11
November
2005
|
00:00
Europe/Amsterdam

Board of Directors approves financial statements at 30 September 2005

With the application of IAS/IFRS accounting standards, the Energy and Telecom Cables and Systems activities of the Pirelli & C. SpA Group, whose sale was completed on 28 July 2005, have been treated as discontinued operations (activities that have been sold or are in the process of being sold) and are not therefore consolidated as operational components (Revenues, Ebitda, Ebit), but contribute solely to the net result after tax for the first six months of the year. For the purposes of homogeneous presentation, 2004 data have been treated in the same way


THE BOARD OF DIRECTORS OF PIRELLI & C. SPA APPROVES FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2005:
  • CONSOLIDATED NET PROFIT: 316 MILLION EUROS, AN INCREASE OF 35% FROM 234 MILLION EUROS IN THE SAME PERIOD OF 2004
  • REVENUES: 3,322 MILLION EUROS COMPARED WITH 2,932 MILLION EUROS IN THE FIRST NINE MONTHS OF 2004, AN INCREASE OF 13.3% (+9.5% ON LIKE-FOR-LIKE BASIS)
  • OPERATING INCOME: 278 MILLION EUROS (+24%), ROS 8.4% COMPARED WITH 7.6% IN SAME PERIOD OF 2004
  • NET FINANCIAL POSITION: FALLS TO 1,236 MILLION EUROS COMPARED WITH 2,338 MILLION EUROS IN THE FIRST HALF OF 2005 DUE TO THE POSITIVE EFFECT OF THE DISPOSAL OF THE CABLES AND SYSTEMS ACTIVITIES
  • TYRES: REVENUES 2,707 MILLION EUROS, AN INCREASE OF 9.8% COMPARED WITH THE FIRST NINE MONTHS OF 2004 (+7% ON LIKE-FOR-LIKE BASIS); OPERATING INCOME 271 MILLION EUROS (+25%) AND ROS AT 10%
  • PIRELLI BROADBAND SOLUTIONS: REVENUES 81 MILLION EUROS, OVER DOUBLE THE 39 MILLION OF 30 SEPTEMBER 2004
  • PIRELLI RE: OPERATING PROFIT INCLUDING INCOME FROM EQUITY PARTICIPATIONS 104.5 MILLION EUROS (+31%); NET PROFIT 78 MILLION EUROS (+25%)
  • OLIMPIA: PRO-QUOTA RESULT 130 MILLION EUROS, SHARPLY HIGHER THEN THE 8 MILLION EUROS OF THE FIRST NINE MONTHS OF 2004
  • FOR FULL YEAR 2005 GROUP CONFIRMS EXPECTATIONS OF SIGNIFICANT IMPROVEMENT IN RESULTS
  • CORPORATE GOVERNANCE: INSTITUTED FIGURE OF LEAD INDEPENDENT DIRECTOR


Milan, 11 November 2005 - The Board of Directors of Pirelli & C. SpA met today and approved the definitive results for the nine months ended 30 September 2005.

Pirelli & C. SpA Group

In the first nine months of 2005, the Pirelli & C. SpA Group achieved further improvements in all economic indicators. In particular, the period saw strong growth in profitability and the net result, confirming the strategic focus on higher margin businesses and the significant debt reduction, due to the positive effect of the disposal of the Cables and Systems activities.

Regarding industrial activities, the first nine months of the year were characterized by the excellent result at Pirelli Tyre which, higher raw material costs notwithstanding, confirms a double digit margin of profitability which places at the highest levels of its market of reference. Sales at start-up Pirelli Broadband Solutions continue to rise increasing and at 30 September 2005 more than doubled compared with the same period in 2004. In the real estate sector, the results of Pirelli RE continue to grow.

At the consolidated level, Group revenues in the first nine months amounted to 3,322 million euros, an increase of 13.3% compared with the 2,932 million euros of the same period in 2004 and with increases in all areas of activity. On a like-for-like basis, revenues rose 9.5%.

EBITDA was 436 million euros (13.1% of sales), an increase of 16% compared with 375 million euros in the same period of 2004 (12.8% of sales).

The consolidated operating income(EBIT) was 278 million euros, an increase of 24% from 224 million euros in the first nine months of 2004 and with increases in all sectors. The profitability margin (ROS Return on Sales) at the consolidated level is 8.4%, a further increase from 7.6% in 2004.

