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

Good morning, ladies and gentlemen, and welcome to the investor call on the Piaggio first quarter of 2021 financial results. [Operator Instructions] Mr. Raffaele Lupotto, Executive Vice President, Head of Investor Relations, is going to chair the meeting. Please go ahead.

Hello. Thank you very much for taking your time to follow this conference call. For this conference call, we'll be joined by Mr. Roberto Colaninno, Piaggio Group Chairman and Chief Executive Officer; Michele Colaninno, Piaggio Group Chief of Strategy and Products; Alessandra Simonotto, Piaggio Group Chief Financial Officer; and myself. All relevant materials are available on the Investor section of Piaggio Group website. And at the end of the presentation, we will be available to answer the questions you may have. Before starting the presentation, as usual, 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 risk, uncertainties and other factors that can cause actual results to be materially different. Also, I remind you that the press has been invited to participate in this conference call on a listen-only mode. And now I would like to turn the conference call over to Mr. Roberto Colaninno.

Good afternoon. As you know, the results of the first quarter is very good. That is very good due to the market where Piaggio is playing its game that is divided, as you know, in 4 big areas. One is EMEA. The second one is India. The third one is Asia plus China, plus China. And the last one is United States and Canada. If we consider all these markets together, the results give to us a positive expectation for the future -- for the rest of the year. Naturally, we have some areas where we have some difficult situation as India. And the second area where we are difficult is the price of the raw material. That is very, very difficult to predict what is the trend on the future time, especially for iron, aluminum and what we consider the important raw material for the application on the pollution -- antipollution technology as [ Rodeo ], as...

[ Platinum ].

[ Platinum ].

[ Platinum ].

And [ Palladin ].

And [ Palladin ]. So divided, these 2 -- these 3 constant market, India and the raw material, Piaggio played its game on the way that we maximize the product strategy and the sales organization strategy in Europe, in Asia Pacific and China, and the Canada and the United States. I want to underline what we have done regarding China market in terms of organization. We just started beginning on the month of May with a new organization in China. This new organization in China is organized in the way that we have 3 business units. One is market sales on Chinese market. And the results of the first 3 months with the Vespa and then some Aprilia is very, very good. In some way, it's unexpected result. The sales was up by 70% in the first quarter related to last year and the year before. And what is more important is the margin is quite good. The second business unit is the relation with Foton Group, where we're working today to develop the electric engine for the 4-wheeler Porter that we are in production now in Italy. The third one is the market of components, especially electronics components and the other components where the Chinese market is the market that we consider more competitive at the world time -- at the world comparison. These 3 business units today are in one company that is located in Beijing and in Canton, and they control all these 3 sectors, including the joint venture that we have in Foshan near Canton with the company Zongshen. The #2 is the Asia Pacific located in Vietnam. And now as I mentioned to you on the last meeting, we have developed our new company in Indonesia, where we are already beginning to build a new factory. The results on Asia Pacific on the first quarter is very, very good, especially for sales in Vietnam, Thailand, Indonesia, Philippines and Korea. This is the development production plans and the sales give us the possibility to double the productions, and we are very close to reach this goal. Where we have a problem is India. As you know, India is a problem of pandemic reason. We work at a possible -- at the high possibility of what we do. And then we base our strategy on the export from India to the African country and another country around India, plus other production that is for Vietnamese market. Today, our plant in India working 100%. We have invested some money to protect the people that are working with us in order we have provided for the [ medicine ] to everybody and the area where it's located our factory today, fortunately, is not involved in any lockdown. And United States and Canada had the very good results on the bike sector. And the project -- and the budgets for the rest of the year, in this way, is exactly what we have budgeted in our plan. So the results that we have achieved in the first quarter, we work and we believe to be in the same range for the rest of the year because we see that good market for Europe, a good market for Asia Pacific, extraordinary market for China and very good also for United States. We play at a global -- at the global vision, we can play and manage also the value of the currency and the value of the raw material and the parts and components that we can play around the world in the different markets. And today, we don't see any problem for us to have the enough quantity of components to satisfy the next production plan. For India, India, we never forget that India is a market of 1.5 billion people that assume that we're able to change or to improve their situation -- the virus situation. This market will be growing in a very high number. So at this stage, we consider positive the next future. We are in line with our plan of CapEx. We are in line with our number of new vehicles that we projected for this year. We are in line with the new investments on the new line of Porter 4-wheeler, and we are in line also on electric developed engine. On this last question, the electrical, we expected to be ready to launch new electrical products for the May or June. These will be products completely full electrical parts, 50cc and a very competitive price. So we can say that we have to work hard. We have problems to manage, but we have also a lot of possibility and the loss of -- and a lot of challenge and goal to achieve for the rest of the year.

