Piaggio & C Spa Unsp/Adr

Good afternoon. This is the Coruscall conference operator. Welcome and thank you for joining the full year 2023 financial results. 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, Investor Relations of Piaggio. Please go ahead, sir.

Thank you very much. Hello, everyone, and welcome to the full year 2023 financial results. Today's conference call will be hosted by our CEO, Mr. Michele Colannino, and the group here for Alessandra Simonotto. You can access the slides and support in this conference call on the Internet at 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 cause actual results to be materially different. as mentioned in the safe harbor statement, including page three 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 Colanino.

Yeah, thank you, Raffaele, and good afternoon to you all listening to the conference call today. Well, first of all, I think that all of you know and are aware of the overall global situation from a geopolitical standpoint, so I'm not focusing on what's happening around the world because it's unpredictable and difficulties are arising over the Red Sea situation due to the Ukraine and Israel-Palestine war. Having said that, given a global view of what happened in the 2023 year, You've seen that Asia has been in a declining market starting April last year, and it's still continuing to decline, especially in China and Vietnam, while it is, I would say, flat in Indonesia, but we achieved the best results ever over there, and slightly declining in Thailand, even though also there we have very positive results And among the other markets over there, we are still seeing, you know, growing business for us, even though we entered Taiwan, Philippines, and all other countries since three or four years or so. We are in a growing situation. Having said that, I think that the China situation that everybody of you knows has been affected by two main factors. issues that are related to the real estate market over there and the stock exchange situation in Shanghai and Shenzhen that has been declining for all the 2023 years that have affected quite all the consumer business over there in the country. And we know that China is, you know, the largest population among the Asia-Pacific area and is, you know, somehow affecting all the surroundings and neighbor countries. We have achieved, I think, very positive results because it's the second best year ever in the Asian market. We are investing and we are not negative, even though the situation will remain unstable for the next two or three months for what is concerned with China and Vietnam. You know that Vietnam has also introduced anti-corruption laws that have created some confusion in the consumer business over there, but I think that this is a situation that will be solved during the 2024 year. India instead has grown in 2023, and it's forecasted to continue that growing pace As the election is coming, Mr. Modi will be, you know, fairly reelected, and the country is investing massively in infrastructure, projecting an 8% GDP growth for 2024 year. As far as Europe and United States are concerned, we have seen a quite flat situation in the will be an interesting year for Europe due to new legislative norms that are coming both for two-wheel vehicles and four-wheel vehicles. Euro 5 Plus is entering for two-wheel market and active and passive safety is entering for the Porter, so the small commercial vehicle that we are reprojecting to respect the law. And as you know, we will also launch the electric version at the beginning of 2025. So the situation that we have seen in the markets for 2023 has been very positive. I would say unbeatable first quarter last year and then declined since April in Asia. That has affected the revenue stream from 23% decline at a constant exchange rate in the overall Asia. But if we consider the last five, six years, we have been constantly growing, achieving, I repeat, the best result ever for the Group. Obviously, we have markets that are going up and markets that are going down. You know, that's life. It happens. And it will be like this for, you know, every country in the world. But the geographical situation of the Piaggio Group has been designed to have, you know, counterbalancing areas. It's declining in Asia, growing in India. So the strategy that we put on the table for the industrial footprint entails is correct. For what is concerned with the cash flow, we have achieved the best ever operative cash flow in 2023, reaching 2,027 millions of euros. Obviously, these have not offset the decline in revenues. That means less in cash, as you obviously know, and that has driven the Piaggio Group to register a minus 4.4% overall the year in revenues. That has also been driven... through a strategic decision we took last year to sustain the margins of our group. We could have done as other competitors have done in the Asian market and European market, so putting in place big discounts on the market. That would have brought the revenues perhaps not to decline, but that would have caused confusion in the market for the pricing point of our brands that we want to maintain at the high premium level and we don't want to enter the discount wars. That is to say that this premiumness of the brands has to be also driven through the dealer's distribution network among the world. Dealer stock is very important. We manage