Contents 2 Mission Statement

4 The Industrial Dimension

28 Motorsport:
the external research lab
8 The Strategy of Innovation 32 Brand Stature and Esteem
Production innovation: 36 Main economic figures
MIRS at the avant-garde
12 Product innovation:
recognised high-end leadership
16 The Consumer Segment
Car tyres:
a high performance range
for all the seasons
20 Motorcycle tyres:
a comprehensive range from two
prestige brands
24 The Industrial Segment
The truck range:
A perfect balance of cost and
performance
26 Steelcord, a competitive advantage
Mission Statement A company with a great industrial heritage,
for over a century Pirelli Tyre has developed
as a truly international enterprise, deeply
rooted in the diverse national markets. Our
competitive strength is founded on our tech-
nological and research capabilities and the
professional skills of our human resources.
Constant attention to market requirements
allows us to produce and market complex
products of high quality and to successfully
operate from our various international bases.
Innovation and research represent the
distinguishing traits of Pirelli, a company
that has embraced the challenge of new
technologies with the primary aim of
creating value. We attribute significant
priority to the improvement of performance
and minimization of environmental impact of
our production processes and products.
2|3
Our conduct is regulated by an Ethical Code
applied consistently and responsibly by all
the Pirelli Tyres employees and suppliers
throughout the world.
The excellence of Pirellis corporate govern-
ance represents a systematic and prioritized
commitment by the companys higher
management. Our management strategy is
based on an optimum balance of the taking
of direct responsibility and teamwork, the
centrality of policies and the decentralisation
of local operational responsibilities. We shall
be capable of financing our continued growth
with the creation of appropriate value, in
the interests of our shareholders, clients and
employees while respecting the communities
in which the company operates.
The Industrial Dimension For over a hundred years the story of Pirelli
tyres has been the story of the automobile
itself, the core business of a brand that was
born in 1872 and started producing tyres
from the late nineteenth century. 1901 saw
the introduction of the Ercole that equipped
some of the earliest cars on the road while the
Milano bicycle tyres were introduced even
earlier in 1890. The companys first victory in
a motor race came in the Peking-Paris event
in 1907, heralding a tradition of sporting
success on two and four wheels consolidated
over the years by figures such as Nuvolari,
Ascari and Fangio. Over a century of techno-
logical excellence and production innovation,
from the pre-war Stella Bianca to the
Cinturato radial, the wide series and the
modern ultra-low profile tyres. And over a
century of internationalization: from Europe
4|5 to South America, and then the United
States, China and Eastern Europe.
Pirelli Tyre is the worlds fifth largest operator
in terms of turnover on the tyre market, with
levels of profitability among the highest in
the sector. In 2005 the activities today under
the aegis of Pirelli Tyre generated revenues
of around 3.63 billion Euros, with a growth of
almost 12% with respect to the previous year.
Pirelli Tyre is today the operational holding
company for a group involved in the design,
development, production and marketing of
tyres destined for various types of vehicle:
cars, light vehicles and motorcycles
(Consumer segment, 70% of revenue),
buses, trucks, agricultural and earth
moving machinery, and the production and
marketing of steelcord (Industrial segment,
30% of revenue). Within this market, Pirelli
Tyre focusses in particular on the high-end
From left to right CENTRAL AND OCEANIA, TRUCKS TYRES 28% STEELCORD/ OTHER TYRES 2% Italiy
2005 sales by geographical area SOUTH AMERICA 25% AFRICA AND ITALY 13%
2005 sales by product category ASIA 13% Bollate (Mi) car/light truck
Plants in the world
U.K. Cinisello (Mi) machineries and moulds Germany
Burton-on-Trent car/light truck Settimo Torinese car/light truck
Breuberg car/light truck/motorcycles
Carlisle car/light truck Settimo Torinese trucks Merzig steelcord
Industrial Consumers
Figline Valdarno (Fi) steelcord

OTHER EUROPEAN
NORTH AMERICA 8% COUNTRIES 41%
MOTORCYCLE TYRES 8% CAR TYRES 62% Spain
Data referred to the Pirelli Tyre S.p.A. combined financial statement Turkey
Manresa car/light truck
Izmit car/light truck/trucks
Izmit steelcord

