19
February
2004
|
00:00
Europe/Amsterdam

Pirelli & C. preliminary results for 2003

Meeting of the Board of Directors of Pirelli & C. SpA PRELIMINARY FINANCIAL STATEMENTS FOR YEAR ENDED DECEMBER 31st 2003 EXAMINED:

  • COMPANY STRUCTURE SIMPLIFICATION ACHIEVED
  • THE BULK OF INDUSTRIAL TURNAROUND IS OVER
  • LOWER NET DEBT AND HIGHER PROFITABILTY OF INDUSTRIAL ACTIVITIES
  • STRONG GROWTH OF REAL ESTATE ACTIVITIES
  • THANKS TO ACTIONS PUT IN PLACE , THE GROUP IS READY TO CATCH ANY MARKET OPPORTUNITY

PIRELLI & C. SPA

  • REVENUES: 6,679 MILLION EUROS, COMPARED TO 6,718 MILLION EUROS (-0.6%); AT COMPARABLE CONDITIONS, A GROWTH OF 7.2% WAS POSTED
  • OPERATING INCOME (EBIT): 266 MILLION EUROS, MORE THAN DOUBLED WHEN COMPARED TO 118 MILLION EUROS IN 2002
  • NET DEBT: 1,755 MILLION EUROS, REDUCED BY APPROX. 300 MILLION WHEN COMPARED TO 2,050 MILLION AT END 2002

INDUSTRIAL ACTIVITIES

  • REVENUES: 6,030 MILLION EUROS COMPARED TO 6,346 MILLION EUROS (-5%); NET OF EXCHANGE RATES, METAL PRICES AND CHANGES IN THE SCOPE OF CONSOLIDATION , THIS RESULT REPRESENTS A 2.9% INCREASE YEAR OVER YEAR
  • OPERATING INCOME: 264 MILLION EUROS, UP 63%, WITH ROS RISING TO 4.4% FROM 2.6%
  • TYRES: REVENUES UP 11.4% AT COMPARABLE CONDITIONS WITH ROS AT 7.4% FROM 6.7%
  • ENERGY CABLES AND SYSTEMS: ROS GREW TO 3.1% FROM 1.8%
  • TELECOM CABLES AND SYSTEMS: EBIT STRONGLY IMPROVED, BUT STILL NEGATIVE
  • FREE CASH FLOW POSITIVE BY APPROX. 450 MILLION EUROS; IN LAST TWO YEARS THE FIGURE IS CLOSE TO 1 BILLION EUROS

REAL ESTATE OPERATIONS

  • OPERATING INCOME INCLUDING INCOME FROM EQUITY PARTICIPATIONS: 128 MILLION EUROS, +25% YEAR OVER YEAR
  • ASSET MANAGEMENT: SALES WORTH APPROX.2,040 MILLION EUROS (BOOK VALUE OF 1,600 MILLION) AND ACQUISITIONS WORTH APPROX. 1,590 MILLION EUROS OF THE PORTFOLIO UNDER MANAGEMENT
  • SERVICES: PRODUCTION VALUE OF APPROX. 322 MILLION EUROS, + 61% YEAR OVER YEAR
  • CARLO SECCHI APPOINTED TO THE BOARD OF DIRECTORS

Milan, February 19, 2004 - The Board of Directors of Pirelli & C. SpA today met and examined the preliminary and unaudited Pirelli & C. SpA consolidated financial statements for the year ended 31 December 2003 .

In 2003 Pirelli substantially completed a wide process aimed at simplifying and financially strengthening the company structure as well as at significantly adapting production capacity of industrial activities to dramatically changed market conditions in both Energy and Telecom Cables and Systems sectors.

Efficiency actions undertaken have already shown their significant results in 2003 performance of these sectors, whose profitability stood at top levels of reference markets. Tyres Sector confirmed its strong growth - both in profitability and market shares - and set new challenging targets for the expansion in very important and potentially high-growth markets, like the US and China.

Real Estate activities showed strong growth in results, reaching the highest targets set out for the first year of the three-year plan 2003-2005.

Investments in Research and Development activities - substantially unchanged - delivered first important results : products fully developed by Pirelli Labs and business unit Pirelli Telecom Systems were launched, validated by international companies like British Telecom, FastWeb, Telecom Italia and Alcatel.

Rationalization and reduction measures completed in 2003, with gains worth approx. 170 million Euros, will allow Pirelli to catch any market opportunity in Cables and Systems sectors, as well as reaching new important targets in profitability, market share and new products, thus confirming the leadership in new technologies and innovation.

 

The following figures include the accounting effects of the merger of Pirelli SpA and Pirelli & C. Luxembourg into Pirelli & C. Spa, which were retroactively accounted for starting January 1 st 2003 and were approx. 29 million Euros.

The Group Pirelli & C. Spa

In 2003 the consolidated revenues of Pirelli & C. Spa Group amounted to approx. 6,679 million Euros , substantially in line with 2002 figure of 6,718 million. On the same perimeter base (net of the effects of exchange rates, metal prices and changes in the scope of consolidation) revenues grew by 7.2%.

Operating income (EBIT) amounted to 266 million Euros and more than doubled 2002 figure of 118 million Euros.

The net financial position at December 31, 2003 is negative by approx. 1,755 million Euros, down approx. 300 million Euros when compared to the figure of 2,050 Euros at December 31, 2002 . A positive net cash flow deriving from operating activities for 260 million Euros contributed to the figure. The improvement also reflects the net effects of the share capital increase undertaken by Pirelli & C. SpA quantified at 649 million Euros, the subscription of the Olimpia capital increase quantified at 388 million Euros and dividend payout for 64 million Euros. The figure also includes non recurrent events: the accounting as debt of the put option exercised by Cisco Systems for Submarine Telecom Systems (January 2004) for 61 million Euros and a net balance acquisitions/sale of participations for approx. 50 million Euros.

