Pirelli & C — Earnings Release 2018

Feb 26, 2019

PIRELLI, GLOBAL HIGH VALUE

F Y 2 0 1 8 R E S U L T S – 2 6 F E B R U A R Y , 2 0 1 9

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.

WHERE WE ARE

>

>

In the first 2 years of our 2017-2020 plan we:

• ▬ Delivered our High Value strategy, despite the tough 2H 2018 context with car industry facing several headwinds, especially in 4Q
• ▬ Lowered our Standard volumes vs. initial plan, with a significant reduction in 2H 2018, that brought our standard volumes below IPO plan trajectory

Looking ahead we:

• ▬ Will continue delivering our High Value strategy to achieve 2020 High Value IPO targets, and
• ▬ Will present a new Long-Term Plan in 4Q 2019, that will include a wider Restructuring Plan on Standard, where the disengagement will proceed

2018 DELIVERY AND 2019 OUTLOOK

REVIEW OF 2018 RESULTS

APPENDIX

26 February 2019

PIRELLI, GLOBAL HIGH VALUE FY 2018 RESULTS

2018 RESULTS

	(14 Nov. 2018)
	2018E	2018 Actual
Revenues	~€5.2 bln	€5,195 Million
High Value weight	~64%	63.7%
Volumes	~-2.0%	-3.1%
▬ High Value volumes ▬ Standard volumes	~+13% ~-12%	+11% -14%
Price/mix	~+6.5%	+6.8%
Forex	-7.0% ÷ -6.5%	-5.9%
IFRS 15 impact1	-0.6%	-0.7%
Adjusted EBIT w/o start-up costs2	>€1.0 bln	€1,003 Million
High Value weight	>83%	83.2%
Start-up costs	~€40 Million	€48 Million
Adjusted EBIT	~€1.0 bln	€955 Million
Net financial position / adj. EBITDA w/o start-up costs2	~2.35X	2.49X	
CapEx	~€460 Million	€463 Million

1. In accordance with IFRS 15 (starting from January 1st 2018), some costs for variable considerations paid or payable to indirect customers & 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

4

2018: IN OUR STRATEGIC ≥18" MARKET, WE DELIVERED IN LINE WITH IPO TARGETS

CAR TYRE MARKET O.E. + REPLACEMENT ≥18" ^{196 217 239} 2016A 2017A 2018A +11% +10% CAR PIRELLI VOLUMES O.E. + REPLACEMENT ≥18" 2016A 2017A 2018A +15% +14% million tyres million tyres In line with IPO 2016-2020 CAGR of >9% o/w +16% in Repl. In line with IPO 2016-2020 CAGR of ≥13% o/w +17% in Repl. In particular

5

• > ≥18": Gaining Market share, strengthening our leadership
• Prestige: O.E. market share >50%, gaining more than 5 percentage point YoY >
• Specialties: Seal Inside and PNCS +50% volumes YoY >
• Pull through effect: +3 pp YoY reaching 83% >

2018: IN STANDARD WE ACCELERATED REDUCTION, ESPECIALLY IN 2H…

CAR TYRE MARKET O.E. + REPLACEMENT ≤17"

CAR PIRELLI VOLUMES O.E. + REPLACEMENT ≤17"

• > ≤15" and second brands: intentionally trimming lower rims and less profitable sizes
• > LatAm: severe market contraction, intensifying in 2H (1H Repl. -3%, O.E. +9%; 2H Repl. -13%, O.E. -5%)

…AND WE TOOK COUNTER-MEASURES WITH A "CRASH" COST-CUTTING PROGRAM

2018 "Crash" Cost cutting program

€50 million cost reduction to counter LatAm market fall and accelerated global Standard reduction, of which:

• ▬ €30M recurring (non-core marketing and advertising budgets, purchases)
• ▬ €20M one-offs (plant overheads and staff cost)

2019 OUTLOOK: A MILDER GROWTH THAN EXPECTED AT IPO

Source: IHS Markit Forecasts (Jan-2019 vs. Jul-2017) for Macroeconomic and FX data; company elaborations from third party providers for Raw Materials (Jan-2019 vs. Jul-2017)

2019 ≥18" MARKET: OUTPACING STANDARD ONCE AGAIN, WITH O.E. STILL WEAK IN 1H AND FULLY RECOVERING IN 2H

O.E. + REPL. ≥18" CAR TYRE MARKET 2019 million tyres

Source: Company elaborations based on third party data relative to car market and on data provided by local associations of tyre producers

