Piaggio & C. SpA (PIA) Earnings Call Transcript & Summary

Hello. Thank you very much for taking your time to follow this conference call on Piaggio First 9 Months of 2020 Financial Results. Today's conference call will be hosted by Mr. Roberto Colaninno, Piaggio's Chairman and Chief Executive Officer; Mr. Michele Colaninno, Piaggio's Group Director of Product and Marketing strategy; Mrs. Alessandra Simonotto, Piaggio's Group Chief Financial Officer; and myself. All relevant materials are available on the Investors Section of the Piaggio group website. At the end of the presentation, we will be available to answer the questions you may have. Before starting the presentation, I need to remind you that during today's conference call, we may use forward-looking statements based on Piaggio's current expectations and projections about future events. By their nature, forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to be materially different. Also, I remind you that the press has been invited to participate in this conference call in a listen-only mode. Lastly, given the COVID-19 pandemic in order to mitigate the risk, today, we are [indiscernible] teams. So bear with us, if you will be facing some difficulties managing the conference call. Now I would like to turn the conference over to Mr. Roberto Colaninno.

Thank you. Good afternoon to everybody. Before I ask to Dr. Simonotto, Chief Financial Officer, to make their own presentation, I'd like to give some -- but in my opinion, is the more important way to make a presentation of the results of that -- 2020. We have the first 6 months that was totally influenced by the question of pandemonium virus and what the high turbulence in the market and that obliged more or less all the economic system to be down on the results. And then we have the last quarter, July, August and September, just after the 6 months, especially the second quarter. And the way of the market, generally speaking, registered a very active reaction. Piaggio, particularly, I believe, that in the last -- in this quarter, the July, August and September, registered, let's say, in my opinion, record results. As a record result means that we have increased sales by 3% on the last year, on the '19. The industrial gross profit (sic) [margin] go up by 0.5% and let's say that 0.5% is a big number if you consider that this is considered total productivity regarding the cost of sales. The EBITDA up by 23%. The net profit go up by 75%. And the sales -- the total sales in quantity is up by 14%. But what, in my opinion, is very, very important is the -- that we have reduct -- reduced -- we have reduct the debt by EUR 80 million to the good performance of cash match. This is really extraordinary results, including the fact that the Italian market, generally speaking, in August worked for [ 15 days ]. This was -- the reason why we was able to compensate the negative results, the negative trend of the first 6 months. Now looking at last quarter, I can say that October, we have in line with our performance and it's already done. November and December. November, we have for 90%, the order already acquired. And December is in a normal situation in the way of the trend of December, generally speaking, is very low trend. Now I don't know what will happen so -- November and December about the decision, the different governments in Europe and the different governments in Asia and the United States. So I can -- I am not in position and I am not able to predict what can happen on this way. What I can say is that -- very positive. I consider it very positive is that the Asian market starting from China, Vietnam, Thailand, Philippine is in the position where the virus declined. China market is practically healthy now from the virus. And all the other country is in a negative reduction, substantial reduction of the virus. India too, there was a dramatic situation beginning to find the positive evolution of the virus. In my opinion, India in '21 will be very, very positive. Now the trend in India is not so negative as in the past. It's not yet a positive situation naturally but the market is that the two-wheeler, for us, is growing. The three-wheeler suffered again the big reduction, but the first reaction of the market is in line with the positive trend of the virus. So said that, I want to say that I expected that anyway, through a very conservative control of the management in terms of cash in terms of expenses, we will be able to control a possible reduction on the market, especially in Europe. But we have to consider that October was done very well. We don't have any problems on the dispatch of the products. Now I am expecting November and December, and this is a big question because I don't know how will be the viral situation. But to say that, I want to say that from Piaggio I expect that all what we have done in terms of new products or regarding the new project, that we was budgeting for '20 was already totally done. We expect it to start with the Piaggio with a new Porter as we have already say in January or beginning of February. We have launched the Aprilia 600 (sic) [ Aprilia RS 660 ] just 20 days ago and the market responded very well. We received a very important prebooking already. And we are in position to deliver products started for this week. We have also in -- for the next year, we can say that we have a huge quantity of new products in the tunnel. And we will do that for '21, I believe, on time, because I don't -- I don't want to believe that in '21, we will have the same situation that '20. Okay. Say that, I give the present -- I ask to Mrs. Simonotto to make their own presentation.

