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Pirelli Continues to Rely on High Value Tires

Posted on August 7, 2018

Pirelli & Cie SpA posted net income of 181.9 million euros on net sales of more than 2.6 billion euros for the first half of its fiscal 2018 ended June 30, 2018. That compares to income of 67.6 million euros on sales of nearly 2.7 billion euros for the same period in fiscal 2017.

Based on the exchange rate on June 30, 2018, Pirelli recorded net income of $212.9 million on net sales of nearly $3.1 billion for 1H 2018. The company's income-to-sales ratio was 6.9%.

"The first half performance was in line with the path focused on High Value (tires) and shows growth of all key economic indicators," said the company, which cited these results in particular:

* the organic growth of revenues thanks to Pirelli’s strengthening position in high value tires in all regions alongside a progressive reduction of the exposure to the standard segment; high value tire sales represented 64% of total revenues, compared to 58.2% in the first half of 2017.

* the improvement of price/mix.

* the further increase of profitability by 1.5 percentage points to 18% (adjusted EBIT margin before start-up costs against revenues).

* the further strengthening of partnerships with prestige and premium car makers.

* the increasing of High Value production capacity mainly in Europe and NAFTA.

* the reinforcement of distribution coverage in Europe, NATFA, APAC and Latin America.

* the development of business programs that intercept the new needs of end customers (such as the Cyber Fleet Solution and Velo cycling tire concept). These are accompanied by projects for the digital transformation of the company and the reconversion of Aeolus branded production to Pirelli branded in the Jiaozou Aeolus car factory.

The volumes of the High Value segment registered significant growth, 13.1%, with improved market shares in all geographic regions, said Pirelli. "In particular, the volumes of new premium car tires -- above 18 inches -- grew by 18.3%, reaching levels above the market trend (+10.2%), thanks to great demand in the original equipment channel (+23.1%, particularly in Europe and APAC) and the growing demand for Pirelli specialty rim sizes equal to and greater than 18 inches."

In the NAFTA Region (18.5% of sales) organic growth in revenues was 7.5%, driven by the High Value segment (an organic growth of 7.4%) and in particular by the growth sustained in the replacement channel, thanks to the introduction of all-season products, and the higher penetration of the retail channel. "Profitability (EBIT margin adjusted) was at high-teens level, which was slightly lower compared to the previous financial year (in the twenties range), being penalized mostly by changes in exchange rates, but was still in recovery mode compared to the previous quarter due to the progressive strengthening of the U.S. dollar," said Pirelli.

On August 1, Pirelli announced it had reached a preliminary agreement with the Hixih Group for the creation of a joint venture that will entail a new consumer tire manufacturing plant in China. The terms of the agreement provide that Pirelli is responsible for the operational management of the plant and will acquire a 49% investment stake in the joint venture for approximately 65 million euro, with the right to increase its stake up to 70% during the period between Jan. 1, 2021, and December 2025.

"The investment will allow Pirelli to have the necessary productive flexibility in the High Value segment, taking into account the evolution of the Chinese market, the developments expected in the electric car segment and the increasing share of homologations obtained in the original equipment segment in China, Japan and Korea," said Pirelli.

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