Industrial Segment

The following table illustrates the results for 2011 as compared with the corresponding periods of 2010:

(in millions of euro)
  Q1 Q2
Q3 Q4
TOTAL
  2011 2010 2011 2010 2011 2010 2011 2010 2011 2010
Net sales 401.2 329.1 417.5 379.5 440.5 386.7 416.9 376.4 1,676.1 1,471.7
D yoy 21.9% 28.4% 10.0% 32.0% 13.9% 26.1% 10.8% 19.7% 13.9% 26.3%
Gross operating profit before restructuring expenses 48.9 40.4 48.7 55.1 56.2 54.1 52.3 46.3 206.1 195.9
% of net sales 12.2% 12.3% 11.7% 14.5% 12.8% 14.0% 12.5% 12.3% 12.3% 13.3%
Operating income before restructuring expenses 35.9 28.6 36.0 42.4 43.0 41.0 40.3 29.7 155.2 141.7
% of net sales 8.9% 8.7% 8.6% 11.2% 9.8% 10.6% 9.7% 7.9% 9.3% 9.6%
Operating income 35.6 28.5 35.8 41.5 42.9 39.8 39.0 26.3 153.3 136.1
% of net sales 8.9% 8.7% 8.6% 10.9% 9.7% 10.3% 9.4% 7.0% 9.1% 9.2%

 

The following table shows the detailed breakdown of market performance:

  Q1 Q2 CUMULATIVE
AT JUNE
Q3 CUMULATIVE
AT SEPTEMBER
Q4 ANNUAL
TOTAL
EUROPE *       
Original Equipment +77% +42% +57% +24% +45% +2% +32%
Replacement +16% +11% +14% -9% +5% -18% -1%
SOUTH AMERICA        
Original Equipment +2% +4% +3% +16% +8% +21% +11%
Replacement +10% +3% +6% -6% +2% -9% -1%
* excluding Russia

 

In 2011 net sales were euro 1,676.1 million, up 13.9% versus 2010. Excluding the translation effect, the change on a comparable consolidation basis was a positive 16.1% due to the 17.8% increase in the price/mix ratio.

  Q1 Q2 Q3 Q4 TOTAL
  2011 2010 2011 2010 2011 2010 2011 2010 2011 2010
Volume -0.7% 24.1% -1.9% 10.4% -0.5% 4.2% -5.4% 1.6% -1.7% 9.4%
Price/Mix 19.0% 1.8% 14.9% 13.7% 19.0% 16.2% 20.1% 15.7% 17.8% 12.3%
Change on a like-for-like basis 18.3% 25.9% 13.0% 24.1% 18.5% 20.4% 14.7% 17.3% 16.1% 21.7%
Translation effect 3.6% 2.5% -3.0% 7.9% -4.6% 5.7% -3.9% 2.4% -2.2% 4.6%
Total change 21.9% 28.4% 10.0% 32.0% 13.9% 26.1% 10.8% 19.7% 13.9% 26.3%

 

Gross operating profit before restructuring expenses was euro 206.1 million, or 12.3% of sales (+5.2% from 2010), while operating income before restructuring expenses reached euro 155.2 million, with a ratio of 9.3% to sales, as compared with euro 141.7 million in 2010 (9.6% of sales). Operating income totalled euro 153.3 million (with ROS of 9.1%), up 12.6% versus 2010, when it totalled euro 136.1 million (with ROS of 9.2%).

Broken down by geographical area, net sales in the original equipment channel generally grew in 2011, with growth rates +32% in Europe, +55% in NAFTA, and +11% in South America. Net sales of original equipment fell only in China, by about 15%.

In the replacement channel instead, market growth rates were positive everywhere during the first two quarters of the year, but then slowed down sharply in the third quarter and even more so in the fourth quarter. In particular, Europe posted negative growth of -1% as compared with 2010, conditioned by the -18% contraction in the fourth quarter. South America turned in a negative performance of -1% (with about -9% in the fourth quarter), while NAFTA reported growth of +3% and China +1%.

