Pirelli Tyre
Francesco GoriCEO & Managing Director Pirelli Tyre
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
Disclaimer
1IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
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Agenda
Pirelli Group overview
Pirelli Tyre
Annex
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
2009 Outlook
Positioning and strategy
2009 -2011 Targets
Pirelli Group snapshot
3IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
Core Business100% Pirelli Tyre
51% Pirelli EcoTechnology
Start-up engines
100% Pirelli Labs
51% Pirelli Ambiente
100% PZero
Business towardsconsolidation
58% Pirelli RE
100% Pirelli BBSolutions
5th global tyre playerleading company for high range products
Pirelli industrial businesses’ engine ofinnovation
a player on renewable energy andsustainable development sector
Pirelli fashion project: developing synergieswith core business while maximising Pirellibrand value
leader in Italy and one of the mainplayers in Europe with 14.7 €/bln ofAUM (as of June ’09)
a BB solutions provider for home andsmall office
the Group company aiming at aleadership position in Emission ControlTechnologies
A green performer multinational company focusing on the automotive sector
leveraging on
Pirelli Group 2009 – 2011
4
Strenghts 5 transformation levels
Capacity of matching innovation,technology and industrialmanagement
Rapid success in green-field start-ups
Global brand
Rooted multinational player alsopresent in emerging market
Financial strength
Portfolio reshaping
Competitiveness
Leadership team
Broad geographical coverage
Open collaboration
We want to use the discontinuity of the external scenario to transform PirelliGroup & seize new opportunities
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
1H’09A
Group Revenues
EBIT %
After continuous restructuring
CAPEX
2009 2011
2.1 ~4.3(vs. 4.7 in 2008)
4.7–4.8
4.7% 4.5-5.0%(vs. 1%* in 2008)
~ 8%
~0.7 in 3y plan
NFP 1.1 ~0.8**(1.0 in 2008)
<0.8before
dividends
€/bln
* 4,1% before restructuring costs (144 €/mln)
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Pirelli Group targets
** target revised in July 2009 (previous target: = 1.0 bln €)
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
of which “Green Performance” 25%(+6pp yoy)
40%
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Agenda
Pirelli Group overview
Pirelli Tyre
Annex
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
2009 Outlook
2009 -2011 Targets
Positioning and strategy
Pirelli Tyre: the advantage of a fast, focused & flexiblebusiness model updated
Pirelli Strengths & Strategy
A sound positioning 75% to 80% Replacement ~50% Emerging Countries a favourable product/mix
> 70% of production capacity in low costCountries (almost 80% in 2011)First movers in restructuring actionsCost cutting program 09-11: 300 €/mln savings
strong reduction in raw material and FinishedProduct inventoriesInvestments focused on quality mix and
competitiveness improvementTight/safe credit policy
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Market demand drop / pricediscipline
’09 Industry Issues
Low Production volumes
Cash Management
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
1H09 Top Line trend: Pirelli vs. main peers
* Simple average: Michelin, Bridgeston excl Diversified Prod.; Goodyear, Continental: Rubber Group excl Conti Tech
8IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
Sales
Volumes
Price/mix
-22.2%
-21.2%
+6.0%
Top 4competitors*
-11.6%
-15.7%
+6.4%Price/mix holding well in both
Industrial and CommercialSegments (respectively +7.4%and +5.9% yoy)
Market share increase in allmajor markets
Top line QoQ improvement in astill recessive marketenvironment: +6.7% 2Q revenuesvs. 1Q09
Pirelli performance highlights
1H09 Profitability Trend: Pirelli Tyre vs. main peers
* Simple average: Michelin, Bridgeston excl Diversified Prod.; Goodyear, Continental: Rubber Group excl Conti Tech
Ebit margin 1H08 Ebit margin 1H09
9IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
-5.9p.p.