it and we do not want to, you know, increase selling on a stable geopolitical situation of the beginning of this year. Because then it means that if dealers will not achieve the sell-out targets, discounts are coming on the market. And this is, you know, the country that I want to do because we are investing in big marketing and brand equity operations around the world in all the brands that we manage. So Aprilia, Motoguzzi, Vespa. the Piaggio Porter and all the dealers' communication must be in line on the strategy that we have as a free rouge all over the world. The Red Sea situation is under control for the Piaggio Group. We anticipated some purchasing activity in order not to be affected if the Red Sea situation worsened in the coming months. So, it is better to have inventories instead of having increase in price of logistics and delay in time of delivery. This is a strategy that will, you know, it's a full year strategy. I don't want to look at just tomorrow morning, but I have to take count of what happens all over the year. I repeat, we don't have any major impact from the debt situation up to now. If the situation remains stable, I don't foresee any major problem coming. We will enter a 2024 year that is continuously showing high interest rates, and that also is affecting some consumer finance business that we have around the world, because obviously an increase in interest rates has impact on the consumer performance finance programs that we have together with our financial partners. I think, but this is just my view, that the first six months of the year will not show a solution for those problems, so interest rates will remain high and perhaps the leaders of the world will not be able to solve the situation in Ukraine, Palestinians and the Red Sea. We, everybody of us, hope so. But, you know, that's not belongs to our decisions. So, 2024 will be an important year. We launched four new, totally new products at the beginning of the year. We launched the Vespa Dragon in Hong Kong at the beginning of January. We launched the new Stelvio Moto Guzzi 1.100cc. We are launching now the new Aprilia RS457. We are renewing the Vespa brand around the world. So a lot of stuff will come on the market for the PR group in the next months. If you mix this with the new legislations coming, I repeat, we have to manage carefully dealer stock because I want to be sure that our margin can stay at the highest level we reached in 2023, that is 16% EBITDA and 9% EBITDA. best-ever results of the Piaggio Group. And I think margins were, once again, the key pattern to success. I don't follow revenues with discount. I follow 16% of EVDA. And, obviously, cash flow must remain strong. If we are able to, you know... follow that strategy, I think that at least 2024 will be like 2023. We're working for this. It's not given, obviously, because we will see what happens geopolitically, and we obviously forecast a recover of the Asian market somewhere in the year. We've been in Vietnam last week with the regional managers, to have a real touch of what's happening. I have to say that we are well positioned as brands in the premium market. I'm very confident about Indonesia, where especially Jakarta and the Bali Isle are the major markets that we serve. As you know, we opened a new factory there. I think that Vietnam, that is where we have our biggest facility in the Asian market, has reached the top-down But I don't know if tomorrow or the day after will be the time when Vietnam will come back to previous years. Other than that, I have to take care about the next year's business plan. It's not just tomorrow morning. And I'm seeing a growing growth in the Asia. I repeat, you have somehow markets that are going down or up, but the growing curve will be confirmed in the next 10 years. because Asia is big, Asia is rich, and I'm positive they will solve their actual problems. Obviously, this is quite a positive view for the next years, but we have to be prudent. Being prudent means that we have to manage productivity, as we have done in the past and as we will do in the future, so to maintain the margin. The gross margin must remain at the page of today. Obviously, the uncertainty is there. So, pragmatism and prudency are the driver for this year, even though it's because we will have United States elections at the end of the year. I hope that the Federal Reserve and the ECB will start reducing interest rates starting from June or at least maximum September, but this is just a forecast that we have through banks and financial institutions. We have registered an 11 million increase due to interest rates growth last year, and obviously this is a consequence. As you know, we have renewed the bond in September, and that has cost us quite 2.3 or 3 million euros of renewing fees and costs. So I'm very happy about the brands. I'm very happy about the product strategy. I'm very happy about the product line. You know, this is... if markets continue to do as 2023. What we see is that Europe will remain quite flat, due mainly for the introduction of Euro 5+, not because the consumer business has been affected too much, while the United States, I'm positive with the introduction of the new motorbike over there. This is just a brief introduction. I think that is a good overall conclusion. And I'm waiting for question and answer together with Alessandro Simonotto and Raffaello. Okay.

