Sustainability Channel

06/11/2014

PIRELLI & C. SPA BOARD APPROVES RESULTS FOR 9 MONTHS ENDED 30 SEPT. 2014

GROWTH OF MAIN ECONOMIC INDICATORS THANKS TO:

FURTHER STRENGTHENING OF PREMIUM (VOLUMES +20.1%) IN ALL MARKETS; IMPROVED PRICE/MIX (+4.7%); EFFICIENCIES OF 71.0 MILLION EURO (ABOUT 80% OF THE FULL-YEAR TARGET)

PIRELLI CONSOLIDATED RESULTS

As a result of the underwriting of the agreement for the disposal 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 “result of the disposed operating activities”. The economic indicators relative to 30 September 2014 refer therefore to the activities in function and the comparative data on 30 September 2013 have been the object of “restatement”.

The Board of Directors of Pirelli & C. SpA, today reviewed and approved the intermediate results for operations for the nine months ended 30 September 2014 which show growth in the principle economic indicators. The performance in the first nine months was characterized in particular by:
- strong growth in the premium segment, with volumes surpassing expectations to rise +20.1% and a consequent strengthening of Pirelli’s positioning in all geographic areas. . Premium segment sales account for about 56% of net sales in the Consumer Business (51% in the first nine months of 2013);
- the improvement in price/mix to +4.7% (+4%/+5% is the target set for 2014) due to the performance of the premium segment, the product mix in the Industrial Business and price increases in emerging countries;
- volumes’ growth (+2,2%) supported by the Consumer business, which saw volumes’ growth increasing by 5.2%, with an acceleration in the third quarter (+5.3% compared with +4.3% in the second quarter);
- sales to 30 September grew by 6.5% excluding forex impact, (-1.3% the overall variation) and saw progressive improvement in the third quarter (+6% organic growth, +3% excluding forex effects)
- the accomplishment of internal efficiency gains totaling euro 71.0 million, approximately 80% of the annual target of euro 90 million (350 million, four-year cost-efficiency programme 2014-2017);
- the pronounced improvement in profitability, with EBIT growing by 8.9% to 629.7 million euro and profitability (EBIT margin) reaching 13.9%, +1.3 percentage points more than in the first nine months of 2013;
- the positive performance of the business in Europe, Asia Pacific and NAFTA, with overall net sales growing faster than the Group average, and the improvement in operating income (EBIT) that attenuates the effects of the current slowdown in the South American market;
- the turnaround of the business in Russia, characterized by a decisive improvement in product mix and positive high single digit EBIT margin,
- net profit of euro 300.0 million, up 16.2%;

Consolidated results

At the consolidated level, revenues (of which tyre activities account for 99.8%) on 30 September 2014 amounted to 4, 528.7 million euro, with organic growth of 6.5% compared with the corresponding period of 2013. Including the negative forex impact of 7.8%, stemming mainly from the volatility of emerging country currencies, revenues declined by 1.3% compared with 4,586.4 million euro in the first nine months of 2013. The third quarter saw a progressive improvement in the revenues’ trend, of 1,541.8 million euro (1,496.4 million euro in the same period of 2013), which registered organic growth of +6% (+3% including the forex effect).

The gross operating margin (EBITDA) before restructuring charges was 867.7 million euro, an increase of 7.5% compared with 806.8 million euro in the same period of 2013. In the third quarter the gross operating margin was 284.9 million euro, an increase of 2.7% compared with 277.5 million euro in the same period of 2013.

The operating result (Ebit) before restructuring charges was 647.8 million euro, an increase of 9.2% compared with 593.4 million euro in the same period of 2013, with an Ebit margin before charges of 14.3% compared with 12.9% on September 30, 2013.

The operating result (Ebit) was 629.7 million euro, an increase of 8.9% compared with 578.2 million euro in the same period of 2013. The 51.5 million euro increase in Ebit compared with the first nine months of 2013 was due for 44 million euro to the positive performance of the tyre activities and for the remaining 7.5 million euro to the improved results of other areas. The Ebit margin grew over the first nine months of 2014 to 13.9% compared with 12.6% recorded in the same period of 2013, a testament to the efficacy of the value creation strategy. In the third quarter, Ebit was 203.5 million euro, an increase of 1.9% compared with 199.7 million euro in the third quarter of 2013, with an Ebit margin of 13.2% (13.3% in the third quarter of 2013).

The result from shareholdings on 30 September 2014 was negative 32.3 million euro (-22.9 million euro in the same period of 2013) and mainly refers to – for 21.4 million euro – the effects deriving from the consolidation using the net equity method of the affiliate Prelios (fourth quarter of 2013 and first half of 2014) and to the write-down of the stake in Alitalia of 11.2 million euro, which happened in the second quarter of 2014.

Total net profit which includes activities being disposed of (steelcord business) stood at 300.0 million euro, with an increase of 16.2% compared with 258.1 million euro in the same period of 2013. The net profit of activities in function was 297.4 million euro, an increase of 15.7% compared with 257.0 million in the same period of 2013. In the third quarter the net profit was 105.3 million euro, compared with 107.5 million euro in the same period of 2013.

The net profit attributable to Pirelli & C. Spa, including the results of “discontinued operations”, amounted to 290.5 million euro, an increase of 10.8% compared with 262.1 million euro in the same period of 2013.

Consolidated net assets on 30 September 2014 stood at 2,493.2 million euro compared with 2,436.6 million euro on 31 December 2013. Consolidated net assets attributable to Pirelli & C. SpA amounted to 2,413.9 million euro, compared with 2,376.1 million euro on 31 December 2013.

The consolidated net financial position was negative 2,003.9 million euro (the figure includes 37.9 million euro relative to ”discontinued operations” of the steelcord activities), with limited growth compared to 1,935.2 million euro on 30 June 2014 (1,322.4 million at the end of 2013), with slight absorption of cash in the third quarter, in line with the business seasonality.

The net cash flow generated by operations’ management in the first nine months of 2014 was negative 141.2 million euro (-65.9 million euro in the same period of 2013), essentially due to the usual seasonality of working capital, and after investments of 244.7 million euro (238.3 million euro in the first nine months of 2013) mainly destined to the increase of Premium capacity in Europe, Nafta and China and to mix improvement. The total cash flow post dividends was negative 681.5 million euro (-765.7 million euro in the first nine months of 2013)in line with the seasonality of the activities which foresees strong cash generation in the last quarter of the year, connected to stock reduction and receipts from seasonal markets and from the Winter sales in Europe and Russia. Approximately 45 million euro are relative to the impact on the net financial position of forex variations, especially in relation to the position in Venezuela. Working capital management was positive in the third quarter for 28.8 million euro (+49.4 million in the third quarter of 2013).

Group employees on 30 September 2014 totaled 39,491 (38,133 on 30 September 2013). The increase is the result of the acquisition of the Brazilian distribution chain Abouchar, and sales’ staff additions and increased Premium capacity in Mexico, China and Romania.

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