francesco gori ceo & managing director pirelli tyre · 29 september 2010 auto show investor...

PARIS AUTO SHOW INVESTOR CONFERENCE

FRANCESCO GORI

CEO & Managing Director Pirelli Tyre

29 September 2010AUTO SHOW INVESTOR CONFERENCE

Disclaimer

This presentation contains statements that constitute forward-looking statements based on Pirelli & C SpA’s current

expectations and projections about future events and does not constitute an offer or solicitation for the sale. purchase or

acquisition of securities of any of the companies mentioned and is directed to professionals of the financial community.

These statements appear in a number of places in this presentation and include statements regarding the intent. belief or

current expectations of the customer base. estimates regarding future growth in the different business lines and the global

business. market share. financial results and other aspects of the activities and situation relating to the Company.

Such forward looking statements are not guarantees of future performance and involve risks and uncertainties. and actual

results may differ materially from those expressed in or implied by these forward looking statements as a result of various

factors, many of which are beyond the ability of Pirelli & C SpA to control or estimate precisely. Consequently it is

recommended that they be viewed as indicative only.

Analysts are cautioned not to place undue reliance on those forward looking statements. which speak only as of the date of

this presentation.

Pirelli & C. SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements

which may be made to reflect events and circumstances after the date of this presentation. including. without limitation.

changes in Pirelli & C. SpA business or acquisition strategy or to reflect the occurrence of unanticipated events.

StatementThe Manager mandated to draft corporate accounting documents of Pirelli & C. SpA. Francesco Tanzi, attests – as per

art.154-bis. comma 2 of the Testo Unico della Finanza (D.Lgs. 58/1998) – that all the accounting information contained in

this presentation correspond to the documented results. books and accounting of the Company.

2


Agenda

3

Pirelli & C Highlights

Pirelli Tyre

2010 Strategic Guidelines

Geographical positioning

1H’10 Results & 2010 targets



Pirelli Real Estate Separation Plan fully on track. Shares assignmentwithin October 2010;

Marked Operating Management improvement in the Real Estate andabove all in the Tyre business;

Fuelling Pirelli intangible value creation: back to F1

More expeditious Tyre Investment Plan to optimize market opportunitiesand further strengthen position in emerging markets and “high-end”products;

Good debt exposure & fully exploitable financial potentialities;

Second Target Upgrade in the last six months.

4


Pirelli Real Estate Separation Plan: strategic rationale

Feb.11, 2009: '09-'11 "Transformation path” announcement – assets portfolio reshaping & corebusiness focalization

In the last 18 months Pirelli RE changed its business model, went through a deep restructuringprogram, strengthened its capital structure and reached financial sustainability

Today the Real Estate market is showing signs of recovery

Benefits for P&C Benefits for PRE

Corporate structure streamlining:

a clearer equity story with a positiveimpact on valuation metrics

More flexible capital structure

Free-float increase & higher stockliquidity (free float more than 70%)

More corporate contestability

Better chance to create a platform forfuture industrial aggregation

Right time to split the 2 businesses with benefits for both P&C and PRE shareholders

5


Fuelling Pirelli intangible value creation: back to F1

WHY: After 20 years, Business Model changed

WHY: Top TV event of the year. In 2011, an estimated global audience of 2bln people, 50% from emerging markets

WHY: F1 and PIRELLI values match perfectly: technological innovation,performance, premium-products and International standing

OUTLINE EXPECTED RETURN

Product and logistic costs and overheads:F1 teams contribution worth over16mln/euro per year

Advertising costs: sponsored by PIRELLIthrough transfer of existing budget

No impact on P&L

Communication, approximately 25 timesthe cost (average sponsorship return toPirelli + 5 times)

Strong partnerships with “high-end” makers

ORGANIZATION

Brand new F1 Business Unit. International Team with top skills

Production in Turkey (Izmit plant)

BACK TO

BUSINESS MODEL

6


Over 350 €/mln investments in 2010to speed up capacity increase

More expeditious Tyre 2010 Investment Plan(capacity increase from 2009 to 2011)

RUSSIAGreenfield start up

CHINA+ 20% Truck Tyres+ 100% Car Tyres

ROMANIA+ 60% Car Tyres

ITALYNew green factory

EGYPT+ 20% Truck Tyres

MERCOSUR+ 20% Truck Tyres+ 25% Car Tyres

7


Good debt exposure & fully exploitable financial potentialities

Total CommittedLines Not Drawn

425

149

276

72

574

377

Committed LineDrawdown

Other Borrowings

664

425

874

1,299

635

-Total

1,050

€/mln

895

Gross Debt maturity as of Jun. 30, 2010 44.2% 29.1%21.2% 5.5%

155

1H’10 2010 2011 2013 &beyond

2012

Pirelli & C Net Financial Position as of 30 June, 2010* Gross Debt Maturity

Net Fin.

position

Fin.

