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 9 Months 2024 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Raffaele Lupotto, Investor Relations of Piaggio. Please go ahead.

Thank you very much. Hello, everyone, and welcome to the first 9 months of 2024 financial results. The conference call today will be hosted by Piaggio Group Chief Executive Officer, Mr. Michele Colaninno; and the Group CFO, Alessandra Simonotto. Today, we have also the pleasure to have with us Piaggio Group Executive Chairman, Mr. Matteo Colaninno. You can access the slides supporting this conference call on the Internet, Piaggio Group website. And 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 results and events. By their nature, forward-looking statements are subject to risks, uncertainties and other factors that can cause actual results to be materially different, as mentioned in the safe harbor statement included on Page 2 of today's presentation. Also, I remind you that the press has been invited to participate in 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, and good afternoon, ladies and gentlemen. Thank you for joining our conference. I will be very quick to resume what's going on around the world with the Piaggio Group. First of all, you have seen that the Asian market is continuing the path that it started to have at the beginning, let's say, half of 2023, with declining markets in all the regions over there, especially Thailand, China and Vietnam for different reasons, but mainly due to consumers' attitude to spending that is lower than last year's due to political issues and high cost of interests in the area and global. Indonesia instead is growing well. We are satisfied about the results. We are also satisfied about what's happening in minor countries where we are starting our operations, such as Taiwan, Philippines and Malaysia, where, by the way, we plan to be in a better position, let's say, in the coming years, especially Philippines is a target for us because the growing GDP per capita push us to be more present in the area of Manila. As I said, China is declining in a premium market, premium and luxury market. You know the situation better than me. Other companies are outlining the situation over there. We are keeping the dealers' distribution safe in all the areas. So we're not pushing to sell in without having a real sellout in the old market. India came in a little bit in the August area. We are satisfied. Margins are growing. Our productivity is okay. The production of the global Aprilia bike 457 is growing, I would say, even better than we forecasted even if we started just recently. As you have seen, we are launching other products related to the 457 series at the EICMA Fair. The customers are very satisfied on what we are showing them for the next year product line. So for India, we foresee a growing situation at the EBIT level and also the marginality is good. We don't see any disruption by the end of the year. So it will continue to do as it has done since now. Europe market is quite flat on bikes and it's a little decline on scooters. We know that we have competitor -- new competitors coming from the Asian markets coming in with low prices. We are not following them. We continue to keep the prices we have at the beginning of the year. We are not discounting to customers because the healthy dealer distribution network among Europe is what we have reached until now. And as you know, a prudent selling strategy until now has give us the sustainability of the dealers' financials and we care a lot to that. We have destocked in Europe due to Euro 5 and Euro 5+. So to have a safe dealer distribution network beginning next year because we have many new products to start selling in the fourth quarter. So this is perhaps prudent instead of pushing. But given the actual geopolitical and financial global situation, I think that it is the right strategy, perhaps to lose some million in revenues, but to have a healthy dealer distribution network. We manage 4 brands at the same time under the same roof of the Motoplex dealer. So we have to carefully distribute the vehicles and carefully take price positioning compared to the competition. If you go to U.S., U.S. has shown a 9 months in a declining situation of the market. Although over there, we have a good result for the bike that we have introduced so far. And obviously, the Vespa is continuously to be the leader in the premium scooter segment all over U.S. So in a nutshell, I would say markets are going down. We are maintaining market shares somewhere slightly growing, just slightly, 0 point. And that has driven the company to have a 9 months EBITDA at 17.3%. That is the best ever 9 months that we have shown since the last 22 years. As I told to the Board of Directors today, it is a very, very interesting number. I would say that it's difficult but not impossible to maintain in the coming years. We just need some stability that it's not the Piaggio Group can drive the situation, it's interest rates that has to go down and it's -- we see that they are starting to decline, so to speed up the consumer confidence on spending their money. The second issue is that we hope, as everybody hope in the world that the political situation will, in some way, be better, hoping to be better because otherwise, we continue to manage some [ isosteric ] markets