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

Good day, and welcome to the Piaggio Full Year 2021 Financial Results Conference Call. [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. Joining me today are Roberto Colaninno, Chairman and Chief Executive Officer; Michele Colaninno, Chief of Strategy and Product; Alessandra Simonotto, Chief Financial Officer; and myself. You can access the slides supporting this call at piaggiogroup.com website. Before starting the presentation, I needed 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. [Operator Instructions] Now I would like to turn the conference over to Roberto Colaninno.

Good afternoon, everybody. I am very happy to present today the results of Piaggio '21. Everybody, we believe, that read already the results and I believe that you are more interesting to try to understand what we -- on the way to do regarding '22. Based on our budget, the target of '22 is quite, let's say, quite good. The challenge is very, very interesting. Based on the results on '22 where we have achieved all the programs that we are thinking at the beginning of '22 that we have done everything good time and on 100%. New products, technology, electrical project of Piaggio, new factory in Indonesia, the new factory of Moto Guzzi, the big investments on marketing and on the styling and the new products. This is all what we have done on '22, and we expected that the big results will be done on 22nd -- '21, and we expected the results on '22. For instance, we expected that on '22 by the end of the year, we have the first results of the new factory of Indonesia, where we expected to wave the same important results that we have obtained in, let's say, Southeast of Asia from Vespa. We are done a lot of new organization in China, where the results of the last year sales Vespa was incredible, good, and we expected to have more sales on '22. We expected that India, at least, will be able to restart with a new situation and solve all the problems coming from the virus. We expected to increase sales in all Asia countries. So we expected to have a big result for sales of motorcycle in United States and in Europe. If you want Piaggio, due to the head of organization in a factory where we are in China, where we are in Vietnam, where we are in India, where we have in Indonesia, let's say, we are out from the turmoil area of Europe, unfortunately, that is huge. Now the first results, sales of the first period of the year is very, let's say, is very good, and we expected that the market reacted very well also because all the world's, the cost of gasoline is rise -- go up in very severe number, and the people thinking to discover for the urban transportation that -- to make own products. We expected also that the people discover motorcycle, and we see that the number of Aprilia and Moto Guzzi is quite good. All the markets around the world, we are designed that the new model of Aprilia and the Guzzi is very welcome from all the markets and especially for the young people. Our marketing policy gave a very unexpected good results, especially in China, especially in United States, in Italy, and generally speaking, in Europe. But one of the points that give us the -- more than, let's say, to -- the more to be safe, sure that we are able to reach our target is that the market reaction and the market response to the new model for Tuareg, Moto Guzzi and other Aprilia model here in the first 2 months and a base of the order that we receive is very, very good. Let's say, till now, we'll have the problems of supplier and the components. There will naturally remain some problem, but we see that now, especially from the Asian market, first positive results where our suppliers begin to be in line with the timing, in line with the quantity. The transportation costs remain high, but we are working now to fund a new, let's say, package in order to save space on the container and on the tools, transportation tools. Naturally, we want to avoid to use higher line for transportation of our products because the cost is too high. But we see that with a good production scheduling and with a good performance of our stock, it will be possible to have a good working capital and to control better our supplier and to agree with our supplier. More definitely, supply that expenditure. So let's say that we have achieve, on '21, some results where the market -- and I remember on the last conversation we have where I said that we tried to achieve EUR 240 million for the EBITDA and some of the analysts consider that very difficult, and we was able to achieve EUR 240.6 million on EBITDA. So let's say that this -- I want to say that our organization in terms of cost control and then sales develop has, let's say, achieved the system to be flexible and very speed to give us the results in order to give us the possibility to have -- to react and to have the proper reaction as -- the appropriate reaction when we registered the difference between the reality and the batches. So what -- how we base our future is quality of the products, customer organization, organization in production and the organization on all the purchasing in terms of working capital, in term to be very -- to react quickly and to react all the time where it's necessary to be in position to take the right decision on that. Even the quality is a very high target for us. Quality in terms of customer systems, term in quality, term to be a good technical performance and also able to be -- to control the cost and try to reduce the cost also to a good performance of design to cost. Electrical sites, we as you know already, we proceed on the, let's say, transportation exercise of Piaggio from thermic company to electrical company. This we projected to progress in the next 3 years. We have already built the laboratory and the building dedicated to electrical products. We have already hired 45 technical people totally dedicated to electrical technology. We work in some partner connection with some important supplier, very high scale on electrical problems. And I want -- and I can say that up to date, we are perfectly in line -- on line with the project of this big change of the company. Naturally, this not what means that we're going out from thermic. We believe that the thermic will be for many years products that the market will require, especially on the Asian market. And based on the fact also that we believe that India problems will be solved by -- during this year, and then we can have advantages of our organization, and we will have the advantage of the results. Also saw a huge market that become, again, very profitable and very interesting. So we see our future not so problematic, also negative as we can see on the -- a lot of newspaper and a lot of reporting. We can say that the first 2 months, what we have the customer reaction, what we have from different, let's say, market sector, but also from the whole global market: the United States, China, Southeast Asia, India, Indonesia, Europe. By the way, we don't -- have nothing with Russia. We got nothing with Ukraine. So we have -- our relation is with all the wars outside, we work that today managing so terrible situation. So we say that our future for Piaggio, in one way, guarantee the geographic distribution, can guarantee the different market for different products, is able to have done already, and we have developed again an extraordinary marketing policy for the young people. We have new design and we have a new relation with some star very close to the young population in China and America, especially, where we get already the first reaction of that. Our financial situation is no -- not have any problem. We can look all the investments on CapEx without any problems on the debt. We can have all these investments without to put in particularly problem in the company. We have under the control the credit. We can say that today, our credit position does not have any problems in terms of bad credits. We have the same situation with a supplier. We have a good position with the credit room, so we say that we have the problem to manage. We have the problem to manage in terms that, that is our normal job. We want to reduce cost through a productivity-increasing strategy. The productivity is, for us, the first target that we want to improve. We consider productivity a customer care, the 2 main strategy of all our deployment of our budget of '22.

