H1 2 0 0 2 Results Milan, September 9 th , 2002 0 Presentation - - PowerPoint PPT Presentation

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H1 2 0 0 2 Results

Milan, September 9th, 2002

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Presentation Agenda

• Group Overview
• Business Environment and Strategies
• Pirelli H1 2002 Group Results

Sector Overview Questions and Answers

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Business Environm ent and Strategies

➤ Recessive economy; slow recovery ➤ Cut of Telecom Carriers’ capex ➤ Investments of Energy utilities still lagging ➤ Tyre industry still driven by high-end products ➤ Continuous effort in cost reduction: ➥ 87 ml gross efficiencies ➥ five factories closed in the last 12 months ➥ 6.4% headcount reduced vs. H1 2001 ➤ Group investments focused and rationalised: capex/depreciation ratio reduced from 1.9x to 0.9x ➤ Focus on innovation: R&D expenditure from 2.8% to 3.4% of total sales ➤ Recessive economy; slow recovery ➤ Cut of Telecom Carriers’ capex ➤ Investments of Energy utilities still lagging ➤ Tyre industry still driven by high-end products ➤ Continuous effort in cost reduction: ➥ 87 ml gross efficiencies ➥ five factories closed in the last 12 months ➥ 6.4% headcount reduced vs. H1 2001 ➤ Group investments focused and rationalised: capex/depreciation ratio reduced from 1.9x to 0.9x ➤ Focus on innovation: R&D expenditure from 2.8% to 3.4% of total sales

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Pirelli Group Shareholder Structure

100% 100% 100% 100%

Pirelli Tyre Holding N.V.

PIRELLI & C.

(*) A 2.5% stake of voting rights is exercised according to the will of Mr. Tronchetti Provera. On the same 2.5% stake BZ Group holds a put option and Pirelli & Co. holds a call option, which can both be exercised on March, 2003 at the average price of the ninety previous stock market sessions. (**) Equity Investment.

39.1% 39.1%

Camfin 29.80% Serfis 9.48% Generali Group 6.21% HDP 5.94% SAI 5.61%

• Ed. Holding

5.28% Mediobanca 5.08% RAS 5.07% E-Biscom 4.79% Camfin 29.80% Serfis 9.48% Generali Group 6.21% HDP 5.94% SAI 5.61%

• Ed. Holding

5.28% Mediobanca 5.08% RAS 5.07% E-Biscom 4.79%

59.7% 59.7%

BZ Group Holding Limited BZ Group Holding Limited

7.7% (* ) 7.7% (* )

Pirelli Cavi e Sistemi Energia Pirelli Cavi e Sistemi Telecom

Stakes are expressed as a percentage of voting rights, according to the latest information available to the company

100% 100%

OLIMPIA (**)

60% 60%

Treasury shares at June 2002: ≅163ml (8.5% of voting capital). Treasury shares at June 2002: ≅1.95 ml (4.8% of voting capital).

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Italy Rest of Europe Australia, Africa, Asia Latin America North America 43% 18% 14% 13% 12% Telecom Cables & Systems Tyres Energy Cables & Systems 8% 44% 48% Products Geographical Breakdow n Consolidated Sales at June 30th, 2002: Euro 3,352 ml (-15% YoY)

Pirelli H1 2 0 0 2 Group Results

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Pirelli H1 2 0 0 2 Group Results

PIRELLI Tyres PIRELLI Tyres PIRELLI Telecom Cables & Systems PIRELLI Telecom Cables & Systems PIRELLI Energy Cables & Systems PIRELLI Energy Cables & Systems

Sales EBIT EBIT Margin Net profit Net debt var.

• 4.6%

+ 30% H1 01 1,691 20 1.2% (*) (*) var. +0.7%

• H1 01

1,477 111 7.5% 51 709 Sales EBIT EBIT Margin Net profit (w/o Olimpia) Net profit Net debt var.

• 15%
• 62%

H1 01 3,946 243 6.2% 200 200 (2,225) H1 02 3,352 93 2.8% 2 (52) 1,618

(*) In H1 2001 the whole Cables and Systems division accounted a Euro 117 ml net profit and Euro 729 ml net debt. Balance sheet Total assets 8,676 Equity 5,169 Net result (88) Net financial position 3,595 Total liabilities 8,676 P&L Costs for services (1) Financial interest (87) Net loss (88)

Olimpia - H1 2002

Book Value of Olivetti shares 3.14 Euro p.s. Fully diluted book value 2.79 Euro p.s.

60% 60% H1 02 1,614 26 1.6% (1) 521 var.

