pirelli tyre - 2009-2011 management plan · 2015. 12. 16. · car manufacturers increasing breadth...

1

BOOKLET AGENDA

STRATEGIC OVERVIEW >

CONSUMER >

INDUSTRIAL >

PRODUCT >

MANUFACTURING >

FINANCIALS >

2

REGIONAL OVERVIEW AGENDA

APAC >

EUROPE >

LATAM >

MEAI >

NAFTA >

RUSSIA >

SUSTAINABILITY PLAN >

MARCO TRONCHETTI PROVERA

STRATEGIC OVERVIEW

2013-2017 SCENARIO

1

PIRELLI TODAY

AGENDA

2013-2017 PIRELLI VALUE CREATION • GUIDELINES

2013-2016 TARGETS

GOVERNANCE

2

PIRELLI TODAY

Prestige OE market share: ~50% (+11 pp vs ’11A) Premium OE market share: ~19% (+5 pp vs ’11A) Key partner of German OEMs in Apac, Nafta, Latam.

Consolidated partnership with Prestige & Premium Car Manufacturers

KEY STRENGTHS 9M 2013 A

NCF /Revenues >3% by 2013 FYE (1) Premium defined as ≥17’’ also for 2011 (2) 9M'13 Pirelli industrial margin reported, vs sector average 1H'13 (3) Net Cash Flow before dividends and Prelios impact

Focus on top of the range Premium(1) weight in the Car Business

• % revenues: 53.3% (+7.4 pp vs ’11A) • % ebit: >80% (+7 pp vs ’11A)

RDE weight in the total Tyre Business

• % revenues: 56.2% (+6 pp vs ’11A) • % ebit: 63.2% (+9 pp vs ’11A)

Competitive footprint in rapidly developing markets

>13% ebit margin (+4 pp vs European Industry average)(2) ROI ~ 20% in the last 3y

Industrial business: best in class in profitability

(3)

WHERE WE STAND VS OUR 2011 - 2015 PLAN

3

Targets 2011 A 2012 A 2013 E

Ebit

CONSUMER

INDUSTRIAL

TOTAL EFFICIENCIES

NCF before dividends

Delivered

Over Delivered

Delivered

Delivered

€/Mln

• RDEs: Delivered

• Europe: Recession has only sharpened our will

• Russia: Change of pace!

VISION AND DESIGN Premium market grows 3x vs non Premium

2 PHASE 1 RENEWAL …Premium market continues to grow 3x vs non Premium

2 PHASE 2

PIRELLI TRANSFORMATION

PIRELLI PREMIUM BECOMES AN ATTITUDE TO EXTRACT VALUE

4

STRATEGY, ORGANIZATION AND PEOPLE

Execution and Cascading

Design new Business Model and launch cultural transformation All Value Chain functions, Moto and Truck BUs, and Central Functions report directly to the CEO

Governance and external relations Central Functions

Corporate development

Processes Products

Motorsports

Quality OE

Industrial Operations

Marketing

Regions

General Manager Operations

Moto BU

Industrial BU Supply chain

Chairman & CEO

Product Management in Operations – Focus on Execution and Efficiencies

New Product Development – Focus on Homologations and De-complexity

CTO

End-to-End Premium Value Chain

Prestige & Premium Car Manufacturer

Consumers driving Premium cars

PHASE 1

PHASE 2

2013-2017 SCENARIO

5

2013-2016 TARGETS

GOVERNANCE

PIRELLI TODAY

AGENDA


6

MACRO SCENARIO: EUROPE IS 2 YEARS BEHIND VS OLD PLAN

13E 14E 15E 17E 13E 14E 15E 17E 13E 14E 15E 17E 18.1 18.5 18.9 4.7 5.0 5.2 8.6 9.3 10.1 10.7 Old Old Old

17.6 17.8 18.1

18.8

4.6 4.8 4.9 5.4

8.5 9.1 9.9 11.4

Europe LATAM CHINA

+1.1% +3.4% +7.8%

CAGR ’13-’17 +1.7%

CAGR ’13-’17 +3.9%

CAGR ’13-’17 +7.8%

13E 14E 15E 17E 13E 14E 15E 17E 13E 14E 15E 17E 16.1 16.7 17.3 3.5 3.7 3.9 2.7 2.8 2.9 Old Old Old

16.2 16.6 17.2

18.3

3.4 3.6 3.7 4.1 2.6 2.7 2.8

3.1

USA MENA RUSSIA E CIS

+2.7%

CAGR ’13-’17 +3.1%

CAGR ’13-’17 +4,3%

CAGR ’13-’17 +3.9%

+3.7% +3.6%

RDEs MATURE $/trillion $/trillion

*Contribution to world growth of RDE’s based on real purchasing power parities; Source: IHS Global Insight September 2013

70% of global GDP growth will be driven by RDEs in 2013-2017 *

7

2013 2017 2025 2030

KEY INDUSTRY TRENDS > External forces driving the automotive market

> Premium Car and Premium Tyre profitability structurally superior to their respective overall segments

> Mature economies will still have the lion’s share in the Premium segment

> Resilient growth rates in emerging markets will drive the Tyre market in the years ahead with APAC remaing the world’s fastest engine

> Exchange rate volatility will remain significant especially in the emerging markets

> Regional trade blocks will replace globalization as the engine for international trade

Asian Car Manufactures entering Premium car markets New mobility solutions

Macroeconomic uncertainty Regulatory constraints Changes in social behaviour

Car manufacturers increasing breadth and variety

of Premium ranges

CAR MARKET: 10% OF CAR PARC WILL BE PREMIUM

* Definition of Premium based on P/Pb and OEMs and car production on a regional basis converted into tyres Source: Global Insight September 2013

8

2011-2014 PLAN

CAGR +3.7%

15E

1,088

14E

1,050

13E

1,014

12 A

979 9.1% 9.1% 9.4% 9.6%

17E

1,172

16E

1,129 9.8% 9.9%

2013-2017 PLAN

CAR

PAR

C

Premium is and will remain concentrated in three regions: Europe, NAFTA and APAC

0.7

2.0

2.8

Other RDEs

NAFTA

APAC

EUROPE

PREMIUM* 7.5 0.9

2.5

3.3

9.6

2013E 2017E

2.0

NEW

REG

ISTR

ATIO

NS

2.9

Mln vehicles

8%

27%

65%

10%

30%

60%

15E 14E 13E 12A 17E 16E

835 800 765 727 692 664 11% 11% 12% 13% 14% 15%

1,410 1,564 1,515 1,466 1,359 1,327

21% 22% 23% 24% 25% 26%

15E 14E 13E 12A 17E 16E

15E 14E 13E 12A 17E 16E

729 715 700 683 667 663

32% 34% 35% 36% 37% 38%

9

RD

Es

MAT

UR

E (E

U +

NAF

TA)

GLO

BAL

TYRE MARKET: PREMIUM GROWS 3X NON PREMIUM

2011-2014 OLD PLAN 2013-2017 PLAN

+3.6%

CAGR ‘13 – ‘17

+7.3%

+2.4%

Source: Europool, Pirelli Analysis Premium defined as ≥ 17’’ also for 2011 - 2014 Old Plan Non Premium

+2.2%

+5.7%

+0.3%

+4.8%

+11.6%

+3.8%

Mln/Pcs

Industry moving towards Premium and specialty products

Geographic expansion in favor of RDEs

Careful handling of profitability drivers

Average sector profitability at ~12%/13% in 2015

Investments to rebalance global footprint and restructure operations

(CAPEX/Sales ~8% by 2015)

No risk of overcapacity in the Premium segment

Cash-generation oriented (FCF/Sales ~4% by 2015)

Growing importance of Shareholders' remuneration

10

* Pirelli analysis based on main peer panel with revenues >1 Bln $

COMPETITIVE SCENARIO

>

>

>

>

>

>

>

>

2013-2017 SCENARIO

11

• GUIDELINES

2013-2016 TARGETS

GOVERNANCE

AGENDA

2013-2017 PIRELLI VALUE CREATION

PIRELLI TODAY

12

2013 – 2017 PIRELLI VALUE CREATION PROFITABILITY Ebit% ROI BY BUSINESS 2013 - 2016/17

CAR

MOTO

INDUSTRIAL

TOTAL

~16%

~12,5%

>17%

~15%

~14%

>13,5%

~13%

22% 20%

20% ~18%

~22%

~26%

~20% ~24%

~28%

~27%

~18% ~25%

~47% ~52%

~23% ~27%

14E 13E 12A* 17E 16E

Ebit % before restructuring costs 2013

Ebit % before restructuring costs 2016

ROI total, before restructuring costs

ROI without financial assets, before restructuring costs

Returns consistent with Premium attitude

* Restated according to new IAS 19

~15%

MINOR BUSINESSES

Stop-loss and breakeven

13

2014-2017 RESOURCE ALLOCATION

<1,6

IND

UST

RIA

L C

ON

SUM

ER

TRUCK

AGRO

OTHER IND.**

Europe NAFTA APAC MEAI Russia LATAM TOT

Financial assets disposal CAPEX

~ 0,15

~ 3 > 0,7

> 0,85

€/Bln

CAR

MOTO

OTHER CONS.*

11%

3%

4%

74%

6%

2%

38% 10% 14% 6% 6% 26% TOT <1,6

* Other Industrial: Steelcord, Retail and others ** Other Consumer: Retail and others

Dividends

NFP improvement

2014 – 2017 Net Cash Flow before

Dividends, CAPEX and Financial Disposals

14

CAR TYRES: RELENTLESS PUSH TOWARDS PREMIUM

Ebit Margin Before restructuring (ex Russia)

~13%

Volumes Revenues Volumes Revenues Volumes Revenues

2011A 2013E 2016E

~14% ~16%

All data Car OE + Replacement, ex Russia

100 100 100 100 100 100

28% 46%

72% 54%

38%

56%

62%

44%

44%

60%

56%

40%

≥17"

≤16"

RENEWAL PHASE VISION AND DESIGN PHASE STEADY STATE 2 2 2 1

CAR PROFITABILITY GUIDELINES

15

≥18"

17"

≤16"

TOTAL

Russia & CIS Europa NAFTA APAC MEAI LATAM TOTAL

Revenues ‘17E EBIT Margin ’13E EBIT Margin ’17E

Mid teens

negative

Mid teens

High teens

Low teens

Double digit

Mid single digit

High single digit

Mid teens High

teens Low

twenties Low twenties

Double digit

Mid teens

Low teens

Mid teens

Low teens

Mid teens

Low twenties

Mid twenties

16

MOTO & INDUSTRIAL GUIDELINES

MOTO TECHNOLOGY-BASED LEADERSHIP AND GLOBAL EXPANSION

INDUSTRIAL REGIONAL LEADERSHIP

• With new products and processes, Moto raises "technological barriers" both in Europe and LATAM

• Growth in the traditional markets (in Brazil with equities; in the rest of LATAM and in Europe in market niches where the market share is currently below average; in the US with new distributors)

• Immediate entry in ASEAN market with a commercial presence

• Maintain leadership position in LATAM and MEA • Improve profitability in Europe • Strong offer: one product platform, fleet solutions • Exploring partnerships in APAC

17

FURTHER EFFICIENCIES TO STRENGTHEN OUR COMPETITIVENESS

€/Mln

Materials

~320

~350

Industrial and Product efficiencies

SG&A Total Efficiencies

56%

Labour 30%

Expenses 8%

Allocation Mix 6%

~30

2014 - 2017 plan worth 4pp on 2017 revenues (1pp per annum)

18

2013-2016 TARGETS

GOVERNANCE

AGENDA

PIRELLI TODAY

2013-2017 SCENARIO


19

Capex ~400€/Mln <400€/Mln <1.6€/Bln

Net Free Cash Flow before dividends* >200€/Mln >250€/Mln

Net Financial Position <1.4€/Bln ~1.2€/Bln ~0.5€/Bln

~1.6€/Bln

Net Debt/Ebitda 1.2x 1.0x 0.3x

* Excluding Prelios impact in 2013; including 150 €/Mln financial asset disposals in 2014-2017 (50 €/Mln in 2014)

2013E 2014E 2016E

2014-2017

Total Revenues ~6.2 ~6.6 ~7.5

Growth rate CAGR '13 – '16

o/w volumes

o/w price/mix

YoY

>5% >6%

3%/4%

EBITDA% before restructuring

13%

~18%

>13.5%

>18.5%

~15%

>19.5%

o/w Premium ~12% >13% ~+6%/6.5%

+3%/3.5%

>2%

o/w Foreign Exchange ~-7%

EBIT% before restructuring

Restructuring costs 30€/Mln 50€/Mln 20€/Mln

-2%/-3%

4.5%/5.5% ~6.5%

3.5%/4.5% ~10%

-2%/-3%

YoY

TARGETS

~400€/Mln

>400€/Mln

~0.75€/Bln

0.5x

20

ALREADY BEYOND THE PEAK OF CAPEX CYCLE

€/mln Capex/ Sales

Consumer

CAPEX

Capacity

Industrial

Premium

Nov. 11 capex plan

Nov. 11 capacity targets

Consumer Premium

Industrial

11%

~8% ~7% <6% ~5% 619

471 ~410

2017

>400

2016

~400

2015

<400

2014

<400

2013 2012 2011

59 69 81

5.9 6.2 6.8

22 33 51

59 22 53

5.9 6.8

84

2011-2015 Lower capex vs Old Plan, with an increased focus on

mix improvement

1.6€/bln

VALUE CREATION INVESTMENT PHASE

Mln/pcs

1.5€/bln

2.4€/bln

2010

56 19

5.8

56 19

5.8 *In the old Plan, Voronezh Premium capacity was expected to grow by 2 mln pcs, while in the new Plan it remains stable.

21

Shareholders' remuneration: ~40% of consolidated Net Income Dividend policy

Net Debt/

Ebitda 1.2X 0.5X 0.3X

FINANCIAL & FISCAL CHARGES

0.35

OPERATING CASH FLOW

(0.15)

OPERATING CASH FLOW

FINANCIAL & FISCAL CHARGES

2016E NFP DIVIDENDS DIVIDENDS

<0.

2017E NFP 2013E NFP

~0.70

(~2.4)

DISPOSAL OF FINANCIAL

ASSET

~0.75

(1.0)

~ 1.6 €/bln of Net Cash Flow before dividends in 2014 – 2017: 5% on revenues vs 3% in 2013

FREE CASH FLOW & DIVIDEND POLICY

>0.2

0.5

<0.9

<1.4

€/Mln

~0.5

~0.5 Fin. Charges

Fiscal Charges

0.15 Fin. Charges

Fiscal Charges

~1.4

0.5

22

2013-2016 TARGETS

GOVERNANCE

AGENDA

PIRELLI TODAY

2013-2017 SCENARIO


23

"A domestic stock with a multi-business model"

"A more international stock with a focus on Premium"

PIRELLI SHAREHOLDER STRUCTURE AND GOVERNANCE EVOLUTION

2009 2011

73.8% free float

TODAY

49.3%

45.5%

5.2%

Shareholder Pact*

Camfin

Free float

16% Int'l

Institutional Investors

(including SRIs**)

49.3%

45.5%

5.2%

Free float

Camfin

Shareholder Pact*

Int'l Institutional

Investors (including SRIs**)

27%

Camfin

43%

Int'l Institutional


Free float

26,2%

73,8%

GOVERNANCE

Introduction of 2 new crucial committees

• Nominations and Successions

• Strategies

Further enhanched with reduced number of Board: 15 Directors vs current 20

Key role of the Board in overseeing risk management process

* including 21% of Camfin stake; shareholder pact was dissolved on October 31, 2013

* SRIs: Socially Responsible Investor

Already in-line with Int'l best practices:

• A Board with a majority of Independent Directors

• 2 governing committees exclusively composed of Indipendent Directors

DISCLAIMER

24

This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s current expectations and projections about future events and does not constitute an offer or solicitation for the sale, purchase or acquisition of securities of any of the companies mentioned and is directed to professionals of the financial community.

These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company. \

Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those expressed in or implied by these forward looking statements as a result of various factors, many of which are beyond the ability of Pirelli & C SpA to control or estimate precisely. Consequently it is recommended that they be viewed as indicative only.

Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation.

Pirelli & C. SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Pirelli & C. SpA business or acquisition strategy or to reflect the occurrence of unanticipated events.

Statement

The Manager mandated to draft corporate accounting documents of Pirelli & C. SpA. Francesco Tanzi, attests – as per

art.154-bis. comma 2 of the Testo Unico della Finanza (D.Lgs. 58/1998) – that all the accounting information contained in this

presentation correspond to the documented results, books and accounting of the Company.

