1
— 2016
ANNUAL REPORT
2016 ANNUAL REPORT
2
PIRELLI & C. Società per Azioni (Joint Stock Company)
Milan Office, Viale Piero e Alberto Pirelli n. 25
Share Capital Euro 1,345,380,534.66
Register of Companies of Milan No. 00860340157
REA (Economic Administrative Index) No. 1055
2016 ANNUAL REPORT
— Index
3
01. Letters to shareholders (pag. 4)
LETTER FROM CHAIRMAN
LETTER FROM CEO
02. Presentation of 2016 Pirelli integrated report (pag. 7)
03. Directors’ report on operations (pag. 10)
MACROECONOMIC AND MARKET SCENARIO
SIGNIFICANT EVENTS 2016
GROUP PERFORMANCE AND RESULTS
OPERATING PERFORMANCE
Consumer Business
Industrial Business
RESEARCH AND DEVELOPMENT ACTIVITIES
PARENT COMPANY HIGHLIGHTS
RISK FACTORS AND UNCERTAINTY
SIGNIFICANT EVENTS SUBSEQUENT TO THE END OF THE YEAR
ALTERNATIVE PERFORMANCE INDICATORS
OTHER INFORMATION
04. Report on value chain responsible
management (pag. 57)
METHODOLOGICAL NOTE
MANAGEMENT MODEL
ECONOMIC DIMENSION
ENVIRONMENTAL DIMENSION
SOCIAL DIMENSION
05. Consolidated financial statements (pag. 167)
FINANCIAL STATEMENTS FORMATS
EXPLANATORY NOTES
SCOPE OF CONSOLIDATION
06. Parent financial statement (pag. 263)
FINANCIAL STATEMENTS FORMATS
EXPLANATORY NOTES
ANNEXES TO THE EXPLANATORY NOTES
RESOLUTION
REPORT OF THE BOARD OF STATUTORY AUDITORS OF PIRELLI & C. S.P.A.
TO THE SHAREHOLDERS’ MEETING
07. Certifications (pag. 319)
INDEPENDENT AUDITOR’S REPORT ON THE CONSOLIDATE FINANCIAL STATEMENT
INDEPENDENT AUDITOR’S REPORT ON THE PARENT FINANCIAL STATEMENT
SUMMARY TABLES
INDEPENDENT AUDITOR’S REPORT ON THE REPORT ON
VALUE CHAIN RESPONSIBLE MANAGEMENT
pag. 5
pag. 6
pag. 12
pag. 18
pag. 23
pag. 35
pag. 36
pag. 38
pag. 40
pag. 43
pag. 53
pag. 54
pag. 55
pag. 58
pag. 60
pag. 71
pag. 94
pag. 118
pag. 168
pag. 173
pag. 255
pag. 264
pag. 268
pag. 304
pag. 309
pag. 310
pag. 320
pag. 323
pag. 326
pag. 346
2016 ANNUAL REPORT
01. Letters to Shareholders
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2016 ANNUAL REPORT
5
Dear Stakeholders,
If 2015 was the year when the bases for the industrial project with ChemChina were laid, 2016
was the year in which we built its foundations. We have worked together to grow together and to ensure
that our activities and the people who work in them have growth perspectives that are sustainable and
long term.
From the start, one of our goals was to make Pirelli’s activities in the industrial sector bigger so
as to make them competitive on a global scale. We have worked a great deal. Today that goal is
becoming a reality with the creation, through the union of Pirelli Industrial with the other assets in the
segment held by CNRC (China National Tyre & Rubber Co. Ltd), the tyre subsidiary of ChemChina, of
one of the international leaders of the segment. A group, unique in the world, that will be totally focused
on tyres for heavy, agricultural and off-the-road vehicles and which will be able to square off with the
big players in the sector thanks to the synergies deriving from the complementary nature of the different
assets being integrated at the levels of distribution, geographic presence and products.
Our strength, in fact, resides not only in our union but in our focus, which will have as its
fulcrum Aeolus, a company listed on the Shangai stock exchange and controlled by CNRC. Through the
new group we will be able to satisfy our clients with an ever more complete range of products, we will
be able to offer specific services for each different type of consumer and we will continue to innovate
and improve our offering, conducting Research and Development activities dedicated to the different
segments.
For Pirelli this will mean concentrating on its ‘Consumer’ activities where today it is the leader
in the Prestige segment and among the absolute top players in the Premium one thanks to the
technological capabilities and innovation that have always distinguished the company. Even for the
Consumer activities, then, ChemChina’s knowledge of and presence in the Asian market, beginning
with the Chinese one, represent an opportunity to strengthen its position in an area of the world that
today offers the most promising prospective growth. This is also thanks to the progressive evolution of
consumer demand in the whole area towards more sophisticated products, in line with the offering that
characterizes the Pirelli brand.
From the beginning I have declared my pride in participating in the future of a company that
represents Italian excellence in the world thanks to the quality of its people, its capacity to innovate, its
attention towards employees, its care for clients and its team work. Today, after one year, I can say that
we have strengthened the team in preparation for the achievement of our next goal: the return to the
stock exchange, which we temporarily left in order to work on our industrial project.
Today I can already see all the premises to reintroduce ourselves, in a different form and
stronger, to the shareholders who will accompany us into the future.
To all of you, our Stakeholders, thank you once again.
Ren Jianxin
Chairman
2016 ANNUAL REPORT
Dear Stakeholders,
6
The year 2016 was an important one for the transformation of Pirelli. In line with the industrial
project at the basis of the partnership with ChemChina, we worked to launch our Consumer and
Industrial activities onto separate paths, to ensure both the best outlook for growth.
(Pirelli) Industrial has started on its path of aggregation with Aeolus, and with the other assets of the
same segment held by CNRC, to give birth to a global operator in the sector, the only one on a
worldwide basis entirely focused on tyres for heavy vehicles, for agriculture and off-the-road. The
technological and managerial competence of Pirelli’s world will be added to the geographical
penetration of our Chinese partners into as important a market as Asia. These are the factors that will
make the new group a true protagonist in the sector, able to compete with the other major players at the
international level.
The Consumer activities, on the other hand, represent the centre around which we are building
our return to the stock exchange in 2018, in their new incarnation as the sole ‘pure Consumer tyre
company’ at the global level, with a business profile always more oriented towards Prestige and
Premium clients and new mobility, and equipped with totally digitized industrial, commercial and
managerial processes.
Our aim is to reinforce the leadership attained in these years in the Prestige and Premium
segments, which today represent almost 65% of the revenues of our Consumer business and, thanks to
their high margins, have resulted in a new profitability record (16.8% adjusted ebit margin compared
with 16.2% in 2015 on a like-for-like basis).
We are adopting a business model that is ever more focused on the end consumer. Our products
will therefore be flanked by an offering of services that are always more sophisticated and linked to
sustainable mobility, like the bicycle, the hybrid or electric. In a rapidly evolving world, our sustainable
growth and our global competitiveness will continue to be based of the responsibility and
professionalism of our people, and on innovation which respects the environment and the creation of
shared values. Technology remains the basis of our change. After years of work on the ‘Cyber Tyre’, the
intelligent tyre, we are ready to launch Pirelli Connesso on the market, the first digital platform where
the tyre, equipped with a sensor, interacts with the driver supplying information on the functioning,
wear and maintenance of the tyres, as well as personalized and localized services for the person driving.
A tyre which is the fruit of our Research and Development, where this year we invested 6% of our
Premium revenues, and which transforms it from a commodity to one of the protagonists, together with
electronics, of the acceleration that the automotive world is experiencing. A world which sees always
beside our dealers, always more integrated into our Consumer experience, and of the major Premium
and Prestige car makers, to develop together products that are always more evolved, more sustainable,
better performing and personalized. This is the direction of our Specialty and Superspecialty products,
as too for our coloured tyres: destined to the Premium and Prestige segments, the will have colours that
last and are resistant to wear thanks to the use of special compounds and derivatives from our work in
Formula Uno, for which we are the exclusive supplier also for the next three years. It is precisely
Formula 1 which represents the most exciting challenge of our 110 years of activity in Motorsport, as
well as one of the many factors which contributed, also this year, to the further strengthening of our
brand.
With the same passion that saw us win the challenges of 2016 we will meet those that await us
in the coming years. We have great opportunities ahead of us.
To all of you, our Stakeholders, thank you once again.
Marco Tronchetti Provera
Vicepresidente Esecutivo e Ceo
2016 ANNUAL REPORT
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02. Presentation of 2016
Integrated Report
2016 ANNUAL REPORT
Presentation of 2016 integrated report
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The Pirelli 2016 integrated report (Annual Report 2016) aims to provide a comprehensive overview of
the process of creating value for the Company's Stakeholders, as resulting from the integrated
management of the financial, productive, intellectual, human, natural, social and relational capitals.
Reporting reflects the business model adopted by Pirelli, which is inspired by the United Nations’
Global Compact, the principles of Stakeholder Engagement set forth by the AA1000, and the Guidelines
of ISO 26000.
The financial capital, which comprises the company’s financial resources, drives the sustainable
management of the other capitals and is in turn influenced by the value created by the latter. In 2016,
business operations generated an adjusted EBIT (before non-recurring and restructuring expenses and
before amortization of intangible assets related to assets recorded as a result of the Business
Combination) equal to 896.6 million euro (14.8% the EBIT Margin), up 4.2% from the previous year on
a like-for-like basis.
In turn, the Company's productive capital, which includes 19 tyre factories in four continents, is
managed in a perspective of reducing environmental impacts, with targets by 2020 in terms of an
increase in waste recovery and a reduction of the specific indices of energy consumption, emissions and
water withdrawal. In this regard, the company's efforts in 2016 led to a decrease in water withdrawal
and specific CO2 emissions, also thanks to the continuation of investments in renewable energy, with a
substantial stability of specific energy consumption and a waste recovery equivalent to 92%. All this has
helped to achieve efficiencies on costs amounting to 90.5 million euro in total.
The research and development activities, which have always been at the heart of Pirelli's
strategy, contribute substantially to the improvement of environmental efficiency along the entire
product life-cycle, from the innovative raw materials to the process, distribution, use and up to the end
of life of tyres. In 2016, Pirelli invested 228.1 million euro in research and development, i.e. 5.9% of
premium revenues and 3.8% of total revenues. In turn, Pirelli’s Green Performance products, which
combine performance and respect for the environment, at the end of 2016 represent 63%1 of total tyre
turnover (56% in 2015 and 54% in 2014).
The strong investment in innovation also supplies Pirelli’s intellectual capital, which comprise a total
portfolio of approximately 5,000 patents concerning innovations of product, process and materials, as
well as a brand recognised worldwide.
The evolution of the cited capitals is closely related to human capital, at the heart of the
Company’s growth. Merit, rules, ethics and sharing of strong values and clear policies, attention to
welfare and diversity are accompanied by advanced instruments to attract and retain the best talent. The
investment in the “culture of health and safety at work” and in training is fundamental, with an accident
frequency index that in 2016 decreased by 15% compared to 2015 and an investment in training that
reached 9.8 average days per employee, a further increase compared to 8.6 of the previous year, thus
surpassing for the fourth consecutive year the target of 7 average-per-capita days as envisaged by the
Industrial Plan only as from 2015.
––
1 Figure obtained by weighing the value of sales of Green Performance tyres on the total value of sales of Group tyres. Green Performance products
identify the tyres that Pirelli produces throughout the world and that fall under rolling resistance and wet grip classes A, B, C according to the
labelling parameters set by European legislation. In 2016, new data were acquired that required a restatement on previous years.
2016 ANNUAL REPORT
9
Pirelli’s social and relational capitals are based on the continuous and transparent dialogue that the
Company maintains with its Stakeholders. In February 2016, Pirelli held a Global Stakeholder Dialogue
in Brussels, attended by international Stakeholders of the company including suppliers, customers,
leaders of the economic and financial, academic, institutional and non-governmental world. The
objectives of the Dialogue included updating Stakeholders regarding the progress against the 2020
Sustainability Targets, the discussion and collection of expectations on the evolution of Pirelli's
materiality matrix, as well as a focus of future mobility, environmental impacts along the product life
cycle and sustainable management of the supply chain. Similarly, in 2016, Local Stakeholder Dialogues
were held in Mexico, Turkey, Germany and Romania.
In methodological terms, the drafting of the Annual Report 2016 took into consideration the Integrated
Reporting principles contained in the framework of the International Integrated Reporting Council
(IIRC), the Financial Statements and Consolidated Financial Statements were drawn up according to
IFRS international accounting standards, and socio-environmental performances meet the Sustainability
Reporting Guidelines of the Global Reporting Initiative (version GRI-G4 - Comprehensive option).
2016 ANNUAL REPORT
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03. Directors’ Report
on Operations
at December 31, 2016
2016 ANNUAL REPORT
Board of Directors 1
Chairman
Ren Jianxin
11
Executive Vice Chairman
and CEO
Directors
Marco Tronchetti Provera
Yang Xingqiang
Carlo Acutis
Bai Xinping
Gustavo Bracco
Giorgio Luca Bruno
Ze'ev Goldberg
Andrey Kostin
Jiao Chonggao
Emerson Milenski
Luca Rovati
Igor Sechin
Yang Xun
Wang Dan
Zhang Haitao
Secretary of the Board
Alberto Bastanzio
Board of Auditors 2
Chairman
Francesco Fallacara
Statutory Auditors
Alternate Auditors
Fabrizio Acerbis
Fabio Artoni
Giovanni Bandera
David Reali
Fabio Facchini
Giovanna Oddo
Independent Auditing Firm
Ernst & Young S.p.A.
General Managers
Maurizio Boiocchi (TECHNOLOGY)
Luigi Staccoli (DIGITAL)
––
1. Appointment: March 15, 2016. Expiry: Shareholders’ Meeting convened for the approval of the Financial Statements at December 31, 2018.
2. Appointment: March 14, 2016. Expiry: Shareholders’ Meeting convened for the approval of the Financial Statements at December 31, 2017,
(David Reali, Giovanni Bandera and Fabrizio Acerbis appointed by the Shareholders’ Meeting on March 15, 2016).
2016 ANNUAL REPORT
Macroeconomic and Market Scenario
12
MACROECONOMIC MARKET SCENARIO
The performance of the economy in 2016 was characterised by a slowdown in global trade, in
investments and by high political uncertainty. Despite the gradual strengthening in economic activity
during the second half of 2016, the overall growth in GDP stood at +2.5%, the worst since the financial
crisis of 2009. This slowdown affected both advanced and emerging countries.
Global GDP growth, (annual change in %)
__________________________________________________________________________________________________
Source: IHS Markit, January 2017.
Growth in advanced-countries stood at +1.7% for 2016, representing a slow down compared to the
+2.1% recorded for 2015. In Europe, consumer and business confidence was not particularly impacted
by the result of the referendum in the United Kingdom regarding the exit from the European Union, and
recovery continued at a moderate pace with GDP growth at approximately +1.8% for 2016 (+2.3% for
2015).
Inflation for the Eurozone stood at +0.2% for 2016, and rose to +1.1% in the month of December,
thanks to a recovery, albeit partial, in energy prices. The ECB continued with its programme of
quantitative easing which has been extended until December 2017 or beyond, unless a durable
adjustment for price changes is found.
In the U.S.A. GDP growth slowed to +1.6% for 2016 (following the +2.6% recorded for 2015). Despite
a steady improvement in labour market conditions, consumption growth eased and non-residential
investment fell, due for the most part to the very strong slow down in the energy sector. The political
uncertainties of the election campaign caused a slow down in business investments in anticipation of the
emergence of a clearer picture with regard to what the future developments might be. Also to be noted is
that following the start of a cycle of interest rates hikes which stood at 25 basis points at the end of
2015, the state of the economy caused the Federal Government to delay the rise in interest rates, until
December 2016, until after the elections.
2016 ANNUAL REPORT
13
In the Latam region the recession in Brazil for 2016 was aggravated by the decline in the price of raw
materials, the adjustment of administered prices and political uncertainty. The contraction in GDP is
estimated to have been around -3.5% for 2016, after the -3.8% recorded for 2015, a weakness that was
inevitably reflected in other Latin America countries and contributed to the overall decline in the GDP
of the area. In Argentina, following the change of Government at the end of 2015 and the introduction
of a series of structural reforms, including the devaluation of the Argentine Peso, the economy signalled
a marked a contraction of -2.3% for 2016 (after a growth of +2.6% for 2015 – IHS estimates).
In China, growth remained stable in 2016 which was consistent with the objectives set by the
Government, that is a GDP growth of +6.7%, but which was slightly lower than the +6.9% growth of
2015. The economy was supported by a moderate strengthening in domestic demand in the second half
of the year, also as a result of China's fiscal and monetary stimulus policies.
In Russia, the contraction of the economy continued for the first three quarters of 2016, but recouped
ground during the fourth quarter thanks to the increase in the price of oil and the strengthening of the
exchange rate.
Exchange Rates
The currency markets in 2016 were characterised by the revaluation of the US Dollar, which was also
affected by the expectation of a cycle of US interest rate hikes as well as expectations of a fiscal
stimulus under the new administration. The appreciation of the US Dollar against the Euro was more
accentuated during the second part of 2016 together with; the rise in the U.S. benchmark rate in
December, the extension of the programme for the purchase of sovereign bonds by the ECB until
December 2017, and the uncertainties related to negotiations that will define the new relationships
between the European Union and United Kingdom. The Euro/US Dollar exchange rate recorded an
average of 1.11 US Dollars per Euro in 2016, as for the previous year, but closed 2016 at 1.05.
The Japanese Yen instead strengthened against the US Dollar during the first half of the year due to the
change of expectations for the future interest rates of the respective central banks. This trend was
reversed in the last months of the 2016 financial year which closed with an exchange rate of 117 Yen
per US Dollar, which was weaker than the annual average of 109 Yen.
The Pound Sterling went into a steep decline following the unexpected outcome of the referendum in
June. The average exchange rate stood at 0.819 against the Euro for 2016 which represented a decrease
of -11% compared to the previous year.
Even the currencies of major emerging countries fell against the US Dollar in 2016. The Brazilian Real
recorded an average of 3.48 Real per US Dollar for 2016, lower by -4% compared to the previous year.
The average exchange rate for the Chinese Yuan Renminbi for 2016 was 6.64 versus the US Dollar,
which was lower by -5% compared to the previous year.
In Egypt, on November 3, 2016 the central bank decided to eliminate the "peg" with the American
dollar. The exchange rate for the Egyptian Pound went from an average of 8.88 for the third quarter of
2016 to 18.38 Egyptian Pounds per US Dollar on December 31, 2016, representing a devaluation of
52%.
2016 ANNUAL REPORT
Exchange rate: US Dollar vs Euro Exchange rate: Brazilian Real vs USD
14
Source: European Central Bank monthly figures up until December 31, 2016.
Automotive markets
The global car market registered a growth in registrations of approximately +4.6% for 2016, supported
in particular by the demand in China, Western Europe and in the USA which more than offset the
weakness of the Brazilian, Japanese, South Korean and Russian markets. According to IHS Markit the
Premium segment confirmed a growth rate above that of the market total, to the point of representing
11% of cars sold. This trend, which resulted in the continued improvement of the vehicle fleet in
circulation, was sustained particularly by the European market where the market share of high end
vehicles is traditionally high, and by emerging countries such as China where growth of the Premium
segment is among the highest in the world.
The European Union car market recorded a +7% growth of registrations compared to 2015 (ACEA -
European Automobile Manufacturers' Association - data). Of the five most significant markets, Italy
recorded a double-digit growth (+13%), followed by Spain (+9%), France (+6%), and Germany (+4%).
According to ACEA data, the United Kingdom market slowed during 2016 and ended the financial year
down by -1%.
In Latin America the sector's performance was strongly affected by the economic slowdown in Brazil,
the region's major market, where registrations dropped by -20%. A positive trend was recorded instead
for registrations in Argentina after two consecutive years of contraction. In China, the pace of sales
accelerated also due to the reduction in taxes. In Japan, following a decline of -10% in registrations
recorded for 2015 due to an increase in consumption tax, the market recorded a further decrease of -2%,
penalised by earthquakes in April and irregularities in auto emissions testing.
Truck and bus market
The global demand for commercial vehicles showed signs of recovery by registering a +3% growth (-
6% for 2015) (IHS Markit estimates). The recovery in sales in Europe (+11% for the >3.5 tons segment)
and China (+25%), mitigated the decline in the USA (-10.5% for the >6.35 tons segment), Russia (-
40%) and Brazil (-18%).
2016 ANNUAL REPORT
15
Tyre markets
For 2016 the Car tyre market recorded a growth in volumes of +3.3%, an increase compared to +2.4%
for 2015 versus 2014.
The good performance of economic activity in Europe and North America, and the continued growth of
the economy in China, albeit at a more moderate rate, provided support for the performance of the tyre
market in 2016.
The contraction in the car Original Equipment markets in Latin America was linked to the difficult
macroeconomic environment which led to a significant drop in the production of vehicles and a decline
in consumption. Sales were negative in Russia (car Replacement -9%, car Original Equipment -13%)
due to the general impact of the slowing economy, but with an improvement in market conditions
towards the end of the year.
The Premium segment (tyres with a rim diameter equal to or greater than 17 inches) recorded a much
higher growth rate than the average, equal to +9.4%. This segment represented 28% of the total car tyre
market for 2016.
Growth in the Premium segment was stronger in Europe, North America and China, which are the main
markets for the segment.
Tyre sales, Consumer market
(annual change in %)
2012
2013
2014
2015
2016
Europe*
NAFTA
Latam**
China
Japan
Original Equipment
Replacement
Original Equipment
Replacement
Original Equipment
Replacement
Original Equipment
Original Equipment
Replacement
-9
-12
17
-5
0
1
7
19
-1
0
0
5
-1
6
9
17
-4
4
4
2
5
3
7
4
2
4
3
2
2
-1
-17
-20
-12
5
9
2
4
3
7
-6
-4
-3
19
0
-1
* including Turkey, excluding Russia. ** Argentina, Brazil and Venezuela.
Note: this data excludes imports except for Latin America where the Replacement segment includes imports.
Source: Pirelli estimates
For the radial tyre segment of the Industrial tyre market (Truck and Bus), a growth of +1.7% was
recorded for the 2016 financial year thanks to the market recovery in China following the slight decline
for 2015, and solid growth in Europe.
2016 ANNUAL REPORT
16
Tyre sales, Industrial Market
(annual change in %)
2012
2013
2014
2015
2016
Europe*
NAFTA
Latam**
Original Equipment
Replacement
Original Equipment
Replacement
Original Equipment
Replacement
China
Original Equipment
Japan
Original Equipment
Replacement
-8
-17
5
-11
-29
-4
-19
15
-4
6
7
-4
2
29
9
17
1
6
-4
2
16
10
-23
-3
-5
4
6
11
5
7
1
-48
-10
-23
-3
-3
1
3
-19
-1
-29
-2
29
-12
2
* including Turkey, excluding Russia. ** Argentina, Brazil and Venezuela.
Note: this data excludes imports except for Latin America where the Replacement segment includes imports.
Source: Pirelli estimates
Raw materials
In the course of 2016 prices for the main raw materials - agricultural goods/commodities, metals, and
energy - recorded a further decline compared to 2015 despite a recovery during the year.
The average listing price of oil (Brent) stood at USD 45 per barrel, which represented a fall of -16%
compared to 2015. The price of Brent, which remained below USD 50 per barrel for the first nine
months of the year, began to rise in the fourth quarter following an agreement to cut production, which
was agreed to by OPEC and some non-OPEC countries such as Russia. The average price in December
2016 rose to USD 54.9 per barrel.
As with the price of oil, the price of natural rubber also began to recoup ground during 2016. Purchase
prices (reference TRS20 SICOM) averaged USD 1,378 per ton for 2016, an increase of +0.6%, which
was the first slightly positive annual change in five years, but closed the month of December at USD
1,882 per ton (+37% higher than the year's average).
2016 ANNUAL REPORT
Price of raw materials
17
Source: IHS Markit
Even the price of butadiene, the main material for producing synthetic rubber, recorded a gradual
recovery during the course of the year. The average listing price went from Euro 495 per ton in March
2016 to Euro 800 per ton in December, bringing the annual average to Euro 644 per tonne for 2016,
which was still down -1.8% compared to 2015.
2016 ANNUAL REPORT
18
Significant Events of 2016
On February 9, 2016, Pirelli and the Lombardy Region signed a competitiveness agreement for a
regional grant of euro 1.9 million for the R&D project "Total Safety System" to be conducted at the
Bicocca, Milan research centre. The project, which has a duration of 24 months and a total cost of euro
5.35 million, is part of activities related to the development of a new generation of tyres based on the
concept of "total safety". The project allows Pirelli to study new product mixes oriented towards higher
value-added segments, and to achieve positive results in terms of the social and environmental aspects
of safety on the roads, by reducing the fuel consumption of vehicles and increasing tyre mileage.
On February 15, 2016, Ren Jianxin, Yang Xingqiang, Bai Xinping, Ze'ev Goldberg, Tao Haisu, Wang
Dan and Zhang Junfang, who had been previously co-opted by the Board of Directors, were reappointed
as Directors by the Ordinary Shareholders’ Meeting of Pirelli & C. S.p.A. On the same date, the Board
of Directors approved Ren Jianxin as Chairman. The Extraordinary Shareholders’ Meeting also
approved the proposal of the mandatory conversion of savings shares into newly issued special category
unlisted shares without voting rights, as well as the proposal to adopt new Articles of Association. The
mandatory conversion and the adoption of the new Articles of Association were also approved, within
the scope of its capacity to do so, by the Special Savings Shareholders’ Meeting of Pirelli & C. S.p.A.
The Extraordinary Shareholders’ Meeting of Pirelli & C. S.p.A. also approved the merger by
incorporation of the holding company Marco Polo Industrial Holding S.p.A. into Pirelli & C. S.p.A. on
the basis of 6.30 Pirelli shares to be assigned post-merger to Marco Polo International Holding Italy
S.p.A. (Holdco) – the sole partner of Marco Polo Industrial Holding S.p.A. - for each 1 share held prior
to the merger by Marco Polo International Holding Italy S.p.A. (Holdco) in Marco Polo Industrial
Holding S.p.A. The merger deed was stipulated on May 6, 2016, and became effective as of June 1,
2016.
On February 26, 2016 the mandatory conversion of savings shares into unlisted special shares took
effect. The last day of trading on the Stock Exchange of the savings shares had been February 25,
2016.
On March 15, 2016, the Ordinary Shareholders’ Meeting provided for the renewal of the entire Board
of Directors and resolved to appoint for three financial years - and therefore until the Shareholders’
Meeting for the approval of the Financial Statements as at December 31, 2018, - the Board Directors
being; Ren Jianxin, Yang Xingqiang, Bai Xinping, Ze'ev Goldberg, Wang Dan, Jiao Chonggao, Zhang
Haitao and Yang Xun (representing the shareholder China National Tire & Rubber Corporation Ltd);
Marco Tronchetti Provera, Giorgio Bruno, Luca Rovati, Carlo Acutis and Gustavo Bracco (representing
the shareholder Camfin S.p.A.); Igor Sechin, Andrey Kostin and Emerson Milenski (representing the
shareholder Long Term Investments.).
Furthermore, in accordance with the new statutory provisions, the Shareholders' Meeting resolved to
increase the number of Statutory Members of the Board of Auditors to five, by appointing Fabrizio
Acerbis, Giovanni Bandera and David Reali as Statutory Auditors. The Board of Auditors is constituted
by Francesco Fallacara (as Chairman), Fabrizio Acerbis, Fabio Artoni, Giovanni Bandera and David
Reali (as Statutory Auditors), and Fabio Facchini and Giovanna Oddo (as Alternate Auditors) and shall
expire with the approval of the Financial Statements as at December 31, 2017.
2016 ANNUAL REPORT
The new Board of Directors - which met after the Shareholders' Meeting - voted to approve, Ren Jianxin
as Chairman, granting him the legal representation of the company as well as all other powers attributed
to the Chairman under the current Articles of Association, without prejudice to the powers and
prerogatives of the Board of Directors, and Marco Tronchetti Provera as Chief Executive Officer and
Executive Vice Chairman, confirming the attribution to the Chairman of the powers for the operational
management of Pirelli as already delegated in the previous mandate.
19
On March 15, 2016, the Company announced that the right of withdrawal, consequent to the
conversion of savings shares into special shares, had been validly exercised for 460,277 savings shares
(special shares after the mandatory conversion), for a total equivalent liquidated value of euro
6,894,028.91. The aforementioned shares subject to withdrawal were offered with the right of option
and the right of pre-emption to all shareholders of Pirelli & C. S.p.A. for the period March 15 - April 15,
2016.
On April 5, 2016 at the Estoril circuit in Portugal, Pirelli presented the new P ZERO™ the exclusive
Ultra-High Performance tyre which combines the experience Pirelli has acquired in the field of
Motorsports and the collaboration of the best car manufacturing houses. The new tyre features an
improved high performance grip, a reduction in noise emissions, lower rolling resistance and an
improvement in the aquaplaning function. The P ZERO™ confirms Pirelli as the world leader for the
prestige car sector, and contributed to the accelerated growth for the company, in the Premium car
sector.
On April 20, 2016 Pirelli announced an investment to span the following three year period of USD 200
million in Mexico, for the construction of a new factory in Silao as an addition to the current existing
car tyre plant in Silao. This new investment of USD 200 million was launched during the course of 2016
and adds to the approximate USD 360 million invested to date, and to the USD 50 million already
earmarked for 2016 and 2017 collectively. By the end of 2018, Pirelli's total investment for the two
plants in Silao will therefore amount to more than USD 600 million.
On April 21, 2016, following the outcome of the rights offer to shareholders of a total of 460,277
special shares in relation to which the right of withdrawal was validly exercised, the shareholder Marco
Polo Industrial Holding S.p.A. – who exercised the option and pre-emption rights to which they were
entitled – purchased all the shares which were subject to the right of withdrawal.
On April 27, 2016, the Shareholders' Meeting approved the Financial Statements as at December 31,
2015, and the proposed allocation of the profits formulated by the Board of Directors. The Shareholders'
Meeting also authorised the Company to purchase treasury shares for the redemption of special shares.
On April 29, 2016, in exercising the right of redemption as provided for by the Articles of Association,
the Company purchased from the shareholders who held special shares (other than Marco Polo
Industrial Holding S.p.A. and Company shareholders), all the remaining outstanding special shares.
Following the aforesaid operation, Marco Polo Industrial Holding S.p.A. – taking into account the
treasury shares held by Pirelli & C. S.p.A. – as a result held 100% of the ordinary and special capital of
the Pirelli Group.
2016 ANNUAL REPORT
20
On May 16, 2016 the shareholders of RCS MediaGroup S.p.A, Pirelli & C. S.p.A (4.43%), Diego Della
Valle (7.32%), Mediobanca S.p.A. (6.25%) and UnipolSai Assicurazioni S.p.A. (4.59%) – stakeholders
of a total of 22.6% of the capital of the publishing house - reached an agreement with International
Acquisitions Holding S.à r.l (a Luxembourg company indirectly controlled by the Investindustrial VI
L.P. fund, which is managed by the English company Investindustrial Advisors Limited), for the joint
launch of a voluntary Public Offer for the purchase of 77.4% of the share capital of the RCS
MediaGroup S.p.A. which they did not hold.
The launch of the Public Offer – aimed at supporting and accelerating the restructuring process initiated
by management as well as, starting from the existing business platform, at creating an international
scale, multimedia publishing group – came about on June 20, 2016 through the vehicle International
Media Holding S.p.A. (IMH is currently 25% owned by Pirelli & C. S.p.A.) at a unit price of euro 0.7
per share (which was increased to euro 0.8 per share on June 24, and to euro 1.00 per share on July 8,
2016).
At the expiry of the subscription period on July 18, 2016 IMH announced that during the subscription
period (from June 20, 2016 to July 15, 2016), as a result of the Public Offer launched by IMH, the RCS
shares tendered equalled 12.9% of the RCS share capital.
Taking into account (i) the RCS shares tendered as part of the IMH Public Offer, (ii) of the total shares
already held by IMH shareholders, as well as (iii) the 2.17% of the share capital of RCS acquired from
IMH on July 13, 2016, IMH announced on July 18, 2016, that the Terms and Conditions of the
Minimum Quantity (as defined by the Public Offer prospectus) had not been fulfilled, and that they
would not be exercising the right to waive this condition, and so as a consequence the Public Offer
launched by IMH was to be considered as being without legal effect.
The RCS shares tendered to the IMH Public Offer were therefore returned as entitled to their respective
owners.
On June 17, 2016 Pirelli and FIA renewed the contract for the supply of tyres for the FIA Formula 1
World Championship for another three years, from 2017 to 2019. Pirelli has been the exclusive supplier
of Formula 1 tyres since 2011. The agreement was ratified at the end of the winter season during which
Pirelli and FIA, in collaboration with their teams, reached a major agreement resulting in changes to the
technical regulations. In 2017 in fact, new technical regulations will enter into force which will include
significant modifications to the chassis and increases in tyre width.
On July 15, 2016 the Ordinary Shareholders' Meeting of Aeolus Tyre Co., Ltd. approved (i) the sale to
Aeolus by Pirelli Tyre S.p.A. of 10% of Pirelli Industrial S.r.l. (ii), the sale to Pirelli Tyre S.p.A. of 80%
of the Aeolus car business, (iii) the integration into Aeolus, of two assets owned by the CNRC (China
National Tire and Rubber) and (iv) a licensing agreement between Pirelli Tyre and Aeolus for the
Industrial segment technology. As of October 1, 2016 following the attainment of all the necessary
authorisations, Pirelli Tyre S.p.A. acquired control of the Aeolus car business, and sold 10% of Pirelli
Industrial S.r.l. to Aeolus.
On July 28, 2016, the refinancing plan was successfully completed, the main details of which had been
approved by the Pirelli & C. S.p.A. Board of Directors on February 16, 2016, aimed at extending debt
maturities and optimising the debt structure. The refinanced total amounted to euro 6.4 billion and was
achieved at a lower overall cost of less than 3.5%.
2016 ANNUAL REPORT
21
The operation consisted of secured syndicated refinancing for a total amount of euro 4.8 billion
maturing in three and five years, where the requested amount was for slightly less than twice the amount
offered, as well as a secured line of credit for euro 1.6 billion with an 18 month maturity, which was the
result of a club deal with a select number of lending institutions.
Due to the aforesaid operation, Pirelli reimbursed the Bidco Facility and cancelled the Mergeco Facility
loan made available to the company by a syndicate of banks as part of the Public Offer made to Pirelli
by Marco Polo Industrial Holding S.p.A.
On September 30, 2016 Pirelli announced an investment plan of approximately euro 200 million for the
2016-2021 period, for the manufacturing centre in Slatina, Romania, a testament to the facility's
strategic importance in context of the business activities of the Group. This new investment plan will
allow for the creation of new jobs and the achievement of an annual production capacity of 15 million
units, compared to the current 10 million. Additional planned investments as of September 2016 until
the end of 2021 will ensure further improvement of Pirelli's industrial competitiveness at European
level. This expansion and upgrading project also involves the Slatina production area dedicated to
Motorsports which includes a Formula One manufacturing unit that acts as a back-up for Pirelli's main
plant based in Turkey.
On October 13, 2016 Pirelli and the Bicocca University of Milan signed a renewal for another six years
of the CORIMAV Consortium for research on advanced materials, created in 2001 by Pirelli and the
University, with the aim of, developing cutting-edge technologies in the field of new materials,
sustaining research activity and experimentation for the purpose of patenting, and to foster training
initiatives and the professional development of young researchers. Since its inception, the CORIMAV
Consortium has enabled the filing of 15 patents, and the funding of 44 scholarships and 36 doctoral
fellowships in ecological and innovative materials.
On October 19, 2016, the Board of Directors of Pirelli & C. S.p.A. took favourable note of the progress
being made on the integration between Pirelli Industrial and Aeolus, and examined the guidelines of the
Pirelli Business Plan for the Industrial segment. The Board also approved the 2016-2018 business plan,
with a view to 2020, for the Pirelli Consumer business, who is the sole global player entirely focused on
the Consumer business segment and who foresees: strengthened leadership in the more lucrative
Prestige and Premium segments; a business model which is increasingly more focused on the end
consumer (the Consumer Centric Approach); the overseeing of the new business opportunities offered
by new and sustainable mobility (Cyber Tyre and Vélo); more efficient and fully digitised industrial,
commercial and managerial processes based on predictive models made possible through the use of big
data analytics. In support of this position, the Board of Directors adopted an organisational model which
provides for, the establishment of the new Pirelli Digital General Management, entrusted to Luigi
Staccoli, to oversee all activities directed towards digitisation of the company; the aggregation of all
technical structures and sales to Original Equipment under the responsibility of the General Manager
Technology, Maurizio Boiocchi; the attribution of the management of all commercial structures and the
Motorcycle Business Unit to the Chief Commercial Officer Consumer, Roberto Righi, in support of the
Consumer Centric Approach; the appointment of Paolo Dal Pino as Chief Executive Officer of Pirelli
Industrial, and the supersession of the General Manager of Operations department, as of January 1,
2017. Based on these presuppositions, the Board of Directors expressed the desire to accelerate the
public listing of the company by immediately initiating all necessary actions.
2016 ANNUAL REPORT
22
The objective of proceeding, depending on how opportune the market conditions are, with the launch of
the IPO during the first half year of 2018, on the Milan Stock Exchange, or in any case, on one of the
major international level stock markets. Among the elements which support the success of the listing,
the Board of Directors singled out the alignment of governance with international best practices,
through a Board of Directors and Board Committees composed of an adequate number of independent
Directors; that is corporate structure which, although starting from a concentrated shareholder structure
did emerge following the Public Offer, and which will give rise to an evolution which will ensure an
adequate public float able to meet the expectations of international investors: an incentive system to
ensure an alignment of the interests of management with those of all shareholders.
On November 25, 2016 Pirelli announced that it had reached an agreement with Infront Sports and
Media for the sponsoring of the next three editions of the International Ski Federation (FIS) World
Alpine Ski Championships and the International Ice Hockey Federation (IIHF) World Championships.
On December 28, 2016 Pirelli reached an agreement for the disposal of a 38% stake in Pirelli Industrial
S.r.l. to a vehicle controlled by the Chinese Cinda fund for an amount totalling approximately euro 266
million. The sale of the aforesaid investment stake in Pirelli Industrial S.r.l., which is part of a wider
project for the reorganisation and integration of the Industrial business, was finalised on January 13,
2017.
2016 ANNUAL REPORT
23
Group Performance and Results
In this document, in addition to the financial figures as provided for by the International Financial
Reporting Standards (IFRS), alternative performance indicators derived from IFRS were used in order
to allow for a better assessment of the progress of the Group’s operations.
These indicators are: Gross Operating Margin, Adjusted EBIT, Fixed Assets, Provisions, Operating
Working Capital, Net Working Capital and Net Financial Liquidity (Debt) Position. Reference should
be made to the paragraph “Alternative Performance Indicators” for a more detailed description of these
indicators.
By way of the effect of the reverse merger between the holding company Marco Polo Industrial Holding
S.p.A. (incorporated company) into the subsidiary Pirelli & C. S.p.A. (incorporating company), which
became effective as of June 1, 2016 the Directors’ Report on Operations of Pirelli & C. S.p.A. at
December 31, 2016 has been prepared on a going concern basis with respect to the consolidated
Financial Statements at December 31, 2015 of the holding company Marco Polo Industrial Holding
S.p.A. Therefore the comparative Statement of Financial Position figures at December 31, 2015, the
Income Statement figures and relative financial flows for the 2015 financial year are those of the
consolidated Financial Statements of the holding company Marco Polo Industrial Holding S.p.A.
For the purpose of ensuring a comparison of the performance of the Pirelli Group for 2016 as compared
to 2015, the comparative figures for the Pirelli Group only ("Pirelli Group Reported") for 2015 have
been presented in this Financial Report.
The comments relating to Income Statement figures, unless otherwise indicated, refer to the comparison
with Income Statement figures for the same period of the previous year for the Pirelli Group only.
It is also to be noted that as of the financial reports at September 2016, the definitive allocation of the
price paid by Marco Polo for the acquisition of the Pirelli Group was completed at the fair value of the
Pirelli assets and liabilities acquired (the PPA – Purchase Price Allocation), and was recorded in the
Financial Statements of Pirelli as a result of the incorporation of Marco Polo Industrial Holding S.p.A.
The completion of the PPA brought about the detection of the value of the Pirelli Brand at euro 2.3
billion euros , the detection of other intangible fixed assets at euro 2.0 billion (which included
Technology at euro 1.4 billion), the revaluation of tangible fixed assets to a total of euro 0.9 billion and
the detection of residual Goodwill amounting to euro 2.4 billion.
It is to be noted that as a consequence of the completion of the PPA, a new intermediate economic
measure was introduced, namely the adjusted operating income, which derived from the operating
income which did not include the amortisations relative to the intangible fixed assets identified
following the PPA or the costs attributable to non-recurring and restructuring expenses.
As of the moment that the acquisition date was deemed as September 1, 2015, the aforesaid allocation
has been reflected in the comparative Income Statement and Statement of Financial Position figures at
December 31, 2015 which have been restated.
Of final note is that the deconsolidation of the Venezuelan subsidiary Pirelli de Venezuela C.A. was
effective as of December 31, 2015, and that therefore the financial data for 2016 does not include the
data from the Income Statement and the Statement of Financial Position of the Venezuelan subsidiary.
2016 ANNUAL REPORT
In order to provide a coherent representation of the new scope, the operating income (loss) is discussed
in terms of an analysis of the changes which occurred compared to the same period of the preceding
financial year, excluding the results for the Venezuelan subsidiary.
24
* * *
•
•
The Group's results for 2016 were characterised by:
• with the strengthening of the Premium segment which recorded a growth in volumes of +14.2%
which was superior to that of the market trend (+9.4%) the Premium proportion of Consumer
revenues reached 64.0% (61.5% for 2015, on a like-for-like basis);
noticeable improvement in the price/mix component (+5.0%), with growth in both the Consumer
(+4.7%) and Industrial (+6.4%) businesses, which in particular was due to the product mix;
progressive improvement in volumes (+2.1% for 2016, +3.7% for the third quarter, and +5.1% for
the fourth quarter), which was driven by the Consumer business (+3.5% for the first nine months,
+5.5% for the third quarter, and +4.8% for the fourth quarter) with sustained growth in mature
markets and a recovery in sales in emerging markets, for the Industrial segment (-3.8% for the
financial year) but which continued to be impacted by the weakness in the truck and agro market
particularly in South America, but with a reversal in trends for volumes during the last quarter
(+6.5%), especially in the Replacement channel;
organic growth in revenues of +7.0% net of the exchange rate effect (-5.4%) and on a consolidated
like-for-like basis (an organic growth in revenues of +8.7% for the fourth quarter);
efficiencies of euro 90.5 million (euro 22.4 million for the third quarter even though it had been
impacted by the reduced level of attainment of the productive capacity in Industrial business). Since
2014, 79% of the 2014-2017 four-year plan target of euro 350 million has been reached, with
overall efficiencies of euro 277.3 million for the years 2014-2015-2016 (1.5% of sales for the three
years;
improvement in the operating performance with an adjusted EBIT margin of 14.8% (+0.4
percentage points compared to 2015 net of Venezuela) due to the effectiveness of internal levers
such as price/mix, efficiencies and volumes for countering the volatility of exchange rates, the
increased cost of raw materials and inflation in emerging markets;
significant reduction in the net debt which was equal to euro 418 million, thanks to:
o
•
•
•
•
the elevated level of ordinary cash flow generation (euro 326 million after financial and tax
expenses compared to the euro 83.1 million for 2015) as a result of the careful management
of working capital and the lower tax burden;
the cash-in amount (euro 266 million) resulting from the aforementioned entry of the Chinese
Cinda fund payment into Pirelli Industrial’s capital which made it more than possible to
offset the increase in indebtedness due to the change in the scope of consolidation (a higher
debt level for Marco Polo Industrial Holding as of the beginning of the financial year due to
the merger, and to the consolidation of the debt of the Jiaozou Aeolus Tyre business of which
Pirelli acquired an 80% stake on October 1, 2016), and to the disposal of certain investments
and property assets.
o
The net debt of the Group at December 31, 2016 amounted to euro 4,912.8 million.
2016 ANNUAL REPORT
The Group’s Consolidated Financial Statements are summarised as follows:
25
(in millions of euro)
Net sales
Gross operating margin before non-recurring and restructuring
expenses
% of net sales
Adjusted operating income (loss)
% of net sales
Adjustment: - amortisation of intangible assets included in PPA
- non-recurring and restructuring expenses
Operating income (loss)
% of net sales
Net income (loss) from equity investments
Financial income/(expenses)
Adjusted net income (loss) before tax (*) (*)
Loss from deconsolidation of Venezuela
Total net income (loss) before tax
Tax expenses
Adjusted tax rate % on net income (loss) before tax
Impairment of deferred tax assets
Net income (loss) from continuing operations
Net income (loss) from discontinued operations
Total net income (loss)
Net income attributable to the Parent Company
Operating fixed assets
Inventories
Trade receivables
Trade payables
Operating Net working capital
% of net sales
Other receivables/other payables
Total Net working capital
% of net sales
Net invested capital
Equity
Provisions
Net financial (liquidity)/debt position
Equity attributable to the Parent Company
Investments in property, plant and equipment and intangible assets
Research and development expenses
% of net sales
Research and development expenses - Premium
% on sales Premium
Employees (headcount at end of period)
Industrial sites (number)
12/31/2016
12/31/2015
Pirelli Group
12/31/2015
12/31/2015
Pirelli Group
reported
6,058.4
reported
6,309.6
(excl. Venez.)
5,962.5
(**)
2,208.8
499.0
22.6%
387.1
17.5%
(33.1)
(34.8)
319.2
14.5%
(28.2)
(234.9)
56.1
-
56.1
(38.2)
68.1%
-
17.9
-
17.9
n\a
10,361.4
1,053.9
676.2
(1,320.1)
410.0
n\a
(111.0)
299.0
n\a
10,660.4
3,281.6
2,047.8
5,331.0
3,209.6
1,183.2
1,242.7
1,155.7
19.4%
860.5
14.4%
(6.2)
(68.2)
786.1
19.7%
924.7
14.7%
(6.2)
(68.2)
850.3
13.5%
(41.4)
(328.2)
480.7
(559.5)
(78.8)
(182.5)
38.0%
(107.6)
(368.9)
(14.6)
(383.5)
(391.4)
19.5%
896.6
14.8%
(105.8)
(66.6)
724.2
12.0%
(20.0)
(440.3)
263.9
-
263.9
(116.3)
44.1%
-
147.6
-
147.6
135.1
10,299.2
1,055.6
679.3
(1,498.5)
236.4
3.9%
(310.7)
(74.3)
(1.2%)
10,224.9
3,274.9
2,037.2
4,912.8
3,134.1
372.2
228.1
3.8%
191.0
5.9%
37,050
19
(*) excluding the impact from deconsolidation of the Venezuelan subsidiary in 2015
(**) data from consolidated financial statements of Marco Polo Industrial Holding S.p.A. restated as consequence of the completion of the Purchase Price Allocation
2016 ANNUAL REPORT
26
For a better understanding of the Group's performance, the following income statement data is
subdivided according to business segment.
(in millions of euro)
A
Consumer
B
Industrial
A+B = C
Total Tyre business
D
Other business
C+D
TOTAL GROUP
Net sales
Gross operating margin before non-recurring and
restructuring expenses
12/31/2016
12/31/15 (Pirelli Group)
12/31/2016
12/31/15 (Pirelli Group)
12/31/2016
12/31/15 (Pirelli Group)
12/31/2016
excl. Venez.
reported
excl. Venez.
reported
excl. Venez.
reported
12/31/15
(Pirelli
Group)
12/31/2016
12/31/15 (Pirelli Group)
excl. Venez.
reported
5,068.5
4,812.8
5,048.2
987.7
1,140.9
1,252.6
6,056.2
5,953.7
6,300.8
2.2
8.8
6,058.4
5,962.5
6,309.6
1,093.5
1,020.2
1,084.4
91.0
142.3
165.1
1,184.5
1,162.5
1,249.5
(1.3)
(6.8)
1,183.2
1,155.7
1,242.7
Adjusted operating income (loss)
850.7
780.4
822.4
48.1
88.4
110.6
898.8
868.8
933.0
(2.2)
(8.3)
896.6
860.5
924.7
Amortisation of intangible fixed assets included in PPA
(104.6)
(6.2)
(6.2)
(1.2)
-
-
(105.8)
(6.2)
(6.2)
Non-recurring and restructuring expenses
(53.1)
(53.3)
(53.3)
(13.3)
(13.0)
(13.0)
(66.4)
(66.3)
(66.3)
Operating income (loss)
693.0
720.9
762.9
33.6
75.4
97.6
726.6
796.3
860.5
-
(0.2)
(2.4)
-
(105.8)
(6.2)
(6.2)
(1.9)
(66.6)
(68.2)
(68.2)
(10.2)
724.2
786.1
850.3
For 2016, Group net sales amounted to euro 6,058.4 million, which in organic terms represented a
growth (net of exchange rates and on a consolidated like-for-like basis) of +7.0% compared to 2015
(+8.7% for the fourth quarter). The trend in revenues was sustained by the Consumer business, (with an
organic growth of +8.2% both for the financial year and the third quarter) thanks to a good performance
in the mature markets such as APAC and MEAI. The Industrial segment (with an organic growth of
+2.6% for the financial year, +12.1% for the fourth quarter), was impacted by weakness in truck and
agro in the South American market which showed signs of recovery during the last quarter of the
financial year. With the inclusion of the negative impact of the exchange rate effect (-5.4%),
consolidated revenues grew by +1.6% compared with the previous year on a like-for-like basis, (a
growth of +7,2% for the fourth quarter).
The following table outlines the market drivers for the Tyre net sales performance:
Volume
Price/mix
of which Premium volume
Change on a like-for-like basis - same scope of consolidation
Translation effect
Change (before impact of Venezuela)
Change in scope of consolidation - Venezuela
Total change
1 Q
2 Q
3 Q
4 Q
2016
-0.8%
11.7%
6.1%
5.3%
-9.3%
-4.0%
-4.3%
-8.3%
2015
-1.3%
10.0%
3.7%
2.4%
4.1%
6.5%
2016
0.8%
15.0%
5.9%
6.7%
-8.3%
-1.6%
-3.2%
-4.8%
2015
0.6%
11.0%
3.4%
4.0%
2.4%
6.4%
2016
3.7%
15.9%
4.3%
8.0%
-2.3%
5.7%
-3.6%
2.1%
2015
-3.3%
12.2%
7.0%
3.7%
-4.2%
-0.5%
2016
5.1%
14.1%
3.7%
8.8%
-1.5%
7.3%
-11.7%
-4.4%
2015
-2.5%
18.3%
14.4%
11.9%
-4.6%
7.3%
Cumulative at 12/31
2016
2015
2.1%
14.2%
5.0%
7.1%
-5.4%
1.7%
-5.6%
-3.9%
-1.6%
12.7%
7.1%
5.5%
-0.6%
4.9%
The performance for total tyre volumes which recorded a total growth of 2.1% for 2016 (+5.1% for the
fourth quarter), reflected the diverse dynamics between the Consumer and Industrial businesses and
between mature and emerging markets.
The performance in the Consumer segment (volumes at +3.5% for the financial year, 4.8% for the
fourth quarter) was supported by Premium segment growth (+14.2%) while the Non-Premium segment
(-3.9%) was impacted by the weak demand in LatAm and Russia, in particular in the Original
Equipment channel. During the fourth quarter a recovery was recorded in emerging markets, with a
reversal of the negative trend in Russia and South America.
The performance in Industrial volumes (-3.8% for the financial year, +6.5% for the fourth quarter) was
impacted by the negative trend in demand in South America (truck market in decline at -29% in
Original Equipment and at -2% in the Replacement channel), with a partial recovery in the fourth
quarter, above all in the the Replacement market (+4%).
2016 ANNUAL REPORT
The decisive improvement in the price/mix (+5.0% overall, representing an increase in both businesses)
reflected the continuation of Pirelli's value strategy and was supported by the success of high-end
products and the balancing of geographical markets and sales channels which were able to offer more
opportunities.
In particular, the positive performance of the Consumer business (price/mix +4.7%), benefited from the
improvement in the product mix (the increased proportion of Premium), and from the greater proportion
of sales in the Replacement channel.
27
The price/mix in Industrial business (+6.4%) reflected the price increases progressively carried out
during the course of 2015 and continued with in 2016, particularly in South America and other
emerging countries, which were however not sufficient to offset the sharp devaluation of exchange rates
(-9.9% for 2016).
The following is a breakdown of Tyre business net sales by geographical area and product
category:
GEOGRAPHICAL AREA
Cumulative at 12/31/2016
Cumulative 'at
12/31/2015
excl. Venez.
Reported
Euro\mln
yoy (excl. Venez)
Europe
Russia and CIS
NAFTA
South America
Asia\Pacific (APAC)
Middle East\Africa\India (MEAI)
2,277.8
174.2
953.4
1,365.4
769.3
516.1
TOTAL
6,056.2
3.5%
-9.5%
10.7%
-6.5%
9.0%
-3.1%
1.7%
37.7%
2.9%
15.7%
22.5%
12.7%
8.5%
37.0%
3.2%
14.5%
24.5%
11.9%
8.9%
34.9%
3.1%
13.7%
28.7%
11.2%
8.4%
100.0%
100.0% 100.0%
PRODUCT
Cumulative at 12/31/2016
Car tyres
Motorcycle tyres
Truck tyres
Agricultural tyres
Euro\mln
yoy (excl. Venez)
4,718.4
350.1
5,068.5
869.0
118.7
987.7
6.1%
-3.8%
5.3%
-14.9%
-0.7%
-13.4%
77.9%
5.8%
83.7%
14.3%
2.0%
16.3%
Consumer
Industrial
Cumulative 'at
12/31/2015
excl. Venez.
Reported
74.7%
6.1%
80.8%
17.2%
2.0%
19.2%
73.9%
6.2%
80.1%
17.8%
2.1%
19.9%
TOTAL
6,056.2
1.7%
100.0%
100.0% 100.0%
APAC (12.7% of tyre revenues), along with NAFTA, was one of the regions with the highest
profitability, with an EBIT margin in the twenties, consistent with that of 2015. The improvement in
revenue performance (a growth for 2016 of +12.1% net of exchange rates, +25.4% for the fourth
quarter) which included sales for the Aeolus car business as of October 1, 2016.
2016 ANNUAL REPORT
Growth which was equal to +9.0% for the financial year and to +17.9% for the fourth quarter
respectively on a like-for-like basis, was supported by the Consumer segment, thanks to the increased
market exposure on the Original Equipment channel (which counted new homologations with European
and local car brands) and to the expanded retail presence which now numbers 4,000 stores, 500 more
than for 2015.
The strategy of focusing on high-end products made it possible to limit the negative impact of the
devaluation of the Yuan (total exchange rate effect for the region of -3.1% for the financial year, -1.5%
for the fourth quarter) and the decline in market prices.
28
NAFTA (15.7% of tyre revenues) recorded an organic growth in revenues of +12% (+18.6% for the
fourth quarter). The performance of revenues reflected the positive trend in volumes, in particular for
the Premium and Super-Premium segments thanks to the introduction of all season products and greater
penetration of the retail channel. Profitability (EBIT margin) was in the low twenties which was
consistent with 2015.
MEAI (8.5% of tyre revenues) recorded a revenue growth net of exchange rates of +7.2% (+4.4% for
the fourth quarter) with profitability in the high-teens which was stable compared to 2015.
Europe (37.7% of tyre revenues) ended the financial year with profitability in the mid-teens,
representing an improvement compared to 2015, thanks to the +10.0% growth of Premium segment
revenues supported by good sales both on the Original Equipment and Replacement channels, and by
higher winter sales. Organic growth for total revenues was equal to +5.1% (+1.9% for the fourth
quarter), a performance which reflected both the progressive reduction of market exposure on the non-
Premium channel and the drop in sales for the Industrial business.
Russia (2.9% of tyre revenues), recorded a contraction in sales of -1.0% net of the exchange rate effect,
with a reduction in volumes equal to -8.3% in the presence of a market in sharp decline (Replacement -
9.0%, Original Equipment -13%), but with partial recovery combined with the appreciation of the
Rouble during the final part of the year. Profitability which broke even at the end of the financial year,
representing an improvement compared to the first nine months, was still slightly inferior to the results
for 2015, had been impacted by worsening exchange rates and the performance in volumes.
In this context, given the local competitiveness, production had mainly been intended for exports in
support of improved results for Europe. A trend of marked recovery was evident for the fourth quarter
with an organic growth in revenues of of +9.6% sustained primarily by the good performance for the
price/mix in the presence of a reversal of the exchange rate effect (positive at +6.5% compared to the
last quarter of 2015), which was consistent with the recovery in oil prices.
South America (22.5% of tyre revenues) recorded a reduction in revenues for the financial year of -
6.6%, impacted by the continuation of the difficult market conditions in the area, both for the Original
Equipment channel (car market volumes –12% and truck -29%), and the Replacement channel (car
market volumes -3% and truck -2%), with an overall decline in volumes for Pirelli of -6.2%. Excluding
the relative exchange rate impact (-12.6%), organic growth asserted itself at +6.0% for 2016. The
performance in organic revenues was also due to:
•
continued growth of the product mix, thanks to the performance in Premium and to the 01 Truck
series,
price increases in Consumer and Industrial which had been progressively implemented during the
course of 2015 and continued with in 2016 to counter the volatility of exchange rates.
•
2016 ANNUAL REPORT
Profitability was in the mid single-digits, representing a decline compared to 2015 (double digits),
principally due to the performance of the Industrial business considering the difficult economic
conditions, while for the Consumer business profitability was recorded in the high single digits.
There was significant improvement in performance for the fourth quarter of the financial year with a
revenue growth of 12% (+6.4% net of exchange rates) especially in the Industrial business which
recorded an increase in volumes greater to that of the market, and the gradual improvement of the
component price / mix.
29
The Group's adjusted operating income (loss) - before non-recurring and restructuring expenses and
the amortisation of the intangible fixed assets included in the PPA - amounted to euro 896.6 million (an
adjusted EBIT margin of 14.8%), a growth of +4.2% compared to the euro 860.5 million recorded for
2015 on a consolidated like-for-like basis (an adjusted EBIT margin of 14.4%).
Specifically, the adjusted operating income (loss) for the Group was as follows:
(in millions of euro)
1 Q
2 Q
3 Q
4 Q
Cumulative at
12/31
2015 Adjusted operating income (loss) - excl. Venezuela
208.5
229.4
200.3
222.3
860.5
Differences from foreign currency translation from consolidation
Price/mix
Volumes
Cost of prodution factors (raw materials)
Cost of prodution factors (labour/energy/others)
Efficiencies
Amortisation, depreciation and other
Other businesses
Change
2016 Adjusted operating income (loss)
(22.0)
35.8
(1.6)
(6.4)
(23.5)
30.5
(5.6)
1.4
8.6
217.1
(22.1)
38.0
0.7
(3.8)
(27.8)
20.8
(21.2)
1.1
(8.2)
31.3
28.3
(0.2)
(22.5)
16.8
(24.7)
1.7
(3.0)
34.4
15.4
(6.1)
(19.8)
22.4
(25.9)
1.9
(14.3)
215.1
22.5
222.8
19.3
241.6
(55.3)
139.5
42.8
(16.5)
(93.6)
90.5
(77.4)
6.1
36.1
896.6
The improvement in profitability was linked to the effect of internal levers such as price/mix, and to
efficiencies achieved to counter the volatility of exchange rates, inflation and the decline of some
markets mainly in the Industrial business.
In particular:
•
improvement of the price/mix component (euro +139.5 million) compensated for the negative
impact of raw materials and exchange rates, as well as the higher depreciations, amortisations and
other costs also linked to the development of the Premium segment and to the growth in territorial
coverage;
efficiencies which balanced out inflation deriving from the exposure to emerging markets. These
efficiencies mainly affected the industrial area, through programmes designed to optimise
production flows and to reduce the complexity of the production (optimisation of the product
portfolio, and standardisation of components, etc.). Since 2014, efficiencies to the amount of euro
277.3 million have been achieved equal to 79% of the 2014-2017 four year plan target of euro 350
million (1.5% of accumulated revenue);
positive growth in volumes of euro +42.8 million).
•
•
2016 ANNUAL REPORT
30
The operating income (loss) of the Group which amounted to euro 724.2 million, was impacted by;
-
non-recurring and restructuring expenses to the amount of euro 66.6 million due to structural
rationalisation, and above all the activities under way for the integration of Pirelli’s Industrial
segment with the assets of China National Industrial Tire & Rubber Co. Ltd;
euro 105.8 million relative to the amortisation of the intangible fixed assets identified during the
Purchase Price Allocation.
-
For 2015 the operating income (loss) of the Group had amounted to euro 786.1 million, impacted by
non-recurring and restructuring expenses which had amounted to euro 68.2 million, and euro 6.2 million
for the amortisation of the intangible fixed assets recorded as a result of previous PPAs.
Income (loss) from equity investments by the Group was negative for euro 20.0 million and was
mainly due to, euro -28.7 million attributable to the adjustment of the investment in Prelios S.p.A. to the
market value at December 31, 2016 (euro 0.092 per share), to the euro -21.9 million pro-rata loss
attributable to the vehicle Fenice S.r.l., which holds fiscally transparent shares in Prelios and which
reflected the negative performance of the Prelios share price on the stock market, to euro -8.5 million
attributable to the pro-rata results of the Indonesian joint venture PT Evoluzione Tyres and to the euro -
8.7 million impairment of the investment in Pirelli de Venezuela C.A. mainly attributable to the
significant depreciation of the Venezuelan Bolivar against the US Dollar. These losses were partially
compensated by +46.1 million relative to the pro rata portion of the positive results for the associate
Eurostazioni S.p.A., attributable primarily to the gain deriving from the disposal of the investment held
by Eurostazioni S.p.A. in Grandi Stazioni Retail S.p.A..
The net income of the Group at December 31, 2016 was equal to euro 147.6 million, compared to the
euro 368.9 million loss for continuing operations for the 2015 financial year, which included the loss
from the deconsolidation of the Venezuelan subsidiary of euro 559.5 million (otherwise positive for
2015 to the amount of euro 190.6 million excluding the net loss). In addition to the trends highlighted
regarding the operating income (loss) and net income (loss) from investments, the net income
performance reflects the increase in net financial expenses of euro 112.1 million (from euro 328.2
million for 2015 to euro 440.3 million for 2016), mainly attributable to, the bank debt contracted by
Marco Polo Industrial Holding S.p.A. for the acquisition of the Pirelli Group (“Bidco Facility”), to the
subsequent refinancing operation ("Senior Facilities"), as well as to the early repayment of the US
Private Placement bond loan of USD 150 million, which, in accordance with the contract terms, resulted
in higher expenses which amounted to euro 25.4 million.
The average cost of debt for the period was 5.82% (while for the 2015 financial year the average cost of
debt had been 5.90%).
Tax expenses for 2016 amounted to euro 116.3 million due to earnings before tax of euro 263.9 million
with a tax rate which stood at 44.1% which highlighted an increase of 6.6% compared to the tax rate for
2015 which had been 37.3% (adjusted by the impact of the deconsolidation of the results of the
Venezualen subsidiary). This increase was due mainly to the effects of interest payables from loans
activated during the course of 2016, which reduced the earnings before tax without there being a
corresponding reduction in taxes for the financial year in Italy.
The net income attributable to Pirelli & C. S.p.A. was positive to the amount of euro 135.1 million
compared to the negative amount of euro 391.4 million for the same period of the previous financial
year.
2016 ANNUAL REPORT
Equity went from euro 3,281.6 million at December 31, 2015 to euro 3,274.9 million at December 31,
2016.
Equity attributable to Pirelli & C. S.p.A. at December 31, 2016 amounted to euro 3,134.1 million as
compared to euro 3,209.6 million at December 31, 2015.
This change, analytically shown in the table below, was essentially related to net translation losses from
consolidation (mostly due to the Egyptian currency), and to actuarial losses on pension funds which
were counter balanced in part by the results for the financial year, and by the disposal of 10% of Pirelli
Industrial S.r.l.
31
(in millions of euro)
Equity at 12/31/2015 (**)
Translation differences
Net income (loss)
Fair value adjustment of other financial assets
Actuarial gains/(losses) on employee benefits
Dividends approved / paid
Disposal of 10% of Pirelli Industrial
Acquisition of 80% of Jiazou Aeolus Tyre
Effect of purchase of special shares for withdrawal
Purchase of special treasury shares for redemption
Other
Total changes
Equity at 12/31/2016
Group Non-controlling
interests
3,209.6
(143.0)
135.0
3.5
(46.6)
-
(10.3)
(1.2)
(6.9)
(5.4)
(0.7)
(75.5)
72.0
(34.8)
12.6
-
-
(2.1)
81.1
16.5
(4.0)
-
(0.5)
68.8
Total
3,281.6
(177.8)
147.6
3.5
(46.6)
(2.1)
70.8
15.3
(10.9)
(5.4)
(1.2)
(6.7)
3,134.1
140.8
3,274.9
(**) consolidated financial statements of Marco Polo Industrial Holding S.p.A.
The table shows the reconciliation between the equity of the Parent Company and the consolidated
equity attributable to Shareholders of the Parent Company:
(in millions of euro)
Share
Capital
Treasury
reserves
Net income
(loss)
TOTAL
Equity of Pirelli & C. S.p.A. at 12/31/2016
1,342.3
1,795.5
68.5
3,206.3
Net income (loss) of consolidated companies (before consolidation adjustments)
Share capital and reserves of consolidated companies (before consolidation adjustments)
Consolidation adjustments:
- carrying amount of equity investments in consolidated companies
- intercompany dividends
- others
-
-
-
-
-
Consolidated equity of Group at 12/31/2016
1,342.3
-
236.8
236.8
4,830.0
-
4,830.0
(5,129.4)
-
(5,129.4)
172.2
(172.2)
-
(11.6)
1,656.7
2.0
135.1
(9.6)
3,134.1
2016 ANNUAL REPORT
The net financial (liquidity)/debt position of the Group was negative for euro 4,912.8 million as
compared to euro 5,331.0 million at December 31, 2015.
The composition of the net financial position of the Group at December 31, 2016 and at the close of the
previous financial year was as follows:
(in millions of euro)
32
Current borrowings from banks and other financial institutions
Current derivative financial instruments
Non-Current borrowings from banks and other financial institutions
Total gross debt
Cash and cash equivalents
Securities held for trading
Current financial receivables and other assets
Current derivative financial instruments
Non-current financial receivables and other assets
Total financial receivables and cash
Total net financial (liquidity)/debt position
12/31/2016
12/31/2015
642.1
35.7
5,946.0
6,623.8
5,297.8
15.1
1,275.7
6,588.6
(1,533.0)
(1,110.0)
(48.6)
(30.0)
(3.7)
(95.7)
(78.2)
(11.9)
(6.8)
(50.7)
(1,711.0)
(1,257.6)
4,912.8
5,331.0
The structure of the gross financial debt, which amounted to euro 6,623.8 million, was as follows:
(in millions of euro)
Use of senior facilities
Bond 1,750% - 2014/2019
EIB loans
Schuldschein
Other loans
Total gross debt from continuing operations
Financial
Statements
12/31/2016
5,280.7
600.0
50.0
5.0
688.1
6,623.8
Maturity date
2017
2018
2019
2020
2021 and
beyond
176.4
1,829.5
1,386.1
352.8
1,535.9
-
20.0
5.0
470.0
671.4
10.1%
-
20.0
-
207.4
2,056.9
31.1%
600.0
10.0
-
1.7
1,997.8
30.2%
-
-
-
7.3
360.1
5.4%
-
-
-
1.7
1,537.6
23.2%
It is to be noted that following the merger of Marco Polo Industrial Holding S.p.A. (“Bidco”) into Pirelli
& C. S.p.A. which took place on June 1, 2016, the secured bank debt contracted by Bidco ("Bidco
Facility") was incorporated into Pirelli & C. S.p.A.
Subsequently on July 25, 2016 (the signing date) the Pirelli Group proceeded to refinance both the bank
debt which existed prior to the merger, as well as the Bidco Facility debt which was cancelled on July
28 2016 (the closing date). The refinanced total amounted to euro 6.4 billion and was achieved at the
lower overall cost of less than 3.5%. The operation consisted of secured syndicated refinancing for a
total amount of euro 4.8 billion maturing in three and five years, and a secured line of credit for euro 1.6
billion with an eighteen month expiry, the result of a club deal with a select number of lending
institutions. Due to the aforesaid operation, Pirelli reimbursed the Bidco Facility and cancelled the
Mergeco Facility loan made available to the company by a syndicate of banks as part of the Public Offer
made to Pirelli by Marco Polo Industrial Holding S.p.A.
2016 ANNUAL REPORT
At December 31, 2016, the Group had a liquidity margin equal to euro 2,581.6 million composed of
euro 1,000.0 million in the form of a non-utilised nominal line of credit (a contractual Senior Facilities
for the total amount of euro 6,289.8 million at December 31, 2016 following the partial reimbursement
of the line of credit facility of euro 1,600.0 million at the end of December 2016), and euro 1,581.6
million in cash and cash equivalents and securities held for trading.
33
The performance in cash flows for the period was as follows:
(in millions of euro)
2016
1 Q
2015 Pirelli
Group reported
adjusted
2016
2 Q
2015 Pirelli
Group reported
adjusted
2016
3 Q
2015 Pirelli
Group reported
adjusted
2016
4 Q
2015 Pirelli
Group reported
adjusted
2016
TOTAL
2015 Pirelli
Group reported
adjusted
Adjusted operating income (loss)
Amortisation and depreciation (excl. PPA amortisation)
Investments in property, plant and equipment and intangible
assets
Change in working capital/other
Operating net cash flow
Financial income/(expenses)
Tax expenses
Ordinary net cash flow
Financial (investments) / disinvestments
Disposal of real estate
Disposal of investments
Dividends paid to non-controlling interests
Cash Out for non-recurring and restructuring expenses
Reversal of impairment in Venezuela included in financial
expenses
Reversal of release of the provision for deferred tax liabilities
included in tax expenses
Financial expenses included in the acquisition debt
Deferred taxes included in tax expenses
Exercise of Fenice share options
Reversal of Bidco Facility costs post-merger / other
adjustments of refinancing included in financial
expenses/income
Differences from foreign currency translation/other
Net cash flow before dividends paid / extraordinary
transactions
Dividends paid by Parent Company
Impact Steelcord disposal
Impact from deconsolidation of the Venezuelan subsidiary
Change NFP Bidco from 01/01 to 05/31
Proceeds from the disposal of 38% Pirelli Industrial to Cinda
Bidco Facility costs post-merger / adjustments of refinancing
Impact from NFP of Aeolus Car
Net cash flow
217.1
72.9
(74.0)
(715.9)
(499.9)
(82.7)
(27.2)
(609.8)
(5.2)
-
-
-
(19.5)
-
-
-
-
-
-
(70.1)
(704.6)
-
-
-
-
-
-
-
(704.6)
215.0
76.9
(85.6)
(895.2)
(688.9)
(52.1)
(54.1)
(795.1)
(14.4)
-
-
(7.6)
(6.4)
-
-
-
-
-
-
45.8
(777.7)
-
24.4
-
-
-
-
-
(753.3)
215.1
73.6
(82.0)
101.4
308.1
(198.1)
(25.9)
84.1
-
-
11.1
(2.4)
(11.4)
-
-
122.2
-
-
-
(33.1)
170.5
-
-
-
(134.3)
-
-
-
36.2
239.5
78.2
(103.2)
151.6
366.1
(61.3)
(63.7)
241.1
(0.4)
-
-
(2.5)
(2.6)
14.2
-
-
-
-
-
(37.4)
212.4
(179.5)
35.6
-
-
-
-
-
68.5
222.8
70.6
(82.4)
(51.7)
159.3
(102.6)
(28.6)
28.1
-
16.1
-
-
(8.8)
-
(22.1)
-
-
-
-
13.7
27.0
-
-
-
-
-
-
-
27.0
207.3
76.5
(73.0)
(113.7)
97.1
(67.1)
(52.4)
(22.4)
-
-
-
-
(3.7)
9.1
-
-
-
(12.2)
-
22.5
(6.7)
-
(14.4)
-
-
-
-
-
(21.1)
241.6
69.5
(133.8)
737.9
915.2
(56.9)
(34.6)
823.7
(1.5)
75
97.9
0.3
(17.4)
-
(7.4)
-
-
-
23.0
(103.4)
262.9
86.4
(129.6)
707.4
927.2
(147.7)
(119.9)
659.5
6.6
-
-
-
(15.4)
0.7
-
-
107.6
-
-
5.1
890.2
764.1
-
(277.7)
266.0
(23.0)
(73.6)
1,059.6
-
-
-
486.4
896.6
286.6
(372.2)
71.7
882.7
(440.3)
(116.3)
326.1
(6.7)
91.1
109.0
(2.1)
(57.1)
924.7
318.0
(391.4)
(149.9)
701.4
(328.2)
(290.1)
83.1
(14.8)
-
-
(10.1)
(28.1)
-
24.0
(29.5)
122.2
-
-
23.0
(192.9)
383.1
-
-
-
(134.3)
266.0
(23.0)
(73.6)
418.2
-
-
107.6
(12.2)
-
36.0
192.1
(179.5)
45.6
(277.7)
-
-
-
-
(219.5)
The improvement in indebtedness to the amount of euro 418.2 million was mostly due to:
•
to the elevated level of cash flow generation (euro 326.1 million after financial and tax expenses
compared to euro 83.1 million for 2015);
to the cash-in amount (euro 266 million) resulting from the entry of the Chinese Cinda fund
payment into the capital of Pirelli Industrial S.r.l. for the 38% acquired. This operation was part of a
larger project aimed at the reorganisation and integration of the industrial business.
•
2016 ANNUAL REPORT
In more detail, the operating net cash flow for 2016 was positive and amounted to euro 882.7 million
(euro 701.4 million for 2015) after having sustained investments which amounted to euro 372.2 million
(euro 391.4 million for 2015), which were mainly aimed at increasing the Premium segment capacity in
Europe, NAFTA and China and at improvement of both the mix and quality.
The improvement in the net cash flow from operating activities, as compared to 2015, was mainly due
to the management of working capital.
34
Total net cash flow before dividends paid and extraordinary transactions arising from the merger
with Marco Polo Industrial Holding S.p.A. and from the reorganisation of the Industrial business was
positive to the amount of euro 383.1 million, compared to euro 192.1 million for 2015. This cash flow
was impacted by, in addition to the aforementioned improvement in operating performance, by the sale
of certain investments and property assets for euro 200.1 million (disposal of the investment held by
Eurostazioni S.p.A. in Grandi Stazioni Retail S.p.A., and the disposal of the stake in Greentech Energy
System A/S and the sale of property), which more than offset the higher restructuring expenses (euro
57.1 million) and other negative components (euro 86 million the exchange rate delta and more).
Total net cash flow was positive to the amount of euro 418.2 million and included the cash in amount
of euro 266 million from the disposal of 38% of Pirelli Industrial S.r.l. to the Chinese Cinda fund which
allowed the Company to cover:
•
•
euro 134.3 million in increased debt held by Marco Polo Industrial Holding S.p.A. as at the
beginning of the year at the time of the merger
euro 96.6 million of further negativity of which euro 73.6 million was relative to the net debt
of the Jiaozuo Aeolus Tyre Co., Ltd. of which 80% had been acquired by Pirelli as of
October 1, 2016.
For 2015 the total cash flow was negative to the amount of euro 219.5 million, due to the
deconsolidation of the Venezuelan subsidiary (euro -277.7 million), to dividends paid by the Group
(euro -179.5 million), and to the completion of the disposal of the Steelcord business (euro +45.6
million).
2016 ANNUAL REPORT
CONSUMER BUSINESS
The table below shows the results as compared with the corresponding period for 2015:
(in millions of euro)
1 Q
2 Q
3 Q
4 Q
TOTAL
2016
2015 (Pirelli Group)
excl. Venez.
reported
2016
2015 (Pirelli Group)
excl. Venez.
reported
2016
2015 (Pirelli Group)
2016
excl. Venez.
reported
2015 (Pirelli Group)
excl. Venez.
reported
2016
2015 (Pirelli Group)
excl. Venez.
reported
35
1,177.6
1,237.4
1,303.9
1,241.7
1,284.3
1,314.4
1,191.1
1,239.9
1,284.5
1,202.4
1,286.6
5,068.5
4,812.8
5,048.2
Net sales
yoy (excluding Venezuela)
1,165.7
-1.0%
Gross operating margin before non-recurring and restructuring
expenses
Adjusted operating income (loss)
% of net sales
% of net sales
Amortisation of intangible fixed assets included in PPA
Non-recurring and restructuring expenses
Operating income (loss)
% of net sales
263.3
22.6%
201.2
17.3%
(26.2)
(10.8)
164.2
14.1%
239.5
20.3%
179.0
15.2%
(1.6)
(1.6)
175.8
14.9%
246.3
19.9%
183.6
14.8%
(1.6)
(1.6)
180.4
14.6%
5.0%
270.2
20.7%
207.6
15.9%
(26.1)
(7.3)
174.2
13.4%
266.6
21.5%
203.4
16.4%
(1.5)
(1.5)
200.4
16.1%
276.8
21.6%
211.5
16.5%
(1.5)
(1.5)
208.5
16.2%
10.4%
273.0
20.8%
213.6
16.3%
(26.1)
(8.9)
178.6
13.6%
247.6
20.8%
186.2
15.6%
(1.5)
(3.1)
181.6
15.2%
255.9
20.6%
191.9
15.5%
(1.5)
(3.2)
187.2
15.1%
6.8%
287.0
22.3%
228.3
17.8%
(26.2)
(26.1)
176.0
13.7%
5.3%
1,093.5
21.6%
850.7
16.8%
266.5
22.2%
211.8
17.6%
305.4
23.7%
235.4
18.3%
1,020.2
1,084.4
21.2%
21.5%
780.4
16.2%
822.4
16.3%
(1.6)
(1.6)
(104.6)
(6.2)
(6.2)
(47.1)
(47.0)
(53.1)
(53.3)
(53.3)
163.1
13.6%
186.8
14.5%
693.0
13.7%
720.9
15.0%
762.9
15.1%
Net sales totalled euro 5,068.5 million, with an organic growth on a like-for-like basis of +8.2%,
otherwise +5.3% also including the negative exchange rates impact (-4.4%) and the positive change in
scope of +1.5% due to the reorganisation of the business (with controlled distribution included entirely
in the Consumer segment), thanks to:
•
improvement of the price/mix (+4.7%) linked to the increasing proportion of Premium (64.0% of
Consumer revenues in 2016 compared to 61.5% in 2015), to higher sales in the Replacement
channel and to price increases in emerging markets to offset the exchange rates and inflation trends;
positive contribution of the volumes component at +3.5% (+4.8% for the fourth quarter) which was
linked to the sustained growth in NAFTA, MEAI, APAC, and Europe, while South America and
Russia were affected by the general market downturn, even with the partial recovery in the fourth
quarter.
•
Premium revenues amounted to euro 3.244.6 million, representing a growth of +12.3% net of the
exchange rate effect, (with a total growth of +9.7%) thanks to the excellent performance of sales in
Europe, North America and APAC as a result of continuous product innovation and increased
penetration of the market due to the increase in the number of sales outlets in all geographical areas.
The analysis of the change in net sales is as follows:
2016
1.7%
of which Premium volume
11.7%
Volume
Price/mix
Change on a like-for-like basis - same scope of consolidation
Change in scope of consolidation Consumer/Industrial
Translation effect
Change (before impact of Venezuela)
Change in scope of consolidation - Venezuela
Total change
5.2%
6.9%
-0.3%
-7.6%
-1.0%
-4.8%
-5.8%
1 Q
2 Q
3 Q
4 Q
2015
0.4%
10.0%
4.7%
5.1%
4.5%
9.6%
2016
2.1%
15.0%
5.8%
7.9%
4.6%
-7.5%
5.0%
-3.5%
1.5%
2015
2.2%
11.0%
4.1%
6.3%
4.5%
10.8%
2016
5.5%
15.9%
4.5%
10.0%
2.2%
-1.8%
10.4%
-4.4%
6.0%
2015
-1.4%
12.2%
7.8%
6.4%
-1.1%
5.3%
2016
4.8%
14.1%
3.4%
8.2%
-0.8%
-0.6%
6.8%
-7.0%
-0.2%
2015
-0.1%
18.3%
14.1%
14.0%
-1.5%
12.5%
Cumulative at 12/31
2016
2015
3.5%
14.2%
4.7%
8.2%
1.5%
-4.4%
5.3%
-4.9%
0.4%
0.3%
12.7%
7.6%
7.9%
1.6%
9.5%
2016 ANNUAL REPORT
There was improvement in profitability for 2016 with an adjusted operating income (loss) of euro
805.7 million (+9.0% for 2015 on a like-for-like basis) and a margin of 16.8% (16.2% for 2015), thanks
to the positive contribution of internal levers (price/mix, volumes and efficiencies) which largely
compensated inflation, the higher amortisations, depreciations and other costs connected to the
development of the Premium segment and to the growth of territorial coverage.
36
Operating income (loss) amounted to euro 693.0 million (with a margin of 13.7%), impacted by non-
recurring and restructuring expenses of euro 53.1 million and the amortisation of intangible assets
included in the PPA which amounted to euro 104.6 million.
For 2015 the operating income (loss) amounted to euro 720.9 million (with a margin of 15.0%),
impacted by non-recurring and restructuring expenses of euro 53.3 million and the amortisation of
intangible fixed assets included in the PPA which amounted to euro 6.2 million.
INDUSTRIAL BUSINESS
The table below shows results as compared with 2015:
(in millions of euro)
1 Q
2 Q
3 Q
4 Q
TOTAL
2016
2015 (Pirelli Group)
excl. Venez.
reported
2016
2015 (Pirelli Group)
excl. Venez.
reported
2016
2015 (Pirelli Group)
2016
excl. Venez.
reported
2015 (Pirelli Group)
excl. Venez.
reported
2016
2015 (Pirelli Group)
excl. Venez.
reported
Net sales
yoy (excluding Venezuela)
Gross operating margin before non-recurring and restructuring
expenses
Adjusted operating income (loss)
% of net sales
% of net sales
Amortisation of intangible fixed assets included in PPA
Non-recurring and restructuring expenses
Operating income (loss)
% of net sales
269.4
-15.3%
26.9
10.0%
16.4
6.1%
(0.3)
(4.5)
11.6
4.3%
317.9
327.9
45.0
14.2%
31.4
9.9%
-
(0.4)
31.0
9.8%
47.2
14.4%
33.3
10.2%
-
(0.4)
32.9
10.0%
227.9
-27.8%
18.9
8.3%
8.1
3.6%
(0.3)
(0.9)
6.9
3.0%
315.5
324.1
249.6
-13.5%
288.4
291.4
-
240.8
9.9%
219.1
309.2
39.9
12.6%
27.7
8.8%
-
-
27.7
8.8%
42.3
13.1%
29.7
9.2%
-
-
29.7
9.2%
20.5
8.2%
9.5
3.8%
(0.3)
(2.8)
6.4
2.6%
27.9
9.7%
16.1
5.6%
-
(0.7)
15.4
5.3%
29.5
10.1%
17.4
6.0%
-
(0.6)
16.8
5.8%
24.7
10.3%
14.1
5.9%
(0.3)
(5.1)
8.7
3.6%
987.7
-13.4%
91.0
9.2%
48.1
4.9%
1,140.9
1,252.6
142.3
12.5%
88.4
7.7%
165.1
13.2%
110.6
8.8%
29.5
13.5%
13.2
6.0%
46.1
14.9%
30.2
9.8%
-
-
(1.2)
-
-
(11.9)
(12.0)
(13.3)
(13.0)
(13.0)
1.3
0.6%
18.2
5.9%
33.6
3.4%
75.4
6.6%
97.6
7.8%
Industrial business performance was impacted by the continued negative economic conditions in South
America (the region constitutes 50% of business turnover), in particular the drop in the Brazilian GDP
which was forecast to decline by approximately -3.5% for 2016 (following the -3.8% recorded in 2015),
while the decline in industrial production and the rise in unemployment continued. In this context,
demand in the truck and agro market suffered a further contraction of volumes in 2016 with declines
respectively of –29% in truck Original Equipment and –2% in truck Replacement.
Net sales totalled euro 987.7 million, a decline of -13.4% compared to 2015 (euro 1.140.9 million
excluding Venezuela), with an organic growth of +2.6% net of both the exchange rate effect (-9.9%)
and the change of scope (-6.1%) relative to the reorganisation of the business (with controlled
distribution included entirely in the Consumer segment).
The decline in volumes (-3.8% for the financial year, +6.5% for the fourth quarter) was impacted by the
aforementioned decline in the Latin American markets and the slowdown of the Chinese market.
There was a positive performance in the price/mix component (+6.4%) thanks to the improvement in the
product and channel mix, and to price increases progressively implemented during the course of 2015
and continued with in 2016 in South America and other emerging markets characterised by the
devaluation of local currencies.
2016 ANNUAL REPORT
The analysis of the change in net sales is as follows:
1 Q
2 Q
3 Q
4 Q
Cumulative at 12/31
37
Volume
Price/mix
Change on a like-for-like basis - same scope of consolidation
Change in scope of consolidation Consumer/Industrial
Translation effect
Change (before impact of Venezuela)
Change in scope of consolidation - Venezuela
Total change
2016
-10.1%
9.1%
-1.0%
1.1%
-15.4%
-15.3%
-2.5%
2015
-6.7%
-0.1%
-6.8%
3.0%
2016
-4.5%
6.3%
1.8%
-18.1%
-11.5%
-27.8%
-1.9%
2015
-4.7%
1.3%
-3.4%
-4.4%
2016
-3.8%
3.9%
0.1%
-9.0%
-4.6%
-13.5%
-0.8%
2015
-9.7%
4.8%
2016
6.5%
5.6%
-4.9%
12.1%
-14.4%
4.3%
-6.5%
9.9%
-32.0%
-22.1%
2015
-10.5%
15.4%
4.9%
-14.9%
2015
-7.9%
5.3%
-2.6%
-7.7%
2016
-3.8%
6.4%
2.6%
-6.1%
-9.9%
-13.4%
-7.7%
-10.0%
-21.1%
-10.3%
-17.8%
-3.8%
-29.7%
-7.8%
-14.3%
-19.3%
Adjusted operating income (loss) amounted to euro 48.1 million, equal to 4.9% of sales, which
represented a decrease compared to the euro 88.4 million recorded for 2015 (7.7% of sales) on a like-
for-like basis. This performance was impacted, in addition to the aforementioned fall in volumes, by raw
materials, exchange rates and inflation.
Operating income (loss) amounted to euro 33.6 million (euro 75.4 million for 2015 on a like-for-like
basis), with a margin of 3.4% compared to 6.6% for 2015. Profitability performance was impacted by
the decline in volumes, the higher cost of raw materials and the negative exchange rates effect.
There was a significant improvement in the performance of the business in the fourth quarter with a
growth of +12% in revenues, supported by the recovery of business in South America, and a
profitability of +6%.
2016 ANNUAL REPORT
38
Research and Development Activities
Pirelli has always placed the ability to innovate products, processes and materials at the centre of its
growth strategy.
Research and development expenses for 2016 totalled euro 228.1 million corresponding to 3.8% of sales
of which euro 191.0 million were earmarked for the Premium business (5.9% of Premium revenues).
Research and development activity focused on high end range products and with significant results, with
over 200 newly achieved approvals and certifications obtained from the main prestige and premium
manufacturers which took the Pirelli portfolio to the top of range, exceeding 1900 homologations.
The new P ZERO™ was launched during 2016, and is an exclusive Ultra High Performance product
which combines the experience acquired by Pirelli through Motorsports competition as well as through
its collaboration with the best car manufacturing houses, guaranteeing the perfect solution for the
performance of each car. This new tyre, presented at the Estoril circuit in Portugal, has been fitted to
many of the most powerful and fascinating cars in the world. Pirelli developed the unique technological
characteristics of the P ZERO ™ in three different versions in order to guarantee the perfect solution for
many different car models including luxury sedans, sports cars and super cars.
Even the Cinturato range was enriched in 2016 to produce a new model, the Cinturato Winter. This is a
winter tyre that provides for maximum performance on wet and snow covered surfaces thanks to a series
of new ideas implemented during the project. The new Cinturato Winter comprises three important
innovations, which can be summed up under Active Safety: the first is the Snow Wear Indicator. The
English phrase "Now Snow", has been engraved into one of the tyre slats. The letter "w", however, is
less deep than the others and when the tyre wear exceeds the limit of 4 mm the sentence will simply
read "No Snow", indicating that it is necessary to replace them. The second new feature is the Water
Escape Accelerator — namely, new channels that allow the tread pattern to more efficiently convey
water away from the sides of the car.
According to data presented by Pirelli, the water displacement capacity of these tyres has increased by
76%, with an additional consequential reduction of the hydroplaning phenomenon by 8%. Finally, the
third feature includes the new 4D tyre slats, which compress during braking improving braking capacity,
while during acceleration, the tyres widen thereby increasing their capacity to displace water or snow.
With regards to the motorcycle business, Metzeler, thanks to their efforts and developments brought
about by their experience with competitive road racing, launched two new tyres suited to the race track:
the RACETEC™ RR SLICK designed for the Superbike class of the various international/national
championships and for the same Superbike class for road racing, and the RACETEC™ RR COMPK
SLICK tyre made from a more versatile compound mix designed to deliver higher mileage, which is
therefore more suitable for training on the track as well as for amateur or recreational use. In April the
ROADTEC™ 01, was presented which is a brand new METZELER brand Sport Touring Radial
designed to provide motorbike riders with a high level of grip in different climatic conditions. Two new
products, the ANGEL™ SCOOTER and the DIABLO ROSSO™ SCOOTER were also introduced to
the market, which feature a wide and comprehensive range of sizes, and which will, during the course of
2017 gradually replace and expand the current DIABLO™ and ANGEL™ SCOOTER range on offer.
These tyres are dedicated to those who use a scooter all year round, not only in an urban environment
but also with a passenger. These tyres suit situations that require durability, comfort, safety when
braking, easily handling and predictable behavior in all conditions, even wet conditions.
2016 ANNUAL REPORT
39
The DIABLO ROSSO™ SCOOTER is inspired by the DNA of the DIABLO™ family, in particular by
the DIABLO ROSSO™ range which represents the super sport range of Pirelli tyres. This tyre derives
its tread pattern from another pillar of the Pirelli range, the DIABLO ROSSO™ III, which made its
debut this year and which immediately garnered the admiration of so many motorcyclists worldwide.
Instead as part of the Industrial business Pirelli presented the Pirelli MC: 01 suitable for city use -
developed for the latest generation Iveco bus - and which allows high mileage and a low rolling
resistance, resulting in reduced fuel consumption. At the international Bus Expo in Rimini, Italy, in
addition to the MC: 01, Pirelli presented the H:01 Coach line for long range passenger transport. This is
a tyre designed with a load index in line with the requirements of the latest generation of vehicles and
comprises all the best features for travelling in maximum safety thanks to the improvement in steering
wheel response, to its trajectory precision and its wet road grip. Further recognition of the high quality
and reliability of Pirelli tyres for heavy vehicles was demonstrated with the forty new homologations for
MAN trucks & buses in Europe. The agreement focuses primarily on the 01 Series which is the the
latest in the Pirelli product line. From the R:01 designed for use on regional roads, to the G:01which is
ideal for vehicles used in quarrying and construction, and even the MC: 01 for urban use.
