Pirelli & C — Investor Presentation 2019

Aug 1, 2019

PIRELLI, GLOBAL HIGH VALUE

1 H 2 0 1 9 R E S U L T S – A U G U S T 1st , 2 0 1 9

1 August 2019

PIRELLI, GLOBAL HIGH VALUE 1H 2019 RESULTS

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.

1H 2019 RESULTS HIGHLIGHTS AND FY 2019 GUIDANCE

REVIEW OF 1H 2019 RESULTS AND OPERATIONAL TARGETS

APPENDIX

1 August 2019

PIRELLI, GLOBAL HIGH VALUE 1H 2019 RESULTS

KEY MESSAGES

• > Market environment deteriorating in 2Q with the Car industry experiencing a more prolonged production weakness and new technological and regulatory challenges.
• > Pirelli's exposure to High Value and increased cost-cutting measures partially offset the impact of the current challenging market scenario in 1H and FY'19. Solid Cash Flow generation confirmed for the full year.
• > We are implementing structural actions against the O.E. crisis by being more selective in serving OEMs, with a higher focus on OE-Replacement integrated profitability and expanding our partnerships to include new Premium and EV clients
• > New 3 year Business Plan, to be released in November, will set the ground for a leaner, digitally enabled, integrated business model to serve new and more diversified Customers and Consumers.
  • > Governance confirmed, with ChemChina and Camfin as stable shareholders. CEO Marco Tronchetti Provera guiding Pirelli until Spring 2023.

1H 2019 RESULTS HIGHLIGHTS

€ million

NET INCOME before discontinued operations NET FINANCIAL POSITION

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

FY 2019 OUTLOOK UPDATE (AUG '19)

2019E 2019E 2019E 2018A (guid. May 2019) (guid. Aug 2019) (guid. May 2019) €5.2 b Volumes ~ -1.0% -2.5% ÷ Net Sales +3% ÷ +4% +1.5% ÷ +2.5% ▬ o/w High Value >+9% High Value weight ~ 64% ~ 67% confirmed ~ -11% -12% ÷ ▬ o/w Standard Price/mix +5.0% ÷ +5.5% +4.5% ÷ 18.4% Adjusted EBIT margin ≥ 19% 18% ÷ 19% Forex -1.0% ÷ -0.5% High Value weight on adj. EBIT1 ~ 83% ~ 85% confirmed ~ €40 mln Start-up costs €48 mln confirmed Efficiencies ~ €70 mln Input Costs ~ -€60 mln ~ 2.1x 2.33x ÷ 2.20x Net Financial Position 2.49x Cost cutting ~ €50 mln ~2.3x incl. IFRS +0.17x incl. IFRS / adj. EBITDA1 Raw Mat. ~ -€85 mln	2019 TARGETS				2019 OPERATIONAL DRIVERS
							2019E (guid. Aug 2019)
							-2%
							+7.5% +8% -11.5%
							+5%
							~ -0.5%
							confirmed
							confirmed
							~ €70 mln
							~ -€70 mln
€463 mln CapEx ~€400 mln ~€380 mln

1. w/o start-up costs

AGENDA

1H 2019 RESULTS HIGHLIGHTS AND FY 2019 GUIDANCE

REVIEW OF 1H 2019 RESULTS AND OPERATIONAL TARGETS

APPENDIX

1H 2019 NET SALES BRIDGE

PIRELLI, GLOBAL HIGH VALUE 1H 2019 RESULTS

1 August 2019

7

1H / 2Q 2019 ADJUSTED EBIT PERFORMANCE

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

1H 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)

1H 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)

2019 ≥18" MARKET OUTLOOK

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

Replacement

• ▬ Maintains double digit growth, backed by recent years' high rim additions to car parc
• ▬ Homogenous growth in all High Value Regions, accounting for 95% of Global ≥18" demand

O.E.

• ▬ Negative trend in 1H Europe & APac
• ▬ Recovery in 2H with an easier YoY comparison
  • _ Europe supported by new Premium models launch
  • _ China could benefit from new car incentives (i.e. car plate loosening in Shenzhen and Guangzhou)

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

COST CUTTING FUTHER ENHANCED TO LIMIT EXTERNAL HEADWIND

€ million

ACTIONS

FY 2019 OUTLOOK UPDATE (AUG '19)

2019 TARGETS			2019 OPERATIONAL DRIVERS
	2018A	2019E (guid. May 2019)	2019E (guid. Aug 2019)		2019E (guid. May 2019)	2019E (guid. Aug 2019)
Net Sales	€5.2 b	+3% ÷ +4%	+1.5% ÷ +2.5%	Volumes	~ -1.0%	-2.5% ÷ -2%
High Value weight	~ 64%	~ 67%	confirmed	▬ o/w High Value ▬ o/w Standard	>+9% ~ -11%	+7.5% +8% -12% ÷ -11.5%
				Price/mix	+5.0% ÷ +5.5%	+4.5% ÷ +5%
Adjusted EBIT margin	18.4%	≥ 19%	18% ÷ 19%	Forex	-1.0% ÷ -0.5%	~ -0.5%
High Value weight on adj. EBIT1	~ 83%	~ 85%	confirmed
Start-up costs	€48 mln	~ €40 mln	confirmed
				Efficiencies	~ €70 mln	confirmed
		~ 2.1x	2.33x ÷ 2.20x	Input Costs	~ -€60 mln	confirmed
Net Financial Position / adj. EBITDA1	2.49x	~2.3x incl. IFRS	+0.17x incl. IFRS	Cost cutting	~ €50 mln	~ €70 mln
				Raw Mat.	~ -€85 mln	~ -€70 mln
CapEx	€463 mln	~€400 mln	~€380 mln

