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Edited Transcript of PIA.MI earnings conference call or presentation 26-Jul-19 12:00pm GMT

Half Year 2019 Piaggio & C SpA Earnings Call

Pontedera, Pisa Aug 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Piaggio & C SpA earnings conference call or presentation Friday, July 26, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Raffaele Lupotto

Piaggio & C. SpA - Head of IR & Senior VP

* Simone Montanari

Piaggio & C. SpA - CFO

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Conference Call Participants

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* Emanuele Gallazzi

Equita SIM S.p.A., Research Division - Research Analyst

* François Robillard

Intermonte SIM S.p.A., Research Division - Research Analyst

* Gabriele Gambarova

Banca Akros S.p.A., Research Division - Analyst

* Monica Bosio

Banca IMI SpA, Research Division - Research Analyst

* Niccolò Guido Storer

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Renato Gargiulo

Fidentiis Equities S.V.S.A., Research Division - Analyst

* Saul Rubin;Wellington Management;Research Analyst

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Presentation

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Operator [1]

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Good day and welcome to the Piaggio financial results conference call. (Operator Instructions)

Mr. Raffaele Lupotto, Head of Investor Relations, is going to chair the meeting. Please go ahead.

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Raffaele Lupotto, Piaggio & C. SpA - Head of IR & Senior VP [2]

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Yes, hello. Thank you very much for taking your time today to follow this conference call on the first half of 2019 financial results. This conference call will be held by Mr. Roberto Colaninno, who is the Chairman and Chief Executive Officer; and by Mr. Simone Montanari, Piaggio Group's Chief Financial Officer.

During today's conference call, we will use the presentation that you can download from our group website.

And as usual, I remind you that during today's conference call, we may use forward-looking statements that are subject to risks that can cause actual results to be materially different.

Now I would like to turn the call over to Mr. Simone Montanari.

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Simone Montanari, Piaggio & C. SpA - CFO [3]

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Thanks, Raffaele, and hello everyone, and thanks for attending our quarterly call. I'm glad to start the call with Slide #4, which summarizes the strong and sound results achieved in the first semester of 2019.

First of all, I'd like to underscore as you can see at the bottom of the slide, the first results achieved at cash generation level, which is our key priority. Notwithstanding high capital expenditure to support new initiatives for future growth, we have been able to generate EUR 64 million of free cash flow to equity or cash flow available. Thanks to the significant results and even after the payment of 2018 dividend in April, we have been able to generate positive cash flow to push down the net debt EUR 31 million below year-end 2018.

Healthy performance at cash flow level came on top of and from strong improvement of all key operating metrics. Volumes grew close to 6%. Guzzi stood out, growing around 43% behind the success of the new bike V85TT.

Net sales went up by 12% that has been the highest growth rate to date with all geographies positively contributing. Operating margins rose significantly, notably with EBITDA reaching the best absolute result since 2007, while keeping the percentage of sales at 2018 level, which represents an all-time high.

Having the strong results in mind, we can move to the following Page 5 to have a snapshot of the key market trends. We ended the first semester with mixed but -- market trend with positive European and overall weakening market in Asia and India. Europe kept on posting sound demand, although the growth slowed down in Q2, ending up around 12%. More importantly, the positive trend was widespread among all product segments with scooters up 12% and bikes up by 8%. And among all displacement segments with 50cc vehicles up by 20% and over 50cc vehicles up by 8%.

Additionally, all key countries ended on the rise with Italy, Germany, France and Spain all up double-digits. In our view, this picture suggests that the long-awaited structural reversion trend may finally be underway.

With this positive European context, Piaggio group kept the market share in line with the first half of 2018. In Asia, demand confirmed to be mixed and volatile. Indonesia kept on posting the best demand growth, ending up high single digits. Conversely, Vietnam kept on trending down mid-single-digit.

Among other major countries, Thailand confirmed to be the lackluster trend over recent quarters. As expected, in India, 3-wheeler light commercial vehicle market trending down, exclusively affected by the extremely tough comparison base of passengers which demand had been boosted by the release of new licenses in some big cities in the first half of last year. I would like to remind that the passenger demand ended 2018 up 57% against 2017. Therefore, excluding the 2018 one-off effect demand for this kind of vehicles in India is still very robust. LCV cargo, we are on a different path, ending slightly up against the prior year.

