Piaggio & C Spa Unsp/Adr

Good afternoon. This is the Coral School Conference Operator. Welcome and thank you for joining the Piaggio Group First Quarter 2023 Financial Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. 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. Thank you. Hello, everybody. Thank you for joining us to follow this earning call. Joining me today are Roberto Colannino, Chairman and Chief Executive Officer, Michele Colannino, Chief Executive of Global Strategy, Product Marketing and Innovation, 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 risk, 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 listening-only mode. With that, let me turn the call over to our CEO, Roberto Colanino.

Good afternoon to everybody. As you have seen, the results of the first quarter is quite good. Just to reconfirm that this quarter is in line, with our budget configuration. So the results that we show is in line with our expectation. As you know, the Piaggio Group is present in all the world's market, and the vision that we have is globally intensive. And based on that, we see that the market evolution of the first three months is in line on what we expected for the future month. The area where we look our business is Europe, where we have some country going extremely well, Italy, Germany, Austria. Other country has Holland and France, is a little bit delayed based on different questions. But generally speaking, Europe presents a sales line very stable. The second huge area is Asia, where we are present in India, in Vietnam, in Indonesia, and China. So I want to say that our vision is based on 100% experience on the production and sales and marketing and products developed. We see that India presents some number that can be sure that the year Twenty-three will be much better than 22, especially on the three-wheeler. Vietnam, Indonesia, Philippines is in line with the last year business, and we expected that even this year we maintain the same quantity price EBIT and results as last year. I want to underline that last year we have very, very positive results. China is a little bit delayed. Generally speaking, the effectiveness is a huge duty that we have to pay for the products that we import in China from Europe. And instead the products that China buy from Vietnam is very good and due to the fact that the duty is very close to be zero. The United States is, the development of the United States is on the good development, stable, especially on the motorcycle. we have good results and we expect the same things for the rest of the year. To say this, I want to underline that we are totally looking at the productivity management system because we try not to increase price, but to find to confirm and to increase the margin through productivity strategy. We find very high results already in the first three months after the reorganization in the production, especially, and due to the raw material cost, especially on the gas and electricity, where the price of 23 in relation with the price of 22 is going down, slowly going down. So productivity plus the decrease of price give us a big positive vision for the rest of the year. In terms of investments, we go on with the electrical new technology that cost to us in term of new organization, new people, that we already complete all the plan. And now we are on the way to be in the executive area. Let's say that electrical market is not so... enthusiastic as everybody thinking about. The market, generally speaking, is a little bit reluctant to be open to electrical system due to the main problems that is infrastructure, the price, and they say, generally speaking, the general organization. In terms of problems on the political and the position, the problems around the world, our market is a little bit out from this type of problem. We don't have any problem from the Ukraine war. We don't have problem with China, United States. We don't have a problem in other parts of the world so that now, especially in some countries of Africa, the situation is very critical. The two-wheeler market, fortunately, is a little bit independent for this type of situation. Regarding the inflation, inflation Because our budget is based much more on productivity and cost reduction than price increase, we follow this strategy for the rest of the year because we have seen some advantage coming from the raw material market, coming from transportation cost, and coming also from the high results in time of reduction for the production technology and the production engineering of the products. We confirm so the results of the first three months also for the rest of the year in time of range of productivity. Based on that, we are positive on the results. The new, we are on the way to manage a big evolution on trade name, on advertising and promotion, and on the sales distribution organization, where we base our future strategy to support production and new products. We have a big plan on sales organization. We have a big plan on support the trade name as Vespa, Moto Guzzi, and Aprilia. And we have a big work to do on the sales organization and how we sell our products. So, We say that this year for us means productivity, sales organization, advertising promotion, and quality of the products.

Okay. Thank you very much. So we are ready now to answer the question you may have. Thank you.

Thank you. This is the Coruscant Conference Operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. To remove yourself from the question queue, please press star and 2. We kindly ask to use handsets when asking questions. Anyone who has a question may press star and 1 at this time. That's star and 1. We will pause for a moment while questioners join the queue. The first question is from Monica Bosio with Intesa San Paolo. Please go ahead.