7.5%
1.6%
Top 4competitors*
-1.2 pp
7.6%8.8%
increasing cost efficiencies (45% of 200 €/mln2009 gross savings achieved in 1H09)
1H09 margins in line with 3Y plan targets
Pirelli Tyre profitability trend rebound in 2Q09in both Consumer & Industrial segments
raw materials price reduction (raw materialprice index: -10% QoQ, -16% yoy)
Pirelli performance highlights
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Pirelli Tyre positioning in the consumer business
PIRELLI STRENGTHSALES BREAKDOWN BY AREA
NorthAmerica
Europe
Prestige
Premium
Synergic
Strong,2-digits
Low,1-digit
Segment Pirelli segmentshare (08)
% of sales volume
100% 100%
PRODUCTION BY AREA
Highcost
Lowcost
% of production volume
100% 100%
Asia – Pac& AfricaLatam
Historical leadership in SouthAmerica
Low exposure to North AmericaSolid foothold in Europe, due to high
OE pull-throughGrowth opportunities in Asia-Pacific
markets with new China source
Leading brand in Prestige nicheDevelopment partner of most
premium car makersLeading supplier to the Automotive
Industry in South AmericaLeader in the Motorcycle business
Only high-end, high added valueproducts in high cost countries
Source: Tire Business Report, Pirelli estimates
# 1
26%
10%
54%
29%
10%
6%
33%
32%
Market in2008
Pirelli in2008
60%39%
Top 4competitors
in 2008
40%61%
Pirelli in2008
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
Production Footprint is movingforward (~71% in low costcountries by 2011)
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Performance, Passion, Lifestyle
PRODUCT
Technology & Touring
A CONSUMER ORIENTED BUSINESS
TWO PREMIUM BRANDS
TECHNOLOGY AND INNOVATION
RACING
“We Race What We Sell, We Sell What We Race”World Superbike: exclusivity until 2012Moto Cross: 51 World Championship VictoriesDAKAR ‘09: 1st and 2nd
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
Motorbike: world leader with Pirelli and Metzeler
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
€/mln, %
1Q’09
Revenues
margin
EBITDA (beforerestructuring costs)
EBIT (beforerestruct.costs)
Profit & Loss
670.5
77.4
11.5%
41.9
6.2%
-10.4%
-28.8%
-42.6%
Δ%
margin
-3.0 p.p.
-3.5 p.p.
1H ‘09 Δ%
1,372.0
167.8
12.2%
96.5
7.0%
-8.2%
-15.3%
-23.6%
-1.1 p.p.
-1.5 p.p.
2Q ‘09 Δ%
701.5
90.4
12.9%
54.6
7.8%
-6.0%
+1.1%
+1.5%
+0.9 p.p.
+0.6 p.p.
Consumer Business: Pirelli economics in 1H‘09
Price/mix still holding well
Price/Mix
Exch. Rate
Volume
Rev. (before Exch. rateimpact)
Revenues drivers
+6.6%
-14.7%
-2.3%
-8.1%
+5.1%
-9.8%
-1.3%
-4.7%
+5.9%
-12.3%
-1.8%
-6.4%
1Q’09 2Q ‘09 1H ‘09
Pirelli volumes better thanmarket trends in all regionsexcept Russia, where creditrisk remains high
Ebit margin rebound thanksto raw materials pricereduction and costefficiencies
12IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
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Industrial Business: a unique competitive position
SALES BREAKDOWN BY AREA PIRELLI STRENGTH
Area Pirelli rank
Mercosur
Southern EUand Near-East
North Africa
#1
#2
#1
% of salesvolume
PRODUCTION BY AREA% of productionvolume
Source: TyreBusiness Report, Pirelli estimates
~13%
High cost
Low cost
Top 4competitors
in 2008
~87%
100% 100%
China new entry
60%
40%
Pirelli in 2008
Emerging
Mature
100% 100%
Market in2008
~25%
~75%
Sales focus in high growthareas
Leading position in Pirellikey markets
Steelcord technology
Pirelli in2008
Product cost leadershipsupported by a low-cost productionbase (~89% in low cost countriesby 2011)
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
~40%
~60%
€/mln, Percent
Industrial Business: Pirelli economics in 1H‘09
Price/Mix holding well
Increasing market share inall regions
Double digit marginconfirmed in a difficultmarket scenario thanks tothe exposure to the rapiddeveloping countries
Positive impact from rawmaterials price decrease
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1Q’09
Revenues
margin
EBITDA (beforerestructuring costs)
EBIT (beforerestruct.costs)
Profit & Loss
256.4
30.4
11.9%
19.1
7.5%
-22.0%
-28.1%
-36.8%
Δ%
margin
-1.0 p.p.
