Pirelli & C — Investor Presentation 2017

Nov 6, 2017

6 November, 2017

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.

KEY MESSAGES_

Pirelli back to the Financial Market as:

• › The only Consumer Player focused on High Value products at global level
• › Well placed in an attractive market, which should outgrow the Standard market 4X in the long term
• › With a different game than European full-liners in a healthy sector with high barriers

> 9M 2017 Results – High Value strategy bearing the first fruits:

• › Robust growth: +9% Top line, High Value at 58% of total revenues, +2pp YoY
• › Unparalleled price/mix improvement: +6.5%, 2x peers average
• › Solid internally driven profitability increase: EBIT adj. w/o start-up costs: +10% in 9M, +15% in 3Q

2017 Outlook - Well on-track to 2020 Targets:

• › Increasing High Value weight on EBIT adjusted w/o start-up costs: 83%, +2pp YoY
• › Deleveraging underway: Net Financial Position / EBITDA Adj. w/o start-up costs <3x (4.6x in 2016y.e.)

RECAP OF PIRELLI STRATEGY

9M 2017 RESULTS

FULL YEAR 2017 OUTLOOK

APPENDIX

HIGH VALUE: OUR NEW DISTINCTIVE FOCUS_

FROM FOCUS ON PREMIUM…

…TO A NARROWER FOCUS ON "HIGH VALUE"

The Only Tyre Company Focused On Serving Consumers Only

1 weight on total consumer business carve-out revenues as at 31st December 2016; 2 including motorsport & Specialties ≤17"; 3 Radial, Custom Touring, Off Road and Sport Touring X-ply with speed index ≥H

ATTRACTIVE TYRE MARKET: ≥18" OUTGROWING STANDARD ~4x ON LONG-TERM SUSTAINED BY PREMIUM & PRESTIGE CAR PARC EXPANSION_

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

PIRELLI WELL PLACED IN HIGH VALUE MARKETS (EU, APAC & NAFTA) TO KEEP OUTPERFORMING_

PIRELLI STRATEGY BASED ON 3 PILLARS_

9M 2017 RESULTS

PILLAR 1: HIGH VALUE FOCUS AND CURRENT ACHIEVEMENTS_

PILLAR 2: TRANSFORMATION PROGRAM WITH 4 KEY INITIATIVES_

• New integrated management of O.E. and Replacement along the whole vehicle life-cycle, supported by predictive / forecasting tools, to optimize investments in capacity and in stock ¹
• Use of IoT¹ data to optimize process and labour yields 2
• Convergence of all key levers to optimize Prestige performance in a specific Business Unit 3
• Five supply chains supporting specific business areas: Specialties, Prestige, O.E., Tier 1 and Replacement 4

1 Internet of Things

PIRELLI, GLOBAL HIGH VALUE

2

PILLAR 3: STANDARD CAPACITY REDUCTION AND PROFITABILITY IMPROVEMENT UNDERWAY_

REDUCING CAPACITY… …AND IMPROVING PROFITABILITY

3

RECAP OF PIRELLI STRATEGY

9M 2017 RESULTS

FULL YEAR 2017 OUTLOOK

APPENDIX

9M 2017 RESULTS

9M 2017 RESULTS: HIGHLIGHTS_

€ million

REVENUES EBIT ADJ.¹ w/o start-up costs²

NET INCOME ADJ. NET FINANCIAL POSITION

1 before amortization of PPA, non-recurring items & restructuring costs; 2 Aeolus Car, Velo, Cyber & digital transformation ; 3 12 month trailing EBITDA adjusted w/o start-up costs; 4 2016 ratio calculated

12

PIRELLI, GLOBAL HIGH VALUE

9M 2017 RESULTS

9M 2017 PERFORMANCE BY HIGH VALUE REGIONS_

9M 2017 PERFORMANCE BY STANDARD REGIONS_

9M 2017 NET SALES BRIDGE_

PIRELLI, GLOBAL HIGH VALUE

6 November 2017 ¹⁵

9M / 3Q 2017 OPERATING PERFORMANCE_

PIRELLI, GLOBAL HIGH VALUE

6 November 2017 ¹⁶

9M 2017 NET INCOME BRIDGE_

€ million

1 U.S. private placement early redemption fees; 2 Wash down fee BBC financing

9M 2017 CASH FLOW AND NET FINANCIAL POSITION_

€ million

1 reported; 2 before D&A (incl. amortization of PPA), non-recurring items and restructuring costs; 3 Industrial reorg: partial debt push down to Prometeon ; 4 Capital Increase made by Marco Polo; 5 2016 ratio calculated using the NFP relative to the sole Consumer business equal to €4,961 million