Pirelli tyres from the :01 Series are at the top of the range in all existing performance classes and carry
the European certification label for tyres which means, security, lower CO2 emissions and low rolling
resistance. At the Trade Fair in Essen, Germany the new regional R:01 Triathlon tyre intended for the
European market was also presented.
Pirelli Research and Development enabled the Group to initiate the Total Safety System project during
the course of the year, which is part of the activities related to the development of a new generation of
tyres based on the concept of "Total Safety". The project received a non-repayable grant from the
Lombardy region of euro 1.9 million.
In May, Pirelli was awarded the Oscar Masi Prize for industrial innovation for 2016, organised by AIRI,
the Italian Association for Industrial Research. This prestigious recognition was awarded to Pirelli
researchers for the "CVA Prototype: Automatic Visual Tyre Inspections" project, a system which
provides for the automatic visual inspection of the quality of the finished product through the use of
innovative technologies such as artificial vision and automation.
The project was developed in collaboration with major Universities such as the Information Technology
Department in Science and Engineering at the University of Bologna and the Department of Automation
and Information Technology at the Polytechnic University of Turin, as proof of the growing support that
Pirelli provides for the world of Italian research.
In Motorsport, where Pirelli's presence in the racing world comprises more than 300 championships in
40 countries, Pirelli renewed their agreement as the sole supplier of tyres to the FIA Formula 1 World
Championship for another three year term, until 2019. In this context, Pirelli and FIA, in collaboration
with their teams, reached a major agreement in making changes to the technical regulations. In 2017 in
fact, new technical regulations will come into force which will include significant modifications to the
chassis and increases in tire width.
This experience with Formula 1 has allowed Pirelli to develop new simulation models within their R&D
department that allows further reduction of the 'time-to-market' process and an improvement in the
quality of road product designs, rendering them better performing consistent with the highest of
requirements, as well as the improvement of their understanding of dynamics, based on functioning
temperatures and the behaviour of materials.
2016 ANNUAL REPORT
Parent Company Highlights
The table below shows a summary of the main Income Statement
and Statement of Financial Position figures:
(in millions of euro)
Operating income (loss)
Financial income / (expenses)
Net income (loss) from equity investments
Tax expenses
Net income (loss)
Financial assets
Equity
Net financial (liquidity)/debt position
40
12/31/2016
63.2
12/31/2015
(2.4)
(236.9)
172.5
69.7
68.5
5,146.3
3,206.2
3,658.6
(13.9)
122.3
(107.7)
(1.7)
1,475.3
1,913.9
(346.7)
The operating income (loss) mainly includes gains on the disposal of buildings (euro 29.4 million) in
Milan, Italy used for R&D for euro 27.2 million, and in San Donato Milanese, Italy for euro 2,2 million,
in addition to the increase reported for structural reorganisation and the consequent expansion of
services rendered to the Italian subsidiaries of the Group.
The item financial income (expenses) essentially comprises financial expenses related to the term loan
for euro 65.2 million in addition to the euro 167.4 million deriving from the use of the secured bank
facility, closed on July 28, 2016, contracted and subscribed to by Marco Polo Industrial Holding S.p.A.
with a syndicate of banks to finance the acquisition of the Pirelli Group.
The item income (loss) from equity investments includes:
• Eurostazioni dividends (euro 52.1 million for 2016 compared to euro 1.7 million for 2015) and
the extraordinary distribution by the same of capital and reserves for euro 48.2 million;
• Pirelli Tyre S.p.A. dividends (euro 169 million compared to euro 163 million for 2015);
• decreased dividends which amounted to euro 9.8 million which was almost unchanged
compared to 2015;
• losses connected to the valuation of investments (euro 107.2 million compared to euro 52.3
million for 2015) mainly refer to the investment in Eurostazioni S.p.A. (euro 46.7 million), in
Prelios S.p.A (euro 28.3 million) and in Fenice S.r.l. (euro 19.1 million).
Taxes for the 2016 financial year mainly included corporate income tax (IRES) from consolidation
which was positive to the amount of euro 54.4 million, while for 2015 the item included losses for euro
103.0 million related to the impairment of deferred tax assets on tax losses directly attributable to the
revision of forecasts for the future taxable income of the companies participating in Italian tax
consolidation, for which a significant reduction in taxable income was expected due to the new
financial structure that the Group would take on consequent to the reverse merger with Marco Polo
Industrial Holding S.p.A. which took place during the first half of 2016.
2016 ANNUAL REPORT
Below is a summary table of the values of the main financial assets at December 31, 2016:
41
(in millions of euro)
Equity investments in subsidiaries
- Pirelli Tyre S.p.A.
- Pirelli Ltda - Brasil
- Pirelli & C. Ambiente S.r.l.
- TP Industrial S.p.A. (ex Pirelli Labs S.p.A.)
- Pirelli UK Ltd
- Pirelli Group Reinsurance Company S.A.
- Pirelli Servizi Amministrazione e Tesoreria S.p.A.
- Other
Total equity investments in subsidiaries
Equity investments in associates and other financial assets
- Eurostazioni S.p.A.
- Prelios S.p.A.
- Fenice S.r.l.
- Focus
- Mediobanca S.p.A.
- RCS Mediagroup S.p.A.
- Fin. Priv. S.r.l.
- Real Estate Investment Fund - Anastasia
- European Institute of Oncology (Istituto Europeo di Oncologia S.r.l.)
- Other
Total equity investments in associates and other financial assets
Total financial assets
12/31/2016
4,521.8
9.7
-
364.3
21.9
6.3
3.2
3.5
4,930.7
6.3
13.6
9.1
4.0
122.2
19.3
16.5
14.6
6.2
3.8
215.6
5,146.3
2016 ANNUAL REPORT
Equity increased from euro 1,913.9 million to euro 3,206.2 million, due above all to the merger with
Marco Polo Industrial Holding S.p.A. as per the following table:
42
(in millions of euro)
Equity at 12/31/2015
Net income (loss)
Merger with Marco Polo Industrial Holding S.p.A.
Gains/(losses) recognised directly in Equity
Equity at 12/31/2016
1,913.9
68.5
1,244.2
(20.5)
3,206.2
The table below shows the composition of equity at December 31, 2016 and the comparison with the
previous financial year:
(in millions of euro)
Share capital
Legal reserve
Business combination reserve
IAS reserve
Retained earnings
Merger reserve
Net icome (loss)
12/31/2016
12/31/2015
1,342.3
152.1
12.4
80.2
305.4
1,245.3
68.5
3,206.2
1,343.3
152.1
12.4
96.5
311.3
-
(1.7)
1,913.9
2016 ANNUAL REPORT
Risk Factors and Uncertainty
43
Volatility in the macroeconomic context, financial market instability, the complexity of management
processes and continuous legislative and regulatory developments demands the renewed capacity to
protect and maximise the tangible and intangible sources of value that characterise the corporate
business model. Pirelli has adopted a proactive risk governance model, which through the systematic
identification, analysis and assessment of risk areas is able to provide the Board of Directors and
Management with the tools needed to anticipate and manage the effects of these risks.
The Pirelli Risk Model systematically assesses three categories of risk:
1. External risks
Risks which occur outside the sphere of influence of the company. This category includes risks
related to macroeconomic trends, changes in demand, competitor strategies, technological
innovation, the introduction of new rules and regulations, and country-specific risks (economic,
security related, political and environmental risks).
2. Strategic Risks
Risks that are typical for a specific business sector, for which proper management is a source of
competitive advantage, or on the contrary, the cause for the failure to achieve financial
objectives. This category includes risks linked to markets, product innovation and development,
human resources, raw material costs, production processes, financial risks and risks connected to
merger and acquisition operations.
3. Operational Risks
Risks generated by the organisation and by corporate processes, whose occurrence do not
necessarily result in any kind of competitive advantage. These types of risks include information
technology, business interruption, legal & compliance, health, safety & environment and
security related risks.
Transverse to the aforesaid risks are corporate social responsibility risks, environmental and
business ethics risks.
These are risks associated with the non-compliance with local and international regulations and
corporate policies regarding respect for human and labour rights, the environment and business ethics
and can be generated both by the organisation and as part of its relative value chain, as well as within
the supply chain. These risks in turn can lead to reputational risks.
Reputational risks are related to actions or events that could cause a negative perception of the company
on the part of its major stakeholders. The main areas of risk in this category are, in addition to the
aforementioned risks related to corporate social-environmental responsibility and to business ethics, as
well as to the inherent risks of leadership, and the quality and level of product innovation.
System of risk management and internal control relative to the financial reporting process
The company has implemented a specific and detailed system of risk management and internal control,
supported by the application of dedicated information technology in the preparation of the annual and
separate consolidated Financial Statements.
2016 ANNUAL REPORT
44
In general, the internal control system implemented by the company aims to ensure the safeguarding of
the company's equity, the compliance with laws and regulations, the efficiency and effectiveness of
corporate operations as well as the reliability, accuracy and timeliness of financial reporting.
In particular, the process of preparing financial reports takes place through the appropriate
administrative and accounting procedures that have been drawn up in accordance with criteria
established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organisations of the Treadway Commission.
The administrative/accounting procedures for the preparation of Financial Statements and all other
financial reports are prepared under the responsibility of the Chief Financial Officer, who periodically
attests to (in any case, in the annual/consolidated Financial Statements) their adequacy and effective
application.
In order to enable the attestation by the Chief Financial Officer, the companies and the relevant
processes that feed and generate the data for the Income Statement, the Statement of Financial Position
or the Financial Statements have been mapped. The identification of companies that belong to the Group
and the relevant processes is carried out annually on the basis of quantitative and qualitative criteria.
The quantitative criterion involves the identification of the Group companies which, in relation to the
selected processes, represent an aggregate value which exceeds a certain threshold of materiality.
Qualitative criteria involve the examination of processes and companies which, in the opinion of the
Chief Executive Officer may present potential areas of risk despite not falling within the aforesaid
quantitative parameters.
For each selected process, the risk/control objectives associated with the preparation of the Financial
Statements and any related disclosures, as well as to the effectiveness/efficiency of the internal control
system in general, have been identified.
For each control objective, specific verification procedures have been implemented and specific
responsibilities have been assigned.
A supervisory system has been implemented on the controls carried out by way of a mechanism of chain
attestations. Any problems that emerge within the evaluation process are subject to action plans whose
implementation is verified in subsequent closings.
The quarterly issue of a declaration of the reliability and accuracy of the data supplied for the purposes
of preparing the Group's consolidated Financial Statements is also ultimately provided by the Chief
Executive Officer and the Chief Financial Officer of each subsidiary.
In the lead up to the dates of the Board of Directors' Meeting which approve the consolidated data at
June 30 and December 31st, the results of the verification procedures are discussed by the Chief
Financial Officer and the Chief Financial Officers of the Group subsidiaries.
In summary, a system has been adopted of continuous and systematic controls which provide a
reasonable assurance regarding the reliability of the information reported in the Income and Financial
Statements.
The Internal Audit Department performs regular audits aimed at verifying the adequacy of the design
and effectiveness of the controls on the subsidiaries, as well as the sampling procedures, selected on the
basis of materiality criteria.
2016 ANNUAL REPORT
45
1.
External risks
Risks associated with general economic conditions
and changing demand in the medium-term
Pirelli expects an improvement in the growth prospects of the global economy in 2017, driven by a
marked acceleration in the US economy, which should more than offset the slight slowdown in the
European and Chinese economies. Consistent with what has already been highlighted for 2016, global
economic recovery will continue to be patchy, as some emerging markets will continue to be impacted
by a high degree of geopolitical uncertainty, combined with the increasing risk of capital leakage
towards the more mature markets (in particular the United States). Further uncertainty may arise not
only from a worsening of the current slowdown of China's economy (and subsequent repercussions on
the financial markets) but also by the approach of a series of electoral events in Europe and the
uncertainty related to the post-Brexit scenario. In the medium to long-term there remains however a
degree of uncertainty on the possible repercussions of the potentially protectionist measures promised
by the new president of the United States, both in terms of impacts on the domestic market and in terms
of impacts on global trade.
Country Risk
Pirelli has adopted - where appropriate - a local-for-local strategy, creating a productive presence in
rapidly developing countries in order to respond to the local demand with competitive industrial and
logistical costs. This strategy increases the competitiveness of the Group, by also allowing the Group to
overcome the phenomenon of the strengthening of trading blocs, and increasing protectionist measures
(customs barriers or other measures such as technical prerequisites, product certification, and
administrative costs related to import procedures, etc.).
In the context of this strategy, Pirelli operates in countries (Argentina, Brazil, Mexico, Russia, China,
Egypt, and Turkey) where the general economic and political situation and tax regime may prove
unstable in future.
In fact, structural elements of risk persist in the in the northern part of Africa especially in Egypt, where,
to date, political and social instability is still high, and has led over the past few years, to an alteration in
normal market dynamics and, more generally, in the operating conditions of business. Added to this
scenario of uncertainty, is the recent political instability in Turkey, whose medium to long-term
implication remains to this day still very uncertain.
The Group constantly monitors the changes in risks (political, economic/financial and security related
risks) connected to the countries in which it operates in order to continue to adopt timely (and if
possible advance) measures to mitigate the potential impacts of changes arising at local level. Moreover,
in situations of under utilisation of the capacity of some factories, the reallocation of production
between Group plants is possible.
Risks related to changes in demand in the long-term
Over the last few decades, certain social and technological trends have emerged that might potentially
have a material impact in the medium to long-term on the automotive sector, and indirectly on the tyre
market.
2016 ANNUAL REPORT
46
On the one hand, these are represented by growing urbanisation (according to the latest United Nations
estimates, about 70% of the global population will live in urban areas by 2050) and, on the other hand,
by changes in the values and behaviour of younger generations (increase in the average age when a
driver’s license is obtained, loss of importance of owning a car, increased use of various types of car
sharing).
Added to these factors is the increasing spread of information technologies which increasingly
encourages, the use of e-commerce and/or telecommuting, along with frequent regulatory interventions
both in the mature as well as emerging economies, aimed at limiting the presence of polluting vehicles
within and near metropolitan areas. These dynamics may give rise to a change in automotive sector
demand (from changes to vehicle dimensions/types of engine power, to the possible resizing of the car
in accordance with the transportation preferences of citizens), with a potential impact on the dynamics
of the tyre sector.
Pirelli constantly monitors the evolving trends in automotive sector demand by actively participating in
international working groups, such as the group connected to the Sustainable Mobility 3.0 (SMP 3.0)
project sponsored by the World Business Council for Sustainable Development (WBCSD). The
principal aim of SMP 3.0 is to study the possible long-term evolution of urban mobility and to promote
solutions that might improve the social, environmental and economic well-being of the urban
population.
2.
External risks
Risks related to Price Trends and the availability of Raw Materials
Natural rubber, synthetic rubber and raw materials linked to oil (in particular chemicals and carbon
black) will continue to be a factor of uncertainty in the costs structure of the Group, given their strong
volatility in recent years and their impact on the cost of the finished product.
For the main raw materials purchased by the Group, the possible price scenarios are constantly
simulated in relation to the historical volatility and/or the best information available on the market (for
example, forward prices). On the basis of different scenarios, increases in sale prices and/or the different
internal actions for the recovery of costs efficiency (use of alternative raw materials, reduction of
product weight, improvement of the process quality and reduction in waste levels) are identified. This is
necessary to ensure the expected levels of profitability.
Financial Risk
The Group is exposed to financial risks, mainly related to exchange rates, to obtaining financial
resources on the market, to fluctuations in interest rates, to the ability of customers to meet their
obligations to the Group, and to the price of financial assets held as investments. Financial risk
management is an integral part of the Group's business management and is performed centrally in
accordance with the guidelines issued by the Finance Department as part of the risk management
strategies more generally defined by the Managerial Risk Committee.
2016 ANNUAL REPORT
47
Exchange Rate Risk
The geographical distribution of Pirelli's production and commercial activities entails exposure to
exchange rate risks such as transaction risk and translation risk.
Transaction risk is generated by transactions of a commercial and financial nature carried out in
individual companies in currencies other than the functional currency, due to fluctuations in exchange
rates between the time when the commercial/financial relationship originates and the time when the
transaction is settled (collection/payment).
The Group's policy is to minimise the impact of transaction risk linked to volatility, and for this reason
the Group's procedures provide that the Operating Units are responsible for collecting all the relevant
information pertaining to positions subject to transaction risk (mainly represented by receivables and
payables in foreign currency). Coverage is then provided in the form of forward contracts which are
entered into where possible with the Group Treasury.
The positions subject to exchange rate risk are mainly represented by receivables and payables in
foreign currency.
The Group's Treasury is responsible for hedging the resulting net position for each currency and, in
accordance with the established guidelines and restrictions, it provides in turn for the closure of all risk
positions by trading derivative hedging contracts on the market, typically forward contracts.
Furthermore, as part of the one year and three year planning process, the Group formulates exchange
rate forecasts on the basis of the best available information on the market. Any fluctuation in an
exchange rate between the time of planning and the time when a commercial or financial transaction
originates, results in a translation risk on future transactions with respect to the objectives
communicated to the market.
From time to time the Group assesses the opportunity to engage in currency hedging on future
transactions for which it typically makes use of either forward buy or sell operations, or optional
operations such as risk reversal (eg, zero cost collars).
Pirelli owns controlling interests in companies that prepare their Financial Statements in currencies
other than the Euro which is the currency used to prepare the consolidated Financial Statements. This
exposes the Group to currency translation risk, due to the conversion into Euro of the assets and
liabilities of subsidiaries operating in other currencies. The main exposures to currency translation risk
are constantly monitored. It is currently not considered necessary to adopt specific policies to hedge this
exposure.
The 2016 financial year saw significant depreciation of the main currencies of emerging countries which
were of interest to Pirelli against the US Dollar, in particular the Argentine Peso, the Turkish Lira, the
China Yuan Renminbi and the Egyptian Pound. In particular on November 3, 2016, the Egyptian
Central Bank decided to eliminate the peg with the US Dollar at 8.88 Egyptian Pounds per US Dollar
with the subsequent devaluation of the Egyptian Pound.
This general depreciation trend for the currencies of emerging countries was partly due to external
factors - such as the monetary policies of the US Federal Reserve - and specific internal macroeconomic
conditions, which resulted in overall negative conditions for the Group.
2016 ANNUAL REPORT
48
For 2017, Pirelli expects - consistent with the major market players - a continuation of the current trend
of depreciation of the main currencies of emerging countries, once again attributable to the effect of the
change in monetary policies by the US Federal Reserve and to specific elements of country risk. In
particular, the Group expects strong volatility in exchange rate markets and persistent weakness or
further devaluation of the currencies of the emerging countries where Pirelli operates, whether against
the Euro or the US Dollar.
As regards the Euro vs the US Dollar, Pirelli expects a weaker Euro for 2017 on average, compared with
levels at mid-2016. In this case also, there remain important elements of uncertainty, which, amongst
others are, the timing with which the US Federal Reserve will implement the future interest rate hikes
(in the light of the economic policy of the new US administration), plus the choices of the ECB with the
possible further extension of the Quantitative Easing programme to beyond 2017, given the current
signals of economic recovery and inflation from the Eurozone.
Liquidity risk
The principal instruments used by the Group to manage the risk of insufficient available financial
resources to meet the financial and commercial obligations within the terms and deadlines established
are its one year and three year financial plans and its treasury plans. These allow for the complete and
correct detection and measurement of incoming and outgoing cash flows. The differences between the
plans and actual data are constantly analysed.
The Group has implemented a centralised system for the management of cash flows and payments in
compliance with various local currency and tax regulations. Banking relationships are negotiated and
managed centrally, in order to ensure coverage for short and medium-term financial needs at the lowest
possible cost. The procurement of medium and long-term resources on the capital market is also
streamlined through centralised management.
The prudent management of the aforesaid risk requires the maintenance of an adequate level of cash or
cash equivalents and/or highly liquid short-term financial instruments, plus the availability of funds
obtainable through an adequate amount of committed lines of credit and/or the use of the capital market.
In addition to the available portion of the committed line of credit (the revolving credit facility) for a
total of euro 1,000 million which on December 31, 2016 resulted as being completely unused, the Pirelli
Group has resorted to the capital market to diversify both products and deadlines in order to seize the
best opportunities available from time to time.
Interest Rate Risk
Fluctuations in interest rates affect the market value of the financial assets and liabilities of the Group
and the net financial expenses.
Group policy tends to maintain the following ratio between fixed rate and variable rate exposures, in the
order of 70% fixed and 30% variable.
In order to maintain this target ratio, the Group sets up derivative contracts, typically interest rate swaps.
Price Risk Associated with Financial Assets
The Group's exposure to price risk is limited to the volatility of financial assets, such as listed and
unlisted stocks and bonds which represent 1.7% of the Group's total assets. Derivatives are not normally
set up to limit the volatility of these assets.
2016 ANNUAL REPORT
49
Credit Risk
Credit risk represents the Group's exposure to potential losses resulting from the non-fulfilment of the
commercial and financial obligations undertaken by counterparties. As regards these commercial
counterparties, in order to limit this risk, Pirelli has implemented procedures to evaluate customer
potential and financial creditworthiness, and to monitor expected incoming cash flows and to take credit
recovery action if and when necessary.
The aim of these procedures is to define customer credit limits. Further supplies are suspended when
those limits are exceeded. In certain cases customers are asked to provide guarantees. These consist
mainly of bank guarantees issued by parties with the highest credit or personal standing. Less
frequently, mortgage guarantees may be requested.
Other instruments used for commercial credit risk management is the taking out of insurance policies.
As of January 2012, the company signed a master agreement which expired in December 2016, with a
leading insurance company for worldwide coverage (Egypt and Venezuela were excluded from the
policy) for credit risk mainly related to sales on the Replacement channel (with an approximate 65%
acceptance rate in December 2016).
The insurance coverage has been extended to cover 2017. During the course of 2016, the general
situation for trade receivables remained essentially consistent with that at the closing of the previous
financial year. The Group operates only with highly rated financial counterparties for the management
of its temporary cash surpluses or for trading in derivative instruments. Pirelli does not hold public debt
instruments from any European country, and constantly monitors its net credit exposure to the banking
system, and does not hold any significant concentrations of credit risk.
3.
Operational Risks
Risks Related to Environmental Issues
The activities and products of the Pirelli Group are subject to numerous environmental laws that vary
between the countries where the Group operates. These regulations have in common their tendency to
evolve in an ever more restrictive manner, also because of the growing concern of the international
community over the issue of environmental sustainability.
Pirelli expects the gradual introduction of ever stricter laws in relation to the various environmental
aspects on which companies may impact (atmospheric emissions, waste generation, impacts on soil and
water use, etc.) by virtue of which the Group expects to have to continue to make investments and/or
incur costs that may be significant.
With regard to the impacts of climate change: no significant risks have been found in relation to the
production processes or markets in which the Company operates in the short to medium-term. In the
long run, the uncertainties related to climate change should also be taken into consideration in terms of
the possible evolution of the regulatory conditions in both mature and emerging markets, which is in
any case monitored by the company through sensitivity analyses. On the other hand, opportunities
present themselves for the growth in sales of Pirelli Green Performance tyres or products with less
environmental impact, also due to the possible regulatory developments in this regard in many
countries, in the wake of European labelling.
2016 ANNUAL REPORT
50
Employee Health And Safety Risks
The Pirelli Group, in carrying out its activities, incurs expenses and costs for the actions necessary to
ensure full compliance with the obligations provided for by the regulations regarding health and safety
in the workplace. Particularly in Italy the law relating to health and safety at work (Legislative Decree
no. 81/08) and subsequent amendments (Legislative Decree No. 106/09) have introduced new
obligations that have impacted on the management of activities at Pirelli sites, and on the models for
allocating liabilities.
Failure to comply with current health and safety regulations entails criminal and/or civil penalties
against those responsible, but in some cases, the penalties for the violation of regulations are borne by
the Companies themselves in accordance with a European model of objective liability for companies
incorporated in Italy (Legislative Decree No. 231/01).
Defective Product Risk
As with all manufacturers of goods for sale to the public, Pirelli is subject to potential liability claims
related to any alleged defects of the materials sold or may be required to launch recall campaigns for
products. Although in recent years there have been no significant cases and such events are however
covered from an insurance point of view, their occurrence could have a negative impact on the
reputation of the Pirelli brand. For this reason, the tyres manufactured by Pirelli are subjected to careful
quality analyses before being placed on the market, and the entire production process is subject to
specific quality assurance procedures aimed at safety, as well as at constantly elevated performance.
Litigation Risks
In carrying out its activities, Pirelli may become involved in legal, fiscal, commercial or labour law
disputes. The Group adopts the necessary measures to prevent and mitigate any penalties that may result
from such proceedings.
Risks Associated With Human Resources
The Group is exposed to the risk of the loss of human resources in key positions or with critical know
how. To address this risk, the Group adopts remuneration policies that are periodically updated but also
based on changes occurring in the general macroeconomic scenario, as well as on the basis of salary
benchmarks. Also planned are long-term incentive plans and specific non-competition agreements (also
with a retention effect) designed amongst other things, to fit the risk profiles of the activities related to
the business. Finally, specific management policies have been adopted to motivate and retain talent.
Risks Related To Information Systems And Network Infrastructure
With the growing role of information systems in the support of business activities and for the purpose of
achieving their objectives, during 2016 Pirelli also worked intensely to increasingly improve, both in
terms of risk prevention related to the breakdown or malfunction of systems, and in terms of mitigating
any impacts resulting there from. Similarly Pirelli undertook measures to enhance the security of the
corporate network against unauthorised access, as well as to extend and enrich the existing systems of
Business Continuity and Disaster Recovery. More specifically:
•
redundancy solutions for the geographical data network have been planned in order to improve
reliability, thus reducing the risk of possible inefficiency of the same;
2016 ANNUAL REPORT
51
•
•
•
•
•
a new centralised governance solution was implemented for configuring the corporate network and
the application and management of the access rules for its various sections (factory networks, office
networks, external networks);
the procedure for the segregation of different factory networks from the office networks of different
branches of the Group was continued with. Within the factory networks security solutions were
implemented even for individual computers (the Eagle solution);
procedures for the compatibility of the Server and Client environments with the gradual upgrade of
operating systems and infrastructure hardware in order to reduce their vulnerability were also
continued.
the new infrastructure for Disaster Recovery was made operational and began to be activated
gradually as of the beginning of 2017;
for the Cloud environments used, the security architecture was set up in accordance with the
standards of the Group. This architecture was also set up and activated through the Cloud service
providers.
Business Interruption Risks
The territorial fragmentation of the operating activities of the Group and their interconnection, expose it
to risk scenarios that could cause the interruption of business operations for more or less prolonged
periods, with the consequent impact on the operational capabilities and results of the Group itself.
Risk scenarios related to natural events or accidents (fires, floods, earthquakes, etc.), to wilful
misconduct (vandalism, sabotage, etc.), to breakdowns of the auxiliary plants or to the interruption of
the supply of utilities can, in fact, cause significant property damage, and the reduction and/or
interruption of production, particularly if the event concerns high volume or specific product (high-end)
production sites. Pirelli monitors their vulnerability to catastrophic natural events (in particular flood,
hurricane and earthquake) with estimates of any potential damage (based on the given probability of
occurrence) for all the Group's production sites. The analyses confirm the adequate monitoring of
business interruption risks, thanks to a complex series of security measures, systems of prevention of
harmful events and the mitigation of potential impacts on the business, also in light of the current
business continuity plans as well as the insurance policies in place to cover property damage and
business interruption. Regarding earthquake risk, and specifically the facility in Turkey, any particularly
significant seismic events could result in losses exceeding the insured limits resulting in a negative
impact on the operating results.
Even the Pirelli supply chain, with particular attention to Tier-1 suppliers, is subject to assessment
relative to the potential business interruption risks. The Group is carrying out an audit of the
aforementioned suppliers in order to determine a series of mitigation measures to reduce the
vulnerability of the supply chain; particularly the extension of the portfolio of approved plants for each
supplier, the approval of materials/the qualifications of alternative suppliers, and the increased levels of
safety stock for critical materials, etc.
2016 ANNUAL REPORT
52
Reputational risk and corporate social-environmental responsibility
Reputational Risks
Pirelli has developed an ad hoc digital tool for the identification, measurement and management of
reputational risk, which is measured in terms of probability of occurrence and impact on reputation.
Reputational risk is a current or prospective risk that might result in a loss in gains and affect the
propensity to buy due to a negative perception of the Company by one or more stakeholders.
While on the one hand, reputational risk is construed as a possible consequence of the occurrence of an
adverse event related to one of the three aforementioned macro-risk families, on the other hand it is
managed as an independent event precisely because its scope depends on the expectations of the
stakeholders concerned, and the impact of the negative event. The chosen methodology has led to the
identification of a specific set of reputational risks. This mapping derives from an analysis of a series of
internal and external drivers including: negative events with an impact on reputation which have
occurred in the sector worldwide over the last ten years; interviews with external Key Opinion Leaders
on sector trends, especially on aspects of mobility and sustainability; interviews with internal Key
Opinion Leaders with particular reference to the analysis of the probability of the occurrence of the risks
identified.
The risk events identified were then subjected to the qualitative-quantitative assessments of a sample
representative of the general public in the five key Pirelli countries, which led to the definition of the
governance and management structures and the preparation of mitigation and/or crisis management
plans.
Risks in terms of Corporate Social and Environmental Responsibility,
Business Ethics, and Third-Party Audits.
Risk management at Pirelli is enterprise-wide and includes the identification, analysis and monitoring of
environmental, social, economic/financial and business ethics risks that are directly or indirectly
attributable to the company, through Pirelli affiliates or from within relations with them, such as the
sustainability of the supply chain.
Before entering a specific market, ad hoc assessments are carried out in order to assess any political,
financial, environmental and social risks, including those connected with human and labour rights.
Together with constant centralised co-ordination and monitoring, the ongoing verification of the
application of Pirelli's requirements regarding financial, social (especially human and labour rights) and
environmental sustainability and business ethics, occurs through periodic audits commissioned by
Pirelli from specialised independent firms, and through extensive internal audit activities.
Particular attention is dedicated to the sustainability of both Pirelli sites and sites belonging to suppliers
operating in emerging countries.
During 2016 Pirelli again commissioned third-party audits of its suppliers, in addition to continuing the
internal monitoring through the activities of the Internal Audit Department.
For more details on the sustainable management of the supply chain, please refer to the paragraph
entitled "Our suppliers" in the Report on the responsible management of the value chain.
2016 ANNUAL REPORT
53
Significant Events subsequent
to the end of the year
On February 9, 2017 Pirelli announced price increases in all European and North American markets for
car tyres, light truck tyres, and motorcycle tyres, in all product ranges (summer, all season and winter)
and for all the Group’s brands. The increase, which will take effect from April 1, 2017, will be up to
9%. The increase was due to the costlier prices for the main raw materials, plus a growing investment in
the development of products with a high technological content.
On February 14, 2017 Pirelli celebrated the opening of the new season for Motorsports which sees the
company committed - in addition to the Formula One World Championship - to over 340
championships, including for cars and motorcycles, for a total of 2,200 events spread across all five
continents. The celebration which coincided with the 110 year anniversary in Motorsports for Pirelli
was held at the Turin Automobile Museum.
On March 7, 2017 Pirelli presented two new products at the Geneva Motor Show, consistent with its
strategy of focusing on the Premium and Prestige segments and of expanding the range of services for
the consumer:
-
the colored editions of the P Zero and the Winter Sottozero tyres, for which Pirelli
engineers have developed, thanks to Pirelli’s experience with F1, innovative materials
and finishes capable of ensuring bright and long lasting colors;
Pirelli Conneso offers a digital platform which is integrated into the P Zero and Winter
Sottozero tyres, available on the replacement market in black or colored, which thanks to
the sensor fixed to the hollow recess of the tyre (i.e., on the inner wall of the tyre itself)
is connected to an app and is able to communicate with the motorist and provide
information on certain basic parameters concerning the functioning of the rubber, as well
as a range of personalised services.
-
This double innovation, which signals the entrance of Pirelli as a key player into the digital tyre market,
is part of the tailor made strategy for the long P, which aims at manufacturing customised tyres designed
to meet personalised needs, safety and performance requirements, as well as reducing consumption.
On March 13, 2017 Pirelli Industrial S.r.l. (indirectly controlled by Pirelli through TP Industrial
Holding) with the aim to ensure full financial autonomy, subscribed a loan of euro 600 million having a
3-year duration (renewable to a maximum of 5 years) with Bank of America Merrill Lynch International
Limited, China Construction Bank (Europe) S.A., HSBC Bank plc. and ING Bank N.V., Milan branch.
In March 2017 in order to ensure an autonomous growth path and independent group strategies, the two
areas of activity – Consumer and Industrial – have been separated into two distinct companies
controlled by their common shareholder Marco Polo International Italy following the assignation to the
latter by Pirelli of the shares of TP Industrial Holding, the company into which the industrial assets of
Pirelli were conferred. TP Industrial Holding and Pirelli are thus 100% controlled by Marco Polo
International Italy, the vehicle of the partnership between CNRC (65%), Camfin (22.4%) and Long-
Term investments Luxemburg (12.6%).
Further, with effect from April 1, 2017, as a consequence of the completion of the separation of the
Industrial business from Pirelli’s consumer activities, Pirelli Industrial will change its company name to
“Prometeon Tyre Group S.r.l.” (“PTG”).
2016 ANNUAL REPORT
Alternative Performance Indicators
54
This document, in addition to the financial measures as provided for by the International Financial
Reporting Standards (IFRS), also includes measures derived from the latter even though not provided
for by the IFRS (Non-GAAP Measures). These measures are presented in order to allow for a better
assessment of the results of Group operations and must not be considered as alternatives to those
required by IFRS.
In particular, the Non-GAAP Measures used are as follows:
- Gross operating margin: an intermediate economic measure which derives from the operating
income which excludes the amortisation of intangible assets and the depreciation of tangible assets
(property, plant and equipment);
- Adjusted operating income: an intermediate measure, which derives from the operating income
but which excludes the amortisation of intangible assets related to assets detected as a consequence
of Business Combinations, and operational costs due to non-recurring and restructuring expenses.
Of particular note are the amortisable intangible fixed assets from the PPA. It is to be noted that
these assets are related to activities that are continuously regenerated internally within the company
and which incur costs that are not capitalised, and which end up duplicating the amortisations
created by way of the effect of the PPA. Therefore, in order to neutralise this effect and render the
financial data for 2016 more comparable with that of previous periods, a new intermediate
economic measure was introduced, namely the Adjusted operating income;
Fixed assets: this measure is constituted by the sum of the items "Property, plant and equipment",
"Intangible assets", "Investments in associates and joint ventures" and "Other financial assets";
Provisions: this measure is constituted by the sum of "Provisions for liabilities and charges (current
and non-current)", "Employee benefit obligations" and "Provisions for deferred taxes";
-
-
- Operating working capital: this measure is constituted by the sum of "Inventory", "Trade
receivables" and "Trade payables";
- Net working capital: this measure consists of the operating working capital and other receivables
and payables not included in the “Net financial position";
- Net financial position: this measure is represented by gross financial debt less cash and cash
equivalents as well as financial receivables.
2016 ANNUAL REPORT
55
Other Information
Business outlook for 2017
Following the assignment by Pirelli & C. S.p.A. of the investment in TP Industrial Holding S.p.A. (the
company which owns the assets of Pirelli Industrial) to Marco Polo International Italy S.p.A., which
took place in March 2017, the new scope of Pirelli & C. S.p.A. is essentially represented solely by the
Consumer business (Car + Motorcycle). During the course of 2017, Pirelli will continue with the
strategy of strengthening the Prestige and Premium segments through an increasingly end-consumer
oriented approach. Expectations for the current financial year include improvements in the key
economic indicators and the progressive reduction of indebtedness.
Role of the Board of Directors
The Board of Directors is responsible for the strategic guidance and supervision of the overall business
activities, has the power to address the administration as a whole, and is empowered in the undertaking
of the most important financial/strategic decisions and decisions which have a structural impact on
operations or are functional decisions, as well as to exercise the control and direction of Pirelli.
The Chairman is endowed with the legal representation of the Company including in the legal
proceedings of the Company, as well as all other powers attributable to the Chairman in accordance
with the Articles of Association.
The Executive Vice Chairman and CEO are exclusively delegated powers for the ordinary management
of the Company and the Group, as well as the power to propose business plans and budgets to the Board
of Directors, as well as any resolutions concerning any strategic industrial partnerships and joint
ventures of which Pirelli is a part.
The Board has internally instituted the following Committees with advisory tasks:
-
-
-
-
Strategies Committee
Remuneration Committee
Nominations and Successions Committee
Audit Committee (with expertise also in the field of internal control, risk, sustainability and the
Group's corporate governance guidelines).
2016 ANNUAL REPORT
Information on the share capital and ownership structure
The subscribed and paid up share capital as at the date of approval of this Financial Report amounts to
euro 1,345,381 thousand, and is represented by 207,625,214 registered shares without indication of their
nominal value, which are subdivided as follows:
56
Ordinary Shares
Special Shares (*)
(*) without voting rights
Number of Shares
% of Share Capital
201,983,902
5,641,312
97.28%
2.72%
The special and ordinary shares are held by the sole shareholder Marco Polo International Holding Italy
S.p.A., with the exception of 351,590 ordinary treasury shares and 772,792 special treasury shares
which are held by Pirelli & C. S.p.A.
The company is subject to the management and coordination by Marco Polo International Italy S.p.A.,
which is the sole shareholder of Marco Polo International Holding Italy S.p.A.
Extracts of the Agreements dated August 2015 between the shareholders of Marco Polo International
Italy S.p.A. which contain the provisions relative to the governance of Pirelli are available on the
Company’s website.
Security policy document
Although the Decree Law of February 9, 2012, No. 5 (containing the "Urgent Provisions on
Simplification and Development") converted with amendments, by Law No. 35 of April 4, 2012, has
repealed the obligation to prepare or update the Security Policy Document, it should be noted that Pirelli
& C. S.p.A. has however updated the aforesaid document for the year 2016, in order to allow for the
efficient monitoring of the adoption and compliance of the safety measures.
The Board of Directors
Milan, March 21, 2017
2016 ANNUAL REPORT
57
04. Report on Value
Chain Responsible
Management
2016 ANNUAL REPORT
58
Methodological Note
This section of the Annual Report 2016, entitled “Report on Value Chain Responsible Management”
(hereinafter “the Report”), explores the Sustainable Management Model adopted by Pirelli, the
governance tools to support maintenance and creation of values, relationships with Stakeholders and
related connection with the development of financial, productive, intellectual, human, natural, social and
relational capitals, which was mentioned in the “Presentation of 2016 Integrated Report”.
The Report reflects the integrated Business model adopted by the Group, inspired by the United
Nations’ Global Compact, the principles of Stakeholder Engagement set forth by the AA1000, and the
Guidelines of ISO 26000. The content of the report is prepared in accordance with the Guidelines of the
Global Reporting Initiative (GRI) in the G4 version, Comprehensive option, and considering the
principles of integrated reporting contained in the Framework of the International Integrated Reporting
Council (IIRC).
The set of indicators covered by the Report is wider than the list of specific material issues indicated in
the materiality matrix, this in order to provide a more complete and transversal view on the Company’s
performance, for the benefit of all stakeholders.
The report shows the sustainability performance of the Group in 2016 compared to 2015 and 2014, with
respect to the targets set for 2016 and with a view to the 2017 and/or long-term targets envisaged in the
Industrial Plan.
As integral part of the Annual Report 2016, the Report is published annually (the previous Pirelli
Annual Report was published in March 2016 with reference to the year 2015) and is approved by the
Group Board of Directors. The Report covers the entire perimeter of the Group Consolidated Financial
Statements, with the sole exception of the Chinese production site Jiaozuo, partially consolidated in the
2016 performance2 as it is under Pirelli’s operational control since October; the performance of this
factory will be fully consolidated and reported as of the Annual Report 2017. It is also noted that the
exit of “Pirelli de Venezuela” from the perimeter of the Group on 31 December 2015 resulted in the
recalculation of the performance of the year 2015 and 2014 published in the Annual Report 2015.
The information systems that contribute to collect the data accounted in the Report are: CSR-DM
(Corporate Social Responsibility Data Management), HSE-DM (Health, Safety and Environment Data
Management), SAP HR (SAP Human Resources) and HFM (Hyperion Financial Management).
The sustainability performance and GHG Emission data accounted in the Report are subject to limited
assurance by an independent firm (EY S.p.A.) in accordance with the criteria indicated in the principle
International Standard on Assurance Engagements 3000 - Assurance Engagements other than Audits or
Reviews of Historical Financial Information (ISAE 3000), issued by the International Auditing and
Assurance Standards Board. For further information, reference is made to the related Assurance Letter
provided at the end of the Annual Report. Data on GHG emissions have also been subjected to a
specific limited assurance process in accordance with the criteria indicated in the principle International
Standard on Assurance Engagements 3410 - Assurance Engagements on Greenhouse Gas Statements
––
2 The report highlight any case in which the performance disclosed includes Jiaozuo.
2016 ANNUAL REPORT
59
(ISAE 3410), issued by the International Auditing and Assurance Standards Board as part of the
communication process to the Carbon Disclosure Project (CDP).
The Report is structured into four main areas:
• an introductory section related to the sustainable management Model adopted by the Company,
related Policies and activities of Governance and Compliance, Stakeholder Engagement, long-
term planning;
• an “Economic Dimension”, in which the distribution of added value is detailed along with the
management and performance relating to customers and suppliers;
• an “Environmental Dimension”, which describes the management of environmental aspects and
impacts throughout the entire product cycle;
• a “Social Dimension”, which brings together the paragraphs dedicated to: governance of human
rights, the internal community and the external community.
At the end of the Annual Report 2016, before the third-party Audit Report mentioned above, the
following summary Tables are available:
-
-
-
-
a GRI Content Index, which shows the full list of indicators accounted based on the
comprehensive GRI-G4 option, indicating the relative page in the Annual Report 2016;
a table of correlation dedicated to “GRI-G4 Aspects” associated with the issues identified as
most relevant in the materiality matrix;
a table of correlation between indicators accounted based on the comprehensive GRI-G4 option
and the United Nations’ Global Compact Principles;
a table of correlation between the performance/targets of the Group and the Sustainable
Development Goals of the United Nations that the aforementioned performance and Targets
impact on.
For any clarifications and further information on the content of the Report, reference is made to the
“Contacts” page of the section “Sustainability” of the website www.pirelli.com.
2016 ANNUAL REPORT
60
Management Model
The Sustainability Model adopted by Pirelli is inspired by the United Nations’ Global Compact, the
principles of Stakeholder Engagement set forth by the AA1000 and the Guidelines of ISO 26000.
Pirelli’s Responsible management runs through the entire value chain. Every operating unit integrates
economic, social and environmental responsibility in its own activity, while cooperating constantly with
other units and with stakeholders, implementing the Group strategic guidelines.
The main management systems adopted include ISO 9001, ISO/TS 16949, ISO/IEC 17025, ISO 14001,
ISO 14064 and OHSAS 18001 certifications. Moreover, from 2004 the Company is inspired by
the requirements of Standard SA8000® as a reference tool for managing Social Responsibility at its
Affiliates and along the supply chain. Details on the coverage of these certifications and
reference tools have been given in the “Our Customers”, “Our Suppliers”, “Environmental Dimension”,
“Industrial Relations” and “Occupational Health, Safety and Hygiene” sections of this report.
The Board of Directors approves the objectives and targets of sustainable management brought into the
Industrial Plan alongside the annual financial statements.
Governance finds its organisational foundations in the Sustainability Steering Committee, a body
appointed in 2004 and made up of Top Management of the Company representing all businesses and all
functions responsibilities. The Committee meets ordinarily at least once a year and guides the
development of Sustainability within the Company. The organisational structure is thus made up of
Group Sustainability and Risk Governance Department, which has oversight of sustainability
management at a Group level and proposes plans for sustainable development to the Sustainability
Steering Committee. The Sustainability Department receives support from the Country Sustainability
Managers for overseeing activities covering all affiliates of the Group. The role of the Country
Sustainability Manager is currently held by country CEOs, who are supported by their first line in the
operational management of country plans.
The process of sustainable management planning is characterised by specific operational steps aimed at
continuous improvements in performance: evaluation of the context through benchmarks, dialogue with
stakeholders, collection of needs raised by internal functions, identification of risks and opportunities
for growth, definition of projects and targets, implementation, monitoring and reporting.
The long-term sustainability targets integrate the Industrial Plan and support the sustainable
development of the Company.
The Industrial Plan, available on the Group's website, has been developed in accordance with the “Value
Driver” model drawn up by the UN PRI (United Nations Principles for Responsible Investment) and
UN Global Compact and sets targets that combine growth, productivity, governance and risk
management.
The targets and related performance (for extensive discussion of which reference is made to the related
sections in this report) foresee, among other things:
• growth in Green Performance product revenues;
•
•
reduction of the rolling resistance of Car tyres of 40% in 2020 vs. 2007;
research and development of raw materials with low environmental impact with a view to the
progressive replacement of fossil-derived materials;
reduction in the accident frequency index by 90% by 2020 compared to 2009;
•
2016 ANNUAL REPORT
•
reduction of 15% in CO2 specific emissions, of 18% in specific energy consumption and 58% in
specific water withdrawal by 2020 compared to the 2009 figures;
• zero waste to landfill;
•
•
• adoption of increasingly advanced models for the management of economic, social and
increasing investment in Business Interruption risk mitigation;
investment in employees training of at least an average of 7 man days;
environmental responsibility in the supply chain.
61
All Countries where the Group is present with commercial and manufacturing affiliates have a Country
Sustainability Plan with specific targets identified in alignment to the Group’s sustainability targets.
The targets of the Country Plans, transversal to management, include the constant monitoring of
Compliance with the SA8000® Standard, the specific reduction in the accident frequency index, the
specific reduction (weighted on the total finished product) in energy consumption and water withdrawal,
the increase in waste recovery, control of the sustainability of the supply chain, dissemination and local
implementation of Group Policies and engagement with stakeholders.
The performance of the Sustainability Plan of each Country is included in the Performance Management
objectives of the related CEOs.
UNITED NATIONS’ SUSTAINABLE DEVELOPMENT GOALS (SDGs)
The 2020 targets of the Group Plan are perfectly integrated with the Sustainable Development Goals
(SDGs) presented by the United Nations in September 2015 with the objective of accompanying the
activities of sustainable companies until 2030.
In particular, it is possible to note the strong connection between the targets mentioned in the previous
paragraph and the following SDGs:
• 3 - Good Health and Well-being;
• 4 - Quality Education;
• 6 - Clean Water and Sanitation;
• 7 - Affordable and Clean Energy;
• 9 - Industry, Innovation and Infrastructure;
• 12 - Responsible Consumption and Production;
• 13 - Climate Action.
The Sustainable Goals listed above are not the only ones in which the Company is engaged; in addition
to the above, this Report describes initiatives and activities that refer to other SDGs:
• 8 - Decent Work and Economic Growth, in the paragraphs dedicated to the Internal Community
and in the paragraph “Our Suppliers”;
• 10 - Reduced Inequalities, in the paragraph “Diversity Management”;
• 11 - Sustainable Cities and Communities, in the paragraph “WBCSD” with reference to the
project “Sustainable Mobility 3.0”;
• 17 - Partnerships for the Goals, in the paragraphs “Road Safety”, with reference to the
partnership with FIA, “Sustainability in the natural rubber chain”, with reference to the
partnership with Kirana Megatara, and “WBCSD”, with reference to the project “Sustainable
Mobility”
2016 ANNUAL REPORT
It is noted that the sub-paragraphs relating to “Corporate Initiatives on behalf of the External
Community” indicate the main SDGs that the projects and initiatives described impact directly on.
62
STAKEHOLDER ENGAGEMENT
The role of Pirelli in the economic and social context is tied to its capacity to create value through a
multi-stakeholder approach, i.e. by sustainable and lasting growth that can reconcile the interests and
expectations of all those with whom the Company interacts and especially;
• customers, since the Pirelli way of doing business is based on customer satisfaction;
• employees, who make up the knowledge assets and driving force of the Group;
•
•
• competitors, because improved customer service and market position depend on fair
shareholders, investors and the financial community;
suppliers, with which it shares a responsible approach to business;
•
•
competition;
the environment, institutions, government and non-government bodies;
the communities of the various Countries where the Group operates on a stable basis, while
being aware of its global responsibilities as a Corporate Global Citizen.
To the stakeholders mentioned, a paragraph is dedicated within this report, to which reference is made
for further qualitative and quantitative information.
The interactions that take place between stakeholders conform to the AA1000 Model adopted by the
Company and are analysed in detail in order to effectively manage the relations with them and to create
sustainable and shared value. Dialogue, interaction and involvement are calibrated to meet the needs of
consultation of the various types of stakeholder and include meetings, interviews, surveys, joint
analyses, road-shows and focus groups.
In February 2016, Pirelli held a Global Stakeholder Dialogue in Brussels, attended by international
Stakeholders of the Company including Suppliers, Customers, leaders of the economic and financial,
academic, institutional and non-governmental world. The objectives of the Dialogue included updating
Stakeholders regarding the progress of the 2020 Sustainability Targets, the comparison and collection of
expectations on the evolution of Pirelli's materiality matrix, as well as specific focuses on future
mobility, environmental impacts along the product life cycle and sustainable management of the supply
chain, with particular reference to human and labour rights in the more distant tiers of the supply chain.
Similarly, in 2016, Country level Stakeholder Dialogues were held in Mexico, Turkey, Germany and
Romania. The various Countries dealt with material issues for local sustainable development, including
energy management, technical training and availability of adequate skills among the working
population, road safety, circular economy, engagement of human capital and environmental
sustainability of cities. Local Dialogues were attended by stakeholders, institutional and not, most
representative of the interests and topics discussed.
The Dialogues will continue in 2017 in other Countries where Pirelli operates.
Feedback received from stakeholders contributed to the corporate evaluation of the priorities for action,
influencing the Group development strategy set out in the Industrial Plan and the Group materiality
matrix.
2016 ANNUAL REPORT
63
MATERIALITY ANALYSIS
In 2016 Pirelli initiated and completed the process of updating the materiality matrix elaborated in 2013.
The materiality matrix comes from an in-depth activity of Stakeholder Engagement that led to compare
the expectations of key stakeholders on a panel of sustainability issues and the importance that these
issues play in the success of the business depending on the experience and expectations of the Top
Management and Sustainability Managers that support the Top Management in the various Countries
where Pirelli operates.
Given the complexity and the international extent of corporate stakeholders and the variety of their
expectations, the panel of stakeholders from which feedback was requested included:
the most important dealers;
the biggest original equipment customers;
•
• 1,800 end customers belonging to the most representative markets;
•
• numerous employees in the various nations where the Group is present;
•
•
• national and supranational institutions and public administrations;
•
•
several Group suppliers;
the leading financial analysts;
journalists from domestic and international newspapers;
international and local NGOs present in the various Countries in which Pirelli has manufacturing
activities;
• universities that have collaborations with the Group.
The stakeholders were involved through a request, in local language, of attribution of priorities for
action on a selection of ESG (Environmental, Social, Governance) issues relevant to the global and
sustainable development of the automotive and auto components sectors, identified by considering the
risks and opportunities arising from regulatory developments, the expectations of the communities,
government and other institutions, and financial markets.
The issues the stakeholders evaluated are the following:
• Product eco-innovation: research & innovation commitment to improve product impact on the
environment (e.g. by reducing the tyre rolling resistance in the use phase allowing for fuel
saving and thus CO2 emissions reduction, more mileage);
• Product performance & safety innovation: research & innovation commitment to improve
product performance/safety for the driver (e.g. tyre performance in wet conditions, reduction of
braking distance.);
• Service to customers: grant full “customer delight” with the most qualitative and innovative
services, offer “the future” to today’s customers;
• Raw materials eco and safety innovation: research & innovation commitment to identify new
materials that, compared to traditional ones, are impacting less on the environment while
increasing safety during product manufacturing, use and disposal;
• Circular economy/end of life tyres (ELT): commitment to responsibly manage resources and
end of life tyres with the aim of maximising a safe reuse and recycling;
• Disclosure and transparency: company transparency in reporting economic, social and
environmental performances, goals and challenges;
• Business integrity: company compliance with local and international laws, regulations,
universal principles of fairness, morality and justice;
2016 ANNUAL REPORT
64
• Responsible use of natural resources: commitment to protect biodiversity and natural capital
along the product life cycle, reducing water withdrawal, energy consumption, air and water
emissions and increasing waste recovery;
• Road safety: commitment to spread road safety culture through training, awareness-raising
campaigns and innovative technological solutions for sustainable mobility;
• Employment governance and responsibility: commitment to safeguard and continuously
improve workplace environment, with a strong focus on health and safety, employees’ welfare
& work-life balance, training & development, engagement and adequate remuneration, ensuring
equal opportunities in the workplace while exploiting diversity as a business asset;
• Future mobility: company capability to setting a long-term vision, anticipating market
expectations and adapting its business model to contribute to sustainable mobility evolution;
• Stakeholder dialogue: engage in a pro-active dialogue with company Stakeholders, from
employees to communities, clients, end-consumers, suppliers, institutions and non-governmental
organizations, to integrate their expectations into Company development Strategy;
• Financial health: ensure economic and financial stability in the medium-long term;
• Corporate governance: ensure a solid, sound governance aligned with international best
practices;
• Sustainable procurement: align group supply chain to Pirelli's social, economic and
environmental responsibility expectations, with a partnership approach aimed at creating shared
innovation and value.
The priorities expressed by Pirelli and stakeholders have been represented in a materiality matrix setting
out, on the vertical axis, the expectations of several external and internal stakeholders, while on the
horizontal one, the importance that the Management attributes to individual business success factors.
The result of such consolidation was presented and approved at the Sustainability Steering Committee
held in January 2017 and is outlined below.
The position of the various sustainability elements inside the matrix is due to the greater or less priority
recognized to the above mentioned pre-selected ESG issues. It shall be underlined that all the ESG
issues pre-identified through the aforementioned analysis are relevant for the development of Pirelli,
thus addressed and managed in accordance with best international practices.
It is right and appropriate to underline the fact that consolidation of the materiality matrix at Group level
tends, by its very nature, to vary strongly from the materiality matrixes at country level. Sustainability
elements located in an area of low materiality in the consolidated Group matrix may be highly material
for a number of Countries or specific stakeholders who are more directly affected.
Just like the Plan targets set by the Company take into account the expectations expressed by
stakeholders involved in the definition of the previous sustainability matrix, the revision of the matrix
carried out in 2016 will be functional to the preparation of the next Group Industrial & Sustainability
Plan, in addition to having already had an impact on refining the current 2020 targets.
2016 ANNUAL REPORT
65
MAIN POLICIES
The Sustainable Management Model throughout the value chain is reflected in the main Group Policies,
published on Pirelli's website in multiple languages and communicated to all employees in their local
language.
In particular, the following Policies are recalled:
• “The Values and the Ethical Code”;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the “Code of Conduct”;
the “Premium Integrity” Program;
the “Global Antitrust and Fair Competition” Policy;
the Group “Equal Opportunities Statement”;
the “Health, Safety and Environment” Policy;
the “Global Human Rights” Policy;
the “Product Stewardship” Policy;
the “Quality” Policy;
the “Green Sourcing” Policy;
the “Social Responsibility Policy for Occupational Health, Safety, Rights and Environment”;
the “Global Tax Policy”;
the “Corporate Lobbying” Policy;
the “Global Personal Data Protection” Policy;
the Group “Whistleblowing” Policy.
2016 ANNUAL REPORT
The contents of the aforementioned Policies and the related implementation are addressed in the
sections of this report that deal with the related issues.
Following, there is a focus on the “Anti-corruption - Premium Integrity” Programme, the “Antitrust”
Compliance Programme and the Whistleblowing Policy
66
Focus: Anti-corruption and Antitrust Compliance Programmes
During the course of 2016 the process of analysing and implementing the “Anti-corruption - Premium
Integrity” Programme proceeded in the main countries where the Group operates. The activity of
training and communication on companies’ administrative liability foreseen under Legislative Decree
231/2001 on the existing Model was completed for the entire population of Italian companies. Similarly,
during the year, in the face of new offences introduced by the legislator and the organizational changes,
the Organizational Model 231/2001 was updated, and its adoption is expected in the first quarter of
2017.
The Group Anti-corruption Program (available in twenty-two different languages on the website of the
Company) is the corporate reference in the matter of preventing corruptive practices and represents a
collection of principles and rules aimed at preventing or reducing the risk of corruption.
In the document, the Pirelli principles already set out in the Ethical Code and the Code of Conduct,
including zero tolerance of “corruption in any guise or form, or in any jurisdiction, or even in places
where such activity is admissible in practice, tolerated, or not challenged in the courts” are restated.
Among the provisions of the program is the prohibition, for the recipients of the Code, of offering gifts
and other benefits that might meet conditions of a breach of rules, or which are in conflict with the
Code, or may, if made public, constitute prejudice even only to the image of Pirelli. Additionally, Pirelli
“defend and protect its corporate assets, and shall procure the means of preventing acts of
embezzlement, theft, and fraud against the Group” and “condemns the pursuit of personal interest
and/or that of third parties to the detriment of social interests”.
Pirelli analyses profiles of corruption risk in the various Countries where the Company is present,
assessing compliance with local laws in force, the adequacy of corporate oversight updating the risk
analysis where there is a change in the perimeter with the “entry” into Countries of “high risks” (on the
basis of the Transparency index), defining training and awareness programmes where appropriate.
In details, the analysis of Risk Profiles is implemented considering:
•
•
the perceived risks deriving from a combination of a perceived level of corruption, associated
with the Corruption Perception Index calculated by Transparency International, with the
perception of Management as to the level of risk in each country;
the adequacy of oversight provided derived from combination of the guaranteed protection in
areas deemed to be exposed to contingent corruption risks associated with the benchmark
provided by the Internal Audit Function on the Internal Control System.
A mapping has emerged showing the ranking of vulnerability for the Countries subjected to analysis, as
shown in the following figure:
2016 ANNUAL REPORT
67
In 2017, training and updating activities are scheduled with particular reference to anti-corruption
aspects, which will involve some of the most important Countries of the Pirelli Group, considered
priority in receiving such training also due to the specificity of the local legislation.
Referring to the contributions to the External Community and sponsoring activities, Pirelli has for many
years adopted internal procedures defining the roles and responsibilities of the function involved, and
the operational process of planning, achieving, monitoring and controlling the results. The Pirelli
procedure specifies that initiatives may not be promoted for the benefit of beneficiaries in respect of
whom there is direct or indirect evidence of failure to abide by the labour and human rights, the
environment, or business ethics. The “Pirelli Values and Ethical Code” set forth in their turn that the
Company “does not provide contributions, advantages, or other benefits to political parties or trade
union organizations, or to their representatives or candidates, this without prejudice to its compliance
with any relevant legislation”.
Concerning institutional relations of the Group, and especially activities of corporate lobbying, the
Company has adopted a Corporate Lobbying Policy for ensuring this is done in abidance with principles
ratified by the Ethical Code and the Group Anti-corruption Compliance Program and in line with
International Corporate Governance Network principles and in compliance with laws and regulations
enforced in the countries where Pirelli operates.
In terms of prevention and control, the audits carried out by Internal Audit Department at Group
affiliates include monitoring of crime risks, among which corruption and fraud figure. In this regard it is
specified that, also in respect of 2016, there has been no case of corruption to report, nor any public
legal action concerning corruption practices.
Additionally, during the course of 2016 the implementation of the Functional Segregation model (so-
called Segregation of Duties) proceeded, aimed at strengthening the system of internal controls and
preventing the committing of fraud.
During the course of 2016 continued the support for the activities of Transparency International,
organization to which Pirelli adheres as a supporter in projects on education aimed at promoting an
active role of civic and moral education in strengthening civil society against crime and corruption,
2016 ANNUAL REPORT
believing that it is only through proactive and firm actions of value promotion can a general
improvement in the quality of life be achieved.
68
In 2016, the process of analysis and structuring of the Pirelli “Antitrust Programme” also continued.
In line with the provisions of its Global Antitrust and Fair Competition Policy, Pirelli operates in
accordance with fair and proper competition for the purpose of development of the company and at the
same time, the market.
Pirelli has formulated a Group Antitrust Programme in line with international best practices, also in
order to pursue increasingly effective coordination of existing initiatives in the various Countries where
it operates.
The Antitrust programme consists of new training activities that will be implemented over the course of
2017 in all Countries where Pirelli operates, as well as business assistance activities to facilitate the
management of antitrust issues in the daily performance of business activities or relationships with other
operators.
Focus - Reporting procedure: Whistleblowing Policy
The Whistleblowing Policy supports the internal compliance and control systems of the Group.
It is directed both towards employees and external stakeholders. Notified to all employees in local
language and made available to the External Community on the Pirelli Internet website, the Policy
governs the modalities of reporting breaches, suspected breaches and inducement to breaches in the
matter of law and regulations, principles ratified by the Ethical Code, including, obviously, equal
opportunities, principles of internal auditing, corporate rules, policies and procedures, and any other
behaviour of commission or omission that might directly or indirectly lead to economic, financial or
reputational damage, for the Group and/or its companies.
The Whistleblowing channel is additionally incorporated expressly into the Sustainability Clauses
included in every supply order / contract.
Reports may be made also in an anonymous form and protection of utmost confidentiality is at all times
restated, as is zero tolerance in respect of acts of reprisal of any kind.
Reports may concern directors, auditors, management, employees of the Company and, in general,
anyone operating in Italy or abroad for Pirelli or engaging in business relations with the Group,
including partners, customers, suppliers, consultants, collaborators, auditing companies, institutions and
public entities.
The e-mail ethics@pirelli.com is made available to those who wish to submit a report and applies to all
the Group's affiliates, as well as to the External Community, and is managed centrally by the
independent Internal Audit function.
Internal Audit Department has the task of analysing all reports received, involving corporate functions
required for the necessary verification activities, in addition to scheduling specific action plans.
If it is ascertained that a report is founded, the adoption of fitting disciplinary and/or legal actions for the
protection of the Company is foreseen.
In respect of reports received in the 2016, 2015 and 2014, here below is a summary table and more
details on the reports from 2016.
2016 ANNUAL REPORT
TOTAL REPORTS
Of which anonymous
Of which filed closed
being absolutely generic.
Of which founded
Countries of origin of the
report
Matter alleged in the
report
2016
42
8
3
23
2015
18
4
1
4
69
2014
23
9
12
8
Brazil, Egypt, Italy,
Argentina, Chile, Russia,
Turkey, Saudi Arabia,
India, Germany and UK
Brazil, Egypt, Romania,
Argentina, Russia, Peru,
Mexico, Germany, USA,
UK
Irregular behaviour of
employees, one case of
inefficiency towards
customers
Irregular conduct of
employees, cases of poor
service to customers and
challenges with suppliers (a
case of late payment and a
case of non-payment of
services not requested by
the company).
Brazil, Egypt, Romania,
Poland, Argentina, Russia,
Peru, Saudi Arabia,
Germany, USA, South
Africa
Irregular conduct of
employees, one case of
inefficiency towards a
customer and one towards a
supplier
Outcome of cases
investigated
Review and process
integration where deemed
fit, orders by the functions
concerned and Human
Resources Management,
actions to satisfy customers
and suppliers.
Review and integration of
processes where deemed
fit, orders by the functions
concerned and Human
Resources Management,
actions to satisfy
customers.
Review and process
integration where deemed
fit, orders by the functions
concerned and Human
Resources Management,
actions to satisfy customer
and supplier.
During the course of 2016 the Whistleblowing procedure was activated 42 times. In particular:
• 42 reports were from 11 different Countries (Brazil, Egypt, Italy, Argentina, Chile, Russia,
Turkey, Saudi Arabia, India, Germany and UK);
• 40% of the reports (17 cases) were forwarded using the Group Whistleblowing email address
ethics@pirelli.com provided, whereas 60% (25 cases) by sending a letter to management which
dealt with informing Internal Audit Department as per corporate rules;
• 81% of the reports (34 cases) were signed whereas the remaining 19% (8 cases) the reports were
received in anonymous form;
• among the reports signed, eleven were activated by external stakeholders, three related to poor
service to customers, three cases of misconduct by management, and five cases for other reasons
(conflict of interest, theft, late payments). It is objectively impossible to confirm that there were,
in absolute terms, no further reports from external stakeholders received as a number of reports
were, as specified, anonymous.
2016 ANNUAL REPORT
In general, the topics reported concerned, almost totally, alleged irregular conduct by employees or, in
the remaining cases, alleged inefficiencies towards customers, complaints made by suppliers and cases
of non-compliance with Group policies and/or procedures.
70
Of the forty-two reports received during 2016, at the beginning of 2017 four are still under verification,
whereas thirty-eight are concluded. In respect of these latter, specific activities of verification involving,
where necessary, the corporate functions concerned were conducted.
On the basis of the analyses performed and the documentation made available, it came to light that:
•
•
in 15 cases objective corroborating evidence was not detected such as to hold the facts
contended in the reports received to be true;
in the remaining 23 cases, the substantial truth of the facts attributed was found, in particular, 13
cases were related to irregular conduct of employees, 2 cases for poor service to customers and 8
cases for other reasons (including cases of theft, conflict of interest, delays in payments to a
supplier). The Company then took steps implementing the necessary actions, which concerned;
o disciplinary sanctions:
o actions aimed at removing the complaints received from customers and suppliers;
o
internal actions to improve the internal control system.
In all cases, at the outcome of inquiries, Internal Audit Department additionally carried out specific
audit actions on the corporate processes involved in the reports.
The Internal Audit Department periodically reported the reports received and the progress of the
analyses carried out to the competent corporate bodies of Pirelli & C. S.p.A.
2016 ANNUAL REPORT
71
Economic Dimension
SHARING OF ADDED VALUE
The Values and Ethical Code of Pirelli ratify the undertaking of the Company to operate to ensure
responsible development over the long term, while being aware the bonds and interactions that apply
between economic, social and environmental dimensions. This is to combine the creation of value,
progress of the company, the attention given to stakeholders and the raising standards of living and
environmental quality.
Added value means the wealth created over a given reporting period, calculated as the difference
between the revenues generated and the external costs sustained in the period. Distribution of added
value among stakeholders allows to express the relations between Pirelli and its main stakeholders in
monetary terms, focusing the attention on the socio-economic system in which the Group operates.
Distribution of added value (in thousands of euro)
2016
2015
2014
TOTAL GROSS ADDED VALUE
2,321,674
2,435,873
2,296,127
Remuneration of employees
(1,217,846)
52.5%
(1,295,130)
53.2%
(1,239,770)
54.0%
Remuneration of Public Administration
(116,305)
5.0%
(290,137)
11.9%
(173,309)
7.5%
Remuneration of borrowed capital
(440,205)
19.0%
(328,216)
13.5%
(262,410)
11.4%
Remuneration of risk capital
-
0.0%
(179,572)
7.4%
(156,745)
6.8%
Remuneration of the company
(539,999)
23.3%
(335,202)
13.8%
(457,278)
19.9%
Contributions to the external
community
(7,319)
0.3%
(7,616)
0.3%
(6,615)
0.3%
A
B
C
D
E
F
The added value created in 2016 recorded a decrease of 4.7% over 2015. In particular, the change was
affected by the non-remuneration of the risk capital and the reduction of the remuneration of Public
Administration. Trends in the items determining gross global added value as shown above, are set out in
the Consolidated Financial statements of this report, to which reference is made for further details.
2016 ANNUAL REPORT
Contributions to the External Community
The impact of expenses for corporate initiatives in 2016 for the external community on the net result of
the Group amounted to 5.0% (4.4% in 2015 and 2.0% in 2014).
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CONTRIBUTIONS TO THE EXTERNAL COMMUNITY (in thousands of euros)
Training and Research
Socio-cultural initiatives
Sports and solidarity
2016
807
5,014
1,498
7,319
2015
876
4,864
1,876
7,616
2014
810
4,541
1,264
6,615
For further study of the main initiatives supported by the contributions indicated above and relating to
the governance model, please refer to the paragraphs in this report dedicated to “Company Initiatives for
the external community”.
In line with what is set forth in the Ethical Code, Pirelli “does not provide contributions, advantages, or
other benefits to political parties or trade union organizations, or to their representatives or candidates,
this without prejudice to its compliance with any relevant legislation”.
LOANS AND CONTRIBUTIONS RECEIVED
FROM PUBLIC ADMINISTRATION
Romania. In March 2012 the European Investment Bank (EIB) granted Euro 10 million to Pirelli Tyres
Romania S.r.l. as last tranche of a financing agreement for a total of Euro 50 million as support for an
investment of Euro 263 million to be used to expand the Pirelli plant in Slatina, Romania, for the
production of car tyres and light commercial vehicles. The financing sits alongside a similar one granted
in 2007 and fully reimbursed at the end of the 2013 accounting period and received to support the
construction of the same production site. The first tranche of this loan, amounting to 20 million euro,
will be repaid in May 2017.
Also reported is: S.C. Pirelli Tyres Romania S.r.l. received 46.1 million euro in total from the Romanian
State by way of incentive for local investment and of which 7.8 million was in 2016.
Italy. During the year 2016, there were no collections related to government grants.
Mexico. Since 2012 Pirelli Neumaticos S.A. de C.V. (Mexico) has received grant contributions from the
Government of the State of Guanajuato (Mexico) for investments and generation of employment for
12.5 million euro in totale. The company also received grant contributions from the Mexican Federal
Government for investments and generation of employment related to the ProMexico project totalling
8.8 million euro, of which 0.7 million received during 2016 (the incentives were paid starting 2012).
United Kingdom. In the 2013 and 2014 accounting periods Pirelli Tyres Ltd. (United Kingdom)
received government grant contributions under the RGF–Regional Growth Fund for investments and
generation of employment tied to introducing new UHP products at the Carlisle factory for 2.6 million
euro in total. During the course of 2016 no further government contributions were received.
2016 ANNUAL REPORT
73
OUR CUSTOMERS
Pirelli business operations are represented by two main segments: Consumer (tyres for cars, SUV, light
commercial vehicles and motorcycles) and Industrial (tyres for buses, trucks, agricultural equipment).
These businesses are in turn pursued through two sales channels:
• Original Equipment, addressed directly to the world’s leading car and truck makers;
• Replacement, for the replacement of tyres on vehicles already in circulation.
Within Original Equipment for Cars, SUV and light commercial vehicles, in Europe Pirelli can count on
a market share of Premium customers of over 22% in 2016 compared to 14%, at which the Company
stood in 2011. In the Prestige segment, which is the highest of the range, Pirelli approaches 45%, with
an increase of 36% compared to 2011.
As part of Replacement, there are two broad types of customers: Specialised Resellers and Distributors.
Specialised Resellers are tyre specialists operating on the market in the role of independent businesses;
specialised dealers constitute a fundamental point of contact between the Group and the end consumer.
Particular attention is devoted to specialised dealers in terms of shared development to enhance the
product offering integrated with a high quality level of service, in compliance with Pirelli values and
consumer expectations.
In 2016, Pirelli can count on about 12,000 Loyal Resellers globally, with a particular concentration in
Europe, Asia-Pacific and South America (about 80% of the total points of sale). The degree of
affiliation varies according to the market and the very presence of Pirelli, ranging from a softer loyalty
(fidelity Club), which has as main objective for Pirelli territorial coverage and for the dealer sales
support; to franchise programmes, in which through the exclusive partnership there is strong focus on
business development point of sale overall; up to the maximum degree of affiliation, represented by the
presence of points of sale owned by Pirelli (311 points of sale worldwide). “Distributors” are partners
who are fundamental to guaranteeing continuity in the supply of tyres to other specialised and non-
specialised resellers. They do so by offering local delivery and distribution services throughout the
entire territory.
Customer Focus
Customer focus is a central element of the Group “Values and Ethical Code”, the “Quality Policy” and
“Product Stewardship Policy” of Pirelli. These documents outline the company positioning and are
therefore communicated to all employees in the local language and are available in many languages on
the Pirelli website.
Among the essential elements of the Pirelli approach, the following are highlighted:
• consideration of the impact of its actions and behaviour on the customer;
• exploitation of every opportunity offered by doing business to satisfy the customer’s needs;
• anticipation of customer needs;
•
safety, reliability, high performance of products and services offered, in accordance with local
regulations and the most advanced national and international applicable standards , as well as
excellence of production systems and processes;
information to customers and end users to guarantee an adequate understanding of the
environmental impacts and the safety features of Pirelli products, as well as of the safest ways to
usethem.
•
2016 ANNUAL REPORT
Pirelli also adopted a clear procedure to grant a feedback to any customer claim, which involves
immediate intervention with respect to the interlocutor.
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The "General Purchase Conditions" applied by the Group companies conform to the principles
mentioned above.
Transparency in Communication to the Customer
In the context of advertising communication, Pirelli has defined a traceable and transparent process for
all decisions relating to advertising campaigns and related media planning, both in the case of
promotional activities managed centrally and locally with central supervision.
In terms of production of advertising campaigns and media planning, Pirelli uses specific auditing and
certification structures that place the Company at the highest levels in terms of transparency and
traceability in its advertising investment strategies.
The Pirelli Group endorses the IAB (Interactive Advertising Bureau) and is associated with the UPA
(Associated Advertising Users), where it sits on the Steering Committee, among other things dedicating
on-going commitment to support the Advertising Code of Corporate Governance of the association.
Through the UPA, Pirelli is a member of the WFA (World Federation of Advertisers), which commits
participating firms to pursue honest, truthful and fair competition and communication in compliance
with the code of conduct and self-regulation which they adopt. Consumer protection is also guaranteed
by the choice of suppliers in the communication sector (creative agencies, media centres, production
companies) that in turn belong to business and professional associations governed by proper
communication ethical codes.
Compliance
Also in 2016:
• no cases emerged of non-compliance with regulations or voluntary codes concerning marketing
activities, including advertising, promotion and sponsorship;
• no significant final penalties were levied and/or paid relating to infringement of laws or
regulations, including those relating to the supply and use of the Group’s products and/or
services;
• no cases emerged of non-compliance with regulations or voluntary codes concerning
information and labelling of products/services;
• no cases of non-compliance with regulations or voluntary codes concerning health and safety
impacts of products/services during their life cycle;
there were no documented complaints concerning both violation of privacy and/or the loss of
consumers’ data;
there was no prohibition to sell any Pirelli product, and the sales of no product was challenged.
•
•
Customer Information and Training
Pirelli provides information to customer-distributors and end customers on a continual basis. This
information concerns both the product and related initiatives, and is disseminated in a variety of ways,
including online communication, and is complemented by information distributed in hard copy format,
as well as the range of off-line and online training activities.
2016 ANNUAL REPORT
In the general scenario in which online is confirmed to be a key touch point in the process of finding and
buying tyres, the consolidation and growth of the Pirelli digital ecosystem continued in 2016, with an
approach that sees us increasingly closer and more connected with the consumer. Mobile accesses is
constantly increasing, reaching a global average of 39%, confirming the fact that consumers are
increasingly more informed and seeking clear and immediate answers on the web. In this context, the
role of customer services on digital platforms is crucial: the product catalogue, the dealer locator, the
fitment chart are the most accessed from desktop and mobile devices.
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In 2016, Pirelli continued to inform its customers with a digital newsletter, Paddock News, whose main
objective is to provide an additional means of communication and contact with the trade, and which
consists of an international edition, coordinated centrally from headquarters, and local-language edition
for each market in which Pirelli operates. Paddock News features a gallery of new products and news
from the Company and its Business Units: Car, Motorcycle, Motorsport and Truck. In terms of paper
publications, the company magazines “Pirelli World” and, for Brazil, “Giro”, continue to play a key
role.
As for online communication relating to industrial tyres, in 2016, wide coverage was given to the launch
of the new Triathlon series through the Pirelli sites and the specialized digital press. The FleetApp has
been improved, the application for transport professionals, available free of charge in Italian, English,
Spanish, German and Turkish for Android and IOS, on Google Play and Apple Store. In just a few steps
you can get all the information on the intended use, available sizes and labelling values, technical
specifications, tread design and peculiarities of each tyre in the Pirelli range as well as the Formula
range, for the transport of persons and/or goods. The application also includes an integrated simulation
tool that measures the possible fuel savings through using tyres providing higher performance from an
energy point of view.
Numerous exhibitions, events and initiatives in which Pirelli took part in 2016 include:
• Reifen Essen 2016, the world's leading trade fair of the tyre industry, where Pirelli was present
•
•
with a stand featuring tyres for car, motorcycle and truck;
the launch of the new Triathlon series, event held at the original UNESCO site, a former
industrial complex, Zollverein, near Essen with the participation of over 200 people including
journalists, dealers and fleets from 12 countries, followed by wide coverage on specialized
communication media;
IBE 2016, International Bus Expo in Rimini, three days dedicated to bus transport (more than
4,500 companies in Italy alone), with the participation of nearly 7,000 professionals, where
Pirelli was present with a stand dedicated to truck;
• Formula Truck 2016, Pirelli, sole sponsor for tyres, was the key player of the hit Brazilian
motorsport event dedicated exclusively to truck racing: 10 locations from March to December
involving fans, fleets and manufacturers of industrial vehicles.
The training of customers on the product even in 2016 was intense in all markets, both at the points of
sale and at the Pirelli sites with visits to the factory, R&D laboratories, and simulations of tyre
performance. More than 22,000 participations of dealers coming from the 33 main markets were
registered for classroom training courses on Pirelli products, technology and tyre sales and visited the
two plants in Settimo Torinese (Italy) and Izmit (Turkey) in addition to the circuit in Vizzola (Italy) and
the R&D Center in Milan. Information and training are therefore conducted with a 360º approach.
2016 ANNUAL REPORT
During the year, the complete revamping was launched of the online training platform Tyre-Campus
“The road to Success”, which now covers 23 markets in 16 different languages. The first evolution of
the platform concerned the transformation from desktop site to mobile site with the clear goal of
reaching, even better, all the players of the tyre distribution chain, including employees of the points of
sale. Product training is provided in an engaging and customized way on the various types of
distribution channel, however maintaining a homogeneous approach; thus, no longer a single path that
leads to the final objective of certification, but several paths linked to individual product families.
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Pirelli also continues to certify all its dealers who complete the product training successfully. The
certified dealer status is then indicated in the dealer locator on a plaque placed at the point of sale. This
way, consumers can recognize which dealers are the most specialized and qualified on the technical
features and benefits of all the products of the Pirelli range. The dissemination project of the new
platform is well advanced; in 2017, it is expected to complete its customization on the various markets
based on the distribution channels and extension to other markets, introducing new technical and
commercial topics.
In order to support the product trainers, a library of technical content was developed for classroom
courses and the instrument “Tyre Campus Houses”, which aims to concretely demonstrate the
characteristics of Pirelli tyres, the raw materials used for their manufacturing and the differences
between the different tread. With these tools, Pirelli trainers around the world have concrete and
innovative support that allows customers to personally understand and verify the key characteristics and
advanced technology of Pirelli products.
Listening And Exchanging Ideas As Sources For Continuous Improvement
Customer relationships are managed by Pirelli principally through two channels:
•
•
the local sales organization, which has direct contact with the customer network and which,
thanks to advanced information management systems, is able to process and respond to all
information requirements of the interlocutor on site. From May 2015 to February 2016, the sales
structure (of the 10 main countries) was subject to an assessment of product and sales experts; at
the end of this process and thanks to the results of the assessment, the entire educational offer of
the Commercial Academy was redeveloped (one of the 10 company Academies) dedicated to
the sales force and a training plan was planned for all countries;
the Pirelli Tyre Contact Centers, 32 worldwide with more than 150 employees, performing
business operations in IT support and order management (inbound), telemarketing and
teleselling (outbound).
In 2016, all the major social media channels of Pirelli have seen a significant increase in the fan-base.
Pirelli's presence on Facebook has reached over 1.9 million followers, with a growth of 23% over the
previous year. Also on Twitter, the Pirelli accounts have seen an increase in followers, reaching more
than 213,000 people, over 33% more than 2015. A very important step forward was on Instagram,
where Pirelli channels reach more than 262,000 followers, an increase, year-on-year, of 118%. Finally,
Pirelli has more than 10,000 followers on the leading online video platform, YouTube.
The year 2016 was also the year of the www.pirelli.com website, the digital Pirelli magazine launched
in late 2015. On the new digital communication platform, Pirelli has published more than 500 articles -
regarding product, motorsport, culture and sustainability - accompanied by more than 80 videos, with
more than 3.3 million visits and about 2.5 million unique users, of which more than half through social
2016 ANNUAL REPORT
networks. Results achieved thanks to the full integration of the publishing plans of the digital magazine
and social media channels.
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As for the Motorcycle Business Unit, we reserve a mention for the digital projects of the Metzeler and
Pirelli brands. For Metzeler, in addition to the web page present in 10 Countries worldwide, a page
dedicated to bikers has been active on Facebook since 2012, with 270,000 fans and content posted in 14
different Countries in the relevant local languages. There has been very positive feedback, over the
years, from the activation of the Metzeler Maps, the Ridexperience blog and “Answers” feature that
involves the users on the site. To maintain relations with consumers, the channel @metzelermoto on
Twitter and Youtube was also created some time ago. For the Pirelli Moto brand, a presence on
Facebook is important, with more than 600,000 fans connected and content posted in many Countries in
the world, and special attention is dedicated to Asian Countries where Pirelli is developing its social
media presence. The Diablo Super Biker mobile application is also of great importance, currently
accounting for more than 350,000 downloads, and is greatly appreciated by the biker community. In
2016, a very important update was launched, which guarantees greater precision in calculating data
thanks to new algorithms, detection of weather and road surface conditions, direct links to social media
and the possibility of sharing sessions.The CRM project occupies a priority position in the Motorcycle
Business Unit, considering the biker community as a group of product enthusiasts.
Also in 2016, the end customer direct listening activity was performed through the Brand Tracking
survey in the Top Ten Markets of Pirelli (Italy, Germany, Spain, France, United Kingdom, Brazil,
China, United States, Turkey and Russia). The on-going changes made to this study over the years have
made it possible to refine and improve the precision of business insights into the brand role, image
profile and characteristics of the different touch points that influence the end customer’s purchase
decision.
Pirelli also monitors its competitive position and its brand image among end users through the detection
of Key Performance Indicators (KPI) such as Top of Mind, Brand Awareness and Brand Consideration.
The 2016 survey confirmed the position of Pirelli as one of the top two best recognised tyre brands in
Italy, Germany, Spain and the United Kingdom. In Italy, Pirelli has also confirmed its leadership in
terms of Brand Consideration. Performance in terms of Brand Consideration improved in Germany,
where Pirelli earned two positions in the ranking (from sixth to fourth place) and in France, where
Pirelli went up from fifth to third place. Second place was confirmed in the ranking in Spain and third in
the UK. Outside Europe, Pirelli in Brazil was confirmed in first place for each brand KPI; in China, it
was confirmed in third place as the best-known brand and in second place as a brand considered for
purchase; in the USA, there were significant increases in both Top of Mind and Brand Consideration for
Pirelli; Russia recorded increasing values of brand awareness, which consolidate Pirelli’s position in
fourth place. In general in all the countries, performance is even more positive in the key target
premium, with values of all the indicators higher compared to the more general target of car owners: in
particular in 2016, this target had significant increases of Top of Mind in China and the USA and Brand
Awareness in China, the USA and Russia. There are two reference documents for brand positioning.
One is the Brand Pyramid, which summarises the values, personality and distinctive features of the
Brand. The other is the Brand Key, a work scheme created with the aim of giving unity to product
communication in terms of emotional benefits, functional benefits, reason to believe, differential
elements, target of reference.
2016 ANNUAL REPORT
78
In 2016, the Tyre Talk project also continued: a listening project for trade customers, truly innovative
for the tyre industry, based on an innovative web-based research platform, which can now count on the
participation of more than 1,000 members in five markets that form a select panel of partners-customers,
able to contribute to the understanding of the market dynamics, the development of new marketing
levers and business opportunities. Through constant search, contact and collection of feedback which
includes the innovative and transparent involvement of customers in various types of surveys and online
forums, studies are conducted on various marketing issues such as: the launch of new products, the
management promotional activities or materials at points of sale, the management of F1-related
activities, the evaluation of the Pirelli B2B portal and the knowledge of approved tyres. The key issue is
to collect the opinion of customers on the behaviour of end consumers, not only at the points of sale, but
also in relation to the purchase process, the perception of the brand and product, the use of the labels
introduced by the new European legislation, service expectations related to tyre change.
In 2016, timely surveys conducted through Tyre Talk allowed promoting targeted action plans to
improve the perception of customers regarding the performance of Pirelli in the areas: Product,
Marketing, Quality, Sales & Marketing and Customer Service.
Quality and Product Certification
ISO 9001: since 1970, the Group has had its own Quality Management System introduced gradually at
all production centres and, since 1993, Pirelli has obtained certification of its quality system under the
ISO 9001 standard. Today, 100% of Pirelli facilities are certified with ISO 9001:2008, including the
logistics hub in Manresa, Spain and the Plant in Jiaozuo, China, acquired in 2016.
ISO/TS 16949: In 1999, the Group obtained certification for its Quality Management System in
compliance with ISO/TS 16949 and it has since maintained compliance with the standard as currently
applicable. All plants, whether new or acquired, that are suppliers of the automotive sector have
obtained or continue to maintain this quality certification.
ISO/IEC 17025: Since 1993 the Materials and Experimentation Laboratory of the Group and since
1996 the Experimentation Laboratory of Pirelli Pneus (Latin America) hold the Quality Management
System, and have been accredited under the ISO/IEC 17025 standard. This system is maintained in
accordance with the standard in force and the ability of the laboratories to perform accredited tests is
evaluated annually. The labs participate in proficiency tests organised by the International Standard
Organisation, by ETRTO or by international circuits organised by auto manufacturers. Specifically in
regard to car tyres, the focus on quality is confirmed by Pirelli’s supremacy in numerous product tests. It
is also guaranteed by its collaboration on product development and experimentation with the most
prestigious partners (auto manufacturers, specialised magazines, driving schools, etc.).
The Product Certifications, which allow the commercialization of the products in the various markets in
accordance with the regulations laid down by the different countries, are regularly managed by a
department dedicated to the area of Research & Development. The main Certifications secured by the
Pirelli Group concern the markets of EMEA (Europe, Middle East and Africa), NAFTA (North America
Free Trade Agreement), Brazil, Argentina, Uruguay, China, Taiwan, India, Indonesia and South Korea
and involve all Pirelli plants. These certifications call for annual audits by ministerial bodies of the
countries in question or organisations delegated by them, which verify the compliance of the product at
the certified plant.
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79
Focus On Human Health And The Environment
In 2016, the evaluation continued of new raw materials and new auxiliary products prior to their use by
the operating units of the Group, in order to identify potentially unacceptable critical issues for human
health and/or the environment.
The assessment is performed on a centralised basis and the results are extended to all Countries where
Pirelli operates, taking account not only of the requirements imposed by European regulations
concerning the management of hazardous substances, but also standards and know-how currently
available internationally (specifications, databases, etc.), thereby fully implementing the Company’s
“Health, Safety and Environment Policy” related provisions.
The monitoring also continued of manufacturers and suppliers of raw materials used by the Group
worldwide, especially regarding the registration process of these substances, in compliance with the
specific provisions of Regulation (EC) no. 1907/2006, also known as “REACH Regulation”.
Product Safety, Performance And Eco-Sustainability
The commitment to the development of products that are increasingly focused on combining eco-
sustainability and safety has led to renewal of the product lines. Compared with the previous generation,
this guarantees the use of increasingly innovative materials and significant reductions in parameters like
rolling resistance, as well as further braking performance on surfaces with low grip.
In 2016, the commercial offer for the Car, SUV and Van segment recorded a further improvement in the
average level of grading related to performance thanks to the use of increasingly innovative materials
designed to reduce rolling resistance, and thus reduce CO2 emissions, while allowing a more and more
effective wet braking, substantially contributing to road safety.
In addition, new tread pattern solutions have led to a marked reduction in noise of the Pirelli range.
In April 2016, the new P Zero was launched, the first UHP product with a range covering all Pirelli
technologies, from PNCS to control the noise inside the passenger compartment, to those of extended
mobility such as the Run flat and the Seal Inside, which play a key role for driving safety thanks to the
possibility to continue driving even after a puncture, allowing to avoid risky stops for a possible tyre
change besides avoiding potentially dangerous situations due to a rapid deflation of the tyre. Compared
to the previous generation of P Zero, the use of new materials and compounds has allowed a marked
improvement in the performance of rolling resistance and fuel consumption efficiency.
In June 2016, the Cinturato Winter was introduced in the European market, developed to guarantee
excellent levels of safety in any winter condition. The tyre is equipped with a "talking" indicator on the
tread that warns the consumer when it is necessary to change the winter tyres to maintain optimal
performance on snow. In addition, the 4D layer system allows maximum grip on snow, while the design
of the recesses allows the best performance in aquaplaning in the interest of safe driving on wet roads.
Finally, an optimized pitch sequence allows the reduction of noise: therefore, lower environmental
impact and better driving comfort.
The year 2016 was also the year of the introduction of an all-season tyre in the Carrier range, dedicated
to light commercial vehicles. The Carrier All Season, compared to its predecessor, recorded a 10%
improvement in safety performance related to wet braking and aquaplaning. Furthermore, the change in
the compound and tread pattern has guaranteed an improvement in mileage duration performance and a
consequent reduction in rolling resistance.
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80
Finally, the new Cinturato P6, dedicated to the Asia Pacific market, was developed to meet the needs of
Asian consumers in terms of safety on both wet and dry roads, comfort and fuel consumption. The tread
pattern designed for a better distribution of pressure, allows a reduction in rolling resistance, while the
square footprint allows excellent braking performance on dry.
The same approach in terms of performance for people and for the environment characterizes the
products for industrial vehicles, such as the tyres of the Series:01, that combines energy efficiency - and
thus, the containment of fuel consumption and related CO2 emissions - to maximum performance in
terms of grip on wet roads. In particular, in 2016 an innovative design and the use of new materials have
made it possible to produce increasingly more performing tyres in terms of balance between rolling
resistance and duration of use of the tyre in the first life, and retreadability of the tyre for subsequent
use, with the obvious environmental benefits of using less resources. The apex of this development is
reflected in the new Triathlon line, whose products are also excellent in terms of road safety, as
evidenced by the 3PMSF marking on the side of the product, signifying high grip capacity in winter use.
The expansion of the range has also continued, as part of freight transport, of tyres: 01 XL which,
thanks to the increased load index, can rely on greater resistance and integrity even in the event of heavy
use.
Road Safety Culture and International Initiatives
International initiatives and commitments are discussed in the paragraphs “Corporate Initiatives for the
External Community”.
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OUR SUPPLIERS
As is set forth in the “Values and Ethical Code” of Pirelli, suppliers and external collaborators play a
fundamental role in improving the overall competitiveness of the Company. While seeking the keenest
competitive edge, the Group bases its relations with suppliers and external workers on fairness,
impartiality, and ensuring equal opportunities for all parties concerned.
