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Board of Directors approves 2005 financial statements

Milan , 13 March 2006 – The Board of
of Pirelli & C. SpA met
today and approved full-year 2005 results .

The Pirelli & C. SpA Group

In 2005 the Pirelli & C. SpA Group
successfully pursued its strategic focus
on higher margin business
, registering
significant growth in all economic indicators. In
particular, at the consolidated level the Group achieved, from the
economic point of view, double digit growth in
revenues (+14.6%), operating
(+32%) and net profit (+31.3%)
compared with the previous year and, from the point of view of the
asset base, a significant reduction in net
which, at the end of 2005, stood at 1,177 million
euros, in part due to the positive effects of the disposal of the
Cables and Systems activities during the course of the year.

In industrial activities , Pirelli
achieved excellent results in 2005
and reached one year earlier the
profitability target (ROS of 9%) set for 2006 in
the 3-year plan, despite the increase in raw material costs.
Revenues at the start-up Pirelli Broadband
also saw strong growth and
included the first contributions from second generation photonics.
In the real estate sector, Pirelli RE closed the
year with further improvement in results and
launched its process of international expansion

At the consolidated level, Group revenues on 31
December 2005 amounted to 4,546 million euros, an
increase of 14.6% from 3,967
million euros in 2004 and with increases in all sectors of
activity. On a like-for-like basis, and net of exchange rate
variations and changes to the consolidation area, revenues rose

EBITDA totalled 568 million euros
(12.5% on sales), an increase of 21% from 470
million euros in 2004 (11.8% on sales).

The consolidated operating income (EBIT) was
355 million euros, an increase of
32% from 269 million in 2004 and with growth in
all sectors of activity. The margin of profitability (
ROS or Return on Sales) at the consolidated level
stood at 7.8% , a further
increase from 6.8% in 2004.

The results from participations , which include
the evaluation by shareholders’ equity method of investments and
dividends from other companies not consolidated, is
positive 267 million euros, compared with 156
million euros in 2004. In particular, the result
of Olimpia was a positive
152 million euros (6.6 million euros in 2004), due
both to Telecom Italia’s improved results and the increase in the
stake held by Pirelli compared to last year. This result was not
impacted by the rectification by Olimpia of the value of Telecom
Italia shares in its portfolio in that the transparent carrying
value for Pirelli (approximately 4 euros per share) is however
below that of Olimpia post-rectification (approximately 4.2 euros
per share). It should be noted that Olimpia’s financial statements,
received in Group’s consolidated statements, is drawn up in
accordance with IAS/IFRS accounting standards and includes a
valuation of the Telecom Italia stake which uses the shareholders’
equity method. The results of the real estate sector company (
Pirelli RE Group) are also included and were a
positive 102 million euros (94
million euros in 2004).

The operating profit including income from equity
was 622 million euros, an
increase of 46.4% from 425
million euros in 2004.

The entry for financial charges and receipts
records a negative balance of 144
euros (of which 64 million euros are linked to a
fair-value evaluation of derivatives on Telecom Italia ordinary
shares held by the Group) compared with 121 million in 2004.

The net profit on 31 December 2005 was 399
euros, an increase of
31.3% from 304 million in 2004.

The attributable net profit of Pirelli & C.
SpA on 31 December 2005 was a positive 327
euros (0.066 euros per share), an
increase of 30.3% compared with
251 million euros in 2004 (0.065 euros per share).

Consolidated shareholders’ equity totaled
5,614 million euros, compared with 3,841 million
euros in 2004. Shareholders’ equity
attributable to Pirelli & C. SpA on 31
December 2005 stood at 5,205 million euros (0.979
euros per share), compared with 3,502 million euros in 2004 (1.011
euros per share).

Group net debt on 31 December 2005 continued to
decline, reaching 1,177 million euros compared
with 1,236 million euros on 30 September 2005 and 1,601 million
euros on 31 December 2004.

In 2005, the Group maintained its priority commitment to
research and technology , with investments
in research and development
of 174
euros, approximately 3.8% of

Group headcount on 31 December 2005 stood at
26,827 against 24,790 on 31 December 2004 in a
like-for-like basis, with an increase of 2,037 employees (of whom
381 with temporary contracts) mainly in Tyre activities and the
result of volume growth and expansion into China and Romania.