• 65%

n.m. H1 01 812 82 10.1% (*) (*) H1 02 284 (20)

• 7.1%

(33) 409 Sales EBIT EBIT Margin Net profit Net debt H1 02 1,488 111 7.5% 55 607 Sales EBIT EBIT Margin Net profit Net debt

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Financial income (charges) Extraordinary items 33 52 (*) (82) 24 n.m (47) 24

Pirelli Group Profit and Loss ( Euro m l)

Net Sales Net Result EBITDA

Ebitda Margin

3,946

H1 2002

200 432

10.9%

H1 2001

• 15%
• Var. %

(2,225)

Q2 2001

1,664

Q2 2002

• Var. %

3,352 (52) 278

8.3%

• 36%

1,618 141

8.5%

1,618 EBIT

Ebit Margin

243

6.2%

93

2.8%

• 62%

51

3.1%

Net Debt (13) n.m. Fiscal charges (128) (33) (14)

• 74%

5,870 5,207 5,207 Equity

• 54%

13 n.m.

• 17%

2,013 204

10.1%

• 31%

109

5.4%

• 53%

(2,225) 52 n.m. (57)

• 75%

5,870 (13) n.m.

• 42

Q1 2002

• Var. %

(35) 1,688 137

8.1% 2.5%

(1,406) (39) (19) 5,629 n.m.

• 1%
• 3%

+21% n.m.

• 26%

n.m.

(*) Including Euro 21 ml of trading securities devaluation.

Equity participation results

• (54)

(27) n.m.

• n.m.

(27) n.m.

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243 93 + 66 + 21 (23) (39) (8) (118) H1 2001

Volume Exchange Prices (excl. metal)/ Mix Labor efficiencies/ Materials/ Other fixed costs Unitary labor cost

(59)

Materials Supply agreement with Cisco Other

+ 10 EN = - 14 TLC = - 130 TYRE = + 26 EN = - 14 TLC = - 130 TYRE = + 26 EN = - 6 TLC = - 65 TYRE = + 32 EN = - 6 TLC = - 65 TYRE = + 32 EN = + 5 TLC = + 25 TYRE = - 9 EN = + 5 TLC = + 25 TYRE = - 9 Labor cost gross reduction = 67 Material efficiencies/other fixed costs = 20 Total gross efficiencies = 87 Volume effect on variable costs = (21) = 66 Labor cost gross reduction = 67 Material efficiencies/other fixed costs = 20 Total gross efficiencies = 87 Volume effect on variable costs = (21) = 66

Pirelli Group Profit and Loss - Ebit variations ( Euro m l)

H1 2002

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Main I ndustrial Achievem ents - Focus on R&D

• Launch of CCM, the new fully automatic mixing room
• First homologation for MIRS ™ motorcycle tyres on the Aprilia RSV 1000
• Operational opening of the new state-of-the-art MIRS plant in Georgia (USA)
• Agreement for optical nanotech research with MIT
• Introduction of a new family of products for fibre-to-the-business, premises and LAN and FTTx applications,

creating a distinctive new family of products (FineLight™ Giga fibre and FineLight™ Base fibre) Overall cumulative investment up to 30/6/02 R&D Headcount sqm facilities

• ~ Eur 50 ml
• ~ 120 R&D Headcount
• 13.000 (of which 2.500 clean rooms)
• ~ Eur 30 ml
• ~ 73 R&D Headcount
• 9.200 (of which 2.600 CCM Research Area)

CCM + MI RS Bicocca CCM + MI RS Bicocca CCM + MI RS Bicocca

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Presentation Agenda

• Group Overview

Sector Overview

• Energy Cables
• Telecom Cables
• Pirelli Tyres

Questions and Answers

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Pirelli Energy Sector

BUSINESS ENVIRONMENT

• Negative economic trend: delay in the

recovery of utility investments until end-2002

• Restructuring efforts needed for all major

competitors

• Still limited volumes and price pressure in

General Market segment

• Stronger sales in Pacific Asia hedged

decline in Europe and LatAm

• Significant progress in cost reduction (fixed costs

reduced 5% vs. H1 ‘01); three plants closed in H1 ‘02; headcount reduced by 7%YoY

• Focus on new technologies and product innovation
• Strong commitment on supply of fully integrated

systems

• Investments more focused on speciality and high

margin products (capex/depreciation from 1.3x to 0.6x ) Margins recovering in 2Q 2002 PIRELLI ACTIONS

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Energy C&S Energy C&S

Utilities General Market Industrial

46% 33% 21%

200 400 600 800 1000 1200 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50%

Sales ROS (%)

% sales

Energy cables and system s:business structure

Employees Factories 14,135 50 13,421 47

• 5.1%

31/12/2001 30/06/2002

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Energy Cables: Profit And Loss ( Euro m l)

H1 2002 H1 2001

• Var. %

Q2 2001 Q2 2002 Net Sales EBITDA Ebitda margin 1,691 69 4.1%

• 4.6%

818

• 6.7%
• Var. %

876 32 1,614 77 4.8% +11.6% 49 +53% 6.2% EBIT Ebit margin 20 1.2% 8 0.9% (*) 26 1.6% +30% (*) 25 +213% 3.1%

• Var. %

Q1 2002 796 28 3.5% 1 0.1% +2.8% +75% n.m. Currency Volume Metal prices Prices/Mix TOTAL

• 2.3%
• 1.8%
• 2.8%

+ 2.3%

• 4.6%

Net efficiencies offset the negative contribution of volume/mix effect

(*) Including 10 ml Euro related to a settlement with a major customer.

