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Pirelli: 2009-2011 industrial plan presented; preliminary 2008 financial data reviewed

PRELIMINARY CONSOLIDATED 2008 FIGURES

  • CONSOLIDATED REVENUES IN LINE WITH 2007, POSITIVE OPERATING RESULT, THOUGH DOWN COMPARED WITH 2007 FIGURE DUE TO HIGHER RAW MATERIALS COSTS, FALLING DEMAND AND RESTRUCTURING EXPENSES; NET FINANCIAL POSITION IN LINE WITH Q3 2008; NEGATIVE 2008 ECONOMIC RESULT FOR PIRELLI RE, MAINLY DUE TO WRITEDOWNS AND RESTRUCTURING

    2009-2011 INDUSTRIAL PLAN

  • THE GROUP RESTRUCTURES AND REORGANIZES ITS BUSINESSES; TRANSFORMATION PROCESS FOR THE THREE-YEAR PERIOD LAUNCHED, WITH FOCUS ON CORE BUSINESSES (TYRES AND PARTICULATE FILTERS);
  • TECHNOLOGY AND INNOVATION PUSH; THE GROUP AIMS TO BE A “GREEN PERFORMER”
  • REORGANIZATION OF PIRELLI RE ACCELERATED: CAPITAL INCREASE PROPOSED FOR A MAXIMUM OF 400 MILLION EUROS PIRELLI TO UNDERWRITE PRO-QUOTA, AVAILABLE TO TAKE UP ANY SHARES NOT UNDERWRITTEN; CONCENTRATION OF ITALIAN REAL ESTATE MANAGEMENT AND SERVICES UNDER THE GROUP’S ASSET MANAGEMENT COMPANY (“SGR”); IN THE THREE-YEAR PERIOD POSSIBLE STRATEGIC PARTNERSHIPS FOR PIRELLI RE FOR  ANAGEMENT OF ITALIAN AND GERMAN REAL ESTATE PATRIMONY

The Board of Directors of Pirelli & C SpA and the Board of Directors of Pirelli & C. Real Estate SpA:

  • reviewed the preliminary unaudited 2008 financial statements;
  • approved the 2009-2011 industrial plan

The Board of Directors of Pirelli RE also reviewed a proposal for a capital increase to strengthen the equity structure and sustain the new business model, and took note of the full agreement on the transaction expressed by the Board of Directors of Pirelli & C.


Consolidated preliminary 2008 data, Pirelli & C SpA Group

For the Pirelli Group, the 2008 fiscal year was heavily conditioned by the international financial crisis, which determined a major slowdown in the world economy with a severe impact on both the automotive industry and the real estate sector.

In order to confront that negative scenario, during the year the group began a profound restructuring action. In particular, in the fourth quarter, in consideration of economic prospects for 2009 as well, which impose measures that can guarantee conditions of maximum efficiency and competitiveness, the group felt it was opportune to accelerate these measures, with consequent further effects on economic results.

Taking into account the impact of this restructuring, the group closed the year with a slight decline in revenues, a positive operating result, though lower than in 2007, and a net financial position substantially in line with the figure for the first nine months of 2008.

Consolidated revenues amounted to 4,648 million euros, in line with the previous year(-0.5%) on a like-for-like basis, and net of the exchange rate effect (-3% inclusive of that effect), compared with 4,780 million euros in 2007 net of the sales relating to deconsolidation of real estate assets of DGAG. Considering the DGAG effect, sales as of 31 December 2007 amounted to 6,075.6 million euros.

EBITDA before restructuring charges amounted to 397 million euros, compared with 573.6 million euros in 2007. EBIT before restructuring charges stood at 188 million euros compared with 363.9 million euros in 2007. Considering restructuring charges for the whole year, amounting to 144 million euros, EBIT was 44 million euros. Restructuring charges were related to rationalization of staff structures and the manufacturing base in Europe for Pirelli Tyre, and to structural rationalization for Pirelli RE.

The consolidated net financial position as of 31 December 2008 was negative for 1,028 million euros (down slightly from 1,055.7 million euros as of 30 September 2008). The net financial position at corporate level was positive for 536 million euros. Among the elements affecting it during the year was the repurchase of 38.9% of Pirelli Tyre (835.5 million euros) and the purchase of Turkish minority shareholdings as part of the strategy to strengthen the tyre business (43.3 million euros), and the payment of dividends (168 million euros). As of 31 December 2007, the consolidated net financial position was positive for 302.1 million euros.