Okay. Thank you, Mr. Colaninno. Good afternoon, everybody. As usual, I start the call with Page 3 of the presentation you have found on our site on key financial metrics. To understand better what happens in this month, we have top of the analysis. On third quarter, I love it. And as you can see, we performed in Q3 significant improvement of all key operating metrics and the highest cash generation to date. So as you can see in all the metrics, net sales, EBITDA, net profit, net debt, free cash flow. The goal we reached in this 3 months after the reopening post COVID lockdown in May have reached the best performance in Piaggio in the -- more or less against the same quarter of 2019. I should like to focus the attention of everybody on what we have done in both EBITDA and net profit, but also on the debt. We when we closed in the first quarter 2020, our net financial position were more or less about EUR 550 million. Now we have reduced the net financial position of the group for more than EUR 105 million. So we believe that this goal is very, very important for all of us. Going to Page 4 we summarize our industry key demand trends. EMEA and Americas. Overall, two-wheelers demand bounced back strongly as lockdown major measures eased. European two-wheelers already back at 2019 level at the end of September boosted by demand surging around 27% in Q3 on the back of strong acceleration across product and displacement segments. Notably in Germany and the Netherlands, demand ended up double digits at the end of September. USA confirmed the upward trend starting in Q2 ending up by 10% versus prior year at the end of September. About Asia Pacific. Asia Pacific kept on posting diverging trends. ASEAN-5 countries' demand continued its slowdown, albeit at a minor pace in Q3. Vietnam and Thailand kept being the most resilient, whereas Indonesia and the Philippines has been hit the most with demand plummeting around 30% and 40%, respectively. In stark contract, the trend of other key reference countries, notably in China, scooters ended up high single digits as in Taiwan. The positive trend accelerated in Q3, leading to 20% growth year-to-date. In India, demand dipped across segments hit by persistent and stringent lockdown measures, but encouraging signs of a inflection of the cycle materialized in Q3 both for scooters and cargo light commercial vehicles. Let's move to Page 5, to have an in-depth analysis of trends by business. Q3 APAC and Western countries' outstanding performance, outstripping demand trends, partially mitigated Indian hefty demand downtrend. Year-to-date results still hit by widespread lockdown measures. Two-wheelers EMEA and Americas. Recovery started at the end of Q2 accelerated in Q3 despite continued drawdown of European dealers' stock. All main markets on the rise in Q3 with Germany, the Netherlands and U.S. standing out, reaching double-digit growth at the end of September. Two-wheelers Asia Pacific. Despite market demand downtrend, Q3 outstanding results largely driven by our performance in China, Indonesia and South Korea. About two-wheelers India. The start of our business is still declining, albeit at a minor pace as the year progressed on the back of encouraging signals of demand rebound. CV EMEA and Americas. Healthy performance in Q3, driven by a rebound of four-wheelers against market weakness. CV India, volumes dragged down by Pax segment affected by lingering lockdown measures in urban areas, while Cargo halted the slide in Q3, suggesting that this segment is in on the verge of a recovery cycle. Let's move now to Page 6 to look at the breakdown of the performance by product. As you can notice, two-wheeler performance shifted to positive in Q3 behind rebound in Western countries in APAC, largely offsetting Indian drop. Prices held up well despite the adverse economic scenario. Q3 scooter outstanding performance across the board, apart from India, led revenues close to previous-year level at the end of September. In this context, Medley kept on gaining traction surging 2x versus previous year confirming the success of the new version launches at the end of 2019. About Vespa. Revenues are already above prior year at the end of September against India weakness. I should like to underline the result of Vespa on Chinese market with volumes and revenues 2x above prior year. Looking at the motor bike. Despite challenging comparison base, strong rebound in Q3, led by good Guzzi V7 and Aprilia RSV4, growing around 30% and 40%, respectively. Regarding commercial vehicles. European resilient performance had overshadowed by Indian [indiscernible] trend. Let's move now to Page 8 to have a look at the EBITDA bridge. Q3 top line grew more than offsetting slight dilution on margins, coupled with operating expenses, efficiency, low outstanding EBITDA uplift to EUR 67 million, with margin on sales at 17%. The best absolute results to date and the best percentage on sales performance in 11 years. Year-to-date, EBITDA still dragged down by significant top line decline in first half due to widespread lockdown measures partially offset by heightened efficiencies on operating account expenses. Tight grip on SG&A will continue in the remaining part of the year without affecting key projects. Moving to Slide 9. We can see that the net result declined as a consequence of lower operating result has been mitigated by lower financial expenses primarily driven by lower cost of debt and lower tax rate as this year we will fully benefit from the reduction of the corporate income tax in India. Now we can go to Page 10 to have an in-depth analysis of cash flow, net debt and liquidity. As said before, cash flow posted positive dynamic across the period, with a remarkable step-up of EUR 81 million in Q3, mainly stemming from a strong improvement in working capital, largely driven by inventories trending down and receivable lowering, benefiting from the boost of two-wheeler sales in western countries. Capital expenditures remained broadly in line with last year, justifying the group's unchanged focus on new projects to nurture future growth. As a result of the trend just described, net debt has [indiscernible] down to EUR 444.8 million close to year-end 2009 level. Thank you.