IN 2019 FURTHER STANDARD RATIONALIZATION

STANDARD CAPACITY EVOLUTION 2016-2019

million pcs

▬ P&L and cash impacts covered by Patent Box benefits

IN 2019 WE WILL BENEFIT FROM INCREASING IMPACT OF OUR 3 KEY PROGRAMS

3

KEY PROGRAMS 2019 DELIVERABLES

1 + VARIETY – COMPLEXITY

• ▬ Component Commonality
• ▬ Product Modularity
• ▬ Debottlenecking
• 2 DIGITAL TRANSFORMATION

LONG-TERM COST OPTIMIZATION

▬ Digital Enablers in place: Talent, Data Infrastructure, Cloud

11

• ▬ New Sales and Marketing Model to be deployed in Europe (High Value)
• ▬ New Manufacturing Scheduling & Execution System
• ▬ Organization simplification (e.g. from 6 Regions to 5)
• ▬ Marketing optimization
• ▬ Supplier base optimization

2019 IMPACT

~€70 Million Efficiencies

(1.3% on Sales)

FY 2019 OUTLOOK

€ million	2018A	2019E
		(guidance Feb. 2019)
Net Sales	€5,195 million	+4% ÷ +6% YoY
High Value weight	~64%	~67%
Volumes	-3.1%	0% ÷ +1.0%
▬ High Value volumes ▬ Standard volumes	+11% -14%	~+11% -10% ÷ -9%
Price/mix	+6.8%	+5.0% ÷ +5.5%
Forex	-5.9%	-1.0% ÷ -0.5%
IFRS 15 impact	-0.7%	-
Adjusted EBIT margin	18.4%	~19%
High Value weight on adj. EBIT w/o start-up	~83%	~85%
Start-up costs	€48 million	~€40 million
Net Financial Position / adj. EBITDA w/o start-up costs	2.49X	~2.1X1
CapEx	€463 million	~€430 million

1. ~2.3x including first estimate of IFRS 16 impact

2019: DIFFERENT EXTERNAL SCENARIO AND NEW STANDARD TARGET FOOTPRINT TRIGGERING A NEW LONG TERM PLAN (in 4Q 2019)

NEW EXTERNAL SCENARIO

• ▬ GDP + tariffs
• ▬ Regulation
• ▬ Auto Industry

STANDARD

• ▬ Accelerated Reduction
• ▬ Broader Restructuring Plan

HIGH VALUE

• ▬ Strong Demand
• ▬ More Competitive business model

All our actions will keep us in line with IPO deleverage target of Net Debt / EBITDA 2020 < 2x New plan (2019-2022) will be presented in 4Q 2019

2018 DELIVERY AND 2019 OUTLOOK

REVIEW OF 2018 RESULTS

APPENDIX

FY 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)

2019 STRATEGY BY HIGH VALUE REGIONS

• ▬ Maximize pull-through exploiting Business Model predictability
• ▬ Continue the reduction of Standard
• ▬ Execute cost reduction programs to support profitability improvement

• ▬ Increase O.E. share in Prestige / Premium maintaining profitability

• ▬ Extend national distribution footprint (Tier 1)

• ▬ Improve penetration in All Season segment
• ▬ Growing O.E. presence

▬ New JV factory start-up

• ▬ Continuous H.V. top line growth maximizing pull-through rate
• ▬ O.E. contracts with Premium Asian car makers

FY 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)

2019 STRATEGY BY STANDARD REGIONS

• ▬ Further focus on mix improvement
• ▬ Normalization of stock levels
• ▬ Strengthen the position of "industrial hub" to support H.V. growth in the U.S. market

• ▬ Cost rationalization program

• ▬ Increase share in H.V. segments supported by New Ice Zero 2 product launch

• ▬ Reinforce O.E. presence in H.V. projects
• ▬ Source of High Value export to Europe

FY 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

FY / 4Q 2018 OPERATING PERFORMANCE

PIRELLI, GLOBAL HIGH VALUE FY 2018 RESULTS

FY 2018 NET INCOME BRIDGE_

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

DIVIDEND PROPOSAL

Dividend Proposal to be filed with Pirelli & C. AGM (May 15th, 2019)

2018 dividend

Net Income Reported (€ million)	442
payout (% of net income reported)	40.0%
DPS (€)	0.177
# of shares (million)	1,000.0
dividends (€ million)	177.0

Dividend Payment Schedule

• ▬ Coupon Detachment: May 20th, 2019
• ▬ Dividend Payment: May 22nd, 2019, record date May 21st

FY 2018 CASH FLOW AND NET FINANCIAL POSITION_

€ million

4Q 2018 Working Capital dynamics:

• ▬ Inventories: growth in Standard, especially in South America
• ▬ Trade receivables: temporary extension of payment terms to major Brazilian dealers
• ▬ Factoring: back to the historical level, after the 2017 hike