U.S.A
Rome (GA) car/light truck
China
segments characterised by elevated technolog- period 2004-2006 has seen the actuation of an Europe: the recent constitution of the Cord
ical contents and high performance. These are investment strategy regarding the expansion Romania joint-venture in the steelcord sector Yangzhou trucks
segments in which Pirelli Tyre has established of the production lines at the Bahia plant and has been followed by a new plant for high
itself in positions of leadership with regard to the start-up of a new line for industrial performance car tyres. Furthermore, Pirelli
Venezuela
both its car and motorcycle tyres: Pirelli tyres vehicle tyres at Gravata. The trend towards has been present on the North American
are today seen as synonymous with quality, delocalization in high growth markets has also market for the last three years with a wide Guacara car/light truck
emotion and ultimate performance. been confirmed by the opening of production range of products that are particularly Romania
Drawing on its technological expertise, the units in Turkey, Egypt and, more recently, in popular as Original Equipment.
group has consolidated working relationships Romania and China. Slatina car/light truck
with the worlds leading car and motorcycle The Pirelli Tyres production capability Slatina steelcord
manufacturers; partnerships that have The production activities in China in partic- is divided among 24 factories, of which 5 Brazil
translated into a number of homologations for ular, with the Yanzhou plant dedicated to are located in Italy, 5 in Brazil, 2 in Great Campinas car/light truck
models from all the leading automotive firms. radial truck tyres, has allowed the group to Britain, 2 in Germany, 2 in Turkey, 2 in Feira de Santana car/light truck
enter one of the worlds biggest markets, rein- Romania, 1 in Argentina, 1 in China, 1 in motorcycles
With a strong presence in Europe and South forcing its strategic position in countries with Egypt, 1 in Spain, 1 in the United States of Santo Andr trucks Egypt
America, historically Pirelli Tyre has concen- a high rate of growth. In China, in fact, Pirelli America and 1 in Venezuela. The commercial Gravata motorcycles/trucks
trated its production activities in developing has already begun work on the construction of structure covers all the principal geographic Alexandria trucks
Sumar steelcord
countries with high rates of growth: in South a new plant destined for the production of car markets and reaches over 160 countries with
Argentina
America, for example, where Pirelli has been tyres. Among the areas in which significant a network of around 10,000 distributors and
active since the early Twentieth century, the growth is forecast for Pirelli Tyre is Eastern retailers. Merlo car/light truck
The Strategy of Innovation The group has always devoted constant
attention and significant resources to
Production innovation: innovation, maintaining a position within
MIRS at the avant-garde the avant-garde in terms of improving
products and processes.
The resources destined for research and
development activities account on average
for over 4% of the consolidated turnover,
with over 800 people working in the R&D
facilities in Milan, the most important
centre that also performs a coordinating
role, and in the local centres in Germany,
the United Kingdom, Brazil and the United
States. Pirelli Tyre also benefits from the
support of Pirelli Labs, a specialist
avant-garde research structure for all the
Pirelli & C. activities, and from bilateral
agreements with numerous universities and
8|9 research centres around the world.
In the field of production processes, the
Pirelli story is one of constant innovation.
The challenge of automation was tackled
early with the progressive integration of the
production phases.
The Tyres Research & Development centres
were actually responsible for the revolutionary
MIRS (Modular Integrated Robotized
System), inaugurated in 2000 and today a
consolidated part of Pirellis industrial struc-
ture. MIRS is a highly robotized system
for the manufacture of small batches of
products: based on the concept of highly
flexible production modules that may be
located strategically according to the
demands of the reference market with a
high degree of automation, MIRS permits
efficient operation even in countries in
which the cost of labour has significant
weight.
 Within a limited space, the work of the
robots covers the entire production cycle
without interruptions, with no part-finished
goods to be shifted and no intermediate
stocking phases and therefore no wasted
energy. Integrated software manages every
phase of production: the movements of the
robots, the automatic supply of materials,
the choice of the tyre size and therefore of
the building drum, the building of the tyre,
the vulcanisation and the quality control and
handling of the finished product.
MIRS allows the majority of the factors of
discontinuity to be removed from the process,
guaranteeing particularly high quality
parameters, while the integration of all the
production process phases allows the average
transit time from the raw materials store
to the finished product store to reduced to
10 | 11 around 72 minutes.
