The Board of Directors of Pirelli Approves 1H 2008 Financial Statements

MILAN – August 5, 2008: The Board of Directors of Pirelli & C. SpA, which met today, examined and approved the interim financial statements as of 30 June 2008.

The first half of the year was characterized by completion of the plan announced by the Group following the sale of Olimpia and based on three main points: refocusing on core businesses, distribution of resources to shareholders and optimizing equity structure. In the January - June period, in particular, the Group reached an agreement to reenter in possession of 100% of the capital of Pirelli Tyre, announcing new investments in the tyre and real estate businesses and signing a letter of intent in order to create a large industrial pole in the automotive sector in Russia. At the same time, at equity level, the parent company Pirelli & C. SpA distributed an "extraordinary dividend" of 826 million euros and set aside reserves of about 408 million euros. The result of these transactions is a solid Group from an equity point of view, with limited debt (the debt/equity ratio at Group level as of 30 June 2008 was 0.27) and in a phase of further expansion in its core businesses.

During the first half, in addition, the Group signed a letter of intent with the US company CyOptics to create an international alliance in photonics. The transaction was finalized in the month of July, with an agreement that brought about integration of the two companies' respective businesses in optical technology. The new CyOptics, in which Pirelli holds an approximately 30% stake, will be an important international operator, active on the market with a continuously expanding portfolio of products and technologies. The transaction also brought about deconsolidation of the photonics assets which are considered, on the basis of IFRS accounting principles, "discontinued operations" and which contribute only to the net result after taxes. For representation on a like-for-like basis, this treatment was adopted also for data regarding 2007. With respect to the results reached in the first half, it should be emphasized that the Group's performance was heavily influenced by external factors, starting with the international financial crisis, and by the relating repercussions on the economy and on consumer demand, especially in Europe and the United States. The automotive and real estate sectors, where the two main units of the group operate, have been particularly hard hit.

In this scenario, at consolidated level, the Group registered a slight increase in revenues (+2.7% compared with the first half of 2007 net of the exchange rate effect and the effect of sales carried out in the last fiscal year for deconsolidation of the assets of DGAG by Pirelli RE in Germany) and an EBIT before restructuring charges of more than 210 million euros, slightly down (-4.4%) compared with the previous year period. The change in operating results compared with 2007 can be attributed to the lower contribution of the real estate business, linked to the slowdown in the sector, notwithstanding the solidity of the Pirelli RE portfolio. In the tyre business, price increases, focalization on product mix, and actions for continuous cost efficiency only partially offset a decrease in demand in certain key markets (especially Western Europe and the United States) and the increase of raw materials costs (which rose about 10% in the half). During the first half, the Group wrote down further the value of its stake in Telecom Italia, which amounts to 1.36% of the ordinary share capital. Unit book value of the stake was written down to 1.27 euros (the market price on 30 June 2008), with a balance sheet impact of 155 million euros. The writedown was the determining factor for the Group in reporting a consolidated net loss.

The net financial position was negative for 823 million euros, less than the 851 million euro figure as of 31 March 2008. The net financial position at corporate level remains positive (258 million euros as of 30 June 2008). The Group, finally, began actions for rationalization in the first half in order to improve efficiency and competitiveness of the structures of the two main businesses and to contrast the difficult economic climate, with consequent restructuring charges in the first half of 2008 amounting to 21.2 million euros.

Pirelli & C. SpA Group Results
Consolidated revenues as of 30 June 2008 amounted to 2,685.3 million euros, up 2.7% compared with the figure in the first half of 2007 net of the exchange rate effect and of the effect of sales relating to the deconsolidation of real estate assets of DGAG (2,614.9 million euros). Taking into account the DGAG effect, sales as of 30 June 2007 amounted to 3,192.6 million euros.

EBIT before restructuring charges in the tyre and real estate businesses amounted to 211.5 million euros, down 4.4% compared with 221.3 million euros in the first half of 2007. Taking into consideration restructuring charges, which amounted to 21.2 million euros, EBIT amounted to 190.3 million euros. EBIT including results from equity participations, which also included the effect of companies valued according to the shareholders' equity method and dividends from other non-consolidated equity participations, amounted to 97.9 million euros. This result was affected by a lesser contribution from Pirelli RE equity participations, due to the slowdown in the real estate market, and above all to the 155 million euro writedown of the 1.36% stake in Telecom Italia held by the Group.

As an effect of that writedown, consolidated net income of businesses in operation, after financial charges of 26.6 million euros and tax charges of 68.7 million euros, amounted to 2.6 million euros, down from 188.4 million euros in the first half of 2007. The total consolidated net result was negative for 9.5 million euros, compared with a positive figure of 198.3 million euros in the same period of 2007. The Group's attributable consolidated net result was negative for 36.2 million euros, compared with a positive figure of 108.2 million euros in the first half of 2007.