1. Including €31 million of costs for advisors and fees relative to the 2017 IPO process

Action plan to limit working capital absorption in 2019

• ▬ Inventories: standard production schedule review to bring stock/sales below 20% (from 21.7% in 2018)
• ▬ Trade receivables: recovery of payment terms in Brazil
• ▬ Factoring: now at stabilized level

CURRENT CAPITAL STRUCTURE (DECEMBER 2018)_

€ million

LIQUIDITY PROFILE

Liquidity margin1	2,054
Total committed lines not drawn	700
Liquidity position	1,354

BREAK-DOWN BY CURRENCY COST OF DEBT (LAST 12 MONTHS)

1. Covers ~2.5 years of forthcoming maturities

2018 DELIVERY IN SUSTAINABILITY

KPIs		2017	2018	Targets 2020
	Green Performance Tyres revenues1	43.5%	49.8%	>50% >65% on H.V.
	Accident frequency index reduction	-83% (vs. 2009)	-81% (vs. 2009)	-87% (vs. 2009)
	Plant CO2 specific emissions reduction	-10%* (vs. 2009)	-13% (vs.2009)	-17% (vs. 2009)
	Specific energy consumption reduction	-16%* (vs. 2009)	-16% (vs. 2009)	-19% (vs. 2009)
	Electricity from renewable sources2	44%*	41%	
	Waste recovered	93%*	96%	ACHIEVED ≥95%
	Specific water withdrawal reduction	-63%* (vs. 2009)	-66% (vs. 2009)	ACHIEVED -66% (vs. 2009)
	Avg. rolling resistance of car tyres reduction	-15% (vs. 2009)	-16.4% (vs. 2009)	-20% (vs. 2009)
	Average training days per capita	8	>8	≥7 days
	*. data restated after changes in the Group scope

1. Figure obtained by weighing the value of sales of Green Performance tyres on the total value of sales of Group tyres; Green Performance products identify tyres that Pirelli produces throughout the world and that fall only under rolling resistance and wet grip classes A, B, C according to the labelling parameters set by European legislation. 2017 value updated after new data acquisition; 2. Internal evaluation on International Energy Agency (IEA) data considering Pirelli geographical breakdown; 3. Confirmed by third party (Feb. 2018); 4. with a score of 81 points vs. sector median of 32 (Sept. 2018); 5. Edited by RobecoSAM, who is responsible for evaluations of inclusion in the Dow Jones Sustainability Index; Note: Preliminary unaudited results

2018 DELIVERY AND 2019 OUTLOOK

REVIEW OF 2018 RESULTS

APPENDIX

4Q / FY 2018 RESULTS HIGHLIGHTS

€ million

	4Q'17	4Q'18	Δ YoY	FY'17	FY'18	Δ YoY
Revenues	1,314	1,269	-3.4%	5,352	5,195	-2.9%
Organic Growth1			+1.0%			+3.7%
High Value Revenues	734	780	+6.2%	3,079	3,310	+7.5%
Organic Growth1			+6.4%			+10.3%
% on total Revenues	55.9%	61.5%	+5.6 pp	57.5%	63.7%	+6.2 pp
EBITDA adjusted w/o start-up costs2	309	343	+10.8%	1,175	1,279	+8.9%
Margin	23.6%	27.0%	+3.4 pp	22.0%	24.6%	+2.6 pp
EBITDA adjusted3	301	327	+8.5%	1,138	1,235	+8.5%
Margin	22.9%	25.8%	+2.9 pp	21.3%	23.8%	+2.5 pp
EBIT adjusted w/o start-up costs2	245	271	+10.3%	927	1,003	+8.2%
Margin	18.7%	21.3%	+2.6 pp	17.3%	19.3%	+2.0 pp
EBIT adjusted3	234	255	+8.8%	876	955	+9.0%
Margin	17.8%	20.1%	+2.3 pp	16.4%	18.4%	+2.0 pp
EBIT	133	112	-15.7%	674	703	+4.4%
Margin	10.1%	8.8%	-1.3 pp	12.6%	13.5%	+0.9 pp
Results from Equity Investments	12	3		(7)	(5)
Financial Income / (Charges)	(73)	(58)		(363)	(196)
EBT	72	57		304	502
Tax Rate	9.9%	n.m.		13.4%	10.6%
Net Income (Consumer)	64	71		263	449
Net Income adjusted (Consumer)	129	173		387	576

1 Excl. FX / perimeter; 2 Aeolus Car, Velo, Cyber & digital transformation; 3 before amortization of PPA, non-recurring items & restructuring costs;

