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

Good day, and welcome to the Piaggio Full Year 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.

Yes. Thank you. Hello, everybody. Welcome to our 2022 earnings call. Joining me today are, Roberto Colaninno, Chairman and Chief Executive Officer; and Alessandra Simonotto, Chief Financial Officer. You can access the slides supporting today's conference call on the Internet at Piaggio Group website in the Investor Relations section. 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 and projections about future events. By their nature, forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to be materially different. Also, I remind you that the press has been invited to participate in this conference call in a listen-only mode. Now I would like to turn the conference over to Roberto Colaninno.

Good day to everybody. Yesterday, an Italian Motorcycle Association, reported the first 2 months of the year -- in the first 2 months of the year, the sales of scooter and motorbikes are growing through the first 2 months of the last year. The same flow -- positive flow we have from Vietnam and all the South Pacific areas. Question is in India, where despite to the situation after the COVID and after all the other problems following the pandemic, the situation seems -- began to be changed in the positive way. The same feeling -- positive feeling we get from European country. So despite the question of Ukraine and Russia, the markets in these areas is positive. So if I look at the first 2 months of the year,it is easier to say that I'm quite positive for '23. Now, we never forget that we had just 2 months. And 2 months is too short to have an indication of the flow of the total of the year '23. But I want to anyway underline that problems that in the past was very potent and have a negative influence on all the situation now disappeared. Transportation, material costs, difficulty on the supplier is really in a different and growth situation relating -- in relation with the last -- same period of the last year. The pandemic situation seems to be over in all the areas where we sell in a traditional way, United States, India, South Pacific area and EMEA or otherwise the European country. So I want to say that the total scenario of the first 2 months of the '23 is completely different and a positive change in relation to the same period of the last year. In this scenario, we have the first results of our new investments in Indonesia, that is quite good. It is better than our expectation in the area. I was also surprised, as everybody of us with the results of Vietnam, Philippines, Thailand and all the country around ASEAN area. We have increased investments in Vietnam to produce more in terms of vehicles, in terms of engine than last year. We forecast that all these investments will be ready by the second part of the year. And we are positive, sure that we are able to respond to the positive demands of the market. So we want to say that all the difficult situation of the last year has now disappeared. All the ASEAN area excluding for a moment, the China is quite clear and positive. Same is in Europe, in all the country in Europe, the market is quite good. The same is in United States. What I want to say is that in terms of organization, we are put in place some management model that guarantee us productivity growing and the cost reduction. And also, our stock is in line with our budget in a way that we want to get the target to have a big reduction of stock profit for finished products and component and material started from the second part of the year. This is the scenario where Piaggio now is moving. So positive, we expect it to be able to grow up our sales. And what is more important to grow up in productivity. Finally, productivity is the real positive things that we want to achieve to support the results of '23. I am waiting for your questions, hope to be able to explain your question and answer.

[Operator Instructions] The first question is from Monica Bosio. Sorry, just a second.

Thank you very much. Good afternoon, everyone, and thanks for taking my question. First of all, thanks for the follow-up on Europe. As Europe is performing well, have you said, do you see it as reasonable or maybe too conservative or we are decreasing Europe in the region of 7%, 8% as the consensus is projecting? Or do you believe that the market might be more or less flat or at least at the most at minus 3% for 2022 in Europe? And my second question is on the shipping cost which are materially decreasing. So do you expect savings on the shipping costs for this year in comparison with the previous year. And if yes, can you give us a rough indication on the savings side, please? And the very last is on the tax rate, which was below our expectation, the tax rate '23 results and going forward?