Okay. Now I think Alessandra will comment on the financial results.

Okay. Thank you, Raffaele. Thank you, Mr. Colaninno. After the overview that Mr. Colaninno has offered to all of us, I would continue the call with Page 13, in which we have underlined the highlights of the first quarter of 2021. As you can see, and also, as you have already read on the basis of our press release, this quarter is the best one or the highest one in our history for all the most important metrics we have, so compared with the 2020, but not only. As you can see, the net sales have reached at the end of March 2021 the amount of EUR 385 million at 23.5% higher than 2020 but also EUR 40 million higher than 2019. And this is the highest value since 2007. About EBITDA, we can say that this value of around 5 -- EUR 56 million could be -- it's the highest of the quarter and the largest in our history, both in absolute terms but also in percentage as we reached the ratio of 14.6 percentage on net sales. About net income, again, one of the best results in our history, EUR 11.1 million, 3x and 50% -- 3.5x against last year and 2.9% on net sales. Last but not least, the net debt reached at the end of March EUR 448 million -- EUR 449 million, EUR 100 million less than March 2020 and EUR 45 million -- EUR 48 million less than 2019. If you go ahead on Page 14. Here, you can find a comment about our industry key demands trend. About EMEA and Americas, even though all major countries were still grappling with lockdown, we can observe a robust demand ahead of the seasonal peak. Piaggio market share is on the rise, both in motorbikes and scooters, just like Mr. Colaninno said before. Asia Pacific posted mixed demand trends. ASEAN side declining, mostly reflecting Indonesia double-digit dip although the sequential improvement across the quarter bodes well for the rest of the year. China and Taiwan, on the rise. We saw the former surging by 70%. About India, India shows multiple speed dynamics. 2-wheelers already back at the pre-pandemic level while about 3-wheelers, we can say that the dynamic is reflecting rural and urban demand disparity with cargo back to growth versus 2020 while passengers ended down, reflecting subdued activity in major cities. Let's move to Page 15 to have an in-depth analysis of volumes and net sales trends by business. Outstanding performance of 2-wheelers magnified at revenue level by a significant positive mix/price effect. This is to be the title also of this slide. About the 2-wheelers, EMEA and Americas, the outstanding volume performance heightened at revenue level by steep average price increase, also reflecting product portfolio enhancement. About 2-wheelers, Asia, we can say that staggering performance in an overall subdued market environment boosted by Piaggio's premium positioning and distribution network extension. On 2-wheelers, India, surging results, outstripping market trend, behind strong growth of the Aprilia and Vespa brands. About CV, EMEA and the Americas, results already above the pandemic level, boosted by the successful launch of the new Porter NP6. On CV India, CV India is still suffering from the protracted weakness of the Pax segment, as already said, which overshadowed the improving trend in cargo and exports. Going to Page 16, you can find the breakdown of the performance by product as usual. Looking at scooters, we reached outstanding results behind strong performance across all geographic areas and widespread positive price effect. Vespa volumes and revenues surging, benefiting from widespread geographical growth coupled with sound pricing. Beverly posted double-digits volume and revenue growth, also benefiting from the successful launch of the new version in the latter part of Q1. Regarding motorbikes, eye-popping performance propelled by the success of the remarkable array of product launches, the ongoing mix shift towards high-value segment coupled with market share gains of both Aprilia and Moto Guzzi. As you can notice, commercial vehicles' volumes and revenues dragged down by Indian passenger segment's protracted weakness. Going to Page 17, you can have a look at the EBITDA bridges, in which the motor part of the sector is made by the net sales growing more or less EUR 22.6 million and an effect also on gross margin. We can see that gross margin benefited from the uplift of the ratio, as already said, of the ratio in net sales, proving the group ability to cope with raw material price escalation as well as global shipping and supply chain challenges. About cash OpEx, with a lower weight on net sales versus last year, they grew up to support the business growth. On Page 18, you can have the complete P&L of the company -- of the group for the first quarter. As we already said, net results surged 3.5x versus Q1 2020, with a ratio on net sales topping 2.9%. About tax rate, we consider in this first quarter a prudently tax rate at 40%, in line with Q1 2020. About D&A, there rising up, reflecting recent years' heightened capital expenditures. Going to Page 19. Here, you can find an analysis of our net financial position and the evolution of the net financial position, both on the next -- on the last 3 months and also on a running period of March 2020 to March 2021. So we can say that the net financial position at the end of March see the lowest seasonal cash flow absorption to date despite step in capital expenditure, drove net debt, as we already said, to EUR 448.6 million, well below the EUR 548.6 million at March 2020 -- at 2019 level. Significant free cash flow improvement versus Q1 2020 of more or less EUR 90 million, driven by higher operating cash flow and a discipline on working capital, as we already said, during the different comments in the last conference call. About CapEx, we can say that Q1 CapEx grow up by EUR 7 million, from EUR 28.5 million to EUR 35.6 million, consistent with the full-year target, driven by heightened focus on new product development to fuel the growth of the group. We can stop here. Only, we will wait for all of you in Mandello in September for the 100 [ Benefit ] of Moto Guzzi.

