Pirelli Results Reflect Current World Economy

Pirelli’s released results for the first nine months of 2008 show a company affected by the international crisis. According to the company, during the course of the first nine months of the year the tyre market registered increasing weakness due to a combination of factors. In volume terms, the replacement channel, which determines most of Pirelli’s tyre sales, was affected by a reduction in consumer and industrial segment demand, especially in Western markets. The original equipment channel, says the company, was hurt by the strong contraction of new car sales, especially in Western Europe (10 per cent in the third quarter, 5 per cent in the first nine months compared with 2007) and in North America (15 per cent in the third quarter, 11 per cent in the first nine months compared with 2007).

Consolidated Group revenues in the first nine months of 2008 amounted to 3,898.6 million euros, substantially stable (+0.3%) on a like for like basis when compared to the figure from the first nine months of 2007, net of the exchange rate effect and other factors. EBIT in the first nine months of 2008 before restructuring charges in the tyre and real estate businesses amounted to 241.6 million euros, down 18.7 per cent from 297.3 million euros in the first nine months of 2007. The total consolidated net result in the first nine months of 2008 was -36.3 million euros, compared with +243.3 million euros in the same period in 2007. The Group’s attributable consolidated net result in the first nine months of 2008 was – 51.3 million euros, compared with +129.8 million euros in the first nine months of 2007. The attributable consolidated net result for the third quarter was -15.1 million euros (+21.6 million euros in the third quarter of 2007), due to the reduction in margins and to restructuring charges in the main businesses.

Pirelli Tyre revenues in the first nine months of 2008 amounted to 3,229.2 million euros, up 3.1 per cent on a like for like basis compared with the same period in 2007. Net of the exchange rate effect revenue growth was 1.2 per cent. Revenues in the third quarter amounted to 1,062.9 million euros, up 3.4 per cent on a like for like basis compared with 2007. The recorded sales increase, notwithstanding falling volumes in Europe and North America especially in the third quarter, was linked mainly to a focus on high value added segments and to the price component (price/mix in the first nine months increased 5.3% compared with the same period in 2007).

EBITDA in the first nine months of 2008, before restructuring charges (31.7 million euros in the January-September period), amounted to 378.3 million euros or 11.7 per cent of sales, down 12 per cent from last year. EBITDA in the third quarter, before restructuring charges (26.7 million euros in the July-September period), was equal to 91.8 million euros. EBIT in the first nine months of 2008, before restructuring charges, amounted to 231.8 million euros or 7.2 per cent of sales, compared with 286.2 million euros in the same period of 2007. Considering restructuring charges as well, EBIT as of 30 September 2008 was equal to 200.1 million euros. EBIT in the third quarter, before restructuring charges, was 40.8 million euros.

Net profit for Pirelli Tyre in the first nine months of 2008 amounted to 108.3 million euros, compared with a result of 160 million euros for the first nine months of 2007. Net profit in the third quarter amounted to 6.6 million euros, substantially down from the 42.6 million euros earned in the third quarter of 2007. The division’s net financial position as of 30 September 2008 was -892.4 million euros, up from -773.4 million euros as of 30 June mainly due to the payout for repurchase of Turkish minorities (43.3 million euros) and the seasonal cycle of working capital.

In terms of margins, Pirelli comments that the tyre industry suffered from strong price increases in raw materials, which reached a 2008 peak in the third quarter, before starting a rapid decline, which Pirelli says it will benefit from when its new calendar takes effect, predominantly in the first quarter of 2009. For the Group, the increase in raw materials costs determined greater costs of 121 million euros in the nine months, with costs of 76 million euros in the third quarter alone.

In the Consumer business (car/light truck tyres and motorcycle tyres), revenues in the first nine months of 2008 amounted to 2,207.9 million euros (+2.2% at constant exchange rates). Revenues in the third quarter amounted to 713.6 million euros and were essentially stable, on a like for like basis, with respect to the same period in 2007. EBIT before restructuring charges in the first nine months was 139 million euros, down from 201.8 million euros in the same period of 2007 due to the negative trend in volumes in Europe (especially in winter tyres) and in North America, due to the unfavourable mix of sales channels and the incomplete recovery of the increase of costs of manufacturing factors. The contraction in EBIT before restructuring charges with respect to last year was more marked in the third quarter (12.2 million euros compared with 52.7 million euros in the same period of 2007).

In the Industrial business (tyres for industrial vehicles and steel cord), revenues in the first nine months amounted to 1,021.3 million euros, with an increase on a like for like basis of 5.2 per cent compared with the same period in 2007. According to Pirelli the third quarter was particularly positive, with revenues of 349.3 million euros, up 10.7% at constant exchange rates, especially in rapidly growing markets where the business unit is focused. Growth was attenuated by a negative variation in volumes, due in part to the difficult macroeconomic scenario in the European market and in part to saturation of factories during the year.

For the full 2008 financial year, taking also into account statements made on the occasion of publication of financial statements as of 30 June, the Pirelli Group confirms expectations of consolidated EBIT before restructuring charges lower overall than in 2007. The size of the decline will be greater than what had been estimated at the end of the first half, in consideration of the further deterioration of markets of reference in the third quarter, also expected for the last part of the year.