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Sustainability Channel is the communication channel towards our stakeholders interested in Sustainable approach to the business.

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PIRELLI BOARD APPROVES RESULTS FOR FIRST QUARTER 2017

-       Pirelli “Pure Consumer Tyre Player”

-       Revenues increased 13.4% to 1,339.3 million euro (1,180.9 million on March 31, 2016)

-       Further strengthening of Premium: volumes grew 15.3% and revenues increased 16%. As a percentage of total revenues, rose to 67.8% (66.2% on March 31, 2016)

-       Improvement of price/mix: +5.5% – top in the industry – thanks above all to the sales’ mix

-       Ebitda 270.3 million euro (261.5 million on March 31, 2016)

-       Adjusted Ebit 205.0 million euro (203.6 million on March 31, 2016)

-       Adjusted Ebit Margin impacted by launch of new projects and increased raw material costs

-       Investments 98.3 million euro (70 million on March 31, 2016)

-       Net income before discontinued operations : +49.5 million euro (-30.4 million on March 31, 2016)

-       Apac and Nafta confirmed as most profitable areas

***

As an effect of the assignment by Pirelli & C. S.p.A. to Marco Polo International Italy S.r.l. of the shares of TP Industrial Holding, the company into which Pirelli’s Industrial activities had been conferred, the Industrial business is qualified as a “discontinued operation”. The result for the year of the discontinued operation has been reclassified in the income statement under the heading “results of disposed operating activities”. The comparable economic data for 2016 have been thus restated.

***

The Board of Directors of Pirelli & C. S.p.A. reviewed and approved group results for the quarter ending on March 31, 2017, which reflect the launch of Pirelli as a “Pure Consumer Tyre Player”, with the implementation of new projects aimed at strengthening its positioning in high-value segments with higher profitability and the development of new activities to take advantage of new trends in mobility.

The results for the first quarter of 2017 were characterized by the following elements:

Revenues totaled 1,339.3 million euro, an increase of 13.4% compared with 1,180.9 million euro in the same period of 2016 once again driven by the focus on the Premium segment and its positive performance. Organic growth was 8.4% and excluding forex impacts (+4%) and the consolidation of the car activities of Jiaozou Aeolus Car (+1%), whose reconversion to the Pirelli brand began in the last quarter of 2016, with the aim of accelerating development in China, the area which will be the Premium segment’s growth driver at the world level. The revenue trend benefitted from the strong growth of the price/mix component (+5.5%, the highest level among peers) due in particular to the improved sales’ mix, thanks to the success of high end products, and price increases in emerging markets.

Premium revenues rose 16% to 907.4 million euro, compared with 782.2 million euro in the same period of 2016. As a percentage of total revenues, Premium revenues grew further and reached 67.8%, compared with 66.2% in the first quarter of 2016.

Volumes in the Premium segment saw significant growth of 15.3% – which involved all Regions reaching levels above the market trend (+11%) – which underpinned the trend of total volumes, which increased 2.9% over the period. The progressive reduction of exposure to segments of lower profitability, in particular in Russia and Latam, brought, on the other hand, a reduction of 9.1% in non-Premium volumes.

Ebitda before non-recurring items and restructuring costs was 270.3 million euro at  March 31, 2017, an increase of 3.4% compared with 261.5 million euro in the same period of 2016.

Adjusted Ebit (operating income before non-recurring items and restructuring costs and amortization of intangible fixed assets included in the PPA) amounted to 205 million euro, an increase of 1.4 million euro compared with 203.6 million euro recorded for the corresponding period of 2016. The improved result was linked to the effect of internal levers such as price/mix, volumes and efficiencies, which more than compensated for the increased cost of raw materials, costs inflation (particularly in emerging markets), higher amortization and depreciation and other costs related to business development.

The Adjusted Ebit margin was 15.3% compared with 17.2% on March 31, 2016 and predominantly reflects new programs that will deliver value in the medium term, as well as the effect of increased raw material costs. In particular:

-       the above mentioned consolidation of the car activities of Jiaozou Aeolus Car in China;

-       the strengthening of Premium segment positioning along the entire value chain,

-       the effort to accelerate the reduction of exposure to segments with low profitability;

-       the launch of new activities which meet new end-customer needs such as connectivity and the return to the bicycle business through the Velo project;

-       one-off costs attributable to the separation of the Industrial business;

-       The time lag between price increases which were effective as of  April 1, 2017 for all products and the increase in the cost of raw materials

The operating result (Ebit) amounted to 168.7 million euro (166.1 million euro in the corresponding period of the previous financial year) and was impacted by:

non-recurring and restructuring charges of 10.1 million euro due to rationalization processes, costs relating to the reorganization activities of the Industrial segment and 26.2 million euro relative to amortization of intangible assets identified in the context of PPA deriving from the acquisition of Pirelli assets by Marco Polo.

