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Pirelli & C. 2003 results

Board Of Directors Of Pirelli & C. Spa Approves
Results
For Year Ended 31 December 2003 :

Pirelli & C. Spa Group Back To Net
Profit

  • Recommended Dividend 0.031 Euros Per Ordinary Share And
    0.0414 Euros Per Savings Share
  • Profitabilty Of Industrial Activities Grew More Than
    60%
  • Operating Free Cash Flow Positive By More Than 460
    Million Euros; In Last Two Years The Figure Tops 1 Billion
    Euros
  • Strong Growth Of Real Estate Activities
  • Corporate Governance Strengthened: Indipendent Board
    Members Will Have A More Important Role Thanks To The Adoption Of
    List Voting
  • Minorities Will Determine One Fifth Of Board
    Members
  • For 2004, Group Expects A Significant Improvement Of
    Results In All Activity Sectors, Both At Operating And Net
    Level


    Consolidated Results

  • Revenues: 6,671 Million Euros, Compared To 6,718
    Million Euros (-0.7%); At Comparable Conditions, A Growth Of 7% Was
    Posted
  • Ebitda: 628 Million Euros, +20% Against 523 Million
    Euros In 2002
  • Operating Income (Ebit): 268 Million Euros, More Than
    Doubled When Compared To 118 Million Euros In 2002
  • Operating Income Including Income From Equity
    Participations: Strongly Grows And Is Positive By 217 Million
    Euros, Against A Loss Of 57 Million In 2002
  • Net Profit: 4 Million Euros, Strongly Growing When
    Compared To Net Loss Of 405 Million In 2002
  • Pirelli & C. Spa Share Of The Net Result Was
    Negative By 39 Million Euros: Net Of The Olimpia Effect, A Net
    Profit Of 61 Million Was Posted
  • Olimpia To Reach Financial And Economic Stabilization
    In 2004
  • Net Debt: 1,745 Million Euros, Reduced By More Than 300
    Million When Compared To 2,050 Million At End 2002


  • Industrial Activities

  • Revenues: 6,034 Million Euros Compared To 6,346 Million
    Euros (-4.9%); Net Of Exchange Rates, Metal Prices And Changes In
    The Scope Of Consolidation , This Result Represents A 3% Increase
    Year Over Year
  • Operating Income: 264 Million Euros, Up 63%, With Ros
    Rising To 4.4% From 2.6%
  • Net Profit: 112 Million Euros
  • Tyres: Ebit 220 Million Euros (+15%) With Ros At
    7.4%
  • Energy Cables And Systems: Ebit 83 Million Euros (+51%)
    With Ros Growing To 3.1% From 1.8%
  • Telecom Cables And Systems: Ebit Strongly Improved (-39
    Million Euros Against -84 Million Euros In 2002)

  • Real Estate Operations

  • Operating Income Including Income From Equity
    Participations: 128.1 Million Euros, +25% Year Over
    Year
  • Assets Under Management: 10,474 Million At Market
    Value, Attributable Share 28%
  • Consolidated Net Income: 102.1 Million, +24% (82.6
    Million From Real Estate Activities In 2002)

Milan, 24 March 2004 – The Board of Directors of Pirelli
& C. SpA today met and approved the company’s consolidated
financial statements for the year ended 31 December 2003. The
Pirelli & C. Board of Directors shall also apply to the
Extraordinary Shareholders’ Meeting for approving an important
variation to Group’s Corporate Governance: the adoption of list
voting for Board Members appointment, reserving to minorities one
fifth of Board Members.

In 2003 Pirelli substantially completed a wide
process aimed at simplifying and
financially strengthening the company structure as
well as at significantly aligning production capacity of industrial
activities to dramatically changed market conditions in both Energy
and Telecom Cables and Systems sectors.

Efficiency actions undertaken have already shown their
significant results in 2003 performance of these
sectors. Tyres Sector confirmed its strong
growth
– both in profitability and market shares – and set
new challenging targets for the expansion in very important and
potentially high-growth markets, like the US and China.