Now we are ready to answer the question you may have. Please go ahead.

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 one on their touchtone telephone. To remove yourself from the question queue, please press star and two. please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. We will pause for a moment as participants are joining the queue. The first question is from Monica Bosio with Intesa San Paolo. Please go ahead.

Good afternoon, everyone. I hope you can hear me, and thanks for taking my questions. I have... The first one is on the exit speed of the third quarter of the year. Net revenues were down by 20%, and as a matter of fact, the decline was much worse than expected. So I'm just wondering if you feel comfortable with the current consensus for 2024, which is pointing to net revenues up by 6.5% and, above all, NBDA in the region of 340 million. It seems a little bit challenging, but for sure I appreciate your feedback on this side. And the second question is... On Europe, the decline in 2023 was also due to the control of the dealer network and the stocking process, which is going. When do you think that the stocking process will be over? Thank you very much. Sorry, the last question. Can you give us an indication on the net debt by year-end? Thank you.

So thank you for your questions. Starting from the first one, the exit speed of the last quarter has been affected by Asia, mainly, and by the decision on not discounting the products of final customers. So the customers could find, I mean, interesting products at 25% discount on the market. We didn't follow them, and we preserved the price point of our brands because I think that the brand equity is also the price point. The second question was outcome for 2024 related to consensus. We are working for this. So the aim is to be in line, let's say, with the 2023 numbers on margins, on revenues. So 16% EBITDA and 9% EBIT is not easy to be realized every year on the market, but we are confident that With the actual productivity and gross margin, we can do this. While if you think about the consensus, you know, it's what we work for. So the aim is to reach what you think is reachable. Dealer network, yeah, you have to be very careful about dealer stock. You can increase selling easily if you do discount, and then you have good revenues. But then three months later, you have to discount to clean the selling due to the Euro 5 plus coming. So it's better to have a balanced dealer stock network and to manage the introduction of Euro 5 plus vehicles that is distributed among the year instead of having a peak in one week or two weeks. So to say that we have achieved good revenues and that you have to discount to clear the network. Net debt by the end of 2024 depends on revenues because the gross margin is okay and the margins under the gross margin are okay.

Okay. Sorry if I insist. I fully understand your point on the dealer network, but for our modeling, can we assume that the dealer network is talking or the control will be over in the second quarter of the year?

But, you know, we are not destocking. We are destocking slightly a bit because we didn't push last year. So the stock is, let's say, generally speaking, then you have to, you know, manage particular situations. The stock is correct. We are not destocking.

Okay. Thank you very much.

The next question is from Nicola Storer with Kepler Server. Please go ahead.

Hello, good afternoon, can you hear me?

Yes.

Okay, thank you, thank you. My questions are two and the first one is related to profitability and the improvement we have seen in gross margin. We have seen a jump from 26.6 to 28.8 with the cost of goods sold on revenues still at above 63%. I was wondering in a hypothetical situation of stable revenues in all markets, which room you still have to improve this gross margin on this ratio of cost of goods sold on revenues provided that we have seen some easing in raw material prices, energy prices, and also considering that you are still some points above pre-COVID levels. The second question is on working capital. We have seen in 2023 a sharp decline in

payables if you can elaborate on that why this has happened and what should we expect going forward thank you yeah i i answer about the gross margin and then i leave the the the stage to santa simonato for the gross for their working capital details uh you know everybody can do better but reaching 29% of gross margin and 16% of EBITDA, I think, but, you know, I don't have a detailed situation. We are among the best in the world. So I could say we work to do better, but at some point, you know, it's also driven by price increase that we didn't have last year. Well, we have a slightly price increase in some markets, perhaps, as you know. balance some logistic cost increase. Yeah, I would say that I would be happy with the 29% of gross margin. I would be very happy with the 29% of gross margin. Alessandra, can you detail the capital?

Yes. Do you hear me?

Yes, yes.

