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Pirelli & C — Earnings Release 2018
Feb 14, 2019
4052_ip_2019-02-14_71230b0b-4069-4081-b55b-233ef23eb702.pdf
Earnings Release
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PIRELLI, GLOBAL HIGH VALUE
DISCLAIMER
In General. This disclaimer applies to this document and any oral comments of any person presenting it. This document, taken together with any such oral comments, is referred to herein as the "Presentation". This document has been prepared by Pirelli & C. S.p.A. ("Pirelli" or the "Company" and, together with its subsidiary the "Group"). The Presentation is being furnished to you for information purposes only and for use in presentations of the results and strategies of the Group.
No distribution of this Presentation. This Presentation is being furnished to you solely for your information and may not be reproduced, in whole or in part, or redistributed to any other individual or legal entity.
Forward-looking statement. ""Forward-looking statements" (which expression shall include opinions, predictions or expectations about any future event) that may be contained in the Presentation are based on a variety of estimates and assumptions by the Group, including, among others, estimates of future operating results, the value of assets and market conditions. These estimates and assumptions are inherently uncertain and are subject to numerous business, industry, market, regulatory, geo-political, competitive and financial risks that are outside of the Group's control. There can be no assurance that the assumptions made in connection with the forward-looking statements will prove accurate, and actual results may differ materially. The inclusion of the forward-looking statements herein should not be regarded as an indication that the Group considers the forward-looking statements to be a reliable prediction of future events and the forward-looking statements should not be relied upon as such. Neither the Group nor any of its representatives has made or makes any representation to any person regarding the forward-looking statements and none of them intends to update or otherwise revise the forward-looking statements to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the forward-looking statements are later shown to be in error.
No update. The information and opinions in this Presentation is provided to you as of the dates indicated and the Group does not undertake to update the information contained in this Presentation and/or any opinions expressed relating thereto after its presentation, even in the event that the information becomes materially inaccurate, except as otherwise required by applicable laws.
Verbal explanation. This Presentation has to be accompanied by a verbal explanation. A simple reading of this Presentation without the appropriate verbal explanation could give rise to a partial or incorrect understanding.
No offer to purchase or sell securities. The information, statements and opinions contained in this Presentation are for information purposes only and do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of an offer to purchase or subscribe for securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments. None of the securities referred to herein have been, or will be, registered under the U.S. Securities Act of 1933, as amended, or the securities laws of any state or other jurisdiction of the United States or in Australia, Canada or Japan or any other jurisdiction where such an offer or solicitation would be unlawful (the "Other Countries"), and there will be no public offer of any such securities in the United States. This Presentation does not constitute or form a part of any offer or solicitation to purchase or subscribe for securities in the United States or the Other Countries.
Rounding. Due to rounding, numbers presented throughout this Presentation may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.
This Presentation has been prepared on a voluntary basis since the financial disclosure additional to the half-year and annual ones is no longer compulsory pursuant to Law 25/2016 in application of Directive 2013/50/EU. Pirelli is therefore not bound to prepare similar presentations in the future, unless where provided by law.
Neither the Company nor any member of the Group nor any of its or their respective representatives, directors, employees or agents accept any liability whatsoever in connection with this Presentation or any of its contents or in relation to any loss arising from its use or from any reliance placed upon it.
Francesco Tanzi, the manager in charge of preparing the corporate accounting documents, declares that, pursuant to art. 154-bis, paragraph 2, of the Legislative Decree no. 58 of February 24, 1998, the accounting information contained herein correspond to document results, books and accounting records.
Non-IFRS and Other Performance Measures
This Presentation contains certain items as part of the financial disclosure which are not defined under IFRS. Accordingly, these items do not have standardized meanings and may not be directly comparable to similarly-titled items adopted by other entities.
***
Pirelli management has identified a number of "Alternative Performance Indicators" ("APIs"). These APIs (i) are derived from historical results of Pirelli & C. S.p.A. and are not intended to be indicative of future performance, (ii) are non-IFRS financial measures and, although derived from the Financial Statements, are unaudited and (iii) are not an alternative to financial measures prepared in accordance with IFRS.
