Pirelli & C. S.p.a. - Milan
DATA MEETS PASSION
2017 Annual Report
CONTENTS
LETTER FROM THE CHAIRMAN
LETTER FROM CEO
NOTICE OF SHAREHOLDERS’ MEETING
CORPORATE BODIES
PRESENTATION OF 2017 PIRELLI INTEGRATED REPORT
DATA MEETS PASSION
HOW THE DIGITAL REVOLUTION HAS CHANGED EVERY ASPECT OF OUR LIVES,
PRIVATE AND BUSINESS by Tom McCarthy
THE TECHNOLOGY OF OUR DESIRE by Mohsin Hamid
THE NEXT COGNITIVE REVOLUTION by Ted Chiang
EMILIANO PONZI
01.
DIRECTORS’ REPORT ON OPERATIONS
COMPANY PROFILE
MACROECONOMIC AND MARKET SCENARIO
SIGNIFICANT EVENTS OF 2017
GROUP PERFORMANCE AND RESULTS
RESEARCH AND DEVELOPMENT ACTIVITIES
PARENT COMPANY HIGHLIGHTS
RISK FACTORS AND UNCERTAINTY
OUTLOOK FOR 2018
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SIGNIFICANT EVENTS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
ALTERNATIVE PERFORMANCE INDICATORS
OTHER INFORMATION
02.
REPORT ON RESPONSIBLE MANAGEMENT
OF THE VALUE CHAIN
METHODOLOGICAL NOTE
ECONOMIC DIMENSION
ENVIRONMENTAL DIMENSION
SOCIAL DIMENSION
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102
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132
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03.
REPORT ON THE CORPORATE GOVERNANCE
AND STRUCTURE OF SHARE OWNERSHIP
192
GLOSSARY
INTRODUCTION
COMPANY PROFILE
INFORMATION ON THE OWNERSHIP STRUCTURE
COMPLIANCE
BOARD OF DIRECTORS
PROCESSING OF CORPORATE INFORMATION
BOARD COMMITTEES
STRATEGIES COMMITTEE
APPOINTMENTS AND SUCCESSION COMMITTEE
RELATED-PARTY TRANSACTIONS COMMITTEE
COMPENSATION COMMITTEE
REMUNERATION OF THE DIRECTORS
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07.
08.
RESOLUTIONS
CERTIFICATIONS
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480
482
A. CERTIFICATION OF THE CONSOLIDATED FINANCIAL
STATEMENTS PURSUANT TO ART. 154 BIS OF LEGISLATIVE
DECREE 58 OF FEBRUARY 24, 1998
B. INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED
FINANCIAL STATEMENTS
C. CERTIFICATION OF THE PARENT FINANCIAL STATEMENTS PURSUANT
TO ART. 154 BIS OF LEGISLATIVE DECREE 58 OF FEBRUARY 24, 1998
D. INDEPENDENT AUDITORS REPORT ON THE PARENT FINANCIAL
STATEMENTS
E. SUMMARY/CORRELATION TABLES
F. INDEPENDENT AUDITOR’S REPORT ON THE CONSOLIDATED
NON-FINANCIAL DISCLOSURE PURSUANT TO ARTICLE 3 OF THE ITALIAN
LEGISLATIVE DECREE 254 OF 30 DECEMBER 2016 AND ARTICLE 5 OF CONSOB
REGULATION N. 20267
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500
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511
CORPORATE GOVERNANCE, SUSTAINABILITY,
CONTROL AND RISKS COMMITTEE
SYSTEM OF INTERNAL CONTROL AND RISK MANAGEMENT
INTERESTS OF THE DIRECTORS AND RELATED-PARTY TRANSACTIONS
BOARD OF STATUTORY AUDITORS
INFORMATION FLOWS TO THE DIRECTORS AND STATUTORY AUDITOR
RELATIONS WITH SHAREHOLDER
SHAREHOLDERS’ MEETINGS
CHANGES SINCE THE END OF THE YEAR
04.
REMUNERATION REPORT
REMUNERATION POLICY FOR YEAR 2018
2017 REMUNERATION REPORT
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255
273
05.
CONSOLIDATED FINANCIAL STATEMENTS
284
FINANCIAL STATEMENTS FORMATS
EXPLANATORY NOTES
SCOPE OF CONSOLIDATION
06.
SEPARATE FINANCIAL STATEMENTS
OF PIRELLI & C. S.P.A.
FINANCIAL STATEMENTS FORMATS
EXPLANATORY NOTES
ANNEXES TO THE EXPLANATORY NOTES
REPORT OF THE BOARD OF AUDITORS TO THE SHAREHOLDERS’ MEETING
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LETTER FROM THE CHAIRMAN
Ren Jianxin
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D ear Stakeholders,
The year 2017 was one of great achievement for Pirelli and one in which the company made
great strides towards the realization of its strategic vision, drawing on the Company’s
deep industrial heritage, prestigious brand, and excellent innovation ability.
Pirelli last year completed the separation of its Industrial activities from its Consumer ones
with the aim of strengthening both based on different target markets. The first are destined to be combined with
ChemChina’s Industrial activities to ensure long-term success through scale expansion, capacity integration,
institutional investors’ over-subscription rate was 2.4 times the offering and retail investors’ was around 1.4
times. This reflected investors’ recognition of our value and their confidence in our future development.
The accomplishments of 2017 confirm the excellence of Pirelli. It must be stressed in particular that Pirelli’s
excellence is attributed to Marco Tronchetti Provera and his team. It is his strategic vision, creativity,
enthusiasm, and extraordinary appeal that drive Pirelli to grow robustly and overtake its competitors, for which
he well deserves the praise of the world as a first-class entrepreneur. These achievements validate my great belief
in Pirelli’s future prospects which, as always, will be built on the passion and commitment of its people, ability
and business coordination by relying on the great potential of China's industrial tyre market. On the other hand,
to innovate, team work and care for both customers and employees.
Pirelli will remain strategically focused on tyres for cars and motorcycles, in particular the high end, with the
I extend sincere thanks to Marco, his team, our hard working employees, our customers, stakeholders, and all
goal of further strengthening its position of leadership.
others who have contributed to Pirelli’s success.
Ren Jianxin
Chairman
This strategy will enhance Pirelli’s push into the “High Value” segment, including Premium and Prestige, which
means to continuously improve the extraordinary quality of Pirelli products through technological innovation.
This segment will enjoy faster growth, higher profit margins, and greater resilience even in the face of economic
downturns. This segment is forecast to grow by 9% between 2016 and 2020, a rate 4 times faster than standard
tyres, driven particularly by demand in Europe, North America and, not least, China.
To maintain market leadership the company must formulate a forward-looking industry plan.
Digitalization is today already central to mobility and its importance will only grow over time. Year 2017
saw Pirelli’s launch of “Connesso,” the first smart tyre for cars marketed in the world. Thanks to the
implementation of the company’s digitalization strategy, the ability to receive information directly from
the road, which Pirelli can already offer, will have great value for car makers and drivers, as well as helping
to develop products that better serve the market.
Pirelli always adheres to value creation and value sharing. The company is also studying the market for electric,
hybrid and autonomous vehicles and last year returned to the bicycle tyre market with its Velo range. Based on
a long-term vision, these actions will lead consumption and embody the values of sustainability, environmental
awareness, and social responsibility, all of which are key elements for the future and sustainable growth of the
company and the world economy on which we depend.
In the area of sustainability, Pirelli gained significant recognition in 2017, being placed first in the world in the
auto components industry in one of the sector’s most prestigious rankings. Sustainability targets are an integral
part of the 2017-2020 Industrial Plan and a new “Sustainability Plan” addresses all aspects of the business from
green performance products to environmentally efficient industrial processes to employment policies favoring
employee diversity, safety and continuous training in line with the company’s strategy.
The year’s work culminated, at the conclusion of the transformation, with the return to the Milan stock exchange
with the biggest IPO of 2017 in continental Europe. The operation was seen favorably by financial markets where
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LETTER FROM CEO
Marco Tronchetti Provera
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D ear Stakeholders,
For Pirelli 2017 was a year of intense work, deep transformation and significant results.
In less than two years from our delisting, in October we returned to the stock exchange
a different and stronger company. In fact, we concluded the process of transformation
which turned Pirelli into the sector’s only Pure Consumer Tyre Company, focused on
the High Value segment with a high level of technological content. A renewed strategic vision which –
together with clear governance based on the best international practices – earned the appreciation of the
market as seen in the solid demand for the IPO.
of growth and where we have a solid industrial presence. We have, as well, a strong position in the Latam
area and in Russia: two markets of great potential which have shown signs of significant improvement.
Our dedication to making Pirelli always more forward looking was underscored by the results achieved
in 2017 which reflect both the guidelines set out in the 2017-2020 industrial plan and commitments to the
market. Profitability exceeded 17% (adjusted ebit margin before start-up costs) on sales of over 5.3 billion
euro - of which more than 3 billion derived from High Value products, an increase of 11.8% - while net profit
from continuing operations grew by 60.5%. Thanks to the support of shareholders, who accompanied Pirelli
back to the stock exchange, a solid operating performance and great cash generation our financial profile
We operate in a highly competitive segment of the market, where technology represents a strong barrier
also improved, with the net financial position/Adjusted Ebitda before charges and start-up costs ratio at
to entry. In 2017 Pirelli once again distinguished itself through its great commitment to innovation and
2.7 times (compared with 4.6 times in 2016).
technology. In 2017, over 90% of total expenditure in Research and Development went towards High Value
These results are the fruit of the professionalism and passion of all the men and women who work for
products, equal to 6.5% of the relative revenues, one of the highest levels among the principle tyre makers
Pirelli, who compete every day to make our company a leading example of Italian excellence in the world
worldwide.
and our brand one of the most recognized at the global level. To all of them and to all our stakeholders
The commitment to innovation is one experienced each day by all the men and women of Pirelli through
our digital transformation. Thanks to a team dedicated to the study and analysis of Big Data we are
implementing new tools capable of further improving our production processes, offering greater demand
predictability and making the work of our people more dynamic. All this contributes to the improvement of
our offering to an end consumer who today requires not only tyres but ever more personalized services, which
keep them safer, more informed, better able to manage their time and always at the center of attention.
The launch of P Zero Connesso was a step in this direction. After many years’ work on the cyber tyre, we
have produced a tyre that can “talk” to the driver, offering information on the tyre’s performance such as
pressure, temperature and wear. The P Zero color edition also demonstrates that a tyre is more than just a
round, black object and that its personalization, in line with our Perfect Fit strategy, can also come through
the color that already distinguishes us in Formula 1. Our experience on the track, where we have been sole
supplier since 2011, allows us to also meet the challenges of the road thanks to tyres that are always more
technological and innovative.
The return to the bicycle world, through the Velo project, and attention to electric cars, an area in which we
are developing partnerships with the main global car makers, make Pirelli an essential player in the great
transformation of mobility we are experiencing - a mobility which is always more connected, attentive to
sustainability and safety.
Our wide geographic presence in areas which are strategic for the business’s development allow us to
better capture and take advantage of signs of growth in the market. We are present in Europe which is the
preeminent High Value market, but also in the Nafta area and Apac which have shown the highest rate
thank you once again.
Marco Tronchetti Provera
Executive Vice Chairman and Ceo
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NOTICE OF SHAREHOLDERS’
MEETING
CORPORATE BODIES
Board of Directors1
Chairman
Executive Vice Chairman
Ren Jianxin
The persons entitled to vote in the general meeting of ordinary shareholders of Pirelli & C. Società per Azioni are called to an
and Chief Executive Officer
Marco Tronchetti Provera
Ordinary Shareholders’ Meeting in Milan at Viale Sarca no. 214, at 10:30 on Tuesday, 15 May 2018, in a single call, to discuss and
resolve on the following
AGENDA
1. Financial Statements as at 31 December 2017. Related and consequent resolutions.
Director
Director
Director
Independent Director
Independent Director
Independent Director
2. Appointment of a Director subject to an increase to 15 in the number of members of the Board of Directors. Related and
Director
consequent resolutions.
3. Board of Statutory Auditors:
>> appointment of standing and alternate auditors;
>> appointment of the Chairman;
>> determination of remuneration of auditors.
4. Remuneration policy: consultation.
Independent Director
Independent Director
Independent Director
Director
Independent Director
Yang Xingqiang
Bai Xinping
Giorgio Luca Bruno
Laura Cioli
Domenico De Sole
Fan Xiaohua
Ze’ev Goldberg
Marisa Pappalardo
Cristina Scocchia
Tao Haisu
Giovanni Tronchetti Provera
Wei Yintao
5. Three-year monetary incentive plan (2018-2020) for Pirelli’s Group Management. Related and consequent resolutions.
Secretary of the Board
Alberto Bastanzio
6. Insurance policy designated “Directors and Officers Liability Insurance”. Related and consequent resolutions.
Board of Statutory Auditors2
Chairman
Statutory auditors
Alternate Auditors
Audit, Risk, Sustainability and Corporate Governance Committee
Chairman – Independent Director
Independent Director
Independent Director
Francesco Fallacara
Fabio Artoni
Antonella Carù
Luca Nicodemi
Alberto Villani
Fabio Facchini
Giovanna Oddo
Fan Xiaohua
Laura Cioli
Cristina Scocchia
1 Appointment: August 1, 2017, effective as of August 31, 2017. Expiry: Shareholders’ Meeting convened for the approval of the Financial
Statements at December 31, 2019.
2 Appointment: May 14, 2015. Expiry: Shareholders’ Meeting convened for the approval of the Financial Statements at December 31, 2017
(Antonella Carù appointed by the Shareholders’ Meeting held on August 1, 2017, Alberto Villani and Luca Nicodemi appointed by the
Shareholders’ Meeting held on September 5, 2017).
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Committee for Related Party Transactions
Chairman – Independent Director
Independent Director
Independent Director
Nominations and Successions Committee
Chairman
Director
Director
Director
Remuneration Committee
Chairman – Independent Director
Director
Independent Director
Strategies Committee
Chairman
Director
Director
Director
Independent Director
Director
Independent Director
Domenico De Sole
Marisa Pappalardo
Cristina Scocchia
Marco Tronchetti Provera
Ren Jianxin
Bai Xinping
Giovanni Tronchetti Provera
Tao Haisu
Bai Xinping
Laura Cioli
Marco Tronchetti Provera
Yang Xinqiang
Bai Xinping
Giorgio Luca Bruno
Domenico De Sole
Ze’ev Goldberg
Wei Yintao
Independent Auditing Firm3
PricewaterhouseCoopers S.p.A.
Corporate Financial Reporting Manager4
Francesco Tanzi
The Supervisory Board (as provided for by the Organizational Model 231 adopted by the company) is chaired by Prof. Carlo Secchi.
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3 Appointment: August 1, 2017, effective as of the date of the commencement of trading of Pirelli shares on the Mercato Telematico Azionario
(screen-based stock exchange) which is organised and managed by Borsa Italiana S.p.A. (October 4, 2017). Expiry: Shareholders’ Meeting
convened for the approval of the Financial Statements at December 31, 2025.
4 Appointment: Board of Directors Meeting held on August 31, 2017. Expiry: jointly with the current Board of Directors.
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PRESENTATION OF 2017 PIRELLI
INTEGRATED ANNUAL REPORT
to 2016 and an investment in training that reached 8 average days per employee, thus surpassing for the fifth consecutive year the
target of 7 average-per-capita days as envisaged by the Sustainability Plan.
Pirelli’s social and relational capitals are based on the continuous and transparent dialogue that the Company maintains with
its Stakeholders. During 2017, particular importance was given to the consultation of the relevant stakeholders (among which
international NGOs, Pirelli’s main natural rubber suppliers, traders and farmers in the supply chain, automotive customers,
international multilateral organizations) in order to issue the Pirelli Policy on Natural Rubber.
In methodological terms, the drafting of the Annual Report 2017 took into consideration the Integrated Reporting principles
contained in the framework of the International Integrated Reporting Council (IIRC), the Financial Statements and Consolidated
The Pirelli 2017 integrated report (Annual Report 2017) aims to provide a comprehensive overview of the process of creating value
Financial Statements were drawn up according to IAS/IFRS international accounting standards, and the sustainability performance
for the Company’s Stakeholders, as resulting from the integrated management of the financial, productive, intellectual, human,
meets the GRI Standards and the provisions of the Legislative Decree of December 30, 2016, no. 254.
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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 2017, business operations generated an EBIT adjusted (before non-
recurring and restructuring expenses and before amortization of intangible assets related to assets recorded as a result of the
Business Combination) and before start-up costs equal to 927 million euro (17.3% the EBIT Margin Adjusted), up 10% from the
previous year on a like-for-like basis.
In turn, the Company’s productive capital, which includes 19 tyre factories in 13 Countries in four continents, is managed in a
perspective of environmental efficiency, with targets by 2020 in terms of a reduction of the specific indices of energy consumption,
CO2 emissions and water withdrawal and an increase in waste recovery. In this regard, in 2017 vs 2016, Pirelli has registered a reduction
of the energy specific consumption by 4%, a decrease in water withdrawal of 14%, a reduction of specific CO2 emissions by over 4%
and an increase of 5% of renewable electrical energy used, reaching 43% on total electricity used, compared to the 38% of 2016. Waste
recovery reached 93%, efficaciously pursuing the target of “zero waste to landfill”.
All this has helped to achieve efficiencies on costs amounting to 46.6 million euro in total, around 1% of the turnover.
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 2017, Pirelli invested 221.5 million euro in research and development
(4.1% of revenues) of which 199.9 million euro destined to High Value activities (6.5% of High Value revenues). In turn, Pirelli’s
Green Performance products, which combine performance and respect for the environment, at the end of 2017 represent 42%1 of
total tyre turnover (40% in 2016 and 32% in 2015). Focusing only on High Value2 products, the percentage of Green Performance
rises to 52%.
The strong investment in innovation also feeds Pirelli’s intellectual capital, which comprise a total portfolio of active patents
gathered in 715 families concerning innovations of product, process and materials, as well as a brand recognised worldwide.
The evolution of the cited capitals is closely related to the commitment, the competence and the dedication of the human capital,
at the heart of the Company’s growth. Merit, ethics and sharing of strong values and clear policies, dialogues, 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 2017 decreased by 18% compared
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 only under rolling resistance and wet grip classes A, B, C
according to the labelling parameters set by European legislation. The new calculation criterion introduced in 2017 required a restatement on
previous years.
2 High Value products are determined by rims equal or greater than 18 inches and, in addition, include all “Specialties” products (Run Flat,
Self-Sealing, Noise Cancellation System).
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by companies, but also within wider
society and the personal lives of
individuals. So Pirelli commissioned
three internationally-renowned
authors, known for their expertise
in analysing and interpreting the
contemporary scene, to share their
thoughts on current trends. Read on
for the insights of English writer Tom
McCarthy, Pakistan’s Mohsin Hamid
and Ted Chiang from the United
States.
So welcome to the world of digital,
where data meets passion.
Pirelli’s Annual Report 2017 has
the title Data Meets Passion.
This reflects the digital
transformation currently taking
place across the company – from
the factory floor to customer-
relationship management – fuelled
by Pirelli’s ongoing passion for
innovation. It is a process that
combines the potential of state-of-
the-art technology with a people-
centred approach and a commitment
to corporate development.
Pirelli’s Annual Report 2017 offers
the stories of five Italian digital
businesses – a kind of “Made in Italy
4.0”. Some of these entrepreneurs
are harnessing technology to bring
traditional crafts up-to-date – from
tailoring to upholstery to making
surfboards. Others are using
technology’s potential to address
current problems – whether to
transform our relationship with
food or protect the future of bees.
Pirelli called on the leading Italian
illustrator Emiliano Ponzi - who
collaborates with some prestigious
publication Italian and non
(like New Yorker and New York Times
and many others) - to provide an
artistic interpretation of these
stories using a 3D virtual-reality
painting app.
Clearly the impact of digital
technology is being felt not only
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DATA MEETS PASSION
revolution – from electricity to automation. Now it is harnessing the possibilities of
A s a company founded in 1872, Pirelli has made the most of each new technological
Pirelli only started its digital transformation process a year ago but already some
digital technology to become data-driven, something that reaches into its factories,
its products and its relationship with customers.
pleasing – and surprising – results are emerging. It is here, in fact, that some workers
who work on machines are involved in the transformation process that, through the
use of data and calculation algorithms, aims to anticipate problems rather than react
to solve them.
At the forefront of the process are Pirelli’s factories where some machine operators are
now using data to anticipate problems and solve them rather than simply react to them.
It is an example of the vital part Pirelli’s people are playing in the company’s digital tran-
sformation – taking the technology in new directions and making new things possible.
Smart manufacturing is just one of a series of digitalisation projects to have been
started since November 2016 – others include forecasting, marketing and customer
relationship management – and it demonstrates the far-reaching impact of the new
approach as the company starts on its digital journey.
A WORKER WHO HAD PREVIOUSLY
OPERATED A MACHINE WAS NOW LOOKING
AT DATA, INTERPRETING IT AND PROACTIVELY TAKING
STEPS TO AVOID POTENTIAL ISSUES.
Initially everything was run by a smart
manufacturing team from Milan, but when
the team visited the factories and started
demonstrating how the digital tools could be an
advantage some factory colleagues sought to make their own contribution. They wanted
to know how it worked and started proactively to propose additional things they wanted to
have, all the time supported by a change management programme called Manufacturing
to Digital – or M2D – which aims to build a digital culture based on lean principles.
REAL-TIME INFORMATION
Now some factories have smart manufacturing teams who are customising what
they want in the plant, and sharing information and best practice via WhatsApp and
Yammer groups. This has been a boost to the workforce as well as factory efficiency
and productivity, with lower scrap and less unplanned maintenance. And it is having a
domino effect across the company.
Today some Pirelli plants are equipped with systems for displaying the parameters
relevant to each individual process, such as the vulcanisation times for a given tyre.
This enables the machine operator and the factory engineers to intervene in real
time if the process is not proceeding as planned. Some workers are equipped with
wearable technology such as smart watches to supply them with key data. While our
virtual reality training programme – PLAY 2.0 – is being used to further accelerate the
improvement process.
In the future the factories will continue to evolve towards predictive maintenance,
harnessing the power of artificial intelligence. The plan is to connect the data coming
from Pirelli’s factories around the world with
the ultimate goal of creating a data-driven
culture and an integration of the supply chain
inside and outside the factory.
THE ULTIMATE GOAL IS TO CREATE
A DATA-DRIVEN CULTURE
DIGITAL MINDSET
The enthusiasm of the manufacturing workforce has shown what can be achieved with
people at the centre of the digital transformation. A major training and development
programme is underway across Pirelli to explain the changes and support a shift
towards a flexible, “digital” mindset and a more data- and customer-driven approach.
There is no doubt that the switch to digital involves more than just adopting new
technology – Industry 4.0-style – it also requires changes to the whole company from the
cultural, organisational and managerial perspective. That’s why it has been vital to have
strong endorsement from the very top of the company in the shape of executive vice-
chairman and CEO Marco Tronchetti Provera for what is set to be a quite long process.
The most challenging part is changing how Pirelli approaches the customer and it’s
the company’s long record of work on digital technologies – and its passion for research
and development and pushing boundaries – that is making that future data-driven
approach to the customer possible. Pirelli’s scientists and researchers first dared to
dream of the intelligent tyre – gathering and relaying information from the only part
of a car in contact with the road – more than 20 years ago. The first three related patents
were registered in 1999.
Since then, Pirelli’s Cyber Technologies team
has collaborated with a series of prestigious
partners, including the Milan Polytechnic
Foundation for Smart Mobility and Berkeley
IT’S PIRELLI’S LONG RECORD OF WORK
ON DIGITAL TECHNOLOGIES THAT IS MAKING
THAT FUTURE DATA-DRIVEN APPROACH
TO THE CUSTOMER POSSIBLE.
Wireless Research Center, adopting the latest technologies as they emerged – and filing
300 patents along the way.
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CYBER TECHNOLOGIES
The team has developed four digital platforms, all based on data coming from a sensor
housed inside the car tyre. This can provide accurate real-time monitoring of tyre
temperature and pressure that is quite different to that derived from a rim-based sensor.
It is also the only technology to offer a measure of tyre wear, which Pirelli calculates by
running the car’s data through a specially-developed algorithm before feeding it back
to the driver.
THE TEAM HAS DEVELOPED
FOUR DIGITAL PLATFORMS, ALL BASED
ON DATA COMING FROM A SENSOR
HOUSED INSIDE THE CAR TYRE.
Three of these digital platforms are ready
for use. The first car model fitted with the
company’s Cyber Car system, designed in close
collaboration with vehicle manufacturers, is
expected to be ready for market this year. Meanwhile the mobile phone-based Connesso
system went on sale in the US last summer, with a rollout planned for several countries
in Europe, followed by China in 2019. The company’s pioneering Cyberfleet system,
launched in 2012 and aimed at trucks, has been updated using Bluetooth technology
and extended to car fleets as well. It goes into testing in April before being launched
later this year. The team is also working on a Cyber Tyre system which is billed as a
breakthrough technology and is due to be unveiled in 2019.
It is data coming from the intelligent tyre – and delivered via these four digital platforms –
that is giving Pirelli insights into what is actually happening in the market and giving the
company the opportunity to forge new relationships with all its customers and partners,
including individual drivers, fleet companies, car manufacturers and tyre dealers.
NEW POSSIBILITIES
A car owner in Los Angeles, for example, can install P Zero tyres with Pirelli Connesso,
open an app on his mobile phone and check on their car’s tyre pressure, temperature
and wear. The same app can also show her – or him – figures for any other Connesso-
connected cars in their garage. With this kind of data available it is then possible for
Pirelli and its partners to offer consumers a range of services for the first time, in
particular around roadside assistance and tyre related servicing.
Car manufacturers are interested in information provided by the intelligent tyre about
the car’s static vertical load and “Tyre ID” which can be used to optimise the car’s
chassis control system to improve safety and performance. The static vertical load – the
downward force applied to the tyre – is particularly useful for makers of electric cars as
by knowing the car’s accurate weight, the vehicle’s central control unit can calculate
more precisely how much longer the battery will last before needing a recharge.
A PERSONAL APPROACH
The Tyre ID – a record of the tyre’s brand, size, load capacity, and more – makes it
possible to offer new services. For example, the car could remind a driver using summer
tyres that it is November and time to switch to winter tyres. If your tyre has a puncture,
a repair team would be able to check the Tyre ID via the Cloud and come directly to
where you are with a suitable replacement, ending the cycle of wasted time and money
involved in taking a car into a garage.
In the future a tyre dealer will be able to come and change your tyres while you are having
dinner with your family, so that in the morning your tyres will be mounted and ready to
go. Pirelli’s relationship with its partners – such as tyre dealers – will become even more
important as the data coming directly from
the end user can be processed and interpreted
THE CAR COULD REMIND A DRIVER USING SUMMER
to provide better products and services.
TYRES THAT IT IS NOVEMBER
AND TIME TO SWITCH TO WINTER TYRES.
For example, data on tyre wear helps to predict the demand for tyres. Pirelli can then
suggest to a dealer how to optimise the type and number of tyres it needs in stock.
The dealer will also be able to know when to contact a driver – via Pirelli’s dealer portal
which is currently being built – to tell them that their tread wear is high and they
need to change their tyre. So the dealer can contact the end user directly and make an
appointment to do that.
PIRELLI GOES DIGITAL
These data-driven insights are changing Pirelli’s relationships with its customers; they
are also changing the nature of Pirelli itself. Including the existing IT department, the
Pirelli Digital team has grown to 300 people, the majority of whom are based in Milan.
Here people with new competencies and skills – such as Full-Stack and UX developers –
will manage the data science and algorithms driving the company, along with its major
digital projects, as well as develop its customer-facing digital platforms. The new office
will be in keeping with Pirelli’s digital philosophy – open-plan offices, hot-desking and
rooms designed to encourage teamwork and agile thinking.
All of which demonstrates Pirelli’s commit-
ment to developing a transparent data-dri-
ven approach and decision-making process
with horizontal teams that are all working
DATA-DRIVEN INSIGHTS ARE CHANGING
PIRELLI’S RELATIONSHIPS WITH ITS CUSTOMERS;
THEY ARE ALSO CHANGING THE NATURE
OF PIRELLI ITSELF.
together, and a focus on listening to customers and creating value for them. When this
is blended with the company’s core experience in tyre production and R&D and passion
for advancing the future of mobility, it promises a powerful digital future.
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HOW THE DIGITAL REVOLUTION
HAS CHANGED EVERY ASPECT OF
OUR LIVES, PRIVATE AND BUSINESS
by Tom McCarthy
Mallarmé first unleashed his most famous claim: ‘Everything that exists,’ he wrote, ‘does so in or-
der to end up in a book.’ Mallarmé was not just thinking of some book or other, but (as he would
I n 1895, in an essay entitled ‘The Book, Spiritual Instrument’, the French symbolist poet Stephane
remainder of his life, he dedicated himself to this project: since the book in its present form was not up to
put it in a letter to his friend Verlaine) ‘the book, convinced as I am that in the final analysis
there’s only one… architectural and premeditated… the Orphic explanation of the earth.’ For the
the task, he set out to create a new, expanded and cross-media über-book that would take in theatre, dan-
Literary in the sense that public — and private — life finds itself governed by inscription: when everything
gets notated in some data-ledger, then experience itself, and with it the question of agency (are we free
subjects? or are all our gestures and decisions ruled and determined by the algorithms), boil down to
moments and acts of writing.
Kafka saw this coming. In his short story In the Penal Colony he envisages a giant machine into which
prisoners are strapped, whose furrows carve into their flesh, in a grotesquely self-reflective loop, the law’s
ce and music, even ritual, consume and reconfigure all these forms within a total ‘system of relationships’
own words: ‘Be just.’ For the philosopher Michel de Certeau, we all live in this machine: under capitalism,
that he would simply call (using a capital L) le Livre.
he claims, all bodies ‘are thus transformed into texts in conformity with the Western desire to read its
products.’ If you want to see the machine’s latest manifestation, look at Trevor Paglen’s famous photo of
Three decades later, the father of modern anthropology, Bronislaw Malinowski, laid out a similar ambition
the NSA’s Maryland headquarters. A colossal black box, it contains records of… well, everything really.
for the ethnographic field. His First Commandment to all would-be anthropologists was simply: Write
This is the late-modern Book — but who can read it? Even the NSA are at a loss to parse and sift and
Everything Down. Since every detail, from the minutiae of a tea-ritual to the the shape of a ceremonial
correlate the billions of data-points contained within their black book’s covers, to ‘interpret’ it.
belt-buckle, might turn out to unlock the entire logic of a given tribe, he reasoned, it should all be notated,
analysed, every last detail correlated with every last other one until — presto! — the entire social fabric
This, perhaps, is where the question starts to shift: perhaps it is no longer writing that’s the core
renders up the secret of its pattern.
Skip forward ninety years, and it might seem that both men’s aspirations have been realised. Mallarmé’s
‘system of relationships’ in which all objects and phenomena are held finds its embodiment in the World
Wide Web. Malinowski’s Commandment, too, has been executed — not on distant tribes but on the citizens
of hyper-developed countries. Now, it is all written down. There’s hardly a moment of our lives that isn’t
documented; walking down a stretch of street, we’re filmed by cameras, GPS-marked, data-tracked by
phones we carry in our pockets. Every website that we visit, every keystroke that we make is archived.
Networks of kinship are now mapped by software that tabulates and cross-indexes what we buy with who
we know, and what they buy, or like, and with the other objects that are bought or liked by others we don’t
know but with whom we share buying and liking patterns.
Where does this leave the anthropologist, or writer? For that matter, where does this leave the citizen?
Perhaps these questions are in fact the same one. What fascinates me, as a novelist, about the ascent
of digital culture and the regimes of super-surveillance it brings with it, is not so much the old adage
that all literature is political, but rather the inverse: that politics itself becomes a literary question.
issue, but reading. The task, for the citizen as for the artist, is no longer to find new forms of
expression; but to find new ways of mapping, navigating, reading our way out of, or at least through,
the writing-machine.
© 2018 by Tom McCarthy
Tom McCarthy
Tom McCarthy lives in London, where
he was born in 1969. He is known in the art world
for his role within the avant-garde
International Necronautical Society (INS).
His novels include: Remainder, Men in Space, Tintin
and the Secret of Literature, and C
(Bompiani, 2013). He was shortlisted
for both the Man Booker Prize and
Walter Scott Prize in 2010.
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THE TECHNOLOGY OF OUR DESIRE
by Mohsin Hamid
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We say that I have X type of mobile phone, featuring V type of operating
W hen we speak of technology, too often we use the language of technology.
Instead we must recall that we are human beings when we speak of technology. We must use human
system, running Z type of application. But this causes us to lose contact
with real meaning, to miss out on the possibility of communicating what
language, the language of our feelings, of our senses. For we humans are emotional creatures, physical
is human.
billions of others, we will indeed have a dystopia. But if those surpluses could be shared, and if all could
have a say in shaping the direction of technology, then perhaps something that feels like a utopia begins
to become thinkable: a world of plenty, where we have the freedom to pursue what we each value most. A
world with food and shelter and energy and agency for all. A world better for humans than any that has
come before.
Humans have long desired to live in heaven. Whether technology makes this possible will depend on
whether we open the doors to heaven wide, or whether we seek to limit access to a chosen few, and in the
creatures.
process give birth to a hell.
Then we can say that I carry a rectangular shaped object of metal and glass in my pocket, and it summons
my attention, constantly, like a syringe summons the attention of a drug addict, calling out to me, and
when I have misplaced it, when I cannot find it and gaze upon it and speak to it, it is as though a part of
myself has gone missing.
Speaking of technology in such a human language allows us to see that technology is not separate from
what is human. Rather, technology comes from what makes us human: technology comes from our desires.
The existence of airplanes is not something separate from the existence of human beings. Airplanes exist
because we human beings desired to fly.
Like desire itself, technology is not inherently good or bad. It does not lead inexorably to either utopia or
dystopia. The outcome of technological progress for humanity depends on the relationship between humans
and technology: whether technology acts only upon us, or whether we too are able act upon technology.
The question we face now, at this moment of exponentially accelerating technological change, is how do
we create a world where humans feel comfortable with the progress of technology? How do we restore a
sense of ease, a sense that we are not merely readers of a future being written by someone else, but authors
of our own future together?
One way forward is a radical democratisation of technology. Technology comes from our shared human
culture, from the human cultural capital accumulated through all of history, from language and
mathematics and physics and the zero and the one, from something that belongs to all of us. Intellectual
property, like the oceans, can be fished individually but must collectively be thought of as our commons.
Every human, in this democratic vision of technology, would have a share in the benefit that comes from
In the world to come, as machines learn, they will make great surpluses possible, and they will also
obliterate many jobs. If those surpluses are captured by a few people, and those jobs losses are borne by
technology.
Mohsin Hamid
Mohsin Hamid writes regularly for The New
York Times, the Guardian and the New York
Review of Books, and was named one of
Foreign Policy's 100 Leading Global Thinkers
in 2013 and was a 2017 Man Booker Prize
nominee. He
is the author of the novels
The reluctant fundamentalist, How to get filthy rich
in rising Asia, and Moth smoke; and a collection of
essays, Discontent and its civilizations. Born and
mostly raised in Lahore, he has since lived in
between Lahore, New York and London.
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THE NEXT COGNITIVE REVOLUTION
by Ted Chiang
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the way automobiles rendered horse-drawn carriages and buggy whips ob-
W hen discussing the computer revolution, people often make comparisons to
change our lives, we should go back to the very first information technology,
solete. But I think to fully appreciate the potential that computers have to
which is the written word.
Writing is so familiar to us that most people don’t even recognize it as a technology, but that’s what it
writing. They’ll be replaced by something more flexible and dynamic; I don’t know what that software will
look like, but it will make it easy to express ideas that we currently struggle to convey with words arranged
in rows inside a rectangle.
The advantages of such software may not be obvious when we first see it, just as the advantages of writing
weren’t immediately obvious. Even after the Greek alphabet had been in use for centuries, Socrates
remained suspicious of the written word, saying that it offered “the appearance of wisdom, not true
is. Writing is entirely different from spoken language, which is part of our biological nature; unless you
wisdom.” He pointed out that you could ask questions of a learned person and get real answers, whereas if
deliberately deprive a child of stimulation, every child will spontaneously learn to speak. (Or sign, in
you tried to ask questions of a piece of writing, it could only say one thing. People make similar criticisms
the case of deaf children.) But writing is an invention, and it wasn’t one that came easily. Humans were
of computers today, and for the same reason Socrates criticized writing: because you can’t fully appreciate
daubing paint on cave walls and making necklaces for tens of thousands of years before it occurred to
anyone to represent speech by making marks. Even today, there are thousands of languages that have
no written form.
a new mode of cognition until you’ve become fluent in it yourself.
We’re accustomed to thinking of technology as being cold and hard, something that doesn’t mesh well
with our bodies or ourselves, so when someone says that digital technology will become a part of us, it’s
Like other technologies,writing has been improved over time. THISSENTENCEISHARDTOREAD-
easy to envision cables being plugged into our brains, and then recoil at the thought. But if you think
BUTATONEPOINTINHISTORYALLWRITINGLOOKEDLIKETHIS When you read that sentence, you
of it as an analogue to the written word, it ceases to be frightening and becomes empowering instead.
probably moved your lips to sound it out; the earliest forms of writing were tied closely to speech. Over the
Digital technology will become a part of us by transforming the language in which we think. And rather
course of centuries, people separated words with spaces, distinguished between capital and small letters,
of diminishing us, it will expand our range of possibilities; it will give us new ways to be smart, new ways
and added punctuation marks to identify sentences and clauses. These improvements made writing more
effective in the same way that advances in metallurgy made knives sharper and stronger.
If you have ever delivered a speech, you almost certainly wrote some words down beforehand; maybe just
some notecards, but more likely the entire thing, word for word. Why would you do that, when the final
product would be delivered orally? Because writing has become more than a way of transcribing sounds;
it helps you organize your thoughts and decide what you want to say. Writing is a cognitive technology, a
tool for thinking.
The conveniences afforded by computers are enormous, but even more profound is the impact that digital
technology will have on the way we think. I expect that in the future, when you need to prepare a speech,
you will use software to help you formulate your ideas. Not Microsoft Word or Powerpoint, which are
attempts to emulate older modes of communication; they’re like the all-capitals, no-spaces versions of
to be creative, new ways to be human.
Ted Chiang
Ted Chiang is an award-winning writer of science
fiction. Over the course of 25 years and 15 stories,
he has won numerous awards including four
Nebulas, four Hugos, four Locuses, and the John
W. Campbell Award for Best New Writer. The
title story from his collection, Stories of Your Life
and Others, was adapted into the movie Oscar-
winning movie Arrival, starring Amy Adams and
directed by Denis Villeneuve. He freelances as a
technical writer and currently resides in Bellevue,
Washington, and is a graduate of the Clarion
Writers Workshop.
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EMILIANO
PONZI
ILLUSTRATOR
Emiliano Ponzi is one of today's leading illustrators.
Every afternoon of his childhood was passed sitting at a table drawing, his feet not even
touching the floor.
Now, Emiliano Ponzi draws at a table in a large studio he shares with other creatives
in Milan. He spends a few months every year in New York, where he has received nu-
merous awards including three gold medals from the Society of Illustrators, as well as
silver and merit ones. He is also the only Italian to have won the Art Directors Club Gold
Cube in the Big Apple.
You have very probably had your hands on an Emiliano Ponzi work as they feature on
the covers of prestigious publications, Italian and non-: the New York Times, New Yor-
ker, Le Monde, La Repubblica, Esquire and Vogue, to name but a few. His clients also
include institutions such as the Triennale di Milano and MoMA, for which he recently
illustrated a New York subway map book.
His painstaking daily practice has spawned an unmistakable style of simple strokes
and pastel shades reminiscent of Edward Hopper. His are concise, elegant metaphors
- be they cover illustrations for a series of Bukowski books, murals for a Milan metro
station surrounded by Isozaki, Libeskind and Zaha Hadid skyscrapers or the latest cover
However, if you ask Emiliano, his finest illustration is always the one he is going
of the Pirelli magazine World.
to draw tomorrow.
and
GABRIELE
VERONICA
DRUETTA
TAPPEZZERIE DRUETTA
Next-generation upholsterers, the two Druetta brothers revamped the family business,
established in 1953, with 3D design and a virtual room where customers are invited to
enjoy an immersive experience and see their finished designed product.
BEAUTY IS THE AIM,
TECHNOLOGY THE MEANS
Technology is the means that has made it possible. Veronica Druetta and her brother
T he dream is to keep alive a manual art handed down through the generations.
triangle» as it’s known. In 2012 the pair decided to enter the profession as well. Veronica was still very
company, based in Moretta, between Saluzzo and Alba - «the Piedmont slow food
Gabriele are upholsterers from a three-generation family tradition: their grandfather
Matteo founded the business in 1953 and their father Antonello still runs the
young (she's now thirty) and her career path seemed to be leading in a completely different direction:
after studying languages she began work as an interpreter, and she spent some time living abroad.
For his part, her older brother had studied architecture. Then something clicked, and the two of them
chose this profession with the aim of bringing it into the new millennium. They equipped themselves
with a 3D scanner and a parametric software package. One of the difficulties in traditional upholstery
is that to upholster an item of furniture you first need to take measurements and carry out tests, a
preliminary phase that takes time and is even needed just to prepare a quote: consequently the profession
is becoming increasingly unsustainable. By using a simple three-dimensional scanner, however, Veronica
and Gabriele can create a model, complete with all measurements, in just a few seconds.
In 2016 their company was selected for Botteghe Digitali, a project to assist in the training and
advancement of outstanding Italian craftsmanship. The word upholsterer is rather reductive to describe
what they do: they not only upholster furniture but also design it, working with prestigious architectural
practices; there are also collaborations with art galleries. The algorithms in the software enable them
to modify their designs in situations in which one small adjustment would require complex calculations
in a short space of time. These savings in time and energy are enabling them to take «an endangered
skill», as Gabriele defines it, and to make it compatible with a globalised market. Veronica’s linguistic
knowledge, and her experience abroad, allow them to communicate directly with international customers
and suppliers.
Innovation and tradition also coexist in the materials they use: the Druetta siblings know how to
work with the most classic velvets and horsehair padding, while simultaneously experimenting with
3D printed fabrics, polymer gels and original textures They love eclectic combinations, using fabrics
designed for fashion, technical clothing or medical applications. They seek out innovation, says
Veronica, but with an age-old spirit. «We go to trade fairs, we knock on doors, we seek direct contact
with anyone creating interesting things». They dislike the rhetoric of progress as an end in itself.
Digitalisation has revolutionised the design stage, but production is still done by hand.
Nonetheless they look with great interest to augmented reality applications such as Google Tilt Brush,
the virtual paintbrush that enables the creation of 3D designs. But technology is simply the means:
the goal is to do things well, in the pursuit of beauty.
COMPANY PROFILE
over 160 countries, as well as its high exposure to the three
rim diameter ≥18 inches, and thereby also modifying the nomenclature to New Premium;
major markets for High Value tyres: Europe, NAFTA and
> Specialties and Super Specialties: tyres with a high technological content for vehicles of every class, which meet the needs
APAC (which at December 31, 2017 accounted for 75% of total
of specific applications (for example Runflat or Self Sealing) or customisations for the end consumer (for example, the Colour
Below is a summary of the Company description and strategic
revenues and 92% of High Value revenues).
Edition tyres), regardless of the size of the rim diameter;
guidelines underlying the 2017-2020
Industrial Plan as
> Premium Motorcycle: tyres for high-end motorcycles that ensure high performance.
contained in the documentation published for the IPO.
The Group also boasts a geographically diversified production
These categories will be joined by the products and services for connected vehicles and for the Velo world, activities which were
1. COMPANY PROFILE
structure with 19 plants in 13 countries and a total capacity
launched in 2017.
at the end of 2017 of approximately 76 million car tyres, of
which more than half (55%) was suited to the manufacture of
High Value tyres. At December 31, 2017, 78% of the productive
NEW FOCUS ON "HIGH VALUE"
Pirelli is one of the world’s leading tyre producers and provider
capacity of Consumer Activities
for Automotive and
of ancillary services, and the only producer in the industry
Motorcycle radials were concentrated in countries with low
to exclusively focus on the Consumer business (tyres for
production costs.
cars, motorcycles and bicycles). Pirelli counts on its globally
recognised brand and its distinctive positioning in the High
At December 31, 2017, the Company employed 30,189 people
Value segment, namely products created to provide the
(29,787 at the end of 2016).
highest levels in terms of performance, safety, quietness and
grip on the road surface.
Just two years after the Public Offer promoted by ChemChina
together with Camfin shareholders, Pirelli returned to the
Pirelli has a distinctive industrial tradition of more than
stock market on October 4, 2017, following a reorganisation
140 years, characterised by a sustainable management
process which led to the separation of the Industrial business
4
2
model, which has always been associated with its capacity
and to the focus on the Consumer business, enriched with new
for innovation, product quality and brand strength, which
proficiencies also through the creation of new departments
is also recognised outside the world of Automobiles and
and business (Consumer Marketing, Digital, Data Science,
Motorcycles.
Cyber and Velo).
FROM FOCUS ON PREMIUM ...
... TO A NARROWER FOCUS ON “HIGH VALUE”
100%
% of 2016A
total revenues
CAR
MOTORCYCLE
CYBER
VELO
Old Premium
(≥17”)
Prestige
65%
≤16”
35%
≥18”
55%
New Premium ( ≥18”)
Premium
18”
17”
Specialties
≤17”
HIGH VALUE
(~100 millions
customers)
Specialities &
Super Specialties
Start-up
In 2017
2016
Current
45%
STANDARD
≤17” excluding
Specialties
Non
Premium
THE ONLY TYRE COMPANY FOCUSED ON SERVING CONSUMERS ONLY
% of Total
Revenues
2017A
2020E
58%
~63%
42%
~37%
3
4
Present in sports competitions since 1907, Pirelli has been
the exclusive supplier for Formula 1® World Championships
since 2011, which represents a constant challenge in terms of
technological innovation and is an important driving force in
2. FOCUS ON THE HIGH
VALUE SEGMENT
For the 2017 financial year, revenues for the Group from sales and services amounted to euro 5,352 million for the Company, while
the EBIT adjusted without pre-start-up-costs3, amounted to euro 927 million, the equivalent of 17.3% of revenues. During the same
year, Pirelli generated 57.5% of its turnover (euro 3.1 billion euro out of euro 5.4 billion), and approximately 83% of its EBIT adjusted
without start-up costs, from within the High Value segment. For 2020 Pirelli expects to increase the High Value share of its turnover
the enhancement of the Pirelli brand. Pirelli is also present in
Pirelli focuses on the most technologically demanding
to up to 63%, and its turnover share of the EBIT adjusted to up to 85%.
over 460 automotive and motorcycle championships.
segments, which are considered high growth and high
profitability.
Pirelli invests in research and development mainly for High
The High Value segment can be identified through the
Value products. In 2017, over 90% of the total research and
following categories:
development costs were addressed on High Value products,
> Prestige: tyres designed and developed in partnership
approximately 6.5% of the related revenues, being one of the
with car manufacturers belonging to the Prestige Car
highest levels amongst the world’s leading tyre producers.
segment (which traditionally includes producers such as
The Company can also count on a portfolio of approximately
Ferrari, Lamborghini, Maserati, Bentley, Bugatti, Rolls
6,100 active patents grouped into 715 families, each on average
Royce, Porsche, Aston Martin, McLaren and Pagani)
extended across 8-9 countries.
which are subject to specific homologations;
> New Premium: tyres with a rim diameter ≥18 inches, aimed
Through their strong partnerships with the most prestigious
primarily but not exclusively at motor vehicles belonging
car manufacturers, Pirelli offers the widest range of High Value
to the Auto Prestige and Auto Premium segments (which
tyres, which - at December 31, 2017 - counted more than 2,160
traditionally includes car manufacturers such as BMW,
homologations (of over 2,740 in total), of which 88% carry
Mercedes, Audi, Alfa Romeo, Jaguar, Land Rover, Infiniti,
original markings, 34% are Prestige and 29% winter tyres.
Lexus, Lincoln, Acura, Cadillac and Volvo). Until the end of
Pirelli counts on its vast commercial presence, with a network
as Premium tyres. As of the first half-year of 2017, Pirelli
of approximately 14,600 points of sale at December 31, 2017 in
has redefined the scope of Premium tyres as tyres with a
2016 Pirelli identified tyres with a rim diameter ≥17 inches
3 This refers to costs of euro 50.2 million incurred during the 2017 financial year for the start-up phase of programs which intercept the
new needs of the end customer, such as connectivity (the Cyber activity), return to the bicycle business (the Velo project), the activities
for the digital transformation of the Company and the activities for the reconversion of the Aeolus manufacturing plant for Car. For more
information on the EBIT adjusted, reference should be made to Chapter IX, Paragraph 9.1.2 of the Registration Document.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations 3. BUSINESS MODEL
Through the homologations and the analysis of these trends,
growth strategy, and focused on efficient organisation,
Pirelli is able to obtain medium-long term visibility both on
business ethics, the enhancement of diversity, shared
The wide range of products offered by Pirelli is conceived, created, checked and commercialised for sale by following an organisational
the production expected in the Original Equipment market as
objectives, a healthy and safe working environments,
integrated supply-chain model which goes from product development, to commercialisation for sale and finally to marketing.
well as in the Replacement market. The latter can in turn be
training in support of an increasingly digital-oriented
Registrations
O. E. Tyres Market
Homologations
4
4
Product Development
Car Parc
Replacement Market
S
A
L
E
S
P
L
A
N
S
D
E
M
A
N
D
P
L
A
N
N
I
N
G
F
A
B
B
R
I
C
H
E
S
U
P
P
L
Y
C
H
A
I
N
T
R
A
D
E
E
N
G
A
G
E
M
E
N
T
C
O
N
S
U
M
E
R
E
N
G
A
G
E
M
E
N
T
Pull through demand
Push through demand
Company activities along the supply chain...
analysed as follows:
cultural evolution, welfare and engagement;
> a “potential” pull-through market,
i.e. the potential
> a proactive dialogue with the financial market on
replacement generated by vehicles equipped with Pirelli
sustainability planning and performances achieved;
tyres as Original Equipment;
> active presence in the international committees which
> a “potential” push-through market, which derives from
are the amongst the most relevant for the definition
the replacements for cars for which Pirelli does not have
and
implementation of strategies
for sustainable
homologations.
development (UN Global Compact LEAD, World Business
The sales plans, through the Demand Planning process, are
Council for Sustainable Development);
allocated to the productive structure, which operates in close
> constant attention to relational capital. From its dialogue
coordination with the purchasing function.
with stakeholders and the understanding of their
The tyres produced are subsequently distributed through the
mitigation and the seizing of opportunities, as well as the
Supply Chain until they reach the distribution networks, or
strengthening of its license to operate (globally and locally);
distributed directly to the retailer points of sale (approximately
>
support for the development of local communities and the
14,600 at the end of 2017) which allows Pirelli to serve an ever
acceleration of the spread of a Culture of Road Safety.
expectations, the Company benefits both in terms of risk
more geo-localised car market. Further down the distribution
chain Pirelli also carries out a series of initiatives which
accompany the consumer from brand consideration up until the
purchase, during which digital and physical reference material
at their disposition is made available to the customer.
3.1 Globally recognised integrated sustainable
management Pirelli is the Global Leader in sustainable
management for the Auto Components sector, according to
4. PIRELLI STRENGTHS
5
4
4.1 Strategic positioning in a profitable and
growing segment, located within a resilient
industry The distinctive positioning
in the profitable
High Value segment, which is expected to grow and is to a
large extent located within a resilient industry such as the
RobecoSAM’s Sustainability Yearbook 2018.
Replacement sector, is a significant competitive advantage
for Pirelli.
Pirelli’s business model starts from the development of tyres in partnership with Premium and Prestige car manufacturers which
The main areas of development where the Company is
are developed along an integrated process which arrives at the end consumer. The purpose of this integration is to obtain products
involved include:
In particular, the High Value tyre segment generates higher
which satisfy the needs and tastes of the most demanding users.
> the reduction of environmental impacts along the life cycle of
profit margins because the products included therein are
These partnerships allow Pirelli to enjoy high visibility on the technological innovations that the car manufacturers intend to
to the use and end-of-life phase. Pirelli develops products
associated with performance, advanced technology, safety
introduce, and are the starting point in ensuring the successful positioning in the market for High Value, Original Equipment tyres,
and production processes aimed at minimising polluting
and sustainability. Because of these characteristics, Pirelli is
as well as in the Replacement channel. At the level of automotive brands, the Company’s client base is particularly diversified. At
emissions, waste production and increasing the recycling of
able to put in practice a pricing policy located at the upper-
December 31, 2017, Pirelli was supplying 44 brands of car manufacturers with Original Equipment.
materials, the use of natural resources. To this end, research
end of the market for high-end tyres for Automobiles and
the product, from raw materials to the production process,
recognised by the consumer as high value-added and are
This joint development, together with the homologations, guarantees the perfect match of tyres with the dynamic characteristics
primarily those focused on innovative materials;
and electronics of the car (reaching the so called “Perfect fit”) which encourages loyalty, and the retention of the end consumer
> sustainable management of the supply chain along all
The New Premium tyre market segment, which
is a
(generally higher in the High Value segment), thereby impacting directly on the Replacement channel. Pirelli estimates that over
phases of the relationship with the Supplier, from the
significant part of the High Value market for motor vehicles,
the three-year period 2018-2020, over 60% of the High Value Replacement sales volumes, and over 50% of the High Value sales of
selection to the contract, from the monitoring and
is characterised by a higher growth than that of the standard
Original Equipment will be generated by the homologations in the portfolio during the 2017 financial year.
prevention of risks through to third-party on-site audits, up
segment, considering:
In addition to the product development activities with the car manufacturers, Pirelli closely monitors the trends in the global
the development of projects reaching down to the origins
of Prestige and Premium segments for 2014 was 9.9%,
automotive and motorcycle market, and, in particular, trends for new vehicle registrations and cars on the road, where the latter
of the value chain, such as in the case of natural rubber;
10.8% for 2017, 11.3% for 2020);
forms the reference base for the Replacement market.
> an employment governance
inspired by
the best
>
the growing number of car models which are accompanied
until the engagement of the company which will share in
>
the evolution of the circulating car market mix (the share
international practices, adjusted to support the Company’s
by the diversification of the characteristics of the tyres
and development activities constitute an essential lever,
Motorcycles.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations
approved for each individual car model;
>
the growing demand for Specialties and Super Specialties tyres;
>
the increasing market share of SUVs (14% of global registrations in 2010, 29% in 2016, 34% in 2020);
>
the evolution of automobile design towards higher tyre rim diameters.
CAR PARC
(in millions of vehicles)
1,108
0.2%
9.7%
1,372
0.3%
11.0%
1,200
0.2%
10.5%
+3.6%
+8.3%
+4.6%
+3.5%
1,244
0.2%
10.6%
CAGR
14A-16A
CAGR
16A-20E
+4.1%
+3.4%
Total
+12.5%
+7.8%
Prestige
+8.2%
+4.5%
Premium
+3.6%
+3.3%
Standard
2014A
2016A
2017A
2020E
TYRE MARKET
(in millions of units)
+3.0%
1,530
1,575
13%
+10.5%
14%
1,719
16%
CAGR
14A-16A
CAGR
16A-20E
+3.3%
+3.0%
Total
87%
86%
84%
+13.6%
+9.1%
+1.9%
+2.0%
+1.9%
≥18"
New Premium
>4x
≤17"
Standard
2016A
2017A
2020E
1,435
11%
89%
89%
2014A
4
6
Source: Prepared by the Company based on studies by a leading research firm on the Automotive market and on data supplied by regional
associations fortyre producers, as well as internal data. The 2016 tyre market data has been uptdated with regard to what is contained in
the Registration Document.
EUROPE
NAFTA
APAC
LATAM
PRESTIGE
GLAOBAL LEADER
NEW PREMIUM1
REPLACEMENTS
LEADER4
AMONGST TOP 4 IN THE USA
Leader for Market Tyres
LEADER
IN CHINA
LEADER
IN BRAZIL
RADIAL TYRES2
FOR MOTORBIKE
GLOBAL LEADER
PREMIUM TYRES3
FOR MOTORBIKES2
LEADER4
THIRD
LEADER
LEADER
Note: 1. Car tyres with a rim diamter ≥18,
2. Data refers to Pirelli and Metzeler brands jointly,
3. Radial, Custom Touring, Off Road eSport Touring X-ply with a speed rating of ≥H,
4. Area scope includes Italy, Spain, France, UK and Germany.
Source: Pirelli estimates based on third-part data.
4.3 Pirelli is an iconic Brand capable of engaging consumers even beyond the limits of the tyre market The
Pirelli brand is internationally recognised as an iconic brand associated with technology and Italian excellence in the automotive
and motorcycle field, and beyond. The Pirelli Brand and the “P lunga” logo, which has represented it for over a century, are associated
with exclusivity and high value, and convey Pirelli’s mission to bring technology, creativity and driving pleasure to the consumers.
The Pirelli brand holds a position of primary importance amongst tyre brands in Italy and Brazil in terms of brand awareness, while
at the same time positioning itself, in several other countries (for example the United Kingdom, Germany and China), amongst the
7
4
95% of the New Premium market is concentrated in Europe, Apac and NAFTA4.
three best-known tyre brands7.
In 2017 the New Premium segment recorded a growth of +10.5%, which is over 5 times higher than that of the standard market5.
The reputation of the Pirelli name and the Pirelli brand is linked, in addition to the excellence and quality of Pirelli products, to
decades of successes in automobile racing and to the distinctive position of the Company as supplier to luxury car manufacturers.
The Replacement market, which accounted for 74% of the Group’s revenues for 2017, has historically proved to be a resilient market
as it is tied to the number of cars in use, and is capable of producing high revenues and high profit margins which are not influenced
Even outside the world of engines, the reputation and strength of the brand are constantly fuelled by Pirelli through the continuous
by economic cycles.
4.2 Leadership position in the high value markets6 Over the years, Pirelli has achieved a distinctive position with regard
to High Value tyres and today holds a leadership position in the Prestige tyre segment, with a share of more than one third of the
association of the logo with events and major projects. The Pirelli brand is in fact an icon in sport, design, lifestyle, in initiatives for
the community, and in art and culture in general. Pirelli’s sponsorship of numerous sports associations, such as the Football Club
Internazionale Milano, Infront Sports and Media for the FIS Alpine Ski World Championships, the Ice Hockey World Championships8,
and, more recently the vessel Emirates Team New Zealand in the America’s Cup, bears testimony to this affinity. Pirelli is also present
in the field of design and culture with projects such as the Pirelli Calendar, and through the activities carried out with the support of
global market in terms of sales volumes, and in the radial sector of the market for motorcycle Replacement tyres. Pirelli is also a
the Pirelli Foundation and Pirelli Hangar-Bicocca™.
leader in Europe, China and Brazil, in the New Premium car and Premium motorcycle tyre market.
The high visibility of the Pirelli Brand translates into the strong engagement of consumers through digital communication
channels, which also include, in addition to the pirelli.com website, other websites devoted to individual products in 43 countries,
in 25 languages, while also being present on major social networks where it reached over 340 million users during 2017.
4 Source: Prepared by the Company based on studies by a research firm on the Automotive market and on data supplied by regional associations
for tyre producers.
5 Source: Prepared by the Company based on studies by a research firm on the Automotive market and on data supplied by regional associations
for tyre producers.
6 The data regarding the Company’s competitive positioning included in this paragraph has been prepared by the Company based on third-party
sources including research studies carried out regarding the automotive and motorcycle industry, on regional tyre manufacturer associations,
and information collected locally by the Pirelli sales force.
7 Source: Prepared by the Company also based on third-party sources including brand tracking studies relative to the tyre market as edited by
third-party sources.
8 Organised respectively by the International Ski Federation (FIS) and the International Ice Hockey Federation (IIHF).
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations
AWARENESS
CONSIDERATION
CONVERSION
PURCHASE
POST-PURCHASE
PIRELLI HOMOLOGATIONS
~2.5x
SPONSORS
MOTORSPORT
COMPETITIONS
INNOVATIONS FOCUSED
ON THE CONSUMER
FLAGSHIP STORES
DIGITAL PUBLISHING
CONTENT
L.A. Dodgers #1 in the world
in terms of presence
F1 1.8 billions
spectators
380,000 people engaged
through Velo content
55K sellers included
in the dealer locator
5 million sessions
on the corporate
website in 2017
CULTURE AND LIFESTYLE
Pirelli.com visitors
2x during Pirelli
Calendar launch
4
8
4.4 Solid commercial relationships with the producers of Prestige and Premium vehicles Over time, Pirelli has
developed close relationships with the most eminent Prestige car manufacturers (such as Ferrari, Maserati, Lamborghini, Porsche,
402
324
327
284
315
288
281
247
34
2014A
43
2015A
27
2016A
78
2017A
9
4
207
176
31
2013A
165
139
26
2012A
New Premium products
Standard products
Bentley, Aston Martin, Bugatti, Rolls Royce, Pagani and McLaren), Premium car manufacturers (such as Audi, Mercedes, BMW,
At the end of 2017 Pirelli had a portfolio of over 2,160 High Value homologations (of over 2,740 in total), of which 88% carry original
Jaguar, Land Rover and Volvo) and motorcycles (such as Ducati, BMW, MV Agusta, Triumph and KTM), relying on the strength of the
markings, 34% are Prestige and 29% winter tyres.
brand, its reputation, the technological skills acquired and the ability to understand the needs of end consumers.
As December 31, 2017, Pirelli was involved in over 100 collaborations with producers belonging to the Premium segment, in projects
>
they allow for the prediction of long-term demand for tyres;
Pirelli believes that these partnerships are highly strategic in that:
for the development of innovative technology.
>
they strengthen the competitive positioning and the predictability of short-term demand in the Replacement channel, thanks
to the carry-over impact. Moreover, in the case of Prestige and Premium Cars, customers tend to re-purchase Replacement
Their collaboration with car manufacturers allows Pirelli to develop tyres made to measure for different types of vehicles which can
tyres of the same brand supplied as Original Equipment, which translates into both customer loyalty and greater predictability
be clearly identified with special markings (so-called marked tyres), which meet the needs of consumers and ensure the perfect
of demand for Replacement tyres;
functioning of all the components in the latest generation of cars (all-wheel drive, hybrid systems, driver assistance systems).
> This allows Pirelli to strengthen its knowledge of the tastes and needs of its end customers, thanks to the co-operations between
For the 2014-2016 period over 300 new homologations were obtained per year, after an average development of approximately
Pirelli and car manufacturers in conjunction with joint marketing activities, events and Motorsport competitions.
24 months, adding to the aforementioned portfolio of homologations and markings. The pace of homologations increased during
Over the years Pirelli has also developed expertise and a highly qualified know-how concerning the specific requirements of car
2017: 402 homologations including 324 New Premium.
producers which are difficult to replicate.
4.5 Capacity for continuous technological innovation Technological innovation is an essential element of Pirelli
strategy and plays a central role in the Company’s business model, especially with reference to High Value products.
For many years Pirelli has been conducting research and development in accordance with the “Open Innovation” model: co-operating
with research centres, suppliers and universities. Pirelli develops distinctive solutions which are only accessible internally, creating a
leverage effect with respect to their skills. As December 31, 2017, there were 31 collaboration projects in place with partner universities,
20 JDAs and 50 NDAs9 with suppliers and universities, and over 100 collaboration agreements with Premium Car manufacturers.
9 Respectively, Joint Development Agreements (JDA) and Non-Disclosure Agreements (NDA).
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations
REGULATIONS
REPLACEMENT MARKET
PIRELLI
R&D
T
N
E
M
E
P
O
L
E
V
E
D
N
O
I
T
I
N
I
F
E
D
T
C
U
D
O
R
P
Pirelli also commercialises its products for sale (Super Specialties products) in 9 countries through an on-line sales network
managed by Pirelli (Shop.pirelli.com) and aimed at the end-consumer (so-called e-commerce).
I
N
N
O
V
A
T
I
O
N
O.E. CUSTOMERS
On the production front, Pirelli operates through 19 factories located close to their sales markets, consistent with the local-for-
local strategy, with a productive capacity for car tyres amounting to approximately 76 million tyres at December 31, 2017, of which
more than half (55%) was suited to the manufacture of High Value products.
At December 31, 2017, more than two-thirds (78%) of Consumer production activities for Automotive and Motorcycle Radials
was carried out in countries with competitive industrial costs such as Mexico, Brazil, Argentina, Romania, Russia and China.
SUPPLIERS
The production map is completed by the plants in Italy, the United Kingdom, Germany and the United States, where the
very high level of automation compensates for the higher cost of labour. This production structure is the result of a process
initiated in 2008, which led to a review of the production sites map, resulting in the creation of plants perfectly suited to the
manufacture of High Value products in Romania, China and Mexico to substitute part of the production in the mature markets
UNIVERSITIES
(Italy and Spain).
During 2017, Pirelli made investments of euro 489 million (9.2% of turnover) aimed at:
UK
GERMANY
ITALY
Burton - Car
Carlisle - Car
Breuberg
- Car/Motorcycle
Bollate - Car
Settimo Torinese - Car
ROMANIA
Slatina - Car
5
0
These research and development activities allow Pirelli to be amongst the market leaders with its range of innovative, technologically
superior tyres, which are technically complex and highly prized by specialised magazines in the automotive and motorcycle industry.
The high level of skills necessary for the development of these tyres is one of the competitive and strategic advantages of the
Company and represents an effective barrier to entry into the High Value tyre market.
Pirelli’s commitment in the field of sports competitions (in particular Formula 1® and Superbike World) has allowed for the
development of new tyre models, the improvement of the quality of road product projects, and the improvement in the understanding
of tyre dynamics in relation to temperatures when functioning, and material behaviour. The research and development activities
and the know-how gained through the design, development and production of tyres for the Formula 1® World Championship have
allowed Pirelli to accelerate the design and development of new products, and to implement a series of cutting-edge innovations
in order to offer maximum levels in terms of performance and safety.
USA
Rome - Car
MEXICO
Silao - Car
VENEZUELA
Guacara - Car(*)
4.6 Production and global sales structure focused on High Value Pirelli, one of the first multinational companies in
the world with a solid international presence from the early twentieth century, served over 160 markets grouped into 6 regions in
2017: Europa, NAFTA, APAC, LATAM, MEAI, Russia and CIS.
BRAZIL
Campinas - Car
Feira de Santana - Car
Gravatal - Motorcycle (offtake)
1
5
RUSSIA
Kirov - Car
Voronezh - Car
CHINA
Yanzhou - Car/Moto
Jiaozuo - Car
INDONESIA
Subang
- Motorcycle
(JV)(**)
Pirelli has a widespread sales network with over 250,000 points of sale, including:
>
retail points of sale (approximately 14,600 at December 31, 2017, compared to 12,500 at the end of 2016), mainly concentrated in
the three Premium geographical areas - Europe, Apac and NAFTA (75% for 2017, 75% for 2016). These points of sale are linked to
Pirelli by loyalty formulas that result in the significant presence of Pirelli products at the points of sale;
> Automobile and Motorcycle dealerships (Pirelli sells to manufacturer houses such as BMW, Mercedes, Audi and Porsche, which
in turn distribute to their dealerships) estimated at approximately 10,000 locations;
> points of sale (other than Pirelli retail points of sale) served through Tier 110 distributors, estimated at approximately 10,000 locations;
ARGENTINA
Merlo - Car
TURKEY
Izimit - Car
Countries with rapidly growing economies
Notes: (*) Non-consolidated subsidiary since 2016
(**) JV consolidated using the equity method
> points of sale (other than Pirelli retail outlets) served directly by Pirelli, stores owned by the competition and all the rest of the
>
the increase of the High Value production capacity (+3.3 million units) mainly in Europe, Apac and NAFTA;
distribution network served by distributors other than Tier 1 distributors, wholesalers and large retail chains, for the remaining part.
> promoting the upgrade of the standard capacity into High Value in the factories in Brazil and China (former Aeolus factory);
>
improving quality and mix, as well as production processes and equipment.
10 Tyre distributors with whom the Group has defined special partnerships based on the following key factors: sharing the strategic and financial
value of the Pirelli brand, sharing marketing plans, sharing inventory and sales data to allow for better planning and predictability of demand,
privileged access to product availability, dedicated supply chain.)
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations
4.7 Expert management with proven ability to achieve results Pirelli senior management is made up of professionals
with consolidated technical skills and many years of experience in the tyre industry (on average 16 years).
The aspects that differentiate Tier 1 compared to the rest of
tyre conditions (including wear and tear), via the
the tyre industry are the following:
car’s electronics or a smartphone;
>
strong brand with the highest value amongst those in the
> >
Velo to intercept the future mobility needs of a
The Company is also equipped with an operating model which recognises the professional excellence of the individual specialist
industry;
customer base which is on average younger and
functions, with particular attention to attracting and enhancing young talents. In particular, Pirelli is engaged in training employees
> high investments in technology (R&D costs were on
more balanced regarding the male and female
and management, coming from over 26 countries, through multiple initiatives.
average 7.3% of Pirelli’s High Value revenues during the
segments.
5. PIRELLI COMPETITIVE ARENA
last 4 years), in order to be able to offer cutting-edge and
highly customised solutions, both for car manufacturers
and for end consumers;
>
reduced risks for excess capacity for the High Value
6. STRATEGY
Within the industry, three main competitive clusters can be identified, for strategy, price positioning and product characteristics:
segment, with the demand for 2020 equal to 278 million
Pirelli aims to consolidate and maximize returns for
> Tier 1: six producers (Pirelli, Nokian, Bridgestone, Michelin, Continental, and Goodyear) accounting for approximately 50% of the
units, where 90% of the capacity is for tyres with a rim
shareholders and to manifest increasing levels of turnover and
turnover for the tyre industry11; they have a higher than average price positioning, a wide range of products and dedicated
diameter ≥18 inches. The latter is estimated on the basis
profitability over time.
regional lines. Among these, Pirelli and Nokian are distinguished for their profitability, characterised by two different business
of announcements by Tier 1 players, assuming that these
models: Pirelli, pure Consumer, with a distinctive focus on the High Value segment and Nokian, whose speciality is winter
increases are destined only for the High Value segment.
The main strategic orientation is to allocate investments,
Replacement tyres. The remaining four Tier 1 operators can be called Full-Liners in consideration of their presence in different
A balanced relationship between supply and demand
develop
innovations, achieve operational
improvements
businesses (Consumer, Truck, Agro, OTR and Aviation).
reduces the risks of price pressure. By contrast, within
in the High Value businesses and to reduce presence in the
> Tier 2: 14 producers (Sumitomo, Yokohama, Hankook, Cheng Shin, Cooper, Kumho, Toyo, MRF, Apollo, Nexen, Titan, Brisa,
the Standard segment, the risks of overcapacity are
so called Standard segments by limiting exposure in those
Trelleborg, Petlas), approximately 24% of the tyre industry12. The group is characterised by a price positioning that is lower
instead present;
markets where Standard is still predominant (such as, for
than for Tier 1, by a moderately broad range of products (generally focused on medium-range products) and by sales that are
> an active presence within new trends in the Automotive
example, Brazil).
sufficiently diversified at a geographical level. In many cases these players implement strategies aimed at improving their
industry (Connected, Autonomous, Shared, Electric)
positioning through new homologations with vehicle manufacturers (mainly entry level models), at capacity increases, at
thanks to investments in technology and innovation in
The second orientation is to cultivate all businesses which
5
2
productive efficiency, and at marketing operations aimed at increasing the global visibility of the brand.
order to seize all new opportunities;
are of relevance to the consumer, not just Automotive
3
5
> Tier 3: over 150 small producers, approximately 26% of the global tyre industry turnover13. They have a generally low price
>
the ability to directly engage the end consumer, and
and Motorcycles, but also bicycles (the so called Velo), and
positioning, and a productive and commercial structure focused on specific geographical areas. The operators in this category
especially new consumers (Millennials are already the
solutions and services for connected vehicles aimed at Prestige
mainly focus on products with lower added value and are frequently imbalanced regarding supply and demand for industrial
largest generation in the world).
and Premium consumers (Cyber™).
business sector (tyres for buses and trucks), adopting a volume / organic growth strategy.
Pirelli, within the Tier 1 cluster, is distinguished by:
2017
INDUSTRY
SALES4
∆ vs
2013
TIER 11
50%
+1pp
2 players
4 players
TIER 22
24%
=
14 players
~18%
EBIT
Margin4
11%
EBIT
Margin4
~10%
EBIT
Margin4
“Global High Value”
“Core business in winter”
“Full-Liners”
> exposure to High Value (57.5% of revenues for 2017), more
The third is to achieve an efficiency plan equal to 1% of revenues
than any other market player;
which is linked to industrial and product activities (such as
> a brand that is internationally recognised as an icon
the optimisation of raw materials costs, the simplification
associated with technology and Italian excellence in the
of products and the reduction of tyre weights), thanks to the
automotive and motorcycle field, and not only;
growth of production in countries with low industrial costs,
>
solid business relationships, developed and consolidated
to improved productivity and the simplification of processes,
over time, with the Prestige and Premium vehicle
plus the optimisation of costs, starting from energy costs.
manufacturers. These collaborations have allowed Pirelli
to expand its portfolio of homologations to over 2,160 for
the High Value segment (out of a total of over 2,740);
> cutting-edge technological innovation, especially with
6.1 Main actions for High Value The 2020 Plan aims to
improve performance through the following levers:
“Mainly Mass-Marker”
reference to High Value products (over 90% of Pirelli R&D
> acceleration of the homologation program with the
TIER 33
26%
-1pp
>150 players
mid/high-single digit
EBIT Margin4
“Low-cost players”
Note: 1. Tier 1 panel: Bridgestone, Michelin, Goodyear, Continental, Pirelli, Nokian.
2. Tier 2 panel: Sumitomo, Yokohama, Hankook, Cheng Shin, Cooper, Kumho, Toyo, MRF, Apollo, Nexen, Titan, Brisa, Mitas, Trelleborg
3. Tier 3 panel: remaining companies
4. 2017E Group financial (consensus estimates)
expenses);
Prestige and Premium car manufacturers, which provides
> a portfolio of innovative solutions, which are able to meet
Pirelli with visibility on future demand and certainty of
the needs of the cars and consumers of the future, and
market shares in the car dealership channels. In 2017
above all able to intercept the new Automotive trends
Pirelli obtained 402 homologations, of which 324 were
such as Connected, Autonomous, Shared and Electric.
New Premium;
As to these trends, Pirelli has already responded with a
> development of an unprecedented product innovation
wide range of products and services:
program that strengthens the Specialties and Super
> >
from “green” tyres, designed specifically for electric
Specialties range, and which captures the needs for
cars, to tyres which reduce the noise generated by
regional diversification. Between 2017 and 2020 Pirelli
the tyre rolling (Pirelli Noise Canceling System);
intends to launch up to 18 new product lines with global
11 12 13 Source: August 2017 update of a study by an analysis company for the tyre sector.
> >
the Cyber™ and Connesso™ solutions for monitoring
and regional coverage,
including winter products,
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations
summer and four seasons, specialties/super specialties
motorcycle segment, where it confirmed its position as
plus traditional products. During 2017 Pirelli expanded its
a global leader and on the Premium motorcycle segment
portfolio with 4 new New Premium products (2 regional
with an increase in share in Europe and South America. In
products specific for NAFTA and LatAm, 2 all-season
Apac, the region with the highest growth, the presence
products) and introduced Pirelli Connesso (Connected)
in the radial business was extended through partnerships
and the Colorate (coloured Edition) as part of the Super
with the main Original Equipment Manufacturers OEMs
Specialties range;
(QJ Benelli in China, Kymko in Taiwan and Triumph and
> expansion of the High Value production capacity from 38
Ducati in Thailand);
million units in 2016 to 53 million in 2020 with a share of total
>
launch of the two new Velo and Cyber™ businesses:
car capacity of 67% (54% for 2016). This increase will be the
Pirelli intends to consolidate its leadership in the markets
result of the conversion of the standard into High Value
in which it currently operates and expand its presence by
capacity (3 million units) and of the further increase of the
attacking new high potential segments.
High Value capacity (over 11.0 million units). During 2017
The return to Velo, which belongs to the Pirelli tradition, not
Pirelli increased its High Value capacity by 3.3 million units,
only takes place through innovative products but also through
reaching a capacity for high-end products of approximately
an approach focused on the Consumer and aimed closing in on
42 million units (55% of the total car capacity);
the fundamental Consumer brand targets for the future, such as
>
increase in distribution coverage through channels and
the new generations (the so called Millennials and Generation
points of sale where Pirelli exercises greater control
Z), women, and consumers attentive to sustainability and
and records higher sales. In particular, Pirelli intends
smart mobility. In May 2017 Pirelli announced the launch of the
to increase the sales generated by car dealers, Tier 1
new line of tyres dedicated to road racing bikes, the P Zero™
distributors, retailers (the so-called retail points of sale or
Velo. The commercialisation of the range (in Europe, North
Pirelli Retail) and Pirelli e-commerce, from 41% (in 2016)
America and Apac) began in August 2017 in three versions: P
to 66% in 2020. For 2017 the share of sales generated by
Zero™ Velo, P Zero™ Velo TT and P Zero™ Velo 4S.
these channels reached 48%;
5
4
PIRELLI READY FOR THE EVOLUTION OF THE CAR MARKET
PRESTIGE & PREMIUM CAR EVOLVES IN FOUR MAIN DIRECTIONS
PIRELLI IS RESPONDING WITH SPECIFIC SOLUTIONS
Connected
Electric
Share of cars
in circulation
Share of
registrations
Share of cars
in circulation
Share of
registrations
2020E
2025E
30%
52%
71%
99%
3%
8%
12%
20%
Monitoring of tyres conditions,
including wear and load, via
smartphone or car electronics
Homologation of “Green” tyres
(A-label RR),specifically
designed for electric cars
Shared
Share of
miles driven
3%
5%
Cloud based solutions for
fleets, enabling TCO1 reduction
and higher uptime of vehicles
Autonomous2
Share of cars
in circulation
Share of
registrations
1%
3%
8%
30%
Integrated real-time analysis
of tyres and car performance, for
the safest autonomous drive
1. Total Cost of Ownership.
2. Figures refers to autonomous driving levels 3, 4, 5.
Note: “Connected” refers to cars with mobile data connection (e.g 2G,3G,LTE), which might be provided by either embedded
car systems or car hardware paired with external devices (e.g smartphone). All data refers to Prestige & Premium cars.
Source: company analysis on consulting and investment banks research reports
6.2 Strategic re-conversion of Pirelli Standard capacity Pirelli intends to continue to reduce its exposure to the
Standard segment which is characterised by a profitability of one third of the High Value segment. Between 2016 and 2020 a
5
5
> enrichment of the Pirelli DNA with a strong Consumer
With regard to innovations for solutions and services for new
standard capacity reduction of about 7 million units is foreseen, three of which have been converted into High Value (e.g.: LatAm),
“gene”, as evidenced by the creation of the new Consumer
generation vehicles, Pirelli intends to exploit the data of the
allowing Pirelli to serve the growing regions (e.g.: NAFTA) pending a recovery in the markets characterised by higher levels of
Marketing function. Thanks to the digital channels and
only component in contact with the road - the tyre - to provide
uncertainty. In 2017, the project to convert the Standard capacity to High Value in Brazil began.
the exploitation of the brand’s strength, the new function
consumers, the sales network and the car manufacturers
will profile consumers in collaboration with the sales
with solutions and services which maximise the safety,
department, and will ensure a more personalised consumer
minimise the operating costs and inventories in the supply
engagement through a service which is assured by the
chain, make the most of vehicle performance, and ultimately
points of sale network, which is becoming increasingly
shorten vehicle development times. On the occasion of the
6.3 Transformation program Pirelli intends to pursue the implementation of a transversal transformation and renewal
program aimed at digitising the planning, production, distribution and consumer profiling processes.
more qualified, more widespread and capable of serving
Geneva Motor Show in March 2017, Pirelli Connesso™ was
Four inter-functional programs:
Prestige and Premium consumers. Digital capabilities
presented, a platform integrated with the P Zero™ or Winter
>
Integrated forecasting program, which applies Data Science in order to provide greater predictability for short, medium and
were expanded in 2017 to better profile customers in
Sottozero™ tyres which, thanks to a sensor and an application
long-term demand;
order to provide - in addition to a tailor-made product/
for Smartphones, is able to communicate with the motorist
> Smart Manufacturing and Flexible Factory program, which responds to the need to meet the demands of consumers, car
service - relevant content for each customer segment at
and provide information on certain fundamental parameters
companies and partner points of sale in an ever faster and more flexible way;
the right time during their Consumer Journey;
concerning the functioning of the tyre, and a range of other
> Supply Chain Program, which aims to get closer and closer to consumers and to offer a personalised and contextualised service;
> strengthening of the Motorcycle business by leveraging
customised services.
> Prestige program, which aims to get to know the end consumer more closely (manufacturers and owners of Prestige cars) to
the distinctive characteristics of two brands, Pirelli and
fully understand their needs in order to identify new opportunities for Pirelli.
Metzeler, to occupy complementary market segments
Thanks to these solutions, Pirelli is ready to seize the growth
Thanks to the implementation of these interdepartmental programs, Pirelli will be able to anticipate the needs of the market, to
and forge commercial relationships with a large number
opportunities linked to the technological trends of the future
manage the growing complexity of the business, to increase the level of service offered to its customers and to increasingly engage
of motorcycle manufacturers. Pirelli also intends to
and is ready and able to keep up with the evolution of the
the final consumer.
continue the development of specific products for new
Prestige and Premium cars along the trajectory of the C.A.S.E.
motorcycles, and the development of partnerships
(Connectivity, Autonomous, Shared, Electric).
with manufacturers in order to launch new products. In
2017 Pirelli strengthened its position both on the radial
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations 7. TARGET 2020
Based on these actions, the company expects to reach:
> an average annual growth of ≥ + 9.0% for the 2016-2020 period;
> a 63% High Value share of total revenues by the end of 2020;
> an adjusted EBIT Margin of between ~18.5%/ ~19.5% by the end of 2020;
> an 85% High Value share of the total EBIT adjusted by the end of 2020;
MACROECONOMIC AND MARKET SCENARIO
MACROECONOMIC SCENARIO
The year 2017 was characterised by a recovery in economic activity which was supported by private consumption and by investments,
> an efficiencies plan accumulated during the 2017-2020 period of 1% of revenues;
as well as the strong performance in global trade. The growth rate of global GDP exceeded +3.0% (+2.5% in 2016).
> an investments forecast for the 2017-2020 period for an average equal to approximately 7% of annual revenues, 82% of which are
earmarked for the High Value segment;
>
indebtedness on the decrease with a Net Financial Position / EBITDA adjusted ratio lower than 2.
The results for 2017 demonstrate how the Company is in line with the projected path and objectives of the 2016-20 Industrial Plan.
€Mln
2016A
2017A
2020E
REVENUES
% High Value share of Total Revenues
4,976
55.3%
+8% YoY
5,352
57.5%
≥9% CAGR 16-20
~63%
EBITDA Adj. Margin without start-up costs
21.7%
22.0%
~23% ÷ 24%
5
6
EBIT Adj. without start-up costs1
Margin
% High Value
844
17.0%
81%
927
17.3%
~83%
~18.5% ÷ 19.5%
~85%
CAPEX TO REVENUE RATIO
~6.8%
9.1%
~7.0% average for 17-20
GLOBAL GDP GROWTH (ANNUAL CHANGE IN %)
3,2
3.2
2.6
2.3
1.3
2.0
2.2
5.0
5
4
3
2
1
0
-1
-2
-3
World
Europe
NAFTA
Latam
CIS
MEA
APAC
7
5
2015
2016
2017
Source: IHS Markit, January 2018: growths shown for 2017 are estimates.
The European Union recorded an increase of +2.6% in 2017, the highest rate of growth in the past ten years. Positive economic
performances distinguished all European Union countries, including the peripheral countries most affected by the global crisis of
2008-2009, with the sole exception of the United Kingdom (+1.8%), negatively affected by the uncertainties linked to negotiations
for its exit from the European Union.
The performance of the United States also improved in 2017 with GDP growth of +2.3% (compared to +1.5% for 2016), thanks to the
NFP/EBITDA Adj.without start-up costs
4.6X
2.7X
<2.0X
recovery in investment in the the oil sector. The reduction in the unemployment rate, together with the expectation of a gradual
ROI2
27%
28%
~35%
Note: 1. Impact of start-up costs on EBIT: 1% in 2017 and 2018;
2. ROI: EBIT Adjusted without start-up costs/Average Net Invested Capital excluding financial assents
and intangible fixed assets from PPA
recovery in inflation, drove the Federal Reserve to adopt a more resctrictive monetary policy with three interest rate hikes.
Argentina, Brazil and Russia were amongst the emerging economies to exit recession during the course of 2017. China’s economic
growth exceeded expectations at +6.9% for 2017 (+6.7% for 2016), despite measures to reduce the use of credit.
On the exchange rate front, the acceleration of economic activity in Europe during 2017 was accompanied by the slight appreciation
of the Euro despite the stability of interest rates set by the European Central Bank and the continuation of the quantitative easing
program. Against the US Dollar, the European currency rose from an average of 1.06 in the first quarter to 1.18 in the fourth quarter,
leaving the average for the year at 1.13 US Dollars (+2.0% compared to 2016).
The US Dollar declined not only against the Euro but also against the currencies of various emerging countries, for example Brazil
and Russia. The Brazilian Real went from an average of 3.38 against the US Dollar for 2016, to 3.19 for 2017, an appreciation of +9.0%.
Similarly thanks to the economic recovery, the Rouble recorded an average exchange rate of 58.4 Roubles per US Dollar during the
course of 2017 with an appreciation of +15.0%, compared to an average exchange rate of 67.0 Roubles per US Dollar for 2016.
The Renminbi depreciated slightly during 2017 against the US Dollar, with an annual average of 6.75 per US Dollar (versus an average
exchange rate of 6.64 for 2016). Volatility was elevated with the currency reversing trend during the course of the year, with the
currency moving from 6.89 in the first quarter of 2017 to 6.62 in the fourth quarter following three years of gradual depreciation.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations EXCHANGE RATES: US DOLLAR PER EURO
EXCHANGE RATE: BRAZILIAN REAL PER USD
2014 average:
1.33
2015 average:
1.11
2016 average:
1.11
2017 average:
1.13
2014 average:
2015 average:
2016 average:
2017 average:
2.35
3.34
3.48
3.19
1.5
1.4
1.3
1.2
1.1
1.0
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
2014
2015
2016
2017
2014
2015
2016
2017
Source: European Central Bank monthly figures up until December 31, 2017
Raw Materials The year 2017 was distinguished by high volatility in raw materials prices. After a fall during the summer months,
the price of oil (Brent) went from USD 50 to USD 64 per barrel, driven by the recovery in the global demand and by an agreement
to cut oil production by the main crude oil producing countries. Brent recorded an average price for the year of USD 55 per barrel,
5
8
+22.0% compared to the average price for 2016.
The volatility of the price of natural rubber was more pronounced due to strong demand during the first part of the year. Following a
first quarter of strong growth with prices reaching USD 2,095 per ton, the price of natural rubber declined during the following months
to average USD 1,437 per ton in the fourth quarter, with an average annual price of USD 1,651 per ton, +20.0% compared to that of 2016.
Automotive markets The global car market registered a new record for registrations in 2017, which for the first time touched
94.5 million units sold, an increase of +2.5% compared to the previousyear, with sustained growth in emerging countries (+12.7%
for LatAm, +12.1% for Russia) according to IHS Markit. The only exception was North America which, after seven years of growth,
recorded a decline of -1.5% in registrations.
The Premium and Prestige segments which represented 12.5% of all vehicles sold recorded growth of +5.1% which was double that of
the total market. This trend, which translates into the continued improvement of its share of the overall car parc, was sustained in
particular by Apac (+10.6%). Europe confirmed itself as being the region with the highest share of Premium and Prestige sales (21%).
Thanks to growth of +3.6%, the car parc reached 1.24 billion automobiles with a share of the Premium and Prestige segment of
+10.8% (+10.7% for 2016) equal to 135 million vehicles in circulation (129 million for 2016). Europe, NAFTA and Apac represent 93% of
the Premium and Prestige.
CAR PARK
(in millions of vehicles)
1,200
0.2%
10.5%
+3.6%
+3.0%
+8.3%
+4.6%
+3.5%
1,244
0.2%
10.6%
1,108
0.2%
9.7%
1,372
0.3%
11.0%
2014A
2016A
2017A
2020E
CAGR
14A-16A
CAGR
16A-20E
+4.1%
+3.4%
Total
+12.5%
+7.8%
Prestige
+8.2%
+4.5%
Premium
+3.6%
+3.3%
Standard
9
5
PRICE OF RAW MATERIALS
BRENT US$/barrel
Natural Rubber TSR20 US$/Metric Ton
Butadiene EURO/Metric Ton
CARS IN CIRCULATION PRESTIGE & PREMIUM
(in millions of vehicles)
160
140
120
100
80
60
40
20
0
5000
4000
3000
2000
1000
0
3000
2500
2500
2000
1500
1000
500
0
2014
2015
2016
2017
2014
2015
2016
2017
2014
2015
2016
2017
+4.7%
CAGR
14A-16A
CAGR
16A-20E
Other Regions
110
129
135
154
+8.3%
+4.6%
Total
EU, APAC, NAFTA
+5%
93%
93%
93%
93%
+8.5%
+4.5%
Prestige
& Premium
Source: IHS Markit
2014A
2016A
2017A
2020E
The average price of butadiene, the main raw material for the production of synthetic rubber, averaged Euro 1,112 per ton in 2017, an
increase of +73% compared to the average price in 2016. Butadiene prices were sustained during the first half-year of the by a strong
increase in demand from Asia during the first quarter, also due to the effect of re-stocking, and then plummeted during the third
quarter due to an increase in supply and a normalisation of demand. From a price of Euro 1,500 per ton during the second quarter,
butadiene prices returned to Euro 800 per ton during the fourth quarter, +3.0% compared to the corresponding quarter of 2016.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations Tyre markets As regards the development of demand in the Car tyre market, a very positive trend was confirmed for the New
Premium segment (car or light truck tyres with a rim diameter of ≥18 inches). This segment, on which Pirelli has focused its leadership
For the NAFTA area, sales of New Premium Car tyres were equal
focusing on High Value products and of expanding its range
to +6.4% (11.0% for the Replacement channel, -0.7% for the
of services for the consumer:
position, recorded growth of +10.5% for 2017 equivalent to over five times the growth rate for the tyre segment with lower rim
Original Equipment channel) compared to the decline of 3.6%
>
the coloured editions of the P Zero™ and the Winter
diameters (+1.9%). The New Premium segment reached a 14% share of the total market (13% for 2016).
for the non New Premium segment (-3.0% for the Replacement
Sottozero™ tyres, for which Pirelli’s engineers have
TYRE SALES, CONSUMER MARKET BY GEOGRAPHICAL AREA (ANNUAL CHANGE IN %)
TYRE MARKET TOTALS PER RI DIAMETER-HISTORICAL DATA
6
0
In millions of units
Total
1,435
≥18”
≤17”
11%
89%
2014A
TYRE MARKET TOTALS PER REGION
Total
346
EUROPE
Total
NAFTA
≥18”
≤17”
≥18”
≤17”
360
Total
468
APAC
≥18”
≤17”
Total
115
MEAI
Total
LATAM
Total
RUSSIA
>=18
<=17
>=18
<=17
>=18
<=17
86
60
10%
90%
22%
78%
7%
93%
4%
96%
2%
98%
4%
96%
1,476
12%
88%
2015A
11%
89%
24%
76%
8%
92%
4%
96%
2%
98%
6%
94%
368
366
480
129
87
46
CAGR
‘14-’16
YoY%
‘16-’17
1,530
+3.3%
1,575
+3.0%
13%
87%
+13.6%
+2.0%
14%
86%
+10.5%
+1.9%
channel, -6.3% for the Original Equipment channel).
developed innovative materials and protective finishes
For the Apac area sales of New Premium Car tyres were equal
thanks to Pirelli’s experience with F1®;
to +17.5% (14.0% for the Replacement channel, +19.2% for the
> Pirelli Connesso™, a digital platform which is integrated
Original Equipment channel) compared to a growth of +2.4%
into the P Zero and Winter Sottozero tyres, which thanks
for the non New Premium segment (+4.7% for the Replacement
to a sensor connected to an App, is able to communicate
channel, -0.8% for the Original Equipment channel).
with the motorist and provide information on certain
capable of ensuring brilliant and long lasting colours, also
Finally, recovery was seen for markets in Latin America,
of the rubber, concerning safety, and a range of other
fundamental parameters concerning the functioning
with a growth of +12.0% for the total market (Original
personalised services.
Equipment+Replacement); +10.5%
for the Replacement
channel while Original Equipment grew by +19.9%.
During the month of March 2017, for the purpose of ensuring
2016A
2017A
autonomous growth paths and independent development
In Russia the market recovered recording growth of
strategies, the two business areas - Consumer and Industrial
+17.3% with the Replacment channel at +16.7% and Original
- were definitively separated as a result of the assignment to
384
374
508
135
85
45
12%
88%
25%
75%
9%
91%
4%
96%
3%
97%
7%
93%
5.3%
16.0%
4.0%
1.9%
10.5%
-0.6%
4.2%
18.0%
3.1%
8.3%
12.5%
8.1%
-0.9%
24.1%
-1.4%
-13%
8.6%
-14%
389
370
527
141
95
53
53
13%
87%
27%
73%
10%
90%
4%
96%
3%
97%
6%
94%
1.4%
10.7%
0.1%
-1.1%
6.4%
-3.6%
3.8%
17.5%
2.4%
5.1%
10.1%
4.9%
12%
31.2%
11.5%
17.3%
10.5%
17.8%
Equipment at +21.0%.
SIGNIFICANT EVENTS
OF 2017
the sole shareholder Marco Polo International Holding Italy
S.p.A., of all TP Industrial Holding S.p.A. shares previously held
by Pirelli & C. S.p.A.. TP Industrial Holding S.p.A., the company
which holds 52% of the share capital of Pirelli Industrial S.r.l.
(today called Prometeon Tyre Group S.r.l.), is the company
that owns Pirelli’s Industrial assets.
On April 27, 2017 the Board of Directors of the Company decided
to accelerate the listing process in order to take advantage of
the market opportunities of the fourth quarter of 2017. This
1
6
On January 13, 2017, - the disposal to Cinda of 38% of the
decision was made in the light of the positive results which
capital of Pirelli Industrial S.r.l. was finalised - as part of the
had been achieved by the Company, the implemented focus on
wider reorganisation and integration project of the Industrial
the Consumer business which had led Pirelli to becoming the
business. (today known as the Prometeon Tyre Group S.r.l.)
sole “pure consumer tyre player” in the sector, and the favourable
pursuant to the agreement signed on December 28, 2016
dynamics of the markets. In context of the listing, the CNRC
between Pirelli Tyre S.p.A. and Cinda. The sale took place at a
confirmed its willingness to lower its share in Pirelli to below
value of approximately 266 million euro.
50% of the capital, this without prejudicing the requisite
On February 9, 2017 Pirelli announced a price increase - as of
April 1, 2017 - of up to 9% for all European and North American
On May 11, 2017 Pirelli announced its return to the world of
markets for car, light truck and motorcycle tyres of all product
cycling with a range of high performance tyres, dedicated to
conditions for the continued consolidation of Pirelli.
2014A
2015A
2016A
CAGR
‘14-’16
2017A
YoY%
‘16-’17
ranges (summer, all-season and winter) and brands.
racing bikes.
Source: Pirelli internal estimates
On February 14, 2017 on the occasion of its 110th Year
At the end of June 2017, Marco Polo International Italy S.p.A.
Anniversary in Motorsports, at the Turin Automobile Museum,
- a direct shareholder of Pirelli following the incorporation
Pirelli presented its Motorsport season which saw the company
by merger of Marco Polo International Holding Italy S.p.A. –
In Europe, sales of New Premium Car tyres recorded growth of +10.7% in 2017, compared to the more modest trend (+0.1%) recorded
committed - in addition to the Formula 1® World Championship
underwrote capital increase, which including the premium
for the segment for tyres with a rim diameter of ≤17 inches. On the Original Equipment channel, New Premium sales grew by +10%
- to over 460 championships for cars and motorcycles.
amounted to approximately euro 1.2 billion. It is also to be
compared to a decline in sales for non New Premium segment tyres (-2.0%). In the Replacement channel sales recorded a growth of
noted is that on June 27, 2017 (with a closing date of June 29),
+11.5% compared to +0.7% for tyres with a rim diameter ≤17 inches.
On March 7, 2017 Pirelli presented two new products at
Pirelli & C. S.p.A. and Pirelli International Plc underwrote a new
the Geneva Motor Show, consistent with its strategy of
unsecured refinancing contract for a total amount of euro 4.2
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations billion with a pool of leading international banks, whose first
on July 28, 2017 by the China National Chemical Corporation,
On September 15, 2017, in context of the listing process,
drawdowns were used, together with the proceeds from the
the China National Tire & Rubber Corporation, Ltd., the Silk
CONSOB approved the registration document, the disclosure
aforementioned capital increase, to repay in full, on June 29,
Road Fund Co.,Ltd., the CNRC International Limited (HK), the
notes for the financial instruments and the related summary
2017, the financing underwritten in 2016 for the amount of
CNRC International Holding (HK) Limited, Fourteen Sundew
note for the offer of sale and admission to the listing on the
euro 6.4 billion, and thus cancelling all collateral securities
S.à.r.l., Camfin S.p.A., Long-Term Investments Luxembourg
Mercato Telematico Azionario (screen-based stock exchange),
GROUP PERFORMANCE
AND RESULTS
issued under this new financing. The refinancing operation
S.A. and Marco Tronchetti Provera & C. S.p.A.. The Board of
organised and managed by Borsa Italiana S.p.A., of the Pirelli
In this document, in addition to the financial figures as provided
was completed with improved conditions compared to the
Directors is currently composed of: Ren Jianxin (Chairman),
shares offered by Marco Polo International Italy S.p.A.. The
for by the International Financial Reporting Standards (IFRS),
previous financing completed in 2016, particularly through the
Marco Tronchetti Provera (Executive Vice Chairman and Chief
offer of sale was carried out from September 18, 2017 to
alternative performance indicators derived from IFRS were used
reduction of the all-in cost but also thanks to the lengthening
Executive Officer), Yang Xingqiang, Bai Xinping, Giorgio Luca
September 28, 2017.
in order to allow for a better assessment of the of the Group’s
of its average life, thus contributing to the improvement of
Bruno, Ze’ev Goldberg and Giovanni Tronchetti Provera, as well
operating and financial performance. These indicators are:
Pirelli’s financial profile.
as Independent Directors Laura Cioli, Domenico De Sole, Fan
On October 4, 2017 Pirelli & C. S.p.A. shares were launched on
> Gross Operating Margin adjusted (EBITDA adjusted);
Xiaohua, Marisa Pappalardo, Cristina Scocchia, Tao Haisu and
the Milan Stock Exchange on the Mercato Telematico Azionario
> Gross Operating Margin adjusted without start-up costs
At the end of July 2017, Burlington Loan Management DAC,
Wei Yintao. The same aforesaid Shareholders’ Meeting also:
(MTA or screen-based stock exchange) which is organised and
(EBITDA adjusted without start-up costs);
an Irish investment vehicle managed by Davidson Kempner
> appointed Antonella Carù as the new Statutory Auditor of
managed by Borsa Italiana S.p.A. With the start of trading
> Operating Income (loss) (EBIT);
Capital Management LP, signed a purchase contract with
the Company, replacing Fabrizio Acerbis, and;
all management and coordination activities by Marco Polo
> Operating Income (loss) adjusted (EBIT adjusted);
Pirelli, Intesa Sanpaolo S.p.A., UniCredit S.p.A. and Fenice S.r.l.
> conferred the role for the statutory audit of accounts for
International Italy S.p.A. ceased. As part of the Global Sales
> Operating Income (loss) adjusted without start-up costs
for the acquisition of 44.86% of the capital of Prelios S.p.A.
the nine-year period from 2017 to 2025 to the independent
Offer, 350 million ordinary shares, were offered at a price of
(EBIT adjusted without start-up costs);
amounting to 611,910,548 shares in total. The trade was set at
auditing firm PricewaterhouseCoopers S.p.A..
euro 6.5 per share for a capitalisation of euro 6.5 billion. The
> Net
Income (loss) related to continuing operations
euro 0.116 per share, which equalled a total of approximately
Greenshoe Option, granted as part of the transaction by Marco
(Consumer) adjusted;
euro 70.9 million, of which approximately euro 17.2 million was
On August 31, 2017 Pirelli’s Board of Directors deliberated
Polo International Italy S.p.A. to the placement consortium
> Fixed Assets related to continuing operations;
due to Pirelli, approximately euro 24.5 million euro to Fenice
on the governance structure of the Company, and approved,
for 50 million shares, was partially exercised on November
> Provisions;
S.r.l, the vehicle invested in by Pirelli, and the remainder - in
in particular, the constitution of the Board Committees and
2, 2017 for a total of 18,904,836 shares. With the inclusion of
> Operating Working Capital
related
to continuing
6
2
proportion to the investment held – due to Intesa Sanpaolo
the establishment of procedures in view of the listing of the
the Greenshoe Option, the Offer of Sale therefore concerned
operations;
3
6
and Unicredit. The closing of the operation - with simultaneous
Company on the stock exchange. In addition, the Board of
368,904,836 ordinary Pirelli shares and, consequently, the total
> Net Working Capital related to continuing operations;
collection - was finalised on December 28, 2017.
Directors appointed Marco Tronchetti Provera as Executive
proceeds deriving from the Sales Offer which were exclusively
> Net Financial (liquidity)/debt Position.
On August 1, 2017 the Shareholders’ Meeting of Pirelli approved
the same powers of management of the Company, consistent
approximately euro 2.4 billion. As a result of the partial exercise
Indicators” for a more detailed description of these indicators.
Vice Chairman and Chief Executive Officer, conferring to him
due to Marco Polo International Italy S.p.A. amounted to
Reference should be made to the paragraph “Alternative Performance
a number of resolutions aimed at implementing the previously
with those of the previous mandate and with the Shareholders’
of the Greenshoe Option, Marco Polo International Italy S.p.A.
announced process of listing the Company shares on the stock
Agreements signed on 28 July 2017.
holds 631,095,164 ordinary Pirelli shares which correspond to
***
exchange. Amongst other things, the adoption of a new text
approximately 63.11% of the share capital.
for the Articles of Association was approved (effective as of
On September 1, 2017, as part of the preparatory process for
Also, as a result of the assignment by Pirelli & C. S.p.A of the shares
the listing date) which expressly provides for, amongst other
re-listing the Company, Pirelli’s announced its new strategy of
On December 21, 2017 the Board of Directors of Pirelli approved
of TP Industrial Holding S.p.A. (company that owned almost all
things, a “corporate governance based on best international
focusing on the High Value segment (Prestige, New Premium,
an EMTN (Euro Medium Term Note) for the issuance of senior
of Pirelli’s Industrial assets) to Marco Polo International Holding
practice”. In order to protect shareholders, specific provisions
Specialties and Super Specialties, and Premium Moto), as well
unsecured non-convertible bonds for an amount equal to
Italy S.p.A., the Industrial business qualified as a “discontinued
of the Articles of Association address the issue of the long term
as released the forecast data for the new 2017-2020 Industrial
a maximum of euro 2.0 billion. The adoption of the EMTN
operation”. The results for the period for the “discontinued
preservation of Pirelli’s constitutive and intrinsic elements
Plan, carve-out consolidated Interim Financial Statements
program responds the objective of the constant optimisation
operation” were reclassified to the Income Statement as a
such the localisation in Italy of its registered headquarters and
at June 30, 2017 and a carve-out consolidated Financial
of the Pirelli financial structure, and allows for the favourable
single item, “net income (loss) related to discontinued operations”,
the Group’s management centre, as well as the control of its
Statements for 2016, 2015 and 2014.
and timely seizure of windows of opportunity available on the
and includes the financial data for the first quarter of 2017 for
technological know-how (including Pirelli brands). For such
bond market. As part of this program, the Board of Directors
the Industrial Business, which no longer comes under the scope
elements in particular, the Articles of Association provide (i)
On September 5, 2017, the Shareholders’ Meeting appointed
authorised the issue, to be executed by January 31, 2019, of one
of the Group as a result of the assignment, as well as the twelve
that Pirelli’s technological know-how shall remain under Pirelli
Luca Nicodemi and Alberto Villani as Statutory Auditors for
or more bonds, to be placed with institutional investors, for a
month results for some of the residual Industrial activities
ownership and shall not be transferred to third parties, except
the Company, replacing Giovanni Bandera and David Reali,
total maximum amount of up to euro 1.0 billion.
currently in the process of being separated. In accordance with
where provided for in the same Articles of Association, and (ii)
who had resigned from the role for professional reasons.
the relevant accounting standard, the comparable financial
that the operating and administrative headquarters of Pirelli
On December 28, 2017, the acquisition of the investment in
data for 2016 was subjected to restatement.
shall remain in Milan. Such provisions may be derogated only
On September 12, 2017, Pirelli, consistent with focusing its
Prelios S.p.A. by Lavaredo S.p.A., a newly established joint stock
through a prior resolution adopted by a Pirelli Shareholders’
activities on its core business, notified the Chairman of the
company designated by Burlington, was finalised, pursuant to
***
Meeting where at least 90% of the share capital is represented
Agreement to invest in the capital of Mediobanca S.p.A.,
the purchase contract signed in July.
as being in favour. Also on August 1, 2017 (effective as of August
the decision to exercise the right of cancellation from the
31, 2017), the Shareholders Meeting renewed the Board of
agreement for all shares held and conferred to the Agreement
Directors, pursuant to the new Shareholders’ Agreement signed
itself, approximately 1.8% of Mediobanca’s share capital.
Pirelli closed the 2017 financial year with results which were
consistent with the 2016-2020 Industrial Plan.
In particular, the results reflect the implementation of the
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations High Value strategy, and the development of new activities
mix improvement, and to the price increases put in place
The Group’s Consolidated Financial Statements are summarised as follows:
(in milioni di euro)
aimed at capturing emerging new trends in mobility, as well
as of April 1, 2017.
as the reduction of exposure on the Standard segment.
In particular, at the level of the more specific programs, it
The results are characterised by:
> strengthening of the partnership with the main Prestige
> Revenues which grew by +7.6% to euro 5,352.3 million,
and Premium car manufacturers with a high-end
+11.8% for the High Value segment which represented
portfolio of approximately 2,160 homologations capable
57.5% of the total revenues (55.3% for 2016);
of providing insight into future demand;
should be noted:
Net sales
EBITDA adjusted without start-up costs
% of net sales
EBITDA adjusted
% of net sales
> an EBIT adjusted without start-up costs which amounted
> expansion of High Value production capacity mainly in
EBIT adjusted without start-up costs
to euro 926.6 million, representing a growth of +9.7%,
Europe, NAFTA and Apac by reconverting in-part the
thanks to the High Value segment which contributed a
capacity of the Standard segment, preparing processes
share of approximately 83% of the EBIT (81% for 2016);
and organising the factories to handle the growing
> an EBIT margin adjusted without start-up costs at 17.3%
complexity and ever increasing rim diameters. The total
(17.0% for 2016), 18.7% for the fourth quarter (17.6% for 2016);
capacity at the end of 2017 was approximately equal to 76
> Net income related to continuing operations (Consumer)
million tyres (71 million for 2016), of which 55% were High
which grew to euro 263.3 million (euro 164.0 million for 2016);
Value (54% for 2016);
> A net financial (liquidity)/debt position of euro 3,218.5
>
increased distribution coverage
in Europe, NAFTA,
million, (euro 4,912.8 million at December 31, 2016 being
Apac and LatAm with an increased presence on the car
% of net sales
EBIT adjusted
% of net sales
Adjustment: - amortisation of intangible assets included in PPA
- non-recurring and restructuring expenses
EBIT
% of net sales
Net income (loss) from equity investments
Financial income/(expenses)
Net income (loss) before tax
data that was reported and also included in the Industrial
dealer channels, on retail and on client Tier 1, where Pirelli
Tax expenses
business activities) and an NFP / EBITDA adjusted
exercises greater control and records higher sales. In
Tax rate % on net income (loss) before tax
without start-up costs ratio equal to 2.7x for 2017 (4.6x at
particular, for 2017 the share of sales generated by these
December 31, 201614).
channels reached 48% (41% for 2016);
6
4
The main actions underlying these results and, more generally,
>
the continued development of business programs that
actions relative to the implementation of the 2017-2020
intercept new end-customer needs (such as Cyber™
Industrial Plan, can be summarised as follows:
and Velo), projects for the digital transformation of the
> strengthening of the High Value segment with a growth
Company and the conversion of Aeolus brand production
in volumes of +12.5% and an improvement in the market
into Pirelli brand production in the manufacturing plant
share for the Prestige and Car New Premium segments (a
in Jiaozuo for the Car sector acquired from Aeolus. These
growth of +15.4% for tyres with a rim diameter ≥18 inches
activities were reflected in the sustainment of start-
Net income (loss) related continuing operations (Consumer)
Eanings/(loss) per share related to continuing operations (in euro per share)
Net income (loss) related to continuing operations (Consumer) adjusted
Net income (loss) related to discontinued operations (Industrial)
Total net income (loss)
Net income attributable to the Parent Company
Fixed assets related to continuing operations
Inventories
Trade receivables
Trade payables
compared to the +10.5% of the market) mainly in Europe,
up costs of approximately euro 50 million for the 2017
Operating working capital related to continuing operations
North America and Apac;
financial year;
> progressive reduction of exposure
in the standard
> consequent efficiencies equal to approximately 1.0%
% of net sales
Other receivables/other payables
segment with a -5.3% decrease in volumes mainly in
of revenues for 2017 linked to industrial and product
Net working capital related to continuing operations
Russia, MEAI, and in Europe with the reduction in sales of
activities such as the optimisation of raw materials
less profitable products. As a result of this impact the total
costs, the simplification of products and the reduction
growth in volumes (cars and motorbikes) stood at +1.0%;
of tyre weights, the growth of production in countries
> consequent improvement in the price/mix component,
with low industrial costs, improved productivity and
which once again asserted itself at the highest level
the simplification of processes, plus the optimisation of
amongst peers: +6.9% for the total financial year, +7.8%
energy and other costs.
for the fourth quarter, due to the effect of the progressive
% of net sales
Net invested capital held for sale
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 - High Value
% on sales Premium
Employees (headcount at end of period)
Industrial sites (number)
31/12/2017
31/12/2016*
31/12/2016
Carve out (**)
5,352.3
1,175.1
22.0%
1,137.7
21.3%
926.6
17.3%
876.4
16.4%
(109.6)
(93.2)
673.6
12.6%
(6.9)
(362.6)
304.1
(40.8)
(13.4%)
263.3
0.31
386.8
(87.6)
175.7
176.4
9,121.0
940.7
652.5
4,976.4
1,082.3
21.7%
1,082.3
21.7%
844.3
17.0%
844.3
17.0%
(104.6)
(53.2)
686.5
13.8%
(20.0)
(427.3)
239.2
(75.2)
(31.4%)
164.0
0.22
296.6
(16.4)
147.6
135.1
10,299.2
1,055.6
679.3
4,976.4
1,082.3
21.7%
1,082.3
21.7%
844.3
17.0%
844.3
17.0%
(104.6)
(53.2)
686.5
13.8%
(20.0)
(427.3)
239.2
(75.2)
(31.4%)
164.0
0.22
296.6
9,167.6
874.0
680.1
(1,673.6)
(1,498.5)
(1,280.5)
(80.4)
(1.5%)
(42.2)
(122.6)
(2.3%)
236.4
n.a.
(310.7)
(74.3)
n.a.
60.7
-
273.6
5.5%
19.0
292.6
5.9%
-
9,059.1
10,224.9
9,460.2
4,177.0
1,663.6
3,218.5
3,274.9
2,037.2
4,912.8
4,116.7
3,134.1
489.4
221.5
4.1%
199.9
6.5%
30,189
19
2,633.4
1,866.1
4,960.7
372.2
208.6
4.2%
191.0
6.9%
29,787
19
5
6
14 In order to make the comparison homogeneous, the adjusted net financial position / EBITDA indicator without start-up costs was calculated by
comparing the EBITDA adjusted without start-up costs for 2016 restated (therefore only related to the Consumer activity) to the net financial
(liquidity)/debt position of the sole Consumer Activity equal to euro 4,960.7 million.
(*) On the basis of IFRS 5 accounting principle: a) the economic comparative figures at 12/31/2016 related to the Industrial business have been
reclassified in the item “Net income (loss) related to discontinued operations”; b) balance sheet comparative figures at 12/31/2016 have not been
restated and consequently include the figures related to the Industrial business.
(**) The figures refer to the “Carve out” Consolidated Financial Statements at 12.31.2016 of the Consumer Business included in the Registration
Document, prepared for the listing of Pirelli Group and released on 09.15.2017
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations
For a better understanding of the Group’s performance, the following quarterly performance information is provided.
The performance for total sales volumes for 2017 resulted in a total growth of +1.0% and reflected the diverse dynamics within the
(In millions of euro)
different segments and markets.
1 Q
2 Q
3 Q
4 Q
TOTAL
The growth in volumes which was supported by the strengthening on the High Value segment (+12.5%, +15.4% for Car tyres with
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
a rim diameter ≥18 inches) while the Car Standard segment (-5.6%) was impacted by the reduction in lower profitability volumes,
Net sales
yoy
organic yoy *
EBITDA adjusted without
start-up costs
1,339.3
1,180.9
1,346.0
1,246.0
1,353.2
1,279.6
1,313.8
1,269.9
5,352.3
4,976.4
13.4%
8.4%
8.0%
6.2%
5.8%
8.3%
3.5%
8.3%
7.6%
7.9%
281.7
261.5
285.1
268.4
298.9
271.5
309.4
280.9
1,175.1
1,082.3
% of net sales
21.0%
22.1%
21.2%
21.5%
22.1%
21.2%
23.5%
22.1%
22.0%
21.7%
particularly in Russia (with a sharp contraction in local sales for the Amtel brand), which had positive effects on the results.
The strong price/mix improvement (+6.9%) reflects the continuation of the Pirelli value strategy and was supported by the success
of high-end products, and from the progressive increase in prices implemented as of April 1, 2017 to counter the increase in raw
materials costs (an increase of +5.5 for the price/mix during the first quarter +5.5%, +6.5% for the second quarter, +7.3% for the third
quarter, and +7.8% for the fourth quarter).
EBITDA adjusted
270.4
261.5
276.0
268.4
289.9
271.5
301.4
280.9
1,137.7
1,082.3
The apportionment of net sales by geographical area is reported in the following table:
% of net sales
20.2%
22.1%
20.5%
21.5%
21.4%
21.2%
22.9%
22.1%
21.3%
21.7%
EBIT adjusted without start-up costs
219.5
203.6
223.5
209.6
238.2
207.5
245.4
223.6
926.6
844.3
% of net sales
EBIT adjusted
% of net sales
16.4%
17.2%
16.6%
16.8%
17.6%
16.2%
18.7%
17.6%
17.3%
17.0%
205.0
203.6
211.2
209.6
226.0
207.5
234.2
223.6
876.4
844.3
15.3%
17.2%
15.7%
16.8%
16.7%
16.2%
17.8%
17.6%
16.4%
17.0%
Adjustment: - amortisation
of intangible assets included in PPA
- non-recurring and
restructuring expenses
(26.2)
(26.2)
(26.1)
(26.1)
(28.6)
(26.1)
(28.7)
(26.2)
(109.6)
(104.6)
(10.1)
(11.3)
(35.6)
(8.1)
25.5
(9.2)
(73.0)
(24.6)
(93.2)
(53.2)
EBIT
168.7
166.1
149.5
175.4
222.9
172.2
132.5
172.8
673.6
686.5
% of net sales
12.6%
14.1%
11.1%
14.1%
16.5%
13.5%
10.1%
13.6%
12.6%
13.8%
* before exchange rate effect and changes in scope of consolidation
6
6
Geographilcal area
2017
Euro\mln
%
yoy
Organic Yoy*
Europe
Russia and CIS
NAFTA
South America
Asia\Pacific (APAC)
Middle East\Africa\India (MEAI)
2,238.0
159.6
983.9
915.7
806.2
248.9
41.7%
3.0%
18.4%
17.1%
15.1%
4.7%
Total
5,352.3
100.0%
* before exchange rate effect and changes in scope of consolidation
6.9%
-2.1%
5.3%
11.1%
13.1%
-0.1%
7.6%
7.6%
-14.6%
7.3%
7.4%
14.3%
5.6%
7.9%
(In millions of euro)
2016
%
42.0%
3.3%
18.8%
16.6%
14.3%
5.0%
100.0%
7
6
Group net sales amounted to euro 5,352.3 million, which represented a growth of +7.6%, +7.9% in organic terms, or rather net of
the impact of the exchange rate effect (-0.7%), and for the consolidation of the Aeolus Car business (+0.4%). Organic growth for the
Europe (41.7% of sales) ended the 2017 financial year with an organic growth of +7.5% (+6.9% including the exchange rate effect and
fourth quarter was equal to +8.3%.
the change in the scope of consolidation) supported by the strengthening on the High Value segment (a +12.8% organic growth in
revenues) with an increase in the market share of tyres with a rim diameter ≥18 inches both on the Original Equipment channel as well
High Value revenues amounted to euro 3,078.1 million for 2017, which represented an organic growth of +13.4% (+11.8% net of the
as the Replacement channel. On the Standard segment, the reduction of exposure to products with lower profitability continued,
exchange rate effect) and whose contribution amounted to 57.5% of revenues (+2.2% compared to 2016).
with an acceleration in the second half-year. Profitability was in the mid-teens range, impacted by start-up costs, but which steadily
The following table shows the drivers for the net sales performance:
1 Q
2017
2 Q
2017
3 Q
2017
4 Q
2017
Cumulative
at 12/31
2017
Volume
Price/mix
Change on a like-for-like basis
Translation effect
Change in scope of consolidation - Aeolus car
Total change
2.9%
5.5%
8.4%
4.0%
1.0%
13.4%
-0.3%
6.5%
6.2%
1.2%
0.6%
8.0%
1.0%
7.3%
8.3%
-3.1%
0.6%
5.8%
0.5%
7.8%
8.3%
-4.5%
-0.3%
3.5%
1.0%
6.9%
7.9%
-0.7%
0.4%
7.6%
increased during the second half-year (high teens range) as a result of the improved mix and the implementation of price increases.
NAFTA (18.4% of sales) recorded an organic growth in revenues of +7.4% (+5.3% including the exchange rate effect), with an organic
growth of +7.8% for the High Value segment. This revenue performance reflected the positive trend in volumes and, in particular for
the High Value segment on the Replacement channel, thanks to the introduction of all-season products and the greater penetration
of the retail channel, while the trend for High Value Original Equipment was affected by the market slowdown in the second half of
the year (-3.6% for the second half-year, -0.6% for 2017). In 2017 Pirelli consolidated its marked tyre leadership with an increase to
the market share of approximately +1.5%; with improvement also in the market share for Replacement tyres with a rim diameter ≥18
inches. Profitability (EBIT margin) was in the twenties range.
Apac (15.1% of sales) along with NAFTA were the regions with the highest revenue growth and profitability (an EBIT margin in the
twenties range). There was improvement in the performance of total revenues by +14.3%, net of the exchange rate effect and in the
change in the scope of consolidation (a total growth of +13.1%), supported by the High Value segment (an organic growth of +21.4%,
+18.3% net of the exchange rate effect). In particular, Pirelli strengthened its positioning in the high-end products range both in
the Original Equipment channel (which counted new homologations with European and local car brands) and in the Replacement
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations channel, which increased its market share by approximately
South America (17.1% of sales) recorded a total revenue growth
The details were as follows:
2%, thanks also to the expansion of commercial presence
of +11.1%, and +7.4% in organic terms (excluding the exchange
which now counts approximately 4,000 points of sale. The
rate effect on a like-for-like basis). This performance reflected:
activities for the conversion of Aeolus brand production into
>
the continuing focus on the mix, with the progressive
Pirelli brand production in the Aeolus Car tyre manufacturing
reduction in sales of the less profitable products within
plant acquired on October 1, 2016, were also continued in
the Standard segment;
support of future growth in the area.
>
the destination of a portion of production for export to
MEAI (4.7% of sales) recorded a growth in revenues of +5.6%
Premium products;
(-0.1% net of the exchange rate effect on a like-for-like basis)
>
the contraction of the car market in Argentina.
with profitability in the mid-teens range which represented a
Profitability was
in the high single-digits range which
slight increase compared to the corresponding period of 2016,
represented a growth compared to 2016, also due to the
despite the impact of the impairment of currencies particularly
continued actions aimed at the improvement and conversion
North America in view of the growing demand for Pirelli
in Turkey. The focus on High Value continued with an organic
of the mix.
revenue growth of +23.3% (a total growth of +19.3%) driven by
the strengthening in the Replacement channel for tyres with
The EBIT adjusted for the Group without start-up costs
a rim diameter ≥18 inches by approximately +2.0%, especially
amounted to euro 926.6 million, a growth of +9.7%, being euro
in the Gulf area.
+82.3 million in absolute values compared to the previous
financial year (euro 844.3 million for 2016), thanks to the High
2016 EBIT Adjusted
Internal levers:
Volumes
Price/mix
(In millions of euro)
1 Q
2 Q
3 Q
4 Q
Total
203.6
209.6
207.5
223.6
844.3
16.4
39.6
(1.9)
71.0
5.2
90.8
3.5
23.2
76.1
277.5
Amortisation, depreciation and other costs related
to the development of High Value
(23.6)
5.3
(12.4)
(9.2)
(39.9)
Efficiencies
External levers:
7.4
17.4
9.2
12.6
46.6
Cost of prodution factors: (commodities)
(17.5)
(63.1)
(51.0)
(33.2)
(164.8)
Cost of prodution factors (labour/energy/others)
(10.1)
(12.9)
(11.4)
(19.2)
(53.6)
Differences from foreign currency translation from consolidation
3.7
(1.9)
0.3
(8.8)
(6.7)
Change without start-up costs
15.9
13.9
30.7
21.8
82.3
2017 EBIT adjusted without start-up costs
219.5
223.5
238.2
245.4
926.6
In Russia (3.0% of sales) the strategy of focusing on the more
Value segment which achieved a share of approximately 83%
profitable segments - with the progressive reduction in the
of the EBIT (81% for 2016). The EBIT adjusted without start-up
production and sales of non-Pirelli brand products - impacted
costs attested itself at 17.3%, a growth of +0.3% compared to
Start-up costs
2017 EBIT adjusted
(14.5)
(12.3)
(12.2)
(11.2)
(50.2)
205.0
211.2
226.0
234.2
876.4
6
8
positively on the results for the 2017 financial year, with a
the previous financial year.
strong improvement in profitability (an EBIT margin in the
9
6
low-teens, which had been in the low single-digit range for the
Start-up costs amounted to euro 50.2 million and refer to:
The improvement in the results is linked to the effect of internal levers such as price/mix, volumes and efficiencies, which more than
corresponding period of 2016). Revenues recorded a contraction
> programs which intercept the new needs of the end
offset the rise in the cost of raw materials, costs inflation (particularly in emerging markets), higher amortisation and depreciation,
of -2.1% (-14.6% including the exchange rate effect). The decline
customer such as connectivity (Cyber™) and the return to
and other costs related to business development.
in High Value revenues (-4.0% YoY) reflected the Company’s
the bicycle business (Velo project);
In particular:
decision to reduce exports of high-end products to Russia,
> activities aimed at the Company’s digital transformation;
>
the growth in volumes (euro +23.2 million);
especially during the fourth quarter, in consideration of the
> activities for the the conversion of Aeolus brand production
>
the improvement of the price/mix component (euro +277.5 million);
contraction of the local market (-5.0% for the second half-year
into Pirelli brand production in the Aeolus manufacturing
> efficiencies (euro +46.6 million);
for the total market for tyres with a rim diameter ≥18inches,
plant for the Car sector acquired on October 1, 2016.
which more than offset:
-11% for the fourth quarter), by allocating production mainly to
>
the increase in the cost of raw materials (euro -164.8 million) and costs inflation particularly in the emerging markets (euro -53.6
Europe where demand was stronger.
The EBIT adjusted for the Group amounted to euro 876.4
million);
million which represented a growth of euro 32.1 million
> higher amortisation, depreciation and other costs linked, in particular, to the development of the High Value segment and the
compared to the previous financial year.
expansion of territorial coverage (euro -39.9 million) and to translation differences (euro -6.7 million);
>
the aforementioned start-up costs to the amount of euro 50.2 million.
The EBIT which amounted to euro 673.6 million (compared to euro 686.5 million for 2016) was impacted by:
> non-recurring and restructuring expenses to the amount of euro 93.2 million (euro 53.2 million for 2016) for structural rationalisation
activities, for activities relative to the separation of Pirelli’s Industrial business which took place in the first quarter of 2017, and
for advisory costs and fees relative to the IPO process (euro 61.9 million). It should be noted that in the first half-year of 2017 that
euro 37.4 million had been provisioned for the extraordinary incentive plan called “Special Award” in favour of a selected panel of
high level executives and senior managers. This provision was released with a positive impact on the Income Statement during
the third quarter of 2017, in that that the goal of Equity Value to which the payment of the related incentive was conditional
had not been achieved;
> euro 109.6 million relative to the amortisation of the intangible fixed assets identified during the Purchase Price Allocation (euro
104.6 million for 2016).
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations The item income (loss) from equity investments was
for 2017 compared to euro 427.3 million for 2016). The reduction
This change is analytically shown in the table below:
negative to the amount of euro 6.9 million (euro 20.0 million
in financial expenses was mainly attributable to the decrease
for 2016) and mainly refers:
of the cost of debt (5.36% at December 31, 2017 compared with
>
to the negative pro-rata share of the results for the
5.82% for 2016) resulted from the capital increase subscribed
2017 financial year for the Indonesian Joint Venture PT
to by Marco Polo in June 2017 and the refinancing of the debt
Evoluzione Tyres (negative to the amount of euro 9.6
carried out at the end of the first half-year. Tax expenses for
Equity at 12/31/2016
million) and the pro-rata negative result for the fourth
2017 amounted to euro 40.8 million against pre-tax earnings of
Translation differences
quarter of 2016 and the first nine months of 2017 by Prelios
euro 304.1 million with a tax rate which attested itself at 13.4%.
S.p.A. (negative at euro 3.1 million). These negative results
The tax rate for 2017 was positively impacted by the detection
were partially offset by the positive pro-rata result of
of deferred tax assets on tax losses and other temporary
Fenice S.r.l. (positive at euro 5.0 million) which indirectly
differences recognised in the period (surplus gross operating
includes the result deriving from the disposal by Fenice
income for the share of interest payables which were not
Share capital increase
Net income (loss)
Dividends approved
Disposal of 38% Pirelli Industrial to Cinda fund
S.r.l. of the investment in Prelios S.p.A.;
deducted and the ACE - tax concession Economic Growth Aid),
Assignment of the Industrial business to Marco Polo
>
to the impairment of the investment in the company Pirelli
pertinent to the Italian companies of the Group.
Acquisition of minority interests (Brazil)
de Venezuela C.A. (negative to the amount of euro 7.6
million euro) whose residual value at December 31, 2017
The net income (loss) related to continuing operations
was equal to euro 2.6 million;
(Consumer) adjusted amounted to euro 386.8 million (7.2%
>
to the capital gain realised by effect of the disposal on
of revenues) compared to euro 296.6 million for the previous
Other
Total changes
Equity at 12/31/2017
December 28, 2017 of the total investment in Prelios
financial year (6.0% of revenues).
S.p.A. (a capital gain net of the cost of the sale of euro 5.8
Group
Non-controlling
interests
Total
(In millions of euro)
3,134.1
(86.2)
1,189.4
176.4
-
1.5
(289.4)
(12.8)
3.7
982.6
4,116.7
140.8
(0.4)
-
(0.7)
(7.4)
264.5
(326.7)
(9.6)
(0.2)
(80.5)
3,274.9
(86.6)
1,189.4
175.7
(7.4)
266.0
(616.1)
(22.4)
3.5
902.1
60.3
4,177.0
million);
The net income (loss) related to discontinued operations
The table shows the reconciliation between the equity of the Parent Company and the consolidated equity attributable to
>
to dividends received from Mediobanca S.p.A. (euro 5.8
includes the financial data for the first quarter of 2017 for the
Shareholders of the Parent Company:
7
0
million) and Fin. Priv. S.r.l. (euro 0.8 million).
Industrial business, which no longer came under the scope of
The loss recorded for 2016 which amounted to a total of euro
the Group due to the assignment, as well as the results for the
20.0 million was mainly attributable to the impairment of the
twelve months, of some residual Industrial activities currently
investment in Prelios S.p.A. (a negative impact of euro 28.7
undergoing separation, and which were negative to the total
Share
Capital
Treasury
reserves
Net income
(loss)
Total
(In millions of euro)
1
7
million), to the pro-rata losses of the vehicle Fenice S.r.l. (a
amount of euro 87.6 million, mainly attributable the reversal
Equity of Pirelli & C. S.p.A. at 12/31/2017
1,904.4
2,163.1
170.9
4,238.4
negative impact of euro 21.9 million), to the pro-rata result of
to the Income Statement of translation losses matured at
the Indonesian Joint Venture PT Evoluzione Tyres (a negative
the date of the assignment of the Industrial perimetre to
impact of euro 8.5 million), and to the impairment of the
the amount of euro 80.2 million, mainly attributable to the
investment in Pirelli de Venezuela C.A. (a negative impact of
Egyptian subsidiary.
euro 8.7 million euros), which was partially offset by the positive
pro-rata result of the associate company Eurostazioni S.p.A. (a
The net income attributable to Pirelli & C. S.p.A. was positive
positive impact of euro 46.1 million) mainly attributable to the
to the amount of euro 176.4 million compared to the positive
capital gain deriving from the disposal of the investment held
amount of euro 135.1 million for the previous financial year.
by Eurostazioni S.p.A. in Grandi Stazioni Retail S.p.A..
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
202.6
202.6
4,260.8
4,260.8
(4,571.4)
(4,571.4)
200.3
(200.3)
-
(16.9)
3.2
(13.7)
Equity went from euro 3,274.9 million at December 31, 2016 to
Consolidated equity of Group at 12/31/2017
1,904.4
2,035.9
176.4
4,116.7
Net
income
(loss) related to continuing operations
euro 4,177.0 million at December 31, 2017.
(Consumer) at December 31, 2017 amounted to euro 263.3
million, compared to earnings of euro 164.0 million for 2016.
Equity attributable to Pirelli & C. S.p.A. at December 31, 2017
The net financial (liquidity)/debt position was negative to the amount of euro 3,218.5 million compared to euro 4,912.8 million at
This result also reflected, in addition to the improvement in the
amounted to euro 4,116.7 million compared to euro 3,134.1
December 31, 2016.
operating income and the results from investments, the lower
million at December 31, 2016.
net financial expenses of euro 64.7 million (euro 362.6 million
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations It was composed as follows:
The performance for cash flows for the period was as follows:
Current borrowings from banks and other financial institutions
Current derivative financial instruments
(In millions of euro)
12/31/2017
12/31/2016
559.2
11.2
642.1
35.7
1 Q
2 Q
3 Q
4 Q
Cumulative at 12/31
2017
2016
Restated
2017
2016
Restated
2017
2016
Restated
2017
2016
Restated
2017
2016
Restated
Adjusted operating income (loss)
205.0
203.6
211.2
209.6
226.0
207.5
234.2
223.6
876.4
844.3
(In millions of euro)
Non-Current borrowings from banks and other financial institutions
3,897.1
5,946.0
Amortisation and depreciation
65.4
57.9
64.8
58.8
63.9
64.0
67.2
57.3
261.3
238.0
Non-Current derivative financial instruments
55.0
-
Investments in property,
plant and equipment and intangible
(98.3)
(70.0)
(117.4)
(77.8)
(111.9)
(74.1)
(161.8)
(120.4)
(489.4)
(342.3)
4,522.5
6,623.8
assets
Total net financial (liquidity)/debt position
3,218.5
4,912.8
Partial acquisition of minotiry
Total gross debt
Cash and cash equivalents
Securities held for trading
Current financial receivables and other assets
Current derivative financial instruments
Net financial debt*
Non-current financial receivables and other assets
(1,118.5)
(1,533.0)
(33.0)
(36.5)
(21.4)
(48.6)
(30.0)
(3.7)
3,313.1
5,008.5
(94.6)
(95.7)
(In millions of euro)
2022 and
beyond
1,650.1
-
-
-
-
-
* Pursuant to Consob Notice of July 28, 2006 and in compliance with CESR recommendation of February 10, 2005
“Recommendations fot the consistent implementation of the European Commission regulation on Prospectuses”.
7
2
The structure of the gross financial debt, which amounted to euro 4,522.5 million, was as follows:
12/31/2017
2018
2019
2020
2021
Maturity date
Use of senior facilities
3,277.5
Bond 1,750% - 2014/2019
EIB loans
Other loans
596.3
30.0
618.7
-
-
20.0
550.4
-
1,627.4
-
-
596.3
10.0
29.0
Total gross debt
4,522.5
570.4
635.3
1,636.8
1.8
1,678.2
12.7%
14.0%
36.2%
0.0%
37.1%
At December 31, 2017, the Group had a liquidity margin equal to euro 1,851.5 million composed of euro 700.0 million in the form of
a non-utilised nominal credit facility, and euro 1,151.5 million in cash and cash equivalents in addition to securities held for trading.
It is to be noted that on January 22, 2018, as part of the EMTN (Euro Medium Term Note) program approved at the end of 2017,
Change in working capital/other
(892.2)
(783.8)
123.9
70.1
(131.8)
(63.8)
1,023.9
809.0
123.8
31.5
Operating net cash flow
(720.1)
(592.3)
282.5
260.7
46.2
133.6
1,163.5
969.5
772.1
771.5
Financial income/(expenses)
(77.0)
(133.7)
(149.4)
(118.7)
(63.5)
(99.2)
(72.7)
(75.7)
(362.6)
(427.3)
Taxes paid
(45.7)
(26.7)
(6.1)
(33.2)
(65.1)
(35.6)
(18.6)
(8.9)
(135.5)
(104.4)
Financial (investments) /
disinvestments
Disposal of real estate
Disposal of investments
interest Pneuac - Brazil
Dividends approved
to non-controlling interests
Cash Out for non-recurring
and restructuring expenses
Disposal
of
minority
equity
investments
Financial expenses included
in the acquisition debt
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
extraordinary transactions
(1.7)
(5.2)
(0.8)
11.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(12.6)
(2.5)
(6.7)
16.1
-
75.0
-
91.1
-
25.7
109.0
25.7
109.0
-
(15.4)
-
-
-
(15.4)
-
-
-
-
(12.9)
-
-
-
(12.9)
-
-
(11.9)
(17.7)
(4.6)
(9.4)
(6.8)
(8.3)
(40.5)
(13.9)
(63.8)
(49.3)
(5.5)
-
-
-
-
-
-
-
(5.5)
-
3
7
-
-
-
122.2
-
-
-
-
-
122.2
-
-
-
-
-
-
-
23.0
-
23.0
(19.8)
(62.7)
2.4
(25.7)
6.3
(1.1)
11.8
(103.4)
0.7
(192.9)
(881.7)
(838.3)
124.0
207.0
(111.2)
5.5
1,069.2
962.0
200.3
336.2
Industrial reorganization
269.3
59.3
35.3
37.9
-
21.5
-
(71.8)
304.6
46.9
05/31
Proceeds from the disposal of 38%
Pirelli Industrial to Cinda
Bidco Facility costs post-merger
/ adjustments of refinancing
Share capital increase subscribed
by Marco Polo
Aeolus Car NFP impact
-
-
-
(134.3)
-
-
-
-
-
(134.3)
-
-
-
-
-
-
-
266.0
-
266.0
-
-
-
-
-
-
-
(23.0)
-
(23.0)
-
-
-
1,189.4
-
-
-
-
-
-
-
-
-
-
1,189.4
-
-
(73.6)
-
(73.6)
Net cash flow
(612.4)
(779.0)
1,348.7
110.6
(111.2)
27.0
1,069.2
1,059.6
1,694.3
418.2
9.4
1.8
28.1
Change NFP Bidco from 01/01 to
Pirelli placed a bond loan with international institutional investors for a nominal amount of euro 600 million with a 5 year
More specifically, the operating net cash flow for the 2017 financial year was positive to the amount of euro 772.1 million (positive
duration at a fixed rate. The issue, with a yield of 110 basis points on the benchmark rate, allowed for the debt to be optimised by
at euro 771.5 million for 2016), and reflected the higher investments of euro 147.1 million (euro 489.4 million compared to euro 342.3
lengthening maturities and reducing its cost. The effective yield at maturity is equal to 1.479%. The securities have been listed on
million for 2016), which were offset by the improvement in the operating performance and by the careful management of the net
the Luxembourg Stock Exchange.
working capital. Investments were primarily aimed at increasing the capacity of the High Value segment in Europe and the NAFTA
area, as well as at the strategic reconversion of the capacity of the Standard segment into High-Value in Brazil (Bahia and Campinas),
at the transformation of the production of Aeolus brand products into Pirelli brand products in the new manufacturing plant in
Jiaozuo for the Car sector, and at the continuous improvement of the quality and mix in all manufacturing plants.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations Net cash flow before extraordinary transactions was
the Prestige segment with a market share which aproximated
association, who called it “an extremely balanced summer tyre,
whose tread is silver for Road Racing, red for the Crono tyre
positive to the amount of euro 200.3 million compared to the
50% in the Original Equipment channel. Amongst the models
particularly reliable in the wet, wear-resistant and with a low
and blue for the Four Seasons. “Perfect balance” is one of
positive result of euro 336.2 million recorded for 2016.
which chose Pirelli for Orginal Equipment, there were many
noise impact on the inside of the passenger compartment.”
the key characteristics of the new Pirelli bicycle tyres: tyres
new announcements made at the last Frankfurt Motor Show:
Thanks to its consistently high level of performance, the Pirelli
with optimum performance and balanced, in terms of rolling
Net cash flow was positive to the amount of euro 1,694.3
such as the Bentley Continental GT, the Audi RS5 Coupé and
Cinturato P1 Verde received a “good” rating and was ranked first.
resistance, with grip on wet and grip on dry, handling, puncture
million (positive to the amount of euro 418.2 million for 2016),
RS4 Avant, the new Porsche Cayenne (which for the winter
resistance and durability (understood not only as a duration
and included the effect (euro +304.6 million) resulting from the
season is fitted with Scorpion Winter tyres), the Lamborghini
The Cinturato P7™ Blue, Pirelli’s champion of sustainability
time, but above all as a consistent performance over time). In
continuation of the reorganisation of the Industrial business
Aventador S Roadster and the McLaren 570s Spider. Also part
renews and extends the double A European rating to all the
order to satisfy similar project requirements, Pirelli researchers
and the capital increase of euro 1,189.4 million subscribed to by
of the record 110 August homologations were the Audi A8, the
newly available sizes, thus marking a new record. This important
worked on three fronts - the shape and construction of the
Marco Polo International Italy S.p.A. in June 2017.
BMW X3, the BMW 6 Series Gran Turismo, the Jaguar eTrophy
result was achieved thanks to the technological evolution
tyre, the tread pattern and the compound, the development
RESEARCH AND
DEVELOPMENT
ACTIVITIES
(the electric racing version of the I-Pace).
which in recent years render Pirelli the lead actor. The new
and patenting of new technologies deriving from F1® and the
generation Cinturato P7™ Blue has a very low rolling resistance,
world of Superbike, as well as new compounds.
Pirelli’s model for research and development implemented in
accordance with the “Open Innovation” model, is completed
with consequent savings in fuel costs and a reduction of CO2
emissions, all to the benefit of the environment. At the origin
with a series of collaborations with operators external to the
of this improvement is the Low Rolling Technology Package,
Group, such as suppliers, universities and car manufacturers,
which combines new construction processes especially in the
NEW MATERIALS
in order to pre-empt technological innovations in the sector
area of the belt plus the use of the latest internal materials.
In the field of materials, the Group is active in the development
and to direct research and development activities towards
The adoption of the new technology has led to an increase in
of new polymers in order to improve the characteristics of tyres
meeting the needs of the final consumer.
mileage of approximately 10%.
in terms of rolling resistance, low temperature performance,
mileage and grip on the road. In addition, the Group’s business
The research and development activities carried out by
and development activities with ever greater attention
off-road product, the MC360™, the ideal equipment for the
such as high dispersion silica for wet grip, rolling resistance,
Furthermore, the Group accompanies its traditional research
In the field of motorcycles, Metzeler introduced its latest
focuses on the development of other non-polymeric materials,
7
4
Pirelli constitute a central phase for the development of
towards reducing the environmental impact of its activities
motorcycles of professional and amateur drivers alike who
mileage; biomaterials such as silica from renewable sources,
5
7
new products. Consequently, Pirelli dedicates a strong focus
and products. Pirelli is actively involved in the development
take part in various off-road disciplines.
biofillers such as lignin and plasticisers/resins of vegetable
on technological innovation and continuously carries out
of tyres with low environmental impact (safe for the planet),
origin; nanofillers for more stable compounds,
lighter
research and development activities in relation to materials,
high performance (safe for people), which includes the so
The METZELER ROADTEC™ 01 was confirmed as the best Sport
structures and linings with elevated waterproof qualities;
products and production processes.
called Self-Sealing and Runflat tyres which incorporate
Touring tyre by the authoritative English magazine MCN,
new silica surfactants to ensure performance stability and
electronic sensors and are able to interact with the vehicle’s
which decreed it the winner for 2017.
processability; and, vulcanisers and stabilisers that allow for
Research and development expenses for the 2017 financial
control systems for increased safety and reduction of fuel
the development of tyres with low environmental impact and
year totalled euro 221.5 million, (4.1% of sales) of which euro
consumption (Cyber Tyre™).
There were two new comers for motorcycle Pirelli brand:
high performance.
199.9 million was destined for High Value activites (6.5% of
High Value revenues).
PRODUCT INNOVATION
> The DIABLO™ SUPERCORSA SP, now in its third generation
The Group has entered into cooperation agreements with
and developed together with the Supersport and
various international and national institutions and universities.
Superstock class of riders of the Motul FIM (International
These agreements include numerous research projects with
The Research and Development department counts
Motorcycling Federation) Superbike World Championship,
the University of Milano-Bicocca, as part of the Consortium
approximately 1,800 personnel (equal to 5.9% of the Group’s
At the Geneva Motor Show in 2017, Pirelli presented two new
it represents the homologated solution for the highest
for Advanced Materials Research (CORIMAV), and through
human resources) located at the Milan headquarters and
products:
performance road use ever designed by Pirelli. Thanks
the Silvio Tronchetti Provera Foundation which allows for
in their 12 technology centres, which allows for a direct
>
the coloured editions of the P Zero™ and the Winter
to its innovative features, it has already been chosen by
the development of innovative materials and solutions which
relationship with the major car manufacturers, facilitates
Sottozero™ tyres, for which Pirelli engineers developed
Ducati as Original Equipment of the new Panigale V4.
are fundamental to the realisation of tyres with reduced
the understanding of the needs of their markets, and helps
innovative materials and finishes capable of ensuring
> The DIABLO ROSSO™ CORSA exploits the experience
environmental impact and high performance, and the Joint
to adapt the innovations and improvements gained at the
brilliant and long lasting colours;
gained over 15 years as the Official Tyre Supplier for the
Labs agreement between Pirelli and the Politecnico di Milano
Milan centre.
> Pirelli Connesso™ offers a digital platform which
is
MOTUL FIM Superbike World Championship which offers
formulated in 2011 and aimed at research and training in
In order to develop new products specifically designed to meet
available in black or coloured, which thanks to the sensor
a grip that sets a new benchmark on both wet and dry
innovative materials and technologies for sustainable and
the needs and technical specifications of customers, the Group
fixed to the inner wall of the tyre itself is connected to an
surfaces.
has established long-lasting relationships with major Prestige
App which is able to communicate with the motorist and
increasingly safe mobility. The new phase of the agreement,
with a three year duration, focuses on two main areas of
and Premium car manufacturers. The development of the
provide information on certain fundamental parameters
After decades of collaboration, Pirelli has been selected by MV
research: the area of design for innovative materials and the
product together with these car manufacturers, supported by
concerning the functioning of the tyre, and a range of
Agusta to be the sole supplier of tyres.
area for product development and Cyber development.
integrated into the P Zero™ and Winter Sottozero™ tyres,
the best combination of performance and versatility, with
the tyre sector, in particular through the development of
the testing and approval phases, is aimed at producing tyres
other personalised services.
that match the dynamic characteristics and electronics of the
In January, the Pirelli Cinturato P1™ Verde received the praises
As part of the Velo range, Pirelli launched a new line of tyres
car (the so called “perfect fit”). Pirelli is the absolute leader of
of the curators of the ADAC Award, the German motoring
dedicated to bicycle racing on the road: the PZero™ Velo,
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations PROCESS AND PRODUCTIVITY
INNOVATION
compared to previous years, with the aim of optimising the
footprint on the ground, and thus favouring a strong increase
in cornering speed. During the course of 2017, pole position
PARENT COMPANY HIGHLIGHTS
In order to allow for the effective management of the variety
was on average 2.450 seconds faster than for 2016, while the
The table below shows a summary of the main Income Statement and Statement of Financial Position figures.
of products in the factories, the Group has launched the “Smart
fastest lap in the race was on average faster by 2.968 seconds.
