Pirelli & C.

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Industrial Business

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)

Cumulative
Q4 09 Q4 08 2009 2008
Net sales 314.5 277.4 1,165.1 1.298.7
Delta for year over previous 13% -10%
Gross operating margin before restructuring expenses 43.6 30.1 158.3 159.3
% of net sales 13.9% 10.9% 13.6% 12.3%
Operating income before restructuring expenses 31.5 18.8 111.8 111.6
% of net sales 10.0% 6.8% 9.6% 8.6%

In financial year 2009 sales reached Euro 1,165.1 million (-10.3% from 2008); the gross operating margin before restructuring expenses amounted to Euro 158.3 million, (practically unchanged from 2008), representing 13.6% on sales, while operating income before restructuring expenses reached Euro 111.8 million, with a return on sales of 9.6%, in line with 2008, but with an increase of one percent in relation to percentage return (in 2008 8.6%).

The fourth quarter of 2009 recorded revenues of Euro 314.5 million (+13.4% from 2008), reaching a Gross Operating Margin before restructuring expenses of Euro 43.6 million, which represents an improvement in terms of percentage return (a ratio on sales of 13.9% compared with 10.9% in 2008) as well as in absolute terms (Euro 30.1 million in fourth quarter 2008).

Operating Income before restructuring expenses presents a similar trend amounting to Euro 31.5 million compared with Euro 18.8 million in 2008, reaching a return on sales of 10% (compared with 6.8% in third quarter 2008).

As regards sales, the volumes for Pirelli Tyre have increasingly decreased by 12.6% compared with the whole of 2008, but up 14% in the fourth quarter (again compared with the corresponding period of 2008); the change deriving from the price/mix lever was positive in progressive terms (+5,0%) and led to an overall organic decline of 7.6% for financial year 2009; the organic change in the fourth quarter was +10.5%.

The results of the Industrial segment also continued to show in the fourth quarter the positive effects of both the benefit arising from the reduction in raw material costs, and the strategic concentration of the business line in the emerging markets which were less affected by the crisis in the international markets.

In the Industrial segment, in fact, the market scenario was always negative in both sales channels, in particular in the mature markets, but the strategic positioning of Pirelli Tyre, with both production and marketing focused on the emerging markets, facilitated the maintenance of good levels of returns.

The Industrial segment is, in fact, generally the most cyclical, being directly affected by the general trend in the entire economy and in certain specific sectors, such as public works, large construction projects, etc.. Therefore the general drop recorded in the Industrial market in 2009 (Original Equipment Europe -64%, Original Equipment Mercosur -19%, Replacements Europe -16%, Replacements Mercosur -9%), which was only partially attenuated in the fourth quarter (Original Equipment Europe -44%, Original Equipment Mercosur +16%, Replacements Europe +12%, Replacements Mercosur +23%), was due to the general slowdown in the economy and to the lower need for industrial transport of goods with the exception of the Chinese market which maintained positive growth rates.