In its turn, the “Social Responsibility Policy for Occupational Health, Safety and Rights and
Environment” specifies that the sustainable development strategies of the Group require, among other
things, a commitment to continuous improvement in issues of the environment, health and safety at
work connected with its activities, firmly abiding and supporting the content of the Declaration of
Universal Human Rights, the Declaration of the International Labour Organisation on Fundamental
Principles and Rights at Work, the Rio Declaration on the Environment and Development and the
United Nations Convention against Corruption. Likewise, the Policy lays down that Pirelli is committed
to establishing and maintaining active the procedures necessary for assessing and selecting suppliers and
sub-suppliers on the basis of their level of social and environmental responsibility. The sustainable
management of the supply chain is also the subject of the “Green Sourcing Policy” and an integral part
of the “Health, Safety and Environment Policy”, the “Global Human Rights Policy”, the “Quality
Policy” and “Product Stewardship Policy” of the Group. The Policies mentioned are available in various
languages on the Pirelli website, Sustainability Section, to which reference is made for full details.
Supply Chain Sustainable Management System
Procurement processes and partnership relations with suppliers are guided by Pirelli Purchasing
Department and by specialists present in the various affiliates worldwide. Responsible management that
is integrated in economic, social, environmental and governance terms characterises the relations
between Pirelli and its suppliers. The “quality” of companies that provide goods and services is also a
fundamental element in realising the Pirelli premium strategy.
The Pirelli supply chain Sustainable Management System was audited by an independent third party in
accordance with the AA1000 Assurance Standard (2008) since 2011 (as documented in the assurance
statements accompanying the Sustainability Reports for 2011, 2013, 2014 and 2015).
The social, environmental and business ethics responsibilities of a Pirelli supplier are assessed together
with the economic and product or service quality to be supplied, right from the selection as potential
supplier.
Analysis of ESG performance (Environment, Social Governance) continues through the qualification
stage and then is “contractualised” though the Sustainability and business ethics Clauses included in
every contract/purchasing order.
Verification of the supplier’s sustainability performance at the post-contract stage is achieved through
independent third-party audits.
The aforementioned Management Model and the related documentation are available on the institutional
Pirelli website, in the “Suppliers Area” (Pirelli.com/suppliers) section, dedicated to the world of supply
and accessible to current and potential Pirelli suppliers, as well as anyone with an interest in knowing
the approach and procedures adopted by the Company in the areas of purchases of good and service
around the world. The communication channel is aimed at the utmost clarity and sharing of Values,
Guidelines, documentation and standards adopted by the Company in relations with suppliers.
2016 ANNUAL REPORT
The ESG Elements analysed during the selection and qualification phases
Pirelli uses the same ESG performance approach throughout the entire process of interactions with a
supplier, although in different ways among them, consistently with the intensity of the interactions
characterising the specific procedural steps.
82
During a first phase of selection (or scouting), and thus assessment of possible offers for good or
services in the marketplace, a buyer who has been adequately trained is able to gain a first impression of
the supplier possible abidance or not by the Pirelli ESG and product/service requirements. This allows
the Company to identify and delete from the list of potential suppliers those who are in a clear possible
breach of Pirelli expectations.
Pirelli asks suppliers who gain access to the qualification (or on-boarding) phase to use the portal
available in local language. By accessing it, the supplier views and simultaneously accepts Pirelli's
requests in terms of economic, social, environment and business ethics responsibilities (in case of non-
acceptance, the qualification process cannot initiate), to then proceed to fill in a questionnaire
concerning respect for fundamental Human and Labour Rights, considered key by the Company such
that the absence of just one of them will not allow the continuation of the qualification process. These
questions require the potential supplier to attest that its company: checks workers’ ages before hiring
them and ascertains that all of its employees satisfy the minimum legal working age; employs workers
provided with a written labour contract and who work on a voluntary basis exclusively; abides by
workers’ rights of freedom of association and participation in trade-union activities; pays wages that
meet at least the minimum legal standards; manages disciplinary practices, if any, abiding by the law;
abides by and applies legislative/contract provisions in the matter of work schedules, overtime and rest
periods.
The process continues with the request to include quality, environmental and health and safety
certifications; to document their approach to responsible management by attaching their Policies and
Codes; to provide data in respect of the rate of accidents at work; to attest to compliance with labour
laws as set forth above and a litigation there may be. Information is also requested relating to loss
prevention, key elements not only to prevent future cases of "business interruption", but also closely
related to the safety of workers employed at the supplier's site.
For all potential new suppliers and/or plants of raw material, which by their nature can become long-
term partners of the Company, and which are also attributed much of the spending of purchases, Pirelli
conducts a third-party preliminary on-site audit during the qualification phase (which in the case of raw
materials is called "approval") to verify the level of compliance of the potential supplier with respect to
the principal national and international regulations on issues related to Labour, Environment and
Business Ethics. The non-acceptance of the audit and/or not signing a recovery plan aimed at
eliminating the non-compliances shall block the supplier's approval.
With regard to the contractual stage, from 2008 the Sustainability and Business Ethics Clauses
(including anti-corruption) have been systematically included in contracts and orders for the purchase of
goods and/or services and/or works, both with private suppliers and with the Public Administration (or
institutes/enterprises under public control) or NGOs, worldwide.
In particular, the clauses;
•
require awareness on the part of suppliers of the principles, commitments and values contained
in Pirelli’s Sustainability documents, being “Values and the Ethical Code”; the Code of
Conduct” (including anti-corruption) and the “Social Responsibility Policy for Occupational
2016 ANNUAL REPORT
Health, Safety and Rights, and Environment” published and accessible on the web and which
ratify the principles to which the management of Pirelli activities with third parties conform to,
disciplined or not by contract;
require that Suppliers confirm their commitment to:
•
o not using or supporting the use of child labour and forced labour;
o ensuring equal opportunity, freedom of association and promotion of the development of
83
each individual;
o opposing the use of corporal punishment, mental or physical coercion, or verbal abuse;
o complying with the laws and industry standards concerning working hours and ensuring
that wages are sufficient to cover the basic needs of personnel;
o not tolerating any type of bribery and corruption in any form or manner and in any legal
jurisdiction, even where such practices are effectively permitted, tolerated, or not subject
to prosecution;
o assess and reduce the environmental impact of its own products and services throughout
their entire life cycle;
o using resources responsibly with the aim of achieving sustainable development in
compliance with the principles of respect for the environment and the rights of future
generations;
o establishing and maintaining the necessary procedures to evaluate and select suppliers
and sub-suppliers on the basis of their commitments to social and environmental
responsibility, and overseeing, on a regular basis, their compliance with these
obligations;
•
specify that Pirelli reserves the right to verify at any time through activities of audit, either
directly or through third parties, the fulfilment of the obligations assumed by a supplier (see
further details in the next paragraph).
The Sustainability Clauses have been translated into 24 languages so as to ensure maximum clarity and
transparency towards suppliers on the contract duties that they assume, not only in respect of the
Company itself, but also at their own site in relations with their own suppliers.
From the standpoint of utmost assurance suppliers of the Pirelli Group have available the
Whistleblowing Reporting Procedure (ethics@pirelli.com), which has been indicated expressly in the
clauses and by means of which any breach or suspected breach they discern in relations with Pirelli
referring to the contents of the “Values and Ethical Code”, “Code of Conduct (anti-corruption) and
“Social Responsibility Policy for Occupational Health, Safety and Rights, and Environment” of the
Group can be reported in total confidentiality.
In 2016, among the whistleblowing reports received, three involved Suppliers: one related to a late
payment, founded, and which was followed by action to the satisfaction of the reporting Supplier; a
second one related to the non-payment of dues for the services challenged with the supplier, partially
confirmed and therefore, as a result of the involvement of the competent corporate functions, steps were
taken for supplier settlement, and a third concerning an alleged conflict of interest by an employee in
relation to the management of a supplier, for which the verifications carried out did not show elements
in support of the cases challenged. It is objectively impossible to confirm that there were, in absolute
terms, no further reports from other suppliers received as a number of reports were anonymous, as is
specified in the paragraph “Reporting Procedure – Whistleblowing”, to which reference is made for
further details.
2016 ANNUAL REPORT
In addition, each purchase contract gives the name of the contact buyer so that the counterparty always
has access to a company channel to use to transmit any feedback. According to the matter concerned,
the buyer will then address the issue to the correct person/function who can deal with it.
84
Focus: “Green Sourcing” Policy
As at December 2012 Pirelli drafted and issued the “Green Sourcing” Policy with the aim of stimulating
and incentivising an environmental conscience along the entire supply chain and encouraging choices
that might reduce the impact on the environment of procurement activity of goods and services by
Pirelli. The Green Sourcing Policy implementation system inside Pirelli and in supplier relationships
was defined in 2013 and includes:
•
•
•
the Pirelli Green Sourcing Manual, an internal document containing operational Guidelines
aimed at directing the activities of Pirelli’s functions involved in the process of Green Sourcing;
the Pirelli Green Purchasing Guidelines, a document intended for Pirelli suppliers as part of the
Contract for supply and based on the Green Sourcing Manual, containing the KPIs (Key
Performance Indicators) for assessing the Green Performance of these suppliers;
integration of Green Performance in the traditional process of measuring supplier performance
(vendor rating).
The Pirelli Green Sourcing Manual defines four areas of Green Sourcing: Materials, Capex, Opex and
Logistics. Interdepartmental working groups, comprised of Purchasing, R&D, Quality, HSE and
Sustainability analysed the Green Sourcing process associated with the product categories falling within
the four areas mentioned above. Green Engineering Guidelines were also defined for the Materials and
Capex areas, where the design component (that is conceived in-house) is material to the Pirelli core
business.
For the Opex and Logistic areas characterised by goods categories in respect of which the design
component is not equally significant, Green Operating Guidelines have been defined by referring to
internationally recognised best practices.
So, the Green Sourcing Manual is a unique document that contains:
•
•
•
the general part on Green Sourcing issues;
the Green Engineering Guidelines (Materials, Capex);
the Green Operating Guidelines (Opex, Logistics).
The Green Sourcing Manual will also be adopted by the Pirelli Training Academy for training purposes
by the functions involved in the process of Green Sourcing.
Since 2014, and on the basis of the Guidelines of the Green Sourcing Manual, the Pirelli Green
Purchasing Guidelines were published on the website www.pirelli.com, so making them available both
to Pirelli suppliers and to other stakeholders.
In China, Mexico, United States, Russia and Italy, by-invitation seminars have been held at Pirelli
offices on the Green Sourcing Guidelines for local suppliers so as to inform and receive direct feedback
on the way they work.
Additionally, in 2015 Pirelli developed an IT platform to support the launch of a campaign the measure
the Green Performance of Pirelli Suppliers through an electronic questionnaire to be filled out online, a
campaign implemented in April 2016.
Pirelli shared its “Green” approach at the Future Tire Conference 2016 (24-25 May 2016) Essen,
Germany during the “Future Factories and Supply Chain Forum” session with a presentation titled
“Green sourcing in the tire supply chain”. On this occasion, an "Overview" of the Green Survey was
also presented that showed particularly high participation by Raw Material Suppliers (Response Rate of
2016 ANNUAL REPORT
77%) justified by the activities of "engagement" of such Suppliers by R&D, Quality and Sustainability,
actively involved in the supply chain and innovation of the tyre.
85
Focus: Policy On Conflict Minerals
The concept of Conflict Minerals was introduced by Section 1502 of the Dodd-Frank Act, a federal
United Sates law, in 2010. The term “conflict minerals” refers to gold, columbite-tantalite (coltan)
cassiterite, wolframite and their derivates like tantalum, tin and tungsten that come from (or are
extracted in) the Democratic Republic of Congo and/or bordering Countries.
The objective of the rules in respect of Conflict Minerals (Conflict Mineral Rules) is to discourage the
use of minerals whose sale might finance violent conflicts in Central Africa where grave violations of
human rights have been recorded for many years. Under Conflict Mineral Rules, listed companies in the
United States are required to perform reasonable due diligence in tracing the provenance of these
materials, reporting the findings to the SEC and publishing them on their website, with the first report to
be published by 31 May 2014 (in respect of 2013) and updated subsequently each year.
In turn, in November 2016, the European institutions reached an agreement on the final text of the
"regulation establishing a European system of self-certification of the exercise of due diligence in the
supply chain for responsible importers of tin, tungsten, tantalum, their minerals and gold, originating
from areas of conflict and at high-risk". The regulation introduces a system of due diligence that is
obligatory for the upstream part of the supply chain (with some exceptions) and voluntary for the
downstream part. The new provisions will apply from January 2021.
Pirelli expresses its position on the management of the issue in a dedicated paragraph in its “Global
Human Rights Policy”, where it is stated that the Company “requires that its suppliers conduct proper
due diligence within their supply chain in order to certify that the products and materials supplied to
Pirelli are "conflict free" throughout the whole supply chain (i.e. not coming from mines or smelters
operating in conflict zones identified as such in the relevant conflict minerals regulations, unless they
are certified as “conflict free”). Pirelli reserves the right to terminate relations with suppliers in cases
where there is clear evidence of supplying conflict minerals and however in case of any violation of
Human Rights”.
The Policy is published in multiple foreign languages in the Sustainability section of the pirelli.com
website.
To give an idea of the scale of the phenomenon for Pirelli, it is worthwhile stating that the impact is
very limited: the volume of minerals (3T+G) used by Pirelli Tyre in one year in fact weighs less than a
ton, a quantity amounting to approximately one millionth of the volume of raw materials used annually
by the Company and which is equally distributed among most of the tyres produced. To give an
example, a tyre weighing 10 kg contains about 10 mg (milligrams) equivalent of tin, in the extremely
low concentration of 1ppm (one part per million).
With a view to procurement covering only minerals that are "conflict free", Pirelli has conducted a
comprehensive investigation on its supply chain, in order to have full visibility up to the mines or
foundries in order to identify the existence of any "conflict minerals". The Company has asked its
suppliers to complete the CFSI-CMRT (Conflict-Free Sourcing Initiative – Conflict Minerals Reporting
Template), developed by EICC (Electronic Industry Citizenship Coalition) and GeSI (Global e-
Sustainability Initiative).
The suppliers polled cover 100% of the “conflict minerals” risk tied to Group products. More than 90%
of suppliers polled have already given precise indications concerning the source of the materials in
question and listing foundries as required by the procedure and there was no evidence of the presence of
2016 ANNUAL REPORT
conflict minerals. At the end of 2016, a minimum number of suppliers, corresponding to 0.01% of
spending of Pirelli purchasing, are still investigating their chain.
86
Monitoring of ESG Performance
Supplier performance is monitored by using the Vendor Rating system, aimed at defining the quality
level of supplies, the quality of the commercial relationship, the technical-scientific collaboration and,
through on-site audits by third parties, verifying performance in relation to human and labour rights,
health and safety, environmental management and business ethics, followed by the periodic monitoring
of the progress of the actions set down in the recovery plans signed with the supplier. The Vendor
Rating and monitoring of sustainability of suppliers cover all the goods and services from all the
geographical purchasing areas and is an integral part of commercial negotiations.
The results of the Audits are analyzed by the Purchasing Department and the Sustainability and Risk
Governance Department, commented and discussed to identify eventual corrective actions or to improve
performance along with suppliers.
At methodological level, the Purchasing Department and the Sustainability and Risk Governance
Department of the Group define the Guidelines for the selection of suppliers to be audited, supporting
the Purchasing Managers and Sustainability Managers that locally coordinate the auditing activities.
Since 2009, in fact, Buyers and local Sustainability Mangers are asked to identify a roster of suppliers
who, on the basis of the findings of proper Risk Assessment, they feel to be worthwhile to be audited by
third party at the time of the Annual Audit Campaign. The risk assessment and thus the “criticality” of
suppliers envisage an assessment based on the following guiding parameters:
•
•
•
•
•
•
the supplier is bound to Pirelli by multi-year contracts;
the replacement of the supplier may be complex;
the economic burden of the purchase is significant and for this reason an on-site verification of
the supplier’s compliance with Pirelli ESG expectations, signed at the contract stage, is advised,
via third party audit commissioned by Pirelli;
the supplier operates in a Country at ESG risk;
the supplier has not yet undergone an ESG audit by Pirelli or special criticalities have been
detected in previous audits;
there is information, a perception or doubt concerning possible breaches on the part of the
supplier in the matter of social, environmental and/or business ethics responsibilities.
The external auditors carry out verification on the basis of a checklist of parameters of sustainability
deriving from the Pirelli Ethical Code, the SA8000® standard (a tool of reference officially adopted by
the Group for managing social responsibility since 2004) and the “Social Responsibility Policy for
Occupational Health, Safety and Rights, and Environment” (in its turn consistently with the areas of
social, environmental and governance sustainability dictated by Global Compact of the United Nations).
Third-party audits, each of which lasting on average 2 days in the field, include interviews with
workers, management and trade union representatives.
Between the end of 2009 and the start of 2010, 72 audits were carried out; between the end of 2010 and
the start of 2011, a further 56 were done; in the second half of 2012, 62 new audits were commenced on
suppliers of raw materials, machinery, logistics and services which concluded in 2013. In 2014, 78
audits were performed and in 2015 a further 93 audits were begun on suppliers in all the categories
mentioned, including potential suppliers of raw materials, to continue with 64 new audits in 2016 (of
2016 ANNUAL REPORT
which 55 related to the annual campaign and 9 on potential suppliers of raw material). In most cases the
2016 audits involved suppliers of Pirelli operating in Countries where the company is present at an
industrial level, i.e.; Brazil, Argentina, Egypt, China, Romania, Russia, Turkey, Mexico, United States,
Italy, UK, Germany, or Countries from which Pirelli buys raw materials, such as Indonesia, Thailand,
Korea and Japan.
87
On the basis of audit findings, where necessary and fit and given also the specific corrective actions
suggested by the independent Auditor, the supplier signs a recovery plan aimed at preventing,
mitigating or remedying any non-compliances detected. The plan foresees specific actions to be
implemented by precise deadlines in addition to clear identification of the responsibilities for the action
at the supplier company and the method of follow-up (documentary or on-site) that will be followed by
the auditor to verify the resolution of the non-compliances detected during the audit. The process of
monitoring the implementation status of plans of suppliers recovery plan, is a dual one; on the one hand
the third-party auditor verifies the status of implementation of the recovery plan, and on the other
Internal Audit Department of the Group verifies the adequacy of management and the alignment of the
local functions dealing with this (Sustainability and Purchasing).
The results of the Audits carried out during the 2016 annual campaign reconfirmed the positive trend
that began in 2013 and that in absolute terms see the number of suppliers without non-conformities
gradually increasing, as evidenced by the following figure:
The non-compliances recorded in 2016 are substantially tied to processes of health and safety
management and to the use of overtime work, to the proper implementation of Environmental
Management Systems and a lack of adequate oversight by the supplier regarding the sustainability of
their own supply chain.
In 2016, there were no cases of suppliers relationships being terminated as a result of the audit findings.
In rare cases, supply contracts were not concluded with suppliers considered inadequate or at risk
already in the scouting phase.
2016 ANNUAL REPORT
Materiality of ESG Impacts Along the Supply Chain
The environmental impacts of the supply chain are prevalent in the category of raw materials, in terms
of their impact on emissions and performance of the Pirelli product, and in the use of water in natural
rubber transformation processes. Downstream of the natural rubber supply chain is also the risk of
deforestation and damage to biodiversity.
Social impacts (related to human and labour rights in particular) are evidenced, on the other hand, in all
categories of purchases with reference to suppliers operating in Countries considered at a higher risk
from the standpoint of compliance with domestic and international labour legislation.
88
Engagement and Sustainability
Pirelli believes that activities involving suppliers are essential in creating environmental and social
value, and that are inseparably tied to the creation of shared economic value.
There are several activities operated by the Company to that effect.
R&D Partnerships
Pirelli has established several partnerships with strategic suppliers and universities for the development
of innovative materials with low environmental impact (materials described in the paragraphs dedicated
to environmental management of products of this report). As part of the development activities of new
nano-fillers, for example, pursued since the early 2000s through research contracts with universities in
collaboration with suppliers, Pirelli has started to industrially introduce materials of mineral origin in
partial replacement of precipitated Silica and Carbon Black. Compared to the production processes of
the replaced raw materials, the mentioned innovations have granted water savings and more than 75%
reduction in CO2 emissions, saving in 2016 respectively 1,800 tons of CO2 (vs. 1,400 in 2015) and
10,000 tons of water (vs. 7,500 in 2015).
This innovation includes economic benefits related directly to the material for about 150,000 euro,
although the real sustainable business driver is the performance that the product acquires, thus becoming
more competitive.
Sustainability of the natural rubber chain
The economic, social and environmental sustainability of the natural rubber supply chain is among the
priorities of Pirelli, with the full awareness that the origins of its rubber supply chain impact on forests.
Pirelli has no plantations of natural rubber, which it buys from processors, which in turn only in a small
number directly own plantations and generally purchase the materials from traders (Dealers) or directly
from small plantations. This is a very complex supply chain, fragmented, where the supplying
plantations are of minimum extension.
Thus for Pirelli, the possibility of impacting this system can only go through the analysis of the context
and the involvement and engagement of direct suppliers.
In terms of analysis of the context, in 2016, Pirelli conducted third-party on-site audits on its direct
suppliers, in order to evaluate the sustainable performance level at the processing sites, but also to
understand the related direct/indirect control capabilities of their own supply chain up to identification
of the supplying plantations. This mapping is a priority in order to plan the resources and operating
procedures necessary to impact the origin of the chain. Said analysis and mapping are an essential work
base for 2017 in terms of engagement across the entire chain.
A virtuous example of engagement is the partnership that has tied Pirelli to Kirana Megatara since 2014.
Kirana Megatara is a large natural rubber processor in Indonesia, one of the leading suppliers of Pirelli
2016 ANNUAL REPORT
89
worldwide. The Project of Kirana and Pirelli aims to support local farmers through training on the most
effective methods to improve the productivity of plantations and through scholarships for their children.
Increasing the productivity of plantations is a key factor: it allows farmers to increase their income
while decreasing the risk of deforestation resulting from the abandonment of unproductive plantations.
Training on production quality, including the provision of controlled origin plants by agronomist
specialists, takes place throughout the year at the farmers communities involved in the project,
impacting, in a stable and continuous way about 100 farmers.
Each year, Pirelli and Kirana Megatara organize an event called tapping competition, which sees the
best "tappers" of the place in a friendly challenge on the best tapping methods in a day of celebration for
the community that is also an important opportunity for training and spreading awareness among
farmers present regarding the best growing and tapping techniques, necessary to obtain an increasingly
purer product, free from contamination and therefore characterized by its high level of quality,
necessary to increase the earnings of families and simultaneously reduce the impacts of deforestation. In
the evening, the three best tappers are then chosen who, thanks to perfect carving, are awarded prizes for
themselves and their families. Even in 2016, more than 270 farmers and their families attended the
event, which was held in the south of the island of Sumatra.
Although the focus on productivity remains essential for the competitiveness of the entire natural rubber
sector in Indonesia, but is not enough. A truly sustainable future shall also count on proper training and
development of new generations, and this can only be achieved through the education of local
youngsters. For this reason, Pirelli and Kirana Megatara every year also grant scholarships to local
farmers’ children, with the objective of trying to ensure adequate education. In 2016, a total of 65
scholarships were granted.
CDP Supply Chain
For years, Pirelli has participated in Climate Change and Water programmes promoted by the Carbon
Disclosure Project (CDP).
Implementing its Green Sourcing Policy since 2014 Pirelli has decided to extend the request for CDP
assessment to its own key suppliers at a Group level, identified in accordance with criteria of
environmental and economic materiality. In 2016, the selection concerned the suppliers with the most
material impact on the Carbon Footprint of the Group, in the Raw Materials and Energy supply
categories.
The CDP Supply Chain supports Pirelli in monitoring Scope 3 emissions from its supply chain and
ensures adequate awareness of suppliers in terms of climate change so as to identify and activate all
possible opportunities for reducing emissions of climate-altering gases.
In 2016, Pirelli suppliers that responded to the assessment obtained an overall score higher than the
global average of the panel of suppliers that responded to the CDP, and the analysis of the results
showed that in 2016, thanks to the actions aimed at emissions reduction implemented by Pirelli’s
suppliers, it was possible to globally avoid the emission of about 29 million tons of CO2 equivalent,
which are associated with estimated cost savings of 162 million dollars.
First company among tyre manufacturers to have globally introduced the CDP Supply Chain in its own
supply chain, Pirelli intends to expand the number of suppliers involved in the programme to include
other supply categories, and aims to increase the response rate Raw Materials suppliers of from 74% in
2016 to 90% in 2020.
2016 ANNUAL REPORT
90
Suppliers Sustainability training
Since 2012, Pirelli has provided training to its suppliers, identifying from year to year the reference
participants based on strategic issues, spending value, operations of suppliers in countries considered at
risk.
In 2016, training was provided in e-learning mode to strategic industrial services suppliers.. The activity
involved elements of labour law, human rights, respect for the environment and business ethics. The
training involved 186 suppliers in China, England, Russia, Brazil, Venezuela, Argentina, Indonesia,
Mexico, Egypt, Turkey, Italy, Romania, Germany and the United States of America. The tool used for
training was a platform specifically developed for this purpose by the Pirelli Group. After receiving a
personal ID and password, the supplier could connect with the online platform and participate in
training activities at any time. The course included many practical examples and allowed participants to
verify the levels of compliance by their own organisations with the various ESG elements.. In order to
track both the clarity and the effectiveness of the training, a questionnaire was submitted to participants
at the end of the training session.
Supplier Award
The Pirelli Supplier Award, which is assigned each year to suppliers of excellence, aims to constantly
improve relations with parties from the standpoint of shared development.
The 2016 edition of the Supplier Award was held at the Pirelli headquarters in Bicocca (Milan) with the
Pirelli CEO who gave the prizes to nine suppliers operating in Indonesia, Germany, Italy, China, India
and the United States, which had distinguished themselves in quality, innovation, speed, sustainable
performance, global presence, and level of assistance and service. A specific award was granted to
sustainable performance so as to acknowledge those “responsibility” strategies that really make a
difference, by bringing benefits to the entire value chain. In 2016, the Sustainability award was
attributed to a raw material supplier able to significantly reduce the environmental impact of Pirelli
tyres.
2016 ANNUAL REPORT
Trend of Purchases
The Pirelli Tyre core business in 2016 accounts for 96% of Group purchases (97% in 2015). The
following tables show the value of purchases made by Pirelli Tyre and the percentage of the relative
suppliers divided by geographical area. These figures show that the value of purchases is slightly higher
in OECD area with respect to non-OECD areas, as well as the number of suppliers. 74% of suppliers
(vs. 78% in 2015 vs. 77% in 2014) (excluding suppliers of raw materials as they generally operate
where Pirelli does not have facilities), operate locally with respect to the Pirelli Tyre supplied factories,
according to a local-for-local supply logic.
91
Percentage value of purchases by geographic area
OECD
EUROPE
COUNTRIES
NORTH
AMERICA
OTHERS
NON-OECD
LATIN
COUNTRIES
AMERICA
ASIA
AFRICA
OTHERS
Percentage of suppliers by geographic area
OECD
EUROPE
COUNTRIES
NORTH
AMERICA
OTHERS
NON-OECD
LATIN
COUNTRIES
AMERICA
ASIA
AFRICA
OTHERS
2016
50%
5%
4%
18%
13%
1%
9%
2016
49%
5%
4%
30%
4%
4%
4%
2015
47%
4%
4%
19%
15%
1%
10%
2015
48%
5%
3%
29%
4%
4%
7%
2014
47%
4%
3%
21%
14%
1%
10%
2014
51%
4%
4%
27%
3%
4%
7%
The following table shows the breakdown in percentage of the value of Pirelli Tyre purchases by type. It
is clear that the most relevant and significant purchasing category concerns raw materials, with a weight
equal to 48% of the total.
2016 ANNUAL REPORT
Value of purchases by type
Raw Materials
Consumable Materials
Services
Capital goods
2016
48%
5%
37%
10%
2015
50%
5%
35%
10%
92
2014
54%
5%
32%
9%
With reference to the percentages of Pirelli Tyre suppliers by type and number as at the following table,
already from 2010 the consumables and services suppliers categorisation criteria had been defined. The
sum of the number of operators in the two categories remains in excess of 80% of the total, even though
the incidence on total purchases is lower than, for example, that of raw material purchases. The
fragmentation of consumables and services suppliers is clearly visible compared to the substantial
concentration of raw materials purchases over a small number of operators.
Percentage of suppliers by type of purchase
Raw Materials
Consumable Materials
Services
Capital goods
2016
4%
32%
52%
12%
2015
3%
35%
48%
14%
2014
3%
33%
53%
11%
The following table represents the percentage composition in the value of the mix of raw materials
purchased by Pirelli Tyre in 2016, 2015 and 2014. In 2016, there was a decrease in the weight of natural
rubber compared to 2015 due to the reduction of the price of the commodity. The volume of raw
materials utilised for the production of tyres in 2016 amounted to approximately 1 million tons, of
which approximately 5% derives from recycled materials, in line with the previous year.
Mix of raw materials purchased (by value)
Natural Rubber
Synthetic Rubber
Carbon black
Chemicals
Textile
Steel
2016
17%
25%
8%
21%
14%
15%
2015
18%
25%
10%
20%
13%
14%
2014
20%
28%
14%
19%
12%
7%
2016 ANNUAL REPORT
93
Targets for 2017
• CDP Supply Chain: increase in the response rate of suppliers of Raw Materials from 74% in
2016 to 90% in 2020;
• Sustainability of the Natural Rubber supply chain: engagement activities with suppliers
(processors) in order to impact social and environmental sustainability starting from plantations
downstream of the chain;
• new training session on ESG issues dedicated to the Group's strategic suppliers belonging to the
different product categories with particular focus on human rights, health and safety and
environmental management in emerging countries.
2016 ANNUAL REPORT
94
Environmental Dimension
The Pirelli Group considers environmental protection as a fundamental value in the exercise and
development of its activities.
The Pirelli approach to environmental management is inspired by the United Nations Global Compact,
in which Pirelli has participated since 2004 (in addition to having a seat on the Steering Committee of
the Global Compact LEAD), and the “Rio Declaration on Environment and Development”.
The Pirelli Values and Ethical Code states that “A key consideration in investment and business
decisions is environmental sustainability, with the Group supporting eco-compatible growth, not least
through the adoption of special technologies and production methods (where this is operationally
feasible and economically viable) that allow for the reduction of the environmental impact of Group
operations, in some cases even below statutory limits”.
The environmental management model adopted is detailed in the Group Policies: “Health, Safety and
Environment” Policy, “Product Stewardship” Policy, “Quality” Policy, “Social Responsibility Policy for
Occupational Health, Safety and Rights, and Environment”, “Green Sourcing” Policy, based on which
Pirelli undertakes to:
• assess and reduce the environmental impact of its own products and services throughout their
entire life cycle, as of products and services purchased;
• develop products and production processes that are safe and designed to minimize polluting
emissions, waste generation, consumption of natural resources available and the causes of
climate change, in order to preserve the environment, biodiversity and ecosystems;
• manage its environmental activities in full compliance with applicable laws and with the highest
international standards;
• monitor and communicate to its stakeholders the environmental performance associated with
processes, products and services throughout the entire life cycle, promoting its culture of
environmental protection;
• monitor the environmental impacts of its suppliers by requesting them to adopt the same
•
business model along the related supply chain;
support customers and end consumers in understanding the environmental impacts of its
products, informing them of the safest use and disposal methods, facilitating recycling or re-use
where possible;
• empower and train its workers in order to extend adequate culture of environmental capital
conservation.
All the documents mentioned above are communicated to the Group's employees in the local language
and published in the Sustainability section of the pirelli.com website, available to the external
community, in multiple languages.
THE PIRELLI GROUP ENVIRONMENTAL STRATEGY
Management of environmental issues has always played a key role in Pirelli business strategy. With a
view to long-term management, Pirelli monitors the Carbon Footprint and Water Footprint of its entire
organisation and is committed to the progressive reduction of the related impacts on resources, climate
and ecosystems.
The Group has set up a control and monitoring system that allows the identification of the materiality of
environmental impacts throughout the life cycle of the product: the infographic on the following pages
2016 ANNUAL REPORT
shows Pirelli's approach to environmental management and the specific long-term targets defined in the
Industrial Plan, the 2016 performance of which is reported below in this report.
95
As is readily apparent, the materiality of environmental impacts is highly concentrated in the use phase
of the tyre. As part of the Carbon Footprint (and similarly in the case of the Water Footprint) the use
phase weighs about 91% of total impacts along the entire life cycle of the product, compared to a
production phase that weighs only 2.4 % of total impacts.
The graph can be read either horizontally, following the stages of life of a tyre one by one, or vertically,
thus being able to appreciate the objectives of reducing the impacts that the Company has defined for
each of the different stages of life, which will be explored later in this chapter.
From a methodological point of view, these life cycle phases have been analysed using the Life Cycle
Assessment, as defined by the ISO 14040 family of standards. This method is capable of validating the
results and strategic decisions related to it as objectively as possible. Moreover, reporting of the
emissions impacts also complies with the provisions of the GHG Protocol and GRI-G4 Guidelines. All
impacts listed by the standards that are not mentioned, both upstream and downstream of the industrial
activity of Pirelli, either do not apply or are not significant. The values are shown as a percentage, as the
objective of this infographic is to show the difference in materiality between the various life stages. To
determine the Carbon Footprint and Water Footprint, Pirelli’s calculation model respectively follows the
technical specification ISO-TS 14067 and ISO 14046.
The main environmental impacts are generated by various activities related to the different stages of the
lifecycle. In the case of raw materials procurement, the main impact derives from the related production
and distribution. In the case of tyre production, the main impact is related to the consumption of
electricity and natural gas: in particular the main pressure in terms of emissions into the atmosphere and
water consumption is attributed to the production of the latter. In the case of the distribution of new
tyres and their use by customers, the impact derives from the fuel consumption of vehicles (only the fuel
consumption related to the power absorbed by the rolling resistance of the tyres is allocated to
customers). Finally, in the last phase of lifecycle considered, the impact derives from the preparation of
end-of-life tyres for recovery thereof as energy or recycled raw material. With reference to the Carbon
Footprint, the infographic (see the "Driver" part) also includes a breakdown of emissions in the three
Scope categories provided by the GHG Protocol.
The central part of the infographic shows the actual quantification, in percentage terms, of the Carbon
Footprint and Water Footprint.
These two aspects are summarised by four principal indicators: Primary Energy Demand (PED), Global
Warming Potential (GWP), Blue Water Consumption (BWC) and Eutrophication Potential (EP). The
values are managed in GJ of energy, tons of CO2 equivalent, cubic meters of water and kilograms of
phosphate equivalents. Primary Energy Demand refers to the quantity of renewable or non-renewable
energy that is taken directly from the hydrosphere, the atmosphere or the geosphere.
The Global Warming Potential concerns the effect on the climate of anthropic activities and is
calculated, as mentioned, in tons of CO2 equivalent (the greenhouse effect potential of the gas
considered is assessed in relation to CO2, considering a residence time in the atmosphere of 100 years).
Blue Water Consumption is given by the volume of surface and underground water consumed as a result
of the production of a good or service. Consumption refers to the fresh water used and then evaporated
or incorporated in the product.
The Eutrophication Potential is the enrichment of nutrients in a specific aquatic or terrestrial ecosystem.
Air pollution, water emissions and agricultural fertilisers all contribute to eutrophication. The result in
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96
aquatic systems is accelerated growth of algae, which does not allow sunlight to penetrate the surface of
the water basins. This reduces photosynthesis and thus reduces the production of oxygen. Low
concentrations of oxygen may cause mass death of fish and anaerobic decomposition of organic
material, seriously compromising the entire ecosystem. In terms of environmental materiality, the use
phase of the tyre is the most predominant in each of the four indicators mentioned above.
In terms of economic materiality the amount of corporate spending in the manufacturing phase is the
most relevant, which results in the opportunity to reduce impacts through investments in energy
efficiency. In its response strategy, which may be consulted in the lower part of the infographic and
corresponding to what is also stated in the Industrial Plan, Pirelli has adopted adequate management
models for the monitoring and managing of environmental issues, and has also voluntarily adopted
specific targets to reduce its impact in each phase of the product life cycle.
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RESEARCH AND DEVELOPMENT OF RAW MATERIALS
The research and development of innovative materials are key to the design and fabrication of ever-
more sustainable tyres that guarantee reduced environmental impact, during the use and end-of-life
phases, greater driving safety and production efficiency.
Pirelli has activated several Joint Development Agreements with leading suppliers for the study of new
polymers that are able to further improve the characteristics of tyres for rolling resistance, low
temperature performance, mileage and road grip.
In this regard, Pirelli Research & Development focuses, among other things, on:
• high-dispersion silica for wet grip, rolling resistance and durability;
• biomaterials, such as silica from renewable sources, biofillers such as
lignin and
plasticisers/resins of plant origin;
• nanofillers for more stable compounds, lighter structures and highly impermeable liners;
• new silica surfactants to guarantee performance stability and processability;
• vulcanisation agents and stabilisers with reduced environmental impact.
The Joint Labs agreement (2012-2017) between Pirelli and Politecnico of Milan, aimed at research and
training in the tyre industry covers nanotechnology, the development of new synthetic polymers, new
bifunctional chemicals and new biopolymers.
Research continues aimed at diversifying the potential supply sources of natural rubber, to reduce
pressure on biodiversity in producer Countries and allow the Company to manage the potential scarcity
of raw materials with greater flexibility. Among alternative sources, there is rubber from guayule
(Parthenium argentatum), a non-edible shrub that needs little water and no pesticides, and represents an
alternative biomaterial to natural rubber, thanks also to its hypo-allergenic properties, unlike the more
common rubber from Hevea brasiliensis. Thanks to research, Pirelli has developed a tread composition
with a specific grade of natural rubber, which it patented and then tested on UHP – Ultra High
Performance tyres.
Remaining in the field of biomaterials, Pirelli also focused on silica derived from rice husk. Rice husk is
the outer shell of grain and constitutes 20% of raw rice by weight, which is the main waste of this crop
and is available in large quantities in many areas of the world where it is still not valued but burned in
the open without exploiting its full potential. In one of these areas, in Brazil, Pirelli has developed a
production process capable of obtaining industrial silica from husk, 18% of the weight of which consists
precisely of silica. The Pirelli industrial process for the extraction of this raw material is considered
thermally autonomous thanks to the combustion of the carbonaceous part of husk: this allows a
reduction of more than 90% of the quantity of CO2 emitted per kg of silica compared to the
conventional process, which instead exploits fossil energy sources.
Research and innovation of raw materials also entails the improvement of the environmental impact of
end-of-life tyres. In this regard, in collaboration with Università degli Studi of Milan Bicocca, as part of
the Consortium for Research on Advanced Materials (CORIMAV) and through the Fondazione Silvio
Tronchetti Provera, a new selective devulcanisation technology is being studied for the recycling of
materials derived from compounds of End-of-Life Tyres, which allows a significant reduction of
production costs as well as the related environmental impact.
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As part of new nano-fillers, Pirelli has started to industrially introduce materials of mineral origin in
partial replacement of precipitated Silica and Carbon Black. Compared to the production processes of
the replaced raw materials, the mentioned innovations have granted water savings and more than 75%
reduction in CO2 emissions, saving in 2016 respectively 1,800 tons of CO2 (vs. 1,400 in 2015) and
10,000 tons of water (vs. 7,500 in 2015).
100
In addition, in collaboration with Università degli Studi of Milan Bicocca and Politecnico of Milan,
Pirelli is developing Silica particles with an elongated shape that will allow to further reduce fuel
consumption.
PRODUCT AND USE PHASE:
GREEN PERFORMANCE TARGETS
In line with its position in the Premium and Prestige segments, Pirelli develops and introduces
increasingly sophisticated products on the market, responding to a macroeconomic scenario in constant
and rapid evolution.
The major corporate investment in research and development on compounds, structures and tread
patterns allows Pirelli products to achieve extremely high performance in terms of braking in dry and
wet conditions and, at the same time, improved environmental performance such as:
•
•
•
•
•
less rolling resistance – lower CO2 emissions;
less noise – reduced noise pollution;
increased mileage – lengthening of tyre life and reduced exploitation of resources;
improved retreadability – less waste needing disposal;
reduced weight – less use of raw materials and lower impact on natural resources.
Pirelli has adopted targets for improvement of the environmental performance of its products in an
objective, measurable and transparent manner. In terms of materiality regarding the entire life cycle of
the product, it was seen that the rolling resistance related to the use phase of the tyre constitutes by far
the factor with most impact in environmental terms. In this regard, Pirelli has committed to reduce by
2020, compared to the 2007 average, the weighted average rolling resistance of its products by 40%
with regard to Car tyres, by 20% for Truck products and 10% for Motorcycle products, as shown in the
graphs below.
At the end of 2016, the above objectives were achieved to an extent > 50%.
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CAR
TRUCK
MOTO
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Green Performance3 products include the CinturatoTM P7TM Blue, with this solution Pirelli was the first
manufacturer in the world present on the market with a tyre that, in some measurements, boasts the
double A in the Eurolabel scale. This product is available, depending on the measurements, both in
double A class and in B class of rolling however always maintaining A for wet grip. On average, the
CinturatoTM P7TM Blue guarantees 23% less rolling resistance than the Pirelli reference (class C of
rolling resistance) and therefore, lower fuel consumption and less harmful emissions. A vehicle with
CinturatoTM P7TM tyres that runs 15,000 km a year consumes 5.1% less fuel (equivalent to 52 litres),
reduces greenhouse gas emissions of 123.5 kilograms of CO2 and has a wet braking distance 9% lower
compared to Pirelli reference (class B of wet grip) of the same segment. Comparative tests of TÜV SÜD
showed that, at a speed of 80 km/h on wet surface, the P7TM Blue reduces braking by 2.6 meters
compared to a tyre classified B. The CinturatoTM P7TM Blue was developed for medium-high cylinder
cars, as a further evolution of the CinturatoTM P7TM, famous Pirelli Green Performance tyre presented in
2009.
The year 2016 also saw the launch of the new tyre P ZEROTM, characterized by rolling resistance values
10% lower than the previous model P ZEROTM. We also note the approval for the new electric Tesla
Model X SUV, of the Scorpion Zero Asimmetrico, specific tyre for larger and more powerful SUVs,
able to guarantee competition car performance. The Pirelli Scorpion Zero Asimmetrico allows
immediate discharge into the ground of the maximum power and driving torque, while retaining good
energy efficiency in order to ensure the autonomy of the electric vehicle.
As regards Truck, the focus on mileage and rolling resistance finds synthesis in the new MC:01 line,
used for urban transport. The need for more sustainable transport is one of the main demands emerging
from the major metropolitan areas around the world. With its MC:01 product and through a new tread
pattern design technology and the use of low hysteresis compounds, Pirelli has succeeded in combining
an 18% reduction in rolling resistance4 compared to the old product, with a substantial increase in
mileage and thus the duration of the tyre in its first life. In addition, further improvement has been
achieved in terms of safety performance, regarding wet grip and braking5 (reducing the braking distance
by 2.4 m vs. previous product), and in terms of performance on snow, to pass the test in order to obtain
the 3PMSF certification (3 Peak Mountain Snow Flake). The confirmation of said performance is
highlighted in a label that is at the top of this segment, for both fuel saving from reduced rolling
resistance, and for the wet grip class. Added to this is a further improvement in the durability of the
casing of the :01 series that enables this tyre to be marked with a load index higher than the previous
product and therefore also improved retreadability in the casing, extending the overall life of the tyre.
Pirelli has chosen the 2016 Reifen trade fair in Essen to present the R:01 Triathlon tyre, the new
regional product for the European market. Three distinctive features are associated with the new tyre:
versatility of use, high mileage and low consumption – features to meet the needs of an increasingly
demanding market in terms of economic efficiency and use occasions. In fact, the innovative geometry
of the tread as well as the compound of which it is composed (with high silica content) make the
Triathlon perfectly suitable on both regional and long distance roads. Better traction and grip also on
wet surfaces, thanks to the tread siping that guarantees reliability and driving safety even on snow-
covered surfaces.
––
3 Green Performance products identify the tyres that Pirelli produces throughout the world and that fall under rolling resistance and wet skid
resistance classes A, B, C according to the labelling parameters set by European legislation.
4 Rolling Resistance test ISO 28580 standard
5 Wet grip Test ISO 15222 standard (wet braking)
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MANAGEMENT OF END-OF-LIFE TYRES
In terms of materiality, the end-of-life phase of the product has a low proportion of the total impact of
the tyre on the environment, as already highlighted in the infographic related to the Group’s
environmental strategy.
In Europe, about 96% of end-of-life tyres (ELTs) are recovered (Source ETRMA 2015 End-of-Life
Tyre report), in Japan the value is 92% (source: JATMA - Tyre Industry of Japan 2016), while in the US
the amount of recovered tyres comes to 88% (source: RMA - 2015 US Scrap Tyre Management).
For years, Pirelli has been engaged in the management of ELTs. The Company actively collaborates
with the main reference entities at national and international level, promoting the identification and
development of solutions to enhance and promote the sustainable recovery of ELTs, shared with the
various stakeholders and based on the Circular Economy model.
In particular, Pirelli is active in the Tyre Industry Project (TIPG) of the World Business Council for
Sustainable Development (WBCSD), in the ELT working group of ETRMA (European Tyres and
Rubber Manufacturers’ Association) and, at national and local level, it interacts directly with leading
organisations active in the recovery and recycling of ELTs.
As a member of TIPG, Pirelli Tyre has collaborated on the publication of a report on the management of
ELTs, taking a proactive approach to raising the awareness both within emerging Countries and those
that do not yet have a system for recycling ELTs, in order to promote their recycling and reuse
according to defined management models, which have already been launched successfully.
The tyre is a mixture of many valuable materials that at end-of-life allow two paths of recovery:
recovery of material or energy. In the recovery of material, the reclaimed rubber is already reused by
Pirelli in the compounds for new tyres, thus contributing to the reduction of the related environmental
impact. In order to increase this recovery rate, research activities continue with various university
centers aimed at improving the quality of recovered materials in terms of affinity with the other
ingredients present in the compounds.
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ENVIRONMENTAL IMPACT OF PIRELLI'S PRODUCTION SYSTEM
104
ENVIRONMENTAL MANAGEMENT SYSTEM
AND FACTORY’S PERFORMANCE MONITORING
In 2016, all the industrial production facilities of Pirelli Tyre and the tyre testing field in Vizzola Ticino
(Varese) have Environmental Management Systems certified under International Standard ISO
14001:2004.
The International Standard ISO 14001 was adopted by Pirelli as a reference in 1997, and since 2014 all
the certificates have been issued with international accreditation ANAB (ANSI-ASQ National
Accreditation Board: accrediting entity of the United States).
Group policy mandates implementation and certification in accordance with ISO 14001. As such, it is
also applied to new facilities. The certification activity, together with control and maintenance of
previously implemented and certified systems, is coordinated on a centralised basis by the Health,
Safety and Environment Department.
As regards environmental management, a review is currently underway of the procedures and guidelines
to ensure their adequacy with the new requirements introduced with the revision of the ISO 14001:2015
standard.
The environmental, health and safety performance of every tyre manufacturing site is monitored with
the web-based Health, Safety and Environment Data Management (HSE-DM) system, which is
processed and managed centrally by the Health, Safety and Environment Department. Pirelli has also
improved the CSR-DM (Corporate Social Responsibility Data Management), an IT system for
managing Group Sustainability information, which is used to consolidate the environmental and social
performance of all Group business units worldwide. Both systems support consolidation of the
performance accounted for in this report.
SCOPE OF REPORTING
The performance described relates to the three-year period 2014-2015-2016 and covers the scope of
Group consolidation, with the exception of the production site in Jiaozuo (China) under the operational
control of Pirelli since the last quarter of 2016 and whose production, in this quarter, weighted less than
0.5% on the Group total. The environmental performance and the production volumes of Jiaozuo will be
reported starting from the year 2017.
It is recalled that the exclusion of Pirelli de Venezuela from the consolidated scope, which occurred at
the end of 2015, in line with the principles set by GRI has meant recalculating the historical value of the
environmental indicators reported below for the years 2014 and 2015.
The amount of finished product in 2016 was approximately 1,017,000 tons.
As noted above, the performance reported below in this chapter include the impacts of all the units of
the Pirelli Group: from industrial realities to commercial and administrative sites.
TREND IN ENVIRONMENTAL PERFORMANCE INDICES
In terms of environmental impacts materiality (Carbon and Water Footprint) of the tyre along the entire
life cycle, the production phase accounts for 2.4% of total emission impacts and for 1.2% of total water
consumption.
2016 ANNUAL REPORT
The year 2016 saw a stabilization of production volumes: tons of finished product grew by around half a
percentage point compared to 2015 (value calculated on a comparable basis).
The 2016 environmental performance indicators, calculated on tons of finished product, show a general
consolidation of the specific indices of energy consumption and waste recovery, and an improvement of
the specific indices related to water withdrawal and greenhouse gas emissions. By contrast, the
indicators normalized on the Operating Income show a deterioration caused by the decline in PBIT
(Profit Before Interest and Tax) for the same production volumes.
105
It should be noted that the trend of the above indices is significantly impacted by the production focus
adopted. Pirelli production is focused on Premium and Prestige tyres and the relevant production
processes are characterized by higher energy intensity, more stringent quality specifications, more
complex processing and smaller production batches compared to production processes for medium-low
end tyres. In the aforementioned context, the reduction of the indices, has a strong environmental and
economic impact, in terms of consumption and emissions avoided, unused resources, and avoided costs.
Energy Management
Pirelli monitors, manages and reports its energy consumption through three main indicators:
• absolute consumption, measured in GJ, which includes the total consumption of electrical
energy, thermal energy, natural gas and petroleum derivatives (fuel oil, gasoline, diesel, and
LPG);
specific consumption, measured in GJ per ton of finished product, which indicates the energy
used to produce one ton of finished product;
specific consumption, as measured in GJ per euro of Operating Income.
•
•
The Industrial Plan with Vision and target 2020 provides for a reduction of 18% of specific energy
consumption by 2020 compared to 2009 values. In the course of 2016, the energy efficiency plan
continued at all Group plants, already initiated in recent years and characterised by actions aimed at:
•
improving energy management systems, through measurement consumption and a daily focus
on technical indicators;
• optimizing the procurement of energy resources, direct or indirect;
•
•
•
•
• applying targeted maintenance plans in order to reduce energy waste.
improving the quality of energy transformation;
improving the efficiency of distribution plants;
improving the efficiency of production plants;
recovering energy for secondary uses;
With a view to Life Cycle Assessment, the specific consumption of each production machinery is also
mapped, so as to increase the standard indicators of reference, compare similar machinery families and
assess in detail the energy content of the different families of products and sub-products.
In terms of “compliance”, every industrial facility completely fulfils the indications of law regarding
energy consumption and management. The legislative situation affecting the Company includes the
introduction of periodic audit mechanisms on energy management and use, as well as possible tariff
incentives. In this regard, there were no critical elements or non-conformities.
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106
Actions and investments for energy efficiency are alongside the assessment of environmental impacts to
economic sustainability criteria normally applied to all Pirelli projects. The areas for technical action
both concern the traditional themes applied to each industrial area, such as modernisation of thermal
insulation, maintenance of distribution plants, use of technologies using inverters, and special projects
assessed according to the needs of each manufacturing site.
In 2016, various interventions were made. In particular, the installation continues of LED lighting
systems (Light Emitting Diode) to replace less efficient systems. To speed up the replacement plan,
Pirelli also uses “Light Service” contracts, which guarantee both energy savings of more than 50% and
the quality of light achieved. Centrifugal compressors have been installed to replace volumetric
compressors, with a recovery of electrical efficiency greater than 10%. Great attention to efficiency in
thermal energy conversion. Specific projects on steam generators, related to the automation of
combustion, to the cleaning of the inner surfaces, to the insertion of drivers of supply pumps.
As occurred in 2015, also in 2016 the economic slowdown of the South American context, Brazil in
particular, has hindered the improvement of the Group's specific energy index (weighted on tons of
finished product), which is practically stable compared to the figure in 2015 (+0.3%), while remaining
more than 7% lower compared to 2009, the year on which the 2020 target of the Group is based.
The energy efficiency plan applied to factories in 2016 allowed saving about 99,130 GJ. This value was
calculated for each factory on the basis of the production volumes of the reporting year and the change
in efficiencies achieved in 2016 from the previous year.
The absolute and specific consumption data reported in the following table were calculated by using
direct measurements according to procedure (GHG Corporate Standard) and were subsequently
converted into GJ by using heating values from official IPCC sources.
Absolute
GJ
13,011,096
13,329,117
13,415,824
2014
2015
2016
consumption
Specific
GJ/tonFP
consumption
GJ/k€
12.85
15.53
13.15
15.68
13.19
18.53
The same figures in 2016, weighed in economic terms, showed a decrease compared to 2015 due to the
decline in PBIT for the same production volumes.
2016 ANNUAL REPORT
107
The graph below highlights the "Distribution of energy sources" used in Pirelli production process:
among the direct sources, which account for 33% of the total, are natural gas and, to a lesser extent,
other liquid fuels such as oil, LPG and diesel (classified as "other"); the remaining 67% is formed from
indirect sources such as electrical energy and steam purchased. Of the total electrical energy used by the
Group, more than 38% derives from renewable sources (calculation based on IEA data).
2016 ANNUAL REPORT
Management of Greenhouse Gas Emissions and Carbon Action Plan
Pirelli monitors and reports its6 emissions of greenhouse gases through the calculation of CO2eq, which
takes into account the contribution of carbon dioxide and of methane (CH4) and nitrous oxide (N2O). To
quantify emissions, the energy consumption of local units included in the scope of reporting are
collected annually through the CSR-DM IT system.
108
Greenhouse gases are generated by the combustion of hydrocarbons at production sites, mainly to
operate heat generators that power Group plants, and particularly those that produce steam for
vulcanisers, or by the consumption of electrical or thermal energy. The first are called “direct
emissions”, or Scope 1 emissions, insofar as they are produced at Company production sites, while the
emissions resulting from electrical power or thermal energy consumption are defined as “indirect
emissions”, or Scope 2 emissions insofar as they are not produced within the perimeter of company
production sites but at the plants that generate the energy and steam purchased and consumed. The
Scope 2 emissions are reported in two separate ways: location-based and market-based (new
methodology introduced by the GHG Protocol Scope 2 Guidance). It is recalled that the Scope 3
emissions, related to the specific activities of Pirelli Suppliers, are discussed in the section "Our
Suppliers"/"CDP Supply Chain", to which reference is made for further information.
Performance as measured by energy and greenhouse gas emissions is calculated on the basis of emission
factors obtained from the following sources:
IPCC: Guidelines for National Greenhouse Gas Inventories (2006)7;
•
• Within Scope 2 location-based:
o National emission factors8 taken from IEA: CO2 Emissions from Fuel Combustion9;
• Within Scope 2 market-based:
o Specific emission factors of suppliers where available;
o Residual-mix emission factors10 taken from RE-DISS AIB (EU)11 and Green-e (US)12;
o Emission factors used in the context of location-based if other sources of data are not
available;
and are reported according to the models proposed by:
• GHG Protocol: A Corporate Accounting and Reporting Standard;
• GHG Protocol Scope 2 Guidance.
Regarding Scope 2 CO2eq emissions, the national average coefficients are defined with respect to the
last year available on the above reports. It must be pointed out that tyre manufacturing industry is not
carbon intensive: in fact, it is covered by the European Emission Trading Scheme only in reference to
thermal plants having more than 20 MW of installed power. The Company is not subject to other
specific regulations at the global level.
––
6 GHG inventory perimeter indicated in paragraph "SCOPE OF REPORTING"
7 Emission factors expressed in CO2 equivalent, obtained by considering the GWP (Global Warming Potential)
coefficients based on 100 years of the IPCC Fifth Assessment Report, 2014 (AR5)
8 Emission factors expressed in CO2/kWh
9 2016 Publication with update to the 2014 figure
10 Emission factors expressed in CO2/kWh
11 2016 Publication with update to the 2015 figure
12 2016 Publication with update to the 2015 figure
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109
As in the case of energy, Pirelli monitors and accounts for its direct CO2 (Scope 1) and indirect (Scope
2) by using three principal indicators:
• absolute emissions, as measured in tons;
•
•
specific emissions, as measured in tons per ton of finished product;
specific emissions, as measured in tons per euro of Operating Income.
The GHG emission data obtained limited assurance against the ISAE 3000 and ISAE 3410 Standards.
According to the Guidelines of the GHG Protocol Guide, the level of inventory uncertainty was
evaluated as "Good".
The current Industrial Plan envisages a reduction in specific emissions (on tons of finished product) of
CO2 equal to -15% by 2020 compared to 2009 values. At the time, the target was developed according
to the methodology in force, i.e. Scope 1 and Scope 2 "location-based".
The following tables show the performance of the last three-year period:
In 2016, Pirelli recorded a reduction in specific emissions (weighted on tons of finished product) of
2.2% compared to 2015 and 3.6% compared to 2009, the year on which the 2020 target is based.
As regards biogenic CO2 generated from the small production facility of silica from rice husk, Pirelli
emitted in 2016 about 7,400 tons of CO2eq. This quantity is not counted in the Group's absolute
emissions mentioned above, as generated by biogenic fuel.
The portion of indirect emissions generated by the projects implemented in Silao (Mexico) and
Campinas (Brazil) - described below - was reported in the manner prescribed by the Guidelines of the
GHG Protocol, respectively for the procurement of electrical energy from renewable sources and steam
from biomass.
2016 ANNUAL REPORT
The following table reports absolute and specific emissions distinguishing between "location-based" and
"market-based" methodology for Scope 2:
110
GREENHOUSE GAS EMISSIONS ACCORDING TO
2014
2015
2016
SCOPE
Absolute emissions (Scope 1 and Scope 2 location-
ton
960,003
985,360
967,762
based)
Scope 1
Scope 2 (location-based)
Scope 2 (market-based)
ton
ton
ton
Specific emissions (Scope 1 and Scope 2 location-
ton/tonFP 0.948
based)
ton/k€
1.15
234,057
258,083
242,410
725,946
727,277
725,352
797,979
0.951
1.34
0.972
1.16
The following infographic highlights the weight of direct emissions (Scope 1) and indirect emissions
(Scope 2 location-based) of the total absolute emissions of Pirelli.
The improvement in 2016 performance related to greenhouse gas emissions is associated with the
energy efficiency measures described in the previous paragraph and is closely linked to the "Carbon
Action Plan" developed by Pirelli with the aim of increasing the use of energy from renewable sources,
through specific projects. These include:
•
•
•
the 500 kW photovoltaic power plant installed at the plant in Rome, in the USA, which allows
reducing the emissions of the production site by 5%;
the cogeneration plant for the production of electricity, steam and hot water, present at the plant
in Settimo Torinese. There are two cogeneration modules, for a total of nearly 6 MW of
electricity: a 4.8 MW turbine unit powered by natural gas and a 1 MW internal combustion
engine powered by vegetable oil, which ensures about 20% of energy from renewable sources.
The plant is complete with a photovoltaic system of about 1.2 MW;
the supply of steam generated by biomass plant, fuelled with waste wood from local supply
chains, activated for the plant in Campinas (Brazil). In the year 2016, this initiative has allowed
replacing more than 52,500 MWh of energy from fossil sources, for a savings in terms of CO2
emissions avoided of more than 10,000 tons. In consideration of the obvious environmental
benefits of this technology, Pirelli is considering extending the project to other plants in Brazil;
2016 ANNUAL REPORT
•
the procurement of electrical energy from renewable sources at the plant in Silao (Mexico). In
2016, the agreement came into force for the dedicated supply of 3 MW electrical generated from
wind sources, to cover about 30% of electricity consumption of the plant, with an economic
advantages over the purchase of energy from the national grid. The annual savings in terms of
emissions of CO2 avoided was about 12,000 tons.
111
Water Management
Pirelli monitors the "Water Footprint" along the life cycle of the product (as extensively explained
earlier in this chapter). In the tyre manufacturing phase, the impacts of the Blue Water Consumption
(BWC) and Eutrophication Potential (EP) are very low, since they are non-intensive processes in terms
of water resource use. The greatest impact on the life cycle of the tyre is in the use phase due to the fuel
consumption of vehicles.
In the aforementioned environmental strategy of Pirelli, the efficient and responsible use of water in
production processes and at workplaces is addressed comprehensively, with actions to improve water
efficiency in production processes, from design of the machinery to Facility Management activities.
Particular attention is paid to the local context of the use of this resource, with action plans identified
also thanks to the use of specific analysis tools (such as the Global Water Tool of the World Business
Council for Sustainable Development).
The Industrial Plan set a reduction target of specific water withdrawal of -58% by 2020 compared to the
2009 value.
The year 2016 recorded an absolute withdrawal of slightly above 10 million cubic meters, with a
reduction in the specific withdrawal of 6% compared to 2015 and 46% compared to 2009.
Since 2009, Pirelli has saved about 39 million cubic meters of water: an amount almost equivalent to the
absolute withdrawal during four years by the entire Pirelli Group.
To provide an overall view of the performance in terms of water withdrawal year on year, the following
tables report the indicators:
• absolute withdrawal, measured in cubic meters, which indicates the total withdrawal of water by
the Group;
specific withdrawal, measured in cubic meters per ton of finished product, which indicates the
withdrawal of water used to make one ton of finished product;
specific withdrawal, as measured in cubic meters per euro of Operating Income.
•
•
Absolute Withdrawal
Specific Withdrawal
m3
m3/tonFP
m3/k€
2014
2015
2016
11,294,000
10,981,000
10,314,000
11.2
13.5
10.8
12.9
10.1
14.2
2016 ANNUAL REPORT
112
All the figures reported in this section have been collected by taking direct or indirect measurements,
and are communicated by the local units. The two graphs below show the distribution of absolute
withdrawals by type of production business and water supply weight by type of source.
64% of the water withdrawn is pumped from wells inside the facilities and authorized by the competent
authorities. Furthermore, Pirelli obtains 15% of its requirements from surface water, while dedicating
special care to guaranteeing that this withdrawal is marginal in relation to the volume of the affected
water bodies (always less than 5%). About 13% of the volume taken from surface water bodies is
pumped from waterways located in Brazil and protected by national legislation. Lastly, about 275,000
cubic meters of water used, equivalent to approximately 4% of total withdrawal, are obtained from the
waste water treatment of its production processes. A total of about 7.5 million cubic meters of domestic
and industrial waste water were discharged, with 65% of this into surface water bodies, but always in
quantities that are marginal in relation to the volume of the receiving bodies (always less than 5%) and
without significantly impacting biodiversity. The remaining amount was discharged into sewer
networks. Before being discharged into the final recipient, industrial waste water – adequately treated as
necessary – is periodically subjected to analytical tests that certify substantial compliance with locally
applicable statutory limits. In particular, as regards the quality of industrial effluents of the production
facilities, indicative average values are: 8.5 mg/l of BOD5 (Biochemical Oxygen Demand), 38.3 mg/l of
COD (Chemical Oxygen Demand) and 17.0 mg/l of Total Suspended Solids.
2016 ANNUAL REPORT
113
Waste Management
The improvement of environmental performance deriving from the management of waste is achieved
through:
•
innovation of production processes, with the aim of preventing the production of waste at the
source, progressively reducing the processing of rejects and replacing current raw materials with
new materials that have a lower environmental impact;
• operating management of generated waste, aimed at identifying and ensuring the selection of
waste treatment channels that can maximise recovery and recycling, gradually eliminating the
amount sent to the landfill with the Zero Waste to Landfill vision;
streamlining packaging management, both for the packaging of purchased products and the
packaging for products made by the Group.
•
The Industrial Plan envisage that more than 95% of waste produced should be sent for recovery by
2020, with a Zero Waste to Landfill vision.
In 2016, 92% of waste sent for recovery was achieved, consolidating the result obtained in 2015, an
increase of 19% compared to 2009, the baseline year on which the 2020 target is based.
Specific waste production saw a stabilisation of the figure, which stood at 120 kg per ton of finished
product. Hazardous wastes represent 9% of total production and are sent in their entirety to plants
located in the same Country where they are produced.
The graphs below detail waste production through three main indicators:
• absolute production, as measured in tons;
•
•
specific production, as measured in kilograms per ton of finished product;
specific production, as measured in kilograms per euro of Operating Income.
Absolute production
Specific production
2014
2015
2016
ton
119,700
121,600
121,600
kg/tonFP
kg/k€
118
143
120
143
120
168
2016 ANNUAL REPORT
114
Other Environmental Aspects
Solvents
Solvents are used as ingredients in processing, mainly to reactivate vulcanised rubber, during the
fabrication and finishing of tyres. Pirelli is committed to the progressive reduction of these substances,
both by optimising their use, and by spreading solvent-free technologies for operations that may be
performed even without their use. This resulted in a further reduction in the specific consumption of
solvents of more than 5% at the end of 2016 compared to the previous year and of 39% compared to
2009, with related emissions overall slightly lower than total consumption.
Absolute consumption
ton
2014
2,238
Specific consumption
kg/tonFP
2.2
2015
1,985
2.0
2016
1,944
1.9
Biodiversity
Pirelli pays the utmost attention to ensuring that corporate activities do not interfere with the
biodiversity characteristic of the contexts in which the Company operates. Currently, there are two
Pirelli facilities located within protected and high value areas for biodiversity: the facility in Vizzola
Ticino (Varese, Italy) and the facility in Gravataí (Brazil). The Vizzola Ticino site contains the tyre test
2016 ANNUAL REPORT
115
track, has an area of 0.26 square kilometers and is part of the area of Parco del Ticino in Lombardy, an
MAB area (Man and Biosphere, a collection of 425 biosphere reserves located in 95 Countries around
the world) defined by UNESCO. It features 21 species included on the IUCN Red List, of which: 15 are
classified as “of least concern (LC)”, 1 as “near threatened (NT)”, 3 as “vulnerable (V)”, 1 as
“endangered (EN)” and one as “Critically Endangered (CR)”. To ensure the utmost protection of the
natural environment in which the Vizzola test track is located, Pirelli has implemented an ISO 14001
certified Environmental Management System in accordance with the Parco del Ticino. Environmental
impact on biodiversity in the area are not significant; however, several interventions were carried out,
both directly by the Company and by the Park Authority, to mitigate and improve the interactions of
Pirelli’s activities with the natural environment, as stipulated in the agreement signed in 2001. A recent
air quality monitoring campaign carried out at the Vizzola site showed that the impacts of the activity
are negligible with respect to the context. The Gravataí site measures 0.54 square kilometers, of which
0.16 sq km of land ecosystem protected under federal law. Here again, Pirelli has implemented an ISO
14001 certified environmental management system to guarantee that all potential impact on the
environment and on biodiversity, while deemed relatively insignificant, should be duly considered and
managed in every case to reduce all possible interference to a minimum.
In 2016, Pirelli continued in the compensation project of CO2 emissions produced the previous year by
its fleet of company cars, using carbon credits. Direct result of the Pirelli car policy, this initiative
promotes the choice of vehicles that have lower environmental impact and supports a project to save
forests. The cars of the Italian company's fleet in 2015 issued 1,157 tons of CO2. In order to offset this
impact on the climate, Pirelli purchased carbon credits through two projects: an international one related
to the production of energy from renewable sources and an Italian one based on sustainable forest
management.
The first project, realized in Belo Horizonte (Brazil), consists in the collection, transport and treatment
of fugitive emissions of biogas from a controlled waste landfill, which allows producing and feeding in
grid electricity from renewable sources, while avoiding emissions in atmosphere of gases with climate-
changing effect higher than that of CO2.
The second project is located in Lombardy, near the basin of the Po River in the Cava Manara area.
Pirelli’s contribution enabled the maintenance of 39 hectares of land and the care of about 40,000 plants,
with the ultimate objective of rebuilding a forest that can evolve naturally, thus ensuring the survival of
a large ecological corridor distributed along the banks of the river Po. The project is being carried out
with the collaboration of Consorzio Forestale Unione Agricoltori di Pavia (Forest Consortium Farmers
Union of Pavia). The activities financed with Pirelli’s contribution will be carried out in 2017. The
union of the two projects has allowed the decrease of 175% of 2015 emissions, thus going well beyond
what is required by our corporate policy with a view to increasing environmental responsibility.
NOX Emissions
NOx emissions derive directly from the energy-generating processes used. In 2016, the index based on
tons of finished product marked a decrease of 1% compared to the 2015 figure and a decrease of 5%
compared to 2014. The emissions have been calculated by applying, to energy consumption data, the
emission factors defined by the BUWAL 250 and IDEMAT 2001 databases.
Absolute emissions
tonNOX
2014
1,994
Specific emissions
kgNOX/tonFP 1.97
2015
1,918
1.89
2016
1,903
1.87
2016 ANNUAL REPORT
The following graph shows the 2016 weight of direct and indirect NOX emissions out of total NOX
emissions.
116
Other Emissions and Environmental Aspects
The production process does not directly use substances that are harmful to the ozone layer. These are
instead contained in certain closed circuits of the cooling and air conditioning plants. Therefore, except
for accidental and unforeseeable losses, there are no free emissions into the atmosphere that can be
correlated with Pirelli manufacturing activities. Direct emissions of SOX, caused by the combustion of
diesel and fuel oil, was estimated to be about 19 tons in 2016 (U.S. EPA emissions standards). As
regards the management of packaging, tyres are generally sold without packaging. The environmental
management systems implemented at the production units have assured constant and prompt monitoring
and intervention regarding potential emergency situations that may arise, as well as the reports received
from stakeholders. In 2016, as in the previous year, there were no significant environmental spills, and
there were no significant complaints related to environmental issues. In 2016, the Company “Ecosil –
Industria Quimica do Brasil” paid a fine of about 12,000 euro for an anomaly in water management
occurred in 2014. The Company activated, in cooperation with the competent local authorities, all
necessary measures to prevent the recurrence of such events in the future.
2016 ANNUAL REPORT
117
Expenses and Investments
In the three-year period 2014-2016, environmental expenditure related to the production process
exceeded Euro 54.5 million, of which about 29% was allocated in 2016. About 94% of this amount
concerned normal management and administration of factories, while the remaining 6% was dedicated
to preventive measures and improvement in environmental management.
Lastly, it should be noted that, consistent with the materiality analysis at the beginning of this section of
the report, the most significant expenses that Pirelli dedicates to the environment are those relating to
product Research & Development: in 2016, the Company invested 228.1 million euro in research and
innovation of its products, with a constant focus on safety performance, reduction of environmental
impacts and, simultaneously, production efficiency.
2016 ANNUAL REPORT
118
Social Dimension
HUMAN RIGHTS GOVERNANCE
This paragraph describes Pirelli's approach to the protection of Human Rights in its Value chain,
referring to dedicated paragraphs for in-depth discussion of specific management areas and relative
performance.
Pirelli bases its activities on compliance with the universally established Human Rights, as fundamental
and indispensable values of its culture and business strategy, working to manage and reduce potential
risks of violations and in order to avoid causing – or contributing to causing – adverse impacts to these
rights in the international, multi-racial, socially and economically diverse context in which it operates.
Pirelli promotes respect for Human Rights and adherence to international standards applicable at its
Partners and Stakeholders and conforms its governance to the Global Compact of the United Nations, to
the ISO 26000 Guidelines, to the dictates of the SA8000® Standard and underlying international
standards, and the recommendations contained in the UN Guiding Principles for Business and Human
Rights, implementing the Protect, Respect and Remedy Framework.
Pirelli's commitment to human rights is covered extensively in the Group "Global Human Rights"
Policy, as well as in "The Values and Ethical Code", in the "Social Responsibility Policy for
Occupational Health, Safety and Rights, and Environment", in the "Health, Safety and Environment"
Policy, in the "Privacy" Policy, and in the "Equal Opportunities Statement". These documents were
communicated to employees in the local language and published on Pirelli's website in multiple
languages.
In particular, Pirelli's "Global Human Rights" Policy describes the management model adopted by the
Company in respect of core Rights and Values such as occupational health and safety, non-
discrimination, freedom of association, refusal of forced labour, guarantee of decent work conditions in
economic and sustainable terms and in terms of working hours, protection of rights and values of local
communities, refusal of any form of corruption, protection of privacy.
To identify, assess, prevent and mitigate the risks of violation of Human Rights, the Company:
• ensures awareness among its workers through information and training starting from the course
for new recruits (in this regard, reference is made to the section “Focus: Training on
Sustainability” in this report);
• manages its supply chain responsibly and specifically includes respect for human rights in the
selection parameters of its suppliers, the contractual clauses and verifications carried out by
third-party audits. Pirelli also requires its suppliers to implement a similar business model on
their supply chain, including adequate due diligence aimed at certifying that the products and
materials provided to Pirelli are "conflict free" throughout the procurement chain. For an in-
depth discussion on the management of Human Rights in the supply chain and on the issue of
Conflict Minerals, reference is made to the paragraph "Our Suppliers" in this report;
is open to cooperation with governmental and non-governmental, sectoral and academic entities
in relation to the development of global policies and principles aimed at protecting human
rights. In this regard, the risks of violation of Human and Labour Rights in the farthest tiers of
the supply chain were the subject of discussion during the “Pirelli Global Stakeholder Dialogue
2016”, held in Brussels and outlined in the section of this report dedicated to Stakeholder
Engagement, to which reference is made for further information;
•
2016 ANNUAL REPORT
119
• before investing in a specific market, conducts ad hoc assessments of any political, financial,
environmental and social risks, including those related to the respect of human and labour rights.
The internal and external context is monitored in those Countries where the Company does
operate, in view of preventing negative impacts on human rights in the sphere of corporate
influence, and if so, remedying them;
• provides its Stakeholders with a dedicated channel for reports, also anonymous, of any situations
that constitute or may constitute a risk of violation of Human Rights ("Whistleblowing Policy"
published on Pirelli's website). In this regard, it is specified that also in 2016, no reports
involved alleged violations of human rights or the ILO Core Labour Standards, with specific
reference to forced and child labour, freedom of association and collective bargaining,
discrimination. A paragraph in this report is dedicated to the "Reporting Procedure -
Whistleblowing ", to which reference is made for further information on reports received in the
last three years.
The human rights management processes are handled by the Pirelli Sustainability & Risk Governance
Department, which acts in concert with the affected and responsible functions, central and in the various
Countries, with reference to both the Internal and External Community.
In terms of materiality in the corporate value chain, the respect for human rights and labour rights
assumes particular importance in human resources and the supply chain management.
The management of human and labour rights in the Internal Community is outlined in the paragraph on
“Compliance with statutory and contractual obligations governing overtime, time off, association and
negotiation, equal opportunities and non-discrimination, bans on child and forced labour”, to which
reference is made for related details.
The management of human rights in the supply chain is reported in the section “Our Suppliers” of this
report, to which reference is made for more details.
In 2017, with the support of the Sustainability Managers of the various countries where Pirelli operates
and the reference local NGOs, Pirelli will perform an update of the assessment on risk of violations of
human and labour rights considering the entire value chain.
2016 ANNUAL REPORT
120
INTERNAL COMMUNITY
The Human Capital Sustainable Management Model is inspired by the Global Compact principles, the
SA8000® Standard, which for years has been the reference tool for the Group’s social responsibility
management, and the ISO 26000 Guidelines. This results in Values and in the specific commitments
that the Company states in the “Ethical Code”, in the “Global Human Rights” Policy, in the “Health,
Safety and Environment” Policy, in the “Social Responsibility Policy for Occupational Health, Safety
and Rights, and Environment” and in the “Equal Opportunities Statement”, communicated to all
employees in the local language and made available to all stakeholders in the Sustainability section of
the website www.pirelli.com.
PIRELLI EMPLOYEES AROUND THE WORLD
Pirelli's employees at December 31, 2016 – expressed in Full Time Equivalent - amounted to 37,050
resources (vs. 35,856 in 2015 and 35,910 in 2014) and include 986 resources of the Chinese plant of
Jiaozuo that joined the Group in October 2016; on a like-for-like basis, there was thus an increase of
208 resources over the previous year.
2016 ANNUAL REPORT
Breakdown of employees by category
2016
EXECUTIVES
TYRE BUSINESS
OTHER ACTIVITIES*
TOTAL PIRELLI
TYRE BUSINESS
OTHER ACTIVITIES*
TOTAL PIRELLI
SCOPE 2015
JIAOZUO
327
327
0
2
329
2015
EXECUTIVES
313
3
316
2014
EXECUTIVES
TYRE BUSINESS
OTHER ACTIVITIES**
TOTAL PIRELLI
305
4
309
2016 vs 2015
EXECUTIVES
TYRE BUSINESS
OTHER ACTIVITIES*
TOTAL PIRELLI
SCOPE 2015
JIAOZUO
14
-1
13
0
13
2016 vs 2014
EXECUTIVES
TYRE BUSINESS
OTHER ACTIVITIES**
TOTAL PIRELLI
*: Pirelli Eco Technology
**: Pirelli Eco Technology and PZero
SCOPE 2015
JIAOZUO
22
-2
20
0
20
WHITE
COLLARS
7,242
7,086
156
23
7,264
WHITE
COLLARS
6,853
30
6,883
WHITE
COLLARS
6,948
60
7,007
WHITE
COLLARS
233
-8
225
156
381
WHITE
COLLARS
138
-37
101
156
257
BLUE
COLLARS
29,385
28,555
830
72
29,457
BLUE
COLLARS
28,549
108
28,657
BLUE
COLLARS
28,482
112
28,594
BLUE
COLLARS
6
-36
-30
830
800
BLUE
COLLARS
73
-40
33
830
863
121
TOTAL
36,954
35,968
986
96
37,050
TOTAL
35,715
141
35,856
TOTAL
35,735
176
35,910
TOTAL
252
-45
208
986
1,194
TOTAL
233
-79
154
986
1,140
2016 ANNUAL REPORT
Breakdown of employees by geographical area*** and gender
122
2016
TYRE BUSINESS
OTHER ACTIVITIES
TOTAL PIRELLI
Men
Women
Total Men
Women
Total Men
Women
Total
12,537
2,336
14,873
50
45
95
12,587
2,382
14,969
1,761
3,226
3,913
336
707
105
961
2,097
11,779
3,331
4,874
0
0
0
1
0
0
0
0
0
0
0
1
1,761
11,071
3,226
3,914
336
707
105
961
2,097
11,779
3,331
4,875
32,508
4,446
36,954
51
45
96
32,559
4,491
37,050
2015
TYRE BUSINESS
OTHER ACTIVITIES
TOTAL PIRELLI
Men
Women
Total Men
Women
Total Men
Women
Total
12,327
2,351
14,678
78
62
140
12,405
2,413
14,818
1,436
3,239
3,056
284
741
80
799
1,720
12,144
3,319
3,855
0
0
0
1
0
0
0
0
0
0
0
1
1,436
11,402
3,239
3,057
284
741
80
799
1,720
12,144
3,319
3,856
31,460
4,255
35,715
79
62
141
31,539
4,317
35,856
2014
TYRE BUSINESS
OTHER ACTIVITIES
TOTAL PIRELLI
Men
Women
Total Men
Women
Total Men
Women
Total
SOUTH AMERICA
11,071
SOUTH AMERICA
11,402
EUROPE
NAFTA
MEA
ASIA PACIFIC
TOTAL
EUROPE
NAFTA
MEA
ASIA PACIFIC
TOTAL
EUROPE
NAFTA
MEA
ASIA PACIFIC
TOTAL
SOUTH AMERICA
12,359
12,172
2,388
14,561
90
1,260
2,751
3,008
195
752
73
776
1,455
13,111
2,824
3,784
0
0
0
1
31,550
4,184
35,735
91
85
0
0
0
0
85
175
12,262
2,473
14,735
0
0
0
1
1,260
12,359
2,751
3,009
195
752
73
776
1,455
13,111
2,824
3,785
176
31,641
4,269
35,910
2016 ANNUAL REPORT
123
2016 vs 2015
TYRE BUSINESS
OTHER ACTIVITIES
TOTAL PIRELLI
Men
Women
Total Men
Women
Total Men
Women
Total
EUROPE
NAFTA
SOUTH AMERICA
MEA
ASIA PACIFIC
TOTAL
210
325
-331
-13
857
1,048
-15
52
-34
25
162
190
196
377
-365
12
1,019
1,238
-28
-17
-45
0
0
0
0
0
0
0
0
0
0
0
0
182
325
-331
-13
857
-28
-17
-45
1,020
-31
52
-34
25
162
174
151
377
-365
12
1,019
1,194
2016 vs 2014
TYRE BUSINESS
OTHER ACTIVITIES
TOTAL PIRELLI
Men
Women
Total Men
Women
Total Men
Women
Total
EUROPE
NAFTA
365
501
SOUTH AMERICA
-1,288
MEA
ASIA PACIFIC
TOTAL
475
905
958
-52
141
-45
32
185
261
313
642
-1,333
507
1,090
1,219
-40
-40
-79
0
0
0
0
0
0
0
0
0
0
0
0
-40
-40
-79
325
501
-1,288
475
905
919
-92
141
-45
32
185
221
233
642
-1,333
507
1,090
1,140
***: Europe: Austria, Belgium, France, Germany, Greece, Italy, Netherlands, Poland, Czech Rep., United Kingdom, Romania, Russia, Slovakia,
Spain, Sweden, Switzerland, Hungary. Nafta: Canada, Mexico, United States. South America: Argentina, Brazil, Chile, Colombia. MEA:, Egypt,
South Africa, Turkey. Asia Pacific: Australia, China, Japan, Singapore, Taiwan.
2016 ANNUAL REPORT
124
Workforce Flows by Geographic Area, Gender and Age
The following data refer to incoming/outgoing employees. The disposals and acquisitions of companies
or business units, and changes in work schedules from full to part-time are not considered.
Employee flows by geographical area*** in the three-year period 2014-2016
2016
INCOMING OUTGOING
2015
INCOMING OUTGOING
EUROPE
NAFTA
SOUTH
AMERICA
MEA
ASIA
PACIFIC
TOTAL
1,890
1,119
1,665
673
309
5,656
1,658
758
2,007
621
288
5,332
1,737
701
1,539
1,041
586
5,604
1,604
443
2,439
570
519
5,575
2014
INCOMING
1,950
570
OUTGOING
1,504
626
1,377
539
686
5,122
1,338
188
469
4,124
2016 EMPLOYEE FLOWS BY GEOGRAPHICAL AREA, GENDER AND AGE: TOTAL VALUES
INCOMING
>50
69
5
<30
1,107
829
930
507
30-50
715
285
721
158
211
3,584
98
1,976
14
8
0
96
MAN WOMEN
1,584
941
307
178
1,565
100
622
51
<30
620
563
656
419
OUTGOING
>50
355
2
MALE WOMEN
1,316
632
342
126
30-50
684
193
1,163
188
1,837
170
175
27
611
10
255
4,967
54
690
169
2,426
116
2,331
3
575
213
4,609
75
723
EUROPE
NAFTA
SOUTH
AMERICA
MEA
ASIA
PACIFIC
TOTAL
2016 EMPLOYEE FLOWS BY GEOGRAPHICAL AREA, GENDER AND AGE: PERCENTAGE
VALUES
<30
59%
74%
INCOMING
>50
4%
0%
30-50
38%
25%
MAN WOMEN
16%
84%
16%
84%
56%
43%
75%
23%
68%
63%
32%
35%
1%
1%
0%
2%
94%
92%
83%
88%
6%
8%
EUROPE
NAFTA
SOUTH
AMERICA
MEA
ASIA
PACIFIC
TOTAL
OUTGOING
>50
21%
0%
MALE WOMEN
21%
79%
17%
83%
<30
37%
74%
33%
30-50
41%
25%
58%
67%
28%
9%
4%
17%
12%
59%
46%
40%
44%
1%
11%
92%
98%
74%
86%
8%
2%
26%
14%
2016 ANNUAL REPORT
2015 EMPLOYEE FLOWS BY GEOGRAPHICAL AREA, GENDER AND AGE: TOTAL VALUES
125
<30
1,049
500
888
635
30-50
600
198
635
392
INCOMING
>50
88
3
17
14
MAN
1,449
558
WOMEN
288
143
<30
570
304
30-50
647
132
OUTGOING
>50
388
7
MALE WOMEN
1,240
378
364
65
1,375
164
1,134
1,156
150
2,263
176
1,030
11
416
132
22
561
9
401
3,473
185
2,009
0
122
493
4,905
93
699
316
2,739
202
2,269
1
568
445
4,887
74
688
EUROPE
NAFTA
SOUTH
AMERICA
MEA
ASIA
PACIFIC
TOTAL
2015 EMPLOYEE FLOWS BY GEOGRAPHICAL AREA, GENDER AND AGE: PERCENTAGE
VALUES
<30
60%
71%
INCOMING
>50
5%
0%
30-50
35%
28%
MAN WOMEN
17%
83%
20%
80%
<30
36%
69%
OUTGOING
>50
24%
2%
30-50
40%
30%
MALE WOMEN
23%
77%
15%
85%
58%
41%
61%
38%
68%
62%
32%
36%
1%
1%
0%
2%
89%
11%
46%
47%
99%
1%
73%
23%
6%
4%
84%
88%
16%
12%
61%
49%
39%
41%
0%
10%
93%
98%
86%
88%
7%
2%
14%
12%
EUROPE
NAFTA
SOUTH
AMERICA
MEA
ASIA
PACIFIC
TOTAL
2014 EMPLOYEE FLOWS BY GEOGRAPHICAL AREA, GENDER AND AGE: TOTAL VALUES
EUROPE
NAFTA
SOUTH
AMERICA
MEA
ASIA
PACIFIC
TOTAL
<30
1,294
363
902
505
30-50
531
198
463
34
INCOMING
>50
124
9
13
0
MAN WOMEN
1,698
554
252
16
1,245
132
538
1
<30
766
384
654
84
30-50
533
226
597
90
OUTGOING
>50
205
16
MALE WOMEN
1,257
612
247
14
87
14
1,198
140
184
4
512
3,576
174
1,400
0
146
620
4,655
66
467
335
2,223
129
1,574
5
327
401
3,651
68
473
2016 ANNUAL REPORT
126
2014 EMPLOYEE FLOWS BY GEOGRAPHICAL AREA, GENDER AND AGE: PERCENTAGE
VALUES
<30
66%
64%
INCOMING
>50
6%
2%
30-50
27%
35%
MAN WOMEN
13%
87%
3%
97%
<30
51%
61%
OUTGOING
>50
14%
3%
30-50
35%
36%
65%
34%
94%
6%
75%
70%
25%
27%
1%
0%
0%
3%
90%
10%
49%
45%
100%
0%
45%
48%
90%
91%
10%
9%
72%
54%
28%
38%
7%
7%
1%
8%
MALE WOMEN
16%
84%
2%
98%
90%
10%
98%
2%
85%
89%
15%
11%
EUROPE
NAFTA
SOUTH
AMERICA
MEA
ASIA
PACIFIC
TOTAL
***: Europe: Austria, Belgium, France, Germany, Greece, Italy, Netherlands, Poland, Czech Rep., United Kingdom, Romania, Russia, Slovakia,
Spain, Sweden, Switzerland, Hungary. Nafta: Canada, Mexico, United States. South America: Argentina, Brazil, Chile, Colombia. MEA:, Egypt,
South Africa, Turkey. Asia Pacific: Australia, China, Japan, Singapore, Taiwan.
During the year, the Company operated internationally to rebalance the employment level aligning it to
the needs of volume related to high market volatility, obtaining a positive occupational balance
compared to 2015.
Considering mature Countries (Countries where Pirelli operates, internationally defined as “mature” or
“non-emerging” markets), in Italy, there was the strengthening of HQ structures mainly in the areas
dedicated to research and development.
As for emerging markets (Countries where Pirelli operates, internationally defined as “emerging”,
namely Romania, Russia, Argentina, Brazil, Chile, Colombia, Mexico, Venezuela, Egypt, Turkey,
China), in addition to the aforementioned acquisition of the Chinese facility of Jiaozuo, the Company
increased the number of employees mainly in Romania and Mexico, acting on the organisation and
production processes in line with market requirements. As for Brazil, the reorganization process of the
production structure continued and led to a downsizing of the workforce especially in the plants of
Santo André and Bahia following the crisis situation of the country and the related negative impact in
the Tyre sector.
The year 2016 finally showed stability of inflows in the face of a reduction in outflows over the
previous year.
Pirelli does not employ anyone under the age of 15. There are 41 young people aged between 15 and 18
(17 in Brazil, 12 in Germany, 6 in the UK, 4 in Switzerland and 2 in Sweden), each for training and
integration plans, in harmony with local laws.
DIVERSITY MANAGEMENT
Pirelli is characterised by a multinational context where individuals manifest a great diversity, whose
conscious management simultaneously creates a competitive advantage for the Company and a shared
social value. Pirelli’s commitment to compliance with equal opportunities and the enhancement of
diversity in the workplace is expressed in the main Group Sustainability documents: the “Ethical Code”
approved by the Board of Directors, the “Social Responsibility Policy for Occupational Health, Safety
and Rights, Environment” and the “Equal Opportunities Statement”, both signed by the Chairman.
2016 ANNUAL REPORT
These documents have been distributed to all employees in their local language and published on the
institutional website www.pirelli.com/Sustainability.
127
While respecting the cultural differences of the individual Countries, what necessarily unites all Pirelli
affiliates in the same culture are its shared corporate values, policies and rules, which are applied at
Group level and communicated in the local language. In 2015, remote training was provided in 24
countries on issues of diversity management at the company and related value, already initiated in 2014
in Italy. The course, developed centrally in collaboration with local representatives in order to ensure
maximum effectiveness, has been translated into 11 languages and offered to all group employees, on
line or in print copy.
Pirelli monitors the level of acceptance and appreciation of diversity perceived by employees within
their own reality. The survey is conducted as part of the annual “My Voice” climate survey, conducted
in the local language at Group level (reference is made to the dedicated paragraph in this report). The
results of the survey, conducted in late 2016, as every year have been particularly appreciable with
regard to the perception of respect and management of Diversities, which remains a distinctive feature
of the corporate culture of Pirelli. The results of the survey carried out at the end of 2016 will instead be
communicated to employees in the first quarter of 2017.
A functional tool for the management of equal opportunities and the prevention of risk of breach thereof
is the Group Whistleblowing Procedure, through which employees, suppliers and the External
Community can anonymously report any suspected violation. Also in 2016, there were no
whistleblowing reports concerning acts of discrimination.For further information on reports received in
2016, 2015 and 2014, reference is made to the paragraph “Reporting Procedure – Whistleblowing”.
Internationality and multiculturalism are the characteristic elements of the Group: Pirelli operates in
over 160 Countries on five continents, and 91.2% of employees (at December 31, 2016) worked outside
of Italy.
Awareness of the cultural differences that create the identity of the Company entails displaying the
utmost confidence in management of local origin: 80% of Senior Managers work in their Country of
origin, where Senior Managers are those reporting directly to the Chairman and CEO at December 31,
2016. In order to develop the innovative and managerial potential inherent in multiculturalism and in
dealings with different professional environments, the Company promotes the growth of its managers
through international mobility: 60% of active Senior Managers in 2016 have in fact experienced at least
one inter-company assignment during their professional experience within the Pirelli Group. At the end
of 2016, moreover, 13.2% of expatriates were women (up from 13% in 2015).
Below is a breakdown of employees by gender, expressed as the percentage weight of women against
the total number of employees in each job category, with reference to the three-year period 2014-2015-
2016, the data shown in the following table show substantial stability in 2016 compared to 2015, with
an increase compared to 2014. The percentage of women of the total Pirelli population stood at 12.1%,
of total executives at 9.1%, of total managerial positions at 18.6% and of total workers at 8%. However,
the percentage of women in Executive positions rose to 21%, the latter being an important element as
this category constitutes a growth pool.
