Selected economic and financial data

  • Net sales in 2010 totalled euro 4,848.4 million, up 19.2% from euro 4,067.5 million in 2009
  • Consolidated operating income was euro 407.8 million (+63% vs 2009), and the ROS was 8.4%,
  • Total net income was euro 4.2 million, compared with a net loss of euro 22.6 million in the previous year.
  • The group’s net financial position which was negative for euro 528.8 million at December 31, 2009 improved to euro 455.6 million at December 31, 2010.

In addition to the financial performance measures established by the International Financial Reporting Standards (IFRSs), this report presents certain measures that are derived from, although not required by IFRSs ("Non-GAAP Measures"). These performance measures are presented to facilitate the understanding of the Group operating performance and should not be considered as substitutes for the information required by IFRSs.

Specifically, the Non-GAAP Measures used are the following:

  • Gross Operating Profit (EBITDA): this financial measure is used by the Group as a financial target for internal presentations (business plans) and external presentations to analysts and investors. It is a useful unit of measurement to assess the overall operating performance of the Group and its individual business segments in addition to operating income. Gross operating profit is an intermediate economic measure deriving from operating income, but excluding depreciation and amortisation of property, plant and equipment and intangible assets;
  • Non-current assets: this measure is the sum of "property, plant and equipment," "intangible assets," "investments in associates and joint ventures" and "other financial assets";
  • Provisions: this measure is the sum of "provisions for liabilities and charges (current and non-current)," "provisions for employee benefits" and "provisions for deferred tax liabilities";
  • Net working capital: this measure consists of all items not included in the two measures above, in "Equity" and "net financial (liquidity)/debt position";
  • Net financial (liquidity)/debt position this performance measure is represented by gross financial debt less cash and cash equivalents and other financial receivables. The section "Explanatory notes to the consolidated financial statements" presents a table showing the line items used to calculate this measure.

Recalling that the figures for the activities of Pirelli RE (now Prelios) and Pirelli Broadband Solutions are shown in the income statement under "discontinued operations", and that the 2009 figures have been restated for comparative purposes, the Group's consolidated accounts may be summarised as follows:

(in millions of euro)    
  12/31/2010 12/31/2009
Net sales 4,848.4 4,067.5
Gross operating profit before restructuring expenses 653.7 507.8
% of net sales 13.5% 12.5%
Operating income before restructuring expenses 432.5 304.9
% of net sales 8.9% 7.5%
Restructuring expenses (24.7) (55.2)
Operating income 407.8 249.7
% of net sales 8.4% 6.1%
Net income (loss) from equity investments 23.4 (11.6)
Financial income/(expenses) (65.8) (70.1)
Income tax (137.4) (90.4)
Net income (loss) from continuing operations 228.0 77.6
Net income (loss) from discontinued operations (223.8) (100.2)
Total net income (loss) 4.2 (22.6)
   
Net income attributable to owners of Pirelli & C. S.p.A.Net income attributable to owners of Pirelli & C. S.p.A. 21.7 22.7
Total net earnings per share attributable to the owners of Pirelli & C. S.p.A. (in euro) * 0.044 0.047
   
Non-current assets 3,164.1 3.596.2
Net working capital 116.7 221.8
Net invested capital 3,280.8 3,818.0
Equity 2,028.0 2,494.7
Provisions 797.2 794.5
Net financial (liquidity)/debt position 455.6 528.8
   
Equity attributable to the owners of Pirelli & C. S.p.A. 1,990.8 2,175.0
Equity per share attributable to the owners of Pirelli & C. S.p.A. (in euro) * 4,08 4,457
   
Capital expenditure 433.1 225.2
   
Research and development expenses 149.7 137.1
% of net sales 3.1% 3.4%
   
Employees (number at end of period) 29,573 29,570
Industrial sites (number) 20 21
   
Pirelli & C. S.p.A. shares    
Ordinary shares (number in millions) 475.7 5,233.1
of which treasury shares 0.4 3.9
Savings shares (number in millions) 12.3 134.8
of which treasury shares 0.4 4.5
Total shares (number in millions) 488.0 5,367.9

* The equity per share attributable to owners of the Company in 2009 has been restated on a comparable basis after the reverse stock split pursuant to the Shareholders’ Meeting resolution of July 15. 2010 (at a ratio of 1:11).

