Premium growth and efficiency led to cash flow generation above expectations
The 2014 results marked the first important milestone of the value creation journey that Pirelli envisaged with its 2013-2017 Industrial Plan. Among the highlights were:
- Pirelli outperformed market growth in the Premium segment, winning share in all regional markets.
- Profitability reached 14.4% Ebit margin before restructuring costs, a yearly increase of 1 percentage point.
- Cash generation was stronger than expected, at €312 million before dividends.
- Return on investments improved to the tune of 22%, compared with 20% in 2013.
These results were particularly good when the macroeconomic slowdown in Latin America is taken into account. That market alone represents one third of our business. Equally, the situation in Russia was challenging, but we nevertheless remained well on track with our turnaround plan.
Additionally, the company has restructured its debt. Pirelli successfully launched a €600 million five-year bond in November 2014. It was fully subscribed at the company’s lowest coupon rate yet of below 2%. Pirelli also renewed a €1 billion credit facility for five years with a syndicate of 10 international banks. This essentially completes the company’s most important refinancing requirements for the next few years.
Pirelli successfully launched a €600 million five-year bond in November 2014.
Premium exceeding expectations
The accepted wisdom is that grows at three times the pace of non. In fact, Pirelli’s business grew by about 10% year-on-year against the non-market. The latter’s growth was only slightly positive. Pirelli acquired an extra 1 percentage point of market share worldwide.
Manufacturing approvals from carmakers – homologations - continued to grow. Pirelli added more than 200 homologations in 2014, with 60 prestige and approvals in the fourth quarter alone. These included best-selling car models such as the Jaguar XE, the Land Rover Discovery Sport and the Porsche Macan.
The modern Pirelli lives by data. The adoption of sophisticated data programmes was rolled out fully in 2014. We map the consumer journey in 40 countries and in particular in six key markets where is strong. As a result, we have been able to grow our market share in Europe, the United States and China.
We are ahead of the competition in our ability to go to tyre dealers and explain what ranges they need to stock to meet consumer demand. This and other initiatives are driving increases in customer loyalty.
In 2014 Pirelli has expanded its offering in run-flat and self-sealing technologies. The first, run-flat, are tyres that can maintain their shape and keep going for a long distance after a puncture. They are fitted on BMWs, Minis, Mercedes and Corvettes.
Self-sealing tyres create an almost instantaneous seal around penetrating objects such as nails, trapping the air inside. No emergency roadside tyre is needed. In 2014, Pirelli ramped up its prototypes in this area, developed for Volkswagen, Porsche and Bentley.
Another area of improvement has been in noise reduction products, PNCS or Pirelli Noise Canceling System, where in 2014 Pirelli produced tyres that made 3-5 decibels less noise. The driver enjoys 50% less noise inside the car. Nanotechnology, renewable resources and electronics inside tyres offer more possibilities in the near future.
Five new car product lines were launched in 2014 and nine are expected in 2015. Such developments meet today’s technological challenges. The Cyber PZero, for instance, has just been fitted on the new Ferrari FXX K Hybrid. Four new product lines were introduced in the Moto business in 2014, six in Truck.
2014 marked significant progress towards the Sustainability goals set by the Industrial Plan, on track towards the 2020 targets. To mention few, as compared with 2013, Pirelli reduced water specific withdrawal by 19%, energy specific consumption by 3% and CO2 emissions by 2%; we also increased the waste recovery rate a further 3%. Social capital also benefited of important achievements on core subjects, including 8.2 average training days per employee, reaching the target of 7 average days one year in advance, and a decrease in the injury frequency index by 17.7%.