflect sustainability practice governance. This was Ferrari’s future strategies and context developments, changes prepared by taking into account initiatives. This process has been in our drivers and goals, as well various stakeholder engagement complemented through a qualitative as our 2019-2022 plan and our initiatives carried out during the year analysis performed by our Senior sustainability strategy, based (as described in the “Stakeholder Management Team (“SMT”), which on the following five pillars: Engagement” paragraph) and resulted in the materiality matrix exceeding expectations; reducing by consulting Ferrari managers below. MATERIALITY MATRIX OF FERRARI GROUP i i ) s n o s c e d & s t n e m s s e s s a r e d o h e k a t s n o e c n e u fl n l I ( t n a t r o p m y r e V i t n a t r o p m I Quality and safety of products and customers Customer satisfaction Image and brand reputation Innovation: technology and design Ethical Human capital Health and safety business conduct Emissions Supply chain responsible management Risk management & Compliance Economic and financial performance Environmental commitment Education Responsible communication and marketing Diversity, inclusion and non-discrimination Work-life balance and employees wellness Local communities Legend: Proactively fostering best practice governance Industrial relations Relationship with sponsors Relationship Exceeding expectations with Institutions Being the employer of choice and Authorities Reducing environmental footprint Creating and sharing value with the community Important Very important RELEVANCE FOR FERRARI GROUP (significance of economic, environmental & social impacts) (1) The potentially relevant topics are identified by taking into consideration sector benchmarking analyses, UN Sustainable Development Goals (SDGs), and relevant international studies and publications. S R E D L O H E K A T S R O F E C N A V E L E R 138 AR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The materiality matrix highlights the are considered a priority and are management and compliance. assessed topics that are most relevant increasingly relevant to Ferrari; The analysis also confirmed the for the Group and our stakeholders Quality and safety of products and importance of the development and therefore represent our strategic customers, Customer satisfaction of Human capital. Compared to sustainability priorities. and Supply chain responsible last year’s materiality matrix, the Specifically, the most relevant topics management are also considered commitment to employees’ Health are related to product responsibility: of the upmost importance. and safety and to reducing Emissions Image and brand reputation and Special attention is also paid to has increased its relevance for both Innovation: technology and design Ethical business conduct and Risk Ferrari and its stakeholders. This materiality matrix translated into our sustainability approach characterized by: EXCEEDING EXPECTATIONS: Drive technological innovation while pursuing excellence in design and craftsmanship to fuel the passion of our customers and fans. MATERIAL TOPIC Image and brand reputation Innovation: technology and design PROACTIVELY FOSTERING BEST PRACTICE GOVERNANCE: Maintain Ferrari’s corporate governance and risk management systems aligned with best practices to ensure an ethical business conduct while providing superior and sustainable returns to our shareholders. MATERIAL TOPIC Ethical business conduct Risk management and Compliance Quality and safety of products and customers Supply chain responsible management Customer satisfaction Relationship with Institutions and Authorities Responsible communication and marketing Relationship with sponsors SUSTAINABLE DEVELOPMENT GOALS (SDGs) SUSTAINABLE DEVELOPMENT GOALS (SDGs) BEING THE EMPLOYER OF CHOICE: Provide an inclusive, educational and inspiring work environment to unleash everyone’s passion, creativity and talent. REDUCING ENVIRONMENTAL FOOTPRINT: Increase our environmental awareness to continuously set and implement related programs and actions. MATERIAL TOPIC Human capital Health and safety Work-life balance and employees wellness Diversity inclusion and non-discrimination MATERIAL TOPIC Emissions Environmental commitment SUSTAINABLE DEVELOPMENT GOALS (SDGs) SUSTAINABLE DEVELOPMENT GOALS (SDGs) CREATING AND SHARING VALUE WITH THE COMMUNITY: Encourage strategic partnerships and the creation of positive externalities for all stakeholders. MATERIAL TOPIC Economic and financial performance Education Local communities Industrial relations SUSTAINABLE DEVELOPMENT GOALS (SDGs) 139 AR 2020 FERRARI N.V. / MATERIALITY MATRIX AND STAKEHOLDER ENGAGEMENT The abovementioned material topics are impacted by our business. For the related key risks and risk trends have been linked to the Sustainable the most material topics, the table and the relevant chapters within this Development Goals (SDGs) that below shows the pursued policies, Annual Report. MOST SIGNIFICANT MATERIAL TOPICS PURSUED POLICIES KEY RISKS AND RISK TRENDS RELEVANT CHAPTERS OF THIS SUSTAINABILITY REPORT Image and brand reputation Enhancing and protecting the value and exclusivity of the Ferrari brand Brand image Ferrari Group Ethical business conduct integrity, responsibility and ethical Maintaining a culture dedicated to behavior Non-compliance with laws, regulations, local standards (including tax) and codes Proactively fostering best practice governance Innovation: Being focused on developing new technology and design technologies and distinctive designs Brand image; Competition; New technologies Exceeding expectations Human capital environment, enabling the Creating an inspiring working development of everyone’s talent Attraction, development Being the employer and retention of talents of choice Focusing on researching technologies laws, regulations, local Reducing Non-compliance with Emissions that further reduce emissions and standards (including tax) environmental preparing for a low-emission future and codes; footprint Quality and safety of products and customers Designing and manufacturing while keeping the safety of our customers and other road users always in mind New technologies Non-compliance with laws, regulations, local Exceeding standards (including tax) expectations and codes Risk management & Compliance Taking an integrated approach to risk management; Acting with the highest level of integrity, complying with applicable laws. Non-compliance with laws, regulations, local standards (including tax) and codes Proactively fostering best practice governance Customer satisfaction Being devoted to the highest level of customer satisfaction Health and safety Enforcing a safety-first culture Brand image; Competition; New technologies Non-compliance with Exceeding expectations laws, regulations, local Being the employer standards (including tax) of choice and codes Implementing a responsible and Non-compliance with efficient supply chain management; laws, regulations, local Supply chain responsible Encouraging the adoption of standards (including tax) management sustainable practices and sharing and codes; among our business partners and Cybersecurity including suppliers. third parties vulnerabilities Proactively fostering best practice governance 140 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements STAKEHOLDER ENGAGEMENT As an international firm with ambitious corporate objectives and a complex value chain, we need to develop forms of communication and collaboration with both our internal and external stakeholders that allow us to understand their various needs, interests and expectations. Ferrari’s approach to engaging stakeholders aims for honest, clear and effective communication and consultation, based on constant dialog. To fully understand the needs and perspectives of our stakeholders is a fundamental part of the value generation process we continuously strive to promote both inside and outside our organization. This Statement is addressed to all stakeholders involved in our activities, as shown in the following image: Enthusiasts Clients Dealers Investors and Shareholders Suppliers Business and Licensing Partners Government, Regulators and Sport Institutions Media and Influencers Employees and Trade Unions Community and University Sponsors Ferrari believes that building and honing effective communication and collaboration with its internal and external stakeholders is a key element of sustainable and lasting growth, with a view to conciliating interests and expectations. With this in mind, over the years we set an ongoing process of stakeholder engagement realizing initiatives with different levels of interaction and methods of involvement. In 2020, Ferrari adopted a Stakeholder Engagement Practice inspired by the values and principles of the Code of Conduct that seeks to give all directors, managers and employees of the Ferrari Group, and anyone else working for it or on its behalf, guidelines on the right methods and forms of interaction with different stakeholders. In line with the Stakeholder Engagement Practice, in 2020 we carried out various activities in order to enhance the voice of our stakeholders. We engaged with our employees through two face-to-face workshops that had a dual purpose: to 141 AR 2020 FERRARI N.V. / MATERIALITY MATRIX AND STAKEHOLDER ENGAGEMENT further communicate the importance of the sustainability theme and explain what it stands for within Ferrari, as well as to collect their priorities and suggestions. Moreover, we realized ad hoc virtual workshops to engage local high schools and universities on sustainability issues. During the virtual workshops, Ferrari’s journey to sustainability was presented and discussions were fostered to gather participants’ perspectives. We also engaged with our top investors to better understand what they consider to be the main ESG drivers for Ferrari, as well as participating in a variety of ESG questionnaires such as the SAM Corporate Sustainability Assessment (CSA) and the CDP Climate Change questionnaire. In 2020, Ferrari ranked among the global leaders in environmental performance and transparency in the annual report published by CDP, the independent non-profit organization specializing in environmental reporting and in the evaluation of corporate sustainability strategies. Ferrari was awarded an A- rating, ranking significantly above both the European regional average and the sector’s average, for actions implemented to combat climate change. All these activities allowed us to further strengthen our materiality analysis. Considering the rising environmental and social changes, these engagement activities are an important part of the sustainability approach that helps us identify potential updates in our sustainability material topics, risks and opportunities, as well as supporting management in achieving the Company’s objectives. The main outcomes of the engagement activities implemented in 2020 showed an increased attention of our stakeholders toward environmental responsibility, with a focus on reducing emissions, and health and safety, also in consideration of the Covid-19 related contingencies. Education was confirmed as a key element by stakeholders involved. Ferrari firmly believes that keeping a profitable dialog and collaboration with its stakeholders is essential and intends to continue the path of engagement undertaken, with a view to continuous improvement. PROACTIVELY FOSTERING BEST PRACTICE GOVERNANCE The Governance and Sustainability Committee consists of Mr. Elkann (Chairperson), Mrs. Delphine Arnault and Mr. Cue. OUR GOVERNANCE AND SUSTAINABILITY COMMITTEE The Governance and Sustainability Committee is elected by the Board of Directors and is comprised of at least The Governance and Sustainability Committee is three Directors. More than half of the members shall be responsible for, among other things, assisting and independent under the Dutch Corporate Governance advising the Board of Directors, and acting under Code, and at most one of the members may be an authority delegated by the Board of Directors, executive Director. Mrs. Delphine Arnault was appointed with respect to: (i) the identification of the criteria, as a member of the Governance and Sustainability professional and personal qualifications for candidates Committee on February 26, 2021, filling the vacancy left to serve as Directors, (ii) periodic assessment of by Mr. Roberto Cingolani, who resigned from his role as the size and composition of the Board of Directors, non-executive Director and member of the Governance (iii) periodic assessment of the functioning of and Sustainability Committee with effect from February individual Directors and reporting on this to the 13, 2021. Board of Directors, (iv) proposals for appointment of executive and non-executive Directors, (v) In 2020 the Governance and Sustainability Committee supervision of the selection criteria and appointment met twice with 100 percent attendance of its members. procedure for senior management, (vi) monitoring The Committee reviewed the Board of Directors’ and and evaluating reports on the Group’s sustainable Committee’s assessments, the Sustainability achievement development policies and practices, management and objectives, and the recommendations for Directors’ standards, strategy, performance and governance election. globally, and (vii) reviewing, assessing and making recommendations as to strategic guidelines for INTEGRITY OF BUSINESS CONDUCT sustainability-related issues, and reviewing the annual At Ferrari, we seek to develop a cooperative environment Sustainability Report. in which the dignity of each individual is respected and that embodies the highest ethical standards in business 142 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements conduct. We are committed to maintaining a fair, secure, Management. In light of the results, dedicated actions, productive and inclusive workplace for all members such as training and awareness activities, have been of our workforce, in which everyone is valued for their implemented accordingly. unique contribution. HUMAN RIGHTS The foundation of Ferrari’s governance model is the Code Ferrari’s commitment to respect, protect and promote of Conduct that represents a set of values recognized, human rights is laid down in the Human Rights Practice, adhered to and promoted by the Company. Ferrari which is inspired by the guiding principles set forth understands that conduct based on the principles of in the Code of Conduct, and defines Ferrari’s main diligence, integrity and fairness is an important driver commitments to a corporate culture dedicated to of social and economic development. Ferrari endorses ethics and integrity. In particular, the Human Rights the United Nations (“UN”) Declaration on Human Rights, Practice sets out key principles such as the prohibition the International Labor Organization (“ILO”) Conventions of child labor, compulsory labor and forced labor, the and the Organization for Economic Co-Operation and attention to a healthy and safe working environment Development (“OECD”) Guidelines for Multinational for our employees, the rejection of any form of abuse, Companies. Accordingly, the Code of Conduct is intended to harassment and discrimination, the zero tolerance in be consistent with such guidelines and aims to ensure that respect of corruption and the protection of the rights all members of the Ferrari Group workforce act with the of local communities. highest level of integrity, comply with applicable laws and build a better future for our Company and the communities ANTI-BRIBERY AND CORRUPTION in which we do business. The complete Code of Conduct Ferrari Group is committed to the highest standards can be found on our corporate website at of integrity, honesty and fairness in all internal and http://corporate.ferrari.com/en/governance/code-conduct. external affairs and does not tolerate any kind of bribery. The laws of virtually all countries in which Ferrari’s integrity system sets the foundation for the Ferrari operates prohibit bribery and any violation corporate governance of Ferrari Group and includes a of anti-bribery and anti-corruption laws would critical framework comprised of the following primary entail serious consequences for both companies elements: and individuals, which can result in significant fines, • Principles that capture Ferrari’s commitment to imprisonment of individuals and reputational damages. important values in business and personal conduct; • Practices that are the basic rules that must guide our daily behaviors required to achieve our overarching Principles; • Procedures that further articulate Ferrari’s specific operational approach to achieving compliance and that may have specific applications limited to certain geographical regions and/or businesses as appropriate. Ferrari’s policy is that no one - director, officer or other employee, consultant, agent, representative, supplier or business partner – shall, directly or indirectly, give, offer, request, promise, authorize, solicit or accept bribes or any other perquisite (including gifts or gratuities, with the exception of commercial items universally accepted in an international context of modest economic value, permitted by applicable laws Our Code of Conduct is approved by the board of and in compliance with the Code of Conduct and all directors of Ferrari N.V. and is applicable to the whole applicable practices and procedures) in connection Ferrari Group. The Code of Conduct applies to all with their work for Ferrari at any time or for any reason. board members and officers, full-time and part- time employees of the Ferrari Group, as well as to In this respect, Ferrari has adopted the Anticorruption all temporary contract and all other individuals and Compliance Practice, which is considered the document companies that act on behalf of the Ferrari Group, of reference for anti-corruption matters by all worldwide regardless of location. Ferrari branches and subsidiaries and is applied in each country in accordance with local legislation. The Internal Audit Department investigates possible The Anticorruption Compliance Practice establishes violations of the Code of Conduct during standard the general rules of conduct that must be followed in periodic audits and through specific Business Ethics and order to prevent corruption-related crimes and ensure Compliance (“BEC”) audits. In 2020, BEC surveys were compliance with the anti-corruption laws to which Ferrari conducted in order to measure employees’ awareness is subject. Such rules are further enhanced in internal on topics such as: Code of Conduct, Whistleblowing Procedures regulating those specific areas deemed at Procedure, Gift and Entertainment Expenses’ risk from an anticorruption perspective. 143 AR 2020 FERRARI N.V. / PROACTIVELY FOSTERING BEST PRACTICE GOVERNANCE DEALINGS WITH THIRD PARTIES strictly rejects any form of anticompetitive conduct. Dealing with third parties entails inherent risks, in The Ferrari Group and its directors, officers, and other particular in terms of potential corporate liabilities, as employees shall comply with these principles and well as financial and reputational damages that Ferrari refrain from any form of action, omission or business may suffer as a consequence of unlawful conduct practices that might represent an antitrust violation. carried out by third parties with which it does business (“Third Parties”). Hence, Ferrari strongly believes that To strengthen its commitment to compliance and to a the capability to adequately evaluate its Third Parties, as free and fair competition, Ferrari adopted the Antitrust well as promptly address any threats and risk factors, Compliance Practice, which outlines - at Group level - represents an essential requirement for the protection the rules and principles that all members of Ferrari’s of its assets, integrity and reputation in an overall and workforce must follow, as well as the actions and long-term vision. controls that they shall perform in order to prevent antitrust offences and ensure compliance with Ferrari is committed to only collaborating with Third Antitrust Laws. Parties that meet certain requirements both in terms of compliance with applicable laws and regulations WHISTLEBLOWING and in relation to ethics, integrity and transparency. Ferrari Group introduced the Ethics Helpline in September In this respect, Ferrari has adopted the Third Parties 2016, a preferential channel which allows all stakeholders Compliance Practice, that establishes the general rules (employees, customers, suppliers and partners) to of conduct that must be followed at Group level when request advice and/or report concerns about alleged dealing with any Third Parties, including active and situations, events, or actions which may be inconsistent passive counterparties as well as any further Third with values and principles set out in the Code of Conduct, Parties with which Ferrari may establish contractual Organizational Models, laws and regulations, as well relationships. as business practices and corporate rules. Potential allegations are assessed by the relevant departments of In particular, the Third Parties Compliance Practice Ferrari and managed in accordance with the procedures underlines the importance of carrying out a applied to all Ferrari Group companies, pursuant to local “compliance evaluation” before establishing any regulations. business relationship with a Third Party in order to examine its ethical reliability and reputation, its The Whistleblowing Procedure has been prepared on involvement in a legitimate and lawful business, and its the basis of international best practices and updated commitment to share Ferrari’s values of integrity and in 2020 to promote continuous improvement. The new fairness. Whistleblowing Procedure reiterates that the utmost confidentiality is guaranteed on reported subjects and By adhering to the principles outlined in the Third facts, so that the individuals who report an alleged violation Parties Compliance Practice, Third Parties are in good faith are not subject to any form of retaliation. In therefore expected not only to comply with applicable particular, stakeholders can also report alleged violations laws and Ferrari’s ethical principles and standards, anonymously if permitted by local law. The Ethics Helpline but also to become active parties towards their own can be accessed either by phone or by web intake (with employees and their respective third parties in order multiple languages available) and is an essential element of to disseminate a culture of compliance, integrity and the management process, in accordance with the Code of transparency. ANTITRUST Conduct, in relation to raised concerns. It is managed by an independent provider, available 24 hours a day, seven days a week. Ferrari Group recognizes the paramount importance of a competitive market and is committed to fully comply with Furthermore, Ferrari employees may also seek advice antitrust and other pro-competition legislation in force concerning the application and/or interpretation of the Code in the countries where it operates (“Antitrust Laws”), of Conduct by contacting the reference people included in believing that compliance with Antitrust Laws is crucial to the worldwide ethics and compliance contact list. Ferrari Group’s reputation. Ferrari defines and pursues its commercial activities support of the Legal, Human Resources Departments and and targets in autonomy and independence with other business functions possibly involved, assess all the respect to any competitors, operating on the basis allegations received. The results and potential disciplinary of its own strategic and commercial decisions, and actions are then reported based on the necessary Internal Audit and Compliance Departments, with the 144 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements escalation process (the relevant internal functions are of Conduct. Accordingly, Managing Our Assets and notified of the violations). Information includes: Communicating Effectively, Protecting Ferrari Assets and Maintaining Appropriate In addition, in order to provide maximum transparency Records. The category Interacting with External to the entire process, a Whistleblowing Committee has Parties comprises Avoiding Conflicts of Interest been appointed, composed by the heads of Internal Audit, and Supporting Our Communities. Conducting Compliance, Legal and Human Resources departments. Business covers Sustainably Purchasing Goods or The Committee meets periodically to monitor the Services, Transacting Business Legally and Engaging progress of the investigations and ensure that the in Sustainable Practices. Finally, Protecting Our concerns raised are handled appropriately. Workforce includes behaviors related to Maintaining a Fair and Secure Workplace, and Ensuring Health The whistleblowing procedures are in line with the and Safety. For all Code of Conduct violations, the provisions of the Italian law for whistleblowing definitively disciplinary measures taken are commensurate with adopted by means of Law n. 179/2017, which contains, the seriousness of the case and comply with local among other things, provisions for the protection of legislation. reporters of crimes or irregularities that have come to light in the context of a public or private employment relationship. In this context, the reports received are an important The violations of the Code of Conduct have been Departments to identify violations of the Code of categorized according to the Principles of the Code Conduct. instrument for Internal Audit and Compliance WHISTLEBLOWING REPORTING AS OF DECEMBER 31, 2020 Category Reports received in 2020 Reports closed in 2020 Reports in which a violation was confirmed Conducting business Interacting with external parties Managing our assets and information Protecting our workforce Total * including 7 whistleblowing reports received in 2019 - 2 5 6 13 - 1 5 12* 18 - - 1 4 5 Periodic reporting is provided to the CEO as well as to the Audit Committee. CYBERSECURITY, DATA PROTECTION AND PRIVACY CYBERSECURITY As our technology continues to evolve, we anticipate to collect and store even more data in the future, and that always paid the outmost attention to cybersecurity. We our IT systems will improve security countermeasures have created a system of procedures, policies, services, against the risks of willful and unintentional security infrastructures and training as well as awareness to breaches. Much of our value is derived from our address all facets of cybersecurity currently known. confidential business information, including car design, proprietary technology and trade secrets. We also The area that has been nurtured the most is collect, retain and use certain personal information, information protection with a focus on preventing including data we gather from clients for product data breaches, which has been achieved, by providing development and marketing purposes, and data we Ferrari tested and managed PCs to all users who obtain from employees. Any unauthorized access to connect to our network, extending it to our employees our IT systems may compromise the confidentiality as well as to third parties. The user and device of Ferrari’s intellectual property or the privacy of our authentication has strongly increased the control customers’ information and expose us to claims as well over the access and management of information. as reputational damage. For these reasons, Ferrari has As experienced during the Covid-19 pandemic, this 145 AR 2020 FERRARI N.V. / PROACTIVELY FOSTERING BEST PRACTICE GOVERNANCE allowed people to work from home with the same level processing activities as well as to perform privacy of security as if they were in the office. impact assessments), the creation of new internal procedures (e.g. appointment and management of All employees are provided with specific training on system administrators, management of requests from information security and cybersecurity. Training is also data subjects etc.), the guarantee of an effective and provided to external workers. This training is delivered prompt response to requests from data subjects (e.g. both online and in classroom, and it is part of regularly implementation of an online portal which will allow launched training campaigns. A specific session on California consumers to make requests under the CCPA information security and cybersecurity is also part of the etc.), the update of privacy notices, drafting of operating two-day induction program for new employees. instructions for authorized persons within the Company, the designation of internal privacy referents within On a weekly basis, the Company internally performs a Company departments and the creation of an internal vulnerability analysis to detect areas of weakness in the Privacy Committee. Regular e-learning courses, aimed information/cyber security system. Penetration tests are at raising the awareness on the data privacy regulations executed periodically by an external provider. and requirements, are organized for and addressed to the newly hired employees who are involved in the The Head of IT Security & Compliance is the function processing of personal data. responsible for overseeing cybersecurity. It directly reports to the Group’s CIO who, in turn, reports to the Dedicated face-to-face trainings have been delivered to Group’s CFO, who is a member of Senior Manager Team. the Privacy Referents and to the Customer Care. Cybersecurity topics are discussed at Audit Committee level at least once a year. SUSTAINABILITY RISKS We are committed to creating a culture of sustainability. DATA PROTECTION AND PRIVACY Creating such a culture requires effective risk We care about processing data in a safe and management, responsible and proactive decision- transparent manner and act in accordance with making, and innovation. Our efforts are aimed at the current legislative framework that governs the minimizing the negative impacts of our business. Our processing of our personal data at global scale, risk management approach is an important business including but not limited to the General Data Protection driver and it is integral to the achievement of the Group’s Regulation “GDPR” (EU Regulation no. 2016/679) and long-term business plan. We take an integrated approach the California Consumer Privacy Act of 2018 “CCPA”. to risk management, where risk and opportunity The data protection legal framework has steadily assessment are at the core of the leadership team developed in the recent years and has brought a new agenda. The Board of Directors is responsible for consciousness about privacy. More than ever before, considering the ability to control and manage risks data protection and privacy have become fundamental, crucial to achieving its identified business targets, and for as they have been heavily impacted by the Covid-19 the continuity of the Group. pandemic. In these specific circumstances, processing of personal data is necessary in order to take Ferrari has adopted the last publication (“Enterprise Risk appropriate measures to contain the spread of the virus Management - Integrating Strategy and Performance”) and subsequently mitigate its effects. of the COSO Framework (Committee of Sponsoring Organizations of the Treadway Commission) as the Data protection and privacy law requires, among others, foundation of its enterprise risk management (ERM). the application of increased transparency obligations, the The Senior Management Team (“SMT”) is responsible for introduction of common records of processing activities, identifying, prioritizing and mitigating risks, and for the the appointment of a Data Protection Officer “DPO”, an establishment and maintenance of a risk management effective response mechanism to data subjects’ privacy- system across our business functions. Our risk related requests and - where advisable - privacy impact management framework is discussed with the Group’s assessments before processing personal data. Audit Committee at least on an annual basis. Within this context, we have adopted a progressive We have integrated the analysis and assessment of socio- approach to ensure compliance with data protection and environmental risks in our risk management framework privacy law requirements, such as the implementation and are currently integrating our risk management of new processes (e.g. system collecting consents activities with the outcomes of the materiality analysis and privacy notices adoption of a new Governance described in the paragraph “Materiality Matrix of Ferrari tool in order to periodically update the Records of Group”. 146 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements In particular, the following key risks and risk trends are the ones related to our most material topics. Further information on sustainability risks and the related management approaches put in place by Ferrari, including in relation to Climate Change, are reported throughout this Statement. Key Risk Material topics Brand Image (Reputational risk) 2 Image and brand reputation, Innovation: technology and design, Customer satisfaction. The preservation and enhancement of the value of the Ferrari brand is crucial in driving revenue and demand for our cars. The perception and recognition of the Ferrari brand are of strategic importance and depend on many factors such as the design, technology, performance, quality and image of our cars, as well as the appeal of our dealerships and stores, the success of our client activities, and our general profile, including our brand’s image of exclusivity. The prestige, identity and appeal of the Ferrari brand also depend on the continued success of the Scuderia Ferrari racing team in the Formula 1 World Championship. Key Risk Material topics Competition (Strategic risk) 3 Innovation: technology and design, Customer satisfaction. We face competition in all product categories and markets in which we operate. We believe that we compete primarily thanks to our brand image, the performance and design of our cars, our reputation for quality and the driving experience we offer our customers. Key Risk Material topics New technologies (Strategic risk) Innovation: technology and design, Customer satisfaction, Emissions. Performance cars are characterized by leading-edge technology that is constantly evolving. In particular, advances in racing technology often lead to improved technology in road cars. As technologies change, we plan to upgrade or adapt our cars and introduce new models in order to continue to provide cars with the latest technology. However, our cars may not compete effectively with our competitors’ cars if we are not able to develop, source and integrate the latest technology into our cars. Key Risk Attraction, development and retention of talents (Operational risk) 4 Material topics Human Capital. Our success depends on the ability of our senior executives and other members of management to effectively manage individual areas of the business and our business as a whole. If we are unable to attract, retain and incentivize senior executives, drivers, team managers and key employees to succeed in international competitions or devote the capital necessary to fund successful racing activities, new models and innovative technology, this may adversely affect the level of enthusiasm of Ferrari clients for the brand and their perception of our cars, which could have an adverse effect on our business, results of operations and financial condition. (2) Reputational risks: risks which affect Ferrari’s Brand image, credibility and/or integrity. (3) Strategic risks: risks which affect or are created by Ferrari’s business strategy and could affect Ferrari’s long-term positioning and performance. (4) Operational risks: risks impacting the internal processes, people, systems and/or external resources of the organization and affect Ferrari’s ability to execute its business plan. 147 AR 2020 FERRARI N.V. / PROACTIVELY FOSTERING BEST PRACTICE GOVERNANCE Key Risk Material topics Cybersecurity including third parties vulnerabilities Supply chain responsible management. Our IT systems architecture and industrial machinery are exposed to external cyber-attacks. In addition, we have to consider also that our third parties could be subjected to external cyber-attacks. In case the third party is connected with our system, the cyber attacker could also penetrate our IT systems. Key Risk Material topics Non-compliance with laws, regulations, local standards (including tax) and codes (Compliance risk)5 Ethical business conduct, Emissions, Risk management and Compliance, Quality and safety of products and customers, Supply chain responsible management, Health and safety. We are subject to comprehensive and constantly evolving laws, regulations and policies throughout the world. In Europe, United States and China, for example, significant governmental regulation is driven by environmental, fuel economy, vehicle safety and noise emission concerns, and regulatory enforcement has become more active in recent years. A detailed description of how we respond to these risks can be found in the section “Risk Management Process and Internal Control Systems”. RESPONSIBLE SUPPLY CHAIN Our focus on excellence, in terms of luxury, quality, The selection of suppliers is based not only on the quality aesthetics and performance, requires us to implement and competitiveness of their products and services, but a responsible and efficient supply chain management also their adherence to social, ethical and environmental in order to select suppliers and partners that are able principles. to meet our high standards. Notwithstanding the low volume of cars manufactured, our production process Relevant suppliers are assessed through a risk analysis requires a great variety of inputs entailing a complex that aims at identifying critical suppliers thanks to a mix supply chain management to ensure continuity of of a financial, compliance and industrial assessments. production. We source a variety of components (among Their growth capability is analyzed to identify where which transmissions, brakes, driving-safety systems we need to support the development of our business and others), raw materials (such as aluminum or special partners to help them meet the requests of the Group. steel), supplies, utilities, logistics and other services from In 2020, we strengthened our suppliers’ qualification numerous suppliers. and selection processes in order to verify not only their technical capability and financial solidity, but also Ferrari encourages the adoption and sharing of - through a screening methodology - their reliability in sustainable practices among our business partners, terms of ethics, integrity and reputation (the so-called suppliers and dealers. All suppliers must respect the “Compliance Evaluation”). Ferrari Code of Conduct, which includes the set of values recognized, adhered to and promoted by our Company. Before engaging a new supplier6, the competent The Code of Conduct was updated to include specific departments of Ferrari Group conduct an adequate guidelines relating to the respect of human rights and Compliance Evaluation on the potential supplier in conflicts of interest. The Group made its best effort to order to examine its ethical reliability and reputation, ensure that the Code of Conduct is regarded as a best its involvement in a legitimate and lawful business, and practice of business conduct and followed by third its commitment to share Ferrari’s values of integrity, parties, including long lasting relationships and business fairness and compliance. The Compliance Evaluation is partners such as suppliers, dealers, advisors and agents. capable of identifying potential risks for Ferrari under (5) Compliance risks: risks of non-compliance with laws, regulations, local standards, code of conduct, internal policies and procedures. (6) In 2020, 100% of our new suppliers were evaluated with this screening methodology. 148 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements different perspectives, such as: anti-corruption, trade position on responsible sourcing and our expectations in sanctions, money-laundering, conflict of interests, ethics terms of responsible supply chains. In addition, we have and reputation. established a control and transparency system over our 3TG supply chain. Such system includes surveying our CONFLICT MINERALS suppliers about the 3TG in their supply chain. Ferrari supports the goal of preventing the exploitation of minerals violating human rights. As part of Ferrari’s Among other things, we: commitment to respect and promote human rights • expect our suppliers to assure that the 3TG in their and the sustainability of its operations, Ferrari products do not directly or indirectly finance or benefit selects suppliers based not only on the quality and armed groups in the Covered Countries; and competitiveness of their products and services, but also • require all of our 3TG suppliers to conduct the on their adherence to social, ethical and environmental necessary due diligence and provide us with adequate principles, as outlined in Ferrari’s Code of Conduct. information on the country of origin and source of the Many geopolitical experts believe that conflicts may materials used in the products they supply to us. increasingly arise over access to raw materials. For this reason, Ferrari places a high priority on responsible In 2019, 94% of Ferrari’s direct suppliers by purchased sourcing and the integrity of its suppliers. value submitted responses to our survey. We are strongly committed to increasing the coverage of our analysis and The cars we produce contain various metals, which may the response rate through targeted actions. include tantalum, tin, tungsten and/or gold (collectively, “3TG” or “Conflict Minerals”). Ferrari has developed strategies addressing Section EXCEEDING EXPECTATIONS 1502 of the Dodd-Frank Act, as well as subsequent Innovation is in our DNA and we will continue pushing rules promulgated by the U.S. Securities and Exchange boundaries to respond to customers’ desires, always Commission (collectively, the “Conflict Mineral Rules”), setting new standards in the “Ferrari way”. requiring companies to determine whether 3TG in their supply chain originated from the Democratic Republic RESEARCH, INNOVATION AND TECHNOLOGY of the Congo and its adjoining countries (collectively, the Innovation drives products and processes, which “Covered Countries”), and whether the procurement represents one of our key differentiating factors. This is of those minerals supported the armed conflict in this why we are focused on developing new technologies and region. Due to the complexity of our supply chain, we are distinctive designs. dependent upon suppliers to provide the information necessary to correctly identify the smelters and refiners Participation in the Formula 1 World Championship with that produce the 3TG contained in our products and take Scuderia Ferrari is an important source of technological appropriate action to determine that these smelters and innovation, which is then transferred or adapted into our refiners source responsibly. road cars, such as the hybrid configuration of the SF90 We strive to ensure that legitimate business activities account the three defining dimensions of Ferrari cars: and the livelihoods of individuals in Covered Countries performance, versatility and comfort, as well as driving are not harmed by our efforts. To this end, we promote emotions. In addition to these internally driven factors, responsible sourcing in Covered Countries. regulation is key in determining the direction of technical Stradale. Moreover, our development efforts take into In accordance with the Organization for Economic Co- innovation. operation and Development (OECD) Guidance, we have One of our other main focuses is on innovating our established an internal management system in relation working methods, which involves stimulating the to the supply of Conflict Minerals with the objective, inter creativity of our employees. With this in mind, we have alia, of: (1) minimizing the trade in Conflict Minerals that implemented programs designed to encourage the directly or indirectly finance or benefit armed groups development of ideas and solutions that will improve anywhere in the world; and (2) enabling legitimate products, methods and the working environment. Pole minerals from conflict and high risk regions to enter Position Evo, for instance, rewards ideas put forward by Ferrari’s global supply chain, thereby supporting the individual staff members. In 2020, we received around economies and the local communities that depend on 8,300 suggestions from employees. the export of such minerals. We have strengthened our engagement with suppliers, communicating our Our focus on excellence requires a strong collaboration 149 AR 2020 FERRARI N.V. / EXCEEDING EXPECTATIONS with our suppliers, and a handful of them are considered model represents a clear departure from prior models “key strategic innovation partners”. Collaborations and introduces new and distinctive aesthetic elements, with leading universities are also in place to foster the delivering constant innovation within the furrow of development of new ideas. tradition. Our designers, modelers and engineers work Technological breakthroughs are further enhanced innovative aerodynamic solutions within the elegant and through design. In 2010, the Ferrari Design Center powerful lines typical of Ferrari cars. together to create car bodies that incorporate the most was established as a best-in-class in-house design department to improve control over the design process The R&D investments and expenses to fuel the growth and to ensure long-term continuity of the Ferrari style. of the Group, as described above, are represented in the A guiding principle of the Ferrari style is that each new charts below7. R&D and CAPEX (€Mn) Expensed R&D and Capex Gross Capex 1,265 1,261 1,167 706 734 639 948 392 852 803 342 356 447 510 556 528 559 527 745 330 630 271 359 415 706 639 24 734 32 20 318 320 330 301 352 382 330 16 145 356 17 154 342 25 141 392 18 185 271 16 93 162 169 185 176 189 2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020 R&D expensed to the P&L PP&E Capitalised R&D Capex Other Intangible Assets CUSTOMER SATISFACTION We are devoted to the highest level of customer evaluating the quality of service and satisfaction of our satisfaction. We have a structured process to assess events. the overall customer satisfaction on product, service provided, events organized by us and the overall The results of the product and service satisfaction customer experience with the car. Specific KPIs are analyses are used to outline any necessary action plans constantly monitored and analyzed by the Marketing for current models and, additionally, to identify potential Intelligence department. The KPIs are measured through features to be added to the next generation of vehicles. bespoke surveys for each car launch and collected Recent surveys show that customer satisfaction for for every new model, from range vehicles to special Ferrari products and services has constantly stayed at a and limited editions. A similar approach is adopted for very high level. (7) Capital expenditures (Capex) include right-of-use assets recognized in accordance with IFRS 16 – Leases within PP&E, for approx. Euro 25 million in 2020 and for approx. Euro 13 million in 2019. 150 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The chart below shows the flow between clients, dealers and Ferrari. FERRARI CLIENTS Clients Inquiries Replies to Inquiries Market Research Activities (questionnaires & reports) s s e a i r n k n c a ti o b s s d e e u i r i e s f q e u Q e a i r d i n n n n a ti o s e u Q MARKETING INTELLIGENCE CUSTOMER CARE Questionnaires Questionnaires feedbacks Scorecard & Report DEALER AREA MANAGER Report & Analysis DEVELOPMENT PRODUCTION (for future models) (for current models) We have developed an integrated system between our customer care, dealers, marketing department and area managers to track all contacts with clients, manage inquiries and share the results of customer and dealer satisfaction analysis. VEHICLE SAFETY Vehicle safety is among our top priorities and Ferrari cars Regarding active safety, we believe that the future are always designed and manufactured with the safety of developments of vehicle safety will be linked to Advanced our customers and other road users in mind. Given the Driver Assistance Systems (ADAS) and Human-Machine nature of our cars, the electronic equipment is developed Interface (HMI), capable of preventing or mitigating with an integrated approach, ensuring the best balance crash occurrences. We are currently assessing between safety, control and best-in-class performance, the implementation of the most recent trends and to further enhance the Ferrari driving emotions. developments in terms of simplifying and easing the All of our range models are subject to a series of tests to any distraction. ADAS are included into our entire fleet obtain approval from the relevant authorities. Moreover, and we are working to implement new solutions for we start assessing all our new models at an early stage of our upcoming models, such as lane keeping assist and planning and design to identify areas of improvement. intelligent speed assist. interaction between the car and the driver to avoid To guarantee the highest level of passenger safety, we The SF90 Stradale, the first hybrid series-production develop both passive and active safety systems. car in Ferrari’s history, encapsulates the most advanced technologies developed in Maranello, including the Passive safety requirements are the initial guidelines HMI which, with its track-derived “eyes on the road, assigned to the engineers in order to define the design hands on the steering wheel” philosophy, takes on a of every component, from car framework to all the truly central role. The result is an HMI (Human-Machine retain components (airbags, seat belts, etc.). Moreover, Interface) that is a complete departure from previous specific devices are installed in racing cars to obtain FIA models. The “hands-on-the-steering-wheel” philosophy (Federation International de l’Automobile) approval. has consistently driven the development of the human- machine interface in every Ferrari F1 car and its With the aim of solving issues beforehand and reducing subsequent gradual transfer to our road-going sports the environmental impact of these activities, all tests cars. The SF90 Stradale’s steering wheel completes the are reproduced in a state-of-the-art virtual environment transfer process from racing and also ushers in a new before conducting them with real cars. era by introducing a series of touch commands that allow 151 AR 2020 FERRARI N.V. / VEHICLE SAFETY the driver to control the most important performance- Department is aimed at providing the workplace with related aspect of the car without ever taking their hands maximum acoustic comfort thanks to noise reduction off the wheel. The Head Up Display is another part of the solutions (source and reverberation). innovative HMI and allows various data to be projected onto the windshield within the driver’s field of vision so To promote an active lifestyle among our employees, that their attention is not distracted from driving. We we rely on our “Formula Benessere” program, aimed extended this innovative HMI to the Ferrari Roma and at providing preventative healthcare to employees and SF90 Spider. their children. A gym is available for all the employees at Maranello, while employees at the Modena plant have free membership in one of the city gyms, which BEING THE EMPLOYER OF CHOICE unfortunately closed for the most of 2020 due to the Covid-19 pandemic, therefore online training was The high attention and care for our products is the offered. Initially provided to the F1 racing team as part of foundation upon which Ferrari’s success is built and this their training program for the Grand Prix activities, the is feasible thanks to the efforts of the people working initiative was subsequently rolled out to all employees. in Ferrari. One of the many strengths is the ability to attract, retain and develop talents. Since 1997, we As part of the “Formula Benessere” benefits, have developed the “Formula Uomo” initiative, with the preventative healthcare is provided to all employees intention of developing a high quality working life for and their children. Medical specialists are available for our employees. In 2020, we carried out all the initiatives consultation in areas such as ophthalmic, cardiology, for our people, always in accordance with the most osteopathy and dermatology, among others. A free stringent the Covid-19 pandemic related laws and annual check-up focusing on general health and protocols. Over the years, the project has become a fitness is also provided to managers and children of pillar of our culture, based on redesigning the working all employees aged 5 to 15. In 2020, within the “Formula environment, enforcing a safety-first culture, enabling Benessere” initiative a special program related to individual development, enhancing teamwork and migraine and headaches was activated, with medical building a community now comprising 57 different visits carried out by a neurologist. The visits have also nationalities. been performed remotely in order to give everyone the opportunity to receive them during the Covid-19 WORKING ENVIRONMENT pandemic. We know that the best individual and team performance is only achieved if employees feel they are in the right Our attention to the promotion of health and safety environment. We also believe that the quality of our among our employees goes beyond what is required by products cannot be separated from the lives of the law and, to this effect, special workshops are organized people working in Ferrari. for employees to raise awareness on the importance of This is why the working environment and wellbeing of the these topics. Company’s employees are among our most important To foster a sense of belonging among employees and priorities, representing the key focus of our “Formula their families and to offer concrete support to working Uomo” initiatives. parents with the demanding duties of childcare during school holidays, we have launched the program Our complex in Maranello, a state-of-the-art work “Formula Estate Junior”. This initiative consists of a environment, was designed to reinforce the synergistic free day camp for employees’ children aged 3 to 13, relationship between work and results. With the needs with various programs including sports, outdoor of our employees firmly in mind, our manufacturing activities, excursions and workshops. The program, facilities are specifically created to combine carefully which has reached its 11th edition, allows children to designed lighting systems, projected to maximize the enjoy an exciting experience with a didactic purpose: amount of natural light, and several external and internal each edition of the “Formula Estate Junior” camp has green areas. Thermal comfort throughout the factory an educational theme developed by 136 professional is also a crucial requirement and, since 2013, the in- educators and is organized in collaboration with the plant foundry is equipped with a cooling system that local community. This edition, notwithstanding the makes it air-conditioned and climate controlled. Special Covid-19 pandemic, was organized to support our measures aimed at reducing the environmental impact employees in these difficult times. Despite increasing and noise through the use of advanced technologies are available spaces and educators, this resulted in a also in place. As an example, the design of our Machining reduced number of participants. 152 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements Education is also the focus of a series of different senior to junior workers, which in our manufacturing initiatives that provide scholarships to talented junior process takes place directly on the job because we high, high school and university students. In 2020, our believe in constantly maintaining excellence through scholarship program, named after our founder “Enzo “learning by doing”. Ferrari”, was awarded to 57 talented students with the awards handed out by our Chairman during an Human capital development ensures that our Company outdoor event. Moreover, in 2020 we reimbursed 698 has the appropriate skill set to execute the business employees for the cost of their children’s textbooks strategy and improve employee attraction, retention, as (reimbursement is offered to all employees’ children well as motivation, and, as a result, enhance productivity until high school and, in certain cases, we reimburse and the quest for innovation. Training requests for the cost of school textbooks for employees in continued employees who receive a regular performance and education). career development review, are identified during this review process in order to address the needs of both We offer additional benefits to our employees in five parties. different areas - food, free time, wellness, travel and personal services - including personalized loans at A Training Plan with three specific objectives is in place: competitive rates within the internal branch of a local – To protect and pass on the strategic and specific know- bank, special rates for housing needs and discounts at how of Ferrari the Ferrari Museums, Ferrari Stores and at the Ferrari • Among all the training initiatives in Ferrari, we are Company Outlet. In 2020, a new service was launched very proud of our “Scuola dei mestieri”, started in that gives the opportunity to Ferrari employees to 2009. It is a unique, in-house, technical training project delegate their own bureaucratic practices. which increases the professionalism of junior talents and motivates senior employees, recognizing their To foster the sense of belonging, the Company usually competencies by asking them to become Maestri organizes multiple events, which were paused in 2020 and to pass on Ferrari’s unique heritage to the next due to the Covid-19 pandemic. generation. The initiative combines different didactic methodologies, including on the job sessions and in- Over the last years, several culture and sport classroom training, both focused on the consolidation associations have been created: employees and former of competencies and skills, with a particular focus on employees that share a common interest have the innovation. Being a Maestro is an aspirational position opportunity to cultivate their passions and organize and key to the Company’s success. To this effect, in sport and recreational activities together. 2020, we paid homage to all the “Maestri” of the Scuola dei Mestieri who have supported this major training All these benefits are provided to all of our employees. project for the longest period. TRAINING AND TALENT DEVELOPMENT In 2020, we further consolidated the activities of the Along with the need to hire, develop and retain talents, previous year, with the three main areas of focus being: we are aware that we must manage human capital as a product innovation (mainly with regard to hybridization, critical resource to achieve the best possible results. HMI and new components, in a cross functional training), process innovation (as in the case of low bake The success, prestige and appeal of our brand depends painting and additive manufacturing) as well as support on the ability to attract talents and retain them. In and induction of new colleagues. particular, top drivers, racing management, engineering talent and all the employees that make Ferrari unique To ensure effective training opportunities to employees have to be rewarded based on their ability, determination, during the Covid-19 pandemic all the courses have and expectations. This is why we offer career been implemented through e-learning platforms and progression opportunities tailored to each individual’s webinars. A dedicated virtual library containing all strengths, ambitions and our Company’s requirements, the courses was created while a number of tablets underpinned by substantial investments in training. A were distributed among participants to guarantee total of over 63,300 hours (up 9.9% vs. 2019) of training accessibility. Such an effort guaranteed all the 2020 have been provided to the Company’s employees in 2020. scheduled course. This result was achieved mostly thanks to online training activities, such as the Harvard Manage Mentor e-learning Furthermore, within “Scuola dei mestieri” we platform. What makes Ferrari’s craftsmanship unique have implemented an activity called “Scuola delle is the direct transfer of knowledge and expertise from professioni”, dedicated to young engineers and all 153 AR 2020 FERRARI N.V. / BEING THE EMPLOYER OF CHOICE employees of the purchasing department, in order this platform has been customized according to our to provide them with an overview of all the phases of needs and the following three lines of development: product development and to pass on the Ferrari DNA. to integrate this platform with the Performance and Leadership Management system; to give employees, While the Maestri transfer their know-how to other especially newcomers, the basic managerial skills employees, we have also internally developed the that we consider essential requirements; and to “Department Team Leaders”, who are expert workers in adapt professional development paths based on our R&D and Manufacturing processes. employees’ career levels. An update on the current Covid-19 pandemic situation and its implications was – To shape and prepare the future managerial class for the included in the platform, as well as several training business, innovation, management and human capital activities on diversity topics sustaining our Equal Salary development challenges. Certification. • In 2020, despite the Covid-19 pandemic, the activities concerning the Ferrari Corporate Executive MBA In addition, an online training campaign is launched continued online. The objective of the master’s program every 3 months and includes all the corporate is to improve the management skills of the attendees, to mandatory trainings dedicated to new employees. let them gain experience on the most recent innovation These kind of campaigns are repeated periodically trends and to convey the Ferrari leadership model. This to provide a training update to all employees. Among master’s degree offers a unique tailor-made program the mandatory courses, a session is dedicated to our to form a critical mass within the management class Code of Conduct that covers also anti-corruption that will be able to grasp the challenges of the future, and human rights topics. In 2020, a mandatory online while at the same time preserving the tradition of campaign was launched on GT Purchasing, Product Ferrari. During the course of the studies, innovation Liability and Italian Legislative Decree 231/2001, talks, leadership scrums and site visits to production regarding the principle of corporate administrative plants are carried out. This master’s degree will help to responsibility for certain types of crimes committed develop a group of managers with a shared approach by qualified representatives of the Company in the to leadership, while respecting and valuing individual interest or to the advantage of the Company itself. differences. A group on which Ferrari can rely on to In 2020, further training activities were dedicated tackle future challenges. In 2021, in addition to the third to two specific Ferrari departments. The first edition of this master’s degree, a new one for junior was a training course dedicated to all members employees will be launched. of the purchasing department with the aim of enhancing the purchasing skills of the participants. In 2020, we completed a program of managerial This project was realized in partnership with the growth called “Fly the Flag” that involved all managers European Institute of Purchasing Management, of Direzione Tecnica with individual and group activities. which will provide a certification of completion to The objective of this program is to strengthen the all participants. The second activity, developed in peculiar characteristics of a manager: assuming collaboration with the Luiss Business School, involved responsibility, increasing accountability and enhancing the information and communication technologies teamwork. Cross-functional groups worked on department and consisted in a training course with integration objectives, with many proposals emerging at the aim of increasing internal expertise on key roles the end of the course. and processes in the organization. – To foster and support the inclusion, growth and In 2020, we consolidated the activities started the development of our people. previous years: we introduced the new employees to • In line with business and Company requirements, the “Ferrari way” to ensure know-how continuity and and coherently with the needs expressed in the continued to build employee skills in order to meet the Performance & Leadership Management system, ambitions of the future: 15 new cars between 2019-2022. training activities were provided in the managerial, All these training activities, combined with the quick technical and linguistic fields. transition to online platforms, resulted in an increase in the overall number of training hours provided compared Launched in 2019, we continue to offer our employees to the previous year. However, due to the Covid-19 the possibility to access the Harvard Manage Mentor pandemic, the in person training, such as “Scuola dei e-learning platform. The training provided through mestieri”, sharply decreased. 