Pirelli is one of the world’s leading tyre producers and provider of ancillary services, and the only producer in the industry to exclusively focus on the Consumer business (tyres for cars, motorcycles and bicycles). Pirelli counts on its globally recognised brand and its distinctive positioning in the High Value segment, namely products created to provide the highest levels in terms of performance, safety, quietness and grip on the road surface.
Pirelli has a distinctive industrial tradition of more than 140 years, characterised by a sustainable management model, which has always been associated with its capacity for innovation, product quality and brand strength, which is also recognised outside the world of Automobiles and Motorcycles.
Present in sports competitions since 1907, Pirelli has been the exclusive supplier for Formula 1® World Championships since 2011, which represents a constant challenge in terms of technological innovation and is an important driving force in the enhancement of the Pirelli brand. Pirelli is also present in over 460 automotive and motorcycle championships.
Pirelli invests in research and development mainly for High Value products. In 2017, over 90% of the total research and development costs were addressed on High Value products, approximately 6.5% of the related revenues, being one of the highest levels amongst the world’s leading tyre producers. The Company can also count on a portfolio of approximately 6,100 active patents grouped into 715 families, each on average extended across 8-9 countries.
Through their strong partnerships with the most prestigious car manufacturers, Pirelli offers the widest range of High Value tyres, which - at December 31, 2017 - counted more than 2,160 homologations (of over 2,740 in total), of which 88% carry original markings, 34% are Prestige and 29% winter tyres.
Pirelli counts on its vast commercial presence, with a network of approximately 14,600 points of sale at December 31, 2017 in over 160 countries, as well as its high exposure to the three major markets for High Value tyres: Europe, NAFTA and APAC (which at December 31, 2017 accounted for 75% of total revenues and 92% of High Value revenues).
The Group also boasts a geographically diversified production structure with 19 plants in 13 countries and a total capacity at the end of 2017 of approximately 76 million car tyres, of which more than half (55%) was suited to the manufacture of High Value tyres. At December 31, 2017, 78% of the productive capacity of Consumer Activities for Automotive and Motorcycle radials were concentrated in countries with low production costs.
At December 31, 2017, the Company employed 30,189 people (29,787 at the end of 2016).
Just two years after the Public Offer promoted by ChemChina together with Camfin shareholders, Pirelli returned to the stock market on October 4, 2017, following a reorganisation process which led to the separation of the Industrial business and to the focus on the Consumer business, enriched with new proficiencies also through the creation of new departments and business (Consumer Marketing, Digital, Data Science, Cyber and Velo).
Pirelli focuses on the most technologically demanding segments, which are considered high growth and high profitability.
The High Value segment can be identified through the following categories:
Prestige: tyres designed and developed in partnership with car manufacturers belonging to the Prestige Car segment (which traditionally includes producers such as Ferrari, Lamborghini, Maserati, Bentley, Bugatti, Rolls Royce, Porsche, Aston Martin, McLaren and Pagani) which are subject to specific homologations;
New Premium: tyres with a rim diameter ≥ 18 inches, aimed primarily but not exclusively at motor vehicles belonging to the Auto Prestige and Auto Premium segments (which traditionally includes car manufacturers such as BMW, Mercedes, Audi, Alfa Romeo, Jaguar, Land Rover, Infiniti, Lexus, Lincoln, Acura, Cadillac and Volvo). Until the end of 2016 Pirelli identified tyres with a rim diameter ≥ 17 inches as Premium tyres. As of the first half-year of 2017, Pirelli has redefined the scope of Premium tyres as tyres with a rim diameter ≥ 18 inches, and thereby also modifying the nomenclature to New Premium;
Specialties and Super Specialties: tyres with a high technological content for vehicles of every class, which meet the needs of specific applications (for example Runflat or Self Sealing) or customisations for the end consumer (for example, the Colour Edition tyres), regardless of the size of the rim diameter;
Premium Motorcycle: tyres for high-end motorcycles that ensure high performance.
These categories will be joined by the products and services for connected vehicles and for the Velo world, activities which were launched in 2017.