Manufacturing” program. This program is based on the use of “data”
For 2018 an even faster tyre has been developed, the Pink
through “Big Data analytics” techniques that flank the consolidated
hypersoft. Each compound will be one grade softer than for
Lean Manufacturing programs to
improve production and
the previous year. In the future this should help to increase
Operating income (loss)
maintenance processes, machine productivity and product quality,
speed and performance even further.
also from a predictive perspective, despite a significant reduction
in the size of production batches.
In 2017 Pirelli celebrated 110 years of commitment to Motorsports,
COMMITTENT TO MOTORSPORTS
which began in 1907 with the victory in the Beijing to Paris race.
In the automotive field, in addition to F1®, Pirelli is now engaged in
over 460 championships across all five continents. The different
programs range from open competitions, in some cases with over
Pirelli has been the sole official supplier of the Formula 1™®
20 manufacturers represented, to the single brand trophies of
World Championship since the 2011 season, and renewed its
world brands such as the Ferrari Challenge and the Lamborghini
three-year contract for the third time on June 17, 2016, until
Super Trofeo. In order to understand the enormous commitment
Financial income/(expenses)
Net income (loss) from equity investments
Income taxes
Net profit/(loss)
Financial assets
Net Equity
Net financial position
(In millions of euro)
12/31/2017
12/31/2016
(50.9)
63.2
(123.4)
(236.9)
204.4
140.8
170.9
172.5
69.7
68.5
4,803.1
5,146.3
4,238.4
3,206.2
2,363.0
3,658.6
the 2019 season. This experience with the Formula 1™® World
of Pirelli to Motorsport, just think that all these events translate
The operating income (loss) which was negative at euro 50.9 million compared to the positive result of euro 63.2 million for the previous
Championship has allowed Pirelli to develop new simulation
into 1,170 races per year, all over the world, which employs
financial year, and was impacted by non-recurring and restructuring expenses to the amount of euro 64.1 million mainly due to costs
models which allow for the further reduction of the time
approximately 1,000 people between engineers, track technicians
for advisors and fees relative to the IPO process, and lesser royalties paid by the Group’s companies for the use of the Pirelli trademark.
it takes to launch a product on the market, and to improve
and other personnel dedicated to Research and Development.
The operating result of the previous financial year included gains on the disposal of buildings (euro 29.4 million) in Milan, Italy used
7
6
the quality of road product projects, rendering them better
Overall, in 2017 Pirelli was the protagonist of the most important
for R&D of euro 27.2 million, and in San Donato Milanese, Italy of euro 2.2 million.
7
7
performing and compliant with the highest of requirements,
international and national two-wheeled competitions, taking
as well as allowing for a better understanding of the behavior
part in a total of 119 motorcycle championships across five
The reduction in financial expenses was mainly due to the decrease in the cost of debt resulting from the capital increase subscribed
of materials according to temperatures when in use. In this
continents, for some of them, as the sole tyre supplier and for
to by Marco Polo International Italy S.p.A. in June 2017, and the refinancing of the debt carried out at the end of the first half-year.
context, the FIA and Pirelli, in collaboration with their teams,
others, in open competition with other tyre manufacturers. In
reached a major agreement resulting in changes to the
the European Championships which foresees the participation
The item net income (loss) from equity investments mainly includes:
technical regulations. In 2017 in fact, new technical regulations
of several tyre producers, Pirelli on average equips 70% of the
> dividends on the part of Pirelli Tyre S.p.A. (euro 200 million compared to euro 169 million for 2016);
will enter into force which will include significant modifications
motorcycles deployed on the grid, thereby confirming the
>
the capital gain on the disposal of the investment in Prelios S.p.A (euro 2.5 million).
to the chassis, with a significant increase in the aerodynamic
excellent appreciation demonstrated by motorcycle riders around
load, and an increase in the tyre width of approximately 25%
the world for the Pirelli brand.
Income taxes for the 2017 financial year mainly included corporate income tax (IRES) from the consolidated Financial Statement
which was positive to the amount of euro 72.1 million, compared to euro 54.4 million for 2016, and benefited from the recognition
of deferred tax assets on previous tax losses and other temporary differences for a total of euro 76.8 million, and was directly
attributable to the revision of forecasts for the future taxable income of the companies participating in Italian tax consolidation.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations The following is a summary of the values of the main financial assets:
The table below shows the composition of equity at December 31, 2017 and the comparison with the previous financial year:
(In millions of euro)
(In millions of euro)
Investments in subsidiaries
- Pirelli Tyre S.p.A.
- Pirelli Ltda
- Pirelli & C. Ambiente S.r.l.
- TP Industrial S.p.A. (formerly Pirelli Labs S.p.A.)
- Pirelli UK Ltd.
- Pirelli Group Reinsurance Company S.A.
- Pirelli Servizi Amministrazione e Tesoreria S.p.A.
- Other
12/31/2017
12/31/2016
4,521.8
4,521.8
9.7
2.0
-
21.9
6.3
3.2
3.4
9.7
-
364.3
21.9
6.3
3.2
3.5
Total equity investments in subsidiaries
4,568.3
4,930.7
Share capital
Legal reserve
Reserve premium
Concentration reserve
Other reserves
IAS Reserve
Reserve for cash flow hedges and relative tax effects
Retained earnings
Merger Reserves
Net income (loss) for the financial year
Total Equity
12/31/2017
12/31/2016
1,904.4
1,342.3
380.9
152.1
630.4
12.4
92.5
29.4
-
12.4
92.5
(12.6)
(5.4)
0.3
-
305.4
1,022.9
1,245.3
170.9
68.5
4,238.4
3,206.2
7
8
Investments in associates and other financial assets
- Eurostazioni S.p.A. - Rome
- Prelios S.p.A.
- Fenice S.r.l.
- Focus Investments S.p.A.
- Mediobanca S.p.A. - Milan
- RCS Mediagroup S.p.A. - Milan
- Fin. Priv S.r.l.
- Real Estate Investment Fund - Anastasia
- Istituto Europeo di Oncologia S.r.l.
- Other
Total investments in associates and other financial assets
Total financial assets
6.3
-
2.5
1.4
6.3
13.6
9.1
4.0
149.0
122.2
30.2
19.9
15.3
6.6
3.6
19.3
16.5
14.6
6.2
3.8
234.8
215.6
4,803.1
5,146.3
RISK FACTORS AND UNCERTAINTY
9
7
The volatility of the macroeconomic environment, the instability of the financial markets, the complexity of management processes
and the continuous legislative and regulatory changes demands the 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 instruments needed to anticipate and manage the effects of these risks. The Pirelli Risk Model systematically assesses three
categories of risk:
1. External risks
Equity increased from euro 3,206.2 million to euro 4,238.4 million due to the impacts of the following:
trends, to changes in demand, to competitor strategies, to technological innovation, to the introduction of new rules and
(In millions of euro)
regulations, and to country-specific risks (financial, security related, political and environmental risks) as well as the impacts
These are risks which occur outside the sphere of influence of the company. This category includes risks related to macroeconomic
Equity at 12/31/2016
Net income (loss) for the financial year
Distribution of reserves assigned to TP Industrial
Share capital increase
Gains/(losses) recognised directly in Equity
Equity at 12/31/2017
3,206.2
170.9
(364.3)
1,189.4
36.2
4,238.4
linked to climate change.
2. Strategic Risks
These are risks which are typical for a specific business sector of which the 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
These are risks generated by the organisation and by corporate processes, whose occurrence does 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.
At cross roads to the aforesaid risks are corporate social responsibility risks, environmental and business ethics risks.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations
These are risks associated with the non-compliance with local
regimes may prove unstable in the future. For example,
and international regulations and corporate policies regarding
structural elements of political instability persist in the Latin
Risks related to climate change In the short-medium
term, there were no significant risks in relation to production
to transaction risk (mainly represented by receivables and
payables in foreign currency). Coverage is then provided in
the respect for human and labour rights, and environmental
American area (with particular reference to Brazil), which
processes or the markets where Pirelli operates. On the other
the form of forward contracts which are entered into where
and business ethics, and can be generated by the organisation
could lead to an alteration of the normal market dynamics
hand, as regards a medium-long term scenario, the tyre
possible with the Group’s Treasury.
either as part of the relative value chain or as part of the
and, more generally, of business operating conditions. To
sector could be subject to a number of risks both of a physical
The positions subject to exchange rate risk are mainly
supply chain. These risks in turn can lead to reputational risks.
this scenario of uncertainty, there is the added recent socio-
nature (such as the increase in average temperatures and the
represented by receivables and payables in foreign currency.
Reputational risks are related to actions or events that could
political instability in the Middle East where the medium-long
more frequently occurring extreme weather events) as well
The Group’s Treasury is responsible for hedging the resulting
cause a negative perception of the company on the part of its
term implications remain uncertain. The Group constantly
as of a regulatory nature. Pirelli monitors these elements of
net position for each currency and, in accordance with the
major stakeholders. The main areas of risk in this category are,
monitors the changes in risks (political, economic/financial and
uncertainty through sensitivity analyses. On the other hand,
established guidelines and restrictions, it in turn provides for
in addition to the aforementioned risks related to corporate
security related) relative to the countries in which it operates
the situation also represents growth opportunities in sales for
the closure of all risk positions by trading derivative hedging
social-environmental responsibility and to business ethics, as
in order to continue to adopt timely (and if possible advance)
both Pirelli Green Performance tyres as well as products with
contracts on the market, typically forward contracts.
well as to the inherent risks of leadership, and the quality and
measures to mitigate the potential impacts of changes arising
a lower environmental impact.
Furthermore, as part of the one year and three year planning
level of product innovation.
at local level. Moreover, in situations of under-utilisation of
the capacity of some factories, the reallocation of production
between Group plants is possible.
EXTERNAL RISKS
Risks related to price trends and the availability
of raw materials Natural rubber, synthetic rubber and
raw materials related to oil (in particular chemicals and
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. From time to
Risks associated with general economic conditions
and changing demand in the medium term Pirelli
expects an improvement in the growth prospects of the
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
carbon black) will continue to be a factor of uncertainty
time the Group assesses the opportunity to engage in currency
within the Group’s cost structure, given the strong volatility
hedging on future transactions for which it typically makes use
recorded in recent years and their impact on the cost of the
of either forward buy or sell operations, or optional operations
have a material impact in the medium-long term on the
finished product.
such as risk reversal (for example; zero cost collars).
global economy during the course of 2018, in the wake of a
automotive sector, and indirectly on the tyre market. On the
For the main raw materials purchased by the Group, possible
Pirelli owns controlling interests in companies that prepare
8
0
probable consolidation of the current expansionary phase
one hand, these are represented by the growing phenomena of
price scenarios are constantly simulated in relation to the
their Financial Statements in currencies other than the
1
8
of the European and Chinese economies together with an
urbanisation (according to the latest United Nation estimates,
historical volatility and/or the best information available on
Euro which is the currency used to prepare the consolidated
acceleration of the US economy. Global growth should also
approximately 70% of the global population will live in urban
the market (e.g. forward prices). On the basis of the different
Financial Statements. This exposes the Group to currency
show itself to be more balanced thanks to a contribution
areas by 2050) and on the other hand, by changes in the values
scenarios, increases in sales prices and/or the different
translation risk, due to the conversion into Euro of the assets
of growth from the main emerging markets which should
and behaviour of younger generations (increase in the average
internal actions, for the recovery of cost efficiencies (use of
and liabilities of subsidiaries operating in other currencies. The
benefit from a more stable currency market. Despite this
age when a driver’s license is obtained, loss of importance of
alternative raw materials, reduction of the weight of the
main exposures to currency translation risk are constantly
favourable macroeconomic environment, there still persist
owning a car, increased use of various types of car sharing).
product, improvement of the processing quality and reduction
monitored and at present it has been decided not to adopt
however, elements of both a political risk nature (amongst
Added to these factors is the increasing spread of information
of the levels of waste), necessary to guarantee the expected
specific hedging policies for these exposures. The 2017 financial
others Brexit, the Italian parliamentary elections, the
technologies which
increasingly encourages the use of
levels of profitability are identified.
year saw the US Dollar decline against the Euro as well as both
Brazilian presidential elections and the Catalan crisis) as well
e-commerce and/or telecommuting along with frequent
as macroeconomic risks. The latter are mainly linked to the
regulatory interventions, both in the mature as well as
current uncertainty that characterises the North American
emerging economies, aimed at limiting the presence of
free trade area (NAFTA) as well as the possible increase in the
polluting vehicles within and near metropolitan areas. These
volatility of the financial markets.
dynamics may give rise to a change in automotive sector
STRATEGIC RISKS
Country risk Where appropriate, Pirelli has adopted a
local-for-local strategy, creating a productive presence in
demand (from changes to vehicle dimensions/engines which
take different types of fuel/power supply, to the possible
Exchange rate risk The diverse geographical distribution
of Pirelli’s productive and commercial activities entails the
resizing of the car in accordance with the transportation
exposure to exchange rate risks such as transaction risk and
preferences of citizens), with a potential impact on the
translation risk.
the Brazilian Real and Russian Rouble. As regards instead the
Chinese Renminbi, there was a partial reversal of direction
(at least at a quarterly granularity level) during the course of
2017 with respect to the depreciation trend in evidence since
2013. According to the currently available forecasts, the 2018
financial year should repeat, at least in terms of annual trends,
that which was seen during the previous financial year.
rapidly developing countries in order to respond to the local
dynamics of the tyre sector.
Transaction risk is generated by transactions of a commercial
demand with competitive industrial and logistical costs. This
Pirelli constantly monitors the evolutionary changes
in
and financial nature carried out in individual companies
Liquidity risk The principal instruments used by the Group
to manage the risk of insufficient available financial resources
strategy is aimed at increasing the competitiveness of the
automotive sector demand by actively participating
in
in currencies other than the functional currency, due to
to meet the financial and commercial obligations within the
Group, as well as allowing the Group to overcome potential
working groups at international level, such as the SiMPlify and
fluctuations in exchange rates between the time when the
terms and deadlines established, are its one year and three
protectionist measures (customs barriers or other measures
Future of Mobility projects sponsored by the World Business
commercial/financial relationship originates and the time
year financial plans and its treasury plans, in order to allow
such as technical prerequisites, product certification, and
Council for Sustainable Development (WBCSD). The principal
when the transaction is settled (collection/payment).
for the complete and correct detection and measurement of
administrative costs related to import procedures, etc.) In
aim of such projects is in fact to study the possible long-term
The Group’s policy is to minimise the impact of transaction risk
incoming and outgoing cash flows. The differences between
the context of this strategy, Pirelli operates in countries
evolution of urban mobility and to promote solutions that
linked to volatility, and for this reason the Group’s procedures
the plans and the final data are constantly analysed.
(Argentina, Brazil, Mexico, Russia, China, Egypt, and Turkey)
might improve the social, environmental and financial well-
provide that the Operating Units are responsible for collecting
The Group has implemented a centralised system for the
where the general economic and political situation and tax
being of the urban population.
all the relevant information pertaining to positions subject
management of collections and payments in compliance
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations with various local currency and tax regulations. Banking
issued by parties of the highest credit or personal standing.
relationships are negotiated and managed centrally, in order
Less frequently, mortgage guarantees may be requested.
Employee health and safety risks The Pirelli Group,
in carrying out its activities, incurs expenses and costs for
the security systems against unauthorised access, as well as
of the business data management solutions.
to ensure coverage for short and medium-term financial needs
Other
instruments used
for commercial credit
risk
the actions necessary to ensure full compliance with the
Particular attention has been paid to the renewal of
at the lowest possible cost. Even the procurement of medium
management is the taking out of insurance policies. As of
obligations provided for by the regulations regarding health
infrastructural componentry characterised by technological
and long-term resources on the capital market is optimised
January 2012, the company signed a master agreement which
and safety in the workplace. Particularly in Italy the law
obsolescence which could entail a greater risk of breakdowns
through centralised management.
expired in December 2017, with a leading insurance company
relating to health and safety at work (Legislative Decree no.
and incidents which could impact on the Group’s activities.
The prudent management of the aforementioned risk
for worldwide coverage for credit risk mainly related to sales
81/08) and subsequent amendments (Legislative Decree no.
In particular:
requires the maintenance of an adequate level of cash or
on the Replacement channel (with an approximate 68%
106/09) have introduced new obligations that have impacted
> High reliability solutions have been implemented for
cash equivalents and/or highly liquid short-term securities,
acceptance rate at December 2017).
on the management of activities at Pirelli sites, and on the
the data network, renewing the central devices which
plus the availability of funds obtainable through an adequate
The insurance coverage has been extended to also cover
models for allocating liabilities.
manage communications within the Company and the
amount of committed credit facilities and/or recourse to the
2018. During the course of 2017, the general situation for
Failure to comply with current health and safety regulations
access to Internet services, in order to reduce the risk of
capital market.
trade receivables remained essentially consistent with
entails criminal and/or civil penalties at the expense of those
possible disservices and to increase perimeter security.
In addition to the available portion of the committed credit
that at the closing of the previous financial year. The Group
responsible, and in some cases, the penalties for the violation
>
the work to bring the Server and Client environments into
facility (the Revolving Credit Facility) for a total of euro 700
operates only with highly rated financial counterparties
of regulations are borne by the Companies themselves in
compliance continued with the progressive updating
million which at December 31, 2017 resulted as being completely
for the management of its temporary cash surpluses or for
accordance with a European model of objective liability for
of the operating systems in order to reduce their
unused, the Pirelli Group has resorted to the capital market to
trading in derivative instruments. Pirelli does not hold public
companies incorporated in Italy (Legislative Decree no. 231/01).
vulnerabilities.
diversify both products and maturities in order to seize the best
debt instruments from any European country, and constantly
opportunities available from time to time.
monitors its net credit exposure to the banking system, and
does not show significant concentrations of credit risk.
Interest rate risk Interest rate risk is represented by
exposure to the variability of the fair value or of the future
cash flows of financial assets or liabilities due to changes in
Risks associated with human resources The Group
is exposed to the risk of loss of resources in key positions or
8
2
>
the new Disaster Recovery solution was activated, which
substantially reduces recovery times and limits any loss of
Defective product risk As with all manufacturers of
goods for sale to the public, Pirelli is subject to potential
data to a minimum.
>
the central
infrastructure of storage systems was
liability claims related to any alleged defects of the materials
strengthened with a view to Business Continuity, in
sold or may be required to launch recall campaigns for
compliance with the Group’s architectural standards and
products. Although in recent years there have been no
security regulations.
3
8
market interest rates.
in possession of “critical know how”. To address this risk, the
significant cases and such events are however covered by an
>
the infrastructures for saving corporate data resident on
Group adopts remuneration policies periodically updated also
insurance point of view, any occurrence could have a negative
user PCs and on central systems were enhanced to reduce
The group assesses, on the basis of the market circumstances,
based on changes in the general macroeconomic scenario
impact on the reputation of the Pirelli brand. For this reason,
the risk of information loss.
whether to enter into derivative contracts, typically interest
as well as on the basis of salary benchmarks. Also planned
the tyres manufactured by Pirelli are undergo a careful
> work continued on the segregation of the factory networks
rate swaps, for hedging purposes for which hedge accounting
are long-term incentive plans and specific non-competition
quality analysis before being placed on the market. The entire
within the various locations of the Group, and with the
is activated when the conditions set forth in the IAS 39 are met.
agreements (also with retention effect) designed amongst
production process is subject to specific quality assurance
implementation of protective solutions to the level of
other things, to fit the risk profiles of the activities related to
procedures aimed at safety, as well as at constantly elevated
individual machinery.
Price risk associated with financial assets The
Group is exposed to price risk only regarding the volatility of
financial assets such as listed and unlisted stocks and bonds,
accounting for 2.1% of total assets of the Group. Derivatives
are not normally set up to limit the volatility of these assets.
OPERATIONAL RISKS
the business. Finally, specific management policies have been
performance.
adopted to motivate and retain talent.
Credit risk Credit risk represents the Group’s exposure
to potential losses resulting from the non-fulfilment of
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 commercial and financial obligations undertaken by
the Group operates. These regulations have in common their
counterparties. As regards these commercial counterparties,
tendency to evolve in an ever more restrictive manner, also
Litigation risks In carrying out its activities, Pirelli may
become involved in legal, fiscal, trade or labour law disputes.
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
The Group adopts the necessary measures to prevent and
business operations for more or less prolonged periods, with the
mitigate any penalties that may result from such proceedings.
consequent impact on the operational capabilities and results of
Risks related to information systems and network
infrastructure The supporting role of ICT (Information
for business
and communication technology) systems
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
in order to limit this risk, Pirelli has implemented procedures to
due to the growing concern of the international community
processes, their evolution and development, and for the
significant property damage, and the reduction and/or
evaluate customer potential and financial creditworthiness, to
over the issue of environmental sustainability. Pirelli expects
Group’s operating activities was also confirmed during the
interruption of production, particularly if the event concerns
monitor expected collection flows and to take credit recovery
the gradual introduction of ever stricter laws in relation to
course of the 2017 financial year as being fundamental to the
high volume or specific product (high-end) production sites.
action if and when necessary. The aim of these procedures
the various environmental aspects on which companies may
achieving of results.
Pirelli monitors their vulnerability to catastrophic natural
is to define customer credit limits, whereby in the event
impact (atmospheric emissions, waste generation, impacts on
Pirelli has mainly worked towards the prevention and
events (in particular flood, hurricane and earthquake) with
that those limits are exceeded, the rule to withhold further
soil and water use, etc.), by virtue of which the Group expects
mitigation of risks connected to possible system malfunctions
estimates of any potential damage (based on the given
supplies is activated. In some cases customers are asked to
to have to continue to make investments and/or incur costs
through high reliability solutions for the protection of the
probability of occurrence) for all the Group’s production sites.
provide guarantees. These mainly consist of bank guarantees
that may be significant.
corporate information assets, through the enhancement of
The analyses confirm the adequate monitoring of business
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations 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
Risks in terms of corporate social and environmental
responsibility, business ethics, and third-party
audits.
Risk management at Pirelli is enterprise-wide and includes
Statements/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
policies in place to cover property damage and business
the identification, analysis and monitoring of environmental,
and qualitative criteria. The quantitative criteria involves the identification of the Group companies which, in relation to the selected
interruption. Regarding earthquake risk, and specifically the
social, economic/financial and business ethics risks that are
processes, represent an aggregate value which exceeds a certain threshold of materiality.
facility in Turkey, any particularly significant seismic events
directly or indirectly attributable to the company, through
The qualitative criteria involve the examination of processes and companies which, in the opinion of the Chief Executive Officer may
could result in losses exceeding the insured limits resulting
Pirelli affiliates or from within relations with them, such as the
present potential areas of risk despite not falling within the aforesaid quantitative parameters.
in a negative impact on the operating results. Even Pirelli’s
sustainability of the supply chain.
For each selected process, the risk/control objectives associated with the preparation of the Financial Statements and any related
supply chain is subject to regular assessment concerning the
Before entering a specific market, ad hoc assessments
disclosures, as well as to the effectiveness/efficiency of the internal control system in general, have been identified.
potential risk of business interruption in the qualification
are carried out in order to assess any political, financial,
For each control objective, specific verification procedures have been implemented and specific responsibilities have been assigned.
phase of new Tier-1 suppliers.
environmental and social risks, including those connected with
A supervisory system has been implemented on the controls carried out by way of a mechanism of chain attestations. Any problems
Reputational risk and corporate social -
environmental responsibility
Reputational risks
Pirelli has developed an ad hoc digital tool for the identification,
human and labour rights. Together with constant centralised
that emerge within the evaluation process are subject to action plans whose implementation is verified in subsequent closings.
co-ordination and monitoring, the ongoing verification of
The quarterly issue of a declaration of the reliability and accuracy of the data supplied for the purposes of preparing the Group’s consolidated
the application of Pirelli’s requirements regarding financial,
Financial Statements is also ultimately provided by the Chief Executive Officer and the Chief Financial Officer of each subsidiary.
social (especially human and labour rights) and environmental
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
sustainability and business ethics, occurs through periodic
results of the verification procedures are discussed by the Chief Financial Officer of the Group companies and the Chief Financial Officer.
audits commissioned by Pirelli from specialised independent
The Internal Audit Department performs regular audits aimed at verifying the adequacy of the design and effectiveness of the
firms, and through extensive internal audit activities.
controls on the subsidiaries, as well as the sampling procedures, selected on the basis of materiality criteria.
measurement and management of reputational risk, which is
Particular attention is dedicated to the sustainability of both
measured in terms of the probability of occurrence and impact
Pirelli sites and sites belonging to suppliers operating in
on reputation. Reputational risk is understood as a current or
emerging countries. During 2017 Pirelli again commissioned
8
4
prospective risk that might result in a loss in gains and affect
third-party audits of its suppliers, in addition to continuing
the propensity to buy due to a negative perception of the
the internal monitoring through the activities of the Internal
Company by one or more stakeholders. While on the one hand,
Audit Department.
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,
as well as the impact of the negative event. The chosen
SYSTEMS FOR RISK MANAGEMENT
AND INTERNAL CONTROL RELATIVE
TO THE FINANCIAL REPORTING PROCESS
OUTLOOK FOR 2018
The forecast data for 2018 are in line with the path of growth outlined in the 2017-2020 industrial plan, with a strategy centered
on the further reinforcement of High Value and confirm the expected operational performances notwithstanding greater forex
volatility.
5
8
methodology has led to the identification of a specific set of
Pirelli has also
implemented a specific and articulated
reputational risks. This mapping derives from an analysis of
system of risk management and internal control, supported
Revenues
a series of internal and external drivers including: negative
by a dedicated information technology application, with
events with an impact on reputation which have occurred in
regard to the process of preparing the the half-year, annual,
Weight of High Value on revenues
the sector worldwide over the last ten years; interviews with
separate and consolidated Financial Statements, in order to
external Key Opinion Leaders on sector trends, especially on
safeguard the company’s assets, its compliance with laws
aspects of mobility and sustainability; interviews with internal
and regulations, the efficiency and effectiveness of corporate
Adjusted ebit before non-recurring
and restructuring charges and start-up costs
Weight of High Value on Adjusted Ebit
Key Opinion Leaders with particular reference to the analysis
operations, as well as the reliability, accuracy and timeliness of
Start-up costs
of the probability of the occurrence of the risks identified.
financial reporting.
The risk events identified were then subjected to the
In particular, the process of preparing financial reports takes
qualitative-quantitative
assessments
of
a
sample
place through the appropriate administrative and accounting
representative of the general public in the five key Pirelli
procedures that have been drawn up in accordance with
countries, which led to the definition of the governance and
criteria established in Internal Control - Integrated Framework
management structures and the preparation of mitigation
issued by the Committee of Sponsoring Organisations of the
and/or crisis management plans.
Tradeway Commission.
The administrative/accounting procedures for the preparation
Adjusted Ebit before non-recurring and
restructuring charges and PPA amortization
Net financial position / Adjusted Ebitda
before non-recurring and restructuring charges
and before start-up costs
CapEx on revenues
2017
5,352.30
57.50%
926.6
~83%
50
876.4
2.7X
9.10%
(In millions of euro)
2018
≥+6% (a/a)
~+10% net forex
~60%
>1.000
≥83%
~40
~1.000
~2,3X
~8%
of Financial Statements and all other financial reports are
On the basis of 2017 data, Pirelli expects for the end of 2018 the following forecast data:
prepared under the responsibility of the Chief Financial Officer,
> revenue growth equal to or higher than 6% compared with 5.352.3 billion euro in 2017, equal to about +10% excluding the effect of forex
who periodically attests to (in any case, in the Financial
volatility, mainly in the euro-dollar exchange;
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations
> growing weight of the High Value component, which will
debt to be optimised by lengthening maturities and reducing the
below 2 times on 31 December 2020) and the following targets:
be equal to about 60% of total revenues at the end of 2108
cost of the debt. As evidence of investor confidence towards Pirelli,
> Group Return on Sales (ROS), with a weight at target of 30% of
(57.5% in 2017);
at closing, the loan saw the collection of orders amounting to euro
the LTI premium;
> adjusted Ebit before non-recurring and restructuring charges
2.4 billion on the part of 280 international investors. The effective
> Group “absolute” Total Shareholder Return, with a weight at
and before start-up costs expected to be above 1 billion euro,
yield at maturity is set as equal to 1.479%. The securities have
target of 40% of the LTI premium;
compared with 926.6 million euro in 2017, with the High Value
been listed on the Luxembourg Stock Exchange. Furthermore,
> Group “relative” Total Shareholder Return compared with a
accounting for 83% or above (about 83% in 2017);
during the course of the first weeks of January, Pirelli initiated an
selected panel of peers, with a weight at target of 20% of the
ALTERNATIVE
PERFORMANCE
INDICATORS
>
start-up costs declining to about 40 million euro (50 million
operation to ammend the financial terms and conditions of the
LTI premium;
This document, in addition to the financial measures as
in 2017);
Group’s main banking facilities - regarding a total notional amount
> position of Pirelli on the Dow Jones Sustainability World Index ATX
provided for by the
International Financial Reporting
> adjusted Ebit before non-recurring and restructuring charges
of euro 4.2 billion which includes a revolving credit facility of euro
Auto Components sector, with a weight at target of 10% of
Standards (IFRS), also includes measures derived from the
and amortizations identified in the context of PPA expected
700 million - which will see an applied reduction to the interest
the LTI premium.
latter even though not provided for by the IFRS (Non-GAAP
at about 1 billion euro, compared with 876.4 million euro at
margin of 30 basis points.
The LTI Plan terminates on 31 December 2020 and sets in the
Measures). These measures are presented in order to allow
the end of 2017;
second quarter of 2021 the date of the eventual payment of the
for a better assessment of the results of Group operations
> ratio between net financial position and Adjusted Ebitda before
On February 23, 2018 Pirelli International Plc (a subsidiary of
medium/long term incentive matured, on condition that, on 31
and must not be considered as alternatives to those required
non-recurring and restructuring charges and before start-up
Pirelli) decided to exercise the option of early repayment and
December 2020, the relationship as an employee of the participant
by IFRS.
costs at about 2.3 times, compared with 2.7 times in 2017;
the subsequent cancellation of the “Pirelli International Plc Euro
has not ended. The participants in the LTI plan include, among
In particular, the Non-GAAP Measures used are as follows:
> capEx at about 8% of revenues (9.1% in 2017).
600,000,000 1.750 per cent. Guaranteed Notes due November 18,
others, the Executive Vice Chairman and Chief Executive Officer of Pirelli
> EBITDA adjusted: is equal to the EBIT and excludes the
8
6
SIGNIFICANT EVENTS
SUBSEQUENT TO THE END
OF THE FINANCIAL YEAR
2019”, listed on the Luxembourg Stock Exchange and maturing
& C., Marco Tronchetti Provera, the Executive Vice President and Chief
amortisation of intangible and depreciation of tangible
on November 18, 2019 (the “Notes 2019”). The early repayment,
Financial Officer, Francesco Tanzi; the Executive Vice President and
assets as well as non-recurring and restructuring
which will cover all of the 2019 Notes, and which responds to
Chief Planning and Controlling Officer, Maurizio Sala; the Executive
expenses;
the objective announced for the constant optimisation of the
Vice President and Strategic Advisor Technology, Maurizio Boiocchi;
> EBITDA adjusted without start-up costs: is equal to
Group’s financial structure, will take place through the exercise
the Executive Vice President and Chief Commercial Officer Roberto
the EBITDA adjusted but excludes the contribution of
of the “Make Whole Issuer Call” which is provided for by the current
Righi; the Senior Vice President Manufacturing, Francesco Sala; the
the start-up costs (equal to a total amount of euro 37.4
Terms and Conditions of the loan. The operation is expected to be
Executive Vice President Business Unit Prestige & Motorsport & COO
million) represented by the Cyber™ and Velo activities, and
7
8
finalised by March 31, 2018.
Region Europe, Andrea Casaluci and the Executive Vice President Pirelli
by costs for the conversion of Aeolus brand Car products,
On February 26, 2018 the Board of Directors of Pirelli, in line with
and Executives of the Group (including board member Giovanni
the Company;
that which was announced during the IPO, approved the adoption
Tronchetti Provera) and can be also extended to those who, during
> EBIT: is an intermediate measure, which is derived from the
Digital, Luigi Staccoli. The LTI plan also applies to senior managers
as well as costs sustained for the digital transformation of
On January 10, 2018 Pirelli launched the sale of the ordinary shares
of a new 3-year 2018-2020 monetary incentive plan (LTI Plan) –
the course of the 3-year period, assume, either through internal
net income but which excludes taxes, financial income,
held in Mediobanca S.p.A. and reserved for “qualified investors” in
destined to all management (about 290 people) – correlated to
career growth or new hiring, an Executive position.
financial expenses and the results from investments;
Italy and institutional investors abroad, pursuant to Regulation
the targets for the period 2018/2020 contained in the 2017/2020
The LTI Plan is also aimed at retention. In the event that the
> EBIT adjusted: is an intermediate measure, which is derived
S of the United States Securities Act of 1933 as subsequently
industrial plan.
employee relationship ends before the end of the 3-year period,
from the EBIT and which excludes the amortisation
amended, and in the United States of America limited to “Qualified
with the exception of natural circumstances, the recipient’s ceases
of intangible assets relative to assets recognised as
Institutional Buyers” pursuant to Rule 144 A of the United States
The LTI (Long Term Incentive) Plan was approved – also in
to participate in the LTI Plan and as a consequence the LTI premium
a consequence of Business Combinations, as well as
Securities Act of 1933, through an accelerated book-building
accordance with article 2389 of the civil code – at the proposal of
will not be provided, not even pro-quota. In the case of Board
operational costs attributable to non-recurring and
procedure. On January 11, 2018 Pirelli announced that it had
the Remuneration Committee and with the favourable opinion
Members holding particular roles to whom specific attributions
restructuring expenses;
successfully completed the disposal – through the aforesaid
of the Board of Statutory Auditors, in relation to the subjects
are delegated (it is the case of the Executive Vice Chairman and
> EBIT adjusted without start-up costs: is equal to the
procedure - of 15,753,367 ordinary shares held in Mediobanca -
for whom this opinion is requested. In the part linked to Total
Chief Executive Officer Mr. Marco Tronchetti Provera) who cease
EBIT adjusted but excludes the contribution to the start-
which corresponded to approximately 1.8% of the share capital
Shareholder Return, the LTI Plan will be submitted for approval at
in the role because their mandate has been completed and are not
up costs (equal to the total amount of euro 50.2 million)
with voting rights, and which represented the entire investment
the Shareholders’ meeting called to approve results for the 12
subsequently nominated, not even as board members, pro-quota
represented of the Cyber and Velo activities, and by the
held directly by Pirelli in Mediobanca. The total net income for
months ended on 31 December 2017.
payment of the LTI premium is foreseen.
costs for the conversion of Aeolus brand Car products, as
Pirelli derived from the operation amounted to approximately
The LTI Plan, in line with the mechanisms of variable retribution
For further information on the functioning of the LTI Plan,
well as the costs sustained for the digital transformation
euro 152.8 million.
adopted at the international level, is also based on the performance
one may refer to the Remuneration Report which will be
of the Company;
of Pirelli shares (Total Shareholder Return) allowing in this way the
submitted (for the part relative to Policy in relation to
> Net income (loss) related to continuing operations
On January 22, 2018 as part of the EMTN (Euro Medium Term
alignment of management and shareholder interests.
Pirelli remuneration for 2017) for a consultative vote of the
(Consumer) adjusted: the adjusted net income related
Note) program approved at the end of 2017 and subscribed to
The LTI Plan – as in the past totally self-financed, in so far as
Shareholders’ meeting called to approve results for the year
to continuing operations is calculated by adjusting the
on January 10, 2018, Pirelli placed a bond loan with international
the relative charges are included in the economic figures of the
ended 31 December 2017, as well as the illustrative report and
net income (loss) related to assets in operation for the
institutional investors for a nominal amount of euro 600 million
industrial plan – includes an on/off condition, represented by the
the information document relative to the LTI Plan which will
following items:
with a five-year duration at a fixed rate. The issue, with a yield of
company’s deleveraging (Net Financial Position/Ebitda Adjusted ratio
be made available to the public, under the conditions and
> >
the amortisation of intangible assets related to
110 basis points based on the official reference rate, allowed for the
modes called for by prevailing law, and also regulation.
assets detected as a consequence of Business
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations Combinations, and operational costs due to non-recurring and restructuring expenses;
The Board has internally instituted the following Committees
C. S.p.A. which are of relevance pursuant to Article 15 of the
> >
non-recurring costs/income recognised under financial income and expenses;
with advisory tasks:
Markets Regulation are:
> >
non-recurring costs/income recognised under taxes, as well as the tax impact related to the adjustments referred to in the
> Audit, Risk, Sustainability and Corporate Governance
Limited Liability Company Pirelli Tyre Russia (Russia); Pirelli
previous points.
Committee
Pneus Ltda (Brazil); Pirelli Comercial de Pneus Brasil Ltda
> Remuneration Committee
(Brazil); Pirelli Tire LLC (USA); Pirelli Tyre Co. Ltd (China); Pirelli
The following table shows the calculation of the net income (loss) related to continuing operations (Consumer) adjusted:
> Committee for Related Party Transactions
Otomobil Lastikleri A.S. (Turkey); Pirelli Neumaticos S.A.I.C.
(In millions of euro)
> Nominations and Successions Committee
(Argentina); Pirelli Neumaticos S.A. de C.V. (Mexico); and
Net income (loss) related to continuing operations
Amortisation of intangible assets included in PPA
Non-recurring and restructuring expenses
Net financial expenses
Tax
2017
263.3
109.6
93.2
61.2
2016
164.0
104.6
53.2
25.4
(140.5)
(50.6)
Net income (loss) related to continuing operations adjusted
386.8
296.6
> Strategies Committee
Pirelli Asia Pte Ltd (Singapore).
For more details reference should be made to the section of
Also pursuant to the same regulations, the Company has put
this present Report titled “Report on Corporate Governance and
in place a specific and appropriate “Group Operating Regulation”
Ownership Structure”, included in the Financial Stataments
which ensures immediate, constant and full compliance
and published in the Governance section of the Company’s
with the provisions contained
in the aforementioned
website (www.pirelli.com).
CONSOB regulation. In particular, the competent company
INFORMATION ON THE SHARE CAPITAL
AND OWNERSHIP STRUCTURE
departments ensure the timely and regular identification
and disclosure of the Extra-EU Companies of relevance to
the provisions of the Markets Regulation, and - with the
necessary and appropriate collaboration of the companies
involved - guarantee the collection of data and information
The information referred to in Article 123 bis of Legislative
and the assessment of the circumstances referred to in the
> Fixed assets related to continuing operations: this measure is constituted by the sum of the items “Property, plant and equipment”,
Decree 24 February 1998 n. 58 are reported in the specific
aforementioned Article 15, thus ensuring the availability of
“Intangible fixed assets”, “Investments in associates and joint ventures” and “Other financial assets”;
section of this present Report titled “Report on Corporate
the information and data supplied by the subsidiaries in the
> Provisions: this measure is constituted by the sum of “Provisions for liabilities and charges (current and non-current)”, “Employee benefit
Governance and Ownership Structure”, included in the Financial
event of a request by CONSOB. A regular flow of information
8
8
obligations” and “Provisions for deferred taxes”;
Stataments and published in the Governance section of the
is also required to ensure that the Board of Statutory Auditors
9
8
> Operating working capital related to continuing operations: this measure is constituted by the sum of “Inventory”, “Trade
Company’s website (www.pirelli.com).
of the Company carry out the requisite and appropriate
receivables” and “Trade payables”;
> Net working capital related to continuing operations: this measure consists of the operating working capital and other
receivables and payables not included in the “Net financial liquidity/(debt) position”;
> Net financial (liquidity)/debt position: this measure is represented by the gross financial debt less cash and cash equivalents as
well as financial receivables.
OTHER INFORMATION
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.
DEROGATION OF THE PUBLICATION
OF INFORMATION
verifications. Finally, the aforesaid “Operating Regulation”,
consistent with the regulatory provisions, governs the
making available to the public of the financial statements
(Statement of Financial Position and Income Statement)
of the significant Extra-EU Companies, prepared for the
The Board of Directors, taking into account the simplification
purposes of compiling the consolidated Financial Statements
of regulatory requirements introduced by CONSOB in the
of Pirelli & C. S.p.A.
Issuer’s Regulation no. 11971/99, resolved to exercise the power
It shall therefore be noted that the Company is fully compliant
to derogate, pursuant to the provisions of Article 70, paragraph
with the provisions of Article 15 of the aforementioned
8, and of Article 71, paragraph 1-bis of the aforesaid Regulation,
CONSOB Regulation no. 20249 of December 28, 2017 and the
the obligations to publish the disclosure documents required at
subsistence of the conditions required by the same.
the time of significant mergers, de-mergers, capital increase by
contributions in kind, acquisitions and disposals.
FOREIGN SUBSIDIARIES NOT BELONGING
TO THE EUROPEAN UNION
(NON-EU COMPANIES)
RELATED-PARTY TRANSACTIONS
As part of the new listing process initiated and completed in
2017, the Company’s Board of Directors again approved the
Procedure for Related Party Transactions (“OPC Procedure”).
Subsequently, following the renewal of the administrative
The Chairman is endowed with the legal representation of the Company including in the legal proceedings of the Company, as well
Pirelli & C. S.p.A. directly or indirectly controls some companies
body and the constitution of the Committee for Related Party
as all other powers attributable to the Chairman in accordance with the Articles of Association.
based in countries which do not belong to the European
Transactions (“OPC Committee”), the Procedure for Related
The Executive Vice Chairman and CEO are exclusively delegated powers for the ordinary management of the Company and the
Community (Extra-EU Companies) which hold particular
Party Transactions was adopted, without any modification,
Group, as well as the power to propose business and industrial plans and budgets to the Board of Directors, as well as any resolutions
significance pursuant to Article 15 of CONSOB Regulation no.
and, following the unanimous favourable opinion expressed
concerning any strategic industrial partnerships and joint ventures of which Pirelli is a part.
20249 of December 28th 2017 concerning markets.
by the members of the OPC Committee, also by the Board of
With reference to the data at December 31, 2017, the Extra-
Directors currently in office.
EU Companies controlled, directly or indirectly, by Pirelli &
The OPC Procedure can be consulted, together with the
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations other corporate governance procedures, in the section of the
It is to be noted that in the course of the 2010 financial
website www.pirelli.com dedicated to corporate governance.
year, the Board of Directors for the first time approved for
the Procedure for Related Party Transactions, also in order
For more details on the Procedure for Related Party
to
implement the aforementioned CONSOB Regulation.
Transactions (“OPC Procedure”), reference should be made to
In addition, on November 6, 2017 on the occasion of the
the sections named “Directors’ Interests” and “Related Party
admission to trading of the ordinary shares of the Company
Transactions” included in the “Annual Report on Corporate
on the Mercato Telematico Azionario (screen-based stock
Governance and Ownership Structure” contained in the
exchange), organised and managed by Borsa Italiana S.p.A.
Financial Statements.
- as confirmation of the resolutions adopted on August 31,
2017- the Board of Directors approved the adoption of the
***
Procedure for Related Party Transactions (“OPC Procedure”),
following the unanimous favourable opinion expressed by the
Pursuant to Article 5 paragraph 8 of CONSOB Regulation no.
members of the Committee for Related Party Transactions
17221 of March 12, 2010 on Related Party Transactions, and the
(“OPC Committee”).
subsequent CONSOB Resolution no. 17389 of June 23, 2010, it shall
be noted that during the 2017 financial year, that no transaction
of significant importance as defined by article 3 paragraph 1,
letter a) of the aforementioned Regulation was submitted to the
the Board of Directors of Pirelli & C. S.p.A. for approval.
UNUSUAL AND/OR ATYPICAL
TRANSACTIONS
Moreover, there were no Related Party Transactions that
Pursuant to CONSOB Notice no. 6064293 of July 28, 2006, it
significantly affected the financial position or results of the
should be noted that during 2017 the Company did not carry
Group. For information purposes, it is to be noted that during the
out any atypical and / or unusual transactions, as defined in
9
0
month of March 2017, the two business areas of Consumer and
the aforesaid communication.
Industrial, were definitively separated through the assignment
to sole shareholder Marco Polo International Italy S.p.A., of all
the TP Industrial Holding S.p.A. shares previously held by Pirelli
& C. S.p.A. TP Industrial Holding S.p.A. the company which holds
SAFETY POLICY DOCUMENT
52% of the share capital of Pirelli Industrial S.r.l. (today called
Although the Decree Law of February 9, 2012, No. 5 (containing
Pmrometeon Tyre Group S.p.l.), is the company into which
the “Urgent Provisions on Simplification and Development”)
Pirelli’s Industrial assets were merged.
converted with amendments by Law April 4, 2012, No. 35,
The information on related party transactions required by
repealed the obligation to prepare/update the Security Policy
CONSOB Communication no. DEM/6064293 of July 28, 2006 is
Document, it is to be noted that Pirelli & C. S.p.A. did however
presented in the Financial Statements, and in the Note titled
update the aforesaid document for the year 2017, in order
“Related Party Transactions” in the Annual Financial Statements
to allow for the efficient monitoring of the adoption and
at December 31, 2017.
compliance of the safety measures.
Related party transactions, are neither unusual nor
exceptional, but are part of the ordinary course of business for
the Group companies and are carried out in the interest of the
individual companies. Such transactions, when not settled
under standard conditions, or dictated by specific regulatory
conditions, are in any case regulated by conditions consistent
with those of the market. In addition, their execution was
carried out in compliance with the Procedure for Related
The Board of Directors
Party Transactions (“OPC Procedure”).
Milan, February 26, 2018
1
9
ANNUAL REPORT 2017ANNUAL REPORT 2017 Directors’ report on operationsDirectors’ report on operations RICCARDO
BALZARETTI
NICCOLÒ
CALANDRI
and
3BEE
An electronic engineer, a biologist and a food technologist teamed up to create Hive-
Tech, a technological beehive in which the entire production cycle can be monitored
remotely by means of sensors.
STAYING IN ITALY
TO CARE FOR BEES WITH AN APP
Riccardo Balzaretti (biologist), have resisted the allure of the “brain drain” to
H aving originally embarked on academic careers, Niccolò Calandri (engineer) and
a vet with a mission to prevent diseases in beehives. It seems that the two of them were struck by the
take a risk, focusing their efforts on developing an idea entirely their own and
they’ve invented a unique new profession: a cross between an IT specialist and
applying it in the place they love most: the Italian countryside. In so doing
famous warning attributed to Einstein: «If the bee disappeared from the surface of the earth, man
would have no more than four years to live».
The beehive has been exalted as a model of the perfect society since the times of the ancient Romans,
and Pliny the Elder praised the perfect organisation of that humming factory. Only in the seventeenth
century, however, was the discovery made that the boss of the beehive is the queen bee, and this
mythologised bees still further as the symbol not only of hard work but also of a matriarchal society.
The post-industrial world has somewhat lost this fascination for bees and everything they represent.
As a result the work of the beekeeper has been undervalued , and the fact that honey is seen as a luxury
product has also not helped. In the past twenty years the health of bees has also declined as a result
of diseases linked to intensive pesticide use, and the dramatic condition of the species is now leading
them to take on a new symbolic role: not so much as hard-working citizens of an ideal community but
as the guardians of the world, whose work is channelled not just into productivity but above all into
protecting the environment.
For many years beekeepers limited the problem using antibiotics, but fortunately these are now illegal in
Europe. Without antibiotics the only way to save the bees is through preventative measures. And this is
where 3Bee enters the scene. The electronic IoT device produced by the startup is a system for optimising
the welfare of bees: it's like having somebody watching over your beehives day and night, monitoring pa-
rameters like the temperature, the humidity and the vibration of the hive, which is rather like a human
cough: if the bees are not well the beat of their wings changes. Through the Hive-Tech platform the be-
ekeeper is constantly kept up-to-date on any abnormalities that might disturb the peace within the hive.
3Bee began to distribute its technology on an experimental basis a few months before its official market
launch in March 2018. As many as 500 devices have already been sold in Italy in the first days since the
launch, coinciding with the start of the beekeeping season. The startup now forecasts a distribution
rate of around 100 to 200 devices a month until October, when a new peak in demand will occur. Italy is
the main theatre of activity for the two young partners who, having abandoned their scientific careers,
have also made the emotional decision to remain in their country of origin. But they are also already
exporting to Moldova, Romania, Russia, Germany and South America, and all with a staff of only
four. The words of the poet Franco Marcoaldi, dedicated to a child beekeeper, spontaneously come to
mind: every beehive / is clear proof / of the supremacy of insects.
METHODOLOGICAL NOTE
The information systems that contribute to collect the data
For any clarifications and further information on the content
supervision of the Board of Statutory Auditors within the terms
accounted in the Report are: CSR-DM (Corporate Social
of the Report, reference is made to the “Contacts” page of the
established by legislative decree December 30, 2016, no. 254.
Responsibility Data Management), HSE-DM (Health, Safety
section “Sustainability” of the website www.pirelli.com.
This section of the Annual Report 2017, entitled “Report on
and Environment Data Management), SAP HR (SAP Human
Responsible Management of the Value Chain” (hereinafter
Resources) and HFM (Hyperion Financial Management).
“the Report”), constitutes the “Non Financial Statement”
of the Company pursuant Legislative Decree of December
The sustainability performance and GHG Emissions data
MANAGEMENT MODEL
The strategic evolution of Group Sustainability is entrusted
to the Sustainability Steering Committee, a body appointed
in 2004, chaired by the CEO and composed of the Company’s
Top Management representing all the organizational and
30, 2016, no. 254 and explores the Sustainable Management
accounted in the Report are subject to limited assurance by an
The Sustainability Model adopted by Pirelli is inspired by the
functional responsibilities. The Committee meets ordinarily at
Model adopted by Pirelli, the governance tools to support
independent firm (PWC S.p.A.) in accordance with the criteria
United Nations’ Global Compact, the principles of Stakeholder
least once a year.
maintenance and creation of values, relationships with
indicated in the principle International Standard on Assurance
Engagement set forth by the AA1000 and the Guidelines of
Stakeholders and related connection with the development of
Engagements 3000 - Assurance Engagements other than Audits or
ISO 26000.
financial, productive, intellectual, human, natural, social and
Reviews of Historical Financial Information (ISAE 3000), issued
The organisational structure is thus made up of Group
Sustainability and Risk Governance Department that has
relational capitals, which was mentioned in the “Presentation
by the International Auditing and Assurance Standards Board.
Responsible management by Pirelli runs through the entire
oversight of the management at a Group level and proposes
of 2017 Pirelli Integrated Report”.
For further information, reference is made to the related
value chain. Every operating unit integrates economic, social
plans for sustainable development to the Sustainability
The Report reflects the integrated Business model adopted
Report. Data on GHG emissions have also been subjected to
cooperating constantly with the other units, implementing
support from the Country Sustainability Managers for
by the Group, inspired by the United Nations’ Global Compact,
a specific limited assurance as part of the communication
the Group strategic guidelines.
overseeing activities covering all affiliates of the Group. The
the principles of Stakeholder Engagement set forth by the
process to the Carbon Disclosure Project (CDP).
role of the Country Sustainability Manager is currently held by
AA1000, and the Guidelines of ISO 26000. The content of
The main management systems adopted by Pirelli include
country CEOs, who are supported by their direct subordinates
the report is prepared in accordance with the Guidelines
The Report is structured into four main areas:
ISO 9001, IATF 16949, ISO/IEC 17025 in terms of Quality
in operational management of country plans.
Indipendent Auditor's Report provided at the end of the Annual
and environmental responsibility in its own activity, while
Steering Committee. Sustainability Department receives
of the Global Reporting Initiative (GRI) in the Standards
> an
introductory section related to the sustainable
Management, SA8000® for the management of Social
version, Comprehensive option,
following the process
management Model adopted by the Company, related
Responsibility at its subsidiaries and along the supply chain,
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suggested by AA1000 APS principles (materiality, inclusivity and
Policies and activities of Governance and Compliance,
OHSAS 18001 for the management of Occupational Health
responsiveness), and considering the principles of integrated
Stakeholder Engagement, long-term planning;
and Safety, ISO 14001 for environmental management, ISO
SUSTAINABILITY PLANNING
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reporting contained in the Framework of the International
> an “Economic Dimension”, in which the distribution of
14064 for the quantification and reporting of greenhouse
Specific operational steps aimed at continuous improvement in
Integrated Reporting Council (IIRC).
added value is detailed along with the management and
gas emissions (GHG), the ISO 14040 family rules for the
performance characterise the process of sustainable planning:
The set of indicators covered by the Report is wider than the list
> an “Environmental Dimension”, which describes the
the product and the Organization and specifically, ISO-TS 14067
stakeholders, needs raised by internal functions, identification
of specific material issues indicated in the materiality matrix,
management of environmental aspects and impacts
and ISO 14046 for the determination of the carbon footprint
of risks and opportunities for growth, definition of projects
this in order to provide a more complete and transversal
throughout the entire product cycle;
and water resources (Carbon Footprint and Water Footprint).
and targets, implementation, monitoring and reporting.
view on the Company’s performance, for the benefit of all
> a “Social Dimension”, which brings together the paragraphs
In February 2018 the Company has also obtained independent
stakeholders.
dedicated to: governance of human rights, the internal
certification (from SGS Italia S.p.A.) regarding the compliance
The long-term sustainability objectives integrate the Industrial
performance relating to customers and suppliers;
methodology for calculating the environmental footprint of
evaluation of the context by benchmarks, dialogue with
community and the external community.
of its Sustainable Purchasing Management Model based on the
Plan and support the sustainable development thereof.
The report shows the sustainability performance of the
ISO 20400 Standard and the independent certification (from
Group in 2017 compared to 2016 and 2015, with respect to the
At the end of the Annual Report 2017, before the third-party
RINA Services S.p.A.) of its system of rules and controls aimed
The Pirelli Sustainability Plan was updated in 2017, in full
targets set for 2018 and/or long-term targets envisaged in the
Audit Report mentioned above, the following summary Tables
at preventing corruption based on the ISO 37001.
alignment with the Company’s evolution and the related
Sustainability Plan.
are available:
“High Value” development strategy (for further details, refer
> a GRI Content Index, which shows the full list of indicators
Details on the coverage of these certifications and
to the Investor Relations section of the Pirelli website).
Following the change in the industrial scope that took place
accounted based on the comprehensive GRI Standards
methodological reference tools have been given in the
in 2017, which saw the exit of the Industrial Business, the
option, indicating the relative page in the Annual Report 2017;
“Customers”,
“Suppliers”,
“Environmental Dimension”,
The new 2017-2020 with selected targets for 2025 Plan replaces
historical values of the indicators were recalculated following
> a table of correlation between indicators accounted based
“Industrial Relations” and “Occupational Health, Safety and
the 2013-2017 Plan with selected targets for 2020. In order to
the principles set out by the GRI, in order to guarantee the
on the comprehensive GRI Standards option and the
Hygiene” sections of this report.
allow the appreciation of numerical trends in the long term,
comparability of the same on the previous two years, or in
United Nations’ Global Compact Principles;
the base reference year for the environmental quantitative
respect to 2016.
> a table of correlation between the performance/targets
With reference to the Group Sustainability Governance, the
targets continues to be 2009 also in the new Plan.
The Report is published annually (the previous Pirelli Annual
the United Nations that the aforementioned performance
by the Audit, Risks, Sustainability and Corporate Governance
The Plan has been developed in accordance with the “Value
Report was published in March 2017 with reference to the
and Targets impact on;
Committee, approves the objectives and targets for sustainable
Driver” model drawn up by the UN PRI (United Nations
year 2016) and is approved by the Group Board of Directors.
> a table of correlation between the information reported
management integrated in the Company Plan. The Board
Principles for Responsible
Investment) and UN Global
It covers the entire perimeter of the Group Consolidated
in the Annual Report and the topics indicated by the
of Directors also approves Pirelli’s Annual Report, including
Compact and sets targets that combine growth, productivity,
Financial Statements.
legislative decree no.254/2016.
the Non-Financial Statement, which is in turn subject to the
governance and risk management.
of the Group and the Sustainable Development Goals of
Board of Directors of Pirelli & C. S.p.A., supported in its activities
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain The targets and related performance (for extensive discussion
frequency index, the specific reduction (weighted on the
It is noted that the sub-paragraphs relating to “Corporate
continue in 2018 in order to draw up the Policy Implementation
of which reference is made to the related sections in this
total finished product) in energy consumption and water
Initiatives for the External Community” indicate from time to
Manual (for more details on the sustainable management of
report) foresee, among other things:
withdrawal, the increase in waste recovery, control of the
time the main SDGs that the projects and initiatives described
natural rubber refer to the dedicated paragraph in this report).
> growth in Green Performance tyre revenues with 2020
sustainability of the supply chain, dissemination and local
impact directly.
target >50% of total sales and >65% of High Value
implementation of Group Policies and engagement with
products’ sales;
stakeholders.
>
improvement of product performances in 2020:
> >
car products (compared with 2009): reduction of
The performance of the Sustainability Plan of each Country is
STAKEHOLDER ENGAGEMENT
Again in 2017, consultation meetings were held for the relevant
national and regional Stakeholders in Russia and Argentina, in
order to share the results and objectives of the sustainability
plans of the affiliates and listened the expectations of
average rolling resistance by 20% and by 14% for
included in the Performance Management objectives of the
The role of Pirelli in an economic and social context is tied
stakeholders on the management of issues deemed relevant
High Value products; improved of performance on
related CEOs.
to its capacity to create value through a multi-stakeholder
for the development of the Affiliate in the medium to long
wet surfaces by 15% and noise reduction by 15%;
> > moto products (compared with 2009): reduction of
average rolling resistance by 10%, improved of 40%
of performance on wet surfaces and 30% for mileage;
> >
velo products (compared with 2017 - year of product
UNITED NATIONS SUSTAINABLE
DEVELOPMENT GOALS (SDGs)
approach, i.e. by sustainable and lasting growth that can
term. Similarly, in 2016 meetings were held with the relevant
reconcile the interests and expectations of all those with
Stakeholders
in Romania, Mexico and Germany. Among
whom the Company interacts and especially;
the issues discussed in the various countries are energy
> customers, since the Pirelli way of doing business is based
management, technical training and the availability of
on customer satisfaction;
adequate skills in the population, road safety, circular economy,
launch): braking performance +5% and on wet
The targets of the Sustainability Plan 2017-2020 with selected
> employees, who make up the knowledge asset and driving
models of engagement of human capital, the environmental
surfaces +10%;
targets for 2025 contribute to the global effort to achieve
force of the Group;
sustainability of cities, water and waste management.
> process and product digital innovation;
the Sustainable Development Goals (SDGs) presented by the
>
shareholders, investors and the financial community;
>
research and development of raw materials with low
United Nations in September 2015 and intended to accompany
>
suppliers, with which it shares a responsible approach to
The consultation of national and regional stakeholders will
environmental impact: for specific product segments it is
the activities of sustainable companies until 2030.
business;
continue in 2018 in other countries where Pirelli operates.
foreseen, by 2025 and compared with 2017, the doubling of
> competitors, because improved customer service and
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the weight of renewable materials used and the reduction
In particular, it is possible to note the strong connection
market position depend on fair competition;
Local feedback received from stakeholders contributed to the
by 30% of raw materials derived from fossils;
between the targets mentioned in the previous paragraph and
>
the environment,
institutions, government and non-
corporate evaluation of the priorities for action by influencing
>
reduction in the accident frequency index by 87% by 2020
the following SDGs:
government bodies;
the development strategy set out in the Corporate Plan and
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compared to 2009;
>
reduction of 17% in CO2 specific emissions of 19% in specific
energy consumption and 66% in specific water withdrawal
by 2020 compared to the 2009 figure;
>
3 - Good Health and Well-being;
> 4 - Quality Education;
> 6 - Clean Water and Sanitation;
> 7 - Affordable and Clean Energy;
>
the communities of the various Countries where the Group
in the Group materiality mapping, already the subject of the
operates on a stable basis, while being aware of its global
Global Stakeholder Dialogue held by Pirelli in Brussels in 2016.
responsibilities as a Corporate Global Citizen.
On that occasion, Pirelli consulted international Stakeholders
To the stakeholders mentioned, a paragraph is devoted within
of the Company including Suppliers, Customers, leaders of
> zero waste to landfill;
> 9 - Industry, Innovation and Infrastructure;
this report, to which reference is made for further qualitative
the economic and financial, academic, institutional and non-
>
investment in employee training of at least an average of
>
12 - Responsible Consumption and Production;
and quantitative study.
governmental world.
7 man days;
>
13 - Climate Action
>
strengthening digital and cross-functional culture within
The interactions that take place between stakeholders are
the Company;
The Sustainable Objectives listed above are not the only ones
informed by the AA1000 Model adopted by the Company and
> adopting models that are ever more advanced for managing
in which the Company is engaged; in addition to the above,
are analysed in detail in order to manage relations with them
MATERIALITY ANALYSIS AND MAPPING
economic, social and environmental responsibility of the
this Report describes initiatives and activities that refer to
effectively and create sustainable and shared value.
In 2016, Pirelli initiated and completed the process of updating
supply chain with particular attention to the indirect
other SDGs:
the materiality mapping elaborated in 2013.
supply chain;
>
1 - No Poverty, in the paragraphs on “Company Initiatives
Dialogue, interaction and involvement are calibrated to
>
implementation of the new Pirelli Policy on sustainable
for the External Community”;
meet the needs for consultation with the various types of
The materiality mapping stems from thorough Stakeholder
management of the natural rubber supply chain.
> 8 - Decent Work and Economic Growth, in the paragraphs
stakeholder and include meetings, interviews, surveys, joint
Engagement activities that
in 2016
led to compare the
A presentation published on the Company’s website (www.
dedicated to the Internal Community and in the paragraph
analyses, roadshows and focus groups.
expectations of key stakeholders on a panel of sustainability
pirelli.com) is dedicated to the new Pirelli Sustainability Plan.
“Our Suppliers”;
issues with the importance that they play in the success of the
>
10 - Reduced Inequalities, in the paragraph “Diversity
During 2017, particular
importance was given to the
business depending on the experience and expectations of the
All Countries where the Group is present with commercial
Management”;
consultation of the relevant Stakeholders in order to issue the
Top Management and Sustainability Managers that support the
and industrial affiliates also have a Country Sustainability
>
11 - Sustainable Cities and Communities, in the paragraph
Pirelli Policy on the sustainable management of natural rubber.
Top Management in the various Countries where Pirelli operates.
Plan with specific targets identified to align to the Group’s
“WBCSD” with reference to the “SiMPlify project”;
The draft version of the Policy was presented to stakeholders
sustainability objectives.
>
17 - Partnerships for the Goals, in the paragraphs “Road
in a consultation session held in Milan in September 2017,
Given the complexity and the international extent of corporate
The targets of the Country Plans, transversal to management,
“Sustainability of the natural rubber supply chain”, with
suppliers, traders and farmers in the supply chain, automotive
of stakeholders of the Company from which feedback was
include the constant monitoring of Compliance with the
reference to the partnership with Kirana Megatara, and
customers,
international multilateral organizations. The
requested included:
SA8000® Standard, the specific reduction in the accident
“WBCSD”, with reference to the “SiMPlify project”.
Policy was then issued and the dialogue and consultation will
>
the biggest original equipment customers;
Safety”, with reference to the partnership with FIA,
attended by international NGOs, Pirelli’s main natural rubber
stakeholders and the variety of their expectations, the panel
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain >
1,800 end customers belonging to the most representative
the aim of maximising a safe reuse and recycling;
Lastly, it shall be specified that consolidation of the materiality matrix at a Group level tends by its very nature to vary strongly from
markets;
> Disclosure and transparency: company transparency
the materiality matrix made at single country level. Sustainability elements located in an area of low materiality in the Group level
>
the most important dealers;
in
reporting economic, social and environmental
matrix may be found to be highly material for a number of Countries and specific stakeholders who are more directly involved.
> numerous employees in the various countries where the
performances, goals and challenges;
Group is present;
>
several Group suppliers;
>
the leading financial analysts;
> Business integrity: company compliance with local and
The reporting of material issues, related risks and opportunities to these topics and the methods for managing them are outlined in
international laws, regulations, universal principles of
this Report, in the paragraph “Operational Risks” (Directors’ Report on Operations), as well as in the dedicated paragraphs below.
fairness, morality and justice;
> national and supranational
institutions and public
> Responsible use of natural resources: commitment to
The expectations expressed by the stakeholders involved in defining the materiality matrix have been considered in the definition
administrations;
protect biodiversity and natural capital along the product
of the Group Sustainability Plan.
>
journalists from domestic and international newspapers;
life cycle, reducing water withdrawal, energy consumption,
>
international and local NGOs present in the various
air and water emissions and increasing waste recovery;
Countries in which Pirelli has production activities;
> Road safety: commitment to spread road safety culture
> universities that have collaborations with the Group.
through training, awareness-raising campaigns and
innovative
technological solutions
for sustainable
The stakeholders were involved through a request, in local
mobility;
language, for attribution of priorities for action on a selection
> Employment governance and responsibility: commitment
of ESG (Environmental, Social, Governance) issues relevant to
to safeguard and continuously
improve workplace
the global and sustainable development of the automotive
environment, with a strong focus on health and safety,
and auto components sectors. The issues were pre-selected
employees’ welfare & work-life balance, training &
considering the risks and opportunities arising from regulatory
development, engagement and adequate remuneration,
developments, the expectations of the communities,
ensuring equal opportunities in the workplace while
government and other institutions, and financial markets. For
exploiting diversity as a business asset;
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this reason it shall be underlined that all the ESG elements pre-
> Future mobility: company capability to setting a long-
identified through the aforementioned analysis are relevant
term vision, anticipating market expectations and
for the development of Pirelli, with higher or lower priority
adapting its business model to contribute to sustainable
(evident from the position of the different elements inside the
mobility evolution;
matrix), defined considering the results of the interviews to
> Stakeholder dialogue: engage in a pro-active dialogue with
the Stakeholders and Management.
company Stakeholders, from employees to communities,
clients, end-consumers, suppliers,
institutions and
The topics submitted for evaluation by stakeholders are the
non-governmental organizations, to
integrate their
following:
expectations into Company development Strategy;
> Product
eco-innovation:
research &
innovation
> Financial health: ensure economic and financial stability in
commitment to
improve product
impact on the
the medium-long term;
environment (e.g. by reducing the tyre rolling resistance
> Corporate governance: ensure a solid, sound governance
in the use phase allowing for fuel saving and thus CO2
emissions reduction, more mileage);
aligned with international best practices;
> Sustainable procurement: align group supply chain to
> Product performance & safety innovation: research
Pirelli’s social, economic and environmental responsibility
&
innovation
commitment
to
improve product
expectations, with a partnership approach aimed at
performance/safety for the driver (e.g. tyre performance
creating shared innovation and value.
in wet conditions, reduction of braking distance.);
> Service to customers: grant full “customer delight” with
The priorities expressed by Pirelli and stakeholders on the
the most qualitative and innovative services, offer “the
aforementioned topics have been represented in a materiality
future” to today’s customers;
matrix setting out, on the vertical axis, the expectations
> Raw materials eco and safety innovation: research &
of several external and internal stakeholders, while on
innovation commitment to identify new materials that,
the horizontal one, the importance that the Management
compared to traditional ones, are impacting less on the
attributes to individual business success factors. The result
environment while increasing safety during product
of such consolidation was presented and approved at the
manufacturing, use and disposal;
Sustainability Steering Committee held in January 2017 and is
> Circular economy/end of life tyres (ELT): commitment to
outlined below.
responsibly manage resources and end of life tyres with
S
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Product Performance &
Safety Innovation
Responsabile Use of
Natural Resources
Sustainable
Procurement
Raw Materials Eco and
Safety Innovation
Future
Mobility
Financial Health
Product
Eco-Innovation
Business
Integrity
Employement Governance
and Responsibility
Corporate
Governance
Service to
Customers
Circular
Economy/ELT
Road
Safety
Disclosure and
Transparency
Stakeholder
Dialogue
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High Importance
Very High Importance
IMPORTANCE FOR THE BUSINESS
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain
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MAIN POLICIES
In August 2017, in response to the new types of crime
More especially, the analysis of risk profiles is implemented by
action against the company concerning corruption practices.
introduced by the legislator and the organizational changes
Pirelli considering:
During the course of 2017, implementing also proceeded of the
The Sustainable Management Model throughout the value
that have occurred, the risk analysis and the 231 Organizational
>
the perceived risks deriving from a combination of a
Functional Segregation model (so-called Segregation of Duties)
chain is reflected in the main Group Policies, published on
Model were updated in order to guarantee the respect of
level of perceived corruption, associated with the
aimed at strengthening the system of internal controls and
Pirelli’s website in multiple languages and communicated to
the reference framework. Similarly, during 2017, training
Corruption Perception Index calculated by Transparency
preventing the committing of fraud.
all employees in their local language.
and communication activities on the current Organizational
International, with the perception of Management as to
Model were completed for the entire population of the Group’s
the level of risk in each country;
Also in 2017, Pirelli supported the activities of Transparency
In particular, the following Policies are recalled:
Italian companies.
>
the adequacy of safeguards against vulnerability derived
International, and which Pirelli subscribes to as a supporter in the
>
the “Ethical Code”;
>
the “Code of Conduct”;
The process of analyzing and implementing the Group Anti-
deemed to be exposed to contingent corruption risks
an active role of civic and moral education in strengthening civil
from combination of the guaranteed protection in areas
areas of projects in the matter of education aimed at promoting
>
the “Anti-Corruption” Program;
Corruption Program continued in 2017 in the main countries
associated with the benchmark provided by the Internal
society against crime and corruption, believing that it is only
>
the “Global Antitrust and fair competition” Policy;
in which Pirelli operates. The Program, available in twenty-
Audit Function on the Internal Control System.
through proactive and firm actions of value promotion can a
>
the Group “Equal Opportunities Statement”;
two different languages on the Pirelli website, is the corporate
general improvement in the quality of life be achieved.
>
the “Health, Safety and Environment” Policy;
reference for the prevention of corruptive practices and
In 2018, the extension of the control activities on anti-corruption
>
the “Global Human Rights” Policy;
>
the “Product Stewardship” Policy;
>
the “Global Quality” Policy;
>
the “Green Sourcing” Policy;
represents a collection of principles and rules aimed at
aspects will continue, as well as the implementation of specific
With reference to Privacy and protection of personal data, in
preventing or reducing the risk of corruption.
training activities, with regard to some of the Pirelli Group’s
2017 and in compliance with the new EU Regulation 2016/679
most important countries, considered priority in receiving
on personal data protection (“GDPR”), Pirelli
initiated
In the document, the Pirelli principles already set out in
such training due to the specificities of local regulations.
the necessary adaptation activities required by the new
>
the “Social Responsibility for Occupational Health, Safety
the Ethical Code and the Code of Conduct, including zero
regulatory requirements, governing the model of personal
and Rights, and Environment” Policy;
tolerance of “will not tolerate corruption of public officials, or any
Referring to the contribution made to the External Community,
data management at Group level and coordinating the
>
the “Global Tax” Policy;
other party, in any guise or form, or in any jurisdiction, or even in
Pirelli has for many years adopted internal procedures defining
development of activities in the individual European countries
>
the “Institutional Relations - Corporate Lobbying” Policy;
places where such activity is admissible in practice, tolerated, or not
the roles and responsibilities of the function involved, and the
in which it operates.
>
the “Global Personal Data Protection” Policy;
challenged in the courts” are restated. Among the provisions
operational process of planning, achieving, monitoring and
>
the “Group Whistleblowing - Group Reporting Procedure”
of the Group Anti-Corruption Program are a prohibition in
control of results of initiatives supported. The Pirelli procedure
In line with the provisions of its Global Antitrust and Fair
Policy;
respect of recipients of the Ethical Code from offering gifts
specifies that initiatives may not be promoted for the benefit
Competition Policy, Pirelli operates in accordance with fair
>
the “Sustainable Natural Rubber Policy”;
and other utilities that might meet conditions of a breach of
of beneficiaries in respect of whom there is direct or indirect
and proper competition for the purpose of development of the
>
the “Pirelli Intellectual Property (or IPR)” Policy.
rules, or which are in conflict with the Ethical Code, or may,
evidence of failure to abide by the human rights, workers, the
company and at the same time, the market. In this context,
The contents of the aforementioned Policies and the related
of Pirelli. Additionally, “defends and protects its corporate assets,
Code” set forth in their turn that the Company “does not provide
line with international best practices.
methods for implementation are addressed in the sections of
and shall procure the means for preventing acts of embezzlement,
contributions, advantages, or other benefits to political parties or
this report that deal with the related issues.
theft, and fraud against the Group” and “condemns the pursuit of
trade union organizations, or to their representatives or candidates,
In 2017, Pirelli continued to implement the Antitrust Program
if made public, constitute prejudice even only to the image
environment, or business ethics. The “Pirelli Values and Ethical
Pirelli constantly updates the Group’s Antitrust Program in
A focus on programs of Compliance “231”, “Anti-corruption”,
social interests”.
“Privacy”, “Antitrust” and on the “Whistleblowing Policy”
Concerning institutional relations of the Group, and especially
assistance activities to facilitate the management of antitrust
activities were carried out, as well as continuous business
follows.
The quality of the system of rules and controls aimed at
activities of corporate lobbying, Pirelli has adopted a Corporate
issues in the daily conduct of business activities or relations
personal interest and/or that of third parties to the detriment of
this without prejudice to its compliance with any relevant legislation”.
in the various countries in which it operates: online training
preventing corruption was confirmed by the obtainment
Lobbying Policy for ensuring this is done in abidance with
with other operators.
of the ISO 37001 Certification on the Anti-Corruption
principles ratified by the Ethical Code and the Group Anti-
Programs of Compliance 231, Anti-corruption,
Privacy and Antitrust With regard to the administrative
responsibility of companies and bodies as provided for by
Management System of Pirelli & C. S.p.A and Pirelli Tyre
corruption Program, in line with the principles of the International
In 2017, Pirelli was not involved in any antitrust proceedings
S.p.A, developed through the Group “Compliance Program-
Corporate Governance Network and in compliance with laws
or investigations as participants in anti-competitive conduct.
Anti Corruption” and integrated in the Organizational
and regulations current in countries where Pirelli operates.
Legislative Decree 231/2001 (hereinafter also the “Decree”),
Model 231.
Pirelli has adopted an Organization and Management Model
In terms of prevention and control, the audits carried out
structured in a General Part, which includes a review of the
Pirelli analyses profiles of corruption risk in the main
by Internal Audit Department at Group affiliates include
Focus: Reporting Procedure - Whistleblowing Policy
The Group Whistleblowing Policy, supporting the Group
regulations contained in the Decree, of the relevant crimes
Countries where it is present (Italy and the Countries where
monitoring of crime risks, among which also the risk of
internal compliance and control systems, was revised in 2017. It
for the Italian companies of the Group and of the methods
it has an industrial presence), assessing compliance with
corruption and fraud figure.
is directed both towards employees and external stakeholders.
for adoption and implementation of the Model, and in a
local laws in force, verifying the adequacy of corporate
Notified to all employees in local language and made available
Special Part, which indicates the company processes and
oversight updating the risk analysis where there is a change
In this regard, it should be noted that, with reference to 2017,
to the External Community on the Pirelli Internet website, the
the corresponding sensitive activities for the Group’s Italian
in the perimeter due to the “entry” of Countries of “high risk”
on the basis of the reports received via the whistleblowing
Policy governs the manner of reporting breaches, suspected
companies pursuant to the Decree, as well as the internal
(on the basis of the Transparency International index) and
reporting channel, 4 cases of fraud to the detriment of the
breaches and inducement to breaches in the matter of law and
control principles and schemes to oversee these activities.
defining training and awareness programs where fitting.
company were ascertained. There were no cases of public legal
regulations, principles ratified by the Ethical Code, including,
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ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain obviously, equal opportunities, principles of internal auditing, rules, corporate policies and procedures, and any other behaviour of
During the course of 2017 the Whistleblowing procedure was
of verification involving, where necessary, the corporate
commission or omission that might directly or indirectly lead to economic-equity detriment, or even one of image, for the Group
activated 34 times. In particular:
functions concerned were conducted.
and/or its companies.
>
the 34 reports were from 10 different Countries (Brazil,
The Whistleblowing reporting channel is also expressly referred to by the Sustainability Clauses included in each order/supply
South Africa, United States and UK);
completed, based on the analyzes carried out and the
contract as well as by the Group Policies published on the Company’s website.
> 76% of the reports (26 cases) were forwarded using the
documentation made available during the assessment, it
Italy, Argentina, Chile, Russia, Turkey, Germany, Spain,
With regard to the 27 reports for which the checks were
email address ethics@pirelli.com provided, whereas
emerged that:
Reports may be made also in an anonymous form and protection of utmost confidentiality is at all times restated, as too is zero
24% (8 cases) by sending a letter to management which
>
in 18 cases objective corroborating evidence was detected
tolerance in respect of acts of reprisal of any kind with respect to those who report or who are the subject of reporting.
dealt with informing Internal Audit Department as per
such as to hold the facts contended in the reports received
Reports may concern directors, auditors, management, employees of the Company and, in general, anyone operating in Italy or abroad
corporate rules;
to be true;
for Pirelli or engaging in business relations with the Group, including partners, customers, suppliers, consultants, collaborators,
> 79% of the reports (27 cases) were signed whereas the
>
in the remaining 9 cases, the substantial truthfulness of
auditing companies, institutions and public entities.
remaining 21% (7 cases) were received in anonymous form;
the facts attributed was found, in particular, 4 cases
> among the reports signed, 9 were activated by external
concerned fraud to the detriment of the Company, 2
The e-mail ethics@pirelli.com is made available to anyone wishing to proceed with reporting, which is valid for all Group affiliates, as
stakeholders, 5 are related to violations of the Ethical
cases were related to discriminatory attitudes, 2 cases
well as for the External Community, and is centrally managed by the Group Internal Audit function which at the Pirelli organization,
Code and/or company procedures, 3 cases attributable
were related to claims by employees and 1 case was
functionally reports to the Audit, Risks, Sustainability and Corporate Governance Committee, composed of only independent
to fraud to the detriment of the Company, 1 case relating
concerning violations of the Ethical Code and/or company
directors, and to the Board of Statutory Auditors of Pirelli & C. S.p.A..
to reports on product quality. It is objectively impossible
procedures. The Company has taken action for all cases,
Internal Audit Department has the task of analysing all reports received, even involving corporate functions felt to be concerned for
reports from external stakeholders received as a number
or dismissals) and with actions aimed at removing the
the activities necessary of verification, in addition to scheduling a specific action plans. In the event of a report being found to be
of reports were, as specified, anonymous.
causes of the complaints and/or aimed at improving the
grounded, adopting fitting disciplinary and/or legal actions is foreseen for the protection of the Company.
internal control system.
to confirm that there were, in absolute terms, no further
intervening with disciplinary sanctions (warnings and/
Of the 34 reports received during the 2017 year, at the
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In respect of reports received in the 2017, 2016 and 2015 years, here below is a summary table and then a further study of reports from 201715.
beginning of 2018, 7 were found to be at the verification and
The Internal Audit Department periodically reported the
1
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in-depth investigation stage, whereas 27 were found to have
reports received and the progress of the analyses carried out
been concluded. In respect of these latter, specific activities
to the competent corporate bodies of Pirelli & C. S.p.A..
2017
2016
2015
Total reports
Of which anonymous
Of which filed closed being absolutely generic.
Of which grounded
34
7
1
9
38
7
5
23
17
4
1
4
Countries of provenance of the reports ascertained
Brazil, Chile, Spain,
Brazil, Italy, Argentina,
Brazil, Argentina,
United States and UK
Chile, Saudi Arabia, India
Peru, Germany
Matter alleged in the reports ascertained
Outcome of cases investigated
Violation of the Ethical
employees, cases of poor
Irregular conduct of
Code and/or company
service to customers and
Irregular behaviour
procedures, fraud to the
challenges with suppliers
of employees, one
detriment of the Company,
claims by employees,
(a case of late payment
and a case of non-payment
case of inefficiency
towards customers
discrimination.
of services not requested
by the company).
Review and process
Review and integration
integration where deemed
of processes where
fitting, orders by the
deemed fitting, orders
functions concerned
by the functions
concerned and Human
and Human Resources
Department, actions
Resources Department.
to satisfy customers
and suppliers.
Review and integration of
processes where deemed
fitting, orders by the
functions concerned
and Human Resources
Department, actions to
satisfy customers.
15 The data reported is related only to the consolidated scope of the Consumer business. Furthermore, with regard to the 4 reports that were still
underway at the reporting date of the 2016 Annual Report, it should be noted that following the conclusion of the verification activities, 2 cases
were filed for absolute generality and for the remaining 2 cases there were no objective elements of a finding such as to consider the facts
alleged to be truthful.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain ECONOMIC DIMENSION
SHARING OF ADDED VALUE
For further study of the main initiatives supported by
the grants indicated above and relating to the model of
RELATIONS WITH INVESTORS
governance, please refer to the paragraphs in this report
Pirelli considers financial communication to be of strategic
devoted to “Company Initiatives for the External Community”.
importance as a fundamental tool for building relations of trust
In line with what is set forth in the Ethical Code, Pirelli “does
out in the Values and Ethical Code of the Group, Pirelli keeps
with the financial community. In accordance with what is set
The Values and Ethical Code of Pirelli ratify the undertaking of the Company to operate to ensure responsible development over
not provide contributions, advantages, or other benefits to political
a constant dialogue going with Shareholders, Bondholders,
the long term, while being aware the bonds and interactions that apply between economic, social and environmental dimensions.
parties or trade union organizations, or to their representatives or
Institutional and individual investors, Analysts via the Investor
This is to wed the creation of value, progress of the company, the attention given to stakeholders and raising standards of living
candidates, this without prejudice to its compliance with any relevant
Relations function and Group Top Management in order to
and quality of the environment.
legislation”.
promote communication that is between equals transparent,
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 the relations there are between
Pirelli and its main stakeholders to be expressed by focusing attention on the socio-economic system in which the Group operates.
LOANS AND CONTRIBUTIONS RECEIVED
FROM THE PUBLIC ADMINISTRATION
The company returned to the stock market on October 4,
2017, just two years after the public tender offer promoted
by ChemChina with Camfin shareholders, following a
timely and accurate.
DISTRIBUTION OF ADDED VALUE
(in thousands of Euro)
disbursed Euro 10 million to Pirelli Tyres Romania S.r.l. as last
Industrial business and the focus on the Consumer business,
Romania. In March 2012 the European Investment Bank (EIB)
reorganization process that led to the separation of the
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2017
2016
GROSS GLOBAL ADDED VALUE
2,079,628
2,002,436
Remuneration of personnel
(1,034,647)
49.8%
(986,308)
Remuneration of Public Administration
(40,848)
2.0%
(75,256)
Remuneration of borrowed capital
(362,610)
17.4%
(427,190)
Remuneration of risk capital
-
0.0%
-
Remuneration of the company
(634,727)
30.5%
(506,571)
Contributions for the benefit of
the external community
(6,796)
0.3%
(7,111)
A
B
C
D
E
F
49.3%
3.8%
21.3%
0.0%
25.3%
0.4%
tranche of a financing agreement for a total of Euro 50 million
enriched with new skills also through the creation of new
signed in 2009, granted to expand the Pirelli plant in Slatina,
business functions (Consumer Marketing, Digital, Data
Romania, for the production of car tyres and light commercial
Science, Cyber™ and Bike).
vehicles. This financing sits alongside a similar one granted in
2007 and fully reimbursed at the end of the 2013 accounting
During these 2 years, the company, although not listed, has
period and received to support the construction of the same
kept the dialogue open with the financial market through a
production site. The first tranche of the financing signed in
continuous update on the transformation process, on the
2009, amounting to Euro 20 million, was repaid in May 2017.
evolution of the business, on the financial results and related
Also reported is: S.C. Pirelli Tyres Romania S.r.l. received Euro
to sustainable performance, on the occasion of the publication
54.8 million in the aggregate from the Romanian state by way
of annual and infra-annual financial results.
of incentive for local investment and of which 8.7 million was
in 2017.
The Financial Communication activity intensified during
2017 in view of the company’s return to the stock market.
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The added value created in 2017 recorded an increase of 3.9% over 2016. In particular, the change was affected by the reduction of
Italy. In 2017, Pirelli Tyre S.p.A. received from the M.I.U.R. –
There have been numerous opportunities to meet with
the remuneration of credit capital and the reduction of the remuneration of Public Administration. Trends in the items determining
Ministry of Education, University and Research - a contribution
the main institutional investors in Europe (Milan, London,
gross global added value as shown above, are set out in the Consolidated Financial statements of this report, to which reference is
of Euro 1 million as an incentive for the development of an R&D
Paris, Frankfurt) and in North America (New York, Boston,
made for further fitting study.
project for the development of innovative materials in the tyre
San Francisco, Los Angeles, Toronto). Moreover, particular
Contributions to the external community The impact of expenses for corporate initiatives in 2017 for the external community
on the net result of the Group amounted to 3.9% (4.8% in 2016). Below are the expenses incurred in 2017 and 2016.
construction process.
importance was attributed to digital communication with the
enrichment of the “Investors” section of the website of more
Mexico. Since 2012 Pirelli Neumaticos S.A. de C.V. (Mexico)
information on business positioning and on Pirelli’s strategy
has received grant contributions from the Government of the
compared to its competitors.
State of Guanajuato (Mexico) for investments and generation
of employment for Euro 12.5 million in the aggregate The
The success of the IPO is evidenced by the high demand from
CONTRIBUTIONS FOR THE EXTERNAL COMMUNITY
(in thousands of Euro)
company also received grant contributions from the Mexican
investors:
Training and research
Social-cultural initiatives
Sports and solidarity
Total contributions for the external community
2017
2016
877
4,877
1,042
6,796
806
4,859
1,446
7,111
Federal Government for investments and generation of
> 2.4 times the maximum amount reserved for the
employment related to the ProMéxico project totalling Euro
Institutional Placement (90% of the Sale Offer);
8.8 million, of which 0.7 million received during 2016 (the
>
1.4 times the amount allocated to Individual investors.
incentives were paid starting 2012). During the course of 2017
no further government contributions were received.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain
Following the IPO, the Pirelli float is equal to 37%, divided as shown in the following table.
3,50%
Retail investors
33,39%
Institutional Investor
63,11%
Marco Polo
36,89%
Free Float
OUR CUSTOMERS
High Value approach to future mobility Pirelli carefully
monitors the evolution of the automotive market and more
Pirelli is the only global tyre manufacturer entirely dedicated
generally the evolution of mobility. Future mobility trends
to the Consumer market, which includes tyres for cars,
such as digitization, electrification, management of shared
motorcycles and bikes. The company is focused on the High
transport and driving automation, are gaining more and more
Value market and engaged in the development of innovative
momentum and will lead to an evolution of the mobility sector
tyres and Specialties and Superspecialties at the service of an
whose speed is unprecedented in the sector.
extensive product portfolio.
Sales channels include:
for Pirelli, follows the future trends and sees the Company enrich
> Original Equipment, addressed directly to the world’s
its product offer in line with its High Value development strategy.
The centrality of the Customer, historically fundamental value
leading car makers;
> Replacement, for the replacement of tyres on vehicles
This is the case of the launch, in 2017, of the PIRELLI
The interest of the financial community towards Pirelli is proven by the broad coverage of the stock by 15 of the main national and
already in circulation.
CONNESSO™ concept, the sensorized tyre able to update
international investment banks and by the inclusion of the company in the FTSE MIB, Dow Jones 600 A&P indices and in the most
the user in real time on the wear, pressure and temperature
recent FTSE Italian Brands index. The assessment (Target Price) and analysts’ estimates (Consensus) are published on the company
Within Original Equipment for Cars, SUV and light commercial
conditions and to enable services, whose commercialization is
website and updated periodically.
vehicles, in Europe Pirelli can count on a market share of
expected in 2018 (starting from the United States and followed
Pirelli closed 2017 with a market value of Euro 7.13 billion (average market capitalization in December), increasing its value by more
In Original Equipment, Prestige segment, which is the
Pirelli has also returned to the cycling world, thanks to the
than 12% from its listing, outperforming the Italian stock market index (FTSE MIB -2.7%), the sector (EU A&P 1.9%) and peers in the
highest of the range, Pirelli exceeds 45%, an increase
launch in 2017 of the new line of tyres dedicated to road
Premium customers of 23%.
by the main European countries).
1
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4
same period.
115,00
110,00
105,00
100,00
95,00
compared to 39% in 2011.
racing bikes: PZero™ Velo™ (available from September 2017)
As part of Replacement, there are two broad types of
and with CYCL-e™, the urban tyre from 2018. In addition to
customers: Specialised Resellers and Distributors. Specialised
the traditional distribution channel and specialized dealers,
Resellers are tyre specialists operating on the market in the
Pirelli immediately oriented itself to the online channel, in
role of independent businesses; specialised dealers constitute
line with the strong propensity to purchase online by end
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a fundamental point of contact between the Group and the
consumers. In addition to the presence on the main sales
end consumer. Particular attention is devoted to specialised
platforms for cycling products, Pirelli created its own
dealers in terms of shared development to enhance the
eCommerce channel international from the outset and
product offering integrated with a high quality level of
dedicated to bike tyres, to offer its own range of products
3-Oct
10-Oct
17-Oct
24-Oct
31-Oct
7-Nov
14-Nov
21-Nov
28-Nov
5-Dec
12-Dec
19-Dec
26-Dec
service, in compliance with Pirelli values and consumer
and exclusive editions beyond the tyre.
Pirelli
Nokian
Michelin
FTSE Mib
Continental
Stoxx 600 A&P
Source: Bloomberg
expectations. In 2017, Pirelli can count on about 14,600 Loyal
In January 2018, Pirelli was declared the world’s Sustainability Leader in the Auto Components sector, and Gold Class Company in the
the market and the very presence of Pirelli, ranging from a
Edition offers the exclusive ability to customize tyres to
prestigious Sustainability Yearbook 2018 published by RobecoSAM, the Company responsible for assessments for inclusion in the
softer loyalty (fidelity Club), which has as main objective for
make your car unique by choosing from hundreds of colors.
Dow Jones Sustainability Index. Pirelli obtained Auto Components worldwide leadership, with a score of 83 vs. industry average of
Pirelli territorial coverage and for the dealer sales support;
Thanks to the experience gained in F1® competitions, Pirelli
42. The RobecoSAM analysis was conducted in 2017 and involved 2,479 companies belonging to 60 different industrial sectors.
to franchise programs, in which through the exclusive of the
has developed an innovative labelling process that guarantees
Resellers globally, with a particular concentration in Europe,
Pirelli also innovates in terms of product customization.
Asia-Pacific and South America (about 75% of the total
In 2017, Pirelli presented the concept of colored tyres, in
points of sale). The degree of affiliation varies according to
anticipation of sales that will take place in 2018. Pirelli Color
For further information, reference is made to the Investors section of the Pirelli website, which offers a comprehensive and constantly
offering local delivery and distribution services throughout
terms of how tyres are purchased. A B2B approach is now
updated source of information on matters of interest to shareholders and the financial community.
the entire territory.
accompanied by a B2C approach, with the possibility for
the end customer to purchase colored tyres directly from
the consumer platform created for this purpose. The range
partnership there is strong focus on business development
quality, resistance and stability of the color applied to the side.
point of sale overall; up to the maximum degree of affiliation,
The colored tyres also present innovative technologies with
represented by the presence of points of sale owned by Pirelli
dedicated compounds, combining not only high performance
(303 points of sale worldwide).
but also style and design, to enhance the sporty character and
“Distributors” are partners who are fundamental to
guaranteeing continuity in the supply of tyres to other
Pirelli Color Edition marks a turning point not only in
specialised and non-specialised resellers. They do so by
terms of the product customization offer, but also in
uniqueness of each tyre.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain available initially covers the main models of Prestige car
in the case of promotional activities managed centrally and
by information distributed in hard copy format, as well as the
different languages. The new site currently includes about 11,800
manufacturers, and interested users have the opportunity
locally with central supervision.
range of off-line and online training activities. In the general
points of sale registered for a total of over 12,000 active users.
to enter pre-orders pending the official opening of sales
scenario, online is confirmed as a key touchpoint in the
Product training is provided in an engaging and customized
that will take place in 2018.
In terms of production of advertising campaigns and media
process of searching and buying tyres. There are 43 product
manner on the various types of distribution channel, however
planning, Pirelli uses specific auditing and certification
sites located by language (25 different languages), offer and
maintaining a homogeneous approach; thus, no longer a single
The centrality of future mobility in the High Value strategy
structures that place the Company at the highest levels in
promotional activities, which aim to inform and direct the
path that leads to the final objective of certification, but several
saw the introduction in 2017 of a specific figure in this sense in
terms of transparency and traceability in its advertising
consumer to the points of sale (about 63,500 dealers inside the
paths linked to individual product families.
the company organizational framework, the Future Mobility
investment strategies.
dealer locator) where to buy the tyres, in all the countries in
Manager, which has the task, within the Sustainability and
which Pirelli commercializes its products. In 2017, these sites
In order to support the product trainers, a library of
Risk Management Department, to monitor these trends in
The Pirelli Group endorses the IAB (Interactive Advertising
attracted 8.5 million users over 11 million sessions, for a total
technical content was developed for classroom courses and
the sector and to coordinate the related business activities
Bureau) and
is associated with the UPA
(Associated
of about 37 million pages visited.
the instrument “TYRE CAMPUS™ Houses”, which aims to
accordingly.
Advertising Users), among other things dedicating ongoing
concretely demonstrate the characteristics of Pirelli tyres,
Customer Focus Customer focus is a central element of the
Group “Values” and “Ethical Code” and the Quality Policy and
member of the World Federation of Advertisers (WFA), which
is to provide an additional means of communication and
Pirelli trainers around the world have concrete and innovative
commits participating firms to pursue honest, truthful and
contact with the trade, consisting of an international edition,
support that allows customers to personally understand and
Product Stewardship Policy of Pirelli. These documents outline
fair competition and communication in compliance with the
coordinated centrally from the headquarters, and local-
verify the key characteristics and advanced technology of
commitment to support the Advertising Code of Corporate
In 2017, Pirelli continued to inform its customers with a digital
the raw materials used for their manufacturing and the
Governance of the association. Through the UPA, Pirelli is a
newsletter, Paddock News, the main objective of which
differences between the different tread. With these tools,
the company positioning and are therefore communicated to
code of conduct and self-regulation to which they adhere.
language edition for each market in which Pirelli operates.
Pirelli products.
all employees in the local language and are available in many
Consumer protection is also guaranteed by the choice of
Paddock News features a gallery of new products and news
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languages on the Pirelli website.
suppliers in the communication sector (creative agencies,
from the Company and its Business Units: Car, Motorcycle,
Pirelli also continues to certify all its dealers who complete the
media centres, production companies) that in turn belong to
Motorsport and Bike. In terms of paper publications, the
product training successfully. The certificate is then indicated
Among the essential elements of the Pirelli approach, the
business and professional associations governed by ethical
company magazines “Pirelli World” and, for Brazil, “Giro”,
in the dealer locator with a plaque placed at the point of sale.
following are highlighted:
codes regarding communication.
continue to play a key role.
This way, consumers can recognize which dealers are the most
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> 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;
Compliance Also in 2017:
> no cases emerged of non-compliance with regulations
Of particular relevance in terms of communication on product
of all the products of the Pirelli range. The launch project in the
developments is participation in the main Autoshow events.
various markets of the new platform is at an advanced stage,
At the Geneva Motor Show 2017, Pirelli launched the Colored
during 2018, it is planned to complete the launch.
specialized and qualified on the technical features and benefits
or voluntary codes concerning marketing activities,
Edition tyres in addition to the PIRELLI CONNESSO™ concept.
> safety, reliability, high performance of products and services
including advertising, promotion and sponsorship;
Also in 2017, Pirelli took part in the most important events and
offered, in accordance with local regulations and more
> no significant final penalties were levied and/or paid
Consumer Prestige, such as the Salon Privé (England) and the
developed national and international standards applicable,
relating to infringement of laws or regulations, including
Pebble Beach Concours D’elegance (California).
as well as excellence of production systems and processes;
those relating to the supply and use of the Group’s
Listening and exchanging ideas with Customers
as sources for continual improvement Customer
relationships are managed by Pirelli principally through two
>
information to customers and end users to guarantee an
products and/or services;
Again in 2017, by officially introducing its entry into the world
channels:
adequate understanding of the environmental impacts
> no cases emerged of non-compliance with regulations or
of bikes, Pirelli took part in Eurobike, the main international
>
the local sales organization, which has direct contact with
and safety features of Pirelli products, as well as of the
voluntary codes concerning information and labelling of
cycle fair, where it presented the newest range of Road Racing
the customer network and which, thanks to advanced
safest ways of using the product.
products/services;
PZero™ Velo products.
> no cases of non-compliance with regulations or voluntary
information management systems, is able to process
and respond to all information requirements of the
Pirelli also adopted a clear procedure to grant a feedback to
codes concerning health and safety impacts of products/
The training of customers on the product even in 2017 was
interlocutor on site;
any customer claim, which involves immediate intervention
services during their life cycle;
intense in all markets, both at the points of sale and at the
>
the Pirelli Tyre Contact Centers, about 30 worldwide
with respect to the interlocutor.
>
there were no documented complaints concerning both
Pirelli sites with visits to the factory, R&D laboratories, and
with more than 150 employees, performing business
violation of privacy and/or the loss of consumers’ data;
simulations of tyre performance. During the year, more
operations
in
IT support and order management
The “General Conditions of Supply” applied by the Group
> no sales of any of the products sold by Pirelli were not
than 18,000 dealers of the 22 main markets participated in
(inbound), telemarketing and teleselling (outbound).
companies are informed in accordance with the principles
banned or disputed.
classroom training courses on Pirelli products, technology and
mentioned above.
Transparency in communication to the customer In
the context of advertising communication, Pirelli has defined
Information to Customers Pirelli provides information
to customer-distributors and end customers on a continual
basis. This information concerns both the product and
tyre sales; some course included visits to the plants in Settimo
In 2017, all the major social media channels of Pirelli have seen
Torinese (Italy) and Izmit (Turkey) in addition to the circuit in
a significant increase in the fan-base. Pirelli’s presence on
Vizzola (Italy) and the R&D Center in Milan. Information and
Facebook has reached over 2.2 million followers, with a growth
training are therefore conducted with a 360º approach.
of 11% over the previous year. Also on Twitter, Pirelli accounts
saw an increase in followers, reaching over 240,000 people,
a traceable and transparent process for all decisions relating
related initiatives, and is disseminated in a variety of ways,
In 2017, the new online training site TYRE-CAMPUS™ “The road
over 13% more than in 2016. The leap forward on Instagram
to advertising campaigns and related media planning, both
including online communication, and this is complemented
to Success” was launched, which now covers 23 markets in 16
is very important, where Pirelli channels reach over 371,000
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain 1
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followers, with an increase, year on year, of 42%. Finally, Pirelli
insights into the brand role, image profile and characteristics
9001:2015, while the remaining 25% is certified according to
The aforementioned assessment is only performed on a
has more than 14,550 followers on the leading online video
of the different touchpoints that influence the end customer’s
ISO 9001:2008.
platform, YouTube.
purchase decision.
centralised basis and the results are extended to all Countries
where Pirelli operates, taking account not only of the
ISO/TS 16949:2009 – IATF 16949:2016: In 1999, the Group
requirements imposed by restrictive European regulations
The success
is also confirmed of the www.pirelli.com
In terms of monitoring its competitive positioning and its
obtained certification for its Quality Management System
concerning the management of hazardous substances, but also
website, the digital Pirelli magazine launched in late 2015.
brand image among end consumers, there are two reference
in compliance with ISO/TS 16949 and it has since maintained
standards and know-how currently available internationally
In 2017, on the new digital communication platform, Pirelli
documents for brand positioning. One is the Brand Pyramid,
compliance with the standard as currently applicable.
(specifications, databases, etc.), thereby fully implementing as
has published more than 400 articles - regarding product,
which summarises the values, personality and distinctive
Following the evolution of the ISO 9001:2015 standard and
stated in the specific Health, Safety and Environment Policy.
motorsport, culture and sustainability -, with nearly 5 million
features of the Brand. The other is the Brand Key, a work
the new IATF 16949:2016 (Automotive Scheme that became
visits, of which nearly half attracted through social networks
scheme created with the aim of giving unity to product
private), Pirelli has achieved the certification of the Quality
In 2017, the monitoring of the producers and suppliers of raw
and about 3.3 million unique users, with an increase of 48%
communication in terms of emotional benefits, functional
Management System in 75% of its Plants, which are eligible as
materials used by the Group continued, above all with a view
compared to 2016.
benefits, reason to believe, differential elements, target of
of 31/12/2017, while the remaining 25% is certified according to
to the activities specifically envisaged by Regulation (EC) no.
reference. In terms of performance indicators, Pirelli considers
ISO/TS 16949:2009. The completion of the transition plan is
1907/2006, also known as “REACH Regulation”.
As for the Motorcycle world, the digital projects of the
Top of Mind, Brand Awareness and Brand Consideration.
expected by May 2018.
Metzeler and Pirelli brands are especially important. For
Metzeler, in addition to the website present in 10 countries
The analysis carried out in 2017 saw Pirelli position itself in the
ISO/IEC 17025: Since 1993 the Materials and Experimentation
worldwide since 2012, a page with about 386,600 fans is active
European Top Three of the most popular tyre brands: in first
Laboratory of the Group and since 1996 the Experimentation
Product safety, performance and eco-sustainability
Safety combined with environmental efficiency of the Pirelli
on Facebook, which since 2015 has been converted into a
place for Top of Mind and Brand Awareness in Italy, second
Laboratory of Pirelli Pneus (Latin America) hold the Quality
product are key features of the product portfolio offered. In this
Global Page comprising 11 local pages dedicated to the various
in the United Kingdom and in Spain, third in Germany, and
Management System, and have been accredited under the ISO/
regard, in 2017, the company has taken important steps forward:
countries with contents in the relevant local languages. To
in France it ranked fifth for Top of Mind and third for Brand
IEC 17025 standard. This system is maintained in accordance
with new compounds, new processes, new tread patterns that
keep relations with consumers active, the @metzelermoto
Awareness. With regard to the Brand Consideration indicator,
with the standard in force and the ability of the laboratories
have made it possible to record a general improvement in the
channels on Twitter, Instagram and Youtube have been active
i.e. consideration of the brand for the purchase, Pirelli is in
to perform accredited tests is evaluated annually. The labs
values of rolling resistance, wet braking and noise.
for years, as well as Facebook, with more than 886,700 fans
second place in the ranking in Italy and Spain, third in the
participate in proficiency tests organised by the International
connected to the Global Page, which includes 11 local pages.
United Kingdom and fourth in Germany.
Standard Organisation, by ETRTO or by international circuits
These innovations have a direct impact in terms of lower fuel
Special attention is given to the Asian countries in which Pirelli
Outside Europe, Pirelli in Brazil confirms its first place for
organised by auto manufacturers. Specifically in regard to car
is developing its presence on social media. The Diablo Super
every KPI brand, while it is third in China. In the USA, there are
tyres, the focus on quality is confirmed by Pirelli’s supremacy
consumption, which means lower CO2 emissions, greater
road safety thanks to the reduced braking distance required
Biker mobile application is also of great importance, currently
growing trends especially for Brand Consideration. In Russia,
in numerous product tests. It is also guaranteed by its
in unfavourable weather conditions, and reduction of
accounting for more than 502,000 downloads, and is greatly
Pirelli maintains its fourth position for Top of Mind and Brand
collaboration on product development and experimentation
noise pollution due to tyre contact with asphalt, thanks to
appreciated by the biker community.
Awareness, while in Turkey it is ranked fifth in all KPIs.
with the most prestigious partners (auto manufacturers,
innovative tread design solutions.
specialised magazines, driving schools, etc.).
The CRM project, in turn, has a priority position considering
Pirelli performance is even more positive – in line with the
In mid-2017, Pirelli presented a new generation of CINTURATO
the passion for the Pirelli product of the community of
High Value positioning of the product - at the Key Target 18”
The Product Certifications, which allow the commercialization
P7™ Blue, a sustainability champion touring tyre, which has
registered motorcyclists: about 316,000 for Pirelli Motorcycle
Up represented by car owners who can mount tyres with rim
of the same in the various markets in accordance with the
been renewed and has extended the double A of the European
and about 53,800 for Metzeler.
equal to or greater than 18 inches. For these target consumers,
regulations laid down by the different countries, are regularly
label (in rolling resistance and wet braking) to all new sizes, thus
the values of Brand Awareness and Brand Consideration are
managed by a department dedicated to the area of Research
marking a new record, boasting the greatest tyre with double-A
Pirelli Velo has inaugurated its entry into the bike market
higher, with: particularly significant increases for both KPIs
& Development. The prevailing certifications, obtained in the
measures. Already in 2012, in fact, just launched on the market,
with a dedicated web magazine named Velo World, which
in Italy, Germany, France, China, Russia and Turkey and, for
Pirelli Group, concern the markets of Europe, NAFTA (North
the P7™ Blue was the first tyre in the world to get top marks on
constitutes inspirational source of information and stories
Brand Consideration, in the USA.
America Free Trade Agreement), South America, China, Gulf
the label for energy efficiency and safety on some measures.
about cycling and new trends. Immediately active on
Instagram and Facebook, Pirelli Velo bases its communication
on digital activation in line with the propensities of its target
consumer. In 2018, specific digital channels will be activated to
Quality and product certification ISO 9001: since 1970,
the Group has had its own Quality Management System
Countries, India, Taiwan, Indonesia, South Korea, Japan and
Australia, and involve all Pirelli plants. These Certifications
Also
in 2017, Pirelli
introduced the CINTURATO™ All
periodically require factory audits by ministerial bodies of the
Season Plus on the European market, an evolution of the
countries concerned or bodies delegated by them, with the aim
CINTURATO™ All Season, a product mainly dedicated to
further share the cycling passion with users.
introduced gradually at all Plants and, since 1993, Pirelli has
of verifying product compliance at the Pirelli production sites.
drivers in urban areas and is looking for an innovative
Also in 2017, the end customer direct listening activity was
the ISO 9001 standard in force. Starting from May 2017, Pirelli
performed through the Brand Tracking survey in the Top
has been implementing the transition plan of its Plants and
Ten Markets of Pirelli (Italy, Germany, Spain, France, United
the Headquarters to certification according to the new ISO
obtained and maintained certification of said system under
Focus on human health and the environment Also in
2017, the evaluation continued of new raw materials and new
to an improvement in performance in both winter and
summer conditions, with special attention to snow and
and alternative mobility solution. The CINTURATO™ All
Season Plus presents a new tread compound that leads
Kingdom, Brazil, China, United States, Turkey and Russia). The
9001:2015, which will end in March 2018. At the end of 2017,
auxiliary products prior to their use by the operating units of
wet conditions, increasing driving safety, any road surface
ongoing changes made to this study over the years have made
the Headquarters and 75% of the Pirelli plants achieved the
the Group, in order to identify potentially critical issues for
conditions occur along the way. The main measures are
it possible to refine and improve the precision of business
Quality Management System certification according to ISO
human health of workers and/or the environment.
characterized by the presence of Seal Inside, a Pirelli
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ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain technology that allows continuing driving without air loss
vehicle in case of puncture as if nothing had happened and,
covered, Pirelli undertakes to establish and maintain the
although in different ways among them, consistently with
even if a tyre has been punctured, covering almost 85% of
at the same time, avoid dangerous roadside stops to replace
procedures necessary to evaluate and select its suppliers on the
the intensity of the interactions characterising the specific
possible accidental causes of pressure loss.
the tyre. It is no coincidence that sales of Pirelli products
basis of their level of social and environmental responsibility,
procedural instances.
with seal inside technology have increased by 30% between
as well as to request their suppliers to implement a similar
During the year, Pirelli also developed the CINTURATO P7™
2016 and 2017.
management model, in order to strengthen responsible
During a first phase of selection (or sourcing), and thus
(KS), an evolution of the CINTURATO P7™, for mid-segment
cars and sedans on the Chinese market. The new KS marked
CINTURATO P7™ measures have an improvement in terms of
external noise, rolling resistance and therefore environmental
Road safety culture and international initiatives
International initiatives and commitments are discussed in the
management in the supply chain that extends beyond its
assessment of possible offers for good or services in the
direct supplier.
marketplace, a buyer who has been adequately trained is able
to gain a first impression of possible abidance or otherwise
The Policies mentioned are available in many languages on the
by the requirements of the product and ESG by the potential
efficiency, and road safety, thanks to greater wet grip and
paragraphs “Company Initiatives for the External Community”.
Pirelli website, Sustainability Section, to which reference is
supplier. This allows any who are clearly in possible breach
external noise.
here made for full details.
of Pirelli expectations to be eliminated from the roster of
Product safety, performance and eco-sustainability are also
key elements of the development partnerships between
Pirelli and prestigious car manufacturers. Pirelli meets the
challenge of customization required by car manufacturers
by investing resources in research and development, in order
OUR SUPPLIERS
Supply chain sustainable management system The
management model of the supply chain adopted by Pirelli fully
In line with its “High Value” development strategy, Pirelli does
potential suppliers.
not limit its assessments of products and services offered to the
Pirelli asks suppliers who gain access to the qualification (or
mere cost proposed, paying utmost attention instead to the
on-boarding) phase to use the portal available in local language.
value proposed, thereby including innovation, internationality,
By accessing it, the supplier views and simultaneously accepts
flexibility, economic, social and environmental responsibility
Pirelli’s requests in terms of economic, social, environment and
to offer more innovative products in terms of materials,
complies with the provisions of the international guidelines
and business ethics.
technologies and processes, for a perfect synergy between
for sustainable procurement ISO 20400, as certified at the
business ethics responsibilities (in case of non-acceptance, the
qualification process cannot initiate), to then proceed to fill
tyres and vehicle. This led, in 2017, to the launch of the new
beginning of 2018 by a third party (SGS Italia S.p.A.) following
The social, environmental and business ethics responsibilities
multiple questionnaire concerning respect for fundamental
SCORPION ZERO™ All Season, an Ultra High Performance All
a thorough evaluation. The analysis embraced the entire
of Pirelli suppliers are assessed together with the economic
Human and Labour Rights, considered key by the Company
Season product developed for premium and prestige SUV
purchasing function of Pirelli, confirming that the requirements
and product or service quality to be supplied, right from the
and such that the absence of just one of them will not allow
1
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manufacturers created in response to the market demand
of the ISO standard were fully satisfied, both in terms of company
selection as potential supplier stage.
the continuation of the qualification process. These questions
for a new high-performance all-season product that could
policies and strategies, and regarding the management of the
require the potential supplier to attest that its company:
1
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be mounted on modern SUVs. The tyre SCORPION ZERO™
internal processes necessary to implement the sustainability
Analysis of ESG performance (Environment, Social, Governance)
checks workers’ ages before hiring them, and it ascertains
All Season is characterized by a reduced rolling resistance,
requirements in the dynamics of procurement, and at a more
continues through the qualification stage of the future supplier
that all of its employees satisfy the minimum legal working
improved thanks to the new compound and the new
operational level in the direct management of suppliers’
pre-analysed at the assessment phase, and then is “contract
age; uses workers provided with a written labour contract and
mixing process, and excellent performance in terms of
ethical performance. The ISO 20400 document “Sustainable
bound” though the Sustainability and business ethics Clauses
who work on a voluntary basis exclusively; abides by workers’
dry and wet grip. This product, which boasts a constantly
Procurement Guidance”, officially announced in April 2017, is an
included in every contract/purchase order.
rights of freedom of association and participation in trade-
expanding range of approvals, will equip car manufacturers
innovative tool that aims to promote sustainable purchasing
union activities; pays wages that meet the minimum legal
like Jaguar, Land Rover, Volvo and Volkswagen. It is also
practices within any public or private organization, regardless
After the supply agreement has been made, the sustainability
standards; manages disciplinary practices, if any, abiding by
available for some sizes in the Pirelli Noise Canceling System
of size or geographical
location,
including through the
performance of the supplier is audited by an independent
the law; abides by and applies at least legislative/contract
(PNCS™) version.
integration of the sustainability principles enshrined in the ISO
third party.
26000 social responsibility guidelines.
provisions in the matter of work schedules, overtime and rest
periods. The process continues with the request to include
The Pirelli Noise Canceling System innovation is decisive for
The aforementioned Management Model and the related
quality, environmental and health and safety certifications;
reducing the noise inside the passenger compartment, caused
The Group’s relations with suppliers and external collaborators
documentation are available on the institutional Pirelli website,
to document their approach to responsible management by
by the rolling of the tyres on the asphalt. The reduction in
are based on loyalty, impartiality and respect for equal
in the “Suppliers Area” (Pirelli.com/suppliers), section devoted
attaching their Policies and Codes; to provide data in respect
noise pollution guaranteed by Pirelli PNCS™ technology
opportunities for all the subjects involved in the purchasing
to the world of supply and accessible to current and potential
of the rate of accidents at work; to attest to compliance with
substantially improves driving comfort and this has been
processes, as required by the Group Ethical Code.
Pirelli suppliers, as well as anyone with an interest in knowing
labour laws as set forth above and an litigation there may
decidedly appreciated by the market, so much so that the
the approach and procedures adopted by the Company in the
be. Information is also requested relating to loss prevention,
number of Pirelli products with PNCS™ technology, doubled
There are also many policies adopted by Pirelli, which highlight
areas of purchases of good and service around the world. The
key elements not only to prevent future cases of “business
between 2016 and 2017, has resulted in tripled sales between
the full integration of the sustainable supply chain.
communication channel is aimed at the utmost clarity and
interruption”, but also closely related to the safety of workers
original equipment and spare parts channel within a year.
The sustainable management of the supply chain is also the
sharing of Values, Guidelines, documentation and standards
employed at the supplier’s site.
subject of the Green Sourcing Policy as well as an integral part of
adopted by the Company in relations with suppliers, in terms of
Determinants for customer safety are also the tread
the “Social Responsibility for Occupational Health, Safety and
the web also in the individual Countries in which Pirelli operates.
For all potential new suppliers and/or facilities of raw
technologies, which see Pirelli in the forefront with the
Rights and Environment” Policy, the Global Health, Safety and
Seal Inside technology. Seal Inside prevents air from leaking
Environment Policy, the Global Human Rights Policy, the Quality
when punctured, allowing continued mobility despite the
Policy, the Product Stewardship Policy, the Group’s “Sustainable
loss of air pressure. This, in terms of road safety, results in
Natural Rubber” Policy. In all the documents cited, with
ESG elements analysed in the purchasing process
Pirelli uses the same ESG performance assessment approach
material and/or high value added (HVA) Parts, which by
their nature can become development or however long-term
partners for the Company, and which are also attributed much
of the spending of purchases, Pirelli conducts a third-party
two substantial benefits for the driver, who can control the
reference to the specific social and environmental issues
throughout the entire process of interactions with a supplier,
preliminary audit from the qualification phase to verify the
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain level of compliance of the potential supplier with respect to
to social and environmental responsibility, regular
or natural rubber processing plants. Pirelli intends to play
During 2018, the Company will draw up a Policy Implementation
the principal national and international regulations on Work,
overseeing compliance with this obligation on the
an active role in the aforementioned context, contributing
Manual, which will again see the involvement and consultation
Environment and business ethics. The non-acceptance of the
part of the same;
to the efforts that are globally dedicated to the sustainable
of stakeholders as essential elements for the best definition of
audit and/or not entering into a reinstatement plan of any
>
specifying that Pirelli reserves the right to verify at any
management of natural rubber.
content, as well as the applicability of the manual itself.
non-compliance shall block the supplier’s qualification.
time through activities of audit, either directly or through
At the same time, Pirelli will continue the mapping and
third parties, that fulfilment of the duties taken on by a
In October 2017, Pirelli issued its Policy on Sustainable
traceability of the supply chain, through partnerships with
With regard to the contractual stage, for ten years now, the
supplier has been achieved (see further details in the next
Natural Rubber, after a long elaboration process based on
its suppliers and with the aid of advanced mapping systems
Sustainability and Business Ethics Clauses (including anti-
paragraph).
consultation with key stakeholders and companies that have
(including digital). The results of on-site audits carried out by
corruption) have been included systematically in contracts
The Sustainability Clauses have been translated into 21
historical experience in terms of sustainable procurement
third parties at the suppliers’ sites (natural rubber processors)
and orders for the purchase of goods and/or services and/
languages to ensure maximum clarity and transparency vis-
of materials. The draft of the Policy was presented and
will also be capitalized in 2016 and 2017, aimed at assessing
or works, both with private suppliers and with the Public
à-vis a supplier in the matter of the contract duties that they
discussed with key stakeholders in a consultation session
the level of sustainable performance at the transformation
Administration
(or
institutes/enterprises under public
assume, not only in respect of the Company itself, but also at
held in September 2017, attended by international NGOs,
sites, and at understanding the capacity of Suppliers in terms
control), and in agreements with NGOs, worldwide.
their own site in relations with their own suppliers.
Pirelli’s main natural rubber suppliers, traders and farmers
of direct/indirect control of their supply chain, up to the
in the supply chain, automotive customers, international
identification of the supplying plantations.
In particular, the clauses:
From the standpoint of utmost assurance suppliers of the
organizations multilateral.
>
require awareness on the part of suppliers of the
Pirelli Group have available the Whistleblowing Reporting
In 2017, the partnership that has tied Pirelli to Kirana Megatara
principles, commitments and values contained in Pirelli’s
Procedure (ethics@pirelli.com), which has been indicated
As stated in the Policy, Pirelli undertakes to promote, develop and
since 2014 continued. Kirana Megatara, among the largest
Sustainability documents, being “Values and the Ethical
expressly in the clauses and by means of which any breach
implement sustainable and responsible procurement and use of
natural rubber processors in Indonesia, is one of the leading
Code”; the “Code of Conduct”, the “Global Human Rights
or suspected breach they discern in relations with Pirelli
natural rubber throughout its entire value chain. In particular,
suppliers of natural rubber of Pirelli.
Policy”, the “Health, Safety and Environment Policy”, the
referring to the contents of the following can be reported in
the Policy explodes the positioning of the Company in terms of:
“Anti-Corruption Program” and the “Product Stewardship
total confidentiality: “Values and Ethical Code“, the “Code of
> defence of Human Rights and promotion of decent working
The Project of Kirana and Pirelli aims to support small local
1
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Policy”, published and accessible on the web and which
Conduct“, the Group policies “Global Human Rights“, “Health,
conditions;
producers in Indonesia through training on the most effective
ratify the principles that inform the management of
Safety and Environment“, “Anti-Corruption Program“ and
> promotion of the development of local communities and
methods to improve the productivity of plantations and
Pirelli in its activities and relations with third parties,
“Product Stewardship“.
prevention of conflicts related to land ownership;
through scholarships for their children. This will be in addition
contractually and otherwise;
> protection of ecosystems, flora and fauna;
to, starting from 2018, support to the activities of replanting
3
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>
require that Suppliers confirm their commitment to:
In 2017, among the reports signed, none were sent by Suppliers.
> no to deforestation, no to the exploitation of the peat bogs, no
rubber trees to further strengthen the development of
> >
not using or supporting the use of child labour and
It is objectively impossible to confirm that there were, in
to the use of fire, and adoption of the methodologies “High
plantations on territories already dedicated to natural rubber
forced labour;
absolute terms, no further reports from suppliers received
Conservation Value (HCV)” and “High Carbon Stock (HCS)”;
without putting and avoiding risks of deforestation.
> >
ensuring equal opportunity, freedom of association
as a number of reports were, as specified, anonymous, as
> efficient use of resources;
and promotion of the development of each
is specified in the paragraph “Focus: Reporting Procedure -
> ethics and anti-corruption;
Increasing the productivity of plantations is in fact a key
individual;
Whistleblowing Policy”, to which reference is made for further
>
traceability and mapping of social-environmental risks
factor: it allows farmers to increase their income while
> >
opposing the use of corporal punishment, mental or
details.
along the supply chain (risk-based approach);
decreasing the risk of deforestation resulting from the
physical coercion, or verbal abuse;
> >
complying with the laws and industry standards
concerning working hours and ensuring that waves
are sufficient to cover the basic needs of personnel;
Sustainability of the natural rubber supply chain
With global demand for natural rubber expected to increase,
> clear indication of the governance model envisaged by
abandonment of unproductive plantations. Training on
the policy, and consideration of the risks identified in the
production quality, including the provision of origin plants
definition of the purchasing strategies;
controlled by agronomist specialists, takes place constantly
> encouragement of its suppliers and sub-suppliers to the
throughout the year at the farmer communities involved in
> >
not tolerating any type or bribery in any form or
sustainable management of the related supply chain is essential
adoption of solid certification systems, internationally
the project, 110 stably and continuously.
manner and in any legal jurisdiction, even where
to preserve forests, biodiversity and to enable sustainable
recognized and verified by third parties, at all levels of the
such practices are effectively permitted, tolerated,
development for local communities and economies.
supply chain;
Each year, Pirelli and Kirana Megatara organize an event
or not subject to prosecution;
> promotion, support for the Company’s active participation
called tapping competition, which sees the best “carvers” of
> >
assessing and reducing the environmental impact of
The economic, social and environmental sustainability of the
in cooperation initiatives at sector level and among
the place in a friendly challenge on the best carving methods
their own products and services throughout their
natural rubber supply chain is among the priorities of Pirelli,
stakeholders that play an important role in the value
in a day of celebration for the community that is also an
entire life cycle;
with the full awareness that the origins of its rubber supply
chain, in the belief that, in addition to the individual
important opportunity for training and spreading awareness
> >
using resources responsibly with the aim of achieving
chain impact in forestry terms.
commitment of companies, a shared effort can
among farmers present regarding the best growing and
sustainable development in compliance with the
accelerate and strengthen the path towards sustainable
carving techniques, necessary to obtain an increasingly purer
principles of respect for the environment and the
The natural rubber supply chain – from the upstream
development of the global natural rubber supply chain;
product, free from contamination and therefore characterized
rights of future generations;
to the downstream level - includes producers/growers,
> activities aimed at the implementation of the Policy;
by its high level of quality, necessary to increase the earnings
> >
establishing
and maintaining
the necessary
traders, processing plants, distribution companies and
> commitment to reporting on the results achieved;
of families and simultaneously reduce the
impacts of
procedures to evaluate and select suppliers and
manufacturing facilities. Pirelli is at the end of the chain, as
> making available the Reporting Procedure for any violations
deforestation. In the evening, the three best tappers are then
sub-suppliers on the basis of their commitments
a tyre manufacturer that does not own its own plantations
of the Policy.
chosen who, thanks to perfect carving, are awarded prizes for
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain 1
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themselves and their families. Even in 2017, about 298 farmers
Therefore, the Green Sourcing Manual is a unique document
for many years. Under Conflict Mineral Rules,
listed
of the volume of raw materials used annually by the Company
and their families attended the event, which was held in the
that contains:
companies in the United States are required to perform
and which is equally distributed among most of the tyres
south of the island of Sumatra.
>
the general part on Green Sourcing issues;
reasonable due diligence in tracing the provenance of
produced. To give an example, a tyre weighing 10 kg contains
>
the Green Engineering Guidelines (Materials, Capex);
these materials and reporting the findings to the SEC and
about 10 mg (milligrams) equivalent of tin, in the extremely
Also in 2017 was the award ceremony of scholarships by Pirelli
>
the Green Operating Guidelines (Opex, Logistics).
publishing them on their website, with the first report to
low concertation of 1ppm (one part per million).
and Kirana Megatara in favour of the children of local producers.
The Green Sourcing Manual will also be adopted by the Pirelli
be published by 31 May 2014 (in respect of 2013) and updated
With a view to procurement covering only minerals that
The ceremony was held in Muara Enim Regency in the South
Training Academy for training purposes by the functions
subsequently each year.
are “conflict free”, Pirelli has conducted a comprehensive
of Sumatra Island and 65 scholarships were awarded, with the
involved in the process of Green Sourcing.
investigation on its supply chain, in order to have full visibility
aim of trying to ensure adequate education, in the belief that
In turn, in May 2017, the European institutions approved the
up to the mines or foundries in order to identify the existence
the future sustainability of the natural rubber business cannot
In 2014, and on the basis of the Guide Lines of the Green
2017/821 Regulation “establishing obligations regarding due
of any “conflict minerals”. The Company has asked its suppliers
absolutely disregard the adequate training and development
Sourcing Manual, the Pirelli Green Purchasing Guidelines
diligence in the supply chain for EU importers of tin, tantalum
to complete the CFSI-CMRT (Conflict-Free Sourcing Initiative
of the new generations, and their right to study.
were published on the website www.pirelli.com thus
and tungsten, their minerals and gold, originating from areas
– Conflict Minerals Reporting Template), developed by EICC
The “Green Sourcing” Policy As at December 2012
Pirelli drew up and issued the “Green Sourcing” Policy with
making them available both to Pirelli suppliers and to
of conflict or at high-risk”. The new provisions will apply from
(Electronic Industry Citizenship Coalition) and GeSI (Global
other stakeholders in China, Mexico, the United States,
January 2021.
e-Sustainability Initiative).
Russia and Italy, by-invitation seminars have been held
at Pirelli offices on the Green Sourcing Guidelines for local
Pirelli expresses its position on the management of the issue
The suppliers polled cover 100% of the “conflict minerals” risk
the aim of stimulating and incentivising an environmental
suppliers so as to inform and receive direct feedback on the
in a paragraph dedicated to it in its Global Human Rights
tied to Group products. More than 90% of suppliers polled
conscience along the entire supply chain and encouraging
way they work.
Policy, where it is stated that the Company “requires that its
have already given precise indications concerning the source
choices that might reduce the impact on the environment
suppliers conduct proper due diligence within their supply chain in
of the materials in question and listing foundries as required
of provisioning activity by Pirelli of goods and services. The
In 2015, Pirelli also developed an IT platform to support the
order to certify that the products and materials supplied to Pirelli are
by the procedure and there was no evidence of the presence
Green Sourcing Policy implementation system was defined
launch of a campaign to measure the Green Performance of
“conflict free” throughout the whole supply chain (i.e. not coming
of conflict minerals. At the end of 2017, a minimum number
in 2013, both inside Pirelli and in supplier relationships. It is
Pirelli Suppliers through an electronic questionnaire that
from mines or smelters operating in conflict zones identified as such
of suppliers, corresponding to 0.01% of spending of Pirelli
organised as follows:
can be completed via the web, a campaign implemented in
in the relevant conflict minerals regulations, unless they are certified
purchasing, are still investigating their chain.
> Pirelli Green Sourcing Manual, an internal document
April 2016 and which saw high participation by Suppliers of
as “conflict free”). Pirelli reserves the right to terminate relations with
containing operating Guidelines, intended to guide the
Raw Materials (Response Rate equal to 77%) justified by the
suppliers in cases where there is clear evidence of supplying conflict
activities of the Pirelli functions involved in the Green
“engagement” activities of these Suppliers by R&D, Quality
minerals and however in case of any violation of Human Rights”.
Sourcing process;
and Sustainability, actively involved in the supply chain and
Monitoring of ESG performance Supplier performance
is monitored by using the Vendor Rating system, aimed
> Pirelli Green Purchasing Guidelines, a document intended
tyre innovation.
The Policy is published in multiple foreign languages in the
at defining the quality level of supplies, the quality of
for Pirelli suppliers as part of the Contract for supply and
Sustainability section of the pirelli.com website.
the
commercial
relationship,
the
technical-scientific
based on the Green Sourcing Manual containing the KPIs
In 2017, Pirelli updated the IT platform to support the
collaboration and, through on-site audits by third parties,
(Key Performance Indicators) for assessing the Green
measurement of the Green Performance of Pirelli Suppliers
In 2017, Pirelli also strengthened its management model,
verifying performance in relation to human and labour
Performance of these suppliers;
with the aim of including the Logistics Services Providers.
introducing the request for the following documentation
rights, health and safety, environmental management and
>
integration of Green Performance in the traditional process
among the qualification requirements of suppliers that can be
business ethics, followed by the periodic monitoring of
of measuring supplier performance (vendor rating).
In December 2017, a campaign was launched to measure the
associated with the possible use of conflict minerals:
the progress of the actions set down in any improvement
The Pirelli Green Sourcing Manual defines four areas of
available from the first quarter of 2018.
> policy on Conflict Minerals if present;
monitoring of sustainability of suppliers cover all the goods
Green Performance of these Suppliers, whose results will be
> conflict Minerals Reporting Template (CMRT);
plans signed with the supplier. The Vendor Rating and
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 merchandise categories
Policy on Conflict Minerals The concept of Conflict
Minerals was introduced by Section 1502 of the Dodd-Frank
> description of the “Due Diligence” system to identify and
and geographical purchasing areas and utilized as an integral
trace the presence of 3T+G minerals.
part of commercial negotiations.
The management model then extends to the contractual phase,
The results of the Audits are analyzed by the Purchasing
falling within the four areas mentioned above. Green
Act, a federal United Sates law, in 2010. By “conflict minerals”
through the inclusion of a Conflict Minerals clause that recalls
Department and the Sustainability and Risk Governance
Engineering Guidelines were also defined for the Materials and
is meant gold, columbite-tantalite (conltan) cassiterite,
the supplier’s commitment to providing the Conflict Minerals
Department, commented and discussed to identify eventual
Capex areas, where the design component (what is conceived
wolframite and their derivates like tantalum, tin and tungsten
Reporting Template on an annual basis and to maintain the
corrective actions or to improve performance along with
in-house) is material to the Pirelli core business.
that come from (or are extracted in) the Democratic Republic
results achieved in terms of chain transparency, in addition to
suppliers.
For the Opex and Logistic areas characterised by goods
At methodological level, the Purchasing Department and
categories in respect of which the design component is not
The objective of the rules in respect of Conflict Minerals
To give an idea of the scale of the phenomenon for Pirelli, it
the Sustainability and Risk Governance Department of the
equally significant, Green Operating Guidelines have in any
(Conflict Mineral Rules) is to discourage the use of minerals
is worthwhile stating that the impact is very limited: the
Group define the Guidelines for the selection of suppliers
vent been defined by referring to internationally recognised
whose sale might finance violent conflicts in Central Africa
volume of minerals (3T+G) used by Pirelli Tyre in one year in
to be audited, supporting the Purchasing Managers and
best practices.
where grave violations of human rights have been recorded
fact weighs less than a ton, a quantity less than one millionth
Sustainability Managers that locally coordinate the auditing
of Congo and/or bordering Countries.
reporting the further progress pursued and expected.
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ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain activities. Since 2009, in fact, Buyers and local Sustainability Mangers are asked to identify a roster of suppliers who, on the basis
On the basis of audit findings, where necessary and fitting
respect of suppliers operating in Countries considered to be more
of the findings of proper Risk Assessment, they feel to be worthwhile submitting to audit by a third party at the time of the Annual
and given also the specific actions to remedy suggested by
greatly at risk as compared to others from the standpoint of
Audit Campaign. The risk assessment and thus the “criticality” of suppliers envisage an assessment based on the following guiding
the independent Auditor, the supplier signs off on a plan for
compliance with domestic and international labour legislation.
parameters:
>
the supplier is bound to Pirelli by multi-year contracts;
>
the replacement of the supplier and/or related product may be complex;
righting aimed at preventing, mitigating or remedying any
non-compliances detected. The plan foresees specific actions
Pirelli mitigates the risks mentioned through the management
to be implemented by precise deadlines in addition to clear
model adopted and described so far, which is completed with
>
the economic burden of the purchase is significant and for this reason it is felt that verification in loco of the compliance of the
identification of the responsibilities for the action at the
the engagement activities of suppliers outlined below.
supplier with Pirelli ESG expectations, and that the supplier sign up to at the contract stage, is worthwhile via an audit by a third
supplier company and the method of follow-up (documentary
party commissioned by Pirelli;
>
the supplier operates in a Country at ESG risk;
or new audit in situ) that will be followed by the auditor to
verify resolution taking place of the non-compliances detected
Engagement
Pirelli believes that activities involving suppliers are essential from
>
the supplier has not yet undergone an ESG audit by Pirelli or special criticalities have been detected in previous audits;
during the audit. The process of monitoring the implementation
the viewpoint of creating environmental and social value, and are
>
there is information, a perception or doubt concerning possible breaches on the part of the supplier in the matter of social,
status of plans of righting of suppliers, especially, is a dual one;
inseparably tied to the creation of shared economic value.
environmental and/or business ethics responsibilities.
on the one hand the third-party auditor verifies the status
There are many activities operated by the Company to that effect.
The external auditors carry out verification on the basis of a checklist of parameters of sustainability deriving from the Pirelli
Internal Audit Management of the Group verifies the adequacy
Ethical Code, the SA8000® standard (a tool of reference officially adopted by the Group for managing social responsibility since
of management and alignment on the part of local functions
R&D Partnerships
Pirelli has established several partnerships with strategic
2004) and the “Social Responsibility Policy for Occupational Health, Safety and Rights, and Environment” of the Pirelli Group (in its
dealing with this (Sustainability and Purchasing).
suppliers and universities for the development of innovative
turn consistently with the areas of social, environmental and governance sustainability dictated by Global Compact of the United
materials with
low environmental
impact
(materials
Nations), the “Social Responsibility for Occupational Health, Safety and Rights, and Environment” Policy, the Global Health, Safety
The results of the audits carried out during the 2017 annual
described in the paragraphs dedicated to environmental
and Environment Policy and the Global Human Rights Policy.
campaign include:
management of products of this report). As part of the
of implementation of the plan of righting, and on the other
>
38% of suppliers without non-conformities;
development of new nanofillers, for example, pursued since
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Third-party audits concern suppliers belonging to all product categories such as raw materials, machinery, logistics services,
> a total number of non-conformities found on-site
industrial services, general services and components. Each audit has an average duration of two days on-site and includes a factory
decreased by 16% compared to 2016.
the early 2000s through research contracts with universities
and collaborations with suppliers, Pirelli has started to
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visit, interviews with workers, management and trade union representatives.
The non-conformities registered in 2017 are substantially
industrially introduce materials of mineral origin in partial
External audits have been carried out since 2009 and continued in 2017, specifically:
overtime and the correct implementation of environmental
Compared to the production processes of the raw materials
linked to health and safety management processes, the use of
replacement of precipitated Silica and Carbon Black.
Year
2009-2010
2010-2011
2012-2013
2014
2015
2016
2017
Number of Audits
In 2017, following the permanence of non-conformities found in
water savings, as well as a reduction of CO2 emissions of
more than 75%, saving respectively 1,000 tons of water and
management systems.
replaced, the aforementioned innovations have guaranteed
72
56
62
78
93
6416
8317
the audits of the previous campaign, processes were initiated
450 tons of CO2.
for the disqualification of Suppliers deemed not appropriate
for the continuation of the relationship with Pirelli.
This innovation results in economic benefits related directly
Materiality of ESG impacts along the supply chain
Considering the life cycle of the Pirelli Product (which is
to the material for about Euro 150,000 per year, although the
real sustainable business driver is the performance that the
product acquires, thus becoming more competitive.
specified in the “Environmental Dimension” chapter of this
report), the environmental impacts of the supply chain are
CDP Supply Chain
For years, Pirelli has participated in Climate Change and
found prevalently in the category of raw materials, in terms of
Water programs promoted by the Carbon Disclosure Project
direct emissions and impact on indirect emissions of Pirelli, as
(CDP). Implementing its Green Sourcing Policy since 2014
In 2017, in most cases audits involved suppliers of Pirelli operating in Countries where the company is present at an industrial level,
well as on the capacity of the material to affect the emission
Pirelli has in its turn decided to extend the request for CDP
i.e. Argentina, Brazil, China, Germany, Indonesia, Italy, Mexico, United Kingdom, Romania, Russia, United States, Turkey or suppliers
impact of the production process and the energy efficiency of
assessment to its own key suppliers at a Group level, identified
in countries from which Pirelli buys raw materials, such as Japan, Malaysia, Singapore, Thailand and Vietnam, Brazil.
the Pirelli product. With reference to the water footprint along
in accordance with criteria of environmental and economic
16 of which 9 on potential new suppliers of raw materials
17 of which 14 on potential new suppliers of raw materials
the life cycle of the Pirelli product, the impacts are prevalent
materiality. In 2017, the selection concerned the suppliers
in the natural rubber processing activity. Downstream of the
with the most impact on the Carbon Footprint of the Group
natural rubber supply chain is also the risk of deforestation
in the Raw Materials, Logistics and Energy categories.
and damage to biodiversity.
Social type impact (human and labour rights in particular) are
3 emissions from its supply chain and ensures adequate
evidenced on the other hand in all categories of purchases in
awareness of suppliers in matters relating to climate change
The CDP Supply Chain supports Pirelli in monitoring Scope
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain so as to identify and activate all possible opportunities for
and participate in training activities at any time. The course
reducing emissions of climate-altering gases. In 2017, all the
included many practical examples and allowed participants to
emission reduction actions implemented by Pirelli suppliers
verify the levels of compliance by their own organisations with the
VALUE OF PURCHASES BY GEOGRAPHIC AREA
made it possible to avoid the global emission of about 77
various elements of ESG. To verify the clarity and effectiveness of
Europe
million tons of CO2 equivalent in the atmosphere, combined
with estimated savings of 2.3 billion dollars.
out at the end of the training session.
e-learning, a questionnaire was prepared that participants filled
OECD COUNTRIES
North America
First company among tyre manufacturers to have globally
introduced the CDP Supply Chain in its own supply chain,
Supplier Award
The Pirelli Supplier Award, which is assigned each year to
Pirelli aims to increase the response rate of suppliers of Raw
suppliers of excellence, aims to constantly improve relations
Materials, from 71% in 2017 to 90% in 2020.
with parties from the standpoint of shared development.
NON-OECD COUNTRIES
Others
Latin America
Asia
Africa
Others
Training of suppliers on sustainability issues
Since 2012, Pirelli has provided training on
issues of
The 2017 edition of the Supplier Award a was held at the Pirelli
headquarters at the Bicocca with the Pirelli CEO present and who
environmental and social responsibility and business ethics
gave the prizes to nine suppliers operating in China, Germany,
to its suppliers, identifying from year to year the reference
Japan, Italy, Romania, United States and Thailand, which
participants based on strategic
issues, spending value,
had distinguished themselves in quality, innovation, speed,
operations of suppliers in countries considered at risk.
sustainable performance, global presence, and level of service.
NUMBER OF SUPPLIERS BY GEOGRAPHIC AREA
OECD COUNTRIES
North America
Europe
1
2
8
In 2017, e-learning training was provided to strategic suppliers of
A specific accolade was granted to sustainable performance to
auxiliary materials, raw materials, waste management, Facility
acknowledge the importance of strategies of “responsibility”
property management, industrial services, Utilities. The training
that really make a difference, by bringing benefits to the entire
activity aims to support suppliers in understanding the Pirelli
value chain. In 2017, the Sustainability Award was awarded to a
NON-OECD COUNTRIES
sustainability model and the related social, environmental and
mould supplier, which in recent years has shown a strong and
business ethics requirements that must be respected in order to
growing engagement on sustainability issues, with excellent
guarantee a sustainable business relationship with the Company.
results in terms of innovation and recycling of materials.
Others
Latin America
Asia
Africa
Others
2017
2016
49%
4%
5%
16%
15%
0%
11%
2017
2016
56%
5%
4%
26%
5%
0%
4%
52%
5%
4%
15%
14%
0%
10%
55%
5%
4%
27%
4%
0%
5%
9
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Specifically, training in 2017 focused on the following topics:
> Pirelli “Health, Safety and Environment” Policy;
> Safety and ergonomics management system;
Trend of purchases
The Pirelli Tyre Core Business in 2017 accounts for 96% of
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 46% of the total.
> Chemical substance management;
Group purchases. The following tables show the value of
> Environmental management system.
purchases made by Pirelli Tyre and the percentage of the
Training involved 190 suppliers from Argentina, Brazil, China,
relative suppliers divided by geographic area. These figures
VALUE OF PURCHASES BY TYPE
Germany, Indonesia, Italy, Mexico, United Kingdom, Romania,
show that the value of purchases is slightly higher in OECD
Russia, United States, Turkey, Venezuela, and was carried out
area with respect to non-OECD areas, as well as the number
in local language.
of suppliers. 67% of suppliers (vs. 65% in 2016) (excluding
Raw Materials
suppliers of raw materials as they generally operate where
Consumable Materials
The tool used for training was a platform specifically developed for
Pirelli does not have facilities), operate locally with respect to
this purpose by the Pirelli Group. After receiving a personal ID and
the Pirelli Tyre affiliates supplied, according to a logic of local-
password, the supplier could connect with the online platform
for-local supply.
Services
Capital goods
Total
2017
2016
46%
5%
36%
13%
46%
5%
38%
11%
100%
100%
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain With reference to the percentage of Pirelli Tyre suppliers by type in the table below, it is noted that suppliers of consumables and
services weigh more than 80% of total suppliers despite the weight on the total value of purchases is lower with respect, for example,
to that of the purchases of raw materials that see, on the contrary a substantial concentration on a few operators.
NUMBER OF SUPPLIERS
Raw Materials
Consumable Materials
Services
Capital goods
Total
2017
2016
3%
23%
64%
10%
3%
25%
62%
10%
100%
100%
The following table represents the percentage composition in the value of the mix of raw materials purchased by Pirelli Tyre in 2017
and 2016. The volume of raw materials utilised for the production of tyres in 2017 amounted to approximately 900 thousand tons, of
which approximately 4% derives from recycled materials, in line with the previous year.
MIX OF RAW MATERIALS PURCHASED (VALUE)
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Natural Rubber
Synthetic Rubber
Carbon black
Chemicals
Textile
Steel
Objectives
2018:
2017
2016
15%
29%
9%
21%
16%
10%
13%
28%
8%
22%
18%
11%
> Sustainability of the Natural Rubber supply chain: consultation of the relevant stakeholders in the value chain to support the
drafting of the Pirelli Policy Implementation Manual; start of training activities on the implementation of the manual;
> new version of the sustainability contract clause for natural rubber Suppliers;
> new training campaign dedicated to the ISO 20400 standard.
2020:
> CDP Supply Chain: increase in the response rate of suppliers of Raw Materials from 71% in 2017 to 90% in 2020.
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ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain ENVIRONMENTAL
DIMENSION
recycling or re-use where possible;
related to it as objectively as possible. Moreover, reporting of
Primary Energy Demand refers to the quantity of renewable
> empower and train its workers in order to extend
the emissions impacts also complies with the provisions of the
or non-renewable energy that is taken directly from the
adequate culture of environmental capital conservation.
GHG Protocol and GRI Standards Guidelines. All impacts listed
hydrosphere, the atmosphere or the geosphere.
by the standards that are not mentioned, both upstream
The Pirelli Group considers environmental protection as a
Group’s employees in the local language and published in the
not apply or are not significant. The values are shown as a
the climate of anthropic activities and is calculated, as
All the documents mentioned above are communicated to the
and downstream of the industrial activity of Pirelli, either do
The Global Warming Potential concerns the effect on
fundamental value in the exercise and development of its
Sustainability section of the pirelli.com website, available to
percentage, as the objective of this infographic is to show the
activities.
the external community, in multiple languages.
difference in materiality between the various life stages. To
determine the Carbon Footprint and Water Footprint, Pirelli’s
calculation model is respectively inspired by the technical
specification ISO-TS 14067 and ISO 14046 standard.
Water Depletion, based on the Swiss model for ecological
The main environmental impacts are generated by various
availability of water resources locally, with the aim of giving
scarcity, represents the volume of water used, related to the
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).
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 LEAD Global Compact), and
THE PIRELLI GROUP
ENVIRONMENTAL STRATEGY
the “Rio Declaration on Environment and Development”.
Management of environmental issues has always played a
activities related to the different stages of the Life Cycle. In
greater weight to the volumes of water taken from areas
key role in Pirelli business strategy. With a view to long-term
the case of raw materials procurement, the main impact
characterized by a greater scarcity of this resource.
The Pirelli Values and Ethical Code states that “key consideration
management, Pirelli monitors the Carbon Footprint and
derives from the related production and distribution. In the
in investment and business decisions is environmental sustainability,
Water Footprint of its entire organisation and is committed to
case of tyre production, the main impact is related to the
Eutrophication Potential is the enrichment of nutrients in
with the Group supporting eco-compatible growth, not least through
the progressive reduction of the related impacts on resources,
consumption of electricity and natural gas: in particular the
a specific, aquatic or terrestrial ecosystem: air pollution,
the adoption of special technologies and production methods (where
climate and ecosystems.
main pressure in terms of emissions into the atmosphere and
emissions
into water and agricultural
fertilizers all
this is operationally feasible and economically viable) that allow for
water consumption is attributed to the production of the
contribute to eutrophication. The result in aquatic systems
the reduction of the environmental impact of Group operations, in
The Group has set up a control and monitoring system that
latter. In the case of the distribution of new tyres and their use
is accelerated growth of algae, which does not allow sunlight
some cases even below statutory limits”.
allows the identification of the materiality of environmental
by customers, the impact derives from the fuel consumption
to penetrate the surface of the water basins. This reduces
1
3
2
The environmental management model adopted is detailed
infographic on the following pages shows Pirelli’s approach
absorbed by the rolling resistance of the tyres is allocated to
Low concentrations of oxygen may cause mass death of fish
impacts throughout the life cycle of the product: the
of vehicles (only the fuel consumption related to the power
photosynthesis and thus reduces the production of oxygen.
3
3
1
in the Group Policies: “Health, Safety and Environment”
to environmental management and the specific long-term
the customers). Finally, in the last phase of life considered, the
and anaerobic decomposition of organic material, seriously
Policy, “Product Stewardship” Policy, “Quality” Policy, “Social
targets defined in the Sustainability Plan, the 2017 performance
impact derives from the preparation of end-of-life products
compromising the entire ecosystem.
Responsibility Policy for Occupational Health, Safety and
of which is reported below in this report. In 2017, following the
for recovery thereof as energy or recycled raw material. With
Rights, and Environment”, “Green Sourcing” Policy, based on
change in the corporate scope, the Pirelli Group’s Footprint
reference to the Carbon Footprint, the infographic (see the
In terms of environmental materiality, the use phase of the
which Pirelli undertakes to:
was updated with respect to the new structure.