-1.7 p.p.
1H‘09 Δ%
543.9
73.0
13.4%
50.1
9.2%
-19.1%
-17.4%
-22.6%
+0.2 p.p.
-0.4 p.p.
2Q‘09 Δ%
287.5
42.6
14.8%
31.0
10.8%
-16.3%
-7.6%
-10.1%
+1.4 p.p.
+0.8 p.p.
Price/Mix
Exch. Rate
Volume
Rev. (before Exch. rateimpact)
Revenues drivers
+ 7.2 %
- 25.7 %
-3.5%
-18.5%
+6.8%
-20.9%
-2.1%
-14.1%
+7.4%
-23.1%
-3.4%
-15.7%
1Q’09 2Q‘09 1H‘09
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
Costcompetitiveness
Market
360-Degreeseco-innovation
Bio-materialsGreen factory:
Settimo TorineseProcessesNEXT MIRS & TCMSupply Chain
Industrialrestructuring &
cost-cutting
Enter and establish position inGreen segments with “CinturatoP7” and “Snowcontrol II”
Three drivers for deep, sustainable change
15IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
COST REDUCTION PROGRAMS
Labour
Rawmaterials
15% rightsizing in high-costcountries; bonus and pay freeze formanagement and staff in 2009
360° purchasing contractsrenegotiation
Selective adoption of “spotpurchases” to best capture thebenefits of price decrease
Reduction of usage and weight
Crash program for the reduction ofdiscretionary / indirect expenses(except R&D and marketing)
Savings from lower energy costs,lower transportation / logistic rates
45% of 200 €mlnof 2009 grosssavings alreadyachieved in 1H09
Pirelli Tyre 2009 Cost reduction program update
1H’09ACHIEVEMENTS
82% of the target(over 1,200 headcount)
Other Costs
-10% Q0Q RawMaterial Price Index(-16% yoy)
>50% vs. ’09target
16IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
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R&D EXPENSES KEY PROJECTS
Source: Tire Business 31 Aug. 2009
“GREEN” TYRE
Traditional
Green
2008, % of Tyre revenues % of total salesPRODUCT
PROCESS
MATERIALS
Cybertyre
Next MIRS “TCM” low
energy highqualitycompoundmixer
Organic-derived,bio-ingredientssuch as Ricehusk ash
Pirelli Tyre R&D expenses still top of the sector, getting greener andgreener
3.5%
3.2%
3.0%
2.7%
2.9%
2.5%
1.9%
Pirelli
Michelin
Sumitomo
Yokohama
Toyo
Bridgestone
Continental
Goodyear
100% 100%
20%40%
2008 2011
3.2%
2.1%Hankook
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
Greener and Greener: already in line with the new regulation
THE TECHNOLOGY
THE MARKET SEGMENT Environment-sensitive consumers asking for
low-impact products
THE PRODUCT The Green Performance tyre already
homologated on the new platforms of premiumOEMs
Distinctive features thanks to new bio-materialsLRR improvement at high performance level
Cinturato (P7 launch April’09)
KEY BREAKTHROUGHS OF THE 01 SERIESMileage: 30% higher than previous products
Retreadability: 4 lives
Lower rolling resistance: 3% savings on annualfuel consumption
Lower environmental impact: lower rolling noise;no high aromatic oils
THE PRODUCT A truck product family combining the new
European Tire regulation standards with highcost efficiency
(R:01 launch May’09)
18IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
Mileage Fuel Consumption
Mileage Fuel Consumption
Greener and Greener: the Cinturato P7 vs. its peers
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
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20
Agenda
Pirelli Group overview
Pirelli Tyre
Annex
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
2009 Outlook
2009 -2011 Targets
Positioning and strategy
Source: LMC, Pirelli estimates
Car tires, Mln pieces, Percent
North AmericaKeep increasing the market share in the
Replacement segment: new products, newcustomers, brand pull
EuropeMore selective and focused on OEMs, while
increasing sales in Replacement with the newCinturato brand and new Winter products
