Industrial Business

The following table illustrates the 2013 results compared with 2012

(in milions of euro)
  1°  Q2°  Q3°  Q4°  QTotal year
2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 
Net sales 410.0  390.8  448.6  379.4  388.6  425.8  389.7  415.5  1.636.9   1.611.5 
yoy  4.9%  -2.6%  18.2%  -9.1%  -8.7%  -3.3%  -6.2%  -0.3%  1.6%  -3.9% 
Gross operating profit before restructuring expenses 65.3  48.2  79.2  62.5  72.8  62.8  73.4  82.0  290.7  255.5 
% of net sales 15.9%  12.3%  17.7%  16.5%  18.7%  14.7%  18.8%  19.7%  17.8%  15.9% 
Operating income before restructuring expenses 50.8  33.2  63.9  47.8  59.3  48.0  59.2  66.7  233.2  195.7 
% of net sales 12.4%  8.5%  14.2%  12.6%  15.3%  11.3%  15.2%  16.1%  14.2%  12.1% 
Operating income 49.6  33.1  63.0  45.2  55.8  47.3  57.2  52.5  225.6  178.1 
% of net sales 12.1%  8.5%  14.0%  11.9%  14.4%  11.1%  14.7%  12.6%  13.8%  11.1% 

The next table shows the detailed breakdown of market performance

 1°  Q2°  Q1° half 20133° Qat 09.30.20134° QTotal year
EUROPE (*)               
Original Equipment -6%  +2%  -2%  +7%  +1%  +24%  +6% 
Replacement +1%  +12%  +7%  +9%  +8%  +6%  +7% 
NAFTA               
Original Equipment -11%  -10%  -10%  +0%  -7%  +7%  -4% 
Replacement -8%  +6%  +0%  +5%  +2%  +1%  +2% 
SOUTH AMERICA               
Original Equipment +44%  +51%  +48%  +33%  +42%  +11%  +34% 
Replacement +12%  +16%  +14%  +8%  +12%  +6%  +10% 
CHINA               
Original Equipment -6%  +40%  +14%  +24%  +17%  +18%  +17% 

(*) including Turkey; excluding Russia

Net sales totalled euro 1,636.9 million, up 1.6% compared with euro 1,611.5 million at December 31, 2012.

Net of the negative translation effect (-9.2%), net sales grew by 10.8%, driven by higher sales volumes (+8.7%, mainly due to good performance in South America in the first part of the year), and improvement in the price/mix (+2.1%).

The following table sets forth the breakdown of net sales

 1° Q2° Q3° Q4° Qat 12.31
 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 
Volume  11.7%  -12.3%  20.6%  -11.3%  4.0%  -6.2%  -0.3%  3.1%  8.7%  -6.5% 
Price/mix 1.4%  11.2%  3.6%  5.3%  0.9%  6.0%  2.5%  2.9%  2.1%  6.2% 
Change on a like-for-like basis 13.1%  -1.1%  24.2%  -6.0%  4.9%  -0.2%  2.2%  6.0%  10.8%  -0.3% 
Translation effect -8.2%  -1.5%  -6.0%  -3.1%  -13.6%  -3.1%  -8.4%  -6.3%  -9.2%  -3.6% 
Total change 4.9%  -2.6%  18.2%  -9.1%  -8.7%  -3.3%  -6.2%  -0.3%  1.6%  -3.9% 

Operating income totalled euro 225.6 million, with Ebit margin of 13.8%, up sharply from euro 178.1 million reported in 2012 (11.1% of net sales). The operating result positively impacted the development of activities in the Group's principal markets, especially in South America, where Pirelli increased its market share, and in Middle East, Africa and India.

The complete localisation of truck production capacity in emerging markets, which was completed by conversion of production activities in Italy to make premium car tyres, had a positive impact on profitability. Most of the start-up costs for this conversion (euro 10.4 million), instead impacted the consumer business.

Truck Busines

In 2013 the truck tyre market was characterised by contrasting trends in the various geographical areas and segments.