2016 ANNUAL REPORT
128
EXECUTIVES
CADRES
(=Tot
EXE+CADRE
2016
2015
2014
9.1%
9.2%
8.7%
21.0%
20.5%
20.1%
Managers)
18.6%
19.0%
18.6%
WHITE
COLLARS
32.0%
32.1%
32.2%
TOTAL
BLUE
COLLARS
8.0%
8.1%
7.8%
TOTAL
12.1%
12.0%
11.9%
Analysing the breakdown of gender in terms of employment contract, the table below shows that also in
2016, a substantial balance was maintained between men and women.
2016
2015
2014
Men
Women
TOT
Men
Women
TOT
Men
Women
TOT
PERMANENT
94.5%
96.4%
94.7%
95.0%
96.4%
95.2%
92.9%
96.7%
93.3%
TEMPORARY
AGENCY
5.3%
0.2%
3.4%
0.2%
5.1%
0.2%
4.3%
0.7%
3.1%
0.5%
4.2%
0.7%
7.0%
0.1%
2.9%
0.4%
6.5%
0.2%
The rate of employee return to work after maternity/paternity leave at Pirelli in relation to its total
workforce in all industrial Countries where the Company operates was positive. In particular: one year
after the maternity and paternity event which occurred in 2015, 2016 saw 89% of women (the same
figure as the previous period of reference 2014-2015) and 98% of men (in line with the 2015 figure) still
being employed by the Company. The difference in the data between genders should be considered
natural in light of the different socio-cultural contexts in which Pirelli female workers are inserted.
In the context of gender diversity, Pirelli pays special attention to remuneration equality, constantly
monitoring this issue.
The Countries considered significant in the analysis at the end of 2016 were Brazil, China, Germany,
Italy, Romania, Turkey, Mexico, Argentina, Egypt, the USA and Russia, representing over 3/4 of the
total workforce subject to the remuneration policy (executives, managers and employees). At a
methodological level, it should be noted that the remuneration differentials between men and women
were calculated for each Country and at the same weight of positions held, cross-checking the “grade”
(i.e. the weight attributed to each position on the basis of various factors) with elements such as
performance and professional seniority. This valuation method allows objectivity and accuracy of the
survey and evaluation: in fact, it should be noted that data calculated and/or reported only at Group level
would not allow to pay due attention to the structural differences of the local markets, the different
professional seniorities and the logic of remuneration markets with special features not comparable with
each other.
The average of pay differentials between men and women recorded in these countries is equivalent to
2% in favour of women for white collars, compared with 1% in 2015 also in favour of women and 3%
in 2014 in favour of men; instead, it is equal to 1% in favour of men for managers, compared with 5% in
2015 and 3% in 2014 also in favour of men.
2016 ANNUAL REPORT
129
A few examples:
•
Italy, which has a difference between average remuneration for men and average remuneration
for women of around 1% in favour of women for the category of white collars (compared to
13% in 2015 and 5% in 2014 in favour of men) and 2% also in favour of women for the
category of managers (1% in 2015 and 2% in 2014);
• Turkey, where the differential is in favour of men for 15.7% for the category of white collars
(4% in 2015 and 5% in 2014);
• Romania, where for the category of white collars the differential is equal to 1% in favour of men
(compared to 5% in 2015 and 7% in 2014 in favour of women);
• Brazil, where for the category of white collars there is substantial equal pay for men and women
(5% in favour women in 2015 and 4% in favour of men in 2014) and the same applies for the
category of managers (4% in favour of men in 2015, 1% also for men in 2014);
• Germany, which showed a difference between average remuneration for men and average
remuneration for women of around 3% in favour of men for the category of white collars (4% in
2015 and 5% in 2014) and 6% also in favour of men for the category of managers (3% in 2015
and 2% in 2014).
Finally, with reference to the population of executives, of which women account for 9% (figure
unchanged compared to 2015 and 2014), there is an average remuneration difference of 8% in favour of
women (in 2015, the ratio was 5% in favour of women, while in 2014 the ratio was 6% in favour of
men).
In the various markets, the “professional seniority” factor, still on average of benefit of men, continues
to have a strong impact on the remuneration trend. On the other hand, the number of women who enter
the labour market will contribute in the medium term to an increasing balance between genders, also in
terms of professional seniority.
In regard to the standard salary of new hires during their first year of work at Pirelli, this is greater than
the minimums prescribed by local legislation and there are no differences between men and women or
related to other diversity factors.
The inclusive culture by which Pirelli is guided in its way of doing business permeates corporate life
even in the case of disability, as explained in the Pirelli Policy on equal opportunities, applied at all
affiliates of the Group. Under applicable local laws, approximately 1.1% of total employees in 2016 (vs.
1.2% in 2015) have some form of disability, however with the following considerations: the percentage
measurement of disabled employees in the multinational context of the company clashes with the
objective difficulty of measuring their number, both because in many countries where the Group is
present, there are no specific laws or regulations promoting their employment and therefore disabilities
are not automatically detected, and because in many countries this information is deemed confidential
and protected by privacy laws; it is therefore likely that the actual percentage of disabled persons
working at Pirelli might be higher than the above figure.
With reference to the “age” factor of the company population, as can be seen from the table below, it is
homogeneous between gender.
2016 ANNUAL REPORT
Average age by category and gender
130
2016
Women
Men
Total
2015
Women
Men
Total
2014
Women
Men
Total
Executives
Cadres
White collars Blue collars Average
48
50
50
43
45
44
37
39
38
36
37
37
37
38
38
Executives
Cadres
White collars Blue collars Average
49
50
50
43
45
44
38
39
38
36
37
37
37
38
38
Executives
Cadres
White collars Blue collars Average
49
49
49
43
45
44
37
38
38
36
36
36
37
37
37
Instead, the following table represents the average seniority of service per professional category and
gender: also in 2016, there were no significant differences between men and women. In 2016, the
average seniority of women in the category blue collars consolidates the considerable growth recorded
in 2015 compared to 2014 (7 years compared to 4 in 2014).
Average job seniority
2016
Women
Men
Total
2015
Women
Men
Total
2014
Women
Men
Total
Executives Middle Managers White collars
Blue collars
Average
14
15
14
13
14
14
8
9
9
7
9
9
8
10
9
Executives Middle Managers White collars
Blue collars
Average
14
15
15
14
15
14
9
10
10
7
9
9
8
10
10
Executives Middle Managers White collars
Blue collars
Average
14
16
16
14
14
14
8
9
9
4
8
8
7
9
9
2016 ANNUAL REPORT
131
The following procedures and activities to promote equal opportunities have been well-established for
years:
•
the use, as far as possible, of candidate lists with a significant presence of women in recruitment
processes;
the use of training to promote cultural change connected with the promotion of diversity, with
specific modules dedicated to “Diversity Management,” beginning with courses for new hires
(e.g. Pirelli’s Way Joining the Group);
the taking of positive measures regarding cultural and religious diversity (such as different foods
that are clearly marked in company canteens so that everyone may freely comply with their own
religious dietary restrictions);
•
•
• “multilingual” book stores at the factories;
• welcome kits for those joining Pirelli at a facility in a country other than their home country;
• welfare and work-life balance initiatives (in regard, refer to the paragraph “Welfare and
initiatives for the Internal Community” in this report);
• participation, at the end of 2016, in a survey sponsored by BCG and Value D "Women at the
top" on the perception of careers for women in the company. The survey results will be
available in early 2017 and will be analyzed internally along with the results of the opinion
survey "My Voice 2016" (to which a paragraph is dedicated in this report) in order to read the
results in an integrated manner and also define action plans that are as comprehensive and
effective as possible.
REMUNERATION AND SUSTAINABILITY
The remuneration policies adopted by Pirelli aim to ensure fair remuneration in line with the
individual’s contribution to the success of the Company, recognising the performance and quality of the
individual’s professional input, in a philosophy of sustainable remuneration.
The purpose is twofold: on the one hand to attract, retain and motivate critical employees, while on the
other to reward and promote conduct that is as far as possible consistent with the corporate culture and
values. Compensation policies and processes for Group management (intended as the overall
executives) are managed by the central Human Resources and Organisation department, while for non-
executive personnel they are handled on an individual Country basis. Once again in 2016, and in
accordance with market best practices, the impact of the (short-term and medium-term) variable
component on the aggregate remuneration of Group management remained very high, which means that
there is a strict correlation between remuneration and performance.
Members of Management in general are connected to the Annual Incentive Plan (MBO) linked to the
achievement of annual economic-financial objectives of the Group and/or Business Unit and/or Region
and the assessment resulting from the Performance Management Tool, which allows greater relevance
to be attributed to organisational conduct (how), and not simply the results achieved (how much). The
Performance Management of all Country CEOs includes economic sustainability, social and
environmental objectives. For further details in this regard, reference is made to the paragraph
"Performance Management" of this report.
In 2014, some changes and improvements were made to the annual incentive system (MBO) which is no
longer related to the Triennial Incentive Plan (LTI) but includes a form of deferred payment to the
following year of a part (25%) of the annual incentive accrued subject to accrual of the MBO of the
following year. Payment of an additional amount equal to a variable percentage of the entire MBO
2016 ANNUAL REPORT
132
accrued during the previous year will be paid in line with the degree that the MBO is achieved in the
following year.
The changed shareholder structure and the simultaneous delisting at the end of 2015 meant that the
company's long-term average targets should be revised in the 2016-2018 three-year period. By
resolution of the Board of Directors of December 22, 2015, the 2014-2016 Long Term Incentive – LTI
was terminated early at the end of 2015 (a year before the natural expiry). With a view to retaining
management, the Board of Directors also approved the payment in 2 instalments (April 2016 and April
2017) on the basis of reporting the newly measured goals – even in terms of percentage opportunities
for each individual participant – on the values for the two-year period (2014-2015).
At the beginning of 2016, a new three-year incentive plan (LTI 2016-2018) was launched and extended
to the majority of Executives of the Group, in line with the variable remuneration mechanisms adopted
at international level, totally self-financed as the related expenses are included in the economic data of
the Industrial Plan.
The General Policy on Remuneration will be reviewed in 2017 by the Board of Directors of Pirelli,
establishing principles and Guidelines to which Pirelli abides in order to determine and monitor the
application of related remuneration practices of Directors with special powers/offices, General
Managers and Executives with strategic responsibilities; Senior Managers and other Group Executives.
Specifically, the Remuneration Guidelines for the above management figures will also cover:
•
fixed and variable remuneration, both short and medium-long term (it is noted in this regard that
Pirelli currently has no existing forms of remuneration through equity);
• compensation in case of dismissal;
•
• clawback clauses for Top Management.
resignation and termination of employment;
INTERNATIONAL MOBILITY
The theme of international mobility has always been important to Pirelli, with a view to achieving
cultural and value integration while still respecting diversity, an approach that the Company considers
crucial to maintaining and creating value in the long term. The dissemination of the Pirelli industrial
culture throughout the world and the transfer of valuable technical and managerial know-how to new
start-ups is also a key instrument in support of the Group’s geographical expansion strategy.
In 2016, about 80 new inter-company expatriates were recorded, compared with about 90 postings in
2015 and about 50 in 2014. About a third of new postings were to major industrial Countries, such as
China and Russia, and mobility flows continued from emerging Countries to mature Countries.
At December 31, 2016, the expatriate population totalled about 227 persons (vs. 217 in 2015 and 214 in
2014), belonging to 19 nationalities and who moved to 33 different Countries on five continents, of
which 13% women. The overall expatriate population consists in equal amounts (50%) of Italian and
foreign citizens, demonstrating the concrete progress being made towards the goal of creating an
increasingly international management team.
The Pirelli International Mobility Policy has been standardised and shared within all the affiliates, with
common treatment rules in order to enable uniform management of the expatriate personnel of the entire
Group. It includes a principle of fiscal neutrality pursued through the implementation of a so-called “tax
equalisation” policy, which allows neutralising of the tax differences that arise in the destination country
2016 ANNUAL REPORT
with respect to the country of origin, ensuring the application of equitable and appropriate remuneration
principles, in addition to the assignment of certain benefits closely related to care for expatriates and
their accompanying families.
133
EMPLOYER BRANDING
Pirelli considers it crucial to enter the market by transmitting drivers that distinguish the group, that is,
Business, People and Change, which include the cardinal principles on which the Company bases its
business approach, such as technological know-how and product innovation, technological and
commercial leadership in the highest segment of the market, the tension of the people towards results
and the meritocracy that always ensures the best growth for employees, both locally and internationally.
In addition to disseminating the company principles, Employer Branding is also a valuable tool to give
visibility to job opportunities aimed at recent graduates and profiles with experience, not only in the
Italian market but globally. Considering only the countries where Pirelli has a presence with one or
more production plants in Europe, the United States, South America, the Middle East, Africa, Russia
and Asia-Pacific, over 200 events, projects and meetings were organised in 2016, where the Company
promoted its own Employer Branding initiatives.
These activities are carried out also thanks to the network of contacts and partnerships with some
prestigious universities in the various countries, such as the Beijing University of Chemical Technology
in Beijing, the University of Munich in Germany, the Nottingham Trent University in the United
Kingdom, the Politehnica University of Bucharest in Romania, the ESIC - Business Marketing School
in Spain, the Universidad de Buenos Aires in Argentina, the Universidad Tecnológica del Centro in
Venezuela, the Instituto Tecnológico de Estudios Superiores de México, the Keio University in Japan,
the American University of Cairo in Egypt.
Pirelli is also collaborating actively, at corporate level in Italy, with Politecnico di Milano, Politecnico
di Torino, Università Bocconi, Università Cattolica and Università degli Studi di Torino. The latter
Universities are located close to the Pirelli offices in Italy and the Company has always considered them
to be a benchmark for economic and engineering education of young people. With these institutions,
Pirelli has organised Career Days, roundtables, Job Fairs, as well as company presentations and
opportunities to meet with students directly at the company, aimed at “personally experiencing” the
reality of the Group.
The business-education partnerships described above are placed within the context of the “European
Pact for Youth” of which Pirelli is a co-initiator, a Pact that was signed during the last Enterprise 2020
Summit (held in November 2015 in Brussels) by the European Commission, CSR Europe and a group
of companies. The Pact aims to promote the growth of new generations through the promotion of
partnerships with Universities, training courses, internships and masters’ courses: the objective of
reducing the skills gap between different countries and different cultures is fundamental, trying as much
as possible to ensure that young people receive the training needed to enter the new professions required
by a labour market whose expectations are constantly evolving.
Among the channels of Employer Branding used by Pirelli, the internet plays an important role: on its
pirelli.com website, the Company provides a channel for those who wish to submit their application for
specific open positions, as well as providing full disclosure on its corporate history, management
models adopted, objectives and results achieved; targeted channels are also used by Pirelli for the
2016 ANNUAL REPORT
publication of its job offers, including LinkedIn where in the last year, Pirelli has doubled its audience
(in terms of engagement and views), remaining the most visited profile among tyre manufacturers.
134
DEVELOPMENT
Performance Management
Performance Management (PM) means the process whereby the contribution of each employee in an
organisation is defined, observed and assessed at Pirelli, a unique and fundamental opportunity for the
development and orientation of each with respect to a series of predefined indicators that are critical to
the success of the Company and the employee.
During the process, particular value is given at the time of feedback, which provides a transparent and
open dialogue between the manager and the employee, from the phase of defining the individual
objectives to that of assessment of the results achieved.
The Performance Management process involves all staff worldwide (executives, managers and
employees) and in 2016 saw a “redemption” rate (2015 assessment sheets completed compared to the
total of open sheets) equal to 96%, of which the completion rate by women involved in the process was
94%.
To support the quality of assessments, Pirelli has introduced the so-called Calibration Meetings. These
are meetings organised by the managers of the individual functions, Business Units and countries, with
their direct reports, and with the heads of Human Resources of reference, during which the assessments
of people who belong to a specific organisational unit are pooled with the objective of ensuring a shared
and balanced distribution of the assessment, to ensure a process that is as consistent, homogeneous and
objective as possible.
The Performance Management of all Country CEOs includes economic sustainability, social and
environmental objectives. In particular, the performance obtained regarding the Sustainability Plan of
the country is evaluated, which envisages targets of compliance with the SA8000® Standard, reduction
in injury frequency indexes, specific reduction (weighted on the total finished product) in energy
consumption and water withdrawal, increase in waste recovery, control of the sustainability of the
supply chain, dissemination and implementation of Group Policies and engagement with stakeholders.
Talent Review
The Talent Review process aims to place “people in the right place”, or to ensure business continuity
through the coverage of strategic positions with the best “talents”, both centrally and at each Affiliate.
Key positions are those positions that have a direct impact on the strategic success and competitive
advantage of the organisation. Each of these positions also includes a vacancy risk identification in the
following 12-18 months, in such a way that concrete mitigation actions can be implemented, where
necessary.
Talents are employees who, in addition to having demonstrated positive performance in the previous 2
years, possess the potential to hold, immediately or within the next two years, key positions within the
organisation. In fact, they represent the future of the Company for the coverage of strategic positions.
The focus on talents is also demonstrated by the numerous skills assessment projects concluded in 2016,
following increasing focus on the analysis of the talent of people to support the company strategy. The
talent management process also includes meeting and discussion sessions between managers, which aim
to share and standardise the criteria for the definition of talent within the organisation.
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Pirelli is established as a company with a strong predisposition to developing talent from within: 95% of
the people who hold key positions have grown and been promoted internally.
The pipeline of talents has a strong international and multicultural connotation, as their origin includes
as many as 27 different nationalities.
In 2017, the development process of talents within the Group will continue, through consolidation of
career plans, also with a view to providing the means for structured growth within the organisation and
mitigating the retention risk of talents.
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TRAINING
All Pirelli affiliates have adopted the Training@Pirelli training model, organized, structured and
equipped system to respond to "Group" needs as well as any needs that may emerge locally at any time.
The training offer is based on the strategic priorities of the organization and of the various functions,
which are alongside the needs that emerge annually from the Performance Management process
(evaluation and development tool based on dialogue between the manager and the employee).
The three “pillars” on which Training@Pirelli is based are the Professional Academy, the School of
Management and the Local Education.
The first two are designed centrally and, according to the cases, provided centrally or locally, while
Local Education is managed and implemented directly in the individual countries to meet the specific
local needs.
The entire training offering is communicated and managed via the online training portal called
LearningLab.
Also in 2016, Pirelli was called in various international locations to illustrate its Training Model,
recognized as benchmark of quality and robustness, already awarded in 2015 with the Silver Award by
the Global Council of Corporate Universities, in the category "Best Corporate University embodying the
identity, the culture and the brand of the Organization in its stakeholders", award dedicated to the most
important Corporate Universities worldwide.
Professional Academies
There are ten Pirelli Professional Academies: Product Academy, Manufacturing Academy, Commercial
Academy, Quality Academy, Supply Chain Academy, Purchasing Academy, Finance Academy,
Planning & Control Academy, Human Resources Academy, Information Technology Academy.
Sustainable Management elements are throughout the Academies, with focus for example on product
life cycle (LCA – Life Cycle Assessment), environmental efficiency of the process, health and safety,
sustainable management of the supply chain, risk management, diversity management, etc.
The Academies target the entire corporate population and aim to provide continuous training, encourage
cross-functional collaboration, ensure the exchange of expertise and know-how among countries and
support the implementation of tools and procedures within the organisation.
The teachers of the Academy are mainly internal trainers, experts from the specific functions who,
based on the training needs and logistical needs, act at central, regional and local level, or through
online seminars and webinar sessions. The internal trainers are certified as such following adequate
training, with homogeneous methods at all affiliates.
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Participation in the internal “Train the trainer” course is a fundamental requirement to ensure and align
the skills of all trainers regarding classroom management methods and delivery of the technical content
of the Academy. Pirelli is currently certifying more than 400 internal trainers in the world on various
disciplinary and professional subject areas.
The Academy model involves a significant figure from the function guiding each Academy, supported
by one or more professionals from the same function and from the Group Training function, which
ensures consistency in the methods of approach, delivery and evaluation of learning in addition to
ensuring collaboration with the local training teams.
Every year, the Professional Academies meet both the Top Management and the local training
representatives, with the objective of strategic alignment and sharing of the results achieved.
In 2016, the Professional Academies offered 210 courses globally.
School Of Management
The School of Management (SOM) is the training structure dedicated to the development of the
management culture within Pirelli. Its target are the populations of Executives, Global Talents, Middle
Management/Senior Professionals and Recent Graduates/Junior.
The focus of management training is calibrated and outlined every year based on the business
challenges that the Company is required to face.
The training aimed at executives is preferably provided centrally (Milan) in order to allow participants
to discuss company strategies directly with Senior Management and share them at inter-departmental
and geographical level.
The training model of managerial skills was revised and modified in 2016 to make training topics even
more consistent with the need to develop a skilled managerial class and able to face the new challenges
of the Company.
The new model is based on the skills of Learning Agility, which Pirelli has simultaneously adopted also
as a model of development and evaluation of management potential. Consistently with the adoption of
this model, which indicates in the 4 main dimensions of Learning Agility (People Agility, Change
Agility, Results Agility, Mental Agility) the specific lines of skills development, 4 specular training
courses were designed that aim to strengthen specific skills and related aptitudes. Even the proposed
learning method is new for Pirelli: in fact, it no longer concerns "one shot" courses but paths that are
divided into several months and that involve alternation of online activities, also collaborative as well as
individual, and classroom. Each participation is also related to specific performance improvement KPI.
In 2016, 4 editions of the programmes of the School of Management were delivered to Executives and
Global Talents of the Group, and more than 50 editions were delivered to Middle Management and
Senior Professionals, held in 11 countries of the Group for a total attendance of about 800 people.
Also in 2016, in response to a need that emerged from the My Voice climate survey, several workshops
were organised on “feedback management” in the manager-employee relationship, involving the whole
central management population of the Group in the various countries, for a total of about 250 people.
The School of Management also offers constantly updated online tools through the “Train your Brain”
section, available to all managers on the LearningLab international platform.
As for the population of recent graduates, in 2016 the two-year course Warming Up@Pirelli continued;
it was launched in 2013 at global level and in 2016 it was attended by about 160 young graduates from
every country.
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The programme aims to provide a homogeneous view of the Pirelli reality for all young new recruits in
the different countries. The main themes include: the Sustainable Management Model adopted by the
Company, the strategies, the product, processes, customers, markets and all other matters regarding
basic skills that Pirelli considers important for a young person who wishes to become part of the
company’s future. During the two-year training course, participants have the opportunity to work on
various company projects of interest proposed by various functions, in order to apply innovative
approaches and develop cross-functional teamwork. The macro-structure of the course, defined centrally
in terms of content and process steps, is organised in various countries with appropriate adjustments
aimed at enhancing the local specificities.
Local Education
The training provided locally responds to the specific training needs of the local context and culture of
the country of reference.
The seminars cover areas of expertise ranging from the improvement of interpersonal skills to stress
management, from the development of IT, language and regulatory skills up to seminars on issues of
welfare and diversity at the Company. In the latter area, the following more innovative courses deserve
a mention:
• “Genitori al Lavoro” (Parents at Work), dedicated to the parents of children aged 0 to 6 with the
aim of identifying the best ways to use the parenting experience as a “gym” for the development
and consolidation of managerial skills and behaviour to be used in the workplace as well.
• "Working with Generation Y", to create culture and awareness regarding the different ways of
approaching work and leadership that characterize the generation of "millennials", in order to
facilitate the generational exchange between millennials, colleagues and senior managers.
Focus: Training on Sustainability
In 2016, training continued on the Pirelli Sustainable Management Model, with update on the state of
the Company's Sustainability Plan. Reference was already made to training on specific sustainable
management processes spanning all Group Academies and Local Education.
In addition, there is institutional training in the International Course "PLunga", which presents the
Group's Sustainable Management strategy to all new employees, starting from the multi-stakeholder
approach contextualized in the integrated economic, environmental and social management. Training on
the Pirelli Model draws the attention of new recruits also to the Group's Sustainability Policy and related
commitments, as expressed through the “Ethical Code”, “Code of Conduct”, “Equal Opportunity
Policy”, “Social Responsibility Policy for Occupational Health, Safety and Rights and Environment”, in
addition to the requirements of the SA8000® Standard and internationally recognized human rights,
starting with the prohibition of forced and child labour, up to the freedom of bargaining, equal
opportunities and non-discrimination. The foregoing is also the subject of continuous training for all
Group Sustainability Managers and Purchasing Managers.
Each year, Pirelli dedicates a training session that brings together all the Group's Sustainability
Managers for three days. The "Pirelli Sustainability Manager Workshop 2016" was held in Milan in
September at the headquarters. The event involved the active participation of the entire Top
Management of the Company, with strong cross-functional alignment with a view to achieving the
Group targets as well as demonstrating the fundamental teamwork that enables the Company to prevent
risks and, above all, create lasting and shared value. The long-term management strategies adopted by
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the Company, the new scenarios and future objectives were shared, with specific managerial training on
best practices of Stakeholder Dialogue and Engagement as a strategic lever for business development.
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Pirelli Training Performance
In 2016, Pirelli’s investment in Training continued with an extremely positive trend, recording a number
of average days of training per capita of 9.8 (vs. 8.6 in 2015 and 8.4 in 2014), thus for the fourth
consecutive year surpassing the target of 7 days on average per capita promised in the Industrial Plan,
which was only expected to be achieved from 2015.
With reference to the people involved, the average days of training for blue collars in 2016 rose to 10.6
(vs. 9.6 in 2015 and 9.4 in 2014), of which 71% consisting of training on the job activities and also the
number of average days for management and white collars increased, reaching in 2016 5.6 (vs. 5.1 in
2015 and 4.3 in 2014).
Pirelli intends to maintain increasingly structured homogeneity of the training offer, continuing in the
coming years to deliver a number of average days of training per capita greater than or equal to 7 and
reaching, with at least one day per capita, 90% of employees by 2017.
In 2016, training involved 93% of the workforce (vs. 87% in 2015) with at least one day on average per
capita and recorded a participation to the courses that substantially reflects the gender distribution of
employees, with a substantial balance in terms of equality of training access.
Of the total training provided in 2016, about 82% was in the Professional Academy. Focus continued on
health and safety issues, which totalled 11.5% of the total hours of training delivered globally.
The increase in training expenditure for 2016 is due, in a nutshell, to important "reskilling" programmes
of the population of operators in countries such as Romania, Russia, Brazil, Argentina and robust and
consistent "induction" programmes for new employees in Mexico, the latter also with the aim of
increasing loyalty to the Company of new employees responding to the important turnover present in
past years. These actions – equal to others on several fronts such as welfare – contributed precisely to a
decrease in turnover in 2016, particularly white collars, for the first time down to around 8.6%.
Finally, in all countries and production sites, the use of continuous on-the-job training was spread with
increasing rigour and structuring, also thanks to the help of a growing number of internal technical
trainers, certified and qualified according to Group standards (reference is made to the paragraph
dedicated to the Professional Academies). On-the-job training, which involves mentoring during work
activities, is a substantial investment but also of extreme importance to improve the professional skills
of operators, such that it covers 63% of the total training provided at Pirelli.
In line with the targets of the Industrial Plan, in 2017, it is expected to maintain the training level over 7
days on average per employee (as per the Industrial Plan and related Target), with at least an average
day per capita for 90% of employees, with continuous and on-the-job training at the factory, and with a
focus on the challenges of the digital transformation undertaken by the company.
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Average Days of Training per capita
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* of which 63% is on-the-job training
** of which 71% is on-the-job training
*** of which 7% is on-the-job training
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140
LISTENING: GROUP OPINION SURVEY
For years, Pirelli has consolidated the climate survey as a tool for active listening of its employees, as a
basis for setting central and local improvement plans. The annual survey is called “My Voice” and
involves all Pirelli employees around the world.
Questionnaire management is attributed to a third party, providing anonymity to the respondents. Pirelli
then receives the results in aggregate form.
The process related to My Voice involves the submitting of the questionnaire to employees around the
world in November/December, the subsequent return of results from February of the following year, and
the definition and implementation of specific action plans by Country/Function/Business Unit in the
months until the following survey.
The report outlines the results of the survey conducted at the end of 2016, which will be communicated,
like every year, to all employees in detail and with the utmost transparency starting in February 2017,
both through dedicated communications on the company Intranet and through discussion meetings.
The overall response rate to My Voice in the year 2016 was equal to 86%, in line with the trend in the
last 3 years.
Global response rate trend 2013-2016
It is highlighted that participation in 2016 stood at similar values for both the Staff population (85.7%)
and for workers (86.4%).
As for the results, the global employee Trust Index with respect to the Company stood at 65% in 2016,
consisting of 65% among blue collars and 67% among white collar, in continuous and constant growth
since 2014.
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Global trust index trend 2013-2016
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The results of the survey confirmed the characteristic features of the Company, already recognised in
the previous surveys, i.e. a workplace characterised by a strong sense of belonging and pride, full of
resources for employees and attentive to health and safety management and diversity; similarly, the
survey confirmed the areas on which it is necessary to continue working, mainly related to the
relationship between manager and employee, in terms of direct relation and recognition.
Also this year like every year, the areas for improvement identified for each specific country and
functional area will be analysed, and priorities for intervention and concrete actions will be defined with
targets and precise implementation schedules.
The results trend also confirms interesting increases for 2016, from year to year, particularly in areas
subject to specific improvement actions.
In December 2016, Pirelli Tyre Co. was awarded the title of “2016 Best Companies to Work For in
Greater China” for the second year: recognition assigned by Great Place to Work – consulting firm
specialising in climate surveys – to a sample of companies selected from a panel of participating
companies distributed throughout the territory of Hong Kong, Mainland China and Taiwan and
belonging to different industrial sectors.
Also in terms of engagement, we report the global initiative "Join the Race & Enjoy the Tower", which
in 2016 involved 17 colleagues from as many Pirelli countries (industrial and commercial) invited to
Milan in early September to visit the headquarters of Bicocca and witness the tests and the race of the
Monza Grand Prix in 2016.
An initiative designed to strengthen the already strong sense of belonging and pride of colleagues and to
experience an international team of "Pirelli employees", a memorable experience in Italy, with the
opportunity to learn more about the history and world of Pirelli, and Motorsport in particular.
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WELFARE AND INITIATIVES
FOR THE INTERNAL COMMUNITY
At organisational level, Pirelli for years, has had the figure of the “Group Welfare Manager”, who is
entrusted with the supervision of welfare activities, jointly with the many central and local functions
concerned, including Health and Safety at Work, Industrial Relations and Equal Opportunity Managers
of the Group.
The welfare initiatives that Pirelli offers to its employees vary from country to country, in accordance
with the specific needs identified in different social contexts in which the affiliates operate.
All Group affiliates have the opportunity to share local best practices through a special section dedicated
to welfare on the corporate Intranet.
Overall, welfare activities activated at Pirelli affiliates in the world are attributable to four macro areas
of action:
• health (e.g. health care, information and awareness campaigns);
•
•
• workplace (e.g. flexible working hours, facility, individual development training, cultural
family (e.g. scholarships, summer camps for employees’ children, inter-company kindergarden);
free time (e.g. open days, sporting and cultural activities);
growth and group celebrations).
Historically, Pirelli at all its production units provides infirmaries at which health operators and medical
specialists are available to all employees during working hours. These facilities provide counselling for
health problems outside work as well as first aid care and health supervision for workers exposed to
specific risks. At the Milan Bicocca health centre, for example, over 300,000 healthcare services were
provide to Pirelli employees in 2016. The infirmaries also support the various health-related
promotional campaigns that are launched at local level, as well as prevention campaigns.
For example, the following are some of the welfare activities activated locally.
At the headquarters in Milan Bicocca and at the New York offices in 2016, Pirelli launched the pilot
phase of the Smart Working Project. Thanks to the opportunities provided by new technologies, smart
working allows working in part also outside the office, in agreement with the manager and in
compliance with the rules defined by the Company. This way, both autonomy and individual
responsibility are promoted in achieving results through a more flexible organization of work activities,
which enables a balance between business and personal needs.
In support of the work – life balance and in particular saving time, as increasingly valuable factor, in
2016, the offer of the Pirelli Italian Portal "People Care" was further expanded, completely dedicated to
welfare. The new services and consolidation of those already existing is the result of the consultation of
employees, through a survey designed to gather input and suggestions with respect to new activities to
be introduced while surveying the level of satisfaction with respecting the current offer. At the end of
2016, the services offered are definitely linked to the concept of "saving time", and include laundry,
private parcel reception, shoemaker, payment of bills, purchase organic groceries, as well as numerous
affiliations at subsidized prices for the purchase of goods and services.
Also in Italy in 2016, the “Bambini in Bicocca” (Children at Bicocca) project continued, guaranteeing
babysitting and kids club service for employees’ children of school age (5-10) during school holidays.
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Similarly, in Brazil, the initiative "Férias Dirigidas and Acampamento de Férias" annually provides
recreational activities and integration in the vicinity of the Pirelli plants, for employees' children aged 6
to 17, during business hours and during the period of school closure.
There were numerous prevention and awareness campaigns for a healthy lifestyle, among which we
highlight the "Wellness Change" initiatives launched in the US and the "Smile Campaign" conducted in
Romania, where already for 7 years, a team of dentists, in collaboration with a team of doctors at the
Milan hospital Niguarda, have provided specialist services for the children of employees. In turn, the
"Faz Bem" project in Brazil promotes the improvement of the quality of life in particular through Sport,
with various communication and involvement initiatives, like the Campaign "#sentirmibene" launched
in Italy at the end of 2014 and which is divided into a series of initiatives to promote healthy lifestyles
and well-being.
Also of importance is the “Employee Assistance & Wellbeing” programme called ICAS, launched in
Mexico in September 2015: a consulting and telephone listening service, active 24/7, which provides
counselling, support in the emotional and practical management of day-to-day activities and life
management services to support employees.
Moments of inclusiveness and sharing characterize the "Open Days", which take place at numerous
affiliates in the world: these are days dedicated to employees' families, with educational workshops,
visits to departments, games and music.
The well-being of workers also comes from a working environment that is psycho-socially adequate and
stimulating, where they feel valued and in which psychosocial risks and work-related stress are
effectively prevented and countered. To this end, as part of the Company’s global programme called
“Excellence in Safety”, Pirelli performs in-depth analyses and acts on key areas and issues such as
improvement of the organisational structure, clarity of tasks and roles, empowerment of workers,
improvement of communication in the organisation, sharing of objectives and motivation with respect to
a common strategy, as key elements for the prevention and mitigation of occupational stress.
INDUSTRIAL RELATIONS
The Industrial Relations Policy adopted by the Group is based on respect for constructive dialogue,
fairness and roles. Guaranteeing and respecting free trade union activities is one of the key values on
which Pirelli bases its own Human Capital Management System. Relations and negotiations with trade
unions are managed locally by each affiliate in accordance with the laws, national and/or company-level
collective bargaining agreements, and the prevailing customs and practices in each country.
At this level, these activities are supported by the central departments, which coordinate the activities
and ensure that the aforementioned principles are observed throughout the Group.
Industrial Relations also have an active role in the Group’s commitment in terms of health and safety,
characterised by active participation on the part of the unions and workers.
In fact, 79% of the Group’s employees are covered by representative bodies that periodically, with the
Company, monitor and address, with the support of specialists, the current issues and awareness and
intervention plans/programmes in a perspective of continuous dialogue aimed the improvement of the
various activities carried out by Pirelli to safeguard the health and safety of employees.
In 2016, the Industrial Relations activities reached important negotiating results. Several collective
agreements were renewed, without any conflict, in Turkey, the United Kingdom, Brazil, Argentina and
Mexico.
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144
During the year, the Company operated internationally to rebalance the employment level, aligning it to
the needs of volume related to high market volatility, maintaining a Group occupational balance at the
end of 2016 in line with that of 2015.
In Brazil, the Company has completed the process of reorganisation launched in the last months of
2015, in the face of the continuing crisis of the country that has also generated a sharp decline in
consumption in the automotive industry, with a commensurate impact on the Tyre market.
Specifically, there was a production rebalancing and the consequent downsizing of personnel, both
white collars, and blue collars within the plants of Campinas, Santo André, Gravataí and Feira di
Santana, acting primarily on reducing flexibility and work organisation. This organisational
rationalisation, managed through the trade union dialogue, was based on specific trade agreements at
site level
At the same time, in Romania, Mexico and China, the Company increased the workforce acting on the
organisation and production processes in line with market needs. In Italy, central Functions related to
product research and development and innovation have been further strengthened.
European Works Council (EWC)
The Pirelli European Works Council (EWC), formed in 1998, holds its ordinary meeting once a year
after presentation of the Group Integrated Annual Report, where it is informed about the operating
performance, operating and financial forecasts, investments made and planned, progress in research,
and, as occurred at the annual meeting in 2016, about the progress of the Company’s Sustainability
Plan.
The agreement establishing the EWC provides for the possibility of holding other extraordinary
meetings to fulfil the information requirements of delegates, in light of transnational events concerning
significant changes to the corporate structure: opening, restructuring or closing of premises, important
and widespread changes in work organisation. EWC delegates are provided with the IT tools they need
to perform their duties and a connection to the corporate Intranet system, for the real-time
communication of official Company press releases.
Compliance with statutory and contractual obligations governing overtime,
time off, association and negotiation, equal opportunities and non-discrimination,
bans on child and forced labour
Group policy has always promoted compliance with all legal and/or contractual requirements
concerning working hours, the use of overtime and the right to regular days of rest. These requirements
are often the subject of agreements with trade unions, in line with the regulatory context of each
country. There are no restrictions on any worker’s right to use his/her total number of holidays. The
holiday period is generally agreed between the worker and the Company.
Pirelli verifies the application of requirements in terms of respect for human and labour rights through
periodic audits, both commissioned to specialized third-party companies and conducted by the Internal
Audit Department, in application of its Policies, in particular the "Social Responsibility Policy for
Occupational Health, Safety and Rights, and Environment", the "Global Human Rights" Policy and the
"Health, Safety and Environment" Policy, and in accordance with the requirements of the SA8000®
International Standard (adopted since 2004 as a reference tool for the management of social
responsibility at its affiliates and in the supply chain).
The responsible management of the supply chain regarding human and labour rights was described in
the paragraph "Our Suppliers", to which reference is made for further details.
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With reference to the Pirelli sites, they are all covered by the three-year Internal Auditing Plan.
Normally every audit is carried out by two auditors and takes three weeks on-site. The Internal Audit
Team received training on the environmental, social and business ethics elements of an audit from
function directors to enable them to carry out an effective, clear and structured audit, granting Pirelli
effective control over all aspects of sustainability. If compliance violations are found during these
audits, an action plan is agreed between the local managers and central management, with precise
implementation dates and responsibilities.
The Internal Audit Department monitors the development of the shared action plans, through specific
follow-ups. All managers from the affiliates involved in the audits are adequately trained and informed
on the audit object and procedures by the applicable central functions, in particular Sustainability and
Industrial Relations. The auditors carry out verifications on the basis of a checklist of sustainability
parameters deriving from the SA8000® Standard and the Pirelli Policies mentioned above.
Considering the last four years, in 2013, the Internal Audit Department carried out audits in Argentina,
the USA, Romania and Brazil; in 2014, in Italy, the United Kingdom and China; in 2015, in Mexico,
Russia (Voronezh plant) and the United Kingdom. In 2016, the audits continued in Germany, Russia
(Kirov plant) and the United Kingdom (follow-up). The non-conformities emerged as a result of the
audits mentioned above were the subject of the action plans agreed between the local managers and
central management, and will be subject to follow-ups in 2017 by the Internal Audit Department. None
of the audits revealed any breach of ILO Core Labour Standards, with specific reference to forced
labour or child labour, freedom of association and collective bargaining, and non-discrimination.
Labour and Social Security Lawsuits
In 2016, as in previous years, the level of work and social security litigation remained low. Just as in
previous years the level of litigation remains high in Brazil, to the point of representing about 90% of all
the labour lawsuits currently pending against the entire Group. Labour lawsuits are extremely common
in this country and depend on the peculiarities of the local culture. As such, they affect not only Pirelli
but also the other multinational companies operating there. Labour lawsuits are generally initiated when
an employment contract is terminated, and they usually involve the interpretation of regulatory, legal
and contractual issues that have long been controversial. The Company has made a major commitment
to prevent and resolve these conflicts – to the extent possible – including through settlement procedures.
Unionisation Levels And Industrial Action
It is impossible to measure exactly the consolidated percentage of union membership at Group
companies, since this information is not legitimately available in all countries where Pirelli has a
presence (over 160 countries on five continents).
However, it is estimated that 50% of Pirelli employees are trade union members. As to the percentage of
workers covered by collective agreement, in 2016 it stood at 79% (vs. 80% in 2015). This figure is
associated with the historical, regulatory and cultural differences between each country. Collective
agreements were renewed without any conflict and strikes.
Occupational Retirement and Health-Care Plans
The Group has defined contribution and defined benefit funds, with a substantial prevalence of the
former kind over the latter. To date, the only defined benefit plans are:
•
in the United Kingdom, where the fund relating to the tyre business has been closed to new
employees since 2001 for the introduction of a defined contribution scheme (and closed to
2016 ANNUAL REPORT
future accumulations for all active employees as of April 1, 2010), while the funds related to the
cable business sold in 2005 were closed to future accumulations in the same year;
in the United States, where the fund was closed in 2001 (since 2003, it has not been tied to
salary increases) for the introduction of a contribution scheme (and only applies to retired
employees);
in Germany, where the fund was closed to new hires from 1982.
•
•
146
Other defined benefit plans exist in Holland and Sweden, but they represent a relatively insignificant
liability for the Group.
The Group also maintains various supplemental Company medical benefit plans at its affiliates
according to local requirements. These healthcare schemes vary from country to country in terms of
allocation levels and the types of coverage provided. The plans are managed by insurance companies or
funds created ad hoc, in which the Company participates by paying a fixed amount as is done in Italy, or
an insurance premium as is done in Brazil and the United States. For the economic-equity measurement
of the above benefits, reference is made to the Consolidated Financial Statements, notes “Employee
funds” and “Personnel Costs”.
OCCUPATIONAL HEALTH, SAFETY AND HYGIENE
Management Model And System
Pirelli's approach to responsible management of occupational health, safety and hygiene is based on the
principles and commitments expressed in "The Values and Ethical Code" of the Group, in the "Health,
Safety and Environment Policy" in the "Global Human Rights Policy" and in the "Quality Policy", in
accordance with the Sustainability Model envisaged by the Global Compact of the United Nations, with
the "Declaration of the International Labour Organization on fundamental Principles and rights at
Work" and with the "Universal Declaration of Human Rights" of the United Nations.
In particular, the "Health, Safety and Environment" Policy, issued in 2016, expresses the commitment of
Pirelli to:
• manage its activities regarding occupational health and safety protection in compliance with the
laws and all the commitments undertaken, as well as according to the most qualified
international management standards;
• pursue objectives of "zero injuries to people", by implementing actions for early identification,
assessment and prevention of risks for occupational health and safety aimed at a continuous
reduction in the number and severity of injuries and occupational illnesses, activating health
surveillance plans in order to protect workers from specific risks associated with their business
duties;
• develop and implement emergency management programmes to prevent and avoid injury to
persons;
• define, monitor and communicate to its Stakeholders specific targets of continuous improvement
of occupational health and safety;
• empower, train and motivate its employees to work safely involving all levels of the
organization in an ongoing programme of training and information, aimed at promoting a
culture of safety at work;
• promote information and awareness-raising on health and safety issues;
• provide ongoing and concrete support aimed at facilitating the work-life balance;
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• manage its supply chain responsibly by including issues of occupational health and safety in the
supplier selection criteria, the contractual clauses and the audit criteria, also requiring suppliers
to implement a similar management model in their supply chain (for an outline on responsible
management of the supply chain, reference is made to the paragraph "Our Suppliers");
• make available to all its Stakeholders a channel (the "Whistleblowing Policy " published on
Pirelli's website) dedicated to reporting, even anonymously, of any situations that constitute or
may constitute a risk for the protection of the health, safety and well-being of people (reference
is made to the Paragraph "Reporting Procedure - Whistleblowing" of this Chapter for an outline
of reports received in the last three years, none of which regarding health and safety).
All the Documents mentioned above are communicated to Group employees in their local languages and
are published in the Sustainability section of the Pirelli website, which should be consulted for full
display of the content.
The occupational safety management system was developed in compliance with procedures and
guidelines elaborated centrally in order to consolidate a "common language" that guarantees sharing,
alignment and effective management in the Group.
Pirelli adopts an occupational health and safety management system structured and certified according
to OHSAS 18001:2007. All certificates are issued with ANAB international accreditation (ANSI-ASQ
National Accreditation Board - US accrediting body). Also in 2016, RINA Services S.p.A. was the
evaluator of conformity of the health and safety management systems of Pirelli. At the end of 2016, all
the production facilities are certified according to OHSAS 18001:2007, with the exception of the facility
in Jiaozuo that joined the Group in the last quarter of the year, and the facility in Rome (United States),
where a management system is operative, applied under the OSHA Standards, similar to the OHSAS
18001 Standard and such that an activity of parallel certification in the content would be of relative
value.
Safety Culture
“The Zero Accidents Target” is a precise and strong corporate position.
Pirelli strongly believes that leaders play a strategic role in risk prevention. Their behaviour must
therefore be an example for all employees. From an industrial point of view, this objective is pursued
through investments aimed at technical improvement of work conditions, while constantly insisting on
the cultural and behavioural aspect of all Company players.
It is necessary to pursue the safety culture in accordance with the rules, while maintaining a very clear
idea of everyone’s responsibilities to themselves, others, and their own family. This approach, together
with the involvement and continuous internal dialogue between management and workers, has allowed a
sharp decline in historical injury indexes.
In 2013, the Company signed a global agreement with DuPont Sustainable Solutions for the global
implementation of the “Excellence in Safety” Programme, in support of the management model outlined
above and with particular focus on the implementation of a standard approach to behavioural safety in
the Group. The Programme began in 2014, extending gradually in 2015-2016 to all production sites of
the Group. A specific Steering Committee, chaired by the Operations General Manager, monitors the
progress of the programme.
In particular, in addition to the strengthening and consolidation of the safety culture concepts based on
conduct, the focus on Leading Indicators was further developed, namely measuring what preventive
2016 ANNUAL REPORT
measures should be implemented and how this should be done, rather than Lagging Indicators, namely
reactive indicators, such as the number or frequency of accidents.
The sharing of the Safety Culture was also supported by the monthly newsletters like the Safety
Bulletin, and the periodic publication of significant events through the traditional channels of internal
communication.
148
As part of the collaboration with DuPont Sustainable Solutions, Pirelli in 2016 continued to develop the
theme of prevention of psychosocial risks and work-related stress.
Some of the most important areas of intervention of the “Excellence in Safety” Programme are in fact
related to the improvement of the organisational structure, the clarity of the tasks and roles, empowering
workers, improving communication within the organisation, the sharing of objectives, motivation with
respect to a common strategy: all substantial issues for a work environment that is psycho-socially
appropriate and stimulating, in which workers feel valued and the psychosocial risks are effectively
prevented and countered. The management of work-related stress was also the subject of the Campaign
of the European Agency for Health and Safety in the Workplace (EU-OSHA) for the 2014-2015 two-
year period, of which Pirelli was the usual partner. For the two-year period 2016-2017, Pirelli adheres to
the Campaign of the European Agency dedicated to "Healthy workplaces for all ages".
Safety Training
In addition to safety training offered locally at every Pirelli location (which is illustrated in the section
of this report dedicated to employee training), special mention should be made of Group activities and
projects, which simultaneously target several countries by allowing an alignment of culture and vision,
fully benefiting pursuit of the Company’s own improvement targets. The Manufacturing Academy
merits a special mention. This is the Pirelli Professional Academy dedicated to the sphere of factories,
where health, safety and environment issues are discussed in detail. It must be pointed out that 11.5% of
the training provided by Pirelli in 2016 addressed occupational health and safety issues.
In 2016, the eighth edition of the Pirelli Health, Safety and Environment Global Meeting was also held.
The annual meeting in 2016 was held at the Pirelli German production site in Breuberg. The purpose of
this meeting, which brings together all managers responsible for Health and Safety in the Group, is to
pool the best practices applied by the various Pirelli sites in the world, with a view to promoting
continuous improvement.
Performance Monitoring
Alongside establishing specific guidelines and procedures for implementing management systems,
Pirelli uses the web-based Health, Safety and Environment Data Management (HSE-DM) system,
elaborated and managed centrally by the Health, Safety and Environment Department. This system
makes it possible to monitor HSE performance and prepare numerous types of reports as necessary for
management or operating purposes.
The HSE-DM system collects all the information on accidents occurred at the factories, Group fitting
units, European and Brazilian equities and logistics units managed directly by Pirelli (accident analysis,
corrective action taken, etc.). If the dynamics of a particular case are significant, all the plants are not
only provided with the information via a system called Safety Alert, but are also urged to conduct an
internal audit as to whether conditions similar to the ones that caused the injury also exist at their plants
and to define any possible corrective measures. By using this system, every site is able to audit the
solutions adopted by other plants in order to share the best choices.
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149
Performance
The performance reported below relates to the three-year period 2014-2015-2016 and covers the scope
of Group consolidation, with the exception of the production site in Jiaozuo (China), under the
operational control of Pirelli since the last quarter of 2016 and the performance of which will be
reported starting in 2017. It is recalled that the exclusion of Pirelli de Venezuela from the consolidated
scope, which occurred at the end of 2015, in line with the principles set by GRI has meant recalculating
the historical value of the indicators reported below for the years 2014 and 2015.
The 2020 target of the Industrial Plan is for a reduction by 2020 in the Frequency Index of 90%
compared to 2009. In 2016, Pirelli reached an injury Frequency Index (FI) of 0.36 with a reduction of
15% compared to 2015 and 80% compared to 2009.
The Injury Frequency Index, analysed by gender, is also significantly lower for women in 2016,
reflecting the fact that the female population is generally engaged in activities with lower risk than the
male population. Below is a summary table of the FI values by gender in the last three-year period:
Frequency Index (FI)
FI Men
FI Women
2016
0.36
0.39
0.11
2015
0.42
0.47
0.14
2014
0.48
0.54
0.12
FI = number of injuries/number of hours actually worked x 100,000
The injury Severity Index (SI) in the Group in 2016 was 0.14, an improvement of over 15% compared
to 2015.
Below is a summary table of the SI values in the last three-year period:
Severity Index (SI)
2016
0.14
2015
0.17
2014
0.15
SI = number of days absence per injury/number of hours actually worked x 1,000
The most representative injuries concern events involving contusions, cuts and fractures of the upper
limbs.
Both in the case of the Frequency Index and the Severity Index, Asia Pacific has a lower rate than the
other geographical areas where Pirelli operates (Europe, Africa, Latin America, North America and
Oceania), which have all been steadily declining for years.
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150
With reference to commuting accidents and accidents involving temporary workers (not included in the
calculation of the FI and SI mentioned above), the following table shows the total number registered in
the Group in the last three years. In particular, in 2016, there were 11 accidents involving temporary
workers and 171 commuting accidents; the latter were substantially related to road safety shortages in
emerging countries.
Commuting accidents
Injuries involving temporary
workers
2016
171
11
2015
129
19
2014
133
10
The Injury Frequency Index related to employees of external companies operating at the premises of the
Group amounted to 0.35 (similar to the average of the Pirelli Group) and equivalent to the value of 0.34
in 2015.
In 2016, the occupational diseases Frequency Index stood at a value of 0.04, corresponding to a few
dozen people out of all the employees of the Group.
FI Occupational illnesses
2016
0.04
2015
0.08
2014
0.05
FI = number of occupational illnesses/number of hours actually worked x
100,000
As part of the production process, there were no workers with high incidence or high risk of diseases
related to their occupation.
Fatalities
• 2016: there was no fatal accident involving Group employees or employees of independent
contractors working at the Group’s operating sites;
• 2015: there were two fatalities among employees of the Group. One at the operating unit in
Yanzhou (China), one at the operating unit in ATCO (Egypt), for which the Safety Alert process
previously described was immediately activated in the Group;
• 2014: there was no fatal accident involving Group employees or employees of independent
contractors working at the Group’s operating sites.
2016 ANNUAL REPORT
Best Practices 2016
Ten Pirelli manufacturing plants were “sites of excellence” in 2016, since no employees were injured
there in the year:
151
• Burton MIRS
• Capuava
• CMP
• Ecosil
• Hurlingam
• Santo André HQ
• Slatina Motorsport
• Sorocaba
• TLM Campinas
• TLM Santo André
These results should be attributed to the constant focus on leading indicators, namely in terms of
prevention.
Health And Safety Expenditure
In the three-year period 2014-2016, expenditure for health and safety by the Group exceeded Euro 40
million, of which over 30% was invested in 2016.
The expenditure made targeted improvements on machines and plant and, more in general, the
workplace environment as a whole (ex. improvement of microclimate and lighting conditions, changes
in layout for ergonomic improvement of activities, measures to protect the healthfulness of
infrastructure, etc.).
Health And Safety Targets
• 2020: reduction in the Accident Frequency Index of 90% compared to 2009 (underway);
• 2013-2017: implementation and consolidation of the systems BBS-Behaviour Based Safety,
LOTO-LockOut/TagOut, POWRA-Point of Work Risk Assessment (underway);
• 2014-2018: global implementation of the “Excellence in Safety” programme (underway);
• 2015-2018: completion of integration of Health, Safety and Environment KPIs for the
sale/commercial/equities areas (underway).
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152
EXTERNAL COMMUNITY
INSTITUTIONAL RELATIONS OF THE PIRELLI GROUP
In all the countries where Pirelli operates, the aim of Institutional Relations Management is directed
towards creating corporate value through managing structural relations with institutional stakeholders so
as to ensure adequacy of representation of their interests.
The activities are based on the utmost transparency, legitimacy and accountability, with respect to both
the information disseminated in public venues, and to relations managed with institutional interlocutors,
in line with the Group’s Ethical Code and as governed by the “Institutional Relations Policy -
Corporate Lobbying”, by the Anti-corruption Compliance Program, in line with the principles of the
International Corporate Governance Network (ICGN) and however in compliance with the laws and
regulations of the countries where Pirelli operates.
The geographical scope of the Pirelli Group’s industrial and economic interests therefore calls for an
extended network of institutional relations on a national, European and international level. In the area of
institutional relations, Pirelli acts above all via active monitoring and in-depth analysis of the
institutional and legislative context so as to verify any implications of concern and identify stakeholders
of reference. Institutional dialogue is further enhanced by projects and initiatives carried out in
collaboration with institutional players in promoting and supporting corporate matters in the public
interest.
Institutional Relations Management is engaged in global political-economic dynamics and additionally
keeps watch over developments in the main matters of corporate interest, also thanks to collaboration
with various selected think tanks that are recognised worldwide, among which the collaboration with
the Institute for International Political studies, the International Affairs Institute, The Trilateral
Commission, The Foundation for the Analysis, Study and Research into Reform of Democratic
Institutions, the Aspen Institutes and the Italy-China Foundation, stand out.
At an international level Pirelli interacts with the main interlocutors present in the countries where its
production sites are located. When necessary, the Group promotes moments of discussion and dialogue
directed towards mutual understanding and with the purpose of promoting representation of its interests
through a strategy based on a clear perception of the industrial objectives related to business
developments. Moreover, among the various tools of “economic diplomacy”, in addition to a series of
bilateral initiatives, Pirelli takes an active part in a number of Business Councils with: Egypt, Mexico,
Thailand and China, where it has held presidency since 2016.
With reference to the initiatives of major international importance, there is that of the Italy-China
Business Forum, held in Italy. As part of the economic relations between the two countries, the Italy-
China Business Forum represents a context of permanent interaction between Italian and Chinese
entrepreneurs. To further develop relations between the two countries, the third working session of the
Business Forum was held in Rome in June on the sidelines of a major Intergovernmental Committee
that was attended by key Italian and Chinese business leaders and Ministers of Foreign Affairs of the
two countries. The plenary session was opened by Marco Tronchetti Provera, Executive Vice Chairman
and Chief Executive Office of the Pirelli Group and Co-Chairman of the Italy-China Business Forum,
and by Tian Guoli, Chairman of Bank of China.
Activities concerning institutional relations also involved quite constant distribution of information
relating to international Pirelli initiatives towards qualified institutional interlocutors as well as ongoing
monitoring and analysis of the institutional and political dynamics.
In April, on the occasion of the State visit of the President of the Italian Council in Mexico, Pirelli
announced a new investment in the next three years involving the opening of a new factory in addition
to the existing car tyre factory in Silao in the State of Guanajuato. In the country, Pirelli maintains
constant of dialogue with the various institutions at both the federal level and at the local level.
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153
As part of the enhancement of the historical relations between the Company and the United States of
America, where Pirelli has industrial and commercial facilities, work continued on a number of
initiatives related to institutional projects and activities at the United States Council for International
Business, European American Chamber of Commerce and Italian American Chamber of Commerce.
In Brazil, at the opening of the Olympic Games in 2016 and on the occasion of the visit of the President
of the Italian Council of Ministers, Pirelli celebrated the strong bond that unites this country and Italy,
illuminating with the Italian flag the monument of Corcovado Christ the Redeemer in collaboration with
the Archdiocese of Rio de Janeiro.
Even in Romania, Pirelli promotes constant dialogue with key institutional interlocutors in order to
accompany industrial development phases in Slatina. As evidence of the strategic importance of
Romania as part of the Group’s activities, in 2016 Pirelli celebrated ten years of industrial presence in
Romania with a visit to the production center of Slatina by the Romanian Prime Minister, accompanied
by the Minister of Finance and by the Minister of Labour.
Relations with European Institutions also focus on consolidating relations with stakeholders of
reference and monitoring legislation. The ongoing dialogue and discussion with the Commission and
the European Parliament concern a wide range of matters of corporate interest; transport, energy and
environmental policy, industrial policy, research and innovation In line with Group standards, during
the various stages of processing and forming European regulation, Pirelli represents Group interests
with community stakeholders with an approach that is at all times directed towards utmost transparency
and propriety. The Pirelli Group is enrolled with the European Registry for Transparency, which was
instituted by an institutional agreement between the European Parliament and the European
Commission.
In Italy, the Group interacts with a system of relations that involve the main institutional bodies, both
central and local. In parliamentary and government contexts, Pirelli maintains constant relations with
the main structures of reference and with the entities related to them. Especially important among the
usual activities, there appear the initiatives promoted in the matters of: questions relating to the
industrial presence of the Group; promoting and strengthening international relations in countries where
the Group is present with industrial sites, analysing and studying in-depth impacts relating to the
regulatory governance of tyres and their entire life-cycle; matters relating to road safety and
environmental sustainability, both as regards production processes and in respect of the product itself.
PRINCIPAL INTERNATIONAL COMMITMENTS FOR SUSTAINABILITY
The attention of Pirelli to sustainability is also expressed through participation in numerous projects and
programmes promoted by international organisations and institutions in the area of social responsibility.
The following are some of the main commitments undertaken by the Group worldwide (numerous
activities and agreements existing locally at the affiliated companies are not included).
UN Global Compact Lead
In addition to being an active member of the Global Compact since 2004, Pirelli is part of the Global
Compact Lead Companies, an initiative launched in 2011 at the World Economic Forum in Davos by
United Nations Secretary-General Ban Ki-moon, where it has been on the Steering Committee since
2013. Pirelli endorses the “Blueprint for Corporate Sustainability Leadership”, leadership model
envisaged in the Global Compact to inspire advanced and innovative sustainability performance in
terms of management capacity for the creation of sustainable value.
In 2016, the Global Compact Lead activated a series of initiatives to provide support in the definition of
strategies and partnerships for the pursuit of Sustainable Development Goals (SDGs) launched in
September 2015 in New York with the aim of accompanying the activities of sustainable companies
until 2030.
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154
This context includes the publication of several SDGs Industry Matrix, documents aimed to collect
examples of application of the SDGs to business activities; Pirelli has shared several business cases,
directly contributing to the Industry Matrix of the Transportation sector.
Since 2014, Pirelli has been a Founding Participant of the SSE Corporate Working Group, the group of
companies that provide their own evaluations and indications as part of the Sustainable Stock
Exchanges (SSE) initiative promoted by UNPRI, United Nations Conference on Trade and
Development, United Nations Environment Programme Finance initiative and the UN Global Compact.
The initiative is based on a platform for exchange of ideas and assessments, which aims to increase the
attention of world stock markets, investors, regulators and companies to the sustainable performance of
companies.
ETRMA – European Tyre And Rubber Manufacturers Association
ETRMA is the main partner of the EU institutions for the sustainable development of new European
policies for the sector and for their proper implementation. With the institutional support of the Pirelli
Group, in 2016, the association continued to raise awareness of the European Commission and
European Union Member Countries on the implementation of market surveillance for monitoring
compliance with regulations on the general safety of vehicles and tyres and on energy efficiency, as well
as the labelling of tyres in European Countries, and through the strengthening of the partnership with the
national associations of the sector of which Pirelli is an active member. In 2016, ETRMA adhered to the
new programme of the European Commission on Competitiveness and Sustainable Growth of the Auto
Industry (GEAR 2030), which aims to face the new challenges arising from technological changes
(alternative fuels, autonomous driving), globalization and new approaches to mobility. The programme,
which lasts two years, will develop strategies for the competitive integration in the globalized world of
the EU Auto Industry, the adaptation of the EU value chain to new technological challenges and
emerging from the market, and develop a work plan on autonomous driving vehicles. Moreover,
ETRMA is heavily involved in the implementation of the Emission Trading Scheme, with the aim of
reducing the economic impact of European energy policies and the European Innovation Partnership on
Raw Materials and guaranteeing fair and unrestricted access to key raw materials for the sector.
Finally, the association supports the European Commission in the definition of policies on the Circular
Economy for the sector and is successfully continuing in promoting sustainable manufacturer
responsibility practices for the management of end-of-life tyres, thanks to which Europe maintains a
more than 95% recovery rate, through close collaboration with the various operating partnerships
existing in European countries. The good ETRMA (and European) practices constitute an international
benchmark.
IRSG – International Rubber Study Group
Pirelli, in representation of the European Commission, is a member of the Industry Advisory Panel of
the International Rubber Study Group (IRSG) based in Singapore, an intergovernmental organisation
that brings together producers and consumers of rubber (both natural and synthetic), acting as a valuable
platform for discussion on issues regarding the supply and demand for natural and synthetic rubber. It is
the principal source of information and analysis on all aspects related to the rubber industry. As part of
the IRSG, since 2012, Pirelli has been, among other things, engaged in the Sustainability Rubber
Project, which aims to create a World Standard of Sustainable Management for the rubber industry,
which led to the launch in 2014, during the World Rubber Summit, of the Sustainable Natural Rubber
initiative, and in 2015 of the pilot test on a voluntary basis involving all stakeholders of the supply
chain; at the end of 2016, about 40 stakeholders adhered to the self-declaration of compliance with the
2016 ANNUAL REPORT
standard. It should be mentioned that about 85% of natural rubber is produced by small farmers owning
less than 3 hectares of land; the decision to plant trees and produce natural rubber therefore depends on
opportunity cost and therefore an adequate long-term plan to ensure stable growth that must be based on
sustainability. In this regard, the initiative indicated above also aims to create conditions of economic,
environmental and social sustainability in the natural rubber chain, so that there is attention to
affordability but also to the support of farmers, respect for human and labour rights, and to the
preservation of primary forests.
155
WBCSD – World Business Council For Sustainable Development
Pirelli actively participated in the WBCSD – World Business Council for Sustainable Development - in
2016. This is a Geneva-based association of about 200 multinational companies based in over 30
Countries that have made a voluntary commitment to link economic growth to sustainable development.
In particular, Pirelli endorses two projects: Tire Industry Project and Sustainable Mobility Project. The
Tire Industry Project (TIP), whose members account for about 65% of global production capacity of
tyres, was launched in 2006 with the objective to seizing and anticipating the challenges of sustainable
development through the assessment of the potential impact on health and environment of tyres
throughout their life cycle. The project extends its evaluation activities to raw materials, tyre debris and
nano-materials. On the latter issue, in collaboration with the Organization for Economic Co-Operation
and Development (OECD), a specific guide was developed for the sectors that contains best practices of
reference for research, development and industrialisation of new nano-materials, so as to ensure that the
use of any nano-material is safe for people and the environment; the document is available at the link:
http://www.oecd.org/chemicalsafety/nanosafety/nanotechnology-and-tyres-9789264209152-en.htm.
The TIP is also finalizing the development of a proposal for "product category rules" (PCR) needed to
perform the analysis of the life cycle (life cycle assessments - LCAs) and develop "environmental
product declarations (EPDs)" for tyres so that the results are comparable between tyre manufacturers, as
well as common KPI on HSE performance related to production to be used for aggregate reporting. The
TIP group members also continued promotion in emerging countries, including China and Russia, of
best practice on the management of ELT tyres and on enhancing the recovery and reuse of the same as a
resource (secondary raw material), with the aim of reducing the exploitation of raw materials and the
environmental impact that it involves. The Sustainable Mobility Project (now SMP 3.0), in which Pirelli
has participated since 2013, has developed a vision at 2050 linked to an idea of urban mobility that is
universally accessible and with low environmental impact, as regards the transport of both passengers
and goods in urban context. The project (2013-2017) involves international companies in the
automotive, auto & parts, transportation, oil & gas and information and communication technology
sectors.
The project led to the development of a set of sustainable mobility indicators, the creation of a “tool
box” of solutions available in the public domain as the result of in-house innovation and their
implementation in six pilot cities (Hamburg, Bangkok, Campinas, Chengdu, Indore, Lisbon), with
which a cooperation project has been started for the development of their sustainable mobility plans.
Among the six pilot cities selected, Campinas (Brazil), in addition to being the site of an important
Group plant, saw Pirelli taking on the role of task force leader for the project. At the conclusion of this
first phase of the project (SMP 2.0), Pirelli has helped the city authorities to redefine the sustainable
urban mobility plan bringing attention to sustainable mobility, road safety and highly polluting
emissions.
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156
EU-OSHA – European Agency For Safety And Health At Work
For the eighth consecutive year, Pirelli continued to be an official partner of the European Occupational
Safety and Health Agency (EU-OSHA) in 2016. Every two years, the Agency tackles a different issue.
The 2016-2017 campaign "Healthy Workplaces for All Ages" recognizes the need to prepare a
sustainable working environment, which guarantees the health and safety of employees throughout their
entire working life. In endorsing the Campaign, Pirelli launched a series of targeted initiatives,
confirming its commitment to promoting a healthy work environment, where employees feel valued and
where dialogue and the sharing of know-how between different generations is encouraged.
CSR Europe
Since 2010, Pirelli has been a member of the Board of CSR Europe, represented by the Chief
Sustainability and Risk Governance Director. CSR Europe is a network of companies in Europe that are
leaders in the area of corporate social responsibility. Its members include more than forty-five
multinational companies and forty-one national partner organisations from thirty-three European
countries.
In addition to several collaboration projects between companies for the improvement of corporate
management performance, in 2016, CSR Europe continued with the initiative "European Pact for
Youth" launched in 2015 and undertook the new campaign "Sustainable Business Exchange", to support
the achievement of the sustainable development goals of the United Nations.
The Pact for Youth, supported by the European Commission and aimed at supporting the increased
employment of young people through education and training as essential tools to match the skills of
young people to the new skills required by the market, has seen Pirelli as a co-initiator of the initiative;
the Group contributes to the realization of these goals through a network of collaborations with high
schools and universities in the various countries in which it operates.
In 2016, thanks to its acknowledged expertise in the field of social and environmental responsibility,
Pirelli chose CSR Europe to organise the Pirelli Global Stakeholder Dialogue held in Brussels in
February. The success of the event in Brussels has led the Company to confirm CSR Europe as
coordinator of the Local Dialogues that took place between the second half of 2016 and the first months
of 2017 in Romania, Mexico, Germany, Turkey and Egypt.
International Commitments Against Climate Change
For years Pirelli has renewed its commitment to the fight against climate change, promoting the
adoption of adequate energy policies for the reduction of CO2 emissions.
During 2016, Pirelli participated in several events on the topic, including the Climate Conference in
Marrakech (COP22), an event that brought together the signatory countries of the Paris Agreement to
agree on a plan of implementation of the commitments undertaken a year earlier.
In 2015, Pirelli joined the “Business for COP 21 Initiative” and participated in various side events
organised during the Climate Change Conference in Paris.
Throughout 2014, the Group joined the "Road to Paris 2015" project and signed three initiatives
consistent with its sustainable development strategy:
• Responsible Corporate Engagement in Climate Policy;
• Put a Price on Carbon;
• Climate Change Information in Mainstream Filings of Companies Communication.
Also in 2014, the Company signed the Trillion Tonne Communiqué, the document that requires global
emissions over the next 30 years to remain below the trillion tonnes of greenhouse gases in order to
2016 ANNUAL REPORT
avoid a rise in average global temperature higher than 2°C and thus avoid disruptive climate impacts
that are inevitably associated.
In 2012, Pirelli signed The Carbon Pricing Communiqué; in 2011, it signed the 2nd Challenge
Communiqué, while in 2010 it signed the Cancún Communiqué and in 2009, it signed the Copenhagen
Communiqué and in 2007 it signed the Bali Communiqué, the first document for the development of
concrete strategies through joint work by Governments on a comprehensive global climate agreement.
157
COMPANY INITIATIVES FOR THE EXTERNAL COMMUNITY
As specified in the Group “Ethical Code”, Pirelli provides support to educational, cultural, and social
initiatives for promoting personal development and improving living standards. The Company does not
provide contributions, advantages, or other benefits to political parties or trade union organisations, or to
their representatives or candidates, this without prejudice to its compliance with any relevant legislation.
Since the founding in 1872, Pirelli has been aware that an important role in the promotion of civil
progress in all the communities where it operates and, capitalising on the Company’s natural strengths,
it has identified three focus areas: road safety, technical training and solidarity through sporting
activities for young people. Pirelli for some years has adopted an internal procedure to regulate the
distribution of gifts and contributions to the External Community by Group companies, in relation to the
roles and responsibilities of the functions involved, the operational process of planning, realisation and
monitoring the initiatives and the disclosures regarding the same. Essential support in the identifying of
the actions that best satisfy local requirements comes from the dialogue with locally operating NGOs.
Priority is given to those initiatives whose positive effects on the External Community are tangible and
measurable according to objective criteria. The internal procedure also specifies that initiatives may not
be promoted for the benefit of beneficiaries in respect of whom there is direct or indirect evidence of
failure to abide by the human rights, workers, the environment, or business ethics.
The contributions to the External Community by Group companies are part of a broader strategy to
support the achievement of the Sustainable Development Goals of the United Nations (SDGs), already
mentioned above in the report, in the paragraphs "Sustainable Governance Model and Planning " and
"UN Global Compact Lead".
To better understand the links between the philanthropic activities of the Group and the UN Goals, at
the end of each of the following sub-paragraphs are the SDGs that are most directly impacted by the
Company's activities described herein.
Road Safety
Pirelli is synonymous worldwide not only with high performance, but also safety. Together with
environmental protection, road safety is the key element of the Green Performance strategy that inspires
the Group’s industrial and commercial choices. Pirelli’s commitment to road safety takes the form of
numerous training and awareness-raising activities, but above all it translates into research and the
ongoing application of innovative technological solutions for sustainable transport.
In 2016, Pirelli confirmed its commitment to the promotion of road safety through adherence to the
"Action for Road Safety Campaign" of FIA, developed in support of the decade of actions for road
safety organised by the United Nations in late 2011.
The FIA campaign promotes initiatives and training and information campaigns aimed at encouraging
more responsible driver behaviour and having safer roads and cars.
As a Global Partner of this campaign, Pirelli has also signed the "Ten Golden Rules" for road safety,
undertaking to disseminate them to its distribution network and to initiate training programmes and
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158
awareness-raising projects for safe driving that will be channelled through the FIA clubs in the world
starting in 2017.
Regarding road safety, Pirelli is also a signatory of the European Road Safety Charter, through which it
undertakes to:
• contribute to consumer knowledge about the fundamentals of road safety, through experience
•
and safe driving courses;
increase the awareness of young drivers on the causes of road accidents through specific
initiatives;
• provide information material on winter road safety at the points of sale, with the support of the
Pirelli website (potential reach of 9 million users worldwide in one year) and sites dedicated to
information on winter ordinances;
• organise training seminars, in collaboration with associations, on issues of road safety related to
•
the tyre and its related uses;
train international dealers on the importance of the tyre in road safety and the performance
differences between winter, summer and all-season tyres; the activity has been ongoing for over
two years and has involved most of the countries in which Pirelli has a direct presence; in 2016,
there were more than 900 classroom training sessions for dealers from around the world with
more than 22,000 participations;
• actively participate in national programmes on road safety, in agreement with associations,
institutions, universities, manufacturers of cars and motorcycles or collaborating with law
enforcement agencies for the preparation of a useful module for detection of the state of use of
the tyre.
in
to
Italian
related
force on
the winter ordinances
Also at Group level, since 2013, Pirelli has participated in the WBCSD Sustainable Mobility project that
proposes solutions for the redefinition of urban mobility with a focus on the issues of sustainable
mobility and road safety. For further details on Pirelli's involvement in this project, reference is made to
the paragraph "WBCSD" of this report.
In Italy, Pirelli dealt with the definition of summer/winter tests regarding Assogomma and actively
participated in road tests with the involvement of journalists, automotive specialists and government
agencies such as the traffic police. As in previous years, also in 2016, Pirelli dedicated a website to the
collection of updates
territory
(www.ordinanzeinvernali.it).
There are many road safety initiatives implemented by the countries in which the Group operates: in the
USA and Canada, the "Tyre Safety Week" initiative was organised on safe driving that also involved
other tyre manufacturers; in Mexico, a major campaign was organised for safe driving with the support
of the Rally driver Benito Guerra; in the UK, several information campaigns were organised that
involved both lessons on the safety of tyres within local schools and practical lessons for drivers with
the goal of teaching the importance of measuring the tread to ensure vehicle safety. These initiatives
have led Pirelli UK to be awarded the "Safety in the Community" prize; in Egypt, during the year, Pirelli
provided training to about 300 truck and bus drivers; other courses on tyres and safety were also held in
four different Chinese universities.
In regard to heavy vehicle transport, in 2016, Pirelli Industrial continued the activities it had already
undertaken in previous years, dedicated to sustainable mobility and road safety. There is an important
tutorial on the CyberFleet system on the Pirelli.com/tyre website, which offers fleet managers the
opportunity to quantify the benefits of a correct measurement of the pressure and temperature of the
tyres in terms of regularity of wear, fuel economy and road safety. In parallel, meetings have been
organised during the year at European level with fleets and dealers, aimed at raising awareness on
2016 ANNUAL REPORT
sustainability in freight transport through the introduction of tools for tyre pressure monitoring (Cyber
and FleetCheck systems).
There were many initiatives in favour of education for road safety also by the Pirelli Motorcycle
Business Unit, which in 2016 continued the collaboration with driving schools for the development of
practical and safe on-road and off-road experience.
159
SDGs - Reference Targets:
• 3.6, dedicated to reducing the number of deaths and injuries due to road accidents;
• 11.2, in support of safer, more accessible and sustainable transport systems, with particular
attention to the needs of the most vulnerable groups.
Training
The promotion of technical education and training are very old values that are well-established in the
history of Pirelli. The Group continues to benefit from technical and research cooperation with various
universities around the world, beginning with the Milan and Turin Polytechnic Universities, the Milan
Bicocca University and also the Qingdao University in China, the University of Craiova in Romania and
the Universities of Baden-Wuerttemberg, Darmstadt and Aschaffenburg in Germany, among others.
In Romania, Pirelli collaborates with several local universities on technical training courses: among the
most important in 2016 were the IT Academy and the Master Automotive. Moreover, in collaboration
with local authorities, Pirelli participates in the START programme, aimed at training the unemployed.
Technical training has a fundamental role in the creation of a skilled labour pool needed to maximise
plant productivity. In Mexico, the Piero Pirelli Institute for technical training, inaugurated in 2015, is
equipped with the most advanced learning tools (virtual simulator, automatic controls, pneudraulic
systems, electrical, electro-mechanical, mechanical and measurement systems), and can train more than
100 students per month. Within the institute, there are numerous classrooms, a showroom on the
process, materials and 3D models of the product, production workstations that use both virtual reality
and physical warehouse simulators, service areas and offices.
In Russia, Pirelli has collaborated with the Vyatka State University to train specialists in the
manufacture of tyres, and sponsoring a research project on rubber materials.
In Spain and Argentina, Pirelli sponsored scholarships. The Merlo factory in Argentina also hosted 12
technical students offering an internship programme. In China, Pirelli sponsored an Award for
Technical Innovation and signed an agreement with the Qingdao University for Science and
Technology, which provides 30 scholarships for outstanding students.
In Germany, the company supported the schools of Hoechst, Bad Koenig and Breuberg.
In Brazil, Pirelli supports Educandario Imaculado Coracao de Maria in Amélia Rodrigues, an
elementary school run by Italian nuns and attended by 940 children.
Training does not only concern the production process at the factory; for Pirelli, the entire life cycle of
the tyre is important. In fact, the Group focuses heavily on disseminating sustainable agriculture
practices for raw materials such as natural rubber. In Indonesia, in collaboration with the supplier
Kirana Megatara, Pirelli continued the "Rubber Productivity Enhancement Project" with two main
objectives:
• Educating natural rubber farmers by teaching the correct procedures for rubber extraction
enabling the protection of natural resources (maximising productivity and maintaining and
extending the life of trees). Training is on three fronts: theory, extraction, and quality;
• Giving scholarships to the children of natural rubber growers, to allow them to go to school and
buy school books.
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SDGs - Reference Targets:
• 4.4, dedicated to increased technical training to youth and adults, aimed at increasing manual
skills and entrepreneurship;
• 9.5, referring to support for scientific research and increased technological capabilities of the
160
industrial sectors.
Sport And Social Responsibility
There is a close link between solidarity and sport, in a virtuous circle where commitment to sports
becomes synonymous with the commitment to promoting solidarity and ethics, especially amongst
young people. Getting young people involved in sport is a way to teach the notion of integration to
children from different social groups, and helps prevent negative situations like isolation and solitude.
Pirelli signed a global agreement not only for the sponsorship of the professional football club FC
Internazionale Milano (“Inter”), but also as a partner of the global social project Inter Campus.
Since 1997, Inter Campus has developed social, flexible cooperation and long-term actions, in 29
countries around the world with the support of 200 local operators, using football as an educational tool
to offer to boys and girls in need, aged between 6 and 13, the right to play. Since 2008, Inter and Pirelli,
along with a local partner, have been running the Inter Campus social project in Slatina, Romania. The
sports and recreational activities are organised for the entire year, involving over 100 children from
different social contexts who have been learning team spirit, social integration and the values of
friendship through football for many years now. Since 2012, Pirelli and Inter have replicated the
experience of Inter Campus in Mexico: Inter Campus Silao, near the Pirelli factory, inaugurated by
President Felipe Calderon, involves more than 100 children in the area. In the United States, the first
Inter Campus was inaugurated in 2014 by Pirelli and Inter along with the Youri Djorkaeff Foundation.
The Campus is located in the community of Inwood, a neighbourhood in New York City, and involves
more than 120 children. Also in 2014, Pirelli and Inter launched an Inter Campus project together in
Voronezh, Russia, involving two local orphanages with about 100 children.
In Brazil, Pirelli sponsors basketball, volleyball, football, surfing and tennis activities. In the United
States, Pirelli sponsored the local team Rome Braves in Georgia, as well as various sporting events
related to philanthropy, including the donation to R.A.C.E. (Racing Awareness Charity Events of
Rome). Even in the United Kingdom, Pirelli sponsored various sporting events related to philanthropic
fundraising and helped to donate funds for the construction of a new sports field. In Germany, Pirelli
made donations for youth sports clubs. In Kirov, Russia, Pirelli sponsored the ice hockey "Pirelli Cup",
involving several teams of adults and children of seven countries in the area (60 adult participants plus
120 children). In Voronezh, also in Russia, Pirelli was a partner for a sailing regatta. In Egypt, Pirelli
built a sports centre for youths on a plot of 3,000 square metres donated by the Ministry of Youth. And
in China, as in other countries, Pirelli organized football games to promote health and wellness.
SDGs - Reference Targets:
• 3, dedicated to guaranteeing a healthy lifestyle and promoting well-being for everyone, at all
ages.
Solidarity
The responsible approach taken by Pirelli to involvement and inclusion takes the form of social
solidarity activities worldwide. The Company supports educational and didactic programmes that are
able to give less fortunate children the tools to improve their condition; it contributes scholarships and
research projects, firmly believing in training as vital to individual growth and the economic growth of a
2016 ANNUAL REPORT
161
country. In Brazil, where Pirelli has been historically active in the local community with social projects,
the Company provided for about 120 children in the city of Feira de Santana, near the Pirelli factory, in
an after-school programme with 15 different types of activities. A similar project is near the Gravatai
factory, which is aimed at social inclusion and includes music and dance activities as well as more
traditional teaching. Also in Brazil, Pirelli supports the kindergartens Dr. Klaide in Santo André and
Escadinha do Tempo to Meleiros, which guarantee for 270 children not only educational activities but
also medical, dental and psychological visits, in addition to food.
Pirelli supports the Fundació Mambre in Spain, a foundation that operates as a facilitator in social
inclusion processes, supporting homeless people on their individual growth paths. In addition, the
Company supports programmes providing food for needy families, and a warehouse for the storage of
food for the poor. Pirelli collaborates with the AMPANS Association, dedicated to the cognitively
disabled. Pirelli has also contributed to a solidarity project aimed at the integration of children at risk of
social exclusion, and to the Casa degli Italiani (House of Italians) in Barcelona to help the needy.
In Russia, the Moscow employees organised fundraising activities to finance 1,200 private lessons for
orphans, while in Kirov, Pirelli employees dedicated part of their time to entertainment of children in a
kindergarten and, with the support of the Arifmetika Dobra foundation, organised a visit to the factory
for older children. A group of employees of the Moscow office took part in a race in support of "Naked
Hearts", the association run by Natalia Vodyanova.
In Turkey, Pirelli financed a dinner for 3,000 citizens in need during Ramadan. In Germany, Pirelli
made donations to the Finkennest home for children and to an entity that deals with safe playgrounds in
the Odenwald area.
In the UK, Pirelli has dealt with many community initiatives, including, in particular, the donation of
toys for hospital children and a prize of "local heroes" giving visibility to local initiatives such as "Me &
Dee", which offers holidays to people in need.
In China, Pirelli has made a donation to the Jining orphanage, supporting about 70 orphans and poor
children. In the United States, Pirelli, with the support of some employees, has contributed to
fundraising for the purchase of food for the needy, and has made a donation of children's toys.
SDGs - Reference Targets:
• 1, on the eradication of poverty in all its forms;
• 2, related to the elimination of hunger in the world;
• 11, dedicated to the development of cities and social environments that are inclusive, safe and
sustainable.
Health
Pirelli considers contributing to improving the health services of the communities where it operates to
be important. Since 2008, Pirelli Tyres Romania, in collaboration with the Niguarda Hospital in Milan,
has supported the professional training of medical and nursing professionals and the donation of
medical equipment and devices to Slatina Hospital. Over 270 professionals were trained in this
programme, and specifically in oncology, paediatric care and emergency care. Pirelli Tyres Romania
has also provided dental treatment to many children in Slatina through the project Overland for Smile.
In Mexico, Pirelli organized a "Health Week" promoting healthy and active lifestyle in the local
community. In the United States, a "Wellness Challenge" was organized, which attracted 53
participants.
In the UK, the philanthropic activities of Pirelli in the field of health include sponsorships, fundraisers
and donations for research and medical care. Among them, in 2016, Pirelli raised funds for hospices and
2016 ANNUAL REPORT
hospitals in the areas of Burton on Trent and Carlisle, where the two factories are located. Other funds
were intended for associations to support the blind and leukemia patients.
In Spain, Pirelli participated in the Day of Solidarity Somos Uno, raising funds for biomedical research
for serious childhood diseases and the prevention of Alzheimer's. Since 2010, Pirelli has supported the
Pequeno Principe Hospital in Curitiba, the biggest paediatric hospital in Brazil. In Argentina, Pirelli is
the official sponsor of the Marathon for the rights of children of the Italian Hospital who have had
cancer; the race involved more than 1,500 participants.
162
SDGs - Reference Targets:
• 3, dedicated to guaranteeing a healthy lifestyle and promoting well-being for everyone, at all
ages.
Environmental Initiatives
Many Pirelli employees around the world enthusiastically participate every year in environmental
projects. In Egypt, a competition was also promoted in 2016 for the best ideas about recycling of factory
waste materials (pieces of wood, building materials, etc.): six teams participated, representing six local
villages. Among the very useful projects: expansion of a kindergarten, strengthening of the roofs of 12
houses, construction of directional signs for traffic for 33 villages, construction of sheds and furniture
for the reception of a gym and projects to build for bins for garbage collection. The commitment of the
Egyptian factory in these projects, as well as the commitment of the same in work-life balance
initiatives for employees, has led Pirelli Egypt to obtain the "Pioneer Business to Achieve Sustainable
Development" award.
In Romania and Russia, groups of employees have volunteered for local environmental clean-up
projects.
In Mexico, Russia, Turkey, Romania and China, days were organised to plant trees.
A major project to preserve the forest areas was Kirana Megatara in Indonesia, already described in this
chapter in the section on training, aimed at maximizing productivity and maintaining and extending the
useful life of natural rubber trees.
SDGs - Reference Targets:
• 12.5, aimed at reducing the generation of waste through reduction, recycling and reuse;
• 15.2, related to the promotion of sustainable forest management, to reduce deforestation and
increase reforestation.
Culture And Social Value
The internationality of Pirelli also emerges from the love for culture, with initiatives in many countries
worldwide also in 2016. The attention to culture, and even more the commitment to preserve it, spread it
and enhance it, are part of the DNA of the creation of social value. Pirelli is among the sponsors of the
Museum of Modern Art of Sao Paulo, one of the most important structures in Latin America which, in
addition to the permanent collection, every year offers major exhibitions, seminars, events and courses.
Also in Brazil, Pirelli supported the exhibition of the collection of the banker Roger Wright at the
Pinacoteca de Sao Paulo, a selection of more than 170 Brazilian works of the 60s and modern
installations. Pirelli also supports the exhibition of Marinella Pirelli, on 50 years of artistic activities
with a particular focus on the poetic creatiove process and luminous objects. Pirelli provided support to
the event ArtRio, a collection of 100 national and international galleries. In Brumadinho, Pirelli
supports the Instituto Inhotim, with a famous collection of contemporary art and a collection of plants
2016 ANNUAL REPORT
163
from around the world. In the field of music, Pirelli sponsors the Mozarteum project, which presents
great international orchestras of classical music in Brazil and in Argentina, at the famous Teatro Colon.
In Romania, Pirelli sponsors theatre days for the community, in collaboration with the Cultural Center
of Slatina "Eugen Ionescu". In Russia, Pirelli organizes trips to the museum for children, and supports
young talents. In 2016, the company also raised funds for the preservation of historic buildings. Also in
Russia, an exhibition of the Pirelli Calendar was presented at the Multimedia Art Museum in Moscow.
In the United States, Pirelli sponsors the Council for the Arts in Rome, Georgia.
Pirelli is also very attentive to the preservation of local cultures. Among these, one of the most
important initiatives is the support of research on Confucianism through support to the China Confucius
Website and the Confucius Culture Month.
SDGs - Reference Targets:
• 4, aimed at promoting quality education and all forms of equitable and inclusive learning.
FONDAZIONE PIRELLI (PIRELLI FOUNDATION)
One of the missions of the Fondazione Pirelli, or Pirelli Foundation, established in 2009, is the
preservation of the Group’s historic and cultural heritage and the promotion of its corporate culture
through local initiatives having a strong social impact, exhibitions, as well as collaborations with other
cultural institutions. Numerous projects were carried out again in 2016 to promote the Pirelli archives.
Among these, the following are noted in particular:
• Design and implementation of the exhibition "Pirelli, sustainable culture. Raw materials,
research, processes and products, people. Our story through the historical heritage of the
company" in the spaces of the Foundation to explore, from the Historical Archive documents,
the evolution of sustainable management as a lever of competitiveness from 1872 to the present.
The exhibition première was attended by industry journalists invited to the press conference
"Pirelli Green lunch. The dimensions of sustainability: achievements and future goals". Guided
tours of the exhibition were also offered to customers and guests of the company, to universities
and academic master's students, and as part of the "Learning Lab" for Pirelli employees;
• Realisation of exhibition paths, among which: "The industry Architectures: from the Bicocca
Project to the Industrial Centre of Settimo Torinese. A tour of places and stories of the Pirelli"
set up at the Milan Headquarters for the XXI International Exhibition of Milan Triennale of
which Pirelli was Official Partner; "Pirelli: an industry of design and language. A story that has
spoken Italian for over 140 years" created as part of the XVI week of the Italian language in the
world promoted by the Ministry of Foreign Affairs and International Cooperation, hosted at the
Italian Embassy Cultural Centre in New Delhi and Kuwait; "50+! The big game of the industry",
exhibition dedicated to "Made in Italy" excellence, in collaboration with Museimpresa, in which
Pirelli took part with advertising and historical photographs of the Cinturato tyre. The exhibition
has been exported to China, Jordan, Venezuela, Israel, Turkey, Malaysia, Oman;
• Constitution of the Bicocca District, network of institutions and companies that share the goal of
creating, also through the involvement of citizens, a central hub for the area north of the
metropolitan city, linking education, research, culture and companies. Leader of the project,
together with Pirelli Foundation and Pirelli HangarBicocca, the University of Milan-Bicocca;
• Digital and library projects: in addition to the website fondazionepirelli.org, restyled in 2016, the
Foundation constantly feeds its own Facebook page and Instagram and Pinterest accounts.
During the year, the digital library was implemented on the website with the publication of the
reportage relating to the Pirelli skyscraper (in English and Italian version). The work continued
2016 ANNUAL REPORT
164
for cataloging and digitization of the materials of the Historical Archives: house organ and
publications such as "Paginas Pirelli" (Argentina), "Noticias Pirelli" (Brazil), "Fatti e notizie",
training notebooks, and photographs related to racing and bicycle tyres;
• Analysis, restoration and digitization of materials for the publication of the volume “La
pubblicità con la P maiuscola” (Advertising with a capital A) (working title). The volume,
followed by “Una musa tra le ruote (A muse in the wheels) Pirelli: a century of art at the service
of the product", which is expected to be released in mid-2017, aims to enhance the archival
collection of Pirelli advertising communication between the seventies and nineties of the
twentieth century. Over 200 folders of print work registered, about 250 works restored and over
400 advertising materials digitized;
•
• Opening of the Pirelli corporate libraries of Milan Bicocca and Bollate as part of the project
#ioleggoperchè in support of reading. More than 3,500 titles already available for employees to
borrow and consult;
Initiatives to promote Corporate Culture: - Organization of the concert "Children of Beethoven"
(L. van Beethoven, R. Schumann) at the Pirelli Headquarters Auditorium in the Festival MITO
SettembreMusica; - participation with guided visits to open archives, initiative by Rete
Fotografia (Photography Network, of which the Foundation is part) to promote knowledge of
photographic assets (attended by about 150 people); - participation in the XV Week of
Corporate Culture, promoted by Confindustria, on the theme "The beautiful factory: culture,
creativity, sustainability", with animated guided tours by professional actors, children's
workshops, bike tours and the play "The words from the factory ", in collaboration with the
Theatre Franco Parenti (attended by over 650 people);
• Creation of a path set up for the community of Pirelli employees on the theme of Christmas told
through the pages of the magazine "Pirelli" (attended by about 450 employees);
• Pirelli Foundation Educational Project for students with the aim of bringing them closer to the
world of work and the values of the Pirelli corporate culture. There were over 150 educational
courses, which involved over 3,000 children. Among the additions of 2016, a promotional video
of educational activities and guided tours for high schools to the Industrial Centre of Settimo
Torinese and establishment Next Mirs of Bicocca. In agreement with the Research and
Development Department of Pirelli, a collaboration was initiated with the Association "Friends
of the school G.B. Pirelli" and with the University of Milan-Bicocca for support in the X Edition
of the "Festival of educational robotics". The Pirelli Foundation has also collaborated in the
project "Bullying in offside" launched by the MUIR Ministry of Education, University,
Research and promoted by Inter;
• Educational activities for university students from leading Italian and foreign universities
(University of Milan-Bicocca, Università Cattolica del Sacro Cuore, University Luigi Bocconi,
Politecnico di Milano, Princeton University, Business School at the University of Illinois, etc.);
• Bambini in Bicocca project: for the fourth consecutive year the Foundation collaborated in the
project with the Pirelli Human Resources Department, creating the educational courses aimed at
employees’ children being welcomed into the Company during school holidays. Through a visit
to the Historical Archives, the children had the opportunity to experience in-depth the
relationship between Pirelli and the world of art. The project involved more than 250 children
aged between 5 and 10 for 9 days.