Okay. Starting from the market. As I told you before, exactly yesterday, the Italian Motorcycle Federation announced that the sales of the first 2 months in Italy is growing on the scooter and motorbike. And is growing on the 2 digits on the market in relation of last year. We get positive reaction also from the market of -- if you divide it, how we divide in Europe, is the Spain, France and Germany. These three markets in line with our budget. And especially on the bikes point of view, we not consider now that the confusion generate now on the electrical side on what the commission investors will decide in the next 2 weeks about the low provide the stop of the electrical engine regarding not 2-wheeler, but regarding 4-wheeler anyway can generate. We see that sales are growing. The reason of this, speaking about Europe, is that people thinking that it is much better, is much more convenient to buy 2-wheeler now than 4-wheeler in a week. What happens in the market? Well, we don't see that the market is in terms of -- we see that the sales is quite regular and we don't see any peak in some market. All the market is moving on the same scenario on the same logic and let's say on the same tax growing. So for Europe, my opinion is that we are from the market point of view in a positive moment waiting on what happens on the electrical market. In the meantime, we see that the market is oriented to buy 2-wheeler than other products. Regarding transportation costs and material costs, as I told you before, we see that the transportation, especially through transportation by both is quite light. We don't see that the cost of the transportation is moving as last year. All reached a rates level that is lower than last time. And I believe that also the cost of the gas and the electricity give a big improvement on the material cost reduction. But I want to underline also that a sign of the control of interest, the control quite well the inflation is the positive impact of the market. So if I want to consider the first 2 months, talking about Europe, in relation for the rest of the year, my feeling is totally positive. About tax, I ask to the Alessandra Simonotto to say what is her feeling about.

Yes. Thank you, Mr. Colaninno. About the tax rate as we have written in the specific slide at Page 23, we are benefiting of a different EBITDA, geographical mix. And as you have read in the slide, you have seen that the impact of the APAC market on our revenue is the growth of the APAC market is more than 57%. So if the geographic mix of our business will be more or less the same of the 2022, I expect the tax rate of the 2023 year end and of the next year will be more or less about the one that we have used on our 2022 financial statement.

The next question is from Michele Baldelli with BNP Paribas.

I have a couple of questions. The first one relates to Vietnam. If I'm not wrong -- you should increase your capacity in Vietnam. If you can quantify how much you are going in case to expand capacity, why? And if it's also only scooters or also motorbikes. So can you give a little bit more granularity on these investments, what time period? The second question is related to India. We have seen some volumes coming out from your competitors on the market and on the volumes. If you can provide some data also for your volumes in February, how it went it would be great. Thank very much.

Regarding Vietnam, we have invested already about [ EUR 280 million ] to be able to increase production of products to 400,000 units and to increase on the same way that engine production. Consider that the production today is about...

250.

250 -- 250,000 scooter. Consider that we have to supply the Indonesia plant where we send some components to be assembled in that market. Consider also that this country is very -- we expect a big quantity from this country, Indonesia, because in terms of 2-wheeler market, as you know, is a huge market. And in the same way, we follow also the Thailand market. Thailand's market, we expected to grow on '23 and much more than '22. We sell in Thailand, let's say between 60,000 and 80,000 pieces and it is all exported from Vietnam. So in this area, let me say in the South -- the South Pacific area is a huge market for 2 wheeler with big growing rate, where Vespa, particularly is very welcome. So you have to consider that the value of the trademark beginning to be the reason why the market is so positive to Piaggio. Vespa now is a mark -- is a trademark that is very, very -- is very, very accepted on a positive in that kind of market. And the policy that we have introduced in terms of advertising and in terms of style and design of the products is very welcome from the young people. So all these countries that for us is very important, let's say, Thailand, Vietnam, Indonesia, Philippines, and if you put all together and then consider this market it has million of products every year. So we follow with high interest of this area. Then we have to consider China. China supplies us because it's a big importer of Vespa products. Even the price is not low. Now we have a budget for China. We are saying we are very conservative. We don't want to be too much positive for huge market as China. But in case we make a mistake on terms of sales number, we are ready to respond and to satisfy the demands eventually coming -- eventually coming to us from China. So when you see this area, you have to consider this area that for Piaggio and for Vespa, for Moto Guzzi and for Aprilia that is a big surprise to us, very, very, very important.

Okay. And Michele to your second question, the data that you should see very soon on [ CM ] should be in the region of 9,000 units per month in light commercial vehicle. And around 3,000 2-wheeler per month for clearly 2-wheeler scooters. So those are the numbers.

The next question is from Niccolo Storer with Kepler.