Good afternoon and thanks for taking my questions. I have a few questions. The first one is on the progress of the EBDA in the first quarter. In the first quarter, the group's EBDA improved by roughly 20 million. The consensus sees for year-end an improvement of 30 million. So that, in the first quarter, the ADBA improvement covered two-thirds of the yearly expected improvement on the ADBA. At this point, I was wondering if you can share your view on the consensus that looks to me a very, very low hanging fruit. So just a check from your side. The second question is on the inventories. Are you still expecting a decrease in inventories across the year, as you said in the previous call? The third question is on the European growth. The market, the two-wheel market in Europe, in the first quarter, the market was positive by roughly 5%. Piaggio was positive 5%. in EMEA by plus 3.5%. So what do you expect for the second quarter, also on the back of the positive figures of April? Should we expect for the full year a positive trend or at least a flat trend for Europe, even accounting macroeconomics slowdown? And the very, very last question is for me. You mentioned the productivity actions. Do you plan to cover, do you expect that the productivity actions will affect, fully affect a potential decline in pricing? Thank you very much.

Starting from ABDR. As I've already told, that we base our budget evolution based on productivity. The first result of productivity is we are able to introduce in the way of efficiency is the cost reduction. So it means that EVDR will be in a positive position in relation with this, our target. Naturally, the first three months that you see that our results confirm that the productivity action is quite positive, confirm that it's possible to achieve, even was not so sure when we developed the budget. Based on that, we I don't say that we are sure, but we expected to have the same trend of positive influence on ABDI if we are able to maintain our productivity action plan. I want to be clear that the concept that we have about productivity is not to work more in a way that the people have to work more than today, but have to work better than today, and to find a system to put these people to work better. Number one, the project has to be in line with exactly the technology of the production line. The project has to be in line with our supplier, And the project has to be in line with the technology that we have in the company at this moment. If we are able to do this and maximize this, naturally the productivity will be a positive impact on our cost in our IBDR. The second one, the trend or the stock. And naturally, we want to reduce stock because this is a part of our productivity, and this productivity will be impacted on the cash flow. And for us to fall on the cash flow this year, let's say that is more important than the economic results. We believe that all the turmoil that is in place from the inflation, from the problems of country, work, and so on, so on, will be some effect on the interest, cost of the money, and the liquidity that is in the hands of our dealer that has to have the money to buy and to stock the products for a certain period of time. So, for us, the cash flow is the first hole that we want to reach through a Inventory reduction, credit as the strategic tools for sales, and productivity again. Other questions that you ask? The market in Europe. Based on the first quarter, and also April that is already done, I want to say that the trend of Italy is fantastic, very good. Germany, they say that is good. France have some problem due to the new legislation that is effective by January in the Paris area. Spain is good. Holland is not good, but fortunately it's not a big market. All the north country, England, Norway, Sweden, is in line with, let's say, a normal market. There's no down, there's no grow, but there's a line that guarantees anyway the quantity that we have budgeted. India. India is a huge market, you know. The number of people in India now is the first country for population. India started this year, the market in India started quite good in respect to the last year, but it's not enough, it's not in line with the potential of the Indian market. But we expected that the growing there would be huge in a short time. Vietnam, Indonesia, Thailand, the Philippines is a market. I call this market as gold market because they have results, EBIT. in line with the market evolution. And let's say Piaggio have a guarantee through the marketing policy that we have developed in the last period of time to be a huge competitor with the other one, especially Honda and the other Yamaha and the other Japanese. And today, because our strategy, especially through Vespa products has to be top-line products. We now have the results of that. China is in line with our budget. Generally speaking, we confirm the positive view on the market that we have in the first quarter.

Okay. Thank you.

Good afternoon.

I have one question related to the performance of Western countries in Q1. We have seen a very strong price mix effect in Western countries. average selling price above 4,500 euros so I was asking which are the drivers behind this performance if it's price, if it's mix and if it's mix if it's just something related to geography so maybe the contribution of the U.S., Or maybe it's also a matter of mix of Vespa and motorbikes versus other lower-cost scooters. Thank you.