Assets**

Gross

Debt

*Data related to Continuous Operations **Financial receivables, cash and cash equivalents

8

Debt structure optimization: Bond issue up to maximum 800 €/mln to take place within 12 months


1H 2010(restatedexc. PRE)

Pirelli &C 2010 FY targets update: 2nd upgrade in 1H2010

EBIT %post restructuring

4.3-4.5

6.5-7%

NFP 0.7*

Group Revenues

Capex

(*) Including 81.1 €/mln cash out for dividends

€/bln

>0.3

4.6-4.7

≥6.5%

confirmed

confirmed

2.4

8.0%

0.7

0.14

4.8-4.9

~7%

confirmed

>0.35

2010 targetsexcl. PRE

(March 10, 2010)

20101st Targets upgrade

(May 5, 2010)

20102nd Targets upgrade

(July 29, 2010)

9


Pirelli and Sustainable Performance

Best in class for Economic, Environmental and Social dimension; Pirelli rating: 90%vs.Autoparts & Tyre average 55% rating

Worldwide DJSI leader in Autoparts and Tyre industry for the FOURTH consecutive year - and forthe second year in a row, the only Italian company to be ranked as world leader in its sector.

Excellence Areas: Climate Strategy, Health & Safety, Risk and Crisis Management, CorporateGovernance, Codes of conduct/Compliance/anti-bribery&corruption, Human Capital development, Labourpractice indicators, Talent attraction & retention, Standards for Suppliers, Stakeholder engagement,Corporate Citizenship and Philantropy, Social and Environmental Reporting.

Included in all major sustainability global indexes:

Best Italian Company for Corporate Governance - GMI- Pirelli international rating: 9/10 vs Automobiles and Parts average 5/10 rating

- Pirelli Country rating (Italy): 10/10

Sector mover 2010 and Gold classCompany in the SAM Group andPwC "Sustainability Yearbook"

10


Agenda

11


Pirelli Tyre





World Tire Market evolution 2000-2009Delta share 2009 vs2000 (PNT)

-3.4

-3.4

-5.8

-0.7

+0.7

Michelin

Bridgestone

Goodyear

Continental

Pirelli

Revenues Market shareSource: Tire Business reports for 2000-2009

Total MarketBl$

MarketShare %

+9.1%- 10.0%

70 6972

80

93

103

113

129

140

126

-

20

40

60

80

100

120

140

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0,0%

5,0%

10,0%

15,0%

20,0%

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2

1

Our Strategic Guidelines for 2010

A distinctive growth strategy by business

Consumer Industrial

Pirelli Brand enhancing Premium Segmentpositioning (>70% of Consumer) in Europeand North America

Price/mix improvement

Cost efficiency program

Production increase in low-costcountries

Levers Expected Results

contrast raw materials cost increase (cost headwind~200€/mln at current natural rubber price >3,000 $/ton.)

56% 48%

Improve our cost competitiveness

3

Accelerate Investments to build up capacity: over 350€/mln in 2010

>90% of Industrial (87% in ‘08)

>70% for Consumer (61% in ‘08)

with one factory closure in 2009 (Spain); the old factory in

Settimo Torinese (Italy) will be definitively shutdown in 2010

Full exploitation of our potentials in areas ofgrowth (LatAm, China)

Further exposure in Emerging Markets to best seizegrowth opportunities

2008 2009

22%27%

78%73%

2010

18%

82%LatAm/MEA/ASIA

Europe

a year in advance!

