The Premium segment increasingly defines the very essence of Pirelli as shown in the First Half Results by the growth of the Group main economic indicators. The key to interpreting the positive results of Pirelli and the growth path tracked by the Group over the last several years lies in that one word, “Premium” – the high-end segment where market demand is growing three times higher than in the “non-premium” one. At June 30, 2015, the Premium segment accounted for 59.4% of revenues in the Consumer Business. Sales volumes grew by more than 10%, while aggregate volumes at Group level remained largely stable from the previous year.
The positive performance of the high-end segment represents the common denominator of all geographic areas where Pirelli operates, including those in the grips of an economic slowdown, such as Latin America or Russia, hit by the shock wave of international sanctions. APAC, Latin America, MEAI and Russia stand out as the regions where Pirelli has performed the best in the Premium segment, with its market share tracking a general upward trend. Yet again, the APAC area has confirmed its status as the region with the highest growth and profitability. Net sales in the Premium segment account for this achievement, and the attendant rise in market share.
The dynamics of the high-end and top-end product range – denoted by the “Prestige” segment where Pirelli enjoys consolidated leadership –enabled the Company to compensate for the downturn in its Industrial Business. Net sales and operating income in that business backtracked during H1 2015 due to soft demand, although cost-efficiency measures limited the reduction in profitability. Tellingly, the Industrial Business is concentrated largely in Latin America, a geographical area currently riding out an economic slowdown. For example, the government in Brazil has imposed public spending cuts in response to the recession there. As measured by sales volumes, the Industrial Business reported a 5.7% decrease in H1 2015. The Consumer Business offset that result with a 1.3% increase in sales volumes.
The Premium segment, efficiency measures, a favourable exchange rate trend, moderate raw material costs and price/mix growth by 4.4% (a direct consequence of the focus on high-end products and the replacement market, as well as price increases in Russia and Latin America) are the key factors nudging company results upwards. At the end of H1 2015, Pirelli net sales had risen by about 6.5% to over Euro 3.1 billion, operating income was Euro 446 million and net income from continuing operations (an item that does not include the figures related to the steel cord activities sold to Bekaert) was up 10% to Euro 211.4 million. Net debt also improved from the previous quarter, even after the payment of nearly Euro 180 million in dividends to shareholders.
Given these positive results, Pirelli can confirm its targets for 2015, which call for operating income of approximately Euro 930 million, investments of less than Euro 400 million, cash flow before dividends of Euro 300 million or more and net debt of about Euro 850 million.