For the 2017 financial year, revenues for the Group from sales and services amounted to euro 5,352 million for the Company, while the EBIT adjusted without pre-start-up-costs3, amounted to euro 927 million, the equivalent of 17.3% of revenues. During the same year, Pirelli generated 57.5% of its turnover (euro 3.1 billion euro out of euro 5.4 billion), and approximately 83% of its EBIT adjusted without start-up costs, from within the High Value segment. For 2020 Pirelli expects to increase the High Value share of its turnover to up to 63%, and its turnover share of the EBIT adjusted to up to 85%.
3 This refers to costs of euro 50.2 million incurred during the 2017 financial year for the start-up phase of programs which intercept the new needs of the end customer, such as connectivity (the Cyber activity), return to the bicycle business (the Velo project), the activities for the digital transformation of the Company and the activities for the reconversion of the Aeolus manufacturing plant for Car. For more information on the EBIT adjusted, reference should be made to Chapter IX, Paragraph 9.1.2 of the Registration Document.
The wide range of products offered by Pirelli is conceived, created, checked and commercialised for sale by following an organisational integrated supply-chain model which goes from product development, to commercialisation for sale and finally to marketing.
Pirelli’s business model starts from the development of tyres in partnership with Premium and Prestige car manufacturers which are developed along an integrated process which arrives at the end consumer. The purpose of this integration is to obtain products which satisfy the needs and tastes of the most demanding users.
These partnerships allow Pirelli to enjoy high visibility on the technological innovations that the car manufacturers intend to introduce, and are the starting point in ensuring the successful positioning in the market for High Value, Original Equipment tyres, as well as in the Replacement channel. At the level of automotive brands, the Company’s client base is particularly diversified. At December 31, 2017, Pirelli was supplying 44 brands of car manufacturers with Original Equipment.
This joint development, together with the homologations, guarantees the perfect match of tyres with the dynamic characteristics and electronics of the car (reaching the so called “Perfect fit”) which encourages loyalty, and the retention of the end consumer (generally higher in the High Value segment), thereby impacting directly on the Replacement channel. Pirelli estimates that over the three-year period 2018-2020, over 60% of the High Value Replacement sales volumes, and over 50% of the High Value sales of Original Equipment will be generated by the homologations in the portfolio during the 2017 financial year.
In addition to the product development activities with the car manufacturers, Pirelli closely monitors the trends in the global automotive and motorcycle market, and, in particular, trends for new vehicle registrations and cars on the road, where the latter forms the reference base for the Replacement market.
Through the homologations and the analysis of these trends, Pirelli is able to obtain medium-long term visibility both on the production expected in the Original Equipment market as well as in the Replacement market. The latter can in turn be analysed as follows:
a “potential” pull-through market, i.e. the potential replacement generated by vehicles equipped with Pirelli tyres as Original Equipment;
a “potential” push-through market, which derives from the replacements for cars for which Pirelli does not have homologations.
The sales plans, through the Demand Planning process, are allocated to the productive structure, which operates in close coordination with the purchasing function.
The tyres produced are subsequently distributed through the Supply Chain until they reach the distribution networks, or distributed directly to the retailer points of sale (approximately 14,600 at the end of 2017) which allows Pirelli to serve an ever more geo-localised car market. Further down the distribution chain Pirelli also carries out a series of initiatives which accompany the consumer from brand consideration up until the purchase, during which digital and physical reference material at their disposition is made available to the customer.
Pirelli is the Global Leader in sustainable management for the Auto Components sector, according to RobecoSAM’s Sustainability Yearbook 2018.