Real Estate activities showed strong
growth
in results, reaching the highest targets set out
for the first year of the three-year plan 2003-2005.

Investments in Research and Development activities
- substantially unchanged – delivered first important
results
: products fully developed by Pirelli Labs and
business unit Pirelli Telecom Systems were launched, validated by
international companies like British Telecom, FastWeb, Telecom
Italia and Alcatel.

Rationalization and reduction actions completed in
2003, with gains worth approx. 170 million Euros
(370 million Euros in the two-year timeframe), will allow Pirelli
to catch any market opportunity in Cables and Systems sectors, as
well as reaching new important targets in
profitability, market share and new products, thus confirming the
leadership in new technologies and innovation.

The following figures include the accounting effects of the merger
of Pirelli SpA and Pirelli & C. Luxembourg into Pirelli &
C. Spa, which were retroactively accounted for starting January 1
st 2003 and were approx. 29 million Euros.

The Group Pirelli & C. Spa

In 2003 the consolidated revenues of Pirelli &
C. Spa Group amounted to approx. 6,671 million
Euros
, substantially in line with 2002 figure of 6,718
million. On the same perimeter base – net of the effects of
exchange rates (-5.9%), metal prices in the Energy Cables and
Systems business (-0.3%) and changes in the scope of consolidation
(-1.5% due to the sale on enameled wires completed in January 2003)
- revenues grew by 7%, with a significant growth
of Tyres and Real Estate Sectors.

EBITDA grew by more than 20% and
stood at 628 million Euros (523 million Euros in
2002). The ratio EBITDA/Revenues therefore grew from 7.8% to
9.4% , increasing in all activity Sectors.

Operating income (EBIT) amounted to 268
million
Euros and more than doubled 2002
figure of 118 million Euros. Consolidated ROS -
Return on Sales was 4% , strongly growing when
compared to the 1.8% figure of 2002.

The result from investment holdings is
negative by 51 million Euros
against -175 million Euros in 2002 and it relates to the valuation
by the net asset method of the investment in Olimpia – negative by
100 million Euros (-150 million Euros in 2002) – while results of
real estate companies (Pirelli & C. Real Estate Group) were
positive by 67 million Euros (60 million Euros in 2002). It should
be mentioned that Olimpia results do not yet benefit from any
dividend, which will be accounted for cash when received.

Financial charges at 31 December 2003 were
negative by 134 million Euros ,
improved when compared to -178 million Euros of 2002, mainly due to
lower debt.

E xtraordinary items were negative by 9
million Euros,
with a significant growth compared to -83
million Euros of 2002, which included restructuring costs.

Net profit at 31 December 2003 was 4
million
Euros (after fiscal charges for 70 million Euros),
against a net loss of 405 million Euros in 2002. Net of the Olimpia
effect, net profit was 104 million Euros.

The Pirelli & C. SpA attributable net result
was negative by 39 million Euros
(net of the Olimpia effect, a net profit of 61 million was posted),
compared to a net loss of 58 million Euros at 31 December
2002.

Shareholders’ equity was 3,678
million
euros, compared with 4,626 million euros at
year-end 2002, due to merger effects. The Pirelli & C. SpA
share of the Shareholders’ equity was 3,429 million Euros (0.99
Euros per share) against 1,933 million Euros (2.96 per share) in
2002.

The net financial position at December 31, 2003 is
negative by 1,745 million Euros, down more than
300 million Euros when compared to the figure of
2,050 Euros at December 31, 2002 . A positive net cash flow
deriving from operating activities for approx. 239 million
Euros
contributed to the figure. The improvement also
reflects the net effects of the share capital increase undertaken
by Pirelli & C. SpA quantified at 649 million Euros, the
subscription of the Olimpia capital increase quantified at 388
million Euros and dividend payout for 64 million Euros. The figure
also includes non recurrent events: the accounting as debt of the
put option exercised by Cisco Systems for Submarine Telecom Systems
(January 2004) for 61 million Euros and a net balance
acquisitions/sale of participations for 48 million Euros.

