Group & Tyre Sector Presentation. F. Gori Managing Director Tyre Sector 30 th June 2005 Morgan Stanley Automotive Annual Conference

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1 Group & Tyre Sector Presentation F. Gori Managing Director Tyre Sector 30 th June 2005 Morgan Stanley Automotive Annual Conference

2 9M 05 PIRELLI TYRE RESULTS /mn Net Sales EBITDA 9M 05 IAS/IFRS 2, M 04 IAS/IFRS 2, Variation +9.8% +17.7% Price/mix: +5.2% Volumes: +1.8% Actual Variation: +7.0% Exch. Rates: +2.7% Perimeter: +0.1% Total: +9.8% EBITDA margin 15.2% 14.2% EBIT EBIT margin % % +24.9% Commercial Variations: 112mn Efficiencies: 5mn Unit Costs/Other: (63)mn Total: 54mn Net Income % 7.2% Net Sales organic growth in Third Quarter coming from both Consumer and Industrial segments Further Price & Mix improvements (5.5% in the quarter) offset raw materials and energy cost increase also in Third Quarter Pirelli two digit Winter Sales growth is more than twice the market allowing a +1.9% volume overall growth in the quarter, which includes initial 2 months of Chinese new operations 1

3 PIRELLI TYRE: SEASONALITY TREND & FY 2005 OUTLOOK PIRELLI TYRE QUARTERLY ROS (%) % 10.6% % 9.5% 9.2% % 8.2% 7.8% 6.1% 7.4% 6.4% 9% ROS (Target FY06) anticipated in FY05 8.4% 7.4% FY04 FY03 1Q 2Q 3Q 4Q Soft market demand expected to continue till year end 4Q raw materials and energy cost increase pressure on margins Announced price increases will materialize from early % ROS for FY 2005 is confirmed 2

4 2004 TYRE MARKET MARKET (Bil us$) +6.5% % > BY AREA BY SEGMENTS SOUTH AMERICA NAFTA 32% 4% ASIA 22% 9% JAPAN M/H TRUCK 33% 34% EARTH MOVER AFRICA 5% 4% CAR AND LT AGRO/OTHERS 3% 2 WHEELS EUROPE 29% 4% AFRICA/ AUSTRALIA CAR 55% 3

5 PIRELLI TYRE SECTOR SALES BREAKDOWN PIRELLI MARKET SHARE 2004 Pirelli 4.5% From 3.5% in 2000 Sales Breakdown by Segment FY 2004 Sales Breakdown by Area FY 2004 Industrial 31% Consumer 69% Asia, Africa and Pacific 13% South America 23% North America 8% Italy 13% Rest of Europe 43% 4

6 HIGH PERFORMANCE TYRES LEADERSHIP Consumer Mix World Market share, HP > 70% Performance tyres > 12% Brands: Diablo, Dragon, P6 & P7, PZERO, Scorpion, Sottozero,. 5

7 PIRELLI TYRE: THREE TIER APPROACH TO R&D Breakthrough innovation New Businesses -Development of intellectual property -Deployment of advanced technologies Sustaining innovation -Product/ process improvements -Offer enrichment -Industrialization of PLabs projects Open Innovation Raw Materials Key Suppliers Optical components & modules Over 100 scientists Tyre R&D Services & electronics integration Over 900 technicians Product Development with OE Customers Materials & processes Machinery design & Manufacturing Innovative solutions Acceleration of product/ process renewal 6

8 PIRELLI TYRE: INNOVATION AND TECHNOLOGY OE selection on prestige endorsement Cyber tyre and vehicle dynamic interaction, teamed up with OE customers know-how Innovative materials, thanks also to advanced research support from PLabs and CCM processing Self-supporting Tyre and TPM solutions Robotized production systems based on MIRS TM technology Nominal Pressure INTERNAL REINFORCEMENT Zero Pressure 7

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10 PRODUCT LIFE CYCLE, CAR & LT EUROPE 9 Off road Scorpion A/T Snow Ice Scorpion Ice & Snow Scorpion STR Scorpion S/T Scorpion Zero & A On road Winter Sottozero Winter Winter Snowsport HP Snowcontrol Winter Carving O.E. EUFORI@ Runflat Comfort P Zero System P6 P Zero Rosso P Zero Nero P6000 & Powergy P Zero Corsa P7 Tuning Speed

11 PIRELLI PREMIUM BRAND STRATEGY Moto exploits two premium brands PIRELLI We race what we sell, we sell what we race World Superbike Championship Official tyre supplier WSBK and WSSP METZELER 2 wheels specialist Custom Builders high tech choice World Motocross Championship 44 World Motocross Championship titles 2005 leader in MX1 class World Enduro Championship 2005 leader in all classes Individual Sporty Passionate Fashionable Rational German technology High quality Reliable 10

12 PRODUCT LIFE CYCLE: AMARANTO Initial excellent feed back from fleets for FH85 Amaranto in terms of : - Mileage - Road handling -Comfort!positive volumes for R22.5 and will further increase due! to the avaibility of TH85 volumes are increasing for R22.5 Widening of the Amaranto range!launch of the TH85 ( drive axle) September 2005!315.70R22.5 FH85/TH85 Amaranto available on market for December Keep flying with 11

