The market’s performance in the first months of the year show a prolonged weakness in demand in Original Equipment. In particular, in the New Premium segment (tyres with rim sizes of ≥18”), the Original Equipment market in 2019 is expected to grow by between +2% and +3%, compared with the previous estimate of +5%. For the Replacement market ≥18”, however, double-digit growth (+10%) is confirmed. Given these dynamics, the New Premium market is expected to post total growth of ~+7% (previous estimated +8%).

On the basis of this scenario, Pirelli is revising its estimates for High Value volumes which are now expected to grow by over +9% (previous indication ~+11%), a level that is however above the market’s growth:

  • in the Original Equipment, thanks to a diversified portfolio of homologations and new supply contract in North America and APac in the second half

  • in the Replacement leveraging, the pull-through effect (83% in 2018).

Standard segment volumes have also been revised, with the decline foreseen at -11% (prior indication -9%/-10%), given the market’s weakness and the accelerated exit from less profitable products.

Total volumes are expected to decrease by ~-1% (prior guidance +0%, +1%).

The company confirms expectations of improved price/mix (+5%/+5.5%) and exchange rates (-1%/-0.5%).

The forecasts for 2019 hence are:

  • revenue growth of between +3% and +4% (previous indication +4% to +6%) compared with €5,194.5 million in 2018, supported by the strengthening of High Value (confirmed at ~67% of revenues)

  • profitability growth, with an adjusted EBIT margin foreseen at ≥19% (previous indication ~19%) compared with 18.4% in 2018, supported by improvement in internal levers (price/mix and cost efficiencies)

  • weight of High Value on adjusted EBIT before start-up costs at ~85% (in line with the prior indication)

  • debt reduction with a ratio between Net Financial Debt and adjusted EBITDA before start-up costs at ~2.1x (2.49 at end 2018), ~2.3x including the impact of the adoption of the new IFRS 16 accounting principle

  • investments of ~€400 million (previous indication ~€430 million), consistent with the new market scenario

  1. Excluding the impact of the new IFRS 16 accounting principle, ~2.3x including first estimate of IFRS 16 impact.

Source: 1Q 2019 Results Presentation

Last Revised: 14 May 2019