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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Piaggio First Half 2024 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Raffaele Lupotto, Head of Investor Relations of Piaggio. Please go ahead, sir.

Thank you very much. Hello, everybody, and welcome to the first half of 2024 financial results. Today's conference call will be hosted by Piaggio, Chief Executive Officer; Michele Colaninno; and Piaggio Chief Financial Officer, Alessandra Simonotto. Today, we have also here Matteo Colaninno, our Group Executive Chairman. You can access the slides supporting today's conference 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 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. As mentioned, also in the safe harbor statement included on Page 3 of today's presentation, we can have some data that are based on forward-looking statements. Also, I remind you that the press has been invited to participate to this conference call in a listen-only mode. With that said, let me turn the call over to our CEO, Mr. Michele Colaninno.

Thank you, Raffaele. Good afternoon, ladies and gentlemen, and thank you for attending the conference call of the First Half of 2024. I will briefly describe what happened during the period. And then I think it would be interesting to have some question-and-answer timing after this presentation, as you have seen the slides on the website. Well, revenues are down due to mainly Asia and U.S.A. for First Half of 2024. Europe, we are managing the safe balance between sell-in and sell-out with reduction still to be done on the dealer stock so to be aligned with the new regulations of [indiscernible] Plus. And so to be prepared for the beginning of next year. India is showing a positive momentum for the time being. We are happy with the growth that in India is continuous, but slow growth. And I prefer that we can manage this kind of situation instead of [indiscernible] that we have some other parts of the world. If you take China, for instance, if you take Vietnam, for instance. So India I'm still positive. I would like to point out the positive cash flow that we registered this first semester compared to a reduction [ or absorption ] of 2023, even though we see an increase -- slight increase in costs that we have been able to counterbalance through productivity around the world. And when I speak of costs, I refer mainly to logistic costs. And you know why? It is because of we have two wars ongoing in Europe. The Red Sea problem and logistics linked to transportation. On the raw material, we are starting to see some growing that we will obviously counterbalance taking some action for the next semester, but even for the next year time, so to be aligned with the margins that we have registered this first six months. For the remaining time of the year, as I pointed out during the Board of Directors, we do not see a big recovery in Asia, even though we are seeing some markets, especially Vietnam, where, as I told you in the last conference call, we should have reached the bottom, and with now stabilizing market and hopefully slightly growing by the end of the year. China is still a question mark because it's not just Piaggio products, but all the consumer market in China has been affected by the situation over there. If you ask me, I think that in a medium period, all the Asian countries will come back to good performances even though don't remember that the easiest second best six months that we have registered ever. So if I would say a slight comment on this, I am happy about the margins. I'm happy about the cash flow, and I'm happy about the strategy that we put in place on the product side, on the marketing side and on the development of the dealer distribution at all over the world. We have an increase of cost of debt that is near nothing, nothing as a consequence of the increase of interest rates that is roughly EUR 7 million compared to first half of last year. And we have increasing percentage of OpEx compared to revenues. We have 1% more percent of OpEx related to the revenue. That means that we are not stretching the costs, but we are investing slightly more on OpEx compared to revenues. So the percentage on this could have been tighter, but we didn't stop nothing around. Markets are evolving through electric vehicles very slowly, all around the world. Even though we are continuing investing in electric mobility slowly compared to what has been the predictions of the last years due to the market that is not there. It will come for sure, but it takes time. Given that, we are investing both on thermic engines and electric engines in 2-wheel vehicles and 3 and 4-wheel vehicles. So I would say that 2024 and first half of 2025 will be the peak of capital expenditure due to some key points. Electric mobility, renewing of the entire Mandello Moto Guzzi factory museum and all the stuff around the production side, investing in new digitalization of the plants -- of the production plants. So to be in line or better compared to the competition with the production processes. So a lot of things have been done, a lot of things -- we have to do a lot of things more in the coming years. But as I have to see our medium- to long-term strategy given that I'm not interested in just tomorrow morning, I would confirm to you that the strategy is okay. The product line is quite okay. We have to introduce some minor new vehicles, but we are not to hurry up. So the biggest part of the work, the job has been done, both in schoolers, bikes, 3-wheel and 4-wheel. Obviously, we will have some technology introduction. We will continue to invest in R&D. We will continue to invest in our trademarks protection. We will continue to invest on the brand equity. Because I'm convinced this is the way to counterbalance the competition arising on the small mobility that Piaggio is in. By the end of the year, we'll have, I think, markets that will continue as the first half. And so as a consequence of it, you can imagine what would be the target that we have in mind with the actual forecast. I think that I have pointed out the main key points that after the first quarter has characterized also the second quarter, we will push to try to maintain this level of margins to be in line on the full year basis or slightly better than last year on a full year basis. Remembering that for the next year, but also this is happening now, we can have some slight cost increase. That is not due to Piaggio business that is due to the actual geopolitical situation. So we can do nothing. I think that we can do better in the United States. I think that we could be better also in Indonesia. I'm pushing for it because those are two markets that are interesting for me. China, we follow the market. If the situation is due to problems of the country, we cannot counterbalance this. I think that Vietnam will confirm that the bottom has been reached. And I also think that we have to put in place a strategy, a new strategy for the 2-wheel market in India. It is true that it's going and moving towards a high level of consumer business but some mistakes have been there over there, especially on 2-wheels, on 3-wheel, I'm happy. So I'm putting in place a new organization chart to be able to catch the opportunities on the 2-wheel -- on the big 2-wheel vehicle market in India. Having said that, timing is not, it's not so easy to predict what happens around the world, especially from our political situation. We will have elections in the United States that everybody is waiting for to see what happens. India has closed the election period. So it is now Mr. Modi for next years. Indonesia is closed. We will see what happens in the United States. And then obviously, will some way affect with the worldwide market in the way or the other. If you ask me how to try to have a fair competition on the, let's say, more global mobility business, I don't think that fares and will -- and barriers, import barriers can help the situation. I'm speaking about Chinese products. I think that to be fair, competitive in a world of costs, everybody should produce in the same place. So I would prefer, and I'm speaking notes about this as the President of the Association of the European and worldwide manufacturers, to be in a fair market, you have to have the same cost basis. This is not today, it will not happen, I think. But we -- as we are investing on our products on a branding situation to give to the customers a better experience and technology that is up to date for the customers. Today, frankly, I would not say it is intelligent to go in the mass market or to fight on the cost basis. Cost basis of that. We produce in Europe, we stay in Europe. We produce in Vietnam, we stay in Vietnam. So I don't see any close down of factories around the world. I don't even see any new investments for new factories because we have enough and we are in the right place and in the right momentum. We will be ready if and when barriers would be put in place by countries around the world. This is on a very slight introduction what is the first half of 2024. Now I would say because you have seen the slides, if you agree Raffaele, I would jump the presentation by Alessandra, [indiscernible] with me, but ready for question and answer.

