Pirelli: H1 2019 financial results

In the preamble to its financial results for the first half of 2019, Pirelli notes that car production around the world was 6.7 per cent lower during the six-month period than in the first half of last year. It adds that lower vehicle production impacted the tyre market, with lower shipments to carmakers driving a 7.3 per cent contraction of the global tyre market in the first half of the year. Many tyre makers diverted production to the less profitable replacement segment, a move that affected their pricing.

Pirelli says it was able to minimise the impact of this market environment. It comments that the above price reductions primarily involved the Standard tyre segment (Pirelli defines this as tyres for 17-inch and smaller rims), therefore its continued strategic focus upon ‘High Value’ products (18-inch and above) meant the company was “less exposed to competitive pressure.”

Pirelli’s organic revenues grew by +1.4 per cent (+0.9% including forex effect) in the first half of 2019, thanks to growth in its High Value segment, which today accounts for 67.3 per cent of Pirelli’s total revenues (64.0% in H1 2018).

Tyre volumes fell by five per cent: High Value volumes grew +3.9 per cent because of the aforementioned fall in car production, while standard volumes dropped by -13.9 per cent in response to decline demand for these products in all markets.

Price/mix increased +6.4 per cent during H1 2019, supported by the growing weight of High Value and the product mix improvement.

Exchange rates had a negative impact of -0.5 per cent in H1 2019.

Pirelli achieved net sales of 2.65 billion euros during the first six months of the year, an increase of 0.9 per cent over H1 2018. Adjusted EBIT was 440.5 million euros, a -2.1 per cent decline, while the adjusted EBIT margin was 16.6 per cent (17.1 per cent in H1 2018).

Net income related to continuing operations rose +68.8 per cent to 307.0 million euros, in part due to the benefits deriving from the recognition of tax credits in Brazil.

Outlook for 2019

Pirelli expects revenues in 2019 to grow by between +1.5 per cent and +2.5% per cent (previous indication between +3% and +4%). It revised its projection because of the prolonged weakness of demand in original equipment and the changed competitive scenario. High Value products should account for around 67 per cent of revenues, as opposed to 64 per cent last year.

Price/mix is expected at between +4.5 per cent and +5 per cent (previous indication between +5% and +5.5%) in the face of greater pricing competition, particularly in Standard and High Value products with a lower level of technological content, and the different product and geographic mix.

The adjusted EBIT margin in 2019 is expected to be between 18 per cent and 19 per cent (previous indication ≥19%). High Value should account for around 85 per cent of adjusted EBIT before start-up costs confirmed, compared with 83 per cent in 2018.