To facilitate understanding of Group performance, the income data and net financial (liquidity)/debt position are presented below as broken down by business segment.

(in millions of euro)
  Tyre Other businesses* Total
  2010 2009 2010 2009 2010 2009
net sales 4,772.0 3,992.9 76.4 74.6 4,848.4 4,067.5
Gross operating profit before restructuring expenses 684.3 538.0 (30.6) (30.2) 653.7 507.8
Operating income before restructuring expenses 476.3 345.5 (43.8) (40.6) 432.5 304.9
Restructuring expenses (23.2) (37.0) (1.5) (18.2) (24.7) (55.2)
Operating income 453.1 308.5 (45.3) (58.8) 407.8 249.7
Net income (loss) from equity investments 0.3 4.2 23.1 (15.8) 23.4 (11.6)
Financial income/(expenses) (66.4) (76.1) 0.6 6.0 (65.8) (70.1)
Income tax (134.4) (90.0) (3.0) (0.4) (137.4) (90.4)
Net income (loss) from continuing operations 252.6 146.6 (24.6) (69.0) 228.0 77.6
Net income (loss) from discontinued operations         (223.8) (100.2)
Net income (loss)         4.2 (22.6)
Net financial (liquidity)/debt position of continuing operations 1,109.9 1,027.3 (654.3) (504.1) 455.6 523.2
Net financial (liquidity)/ debt position of discontinued operations           5.6
Net financial (liquidity)/debt position           455.6 528.8

* This item includes the Pirelli Eco Technology group. the Pirellli Ambiente group. PZero S.r.l.. all holding companies (including the parent). the other service companies and. for the item “net sales.” elimination of intercompany transactions

Net Sales

Net sales in 2010 totalled euro 4,848.4 million, up 19.2% from euro 4,067.5 million in 2009. The percentage breakdown of activities shows that 98.4% of sales were generated by the tyre business (98.1% in 2009).

Operating Income

Operating income before restructuring expenses totalled euro 432.5 million (8.9% of sales), compared with euro 304.9 million (7.5% of sales) in 2009. Restructuring expenses totalled euro 24.7 million, as compared with euro 55.2 million in 2009, and stem mainly from on-going measures launched in 2009 to streamline Pirelli Tyre staff organisations in Europe (euro 23.2 million, compared with euro 37 million in 2009).
Operating income totalled euro 407.8 million, compared with euro 249.7 million the previous year.

Net Income (loss) from equity investments

Net income from equity investments was euro 23.4 million, compared with a net loss of euro 11.6 million in the previous year. The figure for 2010 consists principally of the proceeds from disposal of the entire investment held in Oclaro Inc. (formerly Avanex), which generated a gain of euro 18.4 million, in addition to euro 5.8 million earned as dividends on financial investments and the recognition of associates in Equity. In this last category, the carrying value of the associate RCS MediaGroup S.p.A. (RCS) not only reflected the Group's interest in the RCS net loss for the year of about euro 3 million, but also its impairment to value in use by an additional euro 0.5 million, or euro 1.48 per share. In 2009 this item was largely impacted by the negative effect from disposal of the remaining equity investment in Telecom Italia S.p.A. (euro 17.5 million).

Net income (loss)

Net income from continuing operations was euro 228.0 million, nearly triple the amount of euro 77.6 million generated in 2009. This change resulted primarily from the improvement in operating income.
The net loss from discontinued operations, totalling euro 223.8 million, related to the activities of the Pirelli RE (now Prelios) Group and Pirelli Broadband Solutions that were sold in 2010.
In regard to Pirelli RE (now Prelios), the result consists of the operating loss for the first nine months of 2010 (euro 29 million, compared with euro 104.8 million for all of 2009), the loss on assignment of Pirelli & C. S.p.A. shares (euro 156.3 million), the derecognition of the goodwill previously allocated on asset (euro 32.9 million), the riclassification to income statement of gains/losses previously recognized in Equity (euro 32.2 million), the reversal of a real estate gain previously eliminated in the consolidated financial statements (euro 3.7 million), and spin-off expenses (euro 1.2 million).
Pirelli Broadband Solutions contributed a total of euro 24.1 million to net income, including euro 21.1 million for the gain realised on disposal of the equity investment and euro 3.4 million in operating income for the first nine months of 2010 (euro 4.6 million in all of 2009), net of disposal costs (euro 0.4 million).