The industrial operations of the Group

The trend in the industrial activities of the Group shows a strong increase in operating income , even though in a context still influenced by slow economic frameset. Demand for telecommunications infrastructure showed still low sales volumes, with further price-reductions. Investments of utilities companies in the Energy sector are still stagnant especially in Europe in the low and medium voltage segments, and prices are under pressure in the general market.

The increase in operating income reflects positive effects of efficiency measures launched in a timely way by the Group management and focused in the Energy and Telecom Cables and Systems Sectors, with gross efficiency gains in 2003 for more than 170 million Euros, which should be added to 199 million Euros in 2002. In particular, EBIT of Energy Cables and Systems Sector posted a growth of 51% . Tyres Sector confirmed the growth in profitability, which rose by 15% .

In 2003 the Group sales revenues reached 6,030 million Euros , down 5% when compared to 2002. On the same perimeter base (net of the effects of exchange rates, metal prices and changes in the scope of consolidation) revenues actually grew by 2.9% .

EBITDA grew 14% and stood at approx. 570 million Euros , with a ratio on revenues of 9.5% (7.9% in 2002).

Operating income (Ebit) was approx. 264 million Euros , growing by 63% when compared to 2002. Return On Sale rose to 4.4% against 2.6% in 2002. Net of the merger surplus effect, EBIT stood at approx. 238 million Euros and ROS at 4%. In 2002 EBIT was 162 million Euros.

EBIT in fourth quarter of 2003 was approx. 70 million Euros, compared to 35 million in the same period of 2002.

Free cash flow in 2003 was positive by approx. 450 million Euros - in 2002 it was positive by 538 million Euros - thanks to a good management of investments and of net working capital, whose turnover is bettering for the second year in a row in all the three sectors.

Group Headcount in the industrial operations of the Group at December 31, 2003 was 33,401 , against 35,247 at the end of 2002.

Industrial sector operations

Sales of Tyres Sector amounted to 2,965 million Euros , a year-on-year increase of 11 .4%: of this percentage, 7% refers to increased volumes and the remaining to prices/mix, thus confirming the focus on high performance market segments. Operating income was approx. 220 million Euros, with a ROS of 7.4%, an improvement of 15% compared to 191 million Euros in 2002.

Sales in Energy Cables and Systems Sector totaled approx. 2,640 million Euros , down 4.3 % on an equal perimeter basis (with prices/mix slightly better than volumes). Operating income was approx. 83 million E uros , compared to the figure of 55 million Euros posted in 2002, with ROS growing to 3.1% with respect to 1.8% recorded in 2002. Gains deriving from efficiency and rationalization measures undertaken in the last two years offset reductions due to slowing markets.

I n Telecom Cables and Systems Sector the decrease in sales revenues on an equal perimeter basis was 3.6% , taking into account the already mentioned pressure on prices/mix (-18%) and with an increase of volumes substantially deriving from the accounting of a Submarine contract. Revenues were, therefore, approx. 425 million Euros. O perating income was negative for 39 million Euros, up when compared to the loss of 84 million Euros in 2002.

The Group's Real Estate operations

Before a detailed examination of the figures, it is worth recalling that Pirelli RE is a management company that invests in real estate portfolios (and manages non-performing loans) mainly through significant minority stakes (asset management and fund management) providing these and other clients with a wide range of real estate services (service provider activities). Consequently, the aggregate production value net of acquisitions and EBIT including income from equity participations (pro-quota) are the most significant indicators of the business volume managed by the Group and results at operational level, respectively.

The aggregate production value (the total of sales and the change in inventories, which includes minority equity investments under management) net of acquisitions, totalled approximately 1,525 million Euros, with growth of 18% compared to the figure of 1,297.3 million Euros in2002.

EBIT including pro-quota income from equity participations totalled approximately 128 million Euros, as compared with 102.2 million Euro in 2002, representing growth of 25% .

As regards of main activities of Real Estate operations, Asset Management activities (not including areas) recorded an aggregate production value , net of acquisitions, equal to approximately 1,147 million Euros, as compared with 1,020 million Euros in 2002, representing growth of 12% . The exploitation of assets under management generated sales of approximately 2,040 million Euros at market value (as against a book value of 1,600 million ) and the book value of acquisitions was approximately 1,590 million Euros.

Service Provider activities, fully consolidated, recorded a consolidated production value of approximately 322 million Euros, as compared with 199.8 million over the same period of the previous year, with an increase of 61% . EBIT from these activities was approximately 51 million Euros, with growth of 75% when compared to 2002.

For further information of Real Estate activities, please refer to the press release issued by Pirelli & C. Real Estate on February 12, 2004 .

Olimpia

In 2003 the financial structure of Olimpia was strengthened: as already mentioned, Pirelli contribution was 388 million Euros. Starting from 2004 and following the merger of Telecom Italia and Olivetti, Olimpia will benefit from any dividend accounted for cash when received, thus reaching financial stabilization. Olimpia results are not included into preliminary Pirelli financial statements and will be, as usual, disclosed when annual report project will be published.

The Board of Directors appointed Director Carlo Secchi, Chancellor of Bocconi University; he was also appointed to the Audit Committee for Internal Control and Corporate Governance.

Download the Press Release (English version, PDF, 194Kb)