that it's not what we are taking care. As you know, we have a medium- to long-term strategy, not just tomorrow morning. The productivity is going on. We are very satisfied with the management of our capabilities around the world, and we are very satisfied of what we are doing in investments, both in products and facilities. As you see, it has grown -- we are roughly EUR 15 million compared to last year in CapEx. This is due to new products and new facilities, especially the one that we are totally renewing Mandello del Lario for the Moto Guzzi brand, where we will have, I think, a very interesting situation in place for our customers. Let's say, one of the best in the world for design and capability. We are introducing new technologies that we have delivered in the Boston -- the robotic components division in Boston, such as robots for carrying staff in our factories, to enhance for our workers their safety for sure and also to be more productive. So by the end of the year, I don't see any major improvement in the areas. That is to say that the markets will not have a big rebound. And that's why we will continue to manage eventually destocking the dealers taking that we have done 90% of the job, given it is November because we are also introducing -- starting introducing the Euro 5+ vehicles. So the show has begun. I would say that the financial situation of our debt that has increased a little bit is due to EUR 14 million of CapEx and obviously, less cash in from revenues. That's the direct consequence of the decline in revenues. If I have to think from now to next year, so what will happen in the world, I would say that the product line will be very interesting from a customer point of view. We will not have a major increase in prices. So we will continue to work on increasing costs that is everywhere in the world, potentially on raw materials and logistics due to the fact that there are wars and tensions around the world. Through productivity, we will not -- we try, and I think we will succeed not to increase prices. We are satisfied with the price point we have, given that we have a 17.3% EBITDA. As I said at the beginning, we are at the Milano Fair, the biggest in the world for the sector. And our product line has been very, very interesting for the customers. They are satisfied. They are happy that we renew quite all our products and that we put new products in the dealer distribution channel. As far as equity -- brand equity is concerned, that is one of the key pillar of the strategy in the medium, long term, we are continuing to invest in marketing activities that are correct for the customer today. We're investing in the digital world of e-commerce. We're investing in fashion and apparels for our Vespa brand. We are starting to invest in fashion and apparels related to the brand. So it's a strategy that would enhance the value of the brand. Commercial vehicles. Commercial vehicles, as you know, we have a major production hub in India that deliver vehicles to Indian surrounding countries. As I said, the margins are good. The market is going back to 2019. We don't see any major issue that would put us in difficulties also for the next year. We launched the new electric vehicle, 4-wheel porter, totally new for the brand, a very good job from the team, both R&D and production. The vehicle is perfect for big urban areas that want to enhance their traffic jam through electromobility for delivery of goods. We will start putting in the dealers network next year from April, let's say, March-April. It is a very good vehicle, interesting for the payload, 1 ton and also for the dimension that it is perfectly suitable for last mile deliveries all over the world. We will start just from Europe on selling the vehicles because it's a total full electric vehicle. And the second line is the new Porter NP6. It's not a new vehicle, but it's totally aligned with new legislation from cybersecurity other than ADAS. So the product line is ready. From the capital expenditure, as I said at the conference call of the first 6 months, I confirm that 2024 and I would say half 2025, we will reach the peak of capital expenditure, then we will start to see some declining need of investments due to the fact that we have filled the gap on the 2-wheel product line with the competitions regarding some displacement that we didn't have. So we are starting to complete the product range. And then obviously, maintaining the actual product range, we will enter into more maintenance and update more than totally new products. Totally new products is far away more costly than maintenance and update. So this is to say very shortly what has happened in the last 9 months and what happened in the last 3 months. Obviously, I'm here to answer your Q&A. You've seen the presentation. You have seen a lot of interesting pictures of our products and results that we have also achieved in the sporty competitions with the [indiscernible] in Africa. Frankly, I'm not satisfied of the result of the MotoGP championship. We ran at the beginning of the year for the third place. We could do this. It happens. It's a competition. It's a high-end, fantastic play, but we are ready for 2025. New people are coming into the team. We are pushing for more concrete results since the beginning of the championship of 2025. That's it, I want to say, Raffaele, and ready to answer.