Okay. Thank you very much. And now Alessandra will comment on the slide that we have assigned on our website. Please, Alessandra.

Thank you, Raffaele. Good afternoon, everyone. We can start the call with Page 3 of the presentation, on the most important group financial KPIs, and we have compared it as usual the KPIs not only with 2020 results but also with 2019 results, but in the last year before the COVID-19 pandemic. As you can see, in 2021, we achieved all-time high cash-generating generation and all key metrics, they are at the peak level, exceeding update targets. Net sales increased by 27% from EUR 1.3 billion of 2020 to EUR 1.7 billion, more or less, in 2021. EBITDA increased by 29.3% from EUR 186 million in 2020 to EUR 241 million in 2021, in line versus the target forecasting during the conference call of 9 months results, the best results ever. Comparing to 2019, net sales increased by 9.7% from EUR 1.5 billion of 2019 to EUR 1.7 billion in 2021, and the EBITDA increased by 5.6%. In terms of net debt, we performed a significant improvement with respect to EUR 424 million of December 2020, recovering around EUR 43 million at closing December 2021 at EUR 380 million, confirming the leverage started some years ago. Comparing to 2019, net debt of EUR 430 million, we improved EUR 49 million. Going to Page 4, we have tried to underline the result of the group in the next line here to underline the strong growth of the profitability, achieving in 2021 an average of 1.6. On Page 5, you can appreciate, and we have been able to do these results on leverage, thanking to our brands. And at Page 5, you can appreciate the good performance of all our brands, both for scooters and motorcycles. We will grow up to more than 60%. On the following 3 pages, we have tried to resume what happened to our brands in 2021. Beginning from Page 6 with Moto Guzzi, we celebrated 100 years of the brand achieving the highest result ever, thanks to the success of the new models launched in the last 2 years. During the celebration, we have unveiled a new project, V100 Mandello, and we have also presented the futuristic project for the new factory and museum in Mandello designed to [indiscernible] the next 100 years of Moto Guzzi. Moving to Page 7. Talking about Aprilia brand, we would like to highlight the outstanding results of the new range of bikes, 660 RS, Tuono and new Tuareg. The best, Aprilia, getting the highest revenue to date and opening 2022 with strong order book. About Aprilia Racing, as you know, in 2021, we get back with a new Aprilia Racing factory team, and the new factory team will begin the racing in the next weekend, as you all know. On Page 8, Vespa. Vespa is celebrated in 2021 its first 75 years with special edition and some new collaboration, just like Vespa Dior, the collaboration with Sean Wotherspoon, and opening the new kind of partnership with Pixar called Luca, and we all are waiting the results of the Knights of the Altar on 27th of March. All this collaboration has contributed to the evaluation of Vespa brand made for the first time by Interbrand. On the next 3 pages, 9, 10 and 11, you can have a look at what we have done about sustainability point of view with Vespa, GITA, gitamini. And the new Piaggio One launched in 2021 that in the first -- in the fourth quarter has sold more than 6,000 units. While going to Page 12, you can have a look about the new launches in 2022, like [indiscernible] Mandello, Tuono 660 Factory [indiscernible], and the new collaboration with Justin Bieber for Vespa and the Chinese designer, Feng Chen Wang, for Piaggio One. And now going to Page 13, we have summarized our industry's key demand trend for 2021. About EMEA and Americas, demand on the rise across all product segments in all countries with an overall plus 4% in EMEA and plus 8.7% in U.S. versus 2020, confirming a multiyear growth trajectory underpinned by the combination of replacement cycle, aversion toward public transport and macro recovery. Italy, Germany, the Netherlands and U.S. end in double-digit above the pre-pandemic level. About Asia Pacific, despite the uneven trend across the year, overall demand ended well above 2020. Asean 5 demand regained strength in Q4 once lockdown measures have been lifted and ending and plus 15.6% versus previous year, sharing a positive light for 2022. China confirmed the growth, ending 2021 well above both 2020 and 2019 levels with an increase of 11.8% versus 2020. India. Demand ended in line with previous year, but significantly below pre-pandemic level, both in two-wheelers and light