In 2013, approximately 9,000 researchers, students, historians and designers visited the Foundation
headquarters and conducted research at the Pirelli Historical Archive in 2016. About 2,000 of its
materials were provided for exhibitions and publications, also internationally.
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165
PIRELLI HANGARBICOCCA
Pirelli HangarBicocca, which with its 15,000 square metres is one of the largest exhibition venues in
Europe, is a space dedicated to the production, exhibition and promotion of contemporary art, created in
2004 from the reconversion of a vast industrial facility that belonged to Ansaldo-Breda.
The programming of solo exhibitions by the most important international artists is distinguished by a
character of research and experimentation and special attention to site-specific projects which are
capable og maintaining a dialogue with the unique features of the space. The 2016 artistic programme,
curated by Artistic Director Vicente Todolí and curator Roberta Tenconi, presented artists of great
international profile, alternating exhibitions of very successful names with exhibitions of emerging
artists. The programme managed to attract an Italian and international audience composed of art experts,
representatives of the most important museums, trade journalists and the general press, as well as an
equally large number of enthusiasts, families and students. During the year, there were a total of
200,000 visitors who visited the 5 large exhibition projects dedicated to international artists as well as
the exhibition held on the occasion of the XXI Triennale International Exhibition Milan 2016:
• Philippe Parreno, “Hypothesis”
• Petrit Halilaj, “Space Shuttle in the Garden”
• Architecture as Art, XXI International Exhibition Triennale di Milano
• Carsten Höller. “Doubt”
• Kishio Suga, “Situations”
• Laure Prouvost, “GDM-Grand Dad’s Visitor Center”
The vocation of Pirelli HangarBicocca is that of a place open to the city and its hinterland, of an
institution that accompanies the normal exhibition activity with a range of programmes intended to
attract even the non-specialised public to contemporary art.
In 2016, the Public Program accompanied the exhibitions with a full calendar of events, guided tours to
the exhibitions and the district, projections and meetings with the key players in art and culture.
During the year, there were about 15 cultural events (day and/or evening) that involved more than 7,000
participants in activities related to ongoing exhibitions, including a concert by pianist Michael Rudy
attended by over 1,000 people, as well as a 2-day summer festival in July, which was attended by over
2,000 people.
On April 1, 2016, a paid membership project was launched that reached 335 cards sold in December,
with a calendar of dedicated events, discounts and facilities.
HB Kids and HB Family activities for children aged between 4 and 14, saw the participation of 2,460
children and young people, in line with the figures of the previous years. Instead, the number of
participants who took part in the HB School activities reached 7,400.
The education department also continued its guided tours proposing activities in Italian and foreign
language in addition to the format "Art on Sunday" involving cultural mediators in Sunday lessons on
the history of art related to the exhibitions and Bike Tours to discover the neighbourhood for school
students of all levels.
With a view to enhancing the Seven Heavenly Palaces of Anselm Kiefer, the space hosted two
important musical moments co-produced with established Milan-based companies: the concert of the
Boerdomes group in collaboration with the Terraform festival (May 31, 2016) and the concert Le Noir
de L'Etoile with Percussion du Strasbourg, first of a multi-year collaboration with the Milano Musica
festival (November 12, 2016).
In April 2016, a new Bookshop opened, with a selection of books and catalogues relating to current
exhibitions, children's books, non-fiction related to art, reference books.
2016 ANNUAL REPORT
Moreover, in 2016, Pirelli HangarBicocca activated an agreement with the Milan Bicocca University
Centre, becoming part of a working table of the District Bicocca.
In the course of the year, the website has seen an increase of 145% over the previous year.
During the year, Pirelli HangarBicocca also hosted 9 large, private events including Sky Arte, Order of
Chartered Accountants, Aippi.
The activities of Pirelli HangarBicocca generate, among other things, significant induced employment:
in 2016, the creation of exhibitions and major initiatives involved 45 companies and generated 9,750
days/worker.
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2016 ANNUAL REPORT
167
05. Consolidated
Financial Statements
at December 31, 2016
2016 ANNUAL REPORT
Financial Statements Formats
168
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in thousands of euro)
12/31/2016
12/31/2015 (°)
10 Property, plant and equipment
11 Intangible assets
12 Investments in associates and J.V.
13 Other financial assets
14 Deferred tax assets
16 Other receivables
17 Tax receivables
Non-current assets
18 Inventories
15 Trade receivables
16 Other receivables
19 Securities held for trading
20 Cash and cash equivalents
17 Tax receivables
28 Derivative financial instruments
Current assets
Total Assets
21.1 Equity attributable to owners of the Group:
- Share capital
- Reserves
- Net income (loss) for the period
21.2 Equity attributable to non-controlling interests:
- Reserves
- Net income (loss) for the period
21 Total Equity
24 Borrowings from banks and other financial institutions
26 Other payables
22 Provisions for liabilities and charges
14 Provisions for deferred tax liabilities
23 Employee benefit obligations
27 Tax payables
Non-current liabilities
24 Borrowings from banks and other financial institutions
25 Trade payables
26 Other payables
22 Provisions for liabilities and charges
27 Tax payables
28 Derivative financial instruments
Current liabilities
Total Liabilities and Equity
3,556,635
6,496,889
47,010
198,691
147,964
226,868
11,864
10,685,921
1,055,639
679,321
275,622
48,597
1,532,977
64,395
23,989
3,680,540
3,363,634
6,605,278
167,348
225,121
123,724
147,624
6,169
10,638,898
1,053,929
676,192
165,409
78,167
1,110,024
38,605
61,305
3,183,631
14,366,461
13,822,529
3,134,085
1,342,281
1,656,741
135,063
140,773
128,211
12,562
3,274,858
5,945,999
87,421
170,992
1,452,169
368,100
3,374
8,028,055
642,047
1,498,492
783,079
45,987
41,773
52,170
3,209,595
10,196
3,182,019
17,380
72,041
71,524
517
3,281,636
1,275,688
98,631
144,506
1,477,516
362,540
2,646
3,361,527
5,297,841
1,320,058
407,627
63,221
38,640
51,979
3,063,548
14,366,461
7,179,366
13,822,529
(°) the figures refer to the restated consolidated financial statements of Marco Polo Industrial Holding S.p.A. following the completion of the PPA
2016 ANNUAL REPORT
CONSOLIDATED INCOME STATEMENT (in thousands of euro)
30 Revenues from sales and services
31 Other income
Changes in inventories of unfinished, semi-finished and finished products
Raw materials and consumables used (net of change in inventories)
32 Personnel expenses
33 Amortisation, depreciation and impairment
34 Other costs
Increase in fixed assets for internal work
Operating income (loss)
35 Net income (loss) from equity investments
- share of net income (loss) of associates and j.v.
- gains on equity investments
- losses on equity investments
- dividends
36 Financial income
37 Financial expenses
Net income (loss) before tax
38 Tax
Total net income (loss) for the period
Attributable to:
Owners of the parent company
Non-controlling interests
169
2016
2015 (°)
6,058,431
2,208,831
241,170
(44,262)
(2,013,961)
(1,217,846)
(392,376)
(1,909,576)
2,574
724,154
(20,019)
(1,227)
8,297
(33,739)
6,650
51,176
(491,381)
263,930
(116,305)
147,625
135,063
12,562
76,647
28,569
(721,039)
(406,744)
(147,526)
(720,435)
906
319,209
(28,191)
(2,670)
-
(30,165)
4,644
45,484
(280,386)
56,116
(38,219)
17,897
-
-
(°) the figures refer to the restated consolidated financial statements of Marco Polo Industrial Holding S.p.A. following the completion of the PPA
2016 ANNUAL REPORT
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in thousands of euro)
170
A
Net income (loss) for the period
Other components of comprehensive income:
B - Items that will not be reclassified to income statement:
- Net actuarial gains (losses) on employee benefits
- Tax effect
2016
2015 (°)
147,625
17,897
(46,567) 2,544
3,289 (14,349)
Total B (43,278) (11,805)
C - Items reclassified / that may be reclassified to income statement:
Exchange differences from translation of foreign financial statements
- Gains / (losses) for the period
- Tax effect
(177,769) (61,814)
12,598 -
Fair value adjustment of other financial assets available for sale:
- Gains / (losses) for the period
- (Gains) / losses reclassified to income statement
Fair value adjustment of derivatives designated as cash flow hedges:
- Gains / (losses) for the period
- (Gains) / losses reclassified to income statement
- Tax effect
(16,487) (4,538)
(26) -
(1,428) (2,797)
4,325 -
(1,449) 316
Share of other comprehensivie income related to associates and JVs net of tax
2,707 234
Total C (177,529) (68,599)
D
Total components of comprehensive income (B+C)
(220,807) (80,404)
A+D Total comprehensive income (loss) for the period
(73,182) (62,507)
Attributable to:
- Owners of the Parent
- Non-controlling interests
(50,940)
(22,242)
N/A
N/A
(°) the figures refer to the restated consolidated financial statements of Marco Polo Industrial Holding S.p.A. following the completion of the PPA
2016 ANNUAL REPORT
171
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AT 12/31/2016
(in thousands of euro)
Attributable to the Parent Company
Share Capital
Translation
reserve
Total IAS
Reserves *
Other reserves/
retained
earnings
Total
attributable to
the Parent
Company
Non controlling
interests
TOTAL
Total at 12/31/2015 (°)
10,196
(61,814)
(18,590)
3,279,803
3,209,595
72,041
3,281,636
Other components of comprehensive income
Net income (loss) for the period
Total conprehensive income (loss)
Dividends paid
Disposal of 10% Pirelli Industrial
Acquisition of 80% Jianzou Aeolus Tyre
Effect of purchase of special shares for
withdrawal
Purchase of special treasury shares for
redemption
Effect of the incorporation of Marco Polo
Industrial Holding S.p.A / Other
Total at 12/31/2016
-
-
-
-
-
-
-
-
1,332,085
(142,964)
(43,039)
-
(186,003)
(34,804)
(220,807)
-
(142,964)
-
-
-
(43,039)
-
-
-
-
-
-
-
-
-
-
135,063
135,063
-
(10,380)
(1,150)
(6,894)
135,063
(50,940)
-
(10,380)
(1,150)
(6,894)
12,562
(22,242)
(2,053)
81,129
16,462
147,625
(73,182)
(2,053)
70,749
15,312
(3,995)
(10,889)
(5,449)
(5,449)
-
(5,449)
(1,332,782)
(697)
(569)
(1,266)
1,342,281
(204,778)
(61,629)
2,058,211
3,134,085
140,773
3,274,858
(°) the figures refer to the restated consolidated financial statements of Marco Polo Industrial Holding S.p.A. following the completion of the PPA
(in thousands of euro)
Breakdown of IAS reserves *
Reserve for fair
value adjustment of
available-for-sale
financial assets
Reserve for cash
flow hedge
Reserve for
actuarial
gains/losses
Tax effect
Total IAS
reserves
Balance at 12/31/2015
Other components of comprehensive income
Balance at 12/31/2016
(4,538)
(14,744)
(19,282)
(2,797)
3,835
1,038
2,544
(46,567)
(44,023)
(13,799)
14,437
638
(18,590)
(43,039)
(61,629)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AT 12/31/2015
(in thousands of euro)
Share Capital
50
10,146
-
-
-
-
10,196
Establishment
Increase of share capital
IAS 32
Pirelli Group consolidation effect
Total comprehensive gains/(losses)
Net income (loss) for the period
Total at 12/31/2015 (°)
Attributable to the Parent Company
Translation
Other
Total IAS
reserves/
Reserves
reserve
retained
earnings
-
-
-
-
-
(61,814)
-
(61,814)
-
-
-
-
(18,590)
-
(18,590)
3,262,662
(239)
-
-
17,380
3,279,803
Total
attributable to
the Parent
Company
50
3,272,808
(239)
-
(80,404)
17,380
3,209,595
Non controlling
interests
TOTAL
-
-
-
71,524
-
517
72,041
50
3,272,808
(239)
71,524
(80,404)
17,897
3,281,636
(°) the figures refer to the restated consolidated financial statements of Marco Polo Industrial Holding S.p.A. following the completion of the PPA
2016 ANNUAL REPORT
CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands of euro)
2016
2015 (*)
172
Net income (loss) before taxes
Reversals of amortisation, depreciation, impairment losses and restatement of
property, plant and equipment and intangible assets
Reversal of Financial expenses
Reversal of Financial income
Reversal of Dividends
Reversal of gains/(losses) on equity investments
Reversal of share of net income from associates and joint ventures
Ordinary taxes
Change in Inventories
Change in Trade receivables
Change in Trade payables
Change in Other receivables/Other payables
Change in Provisions for employee benefit obligations and Other provisions
Other changes
A Net cash flows provided by / (used in) operating activities
Investments in property, plant and equipment
Disposal of property, plant and equipment
Investments in intangible assets
Repayment of share capital and reserves from Eurostazioni S.p.A.
Disposals (Acquisition) of investments in associates and JV
Disposals (Acquisition) of financial assets
Business combinations
Disposal of 38% of Pirelli Industrial to Cinda fund
Disposal of 10% of Pirelli Industrial
Acquisition of 80% of Jiaozou Aeolus Tyre Co. Ltd (net of cash acquired)
Dividends received
B Net cash flows provided by / (used in) investing activities
Increase (reduction) in equity
Change in Financial payables
Change in Financial receivables/Securities held for trading
Financial income / (expenses)
Dividends paid
C Net cash flows provided by / (used in) financing activities
D Total cash flows provided / (used) during the period (A+B+C)
E Cash and cash equivalents at the beginning of the period
F Exchange differences from translation of cash and cash equivalents
263,930
392,376
491,381
(51,176)
(6,650)
25,442
1,227
(116,305)
29,184
19,771
226,855
(53,950)
(54,570)
(40,238)
1,127,277
(363,466)
91,626
(8,717)
100,353
(4,692)
9,145
266,200
70,749
(53,395)
6,650
114,453
-
(298,567)
15,389
(440,205)
(2,053)
(725,436)
516,294
1,094,457
(86,823)
56,116
147,526
-
-
-
-
-
(161,268)
20,660
403,818
320,143
185,096
(317,834)
(63,681)
590,576
(66,583)
-
(2,862)
-
-
10,581
(6,919,041)
-
-
-
-
(6,977,905)
2,895,595
3,834,441
-
-
-
6,730,036
342,707
751,750
-
G Cash and cash equivalents at the end of the period (D+E+F) (°)
1,523,928
1,094,457
(°) of which:
cash and cash equivalents
passive current accounts
1,532,977
(9,049)
1,110,024
(15,567)
(*) the figures refer to the restated consolidated financial statements of Marco Polo Industrial Holding S.p.A. following the completion of the PPA
2016 ANNUAL REPORT
173
Explanatory Notes
1. General information
Pirelli & C. S.p.A. is a corporation organised under the laws of the Republic of Italy.
Founded in 1872 it is a Parent Company that manages, coordinates and finances the activities of its
subsidiaries and is principally active in the tyre sector.
The registered Head Office of the Company is located in Milan, Italy.
These Financial Statements have been prepared using the Euro as the reporting currency with all values
rounded to the nearest thousand euro unless otherwise indicated.
On March 21, 2017 the Board of Directors authorised the publication of these consolidated Financial
Statements.
As a result of, the Public Offer launched during 2015 by Marco Polo Industrial Holding S.p.A., of the
conversion of savings shares into special shares, of the withdrawal operation relating to the special
shares, as well as the subsequent redemption of the remaining outstanding special shares carried out by
the Company on April 29, 2016, and of the merger of Marco Polo Industrial Holding S.p.A. (the
Shareholder which directly held the entire outstanding share capital of the Company) into Pirelli & C.
S.p.A. (with the legal effects of the merger effective as of June 1, 2016), at the date of this document:
- Pirelli & C. S.p.A. had no shares listed on any regulated markets;
-
the capital of the Company (ordinary and special category) was wholly owned - taking into
account the treasury shares held by Pirelli & C. S.p.A. – by the sole shareholder Marco Polo
International Holding Italy S.p.A. (who prior to the merger was the sole shareholder of the
incorporated company Marco Polo Industrial Holding S.p.A.).
Pirelli & C. S.p.A. is subject to the management and coordination of Marco Polo International Italy
S.p.A., a company which holds the entire share capital of Marco Polo International Holding Italy S.p.A.
(the shareholder which directly controls Pirelli & C. S.p.A.). Both the aforementioned companies are
indirectly controlled by China National Chemical Corporation ("ChemChina"), a state owned enterprise
(SOE) governed by Chinese law with registered its office in Beijing, and which reports to the Central
Government of the People’s Republic of China. Refer to Note 42 which contains the data pursuant to
Art. 2497-bis of the Italian Civil Code.
2016 ANNUAL REPORT
174
2. Basis of Presentation
FINANCIAL STATEMENTS
The consolidated Financial Statements at December 31, 2016 consist of the Statement of Financial
Position, the Income Statement, the Statement of Comprehensive Income, the Statement of Changes in
Equity, the Statement of Cash Flows and the Explanatory Notes, and are accompanied by the Directors’
Report on Operations.
Due to the effect of the reverse merger between the Holding Company Marco Polo Industrial Holding
S.p.A. (incorporated company) into the subsidiary Pirelli & C. S.p.A. (incorporating company),
effective as of June 1, 2016, the Financial Statements of Pirelli & C. S.p.A. at December 31, 2016 have
been prepared on a going concern basis with respect to the consolidated Financial Statements at
December 31, 2015 of the holding company Marco Polo Industrial Holding S.p.A. Therefore the
comparative data of the Statement of Financial Position at December 31, 2015 are those of the same
aforesaid holding company at December 31, 2015, and the comparative Income Statement data and
financial flows are those of the consolidated Financial Statement of Marco Polo Industrial Holding
S.p.A. It should also be noted that the comparative figures at December 31, 2015 were subject to
restatement as a result of the completion of the Purchase Price Allocation, and recognised on a
provisional basis at December 31, 2015 in accordance with the provisions of IFRS 3 - Business
Combinations.
Based on the aforesaid, it should be noted that the comparative financial data for 2015 is not comparable
to that of 2016 in that it includes the results of the Pirelli Group for only four months (as of the
acquisition date, September 2015).
The format adopted for the Statement of Financial Position provides for the distinction of assets and
liabilities according to whether they are current or non-current.
The Group has opted to present the components of gains/losses for the financial year in a separate
Income Statement, rather than include these components directly in the Statement of Comprehensive
Income. The Income Statement adopted provides for the classification of costs by nature.
The Statement of Comprehensive Income includes the results for the period and, for the homogeneous
categories, income and costs are recognised directly in equity, in accordance with the IFRS.
The Group has opted for the presentations of tax effects, as well as the reclassifications to the Income
Statement of gains/losses which were recognised in equity in previous years, directly in the Statement of
Comprehensive Income and not in the Explanatory Notes.
The Statement of Changes in Equity sets forth, in addition to the total gains/losses of the period, the
amounts from transactions with equity holders and the changes which occurred during the period in the
retained earnings.
2016 ANNUAL REPORT
In the Statement of Cash Flows, the financial flows derived from operating activities are presented using
the indirect method, by way of which the gains or losses for the period have been adjusted by the effects
of non-monetary transactions, by any deferment or accrual of past or future collections or payments for
operating activities, and by any revenue or cost items connected with the financial flows arising from
any investment or financing activities.
175
SCOPE OF CONSOLIDATION
The scope of consolidation includes the subsidiaries, associates and agreements for joint control, i.e.
joint arrangements.
Subsidiaries are defined as all the companies over which the Group, at the same time, holds:
-
-
-
the power of decision making, or the ability to direct the relevant activities of the subsidiary, that
is activities that have a significant influence on the results of the subsidiary;
the right to the variable results (positive or negative) resulting from the investment in the entity;
the capacity to use its own power of decision making to determine the amounts of the results
arising from the investment in the entity.
The Financial Statements of subsidiaries are included in the consolidated Financial Statements as of the
date when control is assumed until such time as when control ceases to exist. The portions of net income
(loss) and equity attributable to non-controlling interests have been separately reported respectively in
the consolidated Statement of Financial Position and in the consolidated Income Statement.
All companies for which the Group can exercise significant influence as defined by IAS 28 –
Investments in Associates and Joint Operations, are considered associates. This influence is legally
presumed to exist when the Group holds a percentage of voting rights of between 20% and 50%, or
when - even in the case of a lower share of voting rights – it has the power to participate in determining
financial and operating policies by virtue of specific legal relationships, such as, for example,
participation in shareholders' agreements together with other forms of significant exercise of governance
rights.
Joint arrangements are agreements under which two or more parties have joint control under a contract.
Joint control is the shared control of a business activity, established by agreement and only exists when
decisions relative to the activity require the unanimous consent of all parties who share control. These
agreements may give rise to joint ventures or joint operations.
A joint venture is an agreement for the joint control of an entity whereby the parties that have joint
control, have rights to the net assets of the said entity. Joint ventures are distinguished from joint
operations that are configured instead as agreements that give the parties of the agreement, which have
joint control of the initiative, the rights to individual assets and the obligations for individual liabilities
relating to the agreement. In the case of joint operations, the assets, liabilities, costs and revenues of the
agreement must mandatorily be recognised in accordance with the applicable accounting standards. The
Group does not currently have any agreements for joint operations.
The main change in the scope of consolidation which occurred during the 2016 financial year relates to
the acquisition on October 1, 2016 from Aeolus Tyre Co., Ltd. of an 80% share of the share capital of
the Chinese company Jiaozuo Aeolus Tyre Co., Ltd.
2016 ANNUAL REPORT
INFORMATION ON SUBSIDIARIES
These consolidated Financial Statements include the assets and liabilities of approximately 100 legal
entities. The following is a list of the significant subsidiaries:
176
Registered Office
12/31/2016
12/31/2015
% of the
Group
% of non-
controlling
interests
% of the
Group
% of non-
controlling
interests
Yanzhou (China)
Pirelli Tyre Co. Ltd
Alessandria (Egypt)
Alexandria Tire Company S.A.E.
Heinenoord (The Netherlands)
Pirelli China Tyre N.V.
Breuberg/Odenwald (Germany)
Pirelli Deutschland GmbH
Breuberg/Odenwald (Germany)
Deutsche Pirelli Reifen Holding GmbH
Heinenoord (The Netherlands)
E-VOLUTION Tyre B.V.
Jiazou (China)
Jiaozuo Aeolus Tyre Co., Ltd
Milan (Italy)
Pirelli Tyre S.p.A.
Milan (Italy)
Pirelli Industrial S.r.l.
Buenos Aires (Argentina)
Pirelli Neumaticos S.A.I.C.
Settimo Torinese (Italy)
Pirelli Industrie Pneumatici S.r.l.
Mexico City (Mexico)
Pirelli Neumaticos S.A. de C.V.
Burton on Trent (United Kingdom)
Pirelli International Plc
Santo Andrè (Brazil)
Pirelli Pneus Ltda
Sao Paulo (Brazil)
TP Industrial de Pneus Brasil Ltda
Sao Paulo (Brazil)
Comercial e Importadora de Pneus Ltda
Burton on Trent (United Kingdom)
Pirelli Tyres Ltd
Rome (USA)
Pirelli Tire LLC
Slatina (Romania)
S.C. Pirelli Tyres Romania S.r.l
Istanbul (Turkey)
Turk-Pirelli Lastikleri A.S.
Limited Liability Company Pirelli Tyre Russia
Moscow (Russia)
Closed Joint Stock Company "Voronezh Tyre Plant" Voronezh (Russia)
90.00%
89.11%
100.00%
100.00%
100.00%
65.00%
80.00%
100.00%
90.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
64.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
10.00%
10.89%
90.00% 10.00%
89.11% 10.89%
100.00%
100.00%
100.00%
35.00%
20.00%
65.00% 35.00%
-
100.00%
10.00%
-
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
36.00%
64.00% 36.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
The complete list of subsidiaries is contained in the attachment “Scope of consolidation - list of
companies included in Consolidation using the line by line method".
Non-controlling interests in the subsidiaries of the Group are not relevant either individually or in
aggregate form.
CONSOLIDATION PRINCIPLES
For consolidation purposes, the Financial Statements of the companies included in the scope of
consolidation prepared at the reporting date of the Financial Statements of the Parent Company were
adjusted to conform to the IAS/IFRS as applied by the Group.
The Financial Statements expressed in foreign currencies have been translated into Euro at the period-
end exchange rates for the items in the Statement of Financial Position, and at the average exchange
rates for the Income Statement, with the exception, where applicable, of the Financial Statements of
companies operating in high-inflation countries whose Income Statements have been translated at the
period-end exchange rates.
The differences arising from the conversion of the initial net equity at period-end exchange rates have
been recognised in the reserve for translation differences, together with the difference arising from the
translation of the result for the period at period-end exchange rates instead of the average exchange rate.
The reserve for translation differences was reversed to the Income Statement at the time of the disposal
of the company which generated the reserve.
The criteria for consolidation may be summarised as follows:
•
subsidiaries are consolidated using the line-by-line method on the basis of which:
2016 ANNUAL REPORT
177
−
−
−
the assets and liabilities, revenues and expenses of the Financial Statements of subsidiaries are
assumed in their entirety, regardless of the percentage of investment held;
the carrying amount of investments is eliminated against the related share of equity;
the financial and operating transactions between companies consolidated on a line-by-line basis,
including dividends distributed within the Group, are eliminated;
− non-controlling interests are reported under equity, and the share of gain or loss attributable to
non-controlling interests is similarly shown separately in the Income Statement;
− at the time of disposal of the subsidiary and the consequent loss of control, in determining the
gain or loss arising from the disposal, any goodwill that can be allocated to the subsidiary is
taken into account;
−
in the case of a shareholding acquired after the assumption of control, any difference between
the purchase cost and the corresponding share of equity acquired is recognised in equity;
similarly, the effects deriving from the disposal of non-controlling interests without loss of
control are also recognised in equity.
•
investments in associates and joint ventures are accounted for under the equity method, on the basis
of which the carrying amount of the investments is adjusted by:
−
−
the investor’s share of the financial results of the subsidiary after the acquisition date;
the share of gains and losses are recognised directly in the equity of the subsidiary, in
accordance with the applicable standards;
− dividends are paid by the subsidiary;
− when the Group’s share in the losses of the associate/joint venture exceeds the carrying amount
of the investment in the Financial Statements, the carrying amount of the investment is reset to
zero and the share of any further losses is recognised under “Provisions for liabilities and
charges,” to the extent to which the Group has a contractual or implicit obligation to cover the
losses;
− gains resulting from sales made by associate companies to joint ventures or other associates are
eliminated in proportion to the share of ownership held by the acquiring entity.
3. Accounting Standards Adopted
As a result of the approval by the Shareholders of the mandatory conversion of the savings shares into
newly issued unlisted special category shares without voting rights, as of February 26, 2016, the
Company no longer had any shares listed on the Milan Stock Exchange. The company shall continue to
prepare the consolidated Financial Statements in accordance with the IFRS, availing itself of the option
granted by Art. 3 of Legislative Decree No. 38/2005. IFRS include the IFRS international accounting
standards in force, issued by the International Accounting Standards Board (IASB) and approved by the
European Union at December 31, 2016 as well as all the revised accounting standards (IAS) and all the
interpretations of the International Financial Reporting Interpretations Committee (IFRIC), formerly the
Standing Interpretations Committee (SIC).
The consolidated Financial Statements have been prepared in accordance with the historical cost
method, with the exception of derivative financial instruments, securities held for trading and financial
assets available for sale, which have been measured at their fair value.
2016 ANNUAL REPORT
178
BUSINESS COMBINATIONS
Corporate acquisitions are accounted for under the acquisition method.
When a controlling interest in a company is acquired, goodwill is initially recognised at cost and
calculated as the difference between the:
-
fair value of the price plus any non-controlling interests in the acquired company, measured at fair
value (if this option was chosen for the acquisition in question) or in proportion to the share of the
non-controlling interest in the net assets of the acquired company;
-
fair value of the acquired assets and liabilities.
In cases where the aforesaid difference is negative, the difference is immediately recognised as income
in the Income Statement.
In the case of the acquisition of control of a company in which a non-controlling interest is already held
(step acquisition), the previously held investment is measured at fair value, and the effects of this
adjustment is recognised the Income Statement.
The costs of business combination operations are recognised in the Income Statement.
Contingent considerations, that is, the obligations of the acquiring company to transfer additional assets
or shares to the seller in cases where certain future events occur or specific conditions are fulfilled, are
recognised at fair value as at the acquisition date as part of the amount transferred in exchange for the
acquisition itself. Any subsequent changes in the fair value of these agreements are normally recognised
in the Income Statement.
INTANGIBLE ASSETS
Intangible assets with finite useful lives are measured at cost, net of any accumulated amortisation and
impairment.
Amortisation is calculated on a straight-line basis and begins when the asset is available for use or is
capable of operating in the opinion of management, and ceases on the date when the asset is classified
as held for sale or is derecognised from the accounts.
Capital gains and capital losses resulting from the divestment or disposal of an intangible asset are
determined as the difference between the net proceeds from disposal and the carrying amount of the
asset.
Goodwill
Goodwill is an intangible asset with an indefinite useful life and is therefore not subject to amortisation..
Goodwill is subjected to evaluation at least on an annual basis in order to identify any loss of value, or
whenever there are any indications of a loss of value, and as such it is allocated to the cash generating
units for this purpose.
Trademarks and licenses
Trademarks and licenses for which the conditions for classification as intangible assets with an
indefinite useful life have not been met, are evaluated at cost, net of the accumulated amortisation and
impairment. This cost is amortised for the duration of the contract or the duration of the useful life of the
asset, whichever is shorter. The trademarks for which the conditions for classification as intangible
assets with an indefinite useful life have been met, are not systematically amortised but are subjected to
an impairment test at least once a year.
2016 ANNUAL REPORT
179
Software
Software license costs, including incidental expenses, are capitalised and recognised net of any
accumulated amortisation and impairment. Software is amortised for the duration of its useful life.
Customer relationships
Customer relationships are intangible assets acquired in a business combination and are recognised in
Financial Statements at their fair value as at the purchase date. They are amortised for the duration of
their useful life.
Technology
The value of technology refers mainly to product technology, process technology as well as product
development technology identified during the Purchase Price Allocation. It is recognised in the
Financial Statements at its fair value at the date of acquisition, and is amortised on the basis of its useful
life.
Research and development costs
Research costs for new products and/or processes are expensed as they occur.
There were no development costs that satisfied the requisites for capitalisation as provided for by IAS
38.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recognised at their purchase or production cost, which includes any
directly attributable incidental expenses.
Any costs incurred subsequent to the acquisition of goods, plus the cost of replacing certain parts of
property, plant and equipment, are capitalised only if they increase the future economic benefits inherent
to the asset. All other costs are recognised in the Income Statement as they occur. When the cost of
replacing certain parts of property, plant and equipment is capitalised, the residual value of the replaced
parts is recognised in the Income Statement.
Property, plant and equipment are recognised at cost net of any accumulated depreciation and
impairment, except for land which is not depreciated but is recognised at cost net of any accumulated
impairment.
Depreciation is recorded starting from the month in which the asset is available for use or is potentially
capable of providing the financial benefits associated with it.
Depreciation is charged on a straight-line basis once per month at rates that allow for the depreciation of
assets until the end of their useful life or, in the case of disposal, until the last month of use.
2016 ANNUAL REPORT
The depreciation rates applied are as follows:
Buldings
Plant
Machinery
Equipment
Furniture
Motor vehicles
180
3% - 10%
7% - 20%
5% - 20%
10% - 33%
10% - 33%
10% - 25%
It is to be noted that during the 2016 financial year the Purchase Price Allocation was completed which
resulted in the detection of significant surplus value for the Group's productive assets due mainly to
their optimally maintained condition which resulted in an extension of their residual lives.
The assets subject to evaluation for the purposes of the Purchase Price Allocation were depreciated,
starting as of the date of acquisition of control by Marco Polo Industrial Holding S.p.A. on the basis of
the new remaining useful lives determined at the time of the evaluation. This evaluation was carried out
by an independent third party.
Government grants related to property, plant and equipment are recognised as deferred income and
credited to the Income Statement for the duration of the depreciation of the relevant assets.
Financial expenses which are directly attributable to the purchase, construction or production of an asset
that requires a significant amount of time in order to be available for use (a qualifying asset) are
capitalised as part of the cost of the asset. The capitalisation of financial expenses ceases when
essentially all the activities necessary to render the qualifying asset available for use have been
completed.
Leasehold improvements are classified as tangible assets, in keeping with the nature of the cost
incurred. The depreciation period corresponds to the remaining useful life of the asset or the residual
period of the lease agreement, whichever is shorter.
Spare parts of significant value are capitalised and depreciated for the duration of the estimated useful
life of their respective assets.
Any dismantling costs are estimated and added to the cost of the property, plant and equipment with a
corresponding accrual to the provision for liabilities and charges when the conditions for accruing the
provision are met. They are then depreciated for the duration of the remaining useful life of their
respective assets.
Assets acquired under finance lease agreements, through which essentially all the risks and rewards of
ownership are transferred to the Group, are recognised as property, plant and equipment at their fair
value or, if lower, at the current value of the minimum lease payments, with a corresponding entry for
the relevant financial payable. The lease payment is separated into two components; as a financial
expense which is recognised in the Income Statement, and as the reimbursement of capital and is
recorded as a reduction of the financial payable.
Leases in which the lessor essentially retains all the risks and rewards associated with ownership of the
asset are classified as operating leases. Costs associated with an operating lease are recognised as an
expense on a straight-line basis in the Income Statement for the duration of the leasing contract.
Property, plant and equipment are derecognised from the Statement of Financial Position at the time of
disposal or permanent retirement from use and, as a consequence no future economic benefits is
expected can be derived from their disposal or use.
Any gains or losses resulting from the divestment or disposal of property, plant and equipment are
determined as the difference between the net proceeds from disposal and the carrying amount of the
asset.
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181
IMPAIRMENT OF ASSETS
Property, plant and equipment and intangible assets
Whenever there are specific indicators of a loss of value, at least annually for intangible assets with an
indefinite useful life, including goodwill, both property, plant and equipment and intangible assets are
subjected to impairment tests in order to verify any loss of value.
The test consists of an estimate of the recoverable amount for the asset compared to its carrying amount.
The recoverable amount of an asset is either its fair value less the costs of sale, or its use value,
whichever is higher, where the latter is the current value of estimated future financial flows arising from
the use of the asset plus those deriving from its disposal at the end of its useful life, net of taxes, plus the
application of a discount rate, net of taxes, which reflects the current market assessment of the time
value of money and the risks specific to the asset. It is not necessary to estimate both amounts in order
to verify the absence of a loss of value as it is sufficient that one of the two configured amounts is
higher than the carrying amount.
If the recoverable amount of an asset is lower than the carrying amount, the latter is reduced and
adjusted to the recoverable amount. This reduction in value constitutes an impairment which is then
recorded in the Income Statement.
In order to evaluate an impairment, assets are aggregated at the lowest level at which their independent
cash flows are separately identifiable (cash generating units).
Specifically, goodwill must be allocated to the cash generating units or group of cash generating units in
compliance with the maximum aggregation limit which cannot exceed that of the operating segment.
In the presence of indications that any impairment recognised in previous financial years for property,
plant and equipment or intangible assets other than goodwill, may no longer exist or may have been
reduced, the recoverable amount is estimated again.
If it results higher than the net carrying amount, then the net carrying amount is increased up to, but not
exceeding, the recoverable amount. The restatement of a value must not exceed the carrying amount that
would have been determined (net of impairment, depreciation or amortisation) had no loss of value been
detected in previous financial years.
The restatement of the value of an asset other than goodwill is recognised in the Income Statement.
An impairment which has been detected for goodwill can not be restated in subsequent financial years.
Any loss due to a reduction of value recorded for goodwill on the interim (half year) Financial
Statements can not be restated in subsequent financial years.
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182
Investments in associates and joint ventures
Following the application of the equity method, in the presence of the indication of a loss of value, the
value of investments in associates and joint ventures must be compared with the recoverable amount
(the so-called impairment test).
The recoverable amount corresponds to the higher amount between the fair value less the costs of the
sale, and the use value.
For the purposes of impairment testing, the fair value of an investment in an associate or joint venture
with shares listed on an active market is always equal to its market value, irrespective of the percentage
of ownership. In the case of investments in unlisted companies, the fair value is determined using
estimates based on the best available information.
For the purposes of determining the use value of an associate or joint venture, an estimate is made for
the pro-rata share owned of the current value of future cash flows which are expected to generated by
the associate or joint venture, including financial flows deriving from the operating activities of the
associate or joint venture, and the amount that will be received for the final disposal of the investment
(known as the Discounted Cash Flow – on the asset side).
When there is evidence that any impairment recognised in previous financial years may no longer exist
or or may have been reduced, the recoverable amount of the investment is estimated again, and if it is
results as higher than the amount of the investment, then the latter amount is increased up to and not
exceeding the recoverable amount.
The restatement of a value may not exceed the value of the investment that would have been determined
(net of impairment) had no loss of value been recognised in previous financial years.
The restatement of the value of investments in associates and joint ventures is recognised in the Income
Statement.
FINANCIAL ASSETS AVAILABLE FOR SALE
This item includes investments in entities other than subsidiaries, associates and joint ventures, and
other financial instruments not held for trading. They are recorded in the Statement of Financial Position
as “Other financial assets.”
They are measured at fair value, if their fair value can be reliably determined.
Gains and losses deriving from changes in their fair value are recognised in a specific equity reserve.
When a reduction in fair value has been recognised directly in equity and there is objective evidence
that the financial asset has lost value (has been impaired), the losses recognised in equity up until that
time, are reversed to the Income Statement. A prolonged (meaning more than 12 months) or significant
(meaning exceeding 50% for instruments issued by the banking sector, and which exceed one-third for
instruments issued by entities operating in other sectors) reduction in the fair value of equity instruments
as compared to their cost is considered as evidence of impairment.
Any impairment of a financial asset available for sale recognised in the Income Statement may be
restated in the Income Statement, with the exception of any impairment detected for shares classified as
available for sale, which instead may not be restated with effect on the Income Statement.
Financial assets available for sale, whether debt or equity instruments whose fair value is not available,
are recorded at cost and eventually impaired on the basis of the best market information available at the
reporting date.
The acquisitions and sales of financial assets available for sale are recorded at the settlement date.
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183
INVENTORIES
Inventories are valued either at cost determined under the FIFO (first in first out) method, or their
estimated realisable value, whichever is lower.
The evaluation of inventories includes the direct costs of materials and labour as well as indirect costs.
The impairment provisions for obsolete and low rotation inventories, are calculated by taking their
estimated future use and realisable value into account. The realisable value is the estimated selling
price, net of all costs estimated to complete the asset including any sales and distribution costs that will
be incurred.
These costs are increased by incremental expenses and financial expenses which are eligible for
capitalisation, similar to what has been described for property, plant and equipment.
RECEIVABLES
Receivables are initially recognised at their fair value, which normally corresponds to the amount
agreed or to the present value of the amount that will be collected. They are subsequently measured at
amortised cost, which is reduced in the case of impairment. The amortised cost is calculated by using
the effective interest rate method, which is equivalent to the discount or actualisation rate which, when
applied to future cash flows, renders the present value of such cash flows equal to the initial fair value.
Impairment losses on receivables are calculated according to the counter-party default risk, which is
determined by taking the available information on the solvency of the counter-party plus their historical
data into consideration. The carrying amount of receivables is reduced indirectly by the recognition of a
provision. Significant individual positions that are objectively detected to be partially or wholly
uncollectable are subject to individual impairment.
The amount of impairment takes into account the estimate for recoverable future cash flows, the
applicable date for collection, recovery costs and expenses, and the fair value of any guarantees. Any
positions that are not subject to individual impairment are included in groups with similar characteristics
in terms of credit risk, and are impaired on a collective basis in accordance with the rising percentages
for overdue periods. This collective impairment procedure is also applied to receivables not yet due. The
impairment percentages are determined on the basis of historical experience as well as statistical data.
When the conditions that brought about the impairment of receivables no longer exist, the impairment
losses recorded for previous financial years are restated as credits to the Income Statement, up to but not
exceeding the amortised cost that would have been determined had no impairment loss been recognised.
Receivables in currencies other than the functional currency of the individual companies are adjusted to
the financial year-end exchange rates and also recorded in the Income Statement. Receivables are
derecognised when the right to receive cash flows is extinguished, when all the risks and rewards
connected with holding the receivable essentially have been transferred, or in cases when the receivable
is considered definitively irrecoverable after all the necessary recovery procedures have been
completed. When the receivable is derecognised, the relative provision is also reversed if the receivable
had previously been impaired.
PAYABLES
Payables are initially recognised at their fair value, which normally corresponds to the amount agreed or
to the present value of the amount that will be collected. They are subsequently valued at the amortised
cost. The amortised cost is calculated by using the effective interest rate method, which is equivalent to
the discount or actualisation rate which, when applied to future cash flows, renders the present value of
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such cash flows equal to the initial fair value. Payables in currencies other than the functional currency
of the individual companies are adjusted to the financial year-end exchange rates and are also recorded
in the Income Statement. Payables are derecognised from Financial Statements when the specific
contractual obligation is extinguished.
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FINANCIAL ASSETS CARRIED AT FAIR VALUE
RECORDED IN THE INCOME STATEMENT
This category includes, securities purchased mainly to be sold in the short-term and classified under
current assets as “Securities held for trading", financial assets, which when initially recognised are
stated at fair value and recorded in the Income Statement classified as “Other financial assets,” and
derivatives (with the exception of those designated as effective hedging instruments) classified as
“Derivative financial instruments.”
They are measured at fair value and also recorded in the Income Statement. Additional costs are
expensed in the Income Statement.
The acquisitions and sales of financial assets available for sale are recorded at the settlement date.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits, postal deposits, cash and cash equivalents on hand,
and other forms of short-term investment whose original maturity is three months or less. Current
account overdrafts are recognised as current liabilities under financial payables. The items included in
cash and cash equivalents are recognised at their fair value and any changes are recognised in the
Income Statement.
PROVISIONS FOR LIABILITIES AND CHARGES
Provisions for liabilities and charges include accruals for current obligations (legal or implicit) deriving
from a past event, the fulfilment of which will likely require the necessary use of resources, and whose
amounts can be estimated in a reliable manner.
Changes in estimates are recognised in the Income Statement for the financial year in which the change
occurs.
If the effect of discounting or actualisation is significant, provisions are stated at their current value.
EMPLOYEE BENEFIT OBLIGATIONS
Employee benefits paid after the termination of employment of the defined benefit plans type, and other
long-term benefits, are subject to actuarial valuations. The liability recognised in the Financial
Statements is representative of the current value of the Group’s obligation, net of the fair value of any
assets servicing the plans.
For defined benefit plans, the actuarial gains and losses deriving from adjustments based on past
experience and any changes in actuarial assumptions, are fully recognised in equity for the financial
year in which they occur.
For other long-term benefits, the actuarial gains and losses are immediately recognised in the Income
Statement.
The provision for employees' leaving indemnities (TFR) for Italian companies with at least 50
employees, is considered a defined benefit plan only for the portions accrued prior to January 1, 2007
(and not yet paid at the reporting date), whereas the portions accrued subsequent to that date are
considered a defined contribution plan.
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The net interest calculated on net liabilities is classified under financial expenses.
The costs relating to defined contribution plans are recognised in the Income Statement as they are
occur.
185
DERIVATIVE FINANCIAL INSTRUMENTS DESIGNATED AS HEDGING INSTRUMENTS
Consistent with IAS 39, financial hedging instruments are recorded in accordance with hedge
accounting provisions only when:
-
at the commencement of hedging there is the formal designation and documentation of the hedging
relationship between the hedging derivative and the hedged item;
the forecast is that the hedging instrument will be highly effective;
its effectiveness can be reliably measured;
the hedge remains highly effective throughout the financial reporting periods for which it is
designated.
-
-
-
These derivative instruments are recognised at fair value.
The following accounting treatments are applied on the basis of the type of coverage:
- Fair value hedge – if a derivative financial instrument is designated as a hedge against exposure to
changes in the fair value of an asset or liability attributable to a specific risk, the gain or loss
resulting from any subsequent changes in the fair value of the hedging instrument is recognised in
the Income Statement. The gain or loss on the hedged item, to the extent attributable to the hedged
risk, entails an adjustment to the carrying amount of the hedged item (basis adjustment) and is also
recognised in the income statement;
- Cash flow hedge – if a derivative instrument is designated as a hedge against exposure to the
variable financial flows of an asset or liability recognised in the Financial Statements, or against a
highly probable future transaction, the effective portion of the change in the fair value of the
hedging instrument is recognised directly in equity, while the ineffective portion is immediately
recognised in the Income Statement. The amounts recognised directly in equity are reclassified to
the Income Statement for the financial year in which the hedged item produced an effect on the
Income Statement.
When a hedging instrument expires or is sold, terminated, exercised, or no longer meets the conditions
to be designated as a hedging instrument, or if designation is revoked voluntarily, hedge accounting is
discontinued. The fair value adjustments accumulated in equity remain in suspended equity until the
hedged item manifests an impact on the Income Statement. Subsequently they are reclassified to the
Income Statement for the financial years during which the acquired financial asset or the assumed
financial liability manifests an impact on the Income Statement.
When the hedged item is no longer expected to have any impact on the Income Statement, the fair value
adjustments accumulated in equity are immediately recorded in the Income Statement.
For derivative instruments that do not satisfy the prerequisites established by IAS 39 for the adoption of
hedge accounting, refer to the section “Financial assets carried at fair value recorded in the Income
Statement”.
The acquisitions and sales of derivative financial instruments are recorded at the settlement date.
DETERMINATION OF THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments traded on an active market is based on market prices at the
reporting date. The market price used for financial assets is the bid price, while for financial liabilities it
is the ask price. The fair value of financial instruments not traded on an active market is determined
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using valuation techniques based on a series of methods and assumptions linked to market conditions at
the reporting date.
The fair value of interest rate swaps is calculated on the basis of the current value of expected future
cash flows.
The fair value of forward exchange contracts is determined by using the forward exchange rates at the
reporting date.
186
INCOME TAXES
Current taxes are determined on the basis of a realistic forecast of the charges payable under the current
tax regulations of the country.
Deferred taxes are calculated according to the temporary differences which exist between the asset and
liability amounts in the Financial Statements and their tax value (full liability method), and are classified
under non-current assets and liabilities.
Deferred tax assets on tax losses carried forward, as well as on temporary differences, are only
recognised when there is a likelihood of future recovery during the time frame covered by the forecasts
of the business plans.
Current and deferred tax assets and liabilities are compensated when the income taxes are levied by the
same taxation authority and when there is a legally enforceable right to offset. Deferred tax assets and
liabilities are determined at the tax rates that are expected to be applicable to taxable income in the
respective jurisdictions in which the Group operates, for the financial years during which the temporary
differences will arise or be extinguished.
With regard to taxable temporary differences associated with investments in subsidiaries, associates and
joint ventures, the related deferred tax liabilities are not recognised in cases where the investing entity is
able to control the reversal of the temporary differences and it is probable that it will not occur in the
foreseeable future.
Deferred taxes are not discounted.
Deferred tax assets and liabilities are credited or debited to equity if they refer to items that have been
credited or debited directly in equity during the financial year or during previous financial years.
NET EQUITY
Treasury shares
Treasury shares are deducted from (shareholders') equity.
If they are sold, reissued or cancelled, the resulting gains or losses are recognised in equity.
Costs of equity transactions
Costs that are directly attributable to the equity transactions of the Parent Company are recorded as
deductions to equity.
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187
RECOGNITION OF REVENUE
Revenue is measured at the fair value of the amount received for the sale of products or provision of
services.
Sales of products
Revenue from sales of products is recognised when all the following conditions are met:
− significant risks and rewards of ownership of the goods are transferred to the buyer;
− effective control over the goods and the normal continuing level of activities associated with
ownership have ceased;
the value of revenue can be reliably determined;
it is likely that the financial benefits deriving from the sale will be enjoyed by the enterprise;
−
−
− costs incurred or to be incurred can be reliably determined.
In cases where the nature and extent of involvement of the seller are such to cause that the risks and
rewards of ownership are not in fact transferred, then the recognition date of the revenues is deferred
until the date on which the transfer can be considered to have taken place.
Provision of services
Revenue from the provision of services is recognised only when the results of the transaction can be
reliably estimated, with reference to the state of completion of the transaction at the reporting date.
The results of a transaction can be reliably estimated only when all the following conditions have been
satisfied:
− amount of revenue can be determined reliably;
−
−
− costs incurred for the transaction and the costs to be incurred to complete it can be reliably
it is likely that the business will enjoy the financial benefits of the transaction;
the stage of completion of the transaction at the reporting date can be reliably measured;
determined.
Interests
Interests are recognised on a time criterion basis that takes the effective yield of the asset into
consideration.
Royalties
Royalties are recognised on an accrual basis, in accordance with the provisions of the relevant
agreement.
Dividends
Dividends are recognised when the right to collect is established, which normally corresponds to a
resolution approved by the Shareholders for the distribution of dividends.
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188
OPERATING SEGMENTS
The operating segment is one part of the Group that engages in business activities from which it may
earn revenues and incur expenses, whose operating results are regularly reviewed by top management in
view of making decisions regarding resources to be allocated to the segment, and assessing its
performance, and for which separate financial information is available.
FOREIGN CURRENCY OPERATIONS
Foreign currency transactions are recorded at the prevailing exchange rates on the date of the
transaction. Monetary foreign currency assets and liabilities are translated at the prevailing exchange
rates at the reporting date. Exchange rate differences generated by the extinction of monetary items or
by their translation at rates different than those of their initial recognition at the beginning of the
financial year or than those of the previous financial year-end, are recognised in the separate
consolidated Income Statements.
Whenever conditions arise, as provided by IAS 21.15, for the designation of intercompany monetary
items as “net investments in foreign operations”, pursuant to the provisions of IAS 21.32, the translation
difference is recognised directly in the consolidated Statement of Comprehensive Income as of the date
of designation.
ACCOUNTING POLICIES FOR HYPER-INFLATIONARY COUNTRIES
Group companies operating in high-inflation countries recalculate the values for their non-monetary
assets and liabilities in their original individual Financial Statements to eliminate the distorting effects
caused by the loss of purchasing power of the currency. The inflation rate used to implement the
inflation treatment corresponds to the consumer price index.
Companies, operating in countries where the cumulative inflation rate over a three-year period
approximates or exceeds 100%, adopt inflation accounting and discontinue it in the event that the
cumulative inflation rate over a three-year period falls below 100%.
Gains or losses on the net monetary position are recognised in the Income Statement.
It should be noted that none of the companies of the Group operated in countries characterised by hyper-
inflation as defined by IAS 29 during the 2016 financial year.
None of the companies which fell within the scope of consolidation for 2016 operated in high-inflation
countries.
NON-CURRENT ASSETS HELD FOR SALE AND DISPOSAL GROUPS
Non-current assets and disposal groups are classified as held for sale if their carrying value is
recoverable mainly through their sale rather than through their continuous use. This occurs if the non-
current asset or disposal group is available for sale under current conditions and the sale is highly
probable, or if a binding program for sale has already begun, or activities to find a buyer have already
commenced and it is expected that the sale will be completed within one year following their
classification date.
In the consolidated Statement of Financial Position, the non-current assets held for sale and the current
and non-current assets/liabilities of the disposal group are presented as a separate item from other assets
and liabilities, and their totals are reflected in current assets and liabilities, respectively.
Non-current assets classified as held for sale and disposal groups are either valued as either the same as
the carrying amount, or the fair value net of sales costs, whichever is lower.
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Property, plant and equipment and intangible assets classified as held for sale are not depreciated or
amortised.
189
DISCONTINUED OPERATIONS
A discontinued operation is a component that has been disposed of or classified as held for sale and
represents an important independent business unit or geographical area of activity, and pertains to a
single, coordinated disposal programme.
In the consolidated Income Statement for the period, the Net income (loss) for discontinued operations,
as well as the gains or losses resulting from the fair value measurement, net of the costs of sale or from
disposal of the assets or disposal groups constituting the discontinued operation, are combined in a
single item near the end of the Income Statement separately from the results for continuing operations.
The cash flows for discontinued operations are shown separately in the Statement of Cash Flows.
The aforesaid information is also presented for the comparative period.
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3.1
Accounting standards and interpretations approved and in force as of January 1, 2016
In accordance with IAS 8 "Accounting Policies, changes in accounting estimates and errors" the IFRS
effective as of January 1, 2016 are as follows:
• Amendments to IAS 19 - Employee Benefits - defined benefit plans: contributions from employees
•
or third parties.
These amendments apply to the contributions that employees or third parties pay to defined-benefit
pension funds to simplify the accounting in certain specific circumstances.
There were no effects due to the application of such changes.
Improvements to IFRS 2010-2012 (issued by the IASB in December 2013).
The IASB issued a series of amendments to 7 standards in force, in particular regarding: the
definition of vesting conditions in IFRS 2 – Share-based payments; the recognition of contingent
consideration in a business combination in IFRS 3 – Business Combinations; the aggregation of
operating segments and the reconciliation of the total assets of the reportable segments assets
compared to the total assets of the entity in IFRS 8 – Operating Segments; the proportional
restatement of depreciation accumulated in IAS 16 – Property, Plant and Equipment and IAS 38 –
Intangible Assets; identification and certain disclosures related to key managers in IAS 24 –
Related Party Disclosures.
There was no significant impact on the Financial Statements or on the Group's disclosures due to
the application of these amendments.
• Amendments to IFRS 11 – Joint Arrangements – Accounting for Acquisitions of Interests in Joint
Operations.
The amendments to IFRS 11 specify the accounting treatment to be applied in case of acquisition of
interests in joint operations that constitute a business as defined by IFRS 3.
These amendments have had no impact on the Group's Financial Statements since there were no
acquisitions of interests in joint operations for the period.
• Amendments to IAS 16 and IAS 38 – Explanation of Acceptable Methods of Depreciation and
Amortisation
With these amendments, the IASB intended to clarify that the use of methods based on revenues for
the calculation of depreciation was not correct in that the revenues generated by an asset reflect
factors other than the consumption of the future financial benefits embodied in the asset itself. This
consumption must represent the base principle for the calculation of depreciation and amortisation.
The aforesaid amendments had no impact on these Financial Statements since the Group does not
use methods based on revenues to calculate depreciation.
• Amendments to IAS 27 – Application of the Equity Method in Separate Financial Statements
Following these amendments, the use of the equity method shall be allowed as an option in the
accounting of investments in subsidiaries, associates and joint ventures, as well as retroactively in
the respective separate Financial Statements.
The Group did dot avail themselves of this option.
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191
•
Improvements to IFRS 2012-2014 (issued by the IASB in September 2014).
The IASB has issued a series of amendments to four standards that are currently in force, relative to
the following aspects: amendment to the method of divestiture in IFRS 5 - Non-current assets held
for sale and discontinued operations; service contracts and applicability of the amendments to IFRS
7 to interim Financial Statements in IFRS 7 - Financial Instruments: discount rate to be applied in
IAS 19 - Employee Benefits; disclosure of information presented in other parts of the interim
Financial Statements in IAS 34 - Interim Financial Statements.
The application of these amendments did not have any impact on the Group's Financial Statements.
• Amendment to IAS 1 - Disclosure Initiative
Amendments to IAS 1 relate to the disclosure initiative project, aim to clarify and improve the
requirements of IAS 1 and not to amend it substantially.
Following the application of these amendments, in the Statement of Comprehensive Income, the
portion of other Comprehensive Income Statement components related to associates and joint
ventures was classified among the items that may or may not be reclassified to the Income
Statement.
• Amendments to IFRS 10, IFRS 12 and IAS 28 - Investment Entities: Applying the Consolidation
Exception
These amendments introduce certain clarifications regarding the requirements to be met in the
accounting treatment required for investment entities.
These changes had no impact on the Group, since none of the entities belonging to the Group
qualifies as an investment entity under IFRS 10.
3.2 International Accounting Standards and/or interpretations that have been issued but not yet
been approved and/or entered into force
Pursuant to IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors - the new
standards and interpretations that have been issued but have not yet come into force or have not yet been
approved by the European Union at December 31, 2016, and which are therefore not applicable, are as
follows:.
None of these standards and interpretations has been adopted in advance by the Group.
• Amendments to IFRS 10 and IAS 28 - Sales or contributions of Assets between an Investor and its
Associate/Joint Venture
The IASB issued these amendments to eliminate any inconsistency between IFRS 10 and IAS 28,
stating that if the assets sold/transferred constitute a business as defined by IFRS 3, the possible
gains or losses must be fully recognised; otherwise any gains or losses shall be recognised only for
the related portion. These amendments, which came into force have been deferred indefinitely, and
have not yet been endorsed by the European Union. No effects are expected on the Financial
Statements due to the future application of these amendments since the current accounting treatment
is already compliant.
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•
IFRS 9 – Financial Instruments
IFRS 9, which will replace IAS 39 – Financial Instruments: Recognition and measurement, is
subdivided into 3 parts:
1. Classification and measurement of financial instruments based on the entity's business model,
•
•
and the characteristics of the cash flows generated by the financial instruments themselves;
2. Impairment of financial instruments on the basis of a new and unique impairment model based
on the recognition of the expected losses of an entity. This model does not apply to equity
instruments and provides for operational simplifications for trade receivables;
3. Hedge accounting, based on a more flexible approach than the one contained in IAS 39.
This standard, endorsed by the European Union, shall apply as of January 1, 2018. The Group is
currently evaluating the early adoption of the new standard as of January 1, 2017.
Based on a preliminary analysis, the Group does not envisage any significant impacts for all three of
the standard’s sub-categories. The amendments relative to financial liabilities were not applicable to
the Group.
IFRS 15 - Revenue from Contracts with Customers
The new model for revenue recognition is based on the identification of the various performance
obligations contained within each individual sales contract and on revenue recognition based on the
fulfilment of the individual contractual obligations.
This standard, endorsed by the European Union, shall apply as as January 1, 2018. The Group
expects to apply the new standard as of the date of its entry into force. Based on a preliminary
analysis the Group does not envisage significant impacts from the future application of the standard,
since contracts involving multiple services and/or variable fees are very few.
IFRS 16 - Leases
The new standard on leases, which will replace the current IAS 17, provides a single accounting
model for the lessee under which all leases will have to be recognised in the Statement of Financial
Position. In fact the concept of operational leasing has disappeared.
The lessee must recognise the asset being leased in the Statement of Financial Position under the
item property, plant and equipment, and must simultaneously recognise financial liabilities equal to
the present value of future payments.
The only allowed exceptions are short-term leases (with a duration of less than or equal to 12
months) and leasing of small assets (eg. office furniture, computers, etc) for which the accounting
treatment is similar to that currently used for operating leases. If a leasing contract includes the
provision of a service, the latter may not be capitalised.
This standard which is expected to come into force on January 1, 2019, has not yet been endorsed
by the European Union. The Group expects to apply the new standard as of the date of its entry into
force. During the course of 2017, the Group will complete a preliminary analysis in order to
quantify the potential impacts of the new standard on the consolidated Financial Statements, both in
terms of the Statement of Financial Position and the Income Statement.
2016 ANNUAL REPORT
193
• Amendment to IAS 7 - Disclosure Initiative
The goal of these changes is to improve disclosures regarding the net cash flow generated/absorbed
by investing activities and the entity's liquidity, especially in the presence of restrictions on the use
of cash and cash equivalents in the Statement of Cash Flows. The amendments also require the
disclosure of changes in assets/liabilities by distinguishing those that are monetary from the non-
monetary items (eg. changes caused by the acquisition or by the loss of control of subsidiaries or
other businesses, the effect of exchange rate fluctuations and changes in fair value). This principle,
which was expected to come into force as of January 1, 2017, has not yet been endorsed by the
European Union. The impacts on the disclosures of the consolidated Financial Statements are
currently being analysed.
• Clarifications to IFRS 15 - Revenue from Contracts with Customers
These clarifications do not change the underlying principle but clarify how the principle should be
applied, especially with reference to three aspects:
identification of contractual performance obligations;
o
o distinction between principal e agent;
o
recognition of revenue related to the granting of licenses at a point in time or over time.
Furthermore, these changes introduce additional simplifications in order to reduce the costs and
complexities associated with the first application.
These clarifications, which are expected to come into force on January 1, 2018, have not yet been
endorsed by the European Union, and its relative impacts are still being analysed.
• Amendments to IAS 12 - Recognition of Deferred Tax Assets for Unrealised Losses
These amendments clarify how to account for deferred tax assets related to debt instruments
measured at fair value.
This principle, which was expected to come into force on January 1, 2017, has not yet been
endorsed by the European Union. These changes were not applicable to the Group.
• Amendments to IFRS 2 - Share-based Payment
The aim of these amendments is to clarify the accounting treatment of certain share-based payments.
These amendments, which are expected to come into force January 1, 2018, have not yet been
endorsed by the European Union. The future application of these amendments is not expected to
have any impact on the Group's Financial Statements.
• Amendments to IFRS 4 - Application of IFRS 9 - Financial Instruments with IFRS 4 - Insurance
•
Contracts
These changes govern the implementation of the new standard for Financial Instruments - IFRS 9,
and prior to that for the IFRS 4 to which the IASB is currently making further changes.
These amendments, which are expected to come into force January 1, 2018, have not yet been
endorsed by the European Union.
Improvements to IFRS 2014-2016 (issued by the IASB in December 2016).
The IASB has issued a series of amendments to three standards currently in place, regarding the
following aspects in particular: clarification regarding the scope of IFRS 12 - Disclosure of Interests
in Other Entities - in the presence of entities falling within the scope of IFRS 5 - Non-Current
Assets Held for Sale and Discontinued Operations; the evaluation of associates and joint ventures at
fair value in the presence of investment entities in IAS 28 - Investment in Associates; and the
elimination of short-term exemptions for those who adopt the IFRS for the first time in IFRS 1 -
First Time Adoption of the International Financial Reporting Standards.
These amendments, which were expected to come into force on January 1, 2017 (IFRS 12) and on
January 1, 2018 (IFRS 1 and IAS 28), have not yet been endorsed by the European Union. The
2016 ANNUAL REPORT
194
•
amendments to IAS 28 and IFRS 1 are not applicable to the Group, while the amendments to IFRS
12 are applicable only in the presence of entities falling within the scope of IFRS 5.
IFRIC 22 - Foreign Currency Transactions and Advance Consideration
The aim of this interpretation is to determine the exchange rate to be used in the translation of
advance payments paid or received in foreign currency. In the presence of paid or received advance
payments, the exchange rate to be used to translate assets, liabilities, revenues or expenses
recognised at a later date is the same used to translate the advance payment.
This amendment, which is expected to come into force on January 1, 2018, has not yet been
endorsed by the European Union. The impact of this interpretation on the Group's financial
statements is currently being analysed.
• Amendments to IAS 40 - Transfers of Investment Property
These changes further clarify the situations in which it is possible to reclassify a real estate asset
from within or from outside the category of Investment Property.
These amendments, which are expected to come into force January 1, 2018, have not yet been
endorsed by the European Union and are not applicable to the Group's Financial Statements.
4. Financial Risk Management Policy
The Group is exposed to financial risks which are principally associated with foreign exchange rates,
with fluctuations in interest rates, with the price of financial assets held as investments, with the ability
of customers to meet their obligations to the Group (credit risk), and with raising funds on the market
(liquidity risk).
Financial risk management is an integral part of the Group's business management and is performed
centrally in accordance with the guidelines issued by the Finance Department as part of the risk
management strategies more generally defined by the Managerial Risk Committee.
4.1
Types of Financial Risks
Exchange rate risk
The geographical distribution of Group production and commercial activities entails exposure to
transaction and translation exchange rate risk.
a) Transaction Risk
This risk is generated by the commercial and financial transactions of the individual companies that are
executed in currencies other than the functional currency. Exchange rate fluctuations between the time
when the commercial or financial relationship is established and the time when the transaction is
completed (collection or payment) may generate exchange rate gains or losses.
2016 ANNUAL REPORT
195
The Group aims to minimise the impact of transaction exchange rate risk related to volatility. In order to
achieve this objective, the Group's procedures provide that the Operating Units are responsible for the
collection of all information inherent to positions subject to transaction risk. Coverage is then provided
in the form of forward contracts which are entered into with the Group Treasury.
The positions subject to exchange rate risk are mainly represented by receivables and payables in
foreign currency.
The Group Treasury is responsible for hedging the net position for each currency and, in accordance
with the established guidelines and restrictions, it closes all risk positions by trading derivative hedging
contracts on the market, which typically take the form of forward contracts.
The Group does not consider it necessary to avail itself of the option for hedge accounting as provided
for by IAS 39, in that the representation of the impacts on the Income Statement and the Statement of
Financial Position of a hedging strategy for transaction risk is nevertheless substantially guaranteed
even without the aforementioned option.
Furthermore, as part of the annual and three-year planning process, the Group makes exchange rate
forecasts by using the best information available on the market. The fluctuation in exchange rates
between the time when the forecast is made and the time when the commercial or financial transaction
occur represents the exchange rate risk on future transactions.
In accordance with established policy, the Group monitors the opportunity to hedge future transactions,
with each hedge being authorised by the Finance Department on a case-by-case basis. Hedge accounting
is used whenever the requisite conditions as provided for by IAS 39 are met.
b) Translation Risk
The Group owns controlling interests in companies that prepare their Financial Statements in currencies
other than the Euro, which is the currency used to prepare the consolidated Financial Statements. This
exposes the Group to currency translation risk, which is generated by the conversion into Euro of the
assets and liabilities of these subsidiaries.
The principal exposures to currency translation risk are constantly monitored, but it is not currently
deemed necessary to adopt specific policies to hedge this exposure.
Approximately 44.8% of the total consolidated net equity at December 31, 2016 was expressed in Euros
(compared to approximately 23% at December 31, 2015). The most important currencies for the Group
other than the Euro were the Brazilian Real (13.7%; 15.6% at December 31, 2015), the Turkish Lira
(4.6%; 5.6% at December 31, 2015), the Chinese Renminbi (15.3%; 14.7% at December 31, 2015), the
Romanian Leu (8.8%; 12.8% at December 31, 2015), the Egyptian Pound (1.5%; 3.8% at December 31,
2015), the Pound Sterling (3.6%; 6.8% at December 31, 2015), the Argentine Peso (0.2%; 1.6% at
December 31, 2015) the US Dollar (3.0%; 3.2% at December 31, 2015) and the Mexican Peso (4.1%;
6.2% at December 31, 2015).
2016 ANNUAL REPORT
The effects on consolidated equity deriving from a hypothetical appreciation/depreciation of the above
listed currencies against the euro, with all other conditions being equal, were as follows:
196
(in thousands of euro)
Brazilian Real
Turkish Lira
Chinese Renminbi
Romanian Leu
Egyptian Pound
British Pound
Argentinian Pesos
US Dollar
Mexican Pesos
Appreciation of 10%
12/31/2016
12/31/2015
Depreciation of 10%
12/31/2016
12/31/2015
49,933
16,622
55,707
32,108
(5,448)
13,075
892
11,078
15,090
40,700
14,667
38,311
33,267
9,889
17,722
4,267
8,367
16,156
(40,854)
(13,600)
(45,579)
(26,271)
4,458
(10,698)
(730)
(9,064)
(12,346)
(33,300)
(12,000)
(31,345)
(27,218)
(8,091)
(14,500)
(3,491)
(6,845)
(13,218)
Total on consolidated equity
189,057
183,346
(154,683)
(150,008)
Interest rate risk
Interest rate risk is represented by the exposure to any change in the fair value or the future cash flows
of a financial asset or liability due to fluctuations in the market interest rates.
The Group's policy is to attempt to maintain the following ratio between fixed rate and floating rate
exposures: 70% fixed and 30% floating.
In order to maintain this trend ratio, the Group sets up derivative contracts, typically interest rate swaps,
for hedging purposes. For such derivatives, hedge accounting is used when the requisite conditions as
provided for by IAS 39 are met.
The table below shows the effects on net income (loss) deriving from an increase or decrease of 0.50%
in the level of interest rates of all currencies to which the Group is exposed – all other conditions being
equal:
(in thousands of euro)
+0,50%
-0,50%
Impact on net income (loss)
(19,785)
(2,240)
19,785
2,246
12/31/2016
12/31/2015
12/31/2016
12/31/2015
Price risk associated with financial assets
The Group’s exposure to price risk is limited to the volatility of financial assets such as listed and
unlisted equities and bonds, which constituted approximately 1.7% of the total consolidated assets at
December 31, 2016 (4.2% at December 31, 2015). These assets were classified as financial assets
available for sale and securities held for trading.
No derivatives were put in place to cover the volatility risk for these assets.
Financial assets available for sale represented by listed securities amounted to euro 141,496 thousand
(euro 154,355 thousand at December 31, 2015) and those represented by securities indirectly associated
with securities (Fin. Priv. S.r.l. and Emittenti Titoli) amounted to euro 19,200 thousand (euro 23,576
2016 ANNUAL REPORT
thousand at December 31, 2015). These financial assets constitute 65% of the total financial assets
subject to price risk (58.7% at December 31, 2015).
A positive change of +5% in the aforesaid securities prices, all other conditions being equal, would
result in a positive change to the Group's equity of euro 7,073 thousand (positive at euro 7,716 thousand
at December 31, 2015) while a negative change of -5% in the aforesaid securities prices, all other
conditions being equal, would result in a negative change of euro 7,073 thousand to the Group's equity
(at December 31, 2015 a negative change of euro 6,998 thousand to the Group's equity and a negative
change of euro 718 thousand to the net income (loss) of the Group.
197
Credit risk
Credit risk represents the Group's exposure to potential losses resulting from the non-fulfilment of the
commercial and financial obligations undertaken by counter-parties.
The Group is exposed to credit risk as part of its operating activities and financing activities.
To limit commercial counter-party default risk, the Group has implemented procedures to evaluate its
customers’ potential and financial solidity, to monitor expected incoming cash flows and take credit
recovery action if necessary.
The aim of these procedures is to define customer credit limits. Further supplies are suspended when
those limits are exceeded.
In certain cases customers are asked to provide guarantees. These mainly consist of bank guarantees
issued by parties with the highest credit standing, or personal guarantees. Less frequently, mortgage
guarantees may be requested.
Another instrument used by the Group to manage commercial credit risk are the insurance policies,
which aim to prevent the risk of non-payment through careful selection of the customer portfolio which
is carried out jointly with the insurance company which undertakes to guarantee compensation in the
case of insolvency.
The Group operates only with highly rated financial counter-parties for the management of its
temporary cash surpluses or for the trading of derivative instruments, and constantly monitors its
exposure to individual counter-parties. The Group does not hold public debt instruments of any
European country, and constantly monitors its net credit exposure to the banking system.
The Group does not have significant concentrations of credit risk.
The disclosure on the maximum exposure to credit risk is represented by the gross value of receivables
and is contained in the following Notes 15 and 16 respectively entitled “trade receivables" and "other
receivables.”
Liquidity risk
Liquidity risk represents the risk that the Company’s available financial resources may be insufficient to
meet its financial and commercial obligations pursuant to the contractual terms and conditions.
The principal instruments used by the Group to manage liquidity risk are comprised of its one and three
year financial plans, and its treasury plans. These allow for the complete and correct detection and
measurement of incoming and outgoing cash flows. The differences between the plans and actual data
are constantly analysed.
The Group has implemented a centralised system for the management of cash flows and payments in
compliance with various local currency and tax regulations. Banking relationships are negotiated and
managed centrally, in order to ensure coverage for short and medium-term financial needs at the lowest
possible cost.
The prudent management of the aforesaid risk requires the maintenance of an adequate level of cash or
cash equivalents and/or highly liquid short-term financial instruments, the availability of funds
2016 ANNUAL REPORT
obtainable through an adequate amount of committed lines of credit and/or the use of the capital market,
and the diversification of products and deadlines in order to seize the best opportunities available.
At December 31, 2016 the Group had, aside from cash and securities held for trading to the amount of
euro 1,581,574 thousand (euro 1,188,191 thousand at December 31, 2015), an unused credit facility for
euro 1,000,000 thousand (euro 820,480 thousand at December 31, 2015) which would mature in the
second quarter of 2021.
198
The maturities for financial liabilities at December 31, 2016 were composed as follows:
(in thousands of euro)
within 1 year
1 to 2 years
2 to 5 years
over 5 years
Total
Trade payables
Other payables
1,498,492
-
-
-
1,498,492
783,079
8,253
10,138
69,030
870,500
Financial instruments
52,170
-
-
-
52,170
Borrowings from banks and other financial
642,047
2,053,607
3,892,192
200
6,588,046
2,975,788
2,061,860
3,902,330
69,230
9,009,208
It is to be noted that following the merger of Marco Polo Industrial Holding S.p.A. ("Bidco") into Pirelli
& C. S.p.A. which took place on June 1, 2016, the secured bank debt contracted by Bidco (the "Bidco
Facility") was incorporated into Pirelli & C. S.p.A.
Subsequently on July 25, 2016 (the signing date) the Pirelli Group proceeded to refinance both the bank
debt which existed prior to the merger, as well as the debt from the Bidco Facility which was cancelled
on July 28, 2016 (the closing date). The refinanced total amounted to euro 6.4 billion and was achieved
at the lower overall cost of less than 3.5%. The operation consisted of secured syndicated refinancing
for a total amount of euro 4.8 billion maturing in three and five years, and a secured credit facility for
euro 1.6 billion with an eighteen month maturity, which was the result of a club deal with a select
number of lending institutions. Due to the aforesaid operation, Pirelli reimbursed the Bidco Facility and
cancelled the Mergeco Facility loan made available to the company by a syndicate of banks as part of
the Public Offer made to Pirelli by Marco Polo Industrial Holding S.p.A.
The maturities for financial liabilities at December 31, 2015 were composed as follows:
(in thousands of euro)
within 1 year
1 to 2 years
2 to 5 years
over 5 years
Total
Trade payables
Other payables
1,320,058
-
-
-
1,320,058
407,627
27,843
42,883
27,905
506,258
Financial instruments
51,979
-
-
-
51,979
Borrowings from banks and other financial
institutions
5,297,841
113,220
1,066,177
96,291
6,573,529
7,077,505
141,063
1,109,060
124,196
8,451,824
2016 ANNUAL REPORT
5.
Information On Fair Value
5.1
Fair Value Measurement
199
In relation to financial instruments measured at fair value, the following table shows the classification of
these instruments on the basis of the hierarchy of levels pursuant to IFRS 13, which reflects the
significance of the inputs used in determining the fair value. The following levels are defined as
follows:
−
−
level 1 – unadjusted prices quoted on an active market for assets or liabilities subject to valuation;
level 2 – inputs different from the aforesaid prices quoted at the preceding level, which are
observable on the market either directly (as in the case of prices) or indirectly (because they are
derived from prices);
level 3 – inputs that are not based on observable market data.
−
The following table shows assets and liabilities carried at fair value at December 31, 2016, subdivided
into the three levels defined above:
(in thousands of euro)
Note
Carrying
amount at
12/31//2016
Level 1
Level 2
Level 3
FINANCIAL ASSETS:
Financial assets carried at fair value in the income statement:
Securities held for trading
Current financial derivative instruments
Financial hedging instruments:
Current financial derivative instruments
Financial assets available-for-sale:
Other financial assets
Equities and shares
Investment funds
TOTAL ASSETS
FINANCIAL LIABILITIES:
Financial liabilities carried at fair value in the income statement:
Current financial derivative instruments
Financial hedging instruments:
Current derivative financial instruments
TOTAL LIABILITIES
19
28
28
13
28
28
48,597
17,122
6,867
184,055
14,636
198,691
271,277
(51,844)
(326)
(52,170)
-
-
-
48,597
17,122
6,867
-
-
-
141,496
-
141,496
141,496
19,200
14,636
33,836
106,422
23,359
-
23,359
23,359
-
-
-
(51,844)
(326)
(52,170)
-
-
-
2016 ANNUAL REPORT
The following table shows assets and liabilities evaluated at fair value at December 31, 2015,
subdivided into the three levels defined above:
200
(in thousands of euro)
FINANCIAL ASSETS:
Financial assets carried at fair value in the income statement:
Securities held for trading
Current financial derivative instruments
Financial hedging instruments:
Current financial derivative instruments
Available-for-sale financial assets:
Other financial assets
Equities and shares
Investment funds
TOTAL ASSETS
FINANCIAL LIABILITIES:
Financial liabilities carried at fair value in the income statement:
Current financial derivative instruments
Financial hedging instruments:
Current financial derivative instruments
TOTAL LIABILITIES
Note
Carrying
amount at
12/31/2015
Level 1
Level 2
Level 3
19
28
28
13
28
28
78,167
49,166
12,139
210,643
14,478
225,121
364,593
(51,974)
(5)
(51,979)
-
-
-
78,167
49,166
12,139
-
-
-
154,355
-
154,355
154,355
23,576
14,478
38,054
177,526
32,712
-
32,712
32,712
-
-
-
(51,974)
(5)
(51,979)
-
-
-
The following table shows the changes of financial assets available-for-sale that occurred in level 3
during 2016:
(in thousands of euro)
Opening balance
Translation differences
Increases / Subscription of capital
Disposals
Impairment
Fair value adjustments recognised in Equity
Other changes
Closing balance
12/31/2016
32,712
(723)
1,927
(94)
(11,018)
555
-
23,359
These financial assets are mainly represented by equity investments in the Istituto Europeo di Oncologia
(euro 6,231 thousand), in Equinox Two S.C.A. (euro 3,757 thousand) in Tlcom I LP (euro 570
thousand) and by the investment in Pirelli de Venezuela C.A. (euro 10,226 thousand).
The item increases refers mainly to the capital increase related to the investment in Alitalia –
Compagnia Area Italiana S.p.A. (euro 1,881 thousand).
2016 ANNUAL REPORT
The item impairment refers mainly to the investments in Pirelli de Venezuela C.A. (euro 8,651
thousand), and in Alitalia-Compagnia Area Italiana S.p.A (euro 1,881 thousand).
201
During the 2016 financial year, there were no transfers from level 1 to level 2 or vice versa, nor from
level 3 to other levels or vice versa.
The fair value of financial instruments which are traded on active markets is based on the price
quotations published at the reporting date. These instruments, included in level 1, primarily comprise
equity investments classified as financial assets available for sale.
The fair value of financial instruments not traded on active markets (e.g. derivatives) is measured by
means of evaluation techniques that maximise the use of observable and available market data, using
widely accepted financial valuation techniques:
- market prices for similar instruments;
-
the fair value of interest rate swaps is calculated by discounting estimated future cash flows
based on observable yield curves;
the fair value of foreign exchange derivatives (forward contracts) is determined by using the
forward exchange rate at the reporting date.
-
2016 ANNUAL REPORT
5.2
Categories of financial assets and liabilities
The table below shows the carrying amounts for each class of financial assets and liabilities as identified
by IAS 39:
202
(in thousands of euro)
Financial Assets
Financial assets carried at fair value in the income statement
Securities held for trading
Current financial derivative instruments
Loans and receivables
Other non-current receivables
Current trade receivables
Other current receivables
Cash and cash equivalents
Financial assets available-for-sale
Other financial assets
Financial hedging instruments
Current financial derivative instruments
Financial liabilities
Financial liabilities carried at fair value in the income statement
Current financial derivative instruments
Financial liabilities valuated at amortised cost
Non-current borrowings from banks and other financial institutions
Other non-current payables
Current borrowings from banks and other financial institutions
Current trade payables
Other current payables
Financial hedging instruments
Current financial derivative instruments
Note
Carrying
amount at
12/31/2016
Carrying
amount at
12/31/2015
19
28
16
15
16
20
13
0
28
0
28
24
26
24
25
26
28
48,597
17,122
65,719
78,167
49,166
127,333
226,868
679,321
275,622
1,532,977
2,714,788
147,624
676,192
165,409
1,110,024
2,099,249
198,691
225,121
6,867
12,139
2,986,065
2,463,842
51,844
51,974
5,945,999
87,421
642,047
1,498,492
783,079
8,957,038
1,275,688
98,631
5,297,841
1,320,058
407,627
8,399,845
326
5
9,009,208
8,451,824
2016 ANNUAL REPORT
6.
Capital Management Policy
203
The Company’s objective is to maximise the return on net invested capital while maintaining the ability
to operate over time, in order to ensure adequate returns for its shareholders and benefits for other
stakeholders by providing for the gradual deleveraging of the financial structure of the Group, which is
to be achieved over a short to medium-term period.
In order to achieve these objectives, as well as pursue satisfactory earnings results and generate cash
flows, the Group may adjust its dividend policy and the configuration of the Company’s capital.
7.
Estimates And Assumptions
The preparation of the consolidated Financial Statements entails the necessity of management making
estimates and assumptions which, under certain circumstances are based on difficult and subjective
assessments and estimates based on historical experience, as well as assumptions that are from time to
time considered reasonable and realistic in light of the circumstances. It is possible that the actual results
could actually differ from these estimates. The estimates and assumptions are reviewed periodically and
the effects of any changes made to them are reflected in the Income Statement for the period in which
the estimate is revised. If such estimates and assumptions, based on the best evaluation currently
available, should differ from actual circumstances, they are modified accordingly for the period in
which the change of the circumstances occurred.
Estimates and assumptions refer mainly to the evaluation of the recoverability of intangible assets, to the
definition of the useful lives of property, plant and equipment and intangible assets, to the evaluation of
the recoverability of investments in associated companies, to the recoverability of receivables, to the
recognition/valuation of provisions for liabilities and charges, to the evaluation of pension schemes and
other post-employment benefits, and to the designation of intercompany receivables due to from the
Egyptian subsidiaries as a “net investment in foreign operations”.
ESTIMATES ENTAILING GREATER SUBJECTIVITY AND HAVING A PARTICULARLY
MATERIAL IMPACT
There following is a brief description of the accounting standards which more than others require
greater subjectivity by management when preparing estimates, and for which a change in the underlying
conditions of the assumptions used could have a significant impact on the consolidated Financial
Statements, or where the risk exists that significant adjustments to the carrying value of assets and
liabilities may emerge during the financial year following the financial year of the financial statements.
Goodwill
In accordance with the accounting standards adopted for the preparation of the Financial Statements,
goodwill is tested annually in order to ascertain the existence of any impairment to be recognised in the
Income Statement. In particular, the test involves the allocation of goodwill to the cash generating units
and the determination of the recoverable amount, being the higher amount between either the fair value
and the use value. If the recoverable amount proves to be lower than the carrying amount of the cash
generating units, the goodwill allocated to them must be impaired.
2016 ANNUAL REPORT
Determination of the recoverable amount for the cash generating units entails using estimates that
depend on subjective assessments and on factors that can change over time, with consequent and
possibly significant effects on the valuations made by management.
204
Impairment of property, plant and equipment and intangible assets
In accordance with the accounting standards, property, plant and equipment and intangible assets are
tested in order to ascertain whether there has been a loss of value when there are signs that difficulties
are to be expected for the recovery of their relative net carrying amount through their use. The
verification of the existence of impairment indicators requires the Directors to make make subjective
judgements based on the information available from both internal and external sources, and on historical
experience.
Moreover, if it is determined that a potential impairment may have been generated, the loss in value is
calculated using the appropriate assessment techniques.
The proper identification of indicator elements for the existence of a potential loss in value, as well as
the estimates used to determine the impairment depend on a subjective valuation and on factors that may
change over time and influence the valuations and estimates made by management.
Impairment of investments in associates and joint ventures
Following the application of the equity method, in the presence of indicators of a loss of value, the value
of investments in associates and joint ventures must be compared with the recoverable amount (the so-
called impairment test). The recoverable amount corresponds to the higher amount between the fair
value less the costs of the sale, and the use value.
For the purpose of the impairment test of Fenice S.r.l., an associated company with unlisted shares, the
fair value was determined on the basis of an appraisal prepared by an independent third party
professional, making use of estimates based on the best available information. In particular, an income
approach was used based on the criteria of available options.
Pension funds
The Group companies have in place, pension plans, health insurance plans and other defined benefit
plans for their employees, primarily in the United States and the United Kingdom. These funds were
closed to new contributions and therefore the actuarial risk relates only to the previous deficit.
Management uses different actuarial assumptions to calculate the liabilities and assets servicing these
pension plans. The actuarial assumptions of a financial nature concern the discount rate, the rate of
inflation and the trend in medical costs.
The actuarial assumptions of a demographic nature essentially concern mortality rates.
The Group has identified discount or actualisation rates which it deems are balanced, given the context.
Deferred tax assets
Deferred tax assets are accounted for on the basis of expected future taxable earnings prospects. The
evaluation of expected income for the purpose of recording deferred taxes depends on factors that may
change over time and significantly impact the measurement of deferred tax assets.
2016 ANNUAL REPORT
To determine the adjustment, forecast figures and business plans consistent with those used for the
impairment tests and described in the previous paragraph in relation to the recoverable amount of non-
current assets have been taken into account. It is further maintained that the adjustments recorded are
sufficient to cover the risk of a deterioration compared to the assumptions of the plan, taking into
account the fact that the net deferred tax assets relate to the temporary differences/tax losses which, to a
significant extent, can be recovered over a very long period, the recoverability of which is therefore
compatible with scenarios in which the actual data could deviate negatively compared to the
assessments made by management.
205
Provisions for liabilities and charges
In view of legal and tax liabilities, provisions for the risk of of adverse outcomes have been recognised.
The value of provisions recognised in respect of these risks represents the best estimate to date made by
management made for legal and tax issues covering a vast range of issues which are pending in the
jurisdictions of various countries. This estimate entails the adoption of assumptions that depend on
factors that may change over time and which could therefore have a significant impact on the current
estimates made by management in preparing the consolidated Financial Statements.
Designation of intercompany receivables due from the Egyptian subsidiariesas
a “net investment in foreign operations”.
The worsening of the macroeconomic situation in Egypt, the deterioration of the exchange rates as well
as the continuing fall in the availability of US dollars in the country which could be purchased through
the official currency exchange mechanisms, led to the emergence of a situation for which the Group
believes that, in reference to intercompany receivables outstanding at October 31, 2016 from the
Egyptian subsidiaries, Alexandria Tire Company S.A.E. and International Tire Company Ltd, the
conditions as provided for by IAS 21.15 for the designation of such receivables as net investments in
foreign operations, had been met, as their collection is unpredictable in the foreseeable future.
Therefore, in accordance with the provisions of IAS 21.32 the exchange rate difference matured on
those positions, was recognised directly, as of the date of designation, in the Statement of
Comprehensive Income and will be reversed in the consolidated Income Statement at the time of
disposal of the investment.
8.
Business Combinations
On August 11, 2015 - following the acquisition by Marco Polo Industrial Holding S.p.A, of 20.34% of
Pirelli & C. S.p.A. from Camfin S.p.A., and the signing of the Pirelli Shareholders' Agreement, in
addition to the acquired shares, Pirelli was also interested in the 5.85% share of capital indirectly held
by Camfin S.p.A. in Pirelli & C. S.p.A. through Cam 2012 S.p.A., and as an additional result of the
Public Offer, which had been mandatory for Pirelli ordinary shares and voluntary for Pirelli savings
shares, and by way of the subsequent procedure through which the offerer acquired the remaining
residual ordinary shares, Marco Polo Industrial Holding S.p.A, in the course of 2015, acquired 100% of
the outstanding Pirelli & C. S.p.A. ordinary shares and 95.9% of the outstanding savings shares.
2016 ANNUAL REPORT
206
Through these transactions China National Tire & Rubber Co. Ltd (CNRC - the controlling shareholder
of Marco Polo Industrial Holding S.p.A.), by means of the vehicle Marco Polo Industrial Holding
S.p.A., acquired control of the Pirelli Group and therefore this transaction was accounted for in
accordance with the requirements of IFRS 3 - Business Combinations, in the consolidated Financial
Statements of Marco Polo Industrial Holding S.p.A.
As regards the accounting for the acquisition, it is maintained that the individual steps by which control
of the Pirelli Group was acquired should be considered as a single transaction.
On the basis of the aforesaid considerations it is maintained that, the CNRC by means of the vehicle
Marco Polo Industrial Holding S.p.A., as of the end of the first phase (the acquisition of 20.34% of the
share capital of Pirelli & C. S.p.A. from Camfin, and the signing of the Pirelli Shareholders'
Agreement), had gained control of the Pirelli Group, in particular:
-
-
-
already as of the beginning of the first phase, the objective of the CNRC was to obtain control of
Pirelli;
in order to achieve the goal of obtaining control of Pirelli & C. SpA., China National Tire &
Rubber Co. Ltd (CNRC), a subsidiary of ChemChina (ChemChina), Camfin S.p.A. (Camfin)
and the shareholders of Camfin S.p.A. (Coinv S.p.A. and Long Term Investments Luxembourg
S.A.), signed a binding agreement for a long-term industrial partnership with Pirelli, which
established the terms and conditions for the acquisition and the subsequent industrial
reorganisation;
the purchase price of euro 15 per share fully reflects the premium price for the control of Pirelli
& C. S.p.A, confirming the desire of the CNRC to control Pirelli & C. S.p.A.;
- management considered it reasonable that CNRC could control Pirelli at the end of the Public
Offer.
On the basis of the aforesaid, in consideration of August 11, 2015 as the date of the acquisition of
control, the management of CNRC designated September 1, 2015 to the terms and conditions of the
contract, as the first effective date for the consolidation of Pirelli & C. S.p.A. and its subsidiaries.
As a result of the reverse merger, which involved the incorporation of the acquiring company Marco
Polo Industrial Holding S.p.A., into the subsidiary Pirelli & C. S.p.A., the accounting effects of the
Purchase Price Allocation are reflected in the Financial Statements of the surviving entity, Pirelli & C.
S.p.A.
2016 ANNUAL REPORT
The fair value of identifiable assets and liabilities acquired on the acquisition date is shown in the
following table:
(in thousands of euro)
207
Provisional fair
value at the
acquisition date
Adjustments to
provisional
values
Fair value at the
acquisition date
Property, plant and equipment
Intangible assets (excluding Goodwill)
Pirelli pre-existing Goodwill
Investments in associates and J.V.