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

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

I have 3. The first one is on the top line. The third quarter marks the fifth consecutive quarter of a significant top line decline. Obviously, the company was affected by the downturn in the premium market in APAC areas. But in Europe, also the company reported in the third quarter a 17% slowdown in revenues. I imagine this mirrors the management in the stocks, but I would like to know, am I correct assuming a reduction in dealer stock levels in the region of 10,000 units or something more could be an accurate estimate. And on this side, the second question, which is linked to the first one, can we assume that the pace of destocking in Europe will slow down or maybe will be over in fourth quarter? And maybe can we see a stability in the revenues in the fourth quarter? Or should we assume a further downturn in the fourth quarter? And the very last is, can we assume EBITDA approaching EUR 300 million or something similar by year-end? Can you give us some flavor on this side?

Thank you, Mrs. Bosio, for your questions. I would say that starting from the top line, the top line is the direct consequence of declining markets. So as I said, we didn't lose market shares in the premium market in APAC. We have a good situation in India. You are right, we are continuing to slightly destock the European markets, given that since next week, we will have the introduction of the new Euro 5+, entire product line range. So the dealers are ready to have the vehicles. We don't have any complaints from our dealers. They are happy to have the new products, and there will be perhaps some destocking also in the fourth quarter, but I would say that this is in balance with the introduction of the new products. Consider also that last year, third quarter, we had the introduction of 2 new bikes that we didn't have in this quarter. So if you look just at the single quarter, you have to clean the introduction of new products that it's not always the same at the same time of the year. So you have a quarter where you have new stocking of new vehicles, you have a quarter that you don't have. It depends on the factors. Fourth quarter stability, well, it doesn't depend from my decision. I would say that if I have to be positive, I see something interesting and positive in Vietnam, something interesting and positive in Thailand, but it's just a few units if you compare to what happens at the beginning of the year. Let's say that the declining of the markets is lower than before. So it seems that since June, we are touching the bottom. And given that our dealers are clean, we can restart growing sell-in. I repeat, it's not major numbers, but it's a positive sensation that we have from APAC areas. EBITDA of EUR 300 million, I would say, yes, around because we are in line to reach the goal, I would say, around EUR 300 million. It's not EUR 1 million less or more [ than I care to ]. And that would be, I think, a fantastic job from the team to reach that number, given that all the markets that we have around the world have shown declining volumes. If it is from a legislation point of view, it's destocking. If it is a consumer attitude, it's declining markets. What is important for me is that with the introduction of the vehicles that we have in the 2023 year, especially in bikes, we have gained some 0 point market share, especially in Europe. So if I consider the market share, as an indicator, it's not the only one. And it's not what you have to follow, because sometimes if you follow just the market share, you have to reduce the price. We have keep the market share, sometimes 0 point, more, so better than it was, without reducing the price. We see people discounting 30% their bikes in the markets. We are not. So I think this is a good indicator of the value of the vehicles and on the healthy dealers that we have.

The next question is from Anna Frontani, Berenberg.

I have 2. The first one is on the strategy that you have for your points of sales. Correct me if I'm wrong, but I think I've seen some aggressive reduction of points of sales in some countries. So if you can please provide us with the rationale for that? And what should we expect going forward? And the second question I have is on China. You mentioned a decline in premium luxury market. What is your outlook for the next year for the region?

You mean just in Asia?

Yes, broadly in Asia and if you have some insights in China as well, please.

Okay. Okay. So as far as the dealers' closure, if I get the question, you want to know why we closed dealers?

Yes, some points of sales, I think I've seen in Spain, you've quite reduced the numbers, yes.