The results from participations, which include the evaluation by shareholders equity method of investments and dividends from other companies not consolidated, is positive 195 millioneuros, compared with 114 million euros in the first nine months of 2004. In particular, the impact of Olimpia was a positive 130 million euros (8 million euros in the same period in 2004), due both to Telecom Italias improved results and the increase in the stake held compared to last year. It should be noted that Olimpias financial statements, received in Groups consolidated statements, is drawn up in accordance with IAS/IFRS accounting standards and includes a valuation of the Telecom Italia SpA stake which uses the shareholders equity method. The results of the real estate sector company (Pirelli RE Group) are also included and were a positive 63 million euros (52 million euros a year earlier).

The operating profit including income from equity participationswas 473 million euros, an increase of 40% compared with 338 millions last year.

Financial chargeswere negative for 110 million euros compared with 74 million euros in the same period in 2004.

Net profiton 30 September 2005 was 316 million euros, an increase of 35% from 234 million euros in the same period of 2004.

Net profit attributableto Pirelli & C. SpA on 30 September 2005 was a positive 276 million euros (0.057 euros per share), compared with 206 million euros in the same period of 2004 (0.053 euros per share).

Consolidated shareholders equitystood at 5,565 million euros, compared with 3,841 million euros at the end of 2004. Shareholders equity attributable to Pirelli & C. SpA on 30 September 2005 amounted to 5,187 million euros (0.976 euros per share), compared with 3,502 million euros at the end of 2004 (1.011 euros per share).

The Group net financial position on 30 September 2005 was a passive 1,236 million euros, a significant improvement from -2,338 million euros on 30 June, mainly due to the positive effect of approximately 1.2 billion euros deriving from the disposal of the Cables and Systems activities.

During the quarter, 10,850,000 Telecom Italia SpA shares (equal to 0.1% of ordinary share capital) were bought on the market with an outlay of 27.7 million euros, corresponding to an average price of 2.55 euro a share.

The Groups commitment to research and technological innovation, the negative economic context notwithstanding, was confirmed in the first nine months of 2005 with investment in research and development of 131 million euros, equal to approximately 3.9% of sales.

Group employees on 30 September 2005 were 26,864 compared with 24,790 on 31 December 2004, with an increase of 2,074 (701 of whom with limited-period contracts) mainly in Tyre activities and linked to volume growth and expansion in China and Romania.

Pirelli Tyre

Revenues in the first nine months of 2005 were 2,707 million euros, an increase of 9.8% compared with 2,466 million euros on 30 September 2004 (+7% on a like-for-like basis).

EBITDA was 412 million euros (15.2% of sales), an increase of 17.7% from 350 million euros in the first nine months of 2004.

The operating income amounted to 271 million euros, an increase of 25% from 217 million euros on 30 September 2004, with ROS at 10%.

The net financial position on 30 September 2005 was negative 385 million euros compared with 340 million on 30 September 2004. The figure was impacted by the launch of investment, approximately 59 million euros, in China.

At the end of September 2005, employees were 23,727, including 3,282 employees with limited-period contracts (the headcount on 31 December 2004 was 21,513, of whom 2,576 were temporary).

The positive performance registered in the first nine months of 2005 was determined by a continued focus on the product mix, price increases and volume growth, which more than offset the further rise in raw materials prices and energy costs, and in the context of less than brilliant market demand. The Consumer business (Car and Moto) saw positive growth in the higher market segments, both in North America and, especially with Winter in Europe. The Industrial business also grew, particularly in original equipment: in the third quarter, moreover, radial truck tyre production started in China.


Pirelli Broadband Solutions

Revenues in the first nine months of 2005 were 81 million euros, more than a twofold increase from 39 million euros in the same period of 2004. In the third quarter, the company recorded its first sales of second generation photonics products.
EBITDA was negative 5.6 million euros, an improvement from -6.6 million euros on 30 September 2004.

The operating income, positive for broadband access activities but impacted by the start-up of second generation photonics products, was a negative 6 million euros, an improvement from -6.9 million euros in the same period of 2004.

The net financial position was negative 3.1 million euros.

On 30 September 2005, the headcount stood at 119, compared with 79 on 31 December 2004.
The positive sales performance was driven by broadband access products, above all ADSL, which are continuing to show good prospective development in Italy and abroad. In the third quarter of 2005, the company achieved its first revenues from second generation photonics, which will also benefit by the new partnership with Marconi for the CWDM (Coarse Wavelength Division Multiplexing) solution. DTL (Dynamically Tunable Laser) is also showing promise and is now undergoing qualification with its main clients.

Pirelli RE

It should be noted that Pirelli RE is a management company, which manages funds and special purpose companies that own properties and non-performing loans, and in which it holds minority interests (the fund and asset management businesses). It also provides a full range of property services to the above vehicles and to other customers (the property services business), either directly or via its franchise network of estate agents. Aggregate revenues (which according to IAS/IFRS accounting standards substantially equate with the previously used aggregate value of production net of acquisitions) and operating profit including income from equity participations are, therefore, the most appropriate measure of the Groups turnover and operating performance.