Other financial assets
Deferred tax assets
Other receivables
Tax receivables
Non-current assets
Inventories
Trade receivables
Other receivables
Securities held for trading
Cash and cash equivalents
Tax receivables
Derivative financial instruments
Current assets
Total Assets
Borrowings from banks and other financial institutions
Other payables
Provisions for liabilities and charges
Provisions for deferred tax liabilities
Employee benefit obligations
Tax payables
Non-current liabilities
Borrowings from banks and other financial institutions
Trade payables
Other payables
Provisions for liabilities and charges
Tax payables
Derivative financial instruments
Current liabilities
Total liabilities
2,467,316
86,553
879,126
190,681
216,673
122,062
155,291
6,259
4,123,961
1,074,589
1,080,010
269,872
32,651
751,750
114,460
61,712
3,385,044
7,509,005
1,341,266
55,966
349,376
48,288
468,148
2,940
2,265,984
1,351,462
1,019,488
384,253
66,943
120,379
37,663
2,980,188
5,246,172
944,181
4,209,011
(879,126)
-
-
-
-
-
4,274,066
-
-
-
-
-
-
-
-
4,274,066
-
-
66,600
1,454,587
-
-
1,521,187
-
-
-
-
-
-
-
1,521,187
Equity attributable to non-controlling interests
62,505
-
Total value Net assets acquired A
2,200,328
2,752,879
3,411,497
4,295,564
-
190,681
216,673
122,062
155,291
6,259
8,398,027
1,074,589
1,080,010
269,872
32,651
751,750
114,460
61,712
3,385,044
11,783,071
1,341,266
55,966
415,976
1,502,875
468,148
2,940
3,787,171
1,351,462
1,019,488
384,253
66,943
120,379
37,663
2,980,188
6,767,359
62,505
4,953,207
Pro-rata of net assets acquired (99,8% of A) B
2,196,603
2,748,199
4,944,802
Purchase price of the acquisition C
7,296,065
-
7,296,065
Goodwill C-B
5,099,462
(2,748,199)
2,351,263
2016 ANNUAL REPORT
208
As a result of the completion of the Purchase Price Allocation, the following main adjustments to the
fair value of the acquired assets and liabilities were performed:
- detection of the value of the Pirelli brand at euro 2,270 million (euro 1,637 million net of tax
effects) for which it was maintained that the requirements for it to be classified as an intangible
fixed asset with an indefinite useful life had been met;
- detection within the intangible fixed assets of the value of the Metzler brand at euro 67 million
(euro 48 million net of tax effects);
- detection within the intangible fixed asset of the value of Technology at euro 1,437 million (euro
1,036 million net of tax effects);
- detection within the intangible fixed assets of the value of Customer Relationships at euro 479
-
million (euro 345 million net of tax effects);
the revaluation of tangible fixed assets to a total of euro 944 million (euro 676 million net of tax
effects).
It is also to be noted that on October 1, 2016, an 80% share of the share capital of the Chinese company
Jiaozuo Aeolus Tyre Co., Ltd. was acquired from the Aeolus Tyre Co., Ltd. This operation took the
form of a business combination occurring between entities under common control. Therefore the
provisions of IFRS 3 – Business Combinations were not applicable to the transaction. The value of the
assets and liabilities acquired have been recorded as the same values as the carrying amounts recorded
in the Financial Statements of the acquired company, while the difference detected between the amount
paid (euro 67 million) and the net value of the assets acquired was recognised in equity.
2016 ANNUAL REPORT
9.
Operating Segments
209
The operating segments which were subject to separate disclosure were as follows:
• Consumer segment: including tyres for cars and motorbikes, destined for both the Original
•
Equipment channel and the Replacement channel;
Industrial segment: including tyres for truck and vehicles for agricultural use, destined for both the
Original Equipment channel and the Replacement channel.
The results subdivided by sector for the 2016 financial year were as follows:
(in thousands of euro)
CONSUMER
INDUSTRIAL OTHER BUSINESS
2016
Total net sales
5,068,502 987,702 2,227 6,058,431
Gross operating margin
1,040,350 77,644 (1,464) 1,116,530
Depreciation and amortisation
(347,348) (44,050) (978) (392,376)
Operating income (loss)
693,002 33,594 (2,442) 724,154
Net income (loss) from equity investments
Financial income (expenses)
Net income (loss) before tax
Taxes
Net income (loss)
(20,019)
(440,205)
263,930
(116,305)
147,625
Assets, liabilities and investments subdivided by sector at December 31, 2016 were as follows:
(in thousands of euro)
Goodwill
Allocated assets
Unallocated assets
TOTAL ASSETS
Allocated liabilities
Unallocated liabilities
TOTAL LIABILITIES
Investments:
- property, plant and equipment
- intangible assets
CONSUMER
INDUSTRIAL OTHER BUSINESS
OTHER
TOTAL 12/31/2016
1,877,363
8,781,533
-
473,900
1,125,020
-
10,658,896
1,598,920
3,295,839
-
3,295,839
334,742
7,501
608,416
-
608,416
28,667
1,216
-
4,023
-
4,023
1,055
-
1,055
57
-
-
-
2,104,622
2,104,622
-
7,186,293
7,186,293
-
-
2,351,263
9,910,576
2,104,622
14,366,461
3,905,310
7,186,293
11,091,603
363,466
8,717
The assets of the business consist mainly of property, plant and equipment and intangible assets, assets
acquired under finance leases, inventories, trade receivables and other receivables.
2016 ANNUAL REPORT
The liabilities of the business consist mainly of trade and other payables, advances from customers,
certain provisions for liabilities and charged and provisions for deferred tax liabilities related to the
PPA.
210
Investments in property, plant and equipment focused on the increase of the Premium capacity in
Europe, NAFTA and China and at improvement of the mix.
Net sales based on geographic area were as follows. They are allocated on the basis of the country in
which the customer is located.
(in thousands of euro)
Europe
Russia & CSI
NAFTA
Central and South America
Asia/Pacific
Middle Est/Africa/India
Total
2016
2,280,027
174,201
953,402
1,365,400
769,300
516,101
37.62%
2.88%
15.74%
22.54%
12.70%
8.52%
6,058,431
100.00%
Non-current assets by geographic area were as follows: They are allocated on the basis of the
country where the assets are located.
(in thousands of euro)
12/31/2016
12/31/2015
Europe
Russia & CSI
NAFTA
Central and South America
Asia/Pacific
Middle Est/Africa/India
Non-current unallocated assets
Total
5,728,035
192,717
323,334
801,085
588,466
68,624
2,351,263
-
10,053,524
56.97%
1.92%
3.22%
7.97%
5.85%
0.68%
23.39%
0.00%
100.00%
5,848,791
157,418
290,761
737,763
474,846
108,070
2,351,263
-
9,968,912
58.67%
1.58%
2.92%
7.40%
4.76%
1.08%
23.59%
0.00%
100.00%
The non-current allocated assets reported in the preceding table consist of property, plant and
equipment and intangible assets, excluding goodwill. The non-current unallocated assets pertain to
goodwill (refer to note 11).
2016 ANNUAL REPORT
10.
Property, Plant And Equipment
211
The composition and changes for property, plant and equipment were as follows:
(in thousands of euro)
12/31/2016
12/31/2015 restated
Land
Buildings
Plant and machinery
Industrial and trade equipment
Other assets
NET VALUE (in thousands of euro)
Gross Value Accumulated
Depreciation
Net Value Gross Value Accumulated
Depreciation
Net Value
326,216
776,003
2,384,295
378,662
70,643
-
(45,462)
(236,794)
(77,755)
(19,173)
326,216
730,541
2,147,501
300,907
51,470
335,049
723,299
2,064,716
291,641
54,291
-
(12,522)
(66,341)
(21,313)
(5,186)
335,049
710,777
1,998,375
270,328
49,105
3,935,819
(379,184)
3,556,635
3,468,996
(105,362)
3,363,634
12/31/2015
PPA
12/31/2015
re state d
Change in
scope
Translation
diffe r.
Incre ase s De cre ase s
Re classif. De pre ciation
Othe r
12/31/2016
Land
Buildings
Plant and machinery
Industrial and trade
equipment
Other assets
95,599
593,816
1,504,359
239,450
116,961
494,016
177,659
48,020
92,669
1,085
335,049
710,777
1,998,375
270,328
49,105
7,139
39,641
75,738
9,910
4,614
(1,939)
14,600
(922)
70
29,625
269,499
(13,628)
(37,814)
-
(57)
3,759
(21,701)
-
(418)
326,216
(32,940)
(170,453)
2,893
(3,035)
730,541
2,147,501
2,419,453
944,181
3,363,634
137,042
17,153
363,466
(51,888)
-
(273,822)
6,160
(746)
43,836
20,436
-
(446)
23,652
(5,653)
(56,442)
(13,987)
3,463
(1,853)
1,050
300,907
51,470
3,556,635
The change in scope refers to property, plant and equipment of the Chinese company Jiaozuo Aeolus
Tyre Co., Ltd. which was acquired in the month of October 2016.
The item increases totalling euro 363,466 thousand was mainly aimed at increasing the Premium
capacity in Europe, NAFTA and China and at improvement of the mix.
The ratio of investments to amortisations for the 2016 financial year was equal to 1.33.
Property, plant and equipment in progress at December 31, 2016 included in the individual fixed
asset categories totalled euro 178,424 thousand (euro 140,103 thousand at December 31, 2015).
It is also to be noted that as part of the secured loan (Senior Facilities) granted to Pirelli & C. S.p.A. and
Pirelli International Plc (refer to Note 24), the companies of the Group have pledged as guarantee, plants
and machinery for an equivalent total value of euro 549,278 thousand, and as part of other financing
operations mainly in Brazil and Argentina, plants and machinery for an equivalent total velue of euro
8,725 thousand (euro 41,159 thousand at December 31, 2015).
The value of the buildings and other assets for which the Company entered into a financial leasing
agreement is included in the respective categories of property, plant, and equipment.
The changes which occurred were composed as follows:
(in thousands of euro)
Leased buldings
Other leased assets
Leased plant and machinery
12/31/2016
12/31/2015
Cost Accumulated
Depreciation
Net value
Cost Accumulated
Depreciation
Net value
1,925
2,118
92
4,135
(1,354)
(2,043)
(92)
(3,489)
571
75
-
646
2,519
2,325
107
4,951
(1,549)
(2,092)
(107)
970
233
-
(3,748)
1,203
Payables for financial leases have been included in financial payables (refer to Note 24).
2016 ANNUAL REPORT
The total minimum future payments due for non-cancellable operating lease contracts amounted to euro
507,384 thousand, of which:
212
-
-
-
euro 77,919 thousand due within one year,
euro 247,992 thousand due between one and five years, and
euro 181,473 thousand due beyond five years.
11.
Intangible Assets
The composition and changes for property, plant and equipment were as follows:
(in thousands of euro)
Patents and intellectual property
rights
Concessions/licenses/trademarks -
finite life
Concessions/licenses/trademarks -
indefinite life
Goodwill
Customer relationship
Technology
Software applications
Other intangible assets
12/31/2015
PPA
12/31/2015
restated
Translation
diffe re nce s
Incre ase
De cre ase
Amortisation
Re classif.
Othe r
12/31/2016
2
-
2
-
41,632
33,226
74,858
(1,594)
5,832
2,264,168
5,978,589
(3,627,326)
7,563
459,616
2,270,000
2,351,263
467,179
-
1,414,717
1,414,717
14,031
20,355
-
(7,127)
14,031
13,228
6,068,004
537,274
6,605,278
-
-
(521)
-
8
(2,714)
(4,821)
-
633
-
-
-
-
2,877
5,207
8,717
-
(7)
-
-
-
-
(17)
(35)
(59)
(2)
(4,308)
-
-
(35,645)
(66,850)
(9,209)
(2,539)
(118,553)
-
-
-
-
-
-
9,860
(9,860)
0
-
-
1,938
71,520
-
-
582
-
(23)
3,830
6,327
2,270,000
2,351,263
431,595
1,347,867
17,527
7,117
6,496,889
During the course of 2016, the allocation of the purchase price paid by Marco Polo Industrial Holding
S.p.A. for the acquisition of the Pirelli Group was completed at the fair value of the Pirelli assets and
liabilities acquired (the PPA). The accounting effects of the completion of the PPA process had the
following main impacts at the date of acquisition:
-
-
-
-
the identification and detection of the value of the Pirelli Brand and Metzeler Brand for the
amount of euro 2,337,000 thousand;
the identification and detection of Customer Relationships for the amount of euro 479,000
thousand;
the identification and detection of Technology, such as product technology, process technology
as well as product development technology for the amount of euro 1,437,000 thousand;
the detection of residual Goodwill amounting to euro 2,351,263 thousand.
The impacts reported in the preceeding table due to the restatement carried out on the figures at
December 31, 2015 include the depreciation and amortisation matured during the period between the
date of acquisition (September 1, 2015) and the close of the financial year (December 31, 2015).
Refer to Note 8 for further details on the completion of the Purchase Price Allocation.
The value of concessions, licenses and trademarks with an indefinite useful life relative to the Pirelli
brand which amounted to euro 2,270 thousand, and the value of Technology for product development
which amounted to euro 100 million and included in the item Technology (which at the date of the
Financial Statements had not yet been subjected to the depreciation process), were subjected to
impairment tests with the assistance of an independent third party professional. Based on the results
obtained, no impairment of the value of the assets was detected.
2016 ANNUAL REPORT
The allocation of goodwill in accordance to the operating segment, the cash generating units (CGU) to
which it was allocated for impairment testing, and the configuration used for the recoverable amount, is
shown in the following table:
213
(in thousands of euro)
Operating segment
Cash generating unit
12/31/2016
12/31/2015
Consumer
Industrial
Not allocated
Consumer
Industrial
1,877,363
473,900
-
2,351,263
572,703
306,423
5,099,463
5,978,589
Recoverable
amount
Value in use
Fair Value
Goodwill was tested for impairment at December 31, 2014 (with the assistance of an independent third
party professional) and comprised the estimation of the recoverable amount for the CGUs (cash
generating units) and the comparison with the net carrying amount of the relevant assets, including
goodwill.
With reference to the Consumer CGU, the configuration of the recoverable amount is that of the use
value which corresponds to the current value of the future financial flows that are expected to be
associated with the CGU, using a rate which reflects the specific risks of the individual CGU at the
valuation date.
The key assumptions used by management were the estimates for future sales increases, operating cash
flows, the growth rates of terminal values and the weighted average cost of capital (discount rate).
The expected financial flows cover a period of four years (2017-2020), and refer to the budget for 2017
and to the “2017-2020 Industrial Plan” which was approved by the Board of Directors on October 19,
2016 and then corrected downwards by one percentage point corresponding to the negative difference
between the budget for 2016 and the actual results for the same period.
The reasonableness of the margins for the specific forecast period have also been verified through their
comparison with the consensus of estimates made by industry sector players operating in the Premium
segment.
Also considered were the hypothetical cash flows deriving from the disposal of the CGUs at the end of
of the specified period (assumed to be equal to the current value of the perpetual income from cash
flows generated during the final year of the forecast).
The discount rates, defined as the weighted average cost of capital net of taxes, which were applied to
the forecast cash flows and to the growth factors used, are shown in the following table:
Operating segment
Cash Generating Unit
discount rate
(WACC)
2016
growth rate
( g )
WACC - g
discount rate
(WACC)
2015
growth rate
( g )
WACC - g
Consumer
Consumer
8.00%
-
8.00%
8.45%
-
8.45%
Based on the results of the tests performed, there was no evidence of any impairment.
2016 ANNUAL REPORT
A sensitivity analysis was also carried out for the results for the CGU in question, and in all cases the
use values remained higher than the carrying amounts, even assuming a change in the key parameters
such as:
• a change in the discount rates of 100 basis points;
• a change in the growth rate of 100 basis points;
• a change in the EBITDA margin of 150 basis points.
214
With reference to the Industrial CGU, it was decided that the fair value would be adopted in the
configuration for the recoverable amount, and was determined on the basis of the disposal price of euro
266 million paid by the Cinda fund for 38% of the share capital of Pirelli Industrial S.r.l., (a company
which retains shareholdings in companies operating in the Industrial sector).
It is also to be noted that as part of the secured loan (Senior Facilities) granted to Pirelli & C. S.p.A. and
Pirelli International Plc (refer to Note 24), the companies of the Group have pledged as guarantee,
patented technology which is included in the item Technology under intangible assets.
12.
Investments In Associates And Joint Ventures
Investments In Associates
12.1
Changes in investments in associates and joint ventures were as follows:
(in thousands of euro)
Opening balance
Decreases
Increases
Distribution of dividends
Impairment
Restatement
Share of net income (loss)
Share of other components recognized in Equity
Closing balance
12/31/2016
Associates
JV
Total
144,260
(11,161)
4,692
(100,553)
(20,987)
7,364
7,297
1,534
32,446
23,088
-
-
-
-
-
(8,524)
-
14,564
167,348
(11,161)
4,692
(100,553)
(20,987)
7,364
(1,227)
1,534
47,010
The item investment in associates is composed as follows:
(in thousands of euro)
12/31/2015
Decreases
Increases
Eurostazioni S.p.A.
Prelios S.p.A.
Fenice S.r.l.
GWM Renewable Energy II S.p.A.
Focus Investments S.p.A.
Other Group companies
Total associates
60,498
41,920
29,845
11,161
-
836
-
-
-
(11,161)
-
-
144,260
(11,161)
-
-
-
-
4,000
692
4,692
Distrib.
of dividends
and reserves
(100,353)
-
-
-
-
-
(20,308)
-
-
-
-
-
7,364
-
-
-
(200)
(679)
(100,553)
(20,987)
7,364
Impairment Restatements
Share of
net income
Share of other
components
(loss) recognised in Equity
12/31/2016
46,126
(8,382)
(29,297)
-
(1,350)
200
7,297
-
412
1,136
-
-
(14)
1,534
6,271
13,642
9,048
-
2,650
835
32,446
2016 ANNUAL REPORT
With reference to the investment in Fenice S.r.l., in continuation of the previous financial year, even
though the percentage of ownership exceeded 50% of the capital (69.88%), the situation did not entail
control for Pirelli over the company, due to the provisions of the Shareholders' Agreements.
215
The item decreases refers to the investment in GWM Renewable Energy II S.p.A. In particular, as a
result of the completion on March 30, 2016 of the swap operation, Pirelli & C. S.p.A. received in
exchange, following their withdrawal from the company GWM Renewable Energy II S.p.A., an amount
of shares of the Danish listed company Greentech Energy Systems A/S equal to 11.93% of the share
capital. The investment in Greentech Energy Systems A/S (which was subsequently sold) was recorded
at an amount equal to its fair value (stock market value at March 30, 2016) under the item “Other
financial assets”, and qualified as a financial asset available for sale. The operation generated a negative
impact on the Income Statement of euro 1,692 thousand (including the reversal to the Income Statement
of the cash flow hedge reserve which was negative to the amount of euro 1,172 thousand) which was
recorded under the item "Losses from equity investments".
The item increases refers euro 4,000 million for the subscription on January 12, 2016 by Pirelli & C.
S.p.A. to 111,111 class C shares of Focus Investments S.p.A. equal to 8.33% of the share capital, to
25% of the capital with voting rights, and to 4.26% of the financial interests, taking into consideration
the equity instruments issued by the company and subscribed to by Prelios S.p.A.
This company was created as a part of an extraordinary spin off operation for business activities related
to investments and co-investments in property belonging to Prelios S.p.A. and activities related to
services.
The item impairment refers mainly to the investment in Prelios S.p.A. In particular, it was maintained
that the significant difference between the carrying amount of the investment, after the application of the
equity method, and the stock market value at December 31, 2016 represented evidence of potential
impairment. Therefore the value of the investment was adjusted to its fair value equal to the market
value at December 31, 2016 (equal to euro 0.092 per share).
The item restatement refers to the investment in Fenice S.r.l. and refers to the release to the Income
Statement of a part of the impairments effected in previous years as a result of the comparison between
the recoverable amount of the investment evaluated using the equity method, and its fair value including
the liquidation preference. In order to estimate the fair value, the income approach was used based on
the criteria of available options and with the use of level 2 inputs.
The pro rata share of net income (positive at euro 7,297 thousand) refers mainly to the investment in
Eurostazioni S.p.A. which was positive to the amount of euro 46,126 thousand and mainly attributable
to the gains realised from the disposal by the subsidiary, of the investment held in Grandi Stazioni
Retail. This positive result was offset by the pro-rata loss for Prelios S.p.A. (euro 8,382 thousand) and
for the vehicle Fenice S.r.l. (euro 29,297 thousand) due to the effect of the significant reduction in the
stock market value of the investment held in the subsidiary Prelios S.p.A. The Financial Statements of
Prelios S.p.A. used in applying the equity method refer to a different closing date than that of December
31, 2016, and include the pro-rata loss for the fourth quarter of 2015 and for the first nine months of
2016.
2016 ANNUAL REPORT
12.2
Investments In Joint Ventures
The Group holds an investment of 60% (ownership unchanged from the previous financial year) in PT
Evoluzione Tyres, an entity which operates in Indonesia and is active in tyre production. Even though
the company is 60% owned, as a result of the contractual agreements between shareholders it falls under
the definition of a joint venture since the governance regulations explicitly require unanimous consensus
for significant business decisions. The investment was evaluated using the equity method.
The share of net income (loss) which was negative to the amount of euro 8,524 thousand refers to the
pro rata amount of the loss for the 2016 financial year.
216
13.
Other Financial Assets
These amounted to euro 198,691 thousand compared to euro 225,121 thousand at December 31, 2015
and refer to financial assets available for sale, measured at fair value, with any changes to the fair value
recognised in equity. They are composed as follows:
(in thousands of euro)
Opening balance
Translation differences
Increases
Decreases
Impairment
Fair value adjustments recognised in Equity
Other
Closing balance
12/31/2016
225,121
(715)
12,594
(10,761)
(11,067)
(16,513)
32
198,691
2016 ANNUAL REPORT
The composition of the item according to individual securities is as follows:
(in thousands of euro)
217
Listed securities
Mediobanca S.p.A.
RCS Mediagroup S.p.A.
Other companies
Unlisted securities
Fin. Priv. S.r.l.
Fondo Anastasia
European Institute of Oncology (Istituto Europeo di
Oncologia S.r.l.)
Euroqube
Tlcom I LP
Emittenti Titoli
Equinox Two SCA
Pirelli De Venezuela C.A.
Other companies
12/31/2016
Fair Value
122,167
19,307
22
141,496
16,471
14,636
6,231
12
570
2,729
3,757
10,226
2,563
57,195
198,691
The item increases mainly refers to the fair value (which coincides with the stock market price) of the
shares in the Danish listed company Greentech Energy Systems A/S (euro 10,667 thousand) received as
a result of the closing on March 30, 2016 of the swap described in preceding Note 12.This investment
was subsequently disposed of during the course of the first half year of 2016 and therefore recorded
under the item decreases.
The item impairment mainly refers to the investment in Pirelli De Venezuela C.A. (euro 8,651
thousand), whose fair value is substantially represented by the impaired liquidity present in the country
due to the depreciation recorded in the course of 2016 of the Venezuelan Bolivar against the US Dollar.
The item also includes the impairment of the investment in Alitalia - Compagnia Aerea Italiana S.p.A.
(euro 1,881 thousand) and to the investment in F.C. Internazionale Milano S.p.A. (euro 293 thousand).
The item fair value adjustments recognised in equity, which amounted to a negative net value of euro
16,513 thousand, mainly refers to the negative fair value adjustment recorded for the investments in
Mediobanca S.p.A. (euro 17,801 thousand) in Fin.Priv. S.r.l. (euro 2,316 thousand), in Emittenti Titoli
S.p.A. (euro 2,060 thousand) which was offset by the positive adjustment recorded for the RCS
Mediagroup S.p.A. (euro 4,951 thousand) and in the Istituto Europeo di Oncologia (euro 477 thousand).
The fair value of listed securities corresponds to the stock market value at December 31, 2016.
The fair value of unlisted securities was determined by making estimates on the basis of the best
information available at the time.
2016 ANNUAL REPORT
14.
Deferred Tax Assets and Provision for Deferred Tax Liabilities
Their composition is as follows:
(in thousands of euro)
Deferred tax assets
Provision for deferred tax liabilities
218
12/31/2016
12/31/2015
147,964
123,724
(1,452,169)
(1,477,516)
(1,304,205)
(1,353,792)
Deferred tax assets and deferred tax liabilities were compensated where a legal right existed that
allowed for the offset of current tax assets and current tax liabilities. The deferred taxes refer to the
same legal entity and the same taxation authority.
The gross amounts for compensations carried out were as follows:
(in thousands of euro)
Deferred tax assets
- of which recoverable within 12 months
- of which recoverable beyond 12 months
Provision for deferred tax liabilities
- of which recoverable within 12 months
- of which recoverable beyond 12 months
12/31/2016
12/31/2015
243,993
54,882
189,111
260,454
64,484
195,970
(1,548,198)
(11,193)
(1,537,005)
(1,614,246)
(20,103)
(1,594,143)
(1,304,205)
(1,353,792)
The tax effect of the temporary differences and of the tax losses carried forward which make up the item
is shown in the following table:
(in thousands of euro)
12/31/2016
12/31/2015
Deferred tax assets:
Provisions for future liabilities and charges
Employee benefit obligations
Inventories
Tax losses carried forward
Amortisation and depreciation
Trade receivables and other receivables
Trade payables and other payables
Derivatives
Other
Total
Provision for deferred tax liabilities:
Amortisation and depreciation
Other
Total
63,038
111,869
24,542
12,957
-
28,064
341
703
2,479
243,993
49,950
108,593
20,258
7,486
24,534
12,650
24,105
2,330
10,548
260,454
(1,506,688)
(1,536,688)
(41,510)
(77,558)
(1,548,198)
(1,614,246)
At December 31, 2016 the value of deferred tax assets not recognised relative to temporary differences
amounted to euro 97,905 thousand (euro 25,862 thousand at December 31, 2015), while those related to
tax losses amounted to euro 135,414 thousand (euro 151,994 thousand at December 31, 2015).
2016 ANNUAL REPORT
The value of the tax losses reallocated in accordance to their expiration date, for which deferred tax
assets were not recognised, were as follows:
(in thousands of euro)
Ye ar of maturity
12/31/2016
12/31/2015
219
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
3,666
10,093
7,696
3,626
6,370
4,354
6,022
3,075
1,818
5,053
3,651
10,106
7,686
3,631
6,380
3,996
6,025
1,949
1,818
-
without maturity date
474,974
539,574
526,747
584,816
Of the total for tax losses with no expiration date, euro 341,968 thousand was incurred by the Parent
Company Pirelli & C. S.p.A. while euro 45,309 thousand was attributable to the English subsidiary
Pirelli UK Ltd for which sufficient taxable income was not expected in order to justify their
recoverability.
The tax effect of gains and losses recognised directly in equity was positive for euro 1,840 thousand
(negative for euro 14,033 thousand for 2015) and are shown in the Statement of Comprehensive
Income. These changes were mainly due to tax effects connected to actuarial gains/losses on employee
benefits and to the fair value adjustment of derivatives in cash flow hedges.
2016 ANNUAL REPORT
220
15.
Trade Receivables
Trade receivables were analysed as follows:
(in thousands of euro)
12/31/2016
12/31/2015
Total Non-current
Current
Total Non-current
Current
Customers
Provision for bad debts
965,948
(286,627)
679,321
-
-
-
965,948
942,000
(286,627)
(265,808)
679,321
676,192
-
-
-
942,000
(265,808)
676,192
Of the total trade receivables which amounted to euro 965,948 thousand (euro 942,000 thousand at
December 31, 2015) and recorded gross of the provision for bad debts, euro 441,483 thousand had
expired (euro 375,798 thousand at December 31, 2015). The expired receivables due from Pirelli de
Venezuela C.A. which had been impaired in previous financial years amounted euro 229,304 thousand
(euro 220,725 thousand sat December 31, 2015).
Receivables which were past due and not yet due were evaluated according to the Group's policy,
described in the section on adopted accounting principles.
Impaired receivables include both significant single positions subject to individual impairment and
positions sharing similar credit risk characteristics that were grouped together and impaired on a
collective basis.
The changes in the provision for bad debts were as follows:
(in thousands of euro)
Opening balance
Translation differences
Accruals
Decreases
Other
Closing balance
12/31/2016
12/31/2015
265,808
11,060
18,173
(8,474)
60
286,627
265,431
(2,108)
14,181
(11,904)
208
265,808
Accruals to the provision for bad debts were recognised in the Income Statement as “Other” (refer to
Note 34).
The carrying amount for trade receivables is considered to approximate their fair value.
It is also to be noted that as part of the secured loan (Senior Facilities) granted to Pirelli & C. S.p.A. and
Pirelli International Plc (refer to Note 24), the companies of the Group have pledged as guarantee, trade
receivables from third parties for an equivalent value of euro 260,101 thousand.
2016 ANNUAL REPORT
16.
Other Receivables
Other receivables were analysed as follows:
(in thousands of euro)
221
12/31/2016
12/31/2015
Total Non-current
Current
Total Non-current
Current
Financial receivables
Trade accruals and deferrals
Receivables from employees
Receivables from social security and welfare
institutions
Receivables from tax authorities not related to
income taxes
Other receivables
Provision for bad debts
125,665
95,714
2,618
1,273
29,951
41,971
8,082
62,626
22,689
6,958
50,738
2,468
1,254
11,888
20,221
5,704
-
6,037
7,139
-
7,139
44,589
9,355
6,037
138,841
9,975
128,866
95,556
8,809
86,747
180,455
504,942
(2,452)
117,288
226,868
63,167
278,074
123,263
318,231
84,355
147,624
38,908
170,607
-
(2,452)
(5,198)
-
(5,198)
502,490
226,868
275,622
313,033
147,624
165,409
The item non-current financial receivables (euro 95,714 thousand) mainly refers to euro 57,314
thousand in sums deposited as guarantees for tax and legal disputes in relation to the subsidiary Pirelli
Pneus Ltda (Brazil) and TP Industrial de Pneus Brasil Ltda and remunerated at market rates, to euro
19,038 thousand in sums deposited during the financial year into escrow accounts in favour of the
pension funds of Pirelli UK Ltd and Pirelli UK Tyres Ltd, and to euro 8,654 thousand for insurance
premiums paid in advance during the financial year for the issuance of guarantees in favour of the same
pension funds, and to euro 6,641 thousand in new loans disbursed during the financial year to the
Indonesian joint venture PT Evoluzione Tyres.
The item current financial receivables (euro 29,951 thousand) mainly refers to euro 8,729 thousand
for amounts deposited by the Egyptian subsidiary as a guarantee for payments in local currency, and to
euro 3,847 thousand for insurance premiums paid in advance for the issuance of guarantees in favour of
the same pension funds.
The item receivables from tax authorities not related to income taxes (euro 138,841 thousand) is
mainly comprised of IVA (value added tax) and other indirect taxes.
The item other non-current receivables (euro 117,288 thousand) mainly refers to amounts deposited as
guarantees for legal and tax disputes involving the Brazilian business units (euro 89,796 thousand), to
receivables for the equivalent amount of euro 11,018 thousand pledged as guarantees in Pirelli’s favour
which may be exercised in the case of potential liabilities arising in relation to the acquisition of the
company Campneus Lider de Pneumaticos Ltda (Brazil), and to a receivable of euro 13,768 thousand
relating to a contribution made in cash and paid at the time of signing an association in participation
contract.
The item other current receivables (euro 63,167 thousand) mainly includes advances to suppliers for
euro 32,395 thousand, and receivables from the disposal of property not used for industrial operations in
Brazil for euro 2,938 thousand, and euro 3,052 thousand as receivables due from Aeolus Tyre Co., Ltd.
For other current and non-current receivables, the carrying amount is considered to approximate the
related fair value.
2016 ANNUAL REPORT
17.
Tax Receivables
222
The item tax receivables relates to income taxes and amounted to euro 76,259 thousand (of which euro
11,864 thousand was non-current) compared to euro 44,774 thousand at December 31, 2015 (of which
euro 6,169 thousand was non-current). More specifically it mainly refers to receivables for advance
payments on taxes for the financial year and to corporate income tax (IRES) receivables from previous
financial years recorded for Pirelli & C. S.p.A. for the amount of euro 5,493 thousand. It is to be noted
that receivables from tax authorities relative to withholding tax were compensated against payables to
tax authorities comprised of (IRES) corporate income tax, with a resulting offset of euro 23,451
thousand. In order to make the items comparable, the figures for the 2015 financial year have been
restated (euro 23.805 thousand for 2015).
18.
Inventories
Inventories were analysed as follows:
(in thousands of euro)
Raw and auxiliary materials and consumables
Sundry materials
Work in progress and semi-finished products
Finished products
Advances to suppliers
12/31/2016
12/31/2015
229,218
6,780
72,672
744,393
2,576
1,055,639
208,012
6,796
67,710
769,610
1,801
1,053,929
The total for inventories was essentially stable compared to the previous financial year. The impairment
of inventories recognised net of restatements amounted to euro 2,700 thousand (impairments for euro
11,095 thousand at December 31, 2015).
It is also to be noted that as part of the secured loan (Senior Facilities) granted to Pirelli & C. S.p.A. and
Pirelli International Plc (refer to Note 24), the companies of the Group have pledged as guarantee,
inventories for an equivalent value of euro 423,130 thousand.
19.
Securities Held For Trading
Securities held for trading amounted to euro 48,597 thousand compared to euro 78,167 thousand at
December 31, 2015, representing a decrease of euro 29,570 thousand which was mainly attributable to
the cash flow needs for the period. This item is almost exclusively comprised of unlisted floating rate
bonds.
The fair value of unlisted securities was determined by making estimates on the basis of the best
information available at the time.
Changes in fair values for the financial year were recognised in the Income Statement as “financial
expenses”.
2016 ANNUAL REPORT
20.
Cash and Cash Equivalents
223
Cash and cash equivalents went from euro 1,110,024 thousand at December 31, 2015 to euro 1,532,977
thousand at December 31, 2016.
These were concentrated in the finance companies of the Group and in companies that generate cash and
use it locally. These were essentially invested on the short-term maturity deposits market through
leading banking counter-parties at interest rates consistent with the prevailing market conditions.
In the Statement of Cash Flows, the balance of cash and cash equivalents has been stated net of negative
current bank accounts and amounted to euro 9,049 thousand at December 31, 2016.
It is also to be noted that as part of the secured loan (Senior Facilities) granted to Pirelli & C. S.p.A. and
Pirelli International Plc (refer to Note 24), the companies of the Group have pledged as guarantee,
current bank accounts for an equivalent value of euro 851,361 thousand.
21.
Equity
21.1 Attributable to the owners of Parent Company
The equity attributable to the Parent Company went from euro 3,209,595 thousand at December 31,
2015 to euro 3,134,085 thousand at December 31, 2016. The decrease was mainly due to translation
differences from foreign Financial Statements (negative at euro 142,965 thousand of which euro 98,716
thousand euro was related to exchange rate differences matured on intercompany receivables, due from
the Egyptian subsidiaries, designated as net investments in foreign operations – refer to Note 7 for
further details), to actuarial losses on pension funds excluding the related tax effect (negative for euro
46,567 thousand), and to the fair value adjustment of investments available for sale (negative for euro
16,513 thousand) offset by the net income for the financial year (positive at euro 135,063 thousand).
Furthermore, the Group's equity decreased due to the effect of the acquisition of treasury shares
pursuant to the withdrawal exercised by some shareholders due to the reverse merger of Marco Polo
Industrial Holding S.p.A. into Pirelli & C. S.p.A. (euro 6,894 thousand), as well as to the effect of the
subsequent redemption carried out by the Company on the remaining outstanding shares (euro 5,449
thousand).
Other descreases to the Group’s equity were attributable to the disposal of 10% of the share capital of
Pirelli Industrial S.r.l. (euro 10,380 thousand, equal to the difference between the cash proceed and the
carrying amount of the disposed net asset) as well as to the acquisition of 80% of the company Jiaozuo
Aeolus Tyre Co., Ltd. which, configured as a Business Combination under common control was
recorded using the same values recorded in the Financial Statements of the acquired company, with the
difference detected between the amount paid and the net value of the assets acquired being recognised in
equity (euro 1,150 thousand).
The subscribed and paid-up share capital at December 31, 2016 (including treasury shares held) is
represented by 201,983,902 ordinary shares and 5,641,312 special shares, without nominal value, for a
total value of euro 1,345,381 thousand. The share capital is represented net of the value of treasury
shares held (351,590 ordinary shares and 772,792 special shares) and therefore amounts to euro
1,342,281 thousand.
2016 ANNUAL REPORT
The increase in share capital from euro 10,196 thousand to euro 1,342,281 was connected to the effects
of the reverse merger with the holding company Marco Polo Industrial Holding S.p.A., which led to an
alignment of the share capital of the surviving entity Pirelli & C. S.p.A. with that of the holding
company, with the consequent reduction of the premium share reserve.
224
21.2 Attributable to Non-Controlling Interests
The equity attributable to non-controlling interests went from euro 72,041 thousand at December 31,
2015 to euro 140,733 thousand at December 31, 2016. The change was mainly due to the disposal of the
10% of the investment in Pirelli Industrial S.r.l. (euro 81,129 thousand), to 20% of the investment in
Jiaozuo Aeolus Tyre Co., Ltd. (euro 16,462 thousand) owned by Aeolus Tyre Co., Ltd, to translation
differences (negative at euro 34,804 thousand) and to the results for the financial year (positive at euro
12,562 thousand)
22.
Provisions for Liabilities and Charges
The changes that occurred during the financial year are shown below:
PROVISION FOR LIABILITIES AND CHARGES - NON-CURRENT PORTION (in thousands of euro)
Opening balance
Translation differences
Increases
Uses
Reversals
Other
Closing balance at 12/31/2016
12/31/2016
144,506
15,048
21,083
(9,422)
(12,759)
12,536
170,992
The non-current portion mainly refers to provisions made by the subsidiaries Pirelli Pneus Ltda and
TP Industrial de Pneus Brasil Ltda based in Brazil for tax and legal disputes (euro 45,428 thousand) and
for labour lawsuits (euro 29,774 thousand), and to provisions made by the parent company Pirelli & C.
S.p.A. for tax disputes (euro 4,871 thousand), for commercial risks, site remediation and labour disputes
(euro 6,066 thousand), and for occupational diseases litigation (euro 7,887 thousand), to provisions
made by Pirelli Tyre S.p.A for tax risks (euro 4,711 thousand), and for potential liabilities (whose outlay
was not considered likely) which were indentified during the Purchase Price Allocation pursuant to
paragraph 23 of the IFRS 3 to the amount of euro 33,500 thousand, attributable to the European
Commission decision made at the conclusion of the antitrust investigation regarding the energy cable
business, which foresaw sanctions against Prysmian of approximately euro 104 million, of which a part
totalling euro 67 million, Pirelli, despite having been found as not involved in the alleged cartel, was
held as being jointly liable with Prysmian, based solely on the application of the principle of so-called
parental liability, in that during part of the period of the alleged infringement, Prysmian was a subsidiary
of Pirelli.
The item increases mainly refers to provisions for the labour disputes of the subsidiaries Pirelli Pneus
Ltda and TP Industrial de Pneus Brasil Ltda (Brazil), and provisions for tax disputes.
2016 ANNUAL REPORT
The item uses were for costs incurred mainly due to the labour disputes of the subsidiaries Pirelli Pneus
Ltda and TP Industrial de Pneus Brasil Ltda (Brazil), and for settling pending litigations against Pirelli
Tyre S.p.A. concerning occupational disease.
225
The item reversals of provisions mainly refers to releases related to tax risks and to the disputes
resolved in favour of the Group.
PROVISION FOR LIABILITIES AND CHARGES - CURRENT PORTION (in thousands of euro)
Opening balance
Translation differences
Increases
Uses
Reversals
Other
Closing balance at 12/31/2016
12/31/2016
63,221
(2,614)
14,260
(10,754)
(7,784)
(10,342)
45,987
The item current portion mainly includes provisions for product claims and warranties (euro 15,838
thousand), for the remediation of disused areas (euro 7,234 thousand), for the reorganisation and closure
of businesses (euro 1,533 thousand), for tax risks (euro 4,360 thousand), for labour disputes (euro 2,588
thousand) and work accident insurance (euro 3,564 thousand).
The item increases mainly refers to provisions for product claims, labour disputes, insurance risks and
work accident insurance, for labour disputes, the remediation of disused areas, for tax risks, for labour
disputes and work accident insurance.
The item uses was mainly attributable to claims received from the various Group units, and for the
settlement of tax disputes in Turkey.
The reversals of surplus provisions mostly concerned disputes, claims and tax and insurance risks.
2016 ANNUAL REPORT
23.
Employee Benefit Obligations
The item includes:
(in thousands of euro)
Pension funds:
- funded
- unfunded
Employee leaving indemnities (TFR - Italian companies)
Healthcare plans
Other benefits
PENSION FUNDS
226
12/31/2016
12/31/2015
146,363
96,788
38,194
20,761
65,994
368,100
154,413
96,375
38,625
21,449
51,678
362,540
The following table shows the composition of pension funds at December 31, 2016:
(in thousands of euro)
Funded funds
Present value of funded liabilities
Fair value of plan assets
Unfunded funds
Present value of unfunded liabilities
Net liabilities recognised
Germany
Sweden
12/31/2016
USA
Total unfunded
pension funds
UK
Other
countries
Total funded
pension funds
153,495
1,297,199
(122,338)
(1,182,241)
7,034
(6,786)
1,457,728
(1,311,365)
93,410
93,410
3,378
3,378
96,788
96,788
-
31,157
-
114,958
-
248
-
146,363
The following table shows the composition of pension funds at December 31, 2015:
(in thousands of euro)
Funded funds
Present value of funded liabilities
Fair value of plan assets
Unfunded funds
Present value of unfunded liabilities
Net liabilities recognised
Germany
Sweden
12/31/2015
Total unfunded
pension funds
USA
UK
Other
countries
Total funded
pension funds
158,483
(122,875)
1,247,129
(1,129,387)
5,846
(4,783)
1,411,458
(1,257,045)
92,779
92,779
3,596
3,596
96,375
96,375
35,608
117,742
1,063
154,413
The characteristics of the main pension funds in place at December 31, 2016 were as follows:
• Germany: an unfunded defined benefit plan based on the last salary. This fund guaranteed a
pension in addition to the state pension. The plan was closed in October 1982. Consequently the
participants to this plan are employees whose employment had begun prior to that date;
• USA: a funded defined benefit plan based on the last salary. This fund guaranteed a pension in
addition to the state pension and was administered by a Trust. The plan was closed in 2001 and
frozen in 2003 for employees who then transferred to a defined contribution scheme. All
participants to this plan have since retired;
• UK: a funded defined benefit plan based on the last salary.This fund guaranteed a pension in
addition to the state pension and was administered internally by a Trust. The plans managed by the
subsidiary Pirelli Tyres Ltd were closed in 2001 to new participants and frozen during 2010 for
employees hired prior to 2001, who were then offered a transfer to a defined contribution plan. The
plan was operated by the subsidiary Pirelli UK Ltd, which included the employees in the cables and
systems sector which was sold in 2005, and was already frozen at the date of the disposal;
• Sweden: a defined benefits plan (ITP2), which is closed to new participants. The only participants
are retired employees and the recipients of deferred pensions.
2016 ANNUAL REPORT
Changes for the 2016 financial year in the net liabilities of defined benefits (refers to funded and
non-funded pension funds) were as follows:
(in thousand of euro)
227
Opening balance at January 1, 2016
Translation difference
Movements through income statement:
- current service cost
- interest expense / (income)
Remeasurements recognized in equity:
- actuarial (gains) / losses from change in demographic assumptions
- actuarial (gains) / losses from change in financial assumptions
- experience adjustment (gains) losses
- return on plan assets, net of interest income
Employer contributions
Employee contributions
Benefits paid
Settlements
Other
Present value of
gross liabilities
Fair value of plan
assets
Total net
liabilities
1,507,833
(183,676)
(1,257,045)
167,003
250,788
(16,673)
989
50,661
51,650
1,816
272,810
(22,656)
-
251,970
-
24
(72,838)
-
(447)
-
(43,766)
(43,766)
-
-
-
(205,275)
(205,275)
(41,035)
(24)
66,766
-
2,011
989
6,895
7,884
1,816
272,810
(22,656)
(205,275)
46,695
(41,035)
-
(6,072)
-
1,564
243,151
Closing balance at December 31, 2016
1,554,516
(1,311,365)
Changes for the 2015 financial year in the net liabilities of defined benefits (refers to funded and
non-funded pension funds) were as follows:
(in thousand of euro)
Present value of
gross liabilities
Fair value of plan
assets
Total net
liabilities
Opening balance at January 1, 2015
Translation difference
Movements through income statement:
- current service cost
- interest expense / (income)
Remeasurements recognized in equity:
- actuarial (gains) / losses from change in demographic assumptions
- actuarial (gains) / losses from change in financial assumptions
- experience adjustment (gains) losses
- return on plan assets, net of interest income
Employer's contributions
Employee contributions
Benefits paid
Settlements
Other
1,477,209
92,124
(1,166,127)
(77,050)
1,093
54,996
56,089
3,964
(38,623)
(4,807)
-
(39,466)
-
24
(77,120)
(342)
(684)
-
(45,993)
(45,993)
-
-
-
5,576
5,576
(51,992)
(24)
77,120
-
1,446
311,082
15,074
1,093
9,003
10,096
3,964
(38,623)
(4,807)
5,576
(33,890)
(51,992)
-
-
(342)
760
Closing balance at December 31, 2015
1,507,833
(1,257,045)
250,788
The cost of this service is included in the item "Personnel expenses" (refer to Note 32). Net interests
payable are included in "Financial expenses" (refer to Note 37).
2016 ANNUAL REPORT
The composition of funded pension fund assets was as follows:
228
(in thousand of euro)
Shares
Bonds
Insurance policies
Deposits
Balanced funds
Real Estate
Derivatives
Other
12/31/2016
12/31/2015
listed
unlisted
total
%
listed
unlisted
total
%
71,493
141,921
-
306,869
6,280
-
-
10,301
536,865
347,644
28,405
6,786
(50,795)
307,740
-
81,549
53,172
419,137
170,326
6,786
256,074
314,020
-
81,549
63,473
32.1%
13.0%
0.5%
19.5%
23.9%
0.0%
6.2%
4.8%
774,501
1,311,366
100%
70,957
173,429
-
250,344
-
-
-
-
494,730
361,394
116,948
4,783
4,996
109,778
207,262
(51,834)
8,989
432,351
290,377
4,783
255,340
109,778
207,262
(51,834)
8,989
762,315
1,257,045
34.4%
23.1%
0.4%
20.3%
8.7%
16.5%
-4.1%
0.7%
100%
The principal risks to which the Group was exposed in relation to the pension funds are detailed as
follows:
• volatility of assets servicing the plans: in order to be able to balance liabilities, the investment
strategy cannot limit its horizons esclusively to risk free assets. This implies that certain
investments, such as listed securities represent high volatility for the short-term, and that this
exposes the plans to risks for the reduction in value of the assets in the short-term, and to the
consequents increase in imbalances. However, this risk is mitigated by diversifying investments into
numerous investment classes, through different investment managers, through different investment
styles and with exposures to multiple factors which are not perfectly correlated to each other.
Moreover, the investments are continuously revised in response to market conditions, and adjusted
in order to maintain the overall risk at acceptable levels;
• changes in bond yields and in the forecast inflation: the expectations of declining bond yields and/or
rising inflation brings about an increase in the value of liabilities. The plans reduce this risk through
investments in liability hedging assets. In the United Kingdom, the protection guaranteed by a
portfolio of this type has been built up over the last few years, and as of the second quarter of 2014
it has reached a coverage which oscillates between 100% and 115% of the value of the liabilities
covered by assets;
life expectancy: the increase in life expectancy entails an increase in the value of a plan's liabilities.
During the course of 2016 the UK plans completed a process that would allow them, through the
longevity swaps entered into with a pool of insurance companies, to cover approximately 50% of
the risks. The residual risks are evaluated by using prudent hypotheses whose adequacy is revised
periodically.
•
In the UK the management of the assets at the service of these plans has been delegated, under the
supervision and within a precise mandate attributed by the Trustees to a Fiduciary Manager who
operates in accordance with a model of Liability Driven Investment (LDI), namely using the liability
benchmark as a reference so as to minimise the volatility (and thus the risk) of the deficit, which in fact
has been reduced to approximately one third compared to the levels which existed prior to its
introduction (at the beginning of 2011).
2016 ANNUAL REPORT
The key parameters of this mandate were as follows:
• a mix of assets subjected to dynamic management over time, rather than a fixed allocation strategy;
• a hedge which covers approximately 100% - 115% of the risk associated with interest rates and
inflation - where the percentage represents the value of assets - through the use of debt instruments
such as government bonds and derivatives;
the management of exchange rate risk which aims at covering at least 70% of the exposure to
foreign currencies held in the portfolio through the use of forward contracts.
•
229
Furthermore, during 2016, following the increase in financial leverage resulting from the merger of
Pirelli & C. S.p.A. with Marco Polo Industrial Holding S.p.A. and of the impact deriving from the
covenants of the Group, an agreement (the Pension Framework Agreement) was entered into from
within the refinancing process with the UK pension funds, through which, a package of measures
(entered into with a pool of insurance companies, the so called Credit Support Guarantees, comprising
of limited payments by way of restricted deposits into escrow accounts, the recognition of a portion of
pension liablities on a pari passu status with the lenders, and the definition of an accelerated
contributions plan limited to a period of extraordinary leverage) was put in place to guarantee the
"synthetic" restoration of these covenants to levels which existed prior to the acquisition of the Pirelli
Group by Marco Polo Industrial Holding S.p.A., for the purposes of continuing the work of the gradual
settlement of the relative deficits previously imposed.
Lastly a series of exercises were initiated, defined as Liability Management Exercises, as a further
measure to reduce the risks for the Group in exchange for incentives and greater flexibility.
In the United Kingdom, the funding arrangements and funding policies are revised every three years.
The next funding evaluation is expected in 2017. In the United States funding evaluations are carried
out on an annual basis.
The contributions which are expected to be paid into the unfunded pension funds during the 2017
financial year amounts to euro 6,268 thousand, while for funded pension funds the amount expected is
euro 44,283 thousand.
EMPLOYEES’ LEAVING INDEMNITIES (TFR)
Changes for the financial year for employees’ leaving indemnities provision were as follows:
(in thousands of euro)
Opening balance
Movements through income statement:
- current service cost
- interest expense
Remeasurements recognized in equity:
- actuarial (gains) losses arising from changes in financial assumptions
Indemnities/advanced payments
Other
12/31/2016
12/31/2015
38,625
42,451
629
814
1,974
(3,587)
(261)
207
737
(1,932)
(2,053)
(785)
Closing balance
38,194
38,625
The current cost for services rendered by employees is included in the item “Personnel expenses” (refer
to Note 32) while interest payables are included in the item “Financial expenses” (refer to Note 37).
2016 ANNUAL REPORT
HEALTHCARE PLANS
This item refers exclusively to the healthcare plan in place in the United States.
(in thousands of euro)
Liabilities recognised in the Financial Statements at 12/31/2016
Liabilities recognised in the Financial Statements at 12/31/2015
The following changes occurred during the period:
(in thousands of euro)
Opening balance
Translation differences
Movements through income statement:
- current service cost
- interest expense
Remeasurements recognized in equity:
- actuarial (gains) losses arising from changes in financial assumptions
- actuarial (gains) losses arising from changes in demographic assumptions
- experience adjustment (gains) losses
Benefits paid
Closing balance
230
USA
20,761
21,449
12/31/2016
12/31/2015
21,449
638
22,337
2,508
4
792
266
132
(1,350)
(1,170)
20,761
5
821
(632)
(392)
(1,970)
(1,228)
21,449
The cost for the service is included in the item "Personnel expenses" (refer to Note 32), and net interests
payable is included in "Financial expenses" (refer to Note 37).
Contributions which are expected to be paid into the healthcare plan during the 2017 financial year
amount to euro 1,597 thousand.
2016 ANNUAL REPORT
ADDITIONAL INFORMATION REGARDING POST-EMPLOYMENT BENEFITS
Net actuarial losses accrued during the 2016 financial year and recognised directly in equity amounted
to euro 46,567 thousand.
231
The main actuarial assumptions used at December 31, 2016 were as follows:
Discount rate
Inflation rate
Italy
Germany
Netherlands
Sweden
UK
USA
1.50%
1.00%
1.50%
1.50%
1.50%
1.50%
2.15%
1.50%
2.70%
3.18%
3.90%
N/A
The main actuarial assumptions used at December 31, 2015 were as follows:
Discount rate
Inflation rate
Expected rate of wage and salary increases
Healthcare cost trend rates - initial
Healthcare cost trend rates - final
Italy
Germany
Netherlands
Sweden
UK
USA
2.10%
1.25%
-
-
-
2.10%
1.75%
3.00%
-
-
2.10%
1.75%
2.00%
-
-
2.75%
1.50%
-
-
-
3.90%
3.05%
-
-
-
4.05%
N/A
N/A
8.00%
4.50%
The following table presents an analysis of the payment deadlines regarding post-employment benefits:
(in thousands of euro)
within 1 year
1 to 2 years
3 to 5 years
over 5 years
Total
Pension funds
66,640
68,911
211,147
367,659
714,358
Employees' leaving indemnities (TFR)
Healthcare plan
1,783
1,597
2,090
1,573
7,233
4,643
12,585
23,691
7,236
15,050
70,019
72,575
223,024
387,480
753,097
The weighted average term for bonds for post-employment benefits is equal to 16.17 years (15.36 years
at December 31, 2015).
2016 ANNUAL REPORT
The sensitivity analysis for the relevant actuarial assumptions at the end of the 2016 financial year was
as follows:
(in %)
Discount rate
Inflation rate (only UK plans)
Change in
assumptions
0.25%
0.25%
Impact on post employment benefits
Increase in assumptions
Decrease in assumptions
decrease of
increase of
6.53%
3.47%
increase of
decrease of
4.17%
2.77%
232
At the end of the 2015 financial year the situation was as follows:
(in %)
Discount rate
Inflation rate (only UK plans)
Change in
assumptions
0.25%
0.25%
Impact on post employment benefits
Increase in assumptions
Decrease in assumptions
decrease of
increase of
3.61%
3.15%
increase of
decrease of
3.83%
2.63%
The sole purpose of the analysis outlined above was to estimate the changes in liability in relation to
changes in the discount rates and inflation rates in the UK in comparison to the central hypothesis for
the same rates, rather than comparing them to an alternative set of hypotheses.
The sensitivity analysis on the liabilities related to post-employment benefits is based on the same
methodology used to calculate the liability recognised in the Financial Statements.
OTHER LONG-TERM BENEFITS
The composition of other benefits is as follows:
(in thousands of euro)
Long-term incentive plans
Jubilee awards
Leaving indemnities - non Italian companies
Other long-term benefits
12/31/2016
15,072
18,303
25,778
6,841
65,994
12/31/2015
-
17,348
26,881
7,449
51,678
The item Long-Term Incentive plans is directly attributable to the amount allocated in 2016 for the
new Long-Term Incentive Plan intended for the Management sector of the Pirelli Group.
2016 ANNUAL REPORT
233
24.
Borrowings from Banks and other Financial Institutions
Borrowings from banks and other financial institution were as follows:
(in thousands of euro)
12/31/2016
12/31/2015
Total
Non-current Current
Total
Non-current Current
Bonds
Borrowings from banks
Borrowings from other financial institutions
Financial leasing payables
Accrued financial expenses and deferred financial income
Other financial payables
594,314
5,932,336
594,314
5,349,503
-
582,833
1,231,006
5,288,643
731,224
540,403
499,782
4,748,240
24,300
78
29,253
7,765
1,567
18
36
561
22,733
60
29,217
7,204
20,517
507
25,593
7,263
2,344
321
63
1,333
18,173
186
25,530
5,930
6,588,046
5,945,999
642,047
6,573,529
1,275,688
5,297,841
The item bonds refers to the non-current portion of the unrated bond, placed by Pirelli International
Plc on the Eurobond market in November 2014 for the nominal amount of euro 600 million, with a
fixed coupon of 1.75%. The reduction of this item at December 31, 2015 was mainly due to the early
repayment on April 6, 2016 of the US Private Placement bond loan for USD 150 million which, in
accordance with the contract terms, resulted in higher expenses which amounted to euro 25.4 million.
This transaction was approved by the Company consequent to the extraordinary operations which
occurred during 2016, and which reshaped the Group's credit profile through the assumption by Pirelli,
of additional financial debt of approximately euro 4.2 billion.
The current portion at December 31, 2015 refers to the unrated bond, placed by Pirelli & C. S.p.A. on
the Eurobond market in February 2011 for the nominal total amount of euro 500 million, with a fixed
coupon of 5.125%. This loan was fully repaid in accordance to its natural maturity during the month of
February 2016.
The item borrowings from banks which amounted to euro 5,932,336 thousand, mainly refers to:
− use of the secured Senior Facilities financing granted to Pirelli & C. S.p.A. and Pirelli International
Limited for the nominal amount of euro 5,280,746 thousand. The contractual refinanced total
amounted to euro 6.4 billion and was achieved at a lower overall cost of less than 3.5%. The
operation consisted of syndicated refinancing for a total amount of euro 4.8 billion maturing in three
and five years, and a credit facility for euro 1.6 billion with an eighteen month expiry, which was
the result of a club deal with a select number of lending institutions. It is to be noted that the total
amount for the Senior Facilities at December 31, 2016 was euro 6,289,820 thousand, following the
partial repayment of the euro 1.6 billion credit facility at the end of December 2016. As a result of
the refinancing operation, subscribed to on July 25, 2016 (the signing date), the Pirelli Group was
able to refinance the bank debt which existed prior to the merger, as well as the Bidco Facility debt
which had been cancelled on July 28, 2016 (the closing date). With the exception of the instalments
due on December 31, 2017 which amount to euro 163,905 thousand for Pirelli & C. S.p.A. and euro
12,500 thousand for Pirelli International Plc, the financing is entirely reported under the item long-
term borrowings from banks;
2016 ANNUAL REPORT
234
−
loans granted by the European Investment Bank (EIB) in favour of S.C. Pirelli Tyres Romania S.r.l.
for local industrial investments for a total amount of euro 50,000 thousand (euro 150,000 thousand
at December 31, 2015), were fully used, with euro 20,000 thousand reported under current
borrowings from banks, while the residual part of euro 30,000 thousand has been reported under
non-current borrowings from banks. Also of note is that during the first half year of 2016 Pirelli
Tyre S.p.A. repaid the loan outstanding at December 31, 2016 disbursed by European Investment
Bank (EIB) for a total of euro 100,000 thousand;
− euro 47,351 thousand refer in particular to certain loans classified as current borrowings from banks
granted to the Mexican subsidiaries by the HSBC Bank for euro 28,575 thousand, and by Banco
Santander for euro 13,919 thousand, and by Banco BBVA for euro 4,640 thousand. These loans
have a maturity of between 150 and 365 days and are not covered by any type of guarantee;
− euro 37,737 thousand representing two long-term loans granted by the Yapi Kredi and AKbank
institutions to the subsidiary Pirelli Otomobil Lastikleri (Turkey), classified as long-term
borrowings from banks which will mature in January 2018;
− euro 5,000 thousand related to the Schuldschein (originally for the total nominal value of euro
155,000 thousand which at December 31, 2015 amounted to euro 37,000 thousand), a syndicated
loan issued by the lender on the basis of a debt certificate governed by German law, granted to
Pirelli International Plc and disbursed on December 14, 2012 and classified under short-term
borrowings from banks as a result of the change of control as provided for by the contractual
conditions of the financial instrument itself. On June 14, 2016, the natural date of maturity, the
tranche amounting to euro 32,000 thousand was repaid;
− use of credit facilities at local level in Argentina, Brazil, Colombia, Egypt, the United Kingdom and
the USA for euro 508,475 thousand, of which euro 331,861 thousand is classified as current
borrowings from banks, with the remainder amounting to euro 176,614 thousand, classified as other
non-current borrowings from banks.
At December 31, 2016, the Group had a liquidity margin equal to euro 2,581.6 million composed of
euro 1,000.0 million in the form of a non-utilised nominal credit facility (the total amount for the Senior
Facilities at December 31, 2016 was euro 6,289.8 million, following the partial repayment of the euro
1,600.0 million credit facility at the end of December 2016), and euro 1,581.6 million in cash and cash
equivalents and securities held for trading.
Accrued financial expenses and deferred financial income (euro 29,253 thousand) refers mainly to
accrued interest on loans granted by banks for euro 24,902 thousand (euro 853 thousand at December
31, 2015), to commitment fees accrued on the new loan for euro 2,337 thousand, and to the accrued
interest payable on bonds of euro 1,237 thousand (euro 23,757 thousand at December 31, 2015).
Current and non-current financial payables backed by secured guarantees (pledges and mortgages)
totalled euro 5,290,188 thousand and refer mainly to the secured Senior Facilities financing granted to
Pirelli & C. S.p.A., Pirelli Tyre S.p.A. and Pirelli International Plc for the nominal amount of euro
5,280,746 thousand.
2016 ANNUAL REPORT
The carrying amount of current financial payables is considered to approximate their fair value. The
table below compares the fair value of non-current financial payables with their carrying amount:
(in thousands of euro)
12/31/2016
12/31/2015
235
Pirelli International Plc bonds
Private placement - Pirelli International Plc
Borrowings from banks
Other financial payables
Carrying
amount
Fair value
594,314
609,888
-
-
5,349,503
5,349,925
2,182
2,182
Carrying
amount
594,022
137,202
540,403
4,061
Fair value
594,054
131,761
578,505
4,060
5,945,999
5,961,995
1,275,688
1,308,380
The public bond issued by Pirelli International Plc is listed and its relative fair value was measured on
the basis of prices at financial year-end. It has therefore been classified as level 1 of the hierarchy.
At December 31, 2016, the reallocation of borrowings from banks and other financial institutions
according to interest rate and the currency of origin for the debt was as follows:
(in thousands of euro)
EUR
GBP (British Pound)
BRL (Brazilian Real)
EGP (Egyptian Pound)
RON (Romanian Leu)
MXN (Mexican Peso)
ARS (Argentinian Peso)
COP (Colombian Peso)
Other currencies
Current payables
EUR
USD (US Dollar)
BRL (Brazilian Real)
CNY (Chinese Renminbi)
RON (Romanian Leu)
TRY (Turkish Lira)
ARS (Argentinian Peso)
Fixed rate
Floating rate
Total
49,608
1,908
305,568
-
19,271
45,124
20,702
1,145
20,510
176,587
-
-
1,622
-
-
-
-
226,195
1,908
305,568
1,622
19,271
45,124
20,702
1,145
20,510
463,838 72% 178,209 28% 642,047
600,126
-
26,978
-
-
37,670
-
5,101,767
-
149,482
-
29,976
-
-
5,701,892
-
176,460
-
29,976
37,670
-
Non current payables
664,774 11% 5,281,225 89% 5,945,999
1,128,612 17% 5,459,434 83% 6,588,046
2016 ANNUAL REPORT
At December 31, 2015 the situation was as follows:
236
At December 31, 2016, as at December 31, 2015 there were no derivative hedging instruments in place
for floating rate payables.
The Group’s exposure to fluctuations in interest rates on financial payables, both in terms of the type of
rate and in terms of the date of the renegotiation of the same (resetting) was as follows:
(in thousands of euro)
Up to 6 months
From 6 to 12 months
From 1 to 5 years
More than 5 years
Total
438,500
224,328
5,925,029
189
-
6,588,046
12/31/2016
Fixed rate
436,265
38,963
653,195
189
-
1,128,612
Floating rate
2,235
185,365
5,271,834
-
-
5,459,434
Total
1,136,210
4,536
5,336,728
96,055
-
6,573,529
12/31/2015
Fixed rate
1,095,032
4,536
692,467
96,055
-
1,888,090
Floating rate
41,178
-
4,644,261
-
-
4,685,439
The average cost of debt during the 2016 financial year was equal to 5.82% (5.90% for 2015).
2016 ANNUAL REPORT
With regard to the existence of financial covenants, it is to be noted that the refinancing operation
(Senior Facilities) granted to Pirelli & C. S.p.A. and Pirelli International Plc provides for:
•
•
the compliance with a maximum ratio (Total Net Leverage) between net indebtedness and the
gross operating margin as reported in the consolidated Financial Statements of Pirelli & C.
S.p.A.
the introduction of a financial covenant so that the ratio (Interest Cover) between the gross
operating margin and financial expenses, as reported in the consolidated Financial Statements of
Pirelli & C. S.p.A. results as greater than or equal to the given threshold.
237
As at December 31, 2016, both these parameters appear to have been respected.
Other existing outstanding financial payables do not contain financial covenants.
25.
Trade Payables
Trade payables were composed as follows:
(in thousands of euro)
Suppliers
Bill and notes payable
12/31/2016
12/31/2015
Total
Non-current Current
Total
Non-current Current
1,463,888
34,604
1,498,492
-
-
-
1,463,888
1,288,737
34,604
1,498,492
31,321
1,320,058
-
-
-
1,288,737
31,321
1,320,058
The carrying amount of trade payables is considered to approximate their fair value.
26.
Other Payables
Other payables were as follows:
(in thousands of euro)
Accrued trade expenses and deferred trade income
Tax payables not related to income taxes
Payables to employees
Payables to social security and welfare intitutions
Dividends payable
Other payables
12/31/2016
12/31/2015
Total
Non-current Current
Total
Non-current Current
81,215
107,991
138,390
86,677
6,442
449,785
870,500
42,046
5,868
-
36,467
-
3,040
87,421
39,169
102,123
138,390
50,210
6,442
446,745
783,079
65,812
80,137
149,446
66,402
6,879
137,582
506,258
40,450
3,485
24,186
22,195
-
8,315
98,631
25,362
76,652
125,260
44,207
6,879
129,267
407,627
The item non-current accrued trade expenses and deferred trade income refers to euro 39,136
thousand in capital contributions received for investments in Mexico and Romania, whose benefits are
recognised in the Income Statement in proportion to the costs for which the contribution was disbursed,
to euro 1,175 thousand in costs for trade initiatives in LatAm (Brazil), and to euro 842 thousand for
contributions received from a real estate investment in the United Kingdom.
2016 ANNUAL REPORT
The item current accrued trade expenses and deferred trade income includes euro 14,316 thousand
for various trade initiatives realised in Germany and Brasil, euro 11,443 thousand in government grants
and tax incentives received mainly in Italy, Romania and Brazil, euro 2,104 thousand for costs related to
insurance coverage in some European countries, Argentina and Turkey, euro 1,777 thousand for
insurance reimbursements which impact on two financial years, and euro 1,149 thousand for various
promotional initiatives (trade discounts received).
238
The item tax payables for taxes not related to income is mainly comprised of payables for IVA (value
added tax) and other indirect taxes, withholding tax for employees and taxes not related to income.
The item payables to employees mainly includes amounts accrued during the financial year but not yet
paid, as well as the residual payables from the previous three year Long-Term Incentive plan 2014-2016
intended for Pirelli Management which was closed during the preceding financial year.
The item other current payables (euro 446,745 thousand) mainly includes:
•
euro 307,270 thousand in advance payments received (euro 4,747 thousand at December 31,
2015), in particular the amount of euro 265,045 thousand received as advanced payment from
the Chinese Cinda fund on December 30, 2016 for the disposal of 38% of the investment of
Pirelli Industrial S.r.l, which was then finalised during the month of January 2017, while the
residual portion was for advance payments received from customers in particular by companies
in the LatAm area;
euro 66,789 thousand for the purchase of property, plant and equipment (euro 78,333 thousand
at December 31, 2015);
euro 21,367 thousand in payables to representatives, agents, professionals and consultants (euro
6,467 thousand at December 31, 2015);
euro 12,476 thousand for withholding taxes on income (euro 9,914 thousand at December 31,
2015);
euro 7,617 thousand in payables to directors, auditors and supervisory bodies (euro 6,851
thousand at December 31, 2015);
euro 4,652 thousand for debts relating to customs duties, import and transport costs.
•
•
•
•
•
For other current and non-current payables, it is considered that their value approximates their fair
value.
27.
Tax Payables
Tax payables recorded net of receivables for withholding tax amounted to euro 23,451 (23,805 thousand
for receivables for withholding tax used as reconciliation at December 31, 2015 – for the restated
figures refer to Note 17 “Tax receivables”), were for the most part related to national and regional
income taxes in different countries and amounted to euro 45,147 thousand (of which euro 3,374
thousand was for non-current liabilities), compared to euro 41,286 thousand at December 31, 2015 (of
which euro 2,646 thousand was for non-current liabilities).
2016 ANNUAL REPORT
28. Derivative Financial Instruments
The item includes the fair value of derivative instruments and is composed as follows:
(in thousands of euro)
239
Without adoption of hedge accounting
Exchange rate derivatives - trade positions
Exchange rate derivatives - included in net financial position
Hedge accounting adopted
- cash flow hedge:
Exchange rate derivatives - trade transactions
Interest rate derivatives
Other derivatives
12/31/2016
12/31/2015
Current Assets Current Liabilities Current Assets
Current Liabilities
13,403
3,718
1,196
-
5,672
23,989
(16,102)
(35,742)
-
-
(326)
(52,170)
42,327
6,840
-
11,608
530
61,305
(36,825)
(15,149)
-
-
(5)
(51,979)
- Total derivatives included in net financial position
3,718
(35,742)
6,840
(15,149)
Derivative financial instruments not in hedge accounting
The value of exchange rate derivatives corresponds to the fair value evaluation of purchases/sales
using the forward exchange rate in effect at the closing date of the period. These were hedge operations
for the trade and financial transactions of the Group for which hedge accounting option had not been
adopted. The fair value was determined by using the forward exchange rate at the reporting date.
29.
Commitments and Contingencies
COMMITMENTS FOR THE PURCHASE OF PROPERTY, PLANT AND EQUIPMENT
The commitments to purchase property, plant and equipment amounted to euro 232,605 thousand and
refer mainly to companies in Romania, Brazil, Italy and Mexico (euro 131,074 thousand at December
31, 2015).
COMMITMENTS FOR THE PURCHASE OF EQUITY INVESTMENTS/FUND SHARES
These refer to commitments to purchase shares in Equinox Two S.c.a., a private equity company which
specialises in investments in listed and unlisted companies with a high growth potential, for an amount
equal to a maximum of euro 1,849 thousand.
OTHER COMMITMENTS
As a consequence of the merger of Marco Polo Industrial Holding S.p.A. into Pirelli & C. S.p.A. and to
the subsequent operation of refinancing the debt of the Group, which was successfully completed on
July 28, 2016, insurance guarantees were subscribed to for the benefit of the pension funds of Pirelli UK
Limited and Pirelli Tyres Limited - Credit Support Guarantees (“CSG”), thanks to the ability to procure
GBP 300 million from leading companies.
2016 ANNUAL REPORT
The insurance protection agreement covers a time period of approximately 42 months from September
2016 to March 2020, and provides for a counter-guarantee system under which the Group, selected as
indemnitors of the operation, shall jointly indemnify the insurers from any cost (“Indemnified
liabilities”).
240
GUARANTEES ISSUED FOR THE DISPOSAL OF OLIMPIA S.P.A.
During the disposal of the investment in Olimpia S.p.A., the sellers (Pirelli and Sintonia) contractually
retained the burden of tax risks for the taxable period up until the date of disposal.
Litigation, which is still ongoing can be summarised as follows.
At the end of the 2006 financial year, the Italian tax authority (Agenzia delle Entrate) served Olimpia
S.p.A. a notice of assessment for Italian regional income tax (IRAP) for the 2001 financial year.
More precisely, on the basis of an assumption which Pirelli maintains is entirely unfounded both in legal
and financial terms, the tax agency had ascertained an assessment on the non-existent financial income
for the Bell bonds which were repayable in Olivetti shares, resulting in regional income taxes (IRAP)
amounting to euro 26.5 million (the pro-rata share for Pirelli & C. amounted to euro 21.2 million) plus
sanctions for the same amount.
Olimpia S.p.A. appealed against this tax assessment on the basis of the manifestly non-existent taxable
income ascertained by the tax agency. The regional tax commission of the 1st level, (Commissione
Tributaria di 1° grado) upheld the company's appeal by cancelling the assessment.
The tax agency then appealed this decision.
This appeal was also rejected by the regional tax commission.
Despite the twice unexceptionable negative judgements, the tax agency filed an appeal in the Supreme
Court (Corte di Cassazione) which Olimpia S.p.A. has consistently opposed. During the hearing on
December 21, 2016, the Prosecutor General unexpectedly ruled, without any legal or procedural basis,
in favour of accepting the appeal of the tax agency attorneys and referred the claim for reconsideration
to another section of the regional tax commission. At the end of the hearing Pirelli’s legal defence
presented a justified brief opposing the decision. The ruling of the Supreme Court is still pending along
with the handing down of its decision and its reasons.
It is nevertheless reasonable to maintain, by virtue of the strength of our defensive arguments as
confirmed by our legal advisers, which are not in our opinion weakened by the Prosecutor General's
ruling, that the assessment of risk is such as to not require the allocation of any specific provision in the
annual Financial Statements at December 31, 2016.
2016 ANNUAL REPORT
INCOME STATEMENT
It is to be noted that the financial data relative to 2015 has not been included in the tables as it is not
comparable, as has been more fully explained in Note 2 "Basis of presentation".
241
30.
Revenues From Sales And Services
Revenues from sales and services were as follows:
(in thousands of euro)
Revenues from sales of goods
Revenues from services
31. Other Revenues
The item is composed as follows:
(in thousands of euro)
Gains on disposal of property, plant and equipment
Rent income
Insurance indemnities and other refunds
Recoveries and reimbursements
Government grants
Other income
2016
5,910,713 -
147,718
6,058,431
2016
42,454
6,657
10,064
88,141
6,875
86,979
241,170
The item gains on the disposal of property, plant and equipment refers mainly to the sale of R&D
real estate in Milan, Italy for euro 27,199 thousand, and real estate in Basel, Switzerland for euro 12,336
thousand and in San Donato, Italy for euro 2,199 thousand.
The item recoveries and reimbursements includes, in particular:
• refunds of taxes and duties for a total of euro 30,742 thousand, received in Italy for the amount of
euro 13,985 thousand, and in Germany for euro 3,452 thousand as grants for tyre disposals and gas
and energy purchases, and in Brazil for euro 12,147 thousand as refunds for IVA (value added tax)
credits;
• tax refunds totalling euro 15,363 thousand arising from tax incentives obtained in Argentina, Egypt
and in the state of Bahia, Brazil for trade exports;
• proceeds from the sale of tyres and scrap materials obtained from Turkey and the United Kingdom
for a total of euro 6,065 thousand;
• income from the sale of tyres for testing and the recovery of transport expenses realised in Germany
for euro 2,178 thousand;
• rebates from utilities (electricity) of euro 2,092 thousand;
2016 ANNUAL REPORT
The item other includes income from sporting activities of euro 39,753 thousand, from the release of
provisions for liabilities and charges of euro 13,143 thousand, from the release of the provision for bad
debts of euro 1,691 thousand, income from hire equipment of euro 4,961 thousand, and income from
Germany and for the disposal of a retail outlet of euro 1,000 thousand.
242
32.
Personnel Expenses
The item is composed as follows
(in thousands of euro)
Wages and salaries
Social security and welfare contributions
Costs for employee leaving indemnities and similar
Costs for defined contribution pension funds
Costs for defined benefit pension funds
Costs for jubilee awards
Costs for defined contribution healthcare plans
Other costs
33. Depreciation, Amortisation And Impairments
The item is composed as follows
(in thousands of euro)
Amortisation
Depreciation
Impairment of property, plant and equipment
2016
911,901
203,590
29,954
22,632
989
5,214
35,084
8,482
1,217,846
2016
118,554
273,822
-
392,376
2016 ANNUAL REPORT
34.
Other Costs
The item is subdivided as follows:
(in thousands of euro)
Selling costs
Purchases of goods for resale
Fluids and energy
Advertising
Consultants
Maintenance
Warehouse operating costs
Lease, rental and lease installments
Outsourcing
Travel expenses
IT expenses
Key managers compensations
Other provisions
Duty stamps, duties and local taxes
Canteen
Bad debts
Insurance
Cleaning expenses
Waste disposal
Security expenses
Telephone expenses
Other
243
2016
323,789
259,113
191,861
279,431
66,535
68,235
61,704
122,034
39,087
58,593
30,839
7,388
27,832
36,822
21,522
18,173
29,960
17,008
23,033
12,160
11,400
203,057
1,909,576
2016 ANNUAL REPORT
35.
Net income (loss) from Equity Investments
35.1 Share of net income (loss) of Associates and Joint Ventures
244
The share of the net income (loss) from equity investments in associates and joint ventures was
evaluated using the equity method and was negative for euro 1,227 thousand, and refers mainly to
investments in Fenice S.r.l. (negative for euro 29,297 thousand), in Prelios S.p.A. (negative for euro
8,382 thousand), in Focus Investments S.p.A. (negative for euro 1,350 thousand), and in the joint
venture PT Evolution Tyres in Indonesia (negative for euro 8,524 thousand), and was offset by the pro-
rata portion of the results for Eurostazioni S.p.A. which was positive at euro 46,126 thousand. For
further details reference should be made to preceding Note 12 "Investments in associates."
35.2 Gains on Equity Investments
Gains on equity investments amounted to euro 8,297 thousand and refer mainly to the release of
impairments effected in previous financial years on the associate Fenice S.r.l (euro 7,364 thousand). For
further details reference should be made to previous Note 12 "Investments in associates."
35.3 Losses on Equity Investments
This item amounted to euro 33,739 thousand for the 2016 financial year and refers mainly to the
investment in Prelios S.p.A. (euro 20,308 thousand), Pirelli de Venezuela C.A. (euro 8,651 thousand)
and in Alitalia (euro 1,881 thousand) as well as to the withdrawal from the company GWM Renewable
Energy II S.p.A. by Pirelli & C. S.p.A. (euro 1,692 thousand of which euro 1,172 thousand was for the
reversal to the Income Statement of the cash flow hedge reserve), which was exchanged for shares of
the Danish listed company Greentech Energy Systems A/S. For further details reference should be made
to previous Note 12 "Investments in associates."
35.4 Dividends
The item amounted to euro 6,650 thousand and mainly includes didvidends received from Mediobanca
S.p.A. for the amount of euro 4,253 thousand (euro 3,938 thousand for 2015), from Emittenti Titoli
S.p.A. for the amount of euro 1,727 thousand, (euro 202 thousand for 2015) and from Fin. Priv. S.r.l for
the amount of euro 554 thousand (euro 513 thousand for 2015.).
2016 ANNUAL REPORT
36.
Financial Income
The item is composed as follows
(in thousands of euro)
Interest
Other financial income
245
2016
38,786
12,390
51,176
The item interest includes euro 13,420 thousand for interest on fixed income securities, euro 16,115
thousand for interest receivables from financial institutions, euro 4,561 thousand for interest on trade
receivables, and euro 2,228 thousand for interest rate swaps.
The item other financial income mainly includes euro 7,569 thousand for interest matured on tax
credits and on security deposits provided by the Brazilian subsidiaries as a guarantee for legal and tax
disputes.
37.
Financial Expenses
The item is composed as follows
(in thousands of euro)
Interest
Commissions
Other financial expenses
Net losses on exchange rates
Net interest costs on employee benefit obligations
Valuation at fair value of securities held for trading
Valuation at fair value of exchange rate derivatives
Valuation at fair value of other derivatives
2016
337,595
61,389
10,272
7,195
11,004
12
57,944
5,970
491,381
The item interest includes, euro 167,426 thousand deriving from the use of the secured bank facility
(the so called Bidco Facility) closed on July 28, 2016 which had been contracted and subscribed to by
Marco Polo Industrial Holding S.p.A. with a syndicate of banks for financing the acquisition of the
Pirelli Group, euro 85,092 thousand for the new secured Senior Facilities financing granted to Pirelli &
C. S.p.A. and Pirelli International Limited for the nominal amount of euro 5,280,746 thousand, euro
12,292 thousand for the bond placed by Pirelli International Plc on the Eurobond market in November
2014, euro 9,724 thousand for interest accrued on the revolving credit facility granted to Pirelli
International Plc and extinguished on July 28, 2016, euro 4,252 thousand for the private placement
placed by Pirelli International Plc on the US market in late 2012 and reimbursed on April 6, 2016, and
euro 3,818 thousand for the bond issued by Pirelli & C. S.p.A. in 2011 and reimbursed in February
2016.
2016 ANNUAL REPORT
The item commissions includes in particular, fees amounting to euro 24,513 thousand incurred for the
early closing of the private placement placed by Pirelli International Plc on the US market at the end of
2012 with an original maturity of between 5 and 12 years, commitment fees of euro 10,922 thousand
deriving from the use of the secured bank facility (the so called Bidco Facility) contracted by Marco
Polo Industrial Holding S.p.A., euro 6,438 thousands for new loans contracted by Pirelli Neumaticos
S.A.I.C., euro 4,444 thousands for commitment fees incurred by Pirelli International Plc for the
revolving credit facility, and euro 1,613 thousand in fees incurred for the new committed credit facility
granted to Pirelli & C. S.p.A.
246
The item net losses on exchange rates for euro 7,195 thousand (losses equal to euro 3,172,307
thousand and gains equal to euro 3,165,112 thousand) refers to the adjustment at financial year-end to
items expressed in currencies other than the functional currency, still outstanding at the reporting date,
and to the net losses realised on items closed during the financial year.
The item valuation at fair value of exchange rate derivatives refers to the purchase/sale of the
forward exchange rate hedge contracts to cover trade and financial transactions in accordance with the
exchange rate risk management policy of the Group. For transactions still open at the end of the
financial year, the fair value was determined using the forward exchange rate at the reporting date. The
valuation at fair value is composed of two elements: the interest component which is tied to the interest
rate spread between the currencies which are subject to the individual hedges, equal to a net cost of euro
60,489 thousand, and the exchange rate component at a net cost of euro 2,545 thousand.
In comparing the net losses on exchange rates, which totalled euro 7,195 thousand, with the fair value of
the exchange rate component of derivatives for hedging exchange rates, which were negotiated as part
of the Group's exchange rate risk hedging strategy (net gains of euro 2,545 thousand), it can be
concluded that the management of exchange rate risk was essentially quite balanced considering that the
negative imbalance which totalled euro 4,650 thousand was mainly due to the depreciation of the
Egyptian currency (euro 4,475 thousand) which had not been subjected to hedging.
The item fair value valuation of other derivatives mainly includes the effect resulting from the early
termination of four cross currency interest rate swaps negotiated in November 2012 to hedge the
exposure to exchange rate risk, and to limit exposure to interest rate risk associated with the private
placement placed by Pirelli International Plc on the US market for a total nominal amount of USD 150
million, and repaid early on April 6, 2016. For these derivatives cash flow hedging was adopted with
negative euro 5,987 thousand deriving from the reversal to Income Statement of the amount suspended
in equity.
2016 ANNUAL REPORT
38.
Taxes
Taxes were composed as follows:
(in thousands of euro)
Current taxes
Deferred taxes
247
2016
172,287
(55,982)
116,305
The Group’s effective tax burden for 2016 in respect of current taxes was almost wholly attributable to
the taxes expenses of the Consumer and Industrial businesses for the positive taxable income of the
subsidiaries, which was partially compensated by the recognition by Pirelli & C. S.p.A. of the positive
effects deriving from the option of domestic tax consolidation.
The reconciliation between theoretical and effective taxes is as follows:
(in thousands of euro)
Gains / (losses) before taxes
Reversal of share of net income (loss) of associates and joint ventures
A) Total taxable income
B) Estimated taxes
Main causes for changes between estimated and effective taxes:
Income not subject to taxation
Non-deductible costs
Use of tax losses carried forward
Unrecognised deferred tax assets
Taxes not related to income and costs for tax assessment
Other
C) Effective taxes
Theoretical tax rate (B/A)
Effective tax rate (C/A)
2016
263,930
1,227 -
265,157
80,923
-
(122,193)
109,554
(20,885)
39,577
87,272
(57,944)
-
116,305
31%
44%
2016 ANNUAL REPORT
The Group’s theoretical tax burden is calculated by taking into account the nominal tax rates of the
countries where the Group’s principal companies operate, as shown below:
248
Europe
Italy
Germany
Romania
Great Britain
Turkey
Russia
NAFTA
USA
Mexico
Central and South America
Argentina
Brazil
Asia / Pacific
China
Middle East / Africa
Egypt
39.
Dividends Per Share
2016
2015
31.40%
30.00%
16.00%
20.00%
20.00%
20.00%
38.00%
30.00%
35.00%
34.00%
31.40%
29.58%
16.00%
20.00%
20.00%
20.00%
38.00%
30.00%
35.00%
34.00%
25.00%
25.00%
22.50%
22.50%
In 2016, Pirelli & C. S.p.A did not distribute any dividends to its shareholders.
2016 ANNUAL REPORT
40.
Related Party Transactions
249
Related party transactions, including inter-company transactions, are neither unusual nor exceptional,
but are part of the ordinary course of business for Group companies. Such transactions, when not
concluded under standard conditions or dictated by specific regulatory conditions, are in any case
governed by conditions consistent with those of the market and carried out in compliance with the
provisions of the Procedure for Related Party Transactions which the Company has adopted.
The effects of the related party transactions, contained in the Income Statement and the Statement of
Financial Position, on the consolidated data for the Pirelli & C. Group at December 31, 2016 were
composed as follows:
TRANSACTIONS WITH ASSOCIATES AND JOINT VENTURES
(in millions of euro)
Revenues from sales/services and other
income
Other costs
Financial income
Other non-current receivables
Current trade receivables
Other current receivables
Non-current borrowings from banks and
other financial institutions
Current borrowings from banks and other
financial institutions
2.3
29.0
0.2
6.6
2.8
3.2
0.6
0.8
Current trade payables
22.6
The amount refers mainly to rental income and related rental property
management fees received from the Prelios Group (euro 1.9 million), and for
services rendered to PT Evoluzione Tyres (euro 0.3 million).
This item includes costs for energy purchases and equipment hire from
Industriekraftwerk Breuberg GmbH (euro 21.4 million), costs for the purchase of
products from PT Evoluzione Tyres (euro 6.6 million), for services rendered by
the consortium CORIMAV (euro 0.2 million), and a penalty (euro 0.7 million) for
the early termination of the lease with the Prelios Group S.p.A.
The amount refers to interest on the loan granted by Pirelli International Plc to PT
Evoluzione Tyres.
This item refers to the loan granted by Pirelli International Plc to PT Evoluzione
Tyres.
This item includes receivables for services rendered to Prelios S.p.A. group (euro
1.7 million) and PT Evoluzione Tyres (euro 1.0 million).
The amount refers to advances received from PT Evoluzione Tyres (euro 1.4
million), to financial receivables from Phoenix S.r.l. (euro 0.2 million) and from
International Media Holding S.p.A. (euro 1.5 million).
This item refers to the security deposit received from Prelios S.p.A. to guarantee
the lease of the Milan office (long-term).
This item refers to the short term portion of the security deposit received from
Prelios S.p.A. to guarantee of the lease of the Milan office (short-term).
The amount mainly refers to payables for the purchase of energy from
Industriekraftwerk Breuberg GmbH.
TRANSACTIONS WITH OTHER RELATED PARTY
(in milllions of euro)
Revenues from sales and services
Other costs
Other current receivables
3.5
0.7
3.0
This item mainly includes the sale of goods and services rendered by Pirelli
Tyre S.p.A. (euro 2.6 million) and Pirelli Pneus Ltda (euro 0.8 million) to
Pirelli de Venezuela C.A.
This item refers to commissions/fees/charges incurred by Pirelli & C.
S.p.A. for refinancing operations with regards to ChemChina.
This item refers to receivables from Aeolus Tyre Co., Ltd.
Benefits for key managers of the company
As December 31, 2016, the compensation to which key managers with strategic responsibilities were
entitled to amounted to euro 16,342 thousand. The portion relative to employee benefits was recognised
in the Income Statement under “Personnel expenses” for euro 8,954 thousand and under the item “Other
Costs” for euro 7,388 thousand also in the Income Statement. The remuneration also includes euro
1,052 thousand for employee’s leaving indemnities (TFR) and retirement benefits.
2016 ANNUAL REPORT
41.
Significant events subsequent to the end of the year
250
On December 28, 2016 Pirelli reached an agreement for the disposal of 38% of the share capital of
Pirelli Industrial S.r.l. to a vehicle controlled by the Chinese Cinda fund for an amount totalling euro
266 million. The sale of the aforesaid shareholding in Pirelli Industrial S.r.l., which is part of the wider
project of the reorganisation and integration of the Industrial business, was finalised on January 13,
2017.
On February 9, 2017 Pirelli announced price increases in all European and North American markets for
car tyres, light truck tyres, and motorcycle tyres, in all product ranges (summer, all season and winter)
and for all the Group’s brands. The increase, which will take effect from April 1, 2017, will be up to
9%. The increase was due to the costlier prices for the main raw materials, plus a growing investment in
the development of products with a high technological content.
On February 14, 2017 Pirelli celebrated the opening of the new season for Motorsports which sees the
company committed - in addition to the Formula One World Championship - to over 340
championships, including for cars and motorcycles, for a total of 2,200 events spread across all five
continents. The celebration which coincided with the 110 year anniversary in Motorsports for Pirelli
was held at the Turin Automobile Museum.
-
On March 7, 2017 Pirelli presented two new products at the Geneva Motor Show, consistent with its
strategy of focusing on the Premium and Prestige segments and of expanding the range of services for
the consumer:
-
the colored editions of the P Zero and the Winter Sottozero tyres, for which Pirelli engineers
have developed, thanks to Pirelli’s experience with F1, innovative materials and finishes capable
of ensuring bright and long lasting colors;
Pirelli Conneso offers a digital platform which is integrated into the P Zero and Winter
Sottozero tyres, available on the replacement market in black or colored, which thanks to the
sensor fixed to the hollow recess of the tyre (i.e., on the inner wall of the tyre itself) is connected
to an app and is able to communicate with the motorist and provide information on certain basic
parameters concerning the functioning of the rubber, as well as a range of personalised services.
This double innovation, which signals the entrance of Pirelli as a key player into the digital tyre market,
is part of the tailor made strategy for the long P, which aims at manufacturing customised tyres designed
to meet personalised needs, safety and performance requirements, as well as reducing consumption.
2016 ANNUAL REPORT
On March 13, 2017 Pirelli Industrial S.r.l. (indirectly controlled by Pirelli through TP Industrial
Holding) with the aim to ensure full financial autonomy, subscribed a loan of euro 600 million having a
3-year duration (renewable to a maximum of 5 years) with Bank of America Merrill Lynch International
Limited, China Construction Bank (Europe) S.A., HSBC Bank plc. and ING Bank N.V., Milan branch.
251
In March 2017 in order to ensure an autonomous growth path and independent group strategies, the two
areas of activity – Consumer and Industrial – have been separated into two distinct companies
controlled by their common shareholder Marco Polo International Italy following the assignation to the
latter by Pirelli of the shares of TP Industrial Holding, the company into which the industrial assets of
Pirelli were conferred. TP Industrial Holding and Pirelli are thus 100% controlled by Marco Polo
International Italy, the vehicle of the partnership between CNRC (65%), Camfin (22.4%) and Long-
Term investments Luxemburg (12.6%).
