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

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Piaggio Group First Half 2023 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Raffaele Lupotto, Executive Vice President, Head of Investor Relations. Please go ahead, sir.

Thank you very much. Hello, everybody, and welcome to our first half of 2023 earnings call. Joining me today are Roberto Colaninno, Chairman and Chief Executive Officer; Alessandra Simonotto, Chief Financial Officer. You can access the slides supporting today's call on the Internet at the 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 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. And we say that you can -- with that, we can now turn -- I can turn the call to Roberto Colaninno.

Okay. Good morning to everybody. I just finished the Board of Director where I described the results of Piaggio of the first 6 months of '23, where just to be synthetic, Piaggio was able to achieve a record in every sector of the balance sheet. I mean sales, industrial margin, EBITDA, EBIT, net profits and debt. We never was able, from the time that I am involved with Piaggio, to achieve such results. Why we are able to achieve these results? Well, the position of -- the organization of Piaggio around the world have achieved the possibility to be a big player in all market. But what is more important is, is able to be in line with different requests of this market. And we was able -- Piaggio was able to be a big player in all market at EMEA, Italy, United States and India where the market is beginning to react in a positive way, especially on 3-wheeler and especially on the request on electric 3-wheeler. Regarding Vietnam, Indonesia, generally speaking, the Southeast of Asia, we see that Piaggio was able to maintain and to increase the results, financial results of '23 on '22, and it was able to absorb some impact of the some market without increase in a substantial way the price. In other terms, the results of Piaggio of the first 6 months is achieved mainly for the productivity activity, where we are able to gain some important point that impact positively on all the results of the company. And this is done without the price on each country where we try to keep as was last year, and we don't decrease the value of the price in a substantial way. This give us the possibility to look for the next 6 months with the possibility to achieve the results as we have in our plan, and we believe in a positive way, the results at the end of the year. This reason is because we was able finally to introduce the productivity management system in each area; production, engineering and sales. To be able to increase productivity is not so easy for Italian company because productivity means to be able to adapt the company to their customer requirements and customer care. So for instance, we have achieved very good results on spare parts and the other piece of the products. We are able to be very satisfying in the transformation of the company and to become also be able to be an important actor on electrical market. We was able also, with the investments in new products that we maintain and we will maintain on the last 6 months at the same level, to be able, let's say, to satisfy the customer requirements, especially in the motorcycle and especially in the big scooter size products. I want to remark that regarding the motorcycle, Guzzi has exploded, coming with a very unexpected results in terms of quantity and in terms of sales in the first 6 months, and as we have decided, we proceed in the new restructure of the company on the factory, let's say, beginning by the end of the year and to follow the trademark Guzzi as the market requirements. But generally speaking, the results is be achieved based on the validity of the trademark of Piaggio that is leader in all the market. Aprilia, Vespa, Moto Guzzi, Piaggio and let's say, not only in the 2-wheeler, but also in the 3-wheeler and now in Italy and in Europe, we are working to be ready to develop a 4-wheeler commercial vehicle on electrical version. We're working hard with our supplier and our partner to be able to achieve the results on this market that we consider is very important. But I want to underline that the ability of the company to be -- reduce the cost of production and to control all the general expenses give up the results that is a show today. We expected not to be finished on the second 6 months to increase our penetration on the cash control, especially to reduce the stock and especially to reduce the credit exposition and maintain the leadership in Europe, Italy, Spain, United States and to follow again what is the India 3-wheeler trend. We consider the results of Asia very satisfied in the terms of the results because it's much better than last year, let's say, in term of EBIT and in top of everything, the EBITDA. EBITDA of the group, we expect to be able to go in the same way of the first 6 months and to maintain the same level of EBITDA on the year of '23. So in our vision, despite all the problems around the world, Piaggio today is in the position that is living on the strategic point of view to be able to control all the situation that can be -- situation can cause problem on a different market. We don't expect that to have a problem on the quality of the products. We're not expected to have a delay on the new products that we launched before the end of the year. And we expected to be able to keep and to bring the opportunity of India market where we was able to expect and to trust in this market because the terms that we have is a positive evolution on the famous 3-wheeler, let's say, traditional and electrical way. Means the cash flow, means the investments, we have the possibility to control this, and we expected that the debt going down as is down until today on the same way. So generally speaking, we see positively the results of Piaggio today. It's not just casual results, but is results that is based on the general organization of the group, the capability of the group to control productivity, to control production, to control the fixed cost, general expenses and to follow what the market in terms of sales require to us. So we don't expect it to increase price for the first 6 months in a substantial way. We expected it to reconfirm the positive trend of productivity. We confirm to be able to do better on the cash point of view and to be able to reduce the financial cost due to interest increase on all over the market. So more than this, I don't know what there to say more than this. I hope, but now we are sure to achieve all the target that we have explained that we have described in our strategic market -- in our strategic plan. That means, again, margin that is EBITDA, that is EBIT to reduce financial costs and to increase cash flow.

