Piaggio & C. SpA (OTCPK:PIAGF) Q3 2022 Earnings Conference Call October 28, 2022 8:00 AM ET
Company Participants
Raffaele Lupotto – Executive Vice President, Investor Relations
Roberto Colaninno – Chairman and Chief Executive Officer
Alessandra Simonotto – Chief Financial Officer
Conference Call Participants
Monica Bosio – Intesa SanPaolo
Niccolo’ Storer – Kepler
Gabriele Gambarova – Banca Akros
François Robillard – Intermonte
Emanuele Gallazzi – Equita
Michele Baldelli – BNP Paribas
Jordan Meighan – BNP Paribas
Raffaele Lupotto
Thank you, and hello, everyone, and welcome to our Q3 2022 Earnings Call. Today’s conference call will be offered by Roberto Colaninno, Chairman and Chief Executive Officer; Michele Colaninno, Chief Executive of Global Strategy, Product Marketing and Innovation; and Alessandra Simonotto, Chief Financial Officer. You can access the slides supporting today’s call 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, 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 Roberto Colaninno.
Roberto Colaninno
Good afternoon, everybody. Well, Piaggio, even if we are in the macroeconomic situation extremely complex, continues to be extremely good. The Piaggio Group closed the first nine months of 2022 with its best results ever and double-digit growth, driven primarily by excellent performance in the APAC area, which will be fully boosted by the new manufacturing facility we shall be opening in Indonesia next month.
About this new investments where we think to be able to repeat the excellent results that we obtained in Vietnam, we believe that Indonesia, which is one of the more favorable country in terms of two-wheeler market, find Piaggio ready with its best trademark, Vespa. The market is very favorable to our products and is ready to give us extraordinary results as soon as we started the sales and production.
We believe that this company – this plant beginning to produce at the beginning of 2023, we expect to have the results for the Vespa products much higher than what we have fixed in our budget. This give to us the opportunity to think that even 2023 will be an excellent month – an excellent year for Piaggio, primarily due to the international position of Piaggio.
I remember – I want to remember just for the people that don’t know the situation, that we have India factory, that we have a Vietnam factory, then we have a China trading company. Then we have now Indonesia and the United States trade company, plus the company in Italy and one of the best sales organization in all the European markets.
So if you consider that our trademark is a trademark that the market consider the biggest value in relation to the other trademark with Vespa, Moto Guzzi, Aprilia, Piaggio and Ape for – regarding the Indian market, we consider that this combination, the position of the plant, the position in the best market of the worldwide consideration and the trademark value put us in the condition to say that even 2023 will be an excellent year.
Naturally, we consider the situation complex in some condition or some consideration. But due to our logistic position and the position on a worldwide market, able to be compete with this situation and to be able to be successful even the situation is difficult. We have already decided what is our program of new products that we launch on 2023 in the two-wheeler and especially in the scooter and bikes.
Regarding bikes, we base our successful story on 2022, also on the successful story that Aprilia Racing be able to achieve in the GP competition. The results of the Aprilia Racing is better of our expectation. And we are open – we are very sure that we receive other supplies on the last race that the wheeler concluded the GP versus this year.
So all these conditions, give to us the possibility to have the best relation with the market and the best relation with our customer. We have done all what we budgeted on 2022. We are completing the new line of products. We have completed the launch of the reorganized production department to increase productivity. But over the world, we are introduced some quality elements that improve our quality and our consideration in mind to our customers.
The new Moto Guzzi 100, for instance, is one of the best products that are existing in the market for technology, for design and also for performance of this motorcycle. The newest plant that is in production now is already in the market has received a very welcome from the customer. So I think that Piaggio is look on very positive, safe in the future in the – based on the decision that we’ve done this year and the earlier – in last year in terms of products, quality, organization, customer care and all the other performance in terms of growing on technology that the new market requires.
So we are not concerned about next year. We are positive. We are – even there are difficulty around the world. And we are sure that the market will appreciate this – our position and what we have taken as a decision on 2022 and 2021.
