Slide 1: Pirelli, Global High Value – FY 2018 Results
PIRELLI, GLOBA L HIGH VA LUE FY 2 01 8 R ESU LTS – 26 F EBR UARY,201 9 FY 2018 RESULTS PIRELLI, GLOBAL HIGH VALUE 26 February 2019
Slide 2: Disclaimer
DISCLAIMER In General. This disclaimer applies to this document and any oral comments of any person presenting it. This document, taken together with any such oral comments, is referred to herein as the “Presentation”. This document has been prepared by Pirelli & C. S.p.A. (“Pirelli” or the “Company
Slide 3: Where We Are
WHERE WE ARE > In the first 2 years of our 2017-2020 plan we: ▬ Delivered our High Value strategy, despite the tough 2H 2018 context with car industry facing several headwinds, especially in 4Q ▬ Lowered our Standard volumes vs. initial plan, with a significant reduction in 2H 2018, that brought our
Slide 4: Agenda
AGENDA 2018 DELIVERY AND 2019 OUTLOOK REVIEW OF 2018 RESULTS APPENDIX FY 2018 RESULTS PIRELLI, GLOBAL HIGH VALUE 3 26 February 2019
Slide 5: 2018 Results vs guidance
2018 RESULTS (14 Nov. 2018) 2018E 2018 Actual Revenues ~€5.2 bln €5,195 Million High Value weight ~64% 63.7% Volumes ~-2.0% -3.1% ▬ High Value volumes ~+13% +11% ▬ Standard volumes ~-12% -14% Price/mix ~+6.5% +6.8% Forex -7.0% ÷ -6.5% -5.9% IFRS 15 impact1 -0.6% -0.7% Adjusted EBIT w/o start-up cost
Slide 6: 2018: In our strategic ≥18" market, we delivered in line with IPO targets
2018: IN OUR STRATEGIC ≥18” MARKET, WE DELIVERED IN LINE WITH IPO TARGETS CAR TYRE MARKET CAR PIRELLI VOLUMES O.E. + REPLACEMENT ≥18” O.E. + REPLACEMENT ≥18” million tyres million tyres In line with IPO In line with IPO 2016-2020 CAGR of >9% 2016-2020 CAGR of ≥13% +10% +14% +11% +15% 217 239 o/w +16
Slide 7: 2018: In Standard we accelerated reduction, especially in 2H
2018: IN STANDARD WE ACCELERATED REDUCTION, ESPECIALLY IN 2H… CAR TYRE MARKET CAR PIRELLI VOLUMES O.E. + REPLACEMENT ≤17” O.E. + REPLACEMENT ≤17” million tyres million tyres In line with IPO 2016-2020 CAGR of Below IPO +2% in 2017, slower in 2018 volumes trajectory 1H -11%, 2H -16% +2% -1% (o/w LatA
Slide 8: Counter-measures with a crash cost-cutting program
…AND WE TOOK COUNTER-MEASURES WITH A “CRASH” COST- CUTTING PROGRAM STANDARD CAPACITY EVOLUTION 2016-2018 +3% -12% million pcs 34 33 +3 In line with IPO -2 -4 30 PLAN To be converted into Pirelli production (H.V.) 2016A Jiaozuo plant 2017A 2018A 2018 “Crash” Cost cutting program €50 million cost redu
Slide 9: 2019 Outlook: a milder growth than expected at IPO