Okay, thank you. So what about the working capital? You have seen in the slide we have published that the working capital in 2023 goes down for more or less 46 million euros, driven by the reduction of the trade payables from the 75 million euros of trade payables in 2022 to 614 million million euros in 2023, which is the expectation for 2024. The expectation is more or less to go back to a 2022 situation with a positive working capital for more or less 20, 25 million euros.

Thank you.

The next question is from Gabriele Gambarova with Banco Acros. Please go ahead.

Good afternoon, and thanks for taking my questions. The first one is on CAPEX, 162 million, if I'm not wrong, so a little bit ahead of your early plans. If you could comment a little bit on this and on your targets for 2024. The second one is on factoring. I don't know if you highlighted this aspect in the slides. There was not much time, so I was wondering if you could share, I mean, what was the level of factoring at the end of 23 and what was at the end of 22. And the last one is on tax rate, because tax rate seems to me very I would say 32.5, more or less, in 2023. So even here, if you can provide me a guidance and indication for 2024. Thank you.

Yeah, thank you for the question. Capital expenditure for the year 2023 has been, you know, in line with the prediction that we had, that we declared was in the range of 150, 170. Then it's a projection, and then you decide year by year based on budget. For 2024, I don't see a major increase, even though we are, you know, finalizing the investments on the electric porter and finalizing the investments of the new regulations for the small commercial vehicles. So the 2024 will be the end of the new products coming. Then, obviously, you go in maintenance and you have some capex every year on the products. As far as facilities are concerned, we are not projecting to increase production facilities around the world. We are, you know, every day investing in new technology for safety and productivity around the world. We are launching the new Mandela for Moto Guzzi that is starting this month, and we will renew all the production plants. We will launch the new museum. We will launch the new Moto Guzzi for the next 100 years, as you know. So we're investing in new products, obviously. We are confirming the product line for the next five years. That is the timing that we have in our projections for capital expenditures, average. If the markets will go like this, I don't see any risk on the capital expenditure on products. Obviously, we will not and never stop capital increase for safety for people and new technology for productions, as we are doing in Boston and Piazza Fast Forward, where we have develop the technology for our two-wheeled and four-wheeled vehicles in conjunction with the robots that we are producing there. So we are keeping in-house, and this is very important for the coming years in the electric market and non-electric markets, we are keeping in-house the hertz of the technology for the mobility, for the small mobility. So software, CPU, and managing the engine. I prefer not to be 100% linked to suppliers for the heart of the next generations of vehicles. This is an important investment because AI and software and robots will take place once again more and more for the coming years. Even though the Electric market is not starting yet, but it takes time, but it will. So we are in the situation where the capital expenditures for products are both in thermic engines and electric engines. That is to say that we don't have any restrictions for the thermic engines around the world, but we are able to satisfy the customer needs. If the customer needs is to have an electric vehicle, we will have electric vehicles. if the customer's desire is to continue to use more efficient thermic engines than what we are doing, so we are also reducing emissions in the thermic engines, the customer will be able to purchase thermic engines. So this is what we have to do. Obviously, it's not that we are doing something different from our competitors, but the capital expenditure, I think, will remain roughly the same over this year for the coming years. For factoring and tax rate, I leave to Alessandra Simonotto.

Okay, thank you. So about factoring, the existing structure of factoring in a non-recourse receivable collected before the maturity date amounts at the end of December to 117 million euros. About the tax rate, you have seen the tax rate at the end of 2023 is equal to 32.7. In 2022, we were at 33.3. I believe that for 2024, we can maintain more or less at 30, 33, also for 2024.

Thank you, Alessandra. Sorry, I missed the level of factoring at the end of 2022.

The factoring at the end of 2022 was 167 million euros. Sixty-seven.

Yes.

At the end of 2023, 117. So down sharply. Okay. Thanks.

Yeah.

The next question is from Gianluca Bertuzzo with Inter Montesim. Please go ahead.

