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Preliminary first half financial results (P&C)

PRELIMINARY RESULTS AS OF 30 JUNE 2003
EXAMINED

PIRELLI & C. SPA CONSOLIDATED
RESULTS

  • REVENUES: 3,297 MILLION EUROS, COMPARED TO 3,494
    MILLION EUROS IN THE FIRST HALF OF 2002
  • OPERATING INCOME: 141 MILLION EUROS, INCLUDING THE
    EFFECT OF THE ATTRIBUTION OF THE MERGER SURPLUS (APPROXIMATELY 13
    MILLION EUROS) COMPARED TO 101 MILLION EUROS AS OF 30 JUNE
    2002
  • NET DEBT: 1,598 MILLION EUROS, COMPARED TO 2,050 AT THE
    END OF 2002 AND DOWN COMPARED TO 3,302 AT 31 MARCH
    2003

PIRELLI SPA INDUSTRIAL
BUSINESSES

  • EBIT EXCEEDED THE VALUE OF THAT FOR THE WHOLE OF 2002
    AND ROS ROSE TO 4.3% DESPITE CONTINUING DIFFICULTIES IN THE
    TELECOMMUNICATIONS AND ENERGY COMPONENTS MARKETS
  • REVENUES: 3,022 MILLION EUROS, COMPARED TO 3,352
    MILLION EUROS IN THE FIRST HALF OF 2002; NET OF EXCHANGE RATE
    EFFECTS, METAL PRICES AND CHANGES IN THE CONSOLIDATION AREA, GROWTH
    OF 3.3% WAS RECORDED
  • OPERATING INCOME: 131 MILLION EUROS, INCLUDING THE
    ATTRIBUTION OF THE MERGER SURPLUS (APPROXIMATELY 13 MILLION EUROS)
    +41% COMPARED TO 30 JUNE 2002
  • NET DEBT: 1,540 MILLION EUROS, COMPARED TO 1,469 AT THE
    END OF 2002 AND DOWN COMPARED TO 31 MARCH 2003

REAL ESTATE BUSINESSES

  • STRONG GROWTH IN AGGREGATE PRODUCTION VALUE (+44%) AND
    OPERATING INCOME (+26%)

FOR 2003 THE FORECAST IS CONFIRMED OF
GROWTH IN OPERATING INCOME IN THE TYRE AND ENERGY CABLES AND
SYSTEMS SECTORS AND OF ACHIEVING BREAKEVEN FROM OPERATIONS IN THE
TELECOMMUNICATIONS CABLES AND SYSTEMS SECTOR DURING THE LAST
QUARTER.
IN THE REAL ESTATE SECTOR, EBIT INCLUDING INCOME FROM
PARTICIPATIONS IS EXPECTED TO GROW FURTHER.
OVERALL, PIRELLI & C. SPA EXPECT TO END THE YEAR WITH OPERATING
INCOME SIGNIFICANTLY UP COMPARED TO 2002

Milan, 31 July 2003 – The Board of Directors of Pirelli
& C. SpA met today and examined the preliminary, unaudited
results from operations for the half year ended on 30 June 2003.

Following figures include accounting effects of merger of
Pirelli Spa into Pirelli & C., which will be effective next 4
August with retroactive accounting from 1 January 2003. This
representation can better show economics of the operation and
ensure the market to have consistent information on quarter
accounts.

Pirelli & C. Spa Group

In the first six months of 2003 consolidated sales revenues of the
Pirelli & C. Spa Group were 3,297 million Euros, down by 5.6%
compared to 3,494 million in the first six months of 2002.

Consolidated operating income (EBIT) in the first half of the
year was 141 million Euros, including the effect of the attribution
of the merger surplus (approximately 13 million Euros), compared to
101 million in the same period of 2002.

The net financial position at 30 June 2003 was negative by 1,598
million Euros, compared to 2,050 million at the end of 2002. The
consolidated net financial position includes the effects arising
from the increase in share capital carried out by Pirelli & C.
that may be quantified as 812 million Euros and exercise of the
withdrawal right (” diritto di recesso” ) by company shareholders,
valued at 163 million Euros.

Industrial businesses of the Pirelli Spa Group

The performance of the Group’s industrial businesses in the first
half of 2003 saw an increase in operating income, albeit against a
background that was still negatively influenced by the trend in
demand in telecommunications infrastructure where volumes remain
low and with further price reduction pressures. In the Energy
sector there persists the stagnation in investment by utilities,
especially in Europe in the Low and Medium Voltage segments, and
pressure on prices on the general market. The tyre sector continues
to record increasingly good results.

In the first six months of 2003 Group sales totalled
approximately 3,022 million Euros, down by 9.8%. On a constant
basis (net of exchange rate effects, metal prices and changes in
the consolidation area), sales increased by 3.3% largely because of
the growth in the tyre sector.