Raffaele Lupotto
Okay. Thank you very much. I think now Alessandra will comment on the slides that you have seen and download from the website. Thank you.
Alessandra Simonotto
Okay. Thank you, Raffaele. Good afternoon, and thank you to you all for joining us today. And we can start, as usual, from Page 4 of the presentation you have found on our Internet page. This slide, as usual, provides a summary of the highlights of the group, and as you can see, we have kept also in this nine months results a record set of results, and we are very pleased with our performance despite mounting economic and geopolitical uncertainties, supply chain challenges and the spike in energy costs.
As you can see, net sales, EBITDA and earnings per share kept on growing in Q3. All these key financial metrics reached both in Q3 and the first nine months results, the best results since IPO. Net debt had been further lower, thus confirming our ability to keep our commitment to reduce leverage.
On Page 5 – from Page 5 to Page 7, you can find the snapshot of the performance by brand. The strength and desirability of our brands continues to grow in an uncertain time. As you can see, all top brands posted outstanding results reaching the highest revenues today.
In this context, motorcycles took again the spotlight with Moto Guzzi setting a fresh record high both in volumes and revenues and the Aprilia motorcycles reaching the best revenue since the IPO. Clearly, speaking about motorbikes, I’m very pleased to confirm that the new Moto Guzzi 100 Mandello that you can see at Page 8, we see an enthusiastic welcome from the press.
Going to Page 9, we have highlighted the outstanding results of Asia-Pacific. Revenues in the area after a staggering performance since 2018 accelerated this year, ending the first nine months up by 55%. As highlighted already in prior calls, this result stemmed from the synchronized growth of all key markets, amongst which Vietnam and Indonesia took the lead both with revenue surging 2 times above 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 in 2023.
Now, we can move to Page 10 to look at 2022 key market demand. In a nutshell, in EMEA and U.S., demand lead as the year progressed, mainly dampened by the negative trend of motorbikes, while scooters show more resiliency ending the first nine months above prior year. Asian five countries posted diverging trends with China edging down, whilst demand in Asia five countries strengthened as the year progress.
Also, India saw sequentially stronger demand trends also benefiting from a very easy basis of comparison. More importantly, unfortunately, demand was still significantly below the pre-pandemic levels, namely with LCV still 47% below 2019 levels.
Going to Page 12, you can see that the growth of volumes and revenues have been driven by the synchronized positive performance of all geographies and businesses. Western countries confirm steady and positive performance, notwithstanding the two basis of comparison and the gloomy macroeconomic scenario.
Country-wise, I would like to highlight the performance of U.S., which posted the strongest two-wheelers revenue growth in this area, mainly driven by the success of our motorbikes; and of Germany, which posted strong growth, mainly driven by scooter sales. It is worth also mentioning the strong performance of LCV, driven by the new Porter NP6.
Asia-Pacific was the brightest spot, as commented before, with growth that further accelerated in Q3 boosted by the synchronized growth of all key markets as we already said. India, India rebounded mirroring demand trends, mainly benefiting from low year-ago base.
Moving to Page 14. We can look – we can have a look at the breakdown of the performance by product. As mentioned before, motorbikes posted terrific results with revenues roaring up by 35%, profiled by the success of our brands, coupled with positive price effects.
Scooters performed extremely well, reaching an all-time revenue hike, mainly benefiting from the outstanding performance of Vespa, which topper the new record high on the back of growth of all geographic areas. Additionally, it is worth mentioning the success of the new Aprilia SR GT and the new version of the MP3 launched this summer.
Moving to Page 16. We can have a look of the EBITDA evolution. EBITDA grew to €85 million in Q3, that’s reaching €237 million, a new all-time high with a percentage margin on sales at 14.5%. This is an extraordinary result, in my opinion, if we consider the growing number of negative externalities mentioned before. As we saw in prior conference call, the key level of EBITDA uplift has been the strong revenue growth more than offsetting the hefty diluted effect stemming from inefficiency of the supply chain and higher input costs. Cash OpEx growth has been kept under strict control, resulting in a ratio of cash OpEx on revenue lower than last year.
