pirelli tyre - 2009-2011 management plan · 2015. 12. 16. · car manufacturers increasing breadth...
TRANSCRIPT
1
BOOKLET AGENDA
STRATEGIC OVERVIEW >
CONSUMER >
INDUSTRIAL >
PRODUCT >
MANUFACTURING >
FINANCIALS >
2
REGIONAL OVERVIEW AGENDA
APAC >
EUROPE >
LATAM >
MEAI >
NAFTA >
RUSSIA >
SUSTAINABILITY PLAN >
MARCO TRONCHETTI PROVERA
STRATEGIC OVERVIEW
2013-2017 SCENARIO
1
PIRELLI TODAY
AGENDA
2013-2017 PIRELLI VALUE CREATION • GUIDELINES
2013-2016 TARGETS
GOVERNANCE
2
PIRELLI TODAY
Prestige OE market share: ~50% (+11 pp vs ’11A) Premium OE market share: ~19% (+5 pp vs ’11A) Key partner of German OEMs in Apac, Nafta, Latam.
Consolidated partnership with Prestige & Premium Car Manufacturers
KEY STRENGTHS 9M 2013 A
NCF /Revenues >3% by 2013 FYE (1) Premium defined as ≥17’’ also for 2011 (2) 9M'13 Pirelli industrial margin reported, vs sector average 1H'13 (3) Net Cash Flow before dividends and Prelios impact
Focus on top of the range Premium(1) weight in the Car Business
• % revenues: 53.3% (+7.4 pp vs ’11A) • % ebit: >80% (+7 pp vs ’11A)
RDE weight in the total Tyre Business
• % revenues: 56.2% (+6 pp vs ’11A) • % ebit: 63.2% (+9 pp vs ’11A)
Competitive footprint in rapidly developing markets
>13% ebit margin (+4 pp vs European Industry average)(2) ROI ~ 20% in the last 3y
Industrial business: best in class in profitability
(3)
WHERE WE STAND VS OUR 2011 - 2015 PLAN
3
Targets 2011 A 2012 A 2013 E
Ebit
CONSUMER
INDUSTRIAL
TOTAL EFFICIENCIES
NCF before dividends
Delivered
Over Delivered
Delivered
Delivered
€/Mln
• RDEs: Delivered
• Europe: Recession has only sharpened our will
• Russia: Change of pace!
VISION AND DESIGN Premium market grows 3x vs non Premium
2 PHASE 1 RENEWAL …Premium market continues to grow 3x vs non Premium
2 PHASE 2
PIRELLI TRANSFORMATION
PIRELLI PREMIUM BECOMES AN ATTITUDE TO EXTRACT VALUE
4
STRATEGY, ORGANIZATION AND PEOPLE
Execution and Cascading
Design new Business Model and launch cultural transformation All Value Chain functions, Moto and Truck BUs, and Central Functions report directly to the CEO
Governance and external relations Central Functions
Corporate development
Processes Products
Motorsports
Quality OE
Industrial Operations
Marketing
Regions
General Manager Operations
Moto BU
Industrial BU Supply chain
Chairman & CEO
Product Management in Operations – Focus on Execution and Efficiencies
New Product Development – Focus on Homologations and De-complexity
CTO
End-to-End Premium Value Chain
Prestige & Premium Car Manufacturer
Consumers driving Premium cars
PHASE 1
PHASE 2
2013-2017 SCENARIO
5
2013-2016 TARGETS
GOVERNANCE
PIRELLI TODAY
AGENDA
2013-2017 PIRELLI VALUE CREATION • GUIDELINES
6
MACRO SCENARIO: EUROPE IS 2 YEARS BEHIND VS OLD PLAN
13E 14E 15E 17E 13E 14E 15E 17E 13E 14E 15E 17E 18.1 18.5 18.9 4.7 5.0 5.2 8.6 9.3 10.1 10.7 Old Old Old
17.6 17.8 18.1
18.8
4.6 4.8 4.9 5.4
8.5 9.1 9.9 11.4
Europe LATAM CHINA
+1.1% +3.4% +7.8%
CAGR ’13-’17 +1.7%
CAGR ’13-’17 +3.9%
CAGR ’13-’17 +7.8%
13E 14E 15E 17E 13E 14E 15E 17E 13E 14E 15E 17E 16.1 16.7 17.3 3.5 3.7 3.9 2.7 2.8 2.9 Old Old Old
16.2 16.6 17.2
18.3
3.4 3.6 3.7 4.1 2.6 2.7 2.8
3.1
USA MENA RUSSIA E CIS
+2.7%
CAGR ’13-’17 +3.1%
CAGR ’13-’17 +4,3%
CAGR ’13-’17 +3.9%
+3.7% +3.6%
RDEs MATURE $/trillion $/trillion
*Contribution to world growth of RDE’s based on real purchasing power parities; Source: IHS Global Insight September 2013
70% of global GDP growth will be driven by RDEs in 2013-2017 *
7
2013 2017 2025 2030
KEY INDUSTRY TRENDS > External forces driving the automotive market
> Premium Car and Premium Tyre profitability structurally superior to their respective overall segments
> Mature economies will still have the lion’s share in the Premium segment
> Resilient growth rates in emerging markets will drive the Tyre market in the years ahead with APAC remaing the world’s fastest engine
> Exchange rate volatility will remain significant especially in the emerging markets
> Regional trade blocks will replace globalization as the engine for international trade
Asian Car Manufactures entering Premium car markets New mobility solutions
Macroeconomic uncertainty Regulatory constraints Changes in social behaviour
Car manufacturers increasing breadth and variety
of Premium ranges
CAR MARKET: 10% OF CAR PARC WILL BE PREMIUM
* Definition of Premium based on P/Pb and OEMs and car production on a regional basis converted into tyres Source: Global Insight September 2013
8
2011-2014 PLAN
CAGR +3.7%
15E
1,088
14E
1,050
13E
1,014
12 A
979 9.1% 9.1% 9.4% 9.6%
17E
1,172
16E
1,129 9.8% 9.9%
2013-2017 PLAN
CAR
PAR
C
Premium is and will remain concentrated in three regions: Europe, NAFTA and APAC
0.7
2.0
2.8
Other RDEs
NAFTA
APAC
EUROPE
PREMIUM* 7.5 0.9
2.5
3.3
9.6
2013E 2017E
2.0
NEW
REG
ISTR
ATIO
NS
2.9
Mln vehicles
8%
27%
65%
10%
30%
60%
15E 14E 13E 12A 17E 16E
835 800 765 727 692 664 11% 11% 12% 13% 14% 15%
1,410 1,564 1,515 1,466 1,359 1,327
21% 22% 23% 24% 25% 26%
15E 14E 13E 12A 17E 16E
15E 14E 13E 12A 17E 16E
729 715 700 683 667 663
32% 34% 35% 36% 37% 38%
9
RD
Es
MAT
UR
E (E
U +
NAF
TA)
GLO
BAL
TYRE MARKET: PREMIUM GROWS 3X NON PREMIUM
2011-2014 OLD PLAN 2013-2017 PLAN
+3.6%
CAGR ‘13 – ‘17
+7.3%
+2.4%
Source: Europool, Pirelli Analysis Premium defined as ≥ 17’’ also for 2011 - 2014 Old Plan Non Premium
+2.2%
+5.7%
+0.3%
+4.8%
+11.6%
+3.8%
Mln/Pcs
Industry moving towards Premium and specialty products
Geographic expansion in favor of RDEs
Careful handling of profitability drivers
Average sector profitability at ~12%/13% in 2015
Investments to rebalance global footprint and restructure operations
(CAPEX/Sales ~8% by 2015)
No risk of overcapacity in the Premium segment
Cash-generation oriented (FCF/Sales ~4% by 2015)
Growing importance of Shareholders' remuneration
10
* Pirelli analysis based on main peer panel with revenues >1 Bln $
COMPETITIVE SCENARIO
>
>
>
>
>
>
>
>
2013-2017 SCENARIO
11
• GUIDELINES
2013-2016 TARGETS
GOVERNANCE
AGENDA
2013-2017 PIRELLI VALUE CREATION
PIRELLI TODAY
12
2013 – 2017 PIRELLI VALUE CREATION PROFITABILITY Ebit% ROI BY BUSINESS 2013 - 2016/17
CAR
MOTO
INDUSTRIAL
TOTAL
~16%
~12,5%
>17%
~15%
~14%
>13,5%
~13%
22% 20%
20% ~18%
~22%
~26%
~20% ~24%
~28%
~27%
~18% ~25%
~47% ~52%
~23% ~27%
14E 13E 12A* 17E 16E
Ebit % before restructuring costs 2013
Ebit % before restructuring costs 2016
ROI total, before restructuring costs
ROI without financial assets, before restructuring costs
Returns consistent with Premium attitude
* Restated according to new IAS 19
~15%
MINOR BUSINESSES
Stop-loss and breakeven
13
2014-2017 RESOURCE ALLOCATION
<1,6
IND
UST
RIA
L C
ON
SUM
ER
TRUCK
AGRO
OTHER IND.**
Europe NAFTA APAC MEAI Russia LATAM TOT
Financial assets disposal CAPEX
~ 0,15
~ 3 > 0,7
> 0,85
€/Bln
CAR
MOTO
OTHER CONS.*
11%
3%
4%
74%
6%
2%
38% 10% 14% 6% 6% 26% TOT <1,6
* Other Industrial: Steelcord, Retail and others ** Other Consumer: Retail and others
Dividends
NFP improvement
2014 – 2017 Net Cash Flow before
Dividends, CAPEX and Financial Disposals
14
CAR TYRES: RELENTLESS PUSH TOWARDS PREMIUM
Ebit Margin Before restructuring (ex Russia)
~13%
Volumes Revenues Volumes Revenues Volumes Revenues
2011A 2013E 2016E
~14% ~16%
All data Car OE + Replacement, ex Russia
100 100 100 100 100 100
28% 46%
72% 54%
38%
56%
62%
44%
44%
60%
56%
40%
≥17"
≤16"
RENEWAL PHASE VISION AND DESIGN PHASE STEADY STATE 2 2 2 1
CAR PROFITABILITY GUIDELINES
15
≥18"
17"
≤16"
TOTAL
Russia & CIS Europa NAFTA APAC MEAI LATAM TOTAL
Revenues ‘17E EBIT Margin ’13E EBIT Margin ’17E
Mid teens
negative
Mid teens
High teens
Low teens
Double digit
Mid single digit
High single digit
Mid teens High
teens Low
twenties Low twenties
Double digit
Mid teens
Low teens
Mid teens
Low teens
Mid teens
Low twenties
Mid twenties
16
MOTO & INDUSTRIAL GUIDELINES
MOTO TECHNOLOGY-BASED LEADERSHIP AND GLOBAL EXPANSION
INDUSTRIAL REGIONAL LEADERSHIP
• With new products and processes, Moto raises "technological barriers" both in Europe and LATAM
• Growth in the traditional markets (in Brazil with equities; in the rest of LATAM and in Europe in market niches where the market share is currently below average; in the US with new distributors)
• Immediate entry in ASEAN market with a commercial presence
• Maintain leadership position in LATAM and MEA • Improve profitability in Europe • Strong offer: one product platform, fleet solutions • Exploring partnerships in APAC
17
FURTHER EFFICIENCIES TO STRENGTHEN OUR COMPETITIVENESS
€/Mln
Materials
~320
~350
Industrial and Product efficiencies
SG&A Total Efficiencies
56%
Labour 30%
Expenses 8%
Allocation Mix 6%
~30
2014 - 2017 plan worth 4pp on 2017 revenues (1pp per annum)
18
2013-2016 TARGETS
GOVERNANCE
AGENDA
PIRELLI TODAY
2013-2017 SCENARIO
2013-2017 PIRELLI VALUE CREATION • GUIDELINES
19
Capex ~400€/Mln <400€/Mln <1.6€/Bln
Net Free Cash Flow before dividends* >200€/Mln >250€/Mln
Net Financial Position <1.4€/Bln ~1.2€/Bln ~0.5€/Bln
~1.6€/Bln
Net Debt/Ebitda 1.2x 1.0x 0.3x
* Excluding Prelios impact in 2013; including 150 €/Mln financial asset disposals in 2014-2017 (50 €/Mln in 2014)
2013E 2014E 2016E
2014-2017
Total Revenues ~6.2 ~6.6 ~7.5
Growth rate CAGR '13 – '16
o/w volumes
o/w price/mix
YoY
>5% >6%
3%/4%
EBITDA% before restructuring
13%
~18%
>13.5%
>18.5%
~15%
>19.5%
o/w Premium ~12% >13% ~+6%/6.5%
+3%/3.5%
>2%
o/w Foreign Exchange ~-7%
EBIT% before restructuring
Restructuring costs 30€/Mln 50€/Mln 20€/Mln
-2%/-3%
4.5%/5.5% ~6.5%
3.5%/4.5% ~10%
-2%/-3%
YoY
TARGETS
~400€/Mln
>400€/Mln
~0.75€/Bln
0.5x
20
ALREADY BEYOND THE PEAK OF CAPEX CYCLE
€/mln Capex/ Sales
Consumer
CAPEX
Capacity
Industrial
Premium
Nov. 11 capex plan
Nov. 11 capacity targets
Consumer Premium
Industrial
11%
~8% ~7% <6% ~5% 619
471 ~410
2017
>400
2016
~400
2015
<400
2014
<400
2013 2012 2011
59 69 81
5.9 6.2 6.8
22 33 51
59 22 53
5.9 6.8
84
2011-2015 Lower capex vs Old Plan, with an increased focus on
mix improvement
1.6€/bln
VALUE CREATION INVESTMENT PHASE
Mln/pcs
1.5€/bln
2.4€/bln
2010
56 19
5.8
56 19
5.8 *In the old Plan, Voronezh Premium capacity was expected to grow by 2 mln pcs, while in the new Plan it remains stable.
21
Shareholders' remuneration: ~40% of consolidated Net Income Dividend policy
Net Debt/
Ebitda 1.2X 0.5X 0.3X
FINANCIAL & FISCAL CHARGES
0.35
OPERATING CASH FLOW
(0.15)
OPERATING CASH FLOW
FINANCIAL & FISCAL CHARGES
2016E NFP DIVIDENDS DIVIDENDS
<0.
2017E NFP 2013E NFP
~0.70
(~2.4)
DISPOSAL OF FINANCIAL
ASSET
~0.75
(1.0)
~ 1.6 €/bln of Net Cash Flow before dividends in 2014 – 2017: 5% on revenues vs 3% in 2013
FREE CASH FLOW & DIVIDEND POLICY
>0.2
0.5
<0.9
<1.4
€/Mln
~0.5
~0.5 Fin. Charges
Fiscal Charges
0.15 Fin. Charges
Fiscal Charges
~1.4
0.5
22
2013-2016 TARGETS
GOVERNANCE
AGENDA
PIRELLI TODAY
2013-2017 SCENARIO
2013-2017 PIRELLI VALUE CREATION • GUIDELINES
23
"A domestic stock with a multi-business model"
"A more international stock with a focus on Premium"
PIRELLI SHAREHOLDER STRUCTURE AND GOVERNANCE EVOLUTION
2009 2011
73.8% free float
TODAY
49.3%
45.5%
5.2%
Shareholder Pact*
Camfin
Free float
16% Int'l
Institutional Investors
(including SRIs**)
49.3%
45.5%
5.2%
Free float
Camfin
Shareholder Pact*
Int'l Institutional
Investors (including SRIs**)
27%
Camfin
43%
Int'l Institutional
Investors (including SRIs**)
Free float
26,2%
73,8%
GOVERNANCE
Introduction of 2 new crucial committees
• Nominations and Successions
• Strategies
Further enhanched with reduced number of Board: 15 Directors vs current 20
Key role of the Board in overseeing risk management process
* including 21% of Camfin stake; shareholder pact was dissolved on October 31, 2013
* SRIs: Socially Responsible Investor
Already in-line with Int'l best practices:
• A Board with a majority of Independent Directors
• 2 governing committees exclusively composed of Indipendent Directors
DISCLAIMER
24
This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s current expectations and projections about future events and does not constitute an offer or solicitation for the sale, purchase or acquisition of securities of any of the companies mentioned and is directed to professionals of the financial community.
These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company. \
Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those expressed in or implied by these forward looking statements as a result of various factors, many of which are beyond the ability of Pirelli & C SpA to control or estimate precisely. Consequently it is recommended that they be viewed as indicative only.
Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation.
Pirelli & C. SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Pirelli & C. SpA business or acquisition strategy or to reflect the occurrence of unanticipated events.
Statement
The Manager mandated to draft corporate accounting documents of Pirelli & C. SpA. Francesco Tanzi, attests – as per
art.154-bis. comma 2 of the Testo Unico della Finanza (D.Lgs. 58/1998) – that all the accounting information contained in this
presentation correspond to the documented results, books and accounting of the Company.
STRATEGY IN ACTION
GREGORIO BORGO
CONSUMER
1
OVERALL CAR PLAN
SUMMARY INSIGHT ON: • RUSSIA • MOTO
CONSUMER TARGETS
PIRELLI CONSUMER BUSINESS TODAY
AGENDA
2013FY EXPECTED PERFORMANCE KEY STRENGTHS
2
PIRELLI CONSUMER BUSINESS TODAY
• Distinctive positioning in Premium Car Tyres • 54% of Car product portfolio made by items with rim size ≥18’’
• Strengthen positioning in Europe
• Russian plan for a change of pace
• Complete deployment of Premium business model
• Improve competitiveness of Medium range Tyres
• Moto: targeting new potential markets leveraging on technological leadership
DEVELOPMENT AREAS
• Distinctive value-driven approach
• Recognized technological leadership
in Moto Tyres
• Preferred partner of Prestige and Premium Car Manufacturers
• >400 marked and homologated items (Premium and Prestige Car Makers) in our catalog
• Exclusive supplier in Superbike World Championship
• Awarded the «Product of the year» Prize by Motorcycle News Magazine and winner of 16 comparative tests for 2 consecutive years
• Industry-leading growth in price/mix (~ +3 pp vs main competitors*)
* Pirelli analysis based on 1H 2013 competitors panel
WHERE DO WE STAND VS OUR 2011-2015 PLAN?
Europe
2011-2014 Old Plan Expectations 2011-2013E Results
What happened so far
Progress on 2011-2014 Plan
NAFTA
Russia
RDEs (MEA, APAC,
LATAM)
MKT (CAGR 11-15)
MKT (CAGR 11-15): • Car +2% • Premium +5.9%
MKT (CAGR 11-15): • Car +4.5% • A Brands +9.2% Pirelli: Strong revenue growth combined with profitability improvement
MKT (CAGR 11-15): • Car Mid-single digit growth • Premium 3 times faster Pirelli: Top Line growth with high profitability
Volume 11-13: • Slightly lower than expected • Premium overperforming
Faced crisis with extra push on Premium strategy: • Faster standard production cut • Increase POS coverage
(retail and Car Dealers) • Higher marketing activities
in 2013
Faster execution of Premium strategy: • OE mix improvement • Revised retail distribution
model
• Slower execution of commercial business plan
• Sub-optimal saturation of factories
• On track with manufacturing business plan
• First mover advantage in a rapidly growing Premium market.