On the other side and on the other business, 2-wheelers demand kept on trending down across the semester both in bikes and scooters, mainly affected by the tough comparison base. Furthermore, the negative trend had been amplified by the price hike mainly linked to the regulatory changes. In this context, Piaggio gained market share both in 3-wheelers and 2-wheelers.

Let's move now to Page 6 to have an in-depth analysis of trend -- of Piaggio results by business. As you can see, we ended the first quarter with overall volumes progressing by 6%, leading to a 12% revenue growth or 11% at constant ForEx. These healthy results stemmed from synchronized growth in all cash-generating units and in all businesses, with both light commercial vehicles and 2-wheeler grew around plus 6% in volumes and around 12% at revenue level.

More in detail, looking at the performance by geographic area. India, although slowing down, ended with revenues on the rise, both in light commercial vehicles and 2-wheelers. Notably, in light commercial vehicles, we have been able to grow in the domestic market against the demand contraction. This positive result coupled with ongoing strong exports led the total revenue growing around 10% over EUR 180 million. That has been the best performance since 2011 with no relevant ForEx effect.

Indian 2-wheelers performance has been sustained by the surge in export more than compensating for the increasing weakness of the domestic demand trend. In addition, I'd like to highlight that both in light commercial vehicles and 2-wheelers, our average selling prices were on the rise despite unsupported market demand.

Asia Pacific surprised again on the upside, with positive performance accelerating across the semester. Volume rose 20%, that is in Q1 '17 and in Q2 plus 23% and the revenues 29%, again, Q1 26% and Q2 31%.

From accounting standpoint, the strongest contribution in Asia came from Indonesia with revenues surging around 60% followed by China and Thailand. Vietnam too, despite the slowdown in the second quarter, ended with revenues growing double-digits. Also in Asia, average prices were on the rise, also excluding the positive ForEx effect.

Lastly, we kept on posting strong results in EMEA and Americas, both in 2-wheelers and light commercial vehicles. European 2-wheelers, despite the reduction of dealer stock versus prior year, posted healthy growth, both in volume and revenues, with the latter growing around 9% also benefiting from positive price and mix effect.

Notably, all major countries, Italy, France, Germany and Spain, gave positive contribution to growth. Americas reverted the negative Q1 trend in Q2, ending the semester on the rise both at volume and revenue level. Light commercial vehicles kept on posting outstanding results with revenues up around 19%, driven by the synchronized growth of European and export sales.

To sum up, we ended the first semester with strongest revenue growth rate to date, benefiting from widespread and positive performance across all regions and businesses.

Let's move now to Page 7 to look at the breakdown of the performance by product. First of all, I'd like to highlight that revenue growth stemmed from all product segments. Scooter performance accelerated growth in the semester with revenues on the rise in all geographic areas with volume growing up to EUR 192,000 and revenues at nearly EUR 400 million. Mainly, growth has been driven by the most diverse scooter and brands in our product lineup from the MP3 and the Vespa as well as we will see in the following slide.

Looking at the bikes, the mismatch between the volumes decreased minus 6% and revenues plus 14% has been driven by the mix shift in both high displacement segments. With this regard, the performance of the recently launched Moto Guzzi V85TT outperformed our expectation as showed by the info we added on this following slide, Slide 8.

So let's move to Slide 8. On this slide, we have highlighted the strong results achieved by some of our top brands and vehicles. Vespa positive performance accelerated across the semester with revenues growing from mid-single-digit growth in Q1 up to 17% at the end of the semester.

To be mentioned, the outstanding result in Asia Pacific plus 28% in volume, plus 34% in revenue, mainly in Indonesia with volumes surging around 50%. Also MP3 revenues accelerated across the semester ending up plus 20%, also reflecting the successful launch of the new 500cc and 300cc versions. All major countries positively contributed, in particular in France, who was 15%.

Lastly, both the MP3 and Vespa average prices went up across the board, further proving the strength of the brands. Moto Guzzi kept on benefiting from the success of the recently launched V85TT with over 3,000 units sold, ending the semester with revenues up around 50%. These strong results and the brand power bodes well for the second half of 2019.

Let's move now to Page 9 to have a look at the EBITDA bridge. As I said before, EBITDA not including IFRS 16 effect grew by 12%, reaching EUR 131 million, that has been the best absolute H1 performance since 2007, keeping the margin on net sales at 16%, which represents together with last year performance an all-time peak.

