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FY 2003 ResultsFY 2003 Results

2

SAFE HARBOUR

This presentation contains statements that constitute forward-looking statements withinthe meaning of the Private Securities Litigation Reform Act of 1995.

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 involverisks and uncertainties, and actual results may differ materially from those in the forwardlooking statements as a result of various factors.

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.

3

AGENDA

Group Overview & 2003 Results pp.4-10

Industrial Businesses 2003 Results pp.12-28

Pirelli Real Estate 2003 Insights pp. 30-33

Q & A

4

2003 ROAD MAP

Main Actions Results

• Pirelli & C capital increase and merger with Pirelli & C Luxembourgand Pirelli SpA

• Improved Corporate Governance

Simplified Control ChainStrengthened Financial and Economical Structure:

Group Organic Sales + 7% Y.o.YGroup EBIT +125%Y.o.Y

Industrial Businesses:

• Industrial Turnaround

Industrial Organic Sales +3% Y.o.Y Industrial EBIT increased from 162 m� to 264 m� (+63% Y.o.Y)Operating Free Cash Flow 1 bn � in 2 yearsSignificant reduction in break even point:-13%

Pirelli RE Group EBIT including income from equity participations +25%

Asset under Management reached 10.5 bn � at market value (Pirelli Stake28%)

Pirelli RE:• Consolidation of integrated

Business Model• New long-term approach: fund-

management • Launch of Franchising Network

••

••

••

•

•

•

•

5

SIMPLIFIED CONTROL CHAIN

Tyres

100%

27,5%

14,2%

61,2%

100%100% 100% 50,4%

• From three to one-layer structure

• Completed Group simplification started in 1999 with the incorporation of Société Internationale Pirelli and Pirelli Partecipazioni into Pirelli S.p.A.

100%100% 100% 50,4% 61,1%

Energy Cables

Former Structure As 11th March 2003

Current Structure effective from 4th Aug. 2003

Real EstatePirelli S.p.A.

Pirelli & C. S.p.a.

Camfin 24%Ass. Generali Group 4.6%RCS MediaGroup 4.4%Fondiaria � SAI 4.2%Edizione Holding 3.9%R.A.S. 3.9%Mediobanca 3.9%Pirelli & C.

Luxembourg

Pirelli & C. S.a.p.a.

Energy Cables

TelecomCables

OlimpiaTyres Real Estate

P Labs 100%

OlimpiaTelecomCables

P Labs100%

6

MAIN STEPS TOWARDS AN EFFECTIVE CORPORATE GOVERNANCE

2004:• Board of Directors has proposed to General Shareholder meeting:

• The modification of the By-laws with the introduction of the Cumulative Vote and the possibility for minorities to appoint one fifth of the members

2003: • Conversion into Società per Azioni (Public Limited Company) of Pirelli & C. Sapa• �Group Ethical Code�

2002: • �Code of Conduct in Insider Dealing�• Procedure for compliance with the requirements of article 150 It. L.D. (defining method,

frequency and content of information on the significant activities and transactions to be given to the Statutory Auditors) and Rules of Conduct for affecting transactions with related parties.

1999: • �Corporate Governance Code� recommended by Borsa Italiana

• In 2004, Financial Times has included Pirelli among �2003 European Best Practised Corporate Governance Companies�

• Pirelli is included for 2004 in the FTSE4Good and the DJSI

7

FY 2003 ECONOMIC and FINANCIAL RESULTS (m€)

(^) Figure does not represent business volumes; Aggregate Production Value 1525 m� 18% YoY)(^^) Include Settlement Ciena +10m�(^^^) Of which 83 m� real estate activities and 43 m� other components (sales of ex UNIM securities)

EBITEBIT margin

Net Sales (as reported)Net Sales (Organic)

NFP

EBITDAEBITDA margin

Results from Equity Part.Olimpia

Financial Expenses

PBEIT

Extraordinary Items

Income Taxes

Net Income (loss)

Op. Result incl. Equity Part.

Industrial Businesses

2003 2002

Pirelli Real Estate

2003 2002

Total

2003 2002

Others

2003 2002

Attributable

∆

1296973

(305)112

(61)(62)

(253)(2)

9176

(118)(86)

127262

(35)(2)2.6%4.4%

1622647.9%9.4%

5015675,8616,3466,034

(12)9

126(^^^)102

(24)(21)

50(6)

100129

(2)1

102128

6067

4261

5279424424645(^)

(150)(100)

766763

(226)(210)

(2)13

120(1)

(344)(222)

(58)(49)

(286)(173)

(50)(16)

(86)(57)

(30)(18)(^^)

(52)(52)(8)

∆ - 15 %

∆ + 125 %

∆ + 20 %∆ + 7.0 %∆ - 0.7 %

(150)(100)

20501745

(58)(39)(405)4

(87)(70)

(83)(9)

(235)83

(178)(134)

(57)217

(25)491.8%4.0%

1182687.8%9.4%

5236286,2336,7186,671

8

FINANCIAL STRUCTURE: NET FINANCIAL POSITION TREND – FY 2003

Debt Reduction from Operating Activities

2.050 (239)

1811

(649)

64

388

61

1.745

NFP YE 2002

Net Cas

h Flowfro

m

operatin

g activ

ities

NFP bef. Extr

aord

inary

Items an

d Div.