Total net income was euro 4.2 million, compared with a net loss of euro 22.6 million in the previous year.

The total net income attributable to owners of Pirelli & C. S.p.A. was euro 21.7 million (euro 0.044 per share), compared with euro 22.7 million (euro 0.047 per share) the previous year.

Equity

Consolidated Equity fell from euro 2,494.7 million at December 31, 2009 to euro 2,028.0 million at December 31, 2010.
Equity attributable to owners of Pirelli & C. S.p.A. at December 31, 2010 was euro 1,990.8 million, compared with euro 2,175 million at December 31, 2009.

The change is summarised as follows:

(in millions of euro)      
  Group Non-controlling interests Total
Equity at 12/31/2009 2,175.0 319.7 2,494.7
Translation differences 101.4 3.3 104.7
Net income (loss) from continuing operations 233.8 (5.8) 228.0
Net income (loss) from discontinued operations (212.0) (11.8) (223.8)
Adjustment to fair value of other financial assets/derivative instruments (45.5) - (45.5)
Other changes to items recognised in equity for continuing operations 3.9 - 3.9
Net actuarial gains/(losses) on employee benefits (21.6) - (21.6)
Total items recognised in equity for discontinued operations 36.6 3.3 39.9
Reduction for spin-off of Pirelli RE (now Prelios) (215.3) (274.8) (490.1)
Dividends paid (81.1) (4.0) (85.1)
Venezuela inflation effect 15.0 0.6 15.6
Capital increases - 4.8 4.8
Other changes 0.6 1.9 2.5
Total changes (184.2) (282.5) (466.7)
Equity at 12/31/2010 1,990.8 37.2 2,028.0

The statement of reconciliation between the Equity of the Parent Pirelli & C. S.p.A. and the consolidated Equity attributable to the owners of the Parent is presented below, pursuant to the Consob Comunication of July 28, 2006.

(in millions of euro)        
  Share capital Treasury reserves Net income Total
Equity of Pirelli & C. S.p.A. at 12/31/2010 1,375.7 121.5 87.4 1.584.6
Net income for the year of consolidated companies (before consolidation adjustments) - - 261.9 261.9
Share capital and reserves of consolidated companies (before consolidation adjustments) - 818.4 - 818.4
Consolidation adjustments:        
— carrying value of equity investments in consolidated companies - (668.9) - (668.9)
— intercompany dividends - 258.8 (258.8) -
— others - 63.7 (68.9) (5.2)
Consolidated equity of group at 12/31/2010 1,375.7             593.5 21.6 1,990.8

+4,2 million euro TOTAL NET INCOME

Net Financial (liquidity)/debt position

The Group's net financial position which was negative for euro 528.8 million at December 31, 2009 improved to euro 455.6 million at December 31, 2010. The change for the year is summarised by the following cash flow, which totalled a positive euro 73.2 million:

