Piaggio & C Spa Unsp/Adr

Good morning. This is the Coruscall Conference Operator. Welcome and thank you for joining the Piaggio Group First Half 2023 Financial Results Conference Call. As a reminder, our 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 very much. Hello, everybody, and welcome to our first half of the 2023 earnings call. Joining me today are Roberto Colannino, 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 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 Colanino.

Okay. Good morning to everybody. I just... Just finished the Board of Directors, where I described the results of Piaggio on the first six 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 profit, and debt. We never were able, from the time that I am involved in 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 Piaggio was able to be a big player in all markets at EMEA, Italy, United States, and India, where the market is beginning to react in a positive way especially on three-wheeler, and especially on the request on electric three-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 was able to absorb some impact of the sun market without increase in a substantial way the price. In other terms, the results of Piaggio of the first six months is achieved mainly for the productivity activity, where we are able to gain some important points 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 gives us the possibility to look for the next six months with the possibility to achieve the results as we have in our plan, and we believe in a positive way the results of the end of the year. This reason is because we were 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 the customer requirements and customer care. So, for instance, we have achieved very good results on spare parts and and the other piece of the products. We are able to be very satisfied 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 the new products that we maintain and that we will maintain on the last six 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-sized products. I want to remark that regarding the motorcycle, Guzzi is coming with very unexpected results in terms of quantity and in terms of sales in the first six months. And as we have decided, we proceed in the new restructure of the company, of the factory, let's say beginning by the end of the year, and to follow the trademark GUTSI 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 markets. Aprilia, Vespa, Moto Guzzi, Piaggio, and let's say not only in the two-wheeler, but also in the three-wheeler, and now in Italy and in Europe, we are working to be ready to develop a four-wheeler commercial vehicle on electrical version. We're working hard with our partners and our partner to be able to achieve the results on this market that we consider very important. But I want to underline that the ability of the company to 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 six 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 three-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 terms of EBIT and on top of everything, the EBDR. EBDR of the group, we expected to be able to go in the same way of the first six months and to maintain the same level of EBDR on the year of 2023. So in our vision, despite all the problems around the world, Piaggio today is in a position that is able, 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 don't expect to have a delay on a new product that we launched before the end of the year and that 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 three-wheeler. Let's say traditional and electrical way. Means the cash flow and 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 is 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, the general expenses, and to follow what the market in terms of sales requires to us. So we don't expect to increase price for the first six months in a substantial way. We expect 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 all over the market. So more than this, I don't know what 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 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.

Excuse me, this is the Chorus Call Conference operator. We will now begin the question and answer sessions. 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. Please pick up the receiver when asking questions. The first question is from Monica Bolgio with Intesa. Please go ahead, Madam.

Yes, good afternoon, and thanks for taking my questions. I have three. The first is on the second part of the year and on the current consensus. In the first, the group delivered an improvement in the EBDA in comparison with the first half of 2022 of roughly 39 million. The consensus is expecting for year end an improvement in the EBVA in comparison with the full year 2022 of 31 million. So I'm just wondering, how do you feel? Do you feel confident with the consensus or maybe Given that nothing seems to deteriorate 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 two-wheel market in July, and what do you see for the APEC 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 two wheels for Europe by the end of the year? Thank you very much.

Very long list of questions. Sorry. I hope to be able to satisfy... to reply correctly to your question. I started with the last of your demands that is very easy to respond to. We believe to launch before the end of the year the new motorcycle version of 400cc made in India with the name of Aprilia. And this I want to say that the first prototype is already done and satisfies very much all of us about the design, about the results, and about the cost of this product. Why India? Because this type of product is new for us. The size of 400 is a products that require the whole world market. And naturally, quality and price is the two win-win conditions. And I believe that India is able to satisfy these two conditions. Then we begin 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 on Piaggio Italy in a way that was, as you know, a thermic company would use diesel and gasoline engine to a company that produce electrical wires. and started with the four-wheeler with the new commercial vehicle, where today is very successful, where is the thermic engine, and we believe that this electrical one will be very welcome from the market. In terms of what is the scooter, scooter I think that we are working now very hard 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 the magazine, we have an idea in terms of how to develop the requirements of the people with our products. In other terms, Vespa will be our products where we work in order that the market will can appreciate more and more the design, the technical performance, and all the style that this type of product is confirmed to be a leader in the market, not only in Italy and Europe, but also in India and China and in the United States. demands regarding how we see these results of the six months. Our idea is that EBDA will remain between 15-16% of that. This done 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 result for their positive solution. So productivity, new advertisement, new products, and you 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 the main time to have the advantage on the point that we gain on the productivity level. I believe, I forget to...

respond to other questions maybe yeah because monica you are very good in asking four five six questions in two questions one wasn't into the demanding europe in july if i'm not mistaken right and yes okay according to our data demand grow accelerating in july in terms of demand trending up overall, I would say, a single digit. Notably, as of yesterday, 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 very precise concerning Italy. And with that, I think that we answered to all your questions.

