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Francesco Gori
CEO & Managing Director Pirelli Tyre


2008 Tyre Results

Industrial Business

Consumer Business

2009-2011 Tyre Targets

| 1

In 2008 Pirelli Tyre performance was adversely impacted by

unforeseeable market conditions
Million €, Percent

Key Facts 2008 yoy Q1




∆ Price/Mix


Profit & Loss
Revenues EBITDA (before restructuring costs) %

∆ Exchange Rate -2.8%

FY '07 4,162 549 13.2 358 8.6 358

FY '08 4,100 443 10.8 250 6.1 150

∆% -1.5 -19.2

∆ Volume


Impact of raw materials

14 103

88 41 18

EBIT (before restructuring costs) % EBIT (after restructuring costs)



+191 ∆ Commercial ∆ Efficiencies -4 ∆ Unit costs & other -295

A dramatic increase in all input costs (raw materials, energy, etc.) A collapse of the OE market, driving sales down by 10.2% in Q4 (5% organic) The decision to provision in 2008 results restructuring initiatives and costs worth 100 ml €
Note: unaudited results, pre-closing

| 2

Pirelli Tyre 2008 operating and financial performance
Million €

Raw materials: Labour / energy / other: (72)

-195 -73

EBIT bridge
(before restructuring costs)



(268) (268)




EBIT 2008

EBIT 2007

Price & mix


Cost of inputs


Exchange rate

Depreciation / other

NFP evolution
* of which stock: -212

PBIT: Investments & Depreciation: ∆ NWC: Other variations: Financial / fiscal charges:

+250 -106 -156* +8 -172 ( ) (175)






NFP 2007

Minorities repurchase and debt restructuring


Net Cash Flow before dividends

Other variations

NFP 2008

| 3

Pirelli Tyre restructuring program





committed to



restructuring in Europe:
Headcount reduction in WE (-15% on ~10,000 people at YE 2008) Industrial footprint reshape in WE factories

Funding required to execute

additional restructuring

is already

included in 2009-2011 costs / EBIT targets

| 4


2008 Tyre Results

Industrial Business

Consumer Business

2009-2011 Tyre Targets

| 5

Industrial Business in 2008
Truck Tyre shipments, Percent (yoy) Million €, Percent

2008 Market



Pirelli Economics
∆ Price/Mix +9.1% -2.7% -6.6% ∆ Exchange Rate


-13% Replacement -27%

FY '07 Revenues 1,300 156 12.0 106 8.1 EBITDA (before restructuring costs) % EBIT (before restructuring costs) %

FY '08 1,299 160 12.3 112 8.6

∆% - 0.1 2.6

∆ Volume

-12% 18%



OE -9% 7% Replacement -17%

Worsening trend in all OE and Replacement markets, including China (Q4: -23% yoy)
Source: ANIP, Europool, Pirelli

+2.6% organic business growth Q4 volume down 2-digits Q4 price / mix up 2-digits

| 6

Industrial Business: a unique competitive position

% of sales volume


% of production volume


100% ~25%


Pirelli rank #1
High cost


100% ~13%


Southern EU and Near-East

~40% ~87%

#2 #1 new entry
Top 4 competitors in 2008 Pirelli in 2008



North Africa China

Low cost


Market in 2008

Pirelli in 2008

Sales focus in high


Leading position in Pirelli key markets

Product cost leadership supported by a low-cost production base


Source: TyreBusiness Report, Pirelli estimates

| 7

Industrial: Market Outlook & Pirelli response

Mln pieces, Percent, Radial + truck tyres


140 120

Total: -12%

Share growth in premium segments: Highway, Regional and Megatrailer, Green products

Africa, Near and Middle East
100 80 60 40 20 0 2008 2009 2010 2011 2012
2009 Replacement: Mature: Emerging: -8% -10% -5%

