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BROADER VIEW, SELECTIVE CHOICES
Marco Tronchetti Provera
Chairman and CEO
2
AGENDA
3
TARGETS 2011-2013
WHY A NEW PLAN?
PIRELLI TODAY
WHAT WE WILL NOT DO
SCENARIO FOR THE 2011-2015 PLAN
PIRELLI IN 20...
4
TRANSITION TO A PURE TYRE COMPANY ACCOMPLISHED
 Tyres: ~98% of 2010 revenues
 Separation from the Real Estate Business...
2010: TARGETS OF OLD PLAN ACHIEVED
ONE YEAR IN ADVANCE
*Before dividends
Plan
2009-11
Actual
results
3.9
4.1
5.0-5.5%
7.4%...
AGENDA
6
TARGETS 2011-2013
WHY A NEW PLAN?
PIRELLI TODAY
WHAT WE WILL NOT DO
SCENARIO FOR THE 2011-2015 PLAN
PIRELLI IN 20...
KEY INDUSTRY TRENDS
Tyre industry dynamics different from automotive
1
Rising role of emerging
markets in a context of pro...
TYRE DEMAND LESS DEPENDENT
FROM AUTOMOTIVE CYCLE
Car &
LCVs
Trucks
Yearly Sales
Mln vehicles
8
844
915
936 964
1.023 1.089...
TYRE: RESILIENT PROFITABILITY
VS COST FACTORS
9
Avg top Tyre
Manufacturers
PBIT margins (1)
Natural
rubber price
Synthetic...
Source: Bloomberg
Ebit %
4.9%
6.4%
2.5%
5.7%
4.6%
4.4% 4.3% 4.6%
3.9%
3.1%
1.6%
0.8%
4.3%
8.7%
8.8%
5.5%
7.3%
6.6%
3.0%
6....
RDE DRIVE GDP RECOVERY
11
Source: ONU, Global Insight
10.1 12.6
LATAM
3,000
4,000
2009 2015
5%
GDP
(billion USD)
GDP/capit...
BROADEN THE “PREMIUM” MARKET
12
PREMIUM & LUXURY
Green Safety
Status/Allure
Comfort
Cool &
Trendy
3
Mln Passenger + Light Commercial Vehicles
PREMIUM GLOBAL CAR PARK
CONTINUE TO EXPAND
Source: Global Insight, Pirelli analy...
India
China + ASEAN
COMESA
Brazil
USA
TRADING BLOCKS
AND LOCAL-FOR-LOCAL SOURCING
* 35% in 2010, 30% in 2011 and 25% in 20...
AGENDA
15
TARGETS 2011-2013
WHY A NEW PLAN?
PIRELLI TODAY
WHAT WE WILL NOT DO
SCENARIO FOR THE 2011-2015 PLAN
PIRELLI IN 2...
Competitive industrial footprint
75% of production made in low cost/high
growth countries
Macro-regional player, leader in...
AGENDA
17
TARGETS 2011-2013
WHY A NEW PLAN?
PIRELLI TODAY
WHAT WE WILL NOT DO
SCENARIO FOR THE 2011-2015 PLAN
PIRELLI IN 2...
18
PIRELLI IN 2015
will further leverage and grow 3 “intangible assets”:
BRAND
PEOPLE
TECHNOLOGY
1
2
3
*Interbrand Brand Valuation Methodology: economic flows from brand discounted at a rate reflecting brand risk
TOP EXPLOITA...
PIRELLI IN 2015
20
“Breakthrough” materials (from renewables; from upstream alliances in rubber)
People
Technology
Increas...
2006-2010
1.5
90%
-13 mln low value tyres
PIRELLI IN 2015: LEVERAGING OUR TIMELY INVESTMENTS
€/Bln
21
Cumulated capex
Of w...
22
PIRELLI IN 2015
About 60% of volumes from our new production facilities mix
Major accomplishments
Specialized “Premium”...
* Latam, APAC, Russia, MEA
2010 2015Key indicators
% Revenues in Premium/Specialty
segments
66% 73%
% Revenues in RDE* 52%...
AGENDA
24
TARGETS 2011-2013
WHY A NEW PLAN?
PIRELLI TODAY
WHAT WE WILL NOT DO
SCENARIO FOR THE 2011-2015 PLAN
PIRELLI IN 2...
Total Revenues
EBITDA%
after continuous restructuring
EBIT%
after continuous restructuring
€/bln
Green performance on reve...
2010E
NFP
DIVIDENDS
<0.7
<1.0
>0.7
FINANCIAL &
FISCAL
CHARGES
OPERATING
CASH FLOW
0.3
0.3
€/bln
Lower tax rate thanks to h...
DEBT PROFILE
27
already sound today (Sept. 30, 2010) further strengthened by 2015
Liquidity Position 389
Total Committed
L...
