Alan Cathcart | February 22, 2017
Our exclusive one-on-one interview with MV Agusta president Giovanni Castiglioni, specifically confirming for the first time on the record that he has sold 35-percent of MV Agusta’s holding company to the Anglo-Russian investment company Black Ocean Group. Castiglioni explains the background to this deal, and its impact on AMG Mercedes-Benz’s 25-percent equity in MV Agusta
MV Agusta president Giovanni Castiglioni
MV Agusta’s President/CEO Giovanni Castiglioni, 36, is the only son of his late father Claudio, the man whose love affair with the Italian trophy brand was such that he sold and repurchased it no less than three times in the space of 20 years! In the months leading up to his father’s sad passing in August 2011, Giovanni Castiglioni took over the reins of the company, since when he’s worked to restore MV to what many see as its proper place as the Ferrari of motorcycles—starting with the introduction to the marketplace of the three-cylinder 675cc F3 and Brutale, which his father had played such a key role in creating, and the subsequent range of models powered by the acclaimed 800cc version of MV’s three-cylinder motor. This has yielded a series of ultra-distinctive bikes like the Brutale, Rivale, Stradale, Dragster and Turismo Veloce, while in 2014 MV Agusta finally returned to the racetrack with its own factory race team, with French rider Jules Cluzel spearheading an assault on the World Supersport Championship on his MV Agusta F3 675 triple, and Britain’s Leon Camier racing a four-cylinder MV Agusta F4RR in the world superbike series.
By Alan Cathcart
PHOTOGRAPHY BY KEL EDGE
This commercial and sporting success led to speculation that MV Agusta would be a takeover target for one of the major motorcycle manufacturers, or at various times a juicy prize for Russian/Chinese/Indian/Arab investors. In the end, it turned out to be none of the above, when it was announced in October 2014 that Mercedes-Benz would be acquiring a 25% stake in the Italian motorcycle company, under its performance brand AMG. However, while this seemingly initially brought positive results, with MV Agusta’s annual turnover exceeded 100 million Euro for the first time in 2015, the company found itself struggling early in 2016, seemingly with cash flow problems which forced it to stop production while it sought to restructure itself. Then on November 18 last year it was announced that Castiglioni was recapitalizing MV Agusta by selling part of the company to an outside investment company named Black Ocean Group.
The chance to quiz Giovanni Castiglioni directly on how this transpired, and his plans for turning the company around, came in his office in MV Agusta’s lakeside factory at Schiranna on the outskirts of Varese.
Pictured here is the MV Agusta F4 RR. The company is being repositioned to manufacture and sell fewer but higher-end bikes.
Giovanni, last November you announced an agreement with an investment company named Black Ocean Group. Who are the people behind this, and what is your agreement with them?
Black Ocean is an investment company based in New York, London and Luxembourg, and it’s owned by two people the same age as me, more or less—a successful British financial investor named Oliver Ripley, and his Russian partner Timur Sardarov. The Sardarovs are a very wealthy Russian family with investments in technology, private aviation, real estate and agriculture, amongst others. The two of them were put in contact with me through an advisor back in January this year—they knew all about MV Agusta, and the status of the brand both inside and outside the motorcycle world. Both of them ride and collect bikes, and Timur was already an MV Agusta owner—he has a fantastic one-off Dragster RR especially built for him. At that stage we were still evaluating our position, but then when it became apparent we were heading to a restructuring of the business, we started discussions about how they might participate in a capital increase in the company, while also bringing their high-level managerial skills to MV. We’ve reached an agreement for Black Ocean to become a minority 35-percent shareholder in MV Agusta Holdings, which is the parent company of the business, of which I was previously the 100-percent owner.
Giovanni Castiglioni took over the company reins following the passing of his father, Claudio.
So does that mean they’ve purchased AMG Mercedes-Benz’s 25-percent equity in MV Agusta?
No, because AMG’s holding is in MV Agusta Motor, in which MV Agusta Holdings is the owner of the other 75% majority shareholding. The investment that Black Ocean has made in MV Agusta Holdings has been fully used to directly recapitalize MV Agusta Motor. MV’s partnership with AMG has marketing and sales cooperation as its basis, rather than the financial side.
Was it not a condition of the 15 million euro loan you obtained two years ago from a consortium of banks that, in the event that AMG’s shareholding fell below 20%, this loan was then repayable in full, with interest?
That matter was resolved earlier this year when we began working on the restructuring plan. The bank debt has been renegotiated and rescheduled along with all the side agreements, so it’s no longer a valid issue. We’ve already made a new agreement with the two main banks, which are supporting us, Deutsche Bank and Banca Popolare di Milano, and they’re fully on board with the restructuring plan, as well as the recapitalization plan via the entry of Black Ocean into the holding company.
Will either Sardarov or Ripley assume any management position with MV?
Yes, they’ll both be involved in taking MV Agusta forward, especially in maximizing the power of the brand. The fact that they’re both active bike riders is a key factor—they understand very well what MV can become, and are looking forward to helping me take it there. They have a lot of good ideas. Moreover, they’re already high-end business investors, so they’ll bring benefits to MV from their network of contacts.
