Ducati: Taking on the Challenge
On the first business day of January 2006, Federico Minoli pulled up and parked his Ducati Multistrada motorcycle in front of the Ducati headquarters in Bologna, Italy. As he looked up at the complex, which housed offices, the assembly factory and the Ducati museum, he reflected back on the company’s history. 2006 would mark several anniversaries: 80 years since Ducati was established to produce electronic radio equipment; 60 years since Ducati had been producing motorcycles; and ten years since Minoli had become the company’s CEO. Minoli joined the then near bankrupt Ducati in 1996, and led its turnaround by creating the “World of Ducati,” a world that involved superior engineering, Italian heritage, slick design and an undeniable attraction for racing enthusiasts to “join the tribe” and become “Ducatisti.” Revenues moved from €95 million to €380 million from 1996 to 2000. EBITDA improved from a loss to €60 million in the same period. However, in the five subsequent years, business results stalled: revenues fell 2.3 percent on a compound annual growth rate from 2000 to 2005, and EBITDA fell to -€273,000 at the close of 2005.
In late 2005, an agreement was signed by shareholder Texas Pacific Group to sell its 30 percent stake in Ducati to InvestIndustrial Holdings SA and a syndicate of other investors, with the understanding that Ducati would pursue a capital increase of €80 million. Minoli was certain that the new shareholders would demand certain changes to cut costs and get the company’s growth back on track. In selling the concept of the capital increase to the shareholder base, he would need to articulate a plan that would address the immediate financial concerns as well as longer-term strategic considerations. Minoli stated: “We had a very successful turnaround from 1996 to 2001. The issue with the turnaround was the question ‘what’s next?’ Unfortunately for us, the ‘next’ already happened and it wasn’t very pretty. There’s a big chunk of time, which goes from 2002 to 2005 when some bad things happened at Ducati. What happened in between? I’m oversimplifying the issue but we faltered on the product side. Internally, we had some issues with the product, and the product is at the core of any company like ours. There were also some external factors – the primary one being the decline of the U.S. dollar, which hit us very hard. We have to take that into account when planning for the future. Our strategy is very much affected by what we can actually do as opposed to what we’d like to do.”
The Global Motorcycle Industry
The global motorcycle market included motorcycles, scooters, mopeds and threewheelers, and was worth $48.3 billion as of 2004.1 Over the past five years, worldwide revenues of motorcycles had grown at a compound annual growth rate of 2.5 percent, while units had grown at 3.3 percent in the same period. In 2004, 28.2 million two wheel motorized vehicles were sold. High displacement motorcycles (over 400cc) made up only a fraction of the overall worldwide market with annual sales of 1.2 million units. The Ducati relevant market was estimated at 642,000 units and was defined as motorcycles in the sports, sport touring and related categories. 2 One industry source predicted that the total number of two wheel motorized vehicles would grow by 4.7 percent year on year, reaching 35.5 million units by 2009; 3 meanwhile the high displacement market and the Ducati relevant market would both grow between two and three percent over the next few years. However, there was no universally accepted method of tracking motorcycle sales, and industry players often disagreed as to the correct statistics. Exhibit 1 shows more information on the global market for motorcycles.
Geographic Consumption Asia-Pacific was the leading region, accounting for 56.1 percent of the global market’s value. The U.S. overtook Europe as second-place region in 2004, holding 17.3 percent of the market –...
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