Piaggio & C. SpA (PIAGF) CEO Roberto Colaninno on Q1 2022 Results – Earnings Call Transcript

Call Start: 08:00 January 1, 0000 8:49 AM ET

Piaggio & C. SpA (OTCPK:PIAGF)

Q1 2022 Earnings Conference Call

May 2, 2022 08:00 ET

Company Participants

Raffaele Lupotto – Executive Vice President & Head of Investor Relations

Roberto Colaninno – Chairman & Chief Executive Officer

Alessandra Simonotto – Chief Financial Officer

Conference Call Participants

Monica Bosio – Intesa San Paolo

Anna Frontani – Berenberg

Francois Robillard – Intermonte

Gabriele Gambarova – Banca Akros

Emanuele Gallazzi – Equita

Niccolo Storer – Kepler

Operator

Good day and welcome to the Piaggio First Quarter of 2021 [ph] Financial Results Conference Call. All participants will be in listen-only mode. At the end of today’s presentation, there will be a question-and-answer session. [Operator Instructions]

Mr. Raffaele Lupotto, Executive Vice President, Head of Investor Relations is going to chart the meeting. Please go ahead.

Raffaele Lupotto

Hello, thank you very much for taking your time to follow this conference call. Today’s conference call will be hosted by Roberto Colaninno, Chairman and Chief Executive Officer; Michele Colaninno, Chief of Strategy and Product; and Alessandra Simonotto, Chief Financial Officer. You can access the slides supporting this call at piaggiogroup.com website.

And before starting the presentation, as usual, I need to remind you that during today’s conference call, we may use forward-looking statements made on Piaggio’s current expectation 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 to Mr. Roberto Colaninno.

Roberto Colaninno

Hello, good evening to everybody. The Piaggio Group has achieved on the first quarter of the year results positive at the global level. Sales, EBITDA, net profit have achieved the best results of the whole period. We continue to look and to control through our cost management system, all the problems derived from COVID and then from the crisis between Russia and Ukraine. First, I want to underline that, because we don’t have any relation — business relation with the Ukraine and Russia, we don’t have any negative impact on our balance sheet. The difficulty that we have naturally during this period is the components and material that we had to buy.

We try to do our best in the way that we try to bypass all consultation problems and all the recruiting components from the company, the temporary problems for the resource material. This is possible because we, as you know, are organized through many countries, through our plant, specifically in India, in Vietnam, in China and in Europe. Plus we have office in Southeast Asia and India country overseas and main other country where we buy normally our components. I think that we have done a good job on the first three months of the year, because we have achieved our results through our management system. Management system that means for us to follow all production and to follow all customer sales and all customer care. We know that to be able to balance the problem that we have in production and the problem that we have through the logistics system to be on time, on the delivery products.

To summarize, how the quantity of products that we were not able to deliver it on the first quarter, put together all things, is less than 3,000 pieces. That is postponed on April. We, if you look our network and our organization, I can say that we have a very good results on the — we have done Indonesia, all the rest of the Southeast — Southeast — Asia Southeast. We have very good results in China. We got very good results in America, America Northern and naturally after that in Europe. Where we don’t have good results is in India, where there’s problems remain as during the pandemia. We expected that this problems relating to India could be finished by the end of the year. We are looking the next year for India specifically, that should be the year where India is able to restart again with them to start to show a satisfying, the quantity there arrived from the huge market [indiscernible].

Regarding our investments, the investments especially in the new products is going as a problem has not changed. All the new products that we present to the market have had very good results, very good impact, especially on the Aprilia, Moto Guzzi and naturally Vespa. All these products have a very good results on sales on the first three months. We believe to continuing for the rest of the year on the same level. We believe to achieve a good results, especially again from Asia market where their customer is growing up to buy Piaggio products.

We have a very good forecast for India, Thailand and Indonesia. And we get a good program of sales even in China. So if we speak about Asia, it is for us, it is a market that is very important and where we see our sales rise. Coming to Europe, Europe is a very good market. Really speaking we have expected the worse but actually the market was so good. The performance in France and Germany and in the Spain is on the top.

Naturally, Italy there is our natural market this sales is very strong. As I said before, strong, especially on bikes. Due also the good results that they get on the rising the mark of Aprilia trademark Aprilia and Guzzi range and the quantity that never done before this period. Regarding production and regarding material, well, as you know, we get the promise from electronics products. Some of that is difficult to look in the future how they will move. We are a little bit pessimistic in that way but because we have done a good policy on material, we can get some products basically on the material stock that can help us to optimize production.