Notably, excluding ForEx effect, the EBITDA margin would have been 16.1%, the best performance to date. This result was driven by the sound performance at gross margin level, which grew by EUR 22 million on the back of the strong improvement of net sales, which had largely offset despite negative effect stemming from the dilutive product mix as well as the negative ForEx effect on the gross margin percentage of net sales.

It is worth noting that excluding the negative currency effect, the percentage gross margin would have been 30.8%, that means well above our long-term target of 30%. Cash operating expenses ended up versus prior year, reflecting higher marketing expenses to support new initiatives and upfront cost for new product development. To be mentioned that in terms of our ratio to net sales, cash OpEx decreased from the 17.5% in 2018 down to 16.5% in 2019 first half.

Lastly, as you can see, IFRS 16 adoption brought a positive effect, lifting the EBITDA to EUR 100 million and EUR 34.3 million, and the margin on sales to 16.4%, up from the 16% of last year.

Going now to Slide 10. We can analyze the net profit bridge. Net result excluding IFRS 16 surged by 30% or plus EUR 8 million against prior year. With marginal net sales reaching 4.2 percent points, 600 basis point of percentage above last year. This outstanding result stemmed from higher EBITDA as commented before. As expected, slightly higher D&A coming from the past year higher investment level and again, as expected, lower financial expenses as we kept on reaping the benefit of lower level of debt and lower cost of funding arising from the recent initiative at debt level.

Higher taxes driven by the higher earning before tax with a flat tax rate at 45% in line with the full year '19 target, but not included -- not including the impact coming from the recent agreement that we signed with Revenue Agency on the Patent Box.

We can now move to Page 11, which summarizes the figures just discussed. To provide a better comparison of information from different tiers, on this slide, 2019 data are presented excluding IFRS 16 effect. Net sales from EUR 730 million up to EUR 817 million, 12% or 10.7% excluding ForEx, mainly driven by U.S. dollar and Vietnamese dong revaluation versus euro.

Gross margin from EUR 228 million up to EUR 250 million, 10% or 8.8% excluding the ForEx effect with marginal net sales slightly down to 30.6% or 30.8% excluding the ForEx effect.

EBITDA from EUR 116 million of last year up to EUR 130 million of 2019, plus 12% -- also plus 12% at constant ForEx with marginal net sales stable at 16%, but on the rise to 16.1% at constant ForEx.

EBIT from EUR 62 million up to EUR 75 million plus 21% with marginal net sales 70 basis points better from 8.5% to 9.2% on net sales. Net income from EUR 27 million of 2018 up to EUR 35 million, meaning plus 30% with ratio to net sales from 3.7% up to 4.2%.

Furthermore, you can notice at the bottom of the slide, the positive performance at cash flow level that led the net debt at EUR 398 million, well below both June 2019 and year-end 2018 level.

We can now move to the following page, Page 12, where you can see the results including the IFRS 16 effect. As said before, IFRS 16 brought a positive effect on the EBITDA, which reached EUR 134.3 million, up 15.2%, a slightly positive effect on the EBIT, which reached EUR 75.1 million, not material negative effect on net income, which landed at EUR 34.6 million and the negative effect on the net financial position for EUR 20 million, reaching EUR 418 million including IFRS, in any case, well below June 2018 EUR 431 million and December 2018 EUR 429 million levels.

Let's move to Page 13 to have an in-depth analysis of the evolution of the net debt. In my opinion, this is the most significant slide, since it justifies our ability to reduce the net debt, while increasing CapEx for future growth and returning value to the shareholders.

In details, operating cash flow grew against last year, primarily on the back of the higher EBITDA. Working capital drove a very positive cash generation of around EUR 30 million that has been the strongest achieved to date, mainly driven by the strong containment of inventories, higher contribution of payables, while we have been able to rein in the receivables despite significantly higher net sales and factoring in line with prior year.

As expected, higher capital expenditure significantly higher than last year plus EUR 13 million, driven by higher focus on new product launches, but consistent with the full year target in the range of EUR 125 million, EUR 130 million.

Lastly, the change in equity that was higher than last year, reflecting the dividend paid in April 2019. As a result, we produced more than EUR 33 million of cash, which pushed down the net debt excluding IFRS 16 lower than EUR 400 million at EUR 388 million, well below EUR 431 million of June 2018 and EUR 429 million of year-end 2018.

