Pirelli & C. nine months results

• REVENUES: 4,928 MILLION EUROS, COMPARED TO 5,027 MILLION EUROS (-2%); AT COMPARABLE CONDITIONS,
• A GROWTH OF 9.3% WAS POSTED
• OPERATING INCOME (EBIT) AT SEPT. 30: 197 MILLION EUROS, +88% COMPARED TO 105 MILLION EUROS
• THIRD QUARTER SHOWS A STRONG IMPROVEMENT IN GROUP OPERATING PERFORMANCE WHEN COMPARED TO SAME PERIOD OF 2002 (EBIT STANDS AT 55 MILLION EUROS AGAINST 4 MILLION EUROS)
• NET INCOME: NEGATIVE BY 33 MILLION EUROS; BEFORE OLIMPIA RESULTS, POSITIVE BY 32 MILLION EUROS
• NET DEBT: REDUCED TO 1,518 MILLION EUROS COMPARED TO 2,050 MILLION EUROS AT END 2002; DOWN ALSO WHEN COMPARED TO JUNE 30 FIGURE
• 
  INDUSTRIAL ACTIVITIES
• REVENUES: 4,538 MILLION EUROS COMPARED TO 4,841 MILLION EUROS (-6.3%); AT COMPARABLE CONDITIONS, THIS RESULT REPRESENTS A 5.1% INCREASE
• OPERATING INCOME: 194 MILLION EUROS, UP 52.8%, WITH ROS RISING TO 4.3% DESPITE CONTINUING DIFFICULTIES IN TLC COMPONENTS AND ENERGY MARKETS
• NET INCOME 74 MILLION EUROS, AGAINST A LOSS OF 248 MILLION EUROS (INCLUDING 247 MILLION EUROS OF RESTRUCTURING CHARGES)
• 
  REAL ESTATE OPERATIONS
• AGGREGATE PRODUCTION VALUE: 982 MILLION EUROS, +41%
• 
  
• OPERATING INCOME INCLUDING INCOME FROM EQUITY PARTICIPATIONS: 71,7 MILLION EUROS, +25%
• 
  
• NET INCOME OF REAL ESTATE OPERATIONS:
• 
  52.1 MILLION EUROS, +27%
  
  OLIMPIA NET INCOME AFTER MINORITIES NEGATIVE BY 65 MILLION EUROS (-82 MILLION EUROS IN FIRST NINE MONTHS OF 2002), NOT YET BENEFITTING FROM ANY DIVIDENDS
  
  PIRELLI & C. APPROVES SUBSCRIPTION OF OLIMPIA CAPITAL INCREASE, WITH AN INVESTMENT OF 400 MILLION EUROS
  
  PIRELLI & C. EXPECTS TO CLOSE THE FISCAL YEAR WITH A SIGNIFICANTLY HIGHER OPERATING INCOME
  THAN THAT POSTED IN 2002
  
  THE FORECAST OF AN IMPROVEMENT AT A RATE AT LEAST IN LINE WITH THE ONE REGISTERED IN FIRST NINE MONTHS - IN THE OPERATING RESULTS FOR INDUSTRIAL ACTIVITIES IS CONFIRMED; THE TELECOMMUNICATIONS CABLES AND SYSTEMS SECTOR TOWARDS THE BREAK-EVEN IN THE FOURTH QUARTER
  
  IN THE REAL ESTATE SECTOR THE FORECAST OF FURTHER RESULTS' GROWTH IS CONFIRMED

Milan , November 11, 2003 - The Board of Directors of Pirelli & C. SpA today met and approved the definitive financial statements for the nine months ended September 30 2003 .

The following figures include the accounting effects of the merger of Pirelli Spa into Pirelli & C. Spa, which are retroactively accounted for starting January 1 st 2003 .

In the first nine months of 2003 the consolidated revenues of the Pirelli & C. Spa Group amounted to 4,928 million Euros , corresponding to a 2% reduction when compared to the figure of 5,027 million euros posted for the first nine months of 2002. On the same perimeter base (net of the effects of exchange rates, metal prices and changes in the scope of consolidation) revenues grew by 9.3%, principally as a result in the growth in the Tyres sector.

Gross operating profit ( EBITDA ) stood at 468 million Euros (9.5% of sales), compared to 408 million Euros posted in the first nine months of 2002 (8.1% of sales).

