Risk Factors

The Piaggio Group has established procedures to manage risks in most exposed areas.

Risks relative to the business segment

Risks relative to the macroeconomic and segment situation

The Group’s business is affected, among other things, by general economic conditions which may vary depending on the markets where it operates.
An economic crisis and ensuing slow down in consumption may have a negative effect on the Group’s sales.
To offset the negative impact that a drop in demand could have on company profitability, the Piaggio Group has a flexible structure and uses fixed term employment contracts so
that it can configure its production capacity in line with market demand.

Risks relative to a highly competitive market

Many of the Group’s main competitors are of a bigger scale and have greater financial resources and production capacities.
A very aggressive price policy adopted by the competition could force the Group to increase discounts, thus reducing its margins, to defend its market share. The Group’s ability to continuously put innovative products on the market protects it from this risk, at least partially.

Risks relative to an increase in energy costs, raw materials and components

Production costs are exposed to the risk of fluctuating costs of energy, raw materials and components. If the Piaggio Group were not capable of transferring a possible increase in these costs to sales prices, its profitability would be affected. To date, the Piaggio Group has not considered it necessary to use financial instruments to cover the risk of fluctuations in these costs.

Risks relative to seasonal business fluctuations

The business is subject to high seasonal demand. Sales of two-wheeler vehicles are concentrated in the spring and summer. Moreover, an excessively rainy spring can decrease product sales, with a negative impact on financial results and position. To deal with this risk, the Piaggio Group has a flexible production structure and thanks to vertical parttime (working only a part of the week) and short-term contracts, it can handle peak demands.

Risk relative to the reference regulatory framework

The Group’s business operations are subject to a large number of regulations. To obtain type approval, the Group’s products must first meet minimum technical requirements concerning safety, noise, consumption and polluting gas emissions established by national and international government bodies.
The enactment of tighter regulations could put products currently on the road out of the market and force manufacturers to support investments to upgrade/adapt them. To this end, the Piaggio Group, as a leading international manufacturer, is often requested to take part, through its representatives, in parliamentary committees appointed to formulate new laws.

Risks relative to the Piaggio Group

Risks relative to changed customer preferences

The Group’s success depends on its ability to make products that cater for the tastes of consumers, meeting their mobility needs. If customers do not like products, the Group sells less than planned and has to grant higher discounts and thus obtains lower margins. The Piaggio Group invests continuously in research and development (see section 9.5), and has a dedicated team that can anticipate and deal with market requests and trends and introduce innovative products.

Risks relative to protecting brand, licence and patent rights

The Piaggio Group legally protects its products and brands throughout the world. Some countries where it operates have no laws guaranteeing a certain level of protection for intellectual property. This circumstance could make the measures adopted by the Group to protect it from third party infringement of its rights insufficient. Plagiarism by competitors could have a negative impact on sales.

Risks relative to dependence on suppliers and a global sourcing

In carrying out its operations, the Group uses different suppliers of raw materials, semi-finished goods and components for its vehicles.
The Group’s operations are affected by the capacity of its suppliers to guarantee quality standards and product specifications, as well as relative delivery times.
The Group has established a components procurement policy that targets increasing supplies from low-cost Asian countries (whilst maintaining the same quality standards), by acting through its direct presence in India and China.
In future, the unavailability of products or any default by suppliers concerning quality standards, requested specifications and/or delivery times could cause price increases in supplies, interruptions to or a negative impact on the Group’s operations.

Risks relative to the operating status of industrial production facilities

 The Group operates from industrial production facilities located in Italy, Spain, India and as from 2009, Vietnam.
These facilities are subject to operating risks, including by way of example, plant breakdowns, failure to comply with applicable laws, the withdrawal of permits and licences, absence of a work force, natural disasters, sabotage, attacks or major interruptions to supplies of raw materials or components.
Any interruption to production activities could have a negative impact on operations and on the financial performance and position of the Group.
The operating risks connected to industrial production facilities in Italy and abroad are covered by specific insurance policies, allocated among the facilities based on their importance.

Country risk

As the Piaggio Group operates at an international level, it is exposed to risks related to a high level of internationalisation.
Political instability in some countries where it operates, changes in legal requirements and the establishment of customs barriers may have a negative effect on profitability.

