Pirelli & C.

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Pirelli Tyre

The table below shows a summary of the main consolidated results for financial year 2009, compared with the corresponding period of 2008:

(in millions of euro)

12/31/2009 12/31/2008
Net sales 3,992.9 4,100.2
Gross operating margin before restructuring expenses 538.0 441.2
% of net sales 13.5% 10.8%
Gross operating income before restructuring expenses 345.5 250.7
% of net sales 8.7% 6.1%
Restructuring expenses (37.0) (100.0)
Operating income 308.5 150.7
% of net sales 7.7% 3.7%
Net income from equity investments 4.2 27.8
Financial income/(expenses) (76.1) (82.8)
Income tax (90.0) (70.1)
Net income 146.6 25.6
% of net sales 3.7% 0.6%
Net financial (liquidity)/debt position 1,027.3 1,266.8
Net operating cash flow 395 (171.0)
Investments in property, plant and equipment 217 285
R&D expenses 133 145
% of net sales 3.3% 3.5%
Employees (number at end of period) 27,481 28,601
Industrial sites no. 20 21

Net sales in financial year 2009 came out at 3,992.9 million euro, down 2.6% compared with the same period of the previous year.

The like-for-like change, excluding the effect of fluctuations in exchange rates and of the application of accounting for hyperinflation in the Venezuelan subsidiary, was a drop of 1.6%, with a negative change in volumes (-5.8%) partially offset by the change in the price/mix (+4.2%).

Exchange rates had a negative effect of 1.6%, and the effect of restating the figures for the Venezuelan subsidiary resulting from the application of the principles for hyperinflation was a positive 0.6%.

Sales in fourth quarter 2009 confirmed the positive trend compared with the same period in the previous year, already seen in the third quarter, with an overall positive change of 13.9% in like-for-like terms.

The table below summarises the individual components of the changes in sales in 2009, detailing the trend in each quarter:

Q1 Q2 Q3 Q4 2009
Volumes -18.1% -13.3% -3.3% 15.6% -5.8%
Prices/Mix 6.9% 5.6% 4.7% -1.7% 4.2%
Change on a like-for-like basis -11.2% -7.7% 1.4% 13.9% -1.6%
Foreign exchange effect -2.7% -1.5% -3.3% 2.0% -1.6%
High inflation - - - 2.8% 0.6%
Total change -13.9% -9.2% -1.9% 18.7% -2.6%

The contraction of sales was concentrated in the Industrial segment (-10.3%), while in the Consumer segment there was slight overall growth (+0.9%): this determined an increase, in terms of sales, of the proportion of the Consumer segment (71% compared with 68%), with a consequent reduction in the Industrial segment (29% compared with 32%).

The distribution of net sales by geographical area and product category is as follows:

Geographical area

2009 2008
Italy 9% 9%
Rest of Europe 33% 36%
North America 8% 7%
Central and South America 34% 33%
Africa, Asia, Pacific 16% 15%

Product category

2009 2008
Car tyres 63% 60%
Tyres for industrial vehicles 27% 29%
Motovelo tyres 8% 9%
Steelcord / other tyres 2% 2%

There was confirmation, in a year with a market scenario of recession above all in the mature markets, of a percentage reduction in the proportion of turnover in Europe compared with 2008 (from 45% to 42%), owing chiefly to the reduction of volumes in the Original Equipment channel. As regards the figure for North America it must be remembered that the amounts were affected positively also by the revaluation of the average exchange rate in the period of the US Dollar to the euro compared with the same period of 2008.

As regards operating income for financial year 2009, the following table shows the quarterly and cumulative trend compared with the corresponding periods of the previous year:

(in millions of euro)

Q1 Q2 Q3 Q4 Cumulative
2009 2008 2009 2008 2009 2008 2009 2008 2009 2008
Net sales 926.9 1,076.9 989.0 1,089.4 1,042.7 1,062.9 1,034.3 871.0 3,992.9 4,100.2
% change -13.9% -9.2% -1.9% 18.7% -2.6%
Gross operating margin before restructuring expenses 107.8 151.0 133.0 135.5 142.0 91.8 155.2 62.9 538.0 441.2
% of net sales 11.6% 14.0% 13.4% 12.4% 13.6% 8.6% 15.0% 7.2% 13.5% 10.8%
Operating income before restructuring expenses 61 102.8 85.5 88.2 94.3 40.8 104.7 18.9 345.5 250.7
% of net sales 6.6% 9.5% 8.6% 8.1% 9.0% 3.8% 10.1% 2.2% 8.7% 6.1%
Operating income 57.5 100.3 79.3 85.7 85.9 14.1 85.8 (49.4) 308.5 150.7
% of net sales 6.2% 9.3% 8.0% 7.9% 8.2% 1.3% 8.3% -5.7% 7.7% 3.7%

Net income in fourth quarter 2009 was up compared both with the same period last year, and with the previous quarters and specifically:

  • the total gross operating margin before restructuring expenses was 155.2 million euro (15.0% on sales), more than double compared with the same period of 2008 (Euro 62.9 million with a ratio on sales of 7.2%);
  • operating income before restructuring expenses reached Euro 104.7 million (10.1% on sales), higher than in the corresponding period of 2008 when it amounted to Euro 18.9 million (with a ratio on sales of 2.2%).

