Pirelli & C — Investor Presentation 2019

Oct 29, 2019

9 M 2 0 1 9 R E S U L T S – O C T O B E R 29th , 2 0 1 9

29 October 2019

PIRELLI, GLOBAL HIGH VALUE 9M 2019 RESULTS

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.

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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

> Prolonged weakness in car production impacted O.E. Tyre volumes and prices of both O.E. and Replacement, especially in Standard and High Value with lower technological content

> Pirelli reacted by strengthening High Value leadership, lowering the exposure to Standard by reducing volumes and stocks, continuing the implementation of the restructuring plan

> New 3-year plan under preparation, with major cost and break-even point reduction program frontloaded, to impact significantly already in 2020

CURRENT SCENARIO, 9M '19 RESULTS AND FY '19 GUIDANCE

MEDIUM-TERM SCENARIO AND STRATEGIC GUIDELINES FOR '20-'22 PLAN

REVIEW OF 9M '19 RESULTS AND OPERATIONAL TARGETS

APPENDIX

29 October 2019

PIRELLI, GLOBAL HIGH VALUE 9M 2019 RESULTS

CURRENT MARKET SCENARIO: WHAT CHANGED VS. EARLY AUGUST AND HOW WE CURBED THE HEADWINDS

O.E. deterioration leading to a weak pricing environment

What we did to curb headwinds

High Value

• Solid Replacement growth leveraging on pull-through effect >
• Price protection in ≥18" Specialties (>50% of H.V.) >

Standard

• Lower exposure to less profitable products (-13.9% volume on ≤17" in 1H, -8.8% in 3Q) >
• Inventories reduction (-22% YtD in 9M, -16% in 1H) >
• Restructuring plan on-going >

Cost Containment

• Proceeding with short-term cost reduction (€40 million in 9M) >
• Moving towards a more structural breakeven point reduction >

9M 2019 RESULTS HIGHLIGHTS

€ million

NET SALES EBIT ADJUSTED.¹ 9M 2018 64.5% 9M 2019 High Value 67.4% Standard 3,925 4,036 +2.8% +7.5% ∆ YoY organic +5.7% +2.3% -4.0%

NET INCOME before discontinued operations NET FINANCIAL POSITION

1. before amortization of PPA, non-recurring items, restructuring costs & other adjustments; 2. IFRS 16 accounting principle establishes a new way of accounting leasing contracts.

PIRELLI, GLOBAL HIGH VALUE 9M 2019 RESULTS

FY 2019 OUTLOOK UPDATE (OCT '19)

2019 TARGETS						2019 OPERATIONAL DRIVERS
	2018A	2019E (guid. Aug. 2019)	2019E (guid. Oct. 2019)			2019E (guid. Aug. 2019)	2019E (guid. Oct. 2019)
Net Sales	€5.2 bln	~ €5.3 bln	≥€5.3 bln		Volumes	-2.5% ÷ -2%	~ -2%
High Value weight	~ 64%	~ 67%	confirmed		▬ o/w High Value ▬ o/w Standard	+7.5% +8% -12% ÷ -11.5%	≥+7.5% ~ -11%
					Price/mix	+4.5% ÷ +5%	~ +4.5%
Adjusted EBIT margin	18.4%	18% ÷ 19%	>17% ÷ 17.5%		Forex	~ -0.5%	~ flat
High Value weight on adj. EBIT1 Start-up costs	~ 83% €48 mln	~ 85% ~ €40 mln	confirmed confirmed
					Efficiencies	~ €70 mln	confirmed
CapEx	€463 mln	~ €380 mln	confirmed		Input Costs	~ -€60 mln	~ -€70 mln
					Cost cutting	~ €70 mln	~ €50 mln
Net Cash Flow		~ €350 ÷ ~ €380	~ €330 ÷ ~ €350		Raw Mat.	~ -€70 mln	confirmed
bef. dividends	€38 mln	mln	mln		Unabsorbed fixed cost on Standard	-	~ -€20 mln
Net Financial Position/ adj. EBITDA1	2.49x	2.33x ÷ 2.20x +0.17x incl. IFRS 16	~ 2.42x ÷ ~ 2.36x +0.17x incl. IFRS 16

1. without start-up costs

CURRENT SCENARIO, 9M '19 RESULTS HIGHLIGHTS AND FY '19 GUIDANCE

MEDIUM-TERM SCENARIO AND STRATEGIC GUIDELINES FOR '20-'22 PLAN

REVIEW OF 9M 2019 RESULTS AND OPERATIONAL TARGETS

APPENDIX

ECONOMIC MOMENTUM IS WEAKENING IN A MORE TROUBLING GLOBAL TRADE OUTLOOK

• U.S. focused on closing trade deficit (~80% of world GDP on-the-table) >
• Brexit >
• EU anti-globalization parties >
• US & EU Sanctions on Russia >

Median forecast¹ 25-75% range

8

1. Based on analyst forecasts compiled by Bloomberg (89 forecasts for US, 46 for Eurozone, 65 for China, 33 for world),

Source: Bloomberg, IMF, BCG Henderson Institute

OUR VIEW ON THE MEDIUM TERM SCENARIO: ≥18" RESILIENT DESPITE A MORE DIFFICULT SCENARIO

WORLD ≥18" TYRE DEMAND (O.E.+Repl.)