So when will all this be put to bed, leaving you to focus on getting the operation of the company back to normal?
MV is working normally already—we’re producing bikes every day, we’re delivering around the world to all our overseas distributors and dealers in Italy, and we have already announced the uprated new models we’ll be selling in 2017 as part of our repositioning of the brand. Today, we already have orders for this year in excess of MV’s maximum production under our new strategy. It’s business as usual for us, now but with a different focus on producing low volume high-end models in reduced numbers to a very high level of quality and performance for the super premium motorcycle market under the terms of our new strategy for the brand.
Castiglioni has his eye on the U.S. market.
Okay, but what exactly is that? Where does MV Agusta stand right now? Last year you had many orders, but couldn’t deliver the bikes because of insufficient cash flow to pay suppliers.
Let’s take a step backwards to see what’s happened to MV. I reacquired the company in 2010 from Harley-Davidson. It was a beautiful brand but had only three products, and the market was declining at a double-digit rate. In such an economic recession it was impossible for the company to survive unless we acted promptly on the one side to restructure costs, and on the other to revamp the product line. So from 2010 to 2014 we made a significant investment in the product portfolio, and having started out with three models we increased our range to 21 different offerings, in terms of alternative variants each very distinct one from another. In all we invested about 82 million euro in R&D, which is an incredible amount of money for a company of our size. Some years we were spending more than 25-30% of our revenue on R&D. But the result was that sales grew significantly, from less than 3000 units in 2010 to 7600 in 2014—although that’s not so big if you compare it to the massive investment that we made. So we had a broad product range and good results, but not as good as we thought.
So you were disappointed with only selling 7,600 bikes a year, and wanted to sell more?
No, it’s not that I wanted to sell more, but what the investment we made represented. That 82 million euro put us in a different, much bigger segment of the market, where our volumes were small compared to our competitors. So I have the same product range as a competitor, but I only sell one-fourth the number of units. So maybe the problem is that we have a weak sales network, so our task for 2014 was to reinforce the company and push to improve the distribution network. That was the point of the Mercedes deal—to reinforce the company and use Mercedes leverage to strengthen MV’s brand image and distribution. Then we also hired some new top-level management.
From the automotive sector?
Yes, they came mainly from the automotive rather than motorcycle sector, and we pushed for growth, with a target for 2015 of selling 10,000 units. But the new management brought with it an increase in the cost structure of the company via their salaries and expenses, and our marketplace push had a poor result. We grew from selling 7600 bikes in 2014 to almost 9000 units in 2015, but we were a thousand bikes below our target of 10,000 units on which everything was based.
Was the reason for that because you couldn’t find the customers, or couldn’t manufacture the product for them to buy?
No, it was the first, we sold less than the target number of bikes, despite the high investment we made in the restructuring of the sales network, and despite the fact that we entered the massive new—for us—Touring market with the Turismo Veloce. So the growth target was a failure, but this created complexity in the company and we had a cash-flow crisis, as you said, we started to cash in late, and we couldn’t pay our suppliers in time. You may say, it’s a cash problem, but no it’s not—the problem is industrial. It means that despite the large investment that we made, MV cannot pursue a growth strategy through volume manufacture, because we did not sell what we wanted to despite all the investment in product, and in the sales network, too. Yet our brand is recognized for high-end, super premium products—it’s a niche of a niche market, which is why we sell out all the top limited editions of our models, the RC and RR and so on.
We had a growing cash constraint at the end of 2015—so you say okay, you put more cash into the business. But no, that’s wrong—if you have your bathtub full of water and you don’t put the plug in, the water level goes down and filling it with more water only makes it disappear faster. So we said forget about cash for the moment, we need to change the structure of MV so we don’t hurt ourselves fatally. I don’t want to say the new management made a mistake—nobody did, because we made a fantastic product range as a result of our investment. It was just that sales were not as good as we expected because our customers were focusing on the high-end premium products, and that’s a niche market. So even with a broad range of bikes priced for mainstream sales, we still sold mainly to specific clients who are looking for top end products. So what we did was to promptly restructure the company to sell less, but sell better.
MV Agusta production has risen under Giovanni Castiglioni’s control to 8900 bikes in 2015, up from 2000 units in 2009, via 3600 bikes in 2011 and 7600 in 2014.
So what changed?
What changed is that we started our restructuring plan in December 2015, and we restructured first of all MV’s marketing strategy, then the number of sales—so selling below the customer demand for our products, which means less than 5,000 units a year.
Given that your specific demand is around 7000 units a year?
Exactly, below demand—sell less but sell better, focus on top-end quality targeting the super-premium market where margins are also better. There’s a lot of interest in such a product—just look at Harley Davidson’s success in selling their CVO bikes at between $30-50,000 each. Companies like Ducati and Triumph are moving into a mass market, so MV Agusta is the only remaining solely top-end manufacturer.
