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

Thank you very much all for joining us today. And joining me today are Mr. Roberto Colaninno, Piaggio Group Chairman and Chief Executive Officer; Mike Colaninno, Chief of Strategy and Product; Alessandra Simonotto, Chief Financial Officer; and myself. You can access the slides supporting this conference call at piagiogroup.com. [Operator Instructions] 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 risks, 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 in a listen-only mode. And now I would like to turn the conference call over to Mr. Roberto Colaninno.

Hello. Good day, everybody. To be very [ sympathetic ], I think that the results of the first 6 months is quite good, particularly due to the very high performance of bikes, where we have big, big results, especially for Moto Guzzi and Aprilia. We expected that the same trend of sales of the first 6 months of bikes will be also in the second 6 months of the year. On this area, we don't registered any particular problem to -- for the components even is quite difficult the situation, but we managed very well through our different company and different purchasing point around the world. The second is that what we have beginning on the first 6 months that we have launched all the new departments on electric. We are working hard there to develop the new vehicle, electrical vehicle. The first one of this will be launched in September. And then we believe that this will be very successful products. Based on the [ RAI ], we have very good results in Asia, where the results are coming, especially for the market of Thailand, Philippines, Indonesia and Vietnam. The second one, the big surprise for us is the number of the sales that we registered in China, where Vespa is very successful sales and also very, very important results. We believe that China will be a very good market for this type of products that is top-class products and the reaction of the market is very good. The second one market where we have a very good result in the United States, where the -- again, the bikes was very welcome and Vespa reached market share, an incredible market share of the market. EMEA too is quite good. The performance of sales in EMEA that we registered that is confirmed by the sales of July. And also the order that we received for August and September is very positive, and this can predict a very good second 6 months. India. India is a terrible year where part is locked down on the last 4 months, and the sales of this is slightly reduced, incomparable to the last year. Now for the first time, the India registered a better situation. I don't know if this is confirmed. We will see and we need to await the next 2 or 3 months to see how can be considered positively this situation registered in July. And if this is confirmed, India become a very good market because the people need to buy products. So generally speaking, the problem that we have this year, as you know, is the transport cost and the electronics components. Until now, no, we are not obliged to stop production due to the small difficulty to find components on the market. But anyway, we consider that the price of raw material, just in the first 6 months beginning to decline by the end of this year and confirm on the next year. So we can say that the budget of '22 will be very positive budget. And the second 6 months with again, 6 months aware we need to work hard to be able to produce all the products required by the market on -- for different areas, as I said before. So very positive Asia; very positive, extremely positive. China; positive United States; very positive EMEA; very weak India. But with the trend, if this trend of virus registered in July will be confirmed, the situation should be better for the second 6 months of the year. We registered a very good trend, a very good sales for spare parts, where -- and accessory where the results of the first 6 months and the market and what we believe to achieve in the second 6 months is quite good and very active. And the margin of spare parts is very good, it's very high, too. CapEx, we continue in the CapEx as we budgeted for '20. And we believe it to be in line with the program that we have launched at the beginning of the year, and be completed by the end of the year on time with the time scheduled. The new products will be launched in September in August in commercial and motorbikes and launching the market. The new electric scooter coming that is launched will be in September, and we expect the reaction -- the pre-reaction of the market is very good. So we expected a very good results for this sales trend of these products. Regarding electrical, we proceed with -- developed a new electric porter and ambulance. We proceed on the design and the projects of the new electric two-wheeler where we have worked all next year to be ready for the launch of new products on '23. The program of Piaggio is very clear for the next 2 years, '22 and '23. Again, the margin for '22 that we have already beginning to work has presented very, very, very positive. And the '23 -- '22, '23 will be totally developed, totally dedicated at electrical developed products. I am positive for type of things. The situation is now is not easy, but it's possible to achieve the results that we have fixed in the market.

Okay. Now over the call to Alessandra that can comment on the slides that we have published on our website. Okay, Alessandra.

