Pirelli Tyre

  • Net sales in 2010 totalled euro 4,772.0 million, up 19.5% from the previous year
  • Operating income for 2010 was euro 453.1 million, with ROS of 9.5%.
  • Capital expenditure totalled euro 402 million, up sharply from 2009.

The consolidated results for 2010 as compared with those for 2009 are highlighted in the following table:

(in millions of euro)    
  12/31/2010 12/31/2009
net sales 4,772.0 3,992.9
Gross operating profit before restructuring expenses 684.3 538.0
% of net sales 14.3% 13.5%
Operating income before restructuring expenses 476.3 345.5
% of net sales 10.0% 8.7%
Restructuring expenses (23.2) (37.0)
Operating income 453.1 308.5
% of net sales 9.5% 7.7%
Net income (loss) from equity investments 0.3 4.2
Financial income/(expenses) (66.4) (76.1)
Income tax (134.4) (90.0)
Net income (loss) 252.6 146.6
% of net sales 5.3% 3.7%
 
Net financial (liquidity)/debt position 1,109.9 1,027.3
Net operating cash flow 168 395
Capital expenditure 402 217
Research and development expenses 146 133
% of net sales 3.1% 3.3%
Employees (number at end of period) 28,865 27,481
Industrial sites (number) 19 20

Net sales in 2010 totalled euro 4,772.0 million, up 19.5% from the previous year. Sales grew in both business segments, with the consumer segment rising by 16.7% and the industrial segment by 26.3%.

The like-for-like change, excluding the effect of exchange rate fluctuations, was an increase of 16.2%. Growth was driven by the positive contribution made by all components, with volume up by 7.3% and the product/ mix component up by 8.9%. The exchange rate effect was a positive 3.3%.

Sales in Q4 2010 confirmed their positive performance compared to the same period of 2009, continuing the trend established during the preceding quarters, with a total increase of 17.3% (+14.7%). The price/mix component weighed heavily in Q4 2010, just as in the previous quarter, with a positive change of 11.3%, while volume increased by 3.4%.

Sales grew in both business segments, with the consumer segment rising by 16.2% and the industrial segment by 19.7%. The following table summarises the individual components of changes in sales during 2010, detailing the trend for each quarter:

  Q1 Q2 Q3 Q4 Total
2010 2009 2010 2009 2010 2009 2010 2009 2010 2009
Volumes 17.4% -18.1% 7.5% -13.3% 1.8% -3.3% 3.4% 15.6% 7.3% -5.8%
Prices/Mix 1.4% 6.9% 10.1% 5.6% 12.3% 4.7% 11.3% -1.7% 8.9% 4.2%
Change on a like-for-like basis 18.8% -11.2% 17.6% -7.7% 14.1% 1.4% 14.7% 13.9% 16.2% -1.6%
Foreign exchange effect 1.0% -2.7% 5.3% -1.5% 4.2% -3.3% 2.6% 4.8% 3.3% -1.0%
Total change 19.8% -13.9 22.9% -9.2% 18.3% -1.9% 17.3% 18.7% 19.5% -2.6%

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

Geographical area
  2010 2009
    euro/mln Δ yoy
Italy 9% 409,0 11% 9%
Rest of Europe 31% 1,503.5 13% 33%
Nafta 10% 477.4 32% 9%
Central and South America 34% 1,632.1 26% 33%
Asia/Pacific 6% 286.9 24% 6%
Middle East/Africa 10% 463.1 13% 10%
Total  100% 4,772.0 20% 100%

Product category
  2010 2009
    euro/mln  Δ yoy
Car tyres   62% 2,938.6 17% 63%
Motovelo tyres  8% 361.7 15% 8%
Consumer 70% 3,300.3 17% 71%

Industrial vehicle tyres 28% 1,364,2 26% 27%
Steelcord 2% 107.5 25% 2%
Industrial 30% 1,471.7 26%    29%

Sales grew in all geographical areas in absolute terms, while the weight of NAFTA area increased, partially due to the positive average performance of the benchmark currency (USD) against the euro as compared with 2009.

