Pan European Small/Mid Cap Conference Agenda Pirelli Real Estate - - PowerPoint PPT Presentation

London, 18 May 2010

Pan European Small/Mid Cap Conference

UBS Pan European Small/Mid Cap Conference

Agenda

Pirelli Real Estate Separation Plan

Pirelli Tyre & Parts Pirelli RE 2010 Outlook & Targets

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UBS Pan European Small/Mid Cap Conference

Pirelli Real Estate Separation Plan: strategic rationale

Feb.11, 2009: '09-'11 "Transformation path” announcement – assets portfolio reshaping & core business focalization In the last 18 months Pirelli RE changed its business model, went through a deep restructuring program, strengthened its capital structure and reached financial sustainability Today the Real Estate market is showing signs of recovery Benefits for P&C Benefits for PRE  Corporate structure streamlining: a clearer equity story with a positive impact on valuation metrics  More flexible capital structure  Free-float increase & higher stock liquidity  More corporate contestability  Better chance to create a platform for future industrial aggregation

Right time to split the 2 businesses with benefits for both P&C and PRE shareholders

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UBS Pan European Small/Mid Cap Conference

 Par value of ordinary and savings shares cancelled, followed by a split by category SHARES AFTER REVERSE SPLIT

475,740,182 12,251,311 487,991,493 Ordinary shares Savings shares Total shares 1) 3.19 € per share Capital Euros 2)

=

Total number

• f shares

2)P&C capital 1,556,692,865.28 €

 1:11 Ratio  Post reverse stock split accounting value  Rights on savings shares will remain the same

Pirelli Real Estate Separation Plan: process (1/2)

STEP 1: P&C SHARES REVERSE STOCK SPLIT

1)P&C own shares, post reverse split, equal to 351,590.9 ordinary shares and 408,342.6

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UBS Pan European Small/Mid Cap Conference

 Assignment ratio 1:1 STEP 2 487,798,972 487,231,561 57.99 %

(*) Post reverse splitting P&C’s own shares in the portfolio, that is 351,590.9 ordinary shares and 408,342.6 savings shares shall not benefit from assignment rights to be attributed to P&C Shareholders in the 1:1 ratio.

Pirelli Real Estate Separation Plan: process (2/2)

In shares Stake 567,411 0.1% Assignment of Pirelli RE shares in portfolio through voluntary corporate capital reduction to P&C ordinary and savings Shareholders  P&C’s PRE shares to be assigned to Shareholders after reverse stock split (*)  P&C’s PRE shares not to be assigned to avoid split Capital reduction equal to PRE stake value assigned to P&C Shareholders PRE’s P&C Shareholding Price listed the day before the P&C Extraordinary Shareholders’ Meeting when transaction is approved

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UBS Pan European Small/Mid Cap Conference

P&C Extraordinary Shareholders’ Meeting to approve: Shares value cancellation and reverse stock split Capital reduction through assignment of goods in kind

Pirelli Real Estate Separation Plan: timing

Board of Directors PRE shares assigment Entry of the decision into the Registry of Companies Creditors’ opposition deadline May, 4th 2010 by July 2010 by July 2010 by October 2010 by October 2010

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UBS Pan European Small/Mid Cap Conference

PRE equity structure changes

Pirelli Real Estate Separation Plan

Pirelli 58%

CURRENT POST REVERSE STOCK SPLIT

1) Inclusive of PRE’s own shares (0.1% of circulating capital) and stake of Intesa San Paolo, Assicurazioni Generali and Unicredit worth 0.1%

 To guarantee stability of Pirelli RE shareholding basis, some members of P&C shareholders’ agreement, to become future PRE shareholders, expressed their positive views to enter an agreement involving less than 30% of the relevant share capital.