Market leadership consolidation

Market leadership and growth in Mexico

2009 OE: Mature: Emerging:

-25% -35% -15% OE

China, Far East and Pacific
Leverage local sourcing and market share growth

Leverage vertical integration and innovation on Premium Products

Source: LMC, Global Insight, Pirelli estimates

| 8

Industrial: success built on cutting-edge technological backbone
OLD customer needs NEW customer needs PATENTS Tread grooves / sipes: 9 patents Tread pattern: 8 patents Belts design: 10 patents (6 for 0° technology) Bead core: 4 patents Side wall profile: 1 patent




Low Emission

5 4 3 2 1 0


Bead structure: 2 patents

Comfort Load Capacity

MATERIALS Last generation of SSBR functionalized polymers

New HEP Cord generation

Plasma coating on steel cords


New 0° Cord generation Full Compound penetration Cords New SHT carcass cords

Large Aggregate Size Distribution Carbon Black

Mileage: 350,000 km on highway Retreadability: 4 lives Weight reduction Overall step-gain in eco-performance

High molecular weight BR polymers

| 9

Industrial: cost structure is increasingly lower

% of production volume

Brent (US$ per barrel) TSR 20 (US$ per ton) Steel scrap (€ per ton) EU butadiene (€ per ton)

High cost

Index (Jan 2006 = 100%) Fcst IQ 2009


220% 180%

Low cost


140% 100% 60%







Competitive advantage hardly replicable by major competitors Russia operation starting in 2011
Source: Pirelli data

Raw materials cooling down already since Q4 2008 Effects materializing starting from 2009: ‘08 high stock allow for full benefits only after 1Q ’09

| 10

Targets for the industrial business
€ Million, Percent





8.4% 8.1%


8.0 ÷ 8.5%




7.0 ÷ 7.5%












profitability level restored after expected slowdown in 2009

Unmatchable cost-competitive structure
Best cost / benefit ratio for fleet users

Favourable product / mix balance on a geographical basis
2009 results affected by production
Note: at current exchange rates *Before restructuring costs

slowdown needed to adjust inventories

| 11


2008 Tyre Results

Industrial Business

Consumer Business

2009-2011 Tyre Targets

| 12

Consumer Business in 2008
Car tyre shipments, Percent (yoy)

2008 Market Europe
OE Replacement

-23% -9%

-5% -5%

Pirelli Economics
Million €, Percent

∆ Price/Mix ∆ Exchange Rate

+6.5% -2.8% -5.8%

FY '07 Revenues 2,861 393 13.7 253 8.8 EBITDA (before restructuring costs)

FY '08 2,801 283 10.1 139 5.0

∆% - 2.1 -28

∆ Volume

North America

OE -26% Replacement -17%

-17% -9% 8%

% EBIT (before restructuring costs) %



-26% -6%


Q4 collapse of Light Vehicle production De-stocking at Trade (Replacement channel)
Source: Global Insight, Europool, Rma, Anip, Pirelli

+0.7% organic business growth Q4 volume down 2 digits Q4 price / mix up 2 digits

| 13

Pirelli Tyre positioning in the consumer business

% of sales volume

Segment Pirelli segment share (08)

% of production volume

North America

100% 10%


100% 39%

29% 54%



High cost




10% 26%


Strong, 2-digits

Asia – Pac & Africa Latam

33% 6%
Market in 2008

Low cost

61% 40%
Top 4 competitors in 2008 Pirelli in 2008

Low, 1-digit

Pirelli in 2008

Historical leadership in LatAm Low exposure to North America Solid foothold in Europe, due to high OE pull-through Growth opportunities in Asia-Pacific markets with new China source
Source: Tire Business Report, Pirelli estimates

Leading brand in Prestige niche Development partner of most premium car makers Key supplier to the Automotive Industry in LatAm and Turkey

Only high-end, high added-value products in high-cost countries

| 14

Consumer: tough 2009 market outlook with replacement demand

recovery from 2010
Car tyres, Mln pieces, Percent


Total: -7%
1000 Replacement

North America
Keep increasing market share in the Replacement market: new products, new customers, brand pull

2009 Replacement: Mature: Emerging: -2% -3% 0%

More selective and focused on OEMs, while increasing sales in Replacement with new Cinturato brand and new Winter products

