Pirelli Launches Four-Year Plan to Boost Margins

Pirelli SpA says it intends by 2017 to cut costs €350 million, sell €150 million in non-core operations and shift its production focus to more profitable truck and premium passenger car tires.

The four-year plan, which includes a €1.6 billion investment, aims to increase the company's pretax profit margin to more than 15% from 13% this year and elevate its return on investment to 28% from 20%.

The initiative also targets a reduction of the Italian tiremaker's debt to about €500 million at the end of 2017 from €1.4 billion this year.

The shift in production will raise the proportion of high-end tires sales for such brands as Audi, BMW and Mercedes-Benz to 44% by 2016 from 38% currently. Pirelli says the premium segment already accounts for more than half its revenue and 80% of its profits.

Pirelli says the plan will convert capacity to build 4 million low-end tires per year into annual output of 2.5 million premium tires.

CEO Marco Tronchetti Provera tells the Financial Times that Pirelli also is in discussions with several Asian tiremakers to form a truck tire venture next year. He envisions a partnership that would give the company inexpensive access to fast-growing industrial vehicle markets in exchange for helping its collaborators expand into Europe and South America.