It should benoted that the phoonics business,and the Integraed Facility Management business of Pirelli RE, sold during the couse of the year, ae considered “disconinued operaions” and are theefore only part of the net result. For homogeneousrepesentation, the comparison with 2007 data is done on a like-for-likebasis.

Pirelli Tyre

Pirelli Tyre closed 2008 with revenues slightly up despite a heavily negative economic scenario. Margins suffered from the increase in raw materials prices, which in 2008 brought about greater costs of about 200 million euros, as well as from the crisis in the auto industry which affected the original equipment channel.

In order to counter that scenario, the company undertook restructuring actions, accelerated in the fourth quarter against further deterioration of the market, in order to strengthen the competitiveness of the industrial organization in Europe and reduce costs of central structures.
2008 revenues were 4,100 million euros, up 1.3% on a like-for-like basis, net of exchange rates (-1.5% including the exchange rate effect). EBITDA before restructuring charges stood at 443 million euros, down 19% compared with 548.6 million euros in 2007. EBIT before restructuring charges was 250 million euros, down 30% from 358.1 million euros in 2007. Considering restructuring charges for the entire year, equal to 100 million euros, EBIT was 150 million euros. The net financial position was negative for 1,266 million euros (559.6 million euros at the end of 2007) following the repurchase of minority stakes in the Turkish subsidiaries and the merger of Speed into Pirelli Tyre.

The fourth quarter, in particular, registered revenues of 870 million euros, down 5% on a like-for-like basis, and EBIT before restructuring charges – which in the fourth quarter alone amounted to 68 million euros – of 18 million euros compared with 71.9 million euros in the year earlier period.


Pirelli RE


In real estate, the market was in its second consecutive year of international crisis. The decline in prices, the slowdown in transactions and credit access difficulties penalized all the companies in the sector. In order to counter the changed scenario, Pirelli RE announced at the end of the year a process of cost cutting and reorganization focused on the two territorial macro-areas of Italy and Germany/Poland, aiming at relaunching the business activities and bringing out the value of the quality of assets in the portfolio.

Pro-quota aggregate revenues of Pirelli RE in 2008 amounted to approximately 776 million euros, down 18% compared with 2007 (they stood at 949 million euros net of the component relating to the deconsolidation of DGAG). Consolidated revenues were about 365 million euros (in 2007 they stood at 334.1 million euros net of DGAG). EBIT including the results of equity participations, before restructuring and revaluations/writedowns, was negative for about 60 million euros compared with a positive figure of 83.6 million euros in 2007 (net of DGAG).

EBIT including results of equity participations, restructuring and revaluations/writedowns, was negative for about 240 million euros (compared with a positive figure of 151.1 million euros in 2007 net of DGAG), of which about 136 million euros were writedowns and about 44 million restructuring costs; in 2007 there were revaluations for 67.5 million euros.

The net financial position at the end of 2008 was negative for about 289 million euros, in line with 289.7 million euros at the end of 2007 (as of 30 September 2008 it was negative for about 324 million euros). The net financial position, including shareholders’ loans, was negative for about 862 million euros as of 31 December 2008, with an improvement of about 73 million euros compared with 30 September 2008 and about 46 million euros worse compared with 31 December 2007. The debt with controlling shareholder Pirelli & C SpA was reduced to about 490 million euros, compared with about 700 million euros as of 30 September 2008 and about 526 million euros as of 31 December 2007.

It should be noted that the activities of Integrated Facility Management of Pirelli RE, sold during the course of the year, are considered “disconinued operations” and therefore are only par of the net result. Fo homogeneous representation, the comparison with 2007 figures is on a like-for-like basis.

2009-2011 Industrial Plan

The Pirelli Group
In a macroeconomic scenario that continues to present critical elements and uncertainty, the Pirelli Group has already begun, and will continue to develop, the measures necessary to increase its competitiveness and improve its efficiency in the different sectors where it is present. The group will continue and intensify the actions of restructuring, reorganization and rationalization of the businesses, focusing on development of solutions that anticipate market demand, in particular in all the businesses related to definition and evolution of “green” technologies and products, in line with new environmental standards.