Congratulations on this set of results are very strong. The question is on pricing of vehicles. So should we expect any further price increases in 2023. And related to that, and to Monica's question. What should we expect in terms of gross profit, gross margin we have had in 2022, the lowest gross margin in many, many years, probably at least since the IPO and probably beyond. So should we expect an expansion return towards the average 30%? Or should we expect a more gradual return to normal?

Talking about pricing for 2023, we will not expect another growing on pricing in 2023 as of now. Then if all the material costs will be crazy than our expectation or something will be very different from the basis of our thought about this year -- that would be changed. But as of now, we don't expect any price increase, nothing more than 1%. So this is not an increase. Having in mind this inflection rates that we are seeing on our India market in the last 6, 9 months. About the gross margin, we are seeing and we are more or less waiting for a gradual return to some better figures because as Ms. Bosio asked about before, the shipping cost in 2023 as you were known, will be lower than 2022 and 2021. The same is for energy in M&A. So we expect that this kind of production cost will help us in getting some better results.

The next question is from Anna Frontani with Berenberg.

Congratulations on the record results. Just one quick question from my side. If you can please elaborate on the investment plan for 2023 in terms of new products. Colaninno, you mentioned that in the press release. So I was wondering what is that you're doing in terms of new product investment?

Yes. Raffaele Speaking. So essentially, we don't give a breakdown of our investments , the vast majority of investments. The good part will be clearly focused in the production of new technologies and new products. This is what we can tell you. But we can give you more granularity or detail in terms of investment by product.

The next question is from Gabriele Gambarova with Banca Akros.

Regarding Asia, I saw that volumes grew around 45% in 2022 or 60,000 units. I was wondering if you can give us a flavor of what you expect for 2023? I mean do you expect -- do you think it's possible to grow the volumes in natural terms more or less the same way you did in 2022, which would be around 60,000 units. And regarding Asia, if you can give me some more flavor even in this case on the expectations for 2023. So what do you see basically from this market.

Yes. Raffaele speaking. Yes, we expect growth for Asia for 2023 will be double-digit growth. I won't say the same level of 2022. But absolutely double digit or, yes. Significant growth, yes, in terms of volumes and even in terms of revenues. This is the first question. The second one, can you remind me?

That was on India basically . What do you expect from this?

In India, as the CEO said, we see a good rebound of the market. So if we call these rebounds are for like commercial vehicle, we should grow maybe already in line with consensus figures. And we should expect also [indiscernible] also in 2 wheeler in the second part of the year. These are the trends that we are seeing. Clearly, the first sign of the light commercial vehicle market for January and February are quite encouraging. So the market is really recovering. And as we have highlighted in our slide, there is still a lot to catch up because the market is still 42% below pre-pandemic level. So -- there are good opportunities in India, too.

Okay. If I may follow-up on Indonesia. You said that limited the results exceeded your expectations. Is it fair to assume that the 40,000 unit production capacity there would be fully exploited this year? Or am I too optimistic?

Yes. We are very positive on Indonesia. So we will use a good part of our capacity in the country. Keep in mind that Indonesia we said something may be in Indonesia, something may be in Vietnam. But yes, the data and the profit are really [indiscernible].

The next question is from Emanuele Gallazzi with Equita.

Three quick questions from my side. The first one is on net working capital. If you can just comment on the net working capital beyond what you expect before 2023 and what you expect in terms of free cash flow? The second one is on factoring, if you can quantify factoring at the end of 2022. And the last one is on 2023 EBITDA. I know that there is no quantitative guidance on 2023 but I would like to understand how confident are you on the consensus EBITDA of around EUR 310 million?

So Raffaele speaking. In terms of factoring we are cost, you mean probably receivables. This was around [ EUR 15 million ] and this is the number. Expectation in terms of working capital going forward.

The expectation is that during 2023, the working capital will be lower -- will be lowering than 2022. This is something that we are working on from the closing on 2022, not from the beginning of 2023, as you well understand. And so this is something that we will expect for this year.

And on the consensus EBITDA, any comment.

Yes, yes. It's okay. We don't see issues, okay, so far.

The next question is Francois Robillard with Intermonte.