The main areas of development where the Company is involved include:
the reduction of environmental impacts along the life cycle of the product, from raw materials to the production process, to the use and end-of-life phase. Pirelli develops products and production processes aimed at minimising polluting emissions, waste production and increasing the recycling of materials, the use of natural resources. To this end, research and development activities constitute an essential lever, primarily those focused on innovative materials;
sustainable management of the supply chain along all phases of the relationship with the Supplier, from the selection to the contract, from the monitoring and prevention of risks through to third-party on-site audits, up until the engagement of the company which will share in the development of projects reaching down to the origins of the value chain, such as in the case of natural rubber;
an employment governance inspired by the best international practices, adjusted to support the Company’s growth strategy, and focused on efficient organisation, business ethics, the enhancement of diversity, shared objectives, a healthy and safe working environments, training in support of an increasingly digital-oriented cultural evolution, welfare and engagement;
a proactive dialogue with the financial market on sustainability planning and performances achieved;
active presence in the international committees which are the amongst the most relevant for the definition and implementation of strategies for sustainable development (UN Global Compact LEAD, World Business Council for Sustainable Development);
constant attention to relational capital. From its dialogue with stakeholders and the understanding of their expectations, the Company benefits both in terms of risk mitigation and the seizing of opportunities, as well as the strengthening of its license to operate (globally and locally);
support for the development of local communities and the acceleration of the spread of a Culture of Road Safety.
The distinctive positioning in the profitable High Value segment, which is expected to grow and is to a large extent located within a resilient industry such as the Replacement sector, is a significant competitive advantage for Pirelli.
In particular, the High Value tyre segment generates higher profit margins because the products included therein are recognised by the consumer as high value-added and are associated with performance, advanced technology, safety and sustainability. Because of these characteristics, Pirelli is able to put in practice a pricing policy located at the upperend of the market for high-end tyres for Automobiles and Motorcycles.
The New Premium tyre market segment, which is a significant part of the High Value market for motor vehicles, is characterised by a higher growth than that of the standard segment, considering:
the evolution of the circulating car market mix (the share of Prestige and Premium segments for 2014 was 9.9%, 10.8% for 2017, 11.3% for 2020);
the growing number of car models which are accompanied by the diversification of the characteristics of the tyres approved for each individual car model;
the growing demand for Specialties and Super Specialties tyres;
the increasing market share of SUVs (14% of global registrations in 2010, 29% in 2016, 34% in 2020);
the evolution of automobile design towards higher tyre rim diameters
Source: Prepared by the Company based on studies by a leading research firm on the Automotive market and on data supplied by regional associations fortyre producers, as well as internal data. The 2016 tyre market data has been uptdated with regard to what is contained in the Registration Document.
95% of the New Premium market is concentrated in Europe, Apac and NAFTA4.
In 2017 the New Premium segment recorded a growth of +10.5%, which is over 5 times higher than that of the standard market5.
The Replacement market, which accounted for 74% of the Group’s revenues for 2017, has historically proved to be a resilient market as it is tied to the number of cars in use, and is capable of producing high revenues and high profit margins which are not influenced by economic cycles.
Over the years, Pirelli has achieved a distinctive position with regard to High Value tyres and today holds a leadership position in the Prestige tyre segment, with a share of more than one third of the global market in terms of sales volumes, and in the radial sector of the market for motorcycle Replacement tyres. Pirelli is also a leader in Europe, China and Brazil, in the New Premium car and Premium motorcycle tyre market.
Note: 1. Car tyres with a rim diamter ≥ 18,
2. Data refers to Pirelli and Metzeler brands jointly,
3. Radial, Custom Touring, Off Road eSport Touring X-ply with a speed rating of ≥ H,
4. Area scope includes Italy, Spain, France, UK and Germany.
Source: Pirelli estimates based on third-part data.
The Pirelli brand is internationally recognised as an iconic brand associated with technology and Italian excellence in the automotive and motorcycle field, and beyond. The Pirelli Brand and the “P lunga” logo, which has represented it for over a century, are associated with exclusivity and high value, and convey Pirelli’s mission to bring technology, creativity and driving pleasure to the consumers. The Pirelli brand holds a position of primary importance amongst tyre brands in Italy and Brazil in terms of brand awareness, while at the same time positioning itself, in several other countries (for example the United Kingdom, Germany and China), amongst the three best-known tyre brands7.