Through cost cutting, optimization of geographical presence, reorganization and rationalization of existing business activity and continuous attention to research and technology innovation, the solidity and flexibility of the group will be strengthened. The group will therefore be able to not only face the current economic crisis, but also to take advantage of new growth and development opportunities.

The objective for the three-year period is one of transformation, bringing the group to greater focus on its core businesses (Pirelli Tyre and the particulate filters of Pirelli Eco Technology), to be a “green performer” in its areas of activity and to have the financial flexibility to be able to sustain growth.

Thanks to skills already acquired, Pirelli will continue to develop products and solutions on the cutting edge in the “green economy”, which offers important development opportunities in various sectors: sustainable mobility, eco-compatible building construction, renewable energy. At the end of the three-year period the incidence of the “green” component on revenues is expected to rise to about 40% of the total compared with about 20% today.

The reorganization and restructuring actions already begun by Pirelli Tyre will increase competitiveness of its industrial structure. The measures foreseen for the three-year period will allow the company to improve its profitability and continue to generate liquidity, making the most of a competitive advantage arising from a manufacturing presence in emerging markets that present higher growth rates and lower industrial costs.

Pirelli Eco Technology will leverage its technology to capture an important position in the particulate filter market both for commercial vehicles already in circulation and for new vehicles and, thanks in part to synergies with Pirelli Tyre, will develop within a rapidly growing market.
In the real estate sector the reorganization plan already launched at the end of 2008 will continue, with the adoption of a leaner structure concentrated on the geographical areas of Italy and Germany/Poland, capable of making the value of the assets in the portfolio emerge. The reorganization of Pirelli RE also foresees concentrating all Italian real estate services and portfolio management under the company’s fund management company (“SGR”). The actions and the strategies adopted, together with know-how matured in the industry, will open the way for strategic partnerships for management of the Italian real estate patrimony. The proposed capital increase will allow for strengthening the equity structure and sustaining the new business model, protecting the value of the assets, which is currently unexpressed, while awaiting a recovery of the market, now heavily weighed down by the economic crisis.

Pirelli Labs will continue with advanced research in support of all the industrial activities of the group with an essential role in launching start-ups in business areas of interest which, thanks to the strength and value of the Pirelli brand, will be able to increase their value both through autonomous development projects and through aggregations with other market players.

An example of development of innovative businesses supported by the research at Pirelli Labs is the photovoltaic business of Pirelli Ambiente, with the opportunities offered by the growth of the renewable energy market.

The group will also continue to develop broadband access systems, to give Pirelli Broadband Solutions a portfolio of more and more innovative and complete products and services, and will be open to opportunities for aggregation with third parties that may arise which may further increase the value of the business.

The group has a solid financial structure, with a net financial position as of 31 December 2008 that was negative for 1,028 million euros and available, unutilized credit lines worth about 800 million euros and expiration dates allowing the company to have no need for debt refinancing for the next two years.

During the course of 2008 the group strengthened its core business with the repurchase of the 38.9% of Pirelli Tyre held by Speed for 835.5 million euros and the purchase of minority shares in Pirelli Tyre’s Turkish subsidiaries for 43.3 million euros.

At corporate level the group has a positive net financial position of 536 million euros, the balance between debt of 511 million euros, available liquidity of about 110 million euros and credits with business units of about 930 million euros (in particular approximately 490 million euros with Pirelli RE and about 430 million euros with Pirelli Tyre, mainly attributable to the purchase of Speed).
Thanks to that solidity, the group will be able to on the one hand contribute to strengthening the equity structure of Pirelli RE, and on the other hand have flexibility, taking into account Pirelli Tyre’s capacity to generate liquidity.

In the three-year period covered by the plan, a progressive improvement of the net financial position is expected: after a 2009 in which the NFP is expected to be in line with 2008, the group expects for the end of the period net debt, before any dividends, of less than 800 million euros, in part thanks to expected net cash generation of 250 million euros.

Pirelli Chairman Marco Tronchetti Provera said:
The coming three years for Pirelli will be three years of transformation, which the group is prepared for thanks to acceleration of restructuing already begun in 2008. Today we can counton significant solidity of our equity base and on the efficiency of Pirelli Tyre, which will increase its profitability and continue to generate liquidity. The strengthening of Pirelli RE wll help bring out the value of its assets, not expressed today. Our course of growth wil be ensured by further rationalization and focus on core businesses, with an increase in the “green” component of the business.

Categories: Pirelli RE