2,4Mb - Pirelli

Pirelli & C. S.p.A. Milan Annual Report 2004

Preliminary Information Directors’ Report Consolidated Financial Statements 

Call to the AGM 

Contents 

Pirelli & C. S.p.A. 

Structure of Pirelli 

Group at December 31, 

2004 


on the Stock Market 

Selected Financial Data 

Chairman’s Letter 

CALL TO THE ANNUAL GENERAL MEETING OF 

THE SHAREHOLDERS 

The shareholders of Pirelli & C. Società per Azioni are convened to the ordinary session of the 

shareholders’ meeting to be held in Milan, Viale Sarca 214 

– at 3:00 P.M. on Wednesday April 27, 2005 in first call 

– at 10:30 A.M. on Thursday April 28, 2005 in second call 

to pass resolutions on the following 

ORDER OF BUSINESS 

1. The Board of Directors’ Report on Operations, the Board of Statutory Auditors’ Report, the 

financial statements at December 31, 2004 and the appropriation of net income. 

2. Appointment of the Board of Directors after establishing the number of its members; 

determination of the compensation of the directors. 

3. Determination of the compensation to be assigned to the members of the Supervisory Panel 

appointed pursuant to Legislative Decree No. 231 dated June 8, 2001. 

4. Appointment of the audit firm for the audit of the statutory financial statements, the 

consolidated financial statements and the six-month reports for the years ending December 31, 

2005, 2006 and 2007. 

5. Proposal for the purchase and disposition procedures of treasury shares, after canceling the 

resolution voted by the shareholders' meeting of May 11, 2004 for the portion not used. 

Inherent and consequent resolutions. Conferring of powers. 

Pirelli & C. S.p.A. Via G. Negri, 10 20123 Milano Web site: http://www.pirelli.com E-mail: ir@pirelli.com 1



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CONTENTS 

Information on operations 

Call to the Annual General Meeting of the Shareholders 1 

Pirelli & C. S.p.A. 3 

Structure of Pirelli Group at December 31, 2004 4 

Pirelli & C. S.p.A. on the Stock Market 5 

Five-Year Summary of Selected Consolidated Financial Data 6 

Chairman’s Letter 7 

Directors’ Report on Operations 

The Group 10 

Energy Cables and Systems Sector 29 

Telecom Cables and Systems Sector 46 

Tyres Sector 58 

Real Estate Sector 69 

Pirelli & C. Ambiente 73 

Information Systems 74 

Health, Safety and the Environment 78 

Human Resources 80 

Proforma Data 82 

Related Party Disclosures 84 

Equity Investments held by Directors, 

Statutory Auditors and General Managers 85 

Stock Option Plans 86 

Corporate Governance 90 

International Accounting Standards 125 

Pirelli & C. S.p.A. - Summary Data 130 

Shareholders’ Resolutions 132 

Consolidated financial statements at December 31, 2004 139 

Consolidated Balance Sheets 140 

Consolidated Statements of Income 144 

Notes to the Consolidated Financial Statements 145 

Supplementary Information 171 

Independent Auditors’ Report 191 

Pag. 

1 

9 

Web site: http://www.pirelli.com E-mail: ir@pirelli.com 2



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PIRELLI & C. S.P.A. 

Board of Directors 

Honorary Chairman 

Leopoldo Pirelli 

Chairman 

Marco Tronchetti Provera 

Deputy Chairman 

Alberto Pirelli 


Carlo Alessandro Puri Negri 

Managing Director and General Manager 

Carlo Buora 

Directors Carlo Acutis * 

Gilberto Benetton 

Carlo De Benedetti * 

Gabriele Galateri di Genola 

Giuseppe Gazzoni-Frascara * 

Mario Greco 

Georg F. Krayer * 

Giulia Maria Ligresti 

Massimo Moratti 

Luigi Orlando 

Giovanni Perissinotto 

Giampiero Pesenti * 

Ennio Presutti * 

Carlo Secchi * 

Vincenzo Sozzani 

Frank Vischer * 

* Independent directors 

Secretary to the Board 

Carlo Montagna 

Board of Statutory Auditors 

Chairman 

Standing members 

Alternate members 

Luigi Guatri 

Roberto Bracchetti 

Paolo Francesco Lazzati 

Franco Ghiringhelli 

Sebastiano Guido 

General Managers 

Cables and Systems Sector 

Tyres Sector 

Administration and Control 

Finance 

Valerio Battista 

Francesco Gori 

Claudio De Conto 

Luciano Gobbi 

Independent Auditors 

PricewaterhouseCoopers S.p.A. 

Note: The nature of the powers delegated to the Chairman, Managing Directors and General Managers is described on page 90 under 

Corporate Governance. 




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STRUCTURE OF PIRELLI GROUP 

AT DECEMBER 31, 2004 

Olimpia 

S.p.A. 

57.7% * 


100% 100% 100% 100% 53.9% 100% 51% 

Pirelli Cavi 

e Sistemi 

Energia S.p.A. 

Pirelli Cavi 

e Sistemi 

Telecom S.p.A. 

Pirelli Tyres 

Holding N.V. 

Pirelli Labs 

S.p.A. 

Pirelli & C. 

Real Estate 

S.p.A. 

Pirelli 

Broadband 

Solutions S.p.A. 

Pirelli 

Ambiente 

Holding S.p.A. 

* 50.4% at December 31, 2004 

Cable and Systems 

Tyres 

Argentina 

Australia 

Brazil 

Canada 

China 

Finland 

France 

Germany 

Hungary 

Indonesia 

Italy 

Ivory Coast 

Malaysia Tunisia 

Portugal Turkey 

Romania United Kindom 

Slovakia United States 

Spain 

The Netherlands 

Argentina 

Brazil 

Egypt 

Germany 

Italy 

Spain 

Turkey 

United Kindom 

United States 

Venezuela 




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PIRELLI & C. S.P.A. ON THE STOCK MARKET 

Pirelli & C. S.p.A. share capital movements since December 31, 2000 

Date Capital (thousands) Transactions 

December 2000 Euros 320,959 

November 2001 Euros 325,409 

December 2002 Euros 339,423 

bond conversions 



May 2003 Euros 272,083 exercise of the right of share withdrawal 

following the change in the company type 

and the corporate business purpose 

June 2003 Euros 1,084,247 issue of shares cum warrants (1 warrant : 

1 share) with rights offering (3 ordinary 

shares : 1 share of any class) at € 0.52 

August 2003 Euros 1,799,400 share capital increase as a result of the 

merger by exchange 

120 

115 

110 

105 

100 

95 J F M A M J J A S O N D 

S&P MIB Index (monthly average) 

Market price of ordinary shares 

(monthly average) 

December 2004 Euros 1,800,383 

warrant conversion 

February 2005 Euros 1,974,633 warrant conversion 

March 2005 Euros 2,763,953 issue of shares with rights offering 

(2 ordinary shares : 5 shares of any class) 

at € 0.70 

April 2005 Euros 2,763,969 warrant conversion 

Number of shares outstanding 

at December 31, at April 27, 

2004 2005 

Pirelli & C. S.p.A. - Ordinary shares 3,327,511,185 5,180,560,610 

Pirelli & C. S.p.A. - Savings shares 134,764,429 134,764,429 

35,000,000 

30,000,000 

25,000,000 

20,000,000 

Market Trading on the Milan Stock Exchange 

Shares traded Amount 

Volume (in millions of euros) 

Pirelli & C. - Ordinary shares 4,414,428,555 3,398 

Pirelli & C. - Savings shares 107,612,954 79 

15,000,000 

10,000,000 

5,000,000 

0 

J F M A M J J A S O N D 

2004 

Trading volumes of Pirelli & C. S.p.A. 

ordinary shares (monthly average) 




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FIVE-YEAR SUMMARY OF SELECTED 

CONSOLIDATED FINANCIAL DATA 

(in millions of euros) 

2004 2003 2002 2001 2000 

Net sales 7,114 6,671 6,718 7,762 7,697 

Gross operating profit 725 628 523 704 850 

Operating profit 380 268 118 297 432 

Net income (loss) 274 4 (405) 194 3,759 

Net income (loss) attributable to Pirelli & C. S.p.A. 217 (39) (58) 125 1,405 

Earnings per share (in euros) 0.06 (0.01) (0.09) 0.20 2.28 

Fixed assets 6,054 5,902 6,596 7,092 3,728 

Net working capital 514 566 991 1,314 667 

Net invested capital 6,568 6,468 7,587 8,406 4,395 

Shareholders’ equity 4,088 3,678 4,626 5,407 5,844 

Provisions 1,011 1,045 911 970 1,186 

Net financial (liquidity)/debt position 1,469 1,745 2,050 2,029 (2,635) 

Net equity attributable to Pirelli & C. S.p.A. 3,736 3,429 1,933 2,119 2,171 

Equity per share (in euros) 1.08 0.99 2.96 3.39 3.52 

Free cash flow 498 564 476 26 176 

Cash flow per share 0.14 0.16 0.73 0.04 0.29 

R&D expenditures 198 204 219 237 213 

Depreciation 265 278 315 326 342 

Capital expenditures 281 273 337 646 570 

Gross operating profit / Net sales 10.19% 9.41% 7.79% 9.07% 11.04% 

Operating profit / Net sales - ROS 5.34% 4.02% 1.76% 3.83% 5.61% 

Net income / Net equity * - ROE 7.06% 0.10% n.s. 3.59% n.s. 

Operating profit / Net invested capital * - ROI 5.83% 3.81% 1.56% 3.53% 9.83% 

Net financial position / Net equity - gearing ratio 0.36 0.47 0.44 0.38 (0.45) 

Capital expenditures / Depreciation 1.06 0.98 1.07 1.98 1.67 

R&D expenditures/Net sales (industrial aggregate) 3.01% 3.38% 3.45% 3.12% 2.85% 

Net sales per employee (in thousands of euros) 192 182 174 189 186 

Pirelli & C. S.p.A. ordinary shares (No. in millions) 3,327.5 3,325.6 618.2 591.4 582.8 

Pirelli & C. S.p.A. saving shares (No. in millions) 134.8 134.8 34.4 34.4 34.4 

Total Pirelli & C. S.p.A. shares (No. in millions) 3,462.3 3,460.4 652.6 625.8 617.2 

Treasury shares (No. in millions) 2.6 2.6 2.6 2.6 2.6 

Factories (number) 74 77 79 84 87 

Employees (No. at year-end) 37,154 36,337 37,350 39,771 42,509 

including employees under temporary contracts 3,513 2,417 2,257 2,672 2,976 

* Average amounts 




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CHAIRMAN’S LETTER 

Dear Shareholders, 

2004 was a year of growth for the Pirelli & C. Group. Significant 

improvements were recorded in all economic indicators. Efforts 

to focus on segments with higher added value and advanced 

technology generated positive results in every business sector, 

despite a context of stagnation in the European economies. 

With regard to industrial operations, performance was 

particularly satisfactory in the Tyres Sector – which, in 2004, 

reported the best performance of the last ten years in terms of 

profitability – and in the Energy Cables & Systems Sector, 

where Pirelli confirmed its role of international leadership, both 

in terms of its level of technology and market share, with a 

marked increase in operating profit. In the Telecommunications 

Cables & Systems Sector, the Cables and Optical Fiber business 

achieved a breakeven at the operating level, whereas, thanks to 

the new broadband access operations of Pirelli Broadband 

Solutions, sales more than doubled: the result of innovative 

technology developed in conjunction with Pirelli Labs. 

In 2004, the Real Estate Sector confirmed the trend of strong 

growth and succeeded in achieving all the objectives 

established in the three-year plan for the period 2003-2005. The 

growing influence of minority-owned investments led to a 23% 

increase in the operating profit inclusive of the share of the 

earnings of these investments in comparison with 2003. 

Such results, achieved during the reorganization of the Pirelli 

Group – culminating in the summer of 2003 with the mergers 

that had the effect of streamlining the corporate structure – 

now make it possible to continue the strategic line, established 

in 2001, of refocusing the operations of Pirelli & C. S.p.A., on a 

more solid basis. In fact, the Board of Directors has decided to 

enhance the value of the activities of Energy Cables and 

Systems and Telecommunications Cables – which, today, 

produce better results than all the leading competitors – in the 

conviction that, with new shareholders, such activities can 

pursue the positive path of growth and creation of value 

trodden in recent years. Pirelli is most grateful to all the 

company’s employees who have worked in these sectors at 

every level, demonstrating their high level of professional skills. 

As a result, they have not only improved the competitiveness of 

the various Sectors, but have helped them to achieve their 

current results, despite the difficult market situation. 

In the Tyres Sector, the strategy of refocusing the activities of 

the Pirelli Group involves the expansion of production capacity 

in areas and on markets with the highest growth. In fact, the 

company has decided to build a state-of-the-art plant for 

steelcord and high-performance car tyres in Romania, to meet 

the growing demand from the European markets. In South 




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2004 





America, there are plans to expand the new car tyre plant at 

Bahia and to build a new plant to produce giant tyres with radial 

technology in the Gravataì area. Furthermore, in China, 

negotiations are currently in progress to set up a joint venture to 

produce radial tyres for both heavy trucks and cars, with the aim 

of seizing market share on the Chinese Original Equipment and 

Replacements markets, both of which are growing dramatically. 

Finally, Pirelli plans to expand its MIRS plants in Germany, the 

United States and the United Kingdom, and to give a further 

boost to the development of CCM (Continuous Compound 

Mixing) for the mass production of innovative materials. These 

investments will cost the company more than Euros 400 million 

over the next three years, a figure already budgeted in the 

industrial plan presented in May last year. 

In keeping with its mission as an international management 

company, a leader in manufacturing activities and a supplier of 

services with a high degree of innovative technology, Pirelli & C. 

S.p.A. also intends to speed up development of new technologies 

for broadband access and second-generation photonics with the 

Pirelli Broadband Solutions start-up. These are sectors in which 

Pirelli Labs has already filed a series of important patents, 

ensuring technological leadership on a global scale and the 

marketing of products and applications developed by research at 

the most advanced level. 

In the Real Estate Sector, the intention is to proceed with 

development of the innovative business model which, in the 

space of a few years, has enabled Pirelli & C. Real Estate to 

establish itself as one of the leading players in the sector. In 2004, 

the portfolio managed by Pirelli RE exceeded a market value of 

Euro 10 billion – with the company’s share equal to 24% – while 

expansion continues for seeded real estate investment funds 

which have activated an important new channel for the 

appreciation of savings in Italy. At the same time, the Franchising 

Network is being set up to distribute real estate services and 

associated financial and insurance products, which will allow the 

creation of important synergies with Pirelli’s corporate activities. 

The strategic line being followed by the Group is also reflected in 

the hub created in the sector of technologies for the 

Environment, which combines activities in the field of renewable 

energy from waste with others in the field of filters and fuels with 

a low environmental impact, such as GECAM-Il Gasolio Bianco. 

Thanks to these investments, in years to come, our competitive 

strength will be ever more firmly based on technological 

innovation and research, and on the quality and professional 

competence of the men and women who work for Pirelli. The 

solid equity and financial base, the transparency and correctness 

of our conduct, and the strong-felt will to create value are, and 

will always continue to be, the three convictions on which the 

trust of the shareholders must rest for the future of Pirelli. 



Introduction 

The Group 

Energy Cables and 

Systems Sector 

Telecom Cables and 


Tyres Sector 

Real Estate Sector 

Pirelli & C. Ambiente 

Information Systems 

Health, Safety and the 

Environment 

Human Resources 

Proforma data 

Related Party 

Disclosures 

Equity Investments 

held by Directors, 

Statutory Auditor and 


Stock Option Plans 

Corporate Governance 

International 

Accounting Standards 

Pirelli & C. S.p.A. - 

Summary Data 

Shareholders’ 

Resolutions 

DIRECTORS’ REPORT ON OPERATIONS 


In 2004, all economic indicators show a significant improvement. 

The year ends with a net income of Euros 274 million compared to a net income of Euros 4 million 

in 2003. 

The net income attributable to Pirelli & C. S.p.A. is Euros 217 million compared to a net loss 

attributable of Euros 39 million in the prior year. 

Net sales amount to Euros 7,114 million, a growth of 6.6 percent compared to the prior year. 

Operating profit rose from Euros 268 million in 2003 (4 percent of net sales) to Euros 380 million 

this year (5.3 percent of net sales). 

The net debt position decreased from Euros 1,745 million at December 31, 2003 to Euros 1,469 

million at December 31, 2004. 

Total shareholders’ equity of the Group rose from Euros 3,678 million at December 31, 2003 to Euros 

4,088 million at December 31, 2004. 

The shareholders’ equity attributable to Pirelli & C. S.p.A. went from Euros 3,429 million to Euros 

3,736 million. 


The Group 


2004 economic and 

financial review 

Major events in 2004 

Pirelli Group: summary 

data 

Subsequent events 

Outlook for the 

current year 

THE GROUP 

2004 ECONOMIC AND FINANCIAL REVIEW 

In 2004, the Pirelli & C. S.p.A. Group recorded a significant 

improvement of all economic indicators in all activity sectors 

of the Group thanks to actions focusing on higher value-added 

segments. As a consequence, the net income of the Group for 

2004 posted a decisive growth: Euros 274 million compared to 

Euros 4 million 2003. 

Industrial activities doubled their net income in 2004 thanks 

to excellent performance by all activity Sectors. Specifically, 

2004 saw a further growth in the profitability of the Tyres 

Sector, which is at the very top levels of the market of 

reference. The Energy Cables and Systems Sector bettered all 

indicators and its international leadership position was 

confirmed both at a technological and at a market level. In the 

Telecom Cables and Systems Sector, the Cables and Fibers 

business reached breakeven while new activities in broadband 

access and photonics by Pirelli Broadband Solutions more 

than doubled sales to over Euros 60 million thanks to 

innovations developed in collaboration with Pirelli Labs. 

Sales of broadband solutions have 

doubled as a result of collaboration 

with Pirelli Labs. 

The real estate sector, in 2004, recorded a strong growth in 

all major economic and balance sheet figures. The Pirelli Real 

Estate Group’s new activities grew rapidly: fund management, 

with four seeded real estate funds and, at year end, the 

commission to manage a sub-portfolio of the FIP-Fondo 

Immobili Pubblici real estate fund, activities for the purchase 

and management of non-performing mortgage loans and Pirelli 

RE Franchising, which in just one year has become the thirdlargest 

real estate agency network in Italy. 

As for the investment in Olimpia S.p.A., in 2004, the 

company benefited from cash dividends received from its 

associated company Telecom Italia S.p.A., reporting net 

income of Euros 16 million compared to a loss of Euros 330 

million in 2003. Taking into account the Group’s interest and 

other adjustments, the consolidated statement of income was 

a positive figure of Euros 5 million compared to negative 

impact of Euros 100 in 2003. 

One of Pirelli Tyres' objectives is to 

capture market share in Original 

Equipment in China. 



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current year 

MAJOR EVENTS IN 2004 

The major events which occurred in 2004 are described below: 

Industrial activities 

• In January 2004, Pirelli finalized the purchase of 10 percent of Pirelli Submarine Telecom 

Systems Holding B.V. from Cisco Systems, to which it had sold the stake in 2000 for an 

equivalent amount of approx. US$ 75 million. This transaction took place after Cisco Systems 

exercised its right – as stated in the agreements concluded on August 3, 2000 – to resell the 

above holding to Pirelli for the same amount. Pirelli, after this transaction, holds the entire 

share capital. 

• In January 2004, Pirelli Cavi e Sistemi Telecom won two important contracts for the supply of 

4,000 km of OPGW (Optical Ground Wire) cables and services to the Algerian utilities 

company Sonelgaz, through the system integrator TCIL (Telecommunications Consultants of 

India). These two projects will enable Sonelgaz to build a new broadband telecommunications 

network for voice and data transmission and multimedia services that will encourage 

development within Algeria. 

• In March 2004, Pirelli Cables Ltd – a British affiliate of Pirelli Cavi e Sistemi Energia S.p.A. – 

and Draka Holding N.V. signed a long-term contract under which Pirelli will supply Draka 

with low-voltage cables for the British market to be used for the electrical cabling of nonindustrial 

and industrial buildings. 

• On April 5, 2004, Pirelli Cavi e Sistemi Energia was awarded the contract to build a highvoltage 

turnkey link on behalf of the Singapore national electricity company SP Power Assets 

Ltd. to expand the southeast Asian country’s electrical network. The contract is worth approx. 

Euros 50 million. 

The project – the most important to be assigned in Asia in 2004 – will help to tackle the 

increase in demand for electrical power in Singapore, ensuring considerable advantages in 

terms of compensating peaks of demand for electrical power. 

• On May 6, 2004, Alcatel and Pirelli signed an agreement regarding their respective submarine 

telecommunications systems. The agreement calls for Alcatel to purchase certain activities of 

Pirelli in this area and to be granted certain intellectual property rights in the same sector. At 

the same time, Pirelli will purchase a 5 percent equity interest in Alcatel’s submarine 

telecommunications systems business with reciprocal put and call options. The deal was 

concluded on August 26, after obtaining authorization from the Italian antitrust authority. 

• On July 14, 2004, Pirelli Cavi e Sistemi Energia sold its 50 

percent non-controlling equity investment in Afcab Holdings 

(Proprietari) Ltd., the sole shareholder of the South African 

power cables manufacturer, African Cables Limited, to the 

parent company Reunert Limited for a sum of African rands 

165.75 million (about Euros 22 million), realizing a gain of 


Afcab Holdings had initially been a joint venture between 

Siemens and Reunert, a South African electronics group. 

Pirelli had taken over the investment in 1998 as part of the 

acquisition of the activities of Siemens in the power cables 

sector. 

An agreement was signed between 

Pirelli and Alcatel regarding the 

sector of submarine 

telecommunications systems. 



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current year 

Pirelli decided to sell its share in the company, in which it did not exercise control, preferring 

to focus on more strategic markets. 

The deal was executed on September 30, 2004 after approval was obtained from the relevant 

authorities. 

• On October 29, 2004, a joint venture was set up for steel 

cord manufacturing in Romania with Pirelli holding an 80 

percent stake and Continental a 20 percent interest. 

The joint venture, named S.C. Cord Romania S.r.l., will be 

directly involved in the building of a new factory at Slatina, 

which will directly serve the East Europe markets with a 

high growth rate. The new factory is slated for rapid 

development, with investments of up to Euros 40 million 

over the next three years which will make it possible to 

manufacture, when fully operational, about 30 thousand tons 

of steel cord per year, employing roughly 350 persons. S.C. 

Cord Romania will thus be able to meet the growing demand 

for this important tyre component, which today exceeds 

demand by almost two times the supply. Steel cord is used 

by tyre manufacturers as the chief material for reinforcing 

the radial structure. 

Real Estate activities 

A joint venture was set up with S.C. 

Cord Romania for the manufacture 

of steelcord at the end of October 

2004. 

A scale model of the future 

Romanian steelcord facility to be 

built at Slatina. 

• March 1, 2004 marked the date of the conclusion of the 

public sale offer and listing of the Tecla Fondo Uffici, the 

first listed fund by private contribution in Italy, with more 

than 37,000 subscriptions and demand which exceeded the 

offer by 44 percent. Pirelli Real Estate S.g.r. S.p.A., as 

manager of the Fund, subscribed to 2 percent of the Fund 

for an investment of about Euros 6.5 million. The offer price 

was set at Euros 505 per share. Tecla Fondo Uffici consists 

of 65 properties, mainly for services-office use or can be 

reconverted to that use, with a market value of Euros 926 

million (a book value of Euros 786.9 million), plus Euros 25 

million in cash. 

Real estate activities: the placement 

of the Tecla Fondo Uffici fund 

ended in March 2004. 

• On April 8, 2004, the purchase from Beni Stabili of four multi-use buildings situated in the 

center of Naples was finalized for a total of Euros 46.1 million. The buildings were purchased 

by the company Tau S.r.l., which was sold on June 29, 2004 to the specialized real estate 

trading company Orione Immobiliare Prima S.p.A., in which Pirelli RE has a qualified minority 

stake. 

• On April 30, 2004, since Peabody, a long-standing partner in Retail & Entertainment has 

exhausted its purchasing potential, and while waiting to sign a strategic agreement with 

Deutsche Bank through Gromis, a new joint venture with Morgan Stanley Real Estate Funds 

(MSREF 67 percent, Pirelli RE 33 percent), Pirelli RE perfected the purchase of eight 

commercial buildings located in central and northern Italy for a sum of Euros 147.8 million. 

The buildings have a total space of more than 150,000 m2 and are leased to a leading largescale 

retailer. 



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current year 

• On June 21, 2004, Generali Properties, Pirelli & C. Real Estate and Lehman Brothers 

purchased a portfolio of 36 properties located throughout Italy and making up part of the 

assets of the Generali Group, for a sum of Euros 272 million. The transaction was concluded 

through the company Solaris S.r.l., in which Generali Properties and Pirelli Re each have a 40 

percent stake and Lehman Brothers holds a 20 percent interest. 

• June 29, 2004 marked the start of Cloe Fondo Uffici, the first seeded real estate fund destined 

exclusively for qualified investors. The Cloe Fondo Uffici Fund consists of 39 service-office 

buildings with a market value of Euros 873 million as appraised by the independent valuers 

CB Richard Ellis. 

About 70 percent of the buildings are located in centralized or semicentralized positions in 

Milan and Rome with the remaining portfolio spread throughout other major Italian cities. 

Pirelli Real Estate S.g.r. S.p.A., as manager of the Fund, subscribed to 5 percent of the Fund 

for an investment of Euros 15 million. 

• On September 30, 2004, Spazio Industriale 2 S.r.l., a joint venture between Pirelli Real Estate 

(25 percent) and Soros Real Estate Investors (75 percent), finalized the purchase of 26 

formerly-owned Enel properties from New Real (the vehicle company controlled by the DB 

Real Estate Global Opportunities fund, managed by Deutsche Bank and by CDC-IXIS), for the 

sum of approx. Euros 93 million. 

• November 15, 2004 marked the early closing of the public 

offer for Olinda Fondo Shops, the third seeded real estate 

fund specializing in stores and commercial and 

entertainment structures. Demand exceeded the offer by 

roughly 270 percent. 

The 42 properties in the new Fund were contributed by 

Ganimede Due, Gromis and Tiglio II, companies controlled 

by Morgan Stanley Real Estate Funds and Iniziative Retail, 

the latter controlled by the Peabody Funds. The properties 

were identified and selected from portfolios purchased 

during the last few years from Sai – Fondiaria, UNIM, 

Rinascente, RAS and Banca di Roma. Subscription by 

investors to the Olinda Fondo Shops also gave the Fund the 

financial resources necessary for the purchase, which took 

place on December 23, 2004, of two multiplex centers from 

The Bicocca Village multiplex center 

was purchased by Olinda Fondo 

Shops fund. 

the companies Moncalieri Center S.r.l. and Bicocca Center S.r.l. for a total value of approx. 


Pirelli RE SGR S.p.A., as manager of the fund, subscribed to 5 percent of the Fund for an 

investment of about Euros 13 million. 

• On November 26, 2004, Cordusio Immobiliare (company in the Unicredit Group) and the 

companies MSMC Immobiliare 4 and Aida (joint ventures between Pirelli RE and Morgan 

Stanley Real Estate Funds), reached an agreement aimed at appreciating a part of the 

non-strategic real estate assets of the Unicredit Group held by Cordusio Immobiliare, a 

wholly-owned subsidiary of UniCredit. The real estate portfolio covered by the agreement is 

composed of properties which include fractional units and land and properties for office use, 

the latter located generally in northern Italy. 

Subsequently, on December 21, 2004 by contribution to the company Modus S.r.l., 

Cordusio Immobiliare became the owner of a 16 percent stake in the company which, in 

addition to the real estate assets of UniCredit worth Euros 327.1 million at market value, has 

11 properties of the Morgan Stanley – Pirelli RE joint ventures which came from the 

acquisition of ex-RAS and ex-Toro real estate properties located in Milan, Rome and Genoa 



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data 



current year 

for a market value of approx. Euros 750 million. The union of the portfolios, with Asset 

Management and specialist services activities provided by Pirelli RE, is directed toward 

appreciating and monetizing the real estate assets in the short/medium term. 

• On December 16, 2004, placement commenced for the Clarice Light Industrial Fund, 

a seeded real estate fund, reserved exclusively for qualified investors. 

The Fund is specialized in service-industrial properties such as warehouses, archives and 

laboratories. The newly-established Fund includes the properties contributed by Tiglio I and 

Tiglio II, companies indirectly controlled by Morgan Stanley Real Estate Funds. 

• On December 22, 2004, Pirelli RE SGR S.p.A. signed a contract with Investire Immobiliare 

SGR to manage a real estate sub-portfolio set up by the “Fondo Comune d’investimento 

Immobiliare Riservato” called “FIP – Fondo Immobili Pubblici”. 

• On December 22, 2004, the first phase of the deal was 

completed for setting up a joint venture between Pirelli RE 

and Morgan Stanley Real Estate Funds (MSREF) in the nonperforming 

loan sector. The deal, the terms of which had 

been established in the binding agreement signed in August 

2004, has continued through execution of the first phase. 

The agreement signed by the parties provide for the 

following transactions that have already been completed in 

December 2004: 

The Olinda Fondo Shops fund 

specializes in shops, shopping 

centers and entertainment centers. 

– purchase of a 15 percent stake by Pirelli RE in the non-performing loan portfolio owned by 

Morgan Stanley Real Estate Funds (gross book value at December 31, 2004 of approx. Euros 

1.8 billion). This took place through the acquisition of 15 percent of the shares of the 

companies Mirandia and Tronador for some Euros 33 million; 

– purchase by Morgan Stanley Real Estate Funds of 2.1 percent of Pirelli RE treasury shares 

at a price, fixed in August 2004, of Euros 28.9 per share. 

Besides providing for the continuation of purchasing activities for new medium-/large-size 

non-performing loan portfolios under the joint venture, the agreement also envisages the 

following transactions that are in the process of being finalized since the start of 2005: 

– sale of 100 percent of Pirelli RE Credit Servicing S.p.A. to SIB – Servizi Immobiliari Banche 

S.p.A. (MSREF) and sale of 47 percent of SIB to Pirelli RE by MSREF. A merger by 

incorporation of the two companies specialized in the management of non-performing loans 

is later anticipated which will give life to one of the leading non-performing loan operators 

in Italy. Shareholders in this new company resulting from the merger will be MSREF, 

indirectly (mainly through FONSPA - Istituto di Credito Fondiario e Industriale S.p.A.), with 

a 53 percent holding, and Pirelli RE with a 47 percent holding and a call option for Pirelli 

RE on the 53 percent stake starting January 2007 and put option for MSREF that can be 

exercised starting January 2008; 

– creation of a company jointly owned by Pirelli RE and MSREF (75 percent - 25 percent) for 

Asset Management of the non-performing loan portfolios, managing the portfolios currently 

owned by the two groups and devoting itself to the development of new deals. 

• On December 23, 2004, Spazio Industriale 3, a joint venture between Pirelli RE (25 percent) 

and Soros Real Estate Investors (75 percent), signed a definitive agreement for the purchase 

of seven industrial properties from the Prada Group for approx. Euros 77 million. It also 

acquired the option to purchase another two industrial properties exercisable within three 

months of the closing date. The closing took place on January 19, 2005. 



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data 



current year 

• On December 30, 2004, in implementing the aforementioned 

agreements, Morgan Stanley Real Estate Funds (MSREF) 

and Pirelli RE along with the Special Situations group of 

Morgan Stanley, specialized in the purchase and 

management of corporate credits, executed an agreement 

for the purchase of a portfolio of mortgage loans and 

corporate credits from BNL. The gross asset value of the 

portfolio acquired is approx. Euros 430 million and consists 

of receivables for loans, more than half of which are 

guaranteed by industrial properties. This portfolio, in 2005, 

will be the subject of a securitization transaction carried out 

through the vehicle company ICR 8. 

Corporate 

The first phase of a project for a 

joint venture between Pirelli & C. 

Real Estate and Morgan Stanley 

Real Estate Funds in the nonperforming 

loans sector was 

finalized in December. 

• In 2004, 1,345,657,952 Pirelli & C. S.p.A. 2003-2006 warrants were exercised (equal to 86.2 

percent of those issued). Accordingly, 336,414,488 ordinary shares were issued for cash 

proceeds of Euros 174.9 million. There are 216,197,374 warrants remaining at December 31, 

2004 which, if exercised, correspond to 54,049,343 Pirelli & C. S.p.A. ordinary shares. 

• On April 6, 2004, Pirelli, through the subsidiary Pirelli Finance Luxembourg S.A., exercised the 

right to purchase 47,155,300 Telecom Italia ordinary shares (equal to 0.46 percent of ordinary 

share capital) at an exercise price per share of Euros 2.12 for an equivalent amount of approx. 

Euros 100 million, as established in the call option contract regarding Telecom Italia shares 

signed in November 2001 with JP Morgan. 

• On April 28, 2004, the Pirelli & C. S.p.A.’s “Shareholders’ 

Manual” was presented at Borsa Italiana headquarters. The 

manual was conceived with the intent of keeping readers 

updated on the corporate governance of the Company: from 

the full adoption of the recommendations contained in the 

“Self-Regulatory Code of listed companies” to the 

rationalization of the corporate structure which transferred 

all the main activities to one single operating holding 

company: from the adoption of the Code of Ethics to 

improvements for a rigorous and modern Internal Control 

System and to an environmental management system and 

corporate social responsibility that are among the most 

advanced, up to the decision to propose a series of 

amendments to the bylaws to the shareholders’ meeting in 

order to further boost the participation of all the shareholders 

in the life of the company. These amendments include, in 

particular, the introduction of slates for the nomination of the 

Board of Directors. 

Pirelli & C. S.p.A.’s “Shareholders’ 

Manual”: a guide to the corporate 

governance of the company. 

• On April 29, 2004, Pirelli & C. S.p.A. subscribed to Eurostazioni S.p.A.’s share capital increase 

for Euros 33.3 million. At the same time, Eurostazioni repaid the outstanding loan from the 

shareholders for Euros 33.4 million. 

• On July 8, 2004, RCSMediaGroup S.p.A. sold, prorata to the other participants in the Pirelli & 

C. S.p.A. Voting Trust (with the exception of Sinpar S.A. which did not exercise the right to 

purchase its share of the stock), 84,060,667 Pirelli & C. S.p.A. ordinary shares and 63,045,500 



The Group 





data 



current year 

Pirelli & C. S.p.A. ordinary share warrants 2003-2006 which had been contributed to the 

shareholders voting trust. The per share price, equal – in accordance with the clauses of the 

agreement – to the average market price recorded over the last three months, was Euros 0.825 

per share and Euros 0.090 per warrant. 

• On July 9, 2004, Pirelli & C. S.p.A. purchased 7,413,341 RCSMediaGroup S.p.A. shares placed on 

sale by Gemina S.p.A., equal to 1.01 percent of share capital, for a total equivalent amount of 

approx. Euros 33 million. Following this transaction, Pirelli & C. S.p.A. holds 2.92 percent of 

RCSMediaGroup S.p.A. ordinary share capital, which is entirely pledged to the Shareholders’ 

Agreement. The average per share price of the RCSMediaGroup S.p.A. shares in Pirelli & C. 

S.p.A.’s portfolio is equal to Euros 2.74 compared to a per share market price of Euros 4.25 at 

December 31, 2004. 

• On July 28, 2004, the placement was successfully concluded for 3,400,000 Pirelli & C. Real 

Estate S.p.A. shares (equal to 8.37 percent of share capital) with Italian and foreign institutional 

investors. Deutsche Bank AG London, in charge of the placement, informed Pirelli & C. S.p.A. 

that the demand for Pirelli & C. Real Estate shares far exceeded supply and that the placement 

price was equal to Euros 27.25 per share. The gross gain realized by the Group in the 

consolidated financial statements amounts to approx. Euros 57 million; settlement took place 

on August 3, 2004. 

• The Board of Directors’ Meeting held November 11, 2005 authorized a project to enhance the 

value of the Energy and Telecom Cables and Systems Sectors with the involvement of 

institutional investors, starting a procedure that will enable the Group to specifically assess 

the various options available and the various indications of interest. The sale of the two 

sectors will make it possible for the Group to acquire fresh resources to devote to the 

development of strategic areas. The excellent results produced by Pirelli management is a 

guarantee of continuity and growth for the company. Pirelli will avail itself of the support of 

leading international financial institutions for this project. 

• On December 7, 2004, the Pirelli & C. S.p.A. Board of Directors voted to put a motion before the 

extraordinary shareholders’ meeting (which met on January 21, 2005) to increase share capital 

up to a maximum of Euros 1,080 million through the issue of about 1.5 billion ordinary shares to 

offer as option rights to the ordinary and savings shareholders in a ratio of 2 new ordinary 

shares for every 5 shares of whatsoever class of shares held at a per unit price of Euros 0.70 per 

share, including a share premium of Euros 0.18. The issue price of the new shares was 

determined by taking into account the performance of the share price on the market in the last 

three months and the size of the transaction. 

Therefore, the capital increase ended with the subscription of all 1,517,672,178 new ordinary 

shares at the price of Euros 0.70 each, for a total equivalent amount of Euros 1,062,370,524,60, 

without the need for the intervention of the underwriting syndicate promoted, arranged and 

conducted by Banca Caboto S.p.A. (Intesa Group), JPMorgan, MCC S.p.A. – Capitalia Group 

Bancario, Mediobanca S.p.A. and UBM. 

Pirelli & C. S.p.A.’s new share capital now totals (taking into account a further increase for 

requests to exercise Pirelli & C. ordinary share warrants 2003-2006 last February) to Euros 

2,763,953,496,20 and is represented by 5,315,295,185 shares of par value Euros 0.52 each, of 

which 5,180,530,756 are ordinary shares and 134,764,429 are savings shares. 

The resources raised from the capital increase are designated for the subscription of the Euros 2 

billion capital increase by Olimpia S.p.A., with the objective being both to raise the investment in 

Telecom Italia S.p.A. and to neutralize the diluting effect consequent to the announced Telecom 

Italia merger. Pirelli & C. specifically subscribed to its share of the increase (50.4 percent) and 

the share of increase that was not subscribed to by the banks (16.8 percent). At the end of the 

subscription period (with Pirelli & C.’s investment totaling Euros 1,344 million), Olimpia’s 



The Group 





data 



current year 

shareholder base is the following: Pirelli & C. S.p.A. (57.66 

percent), Edizione Finance International SA (16.80 percent), 

Hopa S.p.A. (16.00 percent), Banca Intesa S.p.A. (4.77 percent) 

and Unicredito Italiano S.p.A. (4.77 percent). 

• At the end of December, with a view toward strengthening 

the Group’s presence in the environmental segment, the 

following companies were merged in Pirelli & C. Ambiente 

Holding S.p.A. (Pirelli & C. 51 percent, Camfin 45.3 percent 

and Centrobanca Sviluppo Impresa SGR 3.7 percent): 

Pirelli & C. Ambiente S.p.A., a company active in renewable 

energy from waste and environmental redevelopment, and 

Cam Tecnologie S.p.A. (now Pirelli & C. Ambiente Tecnologie 

S.p.A.), a company already controlled by Camfin and a 

producer of fuel with a low environmental impact Gecam- 

The White Diesel. 

Pirelli Ambiente Tecnologie’s plants 

for producing white diesel, the 

innovative fuel with low 

environmental impact. 

PIRELLI GROUP: SUMMARY DATA 

The highlights of the consolidated financial statements can be summarized as follows: 


2004 2003 

• Net sales 7,114 6,671 

• Gross operating profit 725 628 

% of net sales 10.2% 9.4% 

• Operating profit 380 268 

% of net sales 5.3% 4.0% 

• Share of earnings (losses) of equity investments 76 (51) 

• Operating profit (loss) incl. share of earnings (losses) of equity invest. 456 217 

• Financial income (expenses) (108) (134) 

• Extraordinary items 20 (9) 

• Income taxes (94) (70) 

• Net income 274 4 


• Net income (loss) attributable to Pirelli & C. S.p.A. 217 (39) 

• Earnings per share (in euros) 0.06 (0.01) 

• Shareholders’ equity 4,088 3,678 

• Net equity attributable to Pirelli & C. S.p.A. 3,736 3,429 

• Equity per share (in euros) 1.08 0.99 

• Net financial (liquidity)/debt position 1,469 1,745 

• Capital expenditures 281 273 

• R&D expenditures 198 204 

• Employees (No. at year-end) 37,154 36,337 

• Factories (number) 74 77 

• Pirelli & C. S.p.A. ordinary shares (No. in millions) 3,327.5 3,325.6 

• Pirelli & C. S.p.A. savings shares (No. in millions) 134.8 134.8 

• Total Pirelli & C. S.p.A. shares (No. in millions) 3,462.3 3,460.4 

For a more meaningful understanding of the performance of the Group in its various sectors of 

business, the following economic data and the net financial position is provided according to 

business sector. 



The Group 





data 



current year 

By “industrial aggregate” is meant the sum of the data of the industrial sectors (energy cables, 

telecom cables and tyres). 


Energy Cables & Systems Telecom Cables & Systems Tyres Industr. Aggreg. 

2004 2003 2004 2003 2004 2003 2004 2003 

• Net sales 2,888 2,637 430 427 3,255 2,970 6,573 6,034 

• Gross operating profit (loss) 199 169 9 (1) 454 399 662 567 

% of net sales 6.9% 6.4% 2.1% n.s. 13.9% 13.4% 10.1% 9.4% 

• Operating profit (loss) 119 83 (15) (39) 276 220 380 264 

% of net sales 4.1% 3.1% n.s. n.s. 8.5% 7.4% 5.8% 4.4% 

• Share of earnings (losses) of equity investments - - (3) (2) (2) - (5) (2) 

• Op. profit (loss) incl. share of earnings 

(losses) of equity investments 119 83 (18) (41) 274 220 375 262 

• Financial income (expenses) (29) (23) (14) (18) (31) (45) (74) (86) 

• Extraordinary items - (5) 11 4 (1) (1) 10 (2) 

• Income taxes (12) (16) 3 (1) (73) (45) (82) (62) 

• Net income (loss) 78 39 (18) (56) 169 129 229 112 

% of net sales 2.7% 1.5% n.s. n.s. 5.2% 4.3% 3.5% 1.9% 

• Net financial (liquidity)/debt position 183 354 301 302 215 317 699 973 


Industrial Aggregate Pirelli & C. Real Estate Other Total 

2004 2003 2004 2003 2004 2003 2004 2003 

• Net sales 6,573 6,034 570 645 (29) (8) 7,114 6,671 

• Gross operating profit (loss) 662 567 83 79 (20) (18) 725 628 

% of net sales 10.1% 9.4% - - - - 10.2% 9.4% 

• Operating profit (loss) 380 264 61 61 (61)* (57) 380 268 

% of net sales 5.8% 4.4% - - - - 5.3% 4.0% 

• Share of earnings (losses) of equity investments (5) (2) 97 67 (16)** (116) 76 (51) 

• Op. profit (loss) incl. share of earnings 

(losses) of equity investments 375 262 158 128 (77) (173) 456 217 

• Financial income (expenses) (74) (86) 5 1 (39) (49) (108) (134) 

• Extraordinary items 10 (2) (4) (6) 14 (1) 20 (9) 

• Income taxes (82) (62) (31) (21) 19 13 (94) (70) 

• Net income (loss) 229 112 128 102 (83) (210) 274 4 

% of net sales 3.5% 1.9% - - - - 3.9% 0.1% 

• Net financial (liquidity)/debt position 699 973 35 9 735 763 1,469 1,745 

* of which, goodwill amortization on purchases of Pirelli S.p.A. shares, Euros 25 million (Euros 25 million in 2003) 

** accounting for Olimpia S.p.A. using the equity method, earnings of Euros 5 million (losses of Euros 100 million in 2003) 

Net sales 

Net sales amount to Euros 7,114 million and record 

an increase of 6.6 percent compared to the prior year 

(Euros 6,671 million). 

Excluding the foreign exchange effect (-1.4 percent), 

the offsetting of metal prices in the Energy business 

(+5 percent) and the change in the scope of consolidation 

due to the sale of the Enameled Wires business (-0.2 percent), 

the effective change is equal to +3.2 percent. 

Sales in the Tyres Sector increased 

from Euros 2.9 billion to Euros 3.2 

billion in 2004. 



The Group 





data 



current year 

The distribution of net sales by sector and geographical area is 

as follows: 

Sector 2004 2003 

Energy Cables and Systems 40% 40% 

Telecom Cables and Systems 6% 6% 

Tyres 46% 44% 

Real Estate 8% 10% 

Geographical area 2004 2003 

Italy 21.4% 22.3% 

Other European countries 43.8% 43.1% 

North America 9.7% 9.4% 

Central and South America 14.0% 12.3% 

Australia, Africa and Asia 11.1% 12.9% 

Real Estate 

Tyres 

Energy Cables 

and Systems 

Group sales in 2004 

by Sector and geographical area. 

Italy 

Telecom 

Cables and 

Systems 

Other 

European 

countries 

Operating profit 

Operating profit is equal to Euros 380 million compared to 

Euros 268 million in 2003. The percentage of operating profit 

to net sales is 5.3 percent (4 percent in 2003). 

The aggregate of the industrial businesses recorded an 

operating profit of Euros 380 million equal to 5.8 percent of 

net sales, compared to Euros 264 million in 2003 (4.4 percent 

of net sales). 

Real estate activities show an operating profit of Euros 61 

million which is in line with that reported in 2003. However, it 

should be borne in mind that, considering the type of business 

model, a better indicator of activities is the operating profit 

including the earnings generated by equity investments, which 

is equal to Euros 158 million, up 23 percent from last year. 

Operating profit in 2003 had also comprised the positive 

effects of the settlement of the dispute with Ciena over its use 

of patents (Euros 10 million) and, in the Energy Cables and 

Systems Sector, the change in the valuation criteria for 

strategic metals inventories from the LIFO to the FIFO method 

(Euros 6 million) and the loss caused by the bankruptcy of a 

distributor (Euros 4 million). 

North America 

Central and South America 

Australia, Africa and Asia 



The Group 





data 



current year 

The change can be summarized as follows: 


Operating profit 2003 268 

• Foreign exchange effect (12) 

• Prices (excluding metals)/Mix 17 

• Volumes 124 

• Production factors per unit cost (97) 

• Efficiencies 76 

• Depreciation 17 

• Other (13) 

112 


Share of earnings (losses) of equity investments 

The share of the earnings (losses) of equity investments is a positive balance of Euros 76 

million compared to a negative balance of Euros 51 million in 2003 and includes the 

effect of the earnings (losses) of the companies accounted for using the equity method. 

It specifically includes the share of earnings of Olimpia S.p.A. for Euros 5 million 

(losses of Euros 100 million in 2003) whereas the results of the companies in the Real Estate 

Sector (Pirelli & C. Real Estate Group) show earnings of Euros 97 million (Euros 67 million 

in 2003). 

The figure also include the writedown of the investments in F.C. Internazionale Milano S.p.A. 

(Euros 10 million), Euroqube S.A. (Euros 3 million), Alloptic Inc. (Euros 3 million) and in some 

companies of Pirelli Real Estate S.p.A. (Euros 7 million). 

Extraordinary items 

Extraordinary items show an income balance of Euros 20 million, compared to an expense 

balance of Euros 9 million last year. 

The most important amount in extraordinary items refers to the gain realized on the placement 

of 3,400,000 Pirelli & C. Real Estate S.p.A. shares (equal to 8.37 percent of share capital) with 

Italian and foreign institutional investors for Euros 57 million. Extraordinary items also include 

the accrual of Euros 40 million set aside by Pirelli & C. S.p.A. in the provision for liabilities and 

expenses in respect of the risks on the options granted to the shareholder banks of Olimpia and 

Hopa under the shareholders agreements, the net gains on the sale of non-strategic assets for 

Euros 53 million, layoff expenses for Euros 35 million and the costs for the replacement of a 

high-voltage cable in Singapore for Euros 9 million. 

Last year, extraordinary items had included expenses connected with the merger of the parent 

company for Euros 16 million, income connected with the “High-speed Train” project at the tyre 

factories in the Turin area for Euros 10 million, the costs to take advantage of the tax amnesty 

by some Italian companies for Euros 14 million and gains on the sale of properties for Euros 17 

million. 



The Group 





data 



current year 

Net income 

Net income amounts to Euros 274 million (after income tax expenses of Euros 94 million) 

compared to net income of Euros 4 million in 2003 (after income tax expenses of Euros 70 

million). 

The net income attributable to Pirelli & C. S.p.A. is Euros 217 million compared to a net loss of 

Euros 39 million in 2003. 

Shareholders’ equity 

Total shareholders’ equity went from Euros 3,678 million at December 31, 2003 to Euros 4,088 


Such increase is detailed below: 


• Translation adjustments 1 

• Change in the scope of consolidation 9 

• Net income for the year 274 

• Dividends to third parties paid by: (132) 

- Pirelli & C. S.p.A. (109) 

- Pirelli & C. Real Estate S.p.A. (19) 

- Other Group companies (4) 

• Sale of Pirelli & C. Real Estate treasury shares 17 

• Sale of 8.37% of Pirelli & C. Real Estate S.p.A. shares 36 

• Exercise of Pirelli & C. S.p.A. warrants 175 

• Exercise of Pirelli & C. Real Estate S.p.A. stock options 15 

• Goodwill of companies purchased 11 

• Other changes 4 

410 

Shareholders’ equity attributable to Pirelli & C. S.p.A. at December 31, 2004 is equal to Euros 

3,736 million (Euros 1.08 per share). This in an increase from Euros 3,429 million at December 

31, 2003 (Euros 0.99 per share). 

Net financial position 

The net financial position is a net debt position of Euros 1,469 million compared to Euros 1,745 

million at December 31, 2003, with a reduction of Euros 276 million. 

The net financial position takes into account the effects of the distribution of dividends 

(Euros 132 million), the options rights exercised by Pirelli to purchase more than 47 million 

Telecom Italia S.p.A. shares (for a total of Euros 110 million), the subscription to the capital 

increase by Eurostazioni S.p.A. (Euros 33 million) and the purchase of RCSMediaGroup shares 

(Euros 33 million), countered by the cash provided by ordinary operating activities of approx. 

Euros 230 million and by the proceeds from the placement by Deutsche Bank of Pirelli & C. 

Real Estate S.p.A. (Euros 93 million), the sale of non-strategic industrial assets (about Euros 90 

million) and the subscription of Pirelli & C. 2003-2006 warrants (Euros 175 million). 



The Group 





data 



current year 

The change in the net financial position can be explained by the following detailed analysis of 

cash flows: 


• Operating profit 380 

• Depreciation and amortization 345 

• Net investments: (303) 

- intangible assets and property, plant and equipment (309) 

- financial assets 6 

• Change in working capital 69 

• Change in provisions and other 7 

• Free cash flow 498 

• Purchase of Telecom Italia shares (110) 

• Purchase of other equity investments (66) 

• Sale of 8.37% of Pirelli & C. Real Estate S.p.A. shares 93 

• Financial income (expenses) (132) 

• Extraordinary items 20 

• Income taxes (94) 

• Dividends paid (132) 

• Other (2) 

• Net cash flows 75 

• Changes in shareholder’s equity 204 

• Total changes in shareholder’s equity 204 

• Translation adjustments (3) 

• Change in net financial position 276 

Employees 

Headcount of employees at December 31, 2004 is 37,154 (including 3,513 persons with 

temporary contracts) compared to 36,337 at December 31, 2003 (including 2,417 persons with 

temporary contracts). This is a total increase of 817 persons but with a reduction of 279 

permanent employees and an increase of 1,096 of employees with temporary contracts. 

Factories 

The number of factories decreased from 77 at December 31, 2003 to 74 at December 31, 2004. 

The reduction is in the Cables and Systems Sector as a result of the closing of San Giuliano 

Milanese (Italy), the sale of the plant for the enameled wires business in Brazil (Cerquilho) and 

the closing of Paderno Dugnano (Italy). 

Capital expenditures 

Capital expenditures total Euros 281 million compared to Euros 273 million in 2003. 

The ratio of capital expenditures to depreciation is 1.06 (0.98 in 2003). 



The Group 





data 



current year 

R&D expenditures 

R&D expenditures sustained by the Group and completely 

expensed in the statement of income went from Euros 204 

million in 2003 to Euros 198 million in 2004. R&D as a 

percentage of the industrial aggregate of net sales is 3 percent 

(3.4 percent in the prior year). 

Pirelli Labs 

Pirelli Labs, the Group’s technological research center par 

excellence, commenced numerous projects, partly in 

collaboration with qualified international partners such as, 

for instance, the Massachusetts Institute of Technology, 

CNR and the Milan Politecnico University, focusing on the 

following specific fields of activity: 

• new-generation optical components and chips based on 

nanotechnologies; 

• new materials for tyres and cables; 

• fuel cells. 

Pirelli Labs and Telecom Italia Lab, the research hub of the 

Telecom Italia group, have developed active, intensive and 

fruitful collaboration in the conduct of joint projects. 

A silicon “wafer” used at Pirelli 

Labs, the Group’s technology 

center. 

Pirelli Labs Materials Innovation 

In research projects with a short-term impact it has been 

demonstrated that the use of compounds obtained with the 

CCM (Continuous Compound Mixing) process for 

manufacturing tyres destined for sports applications makes it 

possible to achieve excellent performances, a factor confirmed 

by the number of successes on the race track. Use of this 

technology has also led to the manufacture of nanocompositebased 

compounds with an elastomeric matrix which have 

already found some interesting fields of application. 

With regard to the activities of Pirelli Energy Cables and 

Systems, some industrial trial have been successfully carried 

out with the aim of producing medium-voltage cables with 

sheaths obtained by using recycled polymers. 

Another short-term project refers to research work being 

conducted with Telecom Italia. The most important projects 

were Telemedicine and the Distributed Sensor Network (DSN). 

In particular, with regard to the first project, it has proved 

possible to record an electrocardiogram and make it available 

for remote interpretation through the TIM network. 

Excellent performance also 

achieved by racing tyres thanks to 

compounds obtained with the 

automatic CCM-Continuous 

Compound Mixing process. 



The Group 





data 



current year 

With regard to DSN, the aim of the project is to develop a new 

generation of remote monitoring systems which exploit 

innovative miniaturized sensors integrated with hi-tech 

telecommunications and data-processing systems. 

This will make it possible to obtain information with high 

value-added through in-depth, far-reaching, continuous 

monitoring in real time that is highly reliable and flexible 

at a low cost. 

Possible fields of application include: 

• Traffic monitoring 

• Air-pollution monitoring 

• Weather monitoring 

A DSN sensor for the new 

generation of remote monitoring 

systems. 

The Fuel Cells project, which is a medium-term project, 

continued both with regard to Solid Oxide Fuel Cells 

(SOFC) for power applications and the Polymer Electrolyte 

Membrane (PEM) for portable electronics. 

Collaboration activities were set up and commenced with 

various companies in the field worldwide and cooperation 

agreements are currently being discussed with leading 

international scientific institutions. 

Longer-term projects were mainly concerned with the study 

of neutrino transmission. 

