PGGCY - Piaggio & C. SpA (PIAGF) CEO Roberto Colaninno on Q2 2022 Results - Earnings Call Transcript

Piaggio & C. SpA (PIAGF)

Q2 2022 Results Conference Call

July 28, 2022 08:00 AM ET

Company Participants

Raffaele Lupotto - VP, IR

Roberto Colaninno - Chairman and CEO

Michele Colaninno - Chief Executive, Global Strategy, Product Marketing and Innovation

Alessandra Simonotto - CFO

Conference Call Participants

Monica Bosio - Intesa Sanpaolo

Anna Frontani - Berenberg

François Robillard - Intermonte

Gabriele Gambarova - Banca Akros

Presentation

Raffaele Lupotto

Hello. Thank you very much for taking the time to follow this conference call. Joining me today are Roberto Colaninno, Chairman and Chief Executive Officer; Michele Colaninno, Chief Executive of Global Strategy, Product Marketing and Innovation; Alessandra Simonotto, Chief Financial Officer. You can access the slides supporting this call at piaggiogroup.com website.

Before starting the presentation, I need to remind you that during today’s conference call, we may use forward-looking statements based on plans and 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.

Now I would like to turn the conference over to Mr. Roberto Colaninno.

Roberto Colaninno

Good afternoon everybody. If you remember last time, 6 months ago, when we’re talking about our expectation for ‘22, we were not very optimistic for the results of Piaggio in the first 6 months of the year. Despite today, problems on the market of raw material, transportation and all the problems that we have seen during this period.

At that time, we go on to consider strongly the inflation problem as today we have. But I want to open earnings presentation to say that we are very confident to achieve the results of the second half of the year, as we have budgeting online, what we expected based on the trend of sales, based on the capacity of the company to be able to produce on time, the production. And I want to say that in 2 days the incredible results that we achieved in Southeast of Asia and China. And the first positive indication coming from the Indian market from the months of May.

Naturally for India, we do not have again the sensation what is the next -- what is the trend on the next 6 months. But we see that now the raw material price beginning to going down, the transportation of the products coming from Far East is a little bit easy in respect to the past and the electronics products that was perhaps for everybody big problem beginning as long for us to be not so strong as in the past.

The sales trend is positive in all the country excluding India for the moment. And what I want to say and underline especially on the motor cycle, where we have achieved results with only some years ago was typically very difficult to achieve. Today, all the product line sales is very strong. The demand from the customer coming for all the parts of the world is very positive.

I want to underline that Piaggio not depends from the Italian market. Piaggio today is an international company that has -- and the market where the Piaggio beginning to be a leader is again in Southeastern, Asia, South East, Vietnam, Indonesia, Philippines, Thailand, China and the United States, where the sales of motorcycle going up in a very strong way.

In Europe, too, we are strong in sales Scooters investment achieved the record of sales in the 6 months. The motor cycle, again, is in line with our -- the best expectation that we have. What I want to say that the last projects presented to the market as MP3 is really successfully received from the market. Also, beginning to utilize our investments in Boston because we utilize the rather that will be fixed on the motorcycle and the scooter to prevent the problems and accidents and to give to the people and the rider that there is safe and security and information that is necessary to drive today.

We don’t have any relation with Russia and Ukrainian. We don’t sell one product there. We didn’t lose, we don’t buy and no sales. So for us, that part of the market is not give us any problem. So we are concentrated today to be in line with them to finish their new plant in Indonesia, where the sales today is quite strong. We expected a big result there.

The part of the market referring to the -- our investments to our company in Vietnam today achieved under a 100,000 of business where now we are in a process to increase the production facility there to be ready to be in line, to be able to satisfy the growing of the demands. So really, this is quite positive moment for Piaggio.

Piaggio need to be able to organize inside to be able to satisfy the market demand. Actually, I am totally satisfied with that. I’m [indiscernible] I don’t exclude the problems that we are informed to us, information nor they got new supplier, new products, all problems that we are very clear in our mind. But I want to say that this has looking this refer to 6 months, I am confident that the next 6 months will be possible too. There is nothing possible to achieve some results at this condition.