The positive change in operating income in fourth quarter 2009 was mainly due to:

  • continuation of the positive impact deriving from the reduction in the cost of raw materials for an amount of Euro 81.5 million, after that of Euro 18.0 million already recorded in the second quarter and Euro 36.5 million recorded in third quarter 2009;
  • confirmation of the benefits deriving from the restructuring measures implemented;
  • a change in the direction of the trend in volumes, compared with the corresponding periods of the previous year, with a positive impact of Euro 30.8 million.

Progressively for the whole of 2009 the gross operating margin before restructuring expenses was Euro 538.0 million (13.5% on sales), up Euro 96.8 million over the corresponding period of 2008, when it amounted to Euro 441.2 million (with a ratio on sales of 10.8%).

Operating income before restructuring expenses for financial year 2009 came to Euro 345.5 million (8.7% on sales), an improvement of Euro 94.8 million compared with the corresponding period of 2008 when it amounted to Euro 250.7 million (with a ratio on sales of 6.1%).

The change in operating income before restructuring expenses for financial year 2009 compared with the previous year in the various periods can be summarized as follows:

(in millions of euro)

Q1 Q2 Q3 Q4 2009
2008 operating income before restructuring expenses 102.8 88.2 40.8 18.9 250.7
Foreign exchange effect (1.6) 1.4 (3.1) 0.4 (2.9)
Prices/mix 43.0 35.6 39.1 (23.3) 94.4
Volumes (28.7) (46.1) (12.7) 30.8 (56.7)
Cost of production factors (raw materials) (37.3) 18.0 36.5 81.5 98.7
Cost of production factors (labour/energy/others) (16.6) (4.2) (18.5) (4.8) (44.1)
Efficiencies (1.2) 4.8 16.7 15.3 35.6
Amortization, depreciation and other (*) 0.6 (12.2) (4.5) (14.1) (30.2)
Change (41.8) (2.7) 53.5 85.8 94.8
2009 operating income before restructuring expenses 61.0 85.5 94.3 104.7 345.5
* of which fixed from/to stock (2.7) (5.1) (10.1) (1.9) (19.8)

The price\mix variant and the efficiencies achieved – which were even more important because they were obtained despite a business scenario characterized by periods of overcapacity, in addition to the positive trend in the costs of factors of production, in particular thanks to the reduction in the cost of raw materials, made it possible to improve in absolute terms the results achieved progressively in 2008, more than offsetting the negative effect of the reduction in sales volumes.

As far as restructuring work is concerned, Pirelli Tyre continued the actions planned, in the context of the ongoing process of increasing efficiency, improving the industrial framework, and adjusting the overheads structure to the new market scenario.

The actions were essentially focused on the reduction of 15% of workforces in Western Europe by the end of 2009, including the decision to halt definitively in December 2009 the production of tyres at the factory in Manresa, Spain, which had already been reduced by 40% from February onwards.

Therefore the internal efficiencies involving labour costs, together with all those deriving from the work done on the use of materials and on the procurement process and with the advantage obtained on the cost of raw materials before the exchange rate effect (greater than the advantage envisaged at start of the year), made it possible to obtain overall in the year a positive effect on the costs greater than the targets envisaged for the first year of the Business Plan.

Operating income for financial year 2009 was Euro 308.5 million, an improvement over the result for the corresponding period of 2008, when it amounted to Euro 150.7 million euro, with a ROS (ratio between operating income and sales) of 7.7%, a figure that amply reached the profitability target indicated in the first year of the Business Plan.

Total net income for financial year 2009 was Euro 146.6 million (after financial expenses and net income from equity investments of Euro 71.9 million and income taxes amounting to Euro 90.0 million) and compares with a figure for the previous year of Euro 25.6 million (after financial expenses and net income from equity investments of Euro 55.0 million and income taxes amounting to Euro 70.1 million).

It should be recalled that the result for last year benefited from a positive impact of Euro 27.3 million in relation to the purchase of most of the minority interests in subsidiaries in Turkey, deriving from the negative difference between the purchase price and the equity acquired; in the first quarter of this year the purchase of the remaining minority interests in subsidiaries in Turkey was substantially completed, at a cost of Euro 4 million, and with a further positive impact on net income from equity investments of Euro 3.4 million.

The net financial position showed debts of Euro 1,027.3 million, down by Euro 239.5 million euro compared with December 31, 2008 and with Euro 271.3 million compared with September 2009.