The following table shows the changes in operating income for 2010 on a quarter-by-quarter and cumulative basis in comparison with the same periods of the previous year:

(in millions of euro)
  Q1 Q2 Q3 Q4 Cumulative
2010 2009 2010 2009 2010 2009 2010 2009 2010 2009
Net sales 1,110.0 926.9 1,215.3 989.0 1,233.8 1,042.7 1,212.9 1,034.3 4,772.0 3,992.9
Δ yoy 19.8% -13.9% 22.9% -9.2% 18.3% -1.9% 17.3% 18.7% 19.5% -2.6%
Gross operating profit before restructuring expenses 146.4 107.8 177.5 133.0 173.0 142.0 187.4 155.2 684.3 538.0
% of sales 13.2% 11.6% 14.6% 13.4% 14.0% 13.6% 15.5% 15.0% 14.3% 13.5%
Operating income before restructuring expenses 98.1 61.0 127.1 85.5 121.5 94.3 129.6 104.7 476.3 345.5
% of sales 8.8% 6.6% 10.5% 8.6% 9.8% 9.0% 10.7% 10.1% 10.0% 8.7%
Operating income 95.5 57.5 121.8 79.3 117.0 85.9 118.8 85.8 453.1 308.5
% of sales 8.6% 6.2% 10.0% 8.0% 9.5% 8.2% 9.8% 8.3% 9.5% 7.7%

Just as in all preceding quarters of the year, operating income in Q4 2010 was up from the same period of 2009, and specifically:

  • gross operating profit before restructuring expenses was euro 187.4 million (15.5% of sales), up 21% from the same period of 2009 (euro 155.2 million, or 15.0% of sales);
  • operating income before restructuring expenses reached euro 129.6 million (10.7% of sales), compared with euro 104.7 million in the same period of 2009 (10.1% of sales).

Again in Q4 2010, the effects of growing sales volumes and continuous action on the price/mix component, combined with cost efficiency measures, effectively offset rising input costs, especially for raw materials.

4.772 million Net Sales

Throughout all 2010, gross operating profit before restructuring expenses was euro 684.3 million (14.3% of sales), up euro 146.3 million (+27%) from 2009, when it totalled euro 538.0 million (13.5% of sales).

Operating income before restructuring expenses in 2010 totalled euro 476.3 million (10.0% of sales), up euro 130.8 million compared to the same period of 2009, when it totalled euro 345.5 million (8.7% of sales). The growth in return on sales is particularly significant, notwithstanding a significant increase in raw material costs (which totalled euro 270 million for the year, and euro 125 million in the fourth quarter alone), achieved through the previously mentioned actions on the price/mix component and cost efficiency gains.
The change in operating income before restructuring expenses during 2010 from the previous year is summarised as follows:

(in millions of euro)          
  Q1 Q2 Q3 Q4 Cumulative
2009 operating income before restructuring expenses 61.0 85.5 94.3 104.7 345.5
Foreign exchange effect (5.2) 2.2 2.7 3.5 3.2
Prices/mix 6.1 86.6 107.3 131.9 331.9
Volumes 50.8 25.2 5.2 19.8 101.0
Cost of production factors (raw materials) (6.7) (62.1) (76.4) (125.1) (270.3)
Cost of production factors (labour/energy/others) (7.4) (12.8) (14.7) (12.6) (47.5)
Efficiency gains 7.6 5.3 14.4 22.8 50.1
Amortisation. depreciation and other (8.1) (2.8) (11.3) (15.4) (37.6)
Change 37.1 41.6 27.2 24.9 130.8
2010 operating income before restructuring expenses 98.1 127.1 121.5 129.6 476.3

Operating income for 2010 was euro 453.1 million, up from 2009, when it totalled euro 308.5 million, with ROS (return on sales) of 9.5%. These results topped even the latest forecasts for 2010. Restructuring measures continued in 2010. Focused on the European area, they aimed to improve the overall Group cost structure by euro 23.2 million. Net income for 2010 totalled euro 252.6 million (after total financial expenses of euro 66.1 million and income taxes of euro 134.4 million, with a tax rate of 34.7%). This compares to net income of euro 146.6 million in previous year (after total financial expenses of euro 71.9 million and income taxes of euro 90.0 million, with a tax rate of 38.0%).