Pirelli Labs Optical Innovation 

Laboratory activities concentrated on three main lines of 

research, all of which are of great importance for 

telecommunications: photonics nanotechnologies, optical 

systems and devices for access networks. 

In the field of photonics nanotechnologies, R&D was strongly 

focused on three innovative devices which, in the space of two 

years, will lead to products that have important selling 

potential. 

The first product, which will be marketed by Pirelli Broadband 

Solutions during the course of 2005, is a tunable laser for 

long-distance and regional fiber optic network applications, 

and is highly competitive in terms of performance and cost. 

The development and engineering of this product were 

completed in 2004, whereas the transfer to production is 

planned for 2005. Prototypes of this laser have already been 

given a positive assessment by some of Pirelli’s customers. 

The development of the other two products based on optical 

nanotechnologies will be completed in 2005. One is an optical 

device for routing traffic, known as the OADM. The other, 

called the Triplexer, is an integrated optical chip designed for 

The Fuel Cells project is part of 

Pirelli Labs’ medium-term range of 

activities. 

Nanotechnologies are becoming 

one of the main areas of activity at 

the Pirelli Labs laboratories. 



The Group 





data 



current year 

optical applications such as Fiber To The Home. Both have 

been designed with the aim of combining efficiency with 

competitive costs. 

As far as optical systems are concerned, Pirelli Labs 

completed development of the optical equipment for “coarse” 

wavelength multiplation used in the low-cost transport of data 

and video traffic in regional networks. This system is in the 

process of being qualified by Telecom Italia and will be 

installed on the network during the first half of 2005. 

Furthermore, work began to develop a broadband optical 

distribution system for corporate and residential LANs. 

The main feature of the new system is that it will be very 

easy to connect between the optical fibers and the optical 

receiver-transmitters. 

In the field of devices for access networks, the development of 

ADSL “modular” terminals for residential applications was 

completed in 2004. Thanks to this modular concept, the 

customer will be able to add extra functions to a basic 

terminal by inserting special modules for various functions at 

a later stage. In particular, the first phase involved the 

introduction of modules for the “Voice Over IP” function, 

using both DECT and Wi-Fi technology. Telecom Italia began 

to install these devices on its network at the end of 2004 and 

will continue to do so in 2005. Development continues of a 

set-top box for video distribution applications on IP and 

videocommunication networks. 

The DTL tunable laser for fiber optic 

telecommunications networks will 

be marketed by Pirelli Broadband 

Solutions. 

Laser 

Silicon Substrate 

Electronics 

Optical 

Fiber 

Photodiodes 

Monolithic 

Optical 

Integration 

Optical Innovation: drawing of the Triplexer for Fiber To The Home application. 



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current year 

SUBSEQUENT EVENTS 

• On January 28, 2005, an agreement was signed by the shareholders of Olimpia S.p.A. (Pirelli & 

C. S.p.A., Edizione Finance International S.A., Hopa S.p.A., Banca Intesa S.p.A. and Unicredito 

Italiano S.p.A.) amending and integrating the pacts stipulated by them in 2003. 

The integration to the agreement, in particular, gives the shareholders the right – always 

to the extent that the total does not exceed, taking into account also the shares already held 

by Olimpia and its shareholders, the ownership threshold of 30 percent of Telecom Italia 

S.p.A. share capital – to purchase Telecom Italia S.p.A. ordinary shares in the quantities 

described: 


300 million shares 

Ediz. Finance International SA/Ediz. Holding S.p.A. 100 million shares 

Hopa S.p.A. 


Banca Intesa S.p.A. 


Unicredito Italiano S.p.A. 


The Olimpia shareholders also agreed to amend certain understandings concerning the 

increase premium to which Hopa S.p.A. would be entitled in the event of the spin-off of 

Olimpia. In particular, the parties have established an all-inclusive amount of Euros 208 

million in the event the spin-off occurs as a result of a deadlock or the pact is not renewed at 

its expiration date of May 8, 2006. 

• On February 2, 2005, Pirelli Telecomunicações Cabos e 

Sistemas do Brasil S.A. – a Brazilian subsidiary of Pirelli 

Cavi e Sistemi Telecom S.p.A. – and Furukawa Industrial 

Produtos Elétricos signed an agreement to set up a joint 

venture for the manufacture of optical fibers in Brazil. The 

new company, named SPF - Socieda de Produtora de Fibras 

Ópticas S.A. is owned 51 percent by Pirelli and 49 percent 

by Furukawa; headquarters are in Sorocaba (San Paolo) at 

the current production site of Pirelli. 

Pirelli and Furukawa have decided to unite their activities in 

the manufacture of optical fibers in Brazil to take advantage 

of the opportunities that could arise from the recovery of 

the Brazilian telecommunications market: after the 

slowdown of the last few years, in fact, SPF aims to become 

the benchmark operator for the market while at the same 

conferring momentum to its growth for the future. 

The transaction is subject to the approval of the competent 

authorities. 

An agreement has been signed in 

Brazil between Pirelli and Furukawa 

to produce optical fibers at the 

Sorocaba facility. 

• In March 2005, Pirelli Cavi e Sistemi Energia, through the 

subsidiary Comergy Ltd, won an approx. Euros 25 million 

contract from Singapore SP PowerAssets Ltd (Singapore 

Power group) for a high-voltage turnkey connection to 

increase the power of the electrical grid of the Asian 

country. 

This is the second contract in one year awarded to Comergy 

in Singapore and a further confirmation of Pirelli’s world 

leadership position in the power cables sector. The projects 

entrusted to Pirelli in the country in the last year are worth 

approx. Euros 75 million. 



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current year 

The contract provides for Comergy to supply and install 

oil-filled insulated 400 kV cables, auxiliary cables and 

accessories, with the aim of expanding the power network 

in the southeast of the country. The project also includes the 

installation of cables inside a undersea tunnel being built by 

Comergy and commissioned by SP PowerAssets under a 

separate contract. 

The 400 kV cables and accessories will be manufactured in 

the Pirelli plants at Eastleigh and Bishopstoke (United 

Kingdom), whereas the auxiliary cables will be produced in 

Pirelli cable plants in Turkey and Indonesia. 

• On March 9, 2005, Pirelli Cavi e Sistemi Energia S.p.A. won 

the contract for the supply of a very high-voltage cable 

under the project for the new 380 kV connection between 

Turbigo and Rho, in the suburbs of Milan. Designed by Terna 

S.p.A., owner of more than 90 percent of the high and very 

high-voltage electrical energy transmission grid, the new 

interconnection project, worth Euros 21 million, is part of 

the program for the expansion of the national power 

transmission grid drawn up by GRTN (National 

Transmission Grid Operator) and approved by the Ministry 

of Production Activities last year. 

Pirelli Energy Cables & Systems will 

be responsible for expanding 

Singapore’s electricity grid. 

• On March 13, 2005, the Pirelli & C. Real Estate S.p.A. – 

Deutsche Bank Real Estate Global Opportunities joint 

venture grouped together with the Borletti family and 

Investitori Associati and signed the contract for the 

purchase of Rinascente S.p.A. from Eurofind Textile S.A. for 

Euros 888 million. Tamerice S.r.l. is the lead company of the 

group: a 20 percent stake is held by Pirelli & C. Real Estate 

S.p.A., 30 percent by DB, 46 percent by Investitori Associati 

and 4 percent by the Borletti family. Closing of the 

transaction, which is subject to approval by the competent 

antitrust authorities, is set to take place by the end of June 

2005. 

OUTLOOK FOR THE CURRENT YEAR 

Actions focusing on the segments with higher value-added will continue into 2005. With regard 

to industrial activities, a further increase in profitability is forecast for the three sectors in 

which the Group operates, unless external extraordinary events occur which cannot be foreseen 

at the time. However, during the year it is expected that the process to enhance the value of the 

Energy Cables and Systems Sector and Telecom Cables and System Sector may come to a 

conclusion through the involvement of institutional investors. 

In the growing market of the Tyres Sector, Pirelli expects to further improve its results by 

focusing on the high-performance tyre range, the continuation of product delocation and the 

growth of the American market. 



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current year 

As for the Energy Cables and Systems Sector, in anticipation of a resumption of investments in 

power transmission infrastructures, Pirelli is directing its attention toward increasing 

profitability by concentrating on higher-margin products. 

In the Telecom Cables and Systems Sector, where fierce price competition still dominates the 

market, Pirelli will try to improve the result in 2004 as a consequence of the recovery of the 

North American market mentioned earlier. 

Pirelli BroadBand Solutions should carry on its trend of growth in the sale of broadband access 

products. As for second-generation photonics, still in the start-up phase, R&D continues for 

innovative products which should be brought to market during the course of the year. 

Real Estate activities, after reporting a 54 percent increase in operating profit, including 

the earnings of equity investments in the two years 2003-2204, expects to see growth in 2005 in 

line with the average annual growth target set in the 2003-2005 three-year plan. 

Olimpia, thanks to the operations undertaken in 2004 and 2005, should increase its result. 

Accordingly, for 2005, the Group expects to report a further growth in profitability in all activity 

sectors. 

The Pirelli Tyres Sector expects a further improvement in 2005 by focusing on its high performance line. 





Energy sector holding 

company 

Performance by 

geographical area 

Markets 

Performance of 

the main companies 

in the energy sector 


current year 

ENERGY CABLES AND SYSTEMS SECTOR 

The highlights of the consolidated financial statements at December 31, 2004 of the Energy 

Cables and Systems Sector can be summarized as follows: 

in millions of euros 

2004 2003 

• Net sales 2,888 2,637 






• Extraordinary items - (5) 




• Net financial (liquidity)/debt position 183 354 




• Factories (number) 46* 48 

* three of these are shared with the Telecom Cables and Systems Sector 

Net sales 

Net sales amount to Euros 2,888 million, with an increase of 9.5 percent from the prior year. On 

a comparable basis (excluding the effects of foreign exchange, metal prices and the change in 

the scope of consolidation), the effective change is a decrease of 0.6 percent. 

The change in net sales is the result of the following: 

• Volumes - 0.5% 

• Prices/mix - 0.1% 

Change on a comparable basis - 0.6% 

• Foreign exchange effect - 1.2% 

• Change in scope of consolidation (Brazil enameled wires) - 0.5% 

• Metal prices + 11.8% 

Total change + 9.5% 

Europe 

North America 

South America 

Oceania 

The distribution of net sales is as follows: 


Europe (of which Italy 9%) 67% 66% 

North America 12% 12% 

South America 8% 8% 

Oceania 5% 5% 

Asia 7% 8% 

Africa 1% 1% 

Asia 

Africa 

Energy Cables and Systems: 

2004 sales by geographical area 

and product category. 

Others 

General 

Market 

Product category 2004 2003 

General Market 36% 32% 

Utilities 37% 42% 

Industrial Market 17% 18% 

Others 10% 8% 

Industrial 

Market 

Utilities 






company 



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current year 


Operating profit is Euros 119 million (4.1 percent of net sales). 

This a marked improvement compared to Euros 83 million in 

the prior year (3.1 percent of net sales). 

The change can be summarized as follows: 




• Prices (excluding metals)/mix 30 

• Volumes (1) 




• Other 2 


36 

Net income 

Net income is Euros 78 million 

compared to Euros 39 million 

in the prior year. The increase 

is due to higher operating 

profit and lower extraordinary 

expenses. 

A marked increase in operating 

profit was reported by Pirelli Energy 

Cables & Systems in 2004. 


The net financial position is a net debt position of Euros 183 million compared to Euros 354 


The improvement of Euros 171 million is attributable to higher net income, measures taken with 

regard to working capital, the policy to reduce investments and proceeds from the sale of 

properties and equity investments. 

Employees 

Headcount of employees of the Energy Sector at December 31, 2004 is 10,385 (including 666 

employees with temporary contracts). 

Compared to December 31, 2003, this is a reduction of 361 persons, including an increase of 164 

employees with temporary contracts. 

During 2004, the sale of the enameled wires plant in Brazil at Cerquilho led to a decrease in the 

headcount of 244 (29 management and staff and 215 blue-collar). 

In 2004, the project commenced to strengthen the sales function in order to achieve the following 

objectives: 

• building-up the team by improving the mix of resources; 

• redirecting the corporate culture from the product to the customer in terms of services 

rendered; 

• planning and implementation of a standard model for the process of managing orders; 

• professional training to develop technical and managerial expertise. 

The project started in Europe and is expected to be extended to the rest of the world during 

2005 beginning with an assessment of all the sales resources whose results were the basis for 

the changeover in resources. In the meantime, an extensive training program was introduced for 

all functions in order to develop an approached oriented toward the customer and service. 






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current year 

Factories 

At year-end 2004, there are 46 factories operating in the 

Energy Cables and Systems Sector (3 of which are shared with 

the Telecom Cables and Systems Sector), compared to 48 at 


At the end of the first quarter, the reorganization of the 

Submarine Cables manufacturing activities was completed and 

operations were concentrated in the Arco Felice (Italy) factory 

where production capacity was increased for Paper Cables 

and production capacity was installed for Extrusion Cables. 

At mid-year, in Italy, the San Giuliano Milanese plant was 

closed and, at the same time, the production capacity was 

increased at the Merlino factory. 

In the second half of the year, in Spain, the machinery of the 

Cavimar factory began to be moved to the new Cavinova plant 

site which will be in full operation by the end of the first 

quarter of 2005. 

On September 30, 2004, the Enameled Wires activities in Brazil 

were sold, together with the related factory at Cerquilho. 

Geographically, the factories are distributed as follows: 32 in 

Europe, 3 in North America, 5 in South America and 6 in 

Australia, Asia and Africa. 

The new Cavinova Pirelli Energy 

Cables & Systems plant at 

Villanueva y La Geltrù (Spain). 


New capital expenditures amount to Euros 57 million. 

The ratio of capital expenditures to depreciation is 0.8 

percent. 

The main projects include: 

- increased production capacity for Submarine Paper and 

Extrusion Cables (Arco Felice); 

- increased production capacity for Special Cables in Italy 

(Merlino) and China (Tianjin); 

- completion of the relocation of the Cavimar factory to the 

new Cavinova plant site (Spain); 

- first phase of the relocation of the new factory to Bratislava 

(Slovakia); 

- installation of the first line for the manufacture of MV cables 

using "Plaser" technology at the Pignataro (Italy) factory; 

- machinery upgrading to meet production and technological 

requirements (new products) and actions to improve 

production efficiency. 

Production capacity for paper and 

extrusion submarine Cables at Arco 

Felice was increased in 2004. 

Capital expenditures can be analyzed by geographical area as follows: 

Geographical Area 2004 2003 

Europe 77% 75% 



Rest of the world 6% 8% 






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current year 


In 2004, R&D activities involved 296 people and expenditures totaled Euros 32 million, 

representing 1 percent of total sales. 

The costs of the Milan area, equal to approximately Euros 6 million, refer mainly to personnel 

and, to a marginal extent, instrumentation, equipment and technological and know-how 

consultancy services. 

Energy Cables R&D continues to operate with two main objectives: to reduce product costs and 

introduce breakthrough technologies in segments with high value-added (HV, EHV, Submarine 

and Special & Industry applications). 

Collaboration continued on some research topics with both University 

Organizations/Consortiums (the Milan Politecnico University, the Universities of Bologna, 

Naples and Stuttgart), and with the various Group R&D centers. 

Significant achievements in 2004 include the following 

projects conducted by the P-Networking Center: 

1. Optopower: this refers to the development of systems to 

monitor and manage transmission networks for projects such 

as: Barajas, Basslink, China Light & Power and Wienstrom. 

2. Pit-Stop-EMC cable system: development of a screening 

system for magnetic fields produced by underground 

cables. The SSAB (Self Shielding AirBag) cable has a 

screening system incorporated in the actual cable, under 

the sheath of the AirBag. 

3. Network Technologies: activities conducted in collaboration 

with the operating company of the National Transport 

Network, with the aim of producing guidelines for the 

technical and economic analysis of installing underground 

cable systems in the National Transport Network. 

4. Network components: ongoing construction of cables, joints 

and terminations for the 400 kV class, with application in 

Vienna’s Wienstrom system, where cross-city links have been 

built using highly reliable underground CompactTM Cable 

Systems. 

Terrestrial Systems R&D: postcable-laying 

tests were conducted 

on the Barajas cable. 

For the Experimental Electric Laboratories at Eastleigh (U.K.), 

the main business support activities - qualifications, 

homologations and certifications - included, in the case of 

Submarine Systems, the qualification of the 500 kV d.c. system 

for the Neptune project and the completion of the qualification 

of the 400 kV d.c. system for the Basslink project. 

Furthermore, the Electric Laboratories completed the 

qualification of the 200 kV extruded insulator HVDC system. 

In Land Systems, activities included: for the Barajas project, 

post-cable-laying tests carried out both by Pirelli and ABB, 

qualification of the 400 kV XLPE system for the Wienstrom 

project (tests were conducted at the Gron laboratories in 

France), qualification of the 150 kV XLPE system for small 

sections (400 mm2) and qualification was started of the 400 kV 

XLPE system with a 2,500 mm2 enameled wire conductor for 

the ADWEA project. 

Submarine Power Systems R&D: its 

support activities include 

qualification of the 400 kV d.c. 

system for the Basslink project. 






company 



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current year 

In Accessories, the qualification for the IEEE standard was 

carried out on the Sixty-speed joints. 

At the Experimental Electric Laboratories, the main R&D 

projects involving new technologies regarded the following: 

• monitoring and condition assessment techniques for HV and 

EHV circuits by measuring electric parameters; 

• the study of new data transmission techniques for 

monitoring electric parameters to make diagnostic systems 

totally flexible and capable of responding to different 

logistical and geographical requirements; 

• definition of new testing and set-up technologies with the 

aim of optimizing the time-to-market of new products. 

At the Multifunctional Modules center, the most important 

projects involved all the Energy Cables markets. 

In particular: 

• Building Wire Italia, the new technology that makes cables 

fire-resistant which, once it has received IMQ approval, will 

be extended to the other affiliates; 

• military and transportation markets, development of 

compounds for high-temperature cables. The first prototypes 

will be manufactured in 2005. 

Tests for the Wienstrom project 

were conducted at the Gron 

laboratories in France. 

With regard to the work conducted by Extruded Systems 

Technologies, achievements were made in the following areas 

of application: 

• development of cables with composite Airbag/Polilam 

(Airguard) protection systems, able to withstand mechanical 

stresses in chemically aggressive environments; currently 

awaiting international certification so that the product can 

be introduced to distributors on the North American market; 

• application of special Airbag technology to cables for the 

Industrial and General market, with complete extension to 

insulated LV systems; 

• implementation of Compact insulation technology for the 

production of HV and EHV cables in China; 

• development of an electric connection system for industrial 

automation, using cables with non-conventional geometry 

and dedicated accessories of derivation (Roundflat); 

• study of the rheology of extruding systems to produce very 

high-performance LSOH cables with highly charged 

materials. 

In Accessories, too, R&D was 

intensive in 2004. 

The Extruded Systems 

Technologies center achieved 

important results in the 

development of Airbag cables. 






company 



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current year 

At the Stratified and Submarine Technology center, the 

following main development projects were completed: 

• start and qualification of the new production lines for 

medium-and high-voltage submarine cables using XLPE and 

EPR at the Arco Felice factory; 

• qualification and preparation of the HVDC and MVDC cables 

for the Basslink contract; 

• development of a new dieletric for stratified insulation 

cables (PPL); 

• preparation and qualification of the OF 400 kV cable 

prototype at Eastleigh (U.K.) for the Singapore contract; 

• development of new submarine technologies for AT cables; 

• qualification of materials suppliers for the construction of 

the OF cable for the Spain-Morocco contract. 

Four Miles Bluff 

McGaurans 

The Australian Basslink project for 

the interconnection system between 

Tasmania and the State of Victoria 

continues to be one of the Stratified 

and Submarine Technology center’s 

main projects. 

Industrial operations 

Production in 2004 was 3.5 percent higher than in 2003 and featured a mix with higher 

margins: increased production of Flexible Building Wire Cables (+14 percent), Special Cables 

(+15 percent), High/Medium-Voltage Cables (+3 percent) and a reduction in the operations of 

product lines with lower margins (Rigid BW and Low-voltage Cables). 

In the meantime, as far as efficiencies are concerned, an important reduction was achieved 

in transformation costs (-8 percent) as a result of a specific plan to improve labor efficiency 

(a 5 percent reduction in the average number of persons) and in material usage efficiency 

(an 8 percent reduction in scrape, usage and overusage). These programs will continue with the 

same intensity also in 2005. 

Materials 

As far as the trend of raw materials prices for power cables is concerned, in 2004, the following 

took place: 

• the average prices of commodities recorded sharp increases compared to 2003 due to both 

the significant rise in basic raw materials, driven by the record prices of oil, and strong 

demand, especially in China. A further increase in prices is expected in 2005 confirming the 

staying power of demand in North America, higher growth rates in the Far East and the price 

of oil which will nevertheless remain at elevated levels; 

• after a six-month period of relative stability, the prices of raw material specialties recorded 

the first increases which are forecast to continue for all of the first half of 2005. These 

increases are driven by the strong growth of demand in the Far East and insufficient 

production capacity as a result of the rationalization of plant and the cutbacks in investments 

made by the major producers in the last few years; 

• non-ferrous metals quoted on the LME registered strong price increases compared to 2003: 

45 percent for copper, 57 percent for lead and 9 percent for aluminum. The price hikes during 

the first quarter of 2004 stabilized during the course of year, confirming the strong demand 

coming from China, the Far East and North America, while there was no such corresponding 

growth in supply (refined copper, in particular), causing a constant erosion of the inventory 

levels worldwide. 






company 



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current year 

ENERGY SECTOR HOLDING COMPANY 

The statutory financial statements of Pirelli Cavi e Sistemi Energia S.p.A. for the year ended 

December 31, 2004 are summarized in the following balance sheet and statement of income: 


Balance sheet 2004 2003 

Intangible assets 3.7 3.0 

Property, plant and equipment 5.6 7.4 

Financial assets 766.7 766.6 

Net working capital (45.1) (21.4) 

730.9 755.6 

Shareholders’ equity 369.9 361.7 

Provisions 8.9 13.4 

Net financial position 352.1 380.5 

730.9 755.6 


Statement of income 2004 2003 

Production value 201.9 149.4 

Production costs: 

- raw materials and services (168.4) (123.7) 

- personnel (27.5) (25.7) 

- depreciation and amortization (4.2) (4.2) 

- other (3.0) (5.2) 

Operating loss (1.2) (9.4) 

Financial income (expenses) 14.0 (10.3) 

Share of earnings (losses) of equity investments - (18.5) 

Income (loss) before extraordinary items and income taxes 12.8 (38.2) 

Extraordinary items 0.8 8.1 

Income taxes (5.4) (7.3) 

Net income (loss) 8.2 (37.4) 






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current year 

PERFORMANCE BY GEOGRAPHICAL AREA 

Italy 

Pirelli Cavi e Sistemi Energia Italy S.p.A. operates 

in Italy. 

In general, the year 2004 was marked by price increases due 

mostly to non-ferrous metals. Net of the effect of metal 

increases, prices generally fell, with reductions in Utilities 

(Low- and Medium-Voltage) that were not balanced by 

increases in Trade & Installers and OEM & Contractors. 

The weakness of the U.S. dollar exchange rate against the 

euro continues to penalize competitiveness and margins in the 

Middle and Far East. 

As for the trend in the costs of the major raw materials, 

compared to the prior year there was an increase in the per 

unit costs of ferrous metals and other important direct 

materials such as compounds and ingredients connected with 

the increase in the price of oil. 

Volumes increased in the highmargin 

market of land installations 

for Pirelli Cavi e Sistemi Energia 

Italia. 

Care paid to the quality of service led to greater volumes and operating efficiencies; fixed 

overheads are down even net of nonrecurring components. 

In particular, the Company recorded the following business trends compared to the previous 

year: 

• in the General Market, action to increase coverage of the market for the distribution of 

electrical material has continued by stepping up promotional activities and a broader 

presence on the market. The introduction of the Afumex range was consolidated for all 

applications, from low to medium-voltage; 

• in terms of volumes and prices, the market for Medium- and Low-Voltage Power Cables 

reported a significant reduction due to a slump in demand from important customers. 

Improvements in operating costs and the level of service have partly offset this reduction; 

• High Tension cables registered lower volumes; 

• Land installations reported higher business volumes by taking advantage of the high-margin 

opportunities of this market; 

• the Accessories market, in the first half of 2004, was impacted by the drop in High-voltage 

cable volumes, yet regaining profitability through industrial and operating efficiencies. 

In the second half, there was a recovery thanks to the positive outcome of sales actions 

n the Middle and Far East, in particular in Egypt, Thailand and Malaysia, where 400 kV 

cables were delivered. All this led to a better mix and higher contribution margins. As for 

Medium-Voltage cables, domestic market volumes were continuing high and in line with 

expectations; 

• in OEM & Contractors, volumes contracted as expected due to the simultaneous closing of 

the S. Giuliano Milanese factory and the expansion of those at Merlino and Ascoli Piceno. 

Once the transition phase was completed, production volumes and sales increased in the 

second half of 2004 with higher industrial and operating efficiencies. Prices increased, even 

net of the effect of metals, while exports remain at 40 percent for the Oil & Gas sector 

(cables for submerged pumps and off-shore platforms), petrochemical and railway plants 

dedicated to new technologies (also in Italy). On the domestic market, while investments in 

infrastructures are stable, industrial investments (machine tooling, industrial automation, 

industrial electronics) and telecommunications investments remained quite depressed. 

The phenomenon of production delocalization reduces the available market. 






company 



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current year 

France 

Pirelli Energie Cables et Systemes S.A., despite the unfavorable market conditions in which 

it was forced to operate, reached its budgeted results thanks to actions to improve efficiency 

and achieve a better management over the production mix. 

In General Market, raw material price increases were offset by an improvement in the mix, 

allowing a growth in the results compared to the prior year. 

In Special Cables, the market remained stable and results improved compared to 2003, thanks 

to measures to improve industrial efficiency. 

Sales volumes generated by Power Cables are substantially stable with an improvement in 

results. 

In High-Voltage, deliveries under the STEG contract in Tunisia continued with a 30 percent 

increase in sales volumes and results that more than doubled compared to 2003. 

Automotive activities, despite market conditions that were anything but simple, registered 

volumes and results in line with those of the prior year. 

Spain 

In 2004, Pirelli Cables y Sistemas S.A. achieved good results 

thanks to the opportunities on a growing and increasingly 

competitive local market. In fact, there has been a recovery in 

the building sector and strong demand for Afumex cables. 

The market for wind installations has grown considerably and 

investments in the Utilities business increased as a result of 

the improvement in the distribution network. 

The company also obtained authorization for the 

Fuerteventura-Lanzarote (Canary Islands) submarine 

connection. 

The move from the old Cavimar factory, sold in 2001, to the 

new Cavinova factory, both at Vilanova y la Geltrú, was completed during the year. 

The sale of the enameled wire operations was concluded with the absorption of Pirelli Esmar 

S.A. and the sale of the related land. 

Hierro 

La Palma 

Gomera 

Tenerife 

Fuerte Ventura 

Gran Canaria 

Lanzarote 

The Spanish subsidiary Pirelli 

Cables y Sistemas obtained 

authorization for the Fuerteventura 

Lanzarote (Canary Islands) 

submarine connection. 

United Kingdom 

The market conditions in which Pirelli Cables Limited 

operated during 2004 were notably different from those of past 

years. 

The market grew for the first time in the last four years but 

was affected by an increase in the prices of raw materials. 

The company nevertheless managed to achieve efficiency and 

profitability despite these increases. 

The General Market displayed an improvement in results 

thanks to a better strategy and new supply contract with one 

its principal competitors. 

The U.K. Eastleigh plant is to 

produce the 400-kV Oil Filled cable 

for the Singapore contract. 

In High-Voltage Cables, notwithstanding a slow start at the beginning of the year, the business 

reached excellent production levels during the last six months thanks to the 400 kV Oil Filled 

cable contract won in Singapore. 

As a result of an efficient cost cutting program, the Power Distribution business produced 

significant results. The company continues to have its best customers on the domestic market. 






company 



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current year 

Germany 

Pirelli Kabel und Systeme Holding GmbH successfully 

managed to overcome the crisis which characterized the 

market in which it operates, partly by sharply reducing fixed 

overheads. 

The General Market had to tackle a market heavily 

influenced by pressure over prices. 

Utilities displayed a decline in sales and results, while OEM 

& Contractors abandoned unprofitable sales segments and 

increased exports. 

2004 put the operations of the 

German affiliate Pirelli Kabel und 

Systeme Holding back on target. 


Owing to a reduction in volumes on the domestic market, 

Pirelli Cables and Systems N.V. was not able to reached its 

budget figures. 

The High-Voltage area featured very modest domestic volumes. 

Some projects were postponed until 2005 and only one 

important contract for a 400 kV cable (Rotterdam) began 

toward the end of the year. 

With regard to export markets, a start began on the delivery of 

part of the 132 kV cable to Abu Dhabi. 

In Power Distribution, the domestic market remained stable 

and in line with economic developments. 

The international market registered a notable increase in the 

net sales of the High-Voltage accessories segment, especially in 

Europe and the United States. 

The Industrial Market did not produce positive results owing 

to the sharp reduction in industrial investments. 

The Dutch subsidiary Pirelli Cables 

and Systems N.V. began an 

important contract for high-voltage 

cables at the end of 2004. 

Finland 

The Finnish affiliate, Pirelli Cables and Systems OY, operates in the field of energy in 

Finland and, through its affiliates, also in Sweden and Norway. 

Compared to the prior year, sales volumes increased especially on the domestic market. The 

profitability of the company, however, decreased on account of the strong decline in prices and 

the sharp increase in raw material costs, which were only partly offset by the reduction in fixed 

overheads. 

In the Utilities market, demand for High-Voltage cables remained stable on the two main 

markets of South Europe and North America which represent 70 percent of net sales. Efforts 

continued in the strategy to penetrate new market segments. 

In Power Distribution, the company maintained its market position in Finland and the Baltic 

States, despite a higher number of competitors. 

The General Market strengthened its opportunities in both Finland and the Scandinavian 

countries, seeking new outlets in the Baltic States, whereas the Industrial and Special Cables 

operations recorded a decline in demand with negative results. 






company 



Markets 





current year 

Austria 

In Austria, Pirelli-OEKW GmbH managed to achieve a significant increase in results especially 

as a consequence of an improvement in General Market activities, despite the critical market 

scenario carried forward from last year. 

The company won a large contract in the Utilities area with the entity supplying electricity in 

Austria. This contract will also involve other affiliates in the Pirelli Group and will end in 

October 2005. 

The less-than-satisfactory results reported by Installations and Accessories were partly 

caused by the lower prices of competitors. 

Slovakia 

The positive trend of KABLO Bratislava Spol. S.R.O. was confirmed on both the domestic 

and international market. 

The market displayed a decline in prices due to production overcapacity in the Czech Republic. 

This unexpected factor and the rise in raw material prices were nevertheless compensated by 

the production of quality products and by an optimum mix. 

Having been awarded important contracts by West Slovak Utilities, Linde and Segelec proved 

decisive for maintaining market share on both the Slovakian and the Czech Republic markets. 

The investment plan was approved for the construction of the new factory near Bratislava. 

The new factory will allow production efficiencies and increase the company’s competitive 

position in the regions along the Danube. 

Hungary 

Regardless of the entry of new competitors, especially Turkish 

and Romanian rivals, MKM Magyar Kabel Muvek RT, 

the company with which Pirelli operates in Hungary, managed 

to maintain its market share in the General Market area. 

In Utilities, sales volumes were good and there was greater 

efficiency as a result of the relocation of production from the 

Budapest to the Balassagyarmat factory. 

The Hungarian affiliate MKM 

Magyar Kabel Muvek reported a 

good year in 2004, maintaining its 

market share despite fierce 

competition. 

Romania 

In Romania, where S.C. Pirelli Romania Cabluri si Sisteme S.A. operates, the economy 

exhibited signs of expansion over the prior year. 

The main clients, Electrica S.A., for the energy business, and RomTelecom, for the 

telecommunications business, continued the restructuring and privatization of their operations 

begun in previous years. 

The company gained market share in the Power business on the domestic market thanks to a 

very aggressive pricing policy, whereas margins in the Telecommunications sector declined 

considerably. 






company 



Markets 





current year 

Turkey 

The important reforms in the macroeconomic policy of the country over the last three years 

have allowed Turkey to achieve a certain degree of economic and financial stability. 

During 2004, inflation stabilized at 14 percent (exactly like last year) while the weakness of the 

Turkish lira against the euro was 4.7 percent (2.4 percent in 2003). 

Turk Pirelli Kablo ve Sistemleri A.S. continued to improve its results both from a financial 

and commercial point of view. Sales volumes increased, reaching the highest levels recorded in 

the last 40 years. 

North America 

The North American area, operated by Pirelli Power Cables and Systems USA LLC and by 

Pirelli Power Cables and Systems Canada Ltd, improved both its results and liquidity, 

despite having to operate in a market characterized by a sharp increase in raw material prices. 

The transfer of production activities from Colusa to the Abbeville (Canada), St. Jean (Canada) 

and Prescott (U.S.A.) factories has been completed, resulting in efficiency and a reduction in 

variable overheads. 

Installations achieved positive results thanks to various contracts, including those with TXU, 

Oncor and PG&E, and supply and installation activities begun in the last few months of 2004 

which will be completed in 2005. 

Brazil 

2004 was a year of consolidation for the policy of the new government, which allowed it to 

control inflationary pressure in spite of the increase in raw material prices. 

From a macroeconomic standpoint, the gross domestic product and the balance of trade grew 

with a consequent reduction in the country risk. 

In September, Pirelli Energia Cabos e Sistemas do Brasil S.A. sold the enameled wires 

activity, thus completing the restructuring of its product portfolio. 

The result, net of this sale, remains in line with last year’s result, while a strong improvement is 

registered in the financial position. 

Argentina 

In 2004, the economic situation in Argentina improved 

considerably thanks to low inflation (6.1 percent) and a stable 

exchange rate. 

Pirelli Energía Cables y Sistemas de Argentina S.A. 

posted an increase in volumes in all areas. 

General Market ended the year with a positive result, 

even after taking into account the fierce competition in this 

segment. 

In Utilities, companies resumed investments after a long 

period of crisis. The company won the contract for 

the manufacture of ACSR cables (about 4,000 km) for the 

CHOELE-CHOEL-Puerto Madryn transmission line. 

This is the most important transmission project for electrical 

energy in the country. 

Choele-Choel 

Puerto Madryn 

Pirelli Energia Cables y Sistemas 

de Argentina won the contract to 

manufacture cables for Argentina’s 

most important power transmission 

project. 






company 



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current year 

Australia 

In 2004, Pirelli Power Cables & Systems Australia Pty Ltd. reported a significant growth 

in volumes in the Power Distribution and OEM & Contractors areas thanks to substantial 

investments by the companies that had to expand their electrical grids. 

This improvement was partly offset by strong competition and the increase in raw material 

prices, copper in particular. 

Indonesia 

2004 was a difficult year for P.T. Pirelli Cable Indonesia because of a sharp decline in 

margins compared to the prior year. In spite of the fact that sales volumes remained stable, 

the results were eroded by an overall increase in costs (particularly raw material prices). 

The Energy area benefited from higher investments by national companies while some 

difficulties were recorded in the Telecom area. 

China 

Tianjin Pirelli Power Cables Co. Ltd. maintained excellent 

volume levels, exceeding expectations, in an extremely 

dynamic market like the Utilities market partly on account of 

a specific investment program for Special Cables. 

Pirelli Baosheng Cable Co. Ltd is the most important 

company in China operating in the High-Voltage business. 

Here again, in 2004, results were satisfactory despite difficult 

market conditions. 

The Chinese Tianjin plant benefited 

from a special investment program 

for Special Cables. 

MARKETS 

General Market 

Sales in 2004 increased significantly compared to the prior year (+23 percent), both in terms of 

volumes and prices. 

In all areas, with the exception of North America and the Asia Pacific markets, volumes 

increased by an average of 5 percent in the face of world demand that was generally stable or 

showed signs of a slight upturn. The increase in prices is strictly linked to the increase in the 

prices of strategic metals and, in the second half of the year, to the rise in the prices of other 

raw materials. In 2004, action was taken to improve the mix and the sales channels, which made 

it possible to focus sales on segments with higher value-added. 






company 



Markets 





current year 

Utilities 

Net sales were lower than in 2003 (-3 percent). In particular: 

- in High-Voltage Systems, in 2004, certain important projects in the high-voltage sector failed to 

materialize, since the Utilities concerned postponed some investment projects. In general, 

volumes remained stable, with demand oriented towards low-voltage products; 

- in Power Distribution, sales increased by 7 percent, despite the fact that the market in Europe 

was either stationary or depressed and increased slightly in other areas. 

The increase in the prices of strategic metals led to a rise in the prices of products but, at the 

same time, orientated demand towards lower voltage segments. This situation was tackled by 

increasing the coverage of customers and volumes (+2 percent); 

- sales of Accessories decreased compared to the prior year, both on account of the late 

delivery of some important High-Voltage projects, and because of the lower demand in the 

Medium- and Low-Voltage segments. 

This situation was met by making a careful selection of the products offered in the range, 

giving priority to those with higher value-added. 

Industrial Markets 

Sales increased compared to the prior year as a result of the combined effect of an improvement in 

the mix and the increase in prices linked also to the trend in prices of strategic metals. In particular: 

- OEMs & Contractors remained virtually unchanged at the level of volumes in 2003, in the face 

of a slight upturn in the demand and despite the planned measures of industrial restructuring. 

Furthermore, commercial penetration projects were initiated in areas with a high rate of 

growth, such as South America, North America and the Asia Pacific market for products with 

high value-added; 

- Enameled wires, which was concentrated in South America in 2004, contributed to the Group’s 

volume of business for only nine months, since it was then definitively sold to third parties; 

- Automotive sales increased by 20 percent compared to the prior year, thanks particularly to the 

dramatic rise in volumes requested in South America and the penetration of newly developing 

markets; 

- Branchement was affected by a considerable contraction of 

demand compared to the prior year. 

Submarine Power Systems 

In 2004, the operations of the Submarine Power System area 

focused on development of Basslink (the interconnection 

system between Australia and Tasmania). 

The project involves the production of 295 km of 

paper-insulated cable and 195 km of extruded cable at the 

Arco Felice (Naples) factory. Installation operations will be 

conducted by the Pirelli cable-laying vessel “Giulio Verne”. 

The overall value of the contract is approximately Euros 186 

million. In 2004, the Arco Felice factory produced 

approximately 160 km of paper-insulated cable and 170 km of 

extruded cable. The cable-laying vessel “Giulio Verne” installed 

the first 98 km of the system. 

The interconnection system 

between Spain and Morocco will 

make it possible to transmit 

approximately 700 MW between the 

two countries. 






company 



Markets 





current year 

In 2004, work began on the Spain-Morocco II contract, 

which involves the supply and installation of an 

interconnection system between Spain and Morocco. 

The system will enable power transmission of approximately 

700MW. The project involves the production of two submarine 

power cables for a total length of 57 km of 400 kV oil filled 

paper-insulated power cables at the Arco Felice factory 

and an optical cable, as well as installation. The cables 

will be installed in 2005 and 2006 by the cable-laying vessel 

“Giulio Verne”. For Pirelli, the overall value of the contract 

is approximately Euros 58 million. In 2004, Pirelli conducted 

the on-site investigation of the sea-floor, the manufacture 

of the fiber optical cable and the initial phases of the 

manufacture of the power cable. 

Pirelli also began development of the 38/66 kV tripolar power 

link and optical telecommunications link between the islands 

of Lanzarote and Fuerteventura (Spain). 

The contract is worth approximately Euros 7 million. 

The cable was produced in 2004 and the project is scheduled 

for completion in the first half of 2005. 

Finally, in 2004, activities included the supply of a total 

of 90 km of offshore cables for the Persian Gulf market 

(the Ras Gas WH4/WH7 and Al Futaisy offshore fields), 

the African market (the Shell Nigeria and ENI Congo 

offshore fields) and the Chinese market (Hyundai Heavy 

Industries for Agip). 

The supply of offshore cables for 

deep-sea oil platforms from the 

Persian Gulf to Africa to China 

continued to be an important activity 

in 2004. 

In 2004, the cable-laying vessel “Giulio Verne” continued on-site investigation of the sea-floor in view of the 

installation of the Spain-Morocco cable in 2005 and 2006. 






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current year 

PERFORMANCE OF THE MAIN COMPANIES IN THE ENERGY SECTOR 

Key data as they appear in the financial statements prepared by the boards of directors and 

approved or in the process of being approved by the respective shareholders' meetings is given 

below. 

All amounts are expressed in local currency and compared to the prior year. 

2004 2003 

Pirelli Cavi e Sistemi Energia S.p.A. - Italy (in thousands of euros) 

• Net sales 361,859 313,704 

• Net income (17,313) (20,210) 



Pirelli Energie Cables et Systèmes France S.A. - France (in thousands of euros) 

• Net sales 354,057 318,880 

• Net income 2,842 20 

• Net financial (liquidity)/debt position (51,169) (38,441) 


Pirelli Cables y Systemas S.A. (consolidated) - Spain (in thousands of euros) 

• Net sales 251,933 209,979 

• Net income 11,753 8,794 

• Net financial (liquidity)/debt position (4,387) 7,206 


Pirelli General plc - U.K. - "B1" - United Kingdom (in thousands of British pounds) 

• Net sales 421,178 353,455 

• Net income 19,260 (1,694) 



Pirelli Kabel und Systeme Holding Gmbh (consolidated) - Germany (in thousands of euros) 

• Net sales 275,890 259,893 

• Net income 3,289 (4,466) 



Pirelli Power Cables and Systems USA LLC - United States (in thousands of U.S. $) 

• Net sales 317,152 277,178 

• Net income 17,031 8,383 



Pirelli Power Cables and Systems Canada Ltd - Canada ( in thousands of Canadian $) 

• Net sales 222,473 189,890 

• Net income 6,300 10,561 

• Net financial (liquidity)/debt position 19,890 (18,349) 


Pirelli Energia Cables y Sistemas de Argentina S.A. (consolidated) - Argentina (in thousands of Argentine pesos) 

• Net sales 232,906 124,997 

• Net income 1,737 (15,827) 








company 



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current year 

2004 2003 

Pirelli Energia Cabos e Sistemas do Brasil S.A. (consolidated) - Brazil (in thousands of Brazilian real) 

• Net sales 662,822 554,470 

• Net income 33,063 16,601 



Pirelli Power Cables & Systems Australia PTY Ltd (consolidated) - Australia (in thousands of Australian $) 

• Net sales 234,385 205,100 

• Net income (2,371) 1,783 




For the current year, market conditions are expected to be substantially stable in Europe and 

South America, with signs of recovery in North America and in the Asia Pacific area, especially 

in terms of volumes and partly for prices. 

In this year, too, continuing actions will be undertaken, on the one hand, to improve production 

costs with particular emphasis on the recovery of efficiencies on materials, and in terms of both 

a reduction in production scrap and the introduction of alternative materials and, on the other 

hand, the focus on higher-margin segments. 

All of these measures should lead to an improvement in results in line with the targets fixed in 

the three-year plan. 

The Energy Cables & Systems Sector plans to introduce alternative materials and concentrate on the segments 

with the highest profit margins in 2005. 



Telecom Cables 

and Systems Sector 

Telecom sector holding 

company 



Operations 



in the telecom sector 


current year 

TELECOM CABLES AND SYSTEMS SECTOR 

The highlights of the consolidated financial statements at December 31, 2004 of the Telecom 

Cables and Systems Sector can be summarized as follows: 


2004 2003 

• Net sales 430 427 

• Gross operating profit (loss) 9 (1) 

% of net sales 2.1% n.s. 

• Operating loss (15) (39) 

% of net sales n.s. n.s. 


• Extraordinary items 11 4 

• Income taxes 3 (1) 

• Net loss (18) (56) 

% of net sales n.s. n.s. 





• Factories (number) 9 * 11 

* three of these are shared with the Energy Cables and Systems Sector 

Net sales 

Net sales amount to Euros 430 million, with a slight increase of 

0.7 percent over the prior year. 

Europe 

North America 

South America 

The change is due to: 

• Volumes + 16.4% 

• Prices/mix – 16.7% 

Change on a comparable basis – 0.3% 

• Foreign exchange effect – 1.6% 

• Metal prices + 2.6% 

Total change + 0.7% 



Europe (of which Italy 20%) 50% 50% 



Oceania 12% 12% 

Asia 9% 8% 

Africa 1% 2% 

Africa 

Telecom Cables and Systems: 

2004 sales by geographical area 

and product category. 

Optical and 

fiber cables 

Asia 

Oceania 


Copper cables 26% 24% 

Optical and fiber cables 56% 53% 

Submarine cables - 13% 

Broadband access 15% 7% 

Connectivity and other 3% 3% 

Copper 

cables 

Broadband 

access 

Connectivity 

and other 






company 



Operations 





current year 

Operating loss 

The operating loss is Euros 15 million compared to an operating loss of Euros 39 million in the 

prior year. 

The result includes costs of Euros 6 million referring to the submarine activities which are the 

subject of the agreement with Alcatel and Euros 10 million connected with the start-up of 

broadband and second-generation photonics activities. Cables and Fibers activities reported a 

breakeven in 2004 principally on account of efficiency measures put into place by management 

of the company. 

Details of the change in the operating loss are as follows: 


Operating loss 2003 (39) 

• Foreign exchange effect 1 

• Prices (excluding metals)/mix (62) 


• Production factors per unit cost 6 



• Other 11 

Operating loss 2004 (15) 

24 

Net loss 

The net loss is Euros 18 million compared to a net loss of Euros 56 million in 2003. 


The net financial position is a net debt position of Euros 301 million, in line with Euros 302 


Employees 

Headcount of employees of the sector at December 31, 2004 is 

2,058 (including 126 employees with temporary contracts). 

The change from December 31, 2003 is a decrease of 160 

persons including an increase of 80 persons with temporary 

contracts. 

In 2004, a project was instituted to renovate the sales function 

with the following objectives: 

• strengthen the team by a changeover in resources; 

• provide support to the sales function through specific training; 

• renew the sales structure; 

The main activities particularly focused on mapping the 

resources, analyses and organizational redesign with the 

implementation phase to take place during 2005. 

Operations began on January 1, 

2005 for Pirelli Broadband 

Solutions, the company operating in 

the broadband access and secondgeneration 

photonics businesses. 






company 



Operations 





current year 

Beginning January 1, 2005, Pirelli Broadband Solutions became operational. This company is 

engaged in access and second-generation photonics activities. Significant projects are underway 

to build up technical and commercial skills so as to support the important objectives of 

business development.Organizational and detailed procedures have been defined between Pirelli 

Broadband Solutions and Pirelli Labs for purposes of allowing an effective and rapid 

operational flow in order to meet the time-to-market anticipated for products and technologies. 

Factories 

At year-end 2004, there are 9 factories (3 of which are shared with the Energy Cables and 

Systems Sector), compared to 11 at December 31, 2003. The reduction is due to the closing of 

the Arco Felice and Paderno Dugnano plants. 

Geographically, the factories are distributed as follows: 5 in Europe, 1 in North America, 1 in 

South America, 1 in Australia and 1 Asia. 


New capital expenditures in property, plant and equipment amount to Euros 28 million. The 

ratio of capital expenditures to depreciation is 1.24. 

Capital expenditures can be analyzed by geographical area as follows: 


Europe 90% 91% 


Rest of the world 8% 7% 


R&D is conducted by an integrated structure of research centers and development and 

engineering units in various countries. A total of 110 persons are engaged in R&D, and 

expenditures totaled Euros 25 million, equal to 6 percent of net sales. 

In the Fiber Optics field 

During 2004, R&D activities in the sphere of fiber optics 

focused on the development of products associated with the 

BBA (Broad Band Access) distribution network, particularly 

FTTx (Fiber-to-the-curb, Fiber-to-the-home, etc.) and 

“Metropolitan Area”. 

One example of the research activities is a product which is 

able to support “Triple Play” (Voice, Cable TV and Internet) 

distribution. Because of a gain of more than 3dB on the 

threshold of a non-linear phenomenon called Stimulated 

Brillouin Scattering (SBS), this product is also particularly 

suitable for transmitting analog signals. 

Production phase of optical fiber. In 

this field, research focuses on the 

development of Broad Band Access 

products. 






company 



Operations 





current year 

As a result, it is also suitable for the transmission of analog TV via cable. 

The product has passed the experimental feasibility phase and has begun the industrial 

feasibility phase. Particular attention is being paid to ensure that it is compatible with Single 

Mode Standard (ITU-T G.652) fibers. 

A second example of development aimed at distribution network applications is the fiber with a 

lower coating diameter than normal (200 mm instead of 250 mm). The fiber has passed the 

experimental feasibility stage and is now being tested on the cable itself. Multi-loose-tube cables 

are usually used for the applications mentioned. In the cables of the latest generation each tube 

can accommodate 16 fibers of the type with the smaller diameter of coating compared to 12 

fibers with coating of the normal thickness. This is equivalent to an increase of 33 percent. 

Once testing of the cable has been completed, industrial feasibility tests will be conducted early 

in 2005. 

A third product currently being developed is the MagniLight‘ fiber. In this case, work is 

continuing to try to improve the performance of both the product (optical properties) and the 

process (production efficiency) of the fiber. 

In the Technical Cable field 

• development of compact single jacket microsheath cables 

for the Northern European access networks, with a fiber 

count of between 2 and 48 fibers and a diameter of between 

2 and 6 mm; 

• development of a range of double-jacket microsheath 

cables with a fiber count of up to 144, particularly 

resistant to tensile stresses, crush and water propagation, 

suitable for the European and North American optical 

networks; 

• development and supply of multi-loose tube cables with a 

fiber count between 12 and 84 fibers for the German 

Deutsche Telecom optical network; 

• continuation of the industrialization and mass production 

of different versions OPGWs with a central plastic tube 

inside an aluminum sheath of up to 48 fibers which, 

thanks to their small diameter and their competitive cost, 

have made it possible for various countries around the 

world to build high-voltage overhead power lines; 

• development and supply of 12-fiber “Breakout” type cables 

for interiors of buildings for the British market and 24-fiber 

“Multitight” cables for the European market in general; 

• development of a new 6-fiber optical cable for antenna 

feeders to connect the actual antenna to the “base station” 

which is connected in turn to the optical network. 

The new cables are required to replace the old, heavy 

coaxial cables (which have high attenuation values) in the 

mobile network with the new generation of optical cables. 

Thanks to their low level of attenuation, the new cables will 

provide an economical way of reducing the number and 

improving the position of expensive base stations; 

With the MagniLight optical fiber, 

both product and process 

performance continued to improve. 

In the sphere of optical cables, 

products were developed that are 

particularly resistant to tensile 

stresses, crushing and water 

propagation. 






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Operations 





current year 

• development and supply of a new type of 24-fiber aerial cable for installation on ground 

wires or phase conductors of high-voltage overhead power lines by means of multiple lashing. 

The supply includes the installation system and equipment, which were also developed 

by Pirelli; 

• development and supply of a range of cables with up to 96 pairs for ADSL (Asymmetrical 

Digital Subscriber Loop) for use in telephone exchanges, consisting of armored units with 24 

pairs with frequencies of up to 10 Mbit/s. 

Industrial operations 

In 2004, factories manufacturing telecommunications cables 

produced higher volumes than in the prior year. Volumes of 

copper cables increased by 9 percent, whereas optical fiber 

cables increased dramatically (+50 percent), due mainly to 

demand by the North American market. 

Optical fiber cable production 

increased by 50% in 2004. 

Materials 

In 2004, prices of raw materials for optical fibers fell by an average of 10 percent as a result of 

the persisting excess of production capacity which will continue into 2005. 

With regard to other raw materials, having remained fairly stable in the first half of the year, 

prices began to rise. 

This phenomenon, which is expected to continue in 2005, was driven by the high cost of basic 

raw materials, the dramatic rise in demand, particularly in the Far East, and the scarcity of 

certain raw materials, particularly steel. 

To counter-balance these price rises, efficiency measures were implemented in 2004 and will 

continue in 2005, with the aim of reducing the total cost of materials. 

Research on optical materials continues with the aim of optimizing the cost. 






company 



Operations 





current year 

TELECOM SECTOR HOLDING COMPANY 

The statutory financial statements of Pirelli Cavi e Sistemi Telecom S.p.A. for the year ended 







Net working capital 0.7 (40.0) 

251.5 179.1 



Net financial position 196.9 57.4 

251.5 179.1 



Production value 93.1 65.0 

Production costs: 

- raw materials and services (89.5) (63.5) 

- personnel (12.7) (12.2) 

- depreciation and amortization (6.9) (6.8) 

- other (1.8) (2.8) 

Operating loss (17.8) (20.3) 

Financial income (expenses) (5.2) (4.5) 

Share of earnings (losses) of equity investments (24.6) (125.8) 

Loss before extraordinary items and income taxes (47.6) (150.6) 

Extraordinary items (18.3) (4.8) 

Income taxes (0.7) (2.2) 

Net loss (30.0) (157.6) 






company 



Operations 





current year 

PERFORMANCE BY GEOGRAPHICAL AREA 

Italy 

Due to the persisting negative economic situation of the Italian 

market, 2004 was again a difficult year for Pirelli Cavi e 

Sistemi Telecom Italia S.p.A., which operates in the sector 

of telecommunications cables, produced at the factory in 

Livorno Ferraris (Vercelli). 

In the face of a further considerable fall in domestic volumes 

of optical cables, due especially to a change in strategy on the 

part of the two main domestic operators, and the persisting 

lack of investments in landline networks, the company reacted 

by developing completely new product and market segments. 

Furthermore, the Group’s decision to make the Livorno 

Ferraris factory the European production center generated an 

increase in production volumes for the affiliates. 

The reduction in terms of volumes compared to the prior year, 

despite everything, was considerable. 

The effect of the price and the mix also had a negative impact 

on overall sales, to the extent that it reported a negative 

profitability figure, despite the radical cuts made to fixed 

overheads. 

The subsidiary Fibre Ottiche Sud S.p.A. - (FOS), which 

manufactures optical fibers, reported sales that were slightly 

down compared to the prior year, despite an increase in sales 

volumes of approximately 40 percent. This factor compensated 

the further fall in prices resulting from persisting global 

production overcapacity and the impoverishment of the mix. 

Work continued to expand the factory and another section of 

new plants came on line. 

The statement of income benefited, in terms of lower 

depreciation, from the income on the partial receipt of the 

grants under the Program Contract stipulated with the 

Campania Region on investments made, and thus shows an 

improvement compared to 2003. 

Sales volumes in 2004 are up 40% 

for FOS-Fibre Ottiche Sud. 

The European optical fiber 

production center in Italy, at Livorno 

Ferraris. 

France 

For the affiliate Pirelli Télécom Câbles et Systèmes France S.A., 2004 was another difficult 

year. The continuous fall in volumes, particularly in exports, persisted, and had a negative 

impact on sales of optical cables and connectivity, whereas sales of copper cables remained in 

line with those of the prior year. 