Along with the Milan Bicocca pilot plant
MIRS, is already operating in the
Breuberg (Germany), Burton on Trent
(UK) and Rome (Georgia USA) plants and
has found direct application in the design
and construction of run flat and ultra-high
performance tyres for cars and SUVs, radial
tyres for high performance motorcycles.
Spin-offs from the process have also been
applied to the industrial vehicles segment
through the SATT (Spiral Advanced Tech-
nology for Trucks) process that has permitted
the production of a high-end range for truck
and bus applications.
The Strategy of Innovation
Product innovation:
recognised high-end leadership
12 | 13
From nanotechnologies to CCM compounds
The Pirelli R&D centre is working on the
development of the most innovative mate-
rials using the CCM Continuous Compound
Mixing system, a super-laboratory
for experimentation into elastomeric
nanocomposites and continuous production
processes in synergy with the Milan Bicocca
pilot MIRS plant.
This characteristic combined with the
high degree of production automation digit-
ally governing the materials flows to permit
perfect control over the ingredients and the
chemical reactions, the temperatures and
the mixing conditions permits working
with ultra-fine mixtures that would
be impossible to obtain with traditional
technologies and therefore to create particu-
larly uniform and homogeneous products
with the extremely high quality standards
demanded in the competition and high-end
consumer segments.
Run flat tyres
The MIRS robots today produce tyres with
performance and quality characteristics that
have revolutionised the traditional reference
parameters. Among the most important
products that the new system has brought to
the market is an innovative range of run-flat
tyres based on a self-supporting technology
that permits the tyre to be used safely even
in the case of a loss of pressure.
This technology exploits the advantages of
MIRS that by eliminating the joints in the
building phase of the tyre permits particularly
high reliability to be obtained from tyres
called upon to support considerable loads in
the absence of air pressure when running
flat. The Pirelli Tyres range of run flat tyres
 is today particularly broad, from ultra-high Cyber Tyre system that thanks to a sensor
performance covers to winter tyres and those placed beneath the tread transmits data on
for SUVs, in response to a highly evolving the state of the tyre to the vehicles on-board
demand in this segment. computer. Equally significant is the attention
paid to safety issues, a field in which Pirelli
Tyre pressure sensors and automatic re-inflation Tyre has patented the SWS (Safety Wheel
The development of the run flat technology System) that uses the air contained in a
has also brought with it research into special tank integral with the wheel rim to
systems for controlling the pressure within restore part of the pressure lost in the case of
the tyre: Pirelli is today in a position to a puncture or a natural deflation.
offer the market an entire range of valve
sensors, radio systems capable of dialoguing
with Bluetooth cell phones, and devices
for the automatic re-inflation of the tyre in
the case of loss of pressure. This range of
devices includes the K-Pressure system,
which through the insertion of a sensor in
the valve cap reveals in real time any tyre
pressure anomalies and communicates
14 | 15 them in various ways to the driver, and the
The Consumer Segment In the car tyre sector, Pirelli offers a range
of products for cars and SUVs, focussing on
Car tyres: high an ultra-high performance products that
a high performance range for all aim to combine a notable level of stability
the seasons and safety in all driving conditions with
elevated grip and roadholding even at high
speeds. These tyres are particularly suitable
for powerful, high performance cars, the
qualities of which they are designed to exalt.
Benefiting from the continual transfer of
experience accumulated in competition,
Pirelli Tyre provides solutions such as that
of the P Zero family capable of satisfying
the demands of the most sporting clientele
for use on both road and track. Conceived
in 1987 in response to the Ferrari F40s
extreme demands for the control of power
and subsequently subjected to continuous
16 | 17 development, the P Zero series (P Zero
Corsa System, P Zero Nero, P Zero
Rosso, P Zero System) is testimony to the
desire to identify, within product categories
that are already precisely defined such as
that of ultra-high-end tyres, further client
demands to which it responds with ever more
specific solutions.
The High Performance segment is character-
ised by tyres destined for cars offering high
and medium performance. In this segment,
Pirelli Tyre is represented by the P7 model
designed for high performance saloons and
station wagons and the P6 model designed
for the latest generation people movers,
saloons and station wagons.
However, the Pirelli range also covers the
rapidly expanding winter tyre segment.
The Winter series with the Winter
Snowcontrol, Winter Snowspor and
Winter Sottozero models (the last two also
available with run flat technology) is
composed of high performance winter tyres