Good. Thank you. And now we are ready to answer the questions you may have. Thank you.

[Operator Instructions] The first question comes from Gallazzi, Emanuele of Equita.

I have 2 questions. The first one is on the cost inflation. Can you just give us more details on what you are experiencing now on the raw materials and what could be the impact on your margins for the full year? And then the second one is on the Western countries. If you can comment on the stronger price/mix in the first quarter and share with us your expectation for the full year.

Okay. As I have said before, we have registered that price increase on raw material as steel, iron, aluminum and all the material that we use for catalytic engine and the other one for the catalytic emission system. Until today, what we have -- our agreement with our major supplier is not registered at the same value of the market. We are below the price that we run today, and we expect that based on our possibility to buy and diversify our purchasing strategy through China. Through Europe, United States and some other place, we are able to keep in balance what is the budget cost of raw material and components for the full year because even the currency as a rupiah and dong and the Chinese, it is in line with the inflation and, in some way, is able to compensate the price increase. We don't expect other price increase for the second 6 months. In terms of purchasing of electronic components, electrical components and the other one, we have diversified our supplier for different country. And until today, based on our stock strategy and based on what we see our sales budget production for the second quarter, we can say that we don't have any problem on the production quantity for the full quarter -- second quarter of the year. We work today was -- we projected our production requirement for September, October, November, where normally, it is still high market for Europe and still a higher market for South Asia and a high market for China. This way, we want to say that last quarter, that we are again in -- to cover our production strategy is open to the market, but we don't see big problem for us to cover our requirements for the full year time. In terms of inflation, well, the inflation is not very high in all the country. And the price is stable, and the price of our products is in line with the price of competitor. And what is benefits for Piaggio is that today, Piaggio has a production entity located in Italy, as you know, but in India, in Vietnam, by the end of the year, in Asia Pacific -- in India, Indonesia and in China. So our business diversification, production diversification on different markets protect us on terms of inflation of the raw material and inflation of components. We projected anywhere to control every 2 weeks order trend of the price on the market. And until now, we see that our sales strategy and price strategy is in line with what we have budgeted. Going back to specifically to talk about India. India, as you know, is a critical time, but the location of our plant until today is not involved in any lockdown. We expected anyway to look the future development of the virus, and we have planned to help all the people working in our plant to be safe in terms of [ basing ] and in terms of what we can do to protect all the people. Until today, we can say that India anyway, have a better result than last year, corresponding time, and we really see now based on the projection on the Indian authority that we have achieved the peak of the pandemic situation on this last week. And then we expected some, as we can say, not worse situation, but some results can give to us the idea that this pandemic situation have achieved the maximum on the last month. Now excluding India, what we can say that they -- the Vietnamese factory work today in 2 shifts, and we have another shift where we expect it to be in place on the first quarter and the last quarter of the year. The China factory work at an averaging of 2 shifts, and we expected to keep 2 shifts for the rest of the year. And the Chinese plant is fully occupied to delivering the electrical scooter ready for European market, for Southeast market. We expect to begin into the sales on the May or June, July. What we have a good -- achieved the good results is in the growing of bikes. Bikes is developed here in Europe, then in United States, then beginning some sales of -- through Moto Guzzi trademark also in China. So we want to say that we don't see any problems on an inflation point of view. We have to work to keep the strategy of raw material purchasing and component purchasing in line on the requirements of production plan. And we don't see the market problem for Europe, for United States and for China and for Asia. India, naturally, we -- it depends for the virus situation. But until today, we have worked to keep safe our plant.

The next question comes from Bosio, Monica of Intesa Sanpaolo.