Hi everybody and thank you for taking my question. If my math is correct, after the surge in 2022, you experienced a tailwind from industrial prices in 2023. Do you expect a similar trend in 2024 or do you expect a slight increase in input prices? Second question, still on prices, but selling prices. Can you provide us a rough indication of the pricing effect in 2023 and your assumption for 2024? And the last question, if I may, is on the Moto Guzzi Stelvio. This bike goes on a market segment, which is significant. Can you provide us some indication about the addressable market and your expectations in terms of sales for this bike? Thank you.

Thank you. As far as selling pricing is concerned, we don't give estimations for the price list of our products for the year because we have to manage, let's say, every six months what happens in the market. As far as raw materials, if I understood well your question, It depends on the situation around the world. If it remains stable, it means if the war continues as it is, so not going into a peace situation, but not worsening, I don't see any impact on the raw material price. Obviously, we will manage some possible increase in logistic costs, but due to a strategy that we have put in place in 2023, I would say, let me say we can manage in a positive way. Moto Guzzi Stelvio. The Moto Guzzi Stelvio will compete in a market of around 120,000 bikes in Europe. I don't have the precise estimation for the United States. That are the two major countries that we will serve from Italy. I think it can give positive results to us as the bike has been tested in Spain the last three weeks, and the outcomes of experts and journalists have been very positive, both for the drivability, the engine, and the overall of the product.

Okay, thank you.

The next question is a follow-up from Monica Bosio with Intesa San Paolo. Please go ahead.

Thank you. My first question – I have three, once again, sorry. My first question is on India. What kind of growth do you expect for India for 2024? Should we expect something similar to 2023? And my second question is on the fashion and apparel project. I was wondering if you can give us some color on this side and if you expect some impact at the P&L and cash flow level. And the third question is on the In 2024, would it be fair to assume a negative first quarter 2024 and then a gradual recovery from the second quarter? Thank you very much.

Thank you, Mrs. Bozzio. Well, India is in the first two months, as you have seen from the outcome from the market, is growing. So the overall business is doing well. I don't see any disruption in the market, so I can confirm it will be a growing market for this year. If you ask me if it is 8% or 15%, you know, I don't know. Let's say that we can assume that we will continue the recovery and the growing of the hard COVID situation in the continent. Obviously, the continent is huge, so there's space for everybody in the market. And what we have to do is to increase our market share anyway, where we had problems last year and the year before on the CNG business that we just entered two years ago, if I remember well. And obviously, this is a market that we want to target as a possible single digit because C&G is very difficult. It's just downtown. It belongs to dealers of the plates and insurance and financial institutions. So it's hard. We know that we do better in a rural situation that is well recovering. So I'm positive about India, if you want to listen to my vision. Yeah, fashion and apparel, that's very interesting. We have built a small and fascinating team of young boys and girls to enlarge possibly the business of the Vespa brand. This is just concentrated on the Vespa brand. As you know, it's well-known around the world, and it expresses the fashionable part of the mobility. Obviously, the Vespa brand is not just a vehicle. It is an entire world of, you know, lifestyle. So fashion and apparel means lifestyle. We will concentrate on the brand equity of the Vespa name more than sales, obviously, because we have to enter very careful and, you know, foot in the ground, a business that we never managed before or we managed before. Because, you know, upper was in our dealer's distribution, but I think we have not managed properly as Vespa need. You know that interbrand valuation has pointed out that Vespa brand is not just how much vehicles do you sell, but how much you're able to attract more and more premium. And let's say what I love customers around the world. If you take the Vespa Dragon, the Vespa Dragon launched in Hong Kong at the beginning of 2024, that is the second edition of the lunar calendar, has been the first experiment on the fashion market with the launch of one jacket. So nothing serious, nothing big. But we want to attract customers, not just telling the story of the Vespa brand for the last 60 years. We want to interest the people through different cultures, music, arts. That is the name of Vespa. And it's the only one in the world, if I may say. 2024, what was the question? First quarter of 2023 has been affected, let me say. even if it has been the best quarter ever, by a positive view of the Asian market. So we did some selling thinking and not understanding what would have happened from May until the end of 2023. So if you ask me, now we have to manage properly without thinking that the market will go back to the first quarter of 2003 tomorrow morning. It will take some time. I think that the first quarter of the 2024 will not be as high as 2023. In revenue streaming, it can be high as 2023 on EBIT margins. And once again, if I have to decide if not having some revenues instead of the margin, I am 100% convinced that we have to maintain the margins. So there will be some slight decline in 2024 first quarter in revenues. But I think that it will be recovered throughout the year, let's say. I look at all here not concentrating just one quarter or the other. You know, we have to manage the attire here.