Risks relative to product liability and to possible vehicle defects

 The Piaggio Group is exposed to the risk of product liability actions in countries where it operates. Although no claims not covered by insurance have been made against Group, these types of claims could be made in the future with particular reference to the use of two-wheeler vehicles in the United States. If future claims for compensation that exceed existing insurance cover for product liability were made, this could have a negative impact on the financial performance and position of the Group.

The vehicles manufactured by the Piaggio Group, including installed components supplied by third parties, could have sudden defects that require repairs under warranty as well as expensive recall campaigns.

To prevent these risks, the Piaggio Group has adopted a quality control system with standards which are among the most stringent on the market, for the components it receives and for finished products.

Risks relative to legal proceedings

 For information on legal proceedings, refer to section 12.2.

Risks relative to industrial relations

 The Piaggio Group operates in Europe in an industrial framework with a strong trade union presence. It is potentially exposed to the risk of strikes and interruptions to production activities.
In the recent past, no major production interruptions due to strikes have taken place.
To prevent as far as possible the risk of an interruption to production activities, the Group’s relations with trade union organisations are based on dialogue.

Risks relative to the publication of financial statement data

As the Group is an international concern, it is subject to different tax regulations. Developments in these regulations could expose the Group to the risk of default.
The Group is exposed to the risk of possible inadequacies concerning its company procedures designed to ensure compliance with main Italian and foreign laws and regulations.
To deal with this risk, the financial statements of the Group’s companies are audited by independent auditors.
During 2009, control activities required as of law 262/2005 were extended to the foreign subsidiaries Piaggio Vehicles Pvt. Ltd and Piaggio Group of America Inc., with positive results.

Financial risks

Risks relative to financial debt

- At the date of the financial statements, the main sources of financing of the Piaggio Group were as follows:

  • a debenture loan of a total amount of EUR 138 million issued by Piaggio & C. due on 1 December 2016 with payment equal to 7% at a fixed rate;
  • financing from banks for a total amount of EUR 373 million, of which the composition by type, interest rate and due date is explained in full in the notes to the financial statements.

In addition, the Group has other minor financing agreements and reversible credit lines for a total nominal debt of EUR 570.1 million.
The debt described could have a negative effect on the Group’s operations in the future, limiting its capacity to obtain further financing or resulting in financing with more unfavourable conditions.

Liquidity risk (access to the credit market)

This risk is related to difficulties the Group could have in obtaining financing in time for its operating activities.
Cash flows, financing requirements and cash equivalents of the Group are monitored or handled centrally, under the supervision of the Group’s Finance Management, with the aim of guaranteeing the effective and efficient management of financial resources.
Moreover, the Group’s central treasury department has committed credit lines available, as described in section 32 of the Notes to the Consolidated Financial Statements, to further hedge the liquidity risk.

Exchange rate risk

The Piaggio Group carries out operations in currencies other than the euro and this exposes it to the risk of different fluctuating exchange rates.
The exposure to the business risk consists of the envisaged payables and receivables in foreign currency, taken from the budget for sales and purchases reclassified by currency and accrued on a monthly basis.
The Group’s policy is to hedge at least 66% of the economic exposure of each reference month.

Fattori di rischio

The exposure to the transaction risk consists of receivables and payables in foreign currency acquired in the accounting system at any moment. The hedge must at all times be equal to 100% of the import, export or net settlement exposure for each currency.
In 2009, the exchange rate risk was managed in line with the policy introduced in 2005, which aims to neutralise the possible negative effects of exchange rate changes on company cash-flow, by hedging the business risk which concerns changes in company profitability compared to the annual business budget on the basis of a key change (the so-called “budget change”) and of the transaction risk, which concerns the differences between the exchange rate recorded in the financial statements for receivables or payables in foreign currency and that recorded in the related receipt or payment.

Interest rate risk

 The Group has assets and liabilities, necessary to manage cash and cash equivalents and financial requirements, which are sensitive to interest rate changes. These assets and liabilities are subject to an interest rate risk, which is covered by the use of derivatives.

Credit risk

The Piaggio Group is exposed to risks relating to delayed payments of receivables. To offset this risk, the Parent Company has stipulated agreements with leading Italian and foreign factoring companies for the transfer of trade receivables without recourse.