“Driver” part) also includes a breakdown of emissions in the
tyre is overall the most prevalent. In terms of economic
> assess and reduce the environmental impact of its own
three Scope categories provided by the GHG Protocol.
materiality, instead, the amount of corporate spending in
products and services throughout their entire life cycle,
As is readily apparent, the materiality of environmental
the manufacturing phase is the most relevant, which results
as of products and services purchased;
impacts is concentrated in the use phase of the tyre. As part
The central part of the
infographic shows the actual
in the opportunity to reduce impacts through investments
> develop products and production processes that are safe
of the Carbon Footprint, the use phase weighs 91.5% of total
quantification, in percentage terms, of the Carbon Footprint
in energy efficiency. In its response strategy, which may
and designed to minimize polluting emissions, waste
impacts along the entire life cycle of the tyre, compared to a
and Water Footprint.
generation, consumption of natural resources available
production phase that weighs 2.5% of total impacts.
be consulted in the lower part of the infographic and
corresponding to what is also stated in the Sustainability
and the causes of climate change, in order to preserve
These two aspects are summarised by four principal
Plan, Pirelli has adopted adequate management models for
the environment, biodiversity and ecosystems;
With regard to the impact on the water sector, the production
indicators: Primary Energy Demand (PED), Global Warming
the monitoring and managing of environmental issues, and
> manage its environmental activities in full compliance
phase of raw materials is the most relevant (46.8% of the
Potential (GWP), Water Depletion (WD) and Eutrophication
has also voluntarily adopted specific targets to reduce its
with applicable laws and in compliance with the highest
impact), followed by the product use phase (38.3% of the total).
Potential (EP). The values are calculated in GJ of energy, tons
impact in each phase of the product life cycle.
international standards;
> monitor and communicate to
its stakeholders the
The graph can be read either horizontally, following the stages
environmental performance associated with processes,
of life of a tyre one by one, or vertically, thus being able to
products and services throughout the entire life cycle,
appreciate the objectives of reducing the impacts that the
promoting its culture of environmental protection;
Company has defined for each of the different stages of life,
> monitor the environmental impacts of its suppliers by
which will be explored later in this chapter.
requesting them to adopt the same business model
along the related supply chain;
From a methodological point of view, these life cycle phases
>
support customers and end consumers in understanding
have been analysed using the Life Cycle Assessment, as
the environmental impacts of its products, informing
defined by the ISO 14040 family of standards. This method
them of the safest use and disposal methods, facilitating
is capable of validating the results and strategic decisions
of CO2 equivalent, cubic meters of water and kilograms of
phosphate equivalents.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain 1
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RAW MATERIALSMANUFACTURINGDISTRIBUTIONUSEEND OF LIFESTAGES OF LIFECYCLEDRIVERSIMPACT:CARBON & WATERFOOTPRINT*MATERIALITYRESPONSESTRATEGYSuppliersPirelliSuppliersCustomersWaste Recovery PlayersRaw materials production and transport: the impact is due to resources use by suppliers’ plantsTyre manufacturing: at Pirelli’s plants the impact comes mainly from electrici-ty and natural gas consumptionProduction and use of fuel by trucks and ships of logistics suppliers, delivering Pirelli tires worldwideProduction and consumption of the fuel of customers’ vehicles due to rolling resistance End of Life tyre management: old tyres are prepared by specialized companies to be reused as energy or as regenera-ted raw materialScope 3Scope 1+2+3Scope 3Scope 3Scope 3PED6.5GWP3.5WD46.8EP34.2PED3.0GWP2.5WD10.9EP1.9PED0.1GWP0.1WD<0.1EP<0.1PED89.9GWP91.5WD38.3EP63.7PED0.4GWP2.4WD3.9EP0.1EconomicHighEnvironmentalMediumEconomicHighEnvironmentalMediumEconomicMediumEnvironmentalLowEconomicHighEnvironmentalHighEconomicLOWEnvironmentalLowPRESENCE ON THE MAIN INTERNATIONALWORKING TABLES (WBCSD, ETRMA) to spread the culture of recoveryREGENERATED RAW MATERIALSResearch projects with universities in order to improve the quality of regenerated materials, with the aim of increasing their percentage portion of the new compoundsGREEN SOURCING POLICY-Green Logistic Procedure - Engagement to reduce Supply chain Carbon & Water FootprintRAW MATERIALS INNOVATION-Progressive introduction of new materials from renewable source- Biomaterials, such as high perfor-mance silica from renewable sources, biofillers such as lignin and plasticisers/resins of plant origin- Natural Rubber: search for alterna-tive sources- Functionalized Polymers: research on innovative polymers that guarantee reduced environmental impact, improved driving safety and improved production efficiencyGREEN PURCHASING GUIDELINES/GREEN SOURCING POLICYCDP SUPPLY CHAIN (2020 target: 90% response rate suppliers of Raw Materials)THIRD-PARTY AUDIT ON CRITICAL SUPPLIERSPRODUCT INNOVATIONTargets 2020 vs 2009:CYBER TECHNOLOGIES DEVELOPMENT - Pirelli ConnessoTM: an aftermarket platform that provides “connected” tyres to improve safety, monitor tyre status, create direct contact between Pirelli, the end user and the sales network, improving the quality of service.- OE platforms: thanks to the interaction with the car, the information that the tyre provides can influence its behaviour, improving safety and performance.- Cyber™ Fleet: modular solutions dedicated to fleet management.Rolling Resistance CAR -20%(-14% High Value Products*)Rolling Resistance MOTORCYCLE -10% GREEN PERFORMANCE REVENUESCar Products >50% of total revenues by 2020 (>65% High Value Products*) PROCESS EFFICIENCYTargets 2020 vs 2009:ISO 14001 AT ALL PRODUCTION PLANTSSCRAP REDUCTION PROGRAMSpecific withdrawal of water-66% Specific consumption of energy -19%Specific CO2 emissions-17% Waste Recovery>95% *High Value products are determined by rims equal or greater than 18 inches and, in addition, include all “Specialties” products (Run Flat, Self-Sealing, Noise Cancellation System)PED: Primary Energy DemandGWP: Global Warming PotentialWD: Water DepletionEP: Eutrophication Potential (Freshwater - Peq)**Values expressed as % of the impacts in the stages of the life cycleANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain RESEARCH AND DEVELOPMENT
OF RAW MATERIALS
The research and development of innovative materials are key
performance silica from processes that start from rice husk as
feedstock. The combustion of the carbonaceous part of husk
allows a reduction of more than 90% of the quantity of CO2
emitted per kg of silica compared to the conventional process,
to the design and fabrication of ever-more sustainable tyres
which instead exploits fossil energy sources.
that guarantee reduced environmental impact, during the use
and end-of-life phases, greater driving safety and production
Resins and plasticizers from renewable sources have been
efficiency.
introduced and the current grades are gradually extended to other
segments of tyres while the search for new grades continues.
Pirelli has activated several Joint Development Agreements
with leading suppliers for the study of new polymers that
Specific projects have been launched for the development
are able to further improve the characteristics of tyres for
of new materials from renewable sources focused mainly on
rolling resistance, low temperature performance, mileage
the use of waste feedstock as is done through the framework
and road grip.
agreement CORIMAV (Consortium for Research on Advanced
Materials) signed with the Bicocca University, which allows
In this regard, Pirelli Research & Development focuses, among
the evaluation of new oils from waste biomass.
other things, on:
> high-dispersion silica for wet grip, rolling resistance and
As part of new nanofillers, Pirelli has started to industrially
durability;
introduce materials of mineral origin in partial replacement
> biomaterials, such as silica from renewable sources, biofillers
of precipitated silica and carbon black. Compared to the
such as lignin and plasticisers/resins of plant origin;
production processes of the raw materials replaced, the
>
textile reinforcements with fibres from renewable sources;
aforementioned innovations have guaranteed water savings
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6
> nanofillers for more stable compounds, lighter structures
and highly impermeable liners;
> new silica surfactants to guarantee performance stability
and more than 75% of reduction in CO2 emissions, saving
respectively 1,000 tons of water and 450 tons of CO2.
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and processability;
In addition, in collaboration with Università degli Studi of
> vulcanisation agents and stabilisers with
reduced
Milan Bicocca and Politecnico of Milan, Pirelli is developing
environmental impact.
silica particles with an elongated shape that will allow to
further reduce fuel consumption.
The Joint Labs agreement (2017-2020) between Pirelli and
Politecnico of Milan, aimed at research and training in the
On research and development of raw materials with low
tyre industry covers nanotechnology, the development of
environmental impact, the Sustainability Plan foresees, for
new synthetic polymers, new bifunctional chemicals and new
specific product segments, the doubling of the weight of
biopolymers.
renewable materials used and the reduction by 30% of raw
materials derived from fossils by 2025 and compared with 2017.
Research continues aimed at diversifying the potential supply
sources of natural rubber, to reduce pressure on biodiversity
Further information on Pirelli’s Research & Development
in producer Countries and allow the Company to manage the
activities can be found in the “Directors’ Report on Operations”
potential scarcity of raw materials with greater flexibility,
of this Annual Report.
with further focus on raw material sustainability certified by
globally recognized organizations.
Remaining in the field of biomaterials, Pirelli also focused
on silica derived from rice husk. Rice husk is the outer shell
PRODUCT AND USE PHASE:
GREEN PERFORMANCE TARGETS
of wheat and constitutes 20% of raw rice by weight, which
In line with its position in the Premium and Prestige segments,
is the main waste of this crop and is available in extremely
Pirelli develops and introduces increasingly sophisticated
important quantities in many areas of the world where it is
products on the market, responding to a macroeconomic
still not valued but burned in the open without exploiting its
scenario in constant and rapid evolution. The major corporate
full potential. Thanks to a partnership with various producers,
investment in research and development on compounds,
Pirelli is evaluating the diversified procurement of high
structures and tread patterns allows Pirelli products to
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain achieve extremely high performance in terms of braking in dry and wet conditions and, at the same time, improved environmental
MOTORCYCLE
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;
>
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 2009 average, the average weighted rolling resistance of its products by 20% with
regard to Car tyres and 10% for Motorcycle products, as shown in the graphs below.
At the end of 2017 the average rolling resistance of CAR products shows a reduction of 15% compared to the average 2009.
CAR
GREEN AREA
SAFETY AREA
GREEN AREA
SAFETY AREA
Rolling Resistance
Reduction
Wet Performance
Weight Reduction
Braking
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Rolling Resistance
Reduction
Wet grip
Mileage
Predictability
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Weight Reduction
Dry grip
2009
2017
2020
Mileage
Noise Reduction
2009
2017
2020
Green Performance18 products include the CINTURATO P7™ 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 CINTURATO P7™ 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 CINTURATO P7™ tyres that runs 15,000 km a year
consumes 5.1% less fuel (equivalent to 52 litres), and reduces greenhouse gas emissions of 123.5 kilograms of CO2 and has a braking
distance on wet 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 tyre CINTURATO P7TM Blue reduces braking by 2.6 meters compared to
a tyre classified B. The CINTURATO P7™ Blue was developed for medium-high cylinder capacity cars, as a further evolution of the
CINTURATO P7™, famous Pirelli Green Performance tyre presented in 2009.
In 2017, Pirelli presented a new generation of CINTURATO P7™ Blue. Thanks to this evolution, the CINTURATO P7™ Blue is the world’s
tyre with the highest number of measures that boast double A of the European label.
18 Green Performance products identify the tyres that Pirelli produces throughout the world and that fall exclusively under rolling
resistance and wet skid resistance classes A, B, C according to the labelling parameters set by European legislation.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain This important result was achieved thanks to the technological
with respect to safety margins in emergency manoeuvring
protective materials for the tyre; new materials with low
the value is 92% (source: JATMA - Tyre Industry of Japan 2017),
evolution that in recent years has seen it protagonist. In fact,
such as panic braking.
environmental impact; molecular dynamics;
while in the US the amount of recovered tyres comes to 88%
the new tyre CINTURATO P7™ Blue has the characteristics
The internal tests indicated an improvement of up to 10% in low-
> Area of product development and CYBER™: noise;
(source: RMA - 2015 US Scrap Tyre Management).
of success of the previous generation and improves some
grip braking spaces (friction coefficient less than 0.5) compared
aquaplaning; aerodynamics of the tyre; development
performance, in line also with the development of the car
to the predecessor product ROADTEC™ Z8 INTERACT™.
of mathematical models that allow the chip contained
For years, Pirelli has been engaged in the management of ELTs.
sector, increasingly sensitive to sustainability issues. The
The main independent press tests confirmed the performance
in the CYBER TYRE™ to extract useful information for
The Company actively collaborates with the main reference
new generation of the CINTURATO P7™ Blue has a very low
leadership of the new product compared to its competitors.
intelligent vehicle control and the development of value-
entities at national and international level, promoting the
Rolling Resistance, resulting in savings in fuel costs and
reduced CO2 emissions, with benefit for the environment. At
the origin of this improvement is the Low Rolling Technology
Pirelli has also launched a new line of tyres dedicated to bikes:
Even before its renewal, the agreement led to important
promote the sustainable recovery of ELTs, shared with the
PZero™ Velo. “Perfect balance” is one of the key characteristics
results in terms of tyre performance, safety and sustainability,
various stakeholders and based on the Circular Economy model.
added services.
identification and development of solutions to enhance and
Package: a package that combines new construction
of the new tyres, characterized by optimal and balanced
thanks to the use of advanced materials. Research over the
In particular, Pirelli is active in the Tyre Industry Project
processes in the area especially of the belt and the use of the
performance, in terms of rolling resistance and wet grip,
past three years has focused mainly on the production and
(TIPG) of the World Business Council for Sustainable
latest internal materials. This package, developed at Pirelli’s
dry grip, manageability, puncture resistance and durability
functionalisation of carbonaceous fillers (from graphene, to
Development (WBCSD), in the ELT working group of ETRMA
most technologically advanced plant of Settimo Torinese, is
(intended not only as time durability, but above all as constant
nanotubes to carbon black); on the preparation of modified
(European Tyres and Rubber Manufacturers’ Association)
mainly based on a new control system for the various phases
performance over time). To meet similar design requirements,
silicate fibers; on the study of alternative natural rubber
and, at national and local level, it interacts directly with
of vulcanization, which allows measuring the ideal thermal
Pirelli researchers worked on three fronts - the shape and
sources up to the synthesis of innovative polymers and self-
leading organisations active in the recovery and recycling
input for the different materials, and on optimization of the
construction of the tyre, the tread pattern and the compound
repairing materials. Attention has also been paid to the
of ELTs.
area of 0 degrees and of the belt, for a better distribution of
- developing F1® and Superbike derivation technologies
disciplinary field of mechanics, where, since 2011, 12 research
As a member of TIPG, Pirelli Tyre has collaborated on the
pressure, which guarantees high performance and braking
as in the case of the design, or elaborating exclusive and
contracts have been activated in the CYBER TYRE™ and in
publication of a report on the management of ELTs, taking
safety in all conditions. One of the great results achieved by
innovative patents, as in the case of the compound. Pirelli has
the F1® field, with the study of tyre-asphalt interaction. One
a proactive approach to raising the awareness both within
Pirelli engineers was to reduce Rolling Resistance, through
in fact developed a new patent dedicated to the bike world:
area of particular interest was the study of low-noise tyres
emerging Countries and those that do not yet have a system
the adoption of a new generation of patented internal
SMARTNET™ Silica, a hi-tech molecule that allows maximum
(Silent Tyre project). In fact, innovative test methods have
for recycling ELTs, in order to promote their recycling and
materials, while maintaining high performance in terms of
performance, balanced on all fronts. It has been developed by
been applied for the indoor measurement of the acoustic field
reuse according to defined management models, which have
dry and wet grip and ensuring a high level of driving safety.
Pirelli chemical laboratories for exclusive cycling use.
generated by the rolling tyre.
already been launched successfully.
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The previous generation of the tyre CINTURATO P7™ Blue
has become a reference point for mid-high cylinder capacity
In 2017, Pirelli reorganized its CYBER™ technologies which,
sedan and coupè owners, earning 11 podiums in 14 tests in the
based on the introduction of sensors inside the tyre, will
international press (including 3 first places).
contribute in the future to providing information aimed at
MANAGEMENT OF END-OF-LIFE TYRES
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
The year 2017 also saw the approval for the new electric
monitoring the state of health of the tyre which, if maintained
has a low proportion of the total impact of the tyre on the
contributing to the reduction of the related environmental
SUV Jaguar e-Trophy (electric racing version of the I-Pace)
at the correct inflation pressure, can have a positive influence
environment, as already highlighted in the infographic related
impact. In order to increase this recovery rate, research
presented at the last Frankfurt Motor Show.
on fuel consumption and vehicle emissions.
to the Group’s environmental strategy.
activities continue aimed at improving the quality of recovered
Also in the field of high performance cars, attention to the
materials in terms of affinity with the other ingredients
increasing the safety or performance of vehicles, including
In terms of materiality, the end-of-life phase of the product
already reused by Pirelli in the compounds for new tyres, thus
environment has become a discriminating element with the
CYBER™ technologies are divided into products dedicated
In Europe, about 95% of end-of-life tyres (ELTs) are recovered
present in the compounds.
challenge of reducing Rolling Resistance while maintaining
to replacement (PIRELLI CONNESSO™), original equipment
(Source ETRMA 2015 ELT Management figures 2015), in Japan
performance at the level expected for this segment.
(CYBER CAR™ and CYBER TYRE™) as well as platforms
developed for fleet management (CYBER™ Fleet); some of these
As for motorcycles, we note the new METZELER ROADTEC™
solutions are expected to enter the market as early as 2018.
01 product line dedicated to the sport touring segment which,
in the motorcycle market, is among the most significant
Among the Open Innovation initiatives, we highlight the Joint
and demanding in terms of sales volumes and performance
Labs agreement between Pirelli and the Politecnico of Milan,
expectations, based on a very wide range of use from
created in 2011, aimed at research and training in the tyre
commuting to long-distance tourist cruising to the most
sector, in particular through the development of innovative
sporty applications of users who wish to broaden the spectrum
materials and technologies for sustainable and increasingly
of seasonal and environmental use of their vehicle.
safe mobility. The new phase of the three-year agreement
(2017-2020) focuses on two research macro-areas: the area
The focus of the new ROADTEC™ 01 product is mainly in the
of design of innovative materials and the area of product
drainage and wet grip areas, with important wet braking
development and CYBER™. In particular, the following are the
performance, especially on low grip surfaces: performance
thematic areas on which researchers will focus:
that we consider rewarding for its significant connotation
> New Materials: modification of polymers; nanofillers;
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain ENVIRONMENTAL
IMPACT OF PIRELLI’S
PRODUCTION SYSTEM
ENVIRONMENTAL MANAGEMENT
SYSTEM AND FACTORY’S
PERFORMANCE MONITORING
SCOPE OF REPORTING
The performances described concern the three years 2015-
Energy Management
Pirelli monitors, manages and reports its energy consumption
on energy management and use, as well as possible tariff
incentives. In this regard, there were no critical elements or
2016-2017 and cover the same scope of Group consolidation.
through three main indicators:
non-conformities.
> absolute consumption, measured in GJ, which includes the
Actions and investments for energy efficiency are alongside
Following the change in the industrial scope that took place
total consumption of electrical energy, thermal energy,
the assessment of environmental
impacts to economic
in 2017, which saw the exit of the Industrial Business Unit, the
natural gas and petroleum derivatives (fuel oil, gasoline,
sustainability criteria normally applied to all Pirelli projects.
historical values of the environmental indicators reported
diesel, and LPG);
The areas for technical action both concern the traditional
below for the years 2015 and 2016 were recalculated following
>
specific consumption, measured in GJ per ton of finished
themes applied to each industrial area, such as modernisation
the principles set out by the GRI in order to guarantee the
product, which indicates the energy used to produce one
of thermal insulation, maintenance of distribution plants, use
comparability of the data.
ton of finished product;
of technologies using inverters, and special projects assessed
>
specific consumption, as measured in GJ per euro of
according to the needs of each manufacturing site.
The amount of finished product in 2017 was approximately
Operating Income.
All the production sites of Pirelli Tyre, except for the plant
786,700 tons.
in Jiaozuo, and the tyre testing field in Vizzola Ticino have
The Sustainability Plan provides for a reduction of 19% of
installation continues of LED lighting systems (Light Emitting
In 2017, various interventions were made. In particular, the
Environmental Management Systems and are certified under
As noted above, the performance reported below in this
specific energy consumption by 2020 compared to 2009 values.
Diode) to replace less efficient systems. To speed up the
International Standard ISO 14001. The International Standard
chapter include the impacts of all the units of the Pirelli Group:
replacement plan, Pirelli also uses “Light Service” contracts,
ISO 14001 was adopted by Pirelli as a reference in 1997, and since
from industrial realities to commercial and administrative sites.
In the course of 2017, the energy efficiency plan continued
which guarantee both energy savings of more than 50% and
2014, all the certificates have been issued with international
accreditation ANAB (ANSI-ASQ National Accreditation Board:
accrediting entity of the United States).
TREND IN ENVIRONMENTAL
PERFORMANCE INDICES
at all Group plants, already initiated in recent years and
the quality of light achieved. Great attention was placed to
characterised by actions aimed at:
efficiency in the transformation of thermal energy and the
>
improving energy management
systems,
through
recovery of thermal waste for heating of premises. Excellent
measurement consumption and a daily focus on
results were achieved in reducing compressed air and steam
1
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2
In 2017, the Pirelli Tyre production sites began the transition
technical indicators;
losses both on machinery and on distribution lines, also as a
process of their Environmental Management System from
In terms of materiality of environmental impacts (Carbon and
> optimizing the procurement of energy resources, direct or
result of energy audit activities. In addition, the electrical
ISO 14001:2004 to the 2015 version. In the same year, for the
Water Footprint) of the tyre along the entire life cycle, the
indirect;
absorption measurements carried out on the individual
Jiaozuo plant activities were started for the implementation
production phase accounts for 2.5% of total emission impacts
>
improving the quality of energy transformation;
equipment have made it possible to correlate the specific
and certification of the Environmental Management System
and for 10.9% of total water consumption.
>
improving the efficiency of distribution plants;
consumption to production in greater detail, in order to
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1
according to the aforementioned ISO standard.
>
improving the efficiency of production plants;
optimize the operating conditions.
Group policy mandates implementation and certification in
The year 2017 saw a growth in production volumes: tons of
>
recovering energy for secondary uses;
accordance with ISO 14001. As such, it is also applied to new
finished product increased by around 4% compared to the
> applying targeted maintenance plans in order to reduce
The year 2017 recorded an improvement in the specific energy
facilities. The certification activity, together with control
previous year (value calculated on a comparable basis).
energy waste.
and maintenance of previously implemented and certified
index (weighted on tons of finished product) of about -4%
compared to 2016 and over -15% compared to 2009, the year
systems, is coordinated on a centralised basis by the Health,
The 2017 environmental performance indicators, calculated
With a view to Life Cycle Assessment, the specific consumption
on which the 2020 target is based.
Safety and Environment Department.
on tons of finished product, show a general improvement
of each production machinery is also mapped to increase the
The environmental, health and safety performance of every
recovery, water withdrawal and greenhouse gas emissions.
families and assess in detail the energy content of the different
of finished product volume compared to the previous year, in
tyre manufacturing site is monitored with the web-based
The same positive result of the indicators is also recorded for
families of products and sub-products.
2017, saved about 177,365 GJ, a contribution scalable from the
Health, Safety and Environment Data Management (HSE-
the indices referring to the operating result (compared to the
various energy sources used. This value was calculated for
DM) system, which is processed and managed centrally by the
value of EBIT Adjusted).
In terms of “compliance”, every industrial facility completely
each factory on the basis of the production volumes of the
Health, Safety and Environment Department. Pirelli has also
fulfils the indications of law regarding energy consumption and
reporting year and the change in efficiencies achieved in 2017
of all specific indices reported: energy consumption, waste
standard indicators of reference, compare similar machinery
The energy efficiency plan applied to factories and the increase
developed the CSR-DM (Corporate Social Responsibility Data
It is noted that the trend of the above indices will be significantly
management. The legislative situation affecting the Company
from the previous year.
Management), an IT system for managing Group Sustainability
impacted by the production focus adopted. Pirelli production
includes the introduction of periodic audit mechanisms
information, which is used to consolidate the environmental
is focused on Premium and Prestige tyres and production
and social performance of all Group business units worldwide.
processes are characterized by higher energy intensity, more
Both systems support consolidation of the performance
stringent quality specifications, more complex processing and
accounted for in this report.
smaller production batches compared to production processes
for medium-low end tyres. In the aforementioned context, the
reduction in indices is of strong environmental and economic
value, in terms of consumption and emissions avoided, unused
resources, and avoided costs.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain 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 consumption
Specific consumption
GJ
GJ/tonFP
GJ/k€
2015
2016
2017
10,340,097
10,604,897
10,591,117
13.79
13.45
14.00
12.57
13.46
12.08
The same 2017 figures, weighed in economic terms, show an improvement compared to the previous year.
11,000,000
10,000,000
9,000,000
8,000,000
7,000,000
6,000,000
14.20
14.00
13.80
13.60
13.40
13.20
16.00
15.00
14.00
13.00
12.00
11.00
Management of Greenhouse Gas Emissions and
Carbon Action Plan Pirelli monitors and reports its19
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
> >
Specific emission factors of suppliers where available;
> >
Residual-mix emission factors23 taken from RE-DISS
AIB (EU)24 and Green-e (US)25;
> >
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:
(under operational control) included in the scope of reporting
> GHG Protocol: A Corporate Accounting and Reporting
are collected annually through the CSR-DM IT system.
Standard;
> GHG Protocol Scope 2 Guidance.
Greenhouse gases are generated by the combustion of
hydrocarbons at production sites, mainly to operate heat
Regarding Scope 2 CO2eq emissions, the national average
coefficients are defined with respect to the last year available
generators that power Group plants, and particularly those
on the above reports. It must be pointed out that tyre
that produce steam for vulcanisers, or by the consumption
manufacturing industry is not carbon intensive: in fact, it
of electrical or thermal energy. The first are called “direct
is covered by the European Emission Trading Scheme only
emissions”, or Scope 1 emissions, insofar as they are produced
in reference to thermal plants having more than 20 MW of
at Company production sites, while the emissions resulting
installed power. The Company is not subject to other specific
from electrical power or thermal energy consumption are
regulations at the global level.
2015
2016
2017
2015
2016
2017
2015
2016
2017
defined as “indirect emissions”, or Scope 2 emissions insofar
Absolute consumption GJ
Specific consumption GJ/tonFP
Specific consumption GJ/k€
as they are not produced within the perimeter of company
As in the case of energy, Pirelli monitors and accounts for
production sites but at the plants that generate the energy
and steam purchased and consumed. The Scope 2 emissions are
its direct CO2 (Scope 1) and indirect (Scope 2) by using three
principal indicators:
reported in two separate ways: location-based and market-
> absolute emissions, as measured in tons;
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The graph below highlights the “Distribution of energy sources” used in Pirelli production process: among the direct sources, all of
based (methodology introduced with the “GHG Protocol
>
specific emissions, as measured in tons per ton of finished
non-renewable origin, which account for 29% of the total, are natural gas and, to a lesser extent, other liquid fuels such as oil, LPG
Scope 2 Guidance” guidelines). It is recalled that the Scope 3
product;
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and diesel (classified as “other”); the remaining 71% is formed from indirect sources such as electrical energy and steam purchased.
emissions, related to the specific activities of Pirelli Suppliers,
>
specific emissions, as measured in tons per euro of
Of the total electricity used by the Group, more than 43% derives from renewable sources (calculation based on IEA data) while for
Chain”, to which reference is made for further information.
steam, the portion generated by renewable sources corresponds to around 7% of the total.
Instead, reference is made to the Group Footprint infographics
The Pirelli management, calculation and reporting model of
are discussed in the paragraph “Our Suppliers”/”CDP Supply
Operating Income.
DISTRIBUTION OF ENERGY SOURCES
28%
Natural gas
42%
Electricity
29%
Steam purchased
1%
Other
for the representation of the impacts of Scope 3 of the various
GHG emissions was defined according to the ISO 14064 Standard
phases of the life cycle.
and the related data were subjected to specific limited audit, by
independent third party, according to ISAE 3000.
Performance as measured by energy and greenhouse gas
emissions is calculated on the basis of emission factors
According to the Guidelines of the GHG Protocol Guide, the
obtained from the following sources:
level of inventory uncertainty was evaluated as “Good”.
>
IPCC: Guidelines for National Greenhouse Gas Inventories
(2006)20;
> Within Scope 2 location-based:
> > National emission factors21 taken from IEA: CO2
The Sustainability Plan envisages a reduction in specific
emissions (on tons of finished product) of CO2 equal to -17%
by 2020 compared to 2009 values. At the time, the target was
Emissions from Fuel Combustion22;
developed according to the methodology in force, i.e. Scope 1
> Within Scope 2 market-based:
and Scope 2 location-based.
19 GHG inventory perimeter as indicated in the paragraph “Scope of Reporting”
20 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)
21 Emission factors expressed in CO2/kWh
22 2017 Publication with update to the 2015 figure
23 Emission factors expressed in CO2/kWh
24 2017 Publication with update to the 2016 figure
25 2017 Publication with update to the 2015 figure
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain
The following tables show the performance of the last three-year period.
The improvement in 2017 performance related to greenhouse gas emissions is associated with the energy efficiency measures
900,000
850,000
800,000
750,000
700,000
650,000
1.150
1.120
1.090
1.060
1.030
1.000
1.50
1.30
1.10
0.90
0.70
0.50
described in the previous paragraph and is closely linked to the “Carbon Action Plan” developed by Pirelli with the aim of increasingly
resorting to renewable energy sources through specific projects. These include:
>
the cogeneration plant for the production of electricity, steam and hot water, present at the plant in Settimo Torinese (Italy).
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 supply of thermal energy from renewable sources;
>
the supply of steam generated by biomass plant, fuelled with waste wood from local supply chains, activated for the plant in
2015
2016
2017
2015
2016
2017
2015
2016
2017
Campinas (Brazil). In the year 2017, this initiative has allowed replacing more than 59 GWh of energy from fossil sources, for a
Absolute emissions tonCO2
Specific emissions tonCO2/tonFP
Specific emissions tonCO2/k€
savings in terms of CO2 emissions avoided of more than 11,000 tons (Scope 2). In consideration of the obvious environmental
benefits of this technology, Pirelli is considering extending the project to other plants in Brazil;
>
the procurement of electrical energy from renewable sources at the plant in Silao (Mexico). In 2017, the agreement continued
In 2017, Pirelli recorded a reduction in specific emissions (weighted on tons of finished product) of more than -4% compared to 2016
for the dedicated supply of 3 MW electrical generated from wind sources, to cover nearly 30% of electrical consumption of the
and more than -9% compared to 2009, the year on which the 2020 target is based.
production unit, with economic advantages with respect to the purchase of energy from the national grid. The annual savings
As regards biogenic CO2 generated from the small production facility of silica from rice husk, Pirelli emitted in 2017 about 1,388 tons
of CO2eq. This quantity is not counted in the Group’s absolute emissions mentioned above, as originated from biogenic fuel.
>
the procurement of electrical energy from renewable sources at the plant in Slatina (Romania). In the year 2017, the portion of
electricity certified from renewable sources exceeded 75% of the electricity consumption of the production site, for an annual
in terms of emissions of CO2 avoided was about 12,000 tons (Scope 2).
savings in terms of CO2 emissions of about 48,000 tons (Scope 2).
The portion of indirect emissions generated by the projects implemented in Silao (Mexico), Slatina (Romania) and Campinas (Brazil)
- described below - was reported as prescribed by the Guidelines of the GHG Protocol, respectively for the procurement of electrical
energy from renewable sources and steam from biomass.
The following table reports absolute and specific emissions distinguishing between “location-based” and “market-based”
1
4
6
methodology for Scope 2.
GHG EMISSIONS ACCORDING TO SCOPE
2015
2016
2017
Water Management Pirelli monitors the “Water Footprint” along the life cycle of the product (as extensively explained earlier in
this chapter) and tyre manufacturing is the third most influential phase.
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
7
4
1
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
Absolute emissions (Scope 1 and 2 location-based)
Scope 1
Scope 2 (location-based)
Scope 2 (market-based)
Specific emissions (Scope 1 and 2 location-based)
ton
ton
ton
ton
ton/tonFP
ton/k€
835,656
818,082
815,249
Sustainable Development).
180,633
171,281
175,347
655,023
646,801
639,902
733,262
719,396
659,145
1.115
1.09
1.080
0.97
1.036
0.93
The Sustainability Plan set a reduction target of specific withdrawal of water of -66% by 2020 compared to the 2009 value.
The year 2017 recorded absolute withdrawal of about 8.3 million cubic meters, with a reduction of specific withdrawal of 14%
compared to 2016 and of 62% compared to 2009.
Thanks to the actions implemented, since 2009, Pirelli has saved about 60 million cubic meters of water: an amount equivalent to
the absolute withdrawal of about seven years of the entire Group.
The following infographic highlights the weight of direct emissions (Scope 1) and indirect emissions (Scope 2 location-based) of the
To provide an overall view of the performance in terms of water withdrawal year on year, the following tables report the indicators:
total absolute emissions of Pirelli.
> absolute withdrawal, measured in cubic metres, which indicates the total uptake of water by the Group;
DISTRIBUTION OF GREENHOUSE GAS EMISSIONS ACCORDING TO SCOPE
>
specific withdrawal, measured in cubic metres 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 metres per euro of Operating Income.
22%
Scope 1
78%
Scope 2
Absolute Withdrawal
Specific Withdrawal
m3
m3/tonFP
m3/k€
2015
2016
2017
9,887,000
9,279,000
8,310,000
13.2
12.9
12.2
11.0
10.6
9.5
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain 11,000,000
10,000,000
9,000,000
8,000,000
7,000,000
6,000,000
14.0
13.0
12.0
11.0
10.0
9.0
8.0
14.0
13.0
12.0
11.0
10.0
9.0
8.0
2015
2016
2017
2015
2016
2017
2015
2016
2017
Absolute Withdrawal m3
Specific Withdrawal m3/tonFP
Specific Withdrawal m3/k€
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 Sustainability Plan requires more than 95% of waste produced to be sent for recovery by 2020, with Zero Waste to Landfill vision.
All the figures reported in this section have been collected by taking direct or indirect measurements, and are communicated by
In 2017, 93% of waste sent for recovery was reached, with an increase of one percentage point compared to the previous year and
the local units. The following two graphs show the distribution of absolute withdrawals by type of use and water supply weight
an increase of 24% compared to 2009, base year of reference. Specific waste production stood at 140 kg per ton of finished product.
by type of source.
Hazardous wastes represent 10% of total production and are sent in their entirety to plants located in the same Country where they
are produced.
DISTRIBUTION OF WITHDRAWALS BY USE
TYPE OF WATER SUORCES
WASTE BY TYPE OF TREATMENT
WASTE BY TYPE - 2017
22%
100%
1
4
8
2%
Offices
6%
Other sites
(warehouses,logistc,etc.)
92%
Tyre production
sites
Type of Water Sources (m3)
Public water supply system and other sources
Surface water
Internal wells
Total
Public water supply system
and other sources
13%
Surface water
65%
Inside wells
1,819,000
1,047,000
5,444,000
8,310,000
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
8%
8%
7%
92%
92%
93%
2015
2016
2017
Landfill or incineration without energy recovery
Recovery (including: material recovery, energy recovery,
recycling and reuse)
About 65% of the water withdrawn is pumped from wells inside the facilities and authorized by the competent authorities.
Furthermore, Pirelli obtains 13% 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%). The volume of water emitted
from water bodies located in protected areas is completely marginal, being equal to 2,300 cubic meters. Lastly, about 164,000 cubic
metres of water used, equivalent to approximately 3% of total withdrawal, are obtained from the waste water treatment of its
The graphs below detail waste production through three main indicators:
production processes.
> absolute production, as measured in tons;
>
specific production, as measured in kilograms per ton of finished product;
A total of about 6.2 million cubic metres of domestic and industrial waste water were discharged, with 58% of this into surface
>
specific production, as measured in kilograms per euro of Operating Income.
water bodies, always in quantities that are marginal (less than 5%) in relation to the volume of the receiving bodies 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
Absolute production
production facilities, indicative average values are: 10 mg/l of BOD5 (Biochemical Oxygen Demand), 43 mg/l of COD (Chemical
Oxygen Demand) and 13 mg/l of Total Suspended Solids.
Specific production
ton
kg/tonFP
kg/k€
2015
2016
2017
98,800
102,000
110,100
132
128
135
121
140
126
2%
Hazardous Waste
Not Recovered
8%
Hazardous Waste
Recovered
5%
Non-Hazardous Waste
Not Recovered
85%
Non-Hazardous Waste
Recovered
9
4
1
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain 120,000
110,000
100,000
90,000
80,000
70,000
150
145
140
135
130
125
200
180
160
140
120
100
environmental impact and support environmental protection projects. The cars of the Italian company’s fleet in 2016 issued 1,089
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.
2015
2016
2017
2015
2016
2017
2015
2016
2017
The first project, carried out in Turkey, consists in the construction and management of a wind farm of over 30 MWp, which allows
Absolute Production ton
Specific Production kg/tonFP
Specific Production kg/k€
producing and feeding electricity from renewable sources, avoiding at the same time emission into the atmosphere of climate-
altering gases generated by the use of fossil fuels.
Other Environmental Aspects
Solvents
Solvents are used as ingredients in processing, mainly to reactivate vulcanised rubber, during the fabrication and finishing of tyres.
The second project, carried out in collaboration with the Municipality of Passerano Marmorito, supports sustainable forest
management activities on a wooded area of about 11 hectares in the province of Asti. The planned silviculture interventions, which
affect about 17,000 plants, have the effect of removing carbon dioxide portions from the atmosphere. The activities financed with
Pirelli’s contribution will be carried out in 2018. The union of the two projects has allowed the decrease of portion of about 150%
Pirelli is committed to the progressive reduction of these substances, both by optimising their use, and by spreading solvent-free
of emissions generated by company cars in 2016, thus going well beyond what is required by the policy with a view to increasing
technologies for operations that may be performed even without their use. This resulted in a further reduction in the specific
environmental responsibility.
consumption of solvents of about 10% at the end of 2017 compared to the previous year and of about 60% compared to 2009, with
related VOC (Volatile Organic Compound) emission slightly lower than total consumption.
NOx emissions
NOx emissions derive directly from the energy-generating processes used. In 2017, the index based on tons of finished product
decreased by 9% compared to 2016. Emissions were calculated by applying the emission factors indicated by the EEA (European
2015
2016
2017
Environment Agency) to the energy consumption data.
Absolute consumption
Specific consumption
tonSOLV
kgSOLV/tonFP
1,183
1.6
1,087
1.4
1,018
1.3
1
5
0
1,300
1,200
1,100
1,000
900
800
700
1.7
1.6
1.5
1.4
1.3
1.2
1.1
2015
2016
2017
2015
2016
2017
Absolute consumption tonSOLV
Specific consumption KgSOLV/tonFP
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, the only Pirelli facility located within a protected and high value area for
Absolute emissions
Specific emissions
tonNOX
kgNOX/tonFP
935
1.25
945
1.25
893
1.13
1
5
1
2015
2016
2017
960
940
920
900
880
860
1.30
1.25
1.20
1.15
1.10
1.05
2015
2016
2017
2015
2016
2017
Absolute emissions tonNOx
Specific emissions kgNOx/tonFP
biodiversity is the facility in Vizzola Ticino (Italy). The Vizzola Ticino site contains the tyre test track, has an area of 0.37 square
The following graph shows the 2017 weight of direct and indirect NOX emissions out of total NOX emissions.
kilometres and is part of the area of Parco del Ticino in Lombardy, UNESCO MAB area (Man and Biosphere, a collection of 669
biosphere reserves located in 120 countries around the world). It features 23 species included on the IUCN (International Union for the
Conservation of Nature) Red List, of which: 17 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. In 2016, a campaign to monitor air quality was carried
out, which highlighted the substantial negligence of the impacts of the activity compared to the context in which the Vizzola test
track is inserted.
In 2017, Pirelli continued in the compensation project of CO2 emissions produced the previous year by its fleet of company cars, by
purchasing carbon credits. Direct result of the Pirelli car policy, this initiative aims to promote the choice of vehicles that have lower
DISTRIBUTION OF NOx EMISSIONS
28%
Direct
72%
Indirect
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain Other emissions and environmental aspects
The production process does not directly use substances that
Expenses and Investments In the three-year period
the
2015-2017, environmental expenditure
related
to
are harmful to the ozone layer. These are instead contained
production process exceeded Euro 35 million, of which about
in certain closed circuits of the cooling and air conditioning
36% was allocated in 2017. Of this amount, 96% concerned
plants. Therefore, except for accidental and unforeseeable
normal management and administration of factories, while
losses, there are no free emissions into the atmosphere that
the remaining 4% was dedicated to preventive measures and
SOCIAL DIMENSION
HUMAN RIGHTS GOVERNANCE
To identify, assess, prevent and mitigate the risks of violation
of Human Rights, the Company:
> ensures awareness among
its employees through
information and training starting from the course
for new recruits (in this regard, reference is made to
the paragraph “Focus: Training on Sustainability and
can be correlated with Pirelli manufacturing activities. In
improvement in environmental management.
Pirelli bases its activities on compliance with the universally
Corporate Governance” in this report);
2017, direct emissions of SOX, caused by the combustion
established Human Rights, as fundamental and indispensable
> manages its supply chain responsibly and specifically includes
of diesel and fuel oil, was estimated to be about 19 tons
Lastly, it is noted that, consistent with the materiality analysis
values of its culture and business strategy, working to manage
respect for human rights in the selection parameters of its
(EEA - European Environment Agency emission factors). As
at the beginning of this section of the report, the most
and reduce potential risks of violations and in order to avoid
suppliers, the contractual clauses and verifications carried
regards the management of packaging, tyres are generally
significant expenses that Pirelli dedicates to the environment
causing – or contributing to causing – adverse impacts to
out by third-party audits. Pirelli also requires its suppliers to
sold without packaging. The environmental management
are those relating to product Research & Development: in
these rights in the international, multi-racial, socially and
implement a similar business model on their supply chain,
systems implemented at the production units have assured
2017, the Company invested Euro 221.5 million in research and
economically diverse context in which it operates.
including adequate due diligence aimed at certifying that
constant and prompt monitoring and intervention regarding
innovation of its products, with a constant focus on safety
the products and materials provided to Pirelli are “conflict
potential emergency situations that may arise, as well as
performance and reduction of environmental impacts and,
The Company promotes respect for Human Rights and
free” throughout the supply chain. With specific reference
the reports received from stakeholders. During 2017, 3 spills
simultaneously, production efficiency.
adherence to international standards applicable at its Partners
to the natural rubber context, Pirelli promotes decent
of hydrocarbons occurred at the sites of Merlo (Argentina),
and Stakeholders and informs its governance to the Global
working conditions, development of local communities
Silao (Mexico) and Breuberg (Germany). All spills, of which no
In addition to the above, during the year, the Company started
Compact of the United Nations, to the ISO 26000 Guidelines,
and prevention of conflicts related to land ownership;
more than one cubic meter of spilled volume, were promptly
a process to refine the methodologies to track the “green”
to the dictates of the SA8000® Standard and underlying
>
is open to cooperation with governmental and non-
resolved in consultation with the competent authorities,
portion of investments, in order to promote the choice of
international standards, and the recommendations contained
governmental, sectoral and academic entities in relation
without entailing the payment of significant penalties.
alternatives with lower environmental impact. In support of
in the UN Guiding Principles for Business and Human Rights,
to the development of global policies and principles aimed
Furthermore, there were no significant complaints related to
this activity, in 2017, a first Internal Carbon Price model was
implementing the Protect, Respect and Remedy Framework.
at protecting human rights;
1
5
2
environmental issues, nor any related sanctions.
developed for the economic quantification of the impacts
> before investing in a specific market, conducts ad hoc
3
5
1
associated with GHG emissions for some selected projects
The human rights management processes are handled by the
assessments of any political, financial, environmental
(currently being tested).
Pirelli Sustainability & Risk Governance Department, which
and social risks, including those related to the respect
acts in concert with the affected and responsible functions,
of human and labour rights. The internal and external
central and in the various Countries, with reference to both
context is monitored in those Countries where the
the Internal and External Community.
Company does operate, in view of preventing negative
impacts on human rights in the ambit of the sphere of
Pirelli’s commitment to human rights is covered extensively
corporate influence, and if so, remedying them;
in the Group “Global Human Rights” Policy, as well as in “The
> provides its Stakeholders with a dedicated channel for
Values and Ethical Code”, in the “Social Responsibility Policy
reports, also anonymous, of any situations that constitute
for Occupational Health, Safety and Rights, and Environment”,
or may constitute a risk of violation of Human Rights
in the “Global Health, Safety and Environment” Policy, in the
(“Whistleblowing Policy - Group Reporting Procedure”
“Privacy” Policy, in the “Equal Opportunities Statement” and
published on Pirelli’s website). A paragraph in this report
in the “Sustainable Natural Rubber Policy”. These documents
is dedicated to the “Whistleblowing Report Procedure”,
were communicated to employees in the local language and
to which reference is made for further information on
are published on Pirelli’s website in multiple languages.
reports received in the last three years.
In particular, Pirelli’s “Global Human Rights” Policy describes
In terms of materiality in the corporate value chain, the
the management model adopted by the Company in respect of
respect for human rights and labour rights assumes particular
core Rights and Values such as occupational health and safety,
importance
in human resources and the supply chain
non-discrimination, freedom of association, refusal of forced
management.
labour, guarantee of decent work conditions in economic and
sustainable terms and in terms of working hours, protection
The management of human and labour rights in the Internal
of rights and values of local communities, refusal of any form
Community at Pirelli
is outlined
in the paragraph on
of corruption, protection of privacy.
“Compliance with statutory and contractual obligations in
terms of overtime, leave, association and bargaining, equal
opportunities and non-discrimination, prohibition of child and
forced labour”, to which reference is made for related details.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain The management of human rights in the supply chain is
and in the relative supply chain, the survey was submitted to the
reported in the section “Our Suppliers” of this report, to which
function managers and sustainability managers, while for the
reference is made for more details.
perception of risk in the external context of Pirelli, the survey
INTERNAL COMMUNITY
In 2017, with the support of the Sustainability Managers of the
and to the local non-governmental organizations of reference.
for years has been the reference tool for the Group’s social responsibility management, and the ISO 26000 Guidelines. This results
Industrial Countries where Pirelli operates and the reference
in Values and in the specific commitments that the Company states in the “Ethical Code”, in the “Global Human Rights” Policy, in
local NGOs, Pirelli performed an analysis of the risk of violation
The consolidation of the feedback received from the Pirelli
the “Health, Safety and Environment” Policy, in the “Social Responsibility Policy for Occupational Health, Safety and Rights, and
of human rights within Pirelli sites, in the related supply chain,
operating sites, with reference to the internal risk of the Pirelli
Environment” and in the “Equal Opportunities Statement”, communicated to all employees in the local language and made available
and in the local context outside Pirelli.
sites and in the related supply chain, did not reveal any significant
to all stakeholders in the Sustainability section of the website www.pirelli.com.
was submitted to both the aforementioned Pirelli functions
The Human Capital Sustainable Management Model is inspired by the Global Compact principles, the SA8000® Standard, which
The analysis was carried out through a survey that required
to indicate a perceived risk value on a scale from 0 to 3 (0
The consolidation of the feedback received from the Non-
= no risk, 1 = low risk, 2 = medium risk and 3 = high risk), all
Governmental Organizations, with reference to the risk
risks perceived (on average, a perception of less than 1).
PIRELLI EMPLOYEES AROUND THE WORLD
compared to 35 internationally recognized human rights, as
perceived in the local context outside Pirelli, showed, on
Pirelli employees at December 31, 2017 - expressed in Full Time Equivalent - amounted to 30,189 resources (vs. 29,787 in 2016) recording
stemming from the United Nations Universal Convention
average, risks between 0.08 and 1.85, with greater recurrence
a net growth of 402 resources compared to the previous year.
on Human Rights and the ILO Declaration on Fundamental
within Countries, regarding the Right to equal pay for the
Principles and Rights at Work.
same work, Right to decent remuneration, Right to a safe
With regard to the perception of internal risk at the Pirelli sites
working environment and Freedom from discrimination.
BREAKDOWN OF EMPLOYEES BY CATEGORY
1
5
4
2017
2016
2017 VS 2016
Executives
White collars
Blue collars
Total
283
279
4
6,486
6,375
111
23,420
23,134
287
30,189
29,787
402
5
5
1
PERCENTAGE OF EMPLOYEES BY CATEGORY, GENDER AND AGE
2017
Executive
Cadre
Staff
Blue Collar
Total
M
0%
50%
50%
F
tot
0%
66%
34%
0%
51%
49%
M
3%
66%
31%
F
tot
M
F
tot
M
F
tot
M
F
tot
3%
77%
19%
3%
68%
28%
24%
61%
15%
32%
54%
14%
27%
59%
15%
30%
57%
12%
31%
61%
8%
31%
58%
12%
28%
58%
14%
29%
60%
11%
28%
58%
14%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2016
Executive
Cadre
Staff
Blue Collar
Total
M
0%
52%
48%
F
tot
0%
59%
41%
0%
53%
47%
M
3%
67%
30%
F
tot
M
F
tot
M
F
tot
M
F
tot
3%
77%
20%
3%
69%
28%
24%
60%
16%
33%
53%
15%
27%
57%
15%
31%
56%
13%
29%
62%
8%
31%
57%
12%
28%
57%
14%
28%
60%
12%
28%
58%
14%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
<30
30 - 50
>50
Tot
<30
30 - 50
>50
Tot
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain
BREAKDOWN OF EMPLOYEES BY GEOGRAPHIC AREA* AND GENDER
% PART TIME, BY GENDER
EUROPE
NAFTA
SOUTH AMERICA
MEA
ASIA PACIFIC
TOTAL
EUROPE
NAFTA
SOUTH AMERICA
MEA
ASIA PACIFIC
TOTAL
EUROPE
NAFTA
SOUTH AMERICA
MEA
ASIA PACIFIC
TOTAL
1
5
6
2017
2016
Male
Female
Total
Male
2017
Female
Total
Male
2016
Female
Total
12,670
2,338
15,008
0.7%
3.9%
1.2%
0.8%
4.1%
1.3%
2,120
7,168
517
3,339
499
671
44
823
2,619
7,839
561
4,162
25,814
4,375
30,189
Male
Female
Total
12,416
2,341
14,757
1,744
6,870
529
3,913
334
627
52
961
2,078
7,497
581
4,874
25,472
4,315
29,787
*: 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: South Africa, Turkey.
Asia Pacific: Australia, China, Japan, Singapore, Taiwan.
Employee 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 GEOGRAPHIC AREA*
EUROPE
NAFTA
SOUTH AMERICA
MEA
ASIA PACIFIC
TOTAL
2017
2016
Incoming
Outgoing
Incoming
Outgoing
2,144
1,371
1,566
106
465
5,652
1,830
809
1,199
96
1,136
5,070
1,840
1,117
1,190
149
309
1,633
756
1,360
102
288
4,605
4,139
7
5
1
2017 vs 2016
Male
Female
Total
2017 EMPLOYEE FLOWS BY GEOGRAPHIC AREA*, GENDER AND AGE: TOTAL VALUES
254
376
298
-12
-574
342
-3
165
44
-8
-138
60
251
541
342
-20
-712
402
INCOMING
OUTGOING
<30
30 - 50
>50
Male
Female
<30
30 - 50
>50
Male
Female
EUROPE
NAFTA
SOUTH AMERICA
MEA
ASIA PACIFIC
1,196
934
702
80
296
822
420
836
26
164
126
1,773
17
28
0
5
1,044
1,369
103
391
371
327
197
3
74
580
555
397
61
497
822
243
680
32
628
428
11
122
3
11
1,433
655
1,053
92
931
397
154
146
4
205
906
BREAKDOWN OF EMPLOYEES BY GEOGRAPHIC AREA* AND BY CONTRACT
TOTAL
3,208
2,268
176
4,680
972
2,090
2,405
575
4,164
2017
2016
Permanent
Temporary
Agency
Total
Permanent
Temporary
Agency
Total
EUROPE
NAFTA
SOUTH AMERICA
MEA
ASIA PACIFIC
13,999
2,599
7,469
560
4,138
990
0
370
1
24
20
20
1
0
0
15,008
13,577
1,153
2,619
7,839
561
2,055
7,225
574
4,162
4,867
0
257
7
7
TOTAL
28,765
1,384
41
30,189
28,298
1,424
27
23
16
0
0
66
14,757
2,078
7,498
581
4,874
29,787
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain
2017 EMPLOYEE FLOWS BY GEOGRAPHIC AREA*, GENDER AND AGE: PERCENTAGE VALUES
INCOMING
OUTGOING
As for emerging markets (Countries where Pirelli operates,
The survey is conducted as part of the annual “My Voice”
internationally defined as “emerging”, namely Romania,
climate survey, conducted in the local language at Group
Russia, Argentina, Brazil, Chile, Colombia, Mexico, Venezuela,
level (reference is made to the dedicated paragraph in
<30
30 - 50
>50
Male
Female
<30
30 - 50
>50
Male
Female
Egypt, Turkey, China), in addition to the acquisition of the
this report). The results of the survey, conducted in late
EUROPE
NAFTA
SOUTH AMERICA
MEA
ASIA PACIFIC
TOTAL
56%
68%
45%
75%
64%
57%
38%
31%
53%
25%
35%
40%
6%
1%
2%
0%
1%
3%
83%
76%
87%
97%
84%
83%
17%
24%
13%
3%
16%
17%
32%
69%
33%
64%
44%
41%
45%
30%
57%
33%
55%
47%
23%
1%
10%
3%
1%
11%
78%
81%
88%
96%
82%
82%
22%
19%
12%
4%
18%
18%
2016 EMPLOYEE FLOWS BY GEOGRAPHIC AREA*, GENDER AND AGE: TOTAL VALUES
INCOMING
OUTGOING
<30
30 - 50
>50
Male
Female
<30
30 - 50
>50
Male
Female
EUROPE
NAFTA
SOUTH AMERICA
MEA
ASIA PACIFIC
1,095
829
630
102
211
688
283
546
43
98
58
5
14
4
0
1,543
939
1,102
121
255
297
178
88
28
54
618
563
476
66
169
670
191
774
31
116
346
1,296
2
630
110
1,208
5
3
99
213
337
126
152
3
75
TOTAL
2,867
1,658
81
3,960
645
1,891
1,782
466
3,446
692
1
5
8
2016 EMPLOYEE FLOWS BY GEOGRAPHIC AREA*, GENDER AND AGE: PERCENTAGE VALUES
Chinese facility of Jiaozuo, the Company increased the number
2016, as every year have been particularly appreciable
of employees mainly in Romania and Mexico, acting on the
with regard to the perception of respect and management
organisation and production processes in line with market
of Diversities, which remains a distinctive feature of the
requirements and in Brazil mainly at the Campinas plant for
corporate culture of Pirelli. The results of the survey carried
the change of work scheme. As for Brazil, the reorganization
out at the end of 2016 were communicated to employees in
process of the production structure continued and led to a
the first half of 2017, the next survey will be carried out in
downsizing of the workforce especially in the plants of Santo
the spring of 2018.
André and Bahia following the crisis situation of the country
and the related negative impact in the Tyre sector. As for
A functional tool for the management of equal opportunities
China, in addition to the growth of Consumer activities was
and the prevention of risk of breach thereof is the Group
the deconsolidation of activities related to the production and
Whistleblowing Procedure,
through which employees,
sale of Truck products in October 2017.
suppliers and the External Community can anonymously report
Pirelli does not employ anyone under the age of 15. There are
for cases that could be linked to discriminatory attitudes, for
48 young people aged between 15 and 18 (13 in Brazil, 20 in
which the Company took action intervening in one case with
Germany, 1 in the UK, 11 in Switzerland and 3 in Sweden), each
disciplinary sanction and in the other case with dismissal.
any suspected violation. In 2017, 2 reports were ascertained
for training and integration plans, in harmony with local laws.
DIVERSITY MANAGEMENT
For further information on reports received in 2017, 2016 and
2015, reference is made to the paragraph “Focus: Reporting
Procedure – Whistleblowing Policy”.
9
5
1
Pirelli is characterised by a multinational context where
Internationality and multiculturalism are the characteristic
individuals manifest a great diversity, whose conscious
elements of the Group: Pirelli operates in over 160 Countries
management simultaneously creates a competitive advantage
on five continents, and 89.5% of employees (at December 31,
for the Company and a shared social value. Pirelli’s commitment
2017) worked outside of Italy.
INCOMING
OUTGOING
to compliance with equal opportunities and the enhancement
EUROPE
NAFTA
SOUTH AMERICA
MEA
ASIA PACIFIC
TOTAL
<30
30 - 50
>50
Male
Female
<30
30 - 50
>50
Male
Female
59%
74%
53%
68%
68%
62%
37%
25%
46%
29%
32%
36%
3%
0%
1%
3%
0%
2%
84%
84%
93%
81%
83%
86%
16%
16%
7%
19%
17%
14%
38%
74%
35%
65%
59%
46%
41%
25%
57%
30%
40%
43%
21%
0%
8%
5%
1%
11%
79%
83%
89%
97%
74%
83%
21%
17%
11%
3%
26%
17%
*: 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: South Africa, Turkey.
Asia Pacific: Australia, China, Japan, Singapore, Taiwan.
of diversity in the workplace is expressed in the main Group
Awareness of the cultural differences that create the identity
Sustainability documents: the “Ethical Code” approved by
of the Company entails displaying the utmost confidence in
the Board of Directors, the “Social Responsibility Policy
management of local origin: 79% of Senior Managers work
for Occupational Health, Safety and Rights, Environment”
in their country of origin, where Senior Managers are those
and the “Equal Opportunities Statement”, both signed by
reporting directly to the Chairman and CEO as at December
the Chairman. These documents have been distributed to
31, 2017. In order to develop the innovative and managerial
all employees in their local language and published on the
potential inherent in multiculturalism and in dealings with
institutional website www.pirelli.com/Sustainability.
different professional environments, the Company promotes
While respecting the cultural differences of the individual
of active Senior Managers in 2017 have in fact experienced at
Countries, what necessarily unites all Pirelli affiliates in the
least one inter-company assignment during their professional
same culture are its shared corporate values, policies and
experience within the Pirelli Group. Moreover, at the end of
rules, which are applied at Group level and communicated in
2017, 13% of managers on foreign assignment were women.
the growth of its managers through international mobility: 53%
the local language.
During the year, the Company operated internationally to rebalance the employment level aligning it to the needs of volume related
For the composition of the Corporate Bodies by gender and the
to high market volatility, obtaining a positive occupational balance compared to 2016.
The training course on Diversity has been part of the Group’s
Diversity Policy reference is made to the “Report on Corporate
training offer for years.
Governance and Ownership Structure 2017” in this Annual
In mature Countries (Countries where Pirelli operates, internationally defined as “mature” or “non-emerging” markets), in Italy,
Report, paragraphs “Sustainability and Diversity Policies”,
there was the strengthening of HQ structures mainly in the areas dedicated to research and development.
Pirelli monitors the level of acceptance and appreciation of
“Board of Directors - Composition” and “Board of Statutory
diversity perceived by employees within their own reality.
Auditors-Composition”.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain
Below is a breakdown of employees by gender, expressed as the percentage weight of women against the total number of
The average of pay differentials between men and women
differential between men and women has been calculated.
employees in each job category, with reference to the two-year period 2016-2017, the data shown in the following table show
recorded in these countries is equivalent to 3% in favour of
The average, weighted by number of headcount, showed a
substantial stability in 2017 compared to 2016, with a percentage of women of 14.5% of the total population. Instead, the percentage
women for white collars, compared with 2% in 2016 and 1% in
remuneration differential of 3% in favour of women.
of women in relation to managerial positions rose from 20.6% in 2016 to 21.6% in 2017, mainly due to the growth recorded in the
2015 also in favour of women; instead, it is equal to 1% in favour
population of middle management, an important element since the category constitutes an area for growth and development for
of men for managers, in line with 2016 and compared with 5%
In particular:
managerial positions.
in 2015 also in favour of men.
> China shows a 9% remuneration differential in favour of
EMPLOYEES BY GENDER AND CATEGORY
YEAR
2017
2016
EXECUTIVES
CADRE
EXECUTIVES+
CADRE
(TOT MANAGERS)
WHITE COLLARS
BLUE COLLARS
TOTAL
10.3%
10.0%
23.3%
22.3%
21.6%
20.6%
33.6%
33.8%
10.1%
10.1%
14.5%
14.5%
A few examples:
men, due to both organisational roles and professional
seniority, at the moment on average in favour of the men
>
Italy, which has an difference between average
population;
remuneration for men and average remuneration for
>
in Italy there is 4% in favour of men;
women of around 3% in favour of women for the category
>
in Romania, instead, there is a 2% remuneration differential
of white collars (compared to 1% in 2016 in favour of
in favour of women.
women and 13% in favour of men in 2015) and 1% also in
In the various markets, the “professional seniority” factor, still
favour of women for the category of managers (2% in 2016
on average of benefit of men, continues to have a strong impact
and 1% in 2015);
on the remuneration trend. On the other hand, the number
> Romania, where the category of white collars has equal
of women who enter the labour market will contribute in the
remuneration (compared to 1% in favour of men in 2016
medium term to an increasing balance between genders, also
Analysing the breakdown of gender in terms of employment contract, the table below shows that also in 2017, a substantial balance
and 5% in 2015 in favour of women) and for the category of
in terms of professional seniority.
was maintained between men and women.
middle managers there is 3% in favour of men;
EMPLOYEES BY GENDER AND BY CONTRACT
1
6
0
Male
95.2%
4.7%
0.1%
2017
Female
95.7%
4.1%
0.1%
Total
Male
95.3%
4.6%
0.1%
94.8%
5.0%
0.2%
2016
Female
96.3%
3.5%
0.2%
Total
95.0%
4.8%
0.2%
PERMANENT
TEMPORARY
AGENCY
> Brazil, where for the category of white collars there is
In regard to the standard salary of new hires during their
1% in favour of men (compared to substantial equal
first year of work at Pirelli, this is greater than the minimums
remuneration in 2016 and 5% in favour of women in 2015)
prescribed by local legislation and there are no differences
and the same applies to the category of middle managers
between men and women or related to other diversity
1
6
1
where there is 1% in favour of men (against substantial
factors.
equal remuneration in 2016 and 4% in favour of men in
2015);
The inclusive culture by which Pirelli is guided in its way
> Germany, which showed a difference between average
of doing business permeates corporate life even in the
remuneration for men and average remuneration for
case of disability, as explained in the Pirelli Policy on equal
women of around 1% in favour of men for the category of
opportunities, applied at all affiliates of the Group. Under
white collars (3% in 2016 and 4% in 2015) and 6% also in
applicable local laws, approximately 1.4% of total employees in
favour of men for the category of managers (in line with
2017 (vs. 1.1% in 2016) have some form of disability, as in 2014,
The rate of employee return to work after maternity/paternity leave at Pirelli in relation to its total workforce in all industrial
2016 and compared to 3% in 2015).
however with the following considerations: the percentage
Countries where the Company operates was positive. In particular: a year following the maternity and paternity event occurred in
With reference to the population of executives, of which women
measurement of disabled employees in the multinational
2016, 2017 saw 76% of women and 93% of men still employed by the Company. The difference in the data between genders should be
account for 10% (figure up compared to 9% in 2015 and 2014),
context of the company clashes with the objective difficulty
considered natural in light of the different socio-cultural contexts in which Pirelli female workers are inserted.
there is an average remuneration difference of 11% in favour of
of measuring their number, both because in many countries
women (in 2016, it was 8% in favour of men, and in 2015, it was 5%
where the Group is present, there are no specific laws or
In the context of gender diversity, Pirelli pays special attention to remuneration equality, constantly monitoring this issue.
in favour of women).
regulations promoting their employment and therefore
disabilities are not automatically detected, and because in
The countries considered significant in the analysis at the end of 2017 are Brazil, China, Germany, Italy, Romania, Mexico, Argentina,
As for the population of blue collars, all industrial countries
many countries this information is deemed confidential and
the USA, Russia, France, Spain and the UK representing over 3/4 of the total workforce subject to the remuneration policy (executives,
with a significant number of observations were analyzed:
protected by privacy laws; it is therefore likely that the actual
managers and white collar employees). At a methodological level, it should be noted that the remuneration differentials between
Brazil, China, Germany, Italy, Mexico, Romania, Russia, Spain,
percentage of disabled persons working at Pirelli might be
men and women were calculated for each Country and at the same weight of positions held, cross-checking the “grade” (i.e. the
Switzerland and the UK. For each country, the remuneration
higher than the above figure.
weight attributed to each position on the basis of various factors) with elements such as 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 be unable 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.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain With reference to the “age” factor of the company population, as can be seen from the table below, it is homogeneous between gender.
> welcome kits for those joining Pirelli at a facility in a country
to the Triennial Incentive Plan (LTI) but includes a form of
AVERAGE AGE BY CATEGORY AND GENDER
2017
other than their home country;
deferred payment to the following year of a part (25%) of the
> welfare and work-life balance initiatives (in regard, refer
annual incentive accrued subject to accrual of the MBO of the
to the paragraph “Welfare and initiatives in favour of the
following year. Payment of an additional amount equal to a
Internal Community” in this report);
variable percentage of the entire MBO accrued during the
>
the presence, within the permanent training offer, of the
previous year will be paid in line with the degree that the MBO
EXECUTIVES
CADRE
WHITE COLLARS
BLUE COLLARS
MEDIUM
“Intercultural Orientation” course, aimed at providing
is achieved in the following year.
Female
Male
Total
Female
Male
Total
48
50
50
43
45
44
2016
37
38
38
36
37
37
EXECUTIVES
CADRE
WHITE COLLARS
BLUE COLLARS
MEDIUM
48
50
50
43
45
44
37
38
38
36
37
37
37
37
37
37
38
38
participants with tools and methodologies to train their
ability to interact effectively in global and multicultural
The return to the stock exchange at the beginning of October
contexts.
REMUNERATION AND SUSTAINABILITY
2017 meant that the Company’s long-term average targets
should have been revised for the 2018-2020 three-year period.
Consequently, by resolution of the Board of Directors of July
28, 2017, the 2016-2018 Long Term Incentive – LTI related to
said three-year period was terminated early at the end of 2017
The remuneration policies adopted by Pirelli aim to ensure
(a year before the natural expiry). The Board of Directors also
fair remuneration in line with the individual’s contribution to
approved the payment in 2018 in a single instalment on the
the success of the Company, recognising the performance and
basis of reporting the newly measured goals – even in terms of
quality of the individual’s professional input, in a philosophy of
percentage opportunities for each individual participant – on
sustainable remuneration.
the values for the two-year period (2016-2017).
The purpose is twofold: on the one hand to attract, retain and
At the beginning of 2018, a new three-year incentive plan (LTI
Instead, the following table represents the average seniority of service per professional category and gender: also in 2017, there were
motivate critical employees, while on the other to reward and
2018-2020) was launched and extended to the majority of
1
6
2
no significant differences between men and women.
AVERAGE SENIORITY OF SERVICE BY CATEGORY AND GENDER
2017
promote conduct that is as far as possible consistent with
Executives of the Group, in line with the variable remuneration
the corporate culture and values. Compensation policies and
mechanisms adopted at international level, totally self-
3
6
1
processes for Group management (intended as the overall
financed as the related expenses are included in the economic
executives) are managed by the central Human Resources and
data of the Business Plan. The Plan, in line with international
Organisation department, while for non-executive personnel
best practices, includes a Sustainability objective common to
they are handled on an individual Country basis. Once again in
all Group Management.
EXECUTIVES
CADRE
WHITE COLLARS
BLUE COLLARS
MEDIUM
2017, and in accordance with market best practices, the impact
Female
Male
Total
Female
Male
Total
13
15
15
9
9
9
13
15
15
2016
EXECUTIVES
CADRE
WHITE COLLARS
BLUE COLLARS
13
15
14
13
14
14
8
9
9
7
9
9
7
9
9
8
9
9
8
9
9
MEDIUM
of the (short-term and medium-term) variable component on
The General Policy on Remuneration approved by the Board
the aggregate remuneration of Group management remained
of Directors of Pirelli, establishes principles and Guidelines
very high, which means that there is a strict correlation
to which Pirelli abides in order to determine and monitor the
between remuneration and performance.
application of remuneration practices related to Directors
with special powers/offices, Executives with strategic
Members of Management in general are connected to the
responsibilities, Senior Managers and other Group Executives.
Annual Incentive Plan (MBO) linked to the achievement of
annual economic-financial objectives of the Group and/or
Specifically, the Guide Lines of the remuneration for the above
Business Unit and/or Region and the assessment resulting
management figures also cover:
from the Performance Management Tool, which allows
> fixed and variable remuneration, both short and medium-
greater relevance to be attributed to organisational conduct
long term (it is noted in this regard that Pirelli currently
(how), and not simply the results achieved (how much). The
has no existing forms of remuneration through equity);
Performance Management of all Country CEOs includes
> compensation in case of dismissal;
economic sustainability, social and environmental objectives.
>
resignation and termination of employment;
The following procedures and activities to promote equal opportunities have been well-established for years:
For further details in this regard, reference is made to the
> clawback clauses for Top Management;
>
the use, as far as possible, of candidate lists with a significant presence of women in recruitment processes;
paragraph “Performance Management” of this report.
>
introduction of the aforementioned sustainability target
>
the use of training to promote cultural change connected with the promotion of diversity, with specific modules dedicated to
common to all Group Management.
“Diversity Management,” beginning with courses for new hires (e.g. Plunga);
In 2014, some changes and improvements were made to the
>
introduction of new initiatives aimed at respecting cultural and religious diversity (e.g. different and clearly marked diets in
annual incentive system (MBO) which is no longer related
canteens, kitchens typical of different cultures from that of the host country...);
>
“multilingual” book stores at the factories;
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain INTERNATIONAL MOBILITY
commercial leadership in the highest segment of the market,
trying as much as possible to ensure that young people receive
of people who belong to a specific organisational unit are
the tension of the people towards results and the meritocracy
the training needed to enter the new professions required by
pooled with the objective of ensuring a shared and balanced
The theme of
international mobility has always been
that always ensures the best growth for employees, both
a labour market whose expectations are constantly evolving.
distribution of the assessment, to ensure a process that is as
important to Pirelli, with a view to achieving cultural and value
locally and internationally.
The official presentation of the results of the two-year project
consistent, homogeneous and objective as possible.
integration while still respecting diversity, an approach that
took place in Brussels in November 2017, during the European
the Company considers crucial to maintaining and creating
In addition to disseminating the company principles,
week of professional training, in the presence of the President
The Performance Management of all Country CEOs includes
value in the long term.
Employer Branding is also a valuable tool to give visibility
of the European Parliament.
economic sustainability, social and environmental objectives.
to job opportunities aimed at recent graduates and profiles
In particular, the performance obtained regarding the
The dissemination of the Pirelli industrial culture throughout
with experience, not only in the Italian market but globally.
Among the channels of Employer Branding used by Pirelli, the
Sustainability Plan of the country is evaluated, which envisages
the world and the transfer of valuable technical and managerial
Considering the countries where Pirelli has a presence
internet plays an important role: on its pirelli.com website,
targets of compliance with the SA8000® Standard, reduction
know-how to new start-ups is also a key instrument in support
with one or more production plants in Europe, the United
the Company provides a channel for those who wish to
in injury frequency indices, reduction in energy consumption
of the Group’s geographical expansion strategy.
States, South America, the Middle East, Africa, Russia and
submit their application for specific open positions, as well as
and water withdrawal, increase in waste recovery, control
In 2017, about 54 new
inter-company expatriates were
organised in 2017, where the Company promoted its own
models adopted, objectives and results achieved; targeted
implementation of Group Policies and engagement with
recorded, compared with about 80 postings in 2016 and
Employer Branding initiatives. These activities are carried
channels are also used by Pirelli for the publication of its job
stakeholders.
Asia-Pacific, numerous events, projects and meetings were
providing full disclosure on its corporate history, management
of the sustainability of the supply chain, dissemination and
about 90 in 2015. About a third of new postings were to major
out also thanks to the network of contacts and partnerships
offers, including LinkedIn where in the last year, Pirelli has
industrial Countries, such as China and Germany, and mobility
with some prestigious universities in the various countries,
significantly increased its audience (in terms of engagement
flows continued from emerging Countries to mature Countries.
such as the Beijing University of Chemical Technology
and views), remaining one of the most visited profiles among
At the end of 2017, the expatriate population totalled about
Nottingham Trent University in the United Kingdom, the
195 persons (vs. 227 in 2016 and 217 in 2015), belonging to 19
Politehnica University of Bucharest in Romania, the ESIC
nationalities and who moved to 29 different Countries on
- Business Marketing School in Spain, the Universidad de
DEVELOPMENT
in Beijing, the University of Munich in Germany, the
tyre manufacturers.
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.
5
6
1
1
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five continents, of which 13% women. The overall expatriate
Buenos Aires in Argentina, the Universidad Tecnológica del
population consists in equal amounts (50%) of Italian and
Centro in Venezuela, the Instituto Tecnológico de Estudios
foreign citizens, demonstrating the concrete progress
Superiores de México, the Keio University in Japan, the
being made towards the goal of creating an increasingly
American University of Cairo in Egypt.
international management team.
Performance Management Performance Management
(PM) means the process whereby the contribution of each
“Talents” are employees who,
in addition to having
demonstrated positive performance in the previous 2 years,
employee in an organisation is defined, observed and assessed
possess the potential to hold, immediately or within the
The Pirelli International Mobility Policy has been standardised
with Politecnico di Milano, Politecnico di Torino, Università
development and orientation of each with respect to a series
fact, they represent the future of the Company for the
and shared within all the affiliates, with common treatment
Bocconi, Università Cattolica and Università degli Studi di
of predefined indicators that are critical to the success of the
coverage of strategic positions. The focus on talents is also
rules in order to enable uniform management of the expatriate
Torino. The latter Universities are located close to the Pirelli
Company and the employee.
demonstrated by the various skills assessment projects
personnel of the entire Group.
offices in Italy and the Company has always considered them
concluded in 2017, following increasing focus on the analysis
Pirelli is also collaborating actively, at corporate level in Italy,
at Pirelli, a unique and fundamental opportunity for the
next two years, key positions within the organisation. In
It includes a principle of fiscal neutrality pursued through
of young people. With these institutions, Pirelli has organised
of feedback, which provides a transparent and open dialogue
The talent management process also includes meeting and
the implementation of a so-called “tax equalisation” policy,
Career Days, round tables, Job Fairs, as well as company
between the manager and the employee, from the phase of
discussion sessions between managers, which aim to share
which allows neutralising of the tax differences that arise
presentations and opportunities to meet with students
defining the individual objectives to that of assessment of the
and standardise the criteria for the definition of talent within
in the destination country with respect to the country of
directly at the company, aimed at “personally experiencing”
results achieved.
the organisation.
to be a benchmark for economic and engineering education
During the process, particular attention is given at the time
of the talent of people to support the company strategy.
origin, ensuring the application of equitable and appropriate
the reality of the Group. Many presentations, in particular,
remuneration principles, in addition to the assignment of
concerned the Pirelli Sustainability Model.
The Performance Management process involves all staff
Pirelli confirms itself as a company with a strong predisposition
certain benefits closely related to care for expatriates and
worldwide (executives, managers and employees) and in 2017
to grow talent from within: the average corporate seniority of
their accompanying families.
The business-education partnerships described above are
saw a “redemption” rate (2016 assessment sheets completed
the talent pool is in fact about 12 years.
EMPLOYER BRANDING
placed within the context of the “European Pact for Youth”
compared to the total of open sheets) equal to 98.5%, of which
of which Pirelli is a co-initiator, a Youth Pact that was signed
the completion rate by women involved in the process was
The pipeline of talents has a strong international and
during the last Enterprise 2020 Summit (held in November
97.5%, while completion by men reached 98.8%.
multicultural connotation, as their origin includes as many as
2015 in Brussels) by the European Commission, CSR Europe and
17 different nationalities.
Pirelli considers it crucial to enter the market by transmitting
a group of companies. The Pact aims to promote the growth
To support the quality of assessments, Pirelli has introduced the
drivers that distinguish the group, that is, Business, People and
of new generations through the promotion of partnerships
so-called Calibration Meetings. These are meetings organised
In 2018, the development process of talents within the Group
Change, which include the cardinal principles on which the
with Universities, training courses, internships and masters’
by the managers of the individual functions, Business Units
will continue, also with a view to providing the means for
Company bases its business approach, such as technological
courses: the objective of reducing the skills gap between
and countries, with their direct reports, and with the heads of
structured growth within the organisation and mitigating the
know-how and product
innovation, technological and
different countries and different cultures is fundamental,
Human Resources of reference, during which the assessments
retention risk of talents.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain TRAINING
encourage cross-functional collaboration, ensure the exchange
Finally, in 2017, three Group plants, Bahia, Bollate and Kirov,
The School of Management also offers constantly updated
of expertise and know-how among countries and support the
were involved in a change management process. These
online tools through the “Train your Brain” section, available
All Pirelli affiliates have adopted the Training@Pirelli training
implementation of tools and procedures within the organization.
initiatives have accompanied the entire plant population
to all managers on the LearningLab international platform.
model, organized, structured and equipped system to respond
in the important challenge of converting processes and
to “Group” needs as well as any needs that may emerge locally
The faculty of the Academy is mainly composed of internal
production towards “High Value” products, i.e. with high
As for the population of recent graduates, in 2017, the two-
at any time.
trainers, experts from the specific functions who, based on the
added value. Workshops and training sessions were organized
year course Warming Up@Pirelli continued; it was launched in
training needs and logistical needs, act at central, regional and
aimed at understanding the challenge and activating new
2013 at global level and in 2017, it was attended by about 200
The training offer is based on the strategic priorities of the
local level, or through online seminars and webinar sessions.
and more coherent conduct necessary for change that have
young graduates from every country.
organization and of the various functions, which are alongside
The internal trainers are certified as such following adequate
involved both the blue collar population and white collars.
the needs that emerge annually from the Performance
training, with homogeneous methods at all affiliates.
The change management project for Kirov in particular will
The program aims to provide a homogeneous view of the Pirelli
Management process (evaluation and development tool
Participation in the internal “Train the trainer” course is
continue further in 2018.
reality for all young new recruits in the different countries.
based on dialogue between the manager and the employee,
a fundamental requirement to ensure and align the skills
specified in the dedicated paragraph).
of all trainers regarding classroom management methods
The three “pillars” on which Training@Pirelli is based are the
is currently certifying 314 internal trainers in the world on
and delivery of the technical content of the Academy. Pirelli
School of Management The School of Management
(SOM) is the training structure dedicated to the development
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
Professional Academy, the School of Management and the Local
various disciplinary and professional subject areas.
of the management culture within Pirelli. Its targets are the
who wishes to become part of the company’s future. During the
Education. The first two are designed centrally and according to
populations of Executives, Global Talents, Middle Management/
two-year training course, participants have the opportunity
the cases provided centrally or locally, while Local Education is
The Academy model involves a significant figure from the
Senior Professionals and Recent Graduates/Junior.
to work on various company projects of interest proposed by
managed and implemented directly in the individual countries
function guiding each Academy, supported by one or more
various functions, in order to apply innovative approaches and
to meet the specific local needs.
professionals from the same function and from the Group
The focus of management training is calibrated and outlined
develop cross-functional teamwork. The macro-structure of
Training function, which ensures consistency in the methods
every year based on the business challenges that the Company
the course, defined centrally in terms of content and process
The entire training offering is communicated and managed via
of approach, delivery and evaluation of learning in addition to
is required to face.
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the online training portal called LearningLab.
ensuring collaboration with the local training teams.
steps, is organised in various countries with appropriate
adjustments aimed at enhancing the local specificities. To the
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The training aimed at executives is preferably provided
aforementioned Warming Up training program, specific local
Also in 2017, Pirelli was called in various international locations
Every year, the Professional Academies meet both the Top
centrally (Milan) in order to allow participants to discuss
induction programs are added, including the Mexican one,
to illustrate its Training Model, recognized as benchmark
Management and the local training representatives, with the
company strategies directly with Senior Management and
which involved over 800 new employees in 2017.
of quality and robustness, already awarded in 2015 with the
objective of strategic alignment and sharing of the results
share them at inter-departmental and geographical level.
Silver Award by the Global Council of Corporate Universities,
achieved.
in the category “Best Corporate University embodying the
The training model of managerial skills was revised and
identity, the culture and the brand of the Organization in
In 2017, the Professional Academies offered 248 courses
modified in 2016 to make training topics even more consistent
Local Education The training provided locally responds to
the specific training needs of the local context and culture of
its stakeholders”, award dedicated to the most important
globally. We report two significant initiatives delivered during
with the need to develop a skilled managerial class and able
the country of reference and is for the entire local company
Corporate Universities worldwide.
the year: “Manufacturing to Digital” and “Shopfloor Manager
to face the new challenges of the Company. In line with the
population.
Assessment and Development”.
adoption of the Learning Agility model (subdivided into the
Professional Academies The Pirelli Professional Academy
is aimed at the entire company population and there are ten:
The first is a training course dedicated to all plant managers,
Agility, Mental Agility), also during 2017, 4 training courses
improvement of interpersonal skills to stress management,
aimed at disseminating knowledge and skills in factory 4.0
were designed for managerial training, aimed at strengthening
from the development of IT, language and regulatory skills up to
Product Academy, Manufacturing Academy, Commercial
that can support the company in the digital transformation
specific skills and related attitudes. With a view to the ever-
seminars on issues of welfare and diversity at the Company. Some
Academy, Quality Academy, Supply Chain Academy,
process undertaken.
increasing involvement of participants and the constant
courses particularly appreciated and attended in 2017 were:
Purchasing Academy, Finance and Administration Academy,
updating of teaching methods, the training courses delivered
>
“Presentation Skills”, dedicated to employees who need
Planning & Control Academy, Human Resources Academy,
The second one is instead an assessment and development
have provided alternative and innovative methods of use in
to refine their communication skills in public. The course
Digital Academy.
project that involved the heads of all the Pirelli factories,
addition to the traditional one, offering participants moments
makes use of numerous exercises and role play in which
4 main dimensions of People Agility, Change Agility, Results
The seminars cover areas of expertise ranging from the
Sustainable Management elements are throughout the
environment and the managerial teams. These figures,
line, often aimed at developing case studies and projects of
food for thought;
Academies, with focus for example on product life cycle (LCA
precisely because of this role, are called “Capitani” (Captains)
corporate interest.
– Life Cycle Assessment), environmental efficiency of the
internally (term maintained in Italian at a global level).
>
“Problems, Decisions and Solutions”, support for employees
who want to experiment with a methodological approach
process, health and safety, sustainable management of the
The activities carried out have allowed the analysis of the
In 2017, 4 editions of the programs of the School of Management
to problem solving in order to learn how to make decisions
supply chain, risk management, diversity management.
knowledge and skills of the population that currently holds the
were delivered to Executives and Global Talents of the
in a complex environment. Among the teaching tools
fundamental figures in the relationship between the factory
of interaction and collaboration, both in presence and on
participants are involved in video shooting, later used as
role, in order to plan effective and personalized development
Group, and more than 100 courses were delivered to Middle
used in the classroom was the mapping of non-rational
The Academies cater to the entire corporate population and
and training actions. During 2018, the training and follow-up
Management and Senior Professionals, held in 12 countries of
elements in order to reduce their impact in the decision-
aim to provide continuous technical-professional training,
actions established following the assessment will continue.
the Group for a total attendance of about 1000 people.
making phase and simulation exercises.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain Focus: Training on Sustainability and Corporate
Governance Also in 2017, training continued on the Pirelli
Sustainable Management Model, with update on the state
training days, compared to the average 7.5 per capita days
recorded for women; such difference is to be attributed to the
LISTENING: GROUP OPINION SURVEY
WELFARE AND INITIATIVES
FOR THE INTERNAL COMMUNITY
fact that the majority of the average training days per capita
In 2013-2016, Pirelli consolidated the My Voice climate survey
of the Company’s Sustainability Plan. Reference was already
is related to blue collars and that the latter is represented for
as a tool for active listening of its employees in the world, as a
At organisational level, Pirelli for years, has had the figure
made to training on specific sustainable management
the 89.9% by men.
basis for setting central and local improvement plans.
of the “Group Welfare Manager”, who is entrusted with
processes spanning all Group Academies and Local Education.
the supervision of welfare activities, jointly with the many
In addition, there is institutional training in the International
the year) took part in at least one training day.
strengthened over time the relationship of trust between
Safety at Work, Industrial Relations, Sustainability and Equal
92% of total employees (considering the average employees of
The annual recurrence of this
listening moment has
central and local functions concerned, including Health and
Course “PLunga”, which presents the Group’s Sustainable
employees and the company, laying the foundations for a
Opportunity Managers of the Group.
Management strategy to all new employees, starting from the
The aforementioned performances, net of exceptional
process of continuous improvement both in the organizational
multi-stakeholder approach contextualized in the integrated
increases over the years (due, for example, to the activities
climate and in the workplace.
The welfare initiatives that Pirelli offers to its employees vary
economic, environmental and social management. Training
of start-up plants - e.g. Mexico – to specific “re-skilling”
from country to country, in accordance with the specific needs
on the Pirelli Model also draws new employees’ attention
campaigns following technological changes at some plants,
From 2017, in line with Pirelli’s new strategic challenges, it
identified in different social contexts in which the affiliates
to the Group’s Sustainability Policies and the commitments
etc.), are confirmed substantially in line with those of previous
was decided to rethink also the strategies and methods for
operate. In any case, they implement the guidelines shared at
they involve, as detailed in the “Ethical Code”, the “Code
years.
of Conduct”, the “Equal Opportunities Policy”, the “Social
listening and engaging people.
Group level, so that all the sites worldwide are progressively
committed to locally adopting activities, tools and welfare
Responsibility Policy for Occupational Health, Safety and
In 2017, Pirelli in fact exceeded the target set for several years in
Therefore, the My Voice process will be renewed from 2018,
processes aimed at creating collaborative environments and
Rights and Environment”, the “Global Human Rights” Policy,
its strategic plans, consisting of maintaining a global training
from an annual frequency to a moment of listening that will
ensuring adequate support for the needs of personal life,
in addition to the requirements of the SA8000® Standard.
level of at least 7 average days per capita, involving 90% of the
occur approximately every year and a half, in order to guarantee
respecting local regulatory, social and cultural specificities.
The foregoing is also the subject of continuous training for all
Group’s population in at least one average day of training.
adequate time to define and implement specific action plans
Group Sustainability Managers and Purchasing Managers.
by country/function/Business Unit, responding to the needs
Reflecting the Group guidelines, overall, welfare activities
With regard to the contents addressed in training at global
emerging from the survey, also with a view to promoting trust
activated at Pirelli affiliates in the world are attributable to
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Like every year, also in 2017, Pirelli dedicated a training session
level, the issues of Health, Safety and the Environment
and continuous dialogue with employees. This new approach in
four macro areas of action:
that brings together all the Group’s Sustainability Managers
maintained a significant portion also in 2017, confirming its
2017 was communicated to all employees worldwide through a
>
lifestyle (e.g. health care, information and awareness
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for three days. The “Pirelli Sustainability Manager Workshop
relative weight of 12% of the total training provided.
dedicated information campaign, which illustrated the changes in
campaigns);
2017” was held in Milan and in Germany in November. The event
the process, methods and timing of listening of the Group Survey.
>
family support (e.g. scholarships, summer camps for
involved the active participation of the Top Management of
In turn, “on-the-job” training activities provided to blue
employees’ children, inter-company crèche);
the Company, with strong cross-functional alignment with a
collars represent 52% of the total training provided: through
The next survey, scheduled for Spring 2018, will introduce a
>
free time (e.g. open days, sporting and cultural activities);
view to achieving the Group targets as well as demonstrating
this training method, Pirelli focuses on continuous updating
new measurement model for employee engagement based on
> work life and work environments (e.g. flexible working
the fundamental teamwork that enables the Company to
mechanisms that are guaranteed through the activity of
the relative level of “sustainability over time”.
hours, facility, individual development training, cultural
create lasting and shared value. The 2017 workshop was
“technical trainers” present at each plant, all now trained
growth and group celebrations).
completely focused on sharing the new “Pirelli High Value”
and certified according to the Group standard. Finally, also
As in previous years, the 2018 survey will also be sent to all Pirelli
All Group affiliates have the opportunity to share local best
strategy and on the dissemination and deployment actions at
analyzing training at global level, the relative weight of the
employees worldwide through an online questionnaire, while
practices through a special section dedicated to welfare on
local Stakeholders.
Professional Academy is the second most relevant after “on
for the first year it will also be accessible from mobile devices.
the corporate Intranet.
the job” training, with a prevalence of the training activities of
The return of the results will follow, both through dedicated
In June 2017, Pirelli launched an online training campaign
the Manufacturing Academy and the Quality Academy.
communications on the company Intranet and through
Historically, Pirelli provides infirmaries at all its production
on Law 231. The initiative involved the entire white collar
meetings in presence, the definition and implementation of
units where health operators and medical specialists are
population operating on the Italian perimeter (about 1,600
Examining the thematic areas related to training of the staff
specific action plans by country/function/Business Unit in the
available to all employees during working hours. These
people). The dissemination of the contents, the tracking
population at global level, the Professional Academy represents
remaining months, until the next survey.
facilities provide counselling for health problems outside work
of the training activities and the recording of the results
32% of the training provided. In turn, the Pirelli School of
as well as first aid care and periodic health supervision. It
of the learning tests were entirely managed through the
Management represents 26% of the training provided.
At the same time, in 2017, all Pirelli Affiliates activated their
should be considered that the specialized services performed
Learning Lab, the company’s learning management system. At
improvement plans, as defined based on the outcome of the
in the outpatient and nursing facilities of Pirelli in the world
December 31, 2017, over 1,400 people successfully completed
In turn, Local Education had a significant influence on the
previous survey.
compulsory training activities.
training provided in each country (36%), including language
were around 250,000 in 2017 alone. For example, at the historic
headquarters of Milan Bicocca, in 2017, over 23,000 services
Pirelli training Performance In 2017, the total training
provided was equal to 8 days of average training per capita at
Finally, in 2018, a considerable investment is expected in
the company population, the Trust Index to the Company
and prevention campaigns.
training to support the digital transformation, both for staff
in 2016, also at global level, was 64% overall. The 2016
Group level, with 9.3 average days per capita for blue collars
and blue collars (refer also to the paragraph on Professional
figures mentioned are substantially in line with those that
For example, the following are some of the welfare activities
and 4.3 for white collars. Men reached an average of 8.2
Academies).
characterized the 2015 survey.
activated at the various local affiliates.
training that has increased significantly in recent years.
With reference to the trends of the last two Group Opinion
were provided to Pirelli employees, including specialist visits,
Survey: the 2016 participation rate was equal to 74% of
instrumental examinations, therapies and physiotherapies,
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain After the pilot phase started in September 2016, in 2017 the
service for employees’ children of school age (5-10) during
project called “Pirelli Smart Way” was extended to the entire staff
school holidays. In 2017, the project doubled the number of
INDUSTRIAL RELATIONS
European Works Council (EWC) The Pirelli European
Works Council (EWC), formed in 1998, holds its ordinary
of Milan Bicocca. Adherence to the Project gives the opportunity
children welcomed, thanks to the inclusion of additional
The Industrial Relations policy adopted by the Group is based
meeting once a year after presentation of the Group Annual
to “smart working”, or to provide working activity partly even
corporate sites in which to carry out activities with minors.
on respect for constructive dialogue, fairness and roles.
Financial Report, where it is informed about the operating
outside the offices, subject to agreement with managers and in
More than 230 children in 2017 alone were in fact hosted as
Guaranteeing and respecting free trade union activities is
performance, operating and financial forecasts, investments
compliance with the rules defined by the Company.
part of the “Bambini in Bicocca” project.
one of the key values on which Pirelli bases its own Human
made and planned, progress in research, and, as occurred
The Pirelli Smart Way Project involved a population of about
Similarly, in many of the Group’s sites, recreational events
with trade unions are managed locally by each affiliate in
Company’s Sustainability Plan.
1,100 people, whose duties were deemed compatible with this
are organized periodically dedicated to the families of
accordance with the laws, national and/or company-level
new way of working. Of these, 84% have adhered to the project
employees and also open to the local community; purely by
collective bargaining agreements, and the prevailing customs
The agreement establishing the CAE provides for the possibility
and have been enabled for Smart Working after having carried
way of example, think of the Children Day conducted in China
and practices in each country.
of holding other extraordinary meetings to fulfil the information
out a specific training process. The Smart Workers of Bicocca
at the primary school in Chongqing where over 700 people
requirements of delegates, in light of transnational events
in 2017 had a total of 6,761 days of Smart Working, seizing the
including children, parents, educators and employees in 2017
At this local level, these activities are supported by the central
concerning significant changes to the corporate structure:
opportunity offered by the company to manage their work
collaborated to spread the culture of road and workplace
departments, which coordinate the activities and ensure that
opening, restructuring or closing of premises, important and
activities with greater autonomy, responsibility and flexibility,
safety. Instead, the now traditional Diversity Day, now in its
the aforementioned principles are observed throughout the
widespread changes in work organisation. EWC delegates are
saving commuting time and costs, while balancing company
fifth edition in 2017, has been renewed at the Pirelli Germany
Group.
needs with personal needs.
office: children and adults participate in a competition in
provided with the IT tools they need to perform their duties
and a connection to the corporate Intranet system, for the
search of the differences in each of the participants, in the
Industrial Relations also have an active role in the Group’s
real-time communication of official Company press releases.
Capital Management System. Relations and negotiations
also at the annual meeting in 2017, about the progress of the
Following the introduction of Smart Working at Bicocca, the
machinery and in the factory processes. At the end of the
commitment in terms of health and safety, characterised by
Managers of the organizational units involved were invited to
day, the plant hosted a vernissage of children’s paintings and
active participation on the part of the union and workers.
participate in a workshop aimed at analyzing the implications
drawings, in memory of their experience.
In fact, 76% of the Group’s employees are covered by
of Smart Working on the role of manager and the style of
representative bodies that periodically, with the Company,
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leadership.
There were multiple campaigns for prevention and to raise
monitor and address the current issues and awareness and
awareness for a healthy lifestyle, including the “Nutrition
intervention plans/programs, aimed at the improvement
Since the beginning of the project, 13 sessions of the workshop
workshop” conducted in Romania, an important opportunity
of activities and to safeguard the health and safety of
have been provided, involving over 180 managers including
to raise awareness for a healthy diet for the psychological and
employees.
executives, officials and middle managers.
physical well-being of all employees. In turn, the “Faz Bem”
and
Compliance with
contractual
statutory
obligations governing overtime, time off, association
and negotiation, equal opportunities and non-
discrimination, bans on child and forced labour The
governance to protect Human and Labour Rights is the
subject of Pirelli’s Ethical Code and specific Policies adopted
by the Company, in particular the “Social Responsibility Policy
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Taking into account that participation was on a voluntary
life in particular through Sport, with various communication
with employees, in any case of corporate reorganization
the “Global Human Rights” Policy and the “Health, Safety and
basis, these numbers and the lively involvement of Managers
and involvement initiatives, like the Campaign “#sentirmibene”
and restructuring, employees and their representatives are
Environment” Policy. All the aforementioned Policies are public
in the workshops are to be considered an excellent index of
launched in Italy at the end of 2014 and which is divided into a
informed in advance, with timing that varies from country
and have been communicated in local language to employees.
interest in the initiative.
series of initiatives to promote healthy lifestyles and well-being.
to country in full compliance with local laws, collective
Moreover, since 2004, Pirelli has adopted the the requirements
project in Brazil promotes the improvement of the quality of
In respect of the principle of constructive and timely dialogue
for Occupational Health, Safety and Rights and Environment”,
During the first months of 2018, a new survey (already carried
Moments of inclusiveness and sharing characterize the “Open
managing social responsibility at its affiliates and in the supply
agreements in force and trade union agreements.
of International Standard SA8000® as a reference tool for
out on the population of the pilot project) is scheduled to
Days”, which take place at numerous affiliates in the world: these
In 2017, the Industrial Relations activities reached important
chain.
be launched to detect and monitor the level of satisfaction
are days dedicated to employees’ families, with educational
negotiating results. Several collective agreements were
and appreciation of the experience by both employees
workshops, visits to departments, games and music.
renewed, without any conflict, in the United Kingdom,
The management of diversity and equal opportunities, and
and managers, with a view to listening and continuous
Argentina and Mexico.
the responsible management of the supply chain in the field
improvement.
The well-being of workers also comes from a working
of human and labour rights are subject to specific paragraphs
environment that is psycho-socially adequate and stimulating,
During the year, the Company also operated internationally
in this report, to which reference is made for further details.
Similar Smart Working Projects are being disseminated at
where they feel valued and in which psychosocial risks and
to rebalance the employment level aligning it to the needs of
various Group locations, such as at the Pirelli offices in New
work-related stress are effectively prevented and countered.
volume related to the market, reporting a Group occupational
Pirelli’s approach has always been characterised by compliance
York (after a pilot phase in 2016) and in São Paulo in Brazil
To this end, as part of the Company’s global program called
balance up at the end of 2017 compared to 2016.
with all legal and/or contractual requirements concerning
(ongoing pilot phase). At the end of the pilot period, a survey
“Excellence in Safety”, Pirelli performs in-depth analyses
working hours, the use of overtime and the right to regular
is always carried out between Smart Workers and their
and acts on key areas and issues such as improvement
Pirelli increased its workforce in Romania, Mexico and Brazil,
days of rest. These requirements are often the subject of
Managers to collect their feedback on the experience.
of the organisational structure, clarity of tasks and roles,
while in Italy the central functions related to Digital and to
agreements with trade unions, in line with the regulatory
empowerment of workers, improvement of communication
product research, development and innovation were further
context of each country. There are no restrictions on workers’
To support work – life balance and in particular family support,
in the organisation, sharing of objectives and motivation
strengthened.
in Italy in 2017, the “Bambini in Bicocca” (Children at Bicocca)
with respect to a common strategy, as key elements for the
project continued, guaranteeing babysitting and kids club
prevention and mitigation of occupational stress.
right to use their total number of holidays and the period is
generally agreed between the employee and the Company.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain In addition to the trade union dialogue and coordination
multinational companies operating there. Labour lawsuits
or funds created ad hoc, in which the Company participates
involving all levels of the organization in an ongoing
between Headquarter and local functions, Pirelli verifies
are generally initiated when an employment contract is
by paying a fixed amount as is done in Italy, or an insurance
program of training and information, aimed at promoting
the application of the provisions on the respect of human
terminated, and they usually involve the interpretation of
premium as is done in Brazil and the United States. For
a culture of safety at work;
and labour rights at its affiliates through periodic audits
regulatory, legal and contractual issues that have long been
the economic-equity measurement of the above benefits,
> promote information and awareness-raising on health and
performed by the Internal Audit Department, in compliance
controversial. The Company has made a major commitment
reference is made to the Consolidated Financial Statements,
safety issues;
with a three-year audit plan to cover all the Company’s sites.
to prevent and resolve these conflicts – to the extent possible
notes “Employee funds” and “Personnel Costs”.
> provide ongoing and concrete support aimed at facilitating
Normally every audit is carried out by two auditors and takes
– including through settlement procedures.
the work-life balance;
about three weeks on-site. The Internal Audit Team received
training on the environmental, social, labour and business
ethics elements of an audit from central function directors
to enable them to carry out an effective, clear and structured
Unionisation levels and industrial action
impossible to measure exactly the consolidated percentage of
It is
The social benefits recognized by Pirelli for employees
> manage its supply chain responsibly by including issues of
(including
life
insurance,
invalidity/disability
insurance
health and safety at work in the supplier selection criteria,
and additional parental leave) are generally recognized to
the contractual clauses and the audit criteria, also
all employees, regardless of the type of contract whether
requiring suppliers to implement a similar management
audit, granting Pirelli effective control over all aspects of
union membership at Group companies, since this information
permanent, temporary or part-time, in compliance with
model in their supply chain (for an outline on responsible
sustainability. If compliance violations are found during these
is not legitimately available in all countries where Pirelli has a
company policies and local trade union agreements.
management of the supply chain, reference is made to the
audits, an action plan is agreed between the local managers
presence (on five continents).
and central management, with precise implementation dates
and responsibilities and verification follow-ups.
However, it is estimated that over 40% of Pirelli employees
are trade union members. As to the percentage of workers
The auditors carry out verifications on the basis of a checklist of
covered by collective agreement, in 2017 it stood at 76% (vs.
sustainability parameters deriving from the SA8000® Standard
74% in 2016). This figure is associated with the historical,
and the Pirelli Policies mentioned above. All managers from
regulatory and cultural differences between each country.
the affiliates involved in the audits are adequately trained and
Collective agreements for renewal in 2017 were renewed
OCCUPATIONAL HEALTH,
SAFETY AND HYGIENE
Management model and system Pirelli’s approach
to responsible management of occupational health, safety
paragraph “Our Suppliers”);
> make available to all its Stakeholders a channel (the
“Whistleblowing Policy-Reporting Procedure” 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
“Focus: Reporting Procedure -Whistleblowing Policy” of
informed on the audit object and procedures by the applicable
without any conflict and strikes.
and hygiene is based on the principles and commitments
this Report for an outline of reports received in the last
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central functions, in particular Sustainability, Purchasing,
Health and Safety, Industrial Relations.
Considering the last four years, in 2014, the Internal Audit
Department carried out audits in Italy, the United Kingdom
Supplementary pension plans, supplementary
health plans and other social benefits The Group
has defined contribution and defined benefit funds, with a
expressed in “The Values and Ethical Code” of the Group,
three years, none of which regarding health and safety).
in the “Health, Safety and Environment Policy” in the
All the Documents mentioned above are communicated to
“Global Human Rights Policy” and in the “Quality Policy”,
Group employees in their local languages and are published in
in accordance with the Sustainability Model envisaged
the Sustainability section of the Pirelli website, which should
by the Global Compact of the United Nations, with the
be consulted for full display of the content.
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and China; in 2015, in Mexico, Russia (Voronezh plant) and the
substantial prevalence of the former kind over the latter. To
“Declaration of the International Labour Organization on
United Kingdom; in 2016, in Germany, Russia (Kirov plant) and
date, the only defined benefit plans are:
fundamental Principles and rights at Work” and with the
The occupational safety management system was developed
the United Kingdom (follow-up). In 2017, the audits concerned
>
in the United Kingdom, where the fund relating to the tyre
“Universal Declaration of Human Rights” of the United
in compliance with procedures and guidelines elaborated
the industrial sites in Argentina, Brazil (Campinas and Feira
business has been closed to new employees since 2001 for
Nations. Reference tool since 2004 has also been the
centrally in order to consolidate a “common language” that
de Santana plants), Mexico, Romania and the USA. The non-
the introduction of a defined contribution scheme (and
SA8000® standard. In particular, the “Health, Safety and
guarantees sharing, alignment and effective management in
conformities emerged as a result of the audits mentioned
closed to future accumulations for all active employees
Environment” Policy outlines Pirelli’s commitment to:
the Group.
above were the subject of the action plans agreed between the
as of April 1, 2010), while the funds related to the cable
> manage
its activities regarding health and safety
local managers and central management, and will be subject
business sold in 2005 were closed to future accumulations
protection at work in compliance with the laws and all
Pirelli adopts an occupational health and safety management
to follow-ups in 2018 by the Internal Audit Department.
in the same year;
the commitments entered into, as well as according to
system structured and certified according to OHSAS
None of the audits revealed any breach of ILO Core Labour
>
in the United States, where the fund was closed in 2001
the most qualified management international standards;
18001:2007. All certificates are issued with ANAB international
Standards, with specific reference to forced labour or child
(since 2003, it has not been tied to salary increases) for the
> pursue objectives of “no harm to people”, by implementing
accreditation (ANSI-ASQ National Accreditation Board - US
labour, freedom of association and collective bargaining, and
introduction of a contribution scheme (and only applies to
actions
for early
identification, assessment and
accrediting body). Also in 2017, RINA Services S.p.A. was the
non-discrimination.
retired employees);
prevention of risks for health and safety at work aimed
evaluator of conformity of the health and safety management
Labour and social security lawsuits In 2017, as in
previous years, the level of work and social security litigation
at Group level remained low. Just as in previous years, the level
>
in Germany, where the fund was closed to new hires from
at a continuous reduction in the number and severity
systems of Pirelli. At the end of 2017, all the production
1982.
of injuries and occupational illnesses, activating health
facilities are certified according to OHSAS 18001:2007, with the
Other defined benefit plans exist in Holland and Sweden, but
surveillance plans in order to protect workers from
exception of the facility in Jiaozuo that joined the Group in the
they represent a relatively insignificant liability for the Group.
specific risks associated with their business duties;
last quarter of 2016, and the facility in Rome (United States),
> develop and implement emergency management programs
where a management system is operative, applied under the
of litigation remains high in Brazil, to the point of representing
The Group also maintains various supplemental Company
to prevent and avoid harm to persons;
OSHA Standards, similar to the OHSAS 18001 Standard.
about 90% of all the labour lawsuits currently pending against
medical benefit plans at its affiliates according to local
> define, monitor and communicate to its Stakeholders
the entire Group. Labour lawsuits are extremely common
requirements. These healthcare schemes vary from country to
specific objectives of continuous improvement of health
At local level, in each productive unit are held periodical meeting
in this country and depend on the peculiarities of the local
country in terms of allocation levels and the types of coverage
and safety at work;
with employees’ representatives (Health&Safety Committee),
culture. As such, they affect not only Pirelli but also the other
provided. The plans are managed by insurance companies
> empower, train and motivate its employees to work safely
with the aim of displaying, in respect of the Management
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain System, the activities done and those planned, and of sharing
workers, improving communication within the organisation,
to conduct an internal audit as to whether conditions similar to the ones that caused the injury or near miss also exist at their plants
the results of the risk assessments on workplace risks.
the sharing of objectives, motivation with respect to a common
and to define any possible corrective measures. By using this system, every site is able to audit the solutions adopted by other plants
strategy: all substantial issues for a work environment that
in order to share the best choices.
Safety culture “The Zero Accidents Target” is a precise and
strong corporate position.
workers feel valued and the psychosocial risks are effectively
prevented and countered. Regarding this issue, during the
Pirelli strongly believes that leaders play a strategic role in risk
2014-2015 two-year period, Pirelli adhered to the European
is psycho-socially appropriate and stimulating, in which
Performances The performances reported below concern the three years 2015-2016-2017 and cover the same scope of Group
consolidation. It is noted that, in order to guarantee the same scope set out by the GRI principles, the exit of the industrial business
prevention. Their behaviour must therefore be an example
Agency Campaign for Occupational Health and Safety (EU-
from the corporate scope in 2017 required a recalculation of the historical values reported below for the years 2015 and 2016.
for all employees. From an industrial point of view, this
OSHA) “Healthy Workplaces Manage Stress”.
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.
Safety training In addition to safety training offered
locally at every Pirelli location (which is illustrated in
The 2020 target of the Business Plan is for a reduction by 2020 in the Frequency Index of 87% compared to 2009. In 2017, Pirelli
reached an injury Frequency Index (FI) of 0.27 with a reduction of 18% compared to 2016 and 83% compared to 2009.
The Injury Frequency Index, analysed by gender, is also significantly lower for women in 2017, reflecting the fact that the female
It is necessary to pursue the safety culture in accordance with
the section of this report dedicated to training), special
population is generally engaged in activities with lower risk than the male population. Below is a summary table of the FI values by
the rules, while maintaining a very clear idea of everyone’s
mention should be made of Group activities and projects,
gender in the last three-year period:
responsibilities to themselves, others, and their own family.
which simultaneously target several countries by allowing
This approach, together with the involvement and continuous
an alignment of culture and vision, fully benefiting
internal dialogue between management and workers, has
pursuit of the Company’s own improvement targets. The
allowed a sharp decline in historical injury indices.
Manufacturing Academy merits a special mention. This is
In 2013, the Company signed an agreement with DuPont
factories, where health, safety and environment issues are
Sustainable Solutions for the global implementation of the
discussed in detail. It must be pointed out that 12% of the
the Pirelli Professional Academy dedicated to the sphere of
Frequency Index (FI)
FI Men
FI Women
2017
2016
2015
0.27
0.30
0.07
0.33
0.37
0.11
0.48
0.54
0.14
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“Excellence in Safety” Program, in support of the management
training provided by Pirelli in 2017 addressed occupational
FI = number of injuries/number of hours actually worked x 100,000
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model outlined above and with particular focus on the
health and safety issues.
implementation of a standard approach to behavioural safety
in the Group. The Program began in 2014, extending gradually
In 2017, the ninth edition of the Pirelli Health, Safety and
The following table summarizes the distribution of the 2017 Frequency Index by geographic area:
in 2016-2017 to all production sites of the Group. A specific
Environment Global Meeting was also held. The annual
Steering Committee, chaired by the Operations General
meeting in 2017 took place at the Pirelli production site in
Manager, monitors the progress of the program.
Slatina, Romania. The purpose of this meeting, which brings
Europe
Nafta
South America
MEA
Asia Pacific
together all managers responsible for Health and Safety in
Frequency Index (FI)
0.29
0.20
0.36
0.24
0.06
In particular,
in addition to the strengthening and
the Group, is to pool the best practices applied by the various
consolidation of the safety culture concepts based on conduct,
Pirelli sites in the world, with a view to promoting continuous
the focus on Leading Indicators was further developed, namely
improvement.
The injury Severity Index (SI) in the Group in 2017 was 0.10, an improvement of over 16% compared to 2016. Below is a summary table
measuring what preventive 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.
Monitoring of Performance Alongside establishing
implementing
specific guidelines and procedures
for
management systems, Pirelli uses the web-based Health,
The sharing of the Safety Culture was also supported by the
Safety and Environment Data Management (HSE-DM) system,
monthly newsletters like the Safety Bulletin, and the periodic
elaborated and managed centrally by the Health, Safety and
publication of significant events through the traditional
Environment Department. This system makes it possible to
channels of internal communication.
monitor HSE performance and prepare numerous types of
reports as necessary for management or operating purposes.
As part of the collaboration with DuPont Sustainable Solutions,
in 2017, Pirelli continued to develop the theme of prevention of
The HSE-DM system collects all the information on accidents
psychosocial risks and work-related stress.
occurred at the factories, Group fitting units, equities and
Some of the most important areas of intervention of the
logistics units managed directly by Pirelli (accident analysis,
“Excellence in Safety” Program are in fact related to the
corrective action taken...). If the dynamics of a particular case
improvement of governance on safety, the organisational
are significant, all the plants are not only provided with the
structure, the clarity of the tasks and roles, empowering
information via a system called Safety Alert, but are also urged
of the SI values in the last three-year period:
Severity Index (SI)
0.10
0.12
0.16
SI = number of days absence, starting from the first day following the injury, per injury/number of hours actually worked x 1,000
2017
2016
2015
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain The following tables summarize the distribution of the 2017 Severity Index by gender and geographic area.
As part of the production process, there were no workers with high incidence or high risk of illnesses related to their occupation.
Severity Index (SI)
0.11
0.06
Male
Female
the distribution of the 2017 injury frequency index by gender and geographic area:
With regard to injuries of temporary workers, the following tables show the number of injuries recorded in the last three years and
Severity Index (SI)
0.10
0.11
0.15
0.03
0.03
Europe
Nafta
South America
MEA
Asia Pacific
Injuries involving temporary workers
The most representative injuries concern events involving contusions, cuts and fractures of the upper limbs.
FI temporary workers
2017
2016
2015
3
1
Total
11
23
Male
Female
1.19
0.00
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, which however have all been steadily declining for years.
With reference to commuting accidents (not included in the calculation of the FI and SI mentioned above), the following tables show
the total number registered by the Group in the last three years and the distribution by geographic area of the 2017 cases.
Injuries involving temporary workers
1
0
2
0
0
Europe
Nafta
South America
MEA
Asia Pacific
1
7
6
Commuting accidents
108
137
139
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Regarding the Frequency Index of injuries for employees of suppliers operating at Group sites, the rate was a total of 0.19. Below is
2017
2016
2015
FI temporary workers
2,85
0,00
2,54
0,00
0,00
Europe
Nafta
South America
MEA
Asia Pacific
Commuting accidents
28
44
36
0
0
Europe
Nafta
South America
MEA
Asia Pacific
the breakdown by Region:
The Frequency Index for occupational illnesses in 2017 stood at 0.04.
FI employees of suppliers
operating at Pirelli
0.14
0.00
1.22
0.00
0.00
Europe
Nafta
South America
MEA
Asia Pacific
FI Occupational illnesses
0.04
0.04
0.07
2017
2016
2015
FI = number of occupational illnesses/number of hours actually worked x 100,000
Fatalities
> 2017: a fatal accident occurred involving Pirelli Group employees at the Campneus Company (Brazil); no fatal accidents involving
employees of external companies operating at the Group’s operating units;
> 2016: there was no fatal accident involving Group employees or employees of independent contractors working at the Group’s
The following tables summarize the distribution of the 2017 occupational illnesses index by gender and geographic area:
operating sites.
FI Occupational illnesses
Male
Female
0.04
0.04
FI Occupational illnesses
0.04
0.00
0.09
0.00
0.00
Europe
Nafta
South America
MEA
Asia Pacific
> 2015: a+ fatal accident occurred involving Group employees at the Yanzhou (China) operating unit; no fatal accidents involving
employees of external companies operating at the Group’s operating units.
Best Practices 2017 Fifteen Pirelli manufacturing plants were “sites of excellence” in 2017, since no employees were injured there
in the year:
> Manufacturing Units: Burton MIRS, Slatina Motorsport, Bicocca MIRS, Breuberg MIRS, CMP
> Fitted Units: Sorocaba, Hurligham, Sao Jose dos Pinhais, Goiana, Didcot
> Equities: Dackia, AGOM
> Logistics – TLM: Barueri, Campinas, Feira de Santana
These results should be attributed to the constant focus on leading indicators, namely in terms of prevention.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain Health and Safety Expenditure In the three-year period
2015-2017, expenditure for health and safety by the Group
amounted to about Euro 30 million, of which about 10 million
was invested in 2017.
The expenditure made targeted improvements on machines
and plant and, more in general, the workplace environment
EXTERNAL COMMUNITY
INSTITUTIONAL RELATIONS
OF THE PIRELLI GROUP
as a whole (ex. improvement of microclimate and lighting
In all the countries where Pirelli operates, the aim of Institutional
interests through a strategy based on a clear perception of
the Foreign Policy Association. In October, on the occasion of
the industrial objectives and business valorization. Moreover,
the visit of the Governor of Georgia to Italy, Pirelli hosted the
among the various tools of “economic diplomacy”, in addition
Governor and related delegation at its headquarters to renew
to the promotion of bilateral initiatives, Pirelli is particularly
the relationship with the State in which it is present with an
active in a number of Business Councils, including presidency
industrial plant.
of the Business Forum Italy China, where it has held presidency
since 2016.
Also in Brazil, Pirelli continued to celebrate the country’s
strong link with Italy, promoting, among others, meetings
conditions, changes in layout for ergonomic improvement
Relations Management is directed towards creating corporate
With reference to the most important international initiatives,
with institutional representatives. In 2017, the Group met the
of activities, measures to protect the healthfulness of
value through managing structural relations with reference
there is therefore that of the Italy China Business Forum,
mayor of São Paulo on the occasion of his visit to Italy. Pirelli
infrastructure...).
stakeholders, ensuring adequacy of representation of the Company.
a permanent forum of dialogue between the business
also maintains relations with local institutions to protect its
Health and Safety Targets
> 2020: reduction in the Accident Frequency Index of 87%
The activities are based on the utmost transparency,
of the Italian Ministry of Economic Development and the
and Rio Grande do Sul, with which a series of initiatives are
legitimacy and accountability, with respect to both the
Chinese Ministry of Commerce (MOFCOM). During 2017, as
also developed to raise awareness on issues such as road
information disseminated in public venues, and to relations
part of the Business Forum, of which Pirelli is co-chairman,
safety, safeguarding the territory and promoting culture.
compared to 2009 (underway);
managed with
institutional
interlocutors,
in
line with
a series of business sessions and meetings were organized,
> 2014-2020: global implementation of the “Excellence in
the Group’s Ethical Code, Institutional Relations Policy -
with the participation of institutional representatives, aimed
In the European context, a significant activity also concerns
Safety” program (underway);
Corporate Lobbying and the Anti-corruption Compliance Program
at strengthening bilateral relations between Italy and China.
Romania, in which Pirelli maintains a constant dialogue with
> 2017-2020: completion of integration of Health, Safety and
(documents published on the Company’s website) and in line
These include the Italy China Financial Forum held at the Pirelli
the main institutional interlocutors in order to accompany the
Environment KPIs for the sale/commercial/equities areas
with the principles of the International Corporate Governance
Headquarters in February, in which some of the most important
phases of industrial development at the Slatina site. Among
(underway).
Network (ICGN) and however in compliance with the laws and
financial institutions of the two countries took part, in addition
the activities carried out in 2017, during the visit of a Romanian
communities of the two countries set up under the auspices
industrial sites, distributed in the states of São Paulo, Bahia
1
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regulations of the countries where Pirelli operates.
to the Italian Minister of Economy and Finance; the fourth
delegation led by the Secretary of State for Trade in November,
plenary session of the Business Forum, organized in Beijing in
Pirelli took part in the forum dedicated to the promotion of
The geographical scope of the Pirelli Group’s industrial and
the presence of the two Heads of State; the “China Italy SME
bilateral economic relations.
economic interests therefore calls for an extended and multi-
Investment and Trade Forum”, held in May in China on the
9
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level network of institutional relations on a national, European
occasion of the presence of the Italian President of the Council
As proof of the Group’s continuing commitment to
and international level.
in Beijing and dedicated to the promotion of collaboration
strengthening relations with the countries
in which
it
between small and medium enterprises; the Conference “Belt
operates, in 2017, Pirelli took part in official visits with
In the area of institutional relations, Pirelli acts above all via
and Road: Building a Concrete Roadmap for Italy and China’s
institutional representatives visiting Italy. In this context,
active monitoring and in-depth analysis of the institutional
Joint Growth” held in Milan in November to provide a concrete
a series of bilateral meetings could thus be carried out,
and legislative context and identification of stakeholders
contribution to business communities for the implementation
aimed at analyzing the Group’s industrial and commercial
of reference. Institutional dialogue is further accompanied
of joint projects within the Chinese development strategy.
issues with significant institutional impacts. These include
by projects and initiatives carried out in collaboration with
Also in the context of relations with China, the Group has also
representatives of the Mexican, US, Egyptian, British, Chinese
institutional entities to promote and support issues of general
developed more relationships at regional level as well.
Government and of the Federal Republic of Tatarstan.
interest on corporate matters.
Activities concerning institutional relations also involved quite
Relations with European
Institutions also
focus on
The
Institutional Business activity also
includes the
constant distribution of information relating to international
consolidating relations with stakeholders of reference and
analysis of global political-economic dynamics, linked to
Pirelli initiatives towards qualified institutional interlocutors
monitoring legislation. The ongoing dialogue and discussion
the development of the main topics of corporate interest,
as well as ongoing monitoring and analysis of the institutional
with the Commission and the European Parliament concern
and benefits from collaborations with selected think tanks
and political dynamics.
a wide range of matters of corporate interest: industrial
of international prestige. These include among others the
policy, research and innovation, energy and environmental
collaborations with the Institute for International Policy
As part of the enhancement of the historical relations between
policies, mobility, technical regulations, domestic market and
Studies, the International Affairs Institute, The Trilateral
the Company and the United States of America, where Pirelli
international trade. In line with Group standards, during the
Commission, and the Aspen Institute.
has industrial and commercial facilities, work continued
various stages of processing and forming European regulation,
At an international level, Pirelli interacts with the main
and activities at the United States Council for International
with an approach that is at all times directed towards utmost
institutional interlocutors present in the countries where it
Business, European American Chamber of Commerce and
transparency and propriety. The Pirelli Group is enrolled with the
operates with its production sites. When necessary, the Group
Italian American Chamber of Commerce, Organization for
European Registry for Transparency, which was instituted by an
promotes initiatives directed towards mutual understanding
International Investment, and the Eurogrowth initiative of the
institutional agreement between the European Parliament and
and with the purpose of promoting representation of its
Atlantic Council. Pirelli also maintains its board membership in
the European Commission.
on a number of initiatives related to institutional projects
Pirelli represents Group interests with community stakeholders
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain 1
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Given its particular centrality, however underlined by the
leadership guidelines envisaged in the Global Compact to inspire
was completed, which saw ETRMA and Pirelli contribute
statutory pacts of the new listing on the stock exchange that
advanced and innovative sustainability performance in terms of
significantly to the programmatic and strategic proposal on
seal the Italian nature of the group, relations with national
management capacity for the creation of sustainable value.
the new challenges arising from technological changes on
WBCSD – World Business Council for Sustainable
Development For years, Pirelli has been a member
of the WBCSD – World Business Council for Sustainable
authorities continue to have particular importance. In fact, in
connectivity & autonomous driving and new approaches to
Development. This is a Geneva-based association of about
Italy, the Group continues to interact with a system of relations
In 2017, the Global Compact Lead activated a series of
mobility, as well as from global trade, in particular with China.
200 multinational companies based in over 30 Countries that
that involve the main institutional bodies, both central and local.
initiatives to provide support in the definition of strategies
Moreover, ETRMA continued to be heavily involved in the
have made a voluntary commitment to link economic growth
In government contexts, Pirelli maintains constant relations
and partnerships for the pursuit of Sustainable Development
implementation of the Emission Trading Scheme, with the aim
to sustainable development. In particular, Pirelli endorses two
with the main structures of reference and with the entities
Goals (SDGs) launched in September 2015 in New York with the
of reducing the economic impact for the sector of European
projects: Tire Industry Project and SiMPlify project (former
related to them. Relations with the Ministry of Foreign Affairs
aim of accompanying the activities of sustainable companies
energy policies and the European Innovation Partnership on
Sustainable Mobility Project - SMP).
and International Cooperation are particularly important, in both
until 2030.
Raw Materials and guaranteeing fair and unrestricted access
the central and peripheral areas, with which the information
to key raw materials for the sector.
The Tire Industry Project (TIP), whose members account
activity regarding the presence of Pirelli in the international
This context includes Pirelli’s participation in the action
for about 65% of global production capacity of tyres,
area is constant, as well as support in the valorisation of
platforms “Decent Work in Global Supply Chains”, “Financial
Finally, the association supports the European Commission
was founded in 2005 with the objective to seizing and
system interest abroad. Relations are particularly important
Innovation for the SDGs” and “Reporting on the SDGs”; the work
in the definition of policies on the Circular Economy for the
anticipating the challenges of sustainable development
with the Directorate General for internationalization policies
group of the latter presented to the public the report “Analysis
sector and is successfully continuing in promoting sustainable
through the assessment of the potential impact on health and
and the promotion of exchanges of the Ministry of Economic
of the Goals and Targets“ during the leader summit held in
manufacturer responsibility practices for the management
environment of tyres throughout their life cycle. The project
Development, particularly aimed at coordinating the activities
September in New York.
of end-of-life tyres, thanks to which Europe maintains a
extends its evaluation activities to raw materials, tyre debris,
of the Italy China Business Forum. The Group also supported
more than 95% recovery rate, through close collaboration
with upcoming focus on India, and nano-materials. On the
various initiatives of institutional importance, including events
In 2016, Pirelli had already provided business cases for the SDGs
with the various operating partnerships existing in European
latter issue, in collaboration with the OECD (Organization for
to raise awareness on issues of environmental protection, safety
Industry Matrix of the Transportation sector, a publication
countries. The good ETRMA (and European) practices remain
Economic Co-Operation and Development), TIP has developed
and territorial protection. In the diplomatic sphere, Pirelli also
aimed at collecting examples of application of the SDGs to
an international benchmark.
a specific guide for the sector that contains best practices of
hosted the XII Conference of Italian Ambassadors in the presence
corporate activities.
reference for research, development and industrialization of
of the Italian Foreign Minister at Pirelli HANGARBICOCCA™.
ETRMA maintains a proactive role in the development of
new nano-materials, so as to ensure that the use of any nano-
The Group is also engaged in customary in-depth analysis of
Since 2014, Pirelli has been a Founding Participant of the
cognitive studies regarding environmental issues, such as
material is safe for people and the environment; the document
institutional importance, concerning: questions relating to the
SSE Corporate Working Group, the group of companies that
microplastics, and health, for example the filling material
is available at the Internet address.
industrial presence of the Group; promoting and strengthening
provide their own evaluations and indications as part of the
obtained from end-of-life tyres for sports fields.
h t t p : / / w w w . o e c d . o r g / c h e m i c a l s a f e t y / n a n o s a f e t y /
international relations in countries where the Group is present
Sustainable Stock Exchanges (SSE) initiative promoted by
nanotechnology-and-tyres-9789264209152-en.htm.
with industrial sites, analysing and studying in-depth impacts
UNPRI, United Nations Conference on Trade and Development,
relating to the regulatory governance of tyres and their entire
United Nations Environment Program Finance initiative and
life-cycle; matters relating to road safety and environmental
the UN Global Compact. The initiative is based on a platform
IRSG – International Rubber Study Group Pirelli, in
representation of the European Commission, is a member
TIP has also finalized the development of “product category
rules” (PCR) necessary to carry out product
life cycle
sustainability, both as regards production processes and in
for exchange of ideas and assessments, which aims to increase
of the Industry Advisory Panel of the International Rubber
assessments (LCAs), as well as to develop the “environmental
respect of the product itself.
the attention of world stock markets, investors, regulators
Study Group (IRSG) based in Singapore, an intergovernmental
product declarations (EPDs)” for tyres so that the results are
and companies to the sustainable performance of companies.
organisation that brings together producers and consumers
comparable between the various producers. With reference
MAIN INTERNATIONAL COMMITMENTS
FOR SUSTAINABILITY
The attention of Pirelli to sustainability is also expressed
ETRMA – European Tyre and Rubber Manufacturers
Association ETRMA
is the main partner of the EU
institutions for the sustainable development of new European
of rubber (both natural and synthetic), acting as a valuable
to the aggregated environmental reporting of the sector, TIP
platform for discussion on issues regarding the supply and
demand for natural and synthetic rubber. It is the principal
has identified as relevant the data relating to CO2 emissions,
energy consumption, water use and ISO 14001 certification.
source of information and analysis on all aspects related to
the rubber industry. Within IRSG, Pirelli participated in the
Also in 2017, TIP worked on the international promotion of
through participation in numerous projects and programs
policies for the sector and for their proper implementation.
Sustainable Natural Rubber Project, which resulted in the
good practices on end-of-life tyre management in terms of
promoted by international organisations and institutions in
With the institutional support of the Pirelli Group, in 2017,
management guidelines for the Sustainable Natural Rubber
valorization of recovery and reuse as a second raw material.
the area of social responsibility. The following are some of
the association continued to raise awareness of the European
Initiative (SNRi) launched in 2014, during the World Rubber
the main commitments undertaken by the Group worldwide
Commission and European Union Member Countries on
Summit.
(numerous activities and agreements existing locally at the
the implementation of market surveillance for monitoring
The next projects concern the analysis of existing best
practices, and possible platforms,
for the sustainable
affiliated companies are not included).
compliance with regulations on the general safety of vehicles
The experience of Stakeholder engagement carried out
management of natural rubber, and the assessment of the
UN Global Compact Pirelli has been an active member of
the Global Compact since 2004 and since 2011, it has been part
of the partnership with the national associations of the sector
the preparation of its Sustainable Management Policy for
The SiMPlify Project, in which Pirelli has participated since 2013,
of which Pirelli is an active member. At the end of 2017, the
natural rubber, published in 2017 and to which a paragraph is
has developed a vision linked to an idea of urban mobility that
of the Global Compact Lead Companies. The Group endorses the
European Commission’s program on Competitiveness and
dedicated in this report.
is universally accessible and with low environmental impact, for
“Blueprint for Corporate Sustainability Leadership”, which offers
Sustainable Growth of the Automotive Industry (GEAR 2030)
the transport of both passengers and goods in an urban context.
and tyres and on energy efficiency, as well as the labelling of
within the Project, as well as the SNR-I Guidelines, are
presence of microplastics in the marine environment.
tyres in European Countries, and through the strengthening
among the many references that Pirelli has considered for
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ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain The project (2013-2019) involves international companies in the
automotive, auto parts, transportation, oil&gas, information
CSR Europe
Since 2010, Pirelli has been a member of the Board of CSR
COP21 Initiative” (2015) and participated in several side events
dialogue with locally operating NGOs. Priority is given to those
organized during the “COP21” Climate Conference in Paris
initiatives whose positive effects on the External Community
and communication technology sectors.
Europe, represented by the Sustainability and Risk Governance
(2015).
The project availed itself of the support of the University of
Director. CSR Europe is a network of companies in Europe
are tangible and measurable according to objective criteria.
The internal procedure also specifies that no initiatives may
Ghent and experts in the field and provides a tool based on
that are leaders in the area of corporate social responsibility.
Throughout 2014, the Group joined the “Road to Paris 2015”
be taken in favour of beneficiaries for whom there is direct or
numerical data normally available in the municipalities of
Its members include more than forty-eight multinational
project and signed three initiatives consistent with its
indirect evidence of violation of human rights, worker rights,
cities - such as, for example, the number of inhabitants, the
companies and forty-one national partner organisations from
sustainable development strategy:
environmental protection or business ethics.
number of cars, kilometres of cycle paths - which, together
thirty-three European countries.
> Responsible Corporate Engagement in Climate Policy;
with an online survey on citizenship, allow to calculate 19
> Put a Price on Carbon;
The contributions to the External Community by Group
indicators on the state of mobility of the city and therefore to
In addition to several collaboration projects between
> Climate Change Information in Mainstream Filings of
companies are part of a broader strategy to support the
propose ad hoc solutions derived from best practices available
companies for the improvement of corporate management
Companies Communication.
achievement of the Sustainable Development Goals of the
worldwide.
performance,
in 2017, CSR Europe continued with the
United Nations (SDGs), already mentioned above in the
initiative “European Pact for Youth” launched in 2015 and
Also
in 2014, the Company signed the Trillion Tonne
paragraphs “United Nations Sustainable Development Goals
In a first phase, the project was implemented in six pilot cities
“Sustainable Business Exchange”, launched in 2016 to support
Communiqué, the document that requires global emissions
(SDGs)” and “UN Global Compact”.
such as Hamburg, Bangkok, Chengdu, Indore, Lisbon and also
the achievement of the sustainable development goals of the
over the next 30 years to remain below the trillion tonnes
Campinas which, in addition to being home to an important
United Nations.
of greenhouse gases, avoiding a rise in average global
At the end of each of the following paragraphs, the SDGs are
Group plant, saw Pirelli as the project’s task force leader,
temperature higher than 2 °C.
indicated which are most directly impacted by the activities of
helping the city authorities to redefine the urban mobility
The Pact for Youth, supported by the European Commission
the Company described therein.
plan, and focusing on issues of sustainable mobility, road
and aimed at supporting the increased employment of young
Pirelli has also signed numerous international agreements
safety and polluting emissions. In 2017, the project continued
people through education and training as essential tools to
such as “The Carbon Pricing Communiqué” (2012), the “2nd
and Pirelli is leading its activities in Feira de Santana, home
match the skills of young people to the new skills required by
Challenge Communiqué” (2011), the “Cancún Communiqué”
to another important Brazilian plant of the Group, and is
the market, has seen Pirelli as a co-initiator of the initiative;
(2010), the “Copenhagen Communiqué” and the “Bali
Road safety Pirelli is synonymous worldwide not only
with high performance, but also safety. Together with
1
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laying the foundations in this direction for its adoption, in
the results of the two-year project were presented in
Communiqué” (2007), the first document for the development
environmental protection, road safety is the key element of
the course of 2018, also in Jiaozuo, important city in rapid
November 2017 in Brussels, in the presence of the President of
of concrete strategies for a global climate agreement to be
the Green Performance strategy that inspires the Group’s
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transformation located in the center of China, also a Pirelli
the European Parliament. The Pirelli Group contributed to the
implemented through a joint government intervention.
industrial and commercial choices. Pirelli’s commitment to road
production site.
realization of these goals through a network of collaborations
with high schools and universities in the various countries
The effectiveness of the project and its tool is confirmed not
in which it operates (reference is made to the paragraph
only by the satisfaction of the cities where it has already been
“Company Initiatives for the External Community”, sub-
used, but also by the various acknowledgements received from
paragraph “Training” for further details on the project
COMPANY INITIATIVES FOR
THE EXTERNAL COMMUNITY
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.
various international organizations, including the European
“Alternanza Scuola Lavoro” launched in Italy).
As specified in the Group “Ethical Code”, Pirelli provides
In 2017, Pirelli continued its commitment to the promotion of
Commission, which decided to adopt the tool to support in
support to educational, cultural, and social initiatives for
road safety through adherence to the “Action for Road Safety
this sense, 50 European cities.
Pirelli has chosen CSR Europe for the organization of the
promoting personal development and
improving
living
Campaign” of FIA, developed in support of the decade of actions
EU-OSHA – European Occupational Safety and Health
Agency For the ninth consecutive year, Pirelli continued to
be an official partner of the European Occupational Safety and
Pirelli Global Stakeholder Dialogue 2016, of the Stakeholder
standards. The Company does not provide contributions,
for road safety organised by the United Nations in late 2011.
consultations carried out in the same year in Romania, Mexico,
advantages, or other benefits to political parties or trade
The FIA campaign promotes initiatives and training and
Germany and Turkey, and in 2017, in Russia and Argentina.
union organisations, or to their representatives or candidates,
information campaigns aimed at encouraging more responsible
In 2017, CSR Europe also moderated the multi-stakeholder
this without prejudice to its compliance with any relevant
automotive behaviour and having safer roads and cars.
consultation held by Pirelli and concerning the draft of the
legislation. Since the founding in 1872, Pirelli has been aware
As the Global Partner of this campaign, Pirelli has signed the
Health Agency (EU-OSHA) in 2017. Every two years, the Agency
Company Policy on the sustainable management of natural
that an important role in the promotion of civil progress in
“Ten Golden Rules” for road safety, committed to disseminating
tackles a different issue. The 2016-2017 campaign “Healthy
rubber (later published in October 2017).
all the communities where it operates and, capitalising on
it to its distribution network and has launched training
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
International commitments against climate change
For years, Pirelli has been committed to the fight against
the Company’s natural strengths, it has identified three focus
programs and projects to raise awareness on safe driving
areas: road safety, technical training and solidarity through
during the course of 2017 in several countries where it operates.
sporting activities for young people. Pirelli for some years has
adopted an internal procedure to regulate the distribution of
Regarding road safety, Pirelli is also a signatory of the European
series of targeted initiatives, confirming its commitment to
climate change, promoting the adoption of energy policies for
gifts and contributions to the External Community by Group
Road Safety Charter, through which it undertakes to:
promoting a healthy work environment, where employees
the reduction of CO2 emissions.
companies, in relation to the roles and responsibilities of
> contribute
to
consumer
knowledge
about
the
feel valued and where dialogue and the sharing of know-how
the functions involved, the operational process of planning,
fundamentals of road safety, through experience and safe
between different generations is encouraging.
To this end, Pirelli has participated in numerous events and
realising and monitoring the initiatives and the disclosures
driving courses;
projects such as the Climate Conferences “COP23” in Bonn
regarding the same. Essential support in the identifying of the
>
increase the awareness of young drivers on the causes of
(2017) and “COP22” in Marrakesh (2016), the “Business for
actions that best satisfy local requirements comes from the
road accidents through specific initiatives;
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain
> provide information material on winter road safety at the
Breuberg factory area, supporting the “Scuola di Bicicletta”
points of sale, with the support of the Pirelli website and
(Bicycle School) project that teaches students how to react
sites dedicated to information on winter ordinances;
to traffic.
> organise
training
seminars,
in collaboration with
Training The promotion of technical education and training
at all levels are very old values that are well-established in
the history of Pirelli. The Group continues to benefit from
use both virtual reality and physical warehouse simulators,
service areas and offices.
technical and research cooperation with various universities
In Italy, in 2017, the Alternanza Scuola Lavoro project was
associations, on issues of road safety related to the tyre
There have been many activities offered in Russia; like every
around the world, beginning with the Milan and Turin
inaugurated, governed by the 2015 “Buona Scuola” law. The
and its related uses;
year, in August, the city of Kirov collaborated with Pirelli in
Polytechnic Universities, the Milan Bicocca University and
project, designed on a three-year basis, involves two classes
>
train international dealers on the importance of the tyre
the campaign “Kirov is for politeness on the road”. The slogan
also the Qingdao University in China, the University of Craiova
of chemical and technological institutes in the area and aims
in road safety and the performance differences between
of the event is “kindness deserves to be encouraged”; during
in Romania and the Universities of Baden-Wuerttemberg,
to accompany the children belonging to the classes involved
winter, summer and all-season tyres; the activity has been
the event the local police, together with some volunteers,
Darmstadt and Aschaffenburg in Germany, among others.
throughout the three-year period, in order to guide them to
ongoing for over three years and has involved most of the
observes drivers to evaluate respect of intersections and
discover what a company is, to support them in understanding
countries in which Pirelli has a direct presence; in 2017,
distributes
information
leaflets. The best drivers were
In Spain and China, Pirelli sponsored various scholarships.
the main dynamics of company management and to help them
there were more than 800 classroom training sessions
awarded during the ceremony with Pirelli tyres. The theme of
In China, Pirelli sponsored 36 scholarships for outstanding
in the delicate phase of professional choice and orientation.
for dealers from around the world with more than 18,000
the day was FIA’s “golden rules” on road safety. Also in Kirov, at
students at the University of Qingdao for Science and
Adhering to the Pirelli project therefore facilitates schools
participants;
the beginning of the school year, Pirelli distributed to students
Technology, while in Spain the beneficiaries are students
in the regulatory compliance of the provisions of the decree,
> actively participate in national programs on road safety, in
reflective material to be attached to clothes and bags to be
at the UAB (Universitat Autonoma de Barcelona) and FUB
supports the territory in the promotion of school excellence
agreement with associations, institutions, universities,
seen by motorists at night.
(Fundació Universitaria del Bages).
and internally promotes the management of generational
manufacturers of cars and motorcycles or collaborating
diversity thanks to the involvement, within the project, of
with law enforcement agencies for the preparation of a
In the United States, Pirelli has collaborated with “Mothers
In Germany, the company supported the universities and
senior Pirelli employees in the role of mentors and guides of
useful module for detection of the state of use of the tyre.
Against Drunk Driving” in a marketing campaign, to raise
schools of Hochschulen, Berufsschulen, DHBW Mannheim and
the young students hosted.
awareness and raise funds for the organization, which fights
EGS Höchst Odenwald.
Also at Group level, since 2013, Pirelli has participated in the
drunk driving. In China, Pirelli collaborated with the NGO
Training does not only concern the production process
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WBCSD SiMPlify project that proposes solutions for the
Shangri-la Institute for Sustainable Communities (“SISC”). SISC
In Brazil, Pirelli supports Educandario Imaculado Coracao de
at the factory; for Pirelli, the entire life cycle of the tyre is
redefinition of urban mobility with a focus on the issues of
is a non-governmental organization that promotes education
Maria in Amélia Rodrigues, an elementary school run by Italian
important. In fact, the Group focuses heavily on disseminating
sustainable mobility and road safety. For further details on
for sustainable development, by supporting projects with
nuns and attended by 800 children.
sustainable agriculture practices for raw materials such as
Pirelli’s involvement in this project, reference is made to the
schools and local communities. Pirelli also participated in a
natural rubber. In Indonesia, in collaboration with the supplier
paragraph “WBCSD” of this report.
road safety education day at a school in Qiongqing, involving
In the United Kingdom, Pirelli sponsors children’s projects, as
Kirana Megatara, Pirelli continued the “Rubber Productivity
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about 755 people.
well as an important fair for employment.
Enhancement Project” with three main objectives:
In Italy, also in 2017, Assogomma activities continued: the
> educating natural rubber farmers by teaching the correct
product trainers were directly involved in the provision of
In Turkey, a Pirelli team had 5 days of “pit stops” in Istanbul,
In Turkey Pirelli sponsors the “Innovative Thinking for High
procedures for rubber extraction enabling the protection
courses to the Traffic Police in the context of the “Estate in
measuring the tread of 34,180 tyres for the safety of drivers. In
Schools” project with various activities, training courses and
of natural resources (maximizing productivity and
Sicurezza” (Summer in Safety) activity. As in previous years, a
Brazil, in 2017, Pirelli launched the support of a go-kart school
workshops.
section of the website was dedicated to driving tips, in summer
for children aged between 6 and 16, with the aim of raise
maintaining and extending the life of trees). Training is on
three fronts: theory, extraction, and quality;
and winter, highlighting the important role played by the tyre
awareness among future drivers for respect of road rules and
In Romania, Pirelli’s partnership with the University of Craiova
> distributing high quality natural rubber tree seeds to
in the active safety of vehicles and its occupants. Training
the regulation of track racing, encouraging them to do sports.
concerns the Master’s programs in information technology
farmers so that they can plant better trees with higher
activities aimed at raising awareness on the issue of road
There have been multiple initiatives in favour of road
and engineering in the automotive field. Furthermore, in
productivity;
safety have also been carried out in relation to interlocutors
safety education on two wheels. In 2017, Pirelli Motorcycle
collaboration with local authorities, Pirelli participates in the
> giving scholarships to the children of natural rubber growers,
other than the sales network and institutional interlocutors,
has increased its collaboration with driving schools for
START program, aimed at training the unemployed, which in
to allow them to go to school and buy school books.
such as students: Pirelli has managed a three-year training
the development of practical and safe road and off-road
2017 certified the students as operators in the curing area. In
course for students of the Don Orione di Fano and Orselli di
experience. Among the various initiatives are Metzeler Off-
Russia, Pirelli promoted a competition among students who
SDGs - Reference Targets:
Forlì professional institutes, in front of an audience of future
road Park, Old School Racing by Alex Gramigni, GS Academy
challenged themselves with projects in the field of chemistry.
> 4.4, dedicated to increased technical training to youth
operators in the automotive sector.
in collaboration with BMW, Ducati Racing Experience in
and adults, aimed at
increasing manual skills and
collaboration with Ducati and True Adventure Academy in
Technical training has a fundamental role in the creation of
entrepreneurship;
There have been numerous road safety initiatives activated by
collaboration with Honda.
a skilled labour pool needed to maximise plant productivity.
> 9.5, referring to support for scientific research and increased
the other countries in which the Group operates: in the USA
In Mexico, the Piero Pirelli Institute for technical training,
technological capabilities of the industrial sectors.
and Canada, the “Tire Safety Week” was organized, an initiative
SDGs - Reference Targets:
inaugurated in 2015, is equipped with the most advanced
on safe driving that also involved other tyre manufacturers; in
> 3.6, dedicated to reducing the number of deaths and
learning
tools
(virtual
simulator, automatic controls,
Mexico, a series of messages on road safety to be aired in 2018
injuries due to road accidents;
pneudraulic systems, electrical, electro-mechanical, mechanical
in the State of Guanajuato is being developed and produced
>
11.2, in support of safer, more accessible and sustainable
and measurement systems). Within the institute, there are
Sport and social responsibility There is a close link
between solidarity and sport, in a virtuous circle where
in collaboration with a local television channel. In Germany,
transport systems, with particular attention to the needs
numerous classrooms, a showroom on the process, materials
commitment to sports becomes synonymous with the
Pirelli supported the secondary school in Michelstadt, in the
of the most vulnerable groups.
and 3D models of the product, production workstations that
commitment to promoting solidarity and ethics, especially
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain 1
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amongst young people. Getting young people involved in sport
a Pirelli team ran for the “Naked Hearts” foundation to raise
In China, Pirelli supported orphans and poor people in Yanzhou.
In many countries, Pirelli promotes a healthy and active
is a way to teach the notion of integration to children from
funds for disabled children.
In the Netherlands, Pirelli sponsored “Amici di Sophia” (Friends
lifestyle with various projects, both among its employees
different social groups, and helps prevent negative situations
of Sophia), projects for children at the Rotterdam hospital.
and in the local community. In the United States, a “Wellness
like isolation and solitude. Pirelli signed a global agreement
SDGs - Reference Targets:
In Belgium, the company made a donation to the “Pecheur
Challenge” was organised.
not only for the sponsorship of the professional football club
> 3, dedicated to guaranteeing a healthy lifestyle and
de Lune” foundation that organizes events for sick children.
FC Internazionale Milano (“Inter”), but also as a partner of the
promoting well-being for everyone, at all ages.
In Greece, Pirelli accompanied a group of orphans to visit an
In addition, in several countries, Pirelli makes donations to
global social project Inter Campus.
