Pirelli to focus on premium segment in new plan

Saturday, 6 November 2010 05:05 - - {{hitsCtrl.values.hits}}

MILAN (Reuters) - Pirelli & C SpA, Europe’s number three tyre company, plans to invest 1.9 billion euros ($2.7 billion) over five years to boost its premium products and emerging market presence to lift margins.

In its 2011-2013 industrial plan, Pirelli will target an earnings before interest and tax (EBIT) margin of 10.5-11.5 percent, above analyst expectations for a margin of 8.2-9.4 percent.

“This result will be reached mainly thanks to further focusing on the premium segment, which grows faster than the market, and on the replacement segment,” Chairman and Chief Executive Marco Tronchetti Provera said.

In September, Pirelli’s bigger rival Michelin <MICP.PA> announced plans for capital expenditure of 1.6 billion euros a year from 2011 to tap emerging market growth. Michelin targets a 9 percent operating margin in 2010.

Analysts who attended the presentation said Pirelli’s plan was achievable, although its lack of ambition failed to ignite the shares, which were slightly underperforming the sector.

In the first nine months, Continental’s tyre division reported a 14.8 percent EBIT margin.

Pirelli, the new Formula One suppliers, focus on high valued-added tyres, such as premium truck and car segments, winter and sport tyres.

Pirelli said it plans to develop business in Asia-Pacific, consolidate in Latin America, and take up new opportunities in mature markets in its favoured product niches. By 2015, two-thirds of profits should come from emerging markets. On mergers and acquisitions, Pirelli was only targeting plant acquisitions, and did not see major mergers in its sector, Tronchetti said.

In the short-term, Chief Operating Officer Francesco Gori said the winter tyre market, watched closely by analysts, is “booming” not just in Italy but also in Germany.