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Francesco Picconi www.merloni.com francesco.picconi@merloni.com

The Rewarding Challenge

Milan, April 10th, 2003

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Merloni Elettrodomestici at a glance

Headquarters Headquarters Headquarters Headquarters Fabriano - Ancona (Italy)

Production facilitiesProduction facilitiesProduction facilitiesProduction facilities 16 plants in 7 countries

Annual salesAnnual salesAnnual salesAnnual sales 13 m appliances

Major BrandsMajor BrandsMajor BrandsMajor Brands2 global: Ariston, Indesit3 regional: Scholtès, Stinol,Hotpoint

Commercial presenceCommercial presenceCommercial presenceCommercial presence Subsidiaries in 21 countries

European market shareEuropean market shareEuropean market shareEuropean market share 15%

TurnoverTurnoverTurnoverTurnover 2002 2.5 bl € (2003 > 3.0 bl€)

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Merloni Elettrodomestici: a success story

1975 2001

250

500

750

1,000

1,250

1,500

1,750

2,000

20 Times in

20 Years

Focus on household appliances, moving from Italy to “Big Europe”

Today we have a well balanced product mix equally split among cooking, cooling and washing

Today we have a well balanced geographical presence and market shares

From the 300th to the 3rd position in Europe by market share

•

•

•

•

Turnover, Mln. €

Merloni Elettrodomestici was created in 1975 from the Household Appliances Division of Industrie Merloni, a company founded in 1930 by Aristide Merloni. It Is

the youngest and most successful multinational in the sector

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Our vision

To be the European leader in

producing innovative solutions,

to create day after day,

the quality of time

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• Quality: CAGR (00-02, Rev) = 20% CAGR (00-02, EBIT) = 42%

• Basis: Acquisition choice and

integration capabilities Good mix of organic and

acquisition growth

• Quality: CAGR (00-02, Rev) = 20% CAGR (00-02, EBIT) = 42%

• Basis: Acquisition choice and

integration capabilities Good mix of organic and

acquisition growth

Growth = focused organic growth + good acquisitions + fast integrations

Organic Growth

Organic Revenues’ Growth, M EUR

1999 2000

1,419

2001 2002

182

138

240

CAGR 11.7%

CAGR 11.7%

• Maintaining momentum

• Optimizing scale effects

• Exploiting synergies

• Maintaining momentum

• Optimizing scale effects

• Exploiting synergies

• 12 acquisitions in 25 years

• 1/3 international

• Experience in acquiring and

integrating

• 12 acquisitions in 25 years

• 1/3 international

• Experience in acquiring and

integrating

STARStinol

Indesit

Sch-oltes

1977 1980 1982 1986 1987 1988 1989 1992 1995 1995 2000 2001

Fri-Sado

Smeg

Colston

Philco

Fab-Por.

Pekel

New World

: International Acquisitions: Italian Acquisitions

Hot-point

STARStinol

Indesit

Sch-oltes

1977 1980 1982 1986 1987 1988 1989 1992 1995 1995 2000 2001

Fri-Sado

Smeg

Colston

Philco

Fab-Por.

Pekel

New World

: International Acquisitions: Italian Acquisitions

Hot-point

Acquisitions History

Acquisitions Total Growth 2000 - 2002

53%47%

Organic

Acquired

The “One Single Company” concept (1 organization, 1 structure, 1 manufacturing network, …)

enables Merloni to realize synergies from acquisitions fast and efficiently

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Merloni inside

Entrepreneurial

Simple & online

Even if listed is a family owned company driven operationally by the entrepreneur until 1996Entrepreneurship is in the DNA

Flexible, quick and fast in decision taking. Adapting quickly to continuously changing scenarios

Young The youngest company in the sector. Young in spirit. Growth is an obvious objective

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Organization and HR are critical for performance and growth

Annual Performance Appraisal

Annual Performance Appraisal

Annual Salary Reviews

Annual Salary Reviews

Jan

Feb

Mar

Apr

May

JunJul

Sep

Oct

Nov

Dec

First Half Year Performance Review

First Half Year Performance Review

Objective setting

HR Performance

Review

HR Performance

Review

HR Commitee organization

overview

HR Commitee organization

overview

HR Commitee

people overview

HR Commitee

people overview

HR Organization

Review

HR Organization

Review

Aug

4th Qtr 1st Qtr

2nd Qtr3rd Qtr

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HIGH

MEDIUM

LOW

BELOW THE STD(1-2)

STANDARD3

ABOVE THE STD(4-5)

H.R. Evaluation MATRIX - ……………………

POTENTIAL

PERFORMANCE

Eagle

Solid

Better use

BackboneNot for Merloni

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REWARDS SYSTEMS: OUR JOURNEY

ITALY-CENTERED

BASED ON

ITALY-CENTERED

BASED ON

FROM

ONE COMPANY. ONE COMMON COMPENSATION APPROACH

• AGE

• CONTRACTUAL LEVEL

• POINTS

• MARKET SALARY SURVEYS

EUROPEAN / GLOBAL

BASED ON

EUROPEAN / GLOBAL

BASED ON

• ONE GLOBAL GRADING LINKED

TO MARKET SALARY SURVEYS

TO

} ITALY

} ABROAD

}WORLDWIDE

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• ASSIGNMENT OF ABOUT 140 ROLES TO ONE BAND AND ONE GRADE(WITHIN THE BAND)