The result from equity investments was negative in the amount of 3.1 million euro (-42.5 million euro at  March 31, 2016) and was mainly related to the pro-quota result of the Indonesian Joint Venture PT Evoluzione Tyres.

The net income before discontinued operations on March 31, 2017 amounted to 49.5 million euro compared with a loss of 30.4 million euro in the first quarter of 2016. Other than the improvement in the operating income and net income from equity investments, the result also reflects the reduction in net financial expenses of , 56.7 million euro (77.0 million euro for first quarter 2017 compared with 133.7 million euro for first quarter 2016, impacted by 25.4 million euro linked to the extinction of the US Private Placement bond loan). The reduction of net financial expenses was mainly attributable to the lower cost of debt (5.42% for the first quarter 2017 compared with 5.98% for the first quarter 2016).

The operating cash flow on March 31, 2017 was negative 720.1 million euro (-592.3 million in the same period of 2016). The figure reflects, among other things, growth of investments – 98.3 million euro compared with 70 million euro at March 31, 2016 – mainly aimed at increasing Premium segment capacity in Europe and Nafta and at the continuous improvement of the mix and quality.

Net cash flow before dividends and extraordinary operations was negative in the amount of 881.7 million euro compared with a negative result of 838.3 million euro recorded for 2016. The total cash flow was negative in the amount of 612.4 million euro (negative in the amount of 779.0 million euro in 2016) and includes the positive effect of 269.3 million euro resulting from the finalization of the Industrial business reorganization.

The net financial position on March 31, 2017 was negative in the amount of 5,525.2 million euro (-4,912.8 million euro at December 31, 2016).

At the geographical level, Apac registered, along with Nafta, the highest profitability among all the macro-areas, staying at the twenties levels. Revenues in the Apac area, above all thanks to the performance of Premium, increased by 26.6% compared with the same period of 2016. Excluding the positive effects of forex (+0.7%) and variation in the perimeter deriving from the consolidation of Aeolus Car (+3.2%) organic revenue growth was +22.7%. Nafta registered an Ebit margin in the twenties levels, with organic growth in revenues of 16.5% (+13.7% excluding the positive forex effect) thanks to the good performance of Premium and SuperPremium. Europe registered profitability in the mid-teens level, with revenue growing by 7.8% (+8.9% excluding the negative forex effect), underpinned by the positive performance of Premium. Meai registered profitability in the mid-teens level, with total revenue growth of 2.4%.

The decline in profitability in South America (Ebit margin mid-single-digit) was mainly due to a fall in sales in the Argentine market and continuing actions to improve and reconvert the mix. In the course of the quarter, revenues grew by 18.8% (-3.2% at the organic level excluding forex and perimeter variations).

This performance reflects the ongoing focus on the mix, with the progressive reduction of sales in the non-premium segment, the destination of part of the production for exports to North America in consideration of the growing demand for Pirelli Premium products and the shrinking of the car market in Argentina. Russia registered growth in profitability (Ebit margin high single digit compared with a negative margin in the first quarter of 2016). Total revenues grew by 14.3%: excluding the positive impact of forex, revenues fell 16.9%. This dynamic reflects the strategic focus on more profitable segments, with the progressive reduction in the production and sales of products of brands other than Pirelli.

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BOARD OF PIRELLI & C. S.P.A. APPROVES RESULTS FOR YEAR ENDED 31 DECEMBER 2016

- Growth of all main economic indicators in 2016

- Further strengthening of Premium: volumes grow by 14.2% and revenues represent 64.0% of the Consumer business (61.5% in 2015)

- Improvement of price/mix: +5.0% thanks above all to the sales mix

- Progressive improvement in volumes, growth of 2.1% (+5.1% in fourth quarter)

- Efficiencies of 90.5 million euro: reaching 79% of 4-year 2014-2017 target of 350 million euro

- Profitability growth, with a total Adjusted Ebit margin of 14.8% (14.4% in 2015 on like-for-like basis). Record profitability for the Consumer business with an adjusted Ebit margin of 16.8% for the year (16.2% in 2015 on like-for-like basis)

- Significant improvement of net financial position

- Europe sees increased profitability. Apac and Nafta remain most profitable areas

- Investment in Research & Development of 228.1 million euro, equal to about 4% of total revenues (6% of Premium segment revenues)

- The process of Pirelli’s transformation continues

***

As an effect of the acquisition by Marco Polo Industrial Holding S.p.a. of Pirelli and its subsequent merger by incorporation of Marco Polo Industrial Holding S.p.A. into Pirelli, following the Purchase Price Allocation (PPA) conducted on the basis of that which is established in the relevant accounting principles, greater amortizations were booked mainly referable to immaterial assets identified in the context of this operation. The “EBIT adjusted” excludes – beyond non-recurring and restructuring charges – also amortization that refer to intangible assets identified in the PPA.

