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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.


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PIRELLI FINALIZES SALE TO BEKAERT OF ITS STEELCORD PLANT IN CHINA

With this transaction the sale of Pirelli’s steelcord business is complete

Pirelli and Bekaert successfully finalized the sale to Bekaert of Pirelli’s steelcord activities in Yanzhou, Shandong Province, China. With this transaction, the transfer of Pirelli’s steelcord business to Bekaert is now complete.

This follows the transfer from Pirelli to Bekaert of steelcord plants in Figline (Italy), Slatina (Romania), Sumaré (Brazil) and Izmit (Turkey). The first three were announced on December 18th, 2014 and the fourth on February 6th, 2015.

As stated to the market on February 28th, 2014, when the operation was announced, the enterprise value for the 100% of the steelcord activities has been confirmed at 255 million euro.


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PIRELLI & C. SPA BOARD APPROVES RESULTS FOR 9 MONTHS ENDED 30 SEPT. 2014

GROWTH OF MAIN ECONOMIC INDICATORS THANKS TO:

FURTHER STRENGTHENING OF PREMIUM (VOLUMES +20.1%) IN ALL MARKETS; IMPROVED PRICE/MIX (+4.7%); EFFICIENCIES OF 71.0 MILLION EURO (ABOUT 80% OF THE FULL-YEAR TARGET)

PIRELLI CONSOLIDATED RESULTS

  • EBIT: +8.9% TO 629.7 MILLION EURO (578.2 MILLION EURO ON 30 SEPT. 2013)
  • EBIT MARGIN BEFORE RESTRUCTURING COSTS AT 14.3% (12.9% ON 30 SEPT. 2013), EBIT MARGIN AFTER CHARGES AT 13.9% (12.6% ON 30 SEPT. 2013)
  • NET PROFIT: +16.2% TO 300 MILLION EURO (258.1 MILLION ON 30 SEPT. 2013)
  • REVENUES: 4,528.7 MILLION EURO, WITH ORGANIC GROWTH OF 6.5%;
    -1.3% COMPARED WITH 4,586.4 MILLION ON 30 SEPT. 2013 INCLUDING FOREX EFFECT (-7.8%);
  • THIRD QUARTER REVENUES GREW 6% AT THE ORGANIC LEVEL (+3% INCLUDING FOREX EFFECT)
  • NET FINANCIAL POSITION NEGATIVE 2,003.9 MILLION EURO (1,935.2 MILLION ON 30 JUNE 2014 AND 1,322.4 MILLION ON 31 DECEMBER 2013)
  • TYRE ACTIVITIES

  • EBIT: +7.4% AT 640.3 MILLION EURO (596.3 MILLION EURO ON 30 SEPT. 2013)
  • EBIT MARGIN BEFORE RESTRUCTURING CHARGES AT 14.6% (13.4% ON 30 SEPT. 2013), EBIT MARGIN AFTER CHARGES AT 14.2% (13.1% ON 30 SEPT. 2013)
  • TOTAL VOLUMES +2.2%, CONSUMER VOLUMES +5.2% AND PREMIUM VOLUMES +20.1%
  • PREMIUM REVENUES: 1,933.9 MILLION EURO, WITH ORGANIC GROWTH OF 15.1%;
    +12.2% INCLUDING FOREX EFFECT (-2.9%)
  • REVENUES: 4,520.0 MILLION EURO, WITH ORGANIC GROWTH OF 6.9%;
    - 0.9% COMPARED WITH 4,562.3 MILLION ON 30 SEPT. 2013 INCLUDING FOREX EFFECT (-7.8%)
  • CONSUMER EBIT MARGIN BEFORE RESTRUCTURING CHARGES AT 14.9% (13.0% ON 30 SEPT. 2013); EBIT MARGIN AFTER CHARGES AT 14.5% (12.8% ON 30 SEPT 2013)
  • INDUSTRIAL EBIT MARGIN BEFORE RESTRUCTURING CHARGES AT 13.4% (14.4% ON 30 SEPT. 2013); EBIT MARGIN AFTER CHARGES AT 12.9% (13.9% ON 30 SEPT. 2013). YEAR-ON-YEAR INDUSTRIAL PROFITABILITY TREND REFLECTS 6.2% FALL IN VOLUMES MAINLY IN EMERGING MARKETS
  • TARGETS

