TABLA 2. TÉCNICAS DE RECOLECCIÓN DE DATOS
IV. RESULTADOS Y DISCUSIÓN
during periods of economic uncertainty.
In this scenario it is therefore possible for prices and values to encounter a period of particular volatility until the market recovers conditions of stability.
This scenario led the Company to consider the potential of every single initiative and to con- tinue in the process of revision of the structure of operating costs and of internal reorganiza- tion, which has already begun in 2008.
Although in a difficult economic and financial context which determined a slowdown in the global economy, with particularly accentuated effects in the real estate sector, and which con- sequently also affected the consolidated net income for the financial year 2009, the Company believes that, as matters stand, there are no factors that might jeopardise the company’s ability to continue as an ongoing concern in consideration of the success of the share capital increase completed in July 2009, of the obtainment from eight leading financial institutions of a “com- mitted” credit facility more adequate to the new business needs of the Company, and of the actions in progress and planned.
The market context in which the Real Estate Group works entailed, however, a profound review of the strategy with a strong objective focused on the “core” businesses and in particular on fund management, and the preparation of an incisive action plan with the aim of ensuring the maximization of efficiency and competitiveness.
As far as the Particulate Filter business is concerned, the main risk lies in the speed of growth in demand in the markets where the group operates, which depends on the definition of specific regulations, and on the ability to obtain the approvals needed for its products.
fiNANciAl risks
As reported also in the notes to the consolidated financial statements, the Group is exposed to risks of financial nature, associated mainly with trends in exchange rates, the procurement of financial resources on the market, the fluctuation of interest rates, and the ability of its cus- tomers to fulfil their obligations towards the Group.
Management of financial risks is an integral part of management of the Group’s businesses and is carried out centrally on the basis of guidelines defined by the General Management. These guidelines define the risk categories and for each type of transaction and/or instrument, they specify the procedures and operational limits.
Exchange rate risk
The different geographical distribution of the manufacturing and commercial businesses of the Group entails an exposure to exchange rate risk. This risk is managed by the Group Treas- ury which, coordinating its work with the corresponding functions of the Segments, collects information on the positions subject to the exchange rate risk, assesses and manages the net position for each currency. It does this in accordance with the guidelines and the constraints
consolida ted financial st a tements t directors’ repor t preliminar y informa tion extraordinar y session
laid down, by the trading on the market of derivative hedging contracts, typically futures con- tracts, with the aim of minimizing the effects of this type of risk.
liquidity risk
The main instruments used by the Group to manage the risk of insufficiency of financial re- sources available to fulfil its financial and commercial obligations within the set terms and deadlines are annual and three-year financial plans and treasury plans, which enable complete and correct detection and assessment of cash in-flows and out-flows. The differences between the plans and the final balances are constantly analysed.
Prudent management of the risk described above requires the maintenance of an adequate level of cash equivalents and/or easily-cashable short-term securities, the availability of funds obtainable through an adequate amount of committed credit facilities and/or the ability to close open positions on the market. Owing to the dynamic nature of the business in which it op- erates, the Group prefers flexibility in sourcing funds, resorting to committed credit facilities. The Group has implemented a centralized system for the management of collection and pay- ment flows in accordance with the various local currency and tax laws. Banking relationships are negotiated and managed centrally, in order to ensure coverage of short- and medium-term financial needs at the lowest possible cost. The procurement of medium/long-term resources on the capital market is also optimized through centralized management.
interest rate risk
The Group’s policy is to attempt to maintain a correct proportion between indebtedness at fixed and variable interest rates.
The Group manages the risk of an increase in interest rates associated with indebtedness at a floating rate through indirect offsetting with financial receivables at a floating rate and, for the net amount, through recourse to derivative contracts, normally interest rate swaps and interest rate collars with the aim, as part of the correct mix mentioned above, to protect itself against an excessive rise in interest rates.
price risk associated with financial assets
The Group is exposed to price risk only as regards the volatility of financial assets such as listed and unlisted shares and bonds, listed real estate funds and unlisted closed-end real estate funds. credit risk
Credit risk relates to the Group's exposure to potential losses deriving from the non-perform- ance of obligations assumed by both trade and financial counterparties.
In order to limit this risk where trade counterparties are concerned, the Group has put in place procedures for evaluating its customers' potential and their financial solidity, for monitoring expected incoming cash flows, and for recovering credit.
The aim of this procedure is to establish customer credit limits, which if exceeded result in a suspension of further sales.
In some cases customers are asked to provide guarantees. These are mostly bank guarantees, issued by subjects with excellent credit or personal standing. Less frequently mortgage guar- antees may be requested.
Another instrument used for the management of commercial credit risk is the purchase of insurance policies with the aim of preventing the risk of non-payment through a careful selec- tion of the customer portfolio carried out together with the insurance company, which under- takes to guarantee compensation in the event of insolvency.