STRATEGY IN ACTION

GREGORIO BORGO

CONSUMER

1

OVERALL CAR PLAN

SUMMARY INSIGHT ON: • RUSSIA • MOTO

CONSUMER TARGETS

PIRELLI CONSUMER BUSINESS TODAY

AGENDA

2013FY EXPECTED PERFORMANCE KEY STRENGTHS

2


• Distinctive positioning in Premium Car Tyres • 54% of Car product portfolio made by items with rim size ≥18’’

• Strengthen positioning in Europe

• Russian plan for a change of pace

• Complete deployment of Premium business model

• Improve competitiveness of Medium range Tyres

• Moto: targeting new potential markets leveraging on technological leadership

DEVELOPMENT AREAS

• Distinctive value-driven approach

• Recognized technological leadership

in Moto Tyres

• Preferred partner of Prestige and Premium Car Manufacturers

• >400 marked and homologated items (Premium and Prestige Car Makers) in our catalog

• Exclusive supplier in Superbike World Championship

• Awarded the «Product of the year» Prize by Motorcycle News Magazine and winner of 16 comparative tests for 2 consecutive years

• Industry-leading growth in price/mix (~ +3 pp vs main competitors*)

* Pirelli analysis based on 1H 2013 competitors panel

WHERE DO WE STAND VS OUR 2011-2015 PLAN?

Europe

2011-2014 Old Plan Expectations 2011-2013E Results

What happened so far

Progress on 2011-2014 Plan

NAFTA

Russia

RDEs (MEA, APAC,

LATAM)

MKT (CAGR 11-15)

MKT (CAGR 11-15): • Car +2% • Premium +5.9%

MKT (CAGR 11-15): • Car +4.5% • A Brands +9.2% Pirelli: Strong revenue growth combined with profitability improvement

MKT (CAGR 11-15): • Car Mid-single digit growth • Premium 3 times faster Pirelli: Top Line growth with high profitability

Volume 11-13: • Slightly lower than expected • Premium overperforming

Faced crisis with extra push on Premium strategy: • Faster standard production cut • Increase POS coverage

(retail and Car Dealers) • Higher marketing activities

in 2013

Faster execution of Premium strategy: • OE mix improvement • Revised retail distribution

model

• Slower execution of commercial business plan

• Sub-optimal saturation of factories

• On track with manufacturing business plan

• First mover advantage in a rapidly growing Premium market.

Volume (CAGR 11-13)

-7% +2% -6%

Volume (CAGR 11-13) Car Premium

+3% +8%

Overperforming +13%

Volume (CAGR 11-13) • Car +0.4% (-3.5% 2013 vs 2012) • A Brands -5.8% (-12.3% 2013 vs 2012)

Pirelli: • Premium growth

Delivered • Lower EBIT margin

Pirelli: Target exceeded

Pirelli: Slight growth in revenues, negative profitability in 2013

Pirelli: Above target across the board

MKT

Car Premium Car Moto

Pirelli: Premium growth and Profitability improvement

• Car +2.2% • Premium Car +8% • Moto +1.4%

Pirelli

High single-digit loss +6%

High single-digit loss

Pirelli: Solid revenue growth and profitability turnaround

3

4

OVERALL CAR PLAN

SUMMARY INSIGHT ON:

• RUSSIA • MOTO

CONSUMER TARGETS


AGENDA

5

Source: Global Insight , Pirelli estimates

496

66%

34%

459

67%

33%

433

68%

32%

412

69%

31%

402

69%

31%

Non Premium

Premium*

2013A 2017E Region

*Premium ≥ 17’’; Old Plan restated from speed code to rim size

EUROPE 8.9% 24% 25%

NAFTA 2.3% 46% 39%

MEAI 10.0% 2% 2%

RUSSIA 2.5% 2% 1%

APAC 13.2% 25% 31%

LATAM 31.7% 1% 2%

Old Plan 2011-2014* New Plan 2013-2017

2017E 2015E 2014E 2013E 2012A

PREMIUM VOLUMES BY REGION

100% 100%

4.8%

7.4%

3.6%

CAR: REGIONAL OUTLOOK FOR THE OE TYRE MARKET

Mln pcs Mln pcs

CAGR '13 – '17

CAGR '13 – '17

6

EUROPE 23% 6.6% 23%

NAFTA 52% 6.3% 54%

MEAI 4% 7.4% 4%

RUSSIA 2% 9.4% 2%

APAC 16% 9.6% 15%

LATAM 2% 3% 18.1%

Mln pcs

1.068

78%

22% 1.007

80%

20% 977

81%

19%

948

81%

18%

925

82%

19%

2017E 2015E 2014E 2013E 2012A

Non Premium

Premium*

2013A 2017E Region

100% 100%

PREMIUM VOLUMES BY REGION

CAGR '13 – '17

3.0%

7.3%

2.0%

CAR: REGIONAL OUTLOOK FOR THE REPLACEMENT TYRE MARKET

*Premium ≥ 17’’; Old Plan restated from speed code to rim size

Old Plan 2011-2014* New Plan 2013-2017 Mln pcs

CAGR '13 – '17

Volumes Net Sales

Premium = 17’’

Super Premium ≥ 18’’

Non Premium ≤ 16’’

Accelerate deployment of Premium Program

Improve competitiveness of Medium range

Execute a major efficiency program

STRATEGY PILLARS

KEY PILLARS OF CAR STRATEGY

1

2

3

Further reduce volumes and capacity in Standard range

7

Premium Car Brands

Non-Premium Car Brands

SuperPremium market

(≥18’’ Tyres)

Pirelli sales of SuperPremium

Tyres

Our Core Market:

SuperPremium where Pirelli is homologated

OE Marked Tyres

Non-Marked Tyres

SUPERPREMIUM: MARKET POTENTIAL AND PULL-THROUGH STRATEGY

1

Potential increase through Aftermarket pull-through activities

Potential core market increase linked to OE homologation strategy in Premium Car Brands

Potential sales increase of SuperPremium Tyres in non-Premium Car Brands

3

1

2

REPLACEMENT MARKET PIRELLI CURRENT REPLACEMENT SALES

Very significant current share of Pirelli «homologated» Tyres.

8

• White spot analysis • Multichannel coverage • Retail integration program, also

including Pirelli and Driver networks

• Digital marketing • CRM campaigns

• Car dealer channel exploitation

• OEM co-marketing

CAR PARC & OE PULL THROUGH

RETAIL COVERAGE

CONSUMER ENGAGEMENT

QUANTUM LEAP IN OUR PREMIUM COMMERCIAL ENGINE

1

GEOLOCALIZED CONSUMER-CENTRIC PREMIUM PROGRAM

9

Proprietary analytical database to: • Monitor OE homologations • Identify vehicle parc at zip code level, by

model • Focus commercial actions on highest

potential areas

~9,000

~6,000

~9,500

2015 2013 2016

EUROPE 32%

LATAM 30%

APAC 26% MEAI 7% RUSSIA 3% NAFTA 2%

29%

23%

35%

6% 5% 2%

PIRELLI RETAIL NETWORK EXPANSION

Extension of Retail Network with a target of 50% Premium share of wallet

1

of which Equities and Hard Franchising

20% 16%

FRANKFURT, GERMANY

WUHAN, CHINA

MOSCOW, RUSSIA

10

IMPROVE COMPETITIVENESS OF MEDIUM RANGE 2

• Our retail network needs a Medium range

• Our Premium OE Partners also allocate a share of Medium homologations…

• …often with high technological content (e.g. Runflat, marked sizes)

• In some Regions, lower rim sizes are still the great majority (e.g. Latam) and very profitable (e.g. China)

Competitiveness Improvement Plan: • Design to Cost

• De-complexity

• Extending selected specialties to non-Premium range (Runflat, Winter, …)

• Sourcing from low-cost plants (China, Romania, Russia)

Volumes Net Sales

Premium = 17’’

Super Premium ≥ 18’’

Non Premium ≤ 16’’

11

Design to cost

Streamlined manufacturing

Rightsizing

De-complexity

Merger of commercial sub-regions

Total efficiencies* target 2014-2017

∼290 €/Mln

Factory specialization and Local for Local

Cost Structure

3

Materials

Transformation costs

SG&A

CAR: EXECUTION OF A MAJOR EFFICIENCY PROGRAM

50%

43%

7%

* Manufacturing, Product and SG&A

(∼6% of 2017 revenues)

12

OVERALL CAR PLAN

SUMMARY INSIGHT ON: • RUSSIA • MOTO

CONSUMER TARGETS

AGENDA


13

RUSSIA: WHERE DO WE STAND TODAY? Expectations in Old Plan 2011-2014


Product • Extended range for Car and

SUV, HP and UHP

Manufacturing Production and capacity upgrade: • 8.5 Mln pcs in 2012

Commercial Build strong brand awareness and multichannel coverage

• 2012 launched Scorpion Winter • 2013 launched Russian specific studded products: Ice Zero and

New Formula Ice • Range still to be completed

• Capacity reached: 7.9 Mln pcs (slightly lower due to better mix) • >150 industrialization in two years • Factory saturation below optimal levels

• High marketing investments to build Brand Consideration (from #5 to #3 on Premium Car owners), not yet capitalized

• Underestimation of left-over stock in distribution • Reduced price in tough market competition • Slowly building multichannel coverage (e.g. car dealers)

Macro-economic scenario Rapidly expanding market

Growing Tyre market Replacement Russia • CAGR 11-15:+4.5% • Accelerated growth of A Brands (+9%)

Economy slowdown: • GDP growth much lower than expected (Government last estimate

for 2013: +1.8% vs initial forecast +3.4%) • Rising interest rate and difficult access to credit • Fewer car registrations (-5%), affecting winter market

Contracted Tyre market FY2013E Replacement Russia: • Total market: - 3.5% (-1.5 mln pieces) • A Brands:-12.5% (-1.1 mln pieces), trade down towards B brands

Exte

rnal

con

text

In

tern

al E

xecu

tion

14

RUSSIA RELAUNCH PLAN

Product range • Complete Winter studded range by 2014 • Develop the second complete Russian

specific product line (Winter friction) by 2015

OEM Partneships • Rebalance presence among Car Makers

adding to Russian new foreign Car Makers • Renault in delivery • Daimler in start-up • VW and Ford by 1st Half 2014 • Nissan by 1st Half 2015

DEVELOPMENT AREAS

Go to Market • Accelerate multichannel coverage doubling

our share in Car Dealers by 2014 • Expand qualified Premium Pirelli Stores in

synergy with wholesalers (>700 stores by 2014) • Expand presence in CIS markets

Manufacturing • Grow Premium production within

current capacity • Exploit plants as flexible buffers for

domestic and export needs

Close the gap in Winter tyre segment

Benefit from the pull-through effect on

selected Premium segments

Gain “stronger roots” in Russian trade

Increase capacity utilization

OBJECTIVE

Cost Structure • Locally deploy the efficiency plan Increase profitability

~280

2013E 2014E

~ 240

2016E

~370

Negative High Single

Digit

Mid Single Digit

Double Digit

2014-2016 TARGETS

EBIT margin (before restr.)

15

>15%

CAGR '13-'16

• Consolidate our leadership position in Premium segments

• Strengthen our reputation as pioneers in

innovation and technological breakthroughs

• Grow Premium capacity in emerging economies

• Maintain high level of profitability

MOTO: WHERE DO WE STAND TODAY?

• Leadership position in Europe and Brazil

• OE leadership in EU/LATAM and European transplants worldwide

• Metzeler 2013 best brand Motorrad magazine

• New award winning products

• China Radial factory ramp-up in line • Radial HR production started in Brazil

• EU radial MS ‘13 increase > 1 pt

• Brazil MS ‘13 increase > 1 pt

• 2012, 2013 Product of the Year (MCN magazine)

• 16 comparative tests won in last 2 years

External context: • Unprecedented negative market

conditions in Brazil and in Premium Europe

• Important negative Forex impact Internal execution • Market share gain in both key

markets (Brazil and Premium Europe)

• Launched a fixed cost efficiency program

Expectations in Old Plan 2011-2014


16

THE MOTORCYCLE TYRE MARKET

Key Features Key Features

2013E

309

2014E

325

2015E

348

2016E

371

2017E

393

32% 31%

Total

2012A

295

32%

2013E

13

2014E

15

2015E

18

2016E

20

2017E

22

Premium restated*

2012A

13

Total OE

31% 30% 30%

• Premium growing more than twice the speed of the total market

• Radial accounting 56% of Premium restated (at 2013)

CAGR 13-17

6.3%

4.4%

CAGR 13-17

13.3%

OE + Replacement, Mln pieces

New Plan 2013-2017 Old Plan 2011-2014

* Premium restated: Radial (Old Premium) + Custom Touring, Off Road and Sport Touring X-ply with speed index ≥ H.

17

PIRELLI STRATEGY TO MANTAIN LEADERSHIP

NAFTA EUROPE APAC/MEAI LATAM

Essentially, for 2017: Technology-based leadership in Premium Strategy • Strong product innovation • Higher technological

barriers • More homogeneous

commercial coverage • Consumer engagement

Essentially, for 2017: one of the first two brands in core segments Strategy • Enlargement of

distribution network • Digital strategy

implementation

Essentially, for 2017: become the technological driver for market premiumization Strategy • New regional commercial

strategy • Proprietary store exploitation • Focus on growing radial

market to keep leadership

Essentially, for 2017: create a pervasive commercial network Strategy • Set-up commercial

network in Asean for future local tyres production

• Build brand awareness

Product and

Processes

Process Product

• More than 20 new products planned by 2017 • Specific products for Regions • Increasing performance gap vs competitors

• New Radial HR in Brazil: new process for design-to-cost product • New Hybrid Building Machine in Germany for high-end Radials

Efficiencies

(∼15 €/Mln in 2014-2017, ∼3pp on 2017 revenues)

DE-COMPLEXITY QUALITY SG&A

• Quality index improving 14% 2017 vs 2013

• 30% reduction of compounds in 2017 vs 2013

• Reduction by 4pp as % of sales in 2017 vs. 2013

18

2013 – 2016 MOTO TARGETS

>0,5 >0,4

<0,4

>17%

~16% ~15%

Volumes

CAGR 2013-2016

>+7%

Price/mix >+3%

Forex -1%/-2%

+9%/10%

+2%/+3%

-2%/-3%

Total >+9% ~ +9%

+1.5%

+3.5%

-7%

2014 ∆ YoY

2013 ∆ YoY

~ -2%

19

>9%

€/bln

REVENUES EBIT MARGIN PRE RESTRUCTURING CAGR '13-'16

2014 2013 2016 2014 2013 2016

20

OVERALL CAR PLAN

CONSUMER TARGETS


AGENDA

SUMMARY INSIGHT ON:

• RUSSIA • MOTO

• Europe: Romania expansion

• APAC: China expansion and Moto ramp up

• NAFTA: Mexico ramp up

ALLOCATION OF CONSUMER CAPEX

<1.3

Europe NAFTA APAC MEAI Russia LATAM TOT

CAPEX Consumer

Capacity

Mix & quality

Other

33%

38%

29%

43% 12% 14% 3% 8% 20% TOT 100%

Car Moto

Retail & Other

21

KEY PROJECTS

• Mix improvement DE and UK

• New Moto building process

• Premium conversion LATAM

• Machinery standardization projects in Europe (De-complexity and productivity)

• Machinery update HSE, IT across the board

Consumer Business ROI at ~26% in 2016, +6pp vs. 2013

2014 – 2016 CONSUMER TARGETS

€/Bln

Volumes

CAGR 2013-2016

>+6%

Price/mix 3%/3.5%

Forex -2%

4.5%/5.5%

3.5%/4.5%

-2%/-3%

Premium Volumes ~ 12% ~ 10%

Total ~ 6.5% ~ 7%

5%/5.5%

3%/3.5%

-6%

>13%

2014 ∆ YoY

2013 ∆ YoY

2%/3%

5.5 ~4.9

>4.5

>15.5%

>14% >13.5%

2014 2013 2016 2014 2013 2016

REVENUES EBIT MARGIN PRE RESTRUCTURING CAGR '13-'16

~6.5%

22

DISCLAIMER

23






Statement




STRATEGY IN ACTION

GIOVANNI POMATI

INDUSTRIAL

AGENDA

PIRELLI INDUSTRIAL BUSINESS TODAY

MARKET SCENARIO

INDUSTRIAL BUSINESS STRATEGY

TARGETS

1

2


• Selective regional

positioning with leadership in key growth markets

• Cost efficient production

footprint and industry leading profitability

• Consistent value creation

• #1 in South America and North Africa, co-leader in Southern Europe and Near East

• #1 in Agro South America

• Europe: profitable growth leveraging on a renewed product portfolio and a competitive cost base • Asia Pacific: getting ready to capture market opportunities arising from technological and regulatory

push. Exploring partnerships in the Region • Agro: possible entry in markets other than South America leveraging on new products and OEM links

KEY STRENGTHS 2013 PERFORMANCE

DEVELOPMENT AREAS

*H1 2013 average

• Production 100% in low-cost countries

• Ebit margin >13% vs ~9% European peers*

• ROI > 20% for the last 3 years, above group level.

