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PIRELLI SIGNS COMPETITIVENESS AGREEMENT WITH LOMBARDY REGIONAL GOVERNMENT FOR “TOTAL SAFETY SYSTEM” PROJECT

The Lombardy Regional Government and Pirelli today signed a competitiveness agreement which calls for a free grant regional contribution of 1.9 million euro for the “Total Safety System” R & D project conducted by Pirelli at its research centre in Milan.

The project, which is being developed by Pirelli Tyre and will last 24 months, has a total cost of 5.35 million euro and is part of the activities linked to the development of a new generation of tyres based on the concept of “total safety”. The research activity, therefore, will extend to all phases of product conception and planning: from the use of new materials, to the development of new fully automated finished product checking, to the implementation of new application safety systems based on tyre sensors.

The high level of innovative content in the “Total Safety System” project will allow, in addition, a further improvement in the level of productivity, quality and efficiency, as well as the know-how for the various technologies.  The project will allow Pirelli to study new product mixes oriented towards segments with higher value added, anticipating market demand and this maintaining the level of competitiveness. From this project, Pirelli expects, also, positive results in the environmental and social arena with regard to road safety, through the continual reduction of vehicular fuel consumption and raising the number of kilometres in a tyre’s life.

The agreement – which is part of the programme of the Lombardy Regional Government aimed at developing and enhancing the value of human capital also through training courses, as well as production, environmental and infrastructure resources and with the goal of strengthening local employment generating ancillary employment along related supply chains – favours further growth in the group’s R & D at Pirelli’s Milan headquarters, where the group’s main R & D centre is located employing 400 people. The contribution from the Regional Government will facilitate the employment of 12 new R & D staff members between 2015 and 2017, who will be in addition to the 130 already involved in the activities linked to the project’s implementation.

“The competitiveness agreement with Pirelli demonstrates how the synergies between the public and private sectors bring concrete results here in Lombardy,” said the President of the Regional Government Roberto Maroni. “Our goal is to raise investment in research and innovation up to 3% of the region’s GDP, a figure which is now close to 2%. These are two strategic which represent a natural vocation for our territory as well as a great opportunity for growth”, he explained. “The Lombardy Region invests resources in technological development also as a way of creating employment”, Maroni continued. “We want to move forward on this road”.

“The centre in Milan – said Marco Tronchetti Provera, Executive Vice Chairman and CEO of Pirelli – represents the main driver of our Research and Development and enables Pirelli to compete and continue to grow on international markets. The contribution of the Regional Government is an important recognition on the part of the institution of the work conducted until now and will enable the launch of a project aimed at the creation of tyres that are always safe and environmentally sustainable, able to offer clients not only safety and high performance, but also solutions that respect the environment”.

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PIRELLI BOARD APPROVES RESULTS FOR 9 MONTHS ENDED 30 SEPT. 2015:

• REVENUES: 4,711.9 MILLION EURO, AN INCREASE OF 4.0% COMPARED WITH 4,528.7 MILLION ON 30 SEPT. 2014; +3.3% EXCLUDING POSITIVE FOREX EFFECT OF +0.7%
• PREMIUM REVENUES: 2,262.5 MILLION EURO, AN INCREASE OF 17.0% COMPARED WITH 1,933.9 MILLION ON SEPT. 30 2014
• PRICE/MIX: +4.8% DUE TO THE GOOD PREMIUM PERFORMANCE, PRICE INCREASES AND GREATER SALES IN THE REPLACEMENT CHANNEL
• TOTAL VOLUMES: -1.4% (+0.4% CONSUMER AND -7.1% INDUSTRIAL), IMPACTED BY THE WEAKNESS OF THE SOUTH AMERICAN AND RUSSIAN MARKETS
• EBIT: +2.9% TO 648.1 MILLION EURO (629.7 MILLION ON 30 SEPT. 2014)
• EBIT MARGIN 13.8% (13.9% ON 30 SEPT. 2014)
• NET PROFIT FOR CONTINUING OPERATIONS: 291.2 MILLION EURO (297.4 MILLION EURO ON 30 SEPT. 2014)
• NET FINANCIAL POSITION NEGATIVE 1,685.5  MILLION EURO (-2,003.9 MILLION EURO ON 30 SEPT. 2014 AND -979.6 MILLION ON 31 DEC.2014)

2015 TARGETS

• CASH GENERATION BEFORE DIVIDENDS CONFIRMED AT EQUAL TO OR ABOVE 300 MILLION EURO BEFORE DISPOSAL OF STEELCORD
• NET FINANCIAL POSITION CONFIRMED AT AROUND 850 MILLION EURO
• INVESTMENT CONFIRMED AT BELOW 400 MILLION EURO
• PREMIUM GROWTH CONFIRMED AT ABOVE OR EQUAL TO +10%

