Board of Directors approves Q1 2006 report

THE PIRELLI & C. SPA BOARD OF DIRECTORS APPROVES REPORT FOR THE QUARTER ENDED 31 MARCH 2006:

THE GROUP ENDS FIRST QUARTER 2006 WITH FURTHER IMPROVEMENT OF ALL KEY ECONOMIC INDICATORS

PIRELLI & C. SPA GROUP

SALES : 1,206.1 MILLION EUROS, AN INCREASE OF 17.2% (+10.4% NET OF EXCHANGE RATES) COMPARED WITH 1,029.2 MILLION IN FIRST QUARTER 2005

OPERATING INCOME (EBIT): 119.8 MILLION EUROS (+29.2%), ROS 9.9% COMPARED WITH 9% IN FIRST QUARTER 2005

EBIT INCLUDING RESULT FROM EQUITY PARTICIPATIONS: 169 MILLION EUROS (+18.6% COMPARED WITH 142.5 MILLION IN FIRST QUARTER 2005)

CONSOLIDATED NET INCOME: 91.8 MILLION EUROS, AN INCREASE OF 22.4% COMPARED WITH 31 MARCH 2005 (75 MILLION), BEFORE THE CONTRIBUTION OF DISCONTINUED OPERATIONS (+10,9% CONSIDERING THE CONTRIBUTION OF DISCONTINUED OPERATIONS)

NET DEBT: 1,494.7 MILLION EUROS COMPARED WITH 2,120.4 MILLION ON 31 MARCH 2005 AND 1,177.4 MILLION EUROS ON 31 DECEMBER 2005

PIRELLI TYRE

SALES: 1,000.4 MILLION EUROS, AN INCREASE OF 16.1% COMPARED WITH FIRST QUARTER 2005 (+8.1% NET OF EXCHANGE RATES)

OPERATING INCOME: 99.2 MILLION EUROS, AN INCREASE OF 13.1%; ROS 9.9% NET INCOME: 61.5 MILLION EUROS (+15.4% COMPARED WITH 31 MARCH 2005)

PIRELLI RE

EBIT INCLUDING INCOME FROM EQUITY PARTICIPATIONS 38.9 MILLION EUROS (+15% COMPARED WITH FIRST QUARTER 2005); NET INCOME 30.1 MILLION EUROS (+12%)

PIRELLI AMBIENTE

SALES INCREASE BY 31.3%, DUE TO TECHNOLOGIES FOR SUSTAINABLE DEVELOPMENT

PIRELLI BROADBAND SOLUTIONS

SALES 38.5 MILLION EUROS, AN INCREASE OF 24.2% FROM 31 MILLION ON 31 MARCH 2005

OPERATING INCOME NEAR BREAK-EVEN (-0,7 MILLION EUROS)

OLIMPIA

PRO-QUOTA RESULT 35 MILLION EUROS, UP FROM 29.9 MILLION ON 31 MARCH 2005



GROUP CONFIRMS FORECAST OF IMPROVEMENT IN RESULTS FOR FULL-YEAR 2006 COMPARED TO 2005


Milan , 11 May 2006 - The Board of Directors of Pirelli & C. SpA today met and approved the report for the quarter ended on 31 March 2006 .


Pirelli & C. SpA Group

In the first quarter of 2006, the Pirelli & C. SpA Group saw a continuation of the growth trend of 2005 as a result of a strategic focus on high margin businesses. The results for the three months ending 31 March, 2006, show increases in all key economic indicators , which benefited from the positive performance of the Group's core businesses , in particular the Tyre and Real Estate activities.

Among industrial activities , Pirelli Tyre closed the first quarter with higher results , with sales reaching one billion euros. Also the start-up Pirelli Broadband Solutions saw continuing sales increases , alongside a broadening of its product portfolio. In real estate, Pirelli RE posted a significant increase of its operating profit including income from equity participations.

At the consolidated level, Group sales on 31 March 2006 amounted to 1,206.1 million euros, an increase of 17.2% compared with 1,029.2 million euros in the first quarter of 2005 and with increases in all areas of activity. Net of exchange rates, sales increased by 10.4%.

EBITDA was 174.1 million euros (14.4% of sales), an increase of 21% compared with 143.9 million in the first quarter of 2005.

The consolidated operating income (EBIT) was 119.8 million euros, an increase of 29.2% from 92.7 million on 31 March 2005 and with growth in all areas of activity. The consolidated Return on Sales ( ROS ) was 9.9% , a further increase compared with 9% in 2005.