Since 1997, Inter Campus has developed social, flexible
cooperation and long-term actions, in 29 countries around the
Solidarity The responsible approach taken by Pirelli to
involvement and inclusion takes the form of social solidarity
automobile museum. In Switzerland, Pirelli donated tyres for
scientific research, or collaborates with the volunteer projects
transporting the disabled. In Mexico, Pirelli is contributing
of employees for research fundraising. In the USA, a donation
to the creation of a community center, “Centro Impulso”
was made for breast cancer research; in the Netherlands, for
(Impulse Center) that offers sports and cultural activities, as
pancreatic cancer research; in Belgium, for a foundation that
world with the support of 200 local operators, using football as
activities worldwide. The Company supports educational and
well as technical training.
deals with pediatric oncology. In the UK, several donations
an educational tool to offer needy boys and girls aged between
didactic programs that are able to give less fortunate children
were made for cancer research, to hospitals and hospices in
6 and 13 the right to play. Since 2008, Inter and Pirelli, along
the tools to improve their condition; it contributes scholarships
In the UK, Pirelli raised funds for the national autism society,
the community and for individual cases of need. In one case in
with a local partner, have been running the Inter Campus
and research projects, firmly believing in training as vital to
a trip of volunteers to Zambia for philanthropic activities, a
particular, Pirelli collected money and made a donation to help
social project in Slatina, Romania. The sports and recreational
individual growth and the economic growth of a country. In
visit of needy children to the circus, a project against online
a sixteen-year-old boy victim of a car accident in Carlisle, to
activities are organised for the entire year, involving over 100
Brazil, where Pirelli has been historically active in the local
bullying, a football sponsorship for “Me & Dee”, which offers
face medical expenses and buy a prosthetic leg.
children from different social contexts who have been learning
community with social projects, the Company provided for
holidays to needy people, meals for the homeless, and toys for
team spirit, social integration and the values of friendship
children in the city of Feira de Santana, near the Pirelli factory,
needy children at Christmas.
In Spain, Pirelli participated in the Day of Solidarity Somos Uno,
through football for years. Since 2012, Pirelli and Inter have
in an after-school program with 15 different types of activities.
raising funds for biomedical research for serious childhood
replicated the experience of Inter Campus in Mexico: Inter
A similar project is near the Gravataí factory, which is aimed
Pirelli USA and Pirelli Mexico, in addition to Pirelli at Group
illnesses and the prevention of Alzheimer’s. In Turkey, Pirelli
Campus Silao, near the Pirelli factory, inaugurated by President
at social inclusion and includes music and dance activities in
level, have donated funds to the Red Cross to help the victims
made an awareness campaign on the problem of breast cancer.
Felipe Calderon, involves about 400 children in the area. In
addition to more traditional educational activities. Also in
of hurricanes in the USA and the earthquake in Mexico.
the United States, the first Inter Campus was inaugurated in
Brazil, Pirelli supports the kindergartens of Dr. Klaide in Santo
SDGs - Reference Targets:
2014 by Pirelli and Inter in the community of Inwood, area of
André and Escadinha do Tempo in Meleiros, which guarantee
In Italy, the “Insieme per il Centro Italia” (Together for
> 3, dedicated to guaranteeing a healthy lifestyle and
New York City. Also in 2014, Pirelli and Inter launched an Inter
not only educational activities but also medical, dental and
Central
Italy) fundraising campaign saw the Company
promoting well-being for everyone, at all ages.
Campus project together in Voronezh, Russia, involving two
psychological visits, in addition to food, for 285 children.
double the donations made by employees and intended for
local orphanages with about 100 children.
the construction of a “city of production activities” in the
Pirelli supports the Fundació Mambre in Spain, a foundation
Municipality of Arquata del Tronto, hit by the earthquake in
In Brazil, Pirelli sponsors basketball, volleyball, football, judo,
that operates as a facilitator in social inclusion processes,
summer 2016.
cycling and tennis activities. In the United States, Pirelli
supporting homeless people on their individual growth paths.
initiatives Many Pirelli employees
Environmental
around the world enthusiastically participate every year in
environmental projects. Employees in France and Australia
sponsored the local team Rome Braves in Georgia, as well as
In addition, the Company supports programs providing food
SDGs - Reference Targets:
wanted to promote recycling initiatives.
various sporting events related to philanthropy, including
for needy families, and a warehouse for the storage of food for
>
1, on the eradication of poverty in all its forms;
the donation to R.A.C.E. (Racing Awareness Charity Events
the poor. Pirelli collaborates with the AMPANS Association,
> 2, related to the elimination of hunger in the world;
In Romania and Russia, groups of employees have volunteered
of Rome) and a donation to the YMCA. Even in the United
dedicated to the cognitively disabled. Pirelli also contributed
>
11, dedicated to the development of cities and social
for local environmental clean-up projects. In Romania, more
Kingdom, Pirelli sponsored various sporting events related to
to a solidarity project aimed at facilitating the search for jobs
environments that are inclusive, safe and sustainable.
than 200 volunteers went to the Strehareti forest to collect
philanthropic fundraising and contributed funds for a female
for intellectually disabled people, and collecting toys for needy
youth football team.
children at Christmas.
In Kirov, Russia, Pirelli sponsored the ice hockey “Pirelli Cup”,
In Russia, Pirelli contributed to the “Chance” project, which
Health Pirelli considers contributing to improving the health
services of the communities where it operates to be important.
waste. In Russia, 60 employees of the Voronezh plant collected
waste in the biosphere nature reserve, interacting with the
local beaver community. In Kirov, Pirelli participated in the
“Giochi Puliti” (Clean Games) competition on waste collection.
involving several youth teams (120 participants).
provides private lessons to orphans, while in Kirov, Pirelli
Since 2008, Pirelli Tyres Romania, in collaboration with the
In Germany, Pirelli supported a football initiative for the
of children and, with the support of the Arifmetika Dobra
training of medical and nursing professionals and the donation
State of Guanajuato on 40 hectares of land, while in Romania,
disabled.
foundation, organised a visit to a playground. Also in Kirov,
of medical equipment and devices to Slatina Hospital. Over 270
in Slatina, about 100 employees planted around 80 trees.
employees dedicated part of their time to entertainment
Niguarda Hospital in Milan, has supported the professional
In Mexico, Pirelli sponsored a reforestation project with the
employees support two orphanages with visits and donations.
professionals were trained in this program, and specifically in
In Romania, Pirelli sponsored the “Io Tifo Positivo!” Project for
oncology, paediatric care and emergency care. Pirelli Tyres
A major project to preserve the forest areas was Kirana
children aged between 7 and 14, to encourage fairness in sport,
In Turkey, Pirelli hosted special students from the Kosekoy
Romania has also provided dental treatment to around 300
Megatara in Indonesia, already described in this chapter in
and organized a sports weekend for more than 100 local families.
Youth Education and Rehabilitation Center
for
the
children in Slatina through the project Overland for Smile.
the section on training, aimed at maximizing productivity and
In Turkey, a team of employees ran in the Istanbul marathon in
employees cooked for the needy, and made a donation to the
in Curitiba, the biggest paediatric hospital in Brazil.
trees. On the subject, in October 2017, Pirelli published the
the name of equal opportunities in education, while in Russia
Le Garde-Manger philanthropic entity.
Policy on the sustainability of natural rubber.
international disabled day in December. In Canada, a group of
Since 2010, Pirelli has supported the Pequeno Principe Hospital
maintaining and extending the useful life of natural rubber
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ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain SDGs - Reference Targets:
In Italy, the commitment to activities that generate value for
Accardo. The opera was presented in world premiere on
visits to about 400 students from the main Italian
>
12.5, aimed at reducing the generation of waste through
the territory is evidenced by the numerous and consolidated
8/9/2017 (during the MITO SettembreMusica Festival) in
and foreign universities (Università Cattolica, IULM,
reduction, recycling and reuse;
collaborations with prestigious national and international
the Packaging Department of the Settimo Torinese plant,
Università Bocconi and Università degli Studi di Milano
>
15.2, related to the promotion of sustainable forest
entities and institutions: in particular, in the art world, with
in front of about 1,000 people (320 Pirelli employees and
Bicocca, SAFM in Turin, Singapore University, University
management, to reduce deforestation and
increase
the Fai (Italian Environment Fund), in the world of theatre with
family members), after a general rehearsal at the Pirelli
of Dublin, etc.);
reforestation.
the Piccolo Teatro di Milano and the Franco Parenti Theater,
Headquarters of Bicocca (with more than 300 employees)
> Historical archive (processing): in 2017, the cataloguing
Culture and social value The internationality of Pirelli
also emerges from the love for culture, with initiatives in many
in the music world, with the MITO SettembreMusica Festival,
and a preview at the Piccolo Teatro Studio Melato in
and digitization of materials continued, with the
the Villa Arconati Festival, the Giuseppe Verdi Symphony
Milan (350 people). The event at the factory was also
processing of approximately 1,800 photographs and 500
Orchestra of Milan and the Teatro alla Scala Foundation.
followed in direct streaming by over 300 people from the
issues of company magazines (Fatti e Notizie, Noticias
Biblioteca Comunale Archimede of Settimo Torinese and
Pirelli and Paginas Pirelli). The digital inventory was also
countries worldwide also in 2017. The attention to culture,
SDGs - Reference Targets:
made available also through the company Intranet;
implemented on the Foundation’s website with the
and even more the commitment to preserve it, spread it and
> 4, aimed at promoting quality education and all forms of
> Exhibition “Pirelli
in Cento
immagini. La bellezza,
publication of 3 new photographic sections (“Car racing”
enhance it, are part of the DNA of the creation of social value.
equitable and inclusive learning.
l’innovazione, la produzione” (Pirelli in 100 images.
and “Bicycle”) and “Vado and Torno magazine”, of which
Pirelli is among the sponsors of the Museum of Modern Art
of São 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.
Pirelli provided support to the event ArtRio, a collection of
FONDAZIONE PIRELLI
(PIRELLI FOUNDATION)
Beauty, innovation, production) (January 18 - May 1, 2017,
about 70 issues were previously worked on;
Biblioteca Archimede, Settimo Torinese): the exhibition,
> Project for the census and analysis of the Pirelli Group
a focus on the more than 140 years of the company’s
archives: launched in 2016, the project for the analysis
life, was curated by the Pirelli Foundation and promoted
of the Group’s archiving practice involved 40 offices,
by the Municipality of Settimo Torinese and the ECM
for a total of 60 persons interviewed; moreover, in
100 national and international galleries. In Brumadinho, Pirelli
One of the missions of the Fondazione Pirelli, or Pirelli
Foundation with the patronage of the Piedmont Region
collaboration with the Facility Department, the analysis
supports the Instituto Inhotim, with a famous collection of
Foundation, established in 2008, is the preservation of the
and the Metropolitan City of Turin. The exhibition is also
of the documentation sent to the deposit archive before
contemporary art and a collection of plants from around the
Group’s historic and cultural heritage and the promotion of
linked to the publication of a catalogue that describes
2008, in order to rationalize the company warehouses
world. In the field of music, Pirelli sponsors the Mozarteum
its corporate culture through initiatives having a strong social
the sections of the exhibition path, and which also
and implement the Historical Archive;
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project, which presents great international orchestras of
and cultural impact, exhibitions, as well as collaborations with
includes some of the most beautiful images of the Pirelli
> Research and historical materials for exhibitions and
classical music. Also in Brazil, Pirelli supported the exhibition
other institutions.
Calendar;
publications: - loans to institutions, also international
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of the collection of the banker Roger Wright at the Pinacoteca
> Documentary “Leopoldo Pirelli, Impegno industriale e
(e.g.: La Triennale, Milan; Design Museum, London);
de São Paulo, a selection of more than 170 Brazilian works of
Many projects, even in 2017, are aimed at sharing the
cultura civile” (Leopoldo Pirelli, Industrial commitment
- documentary research for scholars and exhibition
the 60s and modern installations. Pirelli also supports the
Company’s history and promoting its cultural and artistic
and civil culture) (3D Production for MemoMi): on
projects (e.g. exhibition on design “Pirelli by Dixon”,
photo exhibition Exposição Antilogias, also at the Pinacoteca
heritage. Among these, the following are noted:
the occasion of the 10th anniversary of the death of
Milan Furniture Fair, April 2017) (about 100 requests).
de São Paulo.
> Volume “La pubblicità con la P maiuscola. La comunicazione
the entrepreneur, with testimonies, interviews and
visiva Pirelli, tra design d’autore e campagne globali anni
documents largely from the Historical Archive of the
In 2017, around 3,300 people visited the Pirelli Foundation (and
Pirelli in Brazil continued, after the restoration of the Cristo
Settanta-Duemila” (Corraini Edizioni, June 2017, hardback
Pirelli Foundation, the film was previewed on 25/01/2017
the Pirelli Headquarters) through:
Redentor in Rio de Janeiro, to maintain the famous statue, and
and e-book, in Italian and English). Over 1,800 paper
at Pirelli HANGARBICOCCA™ and subsequently aired on
> Participation in initiatives to promote Corporate Culture: -
contributed to the restoration of the Cidade de Milão square
copies of the book were distributed, of which about 1,700
Sky Arte HD;
Museocity (Municipality of Milan, 4/3/2017): extraordinary
in São Paulo.
to foreign business markets (e.g. China, USA, Germany,
> Digital content (fondazionepirelli.org and social media):
opening of the Pirelli Headquarters with exposure of the
Poland, Australia, MEAI). For the use of audiovisual
production of about 500 contents on the site and
photographic work L’uscita delle maestranze Pirelli dallo
In Romania, Pirelli sponsors theatre days for the community,
materials and exclusive content related to the book,
activation of the new weekly section “Storia e storie dal
stabilimento di via Ponte Seveso (The exit of Pirelli workers
in collaboration with the Cultural Center of Slatina “Eugen
a web-app and the section of the Foundation website
mondo Pirelli” (History and stories from the Pirelli world).
from the plant in via Ponte Seveso of 1905 conserved in
Ionescu”. In Russia, Pirelli organized a competition between
advbook.fondazionepirelli.org dedicated to the volume
The site has been visited approximately 43,500 times
the Foundation (about 250 participants); - Photoweek
art students with a trip to Italy as a prize, and was a partner
were developed. On 4/7/2017, the book was presented,
(+48% vs 2015), mainly in the English language section.
(Municipality of Milan, June 5-11, 2017): participation
of the Platonov international art festival, in Voronezh. Also in
also through multimedia installations and exhibition
The Facebook and Instagram Foundation accounts have
with guided tours and creative workshops for children
Voronezh, Pirelli sponsored a fundraising dance to promote
paths, at the Franco Parenti Theatre in Milan, with an
over 7,500 followers (+70% vs 2015);
(about 70 people); - XVI Week of Business Culture “I
young musical and artistic talents. Also in 2017, an exhibition
event that saw the participation of over 500 people
> Educational and training activities: - Pirelli Educational
linguaggi della crescita: impresa, cultura e territorio” (The
of the Pirelli Calendar was presented at the Multimedia Art
and Marco Tronchetti Provera, Antonio Calabrò, Carlo
Foundation: more than 2,200 primary and secondary
languages of growth: business, culture and territory)
Museum in Moscow. In the United States, Pirelli sponsors the
Bonomi, Paola Dubini, Vicky Gitto and Aldo Grasso as
school students involved in the themes of corporate
(Confindustria/Museimpresa, November 10-24, 2017):
Council for the Arts in Rome, Georgia.
speakers;
culture and 400 teachers involved in training. The Pirelli
guided tours, installations and projections inside the
In Turkey, Pirelli has collaborated with the club “The Art
composition inspired by the rhythms of the Pirelli digital
(May 2017) and at the 5th Festival of Innovation and Science
260 participants);
of Reading” to spread reading also in schools. In addition,
factory in Settimo Torinese commissioned by the Pirelli
in Settimo Torinese (October 2017) proposing training
> Guided tours and events at the Foundation to support the
some children of employees of the Izmit factory presented a
Foundation to the violist Francesco Fiore for the Italian
activities that saw the overall participation of about 400
Business Units for the valorization of the Pirelli Brand:
theatrical show called “Fabrika”.
Chamber Orchestra conducted by Maestro Salvatore
children and youths; - Universities: lessons and guided
about 2,200 guests.
> Concert “Il Canto della fabbrica” (The Song of the Factory):
Foundation took part in the Robotics Festival in Milan
former cooling tower of the Pirelli Headquarters (about
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain Initiatives in favour of the Internal Community include:
The vocation of Pirelli HANGARBICOCCA™
is that of a
With the aim of valorization of the Seven Heavenly Palaces
During the year, Pirelli HANGARBICOCCA™ also hosted 11
> Pirelli company libraries of Milan Bicocca and Bollate: over
place open to the city and its hinterland, of institution that
of Anselm Kiefer, the collaboration with the Milano Musica
major private events including the Annual conference of
6,000 titles available to employees, selectable for loan
accompanies the normal exhibition activity with a range of
Festival continued with two concert weekends; in June, an
Italian Ambassadors abroad, Ferrari’s 70-year gala dinner,
and consultation on the online OPAC Catalogue. In total,
programs intended to attract even the non-specialised public
event open to the public was held with poetry readings in
Barilla World Nutrition Forum, Ermenegildo Zegna’s FW 2018
in 2017, there were about 2,200 loans, 2,919 movements
to contemporary art.
collaboration with the Paolo Grassi theatre and the Sorbonne
fashion show, Hitachi’s Social Innovation Forum 2018 as well
and 400 users. On 20/11/2017, the first anniversary
2 university in Paris.
of the libraries in the Pirelli Headquarters of Bicocca
In 2017, the Public Program accompanied the exhibitions with
as Goran Bregovich’s concert for Vidas organized for the
fundraising for the new pediatric project and supported by
was celebrated with an exhibition entitled “Visioni
a full calendar of events, guided tours to the exhibitions and
In April 2016, the new Bookshop was inaugurated, with
Pirelli HANGARBICOCCA™, granting free use of space.
milanesi” and an event in the presence of the writer
the district, projections and meetings with the key players in
a selection of books and catalogues related to current
Alessandro Robecchi and chef Filippo La Mantia (over 300
art and culture.
exhibitions,
children’s books, art-related non-fiction,
The activities of Pirelli HANGARBICOCCA™ generate, among
participants);
reference books and merchandising products,
including
other things, significant induced employment: in 2017, the
> “Bambini in Bicocca”: in collaboration with the Human
During the year, there were about 12 cultural events (day
t-shirts, shopping bags, small stationery and umbrellas with
creation of exhibitions and major initiatives involved 49
Resources Department of Pirelli, the Foundation has devised
and/or evening) that involved nearly 3,000 participants in
the institutional logo, as well as postcards and posters with
companies and generated over 5,000 days/worker.
didactic paths for employees’ children during school break
activities related to ongoing exhibitions, including a 2-day
exhibition images.
days (over 200 children between the ages of 6 and 10).
summer festival in July, which was attended by about 1,300
people.
PIRELLI HANGARBICOCCA™
In 2016, Pirelli HANGARBICOCCA™ launched the Membership
program with the aim of creating a community that shares
Pirelli HANGARBICOCCA™, which with its 15,000 square
a passion for contemporary art. In less than two years,
metres is one of the largest exhibition venues in Europe, is a
Membership has reached the number of 676 active Members,
space dedicated to the production, exhibition and promotion
with a growth of 100% compared to the year 2016. Among the
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of contemporary art, created in 2004 from the reconversion of
new benefits for 2017, free guided tours and bike tours, special
a vast industrial facility that belonged to Ansaldo-Breda.
opening on Wednesdays by appointment, new affiliations:
GAMeC in Bergamo, Peggy Guggenheim Collection in Venice
The programming of solo exhibitions by the most important
and Milan Design Film Festival.
international artists is distinguished by a character of research
and experimentation and special attention to site-specific
In 2017, 14 dedicated activities including 4 preview visits to
projects which are capable of maintaining a dialogue with
exhibitions, 5 curatorial visits, 2 Family Labs reserved for
the unique features of the space. The 2017 artistic program,
Family Members, 1 bike tour and 2 visits to exhibitions hosted
curated by Artistic Director Vicente Todolí and curator
by other institutions. 15 dedicate Newsletters. Among the
Roberta Tenconi, presented artists of great international
benefits, there is always the possibility to reserve a spot for
profile, alternating exhibitions of very successful names with
the activities of the Public Program and take advantage of
exhibitions of emerging artists. The program managed to
special discounts on the purchase of exhibition catalogues and
attract an Italian and international audience composed of art
the institutional line at the bookshop and at the IUTA Bistrot.
experts, representatives of the most important museums,
trade journalists and the general press, as well as an equally
HB Kids and HB Family activities for children aged between
large number of enthusiasts, families and students. During the
4 and 14, saw the participation of 2,500 children and young
year, there was a total of about 222,000 visitors who visited the
people, in line with the figures of the previous years. The
6 major exhibition projects dedicated to international artists,
number of participants who took part in the HB School
including “Take Me (I’m Yours)” the collective exhibition that
activities has instead reached over 8,000 while visits by Italian
reinvents the rules by which to experience a work of art and
and foreign university students and professors have involved
the permanent installation of the Seven Heavenly Palaces of
about 2,900 people.
Anselm Kiefer.
> Kishio Suga, “Situations”;
The education department also continued its guided tours
> Laure Prouvost, “GDM - Grand Dad’s Visitor Center”;
proposing activities in Italian and foreign language in addition
> Miroslaw Balka, “CROSSOVER/S”;
to the format “Art on Sunday” involving cultural mediators in
> Rosa Barba, “From Source to Poem to Rhythm to Reader”;
Sunday lessons on the history of art related to the exhibitions
> Lucio Fontana, “Ambienti/Environments”;
and Bike Tours to discover the neighbourhood for school
>
“Take Me (I’m Yours)”.
students of all levels.
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ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on responsible management of the value chainReport on responsible management of the value chain LUIGI
SALUSTRI
ALTEREGO
This startup launched by an eco-sustainable technology enthusiast and an architect,
designs and makes eco-compatible surfboards to measure using the most advanced
design technology and searching for natural and innovative materials.
RIDING THE WAVE
OF DIGITAL MANUFACTURING
components in cork. When the glue has done its work and after two days left to set in
E xpanded polystyrene is initially cut by hand, and is then glued to two lateral
software to a physical draft of the almost finished product. A scrubbing and resin
the workshop, a technician places the as yet unsculpted form into the shaping machine.
The vision begins to take shape, evolving from a mathematical representation in 3D
coating stage is the final operation, entrusted once more to human hands.
This is how AlterEgo surfboards enter the world: «Working as an architect I’ve always been a bit more
interested in designs with a strong physical element. I love the physicality of materials, the way they
change and interact to give shape to the concept in my imagination», says Luigi Salustri, co-founder
of AlterEgo Surfboards. A youthful-looking 58 year-old, with a slightly unkempt dark beard and the
healthy tan of a surfer, Salustri was born and raised in Rome where he has worked in architecture,
scenography and set design. In early 2017 he moved to Alghero to open the AlterEgo workshop. «From
the moment I decided to found the company my idea was to build surfboards ecologically, using
recycled and recyclable materials and working in the most environmentally-friendly way possible».
The story of AlterEgo is typical of a garage hobby that became a business opportunity. Salustri started
crafting surfboards in his youth, as a passion, but never imagined making much out of it. He was just a
surfer who wanted to try his hand at creating the tools of his long-time hobby. Then his friends started
asking questions about those beautiful surfboards: could they buy one? The seed had been sown. The
decisive impulse came from Smart&Start Italia, a government initiative offering grants and zero-
interest loans to new companies that combine a digital element, an innovative idea and a concern for
environmental sustainability.
For AlterEgo respect for the environment is of central importance, driving both its choice of materials
and its manufacturing processes. The use of cork as a structural element, for example, is not common
practice in the industry. Salustri chose it both for the natural visual touch that it gives the boards
and for its typically eco-friendly characteristics compared to more traditional choices such as carbon
fibre or aramid (commonly known as Kevlar). But then there’s the polystyrene, a key component
with a markedly non-ecological production process. To get around this problem AlterEgo sources its
polystyrene exclusively from a recycling plant located 40 km from the workshop. The waste materials
produced by the shaping machine (a made-to-measure CNC lathe designed and built by an Italian
engineer using steel from Terni, German-made electronic boards and high-precision Japanese
microchips) are also fed back into the recycling loop. The bio-resin used to finish the surfboards,
produced exclusively from vegetable oils, is also one of the most environmentally friendly solutions
currently available.
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GLOSSARY
IPO: the procedure for the listing of Pirelli shares completed
Report: this report on corporate governance and the
successfully in October 2017 with the start of trading on the MTA.
ownership structure prepared pursuant to art. 123-bis TUF.
INTRODUCTION
Annual General Meeting: the shareholders’ meeting called to
LTI: Long-Term Investments Luxembourg S.A., Luxembourg
Compensation Report: the report prepared pursuant to art.
This Report describes the system of corporate governance of
approve the financial statements as of 31 December 2017.
company with registered offices at 124 Boulevard de la
123-ter TUF.
Pétrusse, L-2330, Luxembourg (Grand Duchy of Luxembourg),
the Company in force as of the First Trading Day. This system
is consistent with the principles contained in the Corporate
Camfin: Camfin S.p.A., Italian company with registered offices
Luxembourg Companies and Commerce Register number
Website: the institutional website of Pirelli containing inter
Governance Code adopted by the Company 26.
at via Bicocca degli Arcimboldi 3, Milan, Tax Code, VAT and
B-187332.
Milan Companies Register number 00795290154.
alia information about the Company, which can be found at
the Internet domain www.pirelli.com.
ChemChina: China National Chemical Corporation, Chinese
Borsa Italiana S.p.A..
Company: Pirelli & C.
MTA: Screen-traded Stock Market organised and managed by
company with registered offices at 62 West Beisihuan Road,
Haidian, Beijing (People’s Republic of China), registered
Marco Polo: Marco Polo International Italy S.p.A., Italian
SPV HK1: CNRC International Limited, limited company formed
with the State Administration of Industry and Commerce
company with registered offices at via San Primo 4, Milan, Tax
under the laws of Hong Kong (People’s Republic of China),
1. COMPANY PROFILE
of the People’s Republic of China, registration number
Code, VAT and Milan Companies Register number 09052130961.
with registered offices at RMS 05-15, 13A/F South Tower World
Pirelli, with its 30,000 employees and annual sales of about
100000000038808.
Finance CTR Harbour City, 17 Canton Rd TST KLN, Hong Kong
Euro 5.3 billion in 2017, ranks among the principal global
MTP&C: Marco Tronchetti Provera & C. S.p.A., Italian company
(People’s Republic of China), Hong Kong Companies Register
manufacturers of tyres and supplier of ancillary services,
CNRC: China National Tire & Rubber Corporation Ltd., Chinese
with registered offices at via Bicocca degli Arcimboldi 3,
number 2222516.
company with registered offices at 62 West Beisihuan Road,
Milan, Tax Code, VAT and Milan Companies Register number
being the only operator in the sector exclusively specialised
in the consumer market (tyres for cars, motorcycles and
Haidian, Beijing (People’s Republic of China), registered
11963760159.
SPV HK2: CNRC International Holding (HK) Limited, limited
bicycles), with a globally-recognised brand. The Company
with the State Administration of Industry and Commerce
company formed under the laws of Hong Kong (People’s
has a distinctive positioning with regard to High Value
of the People’s Republic of China, registration number
New Shareholders’ Agreement: the shareholders’ agreement
Republic of China), with registered offices at RMS 05-15, 13A/F
tyres, which are manufactured to achieve the highest
100000000008065.
signed on 28 July 2017 by ChemChina, CNRC, SRF, SPV HK 1, SPV
South Tower World Finance CTR Harbour City, 17 Canton Rd
levels of performance, safety, quietness and road grip, with
HK 2, SPV Lux, Camfin, LTI and MTP&C, with effect from the First
TST KLN, Hong Kong (People’s Republic of China), Hong Kong
significant input from technology and/or customisation (i.e.
Corporate Governance Code: the Corporate Governance Code
Trading Day. The essential content of the New Shareholders’
Companies Register number 2228664.
specifically, New Premium, Specialties and Super Specialties tyres
for listed companies, last updated in July 2015 by the Corporate
Agreement, to which reference is made for further information,
and Premium motorcycle tyres). In addition, the Company is
Governance Committee and promoted by Borsa Italiana S.p.A.,
is available on the Website (www.pirelli.com).
SPV Lux: Fourteen Sundew S.à r.l., Luxembourg limited
currently leader in the Prestige tyres segment, with more
ABI, Ania, Assogestioni, Assonime and Confindustria.
company (société à responsabilité limitée) with registered offices
than one-third of the global market in volume terms, and
Pirelli: Pirelli & C. S.p.A., Italian company with registered
at rue Robert Stümper 7A, L-2557, Luxembourg (Grand Duchy
in the radial segment of the after-market for motorcycle
Civil Code: the Italian Civil Code.
offices at viale Piero e Alberto Pirelli 25, Milan, Tax Code, VAT
of Luxembourg), Luxembourg Companies and Commerce
tyres. Pirelli is also the leader in Europe, China and Brazil, in
and Milan Companies Register number 00860340157.
Register number B-195473.
the after-markets for New Premium car tyres and Premium
Board of Directors: the Board of Directors of Pirelli & C. S.p.A..
motorcycle tyres.
Pirelli International: Pirelli International plc, English company
SRF: Silk Road Fund Co., Ltd., Chinese company with registered
Consob: the National Commission for Companies and the
with registered offices in Derby Road, Burton on Trent (United
offices at F210-F211, Winland International Finance Center
The current positioning of Pirelli as a “Pure Consumer Tyre
Stock Exchange.
Kingdom), registered with the Companies House of England
Tower B, 7 Financial Street, Xicheng, Beijing (People’s Republic
Company” results from the public takeover bid made in 2015 by
and Wales, number 04108548.
of China), registered with the State Administration of Industry
Marco Polo Industrial Holding S.p.A. (the vehicle incorporated
Report Date: the meeting held on 26 February 2018 by the
and Commerce of the People’s Republic of China, registration
by ChemChina, Camfin and LTI, merged by absorption in
Board of Directors that approved this Report.
Pirelli Tyre: Pirelli Tyre S.p.A., Italian company with registered
number 100000000045300(4-1).
Pirelli during 2016) on the entire share capital of the Company
First Trading Day: 4 October 2017, being the date on which the
and Milan Companies Register number 07211330159.
Articles: the Articles of Association of Pirelli & C., available on
the separation of Industrial activities previously held from the
shares of the Company were admitted to trading on the MTA
the Website.
market organised and managed by Borsa Italiana S.p.A..
Issuers’ Regulation: the Regulation approved by Consob
Consumer activities. The transformation process culminated
in October 2017 with the return of the Company to the stock
offices at viale Piero e Alberto Pirelli 25, Milan, Tax Code, VAT
and the consequent process of transformation, which led to
Year: the financial year to which this Report relates.
February 1998 (as amended subsequently).
resolution 11971/1999 (as amended) on the subject of issuers.
TUF: the Consolidated Finance Law, being Decree 58 dated 24
exchange.
Group: Collectively Pirelli and its subsidiaries, as defined in art.
Consob resolution 17221 dated 12 March 2010 (as amended) on
2359 of the Civil Code and art. 93 TUF.
the subject of related-party transactions.
Related Parties Regulation: the Regulation approved by
26 Adopted by resolution of the Board of Directors prior to the First Trading Day.
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ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership 1.1 MODEL OF CORPORATE GOVERNANCE
with both the international reference standards for reporting
on sustainability and the Italian Decree 254/2016; the annual
The model of corporate governance adopted by Pirelli
report can be found on the Website.
implements the traditional system of administration and
control, with a Board of Directors (14 members) responsible
The Company complies with the requirements of current
for managing the business and a Board of Statutory Auditors
regulations and the principles and criteria set out in the
entrusted with monitoring the administration and compliance
Corporate Governance Code for the composition of its
with the law and the Articles.
administrative and control bodies in terms of age, gender,
2. INFORMATION
ON THE OWNERSHIP
STRUCTURE
In compliance with the Corporate Governance Code, the Board
application, particularly with regard to self-assessment
education and professional experience. Their actual
2.1 STRUCTURE OF SHARE CAPITAL
In particular, the Board of Directors of Pirelli has determined
that, from the First Trading Day, Pirelli is no longer subject
to any management and coordination activities considered
typical, neither by Marco Polo nor by other companies or
entities (including CRNC and ChemChina), and therefore, by
way of example:
1. Pirelli conducts relations with customers and suppliers in full
autonomy without any external interference;
2. Pirelli prepares the strategic, industrial, financial and/or
budget plans of the Company or the Group independently;
has established five internal committees with the power
activities, is monitored by the Board of Directors.
On the Report Date, the issued share capital of Pirelli amounts
3. Pirelli is not subject to any group regulations;
of making recommendations to, advising and carrying out
to Euro 1,904,374,935.66 fully paid, and is represented by
4. no organisational-functional links exist between Pirelli on the
analytical work for the Board.
Pirelli is characterized by a multinational context in which
1,000,000,000 ordinary shares without nominal value.
one hand and Marco Polo, CNRC and/or ChemChina on the other;
The Shareholders’ Meeting is responsible for adopting resolutions
management of this diversity generates competitive
categories of share and no financial instruments have been
out any deeds, adopted any resolutions or made any
on the matters reserved to it by law or by the Articles.
advantages, opportunities
for
the development and
issued with the right to subscribe for new shares.
communications that might cause reasonable belief that the
people express a huge heritage of diversity. Conscious
Each share grants the right to one vote. There are no other
5. Marco Polo, CNRC and/or ChemChina have not carried
enrichment of the business, and shared corporate values. In
decisions of Pirelli are in some way imposed or required by
The
legal audit of
the accounts
is entrusted
to
line with the Company’s mission, Pirelli business culture has
At present, the Company does not have any form of stock
Marco Polo, CNRC and/or ChemChina;
PricewaterhouseCoopers S.p.A., the registered auditing firm
been able to anticipate over the years several topics and issues
incentive plan for employees.
6. Marco Polo, CNRC and/or ChemChina do not centralise
appointed by the Shareholders’ Meeting, following a reasoned
(such as environment and gender diversity) well in advance,
treasury management activities or other financial support or
recommendation presented by the Board of Statutory Auditors.
thereby being able to satisfy the need to respond to new and
Additionally, the Articles do not provide for the possibility of
coordination functions;
growing requests made by the stakeholders.
increased voting rights or the issue of shares with multiple
7. Marco Polo, CNRC and/or ChemChina do not issue directives
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In order to ensure the preservation and continuity of the Pirelli
voting rights.
business culture, the shareholders’ agreements (described in
Even at Board level, the above values are deemed as success
more detail later in the Report) expressly recognise the central
factors necessary for achieving the Company’s strategic targets.
role played by current top management, establishing inter alia
that Marco Tronchetti Provera will hold the offices of Chief
For this reason, although the Board has not yet adopted a
Executive Officer and Executive Vice Chairman of Pirelli and
formal diversity policy due to the short period between the
2.2 SIGNIFICANT SHAREHOLDINGS
OF CAPITAL
or instructions – and in any case would not coordinate initiatives
– concerning the financial and borrowing decisions of Pirelli;
8. Marco Polo, CNRC and/or ChemChina do not issue directives
regarding any special transactions carried out by Pirelli including,
for example, the listing of financial instruments, acquisitions,
disposals, concentrations, contributions, mergers, spin-offs etc.;
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guide the activities of top management until the approval of the
First Trading Day (4 October 2017) and the end of the Year (31
Based on the communications received by the Company until
9. Marco Polo, CNRC and/or ChemChina do not make any
financial statements of the Company as of 31 December 2019.
December 2017), the respect of said values has already been
the Report Date pursuant to art. 120 TUF, the significant direct
crucial decisions regarding the operating strategies of Pirelli
guaranteed by the shareholders in the context of last renewal
and indirect shareholdings of Pirelli capital are indicated in
or formulate group strategic guidelines.
of the Board of Directors, in terms of age, gender, nationality
Table 1 attached to this Report.
Conversely, Pirelli exercises management and coordination
1.2 SUSTAINABILITY
AND DIVERSITY POLICIES
and educational, professional and cultural experiences. This
enables the Board to perform its duties in the most effective
way, through the support of different points of view, with
Pirelli has adopted a sustainable management model.
the ability to analyse individual situations from multiple
Responsible management by Pirelli addresses the entire
perspective.
value chain.
2.3 MANAGEMENT AND
COORDINATION ACTIVITIES
The Company is indirectly controlled, pursuant to art. 93
2.4 RESTRICTIONS ON
THE TRANSFER OF SECURITIES
activity on
several
subsidiaries, having made
the
communications required by art. 2497-bis of the Civil Code.
As of 2005, the sustainable performance of Pirelli is described
adoption of a formal policy on diversity that complies with the
including Marco Polo.
The Articles do not
impose any restrictions on the
in the annual report of the Company (to which reference is
principles described above.
transferability of the shares issued by the Company.
made), certified by a third party and prepared in accordance
At the meeting held on 31 August 2017, the Board of Directors
Lastly, during 2018 the Board of Directors will consider the
TUF, by ChemChina via CNRC and certain of its subsidiaries,
acknowledged that the management and coordination
However, the New Shareholders’ Agreement does place
activities of Marco Polo would cease with effect from the
restrictions on the transfer of shares in the Company until
First Trading Day, while CNRC would retain the right to
completion of the process of divestment and reorganisation
consolidate Pirelli. This situation has further strengthened
carried out by Marco Polo, which will include inter alia the de-
the autonomy of Pirelli and its management in the definition
merger of said company into three companies wholly owned
and management of the industrial, economic and financial
by, respectively, SPV Lux, Camfin and LTI (the “Marco Polo
strategies of the Group.
Demerger”). For further details see Section 2.8.2.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership More specifically, the signatory shareholders have agreed not
In particular, in order to achieve the objectives of SRF and
to sell, assign, transfer or in any case make use of in any other
CNRC for their joint (and indirect) investment in Pirelli, the
way, directly or indirectly (except for transfers to their parent
parties to the First SRF Contract agreed that SRF would be
2.8.3 The shareholders agreement relating to
Camfin In relation to Camfin, a shareholders’ agreement
is also in force, originally signed on 11 August 2015 by Marco
more than 50% of the share capital with voting rights at the
ordinary shareholders’ meeting of Pirelli Tyre (except if Pirelli
and Pirelli Tyre are merged) or (ii) a party (other than Camfin
companies, subsidiaries or fellow subsidiaries), inter alia, their
entitled to designate a candidate for the Boards of Directors
Tronchetti Provera & C. S.p.A., Nuove Partecipazioni S.p.A.,
or another party working together with Camfin), or several
respective direct or indirect equity interests in Pirelli until the
of Marco Polo and Pirelli.
UniCredit S.p.A., Manzoni S.r.l. and Intesa Sanpaolo S.p.A.,
parties working together (not being shareholders of Camfin
first anniversary of the First Trading Day (except for LTI, which
subsequently updated by said companies on 4 May 2017 in the
or their subsidiaries working together) (a) acquire (directly or
may transfer directly or indirectly, via Marco Polo, its equity
Nothing in the First SRF Contract prejudices the right of
context of the completion of the merger of the company Coinv
indirectly) more than 20% of the share capital with voting rights
interest in Pirelli after six months have elapsed from the First
ChemChina to exercise control over Pirelli via CNRC.
S.p.A. in Camfin, which had effects as of 12 June 2017 (the “Coinv
at the ordinary shareholders’ meeting of Pirelli and that equity
Trading Day).
2.5 SECURITIES THAT
CARRY SPECIAL RIGHTS
2.8.2 New shareholders’ agreement On 28 July 2017
ChemChina, CNRC, SRF, SPV HK 1, SPV HK 2, SPV Lux, Camfin, LTI
Merger”) and in consideration of the Coinv Merger itself and of
investment is greater than the investment held by Camfin from
certain provisions of the agreement no longer applicable (the
time to time; or (b) appoint or cause the removal of the majority
“Camfin Shareholders’ Agreement”). The Camfin Shareholders’
of the members of the Board of Directors of Pirelli.
Agreement has not been updated by the parties following the
and MTP&C (together, the “Parties to the New Agreement”)
IPO and it contains several provisions that must be considered
On 23 February 2018, Pirelli International Plc decided to
signed the New Shareholders’ Agreement that governs, on
outdated due to the beginning of the trading of the Pirelli
exercise the right to early reimburse all the Securities and
No securities have been issued that carry special rights of control.
the one hand, the governance of Pirelli with effect from the
shares on the MTA; however some limited provisions, relevant
then to cancel them.
2.6 SHARE OWNERSHIP BY
EMPLOYEES: MECHANISM FOR
THE EXERCISE OF VOTING RIGHTS
any case, by 31 December 2018, subject to (i) the beginning of
the trading (which took place on 4 October 2017) and (ii) the
reimbursement of the loan of Euro 1,250 million obtained by
* * *
First Trading Day, as well as the commitment of CNRC, SRF,
pursuant to art. 122, first and fifth paragraph, of the TUF, are
Camfin and LTI to arrange for the Marco Polo Demerger as
still applicable in relation to the planned disinvestment from
The above transaction is scheduled for completion by 31
soon as possible subsequent to the First Trading Day and, in
Camfin by the current shareholders.
March 2018.
2.9.2 Loan On 13 June 2017 Pirelli, on the one hand, and
Banca IMI S.p.A., J.P. Morgan Limited and The Bank of Tokyo-
With regard to the shares owned by employees, there are no
Marco Polo (which took place on 5 October 2017).
For further information about the clauses contained in the
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specific procedures or restrictions governing the exercise of
abovementioned Shareholders’ Agreements, see the extracts
Mitsubishi UFJ, Ltd., in their roles as mandated lead arrangers,
their voting rights.
The New Shareholders’ Agreement requires the Board of
from the agreements available on the Website, published
bookrunners, underwriters and global coordinators signed
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Directors of Marco Polo to approve the demerger project
pursuant to art. 130 of the Issuers’ Regulation.
a mandate letter regarding the grant of an unsecured loan
2.7 RESTRICTIONS ON VOTING RIGHTS
relating to the Marco Polo Demerger in favour of three
beneficiary companies each wholly owned by, respectively,
SPV Lux, Camfin and LTI. The Marco Polo Demerger will be non-
2.9 CHANGE OF CONTROL CLAUSES
to Pirelli and Pirelli International (the “Beneficiaries”) for a
maximum amount of Euro 4,200,000,000 (the “New Loan”).
There are no mechanisms that restrict the voting rights of
proportional pursuant to art. 2506-bis, para. 4, of the Civil Code
The contract signed on 27 June 2017 in relation to the New Loan
shareholders, except for the terms and conditions governing
and, accordingly, the net assets of Marco Polo will be divided
The most significant contracts containing clauses of this type
envisages, inter alia, that the Beneficiaries shall repay early that
the exercise of the right to attend and vote at Shareholders’
among the beneficiary companies in proportion to the equity
are summarised below.
part of the New Loan made available by each lender should certain
Meetings, as discussed in Chapter 18 of the Report.
interests held by SPV Lux, Camfin and LTI in Marco Polo (being
events occur, including changes in the control structure of Pirelli.
2.8 SHAREHOLDERS’ AGREEMENTS
65%/22.4%/12.6%). In the context of the Marco Polo Demerger,
Pirelli shares will be measured at their placement price.
2.9.1 2014 Bond On 18 November 2014, Pirelli International
issued a bond for a total nominal amount of Euro 600 million
The Marco Polo Demerger must be completed as soon as
(the “2014 Bond”).
possible after the First Trading Day and, in any case, within
In particular, this change of control clause may be invoked solely
in one of the following circumstances: (i) ChemChina ceases to
hold, directly or indirectly, individually or together with Camfin
or another company controlled by Marco Tronchetti Provera or
2.8.1 SRF contract On 5 June 2015, SRF, CNRC and
ChemChina signed an “Investment Contract” (the “First SRF
three months of the date of approval of the 2017 financial
The securities issued pursuant to the 2014 Bond, having
his close family members, more than 25% of Pirelli post IPO; or
statements of Marco Polo, subject to the positive outcome of
a minimum nominal value of Euro 100,000 each (the
(ii) ChemChina ceases to be, directly or indirectly, individually
Contract”) regarding investment by and the participation of
the opinion requested by Marco Polo from the Tax Authorities
“Securities”), are listed on the regulated market of the
or together with Camfin or another company controlled by
SRF, together with ChemChina and CNRC, in the acquisition
regarding the tax treatment of the Marco Polo Demerger.
Luxembourg Stock Exchange.
Marco Tronchetti Provera or his close family members, the
of control over Pirelli.
relative majority holder of the voting rights in Pirelli (i.e. more
If the Marco Polo Demerger cannot be completed by the
The regulation for the 2014 Bond provides for, inter alia, the
than other parties that act individually or together); or (iii) any
The First SRF Contract granted SRF – holder of 25% of the
above deadline, or should any of the Parties to the New
reimbursement of the capital in a lump sum on the expiration
other party (or parties acting together) appoints or removes
share capital of SPV HK2 – with certain rights and prerogatives
Agreement believe, in good faith, that the demerger is not
date set forth 18 November 2019.
the majority of the Board of Directors.
in relation to the corporate governance of SPV HK2, SPV Lux,
the most efficient solution, each of them will be entitled to
Marco Polo and Pirelli; it also established certain restrictions
request an assessment in good faith of possible alternative
Pursuant to the 2014 Bond Regulation, the bondholders are
Any takeover by Camfin (or another company directly or
on the transfer of the shares held in SPV HK2.
solutions to the Marco Polo Demerger for the assignment to
entitled to request early reimbursement of the Securities
indirectly controlled by Marco Tronchetti Provera or his close
the shareholders of Marco Polo of its net assets.
if there is a Change of Material Shareholding, which would
family members) as the parent company of Pirelli would
arise inter alia if (i) Pirelli ceased to hold (directly or indirectly)
not represent a change of control on condition that certain
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership requirements are met, including the requirement for Marco
In particular, this change of control clause may be invoked
Lastly, it is confirmed that:
Tronchetti Provera or a person designated by him to be the
solely in one of the following circumstances: (i) ChemChina
>
the information required by art. 123-bis, para. 1, letter i) TUF
CEO of both that company and Pirelli.
ceases to hold, directly or indirectly, individually or together
(regarding “agreements between the company and its directors
4. BOARD OF DIRECTORS
2.9.3 PT Evoluzione Tyres joint venture On 24 April
2012, Pirelli Tyre and PT Astra Otoparts tbk, an Indonesian
with Camfin or another company controlled by Marco
[…] that envisage indemnities in the event of resignation or
Tronchetti Provera or his close family members, more than 25%
termination without just cause or following a takeover bid”) is
of Pirelli; or (ii) ChemChina ceases to be, directly or indirectly,
contained in the Compensation Report, which is available
individually or together with Camfin or another company
at the registered offices and on the Website;
4.1 APPOINTMENT AND
REPLACEMENT OF DIRECTORS
company, signed a Joint Venture Agreement in relation to PT
controlled by Marco Tronchetti Provera or his close family
>
the information required by art. 123-bis, para. 1, letter l)
The provisions contained in the Articles, to which reference
Evoluzione Tyres, an Indonesian company incorporated on 6
members, the relative majority holder of the voting rights
TUF (regarding “the rules applicable to the appointment
is made, regarding the appointment and replacement of
June 2012 and operating in the production of motorcycle tyres
in Pirelli (i.e. more than other parties that act individually or
and replacement of directors […] as well as to the amendment
directors are summarised below.
in the plant of Subang, West Java.
together); or (iii) any other party (or parties acting together)
of the articles of association, if different to the legislation
Pursuant to this contract, in the event of a change in the
described in the section of this Report on the Board of
ownership structure of one of the shareholder that is deemed
Any takeover by Camfin (or another company directly or
Directors (Section 4.1 below).
appoints or removes the majority of the Board of Directors.
and regulations applicable in the absence of specific rules”) is
to be a change of control event, a put&call procedure could
indirectly controlled by Marco Tronchetti Provera or his close
be activated that, in the extreme case, might lead to the
family members) as the parent company of Pirelli, in place
acquisition by Pirelli Tyre of the entire equity interest held
of ChemChina, would not give rise to a change of control on
by PT Astra Otoparts tbk in PT Evoluzione Tyres, with the
condition that certain requirements are met, including the
consequent termination of the joint venture agreement.
requirement for Marco Tronchetti Provera or a person designated
by him to be the CEO of both that company and Pirelli.
3. COMPLIANCE
4.1.1 Appointment Pursuant to art. 10 of the Articles,
the Company is managed by a Board of Directors made of a
maximum of fifteen members, who remain in office for three
years and who may be re-elected.
The Board of Directors is appointed on the basis of lists
presented by the shareholders, in which the candidates must
each be listed with a sequence number.
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2.9.4 Supply contract with Bekaert The strategic
suppliers of the Group include Bekaert, to which the Company
Under the EMTN Programme, on 25 January 2018 Pirelli issued a
Pirelli has adopted the Corporate Governance Code approved
The lists presented by shareholders, signed by those submitting
new, unrated, fixed-rate bond for a total nominal amount of Euro
by the Corporate Governance Committee established
them, must be filed at the registered offices of the Company at
sold the steelcord business unit in 2014. Having regard to the
600 million, with a duration of 5 years and known as “Pirelli & C.
by the associations of businesses (ABI, ANIA, Assonime,
least twenty-five days prior to the date fixed for the Meeting
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special nature of the contractual conditions associated with
S.p.A. €600,000,000 1.375% Guaranteed Notes due 2023”. The above-
Confindustria) and professional investors (Assogestioni), as
called to resolve on the appointment of Board members. These
the sale of the above business unit, a contract for the supply
mentioned Change of Control clause applies to that new bond.
well as by Borsa Italiana S.p.A.27.
lists are made available to the public at the registered offices,
of steelcord exists with that supplier, under which Pirelli
purchased about 90% of its 2016 requirements.
The contract with Bekaert includes a change of control clause
whereby Bekaert has the right, inter alia, to withdraw within
2.10 CLAUSES IN THE ARTICLES
ABOUT PUBLIC OFFERS
on the website of the Corporate Governance Committee, at
of the Meeting.
the
following
link http://www.borsaitaliana.it/comitato-
corporate-governance/codice/2015clean.pdf.
Each shareholder may present or contribute to the presentation
The Corporate Governance Code is available to the public
Consob regulation, at least twenty-one days prior to the date
on the Website and in any other ways envisaged in a relevant
90 days after becoming aware of a situation in which a third
The Articles do not provide for exceptions to the provisions
of just one list and each candidate may be included in just one
party acquires control of Pirelli.
regarding the passivity rule, or application of the neutralisation
As Pirelli is among the companies included in the FTSE-MIB
list, subject otherwise to becoming ineligible.
rule set out in art. 104-bis TUF.
index, the recommendations of the Corporate Governance
2.9.5 EMTN programme and 2018 bond On 21
December 2017, in order to ensure the constant optimisation
of the financial structure of the Company, the Board of
Directors (i) approved an EMTN programme (Euro Medium
Term Note Programme) for the issue of non-convertible,
2.11 MANDATE TO INCREASE SHARE
CAPITAL AND AUTHORISATIONS
TO PURCHASE OWN SHARES
Code specifically envisaged for those companies are applied
Shareholders are only entitled to present lists if, alone or
by the Company.
together with other shareholders, they own shares in total
representing at least 1% of the share capital entitled to vote
This Report has essentially been prepared using the Borsa
at an Ordinary Meeting, or any lower amount specified
Italiana format.
in a regulation issued by Consob, with the obligation to
evidence their ownership of the number of shares needed
senior unsecured bonds for a maximum amount of Euro 2
With regard to the year ended 31 December 2017, the
On the Report Date, Pirelli is not subject to any non-Italian
for the presentation of lists by the deadline envisaged for the
billion and (ii) in the context of that programme, authorised
Directors were not granted with mandates to increase share
laws that might influence the corporate governance structure
publication of such lists by the Company.
the issue by 31 January 2019 of one or more bonds to be
capital for payment on one or more occasions, or to issue
of the Company.
placed with institutional investors for a maximum total
bonds convertible into ordinary or savings shares or with
amount of Euro 1 billion. The new securities may be listed
warrants carrying the right to subscribe shares. Similarly, the
on one or more regulated markets. Pursuant to the EMTN
Shareholders’ Meeting of the Company did not authorise any
Programme, bondholders that subscribe for bonds issued
purchases of own shares.
under the programme will be entitled to request the early
reimbursement of their securities (put option) in the case of
* * *
a Change of Control event.
Each list filed must be accompanied by acceptances of
nomination and declarations from each candidate confirming,
under their own responsibility, that there are no reasons
making them ineligible for or incompatible with the role, and
that they satisfy any requirements established for the role
27 Resolution adopted by the Board of Directors as part of the IPO process. Note that Pirelli has adopted the Code since it was first
issued (October 1999) and the Company was not listed on the Stock Exchange during the period from 26 February 2016 to 3 October 2017.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership concerned. These declarations must be accompanied by the
the lesst represented gender not already elected, drawn from
In fact, the following procedure will be implemented as of
Goldberg, Tao Haisu, Marisa Pappalardo, Fan Xiaohua and
curriculum vitae of each candidate, describing their personal
that list pursuant to the sequential order of presentation and
1 November 2019: (i) the candidates to be considered for the
Wei Yintao were designated by CNRC;
and professional characteristics, indicating the administration
so on, for each list (solely for lists that contain three or more
succession will be indicated by the Chief Executive Officer
> Directors Marco Tronchetti Provera, Giovanni Tronchetti
and control appointments held by them in other companies
candidates) until the minimum number of directors belonging
and Executive Vice Chairman to the Appointments and
Provera, Giorgio Luca Bruno and Laura Cioli were
and confirming their satisfaction of the
independence
to the less represented gender has been obtained. Lastly,
Succession Committee (the “Proposed Candidates”), (ii) a
designated by MTP&C;
requirements envisaged for the directors of listed companies
if the above procedure does not ensure the result specified
leading, independent, international HR firm will be engaged
> Directors Domenico De Sole and Cristina Scocchia were
by law or by the code of conduct adopted by the Company. In
above, the replacement shall be made by resolution of the
to assess the Proposed Candidates, and (iii) the Appointments
appointed by Marco Polo on joint designation by CNRC
order to ensure gender balance, lists containing three or more
Shareholders’ Meeting, adopted by the relative majority of the
and Succession Committee will resolve, on proposal of the
and MTP&C, taking into account the indications expressed
candidates must include a number of candidates of different
votes expressed, following presentation of the candidacies of
Chief Executive Officer and Executive Vice Chairman and, in
by the Joint Global Coordinators, engaged as part of the
gender that at least satisfies the minimum required by law
persons belonging to the less represented gender.
the event of a voting tie, the latter shall have the casting vote.
IPO procedure, regarding the professional characteristics
and/or any regulations in force at the time, as specified in
of the directors.
the notice of call issued for the Meeting. Any changes arising
Should application of the list voting mechanism not obtain
The Proposed Candidate positively appraised by the HR
At the Report Date, about 29% of Board members belong to
prior to the actual date of the Meeting must be notified to the
the minimum number of independent directors envisaged by
firm must be included by CNRC on the voting list for the
the female gender and about 71% belong to the male gender.
Company on a timely basis.
the laws and/or regulations in force, the non-independent
appointment of the new Board of Directors and CNRC must
In addition, about 64% of directors are over 50 years of age
Any lists presented that do not comply with the above
number in the list that obtained the largest number of votes
appointed by the Shareholders’ Meeting, the non-independent
Board members is about 55. The average tenure in charge of
instructions will be treated as if not presented.
shall be replaced by the first independent candidate not
directors designated by CNRC vote for and appoint the
the Directors is about 4 years28.
candidate elected indicated with the highest progressive
ensure that, during the first meeting of the Board of Directors
and about 36% are between 30 and 50. The average age of
already elected from that list following the sequential order
Proposed Candidate as the new Chief Executive Officer.
Each party entitled to vote may only vote for one list.
of presentation, and so on for each list until the minimum
Pursuant to the New Shareholders’ Agreement, the Board of
number of independent directors has been obtained, in
Should Marco Tronchetti Provera no longer be able to
Directors of Pirelli must be supplemented by an additional
The Board of Directors is appointed as follows:
all cases in compliance with the laws and/or regulations
take part in the above activities, for any reason, the above
independent director, to be appointed by the minority
a) four-fifths of the directors to be elected are drawn from
governing gender balance in force at the time.
prerogatives shall be granted to one of the directors
shareholders, with the majorities established by law without
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the list that obtains the majority of the votes expressed by
designated by the Appointments and Succession Committee
application of the list voting mechanism, at the first Shareholders’
the shareholders, as rounded down to the nearest whole
For the appointment of directors who, for any reason, were
on recommendation of MTP&C.
Meeting of Pirelli held subsequent to the First Trading Day
1
1
2
number in the case of fraction number;
not appointed in accordance with the list voting mechanism,
(which will coincide with the Annual General Meeting).
b) the remaining directors are drawn from the other lists,
the Shareholders’ Meeting shall adopt resolutions with the
using the quota method described in the Articles.
majorities required by law, without prejudice in all cases to
Should several candidates obtain the same quota, the candidate
compliance with the independence requirements specified in
4.2 COMPOSITION
Table 2 attached provides for the relevant information about
each member of the Board of Directors in charge at the Report
elected will be drawn from the list that has not yet elected a
the Articles and the gender balance requirements envisaged
The Board of Directors in charge at the Report Date was
Date. In addition, a summary of their professional profiles is
director or that has elected the minor number of directors.
by the laws and/or regulations in force at the time.
appointed by the Shareholders’ Meeting held on 1 August
available on the Website.
2017 (effective date for the appointments: 31 August 2017)
If none of those lists has elected a director yet or all of them
and is made of 14 members: Ren Jianxin (Chairman), Marco
There were no changes to the composition of the Board of
have elected the same number of directors, the candidate
elected will be drawn from the list that obtains the largest
4.1.2 Replacement Should one or more directors cease
from the office during the fiscal year, they shall be replaced
Tronchetti Provera (Executive Vice Chairman and CEO),
Directors between the end of the Year and the Report Date.
Yang Xingqiang, Bai Xinping, Giorgio Luca Bruno, Laura
number of votes. In the event of a voting tie, again with
pursuant to art. 2386 of the Civil Code, without prejudice
Cioli, Domenico De Sole, Ze’ev Goldberg, Tao Haisu, Marisa
more than one candidate obtaining the same quota, the
for the compliance with the gender balance requirements
Pappalardo, Cristina Scocchia, Giovanni Tronchetti Provera,
Shareholders’ Meeting will vote again and the candidate who
envisaged by the laws and/or regulations in force at the time.
Fan Xiaohua and Wei Yintao.
4.3 LIMITATIONS ON THE
NUMBER OF POSITIONS HELD
receives the largest number of votes will be elected.
If only one list is presented, all the directors will be elected
cause of removal if the number of directors still in possession
Chairman of the Board of Directors and, at its first meeting
on 31 August 2017, it is not considered compatible with the
from that list.
of the legal independence requirements is not lower than the
held on 31 August 2017, the Board of Directors confirmed Marco
duties of a director of the Company to be a director or statutory
minimum specified by the laws and/or regulations in force.
Tronchetti Provera as Chief Executive Officer and Executive
auditor of more than five other companies other than those
Loss of the independence requirements by a director is not a
The above Shareholders’ Meeting confirmed Ren Jianxin as
Pursuant to the orientation of the Board of Directors adopted
The Board of Directors must be appointed in compliance with
the regulations governing gender balance in force at the time.
Should application of the list voting mechanism not ensure the
minimum number of directors belonging to the less represented
4.1.3 Succession plans Pursuant to the New Shareholders’
Agreement, even in order to ensure the continuity of the
The composition of the Board of Directors reflects the clauses
on the FTSE/MIB index (or equivalent foreign index) or (ii)
contained in the New Shareholders’ Agreement, pursuant to
Italian or foreign companies that carry out financial, banking
Vice Chairman.
subject to management and coordination by the Company,
or its subsidiaries or affiliates, in case of (i) companies listed
gender set out by laws and/or regulations in force at the time,
Pirelli business culture, Marco Tronchetti Provera has been
which:
or insurance activities; furthermore, it is not considered
the candidate belonging to the most represented gender and
granted with a leading role in the procedure for identifying his
> Directors Ren Jianxin, Yang Xingqiang, Bai Xinping, Ze’ev
compatible for the same director to hold more than three
elected, indicated in the list that obtained the largest number
successor as the CEO of Pirelli.
of votes, shall be replaced by the first candidate belonging to
28 The calculation of the tenure of the Board: (i) considered all Directors in office, except for those appointed for the first time at the
Shareholders’ Meeting held on 1 August 2017; and (ii) considered for each Director the date of initial appointment indicated in Table 2.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership executive positions in companies of the types indicated in
4.5 ROLE OF THE BOARD OF DIRECTORS
points (i) and (ii) above.
into English and Chinese the documentation to be examined
must be approved (as an internal restriction of the power
by the Board and the Committees, as well as to make a
granted to the Chief Executive Office on that date) by the
The Board of Directors plays a central role in the guidance
simultaneous translation service available to the participants.
Board of Directors of the Company:
Positions held in several companies belonging to the same
and management of the Company. Pursuant to art. 11 of the
If the Chairman is absent or unavailable, the chair is taken
(i)
obtaining or granting loans for a total value higher than
group are considered to be a single position and an executive
Articles, the Board of Directors manages the business and, for
by the Chief Executive Officer; if the latter is also absent or
Euro 200 million and with a duration of more than 12
position prevails over a non-executive position.
this purpose, exercises all the widest powers of management,
unavailable, the chair is taken by another director appointed
months;
except for those reserved by law or the Articles to the
by the majority of those present. The Board of Directors
(ii)
issuing financial instruments to be listed on European or
The Board of Directors is entitled to make a different
Shareholders’ Meeting.
appoints a Secretary who may also not be a Director.
non-European regulated markets or multilateral trading
assessment, properly motivated, to be published in the Report
and explained appropriately therein.
For the validity of the resolutions of the Board of Directors,
their delisting;
systems that total more than Euro 100 million and/or
Following review by the Corporate Governance, Sustainability,
4.5.1 Functioning of the board of directors Meetings
of the Board of Directors are called by the Chairman or his
the meeting shall be attended by the majority of the members
(iii) giving guarantees in favour of or in the interests of third
and the majority of the votes expressed is necessary.
parties for amounts higher than Euro 100 million;
Control and Risks Committee, each year the Board of Directors
deputy and held at the registered offices, or in any another
Resolutions,
including those adopted at meetings held
(iv)
signing derivative contracts (a) with a notional value
examines the positions held by each Director (based on the
location specified in the notice of convening, whenever
using telecommunications technology, are recorded in the
higher than Euro 250,000,000, and (b) except for
information provided by that person and/or on the other
deemed appropriate by the Chairman in the interests of the
relevant book; all minutes are signed by the Chairman and
those having the sole object and/or effect of hedging
information available to the Company). At the Report Date, no
Company, or when requested in writing by the Chief Executive
the Secretary of the meeting. All copies of and extracts from
corporate risks (e.g. interest-rate risk, exchange-rate
Director holds a number of positions higher than the number
Officer or by one-fifth of the appointed Directors. Meetings
minutes not prepared by a Notary are certified true by the
risk, commodity market risk);
set out in the orientation adopted by the Company.
of the Board of Directors may also be called by the Board of
Chairman.
Statutory Auditors, or by each effective auditor, following
(v)
purchasing or selling equity investments in subsidiaries
and affiliates for amounts higher than Euro 150 million
Attachment A indicates the principal appointments held by
notification sent to the Chairman of the Board of Directors.
As recommended by the Corporate Governance Code,
and that
involve entering
into (or exiting from)
the Directors in companies that do not belong to the Group at
Director awareness of the business reality and dynamics of
geographical and/or commodity markets;
the Report Date.
The Board of Directors in office at the Report Date met twice
the Company and the Group is enhanced by the systematic
(vi) purchasing or selling equity investments other than
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4.4 INDUCTION PROGRAM
between the First Trading Day and the end of the Year. The
attendance of top management at their meetings, which
those described in point (v) above for amounts higher
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average duration of each meeting was 50 minutes, with
makes it possible to explore the matters on the agenda in
than Euro 250 million;
attendance by more than 90% of the Directors and more than
appropriate detail.
(vii) purchasing or selling businesses or lines of business that
90% of the Independent Directors.
have strategic importance or, in any case, a value of
The Directors perform their duties autonomously and with
Given the short period of time between the First Trading Day
more than Euro 150 million;
competence, pursuing the priority objective of creating
Given the short time between the First Trading Day and the end
and the end of the Year, the Board of Directors will start as
(viii) purchasing or selling fixed and other assets that have
sustainable value over the medium-long term. They are aware
of the Year, no meetings reserved solely for the independent
from 2018 the process of assessing its functioning and that of
strategic importance or, in any case, a total value of
of the responsibilities pertaining to their role and, like the
Directors were held during that period.
the Board committees.
more than Euro 150 million;
Statutory Auditors, they are kept periodically informed by the
(ix) carrying out transactions of greater significance with
competent business functions about the principal regulatory
With regard to the current year, Pirelli has made available to
The Articles establish that, until decided differently at a
related parties, being those satisfying the conditions
and self-regulatory changes affecting the Company and the
the market a calendar of corporate events (also available on
Shareholders’ Meeting, the Directors are not bound by the
envisaged in Attachment 1 to the “Procedure for Related-
performance of their duties.
the Website), according to which the Board is expected to
restrictions specified in art. 2390 of the Civil Code.
Party Transactions” approved by the Board of Directors
In particular, in the context of the Board meetings, the
meet at least 4 times.
Directors have been provided, also with support of the top
of the Company on 31 August 2017, in confirmation of
the resolutions adopted on 28 July 2017 by the out-going
management, with an explanation of the main characteristics
The Directors and Statutory Auditors receive with prior notice
of the activities of Pirelli and its Group, of the field in which
the documentation and information deemed necessary in
4.5.2 Reserved matters In accordance with the Articles,
the Shareholders’ Meeting requires a qualified majority (i.e.
Board of Directors;
(x)
defining the Company’s remuneration policy;
it operates, of the sustainable management model and of the
order to be properly informed for the discussion of the items
favourable votes by shareholders representing at least 90%
(xi) determining, in compliance with the Company’s internal
internal control and risk management system adopted by the
subject to their examination. The advance notice provided
of the share capital of the Company), if any of the following
policies and the applicable regulations, the remuneration
Company. Additionally, with the listing, information about
is generally deemed reasonable and appropriate. In fact, the
resolution has to be passed, in order to authorise the Board of
of the executive directors and the directors with specific
the relevant legal and regulatory framework and the specific
documentation examined by the Board is usually circulated
Directors to carry out such resolutions:
responsibilities and, where required, allocating the total
procedures and disciplines adopted by the Company have
about ten days prior to the meeting. In the limited and
>
transfer the operational and administrative headquarters
remuneration authorised by the Shareholders’ Meeting
been provided.
exceptional cases in which it was not possible to transmit the
outside of the municipality of Milan;
among the members of the Board of Directors pursuant
Further, specific induction-related activities will be structured
matter concerned was provided directly during the meeting,
know-how (including the granting of licences).
(xii) approving the strategic, industrial and financial plans of
and carried out during 2018, also in the context of the Board
in order to ensure that informed decisions were made.
On 31 August 2017, the Board of Directors established that
Pirelli and the Group;
meetings and of the Board committee meetings.
all resolutions regarding the following matters arranged
(xiii) adopting corporate governance rules for the Company
documentation so far in advance, full information about the
> any transfer and/or deed of disposal, in any form, of Pirelli
to art. 2389, para. 3, of the Civil Code;
Considering the international composition of the Board of
by Pirelli and/or any company subject to management and
and defining guidelines for the corporate governance of
Directors, it is standard practice for the Company to translate
coordination by Pirelli (excluding intercompany transactions)
the Group;
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership (xiv) defining guidelines for the system of internal control,
either separately or together with others, and all other
Considering the frequency of Board meetings, the Chief
including the appointment of a Director responsible for
powers deemed appropriate by him in the best interests of the
Executive Officer usually reports on his work during those
overseeing the system of internal control, determining
Company, including the right to sub-delegate.
meetings.
the related duties and powers;
(xv) any other matter deemed to be responsibility of the
In particular the Executive Vice Chairman and Chief Executive
board of directors of a listed company by the Corporate
Officer Marco Tronchetti Provera was granted with:
Governance Code promoted by Borsa Italiana, as
a) as sole signatory, powers for the ordinary management
4.7 INDEPENDENT DIRECTORS
5. PROCESSING OF
CORPORATE
INFORMATION
amended from time to time;
of Pirelli and the Pirelli Group, with reference to both
At the Report Date, 50% of the Board of Directors consists
Pirelli has adopted and consolidated over time a compendium
(xvi) approving the budget and the business plan of the
Pirelli and any other company (including unlisted foreign
of directors who satisfy the requirements for identification
of rules and procedures for the proper management of
Company and the Group, as well as all significant
companies) subject to management and coordination
as independent: Laura Cioli, Domenico De Sole, Tao Haisu,
corporate information, in compliance with the regulations
changes to those documents; and
by Pirelli, with the following internal restrictions and
Marisa Pappalardo, Cristina Scocchia, Fan Xiaohua and Wei
applicable to the various types of data.
(xvii) adopting
any
resolutions
regarding
industrial
therefore with the assignment of the related responsibility
Yintao. The existence of their independence requirements has
partnerships or strategic joint ventures to which Pirelli
to the Board of Directors, if:
been evaluated in the context of the Board meeting held on 31
With particular reference to the prevention of market abuses,
and/or any Group company are party,
(i)
the threshold amounts envisaged for each of the
August 2017, on the basis of the information provided by them
the Board of Directors of Pirelli has adopted, with effect from
it being understood that the approval of the transactions listed
matters indicated above are exceeded; or
at the time of their appointment, the information available to
the date of submission to Borsa Italiana of the application
above is reserved solely to the Board of Directors not only if
(ii)
for the matters listed from (i) to (ix) in section 4.5.2
the Company and the requirements established in the TUF and
for the admission of the shares of the Company to trading on
the threshold indicated for each matter are exceeded, but also
above, if the amounts indicated in the business plan
recommended by the Corporate Governance Code.
the MTA, a procedure for defining the principles and rules for
if the matters listed from (i) to (ix), whether considered as a
and/or the annual budget are exceeded; or
preventing such abuses by Pirelli, Group companies and their
single action or as a series of coordinated actions (carried out in
(iii)
for the matters listed from (i) to (viii) in section 4.5.2
At the same time of the assessment made by the Board of
related parties (the “Market Abuse Procedure”). The objective
the context of a common executive programme or a strategic
above, if they were not included, listed or envisaged
Directors, the Board of Statutory Auditors confirmed that
of this procedure is to protect investors, in order to avoid the
project) exceed the amounts indicated in the business plan
in the business plan or the annual budget; and
it had verified, in line with the recommendations of the
asymmetrical release of information and stop certain parties
and/or the annual budget or (solely for the matters listed from
b)
the power to propose to the Board of Directors (the
Corporate Governance Code, the proper application of the
making use of information that is not in the public domain to
2
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(i) to (viii)) if they were not included, listed or envisaged in the
“Power to Propose”) adoption of the following resolutions
assessment criteria and procedures adopted by the Board of
carry out speculative transactions in the markets, as well as to
business plan or the annual budget.
(together, the “Significant Matters”):
Directors to verify the independence of its Directors.
protect the Company from potential liabilities arising from the
5
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(i)
approval of the business plan and the budget of the
conduct of parties under its control.
As required by the Corporate Governance Code, the Board
Company and the Group, as well as all significant
Following their appointment, the satisfaction of the
of Directors has assessed positively the adequacy of the
changes to those documents. The business plan
independence requirements is assessed at least on an annual
In particular, the Market Abuse Procedure - the full version
organisational, administrative and accounting systems and
and the annual budget must (a) address certain
basis (for 2018, this activity was carried out during the Board
of which is available on the Website - governs: (a) the
structure of the Company, with particular reference to the
operational and financial aspects of Pirelli including,
meeting held on 26 February 2018).
management of “significant information”, being information
system of internal control and risk management, making
but not limited to, the identification of all sources of
that may become “inside information” pursuant to art. 7 of
reference to the analytical work carried out by the Corporate
funding for such business plans and budgets, as well
As already stated, the New Shareholders’ Agreement requires
Regulation (EU) 596/2014 (“Inside Information”); (b) the
Governance, Sustainability, Control and Risks Committee.
as the decisions about the operational activities
the Board of Directors of the Company to be integrated with
management and communication to the public of Inside
underlying them; and (b) be accompanied and
an additional independent director designated by the minority
Information; (c) the creation, keeping and updating of
The Board has also evaluated the general results of operations,
supported by adequate and suitable documentation
shareholders at the first Ordinary Meeting held after the
the register of persons who, in view of their working or
taking into particular account the information received from
describing the items contained therein;
First Trading Day, which coincides with the Annual General
professional activities or the functions they perform, have
delegated bodies and comparing periodically, at least every
(ii)
any resolutions regarding industrial partnerships
Meeting.
quarter, the results obtained with those planned.
or strategic joint ventures to which Pirelli and/or
access to Inside Information; (d) the obligations regarding
transactions in the shares of the Company, credit instruments
any Group company are party, in all cases following
Considering the above, the system of mandates and the
issued by the Company and the derivative or other financial
examination by the Strategies Committee,
ownership structure, the Board of Directors has not yet
instruments linked to them, by parties deemed to be senior
it being understood that: (a) the power to resolve on the
appointed a lead independent director.
decision-makers (“internal dealing”); (e) the operational
4.6 DELEGATED BODIES:
EXECUTIVE DIRECTORS
Significant Matters is reserved solely for the Board of
Directors and/or the Shareholders’ Meeting, as applicable; and
With resolution dated 31 August 2017, the Board of Directors
(b) should the Board of Directors not approve the proposal of
granted the Executive Vice Chairman and Chief Executive
the Chief Executive Officer and Executive Vice Chairman, the
Officer Marco Tronchetti Provera with all the powers necessary
related resolution must be motivated and, in all cases, take
to carry out deeds relating to all aspects of corporate activity,
into account the best interests of the Company.
without any exceptions aside from those that the law or the
Articles reserve to the Board of Directors; all with the power
In light of the above, Executive Vice Chairman and Chief
to grant special and general powers of attorney that give the
Executive Officer Marco Tronchetti Provera is identified as
representative the right to sign on behalf of the Company,
executive director.
procedures and scope of application of the prohibition imposed
on the Company and the persons who perform administrative,
control or management functions for the Company regarding
the execution of transactions
in Pirelli shares, credit
instruments issued by Pirelli and the derivative or other
financial instruments linked to them during predetermined
periods (“black out periods”); (f) any market soundings carried
out or received in compliance with art. 11 of Regulation (EU)
596/2014 and the related enabling regulations.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership Also following the orientations expressed by the competent
The Strategies Committee meets at least 5 days prior to the
Control and Risks Committee and the Compensation Committee.
authorities, the Company is about to adopt an operational
Board meeting called to approve the annual budget and/or the
One member of the Board of Statutory Auditors is invited to
regulation intended to ensure appropriate implementation
business plan, receiving the related documentation at least 3
attend the meetings of the Appointments and Succession
of the Market Abuse Procedure and proper information flows
days prior to the meeting.
Committee and the Strategies Committee.
among the parties required to comply with the Procedure.
Further, again in the light of the above orientations, the
The Secretary of each Committee is the Secretary of the Board.
The members of the Board of Statutory Auditors are invited
Board of Directors is currently considering an update to the
Committee meetings are called by a notice sent, by the
to attend the meetings of the Related-Party Transactions
Procedure.
Committee Secretary or otherwise, at the request of the
Committee.
Committee Chairman.
8. APPOINTMENTS
AND SUCCESSION
COMMITTEE
At the Report Date, the Appointments and Succession
Committee comprises 4 directors: Marco Tronchetti Provera
The Market Abuse Procedure also defines rules for transactions
Further information about the number of meetings held by
(Chairman), Ren Jianxin, Giovanni Tronchetti Provera and Bai
carried out by “Significant Parties” or by “Persons Closely
The documentation and information available (and, in all
each Committee during the Year and about the attendance
Xinping. As an exception to the Corporate Governance Code,
Related to Significant Parties” in financial instruments issued
cases, the necessary information) are sent in good time to
of each member at those meetings can be found in Table 2
the majority of the members of this committee are non-
by the Company, with an annual amount of at least Euro
all members of the relevant Committee so that they can
attached to this Report.
executive directors (albeit not independent). This is partly
20,000, in compliance with the applicable current regulations.
participate in the meeting in an informed manner.
In this regard, a black-out period of 30 calendar days is
imposed prior to the announcement by the Company of the
Committee meetings are quorate when attended by the
data contained in annual, half-yearly and periodic financial
majority of appointed members and resolutions are adopted
reports, during which time internal dealers are forbidden to
by the majority of those present. In the event of a voting tie
carry out transactions in those financial instruments.
at meetings of the Appointments and Succession Committee
held to appoint a successor to the Chief Executive Officer, the
outgoing Chief Executive Officer’s vote will prevail. Committee
meetings may be held by conference call; their minutes are
7. STRATEGIES
COMMITTEE
because the committee addresses not only matters relating
to appointments, but also those regarding top management
succession;
in addition, committee membership takes
account of the fact that the New Shareholders’ Agreement
has established a structured procedure for identifying the
successor to Marco Tronchetti Provera as the Chief Executive
Officer of Pirelli (see section 4.1.3).
In particular, the Appointments and Succession Committee:
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6. BOARD COMMITTEES
taken by the Committee Secretary and recorded in the related
At the Report Date, the Strategies Committee is made
> prepares opinions for the Board of Directors on the size and
minute book. The Chairman of each committee informs the
of 7 directors (including 2 independent directors): Marco
composition of the Board and makes recommendations
Board of Directors about the outcome of the meetings held.
Tronchetti Provera (Chairman), Giorgio Bruno, Yang Xingqiang,
about the professional roles whose presence on the Board
7
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Bai Xinping, Ze’ev Goldberg, Domenico De Sole and Wei Yintao.
is deemed appropriate;
The role of the Board committees is to carry out analyses for,
Committee awareness of the business reality and dynamics of
> prepares opinions for the Board of Directors on the adoption
make recommendations to and/or give advice to the Board in
the Company and the Group is enhanced by the attendance of
The
Strategies
Committee
advises
and makes
and/or amendment by the Board of its orientation towards
relation to matters deemed worthy of further investigation,
top management at their meetings, which makes it possible
recommendations to the Board of Directors on the
the number of appointments considered compatible with
in order to ensure that there is an effective and informed
to explore the matters on the agenda in appropriate detail.
definition of strategic guidelines, as well as on the
effective performance as a director of the Company;
exchange of opinions about them.
In particular, as a practice, the Executive Vice President &
identification and definition of terms and conditions for
> makes recommendations to the Board of Directors about
Chief Human Resources Officer attends the meetings of
individual transactions of strategic importance.
any issues regarding application of the prohibition of
On 31 August 2017, the Board of Directors of the
the Compensation Committee, while the Corporate Vice
competition envisaged in art. 2390 of the Civil Code, should
Company established the Strategies Committee, the
President Internal Audit and the Head of Sustainability &
In particular, the Strategies Committee:
the Shareholders’ Meeting - for organisational reasons
Appointments and Succession Committee, the Corporate
Risks Governance attend the meetings of the Corporate
> examines the strategic, industrial and financial plans - both
- authorise in advance, on a general basis, exceptions to
Governance, Sustainability, Control and Risks Committee,
Governance, Sustainability and Control and Risks Committee.
short and long term - of the Company and the Group
this prohibition;
the Compensation Committee and the Related-Party
before their submission to the Board of Directors;
>
recommends candidates to the Board of Directors, should
Transactions Committee.
Committees - which may make use of external advisers in
> helps the Board to assess transactions, initiatives and
it be necessary to co-opt new Directors to replace
6.1 FUNCTIONING OF COMMITTEES
carrying out their functions - are granted with adequate financial
activities of strategic importance including, in particular:
Independent Directors;
resources to perform their tasks with spending autonomy. The
entry into new geographical markets and businesses;
>
recommends “emergency” top management succession
Related-Party Transactions Committee is entitled to obtain
(i) industrial alliances (e.g. joint ventures); (ii) special
plans to the Board of Directors;
assistance, at the expense of the Company, from one or more
transactions (mergers, spin-offs, capital increases and
> prepares opinions for the Board of Directors on the
The Committees are appointed by the Board of Directors and
independent experts selected by the Committee.
capital reductions, except for those to cover losses);
designation of candidates (including persons to be
remain in office for the entire mandate of the Board, meeting
(iii) investment projects; (iv) industrial and/or financial
coopted) for the position of Chief Executive Officer;
whenever deemed appropriate by the Committee Chairman,
Committees are entitled to access relevant business information
restructuring projects and programmes;
> over proposal of the Chief Executive Officer, identifies
or when requested by at least one member, by the Chairman of
and functions in the performance of their tasks, with support
> examines periodically the organisational structure of the
criteria for the succession plans covering top and senior
the Board of Directors or, if appointed, by the Chief Executive
from the Secretary to the Board of Directors for this purpose.
Company and the Group, presenting any suggestions and
management in general, in order to guarantee the
Officer and, in any case, with the frequency necessary in order
opinions to the Board.
continuity of business strategies.
to properly carry out their functions.
The entire Board of Statutory Auditors is entitled to participate
in the activities of the Corporate Governance, Sustainability,
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership 9. RELATED-PARTY
TRANSACTIONS
COMMITTEE
This Committee has advisory and supervisory functions
The Compensation Committee is granted with the functions
and makes recommendations to ensure the definition and
of the Related-Party Transactions Committee (discussed
application within the Group of compensation policies that, on
above), envisaged pursuant to the Consob regulations and
the one hand, attract, motivate and retain human resources
the procedures for related-party transactions adopted by
with the professional qualities required to pursue profitably
the Company, for matters concerning the remuneration of
the objectives of the Group and, on the other, are capable
directors with specific responsibilities and executives with
of aligning the interests of management with those of the
strategic responsibilities.
At the Report Date, the Related-Party Transactions
shareholders.
Committee is made of 3 independent directors: Domenico De
The directors part of the Compensation Committee do not
Sole (Chairman), Marisa Pappalardo e Cristina Scocchia.
In particular, the Compensation Committee:
attend the meetings held to make recommendations to the
> helps the Board of Directors to define the General Policy
Board about their own remuneration.
The Related-Party Transactions Committee provides advice
for Group Remuneration, making recommendations in
and makes recommendations to the Board of Directors about
this regard;
transactions with related parties, with the sole exception
> assesses periodically the adequacy, overall consistency
of matters concerning the remuneration of directors and
and concrete application of the General Policy for
executives with strategic responsibilities, which are addressed
Remuneration, making reference in this last regard to
by the Compensation Committee.
the information provided by the chief executive officers;
makes recommendations to the Board of Directors on
In particular, the Related-Party Transactions Committee:
this matter;
11. REMUNERATION
OF THE DIRECTORS
12. CORPORATE
GOVERNANCE,
SUSTAINABILITY,
CONTROL AND RISKS
COMMITTEE
At the Report Date, the Corporate Governance, Sustainability,
Control and Risks Committee is made of 3 independent directors:
Fan Xiaohua (Chairman), Laura Cioli and Cristina Scocchia, all
with suitable experience of financial and accounting matters
or risk management. The Committee will be integrated with
the appointment of the independent Director to be elected at
the Annual General Meeting (see section 4.2).
2
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> prepares advance opinions on the procedures governing
> with regard to the executive directors and the other
The Corporate Governance, Sustainability, Control and Risks
the identification and management of related-party
directors with
specific
responsibilities, makes
The system for remunerating Group management is designed
Committee, which incorporates the functions of the “control
transactions arranged by Pirelli and/or by its subsidiaries,
recommendations or expresses opinions to the Board:
to attract, motivate and retain key resources. It is defined in
and risks committee”, helps the Board of Directors to assess
as well as their amendment;
(i) about their remuneration, consistent with the
a way that aligns the interests of management with those of
and make decisions about the system of internal control and
> prepares advance,
reasoned opinions,
if expressly
General Policy for Remuneration; (ii) about setting
the shareholders, pursuing the priority objective of creating
risk management, as well as the approval of periodic financial
requested, on the interest of Pirelli in carrying out a specific
performance objectives linked to the variable element of
sustainable value over the medium-long term via an effective
reports, as required by art. 7 of the Corporate Governance Code.
9
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related-party transaction and on the reasonableness and
that remuneration; (iii) about the definition of any no-
and verifiable link between remuneration, on the one hand,
substantial fairness of the relevant conditions;
competition agreements; (iv) about the definition of any
and individual and Group performance on the other.
In particular, the Corporate Governance, Sustainability,
>
in the case of significant transactions with related parties,
agreements for the termination of working relationships,
Control and Risks Committee:
the committee is involved in the related negotiations
having regard to the principles established in the General
Even after the delisting in 2016, the Company maintained
> assists the Board of Directors by expressing an opinion on the
and the analytical phase via the receipt of complete and
Policy for Remuneration;
a remuneration structure consistent with the general
(i) definition of guidelines for the system of internal control
timely information, with the right to request information
> with
regard
to
the executives with
strategic
criteria specified in art. 123-ter TUF. Subsequent to the First
and risk management, so that the principal risks faced by
and to make observations to the persons responsible for
responsibilities, checks
the consistency of
their
Trading Day, the Board of Directors has adopted a new 2018
the Company and its subsidiaries are properly identified
carrying out the negotiations or analyses.
remuneration with the General Policy for Remuneration
remuneration policy for the Company that complies with the
and appropriately measured, management and monitored;
10. COMPENSATION
COMMITTEE
and expresses an opinion on it pursuant to the Procedure
above regulations applicable to listed companies and with
(ii) determination of the extent to which those risks are
for Related-Party Transactions;
the Corporate Governance Code. The related report will be
compatible with managing the Company in a manner
> helps the Board of Directors to examine proposals to the
presented at the Annual General Meeting in order to obtain
consistent with the strategic objectives identified, having
Shareholders’ Meeting for the adoption of compensation
the opinion of shareholders.
plans based on financial instruments;
regard for the risks that might be significant in terms of the
sustainability of the business over the medium-long term;
> monitors application of the decisions adopted by the
Information about the remuneration policy can be found in
(iii) identification of an executive director responsible for
Board, checking in particular the effective achievement
the Compensation Report prepared pursuant to art. 123-ter
supervising the functioning of the system of internal control
of the established performance objectives;
TUF, which is made available to the public on the basis and
and risk management, considering the characteristics of
> examines and submits to the Board of Directors the
by the deadlines envisaged by current laws and regulations,
the business and the desired risk profile; (iv) assessment,
At the Report Date, the Compensation Committee is made
Annual Compensation Report that, by name for the
including by publication on the Website.
each year or more frequently, of the adequacy of the system
of 3 directors (including 2 independent directors): Tao Haisu
members of the management and control bodies
(Chairman); Laura Cioli (Director with suitable knowledge
and in aggregate for the executives with strategic
and experience of financial matters or remuneration policies)
responsibilities: (i) provides adequate information about
and Bai Xinping. The Committee will be integrated with the
each component of their remuneration; and (ii) explains
appointment of the independent Director to be elected at the
in detail all the remuneration paid during the year, for
Annual General Meeting (see section 4.2).
whatever reason and in whatever form, by the Company
and its subsidiaries.
of internal control and risk management, considering the
characteristics of the business and the desired risk profile,
as well as the effectiveness of its functioning in practice;
(v) approval, each year or more frequently, of the work
plan prepared by the internal audit manager and the
compliance function manager; (vi) description, in the report
on corporate governance, of the essential elements of the
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership 2
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system of internal control and risk management and the
> defines and recommends “sustainability” guidelines to the
The Responsible Director is tasked with supervising the
a structured process of analysis and prioritisation of the
methods of coordination adopted by the parties involved,
Board of Directors and monitors compliance with any
functioning of the system of internal control and risk
principal risks;
expressing an opinion on their overall adequacy; (vii)
related codes of conduct adopted by the Company and its
management and
implementing the related guidelines
> carries out verifications, also on request of the Corporate
assessment, having heard the Board of Statutory Auditors,
subsidiaries;
formulated by the Board of Directors, with support from
Governance, Sustainability, Control and Risks Committee,
of the results presented by the legal auditor in the letter of
> helps the Board of Directors to prepare and subsequently
the Corporate Governance, Sustainability, Control and Risks
of the Board of Statutory Auditors and of the Responsible
recommendations provided to management, if applicable,
examine and approve the sustainability report.
Committee, ensuring that all actions necessary for the
Director, on specific operating areas and on compliance
and the report on fundamental matters identified during
the legal audit work, if applicable;
> expresses an opinion on proposals concerning the
appointment, revocation, assignment of duties and
determination of the remuneration, consistent with
Company policies, of the Internal Audit Manager, as well
as on the adequacy of the resources allocated to the latter
in order to carry out the assigned functions;
> assesses, together with the administrative managers
of the Company and the chief reporting officer, after
having heard the Board of Statutory Auditors and the
13. SYSTEM OF
INTERNAL CONTROL
AND RISK MANAGEMENT
implementation of the system are taken.
with the internal rules and procedures for the conduct of
business operations;
In particular, the Responsible Director:
> prepares periodic reports on its assessment of the suitability
> ensures identification of the principal business risks, taking
of the System of Internal Control and Risk Management.
into account the characteristics of the activities carried
These reports are sent, at least every quarter, to the
out by the Company and its subsidiaries, and submits them
Board of Statutory Auditors, the Corporate Governance,
periodically to the Board of Directors for examination;
Sustainability, Control and Risks Committee, and the
>
implements the guidelines formulated by the Board of
Responsible Director, and, at least every six months, to
Directors, supervising the design, implementation and
the Board of Directors;
management of the system of internal control and risk
>
receives and analyses reports obtained in accordance
management and checking constantly its adequacy and
with the whistle-blowing procedures established by the
auditing firm, the proper and consistent application of
The system of internal control and risk management is designed
effectiveness;
Group and regarding any cases of corruption/violation of
the accounting policies adopted by the Group for the
to contribute, by identifying, managing and monitoring the
> ensures that this system adapts to any changes in operating
the principles of internal control and/or the precepts of
preparation of the consolidated financial statements;
principal risks faced by the Company, to the conduct of a
conditions and the legislative and regulatory framework;
the Code of Ethics, Equal Opportunities, corporate rules
> at the request of the director responsible, expresses
healthy and proper business, consistent with the objectives
> may request the internal audit function to audit specific
and regulations, or any other actions or omissions that,
opinions on specific aspects regarding the identification
established by the Board of Directors. The system of internal
operating areas and compliance with the internal rules and
directly or indirectly, might result in economic or financial
of the main business risks, as well as on the design,
control and risk management allows the identification,
procedures for the conduct of business operations; and
losses for or damage to the reputation of the Group and/
implementation and management of the system of
measurement, management and monitoring of the principal
> reports in a timely manner to the Corporate Governance,
or its subsidiaries;
internal control and risk management;
risks, as well as the reliability, accuracy, trustworthiness and
Sustainability, Control and Risks Committee (or to the Board
> provides adequate support to the Supervisory Bodies
> examines the periodic reports prepared by the internal
timeliness of financial information.
of Directors) on issues and critical situations identified
established pursuant to art. 6 of Decree 231/2001;
audit manager and the compliance function manager;
during his work or that came to his attention, so that the
> provides advice and support to the relevant Company
> monitors the autonomy, adequacy, effectiveness and
The Board of Directors is responsible for the adoption of an
Committee (or the Board) can take appropriate action.
departments – without exercising any decision-making
efficiency of the internal audit function;
adequate system of internal control and risk management,
>
requests, if deemed appropriate, the performance of checks
carrying out the duties assigned to it by the Corporate
in specific operational areas, informing the Chairman of
Governance Code with support
from the Corporate
the Board of Statutory Auditors at the same time;
Governance, Sustainability, Control and Risks Committee.
13.2 INTERNAL AUDIT FUNCTION
or authorisation responsibilities – regarding inter alia: (i)
the reliability of their systems for safeguarding corporate
assets; (ii) the adequacy of their procedures for recording,
controlling and reporting administrative activities; (iii)
> reports to the Board of Directors on the work performed
The Company has established an internal audit department,
the assignment of engagements to the firm of legal
and on the adequacy of the system of internal control and
A more complete description of the system of internal control
managed by Maurizio Bonzi, who has been granted with duties
auditors and to other firms in its network.
risk management at least every six months, at the time of
adopted by Pirelli can be found in the Report on the responsible
essentially consistent with those set out in the Corporate
approving the financial statements and the half-year report;
management of the value chain. Additionally, in this regard, the
Governance Code.
> at the request of the Board, supports with appropriate
Board of Statutory Auditors has issued an attestation about
13.3 COMPLIANCE FUNCTION
preparatory work the evaluations and decisions of the
the administration and accounting systems adopted by the
In particular, this function is tasked with assessing the
Board of Directors concerning the management of risks
significant subsidiaries of Pirelli to ensure that the economic,
adequacy and functioning of the control, risk management
Operating within the Corporate Affairs and Compliance
arising from any detrimental facts that may have come to
financial and cash flow data required for the preparation of
and corporate governance processes, through an independent
Department, the Compliance Function works with the Legal
its attention;
the consolidated financial statements is received properly by
and objective assurance and advisory activities.
departments and other business functions to ensure that
> monitors compliance with and the periodic update of
the management of Pirelli and its auditors.
The internal audit function:
internal regulations, processes and business activities are
the corporate governance rules, as well as compliance
with any codes of conduct adopted by the Company and
its subsidiaries. In particular, the committee proposes
procedures and related timing for the annual self-
13.1 RESPONSIBLE DIRECTOR
> verifies, both on a continuous basis and in relation to specific
constantly aligned with the applicable regulatory framework,
needs and in accordance with international standards,
participating actively
in the
identification of any non-
the effective operation and suitability of the System
conformity risks that might give rise to court-imposed and
of Internal Control and Risk Management - suggesting
administrative penalties, with a consequent loss of reputation.
assessment of the Board of Directors;
The Board has designated Marco Tronchetti Provera as the
any corrective actions - by implementing an audit plan,
> monitors sustainability matters relating to the conduct of
director responsible for supervising the functioning of the
approved each year by the Board of Directors, based on
the business and the dynamics of its interactions with all
internal control system (the “Responsible Director”).
stakeholders;
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ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership 13.4 SYSTEM OF RISK MANAGEMENT
AND CONTROL OVER FINANCIAL
INFORMATION
A system for supervising the verification work carried out
would not eliminate in full the risk of incurring penalties as a
entail: (i) the legal audit of the accounts (including verification
has been implemented through a chain-of-certifications
consequence of their activities.
that the accounting records are properly kept and that the
mechanism; any problems that emerge during the evaluation
results of operations are properly reflected in the accounting
process are the subject of action plans whose implementation
The 231 Model comprises: (a) a general part covering topics
entries) pursuant to arts. 13 and 17 of Decree 39/2010 for the
Pirelli has implemented a specific and detailed system of
is monitored at subsequent reporting dates.
relating, inter alia, to the applicability and application of Decree
financial years 2017-2025, in relation to the separate financial
internal control and risk management, supported by a
231/2001, the composition and functioning of the Supervisory
statements of the Company, the consolidated financial
dedicated IT application, covering the process of preparing
Lastly, the Chief Executive Officers and Chief Financial Officers
Body, and the system of penalties applicable in the event of
statements of the Group and the additional related activities;
its half-yearly and annual separate and consolidated financial
of subsidiaries issue a quarterly confirmation of the reliability
violations of the standards of conduct specified in the 231
and (ii) the limited examination of the abridged consolidated
information, in order to safeguard corporate assets and ensure
and accuracy of the data submitted for the preparation of
Model, and (b) special parts containing the general principles
half-year financial statements of Pirelli & C. S.p.A. for the six-
compliance with the relevant laws and regulations, as well as
consolidated financial statements.
of conduct and the control protocols for each type of identified
month periods ending on 30 June 2018-2025.
the efficiency and effectiveness of business operations and the
offence deemed significant for the Company.
reliability, accuracy and timeliness of financial information.
Shortly before the Board meetings held to approve the
consolidated data as of 30 June and 31 December, the Chief
The Supervisory Body was appointed by the Board of Directors
13.8 CHIEF REPORTING OFFICER
In particular, the financial reporting process is carried out
Financial Officer discusses the results of the verification work
on 31 August 2017 and comprises Carlo Secchi (Chairman),
by applying appropriate administrative and accounting
carried out with the Chief Financial Officers of each Group
Antonella Carù (Serving Auditor), Maurizio Bonzi and Alberto
The Board of Directors has assigned to Francesco Tanzi,
procedures created in accordance with the criteria established
company.
Bastanzio (the last mentioned in view of their respective roles
with effect from the First Trading Day and after receiving a
by the Internal Control – Integrated Framework issued by the
as Corporate Vice President Internal Audit and Corporate
favourable opinion from the Board of Statutory Auditors, the
Committee of Sponsoring Organizations of the Treadway
The Internal Audit Department carries out periodic audits to
Vice President Corporate Affairs, Compliance and Company
role of executive responsible for the preparation of corporate
Commission.
verify the adequacy of the design and the effective operation
Secretary). The Supervisory Body satisfies the autonomy,
and accounting documentation pursuant to art. 154-bis TUF
of the controls over companies and processes. These audits
independence, professionalism and continuity of action
(the “Chief Reporting Officer”). The Board of Directors has
The administrative/accounting procedures adopted
for
are performed using samples selected applying materiality
requirements specified by law for that body.
also verified that the Chief Reporting Officer is an expert in
the preparation of financial statements and all other
criteria.
administration, finance and control matters and satisfies the
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financial disclosures are created under the responsibility
of the Chief Financial Officer, who periodically (and in any
case, on preparation of the separate/consolidated financial
statements) checks their adequacy and proper application.
13.5 DIRECTOR RESPONSIBLE
FOR SUSTAINABILITY MATTERS
Pirelli has adopted a Code of Ethics that sets out principles for
honourability requirements established for the directors.
the required conduct of directors, statutory auditors, executives
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2
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and employees of the Group and, in general, all those that work
The Chief Reporting Officer puts suitable administrative and
in Italy and abroad on behalf of or for the benefit of the Group,
accounting procedures in place for the preparation of the
or that engage in business relations with the Group, each in the
separate and consolidated financial statements, as well as of
In order to permit certification by the Chief Financial Officer,
The Board has assigned to Director Giorgio Luca Bruno the role
context of their own functions and responsibilities.
all other financial communications.
the companies and the significant processes that generate
of Director responsible for sustainability matters. In that role,
economic, financial or cash flow information have been mapped.
he is entrusted with supervising the sustainability matters
Group companies and significant processes are identified
associated with the conduct of business activities and the
each year on the basis of quantitative and qualitative criteria.
related dynamics of interactions with all stakeholders, as well
13.7 AUDIT COMPANY
The Company deeds and communications made public to the
market that contain accounting information, including interim
data, must be accompanied by a written declaration from the
Quantitative criteria include the identification of those Group
as with implementing the guidelines defined by the Board of
The company engaged to perform the legal audit of the
Chief Reporting Officer confirming that it corresponds to the
companies whose aggregate value, in relation to the processes
Directors, with assistance from the Corporate Governance,
accounts of the Company is PricewaterhouseCoopers S.p.A.
supporting documentation, records and accounting entries.
selected, exceeds a predetermined threshold of materiality.
Sustainability, Control and Risks Committee.
(the “Auditing Firm”), with registered and administrative
Qualitative criteria include the review of those processes and
of those companies that, as determined by the Chief Financial
Officer, may be exposed to risk despite not falling within the
13.6 231 MODEL AND CODE OF ETHICS
offices at via Monte Rosa 91, Milan, recorded on the Register of
In particular, the Chief Reporting Officer, together with
Legal Auditors established pursuant to art. 6 et seq of Decree
the Chief Executive Officer, certifies in specific reports
39/2010, as implemented by Decree 144 of the Ministry of the
accompanying the separate financial statements, the
Economy and Finance dated 20 June 2012.
consolidated financial statements and the abridged half-year
quantitative parameters described above.
The Company has adopted the organisation and management
financial statements:
Risks/control objectives have been
identified for each
(the “231 Model”), in order to create a system of rules
April 2017 engaged the Auditing Firm to perform the legal audit
and accounting procedures during the period to which
selected process involved in the preparation of the financial
designed to prevent illegal conduct that might be significant
of the accounts of Pirelli, pursuant to art. 14 of Decree 39/2010,
the documents refer;
statements and related disclosures, as well as with regard to
for the purposes of applying the above regulations and, as
as amended by Decree 135/2016, and art. 2409-bis et seq of the
> that the documents have been prepared in accordance with
the effectiveness/efficiency of the system of internal control
a consequence, has established a Supervisory Body (the
Civil Code, for the three-year period 2017, 2018 and 2019.
the international accounting standards endorsed by the
in general.
“Supervisory Body”).
European Union pursuant to Regulation (EC) 1606/2002 of
model envisaged by Decree 231 dated 8 June 2001, as amended
In particular, the Ordinary Shareholders’ Meeting held on 27
>
the adequacy and effective application of the administrative
The Ordinary Shareholders’ Meeting held on 1 August 2017
the European Parliament and of the Council of 19 July 2002;
Detailed verification work and specific responsibilities have
The Company has not extended adoption of the 231 Model to
confirmed the above appointment to perform the legal audit of
>
the conformity of the documents with the accounting
been defined for each control objective.
its foreign subsidiaries as that model might not be compatible
the accounts, establishing that, with effect from the admission
records and entries;
with their current national regulations and, therefore,
of Pirelli shares to trading on the MTA, such appointment would
>
the suitability of the documents to present a true and fair
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership view of the economic and financial position and cash
establishing stricter rules for the transactions of greater
and an Alternate Auditor, the Board of Statutory Auditors is
Should application of the list voting mechanism not obtain,
flows of the Company and, taken as a whole, of all the
significance, with regard to both their authorisation process
appointed on the basis of lists presented by the shareholders,
considering the Effective and Alternate Auditors separately,
companies included in the consolidation;
and the information provided to the market. The Related-
in which each candidate is listed with a sequence number. Each
the minimum number of statutory auditors belonging to
>
for the separate and consolidated financial statements,
Party Transactions Committee (composed of independent
list contains a number of candidates that does not exceed the
the less represented gender envisaged by the laws and/or
that the report on operations includes a reliable analysis
directors) is required to express an opinion on all transactions
number of members to be elected.
regulations in force at the time, the candidate belonging
of performance and the results of operations, as well as of
of greater or minor significance, in terms of the interest of
to the most represented gender and elected, indicated with
the situation of the Company and, taken as a whole, the
the Company in carrying out the transaction, as well as the
Shareholders are only entitled to present a list if, alone or
the highest progressive number of each section from the list
companies included in the consolidation, together with
reasonableness and substantial correctness of the related
together with other shareholders, they hold at least 1% of
that obtained the largest number of votes, is replaced by the
a description of the principal risks and uncertainties to
conditions. This opinion is binding for all transactions of
the shares entitled to vote at an Ordinary Meeting, or any
first candidate belonging to the less represented gender not
which they are exposed;
greater or minor significance.
lower amount required by a regulation issued by Consob
already elected from the same section of that list, pursuant to
>
for the abridged half-year financial statements, that the
for the presentation of lists of candidates for appointment
the sequential order of presentation.
interim report on operations contains a reliable analysis
The approval process envisaged by the RPT Procedure is not
to the Board of Directors. Each shareholder may present or
of the information required by para. 4 of art. 154-ter TUF.
required, on the other hand, for transactions of insignificant
contribute to the presentation of just one list.
An Effective Auditor is replaced, in the event of death,
14. INTERESTS OF THE
DIRECTORS AND
RELATED-PARTY
TRANSACTIONS
2
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amount. The RPT Procedure also envisages certain exemptions,
resignation or forfeiture, by the first Alternate Auditor drawn
as well as the possibility of adopting framework resolutions
The lists of candidates, signed by those presenting them, must
from the same list. If this replacement does not allow the
and, in urgent cases, of making exceptions to the obligations
be filed at the registered offices of the Company at least twenty-
Board of Statutory Auditors to be reconstructed in compliance
established in the RPT Procedure.
five days prior to the date fixed for the Meeting called to appoint
with current regulations, including those governing gender
the members of the Board of Statutory Auditors, unless more
balance, recourse is made to the second Alternate Auditor
The full text of the RPT Procedure is available on the Website.
time is allowed for the presentation of candidates in the cases
drawn from the same list. If, subsequently, it becomes
Periodically and at least every three years, the Board of
envisaged by law and/or the regulations. These lists are made
necessary to replace another Effective Auditor drawn from
Directors - having received the opinion of the Related-Party
available to the public at the registered offices, on the Website
the list that obtained the largest number of votes, recourse
Transactions Committee - considers the need to revise the
and in any other ways envisaged in a relevant Consob regulation,
is always made to the other Alternate Auditor on that list.
Procedure.
at least twenty-one days prior to the date of the Meeting.
Should it be necessary to replace the Chairman of the Board
5
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2
As required by art. 2391-bis of the Civil Code and the Related
Parties Regulation, on 6 November 2017 – in confirmation
of the resolutions adopted on 31 August 2017 - the Board
of Directors resolved to adopt the procedure for related-
party transactions (the “RPT Procedure”), following the
unanimous favourable opinion expressed by the Related-
Party Transactions Committee. The RPT Procedure establishes
rules for the approval and execution of the related-party
transactions arranged directly by Pirelli or by its subsidiaries.
15. BOARD OF
STATUTORY AUDITORS
15.1 APPOINTMENT, REPLACEMENT
AND DURATION IN OFFICE
of Statutory Auditors, the chair is taken by the second auditor
Each candidate may be included on just one list, subject
on the same list as the Chairman to be replaced, on condition
otherwise to becoming ineligible.
in all cases that the replacement satisfies the requirements
for the position established by law and/or the Articles and
Each list comprises two sections: one for candidates Effective
complies with the gender balance requirements envisaged
Auditors and the other for candidates Alternate Auditors.
by the laws and/or regulations in force at the time; if it is not
The first candidate in each section must be a registered Legal
possible to make replacements in accordance with the above
Auditor who has worked as a legal auditor for not less than
criteria, a Shareholders’ Meeting is called to reconstruct the
three years. In compliance with the regulations in force from
Board of Statutory Auditors with resolutions adopted by a
time to time concerning gender balance, lists - considering
relative majority of the votes cast.
both sections - that contain three or more candidates must
include candidates of different gender in both sections for
When the Shareholders’ Meeting shall appoint the Effective
Effective Auditors and Alternate Auditors.
and/or Alternate Auditors necessary to reconstruct the Board
In particular, the RPT Procedure distinguishes:
At the Report Date, the Board of Statutory Auditors is made of
of Statutory Auditors, the procedure is the following: if it is
1.
transactions of insignificant amount (with a value not
five Effective Auditors and three Alternate Auditors who are
Each party entitled to vote may only vote for one list. The members
necessary to replace auditors elected from the majority list,
exceeding Euro 150,000);
required to satisfy current regulatory requirements; in this regard
of the Board of Statutory Auditors are elected as follows:
the appointment is made by a relative majority of the votes
2.
transactions of greater significance, being those
it shall be considered that the subjects and sectors of activity
1.
four Effective Auditors and two Alternate Auditors are
cast, without any list requirements and without prejudice, in
exceeding the thresholds envisaged in attachment 3 to
closely related to those of the company are those indicated in
drawn, in the sequence listed, from the list that obtained
all cases, to compliance with the gender balance requirements
the Related Parties Regulation or those that, although
the corporate objects, with particular reference to companies or
the largest number of votes (the majority list);
envisaged by the laws and/or regulations in force at the
not exceeding such thresholds, given their nature,
bodies operating in the financial, industrial, banking, insurance
2.
the remaining Effective Auditor and Alternate Auditor are
time; if, on the other hand, it is necessary to replace auditors
strategic importance, size or commitments, have a
and real estate fields and of services in general.
drawn, in the sequence listed, from the list that obtained
elected from the minority list, the Meeting replaces them
significant impact on the activities of the Company or the
the second largest number of votes (the minority list);
by a relative majority of the votes cast, choosing - where
Group, or might affect the operational autonomy of the
The Ordinary Meeting appoints the Board of Statutory
should several lists obtain the same number of votes, a
possible - among the candidates indicated on the list from
Company (transactions of strategic significance); and
Auditors and determines its remuneration.
new vote limited to just those lists is held by all those
which the auditor to be replaced was drawn and, in all cases,
3.
transactions of minor significance, different from
entitled to vote that are present at the Meeting, with the
in compliance with the principle guaranteeing representation
transactions of greater significance and transactions of
In order to enable the minority to elect an Effective Auditor
elections of the candidates from the list that obtains the
for the minorities that, pursuant to the Articles, are entitled
insignificant amount;
(who will be the Chairman of the Board of Statutory Auditors)
relative majority of the votes cast.
to participate in the appointment of the Board of Statutory
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership Auditors, without prejudice in all cases to compliance with
On 30 August 2017, Effective Auditors David Reali and
Table 3 attached provides for the relevant information about
In addition to the matters reserved for examination and/or
the gender balance requirements envisaged by the laws and/
Giovanni Bandera resigned for professional reasons with
each member of the Board of Statutory Auditors in charge at
approval by the Board of Directors of the Company pursuant
or regulations in force at the time. The principle guaranteeing
effect from the date of the Shareholders’ Meeting called
the Report Date. In addition, a summary of their professional
to the law and the Articles, the flow of information to the
representation for the minorities is respected if the auditors
to resolve on their replacement. The Board of Statutory
profiles is available on the Website.
Directors and Statutory Auditors contains information about:
elected were previously candidates on the minority list or on
Auditors was therefore reconstructed by the appointment
lists other than that which, at the time of appointing the Board
of two new Effective Auditors at the Shareholders’ Meeting
of Statutory Auditors, obtained the largest number of votes.
held on 5 September 2017.
If only one list is presented, the Meeting votes on it; if the
The Board of Statutory Auditors in office at the Report Date
list obtains the relative majority of votes cast, the candidate
is made of the following members: Francesco Fallacara, Fabio
Effective Auditors and Alternate Auditors named in the
Artoni, Antonella Carù, Alberto Villani, Luca Nicodemi, Fabio
respective sections of the list are elected; the person named
Facchini and Giovanna Oddo.
first on the list becomes the Chairman of the Board of Directors.
For the appointment of statutory auditors who, for any
statutory auditors is three with one resulting vacancy.
reason, were not appointed in accordance with the above
Since, according to the relevant agenda, the entire Board
procedure, the Shareholders’ Meeting adopts resolutions with
of Statutory Auditors will be renewed by the upcoming
Pursuant to the new Articles the number of alternate
16. INFORMATION
FLOWS TO THE DIRECTORS
AND STATUTORY
AUDITORS
(I) the general results of operations and the outlook for the
future; (ii) the activities carried out, with particular reference
to the transactions (a) of greater strategic, economic,
financial and investment interest, (b) with related parties,
and (c) that are atypical or unusual; (iii) the instructions given
in the exercise of management and coordination activities
pursuant to arts. 2497 et seq. of the Civil Code, and (iv) any
other activities, transactions or events that it is deemed
appropriate to bring to the attention of the Directors and
Statutory Auditors. When the information flows relate to
Inside Information and/or Significant Information, they must
take place in accordance and compliance with the procedures
indicated in the Market Abuse Procedure.
the majorities required by law, without prejudice in all cases to
Shareholders’ Meeting approving the financial statements
On 28 July 2017, the Board of Directors of Pirelli adopted a
compliance with the gender balance requirements envisaged
2017, it was not necessary to proceed with an immediate
procedure for information flows to the Directors and Statutory
by the laws and/or regulations in force at the time. Outgoing
integration of the Board.
Statutory Auditors may be re-elected.
Auditors, in order to (i) guarantee the transparent management
of the business, (ii) establish conditions for the effective and
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15.2 COMPOSITION
The professional profiles of the members of the Board of
efficient management and control of the activities of the
Statutory Auditors are summarised on the Website.
Company and the operations of the business by the Board of
Except as indicated above with reference to the Meeting
the sources of information needed for the efficient performance
Directors, and (iii) provide the Board of Statutory Auditors with
17. RELATIONS WITH
SHAREHOLDERS
7
2
2
On 14 May 2015, the Ordinary Meeting appointed (using the
held on 14 May 2015, the Board of Statutory Auditors was
of its supervisory role. On 31 August 2017, the Board of Directors
list voting mechanism as, at the time, the Company was listed
elected without application of the above-mentioned list
confirmed adoption of the above procedure.
Pirelli considers that financial communications have strategic
on the stock exchange) Francesco Fallacara (appointed by
voting mechanism, which will be applied from the first
importance for consolidating the relationship of trust existing
the minorities), Fabio Artoni and Antonella Carù, as Effective
renewal of that Board subsequent to the First Trading Day.
The flow of information to the Directors and Statutory Auditors
with the financial community. Pirelli maintains constant
Auditors, and Andrea Lorenzatti, Fabio Facchini and Giovanna
In particular, that renewal will take place at the Annual
is assured, preferably, by the transmission of documents
dialogue with Shareholders, Bondholders, institutional and
Oddo, as Alternate Auditors until the date of the Shareholders’
General Meeting.
on a timely basis and, in any case, with sufficient frequency
individual investors, Analysts and, more generally, with
Meeting called to approve the financial statements for the
to ensure compliance with the disclosure requirements
the Italian and international financial community through
year ended on 31 December 2017.
The remuneration of the statutory auditors is discussed in the
established by law and the Articles, and in accordance with
the Investor Relations function, in order to promote equal,
Compensation Report.
deadlines consistent with the timetables set for each Board
transparent, timely and accurate communications.
On 15 March 2016, following the resignation at the time
meeting.
of the delisting of Antonella Carù and Andrea Lorenzatti,
During the period between the First Trading Day and the
Following the return to the stock exchange, the “Investors”
the Ordinary Meeting resolved to increase the number
end of the Year, the Board of Statutory Auditors of Pirelli
These documents may be integrated by verbal explanations
section of the Website has been expanded with new content of
of Effective Auditors to five and consequently appointing
has met 3 times, with each meeting having an average
given by the Chairman, the Executive Directors or top
interest to the financial market: the strategy (“Equity Story”),
Fabrizio Acerbis, Giovanni Bandera and David Reali as
duration of about 2 hours.
managers of the Group in the context of the board meetings,
economic-financial data (including the carve-out financial
Effective Auditors until the date of the Shareholders’ Meeting
or at specific informal meetings organised to examine topics
statements for 2014, 2015 and 2016), and the opinions on Pirelli
called to approve the financial statements for the year ended
At the Report Date, about 29% of the members of the Board
of interest relating to the management of the Company.
expressed by financial analysts (“Consensus”). The Investor
on 31 December 2017.
of Statutory Auditors belong to the female gender and
Relations Department also promotes periodic meetings with
about 71% belong to the male gender (respectively 20% and
In all cases, the Directors and Statutory Auditors receive
Shareholders and Investors in Italy and abroad.
On 1 August 2017, following the resignation for professional
80% considering just the Effective Auditors). In addition,
the information published by Pirelli in accordance with the
reasons of Effective Auditor Fabrizio Acerbis, the Ordinary
80% of the Effective Auditors are over 50 years of age and
regulations governing corporate disclosures (such as press
Meeting reconstructed the Board of Statutory Auditors by
the remaining 20% are between 30 and 50. The average age
releases and reports) and investment proposals (prospectuses,
appointing Antonella Carù as a Effective Auditor. On 31 August
of both the members of the Board of Statutory Auditors
howsoever described).
2017, the Board of Statutory Auditors verified that Effective
taken as a whole and ust the Effective Auditors is about 54.
Auditors Francesco Fallacara, Antonella Carù and Fabio Artoni
satisfied the relevant independence requirements.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership 18. SHAREHOLDERS’
MEETINGS
discussed. At the time of publishing the notice of call for the
Ordinary and Extraordinary Shareholders’ Meetings are
Meeting resolutions are evidenced by the minutes signed by the
Meeting and in accordance with the procedures envisaged by
chaired by the Chairman of the Board of Directors or, if absent
Chairman of the Meeting and by the Secretary of the Meeting
law, the Board of Directors must make the report prepared
or unavailable, by the Chief Executive Officer. If the above
or the Notary. The minutes of Extraordinary Meetings must be
by the shareholders available to the public, together with its
persons are absent, the chair is taken by another person
taken by a Notary designated by the Chairman of the Meeting.
considerations, if any.
appointed by a majority of the share capital represented at
All copies of and extracts from minutes not prepared by a Notary
Pursuant to art. 7 of the Articles, ordinary and extraordinary
the Meeting.
are certified true by the Chairman of the Board of Directors.
Shareholders’ Meetings of the Company are held in single
In the cases, in the manner and with the timing envisaged by
call. Their resolutions are adopted with the majority required
law, shareholders that, individually or together, represent at
The Chairman of the Meeting is assisted by a Secretary,
In addition to the law and the Articles, the course of the
by law, with the sole exception of the authorisation of the
least one-fortieth of share capital may request the integration
appointed by a majority of the share capital represented at the
Shareholders’ Meetings is governed by the Meeting Regulation
Board of Directors to carry out the deeds listed below, which
of the items of the agenda, indicating in their request the
Meeting, who does not need to be a shareholder; assistance
approved at the Shareholders’ Meeting held on 1 August 2017,
requires a qualified majority (votes in favour of shareholders
additional topics proposed by them, or proposing resolutions
from the Secretary is not necessary when the minutes of the
which took effect from the first day of trading in the shares of
representing at least 90% of the share capital of the Company):
on matters already on the agenda.
Meeting are taken by a Notary.
the Company on the MTA organised and managed by Borsa
>
transfer the operational and administrative headquarters
Italiana S.p.A..
outside of the municipality of Milan;
A notice is published about the addition of items to the agenda
The Chairman of the Meeting chairs the Meeting and, in
> any transfer and/or deed of disposition, in any form, of
or the presentation of additional proposed resolutions on
accordance with the law and the Articles, moderates its
Pirelli know-how (including the granting of licences).
matters already on the agenda, by the legal deadlines, in the
course. For this purpose, the Chairman - inter alia - verifies
Parties entitled to vote may be represented by proxy, given
manner established for publication of the notice of call.
that the Meeting has been properly convened, verifies
in accordance with the procedures envisaged by law and the
the identity of those attending and their right to attend,
regulations in force.
Shareholders requesting additions to the agenda must prepare
directly or by proxy; verifies the legal quorum for voting;
Proxies may be notified to the Company via electronic means
the presentation of requests for additions, a report explaining
of discussion of the items indicated in the notice of call. The
by: (i) using the specific section of the Website indicated by
their reasons for the proposed resolutions on the matters they
Chairman also adopts suitable measures to ensure orderly
and send to the Board of Directors, by the final deadline for
directs the proceedings, with the right to change the order
19. CHANGES SINCE
THE END OF THE YEAR
2
2
8
the Company in the notice of call; (ii) sending a e-mail to the
wish to discuss, or their reasons for the additional proposed
discussions and voting, determining the related procedures
There have not been any changes to the structure of corporate
certified e-mail address indicated by the Company in the
resolutions presented in relation to matters already on
and checking the results.
governance since the end of the Year, except as already
9
2
2
indicated in the previous sections, if applicable.
notice of call.
the agenda. At the time of publishing the notice about the
additions to the agenda and in accordance with the procedures
The notice of call may also limit to one of the above methods
envisaged by law, the Board of Directors must make the report
the specific procedure usable in relation to the Meeting called
prepared by the shareholders available to the public, together
by that notice.
with its considerations, if any.
For each Meeting, the Company designates one or more
The Meeting quorum and the validity of resolutions are
persons to which those entitled to vote at the Meeting may
governed by law.
grant a proxy, with voting instructions for all or just some
of the motions on the agenda. The proxy does not apply to
The right to attend Meetings and vote is governed by
motions for which no voting instructions were given. The
the relevant current
legislation and
is certified by a
persons designated to receive proxies for the Meeting are
communication sent to the Company, by an authorised
specified in the related notice of call, together with relevant
intermediary with reference to its accounting records, on
procedures and deadlines.
behalf of the party entitled to vote. This certification is based
on the evidence existing at the end of the accounting day
The Ordinary Meeting for the approval of the financial
on the seventh trading day prior to the date fixed for the
statements must be called, in accordance with the law, by no
Meeting. The additions and deductions recorded on those
later than 180 days from the end of the financial year.
accounts subsequent to that deadline are not relevant
In the situations envisaged by law and in accordance with the
the Meeting. The communication must be received by the
related procedures, the directors must call a Meeting without
Company by the end of the third trading day prior to the date
delay when requested by shareholders representing at least
fixed for the Meeting, or by any different deadline established
one-twentieth of share capital.
by the applicable regulations. Shareholders are still entitled
when determining the legitimacy of the right to vote at
The shareholders requesting the Meeting must prepare
Company after the above deadlines, on condition that it is
a report on their proposals regarding the matters to be
received before business commences at the Meeting.
to attend and vote if the communication is received by the
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership TABLE 1: SIGNIFICANT SHAREHOLDINGS
Listed below are the parties who, according to Consob publications at the publication date of this Report, hold shares with voting
rights at Ordinary Shareholders’ Meetings of more than 3% of the ordinary capital.
SIGNIFICANT SHAREHOLDINGS
Declarant
Direct shareholder
% on ordinary capital
% on voting capital
China National Chemical
Marco Polo International
Corporation
Italy S.p.A.
63.11 %
63.11 %
N.B.: Information on the shareholders who, directly or indirectly, hold ordinary shares of more than 3% of the share capital with voting rights at
the Company’s ordinary shareholders’ meetings is taken from the Consob website. In that regard, note that information published by Consob on its
website, in accordance with the notifications made by the parties subject to the obligations of Art. 120 TUF and the Issuer Regulations, may
deviate significantly from the actual situation, as the obligation of notification of changes in the percentage of shareholdings held does not
apply to a change in this percentage alone, but only when the holding “exceeds” or “falls below” pre-determined thresholds (3%, 5% and subsequent
multiples of 5% up to the threshold of 30% and, above this threshold, 50%, 66.6% and 90%). Therefore, for example, a shareholder (i.e. the
declarant) who declares they hold 5.1% of the capital with voting rights may increase their shareholding up to 9.9%, without being required to
notify Consob and the Company, as per Art. 120 TUF.
It is furthermore specified that the Articles of Association of the Company do not allow a majority of voting rights or the issue of shares with
multiple votes.
2
3
0
1
3
2
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership
TABLE 2: STRUCTURE OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
Board of Directors29
Position
Members
Year of
birth
Date of
first
appointment*
In office
since32
In office until
List
(**)
Exec.
Non-
esec.
Indep.
Code
Indep.
TUF
No. of
other
positions
***
(*)
Chairman
Ren Jianxin
1958
20 October
2015
31 August
2017
Meeting of
balance sheet
as at 31
December 2019
-
x
See
App. A
1/2
Chief Executive
Officer and
Executive Vice
Chairman
•◊
Marco
Tronchetti
Provera
1948
07 May
200333
31 August
2017
Meeting of
balance sheet
as at 31
December 2019
-
x
2
3
2
Director
Yang
Xingqiang
1967
20 October
2015
31 August
2017
Director
Bai Xinping
1968
02 September
2015
31 August
2017
Director
Giorgio
Luca Bruno
1960
15 March
2016
31 August
2017
Meeting of
balance sheet
as at 31
December 2019
Meeting of
balance sheet
as at 31
December 2019
Meeting of
balance sheet
as at 31
December 2019
-
-
-
x
x
x
See
App. A
2/2
See
App. A
2/2
See
App. A
2/2
See
App. A
2/2
Control, Risks,
Sustainability and
Corporate Governance
Committee30
Remuneration
Committee31
Appointments
Committee
Strategies Committee
RPT Committee
(*)
(**)
(*)
(**)
(*)
(**)
(*)
(**)
(*)
(**)
-
-
M
C
1/1
M
-
M
-
-
-
-
C
M
M
M
3
3
2
29 The new Shareholders’ Agreement provides for an additional independent Director be added to the Board of Directors, who shall be appointed by
minorities at the first ordinary shareholders’ meeting held after the First Trading Day.
30 The Control, Risks, Sustainability and Corporate Governance Committee shall be integrated with the director appointed by the first
shareholders’ meeting of the Company.
31 The Remuneration Committee shall be integrated with the director appointed by the first shareholders’ meeting of the Company.
32 The Board of Directors in office at the Report Date was appointed by the Ordinary Shareholders’ Meeting held on 01 August 2017, effective as of
31 August 2017.
33 Marco Tronchetti Provera took the position of general partner (socio accomandatario) at Pirelli & C. Limited Joint-Stock Company (società in
accomandita per azioni) on 29 April 1986. On 07 May 2003, the Company was transformed into joint-stock company (società per azioni). Consequently,
given the non-applicability of the figure of general partners (soci accomandatari), the Directors were appointed.
The following symbols should be entered in the “Position” column:
• This symbol indicates the Director in charge of the Internal Control and Risk Management System.
◊ This symbol indicates the main responsible of the management of the Company (Chief Executive Officer or CEO).
* Date of first appointment means the date on which the Director was appointed to the issuer’s BoD for the very first time.
** This column indicates the list from which each Director was taken (“M”: majority list; “m”: minority list; “BoD”: list submitted by the BoD).
*** This column indicates the number of Director or Statutory Auditor positions held by the interested party in other companies listed on regulated
markets, including foreign markets, in financial companies, banks, insurance companies or very large companies. The posts are listed in full in the
Corporate Governance Report.
(*). This column indicates the Directors’ attendance at meetings of the BoD and its committees respectively (indicate the number of meetings attended
over total number of meetings held; e.g. 6/8; 8/8 etc.).
(**).This column indicates the Director’s position in the Committee: “C”: Chairman; “M”: member.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership Board of Directors29
Position
Members
Year of
birth
Date of
first
appointment*
In office
since32
In office until
List
(**)
Exec.
Non-
esec.
Indep.
Code
Indep.
TUF
Director
Laura Cioli
1963
01 August
2017
31 August
2017
Director
Domenico
De Sole
1944
01 August
2017
31 August
2017
Director
Ze’ev
Goldberg
1960
02 September
2015
31 August
2017
Director
Tao Haisu
1949
01 August
201734
31 August
2017
Director
Marisa
Pappalardo
1960
01 August
2017
31 August
2017
Director
Cristina
Scocchia
1973
01 August
2017
31 August
2017
2
3
4
Director
Giovanni
Tronchetti
Provera
1983
01 August
2017
31 August
2017
Director
Fan
Xiaohua
1974
01 August
2017
Director
Wei Yintao
1971
01 August
2017
31
August
2017
31
August
2017
DIRECTORS CEASED DURING THE YEAR
No Directors ceased to hold the office as of the First Trading Day.
Meeting of
balance sheet
as at 31
December 2019
Meeting of
balance sheet
as at 31
December 2019
Meeting of
balance sheet
as at 31
December 2019
Meeting of
balance sheet
as at 31
December 2019
Meeting of
balance sheet
as at 31
December 2019
Meeting of
balance sheet
as at 31
December 2019
Meeting of
balance sheet
as at 31
December 2019
Meeting of
balance sheet
as at 31
December 2019
Meeting of
balance sheet
as at 31
December 2019
-
-
-
-
-
-
-
-
-
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
No. of
other
positions
***
(*)
See
App. A
2/2
See
App. A
2/2
See
App. A
2/2
See
App. A
See
App. A
See
App. A
See
App. A
1/2
2/2
2/2
2/2
See
App. A
2/2
See
App. A
2/2
Number of Board of Directors meetings during the Year as of the First Trading Day: 2
Audit & Risk Committee: 1 / Remuneration Committee: 1 / Appointments Committee: 0 / Strategies Committee: 0 / RPT Committee: 2
Indicate the quorum required for the submission of lists by the minority for the election of one or more Members (as per Art. 147-ter TUF):
1% of the share capital with voting rights at ordinary shareholders’ meetings.
34 Tao Haisu was a Director of Pirelli from 20 October 2015 to 15 March 2016.
Control, Risks,
Sustainability and
Corporate Governance
Committee30
Remuneration
Committee31
Appointments
Committee
Strategies Committee
RPT Committee
(*)
(**)
(*)
(**)
(*)
(**)
(*)
(**)
(*)
(**)
1/1
M
1/1
M
1/1
C
1/1
1/1
M
P
2/2
C
-
-
M
M
2/2
2/2
M
M
-
M
5
3
2
-
M
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership TABLE 3: STRUCTURE OF THE BOARD OF STATUTORY AUDITORS
Board of Statutory Auditors
Board of Statutory Auditors
Position
Members
Year of
birth
Date of
first
appointment*
In office
since
In office until
List
**
Indep.
Code
Presidente
Francesco
Fallacara
1964
14 maggio 2015
14 maggio 2015
Sindaco
effettivo
Sindaco
effettivo
Sindaco
effettivo
Sindaco
effettivo
Sindaco
supplente
Sindaco
supplente
Fabio Artoni
1960
14 maggio 2015
14 maggio 2015
Antonella Carù
1961
14 maggio 2015
1 agosto 2017
Luca Nicodemi
1973
5 settembre 2017
5 settembre 2017
Alberto Villani
1962
5 settembre 2017
5 settembre 2017
Fabio Facchini
1955
14 maggio 2015
14 maggio 2015
Giovanna Oddo
1967
14 maggio 2015
14 maggio 2015
Ass. di bilancio al
31 dicembre 2017
Ass. di bilancio al
31 dicembre 2017
Ass. di bilancio al
31 dicembre 2017
Ass. di bilancio al
31 dicembre 2017
Ass. di bilancio al
31 dicembre 2017
Ass. di bilancio al
31 dicembre 2017
Ass. di bilancio al
31 dicembre 2017
m
M
-
-
-
M
M
x
x
x
x
x
x
x
AUDITORS CEASED DURING THE YEAR
No Statutory Auditors ceased to hold the office as of the First Trading Day.
2
3
6
Number of Board of Statutory Auditors meetings during the year as of the First Trading Day: 3
Indicate the quorum required for the submission of lists by the minority for the election of one or more Members (as per Art. 148 TUF):
1% of the shares with voting rights at ordinary shareholders’ meetings.
Attendance
at Board of
Statutory
Auditors
meetings
***
Attendance
at BoD
meetings
Attendance
at CRSCG
Committee
meetings
Attendance
at
Remuneration
Committee
meetings
Attendance
at
Appointments
Committee
meetings
Attendance
at
Strategies
Committee
meetings
Attendance
at RPT
Committee
meetings
No. of other
positions
****
3/3
3/3
3/3
3/3
2/3
-
-
2/2
2/2
2/2
2/2
2/2
-
-
0/1
1/1
1/1
1/1
1/1
-
-
1/1
1/1
1/1
1/1
1/1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2/2
2/2
1/2
2/2
2/2
-
-
Cfr. All. A
Cfr. All. A
Cfr. All. A
Cfr. All. A
Cfr. All. A
Cfr. All. A
Cfr. All. A
7
3
2
* Date of first appointment means the date on which the Auditor was appointed to the issuer’s Board of Statutory Auditors for the very first time
** This column indicates the list from which each Auditor was taken (“M”: majority list; “m”: minority list).
*** This column indicates the Auditors’ attendance at Board of Statutory Auditors meetings (indicate the number of meetings attended over the
total number of meetings held; e.g. 6/8; 8/8 etc.).
**** This column indicates the number of Director or Statutory Auditor posts held by the interested party pursuant to Art. 148-bis TUF and the
relevant implementing provisions of the Consob Issuer Regulations.
The full list of posts is published by Consob on its website pursuant to Art. 144-quinquiesdecies of the Consob Issuer Regulations.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership ANNEX A
Section I: list of the main positions held by the directors in other companies not belonging to the Pirelli
group on the report date
Name and surname
Company
Position in the Company
Name and surname
Company
Position in the Company
China National Bluestar Co. Ltd.
Chairman of the Board of Directors
Ansaldo Energia S.p.A.
Ren Jianxin
China National Chemical Corporation
Chairman of the Board of Directors
Laura Cioli
Brembo S.p.A.
Syngenta AG
Chairman of the Board of Directors
TP Industrial Holding S.p.A.
Chairman of the Board of Directors
Camfin S.p.A.
Chairman of the Board of Directors and CEO
Marco Tronchetti Provera & C. S.p.A.
Chairman of the Board of Directors
Domenico De Sole
Sprintitaly S.p.A.
Ermenegildo Zegna S.p.A.
Newell Brands
Sotheby’s
Director
Director
Director
Director
Director
Director
Marco Tronchetti Provera
Nuove Partecipazioni S.p.A.
Chairman of the Board of Directors
Tom Ford International
Chairman of the Board of Directors
RCS MediaGroup S.p.A.
Director
Ze’ev Goldberg
Marco Polo International Italy S.p.A
Director
TP Industrial Holding S.p.A.
Vice-Chairman of the Board of Directors
ADAMA Agricultural Solutions Ltd.
Chairman of the Board of Directors
Tao Haisu
China Global Natural Resources
Investment Funds
Director
Mercuria Energy Group
Asia Executive Director
Yang Xingqiang
2
3
8
China National Chemical Corporation
President
Marco Polo International Italy S.p.A.
Director
TP Industrial Holding S.p.A.
Director
Aeolus Tyre Co. Ltd.
Chairman of the Board of Directors
Cristina Scocchia
China National Chemical Corporation
Vice-President
China National Chemical
Equipment Co. Ltd.
Chairman of the Board of Directors
Marisa Pappalardo
Finstar S.p.A.
Elica S.p.A.
EssilorLuxottica S.A.
KIKO S.p.A.
Luxottica S.p.A.
Camfin S.p.A.
Director
Director
Director
CEO
Director
Director
9
3
2
China National Tire & Rubber Corporation
Chairman of the Board of Directors and President
Marco Polo International Italy S.p.A.
Director
Bai Xinping
CNRC International Holding (HK) Ltd.
Director
Giovanni Tronchetti Provera
Marco Tronchetti Provera & C. S.p.A.
Director
CNRC Capitale Ltd.
CNRC International Ltd.
Fourteen Sundew S.a.r.l.
Director
Director
Director
Nuove Partecipazioni S.p.A.
TP Industrial Holding S.p.A.
Fan Xiaohua
Aeolus Tire Co. Ltd.
Marco Polo International Italy S.p.A.
Chairman of the Board of Directors
Wei Yintao
-
Director
Director
Director
-
TP Industrial Holding S.p.A.
Camfin S.p.A.
Marco Polo International Italy S.p.A.
Giorgio Luca Bruno
Nuove Partecipazioni S.p.A.
Director
Director
CEO
CEO
Prometeon Tyre Group S.r.l.
Chairman of the Board of Directors and CEO
TP Industrial Holding S.p.A.
CEO
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership
Section II: list of the main positions held by the statutory auditors in other companies on the report date
Name and surname
Company
Position in the Company
Name and surname
Company
Position in the Company
Maire Tecnimont S.p.A.
Chairman of the Board of Statutory Auditors
F.C. Internazionale S.p.A.
Chairman of the Board of Statutory Auditors
Francesco Fallacara
Ro. Co. Edil. S.r.l.
Effective Auditor
Inter Media S.p.A.
Chairman of the Board of Statutory Auditors
Hira film S.r.l.
Effective Auditor
Inter Brand S.r.l.
Chairman of the Board of Statutory Auditors
Mag JLT S.r.l.
Effective Auditor
Buccellati S.p.A.
Chairman of the Board of Statutory Auditors
Ecosesto S.p.A.
Effective Auditor
Mario Buccellati Italia S.r.l.
Chairman of the Board of Statutory Auditors
Camfin S.p.A.
Effective Auditor
Restiani S.p.A.
Chairman of the Board of Statutory Auditors
Pastificio Castiglioni S.p.A.
Chairman of the Board of Statutory Auditors
Nordest SGR S.p.A.
Chairman of the Board of Statutory Auditors
Elba S.p.A.
Antrim S.p.A.
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
Alucart S.r.l.
Effective Auditor
Alhof di A. Hofmann S.p.A.
Effective Auditor
Finser S.p.A.
V.I.P. S.p.A.
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
Augens SGR S.p.A.
Chairman of the Board of Statutory Auditors
Italian Creation Group S.p.A.
Chairman of the Board of Statutory Auditors
JMACC S.p.A.
CPC S.r.l.
Chairman of the Board of Statutory Auditors
Effective Auditor
Dainese S.p.A.
Effective Auditor
Corneliani S.p.A.
Effective Auditor
Barry Callebaut Italia S.p.A.
Chairman of the Board of Statutory Auditors
Luca Nicodemi
Savills SGR S.p.A.
Effective Auditor
2
4
0
Barry Callebaut Manufactoring
Italia S.p.A.
Chairman of the Board of Statutory Auditors
TP Industrial Holding S.p.A.
Chairman of the Board of Statutory Auditors
Fabio Artoni
Euro TLX SIM S.p.A.
Effective Auditor
Driver Italia S.p.A.
Effective Auditor
Dolphin S.r.l.
Chairman of the Board of Statutory Auditors
Chromavis S.p.A.
Chairman of the Board of Statutory Auditors
Falck Energy S.p.A.
Effective Auditor
VIP Logistics S.p.A.
Chairman of the Board of Statutory Auditors
Emma S.p.A.
Effective Auditor
London Stock Exchange Group
Holdings Italia S.p.A.
Effective Auditor
Marco Polo International Italy S.p.A.
Effective Auditor
Corob S.p.A.
Effective Auditor
Imprima S.p.A. (già Color Wind S.p.A.)
Effective Auditor
Holding di Piergiorgio Coin S.r.l.
Effective Auditor
One Audit S.p.A.
Effective Auditor
Guazzotti S.r.l.
Effective Auditor
Pillarstone Italy Holding S.p.A.
Alternate Auditor
POC Holding S.p.A.
Effective Auditor
Wise SGR S.p.A.
Alternate Auditor
Pillarstone Italy S.p.A.
Alternate Auditor
De Fonseca S.p.A:
Director
DUEMMEI S.R.L.
Chairman of the Board of Statutory Auditors
BORMIOLI PHARMA S.r.l.
Chairman of the Board of Statutory Auditors
1
4
2
Prometeon Tyre Group S.r.l.
Chairman of the Board of Statutory Auditors
BORMIOLI PHARMA BIDCO S.P.A.
Chairman of the Board of Statutory Auditors
Elite S.p.A.
Effective Auditor
Foodelicious S.r.l.
Effective Auditor
Cassa di Compensazione e Garanzia S.p.A.
Effective Auditor
Pirelli Industrie Pneumatici S.r.l.
Effective Auditor
Gatelab S.r.l.
Tetis S.p.A.
Alternate Auditor
Alternate Auditor
AMFIN HOLDING S.P.A.
Effective Auditor
Antonella Carù
Autogrill S.p.A.
Effective Auditor
Autogrill Advanced Business Service S.p.A.
Effective Auditor
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership Name and surname
Company
Position in the Company
Name and surname
Company
Position in the Company
AGB Nielsen Media Research Holding S.p.A.
Chairman of the Board of Statutory Auditors
Ali Group S.r.l.
Effective Auditor
BTSR International S.p.A.
Chairman of the Board of Statutory Auditors
Ali Holding S.r.l.
Effective Auditor
Fratelli Consolandi S.r.l.
Chairman of the Board of Statutory Auditors
Aliaslab S.r.l.
Effective Auditor
HDP S.p.A.
Chairman of the Board of Statutory Auditors
Costa Edutainment S.p.A.
Effective Auditor
12 Capital PartnerS SGR S.p.A.
Chairman of the Board of Statutory Auditors
Dea Capital S.p.A.
Effective Auditor
Selecta S.p.A.
Chairman of the Board of Statutory Auditors
Minetti S.p.A.
Effective Auditor
Selecta Taas S.p.A.
Chairman of the Board of Statutory Auditors
Fabio Facchini
Mundipharma Pharmaceuticals S.r.l.
Effective Auditor
Quattroduedue S.p.A.
Chairman of the Board of Statutory Auditors
Massimo Zanetti Beverage Group S.p.A..
Chairman of the Board of Statutory Auditors
Riva & Mariani Group S.p.A.
Chairman of the Board of Statutory Auditors
Nova Foods S.r.l.
Sole Auditor
Tenuta Montemagno Soc. Agricola S.p.A.
Chairman of the Board of Statutory Auditors
Prysmian PowerLink S.r.l.
Effective Auditor
Bennet S.p.A.
Effective Auditor
RCF Group S.p.A.
Chairman of the Board of Statutory Auditors
2
4
2
Alberto Villani
Bennet Holding S.p.A.
Effective Auditor
Carcano Antonio S.p.A.
Effective Auditor
DE' Longhi Capital Services S.r.l.
Effective Auditor
DE' Longhi Appliances S.r.l.
Effective Auditor
EFFE 2005 Gruppo Feltrinelli S.p.A.
Effective Auditor
FINMEG S.r.l.
Effective Auditor
Gallerie Commerciali Bennet S.p.A.
Effective Auditor
INTEK Group S.p.A.
Effective Auditor
Kiepe Electric S.p.A.
Effective Auditor
Lambda Stepstone S.r.l.
Effective Auditor
Meg Property S.p.A.
Effective Auditor
Nuova GS S.p.A.
Effective Auditor
Over Light S.p.A.
Effective Auditor
Vetus Mediolanum S.p.A.
Effective Auditor
San Remo Games S.r.l.
Sole Auditor
Viator S.p.A. in liq.ne
Alternate Auditor
Immobiliare Andronica S.p.A.
Alternate Auditor
Impresa Luigi Notari S.p.A.
Alternate Auditor
Compagnia Padana per Investimenti S.p.A.
Alternate Auditor
Borgogestion S.r.l.
Sole Director
Royal Immobiliare S.r.l.
Sole Director
Calvi S.p.A.
Pamal S.r.l.
SO.SE.A. S.r.l.
Vianord Engineering Société
par action simplifiée
Director
Director and CEO
Director
Director
Royal Seeds S.r.l.
Director
Fondazione Silvio Tronchetti Provera
Auditor
Tiglio II S.r.l. in liquidazione
Liquidator
M.S.M.C. Immobiliare Due
S.r.l. in liquidazione
Liquidator
Centrale Immobiliare S.r.l.
Liquidator
Trixia S.r.l.
Chairman of the Board of Statutory Auditors
Gromis S.r.l. in liquidazione
Liquidator
Aida S.r.l. in liquidazione
Liquidator
Ganimede Due S.r.l. in liquidazione
Liquidator
Lupicaia S.r.l. in liquidazione
Liquidator
Giovanna Oddo
Iniziative Retail S.r.l. in liquidazione
Liquidator
3
4
2
Pirelli Sistemi Informativi S.r.l.
Effective Auditor
Iniziative Immobiliari
S.r.l. in liquidazione
Liquidator
Riva De Ronchi S.r.l. in liquidazione
Liquidator
Nuove Partecipazioni S.p.A.
Effective Auditor
Geolidro S.p.A.
Chairman of the Board of Statutory Auditors
Pirelli Servizi Amministrazione
e Tesoreria S.p.A.
Effective Auditor
Manifatture Milano S.p.A.
Effective Auditor
Marco Tronchetti Provera & C. S.p.A.
Effective Auditor
ANNUAL REPORT 2017ANNUAL REPORT 2017 Report on the corporate governance and structure of share ownershipReport on the corporate governance and structure of share ownership RICCARDO
BIGIO
DIFFERENTHOOD
This is the first online platform on which users can create unique garments, entirely made
in Italy, picking from over 5000 fabrics offering over one million different combinations.
The models can be shared with the community and users can earn whenever their
garment is purchased by other users.
DIFFERENTHOOD,
MAKING THE DIFFERENCE WITH
FASHION AND TECHNOLOGY
to aristocrats, the wealthy and show business celebrities. Then over the years
O nce upon a time buying a made-to-measure suit was a privilege reserved only
years ago by Riccardo Bigio in Milan. «My father has always worked in the silk business in Como, while
taking it home. This is now possible with Differenthood, a startup founded three
it been possible to imagine designing your own clothing, having it made and
it came within the reach of increasing numbers of people. But never before has
on my mother’s side we have a tailor’s shop that was founded in 1856» says Riccardo, an engineer by
training who, until a few years ago, worked as a strategic consultant; he always dreamt, however, that
one day he might set himself up in a sector that seems an unavoidable passion given his family pedigree.
A pedigree that evokes an era, the 19th century, in which gentlemen (and gentlewomen) would entrust
their custom to a tailor’s shop to create exclusive garments. Tailors and dressmakers often copied the
patterns of the most celebrated stylists or tailoring houses, bringing the style of the great capitals to the
provinces. Now, however, everybody can be their own tailor and designer rolled into one.
No particular skills are needed: customers choose from a “base” of overcoats, suits, jackets, trench coats
and shirts. They then personalise the shape of the base by choosing their preferred variants: lengths,
collars, pockets, cuffs. At this point they choose the fabric and add buttons, buckles, inserts and other
accessories. And as if by magic the garment is ready, seemingly produced by the skilled hands of a tailor
from another era. But with the convenience of today. Differenthood is also working on another way of
assisting the choice process. «Our idea is to provide a box: when you register we send a set of garments
in different sizes to your home, with samples of fabrics. You keep them for a week to ten days, then when
you’ve chosen you can order online. It isn’t rocket science but nobody else is doing it», says Riccardo.
Another possibility not available to the customers of 19th century tailors was sharing: with a catalogue
of five thousand fabrics, which crossed with the different design variants enable up to a billion different
combinations, each garment is absolutely unique but can be shared with other customers. Earning
money in the process: «If someone wants the same garment as you, exactly as you designed it, you as
customer-designer take a percentage». It’s fair that you be paid for the copyright», says Riccardo.
The tailoring service provided by Differenthood also achieves another ideal aim, at least for company
management: the absence of warehouse stocks. And the prices, thanks to the lack of intermediaries,
are also 40% lower than for traditional fashion. Once your unique product has been designed it generally
takes around 3-4 weeks for it to be made. Shirts are made up in Bergamo, and suits are produced in Rome.
«My dream has always been to create something of my own, starting from zero», says Riccardo. “I’ve
been working on the project for a long time, including at night during my previous job. Then I took six
months’ leave before giving in my notice to open Differenthood». Now his dream has become reality.
Technology and courage have enabled him to continue an ancient profession, but with a modern twist.
INTRODUCTION
For the purposes of the Policy, the Directors not holding special
the achievement of certain pre-set business objectives as
of creating sustainable value, in the medium to long term
offices in other Pirelli Companies, who are also executives of
explained in paragraph 5 below.
period, by establishing an actual and verifiable link, between
the Group (excepting the case where a resolution of the Board
remuneration, on the one hand and the performance of the
This Remuneration Report (“Report”) is broken down into two
of Directors of Pirelli & C. classifies them “Managers with
2018-2020 LTI Plan: means the Long Term Incentive Cash Plan
individuals and Pirelli on the other.
sections:
strategic responsibilities”), are, as regards their role, Executive
explained in paragraph 5 below.
