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ITALY: Pirelli hit by higher costs, anticipates lower full year

By just-auto.com editorial team | 7 November 2008

Pirelli said today that despite stable revenues in its first nine months, it had been hit by declining margins as raw material prices rose and the economic environment took its toll. The company added that it now anticipated a greater fall in full year earnings than it had at the end of the first half.

Revenues reached EUR3,898.6m, up 0.3% on a like-for-like basis compared with 2007. However, earnings before tax and restructuring charges fell nearly 19% to EUR241.6m.

Pirelli Tyre revenues were up 3.1% to EUR3,229.2m on a like-for-like basis. EBIT before restructuring charges fell 19% to EUR231.8m.

Looking ahead, the company said it was expecting full year consolidated EBIT before restructuring charges to come in lower overall than in 2007.

However, it added: "The size of the decline will be greater than what had been estimated at the end of the first half, in consideration of the further deterioration in the third quarter, also expected for the last part of the year."

"Results of the Pirelli & C SpA Group in the first nine months of 2008 were affected by the consequences of the international financial crisis in both automotive and real estate, and in the level of consumer demand, especially in Europe and North America," the company said in a statement.

Pirelli said that the tyre market had been hit by a combination of factors.

In volume terms, the replacement channel, which determines most of the sales of the business, was penalised by the reduction in demand, especially in western markets (both in consumer and industrial segments).

The original equipment channel was hurt by the strong contraction of new car sales in western Europe and in North America, with a worsening scenario even in some emerging markets such as China, the company said.

"In terms of margins, the industry suffered from strong price increases in raw materials, which reached peaks for the year in the third quarter, before starting a rapid decline which Pirelli will benefit from mainly beginning in the first quarter of 2009."

The group said that the increase in raw materials costs hit it with an overall increase in costs of EUR121m in the nine months, EUR76m in the third quarter alone.