The Board of Directors of Pininfarina S.p.A., met last Thursday under the chairmanship of Sergio Pininfarina, approved the report on the draft financial statements at December 31, 2005, which will be presented at the Shareholders’ Meeting scheduled for May 12, 2006. The consolidated financial statements at December 31, 2005 were prepared in accordance with International Accounting Standards (IASs) and comply with the International Financial Reporting Standards (IFRSs). In order to allow the comparison of homogeneous data, the data for 2004 have been restated in accordance with the same standards.

The beginning of the complete renewal of the line of vehicles manufactured by the Group and the consolidation of its international presence were the two developments that characterized 2005. Specifically, production of the Alfa Romeo Brera and Volvo C70 got under way during the year and, on the international front, the Swedish subsidiaries Pininfarina Sverige and RHTU Sverige and the French subsidiaries Matra Automobile Engineering Maroc and Matra Développement became fully operational.

In 2005, the value of production generated by the Pininfarina Group totalled 383 million euros, compared with 557.8 million euros reported at the end of 2004 (-31.3%). A breakdown of the Group’s overall value of production shows that the manufacturing operations accounted for 56% of the total (73% in 2004), with the design and engineering operations accounting for the remaining 44% (27% in 2004). A significant shortfall in the contribution provided by the manufacturing operations (value of production of 214.8 million euros, or 47% less than in 2004), which is cyclical in nature, could be offset only in part by the steady growth enjoyed by the service operations (value of production of 168.2 million euros, +10%).

The year ended with negative EBIT of 8.3 million euros (-2.2% of value of production), due mainly to the sharp contraction experienced by the manufacturing operations. In 2004, the Group reported positive EBIT of 8.1 million euros (1.4% of value of production). The net loss for the year amounted to 8.1 million euros (loss of 2.4 million euros at December 31, 2004).

The Group’s net financial position was negative by 6.9 million euros, compared with a surplus of 71.6 million euros at December 31, 2004. This change in financial structure reflects the Group’s strong commitment to growing its businesses, both in Italy and abroad, through new forms of cooperation with its customers (joint ventures). Specifically, the main reasons for the increase in indebtedness are the need to fund the work needed to develop and produce the new models and the contribution of the Group’s pro rata share of equity capital provided to Pininfarina Sverige AB, which this past December bought the Uddevalla plant from Volvo Car Corporation.

At December 31, 2005, the Group had 2,733 employees (5.5% more than the 2,591 employees on staff at the end of 2004). Another 671 have been working at the Swedish subsidiary Pininfarina Sverige since November 2005. The resumption of full production at the Group’s Italian factories will permit the rehiring of all of the employees who have been enrolled in the Special Government Layoff Benefits Fund since October 2004. In addition, about 450 employees will temporarily be reassigned from other companies that operate in the same industry.

The outlook for 2006 calls for a significant increase in consolidated value of production, which should top 700 million euros. The manufacturing operations should account for most of this improvement, now that they have completed the renewal of their product line. The Group is committed to beginning production of five new models (Alfa Romeo Brera, Volvo C70, Alfa Romeo Spider, Mitsubishi Colt CZC and Ford Focus CC) between September 2005 and July 2006. Obviously, this effort will have repercussions on its profitability and financial resources.

Profitability is expected to improve only in the second half of the year, enabling the Group to achieve the objective of operating breakeven by the end of the year.
 

The net financial position is expected to show an increase in indebtedness as the process of investing in new models is brought to completion.

The comments made with respect to the consolidated data also apply to Pininfarina S.p.A., the Group’s Parent Company (the financial statements of Pininfarina S.p.A. were prepared in accordance with Italian accounting principles). Value of production amounted to 340.4 million euros (37.8% less than the 547.3 million euros reported at the end of 2004) and EBIT were negative by 37.9 million euros (positive EBIT of 18.5 million euros in 2004). The difference between the EBIT shown on the income statement of Pininfarina S.p.A. and the corresponding amount in the consolidated income statement is due not only to the difference in the scope of operations, but also to the different manner in which gains on the sales of equity investments (Open Air Systems GmbH and PF RE S.A.) are treated under Italian accounting principles and the IASs. The year ended with a net loss of 13.5 million euros, which includes a 6.3-million-euro writedown of the value at which the investment in Pininfarina Deutschland GmbH is carried (net profit of 13.8 million euros in 2004). The net financial position totalled 56.8 million euros, down from 104.3 million euros at the end of 2004.

In view of the operating results for 2005 and considering the financial commitments that the Company will continue to face in 2006, the Board of Directors did not propose the distribution of a dividend.

In February, the Group offered a world preview of three new models at its Geneva Motor Show booth: the Ferrari 599 GTB Fiorano, which was designed by Pininfarina; the Alfa Spider, which was named “Cabrio of the Year 2006”; and the Mitsubishi Colt CZC. The Group handled every phase of development, from design to engineering and production, for the Alfa Spider and the Mitsubishi Colt CZC. Two other models — the Ford Focus CC and the Volvo C70 — received the same enthusiastic response from the press and the public as the rest of the Pininfarina line-up.

At the meeting held today, the Board of Directors also approved the 2005 Annual Report on Corporate Governance, which was updated to include a review of measures implemented to prevent the criminal offenses of abuse of insider information and stock manipulation. In addition, the term of office of the Oversight Board (established pursuant to Law No. 231/2001) was extended until the date of the next Shareholders’ Meeting, which will be convened to elect a new Board of Directors and a new Board of Statutory Auditors.

Lastly, the Board of Directors agreed to submit a motion recommending the purchase of treasury shares. A maximum of 400,000 shares would be purchased, of which not more than 250,000 may be reserved for use in connection with the 2002-2004 and 2005-2007 stock option plans offered to executives of Pininfarina S.p.A. and its Italian subsidiaries. The authorization to purchase these shares, all at once or in instalments, would be valid for a period of 18 months from the date of the resolution at a price that may not be lower by more than 15% or higher by more than 15% than the shares’ closing price on the stock market trading day prior to the date of purchase.

The Board of Directors also requested permission to sell at any time, all at once or in instalments, the treasury shares that the Company already holds and those it may purchase in accordance with the abovementioned motion. The sales price may not be lower by more than 10% than the shares’ closing price on the stock market trading day prior to the date of sale or, if the shares are used for stock option plan purposes, it may not be less than the value of the shares at the time the options were offered, determined in accordance with the provisions of the tax laws. At present, Pininfarina S.p.A. holds 720 treasury shares, equal to 0.01% of the total number of shares that comprise the Company’s share capital.

The Regular Shareholders’ Meeting has been scheduled for May 12, 2006, at 10:45 AM, at the offices of Pininfarina S.p.A. in Cambiano (TO), on the first calling, or May 15, 2006, same time and place, on the second calling.