Moving to Page 17. We can see the remaining P&L figures. I would like to highlight the EBIT grew by €37 million with an increase of 0.9 percentage points and ratio on net sales. Net profit grew to €19 million despite target depreciation and higher financial expenses.
And now let’s move to Page 18, in which we can have an in-depth analysis of net financial position, both evolution and leverage. As you can see and, in my opinion, it is a very significant line, seeing it specifies our ability to reduce debt whilst returning value to shareholders through dividends and buybacks, despite the negative dynamic of working capital due to the complexities in supply chain management, which forces us to prioritize inventory buildup. CapEx expanded in line with prior year and with a multiyear target provided in prior conference calls.
Lastly, you can see leverage has been further trimmed consistently with our long-term targets. Thank you.
Raffaele Lupotto
Thank you very much. Now we are ready to answer the questions you may have. Thank you.
Question-and-Answer Session
Operator
We will now begin the question-and-answer session. [Operator Instructions] The first question is from Monica Bosio with Intesa SanPaolo. Please go ahead.
Monica Bosio
Just to check, can you hear me well?
Raffaele Lupotto
Yes, we can hear you, Monica.
Monica Bosio
Thank you very much. Good afternoon and thanks for taking my question. The first one is on the short-term and medium-term view. As for 2022, it’s clear that following these very strong results, the consensus of fourth quarter estimates are too conservative, and I’m expecting a great year. But I was wondering, as for 2023, the company is expecting further improvement. Now the constrains is pointing to an EBITDA in the region of 287. Taking into account that Europe is likely to slow down and Asia is likely to keep growing double-digit, are you comfortable with this effect of numbers? Or do you think that they could be even too prudent?
And the second question is on the demand in Europe and the softening of the demand. How do you see the demand in Europe in October? And what about for light commercial vehicle in India. And the very last is on the new products. Are we planning to launch new electric two-wheel products in Europe in 2023? Thank you very much. Hello.
Raffaele Lupotto
Monica, one second, please. Something with the second question concerning Europe, in October, you asked, market demand. We don’t have reliable data apart from Italy. And as of yesterday, the Italian market was growing around 31%. Then concerning the…
Monica Bosio
3-1?
Raffaele Lupotto
3-1, yes. October, in October, okay? It’s not a meaningful month. Then considering the EBITDA for 2022 and 2023, if we have understood underway that was the question, the first one, okay?
Monica Bosio
Yes.
Alessandra Simonotto
Monica, you are talking about 287 for 2023.
Monica Bosio
287 for 2023, this is the consensus, 2-8-7. So I’m just asking if you feel comfortable with this consensus number? Or if you would feel that it could be even too prudent if we look at the expected growth in Asia?
Alessandra Simonotto
About 2023, in my view, it’s very, very early to give any forecast because we have to look and understand what will happen in the next months about raw materials, about the war in Ukraine and Russia, first of all.
Roberto Colaninno
And Indonesia.
Alessandra Simonotto
And even if we had the Indonesia plant that will help us to reach a better result than now. So probably, as you can see, we will have different things that will work together from one side, all the macroeconomic matters that we have already faced in 2022. On the other side, the Asia area and the Indonesia plant that will begin to work at the end of November, just like – just you can see in the last slides of the presentation. And that will help us to reach better results in that area. But in this moment, for me, it’s too early to give you a figure.
Monica Bosio
Okay. I fully understand that. And for the potential launch of new electric scooters in Europe. Are you planning an introduction of new electric products?
Alessandra Simonotto
Not as of now. If there are – will be new things in our agenda, you will know it in the next conference call.
Monica Bosio
Okay. Thank you. Sorry. Just a follow-up.
Raffaele Lupotto
Monica, please wait. Okay, okay. Go on, Monica.
Monica Bosio
Thank you for the answers. Just a follow-up. Can you quantify the increase in energy cost in the third quarter and over the nine months of 2022? Thank you.
Alessandra Simonotto
Okay. That’s 3 times the one that we have had in 2021, only for the EMEA plant, clearly, because the problem of energy cost is not something that affects the production plant in India and Indonesia.