Volume (CAGR 11-13)
-7% +2% -6%
Volume (CAGR 11-13) Car Premium
+3% +8%
Overperforming +13%
Volume (CAGR 11-13) • Car +0.4% (-3.5% 2013 vs 2012) • A Brands -5.8% (-12.3% 2013 vs 2012)
Pirelli: • Premium growth
Delivered • Lower EBIT margin
Pirelli: Target exceeded
Pirelli: Slight growth in revenues, negative profitability in 2013
Pirelli: Above target across the board
MKT
Car Premium Car Moto
Pirelli: Premium growth and Profitability improvement
• Car +2.2% • Premium Car +8% • Moto +1.4%
Pirelli
High single-digit loss +6%
High single-digit loss
Pirelli: Solid revenue growth and profitability turnaround
3
4
OVERALL CAR PLAN
SUMMARY INSIGHT ON:
• RUSSIA • MOTO
CONSUMER TARGETS
PIRELLI CONSUMER BUSINESS TODAY
AGENDA
5
Source: Global Insight , Pirelli estimates
496
66%
34%
459
67%
33%
433
68%
32%
412
69%
31%
402
69%
31%
Non Premium
Premium*
2013A 2017E Region
*Premium ≥ 17’’; Old Plan restated from speed code to rim size
EUROPE 8.9% 24% 25%
NAFTA 2.3% 46% 39%
MEAI 10.0% 2% 2%
RUSSIA 2.5% 2% 1%
APAC 13.2% 25% 31%
LATAM 31.7% 1% 2%
Old Plan 2011-2014* New Plan 2013-2017
2017E 2015E 2014E 2013E 2012A
PREMIUM VOLUMES BY REGION
100% 100%
4.8%
7.4%
3.6%
CAR: REGIONAL OUTLOOK FOR THE OE TYRE MARKET
Mln pcs Mln pcs
CAGR '13 – '17
CAGR '13 – '17
6
EUROPE 23% 6.6% 23%
NAFTA 52% 6.3% 54%
MEAI 4% 7.4% 4%
RUSSIA 2% 9.4% 2%
APAC 16% 9.6% 15%
LATAM 2% 3% 18.1%
Mln pcs
1.068
78%
22% 1.007
80%
20% 977
81%
19%
948
81%
18%
925
82%
19%
2017E 2015E 2014E 2013E 2012A
Non Premium
Premium*
2013A 2017E Region
100% 100%
PREMIUM VOLUMES BY REGION
CAGR '13 – '17
3.0%
7.3%
2.0%
CAR: REGIONAL OUTLOOK FOR THE REPLACEMENT TYRE MARKET
*Premium ≥ 17’’; Old Plan restated from speed code to rim size
Old Plan 2011-2014* New Plan 2013-2017 Mln pcs
CAGR '13 – '17
Volumes Net Sales
Premium = 17’’
Super Premium ≥ 18’’
Non Premium ≤ 16’’
Accelerate deployment of Premium Program
Improve competitiveness of Medium range
Execute a major efficiency program
STRATEGY PILLARS
KEY PILLARS OF CAR STRATEGY
1
2
3
Further reduce volumes and capacity in Standard range
7
Premium Car Brands
Non-Premium Car Brands
SuperPremium market
(≥18’’ Tyres)
Pirelli sales of SuperPremium
Tyres
Our Core Market:
SuperPremium where Pirelli is homologated
OE Marked Tyres
Non-Marked Tyres
SUPERPREMIUM: MARKET POTENTIAL AND PULL-THROUGH STRATEGY
1
Potential increase through Aftermarket pull-through activities
Potential core market increase linked to OE homologation strategy in Premium Car Brands
Potential sales increase of SuperPremium Tyres in non-Premium Car Brands
3
1
2
REPLACEMENT MARKET PIRELLI CURRENT REPLACEMENT SALES
Very significant current share of Pirelli «homologated» Tyres.
8
• White spot analysis • Multichannel coverage • Retail integration program, also
including Pirelli and Driver networks
• Digital marketing • CRM campaigns
• Car dealer channel exploitation
• OEM co-marketing
CAR PARC & OE PULL THROUGH
RETAIL COVERAGE
CONSUMER ENGAGEMENT
QUANTUM LEAP IN OUR PREMIUM COMMERCIAL ENGINE
1
GEOLOCALIZED CONSUMER-CENTRIC PREMIUM PROGRAM
9
Proprietary analytical database to: • Monitor OE homologations • Identify vehicle parc at zip code level, by
model • Focus commercial actions on highest
potential areas
~9,000
~6,000
~9,500
2015 2013 2016
EUROPE 32%
LATAM 30%
APAC 26% MEAI 7% RUSSIA 3% NAFTA 2%
29%
23%
35%
6% 5% 2%
PIRELLI RETAIL NETWORK EXPANSION
Extension of Retail Network with a target of 50% Premium share of wallet
1
of which Equities and Hard Franchising
20% 16%
FRANKFURT, GERMANY
WUHAN, CHINA
MOSCOW, RUSSIA
10
IMPROVE COMPETITIVENESS OF MEDIUM RANGE 2
• Our retail network needs a Medium range
• Our Premium OE Partners also allocate a share of Medium homologations…
• …often with high technological content (e.g. Runflat, marked sizes)
• In some Regions, lower rim sizes are still the great majority (e.g. Latam) and very profitable (e.g. China)
Competitiveness Improvement Plan: • Design to Cost
• De-complexity
• Extending selected specialties to non-Premium range (Runflat, Winter, …)
• Sourcing from low-cost plants (China, Romania, Russia)
Volumes Net Sales
Premium = 17’’
Super Premium ≥ 18’’
Non Premium ≤ 16’’
11
Design to cost
Streamlined manufacturing
Rightsizing
De-complexity
Merger of commercial sub-regions
Total efficiencies* target 2014-2017
∼290 €/Mln
Factory specialization and Local for Local
Cost Structure
3
Materials
Transformation costs
SG&A
CAR: EXECUTION OF A MAJOR EFFICIENCY PROGRAM
50%
43%
7%
* Manufacturing, Product and SG&A
(∼6% of 2017 revenues)
12
OVERALL CAR PLAN
SUMMARY INSIGHT ON: • RUSSIA • MOTO
CONSUMER TARGETS
AGENDA
PIRELLI CONSUMER BUSINESS TODAY
13
RUSSIA: WHERE DO WE STAND TODAY? Expectations in Old Plan 2011-2014
What happened so far
Product • Extended range for Car and
SUV, HP and UHP
Manufacturing Production and capacity upgrade: • 8.5 Mln pcs in 2012
Commercial Build strong brand awareness and multichannel coverage
• 2012 launched Scorpion Winter • 2013 launched Russian specific studded products: Ice Zero and
New Formula Ice • Range still to be completed
• Capacity reached: 7.9 Mln pcs (slightly lower due to better mix) • >150 industrialization in two years • Factory saturation below optimal levels
• High marketing investments to build Brand Consideration (from #5 to #3 on Premium Car owners), not yet capitalized
• Underestimation of left-over stock in distribution • Reduced price in tough market competition • Slowly building multichannel coverage (e.g. car dealers)
Macro-economic scenario Rapidly expanding market
Growing Tyre market Replacement Russia • CAGR 11-15:+4.5% • Accelerated growth of A Brands (+9%)
Economy slowdown: • GDP growth much lower than expected (Government last estimate
for 2013: +1.8% vs initial forecast +3.4%) • Rising interest rate and difficult access to credit • Fewer car registrations (-5%), affecting winter market
Contracted Tyre market FY2013E Replacement Russia: • Total market: - 3.5% (-1.5 mln pieces) • A Brands:-12.5% (-1.1 mln pieces), trade down towards B brands
Exte
rnal
con
text
In
tern
al E
xecu
tion
14
RUSSIA RELAUNCH PLAN
Product range • Complete Winter studded range by 2014 • Develop the second complete Russian
specific product line (Winter friction) by 2015
OEM Partneships • Rebalance presence among Car Makers
adding to Russian new foreign Car Makers • Renault in delivery • Daimler in start-up • VW and Ford by 1st Half 2014 • Nissan by 1st Half 2015
DEVELOPMENT AREAS
Go to Market • Accelerate multichannel coverage doubling
our share in Car Dealers by 2014 • Expand qualified Premium Pirelli Stores in
synergy with wholesalers (>700 stores by 2014) • Expand presence in CIS markets
Manufacturing • Grow Premium production within
current capacity • Exploit plants as flexible buffers for
domestic and export needs
Close the gap in Winter tyre segment
Benefit from the pull-through effect on
selected Premium segments
Gain “stronger roots” in Russian trade
Increase capacity utilization
OBJECTIVE
Cost Structure • Locally deploy the efficiency plan Increase profitability
~280
2013E 2014E
~ 240
2016E
~370
Negative High Single
Digit
Mid Single Digit
Double Digit
2014-2016 TARGETS
EBIT margin (before restr.)
15
>15%
CAGR '13-'16
• Consolidate our leadership position in Premium segments
• Strengthen our reputation as pioneers in
innovation and technological breakthroughs
• Grow Premium capacity in emerging economies
• Maintain high level of profitability
MOTO: WHERE DO WE STAND TODAY?
• Leadership position in Europe and Brazil
• OE leadership in EU/LATAM and European transplants worldwide
• Metzeler 2013 best brand Motorrad magazine
• New award winning products
• China Radial factory ramp-up in line • Radial HR production started in Brazil
• EU radial MS ‘13 increase > 1 pt
• Brazil MS ‘13 increase > 1 pt
• 2012, 2013 Product of the Year (MCN magazine)
• 16 comparative tests won in last 2 years
External context: • Unprecedented negative market
conditions in Brazil and in Premium Europe
• Important negative Forex impact Internal execution • Market share gain in both key
markets (Brazil and Premium Europe)
• Launched a fixed cost efficiency program
Expectations in Old Plan 2011-2014
What happened so far
16
THE MOTORCYCLE TYRE MARKET
Key Features Key Features
2013E
309
2014E
325
2015E
348
2016E
371
2017E
393
32% 31%
Total
2012A
295
32%
2013E
13
2014E
15
2015E
18
2016E
20
2017E
22
Premium restated*
2012A
13
Total OE
31% 30% 30%
• Premium growing more than twice the speed of the total market
• Radial accounting 56% of Premium restated (at 2013)
CAGR 13-17
6.3%
4.4%
CAGR 13-17
13.3%
OE + Replacement, Mln pieces
New Plan 2013-2017 Old Plan 2011-2014
* Premium restated: Radial (Old Premium) + Custom Touring, Off Road and Sport Touring X-ply with speed index ≥ H.
17
PIRELLI STRATEGY TO MANTAIN LEADERSHIP
NAFTA EUROPE APAC/MEAI LATAM
Essentially, for 2017: Technology-based leadership in Premium Strategy • Strong product innovation • Higher technological
barriers • More homogeneous
commercial coverage • Consumer engagement
Essentially, for 2017: one of the first two brands in core segments Strategy • Enlargement of
distribution network • Digital strategy
implementation
Essentially, for 2017: become the technological driver for market premiumization Strategy • New regional commercial
strategy • Proprietary store exploitation • Focus on growing radial
market to keep leadership
Essentially, for 2017: create a pervasive commercial network Strategy • Set-up commercial
network in Asean for future local tyres production
• Build brand awareness
Product and
Processes
Process Product
• More than 20 new products planned by 2017 • Specific products for Regions • Increasing performance gap vs competitors
• New Radial HR in Brazil: new process for design-to-cost product • New Hybrid Building Machine in Germany for high-end Radials
Efficiencies
(∼15 €/Mln in 2014-2017, ∼3pp on 2017 revenues)
DE-COMPLEXITY QUALITY SG&A
• Quality index improving 14% 2017 vs 2013
• 30% reduction of compounds in 2017 vs 2013
• Reduction by 4pp as % of sales in 2017 vs. 2013
18
2013 – 2016 MOTO TARGETS
>0,5 >0,4
<0,4
>17%
~16% ~15%
Volumes
CAGR 2013-2016
>+7%
Price/mix >+3%
Forex -1%/-2%
+9%/10%
+2%/+3%
-2%/-3%
Total >+9% ~ +9%
+1.5%
+3.5%
-7%
2014 ∆ YoY
2013 ∆ YoY
~ -2%
19
>9%
€/bln
REVENUES EBIT MARGIN PRE RESTRUCTURING CAGR '13-'16
2014 2013 2016 2014 2013 2016
20
OVERALL CAR PLAN
CONSUMER TARGETS
PIRELLI CONSUMER BUSINESS TODAY
AGENDA
SUMMARY INSIGHT ON:
• RUSSIA • MOTO
• Europe: Romania expansion
• APAC: China expansion and Moto ramp up
• NAFTA: Mexico ramp up
ALLOCATION OF CONSUMER CAPEX
<1.3
Europe NAFTA APAC MEAI Russia LATAM TOT
CAPEX Consumer
Capacity
Mix & quality
Other
33%
38%
29%
43% 12% 14% 3% 8% 20% TOT 100%
Car Moto
Retail & Other
21
KEY PROJECTS
• Mix improvement DE and UK
• New Moto building process
• Premium conversion LATAM
• Machinery standardization projects in Europe (De-complexity and productivity)
• Machinery update HSE, IT across the board
Consumer Business ROI at ~26% in 2016, +6pp vs. 2013
2014 – 2016 CONSUMER TARGETS
€/Bln
Volumes
CAGR 2013-2016
>+6%
Price/mix 3%/3.5%
Forex -2%
4.5%/5.5%
3.5%/4.5%
-2%/-3%
Premium Volumes ~ 12% ~ 10%
Total ~ 6.5% ~ 7%
5%/5.5%
3%/3.5%
-6%
>13%
2014 ∆ YoY
2013 ∆ YoY
2%/3%
5.5 ~4.9
>4.5
>15.5%
>14% >13.5%
2014 2013 2016 2014 2013 2016
REVENUES EBIT MARGIN PRE RESTRUCTURING CAGR '13-'16
~6.5%
22
DISCLAIMER
23
This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s current expectations and projections about future events and does not constitute an offer or solicitation for the sale, purchase or acquisition of securities of any of the companies mentioned and is directed to professionals of the financial community.
These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company. \
Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those expressed in or implied by these forward looking statements as a result of various factors, many of which are beyond the ability of Pirelli & C SpA to control or estimate precisely. Consequently it is recommended that they be viewed as indicative only.
Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation.
Pirelli & C. SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Pirelli & C. SpA business or acquisition strategy or to reflect the occurrence of unanticipated events.
Statement
The Manager mandated to draft corporate accounting documents of Pirelli & C. SpA. Francesco Tanzi, attests – as per
art.154-bis. comma 2 of the Testo Unico della Finanza (D.Lgs. 58/1998) – that all the accounting information contained in this
presentation correspond to the documented results, books and accounting of the Company.
STRATEGY IN ACTION
GIOVANNI POMATI
INDUSTRIAL
AGENDA
PIRELLI INDUSTRIAL BUSINESS TODAY
MARKET SCENARIO
INDUSTRIAL BUSINESS STRATEGY
TARGETS
1
2
PIRELLI INDUSTRIAL BUSINESS TODAY
• Selective regional
positioning with leadership in key growth markets
• Cost efficient production
footprint and industry leading profitability
• Consistent value creation
• #1 in South America and North Africa, co-leader in Southern Europe and Near East
• #1 in Agro South America
• Europe: profitable growth leveraging on a renewed product portfolio and a competitive cost base • Asia Pacific: getting ready to capture market opportunities arising from technological and regulatory
push. Exploring partnerships in the Region • Agro: possible entry in markets other than South America leveraging on new products and OEM links
KEY STRENGTHS 2013 PERFORMANCE
DEVELOPMENT AREAS
*H1 2013 average
• Production 100% in low-cost countries
• Ebit margin >13% vs ~9% European peers*
• ROI > 20% for the last 3 years, above group level.