The reputation of the Pirelli name and the Pirelli brand is linked, in addition to the excellence and quality of Pirelli products, to decades of successes in automobile racing and to the distinctive position of the Company as supplier to luxury car manufacturers.
Even outside the world of engines, the reputation and strength of the brand are constantly fuelled by Pirelli through the continuous association of the logo with events and major projects. The Pirelli brand is in fact an icon in sport, design, lifestyle, in initiatives for the community, and in art and culture in general. Pirelli’s sponsorship of numerous sports associations, such as the Football Club Internazionale Milano, Infront Sports and Media for the FIS Alpine Ski World Championships, the Ice Hockey World Championships8, and, more recently the vessel Emirates Team New Zealand in the America’s Cup, bears testimony to this affinity. Pirelli is also present in the field of design and culture with projects such as the Pirelli Calendar, and through the activities carried out with the support of the Pirelli Foundation and Pirelli Hangar-Bicocca™.
The high visibility of the Pirelli Brand translates into the strong engagement of consumers through digital communication channels, which also include, in addition to the pirelli.com website, other websites devoted to individual products in 43 countries, in 25 languages, while also being present on major social networks where it reached over 340 million users during 2017.
Over time, Pirelli has developed close relationships with the most eminent Prestige car manufacturers (such as Ferrari, Maserati, Lamborghini, Porsche, Bentley, Aston Martin, Bugatti, Rolls Royce, Pagani and McLaren), Premium car manufacturers (such as Audi, Mercedes, BMW, Jaguar, Land Rover and Volvo) and motorcycles (such as Ducati, BMW, MV Agusta, Triumph and KTM), relying on the strength of the brand, its reputation, the technological skills acquired and the ability to understand the needs of end consumers.
As December 31, 2017, Pirelli was involved in over 100 collaborations with producers belonging to the Premium segment, in projects for the development of innovative technology.
Their collaboration with car manufacturers allows Pirelli to develop tyres made to measure for different types of vehicles which can be clearly identified with special markings (so-called marked tyres), which meet the needs of consumers and ensure the perfect functioning of all the components in the latest generation of cars (all-wheel drive, hybrid systems, driver assistance systems). For the 2014-2016 period over 300 new homologations were obtained per year, after an average development of approximately 24 months, adding to the aforementioned portfolio of homologations and markings. The pace of homologations increased during 2017: 402 homologations including 324 New Premium.
At the end of 2017 Pirelli had a portfolio of over 2,160 High Value homologations (of over 2,740 in total), of which 88% carry original markings, 34% are Prestige and 29% winter tyres.
Pirelli believes that these partnerships are highly strategic in that:
they allow for the prediction of long-term demand for tyres;
they strengthen the competitive positioning and the predictability of short-term demand in the Replacement channel, thanks to the carry-over impact. Moreover, in the case of Prestige and Premium Cars, customers tend to re-purchase Replacement tyres of the same brand supplied as Original Equipment, which translates into both customer loyalty and greater predictability of demand for Replacement tyres;
This allows Pirelli to strengthen its knowledge of the tastes and needs of its end customers, thanks to the co-operations between Pirelli and car manufacturers in conjunction with joint marketing activities, events and Motorsport competitions
Over the years Pirelli has also developed expertise and a highly qualified know-how concerning the specific requirements of car producers which are difficult to replicate.
Technological innovation is an essential element of Pirelli strategy and plays a central role in the Company’s business model, especially with reference to High Value products.
For many years Pirelli has been conducting research and development in accordance with the “Open Innovation” model: co-operating with research centres, suppliers and universities. Pirelli develops distinctive solutions which are only accessible internally, creating a leverage effect with respect to their skills. As December 31, 2017, there were 31 collaboration projects in place with partner universities, 20 JDAs and 50 NDAs9 with suppliers and universities, and over 100 collaboration agreements with Premium Car manufacturers.
These research and development activities allow Pirelli to be amongst the market leaders with its range of innovative, technologically superior tyres, which are technically complex and highly prized by specialised magazines in the automotive and motorcycle industry. The high level of skills necessary for the development of these tyres is one of the competitive and strategic advantages of the Company and represents an effective barrier to entry into the High Value tyre market.
