Pirelli & C — Earnings Release 2018

Nov 14, 2018

9 M 2 0 1 8 R E S U L T S – 1 4 N O V E M B E R , 2 0 1 8 PIRELLI, GLOBAL HIGH VALUE

DISCLAIMER_

In General. This disclaimer applies to this document and any oral comments of any person presenting it. This document, taken together with any such oral comments, is referred to herein as the "Presentation". This document has been prepared by Pirelli & C. S.p.A. ("Pirelli" or the "Company" and, together with its subsidiary the "Group"). The Presentation is being furnished to you for information purposes only and for use in presentations of the results and strategies of the Group.

No distribution of this Presentation. This Presentation is being furnished to you solely for your information and may not be reproduced, in whole or in part, or redistributed to any other individual or legal entity.

Forward-looking statement. ""Forward-looking statements" (which expression shall include opinions, predictions or expectations about any future event) that may be contained in the Presentation are based on a variety of estimates and assumptions by the Group, including, among others, estimates of future operating results, the value of assets and market conditions. These estimates and assumptions are inherently uncertain and are subject to numerous business, industry, market, regulatory, geo-political, competitive and financial risks that are outside of the Group's control. There can be no assurance that the assumptions made in connection with the forward-looking statements will prove accurate, and actual results may differ materially. The inclusion of the forward-looking statements herein should not be regarded as an indication that the Group considers the forward-looking statements to be a reliable prediction of future events and the forward-looking statements should not be relied upon as such. Neither the Group nor any of its representatives has made or makes any representation to any person regarding the forward-looking statements and none of them intends to update or otherwise revise the forward-looking statements to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the forward-looking statements are later shown to be in error.

No update. The information and opinions in this Presentation is provided to you as of the dates indicated and the Group does not undertake to update the information contained in this Presentation and/or any opinions expressed relating thereto after its presentation, even in the event that the information becomes materially inaccurate, except as otherwise required by applicable laws.

Verbal explanation. This Presentation has to be accompanied by a verbal explanation. A simple reading of this Presentation without the appropriate verbal explanation could give rise to a partial or incorrect understanding.

No offer to purchase or sell securities. The information, statements and opinions contained in this Presentation are for information purposes only and do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of an offer to purchase or subscribe for securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments. None of the securities referred to herein have been, or will be, registered under the U.S. Securities Act of 1933, as amended, or the securities laws of any state or other jurisdiction of the United States or in Australia, Canada or Japan or any other jurisdiction where such an offer or solicitation would be unlawful (the "Other Countries"), and there will be no public offer of any such securities in the United States. This Presentation does not constitute or form a part of any offer or solicitation to purchase or subscribe for securities in the United States or the Other Countries.

Rounding. Due to rounding, numbers presented throughout this Presentation may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.

This Presentation has been prepared on a voluntary basis since the financial disclosure additional to the half-year and annual ones is no longer compulsory pursuant to Law 25/2016 in application of Directive 2013/50/EU. Pirelli is therefore not bound to prepare similar presentations in the future, unless where provided by law.

Neither the Company nor any member of the Group nor any of its or their respective representatives, directors, employees or agents accept any liability whatsoever in connection with this Presentation or any of its contents or in relation to any loss arising from its use or from any reliance placed upon it.

Francesco Tanzi, the manager in charge of preparing the corporate accounting documents, declares that, pursuant to art. 154-bis, paragraph 2, of the Legislative Decree no. 58 of February 24, 1998, the accounting information contained herein correspond to document results, books and accounting records.

Non-IFRS and Other Performance Measures

This Presentation contains certain items as part of the financial disclosure which are not defined under IFRS. Accordingly, these items do not have standardized meanings and may not be directly comparable to similarly-titled items adopted by other entities.