Operating income (EBIT) of these businesses in the first half
was approximately 131 million Euros including attribution of the
merger surplus (approximately 13 million Euros), surpassing the
value recorded in the whole of 2002; the ROS (return on sales) rose
to 4.3% from 2.8% in the first half of 2002. Net of this effect,
EBIT is 118 million Euros and ROS 3.9%. In first half 2002, EBIT
totalled 93 million Euros.

The improvement in operating income confirmed the continuing
growth in profitability underway in the Tyre sector (+14.4%) and
the positive effects of the actions undertaken to regain efficiency
that were timely launched by the Group management in the Energy
Cables and Systems and Telecommunications Cables and Systems
Sectors and which both continue to be affected by the poor economic
situation of the market. In particular the value of the gross
efficiency gains achieved in the first half of 2003 exceeded 100
million Euros. These measures also enabled the negative impact of
exchange rates, assessed at over 20 million Euros, to be
absorbed.

Free cash flow was positive at 89 million Euros compared to 59
million at June last year, and reached 2.9% of Group turnover, up
compared to the 1.8% achieved in the first half of 2002.

In line with forecasts revealed in the Three Year Plan, at 30
June 2003 net debt totalled approximately 1,540 million Euros
compared to 1,469 million Euros at the end of 2002, and down
compared to 1,646 at 31 March this year.

The Group’s major commitment to technological research and
innovation, despite the poor economic situation, was also confirmed
in the first half of 2003 with research and development investments
of approximately 104 million Euros or 3.4% of sales, in keeping
with the previous year.

Group headcount at 30 June 2003 was 34,827, compared to 36,079
at the end of 2002 and compared to 38,043 at the end of June
2002.

Group real estate business

It should be remembered that the Sales figure is not indicative of
the turnover achieved since Pirelli & C. Real Estate is a
management company which invests in property portfolios mainly
through qualified minority shareholdings of which it takes complete
control. Therefore, it is more sensible to consider the aggregate
value of production (the total of sales and the change in
inventories, which includes minority equity investments under
management), which in the first half of 2003 totalled approximately
693 million Euros net of acquisitions, up by 44% compared to 480.7
million Euros in the first half of 2002. EBIT including income from
equity participations totalled approximately 53 million Euros,
compared to 42 million Euros in the first half of 2002, up by
26%.

As for the main sectors in the real estate division, the
activity of Asset Management saw an aggregate value of production,
net of acquisitions, of approximately 548 million Euros, compared
to 385 million Euros in the first half of 2002. The new
acquisitions totalled approximately 183 million Euros, of which
approximately 69 million was of the Group.

The activities of Service Provider, wholly consolidated,
recorded a value of production of approximately 144 million Euros
compared to 86.8 million in the first six months of 2002. Operating
income from these activities was approximately 21 million Euros, up
by approximately 65% compared to the half year in 2002.

Outlook for 2003

For the Group’s industrial businesses, in a market situation still
marked by uncertainty, the results achieved in the first half allow
the present confirmation of the objective for the year of an
increase in operating income for the Tyre and Energy Cables and
Systems sectors and an improvement in operating income in the
Telecom Cables and Systems sector, where the achievement of
break-even is forecast during the final quarter.
As for the real estate sector, it is considered reasonable to
expect operating income for 2003, including income from equity
participations, to increase further compared to the previous
year.
Overall Pirelli & C. Spa expects to end the year with a
significant improvement in operating income compared to 2002.

Lastly, the organizational model stipulated by Law Decree 231/01
has now been approved. The new model features a well-constructed
pyramidal organization based on specific principles and procedures
of internal control, reflecting the Ethical Code of Conduct adopted
by the Company. This project specifically entailed a detailed
analysis of the risks inherent in the company structure as well as
an analysis of the adequacy to current laws of the strict
organizational systems already in place.

Furthermore a Supervisory Committee has been appointed, with a
mandate until the end of the Board’s term. Members include Giuseppe
Gazzoni Frascara, independent Board member and Chairman of the
internal control & Corporate Governance Committee, Paolo
Francesco Lazzati, Chairman of the Internal Audit Committee, and
Sergio Romiti, responsible of Auditing Division of Pirelli & C.
S.p.A. Consequently, the Committee is composed of members who
possess the necessary professional skills for the social management
as well as the autonomy required by law. The Supervisory Committee
has been encharged with the necessary powers to guarantee that the
organizational model and management system adopted by the company
are working in a punctual and efficient manner.

The Report as of 30 June 2003 will be examined by the Pirelli
& C. SpA Board of Directors which is call to meet on 5
September.

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Categories: Institutional