154 AR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements AVERAGE HOURS OF TRAINING Total 2020 2019 2018 13.90 13.45 13.40 TALENT RECRUITMENT AND EMPLOYEE RETENTION To ease employees into their new jobs, Ferrari provides a two-day induction program. The first day is dedicated The excellence that our products and our brand embody to introducing the Company culture and mission, as is what attracts and retains the best talents worldwide. well as guiding new employees through the corporate offices and production plants. The following day is At Ferrari, recruitment and selection is about sourcing focused on health and safety training. the right qualities and skills that will represent the backbone of our future success. Our recruitment To promote a responsible behavior during the process provides a platform to engage with future assembling phase of cars and engines, we launched employees, to assess competencies through a many years ago the “Pit Stop” and “Fiorano Race” structured selection process and to prepare for post- initiatives, where colleagues on the same shift are recruitment integration and development. assigned to “teams”, with key performance indicators in place for the improvement of quality, efficiency and The mission of the recruitment team is to identify, environmental sustainability. The teams are then ranked evaluate and bring onboard the individuals which are based on the data, with the best performers being aligned with our requirements and values. We received rewarded. Furthermore, we organize the “Pole Position in excess of 49,000 applications during 2020, including Evo” program to evaluate individual performances. specific as well as spontaneous applications from around the world for engineering, technical, marketing We reward our employees, excluding senior and financial positions. management, through a productivity bonus called “Premio di Competitività”, based on yearly shipments We also undertake exchange programs with top and adj. EBITDA results, as well as a product quality universities around the world to engage with index adjusted for individual absenteeism rates. In students, professors, career offices and a network 2020, each employee received around Euro 5,500 on of professionals in order to identify talents for the top of the additional Euro 2,650, as provided for in the future. We offer Company insight presentations, Agreement of 25 September 2019. testimonials by Ferrari staff, selected case studies at university campus and, for partner universities such The majority of our employees receive a regular as the Motorvehicle University of Emilia-Romagna performance review based on performance and (MUNER), we also offer the opportunity to visit the leadership behaviors, which ends with a final evaluation Ferrari facilities. These activities allow us to transmit from their assessors at the end of the year. Workers the key values of the Company, and therefore to engage undergo a different review, which is based on regular directly, or indirectly through communications and assessments, aimed at developing their career path. social media, nourishing our recruitment pipeline. Our program includes different graduate projects: In 2020, we further expanded the scope of the “Ferrari GT Academy” is dedicated to the recruitment employee performance evaluation process: around of engineering, production and commercial personnel, 2,200 employees received a performance evaluation with the aim of attracting, evaluating and hiring future through our specific online tool, covering almost 100% talents and establishing and consolidating partnerships of white collars and managers. This online tool allows with leading engineering universities and companies. us to track and share with employees and management “Ferrari F1 Engineering Academy”, active since 2015, the results of the assessment, including strengths is dedicated to the recruitment of talented engineers and improvement areas as well as their professional to be introduced to our F1 team. We regularly perform aspirations and the final evaluation. On the side, dedicated communication activities at universities, Ferrari organizes assessment classes with external integrating on-line testing as well as dedicated psychologists and HR experts with the aim of evaluating assessment centers managed in Maranello to ensure employee potential. These results are a fundamental that the most suitable applicants have the opportunity asset for succession plans in key positions, identifying to join the Ferrari team. career development opportunities and defining consistent retention actions. 155 AR 2020 FERRARI N.V. / BEING THE EMPLOYER OF CHOICE EMPLOYEES WHO RECEIVED A REGULAR PERFORMANCE AND CAREER DEVELOPMENT REVIEW BY EMPLOYEE CATEGORY Employee category Managers and Senior Managers Middle Managers White Collars Workers 2020 97% 99% 92% 0% 2019 86 % 73 % 66 % 0 % 2018 88% 72% 44% 0% Thanks to our career development program, Ferrari encourages the professional growth of its employees and tries to fill key positions with talented internal candidates OCCUPATIONAL HEALTH AND SAFETY before tapping into the external market. The results of We are particularly focused on the safety of our people the analysis carried out on our key positions covered by and we are dedicated to the prevention of accidents our employees are used to develop specific succession at work8. Our hazard identification, risk assessment plans, with a timeframe of 2-4 years, to ensure the and incident investigation processes are developed in competitiveness of Ferrari over time and to take advantage accordance with the highest international and national of our employees’ talents. voluntary standards and normative requirements on health and safety. In addition to formal meetings In 2019, Ferrari S.p.A. started an in-depth analysis on equal being held with employee representatives, periodic remuneration which, in July 2020, led to the award of the meetings are also held with management to review Equal Salary Certificate for providing equal pay to men safety issues. Periodic internal health and safety and women with the same qualifications and positions in audits are performed to ensure compliance with our the Company. This accreditation attested the Company’s health and safety management system, current laws commitment to creating an inclusive and diverse working and best practices. Ferrari S.p.A. health and safety environment while fostering career development for management system is certified ISO 45001:2018, a everybody. Ferrari was the first Italian Company to receive voluntary international standard, which specifies the this specific certification. The certification process requirements of an occupational health and safety included a detailed statistical analysis of compensation management system with reference to the activities levels, which revealed that the Prancing Horse is one of performed within the premises of the organization by Europe’s companies having successfully eliminated the its employees or external workers. Also the Mugello gender pay gap. Ferrari sees this certification not as an end Circuit S.p.A. is certified ISO 45001:20189. point but as a further stage of growth and an opportunity to implement tangible actions to ensure that everyone can pursue their professional growth. EHOURS OF HEALTH AND SAFETY TRAINING PER YEAR AND NUMBER OF PARTECIPANTS10 2020 2019 2018 In 2020, Ferrari also joined Valore D, an association with Training hours 18,169 22,313 21,358 over 200 member companies in Italy, whose commitment is to promote gender balance and an inclusive culture in Number of participants organizations and across the country. 3,089 2,927 2,439 For the second year in a row, our effort to guarantee We continue to make significant investments in safety employee attraction and retention was also recognized by at work: improvements in the existing structures and the Top Employers Institute in January 2021. specific training have allowed us to achieve significant (8) In this section, we refer to Ferrari S.p.A., which operates primarily in the Maranello and Modena plants and to Mugello Circuit S.p.A., which operates the Mugello racing circuit. (9) Ferrari S.p.A and Mugello Circuit S.p.A include 94% of all Ferrari Group employees. (10) The figures provided refer to all employees and external staff of Ferrari S.p.A and Mugello Circuit S.p.A.. 2018 data do not include Mugello Circuit S.p.A.. 156 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements results. Mandatory health and safety training is provided updated dynamic health protocol is in place and a specific to all new hires during the second day of the induction health and safety section is part of the training program of program, while periodic sessions are developed for all the Department Team Leaders. employees. We provide employees who test our cars with specific on-track driving training to make sure they have The table below shows the trend in accidents over the all the skills required to perform emergency maneuvers, last three years. In 2020, the injury rate was 1.0, with 6 if necessary. As shown in the table above, in 2020, the occurrences (10 in 2019) and no high-consequence work- number of training hours is lower than in the previous related injuries or fatalities occurring. Each work-related two years, mainly due to the Covid-19 pandemic. Pursuant injury is analyzed to determine the cause and appropriate to the Italian legislation, during the consequent lockdown measures to avoid recurrence are then implemented. The period all the training activities were stopped, with some types of work-related injuries include lacerations, bruises of them carried out later remotely. In addition, a constantly and one case of fracture. NUMBER OF INJURIES AND INJURY RATE11 Total number of injuries of which more than 3 days of absence (excl.high-consequence injury and fatalities)12 of which high-consequence injury of which fatalities Total injury rate13 of which more than 3 days of absence (excl.high-consequence injury and fatalities)14 of which high-consequence injury of which fatalities Hours worked 2020 2019 2018 6 4 0 0 1.0 0.6 0 0 10 7 0 0 1.5 1.1 0 0 12 8 1 0 2.2 1.4 0.2 0 6,280,881 15 6,471,529 5,524,896 During the course of 2020, one injury has been recorded for an agency worker, resulting in 4 days of absence. OUR EMPLOYEES IN NUMBERS As of December 31, 2020, Group16 employees were 4,556, an increase of 6.3% compared to December 31, 2019 (4,285). We expect to continue growing over the next few years in order to meet our strategic plan. Number of employees Total of which women December 31, 2020 December 31, 2019 December 31, 2018 4,556 14.8% 4,285 14.0% 3,851 13.0% We also rely on external collaborators such as contractors, self-employed persons, workers hired through external agencies and interns. (11) The figures provided are referred to all the employees of Ferrari S.p.A. and Mugello Circuit S.p.A., with the exception of Managers and Senior Managers; this category of employees did not incur any injuries in 2020. 2018 data do not include Mugello Circuit S.p.A.. All data does not include first aid medical treatments. (12) Injuries that must be reported to INAIL (Italian National Institute for Insurance against Accidents at Work), according to Italian legislation. (13) The injury rate is the ratio of the number of injuries reported to the number of hours worked (including overtime), multiplied by 1,000,000, excluding commuting accidents. (14) Injuries that must be reported to INAIL (Italian National Institute for Insurance against Accidents at Work), according to Italian legislation. (15) In 2020, total hours worked decreased mainly due to the seven-week production suspension caused by the Covid-19 pandemic. (16) In this chapter, “The Group” refers to all the legal entities indicated as consolidated line by line by Ferrari N.V. in 2020 Annual Report. 157 AR 2020 FERRARI N.V. / OCCUPATIONAL HEALTH AND SAFETY PERCENTAGE OF EMPLOYEES PER EMPLOYEE CATEGORY BY GENDER Employee category Managers and Senior Managers Middle Managers White Collars Workers Total December 31, 2020 December 31, 2019 Male Female 85.4% 84.1% 75.8% 92.2% 14.6% 15.9% 24.2% 7.8% Total 137 603 1,583 2,233 Male Female Total 86.2% 85.5% 76.6% 92.2% 13.8% 14.5% 23.4% 7.8% 123 566 1,417 2,179 85.2% 14.8% 4,556 86.0% 14.0% 4,285 As indicated in the table above, compared to the previous year in 2020, the percentage of female employees slightly grew from 14% to 14.8%. This was mainly due to an increase in the “Middle Managers” category. PERCENTAGE OF EMPLOYEES BY AGE GROUP Employee category December 31, 2020 December 31, 2019 <30 30-50 >50 Total <30 30-50 >50 Total Total 15.2% 66.8% 18.0% 4,556 16.0% 66.1% 17.9% 4,285 The majority of the workforce is between the age of 30 and 50 (66.8%). NEW EMPLOYEE HIRES AND EMPLOYEE TURNOVER New Hires Departures New Hires (%) Departures (%) ABSENTEEISM RATE IN ITALY17 Employees 2020 405 134 8.9% 2.9% 2019 627 193 14.6% 4.5% 2020 1.53% 2019 1.37% REDUCING ENVIRONMENTAL FOOTPRINT Our most significant environmental efforts are deployed two plants cover a cumulative area of approximately through efficiencies in the manufacturing processes and 780,000 m2. We also own the Mugello racing circuit in a program for the reduction of polluting emissions. Scarperia, near Florence (Italy), which covers an area of 1,700,000 m2 (of which 1,200,000 m2 of green or tree- manufacture aluminum bodyworks and chassis. The OUR ENVIRONMENTAL RESPONSIBILITY covered areas). We assemble all of our cars and manufacture all the engines used in our cars or sold to Maserati at our We directly operate 18 retail stores and maintain offices for production facility in Maranello18 (Italy). The Carrozzeria our foreign subsidiaries and other smaller facilities in Italy, Scaglietti plant, located in Modena (Italy), is where we such as the Museo Enzo Ferrari (MEF) in Modena and the (17) The absenteeism rate is calculated as a ratio of hours lost for sickness divided the number of hours to be worked. The perimeter considered relates only to Ferrari N.V., Ferrari S.p.A. and Mugello circuit S.p.A. employees. (18) Maranello production facility is composed by the main offices and production buildings, the “Nuova Gestione Sportiva” building and the adjacent Fiorano track (of approximately 3,000 meters). 158 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements Ferrari museum in Maranello. The environmental impact minimize the negative impact of our activities on natural of these additional facilities is deemed negligible and is resources and the global environment. excluded in this chapter’s data. The Mugello Circuit S.p.A. obtained and renewed the The monitoring and management of the environmental certification for the environmental management system with performance of our productive plants is assigned to a ISO 14001 and EMAS (Eco-Management and Audit Scheme). team that reports to our Chief Manufacturing Officer. Their Moreover, in 2020, Mugello Circuit S.p.A. obtained the ISO effort is aimed at minimizing the impact of our activities 20121 certification, the international standard for sustainable on the environment, particularly in relation to the energy event management. To date, Mugello Circuit is the first circuit consumption of the production facilities. A different team in the world to obtain this certification. This standard applies is in charge of overseeing regulatory developments while to the activities related to the events hosted and is evidence monitoring the emissions of Ferrari cars. of the commitment of Mugello Circuit to implement a responsible and sustainable management system. Part of the environmental impact of our activities are related to the product lifecycle. Ferrari cars are EFFICIENT ENERGY USE perceived as collectibles and therefore the number of Our culture embraces a rational use of energy, which is cars demolished each year is very scarce. In addition, mainly utilized for the manufacturing of cars and engines. the products are generally not considered means of Over the years, the Group has strived to lower its energy transportation. PLANTS AND CIRCUITS consumption and to minimize its environmental impact, adopting innovative solutions and using renewable energy sources for its manufacturing facilities. In 2008, we installed ENVIRONMENTAL MANAGEMENT SYSTEMS our first solar panels and subsequently increased capacity We have invested heavily to minimize our environmental in 2011 and 2015. Since 2014, Ferrari S.p.A. has been impact since 2001, when the Company was given the ISO purchasing electricity with Guarantee of Origin certificates. 14001 certification for our plants in Maranello and Modena. In 2016, we obtained the renewal of the certification of our In addition, from 2009, we started using electricity along environmental management system according to the new with hot and cold water generated by the trigeneration standard ISO 14001:2015. In addition, in 2007, we obtained plant19. In 2020, the trigeneration plant produced 81% of and renewed the Integrated Environmental Authorization. the electricity needed for the Maranello plant, while the As mentioned in our Environmental Policy, our effort is to remaining 19% originated from renewable sources20. ENERGY CONSUMPTION WITHIN THE ORGANIZATION Unit of measurement: GJ Non-renewable fuel consumption Natural Gas (used for trigenerator) Natural Gas (for other uses) Gasoline Diesel 21 Total electricity bought for consumption From renewable sources From non-renewable sources Electricity self-produced for consumption22 Electricity sold Total 2020 2019 1,514,543 1,623,478 1,079,005 1,126,190 375,476 433,987 47,408 53,701 12,654 9,600 108,160 116,354 107,097 110,199 1,063 3,687 6,155 3,344 (7,545) (9,250) 1,618,845 1,733,926 (19) Even if the trigenerator plant was bought by Ferrari in September 2016, data referring to energy consumption and emissions consolidate trigenerator plant data for the whole 2016 for comparative reasons. (20) Thanks to our photovoltaic system and the purchase of Guarantee of Origin certificates. (21) 2020 data also include Ferrari’s trucks and power generator related to F1 activities. (22) From photovoltaic. 159 AR 2020 FERRARI N.V. / REDUCING ENVIRONMENTAL FOOTPRINT The total energy consumption within the Group for 2020 (NetZeb), meaning that the total amount of energy used was 1,618,845 GJ, with a decrease of 6.6% from 2019 by the building is approximately equal to the amount of (1,733,926GJ). This decrease was mainly due to seven- renewable energy it generates. In 2020, we continued on week production suspension caused by the Covid-19 the construction of the new building related to new GT pandemic. sport activities, that will be completed in 2021. We are constantly implementing actions such as the AIR EMISSIONS replacement of traditional illumination systems to LED technology and the use of pumps with inverter The emissions of CO2eq deriving from the Maranello and Modena plants and from the Mugello racing circuit technology in the industrial water distribution system. (Scope 1 and Scope 2 market-based) are equal to 88,380 As of today, all our new buildings in Maranello are Class A-ranked and the Formula 1 team headquarters comply with the new net zero energy building protocol tCO2eq in 2020, compared to 94,615 tCO2eq in 2019, 91,773 tCO2eq in 2018, 92,609 tCO2eq in 2017 and 93,086 tCO2eq in 201623. DIRECT AND ENERGY INDIRECT GHG EMISSIONS Unit of measurement: tCO2eq Scope 124 88,242 93,789 91,001 91,789 92,319 Scope 2 (market-based method)25 138 826 772 820 767 Scope 2 (location-based method)26 10,095 11,603 9,219 9,822 9,105 2020 2019 2018 2017 2016 GHG Protocol (WRI, WBCSD) definitions In 2020, our Scope 1 decreased compared to 2019, mostly due to the seven-week production suspension caused by the Covid-19 pandemic. Our Scope 2 market-based GHG emissions were 138 tons CO2eq. This reduction was achieved thanks to the purchase of renewable energy by the Mugello racing circuit starting June 2020. If Ferrari had not purchased Guarantee of Origin certificates these emissions would have been higher by 13,863 tons27. Other significant air emissions are mainly related to volatile organic compounds (VOCs) released during vehicle manufacturing. In addition, NOX, SOX and dust emissions are constantly monitored. OTHER SIGNIFICANT AIR EMISSIONS Unit of measurement: Kg NOX SOX Volatile Organic Compounds (VOCs) Dusts 2020 2019 59,293 43,991 1,086 1,073 46,439 43,393 3,090 2,155 (23) Regarding scope 2 emissions, measured in tons of CO2, the percentage of methane and nitrous oxide has a negligible effect on the total greenhouse gas emissions (CO2 equivalent) as indicated in the ISPRA Report “Atmospheric emission factors of CO2 and other greenhouse gases in the electricity sector”. (24) Direct greenhouse gas emissions, measured in tons of CO2 equivalent, were calculated using emission factors indicated in “Emission Factors from Cross-Sector Tools; March 2017” and “Global Warming Potential Values Guidance; May 2015”, published by The Greenhouse Gas Protocol. Gases included in the calculation of the Scope 1 GHG emissions: CO2, CH4, N2O, HFCs and other refrigerant gases. (25) Market-based indirect greenhouse gas emissions, measured in tons of CO2, were calculated using the Residual Mix emission factors indicated in “2019 European Residual Mixes, V.1.1”, published by AIB. The Group purchases Guarantee of Origin (GO) certificates in order to reduce the impact of CO2 emissions in the atmosphere. (26) Location-based indirect greenhouse gas emissions, measured in tons of CO2, were calculated using the emission factor indicated in “Confronti internazionali; 2018”, published by Terna. (27) Calculated using the market-based method and considering an alternative scenario in which Ferrari does not purchase Guarantee of Origin certificates for electricity 160 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements WASTE MANAGEMENT We acknowledge that rational use of raw materials, have been implemented. As an example, aluminum together with careful waste management, helps scraps are melted in the foundry to avoid waste, this reduce the environmental impact of the manufacturing is particularly important considering that aluminum process. In addition, innovative solutions and advanced is the first raw material (by weight) used in our technical processes minimize waste and negative manufacturing process. Other projects aimed at environmental impact. The reuse of production scraps reducing waste are undergoing a feasibility analysis. in our manufacturing process also has the objective of In particular, according to the concept of the circular reducing waste. economy, in some cases our production scraps can be used for our manufacturing processes (e.g. processed To achieve this target, a series of initiatives in the sand used in the foundry, aluminum that cannot be different phases of the manufacturing process smelted). WASTE BY TYPE28 NON HAZARDOUS WASTE Unit of measurement: tons HAZARDOUS WASTE Unit of measurement: tons Total 7,664.1 8,498.8 Total 2,121.0 2,676.6 2020 2019 2020 2019 Total waste for 2020 was equal to 9,785.1 tons, with a decrease of 12% compared to 2019, mainly due to the production suspension. The quantity of discarded sand from the foundry decreased due to the reduction in supply of engines to Maserati compared to previous years. This sand is no longer sold to a third party but is reused in the production cycle. LOGISTICS risks29, nor our production process can be considered We produce all of our vehicles and spare parts in our water intensive, we have developed a series of initiatives Maranello and Modena plants, however, our network of to reduce water consumption in our manufacturing third party dealers comprises 188 point of sales around processes. This commitment was reinforced by introducing the world. A meticulous work is constantly carried out to the adiabatic cooling system in our New Technical Center, optimize logistical operations with the aim of reducing the a new technology which allows us to save more water environmental impact and associated air emissions. compared to traditional methods. Moreover, we collect and reuse rainwater and condensation for domestic use. WATER MANAGEMENT We are well aware of the importance of a responsible All the water sourced comes from municipal water supplies management of water and, even if our plants are not located and wells: as of today, no water bodies are directly affected in areas exposed to high or extremely high overall water by the withdrawal of water. WATER WITHDRAWAL BY SOURCE30 Unit of measurement: ML Groundwater Third-party water Total water withdrawal33 2020 2019 All areas 496.0 205.4 701.4 of which areas with water stress31 18.4 0.0 18.4 All areas 460.2 166.0 626.2 of which areas with water stress32 33.3 0.0 33.3 (28) 2020 data includes waste generated by Ferrari S.p.A. in the plants of Maranello and Modena and warehouses and Mugello Circuit S.p.A.: 2019 data do not include waste of Mugello racing circuit that had an impact of less than 2% of the total waste produced by the Group. (29) Source: WRI Aqueduct 2014 (World Resources Institute, 2014). (30) The data does not include rainwater collected. This amount has an impact of less than 2% of the total water withdrawal. (31) 2020 data refers to Mugello racing circuit. (32) 2019 data refers to Mugello racing circuit. (33) Total water withdrawal refers to freshwater (≤1,000 mg/L Total Dissolved Solids). 161 AR 2020 FERRARI N.V. / REDUCING ENVIRONMENTAL FOOTPRINT We treat our wastewater in accordance with all applicable laws and regulations. All the wastewater of our plants is always monitored and channeled in the public sewage system and not directly into water bodies. The water used in some of the industrial processes (such as washing solutions or paint washing), before its discharge in the public sewer system, is treated by an industrial water treatment plant where it undergoes the necessary chemical, physical, and biological treatments. WATER DISCHARGE BY DESTINATION Unit of measurement: m3 Effluents / Water bodies Public sewer system Total 2020 2019 0 0 371,039 369,426 371,039 369,426 VEHICLE ENVIRONMENTAL IMPACT Through innovations in areas such as turbochargers, Part of the environmental impact of our activities engine downsizing, transmission, electric steering and is related to our product lifecycle. Ferrari cars are perceived as collectibles and therefore the number of hybrid technology we reduced our 2020 CO2 emissions by 12%34 (compared to 2014) on our entire fleet. cars demolished each year is very scarce. In addition, However, as a consequence of the impact of Covid-19 the cars are generally not considered means of pandemic on Ferrari’s supply chain and the resulting transportation. delay in the industrialization phase of the SF90 Stradale, our first hybrid series-production car, this achievement VEHICLE EMISSIONS is below our 15% reduction target. Consistent with our We are subject to a variety of laws and regulations mission to develop cutting edge sports and GT cars, that, among others, are related to car emissions product development efforts continually focus on and fuel consumption. Ferrari vehicles must comply improving core components such as the powertrain, with extensive regional, national and local laws and car dynamics and the use of materials such as special regulations, as well as industry self-regulations (including aluminum alloys and carbon fiber. The expertise those that regulate vehicle safety). However, we currently acquired in these fields has recently enhanced our benefit from certain regulatory exemptions because efforts to combine improved performance with we qualify as a Small Volume Manufacturer or similar reductions in CO2 emissions. designation in most of the jurisdictions where we sell our cars (for more details refer to the “Regulatory Matters” We have undertaken an important program to develop paragraph of 2020 Annual Report). hybrid and electric technology. One of the more relevant topics of this generation, the concept of the car We continue focusing on researching technologies in an era of climate change, will likely be an opportunity that further reduce emissions, such as hybrid engines. for us. Innovation runs within Ferrari, so the challenge We started working with hybrid technology back in of building a Ferrari for a low-emissions future is one 2011, when we introduced the HY-KERS (Kinetic Energy that we are already embracing. Recovery System) technology in our F1 cars, which was transferred in 2013 to LaFerrari, our first road car to use hybrid technology. Further enhancing the hybrid In 2020, we achieved a 35% reduction in CO2 emissions (compared to 2007) for our European fleet through technology, in 2014, we introduced hybrid power units in improvements in car’s energy efficiency. our F1 cars and, in 2019, we launched the SF90 Stradale, our first hybrid series-production car. (34) Total water withdrawal refers to freshwater (≤1,000 mg/L Total Dissolved Solids). 162 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements AVERAGE SPECIFIC CO2 EMISSIONS (FERRARI EU FLEET35) (E) Estimate ] m k / g i [ s n o s s m E 2 i O C 435 404 357 450 430 410 390 370 350 330 310 290 270 250 322 321 317 323 316 299 281 283 281 280 282 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E Registration year VEHICLE’S END OF LIFE We are committed to progressively develop our environmental governance, strategy, metrics and goals, We are not directly involved in product take back in line with best practices and TCFD guidelines. programs due to the nature of our business: the number of Ferrari cars demolished each year is very scarce as GOVERNANCE: Ferrari cars are perceived as collectibles, which the The Board of Directors, as a whole, is responsible for the Group also supports through its "Ferrari Classiche" overall strategy of the Company, including in relation to services and the active preowned market. sustainability and climate change topics. FURTHER CLIMATE-RELATED DISCLOSURES (“TCFD”) On these matters, within the Board of Directors, the Governance and Sustainability Committee, is responsible for, among other things, assisting and advising the Board of Directors, and acting under Ferrari is conscious of the risks and opportunities related authority delegated by the Board of Directors, with to climate change, as one of the more relevant defining respect to: monitoring and evaluating reports on the factors for long-term value creation. Group’s sustainable development policies and practices, The following section aims at providing a transparent governance globally; and reviewing, assessing and disclosure on climate change-related matters, in making recommendations as to strategic guidelines for line with the recommendations of the Task Force on sustainability, including climate change-related issues. management standards, strategy, performance and Climate-related Financial Disclosures (“TCFD”). The following paragraphs summarize how Ferrari is tackling At management level, in Ferrari, sustainability and climate- climate-change risks and opportunities in the areas related issues concern all Company functions. As the of Governance, Strategy, Risk, Management as well as decision-making body led by the CEO and composed Metrics and Targets. For further details, please see the of the heads of the operating segments and certain TCFD correspondence table at the end of this section. central functions, the Senior Management Team (“SMT”) is therefore the corporate body responsible for these topics. (35) The percentage considers the Group’s type-approved shipments and the CO2 emissions values according to requirements set by the European Union. 163 AR 2020 -35% FERRARI N.V. / FURTHER CLIMATE-RELATED DISCLOSURES (“TCFD”) Our Chief Financial Officer, a member of the SMT, is The SMT is responsible for identifying, prioritizing responsible for the Sustainability function that is involved in and mitigating risks and for the establishment and coordinating the activities within the Group with regard to maintenance of a risk management system across sustainability, promoting the discussion between different our business functions. The SMT reviews the risk teams and functions, and aiming at identifying risks and management framework and the Company’s key opportunities regarding sustainability and climate change. global risks on a regular basis. At least annually, our risk STRATEGY: Ferrari is aware of the challenges and opportunities posed management framework and risks are discussed with the Group’s Audit Committee. by climate change. Our CFO, who directly reports to the CEO, is responsible for the risk management function that is involved, Recently, Ferrari made significant and substantial strides among the other risks, in the assessment, monitoring on its journey to sustainability. This progress was driven by and management of climate related risks. Operating a sustainability strategy designed around five pillars. One of areas represent the first line of defense, they identify these pillars is “Reducing environmental footprint: increase and assess climate-related risks and in collaboration our environmental awareness to continuously set and with the central function of risk management those implement related programs and actions”. Our business risks are assessed, monitored and managed at strategy is also influenced by climate change-related corporate level. commitments and developments at the international, regional and national level, such as the Paris Agreement METRICS AND TARGETS: and Sustainable Development Goals (SDGs). In particular, Ferrari is committed to becoming carbon neutral over we take into consideration GHG-related normative the longer term. requirements and, as in many parts of the world, significant governmental regulation is driven by environmental, fuel We are in the process of determining our total carbon economy and emissions concerns. footprint. In addition to Scope 1 and Scope 2, in 2020 we implemented specific carbon footprint analysis In this context, our most significant environmental efforts on four of our key car models and in relation to our are deployed through a program for the reduction of 2019 Formula 1 activities. These studies allow us to polluting and GHG emissions, both at manufacturing and focus on elements to reduce our carbon footprint. product level. In particular, we are currently working on For example, through innovations in our vehicles, we developing hybrid powertrains and other innovations to meet specific regulatory requirements and preparing for a continue to target reductions in CO2 emissions of our fleet. At production site level, our purpose is to minimize low-emission future thanks to our DNA based on innovation. our environmental impact by implementing energy Climate change is a key megatrend for Ferrari. In the Guarantee of Origin certificates in order to increase coming years, we are planning to carry out the scenario the percentage of energy consumed by Ferrari analysis as well as setting scientific -based targets. derived from renewable sources, thus reducing the efficiency activities and by continuing to purchase RISK MANAGEMENT: corresponding CO2 emissions. Our risk management approach is an important business In our Sustainability Report we disclose our impacts driver and it is integral to the achievement of the Group’s and performance according to the requirements of the long-term business plan. We take an integrated approach GRI Standards. Moreover, we report two indicators to to risk management, where risk and opportunity monitor our economic growth and its climate impact: assessment are at the core of the leadership team the Carbon on net revenues ratio and the Carbon on agenda. Ferrari has adopted the last publication of the Adj. EBITDA ratio. These two indicators show that Ferrari COSO Framework as the foundation of its enterprise risk managed to decouple its economic growth from its management (ERM), which also integrates the analysis environmental impact. In other words, we keep on and assessment of socio-environmental risks, including growing our business activities while at the same time climate related risks. maintaining almost stable our CO2 emissions. The Board of Directors is responsible for considering the TCFD REFERENCE TABLE ability to control and manage risks crucial to achieving its For further details, please refer to the documents identified business targets, and for the continuity of the mentioned in the table below. Group. 164 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements TCFD AREA RECOMMENDED TCFD FURTHER REFERENCES Governance: Disclose the organization’s DISCLOSURE a) Describe the board’s oversight of climate-related risks and opportunities. • Annual Report: Board Report/ Corporate Governance. • Sustainability Report: Proactively fostering best practice governance/ Our Governance. • CDP Climate Change Questionnaire: C1 –Governance. governance around b) Describe management’s • Annual Report: Board Report/ Corporate Governance. climate-related risks role in assessing and managing • Sustainability Report: Proactively fostering best practice and opportunities. climate-related risks and governance/ Our Governance. opportunities. • CDP Climate Change Questionnaire: C1 – Governance. a) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term. • Annual Report: Board Report/Risk Factors; Risk, Risk Management and Control Systems. • Sustainability Report: Materiality matrix and stakeholder engagement/ Materiality matrix of Ferrari Group; Proactively fostering best practice governance/ Our Governance. • CDP Climate Change Questionnaire: C2 - Risks and Opportunities; C3 -Business strategy. • Annual Report: Board Report/Risk Factors; Risk, Risk Management and Control Systems. Strategy: Disclose the actual and potential impacts of climate related risks and opportunities b) Describe the impact of climate- • Sustainability Report: Materiality matrix and stakeholder on the organization’s related risks and opportunities engagement/ Materiality matrix of Ferrari Group; Proactively businesses, strategy, on theorganization’s businesses, fostering best practice governance/ Our Governance; Reducing and financial strategy, and financial planning. environmental footprint/ vehicles environmentalimpact. planning where such information is material. • CDP Climate Change Questionnaire: C2 - Risks and Opportunities; C3 -Business strategy. c) Describe the resilience of the organization’s strategy, taking into consideration different climate- • CDP Climate Change Questionnaire: C3 -Business strategy. related scenarios, including a 2°C or lower scenario. a) Describe the organization’s Systems. processes for identifying and • Sustainability Report: Proactively fostering best practice assessing climate-related risks. governance/ Our Governance. • Annual Report: Board Report/ Risk, Risk Management and Control • CDP Climate Change Questionnaire: C2 - Risks and Opportunities. • Annual Report: Board Report/Risk Factors; Risk, Risk Management and Control Systems. b) Describe the organization’s • Sustainability Report: Proactively fostering best practice processes for managing climate- governance/ Our Governance/ Sustainability Risks; Reducing related risks. environmental footprint/ Our environmental responsibility, Plants c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management. a) Disclose the metrics used by the organization to assess climate- related risks and opportunities in line with its strategy and risk management process. b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. c) Describe the targets used by the organization to manage climate- related risks and opportunities and performance against targets. and circuits, Vehicles environmental impacts. • CDP Climate Change Questionnaire: C2 - Risks and Opportunities. • Annual Report: Board Report/ Risk, Risk Management and Control Systems. • Sustainability Report: Proactively fostering best practice governance/ Our Governance. • CDP Climate Change Questionnaire: C2 - Risks and Opportunities. • Annual Report: Board Report/ Non financial statement. • Sustainability Report: Reducing environmental footprint/ Plants and circuits, Vehicles environmental impacts. • CDP Climate Change Questionnaire: C4 - Targets and performance; C6 -Emissions data; C7 – Emissions breakdowns; C8 – Energy. • Annual Report: Board Report/ Non financial statement. • Sustainability Report: Reducing environmental footprint/ Plants and circuits. • CDP Climate Change Questionnaire: C6 -Emissions data; C7 – Emissions breakdowns. • Annual Report: Board Report/ Non financial statement. • Sustainability Report: Reducing environmental footprint/ Plants and circuits, Vehicles environmental impacts. • CDP Climate Change Questionnaire: C4 - Targets and performance. Risk Management: Disclose how the organization identifies, assesses, and manages climate-related risks Metrics & Targets: Disclose the metrics and targets used to assess and manage relevant climate related risks and opportunities where such information is material. 165 AR 2020 FERRARI N.V. CREATING AND SHARING VALUE WITH THE COMMUNITY Our goal is to create and share long-term value with HaasF1Team, HPE COXA, Marelli, Maserati, Pagani, Scuderia our stakeholders. On the one side, the economic value AlphaTauri) in the region that represent the excellence of generated and distributed provides an indication on Italian brands, which of course includes Ferrari. how we created wealth, on the other, there are plenty of intangible resources and initiatives that contribute to the value creation processes. In this context, community FERRARI MUSEUM MARANELLO & MUSEO ENZO FERRARI (MEF) engagement and involvement with the local territory The Ferrari Museum Maranello invites visitors to are of fundamental importance to us, with particular experience the Prancing Horse dream first-hand, offering reference to Maranello and Modena, where all our cars are them a journey through the Group’s history, values and manufactured. To maintain alive the spirit of Ferrari and the automotive world. story of its founder Enzo Ferrari, two different museums have been established, attracting every year thousands of The Museo Enzo Ferrari is built around the house in which visitors from all over the world to the heart of the Italian Enzo Ferrari was born in 1898. The MEF tells the story of “Motor Valley”. FERRARI & EDUCATION Enzo Ferrari as a young boy discovering the irresistible allure of the world of motor racing, his career as a driver in 1920s, as the driving force behind the Scuderia Ferrari in We are aware of our responsibility towards the community the 1930s, and then as Ferrari, the Constructor, from 1947 and our efforts are directed to support its development, onwards. mainly through collaborations with local universities and thanks to the industry network in the Emilia-Romagna SCUDERIA FERRARI CLUB region. We believe that promoting the education of young We strive to maintain and enhance the power and passion talents is an essential step to reinforce the connection we inspire in customers and the broader community with local communities. Shaping brilliant engineers of automotive enthusiasts by continuing our rigorous with a specific academic background that focuses on production and distribution model, promoting hard-to- new technologies within the automotive industry, and satisfy demand and scarcity value in our cars. We also in particular innovative solutions for state-of-the-art support our brand value by enabling a strong connection performance in luxury cars, is also a prerequisite for the between Ferrari and our community of enthusiasts. Group to seize future opportunities. Scuderia Ferrari Club is a non-profit consortium company Ferrari aims to promote education in the local community founded in 2006 by Ferrari S.p.A. to coordinate the also at secondary school level by establishing long-term activities of the Scuderia’s many fans who have founded relationships with technical schools in Maranello, such as clubs around the world. Today the Company has over 209 the istituti tecnici superiori, and other towns nearby. officially-recognised Clubs in 24 countries. An incredible mix of different nationalities, cultures and lifestyles is Ferrari is partner of the Motorvehicle University of Emilia- united by one enduring passion for Ferrari. Scuderia Romagna (MUNER), an association which was strongly Ferrari Club also works with the Clubs to support the advocated by the Emilia-Romagna region. It was created organization of their events. Before joining Scuderia thanks to a synergistic connection between the universities Ferrari Club, an organisation must demonstrate a of Modena and Reggio Emilia, Bologna, Ferrara and Parma significant track record and engage in a conduct in line along with car companies (Lamborghini, Dallara, Ducati, with Ferrari’s values. METHODOLOGY AND SCOPE Through this Non-Financial Statement, we aim to provide our stakeholders with non-financial information, illustrate our sustainability strategy and our corporate social responsibility initiatives in 2020 (from January 1st, 2020 to December 31st, 2020) to ensure transparent and structured communication with our stakeholders. This Statement was prepared in accordance with the Dutch Civil Code, and with the Dutch Decree on Non-Financial Information (Besluit bekendmaking niet-financiële informatie), which is a transposition of Directive 2014/95/EU ‘Disclosure of non-financial and diversity information’ into Dutch law. The table below shows the internal references to the chapter(s) or paragraph(s) of this Annual Report where the relevant aspects of the Dutch Decree are discussed in particular. 166 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements DUTCH DECREE INTERNAL REFERENCE – CHAPTER / PARAGRAPH Business model • Our Business Policies and due diligence Principal risks and their management Thematic aspects • Corporate Governance • Proactively fostering best practice governance / Integrity of Business Conduct • Being the employer of choice / Working environment • Being the employer of choice / Training and talent development • Being the employer of choice / Occupational health and safety • Reducing environmental footprint / Environmental management systems • Risk Factors • Proactively fostering best practice governance / Sustainability Risks • Risk, Risk Management and Control Systems Environmental matters • Reducing environmental footprint / Vehicles environmental impact • Reducing environmental footprint / Plants and circuits; • Reducing environmental footprint /Further Climate-related Disclosures (TCFD) • Our Business • Proactively fostering best practice governance / Integrity of Business Conduct • Proactively fostering best practice governance / Responsible supply chain Social matters • Exceeding expectations / Research innovation technology • Exceeding expectations / Customer Satisfaction • Exceeding expectations / Vehicle safety • Creating and sharing value with the community / Ferrari & education • Being the employer of choice / Working environment • Being the employer of choice / Training and talent development Employee matters • Being the employer of choice / Talent recruitment and Employee Retention • Being the employer of choice / Occupational Health and Safety • Being the employer of choice / Our employees in numbers • Proactively fostering best practice governance / Integrity of Business Conduct • Proactively fostering best practice governance / Responsible supply chain Respect for human rights • Being the employer of choice / Talent recruitment and Employee Retention • Being the employer of choice / Occupational Health and Safety • Being the employer of choice / Our employees in numbers Fight against corruption and bribery • Proactively fostering best practice governance / Integrity of Business Conduct Supply Chain Conflict minerals • Proactively fostering best practice governance / Integrity of Business Conduct • Proactively fostering best practice governance /Responsible Supply Chain • Proactively fostering best practice governance / Integrity of Business Conduct • Proactively fostering best practice governance / Responsible Supply Chain This Statement is an extract of our Sustainability consolidated on a line-by-line basis (as indicated in the Report, that is prepared in accordance with the GRI note 3 “Scope of consolidation”. Environmental data and Standards: Core option. This Statement also includes information is reported for our principal manufacturing further climate-related disclosures in line with the facility in Maranello, for our second plant in Modena recommendations of the Task Force on Climate-related and for our Mugello racing circuit. Any exceptions, with Financial Disclosures (TCFD). This has been shared regard to the scope of this data, are clearly indicated with the Executive Officers of the Group and with the throughout this Statement. Governance and Sustainability Committee of the Board of Directors. Directly measurable quantities have been included, while limiting, as far as possible, the use of estimates. With regard to the financial data, the scope of reporting Any estimated data is indicated accordingly, additionally corresponds to that of Ferrari N.V.’s Consolidated certain totals in the tables included in this document may Financial Statements. not add due to rounding. Regarding the qualitative and quantitative data on social During the reporting period, we did not face any and environmental aspects, the scope of reporting significant change concerning the organization’s size, corresponds to Ferrari N.V. and our subsidiaries structure, ownership or supply chain. 167 AR 2020 FERRARI N.V. RISK MANAGEMENT PROCESS AND INTERNAL CONTROL SYSTEMS Our risk management approach is an important business driver and it is integral to the achievement of the Group’s long-term business plan. We take an FERRARI’S ENTERPRISE RISK MANAGEMENT PROCESS integrated approach to risk management, where The Ferrari Enterprise Risk Management system is risk and opportunity assessment are at the core of oriented by and structured in six different components: the leadership team agenda. The Board of Directors is responsible for considering the ability to control 1. Risk Governance: A structure through which our and manage risks crucial to achieving its identified organization directs, manages and reports its risk business targets, and for the continuity of the Group. management activities. The Risk Governance structure For this reason, Ferrari has developed varying encompasses clearly defined roles and responsibilities, appetites to achieve different strategic objectives, decision-making powers, a risk operating model and focusing attention at all relevant risk levels, from risk reporting lines. management to internal control. 2. Risk Culture: The values and the attitude consistent with our risk management culture are communicated to and Ferrari has adopted the last publication (“Enterprise understood at all levels of the organization. Risk Management - Integrating Strategy and 3. Risk Strategy & Appetite: Our risk management Performance”) of the COSO Framework (Committee principles are intended to enable the achievement of of Sponsoring Organizations of the Treadway our business plan, goals and strategic objectives. Our Commission) as the foundation of its enterprise risk risk appetite is balanced by risk tolerance, limits and management (ERM). The Senior Management Team associated protocols in case of a breach to control risk (“SMT”) is responsible for identifying, prioritizing levels within our organization. and mitigating risks and for the establishment and 4. Risk Assessment & Measurement: Established activities maintenance of a risk management system across that allow Ferrari to identify, assess and quantify potential our business functions. As the decision making body risks on regular basis. This activity allows Ferrari to led by the CEO and composed of the heads of the consider the potential impact that events may have on the operating segments and certain central functions, the achievement of the Company’s objectives. SMT reviews the risk management framework and 5. Risk Management & Monitoring: Management’s the Company’s key global risks on a regular basis. For response to manage, mitigate or accept risk. Risk those risks deemed to be significant, comprehensive management efforts create value through the use of risk response plans are developed and reviewed on information on risks and controls, in order to improve a regular basis to ensure the actions are relevant business performance. Systematically monitoring and sufficient. Our risk management framework is the identified risks and management activities against discussed with the Group’s Audit Committee at least on established metrics permits timely proactive response an annual basis. where warranted. 6. Risk Reporting: Reporting of risk and related information (e.g. mitigation activities) provide genuine insight into the strengths and weaknesses of the risk management activity. Disclosure of risk management information to key internal and external stakeholders, also supporting the decision-making processes. 168 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements RISK APPETITE The risk appetite of Ferrari, (i.e. the level of risk that Ferrari is willing to accept to achieve its objectives), has been defined based on the parameters identified below and will be applied to our strategy, Code of Conduct, company values and policies. Ferrari does not rank by importance the individual types of risk reported in this section because it believes such ranking would be an arbitrary exercise as all risks mentioned have relevance for the Group and the business. The types of risk identified are as follows: RISK CATEGORY RISK DESCRIPTION RISK APPETITE STATEMENT Strategic risks (S) Risks which affect or are created by Ferrari’s business strategy and could affect Ferrari’s long-term positioning and performance. Ferrari is willing to accept moderate risks in order to achieve its strategic objectives. Ferrari recognizes the need of continuing to invest in research and development to design and build technically innovative, aesthetically iconic and highly performing cars able to deliver the most Moderate “fun to drive” experience and feature design excellence. Strategic risks are taken in a responsible way considering both stakeholders’ interests in order to preserve its brand exclusivity, an extraordinary level of demand and the unique customer experience and the current technological and regulatory trends. Ferrari seeks to minimize execution risks on the plan by Risks impacting the internal implementing a manufacturing system capable of flexibly processes, people, systems meeting expected targets, maintaining a quality of products Operational risks (O) and/or external resources of the organization and affect Moderate and services in line with Ferrari’s customers’ expectations, developing and retaining talents within the organization, Ferrari’s ability to execute its securing business continuity as well as production line business plan. performances and ensuring the adequacy of our business Risks including areas such Ferrari has a cautious approach with respect to financial partners. Financial risks (F) as valuation, currency, liquidity, commodity and impairment risks. Risks of non-compliance with laws, regulations, local Compliance risks (C) standards, code of conduct, internal policies and procedures. Reputational risks (R) Brand image, credibility and/ Risks which affect Ferrari’s or integrity. Low risks. Ferrari continuously seeks to improve and strengthen its financial position to generate the required cash to finance its operations and reward its stakeholders. Ferrari does not tolerate infringements and abides to all applicable laws and regulations through the Zero implementation of preventive measures, the rigorous tolerance enforcement of its internal Code of Conduct to ensure that ethics and integrity are respected and the promotion of its values. Ferrari strives to protect and enhance its reputation by Zero mitigating all the potential threats that could impact the tolerance organization's reputation, credibility and the operational Health, Safety and Environmental risk (H) Risks which affect health and safety and the environment. Zero Tolerance integrity, while constantly increasing its brand awareness. Ferrari does not tolerate risks that could have effect on its employees or clients as well as on the environment of the surrounding world. 