Pirelli’s commitment in the field of sports competitions (in particular Formula 1® and Superbike World) has allowed for the development of new tyre models, the improvement of the quality of road product projects, and the improvement in the understanding of tyre dynamics in relation to temperatures when functioning, and material behaviour. The research and development activities and the know-how gained through the design, development and production of tyres for the Formula 1® World Championship have allowed Pirelli to accelerate the design and development of new products, and to implement a series of cutting-edge innovations in order to offer maximum levels in terms of performance and safety.
Pirelli, one of the first multinational companies in the world with a solid international presence from the early twentieth century, served over 160 markets grouped into 6 regions in 2017: Europa, NAFTA, APAC, LATAM, MEAI, Russia and CIS.
Pirelli has a widespread sales network with over 250,000 points of sale, including:
retail points of sale (approximately 14,600 at December 31, 2017, compared to 12,500 at the end of 2016), mainly concentrated in the three Premium geographical areas - Europe, Apac and NAFTA (75% for 2017, 75% for 2016). These points of sale are linked to Pirelli by loyalty formulas that result in the significant presence of Pirelli products at the points of sale;
Automobile and Motorcycle dealerships (Pirelli sells to manufacturer houses such as BMW, Mercedes, Audi and Porsche, which in turn distribute to their dealerships) estimated at approximately 10,000 locations;
points of sale (other than Pirelli retail points of sale) served through Tier 110 distributors, estimated at approximately 10,000 locations;
points of sale (other than Pirelli retail outlets) served directly by Pirelli, stores owned by the competition and all the rest of the distribution network served by distributors other than Tier 1 distributors, wholesalers and large retail chains, for the remaining part.
Pirelli also commercialises its products for sale (Super Specialties products) in 9 countries through an on-line sales network managed by Pirelli (Shop.pirelli.com) and aimed at the end-consumer (so-called e-commerce).
On the production front, Pirelli operates through 19 factories located close to their sales markets, consistent with the local-forlocal strategy, with a productive capacity for car tyres amounting to approximately 76 million tyres at December 31, 2017, of which more than half (55%) was suited to the manufacture of High Value products.
At December 31, 2017, more than two-thirds (78%) of Consumer production activities for Automotive and Motorcycle Radials was carried out in countries with competitive industrial costs such as Mexico, Brazil, Argentina, Romania, Russia and China. The production map is completed by the plants in Italy, the United Kingdom, Germany and the United States, where the very high level of automation compensates for the higher cost of labour. This production structure is the result of a process initiated in 2008, which led to a review of the production sites map, resulting in the creation of plants perfectly suited to the manufacture of High Value products in Romania, China and Mexico to substitute part of the production in the mature markets (Italy and Spain).
During 2017, Pirelli made investments of euro 489 million (9.2% of turnover) aimed at:
the increase of the High Value production capacity (+3.3 million units) mainly in Europe, Apac and NAFTA;
promoting the upgrade of the standard capacity into High Value in the factories in Brazil and China (former Aeolus factory);
improving quality and mix, as well as production processes and equipment.
Pirelli senior management is made up of professionals with consolidated technical skills and many years of experience in the tyre industry (on average 16 years).
The Company is also equipped with an operating model which recognises the professional excellence of the individual specialist functions, with particular attention to attracting and enhancing young talents. In particular, Pirelli is engaged in training employees and management, coming from over 26 countries, through multiple initiatives.
4 Source: Prepared by the Company based on studies by a research firm on the Automotive market and on data supplied by regional associations for tyre producers.
5 Source: Prepared by the Company based on studies by a research firm on the Automotive market and on data supplied by regional associations for tyre producers.
6 The data regarding the Company’s competitive positioning included in this paragraph has been prepared by the Company based on third-party sources including research studies carried out regarding the automotive and motorcycle industry, on regional tyre manufacturer associations, and information collected locally by the Pirelli sales force.
