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Pirelli Industrial Plan 2009-11


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2009-2011 Industrial Plan: Strategic Guidelines and Targets.

Pirelli Group has and will continue to develop measures to increase its competitiveness and enhance its efficiency.

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Reorganization, Business rationalization as well as the development of "green" technologies and products will be the levers supporting Pirelli in this process.

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Pirelli Industrial Plan 2009-11

  1. 1. MOVING TOWARDS “GREEN PERFORMANCE” Marco Tronchetti Provera Chairman and CEO Pirelli Group
  2. 2. Disclaimer This presentation contains statements that constitute forward-looking statements 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 in the forward looking statements as a result of various factors. 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, Claudio De Conto, 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. | 1
  3. 3. In the next three years we are going to use the discontinuity of the external scenario to transform Pirelli Group | 2
  4. 4. Agenda Global economic scenario Pirelli Group transformation Pirelli Group targets | 3
  5. 5. Not all fundamentals are negative Less investments Low inflation Less employment Low interest rates Less consumption Low cost of raw materials WORLD GDP INTEREST RATES INFLATION Eurozone USA Source: Global insight, Monthly Update, Jan. ‘09 | 4
  6. 6. A global industrial company can better capture opportunities RUSSIA GDP EUROZONE GDP USA GDP CHINA GDP BRASIL GDP 08 09 10 11 Source: Global insight, Monthly Forecast Update, Jan. ‘09 | 5
  7. 7. Governmental institutions are massively financing publicly- funded recovery plans, towards a Green Economy Consumer Subsidies US EUROPE >700 USD/bn financial system Government support to Car bail-out to keep credit alive purchases in Italy (~2 €/bn) 17 USD/bn package to rescue ~ 6 €/bn support of public loans Detroit – big 3 to french carmakers Strong claims by new US “20/20/20” Energy Plan Administration: 1 million electric cars on the road by 2015 goal to double production of clean energy to >10% by 2012 | 6
  8. 8. GREEN ECONOMY finally taking off, thanks to concurring factors pulling in the same direction | 7
  9. 9. Agenda Global economic scenario Pirelli Group transformation Pirelli Group targets | 8
  10. 10. Pirelli strengths Examples Capacity of matching innovation, technology and industrial management Quick success in green-field start-ups Among the best 10 Global Italian brands* Global brand Estimated brand value* 1.5€/bn (the highest in the industry) Rooted multinational player, also Sales in 160 countries, operations present in emerging markets in 12 1 €/bn NFP ‘08YE Financial strength 0.8 €/bn committed credit lines, * “Best Global Brands 2008" by Interbrand ranking not drawn | 9
  11. 11. 5 transformation levers Competitiveness Broad geographical coverage Open collaboration Leadership team Portfolio reshaping | 10
  12. 12. All our companies are currently undergoing competitiveness programs >140 €/mln Group restructuring costs, Adjust to global recession already generating benefits from 2009 Develop distinctive customer “Green Performance” Tyres at LOWER COST value propositions Green auto-parts (emission reduction systems) at LOWER COST Real Estate: -25% ’09 YoY fixed costs Leaner business models Tyre Break Even Point: -200 €/mln vs. ’08YE* * At sales level | 11
  13. 13. Broad Geographical Coverage Group Revenues Contribution Revenues ‘08 CAGR ’09-‘11 EUROPE 51% stable MIDDLE EAST 10% stable ASIA PACIFIC 4% +9.9% Of which China 2% +22% NORTH AMERICA 6% +6.3% LATIN AMERICA 29% +2% | 12
  14. 14. Open collaboration Examples Integrated customer Pirelli-Brembo-Magneti Marelli in Intelligent Tyre Systems solutions Co-development with STM, Comau, Sinteco, Evotek and many other industrial players Accelerated innovation Joint Research programs with ENEA, all leading Italian, European, Russian, Chinese, US universities (e.g. Berkeley) Key innovation areas: biomaterials, nanocomposites, new fibers, FEA Creating scale in assets JV Ambiente / Cleantech fund | 13
  15. 15. Leadership team GROUP TYRE 09-11 KEY PROJECTS Dynamic leadership 43 46 √ (avg. age of manager) Our managers international exposure 50% 50% √ (with significant experience abroad) Young talent pool >250; >220; √ (high-potential under 30) 3% of total 4% of total International career path 3% p.y. 4% p.y. √ of management/staff (in Pirelli) Leading edge technical capability >1,100 >1,000 √ (R&D people) >140 √ New reward scheme for 3YP managers Leadership team >200 √ (managers involved to beat crisis) managers Equal opportunities >20% √ (% women managers) | 14
  16. 16. Portfolio reshaping % Company ’09-’11 Transformation Path 100 Pirelli Tyre Core Business 51 Pirelli Eco technology 100 Pirelli Labs INDUSTRIAL 51 Pirelli Ambiente Start-up engines - Photovoltaic Energy - CDR (Waste-to-Energy) Towards 100 Pirelli Broadband Solutions consolidation play 56 Pirelli Real Estate 1.3 Telecom Italia 34.5 CY Optics Cash 5 Alcatel Submarine FINANCIAL ~2 CAI 32.7 Eurostazioni Hold Shares 1.8 Mediobanca 5.3 RCS | 15