We are finding a good agreement with dealers when we see that they are not what we need to maintain the brand equity value. So as we are investing in that, the dealers are the first image that we give to the market, let's say, not the first, but when you enter our dealer, you have to appreciate the value of the brand. And so if a dealer doesn't take care to these aspects, it's better to close instead of giving a negative image to the customer. So it's not that we are losing market. We are optimizing the dealers' network, closing dealers, but also opening new dealers. So it's a balance. It's better and intelligent to open dealers that are 100% reliable from a financial point of view and that agree and understand what is our strategy on marketing activities, CI, expositions of the vehicles, stock that they have to have, that is a representative stock of all the brands that we have. And so, it's a marketing activity, nothing related to the business. And for instance, just to give you a snapshot, we opened 2 very interesting multiplexes. So 4 brands in United States in the last month. I think it was Indianapolis and Atlanta that are perfectly aligned to our strategy on CI and marketing. So we open and close. My vision for the Asian market is actually next year, wow, difficult. If I read on the expectations of the biggest company in luxury consumer market, LVMH, Richemont, Hermes, and I follow them, they are not 100% positive due to the fact that the Chinese -- especially Chinese market is reducing their consumer attitude spending. Obviously, we are not related to those brands. We are lower than them. We are in the premium market. We are not such high price. I think that the market is a growing market. The area will grow, no matter what. I don't have any doubt because they have more than 1 billion people. They are going up in GDP. This year is a disruptive year for the area, but I think the curve is positive. They will grow, and they will grow in premium. They will not grow in cheap. So we are in the right place, I think in the right time, because we have production there and selling there. We don't have to deal on logistic problems. Also, the purchasing department in Asia is dedicated to Asia. So whenever the market signal is positive, we are ready. I don't think they will do a 25% growth next year. That's my view. They will grow, yes. If you compare to 2023, and it's difficult to reach that number, let's say, '22, that would be the peak. '22 is far away. But given the area, the people, the infrastructure and the technology over there, they are investing a lot of money and be better day by day, it's perfect for our vehicles.

The next question is from Emanuele Gallazzi, Equita.

I have 2 questions from my side. The first one is on Europe. You mentioned an increasing competition from your Asian competitors and some are, let's say, more aggressive in discounting policy. So can you, let's say, share with us a little bit more about the European market? What are you actually seeing now in that market? And the second one is a follow-up on destocking trend in Europe because it's pretty clear the gap between the sell-in and the sell-out in 2024. It's okay that the destocking is almost done. But looking at 2025, do you expect sell-in to be, let's say, more or less in line with the sell-out, or we should expect the sell-in to be higher than the sell-out and so closing at least partially this gap?

Competition is usually good for everybody, so I'm not against competition. We play different games. They play on the price side. They're doing a good job, so it's not a quality issue. Sometimes it's not completely fair, the competition, but we can do nothing. And so, we will continue to push on convincing the customer that they are not just buying a piece of steel that you have to search for discount, but you are buying a brand. Okay, it's still a vehicle, but when we, as Piaggio Group, we will continue to push on increasing the value of the brand without having -- we are not saying that we are too far away from the price that we see from the Asian competition, even because we have production in India and Asia, so we know the situation. I think that if you want to buy a product, you also look at what you're buying. On a different side, if you just want to search for a price, well, you can buy whatever you want for cheap price and cheap quality sometimes. So I'm not worried about competition. It's our task to beat the competition, and that depends on the people working at Piaggio Group. Destocking. Destocking is natural, nothing strange, especially with 8% interest rates on the market, Euro 5, Euro 5+. So it's nothing related to we had too big stocking at the beginning. We had the correct stock at the beginning. We have to manage the introduction of a whole -- the product line that we have. But I repeat, we have 4 brands. We have tens and tens and tens of vehicles. So we're not selling 1 brand, 3 vehicles. And I want the dealers to have all the vehicles. So the destocking will be finished by the end of the year, obviously. We will continue pushing -- not pushing, but selling the new products. And yes, it is intelligent to have sell-in equal to sell-out because if the market goes up, we are very happy. But sometimes it happens that you do sell-in and then if the market goes down, you have to discount your vehicles. And that's the worst thing that a company can do. So I'm not following in too much the sell-in, sell-in, sell-in, sell-in, sell-in without having a market that is at least the same of this year. And I don't expect a decline, by the way. I expect next year to be in Europe, as it is since more than 3 years, plus something or minus something. It's flat. Growing in value because bikes for us, the average retail price is growing because we are introducing bikes. And I think that it's intelligent and safe to manage the dealers like this.