CURRENT CAPITAL STRUCTURE (SEPTEMBER 2017)_

€ million

RECAP OF PIRELLI STRATEGY

9M 2017 RESULTS

FULL YEAR 2017 OUTLOOK

APPENDIX

9M 2017 RESULTS

FY 2017 OUTLOOK_

€ million		2016A	2017E
	Revenues	4,976	~+9% YoY
	High Value weight	55%	>57%
	Adjusted EBIT w/o start-up1	844	~930
	High Value weight	81%	~83%
	Adjusted EBIT2	844	~880
	Net financial position / Adjusted EBITDA w/o start-up costs3	4.6X	<3X
	CapEx on Revenues	6.8%	~9% (~7% on average in '17-20)
			Romania / Mexico further expansions ▬ Brazil upgrade to High Value ▬ Upgrading and reshaping of China ex Aeolus ▬

1 EBIT adjusted excluding PPA amortization, non recurring, one-off, extraordinary items and start-up costs; 2 EBIT adjusted excluding PPA amortization, non recurring, one-off and extraordinary items; 3 EBITDA adjusted excluding non recurring, one-off, extraordinary items and start-up costs

RECAP OF PIRELLI STRATEGY

9M 2017 RESULTS

FULL YEAR 2017 OUTLOOK

APPENDIX

9M 2017 RESULTS

9M 2017 RESULTS HIGHLIGHTS_

€ million

	9M '16 restated	9M '17	Δ YoY	3Q '16 restated	3Q '17	Δ YoY	3Q Highlights
Revenues	3,706.5	4,038.5	+9.0%	1,279.6	1,353.2	+5.8%
Organic Growth1			+7.7%			+8.3%	Sound top-line growth sustained by:
High Value Revenues	2,076.6	2,344.0	+12.9%	705.7	782.3	+10.8%	▬ Strengthening High Value
% on total Revenues		58%	+2 p.p.	55%	58%	+3 p.p.	▬ Strong price/mix (+7.3%)
EBITDA adjusted w/o start-up costs2	801.4	865.7	+8.0%	271.5	298.9	+10.1%	▬ Volume growth +1.0% on total, +12.2% on High Value, -5.8% on Standard given
Margin	21.6%	21.4%	-0.2 p.p	21.2%	22.1%	+0.9 p.p	the accelerated exit from low profitable
EBITDA adjusted3	801.4	836.3	+4.4%	271.5	289.9	+6.8%	products
Margin	21.6%	20.7%	-0.9 p.p.	21.2%	21.4%	+0.2 p.p.
EBIT adjusted w/o start-up costs2	620.7	681.2	+9.7%	207.5	238.2	+14.8%
Margin	16.7%	16.9%	+0.2 p.p	16.2%	17.6%	+1.4 p.p.	▬ EBIT adj. improvement, with internal
EBIT adjusted3	620.7	642.2	+3.5%	207.5	226.0	+8.9%	levers which more than compensated for rising raw mat. costs, inflation and other
Margin	16.7%	15.9%	-0.8 p.p.	16.2%	16.7%	+0.5 p.p.	costs related to business development
EBIT	513.7	541.1	+5.3%	172.2	222.9	+29.4%	▬ EBIT margin adj. w/o start-up at 17.6% (+1.4pp YoY)
Margin	13.9%	13.4%	-0.5 p.p.	13.5%	16.5%	+3.0 p.p.
Results from Equity Investments	(52.7)	(18.6)		(3.9)	(5.7)
Financial Income / (Charges)	(351.6)	(289.9)		(99.2)	(63.5)
EBT	109.4	232.6		69.1	153.7		▬ Decreasing financial charges, thanks to lower margin on 2016 financing
Tax Rate	n.m.	14.5%		38.9%	14.6%		▬ 9M /3Q 2017 Tax rate impacted by
Net Income (Consumer)	35.8	198.9		42.2	131.3		detection of deferred tax assets
Net Income adjusted (Consumer)	132.6	257.5		67.4	98.5