Monica Bosio
Okay. But on overall at the group level, is it 3 times or less?
Alessandra Simonotto
Well, as the most expensive from an energy cost is the Italian plants. We can say that the 3 times is all the cost of energy. Because in Italy, we produce engine, we produce vehicles, we have the painting shops. We have a lot of things that we do really in Italy. While in the other countries, the production plants are more or less different. So the Italian plants are the most expensive one from the energy point of view. And so when we talk about the amount of energy cost in 2022 P&L, when we talk about 3 times, it is the total cost of energy.
Monica Bosio
Okay. Very clear. Thank you very much.
Operator
The next question is from Niccolo’ Storer with Kepler. Please go ahead.
Niccolo’ Storer
Yes. Good afternoon. Two questions, please. The first one is on debt expectation for year-end. I see that Q3 was overall in line with expectations even in the context of better P&L results. So what should we expect for the end of the year? At the moment, I think that consensus is expecting something in the €370 million range. And the question is, could this be better? The second one is on – Q3 performance in Western countries have seen that you’ve had apparently a very strong price mix effect. And so the question is, where is this coming? And is it something that we have to maybe bring also to Q4? Or it’s just a one-off? Thank you.
Alessandra Simonotto
Good afternoon, Mr. Storer. So the first one question, debt expectation. As of now, we believe that the constraints so more or less is €370 million could be a range – a good range for us. So I don’t expect in this moment any other figure. About the second question – and the very strong mix effect it’s not a prices vector. It is a product mix effect. If you see our slides, we have said that the motorcycle kept a different weight on our sales and the Moto Guzzi and Aprilia have reached a very important result, the higher result as of now and from the IPO for both the brands. As you will understand, the price of a motorcycle is higher than scooters, even if we talk about Vespa. And so this is why the mix of price effect is different.
Niccolo’ Storer
Thank you.
Operator
The next question is from Gabriele Gambarova with Banca Akros. Please go ahaed.
Gabriele Gambarova
Yes. Good morning and thanks for taking my questions. The first one is on Indonesia. Mr. Colaninno mentioned the budget and the possibility to exceeded the budget. So I was wondering if you can share with us the targets of the budget. This is for Indonesia. And possibly, if you can add something – some color on pricing, because I saw that in Asia, the average selling price was a nice €27,000 [ph]. So should we assume a similar pricing for next year? This is the first one.
The second is on Europe. I guess, I wonder if you have any indication, any assumption on the market next year. And I was wondering if in the past, you saw – I mean, I’m wondering if you can assume to profit – to benefit from the inflationary scenario. I mean, people not able to afford a car might buy two-wheelers. I don’t know, if something – let’s say, a question I put you, I don’t know if you empirically saw this trend in the past or you have any kind of statistics on this. Then, last one is on logistics, logistics costs. They clearly were a drag in 2022, I think, €15 million. Should we assume that this €15 million will be – I mean, you will recover them in 2023, considering that logistic costs are coming down abruptly. Thank you.
Raffaele Lupotto
Thank you. The question on the budget, yes. Concerning Indonesia, we can’t provide budget figures. And regarding Indonesia, yes, you can imagine Asia-Pac pricing similar to 2022. There is – there was another question. We don’t believe that you will see a trading down from cars to scooters or motor bikes so far. That was the question, if I’m right.
Gabriele Gambarova
Okay. Thank you.
Operator
Next question is from François Robillard with Intermonte. Please go ahead.
François Robillard
Hi, good afternoon, everyone. And thank you for taking my question. First one is on your – the inventory levels at dealers. Can you just comment on the situation and how the recent supply chain evolutions have impacted the supply and inventory levels, both on your side and at dealer levels? Then yes, maybe coming back on one question of Gabriele was not answered about the European market assumptions for next year. Quite a lot of your – so yes, price mix and volumes as well in the first nine months this year were motor bikes, which might be more leisure products compared to the more day-to-day used scooters. So in a potential recessionary market next year, what are your expectations in terms of motor bikes for Europe, if you can share them? And then yes, finally, my final question about pricing in Europe. Do you expect some pressure to come on the pricing side for you next year in Europe? Thank you very much.