So we are ready to start with the Q&A session.

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

I had a few. The first one, is on the top line. It's now the fourth quarter in a row that Piaggio is reporting declining results at the top line level. In the third quarter, 2023 top line was down by 20, more or less a similar level in the fourth quarter, in the first quarter, minus 20. And now in the second quarter is minus 10. Obviously, this decline has been driven by on one side by [indiscernible] and on the other side, by the decline in 2-wheels western countries. Notwithstanding a stable demand of the European 2-wheel market. I know that part of the explanation is due to the management of the inventories, but I'm just wondering, is Piaggio facing higher competition in Europe? Is it because of your pricing policy? I'm just trying to figure out if in the third quarter, the top line of the group in Europe will start to be positive and growing. This is the first question, and then I will leave the others after.

Well, I have to say that if I look at the Europe, especially at the European markets, yes, there's a competition on price. Big discounts from our competitors. We are discounting very few vehicles that EURO5 mainly, but with a low discount. I think that it's more important, and I'm convinced on this to have a well-balanced dealer stock network, so to be ready to have good sell- in the coming quarters instead of pushing now to show good numbers that then will revert into bad numbers if the stock is too high. Because dealers are entrepreneurs, and they have to make money. If they make money, we had to make money. It's not that pushing for a quarter or 2 on the sell-in would create a safe and healthy future for the company. So I don't know how the market will develop. Our forecast is obviously that the market will be slightly better due to the introduction of EURO5 Plus, but it also depends on interest rates, consumer credit costs, labor market, so exogenous momentum that are not under our control. If I think of what just you have said, we come from a minus 20 and how we are minus 10. I would say like a positive news if it continues. It means that it would be the same level of last year on the second half. But as the market is going on, I have to confirm that we will not push the dealers to buy if the sellout is not in that direction. So we monitor the sellout broadly compared to the sell-in. And I think that's right. because then when you have a growing opportunity, dealers are ready to be our partners instead of calling us and saying, "Hey, guys, you give me some more vehicles on the last quarter, now I don't buy." That is what is happening to our -- to some of our competitors, and I think to have -- to have an intelligent view on the future, we have to keep it very safe.