You know at the end of the — at the beginning of the year, we designed a policy by products in order that we get the stock that is divided in three areas. One is for the normal production, that is in the middle. Top of that is when the demand is high, it is much more higher than the products and then we can use that. The first is the sort of stock and emergency where when we get some problems, that is not possible. So shortly, we go and we take — we open this gate of the emergency stock. Well, on the first quarter, we were not one-time obliged to go and take the emergency stock. We work on the normal and some of that is requiring where the sales is much higher than the budget. This for instance for Tuareg, the sales is very good and is much higher than the budget and then we work to satisfy the delivery to our customer. Financial position is wider, because we don’t have any critical position on the credit line because people until today pay on time, given that not only in Europe but also outside Europe.

So we don’t have a particular problem on that area. Supplier, we get good condition terms that give us the possibility to manage our finance on the best way in order to be able to reduce to our debt — bank debt and to be — to get the money for our investments, to minimize the bank solution. So we believe that Piaggio is diversified by products but on top of is diversified by site production and sales — and the sales organization. Its worldwide spread, excluding Russian area, is spread especially where the market on two wheeler is quite strong, as Asia, Europe and what is very good beginning to be very important player on the market of the bikes.

People coming to buy, want to buy Aprilia and want to buy Moto Guzzi more than the past and we are able to compete with our biggest competitors, Honda, Yamaha, KTM where that has never happened before. We have to work in production to satisfy this demand. So, also in sales, we have a good position. And also in sales, we have a very well diversified product segment, scooter, bikes and the trademark Vespa, Aprilia, Moto Guzzi and the policy we have done on marketing and in advertising and promotion give us a very good results on that. So, until today, we are more — naturally work very much — very hard but we don’t see even for the quarter — second quarter, so we see that the first six months should be in line with our expectation.

The second six months we look back more carefully because we don’t know what happens exactly in the near future tomorrow, let’s say but what we can say — what I can say is that because we are out to the hot area is Europe — East Europe and other country near to the East Europe, we want to work with that, so we don’t have any problems in all the other part of the worlds. We don’t expect to have problems with the new — with the next new products that we will be present in the market in the second part of the year but all of this will be done on time and as we have put in our budget at the beginning of the year.

So, don’t see problems for the rest of the year and what we have done from electrical new investments — electrical new technical situation, we are all time only in all of that, we have a very good result for the time that we have until now. And we have obtained guarantee from our supplier that they are on time to delivery all infrastructure that is necessary to get the electrical products on time with our schedule.

Raffaele Lupotto

Okay, thank you. Now — okay, now Alessandra Simonotto will comment on the slides. Thank you.

Alessandra Simonotto

Good afternoon, everybody. Let’s start from Page 3 that gives you a snapshot of key financial metrics. As you can see, we delivered a record set of results despite the unprecedented supply chain challenges affecting our industry, the cost inflationary pressure and the lingering weakness on the Indian market. Net sales grew significantly 18.5%, reaching the best absolute result since IPO, driven by volume growth coupled with positive pricing. Similarly, in terms of margin, we posted outstanding results with EBITDA and net profit both reaching an all-time high. Net debt grew back to December 2021, also being lower than March 2021, driven by the usual seasonal cash absorption affecting every first quarter.

If we move to Page 4, you can see that these outstanding results stemmed from the synchronized strong growth of our brands, brands that are clearly our key assets. In this context motorcycle brands stood out again, as highlighted on Page 5 and 6. Not only Motor Guzzi set a fresh record, high growth in volume and revenues. Similarly Aprilia motorcycles reached the best revenues since the IPO, mainly benefiting from the strong success of the new models equipped with 660 cc engine, whilst we kept on nurturing the racing DNA setting up the Aprilia’s Racing team which started the MotoGP 2022 on a positive footing. Clearly, speaking about our brands, we can’t forget Vespa. As you can see on Page 7, we started the year with a novelty, the successful and leading the Justin Bieber X Vespa.

Now, we can move to Page 8 to look at 2022 key markets demand in a nutshell. Western countries profits and demand ending up double digit versus Q1 2021. Despite all comparison base and logistic bottlenecks that have hampered supply. ASEAN five countries posted an uneven turns namely with China slowing down after years of significant growth; conversely Vietnam and Thailand posted sound demand trend, whilst Indonesia and it’s slightly below prior year. India kept on posting subdued dynamics with both two wheelers and LCV unable to go back to the pre-pandemic levels, namely LCV [indiscernible] 54% below 2019, the lowest level in 14 years.