  17. 17. Tyre strategic guidelines a success story… 342 358 329 276 250 (*) 219 Superior technology, universally acknowledged Fast, Focused, Flexible business model (1,500 headcounts reduction in West Europe already identified in 2H 08) Dynamic and skilled Management Team * before restructuring costs | 16
  18. 18. Tyre strategic guidelines INDUSTRIAL CONSUMER a success story, a strong rebound story, keeping best value breaking new frontiers in “Green in high-growth markets products” Exploiting a unique cost-competitive Preferred partner of premium and platform prestige OE brands Leveraging a favorable balance in Redesign of the industrial footprint to markets/mix in emerging countries increase competitiveness Leader in market share & performance Establishing itself into the Green (mileage, retreading, weight) in our core Performance segment markets | 17
  19. 19. Eco technology strategic guidelines Ready-to-use retrofit technology for What: Particulate Matter reduction with large IP (Industrial Property) portfolio Pirelli “common vision” on Green Transportation (beyond Tyres) High intrinsic profitability (CM>30%) in a Why: new fast-growing market Strong synergies: worldwide sales and customer support network of Pirelli tyre brand identity In 3-5yrs, a leader in emission control Where to: technology in Europe / low emission zones, also for major Vehicles-OEMs | 18
  20. 20. Labs & Ambiente strategic guidelines LABS AMBIENTE Continuous search for distinctive Portfolio reshaping: innovation technologies Opportunity on PV* Energy (technology-driven business) First-step incubator for all Group Site Remediation: tactical upside businesses CDR (Waste-to-Energy): STOP LOSS Strong research capabilities make Pirelli a leader in innovative product & PV* business with very good process patents perspectives: 3.000 patents (~60 family patents in Solid partnership / lower risk 2008) Subsidies ensure long-term Patents plan 2009-2011 is 2x the profitability average of the last 10 years Strong pipeline / generation contracts (~50 MW) Photovoltaic | 19
  21. 21. Broadband Solutions strategic guidelines CURRENT POSITION THE WAY FORWARD Solid Proprietary Technology in Open to aggregations / a growing market (Broadband partnerships to address Communication / Access / diversification into new Networking) applications & industry domains High loyalty of existing customers, track record in acquiring new customers Profitable operations, start-up phase concluded | 20
  22. 22. Real Estate repositioning A TOUGH SCENARIO PIRELLI RE’S REPOSITIONING FROM… … TO Ongoing impact of the “credit crunch” and capital market liquidity Extensive use of Deleverage through crisis structured finance asset disposal and portfolio optimization A difficult deal-making Portfolios oriented towards Portfolios progressively environment: Decline in RE investments and trading strategies oriented to mid-long transactions Complex business model Higher average times for disposals term Rightsizing Investors interests back to Organization by product Country-based resilient markets and only on with Pan-European organization with reliable players approach presence in areas less exposed to real estate volatility (Italy and Germany) | 21
  23. 23. Real Estate roadmap towards an optimized portfolio and structure PERSONNEL EVOLUTION (FTE) AUM EVOLUTION (€/bn)*** ~ stable 14.4 ** 2,956 11.3 ** Disposals 1,168 NPL 248 1,473 237 800* RE 1,540 1,236 800 2007 2008A 2009E 2007A 2008A 2009E 2010E 2011E Extensive cost-cutting Ongoing portfolio rationalization Focus on key services and activities Selective growth Focus on core products / markets: Productivity and result traceability Italy, Germany/Poland * Including 230 of outsourcing ** Excluding Non Performing loans ***Book value | 22
  24. 24. A sounder equity structure 400 €/mln capital increase Rationale P&C does believe in Pirelli RE asset quality P&C provides a solid basis to allow Pirelli RE to change its model from trade to hold Conditions Issue price with reference to theoretical ex-rights price (“TERP”) of Pirelli RE ordinary shares with a discount in line with international best practices for similar transactions P&C underwrites its pro-quota and will underwrite any shares which, at the end of the offer procedure, are not underwritten. P&C converts part of its financial credit into Pirelli RE equity. The transaction may be completed within 1H09 | 23
  25. 25. Real Estate strategic guidelines BACK TO BRICKS Reshaping the business model: Generating value leveraging Core Italian and German on the good quality of Real Estate assets the real estate assets Lean organizational structure & on the company know how Sound financial structure | 24
  26. 26. Agenda Global economic scenario Pirelli Group transformation Pirelli Group targets | 25
  27. 27. Group targets €/bln 2008ye 2009 2011 unaudited figures Group Revenues 4.6 ~4.3 4.7–4.8 Of Which “Green Performance” 19% 25% 40% EBIT % After continuous restructuring 1%* 4.5-5.0% ~ 8% CAPEX 0.3 ~0.7 in 3y plan NFP <0.8 1.0 1.0 before dividends * 4,1% before restructuring costs (144 € /mln) | 26