2019 OUTLOOK: A MILDER GROWTH THAN EXPECTED AT IPO Macro scenario: World GDP ΔYoY ForEx: impact on Pirelli sales Raw Material: Δ cost for Pirelli 2018 2019E avg. 2017 / 2018 2019E avg. 2017 / 2018 2019E -0 pp -7.5 pp -0.2 pp +3.2% 3.2% -3.6 pp +14.8% 3.1% 2.9% +0.3% +7.3% +6.0% -1%/-0.5% -3.3% IPO J
Slide 10: 2019 ≥18" market: outpacing Standard once again
2019 ≥18” MARKET: OUTPACING STANDARD ONCE AGAIN, WITH O.E. STILL WEAK IN 1H AND FULLY RECOVERING IN 2H O.E. + REPL. ≥18” CAR TYRE MARKET 2019 million tyres +8 p.p. vs. ≤17” (slightly negative) +8% 257 239 O.E. ≥18” FOCUS YoY growth ▬ Slower 1H ▬ Recovery in 2H Replacement ~+10% ▬ Flattish EU ▬ Easie
Slide 11: In 2019 further Standard rationalization
IN 2019 FURTHER STANDARD RATIONALIZATION STANDARD CAPACITY EVOLUTION 2016-2019 million pcs 34.0 33.0 --2.0 +3.0 --4.0 30.0 To be converted into -2.5 27.5 Pirelli producton (H.V.) 2016A Jiazuo plant 2017A 2018A 2019E Cost cutting actions planned in 2019 Restructuring plan €50 million program: ▬ Stand
Slide 12: In 2019 we will benefit from increasing impact of our key programs
IN 2019 WE WILL BENEFIT FROM INCREASING IMPACT OF OUR 3 KEY PROGRAMS DIGITAL 2 TRANSFORMATION C New O.E. O Homologation T Registrations Tyres Market N R S A S S D F U U D + VARIETY A E A P E M 1 L M C P E - COMPLEXITY Pull through E A N T L E R S Y N Demand D O E G P R N P C A Car Parc fitting Repla
Slide 13: FY 2019 Outlook
FY 2019 OUTLOOK € million 2018A 2019E (guidance Feb. 2019) Net Sales €5,195 million +4% ÷ +6% YoY High Value weight ~64% ~67% Volumes -3.1% 0% ÷ +1.0% ▬ High Value volumes +11% ~+11% ▬ Standard volumes -14% -10% ÷ -9% Price/mix +6.8% +5.0% ÷ +5.5% Forex -5.9% -1.0% ÷ -0.5% IFRS 15 impact -0.7% - Adj
Slide 14: 2019: New external scenario and new long term plan in 4Q 2019
2019: DIFFERENT EXTERNAL SCENARIO AND NEW STANDARD TARGET FOOTPRINT TRIGGERING A NEW LONG TERM PLAN (in 4Q 2019) NEW EXTERNAL SCENARIO ▬ GDP + tariffs ▬ Regulation ▬ Auto Industry STANDARD All our actions will keep us in line with IPO deleverage target of ▬ Accelerated Reduction Net Debt / EBITDA 20
Slide 15: Agenda
AGENDA_ 2018 DELIVERY AND 2019 OUTLOOK REVIEW OF 2018 RESULTS APPENDIX FY 2018 RESULTS PIRELLI, GLOBAL HIGH VALUE 14 26 February 2019
Slide 16: FY 2018 Performance by High Value Regions
FY 2018 PERFORMANCE BY HIGH VALUE REGIONS € million SALES Δ org. adj. EBIT FY’17 FY’18 YoY % growth margin1 2,238 2,234 -0.2% +1.4% -8.9% HIGH VALUE REGIONS EUROPE High-teens SALES +7.0% (improving YoY) 2.5% 42% 43% 4,028 4,128 984 1,004 Standard2 +2.1% +7.6% Twenties NORTH -0.3% AMERICA (improving
Slide 17: 2019 Strategy by High Value Regions