Now, let’s move to Page 9 to have an in-depth analysis of the performance by business. As you can see, the strong growth is stemmed from the performance of the two wheelers which surged by 26% at the revenue level. Asia-Pacific was the brightest spot reaching an all-time high, mainly driven by the synchronized growth on all key markets. Indonesia stood out posting revenues 2x above prior year. It is worth also mentioning the outstanding performance of Western Countries that ended significantly higher than last year with all major countries positively contributing despite the supply chain disruption dampening the product offering. Conversely, India posted a hefty volume decline both in two wheelers and LCV, mainly on the back of market demand weakness. Lastly, Western countries LCV benefited from the successful launch of the new Porter NP6 which boosted to the positive mix effect that led revenue double digits above prior year.

Let’s move to Page 10 to look at the breakdown of the performance by product. As mentioned before, motorbikes had been the brightest spots with revenues surging by 55%, propelled by the success of the new product launches coupled with positive price effects. Scooters performed extremely well too, benefiting from the combined strong growth in APAC and Western countries. In this context, I would like to highlight again the outstanding performance of Vespa driven by volume growth coupled with positive price effect.

Let’s move now to Page 11 to have a look of the EBITDA average, a key metric is that EBITDA grew to €60 million, that reaching an all-time high with the percentage margin on sales at 13.6%, if we exclude the currency effect. This is an extraordinary result in my opinion if we consider the multitude of negative externalities we had to face this year. The key driver of EBITDA at least has been the strong revenue growth more than affecting the hefty dilutive effect stemming from inefficiency of the supply chain and some higher input costs. Cash OpEx has been kept under control with the ratio of cash OpEx on revenues lower than last year. This specifies our ability to rein in costs without jeopardizing our competitive strength.

Moving to Slide 12, we can see the remaining P&L figures. First of all, I would like to underscore the strong performance at EBIT level. In fact, EBIT grew by €4 million and more importantly, keeping the same on revenue of last year. Net profits grew despite higher financial expenses, reflecting the negative currency effect that has been just partially offset by the lower tax rate versus prior year, two percentage points.

Let’s move to Page 13 to have an in-depth analysis of net financial position evolution. As we saw before, in Q1, we had the usual net debt increase driven by the seasonality of our business which mainly affects the dynamic of working capital. In this regard, I would like to underscore that the rising complexities in supply chain management forces us to prioritize inventories build up. Capital expenditure ended below prior year that are still consistently the multi-year targets provided in prior conference calls.

Lastly, as you can see, leverage has been further treated consistently with our long-term targets. Thank you.

Raffaele Lupotto

Thank you, Alessandra. So, now we are ready to answer the question you may have. Thank you.

Question-and-Answer Session

Operator

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

Monica Bosio

I hope you can hear me well. The first one is on the margin trend going forward, the consensus is currently pointing to 14.5% EBITDA margin in absolute value in the region of €269 million. I was wondering if you feel confident with this level and if you can quantify the increased road map in transportation cost and demand in the energy cost in the first quarter? The second question is on the blocks at the Shanghai port. I’m wondering if you’re experiencing some disruptions due to the blocks and if yes, if these disruptions attained are related to finished products or components? And the very last is on the Piaggio One, in 2021, the group sold 6,000 Piaggio One. What’s your expectation, if you have, for the full year?

Raffaele Lupotto

Monica, Raffaele speaking. So we are working to keep the EBITDA the margin that you are mentioning in line with what you have mentioned, so in the range of 14%, 14.5%, okay?

Monica Bosio

Okay.

Raffaele Lupotto

In the range of the consensus. Maybe I can answer to the last one. When you were referring to Piaggio one, we said 7,000 sold since the launch, that was the number that we projected in our slide for the full year results, okay. In any case, the results are quite good, okay.

Monica Bosio

Okay, sorry. Sorry Raffaele, so if I remember well at the end of the year, the number was 6,000?

Raffaele Lupotto

Yes, well, since launch, so we launched the vehicle in October and we were around the 6,000 when we presented at — presentation of conference call, up to now there are probably more than 7,000 but let’s see. So the trend is positive.

Monica Bosio

Have we replicated this trend for the next month?

Raffaele Lupotto

The trend will be positive also on the ongoing quarters, okay.