The result from participations , which include the evaluation by shareholders' equity method of investments and dividends from other companies not consolidated, is positive 49.2 million euros, substantially in line with 49.8 million in 2005. In particular, the contribution of Olimpia was positive 35 million euros, up from 29.9 million in the first quarter of 2005, due to Telecom Italia's improved results. It should be noted that Olimpia's financial statements, received in Group's consolidated statements, is drawn up in accordance with IFRS accounting standards and includes a valuation of the Telecom Italia stake which uses the shareholders' equity method. The results of the real estate sector companies ( Pirelli RE Group) are also included and were positive 13.9 million euros.

EBIT including result from equity participations was 169 million euros, an increase of 18.6% compared with 142.5 million in the first quarter of 2005.

The balance of financial charges and inflows was negative 40.3 million euros (of which 18 million euros linked to fair-value evaluations of derivatives on Telecom Italia ordinary shares held by the Group) compared with 36.3 million euros (of which 14 million from fair-value evaluations of derivatives on Telecom Italia shares) in the first quarter of 2005.

The net income on 31 March 2006 was 91.8 million euros, an increase of 22.4% compared with the result for the first quarter of 2005 (75 million euros) before the contribution of discontinued operations (+10.9% considering the contribution of discontinued operations). In the first quarter of 2005, the contribution of discontinued operations was positive 7.8 million euros. The attributable net income of Pirelli & C. SpA on 31 March 2006 was positive 74.8 million euros (0.014 euro per share), an increase of 7.5% compared with 69.6 million euros in the first quarter of 2005 (0.010 euros per share). Consolidated Shareholders' equity stood at 5,862.7 million euros, compared with 5,613.8 million euros at end 2005. The Shareholders' equity attributable to Pirelli & C. SpA on 31 March 2006 totalled 5,451.2 million euros (1.025 euros per share), compared with 5,204.9 million euros at end 2005 (0.979 euros per share).

Net debt for the Group on 31 March 2006 amounted to 1,494.7 million euros from 2,120.4 million euros at the end of the first quarter 2005. The variation compared with the 1,177.4 million euros recorded at end 2005 was mainly due to the acquisition of Capitalia SpA shares (38.2 million euros) and Telecom Italia SpA shares (201 million euros), which took place during the quarter, and to usual seasonal factors.

The Group headcount on 31 March 2006 was 27,447 compared with 26,827 on 31 December 2005, an increase of 620 people (320 of whom with short term contracts).


Pirelli Tyre

S ales on 31 March 2006 amounted to 1,000.4 million euros, with an increase of 16.1% compared with 861.7 million in the first quarter of 2005 ( + 8.1% net of exchange rates), due to the price/mix component (+4.3%), confirming the continuing focus on high-end segments, and volumes (+3.8%, with a contribution of 1.6% from the activities in China).

EBITDA was 148.7 million euros (14.9% of sales), an increase of 12.1% compared with 132.6 million euros on 31 March 2005.

The operating income amounted to 99.2 million euros, an increase of 13.1% from 87.7 million euros on 31 March 2005, with a ROS of 9.9% .

The net income (after financial charges of 10.8 million euros and tax charges of 26.9 million euros) was positive 61.5 million euros, an increase of 15.4% compared with 53.3 million euros in the first quarter of 2005.

Net debt on 31 March 2006 was 719.9 million euros. The increase from 237.4 million euros at end 2005 was mainly due to the reorganization of the company structure of the Tyre Sector, in preparation for its stock market listing, and to usual seasonal factors.

At the end of March 2006, the headcount was 24,262 , including 3,283 employees on short term contracts (on 31 December 2005 the headcount was 23,673 , of whom 2,958 were temporary).

In the first quarter of 2006, Pirelli Tyre consolidated the growth trend established in 2005, with sales increases above the world market average and double digit growth of operating income.

In the Consumer business (Cars and Motorcycles) , sales amounted to 698.9 million euros, an increase of 14.4% compared with the first quarter of 2005. The operating income was 71.7 million euros ( +21.3% compared with 59.1 million euros on 31 March 2005), with a ROS of 10.3% . These results were due to an increase in volumes and the price/mix. On 31 December 2005, the Consumer business unit had sales of 2,524 million euros and an operating income of 202 million with a ROS of 8%.

In the Industrial business, sales were 301.5 million euros, with an increase of 20.2% compared with the first quarter of 2005. The operating income was 27.5 million euros, and broadly in-line with the data on 31 March 2005 (28.6 million), with a ROS of 9.1% due mainly to the increase in the cost of raw materials and the start-up of the new factory in China . In 2005, the Industrial business closed with sales of 1,109 million euros, an operating income of 126.5 million euros and a ROS of 11.4%.