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Net financial position is negative and totalled euro 1,109.9 million, after paying dividends of euro 226.6 million to the Parent company, in comparison with a negative net financial position of euro 1,027.3 million at December 31, 2009. This figure is euro 95.1 million lower than in September 2010.

The change may be summarised as follows:

(in millions of euro)            
  Q1 2010 Q2 2010 Q3 2010 Q4 2010 2010 2009
Operating income (EBIT) before restructuring expenses 98.1 127.1 121.5 129.6 476.3 345.5
Amortisation and depreciation 48.3 50.4 51.5 57.8 208.0 192.5
Purchase of property. plant and equipment and intangible assets (47.6) (84.5) (88.1) (184.8) (405.0) (217.4)
Change in working capital/other (132.2) 37.0 (9.9) 194.3 89.2 240.9
Operating cash flow (33.4) 130.0 75.0 196.9 368.5 561.5
Financial expenses/tax charges (45.6) (61.7) (50.8) (42.7) (200.8) (166.1)
Net operating cash flow (79.0) 68.3 24.2 154.2 167.7 395.4
Dividends paid to non-controlling interests - (3.8) - - (3.8) (2.3)
Purchase of non-controlling interests in Turkey and disposal of assets - - - - - 11.0
Cash out for restructuring expenses (22.2) (8.3) (7.0) (2.0) (39.5) (62.4)
Foreign exchange differences/other 6.0 9.4 (9.3) 13.5 19.6 (38.0)
Net cash flow before dividend payment to parent (95.2) 65.6 7.9 165.7 144.0 303.7
Dividends paid to parent   (156.0) - (70.6) (226.6) (64.2)
Net cash flow
(95.2) (90.4) 7.9 95.1 (82.6) 239.5

Net operating cash flow for the year was positive for euro 167.7 million (positive for euro 154.2 million in the last quarter), despite the significant increase in capital expenditure that was almost double of depreciation. This was achieved on the good earnings performance and constant focus on efficient management of working capital.

In the last quarter, working capital contributed euro 194.3 million to the Group's cash position, partly reflecting the seasonal variation in sales receipts for the Winter product in Europe, and made a positive contribution to cash flow overall despite the increase in activity. Net cash flow for the year, before dividends paid to the parent, totalled a positive euro 144.0 million.

Capital expenditure totalled euro 402 million, up sharply from 2009, when it totalled euro 217 million. Seventy per cent of capex was focused on growth projects undertaken in Italy (with completion of construction on the new Settimo Torinese production centre, which is destined to become the Group's most technologically advanced production site in the world), South America, Romania and China. Construction also began on new plants in Mexico for the production of Vettura tyres and in China for the production of radial motorcycle tyres. Other capital expenditure targeted the Group's remaining production sites, to increase the product mix, launch new "Green Performance" products, and make improvements to employee health and safety conditions and environmental management of factories.
When broken down by business segment, 77% of capex targeted activities in the consumer segment and improvement in production capacity in Romania, China and Brazil, growth in the high-end segment in Europe, and completion of the new Technological Centre at Settimo Torinese with construction of the new, innovative "Next MIRS" process line for the production of high-end tyres.
The remaining 23% was targeted at supporting activities in the industrial segment, focused on consolidating production growth in South America, Egypt and Turkey, while installation continued on machinery used to manufacture products with SATT (Spiral Advanced Technology for Trucks), derived from MIRS technology. At December 31, 2010, installed production capacity was about 56.0 million units in the consumer segment and about 5.8 million units in the industrial segment.

Total headcount at December 31, 2010 was 28,865 employees, including 2,301 temporary workers and 119 agency workers. Headcount rose by a total of 1,384 employees from December 31, 2009, including 1,300 blue collar workers, mainly due to growth in activity in South America, Romania and China.

At December 31, 2010, the workforce (excluding employees with temporary contracts) is broken down as follows:

(in millions of euro)    
  2010 2009
Executives 1.0% 0.9%
White collar 18.8% 19.3%
Blue collar 80.2% 79.8%
  100.0%  100.0%