Pirelli takes note of the coronavirus emergency, which is upsetting the global economic scenario, and decides to review its business plan to 2022. The board of directors therefore resolved to:
- reformulate the 2020 targets in the light of the elements available to date, reserving the right to reprocess those up to 2022 in the fourth quarter of 2020, based on the evolution of the external scenario;
- cancel the distribution of dividends for the 2019 financial year, amending the resolution approved on 2 March, while at the same time reserving a distribution of reserves to shareholders in the second half of 2020, should cash generation be higher than the new 2020 target and/or the economic scenario should allow for better visibility on the impacts overall results of the Covid-19 emergency;
- review the 2020 remuneration policy taking into account, in particular, the cancellation of the short-term incentive system for 2020.
Interventions to deal with the Covid-19 emergency
In response to the Covid-19 health emergency, Pirelli immediately activated all actions on the prevention front to protect the health of its employees and the community. Pirelli has set up a task force in constant contact with the various institutional crisis units in all the countries where the company is present. The HSE function coordinates the actions to be implemented on a global level and is also available to employees and has created an emergency number manned 24/7 by doctors and security and HSE specialists.
Pirelli has also promoted a series of initiatives to support the community: in Italy from a donation to the Sacco hospital to an initiative with the Lombardy Region to supply medical devices, in China from a donation to 'Coronavirus Relief Efforts' to sending of sanitary devices. Furthermore, the research against the Coronavirus was destined a contribution also from the Pirelli Calendar project, canceled for the 2021 edition. Pirelli is in constant contact with all stakeholders (including suppliers, customers and the distribution network) in order to limit the impact of the crisis and plan the recovery in the best possible way.
New 2020 market scenario and measures taken
The Covid-19 emergency is bound to impact the global economy with a general drop in production and consumption. In the light of the elements available to date and on the basis of a prudential scenario, Pirelli forecasts for 2020 a drop in global GDP of around -2,8% (+2,7% the expectations envisaged in the business plan presented on 19 February).
In this scenario, the expectations for the global car tire market in 2020 are per a decrease of about -19% with:
-21% for the Original Equipment channel (previous estimate -2,4%) due to the global decline in the production of new motor vehicles;
-18% for the Replacement channel (+0,5% the previous estimate), also in consideration of the traffic limitation measures adopted in the various countries.
To cope with this new scenario, Pirelli has activated a series of actions aimed at protecting profitability and cash generation. In particular it has:
– temporarily reduced production levels: activity in factories, which had slowed down since the beginning of the emergency, was temporarily suspended starting from 20 March in all production units (with the exception of China) with the adoption of social safety nets. In China, after the suspension of production for about a month in two plants, activity is gradually returning to normal;
– launched further cost containment actions (reduction of discretionary costs, review of marketing and communication activities, renegotiation of contracts with suppliers, prioritization of investments in R&D and efficiencies on the distribution channel). These actions are in addition to the competitiveness program envisaged in the business plan;
– revised the investment plan for the current year in line with the new market outlook;
– activated actions for optimal management of working capital (e.g. reduction of stock levels);
– reduced the remuneration of Top Management and canceled the short-term incentive plan for 2020;
– canceled the payment of the 2019 dividend;
– strengthened the financial structure with refinancing actions already carried out in the first quarter of the year.
2020 guidance update
Based on the new economic scenario and taking into account the actions taken, Pirelli forecasts for 2020:
Revenues between 4,3 and 4,4 billion euro (the previous indication was around 5,4 billion euro), with overall volumes down between -18% and -20% (the previous indication between 0% and +1%). indication). In the High Value segment, the expected decrease is equal to -14% (+8% the previous indication) with a performance in the Car New Premium of approximately -11,5% (-14% the expected decrease for the New Premium market) and a drop of approximately -26% in the Standard segment (previous indication -6%);
– Adjusted Ebit margin between 14% and 15% (approximately 17% the margin implicit in the targets presented on 19 February) thanks to the aforementioned cost containment actions and a more favorable scenario for raw materials and energy costs;
investments for approximately 130 million euros (previous indication approximately 300 million) mainly intended for the management of the plants and for the improvement of the mix and quality;
– Net Financial Position confirmed at around -3,3 billion euro with a generation of net cash of around 230-260 million euro (around 220 million the corresponding level implied in the previous guidance) assuming the non-distribution of dividends. In the fourth quarter of the year, the prospects to 2022 formulated in the 2020-2022 business plan will be reviewed in the light of the evolution of the situation.
Cancellation of dividend on the 2019 financial year
In the light of the Covid-19 emergency, the BoD resolved to cancel the payment of the dividend for the 2019 financial year, thus modifying the 2019 profit distribution proposal already approved on 2 March, which envisaged a dividend per share of €0,183 for a total 183 million euros. Therefore at the next meeting of the shareholders of Pirelli & C., scheduled for June 18, it will be proposed to carry forward the entire profit for 2019, equal to approximately 273,2 million euros.