During the period, further restructuring was carried out at the Trégastel factory and, in general, 

throughout the company. The restructuring was already generating positive results in the last 

quarter of the year. 






company 



Operations 





current year 

Spain 

Export sales of the affiliate Pirelli Telecom Cables y Sistemas España S.L. represent more 

than 80 percent of total sales. The marked weakness of the U.S. dollar against the euro in 2004, 

combined with a further fall in sales prices, led to a loss of competitiveness, especially in 

countries where the economy is linked to the dollar, and a negative economic result. Sales 

consisted almost exclusively of overhead cables (OPGW) and related accessories required for 

their installation. 

The OPGW is an optical fiber cable which is installed in HV area networks as part of the 

infrastructures of electricity companies. 

In 2004, OPGW cables were installed for the following companies: 

• Transeletrica in Romania, in collaboration with the Spanish cable installation company 

Inabensa. NZD FreeLight fibers were used for the project; 

• Sonelgaz in Algeria, with the installation of optical cables under live line conditions; 

• Comisión Federal de Electricidad in Mexico. 

The move from the old Cavimar factory, sold in 2001, to the new Cavinova factory, both located 

in Vilanova y la Geltrú, was successfully completed. The new factory constitutes a pool of 

excellence for the production of OPGW cables. 


In 2004, Pirelli Telecom Cables & Systems UK Ltd. recorded growth in all sectors compared 

to 2003. Sales of optical cables continued the positive trend begun in the second half of the 

prior year. In particular the affiliate worked closely with British Telecom on their objectives 

for the 21st century – the local production unit near Bishopstoke is well-placed for seizing the 

opportunities offered by the main PTTs. Profitability improved compared to the prior year and 

business benefited from the restructuring carried out in 2002 and from the positive sales mix 

of products with high profit margins, particularly in connectivity and the Sirocco products. 

In 2004, important contracts were acquired from the main OEMs in the infrastructures market 

with Molex and Panduit. Network Rail’s FTN project, for which Pirelli is to be the exclusive 

copper cable supplier until 2007, continued, albeit at a slower pace than in the second half 

of 2003. However, this situation was predicted by Network Rail together with an upturn in the 

supply of copper cables in 2005. 

Germany 

In 2004, Pirelli Telekom Kabel und Systeme Deutschland GmbH, the company responsible 

for the marketing of copper and fiber optical cables on the German and Dutch markets and on 

the area along the Danube and in Eastern Europe, maintained the level of performance begun in 

2003. By increasing its sales volumes compared to the prior year and operating on the mix, 

the company was able to achieve a profit of more than 8 percent of net sales. 

North America 

In 2004, the size of the North American “Outside Plant” optical cables market increased by 79 

percent compared to the prior year in terms of km of fiber sold, achieving a total of 14.0 M 

Fkm. 

The renewed demand for optical cables was led principally by investments made by Regional 

Bell Operating Companies (RBOCs) in the new fiber optic network services. 






company 



Operations 





current year 

Verizon announced upgrades in optical fiber networks and is 

proceeding with the job of laying fiber-to-the-premises (FTTP) 

or fiber-to-the-node (FTTN) networks, especially with regard to 

the new developments in legislation about unbundling. 

The positive demand for cables was counter-balanced by strong 

pressure, leading to significant reductions in average sales 

prices caused by an imbalance between supply and demand. 

Pirelli was able to improve its position by increasing the sales 

volumes of fiber kilometers to a level that was higher than 

market growth, and successfully winning new contracts with 

the leading RBOCs, thus improving its general position in this 

market segment. 

The North American market for 

“Outside Plant” optical cables 

increased by 79% in terms of 

kilometers of cable in 2004. 

In addition, it supplied optical cables to the CATV companies which requested higher levels of 

expenditure to upgrade their networks in 2004. Such diversified sales enabled our American 

affiliate to achieve a general market share of 26 percent, the highest share in the entire history 

of Pirelli’s presence in North America, positioning the Group as the second-largest supplier of 

fiber optic cables in the North American market for the second consecutive year. 

Brazil 

2004 was a year of consolidation for the Lula government, with tight control of inflation, which 

was fueled by price increases of commodities worldwide. 

With regard to economic data, GDP rose by approximately 5 percent and there was a record 

balance of trade, bringing greater stability to the economy and reducing the country risk. 

The affiliate Pirelli Telecomunicações Cabos e Sistemas do Brasil S.A. reported an 

increase in sales of approximately 8 percent in local currency, caused by an increase in the 

demand for copper cables and paralysis in the optical cables market which lasted throughout 

the year. The net result is in line with that of 2003, despite the gain in value of the euro against 

the local currency. 

Australia 

For the affiliate Pirelli Telecom Cables & Systems Australia 

PTY Limited, the year 2004 was marked by a significant growth 

in the demand for both optical and copper cables compared 

with the prior year. The spread of DSL connections sparked off 

a rise in the demand for copper cables while the optical cable 

support infrastructure was expanded further. 

Continuous reductions in the cost of materials, together with 

measures to improve efficiency made it possible for the affiliate 

to report significant growth in profitability compared to the 

prior year. 

The Pirelli Telecom Cables and 

Systems Australia PTY Limited 

plant at Dee Why, in New South 

Wales. 

China 

In 2004, Pirelli Telecom Cables Co. Ltd Wuxi improved its result compared to the prior year 

despite the persistence of difficult market conditions. The prices of cables continued to fall 

amid a generalized increase in the prices of materials (especially those associated with oil). 

Export markets were also subjected to fierce competition generated by Chinese, Korean and 

Vietnamese producers which entered the markets of countries in southeast Asia. 

The drive towards promoting new products and careful cash-flow management helped to 

control the impact of maintaining the affiliate’s position in the standard cables market. 






company 



Operations 





current year 

OPERATIONS 

Telecommunications cables and fibers 

The cables market – both optical and copper cables – continues to be affected by the negative 

economic situation. In terms of total sales, in 2004, there was a slight improvement as a result 

of pressure on prices and an increase in volumes. However, it should be emphasized that there 

were some positive signs. Although, on the one hand, North America is still affected by a sharp 

fall in prices, it is also true that there was a certain growth in volumes, especially as a result of 

the resumption of investments on the part of large telecommunications operators. On the other 

hand, in Europe, there were signs of a certain amount of movement in the market for copper 

cables for ADSL as a result of greater investments on the part of long-established telephone 

operating companies. 

The supply of optical fibers was affected by the trend in demand for telecommunications cables, 

resulting in an increase in volumes and pressure on the mix and on prices. 

Broadband Access (BBA) 

Throughout 2004, the expansion of activities in new business 

areas (Broad Band Access) doubled sales compared to the 

prior year partly as a result of a complete repositioning of 

BBA activities. 

The introduction of products for access (Gateways) achieved 

significant volumes, particularly for Telecom Italia and 

Fastweb: 

- ADSL router for Telecom Italia; 

- gateways with both ADSL and fiber VOIP technology for 

Fastweb residential use. 

Consequently, sales volumes in 2004 also doubled compared to 

those of the prior year. In 2005, sales are expected to increase 

significantly thanks to sales of photonics products, the fruit of 

research efforts over the last few years. 

New Gateway products were 

introduced in 2004 which effectively 

doubled sales compared to the prior 

year. 

Submarine cables and systems 

During 2004, the market confirmed the negative situation on a 

world scale, the typical features of which were the absence of 

infrastructure connections of any significant size, the demand 

for which has not resumed. 

During the year, Alcatel and Pirelli signed an agreement 

involving their respective sectors of submarine systems for 

telecommunications. 

Alcatel acquired some of Pirelli’s activities in this business and 

was granted certain intellectual property rights in the same 

sector. 

At the same time, Pirelli acquired a 5 percent stake in Alcatel’s 

submarine systems for telecommunications business with 

reciprocal put and call options. 

Submarine optical cables being laid 

on the sea-floor. 






company 



The transaction enabled Alcatel to benefit from new commercial opportunities and acquire 

additional intellectual property rights, thus further strengthening its position as world leader in 

the sector. 

For Pirelli the transaction described above is a further step towards focusing on cables and 

optical fibers, and on innovative products for broadband access and second-generation 

photonics while maintaining a holding in the field of submarine systems for 

telecommunications. 

Operations 





current year 

PERFORMANCE OF THE MAIN COMPANIES IN THE TELECOM SECTOR 

Key data as they appear in the financial statements prepared by the boards of Directors and 

approved or in the process being approved by the respective shareholders’ meetings is given 

below. 


2004 2003 

Pirelli Cavi e Sistemi Telecom Italia S.p.A. - Italy (in thousands of euros) 

• Net sales 67,568 78,958 

• Net loss (35,773) (12,047) 


• Shareholders’ equity 7, 339 33,112 

Pirelli Telecom Câbles et Systèmes France S.A. - France (in thousands of euros) 

• Net sales 27,416 23,385 

• Net loss (4,524) (5,958) 



Pirelli Telecom Cables Y Systemas Espana S.L. - Spain (in thousands of euros) 

• Net sales 43,026 45,736 

• Net loss (3,450) (887) 



Pirelli Telecom Cables & Systems UK Ltd - United Kingdom (in thousands of British pounds) 

• Net sales 38,519 34,303 

• Net loss 3,561 143 



Pirelli Telekom Kabel und Systeme Deutschland Gmbh - Germany (in thousands of euros) 

• Net sales 15,627 12,362 

• Net loss 624 456 

• Net financial (liquidity)/debt position (1,885) (522) 


Pirelli Communications Cable and Systems USA LLC - United States (in thousands of U.S. $) 

• Net sales 106,648 75,778 

• Net loss 3,919 (4,941) 








company 



Operations 





current year 

2004 2003 

Pirelli Telecomunicações Cabos e Sistemas do Brasil S.A. - Brazil (in thousands of Brazilian real) 

• Net sales 126,152 117,724 

• Net loss (9,081) (14,824) 



Pirelli Telecom Cables & Systems Australia PTY Ltd (consolidated) - Australia (in thousands of Australian $) 

• Net sales 84,444 77,682 

• Net loss 6,582 2,973 




Although the telecommunications sector has not displayed any 

substantial signs of recovery, there are some areas in which the 

Group is focusing its attention in order to overcome this 

negative moment in time. The fibers market, in particular, is still 

sheathed in fierce competition over prices. This has a negative 

effect on the related cables market, especially since important 

infrastructure investments by public and private entities have 

not been forthcoming for some time. 

In response to Verizon’s announced expansion of its network, 

the most important fiber-network customer in the American 

market, the affiliate Pirelli Communications Cables and Systems 

USA LLc has investments planned that will allow it to promptly 

seize advantages improving its market share. 

The Access Network, on the other hand, is showing strong 

potential for development on which the company is directing its 

efforts with the acquisition of contracts and orders both inside 

and outside Italy. 

Pirelli Cavi e Sistemi Telecom S.p.A.’s business in modules 

dedicated to broadband connections and also second-generation 

photonics has grown significantly during the three years 

2002-2004: this is all due to the continuing interest and pressing 

A Set-Top Box: one of Pirelli 

Broadband Solutions’ many new 

products in the field of systems for 

gateway access communication. 

demand by the national and international market for increasingly faster and technically capable 

gateway access communication systems. The activities dedicated to the above-described areas by 

Pirelli Cavi e Sistemi Telecom S.p.A.’s have positively responded to the growing market demand 

by global actors devoted specifically to these product lines by always continually proposing new 

personalized and technologically innovative solutions. Therefore, a start has been made in the 

process to reorganize and separate the activities: on one side, the part purely concerned with 

telecommunications cabling and fibers and, on the other, both those dedicated to the development 

of broadband access systems and those geared to the development, manufacture and marketing of 

new photonics products created and developed in the laboratories of Pirelli Labs S.p.A., with the 

latter activities being transferred to Pirelli Broadband Solutions S.p.A.. 


Tyres Sector 


Tyres sector holding 

company 

Consumer markets 

Industrial market 



in the tyres sector 


current year 

TYRES SECTOR 

The highlights of the consolidated financial statements at December 31, 2004 of the Tyres 

Sector can be summarized as follows:: 


2004 2003 

• Net sales 3,255 2,970 


% of net sales 13.9% 13.4% 




• Extraordinary items (1) (1) 








• Factories (number) 22 22 

Net sales 

Net sales for the year 2004 amount to Euros 3,255 million, 

with an increase of 9.6 percent compared to the prior year. 

The growth in volumes (+8.1 percent) is significant and 

covers all geographical areas, the price/mix (+3.4 percent) 

displayed good performance whereas the foreign exchange 

effect is negative (-1.9 percent). 

Africa, Asia, 

Oceania 

Italy 

Other European 

countries 



Italy 13% 14% 

Other European countries 43% 45% 



Africa\Asia\Oceania 13% 13% 

North America 

South America 

Tyres: 2004 sales by 

geographical area and product 

category. 

Car 

tyres 

Truck 

tyres 


Car tyres 62% 62% 

Truck tyres 28% 27% 

Motorcycle tyres 7% 8% 

Steelcord/Other tyres 3% 3% 

Steelcord/ 

Other tyres 

Motorcycle 

tyres 



Tyres Sector 


company 







current year 


Operating profit is Euros 276 million (8.5 percent of net sales) compared to Euros 220 million in 

the prior year (7.4 percent of net sales). The positive contribution by volumes, prices and mix 

along with steps taken to reduce costs, have more than offset the negative foreign exchange 

effect and the increase in both raw material costs and labor costs. 

Details of the positive change of Euros 56 million in the operating profit compared to 2003 can 

be summarized as follows: 




• Prices/mix 49 




• Depreciation (4) 

• Other (23) 


56 

Net income 

The net income is Euros 169 million after: 

- financial expenses of Euros 33 million, 

compared to Euros 45 million in 2003; 

- extraordinary expenses of Euros 1 million, 

in line with the prior year; 

- income tax expenses of Euros 73 million, 

compared to Euros 45 million in 2003. 


The net financial position is a net debt 

position of Euros 215 million. This is a 

reduction of Euros 102 million compared 

to the prior year, after paying dividends to 

the parent company of Euros 85 million. 

The decrease in the debt position is due to 

the net income for the year and the 

continuing improvement in working capital 

management. 

Sales of Pirelli Tyres increased by approximately 10% in 2004 and volumes rose in all geographical areas of 

operation. 



Tyres Sector 


company 







current year 

Employees 

Headcount of employees at December 31, 2004 is 21,513 (including 1,666 employees with 

temporary contracts and 910 temp employees). 

Compared to December 31, 2003, there was a decrease of 46 management and permanent 

staff, due to the continuation of rationalization activities and fixed overhead efficiencies, 

and an increase of 24 employees under temporary contracts and 91 temp employees to support 

the business activities with a view toward augmenting labor flexibility. 

With regard to the number of blue-collar workers, there was an increase of 1,007 persons 

(including 757 with temporary contracts and temps) due to an increase in volumes in Brazil 

and Venezuela and the “7 day” project in Venezuela. 

The first persons were also hired for the Steelcord company in Slatina (Romania). 

Other persons will continue to be hired during 2005 consistent with the operation plan 

of the factory. 

At December 31, 2004, the headcount (excluding employees with temporary contracts) 

may be analyzed as follows: 

2004 2003 

Senior executives 0.9% 0.9% 

Staff 22.4% 22.9% 

Blue-collar 76.7% 76.2% 

As far as organizational development is concerned, a strong impetus was given to the theme 

of career building in the Research and Industrial professional families. With regard to R&D, 

the professional development structure divided between technical and managerial careers by 

instituting development and resource evaluation committees became fully operational. 

In the Industrial area, a start was given to the “Living the Factory” project which involves 

various areas of resources management including Internal Communication, Training and the 

addition of young people with high potential to be trained as future factory managers. 

In reference to the development of human resources, in 2004, strong emphasis was given to 

the topic of variable compensation. The population involved in incentives was expanded and the 

economic and financial parameters for the measurement of performance was defined at all 

levels in order to guarantee an immediate correlation between the trend in company results and 

the global compensation of key persons. 

On the front of industrial relations, in 2004, labor contracts were renewed in Italy, Brazil, 

Germany, Turkey and the United Kingdom. 


Capital expenditures amount to Euros 190 million in 2004, 

with a ratio of 1.06 to depreciation and equal to 5.8 percent 

of net sales of the Tyres Sector. 

Capital expenditures in factories represent 80 percent 

of the total. This is in line with the Group’s strategy and 

market demand. The capital investments were employed 

in the development of innovative process, expansion of 

production capacity in the high-performance segment and 

the introduction of new products. 

The tyre production plant at Feira de 

Santana, in Brazil. 80% of 

investments in the Sector are 

devoted to developing new 

processes and increasing production 

capacity. 



Tyres Sector 


company 







current year 


R&D expenditures incurred in 2004 total Euros 124 million, equal to 3.8 percent of 

net sales. This activity is traditionally focused on the development of new products 

in the high-performance tyre range (UHP and runflat, SUV, motorcycle and Radial Truck tyres). 

It exploits state-of-the-art technological components and know-how coming from intensive 

research in materials, also in collaboration with Pirelli Labs, model making, structures 

and tread patterns. 

TYRES SECTOR HOLDING COMPANY 

The unconsolidated financial statements of Pirelli Tyre Holding N.V. for the year ended 






Net working capital 6.3 7.7 

739.9 683.0 


Provisions – 1.5 

Net financial position (30.3) (13.3) 

739.9 683.0 



Net earnings of affiliates 161.0 118.1 

Other income (expenses) (2.8) (1.7) 

Net income 158.2 116.4 

Pirelli Tyres R&D operates in the area of materials, modeling, tread structure and design, focusing on high 

performance products. 



Tyres Sector 


company 







current year 

CONSUMER MARKETS 

Car Tyres 

In 2004, new products were launched to renew the top-of-therange 

product portfolio to support the Pirelli brand, which is 

ever-more complete and provides a reliable benchmark for the 

market in terms of performance, quality and durability. 

In May, the new range of “Planet Zero” tyres was presented to 

the Press and dealers in Rome. This is the most prestigious and 

highly diversified portfolio of UHP tyres for high-performance 

cars and SUVs. Pirelli’s innovative portfolio of products such as 

PZero Giallo, Rosso, Nero and Corsa, which are continuing the 

trend of leadership in technological innovation presented as far 

back as 1994 by Pirelli with P Zero System, all have hi-tech 

characteristics in terms of performance and safety which are 

also the fruit of years of experience in racing. The new range 

has been enhanced by the addition of the P Zero Corsa System, 

for high-performance cars and with a truly sporting character, 

and also the Scorpion Zero Asimmetrico, used as original 

equipment on the more powerful SUVs. 

In June, Thailand hosted the world presentation of the new 

UHP Dragon tyre, which is oriented towards the consumer 

requirements in the Far East and the Pacific area. 

In Patagonia, the world Press was able to test the new Winter 

Sottozero tyre in the most extreme winter conditions. The new 

tyre, which is designed for high-performance cars, is being 

presented as the first true two-season tyre, since it gives 

maximum performance on snow and ice, on dry roads and also 

in less extreme weather conditions. Winter Sottozero is a 

demonstration of the excellent results achieved by Pirelli’s R&D 

team in using new technologies such as nanocomposite 

materials for sub-stratum compounds. 

Pirelli’s leadership in terms of technological expertise and 

performance was again confirmed by numerous successes in 

comparisons made by the specialized press in the UHP 

segment, only some of which are mentioned here. The PZero 

Nero won the test organized by the specialist German magazine 

“Auto Motor und Sport”, achieving performance of a level that 

far surpassed the best products of the competition. The same 

recognition went to the Winter Sottozero at the end of tests in 

winter conditions organized by the German Press. 

In the HP segment, Pirelli Eufori@ passed a difficult test on Run 

Flat tyres published by the specialist monthly “Quattro Ruote” 

with flying colors, achieving excellent results in the areas of 

safety and reliability under extreme conditions. 

On the wave of success achieved in 2003 with the J.D. Power 

Award in the United States, in 2004, Pirelli was honored with 

the Best Innovator 2004 Award, organized by A.T. Kearney in 

collaboration with Confindustria, for excellence in the 

integration of various dimensions of innovation. The award 

In the new Planet Zero range, 

Scorpion Zero Asimmetrico is the 

tyre destined to be used as Original 

Equipment on the more powerful 

SUV models. 

The Winter Sottozero launched in 

2004: maximum performance on 

both snow and dry road surfaces. 

Important increase for Pirelli Tyres 

Original Equipment on the North 

American market. 



Tyres Sector 


company 







current year 

constitutes a prestigious recognition of Pirelli as a Knowledge 

Company which is capable of generating value through hi-tech 

management, product and process technologies. 

In 2004, the trend of the Replacements channel differed in the 

various geographical areas. 

The Replacements channel closed 2004 on a global scale with a 

marked increase (+7 percent) in volumes compared to the prior 

year. The figure rises to 9 percent if the Pirelli brand alone is 

considered, which represents more than 90 percent of the net 

sales of Replacements. 

There was particularly significant growth worldwide in the 

highly marginal segments, such as SUV and Ultra-High- 

Performance. 

Sales of Original Equipment reported a significant increase 

during the year. This was particularly accentuated in the United 

States where the expansion of Pirelli’s presence continued with 

rising success in the segment of the more prestigious models of 

tyres, both in the car and light truck segments. 

Sales were steady on the European market, and the leadership 

position acquired in recent years with the foremost car 

manufacturers was strengthened. 

The success achieved with car makers is confirmed by the 

continued growth of the penetration of Pirelli products, both in 

terms of quality and quantity. In the year of the launch of the 

range of Planet Zero products, yet again, the P Zero Rosso 

confirmed its excellent performance by obtaining 

homologations with Alfa Romeo, Audi, Bentley, Ferrari, 

Maserati, Mercedes, Peugeot, Porsche, Saab and VW. The P6 

and the P7 (selected for the new models of Alfa Romeo, Ford, 

Lancia, Mercedes, Opel, Peugeot and VW), the P Zero Nero 

(for Alfa Romeo, Ford, Mercedes), the P Zero Corsa 

(for Ferrari, Maserati and Subaru) and the Scorpion STR 

(for Alfa Romeo and Ford) again contributed considerably to 

increasing the number of homologations obtained. 

The run-flat segment was also highly successful and was 

confirmed as a benchmark in the market, thanks to the 

prestigious homologations obtained during the year from all the 

leading car manufacturers which adopted this technology. 

On the North American market, the success of the P6 Four 

Season continued, obtaining homologation with Audi, Ford and 

Saab for the models destined for this particular market. 

Excellent results were also achieved by the P Zero Nero, which 

is supplied on the legendary Ford Mustang GT. 

The 2004 Motorsport season once more saw Pirelli involved at 

the highest level, both in competitions on the race track and 

with important partners such as Subaru (an agreement which 

has endured more than 10 years and which has proved to be 

highly successful) in the World Rally Championship, and with 

Ferrari and the new competitor Maserati in the International 

FIA GT Series. 

The Pirelli P Zero range was once 

again the protagonist in 

homologations on the most 

prestigious car models in 2004. 

The Pirelli P Zero Nero is supplied 

as Original Equipment on an 

American legend: the Ford Mustang 

GT. 

Five victories and second-place 

overall champion in the 2004 World 

Rally Championship for the timetested 

Subaru/Pirelli team. 



Tyres Sector 


company 







current year 

In the World Rally Championship, the Norwegian driver Petter 

Solberg finished in second place, having driven to victory in five 

races (New Zealand, Greece, Japan, Italy and Great Britain) 

making the Subaru-Pirelli combination the undisputed master 

on dirt roads. 

Pirelli also won 14 national rally titles, confirming its enviable 

reputation in this specialist category. This message was 

received by leading world contenders and, in the second half of 

the year, agreements were signed with Peugeot and Mitsubishi, 

who will be our partners in this year’s World Championships. 

In the FIA GT Championship, Pirelli was involved on various 

Equipped with Pirelli tyres, the 

Maserati MC12 is the new star of 

the Fia-GT Championship. 

fronts with Ferrari and the Saleen S7. Together with Ferrari, Pirelli won titles and the fastest laps, 

and the Saleen S7 was the undisputed winner at Magny Cours (France), Brno (Czech Republic) 

and Imola (Italy). The Maserati MC12 debuted in the latter race, immediately gaining a place on 

the winners’ podium and winning 2 out of the 3 following races: Oschersleben (Germany) and 

Zhuhai (China). 

The long list of successes on the race track in 2004 also includes the victory in the LMP2 Class 

of the 24-Hour Le Mans. Successful and exclusive partnerships continue with the Ferrari 

Challenge and the Maserati Trophy, both on a world scale. In 2004, Pirelli also participated in the 

GT Championships held in Italy, France and the United States. 

Motorcycle tyres 

In 2004, Motorcycle Tyres activities again achieved results that 

were better from the point of view of volumes and mix, as 

well as from the industrial and logistical point of view. These 

results were achieved in the presence of markets that showed 

lower growth than the prior year and were influenced by the 

negative effect of exchange rates against the U.S. dollar. 

The Replacements channel reported the most significant 

growth in the United States, Canada, Brazil, Italy and Great 

Britain, whereas, in terms of the market share, there were 

improvements in both North and South America and Europe, 

both in the Pirelli and Metzeler brands. Furthermore, the fact 

that sales of radial tyres were double the sales of conventional 

tyres proves that the mix is more than positive. 

In the Scooter segment, Pirelli succeeded in maintaining 

volumes despite a downturn in the market. The trend of net 

sales in the Original Equipment channel exceeded expectations, 

recording gains in market share in Europe and Japan and 

obtaining the first homologation in the United States with the 

Pirelli Sync on the Buell XB9 Lightning City X. The excellent 

sales results were also due to new products such as the Pirelli 

Diablo Corsa (supersport), Sync (radial touring) and Scorpion 

Pro (off-road) as well as the Metzeler Racetec (supersport 

racing) and Roadtec Z6 (radial sport touring). 

Then, towards the end of the year, Pirelli introduced new 

models: the Dragon Supercorsa Pro (supersport racing), the 

Diablo Strada (radial sport touring) and the new Metzeler 

Lasertec (touring), all products which will contribute to 

results in the future. 

In the racing sphere, Pirelli won the World Endurance 

Championship, the World MX1 Championship (which it won 

The homologation for the Aprilia 

RSV 1000 was one of the most 

prestigious for the Pirelli Diablo 

Corsa. 

Pirelli, the 2004 World Endurance 

Champion: Pirelli Motorcycle’s 

racing activities range from the 

Superbike and Supersport World 

Championships, the World Cross 

Championships to classics such as 

the Tourist Trophy. 



Tyres Sector 


company 







current year 

for the 44th consecutive time), the World Sidecar Cross 

Championship and the European Supersport 600 

Championship. Pirelli also took many national titles both in 

Road and Off-Road Racing, in addition to classics such as the 

Tourist Trophy and the North West 200. 

Pirelli also achieved excellent results in its capacity as Official 

Tyre Supplier for the World Superbike and Supersport 

Championships, both from the point of view of the 

increasingly high level of the quality of our products, the level 

of service provided to the teams and actual performance. 

Pirelli’s commitment has helped to relaunch these 

championships which, next year, will see the participation of 

all the leading motorcycle manufacturers, thus ensuring firstclass 

visibility for the Pirelli brand. Whereas, in 2003, Pirelli 

obtained the first MIRS homologation with the Pirelli Diablo 

Corsa on the Honda CBR 1000 RR, 2004 produced the first 

victories for MIRS with the Metzeler Racetec in the Italian SSP 

and SST 600 Championships, the Danish SSP 600 

Championship and the French Endurance 600 Championship, 

results which all express the potential of the new process. 

Racetec, Roadtec, Lasertec: 2004 

was a year full of new models for 

Metzeler. 

INDUSTRIAL MARKET 

Truck tyres 

In 2004, the market for Truck Tyres was positive for the 

Original Equipment business. In Replacements, favorable 

results were recorded in South America, the Far East, 

the Middle East and Africa, whereas there was a slight 

contraction of the market in Europe. 

Prices were repositioned on all the markets to counter-balance 

the significant increase in the costs of raw materials. 

Within the framework of its commercial scenario, Pirelli 

succeeded in maintaining its share on strategic markets by 

continuing to pursue a policy based on profitability rather 

than volume. 

The commercial product range was accompanied by a growing 

selection of operational service activities to support both 

dealers and the fleets. Pirelli’s investment policy continued to 

focus on the factories located in markets with highest growth, 

such as Brazil, Turkey and Egypt. 

Product innovation led to four new product lines being 

introduced to the European market including the PS 22, the 

new tyre for transport on dirt roads, the TQ for building sites, 

mines and rocky surfaces, the CT 85 for city use and the high 

performance Amaranto line. The latter product, in particular, 

was the focus of R&D and process activities during the year. 

The Amaranto line, which can be applied to both the Bus and 

Truck segments, uses a phase of “cross-fertilization” of the 

technology of the MIRS process and constitutes an 

important step forward in the standard of product performance. 

The Pirelli Amaranto tyre line, for 

buses and trucks, used 

technologies derived from MIRS 

to enhance product performance. 



Tyres Sector 


company 







current year 

Steelcord tyres 

The positive economic and financial performance of the 

Steelcord area in 2004 fits into a world market scenario 

dominated by pressure on volumes, especially in the second 

half of the year. Market growth settled at 6 percent on an 

annual basis (in tons) due mainly to strong demand by the 

Chinese, Eastern European and South American markets. 

Mature markets such as North America, Western Europe and 

Japan remained fairly constant. 

The increase in production capacity was achieved slightly too 

late for the market demand and combined with a reduction 

of installed capacity in the United States. This situation made 

it possible to transfer the marked increases in the prices of 

raw materials to the finished product. The price of steel 

increased by approximately 40 percent during the year and as 

much as +90 percent in the first quarter of 2005 compared to 

the first quarter of 2004. 

The gradual technological evolution of the top-of-the-range 

product has resulted in the introduction of new, lighter cords 

and has helped to improve the mix of sales and value-added 

products. 

Results in the industrial sector were also positive, with higher 

productivity in all four manufacturing facilities. 

Production capacity continued to be increased in Brazil and 

Turkey. 

Well over half the total production of steelcord in 2004 

took place in low-cost areas and the percentage is destined 

to increase further with the start-up of the fifth production 

facility at Slatina in Romania, scheduled for May 2005. 

Cord Romania, in which Continental has an investment, 

constitutes not only an opportunity to develop the production 

capacity in Europe at highly competitive costs, but also the 

consolidation of an industrial and commercial partnership 

with Drathcord Saar in Germany which began in 1972. 

The progressive evolution of high 

performance tyres has also 

necessitated improvements in the 

technology used to produce 

steelcord. 



Tyres Sector 


company 







current year 

PERFORMANCE OF THE MAIN COMPANIES IN THE TYRES SECTOR 

Key data as they appear in the financial statements prepared by the boards of Directors and 

approved or in the process of being approved by the respective shareholders’ meetings are 

given below. 


Pirelli Pneumatici S.p.A. - Italy (in thousands of euros) 

2004 2003 

• Net sales 1,369,347 1,211,998 

• Net income 15,720 12,460 



Pirelli Deutschland A.G. - Germany (in thousands of euros) 

• Net sales 703,274 643,723 

• Net income 50,709 78,038 

• Net financial (liquidity)/debt position 9,984 (86,567) 


Pirelli UK Tyres Ltd United Kingdom (consolidated) - United Kingdom - (in thousands of £) 

• Net sales 281,589 269,139 

• Net income 10,795 7,360 



Pirelli Neumaticos S.A. - Spain (in thousands of euros) 

• Net sales 291,279 287,015 

• Net income 1,845 2,377 



Turk Pirelli Lastikleri A.S. - Turkey (in thousands of euros) 

• Net sales 256,737 242,683 

• Net income 2,689 6,857 



Pirelli Pneus S.A. - Brazil (in thousands of Brazilian real) 

• Net sales 2,723,854 2,292,292 

• Net income 220,065 159,929 



Pirelli Tire Llc - United States (in thousands of U.S. $) 

• Net sales 278,107 196,124 

• Net income 24,874 13,369 


• Shareholders’ equity 19,497 (5,412) 



Tyres Sector 


company 







current year 

2004 2003 

Pirelli Neumaticos S.A.I.C. - Argentina (in thousands of U.S. $) 

• Net sales 168,951 146,942 

• Net income 14,874 11,901 



Pirelli de Venezuela C.A. - Venezuela (in thousands of U.S. $) 

• Net sales 100,077 77,860 

• Net income 12,522 7,671 




On the basis of the growth forecasts of the world tyre market, and, in particular, the premium 

segments, the Tyres Sector expects to report an increase in net sales and in operating profit in 

line with the Three-year Plan. 

A further growth in sales is expected in the Tyres Sector, particularly in the high performance line. 





Economic review 


current year 

REAL ESTATE SECTOR 

Pirelli RE is a management company which manages real 

estate companies and investment funds and non-performing 

loans in which it participates by investing in minority stakes; 

these are the asset management and fund management 

businesses. It also provides these and other clients with every 

type of specialist real estate service; this is the service 

provider business. 

Pirelli RE has developed a distinctive and innovative 

business model, thanks to its internal specialist expertise 

gained over the years and a management team of proven 

experience. 

In short, the business model allows the company to bring 

together diverse competitive advantages: 

- attract the most qualified investors and international 

operators which can entrust one single party with the 

management of all phases of their investments; over the last 

few years specialized investors have directed investment 

flows which have increased the real estate portfolio managed by the Group; 

Pirelli RE boasts assets under 

management of Euros 10.7 billion at 


- reduce the overall risk of investments, thanks to minority-owned investments in several 

companies specialized by type and use; 

- spread out investment opportunities, by investing in a greater number of operations with the 

same invested capital; 

- manage asset values that are significantly higher than the direct investment holding, 

thanks to asset management and service provider activities; 

- raise the profitability of the operations carried out thanks to asset management and the 

specialized service companies. 

The Group boasts assets managed at December 31, 2004, at market value, of Euros 10.7 billion, 

of which real estate loans total Euros 1.3 billion, and offers its services to a portfolio worth 

Euros 35.1 billion, including the management component of the FIP Fund which the Group 

manages on behalf of third parties. 

With operating headquarters in the most important domestic real estate markets, in Milan, 

Rome and Naples, and a qualified network of agents, the Group is able to operate efficiently 

throughout Italy, employing a total of over 1,500 resources. 

The ability to offer itself as the one source for the entire real estate cycle (from purchas 

to management, up to the disposal of the property) and the high degree of know-how 

in various areas of real estate operations, have led the Group to consolidate trusting 

relationships with the largest entities and business groups in Italy, as well as attract the 

most important international investment funds, which have identified Pirelli RE as the ideal 

and strategic partner for seizing investment opportunities offered by the Italian market. 







current year 

MAJOR EVENTS IN 2004 

A new series of important transactions was carried out by the Pirelli RE Group: 

• important purchases of luxury real estate portfolios for about Euros 1,120 million for 

subsequent appreciation; 

• efforts to appreciate the portfolio making it possible to generate sales to third parties and 

contributions to real estate funds for approx. Euros 4,120 million; 

• complete success of fund management activities conducted by Pirelli Real Estate SGR S.p.A. 

through the placement on the retail market of Tecla Fondo Uffici and Olinda Fondo Shops, 

listed real estate funds seeded by private contributions which closed before the end of offer 

period because of oversubscription. Besides the ones mentioned above, another two funds 

were placed on the market, reserved for qualified investors, called Cloe Fondo Uffici and 

Clarice Light Industrial; 

• stepping up of activities carried out by Pirelli Real Estate Franchising S.p.A. begun during 

2003 aimed at providing real estate and financial services to the retail market; at December 

31, 2004, there were 525 agencies under contract; 

• increase in the sales and operating profit of the service companies; 

• structuring of the sector for the management of and investment in non-performing loans and 

purchases of mortgage loan portfolios during the year for roughly Euros 1,005 million at book 

value. 

ECONOMIC REVIEW 

The highlights of the statement of income are presented 

below. 

In reading these figures, it should be pointed out that the 

aggregate production value, net of acquisitions, and the 

operating profit including the share of earnings (losses) of 

equity investments, because of the type of business conducted 

by the group, are the most important indicators expressing, 

respectively, the business volumes managed and the trend in 

results at the operating level. 


2004 2003 

Aggregate production value, net of acquisitions 1,973.2 1,525.5 29% 

Consolidated production value 559.9 649.0 

Operating profit including the share of earnings (losses) 

of equity investments 157.5 (*) 128.1 23% 

Income before extraordinary items 162.4 128.9 

Net income - attributable 128.0 102.1 25% 

(*) includes Euros 0.2 million of income from real estate funds 

Pirelli RE Franchising received a 

further boost in 2004: at year-end, 

agencies under contract totaled 

525. 







current year 

Aggregate production value 

Aggregate production value, net of acquisitions, amounts to Euros 1,973.2 million with 

a growth of 29 percent compared to Euros 1,525.5 million in 2003. Consolidated production 

value alone for the year ending December 31, 2004 is Euros 559.9 million, compared to 

Euros 649 million in 2003. 

The decrease is due, in keeping with the Group’s business model, to the growing impact of 

initiatives in minority-owned investments rather than consolidated investments. 

Operating profit including the share of earnings (losses) of equity investments 

The operating profit including the share of earnings (losses) of equity investments is Euros 

157.5 million, compared to Euros 128.1 million in 2003 (+23 percent). The increase over the twoyear 

period is 54 percent. 

Net income - attributable 

The attributable consolidated net income is Euros 128 million, compared to Euros 102.1 million, 

with a growth of 25 percent. The increase over the two-year period is 55 percent. 

Balance sheet review 


December 31, 2004 December 31, 2003 

Fixed assets 372.1 313.4 

including investments in real estate funds and investment companies 225.1 149.7 


including inventories 274.8 325.0 

Net invested capital 603.6 475.7 


including minority interest 9.6 3.2 

Provisions and contributions 48.2 41.7 

Net financial (liquidity)/debt position 35.4 9.2 

Total net invested capital financed 603.6 475.7 

Free cash flow 47.2 42.1 

Net cash flow (26.2) (21.5) 

Shareholders’ equity - attributable 

Attributable shareholders’ equity at December 31, 2004 is Euros 510.4 million compared 

to Euros 421.6 million at the end of 2003. The increase of Euros 88.8 million is mainly due 

to the difference between dividends paid (Euros 53.8 million) and the net income for the year 

(Euros 128 million), and a capital increase with share premium (Euros 14.6 million) due to the 

exercise of stock options. 







current year 


The net financial position is a net debt position of Euros 35.4 million, an improvement 

compared to Euros 40.9 million at September 30, 2004 (Euros 9.2 million at December 31, 2003). 

The change from Euros 9.2 million at the end of 2003 is due to investment activities. 

The net financial position expressed before financing by the shareholders to minority-owned 

companies is a net debt position of Euros 245.2 million compared to a net debt position of 

Euros 295.3 million at September 30, 2004 (Euros 223.7 million at December 31, 2003). 

The gearing ratio shows an improvement compared to last year and is equal to 0.47 compared 

to 0.53 at December 31, 2003. 

Fixed assets 

Fixed assets total Euros 372,1 million, compared to Euros 313.4 million recorded at the end 

of 2003, with an increase of Euros 58.7 million. 

The increase in net fixed assets is due to the value of equity investments relating both 

to Asset Management and to the area of Fund Management. With regard to Fund Management, 

Euros 34.6 million refers to the purchase by Pirelli Real Estate SGR S.p.A. of 2 percent 

of the shares of Tecla Fondo Uffici, 5 percent of the shares of Cloe Fondo Uffici and 5 percent 

of the shares of Olinda Fondo Shops. 

Net working capital 

Net working capital is equal to Euros 231.6 million, compared to Euros 162.3 million at the end 

of 2003 (+43 percent). The increase is mainly due to the payment of suppliers for properties for 

an amount of Euros 66.9 million. 


As regards the outlook for the current year, the target for the growth of operating profit, 

including the share of the earnings of equity investments, is confirmed to be line with that set in 

the Three-year Plan 2003-2005. 

For additional information on the performance of the real estate group, please refer to the 

annual report of Pirelli & C. Real Estate S.p.A.. 



Introduction 

The Group 





Tyres Sector 





Environment 


Proforma data 

Related Party 

Disclosures 







International 



Summary Data 


Resolutions 

PIRELLI & C. AMBIENTE 

At the end of 2004, the Group’s presence in the environmental 

sector was bolstered by integrating, the activities of Pirelli & 

C. Ambiente S.p.A. and Cam Tecnologie S.p.A. (now Pirelli & 

C. Ambiente Tecnologie S.p.A.), a company already controlled 

by Camfin S.p.A., in the newly-formed company Pirelli & C. 

Ambiente Holding S.p.A. (51 percent-owned by Pirelli & C., 

45.3 percent by Camfin and 3.7 percent by Centrobanca 

Sviluppo Impresa SGR). 

With regard to the company Pirelli & C. Ambiente S.p.A. a loss 

of Euros 2.2 million was reported for the year ending December 

31, 2004 compared to a loss of Euros 2.1 million in 2003. 

During the year, the company continued its activities in the 

field of renewable energy sources through the production of a 

quality fuel derived from waste (CDR-P) for the start of 

renewable energy development through the replacement of 

primary fossil fuels and in the sector of environmental 

redevelopment. 

2004 marked the completion of the start-up phase of the first 

production plant for CDR-P through the 49 percent-owned 

project consortium IDEA Granda S. Consortile r.l.: CDR-P will 

be used as fuel in a cement factory. 

From the commercial standpoint, negotiations are underway 

with cement factories and electrical energy producers to start 

CDR-P direct co-combustion projects. 

AMBIENTE 

Pirelli & C. Ambiente Holding S.p.A. 

was set up at the end of 2004, thus 

reinforcing the Group’s presence in 

the environmental sector. 

Pirelli Ambiente’s business 

continued with the production of 

CDR-P, a quality fuel derived from 

waste. 

Feeding CDR-P into the furnace of the Buzzi cement plant at Roccavione (Cuneo). 



Introduction 

The Group 





Tyres Sector 





Environment 


Proforma data 

Related Party 

Disclosures 







International 



Summary Data 


Resolutions 

INFORMATION SYSTEMS 

The most far-reaching reorganization to date of the 

information systems of Pirelli & C. S.p.A., Telecom Italia S.p.A. 

and Olivetti Tecnost S.p.A. has been completed in 2004. The 

reorganization had the aim of achieving more efficient and 

effective management of the solutions and systems associated 

with the information technology areas of the Pirelli-Telecom 

Italia Group, such as ERP, institutional legacy, e-business and 

internal portals and had begun last year with the setting up of 

the Shared Service Center consortium company. 

Activities 

• Development of portals and e-business 

There was a considerable increase in the number of visitors to the Pirelli Internet sites: 

2,500,000 more than in 2003 This was partly due to the strong development of Real Estate, 

upgrades to the Motorcycle sections, Local Sites and the Cal 2005 site. 

In the Intranet area, efforts were focused on the rollout of the Pirelli Group Portal (PGP). 

PGP came on line in the first half of 2004 and covers a population of approximately 12,000 users. 

The rollout of Noi.portal was more gradual, beginning at the end of the first half of 2004 and 

ending in December, reaching a population of approximately 72,000 users. 

In Pirelli’s e-commerce area, investments continued with the aim of improving the level its use 

and the performance of self-service applications on the Internet. This made it possible to achieve 

an increase both in the percentage of orders received and the number of hits on the sites devoted 

to trading. 

In Pirelli’s e-procurement area, migration continued towards the new Requisite catalogue and 

the platform release upgrades. This involved a massive training program, both in Italy and abroad, 

subdivided into 36 sessions attended by a total of approximately 350 participants. 

• Architectures & Infrastructures 

Activities went forward for coordinating and integrating the data transmission network. 

In particular, the analysis of the network rationalization of the networks in Spain, France and the 

U.K. was completed with the support of local facilities. In keeping with the new network 

architecture designed for the backbone in South America, the service associated with the 

backbone was assigned. The set-up of the new solution is scheduled for the first quarter of 2005. 

The dissemination of the new e-APIS 2000 architecture continued and reached a total of 

approximately 12,300 XP clients in 22 countries. As far as the e-mail service is concerned, in 

parallel, 30 Exchange 2000 servers became operational out of a total of 44 servers throughout the 

world at Pirelli facilities. In 2004, the APIS infrastructure platform had approximately 16,000 users. 

The existing Network Station Management service in Italy was extended to France and Spain. 

The set-up of the Spanish service is scheduled for January 2005. 

• Institutional systems (Corporate) 

Pirelli Internet sites in 2004 were 

visited by 2.5 million people more 

than in 2003. 

In the Administration and Finance area, activities mainly involved the alignment of Group’s 

accounting systems with new international principles (IBAN and IAS), the transfer of the 

consolidated financial statements to the HFM Hyperion release and functional extensions to the 

support systems for the Treasury. 



Introduction 

The Group 





Tyres Sector 





Environment 


Proforma data 

Related Party 

Disclosures 







International 



Summary Data 


Resolutions 

Furthermore, support was guaranteed for the Administrative functions of the Real Estate, Cables 

and Tyres sectors. 

In the area of Human Resources, the upgrade of the SAP system to the 4.7 Enterprise version was 

completed and a start was made on the insourcing process of the CSK consolidation system. 

• Pirelli Tyres 

Activities focused on aspects concerning the consolidation and the extension to other 

geographical areas of the One-Client platform and the start-up of new initiatives which are now 

possible with the new platform. Work also continued to enhance Sell-Side solutions and to extend 

the geographical and functional Datawarehouse solution. 

In particular: 

- with regard to the One-Business initiative, the work of harmonizing data and processes for 

Brazil was completed, together with the technological and infrastructural organization cloned 

from the European environment. The initiative will conclude with the rollout of the 

One-Business platform in Latin America during 2005; 

- order management based on the “Card” system with the release of the customer order 

procedure to the “Export Management” area based on the European one-client environment; 

- implementation of the new SAP procedure for Complaints management. The new procedure 

was released in most European countries; 

- under SCVT (Supply Chain Value Targeting) and PVT (Purchasing Value Targeting) initiatives 

for the review of the processes and systems of the Logistics and Purchasing functions, activities 

were focused as follows: with regard to PVT, its release to support the centralized management 

of purchasing and integration with the R&D and Quality systems and processes and, with regard 

to SCVT, focus on improving the systems supporting the processes such as Statistical 

Forecasting, Demand Planning and the release of the new management system for International 

Transportation. Additionally, work was focused on the extension to Latin America of the 

Netplanner system to the Motorcycle BU and integration with the new third-party Logistics in 

USA Car; 

- with reference to activities in the Sell-side area, initiatives associated with the CRM platform 

have made it possible to standardize and disseminate the procedures to all the European 

contact centers to manage outbound marketing campaigns. The broadband service has been 

activated for the sales force and the complaints procedure has been integrated with the SFA 

vendors’ portal; 

- with regard to e-CRM (Customer Relationship Management), the solution supporting initiatives 

such as promotions and “loyalty programs” on a European scale was enhanced. On the B2B 

Dealer platform, attention focused on an architectural review to improve performance and 

services offered to clients while, in the case of B2Fleet, tool improvements were geared to 

support the new demands (asset management and replacements management policy) of leasing 

companies. The “Sector Product Range” was completely renovated both in terms of technology 

and function. Finally, the new NETPOTS (Cars and Motorcycles) procedure to collect POTS 

orders from importers of institutional markets was released; 

- with regard to Industrial systems, the geographical and functional coverage of the 

PCS (Production Control System) system was extended for IT (completion) and UK, ES 

(Production Planning and Kanban). In the case of the SMS (Specification Management System) 

the extension focused on DE car and in Latin America. With regard to Top Sporting Activities, 

a traceability system was implemented to monitor tyres from production to the racetrack; 

- for R&D and Quality Control systems, the main releases involved One-R&D with the release of 

the PCM (Project Cost Management) system and the system for managing TTM (Tyre Test 

Management) orchestrated tests. In the case of One-Lab, the Raw Material Quality (RMQ) 

system was completed on a European scale and integrated with the LIMS and SAP systems. 



Introduction 

The Group 





Tyres Sector 





Environment 


Proforma data 

Related Party 

Disclosures 







International 



Summary Data 


Resolutions 

• Pirelli Cables and Systems Sector 

In Pirelli’s Telecom Cables & Systems Sector, the SAP models previously implemented on the 

Systems businesses for Broadband Access and Fiber optic systems (FOS) were re-engineered so 

that they correspond better to the business processes which have changed radically over the last 

few years. In addition, a new model was implemented to support the New Photonics business, so 

that it adheres both to the classic functions of the sales and purchases cycle and to those which 

support the production process. Towards the end of the year, following the announcement that 

the Systems Business would be separated from the Cables and Fibers Business, resulting in the 

setting up of a new operating company (Pirelli Broadband Solutions), measures were taken to 

segregate the activities of the two areas of business on the SAP system. 

In detail, these activities involved the following areas: 

- SAP Area: improvements to the interface with the Cable Design tool, automation of the 

process for receiving goods among EMEA affiliates, implementation of product identification 

by using labels with barcodes (UK Connectivity), implementation of functions to manage 

and archive documentation regarding product specifications (SAP PLM Systems Business), 

tracing flows of buying and selling and calculating profit margins (SAP Batch Management); 

- reporting: rollout and refinement of the implementation of the UPM tool for collecting and 

monitoring the purchasing prices of raw materials; 

- other applications: Web tool for raw materials industrialization (RMI), creation of a tool for 

project management (Portal Web Tool, document management and project tracing). 

In the Energy Cables and Systems Sector, initiatives involving IT were guided by the need of 

the business area to consolidate its ERP environments on a European scale, with a view to 

containing the maintenance and development costs of its information systems, with the principle 

aim of improving process governance and speeding up the adoption of solutions led by the central 

business area. 

The feasibility study has been completed for the implementation of a single ERP system on a 

European scale (One-Client). 

Work continued to consolidate the reporting and centralized planning system, particularly for 

monitoring the purchase prices of raw materials (UPM), selling prices, commercial backorders 

and controlling costs and contribution margins. 

The centralized planning system for sales and the logistics allocation of volumes (SEM) was 

extended and a tool was created for presenting factory Profit & Loss. 

With regard to Manufacturing, a data collection system was implemented (for Italy) with the aim 

of moving the production phases forward, generating statistics about industrial efficiency and 

supporting inventory activities for semifinished and finished products. 

With the aim of improving coordination between local and sector Logistics with regard to 

planning activities, particularly in planning the production of cables for inventory purposes (MTS), 

a new application (Demand Solution) was introduced. As far as logistics is concerned, the 

Steadynet system for intercompany flows of compounds and bare conductors was extended. 

With regard to Controlling, the procedures used in valuing inventories were consolidated by 

implementing the model applied by the Dutch and Finnish affiliates. At the same time, there were 

new developments for the planning of the report by nature of expense. 

• Pirelli Real Estate 

The Pirelli Real Estate information systems have provided support for the expansion of 

business in the sectors of Franchising and Fund Management and have extended their coverage in 

the other Group companies. In 2004, the main projects completed were as follows: 

- input of economic, financial and operating data of the various Group companies to the 

DataWareHouse of the PRE Group and automatic production of all the Tableau de Bord; 

- Management of the Business Plan for the Tiglio portfolio for services Asset Management department; 

- Internet Portal and Workflow for the Administration and Control department; 



Introduction 

The Group 





Tyres Sector 





Environment 


Proforma data 

Related Party 

Disclosures 







International 



Summary Data 


Resolutions 

- a tool for tracking and controlling activities associated with the closing of the financial 

statements for SARE; 

- unification of the business systems of the Residential and Commercial Agencies; 

- release of a CRM system for PRE Franchising; there will be further developments to the system 

in 2005; 

- automatic management of all the flows of correspondence (Input and Output) of PRE Property; 

- integration of the Residential SAP-RE and SdB systems to improve the sharing of data between 

Property and Residential Agency; 

- new version of Client/Investor Reporting managed by Property based on the corporate DWH system; 

- release of the PRE Facility business system based on SAP PM-CS integrated with the Call 

Center application; 

- implementation of the system for management of the Tecla, Cloe and Olinda real estate funds. 

Information systems associated with the real estate business recorded a strong growth in 2004. 

Safeguarding of privacy and protection of data 

In 2004, the Pirelli Group put into place important measures to ensure observance of the 

existing law on the protection of personal data. 

A specific privacy office, dedicated to the application of that law at Group level continues to 

operate under the Security Department. 

It should be pointed out, in particular, that the work for the implementation of the procedures 

aimed at the planning and execution of the actions to perfect the correct application of the 

provisions introduced by Legislative Decree No. 196 dated June 30, 2003 are in the process of 

being completed. 

Note should also be taken, in compliance with the provision of Legislative Decree No. 196 dated 

June 30, 2003, Attachment B, paragraph 26, that Pirelli & C. has proceeded to update the 

Programming Document on Security for the year 2004. 



Introduction 

The Group 





Tyres Sector 





Environment 


Proforma data 

Related Party 

Disclosures 







International 



Summary Data 


Resolutions 

HEALTH, SAFETY AND THE ENVIRONMENT 

In 2004, Pirelli again devoted considerable time and energy to 

Safety and the Environment by collaborating with about 150 

experts on this subject. 

Pirelli is well aware that “sustainability”, meant as the 

management of a company in a way that combines the 

achieving of its objectives with respect for the environmental, 

economic and social implications of future generations, is an 

enormous opportunity to develop its activities in all the 

countries in which it operates. 

In consideration of this systematic approach, Pirelli has 

reviewed and published a new policy with regard to Health 

and Safety at Work, Safeguarding the Environment and 

Corporate Social Responsibility. 

With regard to the environment, nearly 100 percent of 

Pirelli’s operating units have received ISO 14001 certification 

and the results show a constantly improving trend in specific 

consumption, despite local variations which do not alter the 

overall result, as the following tables show: 

m 3 / tons of production 

Water: specific consumption 

20 

18 

16 

14 

12 

10 

1999 

2000 

2001 

2002 

2003 

2004 

GJ/ tons of production 

Energy: specific consumption 

10 

9 

8 

7 

6 

5 

1999 

In the environmental field, almost all 

the Operating Units have now 

obtained ISO 14001 certification. 

2000 

2001 

2002 

2003 

2004 

Organic solvents - specific consumption 

Dangerous waste - specific consumption 

35 

35 

kg/tons of production 

30 

25 

20 

15 

kg/tons of production 

30 

25 

20 

15 

10 

1999 

2000 

2001 

2002 

2003 

2004 

10 

1999 

2000 

2001 

2002 

2003 

2004 



Introduction 

The Group 





Tyres Sector 





Environment 


Proforma data 

Related Party 

Disclosures 







International 



Summary Data 


Resolutions 

With regard to Health and Safety at Work, 

three years ago, Pirelli started an ambitious 

program of health and safety at work, to be 

implemented in all the operating units, in 

compliance with the measures contained in 

the international OHSAS 18001 standard. 

The aim of the program, which is coordinated 

by ad hoc committees, is, on the one hand, to 

obtain certification of a proper Management 

System at the Operating Units and, on the 

other hand, principally, to define the objectives 

for annual improvements and assess the results 

achieved. 