AGENDA
28
TARGETS 2011-2013
WHY A NEW PLAN?
PIRELLI TODAY
WHAT WE WILL NOT DO
SCENARIO FOR THE 2011-2015 PLAN
PIRELLI IN 2...
WHAT PIRELLI WILL NOT DO IN THE PLAN
OE Vehicles on low pull-through platforms
Capacity investments in the Indian market
M...
DISCLAIMER
30
This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s
...
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Marco Tronchetti Provera - MTP BROADER VIEW, SELECTIVE CHOICES

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Marco Tronchetti Provera - Industrial Plan

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Marco Tronchetti Provera - MTP BROADER VIEW, SELECTIVE CHOICES

  1. 1. BROADER VIEW, SELECTIVE CHOICES Marco Tronchetti Provera Chairman and CEO
  2. 2. 2
  3. 3. AGENDA 3 TARGETS 2011-2013 WHY A NEW PLAN? PIRELLI TODAY WHAT WE WILL NOT DO SCENARIO FOR THE 2011-2015 PLAN PIRELLI IN 2015
  4. 4. 4 TRANSITION TO A PURE TYRE COMPANY ACCOMPLISHED  Tyres: ~98% of 2010 revenues  Separation from the Real Estate Business in October accomplished  Disposal of non core investments (Broadband Solutions, Telecom Italia, Alcatel Lucent Submarine, Oclaro) Pirelli & C transition to a “pure tyre” company accomplished:  PZero Moda/Fashion, sustain premium strategy and the Pirelli powerbrand  Eco-Tech + Ambiente: strengthen Pirelli’s commitment to “Green” Revenues 2010E Non Tyre2% Tyre 98%
  5. 5. 2010: TARGETS OF OLD PLAN ACHIEVED ONE YEAR IN ADVANCE *Before dividends Plan 2009-11 Actual results 3.9 4.1 5.0-5.5% 7.4% ~0.7* 0.5 <0.7~4.8 >7.5% >0.6 2009 actual results, 2010 FY estimates and 2011 targets (old plan) have been adjusted excluding Pirelli Real Estate and Pirelli Broadband (<0.6 before divid.) €/bln Leveraging these results, Pirelli has developed the new 2011-2013 industrial plan and the “2015 vision” for the next wave of profitable growth 5 2009A 2010E 2011E (Old Plan) Rev. Rev. Ebit % Cum capex 09-10 Rev. Ebit % NFPEbit % NFP NFP Cum Capex 09-11 <0.6*4.4-4.5 <8.0% ~0.7
  6. 6. AGENDA 6 TARGETS 2011-2013 WHY A NEW PLAN? PIRELLI TODAY WHAT WE WILL NOT DO SCENARIO FOR THE 2011-2015 PLAN PIRELLI IN 2015
  7. 7. KEY INDUSTRY TRENDS Tyre industry dynamics different from automotive 1 Rising role of emerging markets in a context of progressive economic recovery2 Evolving consumption patterns in mature markets widen the “premium” market3 Worldwide premium car park growing (also in emerging markets)4 World economy increasingly divided into trading blocks: rising importance of local-for-local sourcing5 7
  8. 8. TYRE DEMAND LESS DEPENDENT FROM AUTOMOTIVE CYCLE Car & LCVs Trucks Yearly Sales Mln vehicles 8 844 915 936 964 1.023 1.089 3.1% 2.7% 5.6% -1.0% 39 44 3,2 2,9 45 46 50 54 3,2 3,4 4,1 4,5 3.7% 4.0% 7.1% -3.2% 2010 2011 2013 20152006 2009 Park 2010 2011 2013 20152006 2009 66 64 69 74 84 90 Replacement OEM Car & LCV Tyre Sales (Avg Yearly) Replacement OEM Truck Tyre Sales (Avg Yearly) >80% <20% >70% <30% 1 Source: Global Insight, Eurostat, Anfac, Pirelli estimates
  9. 9. TYRE: RESILIENT PROFITABILITY VS COST FACTORS 9 Avg top Tyre Manufacturers PBIT margins (1) Natural rubber price Synthetic rubber price 100 = Average 2002 prices (1) Weighted average Top 10 Tyre Companies, Bloomberg 1 2002 2003 2004 2005 2006 2007 2008 2009 9M 2010 6,8% 6,8% 8,2% 8,7% 7,1% 8,8% 5,3% 5,5% 7,3% 448 203 -6% -12% 15% volume growth (2) (2) Weighted average Michelin, Goodyear, Continental, Pirelli. Source: Company figures
  10. 10. Source: Bloomberg Ebit % 4.9% 6.4% 2.5% 5.7% 4.6% 4.4% 4.3% 4.6% 3.9% 3.1% 1.6% 0.8% 4.3% 8.7% 8.8% 5.5% 7.3% 6.6% 3.0% 6.1%6.3%6.2% 6.0%6.1% 5.3% 4.0% 5.3% 7.1% 6.8% 8.2% 5.4% 6.9% 6.8% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E TYRE: HIGHER PROFITABILITY AND FASTER REACTIVITY More profitability and reactivity vs. Auto Manufacturers Top 10 Tyre Manufacturers Top 10 Autopart Manufacturers Top 10 Auto Manufacturers 10 1
