Tyre Total

(in millions of euro)
  12/31/2011 12/31/2010
Net sales 5,601.6 4,772.0
Gross operating profit before restructuring expenses 875.5 684.3
% of net sales 15.6% 14.3%
Operating income before restructuring expenses 661.7 476.3
% of net sales 11.8% 10.0%
Restructuring expenses (17.8) (23.2)
Operating income 643.9 453.1
% of net sales 11.5% 9.5%
Net income/(loss) from equity investments (1.3) 0.3
Financial income/(expenses) (90.1) (66.4)
Pre-tax income/(loss) 552.5 387.0
Income tax (181.1) (134.4)
Tax rate % 32.8% 34.7%
Total net income/(loss) 371.4 252.6
Net financial (liquidity)/debt position 962.3 1,109.9
Operating cash flow 215.5 368.5
Capital espenditure (tangible and intangible assets) 617.8 405.0
Research and development expenses 169.0 146.3
% of net sales 3.0% 3.1%
Headcount (number at end of period) 33,596 28,865
of whom Kirov 2,772 -
Industrial sites (number) 20 19

 

Net Sales

Net sales in 2011 totalled euro 5,601.6 million, up 17.4% from the euro 4,772.0 million reported a year earlier.

The change on a comparable consolidation basis, before the 1.6% negative effect from consolidation translation differences, showed a 19.0% increase, mainly due to the price/mix component that reflects on the one hand the results of focusing on the premium segment, and on the other hand the capacity to recover the negative impact of higher raw material costs through product prices.

The premium segment confirmed its role as the driving force behind the growth in revenue, with net sales growing over the year by 27.3% to euro 1,844 million.

Sales were up in both business segments: Consumer with a positive change of 18.9% (including -1.4% translation differences) and Industrial, with a positive change of 13.9% (of which -2.2% translation differences).

When broken down by sales channels, 74.5% of sales refer to the replacement channel, while original equipment accounts for 25.5%.

As compared with the same period of the previous year, the change can be summarised as follows:

  Q1 Q2 Q3 Q4 TOTAL
  2011 2010 2011 2010 2011 2010 2011 2010 2011 2010
Volume 6.1% 17.4% 1.2% 7.5% 2.8% 1.8% -3.9% 3.4% 1.4% 7.3%
of which Premium 25.2%   21.7%   17.5%   8.3%   18.2%  
Price/Mix 15.9% 1.4% 15.8% 10.1% 18.6% 12.3% 19.8% 11.3% 17.6% 8.9%
Change on a like-for-like basis 22.0% 18.8% 17.0% 17.6% 21.4% 14.1% 15.9% 14.7% 19.0% 16.2%
Translation effect 2.7% 1.0% -3.7% 5.3% -2.7% 4.2% -2.5% 2.6% -1.6% 3.3%
Total change 24.7% 19.8% 13.3% 22.9% 18.7% 18.3% 13.4% 17.3% 17.4% 19.5%

 

The following tables show the breakdown of net sales by geographic area and product category:

GEOGRAPHICAL AREA
   12/31/2011     12/31/2010 
   euro/mln   yoy     
 Italy    426.6    4%   8%   9% 
 Rest of Europe    1,844.1    23%   33%   31% 
 Nafta    561.3    18%   10%   10% 
 Central and South America    1,915.5    17%   34%   34% 
 Asia/Pacific    352.8    23%   6%   6% 
 Middle East/Africa    501.3    8%   9%   10% 
 TOTAL  5,601.6   17% 100%  100% 
PRODUCT
  12/31/2011 12/31/2010
  euro/mln yoy    
Car tyres 3,513.1 20% 63% 62%
Motovelo tyres 412.4 14% 7% 8%
Consumer 3,925.5 19% 70% 70%

Industrial vehicle tyres 1,554.8 14% 28% 28%
Steelcord 121.3 13% 2% 2%
Industrial 1,676.1 14% 30% 30%

 

Operating Income

Operating income at December 31, 2011 totalled euro 643.9 million, with a growth of 42.1% versus 2010. The ratio of operating income to sales also rose, to 11.5% from 9.5% at December 31, 2010. During the year, euro 17.8 million in restructuring expenses were registered, mainly due to continuous measures to improve the efficiency of operating units in Europe.

The changes in the principal indicators of earnings performance during each quarter are illustrated in the following table:

(in millions of euro)
  Q1 Q2 Q3 Q4 TOTAL
  2011 2010 2011 2010 2011 2010 2011 2010 2011 2010
Net sales 1,384.5 1,110.0 1,376.4 1,215.3 1,464.8 1,233.8 1,375.9 1,212,9 5,601.6 4,772.0
D yoy 24.7% 19.8% 13.3% 22.9% 18.7% 18.3% 13.4% 17.3% 17.4% 19.5%
Gross operating profit before restructuring expenses 209.5 146.4 218.4 177,5 228.4 173.0 219.2 187.4 875.5 684.3
% of net sales 15.1% 13.2% 15.9% 14.6% 15.6% 14.0% 15.9% 15.5% 15.6% 14.3%
Operating income before restructuring expenses 155.6 98,1 164.6 127,1 174.1 121.5 167.4 129.6 661.7 476.3
% of net sales 11.2% 8.8% 12.0% 10.5% 11.9% 9.8% 12.2% 10.7% 11.8% 10.0%
Operating income (loss) 152.4 95.5 160.1 121.8 171.9 117.0 159.5 118.8 643.9 453.1
% of net sales 11.0% 8.6% 11.6% 10.0% 11.7% 9.5% 11.6% 9.8% 11.5% 9.5%

 

The results were positively impacted by the price/mix component, partly in consequence of focusing on the premium segment, and the continuous efficiency gains in industrial activities. Of these efficiency gains, 31% were realised by actions related to raw materials (use of alternative raw materials, reduced consumption of materials, reduced waste and product weight), 58% came from expansion of production capacity in countries with competitive industrial costs, and the remaining 11% from improved labour productivity (streamlining of production processes, introduction of best practices at all sites, and new plants designed to optimise efficiency) and focus on general overhead and administrative costs.