• PRICE/MIX GROWTH OF APPROXIMATELY ≥5.5% (HIGHER THAN PREVIOUS ESTIMATE OF ~+4%) THANKS TO SALES IN THE REPLACEMENT CHANNEL AND MATURE MARKETS

• VOLUMES ESTIMATED TO FALL BY BETWEEN 0.5% AND 1% AS A RESULT OF RAPIDLY WORSENING ECONOMIC SCENARIO IN BRAZIL AND RUSSIA

• FOREX EFFECT ~-1.5% (PREVIOUS ESTIMATE ~+1%)

• TOTAL REVENUES SEEN GROWING ~+4% TO >6.25 BILLION EURO (PREVIOUS ESTIMATE >6.35 BILLION)

• EBIT BEFORE NON-RECURRING AND RESTRUCTURING CHARGES 925 MILLION EURO (PREVIOUS ESTIMATE 960 MILLION EURO), IMPACTED BY THE WORSENING MACROECONOMIC CONDITIONS, PARTIALLY OFFSET BY PRICE/MIX AND EFFICIENCIES

• EBIT OF APPROXIMATELY 870 MILION EURO AFTER NON-RECURRING AND RESTRUCTURING CHARGES OF 55 MILLION EURO (PREVIOUS ESTIMATE 930 MILLION EURO AFTER CHARGES OF 30 MILLION) LINKED TO RESTRUCTURING ACTIONS AND COSTS RELATING TO THE SEPARATION OF THE INDUSTRIAL BUSINESS UNIT

***

As a result of the agreement to sell 100% of the steel-cord activities signed on 28 February 2014, this business has been classified as a “discontinued operation” and as a consequence the results for the first 9 months of 2014 and the first nine months of 2015 have been reclassified in the accounts under the heading “results for disposed continuing operations”. The economic indicators for the first 9 months of 2015, as do the comparative data to 30 September 2014, refer to continuing activities.

The Board of Directors of Pirelli & C. SpA today reviewed and approved the intermediate results for the 9 months ended on 30 September 2015. The results for the first 9 months of 2015 were characterized in particular by:

-       Strengthening at the high end range, with Premium volumes growing 11% and equal to 60% of Consumer revenues (56% in first 9 months 2014);

-       Improvement of price/mix component (+4.8% in first 9 months of year, +7.0% in third quarter); which was above the target of ~+4% forecast for 2015, thanks to greater sales in the Replacement channel and the different geographic mix (higher sales in Europe, Nafta and Apac);

-       Overall volume reduction in the first 9 months of the year of 1.4% (-3.3% in the third quarter) which reflects the different demand dynamics between mature markets (+4.5% in the first 9 months, +7.3% in the third quarter) and emerging ones (-4% in the first 9 months, -8.4% in the third quarter) which were impacted by the deteriorating macro-economic contexts of Russia and South America, as well as the slowdown in the Chinese market;

-       Forex volatility (+0.7% impact on revenues in the first 9 months of the year) was particularly accentuated in the third quarter (-4.2%) because of the devaluation of the Brazilian Real and the Ruble;

-       Organic consolidated revenue growth (excluding forex impact) of +3.3% in the first 9 months (+3.7% in the third quarter), underpinned by the good performance of the Consumer business (+5.9% in first 9 months, +6.4% in the third quarter) which offset the decline of Industrial (-5.1% in first 9 months, -4.9% in the third quarter). If the forex impact is included, consolidated revenues posted growth of +4% in the first 9 months (-0.5% in the third quarter);

-       The achievement of efficiencies worth 72.6 million euro (81% of the full-year target of 90 million euro) as part of the 4-year 350 million euro plan (2014-2017) announced in November 2013 (efficiencies of 92 million euro in 2014);

-       Profitability improvement, with Ebit of 648.1 million euro, an increase of +2.9% compared with the first 9 months of 2014 and a substantially stable margin of 13.8% compared with 13.9% in the first 9 months of 2014 (13.1% in the third quarter, unchanged compared with the same period a year earlier);

-       A slight decline in the net result for continuing operations to 291.2 million euro (-6.2  million euro compared with the same period in 2014) which reflects the greater fiscal charges linked to the devaluation of the Venezuelan Bolivar and the interest rate increases in the emerging markets where Pirelli operates;

A net financial position of negative 1,685.5 million euro compared with -2,003.9 million euro on 30 September 2014 and -979.6 million euro on 31 December 2014, because of the usual seasonality of working capital.

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BOARD OF PIRELLI & C. SPA APPROVES CONSOLIDATED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014

The company recalls that on February 12, 2015 it released to the market preliminary data for 2014. The present communique as well as reporting the same economic indicators already announced in February, includes new elements, such as net profit and dividends, approved by today’s meeting of the Board of Directors.