The first one is on the European 2-wheel market. Do you have any indication in terms of market growth for April? And would you still confirm as for Piaggio a mid-single-digit growth rate by the end of the year in terms of selling in Western Europe? On Western Europe, just some more color. Are you seeing a different trend between scooters above 50cc and scooters below 50cc?

So Monica, the first question was regarding the market trend in Italy, in Europe?

Yes, correct.

Yes. We have just estimates for the 2 weeks, for 3 weeks. And clearly, the market is positive clearly compared to 2020. But also compared to 2019 -- can you hear me?

Yes, yes. I can hear you.

Also compared to 2019. Markedly, notably, the Netherlands are performing extremely well. And Italy seems to be very strong in some market. And if I look at the last data that I received, the market should go up around close to 10% compared to 2019. So I'm very strongly...

In Italy?

In Italy. For other markets, I have just estimates for the first 3 weeks. And overall, the market is likely positive. These 2 markets outperformed in the Netherlands and Italy. France is doing very well, too. This is the first question. The third question is leaning to market. No, the trend between 50cc and over 50cc in terms of market trend, sell-out has been pretty much the same in the first 3 months. So the growth of 50cc scooter was in the region of 20%. Similar trend in over 50cc, 21%. This is the market. If you mean what we did, as probably said before, we performed very well in over 50cc and we outgrew the market with 50cc. And we gain more or less of -- it is actually 2 percentage point on market share in over 50cc. So maybe this is also linked to the one question of Emanuele Gallazzi before. One of the reason the average price are going up is it leads to the very strong mix effect also because we improved and increased a lot in higher displacement against low-displacement vehicles. I hope I gave you a comprehensive answer. Then there was something else. I don't remember the question, sorry.

If you confirm a mid-single-digit growth in selling trend of Piaggio by the end of the year. I remember that there was a similar indication in occasion of the full year conference call, but maybe I'm wrong.

Normally, we don't give guidance at this stage. So if you could -- it could be sensible, but we don't give this kind of indication now.

Okay. Just a follow-up on India. I understand that the situation is difficult, but in the 2-wheel segment, Piaggio is performing very well and the market is up year-on-year. I remember that there was a statement from the CEO of India. He was pointing to roughly 100,000 vehicles, 2-wheels in India by year-end. Are you still comfortable with these projections?

If the situation will improve by June in terms of the spread of the virus, yes, because in Q1, our performance has been very strong, as you know. So this is our answer.

The last question comes from François Robillard of Intermonte.

Another question on India, more on the visibility you may have on the commercial vehicles market. It's the one that's been suffering the most since the start of the year. Is April starting to show something else? Or what are your expectations mainly for this market by year-end?

If you're referring to the Porter production, I can confirm that we are on production on today as we have projected. And the results of the first action -- sorry, of the market regarding the quality, regarding the power of this new vehicle, is very good. And until today, for the first delivery on the sell-out of these kind of products, the European reaction is very good. And we do believe that at this point, we can confirm our budget for the year.

Sorry, no, I meant about your view about the Indian market going forward. But then yes, if you can as well, while you're on it, just give us some more color on your expectations for the new Porter in Europe. I see you reached over 4,000 pieces. Can we expect the same rhythm for the coming quarters for commercial vehicles in Europe as well?

Sorry, I am referring to European market. I am referring to the production of the new Porter that we -- where the production is beginning by the end of January this year. As you know, these are new products that we began -- we have launched on the market on February and March, and we have the first reaction of the market on these new products, and this reaction is quite good. So I am referring to the European production of the new Porter. Regarding the commercial vehicle in India, the 3-wheeler, I will confirm that our market -- our segment market for the rural area is in line with the budget. Instead, the sales of the city products is down in relation to the virus situation.

Appreciate it. And just one last question in your slide for the part on cash flow. Can you give us some more color on what is inside the EUR 7 million of change in equity and others? I'm referring to Slide 19, the chart on the right.

It's the exchange reserve so the change of old needs for the final balance sheet of the -- our company in U.S. dollars or in the other currency than euro. Then normally then, we can create a difference that are booked as in the specific reserve that you can find in the financial statement when we will publish the book in the next week.

The last question comes from Gambarova, Gabriele of Banca Akros.

I was wondering if you can cast, let's say, an expectation on your volumes for Far East Asia. They were up 47%, incredibly well in Q1. So I was wondering if you can give us a number on your expectations in that area for 2021.

As we said before, we don't give this guidance at this stage. So we can provide you with a number or forecast for Asia Pacific at the end of the year.

Okay. So if I can make another question about mix and price. It was very, very strong in Q1, around 7% or something similar. Do you expect it to -- I mean, is there any, let's say, comparison or seasonal effect? Or we could -- we should consider a similar impact for the rest of the year on your top line and margins?