13


A proactive pricing policy

Middle Est AfricaJanuary 2010+10% Consumer and IndustrialTyres

North AmericaDecember 2010Up to 7% Consumer Tyres

July 2010+4% Consumer Tyres

April 2010+4% Consumer Tyres

Europe4Q 2010+4% Consumer Tyres+4% / +6% Industrial Tyres

2Q 2010+4% Consumer Tyres+6% Industrial Tyres

South America2Q 2010Differentiated price increases acrossthe region on both Consumer andIndustrial Tyres

China1Q 2010+4% Consumer and IndustrialTyres

14


Pirelli Tyre Selective Positioning in the Consumer Segment

Emea

Sales Breakdown By Area

NorthAmerica

SouthAmerica

AsiaPacific

Production By Area

% of production

Solid foothold in Europe, in prestige/premiumsegments

Low exposure to North America Historical leadership in South America Growth opportunities in Asia-Pacific markets

with new China source

Source: LMC, Pirelli estimates

HighCost

LowCost

Only high-end, high added value productsin high cost countries

Production Footprint moving forward

Prestige

Premium

Synergic

SegmentShare

Pirelli Focus

Leading brand in Prestige niche Development partner of all EU premium

car makers Leading supplier to the Automotive

Industry in South America Leader in the Motorcycle business with

Pirelli and Metzeler Brands

<30%

>70%

<39%

>61%

Pirelli in 2008 Pirelli in 2010

100%100%

Market in 2009 Pirelli in 2009

% of sales

100%100%

5%

29%

56%

11%

38%

27%

6%

28%

15


Green Performance platform: Car & SUV

International Launch of Scorpion Verde(Barcelona, 15th-25th March), the first newgreen performance tyre for the SUV &Crossovers segment at the presence of 600guests between Trade Press & Dealers

“Very balanced tyre; good onwet and dry surfaces; low fuelconsumption; the lowest noise”

“Very balanced summer tyrewith very high mark on wetsurface; low wear”

16


Diablo Rosso Corsa: the first tyre that can be customized

Three Zone Compound derived from WSBKexperience

Functional Groove Design: excellent slicklike racetrack performance and great controlon wet road

THE TECHNOLOGY

THE BENEFITS

Tires customization to match style &uniqueness of the riders on www.pirelli.it/drc

Provides at least 10 HP more than any othertested supersport tires (internal test)

THE TARGET

Designed for sport naked and supersport

bikers fitted with the same track & road tires

17


Industrial Segment: a Unique Competitive Position

Emea

Sales Breakdown By Area

NorthAmerica

SouthAmerica

AsiaPacific

Production By Area

% of production

HighCost

LowCost

Pirelli Focus

Pirelli in 2008 Pirelli in 2010

100%100%

Market in 2009 Pirelli in 2009

% of sales

15%

100%100%

48%

11%

8%

48%

Sales focus in high growth areas

No presence in North America

Product cost leadershipsupported by a low-costproduction base

Leading position in Pirelli keymarkets

Proprietary steelcordtechnology

Latin America

Southern EU

and Near-East

NorthAfrica

China

<10%13%

44%

27%

>90%87%

Source: LMC, Pirelli estimates

18


low rolling resistance

fuel saving >3%

less CO2 emission

TRUCK HIGHLIGHTS: RETREADABILITY & MILEAGE

Industrial: Green Performance platform

Tyre 1 First Life Tyre 1 Retr.1 Tyre 1 Retr.2

Enhanced tyre life-cycle : improved mileage and environmental impact

600.000 Km

Performance Area

Green Area

01 seriesreference

19


Agenda

20


Pirelli Tyre





Pirelli Tyre: a solid positioning to capture growth

Actions and Results

Europe

NorthAmerica

MEA

2Q’09 2Q’10

42%

8%

7%

11%

AsiaPacific

Europe

Benefiting from Premium and Prestige OEMs salesincrease

Green Performance driving replacement sales

North America

High double digit revenues growth with a focus onselective customers and OE platforms.

New sales & marketing office in New York in 3Q topromote Pirelli brand

LatAm

Seizing Industrial segment solid growth on bothReplacement and OE

Consolidating leadership

MEA & Asia-Pacific

Constrained capacity limiting sales

39%

9%

Yoy growth

10%

6%

MatureMarkets

EmergingMarkets

+17%

+29%

Sales by region

SouthAmerica

32%36%

% on sales 100% 100%

21


Market trends: Consumer Business

2Q‘09

Car tyre shipments. % (yoy)