(in millions of euro)            
  Q1 2010 Q2 2010 Q3 2010 Q4 2010 2010 2009
Operating income (EBIT) before restructuring expenses 90.2 109.6 119.9 112.8 432.5 304.9
Amortisation and depreciation 51.7 53.7 55.0 60.8 221.2 202.9
Purchase of property. plant and equipment and intangible assets (49.9) (85.2) (91.5) (212.0) (438.6) (223.8)
Change in working capital/other (143.5) 42.2 (18.0) 214.5 95.2 211.7
Operating cash flow (51.5) 120.3 65.4 176.1 310.3 495.7
Financial income/(expenses) (17.6) (22.9) (14.0) (11.3) (65.8) (70.1)
Income tax (30.4) (40.0) (40.1) (26.9) (137.4) (90.4)
net operating cash flow (99.5) 57.4 11.3 137.9 107.1 335.2
Financial investments/disinvestments - - 9.8 21.9 31.7 219.1
Dividends paid - (85.1) - - (85.1) (2.4)
Cash out for restructuring expenses (34.0) (9.9) (7.4) (2.0) (53.3) (65.8)
Net cash flow of Pirelli Broadbands Solutions (12.1) 0.7 (11.4) (12.9) (35.7) 20.7
Net cash flow of Pirelli RE (now Prelios) (14.0) (6.5) (26.5) 88.3 41.3 248.2
Pirelli RE (now Prelios) rights issue subscribed by Pirelli & C. S.p.A. - - - - - (231.9)
Foreign exchange differences/other 10.0 24.9 16.2 16.1 67.2 (24.2)
net cash (149.6) (18.5) (8.0) 249.3 73.2 498.9

The following table breaks down the net financial position by business segment:

(in millions of euro)          
  Tyre Other businesses Corporate Consolidated continuing operations
Gross debt 1,613.6 83.3 123.0 1,147.0
of which due to Corporate 589.6 83.3    
Financial receivables (98.3) (4.8) (806.7) (236.9)
of which receivable from Pirelli RE (now Prelios)     (140.4) (140.4)
Cash. cash equivalents. securities held for trading (405.4) (6.6) (42.5) (454.5)
Net financial (liquidity)/debt position 1,109.9 71.9 (726.2) 455.6

The column “Other businesses” includes Pirelli & C. Eco Technology. Pirelli & C. Ambiente and PZero

The financial receivables include use of the credit facility granted to Pirelli RE (now Prelios) for euro 150 million, due in July 2012 or July 2017 (depending on whether Pirelli RE - now Prelios - fails to realise the targets set in its business plan), referring to assignment of its shares.

This credit facility complements the bank credit facilities available to Pirelli RE (now Prelios).

The structure of gross debt is broken down by type and maturity as follows:

(in millions of euro)          
  Financial
Statements
12/31/2010
Maturity date
2011 2012 2013 2014 and beyond
Use of committed credit facilities 380.0 - - - 380.0
Other financing 767.0 252.0 146.7 92.0 276.3
Total gross debt 1,147.0 252.0 146.7 92.0 656.3
    22.0% 12.8% 8.0% 57.2%

At December 31, 2010 the Group had unused committed credit facilities totalling euro 1,220 million, with the liquidity margin (construed as the sum of liquidity and unused credit facilities) consequently totalling euro 1,674 million.

Capital expenditure

Capital expenditure during the period, totalling euro 433.1 million, was concentrated in Pirelli Tyre (euro 402.1 million, or 93% of the total), and mainly targeted growth and expansion in production capacity.

Employees

Group headcount at December 31, 2010 was 29,573 (including 2,426 temporary workers), as compared with 28,303 employees at December 31, 2009 on a comparable consolidation basis (29,570 employees overall), i.e. net of employees at Pirelli RE (now Prelios) and Pirelli Broadband Solutions, which were sold in 2010.

Geographical Areas
  12/31/2010 12/31/2009
Europe:        
— Italy 3,587 12.13% 4,454 15.07%
— Rest of Europe 7,714 26.09% 8,156 27.58%
Nafta 285 0.96% 280 0.95%
Central and South America 12,522 42.34% 11,722 39.64%
Middle Est/Africa 2,983 10.09% 2,834 9.58%
Asia/Pacific 2,482 8.39% 2,124 7.18%
  29,573 100.00% 29,570 100.00%

Business segments
  12/31/2010 12/31/2009
Tyre 28,865 97.60% 27,481 92.94%
Eco Technology 295 1.00% 284 0.96%
Real Estate - - 1,139 3.85%
Broadband Solutions - - 128 0.43%
Other businesses 413 1.40% 538 1.82%
  29,573 100.00% 29,570 100.00%