Raffaele speaking. Essentially, it's a strong mix effect, and strong mix reflects the premium nature of our brands and products, and this is the real answer. we have seen the same kind of effect, positive effect, both in the US and Europe.

And so, I mean, it's not a one-off, I mean, This is something you expect to continue going forward.

Yes, the only thing we change going forward, Q2, Q3, you can have a slight movement of average revenue per unit, just because there is a different trend in the scooter and motorbike trend in Europe. Motorbikes are very strong in Q1. Normally in Q2 and Q3, scooters as a market are slightly bigger than scooters. than motorbikes. That's it. But at product level, no, nothing less.

Okay, and so maybe a follow-up on pricing. Basically, from what the chairman said, we should not expect any further price increases on products in 2023.

Yes, if there are negligible, so low single digits, nothing very important.

Okay, thank you.

You're welcome.

The next question is from Anna Frontani with Berenberg. Please go ahead.

Hi, good afternoon, everyone, and congratulations on the record results. I have two questions. The first one on your sales growth. Do you think that double-digit acceleration that we saw in this quarter is also sustainable for the following quarters, given also that later in the year you will also face tougher comps? And then the second question is on the electric products. Can I ask where are you in terms of innovation and product launches? And also if you can please help us understand how much is the weight of electric on your turnover. Thank you.

So as far as the electric market, first of all I would like to remind you that the electric market in Europe declined by 32% in Q1. And essentially we are selling electric vehicles in Europe, in India, and around 4% of our revenues stem from electric vehicles. So this is the answer to your second question. The first question was, I think Alessandra wants to answer.

The same that we will expect for the next quarter. We hope so and we believe so because there is a sustainability as you well understand and you well know having in mind our figures of the last 10 years, so there are different weight of revenues in the different quarter. Normally the second quarter is the best of the year. Having in mind that motorbikes are growing here in our sales, this kind of seasonability will become a little less in 2023, just like you have seen in the results of the first quarter. So we believe that the growth, more or less, will be the same in terms of revenues and in terms of margins.

Very clear. Thank you very much.

The next question is from Gabriele Gomberova with Banca Acros. Please go ahead.

Yes, thank you for taking my question. I've got just one, let's say, of strategic nature regarding your business portfolio. You have these big operations in India on the three-wheeler, so let's call it a sort of mass market business, while you are more and more... becoming a sort of, let's say, premium player in the scooter business. Do you think that this, let's call it a mass market business of three-wheelers in India is absolutely strategic or you tend to see it like something apart from the rest of the group?

If I understand your question, is that for us Vespa is the trade name that is a premium product. We work in order that the value of this trade name is not only the mechanics, tools, or The speed, the concept, but is the design, is the strategic that put Vespa as a luxury product in the way that we wanted that the young people that buy Vespa buy a sort of product that put this in the line of not just a transportation product, tools, but even that product that is something in term of evaluation, in term of presence, in term to satisfy what is required as a fashion tools or part of your fashion style. This is very important for Asian market. even that the Europe and the United States, but especially India, Vietnam, Thailand, Philippines, it's quite important that for that market the trade name is not a generic trade name, is not a question of price, is not a question of something that is related with the normal, let's say, and anonymous products. But when you buy that kind of product, you are positioning yourself in the market as to complete your fashion style, to complete your position, to complete what is how you are dressed, what is your message they want to say to the market. We believe that this we can reach with the Vespa name especially. Different is Aprilia, different is Moto Guzzi, different is commercial vehicle and so on. And we work in a very high, with a high and new strategy to reinforce this position of the process. And I want to tell you that the first result is unexpected in the positive way. If you go to Vietnam market or Thailand market and talking about Vespa, you will be surprised about the reaction of the customer to say why I want to buy Vespa. Why I want to, what I like to buy Vespa at this point. So this is, in principle, our strategy that we want to launch in the market in order to be able to increase our penetration and to increase our position related to our competitor.

Okay, so if I understand correctly, your strategy is to focus on premium and on VESPA. My question was just about light commercial vehicles, let's say three-wheelers in India especially. If you see it as a strategic or a core business, this was the... I understand that the Piaggio Group is diversified about products, about trade name, about the distribution channel.