• 2013E Ebit ahead of Nov. 2011 Plan despite market slowdown
>13% Ebit margin sustainable thanks to internal value levers
3
DRIVERS OF STRONG UNDERLYING PROFITABILITY: OVERDELIVERY ON 2012-2014 EBIT TARGET
Ebit Margin trend (before restructuring costs)
2011A 2013E 2012A 2014E
11%/12%
>13% >13.5%
9%/10%
12.1%
~9%
9.3%
2011-2013 Actual
November ‘11 targets
• Faster launch of 01 Series leading to improved value proposition and pricing power
• Higher efficiency gains and earlier conversion of Settimo plant leading to 100% low-cost footprint
• Strong pricing, combined with exceptionally low raw material prices • Positive one-off impact in H1 2013 (0.4 pp of margin) related to sale of real estate assets in Brazil
• Lower market volume growth vs November 2011 plan expectations • Significant Foreign exchange depreciation, limiting the benefits of favorable raw material trend
more than offset
AGENDA
PIRELLI INDUSTRIAL BUSINESS TODAY
TARGETS
MARKET SCENARIO
4
INDUSTRIAL BUSINESS STRATEGY
Resilience of road transport and sustained truck production in key Pirelli markets
INDUSTRY TRENDS POINT TO TRUCK TYRE MARKET GROWTH TRUCK PRODUCTION TRUCK TYRE DEMAND ROAD TRAFFIC
2020E 2012A
Europe
2017E 2012A
3.2
2.3
0.9 2.6
1.9
0.7
Million units
2017E 2012A
153 137
All Steel, Milion units
0
1000
2000
3000
4000
2030E
0
1000
2000
3000
4000
2020E 2012A 2030E
Railways Roads
Sourcs: IHS
Inland Waterways
Source:MAN
Brazil
Billion tonne-km/person-km
5
+1.8%
Mature markets
Emerging markets EU, Nafta South America,
MEA Asia Pacific, Russia
+2.1%
+3.0%
+2.0%
CAGR +1.0%
CAGR +1.0%
Road Transport Tot Transport
CAGR +3.0%
CAGR +3.0%
CAGR ’13-’17
6
Global Mln pcs*
TRUCK TYRE MARKET OUTLOOK
2011 – 2014 PLAN 2013 – 2017 PLAN
Glo
bal
2012A 2013E 2014E
71%
29%
137
71%
29% 29%
2017E
147
71%
28%
72%
153 141
71%
29%
144
2015E
Mature Markets
Mln pcs*
*Truck All Steel
Emerging Markets
+2.1%
+1.8%
+2.3%
South America 11.4 12.5 13.0 13.4 14.5 +3.7%
MEA 15.3 15.6 16.0 16.7 15.0 +2.4%
Europe 14.7 14.7 15.1 15.6 14.2 +1.5%
Asia Pacific 68.9 70.0 71.4 73.9 67.8 +1.7%
CAGR ‘13 – ‘17
7
TYRE INDUSTRY EVOLVING TOWARDS SUSTAINABLE TECHNOLOGY AND SERVICES
TYRE REQUIREMENTS Higher technology and service content
• Extra load capacity
• Best rolling resistance & wet braking
• Higher mileage and retreadability
• Reduced maintenance
• Mileage and service offering
OEM Technology trends Larger, safer & more energy efficient trucks • Focus on Heavy Commercial vehicles • Tractors from 6x2 to 6x4 configuration • Growth of natural gas and hybrid engines • Electronics for data control and transmission
Fleet operator needs Focus on Total Cost of Ownership • Lower fuel and maintenance cost • Optimal asset utilization rate • Vehicle design flexibility
Increased connectivity
Regulatory scenario Emission control: Euro VI (Europe in 2014, Turkey in 2016), Euro V (Brazil in 2013)
Fuel consumption: Tyre labeling (Europe in 2012, Brazil in 2016) Safety: AEBS emergency braking system (Europe in 2015)
Renewal of machinery: Inovar-Auto program (Brazil)
AGENDA
PIRELLI INDUSTRIAL BUSINESS TODAY
MARKET SCENARIO
TARGETS
INDUSTRIAL BUSINESS STRATEGY
8
9
MEA #1 in key markets
Europe Profitability turnaround
ONE PRODUCT ONE PLATFORM – 01 SERIES – TAILORED TO REGIONAL CUSTOMER NEEDS
FLEET SOLUTIONS TO DELIVER COST SAVINGS AND CONTROL OVER FLEET PERFORMANCE
LEAN ORGANIZATION WITH STRONG EFFICIENCY FOCUS
PIRELLI INDUSTRIAL BUSINESS: TECHNOLOGICAL LEADER OF EFFICIENT MOBILITY
Stra
tegi
c P
illar
s
APAC Improving positioning
South America
#1 in the region
10
TECHNOLOGY LEAP IN KEY DRIVERS OF CUSTOMER DECISIONS
Previous line
Others
Fuel
Total Cost of Ownership (TCO)
Labor
Tax, Insurance, Toll
Administration
Repair & Maintenance
Vehicles Purchase
Tyres 5%
29%
5%
(Sources: Daimler, BGL ,Pirelli estimate) *Europe
Direct impact of Tyre performance
100%
FLEET COST STRUCTURE BREAKDOWN*
01 SERIES OFFER
EXTENDED TYRE LIFE
FUEL SAVING
Previous line
Mileage 1st life Retreadability
Up to -7%
11
• New regional: more mileage & retreadability • Highway and City lines: lower rolling resistance • Completion of winter range • Carry load increase on selected sizes • Development of lighter materials & structure
TAKING PERFORMANCE EVEN FURTHER
50
60
70
80
90
100
110
120
Comfort
Handling
Braking
Weight
Rolling Resistance
Noise
Mileage
Retreadability
2014-2016: 11 NEW PRODUCT LINES
Best in class on wet grip
12
FLEET SERVICES FOR AN EFFICIENT MOBILITY
Main functionalities • Measurement of Tyre pressure and temperature • Real-time monitoring and on line reporting • Proactive warning system
Main benefits to fleet operators • Fuel savings: 10% under/over inflation equals up to 800€ extra fuel per vehicle/year • Increased safety: Tyres are the 2nd main cause of accidents • Better overall control over fleet performance • CO2 emission reduction
CYBER: ADVANCED SYSTEM TO ENHANCE FLEET EFFICIENCY
13
REGIONAL STRATEGY TO 2017
Market Features • Volumes expected to grow at 1.5% CAGR
in 2013-2017 • Global benchmark for product performance
and forerunner of emission control
Market Features • Volumes expected to grow at >2% CAGR
in 2013-2017 • Increase penetration of Radial products
EUROPE MEA
Pirelli Target • Grow our presence carrying on the Profitability
turnaround
Key Actions • 01 Series extension • Product range extension targeting new
segments • Further market coverage through our equities
and partnership programs leveraging on the fleet solutions
• Focus on medium-sized fleets
Pirelli Target • Renew our position as #1 in selected markets
Key Actions • Product range completion with Top line and
introduction of associated brand • Introduction of Pirelli Fleet Solutions • ‘Truck centres’ consolidation • Direct salesforce presence reinforcement and
strategy/fleets sharing with our distributors/importers
14
Market Features • Volumes expected to grow at ~4% CAGR
in 2013-2017 • Increased penetration of Radial products
REGIONAL STRATEGY TO 2017
SOUTH AMERICA ASIA PACIFIC
Pirelli Target • Renew our position as #1 in the Region
Key Actions • 01Series introduction • Focus on Total Life Cycle (new+retread) proposal • Presence in OE with new sizes for Heavy
Commercial Vehicles and co-design activity • Focus on direct fleets • Further market coverage improvement through
network growth
Pirelli Target China • Capture market opportunities increasing
our plant saturation • Exploring partnership in the Region
Key Actions • New distribution partners • Selective extension of retail network • Introduction of Pirelli Fleet Solutions • Cooperation with government / tyre
manufacturers association to promote introduction of Tubeless, Green Tyre, Retreadability
China Market Features • Volumes expected to grow at <2% CAGR
in 2013-2017 • Low incidence of Radial tubeless products • Low incidence of global Tyre makers
Tons / 000 Mln pcs
Source: Anfavea, Pirelli
Units / 000
15
40
60
80
100
120
140
160
180
2000 2005 2010 2015 2020
BRASILUSAUCRÂNIARÚSSIAÍNDIAARGENTINACHINA
Source FAO 2013, 100% in 2012
• Brazil at least double growth vs other leading agro producers
• Agro world market growth driven by RDE consumption
INDUSTRY TRENDS POINT TO AGRO TYRE MARKET GROWTH IN SOUTH AMERICA
AGRO PRODUCE TREND AGRO EQUIPMENT PRODUCTION AGRO TYRE MARKET
% of 2013 tyre market volumes
62%
Used by small/low-tech tractors. Market
in downtrend.
Fast growing, improving technology
Higher value and technological
content
14% 24%
2012A 2017E
>189 HP <189 HP
1.4
2012A 2017E
2.0
PRODUCT MIX
Free Rolling Implement Traction
CAGR ’13-’17 +6%
62 88
10 20
New technology and profitable
products
72 108
• Total Agro equipment production cagr ‘13-’17 +6.9%
• Big Power equipment production cagr ‘13-’17 +13.4%
16
SOUTH AMERICA AGRO: PIRELLI STRATEGY
PIRELLI ACTIONS Consolidate #1 position with large gap on
#2, in a highly concentrated market
• Investments in local production capacity
• Drive the radialization in the replacement market
• Technology leader, conducting the innovation
• Testing on local crops
• Local R&D
OEM Partners • Tyre customized for specific local applications • Locally made components preferred • Co-development with local suppliers • Quick renewal of agro machines, with
government incentives.
Market needs • Best Technology to increase agricultural productivity • Low soil compaction • Special Performance to Special Crops • Reliability under severer applications • Off-road Performance
ALLOCATION OF INDUSTRIAL CAPEX
<0,3 €/bln
Europe APAC MEAI South America TOT
CAPEX INDUSTRIAL BUSINESS 2014-2017
Capacity
Mix & quality
Others
19%
31%
50%
16% 9% 21% 54% TOT 100%
Truck
Agro
Steelcord • Capacity growth (mln pcs) from 6.2 in
2013 to 6.8 in 2017:
• Truck All Steel: Brazil, Turkey, Egypt
• Agro Brazil
• Truck All Steel plants upgrade to 01 Series technology
• Maintenance, Health & Safety, others
Industrial Business ROI at ~27% in 2016, +4pp vs 2013
17
KEY PROJECTS
Retail & other
STARTING PHASE 2 OF EFFICIENCY PH
ASE
2 O
PTIM
IZAT
ION
# of Plants
Factory size (Saturation %)*
Productivity improvement (kg / manhour)
Scrap Reduction (% index)
Decomplexity (% index)
2011 2013 2017
6 5
100
100
100
100
113
85
60
50% already achieved in 2012 - 2013
Manufacturing Efficiency gains
<90%
100% Low Cost
* All Steel
124 93%
132 >95%
80 €/Mln in 2012 - 2017
40 €/Mln in 2014 - 2017
PHAS
E 1
FOO
TPR
INT
18
AGENDA
PIRELLI INDUSTRIAL BUSINESS TODAY
MARKET SCENARIO
INDUSTRIAL BUSINESS STRATEGY
TARGETS
19
2013-2016 INDUSTRIAL BUSINESS TARGETS
~14% >13% >13.5%
CAGR 2013 - 2016
Price/mix
Forex
+4%/4.5%
-2.5%/-3.5%
Total >6%
+4.5%/5.5%
2014 Δ yoy
2013 Δ yoy
+9%/9.5%
-9%
+2.5%/3.0%
+4%/4.5%
<6%
+4.5%/5.5%
+2.5%/3.5%
-2.5%/-3.5%
14% 12% 12% <1.7
2014
>1.7
2013 2016
~2.0
Agro
20
REVENUES EBIT MARGIN PRE RESTRUCTURING COSTS
€/Bln
CAGR ’13-’16 >6%
2014 2013 2016
Volume
DISCLAIMER
21
This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s current expectations and projections about future events and does not constitute an offer or solicitation for the sale, purchase or acquisition of securities of any of the companies mentioned and is directed to professionals of the financial community.
These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company. \
Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those expressed in or implied by these forward looking statements as a result of various factors, many of which are beyond the ability of Pirelli & C SpA to control or estimate precisely. Consequently it is recommended that they be viewed as indicative only.
Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation.
Pirelli & C. SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Pirelli & C. SpA business or acquisition strategy or to reflect the occurrence of unanticipated events.
Statement
The Manager mandated to draft corporate accounting documents of Pirelli & C. SpA. Francesco Tanzi, attests – as per
art.154-bis. comma 2 of the Testo Unico della Finanza (D.Lgs. 58/1998) – that all the accounting information contained in this
presentation correspond to the documented results, books and accounting of the Company.
STRATEGY IN ACTION
MAURIZIO BOIOCCHI
PRODUCT
PIRELLI R&D TODAY
1
• Focus on leading-edge performance • R&D budget fully devoted to Premium and top-end in the Industry (R&D budget = 7% Premium turnover)
• Recognized technological leadership in the Moto Business
• Fully renewed 01 Truck platform being deployed in all segments
• Complexity management
• Leadership on Prestige and Premium Car Makers
• Proven ability to deliver efficiency gains
• Market share Prestige >50% worldwide
• Market share Premium ∼20% in Europe
• >70% of the three-year R&D efficiency plan already achieved in 2 years
• Customer-centric organization • 10 R&D centers worldwide coordinated by Milan HQ
• Global team of more then 1,400 engineers (R&D and Quality)
KEY STRENGTHS 2013 PERFORMANCE
DEVELOPMENT AREAS
Speed up Car innovation pace
WHERE WE STAND: MAIN ACHIEVEMENTS 2011-2013
2
• 18 major projects for new products in 2011-2015
New Tourance Next (Test winner 2013 in Enduro Street)
Angel GT (Test winner 2013 in Sport Touring)
Cyber Fleet on heavy truck since November 2012 Cyber car tyres available from 2014
New Scorpion Verde, AS and Ice all with over 30% less rolling resistance vs. old products
20 new lines (10 of which already launched) confirmed in 2011-2015
W01: Range 22.5’’ and 17.5’’ marked «snow flake» (severe winter conditions)
R:01 aligned with best competitors
G:01 Traction across the life-cycle +50%
18% in 2013, 30% in 2014
STRATEGIC RATIONALE R&D OPERATING TARGETS ACHIEVEMENTS
Complete the successful Truck product portfolio with specialties
Reinforce technological leadership in the Moto Business
Boost our “green attitude”
Electronics add-ons
• Winter: +20% snow traction
• Regional: +30% retreadability
• Offroad: +25% performance off
• Scorpion: 30% reduction in rolling resistance
• 30% silica from organic sources in Latam in 2015
• Moto enduro: best wet performance
• Moto sport touring: highest milage
• Cyber tyre available from 2012, second generation from 2015
OUR NEW ENDEAVOURS FOR THE FUTURE
3
• Increasingly diverse requirements (low rolling, mileage, noise), without negative trade-offs over “usual” performance
• Customized offer and variety increase
Customer sophistication
• OEMs: growing global footprint, requiring product and technology consistency
• The Replacement market: need for differentiated regional products
Two-fold international challenges
• Cost efficiency in segments with rising competition Value creation in mid-range
products
EXTENSIVE REQUIREMENTS FROM MANY SOURCES
4
Market requirements
• Rolling resistance • Mileage • Retreadability • Acoustic comfort
Environment & Legislation • Aromatic oil-free
compounds • Vehicle gas
emissions • Noise
507090
110130
Rolling Resistance
Mileage Wet
Noise Dry
507090
110130
Retreadability
Comfort
Handling
Braking
Weight
Rolling Resistance
Noise
Mileage 507090
110130
Mileage
Noise
Comfort
Handling
Wet
Braking
Other variables
• Competition • Fuel cost • Raw material prices
TRUCK MOTO
CAR HP/SUV
TECHNOLOGY AND INNOVATION PORTFOLIO
5
CAR TRUCK MOTO
Materials Filler
Self sealing
Polymers
Chemicals
Noise cancelling Durability/retreadability
Cyber tyre
Automatic visual inspection
Continuous mixing MIRS extensions
Reinforcing Materials
Energy loss minimization
Product performance design
Processes/ Machinery
Tech
nolo
gy r
oadm
ap
Retreadability
Comfort
Handling
Braking
Weight
Rolling Resistance
Noise
Mileage 50
100
150Rolling Resistance
Mileage Wet
Noise Dry
50
100
150Mileage
Noise
Comfort
Handling
Wet
Braking
50
100
150
PRODUCT LINE-UP
6
• 14 product lines, of which 6 Winter
• 6 OE driven • 8 aftermarket only • 9 global (worldwide) • 5 regional (localized)
• 6 lines will include «specialties» (Runflat, Seal Inside, Noise Reduction)
IN 2014-2017 TIMEFRAME:
CAR TRUCK MOTO
• 10 new Pirelli lines • 11 new Metzeler lines • Best in class for mileage and wet grip
• Performance and technology leadership in Europe
• New HR radial range for 250-350cc motorbikes (Latam)
• Metzeler Custom Touring for North America
• 11 new product lines • New Regional with further mileage
improvement and retreadability
• Highway and City product lines with rolling resistance in line with top competitors
• Completion of the winter range marked “severe winter conditions”
• Focus on the Retread Business and Customer Service (Cyber)
#1 development partner
for Top OEMs
Build upon the 01 Series success
worldwide
Outdistancing competitors
in technology and performance
• Geometry: tread and belt optimization
• Materials: tread and internal compounds
• Tyre weight reduction • Design: supported by predictive
modelling
• Rolling resistance reduction: up to 20%
7
ROLLING RESISTANCE IMPROVEMENT: FROM GREEN TO BLUE
…with an average mileage of 15K Km/year: • - 6% fuel consumption • - 156Kg CO2 emissions • >300 € potential savings in 3 years
Considering the size 235/45-17 97W for a medium sedan…
• On average 15 - 20% reduction in rolling resistance by 2017 • Implementation of Tyre labels in Brazil and USA with top grading
TARGET
8
NOISE IMPROVEMENT: THE PIRELLI NOISE CANCELLING SYSTEM
• First supplier to Audi with a homologated noise cancelling solution
• Special Sound Absorbing Sponge
• Noise reduction up to 2 - 3 dB(A), depending on speed (up to 50% of vehicle interior noise)
• Potentially lower weight and fuel consumption due to the reduction of insulating materials in the car
PNCS being deployed in 25% of large-size UHP range by 2017
P ZERO 275/30ZR21 for Audi RS7
P ZERO 285/30ZR21 for Audi RS6
TARGET
9
PIRELLI GLOBAL PARTNER FOR PREMIUM OEMs
PREMIUM OEMs CAR PRODUCTION
• Organizational matrix following our customers globalization
• Top technology available globally • All plants audited and homologated by OEMs
Europe
Extra Europe
Europe
Europe
2014E 2011A 2004A
2014E 2011A 2004A
2014E 2011A 2004A
Extra Europe
Extra Europe
Premium OEMs from non-European factories are forecasted up to 50% by 2017
16% 33% 41%
9% 25% 36%
18% 25% 34%
Source: IHS
10
GROWING CUSTOMIZATION AND FITMENT OFFER
Of which with OE markings
2014E 2011A 2004A
275
80% 100
70% 40%
FOLLOWING OUR TOP CUSTOMERS REQUESTS…
…TO PAVE THE WAY FOR AFTERMARKET PULL-THROUGH
4 Tyre fitments*
BMW X3, old model
Mercedes C-class, old model
8 Tyre fitments*
BMW X3, new model
22 Tyre fitments*
Mercedes C-class, new model
20 Tyre fitments*
* Pirelli fitments
11
KEEP IT SIMPLE: THE PIRELLI APPROACH
DESIGN TO COST DE-COMPLEXITY PLANT SPECIALIZATION
• Process friendly design • Higher versatility of compounds
and reinforcement materials • Design to reduce weight
• Product portfolio rationalization • Green cover optimization • Components standardization • Material portfolio management
• Clear plant mission definition • Product • Process • Material portfolio
• Lot size optimized for production
INTERFUNCTIONAL PROJECT MANAGEMENT
R&D DOMAIN MANUFACTURING DOMAIN
EFFICIENCIES FROM R&D
12
€/mln
2012-2014 cumulative
2012A-2013E
75
Materials
Weight
Design 50%
30%
20%
>50
38%
27%
35% Materials
Weight
Design
2014-2017 cumulative
180
40%
25%
35%
2013-2017 PLAN 2011-2014 PLAN
>70% OF 12-14 SAVINGS OBTAINED IN JUST 2 YEARS
MUCH STRONGER EFFICIENCIES
F1 CARRY OVER
• Grip • Wear • Handling • Rolling resistance
• F1 simulation analytics and modeling
• Indoor predictive method
• Tyre behaviour modeling • Tyre impact on the road • Energy absorption • Temperature generation
Thanks to: We improved our knowledge about: And we will be able to transfer new specifications to our top Pzero line improving:
FROM F1 EXTREME COMPETITION…
…TO TOP PERFORMANCE TYRES “IN THE REAL WORLD”
13
DISCLAIMER
14
This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s current expectations and projections about future events and does not constitute an offer or solicitation for the sale, purchase or acquisition of securities of any of the companies mentioned and is directed to professionals of the financial community.
These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company. \
Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those expressed in or implied by these forward looking statements as a result of various factors, many of which are beyond the ability of Pirelli & C SpA to control or estimate precisely. Consequently it is recommended that they be viewed as indicative only.
Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation.
Pirelli & C. SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Pirelli & C. SpA business or acquisition strategy or to reflect the occurrence of unanticipated events.
Statement
The Manager mandated to draft corporate accounting documents of Pirelli & C. SpA. Francesco Tanzi, attests – as per
art.154-bis. comma 2 of the Testo Unico della Finanza (D.Lgs. 58/1998) – that all the accounting information contained in this
presentation correspond to the documented results, books and accounting of the Company.
STRATEGY IN ACTION
GIULIANO MENASSI
MANUFACTURING
1
AGENDA
PIRELLI MANUFACTURING TODAY
NEW OPPORTUNITIES IN RUSSIAN OPERATIONS
ROUTE TO AN IMPROVED MANUFACTURING EFFICIENCY
CAPEX AND CAPACITY UP TO 2017
2
PIRELLI MANUFACTURING TODAY
• Low-cost footprint at industry-leading standards
• Opportunities in Russian factories
• Effective management of growing complexity linked to the sophistication of our product portfolio
• Next phase of industrial efficiency plans
DEVELOPMENT AREAS
• Proven ability to deliver efficiency gains
• Assets already in place to serve Premium demand
• Technological edge of patented production process
KEY STRENGTHS
• 100% of Industrial and 78% of Consumer capacity in low-cost countries
• 90% of the three-year efficiency plan already achieved in 2 years
• 69 million pieces of total car capacity, 48% Premium, >10% with clear opportunities for value upside
• 22 plants globally, most of them focused on Premium growth
2013 PERFORMANCE
Germany and UK Premium conversion
3
ALREADY BEYOND THE PEAK OF CAPEX CYCLE
Capex/Sales trend and key capacity projects
Spain Closure
Romania Premium expansion
Italy Car Closure (Settimo)
Mexico Startup
China Premium expansion
Russia JV Upgrade
Premium conversion Italy Car (Polo)
Italy Truck Closure (Settimo)
Today manucfacturing facilities are right-sized and advantageously located, thanks to past investments. Ability to take advantage of market swings to restructure operations.
Already past the peak of investments, paving the way for stronger cash generation.
China Moto Startup
7.6%
5.4%
8.5%
11.0%
7.8%
6.6%
2008 2009 2010 2011 2012 2013
4
RE-SHAPED MANUFACTURING ASSETS
New Valuable capacity
Non Premium Capacity
Cut
2008 Consumer Capacity
2013 Consumer Capacity
Premium Capacity,
New + Conversion
Russia
2
-20 69 19
60
23% 48%
8
o/w 2
Premium
57% 78%
6.1 6.2
64% low-cost 60% new plant
of which low-cost
90% 100% of which low-cost
Capacity Evolution
Delocalization
Delocalization
Mln tyres / year
CONSUMER
INDUSTRIAL
STRONG TRACK RECORD IN MANUFACTURING EFFICIENCIES
2012E
120 130
2012A
158
70
2013E 2013-2014 cumulative
228
5
€/Mln
Raw Materials
Allocation to Low-Cost Plants
SG&A & Fixed costs
Labour Productivity & Scale
90% of 2012-2014 savings obtained in only 2 years
• Scrap efficiency and specs simplification
• Labour efficiency
• Optimization in SG&A
• >83% of low-cost production in 2013, +6.1 pp vs. 2011, +2 pp vs. 2013 target
250
25% 37% 16%
40%
9%
41%
8%
24%
21%
3%
27%
15% 45%
19%
49%
21%
6
PIRELLI MANUFACTURING TODAY
ROUTE TO AN IMPROVED MANUFACTURING EFFICIENCY
CAPEX AND CAPACITY UP TO 2017
NEW OPPORTUNITIES IN RUSSIAN OPERATIONS
AGENDA
Strong mix capability improvement
RUSSIAN FACTORIES UPDATE
Kirov
Voronezh
2012 2015
5.9 6.9 (100% ≤16”)
2.0 2.0
7.9 8.9
Mln pcs
OLD PLAN CAPACITY NEW PLAN CAPACITY
2013 2017
6.5
2.0
8.5
6.5
4.0
10.5
(100% ≥17”)
• Factories in line with our plan, no more investments in additional capacity • Focus on saturation, also thanks to European export from Kirov • Improvement through rationalization and efficiencies
• Kirov already ‘’best-in-class’’ among Pirelli factories in terms of transformation costs
• Manufacturing Medium range products, but easy Premium conversion, if needed
• Voronezh in start-up phase
• 100% of Premium range products
• Both factories are certified by Car makers and ready to manufacture European OE (VW, Ford, Daimler, Renault, Nissan)
7
8
PIRELLI MANUFACTURING TODAY
NEW OPPORTUNITIES IN RUSSIAN OPERATIONS
CAPEX AND CAPACITY UP TO 2017
ROUTE TO AN IMPROVED MANUFACTURING EFFICIENCY
AGENDA
9
KEEP IT SIMPLE: THE PIRELLI APPROACH
DESIGN TO COST DE-COMPLEXITY PLANT SPECIALIZATION
• Process friendly design • Higher versatility of compounds
and reinforcement materials • Design to reduce weight
• Product portfolio rationalization • Green cover optimization • Components standardization • Material portfolio management
• Clear plant mission definition
• Product
• Process
• Material portfolio
• Lotsize optimized for production
INTERFUNCTIONAL PROJECT MANAGEMENT
R&D DOMAIN MANUFACTURING DOMAIN
MAIN ACTIONS COMPLEXITY INDICATORS
10
DE-COMPLEXITY PROGRAM
• Bill of materials items reduction
• Product standardization
• New semi-product form “Tool box”
• “Design to Cost”
• Diversify products as late as possible in the value chain
• From full ‘’Local to Local’’ to regional allocation opportunities within ‘’Technological Clusters’’
• Production planning using Smart Scheduling Techniques
• Processes & Equipment standardization program
• Common standard procedures and people skills alignment
2013E 2017E
100 80
100 89
PRODUCT (Active
components)
ALLOCATION/ PLANNING
(Product turnover)
PROCESS (Machine variety)
100
76
2013E 2017E
2013E 2017E
MAIN ACTIONS PRODUCTIVITY IMPROVEMENTS
CAR
TRUCK
MOTO
11
EFFICIENCIES: PRODUCTIVITY IMPROVEMENTS
100 122
100 113
100 114
De-complexity • From ‘’local to local’’ to technological clusters • Machine standardization • Production planning
(kg/manhour)
Cell organization • Designed to increase productivity and
flexibility
POSS - Pirelli Operation Steering System • Acceleration of day-to-day management
efficiency • Accountability down to blue collar level
New machinery & process rationalization • Work on Lean manufacturing • Process streamlining
PMS – Pirelli Manufacturing System • Kaizen* weeks (e.g.: set-up time reduction) • Manufacturing Academy
* Kaizen: Kai – Zen = Change – Better = Continuous improvement
2013E 2017E
2013E 2017E
2013E 2017E
MAIN ACTIONS SCRAP REDUCTION
12
EFFICIENCIES: SCRAP REDUCTION
De-Complexity • Simplify Raw Material Portfolio
• Standardization of components
• Recycling strategy
70
85
78
100
100
100
Alignment to close Premium gap • Investments on process capability
improvement
Material utilization efficiency • Exploit potential of Internal & External
Benchmarking
PMS – Pirelli Manufacturing System • Kaizen* weeks (e.g.: scrap reduction)
• Quality Academy
CAR
TRUCK
MOTO
(% index)
CAR
TRUCK
MOTO
2013E 2017E
2013E 2017E
2013E 2017E
* Kaizen: Kai – Zen = Change – Better = Continuous improvement
SUCCESS THROUGH PEOPLE ENGAGEMENT
• Increase the level of skills needed within Operations
• Ensure the right level of multi-valence and multi-competence
• Unite 22 plants in 4 continents through a common language & standard approach in Operations based on:
• Standards • Continuous Improvement • Engagement
Dedicated trainers
Cycle time reduction
New plant standard training path
Standard definition
Machine efficiency
Pirelli Operation Steering System
• 4 training actions per person / per year • 7 days of training per person / per year • 100% people involved by 2017
PIRELLI MANUFACTURING SYSTEM OPERATIONS ACADEMY
13
Lean organization
CAR MANUFACTURING FOOTPRINT – 2017 VISION
Non Premium Premium
MISSION (2013-2017) DRIVERS
High Cost Countries
Low Cost Countries
Cost competitiveness • Process standardization
• Efficiency
• Automation
• De-complexity
"Premiumization" • Process modernization
• Capacity utilization
78% 81%
4.4 Mty 5.5 Mty
2013 2017
LOW COST COUNTRIES CAPACITY
MIRS
Romania
Venezuela
China
Kirov
Argentina
Mexico
Germany Bahia
Campinas
Italy
UK
Izmut
Mln Tyres / year
Voronezh
14
AVERAGE CAPACITY
MANUFACTURING EFFICIENCIES - SUMMARY 2013-2017
15
CUMULATED EFFICIENCIES
~320 €/Mln
6%
8%
56%
30%
MATERIALS • Scrap reduction & Recycling strategy • Specification and Design to Cost (~45% of total material efficiencies)
ALLOCATION MIX • Higher volume allocated to low cost plants
ENERGY • Energy efficiency action plans worldwide • Renewable energy installations in US and Brazil
LABOUR • Productivity from organization and equipment efficiency
improvements
16
ROUTE TO AN IMPROVED MANUFACTURING EFFICIENCY
CAPEX AND CAPACITY UP TO 2017
AGENDA
PIRELLI MANUFACTURING TODAY
NEW OPPORTUNITIES IN RUSSIAN OPERATIONS
2013 - 2017 RESOURCES ALLOCATION
Destination
Business
Geography
2013 2014 2014-2017
~400 <400 <1,600
Capacity
Others
Mix & Quality
35% 32% 30%
36% 36% 37%
29% 32% 33%
Consumer
Industrial
79% 75% 82%
21% 25% 18%
High-Cost Countries 35% 31% 27%
65% 69% 73%
€/Mln
Low-Cost Countries
17
2013 - 2017 PRODUCTION CAPACITY
Premium
17E
81
63%
16E
78
59%
15E
76
53%
14E
72
52%
13E
69
48%
17E 16E 15E 14E 13E
6.8 6.7 6.7 6.5 6.2
in low-cost Countries 78% 80%
in low-cost Countries 100% 100%
Mln tires / year Mln tires / year
INDUSTRIAL CAPACITY CONSUMER CAPACITY
18
Non Premium
SUSTAINABLE PERFORMANCE
* Value normalized on tons of produced tyres
• Target to reduce the accident frequency index (IF) by 60% in 2015 from its 2009 level reached 2 years in advance
• New target: 90% accident frequency index (IF) reduction by 2020 vs 2009 – Frequency Index ≤0.2
• Safety Culture: global extension of “Excellence in Safety” program supported by “DuPont Sustainable Solutions” and Behavior Based Safety (BBS) programs
• Investment focus on Machinery Safety, Industrial Hygiene, Ergonomics
• Energy consumption* and CO2 emissions* strongly decreased and continuous improvement is expected to continue to 2020
• Target set in 2010 of -15% by 2015 vs 2009 for both energy and CO2 postponed to 2107 and 2020, respectively, due to economic slowdown for energy, and disproportionate growth of productive volume in carbon intensive markets for CO2
• New projects on renewables to balance the growth of CO2 emissions in carbon intensive markets
• Water withdrawal* trend strongly decreased and improvement is
expected to continue until 2020, with a target of -50% by 2017 and of -58% by 2020
• Target set in 2011 of -70% by 2015 vs 2009 is postponed because of economic slowdown and investment rationalization
• Target for waste recovery rate on track (85% by 2015) • Target no waste to landfill by 2020 (recovery rate ≥95% by 2020)
19
DISCLAIMER
20
This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s current expectations and projections about future events and does not constitute an offer or solicitation for the sale, purchase or acquisition of securities of any of the companies mentioned and is directed to professionals of the financial community.
These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company. \
Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those expressed in or implied by these forward looking statements as a result of various factors, many of which are beyond the ability of Pirelli & C SpA to control or estimate precisely. Consequently it is recommended that they be viewed as indicative only.
Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation.
Pirelli & C. SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Pirelli & C. SpA business or acquisition strategy or to reflect the occurrence of unanticipated events.
Statement
The Manager mandated to draft corporate accounting documents of Pirelli & C. SpA. Francesco Tanzi, attests – as per
art.154-bis. comma 2 of the Testo Unico della Finanza (D.Lgs. 58/1998) – that all the accounting information contained in this
presentation correspond to the documented results, books and accounting of the Company.
FINANCIALS
MAURIZIO SALA
1
PIRELLI BY 2017: A CLEAR SET OF TARGETS IN MIND
Premium attitude, Premium returns
>15% EBIT Margin before restructuring costs (13% in 2013)
~ 28% ROI excluding Financial participation (+8pp vs 2013E)
0,3x Net Debt / Ebitda (1.2x in 2013)
2
GROW IN HIGHEST VALUE – ADDED SEGMENTS ACROSS BUSINESSES
EXTRACT VALUE FROM SELECTED NON PREMIUM SEGMENTS
CONTINUE TO DELIVER SUBSTANTIAL EFFICIENCY GAINS
INVEST IN SELECTED PROJECTS WITH HIGHEST RETURN
MAINTAIN A TIGHT CONTROL OF WORKING CAPITAL
1
2
3
4
5
OUR WAY TO 2017
3
TYRE TARGETS
76%
24%
75%
25%
14%
73%
~15%
27%
>13.5%
Volumes
Cagr 2013-2016
>5%
Price/mix +3%/4%
Forex -2%/-3%
4.5%/ 5.5%
-7%
+3.5%/4.5%
2014 Δ yoy
2013 Δ yoy
>2% >6% ~ 6.5% Total
6%/ 6.5%
+3%/3.5%
-2%/-3%
2014E 2013E 2016E
74%
26%
2014E
6.6
73%
27%
2013E
~6.2
73%
27%
Consumer
Industrial
2016E
7.5 ~6.5%
>6%
~6.5%
€/bln
REVENUES EBIT MARGIN PRE RESTRUCTURING
CAGR '13-'16
2013 - 2016 TYRE EBIT BRIDGE
4
2013 Ebit before
restructuring costs
Price/Mix Volumes Raw Materials
Efficiencies Cost of inputs
Depreciation & Others
Forex 2016 Ebit before
restructuring costs
Index
100
68
44
(28) 33 (45)
(21) (17) 134
5
CONSUMER* TARGETS
* Car + Moto + Controlled distribution
Volumes
Cagr 2013-2016
>6%
Price/mix 3%/3.5% Forex -2%/-3%
4.5%/5.5%
-6%
3.5%/4.5%
2014 Δ yoy
2013 Δ yoy
2%/3% ~7% ~ 6.5% Total
5%/ 5.5%
3%/3.5%
-2%
Premium Volumes ~ 12% ~ 10% >13%
~6.5%
€/bln
REVENUES EBIT MARGIN PRE RESTRUCTURING
>14% >13.5%
2014 2013 2016 2014
~ 4.9
2013
>4.5
2016
5.5 >15.5% CAGR '13-'16
2013 - 2016 CONSUMER EBIT BRIDGE
6
2013 Ebit before
restructuring costs
Price/Mix Volumes Raw Materials
Efficiencies Cost of inputs
Depreciation & Others
Forex 2016 Ebit before
restructuring costs
Index
100 47
62 (29) 39 (44)
(21) (14) 140
7
>13% ~14% >13.5%
Volumes
Cagr 2013-2016
+4%4.5%
Price/mix +4.5%5.5%
Forex -2.5%-3.5%
+4%4.5%
-9%
+4.5%5.5%
2014 Δ yoy
2013 Δ yoy
+2.5%3.5% <6% >6% Total
+9%9.5%
+2.5%/3%
-2.5%-3.5%
2014 2013 2016 2014
>1.7
2013
<1.7
2016
~2.0 >6%
€/bln
REVENUES EBIT MARGIN PRE RESTRUCTURING
INDUSTRIAL* TARGETS
* Truck + Agro + Steelcord
CAGR '13-'16
2013 - 2016 INDUSTRIAL EBIT BRIDGE
8
2013 Ebit before
restructuring costs
Price/Mix Volumes Raw Materials
Efficiencies Cost of inputs
Depreciation & Others
Forex 2016 Ebit before
restructuring costs
Index
100 34
85
(25) 16 (45)
(20)
(24) 121
2013 2014 Headwind
~2,700 ~2,600 +20 Natural Rubber TSR20 ($/ton)
Butadiene EU (€/ton)
FX (R$,TRY,EGP,
US$)
Average Cost of Goods Sold
Brent Oil ($/barrell)
2015/ 2016
flat
109 111 (15)
1,300 1,300 +5
(130)
€/mln (2014 vs 2013)
110/114
1,500/1,600
TOTAL (120)
9
BREAKDOWN 9M 2013
Chemicals
Natural Rubber 25%
based on purchasing cost
Synthetic Rubber 28%
Carbon Black 13%
16%
Steel 11%
Textile 7%
Raw Material cost on sales: 38%
RAW MATERIALS
GUIDANCE
10
FURTHER EFFICIENCIES TO STRENGTHEN OUR COMPETITIVENESS
2014 - 2017 plan worth 4pp on 2017 revenues (1pp per annum)
Materials
~320
~350
Industrial and Product efficiencies SG&A Total
Efficiencies
56%
Labour 30%
Expenses 8%
Allocation Mix 6%
~30
Optimization of Commercial structure
Reduction of Corporate and Regional G&A
11
MATURE
SOUTH AMERICA
RDEs (except LATAM)
2013E 2016E 2012A
40%
40%
<45%
>35%
20%
~35%
>35%
<30%
2013-2016 EBIT CAGR
Premium development drives profitability increase
Confirming leading position in market and profitability; stable mid-teen Ebit margin across the period
Profitability improvement sustained by Premium market development and higher efficiency, mainly in Europe
20%
TOTAL
+22%
+3%
+12%
+10%
PROFITABILITY BY REGION
RDEs
South America
Mature
12
FOREX*
COST OF DEBT
TAX RATE
OPERATING WORKING CAPITAL
*based on IHS Global Insight estimates October 2013
2014 2015 onwards
€/$ 1.29
$/R 2.30
stable/slight USD devaluation
slight devaluation (2% per annum)
<6.5% across the plan horizon due to exposure of the Debt to high interest rate countries
36% (-1pp vs. 2013) 35% in 2016
<10% on sales across the time plan horizon
MINOR BUSINESSES EBIT ~-20 €/mln, discounting 10 €/mln of restructuring
Breakeven
D&A +20 €/mln per year in 2014-2017
ADDITIONAL ASSUMPTIONS OF 2014 - 2017 PLAN
CASH FLOW: NEW VS OLD PLAN
Net Debt/ EBITDA
Net Debt/ EBITDA
13
2011 – 2014 PLAN
2014 – 2017 PLAN
~ 0.5X Δ vs. 2011-2014 Plan
2015E NFP
<0.2
Financial & Fiscal Charges
0.8
Operating Cash Flow
-0.9
2011E NFP
~0.75 <0.6
>0.5
Financial & Fiscal Charges
1.1
Operating Cash Flow
2013E NFP
~1.1
Dividends
0.3
Russia asset
acquisition
0.8 -0.9
0.74
0.1 0.3
0.2
2016E NFP
<1.4
Prelios
0.2
Däckia acquisition
~0.9X
∆ Ebit = ∆ Capex
<0.6 excl. Prelios ~0.75 incl. Prelios
Dividends
< -2.4
1.4
Divid.
