Made in Italy: i settori all’avanguardia per la collaborazione sino-italiana

Stefania Trenti

Direzione Studi e Ricerche

Milano, 5 luglio 2017

Made in Italy: avant-garde sectors for the sino-Italian cooperation

Stefania Trenti

Research Department

Milan, July 5th, 2017

Agenda

2 Strong potential in driving sectors

1 The economy improves, albeit slowly

2

3 A new generation of winners

After the recovery seen in the last 4 years (from -3.2% yoy in Q3 2012 to +1.2% in Q1

2017), growth should stabilize slightly above 1% yoy in 2017-18.

Risks on this forecast are on the upside in 2017, on the downside in 2018 (also due to

political risks). The growth gap vs the Eurozone is tightening.

In Italy annual growth could exceed 1% this year

Source: Thomson Reuters-Datastream Charting, Istat and Intesa Sanpaolo calculations

3

GDP stabilizing in “mild recovery” mood

In 2017 (if compared to last year) we expect a (mild) slowdown in final domestic

demand (1.2% from 1.4% in 2016, which marked a 10-year high), balanced by an

improvement in the contribution from net exports and inventories.

The baton of recovery should pass from consumption to investments.

The drivers of growth are changing

Source: Thomson Reuters-Datastream Charting,

Intesa Sanpaolo calculations and forecasts on Istat data

Rebalancing of growth

towards net exports

Main GDP components

-5

-4

-3

-2

-1

0

1

2

3

4

1999,4 2002,4 2005,4 2008,4 2011,4 2014,4 2017,4

Final dom. demand y/y

Net Export (contrib. to GDP) yy

4

Business investment (net of means of transportation and construction)

and business confidence in the economy

Source: Intesa Sanpaolo calculations on Istat data

A mild recovery for investments (at the moment)

5

6

The Industry 4.0 Plan …

Source: MISE

The Italian Government presented its 2017-20 national Industry 4.0 Plan which defines a

strategic framework of innovative investments.

Iper-amortization: companies allowed to fiscally deduct a 250% higher costs versus the

cost paid for investments for the technological and digital transformation.

Super-amortization: a 40% increase in tax deduction of the new capital good.

Capital goods –”Sabatini Ter”: preferential financing (the incentive covers part of the

interests on the bank loans) to SMEs to facilitate the purchase of new machinery, capital

good, equipment.

Guarantee Fund: to facilitate SMEs access to financing through state guarantee on bank

loans.

Patent box: Optional Tax Regime. The regime is an elective tax regime granting 50%

exemption from corporate tax and local tax on income derived from the licensing or the

exploitation of qualifying intellectual property.

Tax credit: a tax credit of 50% on incremental costs for R&D expenses.

… which can make the difference

Napoli: 51,1%

Bari: 28,6%

Reggio Calabria: 10,2%

Bologna: 55,7%

Firenze: 31,4%

Roma: 34,4%

7

Industry 4.0 and the government’s related plan offer an important opportunity.

Industry 4.0 technologies may also play in favour of countries in which SMEs are

more widespread. In the Italian case, they allow companies to:

Strengthen their ability to produce in limited series and offer customised products.

Manage the traditional and intense production chain relations between SMEs, more

efficiently.

Enhance their acknowledged competences in mechatronics and robotics.

Enhance university excellences in the fields of engineering and science.

However, a number of prerequisites need to be met, which in turn require investments:

Higher endowment of human capital with these skills.

Greater broadband capacity to connect companies with the market.

Investments in machinery, R&D and software by companies.

Exports to improve, especially towards emerging countries

8

Source: Intesa Sanpaolo calculations on Istat data

Exports to China, Russia

and Latin America are

clearly on the recovery.

Sales to OPEC have

undergone a strong

improvement in the latest

months, which may

strengthen during 2017.

These positive trends

could be partially offset by

a decline in exports to the

UK, following the sharp

depreciation of GBP.