The next question is from Niccolo Storer, Kepler Cheuvreux.

It's about the indication you gave before about EBITDA around EUR 300 million. If I make the math, basically, to get to that level, you would need fourth quarter EBITDA quite higher compared to previous year in a context where, from the discussion that we have been having, it doesn't seem that we might aim for a much higher turnover. So how these 2 things can be put together? And maybe we misunderstood something about the expected revenue strength in Q4, or maybe on some special cost-saving action that we might further see in Q4?

No, cost-saving, I'm happy like it is. So we should not follow cost-saving when we risk to have a low quality. So I'm happy. Obviously, we are moving to search more and more productivity from every sector of the company, but it's not that we will save money, reducing marketing, reducing the quality, or stretching the production line. So we don't want to make stupid things from a product side to save some money. Fourth quarter, I repeat, we have destocked. We are launching the entire new Euro 5+ vehicles. And if the markets continue to go like this, it's a number. We have destocked. We are launching the new products. So it is sell-out that will continue like this, and sell-in that will need to be slightly higher compared to the last, let's say, 9 months that we didn't launch any new product. So the start of the new product line, given that we have entire new product and the entire Euro 5+ coming, I think that around -- I repeat, it's not that I'm saying that we will be higher or lower or EUR 300 million or EUR 295 million or even because it seems that the market is not interested on EBITDA. So even if I say some number, if I do EUR 300 million, the stock now today is EUR 2.15, so we will be around EUR 300 million, that depends on the market. If they are satisfied with around EUR 300 million and the return from some dividends, they do their calculation.

The next question is from Michele Baldelli, BNP Paribas Exane.

I have a question on the price/mix effect in developed markets in Q3. Is it right to say that the price/mix was negative in Q3? And therefore, let's say, if it is right, what about -- did you have a mix effect that was strongly negative and why?

The price/mix, you deducted from what?

I deducted from the volume sold in Q3 and the sales sold in Q3 in developed markets. It seems that the price/mix is down 2%.

I don't see any reduction in pricing. So the price/mix is perhaps the balancing of introducing bikes instead of scooters or introducing scooters instead of bikes. The price has not been deducted. So if you divide just the revenues by the numbers of vehicles, you can have an increase or decrease, but it's not the policy of the company to -- I frankly don't see any problem from the price point. The mix is made by vehicles, spare parts, services, it's a number of factors that affect the price/mix. You introduce a bike, the price/mix increase. You introduce a scooter, perhaps the price/mix is likely to decline because the price of a scooter is lower than a bike. But that's the introduction of vehicles.

And if I may, could you share with us the sales trend in October, how it was if possible?

What you said?

The sales decline or increase that you recorded in October.

You can see from the numbers.

So next February or March, you mean?

No, you have declaration from the local -- as usual, from the local administration that will give the numbers from the ANCMA -- Italian ANCMA has given the numbers. I think the Spain will come. It's normal.

Okay. No, I was referring to your sales number, not the market. But if you prefer not to share, it's not a problem. It was just to ask if you were open to share it.

It's in line with last year. If that is what you want to know, we are almost in line with last year in October. But I don't think it's a real -- it's 1 month.

[Operator Instructions] Mr. Lupotto, there are no more questions registered.

Okay. Thank you very much. Thank you. So I think that the call is over, and we can -- so thank you very much for attending the conference call. If you have further info, as usual, you can call me later. Thank you. Bye.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.