As a result, the leverage went down to 1.8x against 2.2x of 2018, which testifies that we are fully on track with our long-term goal to keep the leverage below 2x. Even more importantly, we had the strongest generation of free cash flow to equity to date around EUR 64 million.

Lastly, including the IFRS 16 effect, the net financial position ended at EUR 418 million, also in this case well below June and year-end 2018 level. Thanks to these sound results, the Board of Directors decided to distribute an interim dividend of EUR 0.055 per share, taking into account several factors: the positive performance of financial and economic indicators during the current year, the need for Piaggio to align with the leading international companies in the 2-wheeler sector with whom investors may make comparisons and are [persuaded] to study like the company's cash flow.

Additionally, I'd like to underline that this decision relies also on the commitment to generate strong free cash flow to equity, allowing us to combine a double goal to reduce the net debt, while returning value to shareholders and continuing to invest for future growth, with the full year guidance for CapEx at around EUR 125 million, EUR 130 million.

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Raffaele Lupotto, Piaggio & C. SpA - Head of IR & Senior VP [4]

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Okay. So now we are ready to answer the questions you may have. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Monica Bosio of Banca IMI.

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Monica Bosio, Banca IMI SpA, Research Division - Research Analyst [2]

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The first one, it's my usual question on consensus, but I believe it makes sense. I remember that on occasion of the first quarter figures, the company guided foreign EBITDA in the range of EUR 220 million. But as a matter of fact, the second quarter was better than our expectation and my feeling is that an EBITDA in the range of EUR 225 million, EUR 230 million might be more reliable or might have sense. Do you share my view? And this is the first question.

The second one is on the European 2-wheel market. The momentum for volumes is positive. Can you please give us some indication or some anticipation on the July trend in Europe for 2-wheels?

And very last, it's in India. You managed to increase the volumes in LCV in India by 2.6%, but the market is suffering from an unfavorable comparison base. You have the exports. So I'm just wondering if you can give us a rough indication of what are you targeting internal volumes growth for the Indian market, both in LCV and in 2-wheels?

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Simone Montanari, Piaggio & C. SpA - CFO [3]

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Thanks, Ms. Basio. I will answer to the first question and then I will hand on to Mr. Lupotto for the second one. Guidance, consensus figures excluding IFRS 16 are pointing to revenues up around 8% at the moment, reaching around EUR 1.5 billion revenues and to an EBITDA excluding IFRS 16 around EUR 219 million. I think that given these H1 strong results and in particular with the performance we experienced in Asia and in Europe that exceeded our estimates, I think that we can be a bit more positive compared to this guidance and that we may arrive to something in the region of -- I'm talking about EBITDA excluding IFRS 16 from EUR 220 million up to EUR 225 million, then I will [leave it up] to you.

If we speak including IFRS 16 effect, I think that we may move to EUR 230 million, roughly speaking. Additionally, and more importantly, given the current cash flow generation and notwithstanding the payment of the interim dividend that we saw today, I think that we should be able to keep the net debt excluding IFRS 16 at the end of the year lower than year-end 2018 and in line with the first guidance we gave at the beginning of the year that was to end 2019 with net debt at EUR 420 million level. I think that we may stay with this guidance considering the positive cash flow generated and also notwithstanding the dividend interim that we saw today.

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Raffaele Lupotto, Piaggio & C. SpA - Head of IR & Senior VP [4]

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Monica, Raffaele speaking. So going to your second question regarding the European market. I'm glad to say that in the first 3 weeks of July, the European market went up in the region of 10%, 12% with all major countries growing, I mean France, Italy, Spain and Germany. I can add also that both scooter and motorbikes were growing in the region of 10% or even more.

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Monica Bosio, Banca IMI SpA, Research Division - Research Analyst [5]

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How much, sorry?

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Raffaele Lupotto, Piaggio & C. SpA - Head of IR & Senior VP [6]

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10%, more than 10% in both segments, scooter and bikes. And also in term of displacements, both 50cc and over 50cc, they both went up double-digit. So we have a sort of widespread where we see trend in the first 3 weeks of July.

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Operator [7]

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The next question...

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Monica Bosio, Banca IMI SpA, Research Division - Research Analyst [8]

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I'm sorry. Excuse me. And for India?

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Raffaele Lupotto, Piaggio & C. SpA - Head of IR & Senior VP [9]

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For the Indian market, yes -- so considering the month of July, so we've seen that we can go on growing the actual market. You know that there is a little bit of soft market in term of demand or domestic demand. But overall, our volumes, we have just -- our volumes should be broadly in line with last year, okay, for the month of July.