commercial vehicles due to the effect of COVID-19 second wave. Moving to Page 14. We can have a detailed analysis of volumes and net sales by business. Volumes and net sales grew at the fastest rate today in all segments, making accepting India light commercial vehicles boosted by significant positive mix price effects. Two-wheelers EMEA and Americas continued to grow, thanks [indiscernible] by positive market dynamics and mix price effect. Two-wheelers Asia Pacific. Volume and revenues led to a fresh new record high, benefiting from strong brand equity and country diversification. Two-wheelers India sparked to all-time high revenues, outstripping market trends with both Aprilia and Vespa brands. CV EMEA and Americas. Highest revenues since 2009, mainly on the back of the successful launch of the new Porter NP6. CV India underperformed, mainly reflecting weak of the domestic market demand. Going to Page 15, we can have a look at the breakdown of volumes and net sales by product. As mentioned before, motorbikes have been the [indiscernible], both with revenues skyrocketing by 70%, [indiscernible] the success of the new product launches, Aprilia RS and Tuono 660 and Moto Guzzi V7. Scooters performed extremely well too, benefiting from the combined strong growth in all geographic areas. In this context, I would like to highlight the very strong performance of Vespa and the new Beverly. Light commercial vehicles revenue grew, underpinned by the strong performance of the new Porter NP6, more than offsetting Indian negative performance. Moving to Page 16, you can have a look of the EBITDA bridge. In Q4, we achieved all targets provided in Q3 conference call. We successfully managed the supply chain challenges, mitigating inefficiencies and normalizing the use of air freight. Additionally, most of the Q3 of negative effects arising from recall campaign have been restored. Those elements, together with strong revenue growth and better mix, grew the EBITDA at least to EUR 48 million, the best Q4 results on the record. On a full year basis, the EBITDA grew, reaching an all-time high in absolute term. The key driver has been the strong revenues growth, more than offsetting the dilutive effect stemming supply chain disruption and from other raw material costs. The data in cash OpEx that you see in the chart is just a reflection of the unusual low level of last year, when we hosted the activities due to the first spread of COVID-19. Conversely and more importantly, cash OpEx has been lower than 2019, and the ratio of cash OpEx on revenues in 2021 has been lower both versus 2020 and 2019. A remarkable results in my opinion, which testifies the group's ability to keep a strong grip on costs. On Page 17, we see the remaining P&L figures that we have not shared with you enough. The most important is net profit. Net profit surged by 92% to EUR 60 million despite higher D&A, reflecting recent years' heightened CapEx whilst benefiting from lower financial expensing stemming from lower average indebtedness and 1.7 percentage points of lower tax ratio. Moving to Page 18, you can have an in-depth analysis of cash flow, net debt and liquidity. This is the most significant slide since it testifies our ability to reduce debt whilst returning value to shareholders through dividends. As we said before and we saw before, net debt went down by EUR 43 million versus December 2020 and EUR 49 million versus December 2019. The past leverage is down to 1.6, which testifies that we are fully on track with our long-term goal to keep leverage under control. These outstanding results stemmed from strong operating cash flow which grew versus last year, primarily on the back of higher EBITDA. Working capital, which generating cash by EUR 49 million, thus topping an all-time high, mainly driven by the containment of receivables, which weighed on sales went down by 4% versus 4.9% in 2020 and 4.7% in 2019, and a higher contribution of payables more than offsetting the spike in inventories. As expected, capital expenditure was significantly higher than last year, plus EUR 14 million, driven by heightened focus on new product launches. This trend is consistent with our multiyear approach discussed in previous conference calls. Change in equity was higher than last year, mainly reflecting higher dividend paid for EUR 39.6 million versus EUR 32.9 million in 2020. Lastly, as you can see in the slide, we have recently secured additional financing for EUR 115 million that strengthened our maturity profile and leading the weighting average debt maturity to 2.7 years. Thank you.