First question is, can you quantify for us the amount spend this year on energy and transportation for 2022? And give us a [indiscernible] feel on what portion of this spend was basically linked to cost inflation, so higher freight cost and energy prices booming. Exceptionally, let's say, this year in Europe. So that's my first question. My second question is related to CapEx. So you say you confirm your CapEx spending targets, which I believe amounts to about EUR 150 million a year. But you announced those targets more than a year ago now. And in the meantime, you have rolled out some investments to increase capacity in Asia Pacific, mostly. Does that mean that you have had to cut on other projects? Or does it mean that the EUR 150 million has become something more than EUR 255 million or EUR 160 million for next year. Thank you very much.

Raffaele speaking. So essentially, total energy cost we find the detail in the annual report and up around EUR 28 million. So EUR 50 million higher than prior years. Freight cost that we can save next year at least EUR 15 million, okay. In terms of CapEx, we can confirm more or less what you said, something more, something less and will include all the investments for products, for capital -- so for increasing production capacity. So we are moving around on [indiscernible]. We have to see -- we retain clearly, as usual, as we were adding in the slide, the our ability or the possibility to reduce CapEx if the situation will worsen. I think these are all your questions. And Am I mistaken or right? Okay.

All right.

The next question is from Sebastien Lemonnier with INOCAP.

Good afternoon, gentlemen, and Congrats for the results. Just a question on the electric vehicles, and especially the scooter opportunity. I have in mind that there is more and more regulation in Europe. The new style by the scooter is [indiscernible] relatively aged. Shall we expect and can you provide us more color on the new electric vehicle release of which swappable battery, which I think would be quite attractive to the customer?

Okay. This is a good question about the Indian market where the swap system seem very popular in relation to the European market. We say that in India, we are on the way to develop -- to investigate and to develop how to use the 3-wheeler Europe battery system for the Indian market. First reaction seems quite positive. And we are looking now how is the best way to offer to our customer a real and practical system to use the battery swap. Naturally, the market in India is totally different than the other parts of the world because the cost of the electricity in India is quite low in relation to the diesel and the other one. But today, what is difficult as all the other country is how to develop the infrastructure for battery swap machine. As I told you, we are looking now, what is the best way to develop this type of system.

Mr. Lemonnier your line is open if you want to talk.

No, thank you.

The next question is a follow-up from Michele Baldelli with BNP Paribas.

I've got 2 questions. First one, if you can share what is the percentage of Vespa in your total revenue. More or less, just to make the math together with the motorbikes, how much they weight altogether? And then on [indiscernible], do you see price declines for your products?

So Mr. Baldelli beginning from the last question. So about the price increase, we are not thinking to a decline of pricing, but we are thinking that the pricing will be not increased more than 1% during 2023. So this is not a decrease. We now believe that we will need to increase more than what we have already done during this year, okay?

Yes. Okay. Thank you.

And on the other question, I doubt motorbikes, you have the information in the slide we have published at page...

Has been on the [ Vespa ] [indiscernible] Do you on some details around the specifics [indiscernible].

Now [ Vespa ]...

Michele, sorry, we don't disclose exactly the revenues coming from that clearly are very important, but we don't disclose the number so far.

Okay, no worries. And lastly, well, if you don't decrease the price, you gave [ EUR 3 million ] from transportation costs and the volumes in Asia are growing, I view that content not only fine, is probably cautious. But I don't know if...

Sorry, sorry, Michele. We don't hear you very well. Can you ask once again please.

Yes. No. The question was related to the fact that you confirm the guidance, the consensus and you said that is okay. But at the same time, you are saying Asia is growing. Transportation cost at least EUR 50 million will go for the P&L, no price declines. So and consensus implies only plus EUR 15 million compared to last year's EBITDA. So am I missing something? Or do you have an explicit negative view on some parts of your business?

I was prudent. So on was a long ending fruit and let's put it this way, okay? It's not what we see.

There are no questions from the moment.

So if there are no more questions, we can conclude now. Thank you very much for attending this conference call. As usual, you can call me later to have a further info. Thank you. Bye.

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