LatAmDefend OE leadership and improve Replacement
market share thanks to better competitiveness vs.low cost imports from Asia
Asia-PacificExploit competitive China source to increase
service and coverage in Asean, Japan, Pacific,Taiwan, Korea
OE
Replacement
Total: -7% -6%
0
200
400
600
800
1000
2008 2009 2010 2011 2012
2009 Replacement: -2%Mature: -3%Emerging: 0% slightly pos.
2009 OE: -18% -16%Mature: -20%Emerging: -15% -10%
Consumer: tough 2009 market outlook with replacementdemand recovery from 2010
OUR GROWTH STRATEGIESMARKET OUTLOOK
21IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
(Sept. ’09update)
OUR GROWTH STRATEGIES
Industrial: Market Outlook & Pirelli response
Source: LMC, Global Insight, Pirelli estimates
OE
Mln pieces, Percent, Radial + truck tires
Replacement
Total: -12% -14% EuropeShare growth in premium segments: Highway,
Regional and Megatrailer, Green products
Africa, Near and Middle EastMarket leadership consolidation
LatAmMarket leadership and growth in Mexico
China, Far East and PacificLeverage local sourcing and market share
growth
SteelCordLeverage vertical integration and innovation on
Premium Products0
20
40
60
80
100
120
140
2008 2009 2010 2011 2012
2009 Replacement: -8%Mature: -10%Emerging: -5%
2009 OE: -25% -33%Mature: -35% -50%Emerging: -15%
MARKET OUTLOOK
22IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
(Sept. ’09update)
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Agenda
Pirelli Group overview
Pirelli Tyre
Annex
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
2009 Outlook
2009 -2011 Targets
Positioning and strategy
24
NET INVESTMENTS RENEWALRATIO
NET CASH FLOW BEFOREDIVIDENDS
NET FINANCIAL POSITION BEFOREDIVIDENDS
1.0-1.1
2009 2010-2011 2009 2011
1.4
Capex / Depreciation
2006-2008 2009-2011
Industrial: “lean” business systemConsumer: China, Romania, new
green factory in Italy
EBITDA recoveryStrong reduction in raw material &
finished good inventoryTight / safe credit policy
Including 150 mln €cash-out forrestructuring
-20%
Pirelli Tyre Capex and Cash management plan
€Million
1,016
1,266250
0
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
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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
€Million, Percent
REVENUES EBIT %
Note: at current exchange rates
8.0÷8.5%
6.5 ÷ 7.0%
Pirelli Tyre Targets: back to full steam by 2011
+9÷+10%-6÷-7%3,950
4,162 4,100
2006 2007 2008 2009 2011
8.6%8.7%
6.1%*
*Before restructuring costs
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
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Agenda
Pirelli Group overview
Pirelli Tyre
Annex
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
2009 Outlook
2009 -2011 Targets
Positioning and strategy
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
Pirelli a real sustainable multinational company
Best in class for Economic, Environmental and Social dimension; Pirelli rating:88% (+11pp yoy) vs. Autoparts & Tyre average 48% rating
Worldwide leader in Autoparts and Tyre industry
Excellence Areas: Health & Safety, Brand Management, Innovation Management,Human Capital development, Labour practice indicators, Talent attraction &retention, Environmental Reporting, Climate Strategy, Standards for Suppliers
Included in all major sustainability global indexes:
Best Italian Company for Corporate Governance
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Car62% Moto 10%
Steelcord& others
2%Truck26%
Sales by segment Sales by region
LatinAmerica
32%
MEA 10% AsiaPacific
6%
Replacement81%
Europe44%
Raw materials mix Sales by channelSynt. Rubber 24% Carbon
black12%
Chemicals17%
Textiles 14%Steelcord 10%
NaturalRubber
23%
OE 19%
NorthAmerica
8%
1H’09 Pirelli Tyre Mix
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
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Headcount by clusterBlue Collar workers
81%
Management1%
Staff18%
Headcount by region
Headcount by contract
Europe39%
North America1%
LatinAmerica
42%Asia
Pacific7%
Permanent92%
Temps &Agency
8%
MEA11%
Headcount
Dec ‘08 Jun ‘09
28.601
1H’09 Pirelli Tyre People
27.241
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
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U.K. Germany
Turkey
Romania
China
EgyptArgentinaBrazil
Venezuela
U.S.A.