-1,0

-0,8

-0,6

-0,4

-0,2

0,0

0,2

0,4

0,6

0,8

1,0

S-14 D-14 M-15 J-15 S-15 D-15 M-16 J-16 S-16 D-16 M-17

TK RUS OPEC CH LAT

Contributions to % change y/y of Italian exports (3mma)

2017-18: stronger growth

2014 2015 2016 2017f 2018f

United States 2.4 2.6 1.6 2.1 2.5

Euro Area 1.2 1.9 1.7 2.0 1.7

Germany 1.6 1.7 1.7 1.8 1.8

France 0.7 1.0 1.1 1.6 1.6

Italy 0.2 0.7 1.0 1.1 1.1

Spain 1.4 3.2 3.2 2.8 2.3

OPEC 3.1 1.0 0.8 1.2 3.3

Eastern Europe 1.6 -0.1 1.3 2.0 2.4

Turkey 3.0 6.1 -0.2 1.5 1.8

Russia 0.7 -2.8 -3.6 0.5 2.0

Latin America 0.7 -0.8 -1.0 1.9 3.0

Brazil 0.5 -3.8 2.9 2.5 2.9

Japan -0.1 1.1 1.0 1.2 0.9

China 7.3 6.9 6.7 6.5 6.1

India 7.0 7.5 7.9 7.4 7.6

World 3.4 3.2 3.0 3.6 3.8

Note: world GDP growth based on IMF data.

Source: Intesa Sanpaolo, Research Department

Global growth higher than in the last couple of years. US growth gaining momentum;

Russia and Latin America improving. Only a slight deceleration in China.

9

Agenda

2 Strong potential in driving sectors

1 The economy improves, albeit slowly

10

3 A new generation of winners

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Ge

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So

uth

Ko

rea

US

A

Ja

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Ita

ly

Ca

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da

UK

Fra

nce

Spain

Ch

ina

Me

xic

o

Russia

Bra

zil

Ind

on

esia

Ind

ia

Per capita industrial production, 2015 (current US$)

Source: CSC on Global Insight

11

Still one of the most industrialized countries…

0,0

100,0

200,0

300,0

400,0

500,0

600,0

700,0

800,0

China Germany Rep. of Korea Japan Italy

First countries for trade balance surplus

(manufacturing industry*, 2016, current billion US$)

(*) Excluding HS4-27: Mineral fuels, mineral oils and products of their distillation;

bituminous substances; mineral waxes

Source: our calculation on UN Comtrade data

12

…with a strong trade balance surplus in manufacturing…

0

50

100

150

200

250

300

Regno Unito Francia Giappone Cina Germania Stati Uniti Italia

Inverse of the Herfindhal Index, calculated at the maximum disposable level of

products code

13 …thanks to a highly diversified and rich production

base..

Manufacturing export: diversification of product, average 2014-15

Source: Intesa Sanpaolo calculations on UNCTAD Comtrade data

UK France Japan China Germany US Italy

Sector 2011 2015

Textiles 1 1

Leather products 1 1

Clothing 1 1

Basic manufacturers 2 2

Non-electric machinery 2 2

Electric machinery and components 13 2

Miscellaneous manufacturing 2 3

Transport equipment 17 3

Processed foods 6 5

Wood products 24 11

Chemicals 26 16

IT & consumer electronics 26 30

Fresh foods 32 43

Minerals 57 96

Italian Ranking* in the Trade Performance Index

* Ranking out of 189 countries in 14 sectors

Composite Index made up of 5 indices: trade balance; per capita export; world market

share; diversification of each macro-sector; diversification of geographical markets.

14

…with many old and new competitive advantages

15 A moderate growth in the medium term…

Source: Prometeia –Intesa Sanpaolo « Analysis on Italian Industrial Sectors», May 2017

1.1

1.6 1.6 1.5

-0,5

0,0

0,5

1,0

1,5

2,0

2016 2017 2018 2019-2021

net export domestic demand growth rate

The evolution of turnover of manufacturing industry

(% y/y, constant prices)

16 …supported by high-tech sectors

The evolution of turnover by sectors 2018-2021

(% , mean, constant prices)

1.3

1.4

1.6

1.7

2.2

0,0 0,5 1,0 1,5 2,0 2,5

Traditional

Scale-intensive

Total manufacturing

Specialised supplier

High-tech Pharmaceuticals, ICT,

aeronautics

Mechanical

engineering, electrical

engineering

Automotive,

metallurgy, household

appliances chemicals

Food and beverages,

furniture, fashion

Source: Prometeia –Intesa Sanpaolo « Analysis on Italian Industrial Sectors», May 2017

Main drivers determining medium-term growth

The ageing of population

The progressive ageing of Italian population will sustain a growing demand for healthcare

products and services (e-health).

