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PIRELLI & C. SPA BOARD APPROVES RESULTS FOR 3 MONTHS ENDED 31 MARCH 2014

GROWTH OF MAIN ECONOMIC INDICATORS

NET PROFIT +26.1% TO 90.4 MILLION EURO

RESULTS DRIVEN BY EUROPE RECOVERY (REVENUES +10.2%), CONTINUING PRICE/MIX IMPROVEMENT (+4.6%) AND FURTHER STRENGTHENING OF PREMIUM (VOLUMES +22.2%)

PREMIUM REVENUES GREW TO REPRESENT 56.7% OF CONSUMER SALES (50.8% IN THE FIRST QUARTER OF 2013)

EFFICIENCIES 27.6 MILLION EURO, EQUAL TO 31% OF FULL-YEAR TARGET

PROFITABILITY (EBIT MARGIN BEFORE RESTRUCTUING CHARGES) GROWS TO 14% FROM 12% OF FIRST QUARTER 2013

SIGNIFICANT IMPROVEMENT IN RUSSIA PROFITABILITY

(EBIT MARGIN HIGH SINGLE DIGIT)

PIRELLI CONSOLIDATED RESULTS

  • EBIT: +12.6% AT 201.0 MILLION EURO (178.5 MILLION EURO ON 31 MARCH 2013)
  • EBIT MARGIN AT 13.6% (11.8% ON 31 MARCH 2013), EBIT MARGIN BEFORE RESTRUCTURING CHARGES AT 14% (12% ON 31 MARCH 2013)

  • NET PROFIT: +26.1% TO 90.4 MILLION EURO (71.7 MILLION EURO ON 31 MARCH 2013)
  • TOTAL VOLUMES +3.8%, WITH PREMIUM VOLUMES GROWING BY 22.2%
  • REVENUES: 1,473.2 MILLION EURO, WITH ORGANIC GROWTH OF 8.0%; -2.7% FROM 1,514.6 MILLION EURO ON 31 MARCH 2013 INCLUDING THE EXCHANGE RATE EFFECT (-10.7%)
  • PREMIUM REVENUES 639.9 MILLION EURO, WITH ORGANIC GROWTH OF 16.4%; +12.9% INCLUDING EXCHANGE RATE EFFECT (-3.5%)

  • NET FINANCIAL POSITION NEGATIVE 1,965.6 MILLION EURO (1,680.2 MILLION EURO ON 31 MARCH 2013 AND 1,322.4 MILLION ON 31 DECEMBER 2013)

TYRE ACTIVITIES

  • EBIT: +11.2% TO 204.9 MILLION EURO (184.3 MILLION EURO ON 31 MARCH 2013)

  • EBIT MARGIN AT 13.9% (12.2% ON 31 MARCH 2013), EBIT MARGIN BEFORE RESTRUCTURING CHARGES AT 14.3% (12.5% ON 31 MARCH 2013)
  • CONSUMER BUSINESS EBIT MARGIN AT 14.1% (12.2% ON 31 MARCH 2013)

  • INDUSTRIAL BUSINESS EBIT MARGIN AT 13.5% (12.4% ON 31 MARCH 2013)
  • REVENUES: 1,469.5 MILLION EURO, WITH ORGANIC GROWTH 8.4%; -2.4% COMPARED WITH 1,505.0 MILLION EURO ON 31 MARCH 2013 INCLUDING EXCHANGE RATE EFFECT (-10.8%)

TARGETS

2014 TARGETS ANNOUNCED IN MARCH ARE CONFIRMED

***

As a consequence of the agreement to dispose of 100% of the steelcord activities, this business has been classified as a “discontinued operation” and the result reclassified in the accounts under the heading “results of disposed operating activities”. The economic indicators relative to the first quarter of 2014 thus refer to the functioning activities and the comparable data for 31 March 2013 have been restated.

***

The Board of Directors of Pirelli & C. SpA today reviewed and approved the results for the three months which ended on 31 March 2014.

The results for the first quarter of 2014 show growth in the main economic indicators, which reflects the recovery of demand in Europe, which could already be seen in the last quarter of 2013, and the ever growing positive contribution to results of the Premium segment on which Pirelli is focused. This growth was achieved notwithstanding the impact of exchange rates, linked to the ever stronger euro and the volatility of other currencies.

Consolidated revenues in the quarter saw organic growth of 8% to 1,473.2 million euro, particularly due to the progressive improvement of the price/mix component, which grew during the period by 4.6% (in line with the target of +4%/+5% foreseen for full year 2014). Including the negative 10.7% impact of exchange rates, revenue performance was negative 2.7%.