Okay. Thank you. We are ready now to start the Q&A session.

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

I have 3. The first is on the second part of the year and on the current consensus. In the first half, the group delivered an improvement in the EBITDA in comparison with the first half of 2022, up roughly EUR 39 million. The consensus is expecting for year-end an improvement in the EBITDA in comparison with the full year 2022 of EUR 31 million. So I'm just wondering how do you feel? Do you feel confident with the consensus or maybe given that nothing is to generate over the second part of the year, there is room to do something better than what the market is expecting? My second question is on your expectations as for the European 2-wheel market in July. And what do you see for the APAC market in the second part of the year? The third question is on the new products. Thanks for the introductory notes on the new products. Maybe a last part, are you planning to launch some new electric 2-wheels for Europe by the end of the year?

A very long list of questions. I hope to be able to satisfy and reply correctly your question. Starting with the last of your demand that is where is very easy to response. We believe to launch before the end of the year, the new motorcycle version of 400 cc made in India with the name of Aprilia. And this -- I won't say that first prototype is already done and satisfy very much all us about the design about the results and about the cost of these products. Why India? Because this type of product is new for us, the size of 400 is a product that is required by all world market and naturally, quality and price is the 2 win-win condition. And I believe that India is able to satisfy these 2 conditions. Then we are beginning to work, as I say, on the new Porter electric one, where we are ready next year, around the middle of next year. And this, I want to underline to you how we have done to change the mentality of Piaggio Italy in the way that was, as you know, a thermic company produce diesel and gasoline engine to accompany that produce electrical wires. And the strategy with the 4-wheeler with a low -- with the new commercial vehicle where today is very successful, where is the thermic in engine, and we believe that this electrical one will be very welcome from the market. In term of what is the scooter, scooter I think that we are working now very hard to have -- how to reinforce the trademark of our products around the world with a very precision strategy in a communication way, where we have a new one idea. And despite the traditional advertising through newspaper and magazine, we have an idea in term how to develop the requirements of the people with the -- with our products. In other terms, Vespa will be our products where we work in order that the market can appreciate more and more the design, the vehicle performance and all the style that this type of products is confirmed to be a leader in the market, not only in Italy and Europe, but also in India, in the China and in United States. Demands regarding how we see these results of the 6 months. Our idea is that EBITDA will remain between 15%, 16% of that. This then is based specifically with the new procedure of productivity system that give up in Italy -- in the company in Italy and in the other company around the world, a very unexpected results for the positive solution. So productivity, new advertise, new products and new to be more close to the quality to the customer and to be able to satisfy the quality care system to be able to have a better condition than our competition and keep the price as it is without to increase and in the meantime to have the advantage on the point that we gain on the productivity level. I believe -- I forget to response to other questions.

Maybe -- yes, because Monica, you are very good in asking 4, 5, 6 questions in 2 questions. One was linked to the demand in Europe in July, if I'm not mistaken, right? And...

Yes.

Okay. According to our data, demand growth accelerating in July in terms of demand trending up overall, I would say, high single digits. Notably, as said, Italy was growing 18%. At the end of last week; Spain, plus 17%; Germany, plus 11%; France, plus 2%. These are the data that we have now clearly a very precise concerning Italy. And with that, I think that we answered to all your questions.

Maybe on the second -- sorry, the second part in APAC because APAC [indiscernible] by Vietnam, so what do you expect for the year?

As you know, depends where you look the results of Vietnam. Financially, results of Vietnam, the first 6 months of the year, is just fantastic. And this is achieved even the market is not so brilliant, let's say, as last year, second part of the -- on the second part of the year. But this, I think, is normal because if you are present worldwide in the market, it's difficult to say that all worldwide move on the same way on the same time. In Europe, we have a war. In Vietnam, we have a problem to China. We have a problem to have other problems of the company -- of the market, of the -- for rest so that in a country as Thailand, the situation is much better than with the Indonesia where we just opened a factory there, the results is much better than what it was in Indonesia before they started with a new plant. And you see Vietnam is just in the middle of Thailand and Indonesia. So why Indonesia -- why Vietnam? This year, the market of Vietnam is not so brilliant. I say that we are looking at that, and we want to revamp this situation to our customer. But we never forget that the results as EBITDA, EBIT of Vietnam is something that is unrealistic to look what is the results of this year to the last year. So the terms and condition on the different market when you are working internationally and when you are working more close to be a multinational than just to a national company that export in the other country, you have to be able to move on in order to solve the problem, in order to guarantee the results to improve the financial results. And what is naturally at the end of the story, when I looked at the net profit when the EBITDA, EBIT and when the margin -- industrial margin is better than last year, much better than the last year. Okay, we are move on in order to be able to bring more customer from our competitor and to us, moving on with the new products, with a new color, with a new proposal to the market. This is a normal dynamics that is all in the country. If you look at the banks, they have completely different dynamics even working in the same market, everybody move on in a different way. Now we -- I am not afraid about situation, it gets done, it is normally. India, for instance, nobody believed that India started again with the market of the 3-wheeler, with electrical 3-wheeler market. And in the last 3 months of the year, India is moving on in this type of market. And what will happens if this will confirm and we develop on the same number than before the COVID. India is a huge market, but meantime, we are not able to keep the risk from export from India to Africa. This is not because the Africa is a problem, is that we want to have risk and export where is the risk is that the customers don't pay or customer not satisfied our products and so on. So I hope to be able to give you a feeling that Piaggio today is not a national company and with export in some country. It's an international group active in the different markets with the products, with the capability to produce, to sales and to have the possibility to understand the market, how it's moving and in which way is moving and what is the problem that we need to solve.