1. without start-up costs

1H 2019 NET INCOME BRIDGE

182	47	7 of which: ▬ ▬	(37) 108 -12 of IFRS 16 impact +100 of Brazil tax credit	307	0	307
Net Income bef. disc. oper.	Δ EBIT	Δ Net income / loss from equity participations	Δ Financial Δ Taxes income / charges	Net Income bef. disc. oper.	Disc. oper.	Net Income reported 1H'19
1H'18 % on Sales 6.9%				1H'19 11.6%		11.6%
			1H'18	1H'19
Net Income before disc. oper.			182	307
PPA amortization			+57	+57
Non recurring / restr. costs / other adj.			+15	-42
One-off	financial income		-3 1	-100
Taxes impact			-19	+33

1. mainly related to gains from re-pricing of unsecured facilities

1H 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 (JUNE 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 ~1.3 years of forthcoming maturities, or ~2.5 years considering the extension option

AGENDA

1H 2019 RESULTS HIGHLIGHTS AND FY 2019 GUIDANCE

REVIEW OF 1H 2019 RESULTS AND OPERATIONAL TARGETS

1 August 2019

PIRELLI, GLOBAL HIGH VALUE 1H 2019 RESULTS

2Q / 1H 2019 RESULTS HIGHLIGHTS

€ million	2Q'18	2Q'19	Δ YoY	1H'18	1H'19	Δ YoY
Revenues	1,320	1,341	+1.6%	2,630	2,655	+0.9%
Organic Growth1			+1.6%			+1.4%
High Value Revenues	850	893	+5.0%	1,684	1,788	+6.2%
Organic Growth1			+3.7%			+4.5%
% on total Revenues	64.4%	66.6%	+2.2 pp	64.0%	67.3%	+3.3pp
Adjusted EBITDA w/o start-up costs2	310	3315	+6.5%	608	6585	+8.1%
Margin	23.5%	24.6%	+1.1 pp	23.1%	24.8%	+1.7 pp
Adjusted EBITDA3	300	3215	+6.9%	588	6365	+8.2%
Margin	22.7%	23.9%	+1.2 pp	22.4%	24.0%	+1.6 pp
Adjusted EBIT w/o start-up costs2	244	232	-5.0%	473	462	-2.3%
Margin	18.5%	17.3%	-1.2 pp	18.0%	17.4%	-0.6 pp
Adjusted EBIT4	232	221	-4.5%	450	441	-2.1%
Margin	17.6%	16.5%	-1.1 pp	17.1%	16.6%	-0.5 pp
EBIT	194	241	+24.9%	378	425	+12.5%
Margin	14.7%	18.0%	+3.3 pp	14.4%	16.0%	+1.6 pp
Results from Equity Investments	(5)	0		(5)	2
Financial Income / (Charges)	(63)	385 6		(118)	(10)5 6
EBT	126	280		255	417
Tax Rate	28.7%	26.6%		28.7%	26.4%
Net Income before discontinued operations	89	206		182	307
Adj Net Income before discontinued operations	119	133		233	256

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 1H 2019 +€52 million on EBITDA and -€12 million on financial expenses, in 2Q 2019 +€27 million on EBITDA and -€5 million on financial expenses; 6. including the benefit of +€100 million of the financial income from the Brazilian tax credit

18

1H 2019 BALANCE SHEET

€ million

	30-Jun-2018	31-Dec-2018	30-Jun-2019
Fixed assets related to continuing operations	8,881	9,018	9,016
Rights of use (IFRS 16)	n.a.	n.a.	459
Inventories	983	1,129	1,165
Trade receivables	864	628	862
Trade payables	(1,052)	(1,605)	(1,200)
Operating net working capital related to continuing operations	796	152	827
Other receivables / payables	113	34	311
Net Working Capital related to continuing operations	909	186	1,138
Net invested capital held for sale	39	11	1
Total net invested capital	9,829	9,215	10,614
Equity	4,323	4,551	4,664
Provisions	1,589	1,484	1,459
Net Financial Position (excl. IFRS 16)	3,917	3,180	4,022
Lease Obligations (IFRS 16)	n.a.	n.a.	470
Net Financial Position (incl. IFRS 16)	3,917	3,180	4,492
Total financing and shareholders' equity	9,829	9,215	10,614

1H 2019 CASH FLOW

€ million

	2Q '18	2Q '19	1H '18	1H '19
Adjusted EBIT1	232	221	450	441
Depreciation & Amortization (excl. PPA amortization)	68	99	138	196
Capital expenditures	(94)	(104)	(179)	(185)
Change in working capital / other	(69)	10	(998)	(826)
Operating Cash Flow	137	227	(589)	(375)
Financial income / (expenses)	(63)	(62)	(118)	(110)
Taxes paid	(36)	(46)	(67)	(76)
Cash-out for non recurring items and restructuring costs	(12)	(18)	(50)	(34)
Exchange rates difference / other	6	(29)	(5)	(29)
Net cash flow before extraordinary operations	33	73	(830)	(623)
Industrial reorganization	(10)	-	(5)	-
Financial asset disposals / acquisitions	0	(0)	137	(17)
Dividends paid	-	(177)	-	(177)
IFRS 16 adj.	-	(5)	-	(25)
Net cash flow excl. IFRS 16	22	(109)	(698)	(842)

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

20

2019E RAW MATERIAL GUIDANCE

€ million

2019E FOREX GUIDANCE

€ million

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

1H 2019 MIX (BASED ON PURCHASING COST)

PIRELLI, GLOBAL HIGH VALUE 1H 2019 RESULTS

MANUFACTURING FOOTPRINT AS OF JUNE 30TH, 2019