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Operator [10]

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The next question comes from Niccolò Storer of Kepler.

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Niccolò Guido Storer, Kepler Cheuvreux, Research Division - Equity Research Analyst [11]

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I have 3. The first one, if you can a little bit elaborate on the drivers of the strong price/mix effect reported in Western countries? And if you see these effects continuing into the second part of the year? Second question, Southeast Asia was particularly strong against a weak market, so if you can help us understanding what drove this outperformance and how this outperformance could be sustainable going forward? And third question, if you can help us in reconciling figures on 2-wheelers volumes in India because [increased] volume from your press release and presentation in the second quarter of this year is 18,000, 19,000 units, while from the CM reports that we get from Raffaele every month, we are at 24,000. So I would like to understand why this gap? That's it, basically.

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Simone Montanari, Piaggio & C. SpA - CFO [12]

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Thanks, Mr. Storer. I will start with the first 2 question, in particular drivers behind the positive price/mix that we're experiencing in Western countries indicate a matter of mix, obviously, product mix in particular higher than 50cc displacement contribution to our 100% total sales and higher than 2018 bikes, and in particular, high displacement bikes compared to 2018 level, both the average prices up. Together with a sound policy of more or limited discounts in these -- even in these markets enough. I think that this will stay also for the second half of the year, so I do not see any risk on this.

Southeast Asia, which has been the driver behind the growth, I'm not looking at Vietnam. Vietnam is pretty stable, flat compared to last year. The growth has come from Thailand and Indonesia. You know that we have different approaches to these different countries. In particular, in Thailand, we are commercializing our products to our importers, while in Indonesia we do have a direct presence with our subsidiaries. You know also that when we enter into a market, it takes time to have success in this market because we are not -- we do not push very hard on commercial or marketing activities, while we leave the marketing activities being our product itself. This approach is very attractive in terms of cost, but it takes time. I think that it's quite a long period that -- a long period of time that we are there and we are starting again collecting positive results together with a suite of management that we had in the area last year, and you -- maybe you remember we commented on this 12 or 18 months ago.

As for the third question, I'll leave the ground to Mr. Lupotto.

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Raffaele Lupotto, Piaggio & C. SpA - Head of IR & Senior VP [13]

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Yes, so -- yes, essentially, if you sum up all the data you can find in the CM report, you should learn more -- 40,000 vehicles sold in 2-wheeler in India compared to the 36,000 that we -- you see in the presentation. The reason is that some of the exports from India are going to Middle East or America or Europe and so we consolidate this data in the EMEA and Americas cash-generating units. That's the only difference.

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Simone Montanari, Piaggio & C. SpA - CFO [14]

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If I may add -- Mr. Montanari, again. On Southeast Asia, with that we had also more than positive contribution higher than our expectation of the results coming from China. The volumes are still quite limited, but the value is very high. It brings the average price high and also the profitability definitely interesting in this area.

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Operator [15]

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The next question comes from François Robillard of Intermonte.

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François Robillard, Intermonte SIM S.p.A., Research Division - Research Analyst [16]

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Thank you for taking my question. First one is on the new products pipeline. You're investing quite a lot to develop new products, and I guess also to comply with new regulations in Europe and Asia. Can you give us some more visibility on what are the next products and when we can expect some new items coming out in those markets? Second question quite related is about the Indian electric vehicles that were announced for the second part of this year, again, some more visibility on volume expectation and date to launch the commercialization?

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Simone Montanari, Piaggio & C. SpA - CFO [17]

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Starting from the first one, new product pipeline. So you're right in pointing out that we are investing with new regulation, and in particular in Euro 5 for Europe and in Bharat VI in India. Then, we are investing on the 4-wheel vehicles on the project with Foton that is proceeding in line with our expectation and that will see the life in terms of commercialization by the second half of 2020. We are investing on the electric vehicles in particular in Asia and in China, not only for the Asian and Chinese market, but also for the European one. As for the 2-wheels product range that is scooter and bikes, we are investing more than in -- what we did in 2018 and definitely more than what we did in 2017. I think that as to add some comments on the new product we have to wait for the 8 months in order to disclose also the new launches.