2) Of which 27.4% ex P&C floating (net of own shares) and 42% ex PRE floating

Floating 1) 42% Other members of the P&C shareholders’ agreement 15.8% Camfin 14.8% Floating 2) 69.4%

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UBS Pan European Small/Mid Cap Conference

Agenda

Pirelli Real Estate Separation Plan Pirelli Tyre & Parts Pirelli Re

2010 Outlook & Targets

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UBS Pan European Small/Mid Cap Conference

2010 Outlook

ongoing growth by business differentiation improvement of our cost competitiveness investments acceleration to build up capacity Tyre and Parts .... ready for a new leap forward on a solid ground. Growing with value into a "pure Tyre company, a frontrunner in Green

Performance"

Filters Synergic business (Ambiente & Pzero):  breakeven .... ready to create new business opportunities and enhance brand value Tyre exploit domestic & global opportunities deriving from ever stricter anti-pollution regulations

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UBS Pan European Small/Mid Cap Conference

Pirelli &C 2010 FY targets update

EBIT % post restructuring 4.7-4.8

33%

6.5-7% NFP

2010 Targets

0.7* 1.2 7.6%

1Q’10 Results

0.7 Group Revenues

• f which “Green Performance”

Capex

(*) Including 81.1 €/mln cash out for dividends €/bln

>0.3

2010 Revised Targets

• Excl. PRE

4.6-4.7 ≥6.5% 4.9-5.0 ≥6.5% confirmed confirmed

confirmed

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UBS Pan European Small/Mid Cap Conference

Pirelli Debt Structure as of March 31, 2010

Total Committed Lines Not Drawn 895

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294 145 319 160 1,040 249 Committed Line Drawdown Other Borrowing 1,090 980 788 1,768 678

• Total

925

*Financial receivables. cash and cash equivalents €/mln

745 Gross Debt maturity as of Mar. 31, 2010 59% 14% 18% 9% 180

100

1Q’10 2010 2011 2013 & beyond 2012 Net Financial Position Gross Debt Maturity

60 Net Fin. position Fin. Assets* Gross Debt

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UBS Pan European Small/Mid Cap Conference

Agenda

Pirelli Tyre & Parts

Pirelli Re 2010 Outlook & Targets Pirelli Real Estate Separation Plan

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UBS Pan European Small/Mid Cap Conference

Pirelli Tyre 1Q 2010 performance

Revenues margin EBITDA (before

• restruct. costs)

EBIT (before restruct.costs) 926.9 107.8 11.6% 61.0 6.6%

• 13.9%
• 28.6%
• 40.7%

margin EBIT (after restruct.costs) 57.5

• 42.7%

Net Income 14.6 6.2% margin

• 2.4 p.p.
• 2.9 p.p.
• 3.1 p.p.

1,110.0 146.4 13.2% 98.1 8.8%

+35.8% +60.8%

95.5

+66.1%

50.1 8.6%

+1.6 p.p. +2.2 p.p. +2.4 p.p. +19.8%

Revenue drivers

 Price/Mix  Exch. Rate(*)  Volume  Rev. (before exch.

rate impact)

+1.4% +17.4% +1.0% +18.8% +6.9%

• 18.1%
• 2.7%
• 11.2%

+5.6%

• 13.3%
• 1.5%
• 7.7%
• 1.7%

+15.6% +4.8% +13.9% +4.7%

• 3.3%
• 3.3%

+1.4%

1Q’09 2Q’09 3Q’09 4Q’09 1Q’10

€/mln (*) 4Q’09 trend reflects the high Venezuela inflation impact

Strong revenues growth through:  exposure to high growth markets  value strategy in mature markets Effective EBIT growth (+60% yoy) driven by  2 – digit volume performance  Cost efficiencies

1Q’10 YoY% 1Q’09 YoY% 13

UBS Pan European Small/Mid Cap Conference

1Q’10 Results: Pirelli Tyre vs. main peers

*Simple average: Michelin, Bridgestone excl Diversified Prod.; Goodyear, Continental: Rubber Group excl Conti Tech ** Volumes and price/mix trend refer to Michelin, Goodyear and Conti.