And like to say, he's very, very, very different from our competitor. We have, as you consider, Piaggio, Aprilia, Motoguzzi, Vespa, Ape, Porter, as different products. different line and different customer, but we have now developed our distribution channel that is very, very important and very successful all around the world. And for each of these different trade names, we have a proper strategy and a proper way to have the relation with the market. Aprilia is totally different from Vespa. Moto Guzzi is different from Aprilia. And we get the results of our different strategy in this different name.

Okay, thank you. Thank you very much.

The next question is from Sébastien Lemonnier with InnoCAP. Please go ahead.

Hi, good afternoon. Congratulations for the results. Two questions on my side. Can you elaborate a little bit more on the productivity opportunity? Because you mentioned that it seems that there is an area where you can get the people to work better. Can you give a few examples and try to quantify it? It would be great. Second question relates to sales organization. As you said, there is a plan to also make the sales performance better. Being located in Paris, I have absolutely in mind your what you mentioned in terms of new regulation, but I also see this as a strong opportunity for you, especially given the swappable battery, because for sure there's not going to be any infrastructure in the coming two to three years. So first, what's your plan in terms of new release of electric swappable battery? That's the first one. And then, don't you think, especially in France, there should be marketing issues or anything like this? Because If I take the example of the Piaggio one, nobody is really aware of this offering, which is more or less valued with the incentive of the state at the same time, at the same price as an electric bike, where it should be much more convenient, much more faster, much more comfortable. So what are your actions really in France to transform the current issue into a potential strong success going forward? Thanks.

You are a very hard question. What do we have to do about productivity, if I understand well, to avoid to crucify the people? Is it correct?

I'm just trying to understand what can you do to make the people work better. So if you can mention several actions that you take into the warehouse, into the factory, and then if you can try to quantify on a normalized basis, how much kind of margin gain you can generate from this better efficiency or better way of working?

Let's say that to respond to this question, maybe we have need more than two minutes in the way of that. Productivity for us, as I told you, means to work better than what is done today. And this is not the responsibility of the worker or responsibility of the people, the employee, but it is how the company in the way, in the totality of the company, running and how the people is able to have a better performance to work together. Let's say that number one is that teamwork. is quite important to get some results on productivity. The people have to talk together openly and frankly, and, for instance, the responsible for cash have to be entitled to talk with the production people, and the sales have to be in line to talk with the logistic responsible. or the manager that is responsible for spare parts have to be able to talk even with the salesman. Number two is that the secret, if you want to get a better productivity, is to look in a very small number and to look and control the small things of the company. Because where you are able to save money is if you control in very detail the small things. So I'm interested to know what is the quotation of the steel on the market, for sure. But I'm also very interested to support and to know how the people work in a small operation of the company and how much time they lose in the way to satisfy the production or the customer request. So the process that we look on the productivity is quite complicated. It's not possible to introduce a productivity program, let's say, this year for the next year. It is many years that we work on this area. We never finish. But we, let's say that for the first quarter of this year, Our productivity means that our margin results improve very well with the high results of that. The second question is about the electricity. We work on the... Electricity, obviously that we work on that. We are working now to transform, let's say, to update. The right word is update the organization coming from the mechanics to go on the electrical technology. Let's say that the result of the market is not so enthusiastic. The sale is very poor. and the demands of this kind of products is substantially negative. But we follow the new legislation. We are sure that in the future electricity system will be important and we want to be in line with the request of the market when this will come. is a country where, for instance, we have a big change on the Paris city district because the mayor has introduced some regulations that oblige to improve the electrical products much more than other big cities around Europe. We wait and see. We work, we are in line with the request of the legislation. We are in line with the technology. We are in line with the people. Naturally, we expected that the market will be ready to do the same things in order to require their products.

Okay, thank you.

Mr. Lupotto, there are no more questions registered at this time.

Thank you. So I think that we can end the call now. Thank you, everyone, to attend this conference. If you need further info, you can call me later. Thank you very much. Bye.