2019 STRATEGY BY HIGH VALUE REGIONS EMEA N. AMERICA APAC ▬ Maximize pull-through exploiting ▬ Extend national distribution ▬ New JV factory start-up Business Model predictability footprint (Tier 1) ▬ Continuous H.V. top line growth ▬ Continue the reduction of ▬ Improve penetration in All maximizing
Slide 18: FY 2018 Performance by Standard Regions
FY 2018 PERFORMANCE BY STANDARD REGIONS € million SALES Δ org. adj. EBIT FY’17 FY’18 YoY % growth margin1 916 692 -24.4% -3.1% LATAM High-single STANDARD REGIONS -5.0% digit SALES +17.7% (decreasing YoY) 17% 13% -19.5% 1,324 1,066 249 Low-teens 207 MEAI -16.8% -6.6% Standard2 (decreasing YoY) -11.3%
Slide 19: 2019 Strategy by Standard Regions
2019 STRATEGY BY STANDARD REGIONS LATIN AMERICA RUSSIA & NORDICS ▬ Further focus on mix improvement ▬ Increase share in H.V. segments supported by New Ice Zero 2 product launch ▬ Normalization of stock levels ▬ Reinforce O.E. presence in H.V. projects ▬ Strengthen the position of “industrial hub” to
Slide 20: FY 2018 Net Sales Bridge
FY 2018 NET SALES BRIDGE o/w Organic € million -3.1% +6.8% -5.9% -0.7% -2.9% +3.7% 337 5,352 (503) 359 -313 5,195 -38 +11.0% (166) -14.0% +14.3% Net Sales Volume Price/Mix FX IFRS 15 impact1 Net Sales FY’17 FY’18 High Value Standard o/w Organic Car ≥18’’ +7.2% 4th Quarter -7.1% -22.6% +8.1% -3.4% -1
Slide 21: FY / 4Q 2018 Operating Performance
FY / 4Q 2018 OPERATING PERFORMANCE € million internal levers ∑ +222 external levers ∑ -144 3 (21) 70 (52) (48) 955 (43) 876 239 ▬ Costs cutting +50 EBIT adj. (68) ▬ D&A / other -71 FY 18.4% margin 16.4% 2017 Volume Price/mix Efficiencies Start-up D&A / Other Raw Mat. Other FX 2018 EBIT adj. costs1 i
Slide 22: FY 2018 Net Income Bridge
FY 2018 NET INCOME BRIDGE_ € million 449 442 (12) (6) 166 263 2 30 Net Income Δ EBIT Δ Net income / Δ Financial Δ Taxes Net Income Disc. oper. Net Income bef. disc. oper. loss from equity income / charges bef. disc. oper. reported FY’17 participations FY’18 FY’18 % on Sales 4.9% 8.6% 8.5% FY’17 FY’1
Slide 23: Dividend Proposal
DIVIDEND PROPOSAL Dividend Proposal to be filed with Pirelli & C. AGM (May 15th, 2019) 2018 dividend Dividend Payment Schedule ▬ Coupon Detachment: May 20th, 2019 Net Income Reported (€ million) 442 ▬ Dividend Payment: May 22nd, 2019, record date May 21st payout (% of net income reported) 40.0% DPS
Slide 24: FY 2018 Cash Flow and Net Financial Position
FY 2018 CASH FLOW AND NET FINANCIAL POSITION_ € million 3,219 Op. Cash Flow: 383 3,180 (68) 97 196 119 (1,235) 388 ▬ Mediobanca -153 ▬ New China JV 65 463 ▬ Minorities / other 20 ▬ Non-recurring1 50 ▬ Restructuring 21 ▬ FX / other 26 NFP FY’17 EBITDA CapEx ∆ WC Taxes Interests Participations Other N
Slide 25: Current Capital Structure (December 2018)