169 AR 2020 FERRARI N.V. KEY RISKS AND RISK TRENDS BRAND IMAGE (S/R) Ferrari assesses risks according to their potential impact, The preservation and enhancement of the value of the Ferrari likelihood and the entity’s preparedness, which, properly brand is crucial in driving revenue and demand for our cars. combined, determine an overall risk exposure to prioritize The perception and recognition of the Ferrari brand are of risks and focus the efforts on the most important ones. strategic importance and depend on many factors such Ferrari expects that the risk responses which have been as the design, technology, performance, quality and image implemented or that will be deployed when activated of our cars, as well as the appeal of our dealerships and by ad-hoc triggers, will mitigate the risks up to the level stores, the success of our client activities, and our general defined within the risk appetite. Below we identify and profile, including our brand’s image of exclusivity. discuss our key Company-specific risks. The risks listed and the response plans are not exhaustive and may be The prestige, identity and appeal of the Ferrari brand also adjusted from time to time. depend on the continued success of the Scuderia Ferrari racing team in the Formula 1 World Championship. KEY ASPECTS RESPONSE PLANS: Selective licensing of the Ferrari brand Monitor and maximize residual value of Ferrari cars Preserving brand value Selective choice of franchising partners Success of the Formula 1 team Dealer score cards Social Media management Ferrari Academy (in-house training center for dealers) Close monitoring of social media and Ferrari perception Adoption of a Ferrari Social Media Practice UNFAVORABLE GLOBAL ECONOMIC CONDITIONS (S) acceptability of luxury purchases may decrease and higher taxes may be more likely to be imposed on certain luxury goods including our cars. Deteriorating general economic conditions may affect disposable income and reduce consumer wealth, which In general, although our sales have historically been in turn may impact client demand, particularly for luxury comparatively resilient in periods of economic turmoil, goods, which may negatively impact our profitability and sales of luxury goods tend to decline during recessionary put downward pressure on our prices and volumes. periods when the level of disposable income tends to be Furthermore, during recessionary periods, social lower or when consumer confidence is low. KEY ASPECTS RESPONSE PLANS: Expanding in emerging markets, diversifying and monitoring economic trends; developing growth plans in line with growth in number of High Net Worth Individuals and Ultra High Net Dependency on mature economies, particularly in EMEA and the United States Worth Individuals Closely monitoring all market developments and continuously reviewing the countries in which we do business and their geo-political events Global economic development Monitoring budget and timing of capital expenditures Monitoring customers’ orders and waiting lists 170 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements COMPETITION (S) We face competition in all product categories and reputation for quality and the driving experience we offer our customers. markets in which we operate. We compete with other Several global luxury automotive manufacturers international luxury performance car manufacturers have increased competitive pressure for luxury cars which own and operate well-known brands of high- particularly in EMEA and the United States. Considering quality cars. Some of them are part of larger automotive that these are mature markets, we anticipate that existing groups and may have greater financial resources and market participants will try to aggressively protect or bargaining power with suppliers than us, particularly increase their market share. Increased competition in light of our policy to maintain low volumes in order to may result in pricing pressure, reduction of marginality preserve and enhance the exclusivity of our cars. We and our inability to meet our shipment targets, which believe that we compete primarily thanks to our brand could have a material adverse effect on our results of image, the performance and design of our cars, our operations and financial condition. KEY ASPECTS RESPONSE PLANS: Margin pressure Shipments Focus on client relationships, including Maranello Experience, selected participation for new model launches and Ferrari clubs Close contact with dealers and client programs Order book and residual value Indirectly support residual values through financial services products for pre-owned cars management Personalization services (Atelier and Tailor Made) NEW TECHNOLOGIES (S) more to achieve comparable results, sales of our cars or our profitability may suffer. Performance cars are characterized by leading-edge technology that is constantly evolving. In particular, We are gradually but rapidly introducing hybrid advances in racing technology often lead to improved and electric-electronic technology in our cars. In technology in road cars. Although we invest heavily in accordance with our strategy, we believe hybrid and research and development, we may be unable to maintain electric technology will be key to providing continuing our leading position in high performance car technology performance upgrades to our sports car customers, and and, as a result, our competitive position may suffer. As will also help us capture the preferences of the urban, technologies change, we plan to upgrade or adapt our affluent GT cars purchasers whom we are increasingly cars and introduce new models in order to continue to targeting, while helping us meet increasingly stricter provide cars with the latest technology. However, our emissions requirements. cars may not compete effectively with our competitors’ cars if we are not able to develop, source and integrate We expect to increase R&D spending in the medium term the latest technology into our cars. particularly on hybrid and electric technology-related projects. This transformation of our car technology Developing and applying new automotive technologies is creates risks and uncertainties such as the impact on costly, and may become even more costly in the future driver experience, and the impact on the cars’ residual as available technology advances and competition in the value over time, both of which may be met with an industry increases. If our research and development unfavorable market reaction. Other manufacturers efforts do not lead to improvements in car performance of luxury sports cars may be more successful in relative to the competition, or if we are required to spend implementing hybrid and electric technology. KEY ASPECTS RESPONSE PLANS: Increase of complexity of products and components New dominant design/ technologies Close monitoring of market and technological evolution Continuous alignment between R&D department and Product Marketing department Structured dealership network in order to offer a close after sales services to the clients Increase of complexity in after Global RRR (Retain-Recruit-Reward) project dedicated to dealerships in order to increase the sales activity efficiency and effectiveness of dealership network 171 AR 2020 FERRARI N.V. DELAY IN PRODUCTS LAUNCH (O) significant demands on us by requiring us to continuously evolve and improve our operational, financial and internal Our growth depends on the continued success of controls. Continued expansion and continuous increasing our existing cars, as well as the successful and timely of complexity of our car models also could increases the introduction of new cars. Our ability to create new cars challenges involved in maintaining high levels of quality, and to sustain existing car models is affected by whether management and client satisfaction, recruiting, training we can successfully anticipate and respond to consumer and retaining sufficient skilled management, technical and preferences and car trends. The failure to develop marketing personnel, supplying new components from our successful new cars or delays in their launch that could suppliers. result in others bringing new products and leading-edge technologies to the market first, could compromise our If we are unable to manage these risks or meet these competitive position and hinder the growth of our business. demands, our growth prospects and our business, results of operations and financial condition could be Our growth strategy may expose us to new business adversely affected. In detail, we may have potential delay risks that we may not have the expertise, capability or in new products launch resulting in lower revenues the systems to manage. This strategy will also place volumes than planned. KEY ASPECTS RESPONSE PLANS: Delay in product launch every product development project Close monitoring of business strategy, its results and adoption of timely corrective actions Structured internal process with assigned roles and responsibilities and defined activities for Project Management team in charge to define timing and monitoring every product development project DELAYS IN BRAND DIVERSIFICATION STRATEGY EXECUTION (O/R) The pandemic conditions could influence our capacity Furthermore, our capacity to recruit new business partners, in the current pandemic conditions, may be impacted resulting a potential delay in our strategy expansion. to correctly and timely execute our Brand Diversification If we are unable to manage the current conditions, strategy announced in 2019, which is centered on the monitor on a regular basis the achievement of the strengthening the deployment of our brand in non-car milestones and the potential misalignment between products and experiences. Our brand activities across results and milestones and put in place promptly the different jurisdictions have been, and may continue to necessary corrective actions, this may adversely affect be, adversely impacted, due to the temporary closure of our ability to achieve our strategy and prevent our the Ferrari stores, museums and theme parks to comply investments from generating the volumes and revenues with government orders, with an adverse impact on the estimated. In addition, if our strategy is not successful, our revenues originating from such activities. Our stores our brand image may be weakened or tainted. and museums were closed from mid-March, gradually reopening in May, with in-store traffic and museum visitors significantly lower after reopening compared to pre-pandemic levels. KEY ASPECTS RESPONSE PLANS: Brand diversification strategies Relationship with business partners (e.g. licensees, Assessment, qualification and monitoring of business partners ICT/online tools and activities to engage customers and potential new partners Close monitoring of business strategy, its results and adoption of timely corrective actions franchisees, theme parks, etc.) Social Audit procedures and supporting tools for conducting risk assessments and social audits to check compliance to the Minimum Required Ethical Standards 172 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements DEPENDENCE ON MANUFACTURING FACILITIES IN MARANELLO AND MODENA AND RELATIONSHIP WITH SINGLE SOURCE SUPPLIERS (O) Our Maranello or Modena plants could become unavailable either permanently or temporarily for a number of reasons, including contamination, power shortage or labor unrest. In addition, Maranello and Modena are located in the Emilia-Romagna region of Italy, which has the potential for seismic activity. If major disasters All cars sold and assembled by us and all engines we use such as earthquakes, fires, floods, hurricanes, wars, for our cars or we sell to Maserati are manufactured terrorist attacks, pandemics or other events occur, at our production facility in Maranello, Italy, where we our headquarters, Formula 1 activities and production also have our corporate headquarters and Formula 1 facilities may be seriously damaged, or we may have to activities. We manufacture all our car chassis in a nearby stop or delay the production and shipment of our cars. facility in Modena, Italy. Our business depends on a significant number of In the event that we are unable to continue production suppliers that provide raw materials, parts and systems at either of these two facilities, we would need to seek we require to manufacture cars and parts to run our alternative manufacturing arrangements which would business. We source materials from a limited number of take time and reduce our ability to produce sufficient suppliers. In addition, similar to other small volume car cars to meet demand. manufacturers, most of the key components we use in our cars are purchased from single source suppliers. KEY ASPECTS RESPONSE PLANS: Dependence on two manufacturing facilities located in close proximity to each other Production and operations suspension Single source suppliers for components Dependence on limited number of suppliers for raw materials Investments in the last 15 years to reduce the extent of possible damage from earthquakes High quality reputable suppliers assessed by the Supplier Risk Management Identifying alternative suppliers for critical components IT disaster recovery plans Insurance coverage ATTRACTION, DEVELOPMENT AND RETENTION OF TALENTS (O) and retain top drivers, racing management and engineering talent. Our success and our innovation capacity depends on If we are unable to attract, retain and incentivize senior the ability of our senior executives and other members executives, drivers, team managers and key employees of management to effectively manage individual areas of to succeed in international competitions or devote the our business and our business as a whole. capital necessary to fund successful racing activities, new models and innovative technology, this may The prestige, identity, and appeal of the Ferrari adversely affect the level of enthusiasm of Ferrari clients brand depend on the continued success of the for the brand and their perception of our cars, which Scuderia Ferrari racing team in the Formula 1 World could have an adverse effect on our business, results of Championship, which depends on our ability to attract operations and financial condition. KEY ASPECTS RESPONSE PLANS: Requirement for skilled Preparing current successful employees for future key positions engineers Requirement to attract and retain the best drivers Improving talent development program for key resources Talent reviews and succession plans Management potential Retention plans Labor unions Training and development 173 AR 2020 FERRARI N.V. FORMULA 1 REVENUES (O) In addition, our share of profits related to Formula 1 activities may decline if either our team’s performance Revenues from our Formula 1 activities depend principally worsens compared to other competing teams, or if the on the income from our sponsorship agreements and on overall Formula 1 business suffers, including potentially our share of Formula 1 revenues from broadcasting and as a result of increasing popularity of the FIA Formula E other sources. championship. If we are unable to renew our existing sponsorship Moreover, in order to compete effectively on track we agreements or if we enter into new or renewed have been investing significant resources in research sponsorship agreements with less favorable terms, and development and competitively to compensate our revenues would decline. Our capacity to renew our the best available drivers and other racing team existing sponsorship agreements and to have other more members. These expenses also vary based on changes competitive sponsorship agreements also depends on our in Formula 1 regulations that require modification performance in Formula 1 activities and our ability to win to our racing engines and cars. These expenses are Formula 1 championships, both drivers and constructors. expected to continue, and may grow further, including as a result of any changes in Formula 1 regulations, Furthermore, the COVID-19 pandemic has significantly which would negatively affect our results of operations impacted the 2020 Formula 1 season, resulting in a and consequently our capacity to attract new business reduced number of Formula 1 races and corresponding sponsorships. lower revenue accrual. KEY ASPECTS RESPONSE PLANS: F1 sponsorship revenues F1 financial regulation Internal organizational unit dedicated to F1 business partners Negotiation of new sponsorship contracts or renewal of current sponsorship contracts Defining new services and custom experience and different activities to provide to our sponsors Participation in Formula 1 Strategic Group Continuous monitoring and implementation of required changes in the F1 regulations and identification of early remediation plans CYBERSECURITY INCLUDING THIRD PARTIES VULNERABILITIES (O) brand may be damaged and our business, operating results and financial condition may be materially and adversely affected. Our IT systems architecture and industrial machinery are exposed to external cyber-attacks. The number In addition, we have to consider also that our third and sophistication of attacks have dramatically parties could be subjected to external cyber-attacks. In increased in recent years. Furthermore, external cyber case the third party is connected with our system, the organizations are currently better structured and cyber attacker could penetrate also our IT systems. organized than in the past and can more effectively perform cyber-attacks. If we are unable to protect our system IT systems architecture and industrial machinery, to design a well- Also in the next years, we expect to increase the functioning security architecture for our cars and to connectivity features of our cars. These new features promote good practices with our third parties, we are may increase the cyber security risk of our cars exposed to the risk that both our internal sensitive data with the chance that an external attack may occur. In and customers’ data stored in the cars can be stolen this case, potential impact may occur on road users and disseminated externally. Alternatively, the data in term of safety, operational conditions of cars, can be encrypted and a ransom could be requested financial impact and privacy damage. Furthermore, (ransomware practices). the reputation and the integrity and value of our 174 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements KEY ASPECTS RESPONSE PLANS: Increased sophistication of Cyber Attacks Third Parties cybersecurity Remote working impact on IT Security Cars connectivity Increasing our employees’ awareness on phishing activities and other ways to perform an external cyber attacks Continuous monitoring of potential external cyber attacks and remediation plans Assessment of internal vulnerability level (vulnerability assessment) and implementation of further technical actions where necessary Assessment and monitoring the cyber security maturity level of third parties (suppliers and dealers) and promotion of good practices Ferrari started gathering insights in Cyber Security and Connected Experience with different streams and internal projects NON-COMPLIANCE WITH LAWS, REGULATIONS, LOCAL STANDARDS (INCLUDING TAX) AND CODES (C) development plans and may limit the number and types of cars we sell and where we sell them, which may adversely affect our revenue and operating results. Our compliance controls, policies, and procedures We are subject to comprehensive and constantly may not protect us in every instance from acts evolving laws, regulations and policies throughout the committed by our employees, agents, contractors or world. We expect the legal and regulatory requirements collaborators that would violate the laws or regulations affecting our business and our costs of compliance to of the jurisdictions in which we operate, including keep increasing significantly in scope and complexity employment, foreign corrupt practices, environmental, in the future. In Europe, United States and China, for competition, and other laws and regulations. In example, significant governmental regulation is driven particular, our business activities may be subject to by environmental, fuel economy, vehicle safety and noise anticorruption laws, regulations or rules of other emission concerns, and regulatory enforcement has countries in which we operate. If we fail to comply with become more active in recent years. Evolving regulatory any of these regulations, it could adversely impact our requirements could significantly affect our product operating results, financial condition and reputation. KEY ASPECTS RESPONSE PLANS: Technical regulatory requirements regarding our cars HSE (Health, Safety and Environment) Tax Increasing knowledge and awareness of laws, regulations, standards and codes Monitoring, reviewing, reporting and adapting to relevant changes in rules and regulations Specific project teams activated in case of new requirements to put in place the required organizational and process changes Implement and update global HSE system Risk-based reviews of operations by HSE professionals Human Resources Strengthening IT infrastructure for standard operational procedures Legal Anti-Bribery & Corruption Code of Conduct Increasing internal compliance awareness and effective communication between central compliance team and managers working at the subsidiary level Communicating and implementing business conduct standards internally Maintaining a global whistle blower procedure 175 AR 2020 FERRARI N.V. EXCHANGE RATE FLUCTUATIONS, INTEREST RATE CHANGES, COMMODITY PRICES, CREDIT RISK AND OTHER MARKET RISKS (F) Ferrari has a positive cash flow that almost offsets the exposure to liquidity risk. The Group uses various forms of financing to cover the funding requirements of its industrial activity and for financing offered to customers and dealers. The terms of these financings, which include Ferrari operates in numerous markets worldwide and is bank facilities (committed and uncommitted), access to exposed to market risks stemming from fluctuations in capital markets and private placements, are intended currency and interest rates. The exposure to currency to limit the Group exposure to interest rate fluctuation. risk is mainly linked to our cash flows from sales which Approximately 29 percent of the Group’s total debt bears are denominated in currencies different from those floating interest rates and Ferrari enters into interest rate connected to purchases or production activities. We caps as requested by certain of its asset-backed financing incur a large portion of our capital and operating agreements for its financial services activities. Considering expenses in Euro while we receive the majority of our the current capital structure of the Group, Ferrari has not revenues in currencies other than Euro. entered into any interest rate derivatives other than the interest rate caps mentioned, however, the exposure is The main foreign currency exchange rate to which regularly monitored. Ferrari is exposed is the Euro/U.S. Dollar for sales in U.S. Dollars in the United States and other markets where the Ferrari’s most important financial asset is cash. It is held U.S. Dollar is the reference currency. In 2020, the value of on bank and deposit accounts with primary financial commercial activity exposed to changes in the Euro/U.S. institutions and money market funds. Our group policy Dollar exchange rate accounted for about 53 percent of requires us to continuously monitor counterparty risk and the total currency risk from commercial activity. Ferrari limit concentration of financial assets to a maximum of 25% uses derivative financial instruments (primarily forward of the total with a single financial counterpart. Ferrari owns currency contracts, currency swaps and currency a financial services portfolio secured on the titles of cars options) to hedge up to 90 percent of the principal or other guarantees, spread over more than 4,200 clients exposures to foreign currency exchange risk , typically that are mainly in the US. Impairment risk mainly relates for a period of up to twelve months. Derivatives financial to the financial services portfolio which is evaluated on an instruments are executed for hedging purposes only. individual basis for material or overdue credit positions. The Several subsidiaries are located in countries that are recoverable cash flows, their timing, recovery costs and outside the Eurozone exposing Ferrari to translational the fair value of any guarantees received. amount of any write-down is based on an estimate of the exchange risk, in particular the United States, China, Japan, Australia and Singapore. The Group monitors In addition, an increase of certain commodity prices can its principal exposure to translational exchange risk, have a negative impact on Ferrari’s results. Ferrari uses although there was no specific hedging in this respect at derivative financial instruments (primarily commodity the reporting date because the relative exposure is not swaps) to hedge a portion of certain exposure to material. commodity price risk. In addition, foreign exchange movements might also Further information is included in Note 31 to the negatively affect the relative purchasing power of our Consolidated Financial Statements. clients which could also have an adverse effect on our revenues and results of operations. KEY ASPECTS RESPONSE PLANS: Exposure to foreign exchange Foreign exchange hedging instruments authorized within the Company’s foreign exchange movements from non-Euro risk management policy related sales Monitoring interest rate movements for hedging purposes and execution of the foreseen Exposure to interest rate movements on financial assets and liabilities Exposure to commodity price Credit risk of default or insolvency interest rate caps Commodity hedging instruments defined and authorized for specific commodities’ price exposure risk Credit approval policies applied to dealers and retail clients. Bank guarantees, pre-payments (also title of the vehicle for the financial services business 176 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements INTERNAL CONTROL OVER FINANCIAL REPORTING Significant risks identified through the assessment process require definition and evaluation of key controls that address those risks, thereby mitigating Starting from October 2015 Ferrari N.V. is listed on the the possibility that financial reporting will contain any New York Stock Exchange (NYSE), while from January material misstatements. 2016 Ferrari N.V. is also listed on the Italian Stock Exchange (Mercato Telematico Azionario – MTA). In accordance with international best practices, the Group has two principal types of control in place: Our shares’ listing on regulated markets involves being • controls that operate at Group or subsidiary level, compliant with the related securities regulations and such as delegation of authorities and responsibilities, listing rules. In particular, publicly traded companies separation of duties, and assignment of access rights filing financial statements with the US Securities and to IT systems; and Exchange Commission are required to comply with the Sarbanes Oxley Act requirements, in particular sections 302, 404 and 906 that involve a periodical • controls that operate at process level, such as authorizations, reconciliations, verification of consistencies, etc. This category includes controls for management assessment of internal controls and CEO operating processes, controls for financial closing and CFO Certifications of Periodic Financial Reports processes and controls carried out by specific and SEC Filings. In addition, our independent registered service providers. These controls can be preventive public accounting firm is also required to report on the effectiveness of the internal control over financial reporting. (i.e., designed to prevent errors or fraud that could result in misstatements in financial reporting) or detective (i.e., designed to reveal errors or fraud that have already occurred). These controls may also be Under the COSO Internal Control-Integrated Framework, classified as manual or automatic, such as application- according to which the internal control system is defined based controls relating to the technical characteristics as a set of rules, procedures and tools designed to and configuration of IT systems supporting business provide reasonable assurance of the achievement of activities. corporate objectives, Ferrari has developed an Internal Control System over the Financial Reporting in order An assessment of the design and operating to assure completeness, accuracy and reliability of the effectiveness of key controls is carried out through group financial reporting. tests performed periodically during the year, both at Group and subsidiary level, using sampling techniques Within the above mentioned context, identification and recognized as best practices internationally. evaluation of the risk of misstatements which could have material effects on financial reporting is carried out The assessment of the controls may require the through a risk assessment process that uses a top-down definition of compensating controls and plans for approach to identify the organizational entities, processes remediation and improvement. The results of monitoring and the related accounts, in addition to specific activities are subject to periodic review by the manager that could potentially generate significant errors. Under the responsible for the Company’s financial reporting and methodology adopted by the Company, risks and related communicated by him to senior management and to the controls are associated with the accounting and business Audit Committee. processes upon which accounting information is based. 177 AR 2020 FERRARI N.V. REMUNERATION OF DIRECTORS INTRODUCTION 1. REMUNERATION STRATEGY FOR THE 2020 FINANCIAL YEAR The description below summarizes the guidelines and the principles followed by Ferrari in order to define and REMUNERATION PRINCIPLES implement the remuneration policy applicable to the The main goal of Ferrari’s remuneration strategy is executive directors and non-executive directors of the to develop a system which consistently supports the Company, and members of the SMT. In addition, this business strategy and value creation for all shareholders, section provides the remuneration paid to these individuals establishing a compensation structure that allows us for the year ended December 31, 2020. The form and to attract and retain the most highly qualified executive amount of compensation received by the directors talent and motivate such executives to achieve business of Ferrari for the year ended December 31, 2020 was and financial goals that create long-term value for determined in accordance with the remuneration policy. shareholders in a manner consistent with our core The Compensation Committee oversees the remuneration business and leadership values and taking into account policy, remuneration plans and practices of Ferrari and the social context around the Company. recommends changes when appropriate. The Committee is solely comprised of non-executive directors from the Board In defining the remuneration strategy, the Compensation of Directors who are independent pursuant to the Dutch Committee has taken into account certain principles which Corporate Governance Code. Through this document, characterize Ferrari’s remuneration policy, such as: Ferrari aims to provide its stakeholders with a high level of disclosure in order to strengthen the trust they and the 1. The identity, mission and values of the Company, to market place in Ferrari, and give them the tools to assess attract, retain and reward skilled women and men the Company’s remuneration principles and exercise who constitute the soul of the Company. Their passion, shareholders’ rights in an informed manner. The Company courage, creativity, ambition and pride constitute the may from time to time amend the remuneration policy, essence of Ferrari and fuel its legend to ever greater subject to our shareholders’ approval when necessary. heights. Being Ferrari means being part of a unique This Compensation Report consists of two sections: valuable resource. Together with all our employees future-focused team in which people are the most we’ve crafted the vision, mission and values that are the 1. Remuneration strategy: our current remuneration policy very essence of being part of Ferrari and which guide (which is available on our corporate website) governs our employees as we tackle our day-to-day challenges; compensation for both executive and non-executive directors. In 2020, Ferrari confirmed these remuneration 2. The provision of statutory requirements, with specific features through the positive vote expressed by focus on the Shareholder Rights Directive (Directive shareholders in the 2020 AGM. (EU) 2017/828) and the implementation thereof into Our current remuneration strategy further strengthens Dutch law; the alignment with shareholders’ interests and long-term sustainability of our business, adopting certain updates to 3 . International competitive remuneration market trends, reflect developing best practices in the Dutch Corporate based on the idea that it is becoming increasingly Governance Code. challenging to attract and retain employees in today’s tight market. For our executive directors and members 2. Implementation of remuneration strategy: details how of SMT, fixed remuneration, short-term incentives and remuneration features have been implemented during long-term incentives are calculated based on the position the 2020 financial year and actual remuneration received and responsibilities assigned to each, taking into account by each executive and non-executive director. In 2020, average remuneration levels on the market for positions there was no deviation from the remuneration policy. with similar levels of responsibility and managerial 178 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements complexity in large international companies, in order to 6. The views of the Board of Directors, members of SMT, maintain high levels of competitiveness and engagement; other senior leaders and all employees, in order to make the health and safety of the Company’s employees 4. Corporate governance and executive remuneration essential to the successful conduct and future growth best practices as expressed by institutional investor of the Company. In this respect and in line with the Dutch guidelines, developing a remuneration policy compliant Corporate Governance Code, the internal pay ratio is an with the Dutch Corporate Governance Code and the important input for determining the remuneration for the interest of Ferrari’s shareholders. We analyze any gaps Board of Directors; and in each of our remuneration components in order to guarantee a high level of alignment with the main 7. The centrality for Ferrari of value creation and the guidelines of our stakeholders; interest of our shareholders, the importance of which is recognized through the use of Total Shareholder Return 5. The societal context around and social support in respect (TSR) as a performance metric in the Company’s long- of the Company, developing a specific focus on trends in term incentive plans. The Compensation Committee sustainability among our employees. We are committed considers that the use of relative TSR remains one of the to provide a healthy and safe workplace for all employees most appropriate measures of long-term performance and stakeholders by implementing a high level of safety for Ferrari. Our stock performance since the time of standards to avoid potential risks to people, assets or the listing shows the centrality of this factor, enabling also a environment, in order to guarantee an optimal working strong correlation between pay and performance for our environment for all employees and attract the best Executives. talents. Our results in this field reflect, once again, our strategic commitment to protecting the environment and The main principles of Ferrari’s remuneration policy are ensuring personal safety; outlined in the chart below: ALIGNMENT WITH FERRARI’S STRATEGY Compensation is strongly linked to the achievement of targets aligned with the Company’s publically disclosed objectives PAY FOR PERFORMANCE Compensation must reinforce our performance driven culture and meritocracy COMPETITIVENESS Compensation set in manner to attract, retain and motivate highly qualified executives and very effective leaders LONG-TERM SHAREHOLDER VALUE CREATION Targets triggering any variable compensation are aligned to the long-term interests of shareholders COMPLIANCE Ferrari compensation policies and plans are designed to comply with applicable laws and corporate governance requirements 1 2 3 4 5 179 AR 2020 FERRARI N.V. / 1. REMUNERATION STRATEGY FOR THE 2020 FINANCIAL YEAR OVERVIEW OF REMUNERATION ELEMENTS the best corporate governance practices adopted by The structure of the remuneration applicable to our institutional shareholders and the recommendations of executive directors, non-executive directors and other the main proxy advisors, considering also the view of key management under Ferrari’s remuneration policy the stakeholders on the remuneration policy and main consists of some or all of the following elements: fixed features of the remuneration report. remuneration, short-term incentives, long-term incentives and non-monetary benefits. The remuneration for the financial year 2020, as described The Annual General Meeting of shareholders held on April General Meeting of Shareholders scheduled for April 2021. in this report, is subject to a consultative vote at the Annual 16, 2020 (the “2020 AGM”) approved the directors’ 2019 remuneration report and Ferrari’s remuneration policy. Louis Camilleri resigned from the Board as Chief The 2019 remuneration report was approved by 89.6% of Executive Officer in December 2020 for personal votes cast, while the remuneration policy was approved by reasons. Our Executive Chairman, John Elkann, has 77.3% of votes cast. This year we enhanced the disclosure taken on the position of interim CEO, while the Board of of our remuneration as compared to our disclosure Directors is in the process of identifying the successor of last year, including the full list of peers that we used to Mr. Camilleri. benchmark our executive compensation program and the level of achievement of the short-term incentives by Ferrari’s remuneration policy provides that a substantial members of the SMT. portion of the compensation of our executive directors The total remuneration paid in 2020 is aligned with each will receive a certain percentage of his or her total the remuneration policy: no deviations or derogations compensation only to the extent Ferrari and the executive were applied. The Compensation Committee regularly accomplish short and long-term goals established by the reviews the directors’ remuneration policy against Compensation Committee. and members of the SMT should be “at-risk”, meaning that The purpose and features of the different elements of our remuneration structure for 2020 are outlined in the table below: COMPONENT PURPOSE TERMS AND CONDITIONS AMOUNTS • Attract, retain and motivate Ferrari’s remuneration structure • Offer a highly competitive highly qualified executives to is organized as follows: compensation package achieve challenging results • Competitively position our compensation package Remuneration compared to the compensation • Fixed remuneration • Short-term incentives • Long-term incentives Structure of comparable companies, • Non-monetary benefits mainly represented by the Peer Group and companies that compete for similar talent • Reinforce our performance driven culture and meritocracy compared to the reference market • Reference Market: Roles with the same managerial complexity and responsibilities within comparable companies, including those represented by the Peer Group 180 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements COMPONENT PURPOSE TERMS AND CONDITIONS AMOUNTS • Executive Chairman: Fixed remuneration is set in relation to the delegated powers assigned over the term and positions held in line with the reference market • Executive Chairman: €250,000 annually • Former CEO: Fixed • Former CEO: €700,000 annually remuneration is set in relation to • Non-Executive Directors: the delegated powers assigned $75,000 annually Fixed Remuneration Reward skills, contribution and experience required for the position held over the term and positions held in line with the Reference Market • SMT Members: the fixed remuneration is related to the position held and the responsibilities attributed, as well as the experience and strategic nature of the resources, in line with reference market offering for roles of similar responsibility and complexity Short-Term Incentive Plan • Achieve the annual financial, 2020 Short-term incentives operational and other targets targets: and additional business priorities • Motivate and guide executives’ • Based on achievement of annually predetermined performance objectives activities over the short-term • Annual financial, operational and period other identified objectives • Align the behavior of executives shareholders • Equity awards to promote creation of value for the Long-Term Incentive Plan critical to the business with shareholders’ interests • Motivate executives to achieve long-term strategic objectives • PSUs and RSUs: vesting in instalments • Enhance retention of key linked to EBITDA; 20% linked to a resources qualitative factor related to the sustainability and innovation of business • SMT Members: the fixed remuneration is related to the position held and the responsibilities attributed, as well as the experience and strategic nature of the resource, in line with reference market offering for roles of similar responsibility and complexity • Executive Chairman: The Chairman compensation package for 2020 did not include any short-term incentives • Former CEO: The former CEO compensation package for 2020 did not include any short-term incentives • SMT Members: Variable incentive percentage of fixed remuneration based on the position held • Executive Chairman: Target pay-opportunity is 300% and maximum pay-opportunity is 400% of base salary, in accordance with the long-term shareholder value creation and pay for performance principles of Ferrari’s remuneration policy maximum pay-opportunity is 857% of base salary • SMT Members: variable incentive percentage of fixed remuneration based on the position held Customary fringe benefits such • PSUs: 50% linked to TSR compared to Peer Group, 30% • Former CEO: Target pay- opportunity is 643% and Non-monetary Benefits • Retain executives through a total reward approach • Enhance executive and employee security and productivity • Represent an integral part of as company cars and drivers, the remuneration package with personal/home security, medical welfare and retirement-related insurance, accident insurance, benefits tax preparation and financial counselling • Executive Directors, other • Executive Chairman and former SMT members, other senior CEO: 6 times net base salary Share Ownership • Ensures alignment with leaders and key employees Guidelines shareholders’ interests are expected to build up share • SMT Members: 3 times net base ownership over a period of 5 salary years 181 AR 2020 FERRARI N.V. / 1. REMUNERATION STRATEGY FOR THE 2020 FINANCIAL YEAR EXECUTIVE DIRECTORS’ PAY-MIX In light of the foregoing considerations, our Executive Chairman’s and former CEO’s compensation packages are structured as follows: Chairman Target Amounts Chairman Maximum Amounts 25% 20% 75% 80% Former CEO Target Amounts Former CEO Maximum Amounts 13% 10% 87% 90% Fixed Remuneration Short-Term Incentives Long-Term Incentives As shown in the charts above, our compensation structure places an appropriate amount of compensation 2020 REMUNERATION OF EXECUTIVE DIRECTORS AND SMT MEMBERS opportunities for our Executive Chairman and former CEO The Board of Directors determines the compensation at risk based on long-term results. At-risk compensation for our executive directors following the is based on financial and non-financial performance recommendation of the Compensation Committee measures and relative TSR. A significant portion of the and with reference to the remuneration policy. The compensation opportunities is delivered in equity, the compensation structure for executive directors and vesting and value of which are intended to align the SMT members includes a fixed component and a executive’s interests with shareholder returns. The variable component based on short and long-term Chairman and the former CEO compensation packages performance or, for our Executive Chairman and former for 2020 did not include any short-term incentives. CEO, based solely on long-term performance. We believe that this compensation structure promotes the Our remuneration policy is aligned with Dutch law and interests of Ferrari in the short and the long-term and the Dutch Corporate Governance Code. In particular, is designed to encourage the executive directors and the Dutch Corporate Governance Code requires listed SMT members to act in the best interests of Ferrari. In companies to disclose certain information about the determining the level and structure of the compensation compensation of their Board and executive directors. of the executive directors, the non-executive directors Through this remuneration strategy, Ferrari fulfills the will take into account, among other things, Ferrari’s requirements of the Code ensuring full transparency financial and operational results and other business with our shareholders. objectives, while considering the executive directors’ 182 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements view concerning the level and structure of their own along with two additional peer companies (added in order remuneration. Performance targets are set by the to benchmark a statistically significant number of peers Compensation Committee to be both achievable and and determined based on companies that have a chairman stretching, considering Ferrari’s strategic priorities and with powers and authority comparable to the powers the automotive landscape. The performance measures and authority of the Executive Chairman). The companies that are used for variable components have been forming part of the Peer Group for the Executive Chairman chosen to support Ferrari’s strategy, long-term interests target compensation benchmarking are listed below: and sustainability. We establish target compensation levels using a market-based approach and we monitor compensation levels and trends in the market. We also EXECUTIVE CHAIRMAN PEER GROUP periodically benchmark our executive compensation Aston Martin Lagoonda Brembo program against peer companies. In 2020 Ferrari conducted a benchmarking for the position of Chief Executive Officer and of Executive Chairman considering for the role of CEO an ad hoc peer group composed of 15 companies, representing Compagnie Financiere Richemont Ford Motors Hermes International Salvatore Ferragamo The Estèe Lauder Companies the reference panel, which is comprised of companies The target compensation of the Executive Chairman of with comparable business and labor market. Ferrari Ferrari is positioned far below the 25th percentile of the benchmarked its Chief Executive Officer’s total above peer group. Target compensation consists of fixed remuneration with those of listed companies deemed and variable compensation (target value of short-term comparable with Ferrari in light of some or all of the incentive and long-term incentive fair value), excluding following criteria: a) operating in the same business as fringe benefits and social contributions. Ferrari (Automotive); b) acting in similar sectors (car / motorcycle components); c) representing excellence and On the basis of the remuneration policy objectives, luxury in their respective sectors, d) presenting overall a compensation of executive directors and SMT members similar Market Cap, Revenues and number of Employees consists, inter alia, of the elements discussed below. Only with Ferrari. The companies in the peer group used for the long-term incentives element of variable compensation the CEO compensation benchmarking are listed below: was applicable to executive directors in 2020. CHIEF EXECUTIVE OFFICER PEER GROUP FIXED COMPONENT The primary objective of the base salary (the fixed part of Aston Martin Lagoonda Brembo the annual cash compensation) for executive directors Bayerische Motoren Worke Burberry Compagnie Financiere Richemont Daimler and SMT members is to attract and retain highly qualified senior executives. Our policy is to periodically benchmark comparable salaries paid to executives with similar Harley-Davidson Hermes International experience by comparable companies. Kering Moncler Renault Volkswagen LVMH Pirelli The Estée Lauder Companies VARIABLE COMPONENTS Executive directors and SMT members are also eligible to receive variable compensation subject to the achievement of pre-established financial and other identified performance targets. The short and long-term components of executive directors’ and SMT members’ The current market position for the former CEO’s target variable remuneration are linked to predetermined, compensation is below the 25th percentile of the above assessable targets in order to create long-term value for the peer group. Target compensation consists of fixed shareholders. and variable compensation (target value of short-term incentive and long-term incentive fair value), excluding Our variable compensation programs are designed to fringe benefits and social contributions. recruit, motivate and reward executive directors and The Executive Chairman’s peer group comprises the performance over time. The provisions and financial companies of the CEO’s peer group which have a Chairman objectives of our variable compensation programs are with powers and delegations comparable to Ferrari (5 evaluated on an annual basis and modified in accordance Companies out of 15 of those inserted in CEO peer group), with industry and business conditions. members of the SMT delivering operational and strategic 183 AR 2020 FERRARI N.V. / 1. REMUNERATION STRATEGY FOR THE 2020 FINANCIAL YEAR SHORT-TERM INCENTIVES The primary objective of our performance-based short-term variable cash-based incentives is to incentivize the members of the SMT to focus on the business priorities for the current or next year. The short-term incentive plan is designed to motivate its beneficiaries to achieve challenging targets, by recognizing individual contributions to the Group’s results on an annual basis. The Compensation Committee believes that it is appropriate to use a balance of corporate financial targets, strategic objectives and individual performance objectives. The methodology for Short Term Incentive Calculation is the following: Base Salary x STI% Adjusts opportunity based on business results Links directly to individual current contribution (x) $ Target Bonus X Company Performance Factor X Individual Performance Factor = STI Payout The target level for both the Company Performance The Compensation Committee established challenging Factor and the Individual Performance Factor is 100%, goals for each metric, each of which pays out reaching a possible maximum level which is equal to the independently. There is no minimum bonus payout; as a 150% of target set level. result, if none of the threshold objectives are satisfied, there is no bonus payment. To determine the executive directors’ annual performance bonus, the non-executive directors, upon In addition, upon proposal of the Compensation Committee, proposal of the Compensation Committee: the non-executive directors have authority to grant • approve the executive directors’ targets and maximum special bonuses for specific transactions that are deemed allowable bonuses; • select the appropriate metrics and their weighting; • set the stretch objectives; • consider any unusual items in a performance year to determine the appropriate measurement of achievement; and • approve the final bonus determination. exceptional in terms of strategic importance and effect on Ferrari’s results. The form of any such bonus (cash, common shares of Ferrari or options to purchase common shares) is determined by the non-executive directors from time to time. No special bonuses were awarded to the executive directors or members of the SMT for 2020. As described above, our executive directors (Executive In 2020, the Compensation Committee defined the Chairman and former CEO) were not included in the Company Performance Factor by reference to four Short-Term Incentive Plan in 2020, as the focus of their metrics: • Net Revenues (20%) role is primarily on the long-term view. • Consolidated Adjusted EBIT (20%) LONG-TERM INCENTIVES • Consolidated Adjusted EBITDA Margin (20%) We believe that the equity incentive plan discussed • Industrial Free Cash Flow (40%) below increases the alignment between the Company’s performance and shareholder interests, by linking the compensation opportunity of the executive directors and members of the SMT to increasing shareholder value. 184 AR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements EQUITY INCENTIVE PLAN 2019-2021 the right to receive one Ferrari common share, have On February 26, 2019, the Board of Directors approved a been awarded to the Executive Chairman, as well as to new equity incentive plan covering a performance period members of the SMT and other key employees of the from 2019 to 2021. The Equity Incentive Plan 2019-2021 is Group. The former CEO was not eligible for the Equity consistent with the Company’s business plan presented Incentive Plan 2020-2022. at the Capital Markets Day in September 2018. Under the Equity Incentive Plan 2019-2021, a combination of The Equity Incentive Plan 2020-2022 has the same performance share units (“PSUs”) and restricted share features of the Equity Incentive Plan 2019-2021, as units (“RSUs”), each representing the right to receive one described below. Ferrari common share, were awarded to the Executive Chairman and the former CEO of the Company (approved The PSU awards are earned based on the level of by Annual General Meeting on April 12, 2019), as well as achievement of defined key performance indicators to members of the SMT and other key employees of the relating to: i) a relative total shareholder return (“TSR”) Group. target (which is relative to the TSR of a peer group), ii) an EBITDA target, and iii) an innovation target. Each target is EQUITY INCENTIVE PLAN 2020-2022 measured independently of the other targets and relates On February 17, 2020, the Board of Directors approved to separate portions of the aggregate awards. The RSU a new equity incentive plan covering a performance awards are service-based and vest conditional on the period from 2020 to 2022. The Equity Incentive Plan executive directors’ continued employment with the 2020-2022 is consistent with the Company’s business Company at the time of vesting. plan presented at the Capital Markets Day in September 2018. Under the Equity Incentive Plan 2020-2022, a Details of the equity long-term incentives granted to the combination of “PSUs” and “RSUs”, each representing Executive Chairman (Interim CEO) are summarized below: TYPE OF EQUITY LONG-TERM INCENTIVE VEHICLE Equity Incentive Plan 2019-2021 Performance Share Units PROPORTION OF EQUITY LONG-TERM GRANT VESTING CYCLE 67% Vest at the end of 3-years Rolling Plan Executive Chairman (PSUs) (Interim CEO) Equity Incentive PERFORMANCE METRICS (WEIGHTING) OR VESTING CONDITION 1) TSR (50%) 2) EBITDA (30%) 3) Innovation Performance Goal (20%) Plan 2019-2021 Retention Restricted 33% Share Units (RSUs) Vest at the end of 3-years Rolling Plan Conditional on continued employment TYPE OF EQUITY LONG-TERM INCENTIVE VEHICLE Equity Incentive Plan 2019-2021 Performance Share Units PROPORTION OF EQUITY LONG-TERM GRANT VESTING CYCLE 67% Vest at the end of 3-years Rolling Plan Executive Chairman (PSUs) (Interim CEO) Equity Incentive PERFORMANCE METRICS (WEIGHTING) OR VESTING CONDITION 1) TSR (50%) 2) EBITDA (30%) 3) Innovation Performance Goal (20%) Plan 2019-2021 Retention Restricted 33% Share Units (RSUs) Vest at the end of 3-years Rolling Plan Conditional on continued employment The number of PSU awards earned is determined based on the level at which the three performance criteria described below are achieved. At the end of the vesting period, the total number of PSUs earned is equal to the sum of: • the number of PSUs earned under the TSR payout factor; plus • the number of PSUs earned under the EBITDA payout factor; plus • the number of PSUs earned under the Innovation Performance Goal. 185 AR 2020 FERRARI N.V. / 1. REMUNERATION STRATEGY FOR THE 2020 FINANCIAL YEAR METRICS (WEIGHT) METRICS (TYPE) BENCHMARK RATIONALE LINK BETWEEN PAY AND PERFORMANCE RANKING %OF TARGET AWARDS TSR (50%) Financial criteria Peer Group TSR is tracked for both Ferrari (8 companies: and the companies in the Ferrari, Aston defined Peer Group calculating Martin, Burberry, starting and ending prices as Hermes, Kering, an average of the 30 calendar LVMH, Moncler, days prior to grant and award Richemont) date 1° 2° 3° 4° 6° Earnings before interest, taxes, depreciation and amortization takes a company’s earnings, and EBITDA (30%) Financial criteria 5-year Business subtracts its cost of debt, cost Plan of goods sold and operating expenses and taxes, resulting in an indicator of Ferrari’s profitability 6° 7° 8° RANKING +10% +5% 5 Years Plan -5% <-5% 150% 120% 100% 75% 50% 0% %OF TARGET AWARDS 140% 120% 100% 80% 0% Innovation Performance Factor (20%) Non-financial Critical project criteria milestones The Innovation Performance Factor focuses on the new product launches in line with Ferrari’s plan and on technological innovation. It is measured in terms of product launches (milestones, volumes and contribution margin), for a weight of 70%, and key technological projects, for the remaining 30%, to be achieved during the performance period. Our non-financial criterion, the Innovation Performance 2021, would any performance above 100% of the target Factor, is included in the Equity Incentive Plans in order level of performance result in a payout higher than to have a performance indicator directly linked to the 100% of the target award. long-term sustainability and technological innovation of our business. In relation to the vesting of the PSUs awarded to the Executive Chairman, the vesting of all units under The TSR peer group was updated during the course of each plan will occur after the end of the relevant 2019 in order to consider more strategically relevant performance period (i.e., December 31, 2021 and comparable companies for Ferrari and remained the December 31, 2022), to the extent that the conditions for same in 2020. vesting are satisfied. In relation to the vesting of the PSUs awarded to the The performance period for the Equity Incentive Plan former CEO, for the interim performance periods 2019-2021 PSUs commenced on January 1, 2019. The ending on December 31, 2019 and December 31, 2020, fair value of the awards used for accounting purposes a maximum of 100% of the units subject to the TSR and was measured at the grant date using a Monte Carlo EBITDA payout factors would have been earned and Simulation model. The fair value of the PSUs that were vested even in case of performance above 100% of the granted to Mr. Elkann in 2019 is €111.64 per share target level of performance. Only at the end of the last and the fair value of the PSUs that were granted to Mr. interim performance period, ending on December 31, Camilleri in 2019 is €111.25 per share. 186 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The key assumptions used to calculate the grant-date fair financial counselling. The Compensation Committee values for these awards are summarized below: may grant other benefits to the executive directors in KEY ASSUMPTIONS PSU AWARDS GRANTED TO THE CHAIRMAN AND THE FORMER CEO IN 2019 SEVERANCE particular circumstances. Grant date share price €122.90 Expected volatility Dividend yield Risk-free rate 26.5% 0.9% 0% The terms of service of the former CEO provided that, if the Company terminated his services for reasons other than for cause (as defined) or if he terminated his services for good reason (as defined), the Company would pay the CEO an amount equal to his annual base salary, in the amount received for the last fiscal year prior to termination of his services (the “Severance”). If The performance period for the Equity Incentive Plan within twenty-four months following a change of control 2020-2022 PSUs commenced on January 1, 2020. The (as defined), the CEO’s services were terminated by the fair value of the awards used for accounting purposes Company (other than for cause), or were terminated by was measured at the grant date using a Monte Carlo the CEO for good reason, the CEO would be entitled to Simulation model. The fair value of the PSUs that were receive the Severance and accelerated vesting of awards granted to Mr. Elkann in 2020 is €136.06 per share. under his long-term incentive plan. The key assumptions used to calculate the grant-date fair If within twenty-four months following a change of values for these awards are summarized below: control (as defined), the Chairman’s services are KEY ASSUMPTIONS PSU AWARDS GRANTED TO THE CHAIRMAN Grant date share price €142.95 Expected volatility Dividend yield Risk-free rate 26.6% 0.8% 0% terminated by the Company (other than for cause), or are terminated by the Chairman for good reason, the Chairman is entitled to receive the accelerated vesting of awards under his long-term incentive plan. INTERNAL PAY RATIOS In line with the Dutch Corporate Governance Code, the internal pay ratio is an important input for determining the Remuneration Policy for the Board of Directors. In the The expected volatility was based on the observed absence of prescribed methodologies within the Dutch volatility of the defined peer group. The risk-free rate was Corporate Governance Code, for the financial year 2020 based on the iBoxx sovereign Eurozone yield. we chose to show two different internal pay ratios: While the RSUs granted to Mr. Camilleri under the Equity 1. Fixed Pay Ratio: considers the annual fixed salary Incentive Plan 2019-2021 would have been eligible to vest provided for our executive directors versus the median in 2020, 2021 and 2022 subject to continued employment and the average employee’s base salary. with the Company, the RSUs granted to Mr. Elkann under the Equity Incentive Plan 2019-2021 and under the Equity Using the former CEO’s fixed remuneration provided for Incentive Plan 2020-2022 have a three-years cliff vesting 2020 (€700,00036), the resulting former CEO pay ratio period and will vest in 2022 and 2023 subject to continued versus the median employee base salary was 21.3 (in 2019: employment with the Company. The fair value of the RSUs 22) and 16.1 (in 2019: 16.4) versus the average employee that were granted to Mr. Elkann in 2019 is €119.54 per share, base salary. Please note that our CEO decided to waive the the fair value of the RSUs that were granted to Mr. Elkann in entirety of his base salary from April to the end of the year, 2020 is €139.39 per share and the fair value of the RSUs that which is not considered in the above pay ratio. Similarly, were granted to Mr. Camilleri in 2019 is €120.56 per share. the Chairman pay ratio calculated using the Chairman’s OTHER BENEFITS fixed remuneration (€250,0001) versus the median employee base salary was 7.6 for 2020 (in 2019: 7.9) and Executive directors may also be entitled to customary 5.8 (in 2019: 5.9) versus the average employee base salary. fringe benefits such as personal use of aircraft, company Please note that our Executive Chairman decided to waive cars and drivers, personal/home security, medical the entirety of his base salary from April to the end of the insurance, accident insurance, tax preparation and year, which is not considered in the above pay ratio. (36) Target fixed remuneration 187 AR 2020 FERRARI N.V. / 1. REMUNERATION STRATEGY FOR THE 2020 FINANCIAL YEAR 2. Total Target Pay Ratio: considers the annual target pay ratio is primarily caused by the increase of the compensation of our executive directors versus the median and the average employee’s compensation, median and the average employee’s compensation, since no changes were applied to our former CEO consisting of fixed and variable compensation, compensation package in 2020. Similarly, the resulting excluding fringe benefits and social contributions. Executive Chairman pay ratio using the Executive Using the former CEO’s target annual compensation million versus the median employee was 24.9 (in of €5.2 million, the resulting former CEO pay ratio 2019: 26.5) and 18.4 (in 2019: 18.5) versus the average versus the median employee was 129.2 (in 2019: 138) employee total compensation target. Also in this case, and 95.9 (in 2019: 96.3) versus the average employee no changes were applied to our Executive Chairman total compensation target. The change in the CEO compensation package in 2020. Chairman’s targeted annual compensation of €1.0 FORMER CEO CHAIRMAN MEDIAN AVERAGE MEDIAN AVERAGE Fixed Pay Ratio Total Target Pay Ratio 2020 2019 2020 2019 21.3 22 129.2 138 16.1 16.4 95.9 96.3 7.6 7.9 24.9 26.5 5.8 5.9 18.4 18.5 The methodology used to calculate the “Fixed Pay Ratio”, Equity Incentive Plan 2020-2022) include a claw back which takes only the fixed remuneration component and clause, which allows the Company to claim the refund excludes the variable components of compensation, was of part or all of the variable component of remuneration originally chosen for the following two reasons. First, awarded or paid on the basis of information or data the overall compensation package (including fixed and that subsequently prove manifestly incorrect, if the variable components) depends on the results achieved Board of Directors determines that circumstances by Group. Therefore, poor performance would imply low that would have constituted “cause” (as defined) existed or null variable remuneration, thereby reducing the pay while the remuneration remained unvested or due to ratio, with less efficient performance resulting in a lower the beneficiaries’ fraud or negligence (each, a “Recovery ratio, which may wrongly signal a virtuous development. Event”). Secondly, we exclude variable compensation to ensure comparability of the ratio over time, and to avoid the In particular, if a Recovery Event occurs within two ratio being skewed in different periods by the vesting years after the payment of cash or delivery of any features of the plan. We added the “Total Pay Ratio” shares in respect of the PSUs or RSUs, a participant disclosure starting from 2019 in order to provide a will be required to repay the net amount received, as more complete internal pay ratio disclosure and offer determined by the Board of Directors in its discretion. additional insight into the pay ratio when the target annual compensation of our executive directors is STOCK OWNERSHIP considered. In 2019 the Board of Directors determined stock ownership guidelines applicable to Ferrari’s directors The development of these ratios and any prescribed and certain employees, recognizing the critical role methodologies within the Dutch Corporate Governance that stock ownership has in aligning the interests, in Code will be monitored and disclosed going forward. particular, of Ferrari’s Executive Chairman, CEO, SMT RECOUPMENT OF INCENTIVE COMPENSATION (CLAW BACK POLICY) members and senior leaders and key employees with those of the shareholders. As of the end of the 2020 financial year, covered employees should own Ferrari The long-term incentive plans (the Equity Incentive Plan common shares in the following minimum amounts (as 2016-2020, the Equity Incentive Plan 2019-2021 and the multiple of net base salary): INCUMBENT SHARE OWNERSHIP GUIDELINE Executive Chairman and former Chief Executive Officer 6 times net base salary Other SMT members Other senior leaders Other key employees 3 times net base salary 1.5 times net base salary 1 times net base salary 188 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The above listed covered employees are required to terms of establishing a correlation between Ferrari’s achieve the applicable ownership threshold within five strategic goals and the chosen performance criteria, years, through acquisitions of Ferrari common shares as as the main key performance criteria of our executive a result of the vesting of PSUs or RSUs until the required directors’ long-term incentive plan (i.e. the TSR, ownership level has been met, excluding any shares sold EBITDA and Innovation Performance Factor), which to pay taxes in connection with the granting of those represents a significant part of the Chairman’s and the shares. former CEO’s compensation package, supports both Ferrari’s business strategy and value creation for our In addition to the stock ownership guidelines, the shareholders. Executive Chairman and the former Chief Executive The Compensation Committee evaluates the mix of Officer are each required to retain one hundred percent variable compensation linked to financial and non-financial (100%) of the number of shares of common stock issued, performance, as well as shareholder returns, taking also on a net, after-tax basis, upon vesting and settlement of into account the wages and employment conditions of any equity awards granted to such individual until the our employees. Our incentive plans are based on peer and fifth anniversary of the grant date of such award other market benchmarked performance metrics. than death, termination of service due to total disability, approved leave of absence or retirement. In the event that specific long-term threshold SCENARIO ANALYSIS performance targets are not achieved, there will be no variable pay vesting or payout for executive directors for On an annual basis, the non-executive directors, upon the relevant period. proposal of the Compensation Committee, examine the relationship between the performance criteria The following table and chart describe compensation chosen and the possible outcomes for the variable levels that the Executive Chairman could receive and remuneration of our executive directors (scenario the former CEO could have received under different analysis). To date, the non-executive directors believe scenarios in a calendar year, assuming a constant share the remuneration policy has proven effective in price (i.e. no appreciation): 189 AR 2020 FERRARI N.V. / 1. REMUNERATION STRATEGY FOR THE 2020 FINANCIAL YEAR ELEMENT OF REMUNERATION DETAILS OF ASSUMPTION Fixed remuneration This comprises base salary with effect from January 1, 2020. The Executive Chairman salary is €250,000 and the former CEO salary was €700,000 Short-term Incentive Plan The Chairman and the former CEO compensation packages do not include short-term incentives. Executive Chairman: • in case of failure to achieve any of the performance criteria the scenario assumes no award of PSUs and solely the payment of RSUs; • in case of achievement of the targets for each of the performance criteria, the scenario assumes an award equal to target pay opportunity (300% of base salary); • in case of achievement of the maximum level of each performance criteria the scenario assumes the award equal to maximum pay opportunity (400% of base salary). Long-term Incentive Plan Former CEO: • in case of failure to achieve any of the performance criteria the scenario assumes no award of PSUs and solely the payment of RSUs; • in case of achievement of the targets for each of the performance criteria the scenario assumes the award equal to target pay opportunity (643% of base salary); • in case of achievement of the maximum for each of the performance criteria the scenario assumes the award equal to maximum pay opportunity (857% of base salary). 