0.15
Financials assets
disposal
2017E NFP
~0.5
~ 0.3X
< -2.1
Financial & Fiscal Charges
Operating Cash Flow
2011E NFP
Financial & Fiscal Charges
Operating Cash Flow
2013E NFP
Dividends Russia asset
acquisition
~0.9X
>0.5
~0.4X
DISCLAIMER
14
This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s current expectations and projections about future events and does not constitute an offer or solicitation for the sale, purchase or acquisition of securities of any of the companies mentioned and is directed to professionals of the financial community.
These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company. \
Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those expressed in or implied by these forward looking statements as a result of various factors, many of which are beyond the ability of Pirelli & C SpA to control or estimate precisely. Consequently it is recommended that they be viewed as indicative only.
Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation.
Pirelli & C. SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Pirelli & C. SpA business or acquisition strategy or to reflect the occurrence of unanticipated events.
Statement
The Manager mandated to draft corporate accounting documents of Pirelli & C. SpA. Francesco Tanzi, attests – as per
art.154-bis. comma 2 of the Testo Unico della Finanza (D.Lgs. 58/1998) – that all the accounting information contained in this
presentation correspond to the documented results, books and accounting of the Company.
REGIONAL OVERVIEW APAC
• Market share in value segments: • Premium ≥17” high single digit (mid teens in China) • SuperPremium ≥18” double digit (high teens in China)
• 25% of net sales from new products: Cinturato P1 and Scorpion Verde All Season
• ~ 2.000 Pirelli branded shops in China • #2 in Brand Consideration among owners of Premium cars • F1 broadly leveraged to engage customers, end users and the media
• Target FY 2013E:
• Net Sales: <500 mln € • EBIT margin: High teen
• Contribution to Pirelli FY 2013E:
• Premium OEMs partnership leading to strong pull-through effect on Replacement
• Wide Car and SUV product range
• State of the art plant designed to produce 100% Premium
• Retail development backed by Geo-marketing tools
• Brand awareness thanks to F1, OEM partnerships and Retail visibility
• Partnership with more Premium OEMs
• Further expansion of the Retail network
• Extension of geo-marketing approach in all other APAC markets
• Further development of digital activities
PIRELLI TODAY IN APAC
KEY STRENGTHS FY 2013 E PERFORMANCE
DEVELOPMENT AREAS Net sales
8%
Consumer
Net sales mix
Industrial
12%
88%
EBIT
1
THE MACROECONOMIC CONTEXT
Real GDP growth (% change)
China • Consistently growing economy slightly slowing
down • Government still evaluating corrective
measures to speed up the economic growth Japan • GDP growth slowdown expected at 1% in 2017 • Devaluation of JPY vs. USD (-8.2% 2017 vs.
2013) Australia • Positive GDP growth trend, reaching 3.2% in
2017 • Devaluation of AUD vs. USD (-4.8% 2017 vs.
2013)
Other markets • Far East markets with positive GDP trend, with
an average increase of 4/5%
MAIN INDICATORS (CHINA)
7.8 7.5 7.5
8.3 7.3
CPI Inflation (% change)
3.4 2.5 2.7 3.0 3.4 3.2
7.8
Currency trend (CNY/USD)
6.0
14 E
6.2
13 E
6.3
12 A 15 E
5.9 5.6
17 E 16 E
5.7
Source: IHS
2
THE VEHICLE PARC
• Premium/Prestige segments with 12% CAGR ’13-’17
• Premium OEMs lowering prices with markets entering more mature state
• China implementing car registration restrictions in main cities
• Truck market stagnating due to slow- down of economic growth and to overcapacity
• Premium manufacturers still not present in China
• New Registrations of Moto >249cc expected to grow at 5.1% CAGR to 828k in 2017 (from 678k in 2013)
• Dominance of transportation and commuting
• Recreational market still very small
KEY FEATURES
MOTO*
CAR
TRUCK
New registrations
Mln pieces
New registrations
New registrations
12A
12A
12A
254
30.1
249
29.0
1.0
11.2
13E
13E
13E
275
31.7
271
30.8
1.1
11.9
14E
14E
14E
297
34.1
293
32.6
1.0
12.7
15E
15E
15E
321
36.4
317
34.6
1.0
13.3
16E
16E
16E
347
38.3
341
36.3
1.0
13.8
17E
17E
17E
373
40.0
366
38.2
1.0
14.3
*Moto > 100cc
CAGR 13-17
+8.0%
+6.0%
+7.8%
+4.7%
+5.5%
3
THE TYRE MARKET
MOTO
CAR
TRUCK ALL STEEL
KEY FEATURES
2011-2014 PLAN 2013-2017 PLAN
+6.0%
+1.7%
+4.8%
Tyre Market Premium* %
• Premium segment increasing, reaching 17% in 2017 (supported by strong increase of OE market, Premium share 23% in 2017)
• Competitive scenario: • X-ply: dominance of
local manufacturers • Pirelli 2nd player in
Radial
• All steel share 85% (China) • Retread still weak in the
region
OE + Replacement, Mln pieces
13E
13E
13E
440
13%
192
68.9
14E
14E
14E
464
14%
206
70.0
15A
15A
15A
490
15%
214
71.4
16E
16E
16E
510
16%
228
72.7
12A
12A
12A
421
13%
182
67.8
17E
17E
17E
530
17%
242
73.9
*Premium ≥17"; Old plan restated from speed code to rim size
CAGR 13–17
+11.7%
4
TARGET 2013 - 2016
REVENUE GROWTH
16E 13E
<500
12A
420
14E
575
~770 CAGR ’13-’16
+15.9%
CAPEX '14-'17
• Top line growth mainly driven by improved Premium position
• Profitability driven by volume growth and favourable mix
EBIT MARGIN*
~200 Mln
Mid teen
€/Mln
High teen
*Pre restructuring
5
KEY PROJECTS
Provide top-end retail support (development / maintenance, training, POS material) and expand retail network in China
RETAIL NETWORK
Develop new OEM partnerships and increase Car Dealers penetration
OEM PARTNERSHIP
Retail Commercial development supported by geo-marketing in South Korea (already in progress), Thailand, Malaysia, Indonesia, Vietnam
GEOGRAPHICAL EXPANSION
Engage Consumers on Digital, leveraging OEMs and F1 involvement
CONSUMER
Becoming a very profitable billion dollar region
6
OEM PARTNERSHIP
~500
From supplier to strategic partner (joint development, co-branding and marketing activities)
OE intelligence and geo-localization to exploit the full pull-through effect on Replacement
AND MANY OTHERS ON THE WAY…
*Indexed 2012 = 100
X1 5 Series
Q5 Q3
GLK E-Class
3 Series
A6L
OEM SALES VOLUMES* CHINA OE PRESENCE
ROLE WITH OEMS IMPACT ON REPLECEMENT
200
2013E
100
2012 2017E
7
RETAIL NETWORK
• Growth and exploitation of geo-marketing expertise
• Continuous development of retail network, with qualified service
POS IN CHINA
~2,000
13E
~1,500
12
~4,500
17E
>3,000
14E
8
ESSENTIALLY, FOR 2017
EXPLOIT PREMIUMNESS IN ALL SEGMENTS AND ALL MARKETS
9
DISCLAIMER
10
This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s current expectations and projections about future events and does not constitute an offer or solicitation for the sale, purchase or acquisition of securities of any of the companies mentioned and is directed to professionals of the financial community.
These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company. \
Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those expressed in or implied by these forward looking statements as a result of various factors, many of which are beyond the ability of Pirelli & C SpA to control or estimate precisely. Consequently it is recommended that they be viewed as indicative only.
Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation.
Pirelli & C. SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Pirelli & C. SpA business or acquisition strategy or to reflect the occurrence of unanticipated events.
Statement
The Manager mandated to draft corporate accounting documents of Pirelli & C. SpA. Francesco Tanzi, attests – as per
art.154-bis. comma 2 of the Testo Unico della Finanza (D.Lgs. 58/1998) – that all the accounting information contained in this
presentation correspond to the documented results, books and accounting of the Company.
REGIONAL OVERVIEW EUROPE
1
• Premium OEM leadership
• Premium product offer
• N.1 in motorcycle tyre business
• Best quality of logistics service
• Strong Brand awareness
• CAR market share • Premium OE: twenties • Premium Replacement: mid teens
• #1 in Homologations and top grading for Cinturato P7 Blue* • 850 controlled POS, +13% vs PY • Relative price positioning improved by 1-2 pp • Brand consideration for target consumers #1 in Italy, #2 in UK • Positive effect of F1 on Brand and product according to 70% of
dealers • Metzeler voted best brand 2013 by Motorrad magazine readers • Increased profitability in Truck business thanks to production
sources optimization
• Target FY 2013E: • Net Sales: ~2 Bln • EBIT margin: double digit
Contribution to Pirelli FY 2013E:
• Leverage OEM positioning in Replacement market
• Expansion of controlled Retail
• Brand consideration improvement
• Cost effectiveness focused on products, processes and organizations
• Profitability recovery plan at top and bottom line
PIRELLI TODAY IN EUROPE KEY STRENGTHS FY 2013 E PERFORMANCE
DEVELOPMENT AREAS
* AA/AB Euro Label
Net sales
Industrial
Sales mix
13%
87%
EBIT 33%
Consumer
THE MACROECONOMIC CONTEXT
MAIN INDICATORS
• Financial market conditions improved significantly in recent months
• Still, improvement of real economy lags due to difficult credit access, private and public deleveraging and high unemployment rate in some European countries
• Different situations by country:
• Strong recovery in Germany GDP+1.8% vs 2013, Fixed Investment growth +5.3%
• UK GDP with positive growth (+2.0% vs 2013)
• Euro zone exports increased in August, led by Germany and Italy
• Spanish economy recently emerged from a 3yr-long recession, but recovery remains fragile as labour market scenario is still worrying
Real GDP growth (% change)
CPI Inflation (% change)
Currency trend (GBP/EUR)
Fixed Investment growth (% change)
Private consumption (% change)
1.5 0.1 -0.2
1.7 1.4 2.0
1.3 0.1 -0.6
0.82 0.85 0.81
1.9
1.8
1.9
0.82
2.6
1.7
1.8
1.6
0.82
2.4 2.3
1.1
1.6
0.9
0.84
2.3
-2.2 -2.0
12A 13E 14E 15E 16E 17E
2
THE VEHICLE PARC
KEY FEATURES
MOTO
CAR
TRUCK
• Growth trend pushed by UK and Germany; Spain and Italy stable
• Decrease in new registrations until ‘13 (CAGR‘08-’13 -4.2%), Prestige only segment that grew (CAGR ‘08-’13 +2.7%);
• In ‘13-’17 new registrations recover (CAGR ‘13-’17 +3.8%); Prestige growing almost double speed (CAGR ‘13-’17: +7%)
• Growth impacted by macroeconomic recovery and legislation on eco-compatibility
• Slight recovery of registrations after strong decline (double digit negative trend ‘08-’12)
• Negative impact of European high taxation and regulations
New registrations
New registrations
New registrations
12A 13E 14E 15E 16E 17E
12A 13E 14E 15E 16E 17E
12A 13E 14E 15E 16E 17E
278 277 276 276 274 273
6.6 6.4 6.3 6.2 6.1 6.0
8.8 9.1 9.4 9.8 10.0 10.1
14.1 13.7 14.1 14.8 15.3 15.9
0.44 0.37 0.38 0.4 0.4 0.41
0.2 0.2 0.3 0.3 0.3 0.3
0.3%
-3.1%
2%
3.8%
2.6%
10.6%
CAGR 13-17
Mln pieces
3
THE TYRE MARKET
MOTO
CAR
TRUCK ALL STEEL
KEY FEATURES
Tyre Market Premium* %
• 2013 Tyre market lower than expected due to stronger than expected 2012-’13 crisis and increasing trade attention to working capital
• Premium segment still growing • Expected economic recovery
will pull future demand
• Biggest Premium Tyre market in the world
• Stable market • Change consumer attitude, less
sport more touring • High product innovation rate
• Market positive trend supported by GDP growth
• Relevant segments: ‘’Low Section’’ for building Brand consideration and ‘’17.5’’ for improving profitability
360 350 342 333 325 333
20% 22% 23% 24% 25% 26%
6.7 6.6 6.5 6.2 6.3 6.5
15.6 15.2 15.1 14.7 14.7 14.2
1.5%
+1.5%
2.6%
7.6%
2011-2014 PLAN 2013-2017 PLAN
17E 16E 15E 14E 13E 12A
17E 16E 15E 14E 13E 12A
CAGR 13-17
OE + Replacement, Mln pieces
*Premium ≥17"; Old plan restated from speed code to rim size
17E 16E 15E 14E 13E 12A
4
FOCUS: CAR TYRE MARKET
CAR REPLACEMENT
CAR
CAR OE
KEY FEATURES
Tyre Market Premium* %
2.6%
7.6%
2011-2014 PLAN 2013-2017 PLAN
17E
17E
17E
360
276
85
16E
16E
16E
350
269
81
15E
15E
15E
342
264
77
14E
14E
14E
333
259
74
13E
13E
13E
325
253
72
12A
12A
12A
333
258
75
• Relevant segments: • Premium almost 22% of total,
with increasing weight mainly due to new fitments trends
• Winter growing double speed vs. total market (CAGR‘13-’17 +4%), increasing weight from 35% to almost 40% in 2017
• Increasing weight of the Car Dealer and Internet dealers channels
• Premium OE segment growing >2 times OE total market
2.2%
6.6%
4.1%
8.9%
20% 22% 23% 24% 25% 26%
15% 16% 16% 17% 18% 19%
39% 42% 45% 48% 50% 51%
CAGR 13-17
Mln pieces
*Premium ≥17"; Old plan restated from speed code to rim size
5
TARGETS 2013 - 2016 €/Bln
REVENUE GROWTH
16E 13E
~2
12A
~2
14E
~2.1
<2.3 CAGR ’13-’16 +3.9%
CAPEX '14-'17
EBIT MARGIN*
<600 Mln
From low teens to low-mid teens
• Top line mainly driven by premium volumes and price/mix
• Profitability improvement thanks to cost effectiveness projects and low cost footprint (Truck 100%)
*Pre restructuring
Low teens
6
KEY PROJECTS
Commercial re-launch in a recovering economy
CO
MM
ERC
IAL
TRAN
SFO
RM
ATI
ON
EN
GIN
ES
Rationalise Car and Moto cost structure
EFFICIENCIES
Develop Truck on the back of successful new product range and customized service-centered approach
TRUCK Increase Market Share in Premium OEMs and penetration of the car dealers channel
OEM PARTNERSHIPS
Optimize production process and increase automation of mature plants; improve competi-tiveness for 16 and 17 range
MANUFACTURING
Complete product renewal (summer and winter) to keep Prestige and Premium technological supremacy
PRODUCT
Pinpoint Premium “white spots” and improve retail/equity coverage (Frankfurt Flagship Store, Däckia, Ride Passion in Moto)
RETAIL NETWORK
Engage Consumers directly to increase consideration leveraging digital platforms and CRM
CONSUMER
7
OE PULL-THROUGH PARTNERSHIP APPROACH
Reinforce partnerships with Premium & Prestige car makers to translate benefit into Premium Replacement sales
PRESTIGE
• Co-marketing activities for Prestige car owner clubs (sell-out promotions, events, social media)
• Co-launches of prestigious car models
• Technological partner of prestigious Driving Experience
PREMIUM
• Leadership in product co-development with high potential Premium car manufacturers
• OEM partnership upgrade to «preferred supplier» status
• Dedicated value proposition to support sell-out sales, business efficiency and profitability of car dealers
In 2013, Pirelli won the «Global Champion» prize awarded by Volkswagen Group every year to its best suppliers
FOCUSED OEM COMMERCIAL APPROACH
8
GEO-MARKETING DRIVEN RETAIL EXPANSION
Defend position with key clients whilst developing Premium market niche opportunities
Equity coverage: Sweden
Access to the Nordics to accelerate penetration of the Nordic countries, a natural market for winter tyres. • Total Pirelli share of wallet > 50% • Premium Pirelli share of wallet >70%
Equity coverage: Germany • New acquisitions in 2013:
• Equity: +25 in POS in 2013; Pirelli Share of wallet ~60%
• Pneumobil acquisition (network in Bavaria) • Franchising: +27 POS in 2013
Premium market coverage
Consumer experience Italy «Ride Passion» example
• Innovative Services •Premium Retail
Experience •Consumer Loyalty
New Flagship Store concept Frankfurt Store A new design concept: mix of showroom, technology gallery, lounge, sales and servicing areas
Improvement of end-user experience
•Long term contracts to enhance Pirelli share in TOP Retail
•Complete POS and process renovation
Italy Driver – Hard Franchisee Hard Franchising POS Italy Upgrade of geo-selected POS with enhanced hard-franchising formula
7 42
92
2012 2013 2014
MARKETING AND COMMERCIAL APPROACH
9
• Strengthen direct link to end consumer
• Fine tune communication from “pure passion” to consumer benefits
• Leverage on Digital, especially during pre-purchase evaluation
• Leverage on Pirelli assets such as F1 and OEM partnerships
• Exploit CRM: • Increase conversion of prospects into consumers • Keep consumers loyal
CONSUMER ENGAGEMENT IS KEY
awareness
advocacy
conversion loyalty
consideration THE
MARKETING CYCLE
58.4% 57.8% 64.5% 61.5%
Value
Rank 1 1 1 1
Brand Consideration Italy
Brand Consideration Trend – FY results Europe Top 10 countries – Focus Target sample
Other premium brands*
45.8% 42.6%
47.9% 44.0%
51.0% 45.1%
* Average value calculated on four main Premium brands (Michelin, Bridgestone, Continental, Goodyear, Pirelli excluded).
Consumer direct approach
2011 2012 2013
Car Owners Focus Target Premium Car Brand Target
F1 Viewers Target
Engaged Consumers→ high brand Consideration→ high Conversion to purchase
10
GEO-MARKETING DRIVEN RETAIL EXPANSION
Growing position through product mix and fleet/retail focus
Consolidation of new range
Growth of Premium Series
Commercial strategy focused on 01 Series.