 

Truck Business

The market performed well in H1 2011, especially for original equipment, but then slowed down at an increasing pace from the third quarter on, first in the replacement channel and then also the original equipment channel. This slowdown mainly affected Europe, Turkey and Latam, prompting production cutbacks to control inventories.

Overall production remained at about the same level as in 2010, with increased production of the All Steel Radial (+2.5%), which offset the reduction of Conventional tyre production. All of the foregoing took place against the backdrop of lower output in Egypt during the sociopolitical turmoil that took place in the first quarter.

The highlight for 2011 was marked by the launch in September of three new tyre lines in the winter, motorway and on/off segments, which together with extension of the regional and semitrailer range segment, completed the Series 01 that is based entirely on the patented SATT technology, which guarantees more extended product life, improved remanufacturing and precise driving.

The new products are distinguished by their lower rolling resistance, which improves fuel economy and lower CO2 emissions, while shortening braking distances.

The new winter line went on sale in the fourth quarter, and the new H and G lines will go on sale in Q1 2012, beginning in Europe and Turkey, with a plan for steady expansion in other regions, aiming at global coverage by 2014. The Series 01 products added euro 80 million to net sales in 2011, or 7% of total all steel sales, with their contribution being expected to double in 2012.

Pirelli supported the launch of these new lines, during the year that the Company celebrated its 100th anniversary in the truck business, with a series of advertising and promotional campaigns.

 

Agricultural Business

The agricultural business remains highly focused on South America, where the expansion of agricultural production in Brazil (where cultivated areas expanded by 4.3% in 2011 and harvested quantities grew continuously) and Argentina drives development.

In 2011 net sales rose by 14.7% versus 2010, with South America accounting for 79% of sales volumes.

Production is concentrated at the Brazilian plant at Santo Andrè, in the state of São Paulo, where radial technology has been developed and introduced to flank traditional technology, with steady expansion in the available product line to serve the replacement markets in the region, as well as original equipment for international markets.

Production of OTR tyres with textile radial technology has also begun in the new production department at Santo Andrè.

Steel Cord Business

In 2011 the steel cord business continued growing steadily in both terms of its earnings and production capacity, especially in consequence of increased production in Romania, where capacity has risen to over 40,000 tonnes. Activity continues in China, where Pirelli is a non-controlling partner in the development of a production plant at Yanzhou in Shandong Province. That plant has an initial annual production capacity of 16,000 tonnes of steel cord.

Research continues to be conducted on technological developments of steel cord to satisfy the needs of tyre makers by consolidating the advantage of vertical integration in the Tyre business. Specifically in regard to car tyres, development has been focused on obtaining improvements in rolling resistance, performance and lower costs, while development of truck tyres is concentrated instead on casing integrity and cost reductions.

In regard to the development of production processes, industrialisation and extension of the new semi-finished product process (patented by Pirelli), will enable it to make specialty steel cords while also reducing environmental impact (reduced consumption of electricity).

Geographical Areas

Europe

Following introduction of the new Series 01 products, the truck business currently offers a product range that satisfies new European regulations governing eco-sustainability and safety, which will go into effect in 2012.

In spite of the deteriorating macroeconomic context during the last four months of the year, Pirelli maintained its market share by improving its competitive position versus 2010.

South America

Pirelli confirmed its leadership position in the original equipment channel, while it suffered in the replacement channel due to the pressure of imports from low-cost countries. In view of reinforcing its competitive position in the replacement channel, a plan of activities was drawn up, including investment in a new production plant in Argentina, focusing on fleets and truck dealers, and further development of the distribution and service network.

Mea

Pirelli maintained its strong leadership position in Egypt during 2011, although sales suffered due to the market slowdown during the first quarter. At the same time, the Group further reinforced its position in Turkey. The increase in production capacity in Egypt and improvement of the product mix in Turkey will help reinforce the truck business in the region, and especially in GCC countries, by counting on steady stabilisation of the political and social situation in the area.

Apac

In 2011 Pirelli revised its commercial activity, by focusing it more on fleets and offering tubeless products in response to the slowdown on the internal market, especially for original equipment. During the year, Pirelli then reallocated a portion of its production capacity to other rapidly growing areas with a growing market trend.