One of the parameters which has led Pirelli to 

regard the future development of these actions 

with a certain amount of optimism is the 

general trend of accidents in the workplace. 

5 

4 

3 

2 

1 

0 

2001 

IF 

2002 

IG 

2003 

2004 

No. of factories 

OHSAS18001 site certification situation 

25 

20 

15 

10 

5 

0 

1,500 

1,000 

500 

0 

2001 

Number of accidents 

2,000 

2002 

2003 

No. of factories certified / Year 

Total factories certified 

2001 

2002 

2003 

2004 

2004 

[The data for 2003 and 2004 includes Pirelli Real Estate] 

With regard to Corporate social responsibility, Pirelli has tackled the subject in a basic way, 

bearing in mind the organizational complexity and the geographical locations of the various 

plants. In 2004, efforts concentrated on the organization of a central governing structure (CSR 

Steering Committee – comprised of the management of the Administration and Control, Public 

and Economic Affairs, Human Resources and Health and Safety & Environment departments) 

which has the task of directing operational developments and assessing new initiatives inspired 

by international standards with regard to CSRs. 

Effectively, by following the guidelines contained in the SA 8000 international standard 

(concerning respect for human rights, the protection of minors from exploitation, respect for 

workers’ rights and guarantees of health and safety in the workplace), the Pirelli Group is moving 

towards an internal self-evaluation with the aim of highlighting potential areas of improvement. 

Furthermore, with the aim of increasingly orienting and uniforming professional behavior and 

action within the company, a document has been produced and distributed entitled “The Values 

and Code of Ethics of the Pirelli Group”. 

Finally, both “Progetto Donna”, geared to ensuring equal opportunities of professional growth 

for men and women alike, and the fact that, since June 2003, the Pirelli Group has been a No 

Smoking Company, are in line with the policies of the Group. 



Introduction 

The Group 





Tyres Sector 





Environment 


Proforma data 

Related Party 

Disclosures 







International 



Summary Data 


Resolutions 

HUMAN RESOURCES 

Headcount of the Group at December 31, 2004 is 37,154. This is an increase of 817 compared to 

the end of the prior year (with a reduction of 279 in the permanent workforce and an increase 

in the temporary workforce of 1,096). 

Headcount at December 31, 2004 can be summarized as follows: 

Sector 

Energy Cables and Systems 10,385 28.0% 

Telecom Cables and Systems 2,058 5.5% 

Tyres 21,513 57.9% 

Real Estate 1,569 4.2% 

Other 1,629 4.4% 

Geographical area 

Europe 59.2% (of which Italy 24.8%) 

North America 3.6% 

South America 25.4% 

Other 11.8% 

Composition 

Senior executives 632 1.7% 

Staff 9,855 26.5% 

Blue-collar 23,154 62.3% 

Temporary workers 3,513 9.5% 

Personnel costs during the year were Euro 1,444 million, with an increase of 5.3 percent 

compared to the prior year. Personnel costs as a percentage of net sales are 20.3 percent, 

compared to 20.5 percent in the prior year. 

With regard to the training and development of human resources, in 2004, a number of projects 

involved the various business areas of the organization at different levels: 

• Internal communication 

The new version of the Intranet Portal came online. The fact that every user has his/her own 

profile allows more specific, effective communication, since work tools are supplied along with 

key information for the activities of individual employees or the professional family to which they 

belong. 

• Corporate Social Responsibility 

In 2004, the fundamental importance of Corporate Social 

Responsibility which the Group intends to place at the center 

of its business dealings involved two main projects: 

- early in 2004, Pirelli became an entirely “No Smoking 

Company” with a complete ban on smoking, except in 

designated smoking areas; 

Translated into 13 languages and 

distributed to all Group employees, 

the Pirelli Code of Ethics orients 

and uniforms the corporate life. 



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- the Group Code of Ethics (translated into 13 languages) was drawn up and is in the process of 

being distributed to all the Group’s employees. The aim is to orient behavior and professional 

action within the Group even more decisively and uniformly. In addition, for the Italian 

companies, days of training were conducted on the spread of the Organizational Model in 

compliance with Law No. 231/2001. 

• Projects to support the Business areas 

2004 saw the implementation of numerous training and development projects to support the 

various needs of the Pirelli Businesses: 

- expansion of the Commercial function of the Energy Cables business through measures 

designed to organize, train and improve the mix of resources; 

- expansion of the Industrial area of the Tyres business, through internal communication, training 

and development in factories and the introduction of young talent for whom an international 

course has been charted, enabling them to develop their skills and become the middle 

management of the future; 

- the creation of training courses aimed at the professional employees working in the 

Administration & Control and Finance functions of the various Group business areas; 

- the organization of training sessions focusing on the economic and social development taking 

place in China, with the aim of supporting the start of Pirelli’s activities in this area 

• Development and training of talented resources 

The “Talent Development Portal” was designed and implemented so that, in 2005, Management 

will be able to benefit from having access to real-time information online about the status of 

turnover of management and the profiles of resources regarded as having high development 

potential in all the affiliates. 

Finally, in 2004, institutional development and training programs were created especially for 

Talented resources. During the year, overall, approximately 150 people from all the countries in 

which the Group companies operate were involved in a structured course of development and 

support for resources with high potential that has been running for the last 8 years. 

In 2004, about 150 people from all the countries took part in training and development projects created specially 

for talented resources. 



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The Group 





Tyres Sector 





Environment 


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Disclosures 







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Summary Data 


Resolutions 

PROFORMA DATA 

Proforma consolidated financial data assuming the line-by-line consolidation 

of Olimpia S.p.A. and the use of the equity method to value the investment in 

Telecom Italia S.p.A.. 

Proforma consolidated financial data at December 31, 2004 of Pirelli & C. S.p.A. is presented 

below, assuming the consolidation line-by-line of Olimpia S.p.A. and the use of the equity 

method to value the investment in Telecom Italia S.p.A.. 


Proforma adjustments 

Consolidated Elimination of Olimpia S.p.A Adjustments to Consolidation Total Proforma 

financial Olimpia S.p.A. line-by-line Olimpia financial adjustments and proforma consolidated 

statements 2004 net result consolidation statements to take valuation of adjustments financial data 

Pirelli & C. attributable to into account the investment in 2004 

S.p.A. (1) Pirelli & C. valuat. made by Pirelli Telecom Italia S.p.A. Pirelli 

S.p.A. (50.4%) when the merger using the equity & C. S.p.A. 

surplus was allocated method (2) 

Condensed statement of income 

• Net sales 7,114 - - - - - 7,114 

• Operating profit 380 - (1) - - (1) 379 

• Financial income (expenses)/valuat. 

adjustments to financial assets (32) (8) 17 - (292) (283) (315) 

• Extraordinary items 20 - - - - - 20 

• Income taxes (94) - - - - - (94) 

• Net income (loss) 274 (8) 16 - (292) (284) (10) 

• Net income (loss) - attributable to 

Pirelli & C. S.p.A. 217 (8) 8 - (147) (147) 70 

Goodwill amortization effect 3 - - - 337 337 340 

Net income (excluding goodwill 

amortization) 277 (8) 16 - 45 53 330 

Net income (loss) - attributable to 


(excluding goodwill amortization) 220 (8) 8 - 23 23 243 

Reclassified balance sheet 

• Fixed assets 6,112 (8) 9,561 (1,245) (5,528) 2,780 8,892 

• Net working capital 456 - 30 - - 30 486 

• Total net invested capital 6,568 (8) 9,591 (1,245) (5,528) 2,810 9,378 

Financed by: 

• Shareholders’ equity 4,088 (8) 6,340 (1,245) (5,528) (441) 3,647 

– of which shareholders’ equity - 

– attributable to Pirelli & C. S.p.A. 3,736 (8) 3,195 (627) (4,049) (1,489) 2,247 

• Provisions 1,011 - - - - - 1,011 

• Net financial (liquidity)/ 

debt position 1,469 - 3,251 - - 3,251 4,720 

(1) Pirelli & C. S.p.A. consolidated financial statements (investment in Olimpia S.p.A. accounted for using the equity method) 

(2) proforma data (line-by-line consolidation of Olimpia S.p.A. and equity method valuation of Telecom Italia S.p.A.) 

The proforma consolidated financial data has been prepared using the statutory financial 

statements of Olimpia S.p.A. at December 31, 2004 and the consolidated financial statements of 

the Telecom Italia Group at the same date. 

The principal proforma adjustments included in the above table are as follows: 

• in the column “Elimination of Olimpia S.p.A. net result attributable to Pirelli & C. S.p.A. 

(50.4%)”: elimination of the statement of income and balance sheet effects of valuing Olimpia 

S.p.A. with the equity method in the Pirelli & C. S.p.A. consolidated financial statements at 

December 31, 2004; 



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Resolutions 

• in the column “Olimpia S.p.A. line-by-line consolidation”: inclusion of the assets, liabilities, 

revenues and costs resulting from the financial statements for the year ended December 31, 

2004 of Olimpia S.p.A., attributing the share of net equity and results of operations to the 

minority interest; 

• in the column “Adjustments to Olimpia financial statements to take into account the valuation 

made by Pirelli when the merger surplus was allocated”: reversal of the writedown made by 

Olimpia in Holinvest (Euros 143 million). Also considered was the effect of the allocation of 

the Pirelli & C. S.p.A. merger surplus (Euros 1,388 million). The net impact of the two 

adjustments (Euros 1,245 million) was booked as a deduction of the goodwill posted by 

Olimpia on the investment in Telecom Italia S.p.A.; 

• ∑ in the column “Consolidation adjustments and valuation of investment in Telecom Italia 

S.p.A. using the equity method”: inclusion of the effect of accounting for Telecom Italia S.p.A. 

using the equity method, giving rise to a negative valuation adjustment of Euros 292 million, 

of which Euros 195 million relates to the amortization of implicit goodwill for twelve months 

out of a total twenty-year period, Euros 85 million to Olimpia S.p.A.’s share of the 2004 net 

income of the Telecom Italia Group and Euros 182 million to the reversal of Telecom Italia 

S.p.A. dividends collected by Olimpia. 

In order to represent the diluting effect of Euros 2,250 million deriving from the reduction of 

Olimpia S.p.A.’s percentage holding in Telecom Italia S.p.A. following the merger of Olivetti 

S.p.A. and Telecom Italia S.p.A., from 28.5 percent at December 31, 2002 to 7.4 percent 

(referring to the total capital issued) at December 31, 2003, the amount was directly deducted 

from shareholders’ equity. 

The “goodwill amortization effect” on the net result is detailed as follows: 

• in the column “Consolidated financial statements at December 31, 2004 Pirelli & C. S.p.A.”, 

the amount of Euros 3 million refers to the amortization charge for the year on the goodwill 

booked by Pirelli & C. S.p.A. in respect of Olimpia S.p.A.; 

• in the column “Consolidation adjustments and valuation of investment in Telecom Italia S.p.A. 

using the equity method”, the amount of Euros 337 million includes Euros 195 million for the 

goodwill booked by Olimpia S.p.A. in respect of Telecom Italia S.p.A. and Euros 142 million for 

the original goodwill booked by Olivetti S.p.A. in 1999 in respect of Telecom Italia S.p.A.. 

A comparison of shareholders’ equity and net debt between the consolidated financial 

statements of Pirelli & C. S.p.A. and the proforma consolidated financial data of Pirelli & C. 

S.p.A. at December 31, 2004 and December 31, 2003 is presented below, assuming: 

• the line-by-line consolidation of Olimpia S.p.A. and the valuation of the investment in Telecom 

Italia S.p.A. using the equity method; 

• the line-by-line consolidation of both Olimpia S.p.A. and the Telecom Italia Group. 


Shareholders’ Net debt Net debt/ Shareholders’ 

equity Shareholders’ equity -Pirelli 

equity & C. S.p.A. 

2004 2003 2004 2003 2004 2003 2004 2003 

Pirelli & C. S.p.A. Group: 

consolidated financial statements 4,088 3,678 1,469 1,745 0.36 0.47 3,736 3,429 

Pirelli & C. S.p.A. Group: proforma 

consolidated data with Olimpia S.p.A. 

consolidated line-by-line and 

Telecom Italia S.p.A. valued using the 

equity method 3,647 3,524 4,720 5,023 1.29 1.43 2,247 2,089 

Pirelli & C. S.p.A. Group: proforma 

consolidated data with Olimpia S.p.A. and 

Telecom Group consolidated line-by-line 21,857 22,362 34,245 38,369 1.57 1.72 2,247 2,089 



Introduction 

The Group 





Tyres Sector 





Environment 


Proforma data 

Related Party 

Disclosures 







International 



Summary Data 


Resolutions 

RELATED PARTY DISCLOSURES 

Related party transactions, including intragroup transactions, are neither unusual nor 

exceptional but fall under the normal business operations of the companies of the Group. Such 

transactions, when not concluded at standard conditions or dictated by specific laws, are in any 

case conducted at arm’s length. 

The effects deriving from the transactions between Pirelli & C. S.p.A. and its subsidiaries are 

disclosed in the financial statements of the parent company and in the notes, and, as with the 

intragroup transactions among subsidiaries, are eliminated upon the preparation of the 

consolidated financial statements. 

For purposes of complete disclosure, transactions in 2004 refer to the following: 

1. Pirelli & C. S.p.A. Group and Telecom Italia S.p.A. Group: 

• revenues for goods and services, relating to the supply of telecommunications cables 

and services rendered by Pirelli Cavi e Sistemi Telecom Italia S.p.A., Pirelli & C. S.p.A., 

Shared Service Center s.c.r.l. and Pirelli & C. Real Estate S.p.A. (Euros 238 million); 

• costs for goods and services, mainly relating to telephone and computer services and the 

supply of electrical energy (Euros 43 million); 

• trade receivables, relating to the supply of the goods and services described above 

(Euros 89 million); 

• trade payables, relating to telephone and computer services and the supply of electrical 

energy described above (Euros 10 million); 

2. Pirelli & C. S.p.A. Group and Camfin S.p.A. Group: 

• revenues for goods and services, relating to services rendered by companies of Pirelli & 

C. Real Estate S.p.A. group (Euros 1.2 million); 

• costs for goods and services, mainly relating to the supply of natural gas 

(Euros 14.5 million); 


(Euros 2.1 million); 

• trade payables, relating to the supply of natural gas described above (Euros 8.3 million). 

3. Pirelli & C. S.p.A. Group and the company FC Internazionale Milano S.p.A.: 

• revenues for goods and services, relating to services rendered by Polo Viaggi S.p.A. 

(Euro 1.2 million); 

• costs for goods and services, mainly relating to sponsorship costs by Pirelli & C. S.p.A. 




• trade payables, relating to the supply of services described above (Euro 1.1 million). 



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The Group 





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Environment 


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Disclosures 







International 



Summary Data 


Resolutions 

EQUITY INVESTMENTS HELD BY DIRECTORS, 

STATUTORY AUDITORS AND GENERAL MANAGERS 

Pursuant to article 79 of Consob Regulation approved by resolution No. 11971 dated May 14, 1999, 

the following information is provided as regards the equity investments held in the company 

Pirelli & C. S.p.A., and its subsidiaries, by the Directors, Statutory Auditors and General Managers, 

as well as spouses, not legally separated, and minor children, either directly or through 

subsidiaries, trustee companies or individual persons, resulting from the shareholders’ register at 

December 31, 2004, from notices received or other information acquired from the same Directors, 

Statutory Auditors and General Managers. 

Name Company in which No. of shares held No. of shares No. of shares No. of shares held 

investment held at prior year-end purchased / sold / at current year-end 

subscribed / subscribed / 

exchanged exchanged 

Tronchetti Provera Pirelli & C. 8,280 - - 8,280 

Marco Pirelli & C. 

(indirect ownership) 790,824,664 (1) 104,646,507 10,950,000 884,521,171 

Pirelli Ambiente 

(indirect ownership) - 10,478,800 (1) - 10,478,800 

Pirelli Alberto Pirelli & C. 18,000 3,375 - 21,375 

Puri Negri Carlo 

Alessandro Pirelli & C. 40,000 - - 40,000 


Real Estate S.p.A. 605,710 - 605,710 - 


Real Estate S.p.A. 

(indirect ownership) 579,411 (2) - 579,411 - 

Buora Carlo Pirelli & C. 68,688 - - 68,688 

Ligresti Giulia Maria Pirelli & C. 

Real Estate S.p.A. 10 (3) - - 10 

Moratti Massimo Pirelli & C. 5,314,284 2,226,181 7,540,465 


(indirect ownership) 31,381,091 (4) - 4,208,009 27,173,082 

Orlando Luigi Pirelli & C. 17,416 - - 17,416 

Presutti Ennio Pirelli & C. 40,000 - - 40,000 

Sozzani Vincenzo Pirelli & C. - ordinary 87,106 - - 87,106 

Pirelli & C. - savings 598 - - 598 

Battista Valerio Pirelli & C. 10,089 - - 10,089 

De Conto Claudio Pirelli & C. 53,916 - - 53,916 

Gori Francesco Pirelli & C. 15,072 - 15,072 - 

Guatri Luigi Pirelli & C. 133,332 (3) - - 133,332 

(1) Shares held through Camfin S.p.A. 

(2) Shares held through Partecipazioni Finanziarie S.r.l. 

(3) Shares held through spouse 

(4) Shares held through CMC 



Introduction 

The Group 





Tyres Sector 





Environment 


Proforma data 

Related Party 

Disclosures 







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Summary Data 


Resolutions 

STOCK OPTION PLANS 

No new stock option plans were introduced in 2004. 

Pirelli & C. S.p.A. has two stock option plans outstanding destined for the senior executives and 

staff of the same company and other companies in the Group which were granted option rights, 

not transferable to third parties, for the subscription/purchase of Pirelli & C. S.p.A. ordinary 

shares. 

The following disclosure is provided on the change in the above plans called Pirelli to People 

and Group Senior Executives. 

Features of the plan 

Beneficiaries at December 

31, 2004 

Conditions for exercising 

options 

Subscription/purchase 

price per share 

Pirelli to People 

Option rights granted, non-transferable 

to third parties, for the subscription of 

future new issues of Pirelli & C. 

ordinary shares or, as decided by the 

latter, for the purchase of treasury 

shares of Pirelli & C.. 

530 employees (senior executives, 

cadres, employees with a high potential) 

of the companies of the Group. 

Originally 725 persons at the date of 

approval of the plan. 

Continuance of employment. 

Each option right granted gives the 

right to subscribe/purchase one Pirelli 

& C. ordinary share at the price of 

Euros 1.150 (1). 

Group Senior Executives 

Option rights granted, non-transferable to third 

parties, for the subscription of future new issues 

of Pirelli & C. ordinary shares or, as decided by 

the latter, for the purchase of treasury shares of 

Pirelli & C.. 

40 senior executives of the companies of the 

Group. 

Originally 51 persons at the date of approval of 

the plan. 

(a) continuance of employment, and (b) the 

reaching, in the two-year period 2001-2002, of 

specific targets, assigned to each beneficiary. 

Each option right granted gives the right to 

subscribe/purchase one Pirelli & C. ordinary 

share at the price of Euros 1.150 (1). 

Period for exercising 

options 

Up to nine years from the date the 

options are granted (which took place 

on November 5, 2001), but not before 

one year has passed from that date for 

50 percent of the options granted, two 

years for another 25 percent and three 

years for the remaining 25 percent. 

As regards the options granted on November 5, 

2001, up to nine years from the date the options 

are granted, but not before one year has passed 

from that date for 50 percent of the options, two 

years for another 25 percent and three years for 

the remaining 25 percent. For the options 

granted definitively on May 10, 2002, up to May 

31, 2009 but not before June 1, 2002 for 50 

percent of the options and not before January 1, 

2003 for the remaining 50 percent. 

Maximum number of 

options for which the offer 

was open at December 31, 

2003 

39,112,407, options equal to about 1.19 

percent of outstanding ordinary shares 

destined for 570 beneficiaries. 

17,853,283 options equal to about 0.52 percent of 

outstanding ordinary shares destined for 41 

beneficiaries. 

1) This amount was changed (from Euros 1.284) on the basis of the adjustment factor established by AIAF on February 7, 2005 

following the capital increase voted by the extraordinary shareholders' meeting of January 21, 2005, in accordance with the 

provisions of the Regulations for these Stock Option Plans in the event of transactions involving share capital. 



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Environment 


Proforma data 

Related Party 

Disclosures 







International 



Summary Data 


Resolutions 

Maximum number of 

options for which the offer 

was open at December 31, 

2004 

Options expiring during the 

year as a result of persons 

leaving the Group 

Shares issued during the 

year 


36,826,541, options equal to about 1.11 

percent of outstanding ordinary shares 

destined for 530 beneficiaries. 

2,285,866 

None 

Table 1 Year 2004 


Numbers Annual average Market price 

of shares exer. price in € in € 

Options existing at 1/1/2004 39,112,407 1.284 0.82 

Options granted during the 

period - - - 

(Options exercised during 

the period) - - - 

(Options forfeited during 

the period due toperson 

leaving group) 2,285,866 - - 

Options existing at 12/31/2004 36,826,541 1.284 (1) 0.99 


17,399,309, options equal to about 0.52 percent 

of outstanding ordinary shares destined for 40 

beneficiaries. 

453,974 

The following tables show the changes in the above plans, the number of option rights and the 

exercise price. 

None 

Year 2003 



43,084,400 (1) 1.284 0.67 

- - - 

- - - 

3,971,993 - - 

39,112,407 1.284 0.81 

(1) Balance at August 4, 2003 post-merger 

Table 2 Options granted - existing at 12/31/2004 

Exercise prices Residual contractual life Of which exercisable 

> 2 years * Total from November 5, 2004 

€ 1.284 (1) 36,826,541 36,826,541 36,826,541 

* up to November 5, 2010. 

(1) This amount was changed to Euros 1.150 on the basis of the adjustment factor established by AIAF on February 7, 2005 





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The Group 





Tyres Sector 





Environment 


Proforma data 

Related Party 

Disclosures 







International 



Summary Data 


Resolutions 

Table 1 Year 2004 



Options existing at 1/1/2004 17,853,283 1.284 0.82 

Options granted during the period - - - 

(Options exercised during 

the period) - - - 

(Options forfeited during 

the period due toperson 

leaving group) 453,974 - - 

Options existing at 12/31/2004 17,399,309 1.284 (1) 0.99 

(1) Balance at August 4, 2003 post-merger 


Table 2 Options granted - existing at 12/31/2004 

Exercise prices Residual contractual life Of which exercisable 

> 2 years * Total from November 5, 2004 

€ 1.284 (1) 17,399,309 17,399,309 17,399,309 

Year 2003 



19,355,190 (1) 1.284 0.67 

- - - 

- - - 

1,501,907 - - 

17,853,283 1.284 0.81 

* up to May 31, 2009 

(1) This amount was changed to Euros 1.150 on the basis of the adjustment factor established by AIAF on February 7, 2005 



The following table indicates the number of option rights granted under the aforementioned 

incentive plans, held at December 31, 2004, directly and indirectly, by the members of the Board 

of Directors, the Board of Statutory Auditors and the General Managers. 

Options held Options granted Options exercised Options held 

at 1/1/2004 in 2004 in 2004 at 12/31/2004 

Name Numbers Average Numbers Average Numbers Average Numbers Average 

of options exercise of options exercise of options exercise of options exercise 

price price price price 

Carlo Buora 1,333,334 (1) 1.284 - - - - 1,333,334 (1) 1.284 (3) 

Valerio Battista 983,467 (1) 1.284 - - - - 983,467 (1) 1.284 (3) 

666,667 (2) 1.284 - - - - 666,667 (2) 1.284 (3) 

Claudio De Conto 778,77 (1) 1.284 - - - - 778,774 (1) 1.284 (3) 

410,667 (2) 1.284 - - - - 410,667 (2) 1.284 (3) 

Luciano Gobbi 778,774 (1) 1.284 - - - - 778,774 (1) 1.284 (3) 

360,000 (2) 1.284 - - - - 360,000 (2) 1.284 (3) 

Francesco Gori 533,334 (1) 1.284 - - - - 533,334 (1) 1.284 (3) 

666,667 (2) 1.284 - - - - 666,667 (2) 1.284 (3) 

(1) Group Senior Executives incentive plan. 

(2) Pirelli to People incentive plan. 

(3) This amount was changed to Euros 1.150 on the basis of the adjustment factor established by AIAF on February 7, 2005 following the 

capital increase voted by the extraordinary shareholders' meeting of January 21, 2005, in accordance with the provisions of the 

Regulations for these Stock Option Plans in the event of transactions involving share capital. 



Introduction 

The Group 





Tyres Sector 





Environment 


Proforma data 

Related Party 

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Summary Data 


Resolutions 

Giovanni Ferrario (General Manager of the Company until December 2004) holds 1,333,334 

options granting the right to the subscription and purchase of the same number of Pirelli & C. 

S.p.A. ordinary shares at the price of Euros 1.284 (the adjusted price is now Euros 1.150) each. 

The number of options granted to Giovanni Ferrario has remained unchanged during 2004. 

In 2001, Pirelli & C. granted the Managing Director-General Manager of Pirelli & C. Ambiente 

S.p.A., Nicolò Dubini, an option to purchase 183,600 shares of said company (equal to 6 percent 

of share capital), at Euros 1.15 per share on the basis of an appraisal specifically performed for 

that purpose. 

In 2002, a new stock option plan was put into place for the same company and options were 

granted to four employees for the purchase of a total of 91,800 Pirelli & C. Ambiente S.p.A. 

shares, equal to 3 percent of share capital, at the same price per share of Euros 1.15, again on 

the basis of an appraisal specifically performed for that purpose. 

All the above options may be exercised starting from the date of the approval of the financial 

statements at December 31, 2003 of Pirelli & C. Ambiente S.p.A. and the shares from the options 

can be sold by the beneficiaries to Pirelli & C. within two years after having exercised the 

option rights at a price that will take into account the net asset revaluation of the company 

during that time. 

As regards the separate stock option plans put into place by Pirelli & C. Real Estate S.p.A., 

a listed subsidiary of Pirelli & C. S.p.A., and companies which it controls, please refer to the 

annual report of that company. 



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The Group 





Tyres Sector 





Environment 


Proforma data 

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Disclosures 







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Summary Data 


Resolutions 

CORPORATE GOVERNANCE 

Introduction 

As already indicated in previous annual reports, the Company’s corporate governance system is 

based on the central role of the Board of Directors in providing strategic guidance, complete 

transparency of operational decisions, both internal and in relation to the market, efficient and 

effective internal controls, and rigorous rules governing conflicts of interest. The building 

blocks of the system consist of a series of codes, rules and procedures. 

In 2004 these documents were carefully reviewed and, where necessary, updated to take into 

account legislative and regulatory innovations, changes in the international best practices, and 

developments in the Company’s operations. In addition, amendments were made to the bylaws, 

partly in response to the changes in the company law introduced by the “Vietti reform”. 

In particular, with a view to further improving the Company’s corporate governance system and 

fostering increased participation by all shareholders in the life of the Company and in decisions 

likely to influence the success of the business, on May 11, 2004 the shareholders’ meeting 

decided to: 

• amend Article 10 of the bylaws to introduce the slate system for the election of the Board of 

Directors, to ensure - if shareholders avail themselves of the possibility by presenting at least 

two slates - that a fifth of the directors are chosen from among persons nominated by the 

minority shareholders; 

• to amend Article 12 of the bylaws by extending the circumstances for convening meetings of 

the Board of Directors to include the case in which this is requested by a fifth of the directors 

in office. The aim of this change is to increase the possibility for directors nominated by the 

minority shareholders (a fifth of the total as specified above) to influence the life of the 

Company by convening meetings of the Board of Directors; 

• to adopt the Rules of Proceeding for the Shareholders’ Meeting, a document intended to 

promote, as recommended by the Self-Regulatory Code of Conduct for listed companies 

(hereinafter the “Code”), the orderly and effective conduct of the ordinary and extraordinary 

shareholders’ meetings and to guarantee the right of every shareholder to discuss the matters 

on the agenda. 

During the Board meeting held on March 22, 2005 all the directors resigned as of the 

shareholders’ meeting called for April 27-28 2005, one year early with respect to the normal 

termination of their appointments. This decision is intended to permit the immediate application 

of the slate system introduced in the bylaws last year to encourage - in line with international 

best practice - increased participation by all shareholders in the life of the Company and in 

decisions likely to influence the success of the business. 

In compliance with the Instructions accompanying the Rules of the markets operated by Borsa 

Italiana and taking into account the indications contained in the Guidelines for the Preparation 

of the Report on Corporate Governance published by Borsa Italiana and in the Handbook on 

Corporate Governance Reports published by Assonime, the remainder of this report describes 

the main features of the Company’s corporate governance system and how it functioned during 

the year. 



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Environment 


Proforma data 

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Summary Data 


Resolutions 

Governance Structure 

1. Board of Directors 

1.1 The role of the Board of Directors 

The Company is led by a Board consisting of a number of directors between seven and 

twenty-three who remain in office for a three year- term (unless a shorter period is 

established by the shareholders’ meeting when they are appointed) and may be re-elected 

(Article 10 of the bylaws). 

Pursuant to Article 11 of the bylaws, the Board is responsible for the operation of the 

business and to this end has the broadest possible management powers, except for matters 

that are reserved to the shareholders’ meeting by law or the bylaws. 

In practice the Board of Directors exercises its powers in accordance with Article 1.2 of the 

Code, that is, it: 

- examines and approves the strategic, organizational, business and financial plans of the 

Company and the corporate structure of the group it heads; 

- delegates powers to the managing directors and the executive committee (if established) 

and revokes them; it specifies the limits to such delegated powers, the manner of 

exercising them and the frequency, as a general rule not less than once every three 

months, with which such bodies must report to the Board on the activity performed in 

the exercise of the powers delegated to them; 

- determines, after examining the proposals of the remuneration committee and consulting 

the Board of Auditors, the remuneration of the managing directors and of those directors 

who are entrusted with particular duties and, where the shareholders’ meeting has not 

already done so, allocates among the members of the Board of Directors and the 

executive committee (if established) the total amount to which the directors are entitled; 

- supervises the general performance of the company, with special reference to conflicts of 

interest, paying particular attention to the information received from the executive 

committee (if established), the managing directors and the internal control and corporate 

governance committee and periodically comparing the results achieved with those planned; 

- examines and approves transactions having a significant impact on the company’s 

profitability, assets and liabilities or financial position, with special reference to 

transactions with related parties; 

- checks the adequacy of the general organisational and administrative structure 

established by the managing directors for the Company and the group; 

- reports to the shareholders at shareholders’ meetings. 

1.2 The functioning of the Board of Directors 

The Board of Directors elects a Chairman (unless the shareholders’ meeting has already 

appointed one) and possibly one or more Deputy Chairmen. 

In the absence of the Chairman, meetings are chaired, in the following order, by a Deputy 

Chairman or a Managing Director; if there are two or more Deputy Chairmen or Managing 

Directors, meetings are chaired by the senior in age. 

The Board appoints a Secretary, who does not have to be a director. Meetings of the Board of 

Directors are called at the initiative of the Chairman or his substitute and held at the Company’s 

registered office or such other place as is specified in the letter convening the meeting 

whenever the Chairman or his substitute deems this to be desirable in the interests of the 

Company; they are also called whenever a request is made by one of the Managing Directors or 

by a fifth of the directors in office or by at least two members of the Board of Auditors. 

The bylaws do not provide for a minimum frequency for the Board meetings; however, the 

practice is for at least six meetings to be held every year (to examine the preliminary data at 

June 30 and December 31, the draft annual financial statements and the quarterly and halfyearly 

reports). Normally, at the end of the last Board meeting each year the calendar of the 



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main corporate events for the following year (i.e. Board and shareholders’ meetings) is 

announced to the market. Changes to the calendar are promptly made known to the market. 

Board meetings may be held by means of telecommunication techniques that permit 

participation in the discussion and equality of information for all participants. 

Notice of Board meetings is given by letter, telegram, fax or e-mail, sent at least five days 

prior the date of the meeting (or, in urgent cases, with at least six hours’ notice) to each 

director and member of the Board of Auditors. 

The Board may nonetheless decide validly in the absence of a formal convocation if all the 

directors and all the members of the Board of Auditors in office are present. 

Decisions of the Board are valid if the majority of the directors are present and the majority 

of the votes casted are favourable. The Chairman has the casting vote. 

The minutes of Board meetings, even if held by means of telecommunication techniques, are 

recorded in a register and signed by the Chairman and the Secretary. 

1.3 The composition of the Board of Directors 

The current Board of Directors was appointed by the shareholders’ meeting of May 7, 2003, 

which fixed the number of directors at twenty-two. 

Following the resignations during 2004 of Giovanni Ferrario and Maurizio Romiti, the 

shareholders’ meeting of January 21, 2005 decided to reduce the number of directors from 

22 to 20. 

Accordingly, the members of the Board are at present: 

Marco Tronchetti Provera 


Carlo Alessandro Puri Negri 

Carlo Buora 

Carlo Acutis 


Carlo De Benedetti 

Gabriele Galateri di Genola 

Giuseppe Gazzoni Frascara 

Mario Greco 

Georg F. Krayer 



Luigi Orlando 


Giampiero Pesenti 

Ennio Presutti 

Carlo Secchi 

Chairman 



Managing Director 

Chairman of the Internal Control and Corporate 

Governance Committee 

Member of the Remuneration Committee 

Vincenzo Sozzani 

Frank Vischer 

Leopoldo Pirelli is Honorary Chairman of the Company. 

Member of the Remuneration Committee 

Member of the Internal Control and Corporate Governance 

Committee and Chairman of the Remuneration Committee 

Member of the Internal Control and Corporate Governance 

Committee 

Pursuant to Article 10 of the bylaws, the Board of Directors is renewed by using the slate 

system, which, if more than one slate is presented, allows minority shareholders to elect a 

fifth of the directors (see below). 

Two of the members of the Board are executive directors as defined in Article 2.1 of the 

Code: the Chairman, Marco Tronchetti Provera, and the Managing Director/General Manager, 

Carlo Buora. 



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Article 3.1 of the Code defines independent directors as those who: 

a) do not entertain, directly or indirectly or on behalf of third parties, nor have recently 

entertained business relationships with the company, its subsidiaries, the executive 

directors or the shareholder or group of shareholders who controls the company in a 

significant manner able to influence their indipendent judgement; 

b) neither own, directly or indirectly or on behalf of third parties, a quantity of shares 

enabling them to control the company or exercise a significant influence over it nor 

participate in shareholders’ agreements to control the company; 

c) are not close relatives of executive directors of the company or of persons in the 

situations referred to in points a) and b). 

On the basis of the above definition, the Board has agreed that 8 of the remaining 18 

directors (Carlo De Benedetti, Carlo Acutis, Giuseppe Gazzoni Frascara, Georg F. Krayer, 

Giampiero Pesenti, Ennio Presutti, Carlo Secchi and Frank Vischer) can be considered 

independent, while the other 7 (Gilberto Benetton, Gabriele Galateri di Genola, Mario 

Greco, Giulia Maria Ligresti, Massimo Moratti, Giovanni Perissinotto and Luigi Orlando) 

represent companies that are part of the blocking agreement among shareholders of Pirelli 

& C. (see Section 4). 

The last 3 directors are considered not to be independent: Alberto Pirelli and Carlo 

Alessandro Puri Negri, in view of the executive positions they hold in respectively Pirelli 

Pneumatici S.p.A. and Pirelli & C. Real Estate S.p.A., and Vincenzo Sozzani, exclusively in 

view of the long period in which he held such positions in the group. 

A table at the end of this chapter of the report shows the positions of director or member 

of the board of auditors held by the Company’s directors in other listed companies in Italy 

and abroad, in financial, banking and insurance companies, and in other large companies. 

As mentioned in the Introduction, during the Board meeting held on March 22, 2005 all the 

directors resigned, as of the shareholders’ meeting called for April 27-28, 2005, one year 

early with respect to the normal termination of their appointments. 

2. Shareholders’ meetings 

How shareholders’ meetings work 

The calling of shareholders’ meetings, which may be held in Italy in places other than the 

Company’s registered office, the right to attend and the right to be represented by proxies 

are governed by law and the bylaws. 

The annual meeting must be called within 120 days, or in special circumstances within 180 

days, of the close of the fiscal year; if the meeting is called within 180 days, the directors 

must give the reason for the delay in their report on operations. 

In addition to the law and the bylaws, business in meetings is governed by the Rules of 

Proceeding for Shareholders’ Meetings, which were approved by the shareholders’ meeting 

held on May 11, 2004 and are attached hereto; they are also available on the Internet at 

www.pirelli.com. 

Shareholders’ meeting are chaired, in the following order, by the Chairman of the Board of 

Directors, a Deputy Chairman or a Managing Director; if there are two or more Deputy 

Chairmen or Managing Directors, they are chaired by the senior in age. In the absence of 

such persons, shareholders’ meetings are chaired by another person chosen by the 

shareholders with the favourable vote of the majority of the capital represented at the 

meeting. 

The Chairman of the meeting is assisted by a Secretary appointed by the meeting; this is 

not necessary if a notary public is appointed to prepare the minutes of the meeting. 

The Chairman of the meeting decides how to proceed, in accordance with the law and the 

bylaws. To this end, the Chairman: verifies that the meeting has been duly convened; 



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checks the identity of the persons present and their right to attend, including by way of 

proxies; verifies that there is a quorum; and directs the proceedings, with the faculty to 

change the order of the items on the agenda indicated in the notice convening the meeting. 

The Chairman also takes appropriate action to ensure orderly discussion and voting, 

defining the procedures and verifying the results. 

The decisions of the meeting are recorded in minutes signed by the Chairman and the 

Secretary or the notary public. 

The minutes of extraordinary shareholders’ meetings must be prepared by a notary public 

nominated by the Chairman of the meeting. 

3. The Board of Auditors 

The Company’s bylaws provide that the Board of Auditors consist of three auditors and for 

there to be two alternates. In order to allow minority shareholders to elect one auditor and 

one alternate, Article 16 of the bylaws provides for use of the slate system, with one 

auditor and one alternate elected from the slate that obtains the second largest number of 

votes (the minority slate). The other two auditors and the other alternate are elected from 

the slate that obtains the largest number of votes (the majority slate). 

Shareholders may present slates who, alone or together with others, hold at least 2 per 

cent of the share capital entitled to vote at the ordinary shareholders’ meeting, subject to 

them proving their ownership of the necessary number of shares not later than two days 

before the date set for the shareholders’ meeting at the first call. Each shareholder may 

present or participate in the presentation of only one slate. 

In accordance with Article 14.1 of the Code, Article 16 of the bylaws requires that the 

slates, signed by the persons who present them, be deposited at the Company’s registered 

office at least ten days before the date set for the shareholders’ meeting at the first call and 

made available to anyone who requests a copy. The slates must be accompanied by a 

curriculum vitae for each candidate and the declarations in which the candidates 

individually accept their candidacy and attest, on their own responsibility, that there are no 

grounds for ineligibility or incompatibility, and that they meet the requirements prescribed 

by law and the bylaws. 

Slates presented in violation of the above rule are considered null. 

Subject to ineligibility each candidate may appear only on one slate In addition, persons 

may not be elected if they do not satisfy the legal requirements for membership of a board 

of auditors or are already auditors of more than five companies listed on the Italian 

regulated markets other than subsidiaries of Pirelli & C. S.p.A. 

Slates must be divided into two sections: one for candidates for the position of auditor and 

the other for candidates for the position of alternate. The first candidate in each section 

must be selected from among persons entered in the register of auditors who have worked 

on statutory audits for a period of not less than three years. 

Each person entitled to vote may vote for only one slate. 

The Chairman of the Board of Auditors is the auditor at the top of the slate which obtains 

the largest number of votes. 

In the event of death, resignation or disqualification of an auditor, he is replaced by the 

alternate elected on the same slate. If the Chairman of the Board of Auditors is replaced, 

the other auditor elected on the same slate takes the Chair. If it is not possible to proceed 

in the manner described above, a shareholders’ meeting is called to fill the vacancy or 

vacancies by means of a resolution approved by a relative majority of the votes cast. 

When the shareholders’ meeting has to appoint auditors and/or alternates to bring the 

board up to full complement as provided for above or in conformity with applicable law, it 

proceeds as follows: if auditors elected from the majority slate are to be replaced, the 

appointment is made with the favourable votes of a relative majority without being tied to 



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a slate; if instead auditors elected from the minority slate are to be replaced, 

the shareholders’ meeting replaces them with the favourable votes of a relative 

majority, choosing where possible from among the candidates on the slate from which 

the auditor to be replaced was elected. 

In appointing auditors who for any reason are not appointed pursuant to the 

procedure specified above, the shareholders’ meeting votes according to the majorities 

required by law. 

Auditors whose term of office has expired may be re-elected. 

Participation in meetings of the Board of Auditors may – if the Chairman or his 

substitute verifies the necessity – be by means of telecommunication techniques 

that permit participation in the discussion and equality of information for all those 

taking part. 

The Board of Auditors is charged with checking: 

- compliance with applicable law and the bylaws; 

- conformity with the principles of correct management; 

- the adequacy of the organizational structure for the matters falling within its sphere of 

competence, the adequacy of the internal control system and that of the administrative 

and accounting system and the latter’s reliability in correctly representing transactions; 

- the adequacy of the instructions the Company imparts to subsidiaries on the obligations 

concerning the communication of price-sensitive information. 

The Board of Auditors performs its duties by exercising all the powers authorized by law 

and by being able to count on a constant flow of detailed information from the Company, 

in addition to that obtained during the meetings of the Board of Directors. 

In carrying out its tasks the Board of Auditors, besides attending all the meetings of the 

Board of Directors and shareholders’ meetings, participates to the meetings of the 

Remuneration Committee and to the Internal Control and Corporate Governance 

Committee. 

4. Composition of the share capital 

On March 22, 2005 the share capital of Pirelli & C. S.p.A. was equal to 

Euros 2,763,953,496.20, divided into 5,315,295,185 shares with a par value of Euros 0.52 

each, of which 5,180,530,756 ordinary shares and 134,764,429 non-convertible savings 

shares. 

The share capital may be increased up to Euros 2,819,827,565.88 through the issue 

of up to 107,450,134 ordinary shares for: 

- the possible exercise of 212,897,138 Pirelli & C. 2003-2006 warrants issuance pursuant 

to the resolution approved by the shareholders’ meeting of May 7, 2003 on the basis 

of 4 warrants for one Pirelli & C. ordinary share at a price per share of Euros 0.52 

(equal to the par value). The share capital indicated above already takes account 

of the exercise of 1,348,958,188 warrants; 

- the issuance of up to 54,225,850 ordinary shares with a par value of Euros 0.52 each 

at a price of Euros 1.15 per share, with a premium of Euros 0.63 per share, 

for the possible exercise of options granted to senior and junior managers 

of the Company and its subsidiaries and their subsidiaries as part of the 

“Pirelli to People” and “Group Senior Executives” stock-option plans set up 

by Pirelli S.p.A. in 2001. 



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To the best of the Company’s knowledge, no legal or natural person can exercise control 

pursuant to Article 93 of the Legislative Decree 58/1998. 

It is nonetheless worth noting the existence of the Pirelli & C. S.p.A. blocking shareholders’ 

agreement aimed at ensuring the stability of the shareholder structure and the unitary 

governance of the business. Extracts from this agreement are included at the end of this 

section and are also available on the Company’s website www.pirelli.com. 

Information on the Implementation of the Code 

1. Board of Directors 

1.1 Election of directors 

Pursuant to Article 7 of the Code and Article 10 of the bylaws, the Board of Directors is 

renewed using the slate system, which, if more than one slate is presented, allows minority 

shareholders to elect a fifth of the directors. 

The slates presented by shareholders, signed by the persons who introduced them, 

must be deposited at the Company’s registered office at least ten days prior the date 

set for the shareholders’ meeting at the first call and made available to anyone who 

requests a copy. 

Each shareholder may present or participate in the presentation of only one slate and each 

candidate may appear on only one slate by pain of ineligibility. 

Only shareholders who, alone or together with others, hold at least 2 per cent of the share 

capital entitled to vote at the ordinary shareholders’ meeting may present slates, subject to 

them proving their ownership of the necessary number of shares not later than two days 

prior the date set for the shareholders’ meeting at the first call. 

Declarations in which the candidates individually accept their candidacy and attest, 

on their own responsibility, that there are no grounds for ineligibility or incompatibility, 

and that they meet the requirements prescribed by law and the bylaws must be deposited 

together with the slates within the time limit specified above. The declarations must be 

accompanied by a curriculum vitae for each candidate, with an indication, where 

appropriate, of the fact that the candidate qualifies as independent. 

1.2 Meetings of the Board of Directors 

In 2004 the Board of Directors met seven times. 

More than 75% of all the directors attended on average and more than 73% of the 

independent directors. 

Apart from exceptional cases, the directors were provided with the documentation needed 

to express an informed opinion on the items on the agenda reasonably in advance of 

meetings. 

Two Board meetings have already been held in 2005 and another four are planned. 

1.3 Directors’ remuneration 

In addition to the reimbursement of expenses incurred in performing their duties, 

directors receive annual fees determined by the shareholders’ meeting (Article 14 of the 

bylaws). 

The shareholders’ meeting of May 7, 2003 fixed the annual fee payable to each director at 

Euros 50,000. The remuneration of directors entrusted with special powers is determined 

by the Board of Directors after consulting the Board of Auditors. Currentlythere is only one 

director with such powers on a permanent basis. Further information on the remuneration 



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of the directors entrusted with special powers can be found in a chart in the notes to the 

financial statements for 2004. 

Lastly, it should be noted that there are no stock-option plans for either the executive or 

the non-executive directors (1) . 

1.4 Delegated powers 

In the meeting held on May 7, 2003 the Board of Directors reserved the following matters 

to the Chairman, Marco Tronchetti Provera: 

- relations with shareholders and the information provided to them; 

- coordination of the activities of the Managing Directors; 

- formulation, in agreement with the Managing Directors, of the general strategies and 

development policy for the Company and the Group, to be submitted to the Board of 

Directors together with extraordinary corporate actions; 

- proposals, to be submitted to the Board of Directors in agreement with the Managing 

Directors, for the appointment of members of the General Managers’ Departments and, 

after consulting the Remuneration Committee, for their compensation; 

- chairmanship of the committees with strategic functions; 

- appointment of consultants and members of the professions after consulting the 

Managing Directors, with the authority to delegate these powers to the latter; 

- all forms of external communications, with the authority to delegate these powers to the 

Managing Directors; 

- the right to acquire from the Managing Directors and the management of the Group all 

the data and information considered necessary to carry out the above-mentioned 

functions. 

Furthermore, in order to allow the Chairman to represent the Company fully in dealings 

with third parties, the Board has granted him the powers necessary to execute any act 

concerning the various aspects of the business apart from the power to issue guarantees 

for obligations of the Company or its subsidiaries where the individual amount exceeds ¤ 

Euros 25 million and guarantees in favour of third parties for obligations where the 

individual amount exceeds Euros 10 million. In such cases the Chairman must sign jointly 

with a Managing Director. 

Managing Director Carlo Buora - who, in addition to the position of General Manager, 

has been entrusted with all the finance and administration activities and those concerning 

the industrial sectors, which were the responsibility of Giovanni Ferrario until December 7, 

2004 - has been granted broad powers, subject to the limits for major transactions 

(Euros 50 million for acquisitions and disposals of equity interests, subscriptions for new 

shares or bonds, execution of contracts involving the purchase, sale or exchange of fixed 

assets or financial instruments). The above-mentioned thresholds refer to a single 

transaction, taken to include a set of transactions which, although individually below the 

relevant thresholds, are interconnected within the same strategic or executive structure. 

Powers pertinent to their positions have been granted, subject to certain limits, 

to Claudio De Conto, General Manager of Administration and Control, Luciano Gobbi, 

General Manager of Finance, Valerio Battista, General Manager of the Cables Sector, 

and Francesco Gori, General Manager of the Tyres Sector. 

Less broad powers have been granted to other managers of the Company to be used in 

their individual spheres of competence. 

(1) Deputy Chairman Carlo Alessandro Puri Negri and Managing Director Carlo Buora are exceptions in this respect. 

The former has stock options as the General Manager of Pirelli & C. Real Estate S.p.A. and the latter as General Manager 

of Pirelli & C. S.p.A. 



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As in the past, in 2004 the Chairman and the Managing Directors used their delegated 

powers only for the ordinary management of the Company’s activities (with regard to 

which the directors were periodically informed) and waived them for the more important 

transactions from an operational or financial perspective, which they submitted to the 


In fact, delegation does not mean the assignment of exclusive powers but is rather the 

solution adopted by the Company to ensure, in terms of the Board’s organization, a high 

degree of operational flexibility, both within the Company and in relation to third parties. 

1.5 Provision of information to the Board of Directors 

Pursuant to Article 11 of the bylaws (which incorporates the prescriptions of Article 150.1 

of Legislative Decree 58/1998), the Board of Directors and the Board of Auditors are kept 

informed, inter alia by the persons with delegated powers, about the performance of the 

Company, its prospects and the transactions of greatest significance for its profitability, 

financial position or assets and liabilities effected by the Company or its subsidiaries; in 

particular, such persons report any transactions in which they have an interest, for their 

own account or on behalf of third parties, or that are influenced by the person, if any, who 

performs management and coordination activities. Such reports are made promptly and at 

least once every three months, in occasion of the meetings of the Board of Directors (and 

the Executive Committee, if established) or by means of a written communication. 

In order to foster the orderly organization of the flow of information, in July 2002 the 

Company adopted a procedure (included at the end of this section and available on the 

Company’s website www.pirelli.com) with the rules to be followed to ensure compliance 

with the above-mentioned Article 150 with regard to the activities of the executive 

directors, both in exercising their delegated powers and in carrying out the transactions 

approved by the Board of Directors. 

1.6 Rules of conduct for transactions with related parties 

The Company has also laid down the rules of conduct (included at the end of this section 

and available on the Company’s website www.pirelli.com) for transactions with related 

parties, including intra-group business. The aim of the rules is to guarantee substantial and 

procedural fairness and transparency by involving the Board of Directors in the related 

decisions. 

In fact, under the rules, the Board of Directors is required to give advance approval 

to transactions with related parties, including intra-group transactions, apart from those 

of a customary nature and those to be concluded at arms-length conditions. 

To this end, a provision is made for the Board to be adequately informed of all the relevant 

aspects: the nature of the relationship, the manner of carrying out the transaction, 

the economic and other conditions, the evaluation procedures used, the rationale for the 

transaction and the Company’s interest in its implementation and the associated risks. 

If the related party is a director or a party related via a director, the director in question 

may only provide clarifications and must leave the meeting when the motion is examined 

and put to a vote. Depending on the nature, value and other aspects of related-party 

transactions, the Board may be assisted by one or more outside experts in order to prevent 

contracts being concluded at inappropriate conditions. According to the circumstances, 

such experts express an opinion on the economic and/or legal and/or technical aspects of 

the transaction. 



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2. Committees 

2.1 The Remuneration Committee 

The Board has established the Remuneration Committee from among its members, charged 

with fact-finding and advisory functions. In particular, this committee: 

a) formulates proposals for the remuneration of the Managing Directors and the directors 

who are entrusted with particular duties and, on the basis of indications provided by 

the Managing Directors, proposals for determining the remuneration of the Company’s 

senior management; 

b) conducts preliminary examinations of proposals for the adoption of stock-option plans. 

The Remuneration Committee meets whenever its chairman deems it to be desirable or a 

meeting has been requested by another member of the committee or by a Managing 

Director. The rules for calling meetings, for their due constitution and for decision-making 

are the same as those laid down in the bylaws for the meetings of the Board of Directors. 

In accordance with Article 8.1 of the Code, the Remuneration Committee is composed 

entirely of non-executive directors (Ennio Presutti, chairman, Luigi Orlando and Giampiero 

Pesenti), the majority of whom are independent (Ennio Presutti and Giampiero Pesenti). 

In 2004 the Remuneration Committee held two meetings. 

2.2 The Internal Control and Corporate Governance Committee 

The Board has established the Internal Control and Corporate Governance Committee 

from among its members, charged with fact-finding and advisory functions. In particular, 

this committee: 

a) assists the Board of Directors in establishing the guidelines for the internal control 

system and periodically verifying its adequacy and effective working, so as to ensure 

that the risks facing the Company are managed appropriately; 

b) evaluates the work plan prepared by the persons responsible for internal control, 

from whom it receives periodic reports; 

c) assesses, together with the Company’s financial officers and the external auditors, 

the appropriateness of the accounting standards applied and their homogeneousness 

for the purpose of preparing the consolidated financial statements; 

d) evaluates the proposals made by external auditors in order to be awarded the 

appointment, the audit plan and the results set out in the letter of suggestions; 

e) reports to the Board of Directors at least once every half year, on the occasion 

of the approval of the draft annual financial statements and the half-yearly report, 

on the activity performed and the adequacy of the internal control system; 

f) performs the additional tasks that may be assigned to it by the Board of Directors, 

particularly in regards to relations with the external auditors; and 

g) monitors compliance with the rules of corporate governance and their periodic 

updating and compliance with the rules of conduct adopted by the Company 

and its subsidiaries. 

This committee normally meets before the meetings of the Board of Directors are called 

to approve the draft annual financial statements, the half-yearly report and the quarterly 

reports; it also meets whenever its chairman deems it to be desirable or a meeting 

has been requested by another member of the committee or by a Managing Director. 

The rules for calling meetings, for their due constitution and for decision-making are the 

same as those laid down in the bylaws for the meetings of the Board of Directors. 

The members of the Board of Auditors and the Managing Directors participate in the 

meetings of the committee; the head of the Internal Audit Department and one or more 

General Managers may be invited to attend. 



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In accordance with Article 10 of the Code, the Internal Control and Corporate Governance 

Committee is composed entirely of independent directors (Giuseppe Gazzoni Frascara, 

chairman, Ennio Presutti and Carlo Secchi). 

In 2004 the committee contributed significantly to implement the Company’s corporate 

governance mechanisms, take part in the related analyses and in the drafting and updating 

of the relevant documents. In particular, the committee agreed with the amendments to the 

Code of Ethics. It also agreed with the text of the Rules of Proceeding for the 

Shareholders’ Meeting and the amendments to the bylaws to take into account changes in 

the company law introduced by the “Vietti reform”. The committee also took part in the 

revision of the internal rules on transactions with related parties and was kept constantly 

informed of the steps taken in implementing the 231 Organizational Model. 

The committee also examined the underlying approach and some specific aspects of the 

Company’s periodic financial reports (the parent company and consolidated annual 

financial statements, the half-yearly report and the annual report) and agreed with the 

Company’s decision to opt to pay income tax on a consolidated basis. 

The committee also monitored the work of the Internal Audit Department and in particular 

reviewed the report on the implementation of the 2004 Audit Plan and the progress made in 

implementing the group’s Control Risk Self-Assessment project. The committee also 

examined and approved the audit plan for 2005 prepared by the Internal Audit Department 

and discussed the plan for the 2005 statutory audit with the external auditors, 

PricewaterhouseCoopers S.p.A.. 