We have a good quality, good sales, good products, a good strategic position in the world market. We don’t make any, in Italian sector, we have never suspended one data production who was able to produce every day. And in Vietnam, we have increased production at 2x the production respected last year. We have problems in India, but again may help that will be confirmed with the first month, where we are beginning to see some positive valuation. So based on all this situation, again, I am positive for the future of Piaggio and especially to be able to achieve what we are budgeting in the next -- in the total year of ‘22.

We are discussing now for the budget of ‘23. It’s not easy. Now, you know why? It’s not easy because the first information that we get is that we need to be able to increase production quantity. We need to be able to be online with the presentation of the new products. We need to be able to finish the new factory of Moto Guzzi and the new factory in Indonesia. We need to be able to begin on metrical products to present the new products and to be able to satisfy the quality that the market will ask to us about that kind of new technology.

[Indiscernible] let’s say, electrical division, we are in line with our plan, even with the strategic products and strategic line and all the posts that is completely new. And so we have to change, find the customer to change some mentality, but we are in line with a this. So that I say that we need to do what the market asked to us to do. And what the market asks to us today is positive question.

Raffaele Lupotto

Okay. Thank you very much and I’ll turn the call to Alessandra that will give you our in-depth analysis of the financial figures that you can see it and find it on our presentation that is published on the website. Okay. Alessandra?

Alessandra Simonotto

Thank you, Raffaele. Good afternoon, everybody. I don’t know if you can hear me. As usual, let’s start from Page 3 that provides a summary of the key financial metrics of our group in the first half of 2022.

As you can see, we continue reporting a record set of results despite the backdrop of economic and geopolitical uncertainty. Let say, EBITDA and earnings per share kept on growing in Q2. Thus all reaching in first half, the best results since IPO. Net debt page is largely tough versus December 2021 also being lower than June 2021, mainly driven by the new large seasonal cash absorption of the first half of the year.

From Page 4 to Page 6, you can find the snapshot of the performance by brands, brands that as you know are our key assets and allow us to meet the different needs of our leadership are plenty. All top brands posted outstanding results reaching the highest revenues to date. In this context, motorcycles were the brightest start with Moto Guzzi setting a first record high, both in volume and revenues, and Aprilia motorcycles reaching the best revenue since the IPO. As we will see later, motorbikes performance has been boosted by gaining market both in Europe and U.S.

I’m therefore delighted that the new Aprilia rating team ended #1 in Moto Guzzi 2022 before the summer break. Clearly, thinking about our brands, we can’t forget the MP3 scooters as the new version launched at the end of June that you can see on Page 7, received an enthusiastic welcome from the press.

Going to Page 8, we have highlighted the understanding results of Asia Pacific Revenues in the area posted an abated growth since 2018. We were standing 30% CAGR, also benefiting from Asian countries diversification. In first half of 2022, Vietnam, China grew about 30%, and Indonesia ended up close to the Q4 versus prior year. The strong performance of Indonesia is particularly important as the opening of the new plant in Q4 should further boost our sales in the country.

Now, we can move to Page 9 to look at 2022 key market demand. In a nutshell, we have posted solid demand despite a very challenging basis for comparison and supply constraints that were affecting the whole industry. Conversely, in U.S., a merger diverging trends as scooter kept on surging around 30%, while bikes took a valuable turn. Asian side countries posted an even trend with China and Indonesia edging down while Vietnam, Malaysia and Thailand post a solid positive demand trends.

As Mr. Colaninno referred, India returned to growth, but this was mainly linked to a very easy basis of comparison. More importantly, unfortunately, demand was still significantly below pre-pandemic levels, mainly with LCV still 52% below 2019 levels.

We can move now to Page 10, where you can see that the growth of volumes and revenues have been driven by the synchronized positive performance of all geographies and businesses. Asia Pacific posted the strongest growth, mainly driven by desynchronized growth of all key markets, as we already commented before. Western countries conferred solid positive performance, a significant results given the very challenging basis of comparison and the blooming macroeconomic scenario.

I would like to highlight the performance of U.S., which posted the strongest 2 wheelers revenue growth in this area, mainly driven by the success of our motorbikes. It is worth also mentioning the group performance of LCV, driven by the new Porter MP3. India rebounded mirroring demand trend mainly benefiting from lower 1 year ago basis.

