MV Agusta’s Giovanni Castiglioni
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. 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. 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. 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. 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. 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 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 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.
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.