Coming to India, electric vehicles, we are working on this and I can confirm that by the end of the year, we will have 3-wheels electric in India. I do not expect any material is out on 2019 data, so the P&L would be the one that we commented before when we were speaking about guidances with this volume. But again, something that we will start this year and I think that it's a good start from the next year.

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François Robillard, Intermonte SIM S.p.A., Research Division - Research Analyst [18]

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Just -- sorry, just a follow-up one. In terms of volume or value implementation on your engine data, if you can give us a taste of how the electric -- what are your expectation on the electric vehicle?

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Simone Montanari, Piaggio & C. SpA - CFO [19]

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Overall, volumes in India will be higher than last year as Mr. Lupotto was commenting before, but we didn't disclose how many electric vehicles we will sell in 2019.

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Operator [20]

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The next question comes from Emanuele Gallazzi of Equita.

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Emanuele Gallazzi, Equita SIM S.p.A., Research Division - Research Analyst [21]

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Just 2 quick questions. The first one is on India and in particular in Bharat VI, which is going to be implemented in April 2020. Which kind of expectation do you have on the potential impact of this regulation on the market? And the last one is a follow-up on new products. If you can give us an update on GITA and the hybrid Vespa?

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Simone Montanari, Piaggio & C. SpA - CFO [22]

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Starting from Bharat VI, clearly, we have to adapt our product range to the new regulation in India, [not only in India] what we already and always do all around the world. We do not have any technical issues at the moment and neither we see technical issues for the future. And we see also it as an opportunity to strengthen and enlarge our product lineup. As other players, they likely will therefore adjust the product price in order to compensate for the cost increase that will occur.

As for the new product and in particular, referring to GITA and to the hybrid Vespa, let's start from the hybrid Vespa. The hybrid Vespa is a new vehicle that has been already developed. With the marketing approach -- for marketing choice, at the moment we didn't launch the vehicle into the market, also considering the fact that the market -- the electric market in particular in Europe is still very limited. It is true that it is very interesting, but at the moment in terms of absolute terms, it's very limited and we thought that adding one single product for now would be sufficient in order to meet the market request.

As for GITA, you know that Boston activities have to be considered and R&D laboratories working in not only one product, but in a set of new ideas. GITA is one of these new ideas that we are working on. The development level of GITA is 90% I would say, very likely something more. And we plan to have final terms in terms of commercial activities by the end of this year, by Christmas time. This is not something that will affect our P&L in terms of the material on our P&L, but it will be a commercial approach that we will start during this year.

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Operator [23]

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The next question comes from Gabriele Gambarova of Banca Akros.

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Gabriele Gambarova, Banca Akros S.p.A., Research Division - Analyst [24]

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So the first one is on the expectations on the Indian market. During the year, you were pretty optimistic. Now I see that the numbers are basically in line with last year. So I was wondering if you could actually update your view for the fiscal year 2019 in terms of volume on this side both for 3-wheelers and 2-wheelers? And the same for Far East because India is a little bit behind the curve. It seems like Far East is offsetting or is doing better than originally expected. So if you could give me an idea of what are your, let's say, expectations on the margins on these 2 important markets?

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Raffaele Lupotto, Piaggio & C. SpA - Head of IR & Senior VP [25]

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Yes. Raffaele, speaking. So for India, as expected, we have seen a slowdown in Q2. The market should stabilize, also our volumes in Q3. And finally, we should resume growth in Q4, I mean, both for 2-wheeler and light commercial vehicles.

As you know, for light commercial vehicles, there is a very tough comparison base. I remind you that market is still close to 60% higher than 2017, so that's the reason why we are slowing down a little bit. In any case, going forward, given the fact that we are introducing new models and given the fact that we are speaking up with dealer network widening, we think that we can reach around 300,000 vehicles, and this is the new target that we have -- close to 300,000 vehicles for light commercial vehicle. Similar trends for 2-wheelers. You know that we have recently launched the Aprilia Storm. The Aprilia brand is performing quite well in India. We are outperforming the market. I forgot to say that we are outperforming also in light commercial vehicle and also in this case are also helped by this strong expansion on the dealer network. We are targeting more than 300 point of sales, which we'll be able to again start growing at the end of Q3 and then in Q4 to reach, I would say, volumes in the region of 96,000, 97,000 vehicles. Conversely, and you are [correct to realize], probably we will be more aggressive for Asia Pacific. I know quite well the consensus figures. We started the year with 93,000, 94,000 vehicles and really easy to say -- to imagine to grow 93,000 or even more vehicles by the end of the year. And as we were mentioning before, we are doing extremely well in some countries, namely Indonesia, Thailand and China. So then -- more prudent on one side and more aggressive on the other.