Pirelli Broadband Solutions

Sales on 31 March 2006 totalled 38.5 million euros, with an increase of 24.2% from 31 million euros in the first quarter of 2005.

EBITDA was negative 0.4 million euros, in line with the first quarter of 2005.

The operating income, while positive in relation to broadband access technologies, was impacted by the start-up of second generation photonic products and was, overall, close to break-even (negative 0.7 million euros), an improvement from -1.2 million in the first quarter of 2005.

The net income on 31 March 2006 was negative 1.7 million euros, substantially in line with the -1.5 million reported on 31 March 2005.

Net debt was 2.2 million euros.

On 31 March 2006, the headcount was 132 , compared with 122 on 31 December 2005.

The growth posted by Pirelli Broadband Solutions in the first quarter of 2006 was driven by broadband access products (in particular ADSL), which continue to present good prospects for future development in Italy and abroad. In the first quarter, the development and marketing of new products continued. In particular, in second-generation photonics, the CWDM solutions (Coarse Wavelength Division Multiplexing) for metropolitan networks continued to generate a good response in the market.


Pirelli RE

Pirelli RE is a management company , which manages funds and companies that own properties and non-performing loans, and in which it holds minority interests (the fund and asset management businesses). It also provides a full range of property services to the above companies and to other customers, either directly or via its franchise network. In analysing the following results, which have been presented and prepared under IFRS, it should be noted that operating profit including income from equity participations is the most appropriate measure of the Group's operating performance.

The operating profit including income from equity participations amounted to 38.9 million euros, with an increase of 15% compared with 33.8 million euros in the first quarter of 2005.

On 31 March 2006, attributable net income rose to 30.1 million euros, an increase of 12% from 26.9 million at the end of March 2005.

The result as of 31 March, 2006, was boosted by an improved performance in Service Provider activities, an increase from 12.4 million in 2005 to 14.9 million (ROS up from 15% to 18%), and breakeven for the franchising network, compared with a loss of 2.1 million in the first quarter of 2005. It is worth noting the launch of foreign activities, in Central-Eastern Europe, with the acquisition of properties for approximately 85 million euros in Germany , and the acquisition concluded in April, of 75% of the Pekao Development company in Poland .

For additional information regarding the Group's performance in the real estate sector please consult the press release published on 9 May by Pirelli & C. Real Estate.


Pirelli Ambiente

Pirelli Ambiente, the company born at the beginning of 2005 to strengthen the Group's presence in the environmental and sustainable development sector, posted first quarter sales of approximately 21.4 million euros (+31.3% compared with 16.3 million euros in the first quarter of 2005), confirming the effectiveness of technologies developed by the Company. The Company's growth stemmed from the sale of low environmental impact fuel, Gecam™ - Il Gasolio Bianco , particularly on the French market through the Gecam France subsidiary, the development of a new line of business in anti-particulate filters for emission reduction from diesel powered vehicles and the agreement signed with the British company ReEnergy for the development and marketing of Pirelli's fuel derived from refuse (Cdr-P) in the UK.

In the field of renewable energy sources and energy recovery, the activity of producing quality fuel from solid urban waste (Cdr-P) through the I.D.E.A Granda company continued. As did the activities of land reclamation and re-qualification of contaminated sites applying the experience gained in the real estate and industrial fields.


Outlook for full-year 2006

The results of the first quarter confirm the forecast of a further improvement of results for 2006 compared with the previous year, barring extraordinary elements of an external nature which today cannot be foreseen.


Significant events which took place after 31 March 2006

On 10 April, Pirelli Tyre SpA, the company controlling all the activities related to tyre design, development, production and marketing of the Pirelli & C. SpA Group, deposited the request for admission to listing of its ordinary shares with Borsa Italiana, following their Initial Public Offering by Pirelli Tyre Holding, which controls 100% of the Company, and is, in turn, wholly owned by Pirelli & C. SpA. Pirelli Tyre SpA is the new name of Pirelli Pneumatici SpA for the listing.


Conference Call

The first quarter 2006 results will be explained at 18.00 (4.00 pm GMT) in a conference call with the participation of the Chairman of Pirelli & C. SpA, Marco Tronchetti Provera.

The press will be able to follow the presentation, without the possibility of intervening, by calling +39 06 33485042 .

The presentation will also be available in audio streaming - in real time - on the company's website www.pirelli.com , in the Investor Relations sections, where it will also be able to consult the relative slides.


Summaries of the financial statements for the period ending 31 March 2006; pro-forma consolidated balance sheet and statement of income for Pirelli & C. S.p.A at 31 March 2006, assuming full consolidation of Olimpia S.p.A. and valuation of the investment in Telecom Italia S.p.A. according to the equity method.

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