ANNUAL FINANCIAL REPORT 2012

CHAIRMAN’S LETTER

Dear Sharholders,

The year 2012 was a difficult one for the world economy and therefore for the tyre market, but Pirelli was able to deal firmly with the crisis which grew worse as the year progressed, above all in Europe.

We were able to respond to rapid change in the economy with equal speed, thanks to a lean and cross-referencing decision-making structure which enabled us to foresee the difficulties. The crisis in the European market pushed
us to accelerate the process of strategic focus on the Premium segment, further reducing standard segment production, and to concentrate on rapidly growing markets to take advantage of their positive economic dynamics. This was the case in Mexico, where the launch of tyre production at the Silao factory to serve the entire Nafta area allowed us to reduce logistical costs and offer ever more efficient services to customers. But also in Indonesia, where we reached an agreement with a local partner to build a factory for the production of motorcycle tyres. The Nafta and Apac areas, together with Latin America, continue to grow in weight and were able – above all in the final part of 2012 – to compensate the difficulties in the European market.

Thanks to our geographic diversification, local-for-local strategy, focus on the Premium segment, stable pricing policy and incisive efficiency plan we were able to improve our profitability, bringing it to an annual record of 12.9%, at the same managing to contain debt to around 1.2 billion, after investments – both industrial and financial – of over 700 million euro to reinforce our presence in strategic countries, such as Russia, and to concentrate production in the Premium segment.

Despite the extraordinary teamwork that brought such decidedly positive results, even more so in the context of the economic crisis, we did not manage – due to the marked economic slowdown – to hit the even more ambitious debt target of around 1.1 billion euro which we had set in 2011 as the threshold to the incentive plan for management who, because of this, will not receive any bonuses for 2012.

In 2012 also and in respect of the commitments made, sustainable management characterized both our products and our way of production, in full and open harmony with the most responsible choices of those international companies attentive to the great economic transformations under way, at the global level.

In 2013 we aim to defend our level of profitability and increase revenues thanks also to the contribution from emerging markets. To take advantage of the growing potential of all rapidly growing economies, Pirelli is increasing and reinforcing its commercial networks to reach, in a capillary fashion, all those geographic areas - Nafta and Apac foremost – which in the coming months will be the true drivers of the world economy, faced with a Europe that continues to show signs of great weakness. Our being present in all the biggest markets will allow us, however, to seize growth opportunities which we are not finding in the old continent, without hiding the fact that, undoubtedly, 2013 will be a complex year during which we aim to consolidate the position attained in this area.

To achieve these goals it is necessary to have a long-term vision of the economic scenario, something to which we dedicate ourselves each day and which will enable us to define by the end of the year a new 5-year industrial plan, to best face the challenges of the coming years.

 

Chairman and CEO
Marco Tronchetti Provera
Marco Tronchetti Provera