Alessandra Simonotto
So first of all, inventory level and supply chain evolution. As you can see in our figures, the inventory level is higher than last year, more or less for two reasons. The first one is that the mix of product is different from last year. And so this is one of the reason why the inventory is growing. And the second one is that even if we are facing a different impact of COVID-19 on our supply chain, the COVID exists. And so we have to manage the inventory and the supply chain, having in mind that the Chinese supplier but also the Taiwanese or whatever in the world, can close their door for one week, two weeks, three weeks. And we can’t stop the production, from one side.
And from the other side, there’s the time of shipping that we have in this period is more or less as long as in 2021. We have not – we didn’t come back to 2019. So the shipping times are more or less longer as 2021, so more or less 40 days more. And the supplier has to face the COVID pandemia in any case also in 2022. So this is why the inventory has to reach this level. If you calculate the ratio of inventory on net sales, we are at the same level of 2021.
Raffaele Lupotto
Then there was a question on inventories on dealer network, if I’m not mistaken, François. And so the key metric that you have to look at is essentially the ratio between the dealer stock and the total market size. And I can say that the direction is the same of 2021, 2020, even below 2019, okay? That was the answer.
François Robillard
Thank you. And on pricing for 2023, expectations?
Raffaele Lupotto
We don’t expect to increase prices in 2023 in Europe roughly, okay, roughly. So there will be a mix effect, it will be positive. And then – so we will focus on mix effect as we did in 2022 rather than on price effect, right. Thank you.
Operator
The next question is from Emanuele Gallazzi with Equita. Please go ahead.
Emanuele Gallazzi
Good afternoon, everybody. Just one question from my side, a follow-up on consensus EBITDA. Just to be sure I understood correctly, you basically confirm the target EBITDA at €270 million in line with the consensus, which should imply fourth quarter EBITDA down almost 30% year-on-year or 20% adjusted. Is it right?
Raffaele Lupotto
No, no, no, we didn’t say that. So we didn’t speak about the 2022 EBITDA target before. We were answering to 2023 consensus figures comparing to 2022.
Emanuele Gallazzi
Okay. So you are confident with the EBITDA consensus on 2023? That’s the message.
Roberto Colaninno
Based on the information that we get in this period to form and to decide in the next budget on 2023, we consider as a target of the company to satisfy the concession 2023.
Emanuele Gallazzi
Okay. Very clear. Thank you.
Operator
The next question is from Michele Baldelli with BNP Paribas. Please go ahead.
Michele Baldelli
Good morning, everybody and thank you very much. I have a couple of questions. The first one relates to the tax rate. You had a strong growth in Asia Pac. Is it fair to assume that there could be some room at the end of the year to see tax rate a little bit better than in the first nine months? The second question relates to the average per unit that you have restated particularly in the third quarter. Is it something that you see it as sustainable? Or it was just a quarterly figure, a little bit more than the previous quarter? Thank you.
Raffaele Lupotto
Michele, I’m sorry., Can you – we have a problem. So can you repeat the second question, please?
Michele Baldelli
Yes. On the revenues per unit of the sales made in Europe, I thought that it was a kind of similar to €4,000, if I’m not wrong. So basically, I just wanted to understand given that this number is higher than the previous quarters, is it something that you think could have be impacted by mix? So basically, that you saw the higher level of motor bikes than normal? Or…
Raffaele Lupotto
No, no – yes, no, no, understood. No, it’s absolutely mix effect. So we have strict market trends with the product. So it’s pretty much clear also if you look at the presentation. So strong brands and delivering strong results. That means also a very good mix effect. Concerning tax rate, I think Alessandra will like to answer you.
Alessandra Simonotto
So about the tax rate for the – towards the end of the year, am I right? Because we have some problem with the line.
Michele Baldelli
Yes, tax rate, if there is any kind of improvement possible by the end of the year versus nine months given the strong growth in Asia Pac.