The APIs presented herein are [EBIT, EBIT margin, EBITDA, EBITDA margin, net income and net income margin.
In addition, this Presentation includes certain measures that have been adjusted by us to present operating and financial performance net of any non-recurring events and non-core events. The adjusted indicators are EBITDA adjusted, EBITDA adjusted without start up costs, EBIT, EBIT adjusted, EBIT adjusted without start up costs,, net income adjusted.
In order to facilitate the understanding of our financial position and financial performance, this Presentation contains other performance measures, such as Fixed Assets related to continuing operations, Provisions, Operating Working Capital related to continuing operations, Net Working Capital related to continuing operations, Net Financial (liquidity) / debt Position.
These measures are not indicative of our historical operating results, nor are they meant to be predictive of future results.
These measures are used by our management to monitor the underlying performance of our business and operations. Similarly entitled non-IFRS financial measures reported by other companies may not be calculated in an identical manner, consequently our measures may not be consistent with similar measures used by other companies. Therefore, investors should not place undue reliance on this data.
WHERE WE ARE
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In the first 2 years of our 2017-2020 plan we:
- ▬ Delivered our High Value strategy, despite the tough 2H 2018 context with car industry facing several headwinds, especially in 4Q
- ▬ Lowered our Standard volumes vs. initial plan, with a significant reduction in 2H 2018, that brought our standard volumes below IPO plan trajectory
Looking ahead we:
- ▬ Will continue delivering our High Value strategy to achieve 2020 High Value IPO targets, and
- ▬ Will present a new Long-Term Plan in 4Q 2019, that will include a wider Restructuring Plan on Standard, where the disengagement will proceed
FY 2018 RESULTS
14 February 2018
(preliminary and unaudited figures)
2018 DELIVERY AND 2019 OUTLOOK
REVIEW OF 2018 RESULTS
APPENDIX
2018 RESULTS
| (14 Nov. 2018) | ||||
|---|---|---|---|---|
| 2018E | 2018 Actual | |||
| Revenues | ~€5.2 bln | €5,195 Million | ||
| High Value weight | ~64% | 63.7% | ||
| Volumes | ~-2.0% | -3.1% | ||
| ▬ High Value volumes |
~+13% | +11% | ||
| ▬ Standard volumes |
~-12% | -14% | ||
| Price/mix | ~+6.5% | +6.8% | ||
| Forex | -7.0% ÷ -6.5% |
-5.9% | ||
| IFRS 15 impact1 | -0.6% | -0.7% | ||
| Adjusted EBIT w/o start-up costs2 | >€1.0 bln | €1,003 Million | ||
| High Value weight | >83% | 83.2% | ||
| Start-up costs | ~€40 Million | €48 Million | ||
| Adjusted EBIT | ~€1.0 bln | €955 Million | ||
| Net financial position / adj. EBITDA w/o start-up costs2 |
~2.35X | 2.49X | | |
| CapEx | ~€460 Million | €463 Million | ||
1. In accordance with IFRS 15 (starting from January 1st 2018), some costs for variable considerations paid or payable to indirect customers & mainly linked to achieving sale targets are recognized as a reduction of revenues; 2. Before amortization of PPA, non-recurring items, restructuring costs, other adjustments and start-up costs
2018: IN OUR STRATEGIC ≥18" MARKET, WE DELIVERED IN LINE WITH IPO TARGETS
- > ≥18": Gaining Market share, strengthening our leadership
