Corporate View: Silvia Gironi, Pirelli Group

Published: Apr 2011

Pirelli & C. SpA is a Milan-based multinational which specialises in the manufacture of tyres. The company has industrial plants in 11 countries and a world-wide network of distributors and retailers in over 160 countries. There are approximately 30,000 people on the Pirelli payroll.

Silvia Gironi


Silvia joined Pirelli Group after graduating from university with a bachelor’s degree in economics. Since 2002, she has been General Manager of Pirelli Servizi Finanziari S.p.A., the Italian treasury hub of the group and in 2010 she assumed responsibility for Pirelli International Ltd., the UK-based international treasury hub. Before joining the treasury department, Silvia held a number of positions in the group’s corporate finance department, where she worked in export and trade finance, investors relations and risk management. She reports directly to the group’s CFO.

To racing aficionados and motor sports enthusiasts, the Pirelli name is synonymous with one thing – tyres. In the 1920s, the rubber burnt by the racing drivers Nuvolari, Ascari and Fangio made the brand a household name and associated the company with a sport with which it has never fallen out of love. As of 2011, Pirelli is the sole supplier of tyres to the World Rally Championship, the British Superbike Championship and the FIA Formula One World Championship.

While the company is proud of its motor sport heritage, it is unwise to pigeon-hole it. In its time, Pirelli, which was founded in 1872 by the Milanese Giovanni Battista Pirelli, has manufactured everything and anything that might be fashioned from rubber and its derivatives. Its first products were telegraph and submarine cables. Only later did it begin to produce the rubber tyres for bicycles and automobiles for which it is today most renowned.

In the 1980s, the company consolidated its position in the telecommunications market when it took-over Standard Telephone Cable, a manufacturer of landline cables. It was this foothold in the telecoms sector that encouraged its research into fibre optic technologies at Pirelli Labs, a research and development centre it established at the turn of the millennium. The site also allowed the company to pursue its interest in photonics and saw the genesis of its internet service, Pirelli Broadband Solutions.

With a growing property portfolio also to its name, the Pirelli board was convinced that the company had become unwieldy. As a result, in 2010 it sold off its broadband service to ADB Group, a Swiss media company, and listed its property company as a separate entity on the Milan stock market, thereby decoupling the two companies.

It is now free to concentrate on what it does best – the manufacture of premium brand tyres. The group has since rediscovered its sense of purpose and direction. The future for the Pirelli Group – as its 2011-13 industrial plan makes clear – lies very much in emerging markets, where rising prosperity has spurred the growth in vehicle ownership. To this end, over the next few years it plans to consolidate its position in Latin America and other, as yet untapped, markets.

Approximately a third of Pirelli’s annual revenues already derive from LatAm, where it has manufacturing plants in Brazil, Argentina, and Venezuela. With plans afoot to open a factory in Mexico in 2012, Silvia says Pirelli’s footprint in Latin America will only become more considerable over the next few years. “That’s why we decided to maintain the already established treasury hub in the region,” Gironi explains. “A team based in São Paolo now takes care of the treasury operations in the region.”

Pirelli Group’s headquarters are in Milan and the treasury department is split between Italy and the UK. Silvia, as group treasurer, manages a staff of 12 people in three departments – front office, back office and a financial planning division. She reports directly to the Finance Director and CFO. The UK-based treasury centre – Pirelli International Ltd. – manages the company’s FX exposures, its excess liquidity and the group’s funding needs.

In other parts of the world in which the company has a presence, a more informal arrangement has been established, says Gironi. “In certain countries, where the group is facing currency and regulatory restrictions, we rely on our colleagues to create a link between the local market and us in Milan.” This is the case in China, where the Pirelli representatives on the ground are a link between the local market and the company.

In February this year, the company diversified its debt portfolio when it issued a €500m Eurobond. Despite the lack of a credit rating, the Pirelli paper was well received by investors and demand far outstripped supply. Prior to the bond issue, its debt was 100% owing to the banks. The debt issuance, says Gironi, signaled Pirelli’s intention to diversify its funding sources. “We think it is important to have a portion of our debt provided by the banks, but it is equally important to have the support of the bond market and investors there,” she says.

In this interview, we talk to Gironi about the bond issue, her treasury team and the role of Pirelli in some of the world’s fastest growing markets.

Can you describe your basic cash management activities?

All our affiliates, if feasible in respect with the local regulations, have an intercompany current account with the international treasury centre – Pirelli International Ltd. – through which all intragroup commercial and financial transactions are settled. We physically sweep funds daily to the international treasury centre and through it we manage the excess liquidity and funding needs of the company world-wide. To do this we adopt both a zero balance cash pooling system and manual transfers from local bank accounts, depending on volumes of financial transactions managed. The Latin America treasury hub coordinates and controls the treasury operations for the countries within that region, taking into consideration the peculiar local regulations.

What do you do with your excess liquidity?

We use bank deposits – for two reasons. The liquidity that we manage is usually a limited amount because we try to maximise the efficiency of our debt/liquidity position. So, first of all if we have excess liquidity we pay off debt. If we have a small mismatch of duration and we’re not able to pay off debt we deposit the money, mainly overnight. Our focus is more on reducing excess liquidity. The effort is to make our net financial position more efficient and to realise the interest on the liquidity invested. The first target though is always to pay back debt.