designed to work at low temperatures while
maintaining grip and comfort levels on wet,
snow-covered or icy surfaces as well as on
dry asphalt. The groups winter tyres are
characterised by their special compounds
designed to offer elevated stability in diverse
driving conditions.
Particular expertise in the construction
of tyres capable of supporting high levels
of stress has also permitted the group
to establish a significant position in the
market for high performance SUV tyres,
another rapidly expanding segment both
in North America and Europe. Pirelli Tyre
competes in this segment with the Scorpion
range (Scorpion Zero, Scorpion Zero
Asimmetrico,Scorpion STR, Scorpion
ATR, Scorpion Ice & Snow) which covers
applications for both European and North
American vehicles and satisfies the demands
of consumers who intend to personalise their
vehicles with adaptations that comprise sizes
from 20 to 30.
The groups range of car products is
completed by specific tyres for particular
conditions of use: The eufori@ series
presents run-flat tyres that thanks to a
particular reinforcement of the sidewalls can
support the transverse and lateral loads of
the vehicle, allowing it to be driven safely for
a set distance and at a set maximum speed,
even in the absence of air pressure.
The Consumer Segment
Motorcycle tyres:
a comprehensive range from two
prestige brands
20 | 21
A producer of tyres for two-wheelers from
the early Twentieth century, within the
motorcycle sector the group offers one the
industrys most comprehensive ranges, char-
acterised by excellence in terms of the brand
names, technological contents, performance,
reliability and safety, elements that permit
Pirelli Tyre to occupy a position of leadership
in Europe and Latin America and a position
of prestige in North America. Production
takes place in the two factories at Breuberg
in Germany (where MIRS technology is
used) and at Gravata in Brazil.
Pirelli Tyre is represented in this product
segment by the Pirelli and Metzeler brands:
the first is characterised by a strong sporting
attitude and is aimed at a clientele generally
associated with the world of competition,
while the second is more comfort-oriented
and is aimed a clientele more inclined
towards intensive road use and long
distances.
Within the ambit of the development of
innovative solutions, the group has launched
a motorcycle tyre characterised by the use
of a zero degrees belt, an innovation that
represents significant technological progress
in the high performance motorcycle tyre
sector.
Of particular importance in this sense is the
range of extremely high performance radial
tyres produced using MIRS technology
and highly appreciated by the Original
Equipment and in the competition world. In
this particular segment, the Pirelli brand
offers a range of products for road bikes that
are reserved for use on track and that have
enjoyed increasing popularity among clients,
to the extent that their use in competition
has been justified from an economic point of
view too.
The range of products for road bikes covers
the various segments from the models
destined exclusively for use on track to those
for touring bikes and comprises principally
the Diablo series (Superbike, Supercorsa,
Corsa and Strada, following the destination
segment): high performance tyres deriving
directly from racing experience in the series-
derived World Championship (Superbike and
Supersport World Championships) in which
Pirelli is the Official Tyre Supplier and the
national and classic championships in which
the company has achieved numerous victo-
ries. The range of Pirelli-branded products
also includes models destined for motocross
and enduro bikes that make up the
Scorpion range of off-road tyres developed
on the basis of the experience gained in enduro bikes (Tourance), a sector in which
numerous World Motocross Championship the brand scored victories in all classes of
victories that have brought the firm 45 titles the 2005 World Championship (MCE 6 Days
from the 1980s through to the 2005 edition. Extreme).
The Metzeler-branded products (Racetec,
Sportec, Roadtec and Lasertec) aim to
satisfy the demands of a reference clientele
that pays particular attention to construction
technology, constant reliability over time and
comfort. Equal care is paid to the production
of tyres destined for motorcycle tuners in
order to meet the demands of those who
intend to personalise their bikes from the
points of view of engineering and styling.
Within this ambit fall exceptionally large
tyres (ME 880 Marathon 300/35 VR 18)
and those with white sidewalls, particularly
popular on the North American market.
Just as important is the range of tyres for
The Industrial Segment
The truck range:
a perfect balance of cost and
performance
24 | 25
Within its ranges of tyres for industrial
vehicles, Pirelli Tyre has progressively
reinforced its commitment to the markets
in developing countries characterised by a
growing demand investing in production
capacity in countries such as Brazil, in the
Middle East and in China and has increas-
ingly focussed on the production of tyres with
a higher technological content.
In continuous consolidation, both in terms
of products and industrial scope, the truck