Okay. Perfect. And now for the second and third question. The second question is just a check. You said that in 2025, there will be more cost. Are you meaning that maybe we can have some margin pressure or even in a scenario with higher cost the company will keep its current margins? And the third question is on the evolution of the mix in the second half. And if the company is planning some further launches of new products in the second half?

Thank you, Monica. Yes, the second one is easy. Yes, we have new vehicles coming on the market on the second half of 2024. That will be obviously EURO5 Plus. But that's normal. We will see -- we will continue to invest in new vehicles or enhance the product line that we have. Because, as I said before, we had some luck, both on scooters and bikes, but we are quite and fairly happy about the product line now. As far as the 2025 cost increase, well, we can manage cost increase with the actual level of production. If 2025 will be affected by declining markets, we will have to take some action. But you know that we are flexible and resilient. So I'm not worried about this. Either because, every year, we take some decision to protect ourselves if we see speculative or speculation, especially about raw materials. If you take aluminum, you see it's hysterical in the last months. Sometimes goes past 20, sometimes goes minus 4. So it's difficult to have the right pricing point. But because aluminum is one of the important raw material that we have, we try to, let's say, fix the cost when we see good numbers for us.

The next question is from Niccolò Storer, Kepler.

The first one is a check on what you said on margins. If I'm not wrong, you said that you're expecting to keep margins flat or slightly better year-on-year, but in full year '24, but in H1, you're already 100 bps more or 120 bps more than previous year. So I was wondering if your comment was related to -- actually to '23 -- '24 versus '23 or H2 versus H1 this year? And the second question is on your P&L. I see that in this first six months of the year, you have had quite significant other operating revenues and other authority cost one minus the other is at peak level. And I was wondering what's behind these figures?

Well, the second question is related to the fact that we have one against Piaggio, where you said -- where you know that we have some discussion with them. The economic result of this will be in the second half, but we have appointed some safe number, priorly of the end of the tribunal court date. Then we have some reimburse from insurances around the world because of extraordinary items occurred. If you remember, we had the flow in Italy at the end of last year. We had some reimburse of damages, nothing serious and nothing related to the ongoing business. Margins. Well, continuing to have 17.5% in the second half of the year where we have a decline in volume -- production volume, will be quite difficult. When I say that year-on-year, we will maintain or be slightly better, I think it would be a positive result given that last year, I think we had 16.4 -- 16.3%, and that would be very nice if we maintain this due to the situation around the world. Obviously, we are doing everything to be better, but it's -- sometimes it's impossible to do better than better.

The next question is from Gabriele Gambarova, Banca Akros.

The first one is on the market trend in July. We are at the end of the month. You told us that you are going to, let's say, produce as much as required by the market or even less, and it depends on the market. So could you share with us any data, any insight on the performance in July, please?

Well, I have to say, as I pointed out in the communication to the market that we have achieved in the second quarter of this year, the better result for bikes. We have never been able to sell 11,800 bikes in a quarter, that's from March until June. And this means that the customer is starting to appreciate our job. July, it's quite in line with last year. So nothing happened that can affect European markets. So if I have to analyze from the sell-out and sell-in of the bikes, I would be positive. Scooter market is different because we have a competition coming from low-priced country, but it's not our target to compete with low-cost vehicles or low-cost country vehicles. In Europe -- I mean Europe. I don't know if I replied to your question.

Yes. And regarding Asia, do you have any indication -- early indication on July?

No, it's too early. What I can tell you is that it's not a plus 20% compared to last year. It continues to be weak. But I repeat, if I take Vietnam, that is very important for us because we're produce in Vietnam and we sell in Vietnam. I would say that the bottom has been reached. So now we're starting to sign some positive numbers, but very, very low numbers. But still, it's a plus, plus one means plus.

Okay. Okay. And maybe is it possible to understand how much did you sell in Vietnam in Q2 since it's the bottom, it would be nice to have a number of [indiscernible].

As you know, we do not disclose and tell the exact numbers related to the market. Otherwise, we're go in a discussion that will never end.