  • 2014 TARGETS CONFIRMED IN TERMS OF:
    EBIT AFTER RESTRUCTURING CHARGES (850 MILLION EURO), NET FINANCIAL POSITION (~-1.2 BILLION EURO), CASH GENERATION BEFORE DIVIDENDS (>250 MILLION EURO) AND INVESTMENTS (<400 MILLION EURO)

  • EXPECTED REVENUES BETWEEN >6.1 BILLION EURO AND <6.2 BILLION EURO (PREVIOUS ESTIMATE ~6.2 BILLION EURO): TOTAL VOLUMES >+2.5% (PREVIOUS ESTIMATE >+4.5%), WITH PREMIUM VOLUMES’ GROWTH CONFIRMED AT 16%;
    PRICE/MIX CONFIRMED BETWEEN +4.5% AND +5.5%;
    MINOR FOREX IMPACT (~-7%/~-7.5% COMPARED WITH ~-8.5%/~-9.5%)

As a result of the underwriting of the agreement for the disposal of 100% of the steelcord activities, this business has been classified as a “discontinued operation” and the result reclassified in the accounts under the heading “result of the disposed operating activities”. The economic indicators relative to 30 September 2014 refer therefore to the activities in function and the comparative data on 30 September 2013 have been the object of “restatement”.

The Board of Directors of Pirelli & C. SpA, today reviewed and approved the intermediate results for operations for the nine months ended 30 September 2014 which show growth in the principle economic indicators. The performance in the first nine months was characterized in particular by:
- strong growth in the premium segment, with volumes surpassing expectations to rise +20.1% and a consequent strengthening of Pirelli’s positioning in all geographic areas. . Premium segment sales account for about 56% of net sales in the Consumer Business (51% in the first nine months of 2013);
- the improvement in price/mix to +4.7% (+4%/+5% is the target set for 2014) due to the performance of the premium segment, the product mix in the Industrial Business and price increases in emerging countries;
- volumes’ growth (+2,2%) supported by the Consumer business, which saw volumes’ growth increasing by 5.2%, with an acceleration in the third quarter (+5.3% compared with +4.3% in the second quarter);
- sales to 30 September grew by 6.5% excluding forex impact, (-1.3% the overall variation) and saw progressive improvement in the third quarter (+6% organic growth, +3% excluding forex effects)
- the accomplishment of internal efficiency gains totaling euro 71.0 million, approximately 80% of the annual target of euro 90 million (350 million, four-year cost-efficiency programme 2014-2017);
- the pronounced improvement in profitability, with EBIT growing by 8.9% to 629.7 million euro and profitability (EBIT margin) reaching 13.9%, +1.3 percentage points more than in the first nine months of 2013;
- the positive performance of the business in Europe, Asia Pacific and NAFTA, with overall net sales growing faster than the Group average, and the improvement in operating income (EBIT) that attenuates the effects of the current slowdown in the South American market;
- the turnaround of the business in Russia, characterized by a decisive improvement in product mix and positive high single digit EBIT margin,
- net profit of euro 300.0 million, up 16.2%;

Consolidated results

At the consolidated level, revenues (of which tyre activities account for 99.8%) on 30 September 2014 amounted to 4, 528.7 million euro, with organic growth of 6.5% compared with the corresponding period of 2013. Including the negative forex impact of 7.8%, stemming mainly from the volatility of emerging country currencies, revenues declined by 1.3% compared with 4,586.4 million euro in the first nine months of 2013. The third quarter saw a progressive improvement in the revenues’ trend, of 1,541.8 million euro (1,496.4 million euro in the same period of 2013), which registered organic growth of +6% (+3% including the forex effect).