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 Chairman Remuneration (€) Former CEO Remuneration (€) 6,700,000 5,200,000 2,200,000 1,000,000 500,000 0 1,000,000 1,250,000 Chairman Minimum Chairman Target Chairman Maximum CEO Minimum CEO Target CEO Maximum Fixed Renumeration Short-Term Incentive Long-Term Incentive N.B. Details about the Chairman and the former CEO’s actual 2020 remuneration are included in section 2. Implementation of remuneration policy in 2020. 190 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements REMUNERATION POLICY FOR NON-EXECUTIVE DIRECTORS Remuneration of non-executive directors is approved by the Company’s shareholders and periodically reviewed by the Compensation Committee. Remuneration of non-executive directors is fixed and not dependent on the Company’s financial results. Non-executive directors are not eligible for variable compensation and do not participate in any incentive plans. The current annual remuneration for the non-executive directors (which was approved at the Annual General Meeting of Shareholders’ of the Company, held on April 16, 2020) is shown in the table below: NON-EXECUTIVE DIRECTOR COMPENSATION Annual cash retainer Additional retainer for Audit Committee member Additional retainer for Audit Committee Chairman Additional retainer for Compensation Committee member Additional retainer for Compensation Committee Chairman Additional retainer for Governance and Sustainability Committee member Additional retainer for Governance and Sustainability Committee Chairman Additional retainer for the senior non-executive Director All remuneration of the non-executive directors is paid in cash. 2 . IMPLEMENTATION OF REMUNERATION STRATEGY IN 2020 U.S. $ $ 75,000 $ 10,000 $ 20,000 $ 5,000 $ 15,000 $ 5,000 $ 15,000 $ 25,000 INTRODUCTION amounted to nearly Euro 2,000,000, Ferrari funded a This section sets out the implementation of Ferrari’s number of initiatives in the Emilia Romagna region initially remuneration strategy for the year ended December concentrated in the communities of Maranello, Fiorano 31, 2020. The remuneration granted in the year ended and Formigine. December 31, 2020 is in accordance with the substance and the procedures of the remuneration strategy (as set Aid to the different towns includes some initiatives which out above) and therefore we believe it allows us to seek to were coordinated directly with the local authorities attract and retain the most highly qualified executive talent including (i) purchasing of COVID-19 test kits and and motivate such executives to achieve business and diagnostic equipment for the Policlinico di Modena and financial goals that create long-term value for shareholders the hospital of Baggiovara and Sassuolo, (ii) distributing in a manner consistent with our core business and food in Maranello, (iii) acquiring an emergency medical leadership values and taking into account the social context service vehicle in support of the local communities and around the Company. computer equipment for schools. 2020 COMPENSATION FOR THE FERRARI BOARD OF DIRECTORS AND SMT Moreover, to help employees in light of the impact of COVID-19, we took several measures during the course In response to the healthcare crisis caused by the of 2020 in order to prevent the spread of COVID-19 at our COVID-19 pandemic, the Board of Directors pledged their facilities, implementing the “Back on Track program”, in full cash compensation from April 2020 to the end of order to protect the health and well-being of our workforce the year to help fund Company initiatives to support the and customers. We also implemented screening activities communities in which Ferrari operates, with the Senior and offered on a voluntary basis a flu vaccination campaign Management Team donating 25 percent of their salaries to our employees, their family members and our suppliers for the same period. Thanks to these contributions, which representatives. 191 AR 2020 FERRARI N.V. / 2 . IMPLEMENTATION OF REMUNERATION STRATEGY IN 2020 DIRECTORS’ COMPENSATION The following table summarizes the remuneration received by the members of the Board of Directors for the year ended December 31, 2020 from Ferrari and its subsidiaries. Office held Annual fee (€) Fringe benefits (€) Variable remuneration (€) Extraordinary items (€) Pension expense (€) Total remuneration (4) (€) Fixed remuneration Name John Elkann (1) Chairman and Executive Director Chief Executive 65,904 11,886(3) Louis C. Camilleri (2) Officer and Executive 363,960 11,886(3) Director Total Executive Directors 429,864 23,772 Piero Ferrari and Non-Executive 18,155 11,886(3) Vice Chairman Sergio Duca Delphine Arnault Francesca Bellettini (6) Giuseppina Capaldo (7) Roberto Cingolani (8) Eddy Cue John Galantic (6) Maria Patrizia Grieco Adam Keswick Elena Zambon (7) Total Director Senior Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Directors 27,233 17,020 — 23,829 — 19,290 — 19,290 17,020 17,020 — — — — — — — — — — 158,857 11,886 —(*) —(*) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 77,790 — 375,846 — 453,610 (5) — 30,041 — — — — — — — — — — 27,233 17,020 — 23,829 — 19,290 — 19,290 17,020 17,020 — 169,504 (5) (1) From 01/01/2020 to 12/15/2020: Chairman and Executive Director. From 12/15/2020 to 12/31/2020: Chairman, CEO and Executive Director. (2) Mr. Camilleri was CEO until 12/10/2020. (3) Relate to car benefits provided to Mr. Camilleri, Mr. Elkann and Mr. Ferrari in accordance with the remuneration policy. (4) Certain amounts have been translated from U.S. Dollars to Euro. (5) In response to the healthcare crisis caused by the COVID-19 pandemic, the Board of Directors waived their full cash compensation from April to the end of the year to help fund Company initiatives to support the communities in which Ferrari operates. (6) Mrs. Francesca Bellettini and Mr. John Galantic were Non-Executive Directors from 04/16/2020. (7) Mrs. Elena Zambon and Mrs. Giuseppina Capaldo were Non-Executive Directors from 01/01/2020 to 04/16/2020. (8) Mr. Roberto Cingolani was Non-Executive Director from 04/16/2020 to 02/13/2021. (*) For information regarding equity-based variable compensation see Share- Based Compensation of Executive Directors below. 192 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The following table summarizes the remuneration received by the members of the Board of Directors for the year ended December 31, 2019 from Ferrari and its subsidiaries. Name John Elkann(1) Office held Annual fee (€) Fringe benefits(2) (€) Variable remuneration (€) Extraordinary items (€) Pension expense (€) Total remuneration in 2019(4) (€) Fixed remuneration Chairman and Executive Director Chief Executive 211,666 11,920 — — — 223,586 Louis C. Camilleri Officer and Executive 700,000 3,668 —(*) 183,587 — 887,255 Director Total Executive Directors 911,666 15,588 — 183,587 — 1,110,841 Piero Ferrari and Non-Executive 71,552 11,920 Vice Chairman Sergio Duca(3) Delphine Arnault Giuseppina Capaldo Eddy Cue Lapo Elkann(5) Amedeo Felisa(5) Maria Patrizia Grieco Adam Keswick Elena Zambon Total Director Senior Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Directors 109,810 67,080 86,465 73,542 18,627 18,627 76,024 67,080 74,535 — — — — — — — — — 663,342 11,920 — — — — — — — — — — — — — — — — — — — — — — — 83,472 — — — — — — — — — 109,810 67,080 86,465 73,542 18,627 18,627 76,024 67,080 74,535 — 675,262 (1) From 01/01/2019 to 04/12/2019: Chairman and Non-Executive Director. From 04/12/2019 to 12/31/2019: Chairman and Executive Director. (2) Relate to car benefits provided to Mr. Camilleri, Mr. Elkann and Mr. Ferrari in accordance with the remuneration policy. (3) Certain amounts have been translated from U.S. Dollars to Euro. (4) The amount includes an extraordinary lump sum to compensate the Italian taxation impact on the CEO’s relocation to Italy. (5) Mr. Lapo Elkann and Mr. Amedeo Felisa were Non-Executive Directors from 01/01/2019 to 04/12/2019. (*) For information regarding equity-based variable compensation see Share-Based Compensation of Executive Directors below. 193 AR 2020 FERRARI N.V. / 2 . IMPLEMENTATION OF REMUNERATION STRATEGY IN 2020 The following table shows a comparison of the total remuneration of directors over the last five years, based on Ferrari directors who served as directors in 2020. DIRECTORS’ TOTAL REMUNERATION (€) John Elkann Louis C. Camilleri Piero Ferrari Chairman and Executive Director Chief Executive Officer and Executive Director Vice Chairman and Non- Executive Director 2020 2019 2018 2017 2016 77,790 223,586(1) 92,579(2) 115,317 142,864 375,846(3) 887,255 270,412(4) 133,021 214,987 30,041 83,472 80,546 111,919 193,610 Sergio Duca Senior Non-Executive Director Delphine Arnault Non-Executive Director Francesca Bellettini (6) Non-Executive Director 27,233 17,020 — 109,810 94,890(5) 119,743 212,506 67,080 63,889 97,614 130,637 — — — — Giuseppina Capaldo (7) Non-Executive Director 23,829 86,465 73,781 106,465 195,162 Roberto Cingolani (8) Non-Executive Director — — — — — Non-Executive Director 19,290 73,542 68,149 102,039 186,170 Eddy Cue John Galantic (6) Non-Executive Director Maria Patrizia Grieco Non-Executive Director Adam Keswick Elena Zambon (7) Non-Executive Director Non-Executive Director COMPANY PERFORMANCE (€ million) — 19,290 17,020 17,020 — 76,024 67,080 74,535 — — — 72,408 106,465 136,750 63,889 97,614 130,637 72,030 102,039 189,138 Adjusted EBITDA Non-Executive Director 1,143 1,269 1,114 1,036 880 Average Ferrari Share Price 155.98 131.44 105.49 79.93 41.62 MEDIAN OF FIXED REMUNERATION ON A FULL-TIME EQUIVALENT BASIS OF EMPLOYEES(*) (€) Median fixed remuneration of employees Non-Executive Director 32,876 31,782 30,600 30,385 29,938 (*) This information does not include the “Premio di Competitività”, which is on top of the fixed remuneration. (1) From 01/01/2019 to 04/12/2019: Chairman and Non-Executive Director. From 04/12/2019 to 12/31/2019: Chairman and Executive Director. (2) From 01/01/2018 to 07/21/2018: Vice Chairman and Non-Executive Director. From 07/21/2018 to 12/31/2018: Chairman and Non-Executive Director. (3) Chief Executive Officer and Executive Director until 12/10/2020. (4) From 01/01/2018 to 07/21/2018: Senior Non-Executive Director. From 09/07/2018 to 12/31/2018: Chief Executive Officer and Executive Director. (5) From 07/21/2018 to 12/31/2018: Senior Non-Executive Director. (6) Mrs. Francesca Bellettini and Mr. John Galantic were Non-Executive Directors from 04/16/2020. (7) Mrs. Elena Zambon and Mrs. Giuseppina Capaldo were Non-Executive Directors from 01/01/2020 to 04/16/2020. (8) Mr. Roberto Cingolani was Non-Executive Director from 04/16/2020 to 02/13/2021. SHARE-BASED COMPENSATION OF EXECUTIVE DIRECTORS The following table provides an overview of the outstanding equity incentive plans provided to Ferrari Executive Directors in 2020: MAIN CONDITIONS OF SHARE AWARD PLANS MOVEMENTS IN SHARE AWARDS DURING 2020 Name, position Plan Performance period Grant date Vesting date Number of unvested shares at January 1, 2020 Shares awarded Shares vested Number of unvested shares at December 31, 2020 of which are subject to performance conditions Equity Incentive Plan 2019-2021 Equity Incentive Plan 2020-2022 Equity Incentive Plan 2019-2021 John Elkann, Executive Chairman Louis C. Camilleri, Former Chief Executive Officer 2019 - 2021 April 2019 March 2022 20,703 — — 20,703 13,802 2020 - 2022 April 2020 March 2023 — 4,829 — 4,829 3,219 2019 - 2021 April 2019 March 2020 March 2021 March 2022 124,218 — 23,739 100,479 72,876 194 AR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements In 2017, the Board of Directors and the Shareholders for the related period. As a result, in 2020 210,000 PSU approved an incentive plan covering the performance awards previously granted to Mr. Marchionne under the period from 2016-2020 (the “Equity Incentive Plan 2016- Equity Incentive Plan 2016-2020 vested. A further 150,000 2020”). The Equity Incentive Plan 2016-2020 is comprised PSU awards previously awarded under the plan remain of a performance-based component represented by PSUs, outstanding at December 31, 2020 and are subject to equal to two thirds of the total share units granted, and a vesting based on the actual performance of the Company service-based component represented by RSUs covering compared to the peer group over the related performance the remaining one third of share units granted, each of periods from 2016 to 2020. which units represents the right to receive one common share of the Company. Under the terms of the Equity COMPENSATION OF THE MEMBERS OF THE SMT Incentive Plan 2016-2020, the PSUs vest subject to the The compensation paid to or accrued during the year ended achievement of a market performance condition related December 31, 2020 by Ferrari and its subsidiaries to the to the Company’s TSR compared to a peer group which members of the SMT (excluding the CEO) amounted to €14.2 was comprised of Ferrari and other seven companies (i.e., million in aggregate, considering the voluntary reduction Brunello Cucinelli, Burberry, Ferragamo, Hermes, LVMH, of the salary as outline above, €2.2 million for short-term Moncler and Richemont); the RSUs vest subject to the incentives (which is linked to the FY 2020 performance and beneficiary’s continued employment with the Company. represents nearly around the half of target set levels), €0.2 million for the Group’s contributions to pension funds and The former Chief Executive Officer of the Company, €5.3 million for share-based compensation in relation to Mr. Louis C. Camilleri, was the beneficiary of PSU and PSUs and RSUs granted under the Group’s equity incentive RSU awards under the Equity Incentive Plan 2019-2021. plans. The PSU and RSU awards that will vest in March Under the terms and conditions of the applicable award 2022, subject to continued employment and, for the PSU agreement, the number of PSUs and RSUs awarded awards, to the achievement of performance conditions to Mr. Camilleri is equal to the target number of vested related to TSR, EBITDA and Innovation, as described above. and unvested units of the whole first installment for the Given Ferrari’s second place positioning in the TSR ranking performance period ending December 31, 2019, the against the Peer Group (corresponding to the vesting of whole second installment for the performance period 120 percent of the target PSUs awarded) for the second ending December 31, 2020, and the whole third installment tranche of the Equity Incentive Plan 2016-2020, which for the performance period ending December 31, 2021. In covers the performance period from 2018 to 2020, ending 2020, 9,937 PSUs and 13,802 RSUs vested for the former at December 31, 2020, 48,856 PSUs and 19,812 RSUs had Chief Executive Officer in relation to the first installment. vested for SMT members (excluding the former CEO). As a result of the former Chief Executive Officer’s decision to resign from his role as Chief Executive Officer and DIRECTOR AND OFFICER OVERLAPS member of the Board of Directors in December 2020 for There are overlaps among the directors and officers of personal reasons, under the terms and conditions of the Stellantis (formerly FCA) and our directors and officers. applicable award agreement the remaining target number These individuals owe duties both to us and to the other of 72,876 PSUs and 27,604 RSUs vested in February companies that they serve as officers and/or directors. This 2021, not considering the possible over-achievement of may raise certain conflicts of interest as, for example, these performance indicators for the PSU awards (relative TSR, individuals review opportunities that may be appropriate EBITDA and Innovation Performance Factors). or suitable for both Ferrari and such other companies, or business transactions are pursued in which both Ferrari The former Chairman and Chief Executive Officer of the and such other companies have an interest, such as Company, Mr. Sergio Marchionne, was the beneficiary of Ferrari’s arrangement to supply engines for Maserati cars. PSU awards under the Equity Incentive Plan 2016-2020. For example, Mr. John Elkann our Chairman and interim Under the terms and conditions of the applicable award Chief Executive Officer, is also the Chairman of Stellantis agreement, the PSUs awarded to Mr. Marchionne under the and the Chairman and Chief Executive Officer of Exor. At plan remain outstanding following Mr. Marchionne’s death February 15, 2021, Exor held approximately 24.05 percent of in July 2018 for the benefit of his heirs, and are eligible to be our outstanding common shares and approximately 35.82 earned based on the actual performance of the Company percent of the voting power in the Company, while it holds and in accordance with the other terms and conditions approximately 14.4 percent of the outstanding common of the award agreement. For the second tranche of the shares in Stellantis, based on SEC filings. The percentages PSU awards under the Equity Incentive Plan 2016-2020, of ownership and voting power above are calculated which cover the performance period from 2017 to 2019, based on the number of outstanding shares net of treasury Ferrari ranked second in TSR within the defined industry- shares. See “Risk Factors – Risks related to our Common specific peer group applicable to the plan, corresponding Shares – We may have potential conflicts of interest with to the vesting of 120 percent of the target PSUs awarded Stellantis and Exor and its related companies”. 195 AR 2020 196 AR 2020/ TITOLO 2 LIVELLOFERRARI N.V.FINANCIAL STATEMENTS 197 AR 2020 FERRARI N.V. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 199 CONSOLIDATED INCOME STATEMENT 200 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 201 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 202 CONSOLIDATED STATEMENT OF CASH FLOWS 203 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 204 FERRARI N.V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 198 AR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements CONSOLIDATED INCOME STATEMENT FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018 (€ thousand) Net revenues Cost of sales  Selling, general and administrative costs  Research and development costs  Other expenses, net Result from investments EBIT  Net financial expenses Profit before taxes  Income tax expense Net profit  Net profit attributable to:  Owners of the parent  Non-controlling interests  Basic earnings per common share (in €)  Diluted earnings per common share (in €)  For the years ended December 31, Note 2020 2019 2018 4 5 6 7 8 3,459,790 3,766,615 3,420,321 1,686,324 1,805,310 1,622,905 336,126 343,179 327,341 707,385 699,211 643,038 18,475 4,647 4,991 3,522 3,195 2,665 716,127 917,446 826,507 9 49,092 42,082 23,563 667,035 875,364 802,944 10 58,155 176,656 16,317 608,880 698,708 786,627 607,817 695,818 784,678 3 12 12 1,063 2,890 1,949 3.29 3.28 3.73 3.71 4.16 4.14 The accompanying notes are an integral part of the Consolidated Financial Statements. 199 AR 2020 FERRARI N.V. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018 (€ thousand) Net profit  Items that will not be reclassified to the consolidated income statement in subsequent periods:  Gains/(Losses) on remeasurement of defined benefit plans  Related tax impact  Total items that will not be reclassified to the consolidated income statement in subsequent periods  Items that may be reclassified to the consolidated income statement in subsequent periods:  Gains/(Losses) on cash flow hedging instruments  Exchange differences on translating foreign operations  Related tax impact  Total items that may be reclassified to the consolidated income statement in subsequent periods  For the years ended December 31, Note 2020 2019 2018 608,880 698,708 786,627 20 20 20 20 20 34 1 35 (2,078) 456 (1,622) 385 (88) 297 40,109 (2,272) (13,034) (11,731) 2,652 5,986 (11,291) 610 3,608 17,087 990 (3,440) Total other comprehensive income/(loss), net of tax  17,122 (632) (3,143) Total comprehensive income  626,002 698,076 783,484 Total comprehensive income attributable to:  Owners of the parent  Non-controlling interests  625,053 695,075 781,585 949 3,001 1,899 The accompanying notes are an integral part of the Consolidated Financial Statements 200 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT DECEMBER 31, 2020 AND 2019 (€ thousand) Assets Goodwill Intangible assets Property, plant and equipment Investments and other financial assets Deferred tax assets Total non-current assets Inventories Trade receivables Receivables from financing activities Current tax receivables Other current assets Current financial assets Cash and cash equivalents Total current assets Total assets Equity and liabilities Equity attributable to owners of the parent Non-controlling interests Total equity Employee benefits Provisions Deferred tax liabilities Debt Other liabilities Other financial liabilities Trade payables Current tax payables Total equity and liabilities At December 31, Note 2020 2019 13 14 15 16 10 17 18 18 18 18 19 3 20 22 23 10 24 25 19 26 785,182 785,182 979,290 837,938 1,226,630 1,069,652 42,841 38,716 152,221 73,683 3,186,164 2,805,171 460,617 420,051 184,260 231,439 939,607 966,448 12,438 21,078 76,471 92,830 40,084 11,409 1,362,406 897,946 3,075,883 2,641,201 6,262,047 5,446,372 1,785,186 1,481,290 4,018 5,998 1,789,204 1,487,288 59,985 88,116 155,335 165,572 113,474 82,208 2,724,745 2,089,737 687,462 800,015 2,140 14,791 713,807 711,539 15,895 7,106 6,262,047 5,446,372 The accompanying notes are an integral part of the Consolidated Financial Statements. 201 AR 2020 FERRARI N.V. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018 (€ thousand) Cash and cash equivalents at beginning of the year 897,946 793,664 647,706 For the years ended December 31, 2020 2019 2018 Cash flows from operating activities: Profit before taxes Amortization and depreciation Provision accruals Result from investments Net finance costs Other non-cash expenses, net Net gains on disposal of property, plant and equipment and intangible assets  Change in inventories Change in trade receivables Change in trade payables 667,035 875,364 802,944 426,637 351,946 288,748 25,805 (4,647) 49,092 38,949 124 14,253 15,573 (3,522) (2,665) 42,082 23,563 38,563 33,012 424 (283) (67,797) (40,627) (4,638) 44,477 (22,377) 26,890 8,594 53,940 40,317 Change in receivables from financing activities (69,376) (76,694) (107,353) Change in other operating assets and liabilities (137,313) 145,547 (83,013) Finance income received Finance costs paid Income tax paid Total Cash flows used in investing activities: Investments in property, plant and equipment Investments in intangible assets 2,109 3,274 2,657 (54,427) (42,600) (13,966) (91,051) (33,480) (87,745) 838,211 1,306,093 934,041 (357,018) (352,154) (300,794) (351,978) (353,458) (337,542) Proceeds from the sale of property, plant and equipment and intangible assets 969 4,539 1,392 Total Cash flows used in financing activities: Proceeds from the issuance of bonds and notes Repayment of bonds and notes Proceeds from securitizations, net of repayments Net change in bank borrowings Net change in lease liabilities Net change in other debt Dividends paid to owners of the parent Dividends paid to non-controlling interest Share repurchases Total Translation exchange differences Total change in cash and cash equivalents (708,027) (701,073) (636,944) 640,073 298,316 — (315,395) — — 44,126 (1,740) (20,035) 92,173 94,709 (3,516) (3,896) (3,584) — 18,081 12,322 (7,988) (208,100) (192,664) (133,095) (2,929) (2,120) (2,040) (129,793) (386,749) (100,093) 339,683 (501,529) (152,091) (5,407) 791 952 464,460 104,282 145,958 Cash and cash equivalents at end of the year 1,362,406 897,946 793,664 The accompanying notes are an integral part of the Consolidated Financial Statements. 202 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018 (€ thousand) Share capital Retained earnings and other reserves Cash flow hedge reserve Currency translation differences Remeasurement of defined benefit plans Equity attributable to owners of the parent Non- controlling interests Total At January 1, 2018 2,504 746,341 6,434 31,814 (8,415) 778,678 5,258 783,936 Net profit — 784,678 — — — 784,678 1,949 786,627 Other comprehensive income/(loss) — — (9,426) 6,036 297 (3,093) (50) (3,143) Dividends to owners of the parent — (133,939) Dividends to non-controlling interests — — Share repurchases — (100,093) Share-based compensation — 22,491 — — — — — — — — — (133,939) — (133,939) — — (2,040) (2,040) — (100,093) — (100,093) — 22,491 — 22,491 At December 31, 2018 2,504 1,319,478 (2,992) 37,850 (8,118) 1,348,722 5,117 1,353,839 Net profit — 695,818 — — — 695,818 2,890 698,708 Other comprehensive income/(loss) — — (1,662) 2,541 (1,622) (743) 111 (632) Dividends to owners of the parent — (193,238) Dividends to non-controlling interests — — Share repurchases — (386,749) Share-based compensation — 17,480 Special voting shares issuance (1) 69 (69) — — — — — — — — — — — (193,238) — (193,238) — — (2,120) (2,120) — (386,749) — (386,749) — — 17,480 — — — 17,480 — At December 31, 2019 2,573 1,452,720 (4,654) 40,391 (9,740) 1,481,290 5,998 1,487,288 Net profit Other comprehensive income/(loss) — — 607,817 — — — 607,817 1,063 608,880 — 28,818 (11,617) 35 17,236 (114) 17,122 Dividends to owners of the parent — (208,765) Dividends to non-controlling interests — — Share repurchases — (129,793) Share-based compensation — 17,401 — — — — — — — — — (208,765) — (208,765) — — (2,929) (2,929) — (129,793) — (129,793) — 17,401 — 17,401 At December 31, 2020 2,573 1,739,380 24,164 28,774 (9,705) 1,785,186 4,018 1,789,204 1) See Note 20 “Equity” for additional details. The accompanying notes are an integral part of the Consolidated Financial Statements. 203 AR 2020 FERRARI N.V. FERRARI N.V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2020 AND 2019 1. BACKGROUND AND BASIS OF Standards Board, as well as IFRS as adopted by the PRESENTATION BACKGROUND European Union. There is no effect on these consolidated financial statements resulting from differences between IFRS as issued by the IASB and IFRS as adopted by the Ferrari is among the world’s leading luxury brands. The European Union. The designation IFRS also includes activities of Ferrari N.V. (herein referred to as “Ferrari” International Accounting Standards (“IAS”) as well as all or the “Company” and together with its subsidiaries the the interpretations of the International Financial Reporting “Group”) and its subsidiaries are focused on the design, Interpretations Committee (“IFRIC” and “SIC”). engineering, production and sale of luxury performance sports cars. The cars are designed, engineered and The consolidated financial statements are prepared under produced in Maranello and Modena, Italy, and sold in more a going concern basis and applying the historical cost than 60 markets worldwide through a network of 168 method, modified as required for the measurement of authorized dealers operating 188 points of sale. The Ferrari certain financial instruments. brand is licensed to a selected number of producers and retailers of luxury and lifestyle goods, with Ferrari branded The Group’s presentation currency is the Euro, which is also merchandise also sold through a network of 18 Ferrari- the functional currency of the Company, and unless otherwise owned stores and 18 franchised stores (including 14 stated information is presented in thousands of Euro. Ferrari Store Junior), as well as on the Group’s website. To facilitate the sale of new and pre-owned cars, the Group provides various forms of financing to clients and dealers, including through cooperation and other agreements. 2. SIGNIFICANT ACCOUNTING Ferrari also participates in the Formula 1 World POLICIES Championship through Scuderia Ferrari. The activities of Scuderia Ferrari are a core element of Ferrari marketing FORMAT OF THE FINANCIAL STATEMENTS and promotional activities and an important source of The consolidated financial statements include the innovation to support the technological advancement of consolidated income statement, consolidated statement of Ferrari range models. BASIS OF PREPARATION comprehensive income, consolidated statement of financial position, consolidated statement of cash flows, consolidated statement of changes in equity and the accompanying AUTHORIZATION OF CONSOLIDATED FINANCIAL notes (the “Consolidated Financial Statements”). STATEMENTS AND COMPLIANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS For presentation of the consolidated income statement, These consolidated financial statements of Ferrari N.V. the Group uses a classification based on the function of were authorized for issuance by the Board of Directors expenses, as it is more representative of the format used on February 26, 2021. for internal reporting and management purposes and is The consolidated financial statements have been prepared in accordance with the International Financial Reporting In the consolidated income statement, the Group also Standards (“IFRS”) as issued by the International Accounting presents a subtotal for Earnings Before Interest and consistent with international practice. 204 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements Taxes (EBIT). EBIT distinguishes between the profit before Changes in Accounting Estimates and Errors. The taxes arising from operating items and those arising amendments clarify the definition of ‘material’, as well from financing activities. EBIT is one of the primary as how materiality should be applied by including in the measures used by the Board of Directors (the Group’s definition guidance that is included elsewhere in IFRS “Chief Operating Decision Maker” as defined in IFRS 8 – standards. There was no effect from the adoption of Operating Segments) to assess performance. these amendments. For the consolidated statement of financial position, AMENDMENTS TO IFRS 9 – FINANCIAL INSTRUMENTS, a mixed format has been selected to present current IAS 39 – FINANCIAL INSTRUMENTS: RECOGNITION AND and non-current assets and liabilities, as permitted by MEASUREMENT AND IFRS 7 – FINANCIAL INSTRUMENTS: IAS 1 paragraph 60. More specifically, the Consolidated DISCLOSURES Financial Statements include both industrial and financial The Group adopted amendments to IFRS 9 – Financial services activities. Receivables from financing activities Instruments, IAS 39 – Financial Instruments: Recognition are included in current assets as the investments will and Measurement and IFRS 7 – Financial Instruments: be realized in their normal operating cycle. The funding Disclosures, collectively the “Interest Rate Benchmark for financial services activities is primarily obtained Reform”. These amendments modify certain hedge through securitization programs and funding from accounting requirements in order to provide relief certain of the Group’s operating companies. This from potential effects of the uncertainty caused by financial service structure within the Group does not the interbank offered rates (IBOR) reform and require allow the separation of financial liabilities funding the companies to provide additional information to investors financial services operations (whose assets are reported about their hedging relationships that are directly within current assets) and those funding the industrial affected by these uncertainties. There was no effect from operations. Presentation of financial liabilities as current the adoption of these amendments. or non-current based on their date of maturity would not facilitate a meaningful comparison with financial assets, REVIEW OF THE CONCEPTUAL FRAMEWORK FOR which are categorized on the basis of their normal FINANCIAL REPORTING operating cycle. Disclosure as to the due date of the The Group adopted the changes envisaged by the review various components of debt is provided in Note 24. of the Conceptual Framework for Financial Reporting, which applies to companies that use the Conceptual The consolidated statement of cash flows is presented Framework to develop accounting policies when no IFRS using the indirect method. standard applies to a particular transaction. Key changes NEW STANDARDS AND AMENDMENTS EFFECTIVE FROM JANUARY 1, 2020 include (i) increasing the prominence of stewardship in the objective of financial reporting; (ii) reinstating prudence as a component of neutrality, defined as the exercise of The following new amendments that are applicable on caution when making judgements under conditions of or subsequent to January 1, 2020 were adopted by the uncertainty; (iii) defining a reporting entity; (iv) revising Group for the preparation of these Consolidated Financial the definitions of an asset and a liability; (v) removing the Statements. probability threshold for recognition, and adding guidance on derecognition; (vi) adding guidance on the information AMENDMENTS TO IFRS 3 – BUSINESS COMBINATIONS provided by different measurement bases, and explaining The Group adopted narrow scope amendments to IFRS factors to consider when selecting a measurement 3 – Business Combinations. The amendments aim to help basis; and (vii) stating that profit or loss is the primary companies determine whether an acquisition made is performance indicator and income and expenses in of a business or a group of assets, emphasizing that the other comprehensive income should be recycled where output of a business is to provide goods and services to the relevance or faithful representation of the financial customers, whereas the previous definition focused on statements would be enhanced. There was no immediate returns in the form of dividends, lower costs or other effect from adoption, however the Group will apply the economic benefits to investors and others. There was no changes to develop accounting policies when no IFRS effect from the adoption of these amendments. standard applies to a particular transaction in the future. AMENDMENTS TO IAS 1 – PRESENTATION OF FINANCIAL AMENDMENT TO IFRS 16 – LEASES STATEMENTS AND IAS 8 – ACCOUNTING POLICIES, In May 2020 the IASB issued an amendment to IFRS 16 CHANGES IN ACCOUNTING ESTIMATES AND ERRORS – Leases for COVID-19-related Rent Concessions. The The Group adopted amendments to IAS 1 – Presentation amendment permits lessees, as a practical expedient, not of Financial Statements and IAS 8 – Accounting Policies, to assess whether particular rent concessions occurring 205 AR 2020 FERRARI N.V. as a direct consequence of the COVID–19 pandemic are expect any material impact from the adoption of these lease modifications and instead to account for those rent amendments. concessions as if they are not lease modifications. The Group adopted this amendment from its effective date of In May 2020 the IASB issued amendments to IAS 37 – June 1, 2020 and there was no significant effect from the Provisions, Contingent Liabilities and Contingent Assets, adoption of this amendment. which specify which costs a company includes when NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS NOT YET EFFECTIVE assessing whether a contract will be loss-making. These amendments are effective on or after January 1, 2022. The Group does not expect any material impact from the The standards, amendments and interpretations issued adoption of these amendments. by the International Accounting Standards Board (“IASB”) that will have mandatory application in 2021 or In May 2020 the IASB issued Annual Improvements subsequent years are listed below: to IFRSs 2018 - 2020 Cycle. The improvements have amended four standards with effective date January In May 2017 the IASB issued IFRS 17 – Insurance Contracts, 1, 2022: i) IFRS 1 – First-time Adoption of International which establishes principles for the recognition, Financial Reporting Standards in relation to allowing a measurement, presentation and disclosure of insurance subsidiary to measure cumulative translation differences contracts issued as well as guidance relating to using amounts reported by its parent, ii) IFRS 9 – Financial reinsurance contracts held and investment contracts Instruments in relation to which fees an entity includes with discretionary participation features issued. In June when applying the ‘10 percent’ test for derecognition of 2020 the IASB issued amendments to IFRS 17 aimed at financial liabilities, iii) IAS 41 – Agriculture in relation to helping companies implement IFRS 17 and make it easier the exclusion of taxation cash flows when measuring the for companies to explain their financial performance. The fair value of a biological asset, and iv) IFRS 16 – Leases in new standard and amendments are effective on or after relation to an illustrative example of reimbursement for January 1, 2023. The Group does not expect any material leasehold improvements. The Group does not expect any impact from the adoption of these amendments. material impact from the adoption of these amendments. In January 2020 the IASB issued amendments to IAS In June 2020 the IASB issued amendments to IFRS 4 – 1 – Presentation of Financial Statements: Classification Insurance Contracts which defer the expiry date of the of Liabilities as Current or Non-Current to clarify how temporary exemption from applying IFRS 9 to annual to classify debt and other liabilities as current or non- periods beginning on or after January 1, 2021. The Group current, and in particular how to classify liabilities with an does not expect any impact from the adoption of these uncertain settlement rate and liabilities that may be settled amendments. by converting to equity. These amendments are effective on or after January 1, 2023. The Group does not expect any In August 2020 the IASB issued a package of material impact from the adoption of these amendments. amendments to IFRS 9 – Financial Instruments, IAS 39 – Financial Instruments: Recognition and Measurement, In May 2020 the IASB issued amendments to IFRS 3 – IFRS 7 – Financial Instruments: Disclosures, IFRS 4 – Business combinations to update a reference in IFRS 3 Insurance Contracts and IFRS 16 – Leases in response to the Conceptual Framework for Financial Reporting to the ongoing reform of inter-bank offered rates (IBOR) without changing the accounting requirements for and other interest rate benchmarks. The amendments business combinations. These amendments are are aimed at helping companies to provide investors effective on or after January 1, 2022. The Group does not with useful information about the effects of the reform expect any material impact from the adoption of these on those companies’ financial statements. These amendments. amendments complement amendments issued in 2019 and focus on the effects on financial statements when a In May 2020 the IASB issued amendments to IAS 16 company replaces the old interest rate benchmark with – Property, Plant and Equipment. The amendments an alternative benchmark rate as a result of the reform. prohibit a company from deducting from the cost of The new amendments relate to: property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company should recognize such sales proceeds and the related cost in the income statement. These amendments are • changes to contractual cash flows – a company will not be required to derecognize or adjust the carrying amount of financial instruments for changes required by the interest rate benchmark reform, but will instead update the effective interest rate to reflect the change effective on or after January 1, 2022. The Group does not to the alternative benchmark rate; 206 AR 2020/ 2. SIGNIFICANT ACCOUNTING POLICIES BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements • hedge accounting – a company will not have to acquiree’s identifiable net assets. Net profit or loss and discontinue its hedge accounting solely because each component of other comprehensive income/(loss) it makes changes required by the interest rate are attributed to the owners of the parent and to the benchmark reform if the hedge meets other hedge non-controlling interests. Total comprehensive income/ accounting criteria; and (loss) of subsidiaries is attributed to owners of the • disclosures – a company will be required to disclose information about new risks that arise from the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit interest rate benchmark reform and how the company balance. manages the transition to alternative benchmark rates. All significant intra-group balances and transactions and any unrealized gains and losses arising from intra- These amendments are effective on or after January 1, group transactions are eliminated in preparing the 2021, with early adoption permitted. The Group does not Consolidated Financial Statements. expect any material impact from the adoption of these amendments. Subsidiaries are deconsolidated from the date when control ceases. When the Group ceases to have control In February 2021 the IASB issued amendments to over a subsidiary, it derecognizes the assets (including IAS 1 – Presentation of Financial Statements and IFRS any goodwill) and liabilities of the subsidiary at their Practice Statement 2: Disclosure of Accounting policies carrying amounts, derecognizes the carrying amount which require companies to disclose their material of non-controlling interests in the former subsidiary and accounting policy information rather than their recognizes the fair value of any consideration received significant accounting policies and provide guidance on from the transaction. Any retained interest in the former how to apply the concept of materiality to accounting subsidiary is then remeasured to its fair value. policy disclosures. These amendments are effective on or after January 1, 2023. The Group does not In 2016 the Group sold a majority stake in Ferrari expect any material impact from the adoption of these Financial Services GmbH. From such date, the Group’s amendments. remaining interest has been remeasured at fair value and accounted for using the equity method. In February 2021 the IASB issued amendments to IAS 8 – Accounting Policies, Changes in Accounting Estimates INTERESTS IN ASSOCIATES and Errors: Definition of Accounting Estimates which An associate is an entity over which the Group has clarify how companies should distinguish changes significant influence. Significant influence is the power in accounting policies from changes in accounting to participate in the financial and operating policy estimates. These amendments are effective on or after decisions of the investee but without having control January 1, 2023. The Group does not expect any material or joint control over those policies. Associates are impact from the adoption of these amendments. accounted for using the equity method of accounting from the date significant influence is obtained. BASIS OF CONSOLIDATION SUBSIDIARIES Under the equity method, the investments are Subsidiaries are entities over which the Group has initially recognized at cost and adjusted thereafter to control. Control is achieved when the Group has power recognize the Group’s share of the profit/(loss) and over the investee, when it is exposed to, or has rights to, other comprehensive income/(loss) of the investee. variable returns from its involvement with the investee, The Group’s share of the investee’s profit/(loss) is and has the ability to use its power over the investee to recognized in the consolidated income statement. affect the amount of the investor’s returns. Subsidiaries Distributions received from an investee reduce the are consolidated on a line by line basis from the date on carrying amount of the investment. Post-acquisition which the Group achieves control. The Group reassesses movements in other comprehensive income/(loss) are whether or not it controls an investee if facts and recognized in other comprehensive income/(loss) with circumstances indicate that there are changes to one or a corresponding adjustment to the carrying amount of more of the three elements of control listed above. the investment. The Group recognizes any non-controlling interests Unrealized gains on transactions between the Group (“NCI”) in the acquiree on an acquisition-by-acquisition and its associates are eliminated to the extent of the basis, either at fair value or at the non-controlling Group’s interest in the associate. Unrealized losses interest’s share of the recognized amounts of the are also eliminated unless the transaction provides 207 AR 2020 FERRARI N.V. evidence of an impairment of the asset transferred. are recorded at the exchange rate prevailing at the date of When the Group’s share of the losses of an associate the transaction. Monetary assets and liabilities denominated exceeds the Group’s interest in that associate, the in foreign currencies at the balance sheet date are Group discontinues recognizing its share of further translated at the foreign currency exchange rate prevailing losses. Additional losses are provided for, and a liability is at that date. Exchange differences arising on the settlement recognized, only to the extent that the Group has incurred of monetary items or on reporting monetary items at rates legal or constructive obligations or made payments on different from those at which they were initially recorded behalf of the associate. during the period or in previous financial statements are recognized in the consolidated income statement. The Group discontinues the use of the equity method from the date the investment ceases to be an associate or when CONSOLIDATION OF FOREIGN ENTITIES it is classified as available-for-sale. All assets and liabilities of foreign consolidated companies with a functional currency other than the Euro are INTERESTS IN JOINT OPERATIONS translated using the closing rates at the date of the A joint operation is a joint arrangement whereby the parties consolidated statement of financial position. Income and that have joint control of the arrangement have rights to expenses are translated into Euro at the average foreign the assets and obligations for the liabilities, relating to the currency exchange rate for the arrangement. Joint control is the contractually agreed period. Translation differences resulting from the sharing of control of an arrangement, which exists only application of this method are classified as currency when decisions about the relevant activities require the translation differences within other comprehensive unanimous consent of the parties sharing control. income/(loss) until the disposal of the investment. Average foreign currency exchange rates for the period are used When the Group undertakes its activities under joint to translate the cash flows of foreign subsidiaries in operations, it recognizes in relation to its interest in the joint preparing the consolidated statement of cash flows. operation: (i) its assets, including its share of any assets held jointly, (ii) its liabilities, including its share of any liabilities Goodwill, assets acquired and liabilities assumed arising incurred jointly, (iii) its revenue from the sale of its share from the acquisition of entities with a functional currency of the output arising from the joint operation, (iv) its share other than the Euro are recognized in the Consolidated of the revenue from the sale of the output by the joint Financial Statements in the functional currency and operation, and (v) its expenses, including its share of any translated at the foreign currency exchange rate at expenses incurred jointly. the acquisition date. These balances are translated at subsequent balance sheet dates at the relevant foreign FOREIGN CURRENCY TRANSACTIONS currency exchange rate. The functional currency of the Group’s entities is the currency of their primary economic environment. In The principal foreign currency exchange rates used to individual companies, transactions in foreign currencies translate other currencies into Euro were as follows: 2020 2019 2018 Average At December 31, Average At December 31, Average At December 31, U.S. Dollar 1.1422 1.2271 1.1195 1.1234 1.1810 1.1450 Pound Sterling 0.8897 0.8990 0.8778 0.8508 0.8847 0.8945 Swiss Franc Japanese Yen Chinese Yuan 1.0705 1.0802 1.1124 1.0854 1.1550 1.1269 121.8458 126.4900 122.0058 121.9400 130.3959 125.8500 7.8747 8.0225 7.7355 7.8205 7.8081 7.8751 Australian Dollar 1.6549 1.5896 1.6109 1.5995 1.5797 1.6220 Canadian Dollar 1.5300 1.5633 1.4855 1.4598 1.5294 1.5605 Singapore Dollar 1.5742 1.6218 1.5273 1.5111 1.5926 1.5591 Hong Kong Dollar 8.8587 9.5142 8.7715 8.7473 9.2559 8.9675 208 AR 2020/ 2. SIGNIFICANT ACCOUNTING POLICIES BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements INTANGIBLE ASSETS GOODWILL PATENTS, CONCESSIONS AND LICENSES Separately acquired patents, concessions and licenses Goodwill is not amortized, but is tested for impairment are initially recognized at cost. Patents, concessions annually or more frequently if events or changes in and licenses acquired in a business combination are circumstances indicate that it might be impaired. After initially recognized at fair value. Patents, concessions and initial recognition, goodwill is measured at cost less any licenses are amortized on a straight-line basis over their accumulated impairment losses. useful economic lives, which is generally between three DEVELOPMENT COSTS and five years. Development costs for car project production and related OTHER INTANGIBLE ASSETS components, engines and systems are recognized as an Other intangible assets mainly relate to the registration asset if, and only if, both of the following conditions under of trademarks and have been recognized in IAS 38 – Intangible Assets are met: that development costs accordance with IAS 38 – Intangible Assets, where it is can be measured reliably and that the technical feasibility probable that the use of the asset will generate future of the product, volumes and pricing support the view economic benefits for the Group and where the cost that the development expenditure will generate future of the asset can be measured reliably. Other intangible economic benefits. Capitalized development costs include assets are measured at cost less any impairment all direct and indirect costs that may be directly attributed losses and amortized on a straight-line basis over their to the development process. All other research and estimated life, which is generally between three and five development costs are expensed as incurred, net of any years. government grants received. PROPERTY, PLANT AND EQUIPMENT Capitalized development costs are amortized on a COST straight-line basis from the start of production over the Property, plant and equipment is initially recognized estimated lifecycle of the model or the useful life of the at cost which comprises the purchase price, any related components or other assets (generally between costs directly attributable to bringing the assets to four and eight years). the location and condition necessary to be capable of operating in the manner intended by management, The Group incurs significant research and development capitalized borrowing costs and any initial estimate of costs through the Formula 1 racing activities. These costs the costs of dismantling and removing the item and are considered fundamental to the development of the restoring the site on which it is located. Self-constructed range and track car models and prototypes. Technological assets are initially recognized at production cost. developments and changes in the regulations of the Subsequent expenditures and the cost of replacing Formula 1 World Championship generally require the parts of an asset are capitalized only if they increase Group to design, develop and construct a new racing car the future economic benefits embodied in that asset. to be used for one year only. The costs incurred for the All other expenditures are expensed as incurred. When design, development and construction of a new racing car such replacement costs are capitalized, the carrying are generally expensed as incurred unless the technology amount of the parts that are replaced is recognized as will be used for more than one year and the costs meet the a loss in the period of replacement in the consolidated capitalization criteria in IAS 38. income statement. 