Pirelli Tyre

Revenues on 31 December 2005 amounted to
3,633 million euros, with an increase of
11.7% compared with 3,253 million on 2004 (
+ 7.4% on a like-for-like basis and net of
exchange rate effects), due to the price/mix component and a
confirmation of the continuing focus on the top-of-the-range

EBITDA was 518 million euros
(14.3% on sales), an increase of 14.6% from 452
million euros in 2004.

The operating income amounted to 329
euros, an increase of 19.6% from
275 million euros on 31 December 2004, with a ROS
of 9.1% .

The net profit (after financial charges of 34
million euros and fiscal charges of 97 million euros) was a
positive 198 million euros, an
increase of 18.6% from 167
million euros in 2004.

The net financial position on 31 December 2005 was
negative 237 million euros compared with 214
million on 31 December 2004, including the 59 million euros impact
of the joint-venture in China .

At end December 2005, the headcount was
23,673 , including 2,958 with temporary contracts
(on 31 December 2004 the headcount was 21,513, of whom 2,576 were

In 2005, Pirelli Tyre reinforced the growth trend of 2004, reaching
a higher rate of growth than the reference market in which it
operates in terms of profitability. The excellent performance of
2005 was the result of a continued focus on the product mix, price
increases and volume increases, which more than offset higher
energy and raw material costs in the context of less-than-brilliant
market demand. In the consumer segment (Cars and Moto) the group
saw a rise in volumes and sales, particularly in North America, and
in the Premium segment there were improvements in all geographical
area and for the Winter products in Europe . In the Industrial
segment, 2005 saw a positive growth trend, especially in original
equipment, and from the launch of truck radial production in
Yanzhou , China , which will serve the Chinese market and also
South East Asia and Australia .

Pirelli Broadband Solutions

Revenues on 31 December 2005 amounted to
112 million euros, with an increase of
from 63 million in 2004.

EBITDA was negative 6.3 million
euros, an improvement from negative 8 million in 2004.

The operating income , while positive for
broadband access activities, was impacted by start-up costs for
second generation photonics products and was overall
negative 7 million euros, an
improvement from negative 8.4 million in

The net profit on 31 December 2005 was
negative 8 million euros, an
improvement from negative 12 million in 2004.

The net financial position was negative
7.2 million euros.

On 31 December 2005, the headcount was
122 compared with 79 on 31 December 2004.

In 2005, Pirelli Broadband Solutions achieved a significant
increase in revenues compared with the previous year, due mainly to
broadband access products (in particular ADSL), which continue to
confirm positive prospects for development in Italy and abroad, and
the launch of second generation photonics products. In this
business there has been an excellent response from the market for
CWDM solutions (Coarse Wavelength Division Multiplexing) for
metropolitan networks. The development of Dynamically Tunable Laser
(DTL) also continued, now in the qualification phase with principle
clients, and, on the access front, of customized
multiple-play solutions.

Pirelli RE

It should be noted that Pirelli RE is a management
, which manages funds and special purpose
companies that own properties and non-performing loans, and in
which it holds minority interests (the fund and asset management
businesses). It also provides a full range of property services to
the above vehicles and to other customers (the property services
business), either directly or via its franchise network of estate
agents. Aggregate revenues (which according to
IAS/IFRS accounting standards substantially equate with the
aggregate value of production net of acquisitions used in previous
financial statements) and operating profit including income
from equity participations
are, therefore, the most
appropriate measure of the Group’s turnover and operating

The operating profit including income from equity
participations amounted to 186.1 million euros,
with an increase of 40% from 133 million euros in

On 31 December 2005, attributable net profit rose
to 145.4 million euros, an
increase of 24% from 117.1
million euros in 2004.

The result on 31 December continues to be characterized by a
significant increase in fees in the activities of Fund and Asset
Management and from the improvement in profitability from Service
Provider activities; the expansion of Franchising activities
continued, with affiliates rising to 1,020, as planned.

For further information on the performance of real estate
activities, consult the press release issued by Pirelli & C.
Real Estate on 10 March 2006.