Let’s move now to Page 11 to look at the breakdown of the performance by product. As mentioned before, motorbike posted a high performing results with revenue surging by 37%, propelled by the success of our brands, coupled with positive sales impact. Scooters performed extremely well too, reaching an all-time revenue high benefiting from the combined strong growth in all geographic areas. As we saw before, data reached a new record high on the back of growth in all geographic areas coupled with positive price effects.

Additionally, it is worth mentioning the success of the new Aprilia SR GT. Let’s move now to Page 12 to have a look at the EBIT average. Aprilia grew to EUR 92 million in the Q2 against a very challenging basis for comparison, but reaching EUR 152 million, a new all-time high with the percentage margin on sales at 14.5%. This is an extraordinary result, in my opinion, if we consider the growing number of negative external ages effect in the first half of the year.

As we saw in Q1, also in Q2, the key level of Aprilia, at least has been the strong revenues growth more than offsetting the hefty diluted effect stemming from the inefficiencies of the supply chain and higher input costs. Cash OpEx has been kept under control with the ratio of cash OpEx or revenue lower than last year. This specified our ability to revenue costs without job advancing our competitive plans. Moving to Slide 13. We can see the remaining P&L series. I would like only to highlight the net profit grew to EUR 45 million with the same tax rate that we applied in the first quarter.

Let’s move to Page 14 to have an in-depth analysis of net financial position and the gross cash. As we highlighted on Page 3, we kept net debt were under control whilst returning value to shareholders through dividends and buybacks. And despite the seasonality of our business, which negatively affects the dynamic of working capital in the first part of this year.

In this regard, I would like to underscore that the rising complexities in supply chain management forces us to prioritize inventories results. Capital expenditures ended in line with the multiyear targets provided in prior conference call.

Lastly, the chart on the right shows how we translate the utility profile across the year reaching EUR 463 million in June 2020, just providing ample headroom to where there potential future headline. Thank you.

Raffaele Lupotto

Okay. Thank you very much. Now we are ready to start the Q&A session. Thank you.

Question-and-Answer Session

Operator

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

Monica Bosio

Unfortunately, I lost the first part of the presentation. But anyhow, I would be curious about the trend in APAC, considering the positive trend in H1, do you see achievable, the achievement of roughly 160,000 total volumes in APAC for 2022. And given the new plant in Indonesia, should we expect a significant similar growth of maybe high single-digit also in 2025 for APAC area.

Raffaele Lupotto

Okay. I understand your question. And I want to say that this is the central discussion on looking at the next 6 months and looking also the next year. Regarding Indonesia, there is the first reaction of the market to the products that today be introduced there that is imported by Vietnam by Europe, it is extremely positive.

We see that the market is very happy that we built factory there and the first reaction of the customer to us is unexpectable. So we have to be -- we are discussing now how we’ll be able to satisfy the demand trend over next 6 months and few next years in this country. So the decision to invest in Indonesia was quite right after the very successful story of the company in Vietnam. In Vietnam, we are now on the way to increase the production capacity because we expected the next few year after the good results of this year require very high demand of our products.

The country that is more significant ready for this type of situation is Thailand, with Indonesia - sorry, and it’s Vietnam, it’s Philippines, and with all the other countries in Southeast Asia and also China is quite positive. China give us the results and confirm the trend and those results Vespa that is totally unexpected for us at the beginning. So this part of the world, Ukraine starting from Thailand and Vietnam and China is totally positive for next year.

The only problem is it is a problem to be able to increase the capacity production and to be available for November, December and January. And I want to say that today seems to be in line and proceed in a very good situation. And so this part of the work for us is positive. I want to say it allow to be extremely positive.

India is a problematic situation. As you know, we had a terrible event but we have a good sign from May [indiscernible]. We have increased the sales from May. The market is beginning to change. Now, it’s too early to confirm this. But if it is true that the trend begin to go the positive way, India will be a big surprise next few year.

This year for 6 months we’re literally concern between that. We want to see how the trend of these 6 months. If we’re trying to confirm the trend of May, I think that India will get huge supply for sale ‘23. We have decided to produce motorcycle in India, and that is a big -- should be a big surprise for the market.

