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

Good day, and welcome to the Piaggio First 9 Months of 2022 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.

Thank you, and hello, everyone, and welcome to our Q3 2022 earnings call. Today's conference call will be offered by Roberto Colaninno, Chairman and Chief Executive Officer; Michele Colaninno, Chief Executive of Global Strategy, Product Marketing and Innovation; and Alessandra Simonotto, Chief Financial Officer. You can access the slides supporting today's call on the Internet at Piaggio Group website. As you may expect, 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, 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. Now I would like to turn the conference over to Roberto Colaninno.

Good afternoon, everybody. Well, Piaggio, even if we are in the macroeconomic situation extremely complex, continues to be extremely good. The Piaggio Group closed the first 9 months of '22 with its best results ever and double-digit growth, driven primarily by excellent performance in the APAC area, which will be fully boosted by the new manufacturing facility we shall be opening in Indonesia next month. About this new investments where we think to be able to repeat the excellent results that we obtained in Vietnam, we believe that Indonesia, which is one of the more favorable country in terms of two-wheeler market, find Piaggio ready with its best trademark, Vespa. The market is very favorable to our products and is ready to give us extraordinary results as soon as we started the sales and production. We believe that this company -- this plant beginning to produce at the beginning of '23, we expect to have the results for the Vespa products much higher than what we have fixed in our budget. This give to us the opportunity to think that even '23 will be an excellent month -- an excellent year for Piaggio, primarily due to the international position of Piaggio. I remember -- I want to remember just for the people that don't know the situation, that we have India factory, that we have a Vietnam factory, then we have a China trading company. Then we have now Indonesia and the United States trade company, plus the company in Italy and one of the best sales organization in all the European markets. So if you consider that our trademark is a trademark that the market considers the biggest value in relation to the other trademark with Vespa, Moto Guzzi, Aprilia, Piaggio and Ape for -- regarding the Indian market, we consider that this combination, the position of the plant, the position in the best market on the worldwide consideration and the trademark value put us in the condition to say that even '23 will be an excellent year. Naturally, we consider the situation complex in some condition or some consideration. But due to our logistic position and the position on a worldwide market, able to compete with this situation and to be able to be successful even the situation is difficult. We have already decided what is our program of new products that we launch on '23 in the 2-wheeler and especially in the scooter and bikes. Regarding bikes, we base our successful story on '22, also on the successful story that Aprilia Racing be able to achieve in the GP competition. The results of the Aprilia Racing is better of our expectation. And we are open -- we are very sure that we receive other supplies on the last race that the wheeler concluded -- the GP versus this year. So all these conditions, give to us the possibility to have the best relation with the market and the best relation with our customer. We have done all what we budgeted on '22. We are completing the new line of products. We have completed the launch of the reorganized production department to increase productivity. But over the world, we are introduced some quality elements that improve our quality and our consideration in mind to our customers. The new Moto Guzzi 100, for instance, is one of the best products that are existing in the market for technology, for design and also for performance of this motorcycle. The newest plant that is in production now is already in the market has received a very welcome from the customer. So I think that Piaggio is looked on very positive, safe in the future in the -- based on the decision that we've done this year and last year in terms of products, quality, organization, customer care and all the other performance in terms of growing on technology that the new market requires. So we are not concerned about next year. We are positive. We are -- even there are difficulty around the world. And we are sure that the market will appreciate this -- our position and what we have taken as a decision on '22 and '21.

Okay. Thank you very much. I think now Alessandra will comment on the slides that you have seen and download from the website. Thank you.