• 2013E Ebit ahead of Nov. 2011 Plan despite market slowdown

>13% Ebit margin sustainable thanks to internal value levers

3

DRIVERS OF STRONG UNDERLYING PROFITABILITY: OVERDELIVERY ON 2012-2014 EBIT TARGET

Ebit Margin trend (before restructuring costs)

2011A 2013E 2012A 2014E

11%/12%

>13% >13.5%

9%/10%

12.1%

~9%

9.3%

2011-2013 Actual

November ‘11 targets

• Faster launch of 01 Series leading to improved value proposition and pricing power

• Higher efficiency gains and earlier conversion of Settimo plant leading to 100% low-cost footprint

• Strong pricing, combined with exceptionally low raw material prices • Positive one-off impact in H1 2013 (0.4 pp of margin) related to sale of real estate assets in Brazil

• Lower market volume growth vs November 2011 plan expectations • Significant Foreign exchange depreciation, limiting the benefits of favorable raw material trend

more than offset

AGENDA


TARGETS

MARKET SCENARIO

4


Resilience of road transport and sustained truck production in key Pirelli markets

INDUSTRY TRENDS POINT TO TRUCK TYRE MARKET GROWTH TRUCK PRODUCTION TRUCK TYRE DEMAND ROAD TRAFFIC

2020E 2012A

Europe

2017E 2012A

3.2

2.3

0.9 2.6

1.9

0.7

Million units

2017E 2012A

153 137

All Steel, Milion units

0

1000

2000

3000

4000

2030E

0

1000

2000

3000

4000

2020E 2012A 2030E

Railways Roads

Sourcs: IHS

Inland Waterways

Source:MAN

Brazil

Billion tonne-km/person-km

5

+1.8%

Mature markets

Emerging markets EU, Nafta South America,

MEA Asia Pacific, Russia

+2.1%

+3.0%

+2.0%

CAGR +1.0%

CAGR +1.0%

Road Transport Tot Transport

CAGR +3.0%

CAGR +3.0%

CAGR ’13-’17

6

Global Mln pcs*

TRUCK TYRE MARKET OUTLOOK

2011 – 2014 PLAN 2013 – 2017 PLAN

Glo

bal

2012A 2013E 2014E

71%

29%

137

71%

29% 29%

2017E

147

71%

28%

72%

153 141

71%

29%

144

2015E

Mature Markets

Mln pcs*

*Truck All Steel

Emerging Markets

+2.1%

+1.8%

+2.3%

South America 11.4 12.5 13.0 13.4 14.5 +3.7%

MEA 15.3 15.6 16.0 16.7 15.0 +2.4%

Europe 14.7 14.7 15.1 15.6 14.2 +1.5%

Asia Pacific 68.9 70.0 71.4 73.9 67.8 +1.7%

CAGR ‘13 – ‘17

7

TYRE INDUSTRY EVOLVING TOWARDS SUSTAINABLE TECHNOLOGY AND SERVICES

TYRE REQUIREMENTS Higher technology and service content

• Extra load capacity

• Best rolling resistance & wet braking

• Higher mileage and retreadability

• Reduced maintenance

• Mileage and service offering

OEM Technology trends Larger, safer & more energy efficient trucks • Focus on Heavy Commercial vehicles • Tractors from 6x2 to 6x4 configuration • Growth of natural gas and hybrid engines • Electronics for data control and transmission

Fleet operator needs Focus on Total Cost of Ownership • Lower fuel and maintenance cost • Optimal asset utilization rate • Vehicle design flexibility

Increased connectivity

Regulatory scenario Emission control: Euro VI (Europe in 2014, Turkey in 2016), Euro V (Brazil in 2013)

Fuel consumption: Tyre labeling (Europe in 2012, Brazil in 2016) Safety: AEBS emergency braking system (Europe in 2015)

Renewal of machinery: Inovar-Auto program (Brazil)

AGENDA


MARKET SCENARIO

TARGETS


8

9

MEA #1 in key markets

Europe Profitability turnaround

ONE PRODUCT ONE PLATFORM – 01 SERIES – TAILORED TO REGIONAL CUSTOMER NEEDS

FLEET SOLUTIONS TO DELIVER COST SAVINGS AND CONTROL OVER FLEET PERFORMANCE

LEAN ORGANIZATION WITH STRONG EFFICIENCY FOCUS

PIRELLI INDUSTRIAL BUSINESS: TECHNOLOGICAL LEADER OF EFFICIENT MOBILITY

Stra

tegi

c P

illar

s

APAC Improving positioning

South America

#1 in the region

10

TECHNOLOGY LEAP IN KEY DRIVERS OF CUSTOMER DECISIONS

Previous line

Others

Fuel

Total Cost of Ownership (TCO)

Labor

Tax, Insurance, Toll

Administration

Repair & Maintenance

Vehicles Purchase

Tyres 5%

29%

5%

(Sources: Daimler, BGL ,Pirelli estimate) *Europe

Direct impact of Tyre performance

100%

FLEET COST STRUCTURE BREAKDOWN*

01 SERIES OFFER

EXTENDED TYRE LIFE

FUEL SAVING

Previous line

Mileage 1st life Retreadability

Up to -7%

11

• New regional: more mileage & retreadability • Highway and City lines: lower rolling resistance • Completion of winter range • Carry load increase on selected sizes • Development of lighter materials & structure

TAKING PERFORMANCE EVEN FURTHER

50

60

70

80

90

100

110

120

Comfort

Handling

Braking

Weight

Rolling Resistance

Noise

Mileage

Retreadability

2014-2016: 11 NEW PRODUCT LINES

Best in class on wet grip

12

FLEET SERVICES FOR AN EFFICIENT MOBILITY

Main functionalities • Measurement of Tyre pressure and temperature • Real-time monitoring and on line reporting • Proactive warning system

Main benefits to fleet operators • Fuel savings: 10% under/over inflation equals up to 800€ extra fuel per vehicle/year • Increased safety: Tyres are the 2nd main cause of accidents • Better overall control over fleet performance • CO2 emission reduction

CYBER: ADVANCED SYSTEM TO ENHANCE FLEET EFFICIENCY

13

REGIONAL STRATEGY TO 2017

Market Features • Volumes expected to grow at 1.5% CAGR

in 2013-2017 • Global benchmark for product performance

and forerunner of emission control

Market Features • Volumes expected to grow at >2% CAGR

in 2013-2017 • Increase penetration of Radial products

EUROPE MEA

Pirelli Target • Grow our presence carrying on the Profitability

turnaround

Key Actions • 01 Series extension • Product range extension targeting new

segments • Further market coverage through our equities

and partnership programs leveraging on the fleet solutions

• Focus on medium-sized fleets

Pirelli Target • Renew our position as #1 in selected markets

Key Actions • Product range completion with Top line and

introduction of associated brand • Introduction of Pirelli Fleet Solutions • ‘Truck centres’ consolidation • Direct salesforce presence reinforcement and

strategy/fleets sharing with our distributors/importers

14

Market Features • Volumes expected to grow at ~4% CAGR

in 2013-2017 • Increased penetration of Radial products

REGIONAL STRATEGY TO 2017

SOUTH AMERICA ASIA PACIFIC

Pirelli Target • Renew our position as #1 in the Region

Key Actions • 01Series introduction • Focus on Total Life Cycle (new+retread) proposal • Presence in OE with new sizes for Heavy

Commercial Vehicles and co-design activity • Focus on direct fleets • Further market coverage improvement through

network growth

Pirelli Target China • Capture market opportunities increasing

our plant saturation • Exploring partnership in the Region

Key Actions • New distribution partners • Selective extension of retail network • Introduction of Pirelli Fleet Solutions • Cooperation with government / tyre

manufacturers association to promote introduction of Tubeless, Green Tyre, Retreadability

China Market Features • Volumes expected to grow at <2% CAGR

in 2013-2017 • Low incidence of Radial tubeless products • Low incidence of global Tyre makers

Tons / 000 Mln pcs

Source: Anfavea, Pirelli

Units / 000

15

40

60

80

100

120

140

160

180

2000 2005 2010 2015 2020

BRASILUSAUCRÂNIARÚSSIAÍNDIAARGENTINACHINA

Source FAO 2013, 100% in 2012

• Brazil at least double growth vs other leading agro producers

• Agro world market growth driven by RDE consumption

INDUSTRY TRENDS POINT TO AGRO TYRE MARKET GROWTH IN SOUTH AMERICA

AGRO PRODUCE TREND AGRO EQUIPMENT PRODUCTION AGRO TYRE MARKET

% of 2013 tyre market volumes

62%

Used by small/low-tech tractors. Market

in downtrend.

Fast growing, improving technology

Higher value and technological

content

14% 24%

2012A 2017E

>189 HP <189 HP

1.4

2012A 2017E

2.0

PRODUCT MIX

Free Rolling Implement Traction

CAGR ’13-’17 +6%

62 88

10 20

New technology and profitable

products

72 108

• Total Agro equipment production cagr ‘13-’17 +6.9%

• Big Power equipment production cagr ‘13-’17 +13.4%

16

SOUTH AMERICA AGRO: PIRELLI STRATEGY

PIRELLI ACTIONS Consolidate #1 position with large gap on

#2, in a highly concentrated market

• Investments in local production capacity

• Drive the radialization in the replacement market

• Technology leader, conducting the innovation

• Testing on local crops

• Local R&D

OEM Partners • Tyre customized for specific local applications • Locally made components preferred • Co-development with local suppliers • Quick renewal of agro machines, with

government incentives.

Market needs • Best Technology to increase agricultural productivity • Low soil compaction • Special Performance to Special Crops • Reliability under severer applications • Off-road Performance

ALLOCATION OF INDUSTRIAL CAPEX

<0,3 €/bln

Europe APAC MEAI South America TOT

CAPEX INDUSTRIAL BUSINESS 2014-2017

Capacity

Mix & quality

Others

19%

31%

50%

16% 9% 21% 54% TOT 100%

Truck

Agro

Steelcord • Capacity growth (mln pcs) from 6.2 in

2013 to 6.8 in 2017:

• Truck All Steel: Brazil, Turkey, Egypt

• Agro Brazil

• Truck All Steel plants upgrade to 01 Series technology

• Maintenance, Health & Safety, others

Industrial Business ROI at ~27% in 2016, +4pp vs 2013

17

KEY PROJECTS

Retail & other

STARTING PHASE 2 OF EFFICIENCY PH

ASE

2 O

PTIM

IZAT

ION

# of Plants

Factory size (Saturation %)*

Productivity improvement (kg / manhour)

Scrap Reduction (% index)

Decomplexity (% index)

2011 2013 2017

6 5

100

100

100

100

113

85

60

50% already achieved in 2012 - 2013

Manufacturing Efficiency gains

<90%

100% Low Cost

* All Steel

124 93%

132 >95%

80 €/Mln in 2012 - 2017

40 €/Mln in 2014 - 2017

PHAS

E 1

FOO

TPR

INT

18

AGENDA


MARKET SCENARIO


TARGETS

19

2013-2016 INDUSTRIAL BUSINESS TARGETS

~14% >13% >13.5%

CAGR 2013 - 2016

Price/mix

Forex

+4%/4.5%

-2.5%/-3.5%

Total >6%

+4.5%/5.5%

2014 Δ yoy

2013 Δ yoy

+9%/9.5%

-9%

+2.5%/3.0%

+4%/4.5%

<6%

+4.5%/5.5%

+2.5%/3.5%

-2.5%/-3.5%

14% 12% 12% <1.7

2014

>1.7

2013 2016

~2.0

Agro

20

REVENUES EBIT MARGIN PRE RESTRUCTURING COSTS

€/Bln

CAGR ’13-’16 >6%

2014 2013 2016

Volume

DISCLAIMER

21






Statement




STRATEGY IN ACTION

MAURIZIO BOIOCCHI

PRODUCT

PIRELLI R&D TODAY

1

• Focus on leading-edge performance • R&D budget fully devoted to Premium and top-end in the Industry (R&D budget = 7% Premium turnover)

• Recognized technological leadership in the Moto Business

• Fully renewed 01 Truck platform being deployed in all segments

• Complexity management

• Leadership on Prestige and Premium Car Makers

• Proven ability to deliver efficiency gains

• Market share Prestige >50% worldwide

• Market share Premium ∼20% in Europe

• >70% of the three-year R&D efficiency plan already achieved in 2 years

• Customer-centric organization • 10 R&D centers worldwide coordinated by Milan HQ

• Global team of more then 1,400 engineers (R&D and Quality)


DEVELOPMENT AREAS

Speed up Car innovation pace

WHERE WE STAND: MAIN ACHIEVEMENTS 2011-2013

2

• 18 major projects for new products in 2011-2015

New Tourance Next (Test winner 2013 in Enduro Street)

Angel GT (Test winner 2013 in Sport Touring)

Cyber Fleet on heavy truck since November 2012 Cyber car tyres available from 2014

New Scorpion Verde, AS and Ice all with over 30% less rolling resistance vs. old products

20 new lines (10 of which already launched) confirmed in 2011-2015

W01: Range 22.5’’ and 17.5’’ marked «snow flake» (severe winter conditions)

R:01 aligned with best competitors

G:01 Traction across the life-cycle +50%

18% in 2013, 30% in 2014

STRATEGIC RATIONALE R&D OPERATING TARGETS ACHIEVEMENTS

Complete the successful Truck product portfolio with specialties

Reinforce technological leadership in the Moto Business

Boost our “green attitude”

Electronics add-ons

• Winter: +20% snow traction

• Regional: +30% retreadability

• Offroad: +25% performance off

• Scorpion: 30% reduction in rolling resistance

• 30% silica from organic sources in Latam in 2015

• Moto enduro: best wet performance

• Moto sport touring: highest milage

• Cyber tyre available from 2012, second generation from 2015

OUR NEW ENDEAVOURS FOR THE FUTURE

3

• Increasingly diverse requirements (low rolling, mileage, noise), without negative trade-offs over “usual” performance

• Customized offer and variety increase

Customer sophistication

• OEMs: growing global footprint, requiring product and technology consistency

• The Replacement market: need for differentiated regional products

Two-fold international challenges

• Cost efficiency in segments with rising competition Value creation in mid-range

products

EXTENSIVE REQUIREMENTS FROM MANY SOURCES

4

Market requirements

• Rolling resistance • Mileage • Retreadability • Acoustic comfort

Environment & Legislation • Aromatic oil-free

compounds • Vehicle gas

emissions • Noise

507090

110130

Rolling Resistance

Mileage Wet

Noise Dry

507090

110130

Retreadability

Comfort

Handling

Braking

Weight

Rolling Resistance

Noise

Mileage 507090

110130

Mileage

Noise

Comfort

Handling

Wet

Braking

Other variables

• Competition • Fuel cost • Raw material prices

TRUCK MOTO

CAR HP/SUV

TECHNOLOGY AND INNOVATION PORTFOLIO

5

CAR TRUCK MOTO

Materials Filler

Self sealing

Polymers

Chemicals

Noise cancelling Durability/retreadability

Cyber tyre

Automatic visual inspection

Continuous mixing MIRS extensions

Reinforcing Materials

Energy loss minimization

Product performance design

Processes/ Machinery

Tech

nolo

gy r

oadm

ap

Retreadability

Comfort

Handling

Braking

Weight

Rolling Resistance

Noise

Mileage 50

100

150Rolling Resistance

Mileage Wet

Noise Dry

50

100

150Mileage

Noise

Comfort

Handling

Wet

Braking

50

100

150

PRODUCT LINE-UP

6

• 14 product lines, of which 6 Winter

• 6 OE driven • 8 aftermarket only • 9 global (worldwide) • 5 regional (localized)

• 6 lines will include «specialties» (Runflat, Seal Inside, Noise Reduction)

IN 2014-2017 TIMEFRAME:

CAR TRUCK MOTO

• 10 new Pirelli lines • 11 new Metzeler lines • Best in class for mileage and wet grip

• Performance and technology leadership in Europe

• New HR radial range for 250-350cc motorbikes (Latam)

• Metzeler Custom Touring for North America

• 11 new product lines • New Regional with further mileage

improvement and retreadability

• Highway and City product lines with rolling resistance in line with top competitors

• Completion of the winter range marked “severe winter conditions”

• Focus on the Retread Business and Customer Service (Cyber)

#1 development partner

for Top OEMs

Build upon the 01 Series success

worldwide

Outdistancing competitors

in technology and performance

• Geometry: tread and belt optimization

• Materials: tread and internal compounds

• Tyre weight reduction • Design: supported by predictive

modelling

• Rolling resistance reduction: up to 20%

7

ROLLING RESISTANCE IMPROVEMENT: FROM GREEN TO BLUE

…with an average mileage of 15K Km/year: • - 6% fuel consumption • - 156Kg CO2 emissions • >300 € potential savings in 3 years

Considering the size 235/45-17 97W for a medium sedan…

• On average 15 - 20% reduction in rolling resistance by 2017 • Implementation of Tyre labels in Brazil and USA with top grading

TARGET

8

NOISE IMPROVEMENT: THE PIRELLI NOISE CANCELLING SYSTEM

• First supplier to Audi with a homologated noise cancelling solution

• Special Sound Absorbing Sponge

• Noise reduction up to 2 - 3 dB(A), depending on speed (up to 50% of vehicle interior noise)

• Potentially lower weight and fuel consumption due to the reduction of insulating materials in the car