Okay. So now we are ready to answer the questions you may have.

[Operator Instructions] The first question is from Monica Bosio with Intesa Sanpaolo.

First of all, thanks for giving us the view on the order intake for October and November. On the back of a double-digit rise in volumes in the third quarter, may I ask you what is your view on the dealer stocks' inventories in Europe, in APAC and in the other regions. And the second question is on the margins. We have seen a very strong rebound. I think it's also due to the OpEx savings. Can you please give us some more color how much of -- can you please quantify the savings in the third quarter? And can you tell us how much of this savings could be retained for the last quarter and 2021, hopefully. And the very last question. In the first lockdown, we had plans where at full speed it was March -- February, March and April are usually quite strong months for the two-wheelers. Have you any idea of the impact in case, unfortunately, of a lockdown in November and December? Just an update on the planned operation in this period.

Okay. I started from the last -- your question. Our management, our purchasing management system that is linked to the material manager, the guy that fixes the quantity and the type of the production schedule for the months, keep in mind that normally December is a very low month. And then also it's very short month due to the Christmas holiday. As I say, October is closed already, and we can say that October went very well and the results on quantity of October is better than October last year. Now the question is November. November, normally, is a month, they are beginning to decline to go on the December trend. This year, we have the combination of Europe, India, Asia. One can say Asia, we go very well, extremely well in China for sales of Vespa. We go very well on Vietnam and the country around the Vietnam. And India, the beginning on the two-wheeler going little bit better than the trend of remaining month -- of the last month. So Europe is a question. Now in terms of stock, we have fixed what is the level of stock that we want to achieve the end of December. And there really is very low stock, very low stock. We have reduced the purchasing program of the components, and we accelerate the rate of the -- how many times turn the stock on components? And we ask today our supplier to increase this to turnover. So regarding cash, that is, for us, a priority, we don't have any problems where we -- because we are confident, we are more than confident to be able to manage the level of stock in line with the trend of the last 3 months. The level of sales, the level of sales, we have to solve November. Regarding November, we have, let's say, for 50% of November, we have already the order in our hands, especially for the critical country as France. Now remaining the other second half of November, where we don't have, again, the feeling on how it's going to market. What I can say is that the trend of sell-out is not bad. So the people -- they want to buy -- is ready to buy. The question is what is the situation of our clients and what is the general situation regarding the decision of the government. We have managed the way in terms of, number one, to cash protect. Number two, reduce all their expenses where it's possible to reduce. Number three, to keep the same productivity production that normally we have. After that, we are ready to deliver or we are ready to decelerate in case they -- we have a bad situation for the market.

I understand. And just a follow-up, please, on the cost savings in the third quarter, how much are temporary and how much could be replicable?

Simonotto, want to respond?

Yes. Yes, Mr. Colaninno. Ms. Monica, we have worked on our productivity index, and this is something that we do any year, any month, any day. So I can say now if the amounts will be the same than in the fourth quarter or will it be better. I can only confirm to you, or the people present today that this is one of our best goal. So we continue in the same way.

The next question is from Emmanuel Gallazzi with Equita.

I have a 3 questions. The first 1 is on the Indian market. I mean after it was still very weak through the quarter, what trend are you seeing now in the market? I mean I know that the visibility is still very low? And in which condition are your dealers there? The second question is a very quick one on factoring -- reverse factoring, if you can just quantify them. And the last one is the indication of net debt, which was the positive surprise of these results from my side. If you can just share with us your expectation for year-end, considering the stronger trend in the third quarter.

Sorry, Raffaele speaking. Can you read again the second question because we haven't understood.

Yes, it's about factoring and reverse factoring, if you can just give us an idea of -- yes. I mean the third quarter.

So we can start with the factoring and reverse factoring. So the factories -- sorry, the factoring without recourse, I think that is what you mean, has been a little bit higher than September last year, but in the region of EUR 150 million. So something in line with the average that we had in the prior quarters. Reverse factoring, on the contrary, went down a little bit. But you have always to compare reverse factoring to purchases. And the percentage of purchases has been exactly the same of September 2019. So no big different there. Just to give you -- yes, this is -- these are the trends. So reverse was in the region of EUR 186 million. So EUR 41 million below September [ 2018 ] will be the same percentage on purchases. Okay. This is for factoring and reverse factoring. On the Indian market, maybe, I don't know. Okay. Which is the situation now, in October, you mean?