The spread of the «digital revolution»

The application of ICT systems to the most different fields: fashion (wearable devices),

architecture and interior design (smart building and home automation), urban planning and

administration (smart city), advanced industrial automation and the development of intelligent

vehicle technologies.

The ever increasing importance of the link between sales and customer services, predictive

maintenance practices and the monitoring of performances using new technologies and big

data (the so called «on demand manufacturing»).

Environmental sustainability

The 2015 Paris agreement on the reduction of air-polluting emissions may foster investments

aimed at increasing the use of renewable sources and improving energetic efficiency, with

Europe and China as global leader.

Scarcity of natural resources will foster an increasing circularity of production cycle.

17

18 Italy may leverage on its good performance in life

sciences…

Pharmaceuticals and Medical Devices: world market shares

Source: Intesa Sanpaolo on UNCTAD Comtrade

Germany

USA

Switzerland

Belgium Ireland

Netherland UK France China

Italy

India Singapore

Spain

Austria Japan 0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

-2,0 -1,5 -1,0 -0,5 0,0 0,5 1,0 1,5 2,0

Ma

rket S

ha

re 2

01

5, %

Market Share 2010-2015, difference %

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

office machinerypower-driven hand tools

machinery for mining, quarrying & constructionengines

driving elements & power transmission equipmentfiltering & purifying machinery

compressorsother special purpose machinery

fluid power equipmentball bearings

other general purpose machinerylaundry machinery

cooling & ventilation equipmentlifting & handling equipment

metal forming machineryagricultural machinery

pumpsturbines

plastics & rubber machinerytextile production machinery

tractorsheating equipment

taps & valvesoven,furnaces & furnace burners

machinery for paper & paperboard productionother machine tools

food & beverage machinerymachinery for metallurgy

packaging machinerytobacco processing machinery

vending machinesleather production machinery

… on its leadership in industrial engineering…

Italian market shares on world import of industrial engineering products (%, 2014)

Source: Intesa Sanpaolo on UNCTAD data

48bn euro surplus in

2016

20

0

10

20

30

40

50

60

199

1

199

4

199

7

200

0

200

3

200

6

200

9

201

2

201

5

19

… and the competitiveness in environmental goods

Source: Intesa Sanpaolo on Unctad Comtrade data

Italian market share on world import for environmental protection, renewable sources

and energy efficiency technologies

(shares %, US$ current)

0,0% 1,0% 2,0% 3,0% 4,0% 5,0% 6,0% 7,0% 8,0% 9,0%

Environmental Monitoring

Renewable Energy Generation

Energy efficiency

Waste Management

Air Pollution Abatement

Water pollution abatement

20

Agenda

2 Strong potential in driving sectors

1 The economy improves, albeit slowly

21

3 A new generation of winners

Italian manufacturing: % change in

revenues between 2008 and 2015

(1) Worst companies: median of the worst 20% of the distribution of companies

(2) Best companies: median of the best 20% of the distribution of companies

Medium companies: revenues of between 10 and 50 million euros; medium-large companies: revenues of

between 50 and 350 million euros.

Source: ISID (Intesa Sanpaolo Integrated Database)

Many companies performed well even during the crisis.. 22

-39.7 -37.7

11.4 8.8

103.5 91.8

-60

-30

0

30

60

90

120

7.254 Medium firms 1.781 Medium-large firms

Best firms (2)

Worst firms (1)

Median values

(1) Worst companies: median of the worst 20% of the distribution of companies

(2) Best companies: median of the best 20% of the distribution of companies

Medium companies: revenues of between 10 and 50 million euros; medium-large companies:

revenues of between 50 and 350 million euros.

Source: ISID (Intesa Sanpaolo Integrated Database)

Italian manufacturing: gross operating margins

as % of average revenues in 2008-15

… also achieving strong profitability 23

1.2 0.2

7.7 7.0

17.9 17.9

0

4

8

12

16

20

7.254 Medium firms 1.781 Medium-large firms

Best firms (2)

Worst firms (1)

Median values

Innovation, quality, communication supporting growth…

Manufacturing firms: sales growth 2008-15 (%, median values)

Notes: analysis on 59,547 Italian manufacturing firms with sales exceeding €400,000 in 2008 and €150,000 euro in 2015.