209 AR 2020 FERRARI N.V. DEPRECIATION Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, as follows: Industrial buildings Plant, machinery and equipment Other assets Land is not depreciated. Depreciation rates 3% - 20% 5% - 22% 12% - 25% If the asset being depreciated consists of separately recognized in the income statement in the period in identifiable components whose useful lives differ from which the condition that triggers those payments occurs. that of the other parts making up the asset, depreciation is charged separately for each of its component parts Extension and termination options are included in a through application of the ‘component approach’. number of leases related to Ferrari stores, warehouses LEASES and machinery and equipment of the Group. In determining the lease term, management considers With the adoption of IFRS 16, the Group recognizes a all facts and circumstances that create an economic right-of-use asset and a corresponding lease liability at incentive to exercise an extension option, or not exercise the date at which the leased asset is available for use. a termination option. Extension options (or periods after Each lease payment is allocated between the principal termination options) are only included in the lease term liability and finance costs. Finance costs are charged to if the lease is reasonably certain to be extended (or not the income statement over the lease period using the terminated). effective interest rate method. The right-of-use asset is depreciated on a straight-line basis over the lease term. BORROWING COSTS Right-of-use assets are measured at cost comprising attributable to the acquisition, construction or production the following: (i) the amount of the initial measurement of of qualifying assets, which are assets that necessarily lease liability; (ii) any lease payments made at or before the take a substantial period of time to get ready for their commencement date less any lease incentives received; intended use, are added to the cost of those assets, until (iii) any initial direct costs and, if applicable, (iv) restoration such time as the assets are substantially ready for their General and specific borrowing costs directly costs. Payments associated with short-term leases and intended use. leases of low-value assets are recognized as an expense in the income statement on a straight-line basis. All other borrowing costs are expensed in net financial expenses if related to the Group’s industrial activities or Lease liabilities are measured at the net present value cost of sales if related to the Group’s financial services of the following: (i) fixed lease payments, (ii) variable activities in the consolidated income statement, as lease payments that are based on an index or a rate incurred. and, if applicable, (iii) amounts expected to be payable by the lessee under residual value guarantees, and (iv) IMPAIRMENT OF ASSETS the exercise price of a purchase option if the lessee is The Group continuously monitors its operations to reasonably certain to exercise that option. Lease liabilities assess whether there is any indication that its intangible do not include any non-lease components that may be assets (including development costs) and its property, included in the related contracts. plant and equipment may be impaired. Goodwill is tested for impairment annually or more frequently, if there is an Lease payments are discounted using the interest rate indication that an asset may be impaired. implicit in the lease. If that rate cannot be determined, the Group’s incremental borrowing rate is used, being the If indications of impairment are present, the carrying rate that the Group would have to pay to borrow the funds amount of the asset is reduced to its recoverable necessary to obtain an asset of similar value in a similar amount, which is the higher of fair value less costs of economic environment with similar terms and conditions. disposal and its value in use. The recoverable amount is determined for the individual asset, unless the asset does Some lease contracts contain variable payment terms not generate cash inflows that are largely independent that are linked to sales generated from Ferrari stores. of the cash inflows from other assets or groups of Variable lease payments that depend on sales are assets, in which case the asset is tested as part of the 210 AR 2020/ 2. SIGNIFICANT ACCOUNTING POLICIES BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements cash-generating unit (“CGU”) to which the asset belongs. cash flow analysis based on market information A CGU is the smallest identifiable group of assets that available at the balance sheet date). As permitted generates cash inflows that are largely independent of by IFRS 9, equity investments for which there is no the cash inflows from other assets or groups of assets. quoted market price in an active market and there is In assessing the value in use of an asset or CGU, the insufficient financial information in order to determine estimated future cash flows are discounted to their fair value may be measured at cost as an estimate of present value using a discount rate that reflects current fair value. market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is Trade receivables and receivables from financing recognized if the recoverable amount is lower than the activities are originated in the ordinary course of carrying amount. business and held within a business model with the objective to hold the receivables in order to collect Where an impairment loss for assets other than contractual cash flows that meet the ‘solely payments of goodwill, subsequently no longer exists or has principal and interest’ criterion under IFRS 9, therefore decreased, the carrying amount of the asset or CGU they are measured at amortized cost using the effective is increased to the revised estimate of its recoverable interest rate method. Receivables with maturities amount, but not in excess of the carrying amount that greater than one year are discounted to present value. would have been recorded had no impairment loss Assessments are made regularly as to whether there been recognized. The reversal of an impairment loss is any objective evidence that a financial asset or group is recognized in the consolidated income statement of financial assets may be impaired. Under IFRS 9, a immediately. FINANCIAL INSTRUMENTS PRESENTATION forward-looking expected credit loss model must be applied when assessing impairment. In making impairment assessments, the Group applies the standard simplified approach to estimate the lifetime expected Current financial assets include trade receivables, credit losses and considers its historical credit loss receivables from financing activities, derivative financial experience, adjusted for forward-looking factors specific instruments, other current financial assets and cash and to the nature of the Group’s receivables and economic cash equivalents. environment. If any such evidence exists, an impairment Investments and other financial assets include investments accounted for using the equity method as Financial liabilities, with the exception of derivative well as other securities and non-current financial assets. financial instruments, are measured at amortized cost loss is recognized within financial expenses. using the effective interest rate method. Financial liabilities include debt (which primarily includes bonds, notes, asset-backed financing (securitizations) DERIVATIVE FINANCIAL INSTRUMENTS and borrowings from banks), trade payables and other Derivative financial instruments are used for economic financial liabilities, which mainly include derivative hedging purposes only in order to reduce financial risks financial instruments. MEASUREMENT and in particular, foreign currency risks. Derivative financial instruments qualify for hedge accounting only when at the inception of the hedge there is Financial assets, other than investments accounted formal designation and documentation of the hedging for using the equity method, and financial liabilities relationship, the hedge is expected to be highly effective, are measured in accordance with IFRS 9 – Financial its effectiveness can be reliably measured and it is highly Instruments. effective throughout the financial reporting periods for Except for investments accounted for using the equity method, the Group initially measures financial All derivative financial instruments are measured at fair which it is designated. assets at fair value plus, in the case of financial assets value. not measured at fair value through profit or loss, transaction costs. When derivative financial instruments qualify for hedge accounting, the following accounting treatments apply: Equity instruments held by the Group are recognized at fair value through profit or loss. When market prices Cash flow hedges - Where a derivative financial are not directly available, the fair value is measured instrument is designated as a hedge of the exposure to using appropriate valuation techniques (e.g. discounted variability in future cash flows of a recognized asset or 211 AR 2020 FERRARI N.V. liability or a highly probable forecasted transaction and of ownership of the financial assets, it derecognizes could affect the consolidated income statement, the such assets and separately recognizes as assets or effective portion of any gain or loss on the derivative liabilities any rights and obligations created or retained financial instrument is recognized directly in other in the transfer. On derecognition of financial assets, the comprehensive income/(loss). The cumulative gain or difference between the carrying amount of the assets loss is reclassified from other comprehensive income/ and the consideration received or receivable for the (loss) to the consolidated income statement at the same transfer of the assets is recognized within cost of sales in time as the economic effect arising from the hedged the consolidated income statement. item affects the consolidated income statement. The gain or loss associated with a hedge or part of a hedge that TRADE RECEIVABLES has become ineffective is recognized in the consolidated Trade receivables are amounts due from clients for income statement immediately within net financial goods sold or services provided in the ordinary course income/expenses. When a hedging instrument or hedge of business. Trade receivables are recognized initially relationship is terminated but the hedged transaction at fair value and subsequently measured at amortized is still expected to occur, the cumulative gain or loss cost using the effective interest rate method, less any realized to the point of termination remains in other provision for allowances. comprehensive income/(loss) and is recognized in the consolidated income statement at the same time as the INVENTORIES underlying transaction occurs. If the hedged transaction Inventories of raw materials, semi-finished products and is no longer probable, the cumulative unrealized gain finished goods are stated at the lower of cost and net or loss held in other comprehensive income/(loss) realizable value, cost being determined on a first-in first- is recognized in the consolidated income statement out (FIFO) basis. The measurement of inventories includes immediately. the direct costs of materials, labor and indirect costs (variable and fixed). Purchase costs include ancillary costs. The Group does not use fair value hedges or hedges of a Prototypes are recognized at their estimated realizable net investment. value, if lower than production cost. Provision is made for obsolete and slow-moving raw materials, finished goods, If hedge accounting cannot be applied, the gains or spare parts and other supplies based on their expected losses from the fair value measurement of derivative future use and realizable value. Net realizable value is the financial instruments are recognized immediately within estimated selling price in the ordinary course of business financial expenses. less the estimated costs of completion and the estimated TRANSFERS OF FINANCIAL ASSETS The Group sells certain of its receivables from costs for sale and distribution. CASH AND CASH EQUIVALENTS financing activities under securitization programs. Cash and cash equivalents includes cash in hand, Securitization transactions involve the sale of a financial deposits held at call with banks and other short-term receivables portfolio to a special purpose vehicle, highly liquid investments with original maturities of three which in turn finances the purchase of such financial months or less. receivables by issuing asset-backed securities in the form of notes whose repayment of principal and EMPLOYEE BENEFITS interest depends on the cash flows generated by the DEFINED CONTRIBUTION PLANS related financial receivables. The receivables sold as Costs arising from defined contribution plans are part of securitization programs are consolidated until expensed as incurred. collection from the customer as they do not meet the requirements for derecognition in accordance with DEFINED BENEFIT PLANS IFRS 9. The Group’s net obligations are determined separately for each plan by estimating the present value of future The Group may also sell certain of its trade receivables benefits that employees have earned in the current and through factoring transactions without recourse. The prior periods, and deducting the fair value of any plan Group derecognizes the financial assets when, and assets. The present value of the defined benefit obligation only when, the contractual rights and risks to the cash is measured using actuarial techniques and actuarial flows arising from the related financial assets are no assumptions that are unbiased and mutually compatible longer held or the Group has transferred the financial and attributes benefits to periods in which the obligation assets. In the case of a transfer of financial assets, if the to provide post-employment benefits arise by using the Group transfers substantially all the risks and rewards Projected Unit Credit Method. 212 AR 2020/ 2. SIGNIFICANT ACCOUNTING POLICIES BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The components of the defined benefit cost are within selling, general and administrative costs or cost of recognized as follows: sales in the consolidated income statement depending on • the service costs are recognized in the consolidated the function of the employee, with an offsetting increase income statement by function and presented in the to equity. relevant line items (cost of sales, selling, general and administrative costs, research and development PROVISIONS costs, etc.); • the net interest on the defined benefit liability is recognized in the consolidated income statement as net financial income /(expenses), and is determined by multiplying the net liability/(asset) by the discount rate used to discount obligations taking into account the effect of contributions and benefit payments made during the year; and • the remeasurement components of the net obligations, which comprise actuarial gains and losses and any change in the effect of the asset ceiling are recognized immediately in other comprehensive income/(loss). These remeasurement components are not reclassified in the consolidated income statement in a subsequent period. Provisions are recognized when the Group has a present obligation, legal or constructive, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. WARRANTY AND RECALL CAMPAIGNS PROVISION All cars are sold with warranty coverage. The warranty coverage generally applies to defects that may become apparent within a certain period from the purchase of the car. The warranty provision is recognized at the time of the sale of the car, based on the present value of management’s estimate of the expected cost to fulfill the obligations over OTHER LONG-TERM EMPLOYEE BENEFITS the contractual warranty period. Estimates are principally The Group’s obligations represent the present value of based on the Group’s historical claims or costs experience future benefits that employees have earned in return and the cost of parts and services to be incurred in for their service during the current and prior periods. the activities. The costs related to these provisions are Remeasurement components on other long-term recognized within cost of sales at the time when they are employee benefits are recognized in the consolidated probable and reasonably estimable. income statement in the period in which they arise. See “Use of estimates” below for further details. SHARE-BASED COMPENSATION The Group has implemented equity incentive plans that DEFERRED INCOME provide for the granting of share-based compensation Deferred income relates to amounts received by the to the Chairman, the Chief Executive Officer, all other Group under various agreements, which are reliant on members of the Senior Management Team (“SMT”) and the future performance of a service or other act of the other key employees of the Group. The equity incentive Group. Deferred income is recognized as net revenues plans are accounted for in accordance with IFRS 2 – when the Group has fulfilled its obligations under the Share-based Payment, which requires the Company to terms of the various agreements. recognize share-based compensation expense based on fair value of awards granted. Compensation expense for Range models (models belonging to the Ferrari product the equity-settled awards containing market performance portfolio, excluding special series, Icona, limited conditions is measured at the grant date fair value of edition and one-off models) are sold with a scheduled the award using a Monte Carlo simulation model, which maintenance program to ensure that the cars are requires the input of subjective assumptions, including the maintained to the highest standards to meet the Group’s expected volatility of the Company’s common stock, the strict requirements for performance and safety. dividend yield, interest rates and a correlation coefficient Amounts attributable to the maintenance program are between the common stock and the relevant market not recognized as income immediately, but are deferred index. The fair value of the awards which are conditional over the maintenance program term. The amount of the only on a recipient’s continued service to the Company is deferred income related to this program, is based on the measured using the share price at the grant date adjusted estimated fair value of the service to be provided. for the present value of future distributions which employees will not receive during the vesting period. ADVANCES Share-based compensation expense relating to the equity customers in advance of having delivered the related incentive plans is recognized over the service period cars or provided the related services. Advances relate to amounts received from or billed to 213 AR 2020 FERRARI N.V. REVENUE RECOGNITION Group estimates the SSP based on the adjusted market Revenue is recognized when control over a product approach. or service is transferred to a customer. Revenue is measured at the transaction price which is based Revenues for the sale of cars, spare parts and engines on the amount of consideration that the Group are recognized at a point in time when control of the expects to receive in exchange for transferring the cars, spare parts or engines is transferred to the promised goods or services to the customer and customer based on shipping terms, which generally excludes any sales incentives as well as taxes collected corresponds to the date when the cars, spare parts from customers that are remitted to government and engines are released to the carrier responsible for authorities. The transaction price will include estimates transportation to dealers or Maserati. Revenues relating of variable consideration to the extent it is probable to the maintenance program or extended warranty that a significant reversal of revenue recognized will are recognized over time as the maintenance program not occur. The Group enters into contracts that may or extended warranty is provided. Revenues from the include both products and services, which are generally supply of engines and related services to other Formula capable of being distinct and accounted for as separate 1 racing teams are recognized over time on a time and performance obligations. materials basis when the services are provided. The Group generates revenue from the sale of cars, Management has exercised judgment in determining spare parts and engines as well as from sponsorship, performance obligations, variable consideration, commercial and brand activities. The Group accounts allocation of transaction price and the timing of revenue for a contract with a customer when there is a legally recognition. enforceable contract between the Group and the customer, the rights of the parties are identified, the SPONSORSHIP, COMMERCIAL AND BRAND ACTIVITIES contract has commercial substance, and collectability of Revenues from sponsorship agreements are generally the contract consideration is probable. Payments from recognized ratably over the contract term as the customers are typically due within 30 and 40 days of customer benefits from the service throughout the invoicing. service period. For sponsorship agreements that contain variable consideration based on performance of the The Group does not recognize any assets associated racing team, the related revenues are estimated and with the incremental costs of obtaining a contract with recognized over the relevant period to the extent that it is a customer that are expected to be recovered. The highly probable that a significant reversal in the amount majority of revenue is recognized at a point-in-time or of the cumulative revenue recognized will not occur, over a period of one year or less, and the Group applies which is typically when it is considered highly probable the practical expedient to recognize the incremental that the related conditions associated with the variable costs of obtaining a contract as an expense when consideration will be achieved. incurred if the amortization period of the asset that would otherwise be recognized is one year or less. Revenues from commercial activities primarily relate to the revenues from participating in the Formula 1 World CARS, SPARE PARTS AND ENGINES Championship. The revenues attributable to each racing The sales of cars, spare parts and engines have multiple team are governed by a specific agreement and depend performance obligations that include products, services, upon, among other factors, the prior year ranking of or a combination of products and services as contracts each of the racing teams. Revenues of the commercial may include maintenance programs and extended activities are recognized ratably over the contract term. warranties that are separately priced or not separately priced. Contracts may also include variable consideration Revenues from brand licensing agreements where the for discounts such as sales incentives and performance customer has a right to access the Group’s brands or the based bonuses and product returns. The cost of contract includes minimum guaranteed payments are incentives is estimated at the inception of a contract at recognized on a straight-line basis over the contract term. the expected amount that will ultimately be paid and is Licensing revenues in excess of the minimum guaranteed recognized as a reduction to revenue at the time of the payments are recognized when the related conditions sale. Revenues recognized are limited to the amount of are satisfied. Revenues from sales-based licensing consideration the Group expects to receive. The Group agreements are recognized when the sales occur. allocates the transaction price to the performance obligations based on the stand alone selling prices (SSP) Management has exercised judgment in determining for each obligation. When the SSP does not exist, the variable consideration. 214 AR 2020/ 2. SIGNIFICANT ACCOUNTING POLICIES BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements OTHER REVENUES business combination and at the time of the transaction, Interest income generated by our financial service affects neither accounting profit nor taxable profit. activities from the provision of client and dealer financing Deferred tax assets are recognized for all deductible is reported within revenues using the effective interest temporary differences to the extent that it is probable rate method and not within net financial income/ that taxable profit will be available against which the expenses. COST OF SALES deductible temporary differences can be utilized, unless the deferred tax assets arise from the initial recognition of an asset or liability in a transaction that is not a Cost of sales comprises expenses incurred in the business combination and at the time of the transaction, manufacturing and distribution of cars and parts, affects neither accounting profit nor taxable profit. including the engines rented to other Formula 1 racing teams, of which, cost of materials, components and labor Deferred tax assets and liabilities are measured at costs are the most significant portion. The remaining the substantively enacted tax rates in the respective costs principally include depreciation, amortization, jurisdictions in which the Group operates that are insurance and transportation costs. Cost of sales also expected to apply to the period when the asset is realized includes warranty and product-related costs, which are or liability is settled. Any remeasurements to deferred tax estimated and recorded at the time of sale of the car. assets and liabilities as a result of changes in substantially enacted tax rates are recognized in the income Expenses which are directly attributable to the financial statement. services companies, including the interest expenses related to their financing as a whole and provisions for The recoverability of deferred tax assets is dependent risks and write-downs of assets, are also reported in on the Group’s ability to generate sufficient future cost of sales. OTHER EXPENSES AND OTHER INCOME taxable income in the period in which it is assumed that the deductible temporary differences reverse and tax losses carried forward can be utilized. In making Other expenses consist of miscellaneous costs which this assessment, the Group considers future taxable cannot be allocated to specific functional areas, such as income arising on the most recent budgets and plans, indirect taxes, accruals for provisions not attributable to prepared by using the same criteria described for testing cost of sales or selling, general and administrative costs, the impairment of assets and goodwill, moreover, it and other miscellaneous expenses. estimates the impact of the reversal of taxable temporary Other income consists of miscellaneous income that over which these assets could be recovered. The is not directly attributable to the sale of goods or carrying amount of deferred tax assets is reduced to the services, such as gains on the disposal of property plant extent that it is not probable that sufficient taxable profit and equipment, the release of certain provisions originally will be available to allow the benefit of part or all of the recognized as other expenses, rental income and other deferred tax assets to be utilized. differences on earnings and it also considers the period miscellaneous income.  TAXES The Group recognizes deferred tax liabilities associated with the existence of a subsidiary’s undistributed Income taxes include all taxes based upon the taxable profits, except when it is able to control the timing of the profits of the Group. Current and deferred taxes are reversal of the temporary difference and it is probable recognized as income or expense and are included that this temporary difference will not reverse in the in the consolidated income statement for the period, foreseeable future. The Group recognizes deferred except tax arising from (i) a transaction or event which tax assets associated with the deductible temporary is recognized, in the same or a different period, either in differences on investments in subsidiaries only to the other comprehensive income/(loss) or directly in equity, extent that it is probable that the temporary differences or (ii) a business combination. will reverse in the foreseeable future and taxable profit will be available against which the temporary difference Deferred taxes are accounted using the full liability can be utilized. method. Deferred tax liabilities are recognized for all taxable temporary differences between the carrying Deferred tax assets relating to the carry-forward of amounts of assets or liabilities and their tax base, except unused tax losses and tax credits, as well as those arising to the extent that the deferred tax liabilities arise from from deductible temporary differences, are recognized the initial recognition of goodwill or the initial recognition to the extent that it is probable that future profits will be of an asset or liability in a transaction which is not a available against which they can be utilized. 215 AR 2020 FERRARI N.V. Current income taxes and deferred taxes are offset when DIVIDENDS they relate to the same taxation authority and there is a Dividends payable by the Group are reported as legally enforceable right of offset. a change in equity in the period in which they are approved by shareholders or the Board of Directors as Italian Regional Income Tax (“IRAP”) is recognized within applicable under local rules and regulations. income tax expense. IRAP is calculated on a measure of income defined by the Italian Civil Code as the difference ROUNDING OF AMOUNTS between operating revenues and costs, before financial All amounts disclosed in the financial statements and income and expense, and in particular before the cost notes have been rounded off to the nearest thousand of fixed-term employees, credit losses and any interest Euro unless otherwise stated. included in lease payments. IRAP is applied on the tax base at 3.9 percent for the years ended December 31, 2020, 2019 and 2018. Other taxes not based on income, such as property taxes 3. SCOPE OF CONSOLIDATION and capital taxes, are included in other expenses, net. Ferrari N.V. is the parent company of the Group and it With the adoption of IFRIC 23 on January 1, 2019, the Group main operating companies. The Group’s scope of reviewed its previously designed model to account for tax consolidation at December 31, 2020 and 2019 was as holds, directly and indirectly, interests in the Group’s uncertainties and assessed that it is consistent with the follows: more specific IFRIC 23 requirements. Name Directly held interests Ferrari S.p.A. At December 31, 2020 At December 31, 2019 Country Nature of business Shares held by the Group Shares held by NCI Shares held by the Group Shares held by NCI Italy Manufacturing 100% — %  100 %  — % Indirectly held through Ferrari S.p.A. Ferrari North America Inc. Ferrari Japan KK USA Japan Ferrari Australasia Pty Limited Australia Ferrari International Cars Trading (Shanghai) Co. L.t.d. China Ferrari (HK) Limited Hong Kong Importer and distributor Importer and distributor Importer and distributor Importer and distributor Importer and distributor 100% — % 100% 100% — % 100% 100% — % 100% — % — % — % 80% 20% 80% 20% 100% Ferrari Far East Pte Limited Singapore Service company 100% Ferrari Management Consulting (Shanghai) Co. L.t.d. China Service company 100% Ferrari South West Europe S.a.r.l. France Service company Ferrari Central Europe GmbH Germany Service company G.S.A. S.A. Switzerland Service company Mugello Circuit S.p.A. Italy Racetrack management 100% 100% 100% 100% Ferrari Financial Services Inc. USA Financial services  100% Indirectly held through other Group entities Ferrari Auto Securitization Transaction LLC (1) USA Financial services 100% Ferrari Auto Securitization Transaction - Lease, LLC (1) Ferrari Auto Securitization Transaction - Select, LLC (1) USA Financial services 100% USA Financial services 100% Ferrari Financial Services Titling Trust (1) USA Financial services 410, Park Display, Inc. (2) USA Retail 100% 100% 1) Shareholding held by Ferrari Financial Services Inc. 2) Shareholding held by Ferrari North America Inc. 216 — % — % — % — % — % — % — % — % — % — % — % — % — % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% — % — % — % — % — % — % — % — % — % — % — % — % — % AR 2020/ 2. SIGNIFICANT ACCOUNTING POLICIES BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements NON-CONTROLLING INTERESTS The non-controlling interests at December 31, 2020 and 2019 and the net profit attributable to non-controlling interests for the years ended December 31, 2020, 2019 and 2018 relate to Ferrari International Cars Trading (Shanghai) Co. L.t.d. (“FICTS”), in which the Group holds an 80 percent interest. (€ thousand) Equity attributable to non-controlling interests (€ thousand) At December 31, 2020 4,018 2019 5,998 For the years ended December 31, 2020 2019 2018 Net profit attributable to non-controlling interests 1,063 2,890 1,949 The non-controlling interests in FICTS are not associated assumptions are based on elements that are considered to be significant to the Group for the relevant known when the financial statements are prepared, on periods. RESTRICTIONS historical experience and on any other factors that are considered to be relevant. The Group may be subject to restrictions which limit The estimates and underlying assumptions are its ability to use cash in relation to its interest in FICTS. reviewed periodically and continuously by the Group. In particular, cash held in China is subject to certain If the items subject to estimates do not perform as repatriation restrictions and may only be repatriated assumed, then the actual results could differ from the as dividends. The Group does not believe that such estimates, which would require adjustment accordingly. transfer restrictions have any adverse impacts on its The effects of any changes in estimate are recognized ability to meet liquidity requirements. Cash held in China in the consolidated income statement in the period at December 31, 2020 amounted to €55,566 thousand in which the adjustment is made, or prospectively in (€115,182 thousand at December 31, 2019). future periods. Cash collected from the settlement of receivables under The items requiring estimates for which there is a risk securitization programs is subject to certain restrictions that a material difference may arise in respect of the regarding its use and is principally applied to repay carrying amounts of assets and liabilities in the future are principal and interest of the related funding. Such cash discussed below. amounted to €36,935 thousand at December 31, 2020 (€27,524 thousand at December 31, 2019). RECOVERABILITY OF NON-CURRENT ASSETS WITH SEGMENT REPORTING DEFINITE USEFUL LIVES Non-current assets with definite useful lives include The Group has determined that it has one operating property, plant and equipment and intangible assets. and one reportable segment based on the information Intangible assets with definite useful lives mainly consist reviewed by the Board of Directors (the Group’s “Chief of capitalized development costs. Operating Decision Maker” as defined in IFRS 8 – Operating Segments) in making decisions regarding the The Group periodically reviews the carrying amount allocation of resources and to assess performance. of non-current assets with definite useful lives when USE OF ESTIMATES events and circumstances indicate that an asset may be impaired. Impairment tests are performed by comparing The Consolidated Financial Statements are prepared the carrying amount and the recoverable amount of the in accordance with IFRS which require the use of cash-generating unit (“CGU”). The recoverable amount is estimates, judgments and assumptions that affect the the higher of the CGU’s fair value less costs of disposal carrying amount of assets and liabilities, the disclosure and its value in use. In assessing the value in use, the of contingent assets and liabilities and the amounts of estimated future cash flows are discounted to their income and expenses recognized. The estimates and present value using a pre-tax discount rate that reflects 217 AR 2020 FERRARI N.V. / 3. SCOPE OF CONSOLIDATION current market assessments of the time value of money The useful lives and residual values of the Group’s and the risks specific to the CGU. models are determined by management at the time of capitalization and reviewed annually for appropriateness For the period covered by these Consolidated Financial and recoverability. The lives are based on historical Statements, the Group has not recognized any experience with similar assets as well as anticipation impairment charges for non-current assets with definite of future events which may impact their life such as useful lives. changes in technology. Historically changes in useful lives and residual values have not resulted in material RECOVERABILITY OF GOODWILL changes to the Group’s amortization charge or estimated In accordance with IAS 36 – Impairment of Assets, recoverability of the related assets. goodwill is not amortized and is tested for impairment annually or more frequently if facts or circumstances PRODUCT WARRANTY LIABILITIES indicate that the asset may be impaired. The Group establishes reserves for product warranties at the time the sale is recognized. The Group issues As the Group is composed of one operating segment, various types of product warranties under which goodwill is tested at the Group level, which represents the performance of products delivered is generally the lowest level within the Group at which goodwill guaranteed for a certain period or term, which is is monitored for internal management purposes generally defined by the legislation in the country where in accordance with IAS 36. The impairment test is the car is sold. The reserve for product warranties performed by comparing the carrying amount (which includes the expected costs of warranty obligations mainly comprises property, plant and equipment, imposed by law or contract, as well as the expected costs goodwill and capitalized development costs) and the for policy coverage. The estimated future costs of these recoverable amount of the CGU. The recoverable amount actions are principally based on assumptions regarding of the CGU is the higher of its fair value less costs of the lifetime warranty costs of each car line and each disposal and its value in use. model year of that car line, as well as historical claims experience for the Group’s cars. In addition, the number For the period covered by these Consolidated Financial and magnitude of additional service actions expected Statements, the Group has not recognized any to be approved, and policies related to additional impairment charges for goodwill. service actions, are taken into consideration. Due to the uncertainty and potential volatility of these estimated DEVELOPMENT COSTS factors, changes in the assumptions used could Development costs are capitalized if the conditions materially affect the results of operations. under IAS 38 – Intangible Assets have been met. The starting point for capitalization is based upon the The Group periodically initiates voluntary service technological and commercial feasibility of the project, actions to address various client satisfaction, safety and which is usually when a product development project emissions issues related to cars sold. Included in the has reached a defined milestone according to the reserve is the estimated cost of these services and recall Group’s established product development model. actions. The estimated future costs of these actions are Feasibility is based on management’s judgment which based primarily on historical claims experience for the is formed on the basis of estimated future cash flows. Group’s cars and the cost of parts and services to be Capitalization ceases and amortization of capitalized incurred in the specified activities, and are recognized at development costs begins on start of production of the the time when they are probable and reasonably relevant project. estimable. Estimates of the future costs of these actions are inevitably imprecise due to several uncertainties, The amortization of development costs requires including the number of cars affected by a service or management to estimate the lifecycle of the related recall action. It is reasonably possible that the ultimate model or assets. Any changes in such assumptions cost of these service and recall actions may require would impact the amortization charge recorded and the the Group to make expenditures in excess of (or less carrying amount of capitalized development costs. The than) established reserves over an extended period of periodic amortization charge is derived after determining time. The estimate of warranty and additional service the expected lifecycle of the related model or assets and, obligations is periodically reviewed during the year. if applicable any expected residual value at the end of its life. Increasing an asset’s expected lifecycle or its residual In addition, the Group makes provisions for estimated value would result in a reduced amortization charge in product liability costs arising from property damage the consolidated income statement. and personal injuries including wrongful death, and 218 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements potential exemplary or punitive damages alleged to be the status of pending legal proceedings and consults with result of product defects. By nature, these costs can be experts on legal and tax matters on a regular basis. It is infrequent, difficult to predict, and have the potential to therefore possible that the provisions for the Group’s vary significantly in amount. Costs associated with these legal proceedings and litigation may vary as the result of provisions are recorded in the consolidated income future developments in pending matters. statement and any subsequent adjustments are recorded in the period in which the adjustment is determined. LITIGATION Various legal proceedings, claims and governmental SHARE-BASED COMPENSATION investigations are pending against the Group on a wide The Group accounts for its equity incentive plan in range of topics, including car safety, emissions and fuel accordance with IFRS 2 – Share-based Payment, which economy, early warning reporting, dealer, supplier and requires the recognition of share-based compensation other contractual relationships, intellectual property expense based on the fair value of the awards granted. rights and product warranties matters. Some of these Share-based compensation for equity-settled awards proceedings allege defects in specific component containing market performance conditions is measured parts or systems (including airbags, seatbelts, brakes, at the grant date of the awards using a Monte Carlo transmissions, engines and fuel systems) in various car simulation model, which requires the input of subjective models or allege general design defects relating to car assumptions, including the expected volatility of our handling and stability, sudden unintended movement or common stock, the dividend yield, interest rates and the crashworthiness. These proceedings seek recovery for correlation coefficient between our common stock and damage to property, personal injuries or wrongful death the relevant market index. The probability that the Group and in some cases could include a claim for exemplary will achieve a certain level of Total Shareholder Return or punitive damages. Adverse decisions in one or more performance compared to the defined peer group is also of these proceedings could require the Group to pay considered. As a result, at the grant date management substantial damages, or undertake service actions, recall is required to make key assumptions and estimates campaigns or other costly actions. regarding conditions that will occur in the future, which inherently involves uncertainty. Therefore, the amount of Litigation is subject to many uncertainties, and the share-based compensation recognized has been affected outcome of individual matters is not predictable with by the significant assumptions and estimates used. assurance. An accrual is established in connection with pending or threatened litigation if a loss is probable and OTHER CONTINGENT LIABILITIES a reliable estimate can be made. Since these accruals The Group makes provisions in connection with pending represent estimates, it is reasonably possible that the or threatened disputes or legal proceedings when it resolution of some of these matters could require the is considered probable that there will be an outflow Group to make payments in excess of the amounts of funds and when the amount can be reasonably accrued. It is also reasonably possible that the resolution estimated. If an outflow of funds becomes possible of some of the matters for which accruals could not be but the amount cannot be estimated, the matter is made may require the Group to make payments in an disclosed in the notes to the Consolidated Financial amount or range of amounts that could not be reasonably Statements. The Group is the subject of legal and tax estimated. proceedings covering a wide range of matters in various jurisdictions. Due to the uncertainty inherent in such The term “reasonably possible” is used herein to matters, it is difficult to predict the outflow of funds mean that the chance of a future transaction or event that could result from such disputes with any certainty. occurring is more than remote but less than probable. Moreover, the cases and claims against the Group often Although the final resolution of any such matters derive from complex legal issues which are subject to a could have a material effect on the Group’s operating differing degree of uncertainty, including the facts and results for the particular reporting period in which circumstances of each particular case and the manner in an adjustment of the estimated reserve is recorded, which applicable law is likely to be interpreted and applied it is believed that any resulting adjustment would not to such fact and circumstances, and the jurisdiction materially affect the consolidated financial position of and the different laws involved. The Group monitors the the Group. 219 AR 2020 FERRARI N.V. 4. NET REVENUES Net revenues are as follows: (€ thousand) Cars and spare parts Engines Sponsorship, commercial and brand Other Total net revenues For the years ended December 31, 2020 2019 2018 2,835,170 2,925,721 2,535,245 150,655 198,308 284,546 390,002 538,238 505,701 83,963 104,348 94,829 3,459,790 3,766,615 3,420,321 Other net revenues primarily relate to financial services Cost of sales in 2018 included €1,451 thousand related activities, management of the Mugello racetrack and to a partial release of the provision for charges to other sports-related activities. Takata airbag inflator recalls. See Note 23 “Provisions” for additional details. Interest and other financial income from financial services activities included within net revenues in 2020, 2019 and 2018 amounted to €65,878 thousand, €66,386 thousand and €52,702 thousand, respectively. 5. COST OF SALES 6. SELLING, GENERAL AND ADMINISTRATIVE COSTS Selling costs in 2020, 2019 and 2018 amounted to €171,900 thousand, €173,512 thousand and €167,819 thousand, respectively, consisting mainly Cost of sales in 2020, 2019 and 2018 amounted to of costs for sales personnel, marketing and events, €1,686,324 thousand, €1,805,310 thousand and and retail stores. Costs for marketing and events €1,622,905 thousand, respectively, consisting mainly of primarily relate to trade and auto shows, media and the cost of materials, components and labor related to the client events for the launch of new models, as well as manufacturing and distribution of cars and spare parts, sponsorship and indirect marketing costs incurred engines sold to Maserati and engines rented to other through the Formula 1 racing team, Scuderia Formula 1 racing teams. The remaining costs principally Ferrari. includes depreciation, insurance and transportation costs, as well as warranty and product-related costs, which are General and administrative costs in 2020, 2019 and estimated and recorded at the time of shipment. 2018 amounted to €164,226 thousand, €169,667 thousand and €159,522 thousand, respectively, Interest and other financial expenses from financial consisting mainly of administration and other general services activities included within cost of sales in 2020, expenses, including for personnel, that are not directly 2019 and 2018 amounted to €36,628 thousand, €45,083 attributable to manufacturing, sales or research and thousand and €33,828 thousand, respectively. development activities. 220 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements 7. RESEARCH AND DEVELOPMENT COSTS Research and development costs are as follows: (€ thousand) For the years ended December 31, 2020 2019 2018 Research and development costs expensed during the year 526,831 559,582 527,847 Amortization of capitalized development costs 180,554 139,629 115,191 Total research and development costs 707,385 699,211 643,038 Research and development costs expensed during the period primarily relate to Formula 1 activities and research and development activities to support the innovation of our product range and components, and in particular, in relation to hybrid and electric technology. Research and development costs for the year ended December 31, 2020 are presented net of technology-related government incentives recognized in the first half of 2020. 8. OTHER EXPENSES, NET Other expenses, net are as follows: (€ thousand) Other expenses Other income Other expenses, net For the years ended December 31, 2020 2019 2018 25,067 14,288 18,257 (6,592) (9,297) (15,062) 18,475 4,991 3,195 Other expenses primarily include indirect taxes, provisions and other miscellaneous expenses. Other income primarily includes rental income, gains on the disposal of property plant and equipment and other miscellaneous income. Other expenses, net in 2019 includes the positive effects of a change in estimate of the risk and related provision associated with a legal dispute based on developments that occurred in the first quarter of 2019, and other expenses, net in 2018 includes the effects of a favorable ruling on a prior year’s legal dispute. 221 AR 2020 FERRARI N.V. 9. NET FINANCIAL EXPENSES The following table sets out details of financial income financial services activities, recognized under net and expenses, including the amounts reported in the revenues, and interest expenses and other financial consolidated income statement within the net financial charges from financial services activities, recognized expenses line item, as well as interest income from under cost of sales. (€ thousand) Financial income: Interest income from bank deposits Other interest income and financial income For the years ended December 31, 2020 2019 2018 610 517 1,690 1,445 4,116 677 Interest income and other financial income 1,127 5,806 2,122 Finance income from financial services activities 65,878 66,386 52,702 Total financial income Total financial income relating to: Industrial activities (A) 67,005 72,192 54,824 1,127 5,806 2,122 Financial services activities (reported in net revenues) 65,878 66,386 52,702 Financial expenses: Capitalized borrowing costs 2,591 2,671 2,884 Other interest and financial expenses (3,258) (2,427) (1,046) Interest expenses and other financial expenses (667) 244 1,838 Interest expenses from banks (14,330) (27,432) (21,486) Interest and other finance costs on bonds and notes (20,116) (20,703) (12,386) Write-downs of financial receivables Other financial expenses Total financial expenses Net expenses from derivative financial instruments and foreign currency exchange rate differences Total financial expenses and net expenses from derivative financial instruments and foreign currency exchange rate differences Total financial expenses and net expenses from derivative financial instruments and foreign currency exchange rate differences relating to: (9,502) (4,739) (3,326) (14,580) (13,949) (8,494) (59,195) (66,579) (43,854) (27,652) (26,392) (15,659) (86,847) (92,971) (59,513) Industrial activities (B) (50,219) (47,888) (25,685) Financial services activities (reported in cost of sales) (36,628) (45,083) (33,828) Net financial expenses relating to industrial activities (A+B) (49,092) (42,082) (23,563) Interest and other finance costs on bonds and notes for the year ended December 31, 2019 includes costs of €8,142 thousand for the partial repurchase of bonds following a cash tender offer in July 2019 (in particular the repurchase price and premium incurred, as well as previously unamortized issuance costs). 222 AR 202010. INCOME TAXES Income tax expense is as follows: (€ thousand) Current tax expense Deferred tax (benefit)/expense Taxes relating to prior periods Total income tax expense BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements For the years ended December 31, 2020 2019 2018 120,115 137,303 95,076 (62,474) 32,145 66,325 514 7,208 (145,084) 58,155 176,656 16,317 The Italian Group’s entities participate in a group Italian tax regime, which provides tax benefits for companies tax consolidation under Ferrari N.V.. that generate income through the use, both direct and indirect, of copyrights, patents, trademarks, designs and In the fourth quarter of 2020, Ferrari benefited from the know-how. The agreement related to the five-year period measures introduced in Italy by the art. 110 of the Law from 2015 to 2019. The Patent Box tax benefit relating to Decree n. 104/2020, converted in the Law n. 126/2020, the years 2015 to 2017 amounted to approximately €141 enacting “Urgent measures to support and relaunch million and was recorded within taxes relating to prior the economy”, which reopened the voluntary step up periods in 2018. The Group is applying the Patent Box of tangible and intangible assets, with the application tax regime for the period from 2020 to 2024, in line with of a substitute tax at a rate of 3 percent. In particular, currently applicable tax regulations in Italy. Starting in Ferrari S.p.A. benefited from the one-time partial step- 2020 Ferrari self-determines the income eligible for the up of its trademark for tax purposes, which resulted Patent Box regime and will recognize the Patent Box tax in the recognition in 2020 of deferred tax assets for benefit in three equal annual installments in 2020, 2021 €83,700 thousand and a substitute tax liability for and 2022. €9,000 thousand, resulting in a net tax benefit of €74,700 thousand. The deferred tax asset will be utilized In addition to the Patent Box tax benefit relating to the over a 20-year period and the substitute tax will be paid years 2015 to 2017 which was recorded within taxes in three equal annual installments starting in 2021. There relating to prior periods in 2018 as mentioned above, was no cash effect in 2020. taxes relating to prior periods are primarily In September 2018, the Group signed an agreement with Revenue Agency for the settlement of claims relating to the Italian Revenue Agency in relation to the Patent Box prior years. attributable to the agreements reached with the Italian 223 AR 2020 FERRARI N.V. / 10. INCOME TAXES The table below provides a reconciliation between actual income tax expense and the theoretical income tax expense, calculated on the basis of the applicable corporate tax rate in effect in Italy, which was 24.0 percent for each of the years ended December 31, 2020, 2019 and 2018. (€ thousand) For the years ended December 31, 2020 2019 2018 Theoretical income tax expense, net of IRAP 160,088 210,088 192,706 Tax effect on: Permanent and other differences (129,016) (76,187) (58,877) Effect of changes in tax rates and tax regulations 800 733 — Differences between foreign tax rates and the theoretical Italian tax rate and tax holidays Taxes relating to prior years Withholding tax on earnings 1,734 3,457 1,216 514 1,373 7,208 (145,084) 3,360 1,514 Total income tax expense/(benefit), net of IRAP 35,493 148,659 (8,525) Effective tax rate, net of IRAP IRAP (current and deferred) Total income tax expense 5.3 % 17.0% (1.1)% 22,662 27,997 24,842 58,155 176,656 16,317 In order to facilitate the understanding of the tax rate intangible assets, with the application of a substitutive tax reconciliation presented above, income tax expense has rate (3%), and to a lesser extent, the effects of deductions been presented net of Italian Regional Income Tax (“IRAP”). for eligible research and development costs. The net IRAP is calculated on a measure of income defined benefit, which amounted to €74,700 thousand, is included by the Italian Civil Code as the difference between within “permanent and other differences” for 2020 in the operating revenues and costs, before financial income tax rate reconciliation above. The negative effective tax and expense, the cost of fixed-term employees, credit rate of 1.1 percent in 2018 was primarily attributable to the losses and any interest included in lease payments. The Group’s application of the Patent Box tax regime starting applicable IRAP rate was 3.9 percent for each of the years in the third quarter of 2018, including the recognition in ended December 31, 2020, 2019 and 2018. 2018 of the positive impact of the Patent Box relating to the years 2015 to 2017. The Patent Box benefit relating to the The decrease in the effective tax rate net of IRAP from years 2015 to 2017 is included within “taxes relating to prior 17.0 percent in 2019 to 5.3 percent in 2020 was primarily years” and the Patent Box benefit relating to 2020, 2019 and attributable to the tax benefits from the measures 2018 is included within “permanent and other differences” introduced in Italy by the art. 110 of the Law Decree No. for the respective years in the tax rate reconciliation above. 104/2020, converted in the Law n. 126/2020, enacting “Urgent measures to support and relaunch the economy”, The analysis of deferred tax assets and deferred tax which reopened the voluntary step up of tangible and liabilities at December 31, 2020 and 2019, is as follows: (€ thousand) Deferred tax assets: To be recovered after 12 months To be recovered within 12 months Deferred tax liabilities: To be realized after 12 months To be realized within 12 months Net deferred tax assets/(liabilities) 224 At December 31, 2020 2019 95,209 16,445 57,012 57,238 152,221 73,683 (96,179) (77,334) (17,295) (4,874) (113,474) (82,208) 38,747 (8,525) AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The movements in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, are as follows: (€ thousand) Deferred tax assets arising on: Provisions Deferred income Employee benefits Foreign currency exchange rate differences Cash flow hedge reserve Inventory obsolescence Allowances for doubtful accounts Depreciation Trademark step-up Patent box Other At December 31, 2019 Recognized in consolidated income statement Charged to equity Translation differences and other changes At December 31, 2020 100,298 53,843 2,930 1,437 1,786 51,972 5,407 17,564 — — 17,695 (8,748) (1,602) — (920) — — 1 — — (1,786) 10,032 239 (10) 83,700 27,902 (8,298) — — — — — — (887) 90,663 — — (1) — 52,241 2,931 516 — (278) 61,726 (3) (3) — — 5,643 17,551 83,700 27,902 (3,370) 6,027 Total deferred tax assets 252,932 102,295 (1,785) (4,542) 348,900 Deferred tax liabilities arising on: Depreciation (8,881) 764 Capitalization of development costs (224,851) (39,238) Employee benefits Foreign currency exchange rate differences Cash flow hedge reserve Tax on undistributed earnings Other (750) (399) — (13,983) (12,593) — — — — (94) (160) — (9,505) (1,878) 785 — — 567 (7,550) 2 — — — — (264,087) (844) (559) (9,505) (15,861) 61 (11,747) Total deferred tax liabilities (261,457) (39,821) (9,505) 630 (310,153) Total net deferred tax assets/(liabilities) (8,525) 62,474 (11,290) (3,912) 38,747 225 AR 2020 FERRARI N.V. / 10. INCOME TAXES (€ thousand) Deferred tax assets arising on: Provisions Deferred income Employee benefits Cash flow hedge reserve Foreign currency exchange rate differences Inventory obsolescence Allowances for doubtful accounts Depreciation Other At December 31, 2018 Recognized in consolidated income statement Charged to equity Translation differences and other changes At December 31, 2019 108,147 51,578 2,474 1,176 859 38,275 4,301 17,241 11,147 (8,181) 2,265 — — 578 13,626 1,104 321 5,858 — — 456 610 — — — — — 332 100,298 — — — — 71 2 2 690 53,843 2,930 1,786 1,437 51,972 5,407 17,564 17,695 Total deferred tax assets 235,198 15,571 1,066 1,097 252,932 Deferred tax liabilities arising on: Depreciation (9,303) 572 Capitalization of development costs (171,707) (53,144) Employee benefits Exchange rate differences Cash flow hedge reserve Tax on undistributed earnings Other (670) (149) (1) (16,371) (15,395) (80) (251) 1 2,388 2,798 Total deferred tax liabilities (213,596) (47,716) — — — — — — — — (150) (8,881) — — 1 — — 4 (224,851) (750) (399) — (13,983) (12,593) (145) (261,457) Total net deferred tax assets 21,602 (32,145) 1,066 952 (8,525) The decision to recognize deferred tax assets is made cases where it is probable the distribution will occur for each company in the Group by assessing whether in the foreseeable future. For additional information, the conditions exist for the future recoverability of such at December 31, 2020, the aggregate amount assets by taking into account the basis of the most recent of temporary differences related to remaining forecasts from budgets and business plans. distributable earnings of the Group’s subsidiaries Deferred taxes on the undistributed earnings of amounted to €164,803 thousand (€151,990 thousand at subsidiaries have not been recognized, except in December 31, 2019). where deferred tax liabilities have not been recognized 226 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements 11. OTHER INFORMATION BY NATURE €132,364 thousand for the years ended December 31, 2020, 2019 and 2018, respectively. Personnel costs in 2020, 2019 and 2018 amounted to €389,927 thousand, €385,182 thousand and €323,936 thousand, respectively. These amounts include costs that were capitalized in connection with product development activities. In 2020, 2019 12. EARNINGS PER SHARE BASIC EARNINGS PER SHARE and 2018 the Group had an average number of Basic earnings per share is calculated by dividing the employees of 4,428, 4,164 and 3,651, respectively. profit attributable to equity holders of the Company by the weighted average number of common shares issued Depreciation amounted to €217,952 thousand, and outstanding during the period. €191,482 thousand and €156,384 thousand for the years ended December 31, 2020, 2019 and The following table provides the amounts used in the 2018, respectively, and amortization amounted calculation of basic earnings per share for the years to €208,685 thousand, €160,464 thousand and ended December 31, 2020, 2019 and 2018: Profit attributable to owners of the Company € thousand 607,817 695,818 784,678 Weighted average number of common shares for basic earnings per common share thousand 184,806 186,767 188,606 Basic earnings per common share € 3.29 3.73 4.16 For the years ended December 31, 2020 2019 2018 DILUTED EARNINGS PER SHARE The weighted average number of common shares for diluted earnings per share was increased to take into consideration the theoretical effect of the potential common shares that would have been issued under the Group’s equity incentive plans (assuming 100 percent of the related awards vested). See Note 21 for additional details relating to the equity incentive plans of the Group. The following table provides the amounts used in the calculation of diluted earnings per share for the years ended December 31, 2020, 2019 and 2018: Profit attributable to owners of the Company € thousand 607,817 695,818 784,678 Weighted average number of common shares(1) for diluted earnings per common share thousand 185,379 187,535 189,394 Diluted earnings per common share € 3.28 3.71 4.14 For the years ended December 31, 2020 2019 2018 227 AR 2020 FERRARI N.V. 13. GOODWILL At December 31, 2020 and 2019 goodwill amounted to considered reasonable and sustainable and represent future cash flows are based on assumptions that are €785,182 thousand. In accordance with IAS 36, goodwill is not amortized and is tested for impairment annually, or more frequently if facts or circumstances indicate that the asset may be impaired. Impairment testing is performed by comparing the carrying amount and the recoverable amount of the CGU. The recoverable amount of the CGU is the higher of its fair value less costs of disposal and its value in use. The assumptions used in this process represent management’s best estimate for the period under consideration. The estimate of the value in use of the CGU for purposes of performing the annual impairment test was based on the following assumptions: • The expected future cash flows covering the period from 2021 through 2024 have been derived from the Ferrari business plan. In particular the estimate considers expected EBITDA adjusted to reflect the expected capital expenditure. These cash flows relate to the CGU in its condition when preparing the financial statements and exclude the estimated cash flows that the best estimate of expected conditions regarding market trends for the CGU over the period considered. • The expected future cash flows include a normalized terminal period used to estimate the future results beyond the time period explicitly considered, which were calculated by using the specific medium/long- term growth rate for the sector equal to 2.0 percent in 2020 (2.0 percent in 2019 and 2018). • The expected future cash flows have been estimated in Euro, and discounted using a post-tax discount rate appropriate for that currency, determined by using a base WACC of 6.8 percent in 2020 (6.8 percent in 2019 and 7.0 percent in 2018). The WACC used reflects the current market assessment of the time value of money for the period being considered and the risks specific to the CGU under consideration. The recoverable amount of the CGU was significantly higher than its carrying amount. Furthermore, the exclusivity of the business, its historical profitability and its future earnings prospects indicate that the carrying amount of the goodwill will continue to be recoverable, might arise from restructuring plans or other structural even in the event of difficult economic and market changes. Volumes and sales mix used for estimating the conditions. 228 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements 14. INTANGIBLE ASSETS (€ thousand) Externally acquired development costs Development costs internally generated Patents, concessions and licenses Other intangible assets Total Gross carrying amount at January 1, 2019 1,324,040 592,070 183,614 50,348 2,150,072 Additions Reclassifications Translation differences and other movements 243,040 86,919 17,606 5,893 353,458 — — — — 6,950 (6,950) — (679) (688) (1,367) Balance at December 31, 2019 1,567,080 678,989 207,491 48,603 2,502,163 Additions Reclassifications Translation differences and other movements 236,913 83,190 26,867 5,008 351,978 — — — 3,337 (3,337) — (1,846) (98) 2 (1,942) Balance at December 31, 2020 1,803,993 760,333 237,597 50,276 2,852,199 Accumulated amortization at January 1, 2019 930,556 375,112 157,916 40,691 1,504,275 Amortization 103,812 35,817 18,677 2,158 160,464 Translation differences and other movements — — (292) (222) (514) Balance at December 31, 2019 1,034,368 410,929 176,301 42,627 1,664,225 Amortization 139,546 41,008 26,048 2,083 208,685 Translation differences and other movements — — (2) 1 (1) Balance at December 31, 2020 1,173,914 451,937 202,347 44,711 1,872,909 Carrying amount at: January 1, 2019 December 31, 2019 December 31, 2020 393,484 216,958 25,698 9,657 645,797 532,712 268,060 31,190 5,976 837,938 630,079 308,396 35,250 5,565 979,290 Additions of €351,978 thousand in 2020 (€353,458 thousand in 2019) primarily relate to externally acquired and internally generated development costs for new and existing models. 