Introduction

  • The process of transforming the Pirelli Group into a pure tyre company was completed in 2010
  • Research and devel Realisation of the 2011 targets a year earlier than scheduled
  • New business plan for 2011-2013 with vision to 2015

The adopted approach allows the creation of sustainable value over time, from which the company derives both tangible and intangible benefits

The world’s fifth biggest tyre maker as measured by its turnover, the Pirelli Group is a leader in the high-end and high technology content segments. In business for over 140 years (having been founded in Milan in 1872), Pirelli now operates in 20 industrial areas on four continents and sells its products in over 160 countries. It boasts a long industrial tradition, which has always been based on innovation, product quality and a strong brand. That strength has been supported since 2002 by the PZero fashion and high tech project and has just been further reinforced by Pirelli’s recent designation as exclusive supplier to Formula 1 for the three-year period 2011-2013.

While it has always been focused on research and development, Pirelli also implements a green performance strategy that dedicates constant, increasing attention to high quality, low environmental impact products, services and technology. Group efforts in these areas are supported by the activities of Pirelli Ambiente, which operates in the energy and environmental segments, and Pirelli Eco Technology, which focuses on emission control technologies.

PIRELLI CORPORATE STRUCTURE AS AT 31/12/2010

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(*) The individual businesses rely on the support of Pirelli Labs (100% Pirelli & C.), the Pirelli centre for technological excellence and driver of innovation.
(** ) The indicated percentages of investment represent only the portion granted to the “Shareholders’ Agreement” at December 31, 2010. Camfin has announced that it directly or indirectly owned another 5.9% of the ordinary capital of Pirelli & C. Spa.

The process of transforming the Pirelli Group into a pure tyre company was completed in 2010. This transformation was undertaken in accordance with the 2009-2011 Business Plan and completed in 2010 with the spin-off of Pirelli & C. Real Estate and disposal of non-strategic assets, including Pirelli Broadband Solutions and Oclaro (formerly Avanex). Conclusion of this process, together with realisation of the 2011 targets a year earlier than scheduled in the 2009-2011 Business Plan, resulted in the new business plan for 2011-2013 with vision to 2015. That new plan was presented on November 4, 2010 and is extensively discussed in this report.

Pirelli Group research and development activities are key to the pursuit of its growth strategy, which not only allows continuous product and process innovation but also assessment of new business opportunities.

Group R&D costs totalled Euro 146 million in 2010, with a 3.1% ratio to sales. Research and development activities are mainly concentrated in Pirelli Tyre, within which the Group has a research centre in Italy and eight application centres worldwide, and is staffed by over 1,000 employees – 60% of whom are from countries other than Italy.

The value of investments in research activity is expected to remain at about 3% of sales over the next three years, one of the highest levels in the industry. All of these factors will help lift the number of patents held by the Group (currently over 4,500), guarantee its ability to reduce the time needed to update its line of premium products approved as original equipment to less than four years, and fully eliminate highly aromatic oils from its entire tyre line worldwide by 2013.

SALES BY GEOGRAPHICAL AREA

Net sales in 2010 totalled Euro 4,848.4 million, up 19.1% from Euro 4,067.5 million in 2009. The percentage breakdown of activities shows that 98.4% of sales were generated by the tyre business (98.1% in 2009).
The following table shows the geographical breakdown of Group sales over the last three years:

Sales* (in thousands of Euro)      
  2010 % 2009 % 2008 %
Europe:            
- Italy 485,450 10.00% 443,103 10.89% 447,766 10.74%
- Rest of Europe 1,503,531 31.00% 1.326,326 32.60% 1,457,669 34.95%
NAFTA 477,394 9.85% 361.454 8.89% 332,009 7.96%
Central and South America 1,632,044 33.66% 1.296.285 31.87% 1,279,444 30.69%
Asia/Pacific 286,922 5.93% 231,237 5.69% 648,020 15.54%
Middle East/Africa 463,077 9.55% 409,056 10.06% 4,243 0.10%
TOTAL  4,848,418  100.00% 4,067,461 100.00%     4,169,151      100.00%

(*) Net sales in 2010 do not include the operations discontinued during the year that belonged to Pirelli & C. Real Estate S.p.A. (now Prelios S.p.A.) and Broadband Solutions S.p.A. The previous periods (2009 and 2008) were consequently restated on a comparable basis

The headcount at December 31, 2010 was 29,573 (29,570 in 2009 and 31,056 in 2008). It reflects the distribution of production activity at plants located on four continents, as illustrated in the following table:

GEOGRAPHICAL DISTRIBUTION OF EMPLOYEES

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(*) includes Corporate, P. Ambiente, P. Zero, P. Eco Technology; for 2008 and 2009 it also includes the Real Estate and Broadband Solutions businesses that were discontinued in 2010, whose employees were no longer on the Group payroll at December 31, 2010.
(**) Includes Turkey

For a complete snapshot of Pirelli operating performance in 2010, please see Volume 1 (Annual Financial Report at december 31, 2010).