Okay. Thank you, Raffaele. Good afternoon, and thank you to you all for joining us today. . And we can start, as usual, from Page 4 of the presentation you have found on our Internet page. This slide, as usual, provides a summary of the highlights of the group, and as you can see, we have kept also in this 9 months results a record set of results, and we are very pleased with our performance despite mounting economic and geopolitical uncertainties, supply chain challenges and the spike in energy costs. As you can see, net sales, EBITDA and earnings per share kept on growing in Q3. All these key financial metrics reached both in Q3 and the first 9 months results, the best results since IPO. Net debt had been further lower, thus confirming our ability to keep our commitment to reduce leverage. On Page 5 -- from Page 5 to Page 7, you can find the snapshot of the performance by brand. The strength and desirability of our brands continues to grow in an uncertain time. As you can see, all top brands posted outstanding results reaching the highest revenues today. In this context, motorcycles took again the spotlight with Moto Guzzi setting a fresh record high both in volumes and revenues and the Aprilia motorcycles reaching the best revenue since the IPO. Clearly, speaking about motor bikes, I'm very pleased to confirm that the new Moto Guzzi 100 Mondello that you can see at Page 8, we see an enthusiastic welcome from the press. Going to Page 9, we have highlighted the outstanding results of Asia Pacific. Revenues in the area after a staggering performance since 2018 accelerated this year, ending the first 9 months up by 55%. As highlighted already in prior calls, this result stemmed from the synchronized growth of all key markets, amongst which Vietnam and Indonesia took the lead both with revenue surging 2x above prior year. The strong performance of Indonesia is particularly important as the opening of the new plant in Q4 should further boost our sales in the country in 2023. Now we can move to Page 10 to look at 2022 key market demand. In a nutshell, in EMEA and U.S., demand [ decreased ] as the year progressed, mainly dampened by the negative trend of motorbikes; while scooters show more resiliency ending the first 9 months above previous year. Asia 5 countries posted diverging trends with China edging down, whilst demand in Asia 5 countries strengthened as the year progress. Also, India saw sequentially stronger demand trends also benefiting from a very easy basis of comparison. More importantly, unfortunately, demand was still significantly below the prepandemic levels, namely with LCV still 47% below 2019 levels. Going to Page 12. You can see that the growth of volumes and revenues have been driven by the synchronized positive performance of all geographies and businesses. Western countries confirm steady and positive performance, notwithstanding the two basis of comparison and the gloomy macroeconomic scenario. Country-wise, I would like to highlight the performance of U.S., which posted the strongest 2-wheelers revenue growth in this area, mainly driven by the success of our motor bikes; and of Germany, which posted strong growth, mainly driven by scooter sales. It is worth also mentioning the strong performance of LCV, driven by the new Porter NP6. Asia Pacific was the brightest spot, as commented before, with growth that further accelerated in Q3 boosted by the synchronized growth of all key markets as we already said. India, India rebounded mirroring demand trends, mainly benefiting from low year-ago base. Moving to Page 14. We can look -- we can have a look at the breakdown of the performance by product. As mentioned before, motor bikes posted terrific results with revenues roaring up by 35%, [ profiled ] by the success of our brands, coupled with positive price effects. Scooters performed extremely well, reaching an all-time revenue hike, mainly benefiting from the outstanding performance of Vespa, which suffered a new record high on the back of growth of all geographic areas. Additionally, it is worth mentioning the success of the new Aprilia SR GT and the new version of the MP3 launched this summer. Moving to Page 16. We can have a look of the EBITDA evolution. EBITDA grew to EUR 85 million in Q3, that's reaching EUR 237 million, a new all-time high with a percentage margin on sales at 14.5%. This is an extraordinary result, in my opinion, if we consider the growing number of negative externalities mentioned before. As we saw in prior conference call, the key level of EBITDA uplift has been the strong revenue growth more than offsetting the hefty diluted effect stemming from inefficiency of the supply chain and higher input costs. Cash OpEx growth has been kept under strict control, resulting in a ratio of cash OpEx on revenue lower than last year. Moving to Page 17. We can see the remaining P&L figures. I would like to highlight the [ EBIT ] grew by EUR 37 million with an increase of 0.9 percentage points and ratio on net sales. Net profit grew to EUR 19 million despite target depreciation and higher financial expenses. And now let's move to Page 18, in which we can have an in-depth analysis of net financial position, both evolution and leverage. As you can see and, in my opinion, it is a very significant line, seeing it specifies our ability to reduce debt whilst returning value to shareholders through dividends and buybacks, despite the negative dynamic of working capital due to the complexities in supply chain management, which forces us to prioritize inventory build up. [ CapEx ] expanded in line with prior year and with a multiyear target provided in prior conference calls. Lastly, you can see leverage has been further trimmed consistently with our long-term targets. Thank you.

Thank you very much. Now we are ready to answer the questions you may have. Thank you.

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

Just to check, can you hear me well?

Yes, we can hear you, Monica.

The first one is on the short-term and medium-term view. As for 2022, it's clear that following these very strong results, the consensus of fourth quarter estimates are too conservative, and I'm expecting a great [ year ]. But I was wondering, as for 2023, the company is expecting further improvement. Now the constrains is pointing to an EBITDA in the region of [ EUR 287 million ]. Taking into account that Europe is likely to slow down and Asia is likely to keep growing double digit, are you comfortable with this effect of numbers? Or do you think that they could be even too prudent? And the second question is on the demand in Europe and the softening of the demand. How do you see the demand in Europe in October? And what about for light commercial vehicle in India. And the very last is on the new products. Are we planning to launch new electric 2-wheel products in Europe in 2023?