sector has recently seen the introduction
to the production processes of many of the
concepts behind the MIRS technology
that have permitted the launch of the Pirelli
Amaranto family of high performance and
high reliability tyres. Principally destined
for executive coaches and heavy goods
vehicles used on long distance runs, the
Pirelli Amaranto range offers particular
characteristics of quality, uniformity and
ride comfort: improvements essentially
obtained thanks to the positive spin-offs from
the development of the MIRS technology
including the possibility of reducing the
number of joints between the various parts
of the tyre thanks to the development of
SATT Spiral Advanced Technology
for Trucks.
In the original equipment field where demand
is mainly influenced by the capacity to offer
reliable products developed in relation to the
specific demands of the geographical market
in which they will be used, Pirelli Tyre has
developed relationships with a number of the
principal vehicle manufacturers, including
Iveco for the European and Turkish markets,
BMC in Turkey, Ford for the South American
market and in Turkey and Mercedes and
Volkswagen in South America where the
group enjoys a very competitive position.
With respect to the replacement market,
great attention has been paid to the total
cost of the use of a tyre, understood as a
combination of the purchase price, the guar-
anteed mileage offered by the new tyre and,
with particular reference to truck tyres, the
possibility of rebuilding the tyre through the
replacement of the worn tread with a new
tread applied to the same carcass. While it is
not directly present in the rebuilding sector,
in order to facilitate its clients who intend to
rebuild their tyres Pirelli Tyre has reached
agreements with specialists in the field to
whom the owners of Pirelli products can turn
for rebuilding services.
Another fundamental element in the
strategy of Pirelli Industrial sector is that
of fleet servicing, that is to say the service
supplied by the tyre manufacturer to the
owners of significant numbers of commer-
cial vehicles such as transport firms, road
haulage cooperatives and public transport
companies. This demand is met by the group
by providing on a selective basis a number of
services: tyre management technical services
(working pressure checks, tyre wear checks),
software programmes permitting systematic
monitoring of the performance of Pirelli
products during their entire lifetime, the
organization of 24 hour emergency services
and technical, product and product
management training. In Latin America,
significant services of this kind are provided
through 170 Truck Centers owned by
exclusive Pirelli dealers.
Steelcord, a competitive advantage
Pirelli Tyre is also present in the sector of
metal reinforcement materials such as
steelcord and metal wire for the radial
structure. This represents a notable competi-
tive advantage that on the one hand permits
the vertical integration of the production
cycle and on the other allows the group to
experiment with exclusive innovations.
Around 60% of the steelcord produced is used
within the group with the remainder being
sold to third parties.
Motorsport: In the field of motorsport the group has
focussed its activities on those sectors in
the external research lab which the characteristics of the vehicles,
generally derived from production models,
facilitate the transfer of experience from the
track to the production line.
This has been going on for a century: from
when back in 1907 the Itala with Pirelli
tyres won the Peking-Paris marathon.
That event signalled the beginning of a
history of on- and off-track, two - and
four - wheeled competition in which Pirelli
has been a constant protagonist.
Pirelli has competed in the World Rally
Championship ever since it was first run in
the early 1970s: it was actually the adven-
ture with the Lancia Stratos that led in
1972 to the birth of ultra-low profile tyres
28 | 29 and studies into winter compounds. 19
world titles have been won with Pirelli tyres
in the manufacturers and drivers champi-
onships, along with 140 individual WRC
victories and innumerable national titles.
Along with the partnership with Subaru,
Pirelli has also contributed to the World
Rally Championship programmes of
marques such as Ford, Peugeot, Mitsubishi,
Toyota, Audi, Lancia, Fiat, Volkswagen,
Opel and BMW.
In terms of circuit racing, Pirelli equips
Maserati, Ferrari, Porsche and Panoz in
various international championships such
as the FIA GT, the Le Mans Series and
the American Le Mans Series; participates
in prestige events such as the Le Mans 24
Hours and is supplier of the single-marque
Maserati and Ferrari Challenge trophies.
The groups commitment in the motorcycle numerous private teams including Tatra,
sector is equally important: since 2004 MAN and Mercedes in the Rally Raid World
Pirelli has been the exclusive tyre supplier Championship.
for the Superbike and Supersport 600 World
Championships, while continuing to be a
protagonist in the various national
championships and classic events such as
the Le Mans 24 Hours. Pirelli tyres have
also dominated the World Motocross
Championship for decades (45 titles won
since the 1980s).