  • TOTAL NET PROFIT: +8.6% TO 332.8 MILLION EURO (306.5 MILLION EURO IN 2013) AFTER VENZUELA IMPACT OF 72 MILLION EURO AND ADJUSTMENT OF THE VALUE OF FINANCIAL SHAREHOLDINGS

  • THE BOARD TO PROPOSE TO SHAREHOLDERS’ MEETING THE DISTRIBUTION OF A DIVIDEND OF 0.367 EURO PER ORDINARY SHARE (0.32 PRIOR YEAR) AND 0.431EURO PER SAVINGS SHARE (0.39 EURO PRIOR YEAR)


CONSOLIDATED RESULTS

  • EBIT: +6.8% TO 837.9 MILLION (784.7 MILLION IN 2013), IN LINE WITH 2014 TARGET OF APPROX. 840 MILLION

  • EBIT MARGIN BEFORE RESTRUCTURING COSTS AT 14.4% (13.4% IN 2013); EBIT MARGIN AFTER RESTRUCTURING COSTS AT13.9% (12.9% IN 2013)

  • REVENUES: 6,018 MILLION, IN LINE WITH THE TARGET OF >€6.0/<6.1 BILLION, WITH ORGANIC GROWTH OF 5.9%; -0.7% COMPARED WITH 6,061 MILLION IN 2013 INCLUDING FOREX EFFECT (-6.6%)

  • NET FINANCIAL POSITION NEGATIVE 979.6 MILLION EURO;

EXCLUDING STEELCORD DISPOSAL THE FIGURE IS 1,167.5 MILLION BETTER THAN 2014 TARGET OF ~1,200 MILLION (1,322.4 MILLION AT END 2013 AND 2,003.9 MILLION ON 30 SEPTEMBER 2014)

TYRE ACTIVITIES

  • EBIT: +4.5% TO 852.6 MILLION (815.7 MILLION IN 2013)

  • EBIT MARGINE BEFORE RESTRUCTURING COSTS AT 14.7% (13.9% IN 2013), EBIT MARGIN AFTER RESTRUCTURING COSTS AT 14.2% (13.5% IN 2013)

  • TOTAL VOLUMES +2.0% , CONSUMER VOLUMES +5.0% AND PREMIUM VOLUMES +17.8%, INDUSTRIAL VOLUMES -6.5% DUE TO THE SLOWDOWN OF SOUTH AMERICAN MARKET

  • PREMIUM REVENUES: 2,536,0 MILLION, WITH ORGANIC GROWTH OF 13.2%; +11.5% INCLUDING FOREX EFFECT (-1.7%). PREMIUM EQUAL TO 55% OF CONSUMER REVENUES (+4.2 PERCENTAGE POINTS COMPARED TO 2013)

  • REVENUES: €6,007.5 MILLION, WITH ORGANIC GROWTH OF 6.2%; – 0.4% COMPARED WITH 6,030.6 MILLION IN 2013 INCLUDING FOREX EFFECT (-6.6%)

  • CONSUMER EBIT MARGIN BEFORE RESTRUCTURING COSTS AT 15.1% (13.7% IN 2013); EBIT MARGIN AFTER RESTRUCTURING COSTS AT 14.7% (13.3% IN 2013)

  • INDUSTRIAL EBIT MARGIN BEFORE RESTRUCTURING COSTS AT 13.1% (14.6% AT END 2013); EBIT MARGIN AFTER RESTRUCTURING COSTS AT 12.6% (14.1% AT END 2013). THE INDUSTRIAL ANNUAL PROFITABILITY TREND REFLECTS THE 6.5% FALL IN VOLUMES MAINLY IN EMERGING MARKETS

2015 TARGETS CONFIRMED

  • CONSOLIDATED EBIT ~930 MILLION EURO AFTER RESTRUCTURING CHARGES OF APPROX. 40 MILLION EURO

• TOTAL REVENUES FORECAST TO GROW BY +6%/+6.5% TO APPROX. 6.4 BILLION EURO DERIVING FROM:

- VOLUME GROWTH EXPECTED AT EQUAL TO OR ABOVE+3%. PREMIUM WILL BE THE DEVELOPMENT DRIVER WITH A RATE OF VOLUME GROWTH EQUAL TO OR ABOVE +10%

- PRICE/MIX GROWTH AT EQUAL TO OR ABOVE +4%

- FOREX IMPACT AT ABOUT -1%

  • INVESTMENT BELOW 400 MILLION EURO

• CASH GENERATION BEFORE DIVIDENDS OVER 300 MILLION EURO BEFORE STEELCORD DISPOSAL

  • 2015 TARGETS REFLECT ADJUSTMENT OF VENEZUELAN EXCHANGE RATE TO 20 BOLIVAR PER US DOLLAR

CAMFIN – CHEMCHINA OPERATION

With regard to the operation announced by Camfin and ChemChina – without prejudice to the valuations which, on the basis of the applicable laws, the independent directors and board of directors will be called upon to make regarding the public tender offer when it is launched – the Board of Directors takes note of the friendly nature of the operation, the characteristics of which – on the basis of that which has been made public – are consistent with the strategy in the Industrial sector which already foresaw paths of growth and aggregation in geographically strategic areas like Asia.