Maybe the second part in APAC, because APAC has been penalized by Vietnam. So what do you expect for the second part of the year?

As you know, it depends where you look at the results of Vietnam.

Financially, the results of Vietnam, the first six months of the year, is just fantastic. And this is achieved. Even the market is not so brilliant, let's say, as last year 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 other problems of the company, of the market, of the, for instance, in a country as Thailand, The situation is much better. The Indonesia, where it just opened a factory there, the results is much better than what it was Indonesia before they started with a new plant. And you see, Vietnam is just in the middle of Thailand and Indonesia. So 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 customers. 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 conditions of the different markets, when you are working internationally and when you are working more close to be a multinational than just a national company that exports in the other country, you are to be able to move on in order to solve the problem, in order to guarantee the results, and to improve the financial results. And what is naturally 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 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 dynamic that is all in the country. If you look at the banks, they have completely different dynamics, even working in the same market. Everybody moves on in a different way. Now, I am not afraid of our situation in Vietnam. It's normal. India, for instance. Nobody believed that India started again with the market of the three-wheeler, with the electrical three-wheeler market. And in the last three months of the year, India's moving on in this type of market. And what will happen if this will confirm and will 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 for India to Africa. This is not because Africa is a problem. It's that we want to have risk and export where is the risk is that the customer don't pay or customer not satisfied our products and so on. I hope to be able to give you a feeling that Piaggio today is not a national company with export in some country. It's an international group active in the different markets with their products, with the capability to produce, to sell, and to have the possibility to understand the market, how it's moving, and in which way it's moving, and what is the problem that we need to solve.

Thank you very much. Very clear. I agree. Thank you.

The next question is from Nicola Storer. Please go ahead.

Thank you. Thank you for taking my questions. 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 at 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. And so, which were the drivers behind this improvement? And do you think these improvements can be maintained throughout the year? On the other end, OPEX, On CashOpex, we have seen quite significant increase also in Q2 after the big jump in Q1. What should we expect on CashOpex going forward? Should we expect some savings because of some expenses brought forward or should we keep expecting growth? Thank you.

Again, when you try to introduce the productivity concept in Italian companies, it's quite difficult. And I understand why. Because productivity system is not so familiar for Italian companies. And when you begin to work hard in this way, you begin to see that the results of this organization is incredible because they're easy to reduce two or three points on the production cost and on sales without to increase sales price. And this will give you a big jump, a big pump profit in all the line because two or three percent of cost margin improve is a big number at the end of the day. And this means productivity. It means productivity does not mean that the people have to work more. They have 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 your products. It means what is your partnership in terms of supplier system. means to control the OPEX. OPEX is quite easy to control, but is also easy to spend much more of 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 think before. So the term is organization. If you are able to organize the company on the productivity concept, you will see that your result is much better than you expected in this way. The other question to analyze what happens in Vietnam, Well, I respond to you in another way around. We started to be in Vietnam with new investments on the 16th. 2008. On 200, let's say, 10 years ago. No? 15.

15 years.

15 years ago. When you look the number of the Vietnam on 15 years ago, and you see number today, you believe that you speak about another company that is not the same one. The trend of the case 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 there's a bridge to the other company around Vietnam. ASEAN It's not something where it is a dream. It's a realistic idea of a new market where it's a market as Thailand, as Indonesia, as Philippines, and that is a huge market than before was only controlled by Japanese companies. And now we are one of the big companies in this area. Piaggio is a big company in the area of Asian group. And this means that if one year we have something that is not in line with the all increase of sales over every year, well, possibly happens. It's nothing, it's just no disaster around. It's not that this changes something on the dramatic way. is the market 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 the, not say quality, but the first level of the products. And we see that the customer is very welcome for that. We don't see that what happens in 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. You know, the market is It's not working the same way on all the worlds. The cycle of the market is different and the position of the customer is different. It depends on many things that sometimes it's 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 another one. Or why the interest is so high or why The product is so good that gives more time in the time of... Also, what is the reaction of the competition? You know, we competed with the big company as, let's say, okay, Japanese. Honda and Yamaha. and now is some products coming from China, but naturally we don't want to begin to accept 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 very positive instead to be able to reduce, increase 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 Asia. Let's say this is my vision. Probably it's wrong. I don't know. But until now, based on the results we have achieved, we hope to be able to maintain these results for the rest of the year.