Net Cap

ital In

creas

e

Dividen

ds

Olimpia

Capita

l Incre

ase

PUT CISCO

Others

NFP YE 2003

48

Net Bala

nceAcq

./

Sale Part

icipati

onsPUT B

Z

43 2.006

NFP before

Capita

l Incre

ase

(21)

9

OLIMPIA BALANCE SHEET (m€)

TI Shares & Bonds

20% Holinvest

Other

Total

8,426

Olimpia current stake in Telecom Italia: 1,752 m ordinary Shares (17% of ord. capital)

TI Book Value in Olimpia:5.2 � per share

TI Book Value in Pirelli:4.5 � per share

Assets

173

8,599

Equity

NFP

Total

4,923

Liabilities

3,676

8,599

Following the dividend proposed by the TI Board (0.1041 � / share) Olimpia in Break Even in 2004

Improved financial structure: Gearing reduced from 0.75x to 0.52x

9,135

314

153

9,602

6,324

3,278

9,602

2002 2003

2002 2003

10

0.0310 €

Dividend Proposed

0.0414 €

Pirelli & C. S.p.A. Net Profit 138 m €

Ordinary Shares

Saving Shares

STATUTORY ACCOUNTSAs proposed by the Board to shareholders

11

AGENDA

Group Overview & 2003 Results pp. 4-10

Industrial Businesses 2003 Results pp.12-28

Pirelli Real Estate 2003 Insights pp.30-33

Q & A

12

INDUSTRIAL CORE BUSINESSES

- Utilities- HV/Submarine- General Market- Special Cables

Pirelli EnergyCables & Systems

- Cables & Fibers- Submarine Systems

- BBA Systems- Photonic Products

Pirelli TelecomCables & Systems

- Car- Moto- Truck- Steel Cord

Pirelli Tyre

13

33,401 EmployeesEnergy 32%Telecom 7%Tyre 61%

77 Factories in 22 Countries

Energy 48Telecom 11Tyre 22

(Energy/TLC 4 shared)

INDUSTRIAL WORLDWIDE PRESENCE AT A GLANCE

Italy

18%

Rest of Europe

47%

Africa, Asia & Pacific

14%

North America

11%

South America

13%

Sales Geographical Breakdown

Energy44%

Telecom7%

Tyre49%

6 Bn� Total Sales

Italy

15%

14

• 80% of total Senior Executives (150) grown through an international experience

• Exploiting business and technological synergies among sectors all over the world

• Cross fertilization among different managerial skills, experiences, organisations and methods (400 managers missioning abroad)

• Common culture and ethical behaviour as guarantee for stakeholders

……. DRIVEN by a HIGHLY SKILLED & TALENTED MANAGEMENT TEAM

15

SPARKLE ON INDUSTRIAL ROAD MAP 2002 - 2003

Actions Results

• Resizing of Capacity

• Efficiency Recovery

• Process/Product Innovation

• Significant Renewal of management team

• Total efficiency in FY2003 up to 170 m� (370 m� in 2 years)

• Break Even Point reduced by 13% from 2001

• MIRS fully implemented in US, UK and Germany

• BBA sales from 9 m� to 29 m�

• Continuous ROS improvement QoQ

• 50 % of executives (215) have had new and unlarged responsibilities within the group in the last two years

� with unchanged R&D commitment (3.4% of sales)

16

2003 INDUSTRIAL BUSINESSES RESULTS (m€)

EBITEBIT margin

Net Sales (as reported)

Net Sales (Organic)

Operating Free Cash Flow

EBITDAEBITDA margin

6,034 6,346 - 4.9 %

6,034 5,861 3.0%

567 501 13.2%

264 162 63.0%4.4% 2.6%

464 538

Volume: 3.9 %Price/Mix: -0.9%

Organic Variation: 3.0%

∆Exchange Rates: -6.0%

Metal Price: -0.3%

Perimeter: -1.6%

Total Variation: - 4.9%

2003 2002 Var(%)

9.4% 7.9%

Net Result 112 (305) n.m.