- Prestige: O.E. market share >50%, gaining more than 5 percentage point YoY >
- Specialties: Seal Inside and PNCS +50% volumes YoY >
- Pull through effect: +3 pp YoY reaching 83% >
2018: IN STANDARD WE ACCELERATED REDUCTION, ESPECIALLY IN 2H…
CAR TYRE MARKET O.E. + REPLACEMENT ≤17"
CAR PIRELLI VOLUMES O.E. + REPLACEMENT ≤17"
- > ≤15" and second brands: intentionally trimming lower rims and less profitable sizes
- > LatAm: severe market contraction, intensifying in 2H (1H Repl. -3%, O.E. +9%; 2H Repl. -13%, O.E. -5%)
…AND WE TOOK COUNTER-MEASURES WITH A "CRASH" COST-CUTTING PROGRAM
2018 "Crash" Cost cutting program
€50 million cost reduction to counter LatAm market fall and accelerated global Standard reduction, of which:
- ▬ €30M recurring (non-core marketing and advertising budgets, purchases)
- ▬ €20M one-offs (plant overheads and staff cost)
2019 OUTLOOK: A MILDER GROWTH THAN EXPECTED AT IPO
Source: IHS Markit Forecasts (Jan-2019 vs. Jul-2017) for Macroeconomic and FX data; company elaborations from third party providers for Raw Materials (Jan-2019 vs. Jul-2017)
2019 ≥18" MARKET: OUTPACING STANDARD ONCE AGAIN, WITH O.E. STILL WEAK IN 1H AND FULLY RECOVERING IN 2H
O.E. + REPL. ≥18" CAR TYRE MARKET 2019 million tyres
Source: Company elaborations based on third party data relative to car market and on data provided by local associations of tyre producers
IN 2019 FURTHER STANDARD RATIONALIZATION
STANDARD CAPACITY EVOLUTION 2016-2019
million pcs
▬ P&L and cash impacts covered by Patent Box benefits
IN 2019 WE WILL BENEFIT FROM INCREASING IMPACT OF OUR 3 KEY PROGRAMS
KEY PROGRAMS 2019 DELIVERABLES
- 1 + VARIETY – COMPLEXITY
- ▬ Component Commonality
- ▬ Product Modularity
- ▬ Debottlenecking
- 2 DIGITAL TRANSFORMATION
LONG-TERM COST OPTIMIZATION
▬ Digital Enablers in place: Talent, Data Infrastructure, Cloud
11
- ▬ New Sales and Marketing Model to be deployed in Europe (High Value)
- ▬ New Manufacturing Scheduling & Execution System
- ▬ Organization simplification (e.g. from 6 Regions to 5)
- ▬ Marketing optimization
- ▬ Supplier base optimization
2019 IMPACT
3
FY 2019 OUTLOOK
| € million | 2018A | 2019E |
|---|---|---|
| (guidance Feb. 2019) | ||
| Net Sales | €5,195 million | +4% ÷ +6% YoY |
| High Value weight | ~64% | ~67% |
| Volumes | -3.1% | 0% ÷ +1.0% |
| ▬ High Value volumes ▬ Standard volumes |
+11% -14% |
~+11% -10% ÷ -9% |
| Price/mix | +6.8% | +5.0% ÷ +5.5% |
| Forex | -5.9% | -1.0% ÷ -0.5% |
| IFRS 15 impact | -0.7% | - |
| Adjusted EBIT margin | 18.4% | ~19% |
| High Value weight on adj. EBIT w/o start-up | ~83% | ~85% |
| Start-up costs | €48 million | ~€40 million |
| Net Financial Position / adj. EBITDA w/o start-up costs |
2.49X | ~2.1X1 |
| CapEx | €463 million | ~€430 million |
1. ~2.3x including first estimate of IFRS 16 impact
2019: DIFFERENT EXTERNAL SCENARIO AND NEW STANDARD TARGET FOOTPRINT TRIGGERING A NEW LONG TERM PLAN (in 4Q 2019)
NEW EXTERNAL SCENARIO
- ▬ GDP + tariffs
- ▬ Regulation
- ▬ Auto Industry
STANDARD
- ▬ Accelerated Reduction
- ▬ Broader Restructuring Plan
HIGH VALUE
- ▬ Strong Demand
- ▬ More Competitive business model
All our actions will keep us in line with IPO deleverage target of Net Debt / EBITDA 2020 < 2x New plan (2019-2022) will be presented in 4Q 2019
FY 2018 RESULTS
14 February 2018
(preliminary and unaudited figures)