Spain
Feira de SantanaSanto André
GravatalSumaré
BrazilCampinas Car
Car/TruckTruck/Agro
Motorcycle/TruckSteelcord
Guacara Car
Rome (GA) Car
Manresa Car
Burton-on-trent CarCarlisle Car
Carlisle Car
ItalyBollate (Mi) CarSettimo Torinese CarSettimo Torinese TruckFigline Valdarno Steelcord
Breuberg Car/MotorcycleMerzig Steelcord
Izmit SteelcordIzmit Car/Truck
Slatina SteelcordSlatina Car
Yanzhou Car/Truck
Alexandria TruckMerlo Car
Pirelli Tyre
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
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Recent Pirelli Tyre Highlights:
April 6, 2009
May 21, 2009
May 20, 2009
Pirelli Tyre introduces Cinturato P7, the first green-performance tyre for medium and high-powered cars
Pirelli wins the 2009 Tyre of the Year Award of the English magazine Auto Express.Pzero beats three other competitor brands in several areas, including braking andhandling in wet and dry, aquaplaning, rolling resistance and price
Pirelli Tyre introduces the R:01 Series. The new regional tyre for medium heavy trucksoffers higher mileage, reduced consumption, better retreading potential
July 2, 2009 Pirelli celebrates its 80th anniversary of its industrial and commercial presence in Brazilwhile announcing that will invest another 200 million Dollar in Brazil between 2009 and2011
June 9, 2009 Pirelli Tyre wins the “2009 National Award for Innovation” promoted by Confindustria.Chairman Marco Tronchetti Provera receives the award from the President of Italy,Giorgio Napolitano
May 22, 2009 Gettyre.it has gone live, making it the first site dedicated to shopping for motorcycle tyresand related services
May 2009 Pirelli tyre keeps winning both in Superbike and world and national Rallys
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
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Note: at current exchange rates
2009 sales reduction driven by lower OEM demand
Channel mix (Replacement vs. OE) improving margins in all markets, supported by new productfamily (CINTURATO)
Strong cost reduction supporting EBIT improvement from 2009
€Million, Percent
REVENUES EBIT %
8.0÷8.5%
6.5 ÷ 7.0%
8.8%
5.0%*
8.8%
2006 2007 2008 2009 2011
Targets for the consumer business
+9÷+10%-4÷-6%2,735
2,861 2,801
2006 2007 2008 2009 2011
*Before restructuring costs
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
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€Million, Percent
7.0 ÷ 7.5%
8.0 ÷ 8.5%
REVENUES EBIT %
Note: at current exchange rates
Historical 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 slowdown needed to adjust inventories
+9÷+10%-8÷-10%
Targets for the industrial business
8.4% 8.6%*
8.1%
2006 2007 2008 2009 2011
1,214
1,300 1,299
2006 2007 2008 2009 2011
*Before restructuring costs
IAA Investor & Analyst ConferenceFrankfurt – September 16, 2009
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