Further, with effect from April 1, 2017, as a consequence of the completion of the separation of the
Industrial business from Pirelli’s consumer activities, Pirelli Industrial will change its company name to
“Prometeon Tyre Group S.r.l.” (“PTG”).
2016 ANNUAL REPORT
42. Other Information
RESEARCH AND DEVELOPMENT EXPENSES
Research expenses for the 2016 financial year amounted to euro 228.1 million and represented 3.8% of
sales. These were expensed in the Income Statement as they did not meet the requirements of the IFRS
principles with regards to their capitalisation.
252
COMPENSATION FOR DIRECTORS AND STATUTORY AUDITORS
Compensation paid to the Directors and Statutory Auditors of Pirelli & C. S.p.A. was as follows:
(in thousands of euro)
Directors
Statutory Auditors
2016
6,594
280
6,874
AVERAGE EMPLOYEE HEADCOUNT
The average headcount, subdivided by employment category, for the employees of the companies
included in the scope of consolidation was as follows:
Executives and white collar staff
Blue collar staff
Temporary workers
2016
7,162
26,986
2,255
36,403
COMPENSATION FOR THE AUDITING FIRM
Pursuant to the applicable legislation the following table presents the total remuneration for the 2016
financial year for auditing services and services other than auditing, rendered by the company Ernst &
Young S.p.A. and entities belonging to its network.
2016 ANNUAL REPORT
253
EXCHANGE RATES
The main exchange rates used for consolidation were as follows:
(local currency vs euro)
Period-end exchanges rates Change in
%
Average exchange rates
Change in
%
12/31/2016
12/31/2015
2016
2015
Swedish Krona
Australian Dollar
Canadian Dollar
Singaporean Dollar
U.S. Dollar
Taiwan Dollar
Swiss Franc
Egyptian Pound
Turkish Lira (new)
New Romanian Leu
Argentinian Peso
Mexican Peso
South African Rand
Brazilian Real
Chinese Renminbi
Russian Ruble
British Pound
Japanese Yen
9.5525
1.4596
1.4188
1.5234
1.0541
34.0748
1.0739
20.1624
3.7099
4.5411
16.7497
21.5539
14.4570
3.4042
7.3123
63.8111
9.1895
1.4897
1.5116
1.5417
1.0887
35.7769
1.0835
8.5214
3.1776
4.5245
14.1357
18.9074
16.9530
4.2504
7.0696
79.6972
0.8562
123.4000
0.7340
131.0700
3.95%
(2.02%)
(6.14%)
(1.19%)
(3.18%)
(4.76%)
(0.89%)
136.61%
16.75%
0.37%
18.49%
14.00%
(14.72%)
(19.91%)
3.43%
(19.93%)
16.65%
(5.85%)
9.4694
1.4880
1.4655
1.5275
1.1069
35.7006
1.0902
11.0216
3.3406
4.4898
16.3620
20.6984
16.2618
3.8603
7.3514
74.1209
9.3533
1.4776
1.4186
1.5256
1.1096
35.2600
1.0679
8.5460
3.0153
4.4444
10.2493
17.5516
14.1737
3.6935
6.9103
67.7749
1.24%
0.70%
3.31%
0.12%
(0.24%)
1.25%
2.08%
28.97%
10.79%
1.02%
59.64%
17.93%
14.73%
4.52%
6.38%
9.36%
0.8195
120.1972
0.7259
134.3157
12.90%
(10.51%)
NET FINANCIAL LIQUIDITY/(DEBT) POSITION
(alternative performance indicator not provided for by the accounting standards)
(in thousand of euro)
Current borrowings from banks and other financial institutions
Current derivative financial instruments (liabilities)
Non-current borrowings from banks and other financial institutions
Total gross debt
Cash and cash equivalents
Securities held for trading
Current financial receivables and other assets
Current derivative financial instruments (assets)
Non-current financial receivables and other assets
Note
12/31/2016
12/31/2015
24
28
24
20
19
16
28
16
642,047
35,742
5,945,999
-
6,623,788
(1,532,977)
(48,597)
(29,951)
(3,718)
(95,714)
-
5,297,841
15,149
1,275,688
-
6,588,678
(1,110,024)
(78,167)
(11,888)
(6,840)
(50,738)
-
Total net financial (liquidity)/debt position
4,912,831
5,331,021
2016 ANNUAL REPORT
THE ESSENTIAL DATA OF THE STATUTORY FINANCIAL STATEMENTS AT DECEMBER 31,
2015 OF MARCO POLO INTERNATIONAL ITALY S.P.A., THE COMPANY WHICH EXCERCISES
MANAGEMENT AND COORDINATION, WAS AS FOLLOWS:
254
STATEMENT OF FINANCIAL POSITION
(in thousands of euro)
12/31/2015
Investments in subsidiaries
Other non-current assets
Cash and cash equivalent
Other current receivables
TOTAL ASSETS
Equity
Other current payables
TOTAL LIABILITIES AND EQUITY
INCOME STATEMENT
(in thousands of euro)
Costs for services
Other costs
Financial expenses
NET INCOME (LOSS)
3,273,773
3
8,289
11
3,282,076
2,792,321
489,755
3,282,076
12/31/2015
(63)
(2)
(689)
(754)
2016 ANNUAL REPORT
Scope of Consolidation
255
Companies consolidated line-by-line
Company
Europe
Austria
Pirelli GmbH
Belgium
Business Headquarter
Currency Share Capital % holding
Held by
Tyre
Wien
Euro 726,728
100.00%
Pirelli Tyre (Suisse) SA
Pirelli Tyres Belux S.A.
Tyre
Brussels
Euro 700,000
100.00%
Pirelli Tyre (Suisse) SA
France
Pneus Pirelli S.A.S.
Germany
Deutsche Pirelli Reifen Holding GmbH
Drahtcord Saar Geschaeftsfuehrungs
GmbH I.L (in liquidation)
Drahtcord Saar GmbH & Co. KG I.L.
in liquidation
Driver Handelssysteme GmbH
Pirelli Deutschland GmbH
Pirelli Personal Service GmbH
PK Grundstuecksverwaltungs GmbH
Pneumobil GmbH
TP Industrial Deutschland GmbH
Greece
Elastika Pirelli C.S.A.
Pirelli Hellas S.A. (in liquidation)
The Experts in Wheels - Driver Hellas
C. S.A.
Tyre
Villepinte
Euro 1,515,858
100.00%
Pirelli Tyre S.p.A.
Breuberg /
Odenwald
Euro 7,694,943
100.00%
Pirelli Tyre S.p.A.
Merzig
Euro
60,000
50.00%
Pirelli Deutschland GmbH
Merzig
Breuberg /
Odenwald
Breuberg /
Odenwald
Breuberg /
Odenwald
Hoechst /
Odenwald
Breuberg /
Odenwald
Breuberg /
Odenwald
Elliniko-
Argyroupoli
Athens
Elliniko-
Argyroupoli
Euro
30,000,000
50.00%
Pirelli Deutschland GmbH
Euro 26,000
100.00% Deutsche Pirelli Reifen Holding GmbH
Euro 23,959,100
100.00% Deutsche Pirelli Reifen Holding GmbH
Euro 25,000
100.00% Deutsche Pirelli Reifen Holding GmbH
Euro 26,000
100.00% Deutsche Pirelli Reifen Holding GmbH
Euro 259,225
100.00% Deutsche Pirelli Reifen Holding GmbH
Euro 500,000
100.00%
Pirelli Industrial S.r.l.
Euro 11,630,000
99.90%
Pirelli Tyre S.p.A.
0.10%
Pirelli Tyre (Suisse) SA
US $ 22,050,000
79.86%
Pirelli Tyre S.p.A.
Euro 100,000
72.80%
Elastika Pirelli C.S.A.
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
2016 ANNUAL REPORT
Business Headquarter
Currency Share Capital % holding
Company
Italy
Driver Italia S.p.A.
Driver Servizi Retail S.p.A.
HB Servizi S.r.l.
Maristel S.p.A.
Pirelli & C. Ambiente S.r.l.
Pirelli Industrie Pneumatici S.r.l.
TP Industrial Holding S.p.A. (ex-Pirelli
Labs S.p.A.)
Newco TP S.r.l.
Pirelli Servizi Amministrazione e
Tesoreria S.p.A.
Pirelli Sistemi Informativi S.r.l.
Pirelli Industrial S.r.l. (ex-Pirelli Tyre
Commerciale Italia S.r.l.)
Pirelli Industrial S.r.l.
Pirelli Tyre S.p.A.
Poliambulatorio Bicocca S.r.l.
Servizi Aziendali Pirelli S.C.p.A.
Tyre
Tyre
Services
Milan
Milan
Milan
Services
Sustainable mobility
Tyre
Services
Tyre
Services
Information Systems
Tyre
Tyre
Tyre
Services
Services
Milan
Milan
Settimo
Torinese (To)
Milan
Milan
Milan
Milan
Milan
Milan
Milan
Milan
Milan
256
Held by
Pirelli Tyre S.p.A.
Pirelli Tyre S.p.A.
Pirelli & C. S.p.A.
Pirelli & C. S.p.A.
Pirelli & C. S.p.A.
Euro 350,000
71.48%
Euro 120,000
100.00%
Euro 10,000
100.00%
Euro 1,020,000
Euro 10,000
100.00%
100.00%
Euro
40,000,000
100.00%
Pirelli Tyre S.p.A.
Euro 203,666,000
Euro 10,000
100.00%
100.00%
Euro 2,047,000
100.00%
Euro 1,010,000
100.00%
Euro 10,000
Euro 100,000,000
100.00%
38.00%
52.00%
10.00%
Euro 558,154,000
100.00%
Euro 10,000
100.00%
Euro 104,000
92.25%
2.95%
0.98%
0.98%
0.95%
0.95%
0.95%
Pirelli & C. S.p.A.
Pirelli Industrial S.r.l.
Pirelli & C. S.p.A.
Pirelli & C. S.p.A.
Pirelli Tyre S.p.A.
Pirelli Tyre S.p.A.
TP Industrial Holding S.p.A. (ex-
Pirelli Labs S.p.A.)
Aeolus Tyre Co., Ltd
Pirelli & C. S.p.A.
Pirelli Tyre S.p.A.
Pirelli & C. S.p.A.
Pirelli Tyre S.p.A.
Pirelli Industrial S.r.l.
Pirelli Industrie Pneumatici S.r.l.
Pirelli Servizi Amministrazione e
Tesoreria S.p.A.
TP Industrial Holding S.p.A. (ex-
Pirelli Labs S.p.A.)
Pirelli Sistemi Informativi S.r.l.
The Netherlands
E-VOLUTION Tyre B.V.
Pirelli China Tyre N.V.
Pirelli Tyres Nederland B.V.
Poland
Driver Polska Sp. z o.o.
Pirelli Polska Sp. z o.o.
TP Industrial Polska Sp. z o.o.
Tyre
Tyre
Tyre
Rotterdam
Rotterdam
Rotterdam
Euro 261,700,000
Euro 38,045,000
Euro 18,152
65.00%
100.00%
100.00%
Pirelli Tyre S.p.A.
Pirelli Tyre S.p.A.
Pirelli Tyre (Suisse) SA
Tyre
Tyre
Tyre
Warsaw
Warsaw
Warsaw
Pol. Zloty 100,000
Pol. Zloty 625,771
Pol. Zloty 5,000,000
67.50%
100.00%
100.00%
Pirelli Polska Sp. z o.o.
Pirelli Tyre S.p.A.
Pirelli Industrial S.r.l.
2016 ANNUAL REPORT
Company
Business Headquarter
Currency Share Capital % holding
257
Held by
Pirelli UK Tyres Ltd
Pirelli General Executive Pension
Trustees LTD
Pirelli General & Overseas Pension
Trustees LTD
Pirelli Tyres Executive Pension
Trustees LTD
Tyre
Financial
Burton on
Trent
Burton on
Trent
British Pound 100,000
100.00%
British Pound 4
25.00%
25.00%
25.00%
Financial
Tyre
Financial
Financial
Financial
Tyre
Tyre
Financial
Tyre
Tyre
Burton on
Trent
Burton on
Trent
Burton on
Trent
Burton on
Trent
Burton on
Trent
Burton on
Trent
Burton on
Trent
Burton on
Trent
Burton on
Trent
Burton on
Trent
25.00% Pirelli Tyres Pension Trustees LTD
Euro 250,000,000
100.00%
Pirelli Tyre S.p.A.
British Pound 1
100.00%
Pirelli Tyre S.p.A.
British Pound 1
100.00%
British Pound 1
100.00%
Pirelli UK Ltd
Pirelli UK Ltd
British Pound 1
100.00%
Pirelli Tyres Ltd
British Pound 16,000,000
100.00%
Pirelli UK Tyres Ltd
British Pound 1
100.00%
Pirelli Tyres Ltd
British Pound 163,991,278
100.00%
Pirelli & C. S.p.A.
British Pound 85,000,000
100.00%
Pirelli Tyre S.p.A.
British Pound 1,200,001
100.00%
Pirelli Industrial S.r.l.
United Kingdom
CTC 2008 Ltd
Pirelli Cif Trustees Ltd
Pirelli International plc
Pirelli Motorsport Services Ltd
Pirelli General Executive Pension
Trustees Ltd
Pirelli General & Overseas Pension
Trustees Ltd
Pirelli Tyres Executive Pension Trustees
Ltd
Pirelli Tyres Ltd
Pirelli Tyres Pension Trustees Ltd
Pirelli UK Ltd
Pirelli UK Tyres Ltd
TP Industrial UK Limited
Slovakia
Pirelli Slovakia S.R.O.
Tyre
Bratislava
Euro 6,639
100.00%
Pirelli Tyre S.p.A.
Romania
S.C. Pirelli & C. Eco Technology RO
S.r.l.
Sustainable mobility
Oras
Bumbesti-Jiu
Rom. Leu 40,000,000
100.00%
Pirelli & C. Ambiente S.r.l.
S.C. Pirelli Tyres Romania S.r.l.
Tyre
Slatina
Rom. Leu 853,912,300
100.00%
Pirelli Tyre S.p.A.
Russia
Closed Joint Stock Company "Voronezh
Tyre Plant"
Limited Liability Company Pirelli Tyre
Services
Limited Liability Company "AMTEL-
Russian Tyres"
Limited Liability Company Pirelli Tyre
Russia
Limited Liability Company "Vyatskaya
Shina"
Open Joint Stock Company "Kirov Tyre
Plant"
Tyre
Voronezh Russian Rouble 1,520,000,000
100.00%
Tyre
Moscow Russian Rouble 54,685,259
95.00%
5.00%
Tyre
Moscow Russian Rouble 10,000
100.00%
Tyre
Moscow Russian Rouble 4,000,000
99.91%
0.09%
Tyre
Tyre
Kirov Russian Rouble 4,912,000
100.00%
Kirov Russian Rouble 354,088,639
100.00%
Limited Liability Company Pirelli Tyre
Russia
Pirelli Tyre (Suisse) SA
Pirelli Tyre S.p.A.
Limited Liability Company Pirelli Tyre
Russia
E-VOLUTION Tyre B.V.
OOO Pirelli Tyre Services
Open Joint Stock Company "Kirov
Tyre Plant"
Limited Liability Company Pirelli Tyre
Russia
2016 ANNUAL REPORT
Pirelli Group Reinsurance Company SA
Reinsurance
Company
Spain
Euro Driver Car S.L.
Omnia Motor S.A. - Sociedad
Unipersonal
Pirelli Neumaticos S.A. - Sociedad
Unipersonal
TP Industrial Espana Y Portugal S.L. -
Sociedad Unipersonal
Tyre & Fleet S.L. - Sociedad
Unipersonal
Sweden
Dackia Aktiebolag
Inter Wheel Sweden Aktiebolag
Pirelli Tyre Nordic Aktiebolag
Switzerland
Pirelli Tyre (Suisse) SA
TP Industrial (Suisse) SA
Turkey
TP Endüstriyel ve Ticari Lastikler A.S.
Pirelli Otomobil Lastikleri A.S.
Hungary
Pirelli Hungary Tyre Trading and
Services Ltd
North America
Canada
Pirelli Tire Inc.
U.S.A.
Pirelli North America Inc.
Pirelli Tire LLC
Prestige Stores LLC
TP Commercial Solutions LLC
TP Industrial Tires Inc.
Business Headquarter
Currency Share Capital % holding
L'Hospitalet
Del Llobregat
Tyre
Euro 960,000
58.44%
0.31%
Euro 1,502,530
100.00%
258
Held by
Pirelli Neumaticos S.A. - Sociedad
Unipersonal
Omnia Motor S.A. - Sociedad
Unipersonal
Pirelli Neumaticos S.A. - Sociedad
Unipersonal
Euro 25,075,907
100.00%
Pirelli Tyre S.p.A.
Euro 3,000,000
100.00%
Euro 20,000
100.00%
Pirelli Industrial S.r.l.
Pirelli Neumaticos S.A. - Sociedad
Unipersonal
Taby
Karlstad
Bromma
Swed. Krona 31,000,000
Swed. Krona 1,000,000
Swed. Krona 950,000
100.00%
100.00%
100.00%
Pirelli Tyre S.p.A.
Dackia Aktiebolag
Pirelli Tyre S.p.A.
Basel
Basel
Basel
Swiss Franc 8,000,000
100.00%
Swiss Franc 1,000,000
100.00%
Pirelli & C. S.p.A.
Pirelli Tyre S.p.A.
Swiss Franc 4,000,000
100.00%
Pirelli Industrial S.r.l.
Istanbul
Istanbul
Turkey Lira 204,500,000
100.00%
Turkey Lira 85,000,000
100.00%
Pirelli Industrial S.r.l.
Pirelli Tyre S.p.A.
L'Hospitalet
Del Llobregat
L'Hospitalet
Del Llobregat
L'Hospitalet
Del Llobregat
L'Hospitalet
Del Llobregat
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Budapest
Hun. Forint 3,000,000
100.00%
Pirelli Tyre S.p.A.
St-Laurent
(Quebec)
Tyre
New York
(New York)
Rome
(Georgia)
Tyre
Tyre
Tyre Wilmington
Rome
(Georgia)
Rome
(Georgia)
Tyre
Tyre
Can. $ 6,000,000
100.00%
Pirelli Tyre (Suisse) SA
US $ 10
100.00%
Pirelli Tyre S.p.A.
US $ 1
100.00%
Pirelli North America Inc.
US $ 10
100.00%
Pirelli Tire LLC
US $ 10
100.00%
TP Industrial Tires Inc.
US $ 1
100.00%
Pirelli Industrial S.r.l.
2016 ANNUAL REPORT
Company
Business Headquarter
Currency Share Capital % holding
Central/South America
Argentina
Pirelli Neumaticos S.A.I.C.
Tyre Buenos Aires
Arg. Peso 101,325,176
66.50%
28.50%
5.00%
TP Industrial Tyres S.A.
Tyre Buenos Aires
Arg. Peso 100,000
95.00%
5.00%
Brazil
259
Held by
Pirelli Tyre S.p.A.
Pirelli Industrial S.r.l.
Pirelli Pneus Ltda
Pirelli Tyre S.p.A.
Pirelli Pneus Ltda
Comercial e Importadora de Pneus Ltda
CPA - Comercial e Importadora de
Pneus Ltda
Tyre
Sao Paulo
Bra. Real 101,427,384
Tyre
Barueri
Bra. Real 200,000
64.00% Pirelli Comercial de Pneus Brasil Ltda
Comercial e Importadora de Pneus
Ltda
100.00%
Ecosil - Industria Quimica do Brasil Ltda
Tyre
Meleiro
Bra. Real 9,699,055
97.88%
Pirelli Pneus Ltda
Pirelli Comercial de Pneus Brasil Ltda
Tyre
Sao Paulo
Bra. Real 509,328,303
100.00%
Pirelli Tyre S.p.A.
Pirelli Latam Participaçoes Ltda
Tyre
Sao Paulo
Bra. Real 2,690,670
100.00%
Pirelli Ltda
Pirelli Pneus Ltda
Pirelli Properties Ltda
RF Centro de Testes de Produtos
Automotivos Ltda
TP Industrial de Pneus Brasil Ltda
TLM - Total Logistic Management
Serviços de Logistica Ltda
Chile
Financial
Sao Paulo
Bra. Real 14,000,000
100.00%
Tyre Santo Andrè
Bra. Real 241,698,353
100.00%
Bra. Real 2,000,000
100.00%
Financial Santo Andrè
Elias Fausto
(Sao Paulo)
Tyre
Bra. Real
6,812,000
100.00%
Pirelli Pneus Ltda
Pirelli Tyre S.p.A.
Pirelli & C. S.p.A.
Pirelli Tyre S.p.A.
Pirelli Ltda
Tyre
San Paolo
Bra. Real
90,020,522
100.00%
Pirelli Industrial S.r.l.
Tyre Santo Andrè
Bra. Real 3,074,417
99.98%
0.02%
Pirelli Pneus Ltda
Pirelli Ltda
Pirelli Neumaticos Chile Ltda
Tyre
Santiago Chile Peso/000 1,918,451
84.98% Pirelli Comercial de Pneus Brasil Ltda
15.00%
0.02%
Pirelli Latam Participaçoes Ltda
Pirelli Ltda
Colombia
Pirelli de Colombia SAS
Santa Fe De
Bogota
Tyre
Col. Peso/000 3,315,070
96.12% TP Industrial de Pneus Brasil Ltda
Pirelli Tyre Colombia S.A.S.
Santa Fe De
Bogota
Tyre
Col. Peso/000 222,522
2.28%
1.60%
Pirelli de Venezuela C.A.
TLM - Total Logistic Management
Serviços de Logistica Ltda
85.00% Pirelli Comercial de Pneus Brasil Ltda
Pirelli Latam Participaçoes Ltda
15.00%
2016 ANNUAL REPORT
Company
Mexico
Pirelli Neumaticos de Mexico S.A. de
C.V.
Pirelli Neumaticos S.A. de C.V.
Pirelli Servicios S.A. de C.V.
TP Servicios Industrial Tyre Mexico
S.A. de C.V.
Business Headquarter
Currency Share Capital % holding
260
Held by
Tyre
Tyre
Tyre
Silao
Mex. Peso 35,098,400
Silao
Mex. Peso 3,249,016,500
Silao
Mex. Peso 50,000
99.98%
0.02%
99.40%
0.60%
99.00%
1.00%
Pirelli Tyre S.p.A.
Pirelli Ltda
Pirelli Tyre S.p.A.
Pirelli Latam Participaçoes Ltda
Pirelli Tyre S.p.A.
Pirelli North America Inc.
Tyre Mexico City
Mex. Peso 50,000
Pirelli Industrial S.r.l.
99.00%
1.00% TP Industrial de Pneus Brasil Ltda
TP Tyre Industrial Mexico S.A. de C.V.
Tyre Mexico City
Mex. Peso 175,000,000
99.00%
Pirelli Industrial S.r.l.
1.00% TP Industrial de Pneus Brasil Ltda
Africa
Egypt
Alexandria Tire Company S.A.E.
Tyre
Alexandria
Egy. Pound 393,000,000
89.08%
0.03%
Pirelli Industrial S.r.l.
Pirelli Tyre (Suisse) SA
International Tire Company Ltd
Tyre
Alexandria
Egy. Pound 50,000
99.80%
Alexandria Tire Company S.A.E.
South Africa
Pirelli Tyre (Pty) Ltd
Oceania
Australia
Tyre
Centurion
S.A. Rand 1
100.00%
Pirelli Tyre (Suisse) SA
Pirelli Tyres Australia Pty Ltd
Tyre
Sydney
Aus. $ 150,000
100.00%
Pirelli Tyre (Suisse) SA
New Zealand
Pirelli Tyres (NZ) Ltd
Tyre
Auckland
N.Z. $ 100
100.00%
Pirelli Tyres Australia Pty Ltd
Asia
China
Jiaozuo Aeolus Tyre Co., Ltd
Pirelli Tyre Co., Ltd
Tyre
Tyre
Jiaozuo
Yanzhou
Ch. Renminbi 350,000,000
Ch. Renminbi 1,721,150,000
80.00%
90.00%
Pirelli Tyre S.p.A.
Pirelli China Tyre N.V.
Pirelli Tyre Trading (Shanghai) Co., Ltd
Tyre
Shangai
US $ 700,000
100.00%
Tyre
Beijing
Ch. Renminbi 2,000,000
100.00%
Pirelli China Tyre N.V.
Pirelli Industrial S.r.l. (ex-Pirelli Tyre
Commerciale Italia S.r.l.)
Sustainable mobility
Yanzhou
Ch. Renminbi 130,000,000
100.00%
Pirelli Tyre Co. Ltd
Tyre
Seoul
Korean Won 100,000,000
100.00%
Pirelli Asia Pte Ltd
TP Trading (Beijing) Co., Ltd
Yanzhou HIXIH Ecotech Environment
Co., Ltd
Korea
Pirelli Korea Ltd
Japan
Pirelli Japan Kabushiki Kaisha
Tyre
Tokyo
Jap. Yen 2,200,000,000
100.00%
Pirelli Tyre S.p.A.
Singapore
Pirelli Asia Pte Ltd
Taiwan
Pirelli Taiwan Co. Ltd
Tyre
Singapore
Sing. $ 2
100.00%
Pirelli Tyre (Suisse) SA
New Taipei
City
Tyre
N.T. $ 10,000,000
100.00%
Pirelli Tyre (Suisse) SA
2016 ANNUAL REPORT
Investments accounted for by the equity method
261
Business Headquarter
Currency Share Capital % holding
Held by
Company
Europe
Germany
Industriekraftwerk Breuberg GmbH
Cogeneration
Hoechst /
Odenwald
Euro 1,533,876
26.00%
Pirelli Deutschland GmbH
Greece
Eco Elastika S.A.
Italy
Consorzio per la Ricerca di Materiali
Avanzati (CORIMAV)
Tyre
Athens
Euro 60,000
20.00%
Elastika Pirelli C.S.A.
Financial
Milan
Euro
103,500
100.00%
Pirelli & C. S.p.A.
Eurostazioni S.p.A.
Financial
Rome
Euro
160,000,000
32.71%
Pirelli & C. S.p.A.
Fenice S.r.l.
Focus Investments S.p.A.
International Media Holding S.p.A.
Prelios S.p.A.
Financial
Financial
Financial
Financial
Milan
Milan
Milan
Milan
Euro
41,885,034
69.88%
Pirelli & C. S.p.A.
Euro
Euro
Euro
183,333
25.00%
Pirelli & C. S.p.A.
50,000
25.00%
426,441,257
12.85%
Pirelli & C. S.p.A.
of the voting shares
Slovakia
ELT Management Company Slovakia
S.R.O.
Romania
Tyre
Bratislava
Euro 132,000.00
20.00%
Pirelli Slovakia S.R.O.
S.C. Eco Anvelope S.A.
Tyre
Bucarest
Rom. Leu
160,000
20.00%
S.C. Pirelli Tyres Romania S.r.l.
Spain
Signus Ecovalor S.L.
Tyre
Madrid
Euro
200,000
20.00%
Pirelli Neumaticos S.A. - Sociedad
Unipersonal
Asia
Indonesia
PT Evoluzione Tyres
Tyre
Subang
$ USA
68,000,000
60.00%
Pirelli Tyre S.p.A.
2016 ANNUAL REPORT
Business
Headquarter
Currency Share Capital % holding
Held by
262
Other investments considered
Company
Belgium
Euroqube S.A. (in liquidation)
Services
Brussels
Euro
84,861,116
17.79%
Pirelli & C. S.p.A.
France
Aliapur S.A.
Italy
Fin. Priv. S.r.l.
Poland
Centrum Utylizacji Opon Organizacja
Odzysku S.A.
United Kingdom
Tyre
Lion
Euro
262,500
14.29%
Pneus Pirelli S.A.S.
Financial
Milan
Euro
20,000
14.29%
Pirelli & C. S.p.A.
Tyre
Warsaw
Pol. Zloty
1,008,000
14.29%
Pirelli Polska Sp. ZO.O.
Tlcom I Ltd Partnership
Financial
London
Euro
1,154
10.83%
Pirelli UK Ltd
Czech Republic
ELT Management Company Czech
Republic S.R.O.
Venezuela
Tyre
Kasirova
Czech crown 5,940,000.00
16.67%
Pirelli Tyre (Suisse) SA
Pirelli de Venezuela C.A.
Tyre
Valencia Ven. Bolivar/000 20,062,679
96.22%
Pirelli Tyre S.p.A.
(*) Subsidiary deconsolidated at 31.12.2015 with 96.22% of share capital in possession
2016 ANNUAL REPORT
263
06. Parent Financial
Statements
at December 31, 2016
2016 ANNUAL REPORT
Financial Statements Format
STATEMENT OF FINANCIAL POSITION (in euro)
12/31/2016
12/31/2015
264
7 Property, plant and equipment
8 Intangible assets
9 Investments in subsidiaries
10 Investments in associates
11 Other financial assets
12 Other receivables
Non-current assets
13 Trade receivables
12 Other receivables
14 Cash and cash equivalents
15 Tax receivables
16 Derivative financial instruments
Current assets
Total assets
Equity:
- Share capital
- Other reserves
- Retained earnings reserve
- Net income (loss) for the period
43,420,596
2,275,835,098
95,168,661
6,595,475
4,930,701,308
1,141,926,126
33,077,976
182,561,819
14,829,806
134,332,227
199,062,058
15,499,628
7,480,426,603
1,592,584,175
61,691,992
651,850,183
1,805,342
84,621,445
515,329
41,687,151
984,868,245
146,152
38,300,317
339,959
800,484,291
1,065,341,824
8,280,910,894
2,657,925,999
1,342,280,641
1,490,073,812
305,401,651
68,477,271
1,343,285,421
261,111,674
311,232,731
(1,701,751)
17 Total Equity
3,206,233,375
1,913,928,075
18
Borrowings from banks and other financial
institutions
22 Other payables
19 Provisions for liabilities and charges
20 Employee benefit obligations
23 Provision for deferred tax liabilities
4,103,995,774
101,332,467
310,771
45,950,392
3,964,639
633,330,000
6,562,751
14,346,127
2,103,617
-
Non-current liabilities
Borrowings from banks and other financial
institutions
18
4,787,551,576
124,344,962
192,055,076
523,734,313
21 Trade payables
22 Other payables
19 Provisions for liabilities and charges
24 Tax payables
Current liabilities
32,425,237
37,125,846
5,476,807
20,042,977
40,932,464
34,374,696
400,001
20,211,488
287,125,943
619,652,962
Total Liabilities and Equity
8,280,910,894
2,657,925,999
2016 ANNUAL REPORT
INCOME STATEMENT (in euro)
25 Revenues from sales and services
26 Other income
27 Raw materials and consumables
28 Personnel expenses
29 Amortisation, depreciation and impairment
30 Other costs
Operating income (loss)
31 Net income (loss) from equity investments
- gains on equity investments
- losses on equity investments
- dividends
32 Financial income
33 Financial expenses
Net income (loss) before taxes
34 Taxes
Total net income (loss) for the period
265
2016
2015
55,991,047
149,849,089
(209,409)
(26,826,868)
(9,241,257)
(106,343,413)
63,219,189
172,447,821
-
(107,159,101)
279,606,922
90,379,850
(327,310,763)
(1,263,903)
69,741,174
68,477,271
22,793,825
121,961,642
(303,230)
(33,122,362)
(6,987,974)
(106,701,393)
(2,359,492)
122,321,771
-
(52,340,619)
174,662,390
17,078,556
(30,997,521)
106,043,314
(107,745,065)
(1,701,751)
STATEMENT OF OTHER COMPREHENSIVE INCOME (in thousands of euro)
2016
2015
A Net income (loss)
68,477 (1,702)
Other components of comprehensive income:
B - Items that will not be reclassified to income statement:
- Net actuarial gains (losses) on employee benefits
Total B
(56)
(56)
69
69
C - Items reclassified / that may be reclassified to income statement:
Fair value adjustment of other financial assets:
- Gains / (losses) for the period
- (Gains) / losses reclassified to income statement
Total C
B+C Total other components of comprehensive income
(16,510)
(3)
(16,513)
-
(16,569)
38,854
100
38,954
-
39,023
A+B+C Total comprehensive income (loss) for the period
51,908
37,321
2016 ANNUAL REPORT
STATEMENT OF CHANGES IN EQUITY (in thousands of euro)
Share
Capital
Legal
Reserve
Merger
Reserve
(Pirelli & C.)
Other
reserves
IAS
Reserve
Merger
Reserve
(BidCo
acquisition)
Cash Flow
Hedge
Reserve
Retained
earnings
Reserve
Net
Income
(loss) for
the period
266
Total
Total at 12/31/2014
1,343,285
139,215
12,467
Profit Allocation as per resolution of May 14, 2015:
- Dividends
- Legal Reserve
- Reatined Earnings
Other components of comprehensive income
Net income (loss) for the period
Total at 12/31/2015
Profit Allocation as per resolution of April 27, 2016
- Dividends
- Legal Reserve
- Retained Earnings
Other components of comprehensive income
Other changes
Purchase of special shares
-
-
-
-
-
1,343,285
-
12,898
-
-
-
152,113
-
-
-
-
-
(1,004)
-
-
-
-
-
-
-
-
-
-
-
12,467
-
-
-
-
-
-
Merger with Marco Polo Industrial Holding S.p.A.
Net income (loss) for the period
Total at 12/31/2016
-
-
1,342,281
-
-
152,113
-
-
12,467
-
-
-
-
-
-
-
-
-
-
-
-
-
92,535
-
-
-
92,535
57,510
-
-
-
39,021
-
96,531
-
-
-
(16,569)
(92,535)
-
-
-
(12,573)
-
-
-
-
-
-
-
-
-
-
-
-
-
1,245,261
-
1,245,261
-
-
-
-
-
-
-
-
-
-
-
270
-
-
-
270
245,739
257,964
2,056,180
-
-
(179,572)
(12,898)
65,494
-
-
311,233
-
-
(1,702)
-
315
(4,444)
-
-
305,402
(65,494)
-
(1,702)
(1,702)
-
-
1,702
-
-
-
-
68,477
68,477
(179,572)
-
-
39,021
(1,702)
1,913,928
-
-
-
(16,569)
585
(5,448)
1,245,261
68,477
3,206,233
(in thousands of euro)
Balance at 12/31/2014
Other components of comprehensive income
Balance at 12/31/2015
Other components of comprehensive income
Other
Balance at 12/31/2016
IAS Reserve
Reserve for Fair
Value adjustment of
financial assets
available-for-sale
Reserve for
actuarial
gains/losses
Total
55,512
38,952
94,464
(16,513)
(92,535)
(14,584)
1,998
69
2,067
(56)
-
2,011
57,510
39,021
96,531
(16,569)
(92,535)
(12,573)
2016 ANNUAL REPORT
STATEMENT OF CASH FLOWS
(in thousands of euro)
Net income (loss) before taxes
Amortisation, depreciation, impairment losses and reversals of impaired property,
plant and equipment and intangible assets
Net income (loss) from equity investments
Reversal of financial income
Reversal of financial expenses
Taxes
Change in trade receivables/payables
Change in other receivables/payables and other provisions
Change in employee benefit obligations
(Gains)/losses on sales of plant, property and equipment and intangible assets
A Net cash flows provided by / (used in) operating activities
Investments in property, plant and equipment
Disposal of property, plant and equipment
Investments in intangible assets
Investments in subsidiaries
Investments in associates
Investments in other financial assets
Disposal of investments in subsidiaries
Dividends received
B Net cash flow provided by (used in) investing activities
Redemption special shares
Dividends paid
Change in financial receivables
Interests receivable and other financial income
Change in financial payables - Refinancing
Change in financial payables - closure of Bidco credit facility
Interests payable and other financial expenses
C Net cash flow provided by / (used in) financing activities
267
2016
2015
(1,264)
106,043
9,241
(172,448)
(90,380)
327,311
69,741
(28,512)
(75,533)
1,861
(29,398)
10,619
(539)
75,180
(2,073)
(1,600)
(4,692)
(2,394)
15
279,143
354,262
(1,240)
-
335,916
90,380
3,670,984
(4,159,248)
(327,311)
(390,519)
6,988
(122,322)
(17,079)
30,998
(107,745)
4,688
132,427
(2,023)
-
31,975
(1,455)
-
(2,818)
(22,663)
(23,337)
(1,766)
20
174,662
122,643
(179,572)
(60,243)
13,853
102,479
-
(30,998)
(154,480)
D
Total cash flow provided by / (used in) continuing operations for the period
(A+B+C)
(25,638)
138
E Net cash and cash equivalents at the beginning of the year
146
8
F Cash and cash equivalents of Marco Polo Industrial Holding S.p.A.
27,297
G Net cash and cash equivalents at the end of the period (D+E+F)
1,805
146
2016 ANNUAL REPORT
268
Explanatory Notes
1. General Information
Pirelli & C. S.p.A. (hereinafter also the “Company” or “Parent Company”) is a company with legal
status organised pursuant to the laws of the Italian Republic.
Founded in 1872 it is a Parent Company that manages, coordinates and finances the operations of its
subsidiaries (hereinafter the Pirelli Group).
As of the date of these separate Financial Statements ("separate Financial Statements") the Company's
main investments are its shareholding in Pirelli Tyre S.p.A. - a company active in the tyre sector - of
which it owns 100% of the share capital, and 100% of TP Industrial Holding S.p.A., a holding company
which indirectly controls, as of December 31, 2016, 52% of the Pirelli Industrial sector.
On December 31, 2016 the demerger between Pirelli Tyre S.p.A., the demerged company, and TP
Industrial Holding S.p.A. (formerly Pirelli Labs S.p.A.) the beneficiary company, came into effect.
As a result of this demerger the company receiving the majority shareholding of 52%, was assigned the
share capital of Pirelli Industrial S.r.l. for a net carrying amount of euro 198,666 thousand.
The registered Head Office of the Company is located in Milan, Italy.
As a result of the Public Offer launched during 2015 by Marco Polo Industrial Holding S.p.A., ("Marco
Polo") and the subsequent acquisition of the ordinary shares of Pirelli & C. S.p.A. which led to Marco
Polo owning 100% of the shares of that category, the ordinary shares acquired on October 6, 2015 have
been delisted. Furthermore, the Extraordinary Shareholders’ Meeting of Pirelli & C. S.p.A. on February
15, 2016, approved the proposal for the mandatory conversion of the savings shares into newly issued
special category unlisted shares without voting rights. It was also as a result of this resolution that the
savings shares were delisted, as of February 26, 2016.
Subsequently the Company took advantage of the option of redemption provided for by the Articles of
Association and acquired the special category shares held by minority shareholders.
The merger for the incorporation of Marco Polo Industrial Holding S.p.A. into Pirelli & C. S.p.A., (the
so-called inverse merger), became effective as of June 1, 2016.
As of the aforesaid date, the Company is subject to the management and coordination of Marco Polo
International Italy S.p.A., which fully controls the share capital of Marco Polo International Holding
Italy S.p.A., the current sole shareholder of Pirelli & C. S.p.A..
2016 ANNUAL REPORT
The essential data of the statutory Financial Statements at December 31, 2015 of Marco Polo
International Italy S.p.A., the company which excercises management and coordination, was as follows:
269
STATEMENT OF FINANCIAL POSITION
(in thousands of euro)
12/31/2015
Investments in subsidiaries
Other non-current assets
Cash and cash equivalent
Other current receivables
TOTAL ASSETS
Equity
Other current payables
TOTAL LIABILITIES AND EQUITY
INCOME STATEMENT
(in thousands of euro)
Costs for services
Other costs
Financial expenses
NET INCOME (LOSS)
3,273,773
3
8,289
11
3,282,076
2,792,321
489,755
3,282,076
12/31/2015
(63)
(2)
(689)
(754)
The merger generated in the incorporating company Pirelli & C. S.p.A. a merger deficit of euro 5,394
million and a merger reserve of euro 1,245 million.
In applying the provisions of the document, the Assirevi Preliminary Guidelines for the IFRS OPI No. 2
(Revised), issued by Assirevi, the Italian Association of Auditors, the Company has allocated the
merger deficit in accordance with that recorded in the consolidated Financial Statements due to the
effects of the completion of the Purchase Price Allocation. The adjustments to the fair value of the
assets and liabilities were as follows:
- detection under intangible assets of the value of the Pirelli Brand at euro 2,270 million (euro
1,637 million net of tax effects) for which it was maintained that the requirements for it to be
classified as an intangible fixed asset with an indefinite useful life had been met;
allocation to the investments in Pirelli Tyre S.p.A. (the amount of euro 3,630 million) and in TP
Industrial Holding S.p.A. (the amount of euro 162 million).
detection of a provision for contingent liabilities identified during the Purchase Price Allocation
(for the amount of euro 34 million).
-
-
2016 ANNUAL REPORT
270
2. Basis of Presentation
FINANCIAL STATEMENTS
The separate Financial Statements at December 31, 2016 consist of the Statement of Financial Position,
the Income Statement, the Statement of Comprehensive Income, the Statement of Changes in Equity,
the Statement of Cash Flows and the Explanatory Notes, and are accompanied by the Directors’ Report
on Operations.
The format adopted for the Statement of Financial Position classifies assets and liabilities as current and
non-current.
The components of gains/losses for the financial year have been presented in a separate Income
Statement, rather than include these components directly in the Statement of Comprehensive Income.
The format adopted for the Income Statement provides for the classification of costs by nature.
The Statement of Other Comprehensive Income includes the results for the financial year and, for the
homogeneous categories, the revenues and expenses are recognised directly in equity in accordance with
the IFRS. The Company has opted to present both the tax effects and reclassifications in the Income
Statement. These were recognised directly in the Statement of Comprehensive Income under Equity in
previous financial years, and not in the Explanatory Notes.
The Statement of Changes in Equity includes the amounts from operations with equity holders and the
changes in retained earnings which occurred during the financial year.
In the Statement of Cash Flows, the cash flows deriving from operating activities have been presented
using the indirect method and according to which profit or loss for the period was subject to adjustment
by the effects of non-monetary items or by any deferment or accrual of the past or future collection or
operating payments, and by any revenue or cost items connected with any cash flows arising from
investment or financial activities.
The Statement of Financial Position and Income Statement are presented in euro, while the Statement of
Comprehensive Income, the Statement of Cash Flows, the Statement of Changes in Equity and the
values stated in the Explanatory Notes, are presented in thousands of euro unless otherwise specified.
3. Accounting Standards
As a result of the approval by the Shareholders of the mandatory conversion of the savings shares into
newly issued unlisted special category shares without voting rights, as of February 26, 2016, the
Company no longer had any shares listed on the Milan Stock Exchange. The company shall continue to
prepare the consolidated Financial Statements in accordance with the IFRS, availing itself of the option
granted by Art. 3 of Legislative Decree No. 38/2005. IFRS include the IFRS international accounting
standards in force, issued by the International Accounting Standards Board (IASB) and approved by the
European Union at December 31, 2016 as well as all the revised accounting standards (IAS) and all the
interpretations of the International Financial Reporting Interpretations Committee (IFRIC), formerly the
Standing Interpretations Committee (SIC).
The separate Financial Statements have been prepared using the historical costs basis except for
derivative financial instruments and financial assets available for sale, which have been reported at their
fair value.
The separate Financial Statements have been prepared on a going concern basis.
Information concerning the principal risks and uncertainties has been summarised in the Directors’
Report on Operations.
2016 ANNUAL REPORT
271
The accounting standards used to prepare the separate Financial Statements are the same as those used
for the preparation of the consolidated Financial Statements where applicable, except for the evaluation
of the investments in subsidiaries and associates, and dividends, as described below.
With regard to the international accounting standards and/or interpretations which have been issued but
have not yet entered into force and/or have not yet been approved, the findings regarding IFRS 9 -
Financial Instruments, IFRS 15 - Revenue from Contracts with Customers and IFRS 16 – Leases, were
as follows:
• as regards the new IFRS 9, the Company is evaluating the early adoption on January 1, 2017.
Based on a preliminary analysis, the company expects that the main impacts could derive from
the application of the new impairment rules for financial assets;
• as regards the new IFRS 15, the Company expects to apply the new standard as of the date of its
entry into force. Based on a preliminary analysis the Group does not envisage significant
impacts from the future application of the standard. In any case, an analysis is currently
underway of the royalties contracts, for which the moment as to when revenue is recognised
could be different from the current standard;
• as regards the new IFRS 16, the Group expects to apply the new standard as of the date of its
entry into force. During the course of 2017, the Group will conduct a preliminary analysis in
order to quantify the potential effects of the new standard on the Financial Statements, both in
terms of the Statement of Financial Position and the Income Statement.
INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES
Investments in subsidiaries and associates have been recognised at cost and adjusted for any impairment
in accordance the provisions of IAS 27.
In the event that any loss attributable to the Company exceeds the carrying amount for the investment
and whereby the investing Company is obliged to fulfill the legal or implicit obligations of the
subsidiary or associate, or in any case to cover its losses, any excess in the carrying amount is
recognised in a specific reserve for liabilities under Provisions for Liabilities and Charges.
In the presence of specific impairment indicators, the value of investments is subjected to impairment
tests. For the purposes of the impairment test, the carrying value of the investment is compared with the
recoverable value, defined as the higher amount between the fair value less costs to sell, and the value
in use.
If the recoverable amount of an investment is lower than the carrying amount, the latter is reduced to the
recoverable amount. This reduction constitutes an impairment, which is recognised in the Income
Statement.
For the purposes of impairment testing, in the case of investments in listed companies, the fair value is
determined by referring to the market value of the investment regardless of the percentage of ownership.
In the case of investments in unlisted companies, the fair value is determined using estimates based on
the best available information.
The use value is determined by applying the Discounted Cash Flow – asset side criterion, which is
acceptable under the relevant accounting standards, and which consists of calculating the present value
of the future cash flows estimated to be generated by the subsidiary or associate, including cash flows
arising from operating activities and the final payment deriving from the disposal of the investment.
If the reason for any previous impairment ceases to exist, the carrying amount for the investment is
restored and allocated to the Income Statement, but not exceeding the original cost.
2016 ANNUAL REPORT
DIVIDENDS
Dividends are recognised in the Income Statement when the right to collect is established, which
normally corresponds to a resolution approved by the Shareholders’ Meeting for the distribution of
dividends.
272
4. Financial Risk Management Policy
The Pirelli Group is exposed to financial risks which are principally associated with exchange rates,
fluctuations in interest rates, the price of financial assets held as investments, the ability of customers to
meet their obligations to the Group (credit risk), and raising funds on the market (liquidity risk).
Financial risk management is an integral part of the Group's business management and is performed
centrally in accordance with the guidelines issued by the Finance Department as part of the risk
management strategies more generally defined by the Managerial Risk Committee.
4.1 Types of Financial Risks
EXCHANGE RATE RISK
This risk is generated by commercial and financial transactions executed in currencies other than the
Euro. Exchange rate fluctuations between the time when the commercial or financial relationship is
established and the time when the transaction is completed (collection or payment) may generate
exchange rate gains or losses.
The Group's policy is to minimise the impact on the Income Statement of transaction risk linked to
volatility. In order to achieve this objective, the Group's procedures provide that the Operating Units are
responsible for the collection of all information inherent to positions subject to transaction risk.
Coverage is then provided in the form of forward contracts which are entered into with the Group
Treasury.
The items subject to exchange rate risk are mainly represented by receivables and payables denominated
in foreign currency.
The Group Treasury is responsible for hedging the net position for each currency and, in accordance
with the established guidelines and restrictions, it closes all risk positions by trading derivative hedging
contracts on the market, which typically take the form of forward contracts.
The Group does not consider it necessary to avail itself of the option for hedge accounting as provided
for by IAS 39, in that the representation of the impacts on the Income Statement and the Statement of
Financial Position of a hedging strategy for transaction risk is nevertheless substantially guaranteed
even without the aforementioned option.
Also to be noted is that as part of the one year and three year planning process, exchange rate forecasts
are formulated for these time horizons, using the best information available on the market. The
fluctuation in exchange rates between the time when the forecast is made and the time when the
commercial or financial transaction occurs represents the transaction risk on future transactions.
The opportunity to carry out hedging operations for future transactions are authorised on a case by case
basis by the Finance Department and is subjected to continuous monitoring. Hedge accounting is used
whenever the requisite conditions as provided for by IAS 39 are met.
2016 ANNUAL REPORT
273
INTEREST RATE RISK
Interest rate risk is represented by the exposure to any change in the fair value or the future cash flows
of a financial asset or liability due to fluctuations in the market interest rates.
The Group's policy tends to maintain the following ratio between fixed rate and variable rate exposures,
in the order of 70% fixed and 30% variable.
In order to maintain this trend ratio, the Group sets up derivative contracts, typically interest rate swaps,
for hedging purposes. For such derivatives, hedge accounting is used when the requisite conditions as
provided for by IAS 39 are met.
As part of this policy the individual Group companies may present situations of greater or lesser
exposure to changes in interest rates. The details at December 31, 2016, show that the Company
reported a negative net financial (liquidity)/debt position with all its financial payables at variable rates,
and with its financial receivables predominantly at variable rates.
At December 31, 2015, the Company recorded a net financial (liquidity)/debt position where financial
payables showed an allocation of 80% fixed rate and 20% variable rate, and financial receivables
showed an allocation of 52% fixed rate and 48% variable rate.
All other conditions being equal, a hypothetical increase or decrease of 0.50% in the level of interest
rates - in the arc of a financial year - would result in a positive net impact on the Income Statement to
the amount of euro 12,222 thousand in the event of an increase, and a negative net impact of euro
12,222 thousand in the event of a decrease.
PRICE RISK ASSOCIATED WITH FINANCIAL ASSETS
The Group's exposure to price risk is limited to the volatility of financial assets, such as listed and
unlisted stocks and bonds. These assets are classified as financial assets available for sale.
Derivatives hedges are not normally set up to limit the volatility of these assets.
A positive change of +5% in the share price, all other conditions being equal, would result in a positive
change to equity of euro 7,993 thousand (euro 8,860 thousand at December 31, 2015). A negative
change of -5% in the share price, all other conditions being equal, would result in a negative change to
equity of euro 7,993 thousand (euro 8,142 thousand at December 31, 2015).
CREDIT RISK
Credit risk represents the Group's exposure to potential losses resulting from the non-fulfilment of the
commercial or financial obligations undertaken by counterparties. The Company's exposure to the
commercial obligations is mainly in the form of receivables due from companies of the Group for
financial obligations which are fully due from the companies of the Group.
In order to limit the risk from commercial obligations towards third parties, Pirelli has implemented
procedures to evaluate its customers’ potential and financial creditworthiness, to monitor expected
incoming collection and payment outflows, and to take credit recovery action if and when necessary.
The Company operates only with highly rated financial counterparties for the management of its
temporary cash surpluses and constantly monitors its exposure to individual counterparties.
The Company does not hold public debt instruments from any European country, and constantly
monitors its net credit exposure to the banking system.
2016 ANNUAL REPORT
274
LIQUIDITY RISK
Liquidity risk represents the risk where the available financial resources might be insufficient to meet its
financial and commercial obligations pursuant to the contractual terms and conditions.
The main instruments used by the Group for the management of liquidity risk are its one year and three
year financial and cash pooling plans. These allow for the complete, correct detection and measurement
of incoming and outgoing cash flows. The differences between the plans and actual data are constantly
analysed.
Prudent management of the aforementioned risk requires the maintenance of an adequate level of cash
or cash equivalents and/or highly liquid short term financial instruments, as well as the availability of
funds through an adequate amount of committed credit facilities and/or through recourse to the capital
market.
The Parent Company has implemented a centralised system for the management of cash inflows and
outflows in compliance with various local currency and tax regulations. The negotiation and
management of bank credit facilities in the short and long term takes place centrally, partly in order to
maximise the financial benefits.
At December 31, 2016 Pirelli & C. S.p.A. had together with Pirelli International Plc the syndicated bank
credit facility, the so called Senior Facilities Agreement, with syndicate leader the JP Morgan Europe
Ltd bank for a total of euro 6,290 million.
The credit facility is subdivided into several tranches, which Pirelli & C. S.p.A. at December 31, 2016,
had used in the following order:
- Term Facility "1" for euro 1,490 million maturing in January 2018 (fully drawn in Euro and originally
granted for euro 1,600 million);
- Term Facility "2A" for euro 200 million maturing in July 2019 (fully drawn in US Dollars);
- Term Facility "3A and 3B" for euro 2,600 million maturing in July 2021 (fully drawn in Euro and US
Dollars);
- Revolving Credit Facility for euro 200 million maturing in July 2021 which had not been used.
Maturities for financial liabilities at December 31, 2016 were composed as follows:
(in thousands of euro)
Borrowings from banks and other financial institutions
Trade payables
Other payables
up to 1 year
from 1 to 3
years
over 3 years
Total
12/31/2016
192,055
32,425
37,126
261,606
-
-
311
311
4,103,996
4,296,051
-
-
4,103,996
32,425
37,437
4,365,913
The maturities of financial liabilities at December 31, 2015 were summarised as follows:
(in thousands of euro)
Borrowings from banks and other financial institutions
Trade payables
Other payables
up to 1 year
from 1 to 3
years
over 3 years
Total
12/31/2015
523,734
40,932
34,375
599,041
-
-
6,563
6,563
101,332
-
-
101,332
625,066
40,932
40,938
706,936
2016 ANNUAL REPORT
275
5. Information Regarding Fair Value
5.1 Fair Value Measurement
In relation to financial instruments measured at fair value, the following table shows the classification of
these instruments on the basis of the hierarchy of levels pursuant to IFRS 13, which reflects the
significance of the inputs used in determining the fair value. The following levels are defined as
follows:
− level 1 – unadjusted quotations recorded on an active market for assets or liabilities subject to
valuation;
− level 2 – inputs different from the aforesaid prices quoted at the preceding level, which are
observable on the market either directly (as in the case of prices) or indirectly (because they are
derived from prices);
− level 3 – inputs that are not based on observable market data.
The following table shows assets valuated at fair value as at December 31, 2016, subdivided into the
three levels defined above:
(in thousands of euro)
Note Carrying amount at
12/31/2016
Level 1
Level 2
Level 3
Available-for-sale financial assets:
Other financial assets
-equities and shares
-investment funds
Derivative hedging instruments
Current derivative financial instruments
Total
11
11
16
167,925
14,636
515
183,076
141,476
-
-
141,476
19,201
14,636
515
34,352
7,248
-
-
7,248
The repartitions at December 31, 2015 were as follows
(in thousands of euro)
Available-for-sale financial assets:
Other financial assets
-equities and shares
-investment funds
Derivative hedging instruments
Current derivative financial instruments
Total
Note Carrying amount at
12/31/2015
Level 1
Level 2
Level 3
11
11
16
184,584
14,478
340
199,402
154,324
-
-
154,324
23,576
14,478
340
38,394
6,684
-
-
6,684
During 2016, there were no transfers from level 1 to level 2 or vice versa.
The following table shows the changes for financial assets which occurred in level 3:
(in thousands of euro)
Opening balance
Increases
Decreases
Reclassification
Valuation adjustment
Fair value adjustments recognized in Equity
Closing balance
12/31/2016
6,684
2,395
(94)
(3)
(2,290)
556
7,248
12/31/2015
12,295
1,767
-
100
(7,852)
374
6,684
During the course of the financial year, there were no transfers from level 3 to other levels or vice versa
(refer to Note 11).
2016 ANNUAL REPORT
276
The fair value of financial instruments traded on active markets is based on the price quotations
published at the reporting date. These instruments, included in level 1, primarily comprise equity
investments classified as financial assets available for sale.
The fair value of financial instruments not traded on active markets (e.g. derivatives) is measured by
means of assessment techniques that maximise the use of observable and available market data, using
widely accepted financial industry techniques:
− market prices for similar instruments;
− the fair value of interest rate swaps is calculated by discounting estimated future cash flows based on
observable yield curves;
− the fair value of foreign exchange derivatives (forward contracts) is determined by using the forward
exchange rate at the reporting date.
5.2 Categories of Financial Assets and Liabilities
The table below shows the carrying amounts for each class of financial assets and liabilities as identified
by IAS 39:
(in thousands of euro)
Note Carrying amount
at 12/31/2016
Carrying amount
at 12/31/2015
FINANCIAL ASSETS
Loans and re ce ivable s
Other non-current receivables
Current trade receivabels
Other current receivables
Cash
Available -for-sale financial asse ts
Other financial assets
De rivative he dging instrume nts
Derivative financial instruments
Total financial asse ts
FINANCIAL LIABILITIES
Financial liabilitie s at amortize d cost
Non-current borrowings from banks and other financial institutions
Current borrowings from banks and other financial institutions
Current trade payables
Other non-current payables
Other current payables
Total financial liabilitie s
12
13
12
14
11
16
18
18
21
22
22
14,830
61,692
651,850
1,805
15,500
41,687
984,868
146
182,562
199,062
515
340
913,254
1,241,603
4,103,996
192,055
32,425
311
37,126
101,332
523,734
40,932
6,563
34,375
4,365,913
706,936
2016 ANNUAL REPORT
6. Capital Management Policy
The Company’s objective is to maximise the return on net invested capital while maintaining the ability
to operate over time, ensuring adequate returns for its shareholders and benefits for the other
stakeholders through a sustainable financial structure. In order to achieve these objectives, in addition to
the pursuance of satisfactory financial results and the generation of cash flows, the Company may
intervene in the dividends policy and the configuration of the Company’s capital.
277
7. Property, Plant and Equipment
Changes which occurred during the 2015-2016 two year period are summarised in the following table:
(in thousands of euro)
GROSS VALUE
Balance at
12/31/2014
Increases
Decreases
Balance at
12/31/2015
Increases
Decreases
Balance at
12/31/2016
Land
Buildings
Plant and machinery
Industrial and commercial
equipment
Other assets
21,112
110,852
5,066
1,193
14,155
-
-
923
-
532
152,378
1,455
-
-
-
-
(21)
(21)
21,112
110,852
5,989
1,193
14,666
-
475
-
-
64
(12,091)
(55,910)
(1,303)
(208)
(118)
9,021
55,417
4,686
985
14,612
153,812
539
(69,630)
84,721
ACCUMULATED
DEPRECIATION
Balance at
12/31/2014
Depreciation
Decreases
Balance at
12/31/2015
Depreciation
Decreases
Balance at
12/31/2016
Buildings
Plant and machinery
Industrial and commercial
equipment
Other assets
(39,348)
(4,806)
(1,158)
(8,591)
(4,018)
(61)
(11)
(671)
(53,903)
(4,761)
-
-
-
21
21
(43,366)
(4,867)
(1,169)
(9,241)
(3,974)
(219)
(7)
(725)
22,217
1,284
208
76
(25,123)
(3,802)
(968)
(9,890)
(58,643)
(4,925)
23,785
(39,783)
IMPAIRMENT
PROVISION
Balance at
12/31/2014
Impairment
Decreases
Balance at
12/31/2015
Impairment
Decreases
Balance at
12/31/2016
Buildings
Plant and machinery
-
-
-
-
-
-
-
-
-
-
-
-
(1,515)
(4)
(1,518)
-
-
-
(1,515)
(4)
(1,518)
NET VALUE
Balance at
12/31/2014
Increases/Decrea
ses
Depreciation
Balance at
12/31/2015
Increases/Decrea
ses
Depreciation
Balance at
12/31/2016
Land
Buildings
Plant and machinery
Industrial and commercial
equipment
Other assets
21,112
71,504
260
35
5,564
-
-
923
-
532
-
(4,018)
(61)
(11)
(671)
21,112
67,486
1,122
24
5,425
(12,091)
(56,950)
(1,307)
(208)
(54)
-
18,244
1,065
201
(649)
98,475
1,455
(4,761)
95,169
(70,609)
18,861
9,021
28,780
880
17
4,722
43,421
No financial expenses were capitalised on property, plant and equipment.
During the course of the 2016 financial year, buildings, plant and machinery located in the Bicocca –
Milan area were impaired to the amount of euro 1,518 thousand. The decreases for the financial year
refer to the disposal of the R&D building located in Milan, Italy and to the disposal of a building located
in San Donato Milanese, Italy.
2016 ANNUAL REPORT
8. Intangible Assets
Changes which occurred during the 2015-2016 two year period were as follows:
278
12/31/2014
Increases Amortisation 12/31/2015
Increases Decreases Reclassification Effect from PPA Amortisation 12/31/2016
(in thousands of euro)
Trademarks
Software licenses
Other:
-
software expenses
- expenses for other projects
-
856
180
4,969
-
837
-
1,981
-
(268)
(132)
(1,828)
-
1,425
48
5,122
-
171
727
1,175
-
(35)
-
-
-
-140
-
140
2,270,000
-
2,270,000
-
-
-
(343)
1,078
(77)
(2,378)
698
4,059
(2,798) 2,275,835
TOTAL
6,005
2,818
(2,228)
6,595
2,073
(35)
-
2,270,000
Increases for the financial year mainly include the expenses incurred for the acquisition of licenses
(euro 171 thousand), for the implementation of management systems for staff (a project in the phases of
development for euro 247 thousand), for the treasury (euro 178 thousand), plus euro 750 thousand for
other projects also in the phases of development, and for the purchase of software applications (euro 726
thousand).
The allocation of the effect from PPA of euro 2,270,000 thousand to the Pirelli Brand was consistent
with the consolidated Financial Statements resulting from the completion of the Purchase Price
Allocation.
No impairment was carried out in the course of the 2016 financial year.
9. Investments in Subsidiaries
These amounted to euro 4,930,701 thousand (euro 1,141,926 thousand at December 31, 2015) which
was an increase of euro 3,788,775 thousand compared to the previous financial year.
These were composed as follows:
(in thousands of euro)
Pirelli Servizi Amministrazioni e Tesoreria S.p.A.
Maristel S.p.A.
T.P. Industrial Holding S.p.A. già Pirelli Labs S.p.A.
Pirelli Sistemi Informativi S.r.l.
Pirelli & C. Ambiente S.r.l.
Pirelli Tyre S.p.A.
Servizi Aziendali Pirelli S.C.p.A.
HB Servizi S.r.l.
Pirelli Ltda
Pirelli UK ltd.
Pirelli Group Reinsurance Company S.A.
Pirelli Consumer Italia S.r.l.
TOTAL
12/31/2016
12/31/2015
3,238
1,315
364,351
1,655
-
4,521,792
103
364
9,666
21,871
6,346
-
4,930,701
3,238
1,315
4,079
1,655
2,878
1,090,755
103
-
9,666
21,871
6,346
20
1,141,926
A detailed statement pursuant to Article 2427 of the Italian Civil Code is provided in the attachments.
2016 ANNUAL REPORT
The changes which occurred are as follows:
(in thousands of euro)
Opening balance
Increases
Impairment
Decreases
Effect from PPA
Closing balance
279
12/31/2016 12/31/2015
1,141,926
1,141,058
200,266
(4,114)
(198,686)
3,791,309
4,930,701
27,557
(21,775)
(4,914)
-
1,141,926
The item increases refers mainly to the investment in TP Industrial Holding S.p.A., which totalled euro
198,666 thousand due to the effect of the demerger of Pirelli Tyre S.p.A., and to the payment into the
capital account of HB Services S.r.l. of euro 1,600 thousand.
The item impairment refers to the investment in Pirelli & C. Ambiente S.r.l. (euro 2,877 thousand) and
in HB Servizi S.r.l. (euro 1,236 thousand). The value of the investments has been adjusted to its fair
value which is estimated to be the carrying amount for equity.
The item decreases which amounts to euro 198,686 thousand refers to euro 198,666 thousand for the
reduction in value of the investment in Pirelli Tyre S.p.A. due to the effects of the demerger, and to the
liquidation of Pirelli Consumer S.r.l. for euro 20 thousand.
The allocation of the effect from PPA of euro 3,791,309 thousand, of which euro 3,629,703 thousand
was allocated to the investment in Pirelli Tyre S.p.A. which holds 100% of the Consumer sector and
38% of the Industrial sector, and of which euro 161,606 thousand was allocated to the investment in
T.P. Industrial Holding S.p.A. which in turn holds 52% of the investment in Pirelli Industrial S.r.l., (a
sub-holding of the investment in the Pirelli industrial sector) was consistent with the evaluation carried
out for the Industrial sector by an independent third party expert.
2016 ANNUAL REPORT
10. Investments in Associates
These amounted to euro 33,078 thousand at December 31, 2016, (euro 134,332 thousand at December
31, 2015). The item is composed as follows
280
(in thousands of euro)
Listed securities
Prelios S.p.A.
Unlisted securities
Consortium for the Research into Advanced Materials (CORIMAV)
Eurostazioni S.p.A. - Rome
Fenice S.r.l.
GWM Renewable Energy II S.p.A.
Focus Investments S.p.A.
International Media Holding S.p.A.
TOTAL
The changes which occurred are as follows:
(in thousands of euro)
Opening balance
Increases
Decreases
Impairment
Closing balance
12/31/2016
12/31/2015
13,642
41,920
104
6,271
9,048
-
4,000
13
104
52,937
28,179
11,192
-
-
33,078
134,332
12/31/2016
12/31/2015
134,332
4,692
(11,192)
(94,754)
33,078
125,100
23,349
-
(14,117)
134,332
The item increases for the financial year mainly refers to the subscription to an investment of euro 692
thousand, equal to 13.75% of the capital of the company International Media Holding S.p.A. the vehicle
which promoted the Public Offer for the RCS MediaGroup S.p.A., and to the subscription on January
12, 2016, for the amount of euro 4000 thousand, of 111,111 class C shares of Focus Investments S.p.A.
equal to 8.33% of the share capital, to 25% of the capital with voting rights, and to 4.26% of the
financial interests, taking into account the equity instruments issued by the Focus Instruments S.p.A.
and subscribed to by Prelios S.p.A.
The company was created as part of the extraordinary spin-off operation, from business activities related
to investments and co-investments in property belonging to Prelios S.p.A. and from business activities
related to services.
The item decreases refer to the investment in GWM Renewable Energy II S.p.A. In particular, as a
result of the completion on March 30, 2016 of the swap operation, Pirelli & C. S.p.A., following the
withdrawal from the company GWM Renewable Energy II S.p.A., received in exchange, shares of the
Danish listed company Greentech Energy Systems A/S equal to 11.93% of the share capital. The
investment in Greentech Energy Systems A/S was recorded at an amount equal to its fair value (stock
market value at March 30, 2016) under the item “Other financial assets”, and qualifies as a financial
asset available for sale. The operation generated a negative impact on the Income Statement of euro 519
thousand.
2016 ANNUAL REPORT
281
The item impairment mainly refers to investments, in International Media Holding S.p.A. (euro 679
thousand) and in Eurostazioni S.p.A. (euro 46,666 thousand) due to the reduction and distribution of the
share capital and the legal reserve, and to investements in Fenice S.r.l. (euro 19,131 thousand) and in
Prelios S.p.A. (euro 28,278 thousand) due to the adjustment to their fair value.
To estimate the fair value, the income approach was used based on the criteria of available options and
with the use of level 2 inputs.
Relative to the valuation of the investment in Prelios S.p.A. it was considered that the negative results of
the company as well as the significant difference between the carrying amount of the investment (euro
0.162 per share) and the stock market value at December 31, 2016 (euro 0.092 per share) represented
effective evidence of impairment. The value of the investment was therefore adjusted to the recoverable
amount, being the fair value itself.
11. Other Financial Assets
These amounted to euro 182,562 thousand at December 31, 2016, (euro 199,062 thousand at December
31, 2015) and were classified, pursuant to IAS 39, as financial assets available for sale.
They were composed as follows:
(in thousands of euro)
Financial assets available-for-sale
Listed securities
Mediobanca S.p.A. - Milan
RCS Mediagroup S.p.A. - Milan
Unlisted securities
Fin. Priv Srl
Real Estate Investment Fund - Anastasia
Istituto Europeo di Oncologia S.r.l.
F.C. Internazionale Milano S.p.A.
Emittenti Titoli S.p.A.
Other companies
Total
12/31/2016
12/31/2015
122,167
19,307
139,969
14,356
16,471
14,636
6,231
-
2,729
1,021
182,562
18,787
14,478
5,754
293
4,789
636
199,062
The changes which occurred during the financial year for the item financial assets available for sale
were as follows:
(in thousands of euro)
Opening balance
Increases
Decreases
Fair value adjustment in Equity
Impairment
Reclassification
Closing balance
12/31/2016
199,062
13,061
(10,758)
(16,510)
(2,290)
(3)
182,562
12/31/2015
173,459
1,766
-
38,854
(15,117)
100
199,062
The item increases for the financial year refers to 12,720,374 shares of the company Greentech Energy
Systems A/S valued at euro 10,667 thousand received following the finalisation on March 30, 2016 of
the swap operation for GWM Renewable Energy II S.p.A shares described in the preceeding paragraph
10. The investment was then sold during the first half of 2016 and therefore recognised in the item
decreases.
The remaining amount refers to the acquisition of 592,450 shares of the company Genextra S.p.A. for
euro 513 thousand and to the subscription to 179,524,244 new shares of Alitalia - Compagnia Aerea
Italiana S.p.A. for euro 1,881 thousand euro.
2016 ANNUAL REPORT
282
The fair value adjustments recognised in equity mainly relate to the investments in Mediobanca
S.p.A. (negative for euro 17,801 thousand), in Fin.Priv. S.r.l. (negative for euro 2,316 thousand),
Emittenti Titoli S.p.A. (negative for euro 2,060 thousand), RCS Mediagroup S.p.A. (positive for euro
4,951 thousand), the Istituto Europeo di Oncologia S.r.l.(positive for euro 477 thousand), and the Real
Estate Investment Fund - Anastasia (positive for euro 158 thousand ).
The item impairments refers mainly to the investment in Alitalia - Compagnia Aerea Italiana S.p.A.
(euro 1,881 thousand) and in F.C. Internazionale Milano S.p.A. (euro 293 thousand).
The fair value of listed securities corresponds to the stock exchange listing at December 31, 2016. The
fair value of unlisted securities and real estate funds was determined by making estimates on the basis of
the best available information.
Further details are set out in the attachments to the Explanatory Notes.
12. Other Receivables
Other receivables are composed as follows:
(in thousands of euro)
Other receivables from subsidiaries
Financial receivables from subsidiaries
Guarantee deposits
Other receivables from third parties
Receivables from tax authorities for taxes not related to income
Financial accrued interest income
Financial prepaid expenses
Total
12/31/2016
Non-current
2,010
633,130
709
19,581
9,616
98
1,536
666,680
-
-
709
14,121
-
-
-
14,830
Current
Total
2,010
633,130
-
5,460
9,616
98
1,536
651,850
3,555
964,472
695
15,797
9,405
3,453
2,991
1,000,368
12/31/2015
Non-current Current
-
-
695
14,181
-
-
624
15,500
3,555
964,472
-
1,616
9,405
3,453
2,367
984,868
The item current financial receivables from subsidiaries mainly includes the loans disbursed in
favour of Pirelli Tyre S.p.A. (euro 430,000 thousand, with a duration of 10/10/2016 - 10/10/2017), and
interest-bearing current accounts, regulated at market rates, held with Pirelli International Plc amounting
to euro 201,405 thousand. The change compared to the previous financial year was substantially due to
the different allocation of debt as a result of the refinancing operation.
Other non-current receivables from third-parties refers mainly to the contribution made in cash and
paid at the time of signing an association in participation contract.
Current financial accrued interest income mainly refers to interest accrued but not yet collected on
financial receivables from the subsidiary Pirelli Tyre S.p.A. amounting to euro 94 thousand.
Prepaid financial expenses mainly refers to commissions on the revolving credit facility and term loan.
The carrying amount for other receivables is considered to approximate their fair value.
2016 ANNUAL REPORT
13. Trade Receivables
These amounted to euro 61,692 thousand at December 31, 2016, compared to euro 41,687 thousand for
the previous financial year. They are composed as follows:
283
(in thousands of euro)
Receivables from subsidiaries
Receivables from associates
Receivables from other companies
Total receivables
Provision for bad debts
12/31/2016
12/31/2015
55,830
1,085
8,836
65,751
(4,059)
61,692
36,902
406
7,481
44,789
(3,102)
41,687
Of the total trade receivables which amounted to euro 65,751 thousand (euro 44,789 thousand at
December 31, 2015), euro 8,836 thousand were receivable from other companies (euro 7,481 thousand
at December 31, 2015) of which euro 7,068 thousand fell due on December 31, 2016. The increase in
trade receivables due from subsidiaries mainly refers to the revision of the service contract.
Trade receivables which were due and past due have been impaired based on the Group's policies
described in the paragraph on the management of credit risk under “Financial Risk Management
Policy”.
The impaired receivables include both significant individual positions subject to separate impairment,
and positions with similar characteristics in terms of credit risk but which have been grouped and
impaired on a collective basis.
The analysis of trade receivables by geographical area is as follows:
Italy
Rest of Europe
Other
12/31/2016
12/31/2015
Receivables from
subsidiaries
91.33%
Receivables from
other companies
67.26%
Receivables from
subsidiaries
92.42%
Receivables from
other companies
79.26%
7.85%
0.82%
100.00%
1.42%
31.32%
100.00%
6.88%
0.70%
100.00%
20.40%
0.34%
100.00%
Changes in the provision for bad debts are shown below:
(in thousands of euro)
Opening balance
Increases/Decreases
Closing balance
12/31/2016
12/31/2015
3,102
957
4,059
3,102
-
3,102
The carrying amount for trade receivables is considered to approximate their fair value.
2016 ANNUAL REPORT
14. Cash and Cash Equivalents
These amounted to euro 1,805 thousand at December 31, 2016, (euro 146 thousand at December 31,
2015).
284
(in thousands of euro)
Bank deposits
Cash on hand
15. Tax Receivables
12/31/2016
12/31/2015
1,803
2
1,805
140
6
146
These amounted to euro 84,621 thousand at December 31, 2016, (euro 38,300 thousand at December 31,
2015).
Receivables from tax authorities relative to withholding taxes incurred abroad were compensated
against payables to tax authorities comprised of IRES (corporate income tax) with a resulting offset of
euro 23,451 thousand. In order to make the items comparable, the figures for the 2015 financial year
have been restated (euro 23,805 thousand for 2015).
The amount mainly includes:
− receivables from Group companies participating in tax consolidation to the amount of euro 77,840
thousand (euro 27,842 thousand at December 31, 2015). This increase as compared to the previous
financial year was largely due to the greater contribution of positive taxable income on the part of
Pirelli Tyre S.p.A.;
− receivables from tax authorities for corporate income tax (IRES) for 2008/2014 of euro 5,347
thousand (euro 5,343 thousand at December 31, 2015).
16. Derivative Financial Instruments
This item amounted to euro 515 thousand at December 31, 2016, (euro 340 thousand at December 31,
2015) and refers to the accrual on hedging derivatives.
2016 ANNUAL REPORT
17. Equity
Equity amounted to euro 3,206,233 thousand at December 31, 2016, (euro 1,913,928 thousand at
December 31, 2015).
A merger reserve of euro 1,245 million was generated as a result of the reverse merger which took place
on June 1, 2016.
The analyses of these changes and their composition are provided in the main attachments to the
Financial Statements.
285
17.1 Share Capital
The share capital at December 31, 2016 amounted to euro 1,345,381 thousand, and was represented by
201,983,902 ordinary shares and 5,641,312 special shares with no indication of the nominal value.
The share capital, net of treasury shares, amounted to euro 1,310,635 thousand for ordinary shares and
euro 31,646 thousand for special shares and therefore totalled euro 1,342,281 thousand. The total
number of treasury shares, comprised 351,590 shares and 772,792 special shares, which represent
0.54% of the share capital.
The table below shows an analysis of the availability and distributability of the individual equity items.
(in thousands of euro)
Share capital (1)
Legal reserve
Other reserves
- Merger Reserve (Pirelli & C. S.p.A.)
- Other Reserves
- IAS Reserve
- Merger Reserve (BidCo acquisition) (2)
- Cash flow hedge Reserve
Retained earnings
Total
Residual available share
A to increase the share capital
B to cover losses
C to distribute to the shareholders
Amount
Possible use
Available
share
Summary of
reserves use in
2013-2015
1,342,281
152,114
12,467
92,535
(12,573)
1,245,261
270
305,401
3,137,756
-
B
A, B, C
A, B, C
-
A, B, C
A, B, C
-
152,114
12,467
92,535
1,245,261
305,401
1,807,778
1,807,778
-
-
-
-
-
-
(1) Total value of euro 3.100 thousand net of nr. 351.590 ordinary shares and nr.772.792 savings shares without nominal value
(2)
distributable once the limit of the legal reserve has been reached according to the former art. 2430 of the Italian Civil Code
Following the merger by incorporation (the so called reverse merger) of Marco Polo Industrial Holding
S.p.A. into Pirelli & C. S.p.A., an alignment was carried out of the IAS reserve values relative to the
valuation at fair value of the investments available for sale at the effective accounting date of the
merger, with the data recorded in the consolidated Financial Statements.
2016 ANNUAL REPORT
18. Borrowings from Banks and other Financial Institutions
The item borrowings from banks and other financial institutions is composed as follows:
(in thousands of euro)
Bonds
Borrowings from banks
Other financial payables
Accrued liabilities
Total
-
4,267,340
3,817
24,333
4,295,490
12/31/2016
Non current
-
4,103,435
561
-
4,103,996
Current
-
163,905
3,817
24,333
192,055
Total
499,833
100,000
3,137
22,096
625,066
12/31/2015
Non current
-
100,000
1,332
-
101,332
Current
499,833
-
1,805
22,096
523,734
286
The item bonds at December 31, 2015, was relative to the unrated bond placed by Pirelli & C. S.p.A. on
the Eurobond market during February 2011 for the nominal total amount of euro 500 million, with a
fixed coupon of 5.125%. This loan was fully reimbursed in accordance to its natural maturity, during the
month of February 2016.
The item borrowings from banks which includes borrowings from credit institutions for euro
4,267,340 thousand comprises term loans for 18 months and for 3 and 5 five years and refers to the use
of the secured loan (Senior Facilities) granted to Pirelli & C. S.p.A. and the subsidiary Pirelli
International Plc. The contractual refinanced total amounted to euro 6.4 billion and was achieved at a
lower overall cost of less than 3.5%. The operation which consisted of syndicated refinancing for the
total amount of euro 4.8 billion maturing in three and five years, and a credit facility for euro 1.6 billion
maturing in eighteen months, was the result of a club deal with a select number of lending institutions. It
is to be noted that the total amount for the Senior Facilities at December 31, 2016 was euro 6,289,820
thousand, following the partial repayment of the euro 1.6 billion credit facility at the end of December
2016. As a result of this refinancing operation, signed on July 25, 2016 (the signing date), the Pirelli
Group was able to refinance the bank debt which existed prior to the merger, as well as the Bidco
Facility debt which had been cancelled on July 28, 2016 (the closing date). The financing is entirely
reported under the item long-term borrowings from banks with the exception of the instalments due at
December 31, 2017 which amount to euro 163,905 thousand. ;
The item accrued liabilities essentially refers to interest accrued on the term loans but not yet paid
(euro 17,651 thousand).
The fair value of borrowings from banks and other financial institutions, compared with the relevant
carrying amount is as follows:
(in thousands of euro)
Bond
Other non-current financial borrowings
Carrying amount
Fair value
12/31/2016
12/31/2015
12/31/2016
12/31/2015
-
4,103,996
4,103,996
499,833
101,332
601,165
-
4,103,996
4,103,996
502,935
101,332
604,267
Borrowings from banks and other financial institutions are denominated in euro.
2016 ANNUAL REPORT
19. Provisions for Liabilities and Charges
The changes which occurred during the financial year are as follows:
(in thousands of euro)
Opening balance
Increases
Reversals
Uses
Effect from PPA
Total
31/12/2016
Non-current
Current
Total
31/12/2015
Non-current
Current
14,746
14,873
(8,405)
(3,287)
33,500
51,427
14,346
9,396
(8,405)
(2,887)
33,500
45,950
400
5,477
-
(400)
-
5,477
19,713
664
(410)
(5,221)
-
14,746
17,056
264
(410)
(2,564)
-
14,346
2,657
400
-
(2,657)
-
400
287
The item increases refers mainly to the allowance for the adjustment of the provision for legal and tax
issues.
The item reversals mainly refers mainly to the release of provisions for taxes.
The item uses substantially refers to the payment of tax to the German tax authorities.
The allocation of the effect from PPA of euro 33,500 thousand refers to potential liabilities (whose
outlay was not considered likely) which were indentified during the Purchase Price Allocation pursuant
to paragraph 23 of the IFRS 3 which were attributable to the European Commission decision made at
the conclusion of the antitrust investigation regarding the energy cable business, which foresaw
sanctions against Prysmian of approximately euro 104 million, of which a part totalling euro 67 million,
Pirelli, despite having been found as not involved in the alleged cartel, was held as being jointly liable
(with Prysmian), based solely on the application of the principle of so-called parental liability, in that
during part of the period of the alleged infringement, Prysmian was a subsidiary of Pirelli.
The item provisions for non-current liabilities and charges amounted euro 49,950 thousand and
mainly refers to the potential liabilities identified during the Purchase Price Allocation as decribed in the
preceding paragraph.
The item provisions for current liabilities and charges amounted euro 5,477 thousand and refers to
the provision for a surplus in the carrying amount and the adjustment of the value of the investment in
Pirelli & C. Ambiente S.r.l..
2016 ANNUAL REPORT
20. Employee Benefit Obligations
Employee benefit obligations amounted to euro 3,965 thousand at December 31, 2016, (euro 2,104
thousand at December 31, 2015). This item includes the provision for employee leaving indemnities
which amounted to euro 1,248 thousand (euro 1,548 thousand at December 31, 2015) and other
employee benefits of euro 2,717 thousand (euro 555 thousand at December 31, 2015).
The increase is attributable to the Long Term Incentive Plan 2016-2018 intended for the management of
the Pirelli Group, approved by the Board of Directors of December 22, 2015, the objectives of which
have been set by the subsequent Board of Directors of October 19, 2016.
288
Employees’ leaving indemnities (TFR)
The changes which occurred during the 2016 financial year for the employees’ leaving indemnities
provision are as follows:
(in thousands of euro)
Balance at 12/31/2014
Movements through income statement
Actuarial (gains)/losses recognized in Equity
Indemnities, advance payments, relocations
Balance at 12/31/2015
Movements through income statement
Actuarial (gains)/losses recognized in Equity
Indemnities, advance payments, relocations
Balance at 12/31/2016
1,489
89
(69)
39
1,548
92
55
(447)
1,248
The amounts shown in the Income Statement have been included in the item “Personnel Expenses”
(refer to Note 28).
Net actuarial gains (losses) accrued during the 2016 financial year and recognised directly in equity
amounted to euro 56 thousand. The cumulative amount at December 31, 2016 of net income recognised
directly in equity was euro 2,010 thousand (euro 2,066 thousand at December 31, 2015).
The main actuarial assumptions used at December 31, 2016 are as follows:
2016
Discount rate
Inflation rate
1.5%
1.0%
The main actuarial assumptions used at December 31, 2015 were as follows:
2015
Discount rate
Inflation rate
2.1%
1.3%
The employees in service at December 31, 2016 came to 134 units (131 units as at December 31, 2015).
2016 ANNUAL REPORT
All other conditions being equal, a hypothetical change of 0.25% in the discount rate would result a
reduction in liabilities of 2.54% in the event of an increase (2.57% at December 31, 2015) and an
increase in liabilities of 2.61% in the event of a decrease (2.64% at December 31, 2015).
289
21. Trade Payables
The composition of trade payables was as follows:
(in thousands of euro)
Payables to subsidiaries
Payables to associates
Payables to other companies
12/31/2016
12/31/2015
605
975
30,845
32,425
825
607
39,500
40,932
The carrying amount for trade payables is considered to approximate their fair value.
22. Other Payables
These were composed as follows:
(in thousands of euro)
Payables to subsidiaries
Payables to social security and welfare institutions
Payables to employees
Other payables
Accrued liabilities
Deferred income
12/31/2016
12/31/2015
Total
Non-current
Current
Total
Non-current
Current
11,196
2,480
10,032
9,798
250
3,681
37,437
-
-
-
311
-
-
311
11,196
2,480
10,032
9,487
250
3,681
10,796
2,296
17,017
9,834
-
995
-
-
6,182
381
-
-
10,796
2,296
10,835
9,453
-
995
37,126
40,938
6,563
34,375
The item payables to subsidiaries mainly refers to consolidated IVA (value added tax).
Payables to social security and welfare institutions mainly comprised contributions which were
payable to INPS and INAIL.
Payables to employees refers to wages be paid to employees. This item mainly includes payables
related to the Long-Term Incentive Plan 2014-2016 as a result of the early closure of the Long-Term
Incentive Plan 2014-2016 as approved by the Board of Directors of Pirelli & C. S.p.A. of December 22,
2015 which will be liquidated during the course of 2017.
The item other payables includes liabilities for salaries payable to Directors and Auditors, as well as
withholding taxes on income for the self-employed and employees, and other minor items.
The carrying amount for other payables is considered to approximate their fair value.
2016 ANNUAL REPORT
23. Provision For Deferred Taxes
This provision amounted to euro 633,300 thousand and was due to the deferred taxes related to the
recognition of the Pirelli Brand.
290
24. Tax Payables
This item amounted to euro 20,043 thousand (euro 20,211 thousand at December 31, 2015), and was
comprised mainly of payables for withholding tax incurred abroad (euro 19,301 thousand).
Tax payables were recorded net of credits for withholding tax which amounted to euro 23,451 thousand
(credits for withholding tax used as compensation at December 31, 2015 amounted to euro 23,805
thousand) – for the restated figures refer to Note 15 “Tax receivables”.
25. Revenues From Sales And Services
These mainly refer to:
(in thousands of euro)
Sales of services to subsidiaries
Sales of services to other companies
2016
2015
55,270
721
55,991
22,062
732
22,794
The increase was essentially due to the reorganisation of structures with the consequent expansion
of services rendered to the Group's Italian subsidiaries.
26. Other Revenues
These amounted to euro 149,849 thousand, (euro 121,962 thousand for the previous financial year), and
were composed as follows:
(in thousands of euro)
Other income from subsidiaries
Other income from other companies
2016
2015
110,524
39,325
149,849
110,571
11,391
121,962
Other income from subsidiaries includes royalties paid by the Group’s companies for the use of the
Pirelli trademark (euro 79,879 thousand for 2016 – euro 83,865 thousand for 2015), the recovery of
expenses and other income (euro 21,783 thousand for 2016 – euro 17,603 thousand for 2015), also rents
and the recovery of management fees for rental properties (euro 8,496 thousand for 2016 – euro 9,102
thousand for 2015).
Other income from other companies consists mainly of capital gains derived from, the disposal of the
R&D building located in Milan, Italy for euro 27,199 thousand and the disposal of the building located
in San Donato, Italy for euro 2,199 thousand, from royalties paid by other companies for the use the
Pirelli trademark (euro 2,882 thousand for 2016 - euro 3,579 thousand for 2015), from the reversal of
excess provisions (euro 1,006 thousand for 2016 - euro 260 thousand for 2015), from the recovery of
2016 ANNUAL REPORT
expenses and other incomes (euro 2,997 thousand for 2016 - euro 3,775 thousand for 2015), and from
rents and the recovery of management fees on rental properties (euro 3,043 thousand for 2016 - euro
3,777 thousand for 2015).
291
27. Raw Materials and Consumables
These amounted to euro 209 thousand (euro 303 thousand for 2015) and includes the purchase of
advertising materials, fuel and other materials.
28. Personnel Expenses
These amounted to euro 26,827 thousand (euro 33,122 thousand for 2015) and were composed as
follows:
(in thousands of euro)
Wages and salaries
Social security and welfare contributions
Employee leaving indemnities (TFR)
Retirement and similar obbligations
Other costs
The number of staff in service on average was as follows:
• Executives
• Employees
• Workers
36
94
3
29. Amortisation, Deprecation And Impairment
This item was composed as follows:
(in thousands of euro)
Depreciation - property, plant and equipment
Amortisation - intangible assets
Impairment of tangible assets
2016
2015
20,450
4,799
107
1,123
348
26,827
27,136
4,497
72
1,075
342
33,122
2016
2015
4,925
2,798
1,518
9,241
4,761
2,227
-
6,988
2016 ANNUAL REPORT
30. Other Costs
The composition of other costs is as follows:
(in thousands of euro)
Services rendered by subsidiaries
Advertising
Consultancy and collaboration services
Accruals for the provision of future liabilities and charges
Legal and notarial expenses
Travel expenses
Compensation of Board members and Supervisory Board
Membership fees and contributions
Rental and lease instalments
IT expenses
Energy, gas and water expenses
Security service
Insurance premiums
Patents and trademarks expenses
Cleaning and property ordinary maintenance expenses
Property maintenance
Other
292
2016
2015
6,904
28,181
11,377
7,954
2,996
10,746
2,719
1,532
8,187
2,457
1,717
2,477
3,428
640
1,618
1,009
12,401
106,343
5,664
29,728
18,446
265
3,882
10,514
2,813
5,031
9,602
2,295
2,032
2,200
1,627
1,339
278
1,111
9,874
106,701
2016 ANNUAL REPORT
31. Net income (loss) from Equity Investments
31.1 Losses on Equity Investments
These amounted to euro 107,159 thousand, (euro 52,341 thousand for the 2015 financial year), and were
composed as follows:
(in thousands of euro)
293
Impairment losses on equity investments in subsidiaries:
- Pirelli & C. Ambiente S.r.l.
- HB Servizi S.r.l.
Impairment losses on equity investments in associates:
- Prelios S.p.A.
- Fenice S.r.l.
- Eurostazioni S.p.A.
- International Media Holding S.p.A.
Impairment losses on other financial assets:
- Alitalia S.p.A. - Compagnia Aerea Italiana S.p.A.
- RCS Mediagroup S.p.A.
- Movincom Servizi S.p.A.
- GWM Renewable Energy II S.p.A.
- Others
Losses on disposals:
- Sirio S.p.A.
2016
2015
8,354
1,236
28,278
19,131
46,666
679
1,881
-
16
519
399
18,766
3,410
14,117
-
-
-
7,115
7,265
337
-
400
-
107,159
931
52,341
For further details preference should be made to the Notes on Equity investments in Subsidiaries (Note
9), Associates (Note 10) and Other Financial Assets (Note 12).
2016 ANNUAL REPORT
31.2 Dividends
These amounted to euro 279,607 thousand for 2016, compared to euro 174,662 thousand for 2015. The
item was composed as follows:
294
(in thousands of euro)
From subsidiaries:
- Pirelli Tyre S.p.A. - Italy
- Pirelli Labs S.r.l. - Italy
- Pirelli Group Reinsurance Company SA
From associates:
- Eurostazioni S.p.A. - Italy
From other companies:
- Mediobanca S.p.A. - Italy
- Sirio S.p.A. - Italy
- ECA Ltd - Great Britain
- Fin. Priv. S.r.l. - Italy
- Emittenti Titoli S.p.A. - Italy
- Anastasia Fund - Italy
- Euroqube S.A. (in liquidation) - Belgium
2016
2015
169,000
-
3,209
172,209
100,353
100,353
4,254
-
11
554
1,727
-
35
6,581
279,143
163,000
1,000
3,309
167,309
1,680
1,680
3,938
137
24
513
202
788
71
5,673
174,662
This increase, as compared to 2015, was mainly attributable to the increased distribution of dividends by
Eurostazioni S.p.A. (euro 52,145 thousand for 2016, compared to euro 1,680 for 2015) and to the
distribution by the same, of capital and reserves for the amount of euro 48,208 thousand.