***

As a consequence of the underwriting of the agreement to sell 100% of the steelcord activities, that business has been classified as a “discontinued operation” and the reclassified results are in the accounts under the heading “results of disposed operating activities”. The economic indicators relative to 31 December 2014 thus refer to the activities in function and the comparative data of 31 December 2013 have been restated. The 2014 targets – previously indicated using a like-for-like perimeter – have been rectified, excluding the steelcord contribution and are now >€6.0/<6.1 billion for revenues and c. €840 million for EBIT.

The Board of Directors of Pirelli & C. SpA met today to review and approve results for the year ended December 31st, 2014. The year’s performance, which saw growth in the main economic indicators, was characterised in particular by:

  • growth above expectations of the Premium segment, with volumes increasing 17.8% (above the 2014 target of >16%), and the consequent strengthening of Pirelli’s positioning in all main geographical areas, in particular Apac. Premium revenues accounted for 55% of Consumer revenues, an increase from 50.8% in 2013;
  • the price/mix component at +4.2% (in line with the 2014 target of about +4%/~+5%) thanks to the performance of Premium, the greater weight of sales in the replacement channel and price increases in emerging markets to compensate for currency devaluations;
  • organic growth in revenues +5.9% (-0.7% net of the negative forex variation of 6.6%). As well as the already mentioned price/mix, higher volumes (+2%) also contributed. The 5% volume growth in the Consumer business, in particular, offset the 6.5% decline in volumes of the Industrial business which discounts the unfavourable economic context of the Latam market, in particular in Original Equipment;
  • the achievement of internal efficiencies of €92.4 million (in line with the annual target of approximately €90 million of the approximately €350 million four-year efficiencies plan for 2014-2017);
  • the marked improvement in profitability, with EBIT growth of 6.8% to €837.9 million (in line with the target of circa €840 million) and an EBIT margin of 13.9% – with growth of one percentage point compared with 12.9% at the end of 2013 – thanks to the Premium strategy, price increases in emerging markets, and the efficiencies which more than offset the negative forex impact and inflation in production factors.
  • forex volatility only partially influenced the operating results at the group level thanks to Pirelli’s ever more balanced presence in the various geographic regions and to the production policy of our factories which are approximately 80% dedicated to supplying demand from local markets.
  • the positive performances in the Apac, Europa and Nafta areas, with respective revenue growth of 17.5% (Apac) and approximately 5% in Europe and Nafta and an improvement in profitability which attenuated the effects of the slowdown in the South American market;
  • the turnaround of the business in Russia, characterised by a marked improvement in the product mix and positive “mid-single-digit” profitability from “negative” in 2013, and improvement in the MEAI area;
  • net profit of 332.8 million euro, an increase of 8.6% after the impact of the devaluation of the Venezuela exchange rate (72 million euro) and the adjustment of shareholdings (-87 million euro);
  • cash generation before dividends and the steelcord disposal above expectations at approximately €311.6 million (above the 2014 target of >€250 million). Taking receipts from the steelcord disposal into account, cash generation before dividends was approximately €499.5 million;
  • the improvement in the net financial position which as at 31 December 2014 was €979.6 million after the disposal of steelcord or, excluding the disposal of the steelcord activities, €1.167.5 billion, better than the 2014 target of approximately €1.2 billion. In the fourth quarter, in particular, the net financial position saw an improvement of over €1 billion, mainly thanks to the operating result, the positive performance of working capital and the impact of the disposal of the steelcord business;
  • Investments in research and development of 205.5 million euro, equal to 3.4% of sales, of which 174.5 million euro for activities linked to Premium products, equal to 6.9% of the segment’s sales;
  • significant steps towards the achievement of the group’s sustainability goals. In 2014 the Green Performance tyres represented about 46% of total sales for Pirelli which has reduced the specific drawing of water by 19%, energy consumption by 3% and CO2 emissions by 2%. This commitment is evidenced by the company’s inclusion in the most important sustainability indices at the world level, such as the Dow Jones Sustainability Index, where the group has lead the ATX Auto Components sector eight consecutive years; the FTSE4Good Index where Pirelli earned a score of 100/100 and the Carbon Disclosure Leadership Index, where it beat all competitors.