14MB - Pirelli

EXTRAORDINARY SESSION CONSOLIDATED FINANCIAL STATEMENT SUSTAINABILITY REPORT DIRECTORS' REPORT PRELIMINARY INFORMATION
OPERATING PROFIT
In 2008, operating profit was basically influenced by the following
factors:
—— a strong and gradual growth of all production cost factors
(raw materials, energy, etc). Raw materials, in particular, grew
by Euros 195 million compared to 2007 (of which Euros 150
million in the second half);
—— a downturn in the second part of the year (in particular, in the
fourth quarter) in the Original Equipment market;
—— the decision to initiate restructuring actions for a total of Euros
100 million to combat this negative scenario.
Operating profit before restructuring expenses is Euros 250.7
million (6.1 percent of net sales). This is a decrease of 30 percent
from Euros 358.1 million in 2007, which represented 8.6 percent of
net sales.
The reduction in Operating profit before restructuring expenses,
compared to the prior year, can be summarized as follows (in millions
of euros):
Operating profit 2007 358.1
Foreign exchange effect (15.4)
Prices/mix 263.2
Volumes (72.4)
Production factors per unit cost (267.5)
Efficiencies (4.6)
Depreciation and other (10.7)
Total (107.4)
Operating profit 2008 250.7
Despite the positive contribution made by the price/mix, the operating
profit was sharply impacted by the increase in production costs,
in particular, raw materials and energy and by the highly negative
market scenario which affected the trend of sales volumes.
Partial excess production capacity was caused by the negative
market picture particularly during the last part of the year. As
a result, Pirelli Tyre further stepped up its restructuring actions
and placed renewed emphasis on efficiency and improvement of
the industrial structure. Fixed overheads were also adjusted to
reflect the changed market scenario, by activating measures that
will benefit future years. This all had a negative impact on results
for the year 2008 of Euros 100.0 million, bringing the Operating
profit after restructuring expenses to Euros 150.7 million.
The actions are mostly based on reductions of the staff and rationalization
of the industrial structures to increase competitiveness
in this negative market scenario. The effect will be a 15-percent
reduction in the workforce in Western Europe by the end of 2009.
Staff reductions particularly took place in all the major European
countries and it was also decided to totally suspend production at
the Manresa factory in Spain by the end of 2009 where production
had already been reduced by 40% starting from February 2009.
48 PIRELLI & C. S.p.A. MILAN