PNCS being deployed in 25% of large-size UHP range by 2017

P ZERO 275/30ZR21 for Audi RS7

P ZERO 285/30ZR21 for Audi RS6

TARGET

9

PIRELLI GLOBAL PARTNER FOR PREMIUM OEMs

PREMIUM OEMs CAR PRODUCTION

• Organizational matrix following our customers globalization

• Top technology available globally • All plants audited and homologated by OEMs

Europe

Extra Europe

Europe

Europe

2014E 2011A 2004A

2014E 2011A 2004A

2014E 2011A 2004A

Extra Europe

Extra Europe

Premium OEMs from non-European factories are forecasted up to 50% by 2017

16% 33% 41%

9% 25% 36%

18% 25% 34%

Source: IHS

10

GROWING CUSTOMIZATION AND FITMENT OFFER

Of which with OE markings

2014E 2011A 2004A

275

80% 100

70% 40%

FOLLOWING OUR TOP CUSTOMERS REQUESTS…

…TO PAVE THE WAY FOR AFTERMARKET PULL-THROUGH

4 Tyre fitments*

BMW X3, old model

Mercedes C-class, old model

8 Tyre fitments*

BMW X3, new model

22 Tyre fitments*

Mercedes C-class, new model

20 Tyre fitments*

* Pirelli fitments

11

KEEP IT SIMPLE: THE PIRELLI APPROACH

DESIGN TO COST DE-COMPLEXITY PLANT SPECIALIZATION

• Process friendly design • Higher versatility of compounds

and reinforcement materials • Design to reduce weight

• Product portfolio rationalization • Green cover optimization • Components standardization • Material portfolio management

• Clear plant mission definition • Product • Process • Material portfolio

• Lot size optimized for production

INTERFUNCTIONAL PROJECT MANAGEMENT

R&D DOMAIN MANUFACTURING DOMAIN

EFFICIENCIES FROM R&D

12

€/mln

2012-2014 cumulative

2012A-2013E

75

Materials

Weight

Design 50%

30%

20%

>50

38%

27%

35% Materials

Weight

Design

2014-2017 cumulative

180

40%

25%

35%

2013-2017 PLAN 2011-2014 PLAN

>70% OF 12-14 SAVINGS OBTAINED IN JUST 2 YEARS

MUCH STRONGER EFFICIENCIES

F1 CARRY OVER

• Grip • Wear • Handling • Rolling resistance

• F1 simulation analytics and modeling

• Indoor predictive method

• Tyre behaviour modeling • Tyre impact on the road • Energy absorption • Temperature generation

Thanks to: We improved our knowledge about: And we will be able to transfer new specifications to our top Pzero line improving:

FROM F1 EXTREME COMPETITION…

…TO TOP PERFORMANCE TYRES “IN THE REAL WORLD”

13

DISCLAIMER

14






Statement




STRATEGY IN ACTION

GIULIANO MENASSI

MANUFACTURING

1

AGENDA

PIRELLI MANUFACTURING TODAY

NEW OPPORTUNITIES IN RUSSIAN OPERATIONS

ROUTE TO AN IMPROVED MANUFACTURING EFFICIENCY

CAPEX AND CAPACITY UP TO 2017

2


• Low-cost footprint at industry-leading standards

• Opportunities in Russian factories

• Effective management of growing complexity linked to the sophistication of our product portfolio

• Next phase of industrial efficiency plans

DEVELOPMENT AREAS

• Proven ability to deliver efficiency gains

• Assets already in place to serve Premium demand

• Technological edge of patented production process

KEY STRENGTHS

• 100% of Industrial and 78% of Consumer capacity in low-cost countries

• 90% of the three-year efficiency plan already achieved in 2 years

• 69 million pieces of total car capacity, 48% Premium, >10% with clear opportunities for value upside

• 22 plants globally, most of them focused on Premium growth

2013 PERFORMANCE

Germany and UK Premium conversion

3

ALREADY BEYOND THE PEAK OF CAPEX CYCLE

Capex/Sales trend and key capacity projects

Spain Closure

Romania Premium expansion

Italy Car Closure (Settimo)

Mexico Startup

China Premium expansion

Russia JV Upgrade

Premium conversion Italy Car (Polo)

Italy Truck Closure (Settimo)

Today manucfacturing facilities are right-sized and advantageously located, thanks to past investments. Ability to take advantage of market swings to restructure operations.

Already past the peak of investments, paving the way for stronger cash generation.

China Moto Startup

7.6%

5.4%

8.5%

11.0%

7.8%

6.6%

2008 2009 2010 2011 2012 2013

4

RE-SHAPED MANUFACTURING ASSETS

New Valuable capacity

Non Premium Capacity

Cut

2008 Consumer Capacity

2013 Consumer Capacity

Premium Capacity,

New + Conversion

Russia

2

-20 69 19

60

23% 48%

8

o/w 2

Premium

57% 78%

6.1 6.2

64% low-cost 60% new plant

of which low-cost

90% 100% of which low-cost

Capacity Evolution

Delocalization

Delocalization

Mln tyres / year

CONSUMER

INDUSTRIAL

STRONG TRACK RECORD IN MANUFACTURING EFFICIENCIES

2012E

120 130

2012A

158

70

2013E 2013-2014 cumulative

228

5

€/Mln

Raw Materials

Allocation to Low-Cost Plants

SG&A & Fixed costs

Labour Productivity & Scale

90% of 2012-2014 savings obtained in only 2 years

• Scrap efficiency and specs simplification

• Labour efficiency

• Optimization in SG&A

• >83% of low-cost production in 2013, +6.1 pp vs. 2011, +2 pp vs. 2013 target

250

25% 37% 16%

40%

9%

41%

8%

24%

21%

3%

27%

15% 45%

19%

49%

21%

6





AGENDA

Strong mix capability improvement

RUSSIAN FACTORIES UPDATE

Kirov

Voronezh

2012 2015

5.9 6.9 (100% ≤16”)

2.0 2.0

7.9 8.9

Mln pcs

OLD PLAN CAPACITY NEW PLAN CAPACITY

2013 2017

6.5

2.0

8.5

6.5

4.0

10.5

(100% ≥17”)

• Factories in line with our plan, no more investments in additional capacity • Focus on saturation, also thanks to European export from Kirov • Improvement through rationalization and efficiencies

• Kirov already ‘’best-in-class’’ among Pirelli factories in terms of transformation costs

• Manufacturing Medium range products, but easy Premium conversion, if needed

• Voronezh in start-up phase

• 100% of Premium range products

• Both factories are certified by Car makers and ready to manufacture European OE (VW, Ford, Daimler, Renault, Nissan)

7

8





AGENDA

9

KEEP IT SIMPLE: THE PIRELLI APPROACH

DESIGN TO COST DE-COMPLEXITY PLANT SPECIALIZATION

• Process friendly design • Higher versatility of compounds

and reinforcement materials • Design to reduce weight

• Product portfolio rationalization • Green cover optimization • Components standardization • Material portfolio management

• Clear plant mission definition

• Product

• Process

• Material portfolio

• Lotsize optimized for production

INTERFUNCTIONAL PROJECT MANAGEMENT

R&D DOMAIN MANUFACTURING DOMAIN

MAIN ACTIONS COMPLEXITY INDICATORS

10

DE-COMPLEXITY PROGRAM

• Bill of materials items reduction

• Product standardization

• New semi-product form “Tool box”

• “Design to Cost”

• Diversify products as late as possible in the value chain

• From full ‘’Local to Local’’ to regional allocation opportunities within ‘’Technological Clusters’’

• Production planning using Smart Scheduling Techniques

• Processes & Equipment standardization program

• Common standard procedures and people skills alignment

2013E 2017E

100 80

100 89

PRODUCT (Active

components)

ALLOCATION/ PLANNING

(Product turnover)

PROCESS (Machine variety)

100

76

2013E 2017E

2013E 2017E

MAIN ACTIONS PRODUCTIVITY IMPROVEMENTS

CAR

TRUCK

MOTO

11

EFFICIENCIES: PRODUCTIVITY IMPROVEMENTS

100 122

100 113

100 114

De-complexity • From ‘’local to local’’ to technological clusters • Machine standardization • Production planning

(kg/manhour)

Cell organization • Designed to increase productivity and

flexibility

POSS - Pirelli Operation Steering System • Acceleration of day-to-day management

efficiency • Accountability down to blue collar level

New machinery & process rationalization • Work on Lean manufacturing • Process streamlining

PMS – Pirelli Manufacturing System • Kaizen* weeks (e.g.: set-up time reduction) • Manufacturing Academy

* Kaizen: Kai – Zen = Change – Better = Continuous improvement

2013E 2017E

2013E 2017E

2013E 2017E

MAIN ACTIONS SCRAP REDUCTION

12

EFFICIENCIES: SCRAP REDUCTION

De-Complexity • Simplify Raw Material Portfolio

• Standardization of components

• Recycling strategy

70

85

78

100

100

100

Alignment to close Premium gap • Investments on process capability

improvement

Material utilization efficiency • Exploit potential of Internal & External

Benchmarking

PMS – Pirelli Manufacturing System • Kaizen* weeks (e.g.: scrap reduction)

• Quality Academy

CAR

TRUCK

MOTO

(% index)

CAR

TRUCK

MOTO

2013E 2017E

2013E 2017E

2013E 2017E

* Kaizen: Kai – Zen = Change – Better = Continuous improvement

SUCCESS THROUGH PEOPLE ENGAGEMENT

• Increase the level of skills needed within Operations

• Ensure the right level of multi-valence and multi-competence

• Unite 22 plants in 4 continents through a common language & standard approach in Operations based on:

• Standards • Continuous Improvement • Engagement

Dedicated trainers

Cycle time reduction

New plant standard training path

Standard definition

Machine efficiency

Pirelli Operation Steering System

• 4 training actions per person / per year • 7 days of training per person / per year • 100% people involved by 2017

PIRELLI MANUFACTURING SYSTEM OPERATIONS ACADEMY

13

Lean organization

CAR MANUFACTURING FOOTPRINT – 2017 VISION

Non Premium Premium

MISSION (2013-2017) DRIVERS

High Cost Countries

Low Cost Countries

Cost competitiveness • Process standardization

• Efficiency

• Automation

• De-complexity

"Premiumization" • Process modernization

• Capacity utilization

78% 81%

4.4 Mty 5.5 Mty

2013 2017

LOW COST COUNTRIES CAPACITY

MIRS

Romania

Venezuela

China

Kirov

Argentina

Mexico

Germany Bahia

Campinas

Italy

UK

Izmut

Mln Tyres / year

Voronezh

14

AVERAGE CAPACITY

MANUFACTURING EFFICIENCIES - SUMMARY 2013-2017

15

CUMULATED EFFICIENCIES

~320 €/Mln

6%

8%

56%

30%

MATERIALS • Scrap reduction & Recycling strategy • Specification and Design to Cost (~45% of total material efficiencies)

ALLOCATION MIX • Higher volume allocated to low cost plants

ENERGY • Energy efficiency action plans worldwide • Renewable energy installations in US and Brazil

LABOUR • Productivity from organization and equipment efficiency

improvements

16



AGENDA



2013 - 2017 RESOURCES ALLOCATION

Destination

Business

Geography

2013 2014 2014-2017

~400 <400 <1,600

Capacity

Others

Mix & Quality

35% 32% 30%

36% 36% 37%

29% 32% 33%

Consumer

Industrial

79% 75% 82%

21% 25% 18%

High-Cost Countries 35% 31% 27%

65% 69% 73%

€/Mln

Low-Cost Countries

17

2013 - 2017 PRODUCTION CAPACITY

Premium

17E

81

63%

16E

78

59%

15E

76

53%

14E

72

52%

13E

69

48%

17E 16E 15E 14E 13E

6.8 6.7 6.7 6.5 6.2

in low-cost Countries 78% 80%

in low-cost Countries 100% 100%

Mln tires / year Mln tires / year

INDUSTRIAL CAPACITY CONSUMER CAPACITY

18

Non Premium

SUSTAINABLE PERFORMANCE

* Value normalized on tons of produced tyres

• Target to reduce the accident frequency index (IF) by 60% in 2015 from its 2009 level reached 2 years in advance

• New target: 90% accident frequency index (IF) reduction by 2020 vs 2009 – Frequency Index ≤0.2

• Safety Culture: global extension of “Excellence in Safety” program supported by “DuPont Sustainable Solutions” and Behavior Based Safety (BBS) programs

• Investment focus on Machinery Safety, Industrial Hygiene, Ergonomics

• Energy consumption* and CO2 emissions* strongly decreased and continuous improvement is expected to continue to 2020

• Target set in 2010 of -15% by 2015 vs 2009 for both energy and CO2 postponed to 2107 and 2020, respectively, due to economic slowdown for energy, and disproportionate growth of productive volume in carbon intensive markets for CO2

• New projects on renewables to balance the growth of CO2 emissions in carbon intensive markets

• Water withdrawal* trend strongly decreased and improvement is

expected to continue until 2020, with a target of -50% by 2017 and of -58% by 2020

• Target set in 2011 of -70% by 2015 vs 2009 is postponed because of economic slowdown and investment rationalization

• Target for waste recovery rate on track (85% by 2015) • Target no waste to landfill by 2020 (recovery rate ≥95% by 2020)

19

DISCLAIMER

20






Statement




FINANCIALS

MAURIZIO SALA

1

PIRELLI BY 2017: A CLEAR SET OF TARGETS IN MIND

Premium attitude, Premium returns

>15% EBIT Margin before restructuring costs (13% in 2013)

~ 28% ROI excluding Financial participation (+8pp vs 2013E)

0,3x Net Debt / Ebitda (1.2x in 2013)

2

GROW IN HIGHEST VALUE – ADDED SEGMENTS ACROSS BUSINESSES

EXTRACT VALUE FROM SELECTED NON PREMIUM SEGMENTS

CONTINUE TO DELIVER SUBSTANTIAL EFFICIENCY GAINS

INVEST IN SELECTED PROJECTS WITH HIGHEST RETURN

MAINTAIN A TIGHT CONTROL OF WORKING CAPITAL

1

2

3

4

5

OUR WAY TO 2017

3

TYRE TARGETS

76%

24%

75%

25%

14%

73%

~15%

27%

>13.5%

Volumes

Cagr 2013-2016

>5%

Price/mix +3%/4%

Forex -2%/-3%

4.5%/ 5.5%

-7%

+3.5%/4.5%

2014 Δ yoy

2013 Δ yoy

>2% >6% ~ 6.5% Total

6%/ 6.5%

+3%/3.5%

-2%/-3%

2014E 2013E 2016E

74%

26%

2014E

6.6

73%

27%

2013E

~6.2

73%

27%

Consumer

Industrial

2016E

7.5 ~6.5%

>6%

~6.5%

€/bln

REVENUES EBIT MARGIN PRE RESTRUCTURING

CAGR '13-'16

2013 - 2016 TYRE EBIT BRIDGE

4

2013 Ebit before

restructuring costs

Price/Mix Volumes Raw Materials

Efficiencies Cost of inputs

Depreciation & Others

Forex 2016 Ebit before

restructuring costs

Index

100

68

44

(28) 33 (45)

(21) (17) 134

5

CONSUMER* TARGETS

* Car + Moto + Controlled distribution

Volumes

Cagr 2013-2016

>6%

Price/mix 3%/3.5% Forex -2%/-3%

4.5%/5.5%

-6%

3.5%/4.5%

2014 Δ yoy

2013 Δ yoy

2%/3% ~7% ~ 6.5% Total

5%/ 5.5%

3%/3.5%

-2%

Premium Volumes ~ 12% ~ 10% >13%

~6.5%

€/bln


>14% >13.5%

2014 2013 2016 2014

~ 4.9

2013

>4.5

2016

5.5 >15.5% CAGR '13-'16

2013 - 2016 CONSUMER EBIT BRIDGE

6

2013 Ebit before

restructuring costs





restructuring costs

Index

100 47

62 (29) 39 (44)

(21) (14) 140

7

>13% ~14% >13.5%

Volumes

Cagr 2013-2016

+4%4.5%

Price/mix +4.5%5.5%

Forex -2.5%-3.5%

+4%4.5%

-9%

+4.5%5.5%

2014 Δ yoy

2013 Δ yoy

+2.5%3.5% <6% >6% Total

+9%9.5%

+2.5%/3%

-2.5%-3.5%

2014 2013 2016 2014

>1.7

2013

<1.7

2016

~2.0 >6%

€/bln


INDUSTRIAL* TARGETS

* Truck + Agro + Steelcord

CAGR '13-'16

2013 - 2016 INDUSTRIAL EBIT BRIDGE

8

2013 Ebit before

restructuring costs





restructuring costs

Index

100 34

85

(25) 16 (45)

(20)

(24) 121

2013 2014 Headwind

~2,700 ~2,600 +20 Natural Rubber TSR20 ($/ton)

Butadiene EU (€/ton)

FX (R$,TRY,EGP,

US$)

Average Cost of Goods Sold

Brent Oil ($/barrell)

2015/ 2016

flat

109 111 (15)

1,300 1,300 +5

(130)

€/mln (2014 vs 2013)

110/114

1,500/1,600

TOTAL (120)