2018 DELIVERY AND 2019 OUTLOOK
REVIEW OF 2018 RESULTS
APPENDIX
FY 2018 RESULTS
14 February 2018
(preliminary and unaudited figures)
FY 2018 PERFORMANCE BY HIGH VALUE REGIONS
1. Before amortization of PPA, non-recurring items, restructuring costs and other adjustments; 2. Standard & other (including Controlled Distribution & Other)
2019 STRATEGY BY HIGH VALUE REGIONS
- ▬ Maximize pull-through exploiting Business Model predictability
- ▬ Continue the reduction of Standard
- ▬ Execute cost reduction programs to support profitability improvement
-
▬ Increase O.E. share in Prestige / Premium maintaining profitability
-
▬ Extend national distribution
- ▬ Improve penetration in All Season segment
- ▬ Growing O.E. presence
footprint (Tier 1)
▬ New JV factory start-up
FY 2018 RESULTS
14 February 2018
(preliminary and unaudited figures)
- ▬ Continuous H.V. top line growth maximizing pull-through rate
- ▬ O.E. contracts with Premium Asian car makers
FY 2018 PERFORMANCE BY STANDARD REGIONS
1. Before amortization of PPA, non-recurring items, restructuring costs and other adjustments; 2. Standard & other (including Controlled Distribution & Other)
2019 STRATEGY BY STANDARD REGIONS
- ▬ Further focus on mix improvement
- ▬ Normalization of stock levels
- ▬ Strengthen the position of "industrial hub" to support H.V. growth in the U.S. market
-
▬ Cost rationalization program
-
▬ Increase share in H.V. segments supported by New Ice Zero 2 product launch
- ▬ Reinforce O.E. presence in H.V. projects
- ▬ Source of High Value export to Europe
FY 2018 NET SALES BRIDGE
1. In accordance with IFRS 15 (from January 1st, 2018), some costs for variable considerations paid or payable to indirect customers and mainly linked to achieving sales targets are recognized as a reduction of revenues
FY 2018 RESULTS (preliminary and unaudited figures) 14 February 2018
FY / 4Q 2018 OPERATING PERFORMANCE
PIRELLI, GLOBAL HIGH VALUE
FY 2018 CASH FLOW AND NET FINANCIAL POSITION
€ billion
4Q 2018 Working Capital dynamics:
- ▬ Inventories: growth in Standard, especially in South America
- ▬ Trade receivables: temporary extension of payment terms to major Brazilian dealers
- ▬ Factoring: back to the historical level, after the 2017 hike
1. Taxes, Interests, Financial activities and others;
Action plan to limit working capital absorption in 2019
- ▬ Inventories: standard production schedule review to bring stock/sales below 20% (from 21.7% in 2018)
- ▬ Trade receivables: recovery of payment terms in Brazil
- ▬ Factoring: now at stabilized level
2018 DELIVERY IN SUSTAINABILITY
| KPIs | 2017 | 2018 | Targets 2020 |
|
|---|---|---|---|---|
| Green Performance Tyres revenues1 | 43.5% | 49.8% | >50% >65% on H.V. |
|
| Accident frequency index reduction | -83% (vs. 2009) |
-81% (vs. 2009) |
-87% (vs. 2009) |
|
| Plant CO2 specific emissions reduction |
-10%* (vs. 2009) |
-13% (vs.2009) |
-17% (vs. 2009) |
|
| Specific energy consumption reduction |
-16%* (vs. 2009) |
-16% (vs. 2009) |
-19% (vs. 2009) |
|
| Electricity from renewable sources2 | 44%* | 41% | | |
| Waste recovered | 93%* | 96% | ACHIEVED ≥95% |
|
| Specific water withdrawal reduction | -63%* (vs. 2009) |
-66% (vs. 2009) |
ACHIEVED -66% (vs. 2009) |
|
| Avg. rolling resistance of car tyres reduction |
-15% (vs. 2009) |
-16.4% (vs. 2009) |
-20% (vs. 2009) |