***

Pirelli management has identified a number of "Alternative Performance Indicators" ("APIs"). These APIs (i) are derived from historical results of Pirelli & C. S.p.A. and are not intended to be indicative of future performance, (ii) are non-IFRS financial measures and, although derived from the Financial Statements, are unaudited and (iii) are not an alternative to financial measures prepared in accordance with IFRS.

The APIs presented herein are [EBIT, EBIT margin, EBITDA, EBITDA margin, net income and net income margin.

In addition, this Presentation includes certain measures that have been adjusted by us to present operating and financial performance net of any non-recurring events and non-core events. The adjusted indicators are EBITDA adjusted, EBITDA adjusted without start up costs, EBIT, EBIT adjusted, EBIT adjusted without start up costs,, net income adjusted.

In order to facilitate the understanding of our financial position and financial performance, this Presentation contains other performance measures, such as Fixed Assets related to continuing operations, Provisions, Operating Working Capital related to continuing operations, Net Working Capital related to continuing operations, Net Financial (liquidity) / debt Position.

These measures are not indicative of our historical operating results, nor are they meant to be predictive of future results.

These measures are used by our management to monitor the underlying performance of our business and operations. Similarly entitled non-IFRS financial measures reported by other companies may not be calculated in an identical manner, consequently our measures may not be consistent with similar measures used by other companies. Therefore, investors should not place undue reliance on this data.

OUR STRATEGY, 9M'18 DELIVERY AND FY'18 OUTLOOK

9M'18 RESULTS IN DETAIL

APPENDIX

9M 2018 RESULTS

PIRELLI, GLOBAL HIGH VALUE

We are delivering good results because:

• Our High Value strategy is proving resilient and on track >

• We are cutting costs, with a short term crash program to deal with the LatAm crisis, and with additional actions in 2019 to continue to support the double digit reduction in Standard and the High Value strategy. >

WHY OUR STRATEGY IS UNIQUE (I/II): choice of positioning in High Value

WHY OUR STRATEGY IS UNIQUE (II/II): distinctive business model

1. Items sold with yearly sales >300 pcs / year; 2. Restated figures

9M 2018 RESULTS SUMMARY_

9M 2018 RESULTS HIGHLIGHTS_

€ million

NET INCOME before discontinued operations NET FINANCIAL POSITION

1. Bef. amortization of PPA, non-recurring items, restr. costs & other adjustments; 2. Aeolus Car, Velo, Cyber & digital transformation; 3. Net Financial Position / 12M trailing adj. EBITDA bef. start-up costs

9M 2018 PERFORMANCE BY HIGH VALUE REGIONS_

1. Before amortization of PPA, non-recurring items, restructuring costs and other adjustments; 2. Standard & other (including Controlled Distribution & Other)

9M 2018 PERFORMANCE BY STANDARD REGIONS_

1. Before amortization of PPA, non-recurring items, restructuring costs and other adjustments; 2. Standard & other (including Controlled Distribution & Other)

FY 2018 OUTLOOK UPDATE_

	2017A		2018E
			(14 Nov. 2018)	August 7th guidance
Revenues	€ 5,352 mln	~ € 5.2 bln	€ 5.35 billion excl. LatAm slowdown vs August guidance	~€ 5.4 billion
High Value weight	58%	~ 64%		from >60%
Volumes		~ -2.0%	flat excl. LatAm slowdown vs August guidance	flat
▬ High Value volumes		~ +13%	≥13% excl. LatAm slowdown vs August guidance	≥13%
▬ Standard volumes		~ -12%	~ -9% excl. LatAm slowdown vs August guidance	-9.0%
Price/mix		~ +6.5%	≥ +7.0% if the expected price increase in Brazil was implemented	+6.5% ÷ +7.5%
Forex		-7.0% ÷ -6.5%		-6.0% ÷ -5.0%
IFRS 15 impact1		-0.6%		confirmed
Adjusted EBIT w/o start-up costs2	€ 927 mln	> € 1.0 bln		confirmed
High Value weight	~83%	> 83%		confirmed
Start-up costs	€ 50 mln	~ € 40 mln		confirmed
Adjusted EBIT	€ 876 mln	~ € 1.0 bln		confirmed
		▬ ▬ ▬	Top line impact (Standard Volume, FX and Brazil) offset by: Higher Net efficiencies vs. input costs (+ € 20 mln; 0 in August guidance) Cost reduction and Brazil recovery plan (~ € 50 mln Lower raw material impact (~ -€ 50 mln vs. -€ 60 mln	vs. € 20 mln August guidance) August guidance)
Net financial position / Adjusted EBITDA w/o start-up costs2	2.7X	~ 2.35X	~ 2.3x excl. LatAm slowdown vs August guidance	~2.3X
CapEx	€ 489 mln	~ € 460 mln		confirmed

