PIRELLI ENERGY CABLES AND SYSTEMS

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1 NUCLEAR POWERPLANT 400/225 kv 225/90 kv HYDROELECTRIC POWERPLANT 400/225 kv 90/20 kv 225/90 kv 225/63 kv 63/20 kv 20/1 kv 20/1 kv PIRELLI ENERGY CABLES AND SYSTEMS Oscar Cristianci

2 PROFIT & LOSS Euro mn Net Sales EBITDA % on Net Sales EBIT % on Net Sales , % % , % % Employees 14,384 13,115 Factories EBIT (w/o overhead) % on Net Sales % %

3 The energy cable market is characterised by a high fragmentation of competitors Others 49,5% (with Mkt Share <0,7) COMPETITORS IN THE ENERGY CABLES MARKET world = 35,8 bn Euro Top 20 competitors 50,5% (*) JV in Power Utilities Top 20 competitors Pirelli (+ BICC) Nexans BICC General Yazaki SouthWire Furukawa * Sumitomo Superior Draka Fujikura * Hitachi Marmon Group Phelps Dodge Leviton Group Showa NKT (F&G) Delphi Packard Madeco Industrias Axas Mitsubishi cable TOTAL Source: Pirelli estimate 9,3% 6,5 4,2 3,8 3,3 2,9 2,9 2,6 2,5 2,2 1,8 1,4 1,3 1,0 1,0 0,9 0,9 0,8 0,7 0,7 50,5%

4 WORLDWIDE MARKET SHARES Power Cable Pirelli share:10 % NORTH AMERICA Pirelli share:6% G.M. + Special Pirelli share:4% WESTERN EUROPE Pirelli share: 22% Power Cable Pirelli share: 32% G.M. + Special Pirelli share:16% AFRICA Pirelli share: 9% Power Cable Pirelli share: 33% EASTERN EASTERN EUROPE EUROPE Pirelli Pirelli share: share: 32% 32% G.M. + Special Pirelli share:32% ASIA PACIFIC Pirelli share: 2% SOUTH AMERICA Pirelli share: 19% Power Cable Pirelli share:10 % G.M. + Special Pirelli share:8% Power Cable Pirelli share:20 % G.M. + Special Pirelli share:17% Power Cable Pirelli share:40 % AUSTRALIA Pirelli share:35% G.M. + Special Pirelli share:32%

5 VALUE CREATION: STRATEGY Performances Market Focus New products Restructuring Growth Years

6 THE BUSINESS STRUCTURE Sales at December 31, 2000 (Euro mn) World # 1 ENERGY Sales: 3,162 Employees: 14,384 Factories: 54 (6 shared) ROS 1.8% ROS w/o overhead 3.2% Utilities General 1,494 Specials Market 1, Products High High Voltage Voltage Medium Medium Voltage Voltage Low Low Voltage Voltage Subm. Subm. Systems Systems Accessories Accessories Installations Installations Medium Medium Voltage Voltage Low Low Voltage Voltage Building Building cables cables Branchement Branchement Automotive Automotive Enamelled Enamelled O.E.M. O.E.M. Industrials Industrials

7 EVOLUTION IN THE UTILITIES BUSINESS STRATEGY Utilities strategy Focus from purchasing cost to total cost of ownership Aggressive purchasing techniques Encouraging importers Speeding up the homologation process Downsizing/restructuring Deskilling Unstable organisations Impact on suppliers Long term partnership with global solutions providers 5 years or more on single source basis Management services for & Stock holding/management Cut length schemes Delivery to site Accessories Outsource of design, build and projects management Pirelli s offering system is is anticipating the delivery of global solutions to match renewed utilities strategy

8 EVOLUTION IN GENERAL MARKET BUSINESS STRATEGY Distributors strategy Growth through acquisition worldwide Added value improvement: new product lines (electrical electronic) new application (residential, industrial, utilities ) new services and customer relationship (training ) Cost reduction: Supplier rationalization New logistic platform Impact on suppliers Global Supplier in one international frame agreement Broader product range technology/ innovation requirement Supply chain and information technology integration Brand awareness through a direct and more relationship approach (C.R.M.,fidelization system ) E-business, key management accounts, full range supplier Cost leadership, sell-out partnership

9 EVOLUTION IN SPECIALS BUSINESS STRATEGY OEM/ Contractors strategy Refocusing on their core competence Centralisation of Purchasing dept. from local buying to global contract Headquarters negotiation and local executions Product standardisation to overcome local barriers Rethinking Total Cost of Ownership / Installation Impact on suppliers Opportunity to catch new customers Deeper knowledge of customer s application field Few global players (manufacturers or value added resellers) Local presence and global key account management Cable services (precutting, harnessing, delivery to site) Targeting global accounts at local and central level Refocus the global product offer through world excellence center with Supply chain reengineering Launch of Technergy, the new world-wide Integrated Cabling Solution

10 ENERGY INNOVATION 20 PIRELLI PATENTS (15 Filed / 5 under Filing) GM UT SP COMPACT TM Weight / dimension reduction (same power transmission) HV AIR BAG TM New protection system concept for underground Armoured Air Bag HV PIT STOP TM Self repairing cable system Damaged Repaired HYBRID TM Multifunction cable (Energy / Communication) HV AFUMEX TM low smoke - zero Halogen HV On these 5 product lines strong patents have been filed

11 ENERGY BUSINESS: PRODUCT INNOVATION * P. SALES (Mn Euro) WORLD % 33% 42% 50% 71% 67% 58% 50% D Contribution Margin % New vs Mature +2 % +3 % +5 % +6 % * Bare conductors and enamelled are excluded Indonesia, South Africa, China included from 2001 NEW PRODUCTS MATURE PRODUCTS

12 CONVERGENCE OF FACTORS WHICH ARE UNFAVOURABLE TO OVERHEAD LINES UNDERGROUND NETWORK AVAILABILITY RELIABILITY SAFETY FACTORS ENVIRONMENTAL FACTORS (EMF, visual impact ) COMPETITIVE INNOVATIVE SOLUTIONS A competitive cable system is the best solution to environmental, reliability and safety issues

13 ,031 K Euro/km CIVIL WORKS PIRELLI WORKS 150 KV CABLE SYSTEM: ECONOMICAL COMPARISON Traditional vs Innovative Compact trench and joint bay, faster cable laying Reduced time for assembly, fewer joints Land value not considered zero magnetic field zero visual impact higher reliability K Euro/km ACCESSORIES CABLE Aerial Traditional Past Compact joints, no resin filling, Fewer joints ( longer lengths) Compact Air Bag design, reliable water and mechanical protection 335 K Euro/km Innovative Present 217 K Euro/km Innovative Fully Mechanized 180 K Euro/km Aerial Advantages on single components (lightweight, self protection, longer lengthts) are amplified in the system

14 VALUE CREATION: STRATEGY Performances Market Focus New products Restructuring Growth Years