These factors more than offset growth in the cost of raw materials, whose effects were accentuated beginning from Q2 2011 and had a total, final impact of about euro 512 million, as well as the unit cost of production factors.

In regard to the price/mix component, it must be emphasised that it managed to exceed growth in the cost of raw materials in each quarter.

The quarterly changes as compared with the previous year can be summarised as follows in the following breakdown:

(in millions of euro)
  Q1 Q2 Q3 Q4 TOTAL
2010 OPERATING INCOME 95.5 121.8 117.0 118.8 453.1
Foreign exchange effect 2.5 (5.5) (4.2) (3.2) (10.4)
Prices/mix 128.1 154.3 177.4 200.3 660.1
Volumes 28.7 8.8 13.9 (13.1) 38.3
Cost of production factors (raw materials) (81.8) (129.7) (135.2) (165.0) (511.7)
Cost of production factors (labour/energy/others) (13.4) (15.8) (11.5) (18.6) (59.3)
Efficiency gains 15.6 22.1 17.3 38.9 93.9
Amortisation, depreciation and other (22.2) 3.3 (5.1) (1.5) (25.5)
Restructuring expenses (0.6) 0.8 2.3 2.9 5.4
Change 56.9 38.3 54.9 40.7 190.8
2011 OPERATING INCOME 152.4 160.1 171.9 159.5 643.9

Cash Flow

In 2011, operating cash flow was positive euro 215.5 million, compared with euro 368.5 million in the previous year. Capital expenditure of euro 617.8 million impacted the 2011 figure, up 52% versus 2010.

Capital expenditure on property, plant and equipment totalled euro 611 million, up significantly versus the 2010 figure, which had totalled euro 402 million. During the year, Pirelli developed growth projects in South America, Romania and China, completing construction on new plants in Mexico for the production of car tyres and in China for the production of radial motorcycle tyres. These are in addition to the capital expenditure on the other production sites, made to increase the production mix (i.e. new green performance products), improve the qualitative capability of plants, and optimise occupational health and safety and environmental management of factories.

In regard to the different segments of activity, capital expenditure in the consumer segment has been directed towards programmes to increase production capacity in Romania, China and Argentina, growth in the premium segment in Europe and South America, and completion of construction on the new plants in Mexico and China, for which production is scheduled to commence in H1 2012. In the industrial segment, investments have been concentrated in the consolidation of growth in Brazil and Egypt, while work has gone forward on the installation of machinery used to make products using SATT (Spiral Advanced Technology for Truck) technology derived from MIRS technology.

At December 31, 2011, installed production capacity was about 60.0 million units in the consumer segment and about 6.0 million units in the industrial segment, without considering the joint venture in Russia.

In 2011, the use of cash tied to the management of working capital increased due to the increase in absolute values resulting from the increase in net sales, while the ratio of working capital to net sales remained one of the best in the sector.

The following table illustrates the quarterly changes in cash flow:

(in millions of euro)
  Q1 Q2 Q3 Q4 TOTAL
  2011 2010 2011 2010 2011 2010 2011 2010 2011 2010
Operating income (EBIT) before restructuring expenses 155.6 98.1 164.6 127.1 174.1 121.5 167.4 129.6 661.7 476.3
Total amortisation and depreciation 53.9 48.3 53.8 50.4 54.3 51.5 51.8 57.8 213.8 208.0
Capital expenditures of property, plant and equipment and intangible assets (94.5) (47.6) (133.8) (84.5) (160.3) (88.1) (229.2) (184.8) (617.8) (405.0)
Change in working capital/ other (291.6) (132.2) 4.5 37.0 (99.7) (9.9) 344.6 194.3 (42.2) 89.2
Operating cash flow (176.6) (33.4) 89.1 130.0 (31.6) 75.0 334.6 196.9 215.5 368.5
Financial expenses/income tax (63.6) (45.6) (85.4) (61.7) (78.3) (50.8) (43.9) (42.7) (271.2) (200.8)
Net operating cash flow (240.2) (79.0) 3.7 68.3 (109.9) 24.2 290.7 154.2 (55.7) 167.7
Dividends paid to non-controlling interests (0.7) - (1.7) (3.8) - - - - (2.4) (3.8)
Acquisition of non-controlling interests (China) - - - - (28.0) - - - (28.0) -
Russia investment - - - - - - (55.0) - (55.0) -
Cash out for restructuring expenses (1.8) (22.2) (5.7) (8.3) (1.6) (7.0) (4.5) (2.0) (13.6) (39.5)
Foreign exchange differences/other (6.4) 6.0 18.8 9.4 8.4 (9.3) (7.7) 13.5 13.1 19.6
Net cash flow before dividend payment to parent (249.1) (95.2) 15.1 65.6 (131.1) 7.9 223.5 165.7 (141.6) 144.0
Dividends paid to parent - - (120.0) (156.0) - - (90.8) (70.6) (210.8) (226.6)
Capital increase from parent - - 500.0 - - -   - 500.0 -
 Net cash flow    (249.1)   (95.2)   395.1   (90.4)   (131.1)   7.9   132.7   95.1   147.6   (82.6)