Operating income (EBIT) in the first nine months was up 88% and amounted to 197 million Euros. This result includes the income from the attribution of the merger surplus (about 21 million Euros). In the first nine months of 2002 operating income was 105 million Euros. The Return on Sale ( ROS ) ratio was 4.0% (2.1% for the corresponding period in 2002). The improvement can be attributed to better results of industrial activities and to lower central corporate costs; the figure also includes effects of the patents' settlement with Ciena of 10 million Euros.

Income from equity participations returned a loss of 41 million Euros compared to the loss of 85 million Euros for the first nine month of 2002 and includes the effect of the valuing companies with the equity method. In particular, the real estate sector posted a net income of 30 million Euros (16 million Euros in the first nine months of 2002), while Olimpia posted a loss of 65 million Euros (82 million Euros in the first nine months of 2002). It should be mentioned that Olimpia results do not include dividends, which will be accounted for cash when received.

The item financial charges and income recorded a loss of 105 million Euros against a loss of 129 million Euros posted for the same period in 2002, and thus an improvement on last year by incurring fewer debts.

The extraordinary income/ charges balance was positive for 1 million Euros , whereas for the same period in 2002 it returned a loss of 59 million Euros, as it mainly included the reserves posted for the industrial activities restructuring (260 million euros), capital gains from the listing of Pirelli & C. Real Estate shares on the stock exchange (147 million Euros) and the capital gain from the disposal made by Pirelli & C. Real Estate of the last tranche of the ex-Unim securities held in portfolio (54 million Euros).

Net income at September 30, 2003 amounted to 32 million Euros, before Olimpia results, compared to a negative figure of 180 million euros in the same period last year; this becomes a net loss of 33 million E uros after Olimpia results, against a net loss of 262 million euros for the first nine months of 2002.

The share of the net loss attributable to Pirelli & C. SpA at September 30, 2003 amounts to 53 million Euros (excluding the Olimpia effect the result is a net income of 12 million euros) against a net loss of 17 million Euros for the first nine months of 2002 (a net income of 16 million Euros excluding the Olimpia results).

Shareholders' equity attributable to Pirelli & C. SpA at September 30, 2003 is 3,465 million Euros , an increase with respect to the figure of 1,933 million Euros at December 31 2002 , following the merger operations (an increase in working capital and an increase in share capital for the share exchange offer).

The total of shareholders' equity increased to 3,768 million Euros at September 30, 2003 from 4,626 million Euros at December 31 2002 .

The net financial position is negative for 1,518 million Euros, lower than the figure of 2,050 Euros at December 31, 2002 . The improvement reflects the effects of the share capital increase undertaken by Pirelli & C. SpA quantified at 812 million Euros and the exercise of the right of withdrawal (recesso) by shareholders, quantified at 163 million Euros.

Third quarter of 2003 shows a significant improvement of Group operating performances, when compared to the same period last year.

Consolidated revenues were up 6.3% against the same period last year, growing to 1,630 million Euros from 1,533 million Euros. On the same perimeter base (net of the effects of exchange rates, metal prices and changes in the scope of consolidation), sales grew 9.7%. EBIT was 55 million Euros compared to 4 million Euros in 2002. ROS grew to 3.4% from 0.3%.

Industrial operations refer to the data on the large industrial sectors, i.e. the Tyres Sector, the Energy Cables and Systems Sector, and the Telecom Cables and Systems Sector.

The trend in the industrial activities of the Group in the first nine months of 2003 shows an increase in operating income , albeit in a context still influenced by the decline in demand for telecommunications infrastructure, in which sales volumes are low with further price-reductions. Investments of utilities companies in the Energy sector are still stagnang especially in Europe in the low and medium voltage segments, and prices are under pressure in the general market. The Tyres sector, however, continues to register growing results, with positive contributions from the Performance and Winter segments.

In the first nine months of 2003 the Group sales revenues reached 4,538 million Euros , down 6.3% when compared to first nine months of 2002. On the same perimeter base (net of the effects of exchange rates, metal prices and changes in the scope of consolidation) revenues actually grew by 5.1% , principally as a result in the growth in the Tyres sector.

EBITDA stood at 424 million Euros , up 10.7% when compared to first nine months of 2002 figure of 383 million Euros.

Operating income (Ebit) in the first nine months was 194 million Euros , including the effect of the attribution of the merger surplus (about 16 million Euros), growing by 53% when compared to 127 million Euros at September 30 2002 . ROS rose to 4.3% against 2.6% in the first nine months of 2002.