> Section I: “Policy” for financial Year 2018 (“2018 Policy”) and
o Senior Managers.
The structure of the Management remuneration, which
> Section II: “Statement” for financial Year 2017 (“2017
Retention Plan: means the Retention Plan explained in
is defined also on the basis of domestic and International
Statement”).
Annual Total Direct Compensation at Target: means the sum
paragraph 7 below.
benchmarks prepared by Companies specializing in Executive
The Report has been prepared pursuant to art. 123 ter of the
of the following components, regardless of the fact that they
Compensation, consists of three main elements:
Italian Consolidated Law on Finance and to art. 84-Quater of
are paid by Pirelli & C. or by another Company of the Group:
GAS: means the gross annual fixed component of the
> Gross annual fixed component;
the so-called “Issuers Regulation” of CONSOB and also based
a) Gross annual fixed component of the remuneration;
remuneration for the individuals who are employed by a
> annual variable component (MBO);
on the Scheme 7-bis of Annex 3 A of the Regulation of Issuers.
b) annual variable component (MBO) which the beneficiary
Company of Pirelli Group under an employment contract.
> medium-to-long term variable component (LTI), intended
While preparing the report, we took in due consideration
would receive in the case where the objectives at target
for rewarding the performance of Pirelli Group during the
the recommendation of the European Commission on
are achieved;
Senior Managers: means the first report persons to (i) the
2018-2020 period.
remuneration of the Directors of listed companies and
c) annualisation of the medium-to-long term variable
Directors holding special offices who are assigned specific
The MBO and LTI variable components are established - by
the recommendations on remuneration of the Corporate
component (LTI), which the beneficiary may receive in the
duties and (ii) the Executive Vice President whose activity has
keeping in account the benchmarks for each position - as a
Governance Code issued by Borsa Italiana S.p.A. which was
case where the objective set for multiple years at target
a significant impact on the business results.
percentage of the fixed component, which will raise based on
endorsed by Pirelli.
are achieved in addition to the annual rolling mechanism
the role held by the beneficiary.
for the deferred pro-quota payment of the accrued MBO
Company: means Pirelli & C. S.p.A..
The Report has also been adopted for the purposes established
and payment of an increase of the full accrued MBO based
The variable remuneration of the Management is based
under article 14 of the Procedure for the Transactions with
on the consistency over time (which means during the
Top Management: means all the Directors holding special
on short and medium-to-long term objectives which are
Related Parties of Pirelli.
year following the year of accrual of the MBO) in achieving
offices and the Managers with strategic responsibilities.
established under annual and multi-annual Plans that are
2
5
4
The 2018 Policy sets out principles and guidelines which are
the yearly objectives at target.
disclosed to the Market.
5
5
2
followed by Pirelli in order to (i) determine and (ii) monitor the
Remuneration Committee: means
the Remuneration
application of the remuneration policies, as presented below,
Committee of Pirelli & C..
concerning:
> Directors holding special offices and Managers with
Board of Directors: means the Board of Directors of Pirelli & C..
strategic responsibilities of Pirelli & C.;
> The Senior Managers and Executives of the Group.
Managers with strategic responsibilities: means the
The 2017 Statement, submitted to the Shareholders’ Meeting
managers, identified through an express resolution by the
for information purposes, provides the final figures on
Board of Directors of Pirelli & C., who hold the power or the
remuneration for Year 2017.
responsibility for planning and supervising the operations
of the Company or the power to adopt decisions which may
In order to facilitate the understanding and the reading
affect the evolution or the future perspective of the Company
REMUNERATION
POLICY FOR YEAR 2018
1. PRINCIPLES AND
REVIEW OF THE RISKS
Please refer to paragraph 5 “MBO and LTI Plan” for further
details on the operation of said variable components.
As this regards, it has to be underlined that the process for
managing the risks is fully integrated in the strategic planning
process in order to ensure that the objectives provided for
achieving the variable incentives shall not expose Pirelli to
managerial approaches which are not consistent with the
acceptable level of risk (the so-called risk appetite) which is
defined by the Board of Directors upon approval of the Plans.
of the Report, please find below a glossary of some of the
itself or more generally of Pirelli.
The Policy is intended to attract, motivate and retain
The structure of the remuneration of the Management is
recurring terms:
resources that have the professional skills necessary to
defined so to ensure a balance of its components.
Executive: means the managers of the Italian Pirelli Companies
successfully pursue the corporate objectives of Pirelli. Pirelli,
Directors holding special offices: means the Directors of
or the employees of foreign Companies of the Group who hold a
in fact, defines and implements a Policy which is characterised
Part of the variable remuneration which is accrued in form of
Pirelli & C. who hold the office of Chairman and Executive
comparable position or a role to those held by an Italian manager.
by the following:
MBO is deferred for supporting the consistency over time of
Vice Chairman and CEO. For the purposes of the Policy, the
> as regards Top Managers and Senior Managers, by a strong
the results (and it thus subject to the “risk” of payment) with
Directors holding special offices in other Pirelli Companies,
Pirelli Group or Pirelli: means all the Companies included
pull on the third quartile of the corresponding employment
a potential “rewarding” increasing scheme (please refer to
who are also executives of the Group (excepting the case
within the scope of consolidation of Pirelli & C. S.p.A..
market (as measured by the standard benchmark);
paragraph 5 for an analytical description).
where a resolution of the Board of Directors of Pirelli & C.
> as regards Executives, in line with the relevant market
classifies them “Managers with strategic responsibilities”),
Management: means all the Directors holding special offices,
practice.
The definition of a mix of objectives, which include also certain
are, as regards their role, Executive o Senior Managers.
the Managers with strategic responsibilities, the Senior
The Annual Total Direct Compensation at Target represents
non-financial objectives, for the medium/long term variable
Directors not holding special offices: means all the Directors
Furthermore, the existence of objectives for achieving a
of Pirelli & C. who are not Directors holding special offices.
MBO: means the annual variable component of the
The Policy is defined so as to align the interests of Management
significant part of the LTI incentives based on economic/
Managers and the Executives.
the comparison benchmark.
portion, avoids the prevalence of a single performance objective.
remuneration which may be obtained in consideration of
with those of Shareholders, pursuing the priority objective
financial parameters accrued over three years (and without,
ANNUAL REPORT 2017ANNUAL REPORT 2017 Remuneration reportRemuneration report therefore, any intermediate accounting) avoid any adoption of
certain behaviours which are intended only to reach the short
term objectives for receiving the annual incentives.
3. REMUNERATION COMMITTEE
Please refer to the specific paragraphs describing, for each
Composition The Remuneration Committee is appointed
by the Board of Directors (who appoints also its Chairman)
by the chief executive officers for that purpose and
submits the relevant proposal to the Board of Directors;
> as regards the executive directors and the Directors holding
special offices, it submit proposals or provides its opinion
to the Board on the following matters:
5. MBO AND LTI PLAN
MBO The scope of the MBO plan covers the whole
management, excepting some specific cases, and may be
category, the relevant structures of any further component
and will hold office throughout the mandate of the Board
> >
their remuneration,
in
line with the General
extended to those who will be hired by the Group during
of the remuneration (Severance Indemnities, Non compete
of Directors.
Remuneration Policy;
the year and/or whose internal career leads to an Executive
agreement, Retention Plan, non-financial bonuses).
> >
the setting of certain performance objectives linked
position.
2. “PROCESS” FOR DEFINING AND
IMPLEMENTING THE POLICIES
AND INVOLVED ENTITIES
As of the date of this Report, the Committee is formed by
to the variable component of said remunerations;
three members, who are all non-executives, in majority
> >
the definition of non compete agreement, if any;
The annual variable component (so-called MBO) is the
independent, and in line with the provision of the Corporate
> >
the definition of any agreement for the termination
remuneration for the performance of the beneficiary in the
Governance Code, the Chairman of the Committee is an
of the labour contract also based on the principles
short term, typically on an annual basis.
independent director.
laid down by the General Remuneration Policy;
> as regards the Managers with strategic responsibilities it
The objectives of the MBO for the Directors holding special
The definition of the Policy is the result of a clear and transparent
The Board of Directors, on August 31, 2017, adopted the
checks the consistency of their remuneration with the
offices who are assigned specific duties and for the Managers
process, in which the Remuneration Committee and the Board
resolution that the committee will be
integrated by
General Remuneration Policy and provides its opinion
with strategic responsibilities are established by the Board
of Directors play a key role. The policy is actually adopted
appointing the Director who will be elected by the minorities
on it also under the procedure for the Transactions with
of Directors (without the concerned officers taking part in
and approved on a yearly basis - following a proposal by the
during the first Shareholders’ Meeting which will follow the
Related Parties;
the meetings which decide on this matter) following the
Remuneration Committee - by the Board of Directors which
listing of the Company.
> provides support to the Board of Directors in reviewing
proposal of the Remuneration Committee and are linked to
submits it to the consultation vote of the Shareholders’ Meeting.
the proposals of the Shareholders’ Meeting on the
the performance, on an annual basis, of Pirelli.
As of the date of this Report, the Committee is formed by
adoption of remuneration schemes based on financial
The Board of Statutory Auditors expresses its opinion on the
the following persons. Tao Haisu (Chairman), Bai Xinping and
instruments;
The objectives of the Senior Management and of the
2
5
6
Policy, namely for the part concerning the remuneration of
Laura Cioli, whose appropriate experience in financial and
> monitors the implementation of the decisions adopted by
Executives are, on the other hand, defined by their direct
the Directors holding special offices.
remuneration matters was assessed by the Board of Directors
the Board assessing, in particular, the actual achievement
supervisor, jointly with the Human Resources Department
7
5
2
The Remuneration Committee, the Board of Statutory Auditors
>
reviews and submits to the Board of Directors the Annual
differently from the Top Management, certain objectives lined
and the Board of Directors will supervise its implementation.
The full Board of Statutory Auditors is entitled to take part in
Remuneration Report, which, on an individual base for
to the economic performance of their unit/department or
For this purpose, at least once a year, when the Statement on
the works of the Remuneration Committee.
the members of the governing and supervisory bodies
quantity objectives linked to specific individual performance
Remuneration is presented, the head of the Human Resources
and in aggregate form for the Managers with strategic
parameters may be assigned.
upon her appointment.
of the established performance objectives;
and the Planning and Controlling Department. For these roles,
department provides his reports on the compliance with the
The Secretary of the Board of Directors shall act as Secretary
responsibilities:
Policy to the Remuneration Committee, whose Chairman shall
of the Remuneration Committee.
a)
provides an appropriate picture of each item which
At the end of the relevant year and based on the final
report, in turn, to the Board of Directors.
The 2018 Policy, which was proposed by the Remuneration
Committee and then approved by the Board of Directors,
Responsibilities of the Remuneration Committee
The Committee has consultation, proposing and supervisory
form the remuneration;
performance, the Human Resources Department, with the
b)
analytically lists the remuneration paid by the
support of the Planning and Controlling Department, shall
Company and its subsidiaries during the relevant
assess the level of achievement of the objectives.
period at any title and in any form.
following the favourable opinion of the Board of Statutory
duties for ensuring the definition and the application, within
Please refer the Report on Corporate Governance and
The accrual of the annual variable component is subject to the
Auditors, during the meeting held on February 26, 2018 - is now
the Group, of the remuneration policies which are intended
Ownership Structure for details on the operation procedures
achievement of a financial access condition (the so-called on/
submitted to the Shareholders’ Meeting for its consultation vote.
to attract, motivate and retain resources that have the
of the Remuneration Committee.
off condition), which is defined based on the role held by the
For the sake of completeness, please remind that, under current
corporate objectives of the Group and, on the other hand,
statutory provisions, the Board of Directors is responsible
which are suitable to align the interests of the Management
for providing (or if required by the Law, proposing to the
with the interests of the Shareholders.
professional skills necessary to successfully pursue the
4. CONTENTS OF THE 2018 POLICY
role held by the beneficiary.
beneficiary. The incentive is then calculated on the base of
certain objectives which are also defined with regards to the
Shareholders’ Meeting) the adoption of incentive schemes by
As highlighted in the preamble, the Policy defines principles
allocating financial instruments or option rights to financial
Namely, the Remuneration Committee:
and guidelines which:
instruments which, if approved, shall be disclosed to the public
> Supports the Board of Directors in defining the General
(i) the Board of Directors complies with for defining the
at the latest in the Annual Report on Remuneration (without
Remuneration Policy of the Group, by providing its
remuneration of the Directors of Pirelli & C., namely
prejudice for any further transparency duties established
proposals on the matter;
the Directors holding special offices and Managers with
under the relevant legislation). As of the date of this Report,
> measures, on a regular basis, the overall appropriateness,
strategic responsibilities;
the Company does not provide any incentive plan based on
consistency and the actual implementation of the General
(ii) Pirelli refers to for defining the remuneration of the Senior
financial instruments.
Remuneration Policy, employing the information provided
Managers and more generally of the Executives.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Remuneration reportRemuneration report The objectives for the different roles of the Management and the relevant weight at target are listed below.
Each objective provides and access threshold to which the payment of an incentive equal to the 75% of the potential incentive at
target is linked; a cap of the payable sum is also provided.
Role
Objective
Weight at target
The range of the objectives is established according to the following general rules:
Group NFP (before dividends) as of 31 December 2018
On/off condition
>
for each objective, the delta between target and maximum is always at least 1.5 times the delta between the target level and the
Executive Vice Chairman
and CEO and Managers with
strategic responsibilities
Group Adjusted Ebit
Group NFP (before dividends) as of 31 December 2018
Group EBT
40%
40%
20%
“access threshold” level;
>
the 25% penalization percentage of the reward upon the achievement of the objective at the “access threshold” level, is always
higher than the tolerance margin represented by the difference in percentage between the “access threshold” result and the
“target” result.
Group NFP (before dividends) as of 31 December 2018
On/off condition
The final summary of the incentive between access threshold and target and between target and maximum is carried out by
Senior Manager/Executive
of Headquarter
Group Adjusted Ebit
Group NFP (before dividends) as of 31 December 2018 or
one or more functional objectives with Group “scope”
Group EBT
Group NFP (before dividends) as of 31 December 2018 if BU;
Region NFP if Region responsibility; DSO for Sales Managers35
Senior Manager/Executive
of Region/BU
Region/EU Adjusted Ebit
Functional objective/s with Region/BU/Group “scope”
Group EBT
40%
40%
20%
On/off condition
From 20% to 50%
From 20% to 50%
From 10% to 20%
linear interpolation.
MBO LEVERAGE
Leverage
200%
100%
75%
2
5
8
The objectives at target represent a performance which is perfectly aligned to the corresponding objectives disclosed to the market.
The on/off condition is fixed with a “tolerance margin” against the budget value.
9
5
2
Please find below the target disclosed to the market on February 26, 2018:
75
100
200
Performance
FY 2018 OUTLOOK_
The incentive percentages for the different roles of the Management are listed below.
Accrued Incentive
Role
When meeting the objectives
When meeting the
When meeting the objectives
at access threshold
objectives at target
at maximum level (cap)
Executive Vice Chairman and CEO
75% of the incentive at target
125% of the remuneration for
the main executive office
200% of the incentive at target
Managers with strategic
responsibilities
75% of the incentive at target
From 50% to 75% of the GAS
200% of the incentive at target
Senior Manager/Executive
75% of the incentive at target
From 20% to 40% of the
GAS based on the role
200% of the incentive at target
35 In case of failure to meet of the on/off condition Region NFP or DSO, it is provided the activation of the on/off condition Group NFP with a
25% reduction of the total accrued payout.
RevenuesHigh Value weight≥+6% YoY~+10% Net of FX~60%~€1,0 blnAdjusted EBIT2Net financial position / Adjusted EBITDA w/o start-up costs3~2.3XCapEx on Revenues~8%2018EAdjusted EBIT w/o start-up1>€1,0 bln≥83%Start-up costs~40High Value weight- ~50% High Value capacity increase (Europe, NAFTA, APac and LatAm)- ~25% mix & quality- ~25% maintenance & other1 EBIT adjusted excluding PPA amortization, non recurring, one-off, extraordinary items and start-up costs;2 EBIT adjusted excluding PPA amortization, non recurring, one-off and extraordinary items;3 EBIT adjusted excluding non recurring, one-off, extraordinary items and start-up costs;ANNUAL REPORT 2017ANNUAL REPORT 2017 Remuneration reportRemuneration report
Deferred payment of the MBO
The payment of 25% of any accrued MBO is deferred by 12 months and is subject to the achievement of the MBO objectives set for
the following year. Namely:
The incentive percentages for the different roles of the Management are listed below.
>
in the case where the year following the year of accrual of the MBO no MBO accrued, the portion of MBO deferred from the
Accrued Incentive
previous year is finally “lost”;
>
in the case where the year following the year of accrual of the MBO the MBO accrued up to the access threshold, the portion of
MBO deferred from the previous year is paid;
>
in case of achievement, during the following year, of the MBO between target and maximum level, it is provided the payment - in
addition to the restitution of the MBO portion deferred from the previous year - of an additional sum between 20% and 40% of
the full MBO accrued during the previous year (for intermediate results, during the following year, between target an maximum
the increase of the MBO of the previous year shall be calculated by linear interpolation).
Role
When meeting the objectives
When meeting the
When meeting the objectives
at access threshold
objectives at target
at maximum level (cap)
Vice Chairman and CEO
75% of the incentive at target
250% of the remuneration for
the main executive office
200% of the incentive at target
Managers with strategic
responsibilities
75% of the incentive at target
From 167% to 200% of the GAS
200% of the incentive at target
Senior Manager/Executive
75% of the incentive at target
From 50% to 167% of the
GAS based on the role
200% of the incentive at target
MBO PLAN - TIMELINE
Year T
T+1
The objectives of the LTI plan shared between all the different roles of the Management and their relevant weight at target are listed below.
Payment
75%
Deferred Payment
25%
Additional sum between
20% and 40%
of the full MBO
accured at year T
2
6
0
LTI Plan
The 2018-2020 LTI Plan is extended to the whole Management (excepting specific cases such as, for example, the Managers of the
Internal Audit department) and may be extended also to those who during the three year term become members of the Group
Management and/or whose internal career leads to an Executive position. In this case, the inclusion is subject to the condition to
be part of the Plan for at least one full year and the percentage of incentives are reconfigured on the number of months of actual
participation to the Plan.
Deleveraging (Net Financial Position/Ebitda adjusted ratio) < 2 as of 31.12.2020
On/off condition
Target
Weight at target
Group ROS (which is measured as the ratio between Group Adjusted EBIT accrued during
the three year term and the turnover accrued during the three year term).
(average value of the share during the last half of 2020 – average value of the share during the last
quarter of 2017 + paid dividends) and (average value of the share during the last quarter of 2017)
“Absolute” total Shareholder Return measured as:
“Relative” Total Shareholder Return against a selected panel
of peers (Michelin, Nokian and Continental)
Sustainability Index: measured against the placing of Pirelli in the Dow Jones Sustainability
World Index, ATX Auto Components industry. This objective is subject to the achievement of
the access threshold of at least one of the above economic/financial objectives (if only such
objective is met, then no pro-quota of any three year incentive shall be therefore paid)
30%
40%
20%
10%
1
6
2
The 2018-2020 LTI Plan provides and incentive (the so-called “LTI Bonus”) subject to the achievement of multiple year objectives and
at the time to the market. As regards the objectives at “relative” performance the target level is set a particularly challenging levels.:
The target level of the economic/financial objectives is in line with the objectives of the 2018-2020 Industrial Plan which were disclosed
established on a percentage basis of the gross annual fixed component; (GAS) received by the beneficiary as of the date on which
the admission the Plan thereof was granted. Said incentive percentage raises based on the role held and takes in due account the
reference benchmarks for each role.
Role
Target
Deleveraging (Net Financial Position/Ebitda adjusted ratio)
Target Objective
On/off condition
< 2 as of 31.12.2020
Each objective provides and access threshold to which the payment of an incentive equal to the 75% of the respective portion of
potential incentive at target is linked- and a cap of the payable sum.
The LTI Bonus, in case of achievement of all the objectives at the maximum level cannot exceed a sum which is twice the incentive
which may be received in case of achievement of the target objectives.
In case of failed achievement of the access threshold level of each objective, the beneficiary will not accrue any right to the payment
of the relevant incentive portion.
Executive Vice Chairman
and CEO and Managers with
strategic responsibilities
Group ROS (which is measured as the ratio between Group
Coherent with the targets
Adjusted EBIT accrued during the three year term and
disclosed to the market,
the turnover accrued during the three year term).
as indicated below
“Absolute” total Shareholder Return measured as :
(average value of the share during the last half of 2020 – average
value of the share during the last quarter of 2017 + paid dividends)
and (average value of the share during the last quarter of 2017)
+48.4%
“Relative” Total Shareholder Return against a selected
panel of peers (Michelin, Nokian and Continental)
Performance equal to the
weighted average of the
panel performance
Sustainability Index: measured against the placing of Pirelli in
the Dow Jones Sustainability World Index, ATX Auto Components
industry. This objective is subject to the achievement of
the access threshold of at least one of the above economic/
financial objectives (if only such objective is met, then no
pro-quota of any three year incentive shall be therefore paid)
Placing in the highest decile
ANNUAL REPORT 2017ANNUAL REPORT 2017 Remuneration reportRemuneration report
Below the targets disclosed to the market for the three-years period 2018-2020
In case of termination of the employment contract due to any
Any agreement executed in case of termination of the
TARGETS_
€Mln
REVENUES
High Value weight on Revenues
Adjusted EBITDA margin1
Adjusted EBITDA margin2,3
High Value weight on Ebit
CapEx on Revenues
Net finacial position/ Adjusted EBITDA
ROI4
2016A
4,976
55%
21.7%
17,0%
81%
~6.8%
4.6X
27%
2020E
≥9% CAGR 16-20
~63%
~23% ÷ ~24%
~18.5% ÷ ~19.5%
~85%
~7.0%
on average’17-20
<2.0X
~35%
1 EBITDA margin adjusted excluding non recurring, one-off and extraordinary items;
2 EBITDA margin adjusted excluding PPA amortization, non recurring, one-off and extraordinary items;
3 Margin to be impacted by start-up costs up to 1% in 2017 e 2018;
4 ROI calculated as EBIT Adjusted / average Net Invested Capital w/o financial assets and intangibles from PPA.
case and occurred before the end of the three year period, the
current relationship with Pirelli Group for any reason which is
entitled person is therefore excluded from the LTI Plan and
not a dismissal for cause. The line of Pirelli is in fact to seek
therefore the bonus shall not be paid, not even pro-quota.
agreements capable to reach an amicable termination of the
contract. Without prejudice, in any case for the statutory
As regards Directors holding special offices or who are
and/or contractual obligations, the agreements for the
assigned specific duties (this is the case of the Executive Vice
termination of the contract with Pirelli Group are inspired by
Chairman and CEO Mr. Tronchetti Provera) who leave their
the reference benchmarks for the matter and within the limits
office due to expiration of the mandate and who subsequently
defined by the case law and the practice of the Country where
are not even appointed directors the pro-quota payment of
the agreement was reached.
the LTI Bonus is allowed.
Claw back clauses
The annual (MBO) and multi-annual (LTI) plans intended for:
The Company defines within its organisation certain criteria
which must be followed also by the other companies of the
Group for managing any early termination agreements for the
Directors holding special offices who are assigned specific duties
contracts with executives and/or Directors holding special
and the Managers with strategic responsibilities provide, among
offices.
the other terms, certain so-called claw-back mechanisms.
In particular, and without prejudice for any further statutory
duties and are not parties of executive contracts, Pirelli does
remedy granted for the protection of the interests of
not provide the payment of any extraordinary indemnity or
the Company, it will be provided the execution with said
remuneration linked to the end of the mandate. The payment
individuals of certain contractual covenants which allow
of a specific indemnity may be allowed, subject to review by
Directors holding special offices who are assigned specific
2
6
2
The range of the objectives is established according to the following general rules:
Pirelli to request the (full or partial) refund, within three years
the competent corporate bodies, in the following cases:
>
for each objective, the delta between target and maximum is always at least 1.5 times the delta between the target level and the
of their payment, of any incentive paid to the individuals who,
>
termination decided by the Company and not for cause;
3
6
2
“access threshold” level;
by fraud or gross negligence, carried out (or take part in the
> termination for cause decided by the Director, consisting of,
>
the 25% penalization percentage of the reward upon the achievement of the objective at the “access threshold” level, is always
commission of) any facts, as listed below and concerning the
by way of example, the significant change of the role or of
higher than the tolerance margin represented by the difference in percentage between the “access threshold” result and the
economic/financial indicators included in the Annual Financial
the granted powers and/or any case of “Hostile” Take-over.
“target” result.
Report and which lead to a subsequent comparative report
In such cases, the amount of the indemnity is 2 years of the
With regards to the TSR and ROS objectives, any intermediate result between the access threshold and the target value or between
and are adopted as parameters for establishing the variable
gross annual salary, which consists of the sum of the gross
the target value and the maximum value, the final figures of the performance will be established by linear interpolation.
rewards of said incentive plans:
annual fixed salaries for the offices held in the Group, the
LTI LEVERAGE
Leverage
200%
100%
75%
(i) proven and significant errors which cause a failed
average of the annual variable salaries (MBO) which have
compliance with the accounting principles that Pirelli
been accrued during the previous three year term and of the
declares to apply, or
Severance Indemnities on the above sums as specified in the
(ii) Assessed fraudulent behaviours intended to obtain a
following paragraph 10.
specific representation of the equity-financial status, the
economic result or the financial flows of Pirelli.
6. INDEMNITY IN CASE OF
RESIGNATION, DISMISSAL OR
TERMINATION OF THE CONTRACT
7. NON COMPETE AGREEMENT
AND RETENTION PLAN
The Group may enter with its Managers with strategic
responsibility and with Senior Managers and Executives vested
with particularly critical duties non compete agreements36
Pirelli Group has the policy to not enter with any Director,
which entail the payment of a GAS-related consideration to be
Manager with strategic responsibilities, Senior Manager
determined by the duration and the extent of the restrictions
75
100
200
the economic matters linked to the early termination of the
Performance
and Executive, any agreement which may ex ante govern
arising from said agreements.
contract by decision of the Company or the individual (the so-
The obligation refers to the industry in which the Group trades
The full cost of the LTI Plan is included in the economics of the Industrial Plan, so that the cost thereof will be “self financed” by the
called “parachutes”).
achievement of the results.
The LTI Plan has also retention purposes.
upon the definition of the agreement and to the geographical
scope. The scope varies based on the position held at the
36 Mr Giorgio Luca Bruno, Company’s Director, is a part to a non compete agreement and a recipient of the retention plan exclusively as a Group’s
Executive.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Remuneration reportRemuneration report moment when the agreement is executed and may reach, in certain cases deemed especially critical, such as the Managers with
In line with the best practices, no variable component of the
Furthermore, the Statutory Auditors are entitled to be
strategic responsibilities, a geographical scope which covers all the main countries in which the Group is active.
remuneration is provided for the Directors not holding special
refunded of the costs incurred due to their office.
offices.
The Executive Vice Chairman and CEO does not hold a non compete agreement.
In line with the best practices a so-called D&O (Directors &
Furthermore a medium-to-long term retention plan is provided for the Managers with strategic responsibilities and for a selected
costs incurred due to their office.
the third party civil liability of the corporate bodies, of
number of Senior Managers and Executives whose contribution for the implementation of the new Strategic Plan is deemed to be
the Managers with strategic responsibilities, the Senior
Furthermore, the Directors are entitled to be refunded of the
Officers) Liability insurance policy is provided for covering
particularly significant.
Still in line with the best practices a so-called D&O (Directors
Managers and Executives during the performance of their
& Officers) Liability insurance policy is provided for covering
duties, intended to hold Pirelli harmless from any obligation
For the Managers with strategic responsibilities, the Retention Plan provides the payment of a consideration geared on the Total Direct
the third party civil liability of the corporate bodies, of
arising from the related damages, as established under
Compensation 2017 at target of each participant and up to a max of 2.3 times it. The consideration is organised in 4 annual instalments
the Managers with strategic responsibilities, the Senior
the provisions of the applicable national collective labour
of increasing amount in order to obtain the highest retention effect possible, with the payment of the last instalment scheduled in 2021.
Managers and Executives during the performance of their
contract and the legislation on mandate, excluding the cases
The payment of each instalment is subject to the condition that the manager remains in the company as of the date of each payment.
duties, intended to hold Pirelli harmless from any obligation
of fraud or gross negligence.
The Executive Vice Chairman and CEO does not participate to the Retention plan.
8. THE REMUNERATION OF THE DIRECTORS OF PIRELLI & C.
The Board of Directors includes:
arising from the related damages, as established under
the provisions of the applicable national collective labour
contract and the legislation on mandate, excluding the cases
of fraud or gross negligence.
10. REMUNERATION OF THE DIRECTORS
HOLDING SPECIAL OFFICES
As regards the Directors not holding special offices, no
Upon their appointment or during the first following meeting,
insurance, or welfare or pension cover is provided in addition
the Remuneration Committee proposes to the Board of
(i) Directors holding special offices who may also be assigned specific duties;
to the statutory ones.
Directors the remuneration due to the Directors holding
(ii) Directors not holding special offices.
special offices.
2
6
4
The mere assignment to Directors of powers for emergency cases only does not, by itself, configure them as Directors holding special offices.
The Shareholders’ Meeting of Pirelli held on 01 August 2017, upon the appointment of the Board of Directors, defined an overall
9. THE BOARD OF AUDITORS
In the case where the Director holds special offices, but no
special responsibilities are appointed to him (as of the date of
5
6
2
consideration - pursuant to art. 2389 paragraph 1 ICC - for the remuneration of the Directors appointing to the Board of Directors the
The remuneration of this control body is established by the
this Report, the Chairman, Mr. Ren Jianxin), his remuneration
task to establish the allocation thereof. Namely, the Shareholders’ Meeting approved an overall gross annual salary of Euro 2 million
Shareholders’ Meeting as a fixed annual sum. In particular,
as Director consists only of a gross annual fixed component;
which was then allocated by the Board of Directors as follows:
during Year 2015, in occasion of the renewal of the Board
the Board of Directors granted to the Chairman Mr. Ren
Corporate Body
Board of Directors
Office
Gross Annual Salary
other members at Euro 50 thousand.
Member of the Board
60 thousand Euro
As regards the Directors not holding special offices who
of Statutory Auditors, the gross annual fixed salary of its
Jianxin a gross remuneration for his office amounting to the
Chairman was set at Euro 75 thousand and the salary of the
gross yearly sum of 400 thousand Euro.
Control, Risks, Sustainability and Corporate Governance Committee
Remuneration Committee
Strategies Committee
Appointments and Succession Committee
Committee for the Transactions with Related Parties
Supervisory Body
Chairman
Member
Chairman
Member
30 thousand Euro
25 thousand Euro
30 thousand Euro
25 thousand Euro
Chairman
50 thousand Euro
Member
30 thousand Euro
Chairman
50 thousand Euro
Member
30 thousand Euro
Chairman
60 thousand Euro
Member
40 thousand Euro
Chairman
60 thousand Euro
Member
40 thousand Euro
Director in charge for the sustainability matters
70 thousand Euro
For the Auditor appointed as a member of the Supervisory
are not vested with special responsibilities no insurance,
Body, the Board of Directors, following its renewal, set his
or welfare or pension cover is provided in addition to the
gross Annual Salary at Euro 40 thousand.
statutory ones.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Remuneration reportRemuneration report
The remuneration of the Directors holding special offices who are also vested with special responsibilities is established according
to the following criteria.
ANNUALIZED STRUCTURE OF THE REMUNERATION
OF THE EXECUTIVE VICE CHAIRMAN AND CEO
Component
Criterion
Fixed component for all the
offices held in Pirelli
- established by the Board of Directors for the whole mandate at
an overall annual sum, which includes therefore also any fixed
component for other executive offices in the Pirelli Group;
- Not exceeding one third of the Annual Total Direct Compensation at Target.
- Access Threshold: 75% of the MBO at target;
Yearly incentive (MBO)
- MBO at target: 125% of the remuneration;
- MBO Max (cap): 200% of the MBO at target.
- Access Threshold: 75% of the LTI at target;
LTI Incentive
- LTI at target: 250%;
Annualized medium-to-long term
grant of an increase of the whole accrued MBO in function of the
variable component
level of achievement of the MBO during the following year;
- LTI Max (cap): 200% of the LTI at target.
- consisting of the LTI bonus and of the annual rolling mechanism
for the deferred payment of the portions of the accrued MBO and
Achievement of
the objectives at
access threshold
Achievement of the
objectives at target
Achievement of
the objectives at
maximum level (cap)
Fixed component
Annual variable component (MBO)
Annualized medium-to-long
term variable component
Total
40%
27%
33%
100%
30.9%
27.8%
41.3%
100%
16.8%
30.2%
53%
100%
Based on the deferral by 12 months of the payment of a portion of the MBO bonus with the risks and opportunities recalled in
paragraph 1 and specified in paragraph 5, the accrual of a portion of the medium-to-long term variable component stated in the
chart is subject to the level of achievement of the results of Year 2019 and will be, if required, paid during 2020.
Furthermore, for the Directors holding special offices and vested with special responsibilities, in the case where are not employed
As of the date of this Report the Executive Vice Chairman and CEO Mr. Marco Tronchetti Provera is the only director holding special
> The payment of a Directors’ Severance Indemnity (T.F.M.) under art. 17, 1st paragraph, letter c) of T.U.I.R. (the Italian Consolidated
2
6
6
offices who also has special responsibilities.
Law on Income Tax) no. 917/1986 whose features are similar to those of the Employees’ Severance Indemnity (TFR) under art.
2120 ICC which the Law requires to pay to the Italian executives of Pirelli Group and including the welfare contributions charged
7
6
2
- not lower than 50% of the overall variable component.
under an executive labour contract (as of the date of this report the Executive Vice Chairman and CEO Mr. Marco Tronchetti
Provera), the Board of Directors provided, with an approach which is similar to the one followed in the statutory provisions and/or
in the National Collective Contract for the Italian executives of the Group:
During 2018, the structure of the remuneration for the Executive Vice Chairman and CEO Mr. Marco Tronchetti Provera was reviewed
to the employer which are due to Welfare Institutions or Funds in case of an executive labour contract;
with a reduction of the fixed component in consideration of an increase of the variable component seeking to achieve a further
> a policy providing cover for (i) any accident which may involve him during the performance of his duties and (ii) any extra-
strengthening of the alignment of the interests of the management with those of the shareholders.
professional accidents whose premiums shall be borne by the Company;
> an indemnity for total disability and death due to illness;
The gross annual fixed component of the Executive Vice Chairman and CEO Mr. Marco Tronchetti Provera was fixed at Euro 2,400,000.
> additional benefits which are typical of the office and currently granted to managers with strategic responsibilities and/or Senior
This remuneration for the main executive office is increased by the remuneration for the offices of Member of the Board of Pirelli
Managers within the Group (company car).
& C. S.p.A. (Euro 60,000) and Chairman of the Appointments and Succession and Strategies Committees (jointly, Euro 100,000)37.
The Remuneration Committee and the Board of Directors with the support of independent companies specializing in Executive
Compensation carry out the analysis of the positioning, of the composition and more in general of the competitiveness of the
As regards the weight of the different components, the structure of the compensation package of the Executive Vice Chairman and
remuneration of the Directors holding special offices based on methodological approaches which allow a thorough assessment,
CEO in case of achievement of the MBO annual objectives for 2018, 2019 and 2020 and the three-year objectives of the LTI Plan 2018-
even if within the typical limitations of the benchmarking analyses, the complexity of the roles from an organizational perspective,
2020 (i) at the Access Threshold, (ii) at target and (iii) at maximum level is reported below.
in the light of the special responsibilities vested and also of the impact of the individual on the final business results.
EXECUTIVE VICE CHAIRMAN
AND CEO - ENTRY LEVEL
EXECUTIVE VICE CHAIRMAN
AND CEO - TARGET
EXECUTIVE VICE CHAIRMAN
AND CEO - MAX
which is updated on an yearly basis.
In particular, reference is made to different components (industry, location, etc.) in defining the panel of benchmark companies
27.0%
MBO
40.00%
Fixed
33,0%
LTI
27.8%
MBO
30.9%
Fixed
41.3%
LTI
30.2%
MBO
16.8%
Fixed
53.0%
LTI
The sample of benchmark companies used for the analysis of the competitiveness and for reviewing the remuneration of the
Executive Vice Chairman and CEO of Pirelli & C. consists, on one hand, of 8 Companies of the “Car and Tyre” industry and on the other
of 28 European “Large Cap” companies.
The 8 companies which form the “Car and Tyre” panel are:
37 Up to 31 December 2017, the structure of the remuneration of the Executive Vice Chairman and CEO Mr. Marco Tronchetti Provera was structured
as follows: (i) fixed component; in Pirelli & C. S.p.A. Euro 900,000; (ii) fixed component in Pirelli Tyre S.p.A. Euro 2,000,000; (iii) to which
the remunerations or the offices of Member of the Board in Pirelli & C. S.p.A. (Euro 60,000) and Chairman of the Appointments and Succession and
Strategies Committees (jointly, Euro 100,000) were added.
The MBO variable component with Access Threshold 75% of the MBO at target; MBO at target 100% of the remuneration received in Pirelli Tyre S.p.A.;
maximum MBO (cap): 250% of the MBO at target.
The LTI variable component with Access Threshold 75% of the LTI at target; MBO at target 250% of the remuneration received in Pirelli Tyre S.p.A.;
maximum LTI (cap): 200% of the LTI at target.
BMW
Continental
Daimler
Fca
Michelin
Peugeot
Renault
Volkswagen
ANNUAL REPORT 2017ANNUAL REPORT 2017 Remuneration reportRemuneration report
The 28 companies which form the “Large Cap Europe” panel are:
As regards the Managers with strategic responsibilities, the Remuneration Committee measures the alignment of the remuneration
Burberry Group
Carrefour
Continental
Danone
Heineken
Henkel
MAN
Michelin
Hermes Intl.
Pernod-Ricard
Iberdrola
Peugeot
Philips
Electrolux
Imperial Tobacco Group
E ON
Fca
Linde
Luxottica
Reckitt Benckiser Group
Reed Elsevier
Renault
Repsol YPF
Richemont
Rolls-Royce
Telecom Italia
Volvo
WPP
11. MANAGERS WITH STRATEGIC RESPONSIBILITIES
As of the date of publication of the Policy the following Managers with strategic responsibilities are in office:
Executive Vice President and Chief Financial Officer Francesco Tanzi;
Executive Vice President and Chief Planning and Controlling Officer Maurizio Sala;
Executive Vice President and Chief Human Resources Officer Gustavo Bracco;
Executive Vice President and Strategic Advisor Technology Maurizio Boiocchi;
Executive Vice President and Chief Commercial Officer Roberto Righi;
Senior Vice President Manufacturing Francesco Sala;
Executive Vice President Business Unit Prestige & Motorsport & COO Region Europe Andrea Casaluci;
Executive Vice President Pirelli Digital Luigi Staccoli
As of the date of publication of the Policy no General Managers are in offices.
In establishing the remuneration and its single components, the following criteria were considered:
2
6
8
with the Policy.
As regards the weight of the different components, the structure of the compensation package of the Managers with strategic
responsibilities in case of achievement of the MBO annual objectives for 2018, 2019 and 2020 and the three-year objectives of the LTI
Plan 2018-2020 (i) at the Access Threshold, (ii) at target and (iii) at maximum level is reported below.
MANAGERS WITH STRATEGIC
RESPONSIBILITIES - ENTRY LEVEL
MANAGERS WITH STRATEGIC
RESPONSIBILITIES - TARGET
MANAGERS WITH STRATEGIC
RESPONSIBILITIES - MAX
29.1%
LTI
16.7%
MBO
54.2%
Fixed
36.9%
LTI
18.4%
MBO
44.7%
Fixed
23.7%
MBO
28.8%
Fixed
47.5%
LTI
ANNUALISED STRUCTURE OF THE REMUNERATION OF MANAGERS WITH STRATEGIC RESPONSIBILITIES
Achievement of
the objectives at
access threshold
Achievement of the
objectives at target
Achievement of
the objectives at
maximum level (cap)
Fixed component
Annual variable component (MBO)
Annualized medium-to-long
term variable component
Total
54.2%
16.7%
29.1%
100%
44.7%
18.4%
36.9%
100%
9
6
2
28.8%
23.7%
47.5%
100%
Role
Component
Criterion
Gross annual fixed component
new responsibilities, the evolution of the remuneration market
- established at the time recruitment, may be updated on a regular
basis in order to take in due consideration the performance, any
concerning the position held by the specific individual;
- Not exceeding 50% of the Annual Total Direct Compensation at Target.
Yearly incentive (MBO)
- Access Threshold: 75% of the MBO at target;
- MBO at target: from 50% to 75% of the GAS;
- MBO Max (cap): 200% of the MBO at target.
Managers with strategic
responsibilities
LTI Incentive
- LTI at target: from 167% to 200% of the GAS;
- Access Threshold: 75% of the LTI at target;
- LTI Max (cap): 200% of the LTI at target.
Based on the deferral by 12 months of the payment of a portion of the MBO bonus with the risks and opportunities recalled in
paragraph 1 and specified in paragraph 5, the accrual of a portion of the medium-to-long term variable component stated in the
chart is subject to the level of achievement of the results of Year 2019 and will be, if required, paid during 2020.
Also the analysis of the remuneration of Managers with strategic responsibilities is carried out with the support of independent
companies specializing in Executive Compensation whose definition is reviewed on a yearly basis and disclosed in occasion of the
annual Report on remunerations. In particular, reference is made to different components (industry, location, etc.) in defining the
panel of benchmark companies which is updated on an yearly basis.
As regards the Managers with strategic responsibilities, the reference market employed for assessing the competitiveness of their
respective remunerations includes more than 200 Companies of the following European Countries: Belgium, France, Germany, Italy,
Annualized medium-to-long
term variable component
Not lower than 60% of the overall variable component
Spain, Netherlands, UK.
Benefits
- Benefits typically granted to the Pirelli Executives
Other components
- supplementary pension funds which provide for the Company the
payment to a pension fund of a sum equal to 4% of the gross annual
salary received up to a gross cap of Euro 150 thousand;
- health and life insurance policy which are additional to the
cover provided under the National Collective Labour Contract
for Executives of Manufacturing and Service Companies.
12. SENIOR MANAGERS AND EXECUTIVES
The remuneration of Senior Managers and more in general of Executives consists of the following elements:
> a gross annual fixed component (the so-called GAS);
> an annual variable component (so-called MBO);
> a medium-to-long term variable component (consisting of the LTI bonus and of the annual rolling mechanism for the deferred
payment of the portions of the accrued MBO and grant of an increase of the whole accrued MBO in function of the level of
ANNUAL REPORT 2017ANNUAL REPORT 2017 Remuneration reportRemuneration report
achievement of the MBO during the following year);
> benefits which are granted under the corporate practice (i.e. cars)
Furthermore, the following is granted to the Executives and the Senior Managers with Italian labour contract:
>
supplementary pension funds which provide for the Company the payment to a pension fund of a sum equal to 4% of the gross
annual salary received up to a gross cap of Euro 150 thousand;
> health and life insurance policy which are additional to the cover provided under the National Collective Labour Contract for
Executives of Manufacturing Goods and Service Companies.
In establishing the remuneration and its individual components of Senior Managers and Executives, Pirelli Group takes in
consideration the following criteria:
EXECUTIVE - ENTRY LEVEL
EXECUTIVE - TARGET
EXECUTIVE - MAX
15.4%
LTI
9.6%
MBO
75.00%
Fixed
11.4%
MBO
21.5%
LTI
67.1%
Fixed
17.2%
MBO
32.3%
LTI
50.5%
Fixed
a.
the fixed component: (i) for Senior Managers its weight is generally 60% of the Annual Total Direct Compensation at Target and
ANNUALIZED STRUCTURE OF THE REMUNERATION OF EXECUTIVES
(ii) for Executives its weight generally does not exceed 75% of the Annual Total Direct Compensation at Target;
b. an accrued yearly incentive (MBO) which, at target, represents a percentage of the GAS which is no lower of 20% of said
remuneration;
c.
the weight of the annualized medium-to-long term variable component is not lower than 60% of the overall variable component.
As regards the LTI bonus a cap to the maximum attainable incentive equal to 2 times the bonus at target is provided.
We provide below the structure of the remuneration for Senior Managers and Executive (globally intended) highlighting the
weight of the different components (which are annualized) of their compensation package, in case of achievement of the MBO
annual objectives for 2018, 2019 and 2020 and the three years objectives of the LTI Plan 2018-2029 (i) at access threshold, (ii) at
target and (iii) at maximum level.
Achievement of
the objectives at
access threshold
Achievement of the
objectives at target
Achievement of
the objectives at
maximum level (cap)
Fixed component
Annual variable component (MBO)
Annualized medium-to-long
term variable component
Total
75%
9.6%
15.4%
100%
67.1%
11.4%
21.5%
100%
50.5%
17.2%
32.3%
100%
SENIOR MANAGER - ENTRY LEVEL
SENIOR MANAGER - TARGET
SENIOR MANAGER - MAX
2
7
0
26.9%
LTI
12.7%
MBO
60.4%
Fixed
14.4%
MBO
34.3%
LTI
51.3%
Fixed
19.4%
MBO
34.5%
Fixed
46.1%
LTI
Based on the deferral by 12 months of the payment of a portion of the MBO bonus with the risks and opportunities recalled in
paragraph 1 and specified in paragraph 5, the accrual of a portion of the medium-to-long term variable component stated in the
chart is subject to the level of achievement of the results of year 2019 and will be, if required, paid during 2020.
1
7
2
Also the analysis of the remuneration of Executives and Senior Managers is carried out with the support of independent companies
specializing in Executive Compensation which considers the position held by the single Manager and the relevant Country.
As regards the Head of Internal Audit, please note that, in line with the best practices, the Board of Directors at the proposal of
the Control, Risks, Sustainability and Corporate Governance Committee provided a higher weight of the fixed component over
ANNUALIZED STRUCTURE OF THE REMUNERATION OF THE SENIOR MANAGERS
the variable component. By the way, the Head of Internal Audit (and, generally, the Managers of the Internal Audit department)
Achievement of
the objectives at
access threshold
Achievement of the
objectives at target
Achievement of
the objectives at
maximum level (cap)
Fixed component
Annual variable component (MBO)
Annualized
medium-to-long
term
variable component
Total
60.4%
12.7%
26.9%
100%
51.3%
14.4%
34.3%
100%
34.5%
19.4%
46.1%
100%
are not part of the LTI Incentive Plan, but he is merely a beneficiary of the annual incentive plan linked to mainly quality objectives
whose assessment is a responsibility of the Control, Risks, Sustainability and Corporate Governance Committee and of the Board of
Directors, at the proposal of the Director in charge of supervising the internal control system.
13. CHANGES TO THE POLICY
FROM THE PREVIOUS FINANCIAL YEAR
The Policy was prepared on the base of the previous application experiences and takes in due consideration the statutory
requirements adopted by CONSOB, and the adoption, occurred in 2018 of a new Long Term Incentive Cash Plan for 2018-2020 (“LTI
Plan”) and of a Retention Plan intended to provide support for the new Industrial Plan, which was disclosed to the market at the time
of the Listing of Pirelli. Furthermore the Policy takes in due account the review of the structure of the remuneration of the Executive
Vice Chairman and CEO with a reduction of the fixed component in consideration of an increase of the variable component.
This Policy is submitted to the Shareholders’ Meeting of Pirelli for the first time after the admission to listing of the Company which
was granted on 04 October 2017, and, therefore, it is not possible to measure any change from the Policy of the previous term.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Remuneration reportRemuneration report
14. OTHER INFORMATION
Under the resolution issued by Consob no. 18049 of 23 December 2011 please note that:
>
the Company did not receive any support from any advisory company and/or external experts in preparing the 2018 Policy;
> Pirelli does not currently provide any financial incentive scheme;
> Pirelli, in defining the 2018 Policy, did not use any specific remuneration policies of other companies as a benchmark. As regards
the structure of the remuneration for each role the criteria for selecting the reference benchmark are stated.
The chart no. 7-bis, adopted by the CONSOB resolution no. 18049 of 23 December 2011 provides that the Report on Remuneration,
in the section provided by art. 123-ter on the members of the governing bodies and the Managers with strategic responsibilities,
includes at least the information listed in the above mentioned chart. The table below provides the required information and the
section of the Report which includes them:
Information required under chart 7-bis
a) bodies or individuals involved in the preparation and
approval of the Policy on remuneration, specifying their
respective roles, as well as the bodies or individuals in
charge of the correct implementation of said Policy.
b) the possible action of a Remuneration Committee or any other
committee responsible for the matter, providing a description
of its composition (naming the non-executive and independent
members), responsibilities and the operation procedures;
Paragraphs which - namely - provide
the required information
2. “Process” for defining and implementing
the policies and involved entities
3. Remuneration Committee
2. “Process” for defining and implementing
the policies and involved entities
3. Remuneration Committee
c) the names of any independent advisor involved in
the preparation of the Policy on Remuneration;
14. Other Information
2
7
2
d) the purposes sought with the Policy on Remuneration,
1. Principles and review of the risks
its founding principles and any change of the policy on
13. Changes to the Policy on remuneration
remuneration from the previous financial year;
from the previous financial year.
The structure of the remuneration of the various
individuals is described in the paragraphs providing
a description of the different fixed/variable weights;
short term variable/medium-to-long term variable
Information required under chart 7-bis
Paragraphs which - namely - provide
the required information
j) the terms for the accrual of the rights (the so-called
vesting period), any deferred payment system, stating the
deferral period and the criteria employed for establishing said
periods and, if provided, the ex post correction mechanisms;
Pirelli does not currently provide any
financial incentive scheme.
As regards the deferral mechanisms for the monetary
variable components please refer to Paragraph:
5. MBO and LTI PLAN
k) information on the optional provision of clauses for
keeping the financial instruments in the portfolio after
their acquisition, stating the retention periods and the
criteria employed for establishing such periods;
Pirelli does not currently provide any stock incentive scheme
l) the policy concerning the indemnities in case of termination
6. Indemnity in case of resignation, dismissal
of the office or of the labour contract, specifying which
or termination of the contract
circumstances may lead the right to arise and any link between
7. Covenants to not compete and Retention Plan
said obligations and the performance of the company;
m) information on the provision of any insurance, welfare
9. The Board of Auditors
or pension covers, which are not the statutory covers;
10. Remuneration of the Directors holding special offices
Paragraphs for the different roles
8. The remuneration of the Directors of Pirelli & C.
11. Managers with strategic responsibilities
12. Senior Managers and Executives
n) the remuneration policy optionally followed as regards: (i)
to independent Directors, (ii) the participation to committees
8. The remuneration of the Directors of Pirelli & C.
(iii) specific offices (chairman, vice chairman, etc.);
o) whether the remuneration policy was defined by taking the
remuneration policies of other companies as reference, and if
14. Other Information
positive the criteria employed for selecting said companies
3
7
2
e) the description of the policies on fixed and variable components
5. MBO and LTI PLAN
of the remuneration, with special regards to the specification of the
8. The remuneration of the Directors of Pirelli & C.
relevant weight within the overall remuneration and making a distinction
9. The Board of Auditors
between variable components of short and medium-to-long term;
10. Remuneration of the Directors holding special offices
2017 REMUNERATION REPORT
11. Managers with strategic responsibilities
12. Senior Managers and Executives
The following paragraphs provides a detail of the operation
of the variable components of the remuneration:
Paragraphs for the different roles
8. The remuneration of the Directors of Pirelli & C.
f) the policy followed for the non-monetary benefits;
10. Remuneration of the Directors holding special offices
11. Managers with strategic responsibilities
12. Senior Managers and Executives
g) as regards the variable components, a description of the performance
objectives based on which they are assigned, making a distinction between
short term and medium-to-long term variable components and information on
5. MBO and LTI PLAN
the link between the change in results and the change in remuneration;
h) the criteria employed for assessing the performance objectives
based on which shares, options, other financial instruments or
5. MBO and LTI PLAN
other variable components of the remuneration are based;
1. Principles and review of the risks
5. MBO and LTI PLAN
i) information intended to highlight the alignment
And also for the different roles
of the Policy on Remuneration with the achievement of
8. The remuneration of the Directors of Pirelli & C.
the long-term interests of the company and with the risk
9. The Board of Auditors
management policy, in the case where it is formalized;
10. Remuneration of the Directors holding special offices
11. Managers with strategic responsibilities
12. Senior Managers and Executives
1. PRINCIPLES
The 2017 Remuneration Report sets out the Policy implemented by the Pirelli Group during the 2017 financial year with reference
to remuneration and provides actual amounts of remunerations in relation to the various persons concerned, without prejudice to
the transparency obligations envisaged by other applicable legal or regulatory provisions. It is recalled that the Company’s ordinary
shares were listed on 4 October 2017. Therefore, it should be noted that with reference to 2017, when the Company was not listed,
the Company had not formally adopted a Remuneration Policy pursuant to Article 123-ter of the Consolidated Finance Act (TUF -
Testo Unico della Finanza), and therefore, it is not possible to duly express a consistent judgement with the Policy approved in the
previous year. However, it should be noted that the Pirelli Remuneration structure for 2017, as from 4 October 2017, is generally
consistent with the principles contained in the Policy for 2018.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Remuneration reportRemuneration report
2. THE “TABLE”: REMUNERATION
SCHEME FOR MEMBERS OF THE
ADMINISTRATIVE AND CONTROL
BODIES, GENERAL MANAGERS
AND EXECUTIVES WITH
STRATEGIC RESPONSIBILITIES
The following tables set out:
In particular, it should be noted that, as mentioned above:
Taking into account the events occurred during the year 2017 (among which, in particular: the capital increase by Marco Polo
>
those who were Directors of the Company during the
International Italy SpA, the refinancing, the completion of the segregation of the industrial business, the discontinuation of the
2017 year, accrued/received (on an accruals basis) a
industrial business result, the beginning and the completion of the listing process), the report about the total incentive is shown
salary established in accordance with the criteria set
below without evidence of the original target and the related result, taking into account the adjustments made to these values in
out in paragraph 6 of the 2018 Policy; moreover, for the
order to sterilize (in positive and negative) the effects of the aforementioned extraordinary transactions not included in the 2017
period going from January 1st 2017 and October 3, 2017
budget at the time of its approval, in order to reward the actual performance.
remuneration of Directors amounted to an attendance fee
of € 1,000 for each meeting of the Company’s governing
> by name, remuneration paid to Directors, Statutory
bodies they have taken part in;
EXECUTIVE VICE CHAIRMAN AND CEO AND KEY MANAGERS
Auditors and General Managers;
>
those who, during 2017, were Directors holding special
>
in aggregate form, remuneration to Executives with
offices (Vice Chairman and Chief Executive Officer and
Objectives
strategic responsibilities38. As of 31 December 2017 the
Chairman) accrued/received (on an accruals basis) a
Group PFN before dividends
following Executives held positions with strategic
salary established in accordance with the criteria set out
responsibilities: Maurizio Boiocchi (EVP and Strategic
in paragraph 10 of the 2018 Policy;
Advisor Technology), Andrea Casaluci (EVP Business Unit
> Executives with strategic responsibilities received/accrued
Prestige & Motorsport and COO Region Europe), Roberto Righi
salaries pertaining to the 2017 year in accordance with the
(EVP and Chief Commercial Officer), Francesco Sala (Senior
criteria set out in paragraph 11 of the 2018 Policy;
Vice President Manufacturing), Maurizio Sala (EVP and Chief
> each member of the Supervisory Body, in office up to August
Planning and Controlling Officer), Luigi Staccoli (EVP Pirelli
30, 2017 received/accrued a salary pertaining to the 2017
Digital), Francesco Tanzi (EVP and Chief Financial Officer),
year amounting to EUR 25,000 gross per annum and the
Gustavo Bracco (EVP and Chief Human Resources Officer),
Chairman compensation equal to EUR 40,000 gross per
Group EBIT (after restructuring costs)
Group Net Cash Flow (before dividends)
Group Ebt
Giorgio Luca Bruno (EVP M&A, Corporate Development and
annum. With effect from August 31, 2017, the Board of
Executive Vice Chairman and CEO
2
7
4
Diversified Businesses)39.
Directors, as reported in the 2018 Policy, approved a salary
> Salaries are reported on an accruals basis and evidence is
for the Chairman of the Supervisory Board of EUR 60,000
provided, in the notes to the tables, of the appointment
gross per annum and EUR 40,000 gross per annum for
Office
2017 MBO plan structure
Incentive score
- access threshold: 75% of the incentive at target
- At target: 100% of the remuneration for the most
important executive office (in Pirelli Tyre S.p.A)
164.97
- Cap: 250% of the target incentive
- access threshold: 75% of the incentive at target
5
7
2
Weight
on/off condition
30%
50%
20%
(for example, where a Director participates in more than
each board member;
Key Managers
- At target: from 50% to 75% of the GAS
139.97
one Board Committee) for which the salary is received
> each member of the Board of Statutory Auditors received/
and the subsidiary and/or Associate Company (with the
accrued a salary pertaining to the 2017 year in line with
exception of those waived or transferred to the Company).
that provided for by the Shareholders’ Meeting at the
time of appointment (in addition to a gross annual salary
- CAP: 200% of the target incentive
The tables include all persons who, following admission
of EUR 40,000 paid to the Serving Auditor called upon to
In line with the structure of the variable incentive described in the Policy, only 75% of the accrued 2017 MBO bonus is paid, while
to official listing, held these positions during the 2017 year,
be a member of the Supervisory Body);
the payment of the remaining 25% is deferred by 12 months and is subject to the achievement of the MBO objectives for 2018,
even if for a fraction of the year. Board Directors who ceased
>
Senior Managers and Executives received/accrued salaries
and in particular:
to hold office before the start of trading of the Company’s
pertaining to the 2017 year in accordance with the criteria
a)
in the event that no MBO is accrued in 2018, the deferred and accrued share of the 2017 MBO would be definitively lost;
shares on the Telematic Stock Exchange (Mercato Telematico
set out in paragraph 12 of the 2018 Policy.
b)
in the event that the 2018 MBO is accrued at “entry threshold” level, the accrued and deferred 2017 MBO share shall be paid;
Azionario) are not included. In this regard, it should be noted
It should be noted that for Executives with strategic
lastly, if the 2018 MBO is accrued at least at target performance level - in addition to payment of the accrued and deferred 2017 MBO
that the above mentioned Directors are entitled to receive
responsibilities and more generally for other members of
share - an additional amount would be paid, equal to a percentage of the entire accrued 2017 MBO. This percentage would vary from
an attendance fee amounting to € 1,000 for each meeting of
the Group’s Senior Management, Pirelli has introduced non-
a minimum of 20% (if the 2018 MBO is accrued at target performance level) to a maximum of 40% (if the 2018 MBO is accrued at
the Company’s governing bodies they have taken part in.
competition agreements to protect strategic and operational
maximum performance level), with linear interpolation between the two extremes.
Non-monetary benefits, where they are received, are also
hold a non-competition agreement.
know-how. The Executive Vice Chairman and CEO does not
identified on an accruals basis, and reported in relation to the
“taxable income criteria” of the assigned benefit.
38 Point b) of Section II of Schedule 7-bis of Annex 3 A of the so-called Issuers’ Regulations provides that the so-called Remuneration Report is
structured into two parts:
a) salaries of members of the administrative and control bodies and General Managers;
b) salaries of any other Executives with strategic responsibilities who have received, in the reporting year, an overall salary (obtained by
adding monetary salaries and salaries based on financial instruments) greater than the highest overall salary attributed to the persons indicated
in point a).
For Executives with strategic responsibilities other than those indicated in point b) information is provided at aggregate level in special
tables, identifying the number of persons to whom it refers instead of names”.
39 Starting from 1st January, 2018 Giorgio Luca Bruno no longer qualifies as Executive with strategic responsibilities.
LTI Plan Following the Board of Directors’ resolution of July 28, 2017, the LTI Plan 2016-2018 was closed in advance due to the
Company’s listing. The Board of Directors therefore re-proportioned the objectives for the two-year period 2016-2017 and, as for
the 2017 MBO, neutralized the positive and negative effects of the extraordinary transactions that particularly occurred during the
year 2017. Following the final balance after the end of the 2017 financial year, an incentive equal to 16.67% of the target performance
bonus was recognized to the participants of the plan, considered that the on/off condition (Creation of positive value) was achieved.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Remuneration reportRemuneration report
First name and
surname
Position
Period of the
position covered
End of term of
office date
Fixed
compensation
Compensation
for
participation
in committees
Non equity variable
compensation
Bonuses
and other
incentives
Profit-
sharing
Non monetary
benefits
Other
compensation
Total
Fair Value
of equity
compensation
Indemnity for
end of term
of office or
of employment
relationship
Marco Tronchetti Provera
Executive Vice
Chairman and Chief
Executive Officer
01/01/2017
-
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2019
2,927,630.00
24,384.00
4,671,359.00
0.00
140,902.00
0.00
7,764,275.00
0.00
0.00
Of which is compensated in Pirelli & C. S.p.A.
927,630.00 (1)
24,384.00 (3)
140,902.00 (4)
Of which is compensated by Subsidiaries and Affiliates
2,000,000.00 (2)
4,671,359.00
1,092,916.00
6,671,359.00
Ren Jianxin
The Chairman
01/01/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2019
420,630.00
7,315.00
0.00
427,945.00
0.00
0.00
Of which is compensated in Pirelli & C. S.p.A.
420,630.00 (5)
7,315.00 (6)
Of which is compensated by Subsidiaries and Affiliates
Yang Xingqiang
Director
01/01/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2019
427,945.00 (7)
0.00
22,630.00
7,315.00
0.00
0.00
0.00
0.00
29,945.00
0.00
0.00
Of which is compensated in Pirelli & C. S.p.A.
22,630.00 (8)
7,315.00 (9)
29,945.00 (7)
Of which is compensated by Subsidiaries and Affiliates
Bai Xinping
Director
01/01/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2019
30,630.00
20,726.00
0.00
0.00
0.00
0.00
51,356.00
0.00
0.00
Of which is compensated in Pirelli & C. S.p.A.
30,630.00 (10)
20,726.00 (11)
51,356.00 (7)
Of which is compensated by Subsidiaries and Affiliates
2
7
6
Giorgio Luca Bruno
Director
01/01/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2019
627,630.00
7,315.00
648,075.00
0.00
16,600.00
47,068.00
1,346,688.00
0.00
0.00
7
7
2
Of which is compensated in Pirelli & C. S.p.A.
627,630.00 (12)
7,315.00 (9)
648,075.00
16,600.00 (13)
47,068.00 (14)
1,346,688.00
Of which is compensated by Subsidiaries and Affiliates
Laura Cioli
Director
31/08/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2019
18,630.00
12,192.00
0.00
0.00
0.00
0.00
30,822.00
0.00
0.00
0.00
Of which is compensated in Pirelli & C. S.p.A.
18,630.00 (15)
12,192.00 (16)
30,822.00
Of which is compensated by Subsidiaries and Affiliates
Domenico De Sole
Director
31/08/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2019
18,630.00
21,945.00
0.00
0.00
0.00
0.00
40,575.00
0.00
0.00
Of which is compensated in Pirelli & C. S.p.A.
18,630.00 (15)
21,945.00 (17)
40,575.00
Of which is compensated by Subsidiaries and Affiliates
Fan Xiaohua
Director
31/08/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2019
18,630.00
7,315.00
0.00
0.00
0.00
0.00
25,945.00
0.00
0.00
Of which is compensated in Pirelli & C. S.p.A.
18,630.00 (15)
7,315.00 (18)
25,945.00
Of which is compensated by Subsidiaries and Affiliates
Ze'ev Goldberg
Director
01/01/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2019
27,630.00
7,315.00
0.00
0.00
0.00
0.00
34,945.00
0.00
0.00
Of which is compensated in Pirelli & C. S.p.A.
27,630.00 (19)
7,315.00 (8)
34,945.00
Of which is compensated by Subsidiaries and Affiliates
Marisa Pappalardo
Director
31/08/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2019
18,630.00
9,753.00
0.00
0.00
0.00
0.00
28,383,00
0.00
0.00
Of which is compensated in Pirelli & C. S.p.A.
18,630.00 (15)
9,753.00 (20)
28,383.00
Of which is compensated by Subsidiaries and Affiliates
ANNUAL REPORT 2017ANNUAL REPORT 2017 Remuneration reportRemuneration report First name and
surname
Position
Period of the
position covered
End of term of
office date
Fixed
compensation
Compensation
for
participation
in committees
Non equity variable
compensation
Bonuses
and other
incentives
Profit-
sharing
Non monetary
benefits
Other
compensation
Total
Fair Value
of equity
compensation
Indemnity for
end of term
of office or
of employment
relationship
Cristina Scocchia
Director
31/08/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2019
18,630.00
15,849.00
0.00
0.00
0.00
0.00
34,479.00
0.00
0.00
Of which is compensated in Pirelli & C. S.p.A.
18,630.00 (15)
15,849.00 (21)
34,479.00
Of which is compensated by Subsidiaries and Affiliates
Tao Haisu
Director
31/08/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2019
17,630.00
7,315.00
0.00
0.00
0.00
0.00
24,945.00
0.00
0.00
Of which is compensated in Pirelli & C. S.p.A.
17,630.00 (22)
7,315.00 (23)
24,945.00
Of which is compensated by Subsidiaries and Affiliates
Giovanni Tronchetti Provera
Director
31/08/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2019
112,732.00
7.315,00
30,754.00
0.00
9,328.00
0.00
160,129.00
0.00
0.00
Of which is compensated in Pirelli & C. S.p.A.
18,630.00 (15)
7,315.00 (6)
Of which is compensated by Subsidiaries and Affiliates
94,102.00 (25)
30,754.00
9,328.00 (25)
25,945.00
134,184.00
Wei Yintao
Director
31/08/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2019
18,630.00
7,315.00
0.00
0.00
0.00
0.00
25,945.00
0.00
0.00
Of which is compensated in Pirelli & C. S.p.A.
18,630.00 (15)
7,315.00 (9)
25,945.00
Of which is compensated by Subsidiaries and Affiliates
2
7
8
Executives with strategic
responsibilities
(27)
/
4,988,379.00
0.00
5,145,397.00
0.00
106,347.00
257,750.00
10,497,873.00
0.00
0.00
9
7
2
Of which is compensated in Pirelli & C. S.p.A.
Of which is compensated by Subsidiaries and Affiliates
1,925,724.00 (27)
3,062,655.00
1,783,485.00
3,361,912.00
47,768.00 (28)
62,750.00 (29)
3,819,727.00
58,579.00 (28)
195,000.00 (29)
6,678,146.00
Francesco Fallacara
Chairman of the
Board of Statutory
Auditors
01/01/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2017
75,000.00
0.00
0.00
0.00
0.00
0.00
75,000.00
0.00
0.00
Of which is compensated in Pirelli & C. S.p.A.
75,000.00
75,000.00
Of which is compensated by Subsidiaries and Affiliates
Antonella Carù
Standing Auditor
01/08/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2017
20,959.00
30,014.00
0.00
0.00
0.00
0.00
50,973,00
0.00
0.00
Of which is compensated in Pirelli & C. S.p.A.
20,959.00
30,014.00 (30)
50,973.00
Of which is compensated by Subsidiaries and Affiliates
Fabio Artoni
Standing Auditor
Of which is compensated in Pirelli & C. S.p.A.
Of which is compensated by Subsidiaries and Affiliates
Luca Nicodemi
Standing Auditor
01/01/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2017
05/09/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2017
57,000.00
0.00
0.00
0.00
0.00
0.00
57,000.00
0.00
0.00
50,000.00
7,000.00 (31)
50,000.00
7,000.00
16,164.00
0.00
0.00
0.00
0.00
0.00
16,164.00
0.00
0.00
Of which is compensated in Pirelli & C. S.p.A.
16,164.00
Of which is compensated by Subsidiaries and Affiliates
Alberto Villani
Standing Auditor
05/09/2017 -
31/12/2017
Shareholders' Meeting to
approve the financial
statement for the year
ended 31 December 2017
Of which is compensated in Pirelli & C. S.p.A.
16,164.00
Of which is compensated by Subsidiaries and Affiliates
16,164.00
0.00
16,164.00
0.00
0.00
0.00
0.00
0.00
16,164.00
0.00
0.00
16,164.00
0.00
ANNUAL REPORT 2017ANNUAL REPORT 2017 Remuneration reportRemuneration report
First name and surname
Position
Period of the
position covered
End of term of
office date
Fixed
compensation
* * * * *
Compensation
for
participation
in committees
Non equity variable compensation
Bonuses
and other
incentives
Profit-sharing
Non monetary
benefits
Other
compensation
Total
Fair Value
of equity
compensation
Indemnity for
end of term
of office or
of employment
relationship
Total compensated in Pirelli & C. S.p.A.
4,308,831.00
193,383.00
Total compensated by Subsidiaries and Affiliates
5,163,757.00
Total
9,472,588.00
193,383.00
2,431,560.00
8,064,025.00
10,495,585.00
205,270.00
109,818.00
7,248,862.00
67,907.00
195,000.00
13,490,689.00
273,177.00
304,818.00
20,739,551.00
(1) Of which: EUR 14,630 as Director of Pirelli & C. S.p.A.; EUR 900,000 as Executive Vice Chairman and Chief Executive Officer of Pirelli & C.
S.p.A. and EUR 13,000 as attendance fees for participation in corporate bodies meetings from 1/1/2017 to 3/10/2017
(2) As Chairman and Chief Executive Officer of Pirelli Tyre S.p.A..
(3) Of which: EUR 12,192 as Chairman of the Appointments and Successions Committee of Pirelli & C. S.p.A. and EUR 12,192 as Chairman of the
Strategies Committee of Pirelli & C. S.p.A.
(4) Of which EUR 126,318 referring to an insurance policy in line with what indicated in the 2018 remuneration policy, EUR 5,632.00 referring to
Company car, EUR 6,000 referring to payments for supplementary pension, and EUR 2,952 referring to payments for health insurance.
(5) Of which EUR 400,000 as Chairman of Pirelli & C. S.p.A., EUR 14,630 as Director of Pirelli & C. S.p.A.and EUR 6,000 as attendance fees for
participation in corporate bodies meetings from 1/1/2017 to 3/10/2017
(6) As a member of the Appointments and Successions Committee of Pirelli & C. S.p.A.
(7) Compensation paid back to the company concerned
(8) Of which EUR 8,000 as attendance fees for participation in corporate bodies meetings from 1/1/2017 to 3/10/2017 and EUR 14,630 as Director of
Pirelli & C. S.p.A. from 4/10/2017 to 31/12/2017
(9) As a member of the Strategies Committee of Pirelli & C. S.p.A.
(10) Of which EUR 16,000 as attendance fees for participation in corporate bodies meetings from 1/1/2017 to 3/10/2017 and EUR 14,630 as Director
of Pirelli & C. S.p.A. from 4/10/2017 to 31/12/2017
(11) Of which EUR 6,096 as a member of the Compensation Committee of Pirelli & C. S.p.A. and EUR 7,315 as a member of the Appointments and
Successions Committee of Pirelli & C. S.p.A. and EUR 7,315 as a member of the Strategies Committee of Pirelli & C. S.p.A
(12) Of which EUR 13,000 as attendance fees for participation in corporate bodies meetings from 1/1/2017 to 3/10/2017 and EUR 14,630 as Director
of Pirelli & C. S.p.A. as of 4/10/2017 and EUR 600,000 as Executive with strategic responsibilities for Pirelli & C. S.p.A. (until 31/12/2017). It
should be noted that this does not include the remuneration received from Prelios S.p.A., a company that at 31 December 2017 did no longer appear
among the Affiliates companies
(13) Of which EUR 3,132 relating to an insurance policy, EUR 4,516 relating to the Company car, EUR 6,000 relating to contributions for
supplementary pension and EUR 2,952 relating to payments of a health insurance
(14) of which EUR 17,068 as Director in charge of Sustainability and EUR 30,000 as a pro-quota payment for non-competition agreement as long as
the employment relationship is on-going
(15) Of which: EUR 4,000 as attendance fees for participation in corporate bodies meetings from 31/8/2017 to 3/10/2017 and EUR 14,630 as Director
of Pirelli & C. S.p.A. as from 4/10/ 2017.
2
8
0
(16) Of which EUR 6,096 as a member of the Committee for Audit, Risks, Sustainability and Corporate Governance ("CCRSCG") and EUR 6,096 as a
member of the Compensation Committee
(17) Of which EUR 7,315 as a member of the Strategies Committee and EUR 14,630 as Chairman of the Related-Party Transactions Committee ("RPTC")
(18) As Chairman of the CCRSCG
(19) Of which EUR 13,000 as attendance fees for participation in corporate bodies meetings from 1/1/2017 to 3/10/2017 and EUR 14,630 as Director
of Pirelli & C. S.p.A. as from 4/10/ 2017.
(20) As a member of the RPTC
(21) Of which EUR 6,096 as a member of the CCRSCG and EUR 9,753 as a member of the RPTC
(22) Of which: EUR 3,000 as attendance fees for participation in corporate bodies meetings from 31/8/2017 to 3/10/2017 and EUR 14,630 as Director
of Pirelli & C. S.p.A. as from 4/10/ 2017.
(23) As Chairman of the Committee for Audit, Risks, Sustainability and Corporate Governance of Pirelli S.p.A.
(24) As manager of Pirelli Tyre S.p.a. during the fiscal year 2017
(25) Of which: EUR 2,612 for the Company car, EUR 3,764 referring to payments for supplementary pension and EUR 2,952 referring to payments for
healt insurance
(26) At 31 December 2017 the Executives with strategic responsibilities were: Maurizio Boiocchi, Gustavo Bracco, Giorgio Luca Bruno, Andrea
Casaluci (appointed on 6 November 2017), Roberto Righi, Francesco Sala, Maurizio Sala, Luigi Staccoli, and Francesco Tanzi. Giuliano Menassi was
Key Manager until 6 November 2017 and therefore the remuneration the latter received for the year is indicated. The remuneration paid to Andrea
Casaluci (appointed Key manager on 6 November 2017) is included in the table and related to the whole year. It should be noted that the
remuneration paid to Giorgio Luca Bruno is not included in this item, in that it is indicated in the table under his name.
(27) In the total amount are summed EUR 11,000 paid to Gustavo Bracco as attendance fees for participation in corporate bodies meetings from
01/01/2017 to 31/08/2017
(28) These amounts refer to an insurance policy, health insurance policy, Company car, housing, and payments to supplementary pension funds.
(29) These amounts refer to the pro-quota payment set forth in the non-competition agreement as long as the employment relationship is on-going.
(30) As member of the Supervisory Board from 1/1/2017.
(31) As Statutory Auditor of Pirelli Industrie Pneumatici S.r.l. and Driver Italia S.p.A.
1
8
2
ANNUAL REPORT 2017ANNUAL REPORT 2017 Remuneration reportRemuneration report
3. MONETARY INCENTIVE PLANS FOR MEMBERS OF THE BOARD
OF DIRECTORS AND EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
For a description of the monetary incentive plans, see paragraph 5 of the Remuneration Policy.
4. SCHEDULE RELATING TO EQUITY INVESTMENTS OF THE
MEMBERS OF THE ADMINISTRATIVE AND CONTROL BODIES
AND EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
The table below provides disclosures on any equity investments held in Pirelli & C. S.p.A. and in its Subsidiary Companies, by those
The variable incentive scheme of Pirelli envisages that the payment of 25% of any MBO accrued is deferred by 12 months and is
who, even for a fraction of the year, have held the position of:
subject to the achievement of MBO objectives for the following year. In particular:
> member of the Board of Directors;
>
in the event that no MBO has matured in the following year, the deferred MBO share of the previous year is definitively "lost";
> member of the Board of Statutory Auditors;
>
in the event that the MBO has matured in the following year at the level of the access threshold, the MBO share deferred from
> Executive with strategic responsibilities.
the previous year is returned;
In particular, it indicates, for each member of the Board of Directors and Board of Statutory Auditors and cumulatively for other
>
in the event of the MBO achieving between the target level and the maximum level in the following year, payment - in addition to
Executives with strategic responsibilities, with regard to each company in which shares are held, the number of shares, by category:
the return of the MBO share deferred from the previous year - of an additional amount between 20% and 40% of the entire MBO
> held at the end of the prior year;
matured in the previous year (for results earned in the following year between the target and maximum levels, the increase in
> purchased during the reporting year;
the previous year MBO bonus shall be calculated by linear interpolation).
>
sold during the reporting year;
> held at the end of the reporting period.
In this regard, the title of possession and the manner in which it is held are also specified.
First
name and
surname
Position
Plan
Bonus for the year
Bonus for the previous year
Payable/
Paid out
Deferred
Deferment
period
No longer
payable
Payable/
Paid out
Still
deferred
Other
bonuses
It includes all the persons who, during the reporting year, held40 positions as members of the administrative and control bodies or as
Executives with strategic responsibilities, even for a fraction of the year.
2
8
2
Marco
Tronchetti
Provera
Executive
Vice
Chairman
and Chief
Executive
Officer
Giorgio
Luca Bruno
Director
(2)
Giovanni
Tronchetti
Provera
Director
(3)
Key
managers
Director
(4)
MBO 2017
3,013,016.00
824,843.00
LTI Plan
2016-2018
(1)
833,500.00
0.00
MBO 2017
387,201.00
104,976.00
LTI Plan
2016-2018
155,898.00
0.00
MBO 2017
19,304.00
5,199.00
LTI Plan
2016-2018
6,251.00
0.00
MBO 2017
2,939,660.00
829,397.00
LTI Plan
2016-2018
998,425.00
0.00
(I) Compensation in the
company preparing the
financial report (5)
(II) Compensation
from Subsidiaries
and Affiliates
MBO 2017
1,294,675.00
379,665.00
LTI Plan
2016-2018
379,305.00
0.00
MBO 2017
5,064,506.00
1,384,750.00
LTI Plan
2016-2018
1,614,769.00
0.00
(III) Total
8,353,255.00
1,764,415.00
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
469,680.00
-
64,543.00
-
3,709.00
-
402,829.00
-
139,032.00
-
801,729.00
-
940.761,00
-
-
-
-
-
-
-
-
-
-
-
-
-
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
(1) The 2016-2018 LTI Plan was closed ahead of time following a deliberation of the Board of Directors on 28 July 2017 and the pro-quota payment
of the award matured.
(2) Giorgio Luca Bruno is included in the MBO and LTI variable incentive plans as Executive with strategic responsibilities for Pirelli & C.
S.p.A. until 31 December 2017.
(3) Giovanni Tronchetti Provera is included in the variable incentive MBO and LTI Plans as Executive of Pirelli Tyre S.p.A..
(4) As of 31 December 2017 the following were Executives with strategic responsibilities: Maurizio Sala, Francesco Tanzi, Giorgio Luca Bruno,
Luigi Staccoli, Maurizio Boiocchi, Gustavo Bracco, Roberto Righi, Francesco Sala and Andrea Casaluci. It should be noted that Giuliano Menassi was
an Executive with strategic responsibilities from 1/1/2017 to 6/11/2017 and therefore the amount includes the variable incentive paid to the
latter. It should also be noted that Giorgio Luca Bruno no longer qualifies as Executive with strategic responsibilities as of 1 January 2018 and
the amount referring to the variable component in the remuneration of the latter is not included in the total amount herein, in that it is
indicated in the table under his name, as a Director of the Company.
1) SHAREHOLDINGS OF THE MEMBERS OF THE ADMINISTRATIVE
AND CONTROL BODIES AND GENERAL MANAGERS
3
8
2
Surname and
first name
Position
Company in
which share
is held
No of shares
held at
31/12/2016
No of shares
purchased/
underwritten
No of shares
sold
No of shares
held at
31/12/2017
Giorgio Luca Bruno
Director
Pirelli & C.
0
500*
-
500
* Shares purchased at the listing of the Company on 4 October 2017
2) SHAREHOLDINGS OF OTHER EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
Number of Key Managers
Company in
which share
is held
No of shares
held at
31/12/2016
No of shares
purchased/
underwritten
No of shares
sold
No of shares
held at
31/12/2017
-
-
(1)
-
-
-
40 The Directors who have ceased to hold office before the start of trading of the Company’s shares on the Telematic Stock Exchange (Mercato
Telematico Azionario) are not included. These Directors are entitled to receive an attendance fee amounting to € 1,000 for each meeting of the
Company’s governing bodies they have taken part in.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Remuneration reportRemuneration report
ARIANNA
VULPIANI
DEMETER
Established by two agricultural entrepreneurs and a finance expert, Demeter exploits
blockchain technology to establish direct relationships between consumers and farmers
worldwide to the benefit of eco-sustainable crops.
AGRICULTURE 4.0,
THE ULTIMATE FARM-TO-TABLE
of all, the soil. This is the connection that two young Italian entrepreneurs have made the
cornerstone of their partnership. An idea that brings agriculture to the 4.0 stage, creating a
I nnovation, in the guise of blockchain technology, combined with the most ancient element
cultivated by the local farmer under the directions of the customer, who can then decide whether to
or line that enables people to rent a portion of land anywhere in the world, a “micro-field”
direct connection between growers and consumers. It’s called Demeter.life, and is a platform
personally pick up the products or to have them sent.
The project was launched in 2016 by two friends in their thirties, Marco Mettimano and Luigi Tonti,
respectively CEO and Platform Advisor of Demeter.life. In 2013 Mettimano lived in China, where he
was involved in investment activities in the automotive and photovoltaic industries. For his part Tonti
took over his family’s farming business in Puglia two years ago, and in doing so he realised that the
majority of earnings in this sector are taken by the intermediation system. «This led to the idea of the
platform which, by cutting out the middle men, would ensure higher profits for farmers, lower prices
for buyers and at the same time a relationship based on trust», says Mettimano.
It was a dream with very genuine roots, but it still lacked an important piece of the jigsaw. Producers,
even if in good faith, could have been able to modify the production process without letting consumers
know, or - even worse - could have falsified the products. «We needed to find a guarantee system –
admits Mettimano – and this is where the blockchain came in». It’s the same underlying technology as
that used by cryptocurrencies like Bitcoin, and is developing strongly in the agrifoods sector. It works
like a database that stores information online in a sort of ledger, impeding any kind of manipulation,
and through this the activities of producers on their micro-fields are monitored at every stage. The
startup has launched its own cryptocurrency called Demeter Token, which can be used to purchase all
the services offered on the platform. «It’s a indispensable tool both for the supply chain and for self-
financing», comments Tonti.
Adding expertise in the healthy nutrition sector is Arianna Vulpiani, the startup’s Business Development
Manager. In 2017 Vulpiani founded the BioFarm Orto project, a sort of garden produce sharing system
that enables consumers to rent remotely and then personally harvest vegetables grown by small
farms. This too led to the idea of the micro-field, which was then developed by the Demeter portal
using the blockchain.
Prior to the beginning of enrolment requests have already come in from 23 countries, from Asia to
South America And in Italy there are already a number of farmers, accounting for a total area of about
a thousand hectares, who are ready to use the platform. It’s an example of how technology is enabling
a small revolution in the way we think of, consume and experience our food every day.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(In thousands of euro)
CONSOLIDATED INCOME STATEMENT
(In thousands of euro)
Property, plant and equipment
Intangible assets
Investments in associates and J.V.
Other financial assets
Deferred tax assets
Other receivables
Tax receivables
Derivative financial instruments
Non-current assets
Inventories
Trade receivables
Other receivables
Securities held for trading
Cash and cash equivalents
Tax receivables
Derivative financial instruments
Current assets
Assets held for sale
Total Assets
2
9
4
Note
12/31/2017
of which related
parties (note 42)
12/31/2016
of which related
parties (note 42)
2,980,294
5,893,704
17,480
229,519
111,553
3,556,635
6,496,889
47,010
198,691
147,964
27,318
878
9,464,797
940,668
11,864
-
10,685,921
1,055,639
652,487
62,731
679,321
400,538
36,482
275,622
2,790
6,184
9
10
11
12
13
15
16
27
17
14
15
18
19
16
27
33,027
1,118,437
35,461
27,770
3,208,388
1,904,375
2,035,991
176,392
60,251
60,936
(685)
4,177,009
3,897,089
74,435
127,124
1,216,635
274,037
2,399
54,963
5,646,682
559,168
48,597
1,532,977
60
64,395
23,989
3,680,540
-
14,366,461
3,134,085
1,342,281
1,656,741
135,063
140,773
128,211
12,562
3,274,858
87,421
170,992
1,452,169
368,100
3,374
-
8,028,055
204,051
12,007
226,868
6,641
Raw materials and consumables used (net of change in inventories)
(1,859,837)
(46,536)
(1,540,516)
Personnel expenses
31
(1,034,647)
(11,004)
(986,308)
(8,954)
Revenues from sales and services
Other income
- of which non-recurring events
Changes in inventories of unfinished, semi-finished and finished
products
Note
2017
of which related
parties (note 42)
2016*
of which related
parties (note 42)
29
30
5,352,283
10,833
4,976,396
628,533
230,618
696,225
3,468
2,279
-
140,258
41,734
(22,406)
Net income (loss) from equity investments
34
(6,855)
- share of net income (loss) of associates and j.v.
(8,252)
(8,252)
(1,227)
(1,227)
- of which non-recurring events
Amortisation, depreciation and impairment
Other costs
- of which non-recurring events
Increase in fixed assets for internal work
Operating income (loss)
- gains on equity investments
- losses on equity investments
- dividends
Financial income
Financial expenses
- of which non-recurring events
Net income (loss) before tax
(2,578)
(371,457)
-
(342,584)
(2,184,660)
(374,951)
(2,096,733)
(29,703)
32
33
5,997
(14,434)
9,834
8,297
(33,739)
6,650
35
36
128,540
35,320
42,806
209
(491,150)
(41,070)
(469,996)
5
9
2
(70,076)
3,110
673,583
(61,244)
304,118
(23,728)
2,378
686,452
(20,019)
(25,390)
239,243
(75,256)
1,280
163,987
Equity attributable to owners of the Group:
20.1
4,116,758
38
60,729
12,733,914
- Share capital
- Reserves
- Net income (loss) for the period
Equity attributable to non-controlling interests:
20.2
- Reserves
- Net income (loss) for the period
Total Equity
Borrowings from banks and other financial institutions
Other payables
Provisions for liabilities and charges
Provisions for deferred tax liabilities
Employee benefit obligations
Tax payables
Derivative financial instruments
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
Liabilities held for sale
Total Liabilities and Equity
20
23
25
21
13
22
26
27
23
24
25
21
26
27
Tax
37
(40,848)
- of which non-recurring events
Net income (loss) from continuing operations
103,881
263,270
5,945,999
561
Net income (loss) from discontinued operations
38
(87,563)
(9,547)
(16,362)
Total net income (loss)
175,707
147,625
Attributable to:
Owners of the parent company
Non-controlling interests
Total earnings/(loss) per share (in euro per share)
39
Earnings/(loss) per share related to continuing operations
176,392
(685)
0.206
0.309
(0.103)
135,063
12,562
0.191
0.219
(0.028)
642,047
772
(in euro per share)
1,673,642
197,954
1,498,492
22,586
Earnings/(loss) per share related to discontinued operations
565,254
16,437
783,079
(in euro per share)
45,833
48,416
17,910
2,910,223
-
12,733,914
45,987
9,895
41,773
52,170
3,063,548
-
14,366,461
* Figures related to the Industrial Business have been reclassified in the item "Net income (loss) from discontinued operations" in accordance
with IFRS 5 accounting principle.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands of euro)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AT 12/31/2017
(In thousands of euro)
2017
2016
Attributable to the Parent Company
A
Net income (loss) for the period
175,707
147,625
Other components of comprehensive income:
B - Items that will not be reclassified to income statement:
- Net actuarial gains (losses) on employee benefits
- Tax effect
(14,656)
(9,291)
(23,947)
(46,567)
3,289
(43,278)
Total B
C - Items reclassified / that may be reclassified to income statement:
Exchange differences from translation of foreign financial statements
- Gains / (losses) for the period
(166,763)
(177,769)
- (Gains) / losses reclassified to income statement
- Tax effect
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:
2
9
6
- Gains / (losses) for the period
- (Gains) / losses reclassified to income statement
- Tax effect
Share of other comprehensivie income related to associates and JVs net of tax
Total C
D
Total components of comprehensive income (B+C)
A+D
Total comprehensive income (loss) for the period
Attributable to:
- Owners of the parent company
- Non-controlling interests
Attributable to owners of the parent company:
- Continuing operations
- Discontinued operations
Total attributable to owners of the parent company
80,208
-
40,486
1,439
(59,757)
45,265
2,983
(2,915)
(59,054)
(83,001)
92,706
93,793
(1,087)
101,148
(7,355)
93,793
-
12,598
(16,487)
(26)
(1,428)
4,325
(1,449)
2,707
(177,529)
(220,807)
(73,182)
(50,940)
(22,242)
125,065
(176,005)
(50,940)
Share
Capital
Translation
reserve
Total IAS
Reserves *
Other
reserves/
retained
earnings
Total
attributable
to the Parent
Company
Non
controlling
interests
Total
Total at 12/31/2016
1,342,281
(204,778)
(61,629)
2,058,211
3,134,085
140,773
3,274,858
Other
components
of
comprehensive income
-
(86,153)
3,554
-
(82,599)
(402)
(83,001)
Net income (loss) for the period
-
-
-
176,392
176,392
(685)
175,707
Total
conprehensive
income
(loss)
-
(86,153)
3,554
176,392
93,793
(1,087)
92,706
Share capital increase
558,994
Annulment of treasury shares
3,100
Dividends paid
-
-
-
-
-
-
-
630,381
1,189,375
-
1,189,375
(3,100)
-
-
-
-
-
(7,446)
(7,446)
Disposal
of
38%
Pirelli
Industrial to Cinda fund
Assignment
of
Pirelli
Industrial to Marco Polo
Acquisition of non-controlling
interests (Brazil)
Other
-
70,307
(5,085)
(63,704)
1,518
264,500
266,018
-
-
-
-
(6,958)
(282,480)
(289,438)
(326,679)
(616,117)
-
-
-
(12,843)
(12,843)
(9,580)
(22,423)
(147)
415
268
(230)
38
Total at 12/31/2017
1,904,375
(220,624)
(70,265)
2,503,272
4,116,758
60,251
4,177,009
7
9
2
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
(In thousands of euro)
Balance at 12/31/2016
(19,282)
1,038
(44,023)
638
(61,629)
Other components of comprehensive
income
Assignment of Pirelli Industrial
Other changes
39,010
(14,492)
(14,656)
(6,308)
3,553
-
(318)
-
-
(602)
(11,441)
(12,043)
171
-
(147)
Balance at 12/31/2017
19,410
(13,454)
(59,110)
(17,111)
(70,265)
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AT 12/31/2016
(In thousands of euro)
CONSOLIDATED STATEMENT OF CASH FLOWS
(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
financial year
Total
conprehensive
income
(loss)
-
(142,964)
(43,039)
-
(186,003)
(34,804)
(220,807)
-
-
-
135,063
135,063
12,562
147,625
-
(142,964)
(43,039)
135,063
(50,940)
(22,242)
(73,182)
Dividends paid
-
-
-
-
-
(2,053)
(2,053)
-
-
(10,380)
(10,380)
81,129
70,749
(1,150)
(1,150)
16,462
15,312
Note
2017
of which related
parties (note 42)
2016*
of which related
parties (note 42)
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
32
36
35
34
34
34
17
14
24
304,118
371,457
491,150
(128,540)
(9,834)
8,437
8,252
(135,500)
(109,768)
239,243
342,584
469,996
(42,806)
(6,650)
25,442
1,227
(104,456)
48,280
73,644
90,561
144,917
447,385
86,227
201,845
Change in Other receivables/Other payables
(39,423)
70,469
(38,462)
-
(6,894)
(6,894)
(3,995)
(10,889)
Other changes
A
Net cash flows provided by / (used in) operating activities
Change in Provisions for employee benefit obligations and Other provisions
(102,010)
(41,734)
1,137,634
-
(5,449)
(5,449)
-
(5,449)
Investments in property, plant and equipment
9
(470,381)
(155,502)
(39,482)
1,086,176
(363,466)
Disposal of property, plant and equipment
73,505
61,000
91,626
-
(1,332,782)
(697)
(569)
(1,266)
Investments in intangible assets
10
(18,969)
Total at 12/31/2016
1,342,281
(204,778)
(61,629)
2,058,211
3,134,085
140,773
3,274,858
Acquisitions of investments in subsidiaries
Repayment of share capital and reserves from associates
(°) the figures refer to the restated consolidated financial statements of Marco Polo Industrial Holding S.p.A. following the completion of the PPA
Disposals (Acquisition) of investments in associates and JV
(In thousands of euro)
Disposal of 38% of Pirelli Industrial to Cinda fund
Disposals (Acquisition) of financial assets
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
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
(398,376)
Increase (reduction) in equity
20
1,189,375
(15,639)
8,556
17,183
(2,465)
-
-
-
9,834
(8,717)
-
9
9
2
8,556
100,353
100,353
-
(4,692)
(4,692)
9,145
266,200
70,749
(53,395)
6,650
114,453
-
Disposal
of
10%
Pirelli
Industrial S.r.l.
Acquisition of 80% Jianzou
Aeolus Tyre
Effect of purchase of special
shares for withdrawal
Purchase of special treasury
shares for redemption
-
-
-
-
2
9
8
Effect of the incorporation of
Marco Polo Industrial Holding
1,332,085
S.p.A / Other
-
-
-
-
-
Balance at 12/31/2015
(4,538)
(2,797)
2,544
(13,799)
(18,590)
Change in Financial payables
(2,060,304)
(345,966)
Other components of comprehensive
income
(14,744)
3,835
(46,567)
14,437
(43,039)
Change in Financial receivables/Securities held for trading
218,037
190,000
(44,332)
Balance at 12/31/2016
(19,282)
1,038
(44,023)
638
(61,629)
Financial income / (expenses)
Dividends paid
Net cash flows provided by / (used in) financing activities
Net cash flows provided by (used in) discontinued operations (**)
Total cash flows provided / (used) during the period (A+B+C+D)
Cash and cash equivalents at the beginning of the period
Exchange differences from translation of cash and cash equivalents
(280,832)
(12,742)
(946,466)
(135,597)
(342,805)
1,523,928
(71,483)
Cash and cash equivalents at the end of the period (E+F+G) (°)
1,109,640
C
D
E
F
G
H
(°)
of which:
cash and cash equivalents
passive current accounts
19
1,118,437
(8,797)
-
(321,853)
(2,053)
(714,204)
29,869
516,294
1,094,457
(86,823)
1,523,928
1,532,977
(9,049)
(*) Figures related to the Industrial Business have been reclassified in the item "Net cash flows provided by (used in) discontinued operations"
in accordance with IFRS 5 accounting principle.
(**) the figures refer to cash and cash equivalents of the Industrial business subject to assignment
The Statement of Cash Flows shows transactions with related parties only if they cannot be directly derived from the other Statements.
Please refer to note 42 of the Explanatory Notes for further detail.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements
EXPLANATORY NOTES
1. GENERAL INFORMATION
partially exercised on November 2, 2017 for a total of 18,904,836
directly in the Statement of Comprehensive Income and not in
Group, at the same time, holds:
shares. With the inclusion of the Greenshoe Option, the Offer of
the Explanatory Notes.
> the power of decision making, or the ability to direct the
Sale therefore concerned 368,904,836 ordinary Pirelli shares and,
relevant activities of the subsidiary, that is activities that
consequently the total proceeds deriving from the Offer of Sale,
The Statement of Changes in Equity sets forth, in addition
have a significant influence on the results of the subsidiary;
which were exclusively due to Marco Polo International Italy
to the total gains/losses of the period, the amounts from
> the right to the variable results (positive or negative)
S.p.A., amounted to approximately euro 2.4 billion. As a result
transactions with equity holders and the changes which
resulting from the investment in the entity;
Pirelli & C. S.p.A. is a corporation organised under the laws of
of the partial exercise of the Greenshoe Option, Marco Polo
occurred during the period in the reserves.
> the capacity to use its own power of decision making to
the Republic of Italy.
International Italy S.p.A. holds 631,095,164 ordinary Pirelli shares
determine the amounts of the results arising from the
which correspond to approximately 63.11% of the share capital.
In the Statement of Cash Flows, the financial flows derived
investment in the entity.
Founded in 1872, Pirelli & C. S.p.A. is - also by way of its
from operating activities are presented using the indirect
subsidiaries in Italy and abroad - a Pure Consumer Tyre Company
Pirelli & C. S.p.A. is directly controlled by Marco Polo
method, by way of which the gains or losses for the period have
The financial statements of subsidiaries are included in the
(which includes tyres for cars, motorcycles and bicycles) whose
International Italy S.p.A. - following the merger which
been adjusted for the effects of non-monetary transactions,
consolidated Financial Statements as of the date when control
particular focus is on the High Value tyre market, that is,
occurred during June 2017 with its subsidiary Marco Polo
by any deferment or accrual of past or future collections or
is assumed until such time as when control ceases to exist.
products created to reach the highest levels of performance,
International Holding Italy S.p.A. - and is in turn therefore
payments for operating activities, and by any revenue or cost
The equity and the net income (loss) and attributable to non-
safety, quietness and adherence to the road surface.
indirectly controlled by China National Chemical Corporation
items connected with the financial flows arising from any
controlling interests were separately reported respectively
(“ChemChina”), a state-owned enterprise (SOE) governed by
investment or financing activities.
in the consolidated Statement of Financial Position and
The registered Head Office of the Company is located in Milan,
Chinese law with registered office in Beijing, and which reports
Italy at address Viale Piero e Alberto Pirelli n. 25.
to the Central Government of the People’s Republic of China.
With effect from October 4, 2017, the shares of Pirelli & C. S.p.A. are
On February 26, 2018 the Board of Directors authorised the
Discontinued operations As a result of the assignment
by Pirelli & C. S.p.A. of the TP Industrial Holding S.p.A. shares,
All companies for which the Group can exercise significant
consolidated
Income Statement, and the Consolidated
Statement of Comprehensive Income.
listed on the MTA (Mercato telematico azionario or screen-based
publication of these consolidated Financial Statements.
the company into which almost all of Pirelli’s Industrial assets
influence as defined by the IAS 28 – Investments in Associates
3
0
0
stock exchange), organised and managed by Borsa Italiana S.p.A..
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.
2. BASIS OF PRESENTATION
The audit of the Financial Statements has been entrusted
Financial Statements The consolidated Financial
Statements at December 31, 2017 consist of the Statement of
were merged, to Marco Polo International Holding Italy S.p.A.,
the Industrial business qualified as a “discontinued operation”.
Pursuant to the provisions of IFRS 5, the results for the period
for the “discontinued operations” were reclassified to the Income
Statement as a single item, “net income (loss) related to discontinued
operations” and includes the financial data for the first quarter of
2017 for the Industrial Business, which no longer comes under the
and Joint Ventures, 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
1
0
3
to PricewaterhouseCoopers S.p.A. pursuant to article 159
Financial Position, the Income Statement, the Statement of
scope of the Group as a result of the assignment, as well as the
forms of significant exercise of governance rights.
of Italian Legislative Decree No.58 of February 24, 1998 and
Comprehensive Income, the Statement of Changes in Equity,
twelve month results for some of the residual Industrial activities
taking account of the CONSOB recommendation of February
the Statement of Cash Flows and the Explanatory Notes, and
currently in the process of being separated. In accordance with
Joint arrangements are agreements through wich two more
20, 1997, in executing the resolution of the Shareholders’
are accompanied by the Directors’ Report on Operations.
the relevant accounting standards, the comparative 2016 Income
partners have a joint control established by an agreement.
Meeting of August 1, 2017, which appointed said company as
Statement figures have been subjected to restatement.
Joint control is the shared control of a business activity,
the auditor for the closing of each of the nine years between
The format adopted for the Statement of Financial Position
established by agreement and only exists when decisions
December 31, 2017 and December 31, 2025.
provides for the distinction of assets and liabilities according
It should be noted that for transactions between the industrial
relative to the activity require the unanimous consent of all
to whether they are current or non-current.
business, qualified as “discontinued operation”, and other
parties who share control. These agreements may give rise to
Just two years after the Public Offer promoted by ChemChina
activities of the Pirelli Group (“continuing business”), it was
joint ventures or joint operations.
together with Camfin shareholders, Pirelli returned to the stock
The Group has opted to present the components of gains/losses
used a so called “post disposal” presentation in the Income
market on October 4, 2017 following a reorganisation process
for the financial year in a separate Income Statement, rather
Statement. Specifically, ongoing commercial transactions
A joint venture is an agreement for the joint control of an
which led to the separation of the Industrial business and to the
than include these components directly in the Statement of
have been represented as “continuing business” in the Income
entity whereby the parties that have joint control, have
focus on the Consumer business, enriched with new proficiencies
Comprehensive Income. The Income Statement framework
Statement, thus presenting a result that takes into account
rights to the net assets of the said entity. Joint ventures
also through the creation of new business departments
adopted provides for the classification of costs by nature.
such components and recording the related inter-eliminations
are distinguished from joint operations that are configured
(Consumer Marketing, Digital, Data Science, Cyber and Velo).
within the “discontinued operation”.
instead as agreements that give the parties of the agreement,
With the start of trading all management and coordination
The Statement of Comprehensive Income includes the results for
activities previously exercised by Marco Polo International Italy
the period and, for the homogeneous categories, income and costs
S.p.A. ceased. As part of the Global Offer of Sale, 350 million
are recognised directly in equity, in accordance with the IFRS.
ordinary shares were offered at a price of euro 6.5 per share
Scope of consolidation The scope of consolidation
includes the subsidiaries, associates and agreements for joint
relating to the agreement. In the case of joint operations, the
assets, liabilities, costs and revenues of the agreement must
which have joint control of the initiative, the rights to
individual assets and the obligations for individual liabilities
for a capitalisation of euro 6.5 billion. The Greenshoe Option,
The Group has opted for the presentations of tax effects, as
control, i.e. joint arrangements.
mandatorily be recognised in accordance with the applicable
granted as part of the transaction by Marco Polo International
well as the reclassifications to the Income Statement of gains/
accounting standards. The Group does not currently have any
Italy S.p.A. to a placement consortium for 50 million shares, was
losses which were recognised in equity in previous years,
Subsidiaries are defined as all the companies over which the
agreements for joint operations.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements The principal changes in the scope of consolidation for the 2017 financial year refer to the Industrial activities which no longer come
Non-controlling interests in the subsidiaries of the Group are
> >
in the case of a shareholding acquired after the
under the scope of the Group as a result of the assignment in March 2017 by Pirelli & C. S.p.A, of the TP Industrial Holding S.p.A. shares,
not relevant either individually or in aggregate form.
assumption of control, any difference between
the company into which almost all of Pirelli’s Industrial assets were merged, to Marco Polo International Holding Italy S.p.A. As a
result of the assignment the following companies were deconsolidated as of March 31, 2017:
> Prometeon Tyre Deutschland GmbH
> Prometeon Tyre Group S.r.l.
> TP Industrial Holding S.p.A.
> Newco TP S.r.l.
> Prometeon Tyre Group Polska Sp. z o.o.
> Prometeon Tyre Group UK Limited
Consolidation Principles For consolidation purposes,
the Financial Statements of the companies included in the
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
scope of consolidation prepared at the reporting date of the
in equity.
Financial Statements of the Parent Company were adjusted
>
investments in associates and joint ventures are accounted
to conform to the IAS/IFRS standards as applied by the Group.
for under the equity method, on the basis of which the
carrying amount of the investments is adjusted by:
> Prometeon Tyre Group Espana Y Portugal S.L. - Sociedad Unipersonal
The Financial Statements expressed in foreign currencies
> >
the investor’s share of the financial results of the
> Prometeon Tyre Group (Suisse) SA
> Prometeon Turkey Endüstriyel ve Ticari Lastikler A.S.
> Prometeon Tyre Group Commercial Solutions LLC
> Prometeon Tyre Group Inc.
> Prometeon Tyre Group Industrial Brasil Ltda
> Prometeon Tyre Group Colombia S.A.S.
> Prometeon Tyre Group Servicios Mexico S.A. de C.V.
> Prometeon Tyre Group Mexico S.A. de C.V.
> Prometeon Tyre Egypt Co. S.A.E.
>
International Tire Company Ltd
have been translated into Euro at the period-end exchange
subsidiary realised after the acquisition date;
rates for the items in the Statement of Financial Position, and
> >
the share of gains and losses are recognised directly
at the average exchange rates for the Income Statement, with
in the equity of the subsidiary, in accordance with
the exception, where applicable, of the Financial Statements
the applicable standards;
of companies operating in high-inflation countries whose
> >
dividends are paid by the subsidiary;
Income Statements have been translated at the period-end
> > when the Group’s share in the losses of the associate/
exchange rates.
joint venture exceeds the carrying amount of
the investment in the Financial Statements, the
The differences arising from the conversion of the opening
carrying amount of the investment is reset to zero
equity at period-end exchange rates have been recognised
and the share of any further losses is recognised
> TP (Tianjin) Enterprise Management Consulting Co., Ltd.
in the reserve for translation differences, together with the
under “Provisions for liabilities and charges”, to the
3
0
2
Information on subsidiaries The consolidated Financial Statements include the assets and liabilities of approximately 97 legal
entities. The following is a list of the significant subsidiaries:
difference arising from the translation of the result for the
extent to which the Group has a contractual or
period at period-end exchange rates instead of the average
implicit obligation to cover the losses;
3
0
3
exchange rate. The reserve for translation differences is
> >
the gains emerging from sales made by subsidiaries
reversed to the Income Statement at the time of the disposal
to joint ventures or associates are eliminated in
of the company which generated the reserve.
proportion to the share of ownership held by the
acquiring entity.
Headquarter
12/31/2017
12/31/2016
% group
% non-
controlling
interests
% group
% non-
controlling
interests
The criteria for consolidation may be summarised as follows:
>
subsidiaries are consolidated using the line-by-line method
on the basis of which:
> >
the assets and liabilities, revenues and expenses
3. ADOPTED ACCOUNTING STANDARDS
Pirelli Tyre Co. Ltd
Yanzhou (China)
90.00%
10.00%
90.00%
10.00%
of the Financial Statements of subsidiaries are
Pursuant to Regulation No. 1606 issued by the European
Pirelli Deutschland GmbH
Breuberg/Odenwald (Germany)
100.00%
Pirelli Tyre S.p.A.
Milano (Italy)
Pirelli Industrie Pneumatici S.r.l.
Settimo Torinese (Italy)
Pirelli Neumaticos S.A. de C.V.
Silao (Mexico)
100.00%
100.00%
100.00%
Pirelli International plc
Burton on Trent (United Kingdom)
100.00%
Pirelli Pneus Ltda
Santo Andrè (Brazil)
Pirelli Comercial de Pneus Brasil Ltda
Sao Paulo (Brazil)
100.00%
100.00%
Pirelli UK Tyres Ltd
Burton on Trent (United Kingdom)
100.00%
Pirelli Tire LLC
Rome (USA)
S.C. Pirelli Tyres Romania S.r.l
Slatina (Romania)
100.00%
100.00%
Limited Liability Company Pirelli Tyre Russia
Moscow (Russia)
99.98%
0.02%
99.98%
0.02%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
assumed
in their entirety, regardless of the
Parliament and the European Council in July 2002, the
percentage of investment held;
consolidated Financial Statements of the Pirelli & C. Group
> >
the carrying amount of investments is eliminated
have been prepared in accordance with the International
against the related share of equity;
Financial Reporting Standards (IFRS) in force as issued by
> >
the financial and operating transactions between
the International Accounting Standards Board (IASB) and
companies consolidated on a line-by-line basis,
approved by the European Union at December 31, 2017,
including dividends distributed within the Group,
as well as the provisions issued in the implementation of
64.00%
36.00%
are eliminated;
Article 9 of Legislative Decree No.38/2005. IFRS means the
100.00%
100.00%
100.00%
> >
non-controlling interests are reported under equity,
IFRS international accounting standards in force as issued
and the share of gain or loss attributable to non-
by the International Accounting Standards Board (IASB) and
controlling interests is similarly shown separately
approved by the European Union at December 31, 2017, as
in the Income Statement;
well as all the revised International Accounting Standards
> >
at the time of disposal of the subsidiary and the
(IAS) and all the interpretations of the International Financial
consequent loss of control, in determining the gain
Reporting Interpretations Committee (IFRIC), formerly the
The complete list of subsidiaries is contained in the attachment “Scope of consolidation - list of companies included in consolidation using
or loss arising from the disposal, any goodwill that
Standing Interpretations Committee (SIC).
the line by line method”.
can be allocated to the subsidiary is taken into
account;
The consolidated Financial Statements have been prepared
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements using the historical costs method with the exception of
difference between the net proceeds from disposal and the
derivative financial instruments, securities held for trading
carrying amount of the asset.
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.
and financial assets available for sale, which have been
evaluated which at their fair value.
Business combinations Corporate acquisitions are
accounted for under the acquisition method.
Goodwill Goodwill is an intangible asset with an indefinite
useful life and is therefore not subject to amortisation. Goodwill
Property, plant and equipment Property, plant and equipment are recognised at their purchase or production cost, which
includes any directly attributable incidental expenses.
is subjected to impairment test at least on an annual basis in
Any costs incurred subsequent to the acquisition of goods, plus the cost of replacing certain parts of property, plant and equipment,
order to identify any loss of value, or whenever there are any
are capitalised only if they increase the future economic benefits inherent to the asset. All other costs are recognised in the Income
When a controlling interest in a company is acquired,
indications of a loss of value, and as such it is allocated to the
Statement as they occur. When the cost of replacing certain parts of property, plant and equipment is capitalised, the residual value
goodwill is initially recognised at cost and calculated as the
cash generating units for this purpose. For the purposes of the
of the replaced parts is recognised in the Income Statement.
difference between:
impairment test, goodwill is allocated to the cash generating
Property, plant and equipment are recognised at cost net of any accumulated depreciation and impairment, except for land which is
> the fair value of the price plus any non-controlling interests in
units or group of cash generating units in compliance with the
not depreciated but is recognised at cost net of any accumulated impairment.
the acquired company, measured at fair value (if this option
maximum aggregation limit which cannot exceed that of the
Depreciation is recorded starting from the month in which the asset is available for use or is potentially capable of providing the
was chosen for the acquisition in question) or in proportion
operating segment identified pursuant to IFRS 8. The criteria
financial benefits associated with it.
to the share of the non-controlling interest in the net assets
used in the allocation of goodwill coincides with the sole sector of
Depreciation is charged on a straight-line basis once per month at rates that allow for the depreciation of assets until the end of
of the acquired company;
activity in which the Group operates, being Consumer Activities,
their useful life or, in the case of disposal, until the last month of use.
> the fair value of the acquired assets and liabilities.
and takes the minimum level at which goodwill is monitored into
In cases where the aforesaid difference is negative, the difference
consideration, for internal management control purposes.
Depreciation rates were as follows:
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),
Trademarks and licenses Trademarks and licenses for
which the conditions for classification as intangible assets
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4
the previously held investment is measured at fair value, and
with an indefinite useful life have not been met, are evaluated
the effects of this adjustment are recognised in the Income
at cost, net of the accumulated amortisation and impairment.
Statement.
This cost is amortised for the duration of the agreement or the
duration of the useful life of the asset, whichever is shorter.
Buildings
Plant
Machinery
Equipment
Furniture
Costs relating to business combinations are recognised in the
The trademarks for which the conditions for classification
Motor vehicles
Income Statement.
as intangible assets with an indefinite useful life have been
met, are not systematically amortised but are subjected to an
3%-10%
7%-20%
5%-20%
10%-33%
10%-33%
10%-25%
5
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3
Contingent considerations, that is, the obligations of the
impairment test at least once a year.
During 2016 financial year a Purchase Price Allocation was completed, following the acquisition of the Pirelli Group by Marco
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
at the acquisition date as part of the amount transferred in
Software Software
expenses, are capitalised and recognised in the Financial
license costs,
incidental
including
Polo, which resulted in the recognition of higher 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.
exchange for the acquisition itself. Any subsequent changes in
Statements net of any amortisation and net of any accumulated
the fair value of these agreements are normally recognised in
impairment. Software is amortised on the basis of its useful life.
Government grants related to property, plant and equipment are recognised as deferred income and accredited to the Income
the Income Statement.
Statement for the duration of the depreciation of the relevant assets.
Intangible assets Intangible assets with finite useful lives
are measured at cost, net of any accumulated amortisation
Customer relationships Customer relationships mainly
refer to intangible assets acquired in a business combination and
are recognised in the Financial Statements at their fair value at
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.
and impairment.
the purchase date and amortised on the basis of their useful life.
Spare parts of significant value are capitalised and depreciated for the duration of the estimated useful life of their respective assets.
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
Technology The value of technology refers mainly to product
technology, process technology as well as product development
the asset is classified as held for sale or is de-recognised from
technology identified during the Purchase Price Allocation. It is
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.
the accounts.
recognised in the Financial Statements at fair value at the date
Assets acquired under finance lease agreements, through which essentially all the risks and rewards of ownership are transferred
Capital gains and capital losses resulting from the divestment
of acquisition, and is amortised on the basis of its useful life.
to the Group, are recognised as property, plant and equipment at their fair value or, if lower, at the current value of the minimum
or disposal of an intangible asset are determined as the
lease payments, with a corresponding entry for the relevant financial payable. The lease payment is separated into two components;
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements as a financial expense which is recognised in the Income
In order to evaluate a loss of value or impairment, assets are
of the associate or joint venture, and the amount that will be
Statement, and as the reimbursement of capital and is
aggregated at the lowest level at which their independent
received for the final disposal of the investment (known as the
Inventories Inventories are valued either at cost determined
under the FIFO (first in first out) method, or their estimated
recorded as a reduction of the financial payable.
cash flows are separately identifiable (cash generating units).
Discounted Cash Flow – asset side).
net realisable value, whichever is lower.
The evaluation of inventories includes the direct costs of
Leases in which the lessor essentially retains all the risks
Specifically, goodwill must be allocated to the cash generating
When there is evidence that any impairment recognised in
materials and labour as well as indirect costs. The impairment
and rewards associated with the ownership of the asset
units or group of cash generating units in compliance with the
previous financial years may no longer exist or may have
provisions for obsolete and slow moving inventories are
are classified as operating leases. Costs associated with an
maximum aggregation limit which cannot exceed that of the
been reduced, the recoverable amount of the investment is
calculated by taking their estimated future use and their
operating lease are recognised as an expense on a straight-
operating segment.
estimated again, and if it is results as higher than the amount
net realisable value into account. The netrealisable value is
line basis in the Income Statement for the duration of the
of the investment, then the latter amount is increased up to
the estimated selling price, net of all costs estimated for the
leasing agreement.
In the presence of indications that any impairment recognised
and not exceeding the recoverable amount.
completion of the asset including any sales and distribution
Property, plant and equipment are de-recognised from the
or intangible assets other than goodwill, may no longer
The reversal of an impairment loss may not exceed the value
The cost is increased by incremental expenses similarly to that
Statement of Financial Position at the time of disposal or
exist or may have been reduced, the recoverable amount is
of the investment that would have been determined (net of
described with respect to property, plant and equipment.
in previous financial years for property, plant and equipment
costs that will be incurred.
permanent retirement from use and, as a consequence no
estimated again. If it results as higher than the net carrying
impairment) had no loss of value been recognised in previous
future economic benefits is expected can be derived from their
amount, then the net carrying amount is increased up to, but
financial years.
disposal or use.
not exceeding, the recoverable amount.
The reversal of an impairment loss on investments in associates
Receivables Receivables are initially recognised at their
fair value, which normally corresponds to the consideration
Any capital gains or capital
losses resulting from the
The restatement of a value must not exceed the carrying
and joint ventures is recognised in the Income Statement.
agreed or to the present value of the amount that will be
disinvestment or disposal of property, plant and equipment
amount that would have been determined (net of impairment,
are determined as the difference between the net proceeds
depreciation or amortisation) had no loss of value been
from disposal and the carrying amount of the asset.
detected in previous financial years.
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Impairment of assets
The restatement of the value of an asset other than goodwill is
recognised in the Income Statement.
collected. They are subsequently measured at amortised
cost, which is reduced in the case of impairment. Amortised
Financial assets available for sale This item includes
investments in entities other than subsidiaries, associates and joint
cost is calculated by using the effective interest rate method,
which is equivalent to the discount rate that, when applied
ventures, and other securities not held for trading. They are recorded
in the Statement of Financial Position as “Other financial assets”.
They are measured at fair value, if this can be reliably determined.
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
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3
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
An impairment which has been detected for goodwill cannot
Gains and losses deriving from changes in fair value are
default risk, which is determined by taking the available
be restated in subsequent financial years.
recognised in a specific equity reserve.
information on the solvency of the counter-party plus their
When a reduction in fair value has been recognised directly
historical data into consideration. The carrying amount
useful life, including goodwill, and both property, plant and
Any loss due to a reduction of value recorded for goodwill
in equity and there is objective evidence that the asset was
of receivables is reduced indirectly by the recognition of a
equipment and intangible assets, are subjected to impairment
on the interim (half year) Financial Statements cannot be
impaired, the losses recognised up to that time in equity are
provision. Significant individual positions that are objectively
tests in order to verify any loss of value.
restated in subsequent financial years.
reversed in the Income Statement.
detected to be partially or wholly uncollectable are subject
The test consists of an estimate of the recoverable amount for
the asset compared to its carrying amount.
Investments in associates and joint ventures
Following the application of the equity method, in the presence
A prolonged (meaning more than 12 months) or significant
loss reflects the estimate of future recoverable flows and the
(meaning more than 50% for securities issued by entities
applicable date of collection, recovery costs and expenses, and
of impairment indicators, the value of investments in associates
operating in banking sector and more than one-third for
the fair value of guarantees, if any. Any positions that are not
The recoverable amount of an asset is either its fair value less the
and joint ventures is tested for impairment. The recoverable
securities issued by entities operating in other sectors)
subject to individual impairment are included in groups with
costs to sell, or its value in use, whichever is higher, where the latter
amount corresponds to the higher amount between the fair
reduction in the fair value of equity securitiescompared to
similar characteristics in terms of credit risk, and are impaired
is the current value of estimated future financial flows arising from
value less the costs of the sale, and the value in use.
their cost is considered an indicator of impairment.
on a collective basis in accordance with the rising percentages
the use of the asset plus those deriving from its disposal at the end
For the purposes of impairment testing, the fair value of
Any impairment of a financial asset available for sale recognised
for overdue periods. This collective impairment procedure
of its useful life, net of taxes, plus the application of a discount rate,
an investment in an associate or joint venture with shares
in the Income Statement may be restated in the Income
is also applied to receivables not yet due. The impairment
net of taxes, which reflects the current market assessment of the
listed on an active market is always equal to its market value,
Statement, with the exception of any impairment detected for
percentages are determined on the basis of historical
time value of money and the risks specific to the asset. It is not
irrespective of the percentage of ownership. In the case of
stock securities classified as available for sale, which instead
experience as well as statistical data.
necessary to estimate both amounts in order to verify the absence
investments in unlisted companies, the fair value is determined
may not be restated with effect on the Income Statement.
When the conditions of impairment of receivables no longer
of a loss of value as it is sufficient that one of the two configured
using estimates based on the best available information.
Financial assets available for sale, whether debt or equity
exist, the impairment losses recorded in previous financial years
amounts is higher than the carrying amount.
instruments for which fair value is not available, are accounted
are restated as credits to the Income Statement, up to but not
If the recoverable amount of an asset is lower than the carrying
associate or joint venture, an estimate is made of the share
best market information available at the reporting date.
had no impairment loss been recognised.
amount, the latter is reduced and adjusted to the recoverable
owned of the current value of future cash flows which are
The acquisitions and sales of financial assets available for sale
Receivables in currencies other than the functional currency
amount. This reduction in value constitutes an impairment
estimated will be generated by the associate or joint venture,
are recorded at the settlement date.
of the individual companies are adjusted to the financial
which is then recorded in the Income Statement.
including financial flows deriving from the operating activities
year-end exchange rates and also recorded in the Income
For the purposes of determining the value in use of an
for at cost, reduced by any impairment losses based on the
exceeding the amortised cost that would have been determined
to individual impairment. The amount of the impairment
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements
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Statement. Receivables are derecognised when the right to
receive cash flows is expired, when all the risks and rewards
Provisions for liabilities and charges Provisions for
liabilities and charges include accruals for current obligations
designation and documentation of
the hedging
The acquisitions and sales of derivative financial instruments
relationship between the hedging derivative and the
are recorded at the settlement date.
connected with holding the receivable substantially have
(legal or implicit) deriving from a past event, the fulfilment of
hedged item;
been transferred, or in cases when the receivable is considered
which will likely require the necessary use of resources, and
>
it is expected that the hedging instrument will be highly
definitively irrecoverable after all the necessary recovery
whose amounts can be estimated in a reliable manner.
effective;
Fair value of financial instruments The fair value of
financial instruments traded on an active market is based on
procedures have been completed. When the receivable is
Changes in estimates are recognised in the Income Statement
>
its effectiveness can be reliably measured;
listed market prices at the reporting date. The listed market
derecognised, the relative provision is also reversed if the
for the financial year in which the change occurs.
> hedge coverage is highly effective throughout the various
price used for financial assets is the bid price, while for financial
receivable had previously been impaired.
If the effect of discounting is significant, provisions are stated
financial reporting periods to which it is designated.
liabilities it is the ask price. The fair value of instruments
at their current value.
These derivative instruments are recognised at fair value.
that are not traded on an active market is determined by
Payables Payables are initially recognised at their fair value,
which normally corresponds to the consideration agreed or to
the present value of the amount that will be paid. They are
Employee Benefits Employee benefits paid after
termination of the employment relationship under defined
of the type of coverage:
reporting date.
> Fair value hedge – if a derivative financial instrument is
The following accounting treatments are applied on the basis
and assumptions that are based on market conditions at the
using measurement techniques with a variety of methods
subsequently valued at the amortised cost. Amortised cost is
benefit plans and other long-term benefits are subject to
designated as a hedge against exposure to changes in the
The fair value of interest rate swaps is calculated as the
calculated by using the effective interest rate method, which
actuarial measurements. The
liability recognised
in the
fair value of an asset or liability attributable to a specific
present value of expected future cash flows.
is equivalent to the discount rate that, when applied to future
Financial Statements is the present value of the Group’s
risk, the gain or loss resulting from subsequent changes in
cash flows, renders the present value of such cash flows equal
obligation, net of the fair value of any plan assets.
fair value of the hedging instrument is recognised in the
The fair value of forward exchange contracts is determined by
to the initial fair value. Payables in currencies other than the
For defined benefit plans, the actuarial gains and losses
Income Statement. For the portion attributable to the
using the forward rate at the reporting date.
functional currency of the individual companies are adjusted
deriving from adjustments based on past experience and any
hedged risk, the gain or loss on the hedged item modifies
to the financial year-end exchange rates and are also recorded
changes in the actuarial assumptions are fully recognised in
the carrying amount of that item (basis adjustment), and
in the Income Statement. Payables are de-recognised from
equity for the financial year in which they occur.
it too is recognised in the Income Statement;
Financial Statements when the specific contractual obligation
For other long-term benefits, the actuarial gains and losses
> Cash flow hedge – if a derivative instrument is designated as
Income taxes Current taxes are determined on the basis of
a realistic forecast of the charges payable under the current
is extinguished.
are immediately recognised in the Income Statement.
a hedge against exposure to the variable financial flows of
tax regulations of the country.
Financial assets carried at fair value recorded in
the Income Statement This category includes securities
mainly purchased to be sold in the short term and classified
under current assets as “Securities held for trading”, financial
assets that are initially recognised at fair value through Income
Statement, classified as “Other financial assets”, and derivatives
(except those designated as effective hedging instruments),
classified as “Derivative financial instruments”.
They are measured at fair value with a balancing entry in
The provision for employees’ leaving indemnities (TFR) for
an asset or liability recognised in the Financial Statements,
Deferred taxes are calculated according to the temporary
Italian companies with at least 50 employees, is considered
or against a highly probable future transaction, the
differences which exist between the asset and liability amounts in
a defined benefit plan only for the portions accrued prior
effective portion of the change in the fair value of the
the Financial Statements and their tax value (full liability method),
to January 1, 2007 (and not yet paid at the reporting date),
hedging instrument is recognised directly in equity, while
and are classified under non-current assets and liabilities.
whereas the portions accrued subsequent to that date are
the ineffective portion is immediately recognised in the
Deferred tax assets on tax losses carried forward, as well as
considered a defined contribution plan.
Income Statement. The amounts recognised directly in
on temporary differences, are only recognised when there is a
The net interest calculated on net liabilities is classified under
equity are reclassified to the Income Statement for the
likelihood of future recovery during the time frame covered by
financial expenses.
financial year in which the hedged item produced an
the forecasts of the business plans.
The costs relating to defined contribution plans are recognised
effect on the Income Statement.
Deferred tax assets and liabilities are calculated by the
in the Income Statement as they are occur.
When a hedging instrument expires or is sold, terminated,
applying tax rates that are expected to be applicable during
In the event that the defined benefit assets exceed the liabilities,
exercised, or no longer meets the conditions to be designated as
the financial year in which the asset will be realised or the
the Income Statement. Additional costs are expensed in the
the asset is recognised to the extent that the financial benefit,
a hedging instrument, or if designation is revoked voluntarily,
liability settled, based on the tax legislation in force at the
Income Statement.
in the form of a reimbursement or the reduction of future
hedge accounting is discontinued. The fair value adjustments
closing of the financial year.
The acquisitions and sales of financial assets available for sale
contributions is available to the Group in accordance with the
accumulated in equity remain in suspended equity until the
Current and deferred tax assets and liabilities are compensated
are recorded at the settlement date.
regulations of the plan itself and to the provisions in force in the
hedged item manifests an impact on the Income Statement.
when the income taxes are levied by the same taxation
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 amounts included in cash and
cash equivalents are recognised at their fair value and any
jurisdiction in which the plan operates.
Subsequently they are reclassified to the Income Statement
authority and when there is a legally enforceable right to
In the case of the purchase of qualifying insurance policies
for the financial years during which the acquired financial
offset. Deferred tax assets and liabilities are determined at the
through the use of plan assets, any additional contributions
asset or the assumed financial liability manifests an impact on
tax rates that are expected to be applicable to taxable income
requested by the insurance company are recognised in equity.
the Income Statement.
in the respective jurisdictions in which the Group operates, for
Derivative financial instruments designated as
hedging instruments In accordance with the provisions
of IAS 39, financial hedging instruments are accounted for
When the hedged item is no longer expected to have any
the financial years during which the temporary differences
impact on the Income Statement, the fair value adjustments
will arise or be settled.
accumulated in equity are immediately reversed in the Income
With regard to taxable temporary differences associated with
Statement.
investments in subsidiaries, associates and joint ventures,
For the derivative instruments that do not satisfy the
the related deferred tax liabilities are not recognised in cases
changes are recognised in the Income Statement.
according to the methods established for hedge accounting
prerequisites established by IAS 39 for adoption of hedge
where the investing entity is able to control the reversal of the
only when:
accounting, please refer to the section “Financial assets at fair
temporary differences and it is probable that it will not occur
> at the commencement of hedging there is the formal
value through Income Statement”.
in the foreseeable future.
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ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements Deferred taxes are not discounted.
>
it is likely that the business will enjoy the financial benefits
Deferred tax assets and liabilities are credited or debited to
of the transaction;
Foreign
transactions are recorded at the prevailing exchange rates
currency operations
Foreign currency
in a single item at the end of the Income Statement separately
from the result for continuing operations.
equity if they refer to items that have been credited or debited
>
the stage of completion of the transaction at the reporting
on the date of the transaction. Monetary foreign currency
It is to be noted that with regard to transactions between the
directly in equity during the financial year or during previous
date can be reliably measured;
assets and liabilities are translated at the prevailing exchange
Industrial business, which qualifies as a “discontinued operation”
financial years.
>
the costs incurred for the transaction and the costs to be
rates at the reporting date. Exchange rate differences arising
and the other activities of the Pirelli Group (“continuing
incurred to complete it can be reliably determined.
from the settlement or extinction of monetary items or
business”), for the Income Statement it was decided to opt
Financial income and expenses
Financial income and expenses are recognized on an accrual
their translation at rates, other than those of their initial
for the so called “post disposal” treatment. In particular, with
recognition at the beginning of the financial year or to those
reference to transactions of a continuous commercial nature,
of previous financial year-end, are recognised in the separate
it was decided to represent these transactions in the Income
basis.
consolidated Income Statements.
Statement data for the “continuing business”, and consequently
Equity
Treasury shares
Treasury shares are deducted from equity.
If they are sold, reissued or cancelled, the resulting gains or
losses are recognised in equity.
Royalties
Royalties are recognised on an accrual basis, according to the
Whenever the conditions set out in IAS 21.15 for the designation
a result was recorded that takes these components into
of inter-company monetary items such as Net Investment in
account, as well as the recognition of the relative inter-
Foreign Operations are met, in accordance with the provisions
eliminations within the item “discontinued operations”.
Costs of capital transactions
Costs that are directly attributable to the capital transactions
of the Parent Company are recorded as reductions in equity.
Recognition of revenues Revenue is measured at the
fair value of the amount received for the sale of products or
rendered services.
Sales of products
Revenue from sales of products is recognised when all the
following conditions are met:
3
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substance of the relevant agreement.
of IAS 21.32, the exchange rate differences as of the date of
The cash flows for discontinued operations are shown
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.
Earnings (losses) per share
Earnings (losses) per share - Basic earnings (losses) per share
the designation are recognized directly in the Consolidated
separately in the Statement of Cash Flows.
Statement of Comprehensive Income.
The aforesaid
information
is also presented
for the
comparative period.
Non-current assets held for sale and Groups
under disposal Non-current assets and disposal groups
are classified as held for sale if their carrying amount is
recoverable mainly through their sale rather than through
3.1 Accounting standards and interpretations
approved and in force as of January 1, 2017 In
accordance with IAS 8 “Accounting Policies, Changes in
are calculated by dividing the income (loss) attributable to the
their continuous use. This occurs if the non-current asset or
Accounting Estimates and Errors”, the IFRS effective as of
1
1
3
Group by the weighted average number of outstanding shares
disposal group is available for sale under current conditions
January 1, 2017 are as follows:
during the financial year excluding treasury shares.
and the sale is highly probable, or if a binding program for sale
> Amendment to IAS 7 - Disclosure Initiative
has already begun, or activities to find a buyer have already
The goal of these changes is to improve disclosures
>
the significant risks and rewards of ownership of the goods
Earnings (losses) per share - diluted: Diluted earnings per share
commenced and it is expected that the sale will be completed
regarding the net cash flow generated/absorbed by
are transferred to the buyer;
the income (loss) attributable to the Group by the weighted
within one year following their classification date.
investing activities and the entity’s liquidity, especially
>
the effective control over the goods and the normal
average number of outstanding shares during the financial
In the consolidated Statement of Financial Position, the non-
in the presence of restrictions on the use of cash and
continuing level of activities associated with ownership
year excluding treasury shares. For the purposes of calculating
current assets held for sale and the current and non-current
cash equivalents in the Statement of Cash Flows. The
have ceased;
the diluted earnings per share, the weighted average number
assets/liabilities of the disposal group are presented as a
amendments also require the disclosure of changes in
>
the value of revenue can be reliably determined;
of shares outstanding is adjusted based on the assumption
separate item from other assets and liabilities, and their totals
assets/liabilities by distinguishing those that are monetary
>
it is likely that the economic benefitsassociated with the
of all the assignees rights for the financial year which could
are reflected in current assets and liabilities, respectively.
from the non-monetary items (e.g. changes caused by
transaction will flow to the seller;
potentially have a dilutive effect, while the Group’s net income
Non-current assets classified as held for sale and disposal
the acquisition or by the loss of control of subsidiaries or
>
the costs incurred or to be incurred can be reliably
is adjusted to take into account of any effects, net of taxes, for
groups are measured at the lower between carrying amount
other businesses, the effect of exchange rate fluctuations
determined.
the financial year pertinent to the aforesaid of rights.
and fair value less costs to sell.
and changes in fair value). These changes are reflected in
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
Operating segments The operating segment is one part
of the Group that engages in business activities from which
Property, plant and equipment and intangible assets classified
the disclosures for the Financial Statements. Reference
as held for sale are not depreciated or amortised.
should be made to Note 23 – “Borrowings from banks and
other financial institutions”.
> Amendments to IAS 12 - Recognition of Deferred Tax Assets
be considered to have taken place.
it may earn revenues and incur costs, and whose operating
results are periodically reviewed by the Chief Executive Officer,
Discontinued operations A discontinued operation is
a component that has been disposed of or classified as held
for Unrealised Losses
These amendments clarify how to account for deferred
Rendering of services
Revenue from the rendering of services is recognised only
in his role as Chief Operating Decision Maker (CODM) for the
for sale and represents an important independent business
tax assets related to debt instruments measured at fair
purpose of taking decisions on resources to be allocated to
unit or geographical area of activity, and pertains to a single,
value.
when the results of the transaction can be reliably estimated,
the sector, and the evaluation of results, for which financial
coordinated disposal programme.
These changes were not applicable to the Group.
with reference to the state of completion of the transaction at
information is available.
On the consolidated Income Statement for the period, the
>
Improvements to IFRS 2014-2016 (issued by the IASB in
the reporting date.
The business carried out by the Group is identifiable as a single
Net income (loss) of the discontinued operations, as well as
December 2016).
The results of a transaction can be reliably estimated only
operating “Consumer Activities” segment.
the gain or loss resulting from fair value measurement net
The IASB has issued a series of amendments to three
when all the following conditions have been satisfied:
>
the amount of revenue can be determined reliably;
of the costs of sale or from disposal of the assets or disposal
standards in force, regarding the following aspects in
groups constituting the discontinued operation are combined
particular: clarification regarding the application of IFRS 12
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements - Disclosure of Interests in Other Entities - in the presence
a new and unique impairment model based on the
designated at fair value recognised in the Income
With the application of the new standard, it will be
of entities falling within the scope of IFRS 5 - Non-Current
recognition of the expected losses of an entity. This
Statement.
necessary, however, to recognise certain amounts, now
Assets Held for Sale and Discontinued Operations; the
model does not apply to equity instruments and
2.
Impairment of financial instruments: based on the
accounted for under costs, with the reduction in revenues
evaluation of associates and joint ventures at fair value in
provides for operational simplifications for trade
valuations made, the adoption of the approach
or other income mainly due to the new provisions for
the presence of investment entities in IAS 28 - Investment
receivables;
based on expected losses (instead of realised losses)
“principal vs agent” and “consideration paid or payable to a
in Associates; and the elimination of short-term
> > Hedge accounting- based on a more flexible approach
will not entail any change in the provision for trade
costumer”.
exemptions for those who adopt the IFRS for the first
than that contained in IAS 39.
receivables, in that the current Group policy already
The restatement of these amounts, which does not alter
time in IFRS 1 - First Time Adoption of the International
This standard, approved by the European Union, was
provides for the assessment of credit risk associated
the Group’s operating income (loss) or equity, is currently
Financial Reporting Standards.
applicable as of January 1, 2018. The Group will apply the
with customers, similar to the concept of expected
being defined.
The amendments to IFRS 12 had no impact on the
new standard using the retrospective application method
losses of the IFRS 9. It is instead probable that there
> Amendments to IFRS 2 - Share-based Payment
disclosures of the Group.
and making use of the practical expedient granted by the
will be an increase in the provision for bad debts due
The aim of these amendments is to clarify the accounting
The amendments to IFRS1 and IAS 28 in force as of January
standard, on the basis of which the 2017 comparative data
to certain financial receivables.
treatment of certain share-based payments.
1, 2018 were not applicable to the Group.
will not be subject to restatement.
3. Hedge accounting: The Group will adopt the new
These amendments, which came into force as of January
3.2
International Accounting Standards and/
or interpretations that had been issued but had
not yet been approved and/or entered into force
during 2017 Pursuant to IAS 8 – Accounting Policies,
Changes in Accounting Estimates and Errors - the new
The Group has revised the financial assets and liabilities
rules for hedge accounting as provided for by IFRS
1, 2018, have not yet been approved by the European
and the evaluation of the effects deriving from the
9 as of January 1, 2018. The hedging relationships
Union. The future application of these amendments is
application of the new accounting standard has been
in place at December 31, 2017 meet the conditions
not expected to have any impact on the Group’s Financial
substantially completed. As was expected and has been
provided for in IFRS 9 for the adoption of hedge
Statements.
previously stated, no significant impacts were foreseen
accounting.
> Amendments to IFRS 4 - Application of IFRS 9 Financial
as regards income, equity and the main performance
>
IFRS 15 - Sales from contracts with customers and
Instruments with IFRS 4 Insurance Contracts
indicators of the Group at the date of the first application
clarifications regarding IFRS 15.
These changes govern the implementation of the new
3
1
2
standards and interpretations that have been issued but
(January 1, 2018). The analysis also showed that there were
The new IFRS 15 standard defines the criteria for
standard on Financial Instruments, the IFRS 9, and prior
have not yet come into force or have not yet been endorsed
no organisational impacts or impacts on information
recognising and evaluating revenues deriving from
to that the IFRS 4 to which the IASB is making further
by the European Union at December 31, 2016, and which are
systems, also considering the
limited number of
contracts with customers.
changes.
therefore not applicable, along with any expected impacts on
transactions that fall within the scope of IFRS 9.
In particular, the
IFRS
15 requires that revenue
These amendments which have been approved by the
the consolidated Financial Statements.
The main impacts deriving from the adoption of the new
recognition be based on the following 5 steps: (i) the
European Union, and became applicable as of January 1,
3
1
3
None of these standards and interpretations has been adopted
standard are summarised as follows:
identification of the contract with the customer; (ii) the
2018, are not applicable to the Group.
in advance by the Group.
1. Classification and measurement:
the equity
identification of the performance obligations (that is the
>
IFRS 16 – Leases
> Amendments to IFRS 10 and IAS 28 - Sales or contributions
instruments currently classified as financial assets
contractual promises to transfer goods and/or services
The new standard on leases, which will replace the
of Assets between an Investor and its Associate/Joint
available for sale, will be, in substantial continuity
to a customer); (iii) the determination of the transaction
current IAS 17, provides a single accounting model for the
Venture
with respect to the accounting treatment adopted
price; (iv) the allocation of the transaction price to
lessee under which all leases will have to be recognised in
The IASB issued these amendments to eliminate any
in accordance with IAS 39, designated as financial
the performance obligations identified on the basis of
the Statement of Financial Position. In fact the concept of
inconsistency between IFRS 10 and IAS 28, stating that
assets, with any changes in their fair value recorded
the stand-alone selling price of each good or service;
operational leasing has disappeared.
if the assets sold/transferred constitute a business as
in equity, with the sole exception of the investment
and (v) the recognition of revenue when the relative
The lessee must recognise the asset being leased in the
defined by IFRS 3, the possible gains or losses must be fully
in Mediobanca S.p.A, which was disposed of during
performance obligation has been satisfied.
Statement of Financial Position under the item property,
recognised, and any gains or losses shall be recognised
the first days of January 2018, for which the changes
Furthermore, the IFRS 15 integrates the disclosures for
plant and equipment and must simultaneously recognise
pro-rata: only for the pertinent portion.
in fair value will be recognised in the Income
Financial Statements which are to be provided with
financial liabilities equal to the present value of future
These amendments, which came into force have been
Statement. It is to be noted that the fair value
reference to the nature, amounts, timing and uncertainty
payments.
deferred indefinitely, and have not yet been endorsed
adjustment reserve for the assets available for sale
of revenues and the relative cash flows.
The only allowed exceptions are the short-term leases
by the European Union. No effects are expected on
outstanding at December 31, 2017 (positive to the
This standard, approved by the European Union, became
(with a duration of less than or equal to 12 months) and the
the Financial Statements due to the future application
amount of euro 19,410 thousand) will be reclassified
applicable as of January 1, 2018. The Group will apply the
leasing of small assets (e.g. office furniture, computers,
of these amendments since the current accounting
to a new reserve under equity for the investments
new standard by using the “modified” application method,
etc.) for which the accounting treatment is similar to that
treatment adhered to by the Group is already compliant.
designated as financial assets, with changes in their
that is, by accounting for the cumulative effect of the
currently used for operating leases. If a leasing contract
>
IFRS 9 – Financial Instruments
fair value recognised in equity, while there will
initial application as of January 1, 2018.
includes the provision of a service, the latter may not be
IFRS 9, which will replace IAS 39 – Financial Instruments:
be a reclassification to retained earnings for the
capitalised.
Detection and measurement, is divided into 3 parts:
investment in Mediobanca S.p.A. These reserves
The evaluation of the effects deriving from the
This standard, approved by the European Union, shall
> >
Classification
and measurement of financial
will not be reversed to the Income Statement if the
application of the new accounting standard has been
apply as of January 1, 2019. The Group will apply the new
instruments based on the entity’s business model,
investment is disposed of.
substantially completed, and no significant impacts
standard as of the date of its entry into force.
and the characteristics of the cash flows generated
The new
rules
for
the classification and
were foreseen for
income, equity and the main
The new standard will mainly impact the accounting
by the financial instruments themselves;
measurement of financial liabilities have no impact
performance indicators of the Group at the date of the
treatment of leasing contracts currently classified as
> >
Impairment of financial instruments on the basis of
on the Group, as the Group has no financial liabilities
first application on January 1, 2018.
operating leases pursuant to IAS 17. The main impacts can
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements 3
1
4
be summarised as follows:
is possible to reclassify a real estate asset from within or
applicable to the Group and has no impact as the Group
of financial resources on the market (liquidity risk).
> >
Entry under the item property, plant and equipment,
from outside the category of Investment Property.
already applies this accounting treatment.
Financial risk management is an integral part of the
of the current value of the leasing instalments which,
These amendments, which came into force as of January
> Amendments to IAS 28 - Investments in Associates and
Group’s business management and is performed centrally
on the basis of the contractual agreements have the
1, 2018, have not yet been approved by the European
Joint Ventures Long-term interests in associates and joint
in accordance with the guidelines issued by the finance
characteristics of being considered non-cancellable,
Union and are not applicable to the Group’s Financial
ventures
department as part of risk management strategies which are
and the contextual recognition of an increase in the
Statements.
These amendments have clarified that, in the event that
more generally defined by the Managerial Risk Committee.
financial liabilities. The assets will be depreciated
>
IFRIC 23 – Accounting for Uncertainties in Income Taxes
investments in associates and joint ventures are not
based on the duration of the contract;
This interpretation clarifies the criteria to be applied for
evaluated using the equity method (IAS 28) they must be
> >
The cost of the leasing instalments currently recorded
the recognition and measurement of current and deferred
evaluated in accordance with the provisions of IFRS 9.
4.1 Types of Financial Risks
under the item “other costs” will be substituted by
tax assets/pre-paid tax in the event of uncertainty
These amendments, which will come into force as
the recognition of the depreciation of the assets
regarding tax treatments, i.e. situations in which it is not
of January 1, 2019, have not yet been approved by
recorded as per previous point. A financial component
certain that a specific treatment will be accepted by the
the European Union. Impacts on the Group financial
Exchange rate risk
The geographical distribution of Group production and
will also be included in the item “financial expenses”.
tax authorities (e.g. the deductibility of certain costs or
statements are not foreseen, as investments in associates
commercial activities entails exposure to exchange rate risks
At December 31, 2017, the Group had non-cancellable
the exemption of certain income), but also uncertainty
and joint ventures are evaluated using the equity method.
such as transaction risk and translation risk.
commitments to operating leases amounting to euro
regarding the determination of taxable income, the tax
>
Improvements to IFRS 2015-2017 (issued by the IASB in
504,752 thousand (Refer to Note 9).
bases for assets and liabilities, tax losses and the tax rates
December 2017).
a) Transaction risk
The Group will calculate the part of payments relating
to be applied.
The IASB issued a series of changes to 4 principles in force,
This risk is generated by the commercial and financial
to short-term contracts and contracts which concern
The accounting treatment depends on the likelihood as to
including, in particular, to the following aspects:
transactions of the individual companies which are carried
assets of low value (“small assets”) in order to assess as to
whether the tax authorities will accept the tax treatment
> >
IFRS 3 Business combinations: obtaining control
out in currencies other than the functional currency of the
whether to avail themselves of the exemption granted by
or not. In the case of a low probability, the uncertainty is
of a business that is classified as a joint operation
Company. Exchange rate fluctuations between the time when
the principle for the non-capitalisation of such contracts.
recognised by recording additional tax liabilities or by the
must be accounted for as business combination in
the commercial or financial relationship is established and
The Group has not yet assessed the potential impact of
application of a higher tax rate.
phases, and the previously held investment must be
the time when the transaction is completed (collection or
other adjustments that may be necessary, such as the
This amendment, which will come into force as of January
remeasured at fair value at the date of acquisition.
payment) may generate exchange rate gains or losses.
change in the definition of the duration of contracts, the
1, 2019, has not yet been approved by the European Union.
> >
IFRS 11 – Joint arrangements: in the case of obtaining
The Group aims to minimise the impact of transaction risk
different accounting treatment of variable payments
The impacts on the Group’s financial statements are
control of a business which is classified as a joint
related to exchange rate volatility. In order to achieve this
and the options for renewal and/or early settlement.
currently being analysed.
operation, the previously held investment must be
objective, the Group’s procedures provide that the Operating
Consequently, it is not yet possible to determine the
> Amendments to IFRS 9 - Financial Instruments: prepayment
remeasured at fair value.