The next question is from Niccolò Storer.

The first one is again on Southeast Asia. If you can maybe elaborate a bit on the Q2 drop in particular, very sharp on the one hand. On the other, basically, Vietnam probably alone cannot explain such a drop for the overall area considering the broader market figures, the broader market decline, which probably has been not as bad as yours. So if you can detail a little bit more of what drove the performance of Southeast Asia in Q2, specifically? And looking ahead, if you are seeing some problems emerging in Thailand, when we have read about some political turmoil? The second question is on margins, in particular on the improvement in gross margin reported in Q2, which was exceptional. So which were the drivers behind this improvement? And do you think these improvements can be maintained throughout the year? On the other hand, OpEx -- on cash OpEx, we have seen a quite significant improve -- increase also in Q2 after the big jump in Q1, what should we expect on cash OpEx going forward? Should we expect some saving because of some expenses brought forward or should we keep expecting growth?

I repeat again, when you try to introduce the productivity concept in Italian company is quite difficult. And I understand why because productivity system is not so familiar for Italian company. And when you begin into -- we work hard in this way, you begin to see that the results of this organization is incredible because the easy to reduce 2 or 3 points on the production cost and on sales without increased sales price. And this will give you a big jump -- a big pump profit in all the line because 2% or 3% of cost margin improve is a big number at the end of the day. And this means productivity. It means productivity. It not means that the people have to work more and to work better. And the system to work better is just a question of the system of control and the system how you make your project of our products. It means what means your partnership in term of supplier system, means to control the OpEx. OpEx is quite easy to control, but it's also easy to spend much more what is necessary to spend. So I want to say that this is a new system for Piaggio, let's say. I don't know the other company, where we see that this year, where we begin to see the final results of this system introduced last year and the year before, beginning to give us the results that was not so easy to thinking before. So the term is organization. If you are able to organize the company on the product concept, you will see that your results is much better that you expected in this way. The other question to analyze what happens in Vietnam? Well, I respond to you another way around. We started to be in Vietnam with new investments on 200, let's say, 10 years ago -- 15 years ago. When you look at the number of the Vietnam on 15 years ago, and you see a number today, you believe that you speak about another company that is not the same one. The trend of the risk company during this year was just impossible to thinking the day that we have decided to make this investment in the Southeast of Asia. And we see that it is a bridge to the other company around Vietnam. Asean is not something where is a dream, is a realistic idea of a new market, where is the market as Thailand, as Indonesia, as Philippine and that is a huge market than the before was only controlled by Japanese company. And now we are one of the big company in this area. Piaggio is a big company in the area of Asean Group. And this means that if in 1 year we have something that is not in line with all increase of sales of every year, well, possibly happens. It's nothing -- which is no disaster around. It's now that this change is something on the dramatic way. It's the market that this year thinking to buy more some products than other products. And we have launched the market with the products that have a price in line with products that is more close to today not equality but the first level of the products. And we see that the customer is very welcome for that. So we don't see that the [indiscernible] what happens in the Vietnam, it's a normal cycle of the market that this year is in Vietnam last year was in India, the year before was in China and then Italy and then France. The market is not working in the same way on all the work. The cycle of the market is different and the position of the customer is different. It depends from many things that sometimes is difficult to understand in time that for us is much more interested in the market at the color of the -- a certain color of the product than the other one or why the interest is so high or why the product is so good that give more time in the time of, also what is the reaction of the competition? We competed with the big company as, let's say, Honda and Yamaha. And now is some products coming from China, but naturally, we don't want to begin to assess the competition from China products in that country. We keep our products as it is. So we don't see dramatic situation about that. We see it very positive instread to be able to reduce increased productivity in Spain, in Italy, in Europe, in the United States where the market and where the competition is much stronger than the market of Southeast of Asia. Let's say, this is my vision, probably it's wrong, I don't know. Until now, based on the results that we have achieved, we hope to be able to maintain these results for the rest of the year.

The next question is from Emanuele Gallazzi with Equita.