Balance sheet and financial review

The NAV of the real estate assets attributable to Pirelli RE amounts to about Euros 0.8 billion. It is the net amount of Pirelli RE’s pro-rata share of the market value of the assets held by Pirelli RE (about Euros 3.8 billion) and the pro-rata share of the net financial position of the same assets (Euros 3 billion).

Equity attributable to the equity holders of the company at December 31, 2008 is Euros 361.7 million compared to Euros 715.7 million at the end of 2007. The reduction is basically due to the net effect of the loss for the year (-Euros 195.0 million), the payment of dividends (-Euros 85.1 million) and the change during the year in the reserve for interest rate hedges (-Euros 54.4 million).

The net financial position shows a net debt position of Euros 289.5 million at December 31, 2008, with an improvement of Euros 34.3 million compared to September 30, 2008 and in line with Euros 289.7 million at the end of 2007.

The adjusted net financial position (excluding shareholder loans made to minority-owned companies) is a net debt position of Euros 861.8 million, an improvement over Euros 934.5 milion compared to September 30, 2008 and a deterioration compared to December 31, 2007 (Euros 816.1 million).

The gearing ratio went from 1.52 at September 30, 2008 to 2.35 at December 31, 2008 (1.13 at December 31, 2007).

The total net financial position of the real estate investment funds and companies in which Pirelli RE has holdings at December 31, 2008 amounts to Euros 11.3 billion, of which Euros 10.1 billion refers to bank debt and Euros 1.2 billion to shareholder loans. The total net financial position of NPLs amounts to Euros 1.7 billion.

Pirelli RE’s share of the net financial position of real estate investment funds and vehicles amounts to Euros 3.6 billion (of which Euros 0.4 billion is for shareholder loans to real estate activities and Euros 0.2 billion for shareholder loans to NPLs). Bank debt of Euros 3 billion is divided between Euros 2.6 billion invested in real estate and Euros 0.4 billion in NPLs. Such debt, which has an average residual life of about 3.6 years, is secured by properties and NPLs underlying the loans.