Thank you.

The next question is from Emanuele Gallazzi with Equita. Please go ahead.

Yes, good afternoon everybody. Thank you for taking my question. I just have two questions left. The first one is if you can give us a sense of the current level of stock in Europe because it seems to me that it is somehow lower now. And then on the U.S., if you can just provide an overview of your performance there and what do you expect for the coming quarter or the second half. Thank you.

Starting with the United States, to understand how moving now is the philosophy of the United States market, that is quite different from the philosophy of the European market and the rest of the world. It's necessary to have a real background to be able to manage the business in the United States. The United States is based on some capacity to improve productivity in order to guarantee the price level, for instance. They want quality products that is not in discussion. The quality is quality. The legislation in the United States that is a legislation that is introduced to the commercial market is quite different from Europe. And if you don't understand these type of things, you will be very difficult to have a successful in the United States. Even your product is fantastic or whatever you want. Let's say, to manage the United States, you need to be in line with the system of the United States and to know how this system is moving for satisfy the customer and to have the customers that follow your products. This is regarding the United States. Regarding the other reduction of the stock, we see that, for instance, we have a lot of things to do in order to have a better performance on our cash flow situation. And we are able to achieve that. And we are lucky to have the possibility to work and to achieve similar results that have consequently a cost reduction on interest and a cost reduction on capital invested regarding the stock, regarding the credits, and regarding all the investments done where to keep our credit line free and not depending so much from the situation of the market that today is quite high as an interest. So let's say that we have a lot of things to do in the next six months in order to have a better situation on cash flow and to have very positive results on our cost.

Okay. Thank you.

The next question is from Gabriele Gambarova with Banca ACOS. Please go ahead, sir.

Yes, thank you for taking my questions. One is a couple of questions on India because I saw that in Q2 your sales grew by just 5%. They were up 36% in Q1. So I was wondering what's happening, what could we expect for the rest of the year. I think the market is up nicely. And same question for two-wheelers. They are down 30% year-to-date. So I understand that there is, let's say, it is not about... I mean, it's just a decision from Piaggio to reposition the brand, probably. So I was wondering what the strategy there and what are your expectations. And this is for India. On Europe, I guess that the consensus is still expecting minus 5% on volumes. So I was wondering if you agree with this view, or maybe we could expect, I don't know, a flat-ish market for the whole year, or even a positive performance. So I was interested in understanding what's your view. And the last one is just a check. Mr. Colandino, in your prepared remarks at the beginning, On the call, you said that you are targeting to replicate the EBITDA performance of the first half across the whole 2023 year. So we should expect 16% EBITDA margin for the whole year, if I understood well.

Raffaele speaking. Starting from your last question, close to, not 16.3%, so the aim is to go close to 16. 16, okay. Then concerning Europe, the goal is to have pretty much now volumes aligned with player year. You are right, consensus figures, so some analysts are still expecting negative demand or volumes for Piaggio. As I was saying before, after a positive QH1 in terms of demand, we had also very positive on the first data that we have, July. So clearly the picture is brighter than if compared with the beginning of the year. Concerning India, in light commercial vehicle, we were waiting for the homologation of a particular engine, and now it's ready, and so we had this kind of, that was hampering a little bit our sales into the explanation for light commercial vehicle. For two-wheeler, as you said, and it's written also in our slides, we are changing the mix that is shifting towards Vespa. So that's the reason behind these declining volumes. But clearly, when we look at the performance and gross margin of India, this year is improving strongly compared to last year, both in two-wheeler and like commercial vehicles. Okay? So if I can add a little bit of color, we have the gross margin that you will see when we publish the results by geographic, by TGU, cash generating unit, that is on the rise in all geographic areas, right?

Okay. Just to follow up, if I may. Yes. Thank you, Raffaele. Just follow up on India. Do you think that the... the export perspectives from india can improve i mean once upon a time export was a major let's say revenue sales driver for for india now it's uh almost uh i will respond in this way i believe that if the market to confirm if the the indian market not export