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Gabriele Gambarova, Banca Akros S.p.A., Research Division - Analyst [26]

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Okay. Can I ask you -- sorry, can I ask you if -- I don't know if you mentioned them, but is it possible to get the breakdown on the Far East volumes. You said that Vietnam was basically flat, but if you can give the numbers from Indonesia and Thailand?

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Simone Montanari, Piaggio & C. SpA - CFO [27]

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Rough numbers, Vietnam flat, Indonesia is roughly plus 50% compared to last year. And Thailand, it is plus 30% and then flat results on other minor countries as well in Taiwan and South Korea, very positive in China, which is more than plus 30%.

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Operator [28]

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There are no more questions at the moment. (Operator Instructions)

The next question comes from Renato Gargiulo of Fidentiis.

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Renato Gargiulo, Fidentiis Equities S.V.S.A., Research Division - Analyst [29]

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A quick one. I'm referring to the -- your sales data for Vespa and MP3. Could you give us any more indications in terms of volumes and in terms of major growth drivers in terms of market?

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Raffaele Lupotto, Piaggio & C. SpA - Head of IR & Senior VP [30]

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Yes. Raffaele speaking. So for Vespa, I can give you some rough numbers. So the volumes went up more than 7%. So now we are close to 110,000 vehicles sold in the first 6 months. I remind you that already we achieved the best results ever, so it bodes very well for the remaining part of the year. In terms of MP3 volumes, we are growing and I think we grew in some indications. I will say that we are growing close to double-digit [because of that] and really what we are doing in term of volumes and clearly, in term of revenues, there is a positive mix effect. The most important country as you know is, for MP3, France. This is what I can say.

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Operator [31]

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The next question comes from Saul Rubin of Wellington Management.

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Saul Rubin;Wellington Management;Research Analyst, [32]

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Two questions related to cash flow and dividends. Can you just talk about seasonality of cash flow between the first half and second half. I guess, second half is normally not as strong as the first half, but what are you expecting for this year? And secondly, what kind of cash flows do you think you need to be generating in order to be able to increase the dividend from the current levels?

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Simone Montanari, Piaggio & C. SpA - CFO [33]

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Thanks, Mr. Rubin. Mr. Montanari, speaking. In terms of cash flow, traditionally, the first semester is cash positive, while the second one is cash neutral. This year as you can -- you will read that we will have a dividend -- interim dividend distribution on the second half, so I expect that the second half will be slightly cash negative. In any case, if I consider that in this moment that we have around EUR 30 million of advantage compared to the situation of net debt of June 2018, I think that we will close the year with lower than EUR 30 million advantage compared to December 2018, but in any case lower than December 2018. At the beginning of the conference call, we said that our expectation is to close the year excluding IFRS 16 effect with net debt down to EUR 420 million.

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Saul Rubin;Wellington Management;Research Analyst, [34]

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Okay. So just to clarify, you expect slightly negative second half after the...

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Simone Montanari, Piaggio & C. SpA - CFO [35]

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Slightly negative after the payment of the interim, while positive before the payment of the interim dividend.

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Saul Rubin;Wellington Management;Research Analyst, [36]

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Okay. Fine. And the current dividends, if you're paying EUR 0.055 every 6 months, it's about half of your free cash flow, right, that you're paying out in dividends. And your leverage is now down to about 2x. So how do you think about?

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Simone Montanari, Piaggio & C. SpA - CFO [37]

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Well, I think that this is the right approach that we have to consider while considering the dividend distribution policy that we have in place. That is if I consider the operating cash flow on an yearly basis and then I consider that this has to be sufficient in order to fund the capital expenditure, their dividend shareholder remuneration and the reduction of debt. If you look at the last 3 years that is where the -- I actually remember this -- managed by me, you see that notwithstanding and after the capital expenditure and dividend distribution, we always pay the positive cash flow, reducing the net debt on a yearly basis. This is what is going to happen also for 2019, and this is our key priorities for the years to come.

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Operator [38]

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There no more questions.

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Raffaele Lupotto, Piaggio & C. SpA - Head of IR & Senior VP [39]

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Okay. Now we can close the call. Thank you, everyone, for attending the call. Bye.

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Operator [40]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.