The performance of the tyre market in the first half saw greater weakness in Original Equipment demand compared with expectations and competitive pressure on prices, particularly in the Standard segment and High Value products with a lower level of technological content. These dynamics resulted in a revision of the market scenario and Pirelli’s estimates for 2019.
The Car Tyre market is expected to fall by -1.2% (previous indication “flat”), with the Standard segment’s performance at -2% while ≥18” is expected to grow by +6%, more contained than the previous indication (+7%) as a consequence of the slowdown of Original Equipment demand (0% / +1% compared with the previous estimate of +2% / +3%). On the other hand, the double-digit growth (~+10%) expected in ≥18” Replacement is confirmed.
On the basis of this scenario, Pirelli has revised its expectations for 2019, providing a range for each indicator, the lower level of which is to be considered the floor in case of further deterioration of the external context.
- revenues are expected to grow by between 1.5% and 2.5% (previous indication between +3% and +4%) compared with 2018, underpinned by the strengthening of High Value (~67% of revenues confirmed).
- total volumes are expected to decline by between 2.5% and 2% (previous indication -1%) in the face of more cautious expectations regarding Original Equipment demand and the Standard segment in South America. High Value volumes are expected to grow by between 7.5% and 8% (previous indication above +9%), higher than the market’s rate of growth, while Standard volumes are seen falling by between 12% and 11.5% (previous indication ~-11%).
- the price/mix is expected to improve by between 4.5% and 5% (previous indication +5% / +5.5%) in consideration of the above mentioned competitive pricing pressure in the Standard segment and High Value with a lower level of technological content, as well as the diverse product and geographical mix, compared with previous indications.
- exchange rates estimated at ~-0.5% (previous guidance -1% / -0.5%).
- the adjusted EBIT margin is expected at between 18% and 19% of revenues (previous indication ≥19%), supported by improved internal levers (price/mix and cost efficiencies) which limit the impact of the changed external context.
- High Value as a percentage of Adjusted EBIT before start-up costs is expected to be ~85% (in line with previous indications and compared with around 83% in 2018).
- Excluding the impact of the new IFRS 16 accounting principle, ~2.3x including first estimate of IFRS 16 impact.
Source: 1H 2019 Results Presentation