This confirms the trend of the last three months. I will say that we have all production dedicated to this improve for the market because it's a big number. And in India, if we are able to control better our dealer and our customer, it's very easy to do that. instead to try to develop some African market. Because the export from India is the export internal ask that is considered not export but is in intra-sales. But the export to Africa is very dangerous. It's high risky. And I am not so in favor to improve export for India dedicated to going to Africa. The export for India instead on South America is quite good. There's a lot of products that is imported from South America country from India. And we see that this is a market that we can look. But I want to say something that is very important. We have received finally the approval of three-wheeler diesel engine. That before was not done for us. And this is very welcome from the market. And this is the reason why the three-wheeler jumping up on the last three months. Because Piaggio was able to receive the qualified certificate on diesel engine on the three-wheeler for India market. And then the The demands are beginning to be strong also in the three-wheeler electrical version. And we look at that as the future of the market in India. Now, as you say, I told you that we are producing the motorcycle 400 in India with Aprilia Trail name. And this we expected a big result on that new products for us and for India. And the first prototype, I want to guarantee you that this is a product that from the design, from the quality, and from the cost is an exceptional one. So let's say India is a huge market. We have been able to not to make a mistake to follow dangerous situation, but to be concentrated in how the market move, how the market change. move on the products and price and quality and distribution. And we see that this new three-wheeler diesel engine approved by the government has big, big demands, big results immediately. And this, I think, is a product that can develop in the future in an interesting number, let's say this.

Okay, thank you very much. Very clear.

The next question is from Sebastian Lemonier with InnoCAP. Please go ahead, sir.

Yeah, hi, good afternoon and congratulations for the result, especially on the margin. Two questions. One very quickly, which may be a bit of paradox with your previous comments. Isn't it the time to sell the commercial business in India? given the focus on mostly scooter and bike and trying to make the group more simple. That's the first question. The second one, if I look at the free cash flow and if I try to normalize basically on what you described, given the quite strong EBITDA margin, which is today the reflect also of all the productivity improvements since the last years, I think that the free cash flow is quite attractive. And when I look at the valuation of the group, I know you paid today a good dividend. The dividend yield is very attractive. Shall you consider at one time to implementing share buyback? Because net debt to EBITDA should deliver quite rapidly in the coming three years. Current situation is already quite unhealthy, basically. I'm not sure you need so much capital going forward. So could it be something that you may consider at home, given the no valuation of the Piaggio share?

Thanks a lot. Totally in agreement with you, our cash flow can be improved in easy and a big number before the end of the year. And we work on that. We see that that is an area where it's very important, and I am totally agree with you, because this can reduce the cost of the money, can give us the possibility to utilize the cash for different investments in products or credit line, but to, for instance, invest for new products and to invest in new technology without money cost that is now in the market is quite difficult. I am totally in agreement with you. We work, and I want to stress, people of Piaggio Group, to improve the cash flow, to reduce the stock, to reduce the credit line, and to have cash for investments in new products, cash for technology, and cash to be able to develop other markets and other investments in advertising, and how we can improve the value of the trade name of the mark, how to improve Aprilia name, Vespa name, how to improve Moto Guzzi name, how to improve all this trademark. You mentioned what we are thinking about commercial vehicle in India. We have a concept in India. We are the three-wheeler today. is not the way to be finished in a short time. It has to be adapted to the market that used three-wheelers today, as in the past, as a commercial vehicle. And then we're working and we're beginning to think what we do, how to improve this market. That is very important and will be very important also for the future. So, let's say... You and ourselves have the same concept. Cash flow improvement, reduce financial cost to look the opportunity for India market and to improve the new product strategy with the new idea of advertising and to follow and to increase better the customer care. we have to develop our customer care to our customer. This is a real big value that let's say we have to express the value again in Piaggio. So in other terms, we have a lot of reserve to work on and to have results and to have good results back from this investment.

And just to get back to one of my questions, does that mean that at one point you may consider to do share buyback? Because this is our job. The free cash flow is quite attractive, especially if you consider the upside on the free cash flow that you mentioned. And today, given the valuation of the share, I think that could be a way to show the fact that the group is fairly overlooked compared to its quality. That's why I'm asking if it could be part of the options.

Well, number one, it's very easy for me to respond. The financial regulation in Italy is quite severe about the buyback of the share in the market. And we are not able to do what we want. We are obliged to follow the law and to follow all the, let's say, regulations that are quite restricted and quite severe to the company they want to ever buy back. Naturally, at the price of today, this can be very, very important to buy because the price is low. I consider this price can be better in this way. But naturally, we are limited in our action because we are part of the interest, let's say... with this market and we don't want to have any risk from legislation point of view to not satisfy and not to respect what the law say to us what we have to do. But this, I want to say, is a good price to buy. All right.

Thank you very much. All the best.

Okay. There are no more questions, so I think the last answer draws the call to an end. If you need more info, you can call me this afternoon. Thank you, everybody, for attending this conference call. Bye.