The recovery of the European market, where revenues registered growth of 10.2%, had positive effects in particular in the Consumer business, while the Industrial business suffered the impact of exchange rates which was heavily concentrated in emerging markets. Thanks to the favourable performance of the Premium segment, the positive contribution from the price/mix component and the ongoing efficiency programme, both segments saw significant improvement in profitability, with the Ebit margin in the Consumer segment up to 14.1% from 12.2% and in the industrial segment to 13.5% from 12.4%. Overall, Ebit after restructuring charges grew by 12.6% to 201.0 million euro, with an Ebit margin which improved to 13.6% from the previous 11.8%. Before restructuring charges, profitability stood at 14%, with an increase of two percentage points compared with the corresponding period of 2013.

Efficiencies, in particular, reached 27.6 million euro in the quarter (31% of the full year target of 90 million euro), the first results of the 4-year (2014-2017) efficiency plan of 350 million euro announced in November 2013; achieved through the “de-complexity” plan and in particular through the rationalization of raw material use.

In the Premium segment revenues totaled 639.9 million euro, an organic increase of 16.4% (+12.9% including exchange rate impact, negative 3.5%) compared with the previous year and representing 56.7% of Consumer sales (50.8% in the first quarter of 2013). This business sector saw sustained growth both in emerging countries (+14.7%) and mature markets (+12.4%) also thanks to the recovery in the Europe area.

Total volumes increased by 3.8%, with Consumer volumes rising by 5.9% and Industrial volumes decreasing by 2.2%. The latter figure also reflects the high level of growth in emerging markets in the corresponding period of the prior year (+15.3%) and the progressive reduction of the conventional business in South America.

It is worth noting the positive performance in Russia, where revenues – excluding exchange rate effects – increased by 5.4% and profitability stood at high single digitlevels.

Pirelli

Consolidated revenues on 31 March 2014 amounted to 1,473.2 million euro, with an organic growth of 8% compared with the corresponding period in 2013, including the 10.7% negative impact linked to exchange rates revenues declined by 2.7% compared with 1,514.6 million euro in the first quarter of 2013.

The gross operating margin (EBITDA) before restructuring costs was 277.3 million euro, an increase of 9.6% compared with 253.0 million euro in the corresponding period of 2013.

The operating result (Ebit) was 201.0 million euro, an increase of 12.6% compared with 178.5 million euro in the corresponding prior period. The improvement in the operating result (+22.5 million euro) reflects:

  • the positive contribution of volumes (+ 24 million euro);
  • the growth brought by the price/mix component (+39.3 million euro) thanks to the improvement in the mix (growth of Premium) and price increases in emerging countries;
  • efficiencies of 27.6 million euro (31% of the full year target);
  • lower raw material costs (+7.9 million euro);
  • improved operating results of minor businesses (+1.9 million euro);

which more than offset:

  • the negative impact of production costs (-29.5 million euro);
  • exchange rate volatility in consolidation (-19.2 million euro impact on Ebit);
  • higher amortization and other costs (-27.2 million euro) and restructuring costs (-2.3 million euro).

Ebit margin – expressed as a percentage of sales – grew in the first quarter of 2014 to 13.6%, compared with 11.8% registered in the same period of 2013. Ebit margin before restructuring charges at 14% compared with 12% on 31 March 2013.

The result from shareholdings on 31 March 2014 was negative 13.8 million euro (-6.6 million euro in the same period of 2013), almost wholly due to the effects of consolidation using the net equity method of the fourth quarter 2013 results of the affiliate Prelios, announced in April.

The net profit was 90.4 million euro, an increase of 26.1% compared with 71.7 million euro in the corresponding 2013 period, after net financial charges of 43.3 million euro (58.0 million euro in the corresponding 2013 period). The attributable consolidated net profit of Pirelli & C. Spa, including results from discontinued operations, amounted to 89.7 million euro, an increase of 23% compared with 72.9 million euro in the corresponding 2013 period.

Consolidated net assets on 31 March 2014 stood at 2,500.8 million euro compared with 2,436.6 million euro on 31 December 2013. The attributable consolidated net assets of Pirelli & C. SpA amounted to 2,441.6 million euro, compared with 2,376.1 million euro on 31 December 2013.

The consolidated net financial position was negative 1,965.6 million euro, including 50.9 million euro relative to the discontinued steelcord operations, compared with 1,680.2 euro in the corresponding period of 2013 and 1,322.4 million euro on 31 December 2013. Net debt stood at 2,468.0 million euro, substantially unchanged compared with 2,476.6 million euro in the corresponding period of 2013.

The net cash flow from operations management in the first quarter of 2014 was negative 474.6 million euro (-316.8 million euro in the corresponding prior period), essentially due to the usual seasonality of working capital, and after investments of 65.3 million euro (79.7 million euro in the first quarter of 2013). The total net cash flow was negative 643.2 million euro (-475.0 million euro in the first quarter of 2013) of which approximately 50 million euro related to the impact on the net financial position of exchange rate variations – especially in relation to the position in Venezuela.

The Group headcount on 31 March 2014 stood at 38,529 (37,846 on 31 March 2013).

 
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