Thank you, Raffaele. Good afternoon, everybody. I -- as usual, I want to start from Page 3 of the presentation that you have received, and you have some on our website, commenting what happened in the 6 months of 2021. And to give you a better information on the trends of this period against 2020, we published also what happens in 2019. As you can see on Page 3, we performed outstanding result with all the most important key metrics in our view reaching a peak level and achieving the best results since 2007 on net sales, EBITDA, EPS and I believe also in about net debt. About net sales, we can say that the net sales in the first half of 2021 increased by 50.3% from EUR 600 million of 2020 to EUR 902 million in 2021. EBITDA, as already said, increased by 74% from EUR 83 million over first half of 2020 to EUR 145 million in first half 2021. While against 2019, we can say that net sales increased by 10.4% from ['18], EUR 817 million in 2019 to EUR 902 million in 2021. And EBITDA increased by 7.6% from EUR 134 million to EUR 145 million in 2021. About the EPS, as you can see, we passed from 10% -- EUR 0.10 per share in 2019 to EUR 0.12 in 2021. About net debt, the net financial position of the group at the end of June 2021 is EUR 402 million. If you remember well, when we commented last year, the first half results, we have not the same good results. We were more or less at EUR 529 million after the COVID first lockdown that got -- is the worst result in our month of April, March and May. Against the result of June 2019, we passed from EUR 418 million to the result of 2020. Go to the Slide 4 and 5. Here, we have commented the wonderful result, let me say, of all our 2-wheelers brand in the first half of this year. Vespa, Piaggio, Aprilia, Moto Guzzi, all our brands reached their best results in terms of revenue. The most important one, as Mr. Colaninno already says, are about motor bikes. We have both Aprilia and Moto Guzzi reach revenues higher than 100%, Aprilia and more or less 70% Moto Guzzi versus the previous year. As you can see at Page 5, Moto Guzzi and Aprilia, so our motorbike brands reached the highest volumes and revenue to date. We can say that more or less, Moto Guzzi reached more than 9,000 vehicles sold in this period while Aprilia reached more than 16,000 vehicles sold in the period. Another point that Mr. Colaninno has already underlined is the wonderful result of the Aprilia. So in Page 6, you can find focus on the different areas of the APAC market in which we have signed a new record right benefiting of the heightened country diversification on which we have worked in this year. So -- As you can see, Vietnam, Indonesia, Australia and New Zealand reached their best results in this period, but the most important one in our strategy is China, as Mr. Colaninno already said. And we can say that in China, we passed from 3,000 vehicles sold in 2019 to more than 9,000 in 2021. Now going to Page 7. Here, you can find the comment about the key market demand trend. About the -- as you can see, more or less, all the markets in the first 6 months of 2021 grow about of the 24%, 25%, 27%. So we can say that EMEA and the Americas have a strong acceleration across this period, growing the demand well above the pre-pandemic level, while Asia Pacific -- in Asia Pacific overall demand strengthened as the semester progresses. In the Asian area, the demand gaining strength versus 2020, mainly benefiting from Q2 positive uptick in Vietnam, Thailand and Indonesia. But as I already said, the Chinese market results are very important in this growth and in our strategy for the future. About India, India demand revival was marred by COVID-19 in second wave, also June data raised hope for the remaining part of the year. In India, we can say that there are 2 different trends when we are looking for the scooter market. The market is growing more than 36%, while the commercial vehicles market declined in this period, decreased for more than 20%. As you can see, the passenger light commercial vehicles remains the worst reflecting the sluggishness in the urban activity caused by the second pandemic period that affects India until the end of June. We can move now to Page 8. where we -- for you we have prepared in this analysis of volume by business. As you can see in the left part of the slide, the volumes from '22, '21, grow more than 36.5% generally speaking. And here, you can see the different growth for any geographic area business. So when we have -- if we take a look to the EMEA and Americas, the growth is more than 32.6%. So from 105,000 vehicles to 139,400 In Asia Pacific, the growth passed from 42,700 vehicles to 70,900 vehicles with a growth of more than 60.0%. The volume for India, as already said, this -- we have also for Piaggio growth from passing from 15,100 vehicles to 32,600 vehicles with a growth of more than 100%. EMEA and the Americas. Outstanding result in our evolution in our view, thanks to the introduction and the successful launch of new NP6 vehicles. So we went from 5,000 vehicles in 2020 to more than 9,000 vehicles in the first half of 2021. About the CV India, as already said before, commenting the market. This is the only segment in which we had a decrease in this first part of the year. The volume decreased from 41,900 units in 2020 to 44,800 (sic) [ 34,800 ] units in 2021. About the net sales evolution on the right side of the