***

The Board of Directors of Pirelli & C. S.p.A. has reviewed and approved the group’s results for the year ended on December 31, 2016. The results for 2016 show growth in the main economic indicators.

Revenues amounted to 6,058.4 million euro, with organic growth of 7% at the annual level (on a like-for-like basis and net of forex effects, which were negative 5.4%) and of 8.7% in the fourth quarter. The revenue trend benefitted from strong growth – both in the Consumer and Industrial businesses – of the price/mix component (+5.0%) in particular thanks to improvement in the sales mix, as well as price increases in emerging markets.

Volumes’ performance was positive (+2.1% in 2016, +5.1% in the fourth quarter) thanks to the Consumer business (+3.5% during the year, +4.8% in the fourth quarter). The performance of Industrial volumes, negative at the annual level (-3.8%) as a result of the weakness of the South American market, registered growth in the fourth quarter of 6.5% thanks to the business’s recovery in the region, above all in the Replacement channel.

Premium saw improvement with volume growth of 14.2%, above the Premium market’s global trend (+9.4%). The segment posted organic growth of 12.3% to 3,244.6 million euro, accounting for a total of 64% of Consumer revenues, up from 61.5% in 2015 on a like-for-like basis.

The Adjusted Ebit (operating result before non-recurring and restructuring charges and amortization of intangible assets identified in the context of PPA) was 896.6 million euro (860.5 million in 2015 on a like-for-like basis), with an Adjusted Ebit margin growing to 14.8% compared with 14.4% in 2015 on a like-for-like basis. The improvement can be attributed to internal levers such as volumes’ growth, price/mix and efficiencies achieved to contrast forex volatility, increased raw material costs and inflation in emerging markets. Efficiencies totaled 90.5 million euro, bringing the total of efficiencies achieved since 2014 to 277.3 million euro, equal to 79% of the 4-year 2014-2017 target of 350 million euro.

The operating result (Ebit) was 724.2 million euro (compared with 786.1 million in 2015 on a like-for-like basis) and mainly reflects 66.6 million in non-recurring and restructuring charges linked to rationalization processes and costs related to reorganization activities of the Industrial segment and 105.8 million euro relative to amortizations for intangible assets resulting from the acquisition of Pirelli assets by Marco Polo.

The total net result was 147.6 million euro compared with -383.5 million in 2015. This figure included a loss of 559.5 million for the de-consolidation of Venezuela and a negative impact of 14.6 million euro deriving from the operational activities disposed of. The result from equity investments was negative 20 million euro (-41.4 million euro in the same period of 2015).

The net cash flow from operations shows a net improvement, passing from 701.4 million in 2015 to 882.7 million euro in 2016, thanks to the management of working capital, and after having sustained investments of 372.2 million euro (391.4 million in 2015), mainly earmarked for increases of Premium capacity in Europe, Nafta and China, as well as improvements in the mix.

The total net cash flow – before dividends and the effects deriving from the merger with Marco Polo Industrial Holding and from the re-organization of the industrial activities – was positive for 383.1 million euro (192.1 million euro in 2015) and include approximately 200 million euro of inflows deriving from the sale of some shareholdings (mainly the disposal of the investment held by Eurostazioni S,p.A. in Grandi Stazioni Retail) and real estate assets.

The net financial position on 31 December 2016 was negative 4,912.8 million euro, an improvement of 418.2 million compared with 5,331.0 million euro at the end of 2015. The positive performance stems mainly from the high level of cash generation, as well as an inflow of 266 million euro deriving from the entry, with a stake of 38%, of the Chinese fund Cinda into the capital of Pirelli Industrial in the context of the reorganization project of the industrial business.

Investments in Research & Development totaled 228.1 million euro, equal to about 4% of total sales, of which 191.0 million euro for activities linked to Premium products (about 6% of the segment’s sales).

At the geographic level, Apac registered, together with Nafta, the highest profitability of all the macro-areas, remaining at the twenties level. Revenue performance improved (organic growth +12.1% in 2016 and +25.4% in the fourth quarter) which include the sales of Jiaozou Aeolus Tyre from October 1, 2016. On a like-for-like basis, growth was 9% at the annual level and 17.9% in the fourth quarter, thanks to the positive performance of the Consumer business and the strengthening of the Original Equipment channel thanks to new homologations with European and local brands.

Nafta posted an Ebit margin at the twenties level, in line with 2015, with organic revenue growth of 12.0% in 2016 (+18.6% in the fourth quarter) thanks to the good performance of Premium and Super Premium.

Profitability in Europe improved to mid-teens level thanks to the 10.0% Premium revenue growth, supported by the good performance of sales both in the Original Equipment and Replacement channels. Organic revenues grew by 5.1%.