Groups’ employees at 31 December 2003 were
36,337 , compared to 37,350 at year-end 2002.
Pirelli & C. maintained training and valorization activities of
its human resources, thus confirming the excellence of its
employees all over the world. Pirelli today has a high skilled
managerial team, with international experiences and able to
capitalize on synergies among different business activities.

The industrial operations of the Group

The trend in the industrial activities of the
Group
shows a net profit and a strong
increase in operating income ,
even though in a context still influenced by slow economic
frameset. Demand for telecommunications infrastructure showed still
low sales volumes, with further price-reductions. Investments of
utilities companies in the Energy sector are still stagnant
especially in Europe in the low and medium voltage segments, and
prices are under pressure in the general market.

Net profit and increase in operating
income
reflects positive effects of
efficiency measures launched in a timely way by the Group
management and focused in the Energy and Telecom Cables and
Systems Sectors,
with gross efficiency gains in 2003 for
more than 170 million Euros, which should be added to 199 million
Euros in 2002. In particular, net profit of Energy Cables
and Systems Sector
stood at 39 million Euros – compared to
a net loss of 120 million in 2002 – while EBIT posted a growth of
51% . Tyres Sector confirmed the
growth in profitability, which rose by 15% , while
net profit grew by 65% to 129 million Euros.

In 2003 the Industrial Activities sales
revenues reached 6,034 million
Euros
, down 4.9% when compared to 2002. On the same
perimeter base (net of the effects of exchange rates, metal prices
and changes in the scope of consolidation) revenues actually grew
by 3% .

EBITDA grew by more than 13% and stood at
567 million Euros , with a ratio on revenues of
9.4% (7.9% in 2002).

Operating income (Ebit) was 264 million
Euros
, growing by 63% when compared to 2002.
Return On Sale rose to 4.4%
against 2.6% in 2002. Net of the merger surplus effect, EBIT stood
at approx. 240 million Euros and ROS at 4%. In
2002 EBIT was 162 million Euros. EBIT in fourth quarter of 2003 was
70 million Euros, compared to 35 million in the
same period of 2002.

Net profit of industrial operations at 31 December
2003 stood at 112 million Euros, against a net
loss of 305 million Euros in 2002.

Free cash flow in 2003 was positive by 464
million
Euros – in 2002 it was positive by 538 million
Euros – thanks to a good management of investments and of net
working capital, whose turnover is bettering for the second year in
a row in all the three sectors.

Pirelli’s commitment to R& D was confirmed
also in 2003: investments were 204 million Euros,
3.4% of revenues, in line with previous year.
Thanks to the investments carried on in the least years, Pirelli is
today one of the leading Italian and European innovating companies,
as witnessed by more than 400 patents filed in the
last two years.

Group Headcount in the industrial operations of
the Group at December 31, 2003 was 33,401 ,
against 35,247 at the end of 2002.


Industrial sector operations

Tyres Sector

Sales amounted to 2,970 million Euros , a
year-on-year increase of 11 .6%: of this
percentage, 7.5% refers to increased volumes and the remaining to
prices/mix, thus confirming the focus on high performance market
segments.

Operating income was 220 million
Euros, with a ROS of 7.4%, an
improvement of 15% compared to 191 million Euros
in 2002.

Net profit stood at 129
million Euros (after financial costs of 45 million
Euros, fiscal charges for 45 million Euros and extraordinary costs
for 1 million Euros), compared to 78 million Euros at year-end
2002.

The net financial position at 31 December 2003 was
negative to the extent of 317
million
Euros against 492 million Euros
at the end of 2002.

Employee numbers at 31 December 2003 stood at
20,437, including 1,705 temporary workers.

Energy Cables and Systems Sector

Sales totaled 2,637 million Euros
, down 4.4 % on an equal
perimeter basis (with prices/mix slightly better than
volumes).

