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Harley-Davidson sells MV Agusta - A tale of Survival in a disastrous economy


by Marc Cantin ,

The confirmation of this transaction came in early August, as H-D sold the Italian manufacturer back to the original owner, two years after having paid $107MUS for it.

The MV Bath!
H-D senior management declared that MV Agusta was for sale eight months ago, at the same time as they shut down Buell operations, so that The Motor Company could “…focus our efforts and our investment on the Harley-Davidson brand…” according to M. Keith Wandell, H-D President and CEO.

Details regarding what H-D did during the period of MV ownership are hard to find, but here are some numbers that tell a tale of horrors:
  • H-D paid $107M for MV assets and liabilities ($70M of debt at the time), and spent a further $60M to keep it operating over the two years it owned and operated the company.
  • Two years later, H-D sold MV Agusta back to the original owner for $4 - yes, $4. An threw in a $25M pot to help operate the company in the coming months.
  • H-D have reported a $162M write down so far relative to MV, but it is not clear how this cost was distributed over 2008, 2009 and 2010.
Added to the Buell debacle, which H-D admits cost them $125M in cash, this is another big hit to H-D financial results, not what you would like with the US (68% of H-D sales) and world economy still in the doldrums.

The Ugly-But-Improving Financial Picture
The Motor Company has had a rough time of it over the past few years, with unit deliveries dropping from a peak of 300,000 as recently as 2007 to an anticipated 200,000 predicted for 2010.

In financial terms, here is what this looks like:

Harley-Davidson Consolidated Statement of Operations

(In thousand $US) 2007 2008 2009 Projection 2010
Total revenue
6 143 044 5 955 384 4 781 909 4 300 000
Year-on-year change   -3% -20% -10%
Total caosts and expenses
4 717 483 4 896 217 4 585 823 3 730 000
Year-on-year change   4% -6% -18%
Operating income
1 425 561 1 059 167 196 086 570 000
Year-on-year change   -26% -81% 191%
Net profits 933 843 654 718 -55 116 210 000
Year-on-year change   -30% -108%  

With Total Revenues dropping by more than 22% over the 2007 – 2009 period, and Net profit(2) dropping by one Billion dollars over the same period, you can understand why H-D are letting go of every asset that is not part of their core business.

As for the projected profit outlook for 2010 (3) that I calculated based on the first 6 months of 2010, the real number may also be eaten up by some of the cost of getting rid of MV.

The Good – no, Great News
It is not all gloom and doom, as we can all see that H-D has shed some excess expenses (Divisions, plants, personnel and expenses) and is turning the corner.

First off, there is the excellent projected increase in Operating Income (1), almost triple what it was in 2009.

And second, H-D models since 2009 have shown some real improvements, with new chassis, stronger well-behaved engines, quieter and easier to use gearboxes, better aerodynamics, and competitive pricing. This is an excellent change from the mainly “more-chrome-and-badges” approach from the previous era, as better bikes are easier to sell to younger buyers “graduating” from more responsive Japanese or Euro bikes.

The cleanup is expensive, but it is working, and the bikes are getting better and better while keeping to their legendary image!