7 Source: Prepared by the Company also based on third-party sources including brand tracking studies relative to the tyre market as edited by third-party sources.
8 Organised respectively by the International Ski Federation (FIS) and the International Ice Hockey Federation (IIHF).
9 Respectively, Joint Development Agreements (JDA) and Non-Disclosure Agreements (NDA).
10 Tyre distributors with whom the Group has defined special partnerships based on the following key factors: sharing the strategic and financial value of the Pirelli brand, sharing marketing plans, sharing inventory and sales data to allow for better planning and predictability of demand, privileged access to product availability, dedicated supply chain.)
Within the industry, three main competitive clusters can be identified, for strategy, price positioning and product characteristics:
Tier 1: six producers (Pirelli, Nokian, Bridgestone, Michelin, Continental, and Goodyear) accounting for approximately 50% of the turnover for the tyre industry11; they have a higher than average price positioning, a wide range of products and dedicated regional lines. Among these, Pirelli and Nokian are distinguished for their profitability, characterised by two different business models: Pirelli, pure Consumer, with a distinctive focus on the High Value segment and Nokian, whose speciality is winter Replacement tyres. The remaining four Tier 1 operators can be called Full-Liners in consideration of their presence in different businesses (Consumer, Truck, Agro, OTR and Aviation).
Tier 2: 14 producers (Sumitomo, Yokohama, Hankook, Cheng Shin, Cooper, Kumho, Toyo, MRF, Apollo, Nexen, Titan, Brisa, Trelleborg, Petlas), approximately 24% of the tyre industry12. The group is characterised by a price positioning that is lower than for Tier 1, by a moderately broad range of products (generally focused on medium-range products) and by sales that are sufficiently diversified at a geographical level. In many cases these players implement strategies aimed at improving their positioning through new homologations with vehicle manufacturers (mainly entry level models), at capacity increases, at productive efficiency, and at marketing operations aimed at increasing the global visibility of the brand.
Tier 3: over 150 small producers, approximately 26% of the global tyre industry turnover13. They have a generally low price positioning, and a productive and commercial structure focused on specific geographical areas. The operators in this category mainly focus on products with lower added value and are frequently imbalanced regarding supply and demand for industrial business sector (tyres for buses and trucks), adopting a volume / organic growth strategy.
The aspects that differentiate Tier 1 compared to the rest of the tyre industry are the following:
strong brand with the highest value amongst those in the industry;
high investments in technology (R∓D costs were on average 7.3% of Pirelli’s High Value revenues during the last 4 years), in order to be able to offer cutting-edge and highly customised solutions, both for car manufacturers and for end consumers;
reduced risks for excess capacity for the High Value segment, with the demand for 2020 equal to 278 million units, where 90% of the capacity is for tyres with a rim diameter ≥ 18 inches. The latter is estimated on the basis of announcements by Tier 1 players, assuming that these increases are destined only for the High Value segment. A balanced relationship between supply and demand reduces the risks of price pressure. By contrast, within the Standard segment, the risks of overcapacity are instead present;
an active presence within new trends in the Automotive industry (Connected, Autonomous, Shared, Electric) thanks to investments in technology and innovation in order to seize all new opportunities;
the ability to directly engage the end consumer, and especially new consumers (Millennials are already the largest generation in the world).
Pirelli, within the Tier 1 cluster, is distinguished by:
exposure to High Value (57.5% of revenues for 2017), more than any other market player;
a brand that is internationally recognised as an icon associated with technology and Italian excellence in the automotive and motorcycle field, and not only;
solid business relationships, developed and consolidated over time, with the Prestige and Premium vehicle manufacturers. These collaborations have allowed Pirelli to expand its portfolio of homologations to over 2,160 for the High Value segment (out of a total of over 2,740);
cutting-edge technological innovation, especially with reference to High Value products (over 90% of Pirelli R&D expenses);
a portfolio of innovative solutions, which are able to meet the needs of the cars and consumers of the future, and above all able to intercept the new Automotive trends such as Connected, Autonomous, Shared and Electric. As to these trends, Pirelli has already responded with a wide range of products and services:
from “green” tyres, designed specifically for electric cars, to tyres which reduce the noise generated by the tyre rolling (Pirelli Noise Canceling System);
the Cyber™ and Connesso™ solutions for monitoring tyre conditions (including wear and tear), via the car’s electronics or a smartphone;
Velo to intercept the future mobility needs of a customer base which is on average younger and more balanced regarding the male and female segments.