2009 OE: Mature: Emerging: -18% -20% -15% OE


Defend OE leadership and improve Replacement market share thanks to better competitiveness vs low cost imports from Asia

200 0 2008 2009 2010 2011


Exploiting competitive China source to increase service and coverage in Asean, Japan, Pacific, Taiwan, Korea

Source: LMC, Pirelli estimates

| 15

Three drivers for deep sustainable change

Cost competitiveness
Industrial restructuring & cost-cutting

360-Degrees eco-innovation
Bio-materials Green factory: Settimo Torinese Processes NEXT MIRS & TCM Supply Chain

Enter and establish position in Green segments with “Cinturato P7” and “Snowcontrol II”


| 16

Cinturato: introducing the Green Performance concept

Distinctive features offered by new biomaterials, such as silica derived by rice husk ash, enhancing LRR

performance at

lower cost

Environment-sensitive consumers choosing low-impact products

New Cinturato P7, the green performance tyre for premium cars New Snowcontrol II, the green performance tyre for the Winter Season

| 17

Production Footprint is moving forward

% production volume


Increased focus in high cost plants:
100% 100% Germany: UHP, Winter, Runflat UK: SUV Italy: “Green” factory (New Polo Settimo Torinese operative by 2H 2010)

High cost



Footprint rationalisation: the equivalent capacity of one European factory shutdown completed by 2009

Low cost



World Class Manufacturing
20 plants involved on a total of 23 Transformation cost target: -5% p.y.



Decomplexity and Target Cost Management projects

| 18

“Emergency” cost reduction program, aiming at 300€ mln gross savings

% of total sales

COST REDUCTION INITIATIVES 15% rightsizing in high-cost countries; bonus and pay freeze for Management and staff in 2009 360° purchasing contracts renegotiation Selective adoption of “spot purchases” to capture at best the benefits of price decrease Reduction of usage and weight Increase stock rotation Crash program for the reduction of discretionary / indirect expenses (except R&D and marketing) Savings from lower energy costs, lower transportation / logistic tariffs

100% Labour


Cost Structure

Expected savings
200 mln € in 2009 100 mln € in ‘10-’11

Raw materials





11 2008

| 19

Motorbike: world leader with Pirelli and Metzeler



Performance, Passion, Lifestyle

Technology & Touring

Passion and Fun, no Cyclic Business Internet: 1.5 million surfers connected Co-marketing (Events, Promotions) OE Partnerships

New product / process Patents First Winter Tyre First 0° Front on Enduro Street Continuous stream of New Products

“We Race What We Sell, We Sell What We Race” World Superbike: exclusivity until 2012 Moto Cross: 51 World Championship Victories DAKAR ‘09: 1° and 2°

| 20

Targets for the consumer business

€ Million, Percent

EBIT % 8.8% 8.8%
8.0÷8.5% 6.5 ÷ 7.0%

2,861 2,735















2009 sales reduction driven by lower OEM demand Channel mix (Replacement vs. OE) improving margins in all markets, supported by new product family (CINTURATO) Strong cost reduction supporting EBIT improvement from 2009
Note: at current exchange rates *Before restructuring costs

| 21


2008 Tyre Results

Industrial Business

Consumer Business

2009-2011 Tyre Targets

| 22

Pirelli Tyre R&D expenses still top of the sector, getting

greener and

2007, % of Tyre revenues


% of total sales

Traditional Green

Pirelli Michelin Yokohama* Toyo* Hankook Bridgestone* Continental Goodyear

3.5% 3.4%


PROCESS 2.8% 2.7% 2.7% 2.5% 2.4% 1.9% Next MIRS “TCM” low energy high quality compound mixer MATERIALS Organic-derived, bio-ingredients such as Rice husk ash


40% 20% 2008 2011

* FY ending at 31 Dec 2008

Note: at average 2007 currency rates Source: Companies’ Websites

| 23

Pirelli Tyre Capex and Cash management plan
€ Million

Capex / Depreciation



-20% 250



1,266 1,016

0 2006-2008 2009-2011 2009 2010-2011 2009 2011

Industrial: “lean” business system Consumer: China, Romania, new green factory in Italy