As regards the financial counterparties used for managing temporary surplus cash or for trad- ing in derivatives, the Group uses only operators with high credit standing.
The Group does not show significant concentrations of credit risk. risks AssOciAtED with humAN rEsOurcEs
The Group is exposed to the risk of loss of key resources which might therefore determine a negative impact on future results. To guard against this risk, the Group has adopted bonus policies which are regularly reviewed on the basis also of the general macroeconomic context. Moreover, the effectiveness of any restructuring measures that entail staff cuts could be lim- ited by the legislative constraints and trade union agreements existing in the various countries in which the Group operates.
cOuNtry risk
The Group operates in countries such as Venezuela, Argentina, Brazil, Turkey, China and Egypt, in which the general political and economic context and the tax regime applied may in future prove unstable.
risks AssOciAtED with ENvirONmENtAl AspEcts
The activities and products of the Pirelli Group, a multinational which does business all over the world, are subject to many different environmental laws depending on the specific features of the various countries.
These laws share in any case a tendency to evolve in an increasingly restrictive manner, also because of the growing commitment of the international community to environmental sustainability.
We can therefore expect a gradual introduction of stricter laws in relation to the various en- vironmental aspects on which businesses may have an impact (use of water, emissions into the atmosphere, generation of waste, effects on the soil, effects of products on the living environ- ment, etc.), owing to which the Pirelli Group expects to have to continue to make investments and/or to incur costs that may be significant.
consolida ted financial st a tements t directors’ repor t preliminar y informa tion extraordinar y session
Business outlook
In 2010 the Group will concentrate further on its core business, increasingly becoming a ‘Pure Tyre Company’ with an absolutely leading position in 'Green Performance'.
— In the “Tyre and Parts” area (tyres and filters) further strengthening is expected, on the basis of the results achieved in 2009. For the Tyre business, in particular, ongoing growth is expected with an approach differentiated between Consumer and Industrial, further improvement of competitiveness on costs and an acceleration of investments, in order to increase manufacturing capacity in particular in emerging markets that present higher growth rates and lower industrial costs. During the financial year investments of more
than 300 million euro are planned with a ratio of investments to depreciation of 1.6 (up from 1.1 in 2009). On the cost front the continuation of the efficiency plan, already
launched in the previous year, has the aim of achieving savings in 2010 of more than 60 mil- lion euro (before the effect of raw material price increases). The signs of market recovery, above all in the Consumer segment, enable us to forecast an increase in revenues of be-
tween 6% and 8% and an EBIT margin roughly in line with that of 2009, taking into
account the impact of increases in the prices of raw materials, especially natural rubber. For the Filters business (Pirelli Eco Technology) the geographical diversification and above all the application of stricter laws on the limitation of traffic pollution are good grounds for aiming at double-figure growth in revenues, break-even at the operating level (EBIT)
and positive cash generation.
— For the “other businesses”, mainly Pirelli Ambiente and PZero, we plan to seize new growth opportunities. In particular, the PZero project offers the opportunity to increase further the value of the brand. For 2010 these businesses aim to reach their break-even
point at the level of operating income.
— Pirelli Real Estate expects in 2010 to further consolidate its leadership in Fund Manage- ment in Italy, to continue focusing on services in order to increase recurrent revenues and to maintain careful financial discipline. For service activities an operating income of
between +20 and +30 million euro is expected. The target envisaged for sales of proper-
ties by the end of 2010 is between 1.3 and 1.5 billion euro, maintaining total assets under management substantially stable. The 2011 targets are also confirmed and in particular the achievement of net income of 50 million euro from the service businesses.
At the group level the forecast for revenues is approximately 4.7-4.8 billion euro and the
EBIT margin is expected to come out at between 6.5% and 7%. The actions taken to ra-
tionalize and simplify the corporate organizational structure, announced last September, will also enable the achievement of savings of approximately 10 million at the level of gross operat- ing margin (EBITDA), after the financing of the already announced management bonus plans.
The target for consolidated net indebtedness at the end of 2010 is approximately 700 million euro after payment of 81.1 million euro for dividends payable on financial year 2009.
