Today we have more KTM news and I am just going to give it to you straight. I look at the latest announcements from Pierer Mobility and the KTM group of companies.
KTM does have a history of killing the companies it gets involved with after all. We had Husaberg and Penton once remember, both victims of KTM and more have suffered too.
You Know from previous videos I have had my concerns about the Pierer Mobility group and its increasing hold on certain brands, including the once great MV Agusta name.
But that is all old news, so what is happening now?
As things look, it is increasingly likely that at very least, the Gas Gas name will likely soon be gone forever from racing, if not completely.
The question is, how far reaching will the effects of this latest announcement be? What is the financial reality? And are we seeing the final nails in the coffins of Gas Gas and possibly Husky too?
You may have seen the video about the KTM 790 failures and I told you more would be coming, but if you haven’t seen it, maybe go take a look to give this video some context.
Here, I will talk about KTM and the other brands involved, but it is much more about the Pierer Mobility group of companies as a whole.
In a statement to investors on June 14, 2024 Pierer Mobility Group made the following announcement and first I will read it in its entirety. Then, I will look at the impact of certain statements within the announcement.
Remember, Pierer Mobility are also heavily invested in bicycles and electric transport. So there are other factors outside of motorcycles at play here too.
I have talked about Pierer Mobility and the KTM group before and I will link videos at the end and in the description, but for those that don’t know me already, I am not a fan of the corporate web that big companies like Pierer Mobility weave, and I am under no illusions as to what their primary focus will always be. That my friends will always be profit for the shareholders.
Anyway, to the announcement.
Pierer Mobility said in a section of the announcement headed:
Sales fall short of expectations due to persistently high interest rates in the USA and the volatile market environment in Europe
that,
In the current financial year, momentum in PIERER Mobility’s core motorbike markets in the USA and Europe has slowed significantly. Due to the latest interest rate decisions in the USA, interest rates are expected to remain high, which will have a negative impact on sales expectations for the American market. Sales figures in Europe are also still volatile. Overall, PIERER Mobility’s sales figures will fall short of expectations this year after three years of above-average success.
They continue with,
This means that dealers will have to reduce their inventories and thus continue to tie up considerable capital. The PIERER Mobility Group is therefore continuing its efforts to strengthen its dealer structure through extended payment terms and higher discounts. These measures have already led to a sharp increase in working capital in the past financial year. Management expects working capital and the associated capital commitment to remain high in 2024. This is expected to have a significant negative impact on earnings before interest and taxes and the financial results in the current financial year.
In another section titled
Tighter cost management and reduction of production volumes in Austria
They say,
The production costs of motorbikes in Europe have risen due to high wage settlements and increasing costs in connection with regulations and bureaucracy, putting a strain on competitiveness. Production volumes are therefore being significantly reduced at the production site at Mattighofen in Austria. At the same time, the company is tightening cost management throughout the Group.
With the growth in sales figures over the last ten years, the number of employees at the motorbike subsidiary KTM AG has more than doubled. In view of the changed location and market situation, the number of employees has now had to be adjusted. This reduction in personnel after years of rising employment is painful, but necessary in order to maintain and secure the competitiveness of the production site.
Then we get a section titled
Expansion of the supply chain in India and China
It reads
Another priority in 2024 is to increase efficiency in product development. The focus will be on aligning and prioritizing activities in line with the Group’s premium brand strategy and streamlining development processes. Following on from this, joint research and development with the strategic partners Bajaj Auto in India and CF MOTO in China will be expanded at their respective locations.
Due to the increasingly fragile supplier industry in Europe, the PIERER Mobility Group is utilizing the favourable economic conditions in these regions to secure its competitiveness. An efficient and high-quality supplier industry is being established there.
I will come back to some key points here but the next section was titled
Adjustment of the guidance for the 2024 financial year
It reads
For the 2024 financial year, the Executive Board expects a decline in sales of 10% to 15% for the motorcycles division due to the current market developments.
In the Motorcycles segment, the Executive Board assumes that the cost savings introduced in the current financial year will be able to compensate for the negative effects of declining sales to such an extent that a balanced to slightly positive Earnings before interest and taxes can be generated. The development of existing dealers and the further expansion of the dealer network to support the brand strategy will be key issues in 2024.
Now this might read like corporate gobbledigook, but let us look at some key points, and remember, KTM group is the parent company of Gas Gas, Husqvarna and MV Agusta, and Pierer Mobility is the company that owns KTM.
The corporate structure is complicated, but I have looked at that in other videos and will come to it again later.
To begin, we get the news that sales in PIERER Mobility’s core motorbike markets in the USA and Europe have significantly dropped.
This is blamed on the interest rate decisions in the USA, but no reason is cited for the lack of sales in Europe.
They tell investors that sales figures will be down this year, but the figures were not released until more recently and they were published by Finanzen.net, a german financial publication, and they are far worse than any of us might have suspected.
Here you will see there has been a 5 year decline in share prices of just below 50%.
But over the last year things look even worse. With a 66% drop from around 75 Euros per share to just above 25 euros.
