Group Performance and Results

In addition to the financial performance measures established by the International Financial Reporting Standards (IFRSs), this report presents alternative performance indicators that are derived from IFRSs. These performance indicators are used to facilitate the understanding of the Group operating performance. These indicators are: Gross Operating Profit, Non-current assets, Provisions, Net working capital, Other receivables and payables, Net financial (liquidity)/debt position. Please refer to the section “Alternative performance indicators” for a more analytical description of these indicators. Moreover, the 2010 comparative figures show that the activities related to Prelios S.p.A. (formerly Pirelli RE) and Advanced Digital Broadcast Holdings S.A.. (formerly Pirelli Broadband Solutions S.p.A.) are classified as discontinued operations, following their disposal during that year.


NET SALESIn 2011 Pirelli enjoyed significant growth, with results that have allowed the Group to meet the targets set in its 2011-2013 business plan a year early. That improvement was achieved in spite of the general softening in the macroeconomic situation beginning in Q3 2011, especially in Western economies, partly due to fears over the structure of sovereign debt in certain eurozone countries. This accomplishment attests to the effectiveness of Pirelli’s strategy to create value and focus on industrial activities, with 99% of its revenue being generated by the Tyre business.

Efforts were stepped up in the Tyre business to implement a strategy of continuous growth and focus in the premium segment, with the aim of becoming the leader in that market segment in 2015.

Both net sales and profitability benefited from the contribution made by the mix component, which is tied to the growth of the premium segment in the consumer business.

NET SALESSignificant capital expenditure was also made to increase the availability of satisfactory product.

Research and development played a key role in pursuit of the growth strategy: constant focus on and commitment to technological innovation are confirmed by research and development costs, an area where Pirelli invested 7.2% of its earnings in the premium segment in 2011. During the year, total research and development expenses grew to euro 169.7 million, from euro 149.7 million in 2010, thus remaining stable at 3% of consolidated revenue, one of the highest levels in the sector. These investments are destined to create products that not only constantly improve performance but also improve safety, to the benefit of persons and the environment.

Pirelli operates a research centre in Italy and 8 application centres around the world, staffed by over 1,200 employees. By focusing on technological innovation and its experience with Formula 1 racing, the Group has been able to update its product line continually and increase the number of patents that it holds, currently over 4,500.

In 2011 consolidated net sales grew 16.6% to euro 5,654.8 million, operating income surged by 42.7% to euro 581.9 million, and profitability, measured as the ratio of operating income to sales, rose by about 2 percentage points to 10.3%. Net income from continuing operations was euro 312.6 million, compared with euro 228.0 million in 2010 (figure shown on a comparable basis, before discontinued operations).

EBITTotal net income in 2011 was boosted by euro 128.1 million following the recognition of prior-period deferred tax assets in Italy upon changes in tax laws governing prior-period losses that now allow the possibility of carrying them forward for an unlimited period of time. Consequently, total net income totalled euro 440.7 million (euro 4.2 million in 2010). The growth in production capacity, tied to the Group’s business plan strategy of focusing on the global premium segment, involved a 43% increase in capital expenditure to euro 626 million. This impacted the net financial (liquidity)/debt position, which totalled a negative euro 737.1 million at December 31, 2011 as compared with euro 455.6 million at December 31, 2010. This figure includes an outlay of euro 55 million for the acquisition of plants in Russia and the pay-out of dividends for euro 83.5 million.

PREMIUM SEGMENT-SALESThe results for the Tyre business in 2011 show growing activity and profitability. The figures confirm the effectiveness of Pirelli’s strategy: focus on sales to the premium segment in the consumer business (where sales grew 27% during the year, to euro 1,844 million and representing 50% of the total in the car segment), heavy localization of production activity in rapidly growing regions by the industrial business, and the Group’s capacity to leverage prices in order to offset higher raw material costs.

Sales totalled euro 5,601.6 million (+17.4% compared with 2010), operating income was euro 643.9 million, and profitability was 11.5% (euro 453.1 million, compared with 9.5% in 2010).