CURRENT CAPITAL STRUCTURE (DECEMBER 2018)_ € million NET FINANCIAL POSITION GROSS DEBT MATURITY Cash & Cash equivalents 4,796 (1,616) 1,721 (1,354) Loan 3,180 1,147 2,844 (262) 990 Bond Fin. receivables 854 & other 1,704 200 940 Other 1,269 988 654 84 683 199 8 2 82 17 2 Gross Fin. Net Fin. 2019 202
Slide 26: 2018 Delivery in Sustainability
2018 DELIVERY IN SUSTAINABILITY Targets KPIs 2017 2018 2020 AMONG 2018 ACHIEVEMENTS... Sustainable Natural Rubber: issuance of Pirelli Policy Green Performance Tyres revenues1 43.5% 49.8% >50% > «Implementation Manual» and of the «Roadmap of >65% on H.V. activities 2019-2021» Accident frequency inde
Slide 27: Agenda
AGENDA 2018 DELIVERY AND 2019 OUTLOOK REVIEW OF 2018 RESULTS APPENDIX FY 2018 RESULTS PIRELLI, GLOBAL HIGH VALUE 26 26 February 2019
Slide 28: 4Q / FY 2018 Results Highlights
4Q / FY 2018 RESULTS HIGHLIGHTS € million 4Q’17 4Q’18 Δ YoY FY’17 FY’18 Δ YoY Revenues 1,314 1,269 -3.4% 5,352 5,195 -2.9% Organic Growth1 +1.0% +3.7% High Value Revenues 734 780 +6.2% 3,079 3,310 +7.5% Organic Growth1 +6.4% +10.3% % on total Revenues 55.9% 61.5% +5.6 pp 57.5% 63.7% +6.2 pp EBITDA a
Slide 29: 2018 Results Highlights by Quarter
2018 RESULTS HIGHLIGHTS BY QUARTER_ € million 1Q’17 1Q’18 Δ YoY 2Q’17 2Q’18 Δ YoY 3Q’17 3Q’18 Δ YoY 4Q’17 4Q’18 Δ YoY Revenues 1,339 1,310 -2.2% 1,346 1,320 -1.9% 1,353 1,295 -4.3% 1,314 1,269 -3.4% Organic Growth1 +5.7% +5.3% +2.5% +1.0% High Value Revenues 775 834 +7.5% 787 850 +8.0% 783 846 +8.1%
Slide 30: FY 2018 Pirelli Balance Sheet
FY PIRELLI BALANCE SHEET_ € million 31-Dec-2017 31-Dec-2018 Fixed assets related to continuing operations 9,121 9,018 Inventories 941 1,129 Trade receivables 653 628 Trade payables (1,674) (1,605) Operating net working capital related to continuing operations (80) 152 Other receivables / payables (4
Slide 31: FY 2018 Pirelli Group Cash Flow
FY PIRELLI GROUP CASH FLOW_ € million FY ‘17 FY ‘18 EBIT adjusted1 876 955 Depreciation & Amortization (excl. PPA amortization) 261 280 Capital expenditures (489) (463) Change in working capital / other 124 (388) Operating Cash Flow 772 383 Financial income / (expenses) (363) (196) Taxes paid (136)
Slide 32: 2018 High Value Achievements
2018 HIGH VALUE ACHIEVEMENTS A +21% 486 o/w 87% on H.V. 402 HIGH VALUE 315 ~1,000 homologation projects HOMOLOGATIONS 165 in the pipeline for ‘19-’20 # new homologations 2014A 2016A 2017A 2018A 2019E 2020E B +3M 53 42 45 38 HIGH VALUE 32 CAPACITY High Value capacity 2014A 2016A 2017A 2018A 2019E 202
Slide 33: 2019E Raw Material Guidance