In real terms, that means the market cap of the company, which was almost 3 and a half billion dollars in dec 2021, is now down to just a billion dollars.
In the statement they continue saying,
Dealers will have to reduce their inventories but continue to tie up capital.
So they seem to be saying, “we still want the same money but you are going to get less bikes to sell”.
They continue “the PIERER Mobility Group will continue to strengthen its dealer structure with extended payment terms and bigger discounts”.
To be clear though, these are measures they had already implemented, and although they led to an increase in working capital it wasn’t enough and is expected to have a significant negative impact on earnings before interest and taxes in the current financial year.
Then we get to the nitty gritty for riders.
Production cost of motorbikes in Europe have risen due to high wage settlements and increasing costs in connection with regulations and bureaucracy,
So, Pierer mobility want the Kudos of being a European manufacturer, but don’t want to pay the higher wages of their staff in Europe, because it eats into their profits.
They also don’t like the regulations and bureaucracy of Europe and the USA, because again, it eats into their profits.
And the final nail, is that they simply sell far more bikes in Asia now. That is the market they care about.
They talk about it putting a strain on their competitiveness, but let us be real, it is the strain on their profits they are really worried about.
They go on to say they are cutting Production volumes significantly in Austria, and tightening cost management throughout the Group.
Im not sure how they can cut production in Europe any more without moving production of the top of the range Super Duke and Super Adventure away from Austria,
So cost cutting, and relocation of production are what we can be sure we have to look forward to.
They say that,
With the growth in sales figures over the last ten years, the number of employees at the motorbike subsidiary KTM AG has more than doubled. In view of the changed location and market situation, the number of employees has now had to be adjusted. This reduction in personnel after years of rising employment is painful, but necessary in order to maintain and secure the competitiveness of the production site.
So to keep the factory in Austria, we need to lay people in Austria off. Have you ever heard anything more ridiculous. Who are they really trying to kid? Remember, this was a statement to shareholders.
In addition to job Cuts in its motorcycle business. Pierer mobility group will downsize some of its motorcycle racing projects
They are already pulling the plug. The tech 3 team will now be running as a second KTM factory team instead of with the Gas Gas name, so costs will be covered by red bull, and in America it looks like Troy Lee may be moving over to Ducati with his team.
Husqvarna are the obvious next victims, although it may be that their more established name in MX saves them for now.
It does seem likely this will also have an impact on MV Agusta;s future Racing aspirations too, but as with Husqvarna that is still not at the point where any final decisions are being made as far as I know.
KTM have always been the jewel in the crown of Pierer Mobility Group and that is unlikely to change. But as in the past with the likes of Penton and Husaberg. It looks like it is only a matter of time before we loose at least one and possibly up to 3 once great brands, sacrificed to satisfy the thirst for money of the big orange machine.
So, we have a serious 15% drop in sales, A company that is now worth less than 30% of what it was worth 3 years ago. Profits are in a downward spiral, customer satisfaction sits somewhere between zero and absolute zero, and the parent company is moving production into India and China to save money, and the funding for the racing program is being cut.
Does that sound healthy to you?
They may continue with the grand announcements, but this is not a healthy company.
Bajaj group now own 50% of the whole Pierer Mobility Group after sacrificing their shares in KTM, and this gives the combination of Baja group and CF Moto a controlling stake in the company.
Even KTM do have to realise that they are now a small part and a small player in a much bigger pond with much bigger fish in it.
This means any future decisions are likely to be more beneficial for and targetted at the Asian market that ours.
Even adding sales from Europe, The USA and UK together, it doesn’t get close to the value of either the Indian or Chinese markets alone.
Those markets are very different and want different products. So where does that leave Europe and the USA when it comes to future racing and sales?
Honestly, I think it is unlikely the Gas Gas name will survive, KTM now have any tech they wanted, so the brand can be disposed of. I would hope Husqvarna will survive, but at the moment that looks questionable at best.
When you consider that professional Motorsports is probably one of the few reason they have survived so far, what effect will pulling back from the world of racing have on the Husqvarna name?
It is hanging on by a thread right now, and it hasnt made any friends recently.
Even if the different Brands survive initially. As Pierer Mobility reallocate finances away from racing to fund the next few years and try to recover the 2.5 billion dollars in losses, The future doesnt look bright or orange from where I am sitting.
What I will say, is I do think the case at MV Agusta is slightly different, but I do not think it will be long before at very least, the engines and sub assemblies for the MV Agusta bikes will be being build by CF Moto.
They already have a version of the 675 triple on the horizon, and the fact no mention has been made about it makes me think they will be treated just like everyone else within the Pierer Mobility group. Like Pawns.
One of the kingpins in this story who we rarely get to hear about in the UK, are the Bajaj group. The do build for KTM, BMW and Triumph, and their huge facility in India gives their partners a low tarriff route into the huge Indian market.
This is a company I have talked briefly about at times, but I will be doing a deeper dive into this company who have an ever increasing influence on the motorcycle world. They could now arguably call themselves one of the largest motorcycle company of all.
But that as they say is a story for another day.
Dont forget to check out the other videos about the KTM group of companies in the links in the description. This is an ever evolving story.