1 In accordance with IFRS 15 (starting from January 1st, 2018), some costs for variable considerations paid or payable to indirect customers and mainly linked to achieving sale targets are recognized as a reduction of revenues; 2 Before amortization of PPA, non-recurring items, restructuring costs, other adjustments and start-up costs;

OUR STRATEGY, 9M'18 DELIVERY AND FY'18 OUTLOOK

9M'18 RESULTS IN DETAIL

APPENDIX

PIRELLI, GLOBAL HIGH VALUE

9M 2018 RESULTS

9M 2018 NET SALES BRIDGE_

1. In accordance with IFRS 15 (from January 1st, 2018), some costs for variable considerations paid or payable to indirect customers and mainly linked to achieving sales targets are recognized as a reduction of revenues

9M / 3Q 2018 OPERATING PERFORMANCE_

PIRELLI, GLOBAL HIGH VALUE

9M 2018 NET INCOME BRIDGE_

1. wash down fee BCC financing; 2. Mainly related to gains from re-pricing of unsecured facilities

9M 2018 CASH FLOW AND NET FINANCIAL POSITION_

€ million

• ▬ Trade receivables: in line with the seasonality of the business
• ▬ Trade Payables: seasonal reduction versus y.e. 2017

Seasonal trend to be reverted in 4Q 2018

1. Net Financial Position on 12 month trailing adjusted EBITDA without start-up costs

CURRENT CAPITAL STRUCTURE (SEPTEMBER 2018)_

€ million

OUR STRATEGY, 9M'18 DELIVERY AND FY'18 OUTLOOK

9M'18 RESULTS IN DETAIL

APPENDIX

9M 2018 RESULTS

9M / 3Q 2018 RESULTS HIGHLIGHTS_

€ million

	3Q'17	3Q'18	Δ YoY	9M'17	9M'18	Δ YoY
Revenues	1,353	1,295	-4.3%	4,038	3,925	-2.8%
Organic Growth1			+2.5%			+4.4%
High Value Revenues	782.5	846	+8.1%	2,345	2,530	+7.9%
Organic Growth1			+9.6%			+11.5%
% on total Revenues	57.8%	65.3%	+7.5 pp	58.1%	64.5%	+6.4 pp
EBITDA adjusted w/o start-up costs2	299	328	+9.7%	866	936	+8.2%
Margin	22.1%	25.3%	+3.2 pp	21.4%	23.9%	+2.5 pp
EBITDA adjusted3	290	320	+10.3%	836	908	+8.5%
Margin	21.4%	24.7%	+3.3 pp	20.7%	23.1%	+2.4 pp
EBIT adjusted w/o start-up costs2	238	259	+8.6%	681	732	+7.5%
Margin	17.6%	20.0%	+2.4 pp	16.9%	18.7%	+1.8 pp
EBIT adjusted3	226	250	+10.6%	642	700	+9.0%
Margin	16.7%	19.3%	+2.6 pp	15.9%	17.8%	+1.9 pp
EBIT	223	214	-4.1%	541	591	+9.3%
Margin	16.5%	16.5%	0.0 pp	13.4%	15.1%	+1.7 pp
Results from Equity Investments	(6)	(3)		(19)	(8)
Financial Income / (Charges)	(64)	(21)		(290)	(139)
EBT	154	190		233	445
Tax Rate	14.6%	n.m.		14.5%	15.0%
Net Income before disc. operations	131	196		199	378
Net Income adjusted before disc. operations	99	171		258	404