The operating profit including income from equity participations amounted to 104.5 million euros, with an increase of 31% from 79.6 million euros in the first nine months of last year.

On 30 September 2005, attributable net profit rose to 78 million euros, an increase of 25% from the same period in 2004 (62.4 million euros).

The result on 30 September continues to be characterized by a significant increase in fees in the activities of Fund and Asset Management and from the improvement in profitability from Service Provider activities; the expansion of Franchising activities continued, with affiliates rising to 803, as planned.

For further information on the performance of real estate activities, consult the press release issued by Pirelli & C. Real Estate on 7 November 2005.

Pirelli Ambiente

Pirelli & C. Ambiente Holding, the company created in 2005 to strengthen the Group in the environmental and sustainable development sectors, posted sales of approximately 44 million euros in the first nine months of the year. In the third quarter, the company launched the sale of anti-particulate filters for the reduction of emissions from diesel vehicles and continued activities in the fields of renewable energy sources, and the production and sale of the low environmental impact fuel Gecam&#8482 - Il Gasolio Bianco.


Outlook for 2005 fiscal year

The results obtained in the first nine months of the year permit the confirmation of the Groups expectations for a significant improvement in results for full-year 2005, excluding external elements of an extraordinary and unforeseeable nature.

In particular, in industrial activities, Pirelli Tyre, even with further increases in the cost of raw materials and taking the businesss seasonality in account, expects a consolidation of the improved results trend, compared with last year, and the achievement one year ahead of schedule of the profitability target (ROS at 9%) indicated for 2006 in the 3-year Plan.

Pirelli Broadband Solutions expects to maintain a significant market share in broadband access products, and should develop further commercial and research activities related to second generation photonics products.

Pirelli RE, on the basis of results achieved in the first nine months and the information available, expects growth in the operating profit including income from equity participations in 2005 to be in line with the guidance previously given to the market.

Corporate Governance

The Board of Directors, with the aim of further strengthening the role of independent Directors (10 of a total 20), has decided to introduce the figure of Lead Independent Director. The Lead Independent Director (identified in the President of the Internal Control and Corporate Governance Committee, Professor Carlo Secchi) will be the point of reference and coordination for the independent Directors needs and input.
The Lead Independent Director will be able, among others, to convene autonomously or at the request of other Directors dedicated Independent Directors executive sessions to discuss themes of interest regarding the functioning of the Board of Directors or the companys management.
Finally, the Board of Directors, availing itself of the options granted it in the company Bylaws in accordance with the law, has adapted article 7 (assemblies) of the company Bylaws to regulatory changes. In particular, in the light of Consobs Regolamento Mercati and in line with the Bylaws aim to facilitate participation in company life, minimizing costs and requirements, all that is required to attend Shareholder Meetings is the communication of the intermediary, without the need for the shareholder to produce any certification.

Significant events occurring after 30 September 2005

On 12 October 2005, Pirellis new radial truck tyre factory was inaugurated in Yanzhou, in the Chinese Province of Shandong. The Group will develop its presence in China with an investment of approximately 90 million dollars in 2005, which is expected to rise up to 180 millions in the space of two years. The factory has an annual production capacity of approximately 0.6 million pieces, which will become approximately 1.2 million when fully operational.

On 18 October 2005, Pirelli & C. S.p.A purchased from Deutsche Bank AG, London, 13,690,319 shares of RCS MediaGroup, equal to approximately 1.87% of the companys ordinary capital, for approximately 58.9 million euros.

Conference Call

The results for the first nine months of 2005 will be illustrated at 17.30 (4.30 pm GMT), in a conference call with the participation of the Chairman of Pirelli & C. SpA, Marco Tronchetti Provera.
Journalists will be able to follow the conference call, without the possibility of asking questions, by dialling +39 06 33485042.
The presentation can be followed in audio streaming in real time at www.pirelli.com , in the Investor Relations section, where the supporting documentation will also be available.

***
Pirelli Press Office Tel. +39 02 85354270 pressoffice@pirelli.com
Pirelli Investor Relations Tel. +39 02 64422949 ir@pirelli.com
www.pirelli.com


Summaries of the financial statements for the period ending 30 September 2005; pro-forma consolidated balance sheet and statement of income for Pirelli & C. S.p.A at 30 September 2005, assuming full consolidation of Olimpia S.p.A. and valuation of the investment in Telecom Italia S.p.A. according to the equity method. Calendar of main corporate events. (PDF file, 20 kb)



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