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BOARD OF PIRELLI & C. S.P.A. APPROVES RESULTS FOR YEAR ENDED 31 DECEMBER 2016

- Growth of all main economic indicators in 2016

- Further strengthening of Premium: volumes grow by 14.2% and revenues represent 64.0% of the Consumer business (61.5% in 2015)

- Improvement of price/mix: +5.0% thanks above all to the sales mix

- Progressive improvement in volumes, growth of 2.1% (+5.1% in fourth quarter)

- Efficiencies of 90.5 million euro: reaching 79% of 4-year 2014-2017 target of 350 million euro

- Profitability growth, with a total Adjusted Ebit margin of 14.8% (14.4% in 2015 on like-for-like basis). Record profitability for the Consumer business with an adjusted Ebit margin of 16.8% for the year (16.2% in 2015 on like-for-like basis)

- Significant improvement of net financial position

- Europe sees increased profitability. Apac and Nafta remain most profitable areas

- Investment in Research & Development of 228.1 million euro, equal to about 4% of total revenues (6% of Premium segment revenues)

- The process of Pirelli’s transformation continues

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As an effect of the acquisition by Marco Polo Industrial Holding S.p.a. of Pirelli and its subsequent merger by incorporation of Marco Polo Industrial Holding S.p.A. into Pirelli, following the Purchase Price Allocation (PPA) conducted on the basis of that which is established in the relevant accounting principles, greater amortizations were booked mainly referable to immaterial assets identified in the context of this operation. The “EBIT adjusted” excludes – beyond non-recurring and restructuring charges – also amortization that refer to intangible assets identified in the PPA.

***

The Board of Directors of Pirelli & C. S.p.A. has reviewed and approved the group’s results for the year ended on December 31, 2016. The results for 2016 show growth in the main economic indicators.

Revenues amounted to 6,058.4 million euro, with organic growth of 7% at the annual level (on a like-for-like basis and net of forex effects, which were negative 5.4%) and of 8.7% in the fourth quarter. The revenue trend benefitted from strong growth – both in the Consumer and Industrial businesses – of the price/mix component (+5.0%) in particular thanks to improvement in the sales mix, as well as price increases in emerging markets.

Volumes’ performance was positive (+2.1% in 2016, +5.1% in the fourth quarter) thanks to the Consumer business (+3.5% during the year, +4.8% in the fourth quarter). The performance of Industrial volumes, negative at the annual level (-3.8%) as a result of the weakness of the South American market, registered growth in the fourth quarter of 6.5% thanks to the business’s recovery in the region, above all in the Replacement channel.

Premium saw improvement with volume growth of 14.2%, above the Premium market’s global trend (+9.4%). The segment posted organic growth of 12.3% to 3,244.6 million euro, accounting for a total of 64% of Consumer revenues, up from 61.5% in 2015 on a like-for-like basis.

The Adjusted Ebit (operating result before non-recurring and restructuring charges and amortization of intangible assets identified in the context of PPA) was 896.6 million euro (860.5 million in 2015 on a like-for-like basis), with an Adjusted Ebit margin growing to 14.8% compared with 14.4% in 2015 on a like-for-like basis. The improvement can be attributed to internal levers such as volumes’ growth, price/mix and efficiencies achieved to contrast forex volatility, increased raw material costs and inflation in emerging markets. Efficiencies totaled 90.5 million euro, bringing the total of efficiencies achieved since 2014 to 277.3 million euro, equal to 79% of the 4-year 2014-2017 target of 350 million euro.

The operating result (Ebit) was 724.2 million euro (compared with 786.1 million in 2015 on a like-for-like basis) and mainly reflects 66.6 million in non-recurring and restructuring charges linked to rationalization processes and costs related to reorganization activities of the Industrial segment and 105.8 million euro relative to amortizations for intangible assets resulting from the acquisition of Pirelli assets by Marco Polo.