Lastly, the Committee for Internal Control and Corporate Governance and the Board of 

Directors, taking into account the comments of the Board of Auditors, judged the internal 

control system to be adequate. 

2.3 Committee for the Nomination of Directors 

The Board of Directors has decided not to establish a nomination committee charged with 

putting forward proposals for the position of director since at present the conditions 

envisaged by the Code for its establishment do not exist, taking into account the current 

ownership structure. The need for such a committee was further reduced by the adoption, 

with the approval of the shareholders’ meeting of May 11, 2004, of the slate system for the 

election of the directors, in view of the transparency this mechanism ensures the selection 

of candidates. 

3. Handling of confidential information 

3.1 Disclosure of documents and information 

In compliance with Article 6 of the Code, the Chairman of the Board of Directors is 

directly responsible for dealing with confidential information, especially that of a pricesensitive 

nature. 

The release of documents and information concerning the Company and its subsidiaries is 

handled - always in agreement with the Chairman - by the Secretary to the Board and the 

Corporate Secretary for disclosures to the authorities and shareholders, by the External 

Relations Department for communications to the press, and by the Investor Relations 

Department for communications to institutional investors. 

The Chairman and the persons referred to above are able to consult at all times in the 

event of an urgent need to disclose documents or information. 



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3.2 Insider dealing 

As required by the current regulations, as of December 1, 2002 the Company has had an 

Insider Dealing Code laying down the disclosure requirements and rules of conduct for 

transactions involving “Financial Instruments” (briefly, ordinary and savings shares of 

Pirelli & C. S.p.A., shares of Pirelli & C. Real Estate S.p.A., instruments that give the right 

to buy or subscribe for such shares, and units of real-estate investment funds set up and 

managed by subsidiaries of Pirelli & C.) concluded by “Relevant Persons” (briefly, persons 

who, as a consequence of the positions they hold in the Company, have access to material 

information). More accurate definitions of both terms are contained in the Insider Dealing 

Code (included at the end of this section and available on the Company’s website 

www.pirelli.com). 

The principal aims of the Insider Dealing Code are to ensure the maximum transparency 

vis-à-vis the market of transactions concluded by persons who have a special relationship 

with the Company and its subsidiaries and to specify the blackout periods during which 

such persons may not conclude transactions involving the securities in question. To this 

end, the main provisions concern: 

1) details of the persons required to disclose transactions; 

2) the obligation to inform the market immediately of transactions involving a significant 

amount of Financial Instruments, i.e. those whose aggregate value, including 

transactions concluded in the three preceding months, exceeds Euros 80,000; 

3) the obligation to inform the market at the end of each quarter of transactions involving 

Financial Instruments whose aggregate value is between Euros 35,000 and Euros 80,000; 

4) the specification of blackout periods during which Relevant Persons may not conclude 

transactions involving Financial Instruments. 

4. Internal control 

The internal control system of Pirelli & C. and the group it heads is designed to ensure the 

provision of correct information and adequate cover of all the group’s activities, with 

special reference to those that are considered to be potentially at risk. 

It has developed as a process intended to achieve substantial and procedural fairness, 

transparency and accountability by ensuring that transactions and, more generally, 

business-related activities are efficient and can be known and verified, that accounting and 

operational data are accurate, that applicable laws and regulations are complied with, and 

that the assets of the business are safeguarded, not least with a view to prevent the 

perpetration of fraud against the Company and financial markets. 

The cardinal rules of the Company’s internal control system are: 

i. separation of roles in the performance of the principal activities involved in each 

operating process; 

ii. traceability and constant visibility of decisions; 

iii. decision-making on an objective basis. 

Responsibility for the internal control system lies with the Board of Directors, which lays 

down the guidelines for the system and periodically verifies that it is adequate and working 

effectively. To this end the Board uses the Internal Control and Corporate Governance 

Committee and the Internal Audit Department, which is placed directly under the Chairman 

of Pirelli & C. S.p.A. with respect to its work in both the parent company and subsidiaries. 

The Department’s primary task is to follow developments in the internal control system and 

monitor its adequacy, effectiveness and efficiency on a group-wide basis. 

There is also a planning and control system that focuses on individual sectors and 

operating units and produces a detailed monthly report for the General Managers, so that 

they have a useful tool with which to monitor specific activities. 



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In order to foster compliance with the strategies and guidelines adopted by the parent 

company, the competent General Managers and senior executives sit on the boards of 

directors of the largest subsidiaries. 

The internal control system described above has been further strengthened by the 

introduction of an organizational model that the Board of Directors approved on July 31, 

2003. Intended to ensure the creation of a system responding to the specific requirements 

deriving from the entry into force of Legislative Decree 231/2001 on the administrative 

liability of companies for criminal offences committed by their employees, the model 

consists of a set of principles and procedures arranged in a pyramid that, starting from the 

base, can be summarized as follows: 

• Group Code of Ethics, which formulates the general principles (transparency and 

fairness) inspiring the conduct of business. It indicates the objectives and the values 

informing business activity in relation to the main stakeholders with which Pirelli & C. 

S.p.A. interacts on a daily basis: the shareholders, the financial market, customers and 

staff. 

• Internal control system, the process aimed at providing a reasonable guarantee that the 

operations will be efficient and effective, financial and operational data are accurate, 

laws and regulations complied with, and the Company’s assets are safeguarded, not least 

against the perpetration of fraud. The internal control system is based on and 

characterized by a number of general principles defined within the framework of the 

organizational model, whose scope extends across all the different organizational levels 

(Business Units, Central Functions and Companies). 

• Lines of conduct, which set out specific rules for dealings with representatives of 

governmental bodies. The rules are framed in both the positive (“to be done”) and the 

negative (“not to be done”) and translate the principles established by the Group Code of 

Ethics into operational terms. 

• Internal control checklists, which set out the main phases of each process, list the 

criminal offences that could be committed in connection with each process and the 

specific checks to be performed with a view to their prevention, and specify the reports 

to be transmitted to the Oversight Committee to draw the attention to situations of 

possible non-compliance with the procedures established in the organizational model. 

The organizational model will be reviewed periodically in light of experience in its 

application and changes in the legal framework established by Legislative Decree 231/2001. 

The functioning of the model and compliance with it are monitored by an ad hoc Oversight 

Committee composed of Giuseppe Gazzoni Frascara, independent director and chairman of 

the Internal Control and Corporate Governance Committee, Paolo Francesco Lazzati, 

member of the Board of Auditors, and Sergio Romiti, head of the Internal Audit 

Department. Its composition ensures that the Committee includes the different professional 

competences that contribute to the control of the Company’s operations. 

The Oversight Committee is charged with making recommendations to the Board of 

Directors for it to adapt the organizational model to changes in the legal framework, the 

nature of the Company’s business activities and the ways they are conducted. It reports to 

the Board of Directors, the Internal Control and Corporate Governance Committee and the 

Board of Auditors on the checks performed and their results. 

The shareholders’ meeting of May 10, 2004 fixed the annual gross fee payable to each 

member of the Oversight Committee at Euros 10,000. 

With reference to unlisted Italian Group companies, the oversight committee has been 

adapted by adopting the technical and operational solution that, while respecting the 

mandate and the powers reserved to that body by law, is appropriate to the size and 

organizational context of each company. 



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Lastly, a disciplinary system has been introduced to sanction non-compliance with the 

measures indicated in the organizational, operational and control systems. 

The procedures for reporting information to the oversight committees were strengthened in 

2004 to implement Article 6.2d) of Legislative Decree 231/2001, which establishes 

information reporting requirements vis-à-vis the committee charged with monitoring the 

functioning of and compliance with the models. 

5. Relations with institutional investors and other shareholders 

In line with its tradition of transparency and fairness, the Company actively promotes 

relations with shareholders and institutional investors within the proper limits of their 

respective roles and periodically organizes meetings with representatives of the Italian and 

international financial communities. 

In March 1999 the Company established an Investor Relations Department to foster 

continuous dialogue with the financial market. The Investor Relations Department, which 

reports directly to Managing Director Carlo Buora, is headed by Alberto Borgia and has its 

own section in the Company’s website www.pirelli.com. 

In this section of the website investors can find every document of interest, in English as 

well as Italian, as regards to financial reporting (for example, the annual financial 

statements and the half-yearly and quarterly reports) and the Company’s corporate 

governance system (for example, the Rules of conduct for transactions with related parties, 

the Procedure for satisfying the requirements of Article 150.1 of Legislative Decree 58/1998, 

the Insider Dealing Code and the minutes of shareholders’ meetings). The section also 

gives access to the documentation that the Company makes available to the financial 

community in presentations and/or meetings and information on the Company’s share 

capital and shareholders (including the publication of shareholders’ agreements). 

Pirelli & C. was one of the first companies in Italy and Europe to publish inserts 

specifically addressed to small investors in the mass media. 

Investor queries may be sent to: 

e-mail: ir@pirelli.com; tel.: +39.0264422949; fax: +39.0264424686 

6. Shareholders’ meetings 

It is the Company’s constant policy to use shareholders’ meetings to communicate 

information on the Company and its prospects to the shareholders. Obviously, it does this 

in accordance with the rules governing price-sensitive information and, where necessary, 

simultaneously communicates the same information to the market. 

The Company carefully considers the choice of the place, date and time for convening 

shareholders’ meetings, to facilitate the participation of the shareholders. All the directors 

and all the members of the Board of Auditors make every possible effort to attend the 

meetings, especially those directors whose positions permit them to make an important 

contribution to the discussion. 

7. Board of Auditors 

The shareholders’ meeting of May 7, 2003 elected the following Board of Auditors (with 

effect from August 4, 2003): Luigi Guatri (Chairman), Roberto Bracchetti and Paolo 

Francesco Lazzati. 

Franco Ghiringhelli and Sebastiano Guido were appointed as alternates. 

The current Board remains in office until the approval of the financial statements for the 

fiscal year ending December 31, 2005. 

The election was held using the slate voting system. 



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The only slate was presented by the members of the Pirelli & C. blocking shareholders’ 

agreement. The Company considers the authority and reputation of the candidates 

proposed as a possible reason why no alternative slate was presented by the minority 

shareholders. 

In 2004 the Board of Auditors met 6 times. 

The following tables summarize the Company’s procedures for adopting the principal 

recommendations of the Code: 

• Structure of the Board of Directors, the Remuneration Committee and the Committee 

for Internal Control and Corporate Governance 

• Structure of the Board of Auditors 

• Other provisions of the Code 

• Positions of director or member of the board of auditors held by the Company’s directors 

in other listed companies, in financial, banking and insurance companies, and in other 

large companies. 



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Table 1 - STRUCTURE OF THE BOARD OF DIRECTORS AND THE BOARD COMMITTEES 

Board of Directors Committee for Remuneration 

Internal Control Committee 

Position Name executive non- independent **** Number *** **** *** **** 

executive 

of other 

positions ** 

Chairman Marco X 100% 6 

Tronchetti Provera 

Deputy Chairman Alberto Pirelli X 100% 6 

Deputy Chairman Carlo A. Puri Negri X 100% 10 

Managing Carlo Buora X 100% 7 

Director 

Managing Giovanni Ferrario (1) X 100% - 

Director 

Director Carlo Acutis X 71% 14 

Director Gilberto Benetton X 29% 11 

Director Carlo De Benedetti X 57% 7 

Director Gabriele Galateri X 86% 10 

di Genola 

Director Giuseppe X 71% 10 X 100% 

Gazzoni Frascara 

Director Mario Greco X 71% 12 

Director Georg F. Krayer X 43% 2 

Director Giulia Maria Ligresti X 86% 11 

Director Massimo Moratti X 86% 5 

Director Luigi Orlando X 43% 2 X 50% 

Director Giovanni Perissinotto X 43% 20 

Director Giampiero Pesenti X 57% 13 X 100% 

Director Ennio Presutti X 100% 3 X 100% X 100% 

Director Maurizio Romiti (2) X 20% - 

Director Carlo Secchi X 100% 5 X 100% 

Director Vincenzo Sozzani X 100% 3 

Director Frank Vischer X 86% 1 

Number of meetings held during Committee for Remuneration 

the year: Board of Directors: 7 Internal Control: 3 Committee: 2 

LEGEND 

* Indicates that the director was elected from a slate presented by minority shareholders. 

** The positions held on the boards of directors or auditors of other companies listed on Italian and foreign regulated markets, of 

financial, banking and insurance companies, and of other large companies are shown in detail in the Report on Corporate 

Governance. 

*** The “X” in one of these columns indicates membership of the relevant Board Committee. 

**** Indicates the attendance of directors at the meetings of the Board of Directors and the Board Committees. 

(1) Resigned on 7 December 2004. 

(2) Resigned on 15 September 2004. 

Table 2 - BOARD OF AUDITORS 

Position Name Attendance at Number of other 

Board meetings positions held ** 

Chairman Luigi Guatri 83% 4 

Auditor Roberto Bracchetti 100% 1 

Auditor Paolo Francesco Lazzati 100% 2 

Alternate Franco Ghiringhelli - 1 

Alternate Sebastiano Guido - - 

Number of meetings held during the year: 6 

Quorum required for the presentation of slates by minority shareholders for the election of 

auditors/alternates (Article 148 of the Consolidated Law on Finance): 2% 

LEGEND 

* Indicates that the auditor/alternate was elected from a slate presented by minority shareholders. 

** Indicates the number of positions held on the boards of auditors of other companies listed on Italian regulated markets 

(excluding Pirelli Group companies). The main positions held in listed and unlisted companies are shown in detail in the Report 

on Corporate Governance. 



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Table 3 - OTHER PROVISIONS OF THE SELF-REGULATORY CODE 

YES NO Summary reasons for divergence 

from the recommendations 

of the Code 

Delegated powers and transactions with related parties transactions with related parties 

the Board of Directors has delegated powers and established: 

a) the limits to such powers X 

b) the manner of exercising them X 

c) the frequency of reports? X 

Has the Board reserved the right to examine and approve 

transactions having a significant impact on the Company’s 

profitability, assets and liabilities or financial position 

(including transactions with related parties)? 

X 

Has the Board established guidelines for 

identifying “significant” transactions? 

X 

Are the above guidelines 

described in the report? 

X 

Has the Board established special procedures for 

examining and approving transaction with related parties? X 

Are the procedures for approving transaction 

with related parties described in the report? 

X 

Procedures used for the most recent appointments 

of the Board of Directors and the Board of Auditors 

Were the nominations to the board of directors 

filed at least ten days in advance? 

Were the nominations to the board of directors 

accompanied by detailed information? 

Were the nominations to the board of directors accompanied 

by an indication as to whether they qualified as independent? 

Were the nominations to the board of auditors 

filed at least ten days in advance? 

Were the nominations to the board of auditors 

accompanied by detailed information? 

Shareholders’ meetings 

Has the Company approved rules of proceeding 

for shareholders’ meetings? 

(Are these rules included in the report (or does the report 

indicated where they can be obtained/downloaded)? 

Internal control 

Has the Company appointed the persons responsible 

for internal control? 

Are such persons hierarchically independent 

from the heads of the operating units? 

Unit responsible for internal control (Art. 9.3 of the Code) 

Investor relations 

Has the Company appointed a person to be responsible 

for investor relations? 

X 

Unit and contact details of the person responsible 

for investor relations X 1 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

1 Investor Relations Department (directly under Managing Director Carlo Buora), headed by Alberto Borgia; 

Contact details: e-mail ir@pirelli.com; tel.: +39.02.64422949; fax: +39.02.64424686. 



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Positions of Director or Auditor held by the members of the Board of Directors 

and the Board of Auditor in other listed companies, in financial, banking and 

insurance companies of relevant dimensions 

Name 

Position 

Marco Tronchetti Provera Chairman of the Board of Directors of Camfin S.p.A.; 

Chairman of the Board of Directors of Gruppo Partecipazioni Industriali S.p.A.; 

Chairman of the Board of Partners of Marco Tronchetti Provera & C. A.P.A.; 

Chairman of the Board of Directors of Olimpia S.p.A.; 

Chairman of the Board of Directors of Pirelli & C. Real Estate S.p.A.; 

Chairman of the Board of Directors of Telecom Italia S.p.A.. 


Chairman of the Board of Partners of Fin.Ap. Di Alberto Pirelli & C. A.p.A.; 

Deputy Chairman of Di Gruppo Partecipazioni Industriali S.p.A.; 

Director of Camfin S.p.A.; 

Director of G.I.M. – Generale Industrie Metallurgiche S.p.A.; 

Director of Olimpia S.p.A.; 

Director of Smi – Società Metallurgica Italiana S.p.A.. 

Carlo Alessandro 

Puri Negri 

Carlo Buora 

Carlo Acutis 


Chairman of the Board of Directors of Pirelli & C. Real Estate Sgr S.p.A.; 

Deputy Chairman And Managing Director of Pirelli & C. Real Estate S.p.A.; 

Deputy Chairman of the Board of Directors of Camfin S.p.A.; 

Managing Director of Gruppo Partecipazioni Industriali S.p.A.; 

Director of Aon Italia S.p.A.; 

Director of Capitalia S.p.A..; 

Director of Eurostazioni S.p.A.; 

Director of Istituto Europeo Di Oncologia S.r.l.; 


Director of Telecom Italia S.p.A.. 

Chairman of the Board of Directors of Tim S.p.A.; 

Managing Director of Telecom Italia S.p.A.; 

Director of Mediobanca - Banca Di Credito Finanziario S.p.A.; 


Director of Pirelli & C. Real Estate S.p.A.; 

Director of Ras - Riunione Adriatica Sicurtà - S.p.A.. 

Director of Rizzoli Corriere Della Sera Media Group S.p.A.. 

Chairman of the Board of Directors of BPC Investimenti SGR S.p.A.; 

Deputy Chairman of the Board of Directors of Vittoria Assicurazioni S.p.A.; 

Director of Banca Passadore & C. S.p.A..; 

Director of Camfin S.p.A.; 

Director of Ergo Italia S.p.A.; 

Director of Ergo Assicurazioni S.p.A.; 

Director of Ergo Previdenza S.A.; 

Director of Inbro N.V.; 

Director of Yura S.A.; 

Director of Yura International Holding B.V.; 

Director of Yura Capital S.A.; 

Director of Scor S.A.; 

Director of Vittoria Capital N.V.; 

Member of the Supervisory Board of Cogedim S.A.. 

Chairman of the Board of Directors of Autogrill S.p.A.; 

Chairman of the Board of Directors of Edizione Holding S.p.A.; 

Deputy Chairman of the Board of Directors of Olimpia S.p.A.; 

Deputy Chairman of the Board of Directors of Telecom Italia S.p.A.; 

Director of Autogrill Group Inc. (Formerly HMS Host Corp.) 

Director of Autostrade S.p.A.; 

Director of Banca Antoniana Popolare Veneta S.p.A.; 

Director of Benetton Group S.p.A.; 

Director of Lloyd Adriatico S.p.A.; 

Director of Mediobanca - Banca Di Credito Finanziario S.p.A.; 

Director of Schemaventotto S.p.A.. 



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Name 

Carlo De Benedetti 

Gabriele Galateri 

di Genola 

Giuseppe Gazzoni 

Frascara 

Mario Greco 

Georg F. Krayer 



Luigi Orlando 

Position 

Chairman of the Board of Directors of CDB Web Tech S.p.A.; 

Chairman of the Board of Directors of CIR S.p.A.; 

Chairman of the Board of Directors of COFIDE S.p.A.; 

Chairman of the Board of Directors of SOGEFI S.p.A.; 

Director of Banca Intermobiliare di Investimenti e Gestioni S.p.A.; 

Director of Gruppo Editoriale L’Espresso S.p.A.; 

Director of Valeo S.A.. 

Chairman of the Board of Directors of Mediobanca - Banca di Credito Finanziario S.p.A.; 

Chairman of the Board of Directors of Istituto Europeo di Oncologia S.r.l.; 

Deputy Chairman of the Board of Directors of Assicurazioni Generali S.p.A.; 

Director of Accor S.A.; 

Director of Banca CRS S.p.A.; 

Director of Banca Esperia S.p.A.; 

Director of IFI S.p.A.; 

Director of San Faustin N.V.; 

Director of UTET S.p.A.; 

Member of the Supervisory Board of Commerzbank. 

Director of Bologna Football Club 1909 S.p.A.; 

Director of Emif S.r.l.; 

Director of Euromobiliare Corporate Finance S.p.A.; 

Director of F.G.F. - Financière Gazzoni Frascara S.p.A.; 

Director of F.G.F. - Finanziaria Generale Felsinea S.r.l.; 

Director of ITO S.r.l.; 

Director of Lega Calcio Service S.p.A.; 

Director of Pirelli & C. Ambiente Holding S.p.A.; 

Director of Vittoria 2000 S.r.l.; 

Member of the Supervisory Board “Sofipa Equity Fund” (Managed By Mcc Sofipa Sgr S.p.A.). 

Deputy Chairman of the Board of Directors of AGF RAS Holding B.V.; 

Deputy Chairman of the Board of Directors of Allianz Subalpina S.p.A.; 

Deputy Chairman of the Board of Directors of Rasbank S.p.A.; 

Deputy Chairman of the Board of Directors of Ras International N.V.; 

Managing Director and General Manager of Riunione Adriatica di Sicurtà S.p.A. - RAS; 

Director of Allianz Compania de Seguros y Reaseguros; 

Director of Allianz Suisse Lebensersicherungs; 

Director of Allianz Suisse Versicherungen; 

Director of Fastweb S.p.A.; 

Director of IFIL S.p.A.; 

Director of Merloni Elettrodomestici S.p.A.; 

Director of Unicredito Italiano S.p.A.. 

Chairman of Bank Sarasin & Cie AG; 

Director of Baloise Holding. 

Chairman of the Board of Directors and Managing Director of Premafin Finanziaria S.p.A.; 

Chairman of the Board of Directors of FONSAI MB&A S.p.A.; 

Deputy Chairman of Fondiaria Sai S.p.A.; 

Managing Director of Sai Holding Italia S.p.A.; 

Managing Director of Saifin S.p.A.; 

Director of Finadin S.p.A.; 

Director of Iena Presboug S.A.; 

Director of Milano Assicurazioni S.p.A.; 

Director of Sailux S.A.; 

Director of Sainternational S.p.A.; 

Director of Telecom Italia Media S.p.A.. 

Partner of Angelo Moratti di Gianmarco e Massimo Moratti & C. S.a.p.a.; 

Managing Director of SARAS S.p.A. Raffinerie Sarde; 

Director of Interbanca S.p.A.; 

Director of Sarint S.A.; 

Director of Telecom Italia S.p.A.. 

Honorary Chairman of Europa Metalli S.p.A.; 

Honorary Chairman of G.I.M. - Generale Industrie Metallurgiche S.p.A.; 

Chairman of the Board of Partners of Orlando & C. - Gestioni Finanziarie S.a.p.A.; 

Member of the Supervisory Board of KM Europa Metal A.G.. 



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Name 


Giampiero Pesenti 

Ennio Presutti 

Carlo Secchi 

Vicenzo Sozzani 

Frank Vischer 

Position 

Chairman of the Board of Directors of Banca Generali S.p.A.; 

Chairman of the Board of Directors of Belgica Insurance Holding; 

Chairman of the Board of Directors of Flandria Participation Financieres; 

Chairman of the Board of Directors of Generali Finances S.A.; 

Chairman of the Board of Directors of Generali Asset Management SGR S.p.A.; 

Chairman of the Board of Directors of Generali Properties S.p.A.; 

Deputy Chairman of the Board of Directors of BSI - Banca della Svizzera Italiana S.A.; 

Managing Director and General Manager of Assicurazioni Generali S.p.A.; 

Director of Agorà Investimenti S.p.A.; 

Director of Albula; 

Director of Alleanza Assicurazioni S.p.A.; 

Director of Assitalia S.p.A.; 

Director of Banca Intesa S.p.A.; 

Director of Banca Nazionale del Lavoro S.p.A.; 

Director of Generali España Holding de Entidades de Seguros; 

Director of Generali Finance B.V.; 

Director of Generali France Holding S.A.; 

Director of INA Vita S.p.A.; 

Director of Participatie Maatschappij Graafschap Holland N.V.; 

Director of Transocean Holding Corporation. 

Chairman of the Board of Directors and Managing Director of Italmobiliare S.p.A.; 

Chairman of the Board of Directors of Intermobiliare S.p.A.; 

Chairman of the Board of Directors of Italcementi S.p.A.; 

Deputy Chairman of the Board of Directors of Ciment Francais; 

Deputy Chairman of Fincomind AG; 

Director of Ciments du Maroc; 

Director of Compagnie Monegasque de Banque; 

Director of Credit Mobilier de Monaco; 

Director of Finter Bank Zurich; 

Director of G.I.M. - Generale Industrie Metallurgiche S.p.A.; 

Director of Mittel S.p.A.; 

Director of RAS - Riunione Adriatica di Sicurtà S.p.A.; 

Director of Soparfinter S.A. (Luxembourg). 

Chairman of the Board of Directors of Sviluppo Garibaldi Repubblica S.p.A.; 

Director of Università Vita-Salute San Raffaele; 

Director of Science Park Raf S.p.A.. 

Director of Fastweb S.p.A.; 

Director of Fondazione Teatro alla Scala; 

Director of Lloyd Adriatico S.p.A.; 

Director of Tangenziali Esterne di Milano S.p.A.; 

Director of Veneranda Fabbrica del Duomo S.p.A.. 

Director of Banco di Desio e della Brianza S.p.A.; 

Director of Pirelli & C. Real Estate S.p.A.; 

Director of Pirelli & C. Real Estate SGR S.p.A.. 

Director of Pirelli Société Générale S.A.. 



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Name 

Luigi Guatri 

Roberto Bracchetti 

Paolo Francesco Lazzati 

Position 

Chairman of the Board of Directors of Acb Group - Società Italiana dei Consulenti 

Economico - Aziendali S.p.A.; 

Chairman of the Board of Directors of Acbgroup Finanza e Valore S.p.A.; 

Chairman of the Board of Directors of Finanziaria 2000 S.p.A.; 

Chairman of the Board of Directors of Vittoria Assicurazioni S.p.A.; 

Chairman of the Board of Directors of Walter Mieli S.p.A.; 

Deputy Chairman of the Board of Directors of Università L. Bocconi S.p.A.; 

Director of Banco Di Desio e Della Brianza S.p.A.; 

Director of Ferrero, Gnudi, Guatri, Uckmar Consulenti Associati S.p.A.; 

Director of Graniti Fiandre S.p.A.; 

Director of Maffei S.p.A.; 

Director of Negri Bossi S.p.A.; 

Director of SO.PA.F. S.p.A.; 

Chairman of the Board of Auditors of BPU Banche Popolari Unite S.c.r.l.; 

Chairman of the Board of Auditors of Centrobanca S.p.A.; 

Chairman of the Board of Auditors of Italcementi S.p.A.; 

Chairman of the Board of Auditors of Italmobiliare S.p.A.; 

Chairman of the Board of Auditors of Movi Lemar S.p.A.; 

Chairman of the Board of Auditors of Movi S.p.A.; 

Chairman of the Board of Auditors of Permasteelisa S.p.A.; 

Chairman of the Board of Auditors of Rhifim S.p.A.; 

Chairman of the Board of Auditors of Wimed S.p.A.. 

Chairman of the Board of Auditors of Cantoni ITC S.p.A.; 

Chairman of the Board of Auditors of Durkopp Adler Italia S.p.A.; 

Chairman of the Board of Auditors of Elba S.p.A.; 

Chairman of the Board of Auditors of Gestione Tessili Cantoni S.p.A.; 

Chairman of the Board of Auditors of Fag Italia S.p.A.; 

Chairman of the Board of Auditors of Mediolanum Farmaceutici S.p.A.; 

Chairman of the Board of Auditors of Olimpia S.p.A.; 

Chairman of the Board of Auditors of Pirelli & C. Real Estate S.p.A.; 

Chairman of the Board of Auditors of Pirelli & C. Real Estate SGR S.p.A.; 

Chairman of the Board of Auditors of Ratti S.p.A.; 

Chairman of the Board of Auditors of Rottapharm S.p.A.; 

Chairman of the Board of Auditors of Verbund Italia S.p.A.; 

Member of the Board of Auditors of ABB S.p.A.; 

Member of the Board of Auditors of Alstom Power Italia S.p.A.; 

Member of the Board of Auditors of Energia S.p.A.; 

Member of the Board of Auditors of Energia Holding S.p.A.; 

Member of the Board of Auditors of Energia Italiana S.p.A.; 

Member of the Board of Auditors of Intesa Fiduciaria Sim S.p.A.; 

Member of the Board of Auditors of Isringhausen S.p.A.; 

Member of the Board of Auditors of Sadelmi S.p.A.; 

Member of the Board of Auditors of Velluti Redaelli S.p.A.; 

Member of the Board of Auditors of Viscontea Coface S.p.A.. 

Director of Comocalor S.p.A.; 

Director of Finaval S.p.A.; 

Director of Fondazione Giangiacomo Feltrinelli; 

Member of the Board of Auditors of Camfin S.p.A.; 

Member of the Board of Auditors of CORECOM; 

Member of the Board of Auditors of Credito Artigiano S.p.A.; 

Member of the Board of Auditors of Dear Cinestudi S.p.A.; 

Member of the Board of Auditors of Ecla S.p.A.; 

Member of the Board of Auditors of Erogasmet S.p.A.; 

Member of the Board of Auditors of Fratelli Cerruti S.a.p.a.; 

Member of the Board of Auditors of Free Sim S.p.A.; 

Member of the Board of Auditors of Giangiacomo Feltrinelli Editore S.p.A.; 

Member of the Board of Auditors of Kosaido Milano S.p.A.; 

Member of the Board of Auditors of Julius Baer Creval Private Banking S.p.A.; 

Member of the Board of Auditors of Imation S.p.A.; 

Member of the Board of Auditors of Istituto Centrale delle Banche Popolari Italiane S.p.A.; 

Member of the Board of Auditors of Librerie Feltrinelli S.p.A.; 

Member of the Board of Auditors of Lanificio Fratelli Cerruti S.p.A.; 

Member of the Board of Auditors of Pirelli & C. Real Estate SGR S.p.A.. 



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PROCEDURE FOR COMPLIANCE 

WITH THE REQUIREMENTS OF ARTICLE 150.1 

OF LEGISLATIVE DECREE 58/1998 

Premise 

According to Article 150.1 of Legislative Decree 58/1998 (hereinafter “Consolidated Law on 

Financial Intermediation”) “the directors shall promptly inform the Board of Statutory Auditors, 

in the manner laid down in the bylaws and at least every three months, of the activities carried 

out and the transactions having a significant impact on the company’s profitability, financial 

position or assets and liabilities effected by the company or its subsidiaries; in particular, they 

shall report on any transaction in which they have an interest on their own behalf or on behalf 

of third parties, or which is influenced by the party exercising management and coordination 

activities” 1 . 

Pursuant to the above-mentioned provision and in the light of Consob’s communications 

regarding corporate controls 2 , this procedure defines the persons and transactions involved in 

the flow of information directed to the Board of Auditors of Pirelli & C. S.p.A. (hereinafter 

“Pirelli” or “the Company”) and the phases and timetable of that flow. In particular, the 

procedure defines: 

1. the method, frequency and content of information; 

2. the collection of the information. 

This procedure thus aims, in the first place, to provide the Board of Statutory Auditors with 

information serving for the performance of the oversight activity entrusted to it by the 

Consolidated Law on Financial Intermediation (Article 149). 

Secondly, this procedure implements corporate governance instruments that put into practice 

the recommendations contained in the Self-Regulatory Code of Conduct drawn up by the 

Committee for the Corporate Governance of Listed Companies, which Pirelli has adopted from 

the time it was issued. In particular, by enhancing the transparency of the Company’s 

operations, it enables each director to participate in its management in a more knowledgeable 

and informed manner. Moreover, the procedure activates flows of information between 

directors exercising delegated powers and the Board, in accordance with the recommendations 

of the Self-Regulatory Code of Conduct, with a view both to sanctioning the “centrality” of the 

Board in its entirety and strengthening the functions of internal control. 

Method, frequency and content of information 

The Board of Directors, possibly by means of delegated organs, every three months shall send 

the Board of Auditors a specific written report on: 

a) the activity carried out; 

b) transactions having a significant impact on the Company’s profitability, financial position or 

assets and liabilities; 

1 This provision is implemented by Article 11.3 of the Bylaws of Pirelli & C. S.p.A.: “The Board of Directors and the Board of 

Statutory Auditors are kept informed, also by the delegated bodies, about the activities carried out, the general performance of 

operations, the future outlook and the most important economic, financial and equity transactions carried out by the Company 

and its subsidiaries; in particular, the delegated bodies refer about transactions in which they have an interest, on their own 

behalf or on behalf of third parties, or transactions that are influenced by the party, if any, exercising management and 

coordination activities. Communication is given on a timely basis and, in any case, at least quarterly, at meetings of the Board of 

Directors and Executive Committee, if appointed, or by written communication.” 

2 Currently, Consob Communications 97001574 of 20 February 1997 and 1025564 of 6 April 2001; see also Consob Communication 

2064231 of 30 September 2002 concerning the definition of the notion of “related parties”. 



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c) transactions potentially involving a conflict of interest, that is to say: 

c1) intra-group transactions; 

c2) transactions with related parties other than intra-group transactions; 

d) atypical or unusual transactions and any other activity or transaction which it is considered 

appropriate to report to the Board of Auditors. 

The information supplied shall refer to the activity performed and the transactions effected in 

the period of time following that covered by the previous report. 

The report in question shall be transmitted simultaneously to all the directors and to the Board 

of Statutory Auditors. 

1. Activity performed 

The information shall regard executive activities and the developments of transactions already 

approved by the Board of Directors, as well as the activities of the committees (Committee for 

Internal Control and Corporate Governance, Committee for Remuneration and other internal 

committees); in particular, it shall report on the activities that the executive directors have 

performed, by means of the structures of the Company and its subsidiaries or otherwise, in the 

exercise of the powers delegated to them, including the initiatives taken and the projects begun. 

2. Transactions having a significant impact on profitability, financial position or 

assets and liabilities 

The information shall concern transactions having a significant impact on the Company’s 

profitability, financial position or assets and liabilities and shall detail, in particular, their 

strategic aims, consistency with the budget and industrial plan, manner of execution (including 

the economic and other terms and conditions) and developments, as well as their possible 

consequences and implications for the activity of the Pirelli Group. 

For the purposes of this procedure, in addition to transactions reserved to the Board of 

Directors pursuant to Article 2381 of the Civil Code and the Bylaws, the following shall be 

considered transactions having a significant impact on profitability, financial position or assets 

and liabilities: 

1) issues of financial instruments for a total value of more than Euros 100 million; 

2) the provision of real or personal guarantees in the interest of subsidiaries (or in the interest 

of Pirelli in the case of real guarantees) against obligations of an amount exceeding Euros 25 

million; 

3) the granting of loans or guarantees to the benefit or in the interest of third parties for 

amounts exceeding Euros 10 million; 

4) the granting of loans to the benefit of subsidiaries, investments and disinvestments, 

including those involving real estate, and acquisitions and disposals of shareholdings, 

businesses or branches of businesses, tangible fixed assets or other assets for amounts 

exceeding Euros 100 million. 

5) mergers or spin-offs in which subsidiaries participate where at least one of the applicable 

parameters below is equal to at least 15%: 

a. total assets of the merged company or activities to be spun off/total assets of the 

Company (data from the consolidated accounts); 

b. results before tax and non-recurring income and expense of the merged company or of 

the activities to be spun off/results before tax and non-recurring income and expense of 

the Company (data from the consolidated accounts); 

c. total net worth of the merged company or the branch of business to be spun off/total net 

worth of the Company (data from the consolidated accounts). 



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Mergers and amalgamations between listed companies, amalgamations between a listed 

company and an unlisted company and mergers of a listed company into an unlisted 

company shall for the purposes of this procedure always be considered transactions having 

a significant impact on the Company’s profitability, financial position or assets and liabilities. 

The information shall also regard transactions which, although individually below the 

quantitative thresholds indicated above or those that determine the exclusive responsibility of 

the Board of Directors, are interconnected within one and the same strategic or executive 

structure and therefore, when considered as a whole, exceed the threshold of significance. 

3. Transactions potentially involving a conflict of interest 

3a) Intra-group transactions 

The information on intra-group transactions shall describe their underlying interest and logic in 

the group context and the manner of their execution (including the economic and other terms 

and conditions), with particular regard to the valuation procedures adopted. 

Specific details shall be given of transactions whose value exceeds Euros 50 million, or less if 

not concluded at arm’s length conditions 3 .Details shall also be given of transactions which, 

although individually below the quantitative threshold indicated above, are interconnected 

within one and the same strategic or executive structure and therefore, when considered as a 

whole, exceed it. 

For the purposes of this procedure, intra-group transactions 4 shall be taken to mean 

transactions effected by Pirelli or by subsidiaries of Pirelli with: 

a) companies that directly or indirectly, or by means of a trust company or third parties, 

control Pirelli pursuant to Article 2359, first and second paragraphs, of the Civil Code and 

Article 93 of the Consolidated Law on Financial Intermediation; 

b) companies that directly or indirectly, or by means of a trust company or third parties, are 

controlled by Pirelli pursuant to Article 2359, first and second paragraphs, of the Civil Code 

and Article 93 of the Consolidated Law on Financial Intermediation; 

c) companies that directly or indirectly, or by means of a trust company or third parties, are 

controlled by the same companies that control Pirelli pursuant to Article 2359, first and 

second paragraphs, of the Civil Code and Article 93 of the Consolidated Law on Financial 

Intermediation; 

d) companies related with Pirelli pursuant to Article 2359, third paragraph, of the Civil Code 

and those that exercise a significant influence on Pirelli. Such a relationship does not exist 

with the related company of a related company. 

3b) Transactions with related parties other than intra-group transactions 

The information on transactions with related parties other than intra-group transactions shall 

detail the underlying interest and describe the manner of their execution (including the 

economic and other terms and conditions), with particular regard to the valuation procedures 

adopted. 

3 For the purposes of this procedure, transactions concluded at arm’s length conditions shall be taken to mean transactions 

concluded at the same conditions as those applied by the Company to whatsoever party. 

4 The following shall be material for the purposes of this procedure: transfers, with or without a consideration, of personal or real 

property or of transferable economic rights, transactions involving the performance of work or services, the granting or obtaining 

of loans and guarantees, and cooperation agreements for the conduct and development of company business. 



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For the purposes of this procedure, transactions with related parties 5 shall be taken to mean 

transactions carried out by Pirelli or by its subsidiaries with parties directly or indirectly related 

to Pirelli. 

The following shall be considered parties directly related to Pirelli: 

a) natural persons who hold (directly or indirectly, or by means of a trust company or third 

parties) an interest equal to at least 10% of the share capital represented by ordinary shares 

of Pirelli; 

b) natural persons who hold (directly or indirectly, or by means of a trust company or third 

parties) an equity interest smaller than the percentage indicated at point a) but who 

nonetheless by virtue of shareholders’ agreements can, individually or jointly with the other 

participants in the agreements, appoint the majority of the members of Pirelli’s Board of 

Directors; 

c) natural persons who hold (directly or indirectly, or by means of a trust company or third 

parties) an equity interest smaller than the percentage indicated at point a) but who 

nonetheless by virtue of shareholders’ agreements control, individually or jointly with the 

other participants in the agreements, the majority of votes exercisable in Pirelli’s ordinary 

shareholders’ meeting; 

d) Directors and members of the Board of Statutory Auditors of Pirelli; 

e) general managers, the secretary of the Board of Directors and the heads of business 

units/central functions/operating activities of Pirelli that report directly to the Chairman and 

the Managing Directors (so-called first reports). 

The following shall be considered parties indirectly related to Pirelli: 

f) non legally separated spouses of persons referred to at points a) to e); 

g) relatives by blood or affinity up to the second degree of kinship of persons referred to at 

points a) to e); 

h) companies in which persons referred to at points a) to g) hold directly or indirectly, or by 

means a of a trust company or third parties, an equity interest of at least 10% (in the case of 

a listed company) or 20% (in the case of an unlisted company) of the share capital 

represented by shares having voting rights in the ordinary shareholders’ meeting; 

i) companies in which persons referred to at points a) to g) hold equity interests smaller than 

percentages indicated at point h) but nonetheless by virtue of shareholders’ agreements can, 

individually or jointly with the other participants in the agreements, appoint the majority of 

the members of the company’s board of directors; 

j) companies in which persons referred to at points a) to g) hold equity interests smaller than 

the percentages indicated at point h) but nonetheless by virtue of shareholders’ agreements 

control, individually or jointly with the other participants in the agreements, the majority of 

the votes exercisable in the ordinary shareholders’ meeting of the company; 

k) companies in which persons referred to at points a) to g) have a strategic management role 

and subsidiaries of such companies; 

l) companies having a majority of directors in common with Pirelli. 

Parties related to Pirelli shall be as well considered direct or indirect participants in 

shareholders’ agreements referred to in Article 122.1 of Legislative Decree 58/1998 whose 

subject is the exercise of voting rights, if the shares covered by the agreement constitute a 

controlling interest. 

The information shall regard transactions having a value greater than Euros 500 thousand, or 

less if not concluded at arm’s length conditions, whether or not carried out by means of a third 

parties, with parties directly or indirectly related to Pirelli. Details must also be given of 

transactions which, although individually below the quantitative threshold indicated, are 

interconnected within one and the same strategic or executive structure and therefore, when 

considered as a whole, exceed it. 

5 See preceding note. 



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4. Atypical or unusual transactions and other transactions 

Information on atypical or unusual transactions, including those effected by subsidiaries, and on 

every other activity or transactions about which it is considered appropriate to give information 

shall detail the underlying interest and describe the manner of their execution (including the 

economic and other terms and conditions), with particular regard to the valuation procedures 

adopted. 

For the purposes of this procedure, atypical or unusual transactions shall be taken to mean those 

in which the object or nature of the transaction is extraneous to the normal course of business of 

the Company and those involving particular critical factors due to their characteristics and risks, 

the nature of the counterpart or the time at which they are concluded 6 . 

Procedure for collecting the information 

The Board of Directors shall report to the Board of Auditors by means of the delegated organs. 

To permit the specific report to be prepared, the information is to be transmitted to the 

Chairman and to the Managing Directors according to the procedure set out below. 

1. Information on the activity performed, on transactions having a significant 

impact on profitability, financial position or assets and liabilities, on intra-group 

transactions and on atypical or unusual transactions 

General managers and the heads of business units/central functions/operating activities of Pirelli 

that report directly to the Chairman and to the Managing Directors (so-called first reports) by 

means of the General Directorate for Administration and Control shall send the Chairman and 

the Managing Directors a specific note, on quarterly basis, on the activity performed during the 

period by the structure concerned, with details of the transactions having a significant impact 

on the Company’s profitability, financial position or assets and liabilities, of intra-group 

transactions of a value exceeding Euros 50 million, or less if not concluded at arm’s length 

conditions, of atypical or unusual transactions, of executive activities and the developments of 

transactions already approved by the Board of Directors, of the main activities carried out in 

the exercise of the powers delegated to them, including the most important projects begun and 

initiatives taken. 

Transactions which, although individually below the quantitative thresholds indicated above or 

those that determine the exclusive responsibility of the Board of Directors, are interconnected 

within one and the same strategic or executive structure and therefore, when considered as a 

whole, exceed the threshold of significance must also be reported 7 . 

The information on the activities of the Committee for Internal Control and Corporate 

Governance, the Committee for Remuneration and other internal committees shall be supplied 

by their respective chairmen. 

2. Information on transactions with related parties other than intra-group 

transactions 

The General Directorate for Administration and Control shall collect and transmit to the 

Chairman and to the Managing Directors, on the same quarterly basis of the preceding point 1, 

the declarations with which parties directly related to Pirelli report the transactions: 

• carried out, even by means of third parties, with Pirelli or subsidiaries of Pirelli, by 

themselves directly or through one of the persons referred to at the above paragraph 3.b, 

6 Transactions carried out at the end or the beginning of the financial year. 

7 In such case the transactions shall be material even where they are carried out in a span of time exceeding the three months 

covered by the report. 



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from letter h) to letter l) by non legally separated spouses, by relatives by blood or affinity up 

to the second degree, having a value greater than Euros 500,000, or, if less, concluded not at 

arm’s length conditions. 

• In providing such information details must also be given of transactions which, although 

individually below the quantitative threshold indicated above, are mutually interconnected on 

the basis of a common relation and therefore, considered as a whole, exceed the 

aforementioned threshold 8 . 

The General Directorate for Administration and Control shall also collect the declarations in 

which directly related parties (i) list the companies that by their means complete the case in 

point as referred to the previous paragraph 3.b, from letter h) to letter k), as well as the 

companies in which they are directors; (ii) update the above mentioned list. 

The General Directorate for Administration and Control shall transmit the list of the parties 

related to Pirelli as above identified, to the General Managers, the heads of Business 

Units/Central Functions/Operating Activities of Pirelli that report directly to the Chairman and 

the Managing Directors (so called First Reports). 

The First Reports quarterly inform the Chairman and the Managing Directors of the transactions 

carried out with Pirelli – or with its subsidiaries – by the indirectly related parties, as identified 

in the list provided by the General Directorate for Administration and Control, also by means of 

third parties, having a value greater than Euros 500,000, and even if less, of those concluded not 

at arm’s length conditions. 

Rules of conduct for effecting transactions with related parties 

1. Transactions with related parties, including intra-group transactions, except for typical or 

usual transactions concluded at arm’s length conditions, must be approved in advance by the 


2. Typical or usual transactions shall be taken to mean those which, by their object or nature, 

are not extraneous to the normal course of business of the Company and those which do not 

involve particular critical factors due to their characteristics or to the risks related to the 

nature of the counterpart or to the time at which they are concluded. 

Transactions concluded at arm’s length conditions means transactions concluded at the same 

conditions as those applied by the Company to whatsoever party. 

3. The Board of Directors shall receive adequate information on the nature of the relationship, 

the manner of execution of the transaction, the economic and other terms and conditions 

governing it, the valuation procedure adopted, the underlying interest and motivations, and 

the possible risks for the Company. Where the relationship is with a Director or with a party 

related by means of a Director, the Director concerned shall limit himself to providing 

clarifications and shall leave the meeting of the Board when the decision is to be taken. 

4. Depending on the nature, value and other characteristics of the transaction, to guard against 

the transaction’s being carried out at unsuitable conditions the Board of Directors shall be 

8 See preceding note. 



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assisted by one or more experts, who shall express an opinion, according to the case, on the 

economic conditions and/or the legitimacy and/or the technical aspects of the transaction. 

5. For transactions with related parties, including intra-group transactions, which are not 

submitted to the Board of Directors inasmuch as they are typical or usual concluded at arm’s 

length, the Directors having delegated powers or the managers responsible for carrying out 

the transaction, without detriment to compliance with the specific procedure pursuant to 

Article 150.1 of the Consolidated Law on Financial Intermediation, shall collect and 

preserve, inter alia by type or group of transaction, adequate information on the nature of 

the relationship, the manner of execution of the transaction, the economic and other terms 

and conditions governing it, the valuation procedure adopted, the underlying interest and 

motivations, and the possible risks for the Company. For such transactions also, one or more 

experts may be appointed as provided above. 

6. The experts are to be chosen from among persons of recognized professional experience 

and competence in the matters concerned. Their independence and absence of conflicts of 

interest will be carefully evaluated. 



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PIRELLI & C. S.P.A.’S CODE OF CONDUCT 

FOR INSIDER DEALING 

(The provisions of the Code came into force on December 1, 2002) 

1. Introduction 

Further to the provisions of article 180, and subsequent articles, of Legislative Decree No. 

58/1998 on the topic of misuse of privileged information, this Code of Conduct of Pirelli & C. 

S.p.A. (the “Code”) is intended to regulate, with binding effect, the declaration and conduct 

obligations inherent to Transactions carried out by Relevant Persons and the related disclosures 

to the market. 

2. Definitions 

For the purposes of this Code: 

A. Relevant Persons: shall mean the Directors (executive and non-executive), the standing 

Statutory Auditors, the General Managers, the Secretary to the Board of Directors, the heads 

of Departments as well as the head of Investor Relations. Furthermore, Relevant Person are 

also considered the heads of the following divisions: General Administration and Control 

Department, the General Finance Department, the Legal and Corporate Affairs Department, 

the Legal Affairs Department – Industrial Sector, the External Communications Department 

and the Audit Department shall be considered Relevant Persons, The heads of the following 

departments of Pirelli & C. Real Estate S.p.A. shall also be considered Relevant Persons: the 

Central Administration and Control Department, the General Finance Department and the 

Central Legal and Corporate Affairs Department. 

Each of the above-identified Relevant Persons may indicate other Relevant Persons in 

relation to the activity they carry out or their assigned job, for an indefinite or limited period 

of time; immediate communication shall be made of such indications – and of the respective 

time limits, if any – to the person concerned and to the Authorized Person. 

B. Financial Instruments: shall mean (i) negotiable financial instruments listed on the Italian 

and foreign regulated markets issued by Pirelli & C. S.p.A. and its subsidiaries, excluding 

non-convertible bonds; (ii) listed or unlisted financial instruments that give the right to 

subscribe to, purchase or sell the instruments referred to in (i), above, as well as the 

certificates representative of the instruments referred to in (i), above; (iii) derivative 

financial instruments and covered warrants whose underlying are the financial instruments 

referred to in (i), above, including those whose exercise involves the payment of a cash 

differential. The definition of Financial Instruments in (i), above, shall also include the 

subscriptions to real estate mutual investment funds promoted and managed by Pirelli & C. 

Real Estate Società di Gestione del Risparmio S.p.A. in its capacity as a funds management 

company. 

C. Transaction(s): shall mean any act that creates, modifies or extinguishes rights with respect 

to Financial Instruments, even if carried out within an individual investment portfolio 

management relationship. It shall also include the exercise of any stock options or option 

rights on Financial Instruments. 



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D. Significant Transaction: shall mean every Transaction that, alone or in aggregate with other 

Transactions carried out in the preceding three months and not yet declared to the 

Company, exceeds Euros 80,000. The notional value of derivative financial instruments or 

covered warrants shall be calculated as the product of the number of shares on which the 

instrument is based and the official price of the underlying activity recorded on the day the 

transaction was concluded. 

E. Authorized Person: shall be the Secretary to the Board of Directors of Pirelli & C. S.p.A., 

responsible for the receipt of declarations and administration of the information relating to 

Transactions carried out by Relevant Persons, who shall provide for the subsequent 

disclosure to the market in accordance with the procedures provided by the Code. 

3. Declaration Requirements of Relevant Persons 

Within the seventh calendar day after the end of each calendar quarter, Relevant Persons 

shall send to the Authorized Person the list of Transactions carried out in the quarter on 

Financial Instruments, whose total amounts is equal to or exceeds Euros 35,000. 

In the event that a Significant Transaction was carried out, the Relevant Person shall declare 

this without delay to the Authorized Person, together with the list of Transactions carried 

out in the preceding three months and not yet declared to the Company. 

Transactions carried out by the Relevant Person’s spouse, not legally separated, or minor 

children, or delegated to be carried out by nominees, trustees or subsidiaries shall also be 

subject to the declaration requirements. 

The declaration to the Authorized Person shall be made using a form corresponding to the 

model for submitting information established in the Instructions for the Regulations of 

Markets Organized and Managed by Borsa Italiana S.p.A. for the disclosure of information. 

4. Exemption from Transaction declaration requirements 

The Transactions carried out – directly or through nominees or trustees – between the 

Relevant Person and his or her spouse, not legally separated, or minor children, shall be 

excluded from the declaration requirements to the Authorized Person. 

Transactions involving the loan of securities in which the Relevant Person, directly or 

indirectly, his or her spouse, if not legally separated, or minor children, acts as the lender, 

and also Transactions creating liens or beneficial interests shall also be excluded. 

5. Limitations on carrying out Transactions 

Transactions carried out – directly or through nominees – by Relevant Persons, different 

from non-executive Directors and Statutory Auditors, shall be permitted only after the first 

release of final or preliminary economic-financial data for each quarter 9 until the closing of 

next quarter. The non-executive Directors and Statutory Auditors shall abstain from carrying 

out Transactions from the day the Directors’ meeting called to examine the above-mentioned 

economic-financial data is convened, or from the time that they became acquainted with that 

data if earlier, until its release. 

Relevant Persons may carry out Transactions outside the allowed period only in the event of 

exceptional situations of personal necessity that are adequately justified by the person 

9 Or, semester or year, in the case of exemption from the publication of the second and fourth quarter reports, respectively. 



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concerned. The assessment of the existence of a situation of personal necessity shall be 

handed-out to the Chairman of the Board of Directors. 

The limitations referred to in the first paragraph of this article shall not apply to the exercise 

of stock options or option rights involving Financial Instruments and the consequent 

Transactions, provided that they are carried out at the same time the options or rights are 

exercised. 

The Board of Directors may identify additional periods or circumstances in which 

Transactions are subject to limits and conditions and shall immediately inform the 

Authorized Person and Relevant Persons thereof. 

6. Disclosure of transactions to the Market 

The Authorized Person shall disclose the information received from Relevant Persons to the 

market within the tenth trading day of the stock market after each calendar quarter by 

means of the transmission of a specific communication to Borsa Italiana, in accordance with 

the procedures provided in the Regulation of Organized Markets and Managed by Borsa 

Italiana and in the related Instructions. 

Significant Transactions shall be disclosed to the market without delay, in the manner 

specified in the previous paragraph. 

7. Sanctions 

With the understanding that Pirelli & C. S.p.A. has the right to seek compensation for any 

damages and/or liability that may result from conduct in violation of the Code, the breach of 

the declaration requirements or of the limitations on carrying out Transactions shall lead to: 

(i) for employees, the imposition of disciplinary sanctions as provided by the laws in force 

and by the applicable collective national labor contract; (ii) for any other collaborators, the 

termination – with or without notice – of the relationship; (iii) for the Directors and 

statutory auditors, the Board of Directors may propose the revocation of their appointments 

to the next shareholders’ meeting if in default. 

8. Acceptance 

Acceptance of this Code by each Relevant Person shall be made by signing the form 

attached as an Appendix hereto. 

9. Updating of the Code and treatment of personal data 

The Authorized Person shall be responsible for monitoring the application and effectiveness 

of the Code in respect of its intended purpose, and for the possible submission of any 

modifications or integrations to the Board of Directors. 

The Authorized Person shall keep the written declarations with which the Relevant Persons 

confirm their full knowledge and acceptance of the Code and grant their consent, pursuant 

to Legislative Decree No. 196/2003, for the treatment of the requested data. 



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RULES OF PROCEEDING FOR THE 

SHAREHOLDERS’ MEETING 

Article 1 

- These Rules shall apply to the Company’s ordinary and extraordinary shareholders’ meetings. 

Article 2 

- For matters not expressly governed by these Rules, the chairman of the shareholders’ meeting 

(hereinafter the “Chairman”) shall adopt the measures and solutions deemed most 

appropriate, in conformity with applicable law and the bylaws, to ensure the regular conduct 

of the proceedings. 