Different dynamics among O.E. and Replacement

• Softened OE growth, with ≥18" only segment growing (negative ≤17") >
• > Replacement more resilient, linked to car parc

Source: company elaboration on third party data

2020-2022 STRATEGIC GUIDELINES TO FURTHER STRENGTHEN THE PERFORMANCE OF OUR BUSINESS MODEL

CURRENT SCENARIO, 9M '19 RESULTS AND FY '19 GUIDANCE

MEDIUM-TERM SCENARIO AND STRATEGIC GUIDELINES FOR '20-'22 PLAN

REVIEW OF 9M '19 RESULTS AND OPERATIONAL TARGETS

APPENDIX

12

9M / 3Q 2019 ADJUSTED EBIT PERFORMANCE

1. Digital transformation, Cyber, Velo; 2. Other costs related to High Value development

9M 2019 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 2019 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 2019 OUTLOOK UPDATE (OCT '19)

2019 TARGETS
	2018A	2019E (guid. Aug. 2019)	2019E (guid. Oct. 2019)
Net Sales	€5.2 bln	~ €5.3 bln	≥€5.3 bln
High Value weight	~ 64%	~ 67%	confirmed
Adjusted EBIT margin	18.4%	18% ÷ 19%	>17% ÷ 17.5%
High Value weight on adj. EBIT1 Start-up costs	~ 83% €48 mln	~ 85% ~ €40 mln	confirmed confirmed
CapEx	€463 mln	~ €380 mln	confirmed
Net Cash Flow		~ €350 ÷ ~ €380	~ €330 ÷ ~ €350
bef. dividends	€38 mln	mln	mln
Net Financial Position/ adj. EBITDA1	2.49x	2.33x ÷ 2.20x +0.17x incl. IFRS 16	~ 2.42x ÷ ~ 2.36x +0.17x incl. IFRS 16

1. without start-up costs

9M 2019 NET INCOME BRIDGE

€ million	378	7	9 of which: ▬ ▬	64 -18 of IFRS 16 impact +100 of Brazil tax credit	(72)	386	0	386
% on Sales	Net Income bef. disc. oper. 9M'18 9.6%	Δ EBIT	Δ Net income / loss from equity participations	Δ Financial income / charges	Δ Taxes	Net Income bef. disc. oper. 9M'19 9.6%	Disc. oper.	Net Income reported 9M'19 9.6%
				9M'18		9M'19
	Net Income before disc. oper.			378		386
	PPA amortization			+86		+86
	Non recurring / restr. costs / other adj.			+23		+1
	One-off financial income			0		-101
	Taxes impact			-84		+8
	Adj. Net income before disc. oper.			404		380	Δ YoY mainly related to the	Argentina hyper-inflation accounting

9M 2019 CASH FLOW AND NET FINANCIAL POSITION

1. Including IFRS 16 impact; 2. elimination of IFRS 16 impact on Adjusted EBITDA, CapEx, Working Capital and Interests

CURRENT CAPITAL STRUCTURE (SEPTEMBER 2019)

€ million

NET FINANCIAL POSITION GROSS DEBT MATURITY

1. Committed bank lines include a Pirelli's sole discretionary option to extend original maturities up to 2 years; 2. Covers ~1.2 years of forthcoming maturities, or ~3 years considering the extension option