With the Metzeler brand, the group is a

partner of the works KTM team in the
Enduro World Championship, a discipline
in which the Elefantino won every class.

With regard to truck racing, it should be

remembered that the group is the tyre
supplier for the works Iveco vehicles and
The brand stature and esteem
32 | 33
Pirellis is one of the brands with the highest
level of international differentiation, aware-
sprinting and long jump gold medals, and
then with Marie-Jo Prec, the French
ness and esteem thanks to one of the most athlete, and Ronaldo, a member of the
sophisticated and innovative communication Brazilian football teams that won the World
and marketing policies that has transformed Cup in 1994 and 2002.
the classic icons of advertising communica- The same slogan was then attached to the
tion into product. Synergic communication campaign focussing on the image of a fist
and marketing activities that have generated that has been running from 2002 and that
brands, headlines and events, creating an has further focussed consumer attention on
exclusive and sophisticated reference world the Pirelli brand, the products (made visible
with initiatives that have themselves become through the specific depiction of the various
icons. kinds of tread) and the prestige of the car
manufacturers that fit Pirelli tyres as original
In the field of advertising, over the years the equipment whose badges are highlighted in
company has insisted on concepts of sport the ring worn on one finger of the fist. The
and exclusiveness. Sport is represented by the control of power concept is also referenced
faces chosen to promote the products. The in the first short film produced by Pirelli
power is nothing without control campaign (The Call), destined to be distributed via the
dates from 1994, initially with Carl Lewis, Internet and that to date has attracted three
the American athlete who won nine Olympic million viewers to the site: this is a new form
34 | 35 of advertising which the company intends to International Apr.-July 2005). Similarly,
use as inspiration for its future promotional Pirelli also tops the charts in the surveys
campaigns, producing a short film every year. conducted in South America in 2004 and
2005 (source: Milward Brown, July. 2005).
Exclusiveness is instead represented by the
Pirelli Calendar, produced for the first time
in 1964. The calendar links each month with
a particularly well known model portrayed
by the worlds leading photographers. The
long tradition testified by 33 editions, the
limited print runs and the exposure given to
its presentation by the media have made the
Calendar fantastically successful.

The efficacy of the initiatives described above

is confirmed by the surveys conducted to
measure the level of awareness of the groups
advertising campaigns: in 2005 the Pirelli
brand was the leader in Italy among the
manufacturers of tyres (source: Research
 Sales (in millions of Euros) EBITDA (in millions of Euros) EBIT (in millions of Euros)

4.000 800 400

3632.9
3.500 700 350
3253.2 328.4
3.000 2970.2 600 300 275.5
517.8
2.500 500 250
453.2
400
398.8 195.8
2.000 200

1.500 300 150

1.000 200 100

500 100 50

2003 2004 2005 2003 2004 2005 2003 2004 2005

Italian IFRS IFRS Italian IFRS IFRS Italian IFRS IFRS
accounting accounting accounting
principles principles principles

Main economic figures Over the last three years, Pirelli Tyres has achieved constantly improving results in terms
of volumes and margins. The following table shows the main financial results for the years
closing 31 December 2003, 2004 and 2005.

2003 2004 2005

Italian IFRS IFRS
accounting
(values in millions of euros) principles
Sales 2970.2 3253.2 3632.9
% growth YoY 4.0% 9.5% 11.7%
EBITDA 398.8 453.2 517.8
% of sales 13.4% 13.9% 14.3%
EBIT 195.8 275.5 328.4
% of sales 6.6% 8.5% 9.0%

36 | 37 * Data referred to the Pirelli Tyre S.p.A. combined financial statement

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