MOTO, TRUCK & SPECIAL VEHICLES - Pirelliindustrial-plan.pirelli.com/static2011/common/eng/pdf/gori.pdf88% of production in low-cost countries ... Encouraging performance biking in

FRANCESCO GORI

MOTO, TRUCK & SPECIAL VEHICLES AND MARKETS DEVELOPMENTS PROGRAMS

1

MOTORCYCLES: A PREMIUM STRATEGY

TRUCK & SPECIAL VEHICLES: A REGIONAL STRATEGY

REGIONS: NAFTA, SOUTH AMERICA, MEA AND APAC

AGENDA

Life is too short for traffic.

Dan Bellack

MOTORCYCLE TYRES - A PREMIUM BUSINESS

2

Sport, Speed, Adrenaline


3

Status, Self-esteem, Respect


4

Journey, Freedom, Discovery,

Adventure


5

Urban, Smart, Fast, Status,

Sustainable


6

Contact patch as big as a credit card, ensuring:

Dynamic behaviour of the bike

Safety

Design details matter

MOTORBIKERS CARE ABOUT TYRES

7

Consolidate our #1 position

Strengthen our reputation as pioneers in innovation and technological

breakthroughs

Grow Premium geography

Maintain high level of profitability

PREMIUM MOTO STRATEGY – 2015 TARGETS

8

TOTAL TYRE MARKET

Mln pieces

350

2015

28%

2007

235

28%

2011

285

29%

2012

300

29%

330

2014

27%

315

2013

29%

+5.3% +5.0%

10.0

2015 2007

7.5

2011

8.0

2012

8.5 9.5

2014

9.0

2013

+6.0% +1.1%

RADIAL TYRE MARKET

MOTORCYCLE TYRE MARKET TRENDS

9

O.E.

CAGR 07-11

CAGR 11-15

MOTORCYCLE TYRE MARKET TRENDS

2011

32

2012

33 35

2014

35

2013

+3.6%

2011

4.8

2012

5.0 5.3

2014

5.1

2013

+3.0%

2011

21

2012

23 28

2014

26

2013

+9.4%

2011

228

2012

239

262

2014

249

2013

+3.5%

EMEA NAFTA

LATAM APAC

CAGR 11-14

10

Major Premium Markets

Market Features: Largest custom market

Low growth

Pirelli Strategy Consumer activation on custom

Grow radial fitments

Market Features: Largest radial Market

One-digit growth

Pirelli Strategy Consolidate market leadership

Racing dominance

Market Features:

High radial content (Aus, Jp)

Fast growing radial segment

Pirelli Strategy Targeting leadership in all key markets

except Japan

Adding radial capacity in China

OUR REGIONAL STRATEGY TO MAINTAIN

PREMIUM LEADERSHIP

NAFTA EMEA APAC

11

Complete range

Commitment to racing

Homologations (18.000)

Advanced testing department

Pioneering new segments

Product versatility

Premium OEM Partners

End-consumer approach

Two Wheels Ahead

A TWO BRAND PREMIUM STRATEGY

12

THE METZELER WAY FOR HARD BIKERS

Journey, Discovery, German

Heritage, Community, Safety

13

Journey, Discovery, German

Heritage, Community, Safety


14

First choice when the journey is a long one

Largest range for custom cruisers

First winter radial tyre

First in Enduro competition (2011 winner of the 17th world championship title)

BMW leading tyre partner


LEADER IN LONG JOURNEYS

15

Metzeler

Italia

International Metzeler account

Metzeler

España

Metzeler

Deutschland

Metzeler

France

Metzeler

International

Blog

Metzeler

Blog

Metzeler

Blog

Metzeler

Blog

Metzeler

Blog

Metzeler

Blog

Metzeler

Metzeler

International

International Metzeler Youtube channel


LEADER IN COMMUNITY MANAGEMENT

From physical to digital community

First to start Social Media activity

First to launch new site with full integration

of Social Media, Crowd Sourcing and eCommerce

Blog visits

2009

65.000

2010

140.000

2011

310.000

16

2015 2012

Road radial

Custom

On Off

Racing

Hypersport

Sport Touring

Cross

Enduro

Trial

= New product


PRODUCT ROADMAP

Off Road

17

THE PIRELLI WAY FOR FAST BIKERS

18

Sole tyre provider for the World SBK (since 2004), Canadian SBK (since 2006),

British SBK (since 2008)