Thanks, Alessandra. Sang, we are ready to answer the questions you may have. Thank you.

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

I got a few ones. The first is on the EBITDA outlook. I know that you do not give guidance, but the consensus is pointing to something in around EUR 275 million. I was wondering if you feel comfortable with this level as you should be able to offset fully the raw material price increases and the energy costs through price mix? Just a confirmation on this. The second question is on APAC. May we project a still double-digit growth for APAC area for 2022? The third one is on electrification. Are you planning to launch any new electric vehicles in 2022? And very last, I'm sorry, is a housekeeping question. Can we keep the same tax rate for 2022?

From the last one -- and on the first one. Tax rate, we have -- we reached, in 2021, a lower tax rate than the one we have shared with you in the other conference call because we choose to utilize all the -- just a moment, I don't remember [indiscernible]. A decrease, EUR 104 million of 2020 for [indiscernible], and this help us to get this lower tax rate than the 48%, 38% that we normally use. As of now, we don't see other peak in our tax rate, so I believe that we work also for 2024 in this range, 38%. And if we will find something new and some other opportunities, we work for getting that in our figures. Then vehicles in 2022, we don't [indiscernible]. If I remember where -- or we don't have new launch in 2022 of new electric vehicles, we. Will work on our range of [indiscernible] also in 2022, but there are no new -- nothing new this year.

Regarding the Asia expectations. As I said before, we are very positive to the Asian market. We see that the performance of '21 was quite good from the Southeast of Asia and China and Thailand. Now we confirm the same positive trend for this country, but we believe based on the -- to be confident that we are able to start with a new plant in Indonesia to begin and to sell in Indonesia by October, November, December. We affected big results because through our check for that market, we know that Vespa is very, very welcome. And then the fact that Indonesia has about 300 million people, we expect it to have, in Indonesia, the same results from the market point of view that we get on a Vietnam. Naturally, this is based on our forecast to be announced the date of the production start. And if we are a little bit delayed, we have to postpone the production starting again. But anyway, we are very, very confident that the Indonesian market should be a very nice surprise for the Piaggio group.

And what about your confidence on the current consensus? Do you expect that your price/mix will continue to offset all the raw material price increases plus the energy cost?

I don't want to go in the details because it's a technical issue, and it's a little bit complicated to explain this on the phone. But we have -- we have introduced our '21 thermic software production program in order to keep under control the quantity or the number of components that we use for each products. And we want to achieve the target to reduce the quantity of the raw material and not to change in the quality, naturally, and reduce scrap through a better design of material that we use for specific -- for each specific problem. The results of the real plan on '21 is very good, let's say this, even if not definitely. We expect it to improve the system on '22. And thank you to this system, we hope to be able to keep under control the material costs increasing. But fortunately, we're beginning to see, especially from the Asian supplier, that the price is not going up on the same way than for this time January last year. They are beginning to build it to be soft. Now I cannot predict what we did the reaction of the war on their raw material, generally speaking, because this is impossible to predict. But we hope that through productivity system, organization and especially to keep under control the quantity of the products, be able to counterbalance the price increase.

The next question is from Francois Robillard with Intermonte.

First one is on your CapEx target. So you mentioned earlier in 2021 something around EUR 450 million over -- between 2021 and 2023. This year was EUR 155 million with quite a big push on new product launches and everything since next year, you see already the end -- the delivery of the Indonesian factory and no new product launch. Can we expect something less in terms of CapEx in 2022 and 2023 compared to 2021? That's my first question. Then second question is on your gross margin for the quarter. Can you confirm that this figure was positively impacted by the EUR 4 million of supplier one-off costs that we saw in the third quarter that were reversed? And if so, can you give us just a bit more detail on how the different moving parts, so the greater share of motor bikes compared to scooters in this quarter, impacted your gross margin?