Source: Intesa Sanpaolo Integrated Database

24

-4.7

4.8

-4.7

5.5

-6.1

5.7

-4.5

9.6

-8 -6 -4 -2 0 2 4 6 8 10 12

Without trademarks

With trademarks

Without patents

With patents

Without quality certifications

With quality certifications

Without environmental certifications

With environmental certifications

Manufacturing firms: EBITDA margin 2015 (%, median value)

25

8.1

8.3

7.9

8.9

8.1

8.9

8.0

9.1

7,0 7,5 8,0 8,5 9,0 9,5

Without trademarks

With trademarks

Without quality certifications

With quality certifications

Without environmental certifications

With environmental certifications

Without patents

With patents

…and profitability

Notes: analysis on 59,547 Italian manufacturing firms with sales exceeding €400,000 in 2008 and €150,000 euro in 2015.

Source: Intesa Sanpaolo Integrated Database

(a) Medium-large firms. Note: micro firms: 2011 turnover lower than 2 million

euros. Small firms: 2011 turnover between 2 and 10 million euros. Medium

firms: 2011 turnover between 10 and 50 million euros. Large firms: 2011

turnover over 50 million euros.

Source: ISID (Intesa Sanpaolo Integrated Database).

Industrial districts: turnover change between 2008-2014 by firm size

(% change – current prices; median values)

26 A new generation of medium-sized firms is emerging in industrial districts: these are characterized by faster growth…

-13.4

3.5

10.0

7.6

-0.5

-15 -10 -5 0 5 10 15

Micro firms

Small firms

Medium firms

Large Firms

Total

Medium-sized

firms not in a

district:+4.1%

… and higher labour productivity

(a) Medium-large firms. Note: micro firms: 2011 turnover lower than 2 million euros. Small firms: 2011 turnover between 2 and 10 million euros.

Medium firms: 2011 turnover between 10 and 50 million euros. Large firms: 2011 turnover over 50 million euros.

Source: ISID (Intesa Sanpaolo Integrated Database).

Industrial districts: value added and cost of labour

(per worker) difference between 2008 and 2014

(thousands of euros; median values)

27

-2 0 2 4 6 8 10

Micro firms

Small firms

Medium firms

Large Firms

Total

Cost of labor Value added

Medium-sized

firms not in a

district:Produ

ctivity +5.1%

Cost of

labour;+5.3%

The keys to success: new products, innovation,

certification and internationalization…

Share % of firms by strategy

Source: ISID (Intesa Sanpaolo Integrated Database), financial

statements, firm websites, Istat

28

0 10 20 30 40 50 60

Patents

Foreign direct investments

International brands/trademarks

New products

Certifications

Italian manufacturing sector 140 fast-growing medium-sized firms within districts

…and a reliable, high quality local value chain

29

In the coming years, are you planning to reduce sourcing from local suppliers? (% of leading firms)

12,7

62,4

4,6

12,7

7,5

0 20 40 60 80

No, on the contrary, I intend to re-establish inItaly part of the production sourced abroad, as I

have experienced quality and reliability problems

No, to avoid problems of quality, realibility, time tomarket

Yes, but only for production realised at plantsabroad

Yes, but only for lower value-added production

Yes, including higher value-added production

Note: Intesa Sanpaolo survey carried out on 173 leading firms in 18 industrial districts

specialised in mechanical engineering, home and fashion systems. Source: G.

Foresti, F. Guelpa e S. Trenti, 2013, «Innovazione tra i subfornitori e rischi di contagio

sulla catena del valore», in G. Bracchi e D. Masciandaro (a cura di), «Banche e ciclo

economico: redditività, stabilità e nuova vigilanza», Edibank, 2013

Conclusions

The Italian recovery will accelerates in 2017-18, led by exports and investments.

The Industria 4.0 plan adopted by the Italian government can make the difference: a) it

can strengthen the traditional and intense production chain relations between SMEs, b)

enhance acknowledged competences in mechatronics and robotics, c) enhance university

excellences in the fields of engineering and science.

The Italian industrial sector is vibrant, as shown by a high trade surplus and a strong

competitiveness in both traditional “Made in Italy” sectors and mid-high tech sectors,

where Italy is well introduced in global value chain.

In a medium term scenario characterised by digitalisation, environment and aging

population, Italy may leverage on its competiveness in industrial engineering,

environmental technologies and life science.

Italian competitiveness will also continue to count on its excellences in traditional

sectors thanks to a high quality production base and a new generation of dynamic

medium sized firms based in industrial district.

30