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Pirelli 2013 Sales Increase But Profits Flat

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Pirelli & C. SpA today reported full-year 2013 consolidated revenues of 6,146.2 million euros on Dec. 31, an increase of 1.2% from 6,071.5 million euros a year earlier. Tire revenues, which account for almost all of the company’s sales totaled 6,115.8 million euros in 2013, an increase of 1.4% from 6,031.3 million euros. Full year tire-derived pre-tax profits (EBIT) were 822.0 million euros, an increase of 1.2 million euros (+0.1%) compared with 820.8 million euros in the same period a year earlier, with a margin equal to 13.4% (13.6% in 2012). However, whether it will be enough to allay pre-release market fears that emerging market exchange rates and particular Russian market instability remains to be seen.
Much is attached to the continuing performance of Pirelli’s Premium tire strategy. With regard to the premium segment, revenues on Dec. 31, 2013 amounted to 2,210 million euros, an increase of 6.5% compared with 2,075.4 million euros in the corresponding period of 2012.
Pirelli’s sales increase and the company’s ability to hold its EBIT position was said to have been thanks to strong price/mix improvement, the positive impact of the volume component (97.7 million euros). However, the fact that raw material costs were 136.2 million euros lower will have helped even more. Nevertheless, Pirelli reported that these improvements compensated for the increase in the cost of production (138.5 million euros), which was its reportedly down to: increased operating costs and amortizations of 168.4 million euros, mainly stemming from: 25.5 million for the transformation of the Settimo Torinese truck site into car tire plant and of course the start-up costs for the plants in Mexico and Russia.
Referring to its annual tire revenues of 6,115.8 million euros and excluding the exchange rate effect (negative 7.2%), Pirelli reported sales revenue growth of 8.6%. This performance reflects volume growth (+5.7%), particularly relevant in emerging markets (+10.2%) which represented 55.7% of tire sales during the year, and the component price/mix (+2.9%). In the fourth quarter, revenues were 1,490.0 million euros, substantially unchanged (+0.1%) compared with 1,488.4 million in the same period of 2012. Excluding the exchange rate effect, negative 9.1%, revenues increased by 9.2%.
In 2013, Pirelli invested a total of 199.2 million euros – equal to 3.2% of sales – to research and development. Of this 163.3 million euros was for activities linked to premium products – equal to 7.4% of revenues in the segment.
Consumer tire sales lead the way
Pirelli’s consumer business (car/light truck and two-wheel tire) sales totaled 4,478.9 million euros, an increase of 1.3% compared with 4,419.8 million euros in the corresponding period of 2012. In total, volumes rose 4.6%, with the fourth quarter registering an increase of 6.9%. Premium product sales were described as the driver of growth, with an increase in volumes (+15.3% in 2013) more than three times more that of the entire consumer segment and characterized by diverse regional dynamics.
Growth was evident in emerging markets (volumes +33%; revenues +22%), particularly in Asia (revenues +29%) and South America (revenues +25%), while in Russia and the Nafta saw revenue growth “more contained” with 2% and 3% respectively.
Europe saw revenue growth of 1.7% and volumes up 10.9%, thanks to the improvement clocked in the last quarter of 2013. The overall performance in Europe discounted the consumer crisis linked to the macro-economic performance, a partial adjustment of prices to the actual raw material scenario and a diverse mix of sales’ channels, with greater weight in original equipment, which is an investment for the future development of the replacement channel.
Outlook for 2014
In light of the performance in the last quarter of 2013 and in the first months of 2014, Pirelli confirmed the 2014 targets the company indicated last November, namely: EBIT of 900 million euros before restructuring costs of 50 million euros; investments below 400 million euros; cash generation before dividends above 250 million euros; net financial position negative at around 1.2 billion euro. At the same time Pirelli raised some profitability target: margin before restructuring costs was raised from the prior 13.5% to roughly 14.5% in light of an improvement in the price/mix contribution to +4%/+5% (previously +3%/+4%) with a positive impact on the operating result of about 15 million euros.
Emerging market performance better than expected
According to the company, the positive performance of emerging markets more than offset the weakness of mature markets, with an increase in revenues of 4.3% compared with a reduction of sales in Europe (-2.2%) and in the Nafta area (-1.5%). A particularly positive performance was posted in South America (+5.2%) and Apac (+14.5%), while Russia remained substantially in line with the previous year and the Middle East Africa area saw a decline of 5% compared with the prior year, impacted by elevated exchange rate volatility.
Notwithstanding the unfavorable exchange rate impact, linked in particular to the devaluation of Latin American currencies, revenues saw growth of 1.2% to over 6.1 billion euros, which adjusted for the exchange rate effect is 8.4%, while EBIT was in line with 2012 levels and 2013 targets. In the fourth quarter alone, in particular, profitability improved markedly compared with both the same period a year earlier and the preceding quarter thanks to a better product mix, as can be seen in the strong growth of premium volumes. (Tyres & Accessories)
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