Share of Premium growth on total Pirelli European sales
2012 2013 R10
2014 MP
2015 SP
2016 SP
2017 SP
01 Series
Others 28% 51%
58%
Harmonization of geographical coverage
Nordics penetration through equity
Premium retail network through acquisition allowing Pirelli substantial sales growth (Market Share target 2014 +3%)
East Europe Project
Complete Pirelli offer to distributors to increase brand loyalty through: • New Formula Brand • Focused Sales Force, reorganized in
2013
Focus on fleets leveraging retail partnerships
Geomarketing
• Identification of high potential areas (pilot Italy)
• Target +50% sales growth of co-managed fleets with trackable data by end of 2014
Implementation of CyberFleet • 25 fleets done in 2013 (pilot) • 100 fleets target in 2014 Leverage Equities to provide support to fleet services.
Fleet Service Management
11
52%
38%
10%
14 vs 13
49%
46%
5% 15 vs 14
47%
52%
16 vs 15
1%
50%
50%
17 vs 16
COST COMPETITIVENESS
• Waste reduction • Weight reduction • Design to Cost
RAW MATERIALS LABOUR PRODUCTIVITY & SCALE
• Optimization of production process
• Automation of mature plants
• Cost rationalization
G&A AND FIXED COST EFFICIENCIES
Efficiencies
12
ESSENTIALLY, FOR 2017
THE PREFERRED PARTNER BY OUR PREMIUM CUSTOMERS AND THE TOP CONSIDERED BRAND BY OUR FINAL CONSUMERS
13
DISCLAIMER
This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s current expectations and projections about future events and does not constitute an offer or solicitation for the sale, purchase or acquisition of securities of any of the companies mentioned and is directed to professionals of the financial community.
These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company. \
Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those expressed in or implied by these forward looking statements as a result of various factors, many of which are beyond the ability of Pirelli & C SpA to control or estimate precisely. Consequently it is recommended that they be viewed as indicative only.
Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation.
Pirelli & C. SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Pirelli & C. SpA business or acquisition strategy or to reflect the occurrence of unanticipated events.
Statement
The Manager mandated to draft corporate accounting documents of Pirelli & C. SpA. Francesco Tanzi, attests – as per
art.154-bis. comma 2 of the Testo Unico della Finanza (D.Lgs. 58/1998) – that all the accounting information contained in this
presentation correspond to the documented results, books and accounting of the Company.
14
REGIONAL OVERVIEW LATAM
1
• Market share in OE: • Brazil: Car > 40%; Truck > 30% • Argentina: Car > 40%
• Market Share in Replacement: • Brazil: Car & Truck ~ 20% • Argentina: Car > 30%; Truck >20%
• Commercial Footprint in Brazil • > 130 Equity • > 450 Mono-brand POS • > 1,000 Light Franchisee
• Top of Mind brand in Brazil (5 years in a row) and Argentina
• Target FY 2013E: • Net Sales: > 2.2 bln € • EBIT margin: Mid-teen
• Contribution to Pirelli FY 2013E: • Exploit premium OEM positioning in
Replacement sales
• Benefit from additional Car capacity freed up by Mexico factory
• Improve footprint on Andean markets
• Dynamic management approach in volatile markets (Argentina and Venezuela)
PIRELLI TODAY IN LATAM FY 2013 E PERFORMANCE KEY STRENGTHS
DEVELOPMENT AREAS
• Long-standing leadership across all market segments, including Premium
• Strategic partnerships with OEMs
• Local-for-Local production strategy
• Widest product portfolio across all segments
• Widest distribution network
• The only player with Equity distribution in Brazil
Net sales 36%
Industrial
Net sales mix
Consumer
43% 57%
EBIT
THE MACROECONOMIC CONTEXT
• Large internal market and growing middle class (+10 mln people in the next 5 years)
• Relatively sound macroeconomic framework, with manageable fiscal deficit
• Enhanced external debt profile with robust debt metrics and sizeable foreign exchange reserves
• Huge natural resources give Brazil significant economic potential and make it an attractive destination for investments
Real GDP growth (% change)
CPI Inflation (% change)
Currency trend (BLR/USD)
Foreign Investments (% change)
Source: IHS Global Insight
4.0 4.1 4.0 3.4
5.6 5.9 6.5 7.1
2.45 2.40 2.35 2.30
5.2 5.2 5.8 5.3
2.9
7.7
2.19
3.9
2.4
6.4
1.96
2.0
MAIN INDICATORS (BRAZIL)
12A 13E 14E 15A 16E 17E
2
THE VEHICLE PARC
• Consistent growth rate throughout the period
• Brazil accounts for 60% of parc and 70% of new registrations, 4th global market till 2020
• Premium car: less than 5% of the market in 2017
• SUV registrations doubling
• Market growth sustained by commodities business expansion, fleet renewal and Government subsidies
• Heavy Trucks on the increase exceeding 40% of the market
• Market growth sustained by growing middle class and financial facilities availability
• Almost 80% of parc and registrations below 250cc
65 69 72 76 80 61
6.0 6.2 6.5 5.8 6.7 7.0
4.1 4.3 4.6 3.8 4.8 5.1
31 28 34 37 40 44
2.1 2.3 2.4 2.6 2.8 2.1
217k 231k 246k 198k 261k 276k
17E 16E 15E 14E 13E 12A
17E 16E 15E 14E 13E 12A
17E 16E 15E 14E 13E 12A
KEY FEATURES
MOTO*
CAR
TRUCK
+5.5%
New registrations
Mln pieces
New registrations
New registrations
+3.9%
+8.7%
+5.6%
+6.7%
+6.2%
CAGR 13-17
*Moto > 100cc
3
THE TYRE MARKET
MOTO
CAR
TRUCK ALL STEEL
KEY FEATURES • Premium pace 5x market
growth, representing 10% of total market
• By 2017, 100% new homologations 100% expected to be Green tyres
• Brazil: ~50% of total market
• Replacement share: 80% of total market
• Radial share almost doubling by 2017
• Brazil: ~40% of total market:
• All Steel reaching >70% of total market
• Brazil: 50% of total market
• Ecolabel compulsory from 2016 in Brazil
2011-2014 PLAN 2013-2017 PLAN
+4.4%
+3.7%
+3.9%
+22.1%
13E
13E
13E
86.9
22.9
12.5
14E
14E
14E
90.6
23.8
13.0
15A
15A
15A
93.8
25.2
13.4
16E
16E
16E
97.5
26.2
14.0
17E
17E
17E
101.1
27.2
14.5
12A
12A
12A
81.9
22.7
11.4
5.3% 6.9% 8.1% 9.2% 10.2% 4.9%
CAGR 13-17
OE + Replacement, Mln pieces
*Premium ≥17"; Old plan restated from speed code to rim size Tyre Market Premium* %
4
TARGET 2013 - 2016
REVENUE GROWTH
16E 13E
>2.2
12A
<2.1
14E
>2.4
>2.6 CAGR ’13-’16 +6.0%
CAPEX '14-'17
EBIT MARGIN*
~400 Mln
€/Bln
Mid teen across all years
*Pre restructuring
• Net Sales positively impacted by a steady growth of volumes yoy
• Profitability slightly improving thanks to good performance of the Moto business
5
KEY PROJECTS
Protect market leadership with innovation and excellence
MANUFACTURING • Car: Mix Improvement in Brazil • Car: Premium production growth in
Argentina • Truck: Capacity improvement • Agro: Radial production growth
PRODUCT • Increase SUV product range • New Cinturato HP • Full implementation of Truck 01
Series • New Radial HR for Moto
OEM PARTNERSHIP • Maintain technological leadership
within the region • Attack share with new Premium
OEMs (BMW, Audi, Mercedes) • Increase car dealer partnerships
RETAIL • Strengthen Retail Excellence Model • Accelerate new monobrand POS
growth • Leverage synergies on Equity • Improve stock management • New Logistics Network
SUPPLY CHAIN • Design and Implement a new supply
chain model for Colombian and Andean markets
6
MANUFACTURING EXPANSION
CAR
• Premium production in Brazil
• OE Green Tyre production
• Replacement Green Tyre production
• Premium production in Argentina
23%
-
-
4%
35%
100%
65%
16%
FY 2013E 2017E
Mix Improvement in Brazil
Premium production growth in Argentina
• All Steel Capacity 100 (index) 108 Capacity improvement
• Agro production
• Radial production
100 (index)
100 (index)
127
360 Radial production growth
TRUCK FY 2013E 2017E
AGRO FY 2013E 2017E
7
RETAIL EXCELLENCE MODEL
• From 580 POS FY 2013E to >750 POS by 2017 Accelerate monobrand POS growth
• Introduce VMI* technology to support stock management (and financial position) at Monobrand dealers
Stock management
• Redesign of the outbound logistics network for operational and fiscal optimization
New logistics network
* VMI «Vendor Management Inventory» system
8
ESSENTIALLY, FOR 2017
UNRIVALLED MARKET LEADER
9
DISCLAIMER
10
This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s current expectations and projections about future events and does not constitute an offer or solicitation for the sale, purchase or acquisition of securities of any of the companies mentioned and is directed to professionals of the financial community.
These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company. \
Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those expressed in or implied by these forward looking statements as a result of various factors, many of which are beyond the ability of Pirelli & C SpA to control or estimate precisely. Consequently it is recommended that they be viewed as indicative only.
Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation.
Pirelli & C. SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Pirelli & C. SpA business or acquisition strategy or to reflect the occurrence of unanticipated events.
Statement
The Manager mandated to draft corporate accounting documents of Pirelli & C. SpA. Francesco Tanzi, attests – as per
art.154-bis. comma 2 of the Testo Unico della Finanza (D.Lgs. 58/1998) – that all the accounting information contained in this
presentation correspond to the documented results, books and accounting of the Company.
REGIONAL OVERVIEW MEAI
1
• Cost competitive industrial footprint
• Truck: Leadership in Turkey and Egypt
• Truck: Product range - Excellent performance in hot severe conditions
• Car and Truck: strong POS coverage in priority markets
• Replacement volumes: • Car Premium ~+20% yoy • Truck All Steel ~+5% yoy
• Car Premium market share: teens • Truck All Steel market share: teens • #1 brand for dealer satisfaction* in Turkey • Turkey and Egypt production output increased ~+10% yoy • Target FY 2013E:
• Net Sales trend: ~500 Mln • EBIT margin: high teens
• Contribution to Pirelli FY 2013 E:
• Leverage OEM positioning in Replacement market
• Leadership consolidation in selected countries
• Selective expansion of distribution in Car and Truck supported by geo-marketing
• Capacity increase in Truck factories
PIRELLI TODAY IN MEAI
* Ipsos research
KEY STRENGTHS
DEVELOPMENT AREAS
FY 2013 E PERFORMANCE
Net sales 8%
Industrial
Net sales mix
Consumer
39%
61%
EBIT
THE MACROECONOMIC CONTEXT
• Middle East/Africa acceleration with improved global conditions recovery in oil production. Uncertainties arising from prolonged political transition
• Concern for Syria and Egypt conflicts: possible stronger destabilization complicating the economic scenario
• Sub-Saharan Africa, international projects supporting higher growth
• India growth projected to accelerate helped by stronger exports
Source: IHS Global Insight, September 2013
Real GDP growth (% change)
CPI Inflation (% change)
Real Private Consumption Growth
Industrial Production Growth
Average Real GDP Growth 5.3
4.9
17 E
6.4
5.6
5.6
4.9
16 E
5.5
5.9
5.5
4.8
15 E
5.1
6.6
5.3
4.9
14 E
4.4
7.0
4.6
2.8
13 E
4.0
8.1
3.5
0.2
12 A
3.4
8.3
2.5
3.6
MAIN INDICATORS
2
THE VEHICLE PARC
17E 16E 15E 14E 13E 12A
KEY FEATURES CAR
New registrations
• Growth of Premium & Prestige car parc will increase
• >12% CAGR 13-17 • >10% CAGR 09-13
+8.3% 50 54 57 62 68 75
8.9 8.6 9.1 9.8 10.7 11.3
17E 16E 15E 14E 13E 12A
TRUCK (TURKEY)
New registrations
• Turkey Truck new registrations and vehicle parc keep growing
+2.6%
955 965 982
1,088 1,038
1,070
31 33 39 44 48 51
Sources: Global Insight IHS, LMC, Scania, Pirelli estimation
+7.1%
+11.5%
CAGR 13–17
Mln pieces
K pieces
3
TRUCK ALL STEEL
KEY FEATURES
2011-2014 PLAN 2013-2017 PLAN
+2.4%
+6.6%
+8.0%
13E 14E 15A 16E 17E
13E 14E 15A 16E 17E 12A
12A
Tyre Market Premium* %
THE TYRE MARKET
• Replacement ~65% of total Tyre market
• Chinese imports increase but mainly in low to mid-end market
• Competitors building additional capacity in the next years
98 103 110 118 126 133
8.9% 9.1% 9.1% 9.3% 9.4% 8.5%
15.0 15.3 15.6 16.0 16.4 16.8
CAR
8.7% 8.6% 8.4% 9.0% 8.9% 8.7%
CAGR 13–17
OE %
OE + Replacement, Mln pieces
All Steel M+H *Premium ≥17"; Old plan restated from speed code to rim size
4
REVENUE GROWTH
16E 13E
~500
12A
~520
14E
~540 >620
CAGR ’13-’16 +7.3%
CAPEX '14-'17
• Net sales driven mainly by increase of Premium volumes on car
EBIT MARGIN
~100 Mln
High teens across all years
TARGETS 2013 - 2016 €/Mln
5
KEY PROJECTS
Extend Premium leadership
CAR CONSUMER
• Increase digital engagement (new local website, social media) and Pirelli presence / visibility at POS
CAR DISTRIBUTION
• Re-balance distribution channels with focus on car dealers, independent dealers and chains
TRUCK MANUFACTURING
• Continue industrial investment and convert capacity to latest products (e.g. 01 Series)
TRUCK DISTRIBUTION AND SERVICES • Introduce fleet solutions and consolidate
Truck centers for a complete fleet offer (cyber fleet, retreading, ..)
6
DISTRIBUTION COVERAGE
CAR
TRUCK
• Development of Truck service centers (after new inter-country road infrastrucures)
• Start up of truck business in South Africa • Introduction into Premium fleets of latest products (01
Series) • Fleet service packages with innovative solutions: Cyber
fleet, Retreading, Depannage vans, Truck service centers
• Expand the Car Tyre distribution network (+189 POS) • Focus on Premium potential areas supported by geo-
marketing • Rebalance channel mix towards Car Dealers and
indipendent dealers (channels OE marked Tyres intensive)
Expansion of dealers’ network
Distribution and service
7
ESSENTIALLY, FOR 2017
RIDING THE GROWTH Deliver excellence through innovative products and services in the most profitable channels
8
DISCLAIMER
9
This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s current expectations and projections about future events and does not constitute an offer or solicitation for the sale, purchase or acquisition of securities of any of the companies mentioned and is directed to professionals of the financial community.
These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company. \
Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those expressed in or implied by these forward looking statements as a result of various factors, many of which are beyond the ability of Pirelli & C SpA to control or estimate precisely. Consequently it is recommended that they be viewed as indicative only.
Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation.
Pirelli & C. SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Pirelli & C. SpA business or acquisition strategy or to reflect the occurrence of unanticipated events.
Statement
The Manager mandated to draft corporate accounting documents of Pirelli & C. SpA. Francesco Tanzi, attests – as per
art.154-bis. comma 2 of the Testo Unico della Finanza (D.Lgs. 58/1998) – that all the accounting information contained in this
presentation correspond to the documented results, books and accounting of the Company.