9

BREAKDOWN 9M 2013

Chemicals

Natural Rubber 25%

based on purchasing cost

Synthetic Rubber 28%

Carbon Black 13%

16%

Steel 11%

Textile 7%

Raw Material cost on sales: 38%

RAW MATERIALS

GUIDANCE

10

FURTHER EFFICIENCIES TO STRENGTHEN OUR COMPETITIVENESS

2014 - 2017 plan worth 4pp on 2017 revenues (1pp per annum)

Materials

~320

~350

Industrial and Product efficiencies SG&A Total

Efficiencies

56%

Labour 30%

Expenses 8%

Allocation Mix 6%

~30

Optimization of Commercial structure

Reduction of Corporate and Regional G&A

11

MATURE

SOUTH AMERICA

RDEs (except LATAM)

2013E 2016E 2012A

40%

40%

<45%

>35%

20%

~35%

>35%

<30%

2013-2016 EBIT CAGR

Premium development drives profitability increase

Confirming leading position in market and profitability; stable mid-teen Ebit margin across the period

Profitability improvement sustained by Premium market development and higher efficiency, mainly in Europe

20%

TOTAL

+22%

+3%

+12%

+10%

PROFITABILITY BY REGION

RDEs

South America

Mature

12

FOREX*

COST OF DEBT

TAX RATE

OPERATING WORKING CAPITAL

*based on IHS Global Insight estimates October 2013

2014 2015 onwards

€/$ 1.29

$/R 2.30

stable/slight USD devaluation

slight devaluation (2% per annum)

<6.5% across the plan horizon due to exposure of the Debt to high interest rate countries

36% (-1pp vs. 2013) 35% in 2016

<10% on sales across the time plan horizon

MINOR BUSINESSES EBIT ~-20 €/mln, discounting 10 €/mln of restructuring

Breakeven

D&A +20 €/mln per year in 2014-2017

ADDITIONAL ASSUMPTIONS OF 2014 - 2017 PLAN

CASH FLOW: NEW VS OLD PLAN

Net Debt/ EBITDA

Net Debt/ EBITDA

13

2011 – 2014 PLAN

2014 – 2017 PLAN

~ 0.5X Δ vs. 2011-2014 Plan

2015E NFP

<0.2

Financial & Fiscal Charges

0.8

Operating Cash Flow

-0.9

2011E NFP

~0.75 <0.6

>0.5


1.1

Operating Cash Flow

2013E NFP

~1.1

Dividends

0.3

Russia asset

acquisition

0.8 -0.9

0.74

0.1 0.3

0.2

2016E NFP

<1.4

Prelios

0.2

Däckia acquisition

~0.9X

∆ Ebit = ∆ Capex

<0.6 excl. Prelios ~0.75 incl. Prelios

Dividends

< -2.4

1.4

Divid.

0.15

Financials assets

disposal

2017E NFP

~0.5

~ 0.3X

< -2.1


Operating Cash Flow

2011E NFP


Operating Cash Flow

2013E NFP

Dividends Russia asset

acquisition

~0.9X

>0.5

~0.4X

DISCLAIMER

14






Statement




REGIONAL OVERVIEW APAC

• Market share in value segments: • Premium ≥17” high single digit (mid teens in China) • SuperPremium ≥18” double digit (high teens in China)

• 25% of net sales from new products: Cinturato P1 and Scorpion Verde All Season

• ~ 2.000 Pirelli branded shops in China • #2 in Brand Consideration among owners of Premium cars • F1 broadly leveraged to engage customers, end users and the media

• Target FY 2013E:

• Net Sales: <500 mln € • EBIT margin: High teen

• Contribution to Pirelli FY 2013E:

• Premium OEMs partnership leading to strong pull-through effect on Replacement

• Wide Car and SUV product range

• State of the art plant designed to produce 100% Premium

• Retail development backed by Geo-marketing tools

• Brand awareness thanks to F1, OEM partnerships and Retail visibility

• Partnership with more Premium OEMs

• Further expansion of the Retail network

• Extension of geo-marketing approach in all other APAC markets

• Further development of digital activities

PIRELLI TODAY IN APAC

KEY STRENGTHS FY 2013 E PERFORMANCE

DEVELOPMENT AREAS Net sales

8%

Consumer

Net sales mix

Industrial

12%

88%

EBIT

1

THE MACROECONOMIC CONTEXT

Real GDP growth (% change)

China • Consistently growing economy slightly slowing

down • Government still evaluating corrective

measures to speed up the economic growth Japan • GDP growth slowdown expected at 1% in 2017 • Devaluation of JPY vs. USD (-8.2% 2017 vs.

2013) Australia • Positive GDP growth trend, reaching 3.2% in

2017 • Devaluation of AUD vs. USD (-4.8% 2017 vs.

2013)

Other markets • Far East markets with positive GDP trend, with

an average increase of 4/5%

MAIN INDICATORS (CHINA)

7.8 7.5 7.5

8.3 7.3

CPI Inflation (% change)

3.4 2.5 2.7 3.0 3.4 3.2

7.8

Currency trend (CNY/USD)

6.0

14 E

6.2

13 E

6.3

12 A 15 E

5.9 5.6

17 E 16 E

5.7

Source: IHS

2

THE VEHICLE PARC

• Premium/Prestige segments with 12% CAGR ’13-’17

• Premium OEMs lowering prices with markets entering more mature state

• China implementing car registration restrictions in main cities

• Truck market stagnating due to slowdown of economic growth and to overcapacity

• Premium manufacturers still not present in China

• New Registrations of Moto >249cc expected to grow at 5.1% CAGR to 828k in 2017 (from 678k in 2013)

• Dominance of transportation and commuting

• Recreational market still very small

KEY FEATURES

MOTO*

CAR

TRUCK

New registrations

Mln pieces

New registrations

New registrations

12A

12A

12A

254

30.1

249

29.0

1.0

11.2

13E

13E

13E

275

31.7

271

30.8

1.1

11.9

14E

14E

14E

297

34.1

293

32.6

1.0

12.7

15E

15E

15E

321

36.4

317

34.6

1.0

13.3

16E

16E

16E

347

38.3

341

36.3

1.0

13.8

17E

17E

17E

373

40.0

366

38.2

1.0

14.3

*Moto > 100cc

CAGR 13-17

+8.0%

+6.0%

+7.8%

+4.7%

+5.5%

3

THE TYRE MARKET

MOTO

CAR

TRUCK ALL STEEL

KEY FEATURES

2011-2014 PLAN 2013-2017 PLAN

+6.0%

+1.7%

+4.8%

Tyre Market Premium* %

• Premium segment increasing, reaching 17% in 2017 (supported by strong increase of OE market, Premium share 23% in 2017)

• Competitive scenario: • X-ply: dominance of

local manufacturers • Pirelli 2nd player in

Radial

• All steel share 85% (China) • Retread still weak in the

region


13E

13E

13E

440

13%

192

68.9

14E

14E

14E

464

14%

206

70.0

15A

15A

15A

490

15%

214

71.4

16E

16E

16E

510

16%

228

72.7

12A

12A

12A

421

13%

182

67.8

17E

17E

17E

530

17%

242

73.9

*Premium ≥17"; Old plan restated from speed code to rim size

CAGR 13–17

+11.7%

4

TARGET 2013 - 2016

REVENUE GROWTH

16E 13E

<500

12A

420

14E

575

~770 CAGR ’13-’16

+15.9%

CAPEX '14-'17

• Top line growth mainly driven by improved Premium position

• Profitability driven by volume growth and favourable mix

EBIT MARGIN*

~200 Mln

Mid teen

€/Mln

High teen

*Pre restructuring

5

KEY PROJECTS

Provide top-end retail support (development / maintenance, training, POS material) and expand retail network in China

RETAIL NETWORK

Develop new OEM partnerships and increase Car Dealers penetration

OEM PARTNERSHIP

Retail Commercial development supported by geo-marketing in South Korea (already in progress), Thailand, Malaysia, Indonesia, Vietnam

GEOGRAPHICAL EXPANSION

Engage Consumers on Digital, leveraging OEMs and F1 involvement

CONSUMER

Becoming a very profitable billion dollar region

6

OEM PARTNERSHIP

~500

From supplier to strategic partner (joint development, co-branding and marketing activities)

OE intelligence and geo-localization to exploit the full pull-through effect on Replacement

AND MANY OTHERS ON THE WAY…

*Indexed 2012 = 100

X1 5 Series

Q5 Q3

GLK E-Class

3 Series

A6L

OEM SALES VOLUMES* CHINA OE PRESENCE

ROLE WITH OEMS IMPACT ON REPLECEMENT

200

2013E

100

2012 2017E

7

RETAIL NETWORK

• Growth and exploitation of geo-marketing expertise

• Continuous development of retail network, with qualified service

POS IN CHINA

~2,000

13E

~1,500

12

~4,500

17E

>3,000

14E

8

ESSENTIALLY, FOR 2017

EXPLOIT PREMIUMNESS IN ALL SEGMENTS AND ALL MARKETS

9

DISCLAIMER

10






Statement




REGIONAL OVERVIEW EUROPE

1

• Premium OEM leadership

• Premium product offer

• N.1 in motorcycle tyre business

• Best quality of logistics service

• Strong Brand awareness

• CAR market share • Premium OE: twenties • Premium Replacement: mid teens

• #1 in Homologations and top grading for Cinturato P7 Blue* • 850 controlled POS, +13% vs PY • Relative price positioning improved by 1-2 pp • Brand consideration for target consumers #1 in Italy, #2 in UK • Positive effect of F1 on Brand and product according to 70% of

dealers • Metzeler voted best brand 2013 by Motorrad magazine readers • Increased profitability in Truck business thanks to production

sources optimization

• Target FY 2013E: • Net Sales: ~2 Bln • EBIT margin: double digit

Contribution to Pirelli FY 2013E:

• Leverage OEM positioning in Replacement market

• Expansion of controlled Retail

• Brand consideration improvement

• Cost effectiveness focused on products, processes and organizations

• Profitability recovery plan at top and bottom line

PIRELLI TODAY IN EUROPE KEY STRENGTHS FY 2013 E PERFORMANCE

DEVELOPMENT AREAS

* AA/AB Euro Label

Net sales

Industrial

Sales mix

13%

87%

EBIT 33%

Consumer


MAIN INDICATORS

• Financial market conditions improved significantly in recent months

• Still, improvement of real economy lags due to difficult credit access, private and public deleveraging and high unemployment rate in some European countries

• Different situations by country:

• Strong recovery in Germany GDP+1.8% vs 2013, Fixed Investment growth +5.3%

• UK GDP with positive growth (+2.0% vs 2013)

• Euro zone exports increased in August, led by Germany and Italy

• Spanish economy recently emerged from a 3yr-long recession, but recovery remains fragile as labour market scenario is still worrying



Currency trend (GBP/EUR)

Fixed Investment growth (% change)

Private consumption (% change)

1.5 0.1 -0.2

1.7 1.4 2.0

1.3 0.1 -0.6

0.82 0.85 0.81

1.9

1.8

1.9

0.82

2.6

1.7

1.8

1.6

0.82

2.4 2.3

1.1

1.6

0.9

0.84

2.3

-2.2 -2.0

12A 13E 14E 15E 16E 17E

2

THE VEHICLE PARC

KEY FEATURES

MOTO

CAR

TRUCK

• Growth trend pushed by UK and Germany; Spain and Italy stable

• Decrease in new registrations until ‘13 (CAGR‘08-’13 -4.2%), Prestige only segment that grew (CAGR ‘08-’13 +2.7%);

• In ‘13-’17 new registrations recover (CAGR ‘13-’17 +3.8%); Prestige growing almost double speed (CAGR ‘13-’17: +7%)

• Growth impacted by macroeconomic recovery and legislation on eco-compatibility

• Slight recovery of registrations after strong decline (double digit negative trend ‘08-’12)

• Negative impact of European high taxation and regulations

New registrations

New registrations

New registrations

12A 13E 14E 15E 16E 17E

12A 13E 14E 15E 16E 17E

12A 13E 14E 15E 16E 17E

278 277 276 276 274 273

6.6 6.4 6.3 6.2 6.1 6.0

8.8 9.1 9.4 9.8 10.0 10.1

14.1 13.7 14.1 14.8 15.3 15.9

0.44 0.37 0.38 0.4 0.4 0.41

0.2 0.2 0.3 0.3 0.3 0.3

0.3%

-3.1%

2%

3.8%

2.6%

10.6%

CAGR 13-17

Mln pieces

3

THE TYRE MARKET

MOTO

CAR

TRUCK ALL STEEL

KEY FEATURES


• 2013 Tyre market lower than expected due to stronger than expected 2012-’13 crisis and increasing trade attention to working capital

• Premium segment still growing • Expected economic recovery

will pull future demand

• Biggest Premium Tyre market in the world

• Stable market • Change consumer attitude, less

sport more touring • High product innovation rate

• Market positive trend supported by GDP growth

• Relevant segments: ‘’Low Section’’ for building Brand consideration and ‘’17.5’’ for improving profitability

360 350 342 333 325 333

20% 22% 23% 24% 25% 26%

6.7 6.6 6.5 6.2 6.3 6.5

15.6 15.2 15.1 14.7 14.7 14.2

1.5%

+1.5%

2.6%

7.6%

2011-2014 PLAN 2013-2017 PLAN

17E 16E 15E 14E 13E 12A

17E 16E 15E 14E 13E 12A

CAGR 13-17



17E 16E 15E 14E 13E 12A

4

FOCUS: CAR TYRE MARKET

CAR REPLACEMENT

CAR

CAR OE

KEY FEATURES


2.6%

7.6%

2011-2014 PLAN 2013-2017 PLAN

17E

17E

17E

360

276

85

16E

16E

16E

350

269

81

15E

15E

15E

342

264

77

14E

14E

14E

333

259

74

13E

13E

13E

325

253

72

12A

12A

12A

333

258

75

• Relevant segments: • Premium almost 22% of total,

with increasing weight mainly due to new fitments trends

• Winter growing double speed vs. total market (CAGR‘13-’17 +4%), increasing weight from 35% to almost 40% in 2017

• Increasing weight of the Car Dealer and Internet dealers channels

• Premium OE segment growing >2 times OE total market

2.2%

6.6%

4.1%

8.9%

20% 22% 23% 24% 25% 26%

15% 16% 16% 17% 18% 19%

39% 42% 45% 48% 50% 51%

CAGR 13-17

Mln pieces


5

TARGETS 2013 - 2016 €/Bln

REVENUE GROWTH

16E 13E

~2

12A

~2

14E

~2.1

<2.3 CAGR ’13-’16 +3.9%

CAPEX '14-'17

EBIT MARGIN*

<600 Mln

From low teens to low-mid teens

• Top line mainly driven by premium volumes and price/mix

• Profitability improvement thanks to cost effectiveness projects and low cost footprint (Truck 100%)

*Pre restructuring

Low teens

6

KEY PROJECTS

Commercial re-launch in a recovering economy

CO

MM

ERC

IAL

TRAN

SFO

RM

ATI

ON

EN

GIN

ES

Rationalise Car and Moto cost structure

EFFICIENCIES

Develop Truck on the back of successful new product range and customized service-centered approach

TRUCK Increase Market Share in Premium OEMs and penetration of the car dealers channel

OEM PARTNERSHIPS

Optimize production process and increase automation of mature plants; improve competi-tiveness for 16 and 17 range

MANUFACTURING

Complete product renewal (summer and winter) to keep Prestige and Premium technological supremacy

PRODUCT

Pinpoint Premium “white spots” and improve retail/equity coverage (Frankfurt Flagship Store, Däckia, Ride Passion in Moto)

RETAIL NETWORK

Engage Consumers directly to increase consideration leveraging digital platforms and CRM

CONSUMER

7

OE PULL-THROUGH PARTNERSHIP APPROACH

Reinforce partnerships with Premium & Prestige car makers to translate benefit into Premium Replacement sales

PRESTIGE

• Co-marketing activities for Prestige car owner clubs (sell-out promotions, events, social media)

• Co-launches of prestigious car models

• Technological partner of prestigious Driving Experience

PREMIUM

• Leadership in product co-development with high potential Premium car manufacturers

• OEM partnership upgrade to «preferred supplier» status

• Dedicated value proposition to support sell-out sales, business efficiency and profitability of car dealers

In 2013, Pirelli won the «Global Champion» prize awarded by Volkswagen Group every year to its best suppliers

FOCUSED OEM COMMERCIAL APPROACH

8

GEO-MARKETING DRIVEN RETAIL EXPANSION

Defend position with key clients whilst developing Premium market niche opportunities

Equity coverage: Sweden

Access to the Nordics to accelerate penetration of the Nordic countries, a natural market for winter tyres. • Total Pirelli share of wallet > 50% • Premium Pirelli share of wallet >70%

Equity coverage: Germany • New acquisitions in 2013:

• Equity: +25 in POS in 2013; Pirelli Share of wallet ~60%

• Pneumobil acquisition (network in Bavaria) • Franchising: +27 POS in 2013

Premium market coverage

Consumer experience Italy «Ride Passion» example

• Innovative Services •Premium Retail

Experience •Consumer Loyalty

New Flagship Store concept Frankfurt Store A new design concept: mix of showroom, technology gallery, lounge, sales and servicing areas

Improvement of end-user experience

•Long term contracts to enhance Pirelli share in TOP Retail

•Complete POS and process renovation

Italy Driver – Hard Franchisee Hard Franchising POS Italy Upgrade of geo-selected POS with enhanced hard-franchising formula

7 42

92

2012 2013 2014

MARKETING AND COMMERCIAL APPROACH

9

• Strengthen direct link to end consumer

• Fine tune communication from “pure passion” to consumer benefits

• Leverage on Digital, especially during pre-purchase evaluation

• Leverage on Pirelli assets such as F1 and OEM partnerships

• Exploit CRM: • Increase conversion of prospects into consumers • Keep consumers loyal

CONSUMER ENGAGEMENT IS KEY

awareness

advocacy

conversion loyalty

consideration THE

MARKETING CYCLE

58.4% 57.8% 64.5% 61.5%

Value

Rank 1 1 1 1

Brand Consideration Italy

Brand Consideration Trend – FY results Europe Top 10 countries – Focus Target sample

Other premium brands*

45.8% 42.6%

47.9% 44.0%

51.0% 45.1%

* Average value calculated on four main Premium brands (Michelin, Bridgestone, Continental, Goodyear, Pirelli excluded).