1. Excl. FX / perimeter; 2. Before non-recurring items, restructuring costs, other adjustments and start-up costs; 3. Before amortization of PPA, non-recurring items , restructuring costs, other adjustments

9M PIRELLI BALANCE SHEET_

€ million

	30/09/2017	31/12/2017	30/09/2018
Fixed assets related to continuing operations	9,147	9,121	8,881
Inventories	969	941	1,049
Trade receivables	1,037	653	968
Trade payables	(1,067)	(1,674)	(1,005)
Operating net working capital related to continuing operations	940	(80)	1,012
Other receivables / payables	147	(42)	99
Net Working Capital related to continuing operations	1,087	(123)	1,100
Net invested capital held for sale	(1)	61	11
Total net invested capital	10,233	9,059	10,002
Equity	4,160	4,177	4,465
Provisions	1,786	1,664	1,499
Net Financial Position	4,288	3,219	4,038
Total financing and shareholders' equity	10,233	9,059	10,002
Attributable net equity	4,104	4,117	4,384

9M PIRELLI GROUP CASH FLOW_

€ million

	9M'17	1Q'18	2Q'18	3Q'18	9M'18
EBIT adjusted1	642	218	232	250	700
Depreciation & Amortization (excl. PPA amortization)	194	70	68	70	208
Capital expenditures	(328)	(85)	(94)	(118)	(297)
Change in working capital / other	(900)	(929)	(69)	(247)	(1,245)
Operating Cash Flow	(391)	(726)	137	(45)	(634)
Financial income / (expenses)	(290)	(55)	(63)	(21)	(139)
Taxes paid	(117)	(31)	(36)	(34)	(101)
Financial investments	(3)	-	-	-	-
Financial asset disposals	-	155	-	-	155
shares2 Purchase of Pneuac	(15)	(19)	-	-	(19)
Cash-out for non recurring items and restructuring costs	(23)	(38)	(12)	(5)	(55)
Minorities	(6)	-	-	-	-
Exchange rates difference / other	(24)	(12)	6	(27)	(32)
Net cash flow before extraordinary operations	(869)	(726)	33	(131)	(824)
Industrial reorganization	305	5	(10)	10	5
Capital Increase	1,189	-	-	-	-
Net cash flow	625	(720)	22	(122)	(820)

1. Before amortization of PPA, non-recurring items, restructuring costs and other adjustments; 2. 2 nd tranche for the acquisition of 36% stake in Pneuac in September 2017 to reach 100% of the company

2018E RAW MATERIAL GUIDANCE_

9M 2018 RESULTS

2018E FOREX GUIDANCE_

€ million

KEY CAR MARKET TRENDS: EUROPE_

Source: Pirelli tyre market estimates based on main data provider for the Region; historical market data may be subject to restatement

KEY CAR MARKET TRENDS: NAFTA_

Source: Pirelli tyre market estimates based on main data provider for the Region; historical market data may be subject to restatement; 1. NAFTA Replacement includes imports

KEY CAR MARKET TRENDS: APAC_

Source: Pirelli tyre market estimates based on main data provider for the Region; historical market data may be subject to restatement

KEY MARKET TRENDS: RUSSIA & CIS AND SOUTH AMERICA_

Source: Pirelli tyre market estimates based on main data provider for the Region; historical market data may be subject to restatement; 1. South America Replacement restated to include Brazilian imports

RAW MATERIAL COSTS TREND AND MIX_

MAIN RAW MATERIALS PRICE TREND

9M 2018 MIX (BASED ON PURCHASING COST)

PIRELLI MANUFACTURING FOOTPRINT AS OF SEPTEMBER 30TH 2018