Pirelli Ambiente

Pirelli & C. Ambiente Holding, the company created at the
beginning of 2005 to strengthen the Group’s presence in the
environmental sector and sustainable development, registered 2005
revenues of approximately 62 million euros, mainly linked to the
sale of its low environmental impact fuel Gecam
- Il Gasolio Bianco . During the year, the company began marketing
anti-particulate filters for diesel powered vehicle

In the fields of renewable energy and energy recovery, the
production of quality fuel from solid urban waste (Cdr-P)
continued. Through an agreement signed with ReEnergy in the United
Kingdom , the positive financial effects of which will impact
accounts in 2006, the company will be able to evaluate the
business’s development potential in one of the European markets
most interested in the utilization of Cdr-P as a partial substitute
for fossil fuels in thermo-electric power plants and cement

The work of reclaiming and re-qualifying contaminated sites, the
result of experience gained in the real estate and industrial
fields, also continued.

Outlook for 2006

The strategic focus on high value-added segments allows the Group
to forecast a further improvement in results in
2006, excluding external factors of an extraordinary and today
unforeseeable nature.

In industrial activities, Pirelli Tyre forecasts
even for the current year an increase in sales higher than that
expected for the world market, due to the focus on the premium
segments in the Consumer market and fast growing markets in the
Industrial segment. The increase in energy and primary material
costs should be offset by an improved price/mix, to permit an
overall operating result higher than 2005, excluding non-recurring

Pirelli Broadband Solutions is expected to
maintain its strong development in the access market, with its
affirmation at the international level, and the introduction of new
photonics products based on nanotechnological optical devices.
Overall, the company should post a rate of growth of approximately
30% with an improved operating result close to break-even.

Pirelli RE is expected to post in 2006 a further
increase in its operating profit including income from equity
participations in line with the guidance of the 2006-2008
industrial plan.

Pirelli & C. SpA results

The net profit on 31 December 2005 of the Pirelli & C. SpA
parent company was a positive 140 million euros,
compared with a profit of 118 million in 2004.

Shareholders Meeting and dividend proposal

The Board of Directors will propose to the Shareholder Meeting the
distribution of a dividend of 0.0210 euros per ordinary share and
0.0364 euros per savings share. The dividends will be distributed
to approximately 5.2 billion ordinary shares and approximately 135
million savings shares: the total dividend payout will be
approximately 114 million euros.

In a change from an earlier announcement, the Board has decided to
call the Ordinary Shareholders meeting for the approval of 2005
results on 20 April (in first call) and on 21 April (in second
call); the dividend will be paid on 25 May 2006 (coupon date 22 May
2006). The Shareholders Meeting shall also vote the renewal of the
Board of Statutory Auditors and renewal of the delegation to buy
its treasury shares in compliance with the overall possession limit
of 10% of the share capital.

Plan to float Pirelli Tyre

The Board of Directors, proceeding in line with the decision of 14
February, also decided to launch the plan to float Pirelli
Pneumatici SpA on the Milan Stock Exchange (Mercato Telematico
Azionario), while continuing to maintain the majority stake of the
company in the possession of Pirelli & C SpA. The control of
the international affiliates now under Pirelli Tyre Holding NV will
be transferred to Pirelli Pneumatici SpA. Market conditions
permitting, completion of the project is expected by summer

Corporate Governance

The Board of Directors, in postponing the adjustment of by-laws
following the Legge sul Risparmio,
adopted specific procedures for the handling and communication to
the public of privileged information, in accordance with the
regulatory framework as modified by the recent law on market abuse.
Such procedures, instituting a Register of the people with access
to privileged information, in effect from 1 April 2006, regulate
disclosure and ensure confidentiality during the drafting

Significant events after 31 December 2005

On February 6, Olimpia SpA and its shareholders Pirelli & C.
SpA, Edizione Finance International SA, Edizione Holding SpA, Banca
Intesa SpA and Unicredito Italiano SpA sent notification to Hopa
SpA of their withdrawal from the agreement undersigned between the
above-mentioned parties in 2003. Consequently, at the expiring date
(May 8, 2006), the agreement will not be renewed.

Conference Call

The 2005 results will be explained at 4.30 p.m GMT during a
conference call with the participation of the Chairman of Pirelli
& C. SpA, Marco Tronchetti Provera.

The press will be able to follow the presentation, without the
possibility of intervening, by calling +39 06

The presentation will also be available in audio streaming – in
real time – on the company’s website ,
in the Investor Relations section, where it will also be able to
consult the relative slides.

Summaries of the financial
statements for the period ending 31 December 2005; pro-forma
consolidated balance sheet and statement of income for Pirelli
& C. S.p.A at 31 December 2005, assuming full consolidation of
Olimpia S.p.A. and valuation of the investment in Telecom Italia
S.p.A. according to the equity method.

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