Coming to America, United States is really in a very good situation. We are achieving a market share of the scooter, very high relative to last year. And also motorcycle good to run employment, growing in sales and the demand to confirm is growing. So even in the United States and Canada will be positive for next year.

Coming to Europe. Okay. We are conservative for Italian market and looking the Italian market to confirm their sales of ‘22, ‘23, but the trend now beginning to growing up. They’re growing up from not a victory to growing up with a [indiscernible] that will present a new [indiscernible] was a very, very welcome to the market.

Their other countries, Spain, France, Germany, Holland, Benelux and Sweden and Norway, we’re going to see problem on that. We do in line with our situation, they’re growing in line with our [indiscernible]. We don’t see any problem with the Russia and Myanmar. They are the countries that we have no sales, no relation, no supplier, so we don’t, -- we have -- we don’t see any problem coming for that.

So I’ll say that even ‘23, we will see that -- from the budget point of view, it’ll be very, very positive, growing up and then growing. And now the only problem that we have is to be able to organize our production, our internal facilities, to be able to satisfy the customer demand.

On top of this, looking at cost of material at the beginning to going down and despite retaliation costs. Transportation beginning to be more positive, not so confused as in the past. So even there other relation and transportation. logistic problem with the fund beginning to be more stable and more concrete than is in the past.

So from my opinion and I know it’s my longing, ‘23 will be a good year, much better than ‘22. And, ‘22 would be better than ‘21.

Monica Bosio

Okay. So just on the back of your positive statement, it is reasonable to assume for APAC 160,000 vehicles, sir.

Roberto Colaninno

Yes. More or less, yes.

Operator

The next question is from Anna Frontani with Berenberg.

Anna Frontani

One question from my side. What is that you expect in terms of consumer confidence for the second half of the year? Do you see your customers maybe trading down enough from this [indiscernible] scooter? And also related to this, how do you think about your electric offering if consumers have a lower spending power?

Roberto Colaninno

Continue to response to you on these demands. If you look, we have done recently in search on how the value of our trademark and this will share to say that the value of our market is quite, quite positive. Vespa, Aprilia, Moto Guzzi is considered by the market the best -- together with the other competitors, naturally is the best in the market.

We have developed a relation with China. We were in different business, in music, in -- performance and we do not only begin to see that the consideration of the market for our products beginning to say, not only a mechanics problem or transportation problems, productivity is very close to the other products that is independent totally in different progress. We have decided that new color together with some big guy in the music young people in the United States and China.

We have signed an agreement with a lady that is one of the leader on [indiscernible], so we said products but not only, let’s say, products that is a mechanics problem. We began and we are very successful with the [indiscernible] Vespa to look, to be in a position to our products that is a little bit different than in the past.

And the market reacted very well. The market has confirmed that they like the color, they like the design of the new products, they like the [indiscernible] develop in term of accessory or what we’ve developed in terms of -- what we have developed in terms of new style on these models.

So we are beginning to build a new reaction for the market, to offer to the market different position and different strategy in the during the plaster how we get the progress. Nothing against technology, nothing against the products, new products that is able to be in line with the communication to give out information to be sold -- to be in line with the new electronic products. But also, we don’t forget going -- the other, let’s say, strategy, products developed, color, design, and then presentation and others. This give to us the confidence that the market will follow us. The market will appreciate that. So even in the problems existing to the market [indiscernible] lots of problems to the competition.

Operator

The next question is from François Robillard with Intermonte.

François Robillard

First one is just a procedure on Indonesia. You mentioned so robust market trends locally. But in the presentation, I read that there was a double-digit dip in the second quarter. Just can you give us some more clarity on that?

Then, is it reasonable to assume that after the supply constrained first half of the year, especially in Europe, there were some kind of pent-up demand that has built, so that may support volumes on the second half. If you can give us some more color for instance on your order book exiting the first half of the year that would be much appreciated.

Raffaele Lupotto

Raffaele Lupotto speaking. In Indonesia, we were referring to our volumes, clearly. And the trend that we are having is a flipping market trends markedly. So if you look at the line that we provide with a breakdown by country major [indiscernible] you would see that the growth in Indonesia is well above 40%, in reality close to 2x prior year. So you are referring to our trend.

