Pirelli results, outlook confirm emphasis on premium segment
In reporting its 2012 results, Pirelli & C. SpA says it achieved “record profitability” last year thanks to its “focus on premium and efficiencies.” Net profit rose 27.4 per cent year-on-year to 398.2 million euros on the back of a 7.4 per cent increase of sales to 6.1 billion euros. EBIT rose 34.2 per cent to 780.8 million euros and the EBIT margin went up from 10.3 per cent in 2011 to 12.9 per cent last year.
“The Pirelli group’s results for 2012 show growth in the key economic indicators compared with 2011, in particular in profitability, notwithstanding the difficult macro-economic context, especially in European markets,” stated the company on 11 March. “Pirelli’s positioning with premium products and in markets of rapidly growing economies, as well as progressive improvements in the efficiencies’ plan, allowed the group to achieve a level of profitability among the highest of the tyre sector.”
The 7.4 per cent growth in sales included growing premium segment revenues, which totalled 2.1 billion euros, a 20.9 per cent increase from 2011, and equalled 47 per cent of consumer segment sales in 2012, up from 43.7 per cent the previous years. Europe remains the main premium market; growth here declined to four per cent in 2012, however, in comparison with the NAFTA region, where premium revenues registered 35 per cent growth. At the end of 2012, emerging markets in total represented 22 per cent of premium revenues, but the rate at which this level is growing is accelerating; in 2012 this was +69 per cent compared with 2011.
Pirelli says this focus on high-end products, characterised by higher profitability, together with a rigorous pricing policy, allowed it to “comfortably absorb” a decline in volumes, especially in European markets, and the correlated costs of factory under-utilisation, plus restructuring charges associated with the company’s aim to be more competitive in the long term.
Activities carried out by Pirelli Tyre accounted for virtually all the company’s revenues. Of the 6.0 billion euros revenues earned through Pirelli Tyre in 2012, 4.4 billion were earned in the consumer segment – a growth of 12.6 per cent. Pirelli’s industrial business declined 3.9 per cent year-on-year to 1.6 billion euros.
The Italian firm’s targets for 2013 are based on the projection that the global passenger car tyre market is expected to grow 2.5 per cent, or around 1.3 billion pieces, essentially due to the development of the premium segment, which continues to grow at more than seven per cent – a rate at least three times faster than non-premium.
Pirelli expects the overall percentage held by premium to grow from 12.7 per cent in 2012 to 13.3 per cent this year. Mature markets will see “contained” growth of one per cent, mainly due to the premium segment growing 3.8 per cent, and by the end of 2013 the premium segment should account for 18.2 per cent of the market in these regions, as compared with 17.7 per cent in 2012. Emerging markets should register four per cent growth, with premium developing at around 15 per cent and equal to 8.5 per cent of the total at the end of 2013, up from 7.7 per cent in 2012. The radial truck tyre market is expected to grow by 4.8 per cent or around 136 million pieces, with similar trends in mature (+5.3 per cent to 37 million pieces) and emerging (+4.6 per cent to 99 million pieces) markets.
In this scenario, Pirelli confirms its strategic focus on premium and aims to improve its positioning in the replacement channel in mature markets leveraging on a stronger presence in original equipment, and to catch the many opportunities for premium growth in emerging markets. These objectives in 2013 will be reflected in a three to four per cent increase in total volumes, with a high-single-digit trend in emerging markets and “substantial stability” in mature markets compared with 2012. The premium segment will drive growth, with a rate of development during the year between 13 and 14 per cent. Price/mix is expected to grow between four and five per cent. With exchange rates declining by around four per cent, total revenues are expected to increase by between four and five per cent to 6.3 to 6.4 billion euros.
To pursue the above described premium segment goals, this year Pirelli will bear greater costs in the commercial context to develop marketing actions and improve customer service, from the industrial point of view greater costs for the acceleration of converting capacity to premium, to develop factories in Russia and Mexico, and to launch its new motorcycle tyre factory in Indonesia.
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