REGIONAL OVERVIEW NAFTA
1
• Selective OEM positioning
• Leading product development focused on UHP and HP
• Distribution focused on Premium customers
• Distinctive Brand positioning
• Strong volumes growth on Premium and Superpremium • Focused Marketing (Digital & Social Media) on target consumers
thanks to geo-localization • Accelerated Mexico ramp up: reached production >1 Mln Tyres • Significantly improved service level to key customers
• Target FY 2013 E:
• Net Sales: < 700 Mln • EBIT margin: mid-teen
• Contribution to Pirelli FY 2013 E
• Grow US OEM Business long term, with short term focus on mix
• Leverage OEM positioning in Replacement
• Ramp up Mexico factory
• Development of new NAFTA-focused products
• Expansion of distribution in Car and Moto
PIRELLI TODAY IN NAFTA
KEY STRENGTHS FY 2013 E PERFORMANCE
DEVELOPMENT AREAS
Net sales 11%
Consumer
Net sales mix Industrial
6%
94%
EBIT
THE MACRO ECONOMIC CONTEXT
• US GDP growth accelerating, with significant risk from reduction of unprecedented monetary stimulus and tighter fiscal policy
• The US House of Representative elections in 2014 and the long 2016 presidential election campaign likely to create uncertainty with impacts on fixed investment decisions
Real GDP growth (% change)
CPI Inflation (% change)
Currency trend (EUR/USD)
Domestic + Foreign Investments (% change)
MAIN INDICATORS (US)
3.1 3.2 3.3
2.7
8.1
1.6 2.7
2.0 2.1 1.8 1.7
1.33 1.33
1.6
1.32
2.1
1.30 1.29
1.30
2.9 5.0 7.2
3.0 5.5
12A 13E 14E 15A 16E 17E
2
THE VEHICLE PARC Mln pieces
New registrations
295
17.2
297
18.4
302
18.8
305
19.3
308
19.7
312
19.7
• CUV market in rapid growth • Market for compact and smaller
vehicles moves from 43% of total market 2012 to 47% in 2017
• Mid-size and large-size vehicles growing at slower rate
• Convergence to global car segment mix
New registrations
27.0
1.9
27.2
2.0
28.0
2.2
28.0
2.3
29.0
2.5
29.4
2.5
• Premium & Prestige new registration growing from 11.1% (1.9 Mln) 2012 to 12.8% (2.5 Mln) in 2017
• OEMs moving to Premium model for higher profits
• Focus on CO2 emissions • Hybrid/Electric gaining momentum
New registrations
11.8
0.8
12.1
0.8
12.4
0.9
12.8
1.1
13.1
1.1
13.5
1.2
• Harley D. continues to grow • Premium European OEMs (BMW, Ducati,
KTM) increase presence
CAR
CAR: PREMIUM & PRESTIGE
MOTO*
KEY FEATURES
+1.2%
+1.9%
17E 16E 15E 14E 13E 12A
17E 16E 15E 14E 13E 12A
17E 16E 15E 14E 13E 12A
CAGR 13–17
+1.7%
+5.7%
+2.8%
+10.7%
*Moto > 100cc
3
THE TYRE MARKET
343 350 359
365 369
330
• Growing weight of Premium • Replacement rate: 0.92 • Competitors building additional
capacity in the coming years
263
36%
269
38%
273
39%
277
41%
281
43%
253
34%
5.0 5.3 5.5 5.7 4.8
OE + Replacement
CAR
2011-2014 PLAN 2013-2017 PLAN
CAR REPLACEMENT
MOTO
KEY FEATURES
• Replacement 77% of total Tyre market
• Premium Replacement growing 3x market growth
• Chinese imports increasing but mainly in mid to low-end markets
+4.2%
+1.9%
+4.8%
+1.6%
+6.3%
17E 16E 15E 14E 13E 12A
46% 47% 48% 50% 51% 44%
5.9
17E 16E 15E 14E 13E 12A
17E 16E 15E 14E 13E 12A
CAGR 13–17
OE + Replacement, Mln pieces
*Premium ≥17"; Old plan restated from speed code to rim size Tyre Market Premium* %
4
REVENUE GROWTH
16E 13E
<700
12A
693
14E
~730 ~780
CAGR ’13-’16 +4.5%
CAPEX '14-'17
• Strong push on Premium and Superpremium volumes
• Ramp up of Mexico plant to further support profitability improvement
EBIT MARGIN
<160 mln
TARGETS 2013 - 2016 €/Mln
From mid teens to high teens
5
KEY PROJECTS
Push further and wider successful growth and positioning
OE PULL-THROUGH Using all levers to fully capitalize investment in OEMs in the Replacement Premium market
PRODUCT Match local needs faster through the development of NAFTA - focused products (Car + Moto)
MANUFACTURING Ramp up Mexico factory (local for local) to deliver Premium product and Premium service
Expand dealers’ network entering new channels and selectively growing existing ones to capture geo-localized Premium potential (Car + Moto)
DISTRIBUTION
DIGITAL
Leverage a distinctive brand positioning through digital, being effective where it matters leveraging on Geo-Marketing
6
• Assess OE potential at brand/size level for region/area
• Identify opportunities and define action plans to increase pull-through
• Right-size stock at dealers’ level based on car parc info
• Guarantee exceptional service level (95%) to key customers servicing OEM channel
• Dedicated trade promotions • Preferred claim management
• Develop marketing relationship with key OEMs
OE PULL-THROUGH
GEO-MARKETING TIER 1 OEMs PARTNERSHIPS
Focus on all available levers to capture full replacement for Pirelli fitted OE
7
LOCAL FOR LOCAL INDUSTRIAL FOOTPRINT
Rome – Georgia (MIRS)
Silao - Mexico +
• 420K units in 2013 • Increase in mix with 11 active product lines • Focused on:
• Premium OE • High end and low volume products testing • New and emerging sizes
• Mission: Exploit new trends
• Factory inaugurated May 2012 • 1.2 Mln units in 2013, and 5 mln planned in 2017
• Efficient and large scale production of a wider range of products dedicated to NAFTA (60% of volumes will be L4L in 2017)
• Shorter supply chain with positive impact on profitability and cash flow
• Mission: Support a growing region
450k 1.2 mln
17 16 15 14 13 12
5.0 mln
A complementary industrial setup
8
NAFTA-FOCUSED PRODUCT DEVELOPMENT
Scorpion Zero 22”
PZero 20”
Cinturato P7 A/S Plus 16” – 20”
Scorpion ATR 20”
• Local R&D allowing quicker time-to-market • New products specifically designed on NAFTA requirements • 3 new NAFTA-specific launches or restyling in pipeline for multiple
product launches each year • In 2014 already 45 new replacement sizes
PZero Nero A/S 17’’ – 19”
Scorpion Verde A/S Plus 16’’ – 22”
9
GEO-MARKETING AND DIGITAL
Digital Native and Pervasive Plan based on geo-localization for Consumer and Retail Marketing activities
• Highlight Premium white spots to target new dealers
• Increase numeric to close distribution gaps
RETAIL COVERAGE
AND MANAGEMENT
• Align dealer stock, focusing on Pirelli homologated parc
• Stimulate rotation of stock increasing sell-in and sell-out
DIGITAL TRADE
ENGAGEMENT
• Exploit Pirelli brand throughout the consumer journey delivering relevant content to target segments and key US areas
• Maximize Marketing ROI
DIGITAL CONSUMER
ENGAGEMENT
10
ASSOCIATE DEALER PROGRAM AND DISTRIBUTION
®
• Create Brand Loyalty with Trade in Areas with High Premium Potential
• Consolidate FasTrack Retail Dealers Program in USA with Launch of 2.0 Version
• Extension of FasTrack to Canada and Moto • Consolidate Tier 1 Program in Key Dealers and
extend to others with priority allocation, dedicated promotions, preferred customer care
• Highlight Premium white spots to target new dealers
• Grow the network to fill the distribution gaps • Expand Clubs in US and Canada • Expand into new Retail chains • Align dealer stock with local car parc (focus on
Pirelli homologated car parc) • Stimulate rotation of stock increasing sell-in and
sell-out
INCREASE RETAIL COVERAGE DEVELOP CURRENT AND NEW CHANNELS
11
ESSENTIALLY, FOR 2017
2017 P3 - PIRELLI PEAK PERFORMANCE DRIVEN BY SUPERPREMIUM LEADERSHIP AND L4L OPERATIONAL EFFICIENCY
12
DISCLAIMER
13
This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s current expectations and projections about future events and does not constitute an offer or solicitation for the sale, purchase or acquisition of securities of any of the companies mentioned and is directed to professionals of the financial community.
These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company. \
Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those expressed in or implied by these forward looking statements as a result of various factors, many of which are beyond the ability of Pirelli & C SpA to control or estimate precisely. Consequently it is recommended that they be viewed as indicative only.
Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation.
Pirelli & C. SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Pirelli & C. SpA business or acquisition strategy or to reflect the occurrence of unanticipated events.
Statement
The Manager mandated to draft corporate accounting documents of Pirelli & C. SpA. Francesco Tanzi, attests – as per
art.154-bis. comma 2 of the Testo Unico della Finanza (D.Lgs. 58/1998) – that all the accounting information contained in this
presentation correspond to the documented results, books and accounting of the Company.
REGIONAL OVERVIEW RUSSIA
1
• Growing presence in a contracting market
• Wide product range with A+B+C brands (both Replacement and OE)
• 2 local production plants
• Recognized Premium Brand
• Winter position:
• Product range / new products
• Brand consideration
• Price positioning vs market leader
• Car dealer channel penetration
• Manufacturing upgrade (saturation, mix and processes)
PIRELLI TODAY IN RUSSIA
• Premium market share ~10% • Launched Russian-specific studded products (Ice Zero
and New Formula Ice) • ≥650 PoS with qualified Marketing support • #3 in Brand Consideration on Premium car owners target
(vs #5 PY)
• Target FY 2013 E: • Net Sales: ~240 Mln • EBIT margin: slightly negative due to contracted tyre
market, partial factory insaturation, range still to be completed
• Contribution to Pirelli FY 2013 E
FY 2013 E PERFORMANCE KEY STRENGTHS
DEVELOPMENT AREAS
Net sales 4%
Net sales mix
100%
Consumer
THE MACROECONOMIC CONTEXT
Real GDP growth (% change)
CPI Inflation (% change)
Currency trend (RUR/USD)
Domestic + Foreign Investments (% change) 17 E 16 E 15 E 14 E 13 E 12 A
3.5 3.9 2.8 3.1 1.8 3.4
5.1 6.6 5.4 4.8 4.4 4.0
31.0 32.7 32.7 32.0 32.0 32.0
1.5 6.0 5.4 4.2 6.6 4.1
• On-hold monetary policy and slow infrastructural investment progress prompted government to adjust FY 2013 GDP growth to 1.8%
• 2014 – 2017 forecast: stable oil and gas prices
and WTO effect* will keep YoY GDP growth around 3.5%, and help inflation gradually decline and stabilize around 4.5% YoY.
Source: IHS, Bloomberg, Rosstat
MAIN INDICATORS (RUSSIA)
* Lower import duty and opening of different sectors to investments
2
THE VEHICLE PARC Mln pieces
New registrations
40.3
12A
47.5%
31.0%
21.5%
2.9
41.8
13E
22.1%
32.0%
45.9%
2.8
43.3
14E
44.5%
33.3%
22.2%
2.8
45.0
15E
34.7%
43.1%
22.2%
2.9
3,09
46.7
16E
41.8%
35.7%
22.4%
3.1
48.5
17E
22.9%
36.6%
40.5%
3.3
• Car parc general trend: accelerated shift from traditional Russian brands to foreign ones with better tyre mix.
• 2015 new registrations will match again record high sales of 2012, stabilizing well over 3 mln new cars/year in 2016-2017
• Russian car sales rate still very low vs Europe, confirming strong opportunities for mid-term growth.
Imported brands
Foreign local prod.
Russian brands
Source: IHS, AEB
48.6 49.2 51.1 53.0 54.7 46.9
CAR (RUSSIA)
CAR (RUSSIA + CIS)
KEY FEATURES
12A 13E 14E 15E 16E 17E
+4.8%
+7.2%
+2.6%
CAGR 13-17
+3.0%
+4.1%
+3.8%
3
THE TYRE MARKET
RUSSIA + CIS, OE + REPLACEMENT
RUSSIA REPLACEMENT KEY FEATURES • Competitors scenario Competitors increasing capacity;
price erosion
• Car Parc upgrade Constant growth of Premium mix
where Pirelli is stronger
2011-2014 PLAN 2013-2017 PLAN
+4.1%
+8.2%
37.4 35.9 35.2 36.8 39.0 42.1
2012A 2013E 2014E 2015E 2016E 2017E
10.1% 9.5% 9.0% 10.7% 11.3% 11.9%
2012A 2013E 2014E 2015E 2016E 2017E
43% 44% 44% 43% 41% 38%
34% 35% 32% 34% 35% 37% 22% 21% 24% 22% 22% 23% 35.2 35.9 37.4 36.8 39.0 42.1
+6.8%
+6.6%
+0.5%
61.9 61.9 64.4 67.2 71.0 62.9 2012A 2013E 2014E 2015E 2016E 2017E
Tyre Market Premium % A brands B brands C brands
CAGR 13-17
Premium* / Non Premium split
A, B, C Brands split
* Premium ≥ 17’’; old plan including only A, B, C Brands split
+3.5%
4
Mln pieces
TARGETS 2013 - 2016
REVENUE GROWTH
€/Mln
CAPEX '14-'17
EBIT MARGIN* Negative high single digit
*Pre restructuring
Mid single digit
Double digit
<100 Mln in line with previous plan
244 ~240 ~280
~370
13E 12A 14E 16E
CAGR ’13-’16
+15.3%
Low single digit
5
KEY PROJECTS
Major turnaround
EFFICIENCIES Align industrial efficiency to Pirelli best practice.
COMMERCIAL / RETAIL Rethink approach to CIS.
Implement Premium car dealership strategy.
Expand distribution and retail footprint.
OEM PARTNERSHIP Add to legacy Russian OEMs selected foreign brands (improving mix and pull-through).
MANUFACTURING Capitalize on technological investments done so far. Growth of A+B brands production saturation.
PRODUCT Improve winter offer with range extension and new Russia-specific products.
6
PRODUCT RENEWAL
2013 2014 2015
Range extension (2x number of items) of Ice Zero and New Formula Ice studded products
Launch of new Nordic friction product dedicated to Russia/Nordics
Launch of: • New Pirelli Ice Zero: studded
16’’ – 21’’ • New Formula Ice: studded
13’’-17’’
Illustrative
7
RANGE EXTENSION IN WINTER PRODUCTS
OEM PARTNERSHIP
2012 2014 2016
• Legacy OEM portfolio
• Switch to premium portfolio (R&D/Industrialization activities)
• OEM optimized portfolio to maximize pull-through effect on Replacement
• Sales to OEM: 100 (index)
• 100% legacy brands
• Mix ≥17’’: 0%
• Car brands: legacy + synergic OEMS
• Sales to OEM: 140 (index)
• Pirelli + Formula brands >30%
• Mix ≥17’’: ~0%
• Car brands: shift towards value synergic OEMs
• Sales to OEM: 200 (index)
• Pirelli + Formula brands >50%
• Mix ≥17’’: >10%
• Car brands: focus on Premium and value synergic OEMs
8
MAXIMIZATION OF PULL-THROUGH VALUE
COMMERCIAL / RETAIL
2012 2014 2016
Distribution
Support
Shelf presence
• Activity with key distributors in Russia
• ~560 POS with qualified support
• Enlarged sales force to optimize territorial presence
• Nation-wide training programs to trade
• Wider customer portfolio • +30% POS vs 2012 • Focus on car dealers for
Premium volumes (double Pirelli share of wallet vs 2013)
• New distributive approach to CIS
• More than doubled Pirelli shelf presence in retail
• Sell-out prices and shelf presence monitored in top cities
• Optimized sell-in footprint • +55% POS vs 2012 • Among top 2 brands in car
dealers channel (leveraging on OEM partnership and product range)
• Among top 3 brands in shelf presence both summer and winter
9
OPTIMAL FOOTPRINT FOR MID-TERM GROWTH TARGETS
ESSENTIALLY, FOR 2017
PIRELLI RECOGNIZED
AMONG LEADERS IN WINTER NORDIC
PREMIUM SEGMENTS
10
DISCLAIMER
11
This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s current expectations and projections about future events and does not constitute an offer or solicitation for the sale, purchase or acquisition of securities of any of the companies mentioned and is directed to professionals of the financial community.
These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company. \
Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those expressed in or implied by these forward looking statements as a result of various factors, many of which are beyond the ability of Pirelli & C SpA to control or estimate precisely. Consequently it is recommended that they be viewed as indicative only.
Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation.
Pirelli & C. SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Pirelli & C. SpA business or acquisition strategy or to reflect the occurrence of unanticipated events.
Statement
The Manager mandated to draft corporate accounting documents of Pirelli & C. SpA. Francesco Tanzi, attests – as per
art.154-bis. comma 2 of the Testo Unico della Finanza (D.Lgs. 58/1998) – that all the accounting information contained in this
presentation correspond to the documented results, books and accounting of the Company.
