Pirelli & C.

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Business Consumer

The table below shows the consolidated economic and financial results obtained in fourth quarter 2009 and the total figure for the year, and comparisons with the corresponding periods of 2008:

(in millions of euro)

Q4 09 Q4 08 2009 2008
Net sales 719.8 593.6 2.827.8 2.801.5
Delta for year over previous 21% 1%
Gross operating margin before restructuring expenses 111.5 32.8 379.7 281.9
% of net sales 15.5% 5.5% 13.4% 10.1%
Operating income before restructuring expenses 73.2 0.1 233.7 139.1
% of net sales 10.2% - 8.3% 5.0%

In financial year 2009 sales of the Consumer segment totalled Euro 2,827.8 million (+0.9% from 2008); the gross operating margin before restructuring expenses amounted to Euro 379.7 million, or 13.4% of sales (+34.7% from 2008), while operating income before restructuring expenses reached Euro 233.7 million, with a return on sales of 8.3%, compared with 139.1 million euro achieved in the corresponding period of 2008 (5.0% on sales).

Fourth quarter 2009 saw sales of Euro 719.8 million (+21.2% from the same period of 2008), with profitability significantly higher than in the previous year both in absolute terms (operating income of Euro 73.2 million compared with Euro 0.1 million, both before restructuring expenses) and in percentage terms, with a return on sales of 10.2% (none in the same period of 2008).

With reference to sales, the positive organic change in the fourth quarter (+15.5%) was entirely attributable to the recovery of volumes compared with the same period of the previous year, while at the progressive level the organic change was a positive 1.2% with the contribution of the price/mix lever (+3.9%) completely offsetting the decline in volumes in the year (-2.7%), a decline concentrated in the first half of the year.

Positive elements which determined the substantial improvement of the levels of profit in the fourth quarter were the positive effect of volume, the benefit deriving from the reduction in raw material costs, the actions for efficiency and improvement of the competitive framework facilitated by the greater use of manufacturing capacity. This was in the presence of a price/mix change which was negative in the quarter, not so much compared with previous periods of 2009, as with the last quarter of the previous year, owing substantially to the basis for comparison of the same period which was characterized by the sharp drop in sales to Motor Manufacturers both in Europe and in South America (crisis of the automobile industry that began in the last quarter of 2008) together with an accentuation of the increase in prices at the same time as the peak recorded by the increase in raw material costs.

In particular at the level of the market in the Original Equipment channel positive growth rates were recorded compared with the last quarter of 2009, of +18% in Europe, +2% in North America, +44% in the Mercosur area.

In 2009 the market however recorded significant falls compared with 2008: -12% in Europe, -32% in North America, -1% in the Mercosur.

In the Replacement channel, in the fourth quarter the market grew in comparison with the corresponding period of 2008 in all areas, with Europe +12% (with a positive progressive trend in the winter segment, thanks to the destocking process seen at the end of the last season), North America +8%, and significant growth again in the Mercosur area with +18%; in the year as a whole there was little change in Europe, -3% in North America and a 7% increase in the Mercosur area.

The positive performance in volume terms was determined also by the growth in market share in all areas, with the exception of Russia.

As regards Motorsport activities, in 2009 Pirelli Tyre consolidated its presence as exclusive supplier of the prestigious American series Rolex Grand Am and in the World Rally Championship (WRC), where Pirelli was the first to introduce “green A.O.F. (Aromatic Oil Free)” tyres already in 2008. In the FIA-GT international championship, we can note the second place in the GT2 class (with BMS-Scuderia Italia) at the Le Mans 24h and the supply to various national single-tyre championships (French GT FFSA Championship, Italian GT Championship, GT UK, GT Scandinavia, GT Brazil).

Pirelli is also the exclusive supplier of competition tyres for the Ferrari Challenge championships in Italy, Europe and the United States and of the Lamborghini Super Trofeo at the European level.

Confirming its presence on new markets, Pirelli Tyre was made the exclusive supplier of the WV Scirocco Cup in China and of the Lumina Cup in the Middle East.

Pirelli was confirmed as the leader in rallies in Europe winning the Italian championship with P. Andreucci, the Swiss championship with F. Gonon, the Austrian championship with R. Baumschlager and the German championship with H. Gassner Jr. Other important results arrived in Group N of the Chinese Rally Championship, in the FIA Asia-Pacific Championship where Pirelli won the title again with C. Crocker in a Subaru Impreza and in the FIA Middle East Championship with N. Al-Attiyah.

Pirelli was reconfirmed as single-tyre supplier in the British Rally Championship, the Swedish Rally Championship, the Finnish Rally Championship, the Argentinean Rally Championship and the Codasur Rally Championship.

The programme continued for selection of the most promising young pilots worldwide (5 teams), who in 2010 will take part in the Pirelli Star Driver project, the races of which will be held on the occasion of a number of World Championship rallies in Europe.

Among the new products developed in 2009 the PZero™ Trofeo represents the state of the art of "racing for fun" ensuring exciting performance with a “green AOF” tyre.

Sales of Motorcycle tyres declined in 2009, owing to a contraction of the reference markets. The Original Equipment channel was profoundly affected, above all in South America, by the squeeze on consumer credit owing to the financial crisis which resulted in a drastic reduction in registrations of new motorcycles.

In the Replacement channel too the market was difficult in Europe and North America, while volumes were positive in South America and the Asia-Pacific area.

In 2009, confirming Pirelli’s technological leadership, important new approvals were also obtained, thanks to the new tyres launched on the market during the year.

For the Pirelli brand, Aprilia: Mana 850 and Mana GT with Shiver 750 and Shiver GT with Angel ST; Ducati: 1198 S & R with Diablo Supercorsa SP, Multistrada B S T with Scorpion Trail, Street Fighter B & S and Monster 1100 S with Diablo Rosso Corsa, Hypermotard 796 and 1100 EVO and also Monster 1100 B with Diablo Rosso, Hypermotard EVO SP with Diablo Supercorsa SP, Monster 696 B & S with Angel ST; Kawasaki: New Z1000 with Diablo Rosso; KTM: RC8 with Diablo Rosso; MV Agusta: F4 with Diablo Supercorsa SP, Brutale 990 with Diablo Rosso.

For the Metzeler brand, Aprilia RSV4R 1000 with Metzeler K3 Interact, BMW: F 650 GS with Tourance EXP, R 1200 R with Roadtec Z6 Interact, S 1000 RR and HP2 Sport with Racetec K3 Interact; Triumph: New Rocket Base & Touring and New America with ME880; Yamaha: new X-MAX 125/250 with Feel Free; Honda: VT750S and VT1300CX (Fury) with ME880 Marathon.

For Pirelli 2009 was a year full of success on all racetracks. Participation as the sole supplier of the World Superbike series, in which as many as 7 manufacturers took part (Aprilia, BMW, Ducati, Honda, Kawasaki, Suzuki and Yamaha) brought a considerable increase in visibility in the media. In Motocross there were numerous prestigious wins, such as the Motocross MX2 World Championship, the World Rally Championship, the Dakar. Metzeler achieved success once again off road, winning first place in the World Enduro Championship in the E1, E2 and E3 classes.

Our presence in both road and off-road racing, ranging from globally important championships to local championships, is the ideal platform for developing new solutions and confirming our technological leadership.