The tyre manufacturer for high-end carmakers and racing teams, Pirelli, announced a new strategic plan recently in which it would focus on margin growth over the next two years. The company expects its margin on adjusted earnings before interest and tax (EBIT) to rise to between 18% and 19% through 2022, up from 17.2% last year, and; has planned “significant” increases to production capacity for premium tyres to about 71% of total tyre capacity in 2022, from 65% last year.
Despite a slump in global car production, Pirelli expects to outperform the wider market for premium tyres by about three percentage points, with average annual volume growth of about 9%, over the plan’s three-year-period.
The group also aims to reduce its capital expenditure as “optimal” capacity in the premium segment is reached, with further increases to be achieved by conversion of existing operations. While its adjusted EBIT fell 3.9% last year to USD991 million, in line with expectations, the company said it plans to cut about USD553.2 million in costs over the next three years, mainly through a review of its product range, component simplification, supplies savings and a planned reorganisation of production in Brazil and at one of its Italian plants.
In addition, Pirelli plans to begin a gradual resumption in operations at two factories in China from next week after shutdowns because of the coronavirus outbreak.Its other Chinese plant is operating at reduced capacity.
Commenting on these plans, Pirelli Chief Executive Marco Tronchetti Provera said the company’s position in a premium market segment negates the need for takeovers to drive growth, but does not include any merger and acquisition activity at the moment.
“We are always open to consider tie-ups if they are value-accretive for the company, but nothing is on the table now.”