+15.4%

Revenues

Top 4 competitors*

Sales

+18.6%**

• 1.9%**

Volumes Price/mix

Ebit margin before restr. costs and special items

6.6%

Profitability

1Q’09 1Q’10

8.8%

• 1.4%

7.7%

+19.8% +17.4% +1.4% 1Q’09 1Q’10

Pioneers in raising prices in a less receptive competitive environment Profitability improvement due to:  volume  cost efficiencies  factory saturation

Pirelli Performance drivers:

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UBS Pan European Small/Mid Cap Conference 2 1

Our Strategic Guidelines for 2010

A different growth strategy by business

Consumer Industrial

 Pirelli Brand enhancing Premium Segment positioning (>70% of Consumer) in Europe and North America  Price/mix improvement  Cost efficiency program  Production increase in low-cost countries

Levers Expected Results

 contrast raw materials cost increase (cost headwind >250€/mln) 56% 48%

Improve our cost competitiveness

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Accelerate Investments to build up capacity: over 300€/mln in 2010

 >90% of Industrial (87% in ‘08)  >70% for Consumer (61% in ‘08)

with one factory closure in 2009 (Spain); the old factory in Settimo Torinese (Italy) will be definitively shutdown in 2010

 Full exploitation of our potentials in areas of growth (LatAm, China)  Further exposure in Emerging Markets to best seize growth opportunities

2008 2009

22% 27% 78% 73%

2010

18% 82%

LatAm/ MEA/ASIA Europe

a year in advance!

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 Regional leadership with Net Sales of

1.9$/bln

LEADERSHIP BEST RANGE

No.1 local OEM Strategic supplier The only full range player: from 2

wheels tyres to Truck to Agro/OTR

No.1 BRAND

Top of Mind Brand in Mercosur with 100

yrs of history in Argentina and 80 yrs in Brazil  Elected No.1 brand out of all

sectors/brands in Brazil by male consumers

OUR MAIN STRENGTHS

Strongest Dealers network and 1st R&D

Centre and Proving Ground created in the region

Over 11k committed and loyal employees

Latin America: present & future leadership

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UBS Pan European Small/Mid Cap Conference

A proactive pricing policy

Middle Est Africa January 2010

+10% Consumer and Industrial Tyres

North America July 2010

+4% Consumer Tyres

April 2010

+4% Consumer Tyres

Europe 2Q 2010

+4% Consumer Tyres +6% Industrial Tyres

South America 2Q 2010

Differentiated price increases across the region on both Consumer and Industrial Tyres

China 1Q 2010

+4% Consumer and Industrial Tyres

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UBS Pan European Small/Mid Cap Conference

Over 300 €/mln investments in 2010

An accelerated investment plan: key projects

(capacity increase from 2009 to 2011)

RUSSIA

Greenfield start up

CHINA

+ 20% Truck Tyres + 100% Car Tyres

ROMANIA

+ 60% Car Tyres

ITALY

New green factory

EGYPT

+ 20% Truck Tyres

MERCOSUR

+ 20% Truck Tyres + 25% Car Tyres

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LATEST CAR / SUV HIGHLIGHTS

Green Performance platform: Car & SUV

 International Launch of Scorpion Verde (Barcelona, 15th-25th March), the first new green performance tyre for the SUV & Crossovers segment at the presence of 600 guests between Trade Press & Dealers “Very balanced tyre; good on wet and dry surfaces; low fuel consumption; the lowest noise” “Very balanced summer tyre with very high mark on wet surface; low wear”

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UBS Pan European Small/Mid Cap Conference

low rolling resistance fuel saving >3%

less CO2 emission

TRUCK HIGHLIGHTS: RETREADABILITY & MILEAGE

Green Performance platform: Truck

Tyre 1 First Life Tyre 1 Retr.1 Tyre 1 Retr.2

Enhanced tyre life-cycle : improved mileage and environmental impact

600.000 Km

Performance Area Green Area

01 series reference

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UBS Pan European Small/Mid Cap Conference

Pirelli and Sustainable Performance

 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 for the third consecutive year  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 - GMI

• Pirelli international rating: 9/10 vs Automobiles and Parts average 5/10 rating
• Pirelli Country rating (Italy): 10/10

 Sector mover 2010 and Gold class Company in the SAM Group and PwC "Sustainability Yearbook"

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UBS Pan European Small/Mid Cap Conference

Pirelli Tyre 2010 targets update

EBIT % post restruct. +6% / + 8% ~flat yoy

2010 Targets

(10 March 2010)

Revenues Capex

€/mln

>300 >10%

2010 Targets update

confirmed 3,993 7.7%

FY’09

217 EBIT post restruct. (Implicit in the guidance 320÷330) 320÷330 (floor) 308.5 Raw Material Cost headwind 200

(Natural Rubber price ≥3000 $/ton.)