Then with the second, please -- second question was regarding the European trend going forward, if I’m not mistaken, can you ask again the question, please?

François Robillard

Yes. Just to be more bluntly, given the first half was constrained by supply chain issues. Is it reasonable to assume there was some pent-up demand that may boost volume in the second half of the year in Europe?

Raffaele Lupotto

[indiscernible] pent-up demand, I don’t know. Clearly, in some cases, the demand was probably higher than the author of the industry. So there are several players that are having a big cost in production. So we have to see -- keep in mind the last year in Q3 and Q4, the European market went down, okay? So the CapEx part in term of comparison base is already behind us. Okay?

François Robillard

Okay. And then you mentioned you need to increase your capacity of production in Vietnam. Is that already included in the current CapEx target?

Raffaele Lupotto

Something is already on the capital that you see [indiscernible] going forward. So the target that we provided before in prior quarter in terms of total CapEx remain the same. Okay? Remember, the magic number, EUR 450 million divided by 3 years. So this is roughly what we are planning to have.

François Robillard

Okay. If I may, just a final one. You mentioned as well as the lowering pressure from raw material costs. What kind of gross margin progress can we expect for the second half of the year?

Roberto Colaninno

So quite difficult to play now. Let’s say that the margin depends on not only from the raw material, but it depends from the productivity that we are able to achieve. Never forget that [indiscernible] to review the concept of productivity and retraining people. Productivity is really the key of the successful of the budget.

We are focused totally to increase productivity of all the company and this is not a big number. Not anywhere quite difficult because it means that convince the people that it’s necessary to work better, not internal quantities, but in terms of quality. [indiscernible] things even is not purchasing.

We need to know how we’re able to react to our customers to supply spare parts, how we’re able to react to our customers and then to have a delivery time. How we’re able to react to our supplier to receive the products online on own time. How we’re able to react and quality? All of these, it’s not a question of investment. It’s not the question of -- to work more. It’s just the question to work better and to consider that the productivity define the quality if we tend to be successful in the company.

And we are working hard to develop and to organize the company to use all the instruments to get the possibility to control the positive achievement. This has to be continuous achievement in productivity. All the time, all the moment, we work for the company. If you are able to do this, then successful in guaranteed.

Operator

The next question is from Gabriele Gambarova with Banca Akros.

Gabriele Gambarova

Just a couple, the first one is on India. You are making reference to the main data, but I was wondering if you have a more recent -- let’s say, data you are looking at for June or July. I mean, what are you seeing at the real margin and possibly, can we assume as a reasonable 140,000 unit target for this year? So basically, flat would likely happen versus last year?

And the second question is on the second half of 2022. Last year, you had the impact of rising raw material costs, rising inflation on logistics for roughly EUR 40 million, more or less concentrated in the second half of the year. So I was wondering if even only qualitatively, you can tell me if you are assuming that these tailwinds you are seeing on costs will mark logistics may be more than offset by rising -- increasing prices in mix. So if you see the balance positive in the second half for what you see?

Alessandra Simonotto

The first question about India, what we are seeing as of today is that more or less, the amount of units you have thought about could be reasonable. We are at the beginning of the part of the market, as Mr. Colaninno already said. And so we have to wait if this new way of the market in India is -- will be confirmed or not during the next 2 months. What we are seeing as of today is that more or less, these total units would be reasonable.

About your second question, so about cost on logistics and material and cost that we began to face in the second half of 2021. As you will understand, what we have saw in the second half of last year is something that all the supplier has more or less reconfirmed at the beginning of the 2022, asking a higher prices for logistics, asking higher prices for raw materials and so forth.

We are seeing something now that is lowering, yes, which could be the savings that we could have in the second part of the year is very early to define [indiscernible] on all these things because as you have had this morning, in China, lockdown begin again. And so we don’t know what will happen in the next 5 months.

Operator

[Operator Instructions] There is no question at the moment.

Raffaele Lupotto

Okay. So I think that we can end the call now. And if you want to, you can call me later, also tomorrow if you need to have a further clarification. Thank you very much for attending this conference call. Thank you. Bye.

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