Sales of winter products were particularly strong in the premium segment, growing by 56% from 2010, with a consequent increase in market share in Europe to about 8%. During 2011, measures continued to be implemented in view of streamlining production volumes in the standard segment, which is less profitable, leading to a 2% reduction in non-premium product volumes in the consumer business.

Consolidated financial highlights for the Group are illustrated as follows:

(in millions of euro)   
  12/31/2011 12/31/2010
Net sales 5,654,8 4,848,4
Gross operating profit before restructuring expenses 834,6 653,7
% of net sales 14.8% 13.5%
Operating income before restructuring expenses 609,7 432,5
% of net sales 10.8% 8.9%
Restructuring expenses (27,8) (24,7)
Operating income 581,9 407,8
% of net sales 10.3% 8.4%
Net income (loss) from equity investments (17,3) 23,4
Financial income/(expenses) (89,5) (65,8)
Pre-tax income (loss) 475,1 365,4
Income tax (162,5) (137,4)
Tax rate % 34.2% 37.6%
Net income (loss) from continuing operations 312,6 228,0
Net income (loss) from discontinued operations - (223,8)
Prior period deferred tax assets - Italy 128,1 -
Total net income (loss) 440,7 4,2
Net income attributable to owners of PIRELLI & C. S.p.A. 451,6 21,7
Total net earnings per share attributable to owners of PIRELLI & C. S.p.A. (in euro) 0,926 0,044
Non-current assets 3,558,1 3,164,1
Inventories 1,036,7 692,3
Trade receivables 745,2 676,7
Trade payables (1,382,8) (1,066,4)
Net working capital 399,1 302,6
% of net sales 7.1% 6.2%
Other receivables/other payables (243,9) (185,9)
Total net working capital 155,2 116,7
% of net sales 2.7% 2.4%
Net invested capital 3,713,3 3,280,8
Equity 2,191,6 2,028,0
Provisions 784,6 797,2
Net financial (liquidity)/debt position 737,1 455,6
Equity attributable to the owners of Pirelli & C. S.p.A. 2,146,1 1,990,8
Equity per share attributable to the owners of Pirelli & C. S.p.A. (in euro) 4,398 4,080
Capital expenditure (tangible and intangible assets) 626,2 438,6
Research and development expenses 169,7 149,7
% of net sales 3.0% 3.1%
Headcount (number at end of period) 34,259 29,573
Industrial sites (number) 21 20


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

(in millions of euro)       
  Tyre  Other Businesses *   Total 
  12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010
Net sales 5,601.6 4,772.0 53.2 76.4 5,654.8 4,848.4
Gross operating profit before restructuring expenses 875.5 684.3 (40.9) (30.6) 834.6 653.7
Operating income before restructuring expenses 661.7 476.3 (52.0) (43.8) 609.7 432.5
Restructuring expenses (17.8) (23.2) (10.0) (1.5) (27.8) (24.7)
Operating income (loss) 643.9 453.1 (62.0) (45.3) 581.9 407.8
% of net sales 11.5% 9.5%     10.3% 8.4%
Net income (loss) from equity investments (1.3) 0.3 (16.0) 23.1 (17.3) 23.4
Financial income/(expenses) (90.1) (66.4) 0.6 0.6 (89.5) (65.8)
Pre-tax income (loss) 552.5 387.0 (77.4) (21.6) 475.1 365.4
Income tax (181.1) (134.4) 18.6 (3.0) (162.5) (137.4)
tax rate % 32.8% 34.7%     34.2% 37.6%
Net income (loss) from continuing operations 371.4 252.6 (58.8) (24.6) 312.6 228.0
Net income (loss) from discontinued operations     - (223.8) - (223.8)
Prior period deferred tax assets - Italy - - 128.1 - 128.1 -
Net income (loss) 371.4 252.6 69.3 (248.4) 440.7 4.2

Net financial (liquidity)/debt position 962.3 1,109.9 (225.2) (654.3) 737.1 455.6
* This item includes the Pirelli EcoTechnology 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

In 2011 net sales grew 16.6% from the previous year to euro 5,654.8 million, with 99% of sales being generated by the Tyre business, which is the Group’s core business.