• 3 BROAD BANDS BETWEEN THE C.E.O. AND THE CLERICAL ROLES

• ABOUT 14 GRADES TO MAP THE MERLONI ROLES WORLDWIDE

• DIRECT LINK OF THE GGS WITH SALARY SURVEYS IN ALL MERLONI COUNTRIES

• HR ROLES IN THE ASSESSMENT PROCESS:

• TIMING: GGS UP AND RUNNING BY END OF JUNE 2003

THE GLOBAL GRADING IN A NUTSHELL …

– HR DIRECTOR FOR EXECUTIVE BAND

– K.A.’S FOR MANAGERS AND PROFESSIONALS

– O.D. MANAGER AS THE SYSTEM ARCHITECT

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TOP

The Merloni Grading System

ONE COMPANY SYSTEM FOR PROMOTIONS / COMP & BENS PLANNING / DEVELOPMENT

TOP

EXECUTIVES

MANAGERS

PROFESSIONALS

JUNIOR PROFESSIONALS (IF GRADUATE)OR

CLERICALS (IF NOT GRADUATE)

DIRIGENTI

QS

Q

PROXYTO THEITALIANCONTRACT

SHORTGRADUATES

ENTRY LEVEL

GRADUATESENTRY LEVEL

LO

NG

TE

RM

INC

EN

TIV

E P

RO

GR

AM

ST

OC

K O

PT

ION

S

TA

RG

ET

ME

RIT

CA

R

ME

DIC

AR

E

MB

O

3 PROFESSIONAL BANDS- EXECUTIVES- MANAGERS- PROFESSIONALS

SP

EC

IAL

BO

NU

SE

S

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MERIT POLICY: THE APPROACH

GUIDELINES FOR ITALY (AGE / CONTRACT / POINTS)

COUNTRY BASED DECENTRALIZED APPROACH FOR ABROAD (MARKET SALARY SURVEYS)

SELECTIVE IN ITALY (BUT COVERAGE HIGHER FOR PROFESSIONALS THEN FOR MANAGERS!)

VERY TACTICAL ABROAD

GUIDELINES FOR ITALY (AGE / CONTRACT / POINTS)

COUNTRY BASED DECENTRALIZED APPROACH FOR ABROAD (MARKET SALARY SURVEYS)

SELECTIVE IN ITALY (BUT COVERAGE HIGHER FOR PROFESSIONALS THEN FOR MANAGERS!)

VERY TACTICAL ABROAD

FROM

THE CHALLENGE: KEEP THE FLEXIBILITY TO MANAGE TALENTSIN A MORE STRUCTURED FRAMEWORK

TO

COUNTRY BASED POLICY DRIVEN BY- MERIT BUDGET- COMMON GRADES- CLOSER LINK TO PERFORMANCE (GUIDELINES BY GRADE AND PERFORMANCE LEVEL)- POTENTIAL

CLEAR RULES OF THE GAME… …BUT ALLOW FLEXIBILITY TO MANAGE TALENTS

COUNTRY BASED POLICY DRIVEN BY- MERIT BUDGET- COMMON GRADES- CLOSER LINK TO PERFORMANCE (GUIDELINES BY GRADE AND PERFORMANCE LEVEL)- POTENTIAL

CLEAR RULES OF THE GAME… …BUT ALLOW FLEXIBILITY TO MANAGE TALENTS

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GRADE INITIATIVEBASE SALARY(TARGET %)

EXECUTIVES MBO 30%

MANAGERS MBO 20%

PROFESSIONALS TARGET 15%

PURCHASING TARGET PURCHASING 15%

SHARED SERVICE CENTER TARGET SSC 10%

COMMERCIAL COMMERCIAL INCENTIVE PLANS AD HOC

SPECIAL BONUSES AD HOC

MBO / TARGET / SPECIAL BONUSES

THE CHALLENGE: REWARD PERFORMANCE LINKED TOCOMPANY / GROUP / INDIVIDUAL GOALS & SPECIAL GROUP EFFORT

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STOCK OPTIONS

- PLAN LAUNCHED INTERNATIONALLY IN 2000

- TODAY IS AIMED AT: * EXECUTIVES (100%) * MANAGERS (58%)

* HI-POT PROFESSIONALS (10%)

- PRICE: AVERAGE OF THE MONTH BEFORE THE ASSIGNMENT DATE

- VESTING PERIOD: * 50% OF OPTIONS EXERCISABLE AFTER 2 YEARS * 100% OF OPTIONS EXERCISABLE AFTER 3 YEARS

- OTHER FEATURES: * MINIMUM 1 YEAR OF SENIORITY IN THE COMPANY * EXPIRATION AFTER 10 YEARS FROM THE ASSIGNMENT DATE

- PLAN LAUNCHED INTERNATIONALLY IN 2000

- TODAY IS AIMED AT: * EXECUTIVES (100%) * MANAGERS (58%)

* HI-POT PROFESSIONALS (10%)

- PRICE: AVERAGE OF THE MONTH BEFORE THE ASSIGNMENT DATE

- VESTING PERIOD: * 50% OF OPTIONS EXERCISABLE AFTER 2 YEARS * 100% OF OPTIONS EXERCISABLE AFTER 3 YEARS

- OTHER FEATURES: * MINIMUM 1 YEAR OF SENIORITY IN THE COMPANY * EXPIRATION AFTER 10 YEARS FROM THE ASSIGNMENT DATE

THE CHALLENGE: BIND KEY MANAGERS AND HI-POT PROFESSIONALS TO MERLONI, LINKING A

SIGNIFICANT PART OF THEIR COMPENSATION TO MEDIUM / LONG TERM COMPANY RESULTS

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Thank you !

The Merloni HR Gardeners