Pirelli has disclosed plans to focus on its premium products and cost-cutting measures to drive a gradual increase in core profit margins over the next two years.
Announcing its strategic plan along with annual results, the group said its margin on adjusted earnings before interest and tax (EBIT) would rise to between 18% and 19% through 2022, up from 17.2% last year.
A company supplied poll of analysts last week forecast margins to remain broadly unchanged until 2021 at least.
Pirelli’s Milan-listed shares were up 2.7% at 1310 GMT.
The manufacturer of tyres for Formula One racing teams and high-end carmakers such as BMW and Audi said it planned “significant” increases to production capacity for premium tyres to about 71% of total tyre capacity in 2022, from 65% last year.
“The high value segment in Europe, Asia-Pacific and in the U.S. will still be promising in terms of growth and profitability,” Chief Executive Marco Tronchetti Provera told analysts.
Despite weakness in global car production, Pirelli expects to outperform the wider market for premium tyres by about three percentage points over the strategy plan’s three-year period, with average annual volume growth of about 9%
The group also aims to reduce its capital expenditure to 900 million euros, from 1.3 billion euros in the previous three years, as “optimal” capacity in the premium segment is reached, with further increases to be achieved mainly by conversion of existing operations.
Tronchetti said Pirelli plans to begin a gradual resumption in operations at two factories in China from next week after shutdowns because of the coronavirus outbreak.
Its other Chinese plant is operating at reduced capacity.
The tyremaker estimates that the stoppage at its plants will cut adjusted core profit by about 30 million euros in the first quarter but expects to offset that over the course of the year.
Adjusted EBIT fell 3.9% last year to 917.3 million euros ($991 million), in line with expectations.
The company said it plans to cut 510 million euros in costs over the next three years, mainly through a review of its product range, component simplification, supplies savings and a planned reorganisation of production in Brazil and at one of its Italian plants.
Tronchetti said the group’s new plan does not include any merger and acquisition activity, saying its position in a premium market segment negates the need for takeovers to drive growth.
“We are always open to consider tie-ups if they are value-accretive for the company, but nothing is on the table now,” he said, adding that it has not entered any talks over specific tie-ups with competitors.