Yes.

Okay. So the situation is clearly improving the two-wheeler market. We have seen also other players are confirming that the two-wheeler market going up and probably also our volumes will be up double-digit in two-wheelers. So there is a clear sign of an inflection point in the two-wheeler business. Unfortunately, light commercial vehicles are still suffering. And so October earnings will be still down compared to last year. Improving month after month, but October, on October, still negative. We say close to 50%. [indiscernible] answered question. Yes? I don't know if answered it very well.

Yes.

[indiscernible] October. Okay. And then...

And the last was on the net financial position target, if you can give us any idea for the year-end.

Yes, Alessandra Simonotto speaking. As of now, we don't like to give to anybody the feeling of the result of the net financial position at the end of the year. What can I say is that we are working for -- very hard in these 6 months to reach the goal that you are [indiscernible] today, and this is the same things that we will do in the next months. Because as you well know, net financial position is one of the most important information and measures and figures on which we have to work any day.

The next question is from Renato Gargiulo ázaro with Fidentiis.

My first question is still on the last part of the year. I'm referring to the second wave of the COVID-19. Yes, clearly, the visibility right now is -- I can understand, it's not very high. But referring to, in particular, to some markets like France and Germany, where they have already announced new lockdowns, are you already seeing and experiencing any, I don't know, any disruption in terms of local dealers or anything else on that side? Second question is still on India. There were some rumors some weeks ago about the introduction of potential scrappage policy from the local government. Do you have any news on that side? And the third question is on Vespa. You have talked about an improving sales trend 9 months. Do you have any more details about the third quarter trend in terms of volumes or sales?

Yes, Raffaele speaking. Germany and France. So we have some data about the market from the month of October. And actually, the German market is going up more than 60%, 6-0 in the overseas [CCC] market. These are data up to the end of last week, so 3 weeks. And the French market is up around -- was up around, I would say, high single digits. Keep in mind that in both markets, you will have at the end of the month, 1 less working day compared to last year. Okay. So this is for the month of October is the data that we have. Then for COVID, it is very easy to answer you about the COVID situation and scrappage incentive in India. No news at all. Okay?

Okay.

In terms of Vespa, we have been growing Vespa in Q3 significantly in western countries and in Asia-Pac. So essentially, revenues were already above prior year at group level and revenues were strongly up in Asia and Europe with an average selling price that was higher than last year. So this gives you an idea of the strength of the brand. The only area in which clearly we went down was India, but that was linked to the market dynamic, I would say. So this is the split we can give you. Also on the slide, we highlighted the fact that China was performing very well and Mr. Colaninno explained several times how we are performing in China. So this is the trend that I can give you. If you -- there is 1 particular version of the Vespa GTS that's performed extremely well, namely in Germany. So the Vespa GTS outperformed overall at the group level, other version, at group level, I mean. I think this is what we can give you in terms of details.

Okay. If I may, just a very quick follow-up. Yes, you are not giving a guidance in terms of net debt. In terms of CapEx for the full year, do you confirm your previous indications? Or are there any changes?

Yes. I can confirm that the CapEx will be in line with the 2019 full year. So there will be no raise in our CapEx.

The next question is from François Robillard with Intermonte.

It's on your four-wheeler commercial vehicle in Europe. So I saw that you are planning to start production by year-end. Can you just remind us what are your expectations in terms of volume and top line in the next few years, if you have any visibility given the current concept? Second one is on dividend. So you announced the advance on the 2020 ordinary dividend. Should the last quarter go well as the third one went? Can we expect -- is it realistic to expect some additional upside on the [indiscernible] part of this ordinary dividend next year?

About the CV in Europe, as we already announced in July, we have stopped the production here in Pontedera now because we will start again with the new Porter 6 at the beginning of January. So in these 2 months, all the factories will be renewed and prepared for the new production that will begin at the beginning of January. I don't have this -- may you repeat what your question about dividend, excuse me?

No. It's just, should the fourth quarter go beyond expectations, a bit like the third one went, is it realistic to expect an ordinary dividend much or just [part] superior to the preliminary one announced today?

François, clearly, this is something that we can't answer to that. So we need to wait the full year results. And then there will be the Board next year to decide the potential, the dividend payment or the amount of the dividend that will be paid. So for sure, we can't give you a guidance on the second part of the interim dividend for next year.

The next question is from Gabriele Gambarova with Banca Akros.

A couple of questions from my side. The first one is on Far East. Your volumes grew 23% in Q3, so the performance was extremely positive. I was wondering what do you see for the remainder of the year, 2020, so in Q4. And then a question again on the new quarter. Can you tell me what is your production capacity for this new model and possibly if you have any expectation on 2021 sales?