Monica, one second, please. Something with the second question concerning Europe, in October, you asked, market demand. We don't have reliable data apart from Italy. And as of yesterday, the Italian market was growing around 31%. Then concerning the...

3-1?

3-1, yes. October, in October, okay? It's not a meaningful month. Then considering the EBITDA for 2022 and 2023, if we have understood underway that was the question, the first one, okay?

Yes.

Monica, you are talking about [ EUR 287 million ] for 2023.

[ EUR 287 million ] for 2023, this is the consensus, 2-8-7. So I'm just asking if you feel comfortable with this consensus number? Or if you would feel that it could be even too prudent if we look at the expected growth in Asia?

About 2023, in my view, it's very, very early to give any forecast because we have to look and understand what will happen in the next months about raw materials, about the war in Ukraine and Russia, first of all.

And Indonesia.

And even if we had the Indonesia plant that will help us to reach a better result than now. So probably, as you can see, we will have different things that will work together from one side, all the macroeconomic matters that we have already faced in 2022. On the other side, the Asia area and the Indonesia plant that will begin to work at the end of November, just like -- just you can see in the last slides of the presentation. And that will help us to reach better results in that area. But in this moment, for me, it's too early to give you a figure.

Okay. I fully understand that. And for the potential launch of new electric scooters in Europe. Are you planning an introduction of new electric products?

Not as of now. If there are -- will be new things in our agenda, you will know it in the next conference call.

Okay. Sorry. Just a follow-up.

Monica, please wait. Go on, Monica.

Just a follow-up. Can you quantify the increase in energy cost in the third quarter and over the 9 months of 2022?

Okay. That's 3x the one that we have had in 2021, only for the EMEA plant, clearly, because the problem of energy cost is not something that affects the production plant in India and Indonesia.

Okay. But on overall at the group level, is it 3x or less?

Well, as the most expensive from an energy cost is the Italian plants. We can say that the 3x is all the cost of energy. Because in Italy, we produce engine, we produce vehicles, we have the painting shops. We have a lot of things that we do really in Italy. While in the other countries, the production plants are more or less different. So the Italian plants are the most expensive one from the energy point of view. And so when we talk about the amount of energy cost in 2022 P&L, when we talk about 3x, it is the total cost of energy.

The next question is from Niccolo Storer with Kepler.

Two questions, please. The first one is on debt expectation for year-end. I see that Q3 was overall in line with expectations even in the context of better P&L results. So what should we expect for the end of the year? At the moment, I think that consensus is expecting something in the EUR 370 million range. And the question is, could this be better? The second one is on -- Q3 performance in Western countries have seen that you've had apparently a very strong price mix effect. And so the question is, where is this coming? And is it something that we have to maybe bring also to Q4? Or it's just a one-off?

So the first one question, debt expectation. As of now, we believe that the constraints so more or less is EUR 370 million could be a range -- a good range for us. So I don't expect in this moment any other figure. About the second question -- and the very strong mix effect it's not a prices vector. It is a product mix effect. If you see our slides, we have said that the motorcycle kept a different weight on our sales and the Moto Guzzi and Aprilia have reached a very important result, the higher result as of now and from the IPO for both the brands. As you will understand, the price of a motorcycle is higher than scooters, even if we talk about Vespa. And so this is why the mix of price effect is different.

The next question is from Gabriele Gambarova with Banca Akros.

The first one is on Indonesia. Mr. Colaninno mentioned the budget and the possibility to exceeded the budget. So I was wondering if you can share with us the targets of the budget. This is for Indonesia. And possibly, if you can add something -- some color on pricing because I saw that in Asia, the average selling price was a nice [ EUR 27,000. ] So should we assume a similar pricing for next year? This is the first one. The second is on Europe. I guess, I wonder if you have any indication, any assumption on the market next year. And I was wondering if in the past, you saw -- I mean, I'm wondering if you can assume to profit -- to benefit from the inflationary scenario. I mean, people not able to afford a car might buy 2-wheelers. I don't know, if something -- let's say, a question I put you, I don't know if you empirically saw this trend in the past or you have any kind of statistics on this. Then, last one is on logistics, logistics costs. They clearly were a drag in 2022, I think, EUR 15 million. Should we assume that this EUR 15 million will be -- I mean, you will recover them in 2023, considering that logistic costs are coming down abruptly.

The question on the budget, yes. Concerning Indonesia, we can't provide budget figures. And regarding Indonesia, yes, you can imagine Asia-Pac pricing similar to 2022. There is -- there was another question. We don't believe that you will see a trading down from cars to scooters or motor bikes so far. That was the question, if I'm right.