Alessandra Simonotto
Well, we are working, as usual, for the end of the year – for all the figures of the end of the year because this is our work. I can say today that if and – if the tax rate at the end of the year will be different from the ones that we use for any intermediate results, just like the nine months results. So in this moment, what we can have in our hands is the 38% that we have used for the closing of the nine months results. But we will work also on this figure, as usual.
Michele Baldelli
Okay. Thank you. And just lastly, sorry, because you said that there was a strong growth in Italy in October. Is it fair to say that this growth was driven by the incentives on the electric scooter side that become…
Raffaele Lupotto
No, Michele, absolutely not. So we have bikes going up, and scooter was 50-50 going up. No, no.
Michele Baldelli
Okay. It’s a big picture.
Raffaele Lupotto
Yes, because it’s always October, as I said before. But yes, the figures are very – yes, both motor bike and scooter are growing strongly or are growing.
Michele Baldelli
Thank you very much.
Operator
The next question is from Jordan Meighan with BNP Paribas. Please go ahead.
Jordan Meighan
Hi, it’s Jordan Meighan from BNP Paribas on the credit side. Thanks for taking my questions. I just wanted to ask two. So with net leverage of 1.3x on your measure, I mean, that is quite low historically for the company. I just wanted to ask, is the company happy with leverage at these levels? Or do you think deleveraging needs to continue given a more challenging macroeconomic backdrop? And secondly, I think factoring of receivables stepped up by quite a bit in the second quarter. Can you just comment on how that may be developed into the third quarter? Thanks.
Raffaele Lupotto
I think from the last one, yes, factoring receivables was in the region of €200 million. And the ratio on the – on safety is below prior year and prior quarters. So this is what we can tell you. Concerning leverage, the real goal is to go on keeping very low leverage and possible to deleverage the company. That was also the minimum of the plan that we have published. So trimming further leverage, if it’s possible, yes, that’s the goal.
Jordan Meighan
Okay. That’s great. Thank you.
Raffaele Lupotto
Thank you.
Operator
The next question is the follow-up from Niccolo’ Storer with Kepler. Please go ahead.
Niccolo’ Storer
Thank you. My question is about the clarification about new launches. If I understand well, you said that you are not planning to launch any new electric vehicle in the coming future, so end of this year and 2023. Is this a sort of step back, sort of retreat from your previous plans? Can you explain why this? Because the impression was that you were probably eager to launch something new after Piaggio 1. Thank you.
Roberto Colaninno
Okay. We are working now to change the line that produce new Porter that today is a thermic engine and electrical line. So we are concentrated to be able to have a new Porter electrical engine in the next six to seven months of next year. We feel that this target is quite difficult to achieve due to the fact of all complexity of the machinery and all the complexity to adapt the Porter thermic to the Porter electric. In the meantime, we go on with all the group of Piaggio to look and to concentrate to change the performance of the people to be able to be worked on electrical zone than to thermic zone only.
And this is not a simple game to achieve. It’s quite complicated. So before to launch a new electrical products, we want to be sure that the quality and the performance of the electrical scooter will be more achievable and more performance for the market. We have done some experience, and we see that today what the market want is something different on what the company had presented until now.
Niccolo’ Storer
Thank you.
Operator
The next question is from François Robillard with Intermonte. Please go ahead.
François Robillard
Hi. Just a follow-up to wrap it up on the expectations for the fourth quarter compared to what was seen in the third quarter. If I understood it correctly, is it fair to say that we may expect just a continuation of those trends, so basically strong Asia Pacific, still robust Europe and North America and India with light commercial vehicles in the fourth quarter? So no change in trends compared to what we’ve seen in the third quarter or the fourth quarter of 2022? Thank you.
Raffaele Lupotto
Yes, we can confirm the trend that will be pretty much similar to the one that you have seen in Q3.
François Robillard
Thank you.
Raffaele Lupotto
I think that this is the last question. So this answer draws the call to an end. Thank you very much for attending today’s conference call. As usual, if you need further info, you can call me later. Thank you. Bye.
Operator
The conference call has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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