Our capacity is up to 20,000 -- 20,000 previous full year. Regarding the -- what you asked about the Far East, I can confirm again our Far East position due to the decision -- that strategic decision that we take about position in Piaggio in the Far East. Just to remember you that we have company in Vietnam, as you know, that is going very well, where we have in mind to increase some capacity in Nanjing. We are on the way to build a new organization in China, especially regarding the sales organization to following and to satisfy the demands of Vespa that is very improving. And then, as you know, in China, we have established this industrial relation with Foton. We expected to develop in connection with Foton, all the electrical parts, consequent to the demands of the market. And then in China, again, we have a partnership where we have 40% with our partner that is a function and the plant is located in Foshan, where we want to produce some products for the Chinese market and the South America market. It's going -- now we are under way to fix the budget, and they want to settle this. They gave a very -- promotion and very clear, positive results. So China, we expected that China for us growing in terms of organization and the results for the near future. So we can say that the Piaggio position in Asia is very good, very well, and is ready to take the opportunity to follow the growing demands that we expected it to be very good in the next year.

Yes. Can I ask you if you -- there will be a certain point in time when you will consider to localize the Vespa production in China to, let's say, to avoid custom duties? I know the price is very high, the selling price, but much of it is cost of duty. So would it be reasonable to, to set a small, I don't know, an assembly line there?

[indiscernible] because we export from Vietnam. And then we have a very good position for customs and we are not open to make any joint venture for Vespa, and we want to keep the 100% control of Vespa because, as you know, Vespa has an incredible value on the name of that. And it is one of the -- in the line of one of the first strategic product from the group.

The next question is a follow-up from Monica Bosio with Intesa Sanpaolo.

No. Thank you. I was asking for the CapEx, but you have already answered.

[Operator Instructions] The next question is from the Sébastien Lemonnier from INOCAP.

Congratulations on your result. Just a question on the opportunity that the crisis is leading in terms of new market because I have in mind that several times since the beginning of the situation, you mentioned that Germany, you mentioned the series segments of like a scooter Vespa in China. And I guess there are some other markets that, historically, was not so big in terms of two-wheeler and especially scooters that are emerging. Can you update that -- who -- what are those countries? Basically because we have all in mind the classical country like Italy, like France, but maybe less some other ones. So can you remind what -- who they are, how much does it contribute today to the sales contribution of the good weather? And then we're all going to make our number to try to see how big those markets could become in the near future if there is some structural improvement. Because it looks like that's something of interest on my side.

Sébastien, Raffaele Lupotto speaking. Can you ask you -- can you ask that again the question because we have some problem with an echo here.

Sure. Okay. Okay. The question is -- yes. The question is the COVID has leading -- like the COVID leads you to new opportunities, especially in new countries like Germany, like some others, like the luxury segment in China, for example, with Vespa, because we all have in mind that France, Italy are like core historical country for scooter, basically in two-wheelers, but maybe Germany is much less structurally. So I'm just trying to assess how much this crisis is maybe leaving an opportunity for you to penetrate new markets, new geographies that historically was not much interested about that kind of product. And if you can say, what are those countries today? What could be the new one tomorrow and how much of sales they represent today? And then we all do our math and different type [indiscernible] to get to the annual growth, but just to get more color on this topic.

Okay. Alessandra Simonotto speaking. As of now, we can't say that COVID is something that opened for Piaggio, some new markets. We are able to say that COVID is something that has given the opportunity to people to go back to scooter and two-wheelers as a vehicle that they can use not only for leisure, not only for some short period during the year, but more or less for -- give them the freedom to go everywhere without public transportation and so far. So in this moment, we don't see some new markets, but we see that the markets we have are growing month per month. I don't know if this answered to your question.

The last question is a follow-up from Renato Gargiulo with Fidentiis.

Yes, a very quick one. You were talking before about a good pipeline of new products for next year. Can we assume -- what can we assume in terms of price mix? This should have also a positive impact going forward on the evolution of mix?

Raffaele speaking. Yes, we -- okay, there are several launches, as Mr. Colaninno said, and also in the motorbike or [ many ] motor by sector. So you can expect maybe a positive mix effect, but we have to wait. I don't know if Mr. Colaninno wants to add something more.

I cannot anything add.

Okay.

There is no question registered at the moment.

Okay. Okay. So if there are no more questions, I think that we can conclude now the conference call. Thank you, everyone, for participating on the all. And call me any time for any follow-up questions. Thank you. Have a great evening and great weekend. Bye.

Bye.