slide, here, you can see the segment information about revenues. The revenues grew more than 50% in 2021 against 2020. All the segments seeing a growth. As you can see, two-wheelers EMEA and Americas, the growth is more than 6.1% (sic) [ 61% ] from EUR 350 million to EUR 564.9 million. Two-wheelers Asia Pacific passed from EUR 101.5 million to EUR 166.5 million with a growth of more or less 64%. Two-wheeler India EUR 15.2 million to EUR 29.6 million. CV EMEA and Americas, EUR 40.5 million to EUR 63.7 million, growth of more or less 57%. CV India, EUR 91 million to EUR 77 million. Going to Page 9. Yes, you can find the evolution by products, so -- which is the contribution of any segment about scooters, motors and commercial vehicles to our revenues and volumes of the first half. As you can see on the slide, the scooters get the outstanding results, driven by the upsurge in all geographic areas and positive price effect so the volumes rose from 145,600 units to 217,300 units about scooters with a growth more or less 40.9% (sic) [ 49.2% ]. The bikes, as already said before, get the best results from 2007. We've grown from 17,400 units to 25,500 units, more or less 46%. And as already said, Aprilia in total guessing about 16,000 units, but I want to underline this, the new product launched at the end of 2020, Aprilia Tuono 660, to more than 9,000 units sold from the launch. So more or less in less than 9 months. About the commercial vehicles, as you can see here, the volumes slow down from 47,300 units to 44,200 units, a loss of 6.5%. But thanks to the performance of the new [ NP6 Porter ] and the price effect [ specific to ] the new sales of this new product, the revenues goes from EUR 115 million to EUR 119 million. About the other segment, as you can see in the right side of the slide, scooters, EUR 325.6 million to EUR 517.1 million, grow more than -- more or less 60%. EUR 87 million motor bikes to EUR 173.6 (sic) [ 173.4 million ]. Again, the strong effect of Moto Guzzi and Aprilia helped us to reach this very good results. Going to Page 10. Here, you can find and have a look at the EBITDA average. If you remember, well, in the first half of 2020, our EBITDA was more or less equal to EUR 83 million. The high effect of the next phase of the period was on the EBITDA with an effect of EUR 94.4 million, we have a little worse effect of the -- on the gross margin, as Mr. Colaninno already said, it was due from 2 aspects. The first one is an Indian dilutive effect as for a part of the period, the India factory was closed and on the other side, a little more cost about the logistics. As you well know, the [ Swiss panel ] was closed in April for a period. And also Piaggio has a lot of other companies have an effect on the cost from this. Cash OpEx. OpEx in the slide, more or less, we see a negative effect, but is only an optical effect as we defined because in these 6 months, the company, the group works at -- as a normal period, while in 2020, we were stopped at all our activities more or less everywhere from the first half of March to the first half of May, so 2 months in the most important part of the season. So with this -- with all this effect, the EBITDA evolution is that the EBITDA at the end of June is equal to EUR 145.6 (sic) [ 144.6 million ] equal to the 16% of revenues. Page 11, you have a total look of our P&L. And there is no more -- no other things to underline. We have only underlined the effect on D&A as -- or the new product or the new capital expenditure to transplant the new product portfolio, have a little effect on depreciation. About tax rate. The tax rate at the end of June is equal to 38% as the company in June has decided to benefiting the realignment of intangible assets, tax value to book value as it is permitted from the decree number 104 of 200. Last but not least, net financial position evolution. As we have put in this slide the 2 different view: the 1 from the end of June 2020 to the end of June 2021 and the 1 from the end of December 2020 to the end of June 2021. On your left, what happened in the last 12 months. As you remember well, at the end of June, we were -- at the end of June, we had a net financial position of EUR 528.5 million. While we closed June 2021 with a net financial position of EUR 401.9 million. The operating cash flow in these 12 months were positive for EUR 177.9 million, the change in working capital was also positive for more than EUR 110 million and the CapEx absorbed cash for EUR 156.6 million. We have in the last 12 months an outstanding free cash flow of more than EUR 132 million. On that right of the slide, if we want to take a look to what happened in the last 6 months, we closed the year, 2020. We have a net financial position of EUR 423.6 million. The operating cash flow of this 6 months is more -- is about EUR 101.7 million. We have a little absorption of working capital, but this is connected with the volume and revenues that we expected in the second part of the year. Capital expenditure are in line with our targets and our expectation for this year and with the new investment that Mr. Colaninno has already shared with you, EUR [ 6.9 ] million. So the end ordinary financial position in EUR 401.9 million. In the -- under this, you can find also what happened in the same period from the end of 2019 to the end of June 2020 to get you the more information is possible on these important figures.