Meai registered stable profitability at the high-teens level, with organic revenues growth of 7.2%.

The reduction of profitability in South America (mid-single-digit) was mainly due to the performance of the Industrial business which discounted the market’s weakness, while profitability in the Consumer segment was confirmed at the high single-digit level. During the year, revenues at the organic level registered progress of 6.0% (-6.6% including forex effect of -12.6%). There was a marked improvement in performance in the fourth quarter with revenues growing 12%, in particular in the industrial business, with a volume increase above the market’s.

Forex volatility and the weakness of the market had a negative impact on the results in Russia (revenues down 1.0% net of forex) with profitability at break-even level, an improvement compared with the first nine months of 2016 thanks to a marked recovery in the fourth quarter (organic revenue growth of 9.6%, underpinned above all by the good performance of price/mix and a forex effect of +6.5%.

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Board of directors meeting: the process of reorganization of Pirelli industrial continues

INDUSTRIAL PLAN 2016-2018 WITH VISION TO 2020 PRESENTED

NEW PIRELLI DIGITAL GENERAL MANAGEMENT, ENTRUSTED TO BY LUIGI STACCOLI, CONSTITUTED

PAOLO DAL PINO NOMINATED CEO OF PIRELLI INDUSTRIAL

IPO LAUNCH SEEN BY FIRST HALF 2018

FUTURE GOVERNANCE ALIGNED TO INTERNATIONAL BEST PRACTICE

The Board of Directors of Pirelli & C. S.p.A. met today and was updated on the activities under way with regard to the proposed integration of Pirelli Industrial and Aeolus, acknowledging with favour its progress.

The Board then analyzed the guidelines of the industrial plan for the Industrial segment.

The Board, further, approved the industrial plan 2016-2018, with vision to 2020, for Pirelli Consumer, the sole global player entirely focused on the Consumer business. The strategy calls for:

  1. 1. strengthened leadership in the high profitability Prestige and Premium segments;
  2. 2. a business model always more focused on the end consumer (‘Consumer Centric Approach’)
  3. 3. oversight of new business opportunities offered by new and sustainable mobility (Cyber Tyre and Vélo);
  4. 4. total digitization of industrial, commercial and management processes, more efficient and based on predictive models made possible thanks to the deployment of big data and analytics.

To support this course, the Board adopted an organizational model which calls for:

- the constitution of General Management Pirelli Digital, entrusted to Luigi Staccoli, supervising all activities aimed at the digitization of the company;

- the aggregation of all technical structures (R&D, homologations, technologies, manufacturing, quality, motorsport) and sales to Original Equipment under the responsibility of General Manager Technology, Maurizio Boiocchi;

- the attribution of the management of all commercial structures (marketing, supply chain,  aftermarket sales) and the Business Unit Moto to the Chief Commercial Officer Consumer, Roberto Righi, in support of the ‘Consumer Centric Approach’;

- the General Management Operations will be superseded from January 1, 2017. Gregorio Borgo, who has announced his decision to leave the company to pursue a new important professional path, will remain with the company until December 31, 2016 to support the  Ceo, Marco Tronchetti Provera, with the implementation of the new organizational model;

- the nomination of Paolo Dal Pino, currently Ceo of the Latin America region, as Chief Executive Officer of Pirelli Industrial;

- attribution of responsibility for Human Resources Management given to Gustavo Bracco with the role of Chief Human Resources Officer.

The Company extends to Gregorio Borgo its appreciation for the important contribution made to the growth of Pirelli through his 24 years of service.

On the basis of these assumptions, the Board shared the desire to accelerate the course to the company’s listing, immediately launching all the necessary actions. It is foreseen that the preliminary phases for the preparation of the IPO (Initial Public Offering) can be completed during the first half of 2017, with the objective of proceeding, in accordance with the best opportunities offered by the market, with the launch of the IPO by the first half of 2018 on the Milan stock exchange or, however, on one of the leading stocks exchanges at the international level.

Among the elements underpinning the success of the listing, the Board identified:

- the alignment of governance to international best practice, through a Board of Directors and board committees composed of a suitable number of independent directors;

- a shareholder structure that, although beginning with a concentrated shareholder structure, which emerged during the Public Tender Offer, foresees an evolution which ensures a suitable free-float level and one able to satisfy the expectations of international investors;

- a system of incentives that guarantees the alignment of the interests of management with those of all shareholders.

The Board further took note with favour of the decision of the board of Marco Polo International Italy (‘Marco Polo’), which also met today, to share and approve the course decided by Pirelli and the elements underpinning the success of its listing. The Board of Marco Polo confirmed its desire to accelerate the implementation of the shareholders’ agreements signed on March 22, 2015, which have as their basis the creation of value by Pirelli and its relisting.

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