11 12 13 Source: August 2017 update of a study by an analysis company for the tyre sector
Pirelli aims to consolidate and maximize returns for shareholders and to manifest increasing levels of turnover and profitability over time.
The main strategic orientation is to allocate investments, develop innovations, achieve operational improvements in the High Value businesses and to reduce presence in the so called Standard segments by limiting exposure in those markets where Standard is still predominant (such as, for example, Brazil).
The second orientation is to cultivate all businesses which are of relevance to the consumer, not just Automotive and Motorcycles, but also bicycles (the so called Velo), and solutions and services for connected vehicles aimed at Prestige and Premium consumers (Cyber™).
The third is to achieve an efficiency plan equal to 1% of revenues which is linked to industrial and product activities (such as the optimisation of raw materials costs, the simplification of products and the reduction of tyre weights), thanks to the growth of production in countries with low industrial costs, to improved productivity and the simplification of processes, plus the optimisation of costs, starting from energy costs.
The 2020 Plan aims to improve performance through the following levers:
acceleration of the homologation program with the Prestige and Premium car manufacturers, which provides Pirelli with visibility on future demand and certainty of market shares in the car dealership channels. In 2017 Pirelli obtained 402 homologations, of which 324 were New Premium;
development of an unprecedented product innovation program that strengthens the Specialties and Super Specialties range, and which captures the needs for regional diversification. Between 2017 and 2020 Pirelli intends to launch up to 18 new product lines with global and regional coverage, including winter products, summer and four seasons, specialties/super specialties plus traditional products. During 2017 Pirelli expanded its portfolio with 4 new New Premium products (2 regional products specific for NAFTA and LatAm, 2 all-season products) and introduced Pirelli Connesso (Connected) and the Colorate (coloured Edition) as part of the Super Specialties range;
expansion of the High Value production capacity from 38 million units in 2016 to 53 million in 2020 with a share of total car capacity of 67% (54% for 2016). This increase will be the result of the conversion of the standard into High Value capacity (3 million units) and of the further increase of the High Value capacity (over 11.0 million units). During 2017 Pirelli increased its High Value capacity by 3.3 million units, reaching a capacity for high-end products of approximately 42 million units (55% of the total car capacity);
increase in distribution coverage through channels and points of sale where Pirelli exercises greater control and records higher sales. In particular, Pirelli intends to increase the sales generated by car dealers, Tier 1 distributors, retailers (the so-called retail points of sale or Pirelli Retail) and Pirelli e-commerce, from 41% (in 2016) to 66% in 2020. For 2017 the share of sales generated by these channels reached 48%;
enrichment of the Pirelli DNA with a strong Consumer "“gene”, as evidenced by the creation of the new Consumer Marketing function. Thanks to the digital channels and the exploitation of the brand’s strength, the new function will profile consumers in collaboration with the sales department, and will ensure a more personalised consumer engagement through a service which is assured by the points of sale network, which is becoming increasingly more qualified, more widespread and capable of serving Prestige and Premium consumers. Digital capabilities were expanded in 2017 to better profile customers in order to provide - in addition to a tailor-made product/service - relevant content for each customer segment at the right time during their Consumer Journey;
strengthening of the Motorcycle business by leveraging the distinctive characteristics of two brands, Pirelli and Metzeler, to occupy complementary market segments and forge commercial relationships with a large number of motorcycle manufacturers. Pirelli also intends to continue the development of specific products for new motorcycles, and the development of partnerships with manufacturers in order to launch new products. In 2017 Pirelli strengthened its position both on the radial motorcycle segment, where it confirmed its position as a global leader and on the Premium motorcycle segment with an increase in share in Europe and South America. In Apac, the region with the highest growth, the presence in the radial business was extended through partnerships with the main Original Equipment Manufacturers OEMs (QJ Benelli in China, Kymko in Taiwan and Triumph and Ducati in Thailand);
launch of the two new Velo and Cyber™ businesses: Pirelli intends to consolidate its leadership in the markets in which it currently operates and expand its presence by attacking new high potential segments.