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

[Operator Instructions] You next question is from Monica Bosio with Intesa Sanpaolo.

The first one on the rise of raw material costs. And on top on the rise of freight cost, could you please quantify the impact over the first half? And what do you expect for the full year in terms of cost inflation from raw material and freight costs? My second question is on APAC. APAC area grew by 64% in the first half versus the first half in 2019. The second quarter was up by 48% in terms of volumes versus the second quarter 2019 in APAC. I'm just wondering if we can replicate the same growth trend over the next quarters? And the very last question is flavor if you can, on the July trend in the two-wheels European market?

Monica, we start with the last question. So about the European market in July, doing well. And in the first 3 weeks of this month, according to the data we have, European markets are growing unsurprisingly, against 2018, double digit, I mean, between 10% and 15%, with Germany and Italy probably above 10%. This is the trend that we see in Europe.

Versus 2019?

2019, yes. And we prepare for...

And versus 2020, which...

May be slightly negative. Keep in mind that the best working day in July in all the European countries, essentially France, Germany, Italy and Spain compared to 2020. So slightly down in some countries with 1 less working days that normally account for 7%, 8%. So overall, I would say a very good. Yes.

Okay. You asked about the price increase of raw material on the first 6 months. And what is our view for the next of the year and then the next year. Is it right?

Yes. Also, the rise in transportation costs and freight cost which is on top of the raw material, which is very important.

Yes. Okay. You know what happens on the last 6 months. Let's say in the first quarter of the year, the newspaper report exactly how is the report increased price of steel, of copper, of plastic and everything of that. And on top of that, you know very well what happens on the transportation. We are in front on an incredible trust from the people that manage the transportation and they manage their containers. We do expect that this situation that really is unbelievable will be stopped by the authority or will be stopped by the market. I know exactly that now a big company beginning to refuse to accept price increase as the market requires. And I know and we are existed as we already made the first reduction of price, very small, very little. But anyway, we expected that this trend of raw material that is impossible to manage it will be stopped and we're beginning to reduce. Now the stop, I expected that it will be stopped from now at the end of the year in some way and some time and they're beginning to reduce in the first 6 months of next year. Piaggio was able to manage all this situation due to diversification of production site. And then the market is totally different. For instance, our company in India, they really don't buy from China, but they buy from India directly. And so they not suffer about transportation costs and then the cost of the containers, either the company in Vietnam, they buy by the local market and they buy components by the country around Vietnam as Thailand, as Indonesia and then they don't suffer the same question that the European companies suffer when they buy from China or when they bought from Asia. So the mix of Piaggio is coming from the very strategic and very lucky position of a company that is very diversified market by market. As you know, we have a production plant in India, we have a production plant in Vietnam. We have a production plant in China. And so we are able to play around the market and then we suffer the price increase naturally, but not so high as normally people see in the trend of the official results. We expect and we see that, for instance, the components, the electronics components beginning to be not so difficult as the beginning of the year. Naturally, the situation is not fantastic. It's difficult. But this depends on also how much -- how the company is organized and how the company can go directly in the market and to buy products in an opportunity way.

The next question is from Francois Robillard with Intermonte.