229 AR 2020 FERRARI N.V. 15. PROPERTY, PLANT AND EQUIPMENT (€ thousand) Land Industrial buildings Plant, machinery and equipment Other assets Advances and assets under construction Total Gross carrying amount at January 1, 2019 23,574 373,373 2,038,437 144,474 215,191 2,795,049 Impact of IFRS adoption at January 1, 2019 Additions Divestitures Reclassifications Translation differences and other movements — 30 — — 5 17,226 10,011 36,298 — 63,535 15,560 176,235 18,102 142,227 352,154 (884) (11,281) (7,673) (459) (20,297) 5,937 148,102 1,524 (155,563) — (2,554) 16 (197) — (2,730) Balance at December 31, 2019 23,609 408,658 2,361,520 192,528 201,396 3,187,711 Additions Divestitures Reclassifications 5,805 22,210 114,839 24,445 214,706 382,005 — — (791) (11,423) (5,048) (127) (17,389) 2,795 79,937 3,500 (86,232) — Translation differences and other movements (23) (2,417) (36) (1,881) — (4,357) Balance at December 31, 2020 29,391 430,455 2,544,837 213,544 329,743 3,547,970 Accumulated amortization at January 1, 2019 Depreciation Divestitures Translation differences and other movements Balance at December 31, 2019 Depreciation Divestitures Translation differences and other movements Balance at December 31, 2020 Carrying amount at: January 1, 2019 December 31, 2019 — — — — — — — — — 154,904 1,675,536 114,059 — 1,944,499 15,443 159,302 16,737 (417) (11,001) (3,917) (2,798) 2 209 — — — 191,482 (15,335) (2,587) 167,132 1,823,839 127,088 — 2,118,059 17,778 180,868 19,306 (602) (10,654) (2,713) (138) 1,426 (1,990) — — — 217,952 (13,969) (702) 184,170 1,995,479 141,691 — 2,321,340 23,574 218,469 362,901 30,415 215,191 850,550 23,609 241,526 537,681 65,440 201,396 1,069,652 of which right-of use assets under IFRS 16 — 15,834 7,612 34,319 — 57,765 December 31, 2020 29,391 246,285 549,358 71,853 329,743 1,226,630 of which right-of use assets under IFRS 16 — 25,574 5,041 29,127 — 59,742 Additions to property, plant and equipment mainly related of €63,535 thousand (and related lease liabilities) to car production and engine assembly lines (including in relation to leases which had previously been those for models to be launched in future years), classified as operating leases under the previous industrial tools used for the production of cars and our lease standard IAS 17. personalization programs, as well as the acquisition of tracts of land adjacent to the facilities in Maranello as part For the year ended December 31, 2020 depreciation of the Group’s expansion plans (more than €60 million in of right-of-use assets amounted to €20,159 thousand 2020 plus directly attributable transaction-related costs). and interest expense on lease liabilities amounted to €943 thousand (€17,067 thousand and €1,172 As a result of adopting IFRS 16 – Leases on January thousand, respectively, for the year ended December 1, 2019, the Group recognized right-of-use assets 31, 2019). 230 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The following table summarizes the changes in the carrying amount of right-of-use assets for the year ended December 31, 2020: (€ thousand) Industrial buildings Plant, machinery and equipment Other assets Total Balance at January 1, 2019 17,235 10,011 37,063 64,309 Additions Depreciation 3,532 2,800 6,428 12,760 (4,664) (5,023) (7,380) (17,067) Translation differences and other movements (269) (176) (1,792) (2,237) Balance at January 1, 2020 15,834 7,612 34,319 57,765 Additions Disposals Depreciation 16,214 2,578 6,194 24,986 — (24) (2,303) (2,327) (6,564) (5,159) (8,436) (20,159) Translation differences and other movements 90 34 (647) (523) Balance at December 31, 2020 25,574 5,041 29,127 59,742 Amounts recognized in the income statement in relation to leases for the year ended December 31, 2020 and 2019 were as follows: (€ thousand) Depreciation of right-of-use assets Interest expense on lease liabilities Variable lease payments not included in the measurement of lease liabilities Expenses relating to short-term leases and leases of low-value assets Total expenses recognized For the year ended December 31, 2020 2019 20,159 17,067 943 1,190 4,312 1,172 1,143 4,635 26,604 24,017 At December 31, 2020, the Group had contractual commitments for the purchase of property, plant and equipment amounting to €101,361 thousand (€105,335 thousand at December 31, 2019). 231 AR 2020 FERRARI N.V. 16. INVESTMENTS AND OTHER FINANCIAL ASSETS (€ thousand) Investments accounted for using the equity method Other securities and financial assets Total investments and other financial assets At December 31, 2020 2019 34,663 30,012 8,178 8,704 42,841 38,716 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD Investments accounted for using the equity method relate entirely to the Group’s investment in Ferrari Financial Services GmbH (“FFS”). Changes in the carrying amount of the investment were as follows: (€ thousand) Balance at January 1, 2019 Proportionate share of net profit for the year ended December 31, 2019 Proportionate share of remeasurement of defined benefit plans Balance at December 31, 2019 Proportionate share of net profit for the year ended December 31, 2020 Proportionate share of remeasurement of defined benefit plans Balance at December 31, 2020 25,972 4,043 (3) 30,012 4,647 4 34,663 Summarized financial information relating to FFS GmbH at and for the years ended December 31, 2020 and 2019 is presented below: (€ thousand) Assets Non-current assets Receivables from financing activities Other current assets Cash and cash equivalents Total assets Equity and liabilities Equity Debt Other liabilities Total equity and liabilities 232 At December 31, 2020 2019 3,390 2,436 782,880 660,883 4,130 5,406 8,565 6,471 795,806 678,355 67,352 58,049 653,748 604,643 74,706 15,663 795,806 678,355 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements (€ thousand) Net revenues Cost of sales Selling, general and administrative costs Other expenses/(income), net Profit before taxes Income tax expense Net profit For the years ended December 31, 2020 2019 2018 37,764 34,680 29,446 14,864 15,655 12,183 8,494 1,213 8,892 8,720 (963) 239 13,193 11,096 8,304 3,898 9,295 3,010 2,974 8,086 5,330 OTHER SECURITIES AND FINANCIAL ASSETS Other securities and financial assets primarily include Series C Liberty Formula One shares (the “Liberty Media Shares”) of Liberty Media Corporation (the group responsible for the promotion of the Formula 1 World Championship), which are measured at fair value and amounted to €7,163 thousand at December 31, 2020 (€7,674 thousand at December 31, 2019). 17. INVENTORIES (€ thousand) Raw materials Semi-finished goods Finished goods Total inventories At December 31, 2020 2019 96,900 85,155 94,619 91,119 269,098 243,777 460,617 420,051 Finished goods primarily includes cars and spare parts. The increase in finished goods and raw materials at December 31, 2020 reflects efforts to mitigate potential supply chain issues as a result of the COVID-19 pandemic. The accrual to the provision for slow moving and obsolete inventories recognized within cost of sales during 2020 was €21,155 thousand (€14,512 thousand in 2019 and €11,062 thousand in 2018). Changes in the provision for slow moving and obsolete inventories were as follows: (€ thousand) At January 1, Provision Use and other changes At December 31, 2020 2019 83,673 73,426 21,155 14,512 (8,121) (4,265) 96,707 83,673 233 AR 2020 FERRARI N.V. 18. CURRENT RECEIVABLES AND OTHER CURRENT ASSETS (€ thousand) Trade receivables Receivables from financing activities Current tax receivables Other current assets Total TRADE RECEIVABLES The following table sets forth a breakdown of trade receivables by nature: (€ thousand) Trade receivables due from: Dealers FCA Group(*) companies Sponsorship and commercial activities Brand activities Other Total At December 31, 2020 2019 184,260 231,439 939,607 966,448 12,438 21,078 76,471 92,830 1,212,776 1,311,795 At December 31, 2020 2019 62,301 74,589 37,906 49,782 31,917 46,375 21,886 24,937 30,250 35,756 184,260 231,439 (*) FCA N.V., the parent company of the FCA Group, was renamed Stellantis N.V. in January 2021 following the merger of Peugeot S.A. with and into FCA N.V.. Trade receivables due from dealers relate to receivables which are controlled by the FCA Group. For additional for the sale of cars across the dealer network and are information, see Note 28, “Related Party Transactions”. generally settled within 30 to 40 days from the date of invoice. Trade receivables due from sponsorship and commercial activities mainly relate to the Group’s Trade receivables due from FCA (renamed Stellantis in participation in the Formula 1 World Championship. Trade January 2021 following the merger of Peugeot S.A. with receivables due from brand activities relate to amounts and into FCA N.V.) Group companies mainly relate to the receivable for licensing and merchandising activities. The sale of engines and car bodies to Maserati S.p.A. and Group is not exposed to significant concentration of third Officine Maserati Grugliasco S.p.A. (together “Maserati”) party credit risk. 234 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The following table sets forth a breakdown of trade receivables by currency: (€ thousand) Trade receivables denominated in: Euro U.S. Dollar Pound Sterling Chinese Yuan Japanese Yen Other Total At December 31, 2020 2019 111,191 127,226 51,295 75,138 6,560 1,398 8,921 4,895 7,238 2,101 11,018 8,718 184,260 231,439 Trade receivables are shown net of an allowance for doubtful accounts determined on the basis of insolvency risk and historical experience, adjusted for forward-looking factors specific to the receivables and the economic environment. Additional provisions to the allowance for doubtful accounts are recorded within selling, general and administrative costs in the consolidated income statement. Changes in the allowance for doubtful accounts of trade receivables during the year were as follows: (€ thousand) At January 1, Additional provisions Utilization and other changes At December 31, 2020 2019 27,171 24,346 4,148 (3,007) 2,976 (151) 28,312 27,171 RECEIVABLES FROM FINANCING ACTIVITIES Receivables from financing activities relate entirely to the financial services portfolio in the United States and are detailed as follows: (€ thousand) Client financing Dealer financing Total receivables from financing activities 2020 2019 925,878 950,842 13,729 15,606 939,607 966,448 Receivables from financing activities are shown net of an allowance for doubtful accounts determined on the basis of insolvency risks, adjusted for forward-looking factors specific to the receivables and the economic environment. Additional provisions to the allowance for doubtful accounts are recorded within cost of sales in the consolidated income statement. Changes in the allowance for doubtful accounts of receivables from financing activities during the year are as follows: (€ thousand) At January 1, Additional provisions Utilization and other changes At December 31, CLIENT FINANCING 2020 2019 7,480 9,502 6,457 4,739 (3,787) (3,716) 13,195 7,480 235 AR 2020 FERRARI N.V. / 18. CURRENT RECEIVABLES AND OTHER CURRENT ASSETS Client financing relates to financing provided by the financing programs as a component of the Group to Ferrari clients to finance their car acquisitions. portfolio of financial services activities. In 2020 During 2020 the average contractual duration at these receivables were interest bearing at a rate inception of such contracts was approximately between 4.6 percent and 6.2 percent (between 4.5 67 months (67 months in 2019) and the weighted percent and 7.0 percent in 2019), with the exception average interest rate was approximately 5.5 percent of an initial limited, non-interest bearing period. (approximately 6.0 percent in 2019). Receivables for client The contractual terms governing the relationships financing are generally secured on the titles of the related with the dealer network may vary and payment cars or other personal guarantees. terms generally range from 1 to 6 months, although Client financing relates entirely to financial services circumstances. Receivables on dealer financing are activities in the United States and is denominated in generally secured by the titles of the related cars or U.S. Dollars. other collateral. longer term financing may be offered in limited DEALER FINANCING OTHER CURRENT ASSETS Receivables for dealer financing are typically generated Other current assets are detailed as follows: by sales of cars managed under dealer network (€ thousand) Italian and foreign VAT credits Prepayments Other Total other current assets At December 31, 2020 2019 31,620 48,719 38,826 39,856 6,025 4,255 76,471 92,830 236 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements Other includes security deposits, amounts due from credit facility of FFS Inc. and (ii) tax authorities for the personnel and other receivables. VAT related to the temporary import of classic cars for restoration activities which would become due if the car At December 31, 2020, the Group had provided is not exported. guarantees through third parties amounting to €169,186 thousand (€95,304 thousand at December 31, 2019), The analysis of receivables and other current assets by principally to (i) banks for a U.S. Dollar denominated due date (excluding prepayments) is as follows: (€ thousand) Trade receivables 137,564 69 — 46,627 184,260 Receivables from financing activities 159,778 657,073 57,202 65,554 939,607 At December 31, 2020 Due within one year Due between one and five years Due beyond five years Overdue Total Client financing Dealer financing Current tax receivables Other current assets Total (€ thousand) 156,154 646,968 57,202 65,554 925,878 3,624 10,105 10,314 2,124 — — — — 13,729 12,438 36,971 247 180 247 37,645 344,627 659,513 57,382 112,428 1,173,950 At December 31, 2019 Due within one year Due between one and five years Due beyond five years Overdue Total Trade receivables 184,613 48 — 46,778 231,439 Receivables from financing activities 165,164 683,096 58,740 59,448 966,448 Client financing Dealer financing Current tax receivables Other current assets Total 161,753 670,901 58,740 59,448 950,842 3,411 12,195 20,397 52,449 681 346 — — 179 — — — 15,606 21,078 52,974 422,623 684,171 58,919 106,226 1,271,939 237 AR 2020 FERRARI N.V. 19. CURRENT FINANCIAL ASSETS AND OTHER FINANCIAL LIABILITIES (€ thousand) Financial derivatives Other financial assets Current financial assets At December 31, 2020 2019 38,636 1,448 9,423 1,986 40,084 11,409 Current financial assets and other financial liabilities mainly relate to foreign exchange derivatives. The following table sets further the analysis of derivative assets and liabilities at December 31, 2020 and 2019. (€ thousand) Cash flow hedges: At December 31, 2020 2019 Positive fair value Negative fair value Positive fair value Negative fair value Foreign currency derivatives 37,214 (2,060) 8,039 (14,547) Commodities Interest rate caps Total cash flow hedges Other foreign currency derivatives Interest rate caps Total 271 497 — — — 87 — — 37,982 (2,060) 8,126 (14,547) 654 — (80) — 1,294 (244) 3 — 38,636 (2,140) 9,423 (14,791) Foreign currency derivatives which do not meet the requirements to be recognized as cash flow hedges are presented as other foreign currency derivatives. Interest rate caps relate to derivative instruments required as part of certain of the Group’s funding from securitization programs. The following tables provide an analysis by foreign currency of outstanding derivative financial instruments based on their fair value and notional amounts: (€ thousand) Currencies: U.S. Dollar Pound Sterling Japanese Yen Swiss Franc Chinese Yuan Other(1) At December 31, 2020 At December 31, 2019 Fair Value Notional Amount Fair Value Notional Amount 31,474 1,363,667 2,826 1,338,800 450 118,795 (4,639) 175,247 3,533 197,170 923 272,183 535 490 76,282 (1,716) 87,632 37,644 55 57,094 14 105,159 (2,817) 106,491 Total amount 36,496 1,898,717 (5,368) 2,037,447 (1) Other mainly includes the Australian Dollar, the Hong Kong Dollar and the Canadian Dollar. 238 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements At December 31, 2020 and 2019, substantially all relating to foreign currency risk management are treated derivative financial instruments had a maturity of twelve as cash flow hedges where the derivative qualifies for months or less. CASH FLOW HEDGES hedge accounting. The amounts recorded in the cash flow hedge reserve within other comprehensive income will be recognized in the consolidated income statement The effects recognized in the consolidated income according to the timing of the flows of the underlying statement mainly relate to currency risk management transactions. Management believes that substantially and in particular the exposure to fluctuations in the Euro/ all of the hedging effects arising from these derivative U.S. Dollar exchange rate for sales in U.S. Dollars. contracts and recorded in the cash flow hedge reserve will be recognized in the consolidated income statement The policy of the Group for managing foreign currency within the following 12 months from the reporting date. risk normally requires hedging of a portion of projected future cash flows from trading activities and orders The Group reclassified gains and losses, net of the acquired (or contracts in progress) in foreign currencies related tax effects, from other comprehensive income/ that will occur within the following 12 months. Derivatives (loss) to the consolidated income statement as follows: (€ thousand) Net revenues/(costs) Income tax (expense)/benefit For the years ended December 31, 2020 2019 2018 19,557 (22,055) 3,777 (5,456) 6,153 (1,054) Total recognized in the consolidated income statement 14,101 (15,902) 2,723 The ineffectiveness of cash flow hedges was not material for the years 2020, 2019 and 2018. 239 AR 2020 FERRARI N.V. 20. EQUITY SHARE CAPITAL had 8,640,176 common shares and 2,190 special voting shares held in treasury. The increase in common shares held in treasury primarily reflects the repurchase of At December 31, 2020 the fully paid up share capital shares by the Company through its share repurchase of the Company was €2,573 thousand, consisting of program, partially offset by shares assigned under 193,923,499 common shares and 63,349,112 special equity incentive plans. On March 30, 2020 the Company voting shares, all with a nominal value of €0.01 elected to temporarily suspend its share repurchase (€2,573 thousand at December 31, 2019 consisting of program. 193,923,499 common shares and 63,349,111 special voting shares, all with a nominal value of €0.01). At The following table summarizes the changes in the December 31, 2020, the Company had 9,175,609 number of outstanding common shares and outstanding common shares and 2,190 special voting shares held special voting shares of the Company for the year ended in treasury, while at December 31, 2019, the Company December 31, 2020: Common Shares Special Voting Shares Total Outstanding shares at December 31, 2018 187,920,656 56,492,874 244,413,530 Common shares repurchased under share repurchase program (1) Common shares assigned under equity incentive plans (2) Other changes (3) (2,907,702) 270,369 — — (2,907,702) 270,369 — 6,854,047 6,854,047 Outstanding shares at December 31, 2019 185,283,323 63,346,921 248,630,244 Common shares repurchased under share repurchase program (4) Common shares assigned under equity incentive plans (5) Other changes (819,483) 284,050 — — — 1 (819,483) 284,050 1 Outstanding shares at December 31, 2020 184,747,890 63,346,922 248,094,812 (1) Includes shares repurchased between January 1, 2019 and December 31, 2019 based on the transaction trade date, for a total consideration of €386,094 thousand, including transaction costs. (2) During 2019, approximately 230 thousand performance share units and 40 thousand retention restricted share units vested under the Equity Incentive Plan 2016-2020 as a result of certain performance or retention requirements being achieved. As a result, a corresponding number of common shares, which were previously held in treasury, were assigned to participants of the plan. See Note 21 “Share-Based Compensation” for additional details. (3) Relates to the issuance, allocation and deregistration of certain special voting shares under the Company’s special voting shares terms and conditions. (4) Includes shares repurchased between January 1, 2020 and December 31, 2020 based on the transaction trade date, for a total consideration of €119,771 thousand, including transaction costs. (5) On March 16, 2020, 366,199 common shares, which were previously held in treasury, were assigned to participants of the equity incentive plans as a result of the vesting of certain performance share unit and retention restricted share unit awards. On March 17, 2020, the Company purchased 82,149 common shares, for a total consideration of €10,022 thousand, from a group of those employees who were assigned shares in order to cover the individual’s taxable income as is standard practice (“Sell to Cover”) in an over-the-counter transaction. See Note 21 “Share-Based Compensation” for additional details relating to the Group’s equity incentive plans. THE LOYALTY VOTING STRUCTURE voting program by registering their common shares The purpose of the loyalty voting structure is to reward in the loyalty share register and holding them for three ownership of the Company’s common shares and to years. The loyalty voting program will be affected by promote stability of the Company’s shareholder base by means of the issue of special voting shares to eligible granting long-term shareholders of the Company with holders of common shares. Each special voting share special voting shares. Following the separation of Ferrari entitles the holder to exercise one vote at the Company’s from the FCA Group (renamed Stellantis in January shareholder meetings. Only a minimal dividend accrues 2021 following the merger of Peugeot S.A. with and into to the special voting shares allocated to a separate FCA N.V.) in 2016, Exor N.V. (“Exor”) and Piero Ferrari special dividend reserve, and the special voting shares participate in the Company’s loyalty voting program do not carry any entitlement to any other reserve of the and, therefore, effectively hold two votes for each of Group. The special voting shares have only immaterial the common shares they hold. Investors who purchase economic entitlements and, as a result, do not impact common shares may elect to participate in the loyalty the Company’s earnings per share calculation. 240 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements RETAINED EARNINGS AND OTHER RESERVES Retained earnings and other reserves includes: Following approval of the annual accounts by • a share premium reserve of €5,768,544 thousand the shareholders at the Annual General Meeting at December 31, 2020 (€5,768,544 thousand at of the Shareholders on April 12, 2019, a dividend December 31, 2019). distribution of €1.03 per common share was • a legal reserve of €19 thousand at December 31, 2020 and €65 thousand at December 31, 2019, determined in accordance with Dutch law. • a treasury reserve of €616,629 thousand at December 31, 2020 and €486,892 thousand at December 31, 2019. • a share-based compensation reserve of €43,482 thousand at December 31, 2020 and €46,539 thousand at December 31, 2019. approved, corresponding to a total distribution of €193,328 thousand (of which €192,664 thousand was paid in 2019). The distribution was made from the retained earnings reserve. Following approval of the annual accounts by the shareholders at the Annual General Meeting of the Shareholders on April 13, 2018, a dividend distribution of €0.71 per common share was approved, corresponding to a total distribution of Following approval of the annual accounts by the €133,939 thousand (of which €133,095 thousand was shareholders at the Annual General Meeting of the paid in 2018). The distribution was made from the Shareholders on April 16, 2020, a dividend distribution of retained earnings reserve. €1.13 per common share was approved, corresponding to a total distribution of €208,765 thousand (of which OTHER COMPREHENSIVE INCOME/(LOSS) €208,100 thousand was paid in 2020). The distribution The following table presents other comprehensive was made from the retained earnings reserve. income/(loss): (€ thousand) Items that will not be reclassified to the consolidated income statement in subsequent periods: Gains/(Losses) on remeasurement of defined benefit plans (1) Total items that will not be reclassified to the consolidated income statement in subsequent periods Items that may be reclassified to the consolidated income statement in subsequent periods: For the years ended December 31, 2020 2019 2018 34 34 (2,078) (2,078) 385 385 Gains/(Losses) on cash flow hedging instruments arising during the period 59,666 (24,327) (9,257) (Gains)/Losses on cash flow hedging instruments reclassified to the consolidated income statement (19,557) 22,055 (3,777) Gains/(Losses) on cash flow hedging instruments 40,109 (2,272) (13,034) Exchange differences on translating foreign operations (11,731) 2,652 5,986 Total items that may be reclassified to the consolidated income statement in subsequent periods 28,378 380 (7,048) Total other comprehensive income/(loss) 28,412 (1,698) (6,663) Related tax impact (11,290) 1,066 3,520 Total other comprehensive income/(loss), net of tax 17,122 (632) (3,143) (1) For the year ended December 31, 2020 includes a gain of €4 thousand (a loss of €3 thousand for the year ended December 31, 2019) related to the Group’s proportionate share of the remeasurement of defined benefit plans of FFS GmbH, for which the Group holds a 49.9 percent interest. Gains and losses on the remeasurement of defined benefit plans include actuarial gains and losses arising during the period and are offset against the related net defined benefit liabilities. 241 AR 2020 FERRARI N.V. / 20. EQUITY The tax effects relating to other comprehensive income/(loss) are summarized in the following table: (€ thousand) For the years ended December 31, 2020 2019 2018 Pre-tax balance Related tax impact Net balance Pre-tax balance Related tax impact Net balance Pre-tax balance Related tax impact Net balance Gains/(Losses) on remeasurement of defined 34 1 35 (2,078) 456 (1,622) 385 (88) 297 benefit plans Gains/(Losses) on cash flow hedging instruments Exchange (losses)/gains 40,109 (11,291) 28,818 (2,272) 610 (1,662) (13,034) 3,608 (9,426) on translating foreign (11,731) — (11,731) 2,652 — 2,652 5,986 — 5,986 operations Total other comprehensive (loss)/income 28,412 (11,290) 17,122 (1,698) 1,066 (632) (6,663) 3,520 (3,143) TRANSACTIONS WITH NON-CONTROLLING INTERESTS now former CEO in 2018. Additionally, the Company awarded members of the SMT and key leaders a total With the exception of dividends paid to non-controlling of approximately 119 thousand 2016-2020 RSUs in 2017, interests, there were no transactions with non-controlling and an additional 10 thousand 2016-2020 RSUs were interests for the years ended December 31, 2020, 2019 awarded in 2018. The PSUs and RSUs cover the five-year or 2018. performance and service periods from 2016 to 2020. POLICIES AND PROCESSES FOR MANAGING CAPITAL 2016-2020 PSU AWARDS The awards vest in three equal tranches in 2019, 2020 The Group’s objectives when managing capital are to and 2021, subject to the achievement of a market create value for shareholders as a whole, safeguard performance condition related to Total Shareholder business continuity and support the sustainable Return (“TSR”) ranking within the defined industry- growth of the Group. As a result, the Group endeavors specific peer group applicable to the plan. The interim to maintain a satisfactory economic return for its partial vesting periods are independent of one another shareholders and guarantee economic access to and any under-achievement in one period can be offset external sources of funds. by over-achievement in subsequent periods. The total 21. SHARE-BASED COMPENSATION number of shares assigned upon vesting of the PSU awards depends on the level of achievement of the defined TSR target. For the first tranche, which covers a performance The Group has several equity incentive plans under period from 2016 to 2018, Ferrari ranked third in TSR which a combination of performance share units (“PSUs”) within the defined peer group, resulting in the vesting and retention restricted share units (“RSUs”), which of 100 percent of the target awards. As a result, 230,282 each represent the right to receive one Ferrari common awards vested and an equal number of common shares share, have been awarded to the Executive Chairman, the were assigned to plan participants in 2019. For the Chief Executive Officer (“CEO”), members of the Senior second tranche, which covers a performance period Management Team (“SMT”) and other key employees of from 2016 to 2019, Ferrari ranked second in TSR within the Group. EQUITY INCENTIVE PLAN 2016 - 2020 the defined peer group, resulting in the vesting of 120 percent of the target awards and the trigger of the catch-up feature as a result of the over-achievement Under the Equity Incentive Plan 2016-2020 the Company in the performance period. In total, 213,020 awards awarded approximately 237 thousand 2016-2020 PSUs to vested and 298,225 common shares were assigned to the SMT (excluding the previous former CEO) and other plan participants in 2020. For the third and final tranche, key employees of the Group and approximately 450 which covers a performance period from 2016 to 2020, thousand 2016-2020 PSUs to the previous former CEO Ferrari ranked third in TSR within the defined peer in 2017. An additional total of approximately 21 thousand group, resulting in the vesting of 100 percent of the 2016-2020 PSUs were awarded to the successor and target awards. As a result, 212,243 awards vested in the 242 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements first quarter of 2021 and an equal number of common performance period covering 2019, resulting in the shares will be assigned to plan participants. vesting of 100 percent of the target awards. As a result 17,572 awards vested and an equal number of common 2016-2020 RSU AWARDS shares were assigned under the plan in 2020. For the The awards vest in three equal tranches in 2019, performance period covering 2019 to 2020, Ferrari 2020 and 2021, subject to the recipient’s continued ranked third in the TSR ranking within the defined peer employment with the Company at the time of vesting. group for the TSR Target and met the EBITDA Target For the first tranche, which covers a service period from 100 percent of the target awards. As a result 80,510 2016 to 2018, 40,087 awards vested and an equal number awards vested in the first quarter of 2021 and an equal of common shares were assigned to plan participants number of common shares will be assigned to plan and the Innovation Target, resulting in the vesting of in 2019. For the second tranche, which covers a service participants. period from 2016 to 2019, 31,510 awards vested and an equal number of common shares were assigned to 2019-2021 RSU AWARDS plan participants in 2020. For the third tranche and final The awards vest in 2022, except for those awarded to tranche, which covers a service period from 2016 to the former CEO, which vest in three equal tranches in 2020, 31,120 awards vested in the first quarter of 2021 2020, 2021 and 2022. All of the awards are subject to the and an equal number of common shares will be assigned recipient’s continued employment with the Company at to plan participants. the time of vesting. EQUITY INCENTIVE PLAN 2019-2021 During 2020, 18,892 awards vested and an equal Under the Equity Incentive Plan 2019-2021 the Company number of common shares were assigned under the awarded approximately 174 thousand 2019-2021 PSUs plan. For the service period covering 2019 to 2020, and approximately 111 thousand 2019-2021 RSUs to the 32,694 awards vested in the first quarter of 2021 and Executive Chairman, the former CEO, members of the an equal number of common shares will be assigned SMT and other key employees of the Group. The PSUs to plan participants. and RSUs cover the three-year performance and service periods from 2019 to 2021. EQUITY INCENTIVE PLAN 2020-2022 2019-2021 PSU AWARDS awarded approximately 60 thousand 2020-2022 PSUs The vesting of the awards is based on the achievement of and approximately 48 thousand 2020-2022 RSUs to the defined key performance indicators as follows: Executive Chairman, members of the SMT and other i) TSR Target - 50 percent vest based on the key employees of the Group. The PSUs and RSUs cover achievement of the TSR ranking of Ferrari compared the three-year performance and service periods from Under the Equity Incentive Plan 2020-2022 the Company to an industry specific peer group of eight; 2020 to 2022. ii) EBITDA Target - 30 percent vest based on the achievement of an EBITDA target determined by 2020-2022 PSU AWARDS comparing Adjusted EBITDA to the Adjusted EBITDA The vesting of the awards is based on the achievement targets derived from the business plan; of defined key performance indicators as follows: iii) Innovation Target - 20 percent vest based on the i) TSR Target - 50 percent vest based on the achievement of defined objectives for technological achievement of the TSR ranking of Ferrari compared innovation and the development of the new model to an industry specific peer group of eight; pipeline over the performance period. ii) EBITDA Target - 30 percent vest based on the achievement of an EBITDA target determined by Each target is settled independently of the others targets. comparing Adjusted EBITDA to the Adjusted EBITDA The total number of shares assigned upon vesting of the targets derived from the business plan; PSU awards depends on the level of achievement of the iii) Innovation Target - 20 percent vest based on the targets. The awards vest in 2022, except for the awards achievement of defined objectives for technological to the former CEO which vest in three tranches of 12 innovation and the development of the new model percent, 12 percent and 76 percent in 2020, 2021 and pipeline over the performance period. 2022, respectively. Ferrari ranked third in the TSR ranking within the The awards vest in 2023 and the total number of defined peer group for the TSR Target and met the shares assigned upon vesting depends on the level of EBITDA Target and the Innovation Target for the achievement of the targets. Each target is settled independently of the other targets. 243 AR 2020 FERRARI N.V. / 21. SHARE-BASED COMPENSATION 2020-2022 RSU AWARDS The awards vest in 2023, subject to the recipient’s continued employment with the Company at the time of vesting. Supplemental information relating to the equity incentive plans is summarized below. TSR TARGET The number of PSUs with a TSR Target that vest under the equity incentive plans is based on the Company’s TSR performance over the relevant performance period compared to an industry-specific peer group as summarized below. Ferrari TSR Ranking % of Target Awards that Vest(*) 1 2 3 4 5 >5 150% 120% 100% 75% 50% 0% (*) The PSUs awarded to members of the SMT (excluding the CEO) and other key employees of the Group under the Equity Incentive Plan 2016-2020 did not vest if the TSR ranking was below third compared to the peer group. The defined peer groups (including the Company) for the TSR Target are presented below. Equity Incentive Plan 2016-2020 Ferrari Burberry Hermes LVMH Moncler Richemont Brunello Cucinelli Ferragamo Equity Incentive Plan 2019-2021 / Ferrari Burberry Hermes LVMH Equity Incentive Plan 2020-2022 Moncler Richemont Kering Aston Martin EBITDA TARGET The number of PSUs with an EBITDA Target that vest under the Equity Incentive Plan 2019-2021 and the Equity Incentive Plan 2020-2022 is determined by comparing Adjusted EBITDA to the Adjusted EBITDA targets derived from the Group’s business plan, as summarized below. Actual Adjusted EBITDA Compared to Business Plan % of Awards that Vest +10% +5% Business Plan Target -5% <-5% 140% 120% 100% 80% 0% 244 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements FAIR VALUES AND KEY ASSUMPTIONS The fair value of the PSUs and RSUs that were The fair value of the PSU awards used for accounting awarded under the equity incentive plans, purposes was measured at the grant date using a Monte which is determined based on actuarial calculations Carlo Simulation model. The fair value of the RSU awards that apply certain assumptions and take into was measured using the share price at the grant date consideration the specific characteristics of the adjusted for the present value of future distributions which awards granted, is summarized in the following employees will not receive during the vesting period. table. Equity Incentive Plan 2016-2020 2019-2021 2020-2022 PSUs RSUs Granted in 2017 Granted in 2018 €59.36 - €72.06 €61.30 - €111.92 €110.57 - €111.64 €136.06 €63.00 - €64.64 €110.76 - €112.99 €119.54 - €120.56 €139.39 The key assumptions utilized to calculate the grant-date fair values of the PSUs that were awarded under the equity incentive plans are summarized below: Equity Incentive Plan 2016-2020 2019-2021 2020-2022 Granted in 2017 Granted in 2018 Grant date share price Expected volatility Dividend yield Risk-free rate €66.85 €113.70 €122.60 €142.95 17.4% 1.2% 0% 16.7% 0.9% 0% 26.5% 0.83% 0% 26.6% 0.8 0% The expected volatility was based on the observed volatility of the defined peer group applicable to each equity incentive plan. The risk-free rate was based on the iBoxx sovereign Eurozone yield. OUTSTANDING SHARE AWARDS Changes to the outstanding number of PSU and RSU awards under all equity incentive plans of the Group are as follows: (number of awards) Balance at January 1, 2018 Granted (1) Forfeited Vested Balance at December 31, 2018 Granted (2) Forfeited Vested Balance at December 31, 2019 Granted (3) Forfeited Vested Balance at December 31, 2020 (1) Granted under the Equity Incentive Plan 2016-2020. (2) Granted under the Equity Incentive Plan 2019-2021. (3) Grander under the Equity Incentive Plan 2020-2022. Outstanding PSU Awards Outstanding RSU Awards 686,933 20,793 (21,200) — 686,526 175,307 (32,832) (230,282) 598,719 48,173 (1,461) (230,592) 414,839 118,467 10,397 (10,600) — 118,264 110,968 (18,000) (40,087) 171,145 39,780 (1,460) (50,402) 159,063 245 AR 2020 FERRARI N.V. / 21. SHARE-BASED COMPENSATION SHARE-BASED COMPENSATION EXPENSE For the years ended December 31, 2020, 2019 and 2018, the Company recognized €17,401 thousand, €17,480 thousand and €22,491 thousand, respectively, as share-based compensation expense and an increase to other reserves within equity in relation to the PSU awards and RSU awards. At December 31, 2020, unrecognized compensation expense amounted to €12,998 thousand and is expected to be recognized over the remaining vesting periods through 2022. 22. EMPLOYEE BENEFITS The Group’s provisions for employee benefits are as follows: (€ thousand) Present value of defined benefit obligations: Italian employee severance indemnity (TFR) Pension plans Total present value of defined benefit obligations Other provisions for employees Total provisions for employee benefits DEFINED CONTRIBUTION PLANS At December 31, 2020 2019 19,825 21,795 105 134 19,930 21,929 19,930 21,929 40,055 66,187 59,985 88,116 owned social security body (“INPS”) or to supplementary The Group recognizes the cost for defined contribution pension funds. Prior to the amendments, accruing plans over the period in which the employee renders TFR for employees of all Italian companies could be service and classifies this by function in cost of sales, managed by the company itself. Consequently, the Italian selling, general and administrative costs and research companies’ obligation to INPS and the contributions and development costs. The total income statement to supplementary pension funds take the form, under expense for defined contributions plans in the years IAS 19 revised, of “Defined contribution plans” whereas ended December 31, 2020, 2019 and 2018 was €15,727 the amounts recorded in the provision for employee thousand, €13,650 thousand and €11,930 thousand, severance pay retain the nature of “Defined benefit plans”. respectively. DEFINED BENEFIT OBLIGATIONS Accordingly, the provision for employee severance indemnity in Italy consists of the residual obligation for TFR until December 31, 2006. This is an unfunded ITALIAN EMPLOYEE SEVERANCE INDEMNITY (TFR) defined benefit plan as the benefits have already been Trattamento di fine rapporto or “TFR” relates to the almost entirely earned, with the sole exception of future amounts that employees in Italy are entitled to receive revaluations. Since 2007 the scheme has been classified when they leave the company and is calculated based on as a defined contribution plan, and the Group recognizes the period of employment and the taxable earnings of the associated cost, being the required contributions to each employee. Under certain conditions the entitlement the pension funds, over the period in which the employee may be partially advanced to an employee during the renders service. employee’s working life. PENSION PLANS The Italian legislation regarding this scheme was Certain Group companies sponsor non-contributory amended by Law 296 of 27 December 2006 and defined benefit pension plans, for which the Group meets subsequent decrees and regulations issued in the first the benefit payment obligation when it falls due. Benefits part of 2007. Under these amendments, companies provided under the plans vary based on the employee’s with at least 50 employees are obliged to transfer the length of service and their salary in the final years leading TFR to the “Treasury fund” managed by the Italian state- up to retirement, among other variables. 246 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The expected future benefit payments for the defined benefit obligations as of December 31, 2020 are as follows: (€ thousand) 2021 2022 2023 2024 2025 2026 - 2030 Total Expected benefit payments TFR Pension plans 1,634 1,488 1,746 1,391 1,328 5,490 13,077 2 2 2 2 2 619 629 The following table summarizes the changes in the defined benefit obligations: (€ thousand) TFR liability Pension plans Total Amounts at December 31, 2018 21,195 485 21,680 Recognized in the consolidated income statement — (492) (492) Recognized in other comprehensive loss/(income) (*) 1,899 176 2,075 Other Benefits paid Other changes Amounts at December 31, 2019 Recognized in the consolidated income statement Recognized in other comprehensive loss/(income) (*) Other Benefits paid Other changes (1,299) (1,490) 191 (35) (24) (11) (1,334) (1,514) 180 21,795 134 21,929 25 2 (1,997) (1,842) (155) — (32) 3 — 3 25 (30) (1,994) (1,842) (152) Amounts at December 31, 2020 19,825 105 19,930 (*) Relates to actuarial losses/(gains) from financial assumptions. Amounts recognized in the consolidated income statement are as follows: (€ thousand) Current service cost Interest expense Past service adjustments Total recognized in the TFR —  25  —  consolidated income 25  statement For the years ended December 31, 2020 Pension plans —  —  —  —  Total TFR 2019 Pension plans Total TFR —  25  —  25  —  —  —  26  —  26  —  (518) (518) —  (492) (492) —  —  —  —  2018 Pension plans 55  —  —  Total 55  —  —  55  55  247 AR 2020 FERRARI N.V. / 22. EMPLOYEE BENEFITS Past service adjustments relate to gains recognized in the The discount rates used for the measurement of the consolidated income statement due to plan amendments pension plan obligations (excluding TFR) and the interest and curtailments. expense/(income) of net period cost, are based on the rate of return on high-quality (AA-rated) fixed income The discount rates used for the measurement of the investments for which the timing and amounts of Italian TFR obligation are based on yields of high-quality payments match the timing and amounts of the projected (AA- rated) fixed income securities for which the timing defined benefit pension plan payments, which for 2020 and amounts of payments match the timing and amounts was equal to approximately zero percent (zero percent of the projected benefit payments. For this plan, the in 2019 and 0.8 percent in 2018). The average duration of single weighted average discount rate that reflects the the obligations is approximately 13 years. estimated timing and amount of the scheme future benefit payments for 2020 is equal to 0.4 percent (0.7 Current service cost is recognized by function in cost percent in 2019 and 1.7 percent in 2018). The average of sales, selling, general and administrative costs or duration of the Italian TFR is approximately 8 years. research and development costs. Retirement or employee leaving rates are developed to reflect actual and projected Group experience and legal The sensitivity of the defined benefit obligations to requirements for retirement in Italy. changes in the weighted principal assumptions is: (€ thousand) At December 31, 2020 2019 Changes in assumption of +1% discount rate Changes in assumption of -1% discount rate Changes in assumption of +1% discount rate Changes in assumption of -1% discount rate Impact on defined benefit obligation (1,446) 1,656 (1,695) 1,951 The above sensitivity analysis is based on an assumed change in the discount rate while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method has been applied as when calculating the defined benefit liability recognized in the statement of the financial position. OTHER PROVISIONS FOR EMPLOYEES Other provisions for employees consist of the expected future amounts payable to employees in connection with other remuneration schemes, which are not subject to actuarial valuation, including long-term bonus plans. At December 31, 2020, other provisions for employees comprised short-term bonus benefits amounting to €36,723 thousand (€62,890 thousand at December 31, 2019) and jubilee benefits granted to certain employees by the Group in the event of achieving 30 years of service amounting to €3,332 thousand (€3,297 thousand at December 31, 2019). 248 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements 23. PROVISIONS Changes in provisions were as follows: (€ thousand) At December 31, 2019 Additional provisions Utilization Releases Warranty and recall campaigns 107,811 36,135 (30,589) (6,044) Legal proceedings and disputes 27,097 4,392 (1,610) (4,149) Translation differences and other At December 31, 2020 (371) 619 106,942 26,349 Other risks Total provisions 30,664 7,526 (2,635) (12,078) (1,433) 22,044 165,572 48,053 (34,834) (22,271) (1,185) 155,335 WARRANTY AND RECALL CAMPAIGNS The provision for warranty and recall campaigns represents of the arrangements, including by terminating the the best estimate of commitments given by the Group for applicable relationships. Judgments in these proceedings contractual, legal, or constructive obligations arising from may be issued in 2021 or beyond, although any such product warranties given for a specified period of time. Such judgments may remain subject to ongoing judicial review. provisions are recognized upon shipment. While the outcome of these proceedings is uncertain, The warranty and recall campaigns provision is expected to be material to the Group’s financial condition estimated on the basis of the Group’s past experience or results of operations. any losses in excess of the provisions recorded are not and contractual terms. Related costs are recognized within cost of sales. Additions to the provision for legal proceedings and disputes are recognized within other expenses, net. Following an industry-wide recall in 2016, the Group initiated a global recall campaign on cars mounted with OTHER RISKS Takata airbags manufactured using non-desiccated The provision for other risks are related to disputes phase stabilized ammonium nitrate. Due to the and matters which are not subject to legal proceedings, uncertainty of recoverability of the costs from Takata, the including disputes with suppliers, distributors, employees Group recognized an aggregate provision of €36,994 and other parties, as well as environmental risks. thousand in 2016 within cost of sales. At December 31, 2020, the provision amounted to €6,831 thousand The releases of the provision for other risks primarily (€15,519 thousand at December 31, 2019). The gradual relates to favorable developments in emissions decrease in the provision reflects the performance of regulations, mainly due to more favorable pricing of recall activities by the Group. emissions certificates as well as favorable developments in emissions regulations received by the National LEGAL PROCEEDINGS AND DISPUTES Highway Traffic Safety Administration. The provision for legal proceedings and disputes represents management’s best estimate of the The following table presents where the additional expenditures expected to be required to settle or provisions to other risks recognized for the years ended otherwise resolve legal proceedings and disputes. This December 31, 2020, 2019 and 2018 were recorded within class of claims relates to allegations by contractual the consolidated income statement. counterparties that the Group has violated the terms (€ thousand) Recorded in the consolidated income statement within: Cost of sales Selling, general and administrative costs Total For the years ended December 31, 2020 2019 2018 6,352 1,174 9,563 11,420 2,830 — 7,526 12,393 11,420 249 AR 2020 FERRARI N.V. 24. DEBT (€ thousand) Balance at December 31, 2019 Proceeds from borrowings Repayments of borrowings Interest accrued/(paid) and other (*) Translation differences Balance at December 31, 2020 Bonds and notes 1,185,470 640,073 — 9,479 — 1,835,022 Asset-backed financing (Securitizations) 788,269 266,333 (222,207) (979) (70,252) 761,164 Lease liabilities Borrowings from banks Other debt Total debt 60,496 32,946 — — (20,035) 22,659 (830) 62,290 (1,740) (17) (2,636) 28,553 22,556 37,811 (19,730) — (2,921) 37,716 2,089,737 944,217 (263,712) 31,142 (76,639) 2,724,745 (*) Other changes in lease liabilities primarily relate to non-cash movements for the recognition of additional lease liabilities in accordance with IFRS 16. The breakdown of debt by nature and by maturity is as follows: (€ thousand) At December 31, 2020 2019 Due within one year Due between one and five years Due beyond five years Total Due within one year Due between one and five years Due beyond five years Total Bonds and notes 500,417  1,034,605  300,000  1,835,022  7,260  879,834  298,376  1,185,470  Asset-backed financing (Securitizations) Lease liabilities 306,169  454,995  761,164  338,366  449,903  —  788,269  16,373  29,932  15,985  62,290  20,195  25,894  14,407  60,496  Borrowings from banks 28,553  37,716  —  —  —  —  28,553  32,946  37,716  22,556  —  —  —  —  32,946  22,556  Other debt Total debt BONDS AND NOTES 2023 BOND 889,228  1,519,532  315,985  2,724,745  421,323  1,355,631  312,783  2,089,737  2021 BOND On March 16, 2016, the Company issued 1.5 percent On November 16, 2017, the Company issued 0.25 percent coupon notes due March 2023, having a principal of €500 coupon notes due January 2021, having a principal of million. The bond was issued at a discount for an issue price €700 million. The bond was issued at a discount for an of 98.977 percent, resulting in net proceeds of €490,729 issue price of 99.557 percent, resulting in net proceeds of thousand, after the debt discount and issuance costs, and €694,172 thousand after the debt discount and issuance a yield to maturity of 1.656 percent. The net proceeds were costs, and yield to maturity of 0.391 percent. The net used, together with additional cash held by the Company, proceeds were primarily used to repay a €700 million to fully repay a €500 million bank loan. The bond is unrated bank loan. The bond is unrated and was admitted to and was admitted to trading on the regulated market of trading on the regulated market of the Euronext Dublin the Euronext Dublin (formerly the Irish Stock Exchange). (formerly the Irish Stock Exchange). Following a cash Following a cash tender offer, on July 16, 2019 the Company tender offer, on July 16, 2019 the Company executed the executed the repurchase of these notes for an aggregate repurchase of these notes for an aggregate nominal nominal amount of €115,395 thousand. The amount amount of €200,000 thousand. The amount outstanding outstanding at December 31, 2020 was €386,814 thousand at December 31, 2020 was €501,151 thousand and and includes accrued interest of €4,567 thousand includes accrued interest of €1,199 thousand (€499,824 (€385,776 thousand including accrued interest of €4,567 thousand including accrued interest of €1,199 thousand thousand at December 31, 2019). at December 31, 2019). On January 18, 2021 the Company fully repaid the 2021 Bond for a total consideration of €501,250 thousand, of which €1,250 thousand related to accrued interest. 250 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The notes for both the 2023 Bond and the 2021 Bond ASSET-BACKED FINANCING (SECURITIZATIONS) impose covenants on Ferrari including: (i) negative pledge As a means of diversifying its sources of funds, the clauses which require that, in case any security interest Group sells certain of its receivables originated by its upon assets of Ferrari is granted in connection with financial services activities in the United States through other notes or debt securities with the consent of Ferrari asset-backed financing or securitization programs are, or are intended to be, listed, such security should be (the terms asset-backed financing and securitization equally and ratably extended to the outstanding notes, programs are used synonymously throughout this subject to certain permitted exceptions; (ii) pari passu document), without transferring the risks typically clauses, under which the notes rank and will rank pari associated with such receivables. As a result, the passu with all other present and future unsubordinated receivables sold through securitization programs are and unsecured obligations of Ferrari; (iii) events of still consolidated until collection from the customer. As of default for failure to pay principal or interest or comply December 31, 2020, the following revolving securitization with other obligations under the notes with specified programs were in place: cure periods or in the event of a payment default or • revolving securitization program for funding of up acceleration of indebtedness or in the case of certain to $700 million, which was renewed in December bankruptcy events; and (iv) other clauses that are 2020 for a tenor of 24 months, by pledging retail customarily applicable to debt securities of issuers with financial receivables in the United States as collateral. a similar credit standing. A breach of these covenants The notes bear interest at a rate per annum equal to may require the early repayment of the notes. As of the aggregate of a synthetic base rate substantially December 31, 2020 and 2019, Ferrari was in compliance replicating the LIBOR plus a margin of 75 basis points. As with the covenants of the notes. of December 31, 2020 total proceeds net of repayments 2029 AND 2031 NOTES from the sales of financial receivables under the program amounted to $629 million ($547 million at On July 31, 2019, the Company issued 1.12 percent senior December 31, 2019). The securitization agreement notes due August 2029 (“2029 Notes”) and 1.27 percent requires the maintenance of an interest rate cap. senior notes due August 2031 (“2031 Notes”) through a private placement to certain US institutional investors, each having a principal of €150 million. The net proceeds from the issuances amounted to €298,316 thousand, and the yields to maturity, on an annual basis, equal the nominal coupon rates of the Notes. The Notes are primarily used for general corporate purposes, including the funding of capital expenditures. The amounts outstanding of the 2029 Notes at December 31, 2020 was €149,971 thousand, including accrued interest of €700 thousand (€149,891 thousand, including accrued interest of €700 thousand at December 31, 2019). The amount outstanding of the 2031 Notes at December 31, 2020 was €150,044 thousand, including accrued interest of €794 thousand (€149,979 thousand including accrued interest of €794 thousand at December 31, 2019). 2025 BOND On May 27, 2020 the Company issued 1.5 percent coupon notes due May 2025 (“2025 Bond”), having a principal of €650 million. The notes were issued at a discount for an issue price of 98.898 percent, resulting in net proceeds of €640,073 thousand, after related expenses, and a yield to maturity of 1.732 percent. The bond was admitted to trading on the regulated market of Euronext Dublin. The amount outstanding of the 2025 Bond at December 31, • revolving securitization program for funding of up to $275 million, which was renewed in October 2020 for a tenor of 24 months, by pledging leasing financial receivables in the United States as collateral. The notes bear interest at a rate per annum equal to the aggregate of LIBOR plus a margin of 80 basis points. As of December 31, 2020 total proceeds net of repayments from the sales of financial receivables under the program amounted to $244 million ($238 million at December 31, 2019). The securitization agreement requires the maintenance of an interest rate cap. • revolving securitization program for funding of up to $110 million, which was renewed in March 2019 for a tenor of 24 months, by pledging credit lines to Ferrari customers secured by personal vehicle collections and personal guarantees in the United States as collateral. The notes bear interest at a rate per annum equal to the aggregate of LIBOR plus a margin of 115 basis points. As of December 31, 2020 total proceeds net of repayments from the sales of financial receivables under the program amounted to $61 million ($101 million at December 31, 2019). The consolidated total amount of the revolving securitization programs has been progressively increased since inception as the underlying receivables portfolios have increased. 2020 was €647,042 thousand, including accrued interest Cash collected from the settlement of receivables of €5,850 thousand. under securitization programs is subject to certain 251 AR 2020 FERRARI N.V. / 24. DEBT restrictions regarding its use and is primarily applied to repay principal and interest of the related funding. Such REVOLVING CREDIT FACILITY AND OTHER COMMITTED CREDIT LINES cash amounted to €36,935 thousand at December 31, In December 2019, the Company negotiated a €350 million 2020 (€27,524 thousand at December 31, 2019). unsecured committed revolving credit facility (the “RCF”), LEASE LIABILITIES which is intended for general corporate and working capital purposes. The RCF has a 5 year-tenor with two The Group recognizes lease liabilities in relation to further one-year extension options, exercisable on the right-of-use assets in accordance with IFRS 16 – Leases. first and second anniversary of the signing date on the At December 31, 2020 lease liabilities amounted to Company’s request and the approval of each participating €62,290 thousand (€60,496 thousand at December 31, bank. The first one-year extension option was exercised by 2019). the Company and approved by all participating banks. BORROWINGS FROM BANKS In April 2020, additional committed credit lines of Borrowings from banks at December 31, 2020 relates €350 million were secured with tenors ranging from to financial liabilities of FFS Inc to support the financial 18 to 24 months, doubling total committed credit lines services activities, and in particular €28,553 thousand available to €700 million. (€31,211 thousand at December 31, 2019) relating to a U.S. Dollar denominated credit facility for up to $50 million At December 31, 2020 all of the above mentioned (drawn down for $35 million at December 31, 2020) and committed credit facilities were undrawn. At December bearing interest at LIBOR plus a range of between 60 and 31, 2019 the RCF was undrawn. 65 basis points. Borrowings from banks at December 31, 2019 included other borrowings from banks of €1,735 OTHER DEBT thousand relating to various short and medium term Other debt mainly relates to other funding for operating credit facilities. and financing activities of the Group. 252 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements 25. OTHER LIABILITIES An analysis of other liabilities is as follows: (€ thousand) Deferred income Advances and security deposits Accrued expenses Payables to personnel Social security payables Other Total other liabilities At December 31, 2020 2019 270,826 275,439 253,442 348,899 60,788 85,965 33,127 28,272 23,261 20,334 46,018 41,106 687,462 800,015 Deferred income primarily includes amounts received future performance of a service or other act of under maintenance and power warranty programs of the Group. €214,153 thousand at December 31, 2020 and €219,209 thousand at December 31, 2019, which are deferred Advances and security deposits at December 31, 2020 and recognized as revenues over the length of the and at December 31, 2019 primarily include advances maintenance program. Of the total liability related received from clients for the purchase of hypercars, limited to maintenance and power warranty programs at edition cars and Icona cars. Upon shipment of the cars, the December 31, 2020, the Group expects to recognize in advances are recognized as revenue. The decrease primarily net revenues approximately €49 million in 2021, €46 relates to shipments of the Ferrari Monza SP1 and SP2. million in 2022, €37 million in 2023 and €82 million in periods subsequent to 2023. Deferred income also Changes in the Group’s contract liabilities for maintenance includes amounts collected under various and power warranties, and advances from customers, other agreements, which are dependent upon the were as follows: (€ thousand) Maintenance and power warranty programs 219,209 64,730 (69,786) Advances from customers 341,223 340,399 (432,286) — 170 214,153 249,506 At January 1, 2020 Additional amounts arising during the period Amounts recognized within revenue Other changes At December 31, 2020 An analysis of other liabilities (excluding accrued expenses and deferred income) by due date is as follows: (€ thousand) Due within one year 2020 Due between one and five years Due beyond five years At December 31, 2019 Total Due within one year Due between one and five years Due beyond five years Total Total other liabilities (excluding accrued expenses 315,026  35,251  5,571  355,848  422,462  10,083  6,066  438,611  and deferred income) 253 AR 2020 FERRARI N.V. 26. TRADE PAYABLES the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy at the lowest Trade payables of €713,807 thousand at December 31, level input that is significant to the entire measurement. 