The return to Velo, which belongs to the Pirelli tradition, not only takes place through innovative products but also through an approach focused on the Consumer and aimed closing in on the fundamental Consumer brand targets for the future, such as the new generations (the so called Millennials and Generation Z), women, and consumers attentive to sustainability and smart mobility. In May 2017 Pirelli announced the launch of the new line of tyres dedicated to road racing bikes, the P Zero™ Velo. The commercialisation of the range (in Europe, North America and Apac) began in August 2017 in three versions: P Zero™ Velo, P Zero™ Velo TT and P Zero™ Velo 4S.
With regard to innovations for solutions and services for new generation vehicles, Pirelli intends to exploit the data of the only component in contact with the road - the tyre - to provide consumers, the sales network and the car manufacturers with solutions and services which maximise the safety, minimise the operating costs and inventories in the supply chain, make the most of vehicle performance, and ultimately shorten vehicle development times. On the occasion of the Geneva Motor Show in March 2017, Pirelli Connesso™ was presented, a platform integrated with the P Zero™ or Winter Sottozero™ tyres which, thanks to a sensor and an application for Smartphones, is able to communicate with the motorist and provide information on certain fundamental parameters concerning the functioning of the tyre, and a range of other customised services.
Thanks to these solutions, Pirelli is ready to seize the growth opportunities linked to the technological trends of the future and is ready and able to keep up with the evolution of the Prestige and Premium cars along the trajectory of the C.A.S.E. (Connectivity, Autonomous, Shared, Electric).
Pirelli intends to continue to reduce its exposure to the Standard segment which is characterised by a profitability of one third of the High Value segment. Between 2016 and 2020 a standard capacity reduction of about 7 million units is foreseen, three of which have been converted into High Value (e.g.: LatAm), allowing Pirelli to serve the growing regions (e.g.: NAFTA) pending a recovery in the markets characterised by higher levels of uncertainty. In 2017, the project to convert the Standard capacity to High Value in Brazil began.
Pirelli intends to pursue the implementation of a transversal transformation and renewal program aimed at digitising the planning, production, distribution and consumer profiling processes.
Four inter-functional programs:
Integrated forecasting program, which applies Data Science in order to provide greater predictability for short, medium and long-term demand;
Smart Manufacturing and Flexible Factory program, which responds to the need to meet the demands of consumers, car companies and partner points of sale in an ever faster and more flexible way;
Supply Chain Program, which aims to get closer and closer to consumers and to offer a personalised and contextualised service;
Prestige program, which aims to get to know the end consumer more closely (manufacturers and owners of Prestige cars) to fully understand their needs in order to identify new opportunities for Pirelli.
Thanks to the implementation of these interdepartmental programs, Pirelli will be able to anticipate the needs of the market, to manage the growing complexity of the business, to increase the level of service offered to its customers and to increasingly engage the final consumer.
Based on these actions, the company expects to reach:
an average annual growth of ≥ + 9.0% for the 2016-2020 period;
a 63% High Value share of total revenues by the end of 2020;
an adjusted EBIT Margin of between ~18.5%/ ~19.5% by the end of 2020;
an 85% High Value share of the total EBIT adjusted by the end of 2020;
an efficiencies plan accumulated during the 2017-2020 period of 1% of revenues;
an investments forecast for the 2017-2020 period for an average equal to approximately 7% of annual revenues, 82% of which are earmarked for the High Value segment;
indebtedness on the decrease with a Net Financial Position / EBITDA adjusted ratio lower than 2.
The results for 2017 demonstrate how the Company is in line with the projected path and objectives of the 2016-20 Industrial Plan.