Francois, Raffaele speaking. So we can confirm around EUR 450 million of CapEx in 2 years, as we said before. This is the first half. Then there is a question concerning the gross margin, and we have reversed some one-off effects. I don't know if Alessandra can give...

Yes. So we -- about the negative effect of Q3, we have recovered. If you remember, we disclosed that we have had, in the third quarter, a negative effect of EUR 4.5 million for the recall campaign. And in the fourth quarter, we have recovered EUR 3 million.

Okay. Just a quick follow-up, if I may. I didn't quite understand your answer to Monica's question about the low tax rate in the fourth quarter of this year. Can you just come back on that and explain us how come this tax rate was so low in the fourth quarter? And what we can expect for next year?

The closure of any quarter is based from a tax rate point of view what the IFRS 34 asked to all the companies. So normally, if you don't know some different things, you have to use the tax rate that you normally use for the budget and multiyear plan. So as I said in the other conference call, the 38% of tax rate was the one that we have used for the budget of 2021. At the ending of the year, when you are preparing also the -- all the fiscal declaration, you are in your end all what has happened during the year and you can consider everything. So as I already say, we have used in fiscal declaration 2021 was the decree 104/2020 as out for the Italian company for a realignment between the value of the civil and the fiscal value of some assets. We have used it just like many other companies in Italy, and this bring us this 1.7% less in the tax rate.

The next question is from Gabriele Gambarova with Banca Akros.

Yes. The first one regards the Indian market. You said that you expect it to improve, so I was wondering if you saw any improvement in registrations in [indiscernible] in the first 2 months of the year? And if you can give us an idea of this recovery? I saw that in Q4, your sales were down heavily, still heavily, and I'm wondering if the reason is kind of structural problem because the COVID-19 issue is no more there, I guess. So any color, any number on expectations on India for both 3 and 2-wheelers would be very welcome.

As you know, India is a big country, has get 1.5 billion people. [indiscernible] cross -- crossing terrible timing due to the virus problem -- pandemic problems. The pandemic problems today seems to be on the way to be solved. I want to underline seems to be because it's quite difficult to get exactly the situation from the whole country of India. But we know, for instance, that school that until yesterday was closed, now is open. The bank to have -- re-begin to work with the market. All the dealer shop now is on the way to be reopened. Country size, we did grow by 3-wheelers especially for work. This is a good sign that we note, we take in our experience in the last 2 months. Frankly speaking, for me, but also for the people that work in India, it's too early to say that the EMEA problem is over. Naturally, we are against today more [ sonic ] time. And this can help a lot for all our culture problems. If the [ sonic ] time is positive, this can help a lot the general situation of India. But naturally, all depends from the situation of the virus. We can say from a positive point of view that India is not involved in any war around the area. They have no problem with Pakistan, and they had no problem with the other country. They have the problem of the pandemic situation, and they have the problem of the finance market that need to finance all the buying program of the people. Never forget that the people -- a lot of people outside to agriculture are working on transportation. Transportation of people, transportation goods. The majority of this transportation is done by 3-wheeler, and this is the first that give us the positive sign regarding to go against a positive timing. We need to await another 1, 2 months' time before to say definitely if the India problem is over or not. Naturally, worse than this cannot go on, so even this more positive sign is positive because the big number is very positive. So keep the finger crossed and wait 1 month, and then we look how we go all the rest of the year.

Okay. If I may, just a couple of question and follow-on. On the free cash flow, where do you see net financial position heading this year? And what could be the role of working capital? The working capital released EUR 40 million, EUR 50 million this last year, so I was wondering if it can give a hand even in 2022.

Raffaele speaking. So what we can say is that we keep on working in order to reduce leverage, so this is the best answer to your question. Okay? Thank you.

The next question is from Emanuele Gallazzi with Equita.

Two questions from my side. The first one is on the price mix in Western countries. After a very strong 2021, what we should expect for 2022 even in terms of mix between scooter and motorbikes in Europe? And the second one is just a quick comment on the current level of dealer stock in Europe.

So you can expect a positive price mix also in 2022, okay?

Okay.

That was the only question, right?

No. The other one was on the current level of dealer stock in Europe, just to have an idea.

Yes. The dealer stock, so in the same level of the end of 2019. But the ratio of direct stock compared to total sales or total demand is clearly lower, so still down compared to 2019, if you consider this ratio. Okay?

There is no question at the moment.

Okay. I think that is -- then my last answer draw the call to an end. Thank you very much for attending this meeting. As usual, if you need to have a further clarification, you can call me later, okay? Thank you. Bye.

The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.