  11. 11. RDE DRIVE GDP RECOVERY 11 Source: ONU, Global Insight 10.1 12.6 LATAM 3,000 4,000 2009 2015 5% GDP (billion USD) GDP/capita (‘000 US$ PPP) 33.0 EU GDP/capita (‘000 US$ PPP) GDP (billion USD) 18,400 2015 2% 16,400 2009 29.8 14,100 GDP (billion USD) 16,700 2009 2015 45.9 51.2 3% USA GDP/capita (‘000 US$ PPP) 10.8 13.8 Russia & CIS GDP (billion USD) 1,600 2,100 2009 2015 4% GDP/capita (‘000 US$ PPP) 9.3 11.2 MENA 2,200 2009 2015 3,000GDP (billion USD) 5% GDP/capita (‘000 US$ PPP) 3.1 4.6 India GDP (billion USD) 1,300 2,000 2009 2015 8% GDP/capita (‘000 US$ PPP) China 6.9 11.0 5,000 8,300 2009 2015 GDP (billion USD) 9% GDP/capita (‘000 US$ PPP) GDP real avg. rate of growth 2009-15 MATURE RDE 2
  12. 12. BROADEN THE “PREMIUM” MARKET 12 PREMIUM & LUXURY Green Safety Status/Allure Comfort Cool & Trendy 3
  13. 13. Mln Passenger + Light Commercial Vehicles PREMIUM GLOBAL CAR PARK CONTINUE TO EXPAND Source: Global Insight, Pirelli analysis 13 Non Premium Vehicle fitting Premium 8% 11% 10% 2.6%2.6% 5.0% 2.8% 3.1% 5.2% 2.8%2.8% 709 936 964 1,023 1,089 2000 2010 2011 2013 2015 10% 4
  14. 14. India China + ASEAN COMESA Brazil USA TRADING BLOCKS AND LOCAL-FOR-LOCAL SOURCING * 35% in 2010, 30% in 2011 and 25% in 2012  2010-12 tariffs** on car & truck tyres from China  Anti-dumping duties levied on imported Chinese car and radial truck tyres  In China, high non tariff barriers  Asean tariffs on Chinese imports likely to last until 2018  Anti-dumping duties on radial tyres imported from China and Thailand (Feb. 010)  Relevant non tariff barriers  Low end tyre mix (car+truck)  Preferential trading area forging free trade agree -ments with other African countries & trade blocks EU  Low import tariffs for tyres … but rising non tariff barriers to low quality imports Mercosur associate members Asean special partners 14 Russia + CIS  High import duties (20%) 5
  15. 15. AGENDA 15 TARGETS 2011-2013 WHY A NEW PLAN? PIRELLI TODAY WHAT WE WILL NOT DO SCENARIO FOR THE 2011-2015 PLAN PIRELLI IN 2015
  16. 16. Competitive industrial footprint 75% of production made in low cost/high growth countries Macro-regional player, leader in the high- growth Latam market “1st Top of Mind brand in Brazil across all industries” People Unique and multinational company culture that delivers fast and integrated answers “People management” through strong commitment at all organizational levels PIRELLI TODAY Leading Premium Segment with consolidated relationship 16 Exceptional brand value further enhanced by Formula 1 Wide range of high-end and Green Performance in products (Green 36% of revenues)
  17. 17. AGENDA 17 TARGETS 2011-2013 WHY A NEW PLAN? PIRELLI TODAY WHAT WE WILL NOT DO SCENARIO FOR THE 2011-2015 PLAN PIRELLI IN 2015
  18. 18. 18 PIRELLI IN 2015 will further leverage and grow 3 “intangible assets”: BRAND PEOPLE TECHNOLOGY 1 2 3
  19. 19. *Interbrand Brand Valuation Methodology: economic flows from brand discounted at a rate reflecting brand risk TOP EXPLOITABLE POTENTIALS FOR OUR BUSINESS Beyond the product, aspirational and cool The most popular brand in Brazil for the second year in a row (Oct. 2010) #1 by “the voice of the customer” JD POWER 2010 Estimate brand value (Oct. 2010): 1,8 bln euro* PIRELLI IN 2015 19 1 2 3 4
  20. 20. PIRELLI IN 2015 20 “Breakthrough” materials (from renewables; from upstream alliances in rubber) People Technology Increasingly flexible and fast processes (PTSM: leading edge stability and integration in compound mixing, next MIRS: from concept to product in < 18 months) “Empowered” team: a new model of leadership development for the whole management built on 3 pillars: Leading business Leading people Leading change “Motivated” team (Long Term Incentive program based on cumulated PBIT and cash-flow, with annual MBO partially deferred…) Young team (average age of 280 Managers < 46) Multicultural team (15 different nationalities among Management) People and Technology