Winner of prestigious races like 24H Le Mans, Tourist Trophy, World MX1,

World MX2, World Cross Country

Proven performance derived from racing experience

Diablo Rosso Corsa

Dry Test - 5/2011

Diablo Rosso II

Sport Test - 11/2011

Diablo Rosso II

Super Test - 10/2011

Scorpion Trail

Trail Road Test - 4/2011


19

First customizable tyre

Award-winning App for telemetry

Engagement in motorcycle communities

Biker meetings

Product launch

Track days


DIGITAL & COMMUNITY

20

= New on-road product = New off-road product

Road radial

Custom

On Off

Racing

Hypersport

Sport Touring

Cross

Enduro

Trial Off Road

2015 2012


PRODUCT ROADMAP

21

LARGEST OEM HOMOLOGATION PORTFOLIO

22

Mln pieces

Consolidate leadership in

Latin America

Support penetration in

NAFTA

Radial introduction by 2013

Radial tyres only

Serving largest radial tyre market

Scale effect with Car tyre factory

MIRS technology

Radial tyre only

Targeting growing

radial demand

Cost competitive also

thanks to scale effect

with Car

Capex

2011

14

16

2012 2015

+5 %

YEAR END CAPACITY

Major achievement by 2015

88% of production in low-cost countries (+8pts vs. 2011)

13

2014

15

GLOBAL PRODUCTION FOOTPRINT

> 60 ml€

23

From family commuting…

GLOBAL PREMIUM GEOGRAPHY

24

…to emerging Premium

GLOBAL PREMIUM GEOGRAPHY

BIKERATHEART

Encouraging performance biking in India

25

THE PROJECT PIRELLI OPPORTUNITIES THE RATIONALE

90 M$ investment in 3Y

High value conventional tyres

Start-up 2013

7 million tyres in 2016

Strong local industrial partner

Allocating capacity close to growing markets

Free access to fast growing ASEAN markets

Cost-competitive production source

No ASEAN duties

INDONESIA JV PROJECT WITH ASTRA OTO PARTS

26

Revenue Growth

€/Mln

2014E 2010 2011E

362

420

570

2012E

480

10.5%

Ebit Trend

2014E 2010 2011E 2012E

~16%

~17.5%

Volumes

Price/Mix

Total

2012 vs. 2011 CAGR 2011-2014

+10% +8%

+4% +2.5%

+14% +10.5%

2012 lower due to start up

costs in China factory

~17%

~16,5%

MOTORCYCLE TYRES TARGETS

27




AGENDA

28

Technology-driven leadership in our key markets

Focus on emerging and rapid developing markets

Introduction of new products based on SATT technology

Replacement sales ratio increasing up to 80%

Introduction of agro radial technology in Latin America

TRUCK STRATEGY – 2015 TARGETS

29

mln/pieces

Total World

5.1%

5.5%

CAGR

165

109

135 139

149 157

2007 2011 2012 2013 2014 2015

RADIAL TRUCK TYRE MARKET TRENDS

30

NAFTA

RADIAL TRUCK TYRE MARKET TRENDS

2.3%

2011 2012 2013 2014 2015

21

20 21

21.5 22

7.5%

2011 2012 2013 2014 2015

69

76 81 87

92 South America APAC

6.8%

2011 2012 2013 2014 2015

12 13

14 15

16

31

EMEA

1.6%

2011 2012 2013 2014 2015

30

27

30 31

32

Market Features

Fast growing radial

tyre market

Imports still growing due to lack

of local capacity

Pirelli Strategy

New factory in Argentina

Focus on fleets and dealers

Market Features

Low growth in Europe,

high growth in Turkey and Egypt

EU ‘label’ regulations impacting

cheap imports

Pirelli Strategy

01 Series introduction: fully

meeting EU new regulations

Capacity increase in Egypt

Market Features

Largest truck tyre market in the

world

Evolving from ‘low price per

tyre’ to ‘low cost per mile’