Article 3 

- Persons may attend the shareholders’ meeting with the right to take part in the discussion and 

to vote who have entitlement pursuant to the applicable rules (hereinafter the “Participants”). 

- Unless stated otherwise in the notice convening the meeting, verification of Participants’ 

identity and of their right to attend the meeting shall begin at the place where the meeting is 

to be held at least one hour before the time fixed for the start of the meeting. Once the 

Participants have been identified and their right to attend verified under the supervision of 

the Chairman, the auxiliary staff provided by the Company shall issue badges for control 

purposes and for the exercise of the right to vote. 

- Participants shall be guaranteed the possibility to follow and take part in the discussion and to 

exercise their right to vote using the technical methods established on each occasion by the 

Chairman. 

- Participants who, after being admitted to the meeting, intend for any reason to leave the 

premises where it is being held must inform the auxiliary staff accordingly. 

Article 4 

- Directors, managers and employees of the Company or Group companies and other persons whose 

presence is deemed useful in relation to the matters to be discussed may attend the meeting. 

- With the agreement of the Chairman, members of the professions, consultants, experts, 

financial analysts and journalists, accredited meeting by meeting, may follow the proceedings 

and special areas may be made available to them for that purpose. 

- Persons accredited to follow the proceedings must report for identification by the Company’s 

appointees at the entrance of the premises where the meeting is to be held and collect a 

special badge to be exhibited upon request. 

Article 5 

- In accordance with applicable law and the bylaws, it shall be the duty of the Chairman to direct the 

proceedings, ensuring the best conditions for the orderly and effective conduct of the meeting. 

- The Chairman may authorize the use of audio-visual recording and transmission equipment. 

Article 6 

- The Chairman shall be assisted in conducting the meeting and preparing the minutes by a 

Secretary, where a notary public is not required. The Secretary or the notary public may in 

turn arrange to be assisted by fiduciaries. 

- The Chairman shall be assisted by scrutineers in conducting the voting procedures; he may use 

auxiliary staff to provide the necessary technical support and to maintain order. 

Article 7 

- When the quorum of the shareholders’ meeting is not reached, after an appropriate period of 

time the Participants shall be informed of the fact and the discussion of the matters on the 

agenda shall be understood to be deferred until the next call of the meeting, if any. 



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- During a meeting the Chairman may suspend the proceedings for up to three hours if he 

deems it desirable and the majority of the capital represented at the meeting does not object. 

Article 8 

- The Chairman shall establish the order in which the items on the agenda are to be discussed, 

which may differ from that indicated in the notice convening the meeting. 

- The Chairman may provide for several items to be discussed together or for the discussion to 

proceed item by item. 

- The Chairman and, at his invitation, persons attending the meeting pursuant to the first 

paragraph of Article 4 shall explain the items on the agenda. 

Article 9 

- It shall be the duty of the Chairman to direct and moderate the discussion, ensure its 

correctness and prevent disruption of the orderly conduct of the meeting. 

- The Chairman, taking account of the subject matter and importance of the individual items on 

the agenda, may establish at the start of the meeting the time allotted to each speaker, which 

must not be less than 15 minutes. 

- The Chairman shall call on Participants to comply with the time limits for speaking 

established in advance and to keep to the matters stated in the agenda. In the event of an 

overrun and/or an abuse, the Chairman shall interrupt the speaker. 

Article 10 

- Persons who intend to speak must apply to the Chairman or the Secretary, indicating the 

subject they will address. Such requests may be submitted until the Chairman closes the 

discussion on the subject to which they refer. 

- Participants may ask to take the floor a second time during the same discussion, for not more 

than five minutes, exclusively to respond to other speakers or to declare how they intend to 

vote. 

Article 11 

- The Board of Directors and the Participants may put forward, giving the reasons, proposals 

for alternative or amended resolutions with respect to those originally put forward by the 

Board of Directors. The Chairman shall evaluate the compatibility of such proposals in 

relation to the agenda of the meeting. 

Article 12 

- The members of the Board of Directors and the Board of Auditors may intervene in the 

discussion; at the invitation of the Chairman, persons attending the meeting pursuant to the 

first paragraph of Article 4 may also take the floor, inter alia to respond to requests for 

clarification. 

Article 13 

- The Chairman shall take appropriate action to ensure orderly voting and provide for the poll 

on an item to be held immediately after the discussion thereof or at the end of the discussion 

of all the items on the agenda. 

- The Chairman shall establish how each poll is to be conducted and the procedures for 

recording and counting the votes cast and shall be responsible for verifying the results. 

Article 14 

- Upon completion of the voting and the counting of the votes with the assistance of the 

scrutineers and the Secretary, the results of the poll shall be announced. 



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ABRIDGED FORM OF PIRELLI & C. SOCIETÀ PER 

AZIONI SHAREHOLDERS AGREEMENT 

1. Type and objective of the agreement 

The purpose of the Pirelli & C. shareholders agreement is to ensure a stable shareholder base 

and a uniform strategy in the management of the company. 

2. Parties to the shareholders agreement and Pirelli & C. shares transferred to the agreement: 

% on total % on total 

Number of shares shares ordinary 

conferred conferred shares issued 

CAMFIN S.p.A. 983,205,991 40.65 18.98 

FONDIARIA - SAI S.p.A. 223,543,498 9.24 4.32 

MEDIOBANCA S.p.A. 222,967,099 9.22 4.30 

EDIZIONE HOLDING S.p.A. 222,958,537 9.22 4.30 

R.A.S. S.p.A. 222,958,537 9.22 4.30 

ASSICURAZIONI GENERALI S.p.A. (*) 222,958,531 9.22 4.30 

BANCA INTESA S.p.A. 78,148,292 3.23 1.51 

CAPITALIA S.p.A. 78,148,292 3.23 1.51 

RIZZOLI CORRIERE DELLA SERA MEDIAGROUP S.p.A. 73,950,048 3.06 1.43 

Massimo MORATTI (**) 57,703,122 2.39 1.11 

SINPAR HOLDING S.A. 32,048,563 1.32 0.62 

Total 2,418,590,510 100 46.68 

(*) 57,400,000 shares through La Fédération Continentale Compagnie d'Assurances Sur La Vie S.A., 82,779,265 

shares through Ina Vita S.p.A. and 82,779,266 shares through Generali Vita S.p.A. 

(**) Including 37,420,339 shares through CMC S.p.A. and 11,328,318 shares fiduciary owned by Istifid S.p.A. 

3. The party, if any, which, through the agreement, can exercise control over the company 

There is no party which, through the agreement, can exercise control over Pirelli & C.. 

4. Restrictions on the sale of the shares transferred and on the subscription and the purchase 

of new shares 

The sale of the shares to third parties (and option rights in the event of a capital increase 

against payment) is prohibited. Shares can be sold freely and pre-emptively to subsidiaries, 

according to article 2359, paragraph 1, point 1 of the Italian Civil Code, and to the parent 

companies as well as other participants to the shareholders agreement. 

Each participant may buy or sell additional shares for an amount not in excess of the higher of 

20% of the shares already transferred by the participant itself and 2% of the ordinary share 

capital issued; purchases of greater amounts are permitted only with the intent of reaching a 

holding equal to 5% of the ordinary share capital issued, on condition that the amount in excess 

of the above limits came under the shareholders agreement. 

CAMFIN S.p.A. is authorized to freely purchase additional Pirelli & C. shares; it can transfer 

shares to the shareholders agreement, but to the extent that, at any one time, the shares do not 

exceed 49,99% of total shares transferred by all the participants in the shareholders agreement. 

This has been decided so that a stable predominate position is not assumed in the shareholders 

agreement or a stable veto power is not exercised over common decisions. 

Except where the Pirelli & C. ordinary shares in the shareholders agreement correspond to the 

majority of the voting rights in the ordinary shareholders’ meetings, each participant (also 

through parent companies and/or subsidiaries) intending to purchase shares of that category 



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shall inform the President in writing beforehand and the President shall inform the participant 

if, taking into account the laws in force concerning tender offers, the participant can proceed, 

in whole or in part, with the proposed purchase. 

5. Availability of the shares 

The shares transferred shall remain at disposal of the participants in the shareholders 

agreement. 

6. Bodies governing the agreement, composition, meetings and powers 

The Body governing the agreement is the Shareholders Agreement Executive Committee. 

The Shareholders Agreement Executive Committee shall consist of a president and vicepresident, 

in the form of the president and the longest serving vice-president of Pirelli & C., and 

by a member representing each participant unless a participant has deposited more than 10% of 

ordinary share capital, in which case another member may be designated: for this purpose, in 

the event the shareholders agreement is composed of several companies related by a controlling 

relationship or belonging to the same parent company, their aggregate shall be considered for 

this purpose as one sole participant in the shareholders agreement. 

The Shareholders Agreement Executive Committee shall be convened to evaluate the proposals 

to be submitted to the shareholders’ meetings, for the possible earlier termination of the 

agreement and for the admission of new participants. The Shareholders Agreement Executive 

Committee shall also meet at least twice a year to examine the semiannual performance, the 

annual results, the general guidelines for the company’s development, the investment policy and 

proposed significant divestitures and more in general, all the relevant matters of discussion by 

both the ordinary and extraordinary sessions of the shareholders’ meetings. 

7. Matters covered by the Agreement 

Those contemplated in points 4 and 6 above. 

8. Majorities needed to reach decisions regarding the issues governed by the Agreement 

The Shareholders Agreement Executive Committee approves its resolutions with the favorable 

vote of the majority of the shares transferred; the Shareholders Agreement Executive 

Committee can designate a trusted person to represent the shares in the shareholders 

agreement at the shareholders’ meetings in order to vote according to its instructions. Whenever 

the decisions of the Shareholders Agreement Executive Committee are not voted unanimously, 

the dissenting participant shall have the right to freely vote at the shareholders’ meeting. 

9. Term, renewal and cancellation of the agreement 

The agreement shall be valid until April 15, 2007 and shall be tacitly renewed for a period of 

three years except for withdrawal, which can be exercised between December 15 and January 

15 prior to the expiration date. In case of withdrawal, the shares transferred by the withdrawing 

party shall be automatically offered pro quota to the other participants. The agreement shall 

remain in force, whenever it is possible, at every expiration date, to renew the agreement for a 

percentage of Pirelli & C.’s subscribed ordinary share capital of not less than 33%. 

10. Penalties for breach of the commitments contained in the agreement 

They are not envisaged by the agreement. 

11. Registration of the agreement at the Company Registry 

The agreement is registered at the office of the Milan Companies Registry. 

Milan, March 17, 2005 



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INTERNATIONAL ACCOUNTING STANDARDS 

Evolution of the benchmark regulatory framework 

The guidelines and the benchmark regulatory framework applicable to companies listed within 

the European Union regarding the transition to IAS/IFRS are: 

• the adoption of Regulation No. 1606 issued by the European Parliament and by the Council of 

the European Union in July 2002 which provides for the mandatory application of IAS/IFRS, 

beginning from 2005, for the consolidated financial statements of companies listed in 

regulated markets of the European Union; moreover, this Regulation accorded to the Member 

States the authority to permit or to require the application of IAS/IFRS also for the 

preparation of the annual statutory accounts of listed companies and the annual statutory 

accounts and consolidated financial statements of unlisted companies; 

• the European Commission’s adoption of Regulation No. 1725 dated September 29, 2003 which 

approved the international accounting standards, and related interpretations, existing at 

September 14, 2002; IAS 32 and IAS 39, relating to the disclosure and measurement of 

financial instruments, respectively, and the related interpretations (SIC 5, 16 and 17) were 

excluded from that approval process; 

• the issue, by Italian legislators, of Law No. 306 dated October 31, 2003 (2003 EU Law) by 

which the Italian legislators exercised (Art. 25) the option permitted by the above-cited EU 

Regulation No. 1606/2002, and, accordingly, delegating the Government to adopt one or more 

legislative decrees implementing the authority provided by the above-mentioned EU 

Regulation within one year of the law coming into force (i.e. within November 30, 2004). 

On November 26, 2004, the Council of Ministers approved the draft of the implementing 

decree provided by Art. 25 of the above-cited Law 306/2003. That document (which was 

approved by the competent Parliamentary Commissions in the first half of February 2005) 

provides that listed companies required by EU Regulation No. 1606/2002 to prepare their 

consolidated financial statements in accordance with IAS/IFRS may, from 2005, also draw up 

their annual statutory financial statements in accordance with those standards (obligatory 

from 2006). The possibility to apply IAS/IFRS is also conceded to the unlisted subsidiaries of 

listed companies; 

• the recommendations of CESR (Committee of European Securities Regulators) published on 

December 30, 2003 and containing guidelines for companies listed within the EU regarding the 

transition to IAS/IFRS; 

• the European Commission’s adoption of Regulations No. 707 dated April 6, 2004, which 

approved IFRS 1 “First-time adoption of International Financial Reporting Standards”, No. 

2086 dated November 19, 2004, which approved, with certain limitations, IAS 39, and No. 

2236, No. 2237 and No. 2238 dated December 29, 2004 which approved IAS 32 and the other 

accounting standards reviewed by the IASB in December 2003 and March 2004, the new IFRSs 

issued in March 2004 (with the exception of IFRS 2, approved by the European Commission 

with Regulation No. 211 dated February 4, 2005), and the interpretation document IFRIC 1 

“Changes in Existing Decommissioning, Restoration and Similar Liabilities”, thereby achieving 

a stable system of accounting standards. 

However, the version of IAS 39 approved by the EU in the above-cited Regulation No. 2086 

differs from the text approved by the IASB with regard to certain aspects of the valuation of 

liabilities at fair value and of the macro-hedging of the interest rate risk associated with 

portfolios of assets and liabilities. 



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Pirelli & C. Group’s process of conversion to IAS/IFRS 

During 2003, the Pirelli Group commenced a program for the adoption of IAS/IFRS which 

required the establishment of a working group for the various areas of the financial statements, 

with the task of identifying the changes to and the integrations with Group accounting 

principles, highlighting the differences with the principles currently applied and the principal 

implications on the information systems deriving from the adoption of the new standards. 

Furthermore, a group technical disclosure and employee training program was instituted to 

share the changes deriving from the new international standards, their operational implications 

and proposed solutions. 

The restatement of the consolidated financial statements at December 31, 2004 according to 

IAS/IFRS is currently in progress (for comparative purposes only). 

The impacts on opening shareholders’ equity at January 1, 2004 (date of transition) and on the 

2004 result will be published with the data on the first quarter of 2005, which will be drawn up 

by applying IAS/IFRS for the valuation and measurement of the accounting values. 

Among the options provided by IAS/IFRS, the Pirelli & C. Group took the following decisions: 

a) principal optional exemptions provided by IFRS 1 upon first-time application of 

IAS/IFRS 

• business combinations: should be accounted for by applying the purchase method 

provided by IFRS 3. For purposes of the first-time adoption of IAS/IFRS, IFRS 1 allows a 

company/group not to apply IFRS 3 retrospectively to any business combinations which 

occurred before the date of transition to IAS/IFRS (January 1, 2004). However, if any 

business combination which occurred before the date of transition is restated to comply 

with IFRS 3, all subsequent business combinations should be restated in accordance with 

the purchase method set out in IFRS 3. The Pirelli & C. Group has chosen to adopt IFRS 3 

prospectively beginning from January 1, 2004; 

• financial instruments: IFRS 1 allows a company/group not to apply IAS 39 (“Financial 

Instruments: Recognition and Measurement”) and IAS 32 (“Financial Instruments: 

Disclosures and Presentation”) in the presentation of the information of the comparative 

period (2004) in the first IFRS financial statements (December 31, 2005). The Pirelli & C. 

Group has chosen to take advantage of this exemption; 

• employee benefits: a company/group can choose not to apply the “corridor” approach 

retrospectively, that is, it can choose to completely recognize the accumulated actuarial 

gains and losses at the date of transition to IAS/IFRS, even if the “corridor” approach is 

used for actuarial gains and losses realized successively. The Pirelli & C. Group has chosen 

to take advantage of this optional exemption. 

b) principal accounting treatment options provided by IAS/IFRS 

• statement of income presentation: in accordance with IAS 1, the statement of income 

may be presented with expenses classified by function or by nature. The Pirelli & C. Group 

has chosen to adopt the classification of expenses by nature, continuing with the current 

presentation; 

• valuation of property, plant and equipment and intangible assets: subsequent to 

initial recording at cost, IAS 16 and IAS 38 provide that such assets can be valued at cost 

(and depreciated/amortized) or at fair value. The Pirelli & C. Group has chosen to adopt 

the cost method, continuing with the current principles; 



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• borrowing costs: for the purposes of recording borrowing costs that are directly 

attributable to the acquisition, construction or production of a qualifying asset, IAS 23 

provides that an entity may apply the benchmark accounting treatment, which provides for 

the immediate expensing of borrowing costs, or the allowed alternative accounting 

treatment, which provides, in the presence of certain conditions, for the capitalization of 

borrowing costs. The Pirelli & C. Group has chosen to record such borrowing costs using 

the allowed alternative accounting treatment, continuing with the current accounting 

treatment; 

• valuation of interests in joint ventures in the consolidated financial statements: 

in accordance with IAS 31, interests in joint ventures may be accounted for using the 

equity method or, alternatively, using the proportionate consolidation method. The Pirelli 

& C. Group has chosen to adopt the equity method; 

• employee benefits: IAS 19 allows application of the “corridor” approach, which consists 

in not recognizing in the statement of income the actuarial gains and losses relating to 

defined benefit pension plans until the accumulated unrecognized actuarial gains and losses 

exceed a “corridor” (corresponding to 10 percent of the greater of the present value of the 

defined benefit obligations at that date or the fair value of any assets servicing the plan at 

that date). The portion of actuarial gains and losses in excess of the corridor is recognized 

over the expected average remaining working lives of the participating employees. The 

Pirelli & C. Group has chosen to adopt the “corridor” approach; 

• government grants: in accordance with IAS 20, government grants may be recorded as 

deferred income and recognized as income in the statement of income in proportion to the 

depreciation of the asset for the purchase of which the grant was received (deferred 

income method) or, alternatively, recorded directly as a deduction of the value of the 

asset. The Pirelli & C. Group has chosen to adopt the deferred income method, continuing 

with the current principles. 

Principal differences emerging from the application of IAS/IFRS 

for the Pirelli & C. Group 

The principal differences emerging from the application of IAS/IFRS compared to Italian 

accounting principles are summarized as follows: 

• goodwill and differences on consolidation: these items may no longer be amortized 

systematically in the statement of income but should be subject to a valuation, carried out at 

least annually, in order to identify any impairment in value (impairment test); 

• employee benefits: in accordance with IAS 19, post-employment benefits – for example, 

pensions and provisions for employees’ leaving indemnity (TFR) and other long-term benefits 

– for example, long-service seniority benefits and deferred compensation should be subject to 

actuarial valuation to express the present value of the benefit, payable upon termination of 

employment, that employees have matured up to the balance sheet date; in particular, with 

reference to the above-described post-employment benefits alone, the Pirelli & C. Group has 

chosen to take advantage of the exemption provided by IFRS 1 which allows, upon transition 

to IAS/IFRS (January 1, 2004), complete recognition of the accumulated actuarial gains and 

losses at that date: for subsequent years, the Pirelli & C. Group has chosen to apply the 

“corridor” approach, which consists in recognizing in the statement of income, over the 

expected average remaining working lives of the participating employees, only the portion of 

the actuarial gains and losses in excess of the “corridor”; 



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• stock options: IFRS 2 classifies stock options into two types which require two different 

types of accounting treatment: 

- “equity-settled” stock options: this method is generally applied in the absence of put options 

of the beneficiary with the issuer. 

The fair value of the option, determined at the grant date, is recognized as a cost over the 

period of the plan with a contra-entry to increase reserves in shareholders’ reserves. 

- “cash-settled” stock options: this method is applied in the presence of put options by the 

beneficiary, combined with call options by the issuer, or in those cases where the 

beneficiary directly receives cash. the capital gain. 

The fair value of the option, determined at the grant date, is recognized as a cost over the 

period of the plan with a contra-entry to liabilities. The periodical charges of the costs are 

remeasured at each reporting date based upon the adjustment of the measurement of fair 

value. 

• derivatives on investments: derivatives on investments, depending on the economic effects 

they involve, may be recorded at fair value in accordance with IAS 39, or in accordance with 

IAS 27 which provides for the increase in the value of the investment with a contra-entry to 

the relative liability; 

• impairment of property, plant and equipment and intangible assets: IAS provide more 

objective and detailed guidelines for the measurement of the impairment of property, plant 

and equipment and intangible assets; 

• spare parts: in accordance with IAS, spare parts of significant value should be capitalized, 

those of non-significant value should be expensed in the statement of income when the 

expense is incurred; the value may not be recorded in inventories; 

• contingent assets: IAS clearly define the concept of contingent assets, establishing that they 

may not be recognized in the financial statements because that would involve the recognition 

of income that may never be realized. When the realization of income becomes virtually 

certain, then the related asset is not a contingent asset and its recognition is appropriate; 

• intangible assets: certain types of costs, that can be capitalized under Italian accounting 

principles, do not meet the requisites for recognition under intangible assets according to 

IAS/IFRS (for example, formation costs, start-up costs, advertising costs, capital-related costs) 

or, however, more restrictive conditions must be met for their capitalization (development 

costs); 

• extraordinary items: in accordance with IAS/IFRS extraordinary items may no longer be 

recorded separately in the statement of income but should be classified as ordinary items; 



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The following principal differences emerging from the application of IAS 32 (“Financial 

Instruments: Disclosures and Presentation”) and IAS 39 (“Financial Instruments: Recognition 

and Measurement”) are also summarized as follows: 

• treasury shares: in accordance with IAS/IFRS, treasury shares may no longer be recorded as 

an asset but should be recorded as a reduction of shareholders’ equity (for the par value) and 

additional paid-in capital (for the excess amount); 

• derivative financial instruments: in accordance with IAS/IFRS, all derivatives should be 

reflected in the financial statements at their fair value. The method of accounting for 

derivative financial instruments varies based on their characteristics (hedging instruments and 

non-hedging instruments); 

• financial assets “available for sale”: the investments now included in financial assets 

under fixed assets are classified in accordance with IAS/IFRS as financial assets “available for 

sale”, and should be valued at fair value with a contra-entry to shareholders’ equity; 

• financial assets “held for trading”: securities held for trading are classified under IAS as 

financial assets “held for trading”, and should be valued at fair value with a contra-entry to 

the statement of income. 



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PIRELLI & C. S.P.A. - SUMMARY DATA 


Balance sheet 12/31/2004 12/31/2003 



Financial assets 4,834.4 4,657.7 


5,143.7 4,923.0 

Shareholders’ equity 3,571.0 3,355.1 


Net financial (liquidity)/debt position 1,192.4 1,213.7 

Equity and financial structure 

5,143.7 4,923.0 

The above statement presents the equity and financial structure of the company. The most 

significant changes in 2004 are commented below: 

• financial assets increased by Euros 176.7 million due to share capital increases and 

investments for future share capital increases of Eurostazioni S.p.A. (Euros 33.3 million), F.C. 

Internazionale Milano S.p.A. (Euros 11.7 million), Eurofly Service S.p.A. (Euros 1.3 million) 

and Pirelli & C. Ambiente S.p.A. (Euros 1.8 million), the purchase of 47,155,300 Telecom Italia 

S.p.A. ordinary shares from the subsidiary Pirelli Finance (Luxembourg) S.A. (Euros 124 

million), the purchase on the market of 7,413,341 RCS Mediagroup S.p.A. ordinary shares 

(Euros 32.6 million) and the purchase of 5,791,200 Pirelli & C. Ambiente Holding S.p.A. shares 

(Euros 5.8 million). 

Such increase was partly offset by the sale of 3,400,000 Pirelli & C. Real Estate S.p.A. shares 

(Euros 3.5 million), the sale of the entire investment in Banca Intesa S.p.A. (Euros 5.7 million) 

and the adjustment to investment holdings (Euros 25.5 million). 

• net working capital increased by Euros 47.2 million. This increase principally refers to 

higher dividends receivable recorded in 2004 compared to the prior year (Euros 33.3 million) 

and the posting of receivables from and payables to the tax authorities and some Italian 

subsidiaries which have decided to adhere to the tax consolidation system (Euros 19.7 

million). 

• shareholders’ equity increased by Euros 215.9 million compared to the prior year, changes 

in shareholders’ equity are presented in the following table: 


Shareholders’ equity at 12/31/2003 3,355.1 

Dividends paid (108.6) 

Exercise of 2003 - 2006 warrants 174.9 

Net income 149.6 

Total change 215.9 

Shareholders’ equity at 12/31/2004 3,571.0 



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• the increase in provisions of Euros 26.1 million compared to December 31, 2003 is chiefly the 

result of the accrual of Euros 40 million made to the provision for risks and future expenses 

in respect of the options granted to the shareholder banks of Olimpia S.p.A. and Hopa S.p.A. 

under shareholders’ agreements. This increase was partly compensated by the utilization and 

release of provisions for a total of Euros 18.3 million. 

• net financial debt position went from Euros 1,213.7 million at December 31, 2003 to 

Euros 1,192.4 million at December 31, 2004. A summary of the changes is detailed in the 

following table: 


Operating loss (24.3) 

Investment income (expenses) (15.3) 

Others changes (2.6) 

Free cash flow (42.2) 

Financial income (expenses) (48.9) 

Dividends collected 142.6 

Dividends paid (108.6) 

Other changes 78.4 

Total change 21.3 

Results of operations 


Statement of Income 2004 2003 

Financial income (expenses) (49.7) (46.5) 

Investment income 176.8 261.4 

Valuation adjustments to financial assets (27.1) (56.5) 

Other operating income (expenses) (24.3) (19.1) 

Income before extraordinary items and income taxes 75.7 139.3 

Extraordinary items 46.0 (20.6) 

Income taxes 27.9 19.1 

Net income 149.6 137.8 

The year 2004 ended with a net income of Euros 149.6 million compared to Euros 137.8 million 

in 2003. 

The decrease in the income before extraordinary items and income taxes (Euros 63.6 million) is 

mainly due to the reduction in investment income (Euros 84.6 million); account should also be 

taken of the fact that in 2003 the subsidiary Sipir Finance N.V. had distributed reserves of Euros 

120 million. 

The decrease in income before extraordinary items and income taxes is offset by an increase in 

extraordinary items (Euros 66.6 million) and income taxes (Euros 8.8 million). 

Extraordinary items include the gain realized on the sale of 3,400,000 Pirelli & C. Real Estate 

S.p.A. shares (Euros 89.2 million) to third parties and the accrual to the provision for liabilities 

and expenses for the risks associated with the options granted to the shareholder banks of 

Olimpia S.p.A. and to Hopa under shareholders’ agreements (Euros 40 million). It should also be 

mentioned that extraordinary items in 2003 had included the costs for the Pirelli S.p.A. and 

Pirelli & C. Luxembourg S.p.A. merger (Euros 16.1 million). 

In 2004, Pirelli & C. S.p.A. exercised the option to file for consolidated taxation as head of the 

group, which led to posting of a net benefit in income taxes of Euros 19.7 million. 



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SHAREHOLDERS’ RESOLUTIONS 

Appropriation of net income 

The year ended December 31, 2004 shows a net income of Euros 149,620,758. 

The Board of Directors proposes the distribution of dividends, before withholding taxes, of: 

• Euros 0.0210 for each ordinary share 

• Euros 0.0364 for each savings share. 

If in agreement with our proposal, we ask you to pass the following 

resolution 

The shareholders’ meeting: 

• having taken note of the Directors’ Report on Operations; 

• having taken note of the Board of Statutory Auditors’ Report; 

• having examined the financial statements at December 31, 2004 which show a net income of 

Euros 149,620,758 

resolves 

a) to approve: 

- the Directors’ Report on Operations; 

- the balance sheet, the statement of income, the notes to financial statements for the year 

ended December 31, 2004 which show a net income of Euros 149,620,758 as presented by 

the Board of Directors in their entirety and in the individual entries, with the proposed 

accruals; 

b) to appropriate the net income for the year of Euros 149,620,758 as follows: 

• 5 percent to the legal reserve Euros 7,481,038 

• to the shareholders: 

Euros 0.0210 to 5,177,943,110 (*) ordinary shares, for a total Euros 108,736,805 

Euros 0.0364 to 134,764,429 savings shares, for a total Euros 4,905,425 

• to retained earnings Euros 28,497,490 

(*) net of 2,617,500 treasury shares currently held by the Company 

c) to authorize the Directors, in the event treasury shares are purchased before the ex dividend 

date in reference to point b) to appropriate the amount of the dividends to which such 

shares are entitled to retained earnings, and to charge the same caption for the balance of 

roundings which may arise at the time of the payment of the dividends. 



Introduction 

The Group 





Tyres Sector 





Environment 


Proforma data 

Related Party 

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Summary Data 


Resolutions 

Appointment of the Board of Directors after establishing the number of its 

members; determination of the compensation of the directors 


On March 22, 2005, all the members of the Board of Directors tendered their resignations from 

office – which would have expired upon approval of the financial statements for the year ended 

December 31, 2005 – in order to immediately render applicable the mechanism of the so-called 

slates for the appointment of the members of the Board of Directors – introduced by the May 

11, 2004 shareholders’ meeting, and encourage – in line with international best practices – an 

evermore increasing participation of all the shareholders in the life of the company and in the 

decisions capable of determining the success of the company. 

The shareholders’ meeting is therefore asked to appoint the new Board of Directors after 

establishing the number of its members. 

To this end, it should be recalled that art. 10 of the bylaws (presented at the end of this report) 

states that the Board of Directors of the company should be composed of between 7 (seven) 

and 23 (twentythree) members and establishes the terms of office in three years (unless a 

shorter period is fixed by the shareholders’ meeting), with the possibility of re-election. 

In short, it is recalled that, according to the same art. 10 of the bylaws, the appointment of the 

Board of Directors will take place on the basis of slates in which the candidates are listed by 

consecutive number. These slates can be presented by the shareholders who, alone or together 

with other shareholders, hold, in total, shares representing at least 2 (two) percent of the shares 

with voting rights in the ordinary shareholders’ meeting, according to the manner and times 

indicted in the cited art. 10 of the bylaws and also stated in the call to the shareholders’ 

meeting. 

In particular, the slate of candidates, also pursuant to the provisions of art. 7.1 of the 

Self-Regulatory Code of listed companies (presented at the end of this report), which the 

Company has adopted, must be filed at the company’s registered office at least ten days before 

the date fixed for the meeting in first call together with the statements whereby the single 

candidates accept the nomination and attest, under their own personal responsibility, that no 

circumstances exist for ineligibility or incompatibility, and that they have the requisites 

prescribed for the position. A description of the personal and professional résumé of each 

individual standing for election must be filed with the statements, with eventual indication 

of the eligibility of the person to be qualified as an independent candidate, in accordance with 

art. 3.1 of the cited Self-Regulatory Code of listed companies (also presented at the end of this 

report). 

The shareholders’ meeting must also fix the compensation of the new directors. 

Having said this, the Board of Directors, 

• having taken note of what is prescribed by the bylaws with regard to the composition and the 

manner of appointing the Board of Directors; 

asks the shareholders’ meeting 

• to determine the number of members of the Board of Directors, establishing the period of the 

term of office and the relative compensation; 

• to vote the slates of candidates for the post of Director of the Company that were put forward 

and made known according to the manner and time indicated in art. 10 of the bylaws. 



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Resolutions 

Art. 10 of the bylaws 

The company is managed by a Board of Directors composed of between seven and twenty-three members who shall remain in office 

for three years (unless the meeting fixes a shorter term of office at the time of making the appointment) and may be re-elected. The 

shareholders’ meeting shall determine the number of members of the Board of Directors, a number that shall remain fixed until 

another resolution is passed. 

The appointment of the Board of Directors shall be made on the grounds of slates put forward by the shareholders, according to the 

following paragraphs, in which the candidates are listed by consecutive number. 

The slates put forward by the shareholders, undersigned by the parties presenting them, must be filed at the company’s registered 

office and available to anyone on request at least ten days before the date fixed for the meeting in first call. 

Each shareholder may put forward or take part in putting forward only one slate and each candidate shall be presented on only one 

slate, on penalty of ineligibility. 

All shareholders who, alone or together with other shareholders, represent at least 2 percent of the shares with voting rights in the 

ordinary shareholders’ meeting, have the right to put forward a slate, with the obligation of proving ownership of the number of 

shares necessary to put forward the slates within two days prior to the shareholders’ meeting in first call. 

Statements must be filed together with the slates, within the terms indicated above, whereby the single candidates accept the 

nomination and attest, under their own personal responsibility, that no circumstances exist for ineligibility or incompatibility, and 

that they have the requisites prescribed for the position. A description of the personal and professional résumé of each individual 

standing for election must be filed with the statements, with eventual indication of the eligibility of the person to be qualified as an 

independent candidate. 

Any slates put forward which do not comply with the aforesaid provisions shall be considered not to have been put forward. 

Anyone with voting rights may vote for only one slate. 

The election of the Board of Directors is performed as follows: 

a) four fifths of the directors to be elected, with roundings, in the case of a fraction of a number to the lower unit, are taken from 

the slate which has obtained the highest number of votes, in the consecutive order in which they are listed thereon; 

b) the remaining directors are taken from the other slates; to this end, the votes obtained by the slates themselves shall be divided 

successively for one, two, three, four – and so on – according to the number of directors to be elected. The quotients thus 

obtained will be consecutively applied to the candidates on each of these slates, in the respective order in which they appear 

on the slate. The quotients thus assigned to the candidates of the various slates will be ranked in a single descending 

classification. 

Those with the highest quotients will be elected. 

When more than one candidate has obtained the same quotient, the candidate on the slate which has not yet elected any directors 

or which has elected the lowest number of directors will be elected. 

If none of these slates has as yet elected a director or all the slates have elected the same number of directors, the candidate on the 

slate which received the most votes shall be appointed. In the event of several slates obtaining the same number of votes, and again 

with the same quotient, a new run-off vote will be cast by all the shareholders present at the meeting and the candidate who obtains 

the simple majority shall be elected. 

For the appointment of the directors who, for whatsoever reason, were not appointed by the procedures described herein, the 

meeting shall elect the directors by the majorities prescribed by law. 

If because one or more directors are not present during the year, the provisions of art. 2386 of the Italian Civil Code will apply. 

The Board of Directors appoints a Chairman, where this has not already been done by the shareholders’ meeting, and, if necessary, 

one or more Deputy Chairmen. In the event of the Chairman being absent, the chair shall be taken by a Deputy Chairman or a 

Managing Director, in that order; if there should happen to be two or more Deputy Chairmen or Managing Directors, the chair shall 

be taken respectively by the senior in age. 

The Board shall appoint a Secretary, who is not necessarily a member of the Board. 

Unless otherwise decided by the shareholders’ meeting, the directors are not bound over by the prohibition mentioned under art. 

2390 of the Italian Civil Code. 

Art. 3 of the Self-Regulatory Code of listed companies – Independent directors 

3.1 A sufficient number of non-executive directors are independent, in the sense that they: 

a) do not have, directly, indirectly or on behalf of third parties, nor have they recently had, economic relationships with the 

company, its subsidiaries, the executive directors, or the shareholder or group of shareholders which control the 

company, of such significance as to influence their independence of opinion; 

b) do not hold, directly, indirectly or on behalf of third parties, equity stakes of such magnitude as to allow them to exercise 

control or significant influence over the company, nor do they belong to shareholders’ agreements for control of the 

company; 

c) are not close relatives of the executive directors of the company or of individuals who are in the situations indicated in 

letters a) and b), above. 

Art. 7 of the Self-Regulatory Code of listed companies – Appointment of directors 

7.1 The proposals for the appointment to the post of director, accompanied by exhaustive disclosure concerning the personal and 

professional characteristics of the candidates, with evidence of any eligibility of the candidates to qualify as independent in 

accordance with art. 3 of the Code, shall be filed at the registered offices - if possible - at least ten days prior to the date fixed 

for the shareholders’ meeting, or when the slates are filed, where provided. 



Introduction 

The Group 





Tyres Sector 





Environment 


Proforma data 

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Summary Data 


Resolutions 

Determination of the compensation to be assigned to the members of the Supervisory 

Panel appointed pursuant to Legislative Decree No. 231 dated June 8, 2001 


Legislative Decree No. 231 dated June 8, 2001 (“Rules regarding the administrative liability of 

legal entities, companies and associations with no juridical personality, according to Law No. 

300, art. 11, dated September 29, 2000) introduced the possibility of directly recognizing 

companies liable for specific crimes against the public administration (corruption, extortion, 

misappropriation, computer fraud, forgery of money, public instruments and revenues stamps, 

in addition to corporate crimes, those directed to terrorism and those against the individual 

personality) committed by directors, employees and associates in the interests of the same 

companies. 

Companies can be excluded from such liability only if they can demonstrate that they have 

adopted organizational models suitable for preventing the committing of such crimes. 

In view of the above, the Board of Directors of Pirelli & C. S.p.A., in its meeting of July 31, 2003, 

approved the “231 Organizational Model” and also set up a specific Supervisory Panel composed 

of three members, specifically, an independent director, the head of the internal audit 

department and a member of the Board of statutory auditors. 

The Board of Directors also established that the term of office of the members of the 

Supervisory Panel should coincide with that of the same Board of Directors. 

Since the Board of Directors will now be elected, the members of the Supervisory Panel should 

be re-appointed as well. 

This will be dealt with by the Board of Directors that will be elected by the convening 

shareholders’ meeting. 

The Board believes it opportune – in line with what has already transpired in the past - to refer 

the determination of the compensation to be paid to each member of the Supervisory Panel 

holding the office of statutory auditor and director, for the activities performed, to the same 

shareholders’ meeting. 

You are therefore asked to duly pass resolutions on the above compensation. 

Appointment of the audit firm for the audit of the statutory financial statements, 

the consolidated financial statements and the six-month reports for the years 

ending December 31, 2005, 2006 and 2007 


With the release of the audit report on the financial statements for the year ended December 31, 

2004, the audit appointment conferred by the shareholders’ meeting of May 13, 2002 to 

PricewaterhouseCoopers S.p.A. expires. 

Therefore, in accordance with Legislative Decree No. 58 of February 24, 1998, art. 159 

(the so-called “Draghi Law”), it becomes necessary to appoint independent auditors to audit the 

statutory financial statements and the consolidated financial statements, and, in compliance 

with the Consob recommendation No. 97001574 of February 20, 1997, the interim six-month 

reports, for the years ending December 31, 2005, 2006 and 2007. 

To this end, a fee proposal has been obtained from PricewaterhouseCoopers S.p.A. relating to 

these same services, which has been prepared in accordance with the criteria established by 

Consob in its communication No. 96003556 of April 18, 1996. 



Introduction 

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Tyres Sector 





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Summary Data 


Resolutions 

In view of the high professional standards demonstrated by PricewaterhouseCoopers S.p.A., as 

well as the considerable knowledge acquired by this audit firm on the dynamic evolution of the 

Group, manifested during the course of these last few years, and also considering reasons of 

opportunity and of an organizational nature, including the fact that the Group would incur higher 

internal costs should another audit firm be chosen, we propose that PricewaterhouseCoopers 

S.p.A. be confirmed as auditors for another three years (the last allowed by existing law). 

The fee proposal by PricewaterhouseCoopers S.p.A., as provided by the procedures adopted by 

the company, was submitted for evaluation beforehand to the Committee for Internal Control 

and Corporate Governance which has expressed its favorable opinion. The same opinion was 

also expressed by the Board of statutory auditors. 

The costs and commitments in the proposal received for professional services are summarized 

in the following table: 

Commitments Hours Fee in euros 

Full audit of statutory financial statements 690 64,000 

Full audit of consolidated financial statements 1,850 176,000 

Limited review of six-month interim financial report 790 74,000 

Control activities, pursuant to Leg. Decree 58/98, 

art. 155, paragraph 1, letter a) 270 21,000 

Total 3,600 335,000 

The above fees have been calculated on the basis of the hourly rate which is valid until June 30, 

2006. On July 1, 2006, and every year thereafter on July 1, the fees will be adjusted on the basis 

of the total change in the ISTAT cost-of-living index. 

These fees do not include out-of-pocket expenses and secretarial charges, which will be 

invoiced on the basis of the actual costs incurred, or the supervisory fee on behalf of Consob. 

We would also like to inform you that the major subsidiaries will confirm the same audit firm of 

PricewaterhouseCoopers S.p.A. for the audit of their financial statements and will directly bear 

the costs of the audits which will amount to about Euros 1,558,000 for the Italian subsidiaries 

and about Euros 2,202,000 for the foreign subsidiaries. 

If in agreement with our proposals, we ask you to pass the following 

RESOLUTION 

“The shareholders’ meeting: 

- having taken note of the proposal by the Board of Directors 

- having taken note of the favorable opinion of the Board of statutory auditors to the proposal 

of PricewaterhouseCoopers S.p.A., 

RESOLVES 

- to appoint PricewaterhouseCoopers S.p.A., in accordance with Legislative Decree No. 58 of 

February 24, 1998, article, 159, and taking into account Consob recommendation No. 97001574 

of February 20, 1997, to audit the statutory financial statements and the consolidated financial 

statements and the six-months reports for the years ending December 31, 2005, 2006 and 2007; 

- to establish, on the basis of the fee proposal prepared in accordance with the criteria of 

Consob resolution No. 96003556 of April 18, 1996, the annual fee in Euros 335,000 payable to 

the above audit firm, of which Euros 64,000 is for the statutory financial statements, Euros 

176,000 for the consolidated financial statements of the Group, Euros 74,000 for the limited 

review of the interim six-month financial statements and Euros 21,000 for the controls 

required by Legislative Decree No. 58 dated February 24, 1998, art. 155, paragraph 1, letter a). 



Introduction 

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Tyres Sector 





Environment 


Proforma data 

Related Party 

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International 



Summary Data 


Resolutions 

The above fees have been calculated on the basis of the hourly rate which is valid until June 

30, 2006. On July 1, 2006, and every year thereafter on July 1, the fees will be adjusted on the 

basis of the total change in the ISTAT cost-of-living index. 

These fees do not include out-of-pocket expenses and secretarial charges, which will be 

invoiced on the basis of the actual costs incurred, or the supervisory fee on behalf of Consob. 

Furthermore, the fees will be adjusted when exceptional or unforeseen circumstances arise, 

including significant changes in the structure and business of the Company which may require 

more or less resources and time to carry out the audit work”. 

Proposal for the purchase and disposition procedures of treasury shares 


In the resolution passed on May 11, 2004, you authorized the purchase of treasury shares 

(ordinary and savings shares) up to the maximum amount allowed by art. 2357 of the Italian 

Civil Code, equal to 10 percent of share capital pro-tempore and for a period of 18 months from 

the date of the resolution. 

This authorization will expire on November 10, 2005. 

With regard to the purchase of treasury shares, which we submit for your approval, the same 

opportunities now exist which persuaded the directors to propose to you the May 2004 

resolution, that being the convenience of taking action (in accordance with the law and 

ensuring equal treatment to the shareholders), in relation to contingent market situations, to act 

in a manner which favors, in the presence of particular circumstances, normal trading in order 

to safeguard the interests of all the shareholders. 

We therefore believe it useful to propose, with today’s shareholders’ meeting and to avoid 

convening a specific meeting close to the above expiration date, to proceed to issue a new 

authorization, which is completely the same as the existing one, canceling the authorization not 

used; the related procedures for the purchase and sale, as well as the procedures for the sale of 

the treasury shares already held in portfolio are contained in the following proposed resolution. 

If in agreement, we ask you to pass the following 

“The shareholders’ meeting: 

RESOLUTION 

• having taken note of the proposal by the directors; 

• having taken note of the provisions of art. 2357 and 2357-ter of the Italian Civil Code; 

• having taken note that, as of today, the company holds 2,617,500 ordinary shares, equal to 

approximately 0.05% of share capital amounting to Euros 2,763,969,020.28; 



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Tyres Sector 





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Summary Data 


Resolutions 

RESOLVES 

a) to cancel the resolutions passed by the shareholders’ meeting of May 11, 2004 authorizing 

the purchase of treasury shares and the disposition of the same, as not used; 

b) to authorize the purchase of treasury shares (ordinary and savings shares) of par value 

Euros 0.52 each within the maximum limit established by art. 2357 of the Italian Civil Code, 

equal to 10 percent of share capital pro-tempore, establishing that: 

- the purchase can be made at one or more times within 18 months of the date of this 

resolution; 

- the purchase shall be carried out according to the manner agreed with the company 

managing the market so that equal treatment among shareholders can be ensured, in 

accordance with Legislative Decree No. 58 of February 24, 1998, art. 132, or – taking into 

account the specific exemption provided by paragraph 3 of the same art. 132 – according 

to any other manner allowed by law and existing regulations; 

- the purchase price of each share shall not be either lower or higher, in both cases, than a 

maximum of 15 percent of the average reference price recorded by the Italian stock 

exchange in the three trading sessions prior to each single transaction; 

- the purchase shall be made by using retained earnings and the available reserves as shown 

in the latest approved financial statements, setting up a reserve for treasury shares in the 

manner and within the limits established by law; 

c) to authorize the Board – and on its behalf the Chairman, the Deputy Chairmen and the 

Managing Directors, separately – to dispose, without any time limit, the treasury shares 

already held or purchased according to the resolution referring to point b) even before 

having completed all the purchases; the sale can occur at one or more times; the shares shall 

be sold through a sale or exchange (also through a public offer, to the shareholders, to 

employees, and/or directors and/or associates - also as part of any stock option plans); in the 

event of sale, the price shall not be less than the lower of (a) the average official market 

prices of the share in the 15 trading days preceding each single sale transaction and (b) the 

value obtained by applying a discount of not more than 5 percent to the minimum price 

recorded by the Pirelli & C. ordinary or savings shares on the day of each sale transaction, 

or, however, at the last price available; such price limits shall not be applied when the sale 

of the shares takes place with employees and/or directors and/or associates of the company, 

and companies which it controls, under possible stock option plans; the shares can also be 

sold by being attached to bonds or warrants for their exercise; 

d) to confer to the Board, and on its behalf the Chairman, Deputy Chairmen and Managing 

Directors, separately, any and all powers necessary to make purchases and sales and in any 

case to carry out the preceding resolutions, also through those holding power of attorney, 

fulfilling that eventually required by the appropriate authorities”. 

The Board of Directors 

Milan, March 22, 2005 



Consolidated financial statements at December 31, 2004 



Consolidated financial statements at December 31, 2004 

Consolidated balance sheets 

Assets 

A) Capital subscription rights 

12/31/2004 12/31/2003 

Portion not called-up 458 - 

B) Fixed assets 

I) Intangible assets 

Formation costs 13,993 19,775 

Patents and design patent rights 2,293 1,708 

Concession, licenses, trademarks and similar rights 24,756 24,844 

Goodwill 39,370 33,132 

Difference on consolidation 392,448 421,376 

Intangible assets in progress and payments on account 2,012 2,096 

Other intangible assets 55,386 53,577 

Total intangible assets 530,258 556,508 

II) 

Property, plant and equipment 

Land and buildings 644,147 682,529 

Plant and machinery 1,088,544 1,071,596 

Industrial and commercial equipment 119,909 127,290 

Other property, plant and equipment 61,103 86,766 

Assets under construction and advances to suppliers 151,508 186,414 

Total property, plant and equipment 2,065,211 2,154,595 

III) Financial assets 

Investments in: 

a) Unconsolidated subsidiaries - 19,381 

b) Jointly controlled subsidiaries 2,594,041 2,588,671 

c) Associated companies 265,674 187,809 

d) Other companies 516,764 313,069 

Financial receivables: 

(in thousands of euros) 

b.2) Associated companies beyond 1 year 209,980 219,641 

c.1) Other companies due within 1 year 2,618 6,878 

c.2) Other companies due beyond 1 year 55,957 56,217 

Other securities 81,583 81,824 

Treasury shares 4,678 4,678 

Total financial assets 3,731,295 3,478,168 

Total fixed assets 6,326,764 6,189,271 



Assets 


12/31/2004 12/31/2003 

C) Current assets 

I) Inventories 

Raw materials, auxiliaries and consumables 254,512 228,941 

Work in process and semifinished products 232,255 217,478 

Contract work in progress 256,862 156,958 

Finished products and goods for resale 584,262 609,419 

Advances 10,120 9,218 

Total inventories 1,338,011 1,222,014 

II) Receivables 

Trade 1,330,347 1,326,740 

Unconsolidated subsidiaries 368 22,004 

Associated companies 138,756 166,807 

Deferred tax assets 51,832 67,153 

Other receivables 346,115 346,782 

Total receivables 1,867,418 1,929,486 

III) Current financial assets 

Other securities 242,314 283,525 

Total current financial assets 242,314 283,525 

IV) Cash and banks 

Bank and postal deposits 547,567 257,704 

Checks 1,727 2,979 

Cash on hand 1,959 2,933 

Total cash and banks 551,253 263,616 

Total current assets 3,998,996 3,698,641 

D) Accrued income and prepaid expenses 

Accrued income 30,370 40,453 

Prepaid expenses 29,144 32,681 

Total accrued income and prepaid expenses 59,514 73,134 

Total accrued 10,385,732 9,961,046 



Liabilities and shareholders’ equity 


12/31/2004 12/31/2003 

A) Liabilities and shareholders’ equity 

- Parent company interest 3,735,842 3,428,567 

I) Share capital 1,800,383 1,799,399 

II) Share premium reserve 500,291 500,291 

III) Revaluation reserve 1,680 1,680 

IV) Legal reserve 74,773 67,885 

V) Reserve for treasury shares in portfolio 4,678 4,678 

VII) Other reserves 899,772 879,153 

VIII) Retained earnings 237,090 214,838 

IX) Net income (loss) 217,175 (39,357) 

- Minority interest 351,778 249,180 

a) Capital and reserves 294,856 205,535 

b) Net income 56,922 43,645 

Total shareholders’ equity 4,087,620 3,677,747 

B) Provisions for liabilities and expenses 

Pensions and similar obligations 175,370 198,665 

Income taxes 118,893 162,322 

Other provisions 541,740 515,152 

Total provisions for liabilities and expenses 836,003 876,139 

C) Provision for employees’ leaving indemnity 175,388 169,006 

D) Payables 

Bonds 1,150,000 1,150,004 

Bank borrowings 1,312,898 1,271,441 

Other financial companies 87,147 159,803 

Advances from customers 245,837 134,069 

Trade 1,506,556 1,380,117 

Unconsolidated subsidiaries 2,416 5,321 

Associated companies 25,487 56,418 

Taxes 167,860 192,871 

Social security agencies 58,730 56,999 

Other payables 418,839 522,003 

Total payables 4,975,770 4,929,046 

E) Accrued liabilities and deferred income 

Accrued liabilities 260,215 230,873 

Deferred income 50,736 78,235 

Total accrued liabilities and deferred income 310,951 309,108 

Total liabilities and shareholders’ equity 10,385,732 9,961,046 



Memorandum accounts 


12/31/2004 12/31/2003 

Personal guarantees 

- Sureties on behalf of other companies 218,885 273,254 

- Credit guarantees on behalf of other companies 22,931 16,906 

- Other guarantees 105,202 45,156 

347,018 335,316 

Third party assets held in deposit 

- Securities held in deposit 1,206,406 1,230,245 

- Third-party goods held in deposit 6,896 10,100 

1,213,302 1,240,345 

Assets held by third parties 

- Securities held as guarantees and sureties 50,681 56,715 

- Goods held by third parties 4,682 4,314 

55,363 61,029 

Commitments and contingencies 

- Commitments for purchases of fixed assets 434,732 534,356 

- Commitments for purchases of investments 61,253 40,948 

- Nominal value of put options given to third parties 2,234,479 2,209,360 

- Sale of tax receivables 40,451 101,558 

2,770,915 2,886,222 

Other memorandum accounts 

- Potential losses for risk of default on discounted bills 150 21,954 

- Forward securities purchase 342,100 342,100 

342,250 364,054 

Total 4,728,848 4,886,966 



Consolidated statements of income 


2004 2003 

A) Production value 

Revenues from sales and services 7,114,085 6,671,300 

Changes in inventories of work in process, semifinished and finished products 692 (2,447) 

Changes in contract work in progress 87,189 20,153 

Increase in property, plant and equipment 12,374 10,659 

Other revenues and income: 

a) Miscellaneous 271,647 150,668 

b) Government grants 2,066 6,375 

Total production value 7,488,053 6,856,708 

B) Production costs 

Raw materials, auxiliaries, consumables and goods for resale (3,569,142) (3,215,408) 

Service expenses (1,463,258) (1,385,871) 

Lease and rent expenses (89,149) (80,662) 

Personnel costs (1,443,576) (1,371,175) 

Amortization, depreciation and writedowns: 

a) amortization of intangible assets (79,136) (82,853) 

b) depreciation of property, plant and equipment (265,387) (277,701) 

d) writedowns of receivables included in current assets and cash and banks (15,292) (26,263) 

Changes in inventories of raw materials, auxiliaries, consumables and goods for resale 36,815 63,262 

Other accruals (35,819) (47,135) 

Other operating expenses (183,808) (165,222) 

Total production costs (7,107,752) (6,589,028) 

Difference between production value and production costs 380,301 267,680 

C) Financial income and expenses 

Investment income 23,809 14,432 

Other financial income: 

a) from receivables included in fixed assets 14,652 10,246 

c) from sureties included in current assets 24,211 25,455 

d) income other than the above 56,179 65,496 

Interest and other financial expenses (224,338) (234,632) 

Gains/(losses) on exchange (2,951) (14,935) 

Total financial income and expenses (108,438) (133,938) 

D) Valuation adjustments to financial assets 

Revaluations 111,536 70,676 

Writedowns (35,532) (121,027) 

Total valuation adjustments 76,004 (50,351) 

E) Extraordinary items 

Extraordinary income 175,908 69,064 

Extraordinary expenses (155,590) (77,964) 

Total extraordinary items 20,318 (8,900) 

Income before income taxes 368,185 74,491 

Current taxes (96,478) (113,198) 

Deferred tax benefit 17,712 65,879 

Deferred tax expense (15,321) (22,884) 

Net income 274,098 4,288 

Parent company interest 217,176 (39,357) 

Minority interest 56,922 43,645 



Notes to the consolidated financial statements 

at December 31, 2004 

Form and content 

The consolidated financial statements for the year ended December 31, 2004 have been drawn up in accordance with the 

provisions introduced by Legislative Decree No. 127 dated April 9, 1991 which incorporate those of the VII directive of the EC. 

The consolidated financial statements include the financial statements of Pirelli & C. S.p.A., the parent company, and the 

companies in which Pirelli & C. S.p.A. holds, directly or indirectly, control as defined by Legislative Decree 127/91, art. 26. 

Jointly controlled subsidiaries are consolidated proportionally, by consolidating the individual items of the financial 

statements on a proportional basis, or valued using the equity method. 

The subsidiaries which fall under the cases indicated in Legislative Decree 127/91, art. 28 are excluded from the scope of 

consolidation. 