17

POSITIVE INDUSTRIAL EBIT TREND (m€)

ROS

∆ + 9

∆ + 9

∆ + 49 ∆ + 35

0

20

40

60

80

1 Q 2Q 3Q 4Q

1Q 2Q 3Q 4Q

2002

2003

3,1%

4,3% 4,6%

3,8%

4,0%

0,7%

4,7%

2,3%

18

Energy

Telecom

Tyre

Industrial Businesses

Efficiencies

2002 2003

107 98

67 55

25 19

199 172

∆ %Vs 2001

Break EvenPoint

-27%

-35%

14%

-13%

F.C.F

2002/2003

409

6

587

1002

ROI %

2002

4.3 %

-11.1%

10.5 %

3.9 %

FOCUS on COST CONTROL AND PROFITABILITY

2003

8.5%

-9.1%

13.2%

8.6%

19

ENERGY SECTOR RESULTS (m€)

EBITDAEBITDA margin

Net Sales (as reported) 2,637 3,021 - 12.7%

169 158 +7.0%6.4% 5.2%

Volume: -1.7%Price/Mix: -2.7%

Organic Variation: - 4.4 %

∆Exchange Rates: -4.6%

Metal Price: -0.4%

Perimeter: -3.3%

Total Variation: -12.7%

2003 2002 Var (%)

Gross efficiencies (98m�) more than offset decrease in prices/mix (-35m�) and volumes (-12m�)

Net Sales (Organic) 2,637 2,759 - 4.4%

EBITEBIT margin

83 55 + 50.9%3.1% 1.8%

20

ENERGY SECTOR

Italy 10%

Rest ofEurope 56%

NorthAmerica

12%

SouthAmerica

8%

Africa Asia & Pacific

14%

Positive trend in High Voltage, Special Cables and Submarine

Slight recovery in volumes in Western Europe in General Market and Power Distribution

North America: volumes recovery driven by utilities investments

Stable market environment in South America

Continuous positive trend in Asia and Pacific area

Raw materials still under pressure

•

•

•

•

•

•

Sales Breakdown by BU � FY2003

Sales Geograph. Breakdown � FY2003

MARKET OUTLOOK 2004

Utilities46%

General Market35%

Industrials & Specials

19%

21

PIRELLI TELECOM SECTOR (m€)

EBITDAEBITDA margin

Net Sales (as reported) 427 468 - 8.8%

(1) (22) n.m.n.m. n.m.

Volume: 18.3 %Price/Mix: -21.5%

Organic Variation: -3.2%

∆Exchange Rates: -5.6%

Total Variation: -8.8%

2003 2002 Var(%)

Net Sales (Organic) 427 441 - 3.2%

Continuous efficiencies (55m�) in a still negativemarket scenario

EBITEBIT margin

(39) (84) n.m.n.m. n.m.

22

TELECOM SECTOR: 2003 ACHIEVEMENTS

• New business MODEL:Cable - Fiber - Access systems - Photonic Components

• Diversify business towards ACCESS Market (Age, ADSL gateway) leveraging on Pirelli LABS

• Support / repositioning FIBER PRICE

• EBIT strongly improved but still negative with a clear improvement forecast

23

Traditional

NEW TELECOMS DEVELOPMENT…

Radio Over Fiber

Sewer Systems

OPGW Cable(Optical Ground Wire)

FiberOptic

FiberOptic

ROF Module

Radio signal

CentralBase Stations

Fiber or Copper

RNC/Radio Network

Controller

ROF Module

ROF Modules

Blown Fiber

Broadband Access Systems

� Leading traditional and high tech businesses

Innovative

24

TELECOM SECTOR

Continuous operating result improvement thanks to cost control and new products deployment

BBA business expected to grow strongly reaching 15% of total sales

Optical cables volumes to offset prices still under pressure

First signs of recovery from Europe, North America (FTTP) and Latam(Copper)

•

•

•

•

Sales Breakdown by BU � FY 2003

Sales Geograph. Breakdown � FY 2003

Italy 9%

Rest ofEurope

41%North

America 18%

South America

10%

Africa Asia & Pacific

22%

MARKET OUTLOOK 2004

Optical Cables and

Fiber53%

BBA 7%Submarine

Connectivity & Other 16%

Copper Cables 24%

25

PIRELLI TYRES SECTOR (m€)

EBITDAEBITDA margin

Net Sales (as reported) 2,970 2,857 4.0%

399 365 +9.3%13.4% 12.8%

Volume: 7.5%Price/Mix: 4.1%

Organic Variation: 11.6%

∆Exchange Rates: -7.6%

Total Variation: 4.0%

2003 2002 Var (%)

Net Sales (Organic) 2,970 2,661 11.6%

Growth sustained by both Price/Mix and Volumes, more than compensating increase in raw materials

EBITEBIT margin

220 191 +15.2%7.4% 6.7%

26

PIRELLI TYRES BRAND POSITIONINGSales Mix Enrichment

2001 2002 2003 2004

MIX INDEX+24%

+15%

100

+10%

+10%

CAGR UHP

MOTO

SUV

LOW SECTION

(High Mix Truck)