  21. 21. 2006-2010 1.5 90% -13 mln low value tyres PIRELLI IN 2015: LEVERAGING OUR TIMELY INVESTMENTS €/Bln 21 Cumulated capex Of which tyre Rationalization, product mix improvement, start ups 2011-2015 1.9 99% +26 mln premium tyres Premium growth Year end Capacity (mln pcs) Consumer 55.0 Industrial 5.4 2005 56.0 5.8 2010 70.0 7.0 2013 80.0 8.0 2015 +2% +7% 2010 /2005 +26% +21% +44% +38% 2013 /2010 2015 /2010 - Product mix change
  22. 22. 22 PIRELLI IN 2015 About 60% of volumes from our new production facilities mix Major accomplishments Specialized “Premium” plants, with top production capacity, in low-cost/high-growth countries Full premium product range ready for customization and in constant renewal 1 2 3 Rebalanced profitability between regions
  23. 23. * Latam, APAC, Russia, MEA 2010 2015Key indicators % Revenues in Premium/Specialty segments 66% 73% % Revenues in RDE* 52% 57% % Revenues from new production facilities mix >30% >60% 23 PIRELLI IN 2015 % Revenues from Replacement 75% 76% a premium player
  24. 24. AGENDA 24 TARGETS 2011-2013 WHY A NEW PLAN? PIRELLI TODAY WHAT WE WILL NOT DO SCENARIO FOR THE 2011-2015 PLAN PIRELLI IN 2015
  25. 25. Total Revenues EBITDA% after continuous restructuring EBIT% after continuous restructuring €/bln Green performance on revenues (2) ~ 4.8 >5.15 >6.05 >8% 36% 39% 47% >12% >7.5% 13% ÷ 14% 8.5% ÷ 9.5% 15% ÷ 16% 10.5% ÷ 11.5% Holding Costs & LTI provisions Minor Business & other non recurring items >20 <20 <20 <-10 close to break-even <10 (€/mln) 2010 2011 2013 (2) (1) Excluding Pirelli Re and Broadband PIRELLI TARGETS: P&L 2011-2013 2010E 2011 2013 (1) 25 Cagr 10 - 13
  26. 26. 2010E NFP DIVIDENDS <0.7 <1.0 >0.7 FINANCIAL & FISCAL CHARGES OPERATING CASH FLOW 0.3 0.3 €/bln Lower tax rate thanks to higher growth in emerging countries (-1pp/-2pp by 2011; -3pp by 2013, -5pp by 2015 vs. 2010FY) Shareholder remuneration: ~40% distribution of cumulated 2011-2013 Consolidated Net Profit Fiscal & Dividend policy 2011-2013 PIRELLI TARGET 2013 NET FINANCIAL POSITION & 2015 LEVERAGE Net Debt/Ebitda* FINANCIAL & FISCAL CHARGES 1.1X ~1X ~0.6X OPERATING CASH FLOW (1.3) 0.7 (0.8) 0.8 (1.3) 2013E NFP 2015E NFP DIVIDENDS 26 *After continuous restructuring
  27. 27. DEBT PROFILE 27 already sound today (Sept. 30, 2010) further strengthened by 2015 Liquidity Position 389 Total Committed Lines Not Drawn 1,070 1,459Liquidity Margin LIQUIDITY PROFILE €/mln Other Borrowings MLT Debt Committed Line Drawdown DEBT MATURITY(1) Better diversification/optimization of Gross debt (Capital Market) Ongoing Debt maturity extension (e.g. new committed revolving credit facilities) Gross debt profile (Currency & Interest Rate) already targeted to reduce volatility in net financial charges (~65% Fixed and ~35% Floating) €/mln 1,207 Gross Debt 30 Sept.’10 405 628 2010 ye 165 2011 2012 2013 2014 & beyond 126 135 405 146 551 90 266 174 (1) Net of Pirelli RE Sept. 30, 2010 – Cost of debt ~ 4% p.a.
  28. 28. AGENDA 28 TARGETS 2011-2013 WHY A NEW PLAN? PIRELLI TODAY WHAT WE WILL NOT DO SCENARIO FOR THE 2011-2015 PLAN PIRELLI IN 2015
  29. 29. WHAT PIRELLI WILL NOT DO IN THE PLAN OE Vehicles on low pull-through platforms Capacity investments in the Indian market Multi-brand portfolio strategy Big M&A transactions Capital increase 29
  30. 30. DISCLAIMER 30 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. 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.

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