3.7%

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Pirelli Telecom Sector

BUSINESS ENVIRONMENT ➤ Collapse of Terrestrial and Submarine Long Haul market suffering ➤ Very limited visibility to forecast sales volumes in near terms ➤ Continue price pressure ➤ New businesses (FTTX and Access Network) growing but not enough to offset decline in fibre volumes ➤ Timely restructuring and cost cutting led to leaner and more flexible capacity installed; one plant closed in H1 2002, headcount reduced by 35% YoY ➤ Limited exposure to vendor financing and diversified client base ➤ Significant cut of Capex (from Euro 206 ml in FY ‘01 to 52 ml in H1 ‘02); focus on R&D and product innovation / new technologies, through research unit Pirelli Labs ➤ Focus on sales of innovative higher value products PIRELLI ACTIONS Mkt share gained on direct competitors in EU and NAFTA Cables Performance above market average

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50 100 150 200 250 300 350 400 450 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02

• 20.00%
• 15.00%
• 10.00%
• 5.00%

0.00% 5.00% 10.00% 15.00% 20.00%

Sales ROS (%)

Telecom C&S Telecom C&S

Submarine Systems Fibre to the “X” Tlc fibre & cables

5% 2% 93% % sales

Optical fibre Tlc cables

Telecom cables and system s: business structure

Employees Factories 4,077 13 3,220 12

• 21.0%

31/12/2001 30/06/2002

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Telecom Cables and System s: Profit And Loss ( Euro m l)

H1 2002 H1 2001

• Var. %

Q2 2001 Q2 2002 Net Sales EBITDA Ebitda margin 812 112 13.8%

• 65.0%

120

• 71%
• Var. %

413 41 284 11 3.9%

• 90%

(3)

• 107%
• 2.5%

EBIT Ebit margin 82 10.1% 27 6.5% (20)

• 7.1%
• 124%

(18)

• 167%
• 15%
• Var. %

Q1 2002 164 14 8.5% (2)

• 1.2%
• 27%
• 121%

n.m. Currency Volume Prices/Mix TOTAL

• 1.9%
• 49.4%
• 13.7%
• 65.0%

9.9% Deterioration of volume/mix and prices not compensated by improvement in efficiency and decrease in raw material cost

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Pirelli Tyres Sector

PIRELLI ACTIONS ENVIRONMENT ➤ Mirs plants opened in UK (focused on SUVs) and USA; CCM (innovative mixing room) pilot plant launched in Milan ➤ Normalisation of Capex/depreciation ratio (from 1.3x to 1.0x) after the MIRS effort; R&D expenditure focused in High Performance segment ➤ Increased capacity utilisation in low production cost countries (approx. 60% of total in June ’02) to take benefit from devaluation ➤ Reduction of production costs through industrial efficiency plans Margins improvement in Q2 2002 Increase of market share in top-end segments ➤ New car registrations down 4.5% in H1 2002 in Europe, whilst down 1% in NAFTA. Latam in general downturn ➤ Market of replacement tyres in slight decrease both in EU (0.9%) and in North America (-1.5%) ➤ Market of High Performance products increasing at double digit growth ➤ Devaluation effect in Argentina, Brazil and Turkey: for Pirelli an opportunity more than a risk

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600 620 640 660 680 700 720 740 760 780 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% Sales ROS (%)

Tyres Tyres

Consumer

70% 70%

Industrial

30% 30%

% sales

Tyres: business structure

Employees Factories 19,994 21 20,533 22 +2.7% 31/12/2001 30/06/2002 Performance tyres 50% of total sector sales

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Pirelli Tyres: Profit And Loss ( Euro m l)

H1 2002 1H 2001

• Var. %

Q2 2001 Q2 2002 Net Sales EBITDA Ebitda margin 1,477 201 13.6% +0.7% 730

• 2.4%
• Var. %

748 100 13.4% 1,488 202 13.6% 101 +1% 13.8% EBIT 111 7.5% 54 7.2% 111 7.5% 57 +5.6% 7.8%

• Var. %

Q1 2002 758 101 13.3% 54 7.1%

• 3.7%
• +5.6%

+0.5%

• Currency

Volume Prices/Mix TOTAL

• 5.4%

+ 3.3% + 2.8% + 0.7% Improvement in prices/mix, volume and efficiency effects offset by increase in unitary labour costs, raw materials and currency effect Ebit margin

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Presentation Agenda

• Group Overview

Sector Overview Questions and Answers