Operating income was 83 million E
uros , compared to the figure of 55 million Euros posted in 2002,
with ROS growing to 3.1% with respect to 1.8%
recorded in 2002. Gains deriving from efficiency and
rationalization measures undertaken in the last two years offset
reductions due to slowing markets.

Net profit stood at 39
million Euros (after financial costs of 23 million
Euros, fiscal charges for 16 million Euros and extraordinary costs
for 5 million Euros), compared to 120 million Euros at year-end
2002.

The net financial position at 31 December 2003 was
negative to the extent of 354
million
Euros against 373 million Euros
at the end of 2002.

Employee numbers at 31 December 2003 stood at
10,746 , including 502 temporary workers, down
1,700 units year over year.

Telecom Cables and Systems Sector

The decrease in sales revenues on an equal perimeter basis was
3.2% , taking into account the already mentioned
pressure on prices/mix (-21.5%) and with an increase of volumes
substantially deriving from the accounting of a Submarine contract.
Revenues were, therefore, 427 million Euros.

Operating income was negative for 39
million
Euros, up when compared to the
loss of 84 million Euros in 2002.

A Net loss of 56 million
Euros
(after financial costs of 20 million Euros, fiscal
charges for 1 million Euros and extraordinary gains for 4 million
Euros), was posted compared to 263 million Euros at year-end
2002.

The net financial position at 31 December 2003 was
negative to the extent of 302
million
Euros against 431 million Euros
at the end of 2002.

Employee numbers at 31 December 2003 stood at
2,218 , including 46 temporary workers.
The Group’s Real Estate operations

It is worth recalling that Pirelli RE is a management company which
manages special purpose vehicles and funds owner of real estate and
non performing loans portfolios, investing through minority stakes
(asset management and fund management activity) and providing these
and other clients with a full range of real estate specialist
services (service provider activity). Consequently, the
aggregate production value net of
acquisitions and EBIT
including income from equity participations
(pro-quota) are the most significant indicators of the business
volume managed by the Group and results at operational level,
respectively.

The aggregate production value (the total of sales
and the change in inventories, which includes minority equity
investments under management) net of acquisitions, totalled
approximately 1,525 million Euros, with growth of
18% compared to the figure of 1,297.3 million
Euros in 2002.

EBIT including pro-quota income from equity
participations
totalled 128.1 million
Euros, as compared with 102.2 million Euro in 2002, representing
growth of 25% .

As regards of main activities of Real Estate operations,
Asset Management activities (not including areas)
recorded an aggregate production value , net of
acquisitions, equal to 1,147.5 million Euros, as
compared with 1,020 million Euros in 2002, representing growth of
12% . The exploitation of assets under management
generated sales of 2,037.7
million
Euros at market value (as against a book value of
1,602.6 million ) and the book value of
acquisitions was 1,587.4 million
Euros.

Assets under management stood at 10,474
million Euros
at market value (against 9,756 million Euros
on December 31 st , 2002 ). The share attributable
to
Pirelli RE was 2,922 million
Euros
, equal to 28% of the total.

Service Provider activities, fully consolidated,
recorded a consolidated production value of
approximately 322 million Euros, as compared with
199.8 million over the same period of the previous year, with an
increase of 61% . EBIT from these
activities was 50.6 million Euros, with growth of
75% when compared to 2002.

The consolidated net profit was 102.1 million Euros, as compared
with 82 .6 million Euros attributable to real estate activities in
2002, with growth of 24%.

For further information of Real Estate activities, please refer
to the press release issued by Pirelli & C. Real Estate on 22
March 2004 .

Pirelli & C. Ambiente

Pirelli & C. Ambiente is the Group company operating in the
field of the recovery of energy and materials. Its
business purpose is to transform waste into alternative quality
fuel for use in existing, non-dedicated, industrial plant such as
cement works and power stations.