Pirelli Strategy

Focus on fleets and dealers

Supporting retread introduction

OUR REGIONAL STRATEGY

SOUTH AMERICA EMEA

APAC

32

OUR PRODUCT STRATEGY

DIFFERENT NEEDS FROM DIFFERENT CUSTOMERS

33

Winter

On/off Regional

Highway


A SPECIFIC DESIGN FOR EACH NEED

Winter Highway

On/off Regional

Previous line

Wet & dry handling

Wet Traction

Mileage

Rolling Resistance

Acoustic Comfort

Wet Braking

Traction

Retreadability

Mileage

Rolling Resistance

Snow traction

Wet Braking

Traction

Retreadability

Mileage

Handling

Tearing Resistance

Wet Braking

Dry Handling

Retreadability

Mileage

Rolling Resistance

Wet Handling

Wet Braking

-1E +2 57

-1E +2 57

-1E +2 57

-1E +2 57

34

R

E

F

Wet Braking – 60 km/h

Previous Lines

Traction

Retreadability

Mileage Braking

Handling

Resistance

Rolling Resistance

Noise

-1E +2 57

Wet grip

Traction

Braking distance

Resistance (on/off)

SAFETY

Fuel Saving

Mileage

Extended tyre life

COST

EFFICIENCY

Reduced CO2 emission

Low noise

HAOF compounds

ECO-

SUSTAINABILITY

35

20 m

24 m Rolling

Resistance

10 15 20 25

OUR PRODUCT STRATEGY PERFORMANCE!


CUTTING EDGE TECHNOLOGY

Three Sandwich Belts

enhanced even wear

extended tyre life

retreadability

handling

Zero Degree belt (Pirelli

Patent since 1979) Hexagonal Bead Wire

high flexibility for easy

fitting

retreadability

Full Rubberized Cords

for casing

resistance/fatigue

Dual Layer Tread Compound

with high silica content

(Pirelli Patent)

wet grip

low heat generation for

better rolling resistance

and integrity

better resistance at low

temperatures

Rotated Shoulder Rib

(Pirelli Patent).

Innovative shoulder tread

contour allows correct

distribution of footprint

contact pressure

enhanced even wear

higher mileage

HBW

DLT / HSCC

FRC

RSR

SHT

Super High Tensile Cord

better handling

lower rolling restistance

retreadability

36

3SB

OUR PRODUCT STRATEGY STEELCORD:

PROPRIETARY AND DISTINCTIVE KNOW-HOW

Synthetic Rubber

Carbon

Black

Chemicals

Others Steel

Natural

Rubber

45%

16%

11%

13% 1%

14%

37

Leading edge technology

R&D Integration

Regional production coverage

90% capacity in low-cost countries

Advantages of captive steelcord Cost percentage of Truck radial tyre components

BEYOND PRODUCTS: FLEET SERVICES

24x7 assistance on Europe

and Turkey roads

Network of more than

5000 dealers

Precured bands with original Pirelli

tread pattern

Network of 114 Certified Pirelli

Retreaders worldwide

Fleet tool to allow mobile

and fast data collection:

tyre pressure

tyre tread depth

fitted tyre details

Electronic system to monitor:

Tyre pressure

Tyre temperature

Mileage

Tyre ID

Tyre Track

Sigma Sensor

38

Breakdown Service

Retreading System

Fleet Management Application

Tyre Monitoring System

39

Agro production Trend South America - Market Trend

+6.8%

+4.1%

CAGR 11-15 CAGR 07-11

Mln pieces

1.1

2007

1.3

2011

1.7

2015

‘000 pcs.

OE

Repl.

Tot

2010 2011 2015 2012 2013 2014

0

10

20

30

40

50

SOUTH AMERICA LEADS AGRO PRODUCTION WORLDWIDE

South America - Market Trend

PIRELLI AGRO FOR SOUTH AMERICA:

INTRODUCING RADIAL TECHNOLOGY

40

Pirelli Local for Local

approach

Drive replacement radialization as

market leader

Specific Tyre technology: process,

product specification, materials

Extensive testing on local market

Production in Brazil

Local R&D in S.Andrè

Key market requirements

Increase of productivity

Mileage

Off-road Performance

Reliability under severe applications

O.E. needs

Tyre customized for specific local

applications

Locally made components preferred

Co-development with local suppliers

Quick renewal of agro machines

INDUSTRIAL PRODUCTION FOOTPRINT

Capex Truck + Agro rear

Major achievements by 2015

97% of production in low-cost countries (+ 4% vs 2011)

41

FACTORIES YEAR-END CAPACITY

ITALY

Truck

Steelcord

ROMANIA

Steelcord TURKEY

Truck

Steelcord

CHINA

Truck

Steelcord (JV)