>250

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UBS Pan European Small/Mid Cap Conference

Agenda

Pirelli Tyre & Parts

Pirelli Re

2010 Outlook & Targets Pirelli Real Estate Separation Plan

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UBS Pan European Small/Mid Cap Conference

Pirelli RE is ..

Asset under Management (AuM)

Co-Investments

Service platform

Fund & Asset management Agency Property(*) Credit Servicing Property Investment Funds

Recurring income Recurring income (50%) Income from Investments** (50%)

Target Property SPVs NPL SPVs Financial impact

(*) Includes Facility in Germany and Poland **Mainly related to Funds & Vehicles Assets disposal

a leading real estate asset manager focused on third party services with a fully integrated business model

• f specialistic services (agency, property and development management) and management activities (Fund &

asset management). 24

UBS Pan European Small/Mid Cap Conference

Key figures as of March 31, 2010

PIRELLI RE overview

(*) Including NPLs for 1.5 € bln

 Total Asset Under Mgmt. are 16.4 €/bln.(*)  A leading Fund & Asset Management Company in Italy with approx. 7€/bln of real estate assets, while in Germany and Poland, is among the top player in the residential and commercial segments with 7€/bln of assets  Real Estate Net Asset Value Pro Quota (excluding services & NPLs) is approx 1.2 €/bln  Total Net Capital Invested, including Services and NPLs is 1,183 €/bln, Net Financial position is 458 €/mln (Gearing 0.7x) and current market capitalization is approx. 400€/mln

Strategy

 Optimising the existing portfolio through: active asset management, disposal of non strategic assets and a steady reduction of co-investments  Refocusing on the Italian market exploiting the leadership in the Fund Mgmt. sector pursuing both internal and external growth in terms of AUM  Revamping the overall services proposition increasing third party share by offering integrated solutions  Continuing the de risking approach in Germany & Poland while actively managing the portfolio and seeking partners to enhance the value of the investments and service platform  Maintaining a financial discipline 25

UBS Pan European Small/Mid Cap Conference

Pirelli RE : Key data as of March 2010

28 16 133

177

230 21 614

865 110 207 1,183 3,661

185

13,877 ITALY TOTAL REAL ESTATE GERMANY POLAND

1,723 70 1,868 1,362 28 1,059 79% 40% 57% 361 42 809 7,034 6,658 1,694 54 1,735 53% 0% 47%

2,449 67% 1,212 NPL (investment) TOTAL PIRELLI RE SERVICES 3,483 49%

Mkt. Value PRE 26% average Net Debt Quota PRE3) LTV4) NAV Quota PRE5) UCG Quota PRE2) NIC Quota PRE6) Mkt. Value 100% 1) Book Value Quota PRE IAS 40%7) 1) Participated AUM are assets in which PRE owns a stake 2) UCG= Unrealized Capital Gain is the difference between Market Value and Book Value 3) Net Debt pro Quota: bank loan and cash 4) LTV= Loan to Value is the ratio between Pro quota Net debt and Pro quota Market Value 5) The differences between NAV and UCG + NIC (equal to 170 €/mln) is due to other assets and liabilities not included into calculation of real estate NAV 6) NIC= Net Invested capital 7) As of December ’09 Assets under IAS 40 represent assets with long term strategy, booked at Market Value

Market Value of Asset Under Management is calculated on the basis of the Dec. 2009 third parties appraisals considering the impact of further capex, disposals and exchange rates impact

(EUR MM)

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UBS Pan European Small/Mid Cap Conference