Do you think the reason for your problems was the market wasn’t ready to spend the extra sum that was needed to buy an MV Agusta compared to a three-cylinder Yamaha or a Triumph, or do you think it was that your products were too exaggerated in technology or styling?
No, neither of the two, I think that our typical MV Agusta customer is far above a potential customer of the MT-09, so there’s no comparison. That’s confirmed by the fact that we sell more examples of the higher-priced RC than the 675 that’s the entry to the MV range. Look at sports cars—you have Porsche making 150,000-plus cars a year, including 30,000 alone of the 911. Aston Martin makes just 5000 cars a year, targeted at the same market. One is more popular than the other, but when you want to buy a sports car you buy a Porsche, but if you are more sophisticated and can afford the extra, you buy an Aston Martin, and it’s exactly the same with MV compared to Triumph or Yamaha, or even Ducati.
I understand you’ve reduced the workforce here at the Varese factory?
Yes, we had an extensive restructuring of the company, so that as of today we have 50% less structural cost than before. This including reducing the workforce from over 300 people to 190—we were overstaffed because we were structured to produce 10,000 units a year and more, and now we’re going down to produce only 5,000 annually. We also outsourced our road racing activities in world superbike to a private team owned by Andrea Quadranti, so it’s a factory team, but is outsourced like all our competitors from Kawasaki to Yamaha. It’s been very successful. We are regular top-five finishers in superbike with Leon Camier, and Jules Cluzel finished runner-up in the 2016 World Supersport series, in spite of some problems midseason. We were very satisfied with our racing results in 2016, and will continue with the same structure in 2017, when I’m glad to say we’ve signed the American rider P.J. Jacobsen to race for us in world supersport.
How about reducing your R&D expenditure? You just said how high that had been, so what now?
We’ve been investing about 20 million euro per year in R&D, but now we’re reducing that to 5 million euro per year—that’s already 7-8 percent of revenues, which is high compared to our competitors. But this is sufficient for us to keep our existing product range current, so we introduced Euro 4 versions of all our existing models at the EICMA Show last year and to develop new products like the fantastic Brutale RR we launched there also, as well as a new F4 four-cylinder platform in the Sport and Super Naked segments. This will come as a 2019 model, not before, so we will launch it at the November 2018 EICMA Show.
MV Agusta calls Schiranna, on the outskirts of Varese, home.
Will the new four-cylinder engine still be a radial-valve motor?
No, because the new engine we made gives more performance with a parallel-valve format. It’s a completely new design, on which only the crankcases are similar to the current model. Everything else is new. We’re going to start with the Brutale naked version, but we shan’t be producing a new F4 for the time being because it’s a high investment to make for a limited market, and our company cannot afford to invest in a flagship Superbike model at the moment. We know that a Brutale 1200 will sell very strongly, so we have to concentrate on that.
As far as the production of new motorcycles here in Varese is concerned—is that back in full flow?
Yes, it is. We stopped production in February last year, and commenced our restructuring program. As you can imagine, not everybody was happy about this, so we had to talk to our creditors—who were mostly our suppliers—to establish a plan. That done, we restarted production in June, and increased it step by step until by September we had returned to full production, working every day of the week with the same number of people in the assembly area. That’s because in laying off the 110 people necessary to reduce the size of the workforce, we did not touch the assembly workers. They work every day and there are about 50 of them—we hired temporary staff to increase production, who we simply didn’t rehire. We’ve also cleaned up all our short term financing, paid everything up to date on that, and we’ve restructured our long term financing with our banks, and part of that restructuring plan was a repayment schedule for our suppliers up to a certain level, via our now positive cash flow.
Hopefully, the MV Agusta story will continue for many more chapters.
Are all your suppliers now supplying you as before?
Yes, they are.
Including Brembo—they were the main holdouts, weren’t they?
Yes, but they then were the first ones to restart supplying us, and have given us great support, for which I’m very grateful—as indeed to all our suppliers, who I think universally recognize the validity of our restructuring plan.
I understand you’ve appointed a new importer in the USA, so that MV Agusta can expand its American operations. Can you tell me about this, please?
The U.S. market will play an important role for MV Agusta in the future. Our US-based investor Black Ocean sees the American market as a key target for our super premium motorcycles, so we have appointed our very successful Australian importer, Urban Moto Imports, to open a new distribution network in the USA, based in California. Urban Moto has been an outstanding partner for MV Agusta in Australia, and its owners Allan and Joseph Elasmar have been skillful in developing a consolidated sales strategy there. This has gained the confidence of their dealer network and above all their customers, and I’m confident they can bring the same successful formula to a much larger market in the USA.
Looking at the future, then, you say you plan to maintain the same level of production as at present, making 5000 bikes a year. But how will these be split between three- and four-cylinder models?
At the moment we’re making 90 three-cylinders for every 10 four-cylinders. But when the new four-cylinder arrives in 2019, this proportion will change—and also the 5000 units annual production will increase slightly, but not by very much. CN