EGYPT

Truck

MERCOSUR

Truck

Agro

Steelcord

Mln pieces

CAGR

6

2011

6.1

2012

6.4

2014

6.8

2015

+3%

>400 ml/€

13% 13%

PIRELLI INDUSTRIAL SEGMENT*: ECONOMICS

Truck

Agro

1.68 1.75 1.89

12%

88% 87% 87%

42

€/bln

CAGR

+4%

Revenue Growth Ebit Margin

1.47

88%

12%

2010A 2011E 2014E 2012E

9.2% ~9% 9

10% 11

12%

Volumes

Price/mix

Total

+1%

+3%

+4%

+2% (radial +4%)

+2%

+4%

2012 vs. 2011 2014 vs. 2011

CAGR

2010A 2011E 2014E 2012E

*Truck + Agro + Steelcord + controlled distribution




AGENDA

43

NAFTA MARKET GROWTH AND PIRELLI STRATEGY

Focus on Premium

Consumer Segments

(Car and Moto)

Focus on independent tyre

dealer channel

Selective approach to

European OEM transplants

while reducing sales to OE

mass market

M/H Truck tyre sales

restricted to Mexico

Volume and Premium mix

growth supported by new

plant in Mexico

EBIT MARGIN

From low one-digit to

double-digit by 2013

44

Car Tyre Market Pirelli Revenue Growth

OE

Repl.

Mln pcs.

Source: Global Insight, Pirelli Estimates

2011 2013 2015 2012 2014

79% 78% 80%

78% 78%

21% 22% 20% 22% 22%

21 20

21 21.5 22

2.3%

2011 2013 2015 2012 2014

79% 80% 79% 78% 77%

21% 20% 21% 22% 23%

333 339 345 353 361

2.1%

Truck Tyre Market (Radial)

€/mln

580

2011E 2012E

660

2014E

710

7.1% CAGR

11-14

OE

Repl.

Mln pcs.

PIRELLI IN NAFTA MARKETS: DOUBLE-DIGIT GROWTH

MEXICO FACTORY BRAND STRENGHT PREMIUM OE

Yearly production capacity ~5 mln Car

tyres by 2016 mostly Premium Tyres

Initial investment: 210 mln €

Start-up Q2 2012

OE on highly visible, Premium US

made cars

(Mustang, Camaro, BMW ,

Mercedes…)

High brand loyalty and high Brand

awareness (JD Power); Favorite

brand for households with income

over 150K

Higher local x local content

Better service and lower delivery time to NAFTA customers

Progressively competitive manufacturing costs

Lower logistics costs and no import duties to entry NAFTA

KEY BENEFITS:

45

Source: Tire Review

Brand preference

by household income 152

148

136 123

118 113

103 102

95 92 92 84 84

71 66

http://www.tirereview.com/

80% 80%

20%

8185

9094 98

2011 2013 2015 2012 2014

73% 73% 73%

72% 72%

27% 27% 27% 28% 28%

5,6%

Pirelli Revenue Growth

€/bln



Car Tyre Market

mln/pieces

OE

Repl.

2.180 1.960

2011E 2012E

+8.4%

2.500

2014E

7,8%

mln/pieces

OE

Repl. 79%

78% 80%

2011 2013 2015 2012

79% 79%

2014

21% 22% 20% 21% 21%

12 13 14

15 16

Consolidate Regional leadership

through:

Expansion of direct equity

distribution in Brazil;

Introduction of new Premium

products targeting booming

aftermarket demand;

Exploit growing Premium OEM

fitments’ pullthrough on

Replacement sales

Benefit from additional Car and

Moto production capacity

progressively freed up by Mexico

and Asia new plants

Start up of new, state of the art

radial Truck Tyre in Argentina

EBIT MARGIN

Mid teen

across the years

46

PIRELLI IN SOUTH AMERICA MARKETS: DOUBLE-DIGIT

GROWTH

CAGR 2011 -2014

PIRELLI IN SOUTH AMERICA: A LEADERSHIP ROLE

47

#1

CAR

#1

TRUCK

#1

AGRO

#1

MOTO

Consistent leadership in OE across

all vehicle segments and the absolute leading Brand.