The total net result was 147.6 million euro compared with -383.5 million in 2015. This figure included a loss of 559.5 million for the de-consolidation of Venezuela and a negative impact of 14.6 million euro deriving from the operational activities disposed of. The result from equity investments was negative 20 million euro (-41.4 million euro in the same period of 2015).

The net cash flow from operations shows a net improvement, passing from 701.4 million in 2015 to 882.7 million euro in 2016, thanks to the management of working capital, and after having sustained investments of 372.2 million euro (391.4 million in 2015), mainly earmarked for increases of Premium capacity in Europe, Nafta and China, as well as improvements in the mix.

The total net cash flow – before dividends and the effects deriving from the merger with Marco Polo Industrial Holding and from the re-organization of the industrial activities – was positive for 383.1 million euro (192.1 million euro in 2015) and include approximately 200 million euro of inflows deriving from the sale of some shareholdings (mainly the disposal of the investment held by Eurostazioni S,p.A. in Grandi Stazioni Retail) and real estate assets.

The net financial position on 31 December 2016 was negative 4,912.8 million euro, an improvement of 418.2 million compared with 5,331.0 million euro at the end of 2015. The positive performance stems mainly from the high level of cash generation, as well as an inflow of 266 million euro deriving from the entry, with a stake of 38%, of the Chinese fund Cinda into the capital of Pirelli Industrial in the context of the reorganization project of the industrial business.

Investments in Research & Development totaled 228.1 million euro, equal to about 4% of total sales, of which 191.0 million euro for activities linked to Premium products (about 6% of the segment’s sales).

At the geographic level, Apac registered, together with Nafta, the highest profitability of all the macro-areas, remaining at the twenties level. Revenue performance improved (organic growth +12.1% in 2016 and +25.4% in the fourth quarter) which include the sales of Jiaozou Aeolus Tyre from October 1, 2016. On a like-for-like basis, growth was 9% at the annual level and 17.9% in the fourth quarter, thanks to the positive performance of the Consumer business and the strengthening of the Original Equipment channel thanks to new homologations with European and local brands.

Nafta posted an Ebit margin at the twenties level, in line with 2015, with organic revenue growth of 12.0% in 2016 (+18.6% in the fourth quarter) thanks to the good performance of Premium and Super Premium.

Profitability in Europe improved to mid-teens level thanks to the 10.0% Premium revenue growth, supported by the good performance of sales both in the Original Equipment and Replacement channels. Organic revenues grew by 5.1%.

Meai registered stable profitability at the high-teens level, with organic revenues growth of 7.2%.

The reduction of profitability in South America (mid-single-digit) was mainly due to the performance of the Industrial business which discounted the market’s weakness, while profitability in the Consumer segment was confirmed at the high single-digit level. During the year, revenues at the organic level registered progress of 6.0% (-6.6% including forex effect of -12.6%). There was a marked improvement in performance in the fourth quarter with revenues growing 12%, in particular in the industrial business, with a volume increase above the market’s.

Forex volatility and the weakness of the market had a negative impact on the results in Russia (revenues down 1.0% net of forex) with profitability at break-even level, an improvement compared with the first nine months of 2016 thanks to a marked recovery in the fourth quarter (organic revenue growth of 9.6%, underpinned above all by the good performance of price/mix and a forex effect of +6.5%.

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Pirelli China awarded by Great Place to Work® Institute and 51jobs.com

During the fifth edition of the award organized by Great Place to Work® Institute, Pirelli was recognized, for the second year in a row, the title “Best Companies to Work for in Greater China”.

137 companies from nine industries representing around 211,000 employees participated in this selection.

Also in December, Pirelli has received the “Excellence in Corporate Training” award, recognized by 51jobs.com, the leading online recruiter in China; during the ceremony, Pirelli was also awarded as one of “100 Excellence Employer China of 2016”.

Marco Di Pierri, Pirelli APAC HR director said, “We are proud of the honor and recognition that Pirelli has received in China. As a brand that is committed to long-term growth in China, we see our 11-year history in the country as a beginning. In the future, we’ll continue to adhere to global standards of practice while taking into consideration local characteristics, as we move to make Pirelli a company in China that can attract, develop and retain talents, a company that can motivate the full potential of their employees to create more value for both the company and the local community.”