OE

Replacement

OE

Replacement

-25%

-7%

-48%

No

rth

Am

eri

ca

Eu

rop

e*

Merc

osu

r

-10%

+2%

-10%

OE

Replacement

4Q‘09

+12%

+12%

+2%

+44%

+21%

+8%

3Q‘09

-12%

+1%

-22%

-8%

+11%

+3%

1Q’10+37%

Sources: major external data provider for each region and Pirelli estimates

+10%

+73%

+8%

+25%

+26%

2Q’10

+11%

+11%

+74%

+8%

+12%

+14%

* Turkey and Russia included

22

Jul/Aug ‘10

-1%

+6%

36%

-1%

11%

12%


Market Trends: Industrial Business

-72%

-22%

-33%

-16%

-50%

+12%

+3%

+23%

-66%

-14%

-32%

-10%

+1%

+38%

+65%

+26%

Merc

osu

r OE

Replacement

Car tyre shipments,

OE

Replacement

Eu

rop

e*

Sources: major external data provider for each region and Pirelli estimates

2Q‘09 4Q‘093Q‘09 1Q’10

+67%

+19%

+61%

+19%

2Q’10

* Turkey and Russia included

23

Jul/Aug ‘10

+23%

+56%

+16%

+86%


Regional leadership with Net Sales of

1.9$/bln

LEADERSHIP

BEST RANGE

No.1 local OEM Strategic supplier

The only full range player: from 2

wheels tyres to Truck to Agro/OTR

No.1 BRAND

Top of Mind Brand in Mercosur with 100yrs of history in Argentina and 80 yrs in Brazil

Elected No.1 brand out of allsectors/brands in Brazil by male consumers

OUR MAIN STRENGTHS

Strongest Dealers network and 1st R&D

Centre and Proving Ground created in the region

Over 11k committed and loyal employees

Latin America: present & future leadership

24


PIRELLI N.1 BY ‘THE VOICE OF THE CUSTOMER’

US J.D. Power Original Equipment Award

Pirelli marks highest score in J.D. Power andAssociates Original Equipment Tire Study in thePerformance/Sport Category segment

April 2010 Tire Customer Satisfaction Studyhighlights Pirelli with 38 pts above the segmentaverage, a considerable improvement vs the 2009result

The study measured Pirelli’s overall consumersatisfaction in the high and ultra-high performancesegments

Included in the study top fitments such as AstonMartin, Bentley, Ferrari, Lamborghini ,Maserati, BMWand Porsche as well as Ford’s recent high-performance Mustang GT and the new Camaro SSmodels

UHP PLATFORM RECOGNITION

25


Agenda

26


Pirelli Tyre




29 September 2010AUTO SHOW INVESTOR CONFERENCE 27

1H 2010 Results: Pirelli vs. peers

27

+20.3%

+18.3%

-1.4%

Top 4competitors*

+12.3%

21.4%

+5.9%

8.7%9.7%

Sales Volumes Price/mix

Re

ven

ues

Re

ven

ues

tren

dtr

en

dP

rofi

tab

ilit

yP

rofi

tab

ilit

ytr

en

dtr

en

d

7.6%

1.7%

Ebit margin 1H’09 Ebit margin 1H’10

+10.1% in2Q’10

*Sales - Simple average: Michelin, Bridgeston excl Diversified Prod.; Goodyear, Continental: Rubber Group excl Conti TechVolumes - Simple average: Michelin; Goodyear, Continental: Rubber Group excl Conti TechPrice/mix - Simple average: Michelin, Continental: Rubber Group excl Conti Tech

Well grounded premium segment position

Cost efficiencies

Volume and price improvement

High quality operating performance with a sound

combination of volumes & value:

Sales growth in the more profitable markets

Volume growth limited by factory shut-down inDec. ’09

Strong mix improvement in replacement and OE:the advantage of being premium player

Price increase mainly in Europe and NorthAmerica

Pirelli Performance Highlights

Highest profitability despite raw materials cost:


Pirelli Tyre 2010 targets update

EBIT %post restruct.

+6% / + 8%*

~flat yoy

Revenues

Capex >300

>10%*

confirmed

3,993

7.7%

FY’09

217

EBITpost restruct.

(Implicit in theguidance

320÷330)

320÷330(floor)

308.5

Raw MaterialCost headwind

200(Natural Rubber

price ≥3000$/ton.)

>250

Up to 15%*

360(floor)

confirmed

>350

€/mln

2010Targets

(March 10, 2010)

20102nd Targets upgrade

(July 29, 2010)

20101st Targets upgrade

(May 5, 2010)

(*) Homogeneous terms variations, excluding exchange rate effects

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francesco gori ceo & managing director pirelli tyre · 29 september 2010 auto show investor...

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