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

9M PIRELLI BALANCE SHEET_

€ million

	31/12/2016 Carve-out	31/12/2016 Reported	30/09/2017
Fixed assets related to continuing operations	9,168	10,299	9,147
Inventories	874	1,056	969
Trade receivables	680	679	1,038
Trade payables	(1,281)	(1,499)	(1,067)
Operating net working capital related to continuing operations	274	236	940
Other receivables / payables	19	(311)	147
Net Working Capital related to continuing operations	293	(74)	1,087
Net invested capital held for sale	-	-	(1)
Total net invested capital	9,460	10,225	10,233
Equity	2,633	3,275	4,160
Provisions	1,866	2,037	1,785
Net Financial Position	4,961	4,913	4,288
Total financing and shareholders' equity	9,460	10,225	10,233

9M PIRELLI GROUP CASH FLOW_

€ million

	9M '16 restated	9M '17
EBIT adjusted1	620.7	642.2
Depreciation & Amortization (excl. amort. PPA)	180.7	194.1
Capital expenditures	(221.9)	(327.6)
Change in working capital / other	(777.5)	(900.1)
Operating Cash Flow	(198.0)	(391.4)
Financial income / expenses	(351.6)	(289.9)
Fiscal charges	(73.6)	(33.7)
Net operating cash flow	(623.2)	(715.0)
Financial investments / disinvestments	5.9	(2.5)
Partial purchase from Dasa of Pneuac shares	-	(15.4)
Asset disposals	16.1	-
Cash-out for non recurring items & restructuring costs	(35.4)	(23.3)
Impact of deferred taxation on PPA amortization & recognition of tax assets	(21.9)	(83.2)
Financial expenses already included in acquisition debt	122.2	-
Dividend paid to minorities	-	(12.9)
Minorities	-	(5.5)
Exchange rates difference / other	(89.5)	(11.1)
Net cash flow before extraordinary operations	(625.8)	(868.9)
Industrial reorganization	118.7	304.6
Variation of Bidco NFP from 1/1 to 31/5/2016	(134.3)	-
Capital increase subscribed by Marco Polo	-	1,189.4
Net cash flow	(641.4)	625.1

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

2015-2016 NET INVESTED CAPITAL SEASONALITY: PIRELLI GROUP REPORTED DATA_

€ million

SEASONALITY OF NET OPERATING WORKING CAP¹ THROUGH QUARTERS

SEASONALITY OF CAPEX THROUGH QUARTERS

1 Net operating working capital defined as Inventories + Trade receivables - Trade payables

COMMENTARY

Example based on former perimeter (Consumer + Industrial) only for illustration purposes

• ▬ 4Q lowest level of working capital, consistent with the wider Industry: high volumes of collections linked especially to Winter sales in high seasonal regions like Europe and Russia
• ▬ Net working capital decline in 2016 mainly due to inflation effect (raw materials price increase in 4Q 2016 inflating payables more than revenues - time lag - and stocks - fewer days outstanding):
• ▬ Management of working capital driven by the implementation of global credit insurance programs covering insolvency risk
• ▬ Inventory terms gradually improved in recent years following the implementation of several costsaving measures (e.g. efficiency improvement and scrap reduction) while accounts payable remained rather stable

KEY CAR MARKET TRENDS: EUROPE¹_

Source: Pirelli tyre market estimates based on main data provider for the Region; 1 Russia & Turkey included

KEY CAR MARKET TRENDS: NAFTA_

Source: Pirelli tyre market estimates based on main data provider for the Region; 1 NAFTA Replacement includes imports

KEY CAR MARKET TRENDS: APAC_

Source: Pirelli tyre market estimates based on main data provider for the Region

KEY MARKET TRENDS: RUSSIA & CIS AND SOUTH AMERICA_

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

RAW MATERIAL COSTS TREND AND MIX_

MAIN RAW MATERIALS PRICE TREND

9M 2017 MIX (BASED ON PURCHASING COST)

PILLAR 1: SHIFTING CAR CAPACITY TOWARDS HIGH VALUE_