Pirelli earmarks €820m for investments under new industrial plan

Milan, Italy – Pirelli & C. has set out details of a new two-year industrial plan 2024-2025, including overall investment of €820 million across operations, as well as efficiencies worth over €270 million.

The Italian tire maker will target “strengthening leadership” in the large-sized ‘high value’ tire segment, investing around 6% of revenue to improve product-mix, technology upgrades and productivity.

Pirelli's 6 March statement did not provide further details for the investments, but said it aimed to target North America, Europe and Asia-Pacific for its large-rimmed tires programmes.

Among other objectives, the tire maker aims to achieve 'wider homologations in North America" and strengthen its distribution network there.

In Europe, the Milan-based group intends to optimise 'industrial productivity' and increase its 'local-for-local' approach.

Meanwhile, the electrical vehicle market in China as well as enhanced distribution capabilties are on the agenda for the Asia-Pacific region.

In terms of efficiencies, Pirelli said savings will be made in all areas including product, manufacturing, general administration and organisational improvements.

Having achieved €93 million in savings in 2023, Pirelli expects to deliver efficiencies of €140 million this year and another €135 million in 2025.

For instance, the group will further leverage advanced technologies to improve quality, efficiency and flexibility at each phase of production.

This, it said, will involve “ever greater use of digitalisation, Industrial IoT (IIoT) and automation, accompanied by a process of employee upskilling and reskilling.”

With a gross impact of €370 million over three years, the savings will represent a 7% reduction compared to cost baseline of 2022, stated Pirelli.

The gross efficiencies, said the tire maker, will “completely compensate” for the impact of inflation over the two-year period.

By 2025, Pirelli expects to deliver sales of between €6.8 billion and €7.0 billion, up from €6.65 billion reported in 2023.

Adjusted earnings (EBIT) margin is targeted to grow from 15.1% to 16% by the end of the two years, Pirelli added.

Adjusted earnings will remain flat compared to 2023 at €1.1 billion, "in line with the outlook in March 2021, but with lower marginality because of the strong inflation effect."

The profitability improvement, Pirelli noted, will be driven by commercial performance and price/mix effects, which are expected to offset negative impacts of raw materials and exchange rates.

Over the period, Pirelli said it expects to see 5% growth in both OE and replacement markets.

In the replacement market, the tire maker aims to introduce 10 new product lines and increase its sales with tires of 18” and higher rim sizes.

The OE market will be supported by ‘premium’ tires of 19” and larger, as well as electric vehicle tires, where Pirelli expects sales to double by 2025, compared to 2023.

Pirelli will also continue to reduce its exposure in the 17” and smaller-sized tire market and enhance its ‘iconic brands’ to support its positioning in higher-value markets.

In terms of operations, the company said it will work on its value-chain by increasing its ‘local-for-local’ presence, from 85% in 2023 to 90% by 2025.

The Italian group will also accelerate its ‘sustainable transition’ by increasing energy-efficiency, electrification of factories and the use of more sustainable materials.

The company has set itself a carbon-neutrality target by 2030 and the objective of ‘net zero’ by 2040.

The industrial plan 2024-2025 represents the updating of Pirelli’s Industrial Plan 2021-22|25, which was presented in March 2021.

During phase I of the initial plan, Pirelli said it increased the “weight” of its ‘high value’ segment from 70% in 2020, to 75% by the end of 2023, two years ahead of schedule.

The Italian tire maker also improved profitability, with an adjusted earnings margin of 15.1% in 2023, up 3.5 basis points compared with 2020.

Financial leverage more than halved in the three-year period, with a net cashflow/adjusted earnings of 1.56 times at the end of last year – compared to 3.65 times at yearend 2020.