Consumer direct approach

2011 2012 2013

Car Owners Focus Target Premium Car Brand Target

F1 Viewers Target

Engaged Consumers→ high brand Consideration→ high Conversion to purchase

10

GEO-MARKETING DRIVEN RETAIL EXPANSION

Growing position through product mix and fleet/retail focus

Consolidation of new range

Growth of Premium Series

Commercial strategy focused on 01 Series.

Share of Premium growth on total Pirelli European sales

2012 2013 R10

2014 MP

2015 SP

2016 SP

2017 SP

01 Series

Others 28% 51%

58%

Harmonization of geographical coverage

Nordics penetration through equity

Premium retail network through acquisition allowing Pirelli substantial sales growth (Market Share target 2014 +3%)

East Europe Project

Complete Pirelli offer to distributors to increase brand loyalty through: • New Formula Brand • Focused Sales Force, reorganized in

2013

Focus on fleets leveraging retail partnerships

Geomarketing

• Identification of high potential areas (pilot Italy)

• Target +50% sales growth of co-managed fleets with trackable data by end of 2014

Implementation of CyberFleet • 25 fleets done in 2013 (pilot) • 100 fleets target in 2014 Leverage Equities to provide support to fleet services.

Fleet Service Management

11

52%

38%

10%

14 vs 13

49%

46%

5% 15 vs 14

47%

52%

16 vs 15

1%

50%

50%

17 vs 16

COST COMPETITIVENESS

• Waste reduction • Weight reduction • Design to Cost

RAW MATERIALS LABOUR PRODUCTIVITY & SCALE

• Optimization of production process

• Automation of mature plants

• Cost rationalization

G&A AND FIXED COST EFFICIENCIES

Efficiencies

12


THE PREFERRED PARTNER BY OUR PREMIUM CUSTOMERS AND THE TOP CONSIDERED BRAND BY OUR FINAL CONSUMERS

13

DISCLAIMER






Statement




14

REGIONAL OVERVIEW LATAM

1

• Market share in OE: • Brazil: Car > 40%; Truck > 30% • Argentina: Car > 40%

• Market Share in Replacement: • Brazil: Car & Truck ~ 20% • Argentina: Car > 30%; Truck >20%

• Commercial Footprint in Brazil • > 130 Equity • > 450 Mono-brand POS • > 1,000 Light Franchisee

• Top of Mind brand in Brazil (5 years in a row) and Argentina

• Target FY 2013E: • Net Sales: > 2.2 bln € • EBIT margin: Mid-teen

• Contribution to Pirelli FY 2013E: • Exploit premium OEM positioning in

Replacement sales

• Benefit from additional Car capacity freed up by Mexico factory

• Improve footprint on Andean markets

• Dynamic management approach in volatile markets (Argentina and Venezuela)

PIRELLI TODAY IN LATAM FY 2013 E PERFORMANCE KEY STRENGTHS

DEVELOPMENT AREAS

• Long-standing leadership across all market segments, including Premium

• Strategic partnerships with OEMs

• Local-for-Local production strategy

• Widest product portfolio across all segments

• Widest distribution network

• The only player with Equity distribution in Brazil

Net sales 36%

Industrial

Net sales mix

Consumer

43% 57%

EBIT


• Large internal market and growing middle class (+10 mln people in the next 5 years)

• Relatively sound macroeconomic framework, with manageable fiscal deficit

• Enhanced external debt profile with robust debt metrics and sizeable foreign exchange reserves

• Huge natural resources give Brazil significant economic potential and make it an attractive destination for investments



Currency trend (BLR/USD)

Foreign Investments (% change)

Source: IHS Global Insight

4.0 4.1 4.0 3.4

5.6 5.9 6.5 7.1

2.45 2.40 2.35 2.30

5.2 5.2 5.8 5.3

2.9

7.7

2.19

3.9

2.4

6.4

1.96

2.0

MAIN INDICATORS (BRAZIL)

12A 13E 14E 15A 16E 17E

2

THE VEHICLE PARC

• Consistent growth rate throughout the period

• Brazil accounts for 60% of parc and 70% of new registrations, 4th global market till 2020

• Premium car: less than 5% of the market in 2017

• SUV registrations doubling

• Market growth sustained by commodities business expansion, fleet renewal and Government subsidies

• Heavy Trucks on the increase exceeding 40% of the market

• Market growth sustained by growing middle class and financial facilities availability

• Almost 80% of parc and registrations below 250cc

65 69 72 76 80 61

6.0 6.2 6.5 5.8 6.7 7.0

4.1 4.3 4.6 3.8 4.8 5.1

31 28 34 37 40 44

2.1 2.3 2.4 2.6 2.8 2.1

217k 231k 246k 198k 261k 276k

17E 16E 15E 14E 13E 12A

17E 16E 15E 14E 13E 12A

17E 16E 15E 14E 13E 12A

KEY FEATURES

MOTO*

CAR

TRUCK

+5.5%

New registrations

Mln pieces

New registrations

New registrations

+3.9%

+8.7%

+5.6%

+6.7%

+6.2%

CAGR 13-17

*Moto > 100cc

3

THE TYRE MARKET

MOTO

CAR

TRUCK ALL STEEL

KEY FEATURES • Premium pace 5x market

growth, representing 10% of total market

• By 2017, 100% new homologations 100% expected to be Green tyres

• Brazil: ~50% of total market

• Replacement share: 80% of total market

• Radial share almost doubling by 2017

• Brazil: ~40% of total market:

• All Steel reaching >70% of total market

• Brazil: 50% of total market

• Ecolabel compulsory from 2016 in Brazil

2011-2014 PLAN 2013-2017 PLAN

+4.4%

+3.7%

+3.9%

+22.1%

13E

13E

13E

86.9

22.9

12.5

14E

14E

14E

90.6

23.8

13.0

15A

15A

15A

93.8

25.2

13.4

16E

16E

16E

97.5

26.2

14.0

17E

17E

17E

101.1

27.2

14.5

12A

12A

12A

81.9

22.7

11.4

5.3% 6.9% 8.1% 9.2% 10.2% 4.9%

CAGR 13-17


*Premium ≥17"; Old plan restated from speed code to rim size Tyre Market Premium* %

4

TARGET 2013 - 2016

REVENUE GROWTH

16E 13E

>2.2

12A

<2.1

14E

>2.4

>2.6 CAGR ’13-’16 +6.0%

CAPEX '14-'17

EBIT MARGIN*

~400 Mln

€/Bln

Mid teen across all years

*Pre restructuring

• Net Sales positively impacted by a steady growth of volumes yoy

• Profitability slightly improving thanks to good performance of the Moto business

5

KEY PROJECTS

Protect market leadership with innovation and excellence

MANUFACTURING • Car: Mix Improvement in Brazil • Car: Premium production growth in

Argentina • Truck: Capacity improvement • Agro: Radial production growth

PRODUCT • Increase SUV product range • New Cinturato HP • Full implementation of Truck 01

Series • New Radial HR for Moto

OEM PARTNERSHIP • Maintain technological leadership

within the region • Attack share with new Premium

OEMs (BMW, Audi, Mercedes) • Increase car dealer partnerships

RETAIL • Strengthen Retail Excellence Model • Accelerate new monobrand POS

growth • Leverage synergies on Equity • Improve stock management • New Logistics Network

SUPPLY CHAIN • Design and Implement a new supply

chain model for Colombian and Andean markets

6

MANUFACTURING EXPANSION

CAR

• Premium production in Brazil

• OE Green Tyre production

• Replacement Green Tyre production

• Premium production in Argentina

23%

-

-

4%

35%

100%

65%

16%

FY 2013E 2017E

Mix Improvement in Brazil

Premium production growth in Argentina

• All Steel Capacity 100 (index) 108 Capacity improvement

• Agro production

• Radial production

100 (index)

100 (index)

127

360 Radial production growth

TRUCK FY 2013E 2017E

AGRO FY 2013E 2017E

7

RETAIL EXCELLENCE MODEL

• From 580 POS FY 2013E to >750 POS by 2017 Accelerate monobrand POS growth

• Introduce VMI* technology to support stock management (and financial position) at Monobrand dealers

Stock management

• Redesign of the outbound logistics network for operational and fiscal optimization

New logistics network

* VMI «Vendor Management Inventory» system

8


UNRIVALLED MARKET LEADER

9

DISCLAIMER

10






Statement




REGIONAL OVERVIEW MEAI

1

• Cost competitive industrial footprint

• Truck: Leadership in Turkey and Egypt

• Truck: Product range - Excellent performance in hot severe conditions

• Car and Truck: strong POS coverage in priority markets

• Replacement volumes: • Car Premium ~+20% yoy • Truck All Steel ~+5% yoy

• Car Premium market share: teens • Truck All Steel market share: teens • #1 brand for dealer satisfaction* in Turkey • Turkey and Egypt production output increased ~+10% yoy • Target FY 2013E:

• Net Sales trend: ~500 Mln • EBIT margin: high teens

• Contribution to Pirelli FY 2013 E:

• Leverage OEM positioning in Replacement market

• Leadership consolidation in selected countries

• Selective expansion of distribution in Car and Truck supported by geo-marketing

• Capacity increase in Truck factories

PIRELLI TODAY IN MEAI

* Ipsos research

KEY STRENGTHS

DEVELOPMENT AREAS

FY 2013 E PERFORMANCE

Net sales 8%

Industrial

Net sales mix

Consumer

39%

61%

EBIT


• Middle East/Africa acceleration with improved global conditions recovery in oil production. Uncertainties arising from prolonged political transition

• Concern for Syria and Egypt conflicts: possible stronger destabilization complicating the economic scenario

• Sub-Saharan Africa, international projects supporting higher growth

• India growth projected to accelerate helped by stronger exports

Source: IHS Global Insight, September 2013



Real Private Consumption Growth

Industrial Production Growth

Average Real GDP Growth 5.3

4.9

17 E

6.4

5.6

5.6

4.9

16 E

5.5

5.9

5.5

4.8

15 E

5.1

6.6

5.3

4.9

14 E

4.4

7.0

4.6

2.8

13 E

4.0

8.1

3.5

0.2

12 A

3.4

8.3

2.5

3.6

MAIN INDICATORS

2

THE VEHICLE PARC

17E 16E 15E 14E 13E 12A

KEY FEATURES CAR

New registrations

• Growth of Premium & Prestige car parc will increase

• >12% CAGR 13-17 • >10% CAGR 09-13

+8.3% 50 54 57 62 68 75

8.9 8.6 9.1 9.8 10.7 11.3

17E 16E 15E 14E 13E 12A

TRUCK (TURKEY)

New registrations

• Turkey Truck new registrations and vehicle parc keep growing

+2.6%

955 965 982

1,088 1,038

1,070

31 33 39 44 48 51

Sources: Global Insight IHS, LMC, Scania, Pirelli estimation

+7.1%

+11.5%

CAGR 13–17

Mln pieces

K pieces

3

TRUCK ALL STEEL

KEY FEATURES

2011-2014 PLAN 2013-2017 PLAN

+2.4%

+6.6%

+8.0%

13E 14E 15A 16E 17E

13E 14E 15A 16E 17E 12A

12A


THE TYRE MARKET

• Replacement ~65% of total Tyre market

• Chinese imports increase but mainly in low to mid-end market

• Competitors building additional capacity in the next years

98 103 110 118 126 133

8.9% 9.1% 9.1% 9.3% 9.4% 8.5%

15.0 15.3 15.6 16.0 16.4 16.8

CAR

8.7% 8.6% 8.4% 9.0% 8.9% 8.7%

CAGR 13–17

OE %


All Steel M+H *Premium ≥17"; Old plan restated from speed code to rim size

4

REVENUE GROWTH

16E 13E

~500

12A

~520

14E

~540 >620

CAGR ’13-’16 +7.3%

CAPEX '14-'17

• Net sales driven mainly by increase of Premium volumes on car

EBIT MARGIN

~100 Mln

High teens across all years

TARGETS 2013 - 2016 €/Mln

5

KEY PROJECTS

Extend Premium leadership

CAR CONSUMER

• Increase digital engagement (new local website, social media) and Pirelli presence / visibility at POS

CAR DISTRIBUTION

• Re-balance distribution channels with focus on car dealers, independent dealers and chains

TRUCK MANUFACTURING

• Continue industrial investment and convert capacity to latest products (e.g. 01 Series)

TRUCK DISTRIBUTION AND SERVICES • Introduce fleet solutions and consolidate

Truck centers for a complete fleet offer (cyber fleet, retreading, ..)

6

DISTRIBUTION COVERAGE

CAR

TRUCK

• Development of Truck service centers (after new inter-country road infrastrucures)

• Start up of truck business in South Africa • Introduction into Premium fleets of latest products (01

Series) • Fleet service packages with innovative solutions: Cyber

fleet, Retreading, Depannage vans, Truck service centers

• Expand the Car Tyre distribution network (+189 POS) • Focus on Premium potential areas supported by geo-

marketing • Rebalance channel mix towards Car Dealers and

indipendent dealers (channels OE marked Tyres intensive)

Expansion of dealers’ network

Distribution and service

7


RIDING THE GROWTH Deliver excellence through innovative products and services in the most profitable channels

8

DISCLAIMER

9






Statement




REGIONAL OVERVIEW NAFTA

1

• Selective OEM positioning

• Leading product development focused on UHP and HP

• Distribution focused on Premium customers

• Distinctive Brand positioning

• Strong volumes growth on Premium and Superpremium • Focused Marketing (Digital & Social Media) on target consumers

thanks to geo-localization • Accelerated Mexico ramp up: reached production >1 Mln Tyres • Significantly improved service level to key customers

• Target FY 2013 E:

• Net Sales: < 700 Mln • EBIT margin: mid-teen

• Contribution to Pirelli FY 2013 E

• Grow US OEM Business long term, with short term focus on mix

• Leverage OEM positioning in Replacement

• Ramp up Mexico factory

• Development of new NAFTA-focused products

• Expansion of distribution in Car and Moto

PIRELLI TODAY IN NAFTA

KEY STRENGTHS FY 2013 E PERFORMANCE

DEVELOPMENT AREAS

Net sales 11%

Consumer

Net sales mix Industrial

6%

94%

EBIT

THE MACRO ECONOMIC CONTEXT

• US GDP growth accelerating, with significant risk from reduction of unprecedented monetary stimulus and tighter fiscal policy

• The US House of Representative elections in 2014 and the long 2016 presidential election campaign likely to create uncertainty with impacts on fixed investment decisions



Currency trend (EUR/USD)

Domestic + Foreign Investments (% change)

MAIN INDICATORS (US)

3.1 3.2 3.3

2.7

8.1

1.6 2.7

2.0 2.1 1.8 1.7

1.33 1.33

1.6

1.32

2.1

1.30 1.29

1.30

2.9 5.0 7.2

3.0 5.5

12A 13E 14E 15A 16E 17E

2

THE VEHICLE PARC Mln pieces

New registrations

295

17.2

297

18.4

302

18.8

305

19.3

308

19.7

312

19.7

• CUV market in rapid growth • Market for compact and smaller

vehicles moves from 43% of total market 2012 to 47% in 2017

• Mid-size and large-size vehicles growing at slower rate

• Convergence to global car segment mix

New registrations

27.0

1.9

27.2

2.0

28.0

2.2

28.0

2.3

29.0

2.5

29.4

2.5

• Premium & Prestige new registration growing from 11.1% (1.9 Mln) 2012 to 12.8% (2.5 Mln) in 2017