For sure. It makes sense.

Thank you very much. Thank you.

Thank you.

The next question is a follow-up from Nicola Storer with Kepler Shovel. Please go ahead.

Thank you. Again, two questions. The first one is on... I would like to go back to the situation in Europe where basically we have had the second part of the year quite light to understand better what should we expect going forward? You said before that the level of stock is now correct, and so we can assume that in 2024, even in light of the change in legislation in 2025, we should see a selling quite aligned to the sellout. or what should we expect and in particular what should we expect by quarter as we approach the date of the change in legislation. The second one is on gross margin. Is it possible to have an idea of how gross margin has changed by geography compared to 2022. We know that overall you have gained more than 200 BIPs back from 2022, which was already quite rich in APAC, for instance, and particularly depressed in India. So what has changed geographically speaking in 2023? Thank you.

Yeah, Europe, you know, new legislations are on place starting January 2024, not January 2025. So even though the stock level is quite balanced, we have to manage selling of new products and sell out of old products that could, cannot be sold anymore in next year. So we have to manage these substitutions of vehicles that is nothing serious. It happens every five or six years. But if you have a balanced stock compared to revenues, so if the revenues remain flat, let's say we are balanced and we have to manage selling and sell-out and would be safe to follow the sell-out because you have the obligation of the stocking of all the vehicles. It's not discount. Then obviously you have to do some commercial work proposition to maintain the stock level. For the gross margin, you know, the gross margin has grown all over the world last year. I don't have any precise detail of the geographical area, but again, I can confirm it has grown everywhere in the world. And I repeat, I would be very happy if 29% is confirmed in 2024. Cool, thank you. Thank you.

The next question is from Michele Baldelli with PNP Paribas. Please go ahead.

Hi, good afternoon to everybody. I have some questions from the Asian Pacific area. Is it possible to know how much was the sell-out of your vehicles compared to the selling that you made, just to understand how much was reduced the stock level of dealers? And linked to this question, do you have the feeling that this possible stocking is already at the end, or should it continue also in the first part of 2024? Thank you.

Well, as you know, we don't disclose such details of sell-in and sell-out divided by geographical areas. I can tell you that we have to manage a declining market. It happened since April last year. When you have a declining market, obviously the stock increases in the dealer's network. We have a certain average of month of stock all over the area. And let's say we want to maintain this value. I don't know if it is finished, the situation in Asia. I hope so. I don't see reasons to worsen, even though I don't see now reasons to do better tomorrow morning. It is a situation that will recover in the next months. So if you manage the situation, I don't see problems on the dealer's stock. It depends on revenues. So the focus is on sellout. If you have sellout, everything goes well. If you do not have sell-out, you know, the dealer stock increase, the revenue streaming goes down. But sell-out, I repeat once again, doesn't mean discount. So we have to increase our value for money in the area. I have to say that I'm not 100% happy about the dealer's distribution network we have over there, not because we didn't do a good job, but we can do better related to the branch that we manage. Consider also that we just import from Europe bikes, so we then do not have any localization of bikes in the area. It is in projection to analyze the localization of some vehicles, obviously, because I think we can do well. It doesn't mean that we will stop in Italy. As you know, Italy serves Europe and the United States. It's quite difficult to serve Asia from Italy. But this is, you know, a strategic situation we have to manage. It's based on business plan. It's not a sudden decision that we take tomorrow.

Thank you.

For any further questions, please press star and one on your telephone.

Okay, so I think that now the call is over. Thank you very much for attending the call. If you need further info, you can call me this evening as usual. Thank you very much. Bye.