Company Profile

Entering a new phase of value creation for all stakeholders

Entering a new phase of value creation for all stakeholders

For us, is more than a product. It is not just about black, round tyres with enhanced performance. Is a way of doing business, geared to value creation which serves all stakeholders, from shareholders to customers.

From the beginning, Pirelli’s internal culture has emphasised technology and innovation. Now, our focus is evolving to embrace a better understanding of customer needs. This is all embodied in the industrial plan for 2013-2017, presented in London in November 2013.

The industrial plan lays out strategies in four key areas of the business: Car, Motorbike, Truck and Agricultural. It provides for:

  • Growth in the business segments with the highest value. Premium is expected to account for 60% of revenues in the Car business in 2016, compared with 55% in 2014.
  • A more competitive offering in the medium car tyre segment with a focus on specialty products such as winter and self-sealing tyres. At the same time, emphasis is being placed on production cost reduction through process and platform standardisation, and manufacture in low-cost countries.
  • Maintaining leadership of the Industrial business in the key markets of South America, and Middle East and Africa, along with business development in Europe and partnerships in the Asia Pacific region. This is to be accomplished by a more competitive offering and all production in low-cost facilities.
  • Continuous innovation in products including 14 new lines of Car products, 21 of Moto products and 11 of Truck products by the end of 2017. The new Car product lines include six for the winter season and consideration of the specific demands of different regions. There is also growth in niche products such as run-flat, self-sealing and noise reduction models, PNCS.
  • Implementation of a new efficiency programme saving €350 million between 2013 and 2017, amounting to 1% of revenues each year
  • Careful management of working capital.
  • Selective investments in high-return projects: there is €1.6 billion in capex in the 2014-17 period.

The industrial plan’s key targets for 2017 include:

  • Profitability above 15% Ebit margin.
  • ROI at 28% compared with 22% in 2014.
  • Cash flow generation of €1.6 billion between 2014 and 2017 (€312 million in 2014).
  • A dividend policy of 40% of consolidated net income.

The industrial plan lays out strategies in four key areas of the business: Car, Motorbike, Truck and Agricultural.

The Car business

Pirelli’s strategy in the Car business has three pillars. First, there will be an acceleration of the Premium strategy. Volumes in the Premium segment are expected to reach 44% of the total in 2016 compared with 38% in 2013, and revenues will account for 60% of the total in 2016.

An essential element of Premium growth is the ‘pull-through’ effect, working on the sales of tyres on Premium cars through to their replacement in the aftermarket. Pirelli has embarked on ambitious plans to gather greater knowledge of drivers and dealers, and to educate them on the benefits of replacing the first set with the same approved tyres.

The company is also expanding its database and analytics capabilities so we can identify the areas where vehicles with approved Pirelli tyres reside and predict the evolution of demand.

For instance, a German luxury model might have a 25% share of Premium car ownership in the area south of Munich. This is valuable insight. It allows the company to work with the area’s high-end dealers, so they can be warned to stock up on marked tyres approved by that manufacturer. Wider inventory management will be introduced, allowing Pirelli salespeople access to greater detail on local markets for forecasting.

Pirelli is intensifying sales activities in the most relevant areas and will expand its retail network from 6,000 units at the end of 2013 to approximately 9,500 units in 2016.

To achieve this, Pirelli will invest more in its partnerships with dealers, rewarding successful operators, targeting independent tyre specialists and moving towards greater retail integration with its whole production and sales operation.

More attention will be paid to consumers, through a retail network integration programme and targeted marketing actions including new levels of service for busy people with Premium cars. A Pirelli dealer could for example take away your car and have new tyres fitted while you are in the office.

The second pillar for the Car business provides for a more competitive offering in the medium range, through the development of specialty tyres and specific efficiency measures. The medium range still includes high-margin products and has a dominant position in some countries such as Brazil.

The third and final pillar for the Car business is an efficiency plan to reduce costs by approximately €290 million in the four years to 2017. This will be possible through design-to-cost projects, using a more versatile range of compounds and structures; rationalising the product portfolio; standardising components; concentrating production in low-cost plants in countries such as China, Romania and Russia; and extending products like run-flat and winter tyres to non-Premium segments.

The company likens Formula One to a gym:
it can only come out better and stronger.

Motorbike business

The industrial plan for Moto aims to consolidate technological leadership and expand to new fast-growing markets. The main points are:

  • In Europe, to strengthen Pirelli’s leadership in the Premium segment through technological innovation, a strong commercial presence and closer proximity to end consumers.
  • In North America, to rank first or second in all major segments by extending the distribution network and implementing the company’s digital strategy.
  • In South America, to drive technological development in the Premium market with a renewed sales strategy and a more intensive use of Pirelli’s proprietary retail chain.