Pirelli will present the new 2011-2013 three-year plan to the financial community by the end of 2010.
consolida ted financial st a tements t directors’ repor t preliminar y informa tion extraordinar y session
Pirelli Tyre
The table below shows a summary of the main consolidated results for financial year 2009, com- pared with the corresponding period of 2008:
(in millions of euro)
12/31/2009 12/31/2008
Net sales 3,992.9 4,100.2
Gross operating margin before restructuring expenses 538.0 441.2
% of net sales 13.5% 10.8%
Gross operating income before restructuring expenses 345.5 250.7
% of net sales 8.7% 6.1%
Restructuring expenses (37.0) (100.0)
Operating income 308.5 150.7
% of net sales 7.7% 3.7%
Net income from equity investments 4.2 27.8
Financial income/(expenses) (76.1) (82.8)
Income tax (90.0) (70.1)
Net income 146.6 25.6
% of net sales 3.7% 0.6%
Net financial (liquidity)/debt position 1,027.3 1,266.8
Net operating cash flow 395 (171.0)
Investments in property, plant and equipment 217 285
R&D expenses 133 145
% of net sales 3.3% 3.5%
Employees (number at end of period) 27,481 28,601
Industrial sites no. 20 21
Net sales in financial year 2009 came out at 3,992.9 million euro, down 2.6% compared with
the same period of the previous year.
The like-for-like change, excluding the effect of fluctuations in exchange rates and of the appli- cation of accounting for hyperinflation in the Venezuelan subsidiary, was a drop of 1.6%, with a negative change in volumes (-5.8%) partially offset by the change in the price/mix (+4.2%).
Exchange rates had a negative effect of 1.6%, and the effect of restating the figures for the Venezuelan subsidiary resulting from the application of the principles for hyperinflation was a positive 0.6%.
Sales in fourth quarter 2009 confirmed the positive trend compared with the same period in
the previous year, already seen in the third quarter, with an overall positive change of 13.9% in like-for-like terms.
The table below summarises the individual components of the changes in sales in 2009, detail- ing the trend in each quarter:
Q1 Q2 Q3 Q4 2009
Volumes -18.1% -13.3% -3.3% 15.6% -5.8%
Prices/Mix 6.9% 5.6% 4.7% -1.7% 4.2%
Change on a like-for-like basis -11.2% -7.7% 1.4% 13.9% -1.6%
Foreign exchange effect -2.7% -1.5% -3.3% 2.0% -1.6%
High inflation - - - 2.8% 0.6%
total change -13.9% -9.2% -1.9% 18.7% -2.6%
The contraction of sales was concentrated in the Industrial segment (-10.3%), while in the Consumer segment there was slight overall growth (+0.9%): this determined an increase, in terms of sales, of the proportion of the Consumer segment (71% compared with 68%), with a consequent reduction in the Industrial segment (29% compared with 32%).
The distribution of net sales by geographical area and product category is as follows:
GeoGraPhiCal area
2009 2008
Italy 9% 9%
Rest of Europe 33% 36%
North America 8% 7%
Central and South America 34% 33%
Africa, Asia, Pacific 16% 15%
ProDuCt CateGory
2009 2008
Car tyres 63% 60%
Tyres for industrial vehicles 27% 29%
Motovelo tyres 8% 9%
Steelcord / other tyres 2% 2%
There was confirmation, in a year with a market scenario of recession above all in the mature markets, of a percentage reduction in the proportion of turnover in Europe compared with 2008 (from 45% to 42%), owing chiefly to the reduction of volumes in the Original Equipment channel. As regards the figure for North America it must be remembered that the amounts were affected positively also by the revaluation of the average exchange rate in the period of the US Dollar to the euro compared with the same period of 2008.
consolida ted financial st a tements t directors’ repor t preliminar y informa tion extraordinar y session
As regards operating income for financial year 2009, the following table shows the quarterly and cumulative trend compared with the corresponding periods of the previous year:
(in millions of euro)
Q1 Q2 Q3 Q4 Cumulative
2009 2008 2009 2008 2009 2008 2009 2008 2009 2008
Net sales 926.9 1,076.9 989.0 1,089.4 1,042.7 1,062.9 1,034.3 871.0 3,992.9 4,100.2
% change -13.9% -9.2% -1.9% 18.7% -2.6%
Gross operating margin be-
fore restructuring expenses 107.8 151.0 133.0 135.5 142.0 91.8 155.2 62.9 538.0 441.2 % of net sales 11.6% 14.0% 13.4% 12.4% 13.6% 8.6% 15.0% 7.2% 13.5% 10.8% Operating income before
restructuring expenses 61 102.8 85.5 88.2 94.3 40.8 104.7 18.9 345.5 250.7 % of net sales 6.6% 9.5% 8.6% 8.1% 9.0% 3.8% 10.1% 2.2% 8.7% 6.1% Operating income 57.5 100.3 79.3 85.7 85.9 14.1 85.8 (49.4) 308.5 150.7 % of net sales 6.2% 9.3% 8.0% 7.9% 8.2% 1.3% 8.3% -5.7% 7.7% 3.7%
Net income in fourth quarter 2009 was up compared both with the same period last year, and
with the previous quarters and specifically:
— the total gross operating margin before restructuring expenses was 155.2 million euro (15.0% on sales), more than double compared with the same period of 2008 (Euro 62.9 mil- lion with a ratio on sales of 7.2%);
— operating income before restructuring expenses reached Euro 104.7 million (10.1% on sales), higher than in the corresponding period of 2008 when it amounted to Euro 18.9 mil- lion (with a ratio on sales of 2.2%).