Units are responsible for the collection of all information
amount of financial assets and liabilities that will have to
features with negative compensation and changes in financial
> >
IAS 12 - Income taxes: the accounting treatment
inherent to positions subject to transaction risk, whose
be recognised under the new standard and how this latter
liabilities
of the tax effects of dividends on financial
coverage is then provided in the form of forward contracts
will impact on the Income Statement and the Statement
These amendments are with regard to the following:
instruments classified as equity must follow that
which are entered into with the Group Treasury.
of Cash Flows.
> >
financial assets (financial receivables and debt
of the transactions or events that generated the
The positions subject to managed exchange rate risk are
With regard to the transition, the Group is evaluating
securities) which,
in the presence of certain
distributable dividend.
mainly represented by receivables and payables in foreign
as whether to apply the simplified approach which
characteristics, can be measured at the amortised
> >
IAS 23 – Borrowing costs: in the event that the
currency.
makes it possible to not carry out the restatement of the
cost, whereas previously they had to be measured
specific financing relating to a qualifying asset is
The Group Treasury is responsible for hedging the resulting
comparative period in the first year of application.
at fair value and recorded in the Income Statement;
still in place at the time when the asset is ready
net position for each currency and, in accordance with the
>
IFRIC 22 - Foreign Currency Transactions and Advance
> >
accounting treatment in the presence of changes
for use or sale, the same becomes part of general
established guidelines and predetermined restrictions, it in
Consideration
to the financial liabilities which do not lead to
generic financing.
turn closes all risk positions by trading derivative hedging
The aim of this interpretation is to determine the exchange
their elimination from the Financial Statements:
These amendments, which will come into force as of January 1,
contracts on the market which typically take the form of
rate to be used in the conversion of advance payments
in such situations, a gain or loss calculated as the
2019, have not yet been approved. Any impacts on the Group’s
forward contracts.
paid or received in foreign currency. In the presence of
difference between the contractual cash flows of
Financial Statements are currently being analysed.
For such contracts, the Group did not consider it necessary
paid or received advance payments, the exchange rate to
the original liability and the modified cash flows
be used to convert assets, liabilities, revenues or expenses
both discounted at the original effective interest
recognised at a later date is the same used to convert the
rate, must be recognised in the Income Statement.
advance payment.
These amendments, which will come into force as of
This amendment, which came into force as of January 1,
January 1, 2019, have not yet been approved by the
4. FINANCIAL RISK
MANAGEMENT POLICIES
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 availing itself of the
2018, has not yet been approved by the European Union.
European Union. With regard to the change relating to
The Group is exposed to financial risks which are principally
aforementioned option.
The impact of this interpretation on the Group’s financial
financial assets, assessments are under-way to verify their
associated with foreign exchange rates, with fluctuations
Furthermore, as part of the annual and three-year planning
statements is currently being analysed.
applicability to the Group; the change in the accounting
in interest rates, with the price of financial assets held as
process, the Group makes exchange rate forecasts by using
> Amendments to IAS 40 - Transfers of Investment Property
treatment of financial liabilities in the event of changes
investments, with the ability of customers to meet their
the best information available on the market. The fluctuation
These changes further clarify the situations in which it
which do not lead to their accounting elimination is
obligations to the Group (credit risk), and with the procurement
in exchange rates between the time when the forecast is made
5
1
3
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements and the time when the commercial or financial transaction occurs represents the transaction risk for future transactions.
The table below shows the effects on the net income (loss) resulting 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:
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 (for example; zero cost collars). Hedge
accounting, as provided for by IAS 39, is activated if and when the requirements 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 translation risk are constantly monitored, however it is not currently deemed necessary to adopt specific
(In thousands of euro)
+0,50%
-0,50%
12/31/2017
12/31/2016
12/31/2017
12/31/2016
Impact on Net income (loss)
(12,513)
(19,785)
12,513
19,785
policies to hedge this exposure.
The effects on the Group’s equity resulting from the changes in the LIBOR and EURIBOR rates calculated on the hedging instruments
Approximately 57.1% of the total consolidated equity at December 31, 2017 was expressed in Euros (compared to approximately
for interest rates which were outstanding at December 31, 2017 are detailed in Note 27, “Derivative instruments”.
44.8% at December 31, 2016). The most important currencies for the Group other than the Euro were the Brazilian Real (8.8%; 13.7%
at December 31, 2016), the Turkish Lira (0.7%; 4.6% at December 31, 2016), the Chinese Renminbi (12.8%; 15.3% at December 31, 2016),
the Romanian Leu (9.0%; 8.8% at December 31, 2016), the British Pound (3.4%; 3.6% at December 31, 2016), the US Dollar (3.3%; 3.0% at
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
December 31, 2016), the Mexican Peso (2.5%; 4.1% at December 31, 2016), and the Russian Rouble (at 1.0%).
constituted approximately 2.1% of the total consolidated assets at December 31, 2017 (1.7% at December 31, 2016). These assets are
The effects on consolidated equity which derive from a hypothetical appreciation/depreciation of the above listed currencies against
No derivatives were put in place to cover the volatility risk for these assets.
the Euro, with all other conditions being equal, were as follows:
Financial assets available for sale are represented by listed securities which amounted to euro 179,205 thousand (euro 141,496 thousand
classified as financial assets available for sale and as securities held for trading.
(In thousands of euro)
at December 31, 2016) and those represented by securities indirectly associated with listed securities (Fin. Priv. S.r.l.) amounted to euro
19,908 thousand, (euro 19,200 thousand at December 31, 2016, also including the investment in Emittenti Titoli S.p.A.) These financial
3
1
6
Appreciation of 10%
Depreciation of 10%
assets constitute 75.8% of the total financial assets subject to price risk (65% at December 31, 2016). A positive change of +5% in the
prices of the aforesaid listed securities all other conditions being equal, would result in a positive change to the Group’s equity of euro
7
1
3
Brazilian Real
Turkish Lira
Chinese Renminbi
Romanian Leu
Russian Rouble
Egyptian Pound
British Pound
Argentinian Pesos
US Dollar
Mexican Pesos
12/31/2017
12/31/2016
12/31/2017
12/31/2016
8,960 thousand (a positive change to the Group’s equity of euro 7,073 thousand at December 31, 2016) while a negative change of -5% in
40,903
3,420
59,309
41,610
4,868
49,933
16,622
55,707
32,108
(33,466)
(40,854)
(2,798)
(13,600)
(48,526)
(45,579)
(34,045)
(26,271)
(3,983)
the prices of the aforesaid listed securities, all other conditions being equal, would result in a negative change to the Group’s equity of
euro 8,960 thousand (a negative change to the Group’s equity of euro 7,073 thousand at December 2016).
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.
-
(5,448)
-
4,458
For the purposes of limiting this risk, as far as commercial counterparties are concerned, Pirelli has put in place procedures to assess
15,681
13,075
(12,830)
(10,698)
the potential and financial creditworthiness of their customers and to monitor expected collection flows in order to take recovery
Total on consolidated equity
192,607
189,057
(157,588)
(154,683)
-
15,168
11,648
892
11,078
15,090
-
(730)
(12,411)
(9,064)
(9,530)
(12,346)
action if necessary.
The aim of these procedures is to define customer credit limits. Further supplies are suspended when those limits are exceeded. In
some cases customers are asked to provide guarantees. These mainly consist of bank guarantees issued by parties of the highest
credit or personal standing. Less frequently, mortgage guarantees may be requested.
Another main instrument used by the Group for the management of commercial credit risk is the stipulation of insurance policies.
As of January 2012, the company signed a master agreement which expired in December 2017, with a leading insurance company for
worldwide coverage for credit risk mainly related to sales on the Replacement channel (with an approximate 68% acceptance rate
at December 2017).
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 insurance coverage has been extended to also cover 2018. During the course of 2017, the general situation for trade receivables
remained essentially consistent with that at the closing of the previous financial year. As regards the management of its temporarily
surplus resources or the trading of derivative instruments, the Group operates only with financial counter-parties with a high credit
Based on market circumstances the Group evaluates whether to set up derivative contracts for hedging interest rate risk, for which
standing. Pirelli does not hold public debt instruments of any European country, and constantly monitors its net credit exposure to the
hedge accounting is activated when the requisite conditions as provided for by IAS 39 are met.
banking system, and does not show significant concentrations of credit risk.
The disclosure regarding the maximum exposure to credit risk is represented by the gross value of receivables and is contained in
subsequent Notes 14 and 15 which relate respectively to trade receivables and other receivables.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements 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.
5. INFORMATION ON FAIR VALUE
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
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
differences between the plans and actual data are constantly analysed.
inputs used in determining the fair value. The levels are defined as follows:
The Group has implemented a centralised system for the management of cash flows and payments in compliance with various local
>
level 1 – unadjusted prices quoted on an active market for assets or liabilities subject to valuation;
currency and tax regulations. Banking relationships are negotiated and managed centrally, in order to ensure coverage for short and
>
level 2 – inputs different from the aforesaid prices quoted at the preceding level, which are observable on the market either
medium-term financial needs at the lowest possible cost. Even the procurement of medium and long-term resources on the capital
directly (as in the case of prices) or indirectly (because they are derived from prices);
market is optimised through centralised management.
>
level 3 – inputs that are not based on observable market data.
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 obtainable through an adequate amount of committed
The following table shows assets and liabilities carried at fair value at December 31, 2017, subdivided into the three levels as defined above:
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, 2017 the Group had, aside from cash and securities held for trading to the amount of euro 1,151,464 thousand (euro
1,581,574 thousand at December 31, 2016), unused credit facilities for euro 700,000 thousand (euro 1,000,000 thousand at December
31, 2016) maturing in the second quarter of 2022.
Maturities for financial liabilities at December 31, 2017 were composed as follows:
Note
Carrying
amount at
12/31/2017
Level 1
Level 2
Level 3
(In thousands of euro)
FINANCIAL ASSETS:
Financial assets carried at fair value in the Income Statement:
within 1 year
1 to 2 years
2 to 5 years
over 5 years
Total
Financial hedging instruments:
3
1
8
Trade payables
Other payables
Financial instruments
1,673,642
565,254
17,910
-
5,329
23,893
-
17,320
31,070
Borrowings from banks and other financial
institutions
643,243
708,980
3,495,823
-
1,673,642
Non-current financial derivative instruments
51,786
639,689
Financial assets available-for-sale:
-
-
72,873
4,848,046
Other financial assets
Securities and shares
Investment funds
2,900,049
738,202
3,544,213
51,786
7,234,250
(In thousands of euro)
Securities held for trading
Current financial derivative instruments
18
27
27
33,027
27,770
878
-
-
-
33,027
27,770
878
-
-
-
9
1
3
214,250
179,204
19,908
15,138
15,269
-
15,269
-
12
229,519
179,204
35,177
15,138
TOTAL ASSETS
291,194
179,204
96,852
15,138
Maturities for financial liabilities at December 31, 2016 were composed as follows:
within 1 year
1 to 2 years
2 to 5 years
over 5 years
Total
Statement:
Financial liabilities carried at fair value in the Income
(In thousands of euro)
FINANCIAL LIABILITIES:
Trade payables
Other payables
Financial instruments
1,498,492
783,079
52,170
-
8,253
-
Borrowings from banks and other financial
institutions
813,110
2,218,305
4,168,169
-
-
1,498,492
Current financial derivative instruments
10,138
69,030
870,500
Financial hedging instruments:
-
-
-
52,170
7,199,584
Non-current derivative financial instruments
TOTAL LIABILITIES
27
27
(17,910)
-
(17,910)
(54,963)
(72,873)
-
-
(54,963)
(72,873)
-
-
-
3,146,851
2,226,558
4,178,307
69,030
9,620,746
It is to be noted that on June 27, 2017, Pirelli & C. S.p.A. and Pirelli International Plc subscribed to an unsecured loan (“Facilities”) for
euro 4.1 billion (originally for the amount of euro 4.2 billion), of which euro 3,277,477 thousand had been utilised at December 31, 2017.
The financing was achieved at a lower overall cost of less than 1.85% with maturities in three and five years. This financing which
had first been subscribed to by three underwriters was subsequently the subject of syndication by a pool of 18 credit institutions on
July 7, 2017.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements The following table shows assets and liabilities carried at fair value at December 31, 2016, subdivided into the three levels as defined above:
The item increases refers mainly to the capital increase
The fair value of financial instruments traded on active markets
(in thousands of euro)
related to the investment in Alitalia – Compagnia Area Italiana
is based on the price quotations published at the reporting date.
S.p.A. (euro 781 thousand).
These instruments, included in level 1, primarily comprise equity
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
Securities and shares
Investment funds
Note
Carrying
amount at
12/31/2016
Level 1
Level 2
Level 3
18
27
27
48,597
17,122
-
-
48,597
17,122
6,867
-
6,867
-
-
-
184,055
141,496
19,200
23,359
14,636
-
14,636
-
12
198,691
141,496
33,836
23,359
TOTAL ASSETS
271,277
141,496
106,422
23,359
The item impairment refers mainly to the investments in
The fair value of financial instruments not traded on active
Pirelli de Venezuela C.A. (euro 7,616 thousand), in Equinox Two
markets (e.g. derivatives) is determined by the use of
S.C.A. (euro 3,062 thousand), and the devaluation of the capital
evaluation techniques widely used in the financial sector,
increase carried out for Alitalia-Compagnia Area Italiana S.p.A
which maximise the utilisation of observable and available
(euro 781 thousand).
market data:
investments classified as financial assets available for sale.
> Market prices for similar instruments;
During the course of the 2017 financial year, there were no
>
the fair value of interest rate swaps is calculated by
transfers from level 1 to level 2 or vice versa, while there was a
discounting estimated future cash flows based on
transfer from level 2 to level 3 following the sale by Emittenti
observable yield curves;
Titoli S.p.A. of its investment stake in the listed company the
>
the fair value of foreign exchange derivatives (forward
London Stock Exchange. The fair value of Emittenti Titoli S.p.A.
contracts) is determined by using the forward exchange
was in fact determined by also considering the transparency of
rate at the reporting date.
the fair value of the shares held in the London Stock Exchange
by Emittenti Titoli S.p.A..
3
2
0
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
27
27
(51,844)
-
(51,844)
(326)
(52,170)
-
-
(326)
(52,170)
-
-
-
The following table shows the changes in the financial assets that occurred in level 3 during the course of 2017:
Opening balance
Translation differences
Increases / Subscription of capital
Impairment recognised in the Income Statement
Fair value adjustments recognised in Equity
Transfer from level 2
Other changes
Closing balance
(In thousands of euro)
12/31/2017
23,359
(110)
781
(11,957)
363
2,729
(27)
15,138
These financial assets are mainly represented by equity investments in the European Institute of Oncology (euro 6,599 thousand),
Equinox Two S.C.A. (euro 601 thousand), in Tlcom I LP (euro 186 thousand) and the investment in Pirelli de Venezuela C.A. (euro 2,610
thousand).
1
2
3
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements 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 12/31/2017
Carrying amount
at 12/31/2016
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
3
2
2
Current financial derivative instruments
Non-current financial derivative instruments
TOTAL FINANCIAL ASSETS
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
Non-current financial derivative instruments
TOTAL FINANCIAL LIABILITIES
18
27
15
14
15
19
12
27
27
27
23
25
23
24
25
27
27
6. CAPITAL MANAGEMENT POLICY
which a change in the conditions underlying the assumptions
used may have a significant impact on the consolidated
The Company’s objective is to maximise the return on the net
Financial Statements, or for which there exists a risk that
invested capital while maintaining the capacity to operate over
significant adjustments to the carrying amount of assets and
time, in order to ensure adequate returns for its shareholders
liabilities may emerge during the financial year subsequent to
and benefits for other stakeholders, and also providing for the
that of the Financial Statements.
gradual de-leveraging of the financial structure of the Group
which is to be achieved over a short to medium-term period.
The main
indicator that the Group uses for
its capital
management is the R.O.I (calculated as the ratio between the
Goodwill In accordance with the accounting standards
adopted for the preparation of the Financial Statements,
EBIT adjusted and the average net invested capital which does
goodwill is tested annually for impairment. In particular, the
not include the equity investments and fixed assets identified
impairment test involves the allocation of goodwill to the
during the PPA process).
cash generating units (which for the group coincide with
The R.O.I. for the 2017 financial year was equal to 28% which
the business sector or the Consumer Activities) and the
compares with an R.O.I. of 27% for the previous financial year.
subsequent determination of the relative recoverable amount,
7. ESTIMATES AND ASSUMPTIONS
being the higher amount between either the fair value and the
value in use.
If the recoverable amount proves to be lower than the
carrying amount of the cash generating units, an impairment
The preparation of the consolidated Financial Statements
is recognised for the goodwill allocated to them.
requires management to make estimates and use assumptions
The configuration of the value used to determine the recoverable
which, under certain circumstances are based on complex
amount of the Consumer Activities at December 31, 2017 is the
and subjective evaluations and estimates based on historical
fair value determined using the stock market capitalisation
experience, as well as assumptions that are from time to time
of the Parent Company at the date of the impairment test
3
2
3
33,027
27,770
60,797
48,597
17,122
65,719
204,051
226,868
652,487
679,321
400,538
275,622
1,118,437
1,532,977
2,375,513
2,714,788
229,519
198,691
-
878
6,867
-
2,666,707
2,986,065
considered reasonable and realistic in light of the circumstances.
(December 31, 2017), where the stock market capitalisation is
17,910
51,844
3,897,089
5,945,999
74,435
87,421
It is possible that the actual results could therefore differ from
calculated on the number of outstanding shares without taking
these estimates. The estimates and assumptions are reviewed
any control premium into consideration and adjusted upwardly
periodically and the effects of any changes made to them are
or downwardly as per the fair value of the financial statement
reflected in the Income Statement for the period in which the
items not included in the carrying amount of the Consumer
estimate is revised. If such estimates and assumptions, based on
Activities, mainly the net financial position.
the best valuation available at the time, should differ from actual
The impairment test at December 31, 2017 did not show any
circumstances, they are modified accordingly for the period
impairment loss, as the fair value of the Consumer Activities
in which the change of circumstances occurred. The estimates
was significantly higher than the carrying amount.
559,168
642,047
and assumptions refer mainly to evaluation of the recoverability
1,673,642
1,498,492
of goodwill and intangible assets with an indefinite useful life,
565,254
783,079
6,769,588
8,957,038
-
54,963
326
-
6,842,461
9,009,208
to the definition of the useful lives of the intangible assets as
well as property, plant and equipment, to the recoverability of
receivables, to the determination of taxes (current and deferred),
Pirelli Brand (intangible fixed assets with an
indefinite useful life) The Pirelli Brand is an intangible fixed
asset with an indefinite useful life not subject to amortisation,
to the evaluation of pension plans and other post-employment
but pursuant to IAS 36, is tested for impairment annually or
obligations, and to the recognition / valuation of the provisions
more frequently, if specific events or circumstances arise that
for liabilities and charges.
may indicate a reduction in value.
ESTIMATES REQUIRING SUBJECTIVITY
THAT ARE MATERIAL TO THE
FINANCIAL STATEMENTS
The impairment test at December 31, 2017 was performed using
the assistance of an independent third-party professional.
The configuration for the recoverable amount for impairment
testing purposes at December 31, 2017 is the fair value, calculated
on the basis of the income approach (the so-called Level 3 of the
hierarchy of IFRS 13 – Fair Value measurement) and is based on:
The following is a brief description of the accounting standards
> the consensus forecasts by equity analysts with respect to the
which, more than others, require that management exercise
forecast revenues for the period 2018-2020 in that they were
greater subjectivity in the preparation of estimates, and for
more prudent than the projections made by management;
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements > an evaluation criterion is obtained by the sum of parts
carrying amount and tax values. In particular, deferred tax
The following are the revenues from sales and services according to geographical area:
which also takes into account the contribution of royalties
assets are recognised to the extent to which it is probable that
from the Prometeon Tyre Group for the use the Pirelli
future taxable income will be available against which they can
trademark in relation to the industrial segment;
be recovered. The evaluation of the recoverability of deferred
>
the royalty rate applied to the revenues of the Consumer
tax assets, recorded in relation both to tax losses that may
High Value and Consumer Standard evaluation units was
be used in subsequent financial years, and to temporary
deduced from the royalty rates implicit in the valuations
deductible differences, takes into account the estimate of
made by an independent entity relative to the main
future taxable income and is based on prudent tax planning.
brands of the listed companies of the Tyre sector, and was
equal to an average royalty rate of 4.6%. With reference to
the contribution in terms of royalties from the Prometeon
Tyre Group, the royalty rate used as provided for by the
Pension funds The companies of the Group have in place,
pension plans, health insurance plans and other defined benefit
license agreement was equal to 2%;
plans for their employees, primarily in the United Kingdom
> a discount rate of 9.0%, which included a premium
and the United States. These funds have been closed to new
Europe
Russia and CIS
NAFTA
South America
Asia\Pacific (APAC)
Middle East\Africa\India (MEAI)
Total
(in thousands of euro)
2017
2016
2,237,962
2,092,701
159,590
162,979
983,859
934,559
915,677
824,252
806,247
712,563
248,948
249,342
5,352,283
4,976,396
determined on the basis of the risk of the specific asset;
contributions and therefore the actuarial risk relates only to
The following are the non-current assets by geographic area which are allocated on the basis of the country where the assets are located:
> a growth rate of g in the terminal value assumed to be
the previous deficit. Management uses different actuarial
equal to zero;
assumptions to calculate the liabilities and assets servicing
>
the TAB (Tax Amortisation Benefit) that is, the tax benefit
these pension plans. The actuarial assumptions of a financial
that could potentially benefit the market participant due
nature are concerned with the discount rate, the rate of
to the possibility of fiscally amortising the asset.
inflation and the trend in medical costs.
For the purposes of impairment testing, the recoverable amount
The actuarial assumptions of a demographic nature are essentially
of the Pirelli Brand cum-TAB was compared with the carrying
concerned with mortality rates. The Group has identified discount
Europe
Russia & CSI
NAFTA
3
2
4
amount of the Brand cum-TAB and no losses in value emerged.
rates which it has deemed are reasonable, given their context.
Central and South America
Asia/Pacific
Middle Est/Africa/India
(in thousands of euro)
12/31/2017
12/31/2016
5,504,481
62.03%
5,728,035
56.98%
192,382
373,950
435,488
487,560
2,773
2.17%
4.21%
4.91%
5.49%
0.03%
192,717
323,334
801,085
588,466
68,624
1.92%
3.22%
7.97%
5.85%
0.68%
5
2
3
Property, plant and equipment In accordance with the
accounting standards, property, plant and equipment and
Provisions for liabilities and charges In view of legal and
tax liabilities, provisions for the risk of of unfavourable outcomes
intangible assets are tested in order to ascertain whether
have been recognised. The value of provisions recognised in
there has been a loss of value when there are indicators that
the Financial Statements relative to these risks represent the
difficulties are to be expected for the recovery of their relative
best estimate to date made by management for legal and tax
Non-current unallocated assets
1,877,363
21.16%
2,351,263
23.39%
Total
8,873,999
100.00%
10,053,524
100.00%
net carrying amount through their use. The verification of
issues regarding a vast range of issues that are subject to the
The allocated non-current assets reported above consist of property, plant and equipment and intangible assets, excluding
the existence of the aforesaid impairment indicators requires
jurisdiction of several countries. This estimate requires the use
goodwill. The unallocated non-current assets pertain to goodwill.
that the Directors make subjective judgements based on the
of assumptions which depend on factors that may change over
information available from both internal and external sources
time and which could therefore have a significant impact on
as well as on historical experience. In addition, if it is determined
the current estimates made by management in preparing the
that a potential loss of value may have been generated, the loss
consolidated Financial Statements.
is then defined using the appropriate valuation techniques.
The correct identification of the indicators of a potential
loss in value, as well as the estimates used to determine
the impairment, depend on a subjective evaluation as well
8. OPERATING SEGMENTS
as on factors that may change over time and influence the
IFRS 8 - Operating segments defines an operating segment as
valuations and estimates made by management.
a component:
> which involves entrepreneurial activities that generate
revenues and costs;
Income taxes (current and deferred) Income taxes
(current and deferred) are determined in each country in which
> whose operating results are periodically reviewed by the
Chief Executive Officer, in his role as Chief Operating
the Group operates according to a prudent interpretation of
Decision Maker (CODM);
the tax regulations in force. This process sometimes involves
>
for which separate financial data is available.
complex estimates in determining the taxable income and the
For the purposes of IFRS 8, the activity performed by the
temporary deductible and taxable differences between the
Consumer Activities is identifiable as a single operating sector.
9. PROPERTY, PLANT AND EQUIPMENT
The composition and changes for property, plant and equipment were as follows:
(in thousands of euro)
12/31/2017
12/31/2016
Gross Value
Accumulated
Depreciation
Net Value
Gross Value
Accumulated
Depreciation
Net Value
Land
Buildings
201,216
-
201,216
326,216
-
326,216
773,903
(107,466)
666,437
776,003
(45,462)
730,541
Plant and machinery
2,175,308
(354,350)
1,820,958
2,384,295
(236,794)
2,147,501
Industrial
equipment
Other assets
Total
and
trade
385,301
(148,028)
237,273
378,662
(77,755)
300,907
111,722
(57,312)
54,410
70,643
(19,173)
51,470
3,647,450
(667,156)
2,980,294
3,935,819
(379,184)
3,556,635
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements (in thousands of euro)
The changes which occurred were composed as follows:
NET VALUE
12/31/2016
Change
in
scope
Assets held
Translation
for sale
differ.
Increases
Decreases
Reclassif.
Depreciation
Other
12/31/2017
Land
326,216
(111,043)
-
(14,806)
545
-
356
-
(52)
201,216
Buildings
730,541
(92,196)
-
(42,348)
61,071
(1,319)
35,332
(25,414)
770
666,437
12/31/2017
12/31/2016
Cost
Accumulated
Depreciation
Net value
Cost
Accumulated
Depreciation
Net value
(in thousands of euro)
Plant and
machinery
Industrial and
trade equipment
2,147,501
(293,363)
(55,879)
(103,156)
336,637
(6,859)
(57,169)
(147,769)
1,015
1,820,958
Leased buldings
330
(330)
300,907
(60,558)
-
(14,492)
48,183
(4,034)
32,152
(66,077)
1,192
237,273
Other leased assets
2,286
(2,001)
Leased plant and machinery
266
(107)
Other assets
51,470
(6,139)
-
(3,768)
23,945
(292)
(10,671)
(11,413)
11,278
54,410
Total
2,882
(2,438)
-
285
159
444
1,925
(1,354)
2,118
(2,043)
92
(92)
4,135
(3,489)
571
75
-
646
Total
3,556,635
(563,299)
(55,879)
(178,570)
470,381
(12,504)
-
(250,673)
14,203
2,980,294
NET VALUE
12/31/2015
PPA
12/31/2015
Change in
Translation
restated
scope
differ.
Increases
Decreases
Reclassif.
Depreciation
Other
12/31/2016
The total minimum future payments due for non-cancellable operating lease contracts amounted to euro 504,752 thousand, of which:
Land
95,599
239,450
335,049
7,139
(1,939)
70
(13,628)
(57)
-
(418)
326,216
> euro 78,537 thousand were due within one year,
(In thousands of euro)
Payables for financial leases are included in financial payables (refer to Note 23).
Buildings
593,816
116,961
710,777
39,641
14,600
29,625
(37,814)
3,759
(32,940)
2,893
730,541
Plant and
machinery
Industrial
and trade
equipment
1,504,359
494,016 1,998,375
75,738
(922)
269,499
-
(21,701)
(170,453)
(3,035)
2,147,501
177,659
92,669
270,328
9,910
6,160
43,836
-
23,652
(56,442)
3,463
300,907
10. INTANGIBLE ASSETS
> euro 258,872 thousand were due between one and five years, and
> euro 167,343 thousand were due beyond five years.
3
2
6
Other assets
48,020
1,085
49,105
4,614
(746)
20,436
(446)
(5,653)
(13,987)
(1,853)
51,470
Total
2,419,453
944,181 3,363,634
137,042
17,153
363,466
(51,888)
-
(273,822)
1,050 3,556,635
The composition and changes for intangible assets were as follows:
7
2
3
(In thousands of euro)
The column change in scope for 2017 mainly details the value of assets attributable to the Prometeon Group that were transferred
following the assignment transaction by Pirelli & C. S.p.A. to Marco Polo International Holding Italy S.p.A. (subsequently merged by
incorporation into Marco Polo International Italy S.p.A.) of the shares of TP Industrial Holding S.p.A. TP Industrial Holding S.p.A. is the
company into which Pirelli’s Industrial assets were merged.
The item increases, totalling euro 470,381 thousand, were primarily aimed at increasing the capacity of the High Value segment
12/31/2016
Change
in scope
Translation
differences
Increase
Amortisation
Reclassif.
Other
12/31/2017
Concessions/licenses/
trademarks - finite life
71,520
Pirelli Brand - indefinite life
2,270,000
-
-
Goodwill
2,351,263
(473,900)
-
-
-
-
-
-
(506)
359
(4,560)
754
230
67,797
in Europe and the NAFTA area, the strategic reconversion of the capacity of the Standard segment into High Value in Brazil, the
Customer relationship
431,595
(22,417)
(136)
2,635
(34,435)
transformation of the production of Aeolus brand products into Pirelli brand products, and the continuous improvement of the
Technology
1,347,867
-
-
-
(71,850)
-
-
-
-
-
-
-
-
2,270,000
1,877,363
377,242
1,276,017
quality and mix in all manufacturing plants.
The ratio of investments to amortisations for the 2017 financial year was equal to 1.88 (1.46 for the 2016 financial year).
Property, plant and equipment in progress at December 31, 2017, included in the individual fixed asset categories amounted to euro
227,509 thousand (euro 178,424 thousand at December 31, 2016).
It is to be noted that, in the context of financing stipulated in Brazil, the companies of the Group have pledged as guarantee their
own plants and machinery as guarantees for a total value of euro 1,638 thousand.
The value of the buildings and other assets for which the Company has entered into a financial leasing agreement is included in the
respective categories of property, plant, and equipment.
Software applications
17,527
(4,128)
(152)
13,473
(7,210)
1,059
175
20,744
Other intangible assets
7,117
-
(416)
2,502
(2,142)
(1,813)
(708)
4,541
Total
6,496,889
(500,445)
(1,210)
18,969
(120,196)
-
(303)
5,893,704
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements (in thousands of euro)
The recoverable amount is defined as the higher amount
more prudent than the projections made by management;
12/31/2015
PPA
12/31/2015
Translation
restated
differences
Increase
Decrease
Amortisation
Reclassif.
Other
12/31/2016
2
-
2
-
-
-
(2)
-
-
-
41,632
33,226
74,858
(1,594)
633
(7)
(4,308)
-
1,938
71,520
Patents and intellectual
property rights
Concessions/licenses/
trademarks - finite life
Concessions/
licenses/trademarks
5,832 2,264,168 2,270,000
- indefinite life
Goodwill
5,978,589 (3,627,326) 2,351,263
-
-
Customer relationship
7,563
459,616
467,179
(521)
Technology
- 1,414,717 1,414,717
Software applications
14,031
-
14,031
-
8
-
-
-
-
-
-
-
-
-
-
(35,645)
(66,850)
-
-
-
-
- 2,270,000
- 2,351,263
582
431,595
- 1,347,867
2,877
(17)
(9,209)
9,860
(23)
17,527
Other intangible assets
20,355
(7,127)
13,228
(2,714)
5,207
(35)
(2,539)
(9,860)
3,830
7,117
Total
6,068,004
537,274 6,605,278
(4,821)
8,717
(59)
(118,553)
0
6,327 6,496,889
between its value in use (current value of the expected cash
>
the evaluation criterion is composed as sum of parts which
flows) and the fair value less the costs of disposal (equivalent
also takes into account the contribution of royalties
value net of sales costs).
from the Prometeon Tyre Group for the use the Pirelli
The value configuration used to determine the recoverable
trademark in relation to the industrial segment;
value of the Consumer Activities at December 31, 2017 is
>
the royalty rate applied to the revenues of the Consumer
the fair value which is determined using the stock market
High Value and Consumer Standard segment was deduced
capitalisation of the Parent Company at the date of the
from the royalty rates implicit in the valuations made
impairment test (December 31, 2017), where the stock
by an independent entity relative to the main brands of
market capitalisation
is calculated on the number of
the listed companies of the Tyre sector and was equal to
outstanding shares, without taking any control premium into
an average royalty rate of 4.6%. With reference to the
consideration, and adjusted either upwardly or downwardly
contribution in terms of royalties from the Prometeon
for the fair value of items recorded in the Financial Statement
Tyre Group, the royalty rate used as provided for by the
which have not been included in the carrying amount of the
license agreement was equal to 2%;
Consumer Activities (mainly the net financial position).
> a discount rate of 9.0%, which included a premium
The impairment test at December 31, 2017 did not show any
determined on the basis of the risk of the specific asset;
impairment loss, as the fair value of the Consumer Activities
> a growth rate of g in the terminal value assumed to be
was significantly higher than the carrying amount.
equal to zero;
The column change in scope for 2017 details for the value of goodwill and other intangible assets attributable to the Prometeon
The difference between the recoverable amount and the
>
the TAB (Tax Amortisation Benefit) that is, the tax benefit
Group and which were transferred following the assignment transaction by Pirelli & C. S.p.A. of the shares of TP Industrial Holding
carrying amount of the group of CGUs relative to the
that could potentially benefit the market participant due
S.p.A., the company into which Pirelli’s Industrial assets were merged, to Marco Polo International Holding Italy S.p.A. (subsequently
Consumer Activities resulted in a zero balance due to a
to the possibility of fiscally amortising the asset.
merged by incorporation into Marco Polo International Italy S.p.A.).
potential contraction of 44% in the stock market price of Pirelli
For the purposes of impairment testing, the recoverable
3
2
8
Intangible assets are composed mainly of the value of the assets identified during the course of the 2016 financial year following the
completion of the allocation of the price paid by Marco Polo Industrial Holding S.p.A. for the acquisition of the Pirelli Group at fair
value of the Pirelli assets and liabilities acquired (Purchase Price Allocation or PPA) and recognised into the consolidated Financial
Statements following the merger by incorporation of the holding company Marco Polo Industrial Holding S.p.A. into Pirelli, which
took place during the same 2016 financial year. It mainly consists of:
& C S.p.A. ordinary shares.
amount of the Pirelli Brand cum-TAB was compared with the
Impairment test of the Pirelli Brand (intangible
fixed asset with an indefinite useful life) The Pirelli
Brand amounting to euro 2,270,000 thousand is an intangible
carrying amount of the Brand cum-TAB and no impairment
loss has been identified.
A sensitivity analysis was also carried out in relation to the Key
Assumptions used in the valuation of the royalty rate (for the
9
2
3
>
the value of the Pirelli Brand (asset with an indefinite useful life) amounting to euro 2,270,000 thousand. The assessment of
fixed asset with an indefinite useful life and as such is not
Consumer evaluation unit and for the contribution in terms of
the useful life of brands is based on a number of factors including competitors, market share, brand history, product lifecycle,
subject to amortisation, but pursuant to IAS 36, is tested for
royalties from the Prometeon Group); the discount rate, and
operational plans and macroeconomic scenario of the countries in which relating products are sold. Specifically, the useful life
impairment annually or more frequently, if specific events or
the g growth factor. The fair value remained higher than the
of the Pirelli Brand has been evaluated as indefinite on the basis of its over one hundred year successful history (born in 1872) as
circumstances arise that may indicate a reduction in value.
carrying amount even assuming the following changes in the
well as the intention and ability of the group to continue investing in supporting and upholding the brand;
The impairment test as at December 31, 2017 was carried out
sole Key assumption:
>
the value of the Metzeler Brand (useful life of 20 years) amounting to euro 59,183 thousand;
with the assistance of an independent third party professional.
> a downwardly change in the royalty rates for the Consumer
> product and process Technology and In-Process R&D to the amount of euro 1,181,017 thousand and euro 95,000 thousand
The configuration of the recoverable amount for impairment
evaluation units of 50 basis points and the simultaneous
respectively. The useful life of the product and process Technology has been determined as equal to 20 years, while the useful
testing purposes at December 31, 2017 was calculated on the
zero balance for royalties from the license agreement
life for In-Process R&D as equal to 10 years;
>
residual Goodwill amounting to euro 1,877,363 thousand.
Impairment test of goodwill Pursuant to IAS 36, goodwill is not subject to amortisation but is tested for any reduction of value
(impairment) annually or more frequently, if specific events or circumstances arise that may indicate a reduction in value.
For the purposes of such impairment testing, goodwill is allocated to the cash generating units (CGUs) or group of CGUs in compliance
with the maximum aggregation limit which cannot exceed that of the operating segment identified pursuant to IFRS 8.
The impairment test consists of comparing the recoverable value of the CGU to which the goodwill is allocated with the carrying
amount that includes the operating assets and goodwill.
Goodwill, amounting to euro 1,877,363 thousand, was allocated to the CGU group “Consumer Activities”, which it represents the only
sector of activity in which the Group operates and which it considers to be the minimum level at which goodwill should be monitored
for the purposes of internal management control.
basis of the income approach (the so-called Level 3 of the
with Prometeon Tyre Group;
hierarchy of IFRS 13 – Fair Value measurement) and is based on:
> an upwardly change in the discount rate of 150 basis points;
> the consensus forecasts by equity analysts with respect to the
> a downwardly change in the g growth rate of 150 basis points.
forecast revenues for the period 2018-2020 in that they were
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements 11. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
The item impairment mainly refers to the investment in Focus Investments S.p.A. which was carried out in order to align the
carrying amount following the application of the equity method to the fair value represented by the pro-rata equity of the associate.
Changes in investments in associates and joint ventures were as follows:
The impairment of the investment in Fenice S.r.l of euro 215 thousand was attributable to the adjustment of the carrying amount
(In thousands of euro)
calculated using the equity method in order to align it to its fair value inclusive of the liquidation preference.
12/31/2017
12/31/2016
The pro-rata share of net income (positive at euro 1,361 thousand) refers mainly to the investment in Fenice S.r.l. which was positive
to the amount of euro 5,002 thousand and which directly included the results from the disposal of the investment held in Prelios
Associates
JV
Total
Associates
JV
Total
S.p.A. which was offset by the negative pro-rata results of Prelios S.p.A. of euro 3.118 thousand and Focus Investments S.p.A. of euro
Opening balance
32,446
14,564
47,010
144,260
23,088
167,348
759 thousand.
Decreases
Increases
Distribution of dividends
Impairment
Restatement
(10,410)
1,496
(8,556)
(754)
-
-
-
-
-
-
(10,410)
(11,161)
1,496
4,692
(8,556)
(100,553)
(754)
(20,987)
-
7,364
-
-
-
-
-
(11,161)
4,692
(100,553)
(20,987)
7,364
Share of net income (loss)
1,361
(9,613)
(8,252)
7,297
(8,524)
(1,227)
Share of other components recognised
in Equity
Reclassifications and other
(2,915)
(139)
-
-
(2,915)
1,534
(139)
-
-
-
1,534
-
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, 2017, and include the pro-rata loss for the fourth quarter of 2016 and for the first nine months of 2017.
The investments in associated companies which were evaluated using the equity method are not relevant in terms of the impact on
the total for consolidated assets either individually or in aggregate form.
11.2 Investments in joint ventures The Group holds an investment of 60% 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
Closing balance
12,529
4,951
17,480
32,446
14,564
47,010
consensus for significant business decisions. The investment is evaluated using the equity method.
3
3
0
11.1 Investments in associates The item Investments in associates was composed as follows:
The share of net income (loss) which was negative to the amount of euro 9,613 thousand refers to the pro rata amount of the losses
for the 2017 financial year.
The investment which was evaluated using the equity method is not relevant in terms of the impact on the total of consolidated assets.
1
3
3
(In thousands of euro)
12. OTHER FINANCIAL ASSETS
12/31/2016
Decreases
Increases
dividends
Impairment
net income
Distrib. of
Share of
and reserves
(loss)
Share of other
components
Reclass.
recognised
and other
12/31/2017
in Equity
These amounted to euro 229,519 thousand compared to euro 198,691 thousand at December 31, 2016 and refer to financial assets
available for sale, measured at fair value, with any changes to the fair value recognised in equity. The changes which occurred during
the financial year are as follows:
Eurostazioni S.p.A.
6,271
-
Prelios S.p.A.
13,642
(10,397)
-
-
-
-
-
-
-
-
(3,118)
(127)
Fenice S.r.l.
9,048
Focus Investments S.p.A.
2,650
-
-
-
-
(8,556)
(215)
5,002
(2,802)
-
-
(539)
(759)
-
236
-
14
-
-
-
-
6,271
-
2,477
1,352
Other Group companies
835
(13)
1,496
(139)
2,429
Opening balance
Total
32,446
(10,410)
1,496
(8,556)
(754)
1,361
(2,915)
(139)
12,529
Translation differences
With reference to the investment in Fenice S.r.l., as in 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.
The item decreases refers to the disposal of the investment in Prelios S.p.A. on December 28, 2017 to Lavaredo S.p.A., a newly
established joint stock company designated by the Burlington fund who was counterparty in the transaction. The sale generated
a capital gain of euro 5,809 thousand.
The item distribution of dividends and reserves refers to the reduction in the capital of Fenice S.r.l. effected through the distribution
to shareholders of the amount collected by Fenice S.r.l. for the disposal of the investment held in Prelios S.p.A. to the Burlington
fund, in accordance with the preferential allocation criteria as provided for by the Articles of Association.
Increases
Decreases
Impairment
Fair value adjustments recognised in Equity
Other
Closing balance
(In thousands of euro)
12/31/2017
12/31/2016
198,691
225,121
(120)
2,465
(715)
12,594
(11)
(10,761)
(11,975)
(11,067)
40,486
(16,513)
(17)
32
229,519
198,691
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements The composition of the item according to individual securities is as follows:
13. DEFERRED TAX ASSETS AND PROVISION FOR DEFERRED TAX LIABILITIES
Mediobanca S.p.A.
RCS Mediagroup S.p.A.
Other companies
Total listed securities
Fin. Priv. S.r.l.
Fondo Anastasia
Istituto Europeo di Oncologia S.r.l.
Euroqube
Tlcom I LP
Emittenti Titoli
Equinox Two SCA
Pirelli De Venezuela C.A.
Other companies
Total unlisted securities
Total other financial assets
(In thousands of euro)
12/31/2017
12/31/2016
149,027
122,167
30,177
19,307
Their composition is as follows:
-
22
Deferred tax assets
179,204
141,496
Provision for deferred tax liabilities
19,908
16,471
Total
(In thousands of euro)
12/31/2017
12/31/2016
111,553
147,964
(1,216,635)
(1,452,169)
(1,105,082)
(1,304,205)
15,269
14,636
6,599
6,231
12
186
2,748
601
2,610
2,382
12
570
2,729
3,757
10,226
2,563
50,315
57,195
229,519
198,691
Deferred tax assets and deferred tax liabilities were offset 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 provision for deferred taxes mainly refers to the tax effect recognised on the value of the assets identified during the course
of the 2016 financial year following the completion of the allocation of the price paid by Marco Polo Industrial Holding S.p.A. for
the acquisition of the Pirelli Group at fair value of the Pirelli assets and liabilities acquired (Purchase Price Allocation or PPA), and
recorded in the consolidated Financial Statements following the merger by incorporation of the holding company Marco Polo
Industrial Holding S.p.A. into Pirelli, which took place during 2016.
The gross amounts for compensations carried out were as follows:
3
3
2
(In thousands of euro)
3
3
3
With reference to the investment in Pirelli de Venezuela C.A., consistently with the previous financial year, even though the
percentage of ownership exceeded 50% of the capital (96.22%), due to the significant restrictions on relevant activities of the
company, that cannot be considered temporary, it was deemed that conditions requested by IFRS 10 for control of the company
were not met.
Deferred tax assets
- of which within 12 months
- of which beyond 12 months
The item increases refers mainly to the acquisition of 1,559,250 shares of the company RCS Mediagroup S.p.A. for euro 1,678 thousand
Provision for deferred tax liabilities
- of which within 12 months
- of which beyond 12 months
Total
and the subscription to 74,555,289 new shares in addition to the existing investment in Alitalia-Compagnia Aerea Italiana S.p.A. for
the amount of euro 781 thousand.
The item impairment mainly refers to the investment in Pirelli De Venezuela C.A. (euro 7,616 thousand), whose fair value is
substantially represented by the impaired liquidity present in the country due to the depreciation recorded during the course of
2017 of the Venezuelan Bolivar against the US Dollar. The item refers mainly to the impairment of investments in Equinox Two S.C.A.
(euro 3,062 thousand) and in Alitalia-Compagnia Aerea Italiana S.p.A. (euro 781 thousand). It is to be noted that during the year the
Equinox Two S.C.A. fund made partial repayments relating to the share premium which in the past had been subscribed to by each
shareholder in the form of dividends for an amount substantially equivalent to the impairment recorded.
The fair value adjustment recognised in Equity, which amounted to a positive net value of euro 40,486 thousand, mainly refers to
the positive fair value adjustment recorded for the investments in Mediobanca S.p.A. (euro 26,859 thousand) in Fin. Priv. S.r.l. (euro
3,437 thousand), in the RCS Mediagroup S.p.A. (euro 9,193 thousand), in Fondo Anastasia (euro 633 thousand) and in the Istituto
Europeo di Oncologia S.r.l. (euro 368 thousand).
The fair value of listed financial instruments corresponds to the stock market price as at December 31, 2017.
The fair value of unlisted financial instruments was determined by making estimates on the basis of the best information available
.
12/31/2017
12/31/2016
288,944
243,993
75,345
54,882
213,599
189,111
(1,394,026)
(1,548,198)
(37,569)
(11,193)
(1,356,457)
(1,537,005)
(1,105,082)
(1,304,205)
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements The tax effect of temporary differences and of tax losses carried forward which make up the item is shown in the following table:
Of the total tax losses with no expiration, the amount euro 51,376 thousand mainly refers to losses attributable to the English
(In thousands of euro)
subsidiary Pirelli UK Ltd for which sufficient taxable income was not expected in order to justify the recoverability thereof.
Deferred tax assets:
Provisions for liabilities and charges
Employee benefit obligations
Inventories
Tax losses carried forward
Trade receivables and other receivables
Trade payables and other payables
Derivatives
Other
Total
Provision for deferred tax liabilities:
Property, plant and equipment and intangible assets
Other
Total
12/31/2017
12/31/2016
The tax effect of gains and losses recognised directly in equity was negative to the amount of euro 6,308 thousand (positive to the
amount of euro 14,438 thousand for 2016) 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
64,277
63,038
72,359
111,869
27,357
24,542
51,159
12,957
23,541
28,064
951
-
341
703
49,300
2,479
288,944
243,993
(1,313,032)
(1,506,688)
(80,994)
(41,510)
(1,394,026)
(1,548,198)
flow hedging.
14. TRADE RECEIVABLES
Trade receivables were analysed as follows:
12/31/2017
12/31/2016
Total
Non-current
Current
Total
Non-current
Current
Customers
919,573
Provision for bad debts
(267,086)
Total
652,487
-
-
-
919,573
965,948
(267,086)
(286,627)
652,487
679,321
-
-
-
965,948
(286,627)
679,321
(In thousands of euro)
3
3
4
At December 31, 2017 the value of deferred tax assets not recognised on temporary differences amounted to euro 57,114 thousand
gross of the provision for bad debts, euro 382,196 thousand are overdue (euro 441,483 thousand at December 31, 2016). The expired
(euro 97,905 thousand at December 31, 2016), while those related to tax losses amounted to euro 43,791 thousand (euro 125,231
receivables refer to euro 212.656 thousand due from Pirelli de Venezuela C.A. which had been fully impaired in previous financial years
thousand at December 31, 2016).
(euro 229.304 thousand at December 31, 2016).
Of the total trade receivables which amounted to euro 919,573 thousand (euro 965,948 thousand at December 31, 2016) and recorded
5
3
3
The value of the tax losses reallocated according to maturities, for which deferred tax assets were not recognised, were as follows:
Receivables which were past due (expired) and not yet due were evaluated according to the Group’s policy described in the section
(In thousands of euro)
on adopted accounting standards.
Year of maturity
12/31/2017
12/31/2016
Receivables on which provision has been recorded include both significant individual positions subject to individual impairment and
positions with similar credit risk characteristics that were grouped together and impaired on a collective basis.
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
without maturity date
Total
6,082
7,374
3,545
6,271
4,284
6,432
3,030
1,818
5,053
3,648
10,093
7,696
3,626
6,382
4,354
6,022
3,075
1,818
5,053
-
131,929
428,928
179,466
477,047
The changes in the provision for bad debts were as follows:
Opening balance
Change in scope
Translation differences
Accruals
Decreases
Other
Closing balance
(In thousands of euro)
12/31/2017
12/31/2016
286,627
265,808
(2,777)
-
(21,865)
11,060
17,659
18,173
(12,453)
(8,474)
(105)
60
267,086
286,627
The significant reduction in tax losses against which deferred tax assets were not recognised was mainly attributable to the use of
Accruals to the provision for bad debts are recognised in the Income Statement as “Other costs” (Refer to Note 33).
tax losses during the course of the financial year as well as to the recognition of deferred tax assets on the residual tax losses as at
December 31, 2017 of Pirelli & C. S.p.A. in light of their foreseeable recoverability on the part of the Italian companies of the Group.
The carrying amount for trade receivables is considered to approximate their fair value.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements 15. OTHER RECEIVABLES
Other receivables were analysed as follows:
12/31/2017
12/31/2016
from previous financial years recorded for Pirelli & C. S.p.A. to the amount of euro 6,578 thousand.
(In thousands of euro)
current) compared to euro 76.259 thousand at December 31, 2016 (of which euro 11,864 thousand was non-current). In more details,
this mainly refers to receivables for advance payments on taxes for the financial year and to corporate income tax (IRES) receivables
The item tax receivables relates to income taxes which amounted to euro 62.779 thousand (of which euro 27.318 thousand was non-
16. TAX RECEIVABLES
Total
Non-current
Current
Total
Non-current
Current
Financial receivables
131,096
94,585
36,511
125,665
95,714
29,951
Trade accruals and deferrals
Receivables from employees
34,548
6,974
1,513
1,225
33,035
44,589
5,749
9,355
2,618
1,273
41,971
8,082
17. INVENTORIES
Inventories were analysed as follows:
Receivables from social security and
welfare institutions
Receivables from tax authorities
not related to income taxes
5,535
-
5,535
6,037
-
6,037
247,015
13,521
233,494
138,841
9,975
128,866
Other receivables
181,808
93,207
88,601
180,455
117,288
63,167
Provision for bad debts
(2,387)
-
(2,387)
(2,452)
-
(2,452)
Total
604,589
204,051
400,538
502,490
226,868
275,622
606,976
204,051
402,925
504,942
226,868
278,074
Raw and auxiliary materials and consumables
Sundry materials
Work in progress and semi-finished products
Finished products
Advances to suppliers
Total
(In thousands of euro)
12/31/2017
12/31/2016
147,645
229,218
5,197
48,782
6,780
72,672
737,558
744,393
1,485
2,576
940,668
1,055,639
3
3
6
The item non-current financial receivables (euro 94,585 thousand) refers mainly to euro 41,535 thousand in sums deposited as
guarantees for tax and legal disputes in relation to the subsidiary Pirelli Pneus Ltda (Brazil) and remunerated at market rates, to
Reversal of impairment on inventories amounted to euro 7,486 thousand (impairments for euro 2,700 thousand at December 31, 2016).
7
3
3
euro 18,372 thousand in sums deposited into escrow accounts in favour of the pension funds of Pirelli UK Ltd and Pirelli UK Tyres Ltd,
to euro 4,638 thousand relative to the non-current portion of insurance premiums paid in advance during the financial year for the
Inventories were not subjected to any guarantee pledges.
issuance of guarantees in favour of the same pension funds, and to euro 12,007 thousand relative to the non-current portion of loans
disbursed to the Indonesian joint venture PT Evoluzione Tyres.
The item current financial receivables (euro 36,511 thousand) refers to euro 3,713 thousand, being the short-term portion of insurance
18. SECURITIES HELD FOR TRADING
premiums paid in advance for the issuance of guarantees in favour of the same pension funds, to euro 5,837 thousand, being the
Securities held for trading amounted to euro 33,027 thousand compared to euro 48,597 thousand at December 31, 2016, with a
short-term portion of loans disbursed to the Indonesian joint venture PT Evoluzione Tyres, and to euro 5,679 thousand accrued on
decrease of euro 15,570 thousand mainly due to the cash requirements for the period. This item is almost exclusively comprised of
derivative cross currency interest swaps relative to the unsecured syndicated Facilities loan granted to Pirelli International Plc.
unlisted floating rate bonds.
The item receivables from tax authorities not related to income taxes (euro 247.015 thousand) is mainly comprised of receivables
The fair value of unlisted securities was determined by making estimates on the basis of the best available information.
for IVA (value added tax) and other indirect taxes. This increase, if compared to December 31, 2016, was mainly attributable to an
increase in indirect tax receivables in Brazil.
Changes in fair values for the financial year were recognised in the Income Statement as “financial expenses”.
The item other non-current receivables (euro 93,207 thousand) mainly refers to amounts deposited as guarantees for legal and tax
disputes involving the Brazilian entities (euro 73,161 thousand), to receivables for guarantees in Pirelli’s favour which may be exercised
in the event of contingent liabilities arising in relation to the acquisition occurred in previous year of the company Campneus Lider
19. CASH AND CASH EQUIVALENTS
de Pneumaticos Ltda (Brazil) for euro 2,446 thousand.
Cash and cash equivalents went from euro 1,532,977 thousand at December 31, 2016 to euro 1,118,437 thousand at December 31, 2017.
The item other current receivables (euro 88,601 thousand) mainly includes advances to suppliers for euro 44,459 thousand,
These were concentrated in the Group holding companies and in companies that generate liquidity and use it locally. These
receivables from the disposal of property not used for industrial operations in Brazil for euro 2,519 thousand.
were essentially invested on the short-term maturity deposits market through leading banking counter-parties at interest rates
For other current and non-current receivables the carrying amount is considered to approximate their fair value.
consistent with the prevailing market conditions.
In the Statement of Cash Flows, the balance of cash and cash equivalents has been stated net of passive current accounts and
amounted to euro 8,797 thousand at December 31, 2017 (euro 18,411 thousand at December 31, 2016).
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements
20. EQUITY
International Italy S.p.A. on June 29, 2017, of euro 1,189,375
thousand, of which euro 558,994 thousand to be allocated
21. PROVISIONS FOR LIABILITIES AND CHARGES
to share capital and euro 630,381 thousand to the share
The changes that occurred during the financial year are shown below:
20.1 Attributable to the Parent Company The equity
attributable to the Parent Company went from euro 3,134,085
premium reserve, through the issue of 429,005,680 new
ordinary shares, without nominal value.
(In thousands of euro)
thousand at December 31, 2016 to euro 4,116,758 thousand at
>
the grouping of the company’s ordinary shares into
PROVISION FOR LIABILITIES AND CHARGES - NON-CURRENT PORTION
12/31/2017
December 31, 2017. This increase was substantially due to the
1,000,000,000 against 1,461,509,840 outstanding shares
capital increase, equal to euro 1,189,375 thousand including
as of August 1, 2017.
the premium, subscribed to in June 2017 by Marco Polo
International Italy S.p.A. (the direct shareholder following the
merger with Marco Polo International Holding Italy S.p.A.),
20.2 Attributable to non-controlling interests The
equity attributable to non-controlling interests went from
to the fair value adjustment of the investments available
euro 140,773 thousand at December 31, 2016 to euro 60,251
for sale (positive to the amount of euro 40,486 thousand)
thousand at December 31, 2017. The decrease was mainly due
and to the net income for the financial year (positive at euro
to the non-controlling interests of the Industrial Activities,
176,392 thousand) which was offset by: the reduction linked
subjected to assignment. Overall, non-controlling interests
to the assignment of all TP Industrial Holding S.p.A. shares
recorded a net decrease of euro 80,552 thousand euro as a
(parent company of the Industrial business) for the amount
result of the following main effects:
of euro 289,440 thousand, the difference from the translation
>
increase equal to euro 264,500 thousand resulting from
Opening balance
Change in scope
Translation differences
Increases
Uses
Reversals
Other
Closing balance
170,992
(31,005)
(6,893)
9,915
(15,092)
(534)
(259)
127,124
of foreign financial statements (negative at euro 86,153
the sale of 38% of the capital of Pirelli Industrial S.r.l
The non-current portion mainly refers to provisions made by the subsidiary Pirelli Pneus Ltda, with its headquarters in Brazil, for
thousand), the actuarial losses on pension funds (negative
(now Prometeon Tyre Group S.r.l) to Cinda on January 13,
tax and legal disputes (euro 22,069 thousand) and for labour lawsuits (euro 12,708 thousand), and to provisions made by the parent
at euro 14,656 thousand), and the fair value adjustment of
2017 under the agreement signed on December 28, 2016
company Pirelli & C. S.p.A. for tax disputes (euro 4,574 thousand), for commercial risks, site remediation and labour disputes (euro
derivatives designated as cash flow hedges (negative at euro
between Pirelli Tyre S.p.A and Cinda. The value of the sale
5,504 thousand), and for occupational diseases litigation (euro 14,657 thousand), to provisions made by Italian subsidiaries for tax
3
3
8
14,492 thousand).
was approximately euro 266 million;
risks (euro 8,910 thousand).
> decrease equal to euro 326,679 thousand resulting from
The item also includes contingent liabilities (whose outlay is not considered likely) which were identified during the Purchase Price
9
3
3
The subscribed and paid up share capital at December 31, 2017
the deconsolidation of the Industrial business, which took
Allocation and were mainly attributable to the European Commission decision made at the conclusion of the antitrust investigation
amounted to euro 1,904,375 thousand and was represented by
place in march 2017, due to the assignment of the total
regarding the energy cable business, which foresaw sanctions against Prysmian S.p.A. of approximately euro 104 million, of which a
1,000,000,000 registered ordinary shares without indication
shares of TP Industrial Holding S.p.A., previously held
part (euro 67 million), Pirelli was held as being jointly liable with Prysmian S.p.A. despite having been found to not have been involved
of their nominal value.
by Pirelli & C. S.p.A, to the sole shareholder Marco Polo
in the alleged cartel, based solely on the application of the principle of so-called parental liability, in that during part of the period of
The share capital went from euro 1,345,381 thousand gross
International Holding Italy S.p.A. TP Industrial Holding
the alleged infringement, Prysmian S.p.A. was a subsidiary of Pirelli & C. S.p.A. This meant the joint and several liability with Prysmian
of treasury shares in portfolio (euro 1,342,281 thousand net
S.p.A. holds 52% of the share capital of Pirelli Industrial
S.p.A. for the amount provisioned for 50% of the risk (euro 33,500 thousand).
of treasury shares held in portfolio), divided into 207,625,214
S.r.l (now Prometeon Tyre Group S.r.l), company in which
shares at December 31, 2016, to euro 1,904,375 thousand,
Pirelli’s Industrial assets were converged;
The item increases mainly refers to accruals for labour disputes within the subsidiary Pirelli Pneus Ltda (Brazil), and to tax risks.
divided into 1,000,000,000 shares at December 31, 2017.
> decrease equal to euro 9,580 thousand resulting from the
The change in the number of shares was determined by the
Comercial e Importadora de Pneus Ltda following the exercise
pending litigations against Pirelli Tyre S.p.A. and Pirelli C. S.p.A. for disputes relating to occupational diseases.
acquisition of a 36% stake in the subsidiary company
The item uses were for costs incurred mainly due to the labour disputes of the subsidiaries Pirelli Pneus Ltda (Brazil), and for settling
following transactions:
by the shareholder Distribudora Automotiva S.A. (“DASA”) of
>
the conversion of all outstanding special shares into the
a put option with respect to the Group concerning DASA’s
corresponding number of ordinary shares, the annulment
entire shareholding in Comercial e Importadora de Pneus
PROVISION FOR LIABILITIES AND CHARGES - CURRENT PORTION
of all the 351,590 ordinary treasury shares and all 772,792
Ltda. Following this acquisition the Group owns 100% of
special treasury shares without reducing the share capital
Commercial e Importadora de Pneus Ltda;
and the splitting of shares into 1,032,504,160 shares;
> decrease equal to euro 7,446 thousand resulting from the
> a capital
increase, fully subscribed by Marco Polo
distribution of dividends during the fiscal year.
Opening balance
Change in scope
Translation differences
Increases
Uses
Reversals
Other
Closing balance
(In thousands of euro)
12/31/2017
45,987
(7,629)
(1,701)
23,149
(9,458)
(4,661)
146
45,833
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements The current portion mainly includes provisions for product claims and warranties (euro 10,932 thousand), for the remediation of
The following table shows the composition of pension funds at December 31, 2016:
disused areas (euro 6,156 thousand) and work accident insurance relative to the English subsidiary (euro 3,439 thousand).
The item increases mainly refers to provisions for product claims and product guarantees, to the remediation of disused areas, to
risks related to rendering factories work safe, to tax risks, to labour disputes and work accidents.
The item uses was mainly attributable to claims received from the various units of the Group to costs incurred for the remediation
Funded funds
of disused areas and for the settlement of tax disputes.
(In thousands of euro)
12/31/2016
Germany
Sweden
Total
unfunded
pension funds
USA
UK
Other
countries
Total funded
pension
funds
The reversals of surplus provisions mostly concerned disputes, claims, the remediation of environmental areas and insurance risks.
Present value of funded liabilities
153,495
1,297,199
7,034
1,457,728
Fair value of plan assets
Unfunded funds
(122,338)
(1,182,241)
(6,786)
(1,311,365)
Present value of unfunded liabilities
93,410
3,378
96,788
Net liabilities recognised
93,410
3,378
96,788
31,157
114,958
248
146,363
22. EMPLOYEE BENEFIT OBLIGATIONS
The item is composed as follows:
Pension funds:
- funded
- unfunded
3
4
0
Employee leaving indemnities (TFR - Italian companies)
Healthcare plans
Other benefits
Total
(In thousands of euro)
The characteristics of the main pension funds in place at December 31, 2017 were as follows:
> Germany: a non-funded defined benefit plan based on the last salary. This fund guaranteed a pension in addition to the state
12/31/2017
12/31/2016
pension. The plan was closed in October 1982. Consequently the participants to this plan are employees whose employment had
92,144
91,035
33,083
18,885
38,890
146,363
96,788
38,194
20,761
65,994
274,037
368,100
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. It guarantees a pension in addition to the state pension and is
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
1
4
3
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
Pension funds The following table shows the composition of pension funds at December 31, 2017:
recipients of deferred pensions.
>
(In thousands of euro)
12/31/2017
Germany
Sweden
Total
unfunded
pension funds
USA
UK
Other
countries
Total funded
pension
funds
Funded funds
Present value of funded liabilities
132,483
1,137,456
36,067
1,306,006
Fair value of plan assets
Unfunded funds
(111,813)
(1,071,079)
(30,970)
(1,213,862)
Present value of unfunded liabilities
87,773
3,262
91,035
Net liabilities recognised
87,773
3,262
91,035
20,670
66,377
5,097
92,144
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements Changes for the 2017 financial year in the net liabilities of defined benefits (refers to funded and non-funded pension funds)
Changes for the 2016 financial year in the net liabilities of defined benefits (refers to funded and non-funded pension funds)
were as follows:
were as follows:
Opening balance
Translation difference
Movements through income statement:
- current service cost
- cost of services rendered for previous years
- earnings from settlement
- 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
Additonal employer contributions - Buy in
Employee contributions
Incentivised exit from benefits fund
Benefits paid
Other
Closing balance
3
4
2
Employer contributions
-
(43,690)
(In thousands of euro)
(In thousand of euro)
Present value
of gross
liabilities
Fair value of
plan assets
Total net
liabilities
Present value
of gross
liabilities
Fair value of
plan assets
Total net
liabilities
1,554,516
(1,311,365)
243,151
Opening balance at January 1, 2015
1,507,833
(1,257,045)
250,788
(63,468)
56,428
(7,040)
Translation difference
(183,676)
167,003
(16,673)
1,538
(5,559)
(1,375)
40,590
35,194
237
25,746
(7,940)
18,043
-
-
-
(35,554)
(35,554)
-
-
-
(3,277)
(3,277)
250
(77,085)
(69,404)
(1,004)
(18,674)
(250)
77,085
63,254
2,180
1,538
(5,559)
(1,375)
5,036
(360)
237
25,746
(7,940)
(3,277)
14,766
(43,690)
(18,674)
-
-
(6,150)
1,176
Movements through income statement:
- current service cost
- interest expense / (income)
Remeasurements recognized in equity:
- (gain)/loss from change in demographic assumptions
- (gain)/loss from change in financial assumptions
- experience (gains) losses
989
50,661
51,650
1,816
272,810
(22,656)
-
(43,766)
(43,766)
-
-
-
989
6,895
7,884
1,816
272,810
(22,656)
- return on plan assets, net of interest income
-
(205,275)
(205,275)
Employer's contributions
Employee contributions
Benefits paid
Other
251,970
(205,275)
46,695
-
24
(72,838)
(447)
(41,035)
(41,035)
(24)
66,766
2,011
-
(6,072)
1,564
3
4
3
Closing balance at December 31, 2016
1,554,516
(1,311,365)
243,151
The current and previous cost for services rendered by employees and the gains generated from settlements are included in the item
1,397,042
(1,213,863)
183,179
“Personnel expenses” (Refer to Note 31), and the net interests payable are included in “Financial expenses” (Refer to Note 36).
During the course of the 2017 financial year 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. These exercises are subdivided
into two types:
> Pension Increase Exercises (PIE): these consisted of offers made to retirees to swap annuities which were (partially) indexed
to inflation with higher amounts initially but with reduced indexation. The reduction of this indexation, besides representing
a measure of risk management, allows for the redefinition of past performance costs, with a positive effect of euro 5,335
thousand;
> Enhanced Transfer Value (ETV): these consisted of offers made to retirees for an incentivised exit from defined benefit funds.
This is also primarily a risk management measure, namely to combat the exposure of the company to all pension risks (not
just inflation risks, but also rates, longevity and investment risks) linked to retirement benefits amounts matured by those
who accept these offers. The estimated earnings generated from extinction (euro 1,375 thousand) were mainly related to the
(downward) trend in interest rates between the date of the offer and the end date of the financial year.
In addition, at the end of October 2017, with reference to three UK minor pension funds – the Pirelli General Executive Pension and
Life Assurance Fund, Pirelli Tyres Limited Executive Retirement Benefits Scheme and Pirelli General Overseas Retirement Benefits
Scheme - which together had recorded a gross liability at December 31, 2017 equal to euro 85,512 thousand, certain so-called “buy in”
had been entered into which consisted of the purchase of insurance policies (so-called “bulk annuities”). The purchase was entirely
finalised by using all the plan assets, with the addition of an additional contribution at December 31, 2017 of euro 18,674 thousand
which was recognised in equity.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements The policies were stipulated on an individual basis (for each member of the funds) but on a collective basis (one for each of the three
represents the value of assets - through the use of debt instruments such as government bonds and derivatives;
pension funds) with the intention of replicating the financial profile of their respective liabilities, in order to thus relieve the Group
>
the management of exchange rate risk which aims at covering at least 70% of the exposure to foreign currencies held in the
of all the aforementioned risks.
portfolio through the use of forward contracts.
At December 31, 2017, these insurance policies were recognised in the Financial Statements as assets servicing the plans and were on
Polo Industrial Holding S.p.A. and the impact deriving from the covenants of the Group, an agreement (the Pension Framework Agreement)
Furthermore, during the course of 2016, following the increase in financial leverage resulting from the merger of Pirelli & C. S.p.A. with Marco
the same basis as the liabilities to which they refer.
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
The composition of funded pension fund assets was as follows:
escrow accounts, and the definition of an accelerated contributions plan limited to a period of extraordinary leverage) was put in place to
(In thousand of euro)
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.
12/31/2017
12/31/2016
listed
unlisted
total
%
listed
unlisted
total
%
2020. In the United States funding evaluations are carried out on an annual basis.
In the UK, the funding arrangements and funding policies are revised every three years. The next funding evaluation is expected in
Shares
Bonds
66,421
73,535
-
-
66,421
73,535
Insurance policies
87,717
6,040
93,757
5.5%
6.1%
7.7%
71,493
347,644
419,137
141,921
28,405
170,326
-
6,786
6,786
Deposits
339,083
-
339,083
27.9%
306,869
(50,795)
256,074
Balanced funds
16,813
596,829
613,642
50.6%
6,279
307,740
314,019
Real Estate
Derivatives
Other
Total
3
4
4
1,258
-
1,258
879
4,120
4,999
21,168
-
21,168
0.1%
0.4%
1.7%
-
-
-
-
81,549
81,549
10,301
53,172
63,473
606,874
606,989
1,213,863
100.0%
536,864
774,501
1,311,365
100.0%
32.1%
13.0%
0.5%
19.5%
23.9%
0.0%
6.2%
4.8%
The contributions which are expected to be paid into the unfunded pension funds during the 2018 financial year amounts to euro
6,177 thousand, while for funded pension funds the amount expected is euro 32,463 thousand.
Employees’ leaving indemnities (TFR) Changes for the financial year for the employees’ leaving indemnities provision were as follows:
The principal risks to which the Group is exposed in relation to the pension funds are detailed as follows:
>
the volatility of the pension fund assets: in order to be able to balance liabilities, the investment strategy cannot limit its horizons
exclusively to risk free assets. This implies that certain investments, such as listed securities represent high volatility for the
Remeasurements recognized in equity:
short-term, and that this exposes the plans to risks such as the reduction in value of the assets in the short-term, and to the
- actuarial (gains)/losses arising from changes in demographic assumptions
consequent increase in imbalances. However, this risk is mitigated by diversifying investments into numerous investment
- actuarial (gains)/losses arising from changes in financial assumptions
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 the 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 had reached a coverage which oscillates between 100% and 115% of the value of the liabilities covered by assets;
- experience (gains)/losses
Indemnities/advanced payments
Other
Closing balance
Opening balance
Industrial assignment
Movements through Income Statement:
- current service cost
- interest expense
(In thousands of euro)
12/31/2017
12/31/2016
38,194
38,625
(1,949)
-
5
4
3
302
552
(488)
581
(2,510)
(1,083)
(516)
629
814
-
1,974
-
(3,587)
(261)
33,083
38,194
>
life expectancy: the increase in life expectancy entails an increase in the value of a plan’s liabilities. The UK plans were completed
The current cost for services rendered by employees is included in the item “Personnel expenses” (Refer to Note 31) while interest
during the course of 2016, a process which allowed them to be, through the so-called longevity swaps, stipulated with a pool of
payables are included in the item “Financial expenses” (Refer to Note 36).
insurance companies, to cover approximately 50% of the risks. Residual risks are evaluated by using prudent hypotheses whose
adequacy is revised periodically.
In the UK the management of pension fund assets has been delegated, under the supervision and within a precise mandate attributed
Healthcare plans This item refers exclusively to the healthcare plan in place in the United States.
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).
The key parameters of this mandate were as follows:
> a mix of assets subject 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
Liabilities recognised in the Financial Statements at 12/31/2017
Liabilities recognised in the Financial Statements at 12/31/2016
(In thousands of euro)
USA
18,885
20,761
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements The following changes occurred during the period:
The following table presents an analysis of the payment deadlines relative to post-employment benefits:
Opening balance
Translation differences
Movements through income statement:
- current service cost
- interest expense
Remeasurements recognised 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
(In thousands of euro)
12/31/2017
12/31/2016
within 1 year
1 to 2 years
3 to 5 years
over 5 years
Total
(In thousands of euro)
20,761
21,449
Pension funds
63,915
64,258
194,778
(2,553)
638
Employees' leaving indemnities (TFR)
Healthcare plan
2,707
1,425
2,404
1,417
7,459
4,202
65,316
10,850
6,466
388,267
23,420
13,510
4
749
691
4
792
266
132
347
(1,114)
(1,350)
(1,170)
18,885
20,761
68,047
68,079
206,439
82,632
425,197
The weighted average term for bonds for post-employment benefits is equal to 15.29 years (16.17 years at December 31, 2016).
The sensitivity analysis for the relevant actuarial assumptions at the end of the 2017 financial year was as follows:
Impact on post employment benefits
Change in assumptions
Increase in assumptions
Decrease in assumptions
(in %)
The cost for the service is included in the item “Personnel expenses” (Refer to Note 31), and net interests payable is included in “Financial
expenses” (Refer to Note 36).
Discount rate
0.25%
decrease of
3.61%
increase of
Inflation rate (only UK plans)
0.25%
increase of
2.46%
decrease of
3
4
6
The contributions which are expected to be paid into the healthcare plan during the 2018 financial year amount to euro 1,425
thousand.
At the end of the 2016 financial year the situation was as follows:
3.83%
2.23%
(in %)
7
4
3
Additional information regarding post-employment benefits Net actuarial losses accrued during the 2017 financial
year and recognised directly in equity amounted to euro 14,656 thousand.
Impact on post employment benefits
Change in assumptions
Increase in assumptions
Decrease in assumptions
The main actuarial assumptions used at December 31, 2017 were as follows:
Discount rate
0.25%
decrease of
6.53%
increase of
Inflation rate (only UK plans)
0.25%
increase of
3.47%
decrease of
4.17%
2.77%
Italy
Germany
Netherlands
Sweden
UK
USA
Switzerland
Discount rate
Inflation rate
1.60%
1.50%
1.60%
1.50%
2.15%
1.60%
2.25%
1.75%
2.50%
3.10%
3.50%
N/A
0.70%
1.00%
The main actuarial assumptions used at December 31, 2016 were as follows:
Italy
Germany
Netherlands
Sweden
UK
USA
Switzerland
Discount rate
Inflation rate
1.50%
1.00%
1.50%
1.50%
1.50%
1.50%
2.15%
1.50%
2.70%
3.18%
3.90%
N/A
0.70%
1.00%
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 by using the central hypothesis on the rates themselves, rather than referring 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:
Long-term incentive plans
Jubilee awards
Leaving indemnities
Other long-term benefits
Total
(In thousands of euro)
12/31/2017
12/31/2016
-
15,072
19,262
12,974
6,654
38,890
18,303
25,778
6,841
65,994
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements
The item “Long-term Incentive Plans” at December 31, 2016 included the amount earmarked for the new three-year 2016 Long-
20,000 thousand reported under current borrowings from banks, while the residual part of euro 10,000 thousand has been
term Incentive Plan intended for the Group’s management. In order to maintain the alignment of the interests of management
reported under non-current borrowings from banks;
with the interests of Shareholders, also in consideration of the launch of the new 2017-2020 strategic plan as well as Pirelli’s listing,
> euro 51,528 thousand refers in particular to certain loans classified as current borrowings from banks granted to the Mexican subsidiaries;
this incentive plan was closed early during the course of the financial year. As a result of the early closure, the matured liability was
> euro 31,004 thousand representing the two long term loans granted to the subsidiary Pirelli Otomobil Lastikleri (Turkey) and
reclassified under the item “payables to employees” at December 31, 2017.
classified as current borrowings from the banks;
23. BORROWINGS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS
Borrowings from banks and other financial institution were as follows:
> bank finance and the use of credit facilities at local level in Russia (euro 8,762 thousand), in Japan (euro 5,925 thousand) and in
Sweden (euro 5,075 thousand), classified entirely as current borrowings from banks.
At December 31, 2017 the Group recorded a liquidity margin equal to euro 1,851.5 million composed of euro 700 million in the form of
a non-utilised nominal credit facility and euro 1,151.5 million in cash and cash equivalents and securities held for trading.
(In thousands of euro)
The change in the total borrowings from banks and other financial institutions was follows:
12/31/2017
12/31/2016
Opening balance
Total
Non-current
Current
Total
Non-current
Current
Drawdowns of secured financing (Senior Facilities)
Bonds
596,280
596,280
-
594,314
594,314
-
Reimbursements of secured financing (Senior Facilities)
Borrowings from banks
3,787,428
3,298,717
488,711
5,932,336
5,349,503
582,833
Drawdowns of unsecured financing (Facilities)
Borrowings from other financial institutions
50,267
1,176
49,091
24,300
1,567
22,733
Reimbursements of unsecured financing (Facilities)
Financial leasing payables
428
324
104
78
Accrued financial expenses and deferred
financial income
18,175
30
18,145
29,253
18
36
60
29,217
3
4
8
Total
4,456,257
3,897,089
559,168
6,588,046
5,945,999
642,047
Other financial payables
3,679
562
3,117
7,765
561
7,204
Reimbursement of BEI borrowing
Net cash flow from Industrial assignment
Amortized cost for the period
Translation differences and other movements for the period
Closing balance
(In thousands of euro)
6,588,046
673,937
(5,899,338)
4,226,064
(863,405)
(20,000)
(49,960)
81,336
(280,423)
4,456,257
9
4
3
The item bonds refers to the unrated bond, placed by Pirelli International Plc on the Eurobond market in November 2014 for the
Accrued financial expenses and deferred financial income (euro 18,175 thousand) mainly refers to the accrual of interest on loans
nominal amount of euro 600 million, with a fixed coupon of 1.75%.
from banks to the amount of euro 16,784 thousand (euro 24,902 thousand at December 31, 2016), and to the accrued interest matured
On February 23, 2018 Pirelli International Plc decided to exercise the option for early repayment and the subsequent cancellation of
the bond. The early repayment, which will cover the entire loan, and which responds to the objective announced for the constant
Current and non-current financial payables backed by secured guarantees (pledges and mortgages) totalled euro 676 thousand
optimisation of the Group’s financial structure, will take place through the exercise of the “Make Whole Issuer Call” which is provided
(euro 5,290,188 thousand at December 31, 2016). The amount at December 31, 2016 refers mainly to the secured “Senior Facilities”
for by the current Terms and Conditions of the loan. The operation is expected to be finalised by March 31, 2018.
financing granted to Pirelli & C. S.p.A. and Pirelli International Plc.
on bonds to the amount of euro 1,237 thousand (euro 1,237 thousand at December 31, 2016).
The item borrowings from banks, which amounted to euro 3,787,428 thousand, mainly refers to:
On June 29, 2017, the real guarantees constituted on all the assets granted as collateral by the Pirelli Group were unconditionally
> the use of the unsecured (“Facilities”) financing granted to Pirelli & C. S.p.A. and Pirelli International Plc for the amount of euro 3,277,477
and irrevocably cancelled against the euro 6.4 billion financing subscribed to on July 25, 2016 which was fully repaid on June 29, 2017.
thousand. The contractual refinanced total of the operation subscribed to on June 27, 2017, (with a closing date of June 29, 2017) amounted
to euro 4.1 billion (it had originally amounted to euro 4.2 million). This refinancing was achieved at a lower overall cost of less than 1.85%
The carrying amount for current financial payables is considered to approximate their fair value. The table below compares the fair
with maturities in three and five years. This financing which had first been subscribed to by three underwriters was subsequently the
value of non-current financial payables with their carrying amount:
subject of syndication by a pool of 18 credit institutions on July 7, 2017. It is to be noted that at December 31, 2016 the Pirelli Group was
financed by secured credit facilities of which the amount of euro 5,280,746 thousand had been used, against the contractual credit amount
of euro 6,289,820 thousand, which had originally been euro 6.4 billion. On June 27, 2017, Marco Polo International Italy S.p.A. subscribed
to a share capital increase for Pirelli & C. S.p.A. of approximately euro 1.2 billion, which allowed the Group to reduce its bank debt by the
same amount through the new financing operation. The refinancing involved the recognition of the extinction of the secured loan and
the subsequent reversal to the Income Statement of the portion of costs not amortised at the reporting date (Refer to Note 36 – “Financial
12/31/2017
12/31/2016
Carrying amount
Fair value
Carrying amount
Fair value
(In thousands of euro)
Pirelli International Plc bonds
596,280
613,998
594,314
609,888
expenses”). This financing has been entirely classified under long-term borrowings from banks;
Borrowings from banks
3,298,717
3,355,453
5,349,503
5,349,925
> euro 372,981 thousand relative to loans disbursed in Brazil by local banking institutions of which euro 10,746 thousand has been
Other financial payables
2,092
2,092
2,182
2,182
classified as non-current borrowings from banks;
>
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 30,000 thousand (euro 50,000 thousand at December 31, 2016), which were fully used, with euro
Total
3,897,089
3,971,543
5,945,999
5,961,995
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements The public bond issued by Pirelli International Plc is listed and its relative fair value has been measured on the basis of prices at
financial year-end. It has therefore been classified in level 1 of the hierarchy provided for by IFRS 13 – Fair Value Measurement.
The apportionment of borrowings from banks and other financial institutions according to the currency of origin for the debt, at
December 31, 2017 and December 31, 2016 was as follows:
24. TRADE PAYABLES
Trade payables were composed as follows:
(In thousands of euro)
(In thousands of euro)
12/31/2017
12/31/2016
12/31/2017
12/31/2016
Total
Non-current
Current
Total
Non-current
Current
EUR
USD (US Dollar)
BRL (Brasilian Real)
MXN (Mexican Peso)
TRY (Turkish Lira)
Other Currencies
Total
2,270,509
4,439,989
1,968,909
1,786,734
105,471
265,122
51,528
31,004
28,836
47,351
37,737
11,113
4,456,257
6,588,046
Suppliers
Bill and notes payable
Total
1,634,950
38,692
1,673,642
-
-
-
1,634,950
1,463,888
38,692
34,604
1,673,642
1,498,492
-
-
-
1,463,888
34,604
1,498,492
The carrying amount of trade payables is considered to approximate their fair value.
At December 31, 2017 there were derivative hedging instruments for interest rates and exchange rates on floating rate debts in
foreign currency.
25. OTHER PAYABLES
Other payables were as follows:
The Group’s exposure to changes in interest rates on financial payables, both in terms of the type of interest rate and in terms of the
3
5
0
date of the renegotiation of the same (resetting) was subdivided as follows:
> a floating rate payable to the amount of euro 3,441,453 thousand, whose interest rate is subject to renegotiation within the first
six months of 2018;
> a fixed rate payable to the amount of euro 1,014,804 thousand, whose interest rate is not subject to renegotiation until the natural
maturity of the debt to which it refers (euro 414,116 thousand) due in the following 12 months and euro 600,688 thousand euro
due in over 12 months.
The average cost of debt during the 2017 financial year was equal to 5.36% (5.82% for 2016).
With regard to the existence of financial covenants, it is to be noted that the refinancing operation (“Facilities”) granted to Pirelli
& C. S.p.A. and Pirelli International Plc provides for the compliance with the maximum ratio (“Total Net Leverage”) between net
12/31/2017
12/31/2016
1
5
3
Total
Non-current
Current
Total
Non-current
Current
(In thousands of euro)
Accrued expenses and deferred income
75,787
43,995
31,792
81,215
42,046
39,169
Tax payables not related to income
taxes
120,100
5,730
114,370
107,991
5,868
102,123
Payables to employees
115,835
817
115,018
138,390
-
138,390
Payables to social security and
welfare intitutions
Dividends payable
Other payables
71,058
21,332
49,726
86,677
36,467
50,210
338
-
338
6,442
-
6,442
256,571
2,561
254,010
449,786
3,040
446,745
indebtedness and the gross operating margin as reported in the consolidated Financial Statements of Pirelli & C. S.p.A.
Total
639,689
74,435
565,254
870,500
87,421
783,079
The failure to comply with the financial covenant is identified as an event of default, which if exercised within the terms and conditions
of the contract by a certain number of the lending banks, whereby they represent at least 66 2/3% of the total commitment, will
result in the early repayment (either partial or total) of the loan with the simultaneous cancellation of the related commitment. This
The item non-current accrued expenses and deferred trade income refers to euro 41,290 thousand in capital contributions received
parameter results as having been complied with at December 31, 2017.
for investments in Mexico and Romania, whose benefits are recognised in the Income Statement in proportion to the costs for which
The refinancing operation provides for a Negative Pledge clause whose terms and conditions are consistent with the market
the contribution was disbursed, to euro 2,180 thousand in costs for trade initiatives in Brazil.
standards for this type of credit facility.
The other outstanding financial payables do not contain financial covenants.
The item current accrued expenses and deferred trade income includes euro 10,090 thousand for various trade initiatives realised
in Germany and Brazil, euro 9,275 thousand in government grants and incentives received mainly in Italy, Romania and Brazil, and
It is to be noted that on January 22, 2018 as part of the EMTN (Euro Medium Term Note) program approved by the Board of Directors
euro 2,525 thousand for costs related to insurance coverage in some European countries, Argentina and Turkey.
at the end of 2017 and subscribed to on January 10, 2018, Pirelli placed a bond loan with international institutional investors for a
nominal amount of euro 600 million with a five year duration at a fixed rate.
The item tax payables for taxes not related to income is mainly comprised of payables for VAT 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 payables
from the three year Long-Term Incentive plan 2016-2018 intended for the Group’s management, and closed early during the course
of the 2017 financial year to the amount of euro 8,717 thousand.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements
The item other current payables (euro 254,010 thousand) mainly includes:
The composition of the items by type of derivative instrument is as follows:
> euro 24,979 thousand in advance payments (euro 307,270 thousand at 31 December 2016). At December 31, 2016 the item included
the amount of euro 265,045 thousand as advance payment on December 30, 2016 from the Cinda fund for the disposal of the 38%
share of Pirelli Industrial finalised during the course of January 2017;
> euro 105,431 thousand for the purchase of property, plant and equipment (euro 66,789 thousand at December 31, 2016);
Current assets
> euro 21,111 thousand for costs incurred in relation to the IPO process;
(In thousands of euro)
12/31/2017
12/31/2016
> euro 18,589 thousand relative to the residual debt payable to the minority shareholder Distribudora Automotiva S.A., for the
purchase of a 36% stake in the subsidiary Comercial and Importadora, a Group company which owns a network of points of sale
in Brazil. Following the transaction, Comercial and Importadora de Pneus Ltda was wholly owned by the Group;
Forward foreign exchange contracts - fair value recognised in the Income Statement
27,770
17,122
Average rate forward - cash flow hedge
Futures - cash flow hedge
1,196
5,671
> euro 18,459 thousand in payables to representatives, agents, professionals and consultants (euro 21,367 thousand at December
Total current assets
27,770
23,989
31, 2016);
> euro 14,872 thousand in withholding taxes on income (euro 12,476 thousand at December 31, 2016);
> euro 15,000 thousand in payables to companies in the Prometeon group;
> euro 7,857 thousand in payables to directors, auditors and supervisory bodies (euro 7,617 thousand at December 31, 2016);
> euro 2,638 thousand for debts relating to customs duties, import and transport expenses.
Non current assets
Interest rate swaps - cash flow hedge
Current liabilities
Total non current assets
878
878
-
For other current and non-current payables, the carrying amount is considered to approximate their fair value.
26. TAX PAYABLES
3
5
2
Tax payables were for the most part related to national and regional income taxes in different countries and amounted to euro
50,815 thousand (of which euro 2,399 thousand was for non-current liabilities), compared to euro 45,147 thousand at December 31,
2016 (of which euro 3,374 thousand was for non-current liabilities).
27. DERIVATIVE FINANCIAL INSTRUMENTS
The item includes the fair value of derivative instruments and is composed as follows:
Forward foreign exchange contracts - fair value recognised in the Income Statement
(17,910)
(51,845)
Futures - cash flow hedge
-
(325)
Total current liabilities
(17,910)
(52,170)
Non current liabilities
Cross currency interest rate swaps - cash flow hedge
Total non current liabilities
(54,963)
(54,963)
-
-
Derivative financial instruments not in hedge accounting The value of foreign currency derivatives included in assets
and liabilities corresponds to the fair value of forward currency purchases/sales outstanding at the closing date of the period. These
were hedge operations for the commercial and financial transactions of the Group for which hedge accounting option was not
adopted. The fair value was determined by using the forward exchange rate at the reporting date.
3
5
3
(In thousands of euro)
12/31/2017
12/31/2016
Non
current
assets
Current
assets
Non
current
liabilities
Current
liabilities
Current
assets
Current
liabilities
Derivative financial instruments with the adoption of hedge accounting The value of interest rate derivatives
recorded as non current assets to the amount of euro 878 thousand refers to the fair value of three forward start interest rate swaps
with a notional amount of euro 250 million traded in September 2017, with start dates of June 2019 and maturing in June 2022, which
exchange a fixed rate against a 6-month EURIBOR.
The objective of these derivatives, for which hedge accounting of the cash flow hedge type was adopted, is to hedge a future
transaction represented by interest flows on a fixed rate liability which is considered highly probable. The change in fair value for the
-
-
6,357
21,413
878
-
-
-
-
-
-
(54,963)
(6,662)
13,403
(16,102)
period, positive at euro 878 thousand has been entirely suspended in equity.
(11,248)
3,718
(35,742)
A change of +0.5% in the EURIBOR curve, all other conditions being equal, would result in a positive change of euro 3,567 thousand
in the equity of the Group, while a change of -0.5% in the EURIBOR curve, all other conditions being equal, would result in a negative
change of euro 3,692 thousand in the equity of the Group.
1,196
-
-
-
-
5,672
(326)
878
27,770
(54,963)
(17,910)
23,989
(52,170)
Without adoption of hedge accounting
Exchange rate derivatives - commercial positions
Exchange rate derivatives - included in net
financial position
Hedge accounting adopted
- cash flow hedge:
Exchange rate derivatives - commercial positions
Interest rate derivatives
Other derivatives
Total
- Total derivatives included in net financial
position
-
21,413
(54,963)
(11,248)
3,718
(35,742)
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements 3
5
4
5
5
3
The value of other derivatives, detected amongst non-current liabilities to the amount of euro 54,963 thousand, refers to the fair
another case under consideration by the Brazilian Supreme
of Technology) specifically commissioned by Pirelli Pneus who
value valuation of 11 cross currency interest rate swaps with the following characteristics:
Court, which will have to express its legal position through a
concluded their analysis by equating, in light of their similar
Derivative
Notional amount
Notional amount
(USD million)
(Euro million)
Start date
Maturity
CCIRS
CCIRS
CCIRS
CCIRS forward start
Total
1,079
922
July 2017
July 2019
pay floating EURIBOR / receive floating LIBOR
284
682
2,045
1,079
3,124
243
July 2017
June 2020
pay floating EURIBOR / receive floating LIBOR
582
July 2017
June 2022
pay floating EURIBOR / receive floating LIBOR
1,747
920
July 2019
June 2022
pay fix EURIBOR / receive floating LIBOR
2,667
sentence with binding scope for everyone, on the impossibility
characteristics, the tyres discussed with those used for heavy
for a Federal State to penalise the tax payer for the use of
industrial vehicles.
credits granted by law by another Federal State, even if
The risk is estimated at approximately euro 38 million, inclusive
that law did not observe constitutional rules. According to
of tax, interests and penalties.
a previous jurisprudence of the Supreme Court, this dispute
The risk of losing has not been assessed as probable and,
should be managed by the Federal States, and without unduly
therefore, no provision has been made in the Financial
penalising the tax payer.
Statements for this dispute.
In addition to the above, a legislative provision (Complementary
Law No. 160) came into force on August 8, 2017, which should
put an end to this dispute between the various states in Brazil.
This legislation establishes that the aforementioned States
Disputes concerning transfer pricing with
respect to certain intra-group transactions
Pirelli Pneus is involved in a dispute with the Brazilian tax
may, on a voluntary basis, sign an agreement (the so-called
authorities concerning corporate income tax (IRPJ - Imposto
The objective of these derivatives, for which hedge accounting of the cash flow hedge type was adopted, was to hedge the Group
“convênio”) which given certain conditions is able to validate the
de Renda Pessoa Jurídica) and social contribution (CSLL -
against the risk of fluctuations in cash flows associated with changes in the LIBOR rate and changes in the USD/ EUR exchange
incentives which up to now have been considered illegitimate,
Contribuição Social sobre o Lucro Líquido) payable by the company
rate, generated by a floating rate liability in USD for a notional amount of USD 3,124 million, equivalent to euro 2,667 million. The
and therefore also extinguish the related sanctions imposed
for the fiscal periods of 2008, 2011 and 2012 with reference to
change in the fair value for the period was negative at euro 54,963 thousand, and was suspended in equity to the amount of euro
by the Brazilian tax authorities. To date there are still some
the application of the so-called transfer pricing regulations for
13,384 thousand, while euro 41,579 thousand was recognised in the Income Statement under the item “Valuation at fair value of foreign
implementative aspects to be defined before this new
import dealings with related parties.
currency derivatives”. (Refer to Note 35).
provision can be applied to the case in question, however there
Based on the assessment notices sent to the company during
A parallel change of +0.5% in the EURIBOR and LIBOR curves, all other conditions being equal, would result in a positive change of
is a clear indication of the commitment by the Brazilian States
2013, 2015 and 2016, the Brazilian tax authorities are mainly
euro 12,178 thousand in the equity of the Group, while a change of -0.5% in the same curves, all other conditions being equal, would
to put an end to these forms of objections and to prevent new
contesting the incorrect application by the company of the
result in a negative change of euro 12,613 thousand in the equity of the Group
ones in the future.
methodology provided for by the administrative practice then
28. COMMITMENTS AND RISKS
Commitments for the purchase of property, plant and equipment The commitments to purchase property, plant and
equipment amounted to euro 141,153 thousand and refer mainly to companies in Romania, Brazil, Russia and Mexico.
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, for an amount equal to a maximum of euro 1,784 thousand.
Other RISKS
Tax disputes in Brazil
The subsidiary Pirelli Pneus is involved in tax disputes and litigations as described as follows.
Disputes concerning the ICMS tax receivables assigned by the State of Santa Catarina
The risk is estimated at approximately euro 173 million,
in force (IN - Instrução Normativa 243 or normative instructions)
inclusive of taxes, interests and penalties.
for the evaluation of transfer prices applied to the importation
The risk of losing has not been assessed as probable and,
of goods from related parties. To date, the claim motioned by
therefore, no provision has been made in the Financial
the company is pending before the competent administrative
Statements for this dispute.
tax courts. Even though the first administrative ruling issued
Litigation concerning the IPI tax rate applicable
to certain types of tyres
proved unfavourable to Pirelli Pneus, the Group nevertheless
maintains that it has a good chance of winning having
assessed the intra-group transactions in question pursuant
The subsidiary Pirelli Pneus is involved in a tax disputes with the
to the provisions of the legislation in force for the time being,
Brazilian tax authorities concerning the IPI tax with particular
which should prevail over the aforementioned administrative
reference to the tax rate applicable to the production and
practice (IN 243) of the Brazilian tax authorities.
importation of tyres for the Sport Utility Vehicle (SUV), Vans
The risk is estimated at approximately euro 35 million, inclusive
and other industrial transportation vehicles (such as, for
of tax, interests and penalties.
example, trucks).
The risk of losing has not been assessed as probable and,
According to statements by the Brazilian tax authorities in the
therefore, no provision has been set aside in the Financial
tax assessment notices issued during the course of 2015 and
Statements for this dispute.
2017, the aforementioned tyres should have been subjected
to the IPI tax rate for the production and importation of tyres
for cars – an applicable rate of 15% - instead of the 2% rate
Disputes concerning the IPI tax rate with respect
to the sale of tyres to the automotive sector
Pirelli Pneus is involved in a dispute concerning the IPI tax rate,
With reference to the dispute concerning the ICMS tax receivables (Imposto Sobre Operações Relativas à Circulação or state value
applied by Pirelli Pneus, as provided for the production and
added tax) assigned by the State of Santa Catarina, Pirelli Pneus Ltda received notices of assessment which disavowed the ICMS tax
importation of tyres for heavy industrial use vehicles. To date,
(Imposto sobre Produtos Industrializados or tax on industrialised
receivables. The claim was motioned by the State of São Paulo, according to which Pirelli Pneus benefited from the ICMS tax credits
the dispute is pending before the competent administrative
products) also with reference to a case of the sale of
assigned by the State of Santa Catarina, but which were deemed to have been unlawful from the start in that they were assigned by
and tax commissions and, despite a first unfavourable decision
components to companies operating in the automotive sector.
the latter in violation of the Brazilian Constitution, in the absence of a previous agreement between the various States. The dispute
regarding the assessment relating to the 2015 fiscal period,
According to the Brazilian tax authorities claim as stated in a
has been presented before the competent administrative and tax commissions and, despite the first decisions not being favourable
the Group maintains that it has a good chance of winning.
notice of assessment issued in 2013, Pirelli Pneus should not
to Pirelli Pneus, the Group maintains that it has a good chance of winning the next court of law.
This position is also supported by an appraisal prepared by a
benefit, with reference to its secondary office established in
This assessment was based on an orientation in favour of the tax payer whose legal position is strengthening, in particular, as with
Brazilian government institution (the INT - National Institute
the city of Ibiritè in the Federal State of Minas Gerais, form
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements the IPI tax rate exemption as provided for by law in the case
to the Brazilian tax authorities, should not benefit from
of sales of certain components to companies operating in the
the provision for tax exemption - approximately euro 11
INCOME STATEMENT
automotive sector.
million inclusive of taxes, interests and penalties;
As mentioned in preceding Note 2, it is to be noted that as a result of the assignment by Pirelli & C. S.p.A. of the TP Industrial Holding
The Group maintains that it has well founded reasons to
(ii) the so called “Desenvolve” dispute, and a dispute relative
S.p.A. shares, the company into which almost all of Pirelli’s Industrial assets were merged, to Marco Polo International Holding Italy
object to the tax administration’s claim. In particular, both the
to a fiscal incentive which is recognised by the Federal
S.p.A., the Industrial business qualified as a “discontinued operation”. Pursuant to the provisions of IFRS 5, the results for the period
legislation applicable to this case regarding the IPI tax rate,
State of Bahia but which, as claimed by the Brazilian tax
for the “discontinued operation” were reclassified to the Income Statement as a single item, “net income (loss) related to discontinued
and the precedences in case law for similar cases appear to
authorities was incorrectly calculated by Pirelli Pneus -
operations”. The comparative 2016 figures were appropriately reclassified pursuant to IFRS 5.
support this position. The risk is estimated at approximately
approximately euro 9 million inclusive of taxes, penalties
euro 21 million, inclusive of tax, interests and penalties.
and interest;
The risk of losing has not been assessed as probable and,
(iii) a dispute relating to import customs costs for natural
therefore, no provision has been set aside in the Financial
rubber which, in the opinion of the Brazilian tax authorities,
29. REVENUES FROM SALES AND SERVICES
Statements for this dispute.
was underestimated by not taking into account the value
Revenues from sales and services were as follows:
Other Pirelli Pneus disputes
of the intra-group royalties paid - approximately euro 10
million inclusive of taxes, penalties and interest.
Pirelli Pneus is involved in three other tax disputes concerning
For all three of the aforementioned disputes, also on the basis
federal taxes and excises (such as the IPI, the PIS and the
of the results of the first levels of judgement, the risk of losing
Revenues from sales of goods
COFINS) as well as the ICMS. In particular, Pirelli Pneus is
has not been assessed as probable and, therefore, no provision
involved in certain administrative and judicial proceedings
has been made in the Financial Statements for these disputes.
Revenues from services
Total
aimed at ensuring that their own reasons prevail over those of
the tax authorities, with reference to:
(i) the so called “Operação Vulcano” with regard to the
exportation of goods to Paraguay in which, according
3
5
6
30. OTHER REVENUES
The item is composed as follows:
Other income from Prometeon Group
Sales of Industrial products
Gains on disposal of property, plant and equipment
Rent income
Insurance indemnities and other refunds
Recoveries and reimbursements
Government grants
Other income
Total
(In thousands of euro)
2017
2016
5,202,962
4,829,120
149,321
147,276
5,352,283
4,976,396
(In thousands of euro)
2017
2016
223,542
223,482
1,865
3,759
18,118
59,871
8,596
89,300
211,773
282,526
43,835
7,000
9,713
73,179
6,875
61,324
628,533
696,225
7
5
3
The item other income from the Prometeon Group mainly includes sales of raw materials for the amount of euro 112,522 thousand,
semi-finished products and materials for the amount of euro 29,077 thousand, and services rendered for the amount of euro 43,228
thousand paid to the companies of the Prometeon Group. Refer also to Note 42 – “Related party transactions”.
The item sales of industrial products mainly refers to revenues and income generated by the sale of tyres for buses and trucks
carried out by way of a distribution network controlled by the Group.
The item gains on the disposal of property, plant and equipment at December 31, 2016 referred mainly to the sale of real estate in
Milan, Italy used for R&D for euro 27,199 thousand, in Basel, Switzerland for euro 12,336 thousand and in San Donato, Italy for euro
2,199 thousand.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements The item insurance indemnities and other refunds includes an amount received in respect of a settlement agreement linked to the
closing of an insurance policy in Italy for euro 6,815 thousand.
The item recoveries and reimbursements includes, in particular:
>
refunds of taxes and duties for a total of euro 27,321 thousand, received in Italy amounting to euro 10,673 thousand, and in Germany
amounting to euro 3,334 thousand in grants for tyre disposals and gas and energy purchases, and in Brazil amounting to euro
12,099 thousand in refunds for IVA (value added tax) credits;
>
tax refunds totalling euro 9,933 thousand arising from tax incentives obtained in Argentina and in the state of Bahia, Brazil for
commercial exports;
> proceeds from the sale of tyres and scrap materials obtained from the United Kingdom for a total of euro 5,283 thousand;
>
income from the sale of tyres for testing and the recovery of transport expenses incurred in Germany for euro 2,718 thousand;
>
rebates from utilities (electricity) of euro 2,243 thousand.
32. DEPRECIATION, AMORTISATION AND IMPAIRMENTS
The item is composed as follows:
Amortisation
Depreciation
Impairment of property, plant and equipment
(In thousands of euro)
2017
2016
120,196
250,673
588
114,961
227,623
-
Total
371,457
342,584
The item other income includes income from sporting activities amounting to euro 32,963 thousand.
33. OTHER COSTS
Other income for the previous financial year included non-recurring events amounting to euro 41,734 thousand (6% of the total)
The item is subdivided as follows:
which referred to capital gains from real estate. (Refer to Note 41).
31. PERSONNEL EXPENSES
The item is composed as follows:
Selling costs
Purchases of goods for resale
Purchases of natural rubber for Prometeon Group
3
5
8
(In thousands of euro)
Fluids and energy
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
Total
2017
2016
787,798
181,660
17,177
21,689
(5,928)
3,748
20,457
8,046
746,492
169,447
17,291
20,889
799
5,044
18,861
7,485
Advertising
Consultants
Maintenance
Warehouse operating costs
Lease, rental and lease installments
Outsourcing
Travel expenses
IT expenses
Key managers compensations
Other provisions
1,034,647
986,308
Duty stamps, duties and local taxes
The item personnel expenses for 2017 includes non-recurring events for a total of euro 2,578 thousand (0.2% of the total) for the
retention plan (Refer to Note 41).
Canteen
Bad debts
Insurance
Cleaning expenses
Waste disposal
Security expenses
Telephone expenses
Other
Total
9
5
3
(In thousands of euro)
2017
2016
306,108
478,745
106,331
159,830
286,178
56,656
56,112
70,381
285,162
491,093
88,602
150,143
272,091
62,481
54,545
59,165
121,984
114,854
73,643
57,461
33,547
9,610
33,063
36,422
18,101
17,659
30,937
15,892
18,302
10,773
11,098
65,753
53,859
30,609
7,388
20,622
33,799
15,881
16,619
27,060
14,422
17,568
10,863
10,723
175,827
193,431
2,184,660
2,096,733
The item other costs for 2017 includes non-recurring events for a total of euro 70,146 thousand (3.2% of the total) mainly refers to
costs incurred for the IPO process. (Refer to Note 41).
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements 34. NET INCOME (LOSS) FROM EQUITY INVESTMENTS
34.1 Share of the net income (loss) from equity investments in associates and joint ventures The share of the
net income (loss) from equity investments in associates and joint ventures was evaluated using the equity method and was
negative to the amount of euro 8,252 thousand, and refers mainly to investments in Prelios S.p.A. (negative at euro 3,118 thousand),
in Focus Investments S.p.A. (negative at euro 759 thousand), and in the joint venture PT Evoluzione Tyres in Indonesia (negative at
euro 9,613 thousand) and offset by the positive pro-rata results for Fenice S.r.l at euro 5,002 thousand. For further details reference
should be made to preceding Note 11 “Investments in Associates and Joint Ventures”.
34.2 Gains on equity investments
35. FINANCIAL INCOME
The item is composed as follows:
Interest
Other financial income
Net gains on exchange rates
Total
(In thousands of euro)
2017
2016
17,098
9,285
102,157
128,540
32,254
10,552
-
42,806
(In thousands of euro)
The item interest includes euro 5,752 thousand for interest on fixed income securities, euro 3,918 thousand for interest receivables
2017
2016
due from financial institutions, and euro 1,734 thousand for interest on trade receivables.
Capital gain on disposal of investment in Prelios S.p.A.
Release of Fenice S.r.l. impairment
Other gains on equity investments
Total
5,809
-
188
5,997
-
7,364
933
8,297
The item other financial income mainly includes euro 8,944 thousand for interest matured on tax credits (tax receivables) and on
security deposits provided by the Brazilian subsidiaries as a guarantee for legal and tax disputes.
The item net gains (losses) on exchange rates which amounted to euro 102,157 thousand (losses on exchange rates amounted to
euro 1,501,768 thousand and gains which amounted to euro 1,603,925 thousand) refers to the adjustment at end of period exchange
rates to items expressed in currencies other than the functional currency and still outstanding at the reporting date, and to the net
3
6
0
Gains on equity investments amounted to euro 5,997 thousand and refer mainly to capital gains following the disposal of the
gains realised on items closed during the course of the financial year.
investment in Prelios S.p.A. (euro 5,809 thousand). For further details reference should be made to preceding Note 11 “Investments in
1
6
3
associates and Joint Ventures”.
34.3 Losses on equity investments
Impairment of investments in associates
Impairment of available-for-sale financial assets
Other losses on equity investments
Total
(In thousands of euro)
2017
2016
754
13,416
264
14,434
20,987
11,067
1,685
33,739
36. FINANCIAL EXPENSES
The item is composed as follows:
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
This item for the financial year amounted to euro 14,434 thousand and refers mainly to the investments in Pirelli de Venezuela C.A.
Valuation at fair value of exchange rate derivatives
(euro 7,616 thousand), in Equinox Two S.C.A. (euro 3,062 thousand), in Emittenti Titoli S.p.A. (euro 1,441 thousand) and in Alitalia
Valuation at fair value of other derivatives
(In thousands of euro)
2017
2016
255,096
330,742
29,587
9,250
-
7,295
-
189,922
-
58,187
8,694
18,100
9,547
12
38,744
5,970
S.p.A. (euro 781 thousand).
Total
491,150
469,996
34.4 Dividends This item amounted to euro 9,834 thousand and mainly includes dividends received from Mediobanca S.p.A. to
the amount of euro 5,829 thousand (euro 4,253 thousand for 2016), from Equinox Two S.C.A. to the amount of euro 3,049 thousand,
The item interest includes euro 47,070 thousand relative to the new unsecured (Facilities) financing granted to Pirelli & C. S.p.A.
and from Fin. Priv. S.r.l. to the amount of euro 757 thousand (euro 554 thousand for 2016).
and Pirelli International Plc subscribed to on June 27, 2017 and euro 154,323 thousand relative to the new secured (Senior Facilities)
financing granted to Pirelli & C. S.p.A. and Pirelli International Plc, which was repaid early on June 29, 2017, of which euro 61,244
thousand refers to the consequent reversal to Income Statement of the portion of costs not amortised at the closing date. The item
also includes euro 14,045 thousand for net interest income on hedging instruments on interest rates and exchange rates (Cross
Currency Interest Rate Swap). For further details reference should be made to Note 27 “Derivative financial instruments”.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements The item also includes euro 12,466 thousand relative to the bond placed by Pirelli International Plc on the Eurobond market in November 2014.
The reconciliation between theoretical and effective taxes is as follows:
The item commissions includes in particular euro 10,680 thousand relative to costs for operations for the assignment of receivables
with pro-soluto clauses mainly in LatAm, Italy and Germany, and euro 5,969 thousand for commitment fees incurred by Pirelli & C.
S.p.A. and Pirelli International Plc for the revolving credit facility.
The item valuation at fair value of exchange rate derivatives refers to the purchase/sale of the forward exchange rate hedge
contracts to cover commercial 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
A) Net income (loss) before taxes
B) Theoretical taxes
Main causes for changes between estimated and effective taxes:
Tax incentives foreign subsidiaries
Non-deductible costs
rate spread between the currencies which are subject to the individual hedges, equal to a net cost of euro 53,324 thousand, and the
Deferred tax assets recognised on tax losses and other items related to previous periods
exchange rate component at a net cost of euro 136,598 thousand.
In comparing the net losses on exchange rates, which totalled euro 102,157 thousand, with the valuation at fair value of the exchange
rate component of derivatives for hedging exchange rates which totalled to a net cost of euro 136,598 thousand, there results a
negative imbalance of euro 34,441 thousand. The foreign exchange loss was mainly incurred in Argentina, where, compared to the
impairment of the Argentine peso of approximately 15% compared to the previous financial year, the costs of coverage would have
been equal to approximately 25% of the exposure in foreign currency.
The item other financial expenses include non-recurring events for a total of euro 61,244 thousand (12.5% of the total) relative to
the early closure of secured funding (“Senior Facilities”) as described in the item entitled interest. During the 2016 financial year, the
Use of Italian prior years tax losses on which no deferred tax assets were recognised
Change in tax rates on deferred taxes recognized due to change in nominal tax rates
Taxes not related to income
Other
C) Effective taxes
Theoretical tax rate (B/A)
Effective tax rate (C/A)
(In thousands of euro)
2017
304,118
82,112
(10,700)
33,600
(80,552)
(37,600)
9,300
23,600
21,088
40,848
27%
13%
amount of euro 25,390 thousand (5.4% of the total) referred to the “Make Whole Issuer Call” fee for the financial year in relation to the
The Group’s theoretical tax burden is calculated taking into account the nominal tax rates of the countries where the Group’s
3
6
2
early closure of the USD Private Placement bond (Refer to Note 41).
principal companies operate, as shown below:
37. TAXES
Taxes were composed as follows:
Current taxes
Deferred taxes
Total
(In thousands of euro)
2017
2016
162,382
120,980
(121,534)
(45,724)
40,848
75,256
Tax expenses for 2017 amounted to euro 40,848 thousand against pre-tax earnings of euro 304,118 thousand. The tax rate for 2017
was positively impacted by the detection of deferred tax assets on tax losses and other temporary differences recognised during
the financial year (surplus gross operating income for the share of interest payables which were not deducted and the ACE tax
concession) pertinent to the Italian companies.
Non-recurring events to the amount of euro 103,881 thousand were included under taxes, and mainly refer to the recognition of the
deferred tax assets (pre-paid taxes) of the Italian companies (Refer to Note 41).
Europe
Italy
Germany
Romania
Great Britain
Turkey
Russia
NAFTA
USA
Mexico
Central and South America
Argentina
Brazil
Asia / Pacific
China
(In thousands of euro)
3
6
3
2017
2016
27.90%
30.00%
16.00%
19.00%
20.00%
20.00%
38.00%
30.00%
35.00%
34.00%
31.40%
30.00%
16.00%
20.00%
20.00%
20.00%
38.00%
30.00%
35.00%
34.00%
25.00%
25.00%
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements The share of taxes paid by geographical area was as follows:
39. EARNINGS/(LOSSES) PER SHARE
> 44% Europe;
> 21% LatAm;
> 23% Apac;
> 9% NAFTA;
>
3% Russia and MEAI.
The earnings/(losses) per share are given by the ratio between the earnings/losses attributable to the Parent Company and the
weighted average of the number of ordinary shares outstanding during the period, with the exclusion of treasury shares.
(In thousands of euro)
2017
2016
263,955
853,232
0.309
154,809
706,464
0.219
The term paid taxes refers to the total amount of income taxes effectively paid during the tax period by the Group companies to the
respective jurisdictions of tax residence, to income tax payments paid in 2017, to income taxes paid during the course of 2017 but
relative to previous financial years (e.g. income tax balances relative to 2016) or to payments relative to tax assessments for previous
annuities. The taxes paid also include withholding taxes incurred on the cross-border payments of dividends, interest and royalties
which have been reported in the tax residence jurisdictions of the recipient.
Net income attributable to the Parent Company related to continuing operations
Weighted average number of ordinary shares outstanding (in thousands)
Earnings/(loss) per share related to continuing operations (in euro per share)
38. ASSETS AND LIABILITIES HELD FOR SALE AND DISCONTINUED OPERATIONS
As a result of the assignment by Pirelli & C. S.p.A of TP Industrial Holding S.p.A. shares, to Marco Polo International Holding Italy
Net income attributable to the Parent Company related to discontinued operations
(87,563)
(19,746)
Weighted average number of ordinary shares outstanding (in thousands)
Earnings/(loss) per share related to discontinued operations (in euro per share)
853,232
(0.103)
706,464
(0.028)
S.p.A., which occurred on March 15, 2017, the Industrial business qualified as a “discontinued operation”. The table below shows the
It is to be noted that the number of shares used to calculate earnings per share reflects all the transactions detailed in Note 20 “Equity”.
Income Statement figures for 2017 for the first quarter for the Industrial business, as well as the results for the twelve months
for certain residual Industrial activities currently undergoing separation. The comparable financial data for 2016 was appropriately
It is also to be noted that the earnings/(loss) per base share and per diluted share are the same as there was no potential issue of
reclassified pursuant to IFRS 5.
shares with dilutive effects on the results.
3
6
4
(In thousands of euro)
2017
2016
40. DIVIDENDS PER SHARE
5
6
3
Revenues from sales and services
Other income
Changes in inventories of unfinished, semi-finished and finished products
Raw materials and consumables used (net of change in inventories)
Personnel expenses
Amortisation, depreciation and impairment
Other costs
Increase in fixed assets for internal work
Operating income (loss)
Financial income
Financial expenses
Net income (loss) before tax
Tax
Net income (loss)
Reversal of reserve on foreign currency translation
Total net income (loss) from discontinued operations
232,801
156,187
49,550
(184,027)
(71,558)
(18,772)
(161,863)
46
2,364
1,670
860,264
59,692
(21,614)
(473,445)
(231,470)
(49,220)
(106,702)
197
37,702
8,370
(10,200)
(21,385)
(6,166)
(1,189)
(7,355)
(80,208)
(87,563)
24,687
(41,049)
(16,362)
-
(16,362)
The value of the “assets held for sale” (euro 60,729 thousand) is mainly attributable to the Industrial production plants held by the
Chinese controlled company, which will be sold to the Prometeon Group during the course of 2018.
In 2017, Pirelli & C. S.p.A did not distribute any dividends to its shareholders.
41. NON-RECURRING EVENTS
Pursuant to CONSOB Notification No. DEM/6064293 of July 28, 2006, the impact on the Group’s income, financial position and equity
for non-recurring events and operations, was as follows:
Financial statement (a)
Operating costs
Financial expenses
Tax
Total impact non recurring items (b)
Total adjusted (a-b)
Equity
Net income (loss) for
the financial year
Cash flows
(millions of euro)
4,177.0
(72.7)
(61.2)
103.9
(30.0)
4,207.0
175.7
(72.7)
(61.2)
103.9
(30.0)
205.7
(342.8)
(31.2)
0.0
0.0
(31.2)
(311.6)
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements The impact on the individual items of the consolidated Income Statement was as follows:
42. RELATED PARTY TRANSACTIONS
(millions of euro)
The following table summarises the items from the Statement of Financial Position and the Income Statement and which include
2017
2016
related party transactions and their relative impact.
Other revenues:
- Gain on disposal of property, plant and equipment
-
41.7
Personnel expenses :
- Retention Plan
Other costs:
- Industrial Reorganization
- IPO costs
- Other
Impact on operating income
Financial expenses:
- Refinancing impact June 2017 transaction costs
- Fee related to the "Make Whole Issuer Call" for the anticipated closing of USD Private
Placement bond loan
Impact on net income (loss) before tax
Tax:
(2.6)
(2.1)
(61.9)
(6.1)
(72.7)
(61.2)
-
(133.9)
-
-
-
(23.7)
18.0
-
(25.4)
(7.4)
- Recognition of deferred tax assets of italian companies and operating income adjustments
and financial expenses
103.9
1.3
3
6
6
Impact on net income (loss) from continuing operations
Impact on net income (loss)
(30.0)
(30.0)
(6.1)
(6.1)
The impact of non-recurring events on the operating income (loss) for the 2017 financial year amounted to a total of euro 72.7 million
and differs from the value reported in Directors’ Report on Operations relative to non-recurring and restructuring expenses (euro
93.2 million), in that it did not include restructuring expenses which amounted to a total of euro 20.6 million euros.
STATEMENT OF
FINANCIAL POSITION
12/31/2017
of which
related
parties
% incidence
12/31/2016
Non current assets
(In millions of euro)
of which
related
parties
% incidence
Other receivables
204.1
12.0
5.88%
226.9
6.6
2.93%
Current assets
Trade receivables
Other receivables
Income tax receivables
Non-current liabilities
Borrowings from banks and other
financial institutions
Current liabilities
Borrowings from banks and other
financial institutions
Trade payables
Other payables
Income tax payables
652.5
400.5
35.5
62.7
36.5
0.1
9.61%
9.11%
0.17%
679.3
275.6
64.4
2.8
6.2
-
0.41%
2.24%
0.0%
3,897.1
-
-
5,946.0
0.6
0.01%
559.2
-
-
642.0
0.8
0.12%
1,673.6
198.0
565.3
48.4
16.4
9.9
11.83%
2.91%
20.44%
1,498.5
22.6
1.51%
783.1
41.8
-
-
-
-
7
6
3
INCOME STATEMENT
2017
of which
related
parties
% incidence
2016
of which
related
parties
% incidence
(in millions of euro)
Revenue from sales and services
5,352.3
10.8
0.20%
4,976.4
Other income
628.5
230.6
36.69%
696.2
Raw materials and consumables
used
(1,859.8)
(46.5)
2.50%
(1,540.5)
Personnel expenses
(1,034.6)
(11.0)
1.06%
(986.3)
Other costs
(2,184.7)
(375.0)
17.16%
(2,096.7)
Financial income
128.5
35.3
Financial expenses
(491.2)
(41.1)
27.48%
8.36%
42.8
(470.0)
3.5
2.3
-
(9.0)
(29.7)
0.2
-
Net income (loss) from equity
investments
Net income (loss) from
discontinued operations
(6.9)
(8.3)
120.38%
(20.0)
(1.2)
(87.6)
(9.5)
10.90%
(16.4)
-
0,00%
0.07%
0.33%
0.00%
0.91%
1.42%
0.49%
0.0%
6.13%
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements (in millions of euro)
TRANSACTIONS WITH OTHER RELATED PARTIES
(In millions of euro)
With reference to the transactions with Prometeon Group the economic values reported on the table refer to the
whole 2017 even if the Prometeon Group became related party starting from March the 15th, 2017, when Pirelli &
C S.p.A. assigned the shares of TP Industri Holding S.p.A. to Marco Polo International Holding Italy S.p.A..
Revenues from sales and services
8.4
Tyre S.p.A. (euro 1.9 million) and Pirelli Pneus Ltda (euro 4.1 million) and
This item mainly refers to the sale of goods and services rendered by Pirelli
CASH FLOW
2017
of which related
parties
% incidence
2016
of which related
parties
% incidence
Net cash flows operating activities:
Trade receivables
Trade payables
Other receivables/payables
Net cash flows investing activities:
73.6
447.4
(39.4)
90.6
86.2
70.5
122.97%
19.27%
144.9
201.8
n.s.
(38.5)
Disposal of property, plant and equipment
73.5
61.0
82.99%
91.6
-
-
-
-
-
-
-
-
Repayment of share capital and reserves
from associates
Disposals (Acquisition) of investments
in associates and JV
Net cash flows financing activities:
Change
in
Financial
receivables/
Securities held for trading
8.6
8.6
100.00%
100.4
100.4
100.00%
Other income
230.6
17.2
-
-
(4.7)
(4.7)
100.00%
218.0
190.0
87.14%
(44.3)
-
-
services rendered to the Hangar Bicocca Foundation (euro 1.9 million).
It referes to royalties from Aeolus related to the licence
contract signed on 2016 (euro 7 million).
In addition, it refers to other income from Prometeon Group for:
- Natural rubber sales: euro 112.5 million
- Raw material sales of Pirelli Pneus Ltda to Prometeon Group (euro 26
million) to be transformed under Toll manufacturing contract.
- Long term service agreement: euro 18.9 million
- Royalties related to brand licence contract: euro 18.4 million
- Finished and semifinished product sales: euro 18 million
- Logistic services: euro 12.8 million
- Transitional service agreement: euro 4.4 million
- Other: euro 11.1 million
This item mainly includes costs from the Prometeon Group for:
- Direct/consumable materials and compound purchases: euro 24.4 million
Raw materials and consumables used
46.5
- Semifinished product purchases: euro 13 million
- Natural and synthetic rubber purchases: euro 8 million
- Other: euro 0.4 million
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, 2017 were as follows:
3
6
8
TRANSACTIONS WITH ASSOCIATES AND JOINT VENTURES
(In millions of euro)
Other costs
328.0
This item includes contributions to Fondazione Hangar Bicocca and Fondazione Pirelli
(euro 3.2 million) and other costs related to purchases from Prometeon Group for:
- Truck product purchases: euro 163 million of which Comercial e
Importadora de Pneus Ltda (euro 151 million), for the brasilian sales and
distribution network, and other group's companies (euro 12 million).
- Car/Moto and semifinished product purchases: euro 151 million of which Pirelli Otomobil
Lastikleri A.S. (euro 97.8 million) related to Off-take contract and Pirelli Pneus Ltda
(euro 45.8 million) related to Toll manufacturing contract and other (euro 7.4 million)
- Externalization: euro 0.2 million
- Other: euro 10.6 million
9
6
3
Revenues from sales/services and other
income.
2.4
The amount refers mainly to rental income and related rental property management
fees received from the Prelios Group (euro 0.5 million), and for services rendered
to PT Evoluzione Tyres (euro 0.4 million) and sales of materials and services
rendered to Joint Stock Company "Kirov Tyre Plant" (euro 1.4 million).
Financial expenses
Other costs
37.3
of products from PT Evoluzione Tyres (euro 15.6 million ) and the supply of
services by the consortium CORIMAV (euro 0.3 million) and costs for the purchases
of materials from Joint Stock Company "Kirov Tyre Plant" (euro 0.3 million)
Current trade receivables
This item includes acquisition costs for the purchase of energy and machine hire
Financial income
from Industriekraftwerk Breuberg GmbH (euro 21 million), costs for the acquisition
41.0
34.4
61.0
This item includes financial expenses payables to the Prometeon Group and refers
mainly to losses on exchange arising on hedging transactions (euro 38.4 million).
This item includes financial income receivables from the Prometeon Group and refers
mainly to gains on exchange arising on hedging transactions (euro 29.5 million).
This item includes receivables for royalties from Aeolus Tyre Co., Ltd (euro 7 million)
and trade receivables to the amount of euro 53.6 million from the Prometeon Group.
Financial income
0.9
The amount refers to interest on the loan granted by Pirelli
International Plc and Pirelli Tyre S.p.A. to PT Evoluzione Tyres.
Financial expenses
0.1
This item mainly refers to expenses payable to International Media Holding S.p.A.
Other non-current receivable
12.0
This item refers to the loan granted by Pirelli Tyre S.p.A. to PT Evoluzione Tyres.
Current trade receivables
1.8
This item includes receivables for services rendered to Joint Stock Company "Kirov
Tyre Plant" (euro 0.4 million) and to PT Evoluzione Tyres (euro 1.4 million).
Other current receivables
14.8
The amount refers to a loan granted by Pirelli International Plc to PT
Evoluzione Tyres (euro 5.8 million) and to advances received from PT
Evoluzione Tyres (euro 4.3 million), and sales of materials and molds
to Joint Stock Company "Kirov Tyre Plant" (euro 4.7 million)
Current trade payables
The amount mainly refers to payables for the purchase of energy
24.0
from Industriekraftwerk Breuberg GmbH and trade payables to PT
Evoluzione Tyres and Joint Stock Company "Kirov Tyre Plant"
Other current trade payable
0.4
Other payables refers mainly to the acquisition of equipments
from Joint Stock Company "Kirov Tyre Plant"
Net cash flow investing activities
8.6
The amount refers to the dividends received by Fenice S.r.l..
Current tax receivables
0.1
This item refers mainly to receivables from the companies of the Prometeon Group
Other current receivables
21.7
This item refers mainly to receivables from the companies
of the Prometeon Group (euro 19.8 million)
Trade payables
174.0
This item refers mainly to trade payables to the Prometeon Group (euro 173.9 million)
Other current payables
16.1
This item refers mainly to trade payables to the Prometeon Group (euro 16 million)
Current tax payables
9.9
This item refers to the companies of the Prometeon Group
for tax consolidation interrupted in 2017.
Other income discontinued operations
56.4
Sales of Industrial product of Pirelli Tyre Co., Ltd to Prometeon Group
Other costs discontinued operations
65.9
Costs for acquisition of Industrial product of Pirelli
neumaticos S.A.I.C. from Prometeon Group
Net cash flow operating activities
247.3
Working capital change towards Prometeon Group
Net cash flow investing activities
61.0
The amount refers to the cash in received for the sale
of the know-how license to Prometeon Group.
Net cash flow financing activities
190.0
The amount refers to the collection of financial receivables from Prometeon Group.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements During the course of the financial year, the process of
separating the Industrial business from the Consumer business
was completed. It was implemented as part of the industrial
License agreements stipulated in the context of
industrial reorganisation In the context of the Industrial
Reorganisation, during the course of the 2016 financial year,
evaluation and reorganisation project, as provided for by
Pirelli Tyre signed a number of licensing agreements with
the sale and purchase and co-investment agreement signed,
Aeolus and the PTG aimed at allowing them (i) access to the
amongst others, by ChemChina, Camfin and LTI in March
Premium technology developed by Pirelli in the activities
2015, aimed at strengthening the plans for the development
relative to Industrial Tyres, and (ii) the use of some of the
of Pirelli’s Consumer Activities and the protection of
trademarks owned by the Pirelli Group.
geographically strategic areas, as well as to separate and
give independent importance to the activities related to the
production and commercialisation in Italy and/or abroad of
License agreement with Aeolus
On June 28, 2016, Pirelli Tyre signed a patent and know-how
As described in the following table, the Aeolus License Agreement provides for the payment of royalties as a percentage of turnovers with
fixed minimum and pre-fixed maximum amounts which are subject to an annual adjustment, starting from 2019, on the basis of the Euro
HICPC index. The royalties percentage may be updated every five years based on certain predetermined performance indicators.
If and when Aeolus holds more than
50% of the share capital of PTG
If and when Aeolus holds less than
50% of the share capital of PTG
Royalty amounts
2016
0
Maximum
amount
-
Royalty amounts
0
Maximum
amount
-
The highest amount between (i) 1% of
annual net revenues from sales and (ii)
The highest amount between 1% of
tyres for heavy vehicles for industrial or agricultural use, or for
licensing agreement with Aeolus as well as for technical
2017
euro 7 million from net annual revenues
euro 12 million
annual net revenues from sales and
euro 12 million
passenger transport (hereinafter “Industrial Reorganisation”).
assistance relative to Industrial Tyres (“Industrial Products”)
As a result of the Industrial Reorganisation, the Prometeon
with a duration of up until December 31, 2030 with an
Tyre Group S.r.l. (formerly Pirelli Industrial S.r.l.), of which
automatic bi-annual renewal unless cancelled (the “Aeolus
52% is currently held by Marco Polo International Italy S.p.A.
License Agreement”).
(“Marco Polo”) through TP Industrial Holding S.p.A. (“TPIH”), of
Under the Aeolus License Agreement, the licensee company shall
which 38% is currently held by High Grade (HK) Investment
have the right to develop, manufacture and sell the Industrial
Management Limited, and of which10% is currently held by
Tyres, with the right to sub-license to the companies it controls.
Aeolus Tyre Co. Ltd., previously included in the Pirelli Financial
The license is non-exclusive and Pirelli has undertaken to
Statements for 2016 as a direct subsidiary of Pirelli & C. S.p.A.,
not grant third parties licenses for the production of similar
from sales which do not include sales
pertaining to PTG and its subsidiaries.
The highest amount between (i) 2%
of annual net revenues from sales
a fixed amount of euro 7 million.
2018
to PTG and its subsidiaries and 1%
euro 36 million
annual net revenues from sales and
euro 20 million
which do not include sales pertaining
The highest amount between 2% of
of annual net revenues from sales
pertaining to PTG and its subsidiaries
and (ii) euro 25 million.
a fixed amount of euro 15 million.
The highest amount between (i) 2% of
The highest amount between 2% of
2019-2020
annual net revenues from sales and (ii)
euro 49 million
annual net revenues from sales and
euro 22 million
a fixed amount of euro 38 million.
a fixed amount of euro 17 million.
has been classified in the present Financial Statements as
Industrial Products which are subject to the Aeolus License
The highest amount between (i)
The highest amount between 2% of
3
7
0
a Pirelli related party in that it is controlled by ChemChina
Agreement for commercial purposes, and therefore to allow
(through, amongst others, TPIH and Marco Polo), a company
for the creation of a new competitor in the operative sector of
which also indirectly controls Pirelli & C. S.p.A..
the licensee company.
For the duration of the Aeolus License Agreement, Pirelli shall
As of 2021
2% of annual net revenues from
euro 54 million
annual net revenues from sales and
euro 22 million
sales and (ii) euro 38 million.
a fixed amount of euro 17 million.
1
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3
The following are the main existing agreements between the
provide technical assistance to Aeolus and its subsidiaries,
It also provides that the risks associated with the production of tyres (as well as any other business risk) remain the liability of the
companies which belong to the Pirelli Group and the group
by providing a minimum of twenty and a maximum of thirty
licensee, who undertakes to indemnify and hold Pirelli Tyre S.p.A. and its affiliated companies harmless against any damage that may
headed by the Prometeon Tyre Group S.r.l. (“PTG”) and the
personnel per year for the first five years.
arise. This license is limited to the Industrial tyres only as the use of Pirelli technology for different products is excluded.
Aeolus Tire Co., Ltd. (“Aeolus”). These agreements were the
subject of the disclosure included as part of the Registration
Document filed with CONSOB on September 15, 2017,
following the notification of authorisation by way of Protocol
No. 0106982/17 dated September 15, 2017 drawn up on the
occasion of the admission to listing of Pirelli shares, on the
Mercato Telematico Azionario (screen-based stock exchange),
organised and managed by Borsa Italiana S.p.A..
***
License agreement for know-how with PTG
In 2016, Pirelli Tyre signed two know-how licensing agreements with the PTG which concern:
(i) the first, effective as of April 1, 2016, is a know-how license relative to the installation and management of plants and machinery
which fall under the scope of the PTG, and to the production and quality systems. This license remains effective as long as the
relevant know-how does not become public and entails the payment of a one-off royalty fee of approximately euro 61 million,
determined on the basis of an evaluation conducted by an independent expert;
(ii) the second, effective as of January 1, 2016, is a license for know-how and for patents relative to Industrial processes and products.
The license is valid until 2030 with automatic renewals of 5 years unless cancelled. This license provides for the payment of
royalties from 2018 onwards. In particular, the royalties expected for 2018 are the higher amount between 1% of the annual
net revenues of the PTG and its subsidiaries and euro 10 million, and from 2019 onwards the higher amount between 2% of the
annual net revenues of the PTG and its subsidiaries and euro 21 million. On the basis of the provisions of the License Agreement
with Aeolus, the license granted to the PTG will cease to have effect following the acquisition of control of the PTG by Aeolus,
after which the royalties established by the Aeolus License Agreement shall apply.
It also provides that the risks associated with the production of tyres (as well as any other business risk) remain the liability of the
licensee, who undertakes to indemnify and hold Pirelli Tyre S.p.A. and its affiliated companies harmless against any damage that may
arise. This license is limited to the Industrial tyres only as the use of Pirelli technology for different products is excluded.
Brand license agreement with PTG
In 2017 Pirelli Tyre signed a new license agreement, which terminated and substituted the previous 2016 agreement, with the PTG for
a period of 10 years effective as of January 1, 2017 (with an annual automatic renewal unless cancelled) concerning the non-exclusive
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements 3
7
2
license of some of the Pirelli Group’s brands, including the
to the PTG and/or its subsidiaries during the phase following
PIRELLI and FORMULA brand, for the production and sale of
the separation.
products relative to the Industrial activities, with the right
Business relationships in place with PTG Supply
agreements, both active and passive, exist between the
(in the Gravatai plant) for Pirelli Pneus Ltda, a Brazilian
company controlled by Pirelli, has a duration of up until
companies of the Pirelli Group and the PTG or companies
December 31, 2018, and is renewable, with financial terms
to sub-license to the subsidiaries of the PTG and, from the
In Colombia and Turkey, some residual services are rendered
controlled by it, concerning raw materials (i.e., natural rubber
and conditions which provide for a purchase price which
moment when the PTG will be controlled by Aeolus, to Aeolus
by the PTG’s local subsidiaries for the benefit of the Pirelli
and carbon black) or finished products. These agreements
is equal to the cost of production increased by a margin
and its other subsidiaries.
Group’s local companies, due to temporary needs arising
were signed during the course of the 2016 financial year as
of 5%, subject to a quarterly review in lieu of any changes
This agreement provides for the payment of royalties
from the implementation of the segregation process in the
part of the Industrial Reorganisation. It is maintained that
in the production cost, using a calculation matrix agreed
corresponding to 2% of the net sales of the licensee and the
pertinent countries. In particular:
these relationships do not construe a situation of dependence
between the parties; production volumes are determined
sub-licensees of the products bearing the licensed trademarks
> in Colombia, the services rendered by the PTG’s local
and that, therefore, the interruption or non-renewal of the
on the basis of non-binding annual forecasts, agreed by
with a minimum guaranteed annual amount of (i) euro 15
subsidiaries for the benefit of the Pirelli Group companies
same would not impact the Pirelli Group’s business continuity.
the end of November of the previous year, followed by
million for 2017 and 2018 and (ii) euro 21 million as of 2019.
include, amongst other things, administration and control,
binding orders on a monthly basis according to the actual
The trademarks subject to licensing may be used only for the
treasury, financial coordination, tax management, planning
The following is a description of the main supply contracts
needs of the customer. The manufacturer guarantees
production and commercialisation of tyres related to the
and reporting; control of human resources management,
stipulated during 2016 by the Pirelli Group in the context of the
that the products are free from defects and comply with
Industrial activities (any use for products other than those
legal
labour
law support,
recruiting, occupational
Industrial Reorganisation:
the specifications. In the case of serious breaches which
licensed is prohibited). The methods of use of the brands must
health; and management of claims, for a variable fee
(i) the Off-Take contract (i.e. the production on behalf of the
the producer is not able to remedy, the customer has the
be approved by Pirelli Tyre, and with regard to the PIRELLI
commensurate with the actual use of resources, which is
customer of products having characteristics as requested
right to terminate the contract at short notice. It is to be
brand, in the promotional and marketing activities a logo will
paid on an annual basis;
by the customer, using raw materials purchased by the
noted that these supplies are temporary as it is expected
be used with different colours compared to that used by Pirelli
> in Turkey, the services rendered by the PTG’s local subsidiaries
manufacturer which are specially processed) for the
that as of 2018 production will return to being carried out
Tyre its Consumer Activities.
for the benefit of the Pirelli Group companies include,
production of Consumer tyres and some semi-finished
by a Pirelli Group company.
The license agreement includes specific provisions for the
among other things, control activities of human resources,
products used by Pirelli for the production of racing tyres,
(iii) agreements for the supply of semi-finished products by TP
control and approval of the use of the trademarks by Pirelli
legal labour law support, recruiting, payroll services,
by the Izmit Turkish plant owned by the PTG for Pirelli
Endustriyel ve Ticari Lastikler A.S., a company of the PTG,
Tyre as regards the quality of the products bearing the
industrial relations, sales management for the Original
Otomobil Lastikleri A.Ş., a Turkish subsidiary of Pirelli.
to various Pirelli Group companies located in Romania and
licensed trademarks placed on the market by the licensee (and
Equipment channel, marketing,
industrial planning,
This contract has a duration of up until December 31,
Italy, which ceased on December 31, 2017.
sub-licensees). PTG and sub-licensees may use the trademarks
warehouse planning, quality control, for a variable fee
2018, and is renewable for subsequent 12 month periods,
(iv) agreements for the supply of natural rubber from Pirelli
licensed only on the products approved by Pirelli Tyre S.p.A.
commensurate with the actual use of resources, which is
with financial terms and conditions determined on the
International Plc to the Alexandria Tire Company SAE,
who also has the right to carry out inspections at the locations
paid on an annual basis.
basis of the production cost which is increased by a
Prometeon Turkey Endustriyel ve Ticari Lastikler Anonim
of the PTG and its sub-licensees for the verification of the
In more detail, the following types of agreements have been
margin of 7%. In order to ensure that the characteristics
Şirketi, and TP Industrial de Pneus Brasil Ltda, respectively
correct compliance with contractual obligations. It also
signed:
of the products meet the specifications indicated, Pirelli
Egyptian, Turkish and Brazilian companies controlled by
provides that the risks associated with the production of
(i) the so called Long Term Services Agreements (LTA),
has reserved the right to carry out quality controls during
the PTG, which have a duration of up until December
tyres (as well as any other business risk) remain the liability
relative to the supply of services in the fields of Information
the various processing phases. The producer cannot
31, 2017, are renewable and provide financial terms and
of the licensee, who undertakes to indemnify and hold Pirelli
Technology, purchasing and logistics. These contracts
sub-contract production to third parties and must
conditions determined by using the share price of the raw
Tyre S.p.A. and its affiliated companies harmless against any
have a multi-year duration and unless otherwise agreed
manufacture only at the plants approved by the client;
material increased by a spread in order to remunerate
damage that may arise.
between the parties, will cease to be effective respectively,
only products that meet the agreed specifications can
the assets and risks borne by the supplier. This trade
Withdrawal clauses are not included in the license agreement.
at December 31, 2020 for IT services and purchasing, and at
bear the Pirelli trademark; any non-conforming products
relationship ended in 2017.
There are termination clauses for the failure to fulfil obligations
December 31, 2019 for logistics related services;
shall be destroyed; production volumes are determined
(v) agreements for the supply of carbon black between the
and resolution clauses protecting Pirelli Tyre for situations
(ii) the so called Transitional Services Agreements (TSA) for
on the basis of non-binding annual forecasts, agreed
International Tire Company LLC, a company belonging to
concerning the quality of the products, the unauthorised use
the provision of a wider range of services for different areas
by November of the previous year, followed by binding
the group headed by the PTG, to Pirelli Tyres Romania S.r.l.,
of trademarks, and in case the separate license for the use of
and sectors for each country depending on and within the
orders on a monthly basis according to the actual needs
to Pirelli Deutschland GmbH and to Pirelli UK Tyres Ltd,
the technology granted by Pirelli Tyre is terminated.
limits of the specific needs there present, (e.g. staff, finance,
of the customer. The manufacturer guarantees that
respectively Romanian, German and English companies
administration and control, HR, sales and marketing, and
the products are free from defects and comply with the
controlled by Pirelli, all of which had a duration of up until
quality control). These contracts are renewable annually.
specifications. In the case of serious breaches which the
December 31, 2017, and were further renewable.
Service contracts stipulated in the context of the
Industrial Reorganisation Again, during the course of
the 2016 financial year, in context of the separation from the
The next expiry has been fixed as December 31, 2018.
producer is not able to remedy, the customer has the
The aforesaid Off-Take and Toll Manufacturing agreements
Both the LTA and TSA provide for payment at market conditions
right to terminate the contract at short notice.
provide that the information obtained in the execution of
determined by the value enhancement of services on a cost-
(ii) the Toll Manufacturing contract (i.e. the production on
the contract may also only be used only for the purposes of
Pirelli Group of the activities relative to Industrial Tyres, the
plus basis. The fee due for each service was determined based
behalf of the customer of products having characteristics
the contract, and exclude any license or right to use the same
Pirelli Group, on the one hand, and the PTG and some of its
on the estimate of the cost of resources dedicated to providing
as requested by the customer, using raw materials
information to produce Consumer products outside the two
subsidiaries on the other, signed several service contracts
the service. The cost-plus principle corresponds to the cost of
supplied by the same customer to the manufacturer for
existing contracts. There are no provisions with non-compete
of different duration aimed at the temporary supply on
human resources increased by a profit percentage expressly
the purpose of the execution of the contract) for the
or exclusive obligations.
the part of the Pirelli Group of wide-ranging services and
reported in each contract.
production of motorcycle tyres by TP Industrial de Pneus
It is also be noted that during the course of the 2016 financial
assistance in order to guarantee full operational continuity
Brasil Ltda, a Brazilian company controlled by the PTG
year, as part of the Industrial Reorganisation, the International
3
7
3
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements Tire Company LLC and Pirelli Tyre (Suisse) S.A., a Swiss company
limited to “Qualified Institutional Buyers” pursuant to Rule 144 A of
The LTI (Long Term Incentive) Plan was approved – also in
Executive Vice President and Chief Commercial Officer Roberto
controlled by Pirelli, signed a distribution contract for Consumer
the United States Securities Act of 1933, through an accelerated
accordance with article 2389 of the civil code – at the proposal
Righi; the Senior Vice President Manufacturing, Francesco Sala;
tyres, for the import and distribution of Pirelli Consumer tyres
book-building procedure. On January 11, 2018 Pirelli announced
of the Remuneration Committee and with the favourable
the Executive Vice President Business Unit Prestige & Motorsport
on a non-exclusive basis by International Tire Company LLC in
that it had successfully completed the disposal – through
opinion of the Board of Statutory Auditors, in relation to the
& COO Region Europe, Andrea Casaluci and the Executive Vice
the Egyptian territory. This contract, with an annual duration is
the aforesaid procedure - of 15,753,367 ordinary shares held in
subjects for whom this opinion is requested. In the part linked
President Pirelli Digital, Luigi Staccoli. The LTI plan also applies
automatically renewable from year to year unless cancelled by
Mediobanca - which corresponded to approximately 1.8% of
to Total Shareholder Return, the LTI Plan will be submitted for
to senior managers and Executives of the Group (including
way of written notification with at least 90 days notice, provides
the share capital with voting rights, and which represented
approval at the Shareholders’ meeting called to approve
board member Giovanni Tronchetti Provera) and can be
for the purchase price of the products as covered by the contract
the entire investment held directly by Pirelli in Mediobanca.
results for the 12 months ended on 31 December 2017.
also extended to those who, during the course of the 3-year
(i.e. Consumer tyres) which is equal to that indicated in the
The total net income for Pirelli derived from the operation
The LTI Plan, in line with the mechanisms of variable
period, assume, either through internal career growth or
Pirelli price list on the date of the order. It is expected that this
amounted to approximately euro 152.8 million.
retribution adopted at the international level, is also based
new hiring, an Executive position.
commercial relationship will end during the 2018 financial year.
on the performance of Pirelli shares (Total Shareholder Return)
Even after the separation of the Pirelli Group from the Industrial
On January 22, 2018 as part of the EMTN (Euro Medium Term
allowing in this way the alignment of management and
The LTI Plan is also aimed at retention. In the event that
activities, some residual activities relative to Industrial tyres
Note) program approved at the end of 2017 and subscribed to
shareholder interests.
the employee relationship ends before the end of the 3-year
were still held by the Pirelli Group itself, particularly in Argentina
on January 10, 2018, Pirelli placed a bond loan with international
The LTI Plan – as in the past totally self-financed, in so far as
period, with the exception of natural circumstances, the
and China.
institutional investors for a nominal amount of euro 600
the relative charges are included in the economic figures of
recipient’s ceases to participate in the LTI Plan and as a
In addition, there remain the following residual commercial
million with a five-year duration at a fixed rate. The issue,
the industrial plan – includes an on/off condition, represented
consequence the LTI premium will not be provided, not even
relationships involving the supply of Industrial Tyres: (a) the
with a yield of 110 basis points based on the official reference
by the company’s deleveraging (Net Financial Position/Ebitda
pro-quota. In the case of Board Members holding particular
PTG’s Brazilian subsidiary, TP Industrial de Pneus Brasil Ltda, sells
rate, allowed for the debt to be optimised by lengthening
Adjusted ratio below 2 times on 31 December 2020) and the
roles to whom specific attributions are delegated (it is the case
to Pirelli’s Argentinian subsidiary, Pirelli Neumaticos S.A.I.C., (b)
maturities and reducing the cost of the debt. As evidence of
following targets:
of the Executive Vice Chairman and Chief Executive Officer
the PTG’s Brazilian subsidiary, TP Industrial de Pneus Brasil Ltda
investor confidence towards Pirelli, at closing, the loan saw the
> Group Return on Sales (ROS), with a weight at target of
Mr. Marco Tronchetti Provera) who cease in the role because
sells to Pirelli’s Chilean subsidiary, Pirelli Neumaticos Chile Ltda,
collection of orders amounting to euro 2.4 billion on the part
30% of the LTI premium;
their mandate has been completed and are not subsequently
(c) Pirelli’s Chinese subsidiary Pirelli Tyre Co., Ltd, sells to the PTG,
of 280 international investors. The effective yield at maturity
> Group “absolute” Total Shareholder Return, with a weight
nominated, not even as board members, pro-quota payment
(d) the PTG’s Swiss subsidiary, Prometeon Tyre Group (Suisse)
is set as equal to 1.479%. The securities have been listed on the
at target of 40% of the LTI premium;
of the LTI premium is foreseen.