In 2003, a net loss of 2.1
million
Euros was posted, compared to a 1.7 million Euros
at year-end 2002.

Olimpia

In 2003 the financial structure of Olimpia was strengthened: as
already mentioned, Pirelli contribution was 388 million Euros.
Starting from 2004 – following the already announced financial
statements of Telecom Italia and the recommendation of dividends -
Olimpia would reach financial and economic stabilization.

Forecasts for the 2004 fiscal year

Rationalization measures undertaken in the last two years will
allow Pirelli fully benefiting of any market upturn. In particular
for industrial activities, a further
increase in results is expected
in all the three activity sectors.

In Tyres Sector , in a growing market, Pirelli expects to
further improve its results, thanks to a further focus on high
performance segments, to production delocalization and to growth in
American market.

In Energy Cables and Systems Sector, waiting for a partial market
upturn, Pirelli aims at consolidating its operating income growth
through a focus on higher margins products.

In Telecom Cables and Systems Sector , in a still
stagnating market, Pirelli aims at reaching operating break even,
thank mainly to its new products for broadband access.

As regards the Real Estate sector, on the basis of data currently
available it is reasonable to expect a growth in
EBIT including pro-quota income from equity
participations
i n line with the targets of the 3-years
business plan (2003-2005).
Results will also benefit of improved Olimpia financial statements,
which, thanks to operations carried out in 2003, should reach
financial and economic stabilization.

Overall, Pirelli & C. Spa expects for 2004 a significant
improvement in results in all its activity sectors, both at
operating and net level .

Parent company financial statements

The 2003 accounts of Parent company Pirelli &
C. SpA closed with a net profit of 138 million
Euros – including the accounting effects of the merger of Pirelli
SpA and Pirelli & C. Luxembourg into Pirelli & C. Spa -
compared to a net profit of 60 million Euros at year-end 2002
.

The company’s Board of Directors shall recommend the distribution
of a dividend of 0.031 euros per ordinary share and 0.0414 euros
per savings share to the Ordinary and Extraordinary Shareholders’
Meeting, convened for 10 May on first call and 11 May on second
call. Dividend pay out is scheduled from 27 May 2004 (detachment of
coupon on 24 May 2004 ).

The Ordinary Shareholders Meeting will be called upon to pass
resolution on the proposal for the adoption of a Regulatory
Code
. The Extraordinary Meeting will be called upon to
approve proposals for statutory modifications in
compliance with the new legislation as set down in the Company Law
Reform Act. Among the most remarkable modifications, there will be
a motion for the introduction of list voting for
the appointment of the Board of Directors, with the goal of
involving all the shareholders in Company’s corporate life and in
its decision making process. This operation is aimed at ensuring
that – if Shareholders would present at least two lists – one fifth
of Board members would be appointed by the so-called minorities.
Furthermore, the proposal for calling the Board of Directors on
demand from one fifth of Board members will be submitted to the
Meeting.

A motion for the attribution to the Board of Directors of the right
to increase the company share capital and to issue convertible
bonds as ordinary shares, as stipulated by Articles 2443 and 2420,
paragraph 3 of the Civil Code, will be also submitted to the
Meeting.

Conference call

Financial statements for 2003 will be presented on 24 March 2004 at
4:30pm ( 15:30 GMT ), during a conference call chaired by Marco
Tronchetti Provera, Chairman of Pirelli & C. SpA.

Journalists could hear the conference call – without the
opportunity of asking questions – dialing +39
06 33485042 .

Presentation will be also available in audio streaming – in real
time – on www.pirelli.com, in the Investor Relations section, where
slides will be downloadable.


Summaries of the financial
statements for the period ending December 31, 2003


Pro-forma consolidated
representation of Pirelli & C. S.p.A.’s balance sheet and
income statement at 31/12/2003 assuming full consolidation of
Olimpia S.p.A. and the shareholders’ equity method valuation of the
Telecom Italia S.p.A. equity stake.

Download the Press Release (English
version, PDF, 86Kb)