Roberto Colaninno

[Indiscernible] about how we — how we manage our logistic problems especially in Shanghai, where it’s complete lockdown. Well, for instance, this is an example of how we try to find all the time new way to solve and to keep on the same level, the service rate of supplier for our production plants. For instance we’re talking about Shanghai, we find that from Chongqing is train that is — train connection with Europe. So we take products from Shanghai on bus, transfer to Chongqing and from Chongqing to Italy, we use train. This is normally something that we all know before this type of situation but we find that the utilization of this different way using by train is much better than to use the normal way of vessel.

Naturally, we try to avoid the high flight transportation because it is a high value cost but this depends all the time from the urgency that we get from the customer in order to be able to deliver our products. It is not easy and is difficult to say that this is part of the management system of products and logistics way. But in emergency situation like that, I think I’m sure that the strategic position of Piaggio that I remember just because I want to refresh for the people that know this, we have run two plants in India quite big. We have one plant in Hanoi, this plant that started, as you know seven years ago, today the dimension of this plant is already 3x more than the beginning and working with more than 1,000 people. We are working to set up a new plant in Indonesia and the construction is on the way and thus we believe to open this plant from October this year. So, after that, we can say that in this plant — we all believe to use this plant also to develop Aprilia and the Guzzi products on top of Piaggio. It can be very useful to help us to and be able to find a solution when we get very serious problem anytime.

In any case, then we are already there. We can have a solution because we have people — established people for Piaggio established in Hanoi, in Canton, in — near Shanghai too, in Beijing and in the United States. We get all this people working on the same base and deliver and here today, we find that is a good exercise to avoid the problems coming from the logistic way.

Operator

The next question is from Anna Frontani with Berenberg.

Anna Frontani

Just the first question is actually confirmation from what you are mentioning on the Indian market. Did I understood correctly that you are seeing volumes down around 50% [ph].

Raffaele Lupotto

Anna, Raffaele speaking. We’ve commented on the like, so those are the number.

Anna Frontani

Okay, I was referring to the industry volume. So I — industry volumes.

Raffaele Lupotto

So, the industry volumes are also showing the slide. So the market went down far and clear around 4.5% but keep in mind that these are selling data. So, the market was weak in the commercial vehicle and extremely weak in two wheelers because the market has plunged double digit. So Q1 was still negative in term of market trend and the most important thing, I had to call out, you see that the light commercial vehicle market was still 50% below 2019 and very negative also in two wheeler. So there is now month after month on improving trend mainly in light commercial vehicle. So month after month, again the situation is still complicated in term of market dynamics I would say.

Anna Frontani

Okay. Yes, that was the number, I was after the…

Raffaele Lupotto

Okay. Sorry. Sorry.

Anna Frontani

After the pandemic, okay, cross checked. So 50% below still?

Raffaele Lupotto

Yes.

Anna Frontani

Okay. Yes. On the second question is related actually to the Vespa for Justin Bieber, if you can provide a little bit more detail to show which is, what is the main target for this kind of Vespa, in terms of the typical customers and also which are the main geographical markets for this launch which are the most important one and also if you can provide some — some hints on the pricing points, perhaps?

Raffaele Lupotto

So the price target has not been disclosed yet, so — but will be very sooner. Clearly, the sales will be global sales, so — where we operate and clearly we are aiming to target essentially young people, okay.

Operator

Your next question is from Francois Robillard from Intermonte.

Francois Robillard

First one is on the guidance again. So you confirm this 14% to 14.5% EBITDA margin range. However, given the strength of topline growth seen in the first quarter, I wonder if you had any indications regarding topline growth for the year. I guess consensus currently points to plus 11% or about €1.9 billion for topline. Can you comment on that figure? Do you think it is achievable or conservative? Second question was on the cash flow for the first quarter. Quite a significant amount of cash burn from working capital cash consumption, especially inventory. Can you give us some more color on what kind of inventory increase you witnessed, were they mainly finished products piling up or was it more unfinished goods work in progress as parts were missing. That was my second question.

Raffaele Lupotto

So, referring to your first question, you know that normally we don’t provide financial targets at this time and during the Q1 conference call. Additionally, in the combination of this lingering pandemic effect last, these new — well [ph] new conflicts between Russia and Ukraine are limiting even more the visibility. So we don’t give a specific target in term of sales. What we are working on now as we — as I said before, is to keep the margin in the range of 14% to 14.5% which is exactly in line with consensus figures. Then there was a question on cash flow.