The positive change in operating income in fourth quarter 2009 was mainly due to:
— continuation of the positive impact deriving from the reduction in the cost of raw materials for an amount of Euro 81.5 million, after that of Euro 18.0 million already recorded in the second quarter and Euro 36.5 million recorded in third quarter 2009;
— confirmation of the benefits deriving from the restructuring measures implemented;
— a change in the direction of the trend in volumes, compared with the corresponding periods of the previous year, with a positive impact of Euro 30.8 million.
Progressively for the whole of 2009 the gross operating margin before restructuring ex-
penses was Euro 538.0 million (13.5% on sales), up Euro 96.8 million over the corresponding
period of 2008, when it amounted to Euro 441.2 million (with a ratio on sales of 10.8%).
Operating income before restructuring expenses for financial year 2009 came to Euro
345.5 million (8.7% on sales), an improvement of Euro 94.8 million compared with the corre- sponding period of 2008 when it amounted to Euro 250.7 million (with a ratio on sales of 6.1%). The change in operating income before restructuring expenses for financial year 2009 com- pared with the previous year in the various periods can be summarized as follows:
The change in operating income before restructuring expenses for financial year 2009 compared with the previous year in the various periods can be summarized as follows:
(in millions of euro)
Q1 Q2 Q3 Q4 2009
2008 operating income before restructuring expenses 102.8 88.2 40.8 18.9 250.7
Foreign exchange effect (1.6) 1.4 (3.1) 0.4 (2.9)
Prices/mix 43.0 35.6 39.1 (23.3) 94.4
Volumes (28.7) (46.1) (12.7) 30.8 (56.7)
Cost of production factors (raw materials) (37.3) 18.0 36.5 81.5 98.7 Cost of production factors (labour/energy/others) (16.6) (4.2) (18.5) (4.8) (44.1)
Efficiencies (1.2) 4.8 16.7 15.3 35.6
Amortization, depreciation and other (*) 0.6 (12.2) (4.5) (14.1) (30.2)
Change (41.8) (2.7) 53.5 85.8 94.8
2009 operating income before restructuring expenses 61.0 85.5 94.3 104.7 345.5
* of which fixed from/to stock (2.7) (5.1) (10.1) (1.9) (19.8)
The price\mix variant and the efficiencies achieved – which were even more important because they were obtained despite a business scenario characterized by periods of overcapacity, in addi- tion to the positive trend in the costs of factors of production, in particular thanks to the reduc- tion in the cost of raw materials, made it possible to improve in absolute terms the results achieved progressively in 2008, more than offsetting the negative effect of the reduction in sales volumes. As far as restructuring work is concerned, Pirelli Tyre continued the actions planned, in the context of the ongoing process of increasing efficiency, improving the industrial framework, and adjusting the overheads structure to the new market scenario.
The actions were essentially focused on the reduction of 15% of workforces in Western Europe by the end of 2009, including the decision to halt definitively in December 2009 the production of tyres at the factory in Manresa, Spain, which had already been reduced by 40% from Febru- ary onwards.
Therefore the internal efficiencies involving labour costs, together with all those deriving from the work done on the use of materials and on the procurement process and with the advantage obtained on the cost of raw materials before the exchange rate effect (greater than the advan- tage envisaged at start of the year), made it possible to obtain overall in the year a positive ef- fect on the costs greater than the targets envisaged for the first year of the Business Plan.
Operating income for financial year 2009 was Euro 308.5 million, an improvement over the
result for the corresponding period of 2008, when it amounted to Euro 150.7 million euro, with a ROS (ratio between operating income and sales) of 7.7%, a figure that amply reached the profitability target indicated in the first year of the Business Plan.
Total net income for financial year 2009 was Euro 146.6 million (after financial expenses and
net income from equity investments of Euro 71.9 million and income taxes amounting to Euro 90.0 million) and compares with a figure for the previous year of Euro 25.6 million (after finan- cial expenses and net income from equity investments of Euro 55.0 million and income taxes amounting to Euro 70.1 million).
It should be recalled that the result for last year benefited from a positive impact of Euro 27.3 million in relation to the purchase of most of the minority interests in subsidiaries in Turkey, deriving from the negative difference between the purchase price and the equity acquired; in the first quarter of this year the purchase of the remaining minority interests in subsidiaries in Turkey was substantially completed, at a cost of Euro 4 million, and with a further positive impact on net income from equity investments of Euro 3.4 million.
The net financial position showed debts of Euro 1,027.3 million, down by Euro 239.5 million euro