|
| Average training days per capita | 8 | >8 | ≥7 days | |
| *. data restated after changes in the Group scope |
1. Figure obtained by weighing the value of sales of Green Performance tyres on the total value of sales of Group tyres; Green Performance products identify tyres that Pirelli produces throughout the world and that fall only under rolling resistance and wet grip classes A, B, C according to the labelling parameters set by European legislation. 2017 value updated after new data acquisition; 2. Internal evaluation on International Energy Agency (IEA) data considering Pirelli geographical breakdown; 3. Confirmed by third party (Feb. 2018); 4. with a score of 81 points vs. sector median of 32 (Sept. 2018); 5. Edited by RobecoSAM, who is responsible for evaluations of inclusion in the Dow Jones Sustainability Index; Note: Preliminary unaudited results
AGENDA
2018 DELIVERY AND 2019 OUTLOOK
REVIEW OF 2018 RESULTS
APPENDIX
4Q / FY 2018 RESULTS HIGHLIGHTS
€ million
| 4Q'17 | 4Q'18 | Δ YoY | FY'17 | FY'18 | Δ YoY | |
|---|---|---|---|---|---|---|
| Revenues | 1,314 | 1,269 | -3.4% | 5,352 | 5,195 | -2.9% |
| Organic Growth1 | +1.0% | +3.7% | ||||
| High Value Revenues | 734 | 780 | +6.2% | 3,079 | 3,309 | +7.5% |
| Organic Growth1 | +6.4% | +10.3% | ||||
| % on total Revenues | 55.9% | 61.5% | +5.6 pp | 57.5% | 63.7% | +6.2 pp |
| EBITDA adjusted w/o start-up costs2 | 309 | 343 | +10.8% | 1,175 | 1,279 | +8.9% |
| Margin | 23.6% | 27.0% | +3.4 pp | 22.0% | 24.6% | +2.6 pp |
| EBITDA adjusted3 | 301 | 327 | +8.5% | 1,138 | 1,235 | +8.5% |
| Margin | 22.9% | 25.8% | +2.9 pp | 21.3% | 23.8% | +2.5 pp |
| EBIT adjusted w/o start-up costs2 | 245 | 271 | +10.3% | 927 | 1,003 | +8.2% |
| Margin | 18.7% | 21.3% | +2.6 pp | 17.3% | 19.3% | +2.0 pp |
| EBIT adjusted3 | 234 | 255 | +8.8% | 876 | 955 | +9.0% |
| Margin | 17.8% | 20.1% | +2.3 pp | 16.4% | 18.4% | +2.0 pp |
| EBIT | 133 | 112 | -15.7% | 674 | 703 | +4.4% |
| Margin | 10.1% | 8.8% | -1.3 pp | 12.6% | 13.5% | +0.9 pp |
1. Excl. FX / perimeter; 2. Before non-recurring items, restructuring costs, other adjustments and start-up costs; 3. Before amortization of PPA, non-recurring items , restructuring costs, other adjustments
2018 HIGH VALUE ACHIEVEMENTS
FY 2018 RESULTS
14 February 2018
(preliminary and unaudited figures)
2019E RAW MATERIAL GUIDANCE
€ million
2019E FOREX GUIDANCE
€ million
FY 2018 RESULTS
14 February 2018
(preliminary and unaudited figures)
PIRELLI, GLOBAL HIGH VALUE
KEY CAR MARKET TRENDS: EUROPE
Source: Pirelli tyre market estimates based on main data provider for the Region; historical market data may be subject to restatement
KEY CAR MARKET TRENDS: NAFTA
Source: Pirelli tyre market estimates based on main data provider for the Region; historical market data may be subject to restatement; 1. NAFTA Replacement includes imports
29
KEY CAR MARKET TRENDS: APAC
Source: Pirelli tyre market estimates based on main data provider for the Region; historical market data may be subject to restatement
FY 2018 RESULTS (preliminary and unaudited figures) 14 February 2018
KEY MARKET TRENDS: RUSSIA & CIS AND SOUTH AMERICA
Source: Pirelli tyre market estimates based on main data provider for the Region; historical market data may be subject to restatement; 1. South America Replacement restated to include Brazilian imports