SA, sells to Pirelli’s Australian subsidiary, Pirelli Tyres Australia
Luxembourg Stock Exchange. Furthermore, during the course
> Group “relative” Total Shareholder Return compared with a
For further information on the functioning of the LTI Plan,
Pty Ltd, (e) the PTG’s Brazilian subsidiary, TP Industrial de Pneus
of the first weeks of January, Pirelli initiated an operation to
selected panel of peers, with a weight at target of 20% of
one may refer to the Remuneration Report which will be
Brasil Ltda, sells to Comercial e Importadora de Pneus Ltda, (f)
amend the financial terms and conditions of the Group’s main
the LTI premium;
submitted (for the part relative to Policy in relation to
the PTG’s German subsidiary, Prometeon Tyre Deutschland
banking facilities - regarding a total notional amount of euro
> Position of Pirelli on the Dow Jones Sustainability World Index
Pirelli remuneration for 2017) for a consultative vote of the
GMBH sells to Pneumobil Reifen KFZ-Technik GmbH, and (g) the
4.2 billion which includes a revolving credit facility of euro 700
ATX Auto Components sector, with a weight at target of
Shareholders’ meeting called to approve results for the year
PTG sells to Dackia Aktiebolag.
million - which will see an applied reduction to the interest
10% of the LTI premium.
ended 31 December 2017, as well as the illustrative report and
BENEFITS FOR KEY MANAGERS
OF THE COMPANY
margin of 30 basis points.
The LTI Plan terminates on 31 December 2020 and sets in the
the information document relative to the LTI Plan which will
second quarter of 2021 the date of the eventual payment of
be made available to the public, under the conditions and
On February 23, 2018 Pirelli International Plc (a subsidiary of
the medium/long term incentive matured, on condition that,
modes called for by prevailing law, and also regulation.
Pirelli) decided to exercise the option of early repayment and
on 31 December 2020, the relationship as an employee of the
the subsequent cancellation of the “Pirelli International Plc Euro
participant has not ended. The participants in the LTI plan
At December 31, 2017 the remuneration payable to key
600,000,000 1.750 per cent. Guaranteed Notes due November 18,
include, among others, the Executive Vice Chairman and Chief
managers totalled euro 20,614 thousand. The portion relative
2019”, listed on the Luxembourg Stock Exchange and maturing
Executive Officer of Pirelli & C., Marco Tronchetti Provera, the
to employee benefits was recognised in the Income Statement
on November 18, 2019 (the “Notes 2019”). The early repayment,
Executive Vice President and Chief Financial Officer, Francesco
under “Personnel expenses” for the amount of euro 11,004
which will cover all of the 2019 Notes, and which responds
Tanzi; the Executive Vice President and Chief Planning and
thousand and under the item “Other Costs” for euro 9,610
to the objective announced for the constant optimisation of
Controlling Officer, Maurizio Sala; the Executive Vice President
44. OTHER INFORMATION
Research and development expenses Research and
development expenses for the 2017 financial year amounted
thousand, also in the Income Statement.
the Group’s financial structure, will take place through the
and Strategic Advisor Technology, Maurizio Boiocchi; the
to euro 221.5 million and represented 4.1% of sales.
5
7
3
3
7
4
43.SIGNIFICANT EVENTS SUBSEQUENT
TO THE END OF THE YEAR
exercise of the “Make Whole Issuer Call” which is provided for by
the current Terms and Conditions of the loan. The operation is
expected to be finalised by March 31, 2018.
On February 26, 2018 the Board of Directors of Pirelli, in line
On January 10, 2018 Pirelli launched the sale of the ordinary
with that which was announced during the IPO, approved the
shares held in Mediobanca S.p.A. and reserved for “qualified
adoption of a new 3-year 2018-2020 monetary incentive plan
investors” in Italy and institutional investors abroad, pursuant
(LTI Plan) – destined to all management (about 290 people) –
to Regulation S of the United States Securities Act of 1933 as
correlated to the targets for the period 2018/2020 contained in
subsequently amended, and in the United States of America
the 2017/2020 industrial plan.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements Remuneration for Directors and Statutory Auditors The compensation paid to the Directors and Statutory Auditors was
as follows:
Unusual and/or exceptional transactions Pursuant to CONSOB Notice No.6064293 of July 28, 2006, it should be noted that
during the 2017 financial year that the Company did not carry out any unusual and/or exceptional transactions as defined in the
(In thousands of euro)
aforesaid Notice.
Directors
Statutory Auditors
Total
2017
2016
7,554
296
7,850
6,594
280
6,874
Employees The breakdown by category of the average consolidated headcount of employees is as follows:
Executives and white collar staff
Blue collar staff
Temporary workers
Total
(In thousands of euro)
2017
2016
6,611
22,412
1,621
30,644
6,268
21,121
1,568
28,957
3
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6
Remuneration for Independent Auditors Pursuant to the applicable laws, the total fees for the 2017 financial year for
auditing services and for services other than auditing services rendered by the company PricewaterhouseCoopers S.p.A. and by
other entities belonging to its network were as follows.
(In thousands of euro)
Company that provided
the service
Company that
received the service
Partial fees
Total fees
Independent auditing
services (1)
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
1,920
PricewaterhouseCoopers S.p.A.
Subsidiaries
Network PricewaterhouseCoopers
Subsidiaries
Independent certification
services (2)
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
PricewaterhouseCoopers S.p.A.
Subsidiaries
Network PricewaterhouseCoopers
Subsidiaries
Services other than
auditing (3)
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
PricewaterhouseCoopers S.p.A.
Subsidiaries
Network PricewaterhouseCoopers
Subsidiaries
Total
708
1,351
1,973
63
43
405
297
759
3,979
53%
2,079
28%
1,461
19%
7,519
100%
(1) the item "Independent auditing services" includes 1.850 thousands of euro paid for the audit of the Interim carve out
consolidated financial statements of the Consumer Business of Pirelli Group included in the Registration Document released
for the IPO of Pirelli & C. S.p.A. in the Milan Stock Exchange, successfully completed on October 4, 2017.
(2) the item "Independent certification services" includes mainly amounts paid for certification services for the IPO of
Pirelli & C. S.p.A. in the Milan Stock Exchange, successfully completed on October 4, 2017 (1.973 thousands of euro).
(3) the item "Services other than auditing" include amounts paid for services other than auditing mainly (1.444 thousands of
euro) awarded before October 4, 2017, date of completion of the IPO of Pirelli & C. S.p.A. In the Milan Stock Exchange.
Exchange rates The main exchange rates used for consolidation were as follows:
Period-end exchanges rates
Average exchange rates
12/31/2017
12/31/2016
Change in %
2017
2016
Change in %
(local currency vs euro)
Swedish Krona
Australian Dollar
Canadian Dollar
Singaporean Dollar
U.S. Dollar
Taiwan Dollar
Swiss Franc
9.8438
1.5346
1.5039
1.6024
1.1993
9.5525
1.4596
1.4188
1.5234
3.05%
5.14%
6.00%
5.19%
1.0541
13.77%
35.6588
34.0748
1.1702
1.0739
Egyptian Pound
21.3245
20.1624
Turkish Lira (new)
New Romanian Leu
4.5155
4.6597
3.7099
4.5411
Argentinian Peso
22.3658
16.7497
Mexican Peso
23.6250
21.5539
South African Rand
14.8054
14.4570
Brazilian Real
Chinese Renminbi
Russian Ruble
British Pound
Japanese Yen
3.9693
7.8365
3.4042
16.60%
7.3123
68.8668
63.8111
0.8872
0.8562
135.0100
123.4000
4.65%
8.97%
5.76%
21.71%
2.61%
33.53%
9.61%
2.41%
7.17%
7.92%
3.63%
9.41%
9.6339
1.4729
1.4646
1.5587
1.1295
9.4694
1.4880
1.4655
1.5275
1.1069
1.74%
(1.01%)
(0.06%)
2.04%
2.04%
34.3737
35.7006
(3.72%)
1.1115
1.0902
20.2283
11.0216
4.1174
4.5676
3.3406
4.4898
18.7185
16.3620
21.3756
20.6984
15.0433
16.2618
3.6094
7.6269
3.8603
7.3514
1.95%
83.53%
23.25%
1.73%
14.40%
3.27%
(7.49%)
(6.50%)
3.75%
65.8497
74.1209
(11.16%)
0.8766
0.8195
126.6909
120.1972
6.97%
5.40%
7
7
3
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements
NET FINANCIAL POSITION
SCOPE OF CONSOLIDATION
(Alternative performance indicator not provided for by the accounting standards)
COMPANIES CONSOLIDATED LINE-BY-LINE
Note
12/31/2017
12/31/2016
(In thousands of euro)
Current borrowings from banks and other financial institutions
Current derivative financial instruments (liabilities)
Non-current borrowings from banks and other financial institutions
Non current derivative financial instruments (liabilities)
Total gross debt
Cash and cash equivalents
Securities held for trading
Current financial receivables and other assets
Current derivative financial instruments (assets)
Net financial debt *
Non-current financial receivables and other assets
23
27
23
27
19
18
15
27
15
559,168
11,248
642,047
35,742
3,897,089
5,945,999
4,522,468
6,623,788
(1,118,437)
(1,532,977)
(33,027)
(36,511)
(21,413)
(48,597)
(29,951)
(3,718)
3,313,080
5,008,545
(94,585)
(95,714)
54,963
-
Belgium
Total net financial (liquidity)/debt position
3,218,495
4,912,831
* Pursuant to Consob Notice of July 28, 2006 and in compliance with CESR recommendation of February 10, 2005
"Recommendations fot the consistent implementation of the European Commission regulation on Prospectuses".
3
7
8
Company
EUROPE
Austria
Business
Headquarter
Currency
Share
Capital
%
holding
Held by
Pirelli GmbH
Tyre
Wien
Euro
726,728
100.00%
Pirelli Tyre
(Suisse) S.A.
Pirelli Tyre
(Suisse) S.A.
Pirelli Tyres Belux S.A.
Tyre
Brussels
Euro
700,000
100.00%
France
Pneus Pirelli S.A.S.
Tyre
Villepinte
Euro
1,515,858
100.00%
Pirelli Tyre S.p.A.
Germany
Deutsche Pirelli Reifen Holding GmbH
Tyre
Breuberg /
Odenwald
Euro
7,694,943
100.00%
Pirelli Tyre S.p.A.
Drahtcord Saar Geschaeftsfuehrungs
GmbH I.L (in liquidation)
Tyre
Merzig
Dm
60,000
50.00%
Driver Handelssysteme GmbH
Pirelli Deutschland GmbH
Tyre
Tyre
Pirelli Personal Service GmbH
Tyre
PK Grundstuecksverwaltungs GmbH
Tyre
Driver Reifen und KFZ-Technik GmbH (ex
Pneumobil Reifen und KFZ-Technik GmbH)
Tyre
Greece
Elastika Pirelli C.S.A.
Tyre
Breuberg /
Odenwald
Breuberg /
Odenwald
Breuberg /
Odenwald
Hoechst /
Odenwald
Breuberg /
Odenwald
Elliniko-
Argyroupoli
Euro
Euro
Euro
Euro
Euro
26,000
100.00%
23,959,100
100.00%
25,000
100.00%
26,000
100.00%
259,225
100.00%
Pirelli
Deutschland GmbH
Deutsche Pirelli
Reifen Holding GmbH
Deutsche Pirelli
Reifen Holding GmbH
Deutsche Pirelli
Reifen Holding GmbH
Deutsche Pirelli
Reifen Holding GmbH
Deutsche Pirelli
Reifen Holding GmbH
9
7
3
Euro
11,630,000
99.90%
Pirelli Tyre S.p.A.
0.10%
Pirelli Tyre
(Suisse) S.A.
Pirelli Hellas S.A. (in liquidation)
Tyre
Athens
The Experts in Wheels -
Driver Hellas C.S.A.
Tyre
Elliniko-
Argyroupoli
US $
Euro
22,050,000
79.86%
Pirelli Tyre S.p.A.
100,000
72.80%
Elastika Pirelli
C.S.A.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements COMPANIES CONSOLIDATED LINE-BY-LINE
COMPANIES CONSOLIDATED LINE-BY-LINE
Business
Headquarter
Currency
Share
Capital
%
holding
Held by
Company
Business
Headquarter
Currency
Share
Capital
%
holding
Held by
Company
Italy
Driver Italia S.p.A.
Driver Servizi Retail S.p.A.
Tyre
Tyre
Milan
Milan
HB Servizi S.r.l.
Services
Milan
Maristel s.r.l.
Services
Milan
Pirelli & C. Ambiente S.r.l.
Sustainable
mobility
Milan
Pirelli Industrie Pneumatici S.r.l.
Tyre
Settimo
Torinese (To)
Pirelli Servizi Amministrazione
e Tesoreria S.p.A.
Services
Milan
Pirelli Sistemi Informativi S.r.l.
Beijing Industrial Holding S.r.l.(ex
Pirelli Industrial S.r.l.)
Pirelli Tyre S.p.A.
Information
Systems
Tyre
Tyre
Milan
Milan
Milan
Poliambulatorio Bicocca S.r.l.
Services
Milan
Servizi Aziendali Pirelli S.C.p.A.
Services
Milan
Euro
Euro
Euro
Euro
Euro
Euro
Euro
Euro
Euro
Euro
Euro
Euro
3
8
0
350,000
71.48%
Pirelli Tyre S.p.A.
CTC 2008 Ltd
Tyre
Burton on Trent
British Pound
100,000
100.00%
Pirelli UK Tyres Ltd
United Kingdom
120,000
100.00%
Pirelli Tyre S.p.A.
10,000
100.00%
Pirelli & C. S.p.A.
1,020,000
100.00%
Pirelli & C. S.p.A.
10,000
100.00%
Pirelli & C. S.p.A.
40,000,000
100.00%
Pirelli Tyre S.p.A.
2,047,000
100.00%
Pirelli & C. S.p.A.
1,010,000
100.00%
Pirelli & C. S.p.A.
10,000
100.00%
Pirelli Tyre S.p.A.
558,154,000
100.00%
Pirelli & C. S.p.A.
10,000
100.00%
Pirelli Tyre S.p.A.
104,000
91.32%
Pirelli & C. S.p.A.
2.95%
Pirelli Tyre S.p.A.
0.95%
Poliambulatorio
Bicocca S.r.l.
0.95%
Driver Italia S.p.A.
0.98%
Pirelli Industrie
Pneumatici S.r.l.
Pirelli Servizi
0.95%
Amministrazione e
Tesoreria S.p.A.
0.95%
Pirelli Sistemi
Informativi S.r.l.
0.95%
HB Servizi S.r.l.
Pirelli Cif Trustees Ltd
Financial
Burton on Trent
British Pound
4
25.00%
Executive Pension
Pirelli General
Trustees Ltd
Pirelli General &
25.00%
Overseas Pension
Trustees Ltd
25.00%
Pirelli Tyres Executive
Pension Trustees Ltd
25.00%
Pirelli Tyres Pension
Trustees Ltd
Pirelli International plc
Financial
Burton on Trent
Euro
250,000,000
100.00%
Pirelli Tyre S.p.A.
Pirelli Motorsport Services Ltd
Tyre
Burton on Trent
British Pound
1
100.00%
Pirelli Tyre S.p.A.
Pirelli General Executive
Pension Trustees Ltd
Pirelli General & Overseas
Pension Trustees Ltd
Pirelli Tyres Executive
Pension Trustees Ltd
Financial
Burton on Trent
British Pound
1
100.00%
Pirelli UK Ltd
Financial
Burton on Trent
British Pound
1
100.00%
Pirelli UK Ltd
Financial
Burton on Trent
British Pound
1
100.00%
Pirelli Tyres Ltd
Pirelli Tyres Ltd
Tyre
Burton on Trent
British Pound
16,000,000
100.00%
Pirelli UK Tyres Ltd
Pirelli Tyres Pension
Trustees Ltd
Financial
Burton on Trent
British Pound
1
100.00%
Pirelli Tyres Ltd
Pirelli UK Ltd
Financial
Burton on Trent
British Pound
163,991,278
100.00%
Pirelli & C. S.p.A.
Pirelli UK Tyres Ltd
Tyre
Burton on Trent
British Pound
85,000,000
100.00%
Pirelli Tyre S.p.A.
1
8
3
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
Slatina
Rom. Leu
40,002,000
100.00%
Pirelli Tyre S.p.A.
The Netherlands
S.C. Pirelli Tyres Romania S.r.l.
Tyre
Slatina
Rom. Leu
853,912,300
100.00%
Pirelli Tyre S.p.A.
E-VOLUTION Tyre B.V.
Tyre
Rotterdam
Euro
170,140,000
99.98%
S.p.A. (65%
Pirelli Tyre
Russia
Pirelli China Tyre N.V.
Pirelli Tyres Nederland B.V.
Tyre
Tyre
Rotterdam
Rotterdam
Poland
Driver Polska Sp. z o.o.
Tyre
Warsaw
Pirelli Polska Sp. z o.o.
Tyre
Warsaw
Euro
Euro
Pol.
Zloty
Pol.
Zloty
diritto di Voto)
38,045,000
100.00%
Pirelli Tyre S.p.A.
18,152
100.00%
Pirelli Tyre
(Suisse) S.A.
100,000
65.50%
Pirelli Polska
Sp. z o.o.
625,771
100.00%
Pirelli Tyre S.p.A.
Closed Joint Stock Company
"Voronezh Tyre Plant"
Tyre
Voronezh
Joint Stock Company "Scientific-
Research Study Center of New
Technologies & Materials "ATOM"
Tyre
Moscow
Limited Liability Company
Pirelli Tyre Services
Tyre
Moscow
Limited Liability Company
"AMTEL-Russian Tyres"
Tyre
Moscow
Limited Liability Company
"Industrial Complex Kirov Tyre"
Tyre
Kirov
Limited Liability Company
Pirelli Tyre Russia
Tyre
Moscow
Russian
Rouble
Russian
Rouble
Russian
Rouble
Russian
Rouble
Russian
Rouble
Russian
Rouble
1,520,000,000
100.00%
Company Pirelli
Limited Liability
Tyre Russia
Limited Liability
312,411,000
54.78%
Company Pirelli
54,685,259
95.00%
Tyre Russia
Pirelli Tyre
(Suisse) S.A.
5.00%
Pirelli Tyre S.p.A.
10,000
100.00%
Company Pirelli
Limited Liability
Tyre Russia
Limited Liability
348,423,221
100.00%
Company Pirelli
Tyre Russia
4,000,000
99.91%
E-VOLUTION Tyre B.V.
0.09%
OOO Pirelli Tyre Services
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements COMPANIES CONSOLIDATED LINE-BY-LINE
COMPANIES CONSOLIDATED LINE-BY-LINE
Company
Spain
Business
Headquarter
Currency
Share
Capital
%
holding
Held by
Company
Business
Headquarter
Currency
Share
Capital
%
holding
Held by
Pirelli Neumaticos
CENTRAL/SOUTH AMERICA
Argentina
Euro Driver Car S.L.
Tyre
Valencia
Euro
960,000
58.44%
S.A. - Sociedad
Pirelli Neumaticos S.A.I.C.
Tyre
Buenos Aires
Arg. Peso
101,325,176
66.50%
Pirelli Tyre S.p.A.
Omnia Motor S.A. -
Sociedad Unipersonal
Pirelli Neumaticos S.A. -
Sociedad Unipersonal
Tyre & Fleet S.L. -
Sociedad Unipersonal
Sweden
Tyre
Valencia
Euro
1,502,530
100.00%
S.A. - Sociedad
Unipersonal
Unipersonal
0.31%
Omnia Motor S.A. -
Sociedad Unipersonal
Pirelli Neumaticos
Prometeon Tyre Group de
Argentina S.A.U.
TP Industrial Tyres S.A.
Tyre
Tyre
Buenos Aires
Arg. Peso
100,000
100.00%
Pirelli Neumaticos
S.A.I.C.
Buenos Aires
Arg. Peso
100,000
95.00%
Pirelli Tyre S.p.A.
28.50%
Prometeon Tyre
Group S.r.l.
5.00%
Pirelli Pneus Ltda
Tyre
Valencia
Euro
25,075,907
100.00%
Pirelli Tyre S.p.A.
5.00%
Pirelli Pneus Ltda
Tyre
Valencia
Euro
20,000
100.00%
S.A. - Sociedad
Comercial e Importadora de Pneus Ltda
Tyre
Sao Paulo
Bra. Real
101,427,384
100.00%
Unipersonal
CPA - Comercial e Importadora
de Pneus Ltda
Tyre
Sao Paulo
Bra. Real
200,000
100.00%
Pirelli Neumaticos
Brazil
Pirelli Comercial de
Pneus Brasil Ltda
Comercial e Importadora
de Pneus Ltda
Dackia Aktiebolag
Tyre
Taby
Inter Wheel Sweden Aktiebolag
Tyre
Karlstad
Pirelli Tyre Nordic Aktiebolag
Tyre
Bromma
3
8
2
Switzerland
Pirelli Group Reinsurance Company SA
Reinsurance
Basel
Pirelli Tyre (Suisse) SA
Tyre
Basel
Turkey
Pirelli Otomobil Lastikleri A.S.
Tyre
Istanbul
Hungary
Pirelli Hungary Tyre Trading
and Services Ltd
Tyre
Budapest
NORTH AMERICA
Canada
Pirelli Tire Inc.
Tyre
U.S.A.
Pirelli North America Inc.
Tyre
St-Laurent
(Quebec)
New York
(New York)
Swed.
Krona
Swed.
Krona
Swed.
Krona
Swiss
Franc
Swiss
Franc
Turkey
Lira
Hun.
Forint
31,000,000
100.00%
Pirelli Tyre S.p.A.
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
85.00%
Pirelli Tyre S.p.A.
1,000,000
100.00%
Dackia Aktiebolag
15.00%
Pirelli Latam
Participaçoes Ltda
950,000
100.00%
Pirelli Tyre S.p.A.
Pirelli Latam Participaçoes Ltda
Tyre
Sao Paulo
Bra. Real
115,344,668
100.00%
Pirelli Tyre S.p.A.
8,000,000
100.00%
Pirelli & C. S.p.A.
15.00%
Pirelli Latam
Participaçoes Ltda
1,000,000
100.00%
Pirelli Tyre S.p.A.
Comércio e Importação Multimarcas de
Pneus Ltda (ex-Pirelli Properties Ltda)
Tyre
Sao Paulo
Bra. Real
3,691,500
85.00%
Pirelli Tyre S.p.A.
Pirelli Ltda
Financial
Santo Andrè
Bra. Real
14,000,000
100.00%
Pirelli & C. S.p.A.
Pirelli Pneus Ltda
Tyre
Santo Andrè
Bra. Real
241,698,354
85.00%
Pirelli Tyre S.p.A.
3
8
3
85,000,000
100.00%
Pirelli Tyre S.p.A.
RF Centro de Testes de
Produtos Automotivos Ltda
TLM - Total Logistic Management
Serviços de Logistica Ltda
Tyre
Tyre
Elias Fausto
(Sao Paulo)
Bra. Real
6,812,000
100.00%
Pirelli Pneus Ltda
Santo Andrè
Bra. Real
3,074,417
99.99%
Pirelli Pneus Ltda
3,000,000
100.00%
Pirelli Tyre S.p.A.
Chile
0.01%
Pirelli Ltda
Pirelli Neumaticos Chile Ltda
Tyre
Santiago
Chile
Peso/000
1,918,450,809
84.98%
Pirelli Comercial de
Pneus Brasil Ltda
15.00%
Pirelli Latam
Participaçoes Ltda
Can. $
6,000,000
100.00%
Pirelli Tyre
(Suisse) SA
US $
10
100.00%
Pirelli Tyre S.p.A.
Colombia
Pirelli Tyre Colombia S.A.S.
Tyre
Santa Fe
De Bogota
Col.
Peso/000
222,522
85.00%
Pirelli Comercial de
Pneus Brasil Ltda
15.00%
Pirelli Latam
Participaçoes Ltda
15.00%
Pirelli Latam
Participaçoes Ltda
0.02%
Pirelli Ltda
Pirelli Tire LLC
Tyre
Rome (Georgia)
US $
1
100.00%
Pirelli North
America Inc.
Prestige Stores LLC
Tyre
Wilmington
(Delaware)
US $
10
100.00%
Pirelli Tire LLC
Mexico
Pirelli Neumaticos de Mexico S.A. de C.V.
Tyre
Silao
Mex. Peso
35,098,400
99.98%
Pirelli Tyre S.p.A.
0.02%
Pirelli Ltda
Pirelli Neumaticos S.A. de C.V.
Tyre
Silao
Mex. Peso
3,249,016,500
99.40%
Pirelli Tyre S.p.A.
Pirelli Servicios S.A. de C.V.
Tyre
Silao
Mex. Peso
50,000
99.00%
Pirelli Tyre S.p.A.
0.60%
Pirelli Latam
Participaçoes Ltda
1.00%
Pirelli North
America Inc.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements COMPANIES CONSOLIDATED LINE-BY-LINE
INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
Company
AFRICA
Egypt
Business
Headquarter
Currency
Share
Capital
%
holding
Held by
Company
EUROPE
Germany
Business
Headquarter
Currency
Share
Capital
%
holding
Held by
Pirelli Egypt Tyre Trading S.A.E.
Tyre
Cairo
Egy. Pound
250,000
98.00%
Pirelli Tyre S.p.A.
Industriekraftwerk Breuberg GmbH
Cogeneration
Hoechst /
Odenwald
Euro
1,533,876
26.00%
Pirelli
Deutschland GmbH
1.00%
Pirelli Industrie
Pneumatici S.r.l.
1.00%
Pirelli Tyre
(Suisse) S.A.
Pirelli Egypt Consumer Tyre
Distribution S.A.E.
Tyre
Cairo
Egy. Pound
5,000,000
98.00%
Pirelli Egypt Tyre
Trading S.A.E.
1.00%
Pirelli Tyre S.p.A.
1.00%
Pirelli Tyre
(Suisse) S.A.
South Africa
Pirelli Tyre (Pty) Ltd
Tyre
Centurion
S.A. Rand
1
100.00%
Oceania
Australia
Pirelli Tyres Australia Pty Ltd
Tyre
Sydney
Aus. $
150,000
100.00%
3
8
4
New Zealand
Pirelli Tyres (NZ) Ltd
Tyre
Auckland
N.Z. $
100
100.00%
Pirelli Tyre
(Suisse) S.A.
Pirelli Tyre
(Suisse) S.A.
Pirelli Tyres
Australia Pty Ltd
Greece
Eco Elastika S.A.
Tyre
Athens
Euro
60,000
20.00%
Italy
Consorzio per la Ricerca di
Materiali Avanzati (CORIMAV)
Financial
Milan
Euro
103,500
100.00%
Eurostazioni S.p.A.
Financial
Rome
Euro
160,000,000
32.71%
Fenice S.r.l.
Financial
Milan
Focus Investments S.p.A.
Financial
Milan
Euro
Euro
19,116,893
69.88%
183,333
25.00%
Slovakia
ELT Management Company Slovakia S.R.O.
Tyre
Bratislava
Euro
132,000
20.00%
Romania
S.C. Eco Anvelope S.A.
Tyre
Bucarest
Rom. Leu
160,000
20.00%
Elastika Pirelli
C.S.A.
Pirelli &
C. S.p.A.
Pirelli &
C. S.p.A.
Pirelli &
C. S.p.A.
Pirelli &
C. S.p.A.
Pirelli Slovakia
S.R.O.
S.C. Pirelli Tyres
Romania S.r.l.
Russia
Joint Stock Company "Kirov Tyre Plant"
Tyre
Kirov
Russian
Rouble
5,665,418
20.00%
Company Pirelli
Limited Liability
Tyre Russia
5
8
3
Pirelli China
Tyre N.V.
Pirelli China
Tyre N.V.
Beijing Industrial
Holding S.r.l.(ex
Pirelli Industrial
S.r.l.)
Signus Ecovalor S.L.
Tyre
Madrid
Euro
200,000
20.00%
S.A. - Sociedad
Pirelli Neumaticos
ASIA
Indonesia
PT Evoluzione Tyres
Tyre
Subang
$ USA
68,000,000
60.00%
Unipersonal
Pirelli Tyre
S.p.A.
ASIA
China
Pirelli Tyre (Jiaozuo) Co., Ltd.
(ex-Jiaozuo Aeolus Tyre Co., Ltd)
Tyre
Jiaozuo
Pirelli Tyre Co., Ltd
Tyre
Yanzhou
Ch.
Renminbi
Ch.
Renminbi
350,000,000
80.00%
Pirelli Tyre S.p.A.
Spain
1,721,150,000
90.00%
Pirelli Tyre Trading
(Shanghai) Co., Ltd
Tyre
Shangai
US $
700,000
100.00%
TP Trading (Beijing) Co., Ltd
Tyre
Beijing
Yanzhou HIXIH Ecotech
Environment Co., Ltd
Sustainable
mobility
Yanzhou
Korea
Ch.
Renminbi
Ch.
Renminbi
2,000,000
100.00%
130,000,000
100.00%
Pirelli Tyre Co. Ltd
Pirelli Korea Ltd
Tyre
Seoul
Korean Won
100,000,000
100.00%
Pirelli Asia Pte 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
Tyre
Singapore
Sing. $
2
100.00%
Taiwan
Pirelli Taiwan Co. Ltd
Tyre
New Taipei City
N.T. $
10,000,000
100.00%
Pirelli Tyre
(Suisse) S.A.
Pirelli Tyre
(Suisse) S.A.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements OTHER INVESTMENTS CONSIDERED
Company
Belgium
Business
Headquarter
Currency
Share
Capital
%
holding
Held by
Euroqube S.A. (in liquidation)
Services
Brussels
Euro
84,861,116
17.79%
France
Aliapur S.A.
Tyre
Lion
Euro
262,500
14,17%
Pirelli &
C. S.p.A.
Pneus Pirelli
S.A.S.
0.11%
Pirelli Tyre
S.p.A.
Italy
Fin. Priv. S.r.l.
Financial
Milan
Euro
20,000
14.29%
Poland
Centrum Utylizacji Opon
Organizacja Odzysku S.A.
United Kingdom
Tyre
Warsaw
Pol. Zloty
1,008,000
14.29%
Pirelli &
C. S.p.A.
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 (*)
3
8
6
Tyre
Brno
Czech crown
5,940,000
16.67%
Pirelli Tyre
(Suisse) S.A.
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
7
8
3
ANNUAL REPORT 2017ANNUAL REPORT 2017 Consolidated Financial StatementsConsolidated Financial Statements
STATEMENT OF FINANCIAL POSITION
(in euro)
INCOME STATEMENT
(in euro)
Note
12/31/2017
of which related
parties (Note 37)
12/31/2016
of which related
parties (Note 37)
Note
2017
of which related
parties (Note 37)
2016
of which related
parties (Note 37)
Property, plant and equipment
8
41,335,010
43,420,596
Revenues from sales and services
Intangible assets
9
2,274,121,987
2,275,835,098
Other income
Investments in subsidiaries
10
4,568,309,362
4,930,701,308
> of which non recurring events
26
27
36
28
29
36
30
31
36
32
33
34
36
35
36
42,084,384
41,349,034
55,991,047
55,269,739
105,778,332
99,323,081
149,849,089
110,523,686
-
(183,120)
29,398,345
(209,409)
(26,709,830)
(4,779,614)
(26,826,868)
(4,482,334)
(1,691,015)
(4,899,942)
(9,241,257)
(167,059,757)
(18,618,209)
(106,343,413)
(9,245,923)
(62,390,073)
(50,989,933)
204,415,855
(7,250,000)
63,219,189
172,447,821
2,752,299
2,564,250
463,795
(13,833,292)
(11,479,999)
(107,159,101)
(104,344,529)
215,496,848
208,870,744
279,143,127
272,562,738
116,744,745
10,680,847
49,939,161
49,714,098
(240,118,416)
(103,275,015)
(286,870,074)
(6,878,318)
(41,966,793)
30,052,251
140,798,667
96,107,664
170,850,918
-
(1,263,903)
69,741,174
(6,954,500)
68,477,271
1
9
3
Investments in associates
Other financial assets
Other receivables
Non-current assets
Trade receivables
Other receivables
Cash and cash equivalents
Tax receivables
Derivative financial instruments
Current assets
Total assets
Equity:
> Share capital
> Other reserves
> Retained earnings reserve
> Net income (loss) for the year
3
9
0
11
10,204,402
12
224,593,085
13
14,819,551
33,077,976
182,561,819
14,829,806
Raw materials and consumables used
Personnel expenses
> of which non recurring events
7,133,383,397
7,480,426,603
Amortisation, depreciation and impairment
52,045,402
43,721,766
61,691,992
56,915,412
Other costs
45,164,222
13,972,980
651,850,183
635,261,974
> of which non recurring events
1,749,490
1,805,342
Operating income (loss)
14
13
15
16
17
110,632,072
104,054,274
84,621,445
94,846
94,846
515,329
77,839,951
515,329
209,686,032
800,484,291
7,343,069,429
8,280,910,894
1,904,374,936
1,342,280,641
2,163,146,083
1,490,073,812
-
170,850,918
305,401,651
68,477,271
Net income (loss) from equity investments
> gains on equity investments
> losses on equity investments
> dividends
Financial income
Financial expenses
> of which non recurring events
Net income (loss) before taxes
Taxes
> of which non recurring events
Total net income (loss) for the year
Total Equity
18
4,238,371,937
3,206,233,375
Borrowings from banks and other financial institutions
19
2,331,646,999
4,103,995,774
560,914
Other payables
Provisions for liabilities and charges
Employee benefit obligations
23
20
21
211,511
45,677,712
2,071,744
310,771
45,950,392
3,964,639
Provision for deferred tax liabilities
24
554,828,134
633,330,000
Derivative financial instruments
17
29,715,928
29,715,928
-
Non-current liabilities
2,964,152,028
4,787,551,576
Borrowings from banks and other financial institutions
Trade payables
Other payables
Provisions for liabilities and charges
Tax payables
Derivative financial instruments
19
22
23
20
25
17
16,856,013
9,411,654
192,055,076
6,452,639
29,694,193
4,819,768
32,425,237
1,581,870
75,212,817
27,491,367
37,125,846
14,875,883
-
5,476,807
18,636,545
18,407,661
20,042,977
19,814,093
145,896
145,896
-
Current liabilities
140,545,464
287,125,943
Total Liabilities and Equity
7,343,069,429
8,280,910,894
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A.
STATEMENT OF COMPREHENSIVE INCOME
(in euro)
STATEMENT OF CHANGES IN EQUITY
(in euro)
A - Net income (loss)
170,850,918
68,477,271
Total at 12/31/2015
1,343,285,421
152,113,517
-
12,466,897
-
96,531,260
-
311,232,731
(1,701,751)
1,913,928,076
2017
2016
Share
Legal
Surplus
Concentr.
Other
Capital
Reserve
Reserve
Reserve
Reserve
IAS
Reserves
(*)
Merger
Reserve
Reserve from
results carried
forward
Net result
of the year
Total
Other components of comprehensive income:
B - Items that will not be reclassified to income statement:
> Net actuarial gains (losses) on employee benefits
Total B
C - Items reclassified/that may be reclassified to income statement:
Fair value adjustment of derivatives designated as cash flow hedge
> Gains/(losses) arising from adjustment to fair value
> (Gains)/losses reclassified to income statement
> Tax effect
Fair value adjustment of other financial assets available for sale:
17,555
17,555
(55,913)
(55,913)
(7,117,489)
(270,006)
1,708,197
-
-
-
Breakdown of result as per
resolution of April 27, 2016
> Dividend
> Legal reserve
> Retained earnings
Other changes
-
-
-
-
Purchase special shares
(1,004,780)
Merger Marco Polo
Industrial Holding S.p.A.
Other items of the
comprehensive income statement
-
-
-
-
-
-
-
-
-
-
-
-
-
> Gains/(losses) arising from adjustment to fair value
40,486,365
(16,509,969)
Result for the year
> (Gains)/losses reclassified to income statement
1,439,103
(3,225)
Total comprehensive income/
(loss) for the year
Total C
36,246,170
(16,513,194)
Total at 12/31/2016
1,342,280,641
152,113,517
B+C Total other components of comprehensive income
36,263,725
(16,569,107)
A+B+C Total comprehensive income (loss) for the year
207,114,643
51,908,164
3
9
2
Board resolution of
6 March, 2017
Reserve distribution
assignment TP Industrial
Breakdown of result
as per resolution of
April 27, 2017
> Dividend
> Legal reserve
> Retained earnings
-
116,962,590
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,701,750)
1,701,750
-
-
-
-
92,534,791
(92,264,785)
-
314,418
-
584,424
-
-
(4,443,748)
-
(5,448,528)
-
-
-
-
-
-
-
-
1,245,261,239
- (16,569,107)
-
-
- (16,569,107)
-
-
-
-
-
-
- 1,245,261,239
-
(16,569,107)
68,477,271
68,477,271
- 68,477,271
51,908,164
12,466,897
92,534,791
(12,302,632)
1,245,261,239
305,401,651
68,477,271
3,206,233,375
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- (116,962,590)
-
-
(175,912,021)
(188,439,061)
(364,351,082)
3
9
3
-
-
-
-
-
-
-
-
-
-
-
-
68,477,271
(68,477,271)
(3,099,893)
-
-
-
-
- 1,189,375,001
-
(46,421,503)
(65,377,378)
-
-
-
36,263,725
-
-
-
36,263,725
-
-
-
-
-
36,263,725
-
170,850,918
170,850,918
-
170,850,918
207,114,643
Annulment treasury shares
3,099,893
Share capital increase
558,994,402
-
630,380,599
Board resolution of
August 1, 2017
Other items of the
comprehensive income statement
Result for the year
Total comprehensive income/
(loss) for the year
-
111,798,881
-
-
-
-
-
-
-
-
-
-
Total at 12/31/2017
1,904,374,936
380,874,988
630,380,599
12,466,897
92,534,791
23,961,093
1,022,927,715
-
170,850,918
4,238,371,937
Breakdown of IAS Reserves*
Reserve for fair Value
Reserve for
adjustment of available-
actuarial
for-sale financial assets
gains/losses
Cash flow hedge
reserve
Tax effect
Total
(in euro)
Balance at 12/31/2015
94,464,885
2,066,375
Other components of comprehensive income
(16,513,194)
(55,913)
-
-
-
96,531,260
-
(16,569,107)
Other movements
Balance at 12/31/2016
(92,534,791)
-
270,006
-
(92,264,785)
(14,583,100)
2,010,462
270,006
-
(12,302,632)
Other components of comprehensive income
41,925,468
17,555
(7,387,495)
1,708,197
36,263,725
Balance at 12/31/2017
27,342,368
2,028,017
(7,117,489)
1,708,197
23,961,093
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. STATEMENT OF CASH FLOWS
(in euro)
Note
2017
of which related
parties (Note 37)
2016
of which related
parties (Note 37)
EXPLANATORY NOTES
Result before taxes
Reversal depreciation, amortization and write-downs
30,052,251
4,899,942
(1,263,903)
9,241,257
1. GENERAL INFORMATION
Significant Events 2017 The following significant events
took place during 2017:
> On March 15, 2017, the Ordinary Shareholders’ Meeting
of Pirelli & C. S.p.A. resolved the assignment to the sole
shareholder Marco Polo International Holding Italy S.p.A.
of all the 32,870,380 shares held in TP Industrial Holding
Reversal financial expenses
240,118,416
103,275,015
286,870,074
6,878,318
Reversal financial income
(116,744,745)
(10,680,847)
(49,939,161)
(49,714,098)
Pirelli & C. S.p.A. (hereinafter also Pirelli, the “Company” or the
S.p.A. TP Industrial Holding S.p.A. is the company that
“Parent Company”) is a corporation organised under the laws
holds 52% of the share capital of Pirelli Industrial S.r.l. (now
Reversal result from investments
(204,415,855)
(199,954,995)
(172,447,821)
(168,218,210)
of the Republic of Italy.
Prometeon Tyre Group S.r.l), a company that includes the
Taxes paid
-
-
Industrial assets of Pirelli.
Change in trade receivables
9,646,590
13,193,646
(20,004,841)
(19,599,381)
Change in trade payables
(2,731,044)
3,237,898
(8,507,227)
139,636
Change in other receivables/other payables
22,708,000
12,585,217
(6,010,830)
5,048,548
Change in tax receivables/tax payables
22,393,548
36,366,068
(36,461,826)
23,265,705
Founded in 1872, it is a holding company that manages,
> At the end of June, Marco Polo International Italy
coordinates and funds the activities of subsidiaries (hereinafter
S.p.A. - direct shareholder of Pirelli after the merger by
Pirelli Group).
incorporation of Marco Polo International Holding Italy
S.p.A. - subscribed a capital increase, including share
The registered office of the Company is in Viale Piero e Alberto
premium, of approximately euro 1.2 billion. It is also
Change in personnel provisions and other provisions
(2,165,575)
38,542,093
Pirelli 25 – Milan.
(Gains)/losses from sales of tangible
and intangible assets
11,240
(29,398,345)
A
Net cash generated/(used) by operating activities
3,772,768
Investments in tangible assets
8
(338,274)
Disposal of property, plant & equipment
26,639
10,619,470
(539,000)
75,180,000
With effect from October 4, 2017, the shares of Pirelli &
refinancing contract on an unsecured basis for a total
C. S.p.A. are listed on the Mercato Telematico Azionario
amount of euro 4.2 billion with a syndicate of leading
(MTA), managed by Borsa Italiana S.p.A. With the start of
international banks, whose first draw-downs were used,
negotiations, the management and coordination activities of
together with the proceeds deriving from the capital
noted that on June 27, 2017 (with closing on June 29),
Pirelli & C. S.p.A. and Pirelli International Plc signed a new
Investments in intangible assets
9
(1,550,850)
(2,073,000)
Marco Polo International Italy S.p.A. ceased. The subject of the
increase indicated above, to fully repay on June 29, 2017
3
9
4
Disposal of intangible assets
750,000
Investments in shareholdings in subsidiaries
10
(9,705,361)
(9,705,361)
(1,600,000)
(1,600,000)
Investments in shareholdings in associated companies
-
(4,692,000)
(4,692,000)
Investments in other financial assets
12
(2,459,092)
Disposal of other financial assets
Disposal of shareholdings in subsidiaries
2,365
7,938
(2,394,000)
11,221,403
Global Sale Offer was 350 million ordinary shares, at a price of
the financing entered into in 2016 for an amount of euro
euro 6.5 per share for a capitalization of euro 6.5 billion.
6.4 billion and consequently cancel all the real guarantees
5
9
3
The Greenshoe option, granted as part of the transaction
completed on improved terms compared to the previous
by Marco Polo International Italy S.p.A. to the placement
loan completed in 2016, in particular by reducing the all-
consortium for 50 million shares, was partially exercised
in cost but also thanks to the extension of its average
provided for this financing. The new refinancing was
Disposal of shareholdings in associated companies
11
17,209,724
17,209,724
-
shares. Including the Greenshoe option, the Sale Offer
of Pirelli.
Dividends received
32
215,496,848
208,870,744
279,143,127
272,562,738
B
Net cash generated/(used) by investment activities
219,439,937
354,261,530
Increase in share capital
18
1,189,375,000
Redemption special shares
Dividends paid
-
-
(1,240,000)
-
therefore concerned 368,904,836 Pirelli ordinary shares and,
> At the end of July 2017, Burlington Loan Management
consequently, the total proceeds deriving from the Sale Offer
DAC, an Irish investment vehicle managed by Davidson
and exclusively due to the Selling Shareholder amount to
Kempner Capital Management LP, signed a contract
approximately euro 2.4 billion. As a result of the partial exercise
with Pirelli, Intesa Sanpaolo S.p.A., UniCredit S.p.A. and
of the Greenshoe Option, Marco Polo International Italy S.p.A.
Fenice S.r.l. for the purchase of 44.86% of the capital held
holds 631,095,164 Pirelli ordinary shares corresponding to about
by the latter in Prelios S.p.A. for a total of 611,910,548
7,938
15,000
15,000
on November 2, 2017 for a total of 18,904,836 million
life, thus contributing to improving the financial profile
Change in financial receivables
13
629,710,507
629,710,507
335,915,901
335,915,901
63% of the share capital.
C
D
E
F
G
Change in financial payables
19
(1,884,066,984)
9,000,000 (488,263,988)
Financial income/(financial expenses)
32
(158,287,080)
(53,865,315)
(236,930,723)
6,619,562
Net cash generated/(used) by financing activities
(223,268,557)
(390,518,810)
Total net cash generated/(used) in the year (A+B+C)
(55,852)
(25,637,810)
Cash and cash equivalents at the beginning of the year
1,805,342
146,152
shares. The price for the purchase and sale was set at
euro 0.116 per share, equal to a total of euro 70.9 million,
Pirelli & C. S.p.A. is directly controlled by Marco Polo
of which approximately euro 17.2 million due to Pirelli,
International Italy S.p.A., (after the merger with Marco Polo
approximately euro 24.5 million to Fenice, vehicle invested
International Holding Italy S.p.A.) and indirectly controlled by
in by Pirelli and the remaining part - in proportion to
China National Chemical Corporation (“ChemChina”), a “state-
the investment held - to Intesa Sanpaolo and UniCredit.
owned enterprise” (SOE) under Chinese law, with registered
The closing of the purchase and sale transaction - with
Cash and cash equivalents of Marco
Polo Industrial Holding S.p.A.
-
27,297,000
office in Beijing, referring to the Central Government of the
simultaneous collection - was finalized on December 28,
Cash and cash equivalents at the end of the year (D+E+F)
1,749,490
1,805,342
People’s Republic of China.
2017.
On February 26, 2018, the Board of Directors authorized
Stock Exchange on the Mercato Telematico Azionario
publication of these Financial Statements
(“Financial
(MTA), organized and managed by Borsa Italiana S.p.A., as
Statements or Separate Financial Statements”).
previously described.
> On October 4, 2017, Pirelli shares were listed on the Milan
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. > On December 21, 2017, the Board approved an EMTN (euro
Medium Term Note) program for the issue of senior
Financial Statements The Separate Financial Statements
at December 31, 2017 consist of the Statement of Financial
>
the dividend distributed by the investee exceeds the total
undistributed profits of the investment from the date of
unsecured non-convertible bonds for a maximum value
Position,
the
Income Statement,
the Statement of
purchase;
International accounting
standards and/or
interpretations issued but not yet in force Pursuant
to IAS 8 “Accounting standards, changes in accounting
of euro 2 billion. The adoption of the EMTN program
Comprehensive Income, the Statement of Changes in Equity,
>
the operating result achieved by the investee company
estimates and errors”, the following are the new Standards or
responds to the objective of constant optimization of
the Statement of Cash Flows and the Explanatory Notes, and
is significantly lower than the amount expected in the
Interpretations that have been issued but have not yet come
the Pirelli financial structure and allows timely seizing
are accompanied by the Directors’ Report on Operations.
management plan, if this indicator can be considered
into force or have not yet been endorsed by the European
favourable windows on the bond market. As part of this
significant for the reference company;
Union at December 31, 2017, and which are therefore not
program, the Board of Directors authorized the issue, to
The Company has chosen to represent the Income Statement
>
there are expectations of significantly decreasing operating
applicable, and the foreseeable impacts on the Separate
be executed by January 31, 2019, of one or more bonds,
by nature of expense, assets and liabilities in the Statement
results for future years;
Financial Statements.
to be placed with institutional investors, for a total
of Financial Position are divided into current and non-current
> existence of changes in the technological, market, economic
maximum amount of up to euro 1.0 billion.
and the Cash Flow Statement has been prepared using the
or regulatory environment in which the investee operates
None of these standards and interpretations have been
2. BASIS FOR PREPARATION
indirect method.
that may generate significant negative economic effects
adopted in advance.
on the company’s results.
>
IFRS 9 – Financial Instruments
It shall also be noted that the Group has applied the provisions
The impairment test consists of comparing the carrying
This standard, endorsed by the European Union, is
of Consob Resolution no. 15519 of July 27, 2006 in regard to
amount and the recoverable value of the investment.
applicable from January 1, 2018. The Company will apply
The 2017 financial statements represent the separate
the formats of financial statements and Consob Notice no.
the new standard starting from the mandatory effective
financial statements of the Parent Company Pirelli & C. S.p.A..
6064293 of July 28, 2006 in regard to corporate disclosure.
If the recoverable amount of an investment is lower than
date, using the retrospective application method and
the carrying amount, the latter is reduced to the recoverable
choosing to apply the practical expedient allowed by the
These Financial Statements have been prepared on a going
In order to provide greater clarity and comparability of the
amount. This reduction constitutes an impairment loss
standard, based on which the 2017 comparative figures
concern assumption since the Directors have verified the
financial statement items, the amount of the corresponding
recognized in the Income Statement.
will not be restated. The Company reviewed the financial
absence of financial, operational or other types of indicators
items of the previous year were adjusted where necessary.
assets and liabilities and has substantially completed the
that could indicate critical issues regarding the ability of the
The recoverable amount of an investment is identified as
assessment of the effects deriving from the application of
Company to meet its obligations in the foreseeable future
All amounts included in the Notes, unless otherwise specified,
the greater of fair value and value in use. The value in use
the new accounting standard. No significant impacts are
and in particular in the next 12 months. The description of
are in thousands of euro.
of an investment is the present value of future cash flows
expected on the result, shareholders’ equity and the main
7
9
3
3
9
6
the ways in which the Company manages financial risks is
contained in Chapter 4 Financial risk management policy and
6 Capital management policy of these Explanatory Notes.
3. ACCOUNTING STANDARDS
In
line with the requirements of Legislative Decree of
The accounting standards used in the preparation of Separate
expected to originate from a cash-generating investment.
performance indicators of the Company on the date of first
The value in use reflects the effects of factors that may be
application (January 1, 2018). The analysis also showed that
entity specific, factors that may not be applicable to any
there are substantially no impacts in terms of application
entity.
and organization, also considering the limited number of
transactions that fall within the scope of IFRS 9.
February 28, 2005, no. 38, “Exercise of the options provided
Financial Statements are the same as those used for the
With specific reference to the investment in the subsidiary
The main impacts deriving from the adoption of the new
for by art. 5 of regulation (EC) no. 1606/2002 on international
purposes of preparing the consolidated financial statements
Pirelli Tyre S.p.A., the recoverable value to be used, if it
standard are summarized below:
accounting standards”, issuers are required to prepare not
where applicable, except in relation to the assessment of
were necessary to proceed with an impairment test, would
1 classification
and measurement:
the
equity
only the consolidated financial statements but also the
investments in subsidiaries and associate companies and
correspond to the fair value, and would be obtained starting
instruments currently classified as financial assets
financial statements of the Company in compliance with
dividends, as indicated below.
from the fair value of Pirelli & C. S.p.A. equal to its Stock
available for sale, in substantial continuity with
the international accounting standards (IFRS) issued by the
International Accounting Standards Board (IASB) and published
in the Official Journal of the European Community (GUCE).
IFRS include all International Financial Reporting Standards,
International Accounting Standards (IAS), all interpretations
Investments in subsidiaries and associated
companies Investments in subsidiaries and associates are
recognized at cost, net of any impairment losses.
of the International Financial Reporting Interpretations
In the presence of specific impairment indicators, the value
Market capitalization without considering any control
respect to the accounting treatment adopted
premium, adjusted downwards for the fair value of the assets
in accordance with IAS 39, will be designated
of Pirelli & C. S.p.A. other than the investment in Pirelli Tyre
as financial assets with changes in fair value
S.p.A. (for example, the Pirelli brand), and upwards for the
recognized in equity with the sole exception of the
fair value of the liabilities of Pirelli & C. S.p.A. (mainly its Net
investment in Mediobanca S.p.A., sold in the first
Financial Position).
days of January 2018, for which the changes in fair
value will be recognized in the Income Statement.
Committee (IFRIC), formerly the Standing Interpretations
of
investments
in subsidiaries and associated companies,
If the reason for impairment ceases to exist, the carrying
It is noted that the fair value adjustment reserve
Committee (SIC).
determined based on the historical cost basis, is tested for
amount of the investment is restored up to the original cost.
related to assets available for sale outstanding
The Financial Statements have been prepared on the basis
of the conventional historical cost criterion, except for the
The indicators are as follows:
impairment.
financial assets available for sale and derivative instruments
>
the book value of the investment in the separate financial
Dividends Dividend income is recognized in the income
statement when the right to receive payment is established,
at December 31, 2017 (positive for euro 27,342
thousand) will be reclassified to a new reserve
in other comprehensive income for investments
designated as financial assets with the changes
measured at fair value.
statements exceeds the book value of the investee’s
which normally corresponds to the resolution approved by the
in fair value recognized in other comprehensive
net assets (inclusive of any goodwill) expressed in the
Shareholders’ Meeting for the distribution of dividends.
income, while it will be reclassified in profits carried
consolidated financial statements;
forward for the investment in Mediobanca S.p.A..
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. 3
9
8
These reserves will not be reversed to the income
At December 31, 2017, the Company has non-cancellable
Statement if the investment is sold. The new rules
commitments for operating leases of euro 112,239 thousand
Exchange rate risk This risk is generated by the commercial and financial transactions that are executed in currencies other
than the euro. Exchange rate fluctuations between the time when the commercial or financial relationship is established and
for the classification and measurement of financial
(see note 8).
when the transaction is completed (collection or payment) may generate foreign exchange gains or losses.
liabilities have no impact on the company, as the
The Group’s objective is to minimise the effects on the Income Statement of foreign exchange rate risk related to volatility. To
company has no financial liabilities designated at
The Company will calculate the portion of payments related
achieve this objective, Group procedures make the Operating Units responsible for collecting complete information about the
fair value through the income statement;
to short-term contracts and to contracts that concern “small
assets and liabilities that are subject to transaction exchange rate risk. This risk is hedged with forward contracts made with the
2 impairment of financial instruments: based on the
assets” to assess whether to use the exemption granted by
Group Treasury.
valuations made, the adoption of the approach
the standard for non-capitalization of such contracts.
based on expected losses (instead of realized losses)
The items subject to exchange rate risk are mainly represented by receivables and payables denominated in foreign currency.
will not entail any change in the bad debt provision
The Company has not yet assessed the potential impact
for trade receivables;
of other adjustments that may be necessary, such as the
The Group Treasury is responsible for hedging the net position for each currency and, in accordance with established guidelines
3 hedge accounting: the Company will adopt the new
change in the definition of the duration of contracts, the
and restrictions, it closes all risk positions by trading derivative contracts on the market, which typically take the form of forward
rules for hedge accounting required by IFRS 9
different accounting treatment of variable payments and
contracts.
starting from January 1, 2018. Hedging relations
options for renewal and/or early settlement. As a result, it is
outstanding at December 31, 2017 meet the
not yet possible to determine the amount of financial assets
The Group has decided not to opt for hedge accounting pursuant to IAS 39, insofar as the representation of the economic and financial
conditions required by IFRS 9 for the adoption of
and liabilities that will have to be recognized under the new
effects of the hedging strategy on foreign exchange rate risk is still substantially guaranteed even without adopting such option.
hedge accounting.
standard and how the latter will impact the income statement
>
IFRS 15 – Revenues from contracts with customers and
and statement of cash flows.
Furthermore, it shall be noted that as part of the annual and three-year planning process, exchange rate forecasts are made using
clarifications regarding IFRS 15
the best information available on the market. The fluctuation in exchange rates between the time when the forecast is made and the
This standard, endorsed by the European Union, is
With regard to the transition, the Group is evaluating
time when the commercial or financial transaction occurs represents the exchange rate risk on future transactions.
applicable from January 1, 2018. The Company will apply
whether to apply the simplified approach that allows not
the new standard using the “modified” application
considering the restatement of the comparative period in
From time to time, the Group assesses the need to engage in hedging transactions on future transactions for which it typically uses
method, i.e. accounting for the cumulative effect of the
the first year of application.
both forward and optional purchase or sale transactions such as risk reversal (i.e., zero cost collar).
initial application as of January 1, 2018.
The assessment of the effects deriving from the
application of the new accounting standard has been
substantially completed and significant impacts on the
result, shareholders’ equity and the main performance
4. FINANCIAL RISK
MANAGEMENT POLICY
The Company enters into derivative contracts, cross currency interest rate swaps, to hedge for which hedge accounting is activated
when the conditions set out in IAS 39 are fulfilled.
indicators of the Company at the date of first application
The measurement and management of the financial risks of
are not expected (January 1, 2018).
Pirelli & C. S.p.A. are consistent with as defined by the Group
Interest rate risk Interest rate risk is the risk that the fair value or the future cash flows of a financial asset or liability will change
due to fluctuations in market interest rates.
>
IFRS 16 – Leases
policies.
The Group assesses based on market circumstances whether to enter into derivative contracts, typically interest rate swaps, to
This standard, endorsed by the European Union,
is
hedge for which hedge accounting is activated when the conditions set out in IAS 39 are fulfilled.
applicable from January 1, 2019. The Group plans to apply
The Pirelli Group
is exposed to financial risks. These
the new standard starting from the date of entry into force.
are principally associated with foreign exchange rates,
At December 31, 2017, the Company had a negative net financial position, with all financial payables at variable rates.
The new standard will mainly impact the accounting
fluctuations in interest rates, the price of financial assets
treatment of leasing contracts currently classified as
held as investments, the ability of customers to meet their
In other conditions being equal, a hypothetical increase or a decrease of 0.50% in the level of interest rates would result, year on year,
operating leases according to IAS 17. The main impacts
obligations to the Group (credit risk), and raising funds on the
respectively in a net negative and positive impact on the Income Statement of euro 8,920 thousand.
can be detailed as follows:
market (liquidity risk).
> >
recognition
in the
item tangible assets of the
current value of lease fees that on the basis of
Financial risk management is an integral part of Group
contractual agreements have the characteristics to
business management and
is handled directly by the
be considered as non-eliminable and simultaneous
headquarters in accordance with guidelines issued by the
recognition of an increase in financial liabilities.
Finance Department on the basis of general risk management
Assets will be depreciated based on the duration of
strategies defined by the Managerial Risk Committee.
the contract;
Impact on the net result
(8,920)
(12,222)
8,920
12,222
(in thousands of euro)
+0.50%
-0.50%
12/31/2017
12/31/2016
12/31/2017
12/31/2016
> >
the cost of lease fees now recognized under the item
The main financial risk categories to which the Company is
The effects on the Company’s equity resulting from the changes in the LIBOR and EURIBOR rates calculated on the hedging
other costs will be replaced by the recognition of
exposed are shown below.
instruments for interest rates which were outstanding at December 31, 2017 are detailed in Note 17, “Derivative financial instruments”.
the depreciation of the assets recognized in the
previous point. A financial component will also be
recognized under the item Financial expenses.
9
9
3
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. Price risk associated with financial assets The
company is exposed to price risk, which is limited to the
The Company does not hold public debt instruments from
The maturities of financial liabilities at December 31, 2017 may be broken down as follows:
any European country, and constantly monitors its net credit
(in thousands of euro)
volatility of financial assets such as listed and unlisted stocks
exposure to the banking system.
and bonds; these assets are classified as financial assets
available for sale.
Derivatives hedges are not set up to limit the volatility of
these assets.
Liquidity risk Liquidity risk represents the risk that
the financial resources available are insufficient to meet
the financial and commercial obligations pursuant to the
contractual terms and conditions.
Payables to banks and other lenders
Trade payables
Other payables
57,666
29,694
75,213
53,314
2,447,334
-
212
-
-
up to 1 year
from 1 to 2 years
from 2 to 5 years
over 5 years
Total
12/31/2017
Financial assets available for sale consist of listed securities
Derivative financial instruments
146
3,638
26,077
amounted to euro 179,204 thousand (euro 141,474 thousand
The principal instruments used by the Group to manage
at December 31, 2016) and those represented by securities
liquidity risk are comprised by its annual and three-year
indirectly associated with listed shares (Fin. Priv. S.r.l.)
financial and cash-pooling plans. These allow complete and
amounted to euro 19,908 thousand (euro 19,200 thousand at
fair detection and measurement of incoming and outgoing
Total
162,719
57,164
2,473,411
December 31, 2016, also inclusive of the investment in Emittenti
cash flows. The differences between plans and actual data are
The maturities of financial liabilities at December 31, 2016 may be broken down as follows:
-
-
-
-
-
2,558,315
29,694
75,425
29,861
2,693,295
(in thousands of euro)
4
0
0
Titoli); these financial assets represent 89% of total financial
constantly analysed.
assets subject to price risk (88% at December 31, 2016); a +5%
change in the above listed securities, other things being equal,
The Group has implemented a centralised cash pooling system
would result in a positive change of euro 8,960 thousand of
for the management of collection and payment flows in
the Company’s shareholders’ equity (positive for euro 7,073
compliance with various local currency and tax laws. Banking
thousand at December 31, 2016), while a -5% change of these
relationships are negotiated and managed centrally, in order
listed securities, other things being equal, would result in a
to ensure coverage of short and medium-term financial needs
negative change of euro 8,960 thousand of the Company’s
at the lowest possible cost. The procurement of medium and
shareholders’ equity (negative for euro 7,073 thousand at
long-term resources on the capital market is also streamlined
December 31, 2016).
through centralised management.
Credit risk Credit risk represents the Company’s exposure
to contingent losses resulting from default by commercial
Prudent management of the risk described above requires
maintaining an adequate level of cash or cash equivalents
and/or highly liquid short-term financial instruments, and
and financial counterparties. The Company’s exposure for
the availability of funds through an adequate amount of
commercial obligations is mainly towards Group companies,
committed credit facilities and/or recourse to the capital
for financial obligations totally towards Group companies.
market, while diversifying the products and their maturities
up to 1 year
from 1 to 2 years
from 2 to 5 years
over 5 years
Total
12/31/2016
Payables to banks and other lenders
296,015
1,916,275
2,508,418
4,720,708
Trade payables
Other payables
Total
32,425
37,126
-
311
-
-
32,425
37,437
365,566
1,916,585
2,508,418
4,790,569
1
0
4
5. INFORMATION ON 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, reflecting the significance of the inputs
In order to limit the risk for commercial obligations to third
>
level 1 – unadjusted quotations recorded on an active market for assets or liabilities subject to valuation;
parties, the Company has procedures in place for assessing
At December 31, 2017, the Company had, aside from cash equal to
>
level 2 – inputs different from the quoted prices referred to at the preceding level, which are observable on the market either
to seize the best available opportunities.
used in determining the fair value. The levels are as follows:
the potential and financial soundness of customers, for
euro 1,749 thousand (euro 1,805 thousand at December 31, 2016),
directly (as in the case of prices) or indirectly (because they are derived from prices);
monitoring the expected cash flows and for any recovery
unused credit facilities equal to euro 100,000 thousand (euro
>
level 3 – inputs that are not based on observable market data.
actions. With regard to financial counterparties for the
200,000 thousand at December 31, 2016) maturing Q2 2022.
management of temporarily excess resources, the Company
only uses interlocutors of high credit standing and constantly
monitors exposures to individual counterparties.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. The following table shows assets measured at fair value as at December 31, 2017, divided into the three levels defined above:
The following table shows the changes of financial assets that occurred in level 3:
(in thousands of euro)
(in thousands of euro)
Note
12/31/2017
Level 1
Level 2
Level 3
12/31/2017
12/31/2016
FINANCIAL ASSETS
Available-for-sale financial assets:
Other financial assets
> equities and shares
> investment funds
Derivative hedging instruments
Current derivative financial instruments
TOTAL ASSETS
FINANCIAL LIABILITIES
Financial liabilities at fair value through profit or loss
Current derivative financial instruments
Derivative hedging instruments
Non current derivative financial instruments
TOTAL LIABILITIES
At December 31, 2016, the breakdown was as follows:
4
0
2
12
12
17
17
17
Opening balance
Increases
Decreases
209,323
179,204
19,909
10,210
Reclassification
15,270
95
-
-
15,270
95
-
-
Transfer from level 2 to level 3
Impairment
Fair value adjustments recognized in equity
224,688
179,204
35,274
10,210
Closing balance
7,248
781
-
-
2,730
(912)
363
10,210
6,684
2,395
(94)
(3)
-
(2,290)
556
7,248
146
29,716
29,862
-
-
-
146
29,716
29,862
-
-
-
These financial assets consist mainly of equity investments in Istituto Europeo di Oncologia (European Institute of Oncology) (euro
6,599 thousand), and Emittenti Titoli (euro 2,748 thousand).
The item increases refers to the capital increase related to the investment in Alitalia – Compagnia Area Italiana S.p.A. (euro 781
thousand).
The item impairment mainly refers to the investments in Alitalia-Compagnia Aerea Italiana S.p.A. (euro 781 thousand) and Movincom
Servizi S.r.l. (euro 121 thousand).
3
0
4
Note
12/31/2016
Level 1
Level 2
Level 3
determined considering also in transparency the Fair Value of the shares held in London Stock Exchange by Emittente Titoli.
(in thousands of euro)
In 2017, there were no transfers from level 1 to level 2 and vice versa, while there was a transfer from level 2 to level 3 following the
sale, by Emittenti Titoli, of its investment in the company London Stock Exchange. The Fair Value of Emittente Titoli was in fact
FINANCIAL ASSETS
Available-for-sale financial assets:
Other financial assets
> equities and shares
> investment funds
Derivative hedging instruments
Current derivative financial instruments
TOTAL ASSETS
FINANCIAL LIABILITIES
Financial liabilities at fair value through profit or loss
Current derivative financial instruments
Derivative hedging instruments
Non current derivative financial instruments
TOTAL LIABILITIES
12
12
17
17
17
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, comprise primarily equity investments classified as financial assets available for sale.
167,926
141,477
19,201
7,248
The fair value of financial instruments not traded on active markets (e.g. derivatives) is measured by means of techniques that
14,636
515
-
-
14,636
515
-
-
183,077
141,477
34,352
7,248
maximise the use of observable and available market data, using widely applied financial measurement techniques:
> market prices for similar instruments;
>
the fair value of cross currency 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.
-
-
-
-
-
-
-
-
-
-
-
-
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. 5.2 Categories of financial assets and liabilities The following are the carrying amounts for each class of financial asset
and liability identified by IAS 39:
7. ESTIMATES AND ASSUMPTIONS
brands of the listed companies of the Tyre sector, and was
equal to an average royalty rate of 4.6%. With reference to
(in thousands of euro)
The preparation of the Financial Statements requires
the contribution in terms of royalties from the Prometeon
Directors to apply accounting standards and methodologies
Tyre Group, the royalty rate used as provided for by the
Note
12/31/2017
12/31/2016
which, under certain circumstances, are based on subjective
license agreement was equal to 2%;
FINANCIAL ASSETS
Loans and receivables
Other non-current receivables
Current trade receivabels
Other current receivables
Cash
Available-for-sale financial assets
Other financial assets
Derivative hedging instruments
Derivative financial instruments
Total financial assets
FINANCIAL LIABILITIES
Financial liabilities at fair value through profit or loss
4
0
4
Derivative financial instruments
Financial liabilities at amortized 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
Derivative hedging instruments
Derivative financial instruments
Total financial liabilities
6. CAPITAL MANAGEMENT POLICY
13
14
13
15
12
17
17
19
19
22
23
23
17
14,820
14,830
52,045
61,692
assessments and estimates that are based on historical
> a discount rate of 9.0%, which included a premium
experience and assumptions that are considered reasonable
determined on the basis of the risk of the specific asset;
and realistic from time to time depending on the circumstances.
> a growth rate of g in the terminal value assumed to be
The final results of the items of the financial statements for
equal to zero;
which said estimates and assumptions were used may differ
>
the TAB (Tax Amortisation Benefit) that is, the tax benefit
45,164
651,850
from those in the financial statements that show the effects
that could potentially benefit the market participant due
1,749
1,805
224,593
182,562
95
515
338,466
913,254
146
-
2,331,647
4,103,996
16,856
192,055
29,694
32,425
212
311
75,213
37,126
29,716
-
2,483,484
4,365,913
of the occurrence of the event subject of the estimate due
to the possibility of fiscally amortising the asset.
to the uncertainty that characterizes the assumptions and
For the purposes of impairment testing, the recoverable
conditions on which the estimates are based.
amount of the Pirelli Brand cum-TAB was compared with the
carrying amount of the Brand cum-TAB and no losses in value
Below is a brief description of the accounting standards that,
emerged.
in relation to Pirelli & C. S.p.A., involve more than others a
higher level of subjectivity by the management in making
estimates and for which a change in the conditions underlying
the assumptions used could have a significant impact on the
Investments in subsidiaries Investments are assessed
to establish whether there was a decrease in value, to be
financial information.
Pirelli Brand (intangible assets with indefinite
useful life) The Pirelli Brand is an intangible fixed asset
with an indefinite useful life not subject to amortisation, but
recognized with a write-down, if there are indications that
it will be difficult to recover their net carrying amount
through use. To establish the presence of said indications,
Directors must make subjective assessments on the basis of
information available within the Company and the market,
as well as historical experience. Moreover, if it is determined
5
0
4
pursuant to IAS 36, is tested for impairment annually or more
that a potential impairment may be generated, the Company
frequently, if specific events or circumstances arise that may
calculates
this
loss using appropriate measurement
indicate a reduction in value.
techniques. The proper identification of elements indicating
The impairment test at December 31, 2017 was performed using
estimates for calculating the amount of such losses, depend
the assistance of an independent third-party professional.
on factors that may vary over time, affecting the assessments
the existence of a potential impairment loss, and the
and estimates made by Directors.
The configuration for the recoverable amount for the purpose
of the impairment test at December 31, 2017 is the fair value,
calculated on the basis of the income approach (the so-called
Level 3 of the hierarchy of IFRS 13 – Fair Value measurement)
Provisions for risks and charges Provisions are set aside
against contingent legal and tax liabilities, representing the
and is based on:
risk of negative outcome. The value of the provisions recorded
>
the consensus forecasts by equity analysts with respect
in the financial statements relating to these risks represents
The Company’s objective is to maximise the return on net invested capital while maintaining the ability to operate over time,
to the forecast revenues for the period 2018-2020 in that
the best estimate at the date made by the directors. Such an
ensuring adequate returns for its shareholders and benefits for the other stakeholders, with progressive deleverage of the financial
they were more prudent than the projections made by
estimate entails making assumptions that depend on factors
structure in the short/medium medium term.
management;
that may change over time and which could therefore have a
> an evaluation criterion is obtained by the sum of parts
material impact with respect to the current estimates made
In order to achieve these objectives, as well as pursuing satisfactory earnings results and generating cash flows, the Company may
which also takes into account the contribution of royalties
by Directors for the preparation of the Company’s Financial
adjust its policy regarding dividends and the configuration of the Company’s capital.
from the Prometeon Tyre Group for the use the Pirelli
Statements.
trademark in relation to the industrial segment;
>
the royalty rate applied to the revenues of the Consumer
High Value and Consumer Standard evaluation units was
deduced from the royalty rates implicit in the valuations
Taxes Significant elements of estimation are necessary
in defining the forecasts of current taxes for the year and
made by an independent entity relative to the main
deferred tax assets and liabilities.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. 8. TANGIBLE ASSETS
9. INTANGIBLE ASSETS
The items in question and the related changes are detailed as follows:
The items in question and the related changes are detailed as follows:
(in thousands of euro)
(in thousands of euro)
Land
Buildings
Plant and
machinery
Industrial and
Assets
commercial
Other assets
in progress
Total
equipment
and advances
Brand
Software
licenses
Other
assets
Assets
in progress
and advances
Total
Net value as of December 31, 2015
21,112
67,486
1,122
24
5,425
-
95,169
At 31 December 2015
-
1,229
4,732
634
6,595
Increases
Decreases
Depreciation
Other
-
-
-
(12,091)
(33,691)
(19)
-
-
64
475
539
(42)
-
(45,843)
-
-
(3,974)
(219)
(7)
(725)
-
(4,925)
(1,515)
(4)
-
-
-
(1,519)
At 31 December 2016
9,021
28,306
880
17
4,722
475
43,421
Of which
> Historical cost
9,021
54,944
4,686
985
14,612
475
84,723
> Accumulated depreciation
-
(26,638)
(3,806)
(968)
(9,890)
-
(41,302)
Increases
Decreases
Reclassification
Amortisation
At 31 December 2016
Increases
Decreases
Amortisation
2,270,000
171
1,152
750
2,272,073
-
-
-
(35)
-
-
(35)
56
578
(634)
-
(343)
(2,455)
-
(2,798)
2,270,000
1,078
4,007
750
2,275,835
-
-
-
311
1,084
156
1,551
-
-
(750)
(750)
(387)
(2,127)
-
(2,514)
Net value as of December 31, 2016
9,021
28,306
880
17
4,722
475
43,421
At 31 December 2017
2,270,000
1,002
2,964
156
2,274,122
4
0
6
Increases
Decreases
Reclassification
Depreciation
-
-
-
-
332
(112)
475
-
-
-
-
-
-
118
(37)
-
450
-
(149)
The item Brand refers to the value of the Pirelli Brand (intangible asset with indefinite useful life), for an amount of euro 2,270,000
-
(475)
-
thousand, which originated following the allocation of the merger deficit, generated following the incorporation of the parent
(1,705)
(219)
(5)
(458)
-
(2,387)
company Marco Polo International Holding Italy S.p.A. in 2016. The allocation of the deficit was made consistently with the
7
0
4
At 31 December 2017
9,021
27,296
661
12
4,345
-
41,335
consolidated financial statements as a result of the completion of the Purchase Price Allocation.
Of which
The assessment of the useful life of brands is based on a number of factors including competitors, market share, brand history,
> Historical cost
9,021
55,639
4,686
985
14,693
-
85,024
product lifecycle, operational plans and macroeconomic scenario of the countries in which the relating products are sold. Specifically,
> Accumulated depreciation
-
(28,343)
(4,025)
(973)
(10,348)
-
(43,689)
the useful life of the Pirelli Brand has been evaluated as indefinite on the basis of its over one hundred year successful history (born
Net value as of December 31, 2017
9,021
27,296
661
12
4,345
-
41,335
in 1872) as well as the intention and ability of the group to continue investing in supporting and upholding the brand.
Increases in the year for euro 450 thousand mainly refer to improvements to owned properties.
thousand), systems for personnel management (euro 295 thousand) and treasury (euro 85 thousand).
The increases in the year mainly include charges for the purchase of software applications (euro 625 thousand), licenses (euro 311
Financial expenses on tangible assets were not capitalized.
No impairment was carried out during the 2017 financial year.
The total of the future minimum payments due for non-cancellable operating leases amount to euro 112,239 thousand, of which:
> euro 8,281 thousand within one year;
> euro 66,858 thousand between one and five years;
> euro 37,100 thousand over 5 years.
Impairment test of the Pirelli Brand (intangible assets with indefinite useful life) The Pirelli Brand at euro 2,270,000
thousand is an intangible fixed asset with an indefinite useful life and as such is not subject to amortisation, but pursuant to IAS 36,
is tested for impairment annually or more frequently, if specific events or circumstances arise that may indicate a reduction in value.
The impairment test as at December 31, 2017 was carried out with the assistance of an independent third party professional.
The configuration of the recoverable amount for impairment testing purposes at December 31, 2017 was calculated on the basis of
the income approach (the so-called Level 3 of the hierarchy of IFRS 13 – Fair Value measurement) and is based on:
>
the consensus forecasts by equity analysts with respect to the forecast revenues for the period 2018-2020 in that they were more
prudent than the projections made by management;
>
the evaluation criterion is obtained by the sum of parts which also takes into account the contribution of royalties from the
Prometeon Tyre Group for the use the Pirelli trademark in relation to the industrial segment;
>
the royalty rate applied to the revenues of the Consumer High Value and Consumer Standard segment was deduced from the
royalty rates implicit in the valuations made by an independent entity relative to the main brands of the listed companies of the
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. Tyre sector and was equal to an average royalty rate of 4.6%. With reference to the contribution in terms of royalties from the
Below are the changes during the year:
Prometeon Tyre Group, the royalty rate used as provided for by the license agreement was equal to 2%;
> a discount rate of 9.0%, which included a premium determined on the basis of the risk of the specific asset;
> a growth rate of g in the terminal value assumed to be equal to zero;
>
the TAB (Tax Amortisation Benefit) that is, the tax benefit that could potentially benefit the market participant due to the
possibility of fiscally amortising the asset.
For the purposes of impairment testing, the recoverable amount of the Pirelli Brand cum-TAB was compared with the carrying
amount of the Brand cum-TAB and no losses in value emerged.
Opening balance
Increases
Impairment
Decreases
A sensitivity analysis was also carried out in relation to the Key Assumptions used in the valuation of the royalty rate (for the
Merger deficit
Consumer evaluation unit and for the contribution in terms of royalties from the Prometeon Group); the discount rate, and the
g growth factor. The fair value remained higher than the carrying amount even assuming the following changes in the sole Key
assumption:
> a downwardly change in the royalty rates for the Consumer evaluation units of 50 basis points and the simultaneous zero balance
Reclassification from provision for risks and charges
Closing balance
(in thousands of euro)
12/31/2017
12/31/2016
4,930,701
1,141,926
9,707
200,266
(2,262)
(4,114)
(364,360)
(198,686)
-
3,791,309
(5,477)
-
4,568,309
4,930,701
for royalties from the license agreement with Prometeon Tyre Group;
> an upwardly change in the discount rate of150 basis points;
> a downwardly change in the g growth rate of 150 basis points.
10. INVESTMENTS IN SUBSIDIARIES
The increases refer to euro 8,700 thousand for the capital payment in Pirelli & C. Ambiente S.r.l. and euro 1,000 thousand for the
capital payment in HB Servizi S.r.l..
The company checks the recognized values of its investments and the existence of impairment indicators on the basis of as set out
in paragraph 3 Accounting Standards – Investments in subsidiaries and associates. At December 31, 2017, impairment indicators were
identified on investments in Pirelli & C. Ambiente S.r.l and HB Servizi S.r.l. and therefore it was necessary to perform impairment test
At December 31, 2017, this item amounted to euro 4,568,309 thousand (euro 4,930,701 thousand at December 31, 2016) and the
for the aforementioned investments. The aforementioned impairment test revealed an impairment loss on the investment in Pirelli
4
0
8
breakdown is as follows:
HB Servizi S.r.l.
Maristel S.p.A.
Pirelli & C. Ambiente S.r.l.
Pirelli Group Reinsurance Company S.A.
Pirelli Ltda
Pirelli Servizi Amministrazione e Tesoreria S.p.A.
Pirelli Sistemi Informativi S.r.l.
Pirelli Tyre S.p.A.
Pirelli UK Ltd.
Servizi Aziendali Pirelli S.C.p.A.
T.P. Industrial Holding S.p.A. before Pirelli Labs S.p.A.
Total
(in thousands of euro)
& C. Ambiente S.r.l for euro 1,128 thousand and in HB Servizi S.r.l for euro 1,134 thousand.
9
0
4
From the other investments in subsidiaries, no impairment indicators were identified and therefore no impairment tests were
12/31/2017
12/31/2016
necessary to be performed.
230
364
1,315
1,315
2,095
-
6,346
6,346
The decrease refers to the allocation, resolved on March 15, 2017, to the sole shareholder Marco Polo International Holding Italy S.p.A.
of all the 32,870,380 shares held in TP Industrial Holding S.p.A., carried out through the distribution of reserves for the amount of
euro 364,351 thousand.
9,666
9,666
The reclassification of the provision for risks and charges refers to the accrual made at December 31, 2016 related to the investment in
Pirelli & C. Ambiente S.r.l. for the settlement of losses exceeding the book value at that date. The provision was reclassified in 2017 to
reduce the value of the investment, which became large following the capital contribution of euro 8,700 thousand previously described.
Further details are set out in the Annexes to the explanatory notes.
3,238
3,238
1,655
1,655
4,521,792
4,521,792
21,871
21,871
101
103
-
364,351
4,568,309
4,930,701
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. 11. INVESTMENTS IN ASSOCIATED COMPANIES
The breakdown is as follows:
At December 31, 2017, this item amounted to euro 10,204 thousand (euro 33,078 thousand at December 31, 2016) and the breakdown
is as follows:
Listed securities
Prelios S.p.A.
Unlisted securities
Consorzio per le Ricerche sui Materiali Avanzati (CORIMAV)
Eurostazioni S.p.A. - Roma
Fenice S.r.l.
Focus Investments S.p.A.
International Media Holding S.p.A.
Total
The breakdown of changes is indicated below:
4
1
0
Opening balance
Increases
Decreases
Impairment
Closing balance
(in thousands of euro)
Financial assets available-for-sale
12/31/2017
12/31/2016
-
13,642
104
6,271
2,477
1,352
-
104
6,271
9,048
4,000
13
10,204
33,078
(in thousands of euro)
12/31/2017
12/31/2016
33,078
134,322
-
4,692
(13,655)
(11,192)
(9,219)
(94,754)
10,204
33,078
Listed securities
Mediobanca S.p.A. - Milano
RCS Mediagroup S.p.A. - Milano
Unlisted securities
Fin. Priv S.r.l.
Fondo Comune di Investimento Immobiliare Anastasia
Istituto Europeo di Oncologia S.r.l.
Emittenti Titoli S.p.A.
Other companies
Total
The changes in the year are shown below:
Opening balance
Increases
Decreases
Fair value adjustment recognised in equity
Impairment
Reclassification
Closing balance
(in thousands of euro)
12/31/2017
12/31/2016
149,027
122,167
30,177
19,307
19,908
15,270
6,599
2,748
864
16,471
14,636
6,231
2,729
1,021
224,593
182,562
(in thousands of euro)
12/31/2017
12/31/2016
1
1
4
182,562
199,062
2,459
(2)
13,061
(10,758)
40,486
(16,510)
(912)
(2,290)
-
(3)
224,593
182,562
The decreases mainly refer to the disposal of the Prelios S.p.A. investment on December 28, 2017 to Lavaredo S.p.A., a newly
established joint stock company designated by the Burlington fund counterparty in the transaction whose closing took place in
Increases for the year refer to the purchase of 1,559,250 shares of the company RCS Mediagroup S.p.A. for euro 1,678 thousand and
December 2017. The sale generated a capital gain of euro 2,564 thousand.
the subscription of 74,555,289 new shares of the investment in Alitalia-Compagnia Aerea Italiana S.p.A. for euro 781 thousand.
The item impairment refers for euro 6,571 thousand to the investment in Fenice S.r.l. regarding which an impairment indicator was
The fair value adjustments to equity relate mainly to investments in Mediobanca S.p.A. (positive for euro 26,859 thousand), in
identified as the company distributed reserves for euro 8,566 thousand, higher than the portion of the result in the consolidated
RCS Mediagroup S.p.A. (positive for euro 9,193 thousand), in Fin. Priv. S.r.l. (positive for euro 3,437 thousand), in Fondo Comune di
financial statements. The write-down related to the investment in Focus Investments S.p.A. for euro 2,648 thousand is attributable
investimento Anastasia (positive for euro 633 thousand), and in Istituto Europeo di Oncologia (positive for euro 368 thousand).
to the adjustment of the book value to the fair value of the same inclusive of the “liquidation preference”.
The item impairment mainly refers to the equity investment in Alitalia-Compagnia Aerea Italiana S.p.A. (euro 781 thousand) and
Further details are set out in the Annexes to the explanatory notes.
Movincom Servizi S.r.l. (euro 121 thousand).
12. OTHER FINANCIAL ASSETS
For listed securities, the fair value corresponds to the Stock Exchange listing at December 31, 2017. For unlisted securities and real
estate funds, the fair value was estimated according to available information.
At December 31, 2017, the item in question amounted to euro 224,593 thousand (euro 182,562 thousand at December 31, 2016) and
Further details are set out in the Annexes to the explanatory notes.
refers to financial assets available for sale, measured at fair value, with changes in fair value recognized in equity.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. 13. OTHER RECEIVABLES
14. TRADE RECEIVABLES
The breakdown of other receivables is as follows:
Trade receivables amount to euro 52,045 thousand compared to euro 61,692 thousand of the previous year and the breakdown is as
(in thousands of euro)
follows:
12/31/2017
12/31/2016
Total
Non-current
Current
Total
Non-current
Current
Other receivables from subsidiaries
Financial receivables from subsidiaries
2,040
8,793
-
-
2,040
2,010
8,793
633,130
-
-
2,010
633,130
Guarantee deposits
712
712
-
709
709
-
Other receivables from third parties
18,604
14,108
4,496
19,581
14,121
5,460
Receivables from tax authorities for taxes not
related to income
Financial accrued interest income
Financial prepaid expenses
26,224
3,122
489
-
-
-
26,224
9,616
3,122
98
489
1,536
-
-
-
9,616
98
1,536
Receivables from subsidiaries
Receivables from associates
Receivables from other companies
Total receivables - gross amount
Provision for bad debt
Total receivables
Total other receivables
59,984
14,820
45,164
666,680
14,830
651,850
Below is the breakdown of trade receivables based on the currency in which they are expressed:
(in thousands of euro)
12/31/2017
12/31/2016
42,159
55,830
3
14,088
56,250
1,085
8,836
65,751
(4,205)
(4,059)
52,045
61,692
Financial receivables from subsidiaries mainly refer to the interest-bearing current account, settled at market rates, held with
Pirelli International Plc for euro 4,082 thousand (at December 31, 2016 equal to euro 201,405 thousand) and to the receivable from
4
1
2
Pirelli International PLC for the charge-back of guarantee commissions for euro 4,771 thousand.
The change compared to the previous year is due to the repayment by the subsidiary Pirelli Tyre S.p.A. of the loan of euro 430,000
thousand, which was disbursed in October 2016.
Other non-current receivables from third parties mainly refer to a deposit relating to a long-term contract.
Receivables from tax authorities for taxes not related to income for euro 26,224 thousand refer mainly to receivables for VAT,
which increased compared to the previous year.
EUR
USD (Dollar USA)
RUB (Ruble Russia)
Other currencies
Total
(in thousands of euro)
12/31/2017
% of total
trade
receivables
12/31/2016
% of total
trade
receivables
48,139
2,381
5,699
31
56,250
86%
4%
10%
-
59,321
2,474
3,956
-
65,751
90%
4%
6%
-
3
1
4
Financial accrued interest income refer to portions of interest accrued but not yet collected on cross currency interest swap
through Corporate functions. The aforementioned receivables are due within the financial year and do not show overdue balances
derivative contracts related to the unsecured syndicated financing “Facilities” granted to Pirelli & C. S.p.A..
significant amount.
Receivables from subsidiaries at December 31, 2017 mainly include the amounts that Pirelli & C. S.p.A. charges for services rendered
Prepaid financial expenses relate mainly to the commissions on the revolving and term loan credit line.
Receivables from other companies of euro 14,088 thousand (euro 8,836 thousand at December 31, 2016), shown gross of the bad debt
The book value of financial receivables and other receivables approximates their fair value.
provision of euro 4,205 thousand, are past due for euro 8,725 thousand.
Overdue receivables and receivables due have been valued in accordance with the Group policies described in the paragraph relating
to credit risk management within the “Financial risk management policy”.
The impaired receivables include both significant positions written down separately, and positions with similar characteristics in
terms of credit risk, grouped and written down on a collective basis.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. The change in the provision for bad debts is shown below:
Opening balance
Increases/decreases
Closing balance
(in thousands of euro)
12/31/2017
12/31/2016
4,059
3,102
146
957
4,205
4,059
For trade receivables, the carrying amount is considered to approximate the applicable fair value.
15. CASH AND CASH EQUIVALENTS
At December 31, 2017, they amount to euro 1,749 thousand, against euro 1,805 thousand at December 31, 2016 and refer to balances of
bank accounts in euro repayable on demand.
The credit risk associated with cash and cash equivalents is to be considered limited because the counterparties are represented by
leading national and international banking institutions.
17. DERIVATIVE FINANCIAL INSTRUMENTS
The item includes the fair value of derivative instruments. The breakdown is as follows:
12/31/2017
12/31/2016
Non Current
Non Current
Current
Non Current
Non Current
Current
Assets
Liabilities
Liabilities
Assets
Liabilities
Liabilities
(in thousands of euro)
Without adoption of hedge accounting
Exchange rate derivative instruments - trade positions
95
-
146
515
In hedge accounting
> cash flow hedge:
Other derivative instruments
Total derivative instruments
-
95
29,716
29,716
-
146
-
515
-
-
-
-
-
-
The above derivatives are fully stipulated with the Group’s treasury company, Pirelli International PLC.
It is believed that the value of cash and cash equivalents is in line with their fair value.
4
1
4
16. TAX RECEIVABLES
Derivative financial instruments not in hedge accounting The value of foreign currency derivatives corresponds to the
fair value of forward currency purchases/sales outstanding at the closing date of the year. These involve hedges of the Company’s
commercial transactions for which hedge accounting was not adopted. The fair value is determined by using the forward exchange
rate at the reporting date.
5
1
4
At December 31, 2017, they amount to euro 110,632 thousand (euro 84,621 thousand at December 31, 2016).
Derivative financial instruments in hedge accounting The value of other derivatives, recognized as non-current
liabilities for euro 29,716 thousand, refers to the fair value measurement of 4 cross currency interest rate swaps with the following
The amount mainly includes:
characteristics:
>
receivables from Group companies participating in the tax consolidation for euro 104,054 thousand (euro 77,840 thousand at
December 31, 2016). The increase compared to the previous year substantially depends on the greater contribution of the
positive taxable result by the subsidiary Pirelli Tyre S.p.A.;
>
receivables from the Inland Revenue for IRES for 2008/2014 for euro 5,347 thousand, unchanged compared to December 31, 2016;
>
receivables for IRAP advances paid for euro 925 thousand, unchanged compared to the previous year.
Instrument
CCIRS
CCIRS
CCIRS
CCIRS forward start
Notional
(in thousands
of USD)
170,422
284,037
681,690
170,422
Start date
Deadline
Description
Jul-17
Jul-17
Jul-17
Jul-19
Jul-19
pay floating EURIBOR / receive floating LIBOR
Jun-20
pay floating EURIBOR / receive floating LIBOR
Jun-20
pay floating EURIBOR / receive floating LIBOR
Jun-22
pay fix EURIBOR / receive floating LIBOR
(thousands USD)
The objective of these derivatives, for which hedge accounting of the cash flow hedge type was adopted, is to hedge the Company
against the risk of fluctuations in cash flows associated with changes in the LIBOR rate and changes in the USD/EUR exchange
rate, generated by a liability in USD at variable rate with a notional value of USD 1,136,149 thousand, equivalent to euro 947,344
thousand (see note 19 Borrowings from banks and other financial institutions). The change in the fair value of the period negative
for euro 29,716 thousand was suspended in equity for euro 7,117 thousand, while euro 22,599 thousand was recognized in the Income
Statement under the item “net expenses on derivatives” (note 34).
Other things being equal, a hypothetical increase and decrease of 0.50% of the EURIBOR and LIBOR curves would have
respectively a positive net impact of euro 1,541 thousand and a negative net impact of euro 1,596 thousand on the shareholders’
equity of the Company.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. 18. SHAREHOLDERS’ EQUITY
>
the grouping of the company’s ordinary shares
in
1,000,000,000 with respect to 1,461,509,840 shares
Reserve from results carried forward At December 31, 2017, the reserve for results carried forward was zero compared to
euro 305,402 thousand at December 31, 2016. The decrease was mainly due to the allocation of all the shares of TP Industrial Holding
Equity amounted to euro 4,238,372 thousand (euro 3,206,233
outstanding at August 1, 2017.
S.p.A. (euro 188,439 thousand) and for allocation to the legal reserve (euro 116,963 thousand).
thousand at December 31, 2016).
The statement of changes in equity is shown in the main
financial statements.
Legal reserve At December 31, 2017, the legal reserve
amounted to euro 380,875 thousand, with an increase of
228,762 thousand compared to December 31, 2016, following
Equity went from euro 3,206,233 thousand at December 31,
the allocation to the legal reserve of the amount of euro
2016 to euro 4,238,372 thousand at December 31, 2017. The
116,963 thousand profits carried forward, approved by the
positive change is essentially due to the capital increase,
Shareholders’ Meeting of March 6, 2017, and the subsequent
equal to euro 1,189,375 thousand, inclusive of share premium,
allocation to the legal reserve of the amount of euro 111,799
signed in June 2017 by Marco Polo International Italy S.p.A.
thousand by means of withdrawals of euro 65,377 thousand
(direct shareholder following the merger with Marco Polo
from the reserve for results carried forward and of euro
International Holding Italy S.p.A.) which was offset by the
46,421 thousand from the merger reserve, approved by the
reduction related to the assignment of all the shares of TP
Shareholders’ Meeting of August 1, 2017.
Industrial Holding S.p.A. (parent company of the Industrial
business). In addition, the change is due to the adjustment
to fair value of derivatives designated as cash flow hedge
(negative for 5,409 thousand), to the fair value adjustment
Surplus reserve At December 31, 2017, the share premium
reserve amounted to euro 630,381 thousand and was generated
of financial assets available for sale (positive for euro 41,925
following the capital increase.
thousand) and to the net result for the year (positive for euro
4
1
6
170,851 thousand):
Share capital The share capital at December 31, 2017, fully
subscribed and paid-in, amounts to euro 1,904,374,935.66
divided
into
1,000,000,000 ordinary shares without
nominal value.
Concentration reserves At December 31, 2017, concentration
reserves amounted to euro 12,467 thousand and unchanged
compared to December 31, 2016.
Other reserves At December 31, 2017, other reserves
amounted to euro 92,535 thousand and unchanged compared
In accordance with the provisions of art. 2427, no. 7-bis of the Italian Civil Code, in the following table each item of equity is indicated
analytically, with indication of its origin, possibility of use and distributability, as well as of its use in previous years:
(in thousands of euro)
Amount
Possible use
Available
portion
Summary of reserves
uses in the last
3 previous years
Share capital
Surplus reserve
Legal reserve
Other reserves
1,904,375
-
630,381
A, B, C
630,381
380,875
B
380,875
> Concentration reserve
12,467
A, B, C
12,467
-
-
-
-
-
-
-
92,535
A, B
92,535
23,961
-
-
1,022,928
A, B, C
1,022,928
-
4,067,522
2,139,186
473,410
1,665,776
7
1
4
> Other Reserves
> IAS Reserves
> Merger Reserve
Retained earnings
Total
Non distributable
Residual available share
A to increase the share capital
B to cover losses
C to distribute to the shareholders
The share capital went from euro 1,345,381 thousand gross
to December 31, 2016.
19. BORROWINGS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS
of portfolio treasury shares (euro 1,342,281 thousand net of
portfolio treasury shares), divided into 207,625,214 shares, at
December 31, 2016, to euro 1,904,375 thousand, divided into
1,000,000,000 shares at December 31, 2017.
IAS reserves At December 31, 2017, the IAS reserves
amounted to euro 23,961 thousand and refer to the reserve
for the fair value adjustment of financial assets available for
The change in the number of shares was determined by the
sale (positive for euro 27,342 thousand), to the actuarial gains/
following transactions:
losses reserve (positive for euro 2,028 thousand) and the cash
>
the conversion of all outstanding special shares into the
flow hedge reserve, net of the tax effect (negative for euro
corresponding number of ordinary shares, the annulment
5,409 thousand).
of all 351,590 ordinary treasury shares and all 772,792
special treasury shares without reducing the share capital
and splitting shares in 1,032,504,160;
>
the Capital Increase, fully subscribed by Marco Polo
Merger reserve At December 31, 2017, the merger reserve
amounted to euro 1,022,928 thousand compared to euro
International Italy S.p.A. on June 29, 2017, for euro 1,189,375
1,245,261 thousand at December 31, 2016. The reserve was
The breakdown of the item borrowings from banks and other financial institutions is as follows:
12/31/2017
12/31/2016
Total
Not currents
Currents
Total
Not currents
Currents
(in thousands of euro)
Borrowings from banks
2,331,086
2,331,086
-
4,267,340
4,103,435
163,905
Other financial payables
12,021
561
11,460
4,378
561
3,817
Accrued liabilities
5,396
-
5,396
24,333
-
24,333
Total
2,348,503
2,331,647
16,856
4,296,051
4,103,996
192,055
thousand, of which euro 558,994 thousand allocated
generated following the merger by incorporation of Marco
The item borrowings from banks refers to the use of the unsecured financing line (“Facilities”) granted to Pirelli & C. S.p.A. as part
to share capital and euro 630,381 thousand to the share
Polo International Holding Italy S.p.A. in Pirelli & C. S.p.A. in
of the refinancing operation, which also involved Pirelli International Plc, signed on June 27, 2017 (with closing on June 29, 2017). The
premium reserve, through the issue of 429,005,680 new
2016 and was used in 2017 to increase the legal reserve.
portion of lines granted to Pirelli & C. is equal to euro 2.5 billion used for euro 2.4 billion at December 31, 2017. The refinancing of the
ordinary shares, without nominal value;
Group was carried out at a total cost of less than 1.85% and with maturity at three and five years. The loan initially underwritten by
three underwriters was subsequently subject to review at a syndicate of 18 credit institutions on July 7. It is noted that at December 31,
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. 2016, the Company was financed by secured credit lines used for euro 4,267,340 thousand. On June 27, 2017, Marco Polo International
At December 31, 2017, there are hedging derivatives for interest rate and exchange rate on payables at variable rate in foreign currency.
Italy S.p.A. subscribed a share capital increase for Pirelli & C. S.p.A. for approximately euro 1.2 billion, which allowed the Company to
reduce the bank debt by the same amount in the new refinancing transaction. The loan is fully classified as long-term borrowings
With reference to the presence of financial covenants, it should be noted that the financing (“Facilities”) granted to Pirelli & C. S.p.A.
from banks.
and Pirelli International Plc requires compliance with a maximum ratio (“Total Net Leverage”) between net indebtedness and gross
operating profit as resulting from the Consolidated Financial Statements of Pirelli & C. S.p.A. Failure to comply with the financial
The item other financial payables includes euro 9,000 thousand for the payable to the subsidiary Pirelli International Plc and euro
covenant is identified as an event of default which, if not remedied and exercised by a number of lending banks representing at least
2,460 thousand for the payable to shareholders following the squeeze out operation.
66 2/3 percent of the total commitment, will result in early repayment (partial or total) of the loan with simultaneous cancellation
The accrued expenses item essentially refers to interest that has accrued on the term loans but has not yet been paid (euro 5,396 thousand).
of the related commitment.
This parameter was fully satisfied at December 31, 2017.
Below are the changes in borrowings from banks:
Borrowings from banks at December 31, 2016
Drawdowns of secured financing (Senior Facilities)
Reimbursements of secured financing (Senior Facilities)
Drawdowns of unsecured financing (Facilities)
Reimbursements of unsecured financing (Facilities)
4
1
8
Amortisation of bank/financial expenses
Exchange differences
Borrowings from banks at December 31, 2017
(in thousands of euro)
The refinancing envisages a Negative Pledge clause the terms of which are in line with the market standards for this type of
4,267,340
249,108
(4,509,537)
2,879,641
(499,450)
57,265
(113,281)
2,331,086
credit facility.
The other outstanding financial payables do not contain financial covenants.
It is noted that on January 22, 2018, under the EMTN program approved at the end of 2017 and entered into on January 10, 2018, Pirelli
placed a bond at international institutional investors for a nominal amount of euro 600 million with a five-year term at fixed rate.
Net financial position (alternative performance indicator not required by IFRS accounting standards) The
table below shows the breakdown of the net financial position and net financial debt at December 31, 2017 and December 31, 2016,
determined in accordance with the provisions of Consob communication DEM/6064293 of July 28, 2006 and in compliance with the
ESMA/2013/319 Recommendations.
9
1
4
The carrying amount of current 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)
12/31/2017
12/31/2016
Carrying amount
Fair value
Carrying amount
Fair value
Current borrowings from banks and other financial institutions
Non-current borrowings from banks and other financial
institutions
Non-current derivative financial instruments (liabilities)
Borrowings from banks
Other financial payables
2,331,086
2,364,230
4,103,996
4,103,996
561
561
561
561
Total gross debt
Cash and cash equivalents
Total borrowings from banks and other financial institutions
- non current
2,331,647
2,364,791
4,104,557
4,104,557
Current financial receivables and other assets
Note
12/31/2017
related parties
12/31/2016
related parties
(note 37)
(note 37)
of which
of which
(in thousands of euro)
19
19
17
15
13
13
16,856
9,001
192,055
2,331,647
4,103,996
29,716
29,716
2,378,219
(1,749)
4,296,051
(1,805)
772
561
(12,404)
(11,915)
(634,763)
(633,227)
2,364,066
(712)
2,363,354
3,659,482
(709)
3,658,774
Net financial debt *
Non-current financial receivables and other assets
Total net financial (liquidity)/debt position
* Pursuant to Consob Notice of July 28, 2006 and in compliance with CESR recommendation of February 10, 2005 "Recommendations fot the consistent
implementation of the European Commission regulation on Prospectuses"
The breakdown of borrowings from banks and other financial institutions by currency of origin of the payable at December 31, 2017
and December 31, 2016 is as follows:
EUR
USD (Dollar USA)
Total
(in thousands of euro)
12/31/2017
12/31/2016
1,403,382
3,573,011
945,121
722,479
2,348,503
4,295,490
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. 20. PROVISIONS FOR RISKS AND CHARGES
The following is a detail of changes of the item in question:
Employees’ leaving indemnities (TFR) The changes in the year 2017 for the employees’ leaving indemnities (TFR) are the following:
12/31/2017
12/31/2016
Opening balance
Movements through income statement
(in thousands of euro)
Total
Non-current
Current
Total
Non-current
Current
Actuarial (gains)/losses recognized in equity
(in thousands of euro)
12/31/2017
12/31/2016
1,248
1,136
1,548
1,201
17
55
Opening balance
51,427
45,950
5,477
14,746
14,346
400
Indemnities, advance payments, relocations, payment to funds
(1,016)
(1,556)
Increases
Reversals
Uses
3,656
3,656
(530)
(530)
-
-
14,873
9,396
5,477
(8,405)
(8,405)
-
(8,875)
(3,398)
(5,477)
(3,287)
(2,887)
(400)
Merger deficit
-
-
Total provision for liabilities and charges
45,678
45,678
-
-
33,500
33,500
-
51,427
45,950
5,477
Total employees' leaving indemnities (TFR)
1,385
1,248
The amounts recognized in the income statement are included in the item “Personnel Costs” (note 29).
Net actuarial gains accrued in 2017, recognized directly in other comprehensive income, amount to euro 17 thousand and are
essentially related to the change in the economic parameters of reference (discount rate and inflation rate).
4
2
0
The provisions for risks and charges refer for euro 33,500 thousand to contingent liabilities (whose outlay is not considered probable)
In accordance with national legislation, the amount due to each employee accrues based on the service provided and is paid when
identified in the Purchase Price Allocation referable to the decision taken by the European Commission at the conclusion of the
the employee leaves the company. The treatment due to the termination of the employment relationship is calculated based on its
antitrust investigation initiated with respect to the business of energy cables, which provides for a fine for Prysmian of about euro
duration and the taxable remuneration of each employee. The liability, annually revalued on the basis of the official cost of living and
104 million for a portion of which, equal to euro 67 million, Pirelli & C. S.p.A., although not involved in the alleged cartel, is called to
statutory interest rate, is not associated with any accrual condition or period, nor with any financial funding obligation; therefore,
respond jointly with Prysmian exclusively in application of the so-called “parental liability” principle, because, during part of the
there is no activity at the service of the fund.
period of the alleged infringement, Prysmian was controlled by Pirelli. The item also includes provisions made for legal and tax
disputes (euro 3,471 thousand), labour disputes (euro 3,421 thousand) and other risks, and expenses, mainly expenses for reclamation
The discipline was supplemented by Legislative Decree no. 252/2005 and by Law no. 296/2006 (Finanziaria 2007) which, for companies
of areas (euro 5,286 thousand).
with at least 50 employees, has established that the portions accrued since 2007 be allocated, on the employees’ option, either to the
INPS Treasury Fund or to supplementary pension schemes, assuming the nature of “Defined contribution plan”. In any case, for all
Increases in the year relate mainly to the provision to adjust the provision to the actual requirements for legal and tax proceedings.
companies, the revaluations of the amounts outstanding at the option dates are still accounted for under staff severance indemnities
1
2
4
The releases mainly refer to the release of tax provisions.
The reclassification of the provision for risks and charges refers to the accrual made at December 31, 2016 relating to the investment
in Pirelli & C. Ambiente S.r.l. for the settlement of losses exceeding the carrying amount of the same at that date. The provision
was reclassified in 2017 to reduce the value of the investment, which became large following the capital contribution of euro 8,700
thousand, as described in note 10.
21. PERSONNEL PROVISIONS
Personnel provisions amount to euro 2,072 thousand (euro 3,965 thousand at December 31, 2016). The item includes the employees’
leaving indemnities (TFR), which amounts to euro 1,385 thousand (euro 1,248 thousand at December 31, 2016) and other employee
benefits for euro 687 thousand (euro 2,717 thousand at December 31, 2016).
The decrease compared to the previous year is attributable to the payable relating to the 2016-2018 Long-Term Incentive Plan for
the Management of the Pirelli Group, which was classified under other payables, following the early closing of the Plan approved by
the Board of Directors on July 28, 2017.
Discount rate
Inflation rate
as well as, for companies with less than 50 employees, also the portions accrued and not allocated to supplementary pensions.
The principal actuarial assumptions used at December 31, 2017 are as follows:
Discount rate
Inflation rate
The principal actuarial assumptions used at December 31, 2016 were as follows:
2017
1.6%
1.5%
2016
1.5%
1.0%
Hired employees at December 31, 2017 amount to 141 units (134 units at December 31, 2016).
In other conditions being equal, a hypothetical change of 0.25% in the discount rate would result in a decrease in liabilities equal to
1.78%, in the case of an increase (2.45% at December 31, 2016), and an increase in liabilities of 1.84%, in the case of a decrease (2.51% at
December 31, 2016).
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. 22. TRADE PAYABLES
24. PROVISION FOR DEFERRED TAX LIABILITIES
The breakdown of trade payables is as follows:
The provision for deferred tax liabilities amounted to euro 554,828 thousand at December 31, 2017 (euro 633,330 thousand at
(in thousands of euro)
December 31, 2016).
12/31/2017
12/31/2016
The breakdown of deferred tax provisions gross of the offsets made is as follows:
Payables to subsidiaries
Payables to associates
Payables to other companies
Total trade payables
4,755
64
605
975
24,875
30,845
29,694
32,425
The carrying amount of trade payables is considered to approximate their fair value.
23. OTHER PAYABLES
The breakdown of other payables is as follows:
4
2
2
12/31/2017
12/31/2016
Total
Non-current
Current
Total
Non-current
Current
(in thousands of euro)
Payables to subsidiaries
27,491
Payables to social security and welfare institutions
3,067
Payables to employees
8,303
-
-
-
27,491
11,196
3,067
2,480
8,303
10,032
-
-
-
11,196
2,480
10,032
Other payables
35,377
211
35,166
9,798
311
9,487
Accrued liabilities
Deferred income
1,177
8
-
-
1,177
250
8
3,681
-
-
250
3,681
Total other payable
75,423
211
75,212
37,437
311
37,126
Payables to subsidiaries mainly refer to receivables related to VAT consolidation.
Payables to pension and social security institutions are mainly constituted by contributions to be paid to the INPS [National Social
Welfare Institute] and INAIL [National Institute for Insurance against Industrial Accidents].
Payables towards employees refer to contributions for fees to be paid to employees. The item mainly includes the payable related to
Deferred tax assets
Provision for risk and charges
Property, plant and equipment
Employees provision
Provision for bad debt
Tax losses carried forward
ACE Benefit
Interests
Derivatives
Total deferred tax assets
Provision for deferred tax liabilities
Brand
Exchange differences not realised
Deferred tax assets
> of which within 12 months
> of which over 12 months
Provision for deferred tax liabilities
> of which within 12 months
> of which over 12 months
Total
(in thousands of euro)
12/31/2017
12/31/2016
85,983
52,964
33,019
-
-
-
(640,811)
(633,330)
-
-
(640,811)
(633,330)
(554,828)
(633,330)
The tax effect of temporary differences and of tax losses carried forward which make up the item is shown in the following table:
(in thousands of euro)
12/31/2017
3
2
4
the 2016-2018 Long-Term Incentive Plan, with respect to the early closing thereof approved by the Board of Directors of Pirelli & C.
Total provision for deferred tax liabilities
S.p.A. on July 28, 2017, which will be paid in 2018.
Total
The item Other payables includes payables for fees to be paid to directors and Statutory Auditors, for withholding taxes on income
from self-employed and employed work and payables to advisors for commissions related to the IPO.
For other current payables it is considered that the carrying value approximates their fair value.
25. TAX PAYABLES
These amounted to euro 18,636 thousand (euro 20,043 thousand at December 31, 2016) and mainly include payables for withholding
taxes incurred abroad (WHT), transferred from subsidiaries that adhere to the tax consolidation by the Company.
2,103
422
189
1,009
35,421
30,913
14,218
1,708
85,983
(633,330)
(7,481)
(640,811)
(554,828)
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. INCOME STATEMENT
28. RAW MATERIALS AND CONSUMABLES USED
26. REVENUES FROM SALES AND SERVICES
Revenues from sales and services amount to euro 42,084 thousand for 2017 compared to euro 55,991 thousand in 2016 and the
breakdown is as follows:
various materials.
29. PERSONNEL COSTS
They amount to euro 183 thousand in 2017 (euro 209 thousand in 2016) and include purchases of advertising material, fuels and
(in thousands of euro)
2017
2016
40,070
2,014
42,084
55,270
721
55,991
Sales of services to subsidiaries
Sales of services to other companies
Total revenues from sales and services
Revenues from subsidiaries refer to services provided through Corporate functions.
27. OTHER INCOME
Personnel costs amount to euro 26,710 thousand (euro 26,827 thousand in 2016) and the breakdown is as follows:
Wages and salaries
Social security and welfare contributions
Employee leaving indemnities (TFR)
Retirement and similar obbligations
Other costs
Total
(in thousands of euro)
2017
2016
19,969
5,129
1,027
232
353
20,450
4,799
950
280
348
26,710
26,827
4
2
4
Other income amounted to euro 105,778 thousand (euro 149,849 thousand in 2016) and the breakdown is as follows:
(in thousands of euro)
The average staff headcount is the following:
Other income from subsidiaries
Other revenues from third parties
Other income from other companies
2017
2016
98,903
110,524
6,875
39,325
105,778
149,849
> Executives
37
> Employees
102
> Workers
2
Personnel costs in 2017 include non-recurring events for a total of euro 1,691 thousand for retention plan.
30. DEPRECIATION, AMORTIZATION AND WRITE-DOWNS
5
2
4
Other revenues from subsidiaries include royalties paid by the Group’s companies for the use of Pirelli Brand (euro 71,897 thousand
The breakdown of the item is as follows:
in 2017 compared to euro 79,879 thousand in 2016), recovery of expenses and other revenues (euro 23,019 thousand in 2017 compared
to euro 23,045 thousand in 2016), rents and recoveries of management fees on rents (euro 5,731 thousand in 2017 compared to euro
10,275 thousand in 2016).
Revenues from other companies mainly include royalties paid by other companies for the use of the Pirelli brand (euro 2,221 thousand
in 2017 compared to euro 2,882 thousand in 2016).
Amortisation - intangible assets
Depreciation - property, plant and equipment
Impairment of tangible assets
In 2016, other revenues from other companies also included the capital gain deriving from the sale of the Research and Development
Total depreciation, amortisation and impairments
building located in Milan Bicocca for euro 27,199 thousand and of the building located in San Donato for euro 2,199 thousand.
(in thousands of euro)
2017
2016
2,514
2,386
-
4,900
2,798
4,925
1,518
9,241
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. 31. OTHER COSTS
The breakdown of other costs is as follows:
Services rendered by subsidiaries
Advertising
Consultancy and collaboration services
Accruals to provisions
Legal and notarial expenses
Travel expenses
Remuneration of Directors and supervisory bodies
Membership fees and contributions
Rental and lease instalments
IT expenses
Energy, gas and water expenses
Security service
Insurance premiums
4
2
6
Patents and trademarks expenses
Cleaning and property ordinary maintenance expenses
Property maintenance
Bank charges for IPO
Other
Total other costs
32. NET INCOME (LOSS) FROM EQUITY INVESTMENTS
(in thousands of euro)
32.1. Gains on equity investments They amount to euro 2,752 thousand in 2017 (euro 464 thousand in 2016) and the
breakdown is as follows:
2017
2016
16,032
33,249
11,863
3,931
4,434
6,904
28,181
11,377
7,954
2,996
10,653
10,746
Capital gain on disposal of investment in Prelios S.p.A.
Other gains on equity investments
Total
(in thousands of euro)
2017
2016
2,564
188
2,752
-
464
464
2,515
1,484
10,662
2,946
1,483
2,863
3,796
719
1,381
901
44,274
13,874
2,719
1,532
8,187
2,457
1,717
2,477
3,428
640
1,618
1,009
-
For further details, reference shall be made to note 11 – Investments in associated companies.
32.2. Losses from investments They amount to euro 13,833 thousand (euro 107,159 thousand in 2016) and the breakdown is
as follows:
Impairment losses on equity investments in subsidiaries:
> Pirelli & C. Ambiente S.r.l.
> Hb Servizi S.r.l.
(in thousands of euro)
2017
2016
7
2
4
1,128
1,134
8,354
1,236
12,401
Impairment losses on equity investments in associates:
167,060
106,343
> Prelios S.p.A.
-
28,278
Other costs include non-recurring costs for an amount of euro 62,390 thousand and refer mainly to costs related to the IPO.
> Focus Investments 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.
> Movincom Servizi S.p.A.
> GWM Renewable Energy II S.p.A.
> Emittente Titoli S.p.A.
> Others
Total
2,648
6,570
-
-
781
120
-
1,441
11
-
19,131
46,666
679
1,881
16
519
-
399
13,833
107,159
For further details, reference shall be made to the notes related to investments in subsidiaries (note 10), associates (note 11) and
other financial assets (note 12).
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. From subsidiaries:
> Pirelli Tyre S.p.A. - Italy
> Pirelli Group Reinsurance Company SA - Switzerland
> Pirelli Sistemi Informativi S.r.l. - Italy
From associates:
> Eurostazioni S.p.A. - Itay
> Fenice Srl - Italy
> International Media Holding S.p.A.- Italy
From other financial assets:
> Mediobanca S.p.A. - Italy
> ECA Ltd - United the Kingdom
> Fin. Priv. S.r.l. - Italy
> Emittenti Titoli S.p.A. - Italy
> Euroqube S.A. (in liquidation) - Belgium
33. FINANCIAL INCOME
The breakdown is as follows:
Interests
Other financial income
Net gains on derivative financial instruments
Net gains on exchange rates
Total financial income
32.3 Dividends They amount to euro 215,497 thousand in 2017 compared to euro 279,143 thousand in 2016 and the breakdown is as follows:
(in thousands of euro)
2017
2016
34. FINANCIAL COSTS
The breakdown is as follows:
200,000
169,000
-
300
3,209
-
Interest
Commissions
Net losses on exchange rates
Net interest costs on employee benefit obligations
Net losses on derivative financial instruments
Total financial expenses
-
100,353
8,556
15
-
-
5,829
4,254
10
757
30
-
11
554
1,727
35
Interests include euro 112,036 thousand for the unsecured financing line (“Facilities”) granted to Pirelli & C. S.p.A. and entered into on
June 27, 2017 and euro 23,223 thousand for the secured financing line (“Senior Facilities”) granted to Pirelli & C. S.p.A. repaid early on
June 29, 2017, of which euro 41,967 thousand related to the subsequent reversal to the Income Statement of the portion of costs not
amortized at the closing date. Interest on the financing is shown net of interest income accrued on hedging instruments on interest
rates and exchange rates equal to euro 7,720 thousand.
(in thousands of euro)
2017
2016
136,839
1,147
-
24
102,108
240,118
237,367
14,798
34,669
36
-
286,870
Total
215,497
279,143
4
2
8
Net expenses on derivatives refer to forward purchases/sales of foreign currencies to hedge financial payables in currency of the
Company, in accordance with the Group foreign exchange risk management policy. For transactions outstanding at the end of the
9
2
4
The dividends collected by Fenice S.r.l refer to the reduction of the company’s capital, implemented by distribution to shareholders
period, the fair value is determined using the forward exchange rate at the reporting date. The fair value measurement includes two
of the amount collected by Fenice S.r.l. as fee for the sale of the investment held in Prelios S.p.A. to the Burlington fund, in accordance
elements: the interest component linked to the interest rate spread between the currencies subject to the individual hedges, a net
with the preferential allocation criteria as provided for by the Articles of Association.
revenue of euro 8,793 thousand, and the exchange rate component, a net cost of euro 110,218 thousand.
Comparing net foreign exchange gains, equal to euro 110,315 thousand, with the exchange rate component of net expenses on
derivatives, the impact is almost nil.
(in thousands of euro)
(“Senior Facilities”) as described under the item interest.
Financial expenses include non-recurring events for euro 41,967 thousand relating to the early closing of the secured financing
2017
2016
1,686
4,744
-
110,315
116,745
10,703
227
39,009
-
49,939
35. TAXES
The breakdown of taxes is as follows:
Current taxes
Deferred tax assets/(liabilities)
Total income taxes
(in thousands of euro)
2017
2016
64,005
76,794
69,741
-
140,799
69,741
Interests mainly refer to interest accrued on financial receivables from group companies.
The item other financial income mainly includes guarantee fees charged to other Group companies.
Net exchange rate gains of euro 110,315 thousand refer to the adjustment to the exchange rate at the end of the period of the items
The positive balance of current taxes for the year 2017 is mainly due to the benefits deriving from the tax consolidation (euro 72,140
expressed in the currency other than the functional one still in effect at the closing date of the Financial Statements and the net
thousand), offset by a negative effect of foreign withholding taxes of previous years (euro 4,120 thousand) and taxes related to
profits on items closed during the year.
previous years (euro 3,992 thousand).
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. Deferred tax assets benefit from the recognition of deferred tax assets on previous tax losses, exceedances of interest expenses not
deducted and ACE benefit for euro 80,552 thousand, deferred tax assets on temporary differences for a total of euro 3,723 thousand,
36. NON-RECURRING EXPENSES AND INCOME
offset by deferred tax liabilities on unrealized exchange rate difference gains for euro 7,481 thousand.
Pursuant to Consob Communication no. DEM/6064293 of July 28, 2006, information is provided below regarding the economic
impacts of non-recurring events and transactions of the Company equal to net expenses of euro 9,940 thousand in 2017 and net
The item includes non-recurring income for € 96,108 thousand, which includes € 80,552 thousand for the recognition of deferred tax
income of euro 15,194 thousand in 2016:
assets previously described and € 15,556 thousand for the tax impact of non-recurring charges for the year (note 36).
The table below shows the reconciliation of the effective tax rate with the theoretical rate of the Parent Company:
(in thousands of euro)
2017
2016
(in thousands of euro)
Other income:
> Gains on property sales
-
29,398
A) Profit/(loss) before taxes
B) Theoretical taxes
Main causes that give rise to changes between theoretical and effective taxes:
Income not subject to taxation
Non-deductible costs
Uses losses previous years not booked
2017
2016
30,052
(1,264)
7,212
(348)
(57,760)
(88,766)
20,088
33,872
(37,648)
(20,885)
Deferred tax assets on previous tax losses and other temporary differences
(80,552)
-
Taxes relating to previous years
8,112
(9,268)
Deferred tax assets not recognized on temporary differences of the year
4
3
0
Release of provisions
Other
C) Effective taxes
Theoretical tax rate (B/A)
Effective tax rate (C/A)
-
-
(251)
26,127
(7,399)
(3,074)
(140,799)
(69,741)
24%
27.5%
-468.5%
5,517.5%
Personnel costs:
> Retention Plan
Other costs:
> IPO costs
> Other
Impact on operating result
Financial expenses:
> Refinancing impact June 2017 transaction costs
Impact on result before taxes
Taxes:
> Recognition of deferred tax assets on previous losses and other temporary differences
> Tax impact on operating result adjustments and financial expenses
Impact on net result
37. RELATED PARTY TRANSACTIONS
(1,691)
(62,390)
-
-
-
(7,250)
(64,081)
22,148
(41,967)
(106,048)
80,552
15,556
(9,940)
-
22,148
-
(6,954)
15,194
1
3
4
Consolidated tax return It is noted that starting from the 2004 financial year, the Company exercised the option for
consolidated taxation as consolidating company, pursuant to article 117 et seq of the t.u.i.r. (Italian Income Tax Code), with
Transactions between Pirelli & C. S.p.A. and the subsidiaries mainly concern:
>
services (technical, organizational, general) provided by the headquarters to subsidiaries;
regulation of relationships arising from the consolidation through specific “Regulations”, which provide for a common procedure for
>
royalties for the use of patents for Group companies benefiting from them.
the application of laws and regulations.
All the transactions listed above are part of the ordinary management of relations between the Parent Company and its subsidiaries.
These regulations were updated in subsequent years as a result of changes concerning the companies involved in the agreement
Transactions with related parties also included the fees paid to Directors and Key Managers.
and the shareholding structure relating thereto, as well as in view of the corrective and supplementary actions of the reference
legislation.
The aforementioned changes concerned in particular the remuneration of tax losses used by the companies participating in the
consolidation. The adoption of the consolidation makes it possible to compensate, with regard to the parent company Pirelli &
C. S.p.A., the taxable income or loss of the same parent company with those of its resident subsidiaries which have exercised the
option, given that the tax losses accrued during periods prior to the introduction of Group taxation can be used by those companies
which are eligible.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. The following table summarises the items from the Statement of Financial Position and the Income Statement, which include the
related party transactions and their relative impact.
Balance sheet transactions with related parties The tables below shows the main balance sheet transactions with related
parties for the years ended December 31, 2017 and December 31, 2016.
(in thousands of euro)
(in thousands of euro)
12/31/2017
of which
related
parties
% share
12/31/2016
of which
related
parties
% share
Subsidiaries
Associates
Other
related parties
Total 31
December 2017
BALANCE SHEET
Current assets
Trade receivables
Other receivables
Tax receivables
52,045
43,722
84.0%
61,692
56,915
92.3%
45,164
13,973
30.9%
651,850
635,262
97.5%
110,632
104,054
94.1%
84,621
77,840
92.0%
Derivative financial instruments
95
95
100.0%
515
515
100.0%
Non-current liabilities
Payables to banks and other financial lenders
2,331,647
-
0.0%
4,103,996
561
Derivative financial instruments
29,716
29,716
100.0%
-
-
Current liabilities
Payables to banks and other financial lenders
16,856
9,412
55.8%
192,055
6,453
0.0%
0.0%
3.4%
4.9%
Trade payables
Other payables
Tax payables
4
3
2
29,694
4,820
16.2%
32,425
1,582
75,213
27,491
36.6%
37,126
14,876
40.1%
18,637
18,408
98.8%
20,043
19,814
98.9%
Derivative financial instruments
146
146
100.0%
-
-
0.0%
2017
of which
related
parties
% share
2016
of which
related
parties
% share
(in thousands of euro)
INCOME STATEMENT
Revenues from sales and services
42,084
41,349
98.3%
55,991
55,270
98.7%
Other income
105,778
99,323
93.9%
149,849
110,524
73.8%
Personnel expenses
(26,710)
(4,780)
17.9%
(26,827)
(4,482)
16.7%
Other costs
(167,060)
(18,618)
11.1%
(106,343)
(9,246)
Gain on equity investments
2,753
2,564
93.1%
464
-
8.7%
0.0%
Trade receivables
Other current receivables
Tax receivables
Derivative financial instruments (current assets)
Payables to banks and other lenders (current liabilities)
Trade payables
Other payables
Tax payables
Derivative financial instruments (current liabilities)
42,159
13,973
104,054
95
9,412
4,755
26,814
8,513
146
Derivative financial instruments (non-current liabilities)
29,716
3
-
-
-
-
64
-
-
-
-
1,560
-
-
-
-
-
677
9,895
-
-
43,722
13,973
104,054
95
9,412
4,820
27,491
18,408
146
29,716
(in thousands of euro)
Trade receivables
Other receivables (current)
Tax receivables
Derivative financial instruments (current assets)
Payables to banks and other lenders (non-current)
Payables to banks and other lenders (current)
Trade payables
Other payables
Tax payables
Subsidiaries
Associates
Other
related parties
Total 31
December 2016
55,822
633,533
77,840
515
-
5,681
754
14,876
19,814
1,093
1,729
-
-
561
772
826
-
-
-
-
-
-
-
-
2
-
-
56,915
635,262
77,840
515
561
6,453
1,582
14,876
19,814
3
3
4
Trade receivables amounted to euro 43,722 thousand (euro 56,915 thousand at December 31, 2016) and mainly refer to receivables
for services/provisions provided to Group companies (euro 34,596 thousand from Pirelli Tyre S.p.A., euro 5,625 thousand from
Losses on equity investments
(13,833)
(11,480)
83.0%
(107,159)
(104,344)
97.4%
Limited Liability Company Pirelli Tyre Russia, euro 532 thousand from Pirelli Sistemi Informativi S.r.l., euro 481 thousand from Pirelli
Dividends
Financial income
215,496
208,871
96.9%
279,143
272,563
97.6%
International Plc, euro 400 thousand from Pirelli Tyre Trading (Shanghai Co. Ltd.). The item also includes, for euro 1,560 thousand,
116,745
10,681
9.1%
49,939
49,714
99.5%
trade receivables due from Prometeon group companies.
Financial expenses
(240,118)
(103,275)
43.0%
(286,870)
(6,878)
2.4%
Other current receivables amounted to euro 13,973 thousand (euro 635,262 thousand at December 31, 2016) and mainly refer for euro
4,082 thousand to the intra-group current account with Pirelli International Plc; euro 4,711 thousand in guarantee fees charged to
Pirelli International Plc, for euro 3,122 thousand to the interest accrual accrued on CCIRS stipulated with Pirelli International Plc; for
euro 2,040 thousand to VAT receivables transferred to the consolidation (euro 1,431 thousand from Pirelli Industrie Pneumatici S.r.l.,
euro 317 thousand from Pirelli Sistemi Informativi S.r.l., euro 226 thousand from Pirelli Servizi Amministrazione e Tesoreria S.p.A.).
Tax receivables amounted to euro 104,054 thousand (euro 77,840 thousand at December 31, 2016) and refer to receivables from
Group companies that adhere to tax consolidation (mainly euro 98,716 thousand from Pirelli Tyre S.p.A., euro 2,828 thousand from
Pirelli Sistemi Informativi S.r.l., euro 2,420 thousand from Pirelli Industrie Pneumatici S.r.l.).
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. Derivative financial instruments (current assets) for euro 95 thousand (euro 515 thousand at December 31, 2016) refer to hedging
(in thousands of euro)
transactions with Pirelli International Plc.
Subsidiaries
Associates
Other
related parties
Total 2016
Borrowings from banks and other financial institutions (current) amounted to euro 9,412 thousand (euro 6,453 thousand at
December 31, 2016) and refer to the financing and related accruals with Pirelli International Plc.
Revenues from sales and services
55,270
-
Trade payables amounted to euro 4,820 thousand (euro 1,582 thousand at December 31, 2016) and mainly refer to payables for the
provision of services. The main ones are: euro 2,500 thousand to HB Servizi S.r.l., euro 716 thousand to Pirelli Sistemi Informativi S.r.l.,
euro 646 thousand to Pirelli Tyre S.p.A., euro 619 thousand to TP Trading (Beijing) Co. Ltd., euro 313 thousand to Pirelli Amministrazione
e Tesoreria S.p.A..
Other income
Personnel expenses
Other costs
Losses from investments
(9,590)
(94,754)
Result from investments - Dividends
172,209
100,353
Other payables amounted to euro 27,491 thousand (euro 14,876 thousand at December 31, 2016) and mainly refer to payables with
Group companies that adhere to the VAT consolidation. The main ones are: euro 24,603 thousand to Pirelli Tyre S.p.A., euro 210
Financial income
Financial expenses
49,709
(6,878)
5
-
thousand to Driver Servizi Retail S.r.l..
109,223
1,301
-
-
55,270
110,524
-
-
(4,482)
(4,482)
(5,954)
(950)
(2,342)
(9,246)
-
-
-
-
(104,344)
272,563
49,714
(6,878)
Tax payables amounted to euro 18,408 thousand (euro 19,814 thousand at December 31, 2016) and refer for euro 8,338 thousand to
Revenues from sales and services amounted to euro 41,349 thousand in 2017 (euro 55,270 thousand in 2016) and mainly refer to
payables to subsidiaries that adhere to the tax consolidation and for euro 9,895 thousand) to the payable to Prometeon Tyre Group
service contracts. The main relations with subsidiaries are: euro 38,600 thousand - Pirelli Tyre S.p.A., euro 451 thousand - Pirelli & C.
S.r.l. for adhesion to the tax consolidation.
Ambiente S.r.l., euro 402 thousand - Pirelli Sistemi Informativi S.r.l., euro 298 thousand - HB Servizi S.r.l..
The amount of euro 146 thousand (nil at December 31, 2016) of derivative financial instruments – current liabilities refers to
Relations with other related companies refer for euro 1,279 thousand to the service/provisions contract with Prometeon Tyre Group S.r.l..
hedging transactions with Pirelli International Plc.
The amount of euro 29,716 thousand of derivative financial instruments (non-current liabilities) refers to the fair value of other
Pirelli Tyre S.p.A., euro 2,053 thousand with Limited Liability Company Pirelli Tyre Russia); other recoveries (euro 19,964 thousand
Other income for euro 99,323 thousand in 2017 (euro 110,524 thousand in 2016) mainly refers to: royalties (euro 69,826 thousand with
5
3
4
4
3
4
derivatives outstanding with Pirelli International Plc.
Profit and loss transactions with related parties The tables below show the main financial transactions with related
parties for the years 2017 and 2016.
(in thousands of euro)
Revenues from sales and services
Other income
Personnel expenses
Other costs
Subsidiaries
Associates
Other
related parties
Total 2017
40,070
98,903
-
384
1,279
41,349
36
99,323
from Pirelli Tyre S.p.A., euro 1,007 thousand from Pirelli International Plc, euro 4 thousand from Pirelli Tyre Trading (Shanghai)
Co.Ltd.); lease contracts (euro 4,889 thousand with Pirelli Tyre S.p.A., euro 255 thousand with Pirelli Servizi Amministrazione e
Tesoreria S.p.A.).
The amount shown in associates for euro 384 thousand refers to maintenance costs on rents with Prelios S.p.A..
Other costs for euro 16,032 thousand in 2017 (euro 7,596 thousand in 2016) mainly refer to charges for services and miscellaneous
costs (euro 9,309 thousand Pirelli Sistemi Informativi S.r.l., euro 2,524 thousand HB Servizi S.r.l., euro 1,025 thousand Pirelli Servizi
Amministrazione e Tesoreria S.p.A., euro 1,263 thousand TP Trading (Beijing) Co. Ltd, euro 822 thousand Pirelli Tyre S.p.A., euro 371
thousand Servizi Aziendali Pirelli S.C.p.a.).
-
-
(4,780)
(4,780)
In the item associates, the amount shown refers to relations with the Consortium for Research on Advanced Materials – Corimav.
(15,773)
(259)
(2,586)
(18,618)
The gain on equity investments for euro 2,564 thousand in 2017 mainly refers to the capital gain realized on the disposal of Prelios S.p.A..
Gains on equity investments
-
2,564
Losses from investments
(2,262)
(9,218)
Dividends
Financial income
Financial expenses
200,300
8,571
10,681
(103,275)
-
-
-
-
-
-
-
2,564
(11,480)
208,871
10,681
(103,275)
Losses from investments for euro 11,480 thousand in 2017 (euro 104,345 thousand in 2017) mainly refer to the write-downs of
investments in Pirelli & C. Ambiente S.r.l., HB Servizi S.r.l., Fenice and Focus. For further details, reference is made to note 32.
Dividends for euro 208,871 thousand in 2017 (euro 272,563 thousand in 2016) refer to dividends received in 2017 (euro 200,000
thousand from Pirelli Tyre S.p.A. and euro 300 thousand from Pirelli Sistemi Informativi S.r.l.).
The amount shown in the item associates mainly refers to the distribution of reserves made by Fenice S.r.l. (euro 8,556 thousand).
Financial income for euro 10,681 thousand in 2017 (euro 49,714 thousand in 2016) refers to euro 4,711 thousand for the charge-back
of fees to Pirelli International Plc, euro 1,878 thousand to interest income on receivables from subsidiaries and for the remaining
amount to net exchange rate gains.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A.
Financial expenses amounted to euro 103,275 thousand (euro
6,878 thousand at December 31, 2016) and mainly refer to net
expenses on derivatives for euro 102,108 thousand and for euro
1,167 thousand to interest accrued on existing relationships
with Pirelli International Plc.
39. COMMITMENTS AND RISKS
40. INFORMATION PURSUANT TO ART. 149 – DUODECIES
OF THE CONSOB ISSUERS’ REGULATION
Guarantees On November 18, 2014, a bond for a total of euro
600 million was issued by Pirelli International Plc at a price
Pursuant to Art. 149 – duodecies of the Consob Issuers’ Regulation, the following table shows the fees pertaining to 2017 for the
auditing activities and other services rendered by the Auditing Company PricewaterhouseCoopers S.p.A. and by the companies of
equal to 99.498% of the nominal value and originally placed
the PricewaterhouseCoopers network:
Benefits for key managers At December 31, 2017,
remuneration payable to key managers amounted to euro
with institutional investors, interest-bearing at a fixed rate of
1.75% on a annual basis and maturing on November 18, 2019.
It is specified that the aforementioned bond was originally
7,367 thousand. The portion relating to employee benefits was
guaranteed, on the basis of an independent first demand
recognized in the Income Statement item “personnel costs”
guarantee, by Pirelli Tyre S.p.A., to which Pirelli & C. S.p.A. was
for euro 4,780 thousand and for euro 2,587 thousand in the
subsequently added on July 26, 2016 as additional guarantor.
Income Statement item “other costs”.
38. REMUNERATION FOR DIRECTORS
AND STATUTORY AUDITORS
On June 27, 2017, Pirelli International Plc and Pirelli & C. S.p.A.
(simultaneously as financed party and guarantor of the other
party and also the “Beneficiaries”) together with Pirelli Tyre,
Pirelli Deutschland GmbH, S.C. Pirelli Tyres România S.r.l. and
Pirelli Pneus Ltda (the “Original Guarantors” and, together
The fees due to Directors of Pirelli & C. S.p.A. amounted to euro
with the Beneficiaries, the “Obliged Parties”), on the one
2,133 thousand in 2017 and euro 1,373 thousand in 2016. The fees
hand, J.P. Morgan Europe Limited, as Agent (the “Agent”)
due to the Statutory Auditors for the function performed at
and a series of financing banks including J.P.Morgan Limited,
Pirelli & C. S.p.A. amounted to euro 296 thousand in 2017 (euro
Banca IMI S.p.A., and The Bank of Tokyo-Mitsubishi UFI, Ltd.
Company that provided
the service
Company that
received the
service
Partial fees
Total fees
(in thousands of euro)
Independent auditing services (1)
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
1,920
Independent certification services (2)
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
1,973
Services other than auditing (3)
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
405
45%
46%
9%
(1) the item "Independent auditing services" includes 1.850 thousands of euro paid for the audit of the Interim carve out consolidated financial
statements of the Pirelli of the Consumer Business included in the Registration Document released for the IPO of Pirelli & C. S.p.A. in the Milan
Stock Exchange, successfully completed on October 4, 2017.
(2) the item "Independent certification services" includes amounts paid for certification services for the IPO of Pirelli & C. S.p.A. in the Milan
Stock Exchange, successfully completed on October 4, 2017 (1.973 thousands of euro).
(3) the item "Services other than auditing" include amounts paid for services other than auditing awarded before October 4, 2017, date of
completion of the IPO of Pirelli & C. S.p.A. In the Milan Stock Exchange.
Total
4,298
100%
4
3
6
280 thousand in 2016).
on the other, have signed a financing contract, regulated by
English law, for a maximum amount of euro 4.2 billion. Of the
aforementioned banking line, the portion of lines granted in
favour of Pirelli & C. S.p.A. at December 31, 2017 equal to euro
2.5 billion, of which euro 2.4 billion used; the lines granted in
41. SIGNIFICANT EVENTS SUBSEQUENT TO THE YEAR-END
7
3
4
favour of Pirelli International Plc instead amounted to euro 1.6
On January 10, 2018, Pirelli initiated the sale of the ordinary shares held in Mediobanca S.p.A. reserved to “qualified investors” in Italy
billion used for euro 1 billion. Pirelli & C. S.p.A. has undertaken a
and institutional investors abroad, pursuant to Regulation S of the United States Securities Act of 1933 as subsequently amended,
solid commitment with the Original Guarantors to guarantee
and in the United States of America limited to “Qualified Institutional Buyers” pursuant to the Rule 144 A of the United States
the reimbursement of all uses made by Pirelli International
Securities Act of 1933, through an accelerated bookbuilding procedure. On January 11, 2018, Pirelli announced that it had successfully
Plc under and for the entire duration of the new unsecured
completed the sale - through the aforementioned procedure - of 15,753,367 ordinary shares held in Mediobanca - corresponding
financing, which is not backed by real guarantees.
to approximately 1.8% of the share capital with voting rights and representing the entire investment held directly by Pirelli in
Mediobanca. Total net proceeds for Pirelli deriving from the transaction amounted to approximately euro 152.8 million.
On January 22, 2018, under the EMTN program approved at the end of 2017 and entered into on January 10, 2018, Pirelli placed
a bond at international institutional investors for a nominal amount of euro 600 million with a five-year term at fixed rate. The
issue, with a yield of 110 basis points on the reference rate, allows the debt to be optimized by extending the maturities and
reducing the cost. As evidence of investor confidence towards Pirelli, the loan saw collection of orders at closing for euro 2.4 billion
from around 280 international investors. The effective yield at maturity is 1.479% and the securities are admitted to listing on the
Luxembourg Stock Exchange.
On February 26, 2018 the Board of Directors of Pirelli, in line with that which was announced during the IPO, approved the adoption
of a new 3-year 2018-2020 monetary incentive plan (LTI Plan) – destined to all management (about 290 people) – correlated to the
targets for the period 2018/2020 contained in the 2017/2020 industrial plan. The LTI (Long Term Incentive) Plan was approved – also in
accordance with article 2389 of the civil code – at the proposal of the Remuneration Committee and with the favourable opinion of
the Board of Statutory Auditors, in relation to the subjects for whom this opinion is requested. In the part linked to Total Shareholder
Return, the LTI Plan will be submitted for approval at the Shareholders’ meeting called to approve results for the 12 months ended on
31 December 2017. The LTI Plan, in line with the mechanisms of variable retribution adopted at the international level, is also based
on the performance of Pirelli shares (Total Shareholder Return) allowing in this way the alignment of management and shareholder
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A.
interests. The LTI Plan – as in the past totally self-financed,
Manufacturing, Francesco Sala; the Executive Vice President
in so far as the relative charges are included in the economic
Business Unit Prestige & Motorsport & COO Region Europe, Andrea
ANNEXES TO THE EXPLANATORY NOTES
figures of the industrial plan – includes an on/off condition,
Casaluci and the Executive Vice President Pirelli Digital, Luigi
MOVEMENTS OF INVESTMENTS IN SUBSIDIARIES FROM 12/31/2016 TO 12/31/2017 (CONTINUED)
represented by the company’s deleveraging (Net Financial
Staccoli. The LTI plan also applies to senior managers and
Position/Ebitda Adjusted ratio below 2 times on 31 December
Executives of the Group (including board member Giovanni
2020) and the following targets:
Tronchetti Provera) and can be also extended to those who,
> Group Return on Sales (ROS), with a weight at target of 30%
during the course of the 3-year period, assume, either through
of the LTI premium;
internal career growth or new hiring, an Executive position.
> Group “absolute” Total Shareholder Return, with a weight at
target of 40% of the LTI premium;
The LTI Plan is also aimed at retention. In the event that
> Group “relative” Total Shareholder Return compared with a
the employee relationship ends before the end of the 3-year
selected panel of peers, with a weight at target of 20% of
period, with the exception of natural circumstances, the
the LTI premium;
recipient’s ceases to participate in the LTI Plan and as a
INVESTMENTS IN
SUBSIDIARIES
ITALY
Unlisted:
Pirelli Servizi
12/31/2016
CHANGES
12/31/2017
Carrying
Number
amount (in
%
of shares
thousands
holding
of which
direct
Number
of shares
of euro)
(in
thousands
of euro)
Carrying
Number
amount in
%
of which
of shares
thousands
holding
direct
of euro
> Position of Pirelli on the Dow Jones Sustainability World Index
consequence the LTI premium will not be provided, not even
Amministrazioni e
2,047,000
3,237
100
100
ATX Auto Components sector, with a weight at target of
pro-quota. In the case of Board Members holding particular
10% of the LTI premium.
roles to whom specific attributions are delegated (it is the case
The LTI Plan terminates on 31 December 2020 and sets in the
of the Executive Vice Chairman and Chief Executive Officer
second quarter of 2021 the date of the eventual payment of
Mr. Marco Tronchetti Provera) who cease in the role because
the medium/long term incentive matured, on condition that,
their mandate has been completed and are not subsequently
on 31 December 2020, the relationship as an employee of the
nominated, not even as board members, pro-quota payment
participant has not ended.
of the LTI premium is foreseen.
TP Industrial
Holding S.p.A.
Pirelli Sistemi
Informativi S.r.l.
Pirelli & C.
Ambiente S.r.l.
Tesoreria S.p.A.
Maristel S.p.A.
1,020,000
1,315
100
100
-
-
-
2,047,000
3,237
100
100
-
1,020,000
1,315
100
100
203,666,000
364,351
100
100 (203,666,000)
(364,351)
-
-
-
-
1 share
1,655
100
100
1 share
-
100
100
-
-
-
-
1 share
1,655
100
100
2,096
1 share
2,096
100
100
- 558,154,000
4,521,792
100
100
For further information on the operation of the LTI Plan, please
Pirelli Tyre S.p.A.
558,154,000
4,521,792
100
100
4
3
8
The participants in the LTI plan include, among others, the
refer to the Remuneration Report which will be submitted (for
Executive Vice Chairman and Chief Executive Officer of Pirelli & C.
the part relating to the Pirelli Remuneration Policy for 2017)
Servizi Aziendali
Pirelli S.C.p.A.
95,940
103
100
92.3
(962)
(3)
94,978
101
100
91.3
9
3
4
S.p.A., Marco Tronchetti Provera, the Executive Vice President
to the advisory vote of the Shareholders’ Meeting called to
and Chief Financial Officer, Francesco Tanzi; the Executive Vice
approve the Annual Financial Report at December 31, 2017, as
President and Chief Planning and Controlling Officer, Maurizio
well as the illustrative report and the informative document
Sala; the Executive Vice President and Strategic Advisor Technology,
related to the LTI Plan that will be made available to the public,
Maurizio Boiocchi; the Executive Vice President and Chief
within the terms and according to the procedures envisaged
Commercial Officer Roberto Righi; the Senior Vice President
by the regulations, also regulatory, in force.
HB Servizi S.r.l.
1 share
364
100
100
-
(134)
1 share
230
100
100
Total investments in
Italian subsidiaries
4,892,819
(362,392)
4,530,427
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A.
MOVEMENTS OF INVESTMENTS IN SUBSIDIARIES FROM 12/31/2016 TO 12/31/2017
MOVEMENTS OF INVESTMENTS IN ASSOCIATES FROM 12/31/2016 TO 12/31/2017
12/31/2016
CHANGES
12/31/2017
12/31/2016
CHANGES
12/31/2017
Carrying
Number
amount (in
%
of shares
thousands
holding
of which
direct
Number
of shares
of euro)
(in
thousands
of euro)
Carrying
Number
amount (in
%
of which
of shares
thousands
holding
direct
of euro)
Carrying
Number
amount (in
%
of shares
thousands
holding
of which
direct
Number
of shares
of euro)
(in
thousands
of euro)
Carrying
Number
amount (in
%
of which
of shares
thousands
holding
direct
of euro)
FOREIGN COMPANIES
Brazil
Pirelli Ltda
14,000,000
9,666
100
100
Pirelli Latam
Participações Ltda.
Pirelli Pneus Ltda
Pirelli Comercial de
Pneus Brasil Ltda.
UK
1
1
1
-
-
-
-
-
-
-
-
-
-
-
(1)
(1)
-
14,000,000
9,666
100
100
-
-
-
1
-
-
-
-
-
-
-
-
-
-
-
Pirelli UK Ltd.
163,991,278
21,871
100
100
-
-
163,991,278
21,871
100
100
INVESTMENTS IN
ASSOCIATES
ITALY
Listed
Prelios S.p.A.
148,127,621
13,643
12.9
12.9
(148,127,621)
(13,643)
-
Total listed
Italian companies
Unlisted
13,643
(13,643)
-
-
-
-
Fenice S.r.l.
1 share
9,048
69.9
69.9
-
(6,571)
1 share
2,478
69.9
69.9
Consorzio per le
Ricerche sui Materiali
Avanzati (CORIMAV)
1 share
104
100
100
Eurostazioni S.p.A.
523,328
6,271
32.7
32.7
-
-
-
1 share
104
100
100
-
52,333,333
6,271
32.7
32.7
Switzerland
Pirelli Group
Reinsurance
Company S.A.
Total investments in
foreign subsidiaries
Total investments
in subsidiaries
4
4
0
800,000
6,346
100
100
-
-
800,000
6,346
100
100
International Media
Holding S.p.A.
12,500
13
28
28
(12,500)
(13)
-
-
-
-
37,883
4,930,701
-
37,883
(362,392)
4,568,309
Focus Investments S.p.A.
111,111
4,000
8.3
8.3
-
(2,648)
111,111
1,352
8.3
8.3
Total unlisted
companies
Total investments in
associates - Italy
Total investments
in associates -
foreign entities
Total investments
in associates
19,435
33,078
(9,231)
10,204
(22,874)
10,204
-
-
33,078
(22,874)
10,204
1
4
4
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A.
