Strategic plan for sustainable growth: 2012-2014 industrial plan and vision to 2015

The Group Sustainability Plan complements, supports, accompanies and protects the achievement of Group Industrial Plan targets.
On November 9, 2011 Pirelli top management presented the Group Industrial Plan with vision to 2015 and adjustment of its targets from 2011-2013 to 2012-2014 to the financial community. This is an ambitious plan, of which sustainability policies are an essential part.

Pirelli aims to become the Premium segment global leader by 2015, confirming the focused strategy previously illustrated in the business plan that was presented in 2010.

To reach this objective, Pirelli will make an additional push in technological innovation that will lead to unprecedented expansion in its product line, capable of satisfying the increasingly sophisticated demand of mature markets like Europe as well as the nascent demand for Premium products in rapidly developing countries.

In the car segment alone, plans call for rolling out 18 products, which will lead the business unit to earn 57% of its net sales from new projects.

Pirelli Research and Development, which will continue to enjoy one of the highest budgets in the sector, will concentrate on:

  • innovative materials through research in the field of polymers, fillers and chemicals;
  • low environmental impact materials through research on biomaterials (silica from rice, natural rubber from sources that are alternative to the rubber tree) and recycling;
  • cutting-edge modelling that, by using simulations, will allow further reductions in the “time-to-market” as well as projects quality and performance improvement, in line with the highest demands;
  • the development of production processes like the new generation of MIRS, a robotized process owned exclusively by Pirelli , or extension of the PTSM process, which represents the evolution of the CCM – Continuous Compound Mixing System;
  • electronics embedded in the tyre (like the microchip contained in the Cyber Tyre, which makes it possible to interpret different road surface conditions by sending useful information to the vehicle).

In addition to its products and technology, Pirelli will further improve its productive organisation and geographical scope, with more and more new factories (in the Premium car tyre segment, 64% of capacity will be produced at new plants by 2015) and located in countries with growing demand and favourable industrial costs. This expansion includes the industrial projects launched in Russia (Car), Mexico (Car), Argentina (Truck) and the new plant to be opened in Indonesia (Motorcycle).

The Moto Business Unit aims at consolidation of its leadership in the Premium segment, particularly in Europe, confirming its role as technological innovator and maintaining high levels of profitability.

The Industrial Business Unit aims at achieving technology driven leadership in key markets, with a focus on rapidly developing economies.

The strength of the brand, valued at euro 2.27 billion, will also support innovative marketing initiatives, targeted both at end customers and the trade, allowing it to segment, expand and develop the loyalty of its customer base.

Thanks to the focus on the Premium segment, use of the price/mix component, the growing weight of the consumer segment and replacement channel, which are more profitable and less cyclical, Pirelli expects high revenue and profitability in 2015. The EBIT margin will top 16% in 2015%, almost double the 8.4% of 2010 and one of the best in the sector. Profitability will increase in all regions with a balance between mature markets and emerging markets. The impact of the Premium segment will increase in all regions, and especially in Europe, which is now the world’s principal Premium market. In this region, 80% of consumer sales will be generated by this segment in 2015.

The strong cash flow expected to be generated by 2015 (euro 3.2 billion, compared with euro 2.1 billion forecast in the previous business plan) will not only permit support for a major, growing investment plan (up to euro 2.4 billion, compared with euro 1.9 billion under the previous plan), but also further improve its solid financial position, by reducing the debt/ EBITDA ratio to 0.4 in 2015.

In a market that exhibits signs of slowing down, Pirelli has also prepared a “contingency plan” to assure itself the necessary flexibility for optimum management in case of negative business cycles worsening.

In 2012-14 Pirelli will further intensify the environmental, social and economic sustainability plan that it implemented in 2010. The key objectives of the plan are process and product innovation focused both on the safety of individuals and on environmental protection, extension of the Pirelli sustainable management system to the new industrial operations that will join the Group, the commitment to transform the driving safety education of end customers into a bona fide “safety culture,” the professional and personal development of its own employees and a major investment in training.

In its production processes, Pirelli is committed to using systems that will lead by 2015 to a 70% reduction in specific water withdrawal, a 15% reduction in specific emissions of CO2 and a 15% reduction in the specific consumption of energy from 2009. In 2011 these values have already been reduced by 28% for water and by 8% for both energy and CO2.

In regard to products, the Group aims at intensifying its use over the next three years of low environmental impact raw materials and further improving the safety and eco-sustainability of Green Performance tyres, by extending their benefits to the Latin American, Chinese, USA and Mexican markets.

In the area of social responsibility, specific attention has been focused on workplace safety, in the form of prevention and training plans at plants, with the challenging goal, within 2015, of reducing the accident frequency index (FI) by 60% from its 2009 level. In 2011 the first fruits of this plan were already clear with a 28% reduction in FI from 2010 and 42% in the three-year period 2009-2011.

Moreover, ethics, diversity, leadership, dialogue and welfare will be at the centre of programmes for individual improvement in view of developing personal attitudes and skills, after making a growth-oriented investment in training by reaching an average of 7 man/days in 2015 (from 6.2 in 2011). Activity will continue on monitoring the social and environmental sustainability of the supply chain, also thanks to a new and advanced management system.

The corporate Model for sustainable management and development will be at the centre of integration of new production plants in Mexico, Russia and Indonesia. In relations with local and international communities, cooperation with governmental and non-governmental authorities will be reinforced to take joint initiatives targeting sustainable development, especially in the area of road safety.

2012-2014 Sustainability plan and vision to 2015

Integrating, supporting and protecting Group targets and values

2012-2014 Sustainability plan and vision to 2015

Major benefits are expected from integration of the Idustrial Plan and Sustainability Plan, from the intangible ones of becoming an “employer of choice”, with growing brand equity and perception as a reliable company for all stakeholders, to the tangible ones that are based on competitive advantage and sales of environmentally sustainable products, on cost improvements and on lower capital costs that can result from responsible, careful risk management.