There are other important developments. A new Moto tyre plant will open in Indonesia in 2015. Situated outside Jakarta, the factory is a joint venture with Astra Otoparts, an Indonesian component maker. Pirelli holds the majority stake.

The Indonesia plant will serve demand in its home country and in other parts of south-east Asia, including Vietnam, Thailand, the Philippines and Malaysia. It will make Premium and non-Premium tyres.

Truck business

The needs of large fleets are the most powerful influence on manufacturers and component makers in the truck business. In this sector, the cost of a tyre through its life cycle is crucial: when multiplied over many vehicles, any savings can be hugely significant. This means not only the cost of buying the tyre, but also the time it will last and its fuel efficiency.

Pirelli’s Cyber Fleet service, with embedded sensors in tyres, can provide data to improve safety and efficiency. This can achieve fuel savings of up to 10 %, or €800 a year in a single truck. This offers huge potential when some fleet managers own 10,000 trucks.

Pirelli aims to consolidate its leadership in the truck division in the following ways:

  • In South America, through the introduction of the 01 Series, a renewed offering of fleet services and expansion of the distribution network.
  • In the Middle East and Africa, through an extension of the product portfolio, the introduction of Pirelli Fleet Solutions, the development of the sales force and greater integration with dealers.
  • In Europe, a strong boost to profitability is envisaged from the rollout of the 01 Series and the use of low-cost sources for production.
  • Our target in the Asia Pacific region is to improve positioning by co-operating with new distributors and partners, extending the retail network and optimal management of plant capacity.

The needs of large fleets are the most powerful influence on manufacturers and component makers in the truck business.

Agricultural business

Pirelli is by far the market leader in the South American Agro Tyre segment. Pirelli plays to its strengths in the Premium end of the market, serving large professional farmers and agricultural companies who use larger tractors.

Pirelli aims to consolidate its leadership through:

  • Investments in local production capacity and R&D.
  • Technological innovation, leading the development of the radial market in the region with products that can increase productivity and withstand severe stress.

In addition, the quality of the company’s product portfolio and consolidated partnerships with the main manufacturers will allow Pirelli’s agricultural business to expand to new markets. Other plans include a renewal of the product range and enhanced co-operation with major brands such as John Deere, CNH Industrial and AGCO with the aim of developing products to meet their local requirements.

Investments and production capacity

Pirelli reached its investment peak in 2011 and is now in a position to open up a whole new phase of value creation. The investments made to 2013 allowed Pirelli to achieve its optimal plant set up, including the opening of plants in Mexico, China and Romania. Production is now mainly located in countries with low industrial costs (100% of Industrial and 78% of Consumer production capacity)

The current industrial plan provides for investments between 2014 and 2017 of up to €1.6 billion, accounting for 5% of revenues in 2017 compared with 7% in 2013. Through these investments, the overall capacity of the Consumer business is growing from 70 million units in 2013 to 81 million in 2017, with the Premium segment accounting for 63% of total production. In the Industrial business, capacity is growing from 6.2 million in 2013 to 6.8 million in 2017.

Pirelli’s plants use the latest technology and are upgraded progressively, consistent with the company’s focus on Premium.

The needs of large fleets are the most powerful influence on manufacturers and component makers in the truck business.

Sustainability targets

Pirelli set sustainability targets for 2020. They integrate, support and protect our capability to achieve the business and financial targets. The plan forecasts:

  • Revenues from green performance tyres will reach at least 48% in 2017 (46% in 2014).
  • A reduction in the injury frequency index by 90% as compared with 2009.
  • The company’s lower environmental impact: as compared with 2009, a cut of 15% in CO2 emissions, an 18% cut in specific energy consumption, a reduction of 58% in specific water withdrawal, and a zero waste to landfill approach which is translated in a more than 95% waste recovery rate by 2020.

Winning the battle for talent

Pirelli has placed recruitment and talent management at the heart of its plans. We aim to hire more young people and provide an attractive career path that will lead to significant roles in the company by the time they are 35. We plan to have more local managers and more female managers. Diversity is a strength, we believe, offering more motivation, knowledge and different points of view.

Training is an important part of this. Pirelli’s Commercial Academy teaches sales staff, often through e-learning. There are 10 professional academies and 400 certified internal trainers, sometimes referred to as the ‘Green Army’. They coach staff in new plants, bringing them up to speed and updating headquarters on progress.

Each person in the company receives an average of eight days of training a year. Such programmes are all part of a continual focus on innovation that is essential to Pirelli’s future.

Pirelli has placed recruitment and talent management at the heart of its plans.
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