#1 Brand in Brazil*

3 times Top-of-mind Brand among Male

target across all product categories

All-time Top-of-mind Tyre Brand with 40%

spontaneous mentions

* 2011 LE Market Share

Most trusted Tyre Brand in Argentina**

Ranking among Top 10 for Brand

reputation in Brazil

Geographic coverage with 50 POS in

the most active economic regions Modern facilities in high traffic areas

PIRELLI IS THE ONLY PLAYER WITH EQUITY

DISTRIBUTION IN BRAZIL

STRATEGY: DOUBLE BY AQUISITION AND ORGANIC GROWTH

# OF POS BY 2012

48

49

MERCOSUR FOCUS: PREMIUM GROWTH

SUV, MPV & Large Pick-Ups Car & Small Pick-Ups

3,9

2010

4,3

2012

4,6

2013

4,9

2014

mln/vehicles

Source: Global Insight

9,0%

5,1%

CAGR 11-15

4,1

2011

83% 82% 81% 81% 80%

17% 18% 19%

19% 20%

ARGENTINA

PIRELLI OPPORTUNITIES

Becoming undisputed # 1 market

Leader in all Truck Tyre

segments

Cost competitive production

source;

Logistics

THE PROJECT

300 ml $ investment in 4y;

Radial, state of the art, Medium/

Heavy Truck Tyres;

Start up end of 2013;

700,000 tyres/year by 2016

THE RATIONALE

Mercosur is the fastest growing

Radial Truck Tyre market in the

World;

Allocating capacity close to

Growing demand markets

50

MEA MARKET GROWTH AND PIRELLI STRATEGY


€/mln

Pirelli Revenue Growth Car Tyre Market

+4%

530

2011E

560

2012E

600

2014E

Two competitive production hubs

for Car and Truck Tyres;

Increasing local for local content

value;

Free up capacity from OE mass

market to increase profitable

replacement segments;

Invest in franchise and retail POS

in key markets;

Improve production mix by focusing

on green technologies (Izmit) and

tubeless, low profile Truck tyres

(Alexandria)

51

EBIT MARGIN

Mid teen

across the years


2.5%

mln/pieces

OE

Repl.

2011 2015 2012 2014

mln/pieces

OE

Repl.

2011 2013 2015 2012 2014

79% 81% 80%

79% 79%

1.8%

21% 19% 20% 21% 21%

12 12 13 13

14

96% 96% 97% 96% 96%

CAGR 2011 -2014

FOCUS ON MENA MARKETS

52

Example of Mono Brand Dealer - Istanbul

Abu Dhabi F1 racetrack

Turkey, Izmit

Egypt, Alexandria

ASIA – PACIFIC MARKET GROWTH AND PIRELLI

STRATEGY

€/mln

Car Tyre Market Pirelli Revenue Growth


mln/pieces

OE

Repl.

56% 56% 55%

56% 57%

44% 44% 45% 44% 43%

7.6% Focus on Premium consumer

(Car and Moto) markets;

Exploit Premium OEM transplants

Growth in China;

Leverage on F1 (7 GPs) to

enhance Brand awareness across

the Region;

Keep investing and increasing

Franchise PoS across the Region;

China factory growing and

becoming full range: Truck, Car,

Moto and \\Steelcord (minority JV)

53

EBIT MARGIN

From low one-digit to

double-digit by 2013

mln/pieces


7.5%

80% 80% 80%

2011 2013 2015 2012

79% 79%

2014

20% 20% 20% 21% 21%

69 76 81

87 92

OE

Repl.

2011 2013 2015 2012 2014 2011E 2014E

490

370

+23%

2012E

690

CAGR 2011 -2014

54

NEW MIXING FACTORY CAR TYRE FACTORY

CHINA FOCUS: PREMIUM GROWTH

55

CHINA FOCUS: PREMIUM GROWTH

China Luxury Sales vs.Capacity

Source: Morgan Stanley and Global insight estimates

2011E 2013E 2010 2012E 2014E 2015E

BMW Daimler Audi JLR Lexus Volvo China luxury demand

0

200

400

600

800

1000

1200

1400

1600

1800 C

hin

a U

nits (

‘000)

P.O.S. NUMBER IN CHINA

<1000

2011 2012

> 3000

2014

56

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.

DISCLAIMER

57

Documents

MOTO, TRUCK & SPECIAL VEHICLES - Pirelliindustrial-plan.pirelli.com/static2011/common/eng/pdf/gori.pdf88% of production in low-cost countries ... Encouraging performance biking in