32. Financial Income
This item amounted to euro 90,380 thousand for 2016 (euro 17,079 thousand for 2015).
It mainly includes, exchange rate gains mainly due to exchange rate hedging (euro 66,241 thousand for
2016, euro 501 thousand for 2015), to interest on loans granted to the subsidiaries Pirelli Tyre S.p.A.
(euro 9,915 thousand for 2016, euro 11.583 thousand for 2015) and Pirelli Industrie Pneumatici S.r.l.
(euro 779 thousand for 2016, euro 2,991 thousand for 2015), and to income from hedging operations
which amounted to euro 4,705 thousand (euro 25 thousand in 2015).
33. Financial Expenses
This item amounted to euro 327,311 thousand for 2016 (euro 30,998 thousand euro for 2015) and
includes, euro 65,222 thousand for financial expenses related to the term loans deriving from the
refinancing of the Group finalised in July 2016 (refer to the preceding Note 18), euro 178,348 thousand
deriving from use of the secured bank facility closed on July 28, 2016, which had been contracted and
subscribed to by Marco Polo Industrial Holding S.p.A. with a syndicate of banks to finance the
acquisition of the Pirelli Group, and to euro 3,818 thousand for the bond issued by Pirelli & C. S.p.A. in
2011 and reimbursed in February 2016 (euro 26,879 thousand at December 31, 2015).
2016 ANNUAL REPORT
34. Taxes
Taxes are analysed in the following table:
(in thousands of euro)
Current income taxes
Foreign WHT
Regional tax on production (IRAP)
Taxes previous years
Consolidated corporate income tax (IRES)
Other taxes for the period
Total Current income taxes
Deferred taxes
Through tax consolidation
On tax losses carried forward
Total Deferred taxes
A
B
A+B Total Taxes
295
2016
2015
4,151
-
3,802
54,389
7,399
69,741
-
-
-
69,741
8,184
-
(1,353)
4,037
150
11,018
322
(119,085)
(118,763)
(107,745)
The positive result for current taxes for the financial year was mainly due to the effect of the reversal of
foreign withholding taxes for previous years, to the benefits derived from the fiscal consolidation of the
Italian group, and to the release of previously accrued provisions.
The transition from the theoretical carrying amount for taxes to the actual amount for the 2016 financial
year is analysed in the following table:
(in thousands of euro)
IRES
IRAP
Net Income (loss) before tax
Net income (loss) from discontinued operations
Net income (loss) before tax including income from
discontinued operations
A
B
(1,264)
(1,264)
-
C=A-B
(1,264)
(1,264)
(1,264)
-
(1,264)
Tax rate
Estimated tax
Increases / Decrease
- Decrease
Detaxation of dividends
Gains on disposal of share investments
Reserves
Other decrease
Deferred tax
Income from WHT previous years
- Increase
Impairment
Taxes previous years
Not recovered WHT
Release of deferred tax
Other increase
Taxes
Current tax burden Pirelli & C. S.p.A.
Net income from tax consolidation
Total tax for the period
Net income (loss) for the period
D
27.5
%
5.57
%
E = C*D
348
70
418
F
G
H
I
L
M
N
O
P
Q
R
S=E+F+G+H+I+
L+M+N+O+P+
Q+R
73,553
-
7,858
13,965
-
4,151
-
(29,325)
8,329
-
-
(70,952)
7,928
7,928
61,812
69,741
-
-
103
8
-
-
-
-
-
-
-
(14)
-
-
-
73,553
-
7,962
13,973
-
4,151
-
(29,325)
8,329
-
-
(70,965)
7,928
-
7,928
61,812
69,741
68,477
2016 ANNUAL REPORT
The transition from the theoretical carrying amount for taxes to the actual amount for the 2015 financial
year is analysed in the following table:
(in thousands of euro)
IRES
IRAP
296
Net Income (loss) before tax
Net income (loss) from discontiuned operations
Net income (loss) before tax including income from
discontiuned operations
A
B
106,043
106,043
-
C=A-B
106,043
106,043
106,043
-
106,043
Tax rate
Estimated tax
- Decrease
Detaxation of dividends
Gains on disposal of share investments
Reserves
Other decrease
Deferred tax
Income from WHT previous years
- Increase
Impairment
Taxes previous years
Not recovered WHT
Release of deferred tax
Other increase
Taxes
Current tax burden Pirelli & C. S.p.A.
Net income from tax consolidation
Total tax
Net income (loss)
TAX CONSOLIDATION
D
27.5
%
5.57
%
E = C*D
(29,162)
(5,907)
(35,069)
F
G
H
I
L
M
N
O
P
Q
R
S=E+F+G+H+I+
L+M+N+O+P+
Q+R
45,425
-
1,342
373
-
8,184
(14,138)
(521)
-
(102,970)
(3,346)
(94,813)
(94,813)
(12,932)
(107,745)
18,485
-
-
961
-
-
-
-
-
-
(13,539)
-
-
-
63,909
-
1,342
1,334
-
8,184
-
(14,138)
(521)
-
(102,970)
(16,885)
(94,813)
-
(94,813)
(12,932)
(107,745)
(1,702)
It is to be noted that as of the start of the 2004 financial year, the Company as consolidator, has
exercised the option for consolidated taxation pursuant to Article 117, and in accordance with the Italian
Income Tax Code (TUIR), which governs operations arising from the adhesion to consolidation through
the application of a special "Regulation", which provides for a common procedure for the
implementation of legal and regulatory provisions.
The aforesaid regulation has been updated in the years since 2004 as a result of amendments made on
the part of the companies participating in the agreement and the related shareholding structure, and in
light of the corrective and supplementary amendments to the applicable legislation.
The aforesaid amendments mainly concerned the remuneration of the tax losses used by the companies
participating in the consolidation. The adoption of consolidation allows for compensation to the parent
company Pirelli & C. S.p.A. of the taxable gains or losses of the Parent Company itself with that of the
resident subsidiaries which exercised the option, taking into account that the tax losses accrued during
periods prior to the introduction of Group taxation may only be used by companies that generated the
taxable income or loss.
2016 ANNUAL REPORT
35. Related Party Transactions
Related party transactions, including intra-group transactions, are not classifiable as unusual or
exceptional, but are instead considered part of the ordinary course of business for Group companies.
Such transactions, when not carried out under standard conditions or dictated by specific regulatory
conditions, are in any case conducted under market conditions
297
The following tables disclose the main transactions with related parties for the financial years ended
December 31, 2016 and December 31, 2015 (amounts are expressed in millions of euro).
Year 2016
TRANSACTIONS WITH SUBSIDIARIES
(in millions of euro)
ITEMS OF BALANCE SHEET
Current assets
Trade receivables
55.8
Other receivables
633.5
This item refers mainly to receivables for euro 47.5 million from Pirelli Tyre S.p.A., for euro 4.0
million from Pirelli Tyre Russia, and for euro 2.8 million from Pirelli Industrial S.r.l., for professional
and other services rendered.
This item refers mainly to euro 430.0 million for loans granted to, and related interest accrued not
paid by Pirelli Tyre S.p.A. and to euro 201.4 million for the intra-group current account held with
Pirelli International Plc.
Tax receivables
77.8
This amount refers to receivables from Group companies which adhere to tax consolidation (mainly
euro 74.8 million from Pirelli Tyre S.p.A., and euro 3 million from Pirelli Industrie Pneumatici S.r.l).
Financial instruments
0.5
The sum refers to receivables for hedging income and related accruals from Pirelli International Plc.
Currents liabilities
Trade payables
0.8
Other payables
14.9
Tax payables
19.8
This item refers mainly to payables for the provision of services (the main ones are: euro 0.1 million
to Pirelli Tyre S.p.A., euro 0.3 million to Pirelli Amministrazione e Tesoreria S.p.A., and to euro
0.3 million to TP Trading (Beijing) Co).
This item refers mainly to payables to Group companies which adhere to IVA (value added tax)
consolidation. The main ones are: euro 10.6 million to Pirelli Tyre S.p.A., euro 0,1 million to Driver
Servizi Retail S.r.l., to euro 0.5 million for deferred income to Pirelli Tyre S.p.A. and to euro 3.2
million for trade receivables reimbursable to Pirelli Tyre S.p.A.
This item refers to payables to subsidiaries which adhere to tax consolidation, mainly euro 13.9
million to Pirelli Tyre, and to euro 5.7 million to Pirelli Industrial S.r.l.
2016 ANNUAL REPORT
298
ITEMS OF INCOME STATEMENT
Revenues from sales and
services
55.2
Other income
109.2
Other costs
(6.0)
The amount mainly refers to service agreements. The main relationships are: euro 51.0 million from
Pirelli Tyre S.p.A., euro 2.8 million from Pirelli Industrial S.r.l., euro 0.4 million from Pirelli & C.
Ambiente S.r.l., euro 0.4 million from Pirelli Sistemi Informativi S.r.l., euro 0.3 milion from Pirelli
Servizi Amministrazione e Tesoreria S.p.A., and euro 0.2 million from HB Servizi S.r.l.).
The amount mainly refers to brand licensing agreements (euro 78.5 million from Pirelli Tyre S.p.A.,
euro 1.3 million from Pirelli Tyre Russia); to other recoveries (euro 20.7 million from Pirelli Tyre
S.p.A., euro 0.8 million from Pirelli International Plc, euro 0.4 million from Pirelli Tyre Co.Ltd.);
and to lease agreements (euro 0.8 million from Pirelli Sistemi Informativi S.r.l., euro 5.7 million from
Pirelli Tyre S.p.A., euro 0.3 million Pirelli Servizi Amministrazione e Tesoreria S.p.A., euro 0.4
million from Pirelli Industrial S.r.l).
The amount mainly refers to charges for services and various costs (euro 1.2 million for Pirelli
Servizi Amministrazione e Tesoreria S.p.A., euro 1.7 million for Pirelli Sistemi Informativi S.r.l.,
euro 1.4 million for Pirelli Tyre S.p.A., euro 0.7 million for Pirelli Tyre Trading (Shangai) Co Ltd.,
and euro 0.4 million for Servizi Aziendali Pirelli S.c.p.a.).
Net income (loss) from
equity investments -
Dividends
172.0
This item refers to euro 169.0 million for Pirelli Tyre S.p.A. and to euro 3.2 million for Pirelli Group
Reinsurance Company S.A.
Financial income
88.1
Income from loans granted (euro 9,9 million from Pirelli Tyre S.p.A. and euro 0.8 million for Pirelli
Industrie Pneumatici S.r.l.) and from hedging transactions and exchange rate gains of euro 77.4
million from Pirelli Internatonal Plc.
Taxes
93.4
This item refers to income and expenses due from Group companies which adhere to tax
consolidation. For tax income the main items are: Pirelli Tyre S.p.A. euro 90.5 million, Pirelli
Sistemi Informativi S.r.l. euro 0.3 million, Pirelli Industrie Pneumatici S.r.l. euro 2.6 mllion.
СASH FLOW INVESTMENTS AND DISINVESTMENTS
Investments in subsidiaries
1.6
The amount refers to the capital contribution to HB Servizi S.r.l.
2016 ANNUAL REPORT
299
TRANSACTIONS WITH ASSOCIATES
(in millions of euro)
ITEMS OF BALANCE SHEET
Current assets
Trade receivables
Other receivables
Current liabilities
Trade payables
1.1
The sum refers to receivables for professional and other services rendered to Prelios S.p.A.
1.7
The amount refers to the loans disbursed in favour of International Media Holding S.r.l. (euro 1.5
million) and Fenice S.r.l. (euro 0.2 million).
0.8
This item refers to payables for services received from Prelios S.p.A. (euro 0.7 million) and from
Corimav (euro 0.1 million).
Financial payables
0.8
This item refers to the security deposit paid by Prelios S.p.A. for the lease of the R&D building.
Non-current liabilities
Financial payables
0.6
This item refers to the security deposit paid by Prelios S.p.A. for the lease of the R&D building.
ITEMS OF INCOME STATEMENT
Other income
1.3
The amount refers to rent from the lease of the R&D building by Prelios S.p.A.
Other costs
Net income (loss) from
equity investments -
Dividends
0.9
Refers to relationships with Prelios S.p.A (euro 0.7 million) and with the Consortium for Research
on Advanced Materials - CORIMAV (euro 0.2 million).
100.4 The amount refers to capital/reserves reimbursed and to dividends paid by Eurostazioni S.p.A.
TRANSACTIONS WITH OTHER RELATED PARTIES
(in millions of euro)
ITEMS OF INCOME STATEMENT
Other costs
0.7
These are mainly costs for commissions incurred with ChemCina for the refinancing
2016 ANNUAL REPORT
300
Year 2015
TRANSACTIONS WITH SUBSIDIARIES
(in millions of euro)
ITEMS OF BALANCE SHEET
Current assets
Trade receivables
36.9
Refers mainly to receivables for services (euro 33.6 million Pirelli Tyre S.p.A., euro 2.6 million
Pirelli Tyre Russia, euro 0.2 million Pirelli Sistemi Informativi S.r.l.)
Other receivables
971.4
Refers mainly: for euro 814.7 million to loans granted and related interest accrued and not paid with
Pirelli Tyre SpA; eur 153.7 million to a loan granted and related interest accrued but not paid with
Pirelli Industrie Pneumatici S.r.l..; euro 2.4 million to the intra-group current account with Pirelli
International Plc
Tax receivables
27.8
The amount refers to receivables from Group companies that adhere to tax consolidation (mainly
euro 25.8 million Pirelli Tyre S.p.A., euro1.8 million Pirelli Industrie Pneumatici S.r.l)
Financial instruments
0.3
The sum refers to receivables for hedging income and related accruals from Pirelli International Plc.
Currents liabilities
Trade payables
0.8
Other payables
Tax payables
11.3
16.5
Refer mainly to payables for the provision of services (the main ones are: euro 0.3 million Pirelli
Tyre S.p.A.., euro 0.4 million Pirelli Amministrazione e Tesoreria S.p.A., euro 0.1 million Servizi
Aziendali Pirelli S.c.p.a.)
Refer mainly to payables to Group companies that adhere to VAT consolidation, the main ones are:
euro 10.6 million Pirelli Tyre S.p.A., euro 0.1 million Driver Italia S.p.A. and the deferred income
for rent in force with Pirelli Tyre S.p.A. euro 0.5 million
Refers to payables to subsidiaries that adhere to tax consolidation, mainly euro 16.3 million Pirelli
Tyre, euro 0.1 million Pirelli & C. Ambiente S.r.l.
ITEMS OF INCOME STATEMENT
Revenues from sales and
services
22.1
Other income
109.2
Other costs
(5.4)
The amount mainly refers to service agreements. The main relations are: euro 20.8 million Pirelli
Tyre S.p.A., euro 0.3 million Pirelli & C. Ambiente S.r.l., euro 0.3 million Pirelli Sistemi Informativi
S.r.l., euro 0.2 milion Pirelli Servizi Amministrazione e Tesoreria S.p,A,euro 0.2 million HB Servizi
S.r.l.)
The amount mainly refers to: brand license agreements (euro 82.8 million Pirelli Tyre S.p.A., euro
1.0 million Pirelli Tyre Russia); other recoveries (euro 17.1 million Pirelli Tyre S.p.A., euro 0.4
million Pirelli Sistemi Informativi S.r.l.); lease agreements (euro 0.8 million Pirelli Sistemi Informativi
S.r.l., euro 5.7 million Pirelli Tyre S.p.A., euro 0.3 million Pirelli Servizi Amministrazione e
Tesoreria S.p.A., euro 0.1 million Pirelli & C. Ambiente S.r.l.)
The amount mainly refers to charges for services and various expenses (euro 1.2 million Pirelli
Servizi Amministrazione e Tesoreria S.p.A., euro 1.4 million Pirelli Sistemi Informativi S.r.l., euro
1.2 million Pirelli Tyre S.p.A., euro 0.7 million HB Servizi S.R.L., euro 0.4 million Servizi Aziendali
Pirelli S.c.p.a.).
Net income (loss) from
equity investments -
Dividends
167.3
These refer to: euro 163.0 million Pirelli Tyre S.p.A., euro 3.3 million Pirelli Group Reinsurance
Company S.A., euro 1.0 million Pirelli Labs S.p.A
Financial income
15.8
Taxes
26.8
Income deriving from loans granted (euro11.6 million Pirelli Tyre S.p.A, euro 3.0 million Pirelli
Industrie Pneumatici S.r.l., euro 0.7 million Pirelli & C. Ambiente S.r.l.) and hedging transactions
euro 0.5 million Pirelli Internatonal Plc.
Refer to income and expenses with Group companies that adhere to tax consolidation. Tax income -
the main items are: Pirelli Tyre S.p.A. euro 24.3 million, Pirelli Sistemi Informativi S.r.l. euro 0.2
million, Pirelli Industrie Pneumatici S.r.l. euro 1.9 mllion; Tax expenses - the main items are: Pirelli
Tyre S.p.A. euro 0.3 million
СASH FLOW INVESTMENTS AND DISINVESTMENTS
Investments in subsidiaries
33.9
The amount refers for euro 21.7 million to the increase in share capital of Prelli & C. Ambiente
S.r.l.., for euro 1.0 million for capital payments in HB Servizi S.r.l. and for euro 11.2 million to the
acquisition of GWM Renewable Energy II S.p.A. by Pirelli & C. Ambiente S.r.l.
2016 ANNUAL REPORT
301
TRANSACTIONS WITH ASSOCIATES
(in millions of euro)
ITEMS OF BALANCE SHEET
Current assets
Trade receivables
0.4
The sum refers to receivables for services rendered to Prelios S.p.A.
Other receivables
0.1
The amount refers to the loan and its applicable interest provided to Fenice S.r.l.
Current liabilities
Trade payables
0.6
Refers to payables for services received from Lambda S.p.A. (euro 0.5 million) and from Corimav
(euro 0.1 million)
Other payables
0.1
Refers to deferred liabilities to Prelios S.p.A. for rent of the R&D building
Non-current liabilities
Financial payables
1.3
Refers to the Prelios S.p.A. security deposit for rent of the R&D building
ITEMS OF INCOME STATEMENT
Other income
1.4
The amount refers to the rent of the R&D building by Prelios S.p.A.
Other costs
Net income (loss) from
equity investments -
Dividends
0.2
Refers to relations with the Consortium for Research on Advanced Materials - Corimav (euro 0.2
million)
1.7
The amount refers to dividends distributed by Eurostazioni S.p.A.
BENEFITS FOR KEY MANAGERS OF THE COMPANY
At December 31, 2016, the remuneration payable to key strategic managers amounted to euro 6,132
thousand (euro 8,237 thousand at December 31, 2015) of which euro 4,482 thousand has been
recognised in the Income Statement under the item “Personnel expenses” (euro 5,457 thousand for
2015) and euro 1,650 thousand under the item “Other Costs” (euro 2,781 thousand at December 31,
2015). This remuneration also includes euro 396 thousand for employee leaving indemnities (TFR)
(euro 355 thousand at December 31, 2015).
2016 ANNUAL REPORT
36. Commitments and Contingencies
302
Guarantees issued in the interests of subsidiaries and other companies
These guarantees were issued for the loans and contractual obligations of the subsidiaries for the amount
of euro 1,112,383 thousand. This amount includes euro 1,103,617 thousand for garantees issued in
favour of Pirelli Tyre Ltd (UK) and Pirelli UK Ltd relative to local pension funds.
Other risks
As a consequence of the merger of Marco Polo Industrial Holding S.p.A. into Pirelli & C. S.p.A. and to
the subsequent operation of refinancing the debt of the Pirelli Group, which was successfully completed
on July 28, 2016, insurance guarantees were subscribed to for the benefit of the pension funds of Pirelli
UK Limited and Pirelli Tyres Limited - Credit Support Guarantees (“CSG”), thanks to the ability to
procure GBP 300 million from leading companies. The insurance protection agreement covers a time
period of approximately 42 months from September 2016 to March 2020, and provides for a counter-
guarantee system under which the Group, selected as indemnitors of the operation, shall jointly
indemnify the insurers from any cost (“Indemnified liabilities”). The garantees issued for the
refinancing operations amounted to euro 5,162,820 thousand.
Guarantees issued during the disposal of Olimpia
During the disposal of the investment in Olimpia S.p.A., the sellers (Pirelli and Sintonia) contractually
retained the burden of tax risks for the taxable period up until the date of disposal.
Litigation, which is still ongoing can be summarised as follows.
At the end of 2006, the Italian Internal Revenue Agency (“Agenzia delle Entrate”) served Olimpia
S.p.A. a notice of assessment for Italian regional income tax (IRAP) for the 2001 financial year.
More precisely, on the basis of an assumption, which Pirelli, maintains is entirely unfounded in both
legal and financial terms, the tax agency had ascertained an assessment the non-existent financial
income for the Bell Bond which were repayable in Olivetti shares, in regional income taxes (IRAP)
amounting to euro 26.5 million (the pro-rata share for Pirelli & C. amounted to euro 21.2 million) plus
sanctions for the same amount.
The Company/Olimpia S.p.A. appealed against this tax assessment on the basis of the manifestly non-
existent taxable income ascertained by the tax agency. The regional tax commission of the 1st level,
(Commissione Tributaria di 1° grado) upheld the company's appeal by cancelling the assessment.
The tax agency then appealed this decision.
This appeal was also rejected by the regional tax commission.
Despite the twice unexceptionable negative judgements, the tax agency filed an appeal in the Supreme
Court (Corte di Cassazione) which the Company/Olimpia S.p.A. has consistently opposed. During the
hearing on December 21, 2016, the Prosecutor General unexpectedly ruled, without any legal or
procedural basis, in favour of accepting the appeal of the tax agency attorneys and referred the claim for
reconsideration to another section of the regional tax commission. At the end of the hearing Pirelli’s
legal defence presented a justified brief opposing the decision. The ruling of the Supreme Court is still
pending along with the handing down of its decision and its reasons.
It is nevertheless reasonable to maintain, by virtue of the strength of our defensive arguments as
confirmed by our legal advisers, which are not in our opinion weakened by the Prosecutor General's
ruling, that the assessment of risk is such as to not require the allocation of any specific provision in the
annual Financial Statements at December 31, 2016.
2016 ANNUAL REPORT
37. Significant Events Subsequent To The End Of The Year
303
On March 6, 2017 the Shareholders’ Meeting of Pirelli & C. S.p.A. approved the remodeling of the
Company's capital structure and ascribed the amount of euro 116,962 thousand to the legal reserve
which had been drawn from retained earnings, as reported in the aforementioned Statement of Financial
Position of the Company at June 30, 2016 approved by the same Shareholders’ Meeting, who also took
note that, as a result of the allocation, the amount of the legal reserve then amounted to euro 269,076
thousand, equal to 20% of the share capital.
In March 2017 in order to ensure an autonomous growth path and independent group strategies, the two
areas of activity – Consumer and Industrial – have been separated into two distinct companies
controlled by their common shareholder Marco Polo International Italy following the assignation to the
latter by Pirelli of the shares of TP Industrial Holding, the company into which the industrial assets of
Pirelli were conferred. TP Industrial Holding and Pirelli are thus 100% controlled by Marco Polo
International Italy, the vehicle of the partnership between CNRC (65%), Camfin (22.4%) and Long-
Term investments Luxemburg (12.6%).
Further, with effect from April 1, 2017, as a consequence of the completion of the separation of the
Industrial business from Pirelli’s consumer activities, Pirelli Industrial will change its company name to
“Prometeon Tyre Group S.r.l.” (“PTG”).
2016 ANNUAL REPORT
Annexes to the Explanatory Notes
MOVEMENTS OF INVESTMENTS IN SUBSIDIARIES FROM 12/31/2015 TO 12/31/2016
304
12/31/2015
Carrying
CHANGES
12/31/2016
Carrying
Number
of shares
amount % of total
investments
(€/thousand)
of which
direct
Number
of shares
(€/thousand)
Number
of shares
amount % of total of which
direct
(€/thousand) investments
INVESTMENTS IN SUBSIDIARIES
ITALY
Unlisted:
Pirelli Servizi Amministrazioni e Tesoreria S.p.A.
2,047,000
3,237.5
Maristel S.p.A. - Milan
1,020,000
1,315.2
TP Industrial Holding S.p.A. ( ex Pirelli Labs S.p.A.) - Milan
5,000,000
4,079.1
Pirelli Sistemi Informativi S.r.l. - Milan
Pirelli & C. Ambiente S.r.l.
Pirelli Tyre S.p.A. - Milan
Pirelli Industrial S.r.l. (ex Pirelli Tyre Commerciale Italia S.r.l.)
Pirelli Consumer Italia S.r.l. (in liquidation)
Servizi Aziendali Pirelli S.C.p.A. - Milan
HB Servizi Srl
100
100
100
100
100
100
100
100
-
-
-
-
2,047,000
3,237.5
1,020,000
1,315.2
100
198,666,000
360,272.0
203,666,000
364,351.1
100
100
-
-
-
1 quota
1,655.4
(2,877.6)
1 quota
0.0
100
(198,666,000)
3,431,037.0
558,154,000
4,521,792.2
1 quota
1,655.4
1 quota
2,877.6
756,820,000
1,090,755.2
-
-
95,940
-
-
-
-
20.0
103.3
0.0
100
100
100
100
92.3
100
-
-
-
-
-
(20.0)
-
-
-
-
-
95,940
103.3
100
92.3
363.7
-
363.7
100
100
100
100
100
100
100
100
-
-
100
100
100
100
100
100
-
-
Total investments in Italian subsidiaries
1,104,043.3
3,788,775.1
4,892,818.4
12/31/2015
Carrying
CHANGES
12/31/2016
Carrying
Number
of shares
amount % of total
investments
(€/thousand)
of which
direct
Number
of shares
(€/thousand)
Number
of shares
amount % of total of which
direct
(€/thousand) investments
FOREIGN COMPANIES
Brazil
Pirelli Ltda - Sao Paulo
T3 Brasil Industrial de Pneus Agricol
Pirelli Latam Participações Ltda.
Pirelli Pneus Ltda
Pirelli Comercial de Pneus Brasil Ltda.
France
Pirelli Solutions France Sarl - Villepinte
Luxembourg
Pirelli Finance (Luxembourg) S.A.
UK
Pirelli UK ltd. - London - ordinary
Switzerland
Pirelli Group Reinsurance Company S.A.
14,000,000
-
-
1
-
1 quota
-
9,665.9
0.0
-
0.0
-
-
-
100
-
-
-
-
-
-
100
-
-
-
-
-
-
1
-
1
100
1 quota
-
163,991,278
21,871.1
100
100
800,000
6,345.8
100
100
-
-
-
Total investments in foreign subsidiaries
Total investments in subsidiaries
37,882.8
1,141,926.1
-
-
-
-
-
-
-
14,000,000
-
1
1
1
1 quota
-
9,665.9
0.0
-
0.0
-
100
-
-
-
-
100
-
-
-
-
-
-
-
100
-
-
-
163,991,278
21,871.1
100
100
-
-
3,788,775.1
800,000
6,345.8
100
100
37,882.8
4,930,701.2
2016 ANNUAL REPORT
305
12/31/2015
CHANGES
12/31/2016
Number
of shares
Carrying
amount % of total
investments
(€/thousand)
of which
direct
Number
of shares
(€/thousand)
Number
of shares
Carrying
amount % of total of which
direct
(€/thousand) investments
148,127,621
41,920.1
29.2
29.2
-
(28,277.6)
148,127,621
13,642.5
10.9
10.9
41,920.1
(28,277.6)
13,642.5
INVESTMENTS IN ASSOCIATES
ITALY
Listed:
Prelios S.p.A. - Milano
Total listed Italian companies
Unlisted:
Fenice Srl
Consorzio per le Ricerche sui Materiali Avanzati (CORIMAV)
1 quota
103.5
100
100
1 quota
28,179.1
69.9
69.9
-
-
(19,130.7)
1 quota
9,048.4
69.9
69.9
-
1 quota
103.5
100
100
Eurostazioni S.p.A. - Roma
52,333,333
52,937.1
32.7
32.7
(51,810,005)
(46,666.1)
523,328
6,271.0
32.7
32.7
GWM Renewable Energy II S.p.A. - Roma
12,863,908
11,192.3
International Media Holding S.p.A.
Focus Investments S.p.A.
Total unlisted companies
Total investments in associates - Italy
Total investments in associates
-
-
-
-
92,412.11
134,332.2
134,332.2
-
-
-
-
-
-
(12,863,908)
(11,192.3)
-
-
-
-
12,500
12.5
12,500
12.5
25.0
25.0
111,111
4,000.0
111,111
4,000.0
8.3
8.3
(72,976.6)
(101,254.2)
(101,254.2)
19,435.5
33,078.0
33,078.0
2016 ANNUAL REPORT
MOVEMENTS OF OTHER FINANCIAL ASSETS FROM 12/31/2015 TO 12/31/2016
306
12/31/2015
Number
of shares
Carrying
amount % of total
(€/thousand) investments
of which
direct
Fair Value
valuation
at
12/31/2016
(€/thousand)
Changes
12/31/2016
Number
of shares
(€/thousand)
Number
of shares
Carrying
amount % of total
investments
(€/thousand)
of which
direct
INVESTMENTS IN OTHER COMPANIES
ITALIAN LISTED COMPANIES
Mediobanca S.p.A. - Milan
15,753,367
139,968.7
1.8
1.8
(17,801.3)
RCS Mediagroup S.p.A. - Milan
23,135,668
14,355.7
4.4
4.4
4,951.1
-
-
(17,801.3)
15,753,367
122,167.4
4,951.1
23,135,668
19,306.8
Intek Group S.p.A. (Ex Fin Breda S.p.A. in liquidation) - Milan
1,561,000
-
0.4
0.4
-
(1,549,175)
2.4
11,825
2.4
1.8
4.4
0.0
1.8
4.4
0.0
Total other Italian listed companies
FOREIGN LISTED COMPANIES
154,324.4
(12,850.2)
(12,847.8)
141,476.6
Greentech Energy Systems A/S - Copenhagen K - Denmark
-
Total other foreign listed companies
Total other listed companies
-
-
-
-
-
-
-
-
-
-
-
-
-
-
154,324.4
(12,850.2)
(12,847.8)
141,476.6
12/31/2015
-
Number
Carrying
-
amount % of total
-
of which
Fair Value
valuation
at
12/31/2016
Changes
12/31/2016
Number
of shares
(€/thousand)
Number
of shares
Carrying
-
amount % of total
-
of which
(€/thousand)
(€/thousand)
(€/thousand)
ITALIAN UNLISTED COMPANIES
Aree Urbane S.r.l. (in liquidation) - Milan
C.I.R.A. - Centro Italiano di Ricerche Aerospaziali S.c.p.A. - Capua (CE)
1 quota
30
Alitalia Compagnia Aerea Italiana S.p.A. - Rome
908,019,130
CEFRIEL - Società Consortile a Responsabilità limitata
Consorzio DIXIT (in liquidation) - Milan
MIP Politecnico di Milano - Graduate School of Business
società consortile per azioni già
Consorzio per L'Innovazione nella Gestione
di Azienda -Mip -(Master Imprese Politecnico) Milan
Consorzio Milano Ricerche - Milan
Societa' Generale per la Progettazione
Consulenze e Partecipazioni ( ex Italconsult ) S.p.A. - Rome
1 quota
1 quota
12,000
1 quota
1,100
-
-
-
-
-
-
-
-
-
-
0.1
0.1
1.5
1.5
5.2
5.2
14.3
14.3
3.4
3.4
7.1
7.1
3.7
3.7
-
-
-
-
-
-
-
-
-
Emittenti Titoli S.p.A. - Milan
229,000
4,788.8
2.8
2.8
(2,059.6)
F.C. Internazionale Milano S.p.A. - Milan
55,805,625
292.9
0.5
0.5
-
Fin. Priv. S.r.l. - Milan
Istituto Europeo di Oncologia S.r.l. - Milan
Nomisma - Società di Studi Economici S.p.A. - Bologna
Redaelli Sidas S.p.A. (in liquidation) - Milan
S.In.T S.p.A. - Turin
Consorzio Movincom scrl
Movincom Servizi S.p.A.
Tiglio I S.r.l. - Milan
Genextra S.p.A.
1 quota
1 quota
959,429
750,000
90,000
1
135,102
1 quota
-
18,787.3
14.3
14.3
(2,315.6)
5,753.8
6.1
6.1
477.0
160.4
3.3
3.3
75.8
-
94.5
3.2
135.1
107.3
-
4.6
4.6
10.0
10.0
-
-
5.9
5.9
2.5
4.4
4.4
0.6
0.6
-
-
-
-
-
-
-
179,524,244
-
-
-
-
-
-
-
-
-
-
-
(90,000)
-
-
-
-
-
-
-
-
-
-
-
1 quota
30
1,087,543,374
1 quota
1 quota
12,000
1 quota
1,100
-
-
-
-
-
-
-
-
(2,059.6)
229,000
2,729.2
(292.9)
55,805,625
-
-
0.1
1.7
5.2
-
0.1
1.7
5.2
14.3
14.3
3.4
7.1
3.7
2.8
0.5
3.4
7.1
3.7
2.8
0.5
1 quota
16,471.7
14.3
14.3
1 quota
6,230.8
959,429
236.2
(2,315.6)
-
477.0
-
75.8
-
-
(94.5)
-
2.5
750,000
-
1
(15.1)
135,102
(9.6)
1 quota
6.1
3.3
4.6
-
5.9
4.4
0.6
0.6
6.1
3.3
4.6
-
5.9
4.4
0.6
0.6
-
-
5.7
120.0
97.7
513.2
592,450
513.2
592,450
Total other Italian unlisted companies
30,123.3
(3,819.9)
(3,718.8)
26,404.5
2016 ANNUAL REPORT
307
12/31/2015
-
Number
Carrying
-
amount % of total
-
of which
Fair Value
valuation
at
12/31/2016
Changes
12/31/2016
Number
of shares
(€/thousand)
Number
of shares
Carrying
-
amount % of total
-
of which
(€/thousand)
(€/thousand)
(€/thousand)
300
31.5
1.0
1.0
67,570
104.5
17.8
17.8
1,724,138
194,248
100
-
-
-
-
2.8
2.8
-
-
-
136.0
-
-
-
-
-
-
-
-
-
-
-
-
300
31.5
1.0
1.0
(91.4)
67,570
13.1
17.8
17.8
-
-
-
1,724,138
194,248
100
-
-
-
-
-
-
-
2.8
2.8
(91.4)
44.6
FOREIGN COMPANIES
Libia
Libyan-Italian Joint Company - ordinary shares B
Belgium
Euroqube S.A. (in liquidation)
U.S.A.
Gws Photonics Inc - Wilmington - private shares B
Gws Photonics Inc - Wilmington - private shares C
UK
Eca International
Total other foreign companies
OTHER PORTFOLIO SECURITIES
Fondo Comune di Investimento Immobiliare - Anastasia
53 quote
14,478.5
-
-
157.9
-
157.9
53 quote
14,636.4
-
-
TOTAL AVAILABLE-FOR-SALE FINANCIAL ASSETS
14,478.5
157.9
157.9
14,636.4
TOTAL FINANCIAL ASSETS AVAILABLE-FOR-SALE
199,062.2
(16,512.2)
(16,500.1)
182,562.1
2016 ANNUAL REPORT
INVENTORY AT 12/31/2016
List of investments in subsidiaries and associates (pursuant to art. 2427 of the civil code)
(in thousands of euro)
Legal address
Carrying
amount
Share % Share capital Attributable
equity
308
Attributable
net income
(loss)
INVESTMENTS IN SUBSIDIARIES - ITALY
Pirelli Servizi Amministrazioni e Tesoreria S.p.A.
Maristel S.p.A.
Pirelli Ambiente S.r.l.
Pirelli Sistemi Informativi S.r.l.
TP Industrial Holding S.p.A.
Pirelli Tyre S.p.A.
Servizi Aziendali Pirelli S.c.p.a.
HB Servizi Srl
Total investments in subsidiaries - Italy
INVESTMENTS IN FOREIGN SUBSIDIARIES
Switzerland
Pirelli Group Reinsurance Company S.A.
Brasil
Pirelli Ltda
UK
Pirelli UK ltd.
Total investments in foreign subsidiaries
Total investments in subsidiaries
INVESTMENTS IN ASSOCIATES - ITALY
Consortium for the Reserach into Advanced Materials (CORIMAV) Milan
Rome
Eurostazioni S.p.A.
Milan
Fenice S.r.l.
Milan
Prelios S.p.A.
Milano
Focus Investments S.r.l.
Milano
International Media Holding S.p.A.
Total investments in associates - Italy
Total investments in associates
* Data not yet available
Milan
Milan
Milan
Milan
Milan
Milan
Milan
Milan
3,238
1,315
0
1,655
364,351
4,521,792
103
364
4,892,818
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
92.3%
100.0%
2,047
1,020
10
1,010
203,666
5,558,154
104
10
3,991
2,137
(5,477)
2,529
204,239
2,733,342
278
364
33
11
(8,354)
321
89
381,548
2
(1,247)
Lugano
6,346
100.0%
7,449
15,933
5,009
Sao Paulo
9,666
100.0%
4,113
2,426
1,624
London
21,871
100.0%
191,538
34,108
(905)
37,883
4,930,701
104
6,271
9,048
13,643
4,000
12
33,078
33,078
100.0%
32.7%
69.9%
29.2%
8.3%
25.0%
104
*
*
55,687
*
*
104
*
*
*
*
0
*
*
(24,058)
*
*
2016 ANNUAL REPORT
Resolution
309
Dear Shareholders,
The financial year at December 31, 2016 closed with a gain of euro 68,477,271.04
The Board of Directors, having taken into account that following the Shareholders' Meeting on March 6,
2017, the legal reserve had been finalised and had reached the limit as provided for by Art. 2430 of the
Italian Civil Code, propose to retain the earnings for the financial year totalling euro 68,477,271.04.
Should you be in agreement with our proposals, we invite you to approve the following
RESOLUTIONS
The Shareholders' Meeting,
• having examined the Annual Financial Report at December 31, 2016;
• having acknowledged the Statutory Auditors Report;
• having acknowledged the Independent Auditors' Report;
RESOLVES
a) to approve the Financial Statements of the Company for the financial year closed at December
31, 2016 as presented by the Board of Directors, in their entirety with the individual entries and
proposed allocations therein, which report a gain of euro 68,477,271.04;
b) to retain the earnings totalling euro 68,477,271.04
2016 ANNUAL REPORT
310
Report of the Board of Statutory Auditors of
Pirelli & C. S.p.A. to the Shareholders' Meeting
Dear Shareholders,
The Board of Statutory Auditors, pursuant to Art. 2429, paragraph 2, of the Italian Civil Code must
disclose to the Shareholders' Meeting, the results for the financial year, the activities performed in the
fulfilment of their duties, and make comments and proposals regarding the Financial Statements and
their approval.
During the course of the financial year the Board of Statutory Auditors has carried out its supervisory
tasks in the time allowed by the current regulation and has taken into account the standards of conduct
as recommended by the Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili (the
Italian equivalent National Board for Chartered Accountants and Auditors), with regard to the internal
controls and activities of the Board of Statutory Auditors.
It is to be noted here in the introduction, that as a result of (i) the Public Offer launched during the
course of 2015 by Marco Polo Industrial Holding S.p.A., (ii) the conversion of savings shares into
special shares, of the withdrawal operation relating to the special shares, (iii) the subsequent redemption
of the outstanding special shares carried out by the Company on April 29, 2016, and (iv) the merger of
Marco Polo Industrial Holding S.p.A. (the Shareholder which directly held the entire outstanding share
capital of the Company) into Pirelli & C. S.p.A. (legally effective as of June 1, 2016) as at the date of
the Financial Statements, Pirelli & C. S.p.A. no longer had any shares listed on any regulated markets.
As a result of the aforesaid, as regards the following, the governance of the listed companies and the
powers exercised by the Board of Statutory Auditors regarding this matter are to be construed as limited
to the portion of the period during which the shares of the Company were listed.
* * *
The parent company Pirelli & C. S.p.A. closed the financial year with a net gain of euro 68,477
thousand (a net loss of euro 1,701 thousand for 2015), revenues which totalled euro 55,991 thousand
(euro 22,794 thousand for 2015) and a shareholders' equity which totalled euro 3,206,233 thousand
(euro 1,913,928 thousand at December 31, 2015).
The consolidated Financial Statements for the 2016 financial year presents revenues of euro 6,058,431
thousand, an operating income (EBIT) of euro 724,154 thousand, with a margin which stood at 11.95%
of revenues.
Total consolidated net gains amounted to euro 147,625 thousand.
It is to be noted, as explained in Note 2 of the consolidated Financial Statements, that as a result of the
reverse merger of the holding company Marco Polo Industrial Holding S.p.A. (incorporated company)
into the subsidiary Pirelli & C. S.p.A. (incorporating company), effective as of June 1, 2016, that the
Financial Statements of Pirelli & C. S.p.A. have been prepared on a going concern basis with respect to
the consolidated Financial Statements at December 31, 2015 of the holding company Marco Polo
Industrial Holding S.p.A. Therefore the comparative data of the Statement of Financial Position at
December 31, 2015 are those of the same aforesaid holding company at December 31, 2015, and the
comparative Income Statement data and financial flows are those of the consolidated Financial
Statements of Marco Polo Industrial Holding S.p.A. It is also to be noted that the comparative figures at
December 31, 2015 were subject to restatement as a result of the completion of the Purchase Price
Allocation, and recognised on a provisional basis at December 31, 2015 in accordance with the
provisions of IFRS 3 - Business Combinations.
2016 ANNUAL REPORT
311
Based on the aforesaid, it is also to be noted that the comparative consolidated Income Statement data
for 2015 is not comparable to that for 2016 as it includes the results for the Pirelli Group for only four
months (as of the acquisition date - September 2015).
The consolidated net financial position was negative to the amount of euro 4,912,831 thousand (euro
5,331,021 thousand at 2015 year-end).
It is to be noted that both the separate and consolidated Financial Statements at December 31, 2016:
§
include the Statement of Financial Position, the Income Statement, the Statement of
Comprehensive Income, the Statement of Changes in Equity, the Statement of Cash Flows and
the Explanatory Notes;
§ have been prepared in accordance with the International Financial Reporting Standards
IAS/IFRS issued by the International Accounting Standards Board (IASB) as approved by the
European Union and in force at December 31, 2016. As of February 26, 2016 the Company no
longer had any securities listed on the Milan Stock Exchange. The Company has already stated
in the consolidated Financial Statements at December 31, 2015 that it would continue to prepare
the consolidated Financial Statements in accordance with the IFRS, availing itself of the option
granted by Article 3 of Legislative Decree No. 38/2005, an intent confirmed in the Financial
Statements at December 31, 2016;
§ are accompanied by the Directors' Report on Operations which contains - among other things - a
summary of the main risks and uncertainties as well as an account of the foreseeable outlook for
operations.
Appointment of the Board of Statutory Auditors
* * *
The appointed Board of Statutory Auditors at the date of these Financial Statements was composed as
follows:
- Mr Francesco Fallacara (as Chairman), appointed by the Shareholders’ Meeting on March 14,
2015.
- Mr Fabio Artoni (as Statutory Auditor), appointed by the Shareholders’ Meeting on March 14,
2015.
- Mr Fabrizio Acerbis (as Statutory Auditor), appointed by the Shareholders’ Meeting on March
15, 2016.
- Mr Giovanni Bandera (as Statutory Auditor), appointed by the Shareholders’ Meeting on March
15, 2016.
- Mr David Reali (as Statutory Auditor), appointed by the Shareholders’ Meeting on March 15,
2016.
Mr Fabio Facchini and Ms Giovanna Oddo were the Alternate Auditors.
The appointment of the Board of Statutory Auditors, having completed its mandate shall expire with the
Shareholders’ Meeting convened for the approval of the Financial Statements at December 31, 2017.
Significant events subsequent to the end of the financial year
In their report the Directors have illustrated the significant events which occurred subsequent to the end
of the financial year. In this regard it is to be noted that:
§ on December 28, 2016 Pirelli reached an agreement for the disposal of 38% of the share capital
of Pirelli Industrial S.r.l. to an entity controlled by the Chinese Cinda fund for an amount
totalling approximately euro 266 million. The transfer of the aforesaid investment share in
Pirelli Industrial S.r.l., which is part of a wider project for the reorganisation and integration of
the Industrial business, was finalised on January 13, 2017;
2016 ANNUAL REPORT
312
§ on March 6, 2017 the Shareholders’ Meeting approved the restructuring of the Company's
capital structure and ascribed the amount of euro 116,962 thousand to the legal reserve, which
had been drawn from retained earnings as reported in the Statement of Financial Position of the
Company at June 30, 2016 and approved by the same Shareholders’ Meeting, which also
acknowledged that as a result of the allocation the amount of the legal reserve then amounted to
euro 269,076 thousand, equal to 20% of the share capital;
§ during the month of March, 2017 the Shareholders' Meeting of Pirelli & C. S.p.A. resolved to
distribute in kind to the sole shareholder, the retained earnings and a part of the surplus merger
reserve for a total amount of euro 364,351,082 through the assignment of the entire investment
held in TP Industrial Holding S.p.A. constituted by 203,666,000 (two hundred and three million,
six hundred and sixty six thousand) ordinary shares with a nominal value of 1 (one) euro each,
at a value equal to the carrying amount of the same as calculated above, and therefore equal to
euro 364,351,082.
Intra-group or related party transactions
Related party transactions are indicated in the Explanatory Notes attached to the Financial Statements
and the consolidated Financial Statements of the Company, which also contain the Income Statement
and Statement of Financial Position figures.
Pursuant to Article 2391-bis of the Italian Civil Code and to CONSOB Resolution No. 17221 of March
12, 2010 on "Regulations for related party transactions", subsequently modified with CONSOB
Resolution No. 17389 of June 23, 2010, on November 3, 2010 the Board of Directors of Pirelli & C.
S.p.A., following the favourable approval of the competent Committee composed exclusively of
independent Directors (appointed for this reason pursuant to Article 4 of the aforesaid Regulation by a
special resolution by the Board of Directors) did unanimously approve the "Procedure for related party
transactions".
During the course of the 2016 financial year related party transactions whether intra-group or with third
parties, were carried out.
Related party transactions, including intra-group transactions, are neither unusual nor exceptional, but
are part of the ordinary course of business for Group companies. Such transactions, when not settled
under standard conditions, or are dictated by specific regulatory conditions, are in any case regulated by
conditions consistent with those of the market.
Following the delisting of all shares, on March 15, 2016 the Board of Directors also revoked, amongst
others, the aforementioned procedure.
Impairment Testing Procedure
It is to be noted that following the delisting, the Board of Directors were no longer held, as suggested by
the document jointly issued by the Bank of Italy/CONSOB/ISVAP (Italian insurance regulators) on
March 3, 2010, to autonomously and preventively approve at the time of the approval of the Financial
Statements, that the impairment testing procedure conformed to the requirements of International
Accounting Standard IAS 36, following the disclosure of the same by the Audit, Risks, Sustainability
and Corporate Governance Committee and the Board of Statutory Auditors.
The impairment testing procedures were performed by the Company on the goodwill allocated to the
Consumer cash generating unit and were presented at the meeting for the preliminary approval of the
draft Financial Statements, prior to the resolution for their approval on March 21, 2016.
The Explanatory Notes to the Financial Statements provide the information and results of the evaluation
process conducted with the assistance of a highly qualified expert.
***
2016 ANNUAL REPORT
313
Supervisory activities pursuant to Legislative Decree No. 39/2010 "Statutory audits of accounts"
Pursuant to Article 13 of Legislative Decree No. 39/2010, the Board of Statutory Auditors, in
conjunction with the Audit, Risks, Sustainability and Corporate Governance Committee did supervise:
§
§
§
§
the financial reporting process;
the effectiveness of the Company's internal control, internal audit and risk management systems;
the statutory audit of the annual and consolidated accounts;
the independence of the Independent Auditing Firm, in particular with regard to the provision of
non-audit services.
Supervision on the financial reporting process
The Board of Statutory Auditors has verified the existence of appropriate regulations and processes to
oversee the process for the preparation of financial reports and therefore expresses a positive assessment
of the adequacy of the process for preparing financial reports and maintains that there are no
irregularities to be submitted to the Shareholders' Meeting.
Supervisory activities on the effectiveness of the Company's internal control,
internal audit and risk management systems and the statutory audit
of the annual and consolidated accounts
During the first half of the year, the Board of Statutory Auditors together with the Audit, Risks,
Sustainability and Corporate Governance Committee, and subsequently together with the Audit
Committee established on May 12, 2016 (which also has expertise with regard to internal control, risks,
sustainability and the corporate governance guidelines of the Group), did periodically meet with the
Internal Audit Director and were informed in relation to the results of audit interventions aimed at
verifying the adequacy and effectiveness of the Internal Control System, the respect for the law, the
Company's procedures and processes as well as the activities for the implementation of its relative plans
for improvement, without detecting any critical issues. The Director also received the Audit Plan for the
financial year and the relative final financial data.
The Board of Statutory Auditors also met the head of Sustainability and Risk Governance, who was
informed as to the activities carried out and the plans for future activities.
The Board of Statutory Auditors, having also acknowledged reports from the Chief Financial Officer, at
the time of the approval of the draft Financial Statements, did confirm the adequacy and suitability of
the powers and resources conferred to him by the Board of Directors of the Company. He also
confirmed having had direct access to all the information necessary for the production of the accounting
data, without the need for any authorisation. The Board of Auditors also acknowledged that the Chief
Financial Officer reported that he had participated in internal information flows for accounting purposes
and to have approved all the Company procedures that had had an impact on the Income Statement,
Statement of Financial Position and Financial Statements of the Company.
The Board of Statutory Auditors therefore expresses a positive assessment of the adequacy of the
internal control and risk management system as a whole and maintains that there are no irregularities to
be submitted to the Shareholders' Meeting.
The Board of Statutory Auditors did periodically meet, at least quarterly, with the Independent Auditing
Firm. There emerged from those meetings no key issues regarding the audit procedure nor any
significant deficiencies in the internal control system relative to the financial reporting process, also
pursuant to the provisions of Article 19, paragraph 3 of Legislative Decree No. 39/2010.
2016 ANNUAL REPORT
314
Supervisory activities on the independence of the Independent Auditing Firm,
in particular with regard to the provision of non-audit services.
The Board of Statutory Auditors did supervise the independence of the Independent Auditing Firm and,
in particular, has received periodic evidence of tasks other than for auditing services to be allocated (or
allocated by virtue of specific statutory provisions) to the Statutory Auditor of accounts.
With regard to the independence of the Independent Auditing Firm, a detailed group-level procedure has
been defined and issued, which establishes that it is forbidden for all the companies of the Pirelli Group
to assign appointments to companies belonging to the network of the appointed Statutory Auditor
without the prior authorisation of the Chief Financial Officer who, with the assistance of the Internal
Audit Director, has the task of verifying that the allocatable assignment is not included amongst those
not permitted by Article 17 of the aforementioned Legislative Decree No. 39/2010 and that, in any case,
given its characteristics, does not impact on the independence of the auditor.
All appointments other than the for the statutory audit of accounts, or those required by law which
provide for an annual fee of more than euro 50 thousand are preventively submitted for examination to
the Board of Statutory Auditors of Pirelli & C. S.p.A., without prejudice to any justified and specific
reasons. The Internal Audit Director did on a quarterly basis provide the Board of Statutory Auditors
with a list of non-audit services assigned to the Statutory Auditor.
During the course of the 2016 financial year, Ernst & Young S.p.A. carried out the activities
summarised below for the Group:
Recipient
Partial fees
Total fees
in
of
and
and
and
(amounts
thousands
euro)
Audit
certification
services
Audit
certification
services
Audit
certification
services
Non-audit
services
Non-audit
services
Non-audit
services
the
Entity
providing
service
Ernst & Young
S.p.A.
Pirelli & C.
S.p.A.
Ernst & Young
S.p.A.
Subsidiary
companies
Ernst & Young
Network
Subsidiary
companies
Ernst & Young
S.p.A.
Ernst & Young
S.p.A.
Ernst & Young
Network
Pirelli & C.
S.p.A.
Subsidiary
companies
Subsidiary
companies
474
670
1,710
2,854
85.8%
433
-
39
472
14.2%
3,326
100%
The Board of Statutory Auditors maintains that the aforementioned fees are adjusted in accordance to
the size, complexity and characteristics of the work performed and also maintains that the appointments
(and the relative remuneration) other than for auditing services are not such as to affect the
independence of the Statutory Auditor.
2016 ANNUAL REPORT
315
Conferment of the new appointment for the statutory audit of accounts
The Board of Statutory Auditors notes that with the Financial Statements at December 31, 2016 the
current audit appointment entrusted to Ernst & Young S.p.A. ceased.
Pirelli & C. S.p.A., in consultation with the Board of Statutory Auditors, invited proposals for the three
year period 2017-2019, for the purpose of selecting the new Auditor to be appointed for the activities in
question to be carried out on all the companies of the Group.
Three proposals were submitted to the Company, and an internal selection process was initiated through
meetings between management and the invited entities. The selection process was completed on March
9, 2017.
On the aforesaid date the undersigned Statutory Auditors, having been required to provide pursuant to
Article 13 of Legislative Decree No. 39 of January 27, 2010, as amended by Legislative Decree No. 135
of July 17, 2016 (the "Decree") a substantiated, non-binding recommendation concerning the
nomination of the appointee for the role of Statutory Auditor of accounts, did provide a proposal which
will be submitted for the deliberation of the Shareholders’ Meeting convened for the approval of the
Financial Statements at December 31, 2016.
***
In the performance of their actual functions the Board of Statutory Auditors, as provided for by Article
149 of the Consolidated Law on Financial Intermediation, also supervised:
the compliance with laws and the Articles of Association;
the adherence to the principles of proper management;
the adequacy, for the areas falling under its competence, of the Company's organisational
structure.
§
§
§
It is to be noted that a paragraph has been inserted in the Directors’ Report on Operations which
contains a description of the main characteristics of the existing risk management and internal control
system in relation to the financial reporting process, including the consolidated financial reporting
process.
The Board of Statutory Auditors acknowledges:
§
that the Directors’ Report on Operations conforms to the current regulations, is consistent with
the decisions of the Board of Directors and the results reported in the Financial Statements, and
contains adequate information on the activities of the financial year and on intra-group
transactions. The section containing the information on related party transactions was inserted in
the Explanatory Notes for the Financial Statements in compliance with the IFRS;
§
§ having verified the rationality of the valuation methods applied and their compliance with the
logic of the international accounting standards with particular reference to the financial assets;
that the Financial Statements for the financial year and the consolidated Financial Statements of
the Company were prepared in accordance with the structure and methods imposed by the
current regulations;
that on the Boards of Directors of the main subsidiaries are Directors and/or executives of the
Parent Company which ensure the coordinated management and the adequate flow of
notifications, supported by the appropriate accounting information.
§
It is also to be noted that the Board of Statutory Auditors:
§ did obtain from the Directors, at least quarterly, also in compliance with the provisions of the
specific relevant procedure approved by the Board of Directors, information on activities
performed and on operations carried out by the Company of significant importance regarding
the Company’s strategy, the Income Statement, the Statement of Financial Position and the
2016 ANNUAL REPORT
316
Financial Statements of the Company. The Board of Statutory Auditors acquired the information
needed to perform the tasks of general supervision both through the constant attendance of the
Meetings of the Board of Directors, and through interviews with management. On the basis of
the information received, the the Board of Statutory Auditors can reasonably assure that the
operations that were approved and implemented were in compliance with the law and the
Articles of Association, were not manifestly imprudent, or risky, or in conflict of interest, or
contrary to the resolutions adopted by the Shareholders' Meetings, or were such as to
compromise the integrity of the Company's equity;
§ did receive from the Supervisory Board, established pursuant to Legislative Decree No. 231, of
June 8, 2001, information regarding the results of its control activities, and examined the report
issued by the Board periodically every half-year, from which it results there emerged no
anomalies or censurable facts;
§ did hold regular meetings with representatives of the Independent Auditing Firm in order to
exchange with it, as required by Article 150, paragraph 3 of the Consolidated Law on Financial
Intermediation, data and information relevant to the performance of its task. In that regard, it is
to be noted that no significant data and information emerged that should be indicated in this
report;
§ did obtain information from the corresponding Boards of the major subsidiaries concerning the
administration and control systems and the general performance of the business (pursuant to
paragraphs 1 and 2 of Article 151 of Legislative Decree No. 58/1998).
§ did not receive or issue any complaints pursuant to Article 2408 of the Italian Civil Code;
§ did express, during the course of the financial year the opinions required by law on the
remuneration of Directors vested with special duties, by expressing opinions as provided for by
Article 2389 of the Italian Civil Code, and
§ did issue, during the course of the financial year, opinions pursuant to Article 2437-ter of the
Italian Civil Code regarding the fairness of the liquidation value of shares in the case of the
exercise of the right of withdrawal.
In relation to the Independent Auditing Firm, the Board of Statutory Auditors notes that Ernst & Young
S.p.A.:
§
issued a report on April 4, 2017 containing its assessment of the conformity of the Financial
Statements and consolidated Financial Statements with the legislative framework and the
applicable accounting standards, with a favourable opinion;
§ confirmed the declaration by the Company with regard to the fact that there were no other
appointments of parties linked through continuous relationships to the Independent Auditing
Firm itself.
Organisational Structure
The Board of Statutory Auditors has assessed the organisational structure of the Company as adequate
for the needs of the same, and appropriate in ensuring compliance with the principles of proper
administration.
2016 ANNUAL REPORT
Activities of corporate bodies
In addition, the Board of Statutory Auditors with regard to corporate bodies, notes that:
317
§
the current Board of Directors - appointed on March 15, 2016 and expiring with the
Shareholders’ Meeting convened for the approval of the Financial Statements at December 31,
2018 - at the date of this report was composed of 16 Directors;
the Board of Directors, during the course of 2016, met 10 times;
§
§ on May 12, 2016 the Board of Directors established the following Committees with advisory
tasks:
-
-
-
the Strategies Committee, which during the course of 2016 met 4 times;
the Remuneration Committee, which during the course of 2016 met 3 times;
the Nominations and Successions Committee, which during the course of 2016 did not meet;
-
the Audit Committee, which during the course of 2016 met 1 time.
The Board of Statutory Auditors has always attended the Board of Directors' Meetings and the Board
Committees' Meetings as well as the Shareholders' Meetings.
The Board of Statutory Auditors acknowledges:
§
§
to have verified on the part of its members, the requirements of independence;
to have noted that the Directors' Report, attached to the Financial Statements of the Company,
describes the principal risks and uncertainties to which the company is exposed.
In the course of the supervisory activity performed and on the basis of the information obtained from the
Independent Auditing Firm, no omissions, censurable facts, irregularities or in any case other significant
facts were detected that would require reporting or mentioning in this report.
The previously described activities performed in either collective or individual form, have been
acknowledged in the minutes of 8 Board of Statutory Auditors’ Meetings held during the course of
2016.
2016 ANNUAL REPORT
318
Proposal for the Shareholders' Meeting
Financial Statements at December 31, 2016
The Board of Statutory Auditors expresses its opinion in favour of the approval of the Financial
Statements at December 31, 2016 and has no objections to the proposed resolutions presented by the
Board of Directors on the allocation of the results for the financial year.
Other proposed matters
As regards the other matters submitted for your approval the Board of Statutory Auditors has no
comments. Reference should be made to the specific opinion regarding the non-binding proposal to be
rendered as part of the appointment for the statutory audit of the accounts.
Milan, April 4, 2017
Mr Francesco Fallacara
(Chairman)
Mr Fabrizio Acerbis
****
_____________________
_____________________
Mr Fabio Artoni
_____________________
Mr Giovanni Bandera
_____________________
Mr David Reali
_____________________
2016 ANNUAL REPORT
07. Certifications
319
2016 ANNUAL REPORT
Independent auditor’s report on the
consolidate financial statement
320
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321
2016 ANNUAL REPORT
322
2016 ANNUAL REPORT
Independent auditor’s report
on the parent financial statement
323
2016 ANNUAL REPORT
324
2016 ANNUAL REPORT
325
2016 ANNUAL REPORT
Summary Tables
326
2016 ANNUAL REPORT
327
GRI G-4 CONTENT INDEX
Indicators
Description
References
STRATEGY AND ANALYSIS
G4-1
Relevance of sustainability to the organization and the organization’s strategy for
addressing sustainability
8-9; 58-61
G4-2
Description of key impacts, risks, and opportunities
12-17; 43-52
ORGANIZATIONAL PROFILE
G4-3
G4-4
G4-5
G4-6
G4-7
G4-8
G4-9
Name of the Organisation
Primary brands, products, and services
Location of the organization’s headquarters
Countries where the organization operates
Ownership and legal form
Markets served
Scale of the organization
G4-10
Workforce characteristics
G4-11
Employees covered by collective bargaining agreements
G4-12
Organization’s supply chain
173
38-39; 173
173
8-9; 175
56; 173
27-28
25-26; 120-121
120-121; 127-130
143
91-92
G4-13
Significant changes regarding the organization’s size, structure, ownership, and
its supply chain
18-22; 120-123; 175
G4-14
Precautionary approach in risk management
43-52
G4-15
Externally economic, environmental and social charters, principles endorsed by
the company
58-59; 85-86; 94-96; 118-119;
144-145; 153-157
G4-16
Memberships of associations
153-157
IDENTIFIED MATERIAL ASPECTS AND BOUNDARIES
G4-17
Entities included in the scope of reporting
58-59; 175-176; 255-260
G4-18
Definition of report content
G4-19
Material Aspects identified
G4-20
Material Aspect within the organization
G4-21
Material Aspect outside the organization
G4-22
Restatements of information
G4-23
Significant changes from previous reporting periods in the Scope and Aspect
Boundaries
58-59
63-65; 340
63-65; 340
63-65; 340
175-176
175-176
2016 ANNUAL REPORT
Indicators
Description
References
328
STAKEHOLDER ENGAGEMENT
G4-24
List of stakeholder groups engaged
G4-25
Identification and selection of stakeholders
G4-26
Approach to stakeholder engagement
62
62
62-65; 68-70; 73-74; 81; 88-
90; 140-141; 145-146; 157
G4-27
Key topics and concerns raised through stakeholder engagement
62-65
REPORT PROFILE
G4-28
Reporting period
From 01/01/16 to 12/31/16
G4-29
Date of most recent previous report
G4-30
Reporting cycle
G4-31
Contact point for questions regarding the report
G4-32
GRI Content Index
G4-33
Assurance
GOVERNANCE
March 2016
Annual
59
327-339
58-59; 346
G4-34
Governance structure
55; 60-61
G4-35
Delegated authority for economic, environmental and social topics
55; 60-61
G4-36
Positions with responsibility for economic, environmental and social topics
55; 60-61
G4-37
Processes for consultation between stakeholders and the highest governance
body on economic, environmental and social topics
60-61; 63-65
G4-38
Composition of the highest governance body and its committees
11; 55
G4-39
Executive Role of the Chairman
55
G4-40
Nomination and selection processes for the highest governance body and its
committees
G4-41
Processes for the highest governance body to ensure conflicts of interest are
avoided and managed
Website:
www.pirelli.com/corporate,
sec. governance/bylaws e sec.
investors/shareholderinformati
on/shareholdersagreements
Website:
www.pirelli.com/corporate,
sec.
Sustainability/Pirelliandsustain
ablegrowth/policies/codeofcon
duct and sec.
governance/bylaws
G4-42
Highest governance body’s and senior executives’ roles in the development,
approval, and updating of the organization’s purpose, value or mission
statements, strategies, policies, and goals related to economic, environmental and
social impacts
60-61
2016 ANNUAL REPORT
329
Indicators
Description
References
G4-43
Measures taken to develop and enhance the highest governance body’s collective
knowledge of economic, environmental and social topics.
43-52
G4-44
Evaluation of the highest governance body’s performance
*
G4-45
Highest governance body’s role in the identification and management of
economic, environmental and social impacts, risks, and opportunities
G4-46
Highest governance body’s role in reviewing the effectiveness of the
organization’s risk management processes for economic, environmental and
social topics
G4-47
Frequency of the highest governance body’s review of economic, environmental
and social impacts, risks, and opportunities
43; 60; Website:
www.pirelli.com/corporate,
sec.
governance/enterpriseriskmana
gement/governance
43; 60; Website:
www.pirelli.com/corporate,
sec.
governance/enterpriseriskmana
gement/governance
43; 60; Website:
www.pirelli.com/corporate,
sec.
governance/enterpriseriskmana
gement/governance
G4-48
Highest committee or position that formally reviews and approves the
organization’s sustainability report
55; 60-61
G4-49
Process for communicating critical concerns to the highest governance body.
60-61
G4-50
Nature and total number of critical concerns that were communicated to the
highest governance body
60-61
G4-51
Remuneration policies for the highest governance body and senior executives
131-132
G4-52
Process for determining remuneration
G4-53
G4-54
G4-55
How stakeholders’ views are sought and taken into account regarding
remuneration
Ratio of the annual total compensation for the organization’s highest-paid
individual to the median annual total compensation for all employees
Ratio of percentage increase in annual total compensation for the organization’s
highest-paid individual to the median percentage increase in annual total
compensation for all employees
131-132
63-65; 131-132
**
**
ETHICS AND INTEGRITY
G4-56
Values, principles, standards and norms of behavior
58-61; 65-68, 85-86, 95; 118-
119; 144-145; 153-157; Sito
Website:
www.pirelli.com/corporate,
sec.
Sustainability/Pirelliandsustain
ablegrowth/policies
2016 ANNUAL REPORT
330
Indicators
Description
G4-57
G4-58
Internal and external mechanisms for seeking advice on ethical and lawful
behavior
Internal and external mechanisms for reporting concerns about unethical or
unlawful behavior
References
68-70
68-70
CATEGORY: ECONOMIC
Economic Performance
G4-DMA
Disclosure on Management Approach
49-50; 71-72; 145-146
G4-EC1
Direct economic value generated and distributed
71
G4-EC2
Financial implications and other risks and opportunities for the organization's
activities due to climate change
49-50; 91
G4-EC3
Coverage of the organization's defined benefit plan obligations
145-146; 288-289; 291
G4-EC4
Financial assistance received from government
72
Market Presence
G4-DMA
Disclosure on Management Approach
126-127, 129
G4-EC5
Ratios of standard entry level wage by gender compared to local minimum wage
at significant locations of operation
129
G4-EC6
Proportion of senior management hired from the local community at significant
locations of operation
127
Indirect Economic Impacts
G4-DMA
Disclosure on Management Approach
71-72; 157-163
G4-EC7
Development and impact of infrastructure investments and services supported
71-72; 157-163
G4-EC8
Significant indirect economic impacts, including the extent of impacts
71-72; 88-89; 159-160
Procurement Practices
G4-DMA
Disclosure on Management Approach
81; 91
G4-EC9
Proportion of spending on local suppliers at significant locations of operation
91
CATEGORY: ENVIRONMENTAL
Materials
G4-DMA
Disclosure on Management Approach
94-96; 99-100
2016 ANNUAL REPORT
Indicators
Description
G4-EN1
Materials used by weight or volume
G4-EN2
Percentage of materials used that are recycled input materials
Energy
331
References
92
92
G4-DMA
Disclosure on Management Approach
94-98; 105-107
G4-EN3
Energy consumption within the organization
G4-EN4
Energy consumption outside of the organization
G4-EN5
Energy intensity
G4-EN6
Reduction of energy consumption
G4-EN7
Reductions in energy requirements of products and services
Water
105-107
94-98
106-107
106
100-102
G4-DMA
Disclosure on Management Approach
94-98; 111-112
G4-EN8
Total water withdrawal by source
G4-EN9
Water sources significantly affected by withdrawal of water
G4-EN10
Percentage and total volume of water recycled and reused
112
112
112
Biodiversity
G4-DMA
Disclosure on Management Approach
114-115
G4-EN11
Operational sites owned, leased, managed in, or adjacent to, protected areas and
areas of high biodiversity value outside protected areas
114-115
G4-EN12
Description of significant impacts of activities, products, and services on
biodiversity in protected areas and areas of high biodiversity value outside
protected areas
114-115
G4-EN13
Habitats protected or restored
G4-EN14
Total number of IUCN Red List species and national conservation list species
with habitats in areas affected by operations, by level of extinction risk
115
115
Emissions
G4-DMA
Disclosure on Management Approach
94-98; 108-111
G4-EN15
Direct greenhouse gas (GHG) emissions (Scope 1)
110
2016 ANNUAL REPORT
Indicators
Description
References
G4-EN16
Energy indirect greenhouse gas (GHG) emissions (Scope 2)
110
332
G4-EN17
Other indirect greenhouse gas (GHG) emissions (Scope 3)
G4-EN18
Greenhouse gas (GHG) emissions intensity
G4-EN19
Reduction of greenhouse gas (GHG) emissions
G4-EN20
Emissions of ozone-depleting substances (ODS)
G4-EN21
NOx, SOx, and other significant air emissions
Effluents and Waste
G4-DMA
Disclosure on Management Approach
G4-EN22
Total water discharge by quality and destination
G4-EN23
Total weight of waste by type and disposal method
G4-EN24
Total number and volume of significant spills
G4-EN25
Weight of transported, imported, exported, or treated waste deemed hazardous
under the terms of the Basel Convention (2) Annex I, II, III, and VIII, and
percentage of transported waste shipped internationally
89; 97-98
109-110
109
116
114-116
111-114
112
113-114
116
113-114
G4-EN26
Identity, size, protected status, and biodiversity value of water bodies and related
habitats significantly affected by the organization’s discharges of water and
runoff
112
Products and Services
G4-DMA
Disclosure on Management Approach
94-98; 100-102
G4-EN27
Extent of impact mitigation of environmental impacts of products and services
100-102
G4-EN28
Percentage of products sold and their packaging materials that are reclaimed by
category
103, 116
Compliance
G4-DMA
Disclosure on Management Approach
116
G4-EN29
Monetary value of significant fines and total number of non-monetary sanctions
for non-compliance with environmental laws and regulations
116
Transport
G4-DMA
Disclosure on Management Approach
94-98
2016 ANNUAL REPORT
333
Indicators
Description
References
G4-EN30
Significant environmental impacts of transporting products and other goods and
materials for the organization’s operations, and transporting members of the
workforce
94-98
Overall
G4-DMA
Disclosure on Management Approach
94-98; 117
G4-EN31
Total environmental protection expenditures and investments by type
117
Supplier Environmental Assessment
G4-DMA
Disclosure on Management Approach
52, 81-84
G4-EN32
Percentage of new suppliers that were screened using environmental criteria
52, 82-84
G4-EN33
Significant actual and potential negative environmental impacts in the supply
chain and actions taken
52, 86-88
Environmental Grievance Mechanisms
G4-DMA
Disclosure on Management Approach
G4-EN34
Number of grievances about environmental impacts filed, addressed, and
resolved through formal grievance mechanisms
68-70
68-70, 116
CATEGORY: SOCIAL
LABOR PRACTICES AND DECENT WORK
Employment
G4-DMA
Disclosure on Management Approach
120; 126-127; 142-143
G4-LA1
Total number and rates of new employee hires and employee turnover by age
group, gender and region
124-126
G4-LA2
Benefits provided to full-time employees that are not provided to temporary or
part-time employees, by significant locations of operation
142-143
G4-LA3
Return to work and retention rates after parental leave, by gender
128
Labor/Management Relations
G4-DMA
Disclosure on Management Approach
143-144
2016 ANNUAL REPORT
334
Indicators
Description
References
G4-LA4
Minimum notice periods regarding operational changes, including whether these
are specified in collective agreements
143-144
Occupational Health and Safety
G4-DMA
Disclosure on Management Approach
143-144; 146-148
G4-LA5
Percentage of total workforce represented in formal joint management–worker
health and safety committees that help monitor and advise on occupational health
and safety programs
143
G4-LA6
Type of injury and rates of injury, occupational diseases, lost days, and
absenteeism, and total number of work-related fatalities, by region and by gender
149-150
G4-LA7
Workers with high incidence or high risk of diseases related to their occupation
150
G4-LA8
Health and safety topics covered in formal agreements with trade unions
143-144
Training and Education
G4-DMA
Disclosure on Management Approach
G4-LA9
Average hours of training per year per employee by gender, and by employee
category
134-139
138-139
G4-LA10
Programs for skills management and lifelong learning that support the continued
employability of employees and assist them in managing career endings
134-135
G4-LA11
Percentage of employees receiving regular performance and career development
reviews, by gender and by employee category
134
Diversity and Equal Opportunity
G4-DMA
Disclosure on Management Approach
126-127
G4-LA12
Composition of governance bodies and breakdown of employees per employee
category according to gender, age group, minority group membership, and other
indicators of diversity
120-123; 127-128
Equal Remuneration for Women and Men
G4-DMA
Disclosure on Management Approach
128-129
G4-LA13
Ratio of basic salary and remuneration of women to men by employee category,
by significant locations of operation
128-129
Supplier Assessment for Labor Practices
2016 ANNUAL REPORT
Indicators
Description
G4-DMA
Disclosure on Management Approach
335
References
52; 81-84
G4-LA14
Percentage of new suppliers that were screened using labor practices criteria
52; 82-86
G4-LA15
Significant actual and potential negative impacts for labor practices in the supply
chain and actions taken
52; 86-88
Labor Practices Grievance Mechanisms
G4-DMA
Disclosure on Management Approach
68-70
G4-LA16
Number of grievances about labor practices filed, addressed, and resolved
through formal grievance mechanisms
68-70, 117
HUMAN RIGHTS
Investment
G4-DMA
Disclosure on Management Approach
81-84; 118-119
G4-HR1
Total number and percentage of significant investment agreements and contracts
that include human rights clauses or that underwent human rights screening
82-84; 86-88
G4-HR2
Total hours of employee training on human rights policies or procedures
concerning aspects of human rights that are relevant to operations, including the
percentage of employees trained
118-119; 137-138
Non-discrimination
G4-DMA
Disclosure on Management Approach
126-127
G4-HR3
Total number of incidents of discrimination and corrective actions taken
68-70; 127
Freedom of Association and Collective Bargaining
G4-DMA
Disclosure on Management Approach
52; 81-84; 118-119; 143-145
G4-HR4
Operations and suppliers identified in which the right to exercise freedom of
association and collective bargaining may be violated or at significant risk, and
measures taken to support these rights
52; 86-88; 118-119; 143-145
Child Labor
G4-DMA
Disclosure on Management Approach
52; 81-84; 118-119; 143-145
2016 ANNUAL REPORT
336
Indicators
Description
References
G4-HR5
Operations and suppliers identified as having significant risk for incidents of
child labor, and measures taken to contribute to the effective abolition of child
labor
52; 86-88; 118-119; 143-145
Forced or Compulsory Labor
G4-DMA
Disclosure on Management Approach
52; 81-84; 118-119; 143-145
G4-HR6
Operations and suppliers identified as having significant risk for incidents of
forced or compulsory labor, and measures to contribute to the elimination of all
forms of forced or compulsory labor
52; 86-88; 118-119; 143-145
Security Practices
G4-DMA
Disclosure on Management Approach
52; 81-84; 90; 118-119; 137-
138; 144-145
G4-HR7
Percentage of security personnel trained in the organization’s human rights
policies or procedures that are relevant to operations
90; 137-138
Indigenous Rights
G4-DMA
Disclosure on Management Approach
68-70; 118-119; 144-145
G4-HR8
Total number of incidents of violations involving rights of indigenous peoples
and actions taken
68-70
Assessment
G4-DMA
Disclosure on Management Approach
52; 81-84; 86-87;118-119; 143-
145
G4-HR9
Total number and percentage of operations that have been subject to human
rights reviews or impact assessments
52; 118-119; 144-145
Supplier Human Rights Assessment
G4-DMA
Disclosure on Management Approach
52; 82-85; 118-119
G4-HR10
Percentage of new suppliers that were screened using human rights criteria
52; 82-85
G4-HR11
Significant actual and potential negative human rights impacts in the supply
chain and actions taken
52; 85-88
Human Rights Grievance Mechanisms
G4-DMA
Disclosure on Management Approach
68-70; 118-119; 144-145
G4-HR12
Number of grievances about human rights impacts filed, addressed, and resolved
through formal grievance mechanisms
68-70
2016 ANNUAL REPORT
Indicators
Description
References
337
SOCIETY
Local Communities
G4-DMA
Disclosure on Management Approach
62-65; 157-163
G4-SO1
Percentage of operations with implemented local community engagement,
impact assessments, and development programs
62-65; 157-163
G4-SO2
Operations with significant actual or potential negative impacts on local
communities
62-65; 114-115; 157-163
Anti-corruption
G4-DMA
Disclosure on Management Approach
65-68
G4-SO3
Total number and percentage of operations assessed for risks related to
corruption and the significant risks identified
52; 65-68; 86-88
G4-SO4
Communication and training on anti-corruption policies and procedures
65-68; 137-138
G4-SO5
Confirmed incidents of corruption and actions taken
66-70
Public Policy
G4-DMA
Disclosure on Management Approach
66-68; 72
G4-SO6
Total value of political contributions by country and recipient/beneficiary
66-68; 72
Anti-competitive Behavior
G4-DMA
Disclosure on Management Approach
G4-SO7
Total number of legal actions for anti-competitive behavior, anti-trust, and
monopoly practices and their outcomes
Compliance
G4-DMA
Disclosure on Management Approach
G4-SO8
Monetary value of significant fines and total number of non-monetary sanctions
for non-compliance with laws and regulations
Supplier Assessment for Impacts on Society
G4-DMA
Disclosure on Management Approach
G4-SO9
Percentage of new suppliers that were screened using criteria for impacts on
society
65-66
66-68
74
74
52; 82-86
52; 82-84
2016 ANNUAL REPORT
338
Indicators
Description
References
G4-SO10
Significant actual and potential negative impacts on society in the supply chain
and actions taken
52; 86-88
Grievance Mechanisms for Impacts on Society
G4-DMA
Disclosure on Management Approach
G4-SO11
Number of grievances about impacts on society filed, addressed, and resolved
through formal grievance mechanisms
PRODUCT RESPONSIBILITY
Customer Health and Safety
G4-DMA
Disclosure on Management Approach
G4-PR1
Percentage of significant product and service categories for which health and
safety impacts are assessed for improvement
68-70
68-70
78-79
78-80
G4-PR2
Total number of incidents of non-compliance with regulations and voluntary
codes concerning the health and safety impacts of products and services during
their life cycle, by type of outcomes
74
Product and Service Labeling
G4-DMA
Disclosure on Management Approach
G4-PR3
Type of product and service information required by the organization’s
procedures for product and service information and labeling, and percentage of
significant products and service categories subject to such information
requirements
G4-PR4
Total number of incidents of non-compliance with regulations and voluntary
codes concerning product and service information and labeling, by type of
outcomes
G4-PR5
Results of surveys measuring customer satisfaction
Marketing Communications
G4-DMA
Disclosure on Management Approach
G4-PR6
Sale of banned or disputed products
G4-PR7
Total number of incidents of non-compliance with regulations and voluntary
codes concerning marketing communications, including advertising, promotion,
and sponsorship, by type of outcomes
74-76
74-78
74
76-78
74-76
74
74
2016 ANNUAL REPORT
339
Indicators
Description
References
Customer Privacy
G4-DMA
Disclosure on Management Approach
65-66; 74
G4-PR8
Total number of substantiated complaints regarding breaches of customer
privacy and losses of customer data
Compliance
G4-DMA
Disclosure on Management Approach
74
74
G4-PR9
Monetary value of significant fines for non-compliance with laws and regulations
concerning the provision and use of products and services
74
* Last performance evaluation done in 2014;
** Information not disclosed due to the sensitive nature of data.
2016 ANNUAL REPORT
340
CORRELATION TABLE
The following correlation table, as requested by GRI G4 KPIs G4-19, G4-20 and G4-21, focuses on the
aspects identified as most material in the materiality analysis performed by the Group in 2016 (please
see par. “Materiality Analysis” in the “Report on Value Chain Responsible Management” for more
details).
Please consider that set of indicators covered by the Report is wider than the list of specific material
issues indicated in the materiality matrix, this in order to provide a more complete and transversal view
on the Company’s performance, for the benefit of all stakeholders; for more details, please see the GRI
G4 Content Index Table at page 327.
GRI ASPECTS
Economic Performance
Materials
Energy
Water
Biodiversity
Emissions
Effluents and Waste
Products and Services
Compliance
Supplier Environmental Assessment
Employment
Occupational Health and Safety
Training and Education
Supplier Assessment for Labour
Practices
Non-discrimination
Supplier Human Rights Assessment
Anti-corruption
Compliance
Customer Health and Safety
Product and Service Labelling
ASPECT BOUNDARIES
LIMITATIONS ON ASPECT BOUNDARIES
WITHIN THE
OUTSIDE THE
WITHIN THE
OUTSIDE THE
ORGANISATION
ORGANISATION
ORGANISATION***
ORGANISATION
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
Group
-
Suppliers
-
Suppliers and
Consumers****
-
Suppliers and
Consumers****
-
-
-
Suppliers
-
Suppliers working at
Pirelli’s sites
-
Suppliers
-
Suppliers
-
-
Consumers
Consumers
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Reporting limited to
the potential impacts
of sold products
-
*** The Report covers the entire perimeter of the Group Consolidated Financial Statements, with the sole exception of the Chinese production site
Jiaozuo, under Pirelli’s operational control since October 2016.
**** Aspects included in Group water and carbon footprint.
2016 ANNUAL REPORT
UNGC PRINCIPLES SUMMARY TABLE
Areas of the
Global Compact
Global Compact
Principles
Directly Relevant
GRI Indicators
341
Indirectly Relevant
GRI Indicators
Principle 1 – Business
should promote and
respect internationally
proclaimed human rights
in their respective spheres
of influence.
Human Rights
HUMAN RIGHTS
Aspect: Investment G4 - HR1, G4 - HR2
Aspect: Freedom of Association and
Collective
Bargaining G4 - HR4
Aspect: Child Labor G4 - HR5
Aspect: Forced or Compulsory Labor G4
- HR6
SOCIETY
Aspect: Security Practices G4 - HR7
Aspect: Local Communities
Aspect: Indigenous Rights G4 - HR8
G4 - SO1, G4 - SO2
Aspect: Assessment G4 - HR9
Aspect: Supplier Human Rights
Assessment
G4 - HR10
Aspect: Human Rights Grievance
Mechanisms
G4 - HR12
Principle 2 – Business
should ensure that they are
not, albeit indirectly,
complicit in human rights
abuses.
HUMAN RIGHTS
Aspect: Investment G4 - HR1
Aspect: Security Practices G4 - HR7
Aspect: Supplier Human Rights
Assessment
G4 - HR10, G4 - HR11
Labour Standards
Principle 3 – Businesses
should uphold the freedom
of association of workers
and recognise the right to
collective bargaining.
Principle 4 – Business
should uphold the
elimination of all forms of
forced and compulsory
labour.
Principle 5 – Business
should uphold the
effective elimination of
child
Organizational Profile G4 -11
HUMAN RIGHTS
Aspect: Freedom of Association and
Collective
Bargaining G4 - HR4
Aspect: Security Practices G4 - HR7
LABOR PRACTICES AND DECENT
WORK
Aspect: Labor/Management relations G4
- LA4
Aspect: Occupational Health & Safety
G4 - LA8
HUMAN RIGHTS
Aspect: Forced or Compulsory Labor G4
- HR6
Aspect: Security Practices G4 - HR7
HUMAN RIGHTS
Aspect: Investment G4 - HR1, G4 -
HR2
HUMAN RIGHTS
HUMAN RIGHTS
Aspect: Child Labor G4 - HR5
Aspect: Investment G4 - HR1, G4 -
Aspect: Security Practices G4 - HR7
HR2
2016 ANNUAL REPORT
Areas of the
Global Compact
Global Compact
Principles
Directly Relevant
GRI Indicators
Indirectly Relevant
GRI Indicators
342
labour.
Organizational Profile G4 - 10
LABOR PRACTICES AND DECENT
WORK
Aspect: Employment G4 - LA1, G4 -
Organizational Profile G4 - 11
LA3
ECONOMIC
Principle 6 – Business
Aspect: Training and Education G4 -
Aspect: Market Presence
should uphold the
LA9
G4 - EC5, G4 - EC6
elimination of
G4 - LA11
Aspect: Employment G4 - LA2
discrimination in respect
Aspect: Diversity and Equal Opportunity
HUMAN RIGHTS
of employment and
G4 - LA12
Aspect: Investment G4 - HR1
occupation.
Aspect: Equal Remuneration for Women
Aspect: Supplier Human Rights
and
Men G4 - LA13
HUMAN RIGHTS
Aspect: Non-discrimination G4 - HR3
Aspect: Security Practices G4 - HR7
Assessment
G4 - HR10
Principle 7 – Businesses
should support a
precautionary approach to
environmental challenges.
G4 - 14
ECONOMIC
Aspect: Economic Performance G4 -
EC2
Aspect: Overall G4 - EN31
Environment
Principle 8 – Business
should
undertake initiatives to
promote
greater environmental
responsibility.
ENVIRONMENTAL
Aspect: Materials G4 - EN1
Aspect: Energy G4 - EN3
Aspect: Water G4 - EN8
Aspect: Biodiversity G4 - EN11, G4 -
EN12,
G4 - EN13
Aspect: Emissions G4 - EN15, G4 -
EN16,
G4 - EN17, G4 - EN19, G4 - EN20, G4 -
EN21
ENVIRONMENTAL
Aspect: Materials G4 - EN1, G4 -
EN2
Aspect: Energy G4 - EN3, G4 - EN6,
G4 - EN7
Aspect: Water G4 - EN8
Aspect: Biodiversity G4 - EN11, G4
- EN12
Aspect: Emissions G4 - EN15, G4 -
EN16, G4 - EN17, G4 - EN19,G4 -
EN20, G4 - EN21
Aspect: Effluents and Waste
G4 - EN22, G4 - EN23
G4 - EN24, G4 - EN25
Aspect: Product and Services
G4 - EN27, G4 - EN28
Aspect: Compliance G4 - EN29
Aspect: Transport G4 - EN30
Aspect: Economic Performance
G4 - EC2
2016 ANNUAL REPORT
Areas of the
Global Compact
Global Compact
Principles
Directly Relevant
GRI Indicators
Indirectly Relevant
GRI Indicators
343
Aspect: Effluents and Waste G4 - EN22,
G4 - EN23, G4 - EN24, G4 - EN25
Aspect: Product and Services G4 - EN28
Aspect: Compliance G4 -EN29
Aspect: Transport G4 - EN30
Aspect: Overall G4 - EN31
Aspect: Supplier Environmental
Assessment
G4 - EN32, G4 - EN33
Aspect: Environmental Grievance
Mechanisms
G4 - EN34
Principle 9 – Businesses
should
encourage the
development and
diffusion of
environmentally friendly
technologies.
ENVIRONMENTAL
Aspect: Materials G4 - EN2
Aspect: Energy G4 - EN6, G4 - EN7
Aspect: Water G4 - EN10
Aspect: Emissions G4 - EN19
Aspect: Product and Services G4 - EN27
Anti-Corruption
ETHICS AND INTEGRITY G4 - 56, G4
ETHICS AND INTEGRITY G4 - 56,
Principle 10 – Businesses
- 57,
should work
G4 - 58
against corruption in all its
SOCIETY
G4 - 57,
G4 - 58
SOCIETY
forms,
Aspect: Anti-corruption G4 - SO3, G4 -
Aspect: Anti-corruption G4 - SO3,
including extortion and
SO4,
bribery.
G4 - SO5
G4 - SO4,
G4 - SO5
Aspect: Compliance G4 - SO8
Aspect: Compliance G4 - SO8
2016 ANNUAL REPORT
SDGs SUMMARY TABLE
Sustainable Development Goals (SDGs)
Paragraphs describing the Group’s
activities in support of the SDGs and relevant targets
344
1 - No Poverty
Company Initiatives for the External Community (Solidarity p.160-161)
2 - Zero Hunger
Company Initiatives for the External Community (Solidarity p. 160-161)
Welfare and Initiatives for the Internal Community (pp.142-143)
Occupational Health, Safety and Hygiene (pp. 146-151)
3 - Good Health and Well-being
Company Initiatives for the External Community (Road Safety pp.157-159,
Sport and Social Responsibility pp.161, Health p.161-162)
Target:
• Accident Frequency Index: -90% by 2020 compared to 2009
Training (pp.135-139)
4 - Quality Education
Company Initiatives for the External Community (Training pp.159-160,
Culture and Social Value p.162-163)
Target:
• Employee Training: more than 7 days per capita in a year
5 - Gender Equality
Diversity Management (pp. 126-131)
6 - Clean Water and Sanitation
7 - Affordable and Clean Energy
Water Management (pp. 111-112)
Target:
• Water Specific Withdrawal: -58% by 2020 compared to 2009
Energy Management (pp. 105-107)
Management of Greenhouse Gas Emissions and Carbon Action Plan (pp.108-
111)
Targets:
• Specific Energy Consumption: -18% by 2020 compared to 2009
• Specific CO2 Emissions: -15% in 2020 compared to 2009
8 - Decent Work and Economic Growth
Our Suppliers (pp. 81-84)
Internal Community (pp. 120, 144-146, 146-151)
9 - Industry, Innovation and Infrastructure
Company Initiatives for the External Community (Training pp. 159-160)
Target:
• Investments in R&D amounting to 7% of Premium Revenues
10 - Reduced Inequalities
Diversity Management (pp. 126-131)
2016 ANNUAL REPORT
Principal International Commitments for Sustainability (WBCSD pp. 155)
345
11 - Sustainable Cities and Communities
Company Initiatives for the External Community (Road Safety pp. 157-159,
Solidarity p.160-161)
Target:
• Improvements in Rolling Resistance of car segment tires (reducing CO2
emissions): -40% by 2020 compared to 2009
Energy Management (pp. 105-107)
Management of Greenhouse Gas Emissions and Carbon Action Plan (pp. 108-
111)
12 - Responsible Consumption and Production
Water Management (pp. 111-112)
Waste Management (pp. 113-114)
Company Initiatives for the External Community (Training pp.159-160)
Targets:
• Specific Energy Consumption: -18% by 2020 compared to 2009
• Specific CO2 Emissions: -15% in 2020 compared to 2009
• Water Specific Withdrawal: -58% by 2020 compared to 2009
• Waste Recovery: >95% by 2020
CDP Supply Chain (pp.89)
Management of Greenhouse Gas Emissions and Carbon Action Plan (pp. 108-
111)
13 - Climate Action
Principal International Commitments for Sustainability (International
Commitments against Climate Change pp. 156-157)
Targets:
• Specific CO2 Emissions: -15% in 2020 compared to 2009
• Improvements in Rolling Resistance of car segment tires (reducing CO2
emissions): -40% by 2020 compared to 2009
14 - Life below Water
Water Management (pp. 111-112)
15- Life on Land
Sustainability of the Natural Rubber Supply Chain (pp. 88-89)
Company Initiatives for the External Community (Training pp.159-160)
16- Peace, Justice and Strong Institutions
Focus: Anti-corruption and Antitrust Compliance Programmes (pp. 66-68)
17 - Partnerships for the Goals
Principal International Commitments for Sustainability (WBCSD pp. 155)
Company Initiatives for the External Community (Road Safety pp. 157-159)
Sustainability of the Natural Rubber Supply Chain (pp. 88-89)
2016 ANNUAL REPORT
Independent auditor’s Report
on the report on value chain responsible management
346
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347
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348
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2016 ANNUAL REPORT