The improvement in operating income confirms the growing profitability of the Tyres sector (+ 16% ) and the positive effects of the actions undertaken to regain efficiency that were launched in a timely way by the Group management in the Energy Cables and Systems and Telecommunications Cables and Systems Sectors . In particular, EBIT of the Energy Cables and Systems Sector shows an increase of over54% when compared to first nine months of 2002. Telecommunications Cables and Systems Sector registers a significant improvement of its performance .

The value of the gross efficiency gains achieved in the first nine months of 2003 exceeded 130 million Euros . These measures also enabled the negative impact of exchange rates, assessed at over 24 million Euros, to be absorbed.

Net income at September 30, 2003 was 74 million Euros compared to a 248 million Euros loss for the same period last year, which included 247 million Euros for restructuring charges.

Free cash flow was positive by 219 million Euros and reached 4.8% of Group turnover .

The Group's major commitment to technological research and innovation , despite the poor economic situation, was also confirmed in the first nine months of 2003 with research and development investments of 159 million Euros or 3.5% of sales, in keeping with the previous year.

Group Headcount in the industrial operations of the Group at September 30, 2003 was 33,915 , against 35,247 at the end of 2002 and compared to 36,357 at the end of September 2002.

Sales at September 30, 2003 amounted to 2,250 million Euros , a year-on-year increase of 4.4% ; net of exchange rate effects, the actual variation is of 14.3%, thanks to both increased volumes and improved ratio prices/mix.

Operating income was 174 million Euros (7.7% of sales), an improvement of over 16% compared to the first nine months of 2002 (150 million Euros, representing 7% of sales).

Net income was 94 million Euros (after financial charges for 36 million Euros, tax charges for 55 million Euros and extraordinary income for 11 million Euros) against 62 million Euros for the first nine months of 2002. Extraordinary income for the nine months of 2003 refers to payments to the company in the framework of the MI-TO High Speed Train project in which the plant at Settimo Torinese is involved.

At the end of September 2003 headcount was 20,620 units , including 2,010 temporarily workers.

Revenues for the first nine months of 2003 totaled 1,966 million Euros, down 14.7% against 2,306 million Euros in the same period in 2002. On an equal perimeter basis, the negative variation is 1.4 %, mainly accounted for by a reduction in volumes.

Operating income was 51 million E uros , a strong improvement with respect to the figure of 33 million Euros posted in the first nine months of 2002, thank to the actions for improving efficiency which more than offset the negative impact of diminished market demand. ROS grew to 2.6% with respect to 1.4% recorded in the same period in 2002.

Net income in the first nine months of 2003 amounted to 23 million Euros , after financial charges for 22 million Euros, extraordinary income for 8 million Euros and tax charges for 14 million Euros, an improvement on the loss of 131 million Euros for the same period in 2002,.

At the end of September 2003, headcount was 11,038 units , representing a reduction of 1,441 units with respect to year-end 2002.

Revenues in the first nine months of 2003 totaled 322 million Euros , a year-on-year reduction of 15.3%, (380 million Euros at September 30, 2002 ). Net of exchange rate effects the decrease is 8.7%, entirely accounted for by price/mix variations.

O perating income was negative for 31 million Euros compared to the loss of 56 million Euros in the same period of 2002. This result reflects the efficiency actions undertaken, which offset further price/mix deterioration. It also includes the accounting effects for 10 million Euros following the attribution of the surplus from the merger related to amortizations.

A net loss of 43 million Euros was posted in the first nine months of 2003, after financial charges for 14 million Euros and extraordinary income for 2 million Euros, against a loss of 179 million Euros in first nine months of 2002.

At the end of September 2003 headcount was 2,257 units , representing a reduction of 289 units with respect to year-end 2002.

It should be remembered that Pirelli RE is a property management company that invests in real estate assets mainly via significant minority stakes (asset management activities) to which it provides, as it does for other companies, a wide range of property services (service provider activities). Consequently, the aggregate value of production net of acquisitions and EBIT including income from equity participations are the most significant indicators, respectively, of the business volume managed and of its trend at operating level.

The aggregate value of production in the first nine months of 2003 totalled 982.4 million Euros net of acquisitions, up by 41% compared to 696.6 million Euros in the first nine months of 2002.

EBIT including income from equity participations totalled 71.7 million Euros , compared to 57.2 million Euros in the first nine months of 2002, up by approx. 25% .