• OEMs moving to Premium model for higher profits

• Focus on CO2 emissions • Hybrid/Electric gaining momentum

New registrations

11.8

0.8

12.1

0.8

12.4

0.9

12.8

1.1

13.1

1.1

13.5

1.2

• Harley D. continues to grow • Premium European OEMs (BMW, Ducati,

KTM) increase presence

CAR

CAR: PREMIUM & PRESTIGE

MOTO*

KEY FEATURES

+1.2%

+1.9%

17E 16E 15E 14E 13E 12A

17E 16E 15E 14E 13E 12A

17E 16E 15E 14E 13E 12A

CAGR 13–17

+1.7%

+5.7%

+2.8%

+10.7%

*Moto > 100cc

3

THE TYRE MARKET

343 350 359

365 369

330

• Growing weight of Premium • Replacement rate: 0.92 • Competitors building additional

capacity in the coming years

263

36%

269

38%

273

39%

277

41%

281

43%

253

34%

5.0 5.3 5.5 5.7 4.8

OE + Replacement

CAR

2011-2014 PLAN 2013-2017 PLAN

CAR REPLACEMENT

MOTO

KEY FEATURES

• Replacement 77% of total Tyre market

• Premium Replacement growing 3x market growth

• Chinese imports increasing but mainly in mid to low-end markets

+4.2%

+1.9%

+4.8%

+1.6%

+6.3%

17E 16E 15E 14E 13E 12A

46% 47% 48% 50% 51% 44%

5.9

17E 16E 15E 14E 13E 12A

17E 16E 15E 14E 13E 12A

CAGR 13–17


*Premium ≥17"; Old plan restated from speed code to rim size Tyre Market Premium* %

4

REVENUE GROWTH

16E 13E

<700

12A

693

14E

~730 ~780

CAGR ’13-’16 +4.5%

CAPEX '14-'17

• Strong push on Premium and Superpremium volumes

• Ramp up of Mexico plant to further support profitability improvement

EBIT MARGIN

<160 mln

TARGETS 2013 - 2016 €/Mln

From mid teens to high teens

5

KEY PROJECTS

Push further and wider successful growth and positioning

OE PULL-THROUGH Using all levers to fully capitalize investment in OEMs in the Replacement Premium market

PRODUCT Match local needs faster through the development of NAFTA - focused products (Car + Moto)

MANUFACTURING Ramp up Mexico factory (local for local) to deliver Premium product and Premium service

Expand dealers’ network entering new channels and selectively growing existing ones to capture geo-localized Premium potential (Car + Moto)

DISTRIBUTION

DIGITAL

Leverage a distinctive brand positioning through digital, being effective where it matters leveraging on Geo-Marketing

6

• Assess OE potential at brand/size level for region/area

• Identify opportunities and define action plans to increase pull-through

• Right-size stock at dealers’ level based on car parc info

• Guarantee exceptional service level (95%) to key customers servicing OEM channel

• Dedicated trade promotions • Preferred claim management

• Develop marketing relationship with key OEMs

OE PULL-THROUGH

GEO-MARKETING TIER 1 OEMs PARTNERSHIPS

Focus on all available levers to capture full replacement for Pirelli fitted OE

7

LOCAL FOR LOCAL INDUSTRIAL FOOTPRINT

Rome – Georgia (MIRS)

Silao - Mexico +

• 420K units in 2013 • Increase in mix with 11 active product lines • Focused on:

• Premium OE • High end and low volume products testing • New and emerging sizes

• Mission: Exploit new trends

• Factory inaugurated May 2012 • 1.2 Mln units in 2013, and 5 mln planned in 2017

• Efficient and large scale production of a wider range of products dedicated to NAFTA (60% of volumes will be L4L in 2017)

• Shorter supply chain with positive impact on profitability and cash flow

• Mission: Support a growing region

450k 1.2 mln

17 16 15 14 13 12

5.0 mln

A complementary industrial setup

8

NAFTA-FOCUSED PRODUCT DEVELOPMENT

Scorpion Zero 22”

PZero 20”

Cinturato P7 A/S Plus 16” – 20”

Scorpion ATR 20”

• Local R&D allowing quicker time-to-market • New products specifically designed on NAFTA requirements • 3 new NAFTA-specific launches or restyling in pipeline for multiple

product launches each year • In 2014 already 45 new replacement sizes

PZero Nero A/S 17’’ – 19”

Scorpion Verde A/S Plus 16’’ – 22”

9

GEO-MARKETING AND DIGITAL

Digital Native and Pervasive Plan based on geo-localization for Consumer and Retail Marketing activities

• Highlight Premium white spots to target new dealers

• Increase numeric to close distribution gaps

RETAIL COVERAGE

AND MANAGEMENT

• Align dealer stock, focusing on Pirelli homologated parc

• Stimulate rotation of stock increasing sell-in and sell-out

DIGITAL TRADE

ENGAGEMENT

• Exploit Pirelli brand throughout the consumer journey delivering relevant content to target segments and key US areas

• Maximize Marketing ROI

DIGITAL CONSUMER

ENGAGEMENT

10

ASSOCIATE DEALER PROGRAM AND DISTRIBUTION

®

• Create Brand Loyalty with Trade in Areas with High Premium Potential

• Consolidate FasTrack Retail Dealers Program in USA with Launch of 2.0 Version

• Extension of FasTrack to Canada and Moto • Consolidate Tier 1 Program in Key Dealers and

extend to others with priority allocation, dedicated promotions, preferred customer care

• Highlight Premium white spots to target new dealers

• Grow the network to fill the distribution gaps • Expand Clubs in US and Canada • Expand into new Retail chains • Align dealer stock with local car parc (focus on

Pirelli homologated car parc) • Stimulate rotation of stock increasing sell-in and

sell-out

INCREASE RETAIL COVERAGE DEVELOP CURRENT AND NEW CHANNELS

11


2017 P3 - PIRELLI PEAK PERFORMANCE DRIVEN BY SUPERPREMIUM LEADERSHIP AND L4L OPERATIONAL EFFICIENCY

12

DISCLAIMER

13






Statement




REGIONAL OVERVIEW RUSSIA

1

• Growing presence in a contracting market

• Wide product range with A+B+C brands (both Replacement and OE)

• 2 local production plants

• Recognized Premium Brand

• Winter position:

• Product range / new products

• Brand consideration

• Price positioning vs market leader

• Car dealer channel penetration

• Manufacturing upgrade (saturation, mix and processes)

PIRELLI TODAY IN RUSSIA

• Premium market share ~10% • Launched Russian-specific studded products (Ice Zero

and New Formula Ice) • ≥650 PoS with qualified Marketing support • #3 in Brand Consideration on Premium car owners target

(vs #5 PY)

• Target FY 2013 E: • Net Sales: ~240 Mln • EBIT margin: slightly negative due to contracted tyre

market, partial factory insaturation, range still to be completed

• Contribution to Pirelli FY 2013 E

FY 2013 E PERFORMANCE KEY STRENGTHS

DEVELOPMENT AREAS

Net sales 4%

Net sales mix

100%

Consumer




Currency trend (RUR/USD)

Domestic + Foreign Investments (% change) 17 E 16 E 15 E 14 E 13 E 12 A

3.5 3.9 2.8 3.1 1.8 3.4

5.1 6.6 5.4 4.8 4.4 4.0

31.0 32.7 32.7 32.0 32.0 32.0

1.5 6.0 5.4 4.2 6.6 4.1

• On-hold monetary policy and slow infrastructural investment progress prompted government to adjust FY 2013 GDP growth to 1.8%

• 2014 – 2017 forecast: stable oil and gas prices

and WTO effect* will keep YoY GDP growth around 3.5%, and help inflation gradually decline and stabilize around 4.5% YoY.

Source: IHS, Bloomberg, Rosstat

MAIN INDICATORS (RUSSIA)

* Lower import duty and opening of different sectors to investments

2

THE VEHICLE PARC Mln pieces

New registrations

40.3

12A

47.5%

31.0%

21.5%

2.9

41.8

13E

22.1%

32.0%

45.9%

2.8

43.3

14E

44.5%

33.3%

22.2%

2.8

45.0

15E

34.7%

43.1%

22.2%

2.9

3,09

46.7

16E

41.8%

35.7%

22.4%

3.1

48.5

17E

22.9%

36.6%

40.5%

3.3

• Car parc general trend: accelerated shift from traditional Russian brands to foreign ones with better tyre mix.

• 2015 new registrations will match again record high sales of 2012, stabilizing well over 3 mln new cars/year in 2016-2017

• Russian car sales rate still very low vs Europe, confirming strong opportunities for mid-term growth.

Imported brands

Foreign local prod.

Russian brands

Source: IHS, AEB

48.6 49.2 51.1 53.0 54.7 46.9

CAR (RUSSIA)

CAR (RUSSIA + CIS)

KEY FEATURES

12A 13E 14E 15E 16E 17E

+4.8%

+7.2%

+2.6%

CAGR 13-17

+3.0%

+4.1%

+3.8%

3

THE TYRE MARKET

RUSSIA + CIS, OE + REPLACEMENT

RUSSIA REPLACEMENT KEY FEATURES • Competitors scenario Competitors increasing capacity;

price erosion

• Car Parc upgrade Constant growth of Premium mix

where Pirelli is stronger

2011-2014 PLAN 2013-2017 PLAN

+4.1%

+8.2%

37.4 35.9 35.2 36.8 39.0 42.1

2012A 2013E 2014E 2015E 2016E 2017E

10.1% 9.5% 9.0% 10.7% 11.3% 11.9%

2012A 2013E 2014E 2015E 2016E 2017E

43% 44% 44% 43% 41% 38%

34% 35% 32% 34% 35% 37% 22% 21% 24% 22% 22% 23% 35.2 35.9 37.4 36.8 39.0 42.1

+6.8%

+6.6%

+0.5%

61.9 61.9 64.4 67.2 71.0 62.9 2012A 2013E 2014E 2015E 2016E 2017E

Tyre Market Premium % A brands B brands C brands

CAGR 13-17

Premium* / Non Premium split

A, B, C Brands split

* Premium ≥ 17’’; old plan including only A, B, C Brands split

+3.5%

4

Mln pieces

TARGETS 2013 - 2016

REVENUE GROWTH

€/Mln

CAPEX '14-'17

EBIT MARGIN* Negative high single digit

*Pre restructuring

Mid single digit

Double digit

<100 Mln in line with previous plan

244 ~240 ~280

~370

13E 12A 14E 16E

CAGR ’13-’16

+15.3%

Low single digit

5

KEY PROJECTS

Major turnaround

EFFICIENCIES Align industrial efficiency to Pirelli best practice.

COMMERCIAL / RETAIL Rethink approach to CIS.

Implement Premium car dealership strategy.

Expand distribution and retail footprint.

OEM PARTNERSHIP Add to legacy Russian OEMs selected foreign brands (improving mix and pull-through).

MANUFACTURING Capitalize on technological investments done so far. Growth of A+B brands production saturation.

PRODUCT Improve winter offer with range extension and new Russia-specific products.

6

PRODUCT RENEWAL

2013 2014 2015

Range extension (2x number of items) of Ice Zero and New Formula Ice studded products

Launch of new Nordic friction product dedicated to Russia/Nordics

Launch of: • New Pirelli Ice Zero: studded

16’’ – 21’’ • New Formula Ice: studded

13’’-17’’

Illustrative

7

RANGE EXTENSION IN WINTER PRODUCTS

OEM PARTNERSHIP

2012 2014 2016

• Legacy OEM portfolio

• Switch to premium portfolio (R&D/Industrialization activities)

• OEM optimized portfolio to maximize pull-through effect on Replacement

• Sales to OEM: 100 (index)

• 100% legacy brands

• Mix ≥17’’: 0%

• Car brands: legacy + synergic OEMS


• Pirelli + Formula brands >30%

• Mix ≥17’’: ~0%

• Car brands: shift towards value synergic OEMs


• Pirelli + Formula brands >50%

• Mix ≥17’’: >10%

• Car brands: focus on Premium and value synergic OEMs

8

MAXIMIZATION OF PULL-THROUGH VALUE

COMMERCIAL / RETAIL

2012 2014 2016

Distribution

Support

Shelf presence

• Activity with key distributors in Russia

• ~560 POS with qualified support

• Enlarged sales force to optimize territorial presence

• Nation-wide training programs to trade

• Wider customer portfolio • +30% POS vs 2012 • Focus on car dealers for

Premium volumes (double Pirelli share of wallet vs 2013)

• New distributive approach to CIS

• More than doubled Pirelli shelf presence in retail

• Sell-out prices and shelf presence monitored in top cities

• Optimized sell-in footprint • +55% POS vs 2012 • Among top 2 brands in car

dealers channel (leveraging on OEM partnership and product range)

• Among top 3 brands in shelf presence both summer and winter

9

OPTIMAL FOOTPRINT FOR MID-TERM GROWTH TARGETS


PIRELLI RECOGNIZED

AMONG LEADERS IN WINTER NORDIC

PREMIUM SEGMENTS

10

DISCLAIMER

11






Statement




SUSTAINABILITY PLAN 2013-2017 WITH SELECTED TARGETS FOR 2020

AGENDA

1

PIRELLI SUSTAINABILITY TODAY

ACKNOWLEDGEMENTS AND ACHIEVEMENTS

THE EVOLVING CONTEXT

SUSTAINABILITY PLAN: RETURN ON CAPITAL

• GROWTH

• PRODUCTIVITY

• GOVERNANCE & RISK MANAGEMENT


• Sustainability fully integrated in the

Industrial Plan

• The weight of Green Performance on Tyre Revenues up to 42%*

• Workplace Accident Frequency index -60% vs. 2009

• Performance improvement in energy consumption, water

withdrawal and waste recovery

• Push on Green Performance: product developement, raw materials and electronic applications

• Environmental Process Efficiency: innovation-driven projects for energy and CO2, waste and water target

management

• Safety as a culture: towards zero workplace accidents

* Last estimate 2013


DEVELOPMENT AREAS

• Governance of sustainability-driven Risks

and Opportunities

• Accountability

• Risk analysis fully integrated in strategic planning process and

target setting

• 100% of critical suppliers trained on sustainability

• Anti-corruption & Integrity Program

• Third-party Sustainability leadership acknowledgements: DJSI,

FTSE4Good, GLOBAL COMPACT 100, oekom Research

2

AGENDA

3


ACKNOWLEDGEMENTS

AND ACHIEVEMENTS



• GROWTH

• PRODUCTIVITY


FTSE Global and European STOXX

Score 2012-2013: 100/100

Dow Jones Sustainability World and Europe

Global Leadership in the Auto Components sector

for the seventh year in a row

Score 2013-2014: 85 vs sector avg. of 51

Carbon Disclosure Leadership Index (CDLI)

Score 2012: 89 vs sector avg. of 69 (score 2013 in December) Carbon Disclosure Leadership Index

2013 MAJOR ACKNOWLEDGEMENTS

GLOBAL COMPACT 100

Pirelli the only included Tyre Company

oekom Research

Pirelli Global Leader in the Tyre Industry

4

• Green Performance Revenues: 42%* on Tyre sales

• Anti-corruption & Integrity Program

• New Whistleblowing Policy applied to External Community

• Green Sourcing Policy

• Risk analysis fully integrated in strategic planning process and target setting

* Last estimate 2013

5

2013 MAJOR ACHIEVEMENTS

• Process environmental efficiency*

• Energy specific consumption -2% vs. 2009

• Water specific withdrawal -28% vs. 2009

• Waste recovery rate +10% vs. 2009

• Project for an industrial steam solar power plant - first in the world - feeding the production

cycle of Feira de Santana in partnership with the Italian Ministry for the Environment

• New product Life Cycle Assessment tool implemented

• New Pirelli Green Performance products

• Accident Frequency index* -60%* vs. 2009

• Supplier Sustainability risk assessment updating; 62 ESG** audits performed by independent

party; 100% of critical suppliers trained on sustainability

• New training model implemented worldwide: Training Academies and School of

Management; new Employer Branding campaign

• Proactive engagement within high level international bodies on Sustainable Development

(including WBCSD, UN Global Compact, CSR Europe, World Rubber Summit, World Forum

Lille, IRSG)

** ESG: Environmental, Social, Governance

AGENDA

6





• GROWTH

• PRODUCTIVITY


Downside risks dominate the

world economic outlook

Strong move towards

low-carbon economies

Demographic changes, aging

population, virtual mobility,

continued urbanisation

EXTERNAL FORCES DRIVING THE AUTOMOTIVE MARKET

2013 2017 2025 2030

Macroeconomic uncertainty Regulatory constraints Changes in social behaviour

Impact on Automotive industry

Industry intercepting and addressing long-term market opportunities

7

LOW-CARBON EMISSIONS Automotive CO2 regulatory framework and car manufacturers strategy

MEXICO 2016: 169

USA/CANADA

2025: 109

2000 2005 2010 2015 2020 2025

EUROPE 2020: 95

JAPAN 2020: 105

INDIA 2021: 113

CHINA 2020: 117

S. KOREA 2015: 153

280

240

200

160

120

80

Gra

ms C

O2 p

er

km

no

rma

lize

d to

NE

DC

Te

st C

ycle

Premium and Synergic manufacturers committed to conventional and innovative (hybrid, full electric)

technologies towards low-carbon mobility while developing new business models

Hystorical performance

Target

Global passenger

vehicle CO2

reduction standards

Source: ICCT (the International Council on Clean Transportation)