First one, can you just come back on one of the questions of Monica. It was about the APAC. The APAC market trends and as well your trend in terms of volume growth there. Can you just tell us if you expect them to remain in the second half? Or what kind of growth targets do you have in this area? Second one was, yes, again about supply shortages, especially on microchips. I saw browsing on your Italian retail website that some of your products are being proposed without some components. Can we expect some costs looking forward to replace on these vehicles sold without some components or some features. What kind of cost are you looking at in the future to fix the situation?

Trend, we expect the trend now is the sales trend now is very strong. The demand -- the strong demand, excuse me, coming from Europe, coming from Asian market and coming from China, too, and they're coming also from the United States. Now people's -- the market seems to be now looking to stock more what is normal to stock in advance because everybody believes that with the market depending from the virus trend, if the virus begin to slow, now it's not the situation is going. But if the time that the virus begin to slow down, the market will restart on very, very strong and very, very big sales volume demands. Take one consideration that sometime is true, sometimes it's not true. Talking about India and talking about Asia in general. People live in this country with very hard virus situation. And the people want to buy two-wheeler only because the two-wheeler is not like a car. And I believe that the two-wheeler can guarantee them more secure situation against the virus. So 1 of the question why the market in that country, in that area is so strong. It depends also from the general situation that the people is oriented to buy more two-wheeler than to use public transportation infrastructure or to use the car or to use the bus. Naturally, this is -- I consider that not a normal trend of the market because it's too strong and I don't believe that this will continue for the next year. But today, the demand is quite strong. It's much stronger than last year. And we see that there is the market on July, the market in July was very, very strong. We work to satisfy the demands. And we work for August, so we have reduced our holiday times because we want to work because we need to reinforce our stock in products that now is very, very low, very down. And then we have customers that want to buy products in it. I consider that an extraordinary volume.

And if I may, just on the microchip issue and the fact that you are now [indiscernible].

Yes, yes. Yes, we -- sometimes we have a problem on components, but not too much, not too much. We find, again, due to our diversification in the different countries, we have a stock of our own stock in our factory in India, Vietnam and China that -- and then we can have some sort of protection about this crazy market of chips around the world. So if we look at the first 6 months of this year, I want to say that we managed better of what we expected. And we don't suffer too much in term of -- we never stop production line. We have some products that is not finished at the end of the line, but it's not a big quantity. So let's say, normal quantity. And then we are able to any way to satisfy the customer request on times.

And if I may, just one last question. Looking historically at the working capital contribution to your free cash flow in the second quarter. This year, it was below EUR 30 million. That's one of the lowest absolute contribution in the last few years. Is that due to what you just talked about, so some unfinished products at the end of the line that come to increase inventories more than it should be? Or can you just comment on what caused that unusually low figure.

So the inventory is more or less higher than the previous year. Higher than the previous year because, as already said, the expected volumes for July, August and September are very higher so that we can't risk the sales of the third quarter of 2021. And so we choose to buy something, more components than last year. Last year, we were at the beginning of the part of the departure after the COVID. This year, as you said, you see the volumes and the results of the first half is very important. And the expectation for the third one are more or less the same. So we can -- we have to avoid any risk about the production and sales.

The next question is from Gabriele Gambarova with Banca Akros.

The first one regards tax rate, 38% in the first half. I was wondering if the result of this 104/2020 law changes anything about the tax rate guidance you have for the entire 2021. That is, if I'm not wrong, 40%. And the second question is on the one, the new electric scooter you launched a couple of months ago. I was wondering if you started shipping this new product to the dealers or you are having an issue with transportation, freight and so on.

Okay. Starting from the tax rate, I can confirm to all of you that the expected tax rate of 2021 after the decision to adopt the realignment at the end of June, more or less will be about 38%. So I don't expect and we do not expect any other changing within the end of the year. About the new electric products that we launched in May, the vehicles are -- will be in the shops at the beginning of September.

[Foreign Language]. Okay. As there are no other questions, I think that we can close the call now.

There are no other questions. Yes.

Okay. So thank you very much, everyone, for attending this meeting. And as usual, if you need to have more info going forward, you can call me also this afternoon and during the weekend. Thank you very much. Bye.