2019E RAW MATERIAL GUIDANCE € million 13% Natural Rubber 10% Steel Reinf. 17% Textiles breakdown FY 2018 A 27% Synthetic Rubber raw mat. based on 35% on Sales purch. costs 23% Chemicals 10% Carbon Black AVERAGE QUOTATION OF COMMODITIES AVERAGE COST OF GOODS SOLD OF COMMODITIES 2019E 2018 A 2019 E ∆
Slide 34: 2019E Forex Guidance
2019E FOREX GUIDANCE € million 13% other 6% GBP 37% EUR 3% RUB breakdown FY 2018 A 11% BRL based on currency 12% CNY 18% USD ∆ YoY MAIN AVERAGE EXCHANGE RATES 2018 A 2019 E ∆ YoY Feb. guidance vs. EUR EUR / USD / 1.145 1.15 +0.4% +0.4% USD / CNY / 6.863 6.9 +0.5% +1.0% USD / BRL / 3.875 4.0 +3.2% +3
Slide 35: Key Car Market Trends: Europe
KEY CAR MARKET TRENDS: EUROPE Market trend 4Q’17 FY’17 1Q’18 2Q’18 3Q’18 4Q'18 FY’18 ∆% YoY 4 5 O.E. 0 Total Car market -1 -3 -8 -9 6 4 4 Replacement 3 2 2 -5 6 3 1 2 1 1 Total (O.E.+Repl.) -4 ≥18” 12 10 7 8 New Premium & Standard 1 3 2 ≤17" O.E. -3 -4 -5 -5 -5 -9 -10 20 19 20 13 11 14 Replacement 2
Slide 36: Key Car Market Trends: NAFTA
KEY CAR MARKET TRENDS: NAFTA Market trend 4Q’17 FY’17 1Q’18 2Q’18 3Q’18 4Q'18 FY’18 ∆% YoY O.E. 1 2 Total Car market -2 -1 -6 -4 -3 4 6 5 3 Replacement 1 0 -2 3 5 4 2 Total (O.E.+Repl.) -1 -1 -2 ≥18” New Premium & Standard ≤17" 5 8 5 5 O.E. 3 0 -1 -1 -7 -8 -4 -5 -8 14 -10 13 16 12 13 11 10 Replaceme
Slide 37: Key Car Market Trends: APAC
KEY CAR MARKET TRENDS: APAC Market trend 4Q’17 FY’17 1Q’18 2Q’18 3Q’18 4Q'18 FY’18 ∆% YoY O.E. 2 6 Total Car market -2 -2 -4 -3 -9 Replacement 3 5 1 2 1 1 -1 Total (O.E.+Repl.) 1 4 4 0 -2 -3 -1 ≥18” New Premium & Standard 21 17 ≤17" 11 16 10 O.E. 4 6 3 -3 -1 -5 -6 -5 -11 18 18 12 11 12 9 11 Replacem
Slide 38: Key Market Trends: Russia & CIS and South America
KEY MARKET TRENDS: RUSSIA & CIS AND SOUTH AMERICA Market trend 4Q’17 FY’17 1Q’18 2Q’18 3Q’18 4Q'18 FY’18 ∆% YoY 18 22 22 17 14 11 16 O.E. Russia & CIS 17 16 15 12 11 Replacement 2 2 17 17 15 13 12 5 3 Total (O.E.+Repl.) 13 17 12 9 O.E. 1 3 South America -9 7 11 Replacement1 0 -7 -12 -9 -16 8 12 2 To
Slide 39: Raw Material Costs Trend and Mix
RAW MATERIAL COSTS TREND AND MIX MAIN RAW MATERIALS PRICE TREND 45.0 ; -16% YoY 54.8 ; +22% YoY 71.5 ; +31% YoY 1.378 ; +1% YoY 1.651 ; +20% YoY 1.365 ; -17% YoY $ / kg Brent Oil (in $ / barrel) $ / barrel 2.50 85 2.25 Natural Rubber (in $ / kg) 75 2.00 yearly avg. ; Δ YoY 65 1.75 55 1.50 45 1.25 35
Slide 40: Pirelli Manufacturing Footprint as of December 31st 2018
PIRELLI MANUFACTURING FOOTPRINT AS OF DECEMBER 31ST 2018 U.K. Germany Romania Russia ▬ Burton – Car ▬ Breuberg – ▬ Slatina – Car ▬ Kirov – Car U.S. ▬ Carlisle – Car Car / Moto ▬ Voronezh – Low-cost countries Car ▬ Rome – Car Mexico ▬ Silao – Car Italy ▬ Bollate – Car China ▬ Settimo – Car ▬ Yanzhou