The change is summarised below:

(in millions of euro)

Q1 2009 Q2 2009 Q3 2009 Q4 2009 2009 2008
Operating income (EBIT) before restructuring expenses 61.0 85.5 94.3 104.7 345.5 250.7
Total amortization & depreciation 46.8 47.5 47.7 50.5 192.5 190.5
Investments in Property, plant and equipment/Intangible assets (36.8) (27.6) (33.2) (119.8) (217.4) (294.2)
Change in working capital/other (255.4) 77.4 109.6 309.3 240.9 (165.1)
Operating cash flow (184.4) 182.8 218.4 344.7 561.5 (18.1)
Financial expenses/tax expenses (46.4) (40.0) (49.2) (30.5) (166.1) (152.9)
Net operating cash flow (230.8) 142.8 169.2 314.2 395.4 (171.0)
Dividends paid (0.2) (66.3) - - (66.5) (93.2)
Acquisition of Speed S.p.A. - - - - - (409.0)
Purchase of minorities in Turkey and asset sales 11.0 - - - 11.0 (32.3)
Cash out for restructuring expenses (39.0) (8.3) (7.4) (7.7) (62.4) (15.3)
Exchange differences/other 4.0 (13.4) 6.6 (35.2) (38.0) 13.6
Net operating cash flow (255.0) 54.8 168.4 271.3 239.5 (707.2)

Fundamental factors in the good result achieved, in addition to higher income, were continual efficiency in the management of working capital, especially on the asset side in relation to inventories and receivables, and the careful selection of investment activities in a year characterized in part by underuse of manufacturing capacity.

The criterion for the determination of industrial sites was reviewed, considering as a single site situations where different products are manufactured at the same place.

The 2008 figure was therefore restated as 21, because the Steel Cord facilities in Turkey and Romania were included in the tyre production site.

At the end of 2009 there are 20 industrial sites following the closure of the manufacturing activities of the Spanish subsidiary and they are divided as follows:

  • Bollate (Italy), production of Car tyres
  • Settimo Torinese (Italy), production of tyres for Industrial Vehicles
  • Settimo Torinese (Italy), production of Car tyres (during 2010 this will be incorporated in the site producing tyres for Industrial Vehicles)
  • Figline Valdarno (Italy), production of Steel Cord
  • Breuberg (Germany), production of Car and Motorcycle tyres
  • Merzig (Germany), production of Steel Cord
  • Burton (UK), production of Car tyres
  • Carlisle (UK), production of Car tyres
  • Izmit (Turkey) production of tyres for Cars and Industrial Vehicles and Steel Cord
  • -Slatina (Romania) production of tyres for Cars and Industrial Vehicles and Steel Cord
  • Alexandria (Egypt), production of tyres for Industrial Vehicles
  • Rome (USA), production of Car tyres
  • Merlo (Argentina), production of Car tyres
  • Campinas (Brazil), production of Car tyres
  • S. André (Brazil), production of tyres for Industrial Vehicles
  • Feira de Santana (Brazil), production of tyres for Cars and Industrial Vehicles
  • Gravatai (Brazil), production of tyres for Industrial Vehicles and Motorcycles
  • Sumaré (Brazil), production of Steel Cord
  • Guacara (Venezuela), production of Car tyres
  • Yanzhou (China), production of tyres for Cars and Industrial Vehicles.

Investments amounted to Euro 217 million (Euro 285 million in 2008). These investments were aimed at increasing manufacturing capacity in "low cost" and emerging countries, increasing high-range production, developing innovative processes, launching new "Green Performance" products and at improvements in the fields of the health and safety of workers and environmental management of factories.

In relation to the single businesses, as regards the production for Cars, plans to increase manufacturing capacity in the high-range segment were carried forward in Europe and the investments begun in Romania, China and Brazil were consolidated. Actions continued on technological and qualitative product improvements, and the prototype line of the innovative "Next Mirs" process was launched for the production of high-range tyres. Work also began on construction of the new Technological Hub at Settimo Torinese.

As regards the Autocarro All Steel business, manufacturing growth was consolidated in Turkey and Egypt and projects began for further growth in Brazil and Egypt.

In the field of innovative processes, the installation continues of machinery for the manufacture of products with SATT technology (Spiral Advanced Technology for Trucks), deriving from MIRS technology.

At December 31, 2009, there were 27,481 employees, including 1,997 temporary workers and 126 supply workers.

Compared with December 31, 2008, there was a sharp reduction of 1,120 units of which 89 members of management and clerical staff and 1,031 factory workers.

At December 31, 2009, the workforce (excluding workers with temporary contracts) is divided as follows:

2009 2008
Executives 0.9% 0.9%
Clerical staff 18.9% 19.3%
Factory workers 80.2% 79.8%
100,0% 100,0%