CURRENT SCENARIO, 9M '19 RESULTS AND FY '19 GUIDANCE

MEDIUM-TERM SCENARIO AND STRATEGIC GUIDELINES FOR '20-'22 PLAN

REVIEW OF 9M '19 RESULTS AND OPERATIONAL TARGETS

APPENDIX

29 October 2019

PIRELLI, GLOBAL HIGH VALUE 9M 2019 RESULTS

3Q / 9M 2019 RESULTS HIGHLIGHTS

€ million	3Q'18	3Q'19	Δ YoY	9M'18	9M'19	Δ YoY
Revenues	1,295	1,382	+6.7%	3,925	4,036	+2.8%
Organic Growth1			+4.1%			+2.3%
High Value Revenues	846	932	+10.2%	2,530	2,720	+7.5%
Organic Growth1			+8.3%			+5.7%
% on total Revenues	65.3%	67.5%	+2.4 pp	64.5%	67.4%	+2.8 pp
Adjusted EBITDA w/o start-up costs2	328	3505	+6.7%	936	1,0085	+7.6%
Margin	25.3%	25.3%	0.0 pp	23.9%	25.0%	+1.1 pp
Adjusted EBITDA3	320	3425	+7.1%	908	9795	+7.8%
Margin	24.7%	24.2%	-0.5 pp	23.1%	24.2%	+1.1 pp
Adjusted EBIT w/o start-up costs2	259	252	-2.6%	732	714	-2.4%
Margin	20.0%	18.2%	-1.8 pp	18.7%	17.7%	-1.0 pp
Adjusted EBIT4	250	245	-2.2%	700	685	-2.2%
Margin	19.3%	17.7%	-1.6 pp	17.8%	17.0%	-0.8 pp
EBIT	214	173	-19.1%	591	598	+1.1%
Margin	16.5%	12.5%	-4.0 pp	15.1%	14.8%	-0.3 pp
Results from Equity Investments	(3)	(1)		(8)	1
Financial Income / (Charges)	(21)	(65)5		(139)	(75)5 6
EBT	190	107		445	524
Tax Rate	n.m.	26.4%	Δ YoY mainly	15.0%	26.4%
Net Income before discontinued operations	196	79	related to the	378	386
Adj. Net Income before discontinued operations	n.m.	n.m.	Argentina hyper inflation accounting	404	380

1. Excl. FX; 2. Velo, Cyber / digital transformation; 3. before non-recurring items & restructuring costs; 4. before amortization of PPA, non-recurring items & restructuring costs; 5. including the application of the new IFRS 16: in 9M 2019 +€78 million on EBITDA and -€18 million on financial expenses, in 3Q 2019 +€26 million on EBITDA and -€6 million on financial expenses; 6. including the benefit of +€100 million of the financial income from the Brazilian tax credit

9M 2019 BALANCE SHEET

€ million	30-Sept-2018	31-Dec-2018	30-Sept-2019
Fixed assets related to continuing operations (before IFRS 16)	8,881	9,018	8,973
Right of use IFRS 16	n.a.	n.a.	464
Fixed assets related to continuing operations (incl. IFRS 16)	n.a.	n.a.	9,437
Inventories	1,049	1,129	1,104
Trade receivables	968	628	976
Trade payables	(1,005)	(1,605)	(1,147)
Operating net working capital related to continuing operations	1,012	152	933
Other receivables / payables	99	34	299
Net Working Capital related to continuing operations	1,110	186	1,232
Net invested capital held for sale	11	11	1
Total net invested capital	10,002	9,215	10,669
Equity	4,465	4,551	4,742
Provisions	1,499	1,484	1,447
Net Financial Position (excl. IFRS 16)	4,038	3,180	4,002
Lease Obligations (IFRS 16)	n.a.	n.a.	478
Net Financial Position (incl. IFRS 16)	n.a.	n.a.	4,480
Total financing and shareholders' equity	10,002	9,215	10,669

9M 2019 CASH FLOW

€ million

	3Q '18	3Q '19	9M '18	9M '19
Adjusted EBIT1	250	245	700	685
Depreciation & Amortization (excl. PPA amortization)	70	98	208	294
Capital expenditures	(118)	(83)	(297)	(268)
Change in working capital / other	(247)	(137)	(1,245)	(963)
Operating Cash Flow	(45)	123	(634)	(252)
Financial income / (expenses)	(21)	(67)	(139)	(176)
Taxes paid	(34)	(37)	(101)	(113)
Cash-out for non recurring items and restructuring costs	(5)	(7)	(55)	(41)
Exchange rates difference / other	(27)	(0)	(32)	(29)
Net cash flow before dividends & extraordinary operations	(131)	12	(961)	(612)
Industrial reorganization	10	-	5	-
Financial asset disposals / acquisitions	-	-	137	(17)
Net cash flow before dividends	(122)	12	(820)	(629)
Dividends paid	-	-	-	(177)
IFRS 16 adj.	-	8	-	(16)
Net cash flow excl. IFRS 16	(122)	20	(820)	(823)

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

2019E RAW MATERIAL GUIDANCE

€ million

2019E FOREX GUIDANCE

€ million

25

KEY CAR MARKET TRENDS: EMEA

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: NORTH AMERICA

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

KEY CAR MARKET TRENDS: ASIA PACIFIC

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 & NORDICS / 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 2019 MIX (BASED ON PURCHASING COST)

PIRELLI, GLOBAL HIGH VALUE 9M 2019 RESULTS

MANUFACTURING FOOTPRINT AS OF SEPTEMBER 30TH , 2019

1. 49% Joint Venture with the Hixih Group