2020 (€711,539 thousand at December 31, 2019) are Levels used in the hierarchy are as follows: entirely due within one year. The carrying amount of • Level 1 inputs are quoted prices (unadjusted) in active trade payables is considered to be equivalent to their fair markets for identical assets and liabilities that the Group value. can access at the measurement date. 27. FAIR VALUE MEASUREMENT IFRS 13 - Fair Value Measurement establishes a hierarchy that categorizes into three levels the inputs to the valuation techniques used to measure fair value by giving the highest priority to quoted prices (unadjusted) in active markets for identical assets and liabilities (level 1 inputs) • Level 2 inputs are inputs other than quoted prices included within level 1 that are observable for the assets or liabilities, either directly or indirectly. • Level 3 inputs are unobservable inputs for the assets and liabilities. ASSETS AND LIABILITIES THAT ARE MEASURED AT FAIR VALUE ON A RECURRING BASIS and the lowest priority to unobservable inputs (level 3 The following table shows the fair value hierarchy for inputs). In some cases, the inputs used to measure the fair financial assets and liabilities that are measured at fair value of an asset or a liability might be categorized within value on a recurring basis at December 31, 2020 different levels of the fair value hierarchy. In those cases, and 2019: (€ thousand) Investments and other financial assets - Liberty Media Shares Current financial assets Total assets Other financial liabilities Total liabilities (€ thousand) At December 31, 2020 Note Level 1 Level 2 Level 3 Total 16 19 19 7,163  —  —  38,636  7,163  38,636  —  —  2,140  2,140  —  —  —  —  —  7,163  38,636  45,799  2,140  2,140  Investments and other financial assets - Liberty Media Shares Current financial assets Total assets Other financial liabilities Total liabilities At December 31, 2019 Note Level 1 Level 2 Level 3 Total 16 19 19 7,674  —  7,674  —  —  —  9,423  9,423  14,791  14,791  —  —  —  —  —  7,674  9,423  17,097  14,791  14,791  There were no transfers between fair value hierarchy levels between 2019 and 2020. 254 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The fair value of current financial assets and other financial liabilities relates to derivative financial ASSETS AND LIABILITIES NOT MEASURED AT FAIR VALUE ON A RECURRING BASIS instruments and is measured by taking into consideration For financial instruments represented by short-term market parameters at the balance sheet date, using receivables and payables, for which the present value widely-accepted valuation techniques. In particular, of future cash flows does not differ significantly from the fair value of foreign currency derivatives (forward carrying value, the Group assumes that carrying value is contracts, currency swaps and options) and interest a reasonable approximation of the fair value. In particular, rate caps is determined by taking the prevailing foreign the carrying amount of current receivables and other currency exchange rate and interest rates, as applicable, current assets and of trade payables and other liabilities at the balance sheet date. approximates their fair value. The par value of cash and cash equivalents usually The following table represents carrying amount and approximates fair value due to the short maturity of fair value for the most relevant categories of financial these instruments, which consist primarily of bank assets and liabilities not measured at fair value on a current accounts. recurring basis: (€ thousand) At December 31, 2020 2019 Carrying amount Fair value Carrying amount Fair value Receivables from financing activities 18 939,607 939,607 966,448 966,448 Client financing Dealer financing Total Debt 925,878 925,878 950,842 950,842 13,729 13,729 15,606 15,606 939,607 939,607 966,448 966,448 24 2,724,745 2,755,516 2,089,737 2,103,871 255 AR 2020 FERRARI N.V. 28. RELATED PARTY TRANSACTIONS • the purchase of automotive lighting and automotive components from Magneti Marelli S.p.A., Automotive Lighting Italia S.p.A., Sistemi Sospensioni S.p.A. and Pursuant to IAS 24, the related parties of the Group Magneti Marelli Powertrain Slovakia s.r.o. (which form are all entities and individuals capable of exercising part of “Magneti Marelli”), which were controlled by the control, joint control or significant influence over the FCA Group (now the Stellantis Group) until May 2, 2019 Group and its subsidiaries, Fiat Chrysler Automobiles when FCA (now Stellantis) completed the sale of Magneti N.V. (“FCA”(*), and together with its subsidiaries the “FCA Marelli. Following the sale, Magneti Marelli (which Group”), companies belonging to the FCA Group and subsequently operates under the name “Marelli”) is no other companies controlled by the Exor Group (including longer a related party; CNH Industrial N.V. and its subsidiaries), unconsolidated subsidiaries of the Group, associates and joint ventures. In addition, members of the Ferrari Board of Directors and executives with strategic responsibilities and their families are also considered related parties. • transactions with FCA Group companies, mainly relating to the services provided by FCA Group companies, including human resources, payroll, tax, procurement of insurance coverage and sponsorship revenues. The Group carries out transactions with related parties on commercial terms that are normal in the respective TRANSACTIONS WITH EXOR GROUP COMPANIES (EXCLUDING FCA GROUP COMPANIES) markets, considering the characteristics of the goods or • the Group incurs rental costs from Iveco S.p.A., a services involved. Transactions carried out by the Group company belonging to CNHI Group, related to the rental with these related parties are primarily of a commercial of trucks used by the Formula 1 racing team; nature and, in particular, these transactions relate to: TRANSACTIONS WITH FCA GROUP(*) COMPANIES • the sale of engines and car bodies to Maserati S.p.A. (“Maserati”) which is controlled by the FCA Group; • the purchase of engine components for the use in the production of Maserati engines from FCA US LLC, which is controlled by FCA Group; • a technical cooperation, starting from November 2019, between the Group and FCA Group with the aim to enhance the quality and competitiveness of their respective products, while reducing costs and investments; • the Group earns sponsorship revenue from Iveco S.p.A. TRANSACTIONS WITH OTHER RELATED PARTIES • the purchase of components for Formula 1 racing cars from COXA S.p.A.; • consultancy services provided by HPE S.r.l.; • sponsorship agreement relating to Formula 1 activities with Ferretti S.p.A.; • sale of cars to certain members of the Board of Directors of Ferrari N.V. and Exor. In accordance with IAS 24, transactions with related parties also include compensation to Directors and managers with strategic responsibilities. (*) FCA N.V., the parent company of the FCA Group, was renamed Stellantis N.V. in January 2021 following the merger of Peugeot S.A. with and into FCA N.V.. 256 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements The amounts of transactions with related parties recognized in the consolidated income statement are as follows: (€ thousand) FCA Group (*) companies For the years ended December 31, 2020 Costs (1) Net revenues Net financial expenses Net revenues 2019 Costs (1) Net financial expenses Net revenues 2018 Costs (1) Net financial expenses Maserati FCA US LLC Magneti Marelli (2) 100,389  2,981  —  —  13,323  —  —  —  —  143,091  6,275  —  17,954  352  10,444  —  —  —  217,922  3,982  —  28,486  1,589  40,343  —  —  —  9,102  6,057  2,207  8,637  8,028  1,965  12,106  7,193  1,370  109,491  22,361  2,207  152,080  42,701  1,965  231,617  80,004  1,370  Other FCA Group companies Total FCA Group companies Exor Group companies (excluding the FCA Group) Other related parties 549  12,977  150  1,665  2  10  281  368  4  311  179  610  13,906  31  1,707  12,651  —  —  Total transactions with related parties 110,190  37,003  2,219  152,971  56,975  2,000  233,635  92,834  1,370  Total for the Group 3,459,790  2,040,925  49,092  3,766,615  2,153,480  42,082  3,420,321  1,953,441  23,563  (1) Costs include cost of sales, selling, general and administrative costs and other expenses/(income), net. (2) FCA N.V., the parent company of the FCA Group, was renamed Stellantis N.V. in January 2021 following the merger of Peugeot S.A. with and into FCA N.V.. (3) FCA completed the sale of Magneti Marelli on May 2, 2019, following which Magneti Marelli (which subsequently operates under the name “Marelli”) is no longer a related party. Assets and liabilities originating from related party transactions are summarized in the table below: (€ thousand) At December 31, 2020 2019 Trade receivables Trade payables Other current assets Other liabilities Trade receivables Trade payables Other current assets Other liabilities FCA Group (*) companies Maserati FCA US LLC 37,662 4,555 — 1,893 — — Other FCA Group companies 244 2,512 104 16,955 48,617 5,449 — 94 — 4,636 1,165 3,598 203 — — 21,821 — 581 Total FCA Group companies 37,906 8,960 104 17,049 49,782 13,683 203 22,402 Exor Group companies (excluding the FCA Group) 183 396 108 139 350 9 237 207 Other related parties 643 3,558 1,496 1,759 147 2,565 1,295 1,835 Total transactions with related parties 38,732 12,914 1,708 18,947 50,279 16,257 1,735 24,444 Total for the Group 184,260 713,807 76,471 687,462 231,439 711,539 92,830 800,015 (1) FCA N.V., the parent company of the FCA Group, was renamed Stellantis N.V. in January 2021 following the merger of Peugeot S.A. with and into FCA N.V.. There were no other financial assets or financial liabilities originating from related party transactions at December 31, 2020 or 2019. 257 AR 2020 FERRARI N.V. / 28. RELATED PARTY TRANSACTIONS EMOLUMENTS TO DIRECTORS AND KEY MANAGEMENT In response to the healthcare crisis caused by the COVID-19 pandemic, the Board of Directors pledged their full cash compensation from April 2020 to the end of the year to help fund Company initiatives to support the communities in which Ferrari operates, with the Senior Management Team donating 25 percent of their salaries for the same period. The fees of the Directors of Ferrari N.V. are as follows: (€ thousand) Directors of Ferrari N.V. For the years ended December 31, 2020 2019 2018 8,151  10,260 17,043 The aggregate compensation to Directors of Ferrari N.V. settled compensation for Non-Executive Directors for the for year ended December 31, 2020 was €8,151 thousand years ended December 31, 2020, 2019 and 2018. (€10,260 thousand in 2019 and €17,043 thousand in 2018), inclusive of the following: • €624 thousand for salary and other short-term benefits (€1,786 thousand in 2019 and €1,080 thousand in 2018); and • €7,527 thousand for share-based compensation awarded under the Company’s equity incentive plans, (€8,474 thousand in 2019 and €15,963 thousand in 2018, including an acceleration of the costs relating to the equity incentive plan of the former Chairman and Chief Executive Officer (Mr. Sergio Marchionne)). See Note 21 “Share-based compensation” for additional information related to the The aggregate compensation for members of the SMT (excluding the CEO) in 2020 was €14,199 thousand (€19,839 thousand in 2019 and €16,674 thousand in 2018), inclusive of the following: • €6,486 thousand for salary and short-term incentives (€14,671 thousand in 2019 and €13,915 thousand in 2018); • €5,270 thousand for share-based compensation awarded under the Company’s equity incentive plans (€5,168 thousand in 2019 and €2,759 thousand in 2018); and Company’s equity incentive plans. There was no equity- • €222 thousand for pension contributions. 258 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements 29. COMMITMENTS ARRANGEMENTS WITH KEY SUPPLIERS ARRANGEMENTS WITH SPONSORS Certain of the Group’s sponsorship contracts include terms whereby the Group is obligated From time to time, in the ordinary course of business, to purchase a minimum quantity of goods and/or the Group enters into various arrangements with key services from its sponsors. third party suppliers in order to establish strategic and technological advantages. A limited number of these Future minimum purchase obligations arrangements contain unconditional purchase obligations under these supplier and sponsorship to purchase a fixed or minimum quantity of goods and/or arrangements at December 31, 2020 were as services with fixed and determinable price provisions. follows: (€ thousand) At December 31, 2020 Due within one year Due between one and three years Due between three and five years Due beyond five years Total Minimum purchase obligations 67,668 54,485 16,900 — 139,053 NON-CANCELLABLE LEASE AGREEMENTS The future aggregate minimum lease payments under non-cancellable leases, primarily relating to the lease of stores and industrial buildings, are as follows: (€ thousand) Future minimum lease payments under lease agreements At December 31, 2020 Due within one year Due between one and three years Due between three and five years Due beyond five years Total 17,447 20,295 11,796 16,319 65,857 30. QUALITATIVE AND QUANTITATIVE INFORMATION ON FINANCIAL RISKS The following section provides qualitative and quantitative disclosures on the effect that these risks may have upon the Group. The quantitative data reported in the following section does not have any predictive value. The Group is exposed to the following financial risks In particular, the sensitivity analysis on finance market connected with its operations: risks does not reflect the complexity of the market or the • financial market risk (principally relating to foreign reaction which may result from any changes that are currency exchange rates and to a lesser extent, interest assumed to take place. rates and commodity price), as the Group operates internationally in different currencies; FINANCIAL MARKET RISKS • liquidity risk, with particular reference to the availability of funds and access to the credit markets, should the Group require, and to financial instruments in general; • credit risk, arising both from normal commercial relations with final clients and dealers, as well as the Group’s financing activities. Due to the nature of the Group’s business, the Group is exposed to a variety of market risks, including foreign currency exchange rate risk and to a lesser extent, interest rate risk and commodity price risk. The Group’s exposure to foreign currency exchange rate risk arises from the geographic distribution of These risks could significantly affect the Group’s financial the Group’s shipments, as the Group generally sells its position, results of operations and cash flows, and for models in the currencies of the various markets in which this reason the Group identifies and monitors these risks, the Group operates, while the Group’s industrial activities in order to detect potential negative effects in advance are all based in Italy, and primarily denominated in Euro. and take the necessary action to mitigate them, primarily through the Group’s operating and financing activities The Group’s exposure to interest rate risk arises from the and if required, through the use of derivative financial need to fund certain activities and the necessity to deploy instruments. surplus funds. Changes in market interest rates may have 259 AR 2020 FERRARI N.V. / 30. QUALITATIVE AND QUANTITATIVE INFORMATION ON FINANCIAL RISKS the effect of either increasing or decreasing the Group’s commercial activities exposed to the Euro/Japanese net profit/(loss), thereby indirectly affecting the costs and Yen exchange rate and to the Euro/Pound Sterling returns of financing and investing transactions. exchange rate exceeded 10 percent (in 2018 only the Euro/Pound Sterling exceeded 10 percent) of The Group has in place various risk management policies, the total currency risk from commercial activity. which primarily relate to foreign exchange, interest Other significant exposures included the exchange rate and liquidity risks. The Group’s risk management rate between the Euro and the following currencies: policies permit derivatives to be used for managing Chinese Renminbi, Swiss Franc, Canadian Dollar and such exposures. Counterparties to these agreements Australian Dollar. None of these exposures, taken are major financial institutions. Derivative financial individually, exceeded 10 percent of the Group’s instruments can only be executed for hedging purposes. total foreign currency exchange rate exposure for commercial activity in 2020, 2019 and 2018. It is the In particular, the Group used derivative financial Group’s policy to use derivative financial instruments instruments as cash flow hedges primarily for the (primarily forward currency contracts and currency purpose of limiting the negative impact of foreign options) to hedge up to 90 percent of the principal currency exchange rate fluctuations on forecasted exposures to foreign currency exchange risk, typically transactions denominated in foreign currencies. for a period of up to twelve months. Accordingly, as a result of applying risk management • Several subsidiaries are located in countries that are policies with respect to foreign currency exchange outside the Eurozone, in particular the United States, exposure, the Group’s results of operations have the United Kingdom (branch), Switzerland, Mainland not been fully exposed to fluctuations in foreign China, Hong Kong, Japan, Australia and Singapore. As currency exchange rates. However, despite these risk the Group’s reporting currency is the Euro, the income management policies and hedging transactions, sudden statements of those companies are translated into Euro adverse movements in foreign currency exchange rates using the average exchange rate for the period and, could have a significant effect on the Group’s earnings even if revenues and margins are unchanged in local and cash flows. currency, changes in exchange rates can impact the amount of revenues, costs and profit as restated in Euro. The Group also enters into interest rate caps as required • The amount of assets and liabilities of consolidated by certain of its securitization agreements. companies that report in a currency other than the Euro Information on the fair value of derivative financial in exchange rates. The effects of these changes are instruments held is provided in Note 19. recognized directly in equity as a component of other may vary from period to period as a result of changes INFORMATION ON FOREIGN CURRENCY EXCHANGE RATE RISK comprehensive income/(loss) under gains/(losses) from currency translation differences. The Group is exposed to risks resulting from changes The Group monitors its principal exposure to translation in foreign currency exchange rates, which can affect its exchange risk, although the Group did not engage in earnings and equity. In particular: any specific hedging activities in relation to translation • Where a Group company incurs costs in a currency exchange risk for the periods presented. different from that of its revenues, any change in foreign currency exchange rates can affect the Exchange differences arising on the settlement of operating results of that company. In 2020, the total monetary items or on reporting monetary items at rates trade flows exposed to foreign currency exchange different from those at which they were initially recorded rate risk amounted to the equivalent of 58 percent of during the period or in previous financial statements, the Group’s net revenues (53 percent in 2019 and 49 are recognized in the consolidated income statement percent in 2018). within the net financial income/(expenses) line item or as • The main foreign currency exchange rate to which cost of sales for charges arising from financial services the Group is exposed is the Euro/U.S. Dollar for sales companies. The Group uses specific financial derivatives in U.S. Dollar in the United States and other markets to hedge these exposures. where the U.S. Dollar is the reference currency. In 2020, the value of commercial activity exposed to The impact of foreign currency exchange rate fluctuations in the Euro/U.S. Dollar exchange rate differences recorded within financial income/(expenses) accounted for approximately 53 percent (53 percent for the year ended December 31, 2020, including the in 2019 and 57 percent in 2018) of the total currency costs of hedging foreign currency exchange rate risk, risk from commercial activity. In 2020 and 2019, the amounted to net losses of €27,029 thousand (net losses 260 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements of €24,237 thousand and €13,293 thousand for the years which expire during the projected 12-month period will ended December 31, 2019 and 2018, respectively). be renewed or reinvested in similar instruments, bearing the hypothetical short-term interest rates. All of the Group’s financial services activities are conducted in the functional currency of the related LIQUIDITY RISK financial services companies, therefore the impact of Liquidity risk arises if the Group is unable to obtain the foreign currency exchange rate differences arising funds needed to carry out its operations and meet its from financial services activities was zero in all periods obligations. The main determinant of the Group’s liquidity presented. position is the cash generated by or used in operating and investing activities. Except as noted above, there have been no substantial changes in 2020 in the nature or structure of exposure From an operating point of view, the Group manages to foreign currency exchange rate risks or in the Group’s liquidity risk by monitoring cash flows and keeping an hedging policies. adequate level of funds at its disposal. The main funding operations and investments in cash and marketable The potential decrease in fair value of derivative financial securities of the Group are centrally managed or instruments held by the Group at December 31, 2020 supervised by the treasury department with the aim to hedge against foreign currency exchange rate risks, of ensuring effective and efficient management of the which would arise in the case of a hypothetical, immediate Group’s liquidity. The Group has established series of and adverse change of 10 percent in the exchange rates policies which are managed or supervised centrally by of the major foreign currencies with the Euro, would be the treasury department with the purpose of optimizing approximately €102,674 thousand (€74,700 thousand at the management of funds and reducing liquidity risk December 31, 2019). Receivables, payables and future which include: trade flows for which hedges have been put in place were • centralizing liquidity management through the use of not included in the analysis. It is reasonable to assume that cash pooling arrangements changes in foreign currency exchange rates will produce the opposite effect, of an equal or greater amount, on the underlying transactions that have been hedged. The sensitivity analysis is based on currency hedging in place • maintaining a conservative level of available liquidity • diversifying sources of funding • obtaining adequate credit lines at the end of the period, which can vary during the period • monitoring future liquidity requirements on the basis of and assumes unchanged market conditions other than business planning exchange rates, such as volatility and interest rates. For this reason, it is purely indicative. Intercompany financing between Group entities is INFORMATION ON INTEREST RATE RISK not restricted other than through the application of covenants requiring that transactions with related parties The Group’s exposure to interest rate risk, though less be conducted at arm’s length terms. significant, arises from the need to fund financial services activities and the necessity to deploy surplus funds. Details on the maturity profile of the Group’s financial Changes in market interest rates may have the effect of assets and liabilities and on the structure of derivative either increasing or decreasing the Group’s net profit/ financial instruments are provided in Notes 19 and (loss), thereby indirectly affecting the costs and returns 24. Details of the repayment of derivative financial of financing and investing transactions. instruments are provided in Note 19. The Group’s most significant floating rate financial assets To preventively and prudently manage potential liquidity at December 31, 2020 were cash and cash equivalents or refinancing risks in the foreseeable future, the and certain receivables from financing activities (related Group increased its available liquidity, mainly through to client and dealer financing), while 29 percent of the securing additional undrawn committed credit lines of Group’s gross debt bears floating rates of interest. At €350 million in April 2020, doubling the total committed December 31, 2020, a decrease of 10 basis points in credit lines available and undrawn, which amounted interest rates on floating rate financial assets and debt, to €700 million at December 31, 2020 compared to with all other variables held constant, would have resulted €350 million at December 31, 2019. in a decrease in profit before taxes of €652 thousand on an annual basis (a decrease of €205 thousand The Group believes that its total available liquidity (defined at December 31, 2019). The analysis is based on the as cash and cash equivalents plus undrawn committed assumption that floating rate financial assets and debt credit lines), in addition to funds that will be generated 261 AR 2020 FERRARI N.V. / 30. QUALITATIVE AND QUANTITATIVE INFORMATION ON FINANCIAL RISKS from operating activities, will enable Ferrari to satisfy that they are uncollectible, in whole or in part, specific the requirements of its investing activities and working write-downs are recognized. The amount of the write- capital needs fulfill its obligations to repay its debt and down is based on an estimate of the recoverable ensure an appropriate level of operating and strategic cash flows, the timing of those cash flows, the cost of flexibility. The Group therefore believes there is no recovery and the fair value of any guarantees received. significant risk of a lack of liquidity. CREDIT RISK Receivables from financing activities amounting to €939,607 thousand at December 31, 2020 (€966,448 Credit risk is the risk of economic loss arising from thousand at December 31, 2019) are shown net of the the failure to fully collect receivables. Credit risk allowance for doubtful accounts amounting to €13,195 encompasses the direct risk of default and the risk of a thousand (€7,480 thousand at December 31, 2019). deterioration of the creditworthiness of the counterparty. After considering the allowance for doubtful accounts, €65,554 thousand of receivables were overdue The maximum credit risk to which the Group is (€59,448 thousand at December 31, 2019). Therefore, theoretically exposed at December 31, 2020 is overdue receivables represent a minor portion of represented by the carrying amounts of the financial receivables from financing activities. assets presented in the consolidated statement of financial position sheet and the nominal value of the Receivables from financing activities relate entirely to guarantees provided. the financial services portfolio in the United States and such receivables are generally secured on the titles of Dealers and clients are subject to a specific evaluation of cars or other guarantees. their creditworthiness. Additionally, it is Group practice to obtain financial guarantees against risks associated Trade receivables amounting to €184,260 thousand with credit granted for the purchase of cars and parts. at December 31, 2020 (€231,439 thousand at These guarantees are further strengthened, where December 31, 2019) are shown net of the allowance possible, by retaining title on cars subject to financing for doubtful accounts amounting to €28,312 thousand agreements. (€27,171 thousand at December 31, 2019). After considering the allowance for doubtful accounts, Credit positions of material significance are evaluated €46,627 thousand of receivables were overdue on an individual basis. Where objective evidence exists (€46,778 thousand at December 31, 2019). 262 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements 31. ENTITY-WIDE DISCLOSURES The following table presents an analysis of net revenues by geographic location of the Group’s clients: (€ thousand) Italy Rest of EMEA Americas (1) Mainland China, Hong Kong and Taiwan Rest of APAC (2) Total net revenues For the years ended December 31, 2020 2019 2018 360,500 363,779 449,312 1,620,515 1,636,831 1,400,443 856,546 1,010,204 922,639 190,911 350,330 274,268 431,318 405,471 373,659 3,459,790 3,766,615 3,420,321 (1) Americas includes the United States of America, Canada, Mexico, the Caribbean and of Central and South America. (2) Rest of APAC mainly includes Japan, Australia, Singapore, Indonesia, South Korea, Thailand and Malaysia. The following table presents an analysis of non-current assets other than financial instruments and deferred tax assets by geographic location: (€ thousand) Italy Rest of EMEA Americas (1) Mainland China, Hong Kong and Taiwan Rest of APAC (2) Total At December 31, Property, plant and equipment 2020 Goodwill Intangible assets Property, plant and equipment 2019 Goodwill Intangible assets 1,199,325 785,182 979,022 1,043,821 785,182 837,682 5,809 14,497 4,120 2,879 — — — — — — 268 6,309 14,803 1,574 3,145 — — — — — — — 256 1,226,630 785,182 979,290 1,069,652 785,182 837,938 (1) Americas includes the United States of America, Canada, Mexico, the Caribbean and of Central and South America. (2) Rest of APAC mainly includes Japan, Australia, Singapore, Indonesia, South Korea, Thailand and Malaysia. 32. SUBSEQUENT EVENTS On February 22, 2021 Ferrari and Richard Mille signed a multi-year partnership agreement, which will see the The Group has evaluated subsequent events through Haute Horlogerie brand become sponsor and licensee February 26, 2021, which is the date the Consolidated for the Prancing Horse. Financial Statements were authorized for issuance. Mr. Roberto Cingolani resigned from his role as non- N.V. recommended to the Company’s shareholders that executive Director and member of the Governance and the Company declare a dividend of €0.867 per common Sustainability Committee of the Board of Directors with share, totaling approximately €160 million. The proposal effect from February 13, 2021, following his appointment is subject to the approval of the Company’s shareholders as a Minister of the Italian Government. at the Annual General Meeting to be held on April 15, 2021. On February 26, 2021, the Board of Directors of Ferrari 263 AR 2020 FERRARI N.V. INDEX TO COMPANY FINANCIAL STATEMENTS 265 INCOME STATEMENT / STATEMENT OF COMPREHENSIVE INCOME 266 STATEMENT OF FINANCIAL POSITION 267 STATEMENT OF CASH FLOWS 268 STATEMENT OF CHANGES IN EQUITY 269 NOTES TO THE COMPANY FINANCIAL STATEMENTS 264 AR 2020 BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements INCOME STATEMENT/ STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (€ thousand) Net revenues Other income Dividend income Cost of sales Selling, general and administrative costs Net financial expenses (Loss)/Profit before taxes Income tax benefit Net and comprehensive (loss)/income Note 3 3 4 5 6 7 For the years ended December 31, 2020 180 10,040 2019 603 6,447 — 595,000 1,759 27,437 26,771 1,451 28,207 30,287 (45,747) 542,105 10,748 5,337 (34,999) 547,442 The accompanying notes are an integral part of the Company Financial Statements. 265 AR 2020 FERRARI N.V. STATEMENT OF FINANCIAL POSITION FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (€ thousand) Assets Property, plant and equipment Investments in subsidiaries Financial receivables Deferred tax assets Total non-current assets Trade receivables Tax receivables Other current assets Ferrari Group cash management pools Cash and cash equivalents Total current assets Total assets Equity and liabilities Share capital Share premium Other reserves Retained earnings Total equity Debt (Non-Current) Employee benefits Total non-current liabilities Debt (Current) Trade payables Tax payables Other current liabilities Total current liabilities Total liabilities Total equity and liabilities December 31, Note 2020 2019 8 9 10 7 10 7 10 11 12 13 15 15 16 7 17 2,218 2,617 8,778,123 8,778,123 22,905 22,587 1,094 1,373 8,804,340 8,804,700 12,084 5,923 8,309 17,413 26,402 44,186 5,976 4,571 194,191 56,542 246,962 128,635 9,051,302 8,933,335 2,573 2,573 5,768,544 5,768,544 (550,717) (438,277) 285,310 529,074 5,505,710 5,861,914 1,336,792 1,180,438 1,389 2,070 1,338,181 1,182,508 2,180,773 1,866,100 11,337 1,024 9,419 2,549 14,277 10,845 2,207,411 1,888,913 3,545,592 3,071,421 9,051,302 8,933,335 The accompanying notes are an integral part of the Company Financial Statements. 266 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (€ thousand) Cash and cash equivalents at beginning of the year 56,542 75,615 For the years ended December 31, Note 2020 2019 Cash flows from operating activities: (Loss)/Profit before taxes Depreciation Net financial expenses Other non-cash income and expenses Change in inventories Change in trade receivables Change in trade payables Change in other operating assets and liabilities Interest paid Total Cash flows used in investing activities: Investments in property, plant and equipment Total Cash flows used in financing activities: Proceeds from issuance of bonds Repayments of bonds Net (repayments)/proceeds from financial liabilities with related parties Change in Ferrari Group cash management pools Change in lease liabilities Dividends paid to owners Share repurchases Total Total change in cash and cash equivalents Cash and cash equivalents at end of the year 8 6 15 15 15 11 15 (45,747) 542,105 373 26,771 24,205 — (6,338) 422 30,287 14,441 676 1,317 1,663 (6,652) 38,431 (28,011) (24,225) (24,066) 15,133 530,519 (111) (111) (75) (75) 640,073 298,316 — (315,395) (178,000) 48,114 (1,405) (148) (953) (186) (208,100) (192,664) (129,793) (386,749) 122,627 (549,517) 137,649 (19,073) 194,191 56,542 The accompanying notes are an integral part of the Company Financial Statements. 267 AR 2020 FERRARI N.V. STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (€ thousand) At December 31, 2018 Comprehensive income Dividends to owners Share repurchases Share-based compensation Other changes At December 31, 2019 Comprehensive loss Dividends to owners Share repurchases Share-based compensation Other changes At December 31, 2020 Share capital Share premium Other reserves Retained earnings Total Equity 2,504 5,768,544 (67,835) 174,870 5,878,083 — — — — 69 — — — — — — — 547,442 547,442 (193,238) (193,238) (386,749) 17,480 (1,173) — — — (386,749) 17,480 (1,104) 2,573 5,768,544 (438,277) 529,074 5,861,914 — — — — — — — — — — — — (34,999) (34,999) (208,765) (208,765) (129,793) 17,401 (48) — — — (129,793) 17,401 (48) 2,573 5,768,544 (550,717) 285,310 5,505,710 The accompanying notes are an integral part of the Company Financial Statements. 268 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements NOTES TO THE COMPANY FINANCIAL STATEMENTS 1. CORPORATE INFORMATION AND PRINCIPAL ACTIVITIES STATEMENT OF COMPLIANCE The Company Financial Statements have been prepared in accordance with International Financial Reporting Ferrari N.V. (the “Company” or “Ferrari” and together with Standards as adopted by the European Union (“EU IFRS”) its subsidiaries the “Ferrari Group” or the “Group”) was and with Part 9 of Book 2 of the Dutch Civil Code. incorporated as a public limited company (naamloze vennootschap) under the laws of the Netherlands MEASUREMENT BASIS on September 4, 2015. The Company was formed to The Company Financial Statements were prepared using ultimately act as a holding company for Ferrari S.p.A., the same accounting policies as set out in the notes to the which, together with its subsidiaries, is focused on consolidated financial statements at December 31, 2020 the design, engineering, production and sale of luxury (the “Consolidated Financial Statements”), except for the performance sports cars. measurement of the investments as presented under “Investments in subsidiaries” in the Company Financial The Company is listed under the ticker symbol RACE on the Statements. New York Stock Exchange and on the Mercato Telematico Azionario, the stock exchange managed by Borsa Italiana. Management considers the primary focus of these Company Financial Statements to be the legal entity The Company’s official seat (statutaire zetel) is in perspective and considers that these Company Financial Amsterdam, the Netherlands, and the Company’s Statements should reflect the cost of the subsidiaries as corporate address is in Maranello, Italy at Via Abetone well as the amounts that are eligible for distribution to Inferiore 4. The Company is registered with the Dutch the Company’s shareholders. Management believes that trade register under number 64060977. the measurement of its subsidiaries at cost, as permitted under EU IFRS, provides the best insight into the Company’s financial position and results, in addition to the information provided in the Consolidated Financial Statements. 2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES The accounting policies were consistently applied to all periods presented with the exception of the new DATE OF AUTHORIZATION FOR ISSUANCE standards and amendments effective from January 1, 2020 as noted below. The separate financial statements of the Company (the “Company Financial Statements”) as of and for the year The amounts in the Company Financial Statements ended December 31, 2020 were authorized for issuance are presented in thousands of Euro (€), except where on February 26, 2021. otherwise indicated. BASIS OF PREPARATION The Company Financial Statements are prepared on a FORMAT OF THE COMPANY FINANCIAL STATEMENTS going concern basis using the historical cost method, The Company presents the income statement by function modified as required for the measurement of certain and uses a current/non-current classification for assets financial instruments. and liabilities in the statement of financial position. 269 AR 2020 FERRARI N.V. / 2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES STATEMENT OF CASH FLOWS to the ongoing reform of inter-bank offered rates (IBOR) The statement of cash flows is prepared using the indirect and other interest rate benchmarks. The amendments method with a breakdown into cash flows from or used in are aimed at helping companies to provide investors operating, investing and financing activities. Cash inflows with useful information about the effects of the reform or outflows related to taxes are reported as changes in on those companies’ financial statements. These other operating assets and liabilities as they are primarily amendments complement amendments issued in 2019 settled through transactions with related parties as a result and focus on the effects on financial statements when a of the Ferrari Group Italian tax consolidation. Dividends company replaces the old interest rate benchmark with received are included as part of operating activities. an alternative benchmark rate as a result of the reform. NEW STANDARDS AND AMENDMENTS EFFECTIVE FROM JANUARY 1, 2020 The new amendments relate to: • changes to contractual cash flows – a company will not be required to derecognize or adjust the carrying The following new standards, interpretations and amount of financial instruments for changes required amendments were effective on or subsequent to January by the interest rate benchmark reform, but will instead 1, 2020 and were adopted by the Company for the update the effective interest rate to reflect the change purpose of the preparation of the Company Financial to the alternative benchmark rate; Statements: • Amendments to IFRS 3 — Business Combinations • hedge accounting – a company will not have to discontinue its hedge accounting solely because • Amendments to IAS 1 — Presentation of Financial it makes changes required by the interest rate Statements and IAS 8 — Accounting Policies, Changes in benchmark reform if the hedge meets other hedge Accounting Estimates and Errors accounting criteria; and • Amendments to IFRS 9 — Financial Instruments, IAS 39 • disclosures – a company will be required to disclose — Financial Instruments: Recognition and Measurement information about new risks that arise from the and IFRS 7 — Financial Instruments: Disclosures interest rate benchmark reform and how the company • Review of the Conceptual Framework for Financial manages the transition to alternative benchmark rates. Reporting • Amendment to IFRS 16 — Leases These amendments are effective on or after 1 January 2021, with early adoption permitted. The Company does not expect any impact from the adoption of these There were no significant effects from the adoption amendments. of these amendments. Further information on these standards is provided in Note 2 of the Consolidated Financial Statements. NEW STANDARDS ISSUED BY THE INTERNATIONAL ACCOUNTING STANDARDS BOARD (“IASB”) AND ENDORSED BY THE EUROPEAN UNION (“EU”) BUT NOT YET EFFECTIVE NEW STANDARDS, AMENDMENTS, CLARIFICATIONS AND INTERPRETATIONS ISSUED BY IASB BUT NOT YET ENDORSED BY THE EU In May 2017 the IASB issued IFRS 17 – Insurance Contracts, which establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts issued as well as guidance relating to The standards, amendments and interpretations issued reinsurance contracts held and investment contracts by the IASB that will have mandatory application in 2021 with discretionary participation features issued. In June or subsequent years are listed below: 2020 the IASB issued amendments to IFRS 17 aimed at helping companies implement IFRS 17 and make it easier In June 2020 the IASB issued amendments to IFRS 4 – for companies to explain their financial performance. Insurance Contracts which defer the expiry date of the The new standard and amendments are effective on or temporary exemption from applying IFRS 9 to annual after January 1, 2023. The Company does not expect any periods beginning on or after January 1, 2021. The impact from the adoption of these amendments. Company does not expect any impact from the adoption of these amendments. In January 2020 the IASB issued amendments to IAS 1 – Presentation of Financial Statements: Classification In August 2020 the IASB issued a package of of Liabilities as Current or Non-Current to clarify how to amendments to IFRS 9 – Financial Instruments, IAS 39 classify debt and other liabilities as current or non-current, – Financial Instruments: Recognition and Measurement, and in particular how to classify liabilities with an uncertain IFRS 7 – Financial Instruments: Disclosures, IFRS 4 – settlement rate and liabilities that may be settled by Insurance Contracts and IFRS 16 – Leases in response converting to equity. These amendments are effective on 270 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements or after January 1, 2023. The Company does not expect any after January 1, 2023. The Company does not expect any material impact from the adoption of these amendments. material impact from the adoption of these amendments. In May 2020 the IASB issued amendments to IFRS 3 – In February 2021 the IASB issued amendments to IAS 8 Business combinations to update a reference in IFRS 3 – Accounting Policies, Changes in Accounting Estimates to the Conceptual Framework for Financial Reporting and Errors: Definition of Accounting Estimates which without changing the accounting requirements for clarify how companies should distinguish changes business combinations. These amendments are effective in accounting policies from changes in accounting on or after January 1, 2022. The Company does not estimates. These amendments are effective on or after expect any material impact from the adoption of these January 1, 2023. The Company does not expect any amendments. material impact from the adoption of these amendments. In May 2020 the IASB issued amendments to IAS 16 – INVESTMENTS IN SUBSIDIARIES Property, Plant and Equipment. The amendments prohibit Investments in subsidiaries are stated at cost, less a company from deducting from the cost of property, impairment. Dividend income from the Company’s plant and equipment amounts received from selling subsidiaries is recognized in the income statement when items produced while the company is preparing the asset the right to receive payment is established. for its intended use. Instead, a company should recognize such sales proceeds and the related cost in the income statement. These amendments are effective on or after IMPAIRMENT OF INVESTMENTS IN SUBSIDIARIES January 1, 2022. The Company does not expect any At each reporting date, the Company assesses whether material impact from the adoption of these amendments. there is an indication that investments in subsidiaries may be impaired. If any such indication exists, the Company In May 2020 the IASB issued amendments to IAS 37 – makes an estimate of the asset’s recoverable amount. Provisions, Contingent Liabilities and Contingent Assets, The recoverable amount is defined as the higher of which specify which costs a company includes when the fair value of the investment less costs to sell and its assessing whether a contract will be loss-making. These value in use. Where the carrying amount of an asset amendments are effective on or after January 1, 2022. exceeds its recoverable amount, the asset is considered The Company does not expect any material impact from impaired and is written down to its recoverable amount. the adoption of these amendments. Any resulting impairment is recognized in the income statement. An assessment is made at each reporting In May 2020 the IASB issued Annual Improvements to IFRSs date as to whether there is any indication that previously 2018 - 2020 Cycle. The improvements have amended four recognized impairment losses may no longer exist or may standards with effective date January 1, 2022: i) IFRS 1 – have decreased. If such an indication exists, the Company First-time Adoption of International Financial Reporting makes an estimate of the recoverable amount. A previously Standards in relation to allowing a subsidiary to measure recognized impairment loss is reversed only if there has cumulative translation differences using amounts been a change in the estimates used to determine the reported by its parent, ii) IFRS 9 – Financial Instruments in asset’s recoverable amount since the last impairment loss relation to which fees an entity includes when applying the was recognized. If that is the case, the carrying amount of ‘10 percent’ test for derecognition of financial liabilities, iii) the asset is increased to its recoverable amount, up to a IAS 41 – Agriculture in relation to the exclusion of taxation maximum of the carrying amount that would have been cash flows when measuring the fair value of a biological determined if no impairment loss had been recognized for asset, and iv) IFRS 16 – Leases in relation to an illustrative the asset in prior periods. Such a reversal is recognized in example of reimbursement for leasehold improvements. the income statement. The Company does not expect any material impact from the adoption of these amendments. FOREIGN CURRENCY TRANSACTIONS The financial statements are prepared in Euro, which is In February 2021 the IASB issued amendments to IAS 1 – the Company’s functional and presentation currency. Presentation of Financial Statements and IFRS Practice Transactions in foreign currencies are recorded at the Statement 2: Disclosure of Accounting policies which exchange rate prevailing at the date of the transaction. require companies to disclose their material accounting policy information rather than their significant Monetary assets and liabilities denominated in foreign accounting policies and provide guidance on how to currencies at the balance sheet date are translated at apply the concept of materiality to accounting policy the foreign currency exchange rate prevailing at that disclosures. These amendments are effective on or date. Exchange differences arising on the settlement 271 AR 2020 FERRARI N.V. / 2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES of monetary items or on reporting monetary items at rates different from those at which they were initially recorded during the period or in previous financial statements are recognized in the income statement. FOREIGN CURRENCY TRANSLATION The Company has a branch in the United Kingdom (UK) that operates in Pound Sterling. At each reporting period, the assets and liabilities within the UK branch are translated to Euro using the exchange rate at the balance sheet date and the income statement is translated using the average exchange rate for the period. Translation differences resulting from the application of this method are classified as translation differences within other comprehensive income/(loss) until the disposal of the branch. The cumulative translation differences at December 31, 2020 amounted to losses of €47 thousand (gains of €39 thousand at December 31, 2019). The principal foreign currency exchange rates used to translate other currencies into Euro were as follows: U.S. Dollar Pound Sterling PROPERTY, PLANT AND EQUIPMENT 2020 2019 Average At December 31, Average At December 31, 1.1422 1.2271 1.1195 1.1234 0.8897 0.8990 0.8778 0.8508 Property, plant and equipment is recognized at cost net of accumulated depreciation and, if applicable, impairment. Depreciation is calculated on a straight line basis over the useful lives of the assets as follows: Asset Category Buildings Office equipment Other assets Depreciation Rates 10% 20% - 22% 20% - 25% LEASES The Company recognizes a right-of-use asset and a do not include any non-lease components that may be corresponding lease liability at the date at which the included in the related contracts. leased asset is available for use. Each lease payment is allocated between the principal liability and finance costs. Lease payments are discounted using the interest rate Finance costs are charged to the income statement over implicit in the lease. If that rate cannot be determined, the lease period using the effective interest rate method. the Company’s incremental borrowing rate is used, The right-of use asset is depreciated on a straight-line being the rate that the Company would have to pay to basis over the lease term. borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar Right-of-use assets are measured at cost comprising terms and conditions. the following: (i) the amount of the initial measurement of lease liability; (ii) any lease payments made at In determining the lease term, management considers or before the commencement date less any lease all facts and circumstances that create an economic incentives received; (iii) any initial direct costs and, if incentive to exercise an extension option, or not exercise applicable, (iv) restoration costs. Payments associated a termination option. Extension options (or periods after with short-term leases and leases of low-value assets termination options) are only included in the lease term are recognized as an expense in the income statement if the lease is reasonably certain to be extended (or not on a straight-line basis. terminated). Lease liabilities are measured at the net present value TRADE RECEIVABLES of the following: (i) fixed lease payments, (ii) variable Trade receivables are amounts due for goods sold or lease payments that are based on an index or a rate services provided in the ordinary course of business. and, if applicable, (iii) amounts expected to be payable Trade receivables are initially recognized at fair value by the lessee under residual value guarantees, and (iv) and subsequently measured at amortized cost using the exercise price of a purchase option if the lessee is the effective interest rate method, less any provision reasonably certain to exercise that option. Lease liabilities for allowances. 272 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements INVENTORIES the extent it is probable that a significant reversal of revenue recognized will not occur. The Company Inventories of demo vehicles and spare parts are stated enters into contracts that may include both products at the lower of cost and net realizable value. Cost is and services, which are generally capable of being determined on a first-in first-out (“FIFO”) basis. Provision distinct and accounted for as separate performance is made for obsolete and slow-moving inventories obligations where appropriate. The Company accounts based on their expected future use and realizable value. for a contract with a customer when there is a legally Net realizable value is the estimated selling price in the enforceable contract between the Company and the ordinary course of business less the estimated costs customer, the rights of the parties are identified, the of completion and the estimated costs for sale and contract has commercial substance, and collectability of distribution. the contract consideration is probable. CASH AND CASH EQUIVALENTS OTHER INCOME Cash and cash equivalents include cash on hand, Other income primarily relates to services performed deposits held at call with banks and other short-term, by the Company on behalf of its subsidiaries for certain highly liquid investments with original maturities of three corporate services rendered and other recharge fees. months or less. There are no liens, pledges, collateral or restrictions on cash and cash equivalents. Cash and INCOME TAXES cash equivalents do not include amounts in Ferrari Current and deferred taxes are recognized as Group cash management pools. income tax benefit or income tax expense and are DEBT included in the income statement for the period, except tax arising from a transaction or event which Debt is measured at amortized cost using the effective is recognized, in the same or a different period, either interest rate method. TRADE PAYABLES in other comprehensive income/(loss) or directly in equity. The Company accounts for tax uncertainties in accordance with IFRIC 23. Trade payables are amounts payable for services, legal and professional fees and other expenses incurred. DIVIDENDS Trade payables are all due within one year. Dividends payable by the Company are reported as DEFERRED INCOME a change in equity in the period in which they are approved by the shareholders as applicable under local Deferred income relates to amounts received in rules and regulations. Dividend income is recognised advance under certain agreements, primarily relating in the income statement on the date that the right to to marketing-related events hosted for third party receive payment is established. dealers, which are reliant on the future performance of a service or other act of the Company. Deferred income SHARE-BASED COMPENSATION is recognized as net revenues or other income when the The Company has implemented equity incentive Company has fulfilled its obligations under the terms of plans that provide for the granting of share-based the various agreements. Deferred income is recorded on compensation to the Chairman, the former Chief the statement of financial position within “other liabilities”. Executive Officer, all other members of the Senior NET REVENUES Management Team (“SMT”) and other key employees of the Group. The equity incentive plan is accounted for Net revenues relate to the sale of demo vehicles and spare in accordance with IFRS 2 – Share-based Payments, parts to third party dealers as well as revenues generated which requires the Company to recognize share-based for marketing-related events hosted by the Company on compensation based on fair value of awards granted. behalf of third party dealers, such as new car launches. Share-based compensation for the equity-settled awards Revenue is recognized when control over a product containing market performance conditions is measured or service is transferred to the customer. Revenue is at the grant date fair value of the award using a Monte measured at the transaction price which is based on Carlo simulation model, which requires the input of the amount of consideration that the Company expects subjective assumptions, including the expected volatility to receive in exchange for transferring the promised of the Company’s common stock, the dividend yield, goods or services to the customer and excludes any sales interest rates and a correlation coefficient between incentives as well as taxes collected from customers that the common stock and the relevant market index. The are remitted to government authorities. The transaction fair value of the awards which are conditional only price includes estimates of variable consideration to on a recipient’s continued service to the Company is 273 AR 2020 FERRARI N.V. / 2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES measured using the share price at the grant date adjusted statement in the period in which the adjustment is made, for the present value of future distributions which or prospectively in future periods. The estimates and employees will not receive during the vesting period. assumptions that management considers most critical for the Company Financial Statements relate to investments Share based compensation is recognized over the in subsidiaries and in particular, relating to impairment service period. Pursuant to an agreement between indicators. See Note 9 for further details. the Company and various subsidiaries of the Group, the Company recharges subsidiaries for share-based compensation relating to equity instruments awarded to employees of the subsidiaries under the equity incentive 3. NET REVENUES AND OTHER plans. The Company’s portion of the share-based INCOME compensation for the equity incentive plans is recognized as an expense within selling, general and administrative Net revenues for the year ended December 31, 2020 costs or cost of sales in the income statement depending amounted to €180 thousand (€603 thousand for the on the function of the employee with an offsetting year ended December 31, 2019) and primarily related amount recorded as an increase to equity, whilst share- to marketing-related events hosted on behalf of third based compensation recharged to the subsidiaries of party dealers and other customers. The decrease the Group is recognized as a financial receivable with an was primarily attributable to impacts of the COVID-19 offsetting amount recorded as an increase to equity. pandemic, which resulted in a reduced number of SEGMENT REPORTING events hosted in 2020. For further information on the impacts of the COVID-10 pandemic, see “ Result of As disclosed in the Consolidated Financial Statements, the Operations” and “COVID-19 Pandemic Update” included Group has determined that it has one operating and one within this Annual Report. reportable segment based on the information reviewed by its Chief Operating Decision Maker in making decisions Other income for the year ended December 31, 2020 regarding the allocation of resources and to assess amounted to €10,040 thousand (€6,447 thousand for the performance. year ended December 31, 2019) and primarily related to costs recharged to Ferrari S.p.A. USE OF ESTIMATES The Company Financial Statements are prepared in accordance with EU IFRS, which requires the use of estimates, judgments, and assumptions that affect the 4. DIVIDEND INCOME carrying amount of assets and liabilities, the disclosure of contingent assets and liabilities and the amounts of income Dividend income for the year ended December 31, 2019 and expenses recognized. The estimates and associated amounted to €595,000 thousand and related entirely to a assumptions are based on elements that are known dividend from Ferrari S.p.A, approved on April 3, 2019 and when the financial statements are prepared, on historical received in three tranches between April and July 2019. experience and on any other factors that are considered to be relevant. The estimates and underlying assumptions are reviewed periodically and continuously by the Company. If the items subject to estimates do not perform as assumed, then the actual results could differ from the estimates, which would require adjustment accordingly. The effects 5. SELLING, GENERAL AND ADMINISTRATIVE COSTS of any changes in estimate are recognized in the income Selling, general and administrative costs consisted of the (€ thousand) following: Personnel expenses Shared services provided by Ferrari S.p.A. Legal and professional services Insurance Other expenses For the years ended December 31, 2020 2019 11,783 16,804 4,494 4,530 6,046 584 2,834 4,532 2,616 1,421 Total selling, general and administrative costs 27,437 28,207 274 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements Personnel expenses include costs related to the equity by Ferrari S.p.A. for human resources, payroll, tax, legal, incentive plans (see Note 14), compensation for directors accounting and treasury. and employees. Detailed information on Board of Directors and key officer compensation is included in the Legal and professional services mainly relate to listing fees “Corporate Governance” and “Remuneration of Directors” and expenses for legal, financial and other consulting services. sections to the Annual Report. At December 31, 2020 the Company had 24 full time 2019 is primarily related to insurance costs incurred on equivalent employees, 14 of which relate to the UK Branch behalf of and recharged to subsidiaries. The recharged and 10 of which relate to the Italian Branch (at December amount is included as “Other income”. The increase in insurance costs in 2020 compared to 31, 2019 the Company had 23 full time equivalent employees, 13 of which relate to the UK Branch and 10 of which relate to the Italian Branch). All employees work outside of the Netherlands. 6. NET FINANCIAL EXPENSES Shared service costs mainly relate to services provided Net financial expenses consisted of the following: (€ thousand) Interest expenses: of which: Interest and other finance costs on bonds and notes Interest on intercompany borrowings Interest on leases Foreign exchange rate differences Other financial expenses Other financial income Net financial expenses For the years ended December 31, 2020 25,689 20,116 5,406 167 247 971 (136) 2019 28,330 20,703 7,510 117 376 1,614 (33) 26,771 30,287 Other financial expenses primarily include bank fees and charges and other financial income primarily includes interest income on cash and cash equivalents held with banks. 