Speaking of debt, why did you decide to use the bond market for your most recent funding operation?

The main reason we decided to issue a bond is to diversify our funding sources. We would like to reduce our dependence on the banking system because our funding before was 100% bank debt. We think it is important to have a portion of our debt provided by the banks, but it is equally important to have the support of the bond market and investors there. One reason is simply that then the stakeholders can see that the group has access to other sources of funding besides the banks.

The bond debt stands at around 40% of gross debt. The other 60% of borrowings is now bank debt.

The previous maturity of our debt overall was around two years. At the end of 2010 we signed a new revolving line of credit for €1.2 billion with a duration of five years, this replaced existing lines of credit worth a total of €1.475 billion, launched in 2005 and 2007 with maturities in 2011 and 2012, which as a consequence were cancelled.

The facility which is floating rate, will have an initial interest rate of Euribor plus 110 basis points. The contract was underwritten by 12 primary national and international institutions. These were: Bank of America Merrill Lynch, Barclays, BNP Paribas, Commerzbank, HSBC, Intesa Sanpaolo, Mediobanca, Mizuho, Société Générale, The Bank of Tokyo-Mitsubishi, The Royal Bank of Scotland and UniCredit in equal shares. Banca IMI and BNP Paribas acted as global co-ordinators for the deal.

With both the new revolving credit facility and the bond issue, we have moved our debt duration to the end of 2015/the beginning of 2016. This aligns better with the industrial plan we published in November 2010. It was important to manage our funding arrangements and facilities so that they were consistent with that plan.

You don’t have a credit rating. How did that affect the bond issuance?

I do not think it had a major negative effect at all. We don’t have a credit rating, among other reasons, because we are not frequent issuers. We can rely on both our name – Pirelli is a very strong brand – and our strong financial position. Also, we didn’t see a good enough trade off. The effort and cost of having a rating agency analyse us wasn’t worth it, compared with the potential pricing advantage we could have had. In the future maybe we will change our plans, but at the moment, because we aren’t such a frequent issuer, we don’t think we need it. If, in the future, the market asks for a higher spread we will be ready to ask for an official rating. We will continue to evaluate the situation.

Over 93% of the paper found buyers outside Italy. Why do you believe this was?

It was something we were expecting. It is in line with the multinational profile of our group. The UK and France were a particular success. I underline that the bond was a Eurobond with selling restrictions – it couldn’t be sold in the US, Japan, Canada, and Australia. The bond was more than nine times oversubscribed, which is very positive feedback. It was an encouraging sign from the market.

How does Pirelli fund itself in the short-term?

We use revolving credit facilities, overdrafts and uncommitted credit lines – most of them local lines. We improved our working capital over the last year, too. To do this we keep pressure on payment terms and keep strict checks on inventory levels. By keeping inventory low and keeping pressure on collections, we can focus on cash. Cash is always important.

The trend is most definitely upwards. Market conditions are so dramatically different to what they were. The period between the end of last year and the bond issue, there were some good prices to be had. If we compare the price of the current revolving credit facility with the previous two, it is not really comparable. There is a big gap and market conditions are so different.

There is a reluctance on the part of banks to lend to each other, which is reflected on corporates. The cost of funding on the part of banks increased over the past few years. We think the effect of Basel III is already factored into the prices we get from the banks.

What FX exposures do you have?

From a transactional point of view, our main currency is the US dollar. We use other currencies but not anything like as much. Due to our strong presence in Brazil, China and Romania we face exposure to the respective local currencies.

What is your hedging policy with regard to these exposures?

We hedge all our commercial FX positions using plain vanilla instruments – forwards and swaps. All the invoices that are expressed in currencies different to the local currency are automatically hedged with a plain vanilla instrument by the international treasury centre in the UK. The international treasury hedges the balance of these positions with the banks.

We hedge our interest rate risk, too. We mainly do this with interest rate swaps. As a target, our guideline is to have between 65% and 70% of our gross debt fixed rate and the remainder floating rate.

What does the future hold for your treasury department?

We have challenging projects ahead. We are developing a road map for an international payment factory. It will include payments for third parties in Europe and all inter-group positions world-wide. The aim is to standardise all our cash management practices across the different regions. Since April 2008 our international treasury centre has been connected with SwiftNet and we use it to manage payment transfer MT101, MT940 messages (daily bank account statements) and MT300 messages (FX deal confirmations). We would like to extend our existing SWIFT platform to all our companies. We are also evaluating the opportunity of choosing a unique treasury system to support both our local and centralised activities. Probably we will implement SAP’s treasury suite.

Furthermore, as we are expecting to expand our presence in Russia and Mexico, we are in the process of doing due diligence – it is still early days. In Russia, we have just signed a memorandum of understanding and we are negotiating the creation of joint ventures with local partners. We will make a start in the next 12 months.

All our content is free, just register below

As we move to a new and improved digital platform all users need to create a new account. This is very simple and should only take a moment.

Already have an account? Sign In

Already a member? Sign In

This website uses cookies and asks for your personal data to enhance your browsing experience. We are committed to protecting your privacy and ensuring your data is handled in compliance with the General Data Protection Regulation (GDPR).