EBITDA recovery Strong reduction in raw material & finished good inventory Tight / safe credit policy

Including 150 mln € cash-out for restructuring

| 24

Pirelli Tyre Targets: back to full steam by 2011
€ Million, Percent

8.7% 8.6%

8.0÷8.5% 6.5 ÷ 7.0%

4,162 3,950









Top line recovery after a negative growth in 2009 Higher cost efficiencies and lower raw materials prices impacting progressively on P&L, from 2009 onwards In current scenario, 2009 profitability can be better than 2008 Additional restructuring will support increasing profitability beyond 2011
Note: at current exchange rates *Before restructuring costs

| 25


| 26

Our Brand Equity is superior to all competitors
Pirelli Tyre Brand most recent awards 2008 2007 Top of mind brand (Research International Survey) Brand preferred by consumers (Autop of Mind 2007– Mais Automotive magazine)



“Best Tyre Manufacturer of the year” award (China Auto Service Golden Finger Awards) Customer Satisfaction Index for Pirelli OE tires significantly above the sector average “Mass Market/Non luxury segment CSI” award (JD Power Original Equipment Tire CS study) “Best brand for sportiness and excitement” (SportAuto magazine) “Best Customer Satisfaction Index” award for Pirelli OE tyres (JD Power Original Equipment Tire CS study) “Best brand” award (Auto Illustrierte magazine)




2008 2007




| 27

The Organizational Model
F. GORI Pirelli Tyre

U. FORNER BU Car M. BOIOCCHI R&D H. PACE North America G. KELLY Latin America



C. COSTA BU Steelcord

Super-flat organization (19 direct reports to CEO) Strong accountability (4 independent Bus and 3 Regions) Global support processes, cross-BUs The youngest, in-bred, well experienced management line in the industry

| 28

2008 Pirelli Tyre

People by region
Europe 41% North America 1%

People by contract
Permanent 91%

People by cluster
Staff 81%

Asia Pacific 7%

MEA 10%

Latin America 41%

Temps & Agency 9%

Management 1%

Staff 18%

| 29

2008 Pirelli Tyre
Sales by segment
Car 60% Moto 9% Steelcord & other 2%

Sales by region
Latin America 33% Europe 45%

Truck 29%

MEA 11%

North America 7%

Asia Pacific 4%

Raw material mix
Natural Rubber 28% Synt. Rubber 22% Carbon black 12% Chemicals 14% Steel 13% Textiles 11%

Sales by channel
Replacement 76%

OE 24%

| 30

2008 Pirelli Tyre factories
Burton-on-trent Carlisle Car Car

Bollate (Mi) Car Carlisle Torinese Car Settimo Car Settimo Torinese truck Figline Valdarno steelcord

Breuberg Merzig Car/motorcycle steelcord

Manresa Car

Izmit Izmit Car/truck steelcord

Rome (GA) Car

Slatina Slatina car steelcord

Guacara Car

Yanzhou Car/truck

Campinas Car Brazil Feira de Santana Car/truck truck Santo André Gravatal Motorcycle/truck steelcord Sumaré

Merlo car

Alexandria truck

| 31

Tyre world market
2007 by segment
Car 60%

2007 by region
Japan 7% China 11%

Europe 29%
Aircraft 0,5%

Asia Pacific 11% MEA 8% South America 5%

2 Wheel 3%

Truck 28%

Agro 2,5% EM 6%

North America 29%

2007 by manufacturer*
Others 19,5% Cooper 2,3% Good Year 14,8%
Triangle 1,0% Hangzhou 1,0% Giti+GT 1,9% Max 1,7% Kumho 2,0% Hank 2,7% Toyo 1,7% Yoko 2,9% Sumi 3,2%

Michelin 17,1%

BS 16,9% Nokian Conti 0,9% Pirelli 5,9% 4,5%
Source: Tire Business Report

* Tire Business Report, 9/08

| 32

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