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Board of directors meeting: the process of reorganization of Pirelli industrial continues

INDUSTRIAL PLAN 2016-2018 WITH VISION TO 2020 PRESENTED

NEW PIRELLI DIGITAL GENERAL MANAGEMENT, ENTRUSTED TO BY LUIGI STACCOLI, CONSTITUTED

PAOLO DAL PINO NOMINATED CEO OF PIRELLI INDUSTRIAL

IPO LAUNCH SEEN BY FIRST HALF 2018

FUTURE GOVERNANCE ALIGNED TO INTERNATIONAL BEST PRACTICE

The Board of Directors of Pirelli & C. S.p.A. met today and was updated on the activities under way with regard to the proposed integration of Pirelli Industrial and Aeolus, acknowledging with favour its progress.

The Board then analyzed the guidelines of the industrial plan for the Industrial segment.

The Board, further, approved the industrial plan 2016-2018, with vision to 2020, for Pirelli Consumer, the sole global player entirely focused on the Consumer business. The strategy calls for:

  1. 1. strengthened leadership in the high profitability Prestige and Premium segments;
  2. 2. a business model always more focused on the end consumer (‘Consumer Centric Approach’)
  3. 3. oversight of new business opportunities offered by new and sustainable mobility (Cyber Tyre and Vélo);
  4. 4. total digitization of industrial, commercial and management processes, more efficient and based on predictive models made possible thanks to the deployment of big data and analytics.

To support this course, the Board adopted an organizational model which calls for:

- the constitution of General Management Pirelli Digital, entrusted to Luigi Staccoli, supervising all activities aimed at the digitization of the company;

- the aggregation of all technical structures (R&D, homologations, technologies, manufacturing, quality, motorsport) and sales to Original Equipment under the responsibility of General Manager Technology, Maurizio Boiocchi;

- the attribution of the management of all commercial structures (marketing, supply chain,  aftermarket sales) and the Business Unit Moto to the Chief Commercial Officer Consumer, Roberto Righi, in support of the ‘Consumer Centric Approach’;

- the General Management Operations will be superseded from January 1, 2017. Gregorio Borgo, who has announced his decision to leave the company to pursue a new important professional path, will remain with the company until December 31, 2016 to support the  Ceo, Marco Tronchetti Provera, with the implementation of the new organizational model;

- the nomination of Paolo Dal Pino, currently Ceo of the Latin America region, as Chief Executive Officer of Pirelli Industrial;

- attribution of responsibility for Human Resources Management given to Gustavo Bracco with the role of Chief Human Resources Officer.

The Company extends to Gregorio Borgo its appreciation for the important contribution made to the growth of Pirelli through his 24 years of service.

On the basis of these assumptions, the Board shared the desire to accelerate the course to the company’s listing, immediately launching all the necessary actions. It is foreseen that the preliminary phases for the preparation of the IPO (Initial Public Offering) can be completed during the first half of 2017, with the objective of proceeding, in accordance with the best opportunities offered by the market, with the launch of the IPO by the first half of 2018 on the Milan stock exchange or, however, on one of the leading stocks exchanges at the international level.

Among the elements underpinning the success of the listing, the Board identified:

- the alignment of governance to international best practice, through a Board of Directors and board committees composed of a suitable number of independent directors;

- a shareholder structure that, although beginning with a concentrated shareholder structure, which emerged during the Public Tender Offer, foresees an evolution which ensures a suitable free-float level and one able to satisfy the expectations of international investors;

- a system of incentives that guarantees the alignment of the interests of management with those of all shareholders.

The Board further took note with favour of the decision of the board of Marco Polo International Italy (‘Marco Polo’), which also met today, to share and approve the course decided by Pirelli and the elements underpinning the success of its listing. The Board of Marco Polo confirmed its desire to accelerate the implementation of the shareholders’ agreements signed on March 22, 2015, which have as their basis the creation of value by Pirelli and its relisting.

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