13 PIRELLI TYRE: COST COMPETITIVENESS FROM DELOCALIZATION Consumer production mix Industrial production mix 15% 14% 51% 44% Low-cost countries 49% 56% Low-cost countries 85% 86% Bahia Romania Gravatai 12

14 RAW MATERIALS: NR PRICE TREND Prices trend: Europe TSR-20 Prices in US Cents/kg FOB , , , , ,1 63, ,6 40 '00 '01 ' nov 05 13

15 PIRELLI TYRE: FOCUS AND SPEED Planning Distribution Inside looking Supply Chain Value Targeting Project Channel / Customer /POS Outside looking Customer Satisfaction Projects TIRE DEALER Brand MKS... KPIs Supply Chain Tracking Differentiated service level Customer segmentation A Level of service + From make to stock for all From 24 h deliveries B $ To Custom solution for Customer/Product Fill rate On time delivery Delivery accuracy C + Cost efficiency 14

16 PIRELLI BRAND ESTEEM 15

17 PIRELLI BRAND RELEVANCE: WINTER TESTS WINNER Zeitschrift Größe Profil Fahrzeug Ergebnis 175/65 R 14 T W190 Snowcontrol Ford Fiesta *** sehr empfehlenswert 195/65 R 15 T W190 Snowcontrol VW Golf V *** sehr empfehlenswert 225/55 R 16 H W210 SottoZero BMW 530 i sehr empfehlenswert 225/55 R 16 H W210 SottoZero BMW 530 I sehr empfehlenswert 245/40 R 18 V W240 SottoZero BMW 530 i bedingt empfehlenswert 255/55 R 18 V Scorpion Ice&Snow VW Touareg sehr empfehlenswert Testsieger 205/55 R 16 H W210 SottoZero Audi A3 Sportback sehr empfehlenswert 225/45 R 17 V W240 SottoZero VW Golf V sehr empfehlenswert 195/55 R 16 H W210 Snowsport RFT BMW 120 Testsieger 195/55 R 16 H W210 SottoZero BMW 120 Zweiter Sieger 235/40 R 18 V W240 Snowsport Audi A3 2.0T FSI sehr epfehlenswert Promobil 225/70 R 15 C Chrono Winter Mercedes Sprinter/VW LT sehr gut 16

18 PIRELLI BRAND RELEVANCE: SUMMER TESTS WINNER 175/65 R 14 T P 3000 E Ford Fiesta sehr empfehlenswert und Testsieger 195/65 R 15 H P 6 VW Golf V sehr empfehlenswert und Testsieger 225/40 ZR 18 Y XL P Zero Nero Audi TT vorbildlich (sehr empfehlenswert) 225/40 ZR 18 P Zero Corsa BMW 325 i es wurden keine Empfehlungen vergeben 235/70 R 16 H Scorpion STR Jeep Cherokee vorbildlich (sehr empfehlenswert) und Testsieger 225/45 ZR 17 Y XL P Zero Nero MB C 320 sehr empfehlenswert und Testsieger 255/55 R 18 V Scorpion Zero VW Touareg empfehlenswert (bester im Test) 235/35 ZR 19 P Zero Nero BMW Z4/VW Golf sehr empfehlenswert 225/40 R 18 FA P Zero Corsa Porsche 996 empfehlenswert 285/30 R 18 RA 245/45 R 17 Y P Zero Rosso MB CLS 350 sehr empfehlenswert und Testsieger 225/40 ZR 18 P Zero Nero VW Golf GTI sehr gut und Testsieger 225/45 ZR 17 Y XL P Zero Nero Audi A3 / VW Golf sehr gut und Testsieger Promobil 215/70 R 16 R CP Camper L6 Fiat Ducato sehr gut 17

19 PIRELLI BRAND DIFFERENTIATION 18

20 PIRELLI TYRE: THE NORTH AMERICAN CHALLENGE Major opportunity - Largest market worldwide - Stable demand balancing the volatility of South American markets Strong Brand Equity Selective growth strategy: - Pirelli brand only - Focus on After Market and Independent dealers - Premium OEM only Targets Two digit Market share of performance segment - Revenues: 10% of total Pirelli revenues (at current exchange rates) 19

21 PIRELLI TYRE: THE CHINESE VENTURE PROJECT - Product mix: TL - TT (20 24 ) - Capacity: 600 k ty/year - Lay out: sq.m covered area (for 1,2 ml ty/year) sq mt total area MARKET Pirelli Sales (OE + Repl) ty/month pcs Share A/S 2,0% 2,7% 2,2% ty/y ty/y ty/y ty/y All Steel Total XPly PI Sales Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 TL R1 TT P TL P TT R1 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10

22 Group & Tyre Sector Presentation F. Gori Managing Director Tyre Sector 30 th June 2005 Morgan Stanley Automotive Annual Conference 21