The gross operating margin (EBITDA) before restructuring charges was 867.7 million euro, an increase of 7.5% compared with 806.8 million euro in the same period of 2013. In the third quarter the gross operating margin was 284.9 million euro, an increase of 2.7% compared with 277.5 million euro in the same period of 2013.

The operating result (Ebit) before restructuring charges was 647.8 million euro, an increase of 9.2% compared with 593.4 million euro in the same period of 2013, with an Ebit margin before charges of 14.3% compared with 12.9% on September 30, 2013.

The operating result (Ebit) was 629.7 million euro, an increase of 8.9% compared with 578.2 million euro in the same period of 2013. The 51.5 million euro increase in Ebit compared with the first nine months of 2013 was due for 44 million euro to the positive performance of the tyre activities and for the remaining 7.5 million euro to the improved results of other areas. The Ebit margin grew over the first nine months of 2014 to 13.9% compared with 12.6% recorded in the same period of 2013, a testament to the efficacy of the value creation strategy. In the third quarter, Ebit was 203.5 million euro, an increase of 1.9% compared with 199.7 million euro in the third quarter of 2013, with an Ebit margin of 13.2% (13.3% in the third quarter of 2013).

The result from shareholdings on 30 September 2014 was negative 32.3 million euro (-22.9 million euro in the same period of 2013) and mainly refers to – for 21.4 million euro – the effects deriving from the consolidation using the net equity method of the affiliate Prelios (fourth quarter of 2013 and first half of 2014) and to the write-down of the stake in Alitalia of 11.2 million euro, which happened in the second quarter of 2014.

Total net profit which includes activities being disposed of (steelcord business) stood at 300.0 million euro, with an increase of 16.2% compared with 258.1 million euro in the same period of 2013. The net profit of activities in function was 297.4 million euro, an increase of 15.7% compared with 257.0 million in the same period of 2013. In the third quarter the net profit was 105.3 million euro, compared with 107.5 million euro in the same period of 2013.

The net profit attributable to Pirelli & C. Spa, including the results of “discontinued operations”, amounted to 290.5 million euro, an increase of 10.8% compared with 262.1 million euro in the same period of 2013.

Consolidated net assets on 30 September 2014 stood at 2,493.2 million euro compared with 2,436.6 million euro on 31 December 2013. Consolidated net assets attributable to Pirelli & C. SpA amounted to 2,413.9 million euro, compared with 2,376.1 million euro on 31 December 2013.

The consolidated net financial position was negative 2,003.9 million euro (the figure includes 37.9 million euro relative to ”discontinued operations” of the steelcord activities), with limited growth compared to 1,935.2 million euro on 30 June 2014 (1,322.4 million at the end of 2013), with slight absorption of cash in the third quarter, in line with the business seasonality.

The net cash flow generated by operations’ management in the first nine months of 2014 was negative 141.2 million euro (-65.9 million euro in the same period of 2013), essentially due to the usual seasonality of working capital, and after investments of 244.7 million euro (238.3 million euro in the first nine months of 2013) mainly destined to the increase of Premium capacity in Europe, Nafta and China and to mix improvement. The total cash flow post dividends was negative 681.5 million euro (-765.7 million euro in the first nine months of 2013)in line with the seasonality of the activities which foresees strong cash generation in the last quarter of the year, connected to stock reduction and receipts from seasonal markets and from the Winter sales in Europe and Russia. Approximately 45 million euro are relative to the impact on the net financial position of forex variations, especially in relation to the position in Venezuela. Working capital management was positive in the third quarter for 28.8 million euro (+49.4 million in the third quarter of 2013).

Group employees on 30 September 2014 totaled 39,491 (38,133 on 30 September 2013). The increase is the result of the acquisition of the Brazilian distribution chain Abouchar, and sales’ staff additions and increased Premium capacity in Mexico, China and Romania.

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