OEM Portfolio

27

THE AMERICAN CHALLENGE

Replacement Coverage

New Factories

RETAIL WHOLESALERS

GEO

RG

IA, U

SB

AH

IA, B

RA

ZIL

OE Penetration

2002 2003 2004

J.D. POWER

J.D. POWER

100

630

1400

Index

28

TYRE SECTOR

Breakdown by BU � FY 2003

Geograph. Breakdown � FY 2003

Italy 14%

Rest of Europe45%North America

7%

South America 20%

Africa Asia & Pacific 14%

Consumer 71%

Industrial29%

MARKET OUTLOOK 2004

• Sustained volumes in Car and SUV Tyres

• Price/Mix improvements driven by two digit growth of Performance, SUV and Winter segments

• Double digit growth in Motorcycle Tyre, supported by new products and racing activities

• Sales in Industrial Tyres and Steelcordincreasing in Europe, Middle East and Latam with positive price/mix development

• Raw materials price (natural rubber and steel) still on upward trend

29

AGENDA

Group Overview & 2003 Results pp.4-10

Industrial Businesses 2003 Results pp.12-28

Pirelli Real Estate 2003 Insights pp.30-33

Q & A

30

Actual December 03

Actual December

02

Growth % Actual 03 vs

Actual 02

Aggregate Production Value net of acquisitions 1,525.5 1,297.3 18%

Consolidated Production Value 649.0 491.5

EBIT incl. Income from Equity Participations 128.1 102.2 25%

Profit before Extraordinary Items 128.9 99.9

Net Attributable Income from RE Activities 102.1 82.6 24%Other Components (*) 0.0 42.7

(*) deriving almost entirely from the sale of securities portfolio Ex-Unim

Pirelli RE - Consolidated P&L (m€)

31

ACTUAL ACTUALDecember 2003 December 2002

Fixed Assets 313.4 218.8of which investments in participated companies 149.7 109.1

Net Working Capital 162.3 190.5of which inventories 325.0 383.7

475.7 409.3

424.8 368.83.2 0.9

Funds and Provisions 41.7 52.8

Shareholders' Loans 214.5 179.0

Total Investment in Equity Participations 364.2 288.1

"Adjusted" Net Financial Position (not including Shareholders' Loans)

223.7 166.7

"Adjusted" Net Financial Position(not including SL)/Equity

0.53 0.45

Net Capital Invested

Shareholders' Equityof which minority interests

Net Financial Position 9.2 (12.3)

Total 475.7 409.3

Pirelli RE – CONSOLIDATED BALANCE SHEET (m€)

32

Book Value 100%

Book Value Pro- quota

Market Value 100%

Market Value Pro- quota

NAV Dicember

2003

RESIDENTIAL 1,490.0 541.7 2,271.3 832.3 290.7

COMMERCIAL 5,050.1 1,099.7 6,828.7 1,485.9 386.2

LAND 361.4 151.7 448.5 188.8 37.1

NPL 925.2* 414.6 925.2 414.6 -

TOT. ASSET UNDER MGT. 7,826.7 2,207.7 2,921.6 713.910.473.7

Total NAV Pirelli & C. Real Estate Not including NPL, Service Provider, Fund Management Investments

Attr. Shareholders' Equity Dec. 2003 421.6

1135.5

* Gross Book Value (200.6 m€ of Net Book Value)

Pirelli RE - NET ASSET VALUE (m€)

33

• ASSET MANAGEMENTResidential– Acquisition for around Euro 600m (Book Value) , negotiation under way for around Euro 350m and sale for

around Euro 800m-1bn (Market value)Commercial– Acquisition for around Euro 1bn (Book Value), negotiation under way for around Euro 400m and sale for

around Euro 600m-700m (Market value)– Launch of three funds during 2004 for a contribution value of around Euro 2.2b (including Tecla successfully

placed in March 2004)NPL�s

– Acquisition for around Euro 3.5bn (Gross Book Value), negotiation under way for around Euro 2.5bn (Gross Book Value) and securitization for around Euro 500m (Gross Book Value)

• LAND– Short listed for Fiera di Milano Project

• SERVICES– Value of production: double digit growth and stabilize revenues over a longer period thanks to the fund

management (7-10 years) ;ROS improvement• FRANCHISING NETWORK

– 500 contracts by year-end (258 in 2003) and widening the offer with real estate and financial related products

YEAR END TARGET: EBIT incl. income from equity investment + 20-25%in line with the 2003-2005 plan

Pirelli RE 2004 OUTLOOK

34

AGENDA

Group Overview & 2003 Results pp.4-10

Industrial Businesses 2003 Results pp.19-28

Pirelli Real Estate 2003 Insights pp. 30-33

Q & A

FY 2003 ResultsFY 2003 Results