Total consolidated shareholders' equity as of 30 June 2008 was 3,002.4 million euros, compared with 3,804.1 million euros at the end of 2007 and 3,187.5 million euros as of 31 March 2008. Consolidated shareholders' equity attributable to the Group as of 30 June 2008 amounted to 2,608.1 million euros (0.49 euros per share), compared with 2,980.2 million euros (0.56 euros per share) at the end of 2007 and 2,772.5 million euros (0.516 euros per azione) as of 31 March 2008.

The net financial position of the Group as of 30 June 2008 was negative for 823 million euros, an improvement over the negative figure of 851 million euros as of 31 March 2008. The net financial position as of 31 December 2007 was positive for 302.1 million euros: the variation, in the half, was essentially due to the effects of repurchase of the Pirelli Tyre minority stakes, to seasonal cycles in working capital, to the payment of dividends, to the purchase of shares in Pirelli RE and to deconsolidation of the facility management business from Group perimeters. Employees of the Group as of 30 June 2008 counted 31,368 (of which 3,717 temporary) compared with 30,813 as of 31 December 2007.

Pirelli Tyre
Revenues of Pirelli Tyre as of 30 June 2008 amounted to 2,166.3 million euros, with growth on a like-for-like basis of 3% compared with the first half of 2007. Net of the exchange rate effect (negative for 2.3%), revenues increased by 0.7%. The increase in sales, notwithstanding a market contracting in Europe and North America, was due essentially to a focus on high value added segments and to the price component (price/mix +4.3% compared with the first half of 2007). EBITDA before restructuring charges amounted to 286.5 million euros (13.2% of revenues), down 5% compared with 301.7 million euros in the first half of 2007. EBIT before restructuring charges amounted to 191 million euros (8.8% of revenues), compared with 206.3 million euros in the first half of 2007. The decline in operating results compared with the same period of 2007 was linked to an unfavorable automotive market scenario, as well as a significant increase in the cost of raw materials and energy and lower sales volumes in replacement channels, in Europe and North America, despite the positive contribution of the price/mix factor and greater volumes in original equipment, especially in Latin America. Restructuring actions started in Europe in order to effectively contrast the current scenario and strengthen the competitive structure, have brought charges of 5 million euros in the first half. Taking into consideration restructuring charges, EBIT amounted to 186 million euros.

Net income as of 30 June 2008 amounted to 101.7 million euros, compared with a result of 117.4 million euros in the first half of 2007. The net financial position was negative for 773.4 million euros, an improvement over the figure as of 31 March 2008 (negative for 843.8 million euros). The variation compared with a negative position of 559.6 million euros as of 31 December 2007 is essentially due to distribution of dividends for 89.9 million euros and to the seasonal cycle of working capital.

Employees of Pirelli Tyre as of 30 June 2008 counted 28,583 (of which 3,473 temporary), compared with 27,224 at the end of 2007. In the Consumer business (Car/Light Truck and Motorcycle tyres), revenues as of 30 June 2008 amounted to 1,494.3 million euros (+3.1% at constant exchange rates). EBIT before restructuring charges amounted to 126.8 million euros, down by 22.3 million euros compared with the same period of 2007 due to four factors: a negative trend in volumes, an unfavorable mix of sales channels, not completely recovering production factors cost increases and start-up costs for the car tyre factories in China and Romania. In the Car/Light Truck segment, the first half was characterized by the launch on the European market of the new Pirelli Cinturato, a modern high-tech revisitation of the tyre that made history in the tyre industry. The new Cinturato, produced in P4 and P6 models, has already been chosen for original equipment supply of the most widely distributed models of many of the major European automakers, and has received important recognition by major specialized magazines and by the Automobile Clubs of Germany, Austria and Switzerland. In the Winter segment the new Winter Sottozero Series 2 has been launched, a tyre characterized by a special, performing grip in conditions of snow and wet asphalt, to guarantee safe driving in Winter. In the Motorcycle segment revenues grew for the Pirelli and Metzeler brands. Sales were positive in the original equipment channel, while in the replacement channel there was significant growth in Latin America and an increase in Europe, despite a market decline in the second quarter.

In the Industrial business (tyres for Industrial Vehicles and Steelcord), revenues in the first half amounted to 672 million euros, with an increase of 2.5% at constant exchange rates compared to the first half of 2007. EBIT, which stood at 64.2 million euros, rose by 7 million euros compared with the same period of the previous year. In the tyres for Industrial Vehicles segment, strong sales growth in Latin America and in other rapidly developing markets more than offset the negative situation in the European market, which has become accentuated in recent months. Sales in the Steelcord segment were substantially stable compared with the same period the previous year.