The list of companies included in consolidation, the statements of cash flows and the statements of changes in 

shareholders’ equity are presented in the supplementary information which is considered an integral part of these notes. 

All amounts in the notes are expressed in thousands of euros, unless otherwise indicated. 

The financial statements have been prepared in accordance with the principles set forth in article 2423 bis of the Italian 

Civil Code and, in particular: 

– items are valued on a prudent basis and according to the going-concern concept; 

– income and expenses are accounted for on the accrual basis; 

– risks and losses referring to the current year are taken into account even if they become known after the balance sheet date; 

– gains are only included if realized by the year-end date in accordance with the accrual principle. 

The posting of items to the balance sheet and the statement of income is made in conformity with the principles stated in 

articles 2424 bis and 2425 bis of the Italian Civil Code. 

The balance sheet and statement of income also present the corresponding comparative figures for the prior year. 

Reclassifications, where appropriate, have been made to the previous year’s financial statements for purposes of 

comparison. 

The audit report on the consolidated financial statements has been issued by PricewaterhouseCoopers S.p.A. pursuant to 

art. 159 of Legislative Decree No. 58 dated February 24, 1998 and takes into account the CONSOB recommendation dated 

February 20, 1997, in execution of the resolution passed by the shareholders on May 13, 2002 which appointed the audit 

firm for the three-year period 2002-2004. The audit fee for the consolidated financial statements has been agreed at Euros 

157 thousand per year. 

The fees for the audit of the individual Group companies have been borne directly by the companies concerned; the 

equivalent euro amount of fees for the year 2004 has amounted to approximately Euros 3,511 thousand, including the fees 

for the limited review of the six-month financial statements. 

Principles of consolidation 

The financial statements used in consolidation are those at December 31, 2004 prepared locally for approval by the 

shareholders of the individual companies and adjusted, where necessary, to agree with the "Common Accounting Principles" 

of the Group, which comply with those established by Legislative Decree 127/91 and those issued by the National Boards of 

Dottori Commercialisti and Ragionieri. 

The financial statements of subsidiaries operating in high-inflation countries have been adjusted to take into account the 

changed purchasing power of the local currency, in accordance with the principles for inflation accounting. 



The financial statements expressed in foreign currency have been translated into euros at rates prevailing at year-end for 

the balance sheet and at average exchange rates for the statement of income, with the exception of the financial statements 

of companies operating in high-inflation countries, whose statements of income have been translated at year-end rates. 

The differences arising from the translation of opening shareholders' equity at year-end exchange rates have been recorded 

in translation adjustments in shareholders’ equity. 

The exchange rates which have been applied are presented under "Other information" in the notes. 

The principles of consolidation are as follows: 

– For companies included in the scope of consolidation that are consolidated line-by-line or proportionally, the carrying 

value of the investments has been eliminated against the related underlying share of net equity. For companies valued 

using the equity method, the purchase cost is adjusted to the corresponding share of underlying net equity at December 

31, 2004 resulting from their respective financial statements. For investments in consolidated companies and for those 

valued using the equity method, the differences emerging, at acquisition, between the carrying value of the investments 

and the corresponding share of net equity have been accounted for as follows: 

1. negative differences are shown as a deduction from fixed assets, except those of definite amount; any additional 

negative difference is recorded in the consolidation reserve; 

2. positive differences, where not attributable to the assets or liabilities of the investee companies, have been recorded 

as a reduction of the consolidation reserve up to the amount of same and the remaining amount has been recorded as 

an asset in “difference on consolidation”. 

– Balance sheet and statement of income transactions between consolidated companies, including dividends paid within 

the Group, have been eliminated. 

– Gains and losses arising from transactions between consolidated companies, if not yet realized through transactions with 

third parties, have been eliminated. 

– The share of net equity and results of operations attributable to minority interests are shown separately, respectively, in 

the balance sheet and statement of income. 

The reconciliation between the net results and shareholders' equity of Pirelli & C. S.p.A. at December 31, 2004 and the 

corresponding consolidated figures is presented in the supplementary information. 

Summary of significant accounting policies 

The accounting policies adopted are those set forth by the provisions of art. 2426 of the Italian Civil Code, referred to and 

supplemented by the provisions of CONSOB and by the Accounting Principles issued by the National Boards of Dottori 

Commercialisti and Ragionieri. 

The accounting principles have been applied on a basis consistent with the prior year. Unless otherwise indicated, the 

accounting principles applied in the valuation of the components of the consolidated financial statements are consistent 

with those adopted in the financial statements of the parent company. 

• Intangible assets 

“Formation costs” relate to the capital increase costs of consolidated companies and are amortized over a period of five 

years. 

“Patents and design patent rights”, “concessions, licenses, trademarks and similar rights” are amortized over their 

expected economic lives, estimated in a period of five years. 

“Goodwill” includes the amount paid for this purpose by the Group companies for the acquisition of companies or other 

corporate transactions. Goodwill is amortized over a period between five and twenty years which identifies the possible 

period of utilization. 

The “difference on consolidation”, relating to the acquisition of investments, is amortized over a period between ten and 

twenty years; this period identifies the possible period of utilization. 

Applied software acquisition costs are amortized over a period between three and five years. 



Leasehold improvements are amortized over the period of the lease and, in any case, not exceeding five years. 

Image awareness costs benefiting future periods are amortized over the duration of the contract and, in any case, not 

exceeding five years. 

Loan acquisition costs are amortized over a period not exceeding the duration of the loan and, in any case, not exceeding 

five years. 

• Property, plant and equipment 

Property, plant and equipment are stated at purchase or production cost including directly attributable incidental 

expenses and eventually increased by revaluations effected in accordance with specific laws. 

Depreciation is calculated starting from the month when the asset is available and ready for use or potentially able to 

provide economic benefits. 

Depreciation is calculated on the straight-line method on a monthly basis at rates designed to completely write-off the 

assets over their estimated useful lives or, for disposals, up to the last month of utilization: 

Buildings 3% - 10% 

Plant 7% - 10% 

Machinery 5% - 10% 

Tools and equipment 10% - 33% 

Furniture 10% - 33% 

Vehicles 10% - 25% 

In addition, property, plant and equipment is written down when the net recoverable amount is permanently impaired 

and lower than the net book value, in accordance with article 2426, point 3 of the Italian Civil Code. 

Ordinary maintenance and repair costs are expensed in the year incurred. 

Government investment grants relating to property, plant and equipment are recorded in a special provision under 

liabilities and are released to income in proportion to the future depreciation of the assets to which they refer. 

Assets acquired under financial leasing contracts are accounted for as property, plant and equipment with a contra-entry 

to financial payables and are therefore capitalized and depreciated over their estimated useful lives. The lease payment is 

divided between interest expense, recorded in the statement of income, and the repayment of principal, recorded as a 

deduction of the financial liability. 

• Financial assets 

– Investments 

Equity investments in unconsolidated subsidiaries and other companies are valued at average cost, reduced for any 

permanent impairment in value; the original amount is reinstated whenever the reasons for the adjustment no longer 

apply. 

Equity investments in jointly controlled subsidiaries are valued using the equity method. 

Equity investments in associated companies are valued using the equity method, in accordance with article 2359 of the 

Italian Civil Code. 

– Other securities 

Other securities are stated at cost, reduced for any permanent impairment in value. 

– Treasury shares 

Treasury shares are valued at purchase cost, eventually adjusted for any permanent impairment in value. 

An undistributable reserve for an amount corresponding to the book value is recorded in shareholders’ equity pursuant 

to art. 2357 of the Italian Civil Code. 



• Current assets 

– Inventories 

Inventories are stated at the lower of cost, determined on the FIFO basis, and estimated realizable value. Work in 

process on long-term contracts is stated in proportion to the stage of completion of the work on the basis of agreed 

prices and taking into account estimated losses which are fully recognized in the year they become known. 

Land for development and properties under construction and/or renovation are stated at cost plus interest effectively 

incurred during the course of their development, construction or renovation. 

Furthermore, any requests for additional expenditures associated with the construction of university buildings are 

recorded in inventories based on a prudent estimate of the amounts to be recognized. 

Penalties for delays in deliveries of properties are accrued whenever such delays are chargeable to the contractor and 

not the principal. 

– Receivables and payables 

Receivables (under both fixed assets and current assets) are stated at estimated realizable value. Payables are stated at 

nominal value. 

Receivables and payables in foreign currencies other than the functional currency of the individual companies, are 

adjusted to the year-end exchange rates; the effects of hedging contracts are recorded in accrued income and accrued 

liabilities; related exchange gains or losses are recorded in the statement of income, for the period to which they refer. 

– Other investments and other securities 

Investments and other securities recorded in current assets designated for trading purposes and/or to meet treasury 

requirements, are stated at the lower of cost and fair value. 

– Cash and banks 

Cash and banks are stated at nominal value. 

– Accruals and prepayments 

Accruals and prepayments are recorded on the accrual basis. 

• Provisions for liabilities and expenses 

– Provisions for pensions and similar obligations 

These provisions refer to pensions, health care and other benefits in favor of employees, not regulated by specific laws 

but covered by local labor agreements and benefit plans operating at some Group companies. 

The accounting method is based on the allocation of the entire cost at maturity over the service lives of the employees 

based on entitlement earned, using actuarial methods. 

– Provision for income taxes 

The provision includes deferred tax liabilities and tax losses that are certain or likely to be incurred but uncertain as to 

the amount and/or the date on which they will arise; definite and certain income taxes payable are recorded in a 

specific account in the balance sheet. 



– Other provisions 

Other provisions include liabilities that are certain or likely to be incurred but uncertain as to the amount or the date 

on which they will arise. 

• Provision for employees' leaving indemnity 

The provision for employees' leaving indemnity includes amounts payable to employees accrued on their behalf in 

accordance with specific laws or national labor contracts. 

• Guarantees and commitments 

Guarantees given to third parties and commitments are recorded at the contract value of the commitment assumed on behalf of 

the beneficiary. 

Options granted to third parties and third-party securities held in deposit are recorded at nominal value. 

• Financial instruments 

Forward contracts and derivative financial instruments used for hedging purposes are recorded under commitments at 

the time the contract is signed, for the notional amount. Income and expenses, as well as any effects, corresponding to 

the difference between the original contract amount and the fair value at the end of the year, are accounted for on the 

accrual basis. 

• Recognition of revenues 

Revenues from the sale of products are recognized at the time of transfer of title of ownership which generally coincides 

with the delivery or shipment of the goods. 

Revenues from sales are shown net of discounts and allowances. 

• Research & development and advertising costs 

"Research & development and advertising costs" are charged to the statement of income in the year incurred. 

• Dividends 

Dividends are recorded on a cash basis, gross of tax credits. 

• Income taxes 

Current income tax liabilities are determined on the basis of a realistic estimate of the tax expense payable under the 

current tax laws of the country; the related liability is shown in “taxes payable” net of advance payments, withholdings 

and tax credits. 

Deferred taxes are calculated on the temporary differences existing between the value of assets and liabilities in the 

balance sheet and their tax basis (liability method). Any deferred tax liabilities are recorded in the provision for income 

taxes. Deferred tax assets are accounted for only where is a reasonable certainty of recovery and these are recorded in 

“deferred tax assets”. 



CONSOLIDATED BALANCE SHEETS 

Assets 

B) Fixed assets 

I) Intangible assets 

The composition and changes in intangible assets are presented below: 


12/31/2003 Translation Change in Reclassi- Increase Decrease Amor- 12/31/2004 

adjustment the scope of fications tization 

consolidation 

• Formation costs 19,775 - 13 826 122 (166) (6,577) 13,993 

• Patents and design patent rights 1,708 - 935 14 226 - (590) 2,293 

• Concessions, licenses, trademarks 

and similar rights 24,844 1 10 1,425 4,162 (38) (5,648) 24,756 

• Goodwill 33,132 45 10,837 - 626 - (5,270) 39,370 

• Difference on consolidation 421,376 - 2,646 - 740 (185) (32,129) 392,448 

• Other intangible assets 55,673 (240) 8 (2,265) 33,584 (440) (28,922) 57,398 

556,508 (194) 14,449 - 39,460 (829) (79,136) 530,258 

“Formation costs” mainly include expenses incurred for share capital increases, payments against future increases in share 

capital, mergers and demergers. 

“Concessions, licenses, trademarks and similar rights” mainly include the costs incurred for software applications to 

manage the franchising operations of Pirelli & C. Real Estate S.p.A. and the costs incurred by Parcheggi Bicocca S.r.l. to lay 

out the P7 and P9 parking lots in the Bicocca area as agreed with the City of Milan which granted the license to operate the 

lots until July 2032. 

The change in the scope of consolidation under “goodwill” is due to the contribution of the activities of Pirelli & C. 

Ambiente S.p.A. and Cam Tecnologie S.p.A. (now Pirelli & C. Ambiente Tecnologie S.p.A.), a company previously controlled 

by Camfin S.p.A., to Pirelli & C. Ambiente Holding S.p.A. (owned 51 percent by Pirelli & C. S.p.A., 45.3 percent by Camfin 

S.p.A. and 3.7 percent by Centrobanca Sviluppo Impresa SGR). 

The “difference on consolidation” mainly includes Euros 323,089 thousand, representing the difference on the price paid 

for the underlying net equity of the company Pirelli S.p.A. which emerged in prior years following the purchase of shares by 

Pirelli & C. A.p.A. and by Pirelli & C. Luxembourg S.A., net of amortization (calculated over a period of 20 years). 

The caption also comprises Euros 18,549 thousand relating to the differences on consolidation in the real estate sector that 

were generated by the first-time consolidation of Pirelli & C. Real Estate Facility Management S.p.A. in OMS Facility S.r.l., 

the company which took over the facility management activities headed by the Olivetti group (now Telecom Italia). 

The major items included in “other intangible assets” relate to costs for software applications of the industrial sector, 

expenses for the development and implementation of the Group portal, expenses for new software for manufacturing and 

sales applications in the Tyres Sector, expenses for the implementation of e-business solutions, loan acquisition costs and 

leasehold improvements. 



II) Property, plant and equipment 

The movements in property, plant and equipment during the year are as follows: 


12/31/2004 12/31/2003 

Gross value 

• Opening balance 5,390,891 5,757,030 

• Translation adjustment (61,829) (363,950) 

• Change in the scope of consolidation 3,804 13,039 

• Allocation of merger surplus - (124,909) 

• Additions 281,167 273,475 

• Disposals (263,767) (163,794) 

5,350,266 5,390,891 

Accumulated depreciation 

• Opening balance 3,236,296 3,350,624 

• Translation adjustment (23,143) (268,401) 

• Change in the scope of consolidation - 1,302 

• Depreciation charge 265,387 277,701 

• Disposals (193,485) (124,930) 

3,285,055 3,236,296 

Net book value 2,065,211 2,154,595 

The net decrease from the prior year is due to a combination of the following: 

– translation adjustments, in reference to property, plant and equipment included in the financial statements of foreign 

companies; 

– additions, higher than the prior year; 

– disposals, largely in reference to plant; 

– depreciation charge. 

Gross values include about Euros 16,291 thousand of assets which are no longer in use and are being held for transfer to 

other Group companies or disposal to third parties. 

III) Financial assets 

Investments went from Euros 3,108,930 thousand to Euros 3,376,479 thousand and can be analyzed as follows: 


12/31/2003 Change in the Increase Decrease 12/31/2004 

scope of 

consolidation 

Investments in unconsolidated subsidiaries 19,381 (4,522) - (14,859) - 

Investments in jointly controlled subsidiaries 2,588,671 - 5,370 - 2,594,041 

Investments in associated companies 187,809 20,584 78,711 (21,430) 265,674 

Investments in other companies 313,069 - 240,392 (36,697) 516,764 

3,108,930 16,062 324,473 (72,986) 3,376,479 

The decrease in “Investments in unconsolidated subsidiaries” is due to the sale of the investment in Afcab Holdings 

(Proprietary) Ltd (50 percent ), the sole shareholder of the South African power cables manufacturer African Cables 

Limited, to the parent company Reunert Limited. 



“Investments in jointly controlled subsidiaries” amount to Euros 2,594,041 thousand and refer to the investment in 

Olimpia S.p.A. (50.4 percent), which has been accounted for using the equity method. The amount includes goodwill that is 

being amortized over 20 years (Euros 41,894 thousand). 

“Investments in associated companies” amount to Euros 265,674 thousand, and increased compared to the prior year 

(Euros 187,809 thousand). 

Details of these investments are as follows: 


12/31/2004 12/31/2003 

REAL ESTATE GROUP 

CFT Finanziaria S.p.A. - 12,933 

Bernini Immobiliare S.r.l. 1,968 1,768 

Spazio Industriale B.V. 729 - 

Continuum S.r.l. 3,484 3,633 

Delta S.p.A. 1,291 2,168 

Domogest S.r.l. 1,360 1,588 

Solaris S.r.l. 3,282 - 

Geolidro S.r.l. 5,661 2,233 

Localto S.p.A. 778 1,697 

M.S.M.C. Holding B.V. 22,027 11,640 

M.S.M.C. Solferino S.a.r.l. 2,054 2,220 

Esedra S.r.l. 2,187 2,624 

Trixia S.r.l. 5,453 6,999 

Dixia S.r.l. 6,133 6,442 

Massetto 1 B.V. 26,431 14,911 

Mirandia Trading e Consultoria Lda 31,197 - 

Tronador - Consultoria Economica Lda 3,507 - 

Moncalieri Center S.r.l. 2,056 - 

Immobiliare Prizia S.r.l. 4,671 4,281 

Iniziative Immobiliari S.r.l. 24,718 36,588 

Popoy B.V. 14,416 11,449 

Sci Roev Partners L.P. 2,149 2,516 

IN Holding Italy S.a.r.l. 4,642 6,495 

Induxia S.r.l. 2,320 2,509 

Ininm Due S.a.r.l. 2,368 3,097 

Aree Urbane S.r.l. (ex-Ortensia S.r.l.) 8,307 2,730 

Bicocca Center S.r.l. 932 - 

Orione Immobiliare Prima S.p.A. 3,365 - 

Other minor companies 144 1,860 

187,630 142,381 

INDUSTRIAL GROUP 

Power Cables Malaysia Sdn Bhd (Malaysia) 7,811 7,842 

Drathcord Saar & Co. K.G. (Germany) 5,102 5,266 

Rodco Ltd. (United Kingdom) 4,145 4,146 

Kabeltrommel Gmbh & Co. K.G. (Germany) 2,810 2,810 

STIP Tunisi (Tunisia) 2,410 2,410 

SMP Melfi S.r.l. (Italy) 1,807 1,807 

Industriekraftwerk (Germany) 521 521 

Euro Drive Car S.L. (Spain) 160 - 

Other minor companies 898 2,131 

25,664 26,933 

OTHER 

Eurostazioni S.p.A. 51,740 17,862 

I.D.E.A. Granda Società consortile 640 633 

52,380 18,495 

Total 265,674 187,809 



“Investments in other companies” amount to Euros 516,764 thousand and include Euros 335,642 thousand of shares 

owned in companies listed on the stock exchange and held in the portfolios of Pirelli & C. S.p.A., Pirelli Finance 

(Luxembourg) S.A. and Trefin S.r.l.. Such investments consist of shares held in Mediobanca, Impregilo, Società Metallurgica 

Italiana, Generale Industrie Metallurgiche, Gemina, Capitalia, Telecom Italia and RCS Mediagroup. 

The change from the prior year is mainly due to the exercise of the option rights on Telecom Italia S.p.A. ordinary shares 

(Euros 109,670 thousand), the purchase of RCSMediagroup S.p.A. ordinary shares (Euros 32,619 thousand), the purchase of 

a 5 percent stake in Alcatel Submarine (Euros 44,805 thousand), the capital increases in F.C. Internazionale Milano S.p.A. 

(Euros 11,720 thousand) and in Eurofly S.p.A. (Euros 1,334 thousand), the purchase by Pirelli & C. Real Estate Società di 

Gestione del Risparmio S.p.A. of a 5 percent share in Cloe Fondo Uffici (the seeded mutual fund for investments destined 

for institutional investors) for an amount of Euros 15,000 thousand, a 2 percent share in Tecla Fondo Uffici for an amount 

of Euros 6,330 thousand and a 5 percent share in Olinda Fondo Shops for an amount of Euros 13,261 thousand. 

Such increases have been offset by reductions made to the investments in F.C. Internazionale Milano S.p.A. (Euros 10,000 

thousand), Eurofly S.p.A. (Euros 2,462 thousand), Euroqube S.A. (Euros 3,000 thousand), Istituto Europeo di Oncologia 

(Euros 1,600 thousand), in Alloptic (Euros 3,394 thousand) and Rubbernetwork (Euros 2,158 thousand) in addition to the 

sale of the entire interest held by Pirelli & C. S.p.A. in Banca Intesa S.p.A. (Euros 5,737 thousand). 

“Financial receivables from associated companies” refer to loans by the shareholders to companies in which the Pirelli 

& C. Real Estate group holds minority stakes. 

“Financial receivables from other companies”, due beyond one year, amount to Euros 55,957 thousand, and include: 

– Euros 6,523 thousand of interest-earning fixed rate loans; 

– Euros 34,551 thousand of interest-earning fixed rate obligatory deposits; 

– Euros 5,565 thousand of interest-earning floating rate loans; 

– Euros 2,666 thousand of non-interest earning security deposits; 

– Euros 6,652 thousand of non-interest earning loans. 

Receivables due beyond five years total Euros 36,431 thousand. 

“Other securities” amount to Euros 81,583 thousand compared to Euros 81,824 thousand at December 31, 2003. 

They mainly refer to Fenera Holding S.p.A. 3.5 percent convertible bonds 1998-2005 (Euros 2,582 thousand) 

held by Pirelli & C. S.p.A., 10 Fondo Prudentia shares equal to Euros 517 thousand held by Pirelli & C. S.p.A. and advances 

on convertible bond asset swaps on Telecom Italia S.p.A. convertible bonds 2010 and share swap transactions on Telecom 

Italia S.p.A. shares – Telecom Italia S.p.A. convertible bonds 2010 held by the subsidiary Pirelli Finance (Luxembourg) S.A. 

(Euros 77,442 thousand). 

A comparison with the market prices of these assets shows a difference of approx. Euros 1 million. No writedown has been 

made since there is no permanent impairment in value. 

“Treasury shares” amount to Euros 4,678 thousand and consist of 2,617,500 ordinary shares, equal to 0.08 percent of share 

capital (0.08 percent of ordinary shares alone) for a weighted average carrying price of Euros 1.79 per share. 

Pursuant to art. 2357-ter of the Italian Civil Code, a “Reserve for treasury shares in portfolio” was set up for the same 

amount. 

A comparison of the price of the treasury shares with the average market price shows a total lower value of Euros 2.2 

million. Valuation at cost has been maintained in the financial statements as this is not considered a permanent impairment 

in value. 



C) Current Assets 

I) Inventories 

Inventories amount to Euros 1,338,011 thousand, compared to Euros 1,222,014 thousand in the prior year, and may be 

analyzed as follows: 


12/31/2004 12/31/2003 

• Energy Cables and Systems Sector 562,617 395,030 

• Telecom Cables and Systems Sector 41,008 58,213 

• Tyres Sector 461,429 453,342 

• Real Estate 274,781 325,035 

• Other/consolidation adjustments (1,824) (9,606) 

1,338,011 1,222,014 

II) Receivables 

Receivables decreased from Euros 1,929,486 thousand at December 31, 2003 to Euros 1,867,418 thousand at December 31, 

2004, and can be analyzed as follows: 

12/31/2004 12/31/2003 


Financial Trade and other Financial Trade and other 

• Trade - 1,330,347 - 1,326,740 

• Unconsolidated subsidiaries - 368 18,428 3,576 

• Associated companies 175 138,581 32,723 134,084 

• Deferred tax assets - 51,832 - 67,153 

• Other receivables 49,992 296,123 2,151 344,631 

50,167 1,817,251 53,302 1,876,184 

Specifically: 

– Trade receivables 

Trade receivables from customers are detailed by due date as follows: 


12/31/2004 12/31/2003 

• Due within 1 year 1,442,676 1,468,773 

• Due beyond 1 year 459 469 

• Less: allowance for doubtful receivables (112,788) (142,502) 

1,330,347 1,326,740 

No receivables are due beyond five years. 

The carrying value of receivables, adjusted for probable future losses, approximates fair value at year-end. 



– Receivables from unconsolidated subsidiaries 

With regard to financial receivables, the decrease from last year is attributable to the subsidiaries of 

Pirelli & C. Real Estate S.p.A. which were consolidated line-by-line for the first time at December 31, 2004; the caption 

therefore shows a nil balance. 

– Receivables from associated companies 

With regard to financial receivables, the decrease from last year is due to the extinguishment of the loan made to 

Eurostazioni S.p.A. (Euros 32,425 thousand) by Pirelli & C. S.p.A. 

The most significant trade receivables refer to services rendered by direct and indirect associated companies of Pirelli & C. 

Real Estate S.p.A. (Euros 135,052 thousand). 

All amounts are receivable within one year. 

– Other receivables 

“Other receivables - Trade and other”, which total Euros 296,123 thousand, include amounts due from the tax authorities of 

Euros 150,192 thousand, receivables from sales of financial assets of Euros 6,000 thousand, receivables from employees of 

Euros 9,733 thousand, receivables from social security agencies of Euros 4,010 thousand and export refunds and other 

minor amounts of Euros 126,188 thousand. 

The amount due beyond one year and within five years is Euros 60,863 thousand, while receivables due beyond five years 

total Euros 44,140 thousand. 

III) Current financial assets 

“Other securities” amount to Euros 242,314 thousand and include the following: 

– Euros 126,001 thousand of fixed rate bonds issued and guaranteed by banking institutions; 

– Euros 62,768 thousand of floating rate bonds issued and guaranteed by banking institutions; 

– Euros 76 thousand of fixed rate bonds issued and guaranteed by governments of various countries; 

– Euros 2,040 thousand of floating rate bonds issued and guaranteed by governments of various countries; 

– Euros 45,124 thousand of equity securities intended for sale; 

– Euros 6,305 thousand of investment funds negotiable on demand. 

The securities are held in safe-keeping at leading banking institutions. 

IV) Cash and banks 

“Bank and postal deposits” are concentrated in the financial companies, holding companies and subholding companies of 

the Group. Available liquidity is mainly invested in the short-term deposits market at leading banking counterparts primarily 

at interest rates reflecting the market rates. 

D) Accrued income and prepaid expenses 

“Accrued income”, calculated on the accrual basis, decreased from Euros 40,453 thousand at December 31, 2003 to 

Euros 30,370 thousand at December 31, 2004. Accrued income mainly relates to hedging revenues, interest income, 

insurance and other minor items. 

“Prepaid expenses” decreased from Euros 32,681 thousand at December 31, 2003 to Euros 29,144 thousand 

at December 31, 2004. Prepaid expenses mainly relate to insurance, building rent and other minor items. 



LIABILITIES AND SHAREHOLDERS’ EQUITY 

A) Shareholders’ equity 

– Parent company interest 

“Share capital” amounts to Euros 1,800,383 thousand at December 31, 2004 and consists of 3,327,511,183 ordinary shares 

and 134,764,429 savings shares, all with a par value of Euros 0.52 per share and normal dividend rights. 

The increase of Euros 984 thousand compared to December 31, 2003 is due to the exercise of 7,568,608 warrants (exercise 

ratio 1:4). At December 31, 2004, the total amount of warrants exercised during 2004 is equal to 1,345,657,952. For the 

portion of warrants exercised (1,338,089,344) that resulted in the issue of shares in January 2005, a reserve called “shares 

subscribed due to the exercise of warrants” was set up under other reserves for Euros 173,952 thousand. At December 31, 

2004, outstanding warrants total 216,197,374 and are exercisable by June 20, 2006. 

The “share premium reserve”, equal to Euros 500,291 thousand, has remained unchanged compared to the end of the 

prior year. 

The “revaluation reserve”, equal to Euros 1,680 thousand, has remained unchanged compared to December 31, 2004. 

The “legal reserve” rose from Euros 67,885 thousand to Euros 74,773 thousand as a result of the appropriation of 5 percent 

of 2003 net income to the reserve. 

The statement of changes in shareholders’ equity is presented in the supplementary information. 

– Minority interest 

The minority interest in shareholders’ equity amounts to Euros 351,778 thousand, compared to Euros 249,180 thousand at 

the end of the prior year. 

The change is due mostly to the results for the year 2004, the payment of last year’s dividends and the effect of the 

translation of foreign currency financial statements to euros. 

The major percentages of investments held by the minority interest are as follows: 

12/31/2004 12/31/2003 

Shared Service Center s.c.r.l. (Italy) 50.00% 50.00% 

Auto Cables Tunisie S.A. (Tunisia) 49.00% 49.00% 

Celikord A.S. (Turkey) 49.00% 49.00% 

Sicable S.A. (Ivory Coast) 49.00% 49.00% 

Pirelli & C. Ambiente Holding S.p.A. (Italy) 49.00% – 

Turk Pirelli Lastikleri A.S. (Turkey) 36.94% 36.94% 

Pirelli & C. Real Estate S.p.A. (Italy) 46.06% 35.38% 

Pirelli Baosheng Cable Co. Ltd (China) 33.00% 33.00% 

Tianjin Pirelli Power Cables Co. Ltd (China) 33.00% 33.00% 

P & A.K.K. (Japan) – 30.85% 

Turk Pirelli Kablo ve Sistemleri A.S. (Turkey) 16.25% 16.25% 

Pirelli Telecom Cables Co. Ltd Wuxi (China) 13.29% 13.29% 

Alexandria Tire Co. S.A.E. (Egypt) 13.21% 13.19% 

Pirelli de Venezuela C.A. (Venezuela) 3.78% 3.78% 



B) Provisions for liabilities and expenses 

“Provisions for pensions and similar obligations” include accruals for pensions, health care and other benefits in favor 

of employees, not regulated by specific laws but covered by local labor agreements and benefit plans operating at some 

Group companies. 

In those companies operating in the U.S.A. and the U.K. where defined benefit pension schemes are in place, the 

comparison between the liability for future obligations towards those entitled to benefits and the value of assets invested by 

the plans shows, at December 31, 2004, a deficit valued at about Euros 150 million, which will be amortized over the 

remaining service period of the participants in the plan in accordance with suitable actuarial methods. 

The “provisions for income taxes” include accruals relating to income taxes likely to be incurred but uncertain as to the 

amount or the date on which they will arise, as well as deferred taxation, as follows: 


12/31/2004 12/31/2003 

• Provision for current taxes 39,931 52,627 

• Provision for deferred taxes 78,962 109,695 

118,893 162,322 

The income tax charge for the year is composed of the following: 


12/31/2004 12/31/2003 

• Current taxes 96,478 113,198 

• Deferred tax benefit (17,712) (65,879) 

• Deferred tax expense 15,321 22,884 

94,087 70,203 

Compared to the prior year, the year 2004 shows a reduction in total current income taxes partly attributable to the Energy 

Sector as a result of the compensation at some subsidiaries of taxable income against tax loss carryforwards which had not 

been recorded in deferred tax assets. The figure also includes the recording, by Pirelli & C. S.p.A., of the tax effects deriving 

from the adoption of the national tax consolidation system. This reduction in current income taxes however is contrasted 

by a considerably lower reduction in the provision for deferred income taxes than last year, partly in relation to the 

estimated taxable income of the Italian and foreign companies. 

The Group’s tax charge for 2004 is equal to 33.7 percent which is substantially in line with the nominal tax rates applicable 

in the countries in which the major companies of the group operate, as shown in the following table: 

Europe: 

North America: 

Italy 37.25% U.S.A. 40.00% 

France 34.30% Canada 33.00% 

Spain 35.00% South America: 

Germany 36.00% Argentina 35.00% 

United Kingdom 30.00% Brazil 34.00% 

Turkey 30.00% Venezuela 34.00% 

Oceania: 

Australia 30.00% 



Movements during the year in “Other provisions” are as follows: 


Provision for Sundry Total 

restructuring costs 

provisions 

Balance at December 31, 2003 51,481 463,671 515,152 

• Translation adjustment (114) (369) (483) 

• Utilization (43,690) (78,916) (122,606) 

• Increase 10,331 139,346 149,677 

Balance at December 31, 2004 18,008 523,732 541,740 

Utilizations of the “provision for restructuring costs” were in respect of the Energy Cables and Systems Sector for Euros 

26,247 thousand, the Telecom Cables and Systems Sector for Euros 8,033 thousand and the Tyres Sector for Euros 9,410 

thousand. The balance of the provision relates to the Energy Cables and Systems Sector for Euros 12,617 thousand and the 

Telecom Cables and Systems Sector for Euros 5,391 thousand. 

“Sundry provisions” amount to Euros 523,732 thousand and include the accruals relating to the risks on the options granted 

to the shareholder banks of Olimpia S.p.A. and Hopa S.p.A. under the shareholders’ agreements (Euros 320,925 thousand) and 

accruals for litigation, industrial risks and claims, product warranties, and other contingencies. 

D) Payables 

Payables amount to Euros 4,975,770 thousand, compared to Euros 4,929,046 thousand in the prior year, and may be analyzed 

as follows: 


12/31/2004 12/31/2003 

Financial Trade Financial Trade 

and other 

and other 

• Bonds 1,150,000 - 1,150,004 - 

• Bank borrowings 1,312,898 - 1,271,441 - 

• Other financial companies 87,147 - 159,803 - 

• Advances from customers - 245,837 - 134,069 

• Trade - 1,506,556 - 1,380,117 

• Unconsolidated subsidiaries - 2,415 4,834 487 

• Associated companies 1,734 23,754 9,609 46,809 

• Taxes - 167,860 - 192,871 

• Social security agencies - 58,730 - 56,999 

• Other payables - 418,839 - 522,003 

2,551,779 2,423,991 2,595,691 2,333,355 

The analysis of financial payables by due date is as follows: 


12/31/2004 12/31/2003 

within 1 year beyond 1 year within 1 year beyond 1 year 

• Bonds - 1,150,000 4 1,150,000 

• Bank borrowings 736,504 576,394 750,681 520,760 

• Other financial companies 45,153 41,994 136,810 22,993 

• Unconsolidated subsidiaries - - 4,834 - 

• Associated companies 1,734 - 9,609 - 

783,391 1,768,388 901,938 1,693,753 



Financial payables 

Financial payables secured by liens and mortgages amount to Euros 71,475 thousand. Financial payables due beyond five 

years amount to Euros 220,734 thousand. 

Additional disclosure is provided as follows: 

– Bonds 

These refer to Pirelli & C. S.p.A. 1998-2008 bonds of Euros 500 million, issued on October 21, 1998, paying interest at 4.875 

percent and repayable in a one-off payment on October 21, 2008. The caption also includes bonds of Euros 500 million 

issued in 2002 by the subsidiary Pirelli Finance (Luxembourg) S.A., paying interest at a fixed rate of 6.5 percent, maturing 

April 4, 2007, and bonds of Euros 150 million issued by Pirelli & C. S.p.A. in 1999, paying interest at 5.125 percent, maturing 

April 7, 2009. 

– Bank borrowings 

Bank borrowings due within one year amount to Euros 736,504 thousand and include the current portion of long-term debt 

of Euro 56,900 thousand. 

Bank borrowings due beyond one year amount to Euros 576,394 thousand and include floating rate loans of Euros 331,785 

thousand and fixed rate loans of Euros 244,609 thousand. 

Trade and other payables 


12/31/2004 12/31/2003 

within 1 year beyond 1 year within 1 year beyond 1 year 

• Advances from customers 201,748 44,089 97,845 36,224 

• Trade 1,506,556 - 1,380,114 3 

• Unconsolidated subsidiaries 2,415 - 487 - 

• Associated companies 23,754 - 46,809 - 

• Taxes 140,432 27,428 146,559 46,312 

• Social security agencies 58,730 - 56,999 - 

• Other payables 384,969 33,870 485,183 36,820 

2,318,604 105,387 2,213,996 119,359 

– Payables to associated companies 

Payables to associated companies refer to advances received from Pirelli & C. Opere Generali S.p.A. for urbanization works 

regarding the Bicocca and Pioltello areas. 

– Other payables 

Other payables amount to Euros 418,839 thousand and mainly refer to payables to employees of Euros 140,897 thousand, 

security deposits from customers for packaging guarantees of Euros 4,028 thousand, legal and consulting fees of Euros 

5,686 thousand, legal litigation fees of Euros 5,740 thousand, purchases of fixed assets of Euros 19,939 thousand, notes 

payable of Euros 74,854 thousand and property management charges by third parties of Euros 8,714 thousand. 

E) Accrued liabilities and deferred income 

“Accrued liabilities” increased from Euros 230,873 thousand at December 31, 2003 to Euros 260,215 thousand. 

They include the portion of exchange differences on hedging transactions, building leases payable, hedging costs and other 

minor items. 

“Deferred income” decreased from Euros 78,235 thousand at December 31, 2003 to Euros 50,736 thousand. 

They include installment payments received in advance. 



MEMORANDUM ACCOUNTS 

Memorandum accounts amount to Euros 4,728,848 thousand compared to Euros 4,886,966 thousand in the prior year. 

Personal guarantees 

– Sureties on behalf of other companies 

Sureties are mainly given to guarantee loans received and job orders in the process of being delivered or tested. 

– Other guarantees 

Other guarantees are mainly given against contractual commitments. 

Third party assets held in deposit 

– Securities held in deposit 

These include securities entrusted for administration. 

Assets held by third parties 

– Securities held as guarantees and sureties 

These include owned securities held by third parties in deposit as guarantees (mainly in reference to the pledged quotas of 

the companies Iniziative Immobiliari S.r.l., Trixia S.r.l., Dixia S.r.l. and Immobiliare Prizia S.r.l.), owned securities held in 

deposit for safe-keeping and sureties given by Pirelli & C. S.p.A. against commitments and contractual obligations. 

Commitments and contingencies 

– Commitments for purchases of fixed assets 

This caption includes Euros 320,000 thousand for the commitment undertaken by Pirelli & C. Real Estate S.p.A. to purchase 

part of the buildings owned by Imser 60 S.r.l.. 

It also comprises Euros 48,010 thousand for the commitment undertaken by Pirelli & C. Real Estate S.p.A. to purchase the 

buildings that remain unsold by the associated company Bernini Immobiliare S.r.l. and Euros 30,000 thousand for the 

commitment by Pirelli & C. Real Estate S.p.A to purchase the properties that remain unsold by the company Iniziative 

Immobiliari S.r.l. at the date of December 22, 2005. 

– Commitments for purchases of investments 

These commitments refer to the following purchase options and forward purchase commitments of Pirelli & C. Real Estate S.p.A.: 

1) Purchase options: 

– purchase option of Euros 14,052 thousand undertaken in relation to the options to sell the shares of the associated 

company Iniziative Immobiliari S.r.l. by Banca Nazionale del Lavoro S.p.A. and Banca Intesa S.p.A.. This option will 

expire on December 31, 2005; 

– prorata purchase option of Euros 5,693 thousand undertaken in favor of Cordusio Immobiliare S.r.l. in respect of the 

option to sell the shares held by the latter in Modus S.r.l. to the indirect associated companies Aida S.r.l. and MSMC 

Immobiliare 4 S.r.l.; 

– option of Euros 22,500 thousand in respect of the option to sell, exercisable beginning January 1, 2008, by Morgan 

Stanley Real Estate Funds, with reference to the purchase of 52.63 percent of the investment in Servizi Immobiliari 

Banche SIB S.p.A.. 



2) Forward purchase commitments: 

– commitment of Euros 10,568 thousand with the shareholders of the associated company Iniziative Immobiliari S.r.l. for 

the forward purchase of their respective investment holdings, equal to 9.601 percent of the share capital of the 

subsidiary; 

– commitment of Euros 1,850 thousand for the purchase of 5 percent of the company FONSPA S.p.A.; 

– commitment of Euros 3,132 thousand for the purchase, beginning January 1, 2005, of 47.37 percent of the share capital of 

Servizi Immobiliari Banche SIB S.p.A. from Morgan Stanley Real Estate Funds; upon purchase, Pirelli & C Real Estate 

S.p.A. will make a loan for an amount of about Euros 3,450 thousand. 

– Put options given to third parties 

These include: 

– the put options granted to the shareholders banks of Olimpia S.p.A., Banca Intesa S.p.A. and Unicredito Italiano S.p.A. 

(hereinafter, the “Banks”) under the shareholders’ agreement signed on September 14, 2001 and subsequently amended 

(“Banks’ Agreement”). 

These options can be exercised from September 2006, or before that date, in the case of irremediable dissent among the 

shareholders (so-called “Deadlock”) or in the case of withdrawal by Pirelli & C. from the Banks’ Agreement. 

Under this Agreement, the put options can be exercised by the Banks at a price equal to the value of the economic 

capital of Olimpia plus a premium (the “Price”). This Price shall be determined by the parties and shall not be less than 

the outlays made by the Banks (Floor) nor higher than such sum, less any dividends received, increased by an annual 

IRR, before income taxes, equal to 15 percent (Cap). 

The valuation of the put options – at Euros 584,680 thousand for each Bank – was carried out, for Euros 520,000 

thousand of that amount, by reference to the outlays effected by the Banks (Floor). 

As for the remaining amount of Euros 64,680 thousand (outlays effected by each Bank for Olimpia’s capital increase in 

December 2003), the valuation was based – in accordance with what was agreed in one of the amendments to the Banks’ 

Agreement (specifically the amendment dated December 16, 2003) – on the exercise price of the put on the shares that 

came to the Banks from the aforementioned capital increase, determined in an amount equal to the higher of Euros 3.53 

and the weighted average price of reference recorded by the Telecom Italia shares in the 30 days of trading prior to the 

request of sale, multiplied by 18,322,946 shares. 

– the put option granted to Edizione Finance International S.A./Edizione Holding S.p.A. (Euros 1,065,119 thousand) 

(“Edizione”), under the shareholders’ agreement signed on August 7, 2001 and subsequently amended. 

The put option in question can be exercised in the case of a (I) deadlock situation among the shareholders, 

(II) withdrawal on the part of Pirelli & C. S.p.A. from the shareholders’ agreements and (III) the occurrence of a 

substantial change in the controlling structure of Pirelli & C., by which is meant the exercise by parties other than those 

currently holding the determining power to nominate the majority of the components of the management board, with a 

consequent potential modification of the strategic guidelines. 

The exercise price of the put option is equal, respectively, under the assumption (I) to the price equal to the value of the 

economic capital of Olimpia increased by a premium (the “Price”), in the case of (II) to the Price increased by an amount 

equal to 50 percent of the Price and in the case of (III) to the Price increased by an amount equal to 200 percent of the 

Price. In this case, however, there is no expectation of a Floor or Cap as in the Banks’ Agreement. 

As for the valuation of the put option equal to Euros 1,065,119 thousand, since it is not possible to provide univocal 

valuations regarding the component of the Price consisting of the premium, this has been effected on the basis of the 

value of Edizione’s share (16.8 percent) of Olimpia’s net equity at December 31, 2004. 

Sale of tax receivables 

These refer to the nominal value of the tax and accrued interest receivable from the tax authorities sold without recourse to 

Unicreditfactoring S.p.A. and Mediofactoring S.p.A.. 



Other memorandum accounts 

– Forward securities purchases 

These refer to the commitment undertaken by Pirelli Finance (Luxembourg) S.A. for the forward purchase (expiration 

date of November 23, 2006) of 200,000,000 Telecom Italia S.p.A. 2001-2010 convertible bonds effected with Credit Agricole 

Lazard Financial Products Bank (Euros 200,000 thousand) and the commitment for the forward purchase of 47,155,300 

Telecom Italia S.p.A. shares (expiration date of December 2006) subscribed with JP Morgan for an amount of Euros 

142,100 thousand. 

* * * 

Furthermore, - on the basis of the shareholders’ agreement between Hopa S.p.A. (Hopa), Pirelli & C. S.p.A., 

Edizione Finance S.A., Olimpia S.p.A. and the Banks (in February 2003) ("Hopa Agreement") - in the event of dissent over 

certain matters, such as investments, trading, loans or resolutions convening the extraordinary shareholders’ meeting 

(so-called “Deadlock”), or in the event of failure to renew the Hopa Agreement at expiration, Hopa shall have the right to 

obtain the spin-off of Olimpia, receiving a proportional share of the assets and liabilities (including the Telecom Italia 

shares) owned by Olimpia and Olimpia shall have the consequent right to obtain the spin-off of Holinvest S.p.A., receiving a 

proportional share of the assets and liabilities (including the Telecom Italia shares) owned by Holinvest S.p.A.. 

Hopa will also have the right to receive a premium which – in accordance with an amending agreement signed on 

January 28, 2005 – was determined as an all-inclusive amount of Euros 208 million in the event the spin-offs occur as a 

result of a Deadlock or the pact is not renewed at its expiration date of May 8, 2006. 

Regardless, the spin-offs cannot take place until 36 months have passed since the Hopa Agreement came into force 

(May 2006), unless extraordinary events occur of unusual severity (so-called “Accelerated Deadlock”), such as, for example, 

Olimpia reduces its investment ownership in Telecom Italia S.p.A. to below a percentage existing as of the time of signing 

the Hopa Agreement, or a resolution is passed to merge Olimpia or Telecom Italia S.p.A. with companies other than those 

controlled directly or indirectly, or if certain ratios are not met by Olimpia: 1:1 debt to equity ratio. 

Under these assumptions, Hopa S.p.A. would have the right to obtain the execution of the spin-off of Olimpia at the earliest 

possible date and a premium provided by the Hopa Agreement and Olimpia would have the right to consequently obtain the 

spin-off of Holinvest S.p.A.. 

A provision of Euros 321 million is recorded in the financial statements in respect of these commitments relating to the 

rights granted to the shareholder banks of Olimpia S.p.A and Hopa S.p.A. under the aforementioned shareholders’ 

agreements. 



FINANCIAL INSTRUMENTS 

It is the Group's policy to reduce financial risks deriving from international activities conducted in research, manufacturing 

and distribution through operating and financial management decisions. 

To this end, the Group uses forward exchange contracts and derivative financial instruments to protect its operating results 

from unfavorable fluctuations of exchange rate and interest rates and the prices of raw materials. With an overall view 

towards reducing exposure to risk, the Group deals exclusively with leading bank counterparts and in highly liquid 

instruments. 

The following table gives the positions of derivative financial instruments in the major currencies: 

Exchange rate risk 


Gross notional amounts Fair Maturing Maturing 

(at year-end value within one year beyond one year 

exchange rates) 

• Forward contracts 1,269 1,223 1,055 168 

• Swap contracts 88 77 38 40 

• Futures contracts 10 70 (4) - 

Interest rate risk 

• Forward rate agreement - - - - 

• Interest rate swaps 8 - - - 

Raw materials price risk 

• Futures contracts - 4 4 - 

The fair value of derivative financial instruments used to hedge exchange rate, interest rate and materials price risks 

approximates the fair value of the positions being hedged. 



CONSOLIDATED STATEMENTS OF INCOME 

A) Production value 

Revenues from sales and services 

The distribution of sales by geographical area of destination and industry sector are reported in the following table. 


2004 2003 

Geographical area 

Europe 

• Italy 1,522,205 21.40% 1,490,676 22.34% 

• Other European countries 3,118,753 43.84% 2,877,389 43.13% 

North America 688,590 9.68% 624,266 9.36% 

Central and South America 993,278 13.96% 821,859 12.32% 

Oceania, Africa and Asia 791,259 11.12% 857,110 12.85% 

7,114,085 100.00% 6,671,300 100.00% 

Sector 

Energy Cables and Systems 2,887,968 40.60% 2,636,668 39.52% 

Telecom Cables and Systems 429,987 6.04% 426,998 6.40% 

Tyres 3,254,570 45.75% 2,970,219 44.52% 

Real Estate 570,076 8.01% 644,759 9.67% 

Others and inter-eliminations (28,516) (0.40%) (7,344) (0.11%) 

7,114,085 100.00% 6,671,300 100.00% 

Other revenues and income 

The caption “miscellaneous” includes rent income, commissions, insurance indemnities and refunds, gains from the 

ordinary disposal of property, plant and equipment and other minor items. 

B) Production costs 

Service expenses 


2004 2003 

• Selling expenses 329,344 306,674 

• Building construction expenses 25,216 75,653 

• Building running expenses 90,049 83,353 

• Ordinary maintenance expenses 70,923 62,010 

• Commissioned outside expenses 23,608 34,432 

• Electrical power expenses 166,982 161,162 

• EDP expenses 53,308 44,936 

• Insurance expenses 46,593 50,916 

• Advertising expenses 131,403 115,733 

• Consulting fees 152,365 100,790 

• Employee loan expenses 30,387 27,915 

• Administrative expenses 10,365 10,349 

• Traveling expenses 57,071 55,592 

• Legal expenses 7,646 6,427 

• Entertainment expenses 4,464 4,888 

• Technical assistance and other minor expenses 263,534 245,041 

1,463,258 1,385,871 



Lease and rent expenses 

Lease and rent expenses consist of rent expenses of Euros 69,982 thousand, operating lease installments of Euros 12,903 

thousand and patent utilization rights of Euros 6,264 thousand. 

Personnel costs 

Personnel costs consist of the following: 


2004 2003 

• Salaries and wages 1,098,651 1,036,417 

• Social security costs 251,935 243,109 

• Leaving indemnity 44,106 47,157 

• Pension and similar costs 27,565 23,465 

• Other costs 21,319 21,027 

1,443,576 1,371,175 

Depreciation of property, plant and equipment 

The depreciation charge for property, plant and equipment can be analyzed as follows: 


2004 2003 

• Buildings 21,713 28,947 

• Plant and machinery 172,650 172,989 

• Commercial and industrial equipment 43,681 44,946 

• Other assets 27,343 30,819 

265,387 277,701 

Other operating expenses 


2004 2003 

• Revenue stamps and local taxes 33,203 33,434 

• Losses on the disposal of property, plant and equipment 1,668 3,021 

• Association dues 9,220 8,303 

• Other minor expenses 139,717 120,464 

183,808 165,222 



C) Financial income and expenses 

Investment income 


2004 2003 

Dividends from unconsolidated subsidiaries 12 3,679 

Dividends from other companies 22,589 7,844 

Other income 1,208 2,909 

23,809 14,432 

The caption “dividends from other companies” mainly includes dividends received from Telecom Italia S.p.A. (Euros 

9,572 thousand) and Mediobanca S.p.A. (Euros 5,647 thousand). 

Other financial income 

“Income other than the above” consists of the following: 


2004 2003 

• Interest from unconsolidated subsidiaries - 639 

• Interest from associated companies 657 2,589 

• Bank interest and other interest 25,785 29,992 

• Other financial income from associated companies 312 540 

• Miscellaneous financial income 29,425 31,736 

56,179 65,496 

“Miscellaneous financial income” includes revenues from forward contracts, gains on the sale of fixed-rate securities, 

interest on receivables due from the tax authorities and other minor financial income. 

Interest and other financial expenses 

These expenses include: 


2004 2003 

• Interest to unconsolidated subsidiaries - 7 

• Interest to associated companies 14 68 

• Bond interest 64,584 64,264 

• Bank interest and interest to other financial companies 106,404 114,572 

• Other financial expenses to associated companies 48 21 

• Miscellaneous financial expenses 53,288 55,700 

224,338 234,632 

“Miscellaneous financial expenses” include costs for forward contracts, losses on the sale of fixed-rate securities, bank 

commissions and other minor financial expenses. 



D) Valuation adjustments to financial assets 

Revaluations 

Revaluations amount to Euros 111,536 thousand and mainly refer to the share of the earnings of the associated companies 

of Pirelli & C. Real Estate S.p.A (Euros 104,438 thousand) and to the investment in Olimpia S.p.A. (Euros 5,370 thousand) 

accounted for using the equity method. 

Writedowns 


2004 2003 

Losses of companies accounted for using the equity method 1,142 3,638 

Losses of jointly controlled subsidiaries - 100,297 

Writedowns of investments 34,390 17,092 

35,532 121,027 

“Writedowns of investments” mainly include the writedown of the investments in F.C. Internazionale Milano S.p.A. 

(Euros 10,000 thousand), Eurofly Service S.p.A. (Euros 3,967 thousand), Euroqube S.A. (Euros 3,000 thousand), Istituto 

Europeo di Oncologia (Euros 1,600 thousand), Alloptic Inc. (Euros 3,394 thousand), RubberNetwork (Euros 2,158 thousand) 

and in some companies of Pirelli & C. Real Estate S.p.A. (Euros 6,599 thousand). 

E) Extraordinary items 

Extraordinary income 

Extraordinary income amounts to Euros 175,908 thousand compared to Euros 69,064 thousand in the prior year, and may be 

analyzed as follows: 


2004 2003 

• Gains on disposals 86,867 21,889 

• Miscellaneous 89,041 47,175 

175,908 69,064 

“Gains on disposal” mainly include Euros 56,979 thousand on the sale of 3,400,000 Pirelli & C. Real Estate S.p.A. shares 

(equal to 8.37 percent), Euros 6,864 thousand for the sale of the non-controlling investment (50 percent ) in Afcab Holdings, 

Euros 11,736 thousand for the sale of the Erith (U.K.) site, Euros 5,665 thousand for the sale of the Budapest property and 

Euros 2,615 thousand for the sale of Torrembarra (Spain). 

Last year, this caption had principally included Euros 8,769 thousand for the sale of the former R&D building in the Bicocca 

area, Euros 2,788 thousand for the sale of the building complex at S. Giuliano Milanese and Euros 6,375 for the sale of a 

part of the area at Southampton (U.K.). 

“Miscellaneous” mainly comprises Euros 53,600 thousand of income realized on the sale of the intellectual property rights 

and commercial activities under the agreement signed on May 6, 2004 with Alcatel, Euros 6,622 thousand to adjust prior 

year income taxes of Pirelli & C. Real Estate S.p.A. and Euros 9,934 thousand of income realized on the sale of Pirelli & C. 

Real Estate S.p.A. treasury shares by the same company and by Progetto Grande Bicocca S.r.l. 

Last year, “miscellaneous” had included Euros 14,000 thousand for the consideration paid to the Tyres Sector under the 

“Milan-Turin High-Speed Train Project” with regard to the factory in Settimo Torinese, Euros 4,583 thousand for prior years’ 

taxes and Euros 4,930 thousand for the change in the valuation method of strategic metals inventories from LIFO to FIFO. 



Extraordinary expenses 

Extraordinary expenses amount to Euros 155,590 thousand, compared to Euros 77,964 thousand in the prior year. They may 

be analyzed as follows: 


2004 2003 

• Losses on disposals 9,321 492 

• Miscellaneous 146,269 77,472 

155,590 77,964 

“Miscellaneous” mainly includes Euros 40,000 thousand for the accrual made by Pirelli & C. S.p.A. in respect of the risks 

associated with the options granted to the shareholders banks of Olimpia and Hopa under the shareholders’ agreements, 

Euros 35,714 thousand for layoff costs, Euros 9,385 thousand for the replacement of the high-voltage cable in Singapore, 

Euros 5,735 thousand for the accruals regarding disputes pending with the Brazilian tax authorities relating to 1999 and 

2000 tax incentives for I.T. investments and Euros 27,300 thousand for the writeoffs and layoffs connected with the 

agreement with Alcatel. 