275 AR 2020 FERRARI N.V. 7. INCOME TAXES Income taxes for the years ended December 31, 2020 and 2019 are summarised below: (€ thousand) Current income tax benefit Deferred income tax (expense)/benefit Total income tax benefit For the years ended December 31, 2020 11,023 (275) 10,748 2019 4,356 981 5,337 The table below provides a reconciliation between actual income tax benefit and the theoretical income tax expense, calculated on the basis of the applicable corporate tax rate in effect in Italy, which was 24.0 percent for each of the years ended December 31, 2020 and 2019: (€ thousand) (Loss)/Profit before tax Theoretical income tax (benefit)/expense Tax effect on: Non-taxable dividends Non-deductible costs Other permanent differences Total income tax benefit For the years ended December 31, 2020 2019 (45,747) 542,105 10,979 (130,105) — 135,660 (155) (76) 10,748 (125) (93) 5,337 The following table provides a summary of tax receivables and tax payables for the years ended December 31, 2020 and 2019: (€ thousand) Tax receivables Tax payables Net tax receivables At December 31, 2020 8,309 1,024 7,285 2019 17,413 2,549 14,864 Tax receivables of €8,309 thousand at December 31, 2020 (€17,413 thousand at December 31, 2019) primarily relate to amounts due from the tax authorities for the Group tax consolidation in Italy. The decrease in tax receivables is mainly due to the utilization of tax credits for Italian corporate taxes. Tax payables of €1,024 thousand at December 31, 2020 (€2,549 thousand at December 31, 2019) primarily relate to amounts due to related parties for the Group tax consolidation in Italy. The following table summarises deferred tax assets at December 31, 2020 and 2019: (€ thousand) Deferred tax assets To be recovered after 12 months To be recovered within 12 months Net deferred tax assets 276 At December 31, 2020 2019 600 494 820 553 1,094 1,373 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements 8. PROPERTY, PLANT AND EQUIPMENT (€ thousand) Cost Accumulated depreciation Total income tax expense At December 31, 2020 3,924 (1,706) 2,218 2019 3,115 (498) 2,617 Property, plant and equipment relates to office 9. INVESTMENTS IN SUBSIDIARIES furniture and equipment in the UK Branch, as well as buildings recognised as right-of-use assets in 2020 Investment in subsidiaries amounted to €8,778,123 of €2,073 thousand (€2,500 thousand at December thousand at December 31, 2020 and December 31, 2019, 31, 2019). There are no liens, pledges, collateral or and included investments in Ferrari S.p.A. amounting restrictions on use over property, plant and equipment. to €8,778,000 thousand and New Business 33 S.p.A. Depreciation charges of €373 thousand for the year amounting to €123 thousand. ended December 31, 2020 (€422 thousand for the year ended December 31, 2019) were recorded IMPAIRMENT TESTING within selling, general and administrative costs, of At December 31, 2020, the market capitalization of Ferrari which €306 thousand related to right-of-use assets N.V. amounted to approximately €34.9 billion (€27.4 billion (€363 thousand in 2019). See Note 15 “Debt” for at December 31, 2019). Considering the share price of information related to the related lease liabilities. the Company at December 31, 2020 and at the date of authorization of the Company Financial Statements, no impairment indicators were identified. As disclosed in Note 13 to the Consolidated Financial Statements, no impairment indicators were identified in respect to the impairment test performed for the Consolidated Financial Statements. 277 AR 2020 FERRARI N.V. 10. TRADE RECEIVABLES, FINANCIAL RECEIVABLES AND OTHER CURRENT ASSETS TRADE RECEIVABLES (€ thousand) Trade receivables Financial receivables Other current assets Total At December 31, 2020 12,084 22,905 26,402 2019 5,923 22,587 44,186 61,391 72,696 Trade receivables at December 31, 2020 included €9,983 thousand due from Ferrari S.p.A. for corporate services rendered and fees charged and €2,101 thousand due from third parties for marketing-related events (€4,945 thousand and €978 thousand respectively at December 31, 2019). The increase in trade receivables is mainly due to insurance costs recharged to subsidiaries. The carrying amount of trade receivables is deemed to approximate their fair value. There are no overdue balances and no allowance for expected credit losses has been recorded for trade receivables. The following sets forth a breakdown of trade receivables by currency: (€ thousand) Trade receivables denominated in: Euro Pound Sterling Total At December 31, 2020 2019 8,343 3,741 12,084 2,782 3,141 5,923 FINANCIAL RECEIVABLES At December 31, 2020, non-current financial receivables OTHER CURRENT ASSETS of €22,905 thousand (€22,587 thousand at December 31, Other current assets of €26,402 thousand at December 2019) related to receivables from subsidiaries, mainly 31, 2020 (€44,186 thousand at December 31, 2019) Ferrari S.p.A. and primarily for recharges of share- primarily include VAT credits and prepaid expenses. based compensation relating to equity instruments The decrease in 2020 primarily related to VAT awarded to employees of the subsidiaries of the Group reimbursements. under the Group’s equity incentive plans, pursuant to an intercompany agreement. 278 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements 11. FERRARI GROUP CASH MANAGEMENT POOLS 13. EQUITY SHARE CAPITAL Ferrari Group cash management pools relate to At December 31, 2020 the fully paid up share capital the Company’s participation in a group-wide cash of the Company was €2,573 thousand, consisting management system that is managed centrally by Ferrari of 193,923,499 common shares and 63,349,112 S.p.A.. At December 31, 2020, the Company had a net special voting shares, all with a nominal value of asset of €5,976 thousand (€4,571 thousand at December €0.01 per share (€2,573 thousand at December 31, 31, 2019). Amounts in cash management pools at 2019 consisting of 193,923,499 common shares and December 31, 2020 and 2019 were entirely denominated 63,349,111 special voting shares, all with a nominal in Pound Sterling. value of €0.01). At December 31, 2020, the Company had 9,175,609 common shares and 2,190 special voting shares held in treasury, while at December 31, 2019, the Company had 8,640,176 common shares and 2,190 12. CASH AND CASH EQUIVALENTS special voting shares held in treasury. The increase in common shares held in treasury primarily reflects Cash and cash equivalents amounted to €194,191 thousand the repurchase of shares by the Company through its at December 31, 2020 (€56,542 thousand at December 31, share repurchase program, partially offset by shares 2019) and were primarily denominated in Euro. assigned under equity incentive plans. On March 30, 2020 the Company elected to temporarily suspend its The carrying amount of cash and cash equivalents is share repurchase program. deemed to be in line with their fair value. There was no restricted cash at December 31, 2020 and 2019. The following table summarizes the changes in the Credit risk associated with cash and cash equivalents number of outstanding common shares and outstanding is considered limited as the counterparties are leading special voting shares of the Company for the year ended national and international banks. December 31, 2020: Common shares Special voting shares Total Outstanding shares at December 31, 2018 187,920,656 56,492,874 244,413,530 Common shares repurchased under share repurchase program (1) Common shares assigned under equity incentive plans (2) Other changes (3) (2,907,702) 270,369 — — (2,907,702) 270,369 — 6,854,047 6,854,047 Outstanding shares at December 31, 2019 185,283,323 63,346,921 248,630,244 Common shares repurchased under share repurchase program (4) Common shares assigned under equity incentive plans (5) Other changes (819,483) 284,050 — — — 1 (819,483) 284,050 1 Outstanding shares at December 31, 2020 184,747,890 63,346,922 248,094,812 (1) Includes shares repurchased between January 1, 2019 and December 31, 2019 based on the transaction trade date, for a total consideration of €386,094 thousand, including transaction costs. (2) During 2019, approximately 230 thousand performance share units and 40 thousand retention restricted share units vested under the Equity Incentive Plan 2016-2020 as a result of certain performance or retention requirements being achieved. As a result, a corresponding number of common shares, which were previously held in treasury, were assigned to participants of the plan. See Note 21 “Share-Based Compensation” to the Consolidated Financial Statements for additional details. (3) Relates to the issuance, allocation and deregistration of certain special voting shares under the Company’s special voting shares terms and conditions. (4) Includes shares repurchased between January 1, 2020 and December 31, 2020 based on the transaction trade date, for a total consideration of €119,771 thousand, including transaction costs. (5) On March 16, 2020, 366,199 common shares, which were previously held in treasury, were assigned to participants of the equity incentive plans as a result of the vesting of certain performance share unit and retention restricted share unit awards. On March 17, 2020, the Company purchased 82,149 common shares, for a total consideration of €10,022 thousand, from a group of those employees who were assigned shares in order to cover the individual’s taxable income as is standard practice (“Sell to Cover”) in an over-the-counter transaction. See Note 21 “Share-Based Compensation” to the Consolidated Financial Statements for additional details relating to the Group’s equity incentive plans. 279 AR 2020 FERRARI N.V. / 13. EQUITY The authorized share capital of the Company is €7,500,000, Following approval of the annual accounts by the divided into 375,000,000 common shares with nominal shareholders at the Annual General Meeting of the value of €0.01 per share and an equal number of special Shareholders on April 12, 2019, a dividend distribution of voting shares with nominal value of €0.01 per share. €1.03 per common share was approved, corresponding THE LOYALTY VOTING STRUCTURE to a total distribution of €193,328 thousand (of which €192,664 thousand was paid in 2019). The distribution The purpose of the loyalty voting structure is to reward was made from the retained earnings reserve. ownership of the Company’s common shares and to promote stability of the Company’s shareholder base by OTHER RESERVES granting long-term shareholders of the Company with Other reserves includes, among others: special voting shares. Exor N.V. (“Exor”) and Piero Ferrari • a treasury reserve of €616,629 thousand at December participate in the Company’s loyalty voting program 31, 2020 and €486,839 thousand at December 31, 2019; and, therefore, effectively hold two votes for each of the common shares they hold. Investors who purchase common shares may elect to participate in the loyalty voting program by registering their common shares in the loyalty share register and holding them for three years. The loyalty voting program will be effected by means of the issue of special voting shares to eligible holders of • a share-based compensation reserve of €43,482 thousand at December 31, 2020 and €46,539 thousand at December 31, 2019; • a legal reserve of €19 thousand at December 31, 2020 and €65 thousand at December 31, 2019, determined in accordance with Dutch law. common shares. Each special voting share entitles the Pursuant to Dutch law, limitations exist relating to the holder to exercise one vote at the Company’s shareholders distribution of shareholders’ equity up to at least the total meetings. Only a minimal dividend accrues to the special amount of the legal reserve, as well as other reserves voting shares allocated to a separate special dividend mandated per the Company Articles of Association. reserve, and the special voting shares do not carry any At December 31, 2020, the legal and non-distributable entitlement to any other reserve of the Company. reserves of the Company amounted to €19 thousand (€65 thousand at December 31, 2019) and included the SHARE PREMIUM following: The share premium reserve amounted to €5,768,544 • The UK Branch operates in the Pound Sterling. At thousand at both December 31, 2020 and December 31, each reporting period end, the assets and liabilities 2019. RETAINED EARNINGS within the UK branch are translated to Euro and the respective foreign currency translation gain or loss is recorded in other comprehensive income. At Following approval of the annual accounts by the December 31, 2020, the cumulative translation reserve shareholders at the Annual General Meeting of the amounted to €13 thousand (€59 thousand at December Shareholders on April 16, 2020, a dividend distribution of 31, 2019). €1.13 per common share was approved, corresponding to a total distribution of €208,765 thousand (of which €208,100 thousand was paid in 2020). The distribution was made from the retained earnings reserve. • The Company records a statutory non-distributable reserve equal to 1 percent of the nominal value of the special voting shares. At December 31, 2020 and 2019, this reserve amounted to €6 thousand. 280 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements RECONCILIATION OF EQUITY AND NET (LOSS)/PROFIT The reconciliation of equity as per the Consolidated Financial Statements to equity as per the Company Financial Statements is provided below: (€ thousand) Equity attributable to owners of the parent in the Consolidated Financial Statements of Ferrari N.V. Intra-group restructuring OCI reserves in the Consolidated Financial Statements At December 31, 2020 2019 1,785,186 1,481,290 5,969,427 5,969,427 (43,233) (25,997) Cumulative results of subsidiaries in the Consolidated Financial Statements in prior years (2,576,312) (1,832,936) Results of subsidiaries in the Consolidated Financial Statements Cumulative dividends in prior years Other changes Dividends (642,816) (743,376) 1,016,700 421,700 (3,242) (3,194) — 595,000 Equity in the Company Financial Statements of Ferrari N.V 5,505,710 5,861,914 The reconciliation of net (loss)/profit as per the Consolidated Financial Statements to net profit as per the Company Financial Statements is provided below: (€ thousand) Net profit attributable to owners of the parent in the Consolidated Financial Statements of Ferrari N.V. At December 31, 2020 2019 607,817 695,818 Results of subsidiaries in the Consolidated Financial Statements (642,816) (743,376) Dividends — 595,000 Net (loss)/profit in the Company Financial Statements of Ferrari N.V. (34,999) 547,442 281 AR 2020 FERRARI N.V. 14. SHARE-BASED COMPENSATION awarded in 2018. The PSUs and RSUs cover the five-year performance and service periods from 2016 to 2020. The Group has several equity incentive plans under EQUITY INCENTIVE PLAN 2019-2021 which a combination of performance share units (“PSUs”) Under the Equity Incentive Plan 2019-2021 the Company and retention restricted share units (“RSUs”), which awarded approximately 174 thousand 2019-2021 PSUs each represent the right to receive one Ferrari common and approximately 111 thousand 2019-2021 RSUs to the share, have been awarded to the Executive Chairman, the Executive Chairman, the former CEO, members of the Chief Executive Officer (“CEO”), members of the Senior SMT and other key employees of the Group. The PSUs Management Team (“SMT”) and other key employees of and RSUs cover the three-year performance and service the Group. periods from 2019 to 2021. EQUITY INCENTIVE PLAN 2016 - 2020 EQUITY INCENTIVE PLAN 2020-2022 Under the Equity Incentive Plan 2016-2020 the Company Under the Equity Incentive Plan 2020-2022 the Company awarded approximately 237 thousand 2016-2020 PSUs to awarded approximately 60 thousand 2020-2022 PSUs and the SMT (excluding the previous former CEO) and other approximately 48 thousand 2020-2022 RSUs to the Executive key employees of the Group and approximately 450 Chairman, members of the SMT and other key employees thousand 2016-2020 PSUs to the previous former CEO of the Group. The PSUs and RSUs cover the three-year in 2017. An additional total of approximately 21 thousand performance and service periods from 2020 to 2022. 2016-2020 PSUs were awarded to the successor and now former CEO in 2018. Additionally, the Company OUTSTANDING SHARE AWARDS awarded members of the SMT and key leaders a total Changes to the outstanding number of PSU and RSU of approximately 119 thousand 2016-2020 RSUs in 2017, awards under all equity incentive plans of the Group are and an additional 10 thousand 2016-2020 RSUs were as follows: (number of awards) Balance at January 1, 2019 Granted (1) Forfeited Vested Balance at December 31, 2019 Granted (2) Forfeited Vested Balance at December 31, 2020 (1) Granted under the Equity Incentive Plan 2019-2021. (2) Grander under the Equity Incentive Plan 2020-2022. Outstanding PSU Awards Outstanding RSU Awards 686,526 118,264 175,307 110,968 (32,832) (18,000) (230,282) (40,087) 598,719 171,145 48,173 (1,461) 39,780 (1,460) (230,592) (50,402) 414,839 159,063 282 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements SHARE-BASED COMPENSATION EXPENSE For the years ended December 31, 2020 and 2019, the receivables in relation to share-based compensation Company recognized €17,401 thousand and €17,480 recharged to subsidiaries (€7,807 thousand and €9,673 thousand, respectively, as share-based compensation thousand respectively for the year ended December costs, and €9,996 thousand was recorded as financial expense and an increase to other reserves 31, 2019). within equity in relation to the PSU awards and RSU awards. At December 31, 2020, unrecognized compensation expense amounted to €12,998 thousand and is expected Pursuant to an agreement between the Company to be recognized over the remaining vesting periods and various subsidiaries of the Group, the Company through 2022. A portion of the unrecognized share- recharges subsidiaries for share-based compensation based compensation will be recharged to subsidiaries of relating to equity instruments awarded to employees the Company. of the subsidiaries under the equity incentive plans. Of the share-based compensation recognized in 2020, See Note 21 “Share-based Compensation” to the €7,405 thousand was recognized as an expense in Consolidated Financial Statements for additional details cost of sales and selling, general and administrative relating to the equity incentive plan. 15. DEBT (€ thousand) Bonds 1,185,470 640,073 — 9,479 1,835,022 Balance at January 1, 2020 Proceeds from borrowings Repayments of borrowings Net interest accrued/ (paid) and other Balance at December 31, 2020 Financial liabilities with related parties 1,858,478 1,770,000 (1,948,000) 2,590 — (148) (242) (135) 1,680,236 2,307 3,046,538 2,410,073 (1,948,148) 9,102 3,517,565 Lease liabilities Total (€ thousand) Balance at December 31, 2018 Impact of IFRS 16 adoption Balance at January 1, 2019 Proceeds from borrowings Repayments of borrowings Net interest accrued/ (paid) and other Balance at December 31, 2019 Bonds 1,198,109 Financial liabilities with related parties 1,810,721 — — 1,198,109 298,316 (315,395) 4,440 1,185,470 1,810,721 1,576,114 (1,528,000) (357) 1,858,478 Lease liabilities Total — 2,776 2,776 — (186) — 2,590 3,008,830 2,776 3,011,606 1,874,430 (1,843,581) 4,083 3,046,538 The breakdown of debt at December 31, 2020 and 2019 by nature and by maturity is as follows: (€ thousand) At December 31, 2020 2019 Due within one year Due between two and five years Due beyond five years Total Due within one year Due between two and five years Due beyond five years Total Bonds 500,417  1,034,605  300,000  1,835,022  7,260  879,834  298,376  1,185,470  Financial liabilities with related parties Lease liabilities 1,680,236  —  —  1,680,236  1,858,478  —  —  1,858,478  120  1,201  986  2,307  362  1,260  968  2,590  Total 2,180,773  1,035,806  300,986  3,517,565  1,866,100  881,094  299,344  3,046,538  283 AR 2020 FERRARI N.V. / 15. DEBT BONDS AND NOTES 2023 BOND equally and ratably extended to the outstanding notes, subject to certain permitted exceptions; (ii) pari passu On March 16, 2016, the Company issued 1.5 percent clauses, under which the notes rank and will rank pari coupon notes due March 2023, having a principal of passu with all other present and future unsubordinated €500 million. The bond was issued at a discount for an and unsecured obligations of Ferrari; (iii) events of issue price of 98.977 percent, resulting in net proceeds default for failure to pay principal or interest or comply of €490,729 thousand, after the debt discount and with other obligations under the notes with specified issuance costs, and a yield to maturity of 1.656 percent. cure periods or in the event of a payment default or The net proceeds were used, together with additional acceleration of indebtedness or in the case of certain cash held by the Company, to fully repay a €500 million bankruptcy events; and (iv) other clauses that are bank loan. The bond is unrated and was admitted to customarily applicable to debt securities of issuers with trading on the regulated market of the Euronext Dublin a similar credit standing. A breach of these covenants (formerly the Irish Stock Exchange). Following a cash may require the early repayment of the notes. As of tender offer, on July 16, 2019 the Company executed the December 31, 2020 and 2019, Ferrari was in compliance repurchase of these notes for an aggregate nominal with the covenants of the notes. amount of €115,395 thousand. The amount outstanding at December 31, 2020 was €386,814 thousand and 2029 AND 2031 NOTES includes accrued interest of €4,567 thousand (€385,776 On July 31, 2019, the Company issued 1.12 percent senior thousand including accrued interest of €4,567 thousand notes due August 2029 (“2029 Notes”) and 1.27 percent at December 31, 2019). 2021 BOND senior notes due August 2031 (“2031 Notes”) through a private placement to certain US institutional investors, each having a principal of €150 million. The net proceeds On November 16, 2017, the Company issued 0.25 percent from the issuances amounted to €298,316 thousand, coupon notes due January 2021, having a principal of and the yields to maturity, on an annual basis, equal €700 million. The bond was issued at a discount for an the nominal coupon rates of the Notes. The Notes are issue price of 99.557 percent, resulting in net proceeds of primarily used for general corporate purposes, including €694,172 thousand after the debt discount and issuance the funding of capital expenditures. costs, and yield to maturity of 0.391 percent. The net proceeds were primarily used to repay a €700 million The amounts outstanding of the 2029 Notes at December bank loan. The bond is unrated and was admitted to 31, 2020 was €149,971 thousand, including accrued trading on the regulated market of the Euronext Dublin interest of €700 thousand (€149,891 thousand, including (formerly the Irish Stock Exchange). Following a cash accrued interest of €700 thousand at December 31, tender offer, on July 16, 2019 the Company executed the 2019). The amount outstanding of the 2031 Notes at repurchase of these notes for an aggregate nominal December 31, 2020 was €150,044 thousand, including amount of €200,000 thousand. The amount outstanding accrued interest of €794 thousand (€149,979 thousand at December 31, 2020 was €501,151 thousand and including accrued interest of €794 thousand at includes accrued interest of €1,199 thousand (€499,824 December 31, 2019). thousand including accrued interest of €1,199 thousand at December 31, 2019). On January 18, 2021 the Company 2025 BOND fully repaid the 2021 Bond for a total consideration of On May 27, 2020 the Company issued 1.5 percent coupon €501,250 thousand, of which €1,250 thousand related to notes due May 2025 (“2025 Bond”), having a principal of accrued interest. €650 million. The notes were issued at a discount for an issue price of 98.898 percent, resulting in net proceeds The notes for both the 2023 Bond and the 2021 Bond of €640,073 thousand, after related expenses, and a yield impose covenants on Ferrari including: (i) negative pledge to maturity of 1.732 percent. The bond was admitted to clauses which require that, in case any security interest trading on the regulated market of Euronext Dublin. The upon assets of Ferrari is granted in connection with amount outstanding of the 2025 Bond at December 31, other notes or debt securities with the consent of Ferrari 2020 was €647,042 thousand, including accrued interest are, or are intended to be, listed, such security should be of €5,850 thousand. 284 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements FINANCIAL LIABILITIES WITH RELATED PARTIES Financial liabilities with related parties at December 31, 2020 are broken down as follows: (€ thousand) Counterparty Ferrari S.p.A. Ferrari S.p.A. Ferrari S.p.A. Ferrari S.p.A. Ferrari S.p.A. Total Currency Total amount outstanding at December 31, 2020 Due date Interest Rate Euro Euro Euro Euro Euro 70,002 March 2021 EURIBOR 3M + 60bps 150,028 March 2021 EURIBOR 6M + 60bps 160,027 March 2021 EURIBOR 6M + 60bps 800,146 October 2021 EURIBOR 6M + 60bps 500,033 November 2021 EURIBOR 3M + 60bps 1,680,236 Financial liabilities with related parties at December 31, 2019 are broken down as follows: (€ thousand) Counterparty Ferrari S.p.A. Ferrari S.p.A. Ferrari S.p.A. Ferrari S.p.A. Total Currency Total amount outstanding at December 31, 2019 Due date Interest Rate Euro Euro Euro Euro 148,052 April 2020 EURIBOR 3M+ 60Bps 500,095 May 2020 EURIBOR 3M+ 60Bps 710,236 October 2020 EURIBOR 6M+ 60Bps 500,095 November 2020 EURIBOR 3M+ 60Bps 1,858,478 LEASE LIABILITIES During 2020, certain debt agreements with Ferrari S.p.A. were renewed. Net payments from financial As of December 31, 2020 lease liabilities amount to €2,307 liabilities with related parties amounted to €178,000 thousand (€2,590 thousand at December 31, 2019). thousand in 2020 (net proceeds of €48,114 thousand in 2019). REVOLVING CREDIT FACILITIES In December 2019, the Company negotiated a €350 million At December 31, 2020 a 10 basis point increase in unsecured committed revolving credit facility (the “RCF”), interest rates on the floating rate financial liabilities, with which is intended for general corporate and working all other variables held constant, would have resulted in capital purposes. The RCF has a 5 year-tenor with two a decrease in profit before tax of €1,680 thousand on further one-year extension options, exercisable on the an annualized basis (decrease of €1,858 thousand at first and second anniversary of the signing date on the December 31, 2019). Company’s request and the approval of each participating bank. The first one-year extension option was exercised by The carrying amount of the financial liabilities with the Company and approved by all participating banks. related parties approximates fair value. Information on fair value measurement and qualitative and quantitative In April 2020, additional committed credit lines of €350 information on financial risks are provided in Note 27 million were secured with tenors ranging from 18 to 24 and Note 30, respectively, to the Consolidated Financial months, doubling total committed credit lines available to Statements. Further information on the Group’s liquidity €700 million. is provided in the “Liquidity and Capital Resources” section of this Annual Report. Based on this information At December 31, 2020 all of the above mentioned the Company deems the going concern assumption committed credit facilities were undrawn. At December adequate. 31, 2019 the RCF was undrawn. 285 AR 2020 FERRARI N.V. / 15. DEBT CONTRACTUAL OBLIGATIONS The following table summarizes payments due under our significant commitments at December 31, 2020: (€ million) Long-term debt (1) Interest on long-term debt (2) Lease liabilities Total contractual obligations Less than 1 year 1 to 3 years 3 to 5 years Payments due by period 500 19 — 519 385 34 1 420 650 21 1 672 After 5 years Total 300 1,835 16 — 90 2 316 1,927 (1) Amounts presented relate to the principal amounts of long-term debt, excluding lease liabilities and the related interest expense that will be paid when due. The table above does not include short-term debt obligations. (2) Amounts include interest payments based on contractual terms and current interest rates on our long-term debt. Interest rates based on variable rates included above were determined using the current rates in effect at December 31, 2020. 16. TRADE PAYABLES (€ thousand) Due to related parties Due to third parties Total trade payables 2020 9,157 2,180 11,337 2019 3,157 6,262 9,419 Due to related parties primarily relates to amounts payable to Ferrari S.p.A. for corporate services rendered and costs recharged. Due to third parties relates to costs for marketing-related events and legal and professional services. The following sets for a breakdown of trade payables by currency: (€ thousand) Euro Pound Sterling Total trade payables 2020 6,235 5,102 11,337 2019 4,809 4,610 9,419 Trade payables are due within one year and their carrying amount at the reporting date is deemed to approximate their fair value. 17. OTHER CURRENT LIABILITIES 18. EARNINGS PER SHARE Other current liabilities amounted to €14,277 thousand Earnings per share information is provided in Note 12 to at December 31, 2020 (€10,845 thousand at December the Consolidated Financial Statements. 31, 2019) and primarily relate to indirect tax payables, payables to personnel, deferred income and provisions. Deferred income principally relates to advances received from dealers for marketing-related events, such as new car launches. 286 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements 19. AUDIT FEES The fees for services provided by the Company’s independent auditors, Ernst & Young Accountants LLP, and its member firms and/or affiliates, to the Company and its subsidiaries are broken down as follows: (€ thousand) Audit fees Audit-related fees Total 2020 1,160 321 1,481 2019 1,150 139 1,289 Audit fees of Ernst & Young Accountants LLP amounted to €80 thousand in 2020 and €80 thousand in 2019 and are included in the table above. 22. RELATED PARTY TRANSACTIONS 20. REMUNERATION Pursuant to IAS 24, the related parties with which the Company has transactions are Ferrari S.p.A. and other companies within the Ferrari Group. The Group carries out transactions with related parties on commercial terms that are normal in their respective markets, Detailed information on the remuneration of the Board considering the characteristics of the goods or services of Directors and senior management is included in the involved. “Corporate Governance” and “Remuneration of Directors” Related party transactions include: sections to the Annual Report. • Purchase of demo vehicles and spare parts from 21. COMMITMENTS AND CONTINGENCIES At December 31, 2020 and 2019, the Company provided guarantees over certain debt of its subsidiary Ferrari Financial Services Inc. The book value of the related debt at December 31, 2020 and 2019 was €28,553 thousand and €31,211 thousand, respectively. For intercompany financial guarantees issued by the Company, there is no expected default and therefore the Ferrari S.p.A. (Note 10) • Corporate services and recharge of expenses to Ferrari S.p.A. (Note 5) • Share services received from Ferrari S.p.A. mainly related to human resources, payroll, tax, legal, accounting and treasury. (Note 5) • Participation in a Ferrari Group-wide cash management system where the operating cash management, main funding operations and liquidity investment of the Ferrari Group are centrally coordinated by Ferrari S.p.A. Amounts recorded as Ferrari Group cash management pools represented the Company’s participation in such pools. (Note 12) financial guarantees are not recognised. • Financial liabilities and receivables with Ferrari S.p.A. or other subsidiaries of the Group (Note 16) • Key management compensation (Note 21). The impact of transactions with related parties on the Company Financial Statements is disclosed separately in the relevant notes. 287 AR 2020 FERRARI N.V. 23. ORGANIZATIONAL STRUCTURE The following table sets forth the Company’s subsidiaries and associates at December 31, 2020. During 2020, no changes occurred in the organizational structure. Name Directly held interests Ferrari S.p.A. New Business 33 S.p.A. Indirectly held through Ferrari S.p.A. Ferrari North America Inc. Ferrari Japan KK Country Nature of business Shares held by the Group Italy Italy Manufacturing Holding company USA Importer and distributor Japan Importer and distributor Ferrari Australasia Pty Limited Australia Importer and distributor Ferrari International Cars Trading (Shanghai) Co. L.t.d. China Importer and distributor Ferrari (HK) Limited Ferrari Far East Pte Limited Ferrari Management Consulting (Shanghai) Co. L.t.d. Ferrari South West Europe S.a.r.l. Hong Kong Importer and distributor Singapore Service company China France Service company Service company Ferrari Central Europe GmbH Germany Service company G.S.A. S.A. Mugello Circuit S.p.A. Ferrari Financial Services USA Indirectly held through other Group entities Ferrari Auto Securitization Transaction, LLC(1) Ferrari Auto Securitization Transaction - Lease, LLC(1) Ferrari Auto Securitization Transaction - Select, LLC(1) Ferrari Financial Services Titling Trust(1) 410, Park Display Inc.(2) Associated companies valued at cost Switzerland Service company Italy Racetrack management USA Financial services USA USA USA USA USA Financial services Financial services Financial services Financial services Retail 100% 100% 100% 100% 100% 80% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Fondazione Casa di Enzo Ferrari Italy Service company 25% Branches UK Branch (1) Shareholding held by Ferrari Financial Services Inc. (2) Shareholding held by Ferrari North America Inc. UK Sales and after sales support 288 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements 24. SUBSEQUENT EVENTS The Company has evaluated subsequent events through February 26, 2021, which is the date the Company Financial Statements were authorized for issuance. Mr. Roberto Cingolani resigned from his role as non-executive Director and member of the Governance and Sustainability Committee of the Board of Directors with effect from February 13, 2021, following his appointment as a Minister of the Italian Government. On February 22, 2021 Ferrari and Richard Mille signed a multi-year partnership agreement, which will see the Haute Horlogerie brand become sponsor and licensee for the Prancing Horse. On February 26, 2021, the Board of Directors of Ferrari N.V. recommended to the Company’s shareholders that the Company declare a dividend of €0.867 per common share, totaling approximately €160 million. The proposal is subject to the approval of the Company’s shareholders at the Annual General Meeting to be held on April 15, 2021. February 26, 2021 Board of Directors John Elkann Piero Ferrari Sergio Duca Delphine Arnault Francesca Bellettini Eddy Cue John Galantic Maria Patrizia Grieco Adam Keswick 289 AR 2020 AR 2020 290 AR 2020/ TITOLO 2 LIVELLOFERRARI N.V.OTHER INFORMATION 291 AR 2020 FERRARI N.V. OTHER INFORMATION INDEPENDENT AUDITOR’S REPORT 3. From the profits, shown in the annual accounts, as adopted, such amounts shall be reserved as the Board The report of the Company’s independent auditor, Ernst of Directors may determine. & Young Accountants LLP, the Netherlands, is set forth at the end of this Annual Report. 4. The profits remaining thereafter shall first be applied DIVIDENDS to allocate and add to the special voting shares dividend reserve an amount equal to one percent (1%) of the aggregate nominal value of all outstanding special voting shares. The calculation of the amount to be allocated and added to the special voting shares Dividends will be determined in accordance with article dividend reserve shall occur on a time-proportionate 23 of the Articles of Association of Ferrari N.V. The basis. If special voting shares are issued during the relevant provisions of the Articles of Association read as financial year to which the allocation and addition follows: pertains, then the amount to be allocated and added to 1. The Company shall maintain a special capital reserve to the special voting shares dividend reserve in respect be credited against the share premium exclusively for of these newly issued special voting shares shall be the purpose of facilitating any issuance or cancellation calculated as from the date on which such special of special voting shares. The special voting shares voting shares were issued until the last day of the shall not carry any entitlement to the balance of the financial year concerned. The special voting shares special capital reserve. The Board of Directors shall be shall not carry any other entitlement to the profits. authorized to resolve upon (i) any distribution out of the special capital reserve to pay up special voting shares 5. Any profits remaining thereafter shall be at the disposal or (ii) re-allocation of amounts to credit or debit the of the general meeting of Shareholders for distribution special capital reserve against or in favor of the share of profits on the common shares only, subject to the premium reserve. provision of paragraph 8 of this article. 2. The Company shall maintain a separate dividend 6. Subject to a prior proposal of the Board of Directors, reserve for the special voting shares. The special voting the general meeting of Shareholders may declare shares shall not carry any entitlement to any other and pay distribution of profits and other distributions reserve of the Company. Any distribution out of the in United States Dollars. Furthermore, subject to the special voting rights dividend reserve or the partial or approval of the general meeting of Shareholders and full release of such reserve will require a prior proposal the Board of Directors having been designated as the from the Board of Directors and a subsequent body competent to pass a resolution for the issuance resolution of the meeting of holders of special voting of shares in accordance with Article 6, the Board of shares. Directors may decide that a distribution shall be made in the form of shares or that Shareholders shall be given the option to receive a distribution either in cash or in the form of shares. 292 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements 7. The Company shall only have power to make distributions to Shareholders and other persons BRANCH OFFICES entitled to distributable profits to the extent the Company’s equity exceeds the sum of the paid in and Please make reference to Note 23 of the Company called up part of the share capital and the reserves Financial Statements included in this Annual Report. that must be maintained pursuant to Dutch law and the Company’s Articles of Association. No distribution of profits or other distributions may be made to the Company itself for shares that the Company holds in its own share capital. 8. The distribution of profits shall be made after the adoption of the annual accounts, from which it appears that the same is permitted. 9. The Board of Directors shall have power to declare one or more interim distributions of profits, provided that the requirements of paragraph 7 hereof are duly observed as evidenced by an interim statement of assets and liabilities as referred to in Section 2:105 paragraph 4 of the Dutch Civil Code and provided further that the policy of the Company on additions to reserves and distributions of profits is duly observed. The provisions of paragraphs 2 and 3 hereof shall apply mutatis mutandis. 10. The Board of Directors may determine that distributions are made from the Company’s share premium reserve or from any other reserve, provided that payments from reserves may only be made to the Shareholders that are entitled to the relevant reserve upon the dissolution of the Company. 11. Distributions of profits and other distributions shall be made payable in the manner and at such date(s) - within four (4) weeks after declaration thereof - and notice thereof shall be given, as the general meeting of Shareholders, or in the case of interim distributions of profits, the Board of Directors shall determine. 12. Distributions of profits and other distributions, which have not been collected within five (5) years and one (1) day after the same have become payable, shall become the property of the Company. 293 AR 2020 FERRARI N.V. INDEPENDENT AUDITOR’S REPORT TO: THE SHAREHOLDERS AND AUDIT COMMITTEE OF FERRARI N.V. REPORT ON THE AUDIT OF THE 2020 FINANCIAL STATEMENTS INCLUDED IN THE ANNUAL REPORT accountants bij assurance-opdrachten” (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant OUR OPINION independence regulations in the Netherlands. Furthermore we have complied with the “Verordening gedrags- en We have audited the financial statements for the year beroepsregels accountants” (VGBA, Dutch Code of Ethics). ended December 31, 2020 of Ferrari N.V. (herein referred to as “the company” and together with its subsidiaries We believe the audit evidence we have obtained is “the group”), based in Amsterdam. sufficient and appropriate to provide a basis for our In our opinion the accompanying financial statements give a true and fair view of the financial position of OUR AUDIT APPROACH opinion. Ferrari N.V. as at 31 December 2020, and of its result and OUR UNDERSTANDING OF THE BUSINESS its cash flows for 2020 in accordance with International Ferrari N.V. is among the world’s leading luxury brands. Financial Reporting Standards as adopted by the The activities of Ferrari N.V. are focused on the design, European Union (EU-IFRS) and with Part 9 of Book 2 of engineering, production and sale of luxury performance the Dutch Civil Code. sports cars. The Ferrari group is structured in group entities and we tailored our group audit approach The financial statements comprise: accordingly. We paid specific attention in our audit to a • The consolidated and company statement of financial number of areas driven by the operations of the group position as at 31 December 2020 and our risk assessment. • The following statements for 2020: the consolidated and company income statement, the consolidated and company statements of comprehensive income, changes in equity and cash flows • The notes comprising a summary of the significant accounting policies and other explanatory information BASIS FOR OUR OPINION We start by determining materiality and identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud, non- compliance with laws and regulations or error in order to design audit procedures responsive to those risks, and to obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting We conducted our audit in accordance with Dutch law, from fraud is higher than for one resulting from error, including the Dutch Standards on Auditing. as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal Our responsibilities under those standards are further control. In 2020 and the beginning of 2021 we were described in the “Our responsibilities for the audit of the forced to perform our procedures to a greater extent financial statements” section of our report. remotely due to the Covid-19 measures. This limits our observations and increases the risk of missing certain We are independent of Ferrari N.V. in accordance with signals. In order to compensate for the limitations related the EU Regulation on specific requirements regarding to physical contact and direct observation, we performed statutory audit of public-interest entities, the “Wet toezicht alternative procedures to obtain audit evidence that is accountantsorganisaties” (Wta, Audit firms supervision sufficient and appropriate to provide a basis for our act), the “Verordening inzake de onafhankelijkheid van opinion. 294 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements MATERIALITY Materiality €33 million (2019: €40 million) Benchmark applied 5% of profit before taxes Explanation determining our materiality because the users of the financial statements of profit-oriented entities tend to We consider an earnings-based measure, particularly profit before taxes, as the appropriate basis for focus on financial performance. We have also taken into account misstatements and/or In establishing the overall approach to the audit, we possible misstatements that in our opinion are material for determined the work to be performed by us, as group the users of the financial statements for qualitative reasons. auditors, and by component auditors from Ernst & Young Global member firms and operating under our coordination We agreed with the audit committee that misstatements in and supervision. We have performed the following excess of €1,65 million which are identified during the audit, procedures: would be reported to them, as well as smaller misstatements • We have had regular virtual team meetings with EY Italy, all that in our view must be reported on qualitative grounds. component auditors and management and reviewed the SCOPE OF THE GROUP AUDIT audit work performed on the group consolidation, financial statements and related disclosures, assessed the effect of Ferrari N.V. is the parent of a group of entities. The financial Covid-19 and the key audit matter related to Ferrari S.p.A.: information of this group is included in the consolidated warranty and recall campaigns provision. We reviewed the financial statements of Ferrari N.V. audit files of the component auditor and determined the Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for group entities. Decisive were the size sufficiency and appropriateness of the work performed. • Other component auditors included in the group audit scope received detailed instructions, including key risks and audit focus areas, and we determined the sufficiency and appropriateness of the work performed. and/or the risk profile of the group entities or operations. Because of the (international) travel restrictions and social On this basis, we selected group entities for which an audit distancing due to the Covid-19 pandemic, we needed to or review had to be carried out on the complete set of restrict or have been unable to visit management and/or financial information or specific items. component auditors. Due to these restrictions we intensified communication with significant component teams in terms All group entities were included in the scope of our of virtual sessions to ensure we obtained sufficient audit group audit. We identified Ferrari S.p.A. and Ferrari North evidence to conclude on our audit. America Inc. as two group entities, which, in our view, required an audit of their complete financial information. The entities included in the group audit scope represent Specific scope audit procedures on certain balances 98% of the group’s total assets, 97% of net revenues and and transactions were performed on four entities. Other 100% of profit before taxes. The scope of the procedures procedures were performed on the remaining entities. performed is detailed in the graphs reported below. Assets Revenue Profit before tax Full scope Specific scope Other procedures No scope 295 AR 2020 FERRARI N.V. / REPORT ON THE AUDIT OF THE 2020 FINANCIAL STATEMENTS INCLUDED IN THE ANNUAL REPORT By performing the procedures mentioned above at Furthermore, as Ferrari N.V. is a global company, group entities, together with additional procedures at operating in multiple jurisdictions, we considered the risk group level, we have been able to obtain sufficient and of bribery and corruption. appropriate audit evidence about the group’s financial information to provide an opinion about the consolidated In our process of identifying fraud risks, we considered financial statements. whether the Covid-19 pandemic gives rise to specific TEAMING, USE OF SPECIALISTS AND INTERNAL AUDIT fraud risk factors resulting from a dilution in the effectiveness of controls as a result of the general disruption associated with remote working, illness We ensured that the audit teams both at group and at and workforce reductions, supply chain failures component levels included the appropriate skills and and pressure to make emergency procurements, competences which are needed for the audit of a listed management overrides and workarounds becoming the client in the automotive industry. We included specialists norm, manual invoicing and manual payments, abuse of in the areas of IT audit, treasury, share based payments government schemes intended to support companies and income tax and have made use of our own experts in during the pandemic. the areas of valuations and actuaries. OUR FOCUS ON FRAUD AND NON-COMPLIANCE WITH LAWS AND REGULATIONS We evaluated the design and the implementation and, where considered appropriate, tested the operating effectiveness of internal controls that mitigate fraud OUR RESPONSIBILITY risks. In addition, we performed procedures to evaluate Although we are not responsible for preventing fraud key accounting estimates for management bias in or non-compliance and cannot be expected to detect particular relating to important judgment areas and non-compliance with all laws and regulations, it is our significant accounting estimates as disclosed in Note 2 responsibility to obtain reasonable assurance that the and Note 23 to the consolidated financial statements. We financial statements, taken as a whole, are free from have also used data analysis to identify and address high- material misstatement, whether caused by fraud or error. risk journal entries. Our audit procedures to address the assessed fraud risks did not result in a key audit matter. Non-compliance with laws and regulations may result in fines, litigation or other consequences for the company We incorporated elements of unpredictability in our that may have a material effect on the financial statements. audit. We considered the outcome of our other audit procedures and evaluated whether any findings were OUR AUDIT RESPONSE RELATED TO FRAUD RISKS indicative of fraud or non-compliance. If so, we reevaluate In order to identify and assess the risks of material our assessment of fraud risk and its resulting impact on misstatements of the financial statements due to our audit procedures. fraud, we obtained an understanding of the entity and its environment, including the entity’s internal control OUR AUDIT RESPONSE RELATED TO RISKS OF NON- relevant to the audit and in order to design audit COMPLIANCE WITH LAWS AND REGULATIONS procedures that are appropriate in the circumstances, We assessed factors related to the risks of non- but not for the purpose of expressing an opinion on the compliance with laws and regulations that could effectiveness of the company’s internal control. As in reasonably be expected to have a material effect on all of our audits, we addressed the risk of management the financial statements from our general industry override of internal control. experience, through discussions with the board of We considered available information and made and compliance reports, and performing substantive enquiries of relevant executives, directors (including tests of details of classes of transactions, account directors, reading minutes, inspection of internal audit internal audit, legal, compliance, human resources and balances or disclosures. directors of group entities) and the audit committee. As part of our process of identifying fraud risks, we We also inspected lawyers’ letters and correspondence evaluated fraud risk factors with respect to financial with regulatory authorities and remained alert to any reporting fraud, misappropriation of assets and bribery indication of (suspected) non-compliance throughout the and corruption. audit. Finally we obtained written representations that all known instances of non-compliance with laws and In our risk assessment we considered the potential regulations have been disclosed to us. impact of performance-based bonus schemes which the company has in place at certain components. 296 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements GOING CONCERN Our conclusions are based on the audit evidence We performed the following procedures in order to obtained up to the date of our auditor’s report. However, identify and assess the risks of going concern and future events or conditions may cause a company to to conclude on the appropriateness of the board of cease to continue as a going concern. directors’ use of the going concern basis of accounting. The board of directors made a specific assessment of GENERAL AUDIT PROCEDURES the company’s ability to continue as a going concern Our audit further included among others: and to continue its operations for at least the next 12 • Performing audit procedures responsive to the risks months . We discussed and evaluated the assessment identified, and obtaining audit evidence that is sufficient with the board of directors exercising professional and appropriate to provide a basis for our opinion judgment and maintaining professional skepticism, and specifically focusing on the process followed by the board of directors to make the assessment, management bias that could represent a risk, the impact of current events and conditions have on the company’s operations and forecasted cash flows, with a focus on whether the company will have sufficient liquidity to continue to meet its obligations as they fall due. We consider based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty • Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the board of directors • Evaluating the overall presentation, structure and content of the financial statements, including the disclosures • Evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation OUR KEY AUDIT MATTERS exists, we are required to draw attention in our auditor’s Key audit matters are those matters that, in our report to the related disclosures in the financial professional judgment, were of most significance in our statements or, if such disclosures are inadequate, to audit of the financial statements. We have communicated modify our opinion. the key audit matter to the audit committee. The key audit matter is not a comprehensive reflection of all matters discussed. 297 AR 2020 FERRARI N.V. / REPORT ON THE AUDIT OF THE 2020 FINANCIAL STATEMENTS INCLUDED IN THE ANNUAL REPORT The key audit matter mentioned below is addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on this matter. Warranty and recall campaigns provision Note 2 and Note 23 in the annual report Risk As more fully described in the Notes to the consolidated financial statements, the group establishes a provision for product warranties at the time the sale is recognized to guarantee the performance of vehicles from defects that may become apparent within a certain period or term. In addition, the group periodically initiates recall campaigns to address various client satisfaction, safety and emissions issues related to cars sold. The provision includes the management’s estimate of the expected cost to fulfill the obligations over the contractual warranty or campaign period. Such estimate is developed using assumptions related to expected costs to be incurred based on the group’s historical claims or costs experience, including the cost of parts and services. As at December 31, 2020, the warranty and recall campaigns provision amounted to €107 million. Future costs of these actions are subject to numerous uncertainties, including the enactment of new laws and regulations, the number of vehicles affected by warranty actions or recall campaigns and the nature of the corrective action that may result in the reassessment of the established provision. The costs related to this provision are recognized within cost of sales. Auditing the warranty and recall campaign provision was complex in consideration of the judgment required to develop assumptions around future costs to be incurred for warranty and recall campaigns, especially for newly launched models or vehicles, and the complexity of the calculation involved. The procedures performed to address the matter in our audit included, among others, obtaining an understanding of the warranty and recall campaign provisioning process and evaluating the group’s accounting policy thereon. We also assessed the design and operating effectiveness of internal controls relevant to this area, specifically related to the management’s assumptions developed to estimate future costs to be incurred. We evaluated the methodology, including calculation, and assumptions used by the Our audit approach management in estimating future costs for warranty programs and recall campaigns, and assessed any changes, or the lack thereof, from the prior year. We tested the completeness and accuracy of the underlying data and the journal entries recorded by the management. We further completed analytical procedures over the accrued provision and retrospective analyses comparing the provisions recorded by the group against actual spending for warranty and recall service costs to evaluate the cost assumptions used by the management. Lastly, we assessed the adequacy of the warranty and recall campaign disclosures included in the notes to the consolidated financial statements. Key observations We concur with the assessment and recording of the warranty and recall campaigns provision and the related disclosures as included in the notes to the consolidated financial statements. 298 AR 2020BOARD REPORT / FINANCIAL STATEMENTS / OTHER INFORMATION Index to Consolidated Financial Statements Index to Company Financial Statements REPORT ON OTHER INFORMATION INCLUDED IN THE ANNUAL REPORT REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS ENGAGEMENT In addition to the financial statements and our auditor’s report thereon, the annual report contains other We were engaged by the audit committee as auditor of information that consists of: Ferrari N.V. on September 29, 2015, as of the audit for the • The board report, including the report on Remuneration year 2015 and have operated as statutory auditor ever of directors since that date. • Other information as required by Part 9 of Book 2 of the Dutch Civil Code NO PROHIBITED NON-AUDIT SERVICES We have not provided prohibited non-audit services as Based on the following procedures performed, we referred to in Article 5(1) of the EU Regulation on specific conclude that the other information: requirements regarding statutory audit of public-interest • Is consistent with the financial statements and does not entities. contain material misstatements • Contains the information as required by Part 9 of Book 2 and Sections 2:135b and 2:145 subsection 2 of the Dutch Civil Code We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements. By performing these procedures, we comply with the requirements of Part 9 of Book 2 and Section 2:135b sub-Section 7 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is substantially less than the scope of those performed in our audit of the financial statements. The board of directors is responsible for the preparation of the other information, including the board report in accordance with Part 9 of Book 2 of the Dutch Civil Code, other information required by Part 9 of Book 2 of the Dutch Civil Code and the Remuneration of Directors in accordance with Sections 2:135b and 2:145 subsection 2of the Dutch Civil Code. 299 AR 2020 FERRARI N.V. DESCRIPTION OF RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS RESPONSIBILITIES OF THE BOARD OF DIRECTORS FOR THE FINANCIAL STATEMENTS financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion. We have exercised professional judgment and have The board of directors is responsible for the preparation maintained professional skepticism throughout the audit, and fair presentation of the financial statements in in accordance with Dutch Standards on Auditing, ethical accordance with EU-IFRS and Part 9 of Book 2 of the requirements and independence requirements. The “Our Dutch Civil Code. Furthermore, the board of directors audit approach” section above includes an informative is responsible for such internal control as it determines summary of our responsibilities and the work performed is necessary to enable the preparation of the financial as the basis for our opinion. statements that are free from material misstatement, whether due to fraud or error. COMMUNICATION As part of the preparation of the financial statements, among other matters, the planned scope and timing the board of directors is responsible for assessing the of the audit and significant audit findings, including any company’s ability to continue as a going concern. Based significant findings in internal control that we identify We communicate with the audit committee regarding, on the financial reporting frameworks mentioned, during our audit. the board of directors should prepare the financial statements using the going concern basis of accounting In this respect we also submit an additional report to the unless the board of directors either intends to liquidate audit committee in accordance with Article 11 of the EU the company or to cease operations, or has no realistic Regulation on specific requirements regarding statutory alternative but to do so. The board of directors should audit of public-interest entities. The information included disclose events and circumstances that may cast in this additional report is consistent with our audit significant doubt on the company’s ability to continue as a opinion in this auditor’s report. going concern in the financial statements. OUR RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS We provide the audit committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them Our objective is to plan and perform the audit all relationships and other matters that may reasonably engagement in a manner that allows us to obtain be thought to bear on our independence, and where sufficient and appropriate audit evidence for our opinion. applicable, related safeguards. Our audit has been performed with a high, but not From the matters communicated with the audit absolute, level of assurance, which means we may not committee, we determine the key audit matters: those detect all material errors and fraud during our audit. matters that were of most significance in the audit of the financial statements. We describe these matters in our Misstatements can arise from fraud or error and are auditor’s report unless law or regulation precludes public considered material if, individually or in the aggregate, disclosure about the matter or when, in extremely rare they could reasonably be expected to influence the circumstances, not communicating the matter is in the economic decisions of users taken on the basis of these public interest. Amsterdam, February 26, 2021 Ernst & Young Accountants LLP signed by O.E.D. Jonker 300 AR 20200 2 0 2 T R O P E R L A U N N A . V . N I R A R R E F FERRARI N.V. ANNUAL REPORT 2020 Ferrari N.V. Offi cial Seat: Amsterdam, The Netherlands Dutch Trade Registration Number: 64060977 Administrative Offi ces: Via Abetone Inferiore 4 I-41053, Maranello (MO) Italy 

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