As we said, it's mainly a mix effect. So you can imagine that this will put a mix effect will last for the remaining part of the year. So this is the key element. Probably, you've seen the first -- the first slide of the presentation. We showed some numbers concerning Aprilia, Moto Guzzi that achieved outstanding results. Also given the fact that we launched several new products, we are performing very well. So this is having a positive economics. And as I said before, overall, if you look at over 50cc compared to 50cc, so on this payment cycle, per vehicle, we performed better in over 50cc. So overall, it's a strong mix effect. I don't know if I answer to your question. There is no one-off. It is a trend leading to the new product launches and the success with new product launches that we are having and experiencing.

The next question comes from Baldelli, Michele of Exane BNP Paribas.

It relates mainly to the sell-in and sell-out trends. Just to give some color on it. If I look to the numbers on the market and the market in 2021 was plus 1% compared to 2019 Q1, but the volumes, at least that I've seen on developed countries on 2 wheels, are kind of, let's say, plus 7%, 8% compared to '19. Does it mean that you are now in a phase where you give more sell-in than sell-out in the EMEA region? And this is the first question. The second one, still on the sell-in and sell-out. If you can also give us some figures in the Asian part, if you are, let's say, doing more sell-in than sell-out in particular in China and Indonesia.

Michele, it honestly is quite the opposite compared to your statement. In Europe, we are reducing the dealer stocks and our sell-out strongly outgrew sell-in. In fact, we end up in Europe with the lowest Q1 dealer stock ever, and that was pretty much aligned with at the end of last year. So destocking sell-out outgrowing sell-in. And that's the reason why also we gained market share. Similar thinking in Asia, we are not -- there is no stock effect at all. It is market-driven and sell-out driven, our performance.

Okay. Another quick question is about the post orders, if there is any, let's say, volumes already in Q1. And if we will see it, when in Q2 will it be mostly?

Yes, there was a small effect in Q1. Clearly, we won't depend 1 year ago. We had to sell 5,000 vehicles for more than EUR 30 million. And out of 5,000, in our Q1 results, we have around 1,700 vehicles. So this is the effect of the contract we signed in post office.

There is no questions at the moment. This concludes our question-and-answer session. The conference call has now -- sorry. Sorry. The next question comes from Lemonnier, Sébastien of INOCAP.

Can you update a bit more on the Chinese market? I understand that's a good opportunity for Vespa. Can you describe who is the customer? Is it mostly new client, a new adopter to the scooter basically or is it like a higher-end penetration outpacing the middle segment? This is first question. Still on China, can you hear about the dealer network? And is it growing network? Do you have any data about this? Just to try to give us more color. And then more context question will be how big you think the market in China could be for Vespa in the next 3 to 5 years?

So essentially, in China, most of the sales in China now are Vespa scooter. And clearly, the strategy is a premium strategy. We are targeting a particular kind of client. And we are succeeding and we are -- we have success with these vehicles so far. You're right. If you look back at some annual report, you see that in the last few years, we increased the dealer network, and this is part of our strategy in China, if this is one part of your question. So this is a trend that in [indiscernible]

How many dealers you have today in China or how much...

Expectation of the dealer network, that's it. And the expectation are good going forward in term of market trend, our penetration on the market. I don't know if it's okay. Again...

Still, how many dealers -- I mean, how many dealers you have today in China? And what could be the number in last 2 to 3 years?

Sorry, I haven't understood your question. Can you repeat, please?

You say you're increasing the dealer network. How many dealers you have today in China? And how much you think you'll have in 2 to 3 years?

So in China now, I'll give you the number. Let's have it. So in China, we have -- we end up at 2020 with 48 point of sales, 48 Motoplex. And the goal is to increase at least 10 point of sales over this year. As I was saying before, if we go back to 3 years ago, 3 years ago, we were at 20. So there is a strong speed up in term of point of sales opening.

Okay. And the last question in relation to GITA and the partnership with Trimble. Can you provide a rough estimate how much basically -- with the budget, how much you think would add kind of royalties at each time they use one of your technologies? Because so far, there was a cash burn to the company. And I'm just wondering, if we reach a real turnaround and basically, we will move slowly to breakeven free cash flow generation there. So it would be great if you can elaborate a bit more on how much they might pay you going forward.

No, Sébastien. We don't provide that financial data so far. So we can't disclose anything so far. Sorry.

[Operator Instructions] There is no question booked at the moment. The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.