Consolidated net income of Real Estate business was 52.1 million Euros , up about 27% when compared to 41.1 million Euros in first nine months 2002. Consolidated net income figure at September 30 2002 still included non real estate financial items - mainly attributable to the disposal of last tranche of ex-Unim securities for a total amount of 38.7 million Euros. Therefore, first nine months of 2002 showed a net income of 79.8 million Euros.

For further information on the trend in industrial operations please refer to the press release issued on November 7, 2003 .

Olimpia

In first nine months of 2003, Olimpia posted a net income after minorities negative by 65 million Euros , against a negative figure of 82 million Euros same period last year. Olimpia results do not yet benefit from any dividend .

Events after September 30, 2003

Olimpia

Pirelli & C. SpA passed a resolution to fully subscribe Olimpia anticipated capital increase: this will involve the outlay for its quota of approximately 400 million Euros .

Industrial Activities

• Norway's Petter Solberg , driving a Subaru Impreza equipped with Pirelli tyres, won the UK Rally and, on November 9, the World Rally Drivers Championship. Pirelli, exclusive tyres supplier for Subaru, won 19 th title in its history;
• in October, Pirelli Energy Cables and Systems, in consortium with French Nexans, signed a 100 million Euros contract with STEG Socit Tunisienne de l'Electricit et du Gaz , for the supply of high voltage underground power cables operating at a voltage of 90 and 225 kiloVolts and accessories aimed at strengthening and improving Tunisia's power transmission grid;
• Pirelli Cables UK signed a 8 million Euros contract with Kuwait Ministry of Electricity and Water for supply 39 kilometers of 132 kiloVolts high voltage oil filled cables. The project is aimed at strengthening and improving south Kuwait power grid.

Real Estate Activities

• On October 3, Pirelli RE Franchising was presented, the initiative of Pirelli & C. Real Estate aimed at establishing a new network of agencies which will provide the retail market with real estate, banking and insurance (mortgages, leasing, insurance) services and products. The venture represents the strategic evolution of the Pirelli & C. Real Estate business model with the aim of creating a leading real estate network that will become the benchmark for quality and innovation in services, and for the competence and professionalism of its affiliate offices. The development plan aims to sign up 130 affiliated offices by the end of 2003 , 500 by the end of 2004 with a target of 1,000 by the end of 2005 .
• On October 22, Pirelli RE SGR secured approval by Bank of Italy of the ordinance of the first private, quoted contributory real estate investment fund Tecla Offices Fund . On October 23, a request was made to Borsa Italiana for the listing of the fund and the relevant prospectus was deposited with CONSOB (the Italian listed corporation & stock market surveillance commission) in order to obtain authorisation for publication. Also taking into account indications provided by the placing banks, it is reasonable to believe that fund placement will start in January 2004.
• On October 31st the JV between Pirelli RE (25%) and Morgan Stanley Real Estate Funds (75%) completed closing of the deal to acquire part of the property assets of the Fonsai Group . The portfolio consists of 68 buildings for a value of 780 million Euros .

Forecasts for the 2003 fiscal year

In a market scenario still dominated by uncertainty, the results achieved in the first nine months of 2003 by the Group's industrial operations confirm the current year's objective of a significant increase in operating income in the three sectors, at a rate at least in line with the one registered in the first nine months. The Telecom Cables and Systems Sector is expected to grow towards break-even in the last quarter .

As regards the Real Estate sector, on the basis of data currently available it is reasonable to expect a growth in results, in line with the targets of the 3-years business plan (2003-2005).

Overall Pirelli & C. Spa expects to close the fiscal year with a significant improvement in operating income with respect to the results posted in 2002.

Conference call

Financial statements for nine months ended September 30 2003 will be presented on Friday November 14 2003 at 1:00pm ( 12:00 GMT ), during a conference call chaired by Marco Tronchetti Provera, Chairman of Pirelli & C. SpA.

Journalists could hear the conference call - without the opportunity of asking questions - dialing +39 06 33485042 .

Presentation will be also available in audio streaming - in real time - on www.pirelli.com , in the Investor Relations section, where slides will be downloadable.

Summaries of:

the interim financial statements for the period ending September 30, 2003; (pdf, 190 Kb)

pro-forma consolidated representation of Pirelli & C. S.p.A.'s balance sheet and income statement at 30/09/2003 assuming full consolidation of Olimpia S.p.A. and the shareholders' equity method valuation of the Telecom Italia S.p.A. equity stake; (pdf, 39 Kb)

main corporate events of 2004 are attached.(pdf, 16 Kb)