Last year “miscellaneous” had included Euros 16,059 thousand for the merger costs incurred by Pirelli & C. S.p.A., Euros 

6,910 thousand for layoff costs, Euros 9,070 thousand for expenses relating to the reclamation of unused areas, Euros 13,969 

thousand for the tax amnesty, Euros 4,000 thousand for the costs connected with the “Milan-Turin High-Speed Train” project 

relative to the Settimo Torinese factory and Euros 1,950 thousand for the reorganization of the Arco Felice factory. 

Other information 

– Directors’ and statutory auditors’ fees 

Compensation to the directors and statutory auditors of Pirelli & C. S.p.A., who also carry out these functions in other 

companies included in consolidation, are as follows: 


Directors 30,447 

Statutory auditors 319 

30,766 

– Employees 

The average number of employees in companies included in consolidation, by category, is as follows: 

Senior executives/staff 10,448 

Blue-collar 23,256 

Temporary employees 3,269 

36,973 



– Exchange rates 

The main exchange rates used for the translation of foreign currency financial statements in the consolidated financial 

statements are as follows: 

Europe 

(local currency against euros) 

Year-end 

Average 

Change 

Change 

12/31/2004 12/31/2003 in % 2004 2003 in % 

British pound 0.7051 0.7048 0.04% 0.6787 0.6920 (1.93%) 

Swiss franc 1.5429 1.5579 (0.96%) 1.5438 1.5212 1.49% 

Hungarian forint 245.9700 262.5000 (6.30%) 251.6561 253.5875 (0.76%) 

Slovakian koruna 38.7450 41.1700 (5.89%) 40.0218 41.4867 (3.53%) 

North America 

American dollar 1.3621 1.2630 7.85% 1.2439 1.1311 9.97% 

Canadian dollar 1.6416 1.6234 1.12% 1.6168 1.5818 2.21% 

South America 

Brazilian real 3.6156 3.6491 (0.92%) 3.6393 3.4742 4.75% 

Venezuelan bolivar 2,615.2320 2,020.8000 29.42% 2,321.6896 1,821.3716 27.47% 

Argentine peso 4.0577 3.7006 9.65% 3.6597 3.3367 9.68% 

Oceania 

Australian dollar 1.7459 1.6802 3.91% 1.6905 1.7381 (2.74%) 

Asia 

Chinese yuan RMB 11.2734 10.4535 7.84% 10.2955 9.3622 9.97% 

Singapore dollar 2.2262 2.1450 3.79% 2.1016 1.9703 6.66% 

Indonesian rupiah 12,626.6670 10,621.8300 18.87% 11,118.3759 9,688.5555 14.76% 

Africa 

Egyptian pound 8.2543 7.7675 6.27% 7.7001 6.6385 15.99% 

Ivory Coast franc 655.9570 655.9570 0.00% 655.9570 655.9570 0.00% 



– Net financial position 

The composition of the net financial position, which decreased from last year, is commented in the introduction to the 

Directors’ Report on operations. Details are as follows: 


Net financial position 12/31/2004 12/31/2003 

• Short-term financial payables 783 902 

• Accrued interest expenses 49 50 

• Cash and banks (551) (264) 

• Other short-term securities (242) (284) 

• Short-term financial receivables (53) (60) 

• Accrued interest income (16) (14) 

Net short-term (liquidity)/ debt (30) 330 

• Medium/long-term financial payables 1,769 1,695 

• Medium/long-term financial receivables (266) (276) 

• Other securities (4) (4) 

Net medium/long-term debt 1,499 1,415 

Net financial position 1,469 1,745 

– R&D expenditures 

In 2004, the Group incurred research and development expenditures and technical management costs for a total of Euros 

198 million (3 percent of industrial aggregate sales), entirely charged to operating expenses, compared to Euros 204 million 

in the prior year (3.4 percent of industrial aggregate sales). 



Supplementary information 



Consolidated statements of cash flows 


2004 2003 

Net debt, at the beginning of the year (1,745,363) (2,050,385) 

Translation adjustments (3,469) 20,568 

Operating profit 380,301 267,680 

Depreciation and amortization 344,522 360,553 

Increase in intangible assets (50,470) (88,549) 

Increase in property, plant and equipment (281,167) (273,475) 

Increase in financial assets (69,792) (69,027) 

Disposal of intangible assets 1,772 16,705 

Disposal of property, plant and equipment 20,887 13,799 

Disposal of financial assets 75,479 10,427 

Net investments (303,291) (390,120) 

Changes in inventories (136,732) 29,288 

Changes in trade and other accounts receivable/payable 206,296 310,607 

Changes in working capital 69,564 339,895 

Changes in employee-related provisions and other provisions 15,141 3,165 

Other changes (7,876) (17,253) 

Free cash flow 498,361 563,920 

Extraordinary items, net 20,317 (8,900) 

Financial expenses, net (132,197) (148,369) 

Income taxes, net (94,087) (70,202) 

Olimpia S.p.A. capital increase - (388,080) 

Purchase of Capitalia shares - (79,449) 

Purchase of Telecom Italia S.p.A. shares (109,670) - 

Purchase of other minority holdings - (103,800) 

Other changes 25,012 (66,327) 

Net cash flows before dividends 207,736 (301,207) 

Dividends paid (131,768) (63,772) 

Net cash flows 75,968 (364,979) 

Share capital increase of Pirelli & C S.p.A. - 812,165 

Reimbursement of share capital and reserves due to share withdrawals - (162,629) 

Share capital increase minority interest 204,066 (103) 

Changes in share capital 204,066 649,433 

Change in net debt (*) 276,565 305,022 

Net debt, at end of year (1,468,798) (1,745,363) 

(*) Financed by: 

Increase (decrease) in long-term loans 83,932 (210,622) 

Increase (decrease) in short-term loans (113,071) (131,259) 

Decrease (increase) in cash and banks and cash equivalents (247,426) 36,859 

(276,565) (305,022) 



Consolidated statements of changes in shareholders’ equity 

Share Cumulative Other reserves, 

Share premium Legal translation retained earnings 

capital reserve reserve adjustments net income (loss) (*) Total 

Balance at December 31, 2002 339,423 549,674 67,880 (193,630) 1,169,591 1,932,938 

Profit distribution, as per resolution of May 7, 2003 

• appropriation to legal reserve 4 (4) - 

• dividends to shareholders (41,871) (41,871) 

Share capital increase 812,164 812,164 

Share capital increase from share exchange 715,152 220,047 935,199 

Reimbursement of share capital and reserves (67,340) (49,383) (45,906) (162,629) 

Replenishment of reserves of former merged companies 45,824 45,824 

Adjustment from translation of foreign currency financial statements (53,701) (53,701) 

Net loss for the year (39,357) (39,357) 

Balance at December 31, 2003 1,799,399 500,291 67,884 (247,331) 1,308,324 3,428,567 

Profit distribution, as per resolution of May 11, 2004 


• appropriation to legal reserve 6,888 (6,888) - 

• dividends to shareholders (108,623) (108,623) 

Exercise of 2003-2006 warrants 984 173,952 174,936 

Adjustment from translation of foreign currency financial statements 23,787 23,787 

Net income for the year 217,175 217,175 

Balance at December 31, 2004 1,800,383 500,291 74,772 (223,544) 1,583,940 3,735,842 

(*) The item "Other reserves" includes the Revaluation reserve, the Reserve for treasury shares in portfolio, the Merger reserve, the Reserve from contributions and the 

Reserve for shares subscribed due to the exercise of warrants. 



Reconciliation of net results and shareholders’ equity of Pirelli & C. S.p.A. 

And corresponding consolidated figures of the group at december 31, 2004 


Share Reserves Net income Total 

Capital 

(loss) 

Pirelli & C. S.p.A. 1,800,383 1,621,022 149,621 3,571,026 

Earnings (losses) for the year of consolidated companies 

(before consolidation adjustments) 337,792 337,792 

Capital and reserves of consolidated companies 

(before consolidation adjustments) 2,082,506 2,082,506 

Consolidation adjustments: 

- carrying value of investments in consolidated companies (2,076,637) (2,076,637) 

- intragroup dividends 16,988 (181,953) (164,965) 

- other 74,405 (88,285) (13,880) 

Group 1,800,383 1,718,284 217,175 3,735,842 



List of investments 

Companies consolidated using the full consolidation method 

Percentage Percentage 

Company Business Headquarters Share Capital ownership of vote Held by 

Europe 

Austria 

Pirelli Gesellschaft mbH Tyre Vienna Euro 726,728 100.00% Pirelli Tyre (Europe) S.A. 

Pirelli-Oekw GmbH Energy Cables and Systems Vienna Euro 2,071,176 100.00% Pirelli Cable Holding N.V. 

Belgium 

Pirelli Tyres Belux S.A. Tyre Brussels Euro 700,000 100.00% Pirelli Tyre (Europe) S.A. 

Finland 

Pirelli Cables and Systems OY Energy Cables and Systems Helsinki Euro 10,000,000 100.00% Pirelli Cable Holding N.V. 

France 

Pirelli Energie Câbles 

Eurelectric S.A. Energy Cables and Systems La Bresse Euro 4,036,500 100.00% et Systèmes France S.A. 

Gecam France S.a.S Environment Paris Euro 450,000 83.34% Pirelli & C. Ambiente Tecnologie S.p.A. 

Pirelli Energie Câbles 

et Systèmes France S.A. Energy Cables and Systems Paron de Sens Euro 136,800,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Telecom Câbles 

Chavanoz Pont de 

et Systèmes France S.A. Telecom Cables and Systems Cheruy Cedex Euro 7,455,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

Pneus Pirelli S.A.S Tyre Roissy en France Euro 1,515,858 100.00% Pirelli Tyre (Europe) S.A. 

Project Saint Maurice S.A. Real Estate Paris Euro 38,200 100.00% Pirelli & C. Real Estate S.p.A. 

Germany 

Bergmann Kabel und 

Pirelli Kabel und Systeme 

Leitungen GmbH Energy Cables and Systems Schwerin Euro 1,022,600 100.00% Holding GmbH 

Deutsche Pirelli Reifen 

Holding GmbH Financial Breuberg/Odenwald Euro 7,694,943 100.00% Pirelli Tyre Holding N.V. 

Driver Fleet Solution Gmbh (before 

Materialverwertungsgesellschaft 


Breuberg GmbH) Tyre Breuberg/Odenwald Euro 26,000 100.00% Holding GmbH 


Pirelli Deutschland GmbH Tyre Breuberg/Odenwald Euro 26,334,100 100.00% Holding GmbH 

Pirelli Kabel Energy Cables and Systems Hoechst/Odenwald Euro 25,600 100.00% Pirelli Kabel und Systeme 

Grundstueckverwaltung Gmbh 

Holding GmbH 

Pirelli Kabel und 

Pirelli Kabel und Systeme 

Systeme GmbH Energy Cables and Systems Berlin Euro 50,000 100.00% Holding GmbH 

Pirelli Kabel 

und Systeme Holding GmbH Energy Cables and Systems Berlin Euro 26,000 99.00% Pirelli Cable Holding N.V. 

1.00% Pirelli Cavi e Sistemi Energia S.p.A. 


Pirelli Personal Service Gmbh Tyre Breuberg/Odenwald Euro 25,000 100.00% Holding GmbH 

Pirelli Telekom Kabel und 

Systeme Deutschland GmbH Telecom Cables and Systems Berlin Euro 25,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

PK Grundstueckverwaltung 

Gmbh (before Plus 


Beteiligungsgesellschaft mbH) Tyre Hoechst/Odenwald Euro 26,000 100.00% Holding GmbH 


Pneumobil GmbH Tyre Breuberg/Odenwald Euro 259,225 100.00% Holding GmbH 





Greece 

Elastika Pirelli S.A. Tyre Athens Euro 785,370 99.90% Pirelli Tyre (Europe) S.A. 

0.10% Pirelli Pneumatici S.p.A. 

Pirelli Hellas S.A. (in liquidation) Tyre Athens US $ 22,050,000 79.86% Pirelli Tyre Holding N.V. 

Hungary 

Kabel Keszletertekesito BT. Energy Cables and Systems Budapest Hun. Forint/000 1,239,841 100.00% MKM Magyar Kabel Muvek Rt. 

MKM Magyar Kabel Muvek RT. Energy Cables and Systems Budapest Hun. Forint/000 6,981,070 100.00% Pirelli Cable Holding N.V. 

Pirelli Construction Hungary Ltd 

(in liquidation) Energy Cables and Systems Budapest Hun. Forint/000 3,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Hungary Tyre Trading 

and Services Ltd Tyre Budapest Hun. Forint/000 3,000 100.00% Pirelli Tyre (Europe) S.A. 

Ireland 

Pirelli Reinsurance Company Ltd Reinsurance Dublin US $ 7,150,000 100.00% Pirelli Finance (Luxembourg) S.A. 

Italy 

Acquario S.r.l. (in liquidation) Real Estate Genoa Euro 255,000 100.00% Pirelli & C. Real Estate S.p.A. 

Alfa S.r.l. Real Estate Milan Euro 2,600,000 100.00% Pirelli & C. Real Estate S.p.A. 

Alfa Due S.r.l. (in liquidation) Real Estate Milan Euro 1,300,000 100.00% Pirelli & C. Real Estate S.p.A. 

Altofim S.r.l. Financial Milan Euro 78,000 100.00% Pirelli & C. S.p.A. 

Beta S.r.l. Real Estate Milan Euro 26,000 89.00% Partecipazioni Real Estate S.p.A. 

Casaclick S.p.A. Real Estate Milan Euro 299,000 100.00% Pirelli & C. Real Estate Agency S.p.A. 

Centrale Immobiliare S.p.A. Real Estate Milan Euro 5,200,000 100.00% Pirelli & C. Real Estate S.p.A. 

Centro Servizi Amministrativi 

Pirelli S.r.l. Services Milan Euro 51,000 100.00% Pirelli & C. S.p.A. 

CFT Finanziaria S.p.A. Real Estate Florence Euro 10,010,000 89.33% Partecipazioni Real Estate S.p.A. 

Driver Italia S.p.A. Commercial Milan Euro 200,000 62.49% Pirelli Pneumatici S.p.A. 

Edilnord Gestioni S.p.A. Real Estate Milan Euro 517,000 100.00% Pirelli & C. Real Estate S.p.A. 

Edilnord Progetti S.p.A. Real Estate Milan Euro 250,000 100.00% Pirelli & C. Real Estate S.p.A. 

Elle Uno Società Consortile a.r.l. Real Estate Milan Euro 100,000 60.00% Edilnord Gestioni S.p.A. 

Erato Finance S.r.l. Real Estate Milan Euro 600,000 53.85% Pirelli & C. Real Estate S.p.A. 

Erice S.r.l. Real Estate Milan Euro 10,000 100.00% Pirelli & C. Real Estate S.p.A. 

Fibre Ottiche Sud - F.O.S. S.p.A. Optical Fibers Battipaglia (SA) Euro 47,700,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

FIM - Fabbrica Italiana 

di Mediazione S.r.l. Real Estate Milan Euro 100,000 100.00% Pirelli & C. Real Estate Agency S.p.A. 

Iota S.r.l. Real Estate Milan Euro 93,600 100.00% Pirelli & C. Real Estate S.p.A. 

Lambda S.r.l. Real Estate Milan Euro 578,760 100.00% Pirelli & C. Real Estate S.p.A. 

Maristel S.p.A. Telecom Cables and Systems Milan Euro 1,020,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

NewCo RE 1 S.r.l. Real Estate Milan Euro 30,000 100.00% Pirelli & C. Real Estate S.p.A. 








Parcheggi Bicocca S.r.l. Real Estate Milan Euro 1,500,000 75.00% Pirelli & C. Real Estate S.p.A. 

Partecipazioni Real Estate S.p.A. Real Estate Milan Euro 1,360,280 100.00% Pirelli & C. Real Estate S.p.A. 

PBS S.c.a.r.l. Real Estate Milan Euro 100,000 60.00% Edilnord Gestioni S.p.A. 

Pirelli Broadband 

Solutions S.p.A. Telecom Cables and Systems Milan Euro 120,000 98.75% Pirelli & C. S.p.A. 

Milan 1.25% Pirelli Finance (Luxembourg) S.A. 

Pirelli & C. Ambiente S.p.A. Environment Milan Euro 3,060,000 100.00% Pirelli & C. Ambiente Holding S.p.A. 

Pirelli & C. Ambiente Holding S.p.A. 

(before Progetto Ambiente Beta S.r.l.) Environment Milan Euro 23,120,000 51.00% Pirelli & C. S.p.A. 


Ambiente Tecnologie S.p.A. Environment Milan Euro 2,080,000 100.00% Pirelli & C. Ambiente Holding S.p.A. 

Pirelli & C. Opere Generali S.p.A. Real Estate Milan Euro 104,000 100.00% Pirelli & C. Real Estate S.p.A. 

Pirelli & C. Real Estate S.p.A. Real Estate Milan Euro 20,583,241 52.05% Pirelli & C. S.p.A. 

3.47% 0.00% Pirelli & C. Real Estate S.p.A. 

0.02% 0.00% Progetto Grande Bicocca S.r.l. 

Pirelli & C. Real Estate 

Agency S.p.A. Real Estate Milan Euro 832,000 100.00% Pirelli & C. Real Estate S.p.A. 


Credit Servicing S.p.A. Financial Milan Euro 2,000,000 100.00% Pirelli & C. Real Estate S.p.A. 



Energy S.p.A. Real Estate Milan Euro 120,000 100.00% Facility Management S.p.A. 


Facility Management S.p.A. Real Estate Milan Euro 5,561,000 100.00% Pirelli & C. Real Estate S.p.A. 


Franchising S.p.A. 

(before Pirelli & C. Real Estate Real Estate Milan Euro 500,000 100.00% Pirelli & C. Real Estate 

Servizi di Rete S.p.A.) 

Franchising Holding S.r.l. 


Franchising Agenzia 


Assicurativa S.r.l. Real Estate Milan Euro 10,000 100.00% Franchising Holding S.r.l. 


Franchising Holding S.r.l. Real Estate Milan Euro 120,000 70.00% Pirelli & C. Real Estate S.p.A. 


Project Management S.p.A. Real Estate Milan Euro 520,000 100.00% Pirelli & C. Real Estate S.p.A. 


Property Management S.p.A. Real Estate Milan Euro 114,400 100.00% Pirelli & C. Real Estate S.p.A. 

Pirelli & C. Real Estate Società 

di Gestione del Risparmio S.p.A. Real Estate Milan Euro 8,225,000 90.00% Pirelli & C. Real Estate S.p.A. 

Pirelli & C. Real Estate Società di 

Gestione del Risparmio S.p.A. 

Private Real Estate Milan Euro 1,000,000 100.00% Pirelli & C. Real Estate S.p.A. 

Pirelli Cavi e Sistemi 

Energy Cables and Systems 

Energia S.p.A. holding company Milan Euro 100,000,000 98.75% Pirelli & C. S.p.A. 

1.25% Pirelli Finance (Luxembourg) S.A. 


Energia Italia S.p.A. Energy Cables and Systems Milan Euro 110,000,000 100.00% Pirelli Cavi e Sistemi Energia S.p.A. 






Telecom Cables and Systems 

Telecom S.p.A. holding company Milan Euro 70,000,000 98.75% Pirelli & C. S.p.A. 

1.25% Pirelli Finance (Luxembourg) S.A. 


Telecom Italia S.p.A. Telecom Cables and Systems Milan Euro 41,000,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

Pirelli Cultura S.p.A. Sundry Milan Euro 1,000,000 100.00% Pirelli & C. S.p.A. 

Pirelli Labs S.p.A. Research and Development Milan Euro 10,000,000 100.00% Pirelli & C. S.p.A. 

Pirelli Nastri Tecnici S.p.A. 

(in liquidation) Sundry Milan Euro 384,642 100.00% Pirelli & C. S.p.A. 

Pirelli Pneumatici S.p.A. Tyre Milan Euro 256,820,000 100.00% Pirelli Tyre Holding N.V. 

Pirelli Servizi Finanziari S.p.A. Financial Milan Euro 1,976,000 100.00% Pirelli & C. S.p.A. 

Pirelli Submarine Telecom Real Estate Milan Euro 50,000,000 100.00% Pirelli Submarine Telecom Systems 

Systems Italia S.p.A. 

Holding B.V. 

PIT - Promozione Imprese e 

Pirelli & C. Real Estate Facility 

Territorio S.c.r.l. Real Estate Pozzuoli Euro 25,823 100.00% Management S.p.A. 

Polo Viaggi S.r.l. Travel Agency Milan Euro 46,800 100.00% Pirelli & C. S.p.A. 

Progetto Ambiente Gamma S.r.l. Environment Milan Euro 25,500 100.00% Pirelli & C. Ambiente S.p.A. 

Progetto Bicocca 

Esplanade S.p.A. Real Estate Milan Euro 2,500,000 100.00% Pirelli & C. Real Estate S.p.A. 

Progetto Grande Bicocca S.r.l. Real Estate Milan Euro 93,600 100.00% Pirelli & C. Real Estate S.p.A. 

Progetto Grande Bicocca 

Multisala S.r.l. (in liquidation) Real Estate Milan Euro 1,530,000 100.00% Pirelli & C. Real Estate S.p.A. 

Progetto Moncalieri S.r.l. Real Estate Milan Euro 90,000 100.00% Pirelli & C. Real Estate S.p.A. 

Progetto Salute Bollate S.r.l. Real Estate Milan Euro 100,000 100.00% Pirelli & C. Real Estate S.p.A. 

Repeg Italian Finance S.r.l. Real Estate Milan Euro 500,000 100.00% Partecipazioni Real Estate S.p.A. 

Rofau S.r.l. Real Estate Milan Euro 10,000 100.00% Altofim S.r.l. 

Serenergy S.r.l. (before Progetto 

Ambiente Alfa S.r.l.) Environment Milan Euro 25,500 50.00% Pirelli & C. Ambiente S.p.A. 

Servizi Amministrativi 

Real Estate S.p.A. Real Estate Milan Euro 520,000 100.00% Pirelli & C. Real Estate S.p.A. 

Servizi Aziendali Pirelli S.C.p.A. Services Milan Euro 104,000 94.00% Pirelli & C. S.p.A. 


0.50% Pirelli Cavi e Sistemi Telecom S.p.A. 


1.00% Polo Viaggi S.r.l. 

1.00% Alfa Due S.r.l. 

1.00% Pirelli & C. Real Estate S.p.A. 

Shared Service Center s.c.r.l. Information Systems Milan Euro 1,756,612 50.00% Pirelli & C. S.p.A. 


Somogi S.r.l. Real Estate Vimodrone (MI) Euro 90,000 88.00% Management S.p.A. 

Stella Polare S.r.l. (in liquidation) Real Estate Naples Euro 289,215 100.00% Pirelli & C. Real Estate S.p.A. 

Tintoretto S.r.l. Real Estate Milan Euro 10,000 100.00% Partecipazioni Real Estate S.p.A. 

Trefin S.p.A. Financial Milan Euro 4,242,476 100.00% Pirelli & C. S.p.A. 

T.R.E.-Total Renewable Energy S.r.l. Environment Pero Euro 10,000 100.00% Pirelli & C. Ambiente Tecnologie S.p.A. 





Luxembourg 

Pirelli Finance 

(Luxembourg) S.A. Financial Luxembourg Euro 270,228,168 100.00% Pirelli & C. S.p.A. 

Pirelli International Finance S.A. Insurance Luxembourg Euro 35,000 100.00% Pirelli Finance (Luxembourg) S.A. 

Norway 

Pirelli Kabler og Systemer AS Energy Cables and Systems Ski Nor. Krone 100,000 100.00% Pirelli Cables and Systems OY 

Poland 

Driver Polska Sp.ZO.O. Tyre Warsaw Pol. Zloty/mil. 100,000 84.00% Pirelli Polska Sp.ZO.O. 

Pirelli Polska Sp.ZO.O. Tyre Warsaw Pol. Zloty/mil. 625,771 100.00% Pirelli Tyre (Europe) S.A. 

Portugal 

Desco Fabrica Portuguesa de Material 

Pirelli Energie Câbles et 

Electrico e Electronico S.A. Energy Cables and Systems Arcozelo Vngaia Euro 1,545,000 70.93% Systèmes France S.A. 

Romania 

29.07% Eurelectric S.A. 

S.C. Cord Romania SRL Tyre Slatina Rom. Leu/000 51,951,000 80.00% Pirelli Tyre Holding N.V. 

S.C. Pirelli Romania 

Cabluri si Sisteme S.A. Energy Cables and Systems Slatina Rom. Leu/000208,927,700 100.00% Pirelli Cable Holding N.V. 

S.C. Pirelli Tyres Romania S.R.L. Tyre Slatina Rom. Leu/000 90,620,000 95.00% Pirelli Tyre Holding N.V. 


Russia 

OOO Pirelli Tyre Russia Commercial Moscow Russian Rouble 950,000 95.00% Pirelli Tyre (Europe) S.A. 

Slovakia 

5.00% Pirelli Tyre Holding N.V. 

Kablo Bratislava Spol. S.R.O. Energy Cables and Systems Bratislava Slov. Koruna 523,334,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Slovakia S.R.O. Tyre Bratislava Slov. Koruna 200,000 100.00% Pirelli Tyre (Europe) S.A. 

Spain 

Euro Driver Car S.L. Tyre Barcelona Euro 600,000 25.00% Pirelli Neumaticos S.A. 

26.00% Proneus S.L. 

Fercable S.A. Energy Cables and Systems Barcelona Euro 3,606,073 100.00% Pirelli Cables y Sistemas S.A. 

Omnia Motor S.A. Tyre Barcelona Euro 1,502,530 100.00% Pirelli Neumaticos S.A. 

Pirelli Cables y Sistemas S.A. Energy Cables and Systems Barcelona Euro 24,000,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Neumaticos S.A. Tyre Barcelona Euro 45,075,908 100.00% Pirelli Tyre Holding N.V. 

Pirelli Telecom Cables 

y Sistemas Espana S.L. Telecom Cables and Systems Barcelona Euro 12,000,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

Proneus S.L. Tyre Barcelona Euro 3,005 51.00% Pirelli Neumaticos S.A. 

Sweden 

Pirelli Kablar och System AB Energy Cables and Systems Hoganas Swed. Krona 100,000 100.00% Pirelli Cables and Systems OY 

Pirelli Tyre Nordic AB Tyre Bromma Swed. Krona 950,000 100.00% Pirelli Tyre (Europe) S.A. 

Switzerland 

Agom S.A. Tyre Conthey Swiss Franc 50,000 80.00% Pirelli Tyre (Europe) S.A. 

Agom S.A. Bioggio Tyre Bioggio Swiss Franc 590,000 100.00% Pirelli Tyre (Europe) S.A. 

Pirelli Cables and Systems S.A. Energy Cables and Systems Basil Swiss Franc 500,000 100.00% Pirelli Cable Holding N.V. 





Pirelli Société de Services S.a.r.l. Financial Basil Swiss Franc 50,000 100.00% Pirelli Société Générale S.A. 

Pirelli Société Générale S.A. Financial Basil Swiss Franc 28,000,000 100.00% Pirelli & C. S.p.A. 

Pirelli Tyre (Europe) S.A. Tyre Basil Swiss Franc 1,000,000 100.00% Pirelli Tyre Holding N.V. 


Pirelli Cables and Systems N.V. Energy Cables and Systems Delft Euro 5,000,000 100.00% Pirelli Cable Holding N.V. 


Pirelli Cable Holding N.V. holding company Delft Euro 272,515,065 100.00% Pirelli Cavi e Sistemi Energia S.p.A. 

Pirelli Cable Overseas N.V. Telecom Cables and Systems Delft Euro 10,000,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

Pirelli Submarine Telecom 

Systems Holding B.V. Real Estate Delft Euro 4,500,000 100.00% Pirelli & C. Real Estate S.p.A. 

Pirelli Tyre Holding N.V. Tyre Holding Company Heinenoord Euro 250,000,000 100.00% Pirelli & C. S.p.A. 

Pirelli Tyres Nederland B.V. Tyre Heinenoord Euro 18,152 100.00% Pirelli Tyre (Europe) S.A. 

Sipir Finance N.V. Financial Delft Euro 13,021,222 100.00% Pirelli & C. S.p.A. 

Turkey 

Celikord A.S. Tyre Istanbul Turk. Lira/mil. 28,000,000 50.733% Pirelli Tyre Holding N.V. 


Turk-Pirelli Lastikleri A.S. Tyre Istanbul Turk. Lira/mil.136,000,000 62.90% Pirelli Tyre Holding N.V. 


Türk Pirelli Kablo ve 

Sistemleri A.S. Energy Cables and Systems Mudania / Bursa Turk. Lira/mil. 39,312,000 83.75% Pirelli Cable Holding N.V. 

Zalsan Zirai Arac Lastikleri A.S. Tyre Istanbul Turk. Lira/mil. 3,283,000 70.00% Turk-Pirelli Lastikleri A.S. 


Aberdare Cables Ltd Energy Cables and Systems London British Pound 609,654 100.00% Pirelli General plc 

Cable Makers Properties 

and Services Ltd Energy Cables and Systems East Molesey British Pound 33 63,53% Pirelli General plc 

Central Tyre Ltd Tyre London British Pound 100,000 100.00% Pirelli UK Tyres Ltd 

Comergy Ltd Energy Cables and Systems London British Pound 1,000,000 100.00% Pirelli Cable Holding N.V. 

Courier Tyre Company Ltd Tyre London British Pound 10,000 100.00% Pirelli UK Tyres Ltd 

CPK Auto Products Ltd Tyre London British Pound 10,000 100.00% Pirelli UK Tyres Ltd 

CTC 1994 Ltd Tyre London British Pound 984 100.00% Central Tyre Ltd 

Pirelli & C. Real Estate Ltd Real Estate London Euro 100,000 100.00% Pirelli & C. Real Estate S.p.A. 

Pirelli Cables (2000) Ltd Energy Cables and Systems London British Pound118,653,473 100.00% Pirelli General plc 

Pirelli Cables (Industrial) Ltd Energy Cables and Systems London British Pound 9,010,935 100.00% Pirelli General plc 

Pirelli Cables (Supertention) Ltd Energy Cables and Systems London British Pound 5,000,000 100.00% Pirelli General plc 

Pirelli Cables and 

Systems International Ltd Energy Cables and Systems London Euro 100,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Cables Ltd Energy Cables and Systems London British Pound 100,000 100.00% Pirelli General plc 

Pirelli Construction 

Company Ltd Energy Cables and Systems London British Pound 8,000,000 100.00% Pirelli General plc 

Pirelli Focom Ltd Energy Cables and Systems London British Pound 6,447,000 100.00% Pirelli General plc 





Pirelli General plc Cables and Systems London British Pound144,139,360 100.00% Pirelli UK plc “B1”/“B2” 

Pirelli International Ltd Financial London Euro 250,000,000 100.00% Pirelli Finance (Luxembourg) S.A. 

Pirelli Metals Ltd Energy Cables and Systems London British Pound 100,000 100.00% Pirelli General plc 

Pirelli Telecom Cables 

and Systems UK Ltd Telecom Cables and Systems London British Pound 100,000 100.00% Pirelli General plc 

Pirelli Tyres Ltd Tyre London British Pound 16,000,000 100.00% Pirelli UK Tyres Ltd 

Pirelli UK Employee Share 

Trustee Ltd Financial London British Pound 2 100.00% Pirelli UK plc “C” 

Pirelli UK Finance Ltd Financial London British Pound 6,969,280 100.00% Pirelli UK plc “C” 

Pirelli UK plc “A” Tyre Holding company London British Pound 85,535,300 100.00% Pirelli Tyre Holding N.V. 


Pirelli UK plc “B1” holding company London British Pound 69,188,889 100.00% Pirelli Cable Holding N.V. 

Telecom Cables and Systems 

Pirelli UK plc “B2” holding company London British Pound 27,149,529 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

Pirelli UK plc “C” Finance Holding Company London British Pound 11,625,978 100.00% Pirelli & C. S.p.A. 

Pirelli UK Tyres Ltd Tyre London British Pound 85,000,000 100.00% Pirelli UK plc “A” 

North America 

Canada 

Pirelli Power Cables and 

Saint John 

Systems Canada Ltd Energy Cables and Systems (New Brunswich) Can. $ 1,000,000 100.00% Pirelli Cable Holding N.V. 

Frederic Town 

Pirelli Tire Inc. Tyre (New Brunswich) Can. $ 6,000,000 100.00% Pirelli Tyre (Europe) S.A. 

U.S.A. 

Pirelli Communications Cables 

Wilmington 

and Systems USA LLC Telecom Cables and Systems (Delaware) US $ 10 100.00% Pirelli North America Inc. “B1” 

Pirelli Communications Wilmington Pirelli Communications Cables and 

Cables Corporation Commercial (Delaware) US $ 1 100.00% Systems USA LLC 

Pirelli Power Cables and Systems 

Pirelli Construction Services Inc. Energy Cables and Systems Dover (Delaware) US $ 1,000 100.00% USA LLC 

Wilmington 

Pirelli North America Inc. “A” Tyre (Delaware) US $ 3,15 100.00% Pirelli Tyre Holding N.V. 

Wilmington 

Pirelli North America Inc. “B1” Telecom Cables and Systems (Delaware) US $ 5,75 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

Wilmington 

Pirelli North America Inc. “B2” Energy Cables and Systems (Delaware) US $ 1,10 100.00% Pirelli Cavi e Sistemi Energia S.p.A. 

Pirelli Power Cables and 

Wilmington 

Systems USA LLC Energy Cables and Systems (Delaware) US $ 10 100.00% Pirelli North America Inc. “B2” 

Wilmington 

Pirelli RNC Inc. Commercial (Delaware) US $ 1 100.00% Pirelli Tyre Holding N.V. 

Wilmington 

Pirelli Tire LLC Tyre (Delaware) US $ 1 100.00% Pirelli North America Inc. “A” 

Central/South America 

Argentina 

Pirelli Consultora Conductores 

Fipla S.A. Energy Cables and Systems Buenos Aires Arg. Peso 1 66.97% e Instalaciones S.A.I.C. 





Pirelli Argentina de Mandatos S.A. Services Buenos Aires Arg. Peso 500,000 100.00% Pirelli Société Générale S.A. 


e Instalaciones S.A.I.C. Energy Cables and Systems Buenos Aires Arg. Peso 2,227 100.00% Pirelli Cable Holding N.V. 



de Argentina S.A. Energy Cables and Systems Buenos Aires Arg. Peso 44,509,458 74.91% e Instalaciones S.A.I.C. 

24.69% Pirelli Cable Holding N.V. 

Pirelli Neumaticos S.A.I.C. Tyre Buenos Aires Arg. Peso 19,016,500 99.02% Pirelli Tyre Holding N.V. 


Pirelli Telecomunicaciones Telecom Cables and Systems Buenos Aires Arg. Peso 12,000 100.00% Pirelli Telecomunicações Cabos 

Cables y Sistemas de Argentina S.A. 

e Sistemas do Brasil S.A. 


Tel 3 S.A. Energy Cables and Systems Buenos Aires Arg. Peso 7,822,000 51.00% de Argentina S.A. 

Brazil 

Cordas Metalicas do Brasil Ltda Tyre Sumarè Bra. Real 1,000 99.90% Pirelli Pneus S.A. 

0.10% Muriaè Ltda 

Muriaé Ltda Financial Santo Andrè Bra. Real 80,000,000 100.00% Pirelli Pneus S.A. 

Novacorp Consultora 

e Serviços Corporativos Ltda Holding Santo Andrè Bra. Real 6,000 99.98% Pirelli S.A. 

Pirelli & C. Real Estate Ltda Real Estate Santo Andrè Bra. Real 2,000,000 100.00% Pirelli S.A. 

Pirelli Energia Cabos e 

Sistemas do Brasil S.A. Energy Cables and Systems Sorocaba Bra. Real 106,824,993 87.20% 88.78% Pirelli Cavi e Sistemi Energia S.p.A. 

12.24% 10.37% Pirelli S.A. 

Pirelli Pneus Nordeste Ltda Tyre Feira de Santana Bra. Real 29,991,402 100.00% Pirelli Pneus S.A. 

Pirelli Pneus S.A. Tyre Feira de Santana Bra. Real 342,085,095 96.05% 98.77% Pirelli Pneumatici S.p.A. 


Pirelli S.A. Financial San Paolo Bra. Real 46,364,284 100.00% Pirelli & C. S.p.A. 

Pirelli Telecomunicações Cabos 

e Sistemas do Brasil S.A. Telecom Cables and Systems Sorocaba Bra. Real 81,288,046 90.22% 91.43% Pirelli Cavi e Sistemi Telecom S.p.A. 


Pneuac Comercial e 

Importadora Ltda Tyre San Paolo Bra. Real 12,913,526 100.00% Pirelli Pneus S.A. 

Chile 

Pirelli E y T S.A. Energy Cables and Systems Santiago Chile Peso/000 3,072,471 99.82% Pirelli Instalaciones Chile S.A. 


Pirelli Instalaciones Chile S.A. Energy Cables and Systems Santiago Chile Peso/000 918,707 100.00% e Instalaciones S.A.I.C. 

Pirelli Neumaticos Chile Limitada Tyre Santiago US $ 1,918,451 99.98% Pirelli Pneus S.A. 

Colombia 

0.02% Pneuac Comercial e Importadora Ltda 

Pirelli de Colombia S.A. Tyre Santa Fe De Bogota Col. Peso/000 3,315,069 92.91% Pirelli Pneus S.A. 

2.28% Pirelli de Venezuela C.A. 

1.60% Muriaè Ltda 

1.60% Pirelli Pneus Nordeste Ltda 






Mexico 

Pirelli Neumaticos 

de Mexico S.A. de C.V. Tyre Naucalpan Mex Peso 35,098,600 99.98% Pirelli Pneus S.A. 


Servicios Pirelli Mexico S.A. 

de C.V. Tyre Mexico City Mex Peso 50,000 99.00% Pirelli Pneus S.A. 


Uruguay 

Pirelli Energia Cabos e Sistemas 

Cite S.A. Energy Cables and Systems Montevideo Urug. Peso 24,062,721 100.00% do Brasil S.A. 

Venezuela 

Pirelli de Venezuela C.A. Tyre Valencia Ven. Bolivar/00010,062,679 96.22% Pirelli Tyre Holding N.V. 

Africa 

Ivory Coast 

SICABLE - Société Ivoirienne 

Pirelli Energie Câbles et Systèmes 

de Cables S.A. Energy Cables and Systems Abidjan Cfa Franc 740,000,000 51.00% France S.A. 

Egypt 

Alexandria Tire Company S.A.E. Tyre Alexandria Egy. Pound 393,000,000 86.79% Pirelli Pneumatici S.p.A. 

0.03% Pirelli Tyre (Europe) S.A. 

International Tire Company Ltd Tyre Alexandria Egy. Pound 50,000 96.00% Alexandria Tire Company S.A.E. 

South Africa 

Pirelli Cables & Systems 

(Proprietary) Ltd Commercial Woodmead, S.A. Rand Sudafr. 100 100.00% Pirelli Cavi e Sistemi Energia S.p.A. 

Pirelli Tyre (Pty) Ltd Tyre Sandton Rand Sudafr. 1 100.00% Pirelli Tyre (Europe) S.A. 

Tunisia 

Pirelli Energie Câbles et Systèmes 

Auto Cables Tunisie S.A. Energy Cables and Systems Tunis Tun. Dinar 4,450,000 51.00% France S.A. 

Oceania 

Australia 

Pirelli Power Cables & Systems 

Australia Pty Ltd Energy Cables and Systems Liverpool - N.S.W. $ Austr. 15.000.000 100.00% Pirelli Cavi e Sistemi Energia S.p.A. 

Pirelli Telecom Cables & Systems 

Australia Pty Ltd Telecom Cables and Systems Liverpool - N.S.W. $ Austr. 38.500.000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

Pirelli Tyres Australia Pty Ltd Tyre Pymble - N.S.W. $ Austr. 150.000 100.00% Pirelli Tyre (Europe) S.A. 

New Zealand 



New Zealand Ltd Energy Cables and Systems Auckland $ Nz. 10.000 100.00% Australia Pty Ltd 



New Zealand Ltd Telecom Cables and Systems Auckland $ Nz. 10.000 100.00% Australia Pty Ltd 

Pirelli Tyres (NZ) Ltd Tyre Wellington $ Nz. 100 100.00% Pirelli Tyres Australia Pty Ltd 





Asia 

China 

Pirelli Baosheng Cable Co. Ltd Energy Cables and Systems Jiangsu US $ 19,500,000 67.00% Pirelli Cables Asia-Pacific Pte Ltd 

Pirelli Cables (Shanghai) 

Trading Co. Ltd Energy Cables and Systems Shanghai US $ 500,000 100.00% Pirelli Cables Asia-Pacific Pte Ltd 

Pirelli Telecom 

Cables Co. Ltd Wuxi Telecom Cables and Systems Xuelang Town US $ 29,941,250 86.71% Pirelli Cable Overseas N.V. 

Tianjin Pirelli Power 

Cables Co. Ltd Energy Cables and Systems Tianjin Municipality US $ 13,100,000 67.00% Pirelli Cable Holding N.V. 

Japan 

Pirelli Japan K.K. 

(before P & A K.K.) Tyre Tokyo Jap. Yen 2,700,000,000 100.00% Pirelli Tyre Holding N.V. 

India 

Pirelli Cables (India) Private Ltd Energy Cables and Systems New Delhi India Rupee 10,000,000 100.00% Pirelli Cable Holding N.V. 

Indonesia 

P.T. Pirelli Cables Indonesia Energy Cables and Systems Jakarta US $ 67,300,000 99.48% Pirelli Cable Holding N.V. 

Malaysia 


BICC (Malaysia) Sdn Bhd Energy Cables and Systems Kuala Lumpur Mal. Ringgit 100,000 100.00% Pirelli Cables Asia-Pacific Pte Ltd 

Submarine Cable 

Installation Sdn Bhd Energy Cables and Systems Kuala Lumpur Mal. Ringgit 10,000 100.00% Pirelli Cavi e Sistemi Energia S.p.A. 

Singapore 

Pirelli Asia Pte Ltd Tyre Singapore $ Sing. 2 100.00% Pirelli Tyre (Europe) S.A. 

Pirelli Cable Systems Pte Ltd Energy Cables and Systems Singapore $ Sing. 25,000 50.00% Pirelli General plc 

50.00% Pirelli Cable Holding N.V. 

Pirelli Cables Asia-Pacific Pte Ltd Energy Cables and Systems Singapore $ Sing. 213,324,290 100.00% Pirelli Cable Holding N.V. 

Trans-Power Cables Pte Ltd Energy Cables and Systems Singapore $ Sing. 1,500,000 100.00% Pirelli Cable Holding N.V. 



Other investments in subsidiaries and associated companies 



Europe 

Italy 

G6 Advisor Real Estate Milan Euro 50,000 42.30% Pirelli & C. Real Estate Agency S.p.A. 

Progetto Bicocca 

Università S.r.l. Real Estate Milan Euro 873,600 34.00% Pirelli & C. Real Estate S.p.A. 



Investments accounted for using the equity method 



Jointly controlled companies 

Europe 

Italy 

Olimpia S.p.A. Industrial Holding Company Milan Euro 2,630,233,510 50.40% Pirelli & C. S.p.A. 

Subsidiaries 

Europe 

Germany 

Drahtcord Saar 

Geschaeftsfuehrungs GmbH Tyre Merzig Marchi T. 60,000 50.00% Pirelli Deutschland A.G. 

Drahtcord Saar 

GmbH & Co. K.G. Tyre Merzig Marchi T. 30,000,000 50.00% Pirelli Deutschland A.G. 

Kabeltrommel 

Gesellshaft mbH & Co K.G. Energy Cables and Systems Cologne Euro 10,225,838 27.48% Pirelli Kabel und Systeme GmbH 

1.00% Bergmann Kabel und Leitungen GmbH 

Italy 

Agorà S.r.l. Real Estate Milan Euro 10,000 40.00% Pirelli & C. Real Estate S.p.A. 


Altair Zander Italia S.r.l. Real Estate Milan Euro 100,000 50.00% Management S.p.A. 

Aree Urbane S.r.l. Real Estate Milan Euro 307,717 34.60% Pirelli & C. Real Estate S.p.A. 

0.28% Pirelli & C. S.p.A. 

Bernini Immobiliare S.r.l. Real Estate Milan Euro 500,000 14.00% Pirelli & C. Real Estate S.p.A. 

Bicocca Center S.r.l. Real Estate Milan Euro 51,000 25.00% Pirelli & C. Real Estate S.p.A. 

Continuum S.r.l. Real Estate Milan Euro 500,000 40.00% Pirelli & C. Real Estate S.p.A. 

Delta S.p.A. Real Estate Milan Euro 153,000 47.50% Pirelli & C. Real Estate S.p.A. 

Dixia S.r.l. Real Estate Milan Euro 2,500,000 30.00% Pirelli & C. Real Estate S.p.A. 

Domogest S.r.l. Real Estate Florence Euro 1,050,000 50.00% Centrale Immobiliare S.p.A. 

Elle Dieci 

Pirelli & C. Real Estate Property 

Società Consortile a.r.l. Real Estate Milan Euro 100,000 40.00% Management S.p.A. 

Elle Nove Società Consortile a.r.l. Real Estate Milan Euro 100,000 34.90% Edilnord Gestioni S.p.A. 

Pirelli & C. Real Estate Property 

Elle Tre Società Consortile a.r.l. Real Estate Milan Euro 100,000 40.00% Management S.p.A. 

Esedra S.r.l. Real Estate Milan Euro 2,376,234 35.00% Pirelli & C. Real Estate S.p.A. 

Eurofly Service S.p.A. Services Caselle Torinese Euro 8,255,000 24.55% Pirelli & C. S.p.A. 

Eurostazioni S.p.A. Holding Rome Euro 160,000,000 32.71% Pirelli & C. S.p.A. 

Geolidro S.p.A. Real Estate Naples Euro 3,099,096 49.00% Centrale Immobiliare S.p.A. 

Holdim S.r.l. Real Estate Milan Euro 1,000,000 30.00% Pirelli & C. Real Estate S.p.A. 

Idea Granda S. Consortile r.l. Environment Cuneo Euro 1,292,500 49.00% Pirelli & C. Ambiente S.p.A. 

Immobiliare le Ghirlande S.r.l. Real Estate Milan Euro 10,000 35.00% Pirelli & C. Real Estate S.p.A. 

Immobiliare Prizia S.r.l. Real Estate Milan Euro 469,000 36.00% Pirelli & C. Real Estate S.p.A. 





Induxia S.r.l. Real Estate Milan Euro 836,300 18.00% Pirelli & C. Real Estate S.p.A. 

Iniziative Immobiliari S.r.l. Real Estate Gavirate (VA) Euro 5,000,000 29.07% Pirelli & C. Real Estate S.p.A. 

Le Case di Capalbio S.r.l. Real Estate Milan Euro 10,000 20.00% Pirelli & C. Real Estate S.p.A. 

Localto S.p.A. Financial Milan Euro 5,200,000 35.00% Partecipazioni Real Estate S.p.A. 

LSF Italian Finance 

Company S.p.A. Financial Milan Euro 10,000 30.00% Partecipazioni Real Estate S.p.A. 

Moncalieri Center S.r.l. Real Estate Milan Euro 22,000 25.00% Pirelli & C. Real Estate S.p.A. 


MP Facility S.p.A Real Estate Milan Euro 1,000,000 50.00% Management S.p.A. 

Orione Immobiliare Prima S.p.A. Real Estate Milan Euro 104,000 35.00% Pirelli & C. Real Estate S.p.A. 

Perseo S.r.l. Services Milan Euro 20,000 24.55% Pirelli & C. S.p.A. 

Progetto Bicocca la Piazza S.r.l. Real Estate Milan Euro 3,151,800 26.00% Pirelli & C. Real Estate S.p.A. 

Progetto Corsico S.r.l. Real Estate Milan Euro 100,000 49.00% Pirelli & C. Real Estate S.p.A. 

Progetto Fontana S.r.l. Real Estate Milan Euro 500,000 23.00% Pirelli & C. Real Estate S.p.A. 

Progetto Gioberti S.r.l. Real Estate Milan Euro 100,000 50.00% Pirelli & C. Real Estate S.p.A. 

Progetto Lainate S.r.l. Real Estate Milan Euro 25,500 25.00% Pirelli & C. Real Estate S.p.A. 

Realco LSF S.r.l. Real Estate Milan Euro 10,000 33.00% Partecipazioni Real Estate S.p.A. 

Regus Business Centres 

Italia S.p.A. Real Estate Milan Euro 661,220 35.00% Pirelli & C. Real Estate S.p.A. 

SMP Melfi S.r.l. Tyre Melito (NA) Euro 3,511,906 50.00% Pirelli Pneumatici S.p.A. 

Solaris S.r.l. Real Estate Milan Euro 20,000 40.00% Pirelli & C. Real Estate S.p.A. 


Telepost S.p.A. Real Estate Milan Euro 120,000 20.00% Management S.p.A. 

Trixia S.r.l. Real Estate Milan Euro 1,209,700 36.00% Pirelli & C. Real Estate S.p.A. 

Verdi S.r.l. Real Estate Milan Euro 20,000 43.74% Pirelli & C. Real Estate S.p.A. 

Vindex S.r.l. Real Estate Brescia Euro 12,000 16.00% Partecipazioni Real Estate S.p.A. 

Luxembourg 

37.00% CFT Finanziaria S.p.A. 

IN Holdings I S.a.r.l. Real Estate Luxembourg Euro 4,595,725 20.50% Pirelli & C. Real Estate S.p.A. 

Inimm Due S.a.r.l. Real Estate Luxembourg Euro 240,950 25.00% Pirelli & C. Real Estate S.p.A. 

M.S.M.C. Solferino S.a.r.l. 

(in liquidation) Real Estate Luxembourg Euro 136,700 31.25% Pirelli & C. Real Estate S.p.A. 

Portugal 

Mirandia - 

Trading e Consultoria Lda Real Estate Madeira Euro 5,000 15.00% Pirelli & C. Real Estate S.p.A. 

Tronador - 

Consultoria Economica Lda Real Estate Madeira Euro 70,955 15.00% Pirelli & C. Real Estate S.p.A. 


M.S.M.C. Italy Holding B.V. Real Estate Amsterdam Euro 20,000 25.00% Pirelli & C. Real Estate S.p.A. 

Masseto 1 B.V. Real Estate Amsterdam Euro 19,000 33.00% Pirelli & C. Real Estate S.p.A. 

Popoy Holding B.V. Financial Amsterdam Euro 26,550 25.05% Pirelli & C. Real Estate S.p.A. 

Spazio Industriale B.V. Real Estate Amsterdam Euro 763,077 25.00% Pirelli & C. Real Estate S.p.A. 


Rodco Ltd Energy Cables and Systems Gravesend British Pound 5,000,000 40.00% Pirelli General plc 





North America 

U.S.A. 

Sci Roev Texas Partners L.P. Real Estate Dallas US $ 12,000,000 10.00% Pirelli & C. Real Estate S.p.A. 

Central/South America 

Argentina 

Lineas de Transmision 

de Buenos Aires S.A. 

(in liquidation) Energy Cables and Systems Buenos Aires Arg. Peso/000 12,000 20.00% Pirelli Argentina de Mandatos S.A. 

Brazil 

K.M.P. Cabos Especiais 

Pirelli Energia Cabos e Sistemas 

e Sistemas Ltda Energy Cables and Systems San Paolo Bra. Real 6,600,916 40.00% do Brasil S.A. 

Asia 

Saudi Arabia 

Sicew-Saudi Italian Co. 

for Electrical Works Ltd Energy Cables and Systems Jeddah S. Arab. Riyal 1,000,000 34.00% Pirelli Cable Holding N.V. 



Other investments in subsidiaries and associated companies 



Europe 

Austria 

Pirelli Kabelwerke und 

Systeme GmbH (*) Energy Cables and Systems Vienna Euro 36,336 100.00% Pirelli Cavi e Sistemi Energia S.p.A. 

Germany 

Industriekraftwerk 

Breuberg GmbH Cogeneration Hoechst/Odenwald Euro 1,533,876 26.00% Pirelli Deutschland AG 

Hungary 

Ipoly Kabeldob KFT. 

(in liquidation) Energy Cables and Systems Szecseny Hun. Forint/000 36,350 25.17% MKM Magyar Kabel Muvek Rt. 

Asia 

Malaysia 

Power Cables Malaysia 

Sdn Bhd Energy Cables and Systems Selangor Darul Ehsan Ringgit Mal. 8,000,000 40.00% Pirelli Cables Asia - Pacific Pte Ltd 

(*) This investments have not been consolidated since they are considered immaterial. 



Other investments considered significant as per Consob resolution no. 11971 of May 14, 1999 



Belgium 

Euroqube S.A. Services Brussels Euro 84,861,116 17.79% Pirelli & C. S.p.A. 

Brazil 

Estrutura.net Ltda Services San Paolo Bra. Real 10,000,000 7.54% Pirelli S.A. 

7.54% Pirelli Energia Cabos e Sistemas 

do Brasil S.A. 

France 

Aliapur S.A. Tyre Lion Euro 262,500 14.29% Pirelli Pneumatici S.p.A. 

Germany 

Kabeltrommel Gesellschaft mbh Energy Cables and Systems Colonia Euro 26,076 5.88% Pirelli Kabel und Systeme GmbH 

Italy 

5.88% Bergmann Kabel und Leitungen GmbH 

F.C. Internazionale Milano S.p.A. Sport Milan Euro 66,831,250 19.49% Pirelli & C. S.p.A. 

Fin. Priv. S.r.l. Financial Milan Euro 20,000 14.29% Pirelli & C. S.p.A. 

Servizio Titoli S.p.A. Services Turin Euro 126,000 12.38% Pirelli & C. S.p.A. 

Tecnocittà S.r.l. (in liquidation) Real Estate Milan Euro 547,612 12.00% Pirelli & C. Real Estate S.p.A. 

Poland 

Centrum Utylizacji Opon 

Otganizacja Odzyseu S.A. Tyre Warsaw Pol. Zloty 1,008,000 14.28% Pirelli Polska Sp.ZO.O. 

Switzerland 

Voltimum S.A. Energy Cables and Systems Meyrin Swiss Franc 2,968,970 13.71% Pirelli Cavi e Sistemi Energia S.p.A. 


MB Venture Capital Fund 

I Participating Company G N.V. Financial Amsterdam Euro 50,000 14.00% Pirelli Finance (Luxembourg) S.A. 

Tunisia 

Société Tunisienne des 

Industries de Pnéumatiques S.A. Tyre Tunis Tun. Dinar 42,078,240 15.83% Pirelli Pneumatici S.p.A. 



Independent Auditors’ Report 


Graphic project Ippolito Fassati, CRM S.r.l. - www.crm.it 

Lucini printig, Milan - www.lucinisrl.com 

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