The original equipment channel recovered strongly in South America, rising +34%, after having been impacted in 2012 by the conversion of production capacity from Euro3 to Euro5 vehicles, especially in 1H 2013. Growth rates fell to 11% in 4Q 2013 after hitting +42% in the first nine months of the year.

The Nafta truck market was down, ending the year down by 4%, in spite of rising 7% in 4Q 2013.

The market in Europe grew by 6% overall, recovering after initially shrinking by 2% in 1H 2013.

In the replacement segment, the South American market closed up by 10%, with a slowdown in the last quarter, partly in consequence of a different basis of comparison. In Europe it expanded by 7% from the previous year, with a substantially continuous trend.

The Nafta replacement market grew by 2% from 2012, due to improvements in 2H 2013.

Against this backdrop, the profitability of this business segment improved significantly from the previous year, notwithstanding the negative translation effect. It was driven by growing net sales volumes, especially in South America, improvement in prices and mix, supported by the successful introduction of new products, and lower commodity prices. Special emphasis should also be given to the growing contribution made by the new industrial organisation over the course of the year, with 100% of production capacity being located on emerging markets and gradual introduction of new products.

The Driving Innovation event was held in Munich in the first half of March, being attended by over 300 participants, including journalists, fleets, dealers and business partners, coming from Europe, Turkey, Australia, China and Egypt.

The content of this event, reported in the specialised press and online, was focused on the innovative, complete and integrated package of products and services designed for fleets. This event also offered Pirelli another opportunity to confirm its goal of providing transport operators with a package of products and services allowing them to operate with maximum economic efficiency, safety and respect for the environment. The product range was extended in the Series 01 lines, with the most recent ST:01 NeverendingTM and ST:01 Base. They went on sale on the European market at the end of the second quarter, at the same time sales of the new associated Formula brand began. Finally, after the official launch of the Pirelli Fleet Solutions project in Munich, the gradual start-up of sales also got under way in Europe (beginning in Italy, Germany and Spain) of CyberFleetTM. The agreement with the partner Marangoni was renewed for the tyre rebuilding activity (Novateck) following the excellent results achieved in South America.

After Munich, a Driving Innovation event was repeated at the beginning of October in Istanbul, with broad participation by dealers, fleets and local press. This event highlighted both the products in the 01 series, particularly the new tyre for tow trucks (ST-01), marked M+S, and also used under wintry conditions, and in the CyberFleet.

At the end of October, Pirelli introduced the complete range of 01 Series radial tyres, the innovative Cyber Fleet technology and the Novateck range for reconstruction at Fenatran (the principal transport and logistic sector in South America), held in Sao Paulo, Brazil.

The new products, developed at the Group's Research and Development Centre in Brazil, also using the technology developed at the Italian establishment, represent the entire line of tyres dedicated to various applications.

With products for all types of freight transport vehicles, passenger vehicles, and mixed and city use, the new range was developed considering the peculiarity of South American roads.

The exceptional results of certification by the principal makers of heavy vehicles in Latin America and evaluations of the tyres (whose pressure and mileage were monitored by CyberFleet sensors), under all driving conditions during three years of tests for a total of 1.5 million kilometres in certain fleets in Argentina, Brazil, Chile and Colombia, confirm the excellent performance of the product line.

agricultural BusinesS

Net sales in 2013 totalled euro 192.9 million, up a total 5.1% year-on-year. Volumes rose by 15%, accompanied by a negative translation effect (-13%) related to South American currencies.

Almost 90% of net sales are concentrated in South America, where the agricultural business grew sharply.

Pirelli has confirmed its leadership in this context, especially in the original equipment segment, focusing on growth in the rear and radial segment.

Steel Cord BUSINESS

Aggregate net sales of steel cord in 2013 were 13% lower than in 2012. The hose wire business, which is connected with the production of high pressure pipes for new vehicles, remained substantially stable with the results for the previous year.

Manufacturing activity at the German plant in Merzig ended at the end of June 2013.