MOVEMENTS OF OTHER FINANCIAL ASSETS FROM 12/31/2016 TO 12/31/2017 (CONTINUED)
MOVEMENTS OF OTHER FINANCIAL ASSETS FROM 12/31/2016 TO 12/31/2017 (CONTINUED)
12/31/2016
CHANGES
12/31/2017
12/31/2016
CHANGES
12/31/2017
Carrying
Number
amount (in
%
of shares
thousands
holding
of which
direct
Number
of shares
of euro)
(in
thousands
of euro)
Carrying
Number
amount (in
%
of which
of shares
thousands
holding
direct
of euro)
Carrying
Number
amount (in
%
of shares
thousands
holding
of which
direct
Number
of shares
of euro)
(in
thousands
of euro)
Carrying
Number
amount (in
%
of which
of shares
thousands
holding
direct
of euro)
INVESTMENTS IN OTHER
COMPANIES ITALIAN
LISTED COMPANIES
Mediobanca S.p.A.
15,753,367
122,167
RCS Mediagroup S.p.A.
23,135,668
19,307
1.8
4.4
1.8
-
26,860
15,753,367
149,027
4.4
1,559,250
10,871
24,694,918
30,177
1.8
4.7
1.8
4.7
Intek Group S.p.A.
(Ex Fin Breda S.p.A.
11,825
2
0.0
0.0
(11,825)
(2)
-
-
-
-
in liquidation)
Total other Italian
listed companies
Total other foreign
listed companies
Total other listed
companies
141,477
-
141,477
37,728
179,204
-
-
37,728
179,204
4
4
2
ITALIAN UNLISTED COMPANIES
Aree Urbane S.r.l.
(in liquidation)
C.I.R.A. - Centro
Italiano di Ricerche
Aerospaziali S.c.p.A.
Alitalia Compagnia
Aerea Italiana S.p.A.
CEFRIEL - Società
Consortile a
Responsabilità limitata
Consorzio DIXIT
(in liquidation)
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)
Consorzio Milano
Ricerche
Societa' Generale per
la Progettazione
Consulenze e
Partecipazioni (ex
Italconsult) S.p.A.
1 share
-
0.3
0.3
30
-
0.1
0.1
-
-
-
1 share
-
-
-
-
30
-
0.1
0.1
1,087,543,374
-
1.7
1.5
74,555,289
-
1,162,098,663
-
1.7
1.7
1 share
-
5.2
5.2
1 share
-
14.3
14.3
-
-
-
1 share
-
4.9
4.9
-
1 share
-
14.3
14.3
12,000
-
3.4
3.4
-
-
12,000
-
3.1
3.1
1 share
-
7.1
7.1
-
-
1 share
-
9.0
9.0
3
4
4
1,100
-
3.7
3.7
Emittenti Titoli S.p.A.
229,000
2,729
2.8
2.8
F.C. Internazionale
Milano S.p.A.
55,805,625
-
0.5
0.5
Fin. Priv. S.r.l.
1 share
16,472
14.3
14.3
Istituto Europeo di
Oncologia S.r.l.
Nomisma - Società di
Studi Economici S.p.A.
Redaelli Sidas S.p.A.
(in liquidation)
Consorzio Movincom
S.c.r.l.
1 share
6,231
6.1
6.1
959,429
236
3.3
3.3
750,000
-
4.6
4.6
1
6
5.9
5.9
Movincom Servizi S.p.A.
135,102
120
Tiglio I S.r.l.
1 share
98
Genextra S.p.A.
592,450
513
4.4
0.6
0.6
4.4
0.6
0.6
-
-
-
-
-
-
-
-
-
-
-
-
1,100
-
3.7
3.7
19
229,000
2,748
2.8
2.8
-
55,805,625
-
0.4
0.4
3,437
1 share
19,909
14.3
14.3
368
1 share
6,599
6.1
6.1
9
959,429
245
3.3
3.3
-
750,000
-
4.6
4.6
1
(120)
135,102
6
-
(11)
1 share
87
(32)
592,450
481
5.9
5.9
4.4
0.6
0.6
4.4
0.6
0.6
Total other Italian
unlisted companies
26,404
3,670
30,075
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A.
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
4
4
4
Total other foreign
companies
OTHER PORTFOLIO
SECURITIES
Fondo Comune di
Investimento
Immobiliare - Anastasia
TOTAL OTHER PORTFOLIO
SECURITIES
TOTAL OTHER
FINANCIAL ASSETS
MOVEMENTS OF OTHER FINANCIAL ASSETS FROM 12/31/2016 TO 12/31/2017
LIST OF INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES (PURSUANT TO ART. 2427 OF THE CIVIL CODE)
12/31/2016
CHANGES
12/31/2017
Carrying
Number
amount (in
%
of shares
thousands
holding
of which
direct
Number
of shares
of euro)
(in
thousands
of euro)
Carrying
Number
amount (in
%
of which
of shares
thousands
holding
direct
of euro)
INVESTMENTS IN SUBSIDIARIES - ITALY
Legal
address
Carrying
amount
Share %
Share
capital
Attributable
equity
Attributable
net income
(in thousands of euro)
300
32
1.0
1.0
-
-
300
32
1.0
1.0
67,570
13
17.8
17.8
-
-
67,570
13
17.8
17.8
1,724,138
-
194,248
-
-
-
-
-
-
-
-
1,724,138
-
-
194,248
-
-
-
-
-
Pirelli Servizi Amministrazione
e Tesoreria S.p.A.
Maristel S.p.A.
Pirelli Ambiente S.r.l.
Pirelli Sistemi Informativi S.r.l.
Milan
3,237
Milan
Milan
Milan
1,315
2,096
1,655
Pirelli Tyre S.p.A.
Milan
4,521,792
Servizi Aziendali Pirelli S.c.p.a.
HB Servizi S.r.l.
Milan
Milan
101
230
Total investments in subsidiaries - Italy
4,530,426
INVESTMENTS IN FOREIGN SUBSIDIARIES
Switzerland
100%
100%
100%
100%
100%
91.3%
100%
2,047
3,675
563
1,020
2,039
(70)
10
2,083
(1,141)
1,010
8,031
5,802
558,154
1,444,381
329,438
104
10
285
7
94
(1,270)
Eca International
100
-
2.8
2.8
-
45
-
-
100
-
2.8
2.8
45
Brasil
Pirelli Ltda
UK
Sao Paulo
9,666
100%
3,527
1,054
(783)
5
4
4
Pirelli UK Ltd.
London
21,871
100%
184,835
20,863
(660)
Pirelli Group Reinsurance Company S.A.
Lugano
6,346
100%
6,836
19,816
5,468
53 shares
14,636
-
-
-
633
53
shares
15,270
-
-
Total investments in subsidiaries
Total investments in foreign subsidiaries
37,883
4,568,309
14,636
182,562
633
15,270
42,031
224,593
INVESTMENTS IN ASSOCIATES - ITALY
Consortium for the reasearch into
advanced material (CORIMAV)
Milan
104
100%
104
104
-
Eurostazioni S.p.A. **
Rome
6,271
32.7%
16,000
6,266
(16)
Fenice S.r.l.
Focus Investments S.r.l.
Milan
Milan
2,477
69.9%*
1,352
8.3%*
*
*
*
*
Total investments in associates - Italy
Total investments in associates
* Data not yet available.
** Balance sheet at July 31, 2017.
10,204
10,204
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A.
REPORT OF
TO THE SHAREHOLDERS’ MEETING
BOARD OF
THE
STATUTORY
AUDITORS
The Management Report on Operations summarises the principal risks and uncertainties and
outlines the business outlook.
4
4
6
To the Shareholders,
The Board of Statutory Auditors is required to report to the Shareholders’ Meeting, called to approve
the Financial Statements, on the supervisory activities performed during the financial year and on
any omissions or misconduct which it might have identified, pursuant to Article 153 of Legislative
Decree No. 58/1998 (“TUF”). The Board of Statutory Auditors may also make proposals regarding
the financial statements and their approval and other matters under its responsibility.
The Board of Statutory Auditors performed its supervisory activities during the financial year in
accordance with the requirements envisaged by law and taking into account the code of conduct
recommended by the Italian Accounting Profession (Consiglio Nazionale dei Dottori Commercialisti
e degli Esperti Contabili), Consob’s regulations governing corporate controls and the activities of the
Board of Statutory Auditors, as well as recommendations of the Self-Governance Code of listed
companies, which Pirelli & C. S.p.A (hereafter “Pirelli” or the “Company” ) has adopted.
The Board of Statutory Auditors and its members performed their supervisory roles, as well as by
participating to the Board of Directors meetings and to the internal Board Committees meetings, also
via a continuous exchange of information with relevant corporate administrative, audit and
compliance functions and with members of the Board of Statutory Auditors of key subsidiaries and
of firms entrusted with statutory audit services.
* * *
The 2017 financial year was marked by significative corporate events. Two years after the company’s
delisting, following the take over bid by China National Chemical Corporation for the acquisition of
Camfin S.p.A shareholding, Pirelli was listed again on October 4, 2017. Trading on the Stock
Exchange followed a reorganisation process which led to the stripping off of the Industrial segment
and to a stronger focus on the Consumer business. The company incorporated new functions and
set up new business lines (Consumer Marketing, Digital, data Science, Cyber and Velo). Following
the reorganisation process, the Company presents itself as a “pure consumer tyre player”.
The Board of Statutory Auditors acknowledges that Pirelli, during the period when the Company was
not listed on regulated markets, maintained its risk control and management functions as well as the
organisational governance and compliance structure, which are typical of a listed company, thus
facilitating the supervisory function of the Board of Statutory Auditors.
* * *
It is important to note that the financial statements of Pirelli were prepared in accordance with the
IAS/IFRS International accounting standards issued by the International Accounting Standards
Board (IASB) and endorsed by the European Union, in force at December 31, 2017, and also in
compliance with the provisions issued in implementation of Article 9 of Legislative Decree No.
38/2005.
The Company’s Financial Statements consist of the Statement of Financial Position, the Income
Statement, the Statement of Other Comprehensive Income, the Statement of Changes in Equity, the
Statement of Cash Flow and the Explanatory Notes.
The Financial Statements are accompanied by the Management Report on Operations, and include
the Report on Corporate Governance and the Structure of Share Ownership – prepared pursuant to
Article 123-bis of the TUF – as well as the Supply Chain Sustainable Management System Report
(non financial consolidated statement pursuant to articles 3 and 4 of Legislative Decree 254,
December 30, 2016).
Pirelli’s 2017 Separate Financial Statements and Consolidated Financial Statements include
statements of compliance by the CEO and by Officer responsible for drafting the Company’s
accounting documents, as required by prevailing legislation.
As a result of the assignment of the shares of TP Industrial Holding S.p.A (company owned by the
same entity owning Pirelli) to the controlling shareholder, the Financial Statements qualify the
Industrial business as “discontinued operation” and results are reclassified to the Income Statement
as a single item “net income (loss) related to discontinued operations”.
2017 Financial Statements:
Revenues
Operating Income (EBIT)
7
4
4
euro 5,352.3 mill
euro 673.6 mill
adjusted EBIT margin before start-up costs
euro 926.6 mill
Consolidated net income (including divested assets)
euros 175.7 mill
At December 31, 2017 the item income (loss) from equity investments was negative to the amount
of euro 6.9 million and mainly refers:
-
-
to the negative pro-rata share of the results for the 2017 financial year for the Indonesian
Joint Venture PT Evoluzione Tyres
to the negative pro-rata share of the results for the fourth quarter of 2016 and the first nine
months of Prelios S.p.A (negative to the amount of euro 3.1 million)
- partially offset by the positive pro-rata result of Fenice S.r.l (positive at euro 5.0 million) which
indirectly includes proceeds deriving from the disposal of the investment in Prelios S.p.A by
Fenice S.r.l.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A.
-
-
-
to the euro 7,6 million impairments of the investment in Pirelli de Venezuela C.A (negative to
the amount of euro 7.6 million), whose residual value at December 31, 2017 was equal to
euro 2.6 million;
to the capital gain deriving from the disposal at December 28, 2017 of the total investment in
Prelios S.p.A. (a capital gain net of the cost of the sale of euro 5.8 million);
to dividends received from Mediobanca S.p.A. (euro 5.8 million) and Fin. Priv. S.r.l. (euro 0.8
million).
The consolidated net financial (liquidity)/debt position was negative to the amount of euro 3,218.5
million (euro 4,912.8 million at December 31, 2016).
Pirelli closed the 2017 financial year with positive net income to the amount of euro 171 million (euro
68 million in 2016)
APPOINTMENT OF THE BOARD OF STATUTORY AUDITORS
4
4
8
The Board of Statutory Auditors in office at the date of the Report was appointed by the Shareholders’
Meeting held on May 14, 2015 and integrated during the mandate, following changes to its
composition and the expansion of the total number of Statutory Auditors (currently five Effective
Statutory Auditors and three Substitute Auditors).
The Annual Report on Corporate Governance and Structure of Share Ownership included in the
Financial Statements gives details concerning the changes in the Board of Statutory Auditor
composition, from its appointment to the date of the report.
As of today, following the Shareholders’ Meeting decisions taken in 2017 (August 1, 2017 and
September 5, 2017) the Board of Statutory Auditors consists of five Standing Statutory Auditors: Mr
Francesco Fallara (Chairman), Mr Fabio Artoni, Ms Antonella Carù, Mr. Luca Nicodemi and Mr.
Alberto Villani and two Alternate Auditors: Mr. Fabio Facchini and Ms Giovanna Maria Carla Oddo
(one Alternate Auditor remains to be appointed considering that the entire Board of Statutory
Auditors will expire at the Shareholders’ Meeting convened for the approval of the financial
statements at 31 December 2017.
SIGNIFICATIVE EVENTS OF 2017
The Management Report on Operations gives a detailed account of the most significant events of
2017. Specific attention is given to the following transactions:
-
on January 13, 2017, the disposal to Cinda of 38% of the capital of Pirelli Industrial S.r.l. was
finalised as part of the wider reorganisation and integration project of the Industrial business.
(today known as the Prometeon Tyre Group S.r.l.) pursuant to the agreement signed on
December 28, 2016 between Pirelli Tyre S.p.A. and Cinda. The sale took place at a value of
approximately 266 million euro;
-
during the month of March 2017, for the purpose of ensuring autonomous growth paths and
independent development strategies, the two business areas - Consumer and Industrial - were
definitively separated as a result of the assignment to the sole shareholder Marco Polo
International Holding Italy S.p.A., of all TP Industrial Holding S.p.A. shares previously held by
Pirelli & C. S.p.A.. TP Industrial Holding S.p.A., the company which holds 52% of the share
capital of Pirelli Industrial S.r.l. (today called Prometeon Tyre Group S.r.l.), is the company that
owns Pirelli’s Industrial assets;
- On April 27, 2017 the Board of Directors of the Company decided to accelerate the listing
process in order to take advantage of the market opportunities of the fourth quarter of 2017.
This decision was made in the light of the positive results which had been achieved by the
Company, the implemented focus on the Consumer business. In context of the listing, the CNRC
confirmed its willingness to lower its share in Pirelli to below 50% of the capital, this without
prejudicing the requisite conditions for the continued consolidation of Pirelli;
- At the end of June 2017, Marco Polo International Italy S.p.A. - a direct shareholder of Pirelli
following the incorporation by merger of Marco Polo International Holding Italy S.p.A. –
underwrote capital increase, which including the premium amounted to approximately euro 1.2
billion. It is also to be noted is that on June 27, 2017 (with a closing date of June 29), Pirelli &
C. S.p.A. and Pirelli International Plc underwrote a new unsecured refinancing contract for a
total amount of euro 4.2 billion with a pool of leading international banks, whose first drawdowns
were used, together with the proceeds from the aforementioned capital increase, to repay in full,
on June 29, 2017, the financing underwritten in 2016 for the amount of euro 6.4 billion, and thus
cancelling all collateral securities issued under this new financing. The refinancing operation
was completed with improved conditions compared to the previous financing completed in 2016,
particularly through the reduction of the all-in cost but also thanks to the lengthening of its
average life, thus contributing to the improvement of Pirelli’s financial profile;
- At the end of July 2017, Burlington Loan Management DAC, an Irish investment vehicle
managed by Davidson Kempner Capital Management LP, signed a purchase contract with
Pirelli, Intesa Sanpaolo S.p.A., UniCredit S.p.A. and Fenice S.r.l. for the acquisition of 44.86%
of the capital of Prelios S.p.A. amounting to 611,910,548 shares in total. The trade was set at
euro 0.116 per share, which equalled a total of approximately euro 70.9 million, of which
approximately euro 17.2 million was due to Pirelli, approximately euro 24.5 million euro to Fenice
S.r.l, the vehicle invested in by Pirelli, and the remainder - in proportion to the investment held
– due to Intesa Sanpaolo and Unicredit. The closing of the operation - with simultaneous
collection - was finalised on December 28, 2017.
- On August 1, 2017 the Shareholders’ Meeting of Pirelli approved a number of resolutions aimed
at implementing the previously announced process of listing the Company shares on the stock
exchange. Amongst other things, the adoption of a new text for the Articles of Association was
approved (effective as of the listing date) which expressly provides for, amongst other things, a
“corporate governance based on best international practice”.
- Also on August 1, 2017 (effective as of August 31, 2017), the Shareholders Meeting renewed
the Board of Directors, pursuant to the new Shareholders’ Agreement signed on July 28, 2017
by the China National Chemical Corporation, the China National Tire & Rubber Corporation,
9
4
4
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A.
4
5
0
Ltd., the Silk Road Fund Co.,Ltd., the CNRC International Limited (HK), the CNRC International
Holding (HK) Limited, Fourteen Sundew S.à r.l., Camfin S.p.A., Long-Term Investments
Luxembourg S.A. and Marco Tronchetti Provera & C. S.p.A.. The Board of Directors appointed
by the aforementioned Shareholders’ meeting are still effective and their mandate will expire
with the Shareholders’ meeting called to approve the financial statement at 31 December 2019.
The same aforesaid Shareholders’ Meeting also (i) appointed Antonella Carù as the new
Statutory Auditor of the Company, replacing Fabrizio Acerbis, (ii) conferred the role for the
statutory audit of accounts for the nine-year period from 2017 to 2025 to the independent
auditing firm PricewaterhouseCoopers S.p.A. (the new role become effective starting from
October 4, 2017);
- On August 31, 2017 Pirelli’s Board of Directors deliberated on the governance structure of the
Company, and approved, in particular, the constitution of the Board Committees and the
establishment of procedures in view of the listing of the Company on the stock exchange.n
addition, the Board of Directors appointed Marco Tronchetti Provera as Executive Vice
Chairman and Chief Executive Officer, conferring to him the same powers of management of
the Company, consistent with those of the previous mandate and with the Shareholders’
Agreements signed on 28 July 2017;
- On September 1, 2017, as part of the preparatory process for re-listing the Company, Pirelli’s
announced its new strategy of focusing on the High Value segment (Prestige, New Premium,
Specialties and Super Specialties, and Premium Moto), as well as released the forecast data
for the new 2017-2020 Industrial Plan, plus carve-out consolidated Interim Financial Statements
at June 30, 2017, and a carve-out consolidated Financial Statements for 2016, 2015 and 2014;
- On September 5, 2017, the Shareholders’ Meeting appointed Luca Nicodemi and Alberto Villani
as Statutory Auditors for the Company, replacing Giovanni Bandera and David Reali, who had
resigned from the role for professional reasons;
- On September 12, 2017, Pirelli, consistent with focusing its activities on its core business,
notified the Chairman of the Agreement to invest in the capital of Mediobanca S.p.A., the
decision to exercise the right of cancellation from the agreement for all shares held and
conferred to the Agreement itself, approximately 1.8% of Mediobanca’s share capital;
- On September 15, 2017, in context of the listing process, CONSOB approved the registration
document, the disclosure notes for the financial instruments and the related summary note for
the offer of sale and admission to the listing on the Mercato Telematico Azionario (screen-based
stock exchange), organised and managed by Borsa Italiana S.p.A., of the Pirelli shares offered
by Marco Polo International Italy S.p.A.. The offer of sale was carried out from September 18,
2017 to September 28, 2017;
- On October 4, 2017 Pirelli & C. S.p.A. shares were launched on the Milan Stock Exchange on
the Mercato Telematico Azionario (MTA or screen-based stock exchange) which is organised
and managed by Borsa Italiana S.p.A. With the start of trading all management and coordination
activities by Marco Polo International Italy S.p.A. ceased. As part of the Global Sales Offer, 350
million ordinary shares, were offered at a price of euro 6.5 per share for a capitalisation of euro
6.5 billion. The Greenshoe Option, granted as part of the transaction by Marco Polo International
Italy S.p.A. to the placement consortium for 50 million shares, was partially exercised on
November 2, 2017 for a total of 18,904,836 shares. With the inclusion of the Greenshoe Option,
the Offer of Sale therefore concerned 368,904,836 ordinary Pirelli shares and, consequently,
the total proceeds deriving from the Sales Offer which were exclusively due to Marco Polo
International Italy S.p.A. amounted to approximately euro 2.4 billion. As a result of the partial
exercise of the Greenshoe Option, Marco Polo International Italy S.p.A. holds 631,095,164
ordinary Pirelli shares which correspond to approximately 63.11% of the share capital;
- On December 21, 2017 the Board of Directors of Pirelli approved an EMTN (Euro Medium Term
Note) for the issuance of senior unsecured non-convertible bonds for an amount equal to a
maximum of euro 2.0 billion. The adoption of the EMTN program responds the objective of the
constant optimisation of the Pirelli financial structure, and allows for the favourable and timely
seizure of windows of opportunity available on the bond market. As part of this program, the
Board of Directors authorised the issue, to be executed by January 31, 2019, of one or more
bonds, to be placed with institutional investors, for a total maximum amount of up to euro 1.0
billion.
UNUSUAL OR EXCEPTIONAL TRANSACTIONS
The most significant transactions in the 2017 financial year are reported in detail in the Management
Report on Operations. No unusual or exceptional transactions were executed, according to the
definition provided for in Consob communication DEM/6064293 dating July 28, 2006.
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INTRACOMPANY OR TRANSACTIONS WITH RELATED PARTIES
On August 31, 2017, pursuant to Article 2391-bis of the Italian Civil Code and Consob Resolution
No. 17221 dated March 12, 2010 containing the “Regulations on Related Party Transactions,”
subsequently amended by Consob Resolution No. 17389 dated June 23, 23 2010, the Board of
Directors of Pirelli unanimously approved the “Procedure regulating Related Party Transactions”
effective from October 4, 2017, when listing of the Company’s ordinary shares started on the Mercato
Telematico Azionario which is organised and managed by Borsa Italiana S.p.A.
In line with what described on the listing prospectus, on November 6, 2017, the Board of Directors
of Pirelli, subject to the favourable opinion of the relevant Committee, comprised exclusively of
Independent Directors (and entrusted with this duty under Article 4 of the cited Regulation in a
specific resolution passed by the Board of Directors) unanimously confirmed the text of the
“Procedure governing Related Party Transactions” which had been approved before the listing.
It is important to note that the Procedure adopted by the Company, pursuant to Article 4, paragraph
6 of the cited Regulation, (i) is consistent with the principles set out in the Regulation itself, (ii) is
published on the Company website (www.pirelli.com).
Related party transactions with Pirelli Group companies and with third parties were executed in the
2017 financial year.
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The intercompany transactions which we examined were ordinary transactions, essentially
consisting of the mutual exchange of administrative, financial and organisational services. These
transactions were settled on an arm’s length basis at conditions determined according to standard
benchmarks which reflect actual use of the services and were performed in the Company’s interests,
since aimed at streamlining the use of the Group’s resources.
The non-intercompany related party transactions which we examined also involved ordinary
transactions (since included in the ordinary operating activities or related financial transactions)
and/or concluded at conditions equivalent to an arm’s length basis or standard conditions, and were
performed in the Company’s interests. The Company reported these transactions to us periodically.
We attended the meetings of the Committee for Transactions with Related Parties during which we
expressed a favourable opinion on some related party transactions of “minor importance”, the
Committee having assessed the Company’s interests in carrying out the transaction, as well as the
advantage and substantial fairness of the respective terms and conditions.
We supervised compliance with the Procedure for Transactions with Related Parties adopted by the
Company and the appropriateness of procedures implemented by the Board of Directors and by the
relevant Committee for Transactions with Related Parties and we have no observations to make in
this regard.
Transactions with Related Parties are indicated in the Explanatory Notes to the Company’s financial
statements and to the consolidated financial statements, which also report the consequent economic
effects. Given the size of the transaction and pursuant to what stated in the registration documents
submitted for Pirelli’s admission to listing, a specific section of the Financial Statements is devoted
to activities with Prometeon Group, as part of the wider reorganisation which led to the stripping off
of the Industrial segment.
IMPAIRMENT TEST PROCEDURE
It is important to note that, as suggested in the joint document issued by the Bank of Italy, Consob
and ISVAP dated March 3, 2010, the Board of Directors confirmed that the impairment test complied
with the provisions of IAS 36, after being approved by the Audit, Risks, Sustainability and Corporate
Governace Committee and by the Statutory Auditors; this confirmation was given independently and
prior to the date of the Board of Directors’ meeting held on February 26, 2018 to approve the financial
statements.
In particular, the Company conducted the impairment test procedures on the goodwill allocated to
the Consumer cash generating units and on the brand Pirelli.
The Explanatory Notes to the Financial Statements contain the information and results of the
assessment process, carried out also with the assistance of a highly qualified expert.
The Board of Statutory Auditors is of the opinion that the procedure adopted by the Company is
adequate.
SUPERVISORY ACTIVITY, PURSUANT TO LEGISLATIVE DECREE 39/2010 “STATUTORY
INDEPENDENT AUDITOR”
The Board of Statutory Auditors, in collaboration with Audit, Risks, Sustainability and Corporate
Governance Committee and pursuant to changes to the regulations introduced by Legislative Decree
135/2016, supervised:
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-
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-
the financial reporting process;
the effectiveness of the internal control, internal audit and risk management systems;
the statutory audits of the annual and consolidated accounts;
the independence of the independent auditor, in particular with regard to the provision of non-
auditing services;
the results of the statutory audit with specific reference to the additional report, pursuant to
article 11 of EU regulation 537/2014
* * *
SUPERVISORY ACTIVITY OF THE FINANCIAL REPORTING PROCESS
The Board of Statutory Auditors, having verified the existence of adequate rules and processes
governing the process to prepare and report financial information, gives its favorable opinion on the
adequacy of the process to prepare the financial information and deems that there are no objections
to report to the Shareholders’ Meeting in this regard.
Following its listing and pursuant to relevant regulations, the Company has informed the public that,
in line with procedures adopted to date and with a view to guaranteeing continuity in the information
disclosed to the public, will continue, on a voluntary basis, to disclose additional financial information
on a periodic basis, in line with article 82-ter of Consob Regulation 1197/99 (see interim operating
reports).
The Company did not avail itself of the right to omit information concerning upcoming developments
and transactions which are the object of negotiations, as provided for in Article 3, paragraph 8 of
Legislative Decree 254/2016.
SUPERVISORY ACTIVITY OF THE NON-FINANCIAL REPORTING PROCESS
The Board of Statutory Auditors, having verified the adherence to provisions laid down by Legislative
Decree 254/2016 relating to non financial reporting documents (“DNF”), and having monitored the
existence of adequate rules and processes governing the preparation and dissemination of non-
financial information, gives its favorable opinion on the adequacy of the process to prepare non-
financial information documents and deems that there are no objections to report to the
Shareholders’ Meeting in this regard.
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ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A.
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SUPERVISING THE EFFECTIVENESS OF INTERNAL CONTROL, INTERNAL AUDIT AND RISK
MANAGEMENT SYSTEMS AND OF THE STATUTORY AUDITS OF ANNUAL AND
CONSOLIDATED ACCOUNTS
The Board of Statutory Auditors, in collaboration Audit, Risks, Sustainability and Corporate
Governance Committee, met with the Internal Audit Director once every quarter. At those meetings,
the Board of Statutory Auditors received information about the results of the audits designed to
determine the adequacy and operations of the Internal Control System, compliance with the laws,
business procedures and processes, as well as implementation of the related improvement plans.
The Board also received the Audit Plan for the financial year, its final results as well as the risk
analysis.
Once every six months, the Board also received reports from the Audit, Risks, Sustainability and
Corporate Governance Committee and from the Supervisory Body on the activities performed.
The Board of Statutory Auditors has also acknowledged the report from the Responsible Officer.
When the draft financial statements were approved, the Responsible Officer confirmed the adequacy
and appropriateness of the powers and resources conferred on him by the Board of Directors, and
also confirmed that he had been given direct access to all the information necessary to produce
accounting data, without needing to obtain any authorisation. The Board of Statutory Auditors also
acknowledged that the Responsible Officer had reported having participated in the internal
information flows for accounting purposes and having approved all corporate procedures which
impacted the Company’s economic, equity and financial position.
Accordingly, the Board of Statutory Auditors expresses a positive opinion on the adequacy of the
internal control system and risk governance system, as a whole, and has no objections to report to
the Shareholders’ Meeting in this regard.
The Board of Statutory Auditors met with the independent auditor at least once every quarter. No
critical issues arose at those meetings with regard to audits or significant shortcomings in the internal
control system related to the financial reporting process, also with regard to the provisions set out in
Article 19, paragraph 3 of Legislative Decree 39/2010.
On March 8, 2018 pursuant to Article 14 of Legislative Decree 39/2010 and of Article 10 of EU
Regulation 537/2014, PricewaterhouseCoopers S.p.A published its reports on the Financial
Statements and Consolidated Financial Statements as of December 31, 2017. On the same date
independent auditor published its Additional Report for the Internal Control and Internal Audit
Committee pursuant to Article 11 of the UE Regulation number 537/2014. On March 8, 2018,
pursuant to article 3, paragraph 10 D of Legislative Decree 254/2016, PWC also published its Report
on the Consolidated non-Financial Statements. The Report was drafted in compliance with the latest
provisions laid down in the Legislative Decree 39/2010 as modified by Legislative Decree 135/2016.
submitted by the Board of Statutory Auditors during the meeting held on April 27, 2017, in
accordance with the provisions applicable to non-listed companies.
Subsequently and following the start of the re-listing procedure, during the meeting held on August
1, 2017, the firm was entrusted with the task of providing auditing services for a nine-year period
(2017-2025), in compliance with the provisions applicable to listed companies (the appointment
being effective as of October 4, 2017, date upon which Pirelli was admitted to trading on the Stock
Exchange).
The Board of Statutory Auditors supervised the independence of the Independent Auditor and in
particular, the Board received periodic information on the non-auditing assignments to be attributed
(or actually attributed based on specific regulatory provisions) to the Independent Auditor.
A detailed procedure was issued at Group level with reference to the independence of the
independent auditor that, in compliance to provisions laid down in Legislative Decree 39/2010 (as
modified by Legislative Decree 135/2016) prohibits all Pirelli Group companies from assigning work,
different from auditing services, to member companies of the same network as the Independent
Auditor appointed by the Group without obtaining prior and express authorisation from the Board of
Statutory Auditors. The Board of Statutory Auditors with the support of the Chief Financial Officer
and of the Secretary of the Board of Directors is responsible for verifying that the assignment to be
given is not included in the activities prohibited by Article 5 of EU Regulation number 537/2014 and
that, in any event, given its characteristics, does not impact the independence of the independent
auditor.
During the 2017 financial year PricewaterhouseCoopers S.p.A. performed the activities summarised
below on behalf of the Group:
ESTERNAL AUDITORS FEES 2017
(thousand Euro)
from
to
partial fees
total fees
Independent Audit fees (1)
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
PricewaterhouseCoopers S.p.A.
Subsidiaries
Network PricewaterhouseCoopers Subsidiaries
Independent Certification services (2)
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
PricewaterhouseCoopers S.p.A.
Subsidiaries
Network PricewaterhouseCoopers Subsidiaries
Non Audit fees(3)
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
PricewaterhouseCoopers S.p.A.
Subsidiaries
Network PricewaterhouseCoopers Subsidiaries
1.920
708
1.351
1.973
63
43
405
297
759
3.979
53%
2.079
28%
1.461
7.519
19%
100%
(1) Are included 1.850 migliaia Euro oaid for the audit of Interim carve out consolidated financial statements of Pirelli consumer business included into the Registration Document released for the Iisting
of Pirelli & C. S.p.A. in the Milan Stock Exchange Market, successfully completed on October 4, 2017
(2) The item independent certification services incudes the fee paid for the certification and auditing services referring to the project of the listing of the company, successfully completed on October 4,
2017 (1973 thousand Euro)
(3) In the item non audit fees are included the fees paid for services other than the audit ones, in particular for mandates signed before October 4, 2017 (listing date) - 1,444 thousands euro
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SUPERVISING THE INDEPENDENCE OF THE INDEPENDENT AUDITOR, IN PARTICULAR
WITH REGARD TO THE PROVISION OF NON-AUDITING SERVICES
PricewaterhouseCoopers S.p.A. is the firm entrusted with the task of providing auditing services.
The company was appointed by the Shareholders’ meeting, on the basis of a reasoned proposal
The Board of Statutory Auditors considers that the above-mentioned fees are proportionate with the
quantity, complexity and characteristics of the work performed and also believes that the
assignments (and related fees) for non-auditing services do not compromise the Independent
Auditor’s independence. The Board of Statutory Auditors has taken note that, as stated in the above
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table which is also included in the Explanatory Notes, almost all non-auditing assignments were
entrusted to the independent auditor before Pirelli’s admission to listing. The Board was also
informed that some of those assignments relate to the final implementation of assignments entrusted
before PricewaterhouseCoopers S.p.A was chosen the independent audit firm.
On this last point, it is important to note that the Board of Directors shares this opinion, following
assessment by the Audit, Risks, Sustainability and Corporate Governance Committee.
ORGANISATIONAL STRUCTURE
The Board of Statutory Auditors has found that the Company’s organisational structure adequately
satisfies its requirements and guarantees compliance with the principles of fair management.
The Report on Corporate Governance and the Structure of Share Ownership describes powers given
to the Chairman and to the CEO Mr Marco Tronchetti Provera.
It is to be noted that, following listing of the Company’s ordinary shares on the Mercato Telematico
Azionario which is organised and managed by Borsa Italiana S.p.A., all management and
coordination activities by Marco Polo International Italy S.p.A. ceased.
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Notably, in its meeting on August 31, 2017, the Board of Directors took notice of the fact that Marco
Polo ended its management and coordination activities on the initial date of trading, without prejudice
to the right of CNRC to consolidate Pirelli.
More specifically, the Board of Directors of Pirelli took note that, based on factual circumstances,
starting from its initial date of trading, Pirelli is no longer subject to any of the management and
coordination activities performed by Marco Polo or by any other company or body (including CRNC
and CehmChina) and that therefore, by way of example and not limited to:
(i)
Pirelli has full autonomy with reference to relations to be maintained with customers and
suppliers, with no outside interference in this respect.
(ii) Pirelli is to autonomously prepare strategic, business, financial and/or budget plans for the
Company and for the Group;
(iii) Pirelli is not subject to Group’s regulations
(iv) There is no organisational and functional link between Pirelli, on one hand, and Marco Polo,
CNRC and/or ChemChina on the other.
(v) There are non decisions, resolutions or communications by Marco Polo, CNRC and/or
ChemChina that might lead to the assumption that decisions taken by Pirelli are the result of
an imperative and compulsory will expressed by Marco Polo, CNRC and/or ChemChina;
(vi) Marco Polo, CNRC and/or ChemChina will not centrally manage neither Treasury activities nor
any other financial assistance and coordination functions;
(vii) Marco Polo, CNRC and/or ChemChina will not issue dispositions or instructions - and will not
coordinate any initiative, having any effect on Pirelli’s decisions concerning financial and credit
matters.
(viii) Marco Polo, CNRC and/or ChemChina will not issue any guidelines concerning the execution
of extraordinary transactions by Pirelli, such as for example, listing of financial instruments,
acquisitions, disposals, transfer of assets, mergers and demergers, etc;
(ix) Marco Polo, CNRC and/or ChemChina will not adopt decisions affecting Pirelli’s operating
strategies, nor will they provide Group’s strategic guidelines.
It is worth mentioning that Pirelli exercises management and coordination activities over a number
of subsidiaries, having disclosed information as envisaged under Article 2497-bis of the Italian Civil
Code.
REMUNERATION OF DIRECTORS AND EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
During the financial year, the Board of Statutory Auditors expressed the opinions requested by law
on the remuneration of Directors holding special offices, expressing the opinions envisaged under
Article 2389 of the Italian Civil Code.
In particular, the Board of Statutory Auditors found that the existing remuneration system foresees
the compensation broken down into a fixed component and an additional (variable) component linked
to the financial results achieved by the Group also in the long-term and related to the attainment of
specific objectives set by the Board of Directors, as proposed by the Remuneration Committee. The
remuneration system also envisages a four-year retention plan aimed at a selected group of
managers; the Chairman and the CEO are not to benefit from such retention scheme.
The Board of Directors, based on a proposal by the Remuneration Committee and subject to the
favourable opinion of the Board of Statutory Auditors, resolved in favour of the early termination of
the 2016-2018 LTI plan and decided to approve a “new” three-year 2018-2020 incentive plan linked
to achieving the targets set out in the 2017-2020 industrial business plan.
As in the past, this three-year incentive plan is extended to all the Pirelli management and will be
submitted for approval to the Shareholders’ Meeting that will be held on May 15, 2018, in the part
that foresees that a portion of the incentive is determined on the basis of a Total Shareholder Return
target.
Furthermore, the LTI Plan envisages a rolling deferment mechanism of part of the accrued MBO and
an increase of the accrued MBO on achieving given targets the following year.
With reference to the extraordinary incentive Plan (Special Award) adopted within the framework of
the IPO process and aimed at a selected group of executives and senior managers, including the
Chairman and the CEO, the Board of Statutory Auditors acknowledges that the Company has duly
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verified and communicated to the market that the Equity Value target, whose attainment was
prejudicial to the awarding of the incentive plan, was not achieved.
ADDITIONAL ACTIVITIES BY THE BOARD OF STATUTORY AUDITORS AND DISCLOSURES
REQUIRED BY CONSOB
While performing its functions as prescribed by Article 149 of the TUF, the Board of Statutory
Auditors supervised:
- compliance with the law and the articles of incorporation;
- application of the principles of fair management;
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-
the adequacy of the Company’s organisational structure, for those aspects under its
responsibility, governing internal audit and the administrative and accounting systems, and
the reliability of the administrative and accounting system in adequately recording operating
results;
the procedures for the effective implementation of the corporate governance rules envisaged
by codes of conduct which the company has publicly declared to comply with. In this regard
it is important to note that, pursuant to Article 123-bis of the TUF, the Company has prepared
the annual Report on Corporate Governance and the Structure of Share Ownership for the
2017 financial year providing information about (i) the corporate governance practices
effectively applied by the Company beyond the obligations foreseen in legislative or
regulatory rules, (ii) the principal characteristics of the existing risk management and internal
control systems in relation to the financial reporting process, also referred to consolidated
information, (iii) the operating mechanisms of the Shareholders’ Meeting, its principal powers,
shareholders rights and the procedures to exercise such rights, (iv) the composition and
functioning of management and supervisory bodies and their committees, as well as the other
information envisaged in Article 123-bis of the TUF;
the adequacy of the instructions issued to subsidiaries, pursuant to Article 114, paragraph 2
of Legislative Decree No. 58/1998, having confirmed that the Company is capable of promptly
and regularly satisfying its statutory reporting obligations, as provided by the cited Article 114,
paragraph 2 of Legislative Decree No. 58/1998. This is also achieved by collecting
information from the managers of organisational functions and periodic meetings with the
independent auditor, for the mutual exchange of important data and information. We have no
specific observations to make in this regard.
Moreover, it is to be noted that the Management Report on Operations includes a paragraph which
describes the principal characteristics of the existing risk management and internal control systems
in relation to the financial reporting process, also referred to the consolidated information.
The Board of Statutory Auditors acknowledges:
-
that the Management Report on Operations complies with the applicable laws and
regulations and is consistent with the resolutions passed by the administrative body and with
the results reported in the financial statements and includes adequate information concerning
the financial year’s activities and intercompany transactions. The section containing
disclosures concerning related party transactions has been included in the Explanatory Notes
to the financial statements, in compliance with the IFRSs;
-
-
-
that the Explanatory Note is compliant with existing regulations in providing indication of
criteria used for the assessment of items in the Financial Statements and for value
adjustments;
that the Company’s financial statements and the consolidated financial statements were
prepared in accordance with the structure and formats imposed by applicable laws and
regulations. The financial statements specifically indicate the effects of related party
transactions in the equity and financial position and in the income statement, pursuant to
Consob Resolution No. 15519/2006;
that the Boards of Directors of the main subsidiaries include Directors and/or managers of
the Parent Company that guarantee a coordinated management and an adequate flow of
information, also supported by adequate accounting information.
Furthermore, it is important to note that the Board of Statutory Auditors:
-
-
received information from the Directors at least once every quarter concerning the
Company’s activity and the transactions having the greatest impact on its strategy, earnings,
financial position and equity, and that it has received this information in compliance with the
specific procedure approved by the Board of Directors in its meeting of 31 August, 2017. The
Board of Statutory Auditors can give a reasonable assurance that the resolved and executed
transactions comply with the law and the Company Byylaws, and are not manifestly
imprudent, reckless or in conflict of interest, or in violation of the resolutions passed by the
Shareholders’ Meeting, or capable of compromising the integrity of corporate assets;
received from the Supervisory Body, established pursuant to Legislative Decree No. 231
dated June 8, 2001, of which the Statutory Auditor Ms. Antonella Carù is a member,
information about the results of its own control activity, which did not reveal anomalies or
misconduct;
- held periodic meetings with representatives of the independent auditor in order to exchange
important data and information for the performance of its duties, as prescribed by Article 150,
paragraph 3 of the TUF. In this regard, no important data and information were identified
which would require a mention in this report;
- obtained information from the corresponding bodies of the main subsidiaries with regard to
their management and control systems and their general operating performance (pursuant
to paragraphs 1 and 2 of Article 151 of Legislative Decree No. 58/1998);
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- during the 2017 financial year, issued opinions pursuant to Article 2386 and opinions
pursuant to Article 2389 of the Italian Civil Code:
(i) opinion regarding the adoption of the Procedure for Transactions with Related Parties,
as previously described in detail;
(ii)
reasoned proposal for the appointment of the independent auditor during the
Shareholders’ Meeting held on April 27, 2017 and later during the Shareholders’
Meeting on August 1, 2017 with a view to change the appointment of the independent
auditor following admission of the Company’s ordinary shares to listing on the Mercato
Telematico organised and Managed by Borsa Italiana S.p.A.
(iii) opinion, in compliance with instructions accompanying the Rules of the Markets
organised and managed by Borsa Italiana S.p.A., concerning the approval of a
memorandum related to the internal audit system required for the purpose of the
Company’s listing
Lastly, the Board of Statutory Auditors did not express any opinion concerning the confirmation of
Mr Francesco Tanzi as the Manger responsible for preparing corporate financial reports.
During the 2017 financial year the Board of Statutory Auditors did not receive any complaints.
The Board of Statutory Auditors reports that, following the company’s listing, it received a complaint
pursuant to article 2408 of the Italian Civil Code, from a shareholder invoking that Board Member Ms
Laura Cioli was not compliant with the independence prerequisite.
The Board of Statutory Auditors examined the complaint, performed investigations and analysis
deemed necessary and acquired evidence from the Company’s relevant bodies. Based on the
investigative work performed, the Board considered there was no need to pursue the complaint,
deeming it as unfounded.
With regard to PricewaterhouseCoopers S.p.A., the Board of Statutory Auditors notes that:
-
-
the independent auditor, pursuant to article 14 of Legislative Decree 39/2010 and article 10
of UE Regulation 537/2014, on March 8, 2018 issued a report containing its unqualified
opinion stating that the statutory financial statements and the consolidated financial
statements provide a truthful and accurate representation of the equity and financial position
of Pirelli and of the Group as of December 31, 2017 and of the economic results and cash
flow for the financial year closing at the same date, in compliance with applicable accounting
standards, and gave evidence of key aspects of the auditing exercise;
the independent auditor issued its unqualified opinion stating that the Report on Operations
accompanying the Financial Statements and the Consolidated Financial Statements as of
December 31, 2017, as well as specific information contained in the Report on Corporate
Governance and the Structure of Share Ownership, as laid down in article 123-bis, paragraph
4 TUF have been drafted pursuant to current legislation;
-
-
the independent auditor stated that, as regards possible material errors in the Report on
Operations, based on the knowledge and understanding of the company and its market
acquired in the course of the auditing activities, no objections were raised;
the independent auditor confirmed the Company’s statement regarding the fact that no other
assignments have been given to persons or entities related to each other by on-going
relationships with the independent auditor;
- on March 8, 2018 the independent auditor provided the Board of Statutory Auditors with the
Additional Report, pursuant to article 11 of the EU regulation 537/2014, resulting in no
significant shortcoming concerning the internal audit system for financial reporting that
needed to be brought to the attention of persons responsible for “governance” activities;
- on March 8, 2018 the independent auditor, pursuant to article 3, paragraph 10 of Legislative
Decree 254/2016, issued the Report on the consolidated non-financial statements,
concluding that all elements confirmed that the non-financial statements relating to the
financial year closing at December 31, 2018 had been drafted, in all its significant parts, in
compliance with the requirements laid down by Legislative Decree 254/2016 and by the GRI
Standards;
- pursuant to article 6 of the UE regulations 537/2014 the independent auditor provided the
Board of Statutory Auditors with a statement, accompanying the Additional Report, that does
not give evidence of any circumstance that could jeopardising the audit firm’s independence
(for more details concerning assignments different from auditing services, refer to paragraph
“supervisory activity on the independence of the independent auditor, in particular with regard
to the provision of non-auditing services” of this report).
Lastly, the Board of Statutory Auditors took note of the Transparency Report drafted by the
independent auditor and published on its web site, pursuant to article 18 of Legislative Decree
39/2010.
Furthermore, with regard to the corporate bodies, the Board of Statutory Auditors reports that:
-
the current Board of Directors - appointed on August 1, 2017, with effect from August 31,
2017 and falling from office with the Shareholders’ Meeting called to approve the financial
statements for the financial year closed at December 31, 2019 - comprises 14 Directors at
the date of the Report, including 13 Non-executive Directors and, of these, 7 Directors who
satisfy the independence requirements envisaged in the Self-Regulatory Code and in the
TUF. In compliance with the registration document drafted upon request for admission to
listing, the Board of Directors will be integrated by one further Independent Director to be
nominated by the minorities at the first Shareholders’ meeting following the start of trading
(coinciding with the Shareholders’ meeting for the approval of the financial statements) with
the majorities required by the law without applying the list vote.
- during the 2017 financial year, the Board of Directors held 13 meetings (11 meetings before
admission to listing);
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ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A. 4
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-
the Audit, Risks, Sustainability and Corporate Governace Committee comprises three
independent Directors and held 2 meetings during the 2017 financial year (1 meeting after
admission to listing);
- at the time of this Report, the Remuneration Committee is composed of three non-Executive
Directors, most of them independent (the Chairman is an independent Director) and held 4
meetings during 2017 (1 meeting after admission to listing);
-
-
-
the Committee for Transactions with Related Parties, at the time of this Report, is composed
of three independent Directors and during the 2017 financial year held 2 meetings (following
the Company’s admission to listing);
the Appointments and Succession Committee, at the time of this Report, is composed of four
Directors, the majority of whom are non-executive Directors and, during the 2017 financial
year, the Committee held no meeting;
the Strategies Committee, at the time of this Report, is composed of seven, mostly non-
executive, Directors (of whom two are Independent Directors) and, during the 2017 financial
year, the Committee held no meeting.
The Board of Statutory Auditors has always attended the meetings of the Board of Directors and the
Board of Directors’ Committees. The Report on Corporate Governance and the Structure of Share
Ownership provides information on the percentage attendance by individual members of the Board
of Statutory Auditors at the meetings of the Board of Directors and its Committees, as from the first
date of trading of Pirelli’s shares on the Mercato Telematico Azionario organised and managed by
Borsa Italiana S.p.A. The Board of Statutory Auditors took part in the above meetings in its role as
the Internal Control and Audit Committee, pursuant to Article 19 of Legislative Decree No. 39/2010.
The Board of Statutory Auditors attended the Shareholders’ Meetings (both ordinary and
extraordinary meetings) held in 2017 on the following dates: March 6, March 15, April 27, June 19,
August 1 and September 5. The Board of Statutory Auditors also attended the Special Meeting held
on June 19, 2017 which approved the conversion of all special shares into ordinary shares.
Lastly, the Board of Statutory Auditors acknowledges that:
-
it supervised the fulfillment of obligations related to the “Market Abuse” and “Investor
Protection” regulations with regard to corporate disclosures and internal dealing, and
particularly with regard to the treatment of privileged information and the procedure for
issuance of press releases and public disclosures;
- as recommended by the Self-Regulatory Code of the Italian Stock Exchange (Borsa Italiana)
it verified, upon its appointment and later during the meeting held on February 26, 2018, that
its own members satisfy the same requirements for independence, where applicable, as the
foregoing Code requires for Directors;
-
it found that the criteria and procedures for ascertaining the requirements for independence
adopted by the Board of Directors were applied correctly for the annual assessment of the
independence of its members, and it has no observations to make in this regard;
-
it confirmed that the Directors’ Report enclosed with the Company’s Financial Statements
describes the principal risks and uncertainties to which the Company is exposed;
- with reference to the provisions of Article 15 of the Consob Regulations 20249 of December
28, 2017 concerning market regulations, it has verified that the corporate organisation and
the procedures adopted enable Pirelli to ascertain that the companies controlled and
incorporated by it and regulated by the law of non-European Union States subject to
compliance with Consob regulations, have in place an adequate administrative and
accounting system that is able to regularly provide the Company’s management and the
independent auditor with the economic, equity and financial information necessary to prepare
the consolidated financial statements. We note that at December 31, 2017, the non-EU
companies which were directly or indirectly controlled by Pirelli and of material interest
pursuant to Article 15 of the Market Regulations were as follows: Limited Liability Company
Pirelli Tyre Russia (Russia); Pirelli Pneus Ltda - (Brazil); Pirelli Commercial de Pneus Brasil
Ltda (Brazil); Pirelli Tire LLC (USA); Pirelli Tyre Co. Ltd. (China); Pirelli Otomobil Lastikleri
A.S. (Turkey); Pirelli Neumaticos S.A.I.C. (Argentina); Pirelli Neumaticos S.A. de C.V.
(Mexico); Pirelli Asia Pte Ltd (Singapore).
During the course of the supervisory and audit activities and on the basis of the information obtained
from the independent auditor, no omissions, misconduct, irregularities or material facts were found
which are worthy of being reported or mentioned in this report.
The activities described above, conducted both on a collegial and an individual basis, are
documented in the minutes of the 12 Board of Statutory Auditors’ meetings held during 2017.
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PROPOSALS TO THE SHAREHOLDERS’ MEETING
FINANCIAL STATEMENTS AT DECEMBER 31, 2017
The Board of Statutory Auditors expresses its favourable opinion on the approval of the Financial
Statements at December 31, 2017 and has no objections to raise with regard to the motions
submitted by the Board of Directors concerning the allocation of the profit.
GROUP REMUNERATION POLICY AND THREE-YEAR INCENTIVE PLAN 2018-2020
We inform you that the Board of Statutory Auditors has expressed a favourable opinion on the
Remuneration Policy for 2018 submitted for consultation to the Shareholders’ Meeting convened on
May 15, 2018, and on the adoption of the new 2018-2020 LTI plan, submitted for approval to the
Shareholders’ Meeting pursuant to Article 114-bis of Legislative Decree 58/1998 (“TUF”), as it
envisages, among other things, that part of the incentive will be calculated based on a Total
Shareholder Return target.
ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A.
APPOINTMENT OF THE BOARD OF STATUTORY AUDITORS
The Board of Statutory Auditors will fall from office after having completed its mandate.
We wish to thank you for placing your trust in us and we remind you that Shareholders will be asked
to appoint a new Board of Statutory Auditors for the next triennium using the list vote mechanism.
OTHER ISSUES SUBMITTED FOR APPROVAL BY THE SHAREHOLDERS’ MEETING
The Board of Statutory Auditors has no comments to make on the other matters submitted for your
approval (appointment of one Director and authorisation for signing a D&O liability insurance policy).
****
Pursuant to Article 144-quinquiesdecies of the Issuer Regulations, duly approved by Consob with
Resolution No. 11971/99, as subsequently amended and supplemented, the list of positions held by
members of the Board of Statutory Auditors in the companies listed in Book V, Title V, Chapters V,
VI and VII of the Italian Civil Code is published by Consob on its website (www.consob.it).
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It is important to observe that Article 144-quaterdecies (Consob reporting obligations) establishes
that members of the supervisory body of just one issuer are not subject to the reporting obligations
envisaged in this Article, and therefore, in this case, they do not appear in the lists published by
Consob.
In its Report on Corporate Governance and the Structure of Share Ownership, the Company lists
the main positions held by the members of the Board of Statutory Auditors.
The Board of Statutory Auditors here acknowledges that all its members were in full compliance of
the regulatory provisions laid down by Consob governing the “maximum number of positions to be
held”.
Milan, March 12, 2018
Mr. Francesco Fallacara
Mr. Fabio Antoni
Ms. Antonella Carù
Mr. Luca Nicodemi
Mr. Alberto Villani
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ANNUAL REPORT 2017ANNUAL REPORT 2017 Separate Financial Statements of Pirelli & C. S.p.A.Separate Financial Statements of Pirelli & C. S.p.A.
PROPOSAL FOR THE APPROVAL
OF THE FINANCIAL STATEMENTS
AND FOR THE ALLOCATION OF THE
RESULT OF THE FINANCIAL YEAR
APPOINTMENT OF A DIRECTOR
SUBJECT TO AN INCREASE TO 15
IN THE NUMBER OF MEMBERS OF
THE BOARD OF DIRECTORS.
the voting list procedure, is resolved by the Meeting with the
The Board invites shareholders who wish to submit proposals
majorities required by law.
for the candidacy for the office of member of the Board of
As indicated in the Registration Document, drawn up upon
of law and the Articles of Association, also that which is
the admission of the company’s ordinary shares to trading
recommended on the matter by the Self-Regulatory Code.
Directors to take into account, in addition to the provisions
Dear Shareholders,
Dear Shareholders,
on the Mercato Telematico Azionario (screen-based stock
exchange) Organised and managed by Borsa Italiana S.p.A.,
In particular, the Board hopes that any candidacy may be
The financial year at December 31, 2017 closed with a result of
the ordinary shareholders’ meeting held on 1 August 2017
Marco Polo is committed to ensuring that minorities can
made available to the public - also through the Company -
Euro 170,850,918.00.
gave rise to the renewal of the Board of Directors of Pirelli & C.
elect their representative on the Board during the first
accompanied by suitable documentation, as indicated in the
S.p.A. (“Pirelli” or the “Company”),determining as fourteen
shareholders’ meeting to be held after the date of the start
appropriate section of the Pirelli website dedicated to the
The Board of Directors, having taken into account that,
the number of members of the Board and setting the duration
of negotiations, following the determination of 15 as the new
Shareholders’ Meeting, at least 25 days before the date of the
following the shareholders’ meeting resolutions taken during
of the related mandate as three financial years, thus expiring
number of Directors.
2017, the legal reserve was completed and reached the limit as
at the meeting called to approve the financial statements of
Shareholders’ Meeting and therefore by 20 April 2018, and this
in order to allow those entitled to vote in the Meeting to know
provided for by Art. 2430 of the Italian Civil Code, proposes to
the Company as at 31 December 201941.
This commitment also concerns the shareholders of Marco Polo
in advance the personal and professional characteristics of
carry forward the total result of the financial year.
who are the recipients of shares held by the latter in case the
the candidate(s), notwithstanding the right to file candidates
In this regard, it is recalled that:
demerger of the company contemplated in the Shareholders’
during the Shareholders’ meeting.
If you agree with our proposal, we invite you to approve the
> The aforementioned appointment of the new Board of
Agreement is completed before the Meeting.The appointed
following:
Directors - which took effect from 31 August 2017 - was
Director will expire together with those currently in office,
Finally, the Board invites shareholders to also take into
RESOLUTIONS
International Italy S.p.A (“Marco Polo”, at the time the
called to approve the financial statements for the year ended
the execution of the position of Director of Pirelli as well as
approved at the meeting by the shareholder Marco Polo
and therefore on the date of the shareholders’ meeting
account the proficiency and skills profiles necessary for
Company’s sole shareholder) before the stock market
31 December 2019 and will be paid a remuneration for the
the guidance regarding the maximum number of positions
The Shareholders’ Meeting,
listing of the Pirelli shares finalised on 4 October 2017 (the
position in line with that determined for the other members
deemed compatible with the effective execution of the
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> having examined the Annual Financial Report as at
“Listing”);
of the Board of Directors.
office of Director of the Company published on the Pirelli
December 31, 2017;
> as reported in the documentation published in the Listing
website www.pirelli.com – Governance section45. At this
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> having acknowledged the Statutory Auditors Report;
process42 the current composition of the Board of
In particular, it should be noted that each member of the
regard, the Board of Directors suggests to the Shareholders
> having acknowledged the Independent Auditors’ Report.
Directors reflects the shareholders’ agreement existing
Board of Directors is entitled to a gross annual fee for the
who shall file candidates, taking in account that the newly
RESOLVES
Agreement”), pursuant to which the Board of Directors
remuneration set by the Board of Directors in the case of
Sustainability and Corporate Governance Committee and
of Pirelli is envisaged as being initially composed of 14
participation in advisory committees.
of the Remuneration Committee and also considering the
between Marco Polo shareholders43 (the “Shareholders’
office of 60 thousand Euro, in addition to any supplementary
appointed Director will be a member of the Audit, Risks,
a.
to approve the Company’s Financial Statements for the
members, 7 of which are independent, and that it comprises
professional skills of the directors currently appointed (skills
financial year closed at December 31, 2017, as presented by
a further independent director, to be appointed at the
Finally, it should be noted that the new Director, as decided
that grant the Board of directors with an adeguate and
the Board of Directors in their entirety, and the individual
first meeting of Pirelli subsequent to the Listing by the
by the Board of Directors at the meeting held on 31 August
balanced composition), to choose the candidate having the
entries and proposed allocations therein, which report a
shareholders that are not Marco Polo (the “Minorities.”);
2017, will also be appointed as member of the Control, Risks,
knowledge and the experience, also academic, accrued on the
result of Euro 170,850,918.00;
> during the aforementioned meeting of 1 August 2017, Marco
Sustainability and Corporate Governance Committee and of the
same topic of the focus of the abovementioned committees.
b.
to carry forward the result equal to Euro 170,850,918.00.
Polo undertook to ensure that Minorities can elect their
Compensation Committee.
representative on the Board during the first shareholders’
meeting to be held after the Listing, following the
determination of the new number of Directors as 15
(“Meeting”).
Proposal of the board of directors In view of the
foregoing, the Board of Directors proposes to approve the
increase from fourteen to fifteen of the number of members
It should be noted that, for the purposes of adopting the
of the Board and the appointment of a new Director meeting
required shareholders’ meeting resolutions, the statutory
the independence requirements provided for by Legislative
procedure of the voting list does not apply, as it is not a case of
Decree 58/1998 and by the Self-Regulatory Code of the listed
the full renewal of the Board of Directors. Therefore, pursuant
companies to which Pirelli has adhered44.
to Article 10 of the Articles of Association, the appointment of
Directors who, for any reason, are not appointed pursuant to
***
41 The Company’s Articles of Association (article 10.1) provide the following: “The company is managed by a Board of Directors composed of up to
fifteen members who remain in office for three financial years and may be re-elected.
42 Cf. Registration Document accessed at the following Company web address: https://corporate.pirelli.com/corporate/it-it/investitori/pirelli-in-
borsa/ipo-documentation
43 Accessed at the following Company web address: https://corporate.pirelli.com/corporate/it-it/governance/patti
44 Accessed at the following web address: http://www.borsaitaliana.it/comitato-corporate-governance/codice/2015clean.pdf
45 It is to be noted that as of the date of this report, the Board of Directors of Pirelli & C. S.p.A. is made up of fourteen Directors, seven of
whom are in possession of the requisites of independence, both pursuant to Legislative Decree 58/1998 and pursuant to the Self-Regulatory Code of
the listed companies. It should also be noted that the current composition of the Board ensures compliance with legal and statutory provisions on
gender balance.
ANNUAL REPORT 2017ANNUAL REPORT 2017 ResolutionsResolutions BOARD OF STATUTORY AUDITORS:
> APPOINTMENT OF STANDING
AND ALTERNATE MEMBERS;
> APPOINTMENT OF THE CHAIRMAN;
> DETERMINATION OF
MEMBERS’ SALARIES.
least 1% of the share capital with voting rights in the ordinary
together with each list, the acceptances of the candidature by
of votes, a new ballot will be held between these lists by
Shareholders’ Meeting (minimum threshold established by
the individual candidates must be filed in conjunction with the
all the persons entitled to vote who are present at the
the Articles of Association, identical to that established by
declarations by means of which they attest, under their own
meeting. The candidates on the list that obtains a simple
Consob with Resolution no. 20273 of 24 January 2018) have
responsibility, the non-existence of causes of ineligibility and
majority of the votes are elected.
the right to submit the lists.
incompatibility, as well as the existence of the requirements
In the event of the submission of several
lists, the
The lists of candidates - signed by the shareholders submitting
provisions, and by the Articles of Association to assume the
assigned to the standing member indicated as the first
prescribed by the applicable provisions, including regulatory
Chairmanship of the Board of Statutory Auditors shall be
Dear Shareholders,
them, indicating their identity and the percentage of their
office. The declarations must be accompanied by a curriculum
candidate on the list which is the second by number of votes.
equity investment in the ordinary share capital of the
vitae for each candidate containing exhaustive information
with the approval of the annual financial report as at 31
Company - must be filed at the Company’s registered office
regarding their personal and professional characteristics
In the event that no lists of candidates are submitted, the
December 2017, the Board of Statutory Auditors of Pirelli
at least twenty-five days before the date set for the Meeting.
with information - also attached - of the administrative and
Shareholders’ Meeting will appoint the Board of Statutory
& C. S.p.A., appointed by the Shareholders’ Meeting on 14
supervisory positions held in other companies.
Auditors with the majorities required by law, without
May 2015 for the 2015/2017 three-year period, is nearing the
The shareholders can also submit the lists of candidates by
prejudice, in any case, to compliance with the regulation on
completion of its full term.
sending them and the supporting documentation to the
It should be noted that - pursuant to the Self-Regulatory Code
gender balance.
following certified e-mail box: assemblea@pec.pirelli.it.
of the Listed Companies (“Code”)46, to which the Company has
Currently, also following the meeting resolutions of 1 August
adhered - the Statutory Auditors must be chosen from among
In this regard, it is recalled that law no. 120 of 12 July 2011
and 5 September 2017, the members of the Board of Statutory
If only one list has been submitted within the aforementioned
persons who can be qualified as independent also on the basis
introduced the gender quotas for the composition of the
Auditors are as follows:
deadline, or only lists submitted by shareholders that are
of the criteria set by the aforementioned Code with reference
administrative and supervisory bodies of listed companies,
> Francesco Fallacara (Chairman of the Board of Statutory
connected to one another, pursuant to the regulations,
to the Directors and, therefore, those who are entitled and
establishing that these companies must guarantee, for at least
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Auditors);
> Fabio Artoni (Standing Auditor);
> Antonella Carù (Standing Auditor);
> Luca Nicodemi (Standing Auditor);
> Alberto Villani (Standing Auditor);
> Fabio Facchini (Alternate Auditor);
> Giovanna Maria Carla Oddo (Alternate Auditor).
including regulatory provisions,
further
lists may be
intend to submit the lists are invited to take this into account
three consecutive terms, compliance with a criterion of division
submitted up to the third day following the list submission
when identifying candidates to be proposed.
between genders in the composition of the corporate bodies.
deadline (twenty-five days before the Meeting). In this case,
the thresholds required for their submission are reduced by
Each shareholder may submit or participate in the submission
In fact, at least one third of the Directors and standing Auditors
half, equal, therefore, to 0.5% of the share capital with voting
of only one list and each candidate may appear on only one
elected must belong to the less represented gender.The
rights in the ordinary Shareholders’ Meeting.
list, under penalty of ineligibility.
Legislator has, however, granted that at the time of the first
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application of the aforementioned law, the share of the less
The Company’s Bylaws, which sets the number of Substitute
The ownership of the overall equity investment is certified,
Lists submitted without observing the provisions contained
represented gender within the newly-appointed body is at least
Auditors to three, entered in force at the date of Company’s
pursuant to the current regulatory provisions, even after the
in Article 16 of the Articles of Association will be considered
one fifth of the Directors and of the standing Auditors elected.
shares’ listing on the Stock Exchange. As a result, one position
filing of the lists, provided this occurs at least 21 days prior to
as not submitted.
as Substitute Auditor is vacant. Taking into account that one
the date of the Meeting.
Therefore, in order to ensure a balance between the genders,
of the items in the Agenda of the Shareholders’ Meeting,
If only one list is submitted, the Shareholders’ Meeting
Art. 16 of the Articles of Association establishes that the
called to approve the Financial Report, concerns the renewal
The lists of candidates must be divided into two distinct
votes on it and, if the list obtains the relative majority, the
lists which, considering both sections, have a number of
of the whole Board of Auditors, there has been no need for an
sections: the first section must contain the list of candidates
candidates listed in the respective sections of the list are
candidates equal to or higher than three, must include
immediate Board integration.
(marked by a progressive number) for the office of standing
elected as standing Auditors; in this case, the chairmanship of
candidates of a different gender both in the section of the list
Auditor, while the second section must contain the list of
the Board of Statutory Auditors lies with the person indicated
relating to standing Auditors, as well as in that relating to
The Shareholders’ Meeting is therefore called, pursuant to
candidates (marked with a progressive number) for the office
in first place in the aforementioned list.
alternate Auditors. Furthermore, the Articles of Association
the applicable provisions of law and regulations and of Art.
of alternate Auditor. The first of the candidates of each section
provide that if the application of the voting list process
16 of the Articles of Association (available in full at the end of
must be identified among those registered in the Register of
In the event that two or more lists are submitted, the election
does not ensure, considering the standing Auditors and
this report) to:
Statutory Auditors who have carried out statutory audits for
of the members of the Board of Statutory Auditors will be as
the alternate Auditors separately, the minimum number of
> appoint five standing Auditors and three alternate Auditors;
a period of no less than three years. In compliance with the
follows:
Auditors belonging to the less represented gender envisaged
> appoint the Chairman of the Board of Statutory Auditors,
provisions of the Articles of Association and the pro tempore
> from the list that obtained the highest number of votes (the
by the law and/or pro tempore regulation in force, the
where it is not possible to identify him/her following the
legislation in force on gender balance, those lists which, when
so-called majority list) are taken, in the order in which they
candidate belonging to the most represented and elected
application of the voting list process;
considering both sections, have a number of candidates equal
are listed, four standing members and two alternate;
gender, indicated with the highest progressive number of
> determine the salaries of the members of the Board of
to or higher than three, must include candidates of a different
>
from the list that received the second highest number of
each section in the list that has reported the highest number
Statutory Auditors.
gender both in the section of the list relating to standing
votes during the Meeting (the so-called minority list) are
of votes, will be replaced by the candidate belonging to
The appointment of the standing and alternate Auditors
standing member and the other alternate member. In the
same section of the same list according to the progressive
will take place by means of the application of the voting list
Furthermore, each
list must be accompanied by the
event that more than one list obtains the same number
submission order.
Auditors, as well as in that relating to alternate Auditors.
taken, in the order in which they are listed, the remaining
the less represented and unelected gender, taken from the
process. In this regard, it should be noted that shareholders
documentation required by Art. 16 of the Articles of Association
who, alone or together with other shareholders, represent at
and the applicable provisions of law and regulations. In particular,
46 Can be accessed at the following web address: http://www.borsaitaliana.it/comitato-corporate-governance/codice/2015clean.pdf.
ANNUAL REPORT 2017ANNUAL REPORT 2017 ResolutionsResolutions Outgoing Auditors are re-eligible.
aforementioned legislative decree can be attributed to the
16.4 Each slate shall contain a number of candidates which does not
to gender balance, slates that - taking account of both sections -
Board of Statutory Auditors.
exceed the number of members to be appointed.
present a number of candidates equal to or exceeding three, must
In view of the above, the Board of Directors invites those
include candidates of each gender both in the section for standing
shareholders who intend to submit lists for the election of
Finally, it is recalled that the standing Auditors participate in
16.5 Shareholders who, alone or together with other shareholders,
statutory auditors and in the section for alternates.
members of the Board of Statutory Auditors to comply with
the meetings of the Board of Directors and its members (in
represent at least 1 percent of the shares with voting rights in the
the aforementioned provisions, recommending in this regard
whole or in part) are invited to participate in the Committees
ordinary shareholders’ meeting or the minor percentage, according to
16.11 Each person entitled to vote may vote for only one slate.
that the first two candidates of each section of the list are of
established within the Board.
the regulations issued by Commissione Nazionale per le Società e la
different genders.
Borsa for the submission of slates for the appointment of the Board of
16.12 The Board of Statutory Auditors shall be elected as specified
In view of the aforementioned, the Board of Directors,
Directors shall be entitled to submit slates.
below:
The Company will make available to the public the lists of
pursuant to and in compliance with the Company Articles
a.
four effective members and two alternate members shall be
candidates submitted, accompanied by the information
of Association and the regulations applicable to the matter,
16.6 Each shareholder may present or take part in the presentation of
chosen from the slate which obtains the highest number of votes
required by the applicable regulations, at its registered
invites you to submit lists of candidates for the appointment
only one slate.
(known as the majority slate), in the consecutive order in which
office, the authorised storage process and by publication
of the members of the Board of Statutory Auditors and
they are listed thereon;
on the website www.pirelli.com, in the appropriate section
proposals concerning the determination of the relative
16.7 The slates of candidates, which must be undersigned by the parties
b.
the remaining standing member and the other alternate member
dedicated to the Meeting.
salaries and to resolve on:
submitting them, shall be filed in the Company’s registered office
shall be chosen from the slate which obtains the highest number
>
the appointment of the members of the Board of Statutory
at least twenty five days prior to the date set for the shareholders’
of votes cast by the shareholders after the first slate (known as
Finally, we invite shareholders who intend to submit lists
Auditors (five standing Auditors and three alternate
meeting that is required to decide upon the appointment of the
the minority slate), in the consecutive order in which they are
for the appointment of members of the Board of Statutory
Auditors) for the financial years 2018, 2019 and 2020, by
members of the Board of Statutory Auditors, except for those cases
listed thereon; if several slates obtain the same number of votes,
Auditors to view the specific documentation published on
voting the lists of candidates submitted;
in which the law and/or the regulation provide an extension of the
a new vote between said slates will be cast by all those entitled
the Company’s website www.pirelli.com and, in particular,
>
the appointment of the Chairman of the Board of Statutory
deadline They are made available to the public at the registered
to vote attending the meeting, and the candidates on the slate
the recommendations contained in Consob communication
Auditors, unless it is possible to proceed with his/her
office, on the Company website and in the other ways specified by
which obtains the simple majority of the votes will be elected.
no. DEM/9017893 of 26 February 2009 and the current Consob
identification in accordance with the provisions of the
Commissione Nazionale per la Società e la Borsa regulations at least
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provisions regarding the limits on the aggregation of offices
Articles of Association;
21 days before the date of the general meeting.
16.13 The chair of the Board of Statutory Auditors shall pertain to the
of the members of the supervisory bodies of listed companies.
>
the determination of the salary due to the members of the
standing member listed as the first candidate on the minority slate.
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Board of Statutory Auditors.
Without limitation to any further documentation required by
In addition to the appointment of the Board of Statutory
applicable rules, including any regulatory provisions, a personal and
16.14 If, considering the standing statutory auditor and the alternates
Auditors, it is also necessary to decide on the allocation of
***
professional curriculum including also the offices held in management
statutory auditors separately, the application of the slate voting
the gross annual salary due to the members of the Board
and supervisory bodies of other companies, of the individuals standing
procedure fails to secure the minimum number of statutory auditors of
of Statutory Auditors, currently set at 75,000 euro for the
Board of statutory auditors Article 16
for election must accompany the slates together with the statements
the less represented gender as required by law and/or regulation in force
Chairman of the Board of Statutory Auditors and 50,000 euro
in which the individual candidates agree to:
at the time, the appointed candidate of the more represented gender
for each of the standing Auditors (the member of the Board
16.1 The Board of Statutory Auditors shall be composed of five
>
their nomination
indicated with the higher progressive number in each section of the
of Statutory Auditors called to be part of the Supervisory
effective and three alternate auditors, who must be in possession
>
declare, under their own liability, that there are no grounds for
slate that attracts most votes shall be substituted by the non-appointed
Body of the Company is now allocated an additional salary of
of the requisites established under applicable laws and regulations;
their ineligibility or incompatibility, and that they meet the
candidate of the less represented gender drawn from the same section
40,000 euro).
to this end, it shall be borne in mind that the fields and sectors of
requisites prescribed by law, by these By-laws and by regulation
of the same slate on the basis of their progressive order of presentation.
business closely connected with those of the Company are those
for the position.
In determining the salary to be attributed to the members
stated in the Company’s purpose, with particular reference to
Any changes that occur up to the date of the Shareholders’ meeting
16.15 The position of a standing auditor which falls vacant due to
of the Board of Statutory Auditors, we invite you, as already
companies or corporations operating in the financial, industrial,
must be promptly notified to the Company.
his/her death, forfeiture or resignation shall be filled by the first
happened on the occasion of the previous renewal of the
banking, insurance and real estate sectors and in the services field
alternate auditor chosen from the same slate as the former. If filling
supervisory body, to consider - in addition to what is envisaged by
in general.
16.8 Any slates submitted without complying with the foregoing
the position in this way fails produce a composition of the Board
the current regulatory provisions regarding the responsibilities of the
provisions shall be disregarded.
of Statutory Auditors that complies with the rules in force even on
Board of Statutory Auditors - also the additional tasks assigned
16.2 The ordinary shareholders’ meeting shall elect the Board of
gender balance, the position will be filled by the second alternate
to this body by Legislative Decree of January 27 2010 no. 39
Statutory Auditors and determine its remuneration. The minority
16.9 Each candidate may appear on only one slate, on penalty of
auditor drawn from the same slate. If, subsequently, there is a need
containing the “Implementation of Directive 2006/43/EC on
shareholders shall be entitled to appoint one effective auditor and
losing the right to be elected.
to substitute another statutory auditor from the same slate that
statutory audits of annual and consolidated accounts and of
one alternate auditor.
obtained most votes, the other alternate auditor drawn from the same
the fact that pursuant to art. 6, paragraph 4-bis, of Legislative
16.10 The slates shall be divided into two sections: one for candidates
slate shall fill the position, whatever the outcome. In the event of the
Decree of 8 June 2011 no. 231 containing the “Provisions on
16.3 The Board of Statutory Auditors shall be appointed in compliance
for the position of standing Auditor and one for candidates for the
replacement of the Chairman of the Board of Statutory Auditors,
the administrative liability of legal persons, companies and
with applicable laws and regulations and with the exception of the
position of alternate Auditor. The first candidate listed in each section
the chair shall pertain to the statutory auditor of the same slate as
associations, including those without legal personality,
provisions of paragraph 17 of this article 16, on the basis of slates
must be selected from among the persons enrolled in the Register of
the outgoing Chairman, following the order contained in the slate,
pursuant to Article 11 of the Law of 29 September 2000, no.
presented by the shareholders in which candidates are listed by
Auditors who have worked on statutory audits for a period of no less
subject in all cases to observance of the requirements in law and/or
300” the functions of Supervisory Body envisaged by the
consecutive number.
than three years. In compliance with the current provisions relating
in the Company By-laws for holding that office and to compliance
ANNUAL REPORT 2017ANNUAL REPORT 2017 ResolutionsResolutions with gender balance as provided by law and/or regulation currently in
force; if it proves impossible to effect substitutions and replacements
under the foregoing procedures, a shareholders’ meeting shall be
CONSULTATION ON THE POLICY OF
PIRELLI GROUP ON REMUNERATION
following years in consideration of the services
com) mechanism in accordance with legal requirements
provided during the reference year, possibly stating
and at the Borsa Italiana SpA (Milan, Piazza degli Affari n.6)
an estimation for the items which cannot be
alongside the current Report.
called to complete the Board of Statutory Auditors which shall adopt
Dear Shareholders,
objectively measured during the reference year.
resolutions by relative majority vote.
As established by the Italian Consolidated Law on Finance, we
***
16.16 When the shareholders’ meeting is required, pursuant to the
Consolidated Law on Finance (“TUF”) we called this meeting
of the Remuneration Report under the first section.
Pursuant to art.123-ter, paragraphs 3 and 6 of the Italian
hereby ask you to express your consultation vote on the part
provisions of the foregoing paragraph or to the law, to appoint the
also with the purpose of submitting to your consultation vote
standing and/or alternate members needed to complete the Board of
the first section of the Remuneration Report which states the
Statutory Auditors, it shall proceed as follows: if auditors elected from
Remuneration Policy of the members of the governing bodies
the majority slate have to be replaced, the appointment shall be made
and of the Executives with strategic responsibilities to which
by relative majority vote without slate constraints, without prejudice,
Pirelli refers for defining the remuneration of Senior Managers
whatever the circumstances, to compliance with the gender balance
and Executives.
as provided by law and/or regulation in force at the time; if, however,
THREE-YEAR MONETARY INCENTIVE
PLAN (2018-2020) FOR PIRELLI’S
GROUP MANAGEMENT. RELATED
AND CONSEQUENT RESOLUTIONS
auditors elected from the minority slate have to be replaced, the
The Policy is submitted to the Pirelli Shareholders’ Meeting for
Dear Shareholders,
shareholders’ meeting shall replace them by relative majority vote,
the first time after the admission to listing of the Company
Rationale for plan adoption47 In line with national and
international best practices, the Remuneration Policy for
the year 2018 adopted by Pirelli (the “2018 Policy”)48 is based
upon Pirelli’s goal of attracting, motivating and retaining
those resources possessing the professional skills required to
successfully pursue the Group’s objectives.
The 2018 Policy and the 2018-2020 LTI Plan (which forms an
integral part of it) are defined in such a way as to align the
selecting them where possible from amongst the candidates listed on
which was granted on 04 October 2017 (“Listing”).
During the meeting held on February 26, 2018, the Board of
interests of Management with those of Shareholders, pursuing
the slate on which the auditor to be replaced appeared and in any
Directors approved the adoption of a new 2018-2020 three-
the primary objective of creating sustainable medium to long
event in accordance with the principle of necessary representation of
The Policy which is to be voted by you was prepared on
year monetary incentive plan for the Management of the
term value, through the creation of an effective and proven
minorities to which this By-Laws ensure the right to take part to the
the base of the past application experiences and takes in
Pirelli Group (“LTI Plan”). The Plan is linked to the objectives
correlation between remuneration on the one hand, and
appointment of the Board of Statutory Auditors, without prejudice,
due consideration the statutory requirements adopted by
of the 2018/2020 period included in the 2017/2020 Business
individual and Pirelli’s performances on the other.
whatever the circumstances, to compliance with the gender balance
CONSOB, and the adoption, occurred in 2018 of a new Long
Plan. The guidelines of the LTI Plan were previously approved
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as provided by law and/or regulation in force at the time. The
Term Incentive Cash Plan for 2018-2020 (“LTI Plan”) and of
by the Board of Directors in the meeting held on July 28,
The 2018 Policy was drawn up based on past experience, in
principle of necessary representation of minorities shall be considered
a Retention Plan intended to provide support for the new
2017, as announced to the Market within the framework of
order to allow for a full understanding of the link between
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complied with in the event of the appointment of Statutory Auditors
Industrial Plan, which was disclosed to the market at the time
the Initial Public Offering (“IPO”) transaction concluded with
the Management’s remuneration structure and the creation
nominated before in the minority slate or in slates different other than
of Pirelli’s Listing.
the listing of Pirelli & C. shares on the Stock Exchange. The
of value in the medium to long term horizon. The 2018 Policy
the one which obtained the highest number of votes in the context of
new LTI Plan was also approved pursuant to Art. 2389 of the
also takes into account the regulatory provisions adopted by
the appointment of the Board of Statutory Auditors.
As established under art. 123-Ter of the TUF, the Remuneration
Italian Civil Code, following proposal by the Remuneration
Consob with resolution no. 18049 of December 23, 2011.
Report which we are hereby submitting to you is organized in
Committee and with the favourable opinion expressed by
16.17 In case only one slate has been presented, the shareholders’
two separate sections:
the Board of Statutory Auditors on the subjects for whom the
The LTI Plan was adopted in support of the new 2018/2020
meeting shall vote on it; if the slate obtains the relative majority of
I.
The first section presents:
above-mentioned opinion is requested. The LTI Plan is subject
Business Plan with consequent early closure of the 2016-2018
the share capital, the candidates listed in the respective section shall
a.
The Remuneration Policy of Directors and
to the approval of the Shareholders’ Meeting pursuant
LTI Plan, with pro-rata payment of the three-year incentive
be appointed to the office of standing auditors and alternate auditors;
Executives with strategic responsibilities and to
to art. 114-bis of Legislative Decree 58/1998 (“TUF,” the
envisaged therein.
the candidate listed at the first place in the slate shall be appointed as
which Pirelli refers for defining the remuneration of
Consolidated Financial Act), as it sets out, inter alia, that part
Chairman of the Board of Statutory Auditors.
Senior Managers and Executives;
of the incentive is to be determined on the basis of the Total
16.18 When appointing auditors who, for whatsoever reason, were not
implementing the Policy thereof.
Pirelli’s performance and with respect to an index composed
b.
The procedures employed
for adopting and
Shareholder Return objectives calculated with respect to
Recipients of the plan49 The LTI Plan is addressed to
Pirelli’s Management (consisting of Executive Directors of
appointed under the procedures established herein, the shareholders’
II. The second section, which concerns namely the
by a selected panel of “peers” belonging to the Tyre sector.
Pirelli & C. and by the Group’s executives) and may also be
meeting shall vote on the basis of the majorities required by law,
members of the governing and supervisory bodies, and
extended to those who, over the three-year period, become
without prejudice, whatever the circumstances, to compliance with the
also, in aggregate form, the Executives with strategic
Below, please find the highlights of the LTI Plan. For a more
part of the Group’s Management or take on an Executive role.
gender balance as provided by law and/or regulation in force at the time.
responsibilities presents:
detailed description we invite you to refer to the Disclosure
In such cases, inclusion in the Plan is subject to the condition
a.
the items which form the remuneration, including
Document drafted pursuant to art. 84-bis, first paragraph,
of participating in the LTI Plan for at least a full year and
16.19 Outgoing members of the Board of Statutory Auditors may be
the sums due in case of termination of the office or
of Consob resolution no. 11971 of May 14, 1999 (the “Issuers
the incentive percentages are calculated on the basis of the
re-elected to office.
of the labour contract;
Regulations”), available to the public at the registered office
number of months of actual participation in the Plan.
16.20 Meetings of the Board of Statutory Auditors may, if the
affiliates at any title and in any form during year 2017,
Alberto Pirelli 25- and on Pirelli’s website (www.pirelli.com) as
In particular, the LTI Plan includes, amongst others, the
Chairman or whoever acts in his/her stead verifies the necessity, be
highlighting any component of said remuneration
well as on the authorized eMarket storage (eMarket Storage.
Executive Vice Chairman and Chief Executive Officer of
b.
the salaries paid by the Company, its subsidiaries or
of Pirelli & C. S.p.A. (“Pirelli”) - located in Milan, viale Piero and
attended by means of telecommunications systems that permit all
which may be allocated to services provided during
attendees to participate in the discussion and obtain information on
years preceeding the reference one and highlighting,
an equal basis.
furthermore, the salaries due during one or more
47 Information pursuant to art. 114-bis, par. 1, a) of the legislative decree 58/1998.
48 The 2018 Policy is made available to the public along with this Report.
49 Information pursuant to art. 114-bis, par. 1, b) and b-bis of the legislative decree 58/1998.
ANNUAL REPORT 2017ANNUAL REPORT 2017 ResolutionsResolutions Pirelli & C. Marco Tronchetti Provera, and the Managers
> a medium-long term variable component: consisting of
achievement of the minimum value of at least one of the
having strategic responsibilities50 Maurizio Boiocchi (EVP
the incentive of the LTI Plan, aimed at rewarding the
above-mentioned economic / financial objectives.
and Strategic Advisor Technology), Andrea Casaluci (EVP
Group’s performance for the 2018-2020 period, and the
For all of the three objectives (TSR, ROS and Sustainability) a
Special fund to incentivize workers’ participation
in companies52 The Plan receives no support from
the Special Fund to incentivize workers’ participation in
Business Unit Prestige & Motorsport & COO Region Europe),
aforementioned component of MBO deferral and increase
minimum value (access threshold) has been set corresponding
companies, pursuant to Art. 4, Par. 112 of Law n. 350 dated
Roberto Righi (EVP and Chief Commercial Officer), Francesco
reward mechanism.
to a payout equal to 75% of the respective portion – with
December 24, 2003.
Sala (Senior Vice President Manufacturing), Maurizio Sala
As with the MBO incentive, also the LTI incentive is established
reference to each objective - of the incentive achievable at
(EVP and Chief Planning and Controlling Officer), Luigi
as a percentage of the fixed component increasing on the
target performance.
****
Staccoli (EVP Pirelli Digital) and Francesco Tanzi (EVP and
basis of the position held and of the reference benchmarks
Chief Financial Officer). The LTI plan is also addressed to
for each role. If target objectives are reached, this percentage
In the event of failing to achieve the minimum established
The LTI Plan is to be considered “of particular relevance” as it
senior managers and to the Group’s executives (including
may vary from a minimum of 50% for Executives up to a
value (access threshold) for any objective, the beneficiary
is addressed, amongst others, to the Executive Vice Chairman
Director Giovanni Tronchetti Provera, exclusively as a Group’s
maximum of 250% for Directors holding special offices who
does not accrue any right to payment of the relevant portion
and Chief Executive Officer of Pirelli & C. and to subjects
executive) and may also be extended to those who, over the
are assigned specific duties. A limit has been set to the
of the incentive.
three-year period, for internal career growth or as newly
maximum LTI incentive that is equal to twice the incentive
having strategic responsibilities as they have regular access to
classified information and hold the power to adopt decisions
hired, take on Executive positions.
that can be attained at target.
In relation to the TSR and ROS targets, the final calculation
that may affect the Group’s evolution and future prospects.
Performance objectives and calculation of award51
Pirelli’s Management remuneration structure is composed by
three elements:
> a fixed component;
as a percentage of the gross annual fixed component /
Gross Annual Salary (GAS) received by the beneficiary on
the date at which participation of the subject to the Plan
> an annual variable component (MBO): this is a percentage
was established. The 2018-2020 LTI Plan envisages an access
Award pay-out period If objectives are met, pay-out
(“Pay-Out Date”) of the medium to long term incentive (so-
or stocks, but exclusively a cash incentive partially related
to the performance of Pirelli’s ordinary share, the Disclosure
Document, drafted in compliance with the current legislation,
does not contain the information required for mechanisms
The LTI Plan, which is monetary and does not provide for the
of the incentive for intermediate results between the access
assignment of shares or options on shares, is subject to the
threshold and the target or between the target and the
Taking into account that the LTI Plan is monetary and does
achievement of the three-year objectives and is determined
maximum, is carried out using linear interpolation.
not provide for the allocation of shares or options on shares
of the fixed component increasing in relation to the
threshold consisting in a Deleveraging (calculated as the
called LTI award) to participants of the LTI Plan will be carried
regarding the assignment of shares or options on shares.
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position held by the beneficiary and taking into account
NFP / EBITDA adjusted ratio) lower than 2 as calculated at
out in the first half of 2021, provided that for the participants,
the different roles’ reference benchmarks. If target
December 31, 2020.
as of 31 December 2020, the employment relationship has not
****
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objectives are achieved, this percentage may vary from a
ceased.
minimum of 20% for Executives (executives of the Italian
Furthermore, the following four types of objectives have
Dear Shareholders,
Pirelli Company or employees of the Group’s foreign
been established, the first three of which are independent
In the event of termination of the employment relationship,
Companies, with a position or role that is equivalent to
from each other, with relative weightings:
which may have occurred for any reason before the end of the
On the basis of the above, we ask you to:
that of an Italian executive) up to a maximum of 125%
> Return on Sales target (calculated as the ratio between
three-year period, the recipient ceases to participate in the
1.
approve - pursuant to art. 114-bis of Legislative Decree
for Directors holding special offices who are assigned
the three-year cumulative Group Adjusted EBIT and the
LTI Plan and, consequently, the LTI Bonus will not be paid, not
n. 58 dated February 24, 1998, as subsequently amended
specific duties, and is aimed to reward, depending on the
cumulative net sales for the three-year period) with a
even pro-rata. For Directors holding special offices who are
and integrated - the adoption of a 2018-2020 three-
position held, the annual performance of the Group, of the
weighting equal to 30% of the total LTI award;
assigned specific duties (as is the case for the Executive Vice
year monetary incentive plan (so-called LTI Plan) for the
Company and / or of the function to which they belong. A
> Absolute Group Total Shareholder Return
(“TSR”)
Chairman and Chief Executive Officer Mr. Marco Tronchetti
Management of the Pirelli Group in the part in which it
cap to the maximum attainable MBO award is set which
target with a weighting on the total LTI award equal
Provera) who cease to hold office because their term has
is also based on the performance of Pirelli’s share, in the
amounts to twice the incentive payable at target level.
to 40%. In the document made available at the
expired and are not subsequently appointed as directors the
terms illustrated in this Report and, as better described,
For the sake of continuity of results over time, payment
Shareholders’ Meeting, more detailed information on the
pro-rata payment of the LTI bonus will be provided for.
in the Disclosure Document relating to the LTI Plan
of 25% of the potentially accrued MBO is deferred to the
implementation of the TSR target and on the peer group
following year, its payment being subject to the accrual
composition is available;
of the MBO award in such following year (and therefore
> Relative TSR target, with a weighting of 20%, relative to a
potentially at “risk” of disbursement), in addition to a
panel of selected peers. In the document made available
Duration of the plan and changes The Plan, referred
to the financial years 2018-2020, ends on the Pay-Out Date.
(prepared pursuant to article 84-bis, 1st Paragraph, of the
Issuers’ Regulation). In fact, the LTI Plan envisages, inter
alia, that a portion of the LTI Award will be determined
on the basis of the Total Shareholder Return objective
possible “reward” mechanism of increase of the total MBO
at the Shareholders’ Meeting, more detailed information
In compliance with existing procedures in order to proceed
calculated according to Pirelli’s performance and to an
award, in accordance with the degree of achievement
on the implementation of the TSR target is available;
with a review of the LTI Plan, reference should be made to the
index composed of selected “peers” in the Tyre sector;
of the MBO objectives in the following year (for the
>
the remaining 10%
is calculated on the basis of a
Disclosure Document.
2.
confer to the Board of Directors – and, on its behalf, to
valuation of the Annual Total Direct Compensation, this
Sustainability indicator in relation to the positioning
deferral and “bonus” component is classified as a medium-
of Pirelli in the Dow Jones Sustainability Index AX Auto
long term variable component).
Components sector. This objective is subject to the
the Executive Vice Chairman and Chief Executive Officer
- all powers necessary to proceed to the full and complete
implementation of the LTI Plan.
50 It should be noted that Mr. Gustavo Bracco, Executive with strategic responsibilities, is not among the LTI Plan recipients.
51 Information pursuant to art. 114-bis, par. 1, c) of the legislative decree 58/1998.
52 Information pursuant to art. 114-bis, par. 1, d) of the legislative decree 58/1998.
ANNUAL REPORT 2017ANNUAL REPORT 2017 ResolutionsResolutions “DIRECTORS AND OFFICERS LIABILITY
INSURANCE” POLICY. RELATED
AND CONSEQUENT RESOLUTIONS
Dear Shareholders,
benchmarking activities were carried out with companies with
comparable characteristics to Pirelli.
Set out below are the main terms and conditions of the new
D&O policy, which in addition to taking into account best
market practices and Pirelli’s positioning in relation to major
The use of insurance coverage to cover the civil liability of
companies that have adopted similar cover, also takes into
members of corporate bodies and executives, is a widespread
account the characteristics and international vocation of the
international practice nowadays
in the most advanced
Group.
financial markets, so as to provide protection for members of
> Term: 12 months;
management and control bodies, enabling them to carry out
> Annual award: EUR 2-2.5 million;
their assigned tasks calmly and in the interests of the Company,
> Upper limit: EUR 250 million.
limiting risks associated with exercising their duties.
Deductibles related to associated risks and automatic
coverage mechanisms are foreseen for new subjects taking
Such policies - commonly defined as “Directors’ and Officers’
on positions within the group or for newly acquired entities.
Liability Insurance” or more simply “D&O” - actually allow
No coverage is provided for if the insured party’s conduct is
members of corporate bodies (and Group executives as
based, originates or results from a) the acquisition of profit
well as Statutory Auditors) to be indemnified from the cost
or advantage to which the Insured was not entitled b) any
of compensating for financial damages deriving from civil
criminal, dishonest or fraudulent act.
liability, as well as for legal expenses related to any liability
actions brought by third parties damaged by acts carried
***
out by members of the above-mentioned corporate bodies in
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exercising their duties, obviously with the exception of cases
For all of the above, we invite you to authorise the Board of
of intentional breach by the aforementioned subjects of the
Directors to renew the D&O insurance policy, in accordance
obligations inherent to exercising their duties and therefore
with the terms and conditions
illustrated above, and
to protect the assets of the members of corporate bodies and
therefore, to approve the following.
companies that make up the Pirelli Group.
The Company, which has adopted these practices for years,
considers it appropriate to propose to its Shareholders,
Resolution “The Ordinary Shareholders’ Meeting, having
noted the proposal of the Directors;
at the first Shareholders’ Meeting after the new listing of
RESOLVES
the Company, to renew the D&O to cover the civil liability
a.
to authorise the Board of Directors to renew the Directors
of members of corporate bodies and management against
& Officers Liability insurance policy, according to the terms
the risk that they, when exercising their duties, may
and conditions illustrated above;
unintentionally cause financial damage to third parties or
b.
to confer on the Board of Directors - up to the expiry
anyone who has an interest in the Company.
of their relevant mandate -, and for their part, on the
Following renewal in October 2017, the D&O policy currently
the necessary powers to renew the D&O policy, and in
in force provides for the following main features:
any case, to also implement the aforesaid resolution by
> Term: 12 months;
> Upper limit: EUR 250 million
means of proxies;
c.
to entrust the Board of Directors with the task of renewing
There are a limited number of exclusions in the policy.
the Directors & Officers Liability insurance policy in
Executive Vice Chairman and Chief Executive Officer, all
accordance with the standard terms and conditions of
In order to assess Pirelli’s position with respect to major
the insurance market”.
companies that have already adopted similar cover,
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ANNUAL REPORT 2017ANNUAL REPORT 2017 ResolutionsResolutions 4
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ANNUAL REPORT 2017ANNUAL REPORT 2017 CertificationsCertifications Pirelli & C SpA
Independent auditor’s report
in accordance with article 14 of Legislative Decree 39 of 27 January 2010 and article 10 of
Regulation (EU) 537/2014
Consolidated financial statements as of 31 December 2017
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Independent auditor’s report
in accordance with article 14 of Legislative Decree 39 of 27 January 2010 and article 10 of
Regulation (EU) 537/2014
To the shareholders of Pirelli & C SpA
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of Pirelli & C SpA and its subsidiaries (Pirelli
group), which comprise the statement of financial position as of 31 December 2017, the income
statement, the statement of comprehensive income, the statement of changes in equity and the
statement of cash flows for the year then ended, and the notes to the consolidated financial
statements, including a summary of significant accounting policies.
In our opinion, the consolidated financial statements give a true and fair view of the financial position
of the Pirelli group as of 31 December 2017, and of the result of its operations and cash flows for the
year then ended in accordance with International Financial Reporting Standards as adopted by the
European Union, and with the regulations issued to implement article 9 of Legislative Decree 38/05.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISA Italia).
Our responsibilities under those standards are further described in section Auditor’s Responsibilities
for the Audit of the Consolidated Financial Statements of this report. We are independent of Pirelli &
C SpA (the Company) based on ethic and independence regulations and standards applicable to
audits of financial statements under Italian law. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the consolidated financial statements of the current period. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
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ANNUAL REPORT 2017ANNUAL REPORT 2017 CertificationsCertifications Key Audit Matters
How our audit addressed the key
audit matter
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Recoverability of brands with indefinite
useful life and goodwill
Note 10 “Intangible assets”.
As of 31 December 2017 the indefinite-lived
intangible assets Pirelli brand and goodwill
amount to € 2,270 million and € 1,877 million,
respectively.
Recoverability of the carrying amount of Pirelli
brand and goodwill were tested for impairment at
the year-end, in accordance with IAS36 –
Impairment of Assets.
The recoverable amount of Pirelli Brand is
measured using its fair value, based on an income
approach. This requires the use of estimates for
revenue projections, implied royalty rates and
discount rate. The recoverable amount of
goodwill, entirely allocated to the Consumer
segment, is measured using its fair value, based
on the market price of the Company shares.
The recoverable amount of Pirelli Brand is
compared with its carrying amount. The
recoverable amount of the Consumer segment is
compared with the carrying amount of segment
assets and liabilities, including brand and
goodwill.
•
•
•
•
We have performed an understanding and
evaluation of the internal controls in place
over the impairment testing of brand and
goodwill.
We have performed, with the support of PwC
experts, the following audit procedures:
•
assessment over the adequacy of the
impairment testing process in
accordance with the requirement of
the accounting standard;
assessment of the allocation of
goodwill to the group of cash
generating units – CGU;
assessment of the key assumptions
used when determining the fair value,
with focus to revenue projections ,
implied royalty rates and discount
rate, including benchmarking e
sensitivity analysis;
testing of the accuracy of the amounts
of assets and liabilities directly
attributable to the Consumer
segment;
testing the mathematical accuracy of
the calculation model used.
Considering the magnitude of the carrying
amounts and the subjective judgment in some of
the assumptions used for the calculation of the
fair values, recoverability of the carrying amounts
of Pirelli brand and goodwill represented a key
matter in the audit of the consolidated financial
statements.
We have assessed variances between
projections used in previous years and actual
results to evaluate the reliability and
coherence with the market trend.
We have assessed the accuracy and
completeness of the disclosure presented in
the notes to the consolidated financial
statements.
Key Audit Matters
Revenue recognition
Note 3 “ Adopted Accounting Standards”
Considering the magnitude and the high volume
of sales transactions carried out through a global
distribution network, different sales channels and
logistic platforms, the revenue recognition
represented a key matter in the audit of the
consolidated accounts.
Measurement of pension plans
Note 22 “Employee benefit obligations”.
As of 31 December 2017 the net pension obligation
amounts to € 183 million, representing the net
balance of a gross pension obligation of
€ 1,397 million and the plan assets of € 1,214
million.
The measurement of the net pension obligation at
the balance sheet date has been performed in
accordance with IAS19 - Employee Benefits, with
the assistance of external actuaries.
The measurement of the pension obligation
requires the use of estimates based on actuarial
assumptions.
Considering the magnitude of the amounts and
the subjective judgment in the actuarial
assumptions used, the measurement of the
pension obligation represented a key matter in the
audit of the consolidated financial statements.
How our audit addressed the key
audit matter
We have carried out our procedures to
verifying existence, completeness, accuracy
and proper period of sales transactions.
For the main revenue streams we have
performed an understanding and an
evaluation of the internal controls over the
revenue recognition, and a validation of
relevant controls.
We have tested samples of sales
transactions obtaining appropriate
supporting evidence, with specific attention
to key contractual terms.
We have tested samples of sales returns
transactions, credit notes and year-end
accruals.
We have tested with the support of PwC
actuarial experts the actuarial valuations
carried out by the external experts engaged
by the group, with specific reference to the
reasonableness of the main actuarial
assumptions used.
We have tested the accuracy and
completeness of the census data of the plan
participants for the calculation of the
pension obligation.
We have tested the fair value of the plan
assets, also considering third party
confirmations.
We have assessed the accuracy and
completeness of the disclosure presented in
the notes to the consolidated financial
statements.
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Other matters
The consolidated financial statements of Pirelli group for the year ended 31 December 2016 were
audited by another auditor which, on 4 April 2017, issued an unqualified audit report. As explained in
the notes, in accordance with IFRS5 – Non Current Assets Held for Sale and Discontinued
Operations, comparative information has been restated as a result of the distribution of the Industrial
business to the Company shareholder Marco Polo International Holding Italy SpA. The distribution
was executed through the assignment of all the shares of TP Industrial Holding SpA, the group
subsidiary owning the Industrial business.
Responsibilities of Management and Those Charged with Governance for the
Consolidated Financial Statements
Management is responsible for the preparation of consolidated financial statements that give a true
and fair view in accordance with International Financial Reporting Standards as adopted by the
European Union, and with the regulations issued to implement article 9 of Legislative Decree 38/05
and, in the terms prescribed by law, for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Management is responsible for assessing the group ability to continue as a going concern and, in
preparing the consolidated financial statements, for the appropriate application of the going concern
basis of accounting, and for disclosing matters related to going concern. In preparing the
consolidated financial statements, management uses the going concern basis of accounting unless
management intends either to liquidate Pirelli & C SpA or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing, in the terms prescribed by law, the
group financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance
but is not a guarantee that an audit conducted in accordance with International Standards on
Auditing (ISA Italia) will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of the
consolidated financial statements.
As part of an audit conducted in accordance with International Standards on Auditing (ISA Italia),
we exercise professional judgment and maintain professional scepticism throughout the audit.
Furthermore:
•
•
•
•
•
•
we identify and assess the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error; we design and perform audit procedures
responsive to those risks; we obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control;
we obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the group internal control;
we evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management;
we conclude on the appropriateness of management use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the group ability to continue
as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the consolidated financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the group to cease to continue as a going concern;
we evaluate the overall presentation, structure and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair presentation;
we obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the group to express an opinion on the consolidated
financial statements. We are responsible for the direction, supervision and performance of
the group audit. We remain solely responsible for our audit opinion on the consolidated
financial statements.
We communicate with those charged with governance, identified at an appropriate level as required by
ISA Italia regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our
audit.
We also provide those charged with governance with a statement that we complied with the
regulations and standards on ethics and independence applicable under Italian law and communicate
with them all relationships and other matters that may reasonably be thought to bear on our
independence and, where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters
that are of most significance in the audit of the consolidated financial statements of the current
period and are therefore the key audit matters. We describe these matters in our report.
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Additional Disclosures required by Article 10 of Regulation (EU) 537/2014
We were appointed by the shareholders of Pirelli & C SpA at the general meeting held on 1 August
2017 to perform the audit of the Company consolidated and separate financial statements for the years
ending 31 December 2017 through 31 December 2025.
We declare that we did not provide any prohibited non-audit services referred to in article 5,
paragraph 1, of Regulation (EU) 537/2014 and that we remained independent of the Company in
conducting the audit.
We confirm that the opinion on the consolidated financial statements expressed in this report is
consistent with the additional report to those charged with governance, in their capacity as audit
committee, prepared pursuant to article 11 of the aforementioned Regulation.
Report on Compliance with other Laws and Regulations
Opinion in accordance with Article 14, paragraph 2, letter e), of Legislative
Decree 39/10 and Article 123-bis, paragraph 4, of Legislative Decree 58/98
Management of Pirelli & C SpA is responsible for preparing a report on operations and a report on the
corporate governance and ownership structure of the Pirelli group as of 31 December 2017, including
their consistency with the relevant consolidated financial statements and their compliance with the
law.
We have performed the procedures required under auditing standard (SA Italia) 720B to express an
opinion on the consistency of the report on operations and of the specific information included in the
report on corporate governance and ownership structure referred to in article 123-bis, paragraph 4, of
Legislative Decree 58/98, with the consolidated financial statements of the Pirelli group as of 31
December 2017 and on their compliance with the law, as well as to issue a statement on material
misstatements, if any.
In our opinion, the report on operations and the specific information included in the report on
corporate governance and ownership structure mentioned above are consistent with the consolidated
financial statements of the Pirelli group as of 31 December 2017 and are prepared in compliance with
the law.
With reference to the statement referred to in article 14, paragraph 2, letter e), of Legislative Decree
39/10, issued on the basis of our knowledge and understanding of the group obtained in the course of
the audit, we have nothing to report.
Statement in accordance with article 4 of Consob Regulation implementing Legislative
Decree 254 of 30 December 2016
Management of Pirelli & C SpA is responsible for the preparation of the non-financial disclosure
pursuant to Legislative Decree 254 of 30 December 2016. We have verified that the non-financial
disclosure was approved by the board of directors.
Pursuant to article 3, paragraph 10, of Legislative Decree 254 of 30 December 2016, the non-financial
disclosure is subject to separate audit reporting by our firm.
Milan, 8 March 2018
PricewaterhouseCoopers SpA
Signed by
Paolo Caccini
(Partner)
This report has been translated into English from the Italian original solely for the convenience of
international readers
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ANNUAL REPORT 2017ANNUAL REPORT 2017 CertificationsCertifications Pirelli & C SpA
Independent auditor’s report
in accordance with article 14 of Legislative Decree 39 of 27 January 2010 and article 10 of
Regulation (EU) 537/2014
Separate financial statements as of 31 December 2017
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Independent auditor’s report
in accordance with article 14 of Legislative Decree 39 of 27 January 2010 and article 10 of
Regulation (EU) 537/2014
To the shareholders of Pirelli & C SpA
Report on the Audit of the Separate Financial Statements
Opinion
We have audited the separate financial statements of Pirelli & C SpA (the “Company”), which
comprise the statement of financial position as of 31 December 2017, the income statement, the
statement of comprehensive income, the statement of changes in equity and the statement of cash flows
for the year then ended, and the notes to the separate financial statements, including a summary of
significant accounting policies.
In our opinion, the separate financial statements give a true and fair view of the financial position of
the Company as of 31 December 2017, and of the result of its operations and cash flows for the year
then ended in accordance with International Financial Reporting Standards as adopted by the
European Union, and with the regulations issued to implement article 9 of Legislative Decree 38/05.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISA Italia).
Our responsibilities under those standards are further described in section Auditor’s Responsibilities
for the Audit of the Separate Financial Statements of this report. We are independent of the Company
based on ethic and independence regulations and standards applicable to audits of financial
statements under Italian law. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the separate financial statements of the current period. These matters were addressed in
the context of our audit of the separate financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
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How our audit addressed the key
audit matter
Recoverability of brands with indefinite
useful life
Note 9 “Intangible assets”.
As of 31 December 2017 the indefinite-lived
intangible asset Pirelli brand amounts to € 2,270
million.
Recoverability of the carrying amount of Pirelli
brand was tested for impairment at the year-end,
in accordance with IAS36 – Impairment of
Assets.
The recoverable amount of Pirelli Brand is
measured using its fair value, based on an income
approach. This requires the use of estimates for
revenue projections, implied royalty rates and
discount rate.
The recoverable amount of Pirelli Brand is
compared with its carrying amount.
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We have performed an understanding and
evaluation of the internal controls in place
over the impairment testing of the brand.
We have performed, with the support of PwC
experts, the following audit procedures:
•
assessment over the adequacy of the
impairment testing process in
accordance with the requirement of
the accounting standard;
assessment of the key assumptions
used when determining the fair value,
with focus to revenue projections ,
implied royalty rates and discount
rate, including benchmarking e
sensitivity analysis;
testing the mathematical accuracy of
the calculation model used.
•
•
Considering the magnitude of the carrying
amount and the subjective judgment in some of
the assumptions used for the calculation of the
fair value, recoverability of the carrying amount of
Pirelli brand represented a key matter in the audit
of the separate financial statements.
We have assessed variances between
projections used in previous years and actual
results to evaluate the reliability and
coherence with the market trend.
We have assessed the accuracy and
completeness of the disclosure presented in
the notes to the separate financial statements.
Other matters
The separate financial statements of Pirelli & C SpA for the year ended 31 December 2016 were
audited by another auditor which, on 4 April 2017, issued an unqualified audit report.
Responsibilities of Management and Those Charged with Governance for the Separate
Financial Statements
Management is responsible for the preparation of separate financial statements that give a true and
fair view in accordance with International Financial Reporting Standards as adopted by the European
Union, and with the regulations issued to implement article 9 of Legislative Decree 38/05 and, in the
•
•
•
terms prescribed by law, for such internal control as management determines is necessary to enable
the preparation of separate financial statements that are free from material misstatement, whether
due to fraud or error.
Management is responsible for assessing the Company ability to continue as a going concern and, in
preparing the separate financial statements, for the appropriate application of the going concern
basis of accounting, and for disclosing matters related to going concern. In preparing the separate
financial statements, management uses the going concern basis of accounting unless management
intends either to liquidate the Company or to cease operations, or has no realistic alternative but to
do so.
Those charged with governance are responsible for overseeing, in the terms prescribed by law, the
Company financial reporting process.
Auditor’s Responsibilities for the Audit of the Separate Financial Statements
Our objectives are to obtain reasonable assurance about whether the separate financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’
report that includes our opinion. Reasonable assurance is a high level of assurance but is not a
guarantee that an audit conducted in accordance with International Standards on Auditing (ISA
Italia) will always detect a material misstatement when it exists. Misstatements can arise from fraud
or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of the separate financial
statements.
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As part of an audit conducted in accordance with International Standards on Auditing (ISA Italia),
we exercise professional judgment and maintain professional scepticism throughout the audit.
Furthermore:
•
we identify and assess the risks of material misstatement of the separate financial statements,
whether due to fraud or error; we design and perform audit procedures responsive to those
risks; we obtain audit evidence that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control;
we obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Company internal control;
we evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management;
we conclude on the appropriateness of management use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Company ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor’s report to the related disclosures in the separate financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
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•
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Company to cease to continue as a going concern;
we evaluate the overall presentation, structure and content of the separate financial
statements, including the disclosures, and whether the separate financial statements represent
the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance, identified at an appropriate level as required by
ISA Italia regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our
audit.
We also provide those charged with governance with a statement that we complied with the
regulations and standards on ethics and independence applicable under Italian law and communicate
with them all relationships and other matters that may reasonably be thought to bear on our
independence and, where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters
that are of most significance in the audit of the separate financial statements of the current period
and are therefore the key audit matters. We describe these matters in our report.
Additional Disclosures required by Article 10 of Regulation (EU) 537/2014
We were appointed by the shareholders of Pirelli & C SpA at the general meeting held on 1 August
2017 to perform the audit of the Company consolidated and separate financial statements for the years
ending 31 December 2017 through 31 December 2025.
We declare that we did not provide any prohibited non-audit services referred to in article 5,
paragraph 1, of Regulation (EU) 537/2014 and that we remained independent of the Company in
conducting the audit.
We confirm that the opinion on the separate financial statements expressed in this report is consistent
with the additional report to those charged with governance, in their capacity as audit committee,
prepared pursuant to article 11 of the aforementioned Regulation.
Report on Compliance with other Laws and Regulations
Opinion in accordance with Article 14, paragraph 2, letter e), of Legislative
Decree 39/10 and Article 123-bis, paragraph 4, of Legislative Decree 58/98
Management of Pirelli & C SpA is responsible for preparing a report on operations and a report on the
corporate governance and ownership structure of Pirelli & C SpA as of 31 December 2017, including
their consistency with the relevant separate financial statements and their compliance with the law.
We have performed the procedures required under auditing standard (SA Italia) 720B to express an
opinion on the consistency of the report on operations and of the specific information included in the
report on corporate governance and ownership structure referred to in article 123-bis, paragraph 4, of
Legislative Decree 58/98, with the separate financial statements of the Company as of 31 December
2017 and on their compliance with the law, as well as to issue a statement on material misstatements,
if any.
In our opinion, the report on operations and the specific information included in the report on
corporate governance and ownership structure mentioned above are consistent with the separate
financial statements of the Company as of 31 December 2017 and are prepared in compliance with the
law.
With reference to the statement referred to in article 14, paragraph 2, letter e), of Legislative Decree
39/10, issued on the basis of our knowledge and understanding of the Company obtained in the course
of the audit, we have nothing to report.
Milan, 8 March 2018
PricewaterhouseCoopers SpA
Signed by
Paolo Caccini
(Partner)
This report has been translated into English from the Italian original solely for the convenience of
international readers
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GRI CONTENT INDEX
GRI Standard
Disclosure
101: Foundation 2016
102-1 Name of the organization
102-2 Activities, brands, products, and services
102-3 Location of headquarters
102-4 Location of operations
Page Number,
URL
42, 202
42-45
202
42, 50-51
102-5 Ownership and legal form
202, 205, 231
102-6 Markets served
42, 46-47, 50-51
102-7 Scale of the organization
42, 65-66, 142
102-8 Information on employees and other workers
155-157, 160
102-9 Supply chain
102-10 Significant changes to the
organization and its supply chain
128-130
42, 61-63, 102,
128-130, 155-158
102-11 Precautionary Principle or approach
79-84
102-12 External initiatives
102-103, 180-183
102-13 Membership of associations
102-14 Statement from senior decision-maker
180-183
6-9
102-15 Key impacts, risks, and opportunities
79-84, 103-107
GRI 102:
General
102-16 Values, principles, standards,
Disclosure 2016
and norms of behavior
108, 120-
121, 132, 159,
168, 173, 212,
corporate website
(www.pirelli.
com) sezione
sostenibilità
/principali
politiche di
sostenibilità
102-17 Mechanisms for advice and concerns about ethics
109-111, 168
102-18 Governance structure
88-89, 204, 209-
214, 216-220
102-19 Delegating authority
103, 219-220, 222
102-20 Executive-level responsibility for
economic, environmental, and social topics
102-21 Consulting stakeholders on economic,
environmental, and social topics
102-22 Composition of the highest
governance body and its committees
103
103, 105, 123
211, 216-220,
232-235
102-23 Chair of the highest governance body
211
102-24 Nominating and selecting the
highest governance body
204, 209-210
102-25 Conflicts of interest
224
102-26 Role of highest governance body in
setting purpose, values, and strategy
103, 219- 220
102-27 Collective knowledge of highest governance body
212
Omission
Material Topic
GRI Standard
Disclosure
Page Number,
URL
Omission
Material Topic
Disclosure and
Transparency
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Stakeholder
Dialogue
Stakeholder
Dialogue
Stakeholder
Dialogue
Stakeholder
Dialogue
Stakeholder
Dialogue
1
0
5
102-28 Evaluating the highest
governance body’s performance
102-29 Identifying and managing economic,
environmental, and social impacts
213
219-220
102-30 Effectiveness of risk management processes
79-84, 219-220
102-31 Review of economic, environmental,
and social topics
102-32 Highest governance body’s role
in sustainability reporting
102-33 Communicating critical concerns
216, 219-220
219-220
219-220
102-34 Nature and total number of critical concerns
Confidentiality
Constraints
102-35 Remuneration policies
255-258
102-36 Process for determining remuneration
102-37 Stakeholders’ involvement in remuneration
102-38 Annual total compensation ratio
102-39 Percentage increase in annual
total compensation ratio
102-40 List of stakeholder groups
GRI 102:
General
Disclosure 2016
102-41 Collective bargaining agreements
102-42 Identifying and selecting stakeholders
102-43 Approach to stakeholder engagement
256
256
105
171
105
105
Confidentiality
Constraints
Confidentiality
Constraints
102-44 Key topics and concerns raised
105-107
102-45 Entities included in the
consolidated financial statements
102, 379-384
102-46 Defining report content and topic Boundaries
102, 500-506
102-47 List of material topics
102-48 Restatements of information
106-107
102
102-49 Changes in reporting
106-107, 500-506
102-50 Reporting period
102-51 Date of most recent report
102-52 Reporting cycle
102-53 Contact point for questions regarding the report
102-54 Claims of reporting in accordance
with the GRI Standards
102-55 GRI content index
102-56 External assurance
102
102
102
102
102
500-506
511-515
ANNUAL REPORT 2017ANNUAL REPORT 2017 CertificationsCertifications GRI Standard
Disclosure
GRI 103: Management Approach 2016
201-1 Direct economic value generated and distributed
GRI 201:
Economic
Performance 2016
201-2 Financial implications and other risks
and opportunities due to climate change
201-3 Defined benefit plan obligations
and other retirement plans
201-4 Financial assistance received from government
GRI 103: Management Approach 2016
202-1 Ratios of standard entry level wage by
gender compared to local minimum wage
202-2 Proportion of senior management
hired from the local community
GRI 202:
Market
GRI 203:
GRI 103: Management Approach 2016
112-113, 183
Indirect Economic
203-1 Infrastructure investments and services supported
112-113, 183-188
Page Number,
URL
81, 112-113,
172-173
112
81
113
159-161
161
159
Omission
Material Topic
GRI Standard
Disclosure
GRI 103: Management Approach 2016
Page Number,
URL
132-135, 143
Omission
Material Topic
Financial Health
Financial Health
302-1 Energy consumption within the organization
144
302-2 Energy consumption outside of the organization
132-135
172-173, 339, 358
Financial Health
GRI 302:
Energy 2016
302-3 Energy intensity
Financial Health
302-4 Reduction of energy consumption
302-5 Reductions in energy requirements
of products and services
143-144
143-144
137-139
GRI 103: Management Approach 2016
132-135, 147
303-1 Water withdrawal by source
147-148
GRI 303:
Water 2016
303-2 Water sources significantly
affected by withdrawal of water
303-3 Water recycled and reused
148
148
GRI 103: Management Approach 2016
150-151
304-1 Operational sites owned, leased, managed in,
or adjacent to, protected areas and areas of high
150
biodiversity value outside protected areas
GRI 304:
Biodiversity 2016
304-2 Significant impacts of activities,
products, and services on biodiversity
304-3 Habitats protected or restored
304-4 IUCN Red List species and national conservation list
species with habitats in areas affected by operations
150-151
150-151
150
GRI 103: Management Approach 2016
132-135, 145
GRI 305:
Emissions 2016
305-1 Direct (Scope 1) GHG emissions
305-2 Energy indirect (Scope 2) GHG emissions
305-3 Other indirect (Scope 3) GHG emissions
305-4 GHG emissions intensity
305-5 Reduction of GHG emissions
305-6 Emissions of ozone-depleting substances (ODS)
305-7 Nitrogen oxides (NOx), sulfur oxides
(SOx), and other significant air emissions
GRI 103: Management Approach 2016
306-1 Water discharge by quality and destination
GRI 306:
Effluents and
Waste 2016
GRI 307:
Environmental
Compliance 2016
306-2 Waste by type and disposal method
306-3 Significant spills
306-4 Transport of hazardous waste
306-5 Water bodies affected by water
discharges and/or runoff
GRI 103: Management Approach 2016
307-1 Non-compliance with environmental
laws and regulations
145-146
145-147
127-128, 134-
135, 145
145-147
145-147
152
150-152
149-150
148
149
152
149
148
152
152
3
0
5
Responsible Use of
Natural Resources
Responsible Use of
Natural Resources
Responsible Use of
Natural Resources
Responsible Use of
Natural Resources
Responsible Use of
Natural Resources
Responsible Use of
Natural Resources
Responsible Use of
Natural Resources
Responsible Use of
Natural Resources
Business Integrity
impact 2016
GRI 204:
Procurement
practices 2016
GRI 205:
Anti-corruption
2016
5
0
2
203-2 Significant indirect economic impacts
112-113, 183-188
GRI 103: Management Approach 2016
204-1 Proportion of spending on local suppliers
GRI 103: Management Approach 2016
128-130
128
108-109
205-1 Operations assessed for risks related to corruption
108-109
Business Integrity
205-2 Communication and training about anti-
corruption policies and procedures
108-109, 122, 212
205-3 Confirmed incidents of corruption and actions taken
GRI 206:
Anti-competitive
Behavior 2016
GRI 103: Management Approach 2016
206-1 Legal actions for anti-competitive
behavior, anti-trust, and monopoly practices
109
109
109
GRI 103: Management Approach 2016
129-130, 152
301-1 Materials used by weight or volume
129-130
GRI 301:
Materials 2016
301-2 Recycled input materials used
301-3 Reclaimed products and their packaging materials
130
152
Information
Unavailable: % of
employees trained
on anti-corruption
currently not
disclosed by
category and
region
Business Integrity
Business Integrity
Business Integrity
Circular
Economy/ELT
Circular
Economy/ELT
Circular
Economy/ELT
ANNUAL REPORT 2017ANNUAL REPORT 2017 CertificationsCertifications Omission
Material Topic
GRI Standard
Disclosure
GRI Standard
Disclosure
Page Number,
URL
GRI 103: Management Approach 2016
120-122
GRI 308:
Supplier
Environmental
Assessment 2016
308-1 New suppliers that were screened
using environmental criteria
308-2 Negative environmental impacts in
the supply chain and actions taken
120-121, 125-127
126-127
GRI 103: Management Approach 2016
157, 160, 173
401-1 New employee hires and employee turnover
157-158
GRI 401:
Employment 2016
401-2 Benefits provided to full-time employees that
are not provided to temporary or part-time employees
401-3 Parental leave
GRI 402:
Labor/Management
GRI 103: Management Approach 2016
Relations 2016
402-1 Minimum notice periods regarding operational changes
GRI 103: Management Approach 2016
403-1 Workers representation in formal joint
management–worker health and safety committees
173
160
171
171
173-174
173-174
Information
Unavailable:
return to work
rate currently
not available
5
0
4
GRI 403:
Occupational
Health and
Safety 2016
403-2 Types of injury and rates of injury,
occupational diseases, lost days, and absenteeism,
175-177
and number of work-related fatalities
Confidentiality
Constraints:
absentee rate not
disclosed publicly
403-3 Workers with high incidence or high risk
of diseases related to their occupation
403-4 Health and safety topics covered in
formal agreements with trade unions
GRI 103: Management Approach 2016
177
173-174
165-168
404-1 Average hours of training per year per employee
168
GRI 404:
Training and
Education 2016
404-2 Programs for upgrading employee skills
and transition assistance programs
404-3 Percentage of employees receiving regular
performance and career development reviews
GRI 103: Management Approach 2016
405-1 Diversity of governance bodies and employees
405-2 Ratio of basic salary and
remuneration of women to men
GRI 103: Management Approach 2016
GRI 405:
Diversity
and Equal
Opportunities
2016
GRI 406:
Non-
discrimination
406-1 Incidents of discrimination
2016
and corrective actions taken
166-168
165
160
155-156, 204,
211-212
160-161
109-110
110-111
Sustainable
Procurement
Sustainable
Procurement
Employment
Governance and
Responsibility
Employment
Governance and
Responsibility
Employment
Governance and
Responsibility
Employment
Governance and
Responsibility
Employment
Governance and
Responsibility
Employment
Governance and
Responsibility
Employment
Governance and
Responsibility
Employment
Governance and
Responsibility
Employment
Governance and
Responsibility
Employment
Governance and
Responsibility
Page Number,
URL
120-122, 172
125-127, 172
120-122, 172
125-127, 172
120-122, 172
125-127, 172
Omission
Material Topic
Employment
Governance and
Responsibility
Sustainable
Procurement
Sustainable
Procurement
GRI 407:
Freedom of
Association
and Collective
Bargaining 2016
GRI 408:
GRI 103: Management Approach 2016
407-1 Operations and suppliers in which
the right to freedom of association and
collective bargaining may be at risk
GRI 103: Management Approach 2016
Child Labor 2016
408-1 Operations and suppliers at significant
risk for incidents of child labor
GRI 103: Management Approach 2016
409-1 Operations and suppliers at significant risk
for incidents of forced or compulsory labor
GRI 409:
Forced or
Compulsory
Labor 2016
GRI 410:
Security
Practices 2016
GRI 103: Management Approach 2016
-
410-1 Security personnel trained in human
rights policies or procedures
GRI 411:
Rights of
indigenous
Peoples 2016
GRI 103: Management Approach 2016
411-1 Incidents of violations involving
rights of indigenous peoples
GRI 103: Management Approach 2016
412-1 Operations that have been subject to
human rights reviews or impact assessments
GRI 412:
Human Rights
412-2 Employee training on human
Assessment 2016
rights policies or procedures
412-3 Significant investment agreements and
contracts that include human rights clauses
or that underwent human rights screening
GRI 103: Management Approach 2016
413-1 Operations with local community engagement,
impact assessments, and development programs
GRI 413:
Local Comunities
2016
153-154
110
153-154
120-122, 172
153
120-122
153
105, 153
413-2 Operations with significant actual and
potential negative impacts on local communities
153
GRI 103: Management Approach 2016
120-122
GRI 414:
Supplier Social
Assessment 2016
GRI 415:
Public Policy
2016
GRI 416:
Customer Health
and Safety 2016
414-1 New suppliers that were screened
using social criteria
414-2 Negative social impacts in the
supply chain and actions taken
GRI 103: Management Approach 2016
415-1 Political contributions
GRI 103: Management Approach 2016
416-1 Assessment of the health and safety
impacts of product and service categories
416-2 Incidents of non-compliance concerning the
health and safety impacts of products and services
120-121, 125-127
126-127
113
113
119
119
116
5
0
5
Information
Unavailable: % of
security personnel
trained on human
rights currently
not available
Information
Unavailable:
number of hours
of training on
human rights and
% of employees
trained currently
not available
Information
Unavailable:
information
currently not
available
Information
Unavailable:
information
currently not
available
Sustainable
Procurement
Sustainable
Procurement
Product
Performance &
Safety Innovation
Product
Performance &
Safety Innovation
ANNUAL REPORT 2017ANNUAL REPORT 2017 CertificationsCertifications GRI Standard
Disclosure
Page Number,
URL
Omission
Material Topic
Areas of the
Global Compact
Global Compact Principles
Directly Relevant
GRI Indicators
Indirectly Relevant
GRI Indicators
GRI 103: Management Approach 2016
137-138
GRI 417:
Marketing and
Labelling 2016
417-1 Requirements for product and
service information and labeling
417-2 Incidents of non-compliance concerning
product and service information and labeling
417-3 Incidents of non-compliance
concerning marketing communications
119-120, 140
116
116
GRI 418:
Customer
Privacy 2016
GRI 419:
Socioeconomic
Compliance 2016
GRI 103: Management Approach 2016
108-109
418-1 Substantiated complaints concerning breaches
of customer privacy and losses of customer data
GRI 103: Management Approach 2016
419-1 Non-compliance with laws and regulations
in the social and economic area
116
116
116
Disclosure 402: Labour/
Management Relations
Disclosure 403: Occupational
Health and Safety
Principle 3 – Businesses should
uphold the freedom of association
Disclosure 407: Freedom
of Association and
of workers and recognise the
Collective Bargaining
right to collective bargaining.
Disclosure 410: Security Practices
Disclosure 102-11: Precautionary
Principle or Approach
Disclosure 102-41: Collective
Bargaining Agreements
Labour Standards
Principle 4 – Business should uphold
the elimination of all forms of
Disclosure 409: Forced
or Compulsory Labor
forced and compulsory labour.
Disclosure 410: Security Practices
Disclosure 412: Human
Rights Assessment
Business Integrity
Principle 5 – Business should uphold
the effective elimination of child
labour.
Disclosure 408: Child Labor
Disclosure 412: Human
Disclosure 410: Security Practices
Rights Assessment
OTHER MATERIAL TOPICS IDENTIFIED (not covered by the GRI Standards)
Material Topic
Future Mobility
Product Eco-Innovation
Raw Materials Eco and Safety Innovation
5
0
6
Road Safety
Service to Customers
UNGC PRINCIPLES SUMMARY TABLE
Page Number
115-116, 181-182
137-141
119, 137
183-184
116-118
Principle 1 - Business should
promote and respect internationally
proclaimed human rights in their
respective spheres of influence.
Human Rights
Disclosure 407: Freedom
of Association and
Collective Bargaining
Disclosure 408: Child Labor
Disclosure 409: Forced
or Compulsory Labor
Disclosure 410: Security Practices
Disclosure 411: Rights of
Disclosure 413: Local Communities
Indigenous Peoples
Disclosure 412: Human
Rights Assessment
Disclosure 414: Supplier
Social Assessment
Disclosure 103-2:
Grievance Mechanism
Principle 2 - Business should
ensure that they are not,
albeit indirectly, complicit
in human rights abuses.
Disclosure 410: Security Practices
Disclosure 412: Human
Rights Assessment
Disclosure 414: Supplier
Social Assessment
Principle 6 – Business should
uphold the elimination of
discrimination in respect of
employment and occupation.
Disclosure 401: Employment
Disclosure 404: Training
and Education
Disclosure 405: Diversity
and Equal Opportunity
Disclosure 406: Non-Discrimination
Disclosure 410: Security Practices
Disclosure 102-8: Information on
Employees and other Workers
Disclosure 202: Market Presence
Disclosure 401: Employment
Disclosure 412: Human
Rights Assessment
Disclosure 414: Supplier
Social Assessment
Disclosure 102-41: Collective
Bargaining Agreements
Principle 7 – Businesses should
support a precautionary approach
Disclosure 102-11: Precautionary
Principle or Approach
to environmental challenges.
Disclosure 201: Economic Performance
Disclosure 301: Materials
Disclosure 302: Energy
Disclosure 303: Water
Disclosure 304: Biodiversity
Disclosure 305: Emissions
Disclosure 306: Effluents and Waste
Disclosure 307: Environmental
Compliance
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Disclosure 301: Materials
Disclosure 302: Energy
Disclosure 303: Water
Disclosure 304: Biodiversity
Disclosure 305: Emissions
Disclosure 306: Effluents and Waste
Disclosure 201: Economic Performance
greater environmental
Disclosure 307: Environmental
responsibility.
Compliance
Disclosure 308: Supplier
Environmental Assessment
Disclosure 103-2:
Grievance Mechanism
Principle 9 – Businesses should
encourage the development and
diffusion of environmentally
Disclosure 301: Materials
Disclosure 302: Energy
Disclosure 303: Water
friendly technologies.
Disclosure 305: Emissions
Anti-Corruption
Principle 10 – Businesses
should work against corruption
Compliance
Compliance
Disclosure 102-16: Values,
Disclosure 102-16: Values,
in all its forms, including
Principles, Standards,
extortion and bribery.
and Norms of Behavior
Principles, Standards,
and Norms of Behavior
Disclosure 205: Anti-Corruption
Disclosure 205: Anti-Corruption
Disclosure 419: Socioeconomic
Disclosure 419: Socioeconomic
Disclosure 102-17: Mechanism for
Disclosure 102-17: Mechanism for
Advice and Concerned about Ethics
Advice and Concerned about Ethics
Areas of the
Global Compact
Global Compact Principles
Directly Relevant
GRI Indicators
Indirectly Relevant
GRI Indicators
Environment
Principle 8 – Business should
undertake initiatives to promote
ANNUAL REPORT 2017ANNUAL REPORT 2017 CertificationsCertifications
SDGS SUMMARY TABLE
Sustainable Development Goals (SDGs)
Paragraphs describing the Group’s activities
in support of the SDGs and relevant targets
Sustainable Development Goals (SDGs)
Paragraphs describing the Group’s activities
in support of the SDGs and relevant targets
13 - Climate Action
14 - Life below Water
15 - Life on Land
CDP Supply Chain (pp.127-128)
Management of Greenhouse Gas Emissions and
Carbon Action Plan (pp.145-147)
Main International Commitments for Sustainability (International
Commitments against Climate Change pp.182-183)
Targets:
> Specific Energy Consumption: -19% by 2020 compared to 2009
> Specific CO2 Emissions: -17% in 2020 compared to 2009
> Green Performance Revenues: >50% of total revenues and >65%
on High Value Product Revenues by 2020 compared to 2009
> Improvement of product performances in 2020:
>>
Car products: -20% average rolling resistance, +15% performance
on wet surfaces, -15% noise (vs 2009)
>>
Moto products: -10% average rolling resistance, +40% performance
on wet surfaces, +30% for mileage (vs 2009)
>>
Velo: +5% braking performance, +10% wet surfaces (vs 2017)
Water Management (pp.147-148)
Sustainability of the Natural Rubber Supply Chain (pp.122-124)
Company Initiatives for the External Community (Training pp.185-186)
16 - Peace, Justice and Strong Institutions
Programs of Compliance 231, Anti-corruption,
Privacy and Antitrust (pp.108-109)
17 - Partnerships for the Goals
Sustainability of the Natural Rubber Supply Chain (pp.122-124)
Main International Commitments for Sustainability (pp.181-182)
Company Initiatives for the External Community (pp.183-185)
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0
5
1 - No Poverty
2 - Zero Hunger
3 - Good Health and Well-being
4 - Quality Education
Company Initiatives for the External Community (Solidarity pp.186-187)
Company Initiatives for the External Community (Solidarity pp.186-187)
Welfare and Initiatives for the Internal Community (pp.169-171)
Occupational Health, Safety and Hygiene (pp.173-178)
Company Initiatives for the External Community (Road Safety pp.183-
184, Sport and Social Responsibility pp.186, Health p.187)
Target:
> Accident Frequency Index: -87% by 2020 compared to 2009
Training (pp.166-169)
Company Initiatives for the External Community (Training
pp.185-188, Culture and Social Value pp.188)
Target:
> Training: investment in employee training
of at least an average of 7 man days
5 - Gender Equality
Diversity Management (pp.159-163)
6 - Clean Water and Sanitation
7 - Affordable and Clean Energy
5
0
8
8 - Decent Work and Economic Growth
Water Management (pp. 147-148)
Target:
> Specific withdrawal of water -66% by 2020 compared to 2009
Energy Management (pp.143-144)
Management of Greenhouse Gas Emissions and
Carbon Action Plan (pp.145-147)
Targets:
> Specific Energy Consumption: -19% by 2020 compared to 2009
Our Suppliers (pp.120-130)
Internal Community (pp. 155-178)
Company Initiatives for the External Community (Training pp.185-186)
Target:
9 - Industry, Innovation and Infrastructure
> For specific product segments it is foreseen, by 2025 and compared
with 2017, the doubling of the weight of renewable materials used
and the reduction by 30% of raw materials derived from fossils
10 - Reduced Inequalities
Diversity Management (pp.159-163)
11 - Sustainable Cities and Communities
Main International Commitments for Sustainability (pp.181-182)
Company Initiatives for the External Community (Road
Safety pp.183-184, Solidarity pp.186-187)
Target:
>>
Car products: -20% average rolling resistance, +15% on wet
surfaces, 15% noise (vs 2009)
>>
Moto products: -10% average rolling resistance, +40% performance
on wet surfaces, +30% for mileage (vs 2009)
>>
Velo: +5% braking performance, +10% wet surfaces (vs 2017)
Energy Management (pp.143-144)
Management of Greenhouse Gas Emissions and
Carbon Action Plan (pp.145-147)
Water Management (pp.147-148)
Waste Management (pp.149-150)
12 - Responsible Consumption and Production
Company Initiatives for the External Community (Training pp.185-186)
Targets:
> Specific Energy Consumption: -19% by 2020 compared to 2009
> Specific CO2 Emissions: -17% in 2020 compared to 2009
> Water Specific Withdrawal: -66% by 2020 compared to 2009
> Waste Recovery: >95% by 2020
ANNUAL REPORT 2017ANNUAL REPORT 2017 CertificationsCertifications CORRELATION TABLE WITH TOPICS LISTED IN ART. 2, D. LGS 254/2016
Topics from D. Lgs 254/2016
Reference Paragraph
Page Number
Enviromental
Aspects
Use of Energy Resources (from
renewables and non-renewables)
Use of Water Resources
> Risks Related To
Environmental Issues
> Energy Management
> Risks Related To
Environmental Issues
> Water Management
Greenhouse Gas Emissions and
Air-Polluting Emissions
Health and Safety
Training and Development
Welfare
> Risks Related To Climate Change
> Management Of Greenhouse Gas
Emissions and Carbon Action Plan
> Solvents
> NOx Emissions
> Other Emissions and
Environmental Aspects
> Employee Health and Safety Risks
> Health, Safety and Hygiene at Work
> Risks associated with
Human Resources
> Development
> Training
> Welfare and Initiatives for
the Internal Community
> Litigations Risks
82, 143-144
82, 147-148
81, 145-147, 150-152
83, 173-178
82, 165-169
169-171
Social Aspects
Dialogue with Employees
> Listening: Group Opinion Survey
83, 169, 171
5
1
0
Actions for Gender Equality
Respect for Human Rights:
Measures Taken and Prevention
Governance
Aspects
Fight against Active and
Passive Corruption
> Industrial Relations
> Diversity Management
> Sustainability and
Diversity Policies
> Risks in term of Corporate
Social and Environmental
Responsibility, Business Ethics,
and Third-Party Audits
> Human Rights Governance
> Diversity Management
> Risks in term of Corporate
Social and Environmental
Responsibility, Business Ethics,
and Third-Party Audits
> Programs of Compliance 231, Anti-
corruption, Privacy and Antitrust
159-163, 204
84, 153-154, 159-163
84, 108-109
Pirelli & C SpA
Independent auditor’s report on the consolidated
non-financial disclosure
pursuant to art. 3, paragraph 10 of Legislative Decree 254/2016 and to art. 5
of Consob Regulation 20267
for the year ended 31 December 2017
1
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1
2
Independent auditor’s report on the consolidated non-
financial disclosure
pursuant to art. 3, paragraph 10 of Legislative Decree 254/2016 and to art. 5 of Consob Regulation
20267
To the board of directors of Pirelli & C SpA
Pursuant to article 3, paragraph 10 of the Legislative Decree 254 of 30 December 2016 (the Decree)
and to article 5 of CONSOB Regulation 20267, we have performed a limited assurance engagement on
the consolidated report on responsible management of the value chain / non-financial disclosure of
Pirelli & C SpA and its subsidiaries (the Pirelli group) as of and for the year ended 31 December 2017,
in accordance with article 4 of the Decree and included in the section Report on Responsible
Management of the Value Chain of the annual report 2017 of Pirelli group, approved by the board of
directors of Pirelli & C SpA on 26 February 2018 (the NFD).
Responsibility of the directors and of the board of statutory auditors for the NFD
The directors are responsible for the preparation of the NFD in accordance with article 3 and 4 of the
Decree and with the Sustainability Reporting Standards, issued by Global Reporting Initiative in 2016
(GRI Standards), and with the process suggested in AA1000APS (AccountAbility Principles
Standards).
The directors are responsible, in accordance with the law, for the implementation of internal controls
necessary to ensure that the NFD is free from material misstatement, whether due to fraud or
unintentional errors. The directors are responsible for identifying the content of the NFD, within the
matters mentioned in article 3, paragraph 1 of the Decree, considering the activities and characteristics
of the group and to the extent necessary to ensure the understanding of the group activities, its trends,
its results and related impacts. The directors are responsible for defining the business and
organisational model of the group and, with reference to the matters identified and reported in the
NFD, for the policies adopted by the group and for the identification and management of risks
generated and/or faced by the group.
The board of statutory auditors is responsible for overseeing, in accordance with the law, the
compliance with the Decree.
Auditors’ independence and quality control
We are independent in accordance with the principles of ethics and independence disclosed in the
Code of Ethics for Professional Accountants published by the International Ethics Standards Board of
Accountants, which are based on the fundamental principles of integrity, objectivity, competence and
professional diligence, privacy and professional behaviour. Our audit firm adopts the International
Standard on Quality Control 1 (ISQC Italy 1) and, accordingly, maintains an overall quality control
system which includes processes and procedures for the compliance with ethical and professional
standard and with applicable laws and regulations.
Auditors’ responsibility
We are responsible for expressing, on the basis of the work performed, a conclusion regarding the
compliance of the NFD with the Decree, with the GRI Standards and with the process suggested in the
AA1000APS. We conducted our engagement in accordance with International Standard on Assurance
Engagements 3000 (Revised) – Assurance Engagements Other than Audits or Reviews of Historical
Financial Information (ISAE 3000 Revised), issued by the International Auditing and Assurance
Standards Board (IAASB), for limited assurance engagements. The standard requires that we plan and
perform procedures to obtain a limited assurance that the NFD does not contain material errors. The
procedures performed in a limited assurance engagement are less in scope than those performed in a
reasonable assurance engagement in accordance with ISAE 3000 Revised and, therefore, do not
provide us with a sufficient level of assurance to become aware of all significant facts and
circumstances that might be identified in a reasonable assurance engagement.
The procedures performed on the NFD are based on our professional judgement and consisted of
interviews, primarily with company personnel responsible for the preparation of the NFD, in the
analysis of documents, recalculations and other procedures aimed at obtaining evidence as
appropriate.
In particular, we have performed the following procedures:
1.
2.
3.
4.
analysis of the relevant matters reported in the NFD relating to the activities and
characteristics of the group, in order to assess the reasonableness of the selection process
used, in accordance with article 3 of the Decree, with the reporting standard adopted and
considering AA1000SES (Stakeholder Engagement Standard);
analysis and assessment of the criteria used to identify the consolidation area, to assess its
compliance with the Decree;
comparing the financial information reported in the NFD with the information reported in the
group consolidated financial statements;
understanding of the following matters:
o
o
o
business and organisational model of the group, with reference to the management of
the matters specified by article 3 of the Decree;
policies adopted by the group with reference to the matters specified by article 3 of the
Decree, actual results and related key performance indicators;
main risks, generated and/or faced by the group, with reference to the matters
specified in article 3 of the Decree.
With reference to such matters, we have carried out some validation procedures on the
information presented in the NFD and some controls as described under point 5 below;
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ANNUAL REPORT 2017ANNUAL REPORT 2017 CertificationsCertifications 5.
6.
understanding of the processes underlying the preparation, collection and management of the
qualitative and quantitative material information included in the NFD. In particular, we have
held meetings and interviews with the management of Pirelli & C SpA and with the
management of S.C. Pirelli Tyres Romania Srl, Pirelli Deutschland GmbH, Pirelli Industrie
Pneumatici Srl, Pirelli Tyre SpA e HB Servizi Srl and we have performed limited analysis and
validation procedures, to gather information about the processes and procedures for the
collection, consolidation, processing and submission of the non-financial information to the
function responsible for the preparation of the NFD;
analysis of policies and procedures in place and of the coherence of the sustainability
management model compared to ISO26000 principles, among which: governance, human
rights, relationship and work conditions, and environment.
5
1
4
b)
Moreover, for significant information, considering the activities and characteristics of the
group:
-
at a group level,
a)
with reference to the qualitative information included in the NFD, and in
particular to the business model, the policies adopted and the main risks, we
carried out interviews and obtained supporting documentation to verify its
consistency with available evidence;
with reference to quantitative information, we performed analytical
procedures and limited tests, in order to assess, on a sample basis, the
consolidation of the information;
-
for the following industrial sites Breuberg (Germany), Slatina (Romania) e Settimo
Torinese (Italy), which were selected on the basis of their activities, their contribution
to the performance indicators at consolidated level and their location, we carried out
site visits during which we met local management and gathered supporting
documentation regarding the compliance with procedures and calculation methods
used for the key performance indicators.
Conclusions
Based on the work performed, nothing has come to our attention that caused us to believe that the
NFD of the Pirelli group as of 31 December 2017 and for the year then ended has not been prepared, in
all material respects, in compliance with articles 3 and 4 of the Decree, with the GRI Standards and
with the principles of inclusivity, materiality and responsiveness of AA1000APS, as described in the
Methodological note of the Report on responsible management of the value chain.
Other aspects
With respect to the year ended 31 December 2016, Pirelli group prepared a Report on Responsible
Management of the Value Chain whose information has been included, for comparative purposes, in
the NFD. Comparative information was subject to a voluntary limited assurance review performed by
another auditor in accordance with ISAE 3000 Revised. The other auditor issued a limited assurance
report on 4 April 2017, with no exception.
Milan, 8 March 2017
Signed by
Paolo Caccini
(Partner)
Signed by
Paolo Bersani
(Partner)
This report has been translated into English from the original version, which was issued in Italian,
solely for the convenience of international readers.
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Lucio Fontana – Fonti di energia, soffitto al neon per “Italia 61”, a Torino, 1961
Photo by Agostino Osio | Image courtesy of Pirelli HangarBicocca, Milano – Copyright Fondazione Lucio Fontana
Il Canto della fabbrica, the Orchestra da Camera Italiana conducted by Maestro Salvatore Accardo.
Performance in the Packaging Department of the Pirelli Industrial Centre in Settimo Torinese, 8th September 2017
Image courtesy of Fondazione Pirelli, Milano.
Concept & Art Direction
Le Balene
Illustrations
Emiliano Ponzi
Layout
SERVIF/LAB
Printing
Grafiche Bazzi – Faenza Group Spa
Photo Credits
Tom McCarthy | Photo by Eugenie Dolberg.
-
Moshin Hamid | Photo by Jillian Edelstein.
-
Emiliano Ponzi | Photo by Emanuele Zamponi.
-
Backstage Pirelli The Cal™ 2018 | Photo by Alessandro Scotti
Image courtesy of Pirelli Archive, Milano.
-
Lucio Fontana | Fonti di energia, soffitto al neon per “Italia 61”, a Torino, 1961
Photo by Agostino Osio
Image courtesy of Pirelli HangarBicocca, Milano
Copyright Fondazione Lucio Fontana.
-
Il Canto della fabbrica,
the Orchestra da Camera Italiana conducted by Maestro Salvatore Accardo.
Performance in the Packaging Department
of the Pirelli Industrial Centre in Settimo Torinese,
8th September 2017
Image courtesy of Fondazione Pirelli, Milano.
Images courtesy of Pirelli Archive, Milano.
-
In line with Pirelli’s Green Sourcing Policy, the planning phase or this report included an
analysis of the environmental impact of the material used with the help of the supplier chosen,
which has been certified by way of an environmental management system. Thanks to this approach,
in order to carry out this project, we have used FSC® certified paper, vegetable-based inks, and
water-based paints. The final package is made out of recyclable cardboard and polypropylene.
www.pirelli.com