Alessandra Simonotto

Well, the cash flow assumption is normal for us in this period of the year because, as you know, the period in which we buy components between the end of October and the end of March to sustain the production of all the — our factories in the world, it is normally the phase curve is different between the last part of the year and the first — it begins again from March to towards. So if you take a look to our figures of the next — of the last 10 years, in any quarter — in any first quarter, we absorbed liquidity while we are able to produce a positive cash flow from the second quarter onwards. And this is the same that happened in the first quarter 2022, the situation is different, because different product that we are attributing now. We are now producing only scooters but we are attributing motorbikes and motorbikes is more expensive than some scooters and this is why also the inventory is higher than the precedent year.

Francois Robillard

Okay. So you confirm, it’s not just products waiting at the end of the production line for some missing parties, those are —

Alessandra Simonotto

No, no, no. It is normal for us and you can take a look to all the other first quarter closure in the previous years, okay?

Francois Robillard

Sure. And just a quick follow-up on cash flow, CapEx was quite low in the first quarter. Can we still expect the range for the year to be around €150 million?

Alessandra Simonotto

Yes, we — we confirm the same amount of last year more or less. So we don’t expect nothing lesser than 2021. It is only a different tripping during the month.

Operator

The next question is from Gabriele Gambarova with Banca Akros.

Gabriele Gambarova

Just a couple of question from my side. The first one is on April. We are at the beginning of May and clearly for seasonal reasons Q2 is very important. So, any clarification on the trend you saw in the month of April would be very interesting, especially for Europe and possibly India. I think that the trend in Southeast Asia is more robust anyway, any indication on the trend in April would be very, very useful. And even the short one on tax rate, 200 basis points below Q1 2021. So, I was wondering if — I mean what we could assume for the rest of the year for 2022.

Raffaele Lupotto

So, your first question. We have data concerning the Italian market in terms of sell out. And as of last Thursday, the market was up 5%. So, this evening will be released the official data on the month. Keep in mind that April 2022 has two less working days compared to 2021, that has a weight on the trend in the region of 10%. But as of last Thursday, the market was positive and it is the only market for which we have a reliable data so far. In term of the trend in Asia-Pac, the trend is positive and we remain upbeat on Asia sales going forward. I repeat, we remain upbeat on Asia sales going forward.

Alessandra Simonotto

About the tax rate, as you know, we assume in the — during the first closure, the same tax rate that we have used for the budget. Our budget for 2022 sees a tax rate of 38% and this is what you can expect for all the next closure for the first half and so on.

Operator

The next question is from Emanuele Gallazzi with Equita.

Emanuele Gallazzi

I just have one question and is on Europe, in particular on the dealers inventories. Can you just give us an update on the current level of stock in Europe?

Raffaele Lupotto

Yes. Raffaele speaking, essentially it is a key metric. Can you — can you hear me?

Emanuele Gallazzi

Yes, yes, yes. Okay.

Raffaele Lupotto

Yes. And as you know the key metric you have to consider is the ratio between dealer stock and the market size and market demand and I can confirm that duration is exactly the same of 2019, so pre-pandemic. So, this is what I can tell you.

Okay, I don’t see other questions. Operator can you confirm that there are — okay. There are other two questions. Okay.

Operator

Okay. The next question is from Niccolo Storer with Kepler.

NiccoloStorer

A quick one also for me. Can you comment on expectations for gross margin evolution going forward. We have seen a big drop in Q1, what should we expect going forward?

Raffaele Lupotto

We prefer to stick on our comment on EBITDA margin. So we can confirm what we said before.

Operator

The next question is a follow-up from Francois Robillard with Intermonte.

Francois Robillard

Just as follow-up on the question made by Monica earlier. I don’t think I got the answer, so if you had answered it already, I am sorry. But just looking at the Q1 figures, can you give us some more detail on the impact of raw material price inflation, freight cost inflation impact as well and as well as the mix of motor bikes that I believe have a lower gross margin compared to scooters. So if you can just give us a bit more color on how the evolution of the gross margin went in the first quarter? Hello?

Alessandra Simonotto

Okay. More or less you can consider €10 million in the first quarter.

Francois Robillard

And that will be for…

Alessandra Simonotto

For the total effect of raw material and logistic transportation, impact of energy, you can consider a major cost of more or less €10 million.

Operator

There is no question at the moment.

Raffaele Lupotto

Okay. So the last answer draws the call to an end. Thank you very much for attending the conference call. If you need further clarification, you can call me later as usual. Thank you very much. Bye.

Operator

This concludes our question-and-answer session. The conference call has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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Piaggio & C. SpA (PIAGF) CEO Roberto Colaninno on Q1 2022 Results – Earnings Call Transcript

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