1Q’10 results vs Targets

(*)Not including income from equity participations

30/04/10 Targets 2010 FY 2009A

Real Estate Assets Sales 401.1 242.9 1,300-1,500 1,031

Italy 320.2 181.1 ~1,050 613 Germany 63.1 40.9 ~300 380 Poland 17.8 20.9 ~ 50 38 1Q‘10 1Q’09

Ebit Service Platform incl. G&A

(*)

5

• 1.3

+20/+30

• 5.7

Fixed Cost Saving +14.2 +10 +68

(versus previuos year)

NFP (excluding Shareholders's loan)

• 458.6
• 898.4

Substantially stable

• 445.8

30/04/09

€/mln

+25/+30

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UBS Pan European Small/Mid Cap Conference NFP Mar. 2010 NFP Dec. 2009

NFP excl. Shareholders’ Loans

4.3 3.2 8.4 445.8 458.6 5.7 (8.8)

Sales/ distributions Equity

• contrib. to

funds and vehicles Layoffs Interests and other financial expenses Capex and Other

€/mln

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UBS Pan European Small/Mid Cap Conference

Group Corporate Lines

All Change of Control waivers obtained Unicredit bilateral line extended to February 2011; amortizing commitment (25€/mln  10€/mln  0€/mln ) changed to 25 €/mln bullet

(*) Amortizing (**) Club Deal Participants: Unicredit 100 €/mln, IntesaSP 50 €/mln, Monte dei Paschi di Siena 50 €/mln, Banca Popolare Milano 50 €/mln, Pop.Sondrio 20 €/mln, Banca Popolare Emilia Romagna 20 €/mln, Carige 20 €/mln, Centrobanca 10 €/mln (***) Originally it was a non committed line

Bank Commitment Expiry Bank Commitment Expiry CLUB DEAL (*) 320 July-12 CLUB DEAL (**) 320 July-12 WEST LB 50 May-11 WEST LB 50 May-11 UNICREDIT 25 Dec-10 (*) UNICREDIT 25 Feb-11 POP MILANO 10 July-11 POP MILANO 10 July-11 Royal Bank of Scotland 25 Feb-11 Royal Bank of Scotland 25 Feb-11 PIRELLI & C. (***) 150 July-12 TOTAL 430 TOTAL 580 AVERAGE RESIDUAL LIFE 24 months AVERAGE RESIDUAL LIFE 25 months

Current Situation Situation post separation

€/mln €/mln

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UBS Pan European Small/Mid Cap Conference

0.2 2.9 10.9 2.5

2011 2012 2010

Net debt as of March 31, 2010 Refinancing needs by maturity

RE asset Net Debt proquota Net Debt 100%

0.4

NPL

Beyond

0.4 0.5 1.4

AuM 100%

15.4 (*)

Financial situation of participated vehicles/funds

€/bln

Bank Loan characteristics 1) Loan to Value: Italy 57%, Germany 79% and Poland 40% Average Duration close to 3.4 years (pro-quota PRE 3.2). Of which Italy 3.2, Germany 3.9 and Poland 2 year Average spread: 218 bps (pro-quota PRE 174 bps) 83% interest rate risk hedge (pro-quota PRE 77%) Recourse guarantees pro-quota for approx. 29.3 €/mln 2)

(*) Real Estate Asset Under Management including NPLs estimates as of march 2010 1) Excluded NPL and subsidiaries. 2) Considering finalized position after march 2010

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UBS Pan European Small/Mid Cap Conference

Investments Services

Platform  Continuous focus on management platform

turnaround;

 Lower break-even point thanks to a two-year 95€mln

cost reduction program (approx. 70% already completed in 2009)

 Commitment to achieve growth. developing third

parties management business

 Positive operating results expected despite high

leverage and opportunistic profile of some investments.

 Continuous focus to rebalance investments through

disposals of non cash generating portfolios and non strategic assets.

 Back to significant profit in 2011 thanks to active

asset management and disposal of key real estate assets 2008 2009 2010E 2011E RESULTS

* Real estate assets are appraised twice a year by external independent values and values may change accordingly

• =

+

• Targets confirmed

Year to come: Profit & Loss trend by activities

€50 €60

=/+

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