2018 RESULTS HIGHLIGHTS BY QUARTER_

€ million

	1Q'17	1Q'18	Δ YoY	2Q'17	2Q'18	Δ YoY	3Q'17	3Q'18	Δ YoY	4Q'17	4Q'18	Δ YoY
Revenues	1,339	1,310	-2.2%	1,346	1,320	-1.9%	1,353	1,295	-4.3%	1,314	1,269	-3.4%
Organic Growth1			+5.7%			+5.3%			+2.5%			+1.0%
High Value Revenues	775	834	+7.5%	787	850	+8.0%	783	846	+8.1%	734	780	+6.2%
Organic Growth1			+13.4%			+11.8%			+9.2%			+6.4%
% on total Revenues	57.9%	63.6%	+5.7 pp	58.5%	64.4%	+5.9 pp	57.8%	65.3%	+7.5 pp	55.9%	61.5%	+5.6 pp
EBITDA adj. w/o start-up costs2	282	298	+5.8%	285	310	+8.8%	299	328	+9.7%	309	343	+10.8%
margin	21.0%	22.7%	+1.7 pp	21.2%	23.5%	+2.3 pp	22.1%	25.3%	+3.2 pp	23.6%	27.0%	+3.4 pp
EBITDA adjusted3	270	288	+6.5%	276	300	+8.6%	290	320	+10.3%	301	327	+8.5%
margin	20.2%	22.0%	+1.8 pp	20.5%	22.7%	+2.2 pp	21.4%	24.7%	+3.3 pp	22.9%	25.8%	+2.9 pp
EBIT adj. w/o start-up costs2	220	229	+4.5%	224	244	+9.1%	238	259	+8.6%	245	271	+10.3%
margin	16.4%	17.5%	+1.1 pp	16.6%	18.5%	+1.9 pp	17.6%	20.0%	+2.4 pp	18.7%	21.3%	+2.6 pp
EBIT adjusted3	205	218	+6.5%	211	232	+9.7%	226	250	+10.6%	234	255	+8.8%
Margin	15.3%	16.7%	+1.4 pp	15.7%	17.6%	+1.9 pp	16.7%	19.3%	+2.6 pp	17.8%	20.1%	+2.3 pp
PPA amortization	(26)	(29)		(26)	(29)		(29)	(29)		(29)	(29)
non recurring & restructuring costs / other	(10)	(6)		(36)	(9)		26	(8)		(73)	(115)
EBIT	169	184	+9.1%	150	194	+29.6%	223	214	-4.1%	133	112	-15.7%
margin	12.6%	14.0%	+1.4 pp	11.1%	14.7%	+3.6 pp	16.5%	16.5%	0.0 pp	10.1%	8.8%	-1.3 pp

1 Excl. FX / perimeter; 2 Aeolus Car, Velo, Cyber & digital transformation; 3 before amortization of PPA, non-recurring items & restructuring costs;

FY PIRELLI BALANCE SHEET_

€ million

	31-Dec-2017	31-Dec-2018
Fixed assets related to continuing operations	9,121	9,018
Inventories	941	1,129
Trade receivables	653	628
Trade payables	(1,674)	(1,605)
Operating net working capital related to continuing operations	(80)	152
Other receivables / payables	(42)	34
Net Working Capital related to continuing operations	(123)	186
Net invested capital held for sale	61	11
Total net invested capital	9,059	9,215
Equity	4,177	4,551
Provisions	1,664	1,484
Net Financial Position	3,219	3,180
Total financing and shareholders' equity	9,059	9,215

FY PIRELLI GROUP CASH FLOW_

€ million		FY '17	FY '18
	EBIT adjusted1	876	955
	Depreciation & Amortization (excl. PPA amortization)	261	280
	Capital expenditures	(489)	(463)
	Change in working capital / other	124	(388)
	Operating Cash Flow	772	383
	Financial income / (expenses)	(363)	(196)
	Taxes paid	(136)	(119)
	Financial investments	(3)	-
	Financial asset disposals	26	155
	Dividends paid to minorities	(13)	(8)
	Cash-out for non recurring items and restructuring costs	(64)	(72)
	Minorities	(6)	-
	New Chinese plant JV	-	(65)
	Minorities / other	(15)	(20)
	Exchange rates difference / other	1	(9)
	Net cash flow before extraordinary operations	200	48
	Industrial reorganization	305	(10)
	Capital increase	1,189	-
	Net cash flow	1,694	38

1 before amortization of PPA, non recurring items and restructuring costs

2018 HIGH VALUE ACHIEVEMENTS

2019E RAW MATERIAL GUIDANCE

€ million

32

2019E FOREX GUIDANCE

€ million

KEY CAR MARKET TRENDS: EUROPE

34

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

FY 2018 MIX (BASED ON PURCHASING COST)

PIRELLI, GLOBAL HIGH VALUE FY 2018 RESULTS

PIRELLI MANUFACTURING FOOTPRINT AS OF DECEMBER 31ST 2018