SUSTAINABILITY PLAN 2013-2017 WITH SELECTED TARGETS FOR 2020
AGENDA
1
PIRELLI SUSTAINABILITY TODAY
ACKNOWLEDGEMENTS AND ACHIEVEMENTS
THE EVOLVING CONTEXT
SUSTAINABILITY PLAN: RETURN ON CAPITAL
• GROWTH
• PRODUCTIVITY
• GOVERNANCE & RISK MANAGEMENT
PIRELLI SUSTAINABILITY TODAY
• Sustainability fully integrated in the
Industrial Plan
• The weight of Green Performance on Tyre Revenues up to 42%*
• Workplace Accident Frequency index -60% vs. 2009
• Performance improvement in energy consumption, water
withdrawal and waste recovery
• Push on Green Performance: product developement, raw materials and electronic applications
• Environmental Process Efficiency: innovation-driven projects for energy and CO2, waste and water target
management
• Safety as a culture: towards zero workplace accidents
* Last estimate 2013
KEY STRENGTHS 2013 PERFORMANCE
DEVELOPMENT AREAS
• Governance of sustainability-driven Risks
and Opportunities
• Accountability
• Risk analysis fully integrated in strategic planning process and
target setting
• 100% of critical suppliers trained on sustainability
• Anti-corruption & Integrity Program
• Third-party Sustainability leadership acknowledgements: DJSI,
FTSE4Good, GLOBAL COMPACT 100, oekom Research
2
AGENDA
3
PIRELLI SUSTAINABILITY TODAY
ACKNOWLEDGEMENTS
AND ACHIEVEMENTS
THE EVOLVING CONTEXT
SUSTAINABILITY PLAN: RETURN ON CAPITAL
• GROWTH
• PRODUCTIVITY
• GOVERNANCE & RISK MANAGEMENT
FTSE Global and European STOXX
Score 2012-2013: 100/100
Dow Jones Sustainability World and Europe
Global Leadership in the Auto Components sector
for the seventh year in a row
Score 2013-2014: 85 vs sector avg. of 51
Carbon Disclosure Leadership Index (CDLI)
Score 2012: 89 vs sector avg. of 69 (score 2013 in December) Carbon Disclosure Leadership Index
2013 MAJOR ACKNOWLEDGEMENTS
GLOBAL COMPACT 100
Pirelli the only included Tyre Company
oekom Research
Pirelli Global Leader in the Tyre Industry
4
• Green Performance Revenues: 42%* on Tyre sales
• Anti-corruption & Integrity Program
• New Whistleblowing Policy applied to External Community
• Green Sourcing Policy
• Risk analysis fully integrated in strategic planning process and target setting
* Last estimate 2013
5
2013 MAJOR ACHIEVEMENTS
• Process environmental efficiency*
• Energy specific consumption -2% vs. 2009
• Water specific withdrawal -28% vs. 2009
• Waste recovery rate +10% vs. 2009
• Project for an industrial steam solar power plant - first in the world - feeding the production
cycle of Feira de Santana in partnership with the Italian Ministry for the Environment
• New product Life Cycle Assessment tool implemented
• New Pirelli Green Performance products
• Accident Frequency index* -60%* vs. 2009
• Supplier Sustainability risk assessment updating; 62 ESG** audits performed by independent
party; 100% of critical suppliers trained on sustainability
• New training model implemented worldwide: Training Academies and School of
Management; new Employer Branding campaign
• Proactive engagement within high level international bodies on Sustainable Development
(including WBCSD, UN Global Compact, CSR Europe, World Rubber Summit, World Forum
Lille, IRSG)
** ESG: Environmental, Social, Governance
AGENDA
6
PIRELLI SUSTAINABILITY TODAY
ACKNOWLEDGEMENTS AND ACHIEVEMENTS
THE EVOLVING CONTEXT
SUSTAINABILITY PLAN: RETURN ON CAPITAL
• GROWTH
• PRODUCTIVITY
• GOVERNANCE & RISK MANAGEMENT
Downside risks dominate the
world economic outlook
Strong move towards
low-carbon economies
Demographic changes, aging
population, virtual mobility,
continued urbanisation
EXTERNAL FORCES DRIVING THE AUTOMOTIVE MARKET
2013 2017 2025 2030
Macroeconomic uncertainty Regulatory constraints Changes in social behaviour
Impact on Automotive industry
Industry intercepting and addressing long-term market opportunities
7
LOW-CARBON EMISSIONS Automotive CO2 regulatory framework and car manufacturers strategy
MEXICO 2016: 169
USA/CANADA
2025: 109
2000 2005 2010 2015 2020 2025
EUROPE 2020: 95
JAPAN 2020: 105
INDIA 2021: 113
CHINA 2020: 117
S. KOREA 2015: 153
280
240
200
160
120
80
Gra
ms C
O2 p
er
km
no
rma
lize
d to
NE
DC
Te
st C
ycle
Premium and Synergic manufacturers committed to conventional and innovative (hybrid, full electric)
technologies towards low-carbon mobility while developing new business models
Hystorical performance
Target
Global passenger
vehicle CO2
reduction standards
Source: ICCT (the International Council on Clean Transportation)
Supporting data can be found at: www.theicct.org/info-tools/global-passenger-vehicle-standards
8
are influenced by the EU tyre label* consider rolling resistance the most
important info on the EU label*
* Pirelli internal data, Goodyear publications and other sources
WORLDWIDE SPREADING OF TYRE LABELLING
Influence on consumer behaviour
71% 66% of car Tyre consumers of truck Tyre consumers
TYRE LABELLING EVOLUTION
JAPAN
EUROPE
SOUTH KOREA
ISRAEL
USA
BRAZIL
AUSTRALIA
CHINA
ARABIAN GULF COUNTRIES
X
X
X
X
X
X
X
X
X
X
Active now
Active now
Active now
Active now
Expected 2014
Expected 2015
Under discussion
Wet grip Noise Status
X
X
X
X
X
X
X
Rolling
Resistance COUNTRY
X
Wear
Strong interest in regulations for rolling resistance and wet grip,
Tyre labelling not yet defined
9
AGENDA
10
PIRELLI SUSTAINABILITY TODAY
ACKNOWLEDGEMENTS AND ACHIEVEMENTS
THE EVOLVING CONTEXT
SUSTAINABILITY PLAN:
RETURN ON CAPITAL • GROWTH
• PRODUCTIVITY
• GOVERNANCE & RISK MANAGEMENT
* The Pirelli model is inspired by the Value Driver framework of the UN-PRI (United Nations – Principles for Responsible Investment) and UN Global Compact , aimed at
supporting dialogue between investors and corporations on ESG themes
Plan is presented through three sustainability-driven enablers
PIRELLI VALUE DRIVER MODEL*
RETURN ON CAPITAL
GROWTH PRODUCTIVITY GOVERNANCE & RISK
MANAGEMENT
• Long-Term Strategy
• Product Innovation
• Operational Efficiency
• Human Capital Management
• Enterprise Risk Management
• Supply Chain Risk
Revenue growth Cost saving
& avoidance
Revenue and reputation
risk reduction;
Sustainability risk containment
11
SUSTAINABILITY LEVERS OF THE INDUSTRIAL PLAN
Integrating, supporting and protecting Group targets and values
CO
ST
CO
MP
ET
ITIV
EN
ES
S
TO
P L
INE
GR
OW
TH
INDUSTRIAL PLAN 2013-17 SUSTAINABILITY PLAN 2013-17 + TARGETS 2020
• Reduce energy consumption by 18% within 2020 vs. 2009: expected
savings of ~25 €/mln and 400,000 Tons of CO2 in 2014-2017
• Towards zero waste to landfill: expected savings of ~60 €/mln by 2017
thanks to internal recovery of scrap
• Reduce water withdrawal by 58% by 2020 vs. 2009
• Target zero workplace accidents: Frequency Index reduction by 90% by
2020 vs. 2009
• Training to reach 7 man / days on average from 2015 onwards
• Push on Green Performance innovation
• Raw materials: from rice husks to industrial silica
• Electronic Applications: Pirelli CYBER TYRE from Truck to Premium
car
• Product developement: strong improvement in Eco Label KPIs with
double-digit reduction in Car Rolling Resistance by 2017
• Green Performance Tyre revenues up to 48% on total Tyre revenues by
2017
• Dialogue with end-users
• Growing investment in risk mitigation and business continuity: 8.3%
CAGR by 2017 vs 2013
• Reduce the environmental impact of purchased goods and services
through Pirelli New Green Sourcing Policy
OE PULL-THROUGH
PRODUCT RENEWAL
PREMIUM GO TO MARKET
AND RETAIL COVERAGE
CONSUMER ENGAGEMENT
DE-COMPLEXITY
DESIGN TO COST
PLANT SPECIALIZATION
RE-SHAPED
MANUFACTURING ASSETS
12
RE
TU
RN
ON
CA
PIT
AL
AGENDA
13
PIRELLI SUSTAINABILITY TODAY
ACKNOWLEDGEMENTS AND ACHIEVEMENTS
THE EVOLVING CONTEXT
SUSTAINABILITY PLAN:
RETURN ON CAPITAL • GROWTH
• PRODUCTIVITY
• GOVERNANCE & RISK MANAGEMENT
GROWTH: LIFE CYCLE THINKING Focusing strategy on materiality
GLOBAL WARMING POTENTIAL OF OUR MODEL TYRE
The EU medium car
carbon footprint of which
≈ 15% is the average
contribution of
FOUR TYRES
Raw Materials Production Distribution Use End of Life
5.5% 2.6%
0.2% 2.2%
89.5%
14
GROWTH: PRODUCT INNOVATION New technologies in materials and electronic applications
• CAR: “Base” Tyre Monitoring System to
manage tyre performance through
pressure - 2014
PIRELLI CYBER TYRE
• CAR: “Premium” Tyre Monitoring System
with management of static load, tear
consumption, hydroplaning alert, road
surface alert and tyre vectorial strenghts
- 2015
• TRUCK: Cyber Fleet system to manage
the tyres of whole fleets, to minimize fuel
consumption and CO2 emissions - 2013
• SILICA: expansion of the Pirelli
technology to produce silica from rice
husk also for Premium tyres - 2017
MATERIALS
• NATURAL RUBBER: research on
alternative sources; Guayule project with
Versalis (ENI Group) – 2016
• FUNCTIONALIZED POLYMERS:
research on innovative polymers that
guarantee reduced environmental
impact, greater driving safety and
improved production efficiency - 2015
Increasing safety
Decreasing environmental impact
Increasing production efficiency is the steady amount of R&D
investments for the 2014-2017 period
7% OF PREMIUM TYRE REVENUES
15
GROWTH: PRODUCT DEVELOPMENT Enhancement of Green and Safety performance
Rolling Resistance
Wet grip
Noise
BASE -10% -20%
BASE +5% maintained
BASE -12% -15%
TRUCK
BASE -0% -10%
BASE +20% +40%
MOTO
BASE -20% -40%
BASE +5% maintained
BASE -10% -20%
CAR
2007 Today 2020 2007 Today 2020 2007 Today 2020
CAR
Rolling Resistance
Mileage
Noise Dry grip
Wet grip
Weight
TRUCK
Traction Handling
Weight
Rolling Resistance Noise
Mileage
Retreadibility
Tear
Resistance
Wet Braking Weight
Rolling Resistance Predictability
Wet Performance Mileage
Braking
MOTO
Current generation Previous generation (before 2007) 2015 2020
Less CO2 emissions
Better living environment
Increased tyre life
Less impact on natural resources
Less rolling resistance
Less noise
Increased mileage
Less weight
TARGET 2020
Milan – Rome – Milan (1,100 km)
Old tyre vs. 2020 Pirelli tyre:
- 14 litres gasoline
- 42 kg CO2
16
2011
48%
37%
40%
42%
47%
CONSOLIDATED PLAN
45% postponed
GROWTH: PIRELLI GREEN PERFORMANCE REVENUES
• Strong growth of Tyre Green Performance revenues on total Tyre revenues
• The key performance indicator covers products with Rolling Resistance and Wet Grip in the A, B, C classes of
EU Tyre label. The strictest rule applies to:
• all Tyre business units (CAR, TRUCK, MOTO, AGRO)
• worldwide products and markets
• Target set in 2010 (45% by 2013) to be reached in 2015 in line with market slowdown impacts
Tyre revenues driven by sustainable products
2012 2013 2015 2017
17
AGENDA
18
PIRELLI SUSTAINABILITY TODAY
ACKNOWLEDGEMENTS AND ACHIEVEMENTS
THE EVOLVING CONTEXT
SUSTAINABILITY PLAN:
RETURN ON CAPITAL • GROWTH
• PRODUCTIVITY
• GOVERNANCE & RISK MANAGEMENT
PRODUCTIVITY
2009 2010 2011 2012 2013 2014 2015 2016 2017
100*
97
99 100
98
92
88
85
100 99 102 102
96
91
88
2020
82
85
Energy consumption & CO2 emissions
-18% ENERGY SPECIFIC CONSUMPTION 2020
-15% CO2 SPECIFIC EMISSION 2020
15 €/mln will be invested in energy efficiency projects in 2014-17 with expected savings of ~25 €/mln
and environmental benefits equal to 6,400,000 GJ of energy saved and 400,000 tons of avoided CO2
85 postponed
91
94
CONSOLIDATED PLAN TARGET
• Energy consumption and CO2 emissions expected to strongly decrease by 2020
• Targets set in 2010 of -15% by 2015 vs. 2009 for both energy and CO2 are postponed to 2017 and 2020 respectively, due to the economic slowdown for energy, and disproportionate growth of productive volume in carbon-intensive markets for CO2
• New pilot projects (photovoltaic plants, solar heat plants, biomass heat plants) are planned to balance the growth of CO2 emissions in carbon-intensive markets
• 20 Mln € invested since 2010, already saved 10.6 Mln€ with an environmental advantage of 1,600,000 GJ of energy saved and 50,000 tons of avoided CO2
* Value calculated in % and normalized on tons of produced tyres; trends restated with new acquisitions (Russia)
19
100*
93
76
83
72 68
64
58 50
PRODUCTIVITY Water withdrawal
42
* Value calculated in % and normalized on tons of produced tyres; trends restated with new acquisitions (Russia)
30 postponed and restated -58% WATER SPECIFIC WITHDRAWAL 2020
Driving our investment also based on a water-availability risk scenario;
11,000,000 m3 of water saved since 2010 and 2,700,000 m3 to be saved in 2014-17 period
• Water withdrawal trend strongly decreased and improvement is expected to continue until 2020, with a target of -50% by
2017 and of -58% by 2020 vs. 2009
• Target set in 2011 of -70% by 2015 vs. 2009 is postponed because of the economic slowdown and investment
rationalization
2009 2010 2011 2012 2013 2014 2015 2016 2017 2020
CONSOLIDATED PLAN TARGET
20
73* 70
76
82 83 84
85
88 90
• Target for waste recovery rate on track (85% by 2015)
• Target no waste to landfill by 2020 (≥95% by 2020)
• Efficiency actions for scrap internal recovery: ~60 €/mln savings in the 2013-17 period
PRODUCTIVITY Waste recovery
>95
*Trends restated with new acquisitions (Russia)
Towards zero waste to landfill
>95% WASTE RECOVERY RATE 2020
2009 2010 2011 2012 2013 2014 2015 2016 2017 2020
CONSOLIDATED PLAN TARGET
21
MERIT & ETHICS
• Remuneration Policy alignment with Pirelli development strategy through long-term
Incentive plans
• Non-financial targets in Executive evaluation system
TRAINING & EDUCATION
• Further increase the T&E investment: from 5.5 man/days on average in 2013 to 7
man/days on average in 2015, and ≥7 onwards
• Academies dedicated to specific training for each Professional Family
• School of Management: cross-function soft skills and leadership training
OCCUPATIONAL HEALTH & SAFETY
• Engaging Employees in safety as a culture: Target Accident Frequency Index ≤0.2 in
2020
DIVERSITY
• Representation of Women in the Board: 15%
• Women in management positions: 19%
• 91% of Employees work outside Italy
• 61% of senior manager experienced at least an expat during her/his career
• New proxy matching performance, grade, seniority, etc. to identify any remuneration
gap
DIALOGUE & RULES
• Regular consultation of our Employees through opinion surveys: new Trust Index
measurement
• Applying the same Procedures and Policies group-wide
PRODUCTIVITY: HUMAN CAPITAL MANAGEMENT An employer of choice strategy
22
Targeting ZERO accident is a CHOICE, not a chance
23
2009 2010 2011 2012 2013 2014 2015 2016 2017 2020
• Target to reduce the accident frequency index (IF) by 60% in 2015 from its 2009 level reached 2 years in advance
• New target: -90% accident frequency index (IF) reduction by 2020 vs. 2009 – Frequency Index ≤0.2
• Safety Culture: global extension of “Excellence in Safety” program supported by “DuPont Sustainable Solutions” and
Behavior Based Safety (BBS) programs
• Investment focus on Machineries Safety, Industrial Hygiene, Ergonomics
1.76*
1.53
1.10
0.77
0.70 0.65 0.58
0.52 0.45
<0.2
in advance 0.70
CONSOLIDATED PLAN TARGET
≤ 0.2 INJURIES FREQUENCY INDEX 2020 -90%
PRODUCTIVITY: HUMAN CAPITAL MANAGEMENT Health & Safety focus
* Injuries Frequency Index: number of accidents per 100,000/total hours worked; trends restated with new acquisitions (Russia)
AGENDA
24
PIRELLI SUSTAINABILITY TODAY
ACKNOWLEDGEMENTS AND ACHIEVEMENTS
THE EVOLVING CONTEXT
SUSTAINABILITY PLAN:
RETURN ON CAPITAL • GROWTH
• PRODUCTIVITY
• GOVERNANCE & RISK MANAGEMENT
25
"A domestic stock with
a multi-business model"
"A more international stock
with a focus on Premium"
Already in-line with Int'l best practices:
• A Board with a majority of
Independent Directors
• 2 governing committees exclusively
composed of Indipendent Directors
2009 2011
73.8% free float
TODAY
49.3%
45.5%
5.2%
Shareholder
Pact*
Camfin
Free
float
16%
49.3%
45.5%
5.2%
Free
float
Camfin
Shareholder
Pact*
Int'l
Institutional
Investors (including SRIs**)
27%
Camfin
36%
Free
float
26,2%
73,8%
Nuove Partecipazioni (MTP) 39.09%
Lauro 54: 24.06%
Intesa Sanpaolo:18.43%
Unicredit: 18.43%
GOVERNANCE
Introduction of 2 new crucial committees
• Nominations and Successions
• Strategies
Further enhanched with reduced
number of Board: 15 Directors vs
current 20
Key role of the Board in overseeing
risk management process
* including 21% of Camfin stake; shareholder pact was dissolved on October 31, 2013
** SRIs: Socially Responsible Investors
GOVERNANCE Pirelli Shareholder structure and Governance evolution
Int'l
Institutional
Investors (including SRIs**)
Int'l
Institutional
Investors (including SRIs**)
PBIT@Risk and CASH_FLOW@Risk
ENTERPRISE RISK MANAGEMENT 360°approach
Business interruption
Health and safety
Environment
Information technology
Asset & people security
Business compliance
Product innovation
Industrial capacity and
process quality
HR management
JV and M&A
Tax planning
Financial assets & liability
management
2013 2017
47
€/Mln
64
€/Mln
Risk mitigation and transfer with
investments through all operational areas
Risk-taking Risk measurement tools
and stress test analysis
Commodity price
volatility
Future regulations
Competitor and
consumer behaviour
Country risks
Exchange rates
Market trends
CAPEX and OPEX invested in Risk Mitigation / Prevention and Transfer
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
3,5%
Pro
bability
AR PBIT [M EUR]
424 M €
74% probabilità di avere PBIT < AR PBIT 26% probabilità di avere PBIT > AR PBIT
Probabilità di avere:
PBIT < 540 M€ 19 %
540 < PBIT < 599,5 M€ 55 %
599,5 < PBIT < 660 M€ 25 %
PBIT > 660 M€ 1 %
718 M €
660 M €
PBIT atteso 572,6 M€
AR PBIT 599,5 M€
540 M €
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
3,5%
Pro
bability
AR PBIT [M EUR]
424 M €
74% probabilità di avere PBIT < AR PBIT 26% probabilità di avere PBIT > AR PBIT
Probabilità di avere:
PBIT < 540 M€ 19 %
540 < PBIT < 599,5 M€ 55 %
599,5 < PBIT < 660 M€ 25 %
PBIT > 660 M€ 1 %
718 M €
660 M €
PBIT atteso 572,6 M€
AR PBIT 599,5 M€
540 M €
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
3,5%
Pro
bability
AR PBIT [M EUR]
424 M €
74% probabilità di avere PBIT < AR PBIT 26% probabilità di avere PBIT > AR PBIT
Probabilità di avere:
PBIT < 540 M€ 19 %
540 < PBIT < 599,5 M€ 55 %
599,5 < PBIT < 660 M€ 25 %
PBIT > 660 M€ 1 %
718 M €
660 M €
PBIT atteso 572,6 M€
AR PBIT 599,5 M€
540 M €
CAGR
+8.3%
26
STRATEGIC BUSINESS RISKS OPERATIONAL TRANSVERSAL RISKS
Risk
minimization
& business
continuity
ESG DRIVERS INTEGRATED INTO GROUP-WIDE SUPPLY CHAIN MANAGEMENT
• Scouting and homologation phases: ESG assessment (weight of Sustainability score is 33% on final selection rate)
• Contractual phase: Sustainability Clauses
• Risk Assessment: Economic, Environmental, Social, Governance, Reputation with an ESG Vendor rating phase
through third party audits – 190 Audits performed = 100% of Suppliers at risk assessed since 2009
NEW GREEN SOURCING POLICY
• Key concepts: “lifecycle” and “reduction, reuse and recovery”
• From Engineering to Logistics: broadening the organization vision to reduce the environmental impact of purchased
goods and services throughout the entire supply chain
SUSTAINABILITY IN SUPPLIERS AWARD
• Acknowledging Suppliers sustainable performance on Economics, Environmental, Social, Business Ethics as a
competitive advantage
SPREADING SUSTAINABLE DEVELOPEMENT IN NATURAL RUBBER VALUE CHAIN
• Proactive role within International Rubber Study Group (IRSG) to draft “ Sustainability in Natural Rubber Industry”
standard
Governance and Engagement
SUPPLY CHAIN RISK
* ESG: Environmental, Social, Governance
27
PIRELLI VISION 2020
SMART, EFFICIENT, PROFITABLE, INNOVATION-DRIVEN
ACCOUNTABLE AND ENGAGED TO ITS STAKEHOLDERS
A SUSTAINABLE COMPANY
28
DISCLAIMER
29
This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s current
expectations and projections about future events and does not constitute an offer or solicitation for the sale, purchase or
acquisition of securities of any of the companies mentioned and is directed to professionals of the financial community.
These statements appear in a number of places in this presentation and include statements regarding the intent, belief or
current expectations of the customer base, estimates regarding future growth in the different business lines and the global
business, market share, financial results and other aspects of the activities and situation relating to the Company. \
Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual
results may differ materially from those expressed in or implied by these forward looking statements as a result of various
factors, many of which are beyond the ability of Pirelli & C SpA to control or estimate precisely. Consequently it is
recommended that they be viewed as indicative only.
Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of
this presentation.
Pirelli & C. SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements
which may be made to reflect events and circumstances after the date of this presentation, including, without limitation,
changes in Pirelli & C. SpA business or acquisition strategy or to reflect the occurrence of unanticipated events.
Statement
The Manager mandated to draft corporate accounting documents of Pirelli & C. SpA. Francesco Tanzi, attests – as per
art.154-bis. comma 2 of the Testo Unico della Finanza (D.Lgs. 58/1998) – that all the accounting information contained in this
presentation correspond to the documented results, books and accounting of the Company.