Supporting data can be found at: www.theicct.org/info-tools/global-passenger-vehicle-standards

8

are influenced by the EU tyre label* consider rolling resistance the most

important info on the EU label*

* Pirelli internal data, Goodyear publications and other sources

WORLDWIDE SPREADING OF TYRE LABELLING

Influence on consumer behaviour

71% 66% of car Tyre consumers of truck Tyre consumers

TYRE LABELLING EVOLUTION

JAPAN

EUROPE

SOUTH KOREA

ISRAEL

USA

BRAZIL

AUSTRALIA

CHINA

ARABIAN GULF COUNTRIES

X

X

X

X

X

X

X

X

X

X

Active now

Active now

Active now

Active now

Expected 2014

Expected 2015

Under discussion

Wet grip Noise Status

X

X

X

X

X

X

X

Rolling

Resistance COUNTRY

X

Wear

Strong interest in regulations for rolling resistance and wet grip,

Tyre labelling not yet defined

9

AGENDA

10




SUSTAINABILITY PLAN:

RETURN ON CAPITAL • GROWTH

• PRODUCTIVITY


* The Pirelli model is inspired by the Value Driver framework of the UN-PRI (United Nations – Principles for Responsible Investment) and UN Global Compact , aimed at

supporting dialogue between investors and corporations on ESG themes

Plan is presented through three sustainability-driven enablers

PIRELLI VALUE DRIVER MODEL*

RETURN ON CAPITAL

GROWTH PRODUCTIVITY GOVERNANCE & RISK

MANAGEMENT

• Long-Term Strategy

• Product Innovation

• Operational Efficiency

• Human Capital Management

• Enterprise Risk Management

• Supply Chain Risk

Revenue growth Cost saving

& avoidance

Revenue and reputation

risk reduction;

Sustainability risk containment

11

SUSTAINABILITY LEVERS OF THE INDUSTRIAL PLAN

Integrating, supporting and protecting Group targets and values

CO

ST

CO

MP

ET

ITIV

EN

ES

S

TO

P L

INE

GR

OW

TH

INDUSTRIAL PLAN 2013-17 SUSTAINABILITY PLAN 2013-17 + TARGETS 2020

• Reduce energy consumption by 18% within 2020 vs. 2009: expected

savings of ~25 €/mln and 400,000 Tons of CO2 in 2014-2017

• Towards zero waste to landfill: expected savings of ~60 €/mln by 2017

thanks to internal recovery of scrap

• Reduce water withdrawal by 58% by 2020 vs. 2009

• Target zero workplace accidents: Frequency Index reduction by 90% by

2020 vs. 2009

• Training to reach 7 man / days on average from 2015 onwards

• Push on Green Performance innovation

• Raw materials: from rice husks to industrial silica

• Electronic Applications: Pirelli CYBER TYRE from Truck to Premium

car

• Product developement: strong improvement in Eco Label KPIs with

double-digit reduction in Car Rolling Resistance by 2017

• Green Performance Tyre revenues up to 48% on total Tyre revenues by

2017

• Dialogue with end-users

• Growing investment in risk mitigation and business continuity: 8.3%

CAGR by 2017 vs 2013

• Reduce the environmental impact of purchased goods and services

through Pirelli New Green Sourcing Policy

OE PULL-THROUGH

PRODUCT RENEWAL

PREMIUM GO TO MARKET

AND RETAIL COVERAGE

CONSUMER ENGAGEMENT

DE-COMPLEXITY

DESIGN TO COST

PLANT SPECIALIZATION

RE-SHAPED

MANUFACTURING ASSETS

12

RE

TU

RN

ON

CA

PIT

AL

AGENDA

13






• PRODUCTIVITY


GROWTH: LIFE CYCLE THINKING Focusing strategy on materiality

GLOBAL WARMING POTENTIAL OF OUR MODEL TYRE

The EU medium car

carbon footprint of which

≈ 15% is the average

contribution of

FOUR TYRES

Raw Materials Production Distribution Use End of Life

5.5% 2.6%

0.2% 2.2%

89.5%

14

GROWTH: PRODUCT INNOVATION New technologies in materials and electronic applications

• CAR: “Base” Tyre Monitoring System to

manage tyre performance through

pressure - 2014

PIRELLI CYBER TYRE

• CAR: “Premium” Tyre Monitoring System

with management of static load, tear

consumption, hydroplaning alert, road

surface alert and tyre vectorial strenghts

- 2015

• TRUCK: Cyber Fleet system to manage

the tyres of whole fleets, to minimize fuel

consumption and CO2 emissions - 2013

• SILICA: expansion of the Pirelli

technology to produce silica from rice

husk also for Premium tyres - 2017

MATERIALS

• NATURAL RUBBER: research on

alternative sources; Guayule project with

Versalis (ENI Group) – 2016

• FUNCTIONALIZED POLYMERS:

research on innovative polymers that

guarantee reduced environmental

impact, greater driving safety and

improved production efficiency - 2015

Increasing safety

Decreasing environmental impact

Increasing production efficiency is the steady amount of R&D

investments for the 2014-2017 period

7% OF PREMIUM TYRE REVENUES

15

GROWTH: PRODUCT DEVELOPMENT Enhancement of Green and Safety performance

Rolling Resistance

Wet grip

Noise

BASE -10% -20%

BASE +5% maintained

BASE -12% -15%

TRUCK

BASE -0% -10%

BASE +20% +40%

MOTO

BASE -20% -40%

BASE +5% maintained

BASE -10% -20%

CAR

2007 Today 2020 2007 Today 2020 2007 Today 2020

CAR

Rolling Resistance

Mileage

Noise Dry grip

Wet grip

Weight

TRUCK

Traction Handling

Weight

Rolling Resistance Noise

Mileage

Retreadibility

Tear

Resistance

Wet Braking Weight

Rolling Resistance Predictability

Wet Performance Mileage

Braking

MOTO

Current generation Previous generation (before 2007) 2015 2020

Less CO2 emissions

Better living environment

Increased tyre life

Less impact on natural resources

Less rolling resistance

Less noise

Increased mileage

Less weight

TARGET 2020

Milan – Rome – Milan (1,100 km)

Old tyre vs. 2020 Pirelli tyre:

- 14 litres gasoline

- 42 kg CO2

16

2011

48%

37%

40%

42%

47%

CONSOLIDATED PLAN

45% postponed

GROWTH: PIRELLI GREEN PERFORMANCE REVENUES

• Strong growth of Tyre Green Performance revenues on total Tyre revenues

• The key performance indicator covers products with Rolling Resistance and Wet Grip in the A, B, C classes of

EU Tyre label. The strictest rule applies to:

• all Tyre business units (CAR, TRUCK, MOTO, AGRO)

• worldwide products and markets

• Target set in 2010 (45% by 2013) to be reached in 2015 in line with market slowdown impacts

Tyre revenues driven by sustainable products

2012 2013 2015 2017

17

AGENDA

18






• PRODUCTIVITY


PRODUCTIVITY

2009 2010 2011 2012 2013 2014 2015 2016 2017

100*

97

99 100

98

92

88

85

100 99 102 102

96

91

88

2020

82

85

Energy consumption & CO2 emissions

-18% ENERGY SPECIFIC CONSUMPTION 2020

-15% CO2 SPECIFIC EMISSION 2020

15 €/mln will be invested in energy efficiency projects in 2014-17 with expected savings of ~25 €/mln

and environmental benefits equal to 6,400,000 GJ of energy saved and 400,000 tons of avoided CO2

85 postponed

91

94

CONSOLIDATED PLAN TARGET

• Energy consumption and CO2 emissions expected to strongly decrease by 2020

• Targets set in 2010 of -15% by 2015 vs. 2009 for both energy and CO2 are postponed to 2017 and 2020 respectively, due to the economic slowdown for energy, and disproportionate growth of productive volume in carbon-intensive markets for CO2

• New pilot projects (photovoltaic plants, solar heat plants, biomass heat plants) are planned to balance the growth of CO2 emissions in carbon-intensive markets

• 20 Mln € invested since 2010, already saved 10.6 Mln€ with an environmental advantage of 1,600,000 GJ of energy saved and 50,000 tons of avoided CO2

* Value calculated in % and normalized on tons of produced tyres; trends restated with new acquisitions (Russia)

19

100*

93

76

83

72 68

64

58 50

PRODUCTIVITY Water withdrawal

42

* Value calculated in % and normalized on tons of produced tyres; trends restated with new acquisitions (Russia)

30 postponed and restated -58% WATER SPECIFIC WITHDRAWAL 2020

Driving our investment also based on a water-availability risk scenario;

11,000,000 m3 of water saved since 2010 and 2,700,000 m3 to be saved in 2014-17 period

• Water withdrawal trend strongly decreased and improvement is expected to continue until 2020, with a target of -50% by

2017 and of -58% by 2020 vs. 2009

• Target set in 2011 of -70% by 2015 vs. 2009 is postponed because of the economic slowdown and investment

rationalization

2009 2010 2011 2012 2013 2014 2015 2016 2017 2020


20

73* 70

76

82 83 84

85

88 90

• Target for waste recovery rate on track (85% by 2015)

• Target no waste to landfill by 2020 (≥95% by 2020)

• Efficiency actions for scrap internal recovery: ~60 €/mln savings in the 2013-17 period

PRODUCTIVITY Waste recovery

>95

*Trends restated with new acquisitions (Russia)

Towards zero waste to landfill

>95% WASTE RECOVERY RATE 2020

2009 2010 2011 2012 2013 2014 2015 2016 2017 2020


21

MERIT & ETHICS

• Remuneration Policy alignment with Pirelli development strategy through long-term

Incentive plans

• Non-financial targets in Executive evaluation system

TRAINING & EDUCATION

• Further increase the T&E investment: from 5.5 man/days on average in 2013 to 7

man/days on average in 2015, and ≥7 onwards

• Academies dedicated to specific training for each Professional Family

• School of Management: cross-function soft skills and leadership training

OCCUPATIONAL HEALTH & SAFETY

• Engaging Employees in safety as a culture: Target Accident Frequency Index ≤0.2 in

2020

DIVERSITY

• Representation of Women in the Board: 15%

• Women in management positions: 19%

• 91% of Employees work outside Italy

• 61% of senior manager experienced at least an expat during her/his career

• New proxy matching performance, grade, seniority, etc. to identify any remuneration

gap

DIALOGUE & RULES

• Regular consultation of our Employees through opinion surveys: new Trust Index

measurement

• Applying the same Procedures and Policies group-wide

PRODUCTIVITY: HUMAN CAPITAL MANAGEMENT An employer of choice strategy

22

Targeting ZERO accident is a CHOICE, not a chance

23

2009 2010 2011 2012 2013 2014 2015 2016 2017 2020

• Target to reduce the accident frequency index (IF) by 60% in 2015 from its 2009 level reached 2 years in advance

• New target: -90% accident frequency index (IF) reduction by 2020 vs. 2009 – Frequency Index ≤0.2

• Safety Culture: global extension of “Excellence in Safety” program supported by “DuPont Sustainable Solutions” and

Behavior Based Safety (BBS) programs

• Investment focus on Machineries Safety, Industrial Hygiene, Ergonomics

1.76*

1.53

1.10

0.77

0.70 0.65 0.58

0.52 0.45

<0.2

in advance 0.70


≤ 0.2 INJURIES FREQUENCY INDEX 2020 -90%

PRODUCTIVITY: HUMAN CAPITAL MANAGEMENT Health & Safety focus

* Injuries Frequency Index: number of accidents per 100,000/total hours worked; trends restated with new acquisitions (Russia)

AGENDA

24






• PRODUCTIVITY


25

"A domestic stock with

a multi-business model"

"A more international stock

with a focus on Premium"

Already in-line with Int'l best practices:

• A Board with a majority of

Independent Directors

• 2 governing committees exclusively

composed of Indipendent Directors

2009 2011

73.8% free float

TODAY

49.3%

45.5%

5.2%

Shareholder

Pact*

Camfin

Free

float

16%

49.3%

45.5%

5.2%

Free

float

Camfin

Shareholder

Pact*

Int'l

Institutional


27%

Camfin

36%

Free

float

26,2%

73,8%

Nuove Partecipazioni (MTP) 39.09%

Lauro 54: 24.06%

Intesa Sanpaolo:18.43%

Unicredit: 18.43%

GOVERNANCE

Introduction of 2 new crucial committees

• Nominations and Successions

• Strategies

Further enhanched with reduced

number of Board: 15 Directors vs

current 20

Key role of the Board in overseeing

risk management process

* including 21% of Camfin stake; shareholder pact was dissolved on October 31, 2013

** SRIs: Socially Responsible Investors

GOVERNANCE Pirelli Shareholder structure and Governance evolution

Int'l

Institutional


Int'l

Institutional


PBIT@Risk and CASH_FLOW@Risk

ENTERPRISE RISK MANAGEMENT 360°approach

Business interruption

Health and safety

Environment

Information technology

Asset & people security

Business compliance

Product innovation

Industrial capacity and

process quality

HR management

JV and M&A

Tax planning

Financial assets & liability

management

2013 2017

47

€/Mln

64

€/Mln

Risk mitigation and transfer with

investments through all operational areas

Risk-taking Risk measurement tools

and stress test analysis

Commodity price

volatility

Future regulations

Competitor and

consumer behaviour

Country risks

Exchange rates

Market trends

CAPEX and OPEX invested in Risk Mitigation / Prevention and Transfer

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

3,5%

Pro

bability

AR PBIT [M EUR]

424 M €

74% probabilità di avere PBIT < AR PBIT 26% probabilità di avere PBIT > AR PBIT

Probabilità di avere:

PBIT < 540 M€ 19 %

540 < PBIT < 599,5 M€ 55 %

599,5 < PBIT < 660 M€ 25 %

PBIT > 660 M€ 1 %

718 M €

660 M €

PBIT atteso 572,6 M€

AR PBIT 599,5 M€

540 M €

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

3,5%

Pro

bability

AR PBIT [M EUR]

424 M €



PBIT < 540 M€ 19 %

540 < PBIT < 599,5 M€ 55 %

599,5 < PBIT < 660 M€ 25 %

PBIT > 660 M€ 1 %

718 M €

660 M €


AR PBIT 599,5 M€

540 M €

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

3,5%

Pro

bability

AR PBIT [M EUR]

424 M €



PBIT < 540 M€ 19 %

540 < PBIT < 599,5 M€ 55 %

599,5 < PBIT < 660 M€ 25 %

PBIT > 660 M€ 1 %

718 M €

660 M €


AR PBIT 599,5 M€

540 M €

CAGR

+8.3%

26

STRATEGIC BUSINESS RISKS OPERATIONAL TRANSVERSAL RISKS

Risk

minimization

& business

continuity

ESG DRIVERS INTEGRATED INTO GROUP-WIDE SUPPLY CHAIN MANAGEMENT

• Scouting and homologation phases: ESG assessment (weight of Sustainability score is 33% on final selection rate)

• Contractual phase: Sustainability Clauses

• Risk Assessment: Economic, Environmental, Social, Governance, Reputation with an ESG Vendor rating phase

through third party audits – 190 Audits performed = 100% of Suppliers at risk assessed since 2009

NEW GREEN SOURCING POLICY

• Key concepts: “lifecycle” and “reduction, reuse and recovery”

• From Engineering to Logistics: broadening the organization vision to reduce the environmental impact of purchased

goods and services throughout the entire supply chain

SUSTAINABILITY IN SUPPLIERS AWARD

• Acknowledging Suppliers sustainable performance on Economics, Environmental, Social, Business Ethics as a

competitive advantage

SPREADING SUSTAINABLE DEVELOPEMENT IN NATURAL RUBBER VALUE CHAIN

• Proactive role within International Rubber Study Group (IRSG) to draft “ Sustainability in Natural Rubber Industry”

standard

Governance and Engagement

SUPPLY CHAIN RISK

* ESG: Environmental, Social, Governance

27

PIRELLI VISION 2020

SMART, EFFICIENT, PROFITABLE, INNOVATION-DRIVEN

ACCOUNTABLE AND ENGAGED TO ITS STAKEHOLDERS

A SUSTAINABLE COMPANY

28

DISCLAIMER

29

This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s current

expectations and projections about future events and does not constitute an offer or solicitation for the sale, purchase or

acquisition of securities of any of the companies mentioned and is directed to professionals of the financial community.

These statements appear in a number of places in this presentation and include statements regarding the intent, belief or

current expectations of the customer base, estimates regarding future growth in the different business lines and the global

business, market share, financial results and other aspects of the activities and situation relating to the Company. \

Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual

results may differ materially from those expressed in or implied by these forward looking statements as a result of various

factors, many of which are beyond the ability of Pirelli & C SpA to control or estimate precisely. Consequently it is

recommended that they be viewed as indicative only.

Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of

this presentation.

Pirelli & C. SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements

which may be made to reflect events and circumstances after the date of this presentation, including, without limitation,

changes in Pirelli & C. SpA business or acquisition strategy or to reflect the occurrence